Exhibit 2.1
EXECUTION COPY
ASSET PURCHASE AGREEMENT
BY AND AMONG
CISCO SYSTEMS, INC.,
CAIS INTERNET, INC.,
CAIS SOFTWARE SOLUTIONS, INC.,
AND
CAIS, INC.
October 19, 2000
TABLE OF CONTENTS
Page
----
ARTICLE I PURCHASE AND SALE OF ASSETS; ASSUMPTION OF LIABILITIES 1
1.1 Purchase and Sale of the Assets...................................... 1
1.2 Assumption of Liabilities............................................ 2
1.3 Consideration........................................................ 2
1.4 Closing.............................................................. 3
1.5 Deliveries at the Closing............................................ 3
1.6 Seller Stock Option Plan............................................. 4
1.7 Allocation of Purchase Price......................................... 4
1.8 Tax Withholding...................................................... 4
1.9 Taking of Necessary Action; Further Action........................... 4
ARTICLE II REPRESENTATIONS AND WARRANTIES OF SELLER AND PARENT 5
2.1 Organization, Standing and Power; Subsidiaries....................... 5
2.2 Capital Structure.................................................... 6
2.3 Authority............................................................ 6
2.4 Financial Statements................................................. 7
2.5 Absence of Certain Changes........................................... 7
2.6 Absence of Undisclosed Liabilities................................... 8
2.7 Litigation........................................................... 8
2.8 Restrictions on Business Activities.................................. 8
2.9 Governmental Authorization........................................... 8
2.10 Title to Property and Assets; Absence of Liens....................... 9
2.11 Intellectual Property................................................ 10
2.12 Environmental Matters................................................ 12
2.13 Taxes................................................................ 13
2.14 Employee Benefit Plans............................................... 14
2.15 Certain Agreements Affected by the Acquisition....................... 16
2.16 Employee Matters..................................................... 16
2.17 Interested Party Transactions........................................ 17
2.18 Insurance............................................................ 18
2.19 Compliance With Laws................................................. 18
2.20 Minute Books......................................................... 18
2.21 Complete Copies of Materials......................................... 18
2.22 Brokers' and Finders' Fees........................................... 18
2.23 Vote Required........................................................ 18
2.24 Board Approval....................................................... 18
2.25 Inventory............................................................ 18
2.26 Accounts Receivable.................................................. 19
2.27 Customers and Suppliers.............................................. 19
2.28 Material Contracts................................................... 19
i
2.29 No Breach of Material Contracts................................... 20
2.30 Third Party Consents.............................................. 20
2.31 Material Third Party Consents..................................... 20
2.32 Export Control Laws............................................... 21
2.33 Product Releases.................................................. 21
2.34 Year 2000......................................................... 21
2.35 Returns........................................................... 22
2.36 Solvency.......................................................... 22
2.37 Representations Complete.......................................... 22
ARTICLE III REPRESENTATIONS AND WARRANTIES OF BUYER 22
3.1 Organization, Standing and Power.................................. 22
3.2 Authority......................................................... 22
3.3 SEC Documents; Financial Statements............................... 23
3.4 Broker's and Finders' Fees........................................ 24
3.5 Representations Complete.......................................... 24
ARTICLE IV CONDUCT PRIOR TO THE TIME OF CLOSING 24
4.1 Conduct of Business of Seller..................................... 24
4.2 Restriction on Conduct of Business of Seller...................... 24
4.3 No Solicitation................................................... 27
ARTICLE V ADDITIONAL AGREEMENTS 27
5.1 Access to Information............................................. 27
5.2 Confidentiality................................................... 28
5.3 Public Disclosure................................................. 28
5.4 Consents; Cooperation............................................. 28
5.5 Legal Requirements................................................ 29
5.6 Employee Benefit Plan; Assumption of Options...................... 30
5.7 Escrow Agreement.................................................. 30
5.8 Employees......................................................... 30
5.9 Expenses.......................................................... 31
5.10 Reasonable Best Efforts and Further Assurances.................... 31
5.11 Non-Competition................................................... 32
5.12 Form S-8.......................................................... 33
5.13 Listing of Additional Shares...................................... 33
5.14 Spreadsheet....................................................... 34
5.15 Bulk Sales Laws................................................... 34
5.16 Post-Closing Payments............................................. 34
5.17 Taxes............................................................. 34
5.18 COBRA............................................................. 35
5.19 Maintain Existence................................................ 35
5.20 Parent Guarantee.................................................. 35
5.21 Use of Business Names and Marks by Buyer.......................... 35
ii
5.22 License to Seller....................................................... 36
5.23 License to Buyer........................................................ 36
ARTICLE VI CONDITIONS TO THE ACQUISITION 36
6.1 Conditions to Obligations of Each Party to Effect the Acquisition....... 36
6.2 Additional Conditions to Obligations of Seller and Parent............... 37
6.3 Additional Conditions to the Obligations of Buyer....................... 38
ARTICLE VII TERMINATION, AMENDMENT AND WAIVER 39
7.2 Effect of Termination................................................... 40
7.3 Expenses and Termination Fees........................................... 40
7.4 Amendment............................................................... 41
7.5 Extension; Waiver....................................................... 41
ARTICLE VIII ESCROW AND INDEMNIFICATION 41
8.1 Escrow Fund............................................................. 41
8.2 Indemnification......................................................... 42
8.3 Damage Threshold........................................................ 43
8.4 Escrow Periods.......................................................... 43
8.5 Claims upon Escrow Fund................................................. 43
8.6 Objections to Claims.................................................... 44
8.7 Resolution of Conflicts; Arbitration.................................... 44
8.8 Third-Party Claims...................................................... 45
ARTICLE IX GENERAL PROVISIONS 45
9.1 Non-Survival at Time of Closing......................................... 45
9.2 Notices................................................................. 46
9.3 Interpretation.......................................................... 47
9.4 Counterparts............................................................ 47
9.5 Entire Agreement; Nonassignability; Parties in Interest................. 47
9.6 Severability............................................................ 48
9.7 Remedies Cumulative..................................................... 48
9.8 Governing Law........................................................... 48
9.9 Rules of Construction................................................... 48
iii
SCHEDULES
Seller Disclosure Schedule
Schedule 1.1(a) -- Assets
Schedule 1.1(b) -- Permitted Liens
Schedule 1.2 -- Excluded Liabilities
Schedule 2.2 -- Seller's Shareholders
Schedule 2.7 -- Seller Litigation
Schedule 2.10 -- Seller Real Property
Schedule 2.11 -- Seller Intellectual Property
Schedule 2.14(a) -- Seller Employee Plans
Schedule 2.16 -- Seller Employees and Consultants
Schedule 2.17 -- Interested Party Transactions
Schedule 2.18 -- Insurance
Schedule 2.25 -- Inventory
Schedule 2.28 -- Material Contracts
Schedule 2.30 -- Third Party Consents
Schedule 2.31 -- Material Third Party Contracts
Schedule 2.33 -- Product Releases
Schedule 5.6 -- Holders of Outstanding Seller Options
Schedule 5.8 -- List of Seller Employees to Execute Employment and Non-
Competition Agreements
Buyer Disclosure Schedule
EXHIBITS
Exhibit A -- Form of ▇▇▇▇ of Sale
Exhibit B-1 -- Form of Consent to Assignment of Contracts
Exhibit B-2 -- Form of Consent of CSCC
Exhibit C -- Form of Assumption of Liabilities
Exhibit D -- Form of Escrow Agreement
Exhibit E -- Confidentiality Agreement
Exhibit F -- Form of Employment and Non-Competition Agreement
Exhibit G -- Form of License Agreement
Exhibit H -- Form of Seller's Counsel Legal Opinion
iv
ASSET PURCHASE AGREEMENT
This ASSET PURCHASE AGREEMENT (this "Agreement") is made and entered
---------
into as of October 19, 2000 by and among Cisco Systems, Inc., a California
corporation ("Buyer"), CAIS Internet, Inc., a Delaware corporation ("Parent"),
----- ------
CAIS Software Solutions, Inc., a California corporation ("Seller"), and CAIS,
------
Inc., a Virginia corporation ("Affiliate").
---------
RECITALS
WHEREAS, all outstanding shares of capital stock of Seller (the
"Seller Shares") are owned by Parent;
-------------
WHEREAS, Buyer desires to acquire from Seller and Affiliate, and
Seller and Affiliate desire to sell to Buyer, all of the assets, properties and
rights of Seller and Affiliate relating to the business of creating, developing,
selling or licensing computer network products for broadband subscriber
management, including but not limited to the products for the functionality of
user provisioning, monitoring, authentication and interface, the pending patents
identified on Schedule 2.11(b)(i) to the Seller Disclosure Schedule (as defined
-------------------
in Article II hereof) and the patents identified as U.S. Patent Nos. 5,987,430
and 6,128,601 (collectively, the "Business"), but excluding all assets,
--------
properties and rights used solely in Seller's and Affiliate's existing business
of providing computer and Internet access and services to end-users in hotel and
hospitality environments, in multi-dwelling and multi-tenant environments, and
through kiosks and other publicly accessible computer terminals worldwide
(collectively, the "Existing Business"), upon the terms and subject to the
-----------------
conditions set forth in this Agreement (the "Acquisition");
-----------
WHEREAS, Parent and the Boards of Directors of Seller and Affiliate
have determined that it is in the best interests of Seller and Affiliate that
Seller and Affiliate sell all of the assets, properties and rights relating to
the Business to Buyer, upon the terms and subject to the conditions set forth in
this Agreement;
NOW, THEREFORE, in consideration of the representations, warranties,
covenants and agreements set forth herein, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto hereby agree as follows:
ARTICLE I
PURCHASE AND SALE OF ASSETS; ASSUMPTION OF LIABILITIES
------------------------------------------------------
1.1 Purchase and Sale of the Assets. Upon the terms and subject to
-------------------------------
the conditions set forth in this Agreement, each of Seller and Affiliate agrees
to sell, convey, transfer, assign and deliver to Buyer, and Buyer agrees to
purchase and acquire from each of Seller and Affiliate, on the Closing Date (as
defined in Section 1.4 hereof), all of Seller's and Affiliate's right, title and
interest in and to all of the assets, properties and rights (including all
intellectual property rights and agreements relating thereto) relating to the
Business (collectively, the "Assets"), including, without limitation, those
------
listed on Schedule 1.1(a) of the Seller
---------------
Disclosure Schedule, free and clear of any and all liens, pledges, claims,
charges, actions, suits, proceedings, security interests or other restrictions
or encumbrances of any kind ("Liens") other than Liens set forth on Schedule
----- --------
1.1(b) of the Seller Disclosure Schedules (the "Permitted Liens") and Assumed
------ ---------------
Liabilities (as defined in Section 1.2 hereof); provided, however, that "Assets"
shall not include (a) any of Parent's, Affiliate's or Seller's right, title or
interest in or to any other intellectual property, asset or business of Parent,
Affiliate or Seller that is not used or held for use in the Business, and (b)
any refunds or rebates of Taxes paid by the Seller's Group (as defined in
Section 2.13) with respect to the Business or the Assets to the extent that such
refund or rebate relates to a taxable period (or portion thereof) ending on or
before the Closing Date.
1.2 Assumption of Liabilities. Upon the terms and subject to the
-------------------------
conditions set forth in this Agreement, Buyer shall assume only the obligations
and liabilities of Seller and Affiliate relating to the Business that arose in
the ordinary course of business, including without limitation all obligations
and liabilities under the Seller Stock Option Plan (as defined in Section 1.6)
(collectively, the "Assumed Liabilities"), other than obligations and
-------------------
liabilities (a) relating to Taxes arising or accruing through the Closing Date,
including without limitation any income taxes, sales or other taxes imposed on
Seller, Affiliate or Parent as a result of the transactions contemplated hereby,
(b) relating to the Existing Business, (c) relating to any financial
obligations, liabilities or debts of any nature (matured or unmatured, fixed or
contingent) not set forth on the Seller Balance Sheet (as defined in Section 2.6
hereof), (d) arising from claims, demands, actions, or causes of action relating
to events occurring prior to the Closing Date, (e) arising from or related to
the employment by Seller of any of the individuals listed on Schedule 2.16 of
-------------
the Seller Disclosure Schedule, including without limitation any wages, vacation
benefits or pay, holiday pay, sick day pay, severance benefits or other employee
benefits, or (f) as set forth on Schedule 1.2 of the Seller Disclosure Schedule
------------
(such obligations and liabilities set forth in clauses (a), (b), (c), (d), (e)
and (f) above being referred to collectively as the "Excluded Liabilities").
--------------------
Buyer shall not assume any obligations or liabilities of Seller, Affiliate or
Parent or relating to the Business or Assets except for those obligations and
liabilities that Buyer expressly assumes pursuant to this Section 1.2, and
Seller or Affiliate shall retain those obligations and liabilities of Seller or
Affiliate or relating to the Business or Assets that are not Assumed Liabilities
and shall pay, discharge or otherwise satisfy such obligations and liabilities
so retained. Other than the Assumed Liabilities, Buyer shall not assume or
guarantee, or be responsible in any way for, and neither Buyer nor any of its
affiliates, directors, employees, stockholders or agents of Buyer shall be
deemed to have assumed or guaranteed, or to be responsible in any way for, any
obligations or liabilities of Seller or Affiliate or relating to the Business or
Assets, whether such obligations or liabilities are direct or indirect, accrued
or fixed, absolute or contingent, matured or unmatured, determined or
undetermined or otherwise.
1.3 Consideration. Upon the terms and subject to the conditions set
-------------
forth in this Agreement, Buyer agrees to pay Seller an aggregate cash purchase
price for the Assets equal to $146,784,000 (the "Purchase Price"). At the
--------------
closing of the transactions contemplated hereby (the "Closing"), $106,284,000 of
-------
the Purchase Price shall be delivered to Seller in immediately available funds
to an account designated by Seller, and $40,500,000 of the Purchase Price shall
be deposited into escrow at the Closing pursuant to Article VIII below (the
"Escrow Amount").
-------------
2
1.4 Closing. The Closing shall take place as soon as practicable (and
-------
in any event not later than two (2) business days) after the satisfaction or
waiver of each of the conditions set forth in Article VI hereof or at such other
time as the parties hereto agree (the "Closing Date"). The Closing shall take
------------
place at the offices of ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇ LLP, Two Embarcadero Place,
▇▇▇▇ ▇▇▇▇ ▇▇▇▇, ▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇, or at such other location as the
parties hereto agree.
1.5 Deliveries at the Closing. At the Closing:
-------------------------
(a) Seller and/or Parent shall deliver or cause to be delivered
to Buyer the following:
(i) a good and sufficient ▇▇▇▇ of sale for the Assets,
selling, delivering, transferring and assigning to Buyer all of Seller's and
Affiliate's right, title and interest in and to the Assets, free and clear of
any and all Liens other than Permitted Liens, in substantially the form attached
hereto as Exhibit A (the "▇▇▇▇ of Sale"), together with such assignments and
--------- ------------
other documentation reasonably requested by, and in form and substance
reasonably satisfactory to, Buyer to validly vest Buyer with all of Seller's and
Affiliate's right, title and interest in or to the Assets, free and clear of all
Liens other than Permitted Liens;
(ii) consents, in substantially the form attached hereto
as Exhibit B-1, to the assignment of the contracts listed on Schedules 2.30 and
----------- --------------
2.31 of the Seller Disclosure Schedule;
----
(iii) copies, certified by an authorized officer of Seller,
of minutes or resolutions of the board of directors and Parent, as sole
stockholder, which shall not have been rescinded or modified, unconditionally
authorizing the execution of this Agreement and the performance of the
transactions contemplated hereby;
(iv) copies, certified by an authorized officer of Parent,
of minutes or resolutions of the board of directors, which shall not have been
rescinded or modified, unconditionally authorizing the execution of this
Agreement and the performance of the transactions contemplated hereby;
(v) the Escrow Agreement, in substantially the form
attached hereto as Exhibit D (the "Escrow Agreement"), executed by each of
--------- ----------------
Seller and Parent;
(vi) documents in form and substance reasonably
satisfactory to Buyer and its counsel evidencing that the approvals and consents
specified in Sections 6.1(c) and 6.3(c) hereof have been obtained and are in
full force and effect; and
(vii) all other documents and instruments required
hereunder to be delivered by Seller to Buyer at the Closing;
(b) Buyer shall deliver or cause to be delivered to Seller the
following:
3
(i) an instrument of assumption of liabilities, in
substantially the form attached hereto as Exhibit C, by which Buyer shall assume
---------
the Assumed Liabilities as of the Closing, together with such other
documentation reasonably requested by Seller to cause Buyer to assume the
Assumed Liabilities;
(ii) the Escrow Agreement executed by Buyer; and
(iii) all other documents and instruments required
hereunder to be delivered by Buyer to Seller at the Closing;
(c) Buyer shall deposit the Escrow Amount with the Escrow Agent
in accordance with Article VIII and the Escrow Agreement.
------------
1.6 Seller Stock Option Plan. On the Closing Date, Seller's 2000
------------------------
Stock Option/Stock Issuance Plan (the "Seller Stock Option Plan"), and all
------------------------
options to purchase shares of Seller's common stock, no par value per share (the
"Seller Common Stock"), then outstanding under the Seller Stock Option Plan (the
-------------------
"Seller Options") shall be assumed by Buyer in accordance with Section 5.6
--------------
hereof.
1.7 Allocation of Purchase Price. The transaction contemplated hereby
----------------------------
is intended to be a taxable purchase of assets and not a "reorganization" within
--------------
the meaning of Section 368 of the Code. The Purchase Price shall be allocated
among the Assets and the noncompetition covenant provided for in Section 5.11
hereof in the manner reasonably determined by Buyer with Seller's consent (which
consent shall not be unreasonably withheld) using the allocation methods and
principles required by Section 1060 of the United States Internal Revenue Code
of 1986, as amended (the "Code") and the Treasury Regulations promulgated
----
thereunder. Buyer shall notify Seller within sixty (60) days after the Closing
Date of Buyer's proposed allocation of the Purchase Price. Provided that Seller
has consented to Buyer's proposed allocation, such consent not to be
unreasonably withheld, neither Buyer nor Seller shall take any position
inconsistent with such allocation, and Buyer, Seller, Affiliate and Parent agree
that any and all Tax Returns (as defined in Section 2.13 hereof) filed with any
taxing authority or other Governmental Entity (as defined in Section 2.3 hereof)
shall be consistent with that allocation.
