\nARTICLE VII SURVIVAL OF REPRESENTATIONS AND WARRANTIES; INDEMNITY; ESCROW………………………..42<\/p>\n 7.1 Survival of Representations and Warranties……………………………………42
\n 7.2 Indemnity…………………………………………………………………42
\n 7.3 Exclusive Remedy…………………………………………………………..43
\n 7.4 Escrow Arrangements………………………………………………………..43<\/p>\n
ARTICLE VIII TERMINATION, AMENDMENT AND WAIVER………………………………………………..50<\/p>\n
8.1 Termination……………………………………………………………….50
\n 8.2 Effect of Termination………………………………………………………51
\n 8.3 Amendment…………………………………………………………………52
\n 8.4 Extension; Waiver………………………………………………………….52<\/p>\n
ARTICLE IX GENERAL PROVISIONS……………………………………………………………….52<\/p>\n
9.1 Notices…………………………………………………………………..52
\n 9.2 Interpretation…………………………………………………………….54
\n 9.3 Counterparts………………………………………………………………54
\n 9.4 Entire Agreement; Assignment………………………………………………..54
\n 9.5 Severability………………………………………………………………54
\n 9.6 Other Remedies…………………………………………………………….54
\n 9.7 Governing Law……………………………………………………………..55
\n 9.8 Rules of Construction………………………………………………………55
\n 9.9 Specific Performance……………………………………………………….55
\n 9.10 Attorney’s Fees……………………………………………………………55
\n<\/c><\/c><\/s><\/caption>\n<\/table>\n
-iii-
\n 5<\/p>\n
AGREEMENT AND PLAN OF REORGANIZATION<\/p>\n
This AGREEMENT AND PLAN OF REORGANIZATION (this “Agreement”) is made and
\nentered into as of March 8, 2000 among GoTo.com, Inc., a Delaware corporation
\n(“Parent”), Paw Acquisition Corp., a North Carolina corporation and a
\nwholly-owned subsidiary of Parent (“Merger Sub”), AuctionRover.com, Inc., a
\nNorth Carolina corporation (the “Company”), M. Scot Wingo and Aris A.
\nBuinevicius (collectively, the “Principal Shareholders”), U.S. Bank Trust,
\nNational Association, the undersigned escrow agent (the “Escrow Agent”) and M.
\nScot Wingo (the “Securityholder Agent”) (the Escrow Agent being party with
\nrespect to Article VII hereof only).<\/p>\n
RECITALS<\/p>\n
A. The Boards of Directors of each of the Company, Parent and Merger Sub
\nbelieve it is in the best interests of each company and its respective
\nshareholders that Parent acquire the Company through the statutory merger of
\nMerger Sub with and into the Company (the “Merger”) and, in furtherance thereof,
\nhave approved the Merger.<\/p>\n
B. Pursuant to the Merger, among other things, and subject to the terms and
\nconditions of this Agreement (i) all of the issued and outstanding capital stock
\nof the Company will be converted into shares of common stock of Parent and (ii)
\nall issued and outstanding options, warrants or other rights to acquire or
\nreceive shares of capital stock of the Company shall be assumed by Parent for
\ncommon stock of Parent.<\/p>\n
C. A portion of the shares of Parent Common Stock otherwise issuable by
\nParent in connection with the Merger shall be placed in escrow by Parent, the
\nrelease of which amount shall be contingent upon certain events and conditions,
\nall as set forth in Article VII hereof.<\/p>\n
D. It is intended by the parties hereto that the Merger shall constitute a
\nreorganization within the meaning of Section 368(a) of the Internal Revenue Code
\nof 1986, as amended (the “Code”).<\/p>\n
E. As a material inducement for Parent to consummate the Merger, certain
\nkey employees of the Company will enter into non-competition agreements
\nsubstantially in the form attached hereto as Exhibit A (the “Non-Competition
\nAgreement”) with Parent, each of which shall become effective as of the
\nEffective Time (as defined herein).<\/p>\n
F. Concurrent with the execution and delivery of this Agreement, as a
\nmaterial inducement to Parent to enter into this Agreement, certain affiliate
\nshareholders of the Company are executing and delivering shareholder support
\nagreements (the “Support Agreements”), substantially in the form attached hereto
\nas Exhibit B, to Parent.<\/p>\n
H. The Company, Parent and Merger Sub desire to make certain
\nrepresentations and warranties and other agreements in connection with the
\nMerger.<\/p>\n
6<\/p>\n
NOW, THEREFORE, in consideration of the covenants, promises and
\nrepresentations set forth herein, and for other good and valuable consideration,
\nintending to be legally bound hereby the parties agree as follows: <\/p>\n
ARTICLE I<\/p>\n
THE MERGER<\/p>\n
1.1 The Merger. At the Effective Time (as defined in Section 1.2 hereof)
\nand subject to and upon the terms and conditions of this Agreement and the
\napplicable provisions of the North Carolina General Statutes (“North Carolina
\nLaw”), Merger Sub shall be merged with and into Company, the separate corporate
\nexistence of Merger Sub shall cease and Company shall continue as the surviving
\ncorporation. The surviving corporation after the Merger is sometimes referred to
\nhereinafter as the “Surviving Corporation.”<\/p>\n
1.2 Effective Time. Unless this Agreement is earlier terminated pursuant to
\nSection 8.1 hereof, the closing of the Merger (the “Closing”) will take place as
\npromptly as practicable, but no later than two (2) business days following
\nsatisfaction or waiver of the conditions set forth in Article VI hereof, at the
\noffices of Wilson Sonsini Goodrich & Rosati, Professional Corporation, 650 Page
\nMill Road, Palo Alto, California, unless another place or time is agreed to in
\nwriting by Parent and the Company. The date upon which the Closing actually
\noccurs is herein referred to as the “Closing Date.” On the Closing Date, the
\nparties hereto shall cause the Merger to be consummated by filing Articles of
\nMerger (or like instrument) (the “Articles of Merger”) with the Secretary of
\nState of the State of North Carolina, in accordance with the relevant provisions
\nof applicable law (the time of acceptance by the Secretary of State of North
\nCarolina of such filing being referred to herein as the “Effective Time”).<\/p>\n
1.3 Effect of the Merger. At the Effective Time, the effect of the Merger
\nshall be as provided in the applicable provisions of North Carolina Law. Without
\nlimiting the generality of the foregoing, and subject thereto, at the Effective
\nTime, except as provided herein, all the property, rights, privileges, powers
\nand franchises of the Company and Merger Sub shall vest in the Surviving
\nCorporation, and all debts, liabilities and duties of the Company and Merger Sub
\nshall become the debts, liabilities and duties of the Surviving Corporation.<\/p>\n
1.4 Articles of Incorporation; Bylaws.<\/p>\n
(a) Unless otherwise determined by Parent prior to the Effective Time,
\nat the Effective Time, the Articles of Incorporation of the Company shall be
\namended and restated as of the Effective Time to conform to the Articles of
\nIncorporation of Merger Sub as in effect immediately prior to the Effective Time
\nsuch amended and restated Articles of Incorporation of the Surviving Corporation
\nshall remain in effect until thereafter amended in accordance with the North
\nCarolina Law and as provided in such Articles of Incorporation; provided,
\nhowever, that at the Effective Time, Article 1 of such amended and restated
\nArticles of Incorporation of the Surviving Corporation shall be read as follows:
\n“The name of the corporation is AuctionRover.com, Inc.”<\/p>\n
-2-
\n 7<\/p>\n
(b) Unless otherwise determined by Parent prior to the Effective Time,
\nthe Bylaws of the Company shall be amended and restated as of the Effective Time
\nto conform to the Bylaws of Merger Sub as in effect immediately prior to the
\nEffective Time and such amended and restated Bylaws of the Surviving Corporation
\nshall remain in effect, until thereafter amended in accordance with North
\nCarolina Law and as provided in the Articles of Incorporation of the Surviving
\nCorporation and such Bylaws.<\/p>\n
1.5 Directors and Officers. Unless otherwise determined by Parent prior to
\nthe Effective Time, the directors of Merger Sub immediately prior to the
\nEffective Time shall become the directors of the Surviving Corporation at the
\nEffective Time, each to hold the office of a director of the Surviving
\nCorporation in accordance with the provisions of North Carolina Law and the
\nArticles of Incorporation and Bylaws of the Surviving Corporation until their
\nsuccessors are duly elected and qualified. The officers of Merger Sub
\nimmediately prior to the Effective Time shall become the officers of the
\nSurviving Corporation at the Effective Time, each to hold office in accordance
\nwith the provisions of the Bylaws of the Surviving Corporation.<\/p>\n
1.6 Merger Consideration.<\/p>\n
(a) Certain Definitions. For purposes of this Agreement, the following
\nterms shall have the following meanings:<\/p>\n
“Aggregate Share Number” shall mean 3,470,588 shares of Parent Common
\nStock.<\/p>\n
“Company Capital Stock” shall mean shares of Company Common Stock,
\nCompany Preferred Stock and any shares of other capital stock of Company.<\/p>\n
“Company Common Stock” shall mean shares of common stock of Company.<\/p>\n
“Company Convertible Securities” shall mean the Company Options and
\nother rights (other than Company Preferred Stock) to acquire or receive shares
\nof Company Capital Stock.<\/p>\n
“Company Options” shall mean all issued and outstanding options to
\npurchase or otherwise acquire Company Capital Stock (whether or not vested) held
\nby employees or directors of or consultants to Company (other than Company
\nPreferred Stock).<\/p>\n
“Company Preferred Stock” shall mean shares of Company Series A
\nPreferred Stock.<\/p>\n
“Company Series A Preferred Stock” shall mean shares of Series A
\nPreferred Stock of Company.<\/p>\n
“Company Shareholders” shall mean holders of any shares of Company
\nCapital Stock immediately prior to the Effective Time.<\/p>\n
“Escrow Amount” shall mean 520,588 shares of Parent Common Stock.<\/p>\n
-3-
\n 8<\/p>\n
“Exchange Ratio” shall mean (x) a number of shares of Parent Common
\nStock equal to the quotient obtained by dividing (i) the Aggregate Share Number
\nby (ii) the Total Outstanding Shares (with the result rounded to four decimal
\nplaces).<\/p>\n
“Knowledge” shall mean, with respect to Company or Parent, what is
\nwithin the actual knowledge, after due inquiry, of any of the officers of
\nCompany or Parent, as the case may be, and, in the case of the Company only, the
\nPrincipal Shareholders.<\/p>\n
“Total Outstanding Shares” shall mean the aggregate number of shares
\nof Company Common Stock outstanding immediately prior to the Effective Time,
\nincluding Company Common Stock issuable upon the exercise of Company Options
\nplus the aggregate number of shares of Company Common Stock issuable, with or
\nwithout the passage of time or satisfaction of other conditions, upon exercise
\nof or conversion of all Company Convertible Securities and Company Preferred
\nStock outstanding immediately prior to the Effective Time.<\/p>\n
(b) Shares to be Issued; Effect on Capital Stock. The maximum number
\nof shares of Parent Common Stock issued (including Parent Common Stock to be
\nreserved for issuance upon exercise of any of the Company Convertible Securities
\nto be assumed by Parent) in exchange for the acquisition by Parent of all
\noutstanding Company Capital Stock and all unexpired and unexercised Company
\nConvertible Securities shall be equal to the Aggregate Share Number. Subject to
\nthe terms and conditions of this Agreement, as of the Effective Time, by virtue
\nof the Merger and without any action on the part of Merger Sub, the Company or
\nthe holder of any shares of the Company Capital Stock or Company Convertible
\nSecurities, the following shall occur:<\/p>\n
(i) Effect on Company Capital Stock. At the Effective Time, by
\nvirtue of the Merger and without any action on the part of Company or the
\nCompany Shareholders, each share of Company Capital Stock issued and outstanding
\nimmediately prior to the Effective Time (other than any Dissenting Shares, as
\ndefined in Section 1.7 hereof and any shares owned by Parent, Merger Sub or
\nCompany or any direct or indirect wholly-owned subsidiary thereof) shall be
\ncanceled and extinguished and shall be converted automatically into the right to
\nreceive, upon surrender of the certificate representing such share of Company
\nCapital Stock and upon the terms and subject to conditions set forth below and
\nthroughout this Agreement, a number of shares of Parent Common Stock equal to
\nthe Exchange Ratio (the “Merger Consideration”).<\/p>\n
(ii) Assumption of Company Convertible Securities. As soon as
\npracticable following the Closing but effective as of the Effective Time, each
\noutstanding Company Option, collectively, issued pursuant to Company’s 1999
\nStock Award Plan and 1999 Executive Stock Award Plan (collectively, the “Option
\nPlans”) or otherwise and each other Company Convertible Security, in each case
\nwhether vested or unvested, will be assumed by Parent in connection with the
\nMerger. Each Company Convertible Security so assumed by Parent under this
\nAgreement shall continue to have, and be subject to, the same terms and
\nconditions set forth in the Option Plan and\/or as provided in the respective
\noption or similar agreement immediately prior to the Effective Time (including,
\nwithout limitation, any vesting schedule or repurchase rights), except that (i)
\neach Company Convertible Security will be exercisable for that number of whole
\nshares of <\/p>\n
-4-
\n 9<\/p>\n
Parent Common Stock equal to the product of the number of shares of Company
\nCommon Stock that were issuable upon exercise of such Company Convertible
\nSecurity immediately prior to the Effective Time multiplied by the Exchange
\nRatio, rounded down to the nearest whole number of shares of Parent Common Stock
\nand (ii) the per share exercise price for the shares of Parent Common Stock
\nissuable upon exercise of such assumed Company Convertible Security will be
\nequal to the quotient determined by dividing the exercise price per share of
\nCompany Capital Stock at which such Company Convertible Security was exercisable
\nimmediately prior to the Effective Time by the Exchange Ratio, rounded up to the
\nnearest whole cent.<\/p>\n
(iii) Option Status. It is the intention of the parties hereto
\nthat the Company Options assumed by Parent following the Closing pursuant to
\nthis Section 1.6 will, to the extent permitted by applicable law, qualify as
\nincentive stock options as defined in Section 422 of the Code, to the extent any
\nsuch Company Options qualified as incentive stock options immediately prior to
\nthe Effective Time.<\/p>\n
(iv) Fractional Shares. No fractional share of Parent Common
\nStock shall be issued in the Merger. In lieu thereof, any fractional share shall
\nbe rounded to the nearest whole share of Parent Common Stock (with .5 being
\nrounded up).<\/p>\n
(v) Cancellation of Parent-Owned and Company-Owned Stock. At the
\nEffective Time, by virtue of the Merger and without any action on the part of
\nany of the parties hereto, each share of Company Capital Stock owned by Parent,
\nMerger Sub, Company or any direct or indirect wholly-owned subsidiary thereof
\nimmediately prior to the Effective Time, shall be cancelled and extinguished
\nwithout any conversion thereof.<\/p>\n
(vi) Capital Stock of Merger Sub. At the Effective Time, by
\nvirtue of the Merger and without any action on the part of any of the parties
\nhereto, each share of capital stock of Merger Sub issued and outstanding
\nimmediately prior to the Effective Time shall be converted into and exchanged
\nfor one validly issued, fully paid and nonassessable share of common stock of
\nthe Surviving Corporation. Each stock certificate of Merger Sub evidencing
\nownership of any such shares shall continue to evidence ownership of such shares
\nof capital stock of the Surviving Corporation.<\/p>\n
1.7 Dissenting Shares for Holders of Company Capital Stock.<\/p>\n
(a) Notwithstanding any provision of this Agreement to the contrary,
\nany shares of Company Capital Stock held by a holder (i) who has not voted in
\nfavor of the Merger, (ii) from whom the Company shall have received, before the
\nvote is taken at the Company shareholders’ meeting to adopt this Agreement,
\nwritten notice of such holder’s intent to demand payment for such holder’s
\nshares of Company Capital Stock, in accordance with Article 13 of Chapter 55 of
\nthe North Carolina Law if the Merger is effectuated, and (iii) who has preserved
\nsuch holder’s right to receive payment for such shares by taking those actions
\nrequired by such Article 13 within the time periods stipulated therein
\n(collectively, the “Dissenting Shares”) shall not be converted into or represent
\nthe <\/p>\n
-5-
\n 10<\/p>\n
right to receive the Merger Consideration. Such shareholders shall be entitled
\nto receive the amounts determined in accordance with the provisions of such
\nArticle 13.<\/p>\n
(b) Notwithstanding the provisions of subsection (a), if any holder of
\nshares of Company Capital Stock who demands appraisal of such shares under North
\nCarolina Law shall effectively withdraw or lose (through failure to perfect or
\notherwise) the right to appraisal, then, as of the later of the Effective Time
\nand the occurrence of such event, such holder’s shares shall automatically be
\nconverted into and represent only the right to receive Parent Common Stock as
\nprovided in Section 1.6 (and subject to the provisions of Section 7.4 hereof),
\nwithout interest thereon, upon surrender of the certificate representing such
\nshares.<\/p>\n
(c) Company shall give Parent (i) prompt notice of any written demands
\nfor appraisal of any shares of Company Capital Stock, withdrawals of such
\ndemands, and any other instruments served pursuant to North Carolina Law and
\nreceived by Company and (ii) the opportunity to participate in all negotiations
\nand proceedings with respect to demands for appraisal under North Carolina Law.
