\nARTICLE VI – CONDITIONS TO THE CLOSING……………………………………. 32
\n 6.1 Conditions to Obligations of Seller and the Company……………… 32
\n 6.2 Conditions to the Obligations of Buyer…………………………. 33<\/p>\nARTICLE VII – SURVIVAL OF REPRESENTATIONS AND WARRANTIES; ESCROW…………….. 35<\/p>\n
7.1 Survival of Representations and Warranties……………………… 35
\n 7.2 Escrow Arrangements………………………………………….. 35
\n 7.3 Escrow Representative………………………………………… 40<\/p>\n
ARTICLE VIII – TERMINATION, AMENDMENT AND WAIVER…………………………… 41<\/p>\n
8.1 Termination…………………………………………………. 41
\n 8.2 Effect of Termination………………………………………… 42
\n 8.3 Amendment…………………………………………………… 42
\n 8.4 Extension; Waiver……………………………………………. 42<\/p>\n
ARTICLE IX – GENERAL PROVISIONS………………………………………….. 42<\/p>\n
9.1 Notices…………………………………………………….. 42
\n 9.2 Interpretation………………………………………………. 44
\n 9.3 Counterparts………………………………………………… 44
\n 9.4 Entire Agreement; Assignment………………………………….. 44
\n 9.5 Severability………………………………………………… 44
\n 9.6 Other Remedies………………………………………………. 44
\n 9.7 Governing Law……………………………………………….. 45
\n 9.8 Rules of Construction………………………………………… 45
\n<\/c><\/s><\/c><\/caption>\n<\/table>\n
INDEX OF EXHIBITS<\/p>\n
EXHIBIT DESCRIPTION
\n——- ———–<\/p>\n
Exhibit A Form of Legal Opinion of Enterprise Law Group, Inc. (Not
\n included)<\/p>\n
Exhibit B-1 Form of Noncompetition Agreement (Not included)<\/p>\n
Exhibit B-2 Form of Nonsolicitation Agreement (Not included)<\/p>\n
Exhibit C [reserved]<\/p>\n
-iii-<\/p>\n
SHARE ACQUISITION AGREEMENT<\/p>\n
This SHARE ACQUISITION AGREEMENT (the “Agreement”) is made and entered into
\n ———
\nas of February 1, 1998 among Concentric Network Corporation, a Delaware
\ncorporation (“Buyer”), InterNex Communications, Inc., a California corporation
\n —–
\n(“Seller”), and InterNex Information Services, Inc., a California corporation
\n ——
\nand wholly-owned subsidiary of Seller (the “Company”), and, with respect to
\n ——-
\nArticles VII and IX, Gloria C. Wahl (the “Escrow Representative”) and First
\n ———————
\nTrust of California, N.A. (the “Escrow Agent”).
\n ———— <\/p>\n
RECITALS<\/p>\n
A. The Board of Directors of Buyer believes it is in the best interests
\nof Buyer and its shareholders that Buyer acquire all of the outstanding Company
\nCapital Stock (as defined in Section 1.4) (the “Acquisition”) and, in
\n ———–
\nfurtherance thereof, have approved the Acquisition.<\/p>\n
B. The Board of Directors of Seller believes it is in the best interests
\nof Seller and its shareholders that it sell all of the outstanding Company
\nCapital Stock to Buyer.<\/p>\n
C. A portion of the cash otherwise payable by Buyer in connection with
\nthe Acquisition shall be placed in escrow by Buyer for the purposes of
\nsatisfying damages, losses, expenses and other similar charges which result from
\nbreaches of representations, warranties and covenants.<\/p>\n
D. As an inducement for Buyer to consummate the Acquisition, Seller and
\nthe Company agree to make certain representations, warranties, covenants and
\nother agreements in connection with the Acquisition.<\/p>\n
NOW, THEREFORE, in consideration of the covenants, promises and
\nrepresentations set forth herein, and for other good and valuable consideration,
\nthe parties agree as follows:<\/p>\n
ARTICLE I<\/p>\n
PURCHASE AND SALE OF COMPANY CAPITAL STOCK<\/p>\n
1.1 Purchase and Sale. At the Closing (as defined in Section 1.2) and
\n —————–
\nsubject to and upon the terms and conditions of this Agreement, Buyer shall
\npurchase from Seller and Seller shall sell, convey, transfer, assign and deliver
\nto Buyer, free and clear of all liens, encumbrances or other defects of title,
\nall of the outstanding shares of Company Capital Stock (the “Shares”), including
\n ——
\nall property or rights issued by the Company with respect to the Shares.<\/p>\n
1.2 Closing.
\n ——- <\/p>\n
(a) Unless this Agreement is earlier terminated pursuant to Section
\n8.1, the closing of the Acquisition (the “Closing”) will take place as promptly
\n ——-
\nas practicable, but no later than five (5) business days following satisfaction
\nor waiver of the conditions set forth in Article VI, at the offices of Wilson
\nSonsini Goodrich & Rosati, Professional Corporation, 650 Page Mill Road, Palo
\nAlto, California, unless another place or time is agreed to in writing by Buyer
\nand Seller. The date upon which the Closing actually occurs is herein referred
\nto as the “Closing Date.”
\n ———— <\/p>\n
(b) At the Closing, Seller shall deliver or cause to be delivered to
\nBuyer the following:<\/p>\n
(i) certificates representing the Shares duly endorsed or
\naccompanied by stock powers duly endorsed in blank, with any required transfer
\nstamps affixed thereto; and<\/p>\n
(ii) all other documents, agreements, certificates, instruments
\nor writings required to be delivered by Seller or the Shareholders on or prior
\nto the Closing Date pursuant to this Agreement or as may be reasonably requested
\nby any party in order to consummate the transactions contemplated by this
\nAgreement.<\/p>\n
(c) At the Closing, Buyer shall deliver to Seller the following:<\/p>\n
(i) an amount of cash, payable by certified or cashier’s check or
\nby wire transfer to an account of Seller designated in writing by Seller and
\ndelivered to the Buyer at least two (2) business days prior to the Closing Date,
\nequal to 85% of the Total Consideration; and<\/p>\n
(ii) all other documents, agreements, certificates or writings
\nrequired to be delivered by Buyer on or prior to the Closing Date pursuant to
\nthis Agreement or as may be reasonably requested by any party in order to
\nconsummate the transactions contemplated by this Agreement;<\/p>\n
(d) At the Closing, Buyer shall deliver an amount of cash, payable by
\ncertified or cashier’s check or by wire transfer to the Escrow Agent appointed
\npursuant to Section 7.2 to be deposited into the Escrow Fund (as defined in
\nSection 7.2(b)), equal to 15% of the Total Consideration (such sum is
\nhereinafter collectively referred to as the “Escrow Amount”).
\n ————- <\/p>\n
1.3 No Further Ownership Rights in Shares. All consideration paid in
\n ————————————-
\nrespect of the surrender for exchange of the Shares in accordance with the terms
\nhereof, shall be deemed to be full satisfaction of all Seller’s rights
\npertaining to such Shares.<\/p>\n
1.4 Definitions. For all purposes of this Agreement, the following terms
\n ———–
\nshall have the following meanings:<\/p>\n
“Company Capital Stock” shall mean (i) shares of Company Common
\n ———————
\nStock, (ii) shares of Company Preferred Stock, and (iii) any other capital stock
\nof the Company.<\/p>\n
-2-<\/p>\n
“Company Common Stock” shall mean all shares of common stock of the
\n ——————–
\nCompany, no par value per share.<\/p>\n
“Company Options” shall mean all issued and outstanding options,
\n —————
\nwarrants and other rights to acquire, purchase or receive shares of Company
\nCapital Stock (whether or not vested).<\/p>\n
“Company Preferred Stock” shall mean all shares of preferred stock of
\n ———————–
\nthe Company, no par value per share.<\/p>\n
“Estimated Balance Sheet” shall mean the estimated unaudited balance
\n ———————–
\nsheet of the Company dated the Closing Date which shall be (i) prepared in
\naccordance with GAAP (except that such unaudited balance sheet does not contain
\nthe footnotes required by GAAP) and prepared in good faith and based on
\nreasonable assumptions and (ii) approved by Buyer, which approval shall not be
\nwithheld unreasonably.<\/p>\n
“Estimated Net Liabilities” shall be the amount equal to the total
\n ————————-
\nliabilities of the Company as determined in accordance with GAAP (“Total
\n —–
\nLiabilities”) minus the current assets of the Company as determined in
\n———–
\naccordance with GAAP (“Current Assets”) as reflected in the Estimated Balance
\n ————–
\nSheet.<\/p>\n
“Estimated Third Party Expenses” shall mean Third Party Expenses (as
\n ——————————
\ndefined in Section 5.5) of the Company and the Seller on the Closing Date as
\nestimated by the Company and the Seller in good faith and based on reasonable
\nassumptions.<\/p>\n
“GAAP” shall mean U.S. generally accepted accounting principles
\n —-
\nconsistently applied.<\/p>\n
“Knowledge” shall mean the actual knowledge of Gloria C. Wahl after
\n ———
\nreasonable investigation and the actual knowledge of Martin Levy.<\/p>\n
“Net Liabilities” shall be the amount equal to Total Liabilities minus
\n —————
\nCurrent Assets of the Company.<\/p>\n
“Seller Capital Stock” shall mean (i) all shares of common stock of
\n ——————–
\nSeller, no par value per share, (ii) all shares of preferred stock of Seller, no
\npar value per share, and (iii) any other capital stock of Seller.<\/p>\n
“Shareholder” shall mean each holder of any Seller Capital Stock
\n ———–
\nimmediately prior to the Closing.<\/p>\n
“Total Consideration” shall be an amount equal to $16,750,000 minus:
\n ——————-
\n(i) the amount by which the Estimated Net Liabilities (excluding Estimated Third
\nParty Expenses reflected on the Estimated Balance Sheet) exceed $3,250,000 and
\n(ii) the amount by which Estimated Third Party Expenses exceed $250,000.<\/p>\n
-3-<\/p>\n
“Total Outstanding Shares” shall be the aggregate number of shares of
\n ————————
\nCompany Capital Stock outstanding immediately prior to the Closing plus the
\naggregate number of shares of Company Capital Stock issuable pursuant to Company
\nOptions, with or without the passage of time or satisfaction of other
\nconditions, outstanding immediately prior to the Closing.<\/p>\n
1.5 Lost, Stolen or Destroyed Certificates. In the event any certificates
\n ————————————–
\nevidencing shares of Company Capital Stock shall have been lost, stolen or
\ndestroyed, Buyer shall issue in exchange for such lost, stolen or destroyed
\ncertificates, upon the making of an affidavit of that fact by the holder
\nthereof, such amount, if any, as may be required pursuant to Section 1.2;<\/p>\n
provided, however, that Buyer may, in its reasonable discretion and as a
\n——– ——-
\ncondition precedent to the issuance thereof, require the owner of such lost,
\nstolen or destroyed certificates to deliver a bond in such sum as it may
\nreasonably direct against any claim that may be made against Buyer with respect
\nto the certificates alleged to have been lost, stolen or destroyed.<\/p>\n
1.6 Taking of Necessary Action; Further Action. If, at any time after the
\n ——————————————
\nClosing Date, any such further action is necessary or desirable to carry out the
\npurposes of this Agreement and to ensure that the Company retains full right,
\ntitle and possession to all of its assets, property, rights, privileges, powers
\nand franchises, Buyer, Seller, the Company, and the officers and directors of
\nSeller and the Company are fully authorized in the name of their respective
\ncorporations or otherwise to take, and will take, all such lawful and necessary
\naction.<\/p>\n
ARTICLE II<\/p>\n
REPRESENTATIONS AND WARRANTIES OF SELLER AND
\n THE COMPANY<\/p>\n
Each of Seller and the Company hereby, jointly and severally, represents
\nand warrants to Buyer, subject to such exceptions as are specifically disclosed
\nin the disclosure schedule (referencing the appropriate section and paragraph
\nnumbers) supplied by Seller and the Company to Buyer and attached hereto (the<\/p>\n
“Disclosure Schedule”), that on the date hereof and as of the Closing as though
\n——————–
\nmade at the Closing as follows:<\/p>\n
2.1 Organization of the Company. The Company is a corporation duly
\n —————————
\norganized, validly existing and in good standing under the laws of the State of
\nCalifornia. The Company has the corporate power to own its properties and to
\ncarry on its business as now being conducted. The Company is duly qualified to
\ndo business and in good standing as a foreign corporation in each jurisdiction
\nin which the failure to be so qualified could have a Material Adverse Effect.
\nFor all purposes of this Agreement, the term “Material Adverse Effect” means any
\nchange, event or effect that is materially adverse to the business, assets
\n(including intangible assets), condition (financial or otherwise), results of
\noperations or prospects of the Company taken as a whole (“Material Adverse
\n —————-
\nEffect”). The Company has delivered a true and correct copy of its Articles of
\n——
\nIncorporation and Bylaws, each as amended to date, to Buyer. <\/p>\n
-4-<\/p>\n
Section 2.1 of the Disclosure Schedule lists the directors and officers of the
\nCompany. The operations now being conducted by the Company have not been
\nconducted under any other name.<\/p>\n
2.2 Subsidiaries. The Company does not have, and has never had, any
\n ————
\nsubsidiaries or affiliated companies and does not otherwise own, and has not
\notherwise owned, any shares in the capital of or any interest in, or control,
\ndirectly or indirectly, any corporation, partnership, association, joint venture
\nor other business entity.<\/p>\n
2.3 Company Capital Structure.
\n ————————- <\/p>\n
(a) The authorized capital stock of the Company consists of thirty
\nmillion (30,000,000) shares of authorized Company Common Stock, of which seven
\nmillion (7,000,000) shares are issued and outstanding as of the date hereof and
\nall of which are held by Seller, and five million (5,000,000) shares of Company
\nPreferred Stock, none of which shares are issued and outstanding as of the date
\nhereof. 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 bound
\nand have been issued in compliance with federal and state securities laws.