1.8 Tax Withholding. Buyer will withhold from the Purchase Price all
---------------
applicable withholding Taxes (as defined in Section 2.13 hereof), provided that
Buyer will reduce such withholding to the extent provided by applicable law in
the event Seller provides to Buyer certificates or other documentation, in form
and substance reasonably satisfactory to Buyer, evidencing any valid exemption
from such withholding.
1.9 Taking of Necessary Action; Further Action. If, at any time after
------------------------------------------
the Closing, any further action is necessary or desirable to carry out the
purposes of this Agreement and to vest Buyer with full right, title and
possession to all assets, property, rights, privileges, powers and franchises of
Seller and Affiliate relating to the Business and to cause Buyer to assume all
Assumed Liabilities as required pursuant to the terms hereof, the officers and
directors of Seller, Affiliate, Parent and Buyer are fully authorized in the
name of their respective corporations or otherwise to take, and will take, all
such lawful and necessary action, so long as such action is not inconsistent
with this Agreement.
4
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF SELLER AND PARENT
In this Agreement, any reference to any event, change, condition or
effect being "material" with respect to any entity or group of entities means
--------
any material event, change, condition or effect related to the condition
(financial or otherwise), properties, assets (including intangible assets),
liabilities, business, operations or results of operations of such entity or
group of entities. In this Agreement, any reference to a "Material Adverse
----------------
Effect" with respect to any entity or group of entities or with respect to the
------
Business means any event, change or effect that is materially adverse to the
condition (financial or otherwise), properties, assets, liabilities, business,
operations or results of operations of such entity and its subsidiaries, taken
as a whole, or of the Business, as the case may be; provided that none of the
following shall be deemed by itself or themselves, either alone or in
combination with another so listed, to constitute a Material Adverse Effect on
such entity: (a) any change in the market price or trading volume of such
entity; and (b) any change arising out of conditions affecting the economy or
industry of such entity in general.
In this Agreement, any reference to a party's "knowledge" means actual
---------
knowledge of such party's executive officers and directors provided that such
persons shall have made reasonable inquiry of those employees of such party whom
such officers and directors reasonably believe would have actual knowledge of
the matters represented.
Except as disclosed in a document of even date herewith delivered by
Seller to Buyer prior to the execution and delivery of this Agreement and
referring to the specific representations and warranties in this Agreement to
which each exception relates or as disclosed in another section if it is
reasonably apparent on the face of the disclosure that it is applicable to
another section of the Agreement (the "Seller Disclosure Schedule"), Seller and
--------------------------
Parent jointly and severally represent and warrant to Buyer as follows:
2.1 Organization, Standing and Power; Subsidiaries. Each of Parent,
----------------------------------------------
Affiliate and Seller is a corporation duly organized, validly existing and in
good standing under the laws of its jurisdiction of organization. Each of
Parent, Affiliate and Seller has the corporate power to own its properties and
to carry on its business as now being conducted and as currently proposed to be
conducted and is duly qualified to do business and is in good standing in each
jurisdiction in which it is required to be so qualified. Each of Seller and
Parent has delivered a true and correct copy of its Certificate of
Incorporation, Bylaws or other charter or organizational documents, as
applicable, each as amended to date, to Buyer. Neither Parent nor Seller is in
violation of any of the provisions of its Certificate of Incorporation, Bylaws
or equivalent charter or organizational documents. Seller does not directly or
indirectly own any equity or similar interest in, or any interest convertible or
exchangeable or exercisable for, any equity or similar interest in, any
corporation, partnership, joint venture or other business association or entity.
Parent is the sole shareholder of Seller.
5
2.2 Capital Structure.
-----------------
(a) There are no outstanding commitments to issue any shares of
capital stock or voting securities of Seller other than pursuant to the exercise
of 391,200 options outstanding under the Seller Stock Option Plan. Attached to
or as set forth in Schedule 2.2 of the Seller Disclosure Schedule is a true and
------------
complete list of Seller's stockholders and any persons with rights to acquire
Seller's securities, which list will be promptly updated from time to time prior
to Closing to reflect any changes thereto (which changes are in any event
subject to the restrictions imposed under Section 4.2 below). There are no
subscriptions, options, warrants, exchangeable or convertible securities or
other calls, rights, commitments or agreements of any character to which Seller
is a party or by which it is bound or otherwise obligating Parent or Seller to
issue, transfer, deliver, sell, repurchase or redeem, or cause to be issued,
transferred, delivered, sold, repurchased or redeemed, any shares of capital
stock or voting securities of Seller or obligating Seller to grant, extend,
accelerate the vesting of, change the price of, or otherwise amend or enter into
any such subscription, option, warrant, exchangeable or convertible security or
other call, right, commitment or agreement. There are no contracts, commitments,
voting trusts or agreements relating to voting, purchase or sale of Seller's
capital stock (i) between or among Seller and any of its securityholders, and
(ii) to Seller's knowledge, between or among any of Seller's securityholders.
The terms of the Seller Stock Option Plan and the applicable stock option
agreements permit the assumption or substitution of options to purchase shares
of Buyer's common stock, par value $0.001 per share ("Buyer Common Stock"), as
------------------
provided in this Agreement, without the consent or approval of the holders of
such securities, the Seller securityholders or otherwise, and all outstanding
options shall, to the extent necessary to waive vesting acceleration, be amended
to modify the exercise schedule and vesting provisions in effect for those
options so as to preclude any accelerated vesting or exercisability of those
options by reason of the transactions contemplated by this Agreement. True and
complete copies of all agreements and instruments relating to or issued under
the Seller Stock Option Plan have been provided to Buyer and such agreements and
instruments have not been amended, modified or supplemented, and there are no
agreements to amend, modify or supplement such agreements or instruments in any
case from the form provided to Buyer. All outstanding shares of capital stock
and other voting securities of Seller were issued in compliance with all
applicable laws.
(b) Each of the Seller stockholders and/or optionholders is the
registered and beneficial owner of that number of Seller Shares and/or Seller
Options set forth opposite its name in the Spreadsheet (as defined in Section
5.14 hereof). The number of Seller Shares and/or Seller Options set forth
opposite such person's name in the Spreadsheet constitutes the entire interest
of such person in the outstanding capital stock or voting securities of Seller.
No other person or entity not disclosed in the Spreadsheet has a beneficial
interest in or a right to acquire any Seller capital stock or Seller Options. In
addition, the shares of Seller capital stock and/or Seller Options disclosed in
the Spreadsheet are and will, at all times during the term of this Agreement and
through and including the Closing, be free and clear of any Liens.
2.3 Authority. Each of Parent, Affiliate and Seller has all requisite
---------
corporate power and authority to enter into this Agreement and to consummate the
transactions contemplated hereby including without limitation, the execution and
delivery of this Agreement, general conveyances, bills of sale, assignments, and
other documents and instruments evidencing
6
the sale of the Assets to Buyer. 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, Affiliate
and Seller. No approval by the stockholders of Parent is required for the
execution or delivery of this Agreement or the consummation of the transactions
contemplated hereby. This Agreement has been duly executed and delivered by
Parent, Affiliate and Seller and constitutes the valid and binding obligation of
Parent, Affiliate and Seller enforceable against Parent, Affiliate and Seller in
accordance with its terms, except that such enforceability may be limited by
bankruptcy, insolvency, moratorium or other similar laws affecting or relating
to creditors' rights generally, and is subject to general principles of equity.
The execution and delivery of this Agreement by each of Parent, Affiliate and
Seller do not, and 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 (i) any provision of the Certificate of Incorporation, Bylaws or
other organizational documents of Parent, Affiliate or Seller, each as amended,
or (ii) any mortgage, indenture, lease, contract or other agreement or material
instrument, material permit, concession, franchise, license, judgment, order,
decree, statute, law, ordinance, rule or regulation applicable to Seller or any
of its properties or assets. No consent, approval, order or authorization of, or
registration, declaration or filing with, any court, administrative agency or
commission or other governmental authority or instrumentality ("Governmental
------------
Entity") is required by or with respect to Parent, Affiliate or Seller in
------
connection with the execution and delivery of this Agreement or the consummation
of the transactions contemplated hereby, except for (1) such filings as may be
required under the ▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇ Antitrust Improvements Act of 1976, as
amended ("HSR"), and (2) such other consents, authorizations, filings, approvals
and registrations which, if not obtained or made, would not have a Material
Adverse Effect on the Business and would not prevent or materially alter or
delay any of the transactions contemplated by this Agreement.
2.4 Financial Statements. Seller has delivered to Buyer Parent's
--------------------
audited financial statements as at and for the twelve-month period ended
December 31, 1999 and Seller's unaudited financial statements as at and for the
eight-month period ended August 31, 2000 (such financial statements to include a
balance sheet, statement of operations and statement of cash flows)
(collectively, the "Financial Statements"). The Financial Statements have been
--------------------
prepared in accordance with generally accepted accounting principles (except
that the unaudited financial statements do not have notes thereto) applied on a
consistent basis throughout the periods indicated and with each other. The
Financial Statements fairly present the financial condition and operating
results of Seller as of the dates, and for the periods, indicated therein,
subject to normal year-end audit adjustments. Each of Parent and Seller
maintains and will continue to maintain an adequate system of internal controls
established and administered in accordance with generally accepted accounting
principles.
2.5 Absence of Certain Changes. Since August 31, 2000 (the "Seller
-------------------------- ------
Balance Sheet Date"), each of Affiliate and Seller has conducted the Business in
------------------
the ordinary course consistent with past practice and there has not occurred:
(i) any change, event or condition (whether or not covered by insurance) that
has resulted in, or might reasonably be expected to result in, a Material
Adverse Effect on Seller or the Business; (ii) any acquisition, sale or transfer
of any material asset of Seller or any Assets of Affiliate; (iii) any change in
accounting methods or practices (including any change in depreciation or
amortization policies or rates) by Parent or
7
Seller or any revaluation by Parent, Affiliate or Seller of any of the Assets;
(iv) any declaration, setting aside, or payment of a dividend (except cash
dividends consistent with past practice) or other distribution with respect to
the shares of Seller, or any direct or indirect redemption, purchase or other
acquisition by Seller of any of its shares of capital stock; (v) any material
contract entered into by Seller, or any material amendment or termination of, or
default under, any material contract to which Seller is a party or by which it
is bound; (vi) any amendment or change to the Certificate of Incorporation or
Bylaws or other charter or organizational documents of Seller; (vii) any
increase in or modification of the compensation or benefits payable or to become
payable by Seller to any of its directors or employees; (viii) any change of any
Tax election or settlement or compromise of any material federal, state or local
Tax liability; (ix) any negotiation or agreement by Seller to do any of the
things described in the preceding clauses (i) through (viii) (other than
negotiations with Buyer and its representatives regarding the transactions
contemplated by this Agreement) or (x) any other event or condition of any
character which has resulted in, or might reasonably be expected to result in, a
Material Adverse Effect on the Business.
2.6 Absence of Undisclosed Liabilities. Neither Affiliate nor Seller
----------------------------------
has any material obligations or liabilities of any nature (matured or unmatured,
fixed or contingent) relating to the Business other than (i) those set forth or
adequately provided for in the Balance Sheet included in the Financial
Statements as of August 31, 2000 (the "Seller Balance Sheet"), (ii) those
--------------------
incurred in the ordinary course of business and not required to be set forth in
the Seller Balance Sheet under generally accepted accounting principles, (iii)
those incurred in the ordinary course of business since the Seller Balance Sheet
Date and consistent with past practice; and (iv) those incurred in connection
with the execution of this Agreement.
2.7 Litigation. There is no private or governmental action, suit,
----------
proceeding, claim, arbitration or investigation relating to the Business pending
before any agency, court or tribunal, foreign or domestic by or against Parent,
Affiliate or Seller or, to the knowledge of Parent or Seller, threatened by or
against Parent, Affiliate or Seller, or relating to any of Seller's properties
or any of its officers or directors (in their capacities as such). There is no
judgment, decree or order against Parent, Affiliate or Seller or any of their
respective directors or officers (in their capacities as such), that could
reasonably be expected to prevent, enjoin, or materially alter or delay any of
the transactions contemplated by this Agreement, or that could reasonably be
expected to have a Material Adverse Effect on the Business. Schedule 2.7 of the
------------
Seller Disclosure Schedule lists all litigation that Parent, Affiliate or Seller
has pending against other parties in connection with the Business.
2.8 Restrictions on Business Activities. There is no agreement,
-----------------------------------
judgment, injunction, order or decree binding upon Parent, Affiliate or Seller
that has or could reasonably be expected to have the effect of prohibiting or
impairing the conduct of the Business as currently conducted.
2.9 Governmental Authorization. Parent, Affiliate and Seller have
--------------------------
obtained each federal, local or foreign governmental consent, license, permit,
grant, or other authorization of a Governmental Entity (i) pursuant to which
Affiliate or Seller currently operates, or Parent, Affiliate or Seller holds any
interest in, the Business or (ii) that is required for the operation of the
Business or the holding of any such interest in the Business ((i) and (ii)
herein collectively
8
called the "Seller Authorizations"), and all of the Seller Authorizations are in
---------------------
full force and effect, except where the failure to obtain or have any of the
Seller Authorizations could not reasonably be expected to have a Material
Adverse Effect on the Business. Each of the Seller Authorizations is assignable
or otherwise transferable to Buyer in connection with the transactions
contemplated hereby, without the consent or approval of any Governmental Entity
or other third party, except where such failure could not reasonably be expected
to have a Material Adverse Effect on the Business.
2.10 Title to Property and Assets; Absence of Liens. Notwithstanding
----------------------------------------------
anything herein to the contrary, this Section 2.10 shall not be applicable to
Intellectual Property Rights, which shall be covered solely by Section 2.11.
(a) Seller has good and marketable title to the Assets,
reflected in the Seller Balance Sheet or acquired after the Seller Balance Sheet
Date (except properties, interests in properties and assets sold or otherwise
disposed of since the Seller Balance Sheet Date in the ordinary course of
business), or with respect to leased properties and assets, valid leasehold
interests in, free and clear of all mortgages or Liens of any kind or character,
except (i) the lien of current taxes not yet due and payable, (ii) such
imperfections of title, Liens and easements as do not and will not materially
detract from or interfere with the use of the properties subject thereto or
affected thereby, or otherwise materially impair business operations involving
such properties and (iii) Liens securing debt which is reflected on the Seller
Balance Sheet. All properties used in the operations of Seller are reflected in
the Seller Balance Sheet to the extent generally accepted accounting principles
require the same to be reflected. Schedule 2.10 of the Seller Disclosure
-------------
Schedule identifies each parcel of real property owned or leased by Seller or
used in the operation of the Business or where any Assets are located, the name
of the lessor, the date of the lease and each amendment thereto and the
aggregate annual rental and other fees payable under such lease. Such leases are
in good standing, are binding, valid and enforceable in accordance with their
respective terms, and there is not under any such leases any existing default or
event of default (or event which with or without the giving of notice or lapse
of time would constitute such a default). After the Closing Date, Buyer will be
entitled to the continued possession and use of the personal property leased by
Seller, for the terms specified in such leases and for the purposes consistent
with the past practices of Seller.
(b) Schedule 1.1(a) of the Seller Disclosure Schedule sets forth
---------------
a list of all of the Assets. Seller has good and marketable title to all of the
Assets owned by it, and valid, enforceable and unrestricted rights to use all
Assets held by it under leases, licenses and contracts, free and clear of any
Liens other than Permitted Liens. Affiliate has good and marketable title to all
of the Assets owned by it, and valid, enforceable and unrestricted rights to use
all Assets held by it under leases, licenses and contracts, free and clear of
any Liens other than Permitted Liens. Seller has full right and power to sell,
convey, assign, transfer and deliver to Buyer, and by virtue of the deliveries
made at Closing, Buyer will obtain from Seller, good and marketable title to all
of the Assets, other than the Assets held by Affiliate, free and clear of any
and all Liens, except for (i) Permitted Liens and Assumed Liabilities and (ii)
statutory liens for taxes not yet due (none of which statutory liens shall be
the obligation of Buyer). Affiliate has full right and power to sell, convey,
assign, transfer and deliver to Buyer, and by virtue of the deliveries made at
Closing, Buyer will obtain from Affiliate, good and marketable title to all of
the Assets, other than the Assets held by Seller, free and clear of any and all
Liens, except for (i)
9
Permitted Liens and Assumed Liabilities and (ii) statutory liens for taxes not
yet due (none of which statutory liens shall be the obligation of Buyer). The
Assets are not subject to any preemptive right, right of first refusal or other
right or restriction, are in good operating condition and repair, reasonable
wear and tear excepted, and are suitable and adequate for the purposes for which
such Assets are currently used or held for use, and conform in all material
respects to all applicable laws. The Assets held by Seller and Affiliate, taken
as a whole, constitute all of the properties, rights and assets relating to or
used or held for use in connection with the Business during the past twelve (12)
months (except inventory sold, cash disposed of, accounts receivable collected,
prepaid expenses realized, contracts fully performed, properties or assets
replaced by equivalent or superior properties or assets, in each case in the
ordinary course of business, and employees not hired by Buyer) and comprise all
of the properties, rights and assets that will be required for Buyer to hold
after the Closing in order to conduct the Business as currently conducted.
2.11 Intellectual Property.
---------------------
(a) Seller and Affiliate own, or are licensed or otherwise
possess legally enforceable rights to use, all patents, trademarks, trade names,
service marks, copyrights, and any applications therefor, maskworks, net lists,
schematics, technology, know-how, trade secrets, inventions, ideas, algorithms,
processes, computer software programs or applications (in source code and/or
object code form), and tangible or intangible proprietary information or
material that are used in the Business (the "Intellectual Property"). Except as
---------------------
provided in Schedule 2.11(a) of the Seller Disclosure Schedule, none of Seller,
----------------
Parent or Affiliate has (i) licensed any of the Intellectual Property in source
code form to any party or (ii) entered into any exclusive agreements relating to
its Intellectual Property with any party.