\nCompany shall not, except with the prior written consent of Parent, voluntarily
\nmake any payment with respect to any demands for appraisal of capital stock of
\nCompany or offer to settle or settle any such demands. Notwithstanding anything
\nto the contrary contained herein, Parent shall have full recourse to the Escrow
\nFund (as defined in Section 7.4(a)) for the amount, if any, paid by Company or
\nParent in respect of Dissenting Shares.<\/p>\n
1.8 Surrender of Certificates.<\/p>\n
(a) Exchange Agent. The transfer agent of Parent (or another entity
\nreasonably acceptable to Parent and the Company) shall serve as exchange agent
\n(the “Exchange Agent”) in the Merger.<\/p>\n
(b) Parent to Provide Parent Common Stock. Prior to the Closing,
\nParent shall make available to the Exchange Agent for exchange in accordance
\nwith this Article I the shares of Parent Common Stock issuable to Company
\nShareholders pursuant to Section 1.6 hereof in exchange for outstanding shares
\nof Company Capital Stock, less the Escrow Amount which Parent shall deposit into
\nthe Escrow Fund (as defined in Section 7.4(a) hereof) on behalf of the Company
\nShareholders. The portion of the Escrow Amount contributed on behalf of each
\nCompany Shareholder shall be in proportion to the aggregate number of shares of
\nParent Common Stock each such Company Shareholder would otherwise be entitled to
\nreceive in the Merger (excluding any shares of Parent Common Stock issuable upon
\nexercise of any assumed Company Convertible Securities) by virtue of ownership
\nof outstanding shares of Company Capital Stock immediately prior to the
\nEffective Time and, in the case of the shares of Parent Common Stock contributed
\nto the Escrow Amount by the Principal Shareholders, one-third (1\/3) of the
\nshares of Parent Common Stock so contributed by the Principal Shareholders shall
\nbe “Vested Shares” as defined in the repurchase agreement between such Principal
\nShareholder and the Company (the “Repurchase Agreement”) and the remainder of
\nthe shares so contributed shall be “Unvested Shares” (as defined in such
\nRepurchase Agreement) which vest on May 31, 2001.<\/p>\n
-6-
\n 11<\/p>\n
(c) Exchange Procedures. Prior to the Closing, Parent shall cause to
\nbe delivered to each Company Shareholder (i) a letter of transmittal (which
\nshall be in such form and contain such provisions as Parent may reasonably
\nspecify and shall specify that delivery shall be effected, and risk of loss and
\ntitle to the certificates (the “Certificates”) which immediately prior to the
\nEffective Time represent outstanding shares of Company Capital Stock whose
\nshares are converted into the right to receive such Company Shareholder’s pro
\nrata portion of the Merger Consideration pursuant to Section 1.6 hereof, shall
\npass, only upon delivery of the Certificates to the Exchange Agent) and (ii)
\ninstructions for use in effecting the surrender following the Closing of the
\nCertificates in exchange for certificates representing such Company
\nShareholder’s pro rata portion of the Merger Consideration. Upon surrender of a
\nCertificate at the Closing for cancellation to the Exchange Agent or to such
\nother agent or agents as may be appointed by Parent, together with such letter
\nof transmittal, duly completed and validly executed in accordance with the
\ninstructions thereto, the Company Shareholder shall be entitled to receive, and
\nthe Exchange Agent shall promptly deliver in exchange therefor, a certificate
\nrepresenting the number of whole shares of Parent Common Stock (less the number
\nof shares of Parent Common Stock to be deposited in the Escrow Fund on such
\nholder’s behalf pursuant to Section 1.8(b) and Article VII hereof) to which such
\nholder is entitled pursuant to Section 1.6 hereof, and the Certificate so
\nsurrendered shall forthwith be canceled. As soon as practicable after the
\nEffective Time, and subject to and in accordance with the provisions of Article
\nVII hereof, Parent shall cause to be distributed to the Escrow Agent (as defined
\nin Article VII hereof) a certificate or certificates representing that number of
\nshares of Parent Common Stock equal to the Escrow Amount which shall be
\nregistered in the name of the Escrow Agent. Such shares shall be beneficially
\nowned by the holders on whose behalf such shares were deposited in the Escrow
\nFund and shall be available to compensate Parent as provided in Article VII
\nhereof. Until so surrendered, each outstanding Certificate that, prior to the
\nEffective Time, represented shares of Company Capital Stock will be deemed from
\nand after the Effective Time, for all corporate purposes, other than the payment
\nof dividends, to evidence the ownership of the number of full shares of Parent
\nCommon Stock into which such shares of Company Capital Stock shall have been so
\nconverted.<\/p>\n
(d) Distributions With Respect to Unexchanged Shares. No dividends or
\nother distributions declared or made after the Effective Time with respect to
\nParent Common Stock with a record date after the Effective Time will be paid to
\nthe holder of any unsurrendered Certificate with respect to the shares of Parent
\nCommon Stock represented thereby until the holder of record of such Certificate
\nshall surrender such Certificate. Subject to applicable law, following surrender
\nof any such Certificate, there shall be paid to the record holder of the
\ncertificates representing whole shares of Parent Common Stock in exchange
\ntherefor, plus the amount of dividends or other distributions (without interest)
\nwith a record date after the Effective Time theretofore paid with respect to
\nsuch whole shares of Parent Common Stock.<\/p>\n
(e) Transfers of Ownership. If any certificate for shares of Parent
\nCommon Stock is to be issued in a name other than that in which the Certificate
\nsurrendered in exchange therefor is registered, it will be a condition of the
\nissuance thereof that the Certificate so surrendered will be properly endorsed
\nand otherwise in proper form for transfer and that the person requesting such<\/p>\n
-7-
\n 12<\/p>\n
exchange will have paid to Parent or any agent designated by it any transfer or
\nother taxes required by reason of the issuance of a certificate for shares of
\nParent Common Stock in any name other than that of the registered holder of the
\nCertificate surrendered.<\/p>\n
(f) Lost, Stolen or Destroyed Certificates. In the event any
\nCertificates evidencing shares of Company Capital Stock shall have been lost,
\nstolen or destroyed, the Exchange Agent shall issue in exchange for such lost,
\nstolen or destroyed certificates, upon the delivery by the holder thereof of an
\naffidavit of that fact by the holder thereof containing customary
\nindemnification provisions; provided, however, Parent may, in its discretion and
\nas a condition precedent to the issuance thereof, require the Company
\nShareholder who is the owner of such lost, stolen or destroyed certificate to
\ndeliver a bond in such amount as Parent may reasonably direct against any claim
\nthat may be made against Parent, the Surviving Corporation or the Exchange Agent
\nwith respect to the certainties alleged to have been lost, stolen or destroyed.<\/p>\n
(g) No Liability. Notwithstanding anything to the contrary in this
\nSection 1.8, neither Parent nor any party hereto shall be liable to a holder of
\nshares of Parent Common Stock or Company Capital Stock for any amount properly
\npaid to a public official pursuant to any applicable abandoned property, escheat
\nor similar law.<\/p>\n
(h) No Further Ownership Rights in Company Capital Stock. The shares
\nof Parent Common Stock issued in accordance with the terms hereof shall be
\ndeemed to be full satisfaction of all rights pertaining to shares of Company
\nCapital Stock outstanding prior to the Effective Time, and there shall be no
\nfurther registration of transfers on the records of the Surviving Corporation of
\nshares of Company Capital Stock that were outstanding prior to the Effective
\nTime. If, after the Effective Time, Certificates are presented to Parent or the
\nSurviving Corporation for any reason, they shall be canceled and exchanged as
\nprovided in this Article I.<\/p>\n
(i) Taking of Necessary Action; Further Action. If, at any time after
\nthe Effective Time, any further action is necessary or desirable to carry out
\nthe purposes of this Agreement and to vest Surviving Corporation with full
\nright, title and possession to all assets, property, rights, privileges, powers
\nand franchises of Company, Parent and Merger Sub, the officers and directors of
\nCompany, Parent and Merger Sub are fully authorized in the name of their
\nrespective corporations or otherwise to take, and will take, all such lawful and
\nnecessary action.<\/p>\n
1.9 Tax Consequences. It is intended by the parties hereto that the Merger
\nshall constitute a reorganization within the meaning of Section 368(a) of the
\nCode.<\/p>\n
ARTICLE II<\/p>\n
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
\n AND THE PRINCIPAL SHAREHOLDERS<\/p>\n
As of the date hereof and as of the Closing Date, the Company and each of
\nthe Principal Shareholders, jointly and severally, represents and warrants to
\nParent and Merger Sub, subject to <\/p>\n
-8-
\n 13<\/p>\n
such exceptions as are specifically disclosed in the disclosure letter
\n(referencing the appropriate section number) supplied by the Company to Parent
\n(the “Company Disclosure Letter”) and dated as of the date hereof, as follows:<\/p>\n
2.1 Organization of the Company. The Company is a corporation duly
\norganized and validly existing under the laws of the State of North Carolina.
\nThe Company has the corporate power to own its properties and to carry on its
\nbusiness as now being conducted and as proposed to be conducted. The Company is
\nduly qualified to do business and in good standing as a foreign corporation in
\neach jurisdiction in which it conducts its business. The Company has delivered a
\ntrue and correct copy of its Articles of Incorporation and Bylaws, each as
\namended to date and in full force and effect on the date hereof, to Parent. Part
\n2.1 of the Company Disclosure Letter lists the directors and officers of the
\nCompany. The operations now being conducted by the Company are not now and have
\nnever been conducted by the Company under any other name.<\/p>\n
2.2 Company Capital Structure.<\/p>\n
(a) The authorized capital stock of the Company consists of 75,000,000
\nshares of authorized Common Stock, of which 14,200,000 shares are issued and
\noutstanding as of the date hereof, and 25,000,000 shares of authorized Preferred
\nStock, 6,025,000 of which are designated Series A Preferred Stock, 5,900,000 of
\nwhich Series A Preferred Stock shares are issued and outstanding as of the date
\nhereof. Except for grants of stock options permitted under Section 4.1(h) hereof
\nand stock or options issued with the written consent of Parent between the date
\nhereof and the Effective Time, the total number of shares of Company Common
\nStock outstanding as of immediately prior to the Effective Time (assuming the
\nconversion, exercise or exchange of all securities convertible into, or
\nexercisable or exchangeable for, shares of Company Common Stock, and the
\nexercise of all Company Options) will be as set forth in Part 2.2(a) of the
\nCompany Disclosure Letter. Except for exercises of warrants set forth on the
\nCompany Disclosure Letter between the date hereof and the Effective Time, the
\nCompany Capital Stock is held of record by the persons, with the addresses of
\nrecord and in the amounts set forth on Part 2.2(a) of the Company Disclosure
\nLetter. All outstanding shares of Company Capital Stock are duly authorized,
\nvalidly issued, fully paid and non-assessable and not subject to preemptive
\nrights created by statute, the Articles of Incorporation or Bylaws of the
\nCompany or any agreement to which the Company is a party or by which it is
\nbound, and have been issued in compliance with federal and state securities
\nlaws. There are no declared or accrued but unpaid dividends with respect to any
\nshares of Company Common Stock. As of the date hereof, the Company has no other
\ncapital stock authorized, issued or outstanding. Each share of Company Series A
\nPreferred Stock converts into one share of Company Common Stock.<\/p>\n
(b) Except for the Option Plans, the Company has never adopted or
\nmaintained any stock option plan or other plan providing for equity compensation
\nof any person. The Company has reserved an aggregate of 4,385,000 shares of
\nCommon Stock for issuance to employees, directors and consultants upon the
\nexercise of Company Options pursuant to the Option Plans, of which (i) 3,874,500
\nshares are issuable, as of the date hereof, upon the exercise of outstanding,<\/p>\n
-9-
\n 14<\/p>\n
unexercised Company Options granted under the Option Plans and (ii) 510,500
\nshares remain available for future grant as of the date hereof. The Company has
\nreserved a sufficient number of shares of Common Stock for issuance upon
\nexercise of outstanding Company Convertible Securities granted outside the
\nOption Plans. Part 2.2(b) of the Company Disclosure Letter sets forth for each
\noutstanding Company Convertible Security, the name of the holder of such Company
\nConvertible Security, the domicile address of such holder, the number of shares
\nof Common Stock subject to such Convertible Security, the exercise price of such
\nConvertible Security and the vesting schedule for such Convertible Security,
\nincluding the extent vested to date and whether the vesting exercisability of
\nsuch Convertible Security will be accelerated and become exercisable by reason
\nof the transactions contemplated by this Agreement and whether such Convertible
\nSecurity is intended to qualify as an incentive stock option as defined in
\nSection 422 of the Code, each as of the date hereof. Except for grants of stock
\noptions permitted under Section 4.1(h) hereof and issuances with the written
\nconsent of Parent between the date hereof and the Effective Time, there are no
\noptions, warrants, calls, rights, commitments or agreements of any character,
\nwritten or oral, to which the Company is a party or by which it is bound
\nobligating the Company to issue, deliver, sell, repurchase or redeem, or cause
\nto be issued, delivered, sold, repurchased or redeemed, any shares of the
\ncapital stock of the Company or obligating the Company to grant, extend,
\naccelerate the vesting of, change the price of, otherwise amend or enter into
\nany such option, warrant, call, right, commitment or agreement. There are no
\noutstanding or authorized stock appreciation, phantom stock, profit
\nparticipation, or other similar rights with respect to the Company. Except as
\ncontemplated hereby, there are no voting trusts, proxies, or other agreements or
\nunderstandings with respect to the voting stock of the Company. The holders of
\nCompany Convertible Securities have been or will be given, or shall have
\nproperly waived, any required notice prior to the Merger. As a result of the
\nMerger, Parent will be the record and sole beneficial owner of all capital stock
\nof the Company and rights to acquire or receive such capital stock.<\/p>\n
2.3 Subsidiaries. The Company does not have and has never had any
\nsubsidiaries or affiliated companies and does not otherwise own and has never
\notherwise owned any shares of capital stock or any interest in, or control,
\ndirectly or indirectly, any other corporation, partnership, association, joint
\nventure or other business entity.<\/p>\n
2.4 Authority. Subject only to the requisite approval of the Merger and
\nthis Agreement by the Company’s shareholders, the Company has all requisite
\ncorporate power and authority to enter into this Agreement and to consummate the
\ntransactions contemplated hereby. The vote required of the Company’s
\nshareholders to duly approve the Merger and this Agreement is a majority of
\nshares of Company Series A Preferred Stock and a majority of shares of Company
\nCommon Stock (collectively, the “Required Shares”). Company Shareholders who in
\nthe aggregate hold the Required Shares have executed Support Agreements. The
\nexecution and delivery of this Agreement and the consummation of the
\ntransactions contemplated hereby have been duly authorized by all necessary
\ncorporate action on the part of the Company, subject only to the approval of the
\nMerger by the Company Shareholders. The Company’s Board of Directors has
\nunanimously approved the Merger and this Agreement. This Agreement has been duly
\nexecuted and delivered by the Company and constitutes the valid and binding
\nobligation of the Company, enforceable <\/p>\n
-10-
\n 15<\/p>\n
in accordance with its terms. Subject only to the approval of the Merger and
\nthis Agreement by the Company Shareholders, the execution and delivery of this
\nAgreement by the Company does not, and, as of the Effective Time, the
\nconsummation of the transactions contemplated hereby will not, conflict with, or
\nresult in any violation of, or default under (with or without notice or lapse of
\ntime, or both), or give rise to a right of termination, cancellation or
\nacceleration of any obligation or loss of any benefit under (any such event, a
\n“Conflict”) (i) any provision of the Articles of Incorporation or Bylaws of the
\nCompany or (ii) any mortgage, indenture, lease, contract or other agreement or
\ninstrument, permit, concession, franchise, license, judgment, order, decree,
\nstatute, law, ordinance, rule or regulation applicable to the Company or its
\nproperties or assets. No consent, waiver, approval, order or authorization of,
\nor registration, declaration or filing with, any court, administrative agency or
\ncommission or other federal, state, county, local or foreign governmental
\nauthority, instrumentality, agency or commission (“Governmental Entity”) or any
\nthird party (so as not to trigger any Conflict) is required by or with respect
\nto the Company in connection with the execution and delivery of this Agreement
\nor the consummation of the transactions contemplated hereby, except for (i) the
\nfiling of the Articles of Merger with the North Carolina Secretary of State,
\n(ii) termination of any applicable waiting period under the Hart-Scott-Rodino
\nAntitrust Improvements Act of 1976, as amended (“HSR Act”), and (ii) such
\nconsents, waivers, approvals, orders, authorizations, registrations,
\ndeclarations and filings as may be required under applicable federal and state
\nsecurities laws.<\/p>\n
2.5 Company Financial Statements. Part 2.5 of the Company Disclosure Letter
\nsets forth the Company’s audited balance sheet as of December 31, 1999 (the
\n“Balance Sheet”) and the related audited statements of operations and cash flows
\nfrom inception (June 9, 1999) to December 31, 1999 (collectively, the “Company
\nFinancials”). The Company Financials are correct in all material respects and
\nhave been prepared in accordance with generally accepted accounting principles
\n(“GAAP”) applied on a basis consistent throughout the periods indicated and
\nconsistent with each other. The Company Financials present fairly the financial
\ncondition and operating results of the Company as of the dates and during the
\nperiods indicated therein. At no time has the Company factored its accounts
\nreceivable or otherwise sold or transferred the right to collect any of its
\naccounts receivable. In addition, at no time has the Company, or any assets of
\nthe Company, been placed in receivership or otherwise been subject to any
\nbankruptcy, insolvency or liquidation proceeding.<\/p>\n
2.6 No Undisclosed Liabilities. The Company does not have any liability,
\nindebtedness, obligation, expense, claim, deficiency, guaranty or endorsement of
\nany type, whether accrued, absolute, contingent, matured, unmatured or other
\n(whether or not required to be reflected in financial statements in accordance
\nwith GAAP), which individually or in the aggregate, (i) has not been reflected
\nin the Balance Sheet, or (ii) has not arisen (x) in the ordinary course of the
\nCompany’s business since the date of the Balance Sheet, consistent with past
\npractices or (y) permitted in accordance with Section 4.1 hereof, which in each
\ncase, is not material to the business, results of operations or financial
\ncondition of the Company.<\/p>\n
-11-
\n 16<\/p>\n
2.7 No Changes. Except as set forth in Part 2.7 of the Company Disclosure
\nLetter, since the date of the Balance Sheet and until the date hereof, there has
\nnot been, occurred or arisen any:<\/p>\n
(a) transaction by the Company except in the ordinary course of
\nbusiness as conducted on the date of the Balance Sheet and consistent with past
\npractices;<\/p>\n
(b) amendments or changes to the Articles of Incorporation or Bylaws
\nof the Company;<\/p>\n
(c) payment, discharge or satisfaction, in any amount in excess of
\n$25,000 in any one case, or $50,000 in the aggregate, of any claim, liability or
\nobligation (absolute, accrued, asserted or unasserted, contingent or otherwise),
\nother than payment, discharge or satisfaction in the ordinary course of business
\nof liabilities reflected or reserved against on the Balance Sheet;<\/p>\n
(d) capital expenditure or commitment by the Company, either
\nindividually or in the aggregate, exceeding $25,000;<\/p>\n
(e)destruction of, damage to or loss of any material assets, business
\nor customer of the Company (whether or not covered by insurance);<\/p>\n
(f) labor trouble or claim of wrongful discharge or other unlawful
\nlabor practice or action;<\/p>\n
(g) event or condition that has had or would be reasonably expected to
\nhave a Material Adverse Effect (as defined in Section 9.2 hereof) on the
\nCompany;<\/p>\n
(h) change in accounting methods or practices (including any change in
\ndepreciation or amortization policies or rates) by the Company;<\/p>\n
(i) revaluation by the Company of any of its assets;<\/p>\n
(j) declaration, setting aside or payment of a dividend or other
\ndistribution with respect to the capital stock of the Company, or any direct or
\nindirect redemption, purchase or other acquisition by the Company of any of (i)
\nits capital stock or (ii) options, warrants or rights convertible into,
\nexercisable or exchangeable for its capital stock;<\/p>\n
(k) increase in the salary or other compensation payable or to become
\npayable to any of its officers or directors, or the declaration, payment or
\ncommitment or obligation of any kind for the payment of a bonus or other
\nadditional salary or compensation to any such person except as otherwise
\ncontemplated by this Agreement;<\/p>\n
(l) sale, lease, license or other disposition of any of the assets or
\nproperties of the Company, except in the ordinary course of business as
\nconducted on that date and consistent with past practices;<\/p>\n
-12-
\n 17<\/p>\n
(m) loan by the Company to any person or entity, incurring by the
\nCompany of any indebtedness, guaranteeing by the Company of any indebtedness,
\nissuance or sale of any debt securities of the Company or guaranteeing of any
\ndebt securities of others, in each case for borrowed money (including leases and
\ncapitalized leases), except for advances to employees for travel and business
\nexpenses in the ordinary course of business, consistent with past practices;<\/p>\n
(n) waiver or release of any right or claim of the Company, including
\nany write-off or other compromise of any account receivable of the Company;<\/p>\n
(o) change in pricing or royalties set or charged by the Company to
\nits customers or licensees or in pricing or royalties set or charged by persons
\nwho have licensed Intellectual Property (as defined in Section 2.11) to the
\nCompany;<\/p>\n
(p) issuance, sale, or contract to issue or sell, by the Company of
\nany shares of Company capital stock or securities convertible into, or
\nexercisable or exchangeable for, shares of Company capital stock, or any
\nsecurities, warrants, options or rights to purchase any of the foregoing; except
\nfor issuances of Company Common Stock upon the exercise thereof;<\/p>\n
(q) change in any election in respect of Taxes (as defined in Section
\n2.8 hereof), adoption or change in any accounting method in respect of Taxes,
\nagreement or settlement of any claim or assessment in respect of Taxes, or
\nextension or waiver of the limitation period applicable to any claim or
\nassessment in respect of Taxes; or<\/p>\n
(r) negotiation or agreement by the Company or any officer or
\nemployees thereof to do any of the things described in the preceding clauses (a)
\nthrough (q) (other than negotiations with Parent and its representatives
\nregarding the transactions contemplated by this Agreement).<\/p>\n
2.8 Tax and Other Returns and Reports.<\/p>\n
(a) Definition of Taxes. For the purposes of this Agreement, “Tax” or,
\ncollectively, “Taxes,” means (i) any and all federal, state, local and foreign
\ntaxes, assessments and other governmental charges, duties, impositions and
\nliabilities, including taxes based upon or measured by gross receipts, income,
\nprofits, sales, use and occupation, and value added, ad valorem, transfer,
\nfranchise, withholding, payroll, recapture, employment, excise and property
\ntaxes, together with all interest, penalties and additions imposed with respect
\nto such amounts, (ii) any liability for the payment of any amounts of the type
\ndescribed in clause (i) of this Section 2.8(a) as a result of being a member of