\nThere are no declared or accrued unpaid dividends with respect to any shares of
\nthe Company’s Capital Stock. The Company has no other capital stock authorized,
\nissued or outstanding. There is no outstanding Company Capital Stock which is
\nsubject to vesting.<\/p>\n
(b) The Company has never adopted or maintained any stock option plan
\nor other plan providing for equity compensation of any person. 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, with or without the passage of time or satisfaction of
\nother conditions, to issue, deliver, sell, repurchase or redeem, or cause to be
\nissued, delivered, sold, repurchased or redeemed, any shares of Company Capital
\nStock or obligating the Company to grant, extend, accelerate the vesting of,
\nchange the price of, otherwise amend or enter into any such option, warrant,
\ncall, right, commitment or agreement. There are no outstanding or authorized
\nstock appreciation, phantom stock, profit participation, or other similar rights
\nwith respect to the Company. There are no voting trusts, proxies, or other
\nagreements or understandings with respect to the voting stock of the Company.<\/p>\n
(c) Seller is the sole record and beneficial owner of the Shares and
\nthe Shares are to be sold pursuant to this Agreement. The Shares are not
\nsubject to any Liens (as defined in Section 2.11(b)(vii)) or to any rights of
\nfirst refusal of any kind, and Seller has not granted any rights to purchase the
\nShares to any other person or entity. Seller has the sole right to transfer the
\nShares to Buyer. The Shares constitute all of the Company Capital Stock owned,
\nbeneficially or of record, by Seller, and Seller has no other rights to acquire
\nCompany Capital Stock. Upon the Closing, (i) Buyer will receive good title to
\nsuch Shares, subject to no Liens retained, granted or permitted by Seller or the
\nCompany, and (ii) Buyer will be the record and sole beneficial owner of all
\noutstanding Company <\/p>\n
-5-<\/p>\n
Capital Stock. Seller has not engaged in any sale or other transfer of any
\nCompany Capital Stock in contemplation of the Acquisition.<\/p>\n
2.4 Authority. Each of Seller and the Company has all requisite power and
\n ———
\nauthority to enter into this Agreement and any Related Agreements (as
\nhereinafter defined) to which it is a party and to consummate the transactions
\ncontemplated hereby and thereby. The execution and delivery of this Agreement
\nand any Related Agreements to which it is a party and the consummation of the
\ntransactions contemplated hereby and thereby have been duly authorized by all
\nnecessary corporate action on the part of Seller and the Company, and no further
\naction is required on the part of Seller or the Company to authorize the
\nAgreement, any Related Agreements to which it is a party and the transactions
\ncontemplated hereby and thereby, subject only to the approval of this Agreement
\nby the Shareholders. This Agreement has been approved by the Board of Directors
\nof Seller and the Company. This Agreement and any Related Agreements to which
\nSeller or the Company is a party have been duly executed and delivered by Seller
\nor the Company, as the case may be, and, assuming the due authorization,
\nexecution and delivery by the other parties hereto and thereto, constitute the
\nvalid and binding obligation of Seller and the Company, as the case may be,
\nenforceable in accordance with their respective terms, subject to the laws of
\ngeneral application relating to bankruptcy, insolvency and the relief of debtors
\nand to rules of law governing specific performance, injunctive relief or other
\nequitable remedies. The “Related Agreements” shall mean all such ancillary
\n ——————
\nagreements required in this Agreement to be executed and delivered in connection
\nwith the transactions contemplated hereby.<\/p>\n
2.5 No Conflict. Except as set forth in Section 2.5 of the Disclosure
\n ———–
\nSchedule, the execution and delivery of this Agreement and any Related
\nAgreements to which Seller or the Company is a party by Seller or the Company,
\nas applicable, do not, and, the consummation of the transactions contemplated
\nhereby and thereby will not, conflict with, or result in any violation of, or
\ndefault under (with or without notice or lapse of time, or both), or give rise
\nto a right of termination, cancellation, modification or acceleration of any
\nobligation or loss of any benefit under (any such event, a “Conflict”) (i) any
\n ——–
\nprovision of the Articles of Incorporation and Bylaws of Seller or the Company,
\n(ii) any mortgage, indenture, lease, contract or other agreement or instrument,
\npermit, concession, franchise or license to which Seller or the Company or any
\nof their respective properties or assets are subject, or (iii) any judgment,
\norder, decree, statute, law, ordinance, rule or regulation applicable to Seller
\nor the Company or their respective properties or assets.<\/p>\n
2.6 Consents. No consent, waiver, approval, order or authorization of, or
\n ——–
\nregistration, declaration or filing with, any court, administrative agency or
\ncommission or other federal, state, county, local or other foreign governmental
\nauthority, instrumentality, agency or commission (“Governmental Entity”) or any
\n ——————-
\nthird party, including a party to any agreement with the Company (so as not to
\ntrigger any Conflict), is required by or with respect to Seller or the Company
\nin connection with the execution and delivery of this Agreement and any Related
\nAgreements to which Seller or the Company is a party or the consummation of the
\ntransactions contemplated hereby and thereby.<\/p>\n
2.7 Company Financial Statements. Section 2.7 of the Disclosure Schedule
\n —————————-
\nsets forth the Company’s audited balance sheet as of June 30, 1997 and 1996 and
\nthe related audited statements of <\/p>\n
-6-<\/p>\n
income and cash flow for the twelve-month periods ended June 30, 1997 and 1996
\n(the “Year-End Financials”) and the Company’s unaudited balance sheet as of
\n ——————-
\nDecember 31, 1997 and the related unaudited statements of income and cash flow
\nfor the six months ended December 31, 1997 (the “Interim Financials”). The Year
\n ——————
\nEnd Financials include a report of independent auditors with respect thereto,
\nexecuted by Arthur Andersen LLP. The Year End Financials and Interim Financials
\nare correct in all material respects and have been prepared in accordance with
\nGAAP applied on a basis consistent throughout the periods indicated and
\nconsistent with each other (except that the Interim Financials do not contain
\nall the notes that may be required by GAAP). The Year-End Financials and Interim
\nFinancials present fairly the financial condition and operating results of the
\nCompany as of the dates and during the periods indicated therein. The Company’s
\nunaudited balance sheet as of December 31, 1997 shall be hereinafter referred to
\nas the “Current Balance Sheet.”
\n ——————— <\/p>\n
2.8 No Undisclosed Liabilities. The Company has no liability,
\n ————————–
\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 in
\nthe Current Balance Sheet, or (ii) has not arisen in the ordinary course of
\nbusiness consistent with past practices since December 31, 1997.<\/p>\n
2.9 Customer Retention.
\n —————— <\/p>\n
(a) For purposes of this Agreement, the following terms have the
\nfollowing definitions:<\/p>\n
(i) “Customer” shall mean each dedicated access, frame relay,
\n ——–
\nT-1, T-3 or co-located hosting customer of the Company; and<\/p>\n
(ii) “Annualized Revenue” with respect to each Customer shall
\n ——————
\nmean the amount set forth opposite that Customer’s name on Section 2.9(b) of the
\nDisclosure Schedule.<\/p>\n
(b) Section 2.9(b) of the Disclosure Schedule lists (i) the top 100
\nCustomers of the Company as measured by each such Customer’s Annualized Revenue,
\nand (ii) the Annualized Revenue from each Customer listed thereon. The
\nAnnualized Revenue set forth opposite each Customer’s name on Section 2.9(b) of
\nthe Disclosure Schedule is equal to the product of (x) twelve (12), multiplied
\nby (y) the revenue accrued by the Company from services provided to such
\nCustomer during the one month period ended December 31, 1997. No Customer
\nlisted on Section 2.9(b) of the Disclosure Schedule will cease to be a Customer
\nof the Company on or prior to the six month anniversary of the Closing Date
\nunless such cessation is due to one of the following causes (any such cessation
\nnot due to one of the causes set forth in subparagraphs (i)-(iv) below is
\nhereinafter referred to as a “Customer Termination”):
\n ——————– <\/p>\n
(i) The Customer is dissatisfied with (A) the quality of customer
\nservice received from the Company after the Closing Date and the Company does
\nnot remedy such dissatisfaction within thirty (30) days after receiving
\nnotification from the Customer of its dissatisfaction or (B) the performance of
\nthe Company’s network after the Closing Date and the Company does not <\/p>\n
-7-<\/p>\n
remedy such dissatisfaction within thirty (30) days after receiving notification
\nfrom the Customer of its dissatisfaction; provided, however, that Customer’s
\n ——– ——-
\nfailure to provide the Company with such thirty (30) day remedy period shall not
\nconstitute a Customer Termination if such Customer’s dissatisfaction is a result
\nof the Company’s network experiencing at least 80% outage (as that term is used
\nin the industry) for seven consecutive working days. For purposes of the
\npreceding sentence, Customer’s satisfaction or dissatisfaction with the
\nCompany’s customer service and network performance and, if applicable, the date
\non which Customer first notifies the Company of its dissatisfaction shall by
\ndetermined by Buyer’s good faith review of the Company’s customer service,
\nnetwork operations, sales and accounting records concerning the Customer created
\nin the ordinary course of the Company’s business, which records the Buyer shall
\nuse reasonable efforts to cause the Company to keep in good faith. After the
\nClosing, Buyer shall use commercially reasonable efforts to cause the Company to
\nconform to industry standards of customer service, which shall include
\nattempting to give Customers reasonable advance notice of network problems,
\nmaking reasonable and customary accommodations where appropriate in Buyer’s sole
\njudgment, and making reasonable inquiries as to the reasons for a termination.<\/p>\n
(ii) The Customer requests and the Company fails to offer the
\nCustomer service rates that are not less than 120% of the average rates in the
\nCustomer’s market for comparable services as determined by Buyer’s good faith
\nestimates based on empirical data available to Buyer.<\/p>\n
(ii) The Company’s voluntary termination of providing services to
\nsuch Customer other than for nonpayment for services delivered which nonpayment
\nhas either (A) continued for more than ninety (90) consecutive days after the
\ninitial billing date or (B) is due to Customer’s financial inability to pay for
\nservices delivered by the Company.<\/p>\n
(iv) The Customer’s refusal to execute a written service
\nagreement with the Company.<\/p>\n
(c) Except as set forth on Section 2.9(c) of the Disclosure Schedule,
\nthe Company has not received notice from any Customer alleging substandard
\nnetwork performance or substandard customer support (any such notice is
\nhereinafter referred to as a “Customer Notice”) during the two month period
\n —————
\nprior to the date of this Agreement.<\/p>\n
2.1 No Changes. Except as set forth in Section 2.10 of the Disclosure
\n ———-
\nSchedule, since December 31, 1997, there has not been, occurred or arisen any:<\/p>\n
(a) amendments or changes to the Articles of Incorporation or Bylaws
\nof the Company;<\/p>\n
(b) capital expenditure or commitment by the Company, exceeding
\n$10,000 individually or $25,000 in the aggregate;<\/p>\n
(c) destruction of, damage to or loss of any material assets, business
\nor customer of the Company (whether or not covered by insurance);<\/p>\n
-8-<\/p>\n
(d) labor trouble or claim of wrongful discharge or other unlawful
\nlabor practice or action;<\/p>\n
(e) change in accounting methods or practices (including any change in
\ndepreciation or amortization policies or rates) by the Company;<\/p>\n
(f) revaluation by the Company of any of its assets;<\/p>\n
(g) declaration, setting aside or payment of a dividend or other
\ndistribution with respect to Company Capital Stock or any direct or indirect
\nredemption, purchase or other acquisition by the Company of Company Capital
\nStock;<\/p>\n
(h) increase in compensation (other than salary) payable or to become
\npayable by the Company to any of its officers, directors, employees or advisors,
\nor the declaration, payment or commitment or obligation of any kind for the
\npayment, by the Company of a bonus or other additional salary or compensation to
\nany such person;<\/p>\n
(i) any agreement, contract, covenant, instrument, lease, license or
\ncommitment to which the Company is a party or by which it or any of its assets
\nare bound (excluding (A) any agreement with shared web or ISDN customers of the
\nCompany terminable by either such customer or the Company at any time without
\npenalty and entered into in the ordinary course of business and (B) any Company
\npurchase orders not exceeding $10,000 individually and $50,000 in the aggregate
\nentered into in the ordinary course of business) or any termination, extension,
\namendment or modification the terms of any agreement, contract, covenant,
\ninstrument, lease, license or commitment to which the Company is a party or by
\nwhich it or any of its assets are bound (excluding any agreement with shared web
\nor ISDN customers of the Company);<\/p>\n
(j) sale, lease, license or other disposition of any of the assets or
\nproperties of the Company (except for sales or other disposition of assets not
\nexceeding $10,000 in the aggregate) or any creation of any security interest in
\nsuch assets or properties;<\/p>\n
(k) 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, except for advances to employees for travel and
\nbusiness expenses in the ordinary course of business and not exceeding $10,000
\nindividually or $25,000 in the aggregate, consistent with past practice;<\/p>\n
(l) 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
(m) the commencement or written notice or, to Seller’s or the
\nCompany’s Knowledge, threat or reasonable basis therefor of any lawsuit or, to
\nSeller’s or the Company’s Knowledge, proceeding or investigation against Seller
\nor the Company or their respective affairs;<\/p>\n
-9-<\/p>\n
(n) notice of any claim or potential claim of ownership by any person
\nother than the Company of the Company Intellectual Property (as defined in
\nSection 2.14) or of infringement by the Company of any other person’s
\nIntellectual Property (as defined in Section 2.14);<\/p>\n
(o) issuance or sale, or contract to issue or sell, by the Company of
\nany shares of its capital stock or securities exchangeable, convertible or
\nexercisable therefor, or any securities, warrants, options or rights to purchase
\nany of the foregoing;<\/p>\n
(p) (i) selling or entering into any license agreement with respect
\nto the Company Intellectual Property (as defined in Section 2.13) with any third
\nparty, (ii) buying or entering into any license agreement as a licensee with
\nrespect to any Intellectual Property (as defined in Section 2.14) of any third
\nparty or (iii) change in pricing or royalties set or changed by the Company to
\nits customers or licensees or in pricing or royalties set or changed by persons
\nwho have licensed Intellectual Property (as defined in Section 2.14) to the
\nCompany;<\/p>\n
(q) any event or condition of any character that has had a Material
\nAdverse Effect on the Company;<\/p>\n
(r) transaction by the Company except in the ordinary course of
\nbusiness as conducted on that date and consistent with past practices; or<\/p>\n
(s) 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 (r) (other than negotiations with Buyer and its representatives
\nregarding the transactions contemplated by this Agreement).<\/p>\n
2.11 Tax Matters.
\n ———– <\/p>\n
(a) Definition of Taxes. For the purposes of this Agreement, “Tax”
\n ——————- —
\nor, collectively, “Taxes”, means (i) any and all federal, state, local and
\n —–
\nforeign taxes, assessments and other governmental charges, duties, impositions
\nand liabilities, including taxes based upon or measured by gross receipts,
\nincome, profits, sales, use and occupation, and value added, ad valorem,
\ntransfer, franchise, withholding, payroll, recapture, employment, excise and
\nproperty taxes, together with all interest, penalties and additions imposed with
\nrespect to such amounts; (ii) any liability for the payment of any amounts of
\nthe type described in clause (i) as a result of being a member of an affiliated,
\nconsolidated, combined or unitary group for any period; and (iii) any liability
\nfor the payment of any amounts of the type described in clause (i) or (ii) as a
\nresult of any express or implied obligation to indemnify any other person or as
\na result of any obligations under any agreements or arrangements with any other
\nperson with respect to such amounts and including any liability for taxes of a
\npredecessor entity.<\/p>\n
-10-<\/p>\n
(b) Tax Returns and Audits.