(b) Schedule 2.11(b) of the Seller Disclosure Schedule lists (i)
----------------
all patents and patent applications and all registered and unregistered
trademarks, trade names and service marks, registered and unregistered
copyrights, registered domain names, and maskworks, included in the Intellectual
Property, including the jurisdictions in which each such Intellectual Property
right has been issued or registered or in which any application for such
issuance and registration has been filed, (ii) all licenses, sublicenses and
other agreements as to which Seller is a party and pursuant to which any person
is authorized to use any Intellectual Property, and (iii) all licenses,
sublicenses and other agreements to which Seller is a party and pursuant to
which Seller is authorized to use any third party patents, trademarks or
copyrights, including software (except for commercially available, "off the
-------
shelf" third party software licensed to Seller for an aggregate licensing fee of
-----
less than $10,000) in the Business ("Third Party Intellectual Property Rights");
----------------------------------------
(c) There is no unauthorized use, disclosure, infringement or
misappropriation of any Intellectual Property rights of Seller or Affiliate by
any third party, including any employee or former employee of Seller. There is
no unauthorized use, disclosure, infringement or misappropriation of any Third
Party Intellectual Property Rights by Seller, Affiliate, Parent or any employee
or former employee of Seller, Parent or Affiliate. Except as provided in
Schedule 2.11(c) of the Seller Disclosure Schedule, Seller, Parent and Affiliate
----------------
have not entered into any agreement to indemnify any other person against any
charge of infringement
10
of any Intellectual Property, other than indemnification provisions contained in
purchase orders or license agreements arising in the ordinary course of
business.
(d) Seller and Affiliate are not, nor will be as a result of the
execution or delivery of this Agreement or the performance of Seller's
obligations under this Agreement, in breach of any written license, sublicense
or other agreement relating to the Intellectual Property or Third Party
Intellectual Property Rights to which either Seller or Affiliate is a party.
(e) All patents, registered trademarks, service marks and copyrights
included in Intellectual Property are subsisting, and, to the best of the
knowledge of Seller and Affiliate, are valid. Neither Seller nor Affiliate (i)
except as provided in Schedule 2.11(e)(i) of the Seller Disclosure Schedule, has
-------------------
been a party to any suit, action or proceeding which involves a claim of
infringement of any patents, trademarks, service marks, copyrights or violation
of any trade secret or other proprietary right of any third party, or which
seeks a judgment, decision, or an order holding any part of the Intellectual
Property that is used or held for use in the Business invalid, unenforceable,
not infringed by a third party, or not owned by Seller or Affiliate; (ii) has
any knowledge that the manufacturing, marketing, licensing or sale of its
products infringes any patent, trademark, service ▇▇▇▇, copyright, trade secret
or other proprietary right of any third party and (iii) except as provided in
Schedule 2.11(e)(iii) of the Seller Disclosure Schedule, has brought any action,
---------------------
suit or proceeding for infringement of Intellectual Property or breach of any
license or agreement involving Intellectual Property against any third party.
(f) Seller and Affiliate have secured valid written assignments from
all consultants and employees who, to the knowledge of Seller, contributed to
the creation or development of Intellectual Property of the rights to such
contributions that Seller and Affiliate do not already own by operation of law.
(g) Seller and Affiliate have taken efforts that are reasonable under
the circumstances to protect and preserve the confidentiality of all
Intellectual Property not otherwise protected by patents, patent applications or
copyright ("Confidential Information"). All use, disclosure or appropriation
------------------------
known to Seller of Confidential Information owned by Seller by or to a third
party has been pursuant to the terms of a written agreement between Seller or
Affiliate and such third party. All use, disclosure or appropriation of
Confidential Information not owned by Seller has been pursuant to the terms of a
written agreement between Seller or Affiliate and the owner of such Confidential
Information, or is otherwise lawful.
(h) Except as provided in Schedule 2.11(h) of the Seller Disclosure
----------------
Schedule, as of the date of signing, there are no actions that must be taken by
Parent, Affiliate or Seller within one hundred eighty (180) days following the
date of this Agreement that, if not taken, will result in the loss of any
Intellectual Property, including the payment of any registration, maintenance or
renewal fees or the filing of any responses, documents, applications or
certificates for the purposes of obtaining, maintaining, perfecting or
preserving or renewing any Intellectual Property.
(i) Except as provided in Schedule 2.11(i) of the Seller Disclosure
----------------
Schedule, all of the rights and interests possessed by Seller in the
Intellectual Property are fully and completely transferable to Buyer in
connection with the transactions contemplated hereby, without the consent or
approval of any Governmental Entity or other third party.
11
(j) None of U.S. Patent Nos. 5.010,399, 5,949,473, 5,929,896 or
5,844,596 (the "Excluded Patents"), which Excluded Patents are held by
----------------
Affiliate, have claims that are or would be infringed by the Business as
currently conducted or currently proposed by Seller to be conducted or are
required in order for Buyer to conduct the Business as currently conducted or as
currently proposed by Seller to be conducted.
2.12 Environmental Matters.
---------------------
(a) The following terms shall be defined as follows:
(i) "Environmental and Safety Laws" shall mean any
-----------------------------
federal, state or local laws, ordinances, codes, regulations, rules, policies
and orders that are intended to assure the protection of the environment, or
that classify, regulate, call for the remediation of, require reporting with
respect to, or list or define air, water, groundwater, solid waste, hazardous or
toxic substances, materials, wastes, pollutants or contaminants, or which are
intended to assure the safety of employees, workers or other persons, including
the public.
(ii) "Hazardous Materials" shall mean any toxic or
-------------------
hazardous substance, material or waste or any pollutant or contaminant, or
infectious or radioactive substance or material, including without limitation,
those substances, materials and wastes defined in or regulated under any
Environmental and Safety Laws.
(iii) "Property" shall mean all real property leased or
--------
owned by Seller either currently or in the past.
(iv) "Facilities" shall mean all buildings and improvements
----------
on the Property of Seller.
(b) Seller represents and warrants as follows: (i) to Seller's
knowledge, no methylene chloride or asbestos is contained in or has been used at
or released from the Facilities; (ii) to Seller's knowledge, all Hazardous
Materials and wastes have been disposed of in accordance with all Environmental
and Safety Laws; and (iii) Seller has received no notice (verbal or written) of
any noncompliance of the Facilities or its past or present operations with
Environmental and Safety Laws; (iv) no notices, administrative actions or suits
are pending or threatened relating to a violation of any Environmental and
Safety Laws; (v) Seller is not a potentially responsible party under the federal
Comprehensive Environmental Response, Compensation and Liability Act (CERCLA),
or state analog statute, arising out of events occurring prior to the Closing
Date; (vi) to Seller's knowledge, there have not been in the past, and are not
now, any Hazardous Materials on, under or migrating to or from the Facilities or
Property; (vii) there have not been in the past, and are not now, any
underground tanks or underground improvements at, on or under the Property
including without limitation, treatment or storage tanks, sumps, or water, gas
or oil ▇▇▇▇▇; (viii) there are no polychlorinated biphenyls (PCBs) deposited,
stored, disposed of or located on the Property or Facilities or any equipment on
the Property containing PCBs at levels in excess of 50 parts per million; (ix)
there is no formaldehyde on the Property or in the Facilities, nor any
insulating material containing urea formaldehyde in the Facilities; (x) the
Facilities and Seller's activities therein have at all times complied in all
material respects with all Environmental and Safety Laws; and (xi) Seller has
all
12
the material permits and licenses required to be issued under federal, state or
local laws regarding Environmental and Safety Laws and is in full compliance in
all material respects with the terms and conditions of those permits.
2.13 Taxes.
-----
(a) Parent, Seller and any consolidated, combined, unitary or
aggregate group for Tax purposes of which Parent or Seller is or has been a
member (collectively, the "Seller's Group"), have duly and properly completed
--------------
and timely filed all Tax Returns required to be filed by them on or prior to the
due date thereof. All material Taxes due or payable by any of them, whether or
not disputed, have been paid in full. The Seller Balance Sheet reflects all
Taxes of Parent, Seller and each Subsidiary for the periods or portions of
periods through the Seller Balance Sheet Date. None of Seller, Parent or any
Subsidiary has or will have at Closing any material liability for unpaid Taxes
accruing after the Seller Balance Sheet Date, except for Taxes incurred in the
ordinary course of business. Neither Seller nor Parent expects any Tax Authority
to assess any additional material Taxes with respect to the Business for any
period for which Tax returns have been filed. There is (i) no lien for Taxes
against the Assets, other than liens for Taxes not yet due and payable, (ii) no
audit of any Tax Return of Seller's Group being conducted by a Tax Authority;
and (iii) no material outstanding or unresolved dispute or claim concerning any
Tax liability of Seller either claimed or raised by a Tax Authority in writing
or as to which Seller or Parent has knowledge. No claim has ever been made to
any member of Seller's Group by a Tax Authority in a jurisdiction where any
member of Seller's Group does not file Tax returns that it is or may be subject
to taxation by that jurisdiction.
(b) Each member of Seller's Group has withheld and paid all
material Taxes required by law to be withheld and paid by such member with
respect to any amounts paid to any employee, independent contractor, creditor,
stockholder, or other third party in connection with the Business or the Assets.
Each such member has paid to the appropriate tax authorities all amounts so
withheld or otherwise due in connection with the employment by such member of
such service providers, and have timely filed all requisite returns with the tax
authorities with respect to said taxes. No member of Seller's Group is a party
to any tax proceedings with respect to the withholding of taxes from such
service providers and/or payment to the tax authorities of withholding taxes or
other dues with respect to their rendering of services to such member. No member
of Seller's Group has been notified that any investigation is being conducted
against any member of Seller's Group by any tax authority with respect to any of
the above withholding, payment, filing or any other obligations in connection
with the above. Seller shall not recover or attempt to recover from any of such
service providers any taxes asserted against Seller and/or collected from it
whether prior, upon or after the Closing.
(c) There is no contract, agreement, plan or arrangement,
including but not limited to the provisions of this Agreement, covering any
employee or independent contractor or former employee or independent contractor
of Seller that, individually or collectively, could give rise to the payment by
Seller of any amount that would not be deductible pursuant to Section 280G or
Section 162(m) of the Code. None of the assets (including the Assets) of Seller
(i) is property that is required to be treated as owned by any other person
pursuant to the so-called "safe harbor lease" provisions of former Section
-----------------
168(f)(8) of the Code,
13
(ii) directly or indirectly secures any debt the interest on which is tax exempt
under Section 103(a) of the Code or (iii) is "tax-exempt use property" within
-----------------------
the meaning of Section 168(h) of the Code.
(d) For purposes of this Agreement, the following terms have
the following meanings: "Tax" (and, with correlative meaning, "Taxes" and
--- -----
"Taxable") means (i) any net income, alternative or add-on minimum tax, gross
-------
income, gross receipts, sales, use, ad valorem, transfer, franchise, profits,
license, withholding, payroll, employment, excise, severance, stamp, occupation,
premium, property, environmental or windfall profit tax, custom duty or other
tax, governmental fee or other like assessment or charge of any kind whatsoever,
together with any interest or any penalty, addition to tax or additional amount
imposed by any governmental entity (a "Tax Authority") responsible for the
-------------
imposition of any such tax (domestic or foreign), (ii) any liability for the
payment of any amounts of the type described in (i) as a result of being a
member of an affiliated, consolidated, combined, unitary or aggregate group for
any Taxable period, and (iii) any liability for the payment of any amounts of
the type described in (i) or (ii) as a result of being a transferee of or
successor to any person or as a result of any express or implied obligation to
indemnify any other person. As used herein, "Tax Return" shall mean any return,
----------
statement, report or form (including, without limitation, estimated tax returns
and reports, withholding tax returns and reports and information returns and
reports) required to be filed with respect to Taxes.
2.14 Employee Benefit Plans.
----------------------
(a) Schedule 2.14(a) of the Seller Disclosure Schedule lists,
----------------
with respect to Seller, any of its employees, and any trade or business (whether
or not incorporated) which is treated as a single employer with Seller (an
"ERISA Affiliate") within the meaning of Section 414(b), (c), (m) or (o) of the
---------------
Code, (i) all material employee benefit plans (as defined in Section 3(3) of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA"), (ii) each
-----
loan to a non-officer employee in excess of $10,000, each loan to any officer or
director and any stock option, stock purchase, phantom stock, stock appreciation
right, supplemental retirement, severance, sabbatical, medical, dental, vision
care, disability, employee relocation, cafeteria benefit (Code Section 125) or
dependent care (Code Section 129), life insurance or accident insurance plans,
programs or arrangements, (iii) all bonus, pension, profit sharing, savings,
deferred compensation or incentive plans, programs or arrangements, (iv) other
fringe or employee benefit plans, programs or arrangements that apply to senior
management of Seller and that do not generally apply to all employees, and (v)
any current or former employment or executive compensation or severance
agreements, written or otherwise, as to which unsatisfied obligations of Seller
of greater than $10,000 remain for the benefit of, or relating to, any present
or former employee, consultant or director of Seller (together, the "Seller
------
Employee Plans").
--------------
(b) Seller has furnished or made available to Buyer a copy of
each of the Seller Employee Plans and related plan documents (including trust
documents, insurance policies or contracts, employee booklets, summary plan
descriptions and other authorizing documents, and any material employee
communications relating thereto) and has, with respect to each Seller Employee
Plan which is subject to ERISA reporting requirements, provided or made
available copies of the Form 5500 reports filed for the last three plan years.
Any Seller Employee Plan intended to be qualified under Section 401(a) of the
Code has either obtained
14
from the Internal Revenue Service a favorable determination letter as to its
qualified status under the Code, including all amendments to the Code effected
by the Tax Reform Act of 1986 and subsequent legislation, or has applied (or has
time remaining in which to apply) to the Internal Revenue Service for such a
determination letter prior to the expiration of the requisite period under
applicable Treasury Regulations or Internal Revenue Service pronouncements in
which to apply for such determination letter and to make any amendments
necessary to obtain a favorable determination or has been established under a
standardized prototype plan for which an Internal Revenue Service opinion letter
has been obtained by the plan sponsor and is valid as to the adopting employer.
Seller has also furnished or made available to Buyer the most recent Internal
Revenue Service determination or opinion letter issued with respect to each such
Seller Employee Plan, and nothing has occurred since the issuance of each such
letter which could reasonably be expected to cause the loss of the tax-qualified
status of any Seller Employee Plan subject to Code Section 401(a). Seller has
also furnished or made available to Buyer all registration statements and
prospectuses prepared in connection with each Seller Employee Plan.
(c) (i) None of the Seller Employee Plans promises or provides
retiree medical or other retiree welfare benefits to any person other than as
required under the Consolidated Omnibus Budget Reconciliation Act of 1985
("COBRA"); (ii) there has been no "prohibited transaction," as such term is
----- ----------------------
defined in Section 406 of ERISA and Section 4975 of the Code, with respect to
any Seller Employee Plan, for which a statutory or individual exemption is not
available, which could reasonably be expected to have, in the aggregate, a
Material Adverse Effect on the Business; (iii) each Seller Employee Plan has
been administered in accordance with its terms and in compliance with the
requirements prescribed by any and all statutes, rules and regulations
(including ERISA and the Code), except as would not have, in the aggregate, a
Material Adverse Effect on the Business, and Seller and, to the knowledge of
Seller, each ERISA Affiliate have performed all obligations required to be
performed by them under, are not in any material respect in default under or
violation of, and have no knowledge of any material default or violation by any
other party to, any of the Seller Employee Plans; (iv) neither Seller nor, to
the knowledge of Seller, any ERISA Affiliate is subject to any liability or
penalty under Sections 4976 through 4980 of the Code or Title I of ERISA with
respect to any of the Seller Employee Plans; (v) all material contributions
required to be made by Seller or ERISA Affiliate to any Seller Employee Plan
have been made on or before their due dates and a reasonable amount has been
accrued for contributions to each Seller Employee Plan for the current plan
years; (vi) with respect to each Seller Employee Plan, no "reportable event"
----------------
within the meaning of Section 4043 of ERISA (excluding any such event for which
the thirty (30) day notice requirement has been waived under the regulations to
Section 4043 of ERISA) nor any event described in Section 4062, 4063 or 4041 of
ERISA has occurred; (vii) no Seller Employee Plan is covered by, and neither
Seller nor any ERISA Affiliate has incurred or expects to incur any liability
under Title IV of ERISA or Section 412 of the Code; and (viii) each Seller
Employee Plan can be amended, terminated or otherwise discontinued after the
Closing Date in accordance with its terms, without liability to Buyer (other
than ordinary administrative expenses typically incurred in a termination
event). With respect to each Seller Employee Plan subject to ERISA as either an
employee pension plan within the meaning of Section 3(2) of ERISA or an employee
welfare benefit plan within the meaning of Section 3(1) of ERISA, Seller has
prepared in good faith and timely filed all requisite governmental reports
(which were true and correct as of the date filed) and has properly and timely
filed and distributed or posted all notices and reports to employees required to
be filed, distributed or posted with respect to each such Seller
15
Employee Plan. No suit, administrative proceeding, action or other litigation
has been brought, or to the knowledge of Seller is threatened, against or with
respect to any such Seller Employee Plan, including any audit or inquiry by the
Internal Revenue Service or United States Department of Labor.
(d) With respect to each Seller Employee Plan, Seller has
complied with (i) the applicable health care continuation and notice provisions
of COBRA and the regulations (including proposed regulations) thereunder except
to the extent that such failure to comply would not, in the aggregate, have a
Material Adverse Effect on the Business, (ii) the applicable requirements of the
Family Medical and Leave Act of 1993 and the regulations thereunder, except to
the extent that such failure to comply would not, in the aggregate, have a
Material Adverse Effect on the Business and (iii) the applicable requirements of
the Health Insurance Portability and Accountability Act of 1996 and the
regulations (including proposed regulations) thereunder, except to the extent
that such failure to comply would not, in the aggregate, have a Material Adverse
Effect on the Business.
(e) There has been no amendment to, written interpretation or
announcement (whether or not written) by Seller or other ERISA Affiliate
relating to, or change in participation or coverage under, any Seller Employee
Plan which would materially increase the expense of maintaining such Plan above
the level of expense incurred with respect to that Plan for the most recent
fiscal year included in Seller's financial statements.