\nan affiliated, consolidated, combined or unitary group for any period, and (iii)
\nany liability for the payment of any amounts of the type described in clauses
\n(i) or (ii) of this Section 2.8(a) as a result of any express or implied
\nobligation to indemnify any other person or as a result of any obligations under
\nany agreements or arrangements with any other person with respect to such
\namounts and including any liability for taxes of a predecessor entity.<\/p>\n
(b) Tax Returns and Audits.<\/p>\n
-13-
\n 18<\/p>\n
(i) The Company as of the Effective Time will have prepared and
\nfiled all required federal, state, local and foreign returns, estimates,
\ninformation statements and reports (“Returns”) relating to any and all Taxes
\nconcerning or attributable to the Company, its operations or the Merger that are
\nrequired to be filed by the Effective Time and such Returns are true and correct
\nand have been completed in accordance with applicable law.<\/p>\n
(ii) The Company as of the Effective Time: (A) will have paid or
\naccrued all Taxes it is required to pay or accrue attributable to events
\noccurring prior to the Effective Time and (B) will have reported and withheld
\nwith respect to its employees all federal and state income taxes, FICA, FUTA and
\nother Taxes required to be reported and withheld attributable to events
\noccurring prior to the Effective Time.<\/p>\n
(iii) The Company has not been delinquent in the payment of any
\nTax nor is there any Tax deficiency outstanding, proposed or assessed against
\nthe Company attributable to events occurring prior to the Effective Time, nor
\nhas the Company executed any waiver of any statute of limitations on or
\nextending the period for the assessment or collection of any Tax attributable to
\nevents occurring prior to the Effective Time.<\/p>\n
(iv) No audit or other examination of any Return of the Company
\nis currently in progress, nor has the Company been notified of any request for
\nsuch an audit or other examination.<\/p>\n
(v) The accrual for Taxes on the Balance Sheet is an amount at
\nleast equal to the sum of the Company’s liability for Taxes (other than Taxes
\npreviously paid over to the appropriate taxing authority) for all Tax periods
\n(and portions thereof) ending on or before the date of the Balance Sheet plus
\nits deferred Tax liability. Since the date of the Balance Sheet, the Company has
\nnot incurred any liability for Taxes other than in the ordinary course of
\nbusiness.<\/p>\n
(vi) The Company has provided to Parent copies of all foreign,
\nfederal, state and local income and all state and local sales and use Tax
\nReturns for all periods since the date of Company’s incorporation.<\/p>\n
(vii) There are (and as of immediately following the Effective
\nDate there will be) no liens, pledges, charges, claims, security interests or
\nother encumbrances of any sort (“Liens”) on the assets of the Company relating
\nto or attributable to Taxes, except for (i) Liens for Taxes not yet at the time
\ndelinquent, (ii) Liens thereafter payable without penalty, or (iii) liens being
\ncontested in good faith by appropriate proceedings and supported by appropriate
\nreserves on the Balance Sheet.<\/p>\n
(viii) The Company has no Knowledge of any basis for the
\nassertion of any claim relating or attributable to Taxes which, if adversely
\ndetermined, would result in any Lien on the assets of the Company.<\/p>\n
-14-
\n 19<\/p>\n
(ix) None of the Company’s assets are treated as “tax-exempt use
\nproperty” within the meaning of Section 168(h) of the Code.<\/p>\n
(x) As of the Effective Time, there will not be any contract,
\nagreement, plan or arrangement, including but not limited to the provisions of
\nthis Agreement, covering any employee or former employee of the Company that,
\nindividually or collectively, could give rise to the payment of any amount that
\nwould not be deductible pursuant to Sections 280G, 404 or 162 of the Code.<\/p>\n
(xi) The Company has not filed any consent agreement under
\nSection 341(f) of the Code or agreed to have Section 341(f)(2) of the Code apply
\nto any disposition of a subsection (f) asset (as defined in Section 341(f)(4) of
\nthe Code) owned by the Company.<\/p>\n
(xii) The Company is not a party to a tax sharing or allocation
\nagreement nor does the Company owe any amount under any such agreement.<\/p>\n
(xiii) The Company is not, and has not been at any time, a
\n“United States real property holding corporation” within the meaning of Section
\n897(c)(2) of the Code.<\/p>\n
(xiv) The Company’s tax basis in its assets for purposes of
\ndetermining its future amortization, depreciation and other federal income tax
\ndeductions is accurately reflected on the Company’s tax books and records.<\/p>\n
(xv) No adjustment relating to any Return filed by the Company
\nhas been proposed formally or, to the Knowledge of the Company, informally by
\nany tax authority to the Company or any representative thereof.<\/p>\n
(xvi) Neither the Company nor any of its subsidiaries has
\nconstituted either a “distributing corporation” or a “controlled corporation” in
\na distribution of stock qualifying for tax-free treatment under Section 355 of
\nthe Code (i) in the two years prior to the date of this Agreement or (ii) in a
\ndistribution which could otherwise constitute part of a “plan” or “series of
\nrelated transactions” (within the meaning of Section 355(e) of the Code) in
\nconjunction with the Merger.<\/p>\n
2.9 Restrictions on Business Activities. There is no agreement (noncompete
\nor otherwise), commitment, judgment, injunction, order or decree to which the
\nCompany is a party or otherwise binding upon the Company which has or reasonably
\nwould be expected to have the effect of prohibiting or impairing any business
\npractice of the Company, any acquisition of property (tangible or intangible) by
\nthe Company or the conduct of business by the Company. Without limiting the
\nforegoing, the Company has not entered into any agreement under which the
\nCompany is restricted from selling, licensing or otherwise distributing any of
\nits technology or products to or providing services, to any class of customers
\nor potential customers, in any geographic area, during any period of time or in
\nany segment of the market.<\/p>\n
-15-
\n 20<\/p>\n
2.10 Title to Properties; Absence of Liens and Encumbrances.<\/p>\n
(a) The Company owns no real property, nor has it ever owned any real
\nproperty. Part 2.10(a) of the Company Disclosure Letter sets forth a list of all
\nreal property currently, or at any time in the past, leased by the Company, the
\nname of the lessor, the date of the lease and each amendment thereto and, with
\nrespect to any current lease, the aggregate annual rental and\/or other fees
\npayable under any such lease. All such current leases are in full force and
\neffect, are valid and effective in accordance with their respective terms, and
\nthere is not, under any of such leases, any existing default or event of default
\n(or event which with notice or lapse of time, or both, would constitute a
\ndefault).<\/p>\n
(b) The Company has good and valid title to, or, in the case of leased
\nproperties and assets, valid leasehold interests in, all of its tangible
\nproperties and assets, real, personal and mixed, used or held for use in its
\nbusiness, free and clear of any Liens (as defined in Section 2.8(b)(vii)),
\nexcept as reflected in the Company Financials and except for (i) Liens for taxes
\nnot at the time delinquent or thereafter payable without penalty; (ii) Liens
\nbeing contested in good faith by appropriate proceedings and supported by
\nadequate reserves on the Balance Sheet, and (iii) such imperfections of title
\nand encumbrances, if any, which are not material in character, amount or extent,
\nand which do not materially detract from the value, or materially interfere with
\nthe present use, of the property subject thereto or affected thereby.<\/p>\n
2.11 Intellectual Property.<\/p>\n
For the purposes of this Agreement, the following terms have the following
\ndefinitions:<\/p>\n
“Intellectual Property” shall mean any or all of the following and all
\n rights in, arising out of, or associated therewith: (i) all United
\n States, international and foreign patents and applications therefor
\n and all reissues, divisions, renewals, extensions, provisionals,
\n continuations and continuations-in-part thereof; (ii) all inventions
\n (whether patentable or not), invention disclosures, improvements,
\n trade secrets, proprietary information, know how, technology,
\n technical data and customer lists, and all documentation relating to
\n any of the foregoing; (iii) all copyrights, copyrights registrations
\n and applications therefor, and all other rights corresponding thereto
\n throughout the world; (iv) all industrial designs and any
\n registrations and applications therefor throughout the world; (v) all
\n trade names, logos, URLs, common law trademarks and service marks,
\n trademark and service mark registrations and applications therefor
\n throughout the world; (vi) all databases and data collections and all
\n rights therein throughout the world; (vii) all moral and economic
\n rights of authors and inventors, however denominated, throughout the
\n world and (viii) any similar or equivalent rights to any of the
\n foregoing anywhere in the world.<\/p>\n
“Company Intellectual Property” shall mean any Intellectual Property
\n that is owned by, or exclusively licensed to, the Company.<\/p>\n
-16-
\n 21<\/p>\n
“Registered Intellectual Property” means all United States,
\n international and foreign: (i) patents and patent applications
\n (including provisional applications); (ii) registered trademarks,
\n applications to register trademarks, intent-to-use applications, or
\n other registrations or applications related to trademarks; (iii)
\n registered copyrights and applications for copyright registration; and
\n (iv) any other Intellectual Property that is the subject of an
\n application, certificate, filing, registration or other document
\n issued, filed with, or recorded by any state, government or other
\n public legal authority.<\/p>\n
“Company Registered Intellectual Property” means all of the Registered
\n Intellectual Property owned by, or filed in the name of, the Company.<\/p>\n
(a) No Company Intellectual Property or product or service of the
\nCompany is subject to any proceeding or outstanding decree, order, judgment,
\nagreement or stipulation restricting in any manner the use, transfer, or
\nlicensing thereof by the Company, or which may affect the validity, use or
\nenforceability of such Company Intellectual Property.<\/p>\n
(b) Part 2.11(b) of the Company Disclosure Letter is a complete and
\naccurate list of all Company Registered Intellectual Property as of the date
\nhereof and specifies, where applicable, the jurisdictions in which each such
\nitem of Company Registered Intellectual Property has been issued or registered
\nor in which an application for such issuance and registration has been filed,
\nincluding the respective registration or application numbers. Each item of
\nCompany Registered Intellectual Property is valid and subsisting, all necessary
\nregistration, maintenance and renewal fees currently due in connection with such
\nRegistered Intellectual Property have been made and all necessary documents,
\nrecordations and certificates in connection with such Registered Intellectual
\nProperty have been filed with the relevant patent, copyright, trademark or other
\nauthorities in the United States or foreign jurisdictions, as the case may be,
\nfor the purposes of maintaining such Registered Intellectual Property.<\/p>\n
(c) The Company owns and has good and exclusive title to, or has
\nlicense (sufficient for the conduct of its business as currently conducted and
\nas currently proposed to be conducted) to, each item of Company Intellectual
\nProperty or other Intellectual Property used by the Company free and clear of
\nany lien or encumbrance (excluding licenses and related restrictions); and the
\nCompany is the exclusive owner of all trademarks and trade names used in
\nconnection with the operation or conduct of the business of the Company,
\nincluding the sale of any products or the provision of any services by the
\nCompany.<\/p>\n
(d) The Company owns exclusively, and has good title to, all
\ncopyrighted works that are included within the Company products or which the
\nCompany otherwise expressly purports to own. The Company owns exclusively, and
\nhas good title to, all source-code and object-code used in or incorporated in
\nthe Company’s products or services.<\/p>\n
(e) To the extent that any Intellectual Property has been developed or
\ncreated by a third party for the Company, the Company has a written agreement
\nwith such third party with respect thereto and the Company thereby either (i)
\nhas obtained ownership of, and is the exclusive <\/p>\n
-17-
\n 22<\/p>\n
owner of or (ii) has obtained a license (sufficient for the conduct of its
\nbusiness as currently conducted and as currently proposed to be conducted) to
\nall such third party’s Intellectual Property in such work, material or invention
\nby operation of law or by valid assignment, to the fullest extent it is legally
\npossible to do so.<\/p>\n
(f) The Company has not transferred ownership of, or granted any
\nexclusive license with respect to, any Intellectual Property that is or was
\nmaterial to the Company Intellectual Property, to any third party.<\/p>\n
(g) Part 2.11(g) of the Company Disclosure Letter list all material
\ncontracts, licenses and agreements to which the Company is a party as of the
\ndate hereof (i) with respect to the Company Intellectual Property licensed or
\ntransferred to any third party (other than end-user licenses in the ordinary
\ncourse); or (ii) pursuant to which a third party has licensed or transferred any
\nmaterial Intellectual Property to the Company.<\/p>\n
(h) All contracts, licenses and agreements relating to Company
\nIntellectual Property are in full force and effect. The consummation of the
\ntransactions contemplated by this Agreement will neither violate nor result in
\nthe breach, modification, cancellation, termination or suspension of such
\ncontracts, licenses and agreements. The Company is in compliance with, and has
\nnot breached any term any of such contracts, licenses and agreements and, to the
\nKnowledge of the Company, all other parties to such contracts, licenses and
\nagreements are in compliance with, and have not breached any term of, such
\ncontracts, licenses and agreements. Following the Closing Date, the Surviving
\nCorporation will be permitted to exercise all of the Company’s rights under such
\ncontracts, licenses and agreements to the same extent the Company would have
\nbeen able to had the transactions contemplated by this Agreement not occurred.<\/p>\n
(i) Neither this Agreement nor the transactions contemplated hereby,
\nincluding the assignment to Parent by operation of law or otherwise of any such
\ncontracts, licenses and agreements of the Company will result in: (i) Parent,
\nMerger Sub, the Company or the Principal Shareholders granting to any third
\nparty any right to or with respect to any Intellectual Property owned by, or
\nlicensed to, any of them, (ii) Parent, Merger Sub, the Company or the Principal
\nShareholders being bound by, or subject to, any non-compete or other material
\nrestriction on the operation or scope of their respective businesses or conduct
\nin the case of the Principal Shareholders, or (iii) Parent, Merger Sub, the
\nCompany or the Principal Shareholders being obligated to pay any royalties or
\nother material amounts to any third party in excess of those payable by any of
\nthem, respectively, in the absence of this Agreement or the transactions
\ncontemplated hereby.<\/p>\n
(j) The Company is not engaged in any of the businesses described in
\nPart 2.11(j) of the Company Disclosure Letter.<\/p>\n
(k) The operation of the business of the Company as such business
\ncurrently is conducted, including the Company’s design, development,
\nmanufacture, marketing and sale of the products or services of the Company
\n(including with respect to products and services currently under<\/p>\n
-18-
\n 23
\ndevelopment) has not, does not and will not infringe or misappropriate the
\nIntellectual Property of any third party or constitute unfair competition or
\ntrade practices under the laws of any jurisdiction.<\/p>\n
(l) The Company has not received notice from any third party that the
\noperation of the business of the Company or any act, product or service of the
\nCompany, infringes or misappropriates the Intellectual Property of any third
\nparty or constitutes unfair competition or trade practices under the laws of any
\njurisdiction.<\/p>\n
(m) To the Knowledge of the Company, no person has or is infringing or
\nmisappropriating, in any respect materially adverse to the Company, any Company
\nIntellectual Property.<\/p>\n
(n) The Company has taken reasonable steps to protect the Company’s
\nrights in the Company’s confidential information and trade secrets that it
\nwishes to protect or any trade secrets or confidential information of third
\nparties provided to the Company, and, without limiting the foregoing, the
\nCompany has and enforces a policy requiring each employee and contractor to
\nexecute a proprietary information\/confidentiality and invention assignment
\nagreement and all current and former employees and contractors of the Company
\nhave executed such an agreement, except where the failure to do so is not
\nreasonably expected to be material to the Company.<\/p>\n
2.12 Agreements, Contracts and Commitments.<\/p>\n
(a) As of the date hereof, the Company does not have, is not a party
\nto nor is it bound by:<\/p>\n
(i) any collective bargaining agreements,<\/p>\n
(ii) any agreements or arrangements that contain any severance
\npay or post-employment liabilities or obligations,<\/p>\n
(iii) any bonus, deferred compensation, pension, profit sharing
\nor retirement plans, or any other employee benefit plans or arrangements,<\/p>\n
(iv) any employment or consulting agreement, contract or
\ncommitment with an employee or individual consultant or salesperson or any
\nconsulting or sales agreement, contract or commitment under which any firm or
\nother organization provides services to the Company,<\/p>\n
(v) any agreement or plan, including, without limitation, any
\nstock option plan, stock appreciation rights plan or stock purchase plan, any of
\nthe benefits of which will be increased, or the vesting of benefits of which
\nwill be accelerated, by the occurrence of any of the transactions contemplated
\nby this Agreement or the value of any of the benefits of which will be
\ncalculated on the basis of any of the transactions contemplated by this
\nAgreement,<\/p>\n
-19-
\n 24<\/p>\n
(vi) any fidelity or surety bond or completion bond,<\/p>\n
(vii) any lease of personal or real property having a value
\nindividually in excess of $15,000,<\/p>\n
(viii) any agreement of indemnification or guaranty,<\/p>\n
(ix) any agreement, contract or commitment containing any
\ncovenant limiting the freedom of the Company to engage in any line of business
\nor to compete with any person,<\/p>\n
(x) any agreement, contract or commitment relating to capital
\nexpenditures or involving future payments in excess of $25,000,<\/p>\n
(xi) any agreement, contract or commitment relating to the
\ndisposition or acquisition of assets or any interest in any business enterprise
\noutside the ordinary course of the Company’s business,<\/p>\n
(xii) any mortgages, indentures, loans or credit agreements,
\nsecurity agreements or other agreements or instruments relating to the borrowing
\nof money or extension of credit, including guaranties referred to in clause
\n(viii) hereof,<\/p>\n
(xiii) any purchase order or contract for the purchase of raw
\nmaterials involving $25,000 or more,<\/p>\n
(xiv) any construction contracts,<\/p>\n
(xv) any sales representative, original equipment manufacturer,
\nvalue added, remarketer, reseller or independent software vendor or other
\nagreement for use of distribution of the Company’s products, technologies or
\nservices;<\/p>\n
(xvi) any distribution, joint marketing or development agreement,<\/p>\n
(xvii) any agreement pursuant to which the Company has granted or
\nmay grant in the future, to any party, a source-code license or option or other
\nright to use or acquire source-code,<\/p>\n
(xviii) any agreement pursuant to which the Company has developed
\nand\/or delivered or has received funds from any Governmental Entity to develop
\nand\/or deliver any Intellectual Property, or<\/p>\n
(xix) any other agreement, contract or commitment that involves
\n$25,000 or more or is not cancelable without penalty within thirty (30) days.<\/p>\n
-20-
\n 25<\/p>\n
(b) The Company has not breached, violated or defaulted under, or
\nreceived notice that it has breached, violated or defaulted under, any of the
\nterms or conditions of any agreement, contract or commitment required to be set
\nforth on Part 2.12(a) of the Company Disclosure Letter or Part 2.11(g) of the
\nCompany Disclosure Letter (any such agreement, contract or commitment, a
\n“Contract”). Each Contract is in full force and effect and is not subject to any
\ndefault thereunder of which the Company has Knowledge by any party obligated to
\nthe Company pursuant thereto.<\/p>\n
2.13 Interested Party Transactions. No officer, director or shareholder of
\nthe Company (nor any ancestor, sibling, descendant or spouse of any of such
\npersons, or any trust, partnership or corporation in which any of such persons
\nhas or has had an interest), has or has had, directly or indirectly, (i) an
\neconomic interest in any entity which furnished or sold, or furnishes or sells,
\nservices or products that the Company furnishes or sells, or proposes to furnish
\nor sell, (ii) an economic interest in any entity that purchases from or sells or
\nfurnishes to, or licenses to or licenses from, the Company, any goods or
\nservices or intellectual property or (iii) a beneficial interest in any
\nContract; provided, that ownership of no more than one percent (1%) of the
\noutstanding voting stock of a publicly traded corporation shall not be deemed an
\n“economic interest in any entity” for purposes of this Section 2.13.<\/p>\n
2.14 Litigation. There is no action, suit or proceeding of any nature
\npending or to the Company’s Knowledge threatened against the Company, its
\nproperties or any of its officers or directors, in their respective capacities
\nas such. To the Company’s Knowledge, there is no investigation pending or
\nthreatened against the Company, its properties or any of its officers or
\ndirectors by or before any governmental entity. Part 2.14 of the Company
\nDisclosure Letter sets forth, with respect to any pending or threatened action,
\nsuit, proceeding or investigation, the forum, the parties thereto, the subject
\nmatter thereof and the amount of damages claimed or other remedy requested. No
\ngovernmental entity has at any time challenged or questioned the legal right of
\nthe Company to manufacture, offer or sell any of its products.<\/p>\n
2.15 Insurance. With respect to the insurance policies and fidelity bonds
\ncovering the assets, business, equipment, properties, operations, employees,
\nofficers and directors of the Company, there is no claim by the Company pending
\nunder any of such policies or bonds as to which coverage has been questioned,
\ndenied or disputed by the underwriters of such policies or bonds. All premiums
\ndue and payable under all such policies and bonds have been paid and the Company
\nis otherwise in material compliance with the terms of such policies and bonds
\n(or other policies and bonds providing substantially similar insurance
\ncoverage). The Company has no Knowledge of any threatened termination of, or
\nmaterial premium increase with respect to, any of such policies.<\/p>\n
2.16 Minute Books. The minute books of the Company made available to
\ncounsel for Parent through the Effective Time are the only minute books of the
\nCompany and contain a reasonably accurate summary of all meetings of directors
\n(or committees thereof) and shareholders or actions by written consent since the
\ntime of incorporation of the Company.<\/p>\n
-21-
\n 26<\/p>\n
2.17 Environmental Matters.<\/p>\n
(a) Hazardous Material. The Company has not operated any underground
\nstorage tanks, and has no Knowledge of the existence, at any time, of any
\nunderground storage tank (or related piping or pumps), at any property that the
\nCompany has at any time owned, operated, occupied or leased. The Company has not
\nreleased any amount of any substance that has been designated by any
\nGovernmental Entity or by applicable federal, state or local law to be
\nradioactive, toxic, hazardous or otherwise a danger to health or the
\nenvironment, including, without limitation, PCBs, asbestos, oil and petroleum
\nproducts, urea-formaldehyde and all substances listed as a “hazardous
\nsubstance,” “hazardous waste,” “hazardous material” or “toxic substance” or
\nwords of similar import, under any law, including but not limited to, the
\nComprehensive Environmental Response, Compensation, and Liability Act of 1980,
\nas amended; the Resource Conservation and Recovery Act of 1976, as amended; the
\nFederal Water Pollution Control Act, as amended; the Clean Air Act, as amended,
\nand the regulations promulgated pursuant to said laws (a “Hazardous Material”).