\n ———————- <\/p>\n
(i) As of the Closing, each of Seller and the Company will have
\nprepared and timely filed all federal, state, local and foreign returns,
\nestimates, information statements and reports required to have been filed before
\nthe Closing Date (“Returns”) relating to any and all Taxes concerning or
\n ——-
\nattributable to Seller or the Company or their respective operations and such
\nReturns are true and correct and have been completed in accordance with
\napplicable law.<\/p>\n
(ii) As of the Closing, each of Seller and the Company (A) will
\nhave paid all Taxes it is required to pay and will have withheld with respect to
\nits employees all federal and state income taxes, FICA, FUTA and other Taxes
\nrequired to be withheld, and (B) will have accrued on the Current Balance Sheet
\nall Taxes attributable to the periods covered by the Current Balance Sheet and
\nwill not have incurred any liability for Taxes for the period prior to the
\nClosing other than in the ordinary course of business.<\/p>\n
(iii) Neither Seller nor the Company has been delinquent in the
\npayment of any Tax nor is there any Tax deficiency outstanding, assessed or
\nproposed against Seller or the Company, nor has Seller or the Company executed
\nany waiver of any statute of limitations on or extending the period for the
\nassessment or collection of any Tax.<\/p>\n
(iv) No audit or other examination of any Return of the Company
\nis presently in progress, nor has Seller or the Company been notified of any
\nrequest for such an audit or other examination.<\/p>\n
(v) Neither Seller nor the Company has any liabilities for
\nunpaid federal, state, local and foreign Taxes which have not been accrued or
\nreserved against on the Current Balance Sheet, whether asserted or unasserted,
\ncontingent or otherwise.<\/p>\n
(vi) Each of Seller and the Company has made available to Buyer
\nor its legal counsel, copies of all foreign, federal and state income and all
\nstate sales and use Returns for Seller or the Company filed for all periods
\nsince 1995.<\/p>\n
(vii) There are (and immediately following the Closing there will
\nbe) no liens, pledges, charges, claims, restrictions on transfer, mortgages,
\nsecurity interests or other encumbrances of any sort (collectively, “Liens”) on
\n —–
\nthe assets of Seller or the Company relating to or attributable to Taxes other
\nthan Liens for Taxes not yet due and payable.<\/p>\n
(viii) Neither Seller nor the Company has Knowledge of any basis
\nfor the assertion of any claim relating or attributable to Taxes which, if
\nadversely determined, would result in any Lien on the assets of Seller or the
\nCompany.<\/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
-11-<\/p>\n
(x) As of the Closing, 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 by the Company as an expense under applicable law other
\nthan reimbursements of a reasonable amount of entertainment expenses and other
\nnondeductible expenses that are commonly paid by similarly situated businesses
\nin reasonable amounts.<\/p>\n
(xi) Neither Seller nor the Company is a party to any tax
\nsharing, indemnification or allocation agreement nor does the Company owe any
\namount under any such agreement, other than this Agreement.<\/p>\n
(xii) Neither Seller nor the Company has filed any consent
\nagreement under Section 341(f) of the Code or agreed to have Section 341(f)(4)
\nof the Code apply to any disposition of a subsection (f) asset (as defined in
\nSection 341(f)(4) of the Code) owned by Seller or the Company.<\/p>\n
(xiii) Each of Seller’s and the Company’s tax basis in its
\nassets for purposes of determining its future amortization, depreciation and
\nother federal income tax deductions is accurately reflected on Seller’s and the
\nCompany’s respective tax books and records.<\/p>\n
(xiv) Neither Seller nor the Company is, and neither has been at
\nany time, a “United States Real Property Holding Corporation” within the meaning
\nof Section 897(c)(2) of the Code.<\/p>\n
(xv) Seller does not have any liabilities for Taxes.<\/p>\n
(c) Executive Compensation Tax. There is no contract, agreement, plan
\n ————————–
\nor arrangement to which either Seller or the Company is a party as of the date
\nof this Agreement, including but not limited to the provisions of this
\nAgreement, covering any employee or former employee of either Seller or the
\nCompany, individually or collectively, could give rise to the payment of any
\namount that would not be deductible pursuant to Sections 280G, 404 or 162(m) of
\nthe Code.<\/p>\n
2.12 Restrictions on Business Activities. There is no agreement
\n ———————————–
\n(noncompete or otherwise), commitment, judgment, injunction, order or decree to
\nwhich Seller or the Company is a party or otherwise binding upon Seller or the
\nCompany which has or may have the effect of prohibiting or impairing any
\nbusiness practice of Seller or the Company, any acquisition of property
\n(tangible or intangible) by Seller or the Company or the conduct of business by
\nSeller or the Company. Without limiting the foregoing, neither Seller nor the
\nCompany has entered into any agreement under which either Seller or the Company
\nis restricted from selling, licensing or otherwise distributing any of its
\ntechnology or products to or providing services to, customers or potential
\ncustomers or any class of customers, in any geographic area, during any period
\nof time or in any segment of the market.<\/p>\n
2.13 Title of Properties; Absence of Liens and Encumbrances; Condition of
\n ——————————————————————–
\nEquipment.
\n——— <\/p>\n
-12-<\/p>\n
(a) The Company does not own any real property, and has never owned
\nany real property. Section 2.13(a) of the Disclosure Schedule sets forth a list
\nof all real property currently leased by the Company, the name of the lessor,
\nthe date of the lease and each amendment thereto and, with respect to any
\ncurrent lease, the monthly base rental payable under any such lease. All such
\ncurrent leases are in full force and effect, are valid and effective in
\naccordance with their respective terms, and there is not, under any of such
\nleases, any existing default or event of default (or event which with notice or
\nlapse of time, or both, would constitute a default).<\/p>\n
(b) Except as set forth in Section 2.13(b) of the Disclosure
\nSchedule, 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, except as reflected in the Current
\nBalance Sheet and except for Liens for Taxes not yet due and payable and such
\nimperfections of title and encumbrances, if any, which are not material in
\ncharacter, amount or extent, and which do not detract from the value, or
\ninterfere with the present use, of the property subject thereto or affected
\nthereby.<\/p>\n
(c) Section 2.13(c) of the Disclosure Schedule lists all material
\nitems of equipment (the “Equipment”) owned or leased by the Company and such
\n ———
\nEquipment is, (i) adequate for the conduct of the business of the Company as
\ncurrently conducted and (ii) in good operating condition, regularly and properly
\nmaintained, subject to normal wear and tear.<\/p>\n
(d) The Company owns all customer files and other customer
\ninformation relating to customers of the Company’s current and former customers
\n(the “Customer Information”). No person other than the Company possesses any
\n ———————
\nclaims or rights with respect to use of the Customer Information.<\/p>\n
2.14 Intellectual Property.
\n ——————— <\/p>\n
(a) For the purposes of this Agreement, the following terms have the
\nfollowing definitions:<\/p>\n
“Intellectual Property” shall mean any or all of the following and
\n ———————
\nall rights in, arising out of, or associated therewith: (i) all United States
\nand foreign patents and applications therefor and all reissues, divisions,
\nrenewals, extensions, provisionals, continuations and continuations-in-part
\nthereof; (ii) all inventions (whether patentable or not), invention disclosures,
\nimprovements, trade secrets, proprietary information, know how, technology,
\ntechnical data and customer lists, and all documentation relating to any of the
\nforegoing; (iii) all copyrights, copyrights registrations and applications
\ntherefor and all other rights corresponding thereto throughout the world; (iv)
\nall mask works, mask work registrations and applications therefor; (v) all
\nindustrial designs and any registrations and applications therefor throughout
\nthe world; (vi) all trade names, logos, common law trademarks and service marks;
\ntrademark and service mark registrations and applications therefor and all
\ngoodwill associated therewith throughout the world; (vii) all databases and data
\ncollections and all rights therein throughout the world; and (viii) all computer
\nsoftware including all source code, object code, firmware, development tools,
\nfiles, records and data, all media on which any of the foregoing is recorded,
\nall Uniform Resource Locators, Web addresses, sites and domain names, and (ix)
\nany similar,<\/p>\n
-13-<\/p>\n
corresponding or equivalent rights to any of the foregoing and (x) all
\ndocumentation related to any of the foregoing.<\/p>\n
“Company Intellectual Property” shall mean any Intellectual Property
\n —————————–
\nthat is owned by or exclusively licensed to the Company.<\/p>\n
“Registered Intellectual Property” shall mean all United States,
\n ——————————–
\ninternational and foreign: (i) patents, patent applications (including
\nprovisional applications); (ii) registered trademarks, applications to register
\ntrademarks, intent-to-use applications, or other registrations or applications
\nrelated to trademarks; (iii) registered copyrights and applications for
\ncopyright registration; (iv) any mask work registrations and applications to
\nregister mask works; and (v) any other Company Intellectual Property that is the
\nsubject of an application, certificate, filing, registration or other document
\nissued by, filed with, or recorded by, any state, government or other public
\nlegal authority.<\/p>\n
(b) Section 2.14(b) of the Disclosure Schedule lists all Registered
\nIntellectual Property owned by, or filed in the name of, the Company (the<\/p>\n
“Company Registered Intellectual Property”) and lists any proceedings or actions
\n—————————————–
\nbefore any court, tribunal (including the United States Patent and Trademark
\nOffice (the “PTO”) or equivalent authority anywhere in the world) related to any
\n —
\nof the Company Registered Intellectual Property Rights.<\/p>\n
(c) Except as set forth in Section 2.14(c) of the Disclosure Schedule,
\neach item of Company Intellectual Property, including all Company Registered
\nIntellectual Property listed in Section 2.14(b) of the Disclosure Schedule and
\nall Intellectual Property licensed to the Company, is free and clear of any
\nLiens. The Company (i) is the exclusive owner of all trademarks and trade names
\nused in connection with the operation or conduct of the business of the Company,
\nincluding the sale of any products or technology or the provision of any
\nservices by the Company and (ii) owns exclusively, and has good title to, all
\ncopyrighted works that are Company products or other works of authorship that
\nthe Company otherwise purports to own.<\/p>\n
(d) To the extent that any Intellectual Property has been developed or
\ncreated by any person other than the Company for which the Company has, directly
\nor indirectly, paid, the Company has a written agreement with such person with
\nrespect thereto and the Company thereby has obtained ownership of, and is the
\nexclusive owner of, all such Intellectual Property by operation of law or by
\nvalid assignment.<\/p>\n
(e) Except as set forth in Section 2.14(e) of the Disclosure Schedule,
\nthe Company has not transferred ownership of or granted any license of or right
\nto use or authorized the retention of any rights to use any Intellectual
\nProperty that is or was Company Intellectual Property, to any other person.<\/p>\n
(f) The Company Intellectual Property constitutes all the Intellectual
\nProperty used in and\/or necessary to the conduct of the Company’s business as it
\ncurrently is conducted or is currently contemplated by the Company to be
\nconducted, including, without limitation, the design, development, <\/p>\n
-14-<\/p>\n
manufacture, use, import and sale of the products, technology and services of
\nthe Company (including products, technology or services currently under
\ndevelopment).<\/p>\n
(g) Other than “shrink-wrap” and similar widely available commercial
\nend-user licenses, the contracts, licenses and agreements listed in Section
\n2.14(g) of the Disclosure Schedule include all contracts, licenses and
\nagreements to which the Company is a party with respect to any Intellectual
\nProperty. No person who has licensed Intellectual Property to the Company has
\nownership rights or license rights to improvements made by the Company in such
\nIntellectual Property which has been licensed to the Company.<\/p>\n
(h) Section 2.14(h) of the Disclosure Schedule lists all contracts,
\nlicenses and agreements between the Company and any other person wherein or
\nwhereby the Company has agreed to, or assumed, any obligation or duty to
\nwarrant, indemnify, reimburse, hold harmless, guaranty or otherwise assume or
\nincur any obligation or liability or provide a right of rescission with respect
\nto the infringement or misappropriation by the Company or such other person of
\nthe Intellectual Property of any person other than the Company.<\/p>\n
(i) The operation of the business of the Company as it currently is
\nconducted or is currently contemplated by the Company to be conducted, including
\nbut not limited to the Company’s design, development, use, import, manufacture
\nand sale of the products, technology or services (including products, technology
\nor services currently under development) of the Company does not infringe or
\nmisappropriate the Intellectual Property of any person, violate the rights of
\nany person (including rights to privacy or publicity), or constitute unfair
\ncompetition or trade practices under the laws of any jurisdiction, and the
\nCompany has not received notice from any person claiming that such operation or
\nany act, product, technology or service (including products, technology or
\nservices currently under development) of the Company infringes or
\nmisappropriates the Intellectual Property of any person or constitutes unfair
\ncompetition or trade practices under the laws of any jurisdiction (nor is Seller
\nor the Company aware of any basis therefor).<\/p>\n
(j) Each item of Company Registered Intellectual Property is valid and
\nsubsisting, all necessary registration, maintenance and renewal fees in
\nconnection with such Registered Intellectual Property have been paid and all
\nnecessary documents and certificates in connection with such Company Registered
\nIntellectual Property have been filed with the relevant patent, copyright,
\ntrademark or other authorities in the United States or foreign jurisdictions, as
\nthe case may be, for the purposes of maintaining such Registered Intellectual
\nProperty.<\/p>\n
(k) There are no contracts, licenses or agreements between the Company
\nand any other person with respect to Company Intellectual Property under which
\nthere is any dispute known to Seller or the Company regarding the scope of such
\nagreement, or performance under such agreement including with respect to any
\npayments to be made or received by the Company thereunder.<\/p>\n
(l) To the Knowledge of each of Seller and the Company, no person is
\ninfringing or misappropriating any Company Intellectual Property.<\/p>\n
-15-<\/p>\n
(m) The Company has taken commercially reasonable steps to protect the
\nCompany’s rights in confidential information and trade secrets of the Company or
\nprovided by any other person to the Company. Without limiting the foregoing,
\nthe Company has, and enforces, a policy requiring each employee, consultant and
\ncontractor to execute proprietary information, confidentiality and assignment
\nagreements substantially in the Company’s standard forms, and all current and
\nformer employees, consultants and contractors of the Company have executed such
\nan agreement.<\/p>\n
(n) No Company Intellectual Property or product, technology or service
\nof the Company is subject to any proceeding or outstanding decree, order,
\njudgment, agreement or stipulation that restricts in any manner the use,
\ntransfer or licensing thereof by the Company or may affect the validity, use or
\nenforceability of such Company Intellectual Property.<\/p>\n
(o) To the Company’s and Seller’s Knowledge, no (i) product,
\ntechnology, service or publication of the Company (ii) material published or
\ndistributed by the Company or (iii) conduct or statement of Company constitutes
\nobscene material, a defamatory statement or material, false advertising or
\notherwise violates any law or regulation.<\/p>\n
(p) All of the Company’s products will record, store, process,
\ncalculate and present calendar dates falling on and after (and if applicable,
\nspans of time including) January 1, 2000, and will calculate any information
\ndependent on or relating to such dates in the same manner, and with the same
\nfunctionality, data integrity and performance, as the products record, store,
\nprocess, calculate and present calendar dates on or before December 31, 1999, or
\ncalculate any information dependent on or relating to such dates (collectively,
\n“Year 2000 Compliant”). The Company’s internal computer and technology products