(f) Seller does not currently maintain, sponsor, participate in
or contribute to, nor has it ever maintained, established, sponsored,
participated in, or contributed to, any pension plan (within the meaning of
Section 3(2) of ERISA) which is subject to Part 3 of Subtitle B of Title I of
ERISA, Title IV of ERISA or Section 412 of the Code.
(g) Neither Seller nor any ERISA Affiliate is a party to, or
has made any contribution to or otherwise incurred any obligation under, any
"multiemployer plan" as defined in Section 3(37) of ERISA.
------------------
2.15 Certain Agreements Affected by the Acquisition. Except as set
----------------------------------------------
forth in Schedule 2.15 of the Seller Disclosure Schedule, neither the execution
-------------
and delivery of this Agreement nor the consummation of the transactions
contemplated hereby will (i) result in any payment (including, without
limitation, severance, unemployment compensation, golden parachute, bonus or
otherwise) becoming due to any director, employee or consultant of Seller, (ii)
materially increase any benefits otherwise payable by Seller or (iii) result in
the acceleration of the time of payment or vesting of any such benefits. No
payment or benefit which will or may be made by Seller, Parent or Buyer to any
Employee will be characterized as an "excess parachute payment" within the
------------------------
meaning of Section 280G(b)(1) of the Code.
2.16 Employee Matters. Solely with respect to those employees engaged
----------------
in the Business, Seller is in compliance in all material respects with all
currently applicable laws and regulations respecting employment, discrimination
in employment, terms and conditions of employment, wages, hours and occupational
safety and health and employment practices, and is not engaged in any unfair
labor practice. Solely with respect to those employees engaged in the Business,
Seller has withheld all amounts required by law or by agreement to be withheld
from the wages, salaries, and other payments to employees; and is not liable for
any arrears of wages
16
or any taxes or any penalty for failure to comply with any of the foregoing.
Solely with respect to those employees engaged in the Business, Seller is not
liable for any payment to any trust or other fund or to any governmental or
administrative authority, with respect to unemployment compensation benefits,
social security or other benefits or obligations for employees (other than
routine payments to be made in the normal course of business and consistent with
past practice). Solely with respect to those employees engaged in the Business,
there are no pending claims against Seller under any workers compensation plan
or policy or for long term disability. Solely with respect to those employees
engaged in the Business, there are no controversies pending or between Seller
and any of such employees, which controversies have or could reasonably be
expected to result in an action, suit, proceeding, claim, arbitration or
investigation before any agency, court or tribunal, foreign or domestic. Seller
is not a party to any collective bargaining agreement or other labor union
contract nor does Seller know of any activities or proceedings of any labor
union or to organize any such employees. Solely with respect to those employees
engaged in the Business, no employee of Seller is in violation of any term of
any employment contract, patent disclosure agreement, enforceable noncompetition
agreement, or any enforceable restrictive covenant to a former employer relating
to the right of any such employee to be employed by Seller because of the nature
of the Business or to the use of trade secrets or proprietary information of
others. Solely with respect to those employees engaged in the Business, no
employee of Seller has given notice to Seller, nor is Seller otherwise aware,
that any such employee intends to terminate his or her employment with Seller.
Except as disclosed in Schedule 2.16(a) of the Seller Disclosure Schedule, all
----------------
employment relationships, whether written or oral, between Seller and its
employees are "at will." Schedule 2.16(b) of the Seller Disclosure Schedule
------- ----------------
lists, under the heading "Employees," all of the employees of and, under the
---------
heading "Consultants," all of the consultants to, Seller that are engaged in the
-----------
Business and their applicable position and annual compensation as of the date
hereof and the Closing Date.
2.17 Interested Party Transactions. Schedule 2.17 of the Seller
----------------------------- -------------
Disclosure Schedule sets forth an accurate and complete list of all agreements,
contracts, arrangements, understandings, transfers of assets or liabilities or
other commitments or transactions, whether or not entered into in the ordinary
course of business consistent with past practice, to or by which Seller and any
affiliate of Seller are or have been a party or otherwise bound or affected and
that (a) are currently pending or in effect and relate to or affect the Business
or the Assets or (b) involve continuing liabilities and obligations relating to
the Business or the Assets. Each agreement, contract, arrangement,
understanding, transfer of assets or liabilities or other commitments or
transactions set forth or required to be set forth in Schedule 2.17 of the
-------------
Seller Disclosure Schedule was entered into on terms and conditions as favorable
to Seller as would have been obtainable by Seller in a comparable arm's-length
transaction with a person other than an affiliate of Seller. No stockholder,
officer, director, partner, employee or agent of Seller (i) owns, directly or
indirectly, on an individual or joint basis, any interest in (1) any Asset or
any other tangible or intangible property or asset used in or held for use in
connection with or pertaining to the Business or (2) to Seller's knowledge, any
person that is a supplier, customer or competitor of Seller; (ii) to Seller's
knowledge, serves as an officer, director or employee of any person that is a
supplier, customer or competitor of Seller; or (iii) to Seller's knowledge, has
received any loans from or is otherwise a debtor of or, or made any loans in
excess of $10,000 to or is otherwise a creditor of, Seller.
17
2.18 Insurance. Schedule 2.18 of the Seller Disclosure Schedule
--------- -------------
contains a complete and correct list of all insurance policies and bonds
maintained by Seller relating to the Assets. Seller reasonably believes that
such policies and bonds (a) provide adequate coverage for the Business and the
Assets and (b) are in full force and effect. To Seller's knowledge, there is no
material claim pending under any of such policies or bonds as to which coverage
has been questioned, denied or disputed by the underwriters of such policies or
bonds. All premiums due and payable under all such policies and bonds have been
paid, and Seller is otherwise in compliance in all material respects with the
terms of such policies and bonds. Neither Seller or Parent has any knowledge of
any threatened termination of, or material premium increase with respect to, any
of such policies.
2.19 Compliance With Laws. Each of Seller and Affiliate has complied
--------------------
with, are not in violation of, and have not received any notices of violation
with respect to, any federal, state, local or foreign statute, law or regulation
or judgment, injunction, order or decree with respect to the Business, except
for such violations or failures to comply as could not be reasonably expected to
have a Material Adverse Effect on the Business.
2.20 Minute Books. The minute books of Seller made available to Buyer
------------
contain a complete and accurate summary of all meetings of directors and
stockholders or actions by written consent since the time of incorporation of
Seller through the date of this Agreement, and reflect all transactions referred
to in such minutes accurately in all material respects.
2.21 Complete Copies of Materials. Each of Parent, Affiliate and
----------------------------
Seller has delivered or made available true and complete copies of each document
that has been requested by Buyer or its counsel in connection with their legal
and accounting review of the Business or the Assets.
2.22 Brokers' and Finders' Fees. Except for ▇▇▇▇▇▇ ▇▇▇▇▇▇▇ & Co.
--------------------------
Incorporated (whose fees shall be paid by Seller or Parent), neither Seller nor
Parent has incurred, nor will it incur, directly or indirectly, any liability
for brokerage or finders' fees or agents' commissions or investment bankers'
fees or any similar charges in connection with this Agreement or any
transactions contemplated hereby.
2.23 Vote Required. The affirmative vote of at least a majority of
-------------
Parent's board of directors is the only vote of the holders of any of Seller's
or Parent's capital stock or voting securities necessary to approve this
Agreement and the transactions contemplated hereby.
2.24 Board Approval. The Board of Directors of each of Parent,
--------------
Affiliate and Seller has approved this Agreement and the Acquisition.
2.25 Inventory. The inventories relating to the Business shown on the
---------
Financial Statements or thereafter acquired by Seller consisted of items of a
quantity and quality usable or salable in the ordinary course of business. Since
the Seller Balance Sheet Date, Seller has continued to replenish inventories
relating to the Business in a normal and customary manner consistent with past
practices. Seller has not received written or oral notice that it will
experience in the foreseeable future any difficulty in obtaining, in the desired
quantity and quality and at a reasonable price and upon reasonable terms and
conditions, the raw materials, supplies or component products required for the
manufacture, assembly or production of its
18
products relating to the Business. The values at which inventories relating to
the Business are carried reflect the inventory valuation policy of Seller, which
is consistent with its past practice and in accordance with generally accepted
accounting principles applied on a consistent basis. Since the Balance Sheet
Date, due provision was made on the books of Seller in the ordinary course of
business consistent with past practices to provide for all slow-moving,
obsolete, or unusable inventories relating to the Business to their estimated
useful or scrap values and such inventory reserves are adequate to provide for
such slow-moving, obsolete or unusable inventory and inventory shrinkage. As of
the date hereof, Seller has no inventory relating to the Business in the
distribution channel or any commitments to purchase inventory. Schedule 2.25 of
-------------
the Seller Disclosure Schedule hereto is a true and complete list of the entire
inventory of Seller relating to the Business, other than unusable or obsolete
items.
2.26 Accounts Receivable. Subject to any reserves set forth in the
-------------------
Financial Statements, the accounts receivable relating to the Business shown on
the Financial Statements represent bona fide claims against debtors for sales
and other charges, are valid receivables subject to no defenses, offsets or
counterclaims, are current and collectible, and are not subject to discount
except for normal cash and immaterial trade discounts. The amount carried for
doubtful accounts and allowances relating to the Business disclosed in the
Financial Statements was calculated in accordance with generally accepted
accounting principles and in a manner consistent with prior periods is
sufficient to provide for any losses which may be sustained on realization of
the receivables.
2.27 Customers and Suppliers. No customer of the Business that
-----------------------
individually accounted for more than one percent (1%) of Seller's consolidated
gross revenues during the twelve (12) month period preceding the date hereof,
and no supplier of the Business has canceled or otherwise terminated, or made
any written threat to Seller to cancel or otherwise terminate its relationship
with Seller relating to the Business, or has decreased materially its services
or supplies to Seller, in the case of any such supplier, or its usage of the
services or products of Seller, in the case of such customer, and, to Seller's
knowledge, no such supplier or customer intends to cancel or otherwise terminate
its relationship with Seller or to decrease materially its services or supplies
to Seller or its usage of the services or products of Seller. Seller has not
knowingly breached, so as to provide a benefit to Seller that was not intended
by the parties, any agreement with, or engaged in any fraudulent conduct with
respect to, any customer or supplier of the Business.
2.28 Material Contracts. Except for the contracts and agreements
------------------
described in Schedule 2.28 of the Seller Disclosure Schedule (collectively, the
-------------
"Material Contracts"), neither Seller nor Affiliate is a party to or bound by
------------------
any material contract relating to the Business or Assets, including without
limitation:
(a) any distributor, sales, advertising, agency or
manufacturer's representative contract;
(b) any continuing contract for the purchase of materials,
supplies, equipment or services involving in the case of any such contact more
than $50,000 over the life of the contract;
19
(c) any contract that expires or may be renewed at the option
of any person other than Seller so as to expire more than one year after the
date of this Agreement;
(d) any trust indenture, mortgage, promissory note, loan
agreement or other contract for the borrowing of money, any currency exchange,
commodities or other hedging arrangement or any leasing transaction of the type
required to be capitalized in accordance with generally accepted accounting
principles;
(e) any contract for capital expenditures in excess of $50,000
in the aggregate;
(f) any contract limiting the freedom of Seller to engage in
any line of business or to compete with any other Person (as that term is
defined in the Exchange Act (as defined in Section 3.4 hereof)), or any
confidentiality, secrecy or non-disclosure contract;
(g) any contract pursuant to which Seller is a lessor of any
machinery, equipment, motor vehicles, office furniture, fixtures or other
personal property;
(h) any contract with any person with whom Seller does not deal
at arm's length;
(i) any agreement of guarantee, support, indemnification,
assumption or endorsement of, or any similar commitment with respect to, the
obligations, liabilities (whether accrued, absolute, contingent or otherwise) or
indebtedness of any other Person; or
(j) any agreement between Seller and Parent or any of its
affiliates.
2.29 No Breach of Material Contracts. All Material Contracts are in
-------------------------------
written form. Each of Seller and Affiliate has performed in all material
respects all of the obligations required to be performed by it and is entitled
to all benefits under, and is not alleged in writing to be in default in respect
of any Material Contract. Each of the Material Contracts is in full force and
effect, unamended, and there exists no default or event of default or event,
occurrence, condition or act, with respect to Seller or Affiliate or to Seller's
or Affiliate's knowledge, as applicable, with respect to the other contracting
party, which, with the giving of notice, the lapse of time or the happening of
any other event or conditions, would become a material default or event of
default under any Material Contract. True, correct and complete copies of all
Material Contracts have been delivered to the Buyer.
2.30 Third Party Consents. Schedule 2.30 of the Seller Disclosure
-------------------- -------------
Schedule lists all contracts, that require a novation or consent to assignment,
as the case may be, prior to the Closing Date so that Buyer shall be made a
party in place of Seller or, solely with respect to the Business, Affiliate, or
as assignee (the "Contracts Requiring Novation or Consent to Assignment").
-----------------------------------------------------
2.31 Material Third Party Consents. Schedule 2.31 of the Seller
----------------------------- -------------
Disclosure Schedule sets forth every contract relating to the Business or the
Assets that, if no novation occurs to make Buyer a party thereto or if no
consent to assignment is obtained, would have a
20
material adverse effect on Buyer's ability to operate the Business in the same
manner as the Business was operated by Seller prior to the Closing Date.
2.32 Export Control Laws. Seller has conducted its export
-------------------
transactions relating to the Business in accordance in all material respects
with applicable provisions of all export control laws and regulations. Without
limiting the foregoing:
(a) Seller has obtained all export licenses and other approvals
required for their exports of products, software and technologies relating to
the Business from the United States;
(b) Seller is in compliance in all material respects with the
terms of all export licenses or other approvals relating to the Business;
(c) There are no pending or, to the knowledge of Seller,
threatened claims against Seller with respect to such export licenses or other
approvals;
(d) To the knowledge of Seller, there are no material actions,
conditions or circumstances pertaining to Seller's export transactions that are
reasonably likely to give rise to any future claims; and
(e) No consents or approvals for the transfer of export
licenses to Buyer are required, or such consents and approvals can be obtained
expeditiously without material cost.
2.33 Product Releases. Schedule 2.33 of the Seller Disclosure
---------------- -------------
Schedule sets forth Seller's schedule of its product releases that relate to the
Business. Seller has a good faith reasonable belief that it can achieve the
release of products on the schedule described in Schedule 2.33 of the Seller
-------------
Disclosure Schedule and is not currently aware of any change in its
circumstances or other fact that has occurred that would cause it to believe
that it will be unable to meet such release schedule.
2.34 Year 2000. None of the products and services sold, licensed,
---------
rendered, or otherwise provided by Seller in the conduct of the Business will
malfunction, will cease to function, will generate materially incorrect data or
will produce materially incorrect results and will not cause any of the above
with respect to the property or business of third parties using such products or
services when processing, providing or receiving (i) date-related data from,
into and between the Twentieth (20th) and Twenty-First (21st) centuries, or (ii)
date-related data in connection with any valid date in the Twentieth (20th) and
Twenty-First (21st) centuries, causing a Material Adverse Effect on the
Business. Seller has not made any other representations or warranties
specifically relating to the ability of any product or service sold, licensed,
rendered, or otherwise provided by Seller in the conduct of the Business to
operate without malfunction, to operate without ceasing to function, to generate
correct data or to produce correct results when processing, providing or
receiving (i) date-related data from, into and between the Twentieth (20th) and
Twenty-First (21st) centuries, and (ii) date-related data in connection with any
valid date in the Twentieth (20th) and Twenty-First (21st) centuries.
21
2.35 Returns. Seller has not had any of its products relating to the
-------
Business returned by a purchaser or user thereof, other than for minor, non-
recurring warranty problems. Seller is not aware of any (i) pending warranty
claims for such products, (ii) right to return such products, or (iii)
evaluation units returned after their evaluation period.
2.36 Solvency. Seller is, and immediately after the consummation of
--------
the transactions contemplated hereby will be, solvent. For purposes of this
Agreement, "solvent" shall mean that, on the date specified (a) the fair value
-------
of the property of Seller shall be greater than the total amount of its debts,
liabilities and obligations, whether accrued or fixed, absolute or contingent,
matured or unmatured or determined or undetermined, including without
limitation, those arising under any law, rule, judgment, decree, order,
contract, agreement, arrangement, commitment or undertaking; (b) the present
fair salable value of the Assets is not less than the amount that will be
required to pay the probable liabilities of Seller on its debts as they become
absolute and matured; (c) Seller does not intend to, and does not believe that
it will, incur debts or liabilities beyond its ability to pay as such debts and
liabilities mature; and (d) Seller is not engaged in, and is not about to be
engaged in, business or a transaction for which its property would constitute
unreasonably small capital.
2.37 Representations Complete. None of the representations or
------------------------
warranties made by Seller herein or in any Schedule hereto, including the Seller
Disclosure Schedule, or certificate furnished by Seller pursuant to this
Agreement, when all such documents are read together in their entirety, contains
or will contain at the Closing Date any untrue statement of a material fact, or
omits or will omit at the Closing Date to state any material fact necessary in
order to make the statements contained herein or therein, in the light of the
circumstances under which made, not misleading.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF BUYER
Except as disclosed in a document of even date herewith and delivered
by Buyer to Seller prior to the execution and delivery of this Agreement and
referring to the representations and warranties in this Agreement (the "Buyer
-----
Disclosure Schedule"), Buyer represents and warrants to Seller as follows:
-------------------
3.1 Organization, Standing and Power. Buyer is a corporation duly
--------------------------------
organized, validly existing and in good standing under the laws of its
jurisdiction of organization. Buyer has the corporate power to own its
properties and to carry on its business as now being conducted and as proposed
to be conducted and is duly qualified to do business and is in good standing in
each jurisdiction in which the failure to be so qualified and in good standing
would have a Material Adverse Effect on Buyer. Buyer is not in violation of any
of the provisions of its Articles of Incorporation or Bylaws or equivalent
organizational documents.