\nNo Hazardous Materials are present as a result of the actions or omissions of
\nthe Company, or, to the Company’s Knowledge, as a result of any actions of any
\nthird party or otherwise, in, on or under any property, including the land and
\nthe improvements, ground water and surface water thereof, that the Company has
\nat any time owned, operated, occupied or leased.<\/p>\n
(b) Hazardous Materials Activities. The Company has not transported,
\nstored, used, manufactured, disposed of, released or exposed its employees or
\nothers to Hazardous Materials in violation of any law in effect on or before the
\nEffective Time, nor has the Company disposed of, transported, sold, or
\nmanufactured any product containing a Hazardous Material (any or all of the
\nforegoing being collectively referred to as “Hazardous Materials Activities”) in
\nviolation of any rule, regulation, treaty or statute promulgated by any
\nGovernmental Entity in effect prior to or as of the date hereof to prohibit,
\nregulate or control Hazardous Materials or any Hazardous Material Activity.<\/p>\n
(c) Permits. The Company currently holds all environmental approvals,
\npermits, licenses, clearances and consents (the “Environmental Permits”)
\nnecessary for the conduct of the Company’s Hazardous Material Activities and
\nother businesses of the Company as such activities and businesses are currently
\nbeing conducted.<\/p>\n
(d) Environmental Liabilities. No action, proceeding, revocation
\nproceeding, amendment procedure, writ, injunction or claim is pending, or to the
\nCompany’s Knowledge, threatened concerning any Environmental Permit, Hazardous
\nMaterial or any Hazardous Materials Activity of the Company. The Company is not
\naware of any fact or circumstance which could involve the Company in any
\nenvironmental litigation or impose upon the Company any environmental liability.<\/p>\n
2.18 Brokers’ and Finders’ Fees; Third Party Expenses. The Company has not
\nincurred, nor will it incur, directly or indirectly, any liability for brokerage
\nor finders’ fees or agents’ commissions or any similar charges in connection
\nwith this Agreement or any transaction contemplated hereby. Part 2.18 of the
\nCompany <\/p>\n
-22-
\n 27<\/p>\n
Disclosure Letter sets forth the principal terms and conditions of any
\nagreement, written or oral, with respect to such fees. Part 2.18 of the Company
\nDisclosure Letter also sets forth the Company’s current reasonable estimate of
\nall Third Party Expenses (as defined in Section 5.6) expected to be incurred by
\nthe Company in connection with the negotiation and effectuation of the terms and
\nconditions of this Agreement and the transactions contemplated hereby. Third
\nParty Expenses will not exceed $250,000.<\/p>\n
2.19 Employee Matters and Benefit Plans.<\/p>\n
(a) Definitions. With the exception of the definition of “Affiliate”
\nset forth in Section 2.19(a)(i) below (which definition shall apply only to this
\nSection 2.19), for purposes of this Agreement, the following terms shall have
\nthe meanings set forth below:<\/p>\n
(i) “Affiliate” shall mean any other person or entity under
\ncommon control with the Company within the meaning of Section 414(b), (c), (m)
\nor (o) of the Code and the regulations thereunder;<\/p>\n
(ii) “ERISA” shall mean the Employee Retirement Income Security
\nAct of 1974, as amended;<\/p>\n
(iii) “Company Employee Plan” shall refer to any plan, program,
\npolicy, practice, contract, agreement or other arrangement providing for
\ncompensation, severance, termination pay, performance awards, stock or
\nstock-related awards, fringe benefits or other employee benefits or remuneration
\nof any kind, whether formal or informal, funded or unfunded and whether or not
\nlegally binding, including without limitation, each “employee benefit plan”,
\nwithin the meaning of Section 3(3) of ERISA which is or has been maintained,
\ncontributed to, or required to be contributed to, by the Company or any
\nAffiliate for the benefit of any “Employee” (as defined below), and pursuant to
\nwhich the Company or any Affiliate has or may have any material liability
\ncontingent or otherwise;<\/p>\n
(iv) “Employee” shall mean any current, former, or retired
\nemployee, officer, or director of the Company or any Affiliate;<\/p>\n
(v) “Employee Agreement” shall refer to each management,
\nemployment, severance, consulting, relocation, repatriation, expatriation,
\nvisas, work permit or similar agreement or contract between the Company or any
\nAffiliate and any Employee or consultant;<\/p>\n
(vi) “IRS” shall mean the Internal Revenue Service;<\/p>\n
(vii) “Multiemployer Plan” shall mean any “Pension Plan” (as
\ndefined below) which is a “multiemployer plan”, as defined in Section 3(37) of
\nERISA; and<\/p>\n
(viii) “Pension Plan” shall refer to each Company Employee Plan
\nwhich is an “employee pension benefit plan”, within the meaning of Section 3(2)
\nof ERISA.<\/p>\n
-23-
\n 28<\/p>\n
(b) Schedule. Part 2.19(b) of the Company Disclosure Letter contains
\nan accurate and complete list of each Company Employee Plan and, as of the date
\nhereof, each Employee Agreement, together with a schedule of all liabilities,
\nwhether or not accrued, under each such Company Employee Plan or Employee
\nAgreement. The Company does not have any plan or commitment, whether legally
\nbinding or not, to establish any new Company Employee Plan or Employee
\nAgreement, to modify any Company Employee Plan or Employee Agreement (except to
\nthe extent required by law or to conform any such Company Employee Plan or
\nEmployee Agreement to the requirements of any applicable law), or to enter into
\nany Company Employee Plan or Employee Agreement, nor does it have any intention
\nor commitment to do any of the foregoing (in each case, except to the extent
\npreviously disclosed to Parent in writing, or as required by this Agreement, or
\nas consented to in writing by Parent between the date hereof and the Effective
\nTime).<\/p>\n
(c) Documents. The Company has provided to Parent through the
\nEffective Time (i) correct and complete copies of all documents embodying or
\nrelating to each Company Employee Plan and each Employee Agreement including all
\namendments thereto and written interpretations thereof; (ii) the most recent
\nannual actuarial valuations, if any, prepared for each Company Employee Plan;
\n(iii) the three most recent annual reports (Series 5500 and all schedules
\nthereto), if any, required under ERISA or the Code in connection with each
\nCompany Employee Plan or related trust; (iv) if the Company Employee Plan is
\nfunded, the most recent annual and periodic accounting of Company Employee Plan
\nassets; (v) the most recent summary plan description together with the most
\nrecent summary of material modifications, if any, required under ERISA with
\nrespect to each Company Employee Plan; (vi) all IRS determination letters and
\nrulings relating to Company Employee Plans and copies of all applications and
\ncorrespondence to or from the IRS or the Department of Labor (“DOL”) with
\nrespect to any Company Employee Plan; (vii) all communications material to any
\nEmployee or Employees relating to any Company Employee Plan and any proposed
\nCompany Employee Plans, in each case, relating to any amendments, terminations,
\nestablishments, increases or decreases in benefits, acceleration of payments or
\nvesting schedules or other events which would result in any material liability
\nto the Company; (viii) all registration statements, annual reports (Form 11-K
\nand all attachments thereto) and prospectuses prepared in connection with each
\nCompany Employee Plan; (ix) all material written agreements contacts relating
\nCompany Employee Plan, including without limitation, administrative service
\nagreements and group insurance contracts; (x) all correspondence to or from any
\ngovernmental agency relating to any Company Employee Plan; (xi) all COBRA forms
\nand related notices; and (xii) all policies pertaining to fiduciary liability
\ninsurance covering the fiduciaries for each Company Employee Plan.<\/p>\n
(d) Employee Plan Compliance. (i) the Company has performed all
\nobligations required to be performed by it under each Company Employee Plan, is
\nnot in default or violation of, and has no Knowledge of any default of violation
\nby any party to each Company Employee Plan, and each Company Employee Plan has
\nbeen established and maintained in all material respects in accordance with its
\nterms and in compliance with all applicable laws, statutes, orders, rules and
\nregulations, including but not limited to ERISA or the Code; (ii) no “prohibited
\ntransaction,” within the meaning of Section 4975 of the Code or Section 406 and
\n407 of ERISA, and not otherwise <\/p>\n
-24-
\n 29<\/p>\n
exempt under Section 408 of ERISA, has occurred with respect to any Company
\nEmployee Plan; (iii) there are no actions, suits or claims pending, or, to the
\nKnowledge of the Company, threatened or anticipated (other than routine claims
\nfor benefits) against any Company Employee Plan or against the assets of any
\nCompany Employee Plan; and (iv) each Company Employee Plan can be amended,
\nterminated or otherwise discontinued after the Effective Time in accordance with
\nits terms, without liability to the Company, Parent or any of its Affiliates
\n(other than ordinary administration expenses typically incurred in a termination
\nevent); (v) there are no audits, inquiries or proceedings pending or, to the
\nKnowledge of the Company or any affiliates, threatened by the IRS or DOL with
\nrespect to any Company Employee Plan; and (vi) neither the Company nor any
\nAffiliate is subject to any penalty or tax with respect to any Company Employee
\nPlan under Section 502(i) of ERISA or Section 4975 through 4980 of the Code.<\/p>\n
(e) Pension Plans. The Company does not now, nor has it ever,
\nmaintained, established, sponsored, participated in, or contributed to, any
\nPension Plan which is subject to Part 3 of Subtitle B of Title I of ERISA, Title
\nIV of ERISA or Section 412 of the Code.<\/p>\n
(f) Multiemployer Plans. At no time has the Company contributed to or
\nbeen requested to contribute to any Multiemployer Plan.<\/p>\n
(g) No Post-Employment Obligations. No Company Employee Plan provides,
\nor has any liability to provide, life insurance, medical or other employee
\nbenefits to any Employee upon his or her retirement or termination of employment
\nfor any reason, except as may be required by statute, and the Company has never
\nrepresented, promised or contracted (whether in oral or written form) to any
\nEmployee (either individually or to Employees as a group) that such Employee(s)
\nwould be provided with life insurance, medical or other employee welfare
\nbenefits upon their retirement or termination of employment, except to the
\nextent required by statute.<\/p>\n
(h) COBRA. The Company and each Affiliate has, prior to the Effective
\nTime, complied with the health care continuation requirements of COBRA, the
\nrequirement of FMLA or any similar provisions of state law applicable to its
\nEmployees.<\/p>\n
(i) Effect of Transaction.<\/p>\n
(i) The execution of this Agreement and the consummation of the
\ntransactions contemplated hereby will not (either alone or upon the occurrence
\nof any additional or subsequent events) constitute an event under any Company
\nEmployee Plan, Employee Agreement, trust or loan that will or may result in any
\npayment (whether of severance pay or otherwise), acceleration, forgiveness of
\nindebtedness, vesting, distribution, increase in benefits or obligation to fund
\nbenefits with respect to any Employee.<\/p>\n
(ii) No payment or benefit which will or may be made by the
\nCompany or Parent or any of their respective affiliates with respect to any
\nEmployee will be characterized as an “excess parachute payment”, within the
\nmeaning of Section 280G(b)(1) of the Code.<\/p>\n
-25-
\n 30<\/p>\n
(j) Employment Matters. The Company (i) is in compliance with all
\napplicable foreign, federal, state and local laws, rules and regulations
\nrespecting employment, employment practices, terms and conditions of employment
\nand wages and hours, in each case, with respect to Employees; (ii) has withheld
\nand reported all amounts required by law or by agreement to be withheld and
\nreported with respect to the wages, salaries and other payments to Employees by
\nvirtue of employment, the Merger or otherwise; (iii) is not liable for any
\narrears of wages or any taxes or any penalty for failure to comply with any of
\nthe foregoing; and (iv) is not liable for any payment to any trust or other fund
\nor to any governmental or administrative authority, with respect to unemployment
\ncompensation benefits, social security or other benefits or obligations for
\nEmployees (other than routine payments to be made in the normal course of
\nbusiness and consistent with past practice). There are no pending or to the
\nKnowledge of the Company threatened, or reasonably anticipated claims or actions
\nagainst the Company under any worker’s compensation policy or long-term
\ndisability policy.<\/p>\n
(k) Labor. No work stoppage or labor strike against the Company is
\npending or, to the best Knowledge of the Company, threatened. The Company is not
\ninvolved in or, to the Knowledge of the Company, threatened with, any labor
\ndispute, grievance, or litigation relating to labor, safety or discrimination
\nmatters involving any Employee, including, without limitation, charges of unfair
\nlabor practices or discrimination complaints, which, if adversely determined,
\nwould, individually or in the aggregate, result in liability to the Company.
\nNeither the Company nor any of its subsidiaries has engaged in any unfair labor
\npractices within the meaning of the National Labor Relations Act which would,
\nindividually or in the aggregate, directly or indirectly result in a liability
\nto the Company. The Company is not presently, nor has it been in the past, a
\nparty to, or bound by, any collective bargaining agreement or union contract
\nwith respect to Employees and no collective bargaining agreement is being
\nnegotiated by the Company.<\/p>\n
2.20 Compliance with Laws. The Company has complied with, is not in
\nviolation of, and has not received any notices of violation with respect to, any
\nforeign, federal, state or local statute, law or regulation.<\/p>\n
2.21 Officer Matters. To the Company’s Knowledge, no officer of the Company
\nhas ever been convicted of a felony or been the subject of a governmental
\ninvestigation. To the Company’s Knowledge, no company of which any officer of
\nthe Company is or was an officer has ever been subject to any bankruptcy or
\ninsolvency proceeding.<\/p>\n
2.22 Year 2000 Compliance. As of the date hereof, to the Company’s
\nKnowledge the Company’s products, services and internal systems have been
\ndesigned to ensure date and time entry recognition, calculations that
\naccommodate same century and multi-century formulas and date values, leap year
\nrecognition and calculations, and date data interface values that reflect the
\ncentury. As of the date hereof, to the Company’s Knowledge the Company’s
\nproducts, services and internal systems manage and manipulate data involving
\ndates and times, including single century formulas and multi-century formulas,
\nand do not cause an abnormal ending scenario within the application or generate
\nincorrect values or invalid results involving such dates.<\/p>\n
-26-
\n 31<\/p>\n
2.23 Warranties; Indemnities. Except for the warranties and indemnities
\ncontained in those contracts and agreements set forth in Part 2.12(a)(viii) of
\nthe Company Disclosure Letter and warranties implied by law, as of the date
\nhereof the Company has not given any warranties or indemnities relating to
\nproducts or technology sold or services rendered by the Company.<\/p>\n
2.24 Complete Copies of Materials. The Company has delivered or made
\navailable true and complete copies of each document (or summaries of same) that
\nhas been requested by Parent or its counsel.<\/p>\n
2.25 Representations Complete. None of the representations or warranties
\nmade by the Company (as modified by the Company Disclosure Letter), nor any
\nstatement made in any schedule or certificate furnished by the Company pursuant
\nto this Agreement, or furnished in or in connection with documents mailed or
\ndelivered to the shareholders of the Company in connection with soliciting their
\nconsent to this Agreement and the Merger, contains or will contain at the
\nEffective Time, any untrue statement of a material fact, or omits or will omit
\nat the Effective Time to state any material fact necessary in order to make the
\nstatements contained herein or therein, in the light of the circumstances under
\nwhich made, not misleading.<\/p>\n
2.26 HSR Representation. Each of the Principle Shareholders, taken together
\nwith their spouse and minor children (in each case, if applicable), have less
\nthan $10,000,000 in total assets as of the date hereof and as of immediately
\nprior to the Effective Time and did not control any entity or entities which in
\nthe aggregate had greater than $10,000,000 in total revenues for the most
\nrecently completed fiscal year.<\/p>\n
ARTICLE III<\/p>\n
REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB<\/p>\n
As of the date hereof and as of the Closing Date, Parent and Merger Sub
\nrepresent and warrant to the Company as follows:<\/p>\n
3.1 Organization, Standing and Power. Parent is a corporation duly
\norganized, validly existing and in good standing under the laws of the State of
\nDelaware. Merger Sub is a corporation duly organized, validly existing and in
\ngood standing under the laws of the State of North Carolina. Each of Parent and
\nMerger Sub has the corporate power to own its properties and to carry on its
\nbusiness as now being conducted and is duly qualified to do business and is in
\ngood standing in each jurisdiction in which the failure to be so qualified would
\nbe material to Parent and Merger Sub as a whole.<\/p>\n
3.2 Authority. Parent and Merger Sub have all requisite corporate power and
\nauthority to enter into this Agreement and to consummate the transactions
\ncontemplated hereby. The execution and delivery of this Agreement and the
\nconsummation of the transactions contemplated hereby have been duly authorized
\nby all necessary corporate and stockholder action on the part of Parent and
\nMerger Sub. This Agreement has been duly executed and delivered by Parent and
\nMerger Sub and <\/p>\n
-27-
\n 32<\/p>\n
constitutes the valid and binding obligations of Parent and Merger Sub,
\nenforceable in accordance with its terms. The execution and delivery of this
\nAgreement by the Parent and Merger Sub does not, and, as of the Effective Time,
\nthe consummation of the transactions contemplated hereby will not, conflict
\nwith, or result in any violation of, or default under (with or without notice or
\nlapse of time, or both), or give rise to a right of termination, cancellation or
\nacceleration of any obligation or loss of any benefit under (such event, a
\n“Conflict”) (i) any provision of the Certificate of Incorporation or Bylaws of
\nParent or Merger Sub, or (ii) any mortgage, indenture, lease, contract or other
\nagreement or instrument, permit, concession, franchise, license, judgment,
\norder, decree, statute, law, ordinance, rule or regulation applicable to Parent
\nor Merger Sub or its properties or assets except as would not have a Parent
\nMaterial Adverse effect. For purposes of this Agreement, “Parent Material
\nAdverse Effect” shall mean a material adverse effect on the business, assets
\n(including intangible assets), financial condition, capitalization or results of
\noperations of the Parent and its subsidiaries taken as a whole, but other than
\nthose adverse effects occurring as a result of general or market or industry
\nconditions (including, without limitation, any change in trading prices, in and
\nof itself and without the occurrence of any other Parent Material Adverse
\nEffect, of Parent’s public traded equity securities). No consent, waiver,
\napproval, order or authorization of, or registration, declaration or filing
\nwith, any court, administrative agency or commission or other federal, state,
\ncounty, local or foreign governmental authority, instrumentality, agency or
\ncommission (“Governmental Entity”) or any third party (so as not to trigger any
\nConflict) is required by or with respect to Parent or Merger Sub in connection
\nwith the execution and delivery of this Agreement or the consummation of the
\ntransactions contemplated hereby, except for (i) the filing by Merger Sub of the
\nArticles of Merger with the North Carolina Secretary of State, (ii) termination
\nof any applicable waiting period under the HSR Act, (iii) such consents,
\nwaivers, approvals, orders, authorizations, registrations, declarations and
\nfilings as may be required under applicable federal and state securities laws,
\nexcept such consents, waivers, approvals, orders, authorizations, registrations,
\ndeclarations and filings as would not have a Parent Material Adverse Effect.<\/p>\n
3.3 Capital Structure.<\/p>\n
(a) The authorized stock of Parent consists of 200,000,000 shares of
\nCommon Stock, of which not more than 50,000,000 shares were issued and
\noutstanding as of as of the date hereof, and 10,000,000 shares of Preferred
\nStock as of the date hereof, none of which is issued or outstanding. The
\nauthorized capital stock of Merger Sub consists of 1,000 shares of Common Stock,
\n1,000 shares of which, as of the date hereof, are issued and outstanding and are
\nheld by Parent. All such shares have been duly authorized, and all such issued
\nand outstanding shares have been validly issued, are fully paid and
\nnon-assessable and are free of any liens or encumbrances other than any liens or
\nencumbrances created by or imposed upon the holders thereof.<\/p>\n
(b) The shares of Parent Common Stock to be issued pursuant to the
\nMerger, when issued, will be duly authorized, validly issued, fully paid,
\nnon-assessable and issued in compliance with applicable federal and state