\n ——————-
\nand systems are Year 2000 Compliant.<\/p>\n
2.15 Agreements, Contracts and Commitments.
\n ————————————- <\/p>\n
(a) Except as set forth in Sections 2.14(g), 2.14(h), 2.15(a) or 2.23
\nof the Disclosure Schedule, the Company is not a party to nor is it bound by:<\/p>\n
(i) any employment or consulting agreement, contract or
\ncommitment with an employee or individual consultant or salesperson or
\nconsulting or sales agreement, contract or commitment with a firm or other
\norganization,<\/p>\n
(ii) 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
(iii) any fidelity or surety bond or completion bond,<\/p>\n
(iv) any lease of personal property having a value individually
\nin excess of $10,000 individually or $25,000 in the aggregate,<\/p>\n
-16-<\/p>\n
(v) [reserved],<\/p>\n
(vi) any agreement, contract or commitment relating to capital
\nexpenditures and involving future payments in excess of $10,000 individually or
\n$25,000 in the aggregate,<\/p>\n
(vii) 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
(viii) any mortgages, indentures, loans or credit agreements,
\nsecurity agreements or other agreements or instruments relating to the borrowing
\nof money or extension of credit,<\/p>\n
(ix) any purchase order or contract for the purchase of materials
\ninvolving in excess of $10,000 individually or $25,000 in the aggregate,<\/p>\n
(x) any construction contracts,<\/p>\n
(xi) any distribution, joint marketing or development
\nagreement, or<\/p>\n
(xii) any other agreement, contract or commitment that involves
\n$10,000 or more or is not cancelable without penalty within thirty (30) days.<\/p>\n
(b) The Company is in compliance with and has not breached, violated
\nor defaulted under, or received notice that it has breached, violated or
\ndefaulted under, any of the terms or conditions of any agreement, contract,
\ncovenant, instrument, lease, license or commitment to which the Company is a
\nparty or by which it is bound (collectively a “Contract”), nor does Seller or
\n ——–
\nthe Company have Knowledge of any event that would constitute such a breach,
\nviolation or default with the lapse of time, giving of notice or both. Each
\nContract is in full force and effect and is not subject to any default
\nthereunder by any party obligated to the Company pursuant thereto. The Company
\nhas obtained, or will obtain prior to the Closing Date, all necessary consents,
\nwaivers and approvals of parties to any Contract as are required thereunder in
\nconnection with the Acquisition or for such Contracts to remain in effect
\nwithout modification after the Closing. Following the Closing, the Company will
\nbe permitted to exercise all of the Company’s rights under the Contracts without
\nthe payment of any additional amounts or consideration other than ongoing fees,
\nroyalties or payments which the Company would otherwise be required to pay had
\nthe transactions contemplated by this Agreement not occurred.<\/p>\n
2.16 Interested Party Transactions. No officer, director or shareholder
\n —————————–
\nof the 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
\ninterest in any entity which furnished or sold, or furnishes or sells, services,
\nproducts or technology that the Company furnishes or sells, or proposes to
\nfurnish or sell, or (ii) any interest in any entity that purchases from or sells
\nor furnishes to the Company any goods or services or (iii) a beneficial interest
\nin any Contract; provided, that ownership of no more than one percent (1%) of
\nthe <\/p>\n
-17-<\/p>\n
outstanding voting stock of a publicly traded corporation shall not be deemed an
\n“interest in any entity” for purposes of this Section 2.16.<\/p>\n
2.17 Governmental Authorization. Section 2.17 of the Disclosure Schedule
\n ————————–
\naccurately lists each consent, license, permit, grant or other authorization
\nissued to the Company by a Governmental Entity (i) pursuant to which the Company
\ncurrently operates or holds any interest in any of its properties or assets or
\n(ii) which is required for the operation of its business or the holding of any
\nsuch interest (herein collectively called “Company Authorizations”). The
\n ———————-
\nCompany Authorizations are in full force and effect and constitute all Company
\nAuthorizations required to permit the Company to operate or conduct its business
\nor hold any interest in its properties or assets.<\/p>\n
2.18 Litigation. There is no action, suit or proceeding of any nature
\n ———-
\npending, or, to Seller’s or the Company’s Knowledge, threatened, against the
\nCompany, its properties or any of its officers or directors, nor, to the
\nKnowledge of Seller or the Company, is there any reasonable basis therefor. To
\nSeller’s and the Company’s Knowledge, there is no investigation pending or
\nthreatened against the Company, its properties or any of its officers or
\ndirectors (nor, to the Knowledge of Seller or the Company, is there any
\nreasonable basis therefor) by or before any Governmental Entity. No
\nGovernmental Entity has at any time challenged or questioned the legal right of
\nthe Company to conduct its operations as presently or previously conducted.<\/p>\n
2.19 Accounts Receivable.
\n ——————- <\/p>\n
(a) The Company has made available to Buyer a list of all accounts
\nreceivable of the Company as of December 31, 1997 along with a range of days
\nelapsed since invoice.<\/p>\n
(b) Except as set forth on Section 2.19(b) of the Disclosure Schedule,
\nall accounts receivable of the Company arose in the ordinary course of business
\nand are collectible except to the extent of reserves therefor set forth in the
\nCurrent Balance Sheet. No person has any Lien on any of the Company’s accounts
\nreceivable and no request or agreement for deduction or discount has been made
\nwith respect to any of accounts receivable.<\/p>\n
2.20 Minute Books. The minutes of the Company made available to counsel
\n ————
\nfor Buyer are the only minutes of the Company and contain an accurate statement
\nof the actions taken at all meetings of the Board of Directors (or committees
\nthereof) of the Company and its shareholders or actions by written consent since
\nthe time of incorporation of the Company.<\/p>\n
2.21 Environmental Matters.
\n ——————— <\/p>\n
(a) Hazardous Material. Neither Seller nor the Company has: (i)
\n ——————
\noperated any underground storage tanks at any property that either Seller or the
\nCompany has at any time owned, operated, occupied or leased; or (ii) illegally
\nreleased any material 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, petroleum, and urea-
\nformaldehyde and all substances listed as hazardous substances pursuant <\/p>\n
-18-<\/p>\n
to the Comprehensive Environmental Response, Compensation, and Liability Act of
\n1980, as amended, or defined as a hazardous waste pursuant to the United States
\nResource Conservation and Recovery Act of 1976, as amended, and the regulations
\npromulgated pursuant to said laws (a “Hazardous Material”), but excluding office
\n ——————
\nand janitorial supplies properly and safely maintained. No Hazardous Materials
\nare present as a result of the deliberate actions of Seller or the Company or,
\nto Seller’s or the Company’s Knowledge, as a result of any actions of any other
\nperson or otherwise, in, on or under any property, including the land and the
\nimprovements, ground water and surface water thereof, that Seller or the Company
\nhas at any time owned, operated, occupied or leased.<\/p>\n
(b) Hazardous Materials Activities. Neither Seller nor the Company
\n ——————————
\nhas transported, stored, used, manufactured, disposed of, released or exposed
\nits employees or others to Hazardous Materials in violation of any law in effect
\non or before the Closing, nor has Seller or the Company disposed of,
\ntransported, sold, or manufactured any product containing a Hazardous Material
\n(any or all of the foregoing being collectively referred to as “Hazardous
\n ———
\nMaterials Activities”) in violation of any rule, regulation, treaty or statute
\n——————–
\npromulgated by any Governmental Entity in effect prior to or as of the date
\nhereof to prohibit, regulate or control Hazardous Materials or any Hazardous
\nMaterial Activity.<\/p>\n
(c) Permits. Each of Seller and the Company currently holds all
\n ——-
\nenvironmental approvals, permits, licenses, clearances and consents (the<\/p>\n
“Environmental Permits”) necessary for the conduct of its Hazardous Material
\n———————-
\nActivities, respectively, and other businesses of Seller and the Company as such
\nactivities and businesses are currently being conducted.<\/p>\n
(d) Environmental Liabilities. No action, proceeding, revocation
\n ————————-
\nproceeding, amendment procedure, writ, injunction or claim is pending, or to
\nSeller’s or the Company’s Knowledge, threatened concerning any Environmental
\nPermit, Hazardous Material or any Hazardous Materials Activity of the Company.
\nNeither Seller nor the Company is aware of any fact or circumstance which could
\ninvolve the Company in any environmental litigation or impose upon the Company
\nany environmental liability.<\/p>\n
2.22 Brokers’ and Finders’ Fees; Third Party Expenses. Except as set
\n ————————————————
\nforth in Section 2.22 of the Disclosure Schedule, the Company has not incurred,
\nnor will it incur, directly or indirectly, any liability for brokerage or
\nfinders’ fees or agents’ commissions or any similar charges in connection with
\nthe Agreement or any transaction contemplated hereby. Section 2.22 of the
\nDisclosure Schedule sets forth the principal terms and conditions of any
\nagreement, written or oral, with respect to such fees. The Company’s Third Party
\nExpenses (as defined in Section 5.5) shall not exceed the greater of (i)
\nCompany’s Estimated Third Party Expenses (as defined in Section 1.4) or (ii)
\n$250,000.<\/p>\n
2.23 Employee Benefit Plans and Compensation.
\n ————————————— <\/p>\n
(a) For purposes of this Section 2.23, the following terms shall have
\nthe meanings set forth below:<\/p>\n
-19-<\/p>\n
(i) “Affiliate” shall mean any other person or entity under common
\n ———
\ncontrol with the Company within the meaning of Section 414(b), (c), (m) or (o)
\nof the Code and the regulations thereunder.<\/p>\n
(ii) “Employee Plan” shall refer to any plan, program, policy,
\n ————-
\npractice, contract, agreement or other arrangement providing for bonuses,
\nseverance, termination pay, deferred compensation, pensions, profit sharing,
\nperformance awards, stock or stock-related awards, fringe benefits or other
\nemployee benefits of any kind, whether formal or informal, written or otherwise,
\nfunded or unfunded and whether or not legally binding, including without
\nlimitation, any plan which is or has been maintained, contributed to, or
\nrequired to be contributed to, by the Company or any Affiliate for the benefit
\nof any “Employee” (as defined below), and pursuant to which the Company or any
\nAffiliate has or may have any material liability, contingent or otherwise; and<\/p>\n
(iii) “Employee” shall mean any current, former, or retired
\n ——–
\nemployee, consultant, officer, or director of the Company or any Affiliate.<\/p>\n
(iv) “Employee Agreement” shall refer to each offer letter or
\n ——————
\nemployment, severance, consulting or similar agreement or contract between the
\nCompany or any Affiliate and any Employee;<\/p>\n
(b) Schedule. Section 2.23(b) of the Disclosure Schedule contains (i)
\n ——–
\nan accurate and complete list of each Employee Plan and each Employee Agreement
\n(other than offer letters), (ii) a schedule of all liabilities, whether or not
\naccrued, under each Employee Plan or Employee Agreement and (iii) a schedule of
\nthe current salary of each current employee, consultant, officer or director of
\nthe Company. The Company does not have any plan or commitment, whether legally
\nbinding or not, to establish any new Employee Plan or Employee Agreement, to
\nmodify any Employee Plan or Employee Agreement (except to the extent required by
\nlaw or to conform any such Employee Plan or Employee Agreement to the
\nrequirements of any applicable law, in each case as previously disclosed to
\nBuyer in writing, or as required by this Agreement), or to enter into any
\nEmployee Plan or Employee Agreement, nor does it have any intention or
\ncommitment to do any of the foregoing.<\/p>\n
(c) Documents. The Company has provided to Buyer, (i) correct and
\n ———
\ncomplete copies of all documents embodying each Employee Plan and each Employee
\nAgreement including all amendments thereto and copies of all forms of agreement
\nand enrollment used therewith; (ii) the most recent annual actuarial valuations,
\nif any, prepared for each Employee Plan; (iii) the three most recent annual
\nreports (Series 5500 and all schedules thereto), if any, required under ERISA or
\nthe Code in connection with each Employee Plan or related trust; (iv) the most
\nrecent summary plan description together with the most recent summary of
\nmaterial modifications, if any, required under ERISA with respect to each
\nEmployee Plan; (v) all IRS determination letters and rulings relating to Company
\nEmployee Plans and copies of all applications and correspondence to or from the
\nIRS or the Department of Labor (“DOL”) with respect to any Employee Plan; (vi)
\n —
\nif the Employee Plan is funded, the most recent annual and periodic accounting
\nof Employee Plan assets; (vii) all material agreements and contracts relating to
\neach Employee Plan, including but not limited to, administrative service<\/p>\n
-20-<\/p>\n
agreements, group annuity contracts and group insurance contracts; and (viii)
\nall communications material to any Employee or Employees relating to any
\nEmployee Plan and any proposed Employee Plans, in each case, relating to any
\namendments, terminations, establishments, increases or decreases in benefits,
\nacceleration of payments or vesting schedules or other events which would result
\nin any liability to the Company.<\/p>\n
(d) Employee Plan Compliance. (i) The Company has performed all
\n ————————
\nobligations required to be performed by it under each Employee Plan and each
\nEmployee Plan has been established and maintained in accordance with its terms
\nand in compliance with all applicable laws, statutes, orders, rules and
\nregulations, including ERISA and the Code; (ii) each Employee Plan intended to
\nqualify under Section 401(a) of the Code and each trust intended to qualify
\nunder Section 501(a) of the Code has either received a favorable determination
\nletter with respect to each such Plan from the IRS or has remaining a period of
\ntime under applicable Treasury regulations or IRS pronouncements in which to
\napply for such a determination letter and make any amendments necessary to
\nobtain a favorable determination; (iii) no “prohibited transaction”, within the
\nmeaning of Section 4975 of the Code or Section 406 or 407 of ERISA, has occurred
\nwith respect to any Company Employee Plan; (iv) there are no actions, suits or
\nclaims pending, or, to the Knowledge of Seller or the Company threatened or
\nanticipated (other than routine claims for benefits) against any Employee Plan
\nor against the assets of any Employee Plan; (v) each Employee Plan can be
\namended, terminated or otherwise discontinued after the Closing in accordance
\nwith its terms, without liability to the Company, Buyer, or any Affiliate (other
\nthan ordinary administration expenses typically incurred in a termination
\nevent); (vi) there are no inquiries or proceedings pending or, to the Knowledge
\nof Seller or the Company threatened by the IRS or DOL with respect to any
\nEmployee Plan; and (vii) neither the Company nor any Affiliate is subject to any
\npenalty or tax with respect to any Employee Plan under Section 402(i) of ERISA
\nor Section 4975 through 4980 of the Code.<\/p>\n
(e) Pension Plans. The Company does not now, nor has it ever,
\n ————-
\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
\n ——————-
\nbeen requested to contribute to any Multiemployer Plan.<\/p>\n
(g) No Post-Employment Obligations. No Employee Plan provides, or has
\n ——————————
\nany liability to provide, life insurance, medical or other employee benefits to
\nany Employee upon his or her retirement or termination of employment for any
\nreason, except as may be required by statute, and the Company has not
\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) No COBRA Violation. Neither the Company nor any Affiliate has,
\n ——————
\nprior to the Closing violated any of the health care continuation requirements
\nof the Consolidated Omnibus Budget <\/p>\n
-21-<\/p>\n
Reconciliation Act of 1985, as amended, or any similar provisions of state law
\napplicable to its employees.<\/p>\n
(i) Effect of Transaction. The execution of this Agreement and the
\n ———————
\nconsummation of the transactions contemplated hereby will not (either alone or
\nupon the occurrence of any additional or subsequent events) constitute an event
\nunder any Employee Plan, Employee Agreement, trust or loan that will or may
\nresult in any payment (whether of severance pay or otherwise), acceleration,
\nforgiveness of indebtedness, vesting, distribution, increase in benefits or
\nobligation to fund benefits with respect to any Employee.<\/p>\n
(j) Employment Matters. The Company (i) is in compliance with all
\n ——————
\napplicable laws, rules and regulations respecting employment, employment
\npractices, terms and conditions of employment and wages and hours, in each case,
\nwith respect to Employees; (ii) has withheld all amounts required by law or by
\nagreement to be withheld from the wages, salaries and other payments to
\nEmployees or other persons who by virtue of their activities performed on behalf
\nof the Company may be deemed employees within the meaning of applicable law;
\n(iii) is not liable for any arrears of wages or any taxes or any penalty for
\nfailure to comply with any of the foregoing; (iv) is not liable for any payment
\nto any trust or other fund or to any governmental or administrative authority,
\nwith respect to unemployment compensation benefits, social security or other
\nbenefits or obligations for Employees or other persons who by virtue of their
\nactivities performed on behalf of the Company may be deemed employees within the
\nmeaning of applicable law (other than routine payments to be made in the normal
\ncourse of business and consistent with past practice); and (v) does not and
\nshall not have any adverse claims in connection with the termination of any
\nEmployee where such Employee was terminated for any reason by the Company or
\nsuch Employee voluntarily terminated his or her employment with the Company
\nduring the three year period prior to the Closing Date.<\/p>\n
(k) Labor. No work stoppage or labor strike against the Company is
\n —–
\npending, or to the Knowledge of Seller or the Company, threatened. The Company
\nis not involved in or threatened with any labor dispute, grievance, or