3.2 Authority. Buyer 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 Buyer. This
22
Agreement has been duly executed and delivered by Buyer and constitutes valid
and binding obligations of Buyer enforceable against Buyer in accordance with
its terms, except that such enforceability may be limited by bankruptcy,
insolvency, moratorium or other similar laws affecting or relating to creditors'
rights generally, and is subject to general principles of equity. The execution
and delivery of this Agreement do not, and 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 a benefit under (i) any provision of the Articles of Incorporation or
Bylaws of Buyer, each as amended, or (ii) any material mortgage, indenture,
lease, contract or other agreement or instrument, permit, concession, franchise,
license, judgment, order, decree, statute, law, ordinance, rule or regulation
applicable to Buyer or its properties or assets. No consent, approval, order or
authorization of, or registration, declaration or filing with, any Governmental
Entity, is required by or with respect to Buyer in connection with the execution
and delivery of this Agreement by Buyer or the consummation by Buyer of the
transactions contemplated hereby, except for (1) such filings as may be required
under HSR, (2) the filing, if any, of a current report on Form 8-K with the
Securities and Exchange Commission (the "SEC") and National Association of
---
Securities Dealers ("NASD") after the Closing Date, (3) the filing of a
----
registration statement on Form S-8 with the SEC, or other applicable form
covering the shares of Buyer Common Stock issuable pursuant to outstanding
options and rights under the Seller Stock Option Plan and assumed by Buyer, (4)
the filing with the Nasdaq National Market of a Notification Form for Listing of
Additional Shares with respect to the shares of Buyer Common Stock issuable upon
exercise of the options and rights under the Seller Stock Option Plan and
assumed by Buyer, and (5) such other consents, authorizations, filings,
approvals and registrations which, if not obtained or made, would not have a
Material Adverse Effect on Buyer and would not prevent, materially alter or
delay any of the transactions contemplated by this Agreement.
3.3 SEC Documents; Financial Statements. Buyer has made available to
-----------------------------------
Seller each statement, report, registration statement (with the prospectus in
the form filed pursuant to Rule 424(b) of the Securities Act), definitive proxy
statement, and other filing filed with the SEC by Buyer since July 31, 2000
(collectively, the "Buyer SEC Documents"). In addition, Buyer has made available
-------------------
to Seller all exhibits to the Buyer SEC Documents filed prior to the date
hereof, and will promptly make available to Seller all exhibits to any
additional Buyer SEC Documents filed prior to the Closing Date. Except as set
forth in any Buyer SEC Document, as of their respective filing dates, the Buyer
SEC Documents complied in all material respects with the requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act") and the
------------
Securities Act, and none of the Buyer SEC Documents contained any untrue
statement of a material fact or omitted to state a material fact required to be
stated therein or necessary to make the statements made therein, in light of the
circumstances in which they were made, not misleading, except to the extent
corrected by a subsequently filed Buyer SEC Document. Except as set forth in any
Buyer SEC Document, the financial statements of Buyer, including the notes
thereto, included in the Buyer SEC Documents (the "Buyer Financial Statements")
--------------------------
were complete and correct in all material respects as of their respective dates,
complied as to form in all material respects with applicable accounting
requirements and with the published rules and regulations of the SEC with
respect thereto as of their respective dates, and have been prepared in
accordance with generally accepted accounting principles applied on a basis
consistent throughout the periods indicated and consistent with each other
(except as may
23
be indicated in the notes thereto or, in the case of unaudited statements
included in Quarterly Reports on Form 10-Q, as permitted by Form 10-Q of the
SEC). The Buyer Financial Statements fairly present the consolidated financial
condition and operating results of Buyer at the dates and during the periods
indicated therein (subject, in the case of unaudited statements, to normal,
recurring year-end adjustments).
3.4 Broker's and Finders' Fees. Buyer has not incurred, nor will it
--------------------------
incur, directly or indirectly, any liability for brokerage or finders' fees or
agents' commissions or investment bankers' fees or any similar charges in
connection with this Agreement or any transactions contemplated hereby.
3.5 Representations Complete. None of the representations or
------------------------
warranties made by Buyer herein or in any Schedule hereto, including the Buyer
Disclosure Schedule, or certificate furnished by Buyer pursuant to this
Agreement, when all such documents are read together in their entirety, contains
or will contain at the Closing Date any untrue statement of a material fact, or
omits or will omit at the Closing Date to state any material fact necessary in
order to make the statements contained herein or therein, in the light of the
circumstances under which made, not misleading.
ARTICLE IV
CONDUCT PRIOR TO THE TIME OF CLOSING
4.1 Conduct of Business of Seller. During the period from the date of
-----------------------------
this Agreement and continuing until the earlier of the termination of this
Agreement or the Closing Date, Parent agrees to cause Affiliate and Seller, and
Affiliate and Seller each agree (except to the extent expressly contemplated by
this Agreement or as consented to in writing by Buyer), to carry on the Business
in the usual, regular and ordinary course in substantially the same manner as
heretofore conducted. Parent further agrees to cause Affiliate and Seller, and
Affiliate and Seller each further agree, to pay their debts and Taxes when due
subject to good faith disputes over such debts or Taxes, to pay or perform other
obligations when due, and to use commercially reasonable efforts consistent with
past practice and policies to preserve intact the Business, to keep available
the services of Seller's executive officers and key employees engaged in the
Business and to preserve Seller's relationships with customers, suppliers,
distributors, licensors, licensees of the Business, and others having dealings
with the Business, to the end that Seller's goodwill and ongoing businesses
shall be unimpaired at the Closing Date. Any material Tax Returns filed by
Parent, Affiliate or Seller during the period from the date of this Agreement or
the Closing Date shall, to the extent relating to the Business or the Assets, be
prepared on a basis consistent with the past practice of Parent, Affiliate or
Seller, as the case may be. Each of Parent, Affiliate and Seller agrees to
promptly notify Buyer of any event or occurrence known to Parent, Affiliate or
Seller and relating to the Business and not in the ordinary course of business,
and of any event that is reasonably likely to have a Material Adverse Effect on
the Business.
4.2 Restriction on Conduct of Business of Seller. During the period
--------------------------------------------
from the date of this Agreement and continuing until the earlier of the
termination of this Agreement or the Closing Date, except as set forth in the
Seller Disclosure Schedule and as expressly contemplated by this Agreement,
without the prior written consent of Buyer, Parent shall not
24
allow, cause or permit Seller to do, cause or permit any of the following;
Seller shall not do, cause or permit any of the following; and Affiliate shall
not do, cause or permit any of the actions set forth in subsections (d), (f),
(g), (h), (j), (l), (n), (q), (s), (u) or (v) of this Section 4.2:
(a) Charter Documents. Cause or permit any amendments to its
-----------------
Certificate of Incorporation or Bylaws or other charter or organizational
documents;
(b) Dividends; Changes in Capital Stock. Declare or pay any dividends
-----------------------------------
on or make any other distributions (whether in cash, stock or property) in
respect of any of Seller's capital stock (except cash distributions consistent
with past practice), or split, combine or reclassify any of its capital stock or
issue or authorize the issuance of any other securities in respect of, in lieu
of or in substitution for shares of Seller's capital stock, or repurchase or
otherwise acquire, directly or indirectly, any shares of its capital stock
except from former employees, directors and consultants in accordance with
agreements providing for the repurchase of shares in connection with any
termination of service to it;
(c) Stock Option Plans. Accelerate, amend or change the period of
------------------
exercisability or vesting of options or other rights granted under Seller's
stock plans or authorize cash payments in exchange for any options or other
rights granted under any of such plans;
(d) Material Contracts. Enter into any material contract or
------------------
commitment relating to the Business or the Assets, or violate, amend or
otherwise modify or waive any of the terms of any of Seller's Material
Contracts; provided however, that Seller shall not enter into any manufacturing
agreement or any agreement or commitment for the purchase of products or
supplies in an amount in excess of $10,000 in any one case or $25,000 in the
aggregate;
(e) Issuance of Securities. Issue, deliver or sell or authorize or
----------------------
propose the issuance, delivery or sale of, or purchase or propose the purchase
of, any shares of Seller's capital stock or securities convertible into, or
subscriptions, rights, warrants or options to acquire, or other agreements or
commitments of any character obligating it to issue any such shares or other
convertible securities, other than the issuance of shares of Seller's Common
Stock pursuant to the exercise of stock options, warrants or other rights
therefor outstanding as of the date of this Agreement;
(f) Intellectual Property. Transfer to any person or entity any
---------------------
rights to its Intellectual Property other than in the ordinary course of
business consistent with past practice;
(g) Exclusive Rights. Enter into or amend any agreements relating to
----------------
the Business pursuant to which any other party is granted exclusive marketing or
other exclusive rights of any type or scope with respect to the Business;
(h) Dispositions. Sell, lease, license or otherwise dispose of or
------------
encumber any of the Assets, except in the ordinary course of business;
25
(i) Indebtedness. Incur any indebtedness for borrowed money in excess
------------
of $10,000 or guarantee any such indebtedness or issue or sell any debt
securities or guarantee any debt securities of others;
(j) Leases. Enter into any operating lease relating to the
------
Business in excess of $20,000;
(k) Payment of Obligations. Pay, discharge or satisfy in an amount in
----------------------
excess of $10,000 in any one case or $25,000 in the aggregate, any claim,
liability or obligation (absolute, accrued, asserted or unasserted, contingent
or otherwise) arising other than in the ordinary course of business other than
the payment, discharge or satisfaction of liabilities reflected or reserved
against in the Seller Financial Statements;
(l) Capital Expenditures. Make any capital expenditures, capital
--------------------
additions or capital improvements relating to the Business except in the
ordinary course of business and consistent with past practice;
(m) Insurance. Materially reduce the amount of any insurance coverage
---------
relating to the Business or Assets provided by existing insurance policies;
(n) Termination or Waiver. Terminate or waive any right of
---------------------
substantial value relating to the Business or Assets;
(o) Employee Benefit Plans; New Hires; Pay Increases. Adopt or amend
------------------------------------------------
any employee benefit or stock purchase or option plan, except as required under
ERISA or except as necessary to maintain the qualified status of such plan under
the Code, or hire any new director level or officer level employee, or pay any
special bonus or special remuneration to any such employee or director or
increase the salaries or wage rates of its employees;
(p) Severance Arrangements. Grant any severance or termination pay
----------------------
(i) to any director or officer or (ii) to any other employee except payments
made pursuant to written agreements outstanding on the date hereof;
(q) Lawsuits. Commence a lawsuit relating to the Business or Assets
--------
other than (i) for the routine collection of bills, or (ii) in such cases where
it in good faith determines that failure to commence suit would result in the
material impairment of the Business or Assets, provided that it consults with
Buyer prior to the filing of such a suit;
(r) Acquisitions. Acquire or agree to acquire by merging or
------------
consolidating with, or by purchasing a substantial portion of the assets of, or
by any other manner, any business or any corporation, partnership, association
or other business organization or division thereof, or otherwise acquire or
agree to acquire any assets which are material, individually or in the
aggregate, to the Business;
(s) Taxes. To the extent, in each case, that such action may have an
-----
impact on the Business or the Assets, make or change any material election in
respect of Taxes, adopt or change any accounting method in respect of Taxes,
file any material Tax Return or any amendment to a material Tax Return, enter
into any closing agreement, settle any claim or
26
assesment in respect of Taxes, or consent to any extension or waiver of the
limitation period applicable to any claim or assessment in respect of Taxes;
(t) Notices. Fail to give all notices and other information required
-------
to be given to the employees of Seller, any collective bargaining unit
representing any group of employees of Seller, and any applicable government
authority under the WARN Act, the National Labor Relations Act, the Code, the
Consolidated Omnibus Budget Reconciliation Act and other applicable law in
connection with the transactions provided for in this Agreement;
(u) Revaluation. Revalue any of the Assets, including without
-----------
limitation writing down the value of inventory or writing off notes or accounts
receivable other than in the ordinary course of business; or
(v) Other. Take or agree in writing or otherwise to take, any of the
-----
actions described in Sections 4.2(a) through (u) above, or any action which
would make any of its representations or warranties contained in this Agreement
untrue or incorrect in any material respect or prevent it from performing or
cause it not to perform its covenants hereunder.
4.3 No Solicitation. Parent and Seller, and the officers, directors,
---------------
employees or other agents of Parent and Seller, will not, directly or
indirectly, (i) take any action to solicit, initiate or encourage any Takeover
Proposal (as defined in Section 7.3(e) hereof) or (ii) engage in negotiations
with, or disclose any nonpublic information relating to Seller to, or afford
access to the properties, books or records of Seller or relating to the Business
to, any person that has advised Seller that it may be considering making, or
that has made, a Takeover Proposal. Parent and Seller shall not, and shall not
permit any of their respective officers, directors, employees or other
representatives to, agree to or endorse any Takeover Proposal. Parent and Seller
will promptly notify Buyer after receipt of any Takeover Proposal or any notice
that any person is considering making a Takeover Proposal or any request for
nonpublic information relating to Seller or for access to the properties, books
or records of Seller or relating to the Business by any person that has advised
Parent or Seller that it may be considering making, or that has made, a Takeover
Proposal and will keep Buyer fully informed of the status and details of any
such Takeover Proposal notice, request or any correspondence or communications
related thereto and shall provide Buyer with a true and complete copy of such
Takeover Proposal notice or request or correspondence or communications related
thereto, if it is in writing, or a written summary thereof, if it is not in
writing.
ARTICLE V
ADDITIONAL AGREEMENTS
5.1 Access to Information.
---------------------
(a) Each of Parent and Seller shall afford Buyer and its accountants,
counsel and other representatives, reasonable access during normal business
hours during the period prior to the Closing Date to (i) all of the properties,
books, contracts, commitments and records relating to the Business or Assets,
and (ii) all other information concerning the business, properties and personnel
relating to the Business or Assets as Buyer may reasonably request.
27
Each of Parent and Seller agrees to provide to Buyer and its accountants,
counsel and other representatives copies of internal financial statements
relating to the Business promptly upon request.
(b) Subject to compliance with applicable law, from the date hereof
until the Closing Date, each of Buyer, Parent and Seller shall confer on a
regular and frequent basis with one or more representatives of the other party
to report operational matters of materiality relating to the Business and the
general status of ongoing operations relating to the Business.
(c) No information or knowledge obtained in any investigation
pursuant to this Section 5.1 shall affect or be deemed to modify any
representation or warranty contained herein or the conditions to the obligations
of the parties to consummate the Acquisition.
(d) Parent and Seller shall provide Buyer and its accountants,
counsel and other representatives reasonable access, during normal business
hours during the period prior to the Closing Date, to all of the Tax Returns (to
the extent relating to or including the Business or the Assets) and other
records and workpapers relating to Taxes of the members of Seller's Group (to
the extent relating to or including the Business or the Assets) and shall
provide the following information relating to or including the Business or the
Assets to Buyer and its representatives promptly upon any request therefor: (i)
a list of the types of Tax Returns being filed by each such member in each
Taxing jurisdiction, and (ii) a list of all material Tax elections filed in each
jurisdiction by each such member.
5.2 Confidentiality. The parties acknowledge that Buyer, Parent and Seller
---------------
have previously executed a non-disclosure agreement dated September 8, 2000 (the
"Confidentiality Agreement"), a copy of which is attached hereto as Exhibit E,
------------------------- ---------
which Confidentiality Agreement shall continue in full force and effect in
accordance with its terms.
5.3 Public Disclosure. Parent and Seller shall not issue any such press
-----------------
release or make any statement or disclosure (whether or not in response to an
inquiry) regarding the terms of this Agreement and the transactions contemplated
hereby, without the prior written approval of Buyer, except as may be required
by law or by obligations pursuant to any listing agreement with any national
securities exchange or with the NASD. Buyer shall provide the Chief Executive
Officer of Seller the opportunity to review and comment on the press release to
be issued by Buyer in connection with the Acquisition.
5.4 Consents; Cooperation.
---------------------
(a) Each of Buyer, Parent, Affiliate and Seller shall promptly apply
for or otherwise seek, and use commercially reasonable efforts to obtain, all
consents and approvals required to be obtained by it for the consummation of the
transactions contemplated hereby. Each of Parent, Affiliate and Seller shall use
its commercially reasonable efforts to obtain all necessary consents, waivers
and approvals under any of the Material Contracts in connection with the
Acquisition for the assignment thereof or otherwise. Each of Parent, Affiliate
and Seller shall use commercially reasonable efforts to obtain, on or prior to
the Closing Date, the assignment, in substantially the form attached hereto as
Exhibit B-1, of the contracts listed in
-----------
28
Schedules 2.30 and 2.31 of the Seller Disclosure Schedule. Buyer shall cause
-------------- ----
Cisco Systems Capital Corporation ("CSCC") to render its consent, in
----
substantially the form attached hereto as Exhibit B-2. The parties hereto will
-----------
consult and cooperate with one another, and consider in good faith the views of
one another, in connection with any analyses, appearances, presentations,
memoranda, briefs, arguments, opinions and proposals made or submitted by or on
behalf of any party hereto in connection with the foregoing.
(b) Each of Buyer, Parent, Affiliate and Seller shall use all
commercially reasonable efforts to resolve such objections, if any, as may be
asserted by any Governmental Entity with respect to the transactions
contemplated by this Agreement. In connection therewith, if any administrative
or judicial action or proceeding is instituted (or threatened to be instituted)
challenging any transactions contemplated by this Agreement as violative of any
applicable law, each of Buyer, Parent, Affiliate and Seller shall cooperate and
use all commercially reasonable efforts vigorously to contest and resist any
such action or proceeding and to have vacated, lifted, reversed, or overturned
any decree, judgment, injunction or other order, whether temporary, preliminary
or permanent (each an "Order"), that is in effect and that prohibits, prevents,
-----
or restricts consummation of the Acquisition or any such other transactions,
unless by mutual agreement Buyer, Parent and Seller decide that litigation is
not in their respective best interests. Notwithstanding the provisions of the
immediately preceding sentence, it is expressly understood and agreed that
neither party shall have any obligation to litigate or contest any
administrative or judicial action or proceeding or any Order beyond the earlier
of (i) sixty (60) days after the date of this Agreement or (ii) the date of a
ruling preliminarily enjoining the Acquisition issued by a court of competent
jurisdiction. Each of Buyer, Parent and Seller shall use all commercially
reasonable efforts to take such action as may be required to cause the
expiration of the notice periods under the applicable laws with respect to such
transactions as promptly as possible after the execution of this Agreement.