\nsecurities laws.<\/p>\n
-28-
\n 33<\/p>\n
3.4 SEC Documents; Parent Financial Statements. Parent has furnished or
\nmade available to the Company true and complete copies of all reports or
\nregistration statements filed by it with the Securities and Exchange Commission
\n(the “SEC”) since June 18, 1999, all in the form so filed (all of the foregoing
\nbeing collectively referred to as the “SEC Documents”). As of their respective
\nfiling dates, the SEC Documents complied in all material respects with the
\nrequirements of the Securities Act of 1933 (the “Securities Act”) or the
\nSecurities Exchange Act of 1934 (the “Exchange Act”) as the case may be, and
\nnone of the SEC Documents contained any untrue statement of a material fact or
\nomitted to state a material fact required to be stated therein or necessary to
\nmake the statements made therein, in light of the circumstances in which they
\nwere made, not misleading, except to the extent corrected by a document
\nsubsequently filed with the SEC on or prior to the date hereof. The financial
\nstatements of Parent, including the notes thereto, included in the SEC Documents
\n(the “Parent Financial Statements”) comply as to form in all material respects
\nwith applicable accounting requirements and with the published rules and
\nregulations of the SEC with respect thereto, have been prepared in accordance
\nwith generally accepted accounting principles consistently applied (except as
\nmay be indicated in the notes thereto or, in the case of unaudited statements,
\nas permitted by Form 10-Q of the SEC) and present fairly the consolidated
\nfinancial position of Parent at the dates thereof and the consolidated results
\nof its operations and cash flows for the periods then ended (subject, in the
\ncase of unaudited statements, to normal audit adjustments). There has been no
\nchange in Parent accounting policies except as described in the notes to the
\nParent Financial Statements; provided, however, the Parent may have restated or
\nmay restate one or more of the Parent Financial Statements to reflect
\nacquisitions entered into subsequent to the respective dates thereof.<\/p>\n
3.5 No Material Adverse Effect. Since December 31, 1999 and until the date
\nhereof, Parent has conducted its business in the ordinary course and there has
\nnot occurred any Parent Material Adverse Effect.<\/p>\n
3.6 Litigation. To Parent’s knowledge, there is no action, suit,
\nproceeding, claim, arbitration or investigation pending, or threatened, against
\nParent or Merger Sub which in any manner challenges or seeks to prevent, enjoin,
\nalter or materially delay any of the transactions contemplated hereunder.<\/p>\n
ARTICLE IV<\/p>\n
CONDUCT PRIOR TO THE EFFECTIVE TIME<\/p>\n
4.1 Conduct of Business of the Company. During the period from the date of
\nthis Agreement and continuing until the earlier of the termination of this
\nAgreement and the Effective Time, the Company agrees (except to the extent that
\nParent shall otherwise consent in writing) to carry on its business in the
\nusual, regular and ordinary course in substantially the same manner as
\nheretofore conducted, to pay its debts and Taxes when due, to pay or perform
\nother obligations when due, and, to the extent consistent with such business, to
\nuse all reasonable efforts consistent with past practice and policies to
\npreserve intact its present business organization, keep available the services<\/p>\n
-29-
\n 34<\/p>\n
of its present officers and key employees and preserve their relationships with
\ncustomers, suppliers, distributors, licensors, licensees, and others having
\nbusiness dealings with it, all with the goal of preserving unimpaired its
\ngoodwill and ongoing businesses at the Effective Time. The Company shall
\npromptly notify Parent of any event or occurrence or emergency not in the
\nordinary course of its business, and any material event involving or adversely
\naffecting the Company or its business. Except as expressly contemplated by this
\nAgreement, the Company shall not, without the prior written consent of Parent:<\/p>\n
(a) Enter into any commitment, activity or transaction not in the
\nordinary course of business or involving in excess of $25,000 individually or
\n$200,000 in the aggregate;<\/p>\n
(b) Transfer to any person or entity any rights to any Company
\nIntellectual Property (other than pursuant to end-user licenses in the ordinary
\ncourse of business) or enter into any agreement with respect to Company
\nIntellectual Property with any person or entity other than in the ordinary
\ncourse of business consistent with past practice;<\/p>\n
(c) Terminate any employees other than for cause or encourage any
\nemployees to resign from the Company;<\/p>\n
(d) Enter into or amend any Contract pursuant to which any other party
\nis granted marketing, distribution, development or similar rights of any type or
\nscope with respect to any products or technology of the Company;<\/p>\n
(e) Amend or otherwise modify (or agree to do so), except in the
\nordinary course of business, or violate the terms of, any Contract;<\/p>\n
(f) Commence or settle any litigation;<\/p>\n
(g) Declare, set aside or pay any dividends on or make any other
\ndistributions (whether in cash, stock or property) in respect of any of its
\ncapital stock, or split, combine or reclassify any of its capital stock or issue
\nor authorize the issuance of any other securities in respect of, in lieu of or
\nin substitution for shares of capital stock of the Company, or repurchase,
\nredeem or otherwise acquire, directly or indirectly, any shares of its capital
\nstock (or options, warrants or other rights exercisable therefor) except for (i)
\nrepurchases of Company Capital Stock upon the termination of service of any
\nservice providers of Company in accordance with the standard terms set forth in
\nthe agreements governing such repurchases, all of which agreements have been
\nprovided or made available to Parent, (ii) conversion of Company Preferred Stock
\nand (iii) exercises or conversion of Company Convertible Securities (including
\noptions);<\/p>\n
(h) Except for the issuance of shares of Company Capital Stock upon
\nexercise or conversion of presently outstanding Company Options or Convertible
\nSecurities, issue, sell, grant, contract to issue, grant or sell, or authorize
\nthe issuance, delivery, sale or purchase of any shares of Company Capital Stock
\nor securities convertible into, or exercisable or exchangeable for, shares of
\nCompany Capital Stock, or any securities, warrants, options or rights to
\npurchase any of the <\/p>\n
-30-
\n 35<\/p>\n
foregoing, except for (i) issuances of Company Capital Stock upon the exercise
\nthereof or upon exercise or conversion of Company Convertible Securities or
\nCompany Preferred Stock outstanding as of the date of this Agreement and (ii)
\nissuances of Company Options from the Company’s 1999 Stock Award Plan in the
\nordinary course of business consistent with past practice and in no event
\nCompany Options to purchase more than 5,000 shares (in any one case) or 290,000
\nshares (in the aggregate; provided that (i) the vesting schedule for each of
\nsuch Company Options is the same as Parent’s standard vesting schedule for
\nemployees; (ii) the exercise price for each of such Company Options is not less
\nthan 90% of the market price of Parent common stock as quoted on the Nasdaq
\nStock Market on the date of grant, as adjusted for the Exchange Ratio (assuming
\nthat the Merger were completed on such date); and (iii) such Company Options are
\ngranted in accordance with Part 4.1(h) of the Company Disclosure Letter;<\/p>\n
(i) Cause or permit any amendments to its Articles of Incorporation or
\nBylaws;<\/p>\n
(j) Acquire or agree to acquire by merging or consolidating with, or
\nby purchasing any assets or equity securities of, or by any other manner, any
\nbusiness or any corporation, partnership, association or other business
\norganization or division thereof, or otherwise acquire or agree to acquire any
\nassets which are material, individually or in the aggregate, to the business of
\nthe Company;<\/p>\n
(k) Sell, lease, license or otherwise dispose of any of the assets or
\nproperties of Company which are not Company Intellectual Property other than in
\nthe ordinary course of business and consistent with past practices, including
\nbut not limited to the performance of obligations under contractual arrangements
\nlisted on the Company Disclosure Letter existing as of the date hereof, or
\ncreate any security interest in such assets or properties;<\/p>\n
(l) Grant any loan to any person or entity, incur any indebtedness or
\nguarantee any indebtedness, issue or sell any debt securities, guarantee any
\ndebt securities of others, purchase any debt securities of others or amend the
\nterms of any outstanding agreements related to borrowed money, other than (i)
\nindebtedness incurred for purchase money financing not to exceed $50,000 in the
\naggregate, and (ii) advances to employees for travel and business expenses in
\nthe ordinary course of business consistent with past practices.<\/p>\n
(m) Grant any severance or termination pay (i) to any director or
\nofficer or (ii) to any employee or consultant, except payments made pursuant to
\nstandard written agreements outstanding as of the date hereof and disclosed on
\nPart 4.1(m) of the Company Disclosure Letter, or increase in the salary or other
\ncompensation payable or to become payable by Company to any of its officers,
\ndirectors, employees or advisors, or declare, pay or make any commitment or
\nobligation of any kind for the payment by Company of a bonus or other additional
\nsalary or compensation to any such person, or adopt or amend any employee
\nbenefit plan or enter into any employment contract, other than entering into
\nstandard terms and conditions of employment with employees not at the executive
\nlevel consistent with past practices and consistent with Parent’s employment
\npractices, provided that (i) such employment contracts are at-will and do not
\nprovide for any severance arrangements or post-employment compensation, and (ii)
\nthe compensation payable (including <\/p>\n
-31-
\n 36<\/p>\n
bonus obligations) to any such employee is consistent with the Company’s past
\npractices and does not exceed $100,000 annually individually;<\/p>\n
(n) Revalue any of its assets, including without limitation writing
\ndown the value of inventory or writing off notes or accounts receivable other
\nthan in the ordinary course of business and consistent with past practice;<\/p>\n
(o) Take any action to accelerate the vesting schedule of any of the
\noutstanding Company Options or Company Capital Stock;<\/p>\n
(p) Pay, discharge or satisfy, in an amount in excess of $25,000 (in
\nany one case) or $50,000 (in the aggregate) any claim, liability or obligation
\n(absolute, accrued, asserted or unasserted, contingent or otherwise), other than
\nthe payment, discharge or satisfaction in the ordinary course of business of
\nliabilities reflected or reserved against in the Company Financial Statements or
\npayment of trade payables incurred in the ordinary course of business since the
\nDecember 31, 1999;<\/p>\n
(q) Make or change any election in respect of Taxes, adopt or change
\nany accounting method in respect of Taxes, enter into any closing agreement,
\nsettle any claim or assessment in respect of Taxes, or consent to any extension
\nor waiver of the limitation period applicable to any claim or assessment in
\nrespect of Taxes;<\/p>\n
(r) Enter into any strategic alliance, joint development or joint
\nmarketing arrangement or agreement;<\/p>\n
(s) Fail to pay or otherwise satisfy its monetary obligations as they
\nbecome due, except such as are being contested in good faith;<\/p>\n
(t) Waive or commit to waive any rights with a value in excess of
\n$25,000 (in any one case) or $50,000 (in the aggregate);<\/p>\n
(u) Cancel, materially amend or renew any insurance policy other than
\nin the ordinary course of business;<\/p>\n
(v) Take any action to accelerate the vesting of any outstanding
\nCompany Convertible Security or Company Capital Stock;<\/p>\n
(w) Hire any executive level employees;<\/p>\n
(x) Terminate any employees, or encourage any employees to resign from
\nthe Company except for cause;<\/p>\n
-32-
\n 37<\/p>\n
(y) Alter, or enter into any commitment to alter, its interest in any
\ncorporation, association, joint venture, partnership or business entity in which
\nthe Company directly or indirectly holds any interest on the date hereof;<\/p>\n
(z) Give or make any warranties or indemnities relating to products or
\ntechnology sold or services rendered by the Company, other than warranties
\nimplied by law and warranties and indemnities given in the ordinary course of
\nbusiness; or<\/p>\n
(aa) Take, or agree in writing or otherwise to take, any of the
\nactions described in Sections 4.1(a) through (z) above, or any other action that
\nwould prevent the Company from performing or cause the Company not to perform
\nits covenants hereunder.<\/p>\n
4.2 No Solicitation by the Company. Until the earlier of the Effective Time
\nand the date of termination of this Agreement pursuant to the provisions of
\nSection 8.1 hereof, the Company will not (nor will the Company permit any of the
\nCompany’s officers, directors, employees, shareholders, agents, representatives
\nor affiliates to) directly or indirectly, take any of the following actions with
\nany party other than Parent and its designees: (a) solicit, initiate, entertain,
\nor encourage any proposals or offers from, or conduct discussions with or engage
\nin negotiations with, any person relating to any possible acquisition of the
\nCompany or any of its subsidiaries (whether by way of merger, purchase of
\ncapital stock, purchase of assets or otherwise), any material portion of its
\ncapital stock or assets or any equity interest in the Company or any of its
\nsubsidiaries, (b) provide information with respect to it to any person, other
\nthan Parent, relating to, or otherwise cooperate with, facilitate or encourage
\nany effort or attempt by any such person with regard to, any possible
\nacquisition of the Company (whether by way of merger, purchase of capital stock,
\npurchase of assets or otherwise), any material portion of its capital stock or
\nassets or any equity interest in the Company or any of its subsidiaries, (c)
\nenter into an agreement with any person, other than Parent, providing for the
\nacquisition of the Company (whether by way of merger, purchase of capital stock,
\npurchase of assets or otherwise), any material portion of its capital stock or
\nassets or any equity interest in the Company or any of its subsidiaries, or (d)
\nmake or authorize any statement, recommendation or solicitation in support of
\nany possible acquisition of the Company or any of its subsidiaries (whether by
\nway of merger, purchase of capital stock, purchase of assets or otherwise), any
\nmaterial portion of its capital stock or assets or any equity interest in the
\nCompany or any of its subsidiaries by any person, other than by Parent. The
\nCompany shall immediately cease and cause to be terminated any such contacts or
\nnegotiations with third parties relating to any such transaction or proposed
\ntransaction. In addition to the foregoing, if the Company receives prior to the
\nEffective Time or the termination of this Agreement any offer or proposal
\nrelating to any of the above, the Company shall immediately notify Parent
\nthereof, including information as to the identity of the offeror or the party
\nmaking any such offer or proposal and the specific terms of such offer or
\nproposal, as the case may be, and such other information related thereto as
\nParent may reasonably request. Except as contemplated by this Agreement,
\ndisclosure by the Company of the terms hereof (other than the prohibition of
\nthis Section 4.2) shall be deemed to be a violation of this Section 4.2. The
\nparties hereto agree that irreparable damage would occur in the event that the
\nprovisions of this Section 4.2 were not performed in accordance with their
\nspecific terms or were otherwise breached. It is <\/p>\n
-33-
\n 38<\/p>\n
accordingly agreed by the parties hereto that Parent shall be entitled to seek
\nan injunction or injunctions to prevent breaches of the provisions of this
\nSection 4.2 and to enforce specifically the terms and provisions hereof in any
\ncourt of the United States or any state having jurisdiction, this being in
\naddition to any other remedy to which Parent may be entitled at law or in
\nequity.<\/p>\n
4.3 No Solicitation by Parent of Competing Transactions. Until the earlier
\nof the Effective Time and the date of termination of this Agreement pursuant to
\nthe provisions of Section 8.1 hereof, Parent will not (nor will Parent permit
\nany of Parent’s officers; directors, employee, stockholder, agents,
\nrepresentatives or affiliates to), directly or indirectly, negotiate to acquire
\nany company primarily engaged in creating both auction software tools and
\nauction meta-search products other than the Company and its designees.<\/p>\n
ARTICLE V<\/p>\n
ADDITIONAL AGREEMENTS<\/p>\n
5.1 Fairness Hearing; Shareholder Approval.<\/p>\n
(a) As soon as reasonably practicable following the execution of this
\nAgreement, Parent and Company shall prepare, and the Principal Shareholders
\nshall cause the Company to prepare, the necessary documents and Parent shall
\napply to obtain a permit (a “California Permit”) from the Commissioner of
\nCorporations of the State of California (after a hearing before such
\nCommissioner) pursuant to Section 25121 of the California Corporate Securities
\nLaw of 1968, so that the issuance of Parent Common Stock in the Merger shall be
\nexempt from registration under Section 3(a)(10) of the Securities Act. Company
\nand Parent will respond to, and the Principal Shareholders will cause the
\nCompany to respond to, any comments from the California Department of
\nCorporations and use their commercially reasonable efforts to have the
\nCalifornia Permit granted as soon as practicable after such filing. As promptly
\nas practical after the date of this Agreement, Parent and Company shall prepare
\nand make, and the Principal Shareholder shall cause the Company to prepare and
\nmake, such filings as are required under applicable Blue Sky laws relating to
\nthe transactions contemplated by this Agreement.<\/p>\n
(b) At the election of Parent, in lieu of the application for the
\nCalifornia Permit, Parent and Company shall prepare, and the Principal
\nShareholder shall cause the Company to prepare, the necessary documents and
\nParent shall apply to obtain a permit (a “North Carolina Permit”) from the
\nSecretary of State of the State of North Carolina (after a hearing before such
\nSecretary) pursuant to Section 78A-30 of the North Carolina Securities Act, so
\nthat the issuance of Parent Common Stock in the Merger shall be exempt from
\nregistration under Section 3(a)(10) of the Securities Act. Company and Parent
\nwill respond to, and the Principal Shareholders will cause the Company to
\nrespond to, any comments from the Secretary of State of North Carolina and use
\ntheir commercially reasonable efforts to have the North Carolina Permit granted
\nas soon as practicable after such filing.<\/p>\n
-34-
\n 39<\/p>\n
(c) As promptly as practicable after the receipt of a California
\nPermit or North Carolina Permit, as the case may be, the Company shall submit,
\nand the Principal Shareholders shall cause the Company to submit, this Agreement
\nand the transactions contemplated hereby to its shareholders for approval and
\nadoption as provided by North Carolina Law and its Articles of Incorporation and
\nBylaws. The Company shall use its best efforts to solicit and obtain the consent
\nof its shareholders, and the Principal Shareholder shall cause to the Company to
\nsolicit and obtained the consent of its shareholders, sufficient to approve the
\nMerger and this Agreement and to enable the Closing to occur as promptly as
\npracticable and, in any event, within 15 business days following the receipt of
\nthe California Permit or the North Carolina Permit, as the case may be. The
\nmaterials submitted to the Company Shareholders shall be subject to review and
\napproval by Parent and include information regarding the Company, the terms of
\nthe Merger and this Agreement and the unanimous recommendation of the Board of
\nDirectors of the Company in favor of the Merger and this Agreement, and the
\ntransactions contemplated hereby.<\/p>\n
5.2 Nasdaq Listing. Parent shall use commercially reasonable efforts to
\nensure that at the Effective Time, the shares of Parent Common Stock to be
\ndelivered to the Company Shareholders pursuant to this Agreement shall have been
\naccepted for quotation on the National Association of Securities Dealers
\nAutomated Quotation National Market System.<\/p>\n
5.3 Restrictions on Transfer. All certificates representing Parent Common
\nStock deliverable to any shareholder of the Company pursuant to this Agreement
\nand in connection with the Merger and any certificates subsequently issued with
\nrespect thereto or in substitution therefor (including any shares issued or
\nissuable in respect of any such shares upon any stock split stock dividend,
\nrecapitalization, or similar event) also shall bear any legend required by the
\nCommissioner of Corporations of the State of California or the Secretary of
\nState of the State of North Carolina or such as are required pursuant to any
\nfederal, state, local or foreign law governing such securities.<\/p>\n
5.4 Access to Information. The Company shall afford Parent and its
\naccountants, counsel and other representatives, reasonable access during normal
\nbusiness hours during the period prior to the Effective Time to (a) all of its
\nproperties, books, contracts, commitments, records and auditors, and (b) all
\nother information concerning the business, properties and personnel (subject to
\nrestrictions imposed by applicable law) of it as Parent may reasonably request.