\nlitigation relating to labor, safety or discrimination matters involving any
\nEmployee, including, without limitation, charges of unfair labor practices or
\ndiscrimination complaints, which, if adversely determined, would, individually
\nor in the aggregate, result in liability to the Company or Buyer. The Company
\nhas not engaged in any unfair labor practices which could, individually or in
\nthe aggregate, directly or indirectly result in a liability to the Company,
\nBuyer, or any Affiliate. The Company is not presently, nor has it in the past,
\nbeen a party to, or bound by, any collective bargaining agreement or union
\ncontract with respect to Employees and no collective bargaining agreement is
\nbeing negotiated by the Company.<\/p>\n
(l) No Interference or Conflict. To the Knowledge of Seller and the
\n —————————
\nCompany, no shareholder, officer, employee or consultant of the Company is
\nobligated under any contract or agreement subject to any judgement, decree or
\norder of any court or administrative agency, that would interfere with such
\nperson’s efforts to promote the interests of the Company or that would interfere
\nwith the Company’s business. Neither the execution nor delivery of this
\nAgreement, nor the carrying on of the Company’s business as presently conducted
\nor proposed to be conducted nor any activity of such <\/p>\n
-22-<\/p>\n
officers, directors, employees or consultants in connection with the carrying on
\nof the Company’s business, will, to Seller’s or the Company’s Knowledge,
\nconflict with or result in a breach of the terms, conditions or provisions of,
\nor constitute a default under, any contract or agreement under which any of such
\nofficer’s, directors, employees or consultants is now bound.<\/p>\n
(m) No Severance or Separation Plan. The Company does not now, nor
\n ——————————-
\nhas it ever, maintained or established any severance or separation plans or
\nprograms.<\/p>\n
2.24 Insurance. Section 2.24 of the Disclosure Schedule lists all
\n ———
\ninsurance policies and fidelity bonds covering the assets, business, equipment,
\nproperties, operations, employees, officers and directors of the Company or any
\nAffiliate. There is no claim by the Company or any Affiliate pending under any
\nof such policies or bonds as to which coverage has been questioned, denied or
\ndisputed by the underwriters of such policies or bonds. All premiums due and
\npayable under all such policies and bonds have been paid, and the Company and
\nits Affiliates are otherwise in compliance with the terms of such policies and
\nbonds (or other policies and bonds providing substantially similar insurance
\ncoverage). Neither Seller nor the Company has Knowledge of any threatened
\ntermination of, or premium increase with respect to, any of such policies.<\/p>\n
2.25 Compliance with Laws. The Company has complied with, is not in
\n ——————–
\nviolation of, and has not received any notices of violation with respect to, any
\nmaterial foreign, federal, state or local statute, law or regulation.<\/p>\n
2.26 Warranties; Indemnities. Except for the warranties and indemnities
\n ———————–
\ncontained in those contracts and agreements set forth in Section 2.14(h) of the
\nDisclosure Schedule, the Company has not given any warranties or indemnities
\nrelating to products or technology sold or licensed or services rendered by the
\nCompany.<\/p>\n
2.27 Size of Person; No Control Person. Seller is the only “ultimate
\n ———————————
\nparent entity” of the Company as defined in 16 C.F.R., Section 801.1, and the
\nHart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the “HSR
\nAct”). The Seller is a nonmanufacturer under the HSR Act and the Seller does
\nnot and will not at the Closing hold total assets of $10 million or greater.
\nSeller does not hold any assets other than the Shares and cash not in excess of
\n$10,000.<\/p>\n
2.28 Complete Copies of Materials. The Company has delivered or made
\n —————————-
\navailable true and complete copies of each document (or summaries of same) that
\nhas been requested by Buyer or its counsel.<\/p>\n
2.29 Representations Complete. None of the representations or warranties
\n ————————
\nmade by Seller or the Company (as modified by the Disclosure Schedule), nor any
\nstatement made in any Schedule or certificate furnished by Seller or the Company
\npursuant to this Agreement contains or will contain at the Closing, any untrue
\nstatement of a material fact, or to the Knowledge of the Company and Seller,
\nomits or will omit at the Closing, to state any material fact necessary in order
\nto make the statements contained <\/p>\n
-23-<\/p>\n
herein or therein, in the light of the circumstances under which made, not
\nmisleading with respect to the business of the Company taken as a whole.<\/p>\n
ARTICLE III<\/p>\n
REPRESENTATIONS AND WARRANTIES OF BUYER<\/p>\n
Buyer hereby represents and warrants to Seller and the Company that on the
\ndate hereof and as of the Closing as though made as of the Closing as follows:<\/p>\n
3.1 Organization, Standing and Power. Buyer is a corporation duly
\n ——————————–
\norganized, validly existing and in good standing under the laws of the State of
\nDelaware. Buyer has the corporate power to own its properties and to carry on
\nits business as now being conducted and is duly qualified or licensed to do
\nbusiness and is in good standing in each jurisdiction in which the failure to be
\nso qualified or licensed would have a material adverse effect on the ability of
\nBuyer to consummate the transactions contemplated hereby.<\/p>\n
3.2 Authority. Buyer has all requisite corporate power and authority to
\n ———
\nenter into this Agreement and to consummate the transactions contemplated
\nhereby. The execution and delivery of this Agreement and the consummation of
\nthe transactions contemplated hereby have been duly authorized by all necessary
\ncorporate action on the part of Buyer. This Agreement has been duly executed
\nand delivered by Buyer and constitutes the valid and binding obligations of
\nBuyer, enforceable in accordance with its terms, except as such enforceability
\nmay be limited by principles of public policy and subject to the laws of general
\napplication relating to bankruptcy, insolvency and the relief of debtors and
\nrules of law governing specific performance, injunctive relief or other
\nequitable remedies.<\/p>\n
3.3 No Conflict. The execution and delivery of this Agreement and any
\n ———–
\nRelated Agreements by Buyer do not, and the consummation of the transactions
\ncontemplated hereby and thereby will not, result in a Conflict with (i) any
\nprovision of the Articles of Incorporation and Bylaws of Buyer, (ii) any
\nmortgage, indenture, lease, contract or other agreement or instrument, permit,
\nconcession, franchise or license to which Buyer or any of its properties or
\nassets are subject, or (iii) any judgment, order, decree, statute, law,
\nordinance, rule or regulation applicable to Buyer or its properties or assets,
\nexcept where such Conflict will not have an effect that is materially adverse to
\nthe business, assets, financial condition or results of operation of Buyer taken
\nas a whole.<\/p>\n
3.4 Consents. No consent, waiver, approval, order or authorization of, or
\n ——–
\nregistration, declaration or filing with, any Governmental Entity or any third
\nparty, including a party to any agreement with Buyer (so as not to trigger any
\nConflict), is required by or with respect to Buyer in connection with the
\nexecution and delivery of this Agreement and any Related Agreement to which
\nBuyer is a party or the consummation of the transactions contemplated hereby and
\nthereby.<\/p>\n
3.5 Capital Resources. Buyer has sufficient liquidity and capital
\n —————–
\nresources to pay the Total Consideration as of the date of this Agreement and on
\nthe Closing Date.<\/p>\n
-24-<\/p>\n
3.6 Accredited Investor. Buyer is an accredited investor as that term is
\n ——————-
\ndefined in Rule 501(a) of Regulation D promulgated by the Securities and
\nExchange Commission under the Securities Act of 1933, as amended.<\/p>\n
ARTICLE IV<\/p>\n
CONDUCT PRIOR TO THE CLOSING<\/p>\n
4.1 Conduct of Business of the Company. During the period from the date
\n ———————————-
\nof this Agreement and continuing until the earlier of the termination of this
\nAgreement or the Closing, the Company agrees and Seller agrees to cause the
\nCompany (except to the extent that Buyer shall otherwise consent in writing), to
\ncarry on the Company’s business in the usual, regular and ordinary course in
\nsubstantially the same manner as heretofore conducted, to pay the debts and
\nTaxes of the Company when due, to pay or perform other obligations when due,
\nand, to the extent consistent with such business, use their reasonable best
\nefforts consistent with past practice and policies to preserve intact the
\nCompany’s present business organizations, keep available the services of the
\nCompany’s present key employees and preserve the Company’s and relationships
\nwith customers, suppliers, distributors, licensors, licensees, and others having
\nbusiness dealings with it, all with the goal of preserving unimpaired the
\nCompany’s goodwill and ongoing businesses at the Closing. Seller and the
\nCompany shall promptly notify Buyer of any event or occurrence or emergency not
\nin the ordinary course of business of the Company, and any material event
\ninvolving the Company. Except as expressly contemplated by this Agreement as
\nset forth in Section 4.1 of the Disclosure Schedule, the Company shall not and
\nSeller shall not permit the Company to, without the prior written consent of
\nBuyer:<\/p>\n
(a) Enter into any license agreement with respect to the Company
\nIntellectual Property with any person or entity or with respect to the
\nIntellectual Property of any person or entity;<\/p>\n
(b) Transfer to any person or entity any rights to the Company
\nIntellectual Property;<\/p>\n
(c) Enter into or amend any Contract pursuant to which any other party
\nis granted marketing, distribution or similar rights of any type or scope with
\nrespect to any products or technology of the Company;<\/p>\n
(d) Amend or otherwise modify (or agree to do so), except in the
\nordinary course of business, or violate the terms of, any of the Contracts set
\nforth or described in the Disclosure Schedule;<\/p>\n
(e) Commence or settle any litigation;<\/p>\n
(f) 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 Company Capital Stock, or repurchase, redeem or
\notherwise acquire, directly or indirectly, any shares of the Company Capital
\nStock or Company Options;<\/p>\n
-25-<\/p>\n
(g) Issue, grant, deliver or sell or authorize or propose the
\nissuance, grant, delivery or sale of, or purchase or propose the purchase of,
\nany shares of Company Capital Stock or securities convertible into, or
\nsubscriptions, rights, warrants or options to acquire, or other agreements or
\ncommitments of any character obligating it, with or without the passage of time
\nor satisfaction of other conditions, to issue or purchase any such shares or
\nother convertible securities;<\/p>\n
(h) Cause or permit any amendments to its Articles of Incorporation or
\nBylaws;<\/p>\n
(i) 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 Company’s
\nbusiness;<\/p>\n
(j) Sell, lease, license or otherwise dispose of any of its properties
\nor assets, except in the ordinary course of business and consistent with past
\npractices;<\/p>\n
(k) Incur any indebtedness for borrowed money or guarantee any such
\nindebtedness or issue or sell any debt securities or guarantee any debt
\nsecurities of others;<\/p>\n
(l) Grant any loans to others or purchase debt securities of others or
\namend the terms of any outstanding loan agreement, except in the ordinary course
\nof business and consistent with past practices.<\/p>\n
(m) Grant any severance or termination pay (i) to any director or
\nofficer or (ii) to any other employee except payments made pursuant to standard
\nwritten agreements outstanding on the date hereof or as otherwise contemplated
\npursuant to this Agreement;<\/p>\n
(n) Adopt or amend any employee benefit plan, or enter into any
\nemployment contract, pay or agree to pay any special bonus or special
\nremuneration to any director or employee, or increase the salaries or wage rates
\nof its employees.<\/p>\n
(o) 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;<\/p>\n
(p) Pay, discharge or satisfy, in an amount in excess of $10,000 (in
\nany one case) or $25,000 (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 Current Balance Sheet;<\/p>\n
(q) Make or change any material election in respect of Taxes, adopt or
\nchange any accounting method in respect of Taxes, enter into any closing
\nagreement, settle any claim or assessment in respect of Taxes, or consent to any
\nextension or waiver of the limitation period applicable to any claim or
\nassessment in respect of Taxes;<\/p>\n
-26-<\/p>\n
(r) Enter into any strategic alliance or joint marketing arrangement
\nor agreement;<\/p>\n
(s) Accelerate the vesting schedule of any of the outstanding Company
\nOptions or Company Capital Stock;<\/p>\n
(t) Hire employees;<\/p>\n
(u) Terminate employees without obtaining a full written release of
\nthe Company satisfactory to the Buyer from such employee or encourage employees
\nto resign; or<\/p>\n
(v) Enter into any commitment or transaction not in the ordinary
\ncourse of business or any commitment or transaction of the type described in
\nSection 2.9 hereof;<\/p>\n
Take, or agree in writing or otherwise to take, any of the actions
\ndescribed in Sections 4.1(a) through (v) above, or any other action that would
\nprevent the Company from performing or cause the Company not to perform its
\ncovenants hereunder.<\/p>\n
4.2 No Solicitation. Until the earlier of (i) the Closing or (ii) the
\n —————
\ndate of termination of this Agreement pursuant to the provisions of Section 8.1
\nhereof, neither Seller nor the Company will (nor will Seller or the Company
\npermit any of their officers, directors, agents, representatives or affiliates
\nto) directly or indirectly, take any of the following actions with any party
\nother than Buyer and its designees: (a) solicit, conduct discussions with or
\nengage in negotiations with any person, relating to the possible acquisition of
\nSeller or the Company (whether by way of merger, purchase of capital stock,
\npurchase of assets or otherwise) or any portion of the Company Capital Stock
\n(whether or not currently outstanding) or Seller’s or the Company’s assets, (b)
\nprovide information with respect to it to any person, other than Buyer, relating
\nto the possible acquisition of Seller or the Company (whether by way of merger,
\npurchase of capital stock, purchase of assets or otherwise) or any portion of
\nthe Company Capital Stock (whether or not currently outstanding) or Seller’s or
\nthe Company’s assets, or which is not provided in the ordinary course of
\nbusiness consistent with past practices, (c) enter into an agreement with any
\nperson, other than Buyer, providing for the acquisition of Seller or the Company
\n(whether by way of merger, purchase of capital stock, purchase of assets or
\notherwise) or any portion of the Company Capital Stock (whether or not currently
\noutstanding) (except that Seller may issue shares of its common stock pursuant
\nto the exercise of outstanding stock options) or Seller’s or the Company’s
\nassets (except that Seller may issue shares of its common stock pursuant to the
\nexercise of outstanding stock options) or (d) make or authorize any statement,
\nrecommendation or solicitation in support of any possible acquisition of Seller
\nor the Company (whether by way of merger, purchase of capital stock, purchase of
\nassets or otherwise) or any portion of the Company Capital Stock (whether or not
\ncurrently outstanding) or Seller’s or the Company’s assets by any person, other
\nthan by Buyer. In addition to the foregoing, if Seller or the Company receives,
\nprior to the Closing or the termination of this Agreement, any offer, proposal,
\nor request relating to any of the above, Seller or the Company, as applicable,
\nshall immediately notify Buyer thereof, including information as to the identity
\nof the offeror or the party making any such offer or proposal and the specific
\nterms of such offer or proposal, as the case may be, and such other information
\nrelated thereto as Buyer may reasonably request. The parties hereto agree that
\nirreparable <\/p>\n
-27-<\/p>\n
damage would occur in the event that the provisions of this Section 4.2 were not
\nperformed in accordance with their specific terms or were otherwise breached. It
\nis accordingly agreed by the parties that Buyer shall be entitled to seek an
\ninjunction or injunctions to prevent breaches of the provisions of this Section
\n4.2 and to enforce specifically the terms and provisions hereof in any court of
\nthe United States or any state having jurisdiction, this being in addition to
\nany other remedy to which Buyer may be entitled at law or in equity.<\/p>\n
ARTICLE V<\/p>\n
ADDITIONAL AGREEMENTS<\/p>\n
5.1 Ownership of Shares. Seller shall not take any action or suffer any
\n ——————-
\ncondition that would cause any of the representations or warranties set forth in
\nSection 2.3(c) at any time through the Closing to be untrue except in connection
\nwith the Acquisition contemplated by this Agreement.<\/p>\n
5.2 Shareholder Approval. Seller shall promptly submit this Agreement and
\n ——————–
\nthe transactions contemplated hereby to its Shareholders for approval and
\nadoption as provided by California Law, its Articles of Incorporation and
\nBylaws. Seller shall use its best efforts to obtain the consent of its
\nShareholders sufficient to approve the Acquisition and this Agreement and to
\nenable the Closing to occur as soon as possible. The materials submitted to
\nSeller’s Shareholders shall include information regarding the Company, the terms
\nof the Acquisition and this Agreement and the recommendation of the Board of
\nDirectors of Seller in favor of the Acquisition and this Agreement.<\/p>\n
5.3 Access to Information. Each of Seller and the Company shall afford
\n ———————
\nBuyer and its accountants, counsel and other representatives, reasonable access
\nupon reasonable notice during normal business hours during the period prior to
\nthe Closing to (a) all of Seller’s and the Company’s properties, books,
\ncontracts, commitments and records, (b) all other information concerning the
\nbusiness, properties and personnel (subject to restrictions imposed by
\napplicable law) of Seller and the Company as Buyer may reasonably request and
\n(c) all key employees of Seller and the Company as identified by Buyer. Each of
\nSeller and the Company agrees to provide to Buyer and its accountants, counsel
\nand other representatives copies of the Company’s internal financial statements
\n(including tax returns and supporting documentation) promptly upon request.