(c) Notwithstanding anything to the contrary in Section 5.4(a)
or (b), (i) Buyer shall not be required to divest any of its or its
subsidiaries' businesses, product lines or assets, or to take or agree to take
any other action or agree to any limitation that could reasonably be expected to
have a Material Adverse Effect on Buyer after the Closing Date and (ii) Seller
shall not be required to divest any of their respective businesses, product
lines or assets, or to take or agree to take any other action or agree to any
limitation that could reasonably be expected to have a Material Adverse Effect
on Seller.
5.5 Legal Requirements. Each of Buyer, Parent, Affiliate and Seller
------------------
will take all reasonable actions necessary to comply promptly with all legal
requirements which may be imposed on them with respect to the consummation of
the transactions contemplated by this Agreement and will promptly cooperate with
and furnish information to any party hereto necessary in connection with any
such requirements imposed upon such other party in connection with the
consummation of the transactions contemplated by this Agreement and will take
all reasonable actions necessary to obtain (and will cooperate with the other
parties hereto in obtaining) any consent, approval, order or authorization of,
or any registration, declaration or filing with, any Governmental Entity or
other person, required to be obtained or made in connection with the taking of
any action contemplated by this Agreement.
29
5.6 Employee Benefit Plan; Assumption of Options. At the Closing, the
--------------------------------------------
Seller Stock Option Plan, and each outstanding option to purchase shares of
Seller capital stock under the Seller Stock Option Plan, whether vested or
unvested, will be assumed by Buyer. Schedule 5.6 of the Seller Disclosure
------------
Schedule sets forth a true and complete list as of the date hereof of all
holders of outstanding options under the Seller Stock Option Plan including the
number of shares of Seller capital stock subject to each such option, the
exercise or vesting schedule, the exercise price per share and the term of each
such option. On the Closing Date, Seller shall deliver to Buyer an updated
Schedule 5.6 current as of such date. Each such option so assumed by Buyer under
------------
this Agreement shall continue to have, and be subject to, the same terms and
conditions set forth in the Seller Stock Option Plan and the applicable stock
option agreement immediately prior to the Closing, except that (a) such option
will be exercisable for that number of whole shares of Buyer Common Stock equal
to the product of the number of shares of Seller capital stock that were
issuable upon exercise of such option immediately prior to the Closing Date
multiplied by the Exchange Ratio (as defined in this Section 5.6) and rounded
down to the nearest whole number of shares of Buyer Common Stock, and (b) the
per share exercise price for the shares of Buyer Common Stock issuable upon
exercise of such assumed option will be equal to the quotient determined by
dividing the exercise price per share of Seller capital stock at which such
option was exercisable immediately prior to the Closing by the Exchange Ratio,
rounded up to the nearest whole cent. Consistent with the terms of the Seller
Stock Option Plan and the documents governing the outstanding options under such
Plan, the Acquisition will not terminate any of the outstanding options under
the Seller Stock Option Plan or accelerate the exercisability or vesting of such
options or the shares of Buyer Common Stock which will be subject to those
options upon the Buyer's assumption of the options in the Acquisition. After the
Closing, within thirty (30) business days after Buyer's receipt of the
Spreadsheet, Buyer will issue to each person who, immediately prior to the
Closing was a holder of an outstanding option under the Seller Stock Option
Plan, a document evidencing the foregoing assumption of such option by Buyer.
For purposes of this Agreement, the "Exchange Ratio" shall mean $60 divided by
--------------
the average closing price of Buyer Common Stock as quoted on the Nasdaq Stock
Market for the ten (10) trading days immediately preceding and ending on the
trading day that is three (3) trading days prior to the Closing Date. The
Exchange Ratio shall be adjusted to reflect fully the effect of any stock split,
reverse split, stock dividend, reorganization, recapitalization or other like
change with respect to Buyer Common Stock or Seller Common Stock effective after
the date hereof and prior to the Closing Date.
5.7 Escrow Agreement. On or before the Closing, the Escrow Agent,
----------------
Parent, Seller and Buyer will execute the Escrow Agreement.
5.8 Employees.
---------
(a) Employment and Non-Competition Agreements. Set forth on
-----------------------------------------
Schedule 5.8 of the Seller Disclosure Schedule is a list of employees of Seller
------------
to whom Buyer will make an offer of employment pursuant to an Employment and
Non-Competition Agreement, in substantially the form attached hereto as Exhibit
-------
F (the "Employment and Non-Competition Agreement"). Buyer will negotiate in good
- ----------------------------------------
faith to enter into such an agreement with the employees listed on Schedule 5.8
------------
of the Seller Disclosure Schedule. Seller shall cooperate with Buyer to assist
Buyer in entering into such an agreement with such employees. Buyer shall have
30
no obligation to make any offer of employment to any employee of Seller except
those listed on Schedule 5.8 of the Seller Disclosure Schedule.
------------
(b) Termination and Severance Payments. At or prior to the
----------------------------------
Closing, Seller shall pay, discharge and satisfy in full any and all severance
benefits and obligations, under applicable law or otherwise, relating to the
termination of employment, or reemployment by Buyer or its affiliates, of each
employee of Seller, and shall deliver to Buyer evidence in form and substance
reasonably satisfactory to Buyer of the discharge of such severance benefits and
obligations. The Seller hereby agrees to indemnify Buyer in full for any and all
severance benefits and obligations of Seller with respect to any such employees.
5.9 Expenses. Whether or not the Acquisition is consummated, all
--------
costs and expenses incurred in connection with this Agreement and the
transactions contemplated hereby and thereby shall be paid by the party
incurring such expense; provided, however that if the transactions contemplated
hereby are consummated, Buyer shall bear up to $100,000 of the fees and expenses
(including any fees and expenses of legal counsel, financial advisors,
investment bankers and accountants) incurred in the aggregate by Seller and
Parent in connection with this Agreement and the transactions contemplated
hereby. Any fees and expenses incurred by Seller in excess of $100,000
(including any fees and expenses of legal counsel, financial advisors,
investment bankers and accountants) (collectively, the "Seller Expenses") and
---------------
any Transfer Taxes shall remain an obligation of Parent and Seller. If Buyer
receives any invoices for amounts in excess of $100,000 for such fees and
expenses or for Transfer Taxes, Seller and Parent shall promptly pay such fees
and/or expenses or Transfer Taxes; provided, however, that such payment shall,
if not promptly reimbursed by Parent or Seller, constitute "Damages" recoverable
-------
under the Escrow Agreement and such Damages shall not be subject to the Escrow
Basket.
5.10 Reasonable Best Efforts and Further Assurances. Each of the
----------------------------------------------
parties to this Agreement shall use its reasonable best efforts to effectuate
the transactions contemplated hereby and to fulfill and cause to be fulfilled
the conditions to closing under this Agreement. Each party hereto, at the
reasonable request of another party hereto, shall execute and deliver such other
instruments and do and perform such other acts and things as may be necessary or
desirable for effecting completely the consummation of this Agreement and the
transactions contemplated hereby. If Seller, Affiliate, Parent or Buyer is
unable to obtain, prior to Closing, any consents, approvals, waivers or other
authorizations to transfer to Buyer any Asset, Seller, Affiliate, Parent and
Buyer shall cooperate with one another in order to obtain such consents,
approvals, waivers or other authorizations at the earliest practicable date. In
each instance where such consents, approvals, waivers or other authorizations
cannot be obtained prior to the Closing, each of Seller, Affiliate and Parent
shall use its reasonable best efforts to enter into such alternative
arrangements and agreements with Buyer as may be appropriate in the reasonable
judgment of Parent and Buyer in order to permit Buyer to realize, receive and
enjoy substantially similar rights and benefits and to enable Buyer to conduct
operations of the Business until the consents, approvals, waivers or other
authorizations are obtained. If, after the exercise of diligent effort, any such
consents, approvals, waivers or other authorizations are not obtained, each of
Seller and Parent agrees to cooperate with Buyer in any reasonable arrangements
designed to provide, to the extent reasonably practicable, for the benefit of
Buyer, any and all rights of Seller in and to such Asset.
31
5.11 Non-Competition.
---------------
(a) At all times from the Closing Date until the fourth (4/th/)
anniversary of the Closing Date, without the prior written consent of Buyer,
Seller and Parent shall not, and shall not permit any of their respective
subsidiaries or affiliates to:
(i) Enter into or engage, directly or indirectly, in the
business of creating, developing, selling or licensing computer network server
software for broadband subscriber management (the "Specified Technology"),
--------------------
provided, however, that nothing in this Agreement shall directly or indirectly
prohibit Seller or Parent from (1) continuing the Existing Business, (2) using
in connection with any of the Existing Businesses any product, software or
technology acquired from or through any third party (whether by license,
assignment, transfer of assets or stock, merger or acquisition of all or part of
a business, or joint development) or created, invented, designed, or developed
by or on behalf of Seller or Parent, or (3) purchasing or owning equity
securities of any issuer if those securities constitute less than two percent
(2%) in the aggregate of the class of equity securities of such issuer and such
class of securities are registered under the Securities Act;
(ii) Solicit customers, suppliers, or business patronage
which results in competition by Parent or Seller, on the one hand, with Buyer or
any of its affiliates, on the other hand, in the Specified Technology;
(iii) Encourage or solicit any officer or employee of Buyer
or any of its affiliates to leave the employment of Buyer or any of its
affiliates for any reason; or
(iv) Except as permitted under Section 5.11(a)(i), promote
or assist, financially or otherwise, any person, firm, association, corporation,
or other entity engaged in the Specified Technology.
(b) Seller, Affiliate and Parent will hold, and will use
commercially reasonable efforts to cause each of its affiliates and each
officer, director, employee, accountant, counsel, consultant, advisor and agent
of Seller and its affiliates to hold, in confidence, unless compelled to
disclose by judicial or administrative process or by other requirements of law,
all proprietary, non-public and other confidential documents and information
concerning the Assets; provided that, without in any way limiting the foregoing
obligations, Seller, Affiliate and Parent may disclose such information to its
officers, directors, employees, accountants, counsel, consultants, advisors and
agents solely for purposes of the transactions contemplated by this Agreement so
long as such persons are informed by Seller, Affiliate or Parent of the
confidential nature of such information and are directed by Seller, Affiliate or
Parent to treat such information confidentially; and further provided that the
obligations of Seller, Affiliate and Parent hereunder shall not apply to
information that (i) becomes publicly available or available to any third party
other than as a result of a disclosure by Seller or Parent or any of their
affiliates, officers, directors, employees, agents or advisors; (ii) is
independently developed by any third party other than as a result of a
disclosure by Seller or Parent or any of their affiliates, officers, directors,
employees, agents or advisors; or (iii) is disclosed by Seller or Parent with
the prior written consent of Buyer.
32
(c) Without limitation, the parties agree and intend that the
covenants contained in this Section 5.11 shall be deemed to be a series of
separate covenants and agreements, one for each and every political subdivision
of each jurisdiction. If, in any judicial proceeding, a court shall refuse to
enforce in such action any of the separate covenants deemed included herein,
then at the option of the party hereto entitled to the benefit of such
covenants, wholly unenforceable covenants or components thereof shall be deemed
eliminated from the provisions hereof for the purpose of such proceeding to the
extent necessary to permit the remaining separate covenants to be enforced in
such a proceeding. The parties intend to have covenants enforceable to the
fullest extent of the law as to scope, time and geography.
(d) The parties agree that due to the unique nature of the
services and capabilities of Seller and Parent, there can be no adequate remedy
at law for any breach of the obligations of Seller and Parent hereunder, that
any such breach by Seller or Parent may allow the other party hereto and/or
third parties to unfairly compete with Buyer and its affiliates resulting in
irreparable harm to Buyer and therefore, that upon any such breach by Seller or
Parent or any threat thereof, Buyer and its affiliates shall be entitled to
appropriate equitable relief in addition to whatever remedies it might have at
law. Further, Buyer and its affiliates shall be entitled to indemnification by
Seller and Parent from any loss or harm, including, without limitation,
attorneys' fees, including attorneys' fees on appeal, and costs of suit, in
connection with any breach, or any enforcement, of its obligations pursuant to
this Section 5.11.
(e) Each of Seller and Parent acknowledges, represents and
warrants to Buyer that the covenants of Seller and Parent in this Section 5.11
are reasonably necessary for the protection of Buyer's interests under this
Agreement and are not unduly restrictive upon Seller, Parent or any of their
respective affiliates.
(f) Seller, Affiliate and Parent shall notify Buyer of any
breach or alleged breach by Seller, Affiliate or Parent, as the case may be, of
any provision of this Section 5.11 and, within thirty (30) days after the date
of mailing of such notice or becoming aware of such breach or alleged breach,
Seller, Affiliate or Parent, as the case may be, shall cure such breach or
alleged breach. Failure to cure such breach or alleged breach to Buyer's
reasonable satisfaction within such time period shall constitute a default under
this Agreement and Buyer shall be entitled to exercise any of its available
rights and remedies (including, without limitation, pursuant to Section
5.11(c)).
5.12 Form S-8. Buyer agrees to file, after the Closing, no later than
--------
thirty (30) business days after Buyer's receipt of the Spreadsheet and all
option documentation relating to all options outstanding under the Seller Stock
Option Plan as of the Closing Date), a registration statement on Form S-8
covering the shares of Buyer Common Stock issuable pursuant to all outstanding
options under the Seller Stock Option Plan assumed by Buyer, provided that such
options qualify for registration on such Form S-8. Seller shall cooperate with
and assist Buyer in the preparation of such registration statement.
5.13 Listing of Additional Shares. Prior to the Closing, Buyer shall
----------------------------
file with the Nasdaq National Market a Notification Form for Listing of
Additional Shares with respect to the shares of Buyer Common Stock issuable upon
exercise of the options and rights under the Seller Stock Option Plan assumed by
Buyer hereunder.
33
5.14 Spreadsheet. Seller shall complete Buyer's form of option
-----------
assumption spreadsheet (the "Spreadsheet"), and shall deliver the Spreadsheet,
-----------
certified as complete and correct by a duly elected officer of Seller, at the
Closing.
5.15 Bulk Sales Laws. Each of Seller, Parent, Affiliate and Buyer
---------------
hereby waives compliance by the other with all "bulk sales" laws and any other
----------
similar laws in any applicable jurisdiction in respect of the transactions
contemplated by this Agreement. Seller, Affiliate and Parent shall indemnify
Buyer from and hold it harmless against any liabilities, damages, costs, and
expenses resulting from or arising out of any action brought or levy made as a
result of the failure by Seller, Affiliate or Parent to pay its liabilities owed
to creditors, other than those liabilities which have been expressly assumed, on
such terms as expressly assumed, by Buyer pursuant to this Agreement.
5.16 Post-Closing Payments. Seller, Parent and Parent's subsidiaries
---------------------
shall remain solely liable for all payment obligations whether accrued, matured
or unmatured, liquidated or unliquidated, fixed or contingent, known or unknown,
arising out of acts or occurrences, or related to any of the Assets, prior to
the Closing Date, other than the Assumed Liabilities.
5.17 Taxes.
-----
(a) Parent and Seller shall be responsible for and shall pay all
Taxes with respect to all periods (and portions of periods) through the Closing
Date (the "Pre-Closing Tax Period"). Unless Buyer agrees in writing to assume
----------------------
such responsibility, Parent and Seller shall be responsible for filing all Tax
Returns relating to the Business or the Assets with respect to all periods
ending on or prior to the Closing Date. Notwithstanding anything to the contrary
contained herein, all Taxes arising with respect to the transactions
contemplated herein shall be deemed to arise in the Pre-Closing Tax Period.
Buyer shall be responsible for filing any Tax Returns that are due after the
Closing Date relating to the Business or the Assets with respect to periods
(including portions of periods) ending after the Closing Date (a "Post-Closing
------------
Tax Period"). Parent and Seller shall promptly reimburse Buyer for any Taxes
----------
paid, directly or indirectly, by Buyer in connection with the filing of any such
Tax Return to the extent such Tax payment includes any amount attributable to
the Business or the Assets for a Pre-Closing Tax Period (determined in
accordance with Section 5.17(b)). If Buyer receives any invoice or assessment
for Taxes relating to the Business or the Assets for a Pre-Closing Tax Period,
Parent and Seller shall pay such invoiced or assessed amount relating to the
Pre-Closing Tax Period within ten (10) days following demand therefor from
Buyer.
(b) All real property taxes, personal property taxes and similar
ad valorem obligations ("Property Taxes") levied with respect to the Assets for
--------------
any Tax periods beginning before and ending after the Closing Date shall be
apportioned between the Pre-Closing Tax Period and the Post-Closing Tax Period
based on the number of days of such taxable period included in the Pre-Closing
Tax Period and the number of days of such taxable period included in the Post-
Closing Tax Period. Seller and Parent shall be liable for the proportionate
amount of such Property Taxes that is attributable to the Pre-Closing Tax Period
except to the extent such Property Taxes are specifically identified herein as
Assumed Liabilities. Buyer shall be liable for the proportionate amount of
Property Taxes that is attributable to Post-Closing Tax Periods
34
and for any other Property Taxes that are specifically identified herein as
Assumed Liabilities. Except as otherwise agreed by Buyer and Seller, the net
amount of all prorations of Property Taxes shall be settled and paid on the
Closing Date. If the Closing occurs before the Tax rate applicable to the year
in which the Closing occurs is fixed, the apportionment of the relevant Property
Taxes shall be based on the estimated Tax rate for such year. With respect to
any Property Taxes not settled and paid on the Closing Date, within ninety (90)
days after the Closing, Seller and Buyer shall present a statement to the other
setting forth the amount of reimbursement to which each is entitled under this
Section 5.17, together with such supporting evidence as is reasonably necessary
to calculate the proration amount. The proration amount shall be paid by the
party owing it to the other within ten (10) days after delivery of such
statement. Thereafter, Seller shall notify Buyer upon receipt of any ▇▇▇▇ for
Property Taxes, part or all of which is attributable to the Post-Closing Tax
Period, and shall promptly deliver such ▇▇▇▇ to Buyer who shall pay the same to
the appropriate taxing authority, provided that if such ▇▇▇▇ covers the Pre-
Closing Tax Period, Seller shall also remit, prior to the due date of
assessment, to Buyer payment for the proportionate amount of such ▇▇▇▇ that is
attributable to the Pre-Closing Tax Period. If either Seller or Buyer shall
thereafter make a payment for which it is entitled to reimbursement under this
Section 5.17, the other party shall make such reimbursement promptly, but in no
event later than thirty (30) days after the presentation of a statement setting
forth the amount of reimbursement to which the presenting party is entitled,
along with such supporting evidence as is reasonably necessary to calculate the
amount of reimbursement. Any payment required under this Section and not made
within ten (10) days of delivery of the statement shall bear interest at the
rate per annum determined, from time to time, under the provisions of Section
6621(a)(2) of the Code for each day until paid.