\nNo information or knowledge obtained in any investigation pursuant to this
\nSection 5.4 shall affect or be deemed to modify any representation or warranty
\ncontained herein or the conditions to the obligations of the parties to
\nconsummate the Merger.<\/p>\n
5.5 Confidentiality. Each of the parties hereto hereby agrees that any
\nconfidential information obtained in any investigation pursuant to Section 5.4,
\nor pursuant to the negotiation and execution of this Agreement or the
\neffectuation of the transactions contemplated hereby, shall be governed by the
\nterms of that certain Mutual Nondisclosure Agreement dated as of August 20, 1999
\nbetween Parent and the Company (the “Mutual Nondisclosure Agreement”).<\/p>\n
5.6 Expenses. Whether or not the Merger is consummated, all fees and
\nexpenses incurred in connection with the Merger including, without limitation,
\nall legal, accounting, financial advisory, <\/p>\n
-35-
\n 40<\/p>\n
consulting and all other fees and expenses of third parties (“Third Party
\nExpenses”) incurred by a party in connection with the negotiation and
\neffectuation of the terms and conditions of this Agreement and the transactions
\ncontemplated hereby, shall be the obligation of the respective party incurring
\nsuch fees and expenses; provided that all Third Party Expenses incurred by the
\nPrincipal Shareholders incurred directly in connection with the transactions
\ncontemplated hereby shall be the obligation of the Company.<\/p>\n
5.7 Public Disclosure. Unless otherwise required by law (including, without
\nlimitation, federal and state securities laws) or, as to Parent, by the rules
\nand regulations of the National Association of Securities Dealers, Inc., no
\ndisclosure (whether or not in response to an inquiry) of the subject matter of
\nthis Agreement shall be made by any party hereto unless approved by Parent and,
\nprior to the Effective Time, the Company prior to release, provided that such
\napproval shall not be unreasonably withheld.<\/p>\n
5.8 Consents. The Company shall use its best efforts and the Principal
\nShareholders shall cause the Company to use its best efforts to obtain the
\nconsents, waivers and approvals under any of the Contracts as may be required in
\nconnection with the Merger (all of such consents, waivers and approvals are set
\nforth in Company Disclosure Letter) so as to preserve all rights of and benefits
\nto the Company thereunder.<\/p>\n
5.9 FIRPTA Compliance. On or prior to the Closing Date, the Company shall
\ndeliver, and the Principals Shareholders shall cause the Company to deliver, to
\nParent a properly executed statement in a form reasonably acceptable to Parent
\nfor purposes of satisfying Parent’s obligations under Treasury Regulation
\nSection 1.1445-2(c)(3).<\/p>\n
5.10 Reasonable Efforts. Subject to the terms and conditions provided in
\nthis Agreement, each of the parties hereto shall use its reasonable efforts to
\nensure that its representations and warranties remain true and correct in all
\nmaterial respects, and to take promptly, or cause to be taken, all actions, and
\nto do promptly, or cause to be done, all things necessary, proper or advisable
\nunder applicable laws and regulations to consummate and make effective the
\ntransactions contemplated hereby, to obtain all necessary waivers, consents and
\napprovals, to effect all necessary registrations and filings, and to remove any
\ninjunctions or other impediments or delays, legal or otherwise, in order to
\nconsummate and make effective the transactions contemplated by this Agreement
\nfor the purpose of securing to the parties hereto the benefits contemplated by
\nthis Agreement, subject to the limitations on divestiture set forth in Section
\n5.18 hereof.<\/p>\n
5.11 Notification of Certain Matters. The Company and the Principal
\nShareholders shall give prompt notice to Parent, and Parent shall give prompt
\nnotice to the Company, of (i) the occurrence or non-occurrence of any event, the
\noccurrence or non-occurrence of which is likely to cause any representation or
\nwarranty of the Company and the Principal Shareholders, on the one hand, and
\nParent, on the other hand, respectively, contained in this Agreement to be
\nuntrue or inaccurate at or prior to the Effective Time and (ii) any failure of
\nthe Company and the Principal Shareholders, on the one hand, or Parent, on the
\nother hand, as the case may be, to comply with or satisfy any covenant,
\ncondition or agreement to be complied with or satisfied by it hereunder; such<\/p>\n
-36-
\n 41<\/p>\n
that the conditions set forth in Section 6.2(a) or Section 6.2(b) hereof, or
\nSection 6.3(a) or Section 6.3(b) hereof, as the case may be, would not be
\nsatisfied; provided, however, that the delivery of any notice pursuant to this
\nSection 5.11 shall not limit or otherwise affect any remedies available to the
\nparty receiving such notice. <\/p>\n
5.12 Affiliate Agreements. Part 5.12 of the Company Disclosure Letter sets
\nforth those persons who, in the Company’s reasonable judgment, are or may be
\n“affiliates” of the Company within the meaning of Rule 145 (each such person a
\n“Company Affiliate”) promulgated under the Securities Act (“Rule 145”). The
\nCompany shall provide Parent such information and documents as Parent shall
\nreasonably request for purposes of reviewing such list. The Company and the
\nPrincipal Shareholders shall deliver or cause to be delivered to Parent,
\nconcurrently with the execution of this Agreement (and in any case prior to the
\nClosing) from each of the Company Affiliates, an executed Affiliate Agreement in
\nthe form attached hereto as Exhibit C. Parent shall be entitled to place
\nappropriate legends on the certificates evidencing any Parent Common Stock to be
\nreceived by such Company Affiliates pursuant to the terms of this Agreement, and
\nto issue appropriate stop transfer instructions to the transfer agent for Parent
\nCommon Stock, consistent with the terms of such Affiliate Agreements.<\/p>\n
5.13 Additional Documents and Further Assurances. Each party hereto, at the
\nrequest of the other party hereto, shall execute and deliver such other
\ninstruments and do and perform such other acts and things as may be necessary or
\ndesirable for effecting completely the consummation of this Agreement and the
\ntransactions contemplated hereby, subject to the limitations on divestiture set
\nforth in Section 5.18 hereof.<\/p>\n
5.14 S-8 Registration. Not later than forty-five (45) days after the
\nClosing Date, Parent agrees to file, if available for use by Parent, with the
\nSecurities and Exchange Commission a registration statement on Form S-8
\nregistering a number of shares of Parent Common Stock equal to the number of
\nshares of Parent Common Stock issuable upon the exercise of all Company Options
\nassumed by Parent with Parent options pursuant to Section 1.6(b) hereof.<\/p>\n
5.15 Termination of 401(k) Plan. The Company agrees to cause its 401(k)
\nplan to terminate as of two days preceding the Closing Date. Parent shall,
\nconsistent with the terms of its 401(k) plan, use commercially reasonable
\nefforts to allow employees of the Company to participate in its 401(k) plan and
\nto transfer funds (to the extent requested by employees) held in employee’s
\naccounts in the Company’s 401(k) plan to Parent’s 401(k) plan.<\/p>\n
5.16 Conversion of Preferred Stock. The Company and the Principal
\nShareholders shall use best efforts to cause the conversion of all outstanding
\nCompany Preferred Stock into Company Common Stock in accordance with the terms
\nof the Company’s Articles of Incorporation.<\/p>\n
5.17 Exercise of Warrant. The Company and the Principal Shareholders shall
\nuse best efforts to cause that certain Warrant to Purchase Common Stock of the
\nCompany dated September 22, 1999 to be exercised prior to the Closing. <\/p>\n
-37-
\n 42<\/p>\n
5.18 HSR Act. As soon as may be reasonably practicable, to the extent
\napplicable, Company and Parent (and\/or any applicable Company Shareholder) each
\nshall file, and the Company and the Principal Shareholders shall use best
\nefforts to cause any applicable shareholder of the Company to file and the
\nPrinciple Shareholders shall use best efforts to cause the Company to file, with
\nthe United States Federal Trade Commission (the “FTC”) and the Antitrust
\nDivision of the United States Department of Justice (“DOJ”) Notification and
\nReport Forms relating to the transactions contemplated herein as required by the
\nHSR Act as well as comparable pre-merger notification forms required by the
\nmerger notification or control laws and regulations of any applicable
\njurisdiction, as agreed to by the parties. Company and Parent (and\/or any
\napplicable shareholder) each shall, the Company and the Principal Shareholders
\nshall use best efforts to cause any applicable shareholder of the Company to,
\nand the Principal Shareholders shall cause the Company to, promptly (a) supply
\nthe others with any information which may be required in order to effectuate
\nsuch filings and (b) supply any additional information which reasonably may be
\nrequired by the FTC, the DOJ or the competition or merger control authorities of
\nany other jurisdiction and which the parties may reasonably deem appropriate;
\nprovided, however, that Parent shall not be required to agree to any divestiture
\nby Parent or the Company or any of Parent’s subsidiaries or affiliates of shares
\nof capital stock or of any business, assets or property of Parent or its
\nsubsidiaries or affiliates or of the Company, its affiliates, or the imposition
\nof any material limitation on the ability of any of them to conduct their
\nbusinesses or to own or exercise control of such assets, properties and stock.<\/p>\n
5.19 Waiver of Acceleration. Prior to the Closing Date, the Company and the
\nPrincipal Shareholders shall cause each employee of the Company to execute a
\nwaiver of the rights to acceleration of vesting of such employee’s Company
\nOptions and other Company Convertible Securities as a result of the Merger;
\nprovided, however, each such employee shall be entitled to accelerated vesting
\nof up to a total of twenty-five percent (25%) of their aggregate total holdings
\nof Company Capital Stock and Company Convertible Securities, with the remainder
\nof such Company Options and other Company Convertible Securities vesting
\nquarterly over the remainder of the vesting periods specified in such Company
\nOptions or Company Convertible Securities as of the date hereof; provided that
\nsuch employee agrees to forfeit the accelerated vesting resulting from the
\ntransactions contemplated hereby in an amount equal to that which may be deemed
\nto constitute “parachute payments” pursuant to Section 280(G) of the Code such
\nthat such employee would not receive any vesting which would constitute
\n“parachute payments” pursuant to Section 280(G) of the Code unless exemption
\nfrom such treatment under Section 280(G) of the Code (if such section of the
\nCode is applicable) is received by means of consent of the Company Shareholders
\nor at a meeting of the Company Shareholders.<\/p>\n
5.20 Release of Guaranties. Parent shall use commercially reasonable
\nefforts to have the lenders set forth in Part 5.20 of the Company Disclosure
\nLetter release the guaranties of the Principal Shareholders set forth in Part
\n5.20 of the Company Disclosure letter, provided that if Parent is unable to
\nobtain release of such guaranties, Parent will provide a guaranty of the
\nPrincipal Shareholders obligations under the guaranties of the Principal
\nShareholder set forth in Part 5.20 of the Company <\/p>\n
-38-
\n 43<\/p>\n
Disclosure Letter, not to exceed in the aggregate the amount set forth on Part
\n5.20 of the Company Disclosure Letter.<\/p>\n
5.21 Disability Insurance. The Principal Shareholders shall use
\ncommercially reasonable efforts to assist Parent in obtaining disability
\ninsurance on each of the Principal Shareholders in the amount of fifty million
\ndollars ($50,000,000) for each Principal Shareholder, with the proceeds of such
\npolicy payable to Parent, including allowing insurance underwriters’ usual and
\ncustomary medical examinations.<\/p>\n
ARTICLE VI<\/p>\n
CONDITIONS TO THE MERGER<\/p>\n
6.1 Conditions to Obligations of Each Party to Effect the Merger. The
\nrespective obligations of each party to this Agreement to effect the Merger
\nshall be subject to the satisfaction at or prior to the Closing of the following
\nconditions:<\/p>\n
(a) Shareholder Approval. This Agreement and the Merger shall have
\nbeen approved and adopted by the shareholders of the Company by the requisite
\nvote under applicable law and the Company’s Articles of Incorporation.<\/p>\n
(b) Permit. The Commissioner of Corporations for the State of
\nCalifornia or the Secretary of State for the State of North Carolina shall have
\napproved the terms and conditions of the transactions contemplated by this
\nAgreement, and the fairness of such terms and conditions following a hearing for
\nsuch purpose, and shall have issued a California Permit or North Carolina
\nPermit, as the case may be.<\/p>\n
(c) HSR Act. All waiting periods, if any, under the HSR Act relating
\nto the transactions contemplated hereby will have expired or terminated early
\nand all material foreign antitrust approvals required to be obtained prior to
\nthe Merger in connection with the transactions contemplated hereby shall have
\nbeen obtained.<\/p>\n
(d) No Injunctions or Restraints; Illegality. No temporary restraining
\norder, preliminary or permanent injunction or other order issued by any court of
\ncompetent jurisdiction or other legal or regulatory restraint or prohibition
\npreventing the consummation of the Merger shall be in effect.<\/p>\n
(e) Nasdaq Listing. The shares of Parent Common Stock to be issued in
\nthe Merger shall have been approved for listing on the Nasdaq Stock Market’s
\nNational Market, subject to official notice of issuance.<\/p>\n
6.2 Additional Conditions to Obligations of the Company. The obligations of
\nthe Company to consummate the Merger and the transactions contemplated by this
\nAgreement shall be <\/p>\n
-39-
\n 44<\/p>\n
subject to the satisfaction at or prior to the Closing of each of the following
\nconditions, any of which may be waived, in writing, exclusively by the Company:<\/p>\n
(a) Representations and Warranties. The representations and warranties
\nof Parent and Merger Sub contained in this Agreement shall be true and correct
\nin all material respects on and as of the Closing Date, except for those
\nrepresentations and warranties which address matters only as of a particular
\ndate (which shall remain true and correct in all material respects as of such
\ndate), with the same force and effect as if made on and as of the Closing Date,
\nand the Company shall have received a certificate to such effect signed on
\nbehalf of Parent by a duly authorized officer of Parent.<\/p>\n
(b) Agreements and Covenants. Parent and Merger Sub shall have
\nperformed or complied in all material respects with all agreements and covenants
\nrequired by this Agreement to be performed or complied with by them on or prior
\nto the Effective Time, and the Company shall have received a certificate to such
\neffect signed by a duly authorized officer of Parent. <\/p>\n
(c) No Material Adverse Change. There shall not have occurred any
\nevent or condition of any character that has had or is reasonably likely to have
\na Parent Material Adverse Effect since the date of this Agreement.<\/p>\n
6.3 Additional Conditions to the Obligations of Parent and Merger Sub. The
\nobligations of Parent and Merger Sub to consummate the Merger and the
\ntransactions contemplated by this Agreement shall be subject to the satisfaction
\nat or prior to the Closing of each of the following conditions, any of which may
\nbe waived, in writing, exclusively by Parent:<\/p>\n
(a) Representations and Warranties. The representations and warranties
\nof the Company and the Principal Shareholders contained in this Agreement shall
\nhave been true and correct in all material respects on and as of the date
\nhereto. In addition, the representations and warranties of the Company and the
\nPrincipal Shareholders shall be true and correct in all material respects on and
\nas of the Closing Date with the same force and effect as if made on and as of
\nthe Closing Date, except for those representations and warranties which address
\nmatters only as of a particular date (which shall remain true and correct as of
\nsuch date), and Parent and Merger Sub shall have received a certificate to such
\neffect signed on behalf of the Company by the chief executive officer of the
\nCompany, the chief financial officer of the Company and each of the Principal
\nShareholders;<\/p>\n
(b) Agreements and Covenants. The Company and the Principal
\nShareholders shall have performed or complied in all material respects with all
\nagreements and covenants required by this Agreement to be performed or complied
\nwith by each of them on or prior to the Effective Time, and Parent and Merger
\nSub shall have received a certificate to such effect signed by a duly authorized
\nofficer of the Company and the Principal Shareholders;<\/p>\n
(c) No Material Adverse Effect. There shall not have occurred any
\nevent or condition of any character that has had or is reasonably likely to have
\na Material Adverse Effect on the Company since the date of this Agreement.<\/p>\n
-40-
\n 45<\/p>\n
(d) Third Party Consents. Parent shall have been furnished with
\nevidence satisfactory to it that the Company has obtained the consents,
\napprovals, modifications and waivers set forth in Part 6.3(d) of the Company
\nDisclosure Letter.<\/p>\n
(e) Termination of Agreements. The Company shall have terminated each
\nof those agreements listed on Part 6.3(e) of the Company Disclosure Letter and
\neach such agreement shall be of no further force or effect.<\/p>\n
(f) Legal Opinion. Parent shall have received a legal opinion from
\nDaniels & Daniels, P.A., legal counsel to the Company, in the form attached
\nhereto as Exhibit C.<\/p>\n
(g) Affiliate Agreements. Each of the parties identified by the
\nCompany as being a Company Affiliate shall have delivered to Parent an executed
\nAffiliate Agreement in form of Exhibit D which shall be in full force and
\neffect.<\/p>\n
(h) Repurchase Agreements. The Repurchase Agreements previously
\nexecuted and delivered to the Company by each of the persons listed on Part
\n6.3(h) of the Company Disclosure Letter, in the form of Exhibit E, shall be in
\nfull force and effect and the Company shall have delivered evidence that each
\nsuch person shall have filed an election pursuant to Section 83(b) of the Code
\nto be taxed currently on any difference between the purchase price of the shares
\nand their fair market value.<\/p>\n
(i) Non-Competition Agreements. Each of the persons listed on Part
\n6.3(i) of the Company Disclosure Letter shall have executed and delivered to
\nParent a Non-Competition Agreement in substantially the form of Exhibit A, and
\nall of the Non-Competition Agreements shall be in full force and effect.<\/p>\n
(j) No Dissenters. Holders of more than 4.9% of the outstanding shares
\nof Company Capital Stock shall not have exercised, nor shall they have any
\ncontinued right to exercise, appraisal, dissenters’ or similar rights under
\napplicable law with respect to their shares by virtue of the Merger.<\/p>\n
(k) Waiver of Acceleration. Each employee of the Company shall have
\nexecuted a waiver of the rights to acceleration of vesting of such employee’s
\nCompany Options and other Company Convertible Securities as a result of the
\nMerger, and such waiver shall be in full force and effect; provided, however,
\neach such employee shall be entitled to accelerated vesting of up to a total of
\ntwenty-five percent (25%) of their total holdings of Company Capital stock and
\nCompany Convertible Securities, with the remainder of such Company Options and
\nother Company Convertible Securities vesting quarterly over the remainder of the
\nvesting periods specified in such Company Options or Company Convertible
\nSecurities as of the date hereof, provided that such employee shall have
\nforfeited the accelerated vesting resulting from the transactions contemplated
\nhereby in an amount equal to that which may be deemed to constitute “parachute
\npayments” pursuant to Section 280(G) of the Code such that such employee would
\nnot receive any vesting which would constitute “parachute payments” pursuant to
\nSection 280(G) of the Code unless <\/p>\n
-41-
\n 46<\/p>\n
exemption from such treatment under Section 280(G) of the Code (if such section
\nof the Code is applicable) was received by means of consent of the Company
\nShareholders or at a meeting of the Company Shareholders.<\/p>\n
(l) Termination of 401(k) Plan. Parent shall have received from the
\nCompany evidence that the Company’s 401(k) plan has been terminated pursuant to
\nresolution of the Company’s Board of Directors (the form and substance of which
\nshall have been subject to review and approval of Parent), effective as of two
\ndays preceding the Closing Date.<\/p>\n
(m) Conversion of Preferred Stock. All outstanding Company Preferred
\nStock shall have been converted into Company Common Stock in accordance with the
\nterms of the Company’s Articles of Incorporation as of immediately prior to the
\nEffective Time.<\/p>\n
(n) Warrant Exercise. That certain Warrant to Purchase Common Stock of
\nthe Company dated September 22, 1999 issued to Draper Atlantic Venture Fund,
\nL.P. shall have been exercised prior to the Closing.<\/p>\n
(o) Repayment of Indebtedness. The Company shall have repaid all
\noutstanding indebtedness to the Principal Shareholders.<\/p>\n
(p) Disability Insurance. Parent shall have obtained disability
\ninsurance on each of the Principal Shareholders in the amount of fifty million
\ndollars ($50,000,000) for each Principal Shareholder, with the proceeds of such
\npolicy payable to Parent.<\/p>\n
ARTICLE VII<\/p>\n
SURVIVAL OF REPRESENTATIONS AND WARRANTIES; INDEMNITY; ESCROW<\/p>\n
7.1 Survival of Representations and Warranties. All of the representations
\nand warranties of the Company and the Principal Shareholders in this Agreement
\nor in any certificate, instrument or other document delivered pursuant to this
\nAgreement (each as modified by the Company Disclosure Letter) shall survive the
\nMerger and continue until 5:00 p.m., California time, on the date which is
\nfifteen months following the Closing Date (the “Expiration Date”). All of the
\nrepresentations and warranties of Parent and Merger Sub contained herein or in
\nany certificate, instrument or other document delivered pursuant to this
\nAgreement shall terminate at the Closing.<\/p>\n
7.2 Indemnity.<\/p>\n
(a) Subject to Section 7.3 hereof, each of the Company Shareholders
\n(including, without limitation, the Principal Shareholders for all purposes of
\nthis Article VII) agrees to jointly and severally indemnify and hold Parent, its
\nofficers, directors, or affiliates (including the Surviving Corporation) (the
\n“Indemnified Parties”) harmless against all claims, losses, liabilities,
\ndamages, deficiencies, costs and expenses, including reasonable attorneys’ fees
\nand expenses, and expenses of investigation and defense (including, without
\nlimitation, indirect and consequential damages) <\/p>\n
-42-
\n 47<\/p>\n
(hereinafter individually a “Loss” and collectively “Losses”) incurred by any
\nIndemnified Party directly or indirectly as a result of (i) any inaccuracy or
\nbreach of a representation or warranty of the Company or the Principal
\nShareholders contained herein (as modified by the Company Disclosure Letter) or
\nin any certificate, instrument or other document delivered by the Company or the
\nPrincipal Shareholders pursuant to the terms of this Agreement, (ii) any failure
\nby the Company or the Principal Shareholders to perform or comply with any
\ncovenant contained herein, (iii) any Dissenting Shares or (iv) any of the
\nmatters set forth on Schedule 7.2 hereof. The Company and the Company
\nShareholders shall have no right of contribution or indemnification with respect
\nto any Loss claimed by an Indemnified Party pursuant to this Section 7.2(a).<\/p>\n
(b) The Company Shareholders shall not be required to indemnify any
\nother Indemnified Party unless and until Officer’s Certificates (as defined in
\nSection 7.4(d) below) identifying Losses, the aggregate amount of which exceed
\n$100,000, have been delivered to the Escrow Agent as provided in Section 7.4(b)
\nhereof.<\/p>\n
7.3 Exclusive Remedy. The Escrow Fund shall be the exclusive remedy for all
\nsuch Losses incurred by any Indemnified Party, provided that nothing contained
\nherein shall limit the liability of the Principal Shareholders for Losses
\nresulting from (i) any knowing, intentional or willful inaccuracy or breach of
\nthe Company’s or the Principal Shareholders’ respective representations and
\nwarranties contained herein (as modified by the Company Disclosure Letter) or in
\nany certificate, instrument or other document delivered by the Company or the
\nPrincipal Shareholders pursuant to the terms of this Agreement, (ii) any
\nknowing, intentional or willful failure by the Company or the Principal
\nShareholders to perform or comply with any covenant contained herein, and (iii)
\nany of the matters set forth on Schedule 7.2 hereof. Losses resulting from the
\nmatters described in clauses (i), (ii) and (iii) of the preceding sentence shall
\nherein be referred to as “Special Losses.” The obligations of the Principal
\nShareholder to indemnify for Special Losses shall continue notwithstanding any
\nthing contained in Section 7.1 hereof. Nothing herein shall limit the liability
\nof the Company or the Principal Shareholders for any breach of any
\nrepresentation, warranty or covenant if the Merger does not close.<\/p>\n
7.4 Escrow Arrangements.<\/p>\n
(a) Escrow Fund. At the Effective Time, as security for the indemnity
\nprovided for in Section 7.2(a) hereof with respect to the Company Shareholders
\nother than the Principal Shareholders and, with respect to the Principal
\nShareholders, as partial security for the indemnity provided for in Section
\n7.2(a) hereof and by virtue of this Agreement, the Company Shareholders will be
\ndeemed to have received and deposited with the Escrow Agent (as defined below)
\nthe Escrow Amount (plus any additional shares as may be issued in respect of any
\nstock split, stock dividend or recapitalization effected by Parent after the
\nEffective Time) without any act of any Company Shareholder. As soon as
\npracticable after the Effective Time, the Escrow Amount, without any act of any
\nCompany Shareholder, will be deposited with U.S. Bank Trust, National
\nAssociation (or other institution acceptable to Parent and the Securityholder
\nAgent (as defined in Section 7.3(g) below)), as Escrow Agent (the “Escrow
\nAgent”), such deposit to constitute an escrow <\/p>\n
-43-
\n 48<\/p>\n
fund (the “Escrow Fund”) to be governed by the terms set forth herein and at
\nParent’s cost and expense. The Escrow Fund shall be available to compensate any
\nIndemnified Party for any Losses incurred or suffered by such Indemnified Party
\nfor which such party is entitled to recovery under this Article VII.<\/p>\n
(b) Escrow Period; Distribution upon Termination of Escrow Periods.