\nBuyer shall provide Seller, the Company and Seller’s Shareholders with copies of
\nsuch publicly available information about Buyer as the Company may request and
\nshall provide Seller and the Company with reasonable access to appropriate
\nmembers of Buyer’s management in this regard. No information or knowledge
\nobtained in any investigation pursuant to this Section 5.3 shall affect or be
\ndeemed to modify any representation or warranty contained herein or the
\nconditions to the obligations of the parties to consummate the Acquisition.<\/p>\n
5.4 Confidentiality. Each of the parties hereto hereby agrees that the
\n —————
\ninformation obtained in any investigation pursuant to Section 5.3, or pursuant
\nto the negotiation and execution of this Agreement or the effectuation of the
\ntransaction contemplated hereby shall be governed by the terms of the Letter of
\nIntent dated December 31, 1997 by and between the Company and Buyer.<\/p>\n
-28-<\/p>\n
5.5 Expenses. Whether or not the Acquisition is consummated, all fees and
\n ——–
\nexpenses incurred in connection with the Acquisition or the negotiation and
\neffectuation of this Agreement, including, without limitation, all legal,
\naccounting, financial advisory, consulting and all other fees and expenses of
\nthird parties incurred by a party in connection with the negotiation and
\neffectuation of the terms and conditions of this Agreement and the transactions
\ncontemplated hereby, as well as the fees and expenses of third parties’
\npreparing the consolidated federal, state, local and foreign income tax returns
\nfor the tax years ended June 30, 1997 and as of the Closing Date of Seller and
\nthe Company (“Third Party Expenses”), shall be the obligation of the respective
\n ——————–
\nparty incurring such fees and expenses provided, that, the Company shall pay the
\n ——– —-
\nreasonable and documented Third Party Expenses of Seller to the extent that
\ncombined reasonable and documented Third Party Expenses of the Company and
\nSeller do not exceed Two Hundred and Fifty Thousand Dollars ($250,000) and;<\/p>\n
provided further, that, if the Acquisition is consummated, Seller and the
\n—————- —-
\nCompany agree that Buyer will have full recourse to the Escrow Fund (without
\nregard to any deductible) for payment of Third Party Expenses of the Seller and
\nthe Company to the extent that they are in amounts in excess of the greater of
\n(i) Estimated Third Party Expenses (as defined in Section 1.4) or (ii) $250,000.<\/p>\n
5.6 Public Disclosure. Unless otherwise required by law, prior to the
\n —————–
\nClosing, no disclosure (whether or not in response to an inquiry) of the subject
\nmatter of this Agreement shall be made by any party hereto unless approved by
\nBuyer and provided to Seller prior to release, provided that such approval shall
\nnot be unreasonably withheld. Notwithstanding the foregoing, Buyer shall not be
\nprohibited from such disclosures as may be required to comply with applicable
\nsecurities laws and the rules and regulations of the National Association of
\nSecurities Dealers, Inc.<\/p>\n
5.7 Consents. The Company shall use commercially reasonable efforts to
\n ——–
\nobtain the consents, waivers and approvals under any of the Contracts as may be
\nrequired in connection with the Acquisition (all of such consents, waivers and
\napprovals are set forth in Sections 2.5 and 2.6 of the Disclosure Schedule) so
\nas to preserve all rights of, and benefits to, the Company thereunder.<\/p>\n
5.8 FIRPTA Compliance. On the Closing Date, the Company shall deliver to
\n —————–
\nBuyer a properly executed statement in a form reasonably acceptable to Buyer for
\npurposes of satisfying Buyer’s obligations under Treasury Regulation Section
\n1.1445-2(b).<\/p>\n
5.9 Reasonable Efforts. Subject to the terms and conditions provided in
\n ——————
\nthis Agreement, each of the parties hereto shall use commercially reasonable
\nefforts to take promptly, or cause to be taken, all actions, and to do promptly,
\nor cause to be done, all things necessary, proper or advisable under applicable
\nlaws and regulations to consummate and make effective the transactions
\ncontemplated hereby, to obtain all necessary waivers, consents and approvals and
\nto effect all necessary registrations and filings and to remove any injunctions
\nor other impediments or delays, legal or otherwise, in order to consummate and
\nmake effective the transactions contemplated by this Agreement for the purpose
\nof securing to the parties hereto the benefits contemplated by this Agreement;
\nprovided that Buyer shall not be required to agree to any divestiture by Buyer
\nor the Company or any of Buyer’s subsidiaries or affiliates of shares of capital
\nstock or of any business, assets or property of Buyer or its subsidiaries or
\naffiliates or of the Company, its affiliates, or the imposition of any material
\nlimitation on the ability of any of them to conduct their businesses or to own
\nor exercise control of such assets, properties and stock.<\/p>\n
-29-<\/p>\n
5.10 Notification of Certain Matters. Each of Seller and the Company shall
\n ——————————-
\ngive prompt notice to Buyer of (i) the occurrence or non-occurrence of any
\nevent, the occurrence or non-occurrence of which is likely to cause any
\nrepresentation or warranty of Seller or the Company, respectively, contained in
\nthis Agreement to be untrue or inaccurate at or prior to the Closing and (ii)
\nany failure of Seller or the Company, as the case may be, to comply with or
\nsatisfy any covenant, condition or agreement to be complied with or satisfied by
\nit hereunder; provided, however, that the delivery of any notice pursuant to
\nthis Section 5.10 shall not limit or otherwise affect any remedies available to
\nthe party receiving such notice. No such notice to Buyer shall be deemed to
\nhave: (i) amended, modified or supplemented the representations and warranties
\nmade in Article II or the several disclosures made in the Disclosure Schedule or
\nBuyer’s ability to rely thereon, nor (ii) amended, modified or supplemented the
\nseveral covenants of the parties to this Agreement and their respective
\nobligations thereunder.<\/p>\n
5.11 Employee Plans. Section 5.11 of the Disclosure Schedule lists the
\n ————–
\nCompany’s Employee Plans. The Company agrees to terminate its 401(k) plan prior
\nto the Closing<\/p>\n
5.12 Bonus Pool. Buyer shall make available for the employees of the
\n ———-
\nCompany a $600,000 bonus pool (gross amount, prior to payment of taxes) to
\nemployees of the Company who remain employees of the Company or Buyer (all of
\nwhom shall be at-will employees) following the Closing. Buyer shall determine in
\nits sole discretion (i) the allocation of such bonus pool among Company
\nemployees and (ii) the distribution dates on which all or any portion of such
\nbonus pool will be distributed to any such Company employees; provided, that
\n ——– —-
\neach Company employee must remain an employee of the Company or of Buyer on a
\ncontinuous basis from the Closing through and until any such distribution date
\nto be eligible to receive a distribution from the bonus pool on such date.<\/p>\n
5.13 Severance Pool.
\n ————– <\/p>\n
(a) Buyer shall make available to the employee of the Company
\ndesignated in a separate writing signed by the Buyer and delivered to the Seller
\nat the Closing a $350,000 severance pool (gross amount, prior to payment of
\ntaxes) payable to such employees of the Company eight days after the Company has
\nreceived such employee’s resignation from the Company and a release of the
\nCompany and Buyer satisfactory to Buyer.<\/p>\n
(b) Buyer shall make available to the several employees of the
\nCompany designated in a separate writing signed by the Buyer and delivered to
\nthe Seller at the Closing, a $50,000 severance pool (gross amount, prior to
\npayment of taxes) payable to such employees who shall have been terminated prior
\nto the Closing promptly as practicable following the Closing.<\/p>\n
5.14 Employee Compensation. Each employee of the Company who remains an
\n ———————
\nemployee of Buyer or the Company after the Closing shall be eligible to receive
\nsalary and benefits (such as medical benefits, bonuses, 401(k) and stock
\noptions) consistent with Buyer’s standard human resource policies.<\/p>\n
5.15 Non-Solicitation Period. For a period commencing on the Closing Date
\n ———————–
\nand ending three (3) years after the Closing Date, Seller shall not directly or
\nindirectly solicit, encourage or take any other action which is intended to
\ninduce or encourage, or has the effect of inducing or encouraging any <\/p>\n
-30-<\/p>\n
employee of Buyer, the Company or any of their respective subsidiaries, who was
\nan employee of the Company immediately prior to the Closing Date, to terminate
\nhis or her employment with Buyer, the Company or any of their respective
\nsubsidiaries.<\/p>\n
5.16 [Reserved].
\n ———- <\/p>\n
5.17 Books and Records.
\n —————– <\/p>\n
(a) Buyer shall permit Seller, and shall cause the Company to permit
\nSeller, to have reasonable access to the Company’s books and records to the
\nextent such access is necessary to enable Seller to complete any necessary tax
\nreturns and conclude any review or audit of such return by taxing authorities.