(c) Seller shall pay or cause to be paid all Taxes and other
expenses of transferring the Assets as contemplated hereunder, including,
without limitation, all sales, use, stock transfer, real estate transfer,
conveyance, gains, stamp, value-added and other similar taxes (including any
interest, penalties and additions thereto) (collectively, "Transfer Taxes").
--------------
5.18 COBRA. Parent and Seller shall be responsible for providing the
-----
continued health coverage required under Section 4980B of the Code ("COBRA
-----
Coverage") with respect to any employees of Seller or eligible dependents who
--------
had a qualifying event under Section 4980B of the Code on or before the Closing.
Buyer shall be responsible for providing COBRA Coverage for any employees of
Seller who become employees of Buyer or eligible dependents who, with respect to
their coverage under Buyer's health plan, incur a qualifying event under Section
4980B of the Code at any time on or after the Closing.
5.19 Maintain Existence. Parent shall do all things necessary to
------------------
maintain its corporate existence until one (1) year from the Closing Date.
5.20 Parent Guarantee. Parent hereby unconditionally and irrevocably
----------------
guarantees in full the performance by Seller of all of their respective
obligations under this Agreement and any exhibits hereto.
5.21 Use of Business Names and Marks by Buyer. Buyer may, from and
----------------------------------------
after the Closing Date and until the date that is one (1) year after the Closing
Date, use the trademarks, service marks or brand names or trade, corporate or
business names that include or incorporate
35
"CAIS" (collectively, "Business Names"), as such Business Names are used in
--------------
relation to the Business on or prior to the Closing Date, including on
stationary, signage, invoices, receipts, forms, packaging, advertising and
promotional materials, product, training and service literature and materials,
computer programs or like materials, inventory or otherwise.
5.22 License to Seller. The parties hereto shall enter into a license
-----------------
agreement in substantially the form attached hereto as Exhibit G (the "License
--------- -------
Agreement"). The parties hereto acknowledge and agree that, except as provided
---------
in the License Agreement, relating to the business of providing computer and
Internet access and services in hotel and hospitality and in multi-dwelling and
multi-tenant environments, Seller and Parent may continue their business of
providing computer and Internet access and services through kiosks and other
publicly accessible computer terminals worldwide without any additional licenses
of any of the Intellectual Property. In the event of a determination that the
provision by Seller and/or Parent of such access and services does require a
license under the Intellectual Property, then the parties shall thereafter
negotiate such a license on commercially reasonable terms.
5.23 License to Buyer. In the event that a license under any of the
----------------
Excluded Patents (including, without limitation, any continuations, divisionals,
continuations-in-part, reexaminations or reissues) is required in order for
Buyer to operate the Business following the Closing as it is currently conducted
or currently proposed by Seller to be conducted, then, at such time, this
Agreement shall be deemed to have conveyed to Buyer, without any further action
on the part of any of the parties hereto, an irrevocable, non-exclusive,
royalty-free and fully paid-up worldwide, perpetual license under any such
Excluded Patents to make (including the right to use any apparatus and practice
any method in making), use, import, offer for sale, lease, sell and/or otherwise
transfer products, or have one or more of Buyer's agents, contractors or
manufacturers do the same on Buyer's behalf, solely in connection with Buyer's
operation of the Business as currently conducted or currently proposed by Seller
to be conducted. Each of Parent, Affiliate and Seller shall promptly apply for
or otherwise seek, and use commercially reasonable efforts to obtain, all
consents and approvals required to be obtained by it in connection with any such
license.
ARTICLE VI
CONDITIONS TO THE ACQUISITION
6.1 Conditions to Obligations of Each Party to Effect the Acquisition.
-----------------------------------------------------------------
The respective obligations of each party to this Agreement to consummate and
effect this Agreement and the transactions contemplated hereby shall be subject
to the satisfaction at or prior to the Closing Date of each of the following
conditions, any of which may be waived, in writing, by agreement of all the
parties hereto:
(a) Stockholder Approval. This Agreement and the Acquisition
--------------------
shall have been approved and adopted by the requisite vote of the stockholders
of Seller. Any agreements or arrangements that may result in the payment of any
amount that would not be deductible by reason of Section 280G of the Code shall
have been approved by such number of stockholders of Seller as is required by
the terms of Section 280G(b)(5)(B) and shall be obtained in a manner which
satisfies all applicable requirements of such Code Section 280(G)(b)(5)(B)
36
and the proposed Treasury Regulations thereunder, including (without limitation)
Q-7 of Section 1.280G-1 of such proposed regulations.
(b) No Injunctions or Restraints; Illegality. No temporary
----------------------------------------
restraining order, preliminary or permanent injunction or other order issued by
any court of competent jurisdiction or other legal or regulatory restraint or
prohibition preventing the consummation of the Acquisition or limiting or
restricting Buyer's conduct or operation of the Business following the
Acquisition shall be in effect, nor shall any proceeding brought by an
administrative agency or commission or other Governmental Entity, domestic or
foreign, seeking any of the foregoing be pending; nor shall there be any action
taken, or any statute, rule, regulation or order enacted, entered, enforced or
deemed applicable to the Acquisition, which makes the consummation of the
Acquisition illegal. In the event an injunction or other order shall have been
issued, each party agrees to use its reasonable efforts to have such injunction
or other order lifted.
(c) Governmental Approval. Buyer, Parent and Seller shall have
---------------------
timely obtained from each Governmental Entity all approvals, waivers and
consents, if any, necessary for consummation of or in connection with the
Acquisition and the several transactions contemplated hereby. The applicable
waiting period (and any extension thereof) applicable to the Acquisition under
the HSR Act shall have terminated or expired.
(d) Escrow Agreement. Each of Buyer, Seller, Parent and Escrow
----------------
Agent shall have entered into the Escrow Agreement.
(e) License Agreement. Each of Buyer, Seller and Parent shall
-----------------
have entered into the License Agreement.
6.2 Additional Conditions to Obligations of Seller and Parent. The
---------------------------------------------------------
obligations of Seller and Parent to consummate and effect this Agreement and the
transactions contemplated hereby shall be subject to the satisfaction at or
prior to the Closing Date of each of the following conditions, any of which may
be waived, in writing, by Seller or Parent:
(a) Representations, Warranties and Covenants. Except as
-----------------------------------------
disclosed in the Buyer Disclosure Schedule dated the date of this Agreement, (i)
the representations and warranties of Buyer in this Agreement shall be true and
correct in all material respects (except for such representations and warranties
that are qualified by their terms by a reference to materiality which
representations and warranties as so qualified shall be true in all respects) on
and as of the date of this Agreement and on and as of the Closing Date as though
such representations and warranties were made on and as of such time and (ii)
Buyer shall have performed and complied in all material respects with all
covenants, obligations and conditions of this Agreement required to be performed
and complied with by it as of the Closing Date.
(b) Purchase Price. Seller shall have been provided the Purchase
--------------
Price, less the Escrow Amount (which shall have been provided to the Escrow
Agent), in the manner set forth in Section 1.3 hereof.
(c) Assumption of Liabilities. Seller shall have received an
-------------------------
instrument of assumption of liabilities, in substantially the form attached
hereto as Exhibit C, by which
---------
37
Buyer shall assume the Assumed Liabilities as of the Closing, together with such
other documentation reasonably requested by Seller to cause Buyer to assume the
Assumed Liabilities;
6.3 Additional Conditions to the Obligations of Buyer. The obligations
-------------------------------------------------
of Buyer to consummate and effect this Agreement and the transactions
contemplated hereby shall be subject to the satisfaction at or prior to the
Closing Date of each of the following conditions, any of which may be waived, in
writing, by Buyer:
(a) Representations, Warranties and Covenants. Except as
-----------------------------------------
disclosed in the Seller Disclosure Schedule dated the date of this Agreement (i)
the representations and warranties of Seller, Affiliate and Parent in this
Agreement shall be true and correct in all material respects (except for such
representations and warranties that are qualified by their terms by a reference
to materiality which representations and warranties as so qualified shall be
true in all respects) on and as of the date of this Agreement and on and as of
the Closing Date as though such representations and warranties were made on and
as of such time and (ii) Seller, Affiliate and Parent shall have performed and
complied in all material respects with all covenants, obligations and conditions
of this Agreement required to be performed and complied with by them as of the
Closing Date.
(b) Certificate of Seller and Parent. Buyer shall have been
--------------------------------
provided with a certificate executed on behalf of Seller by its President and on
behalf of Parent by its President to the effect set forth in Section 6.3(a).
(c) Third Party Consents. Buyer shall have been furnished
--------------------
evidence satisfactory to it of the consent or approval of those persons whose
consent or approval shall be required in connection with the Acquisition under
the contracts of Seller set forth on Schedules 2.30 and 2.31 of the Seller
-------------- ----
Disclosure Schedule, other than the Credit Agreement by and between Affiliate
and CSCC.
(d) Legal Opinion. Buyer shall have received a legal opinion from
-------------
Seller's and Parent's legal counsel, in substantially the form attached hereto
as Exhibit H.
---------
(e) No Material Adverse Effect. There shall not have occurred any
--------------------------
Material Adverse Effect on the Business, taken as a whole.
(f) Employment and Non-Competition Agreements. The employees of
-----------------------------------------
Seller set forth on Schedule 5.8 of the Seller Disclosure Schedule shall have
------------
accepted employment with Buyer and shall have entered into an Employment and
Non-Competition Agreement.
(g) Certificates of Good Standing. Seller shall, prior to the
-----------------------------
Closing Date, provide Buyer a certificate from the Secretary of State of the
State of California as to Seller's good standing and payment of all applicable
taxes.
(h) ▇▇▇▇ of Sale. Buyer shall have received the ▇▇▇▇ of Sale,
------------
executed by Seller and Affiliate and selling, delivering, transferring,
conveying and assigning to Buyer all right, title, and interest in and to the
Assets, free and clear of any and all Liens, together with such assignments and
other documentation reasonably requested by, and in form and substance
38
reasonably satisfactory to, Buyer to validly vest Buyer with all of Seller's and
Affiliate's right, title and interest in or to the Assets, free and clear of any
and all Liens, other than Permitted Liens and Assumed Liabilities.
ARTICLE VII
TERMINATION, AMENDMENT AND WAIVER
7.1 Termination. At any time prior to the Closing Date, this
-----------
Agreement may be terminated:
(a) by mutual consent duly authorized by the Board of Directors
of Buyer and Seller;
(b) by either Buyer, Parent or Seller, if the Closing shall not
have occurred on or before January 31, 2001 (provided, a later date may be
agreed upon in writing by the parties hereto, and provided further that the
right to terminate this Agreement under this Section 7.1(b) shall not be
available to any party whose action or failure to act has been the cause or
resulted in the failure of the Acquisition to occur on or before such date and
such action or failure to act constitutes a breach of this Agreement);
(c) by Buyer, if (i) Seller, Affiliate or Parent shall breach
in any material respect any representation, warranty, obligation or agreement
hereunder and such breach shall not have been cured within fifteen (15) business
days of receipt by Seller, Affiliate or Parent, as the case may be, of written
notice of such breach provided that the right to terminate this Agreement by
Buyer under this Section 7.1(c)(i) shall not be available to Buyer where Buyer
is at that time in breach of this Agreement, (ii) the Board of Directors of
Seller shall have withdrawn or modified its recommendation of this Agreement or
the Acquisition in a manner adverse to Buyer or recommended, endorsed, accepted
or agreed to a Takeover Proposal or shall have resolved to do any of the
foregoing, or (iii) Parent's or Seller's officers, directors or other agents
shall have failed to comply with Section 4.3;
(d) by Seller, if Buyer shall breach in any material respect any
representation, warranty, obligation or agreement hereunder and such breach
shall not have been cured within fifteen (15) days following receipt by Buyer of
written notice of such breach, provided that the right to terminate this
Agreement by Seller under this Section 7.1(d) shall not be available to Seller
where Seller is at that time in breach of this Agreement;
(e) by Buyer if a Trigger Event (as defined in Section 7.3(d)
hereof) or Takeover Proposal shall have occurred and the Board of Directors of
Seller in connection therewith, does not within five (5) business days of such
occurrence (i) reconfirm its approval and recommendation of this Agreement and
the transactions contemplated hereby and (ii) reject such Takeover Proposal or
Trigger Event;
(f) by Buyer if (i) any permanent injunction or other order of a
court or other competent authority preventing the consummation of the
Acquisition shall have become final and nonappealable or (ii) if any required
approval of the stockholders of Seller shall not
39
have been obtained by reason of the failure to obtain the required vote upon a
vote held at a duly held meeting of stockholders or at any adjournment thereof;
or
(g) by Seller or Parent if (i) any permanent injunction or other
order of a court or other competent authority preventing the consummation of the
Acquisition shall have become final and nonappealable or (ii) if any required
approval of the stockholders of Seller shall not have been obtained by reason of
the failure to obtain the required vote upon a vote held at a duly held meeting
of stockholders or at any adjournment thereof (provided that the right to
terminate this Agreement under this Section 7.1(g) shall not be available to
Seller or Parent where the failure to obtain Seller stockholder approval shall
have been caused by the action or failure to act of Seller or Parent and such
action or failure to act constitutes a breach by Seller or Parent of this
Agreement).
7.2 Effect of Termination. In the event of termination of this
---------------------
Agreement as provided in Section 7.1, this Agreement shall forthwith become void
and there shall be no liability or obligation on the part of Buyer, Affiliate,
Parent or Seller or their respective officers, directors, stockholders or
affiliates, except to the extent that such termination results from the breach
by a party hereto of any of its representations, warranties or covenants set
forth in this Agreement; provided that the provisions of Section 5.2
(Confidentiality), Section 7.3 (Expenses and Termination Fees), this Section 7.2
and Article VIII (Escrow and Indemnification) shall remain in full force and
effect and survive any termination of this Agreement.
7.3 Expenses and Termination Fees.
-----------------------------
(a) Subject to Sections 5.9, 5.17, 7.3(b) and 7.3(c), whether or
not the Acquisition is consummated, all costs and expenses incurred in
connection with this Agreement and the transactions contemplated hereby
(including, without limitation, the fees and expenses of its advisers,
accountants and legal counsel) shall be paid by the party incurring such
expense.
(b) In the event that (i) Buyer shall terminate this Agreement
pursuant to Section 7.1(c)(ii), 7.1(c)(iii), 7.1(e) or 7.1(f)(ii), (ii) Seller
shall terminate this Agreement pursuant to Section 7.1(g)(ii), or (iii) Buyer
shall terminate this Agreement pursuant to Section 7.1(c)(i), due in whole or in
part to any failure by Seller to perform and comply in all respects with its
agreements set forth in Article V of this Agreement, then Seller shall promptly
(but in no event later than five (5) business days after the occurrence of the
event giving Buyer the right to so terminate this Agreement) pay to Buyer the
amount of $7,500,000.
(c) In the event that this Agreement is terminated pursuant to
any of the provisions described in Section 7.3(b) or pursuant to Section
7.1(c)(i) for any reason, and, in the event any Takeover Proposal or Trigger
Event is consummated (as defined in Section 7.3(f) hereof) within twelve months
of the later of (x) such termination of this Agreement and (y) the payment of
the expenses described in Section 7.3(a), Seller shall promptly pay to Buyer the
additional amount of $7,500,000.
(d) As used herein, a "Trigger Event" shall occur if any Person
-------------
(as that term is defined in Section 13(d) of the Exchange Act and the
regulations promulgated thereunder) acquires securities representing 10% or
more, or commences a tender or exchange
40
offer following the successful consummation of which the offeror and its
affiliate would beneficially own securities representing 10% or more, of the
voting power of Seller.
(e) For purposes of this Agreement, "Takeover Proposal" means any
-----------------
offer or proposal for, or any indication of interest in, a merger or other
business combination involving Seller or the acquisition of 20% or more of the
outstanding shares of capital stock of Seller, or a significant portion of the
Assets, other than the transactions contemplated by this Agreement.
(f) For purposes of Section 7.3(c) above, (A) "consummation" of a
------------
Takeover Proposal shall occur on the date a written agreement is entered into
with respect to a merger or other business combination involving Seller or the
acquisition of 20% or more of the outstanding shares of capital stock of Seller,
or sale or transfer of any material assets (excluding the sale or disposition of
assets in the ordinary course of business) of Seller and (B) "consummation" of a
------------
Trigger Event shall occur on the date any Person (other than any stockholder
which currently owns 10% or more of the outstanding shares of capital stock of
Seller provided that such stockholder does not acquire additional shares that
would otherwise have constituted a Trigger Event) or any of its affiliates or
associates would beneficially own securities representing 10% or more of the
voting power of Seller, following a tender or exchange offer.
7.4 Amendment. The boards of directors of the parties hereto may cause
---------
this Agreement to be amended at any time by execution of an instrument in
writing signed on behalf of each of the parties hereto; provided that an
amendment made subsequent to adoption of this Agreement by the stockholders of
Seller shall not alter or change any of the terms and conditions of this
Agreement if such alteration or change would materially adversely affect the
holders of Seller's capital stock.
7.5 Extension; Waiver. At any time prior to the Closing Date any party
-----------------
hereto may, to the extent legally allowed, (i) extend the time for the
performance of any of the obligations or other acts of the other parties hereto,
(ii) waive any inaccuracies in the representations and warranties made to such
party contained herein or in any document delivered pursuant hereto and (iii)
waive compliance with any of the agreements or conditions for the benefit of
such party contained herein. Any agreement on the part of a party hereto to any
such extension or waiver shall be valid only if set forth in an instrument in
writing signed on behalf of such party.