\nSubject to the following requirements, the Escrow Fund shall be in existence
\nimmediately following the Effective Time and shall terminate at 5:00 p.m.,
\nCalifornia time, on the Expiration Date (the “Escrow Period”); provided that the
\nEscrow Period shall not terminate with respect to such amount (or some portion
\nthereof), that together with the aggregate amount remaining in the Escrow Fund
\nis necessary in the reasonable judgment of Parent, subject to the objection of
\nthe Securityholder Agent and the subsequent arbitration of the matter in the
\nmanner provided in Section 7.2(f) hereof, to satisfy any unsatisfied claims
\nconcerning facts and circumstances existing prior to the termination of such
\nEscrow Period specified in any Officer’s Certificate delivered to the Escrow
\nAgent prior to termination of such Escrow Period. As soon as all such claims
\nhave been resolved, the Escrow Agent shall deliver to the Company Shareholders
\nthe remaining portion of the Escrow Fund and not required to satisfy such claims
\n(other than Unvested Shares which shall be placed in escrow under the terms of
\nthe Repurchase Agreement). Deliveries of Escrow Amounts to the Company
\nShareholders pursuant to this Section 7.4(b) shall be made in proportion to
\ntheir respective original contributions to the Escrow Fund as determined
\npursuant to Section 1.8(b). <\/p>\n
(c) Protection of Escrow Fund.<\/p>\n
(i) The Escrow Agent shall hold and safeguard the Escrow Fund
\nduring the Escrow Period, shall treat such fund as a trust fund in accordance
\nwith the terms of this Agreement and not as the property of Parent and shall
\nhold and dispose of the Escrow Fund only in accordance with the terms hereof.<\/p>\n
(ii) Any shares of Parent Common Stock or other equity securities
\nissued or distributed by Parent (including shares issued upon a stock split)
\n(“New Shares”) in respect of Parent Common Stock in the Escrow Fund which have
\nnot been released from the Escrow Fund shall be added to the Escrow Fund and
\nbecome a part thereof. New Shares issued in respect of shares of Parent Common
\nStock which have been released from the Escrow Fund shall not be added to the
\nEscrow Fund but shall be distributed to the recordholders thereof. Cash
\ndividends on Parent Common Stock shall not be added to the Escrow Fund but shall
\nbe distributed to the recordholders thereof.<\/p>\n
(iii) Each Company Shareholder shall have voting rights with
\nrespect to the shares of Parent Common Stock contributed to the Escrow Fund by
\nsuch Company Shareholder (and on any voting securities added to the Escrow Fund
\nin respect of such shares of Parent Common Stock).<\/p>\n
-44-
\n 49<\/p>\n
(d) Claims Upon Escrow Fund and Claims in Respect of Special Losses.<\/p>\n
(i) Upon receipt by the Escrow Agent at any time on or before the
\nlast day of the Escrow Period of a certificate signed by any officer of Parent
\n(an “Officer’s Certificate”): (A) stating that Parent has paid or properly
\naccrued or reasonably anticipates that it will have to pay or accrue Losses, and
\n(B) specifying in reasonable detail the individual items of Losses included in
\nthe amount so stated, the date each such item was paid or properly accrued, or
\nthe basis for such anticipated liability, and the nature of the
\nmisrepresentation, breach of warranty or covenant or other indemnity to which
\nsuch item is related, the Escrow Agent shall, subject to the provisions of
\nSection 7.4(e) hereof, deliver to Parent out of the Escrow Fund, as promptly as
\npracticable, shares of Parent Common Stock held in the Escrow Fund in an amount
\nequal to such Losses. Shares of the Principal Shareholders contributed to the
\nEscrow Fund in accordance with Section 1.8(b) hereof shall be delivered to
\nParent out of the Escrow Fund in the following order: first, out of Vested
\nShares (as defined in such Principal Shareholder’s Repurchase Agreement) which
\nhave been contributed to the Escrow Fund and, after all Vested Shares have been
\ndelivered, out of Unvested Shares (as defined in such Repurchase Agreement)
\nwhich have been contributed to the Escrow Fund.<\/p>\n
(ii) Upon receipt by the Principal Shareholders of an Officer’s
\nCertificate (A) stating that Parent has paid or properly accrued or reasonably
\nanticipates that it will have to pay or accrue Special Losses, and (B)
\nspecifying in reasonable detail the individual items of Special Losses included
\nin the amount so stated, the date each such item was paid or properly accrued,
\nor the basis for such anticipated liability, and the nature of the
\nmisrepresentation, breach of warranty or covenant or other indemnity to which
\nsuch item is related, the Principal Shareholder shall promptly, and in no event
\nlater than thirty (30) days after delivery of an Officer’s Certificate to
\nPrincipal Shareholder, wire transfer to such Indemnified Party the total amount
\nof the Special Losses set forth in the Officer’s Certificate, unless the
\nPrincipal Shareholders elects to contest such claim in accordance with Section
\n7.4(e) hereof; provided, however, Parent may, in its sole discretion, elect to
\nrecover all or a portion of such Losses by repurchasing a number of Unvested
\nShares of the Principal Shareholders up to the total amount of the Special
\nLosses at a purchase price of $0.01 per share (subject to adjustment for stock
\nsplits, stock dividends and the like) by giving notice to the Principal
\nShareholders in accordance with terms of the Repurchase Agreement and following
\nthe procedures for closing of a purchase set forth in the Repurchase Agreement.<\/p>\n
(iii) For the purposes of determining the number of shares of
\nParent Common Stock to be delivered to Parent out of the Escrow Fund pursuant to
\nSection 7.4(d)(i) hereof and the number of Unvested Shares which Parent may
\nrepurchase in respect of a Special Loss from the Principal Shareholders pursuant
\nto Section 7.4(d)(ii) hereof, the shares of Parent Common Stock shall be valued
\nat $85.00 per share.<\/p>\n
(e) Objections to Claims. At the time of delivery of any Officer’s
\nCertificate to the Escrow Agent, a duplicate copy of such certificate shall be
\ndelivered to the Securityholder Agent (as defined in Section 7.4(g)) and for a
\nperiod of thirty (30) days after such delivery, the Escrow Agent shall make no
\ndelivery to Parent of any Escrow Amounts pursuant to Section 7.4(d)(i) hereof<\/p>\n
-45-
\n 50<\/p>\n
unless the Escrow Agent shall have received written authorization from the
\nSecurityholder Agent to make such delivery. After the expiration of such thirty
\n(30)day period, the Escrow Agent shall make delivery of shares of Parent Common
\nStock from the Escrow Fund in accordance with Section 7.4(d) hereof, provided
\nthat no such payment or delivery may be made if the Securityholder Agent shall
\nobject in a written statement to the claim made in the Officer’s Certificate,
\nand such statement shall have been delivered to the Escrow Agent prior to the
\nexpiration of such thirty (30) day period. At the time of delivery of any
\nOfficer’s Certificate to the Principal Shareholders, a duplicate copy of such
\ncertificate shall be delivered to the Securityholder Agent and for a period of
\nthirty (30) days after such delivery, Parent shall not close the repurchase of
\nany Unvested Shares of the Principal Shareholders in respect of Special Losses
\nin accordance with Section 7.4(d )(ii) hereof unless the Escrow Agent shall have
\nreceived written authorization from the Securityholder Agent to make such
\nclosing of the repurchase. After the expiration of such thirty day period,
\nParent may close the repurchase Unvested Shares of the Principal Shareholder in
\nrespect of Special Loss in accordance with Section 7.4(d)(ii) hereof, provided
\nthat no repurchase may be made if the Securityholder Agent shall object in a
\nwritten statement to the claim made in the Officer’s Certificate, and such
\nstatement shall have been delivered to Parent prior to the expiration of such
\nthirty (30) day period.<\/p>\n
(f) Resolution of Conflicts; Arbitration.<\/p>\n
(i) In case the Securityholder Agent shall so object in writing
\nto any claim or claims made in any Officer’s Certificate, the Securityholder
\nAgent and Parent shall attempt in good faith to agree upon the rights of the
\nrespective parties with respect to each of such claims. If the Securityholder
\nAgent and Parent should so agree, a memorandum setting forth such agreement
\nshall be prepared and signed by both parties and shall be furnished to the
\nEscrow Agent, or, in the case of Special Losses, the Principal Shareholders
\nshall pay the agreed upon amount of such Losses as set forth in Section
\n7.4(d)(ii) (or Parent shall elect in its discretion to purchase Unvested Shares
\nin lieu of all or part of such payment). The Escrow Agent shall be entitled to
\nrely on any such memorandum and distribute shares of Parent Common Stock from
\nthe Escrow Fund in accordance with the terms thereof.<\/p>\n
(ii) If no such agreement can be reached after good faith
\nnegotiation, either Parent or the Securityholder Agent may demand arbitration of
\nthe matter unless the amount of the damage or loss is at issue in pending
\nlitigation with a third party, in which event arbitration shall not be commenced
\nuntil such amount is ascertained or both parties agree to arbitration; and in
\neither such event the matter shall be settled by arbitration conducted by three
\narbitrators. Parent and the Securityholder Agent shall each select one
\narbitrator, and the two arbitrators so selected shall select a third arbitrator.
\nThe arbitrators shall set a limited time period and establish procedures
\ndesigned to reduce the cost and time for discovery while allowing the parties an
\nopportunity, adequate in the sole judgment of the arbitrators, to discover
\nrelevant information from the opposing parties about the subject matter of the
\ndispute. The arbitrators shall rule upon motions to compel or limit discovery
\nand shall have the authority to impose sanctions, including attorneys’ fees and
\ncosts, to the extent as a court of competent law or equity, should the
\narbitrators determine that discovery was sought without substantial<\/p>\n
-46-
\n 51<\/p>\n
justification or that discovery was refused or objected to without substantial
\njustification. The decision of a majority of the three arbitrators as to the
\nvalidity and amount of any claim in such Officer’s Certificate shall be binding
\nand conclusive upon the parties to this Agreement, and notwithstanding anything
\nin Section 7.4(e) hereof, the Escrow Agent shall be entitled to act in
\naccordance with such decision and make or withhold payments out of the Escrow
\nFund in accordance therewith. Such decision shall be written and shall be
\nsupported by written findings of fact and conclusions which shall set forth the
\naward, judgment, decree or order awarded by the arbitrators.<\/p>\n
(iii) Judgment upon any award rendered by the arbitrators may be
\nentered in any court having jurisdiction. Any such arbitration shall be held in
\nLos Angeles County, California under the rules then in effect of the American
\nArbitration Association. For purposes of this Section 7.4(f), in any arbitration
\nhereunder in which any claim or the amount thereof stated in the Officer’s
\nCertificate is at issue, Parent shall be deemed to be the Non-Prevailing Party
\nin the event that the arbitrators award Parent less than the sum of one-half
\n(1\/2) of the disputed amount plus any amounts not in dispute; otherwise, the
\nshareholders of the Company as represented by the Securityholder Agent shall be
\ndeemed to be the Non Prevailing Party. The Non Prevailing Party to an
\narbitration shall pay its own expenses, the fees of each arbitrator, the
\nadministrative costs of the arbitration and the expenses, including without
\nlimitation, reasonable attorneys’ fees and costs, incurred by the other party to
\nthe arbitration.<\/p>\n
(g) Securityholder Agent of the Shareholders; Power of Attorney.<\/p>\n
(i) In the event that the Merger is approved, effective upon such
\nvote, and without further act of any Company Shareholder, M. Scot Wingo shall be
\nappointed as agent and attorney-in-fact (the “Securityholder Agent”) for each
\nCompany Shareholder (except such shareholders, if any, as shall have perfected
\ntheir appraisal or dissenters’ rights under North Carolina Law), for and on
\nbehalf of the Company Shareholders, to give and receive notices and
\ncommunications, to authorize delivery to Parent of shares of Parent Common Stock
\nfrom the Escrow Fund in satisfaction of claims by Parent, to object to such
\ndeliveries, to agree to, negotiate, enter into settlements and compromises of,
\nand demand arbitration and comply with orders of courts and awards of
\narbitrators with respect to such claims, and to take all actions necessary or
\nappropriate in the judgment of Securityholder Agent for the accomplishment of
\nthe foregoing. Such agency may be changed by the Company Shareholders from time
\nto time upon not less than thirty (30) days prior written notice to Parent;
\nprovided that the Securityholder Agent may not be removed unless holders of a
\ntwo-thirds interest of the Escrow Fund agree to such removal and to the identity
\nof the substituted agent. Any vacancy in the position of Securityholder Agent
\nmay be filled by approval of the holders of a majority in interest of the Escrow
\nFund. No bond shall be required of the Securityholder Agent, and the
\nSecurityholder Agent shall not receive compensation for his or her services.
\nNotices or communications to or from the Securityholder Agent shall constitute
\nnotice to or from each of the Company Shareholders. <\/p>\n
(ii) The Securityholder Agent shall not be liable for any act
\ndone or omitted hereunder as Securityholder Agent while acting in good faith and
\nin the exercise of <\/p>\n
-47-
\n 52<\/p>\n
reasonable judgment. The Company Shareholders on whose behalf the Escrow Amount
\nwas contributed to the Escrow Fund shall severally indemnify the Securityholder
\nAgent and hold the Securityholder Agent harmless against any loss, liability or
\nexpense incurred without negligence or bad faith on the part of the
\nSecurityholder Agent and arising out of or in connection with the acceptance or
\nadministration of the Securityholder Agent’s duties hereunder, including the
\nreasonable fees and expenses of any legal counsel retained by the Securityholder
\nAgent.<\/p>\n
(h) Actions of the Securityholder Agent. A decision, act, consent or
\ninstruction of the Securityholder Agent shall constitute a decision of all the
\nshareholders for whom a portion of the Escrow Amount otherwise issuable to them
\nare deposited in the Escrow Fund and shall be final, binding and conclusive upon
\neach of such Company Shareholder, and the Escrow Agent and Parent may rely upon
\nany such decision, act, consent or instruction of the Securityholder Agent as
\nbeing the decision, act, consent or instruction of each and every such Company
\nShareholder. The Escrow Agent and Parent are hereby relieved from any liability
\nto any person for any acts done by them in accordance with such decision, act,
\nconsent or instruction of the Securityholder Agent.<\/p>\n
(i) Third-Party Claims. In the event Parent becomes aware of a third
\nparty claim which Parent believes may result in a demand against the Escrow Fund
\nor indemnity in respect of a Special Loss, Parent shall notify the
\nSecurityholder Agent of such claim, and the Securityholder Agent, as
\nrepresentative for the shareholders of the Company, shall be entitled, at their
\nexpense, to participate in any defense of such claim. Parent shall have the
\nright in its sole discretion to settle any such claim; provided, however, that
\nexcept with the consent of the Securityholder Agent, no settlement of any such
\nclaim with thirdparty claimants shall alone be determinative of the amount of
\nany claim against the Escrow Fund or indemnity in respect of a Special Loss. In
\nthe event that the Securityholder Agent has consented to any such settlement,
\nthe Securityholder Agent shall have no power or authority to object under any
\nprovision of this Article VII to the amount of any claim by Parent against the
\nEscrow Fund or indemnity in respect of a Special Loss with respect to such
\nsettlement.<\/p>\n
(j) Escrow Agent’s Duties.<\/p>\n
(i) The Escrow Agent shall be obligated only for the performance
\nof such duties as are specifically set forth herein, and as set forth in any
\nadditional written escrow instructions which the Escrow Agent may receive after
\nthe date of this Agreement which are signed by an officer of Parent and the
\nSecurityholder Agent, and may rely and shall be protected in relying or
\nrefraining from acting on any instrument reasonably believed to be genuine and
\nto have been signed or presented by the proper party or parties. The Escrow
\nAgent shall not be liable for any act done or omitted hereunder as Escrow Agent
\nwhile acting in good faith and in the exercise of reasonable judgment, and any
\nact done or omitted pursuant to the advice of counsel shall be conclusive
\nevidence of such good faith.<\/p>\n
(ii) The Escrow Agent is hereby expressly authorized to comply
\nwith and obey orders, judgments or decrees of any court of law, notwithstanding
\nany notices, warnings or other communications from any party or any other person
\nto the contrary. In case the Escrow Agent <\/p>\n
-48-
\n 53<\/p>\n
obeys or complies with any such order, judgment or decree of any court, the
\nEscrow Agent shall not be liable to any of the parties hereto or to any other
\nperson by reason of such compliance, notwithstanding any such order, judgment or
\ndecree being subsequently reversed, modified, annulled, set aside, vacated or
\nfound to have been entered without jurisdiction.<\/p>\n
(iii) The Escrow Agent shall not be liable in any respect on
\naccount of the identity, authority or rights of the parties executing or
\ndelivering or purporting to execute or deliver this Agreement or any documents
\nor papers deposited or called for hereunder.<\/p>\n
(iv) The Escrow Agent shall not be liable for the expiration of
\nany rights under any statute of limitations with respect to this Agreement or
\nany documents deposited with the Escrow Agent.<\/p>\n
(v) In performing any duties under the Agreement, the Escrow
\nAgent shall not be liable to any party for damages, losses, or expenses, except
\nfor gross negligence or willful misconduct on the part of the Escrow Agent. The
\nEscrow Agent shall not incur any such liability for (A) any act or failure to
\nact made or omitted in good faith, or (B) any action taken or omitted in
\nreliance upon any instrument, including any written statement or affidavit
\nprovided for in this Agreement that the Escrow Agent shall in good faith believe
\nto be genuine, nor will the Escrow Agent be liable or responsible for forgeries,
\nfraud, impersonations, or determining the scope of any representative authority.