\nSeller shall not disclose any information obtained from such books or records to
\nany person, or use such information for any purpose, other than as necessary to
\nenable Seller to file its tax returns and conclude any review or audit of such
\nreturns by taxing authorities.<\/p>\n
(b) Seller shall permit Buyer to have reasonable access to Seller’s
\nbooks and records to the extent such access is necessary to enable Buyer to
\ncomplete any necessary tax returns of the Company and conclude any review or
\naudit of such return by taxing authorities. Buyer shall not disclose any
\ninformation obtained from such books or records to any person, or use such
\ninformation for any purpose, other than as necessary to enable Buyer to file its
\ntax returns and conclude any review or audit of such returns by taxing
\nauthorities.<\/p>\n
5.18 Net Liabilities. Seller and the Company agree that if Net
\n —————
\nLiabilities as of the Closing Date exceed Estimated Net Liabilities, Buyer shall
\nbe entitled to recover the amount of such excess from the Escrow Fund as a Loss
\nin accordance with the procedures set forth in Section 7.2.<\/p>\n
5.19 Release of Guarantee. If the Acquisition is consummated, Buyer shall
\n ——————–
\nuse commercially reasonable efforts (which may include substitution of Buyer as
\nthe guarantor to the extent that such substitution does not trigger any
\nConflict) to assist Seller in obtaining a release of its obligations under that
\ncertain guarantee dated April 4, 1997 executed by Seller in favor of Phoenix
\nLeasing Incorporated (“Phoenix”) to secure the obligations of the Company under
\n ——-
\nthe Security and Pledge Agreement dated April 4, 1997 between the Company and
\nPhoenix.<\/p>\n
5.20 Tax Returns. Seller shall file all returns of the Company and
\n ———–
\nSeller related to Taxes for all taxable periods ending on or before the Closing,
\nexcept for those returns which are not yet due as of the Closing and which
\nSeller shall prepare and file prior to the appropriate due date of such returns,
\nincluding any extension thereof. Such returns shall be prepared in a matter
\nconsistent with applicable law and past practices. Buyer shall be provided with
\ncopies of all final returns and supporting documentation.<\/p>\n
5.21 Additional Documents and Further Assurances. Each party hereto, at
\n ——————————————-
\nthe request of another 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 the Closing and the
\ntransactions contemplated hereby.<\/p>\n
-31-<\/p>\n
ARTICLE VI<\/p>\n
CONDITIONS TO THE CLOSING<\/p>\n
6.1 Conditions to Obligations of Seller and the Company. The obligations
\n —————————————————
\nof Seller and the Company to consummate and effect this Agreement and the
\ntransactions contemplated hereby shall be subject to the satisfaction at or
\nprior to the Closing of each of the following conditions, any of which may be
\nwaived, in writing, exclusively by the Seller:<\/p>\n
(a) Representations, Warranties and Covenants. The representations
\n —————————————–
\nand warranties of Buyer in this Agreement shall be true and correct in all
\nmaterial respects on and as of the Closing as though such representations and
\nwarranties were made on and as of the Closing and Buyer shall have performed and
\ncomplied in all material respects with all covenants and obligations of this
\nAgreement required to be performed and complied with by it as of the Closing.<\/p>\n
(b) No Injunctions or Restraints; Illegality. No temporary
\n —————————————-
\nrestraining order, preliminary or permanent injunction or other order issued by
\nany court of competent jurisdiction or other legal restraint or prohibition
\npreventing the consummation of the Acquisition shall be in effect, nor shall any
\nproceeding brought by an administrative agency or commission or other
\ngovernmental authority or instrumentality, domestic or foreign, seeking any of
\nthe foregoing be pending; nor shall there be any action taken, or any statute,
\nrule, regulation or order enacted, entered, enforced or deemed applicable to the
\nAcquisition, which makes the consummation of the Acquisition illegal.<\/p>\n
[(c) Reserved]<\/p>\n
(d) Certificate of the Buyer. Seller shall have been provided with a
\n ————————
\ncertificate executed on behalf of Buyer by an Executive Vice President to the
\neffect that, as of the Closing:<\/p>\n
(i) all representations and warranties made by Buyer in this
\nAgreement are true and correct in all material respects on and as of the Closing
\nas though such representations and warranties were made on and as of such time;
\nand<\/p>\n
(ii) all covenants and obligations of this Agreement to be
\nperformed by Buyer on or before the Closing have been so performed in all
\nmaterial respects.<\/p>\n
(e) Bank Loan. At Closing, Buyer shall repay to Silicon Valley Bank
\n ———
\nthe principal balance and accrued interest due under the Business Loan Agreement
\ndated July 21, 1997 between the Company and such bank to the extent that such
\namount is accrued for on the Estimated Balance Sheet and does not exceed
\n$250,000.<\/p>\n
-32-<\/p>\n
6.2 Conditions to the Obligations of Buyer. The obligation of Buyer to
\n ————————————–
\nconsummate the Closing shall be subject to the satisfaction at or prior to the
\nClosing of each of the following conditions, any of which may be waived, in
\nwriting, exclusively by Buyer:<\/p>\n
(a) Representations, Warranties and Covenants. The representations
\n —————————————–
\nand warranties of Seller and the Company in this Agreement shall be true and
\ncorrect in all material respects on and as of the Closing as though such
\nrepresentations and warranties were made on and as of the Closing and Seller and
\nthe Company shall have performed and complied in all material respects with all
\ncovenants and obligations of this Agreement required to be performed and
\ncomplied with by them as of the Closing.<\/p>\n
(b) No Injunctions or Restraints; Illegality. No temporary
\n —————————————-
\nrestraining order, preliminary or permanent injunction or other order issued by
\nany court of competent jurisdiction or other legal restraint or prohibition
\npreventing the consummation of the Acquisition shall be in effect, nor shall any
\nproceeding brought by an administrative agency or commission or other
\ngovernmental authority or instrumentality, domestic or foreign, seeking any of
\nthe foregoing be pending; nor shall there be any action taken, or any statute,
\nrule, regulation or order enacted, entered, enforced or deemed applicable to the
\nAcquisition, which makes the consummation of the Acquisition illegal.<\/p>\n
(c) 401(k) Plan. The Board of Directors of the Company shall have
\n ———–
\nadopted resolutions terminating the Company’s 401(k) Plan as of immediately
\nprior to the Closing.<\/p>\n
(d) Governmental Approval. Approvals from Governmental Entities (if
\n ———————
\nany) deemed appropriate or necessary by Buyer shall have been timely obtained.<\/p>\n
(e) Litigation. There shall be no action, suit, claim or proceeding
\n ———-
\nof any nature pending, or overtly threatened, against Buyer, Seller or the
\nCompany, their respective properties or any of their officers or directors,
\narising out of, or in any way connected with, the Acquisition or the other
\ntransactions contemplated by the terms of this Agreement.<\/p>\n
(f) Claims. There shall not have occurred any claims (whether or not
\n ——
\nasserted in litigation) which may materially and adversely affect the
\nconsummation of the transactions contemplated hereby or may have a Material
\nAdverse Effect.<\/p>\n
(g) Third Party Consents. Buyer shall have received all consents,
\n ——————–
\nwaivers, approvals, and assignments listed in Sections 2.5 and 2.6 of the
\nDisclosure Schedule.<\/p>\n
(h) Legal Opinion. Buyer shall have received a legal opinion from
\n ————-
\nEnterprise Law Group, Inc., legal counsel to Seller, substantially in the form
\nof Exhibit A hereto.
\n ——— <\/p>\n
(i) No Material Adverse Changes. There shall not have occurred any
\n —————————
\nmaterial adverse change in the business (including existing products and
\ntechnology and products or technology currently under development), assets
\n(including intangible assets), results of operations, liabilities <\/p>\n
-33-<\/p>\n
(contingent or accrued) or condition (financial or otherwise) of the Company
\nsince the date of this Agreement.<\/p>\n
(j) Noncompetition and Nonsolicitation Agreements. Each of Kenneth
\n ———————————————
\nTai and William Melton shall have executed and delivered to Buyer a
\nNoncompetition Agreement in the form attached hereto as Exhibit B-1, and all
\n ———–
\nsuch Noncompetition Agreements shall be in full force and effect. Gloria Wahl
\nshall have executed and delivered to Buyer a Nonsolicitation Agreement in the
\nform attached hereto as Exhibit B-2 and such Nonsolicitation Agreement shall be
\n ———–
\nin full force and effect.<\/p>\n
(k) Estimated Balance Sheet and Expenses. Buyer shall have received
\n ————————————
\nfrom the Company at least two (2) business days prior to the Closing Date each
\nof the Estimated Balance Sheet and a written statement of the Estimated Third
\nParty Expenses.<\/p>\n
(l) Release of Bank Security Interest. Coast Business Credit Company
\n ———————————
\n(the “Bank”) shall have agreed in writing in form satisfactory to Buyer to
\n —-
\nrelease its security interest in the Company’s assets promptly upon payment to
\nsuch Bank of the amounts owed to such Bank under the line of credit between the
\nCompany and such Bank.<\/p>\n
(m) Company Directors. As of the Closing, the Board of the Company
\n —————–
\nshall consist only of Henry Nothhaft, Michael Anthofer and James Isaacs.<\/p>\n
(n) Shareholder Approval. Shareholders holding at least fifty-one
\n ——————–
\npercent (51%) of Seller’s Capital Stock or any greater percentage required by
\napplicable law or under any agreement involving Seller and its Shareholders
\nshall have approved this Agreement, the Acquisition and the transactions
\ncontemplated hereby and thereby.<\/p>\n
(o) Certificate of Seller and the Company. Buyer shall have been
\n ————————————-
\nprovided with a certificate executed on behalf of Seller and the Company by
\ntheir respective Chief Executive Officers to the effect that, as of the Closing:<\/p>\n
(i) all representations and warranties made by Seller and the
\nCompany in this Agreement are true and correct in all material respects; and<\/p>\n
(ii) all covenants and obligations of this Agreement to be
\nperformed by Seller and the Company on or before such date have been so
\nperformed in all material respects.<\/p>\n
(iii) the conditions set forth in Section 6.2 (c), (e), (f),
\n(g), (i) and (n) have been satisfied.<\/p>\n
-34-<\/p>\n
ARTICLE VII<\/p>\n
SURVIVAL OF REPRESENTATIONS AND WARRANTIES; ESCROW<\/p>\n
7.1 Survival of Representations and Warranties. Each of Seller’s and the
\n ——————————————
\nCompany’s representations and warranties in this Agreement or in any instrument
\ndelivered pursuant to this Agreement shall terminate on the twelve (12) month
\nanniversary of the Closing; provided, however, that: (i) the representations and
\nwarranties set forth in Section 2.3(c) shall survive until the expiration of all
\napplicable statutes of limitations, and (ii) the representations and warranties
\nrelating or pertaining to any Tax or Returns related to such Tax set forth in
\nSection 2.11 hereof, shall survive until the expiration of all applicable
\nstatutes of limitations, or extensions thereof, governing each Tax or Returns
\nrelated to such Tax. All of the Buyer’s representations and warranties
\ncontained herein or in any instrument delivered pursuant to this Agreement shall
\nterminate at the Closing.<\/p>\n
7.2 Escrow Arrangements.
\n ——————- <\/p>\n
(a) [reserved].
\n ——– <\/p>\n
(b) Escrow Fund. As partial security for the indemnity provided for
\n ———–
\nin Section 7.2 hereof and by virtue of this Agreement, Buyer shall deposit with
\nthe Escrow Agent (as defined below) the Escrow Amount. As soon as practicable
\nafter the Closing, the Escrow Amount, without any act of Seller, will be
\ndeposited with First Trust of California, National Association (or other
\ninstitution acceptable to Buyer and the Seller) as Escrow Agent (the “Escrow
\n ——
\nAgent”), such deposits to constitute an escrow fund (the “Escrow Fund”) to be
\n—– ———–
\ngoverned by the terms set forth herein. The Seller agrees to indemnify and hold
\nBuyer and its officers, directors and affiliates harmless against all claims,
\nlosses, liabilities, damages, deficiencies, costs and expenses, including
\nreasonable attorneys’ fees and expenses of investigation and defense
\n(hereinafter individually a “Loss” and collectively “Losses”) incurred by Buyer,
\n —- ——
\nits officers, directors, or affiliates directly or indirectly as a result of (i)
\nany inaccuracy or breach of a representation or warranty of Seller or the
\nCompany contained in this Agreement, (ii) Net Liabilities as of the Closing Date
\nexceeding Estimated Net Liabilities or (iii) any failure by Seller or the
\nCompany to perform or comply with any covenant contained in this Agreement;
\nprovided that, with respect to any inaccuracy or breach of any representation or
\n——– —-
\nwarranty set forth in Section 2.9 as a result of a Customer Termination or
\nCustomer Notice, “Loss” shall mean with respect to each such Customer
\nTermination a dollar amount equal to one hundred percent (100%) of the
\nAnnualized Revenue for such former Customer less the amount of any revenue
\nearned by the Company with respect to such Customer after the Closing Date. The
\nEscrow Fund shall be available to compensate Buyer and its affiliates for any
\nsuch Losses. Seller shall not have any right of contribution from the Company
\nwith respect to any Loss claimed by Buyer after the Closing. Buyer may not
\nreceive any cash from the Escrow Fund unless and until the amount determined to
\nbe owed to Buyer pursuant to undisputed Officer’s Certificates (as defined in
\nparagraph (e) below) identifying Losses and disputed Officer’s Certificates
\nwhich have been resolved through the arbitration process set forth in Section
\n7.2(g), which in the aggregate exceed $100,000, have been delivered to the
\nEscrow Agent as provided in paragraph (e) below; provided, however, with respect
\n ——– ——-
\nto each of: (i) Third Party Expenses in excess of the greater of (A) Estimated
\nThird Party Expenses or (B) $250,000, (ii) Net Liabilities as of the Closing
\nDate in excess of Estimated <\/p>\n
-35-<\/p>\n
Net Liabilities, and (iii) Losses related to a breach of the representation and
\nwarranty set forth in Section 2.23(j) the aforementioned $100,000 threshold
\nshall not be applicable for purposes of claims of Losses against the Escrow
\nAmount.<\/p>\n
(c) Escrow Period; Distribution upon Termination of Escrow Periods.
\n ————————————————————–
\nSubject to the following requirements, the Escrow Fund shall be in existence
\nimmediately following the Closing and shall terminate at 5:00 p.m., P.S.T., on
\nthe date thirty (30) days after the twelve (12) month anniversary of the Closing
\nDate (the “Escrow Period”); provided, however, that the Escrow Period shall not
\n ————- ——– ——-
\nterminate with respect to any amount which, in the reasonable judgement of
\nBuyer, subject to the objection of the Escrow Representative and the subsequent
\narbitration of the matter in the manner provided in Section 7.2(g), is necessary
\nto satisfy any unsatisfied claims specified in any Officer’s Certificate
\ndelivered to the Escrow Agent prior to termination of such Escrow Period with
\nrespect to facts and circumstances existing prior to the termination of such
\nEscrow Period. As soon as all such claims have been resolved, the Escrow Agent
\nshall deliver to Seller the remaining portion of the Escrow Fund not required
\nto satisfy such claims.<\/p>\n
(d) Protection of Escrow Fund.
\n ————————- <\/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 shall hold and dispose of the Escrow Fund
\nonly in accordance with the terms hereof. The Escrow Fund shall not be subject
\nto any lien, attachment, trustee process or any other judicial process of any
\ncreditor of any party hereto.<\/p>\n
(ii) The Escrow Fund shall be invested in U.S. Treasury bills
\nwith maturities of not more than thirty (30) days and any interest paid on such
\ncash portion of the Escrow Fund shall be added to the Escrow Fund and deemed
\npart thereof; provided, that notwithstanding the foregoing, to the extent that
\n ——– —-
\nthe Escrow Fund cannot be invested in such U.S. Treasury bills, it shall be
\nplaced into a First Bank Business Money Market account. Buyer shall be liable
\nfor any Taxes with respect to income earned on the undistributed portion of the
\nEscrow Fund.<\/p>\n
(e) Claims Upon Escrow Fund. Upon receipt by the Escrow Agent at any
\n ———————–
\ntime on or before the last day of the Escrow Period of a certificate signed by
\nany officer of Buyer (an “Officer’s Certificate”): (A) stating that Buyer has
\n ———————
\npaid or properly accrued or reasonably anticipates that it will have to pay or
\naccrue Losses, and (B) specifying in reasonable detail the individual items of
\nLosses included in the amount so stated, the date each such item was paid or
\nproperly accrued, or the basis for such anticipated liability, and the nature of
\nthe misrepresentation, breach of warranty or covenant to which such item is
\nrelated, the Escrow Agent shall, subject to the provisions of Section 7.2(f)
\nhereof, deliver to Buyer out of the Escrow Fund, as promptly as practicable,
\ncash held in the Escrow Fund equal to such Losses.<\/p>\n
(f) Objections to Claims. At the time of delivery of any Officer’s
\n ——————–
\nCertificate to the Escrow Agent, a duplicate copy of such certificate shall be
\ndelivered to the Escrow Representative, and for a period of thirty (30) days
\nafter such delivery, the Escrow Agent shall make no delivery to Buyer <\/p>\n
-36-<\/p>\n
of any Escrow Amounts pursuant to Section 7.2(e) hereof unless the Escrow Agent
\nshall have received written authorization from the Escrow Representative to make
\nsuch delivery. After the expiration of such thirty (30) day period, the Escrow
\nAgent shall make delivery of the cash from the Escrow Fund in accordance with
\nSection 7.2(e) hereof; provided, however, that no such payment or delivery may
\n ——– ——-
\nbe made if the Escrow Representative shall object in a written statement to the
\nclaim made in the Officer’s Certificate, and such statement shall have been
\ndelivered to the Escrow Agent prior to the expiration of such thirty (30) day
\nperiod.<\/p>\n
(g) Resolution of Conflicts; Arbitration.
\n ———————————— <\/p>\n
(i) In case the Escrow Representative shall object in writing to
\nany claim or claims made in any Officer’s Certificate within thirty (30) days
\nafter delivery of such Officer’s Certificate, the Escrow Representative and
\nBuyer shall attempt in good faith to agree upon the rights of the respective
\nparties with respect to each of such claims. If the Escrow Representative and
\nBuyer should so agree, a memorandum setting forth such agreement shall be
\nprepared and signed by both parties and shall be furnished to the Escrow Agent.
\nThe Escrow Agent shall be entitled to rely on any such memorandum and distribute
\ncash from the Escrow Fund in accordance with the terms thereof.<\/p>\n
(ii) If no such agreement can be reached after good faith
\nnegotiation, either Buyer or the Escrow Representative 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 binding arbitration conducted
\nby one arbitrator mutually agreeable to Buyer and the Escrow Representative. In
\nthe event that within forty-five (45) days after submission of any dispute to
\narbitration, Buyer and the Escrow Representative cannot mutually agree on one
\narbitrator, Buyer and the Escrow Representative shall each select one
\narbitrator, and the two arbitrators so selected shall select a third arbitrator.
\nThe arbitrator or arbitrators, as the case may be, shall set a limited time
\nperiod and establish procedures designed to reduce the cost and time for
\ndiscovery while allowing the parties an opportunity, adequate in the sole
\njudgement of the arbitrator or majority of the three arbitrators, as the case
\nmay be, to discover relevant information from the opposing parties about the
\nsubject matter of the dispute. The arbitrator or a majority of the three
\narbitrators, as the case may be, shall rule upon motions to compel or limit
\ndiscovery and shall have the authority to impose sanctions, including attorneys’
\nfees and costs, to the extent as a competent court of law or equity, should the
\narbitrators or a majority of the three arbitrators, as the case may be,
\ndetermine that discovery was sought without substantial justification or that
\ndiscovery was refused or objected to without substantial justification or that a
\nparty or its counsel otherwise unreasonably or unnecessarily delayed the
\nresolution of the matter. The decision of the arbitrator or a majority of the
\nthree arbitrators, as the case may be, as to the validity and amount of any
\nclaim in such Officer’s Certificate shall be binding and conclusive upon the
\nparties to this Agreement. 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 arbitrator(s).<\/p>\n
(iii) Judgment upon any award rendered by the arbitrator(s) may be
\nentered in any court having jurisdiction. Any such arbitration shall be held in
\nSanta Clara County, California, <\/p>\n
-37-<\/p>\n
under the rules then in effect of the American Arbitration Association. The
\narbitrator(s) shall determine how all expenses relating to the arbitration shall
\nbe paid, including without limitation, the respective expenses of each party,
\nthe fees of each arbitrator and the administrative fee of the American
\nArbitration Association.<\/p>\n
(h) Third-Party Claims. In the event Buyer becomes aware of a third-
\n ——————
\nparty claim which Buyer reasonably believes may result in a demand against the
\nEscrow Fund, Buyer shall notify the Escrow Representative of such claim, and the
\nEscrow Representative shall be entitled on behalf of Seller, at its expense, to
\nparticipate in, but not to determine or conduct, the defense of such claim.
\nBuyer shall have the right in its sole discretion to conduct the defense of and
\nsettle any such claim; provided, however, that except with the consent of the
\n ——– ——-
\nEscrow Representative, no settlement of any such claim with third-party
\nclaimants shall be determinative of the amount of any claim against the Escrow
\nFund. In the event that the Escrow Representative has consented to any such
\nsettlement, Seller shall have no power or authority to object under any
\nprovision of this Article VII to the amount of any claim by Buyer against the
\nEscrow Fund with respect to such settlement.<\/p>\n
(i) Escrow Agent’s Duties.
\n ——————— <\/p>\n
(i) The Escrow Agent shall be obligated only for the
\nperformance of such duties as are specifically set forth herein, and as set
\nforth in any additional written escrow instructions which the Escrow Agent may
\nreceive after the date of this Agreement which are signed by an officer of Buyer
\nand the Escrow Representative, 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
\ndisregard any and all warnings given by any of the parties hereto or by any
\nother person, excepting only orders or process of courts of law, and is hereby
\nexpressly authorized to comply with and obey orders, judgments or decrees of any
\ncourt. In case the Escrow Agent obeys or complies with any such order, judgment
\nor decree of any court, the Escrow Agent shall not be liable to any of the
\nparties hereto or to any other person by reason of such compliance,
\nnotwithstanding any such order, judgment or decree being subsequently reversed,
\nmodified, annulled, set aside, vacated or found to have been entered without
\njurisdiction.<\/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
-38-<\/p>\n
(v) In performing any duties under this Agreement, the Escrow Agent
\nshall not be liable to any party for damages, losses, or expenses, except for
\nnegligence or willful misconduct on the part of the Escrow Agent. The Escrow
\nAgent shall not incur any such liability for (a) any act or failure to act made
\nor omitted in good faith, or (b) any action taken or omitted in reliance upon
\nany instrument, including any written statement of affidavit provided for in
\nthis Agreement that the Escrow Agent shall in good faith believe to be genuine,
\nnor will the Escrow Agent be liable or responsible for forgeries, fraud,
\nimpersonations, or determining the scope of any representative authority. In
\naddition, the Escrow Agent may consult with legal counsel in connection with
\nperforming the Escrow Agent’s duties under this Agreement and shall be fully
\nprotected in any act taken, suffered, or permitted by him\/her in good faith in
\naccordance with the advice of counsel. The Escrow Agent is not responsible for
\ndetermining and verifying the authority of any person acting or purporting to
\nact on behalf of any party to this Agreement.<\/p>\n
(vi) If any controversy arises between the parties to this Agreement,
\nor with any other party, concerning the subject matter of this Agreement, its
\nterms or conditions, the Escrow Agent will not be required to determine the
\ncontroversy or to take any action regarding it. The Escrow Agent may hold all
\ndocuments and the Escrow Amount and may wait for settlement of any such
\ncontroversy by final appropriate legal proceedings or other means as, in the
\nEscrow Agent’s discretion, may be required, despite what may be set forth
\nelsewhere in this Agreement. In such event, the Escrow Agent will not be liable
\nfor damages. Furthermore, the Escrow Agent may at its option, file an action of
\ninterpleader requiring the parties to answer and litigate any claims and rights
\namong themselves. The Escrow Agent is authorized to deposit with the clerk of
\nthe court all documents and the Escrow Amounts held in escrow, except all costs,
\nexpenses, charges and reasonable attorney fees incurred by the Escrow Agent due
\nto the interpleader action and which the parties jointly and severally agree to
\npay. Upon initiating such action, the Escrow Agent shall be fully released and
\ndischarged of and from all obligations and liability imposed by the terms of
\nthis Agreement.<\/p>\n
(vii) The parties and their respective successors and assigns agree
\njointly and severally to indemnify and hold Escrow Agent harmless against any
\nand all losses, claims, damages, liabilities, and expenses, including reasonable
\ncosts of investigation, counsel fees, including allocated costs of in-house
\ncounsel and disbursements that may be imposed on Escrow Agent or incurred by
\nEscrow Agent in connection with the performance of his\/her duties under this
\nAgreement, including but not limited to any litigation arising from this
\nAgreement or involving its subject matter other than arising out of its
\nnegligence or willful misconduct.<\/p>\n
(viii) The Escrow Agent may resign at any time upon giving at least
\nthirty (30) days written notice to the Buyer and the Escrow Representative;
\nprovided, however, that no such resignation shall become effective until the
\n——– ——-
\nappointment of a successor escrow agent which shall be accomplished as follows:
\nthe Buyer and the Escrow Representative shall use their best efforts to mutually
\nagree on a successor escrow agent within thirty (30) days after receiving such
\nnotice. If the parties fail to agree upon a successor escrow agent within such
\ntime, the Escrow Agent shall have the right to appoint a successor escrow agent
\nauthorized to do business in the State of California. The successor escrow agent
\nshall execute and deliver an instrument accepting such appointment and it shall,
\nwithout further acts, be vested with all the estates, properties, rights,
\npowers, and duties of the<\/p>\n
-39-<\/p>\n
predecessor escrow agent as if originally named as escrow agent. Upon
\nappointment of a successor escrow agent, the Escrow Agent shall be discharged
\nfrom any further duties and liability under this Agreement. Any company into
\nwhich the Escrow Agent may be merged or with which it may be consolidated, or
\nany company to whom the Escrow Agent may transfer a substantial amount of its
\nGlobal Escrow business, shall be the successor to the Escrow Agent without the
\nexecution or filing of any paper or any further act on the part of any of the
\nparties, anything herein to the contrary notwithstanding.<\/p>\n
(j) Fees. All fees of the Escrow Agent for performance of its duties
\n —-
\nhereunder shall be paid by Buyer in accordance with the standard fee schedule of
\nthe Escrow Agent. It is understood that the fees and usual charges agreed upon
\nfor services of the Escrow Agent shall be considered compensation for ordinary
\nservices as contemplated by this Agreement. In the event that the conditions of
\nthis Agreement are not promptly fulfilled, or if the Escrow Agent renders any
\nservice not provided for in this Agreement, or if the parties request a
\nsubstantial modification of its terms, or if any controversy arises, or if the
\nEscrow Agent is made a party to, or intervenes in, any litigation pertaining to
\nthe Escrow Fund or its subject matter, the Escrow Agent shall be reasonably
\ncompensated for such extraordinary services and reimbursed for all costs,
\nattorney’s fees, including allocated costs of in-house counsel, and expenses
\noccasioned by such default, delay, controversy or litigation.<\/p>\n
7.3 Escrow Representative.
\n ——————— <\/p>\n
(a) The Seller hereby appoints Gloria C. Wahl as its agent and
\nattorney-in-fact (the “Escrow Representative”), for and on behalf of Seller, to
\n ———————
\ngive and receive notices and communications, to authorize payment to Buyer of
\ncash from the Escrow Fund in satisfaction of claims by Buyer, to object to such
\npayments, to agree to, negotiate, enter into settlements and compromises of, and
\ndemand arbitration and comply with orders of courts and awards of arbitrators
\nwith respect to such claims, and to take all actions necessary or appropriate in
\nthe judgment of the Escrow Representative for the accomplishment of the
\nforegoing. Such agency may be changed by Seller from time to time upon not less
\nthan fifteen (15) days prior written notice to Buyer. No bond shall be required
\nof the Escrow Representative, and any compensation the Escrow Representative
\nreceives for his or her services shall be paid by the Seller. Notices or
\ncommunications to or from the Escrow Representative shall constitute notice to
\nor from Seller.<\/p>\n
(b) The Escrow Representative shall not be liable for any act done or
\nomitted hereunder as the Escrow Representative while acting in good faith and in
\nthe exercise of reasonable judgment. Seller shall indemnify the Escrow
\nRepresentative and hold the Escrow Representative harmless against any loss,
\nliability or expense incurred without negligence or bad faith on the part of the
\nEscrow Representative and arising out of or in connection with the acceptance or
\nadministration of the Escrow Representative’s duties hereunder, including the
\nreasonable fees and expenses of any legal counsel retained by the Escrow
\nRepresentative on behalf of the Seller or to advise the Escrow Representative as
\nto his or her duties under this Agreement. After all claims for Losses by Buyer
\nset forth in Officer’s Certificates delivered to the Escrow Agent and the Escrow
\nRepresentative have been satisfied, or reserved against or resolved in Seller’s
\nfavor, the Escrow Representative, with the consent of Seller, may recover from
\nthe Escrow Fund at the end of the Escrow Period payments not yet paid for any
\nexpenses incurred in connection with the Escrow Representative’s representation
\nhereby.
\n -40-<\/p>\n
(c) A decision, act, consent or instruction of the Escrow
\nRepresentative shall constitute a decision of Seller and shall be final, binding
\nand conclusive upon the Seller; and the Escrow Agent and Buyer may rely upon any
\nsuch decision, act, consent or instruction of the Escrow Representative as being
\nthe decision, act, consent or instruction of the Seller. The Escrow Agent and
\nBuyer are hereby relieved from any liability to any person for any acts done by
\nthem in accordance with such decision, act, consent or instruction of the Escrow
\nRepresentative.<\/p>\n
ARTICLE VIII<\/p>\n
TERMINATION, AMENDMENT AND WAIVER<\/p>\n
8.1 Termination. Except as provided in Section 8.2, this Agreement may be
\n ———–
\nterminated and the Acquisition abandoned at any time prior to the Closing:<\/p>\n
(a) by mutual agreement of the Company and Buyer;<\/p>\n
(b) by Buyer, Seller or the Company if: (i) the Acquisition has not
\noccurred by February 6, 1998; (ii) there shall be a final nonappealable order of
\na federal or state court in effect preventing consummation of the Acquisition;
\nor (iii) there shall be any statute, rule, regulation or order enacted,
\npromulgated or issued or deemed applicable to the Closing by any Governmental
\nEntity that would make consummation of the Closing illegal;<\/p>\n
(c) by Buyer if there shall be any action taken, or any statute, rule,
\nregulation or order enacted, promulgated or issued or deemed applicable to the
\nAcquisition by any Governmental Entity, which would: (i) prohibit Buyer’s
\nownership or operation of any portion of the business of the Company or (ii)
\ncompel Buyer or the Company to dispose of or hold separate all or a portion of
\nthe business or assets of the Company or Buyer as a result of the Acquisition;<\/p>\n
(d) by Buyer if it is not in material breach of its obligations under
\nthis Agreement and there has been a material breach of any representation,
\nwarranty, covenant or agreement contained in this Agreement on the part of the
\nCompany or Seller and such breach has not been cured within ten (10) calendar
\ndays after written notice to the Company and Seller; provided, however, that, no
\n ——– ——-
\ncure period shall be required for a breach which by its nature cannot be cured;<\/p>\n
(e) by Seller or the Company if neither Seller nor the Company is in
\nmaterial breach of their respective obligations under this Agreement and there
\nhas been a material breach of any representation, warranty, covenant or
\nagreement contained in this Agreement on the part of Buyer and such breach has
\nnot been cured within ten (10) calendar days after written notice to Buyer;
\nprovided, however, that no cure period shall be required for a breach which by
\n——– ——-
\nits nature cannot be cured;<\/p>\n
(f) by Buyer if an event having a Material Adverse Effect shall have
\noccurred after the date of this Agreement.<\/p>\n
-41-<\/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
\n ———————
\nas provided in Section 8.1, this Agreement shall forthwith become void and there
\nshall be no liability or obligation on the part of Buyer, Seller or the Company
\nor their respective officers, directors or shareholders, provided