ARTICLE VIII
ESCROW AND INDEMNIFICATION
8.1 Escrow Fund. As soon as practicable after the Closing Date, in
-----------
accordance with Section 1.3, the Escrow Amount shall be deposited with State
Street Bank and Trust Company of California, N.A. (or other institution selected
by Buyer with the reasonable consent of Seller), as escrow agent (the "Escrow
------
Agent"), such deposit (together with interest, dividends and other income or
-----
distributions thereon) to constitute the Escrow Fund (the "Escrow Fund") and to
-----------
be governed by the terms set forth herein and in the Escrow Agreement. The
41
Escrow Fund shall be available to compensate Buyer pursuant to the
indemnification obligations of Seller and Parent.
8.2 Indemnification.
---------------
(a) Subject to the limitations set forth in this Article VIII,
Seller and Parent, jointly and severally, shall indemnify, defend and hold
harmless Buyer and its officers, directors, agents and employees, and each
person, if any, who controls or may control Buyer within the meaning of the
Securities Act (hereinafter referred to individually as a "Seller Indemnified
------------------
Person" and collectively as "Seller Indemnified Persons") from and against any
------ --------------------------
and all losses, costs, damages, liabilities and expenses, including, without
limitation, those arising from claims, demands, actions, causes of action,
including reasonable legal fees, net of any recoveries by Buyer under existing
insurance policies or indemnities from third parties (collectively, "Buyer
-----
Damages"), arising out of (i) any misrepresentation or breach in connection with
-------
any of the representations or warranties given or made by Seller, Affiliate or
Parent in this Agreement, the Seller Disclosure Schedule or any exhibit or
schedule to this Agreement; (ii) any default in connection with any of the
covenants or agreements given or made by Seller, Affiliate or Parent in this
Agreement or any exhibit or schedule to this Agreement; (iii) any liabilities or
obligations relating to Seller, Affiliate or Parent other than the Assumed
Liabilities; (iv) any Intellectual Property Matters (as defined in a letter
agreement, dated as of the date hereof, by and among the parties hereto) arising
in connection with the operation of the Business as currently conducted or as
currently proposed by Seller to be conducted; or (v) any of the matters set
forth on Schedule 2.6 or Schedule 2.7 of the Seller Disclosure Schedule.
------------ ------------
(b) Subject to the limitations set forth in this Article VIII,
Buyer shall indemnify, defend and hold harmless Parent and its officers,
directors, agents and employees, and each person, if any, who controls or may
control Seller or Parent within the meaning of the Securities Act (hereinafter
referred to individually as a "Buyer Indemnified Person" and collectively as
------------------------
"Buyer Indemnified Persons" and, together with Seller Indemnified Persons,
-------------------------
"Indemnified Persons") from and against any and all losses, costs, damages,
-------------------
liabilities and expenses, including, without limitation, those arising from
claims, demands, actions, causes of action, including reasonable legal fees, net
of any recoveries by Buyer under existing insurance policies or indemnities from
third parties (collectively with Buyer Damages, "Damages"), arising out of (i)
-------
any misrepresentation or breach by Buyer in connection with any of the
representations or warranties given or made by Buyer in this Agreement, the
Buyer Disclosure Schedule or any exhibit or schedule to this Agreement; (ii) any
default in connection with any of the covenants or agreements given or made by
Buyer in this Agreement or any exhibit or schedule to this Agreement; (iii) the
Assumed Liabilities; or (iv) the operation of the Business and ownership and use
of the Assets after the Closing.
(c) Buyer, Parent and Seller each acknowledge that such Damages,
if any, would relate to unresolved contingencies existing as of the Closing
Date, which if resolved at the Closing Date would have led to an adjustment in
the Purchase Price. Nothing in this Agreement shall limit the liability of
Seller or Parent for any breach of any representation, warranty or covenant if
the Acquisition does not close.
42
8.3 Damage Threshold. Notwithstanding the foregoing, Buyer may not
----------------
receive any payments from the Escrow Fund unless and until (a) an Officer's
Certificate or Certificates (as defined in Section 8.5 hereof) has been
delivered to the Escrow Agent as provided in Section 8.5 below (i) identifying
Buyer Damages and (ii) solely in the case of Section 8.2(a)(i), specifying that
the aggregate amount of such Buyer Damages exceeds $100,000, provided, however,
that this Section 8.3(ii) shall not apply to any Damages to the extent such
Damages arise by reason of Section 2.13 and shall not be interpreted to include
any obligations arising under Section 5.17, and (b) such amount is determined
pursuant to this Article VIII to be payable, in which case Buyer shall receive
an amount equal in value to the full amount of Buyer Damages. For purposes of
this Section 8.3, in determining the amount of any Damage resulting from any
misrepresentation, breach or default or whether a misrepresentation, breach or
default has occurred, any materiality standard contained in the applicable
representation, warranty or covenant shall be disregarded.
8.4 Escrow Periods.
--------------
(a) A portion of the Escrow Amount equal to $15,000,000 (the
"Initial Escrow Amount"), plus any interest or earnings on the Initial Escrow
---------------------
Amount, less any payments made from the Escrow Fund, shall remain in the Escrow
Fund for a period of eighteen (18) months following the Closing Date (the
"Initial Escrow Period"); provided, however, that a portion of the Initial
---------------------
Escrow Amount and/or any interest or earnings thereon that is necessary to
satisfy any unsatisfied claims specified in any Officer's Certificate
theretofore delivered to the Escrow Agent prior to termination of the Initial
Escrow Period with respect to facts and circumstances existing prior to
expiration of the Initial Escrow Period shall remain in the Escrow Fund until
such claims have been resolved.
(b) A portion of the Escrow Amount equal to $25,500,000 (the
"Special Escrow Amount"), plus any interest or earnings on the Special Escrow
---------------------
Amount, less any payments made from the Escrow Fund, shall remain in the Escrow
Fund until the earlier of (a) the sixth (6th) anniversary of the Closing Date or
(b) the date specified by Buyer in a notice (the "Notice") delivered to the
------
Escrow Agent (the "Special Escrow Period"); provided, however, that a portion of
---------------------
the Special Escrow Amount and/or any interest or earnings thereon that is
necessary to satisfy any unsatisfied claims specified in any Officer's
Certificate theretofore delivered to the Escrow Agent prior to termination of
the Special Escrow Period with respect to facts and circumstances existing prior
to expiration of the Special Escrow Period shall remain in the Escrow Fund until
such claims have been resolved. Buyer shall deliver to the Escrow Agent a
certificate specifying the Closing Date.
8.5 Claims upon Escrow Fund.
-----------------------
(a) Upon receipt by the Escrow Agent, on or before the last day
of the Initial Escrow Period, of a certificate signed by any officer of Buyer
(an "Officer's Certificate") :
---------------------
(i) stating that Buyer Damages exist and, solely in the
case of Section 8.2(a)(i), specifying that such Buyer Damages are in an
aggregate amount greater than $100,000; and
43
(ii) specifying in reasonable detail the individual items
of such Buyer Damages included in the amount so stated, the date each such item
was paid, or properly accrued or arose, the nature of the misrepresentation,
breach of warranty or claim to which such item is related;
the Escrow Agent shall, subject to the provisions of Sections 8.6 and 8.7 below,
deliver to Buyer out of the Escrow Fund, as promptly as practicable, a portion
of the Initial Escrow Amount (and/or interest or earnings thereon) having a
value equal to such Buyer Damages.
(b) Upon receipt by the Escrow Agent, on or before the last day
of the Special Escrow Period, of an Officer's Certificate:
(i) stating that Buyer Damages under Section 8.2(a)(iv)
exist; and
(ii) specifying in reasonable detail the individual items of
such Buyer Damages included in the amount so stated, the date each such item was
paid, or properly accrued or arose, the nature of the misrepresentation, breach
of warranty or claim to which such item is related;
the Escrow Agent shall, subject to the provisions of Sections 8.6 and 8.7 below,
deliver to Buyer out of the Escrow Fund, as promptly as practicable, a portion
of the Special Escrow Amount (and/or interest or earnings thereon) having a
value equal to such Buyer Damages.
8.6 Objections to Claims. At the time of delivery of any Officer's
--------------------
Certificate to the Escrow Agent, duplicate copies of such Officer's Certificate
shall be delivered to Seller and Parent and for a period of forty-five (45) days
after such delivery to the Escrow Agent of such Officer's Certificate, the
Escrow Agent shall make no payments from the Escrow Fund pursuant to Section 8.5
hereof unless the Escrow Agent shall have received written authorization from
Seller and Parent to make such payments. After the expiration of such forty-five
(45) day period, the Escrow Agent shall make payments from the Escrow Fund in
accordance with Section 8.5 hereof, provided that no such payment may be made if
Seller or Parent shall object in a written statement to the claim made in the
Officer's Certificate, and such statement shall have been delivered to the
Escrow Agent and to Buyer prior to the expiration of such forty-five (45) day
period.
8.7 Resolution of Conflicts; Arbitration.
------------------------------------
(a) In case Seller or Parent shall so object in writing to any
claim or claims by Buyer made in any Officer's Certificate, Buyer shall have
forty-five (45) days after receipt by the Escrow Agent of an objection by Seller
or Parent to respond in a written statement to the objection of Seller. If after
such forty-five (45) day period there remains a dispute as to any claims, Seller
and Buyer shall attempt in good faith for sixty (60) days to agree upon the
rights of the respective parties with respect to each of such claims. If Seller,
Parent and Buyer 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
44
rely on any such memorandum and make or withhold payments out of the Escrow Fund
in accordance with the terms thereof.
(b) If no such agreement can be reached after good faith
negotiation, either Buyer, Parent or Seller may, by written notice to the other,
demand arbitration of the matter unless the amount of the damage or loss is at
issue in pending litigation with a third party, in which event arbitration shall
not be commenced until such amount is ascertained or both parties agree to
arbitration; and in either such event the matter shall be settled by arbitration
conducted by three arbitrators. Within fifteen (15) days after such written
notice is sent, Buyer, on the one hand, and Seller and Parent, on the other
hand, shall each select one arbitrator, and the two arbitrators so selected
shall select a third arbitrator. The decision of the 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 Section 8.6 hereof, the Escrow Agent shall be entitled to act in accordance
with such decision and make or withhold payments out of the Escrow Fund in
accordance therewith.
(c) Judgment upon any award rendered by the arbitrators may be
entered in any court having jurisdiction. Any such arbitration shall be held in
Santa ▇▇▇▇▇ or San Mateo County, California under the commercial rules then in
effect of the American Arbitration Association. For purposes of this Section
8.7(c), in any arbitration hereunder in which any claim or the amount thereof
stated in the Officer's Certificate is at issue, Buyer shall be deemed to be the
Non-Prevailing Party unless the arbitrators award Buyer more than one-half (1/2)
of the amount in dispute, plus any amounts not in dispute; otherwise, the Seller
shall be deemed to be the Non-Prevailing Party. The Non-Prevailing Party to an
arbitration shall pay its own expenses, the fees of each arbitrator, the
administrative fee of the American Arbitration Association, and the expenses,
including without limitation, attorneys' fees and costs, reasonably incurred by
the other party to the arbitration.
8.8 Third-Party Claims. In the event Buyer becomes aware of a third-
------------------
party claim which Buyer believes may result in a demand against the Escrow Fund,
Buyer shall promptly notify Seller of such claim, and Seller and Parent shall be
entitled, at their expense, to participate in any defense of such claim. Buyer
may not effect the settlement of any such claim without the consent of Seller,
which consent shall not be unreasonably withheld. In the event that Seller has
consented to any such settlement, Seller shall have no power or authority to
object under Section 8.6 or any other provision of this Article VIII to the
amount of any claim by Buyer against the Escrow Fund for indemnity with respect
to such settlement.
ARTICLE IX
GENERAL PROVISIONS
9.1 Non-Survival at Time of Closing. The representations and
-------------------------------
warranties set forth in Articles II and III, other than the representations and
warranties set forth in Section 2.11(j), will survive until the first
anniversary of the Closing. The representations and warranties set forth in
Section 2.11(j) will survive the Closing for the duration of the applicable
statute of limitations.
45
9.2 Notices. All notices and other communications hereunder shall be
-------
in writing and shall be deemed given on the date delivered if delivered
personally or by commercial delivery service, or on the date evidenced on the
return receipt if mailed by registered or certified mail (return receipt
requested) or on the date sent if sent via facsimile (with confirmation of
receipt) to the parties at the following address (or at such other address for a
party as shall be specified by like notice):
(a) if to Buyer, to:
Cisco Systems, Inc. ▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇
Attention: Senior Vice President, Legal and Government Affairs
Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇
Telephone No.: (▇▇▇) ▇▇▇-▇▇▇▇
with a copy to:
▇▇▇▇▇▇▇, Phleger & ▇▇▇▇▇▇▇▇ LLP
▇▇▇▇ ▇▇▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇ ▇▇▇▇▇▇▇▇, Esq.
Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇
Telephone No.: (▇▇▇) ▇▇▇-▇▇▇▇
(b) if to Seller, Parent or Affiliate, to:
CAIS Software Solutions, Inc.
▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇▇▇
▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: President
Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇
Telephone No.: (▇▇▇) ▇▇▇-▇▇▇▇
with a copy to:
CAIS Internet, Inc.
▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇▇, ▇.▇. ▇▇▇▇▇
Attention: President
Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇
Telephone No.: (▇▇▇) ▇▇▇-▇▇▇▇
46
with a copy to:
CAIS Internet, Inc.
▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇▇, ▇.▇. ▇▇▇▇▇
Attention: President
Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇
Telephone No.: (▇▇▇) ▇▇▇-▇▇▇▇
with a copy to:
▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇ LLP
▇▇▇▇ ▇▇▇▇▇▇ ▇▇ ▇▇▇ ▇▇▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇, Esq.
Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇
Telephone No.: (▇▇▇) ▇▇▇-▇▇▇▇
9.3 Interpretation. When a reference is made in this Agreement to
--------------
Exhibits, such reference shall be to an Exhibit to this Agreement unless
otherwise indicated. The words "include," "includes" and "including" when used
herein shall be deemed in each case to be followed by the words "without
limitation." The phrase "made available" in this Agreement shall mean that the
information referred to has been made available if requested by the party to
whom such information is to be made available. The phrases "the date of this
Agreement," "the date hereof" and terms of similar import, unless the context
otherwise requires, shall be deemed to refer to October 19, 2000. The table of
contents and headings contained in this Agreement are for reference purposes
only and shall not affect in any way the meaning or interpretation of this
Agreement.
9.4 Counterparts. This Agreement may be executed in 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 parties, it being understood that all
parties need not sign the same counterpart.
9.5 Entire Agreement; Nonassignability; Parties in Interest. This
-------------------------------------------------------
Agreement and the documents and instruments and other agreements specifically
referred to herein or delivered pursuant hereto, including the Exhibits, the
Schedules, including the Seller Disclosure Schedule and the Buyer Disclosure
Schedule (a) constitute the entire agreement among the parties with respect to
the subject matter hereof and supersede all prior agreements and understandings,
both written and oral, among the parties with respect to the subject matter
hereof, except for the Confidentiality Agreement, which shall continue in full
force and effect, and shall survive any termination of this Agreement or the
Closing, in accordance with its terms (b) are not intended to confer upon any
other person any rights or remedies hereunder; and (c) shall not be assigned by
operation of law or otherwise, except that Buyer shall have the right to assign
its rights under the Agreement and/or its right to purchase the Assets and to
assume the Assumed Liabilities to a directly or indirectly owned subsidiary of
Buyer, provided that such assignment shall not release Buyer from its
obligations hereunder, and except as otherwise specifically provided.
47
9.6 Severability. In the event that any provision of this Agreement,
------------
or the application thereof, becomes or is declared by a court of competent
jurisdiction to be illegal, void or unenforceable, the remainder of this
Agreement will continue in full force and effect and the application of such
provision to other persons or circumstances will be interpreted so as reasonably
to effect the intent of the parties hereto. The parties further agree to replace
such void or unenforceable provision of this Agreement with a valid and
enforceable provision that will achieve, to the extent possible, the economic,
business and other purposes of such void or unenforceable provision.
9.7 Remedies Cumulative. Except as otherwise provided herein, any and
-------------------
all remedies herein expressly conferred upon a party will be deemed cumulative
with and not exclusive of any other remedy conferred hereby, or by law or equity
upon such party, and the exercise by a party of any one remedy will not preclude
the exercise of any other remedy.
9.8 Governing Law. This Agreement shall be governed by and construed
-------------
in accordance with the laws of California without reference to such state's
principles of conflicts of law. Each of the parties hereto irrevocably consents
to the exclusive jurisdiction of any court located within the State of
California, in connection with any matter based upon or arising out of this
Agreement or the matters contemplated herein, agrees that process may be served
upon them in any manner authorized by the laws of the State of California for
such persons and waives and covenants not to assert or plead any objection which
they might otherwise have to such jurisdiction and such process.
9.9 Rules of Construction. The parties hereto agree that they have
---------------------
been represented by counsel during the negotiation, preparation and execution of
this Agreement and, therefore, waive the application of any law, regulation,
holding or rule of construction providing that ambiguities in an agreement or
other document will be construed against the party drafting such agreement or
document.
[Signature page follows]
48
IN WITNESS WHEREOF, the undersigned have caused this Agreement to be
executed and delivered by their respective officers thereunto duly authorized,
all as of the date first written above.
CAIS INTERNET, INC.
By: ________________________________
Name: ______________________________
Title:______________________________
CAIS SOFTWARE SOLUTIONS, INC.
By: ________________________________
Name:_______________________________
Title:______________________________
CAIS, INC.
By: ________________________________
Name:_______________________________
Title:______________________________
CISCO SYSTEMS, INC.
By: ________________________________
Name: ______________________________
Title: _____________________________
[SIGNATURE PAGE TO ASSET PURCHASE AGREEMENT]
49
EXHIBIT A
FORM OF ▇▇▇▇ OF SALE
EXHIBIT B-1
FORM OF CONSENT TO ASSIGNMENT OF CONTRACTS
EXHIBIT B-2
FORM OF CONSENT OF CSCC
EXHIBIT C
FORM OF ASSUMPTION OF LIABILITIES
EXHIBIT D
FORM OF ESCROW AGREEMENT
EXHIBIT E
CONFIDENTIALITY AGREEMENT
EXHIBIT F
FORM OF EMPLOYMENT AND NON-COMPETITION AGREEMENT
EXHIBIT G
FORM OF LICENSE AGREEMENT
EXHIBIT H
FORM OF SELLER'S COUNSEL LEGAL OPINION