\nIn addition, the Escrow Agent may consult with the legal counsel in connection
\nwith Escrow Agent’s duties under this Agreement and shall be fully protected in
\nany act taken, suffered, or permitted by him\/her in good faith in accordance
\nwith the advice of counsel. The Escrow Agent is not responsible for determining
\nand verifying the authority of any person acting or purporting to act on behalf
\nof any party to this Agreement.<\/p>\n
(vi) If any controversy arises between the parties to this
\nAgreement, or with any other party, concerning the subject matter of this
\nAgreement, its terms or conditions, the Escrow Agent will not be required to
\ndetermine the controversy or to take any action regarding it. The Escrow Agent
\nmay hold all documents and shares of Parent Common Stock and may wait for
\nsettlement of any such controversy by final appropriate legal proceedings or
\nother means as, in the Escrow Agent’s discretion, the Escrow Agent may be
\nrequired, despite what may be set forth elsewhere in this Agreement. In such
\nevent, the Escrow Agent will not be liable for damage. Furthermore, the Escrow
\nAgent may at its option, file an action of interpleader requiring the parties to
\nanswer and litigate any claims and rights among themselves. The Escrow Agent is
\nauthorized to deposit with the clerk of the court all documents and shares of
\nParent Common Stock held in escrow, except all cost, expenses, charges and
\nreasonable attorney fees incurred by the Escrow Agent due to the interpleader
\naction and which the parties jointly and severally agree to pay. Upon initiating
\nsuch action, the Escrow Agent shall be fully released and discharged of and from
\nall obligations and liability imposed by the terms of this Agreement.<\/p>\n
(vii) The parties and their respective successors and assigns
\nagree jointly and severally to indemnify and hold Escrow Agent harmless against
\nany and all losses, claims, damages, liabilities, and expenses, including
\nreasonable costs of investigation, counsel fees, and <\/p>\n
-49-
\n 54<\/p>\n
disbursements that may be imposed on Escrow Agent or incurred by Escrow Agent in
\nconnection with the performance of his\/her duties under this Agreement,
\nincluding but not limited to any litigation arising from this Agreement or
\ninvolving its subject matter.<\/p>\n
(viii) The Escrow Agent may resign at any time upon giving at
\nleast thirty (30) days written notice to the parties; provided, however, that no
\nsuch resignation shall become effective until the appointment of a successor
\nescrow agent which shall be accomplished as follows: the parties shall use their
\nbest efforts to mutually agree on a successor escrow agent within thirty (30)
\ndays after receiving such notice. If the parties fail to agree upon a successor
\nescrow agent within such time, the Escrow Agent shall have the right to appoint
\na successor escrow agent authorized to do business in the State of California.
\nThe successor escrow agent shall execute and deliver an instrument accepting
\nsuch appointment and it shall, without further acts, be vested with all the
\nestates, properties, rights, powers, and duties of the predecessor escrow agent
\nas if originally named as escrow agent. The Escrow Agent shall be discharged
\nfrom any further duties and liability under this Agreement.<\/p>\n
(k) Fees. All fees of the Escrow Agent for performance of its duties
\nhereunder shall be paid by Parent. It is understood that the fees and usual
\ncharges agreed upon for services of the Escrow Agent shall be considered
\ncompensation for ordinary services as contemplated by this Agreement. In the
\nevent that the conditions of this Agreement are not promptly fulfilled, or if
\nthe Escrow Agent renders any service not provided for in this Agreement, or if
\nthe parties request a substantial modification of its terms, or if any
\ncontroversy arises, or if the Escrow Agent is made a party to, or intervenes in,
\nany litigation pertaining to this escrow or its subject matter, the Escrow Agent
\nshall be reasonably compensated for such extraordinary services and reimbursed
\nfor all costs, attorney’s fees, and expenses occasioned by such default, delay,
\ncontroversy or litigation. Parent promises to pay these sums upon demand.<\/p>\n
ARTICLE VIII<\/p>\n
TERMINATION, AMENDMENT AND WAIVER<\/p>\n
8.1 Termination. Except as provided in Section 8.2 below, this Agreement
\nmay be terminated and the Merger abandoned at any time prior to the Effective
\nTime:<\/p>\n
(a) by mutual consent of the Company and Parent;<\/p>\n
(b) by Parent or the Company if: (i) the Effective Time has not
\noccurred before 5:00 p.m. (Pacific time) on June 30, 2000 (the “End Date”)
\n(provided that the right to terminate this Agreement under this Section
\n8.1(b)(i) shall not be available to any party whose willful failure to fulfill
\nany obligation hereunder has been the cause of, or resulted in, the failure of
\nthe Effective Time to occur on or before such date); (ii) there shall be a final
\nnonappealable order of a federal or state court in effect preventing
\nconsummation of the Merger; or (iii) there shall be any statute, rule,
\nregulation or order enacted, promulgated or issued or deemed applicable to the
\nMerger by any governmental entity that would make consummation of the Merger
\nillegal;<\/p>\n
-50-
\n 55<\/p>\n
(c) by Parent if there shall be any action taken, or any statute,
\nrule, regulation or order enacted, promulgated or issued or deemed applicable to
\nthe Merger, by any Governmental Entity, which would: (i) prohibit Parent’s or
\nthe Company’s ownership or operation of all or any portion of the business of
\nthe Company or (ii) compel Parent or the Company to dispose of or hold separate
\nall or a portion of the business or assets of the Company or Parent as a result
\nof the Merger;<\/p>\n
(d) by Parent, upon a breach of any representation, warranty, covenant
\nor agreement on the part of the Company set forth in this Agreement, or if any
\nrepresentation or warranty of the Company shall have become untrue, in either
\ncase such that the conditions set forth in Section 6.3(a) or Section 6.3(b)
\nhereof would not be satisfied as of the time of such breach or as of the time
\nsuch representation or warranty shall have become untrue, provided that if such
\ninaccuracy in the Company’s representations and warranties or breach by the
\nCompany is curable by the Company through the exercise of its commercially
\nreasonable efforts, then Parent may not terminate this Agreement under this
\nSection 8.1(d) prior to the End Date, provided the Company continues to exercise
\ncommercially reasonable efforts to cure such breach (it being understood that
\nParent may not terminate this Agreement pursuant to this Section 8.1(d) if it
\nshall be in material breach of this Agreement or if such breach by the Company
\nis cured prior to 30 days following notice to the Company of the breach,
\nprovided, however, no cure period shall be required for a breach which by its
\nnature cannot be cured);<\/p>\n
(e) by the Company, upon a breach of any representation, warranty,
\ncovenant or agreement on the part of Parent set forth in this Agreement, or if
\nany representation or warranty of Parent shall have become untrue, in either
\ncase such that the conditions set forth in Section 6.2(a) or Section 6.2(b)
\nhereof would not be satisfied as of the time of such breach or as of the time
\nsuch representation or warranty shall have become untrue, provided, that if such
\ninaccuracy in Parent’s representations and warranties or breach by Parent is
\ncurable by Parent through the exercise of its commercially reasonable efforts,
\nthen the Company may not terminate this Agreement under this Section 8.1(e)
\nprior to the End Date, provided Parent continues to exercise commercially
\nreasonable efforts to cure such breach (it being understood that the Company may
\nnot terminate this Agreement pursuant to this Section 8.1(e) if it shall be in
\nmaterial breach of this Agreement or if such breach by Parent is cured prior to
\n30 days following notice to Parent of the breach, provided, however, no cure
\nperiod shall be required for a breach which by its nature cannot be cured).<\/p>\n
(f) By the Company, if a Material Adverse Effect with respect to
\nParent shall have occurred and be continuing.<\/p>\n
Where action is taken to terminate this Agreement pursuant to this Section
\n8.1, it shall be sufficient for such action to be authorized by the Board of
\nDirectors (as applicable) of the party taking such action. <\/p>\n
8.2 Effect of Termination. In the event of termination of this Agreement as
\nprovided in Section 8.1, this Agreement shall forthwith become void and there
\nshall be no liability or obligation on the part of Parent, Merger Sub or the
\nCompany, or their respective officers, directors or shareholders (including the
\nPrincipal Shareholders), provided that each party shall remain liable for <\/p>\n
-51-
\n 56<\/p>\n
any breaches of this Agreement prior to its termination; and provided further
\nthat, the provisions of Section 5.5 and Section 5.6 and Article VIII of this
\nAgreement shall remain in full force and effect and survive any termination of
\nthis Agreement.<\/p>\n
8.3 Amendment. Except as is otherwise required by applicable law after the
\nshareholders of the Company approve this Agreement, this Agreement may be
\namended by the parties hereto at any time by execution of an instrument in
\nwriting signed on behalf of each of the parties hereto.<\/p>\n
8.4 Extension; Waiver. At any time prior to the Effective Time, Parent and
\nMerger Sub, on the one hand, and the Company, on the other, may, to the extent
\nlegally allowed, (i) extend the time for the performance of any of the
\nobligations of the other party hereto, (ii) waive any inaccuracies in the
\nrepresentations and warranties made to such party contained herein or in any
\ndocument delivered pursuant hereto, and (iii) waive compliance with any of the
\nagreements or conditions for the benefit of such party contained herein. Any
\nagreement on the part of a party hereto to any such extension or waiver shall be
\nvalid only if set forth in an instrument in writing signed on behalf of such
\nparty. <\/p>\n
ARTICLE IX<\/p>\n
GENERAL PROVISIONS<\/p>\n
9.1 Notices. All notices and other communications hereunder shall be in
\nwriting and shall be deemed given if delivered personally or by commercial
\ndelivery service, or mailed by registered or certified mail (return receipt
\nrequested) or sent via facsimile (with acknowledgment of complete transmission)
\nto the parties at the following addresses (or at such other address for a party
\nas shall be specified by like notice):<\/p>\n
(i) if to Parent or Merger Sub, to:<\/p>\n
GoTo.com, Inc.
\n 74 North Pasadena Avenue
\n Pasadena, California 91103
\n Attention: Joshua Metzger, Esq.
\n Telephone No.: (626) 685-5600
\n Facsimile No.: (626) 685-5601<\/p>\n
with a copy to:<\/p>\n
-52-
\n 57<\/p>\n
Wilson Sonsini Goodrich & Rosati
\n Professional Corporation
\n 650 Page Mill Road
\n Palo Alto, California 94304
\n Attention: Martin W. Korman, Esq.
\n Daniel R. Mitz, Esq.
\n Bradley L. Finkelstein, Esq.
\n Telephone No.: (650) 493-9300
\n Facsimile No.: (650) 493-6811<\/p>\n
(ii) if to the Company, to:<\/p>\n
AuctionRover.com, Inc.
\n 3000 Aerial Center Suite 160
\n Morrisville, North Carolina 27560
\n Attention: M. Scot Wingo
\n Telephone No.: (919) 465-4682
\n Facsimile No.: (919) 388-9405<\/p>\n
with a copy to:<\/p>\n
Daniels & Daniels, P.A
\n Post Officer Drawer 12218
\n Research Triangle Park, NC 27709-2218
\n Attention: Walter E. Daniels, Esq.
\n Telephone No.: (919) 544-5444
\n Facsimile No.: (919) 544-5920<\/p>\n
(iii) if to the Securityholder Agent:<\/p>\n
M. Scot Wingo
\n c\/o AuctionRover.com, Inc.
\n 3000 Aerial Center Suite 160
\n Morrisville, North Carolina 27560
\n Telephone No.: (919) 465-4682
\n Facsimile No.: (919) 388-9405<\/p>\n
-53-
\n 58<\/p>\n
(iv) if to the Escrow Agent:<\/p>\n
U.S. Bank Trust, National Association
\n Corporate Trust Services
\n One California Street
\n San Francisco, California 94111
\n Attention: Ann Gadsby
\n Telephone No.: (415) 273-4532
\n Facsimile No.: (415) 273-4593<\/p>\n
9.2 Interpretation. The words “include,” “includes” and “including” when
\nused herein shall be deemed in each case to be followed by the words “without
\nlimitation.” As used herein, the term “Material Adverse Effect” shall mean a
\nmaterial adverse effect on the business, assets (including intangible assets),
\nfinancial condition, prospects, capitalization or results of operations of the
\nCompany. The table of contents and headings contained in this Agreement are for
\nreference purposes only and shall not affect in any way the meaning or
\ninterpretation of this Agreement.<\/p>\n
9.3 Counterparts. This Agreement may be executed in one or more
\ncounterparts, all of which shall be considered one and the same agreement and
\nshall become effective when one or more counterparts have been signed by each of
\nthe parties and delivered to the other party, it being understood that all
\nparties need not sign the same counterpart and that the Escrow Agent need not
\nsign this Agreement for it to be effective among the other parties hereto.<\/p>\n
9.4 Entire Agreement; Assignment. This Agreement, the Company Disclosure
\nLetter and Exhibits hereto, the Mutual Nondisclosure Agreement and the documents
\nand instruments and other agreements among the parties hereto referenced herein:
\n(a) constitute the entire agreement among the parties with respect to the
\nsubject matter hereof and supersede all prior agreements and understandings,
\nboth written and oral, among the parties with respect to the subject matter
\nhereof; (b) are not intended to confer upon any other person any rights or
\nremedies hereunder; and (c) shall not be assigned by operation of law or
\notherwise except as otherwise specifically provided, except that Parent and
\nMerger Sub may assign their respective rights and delegate their respective
\nobligations hereunder to their respective affiliates.<\/p>\n
9.5 Severability. In the event that any provision of this Agreement or the
\napplication thereof, becomes or is declared by a court of competent jurisdiction
\nto be illegal, void or unenforceable, the remainder of this Agreement will
\ncontinue in full force and effect and the application of such provision to other
\npersons or circumstances will be interpreted so as reasonably to effect the
\nintent of the parties hereto. The parties further agree to replace such void or
\nunenforceable provision of this Agreement with a valid and enforceable provision
\nthat will achieve, to the extent possible, the economic, business and other
\npurposes of such void or unenforceable provision.<\/p>\n
9.6 Other Remedies. Except as otherwise provided herein, any and all
\nremedies herein expressly conferred upon a party will be deemed cumulative with
\nand not exclusive of any other <\/p>\n
-54-
\n 59<\/p>\n
remedy conferred hereby, or by law or equity upon such party, and the exercise
\nby a party of any one remedy will not preclude the exercise of any other remedy.<\/p>\n
9.7 Governing Law. This Agreement shall be governed by and construed in
\naccordance with the laws of the State of California, regardless of the laws that
\nmight otherwise govern under applicable principles of conflicts of laws thereof.
\nEach of the parties hereto agrees that process may be served upon them in any
\nmanner authorized by the laws of the State of California for such persons and
\nwaives and covenants not to assert or plead any objection which they might
\notherwise have to such jurisdiction and such process.<\/p>\n
9.8 Rules of Construction. The parties hereto agree that they have been
\nrepresented by counsel during the negotiation and execution of this Agreement
\nand, therefore, waive the application of any law, regulation, holding or rule of
\nconstruction providing that ambiguities in an agreement or other document will
\nbe construed against the party drafting such agreement or document.<\/p>\n
9.9 Specific Performance. The parties hereto agree that irreparable damage
\nwould occur in the event that any of the provisions of this Agreement were not
\nperformed in accordance with their specific terms or were otherwise breached. It
\nis accordingly agreed that the parties shall be entitled to an injunction or
\ninjunctions to prevent breaches of this Agreement and to enforce specifically
\nthe terms and provisions hereof in any court of the United States or any state
\nhaving jurisdiction, this being in addition to any other remedy to which they
\nare entitled at law or in equity.<\/p>\n
9.10 Attorney’s Fees. Except as provided in Section 7.4(f)(iii), if any
\naction or other proceeding relating to the enforcement of any provision of this
\nAgreement is brought by any party hereto, the prevailing party shall be entitled
\nto recover reasonable attorney’s fees, costs and disbursements (in addition to
\nany other relief to which the prevailing party may be entitled); provided, in
\nthe event the Company is liable for such fees hereunder, Parent shall not be
\nrestricted to satisfying such liability out of the Escrow Fund.<\/p>\n
(Remainder of page intentionally left blank.)<\/p>\n
-55-
\n 60<\/p>\n
IN WITNESS WHEREOF, Parent, Merger Sub, the Company, the Principal
\nShareholders, and, with respect to Article VII only, the Escrow Agent and the
\nSecurityholder Agent, and have caused this Agreement to be signed by their duly
\nauthorized respective officers, all as of the date first written above.<\/p>\n
AUCTIONROVER.COM, INC. GOTO.COM, INC.<\/p>\n
By: By:
\n ——————————— ———————————-<\/p>\n
Name: Name:
\n ——————————- ——————————–<\/p>\n
Title: Title:
\n —————————- ——————————-<\/p>\n
PRINCIPAL SHAREHOLDERS PAW ACQUISITION CORP.<\/p>\n
By: By:
\n ——————————— ———————————-
\n M. Scott Wingo
\n Name:
\n ——————————–<\/p>\n
By: Title:
\n ——————————— ——————————-
\n Aris A. Buinevicius<\/p>\n
SECURITYHOLDER AGENT ESCROW AGENT:<\/p>\n
U.S. BANK TRUST,
\n NATIONAL ASSOCIATION<\/p>\n
————————————
\nM. Scott Wingo By:
\n ———————————-
\n Name:
\n ——————————–<\/p>\n","protected":false},"template":"","meta":{"_acf_changed":false,"_stopmodifiedupdate":true,"_modified_date":"","_cloudinary_featured_overwrite":false},"corporate_contracts_companies":[7665],"corporate_contracts_industries":[],"corporate_contracts_types":[9622,9626],"class_list":["post-43182","corporate_contracts","type-corporate_contracts","status-publish","hentry","corporate_contracts_companies-gotocom-inc","corporate_contracts_types-planning","corporate_contracts_types-planning__merger"],"acf":[],"_links":{"self":[{"href":"https:\/\/corporate.findlaw.com\/legal-api\/wp-json\/wp\/v2\/corporate_contracts\/43182","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/corporate.findlaw.com\/legal-api\/wp-json\/wp\/v2\/corporate_contracts"}],"about":[{"href":"https:\/\/corporate.findlaw.com\/legal-api\/wp-json\/wp\/v2\/types\/corporate_contracts"}],"wp:attachment":[{"href":"https:\/\/corporate.findlaw.com\/legal-api\/wp-json\/wp\/v2\/media?parent=43182"}],"wp:term":[{"taxonomy":"corporate_contracts_companies","embeddable":true,"href":"https:\/\/corporate.findlaw.com\/legal-api\/wp-json\/wp\/v2\/corporate_contracts_companies?post=43182"},{"taxonomy":"corporate_contracts_industries","embeddable":true,"href":"https:\/\/corporate.findlaw.com\/legal-api\/wp-json\/wp\/v2\/corporate_contracts_industries?post=43182"},{"taxonomy":"corporate_contracts_types","embeddable":true,"href":"https:\/\/corporate.findlaw.com\/legal-api\/wp-json\/wp\/v2\/corporate_contracts_types?post=43182"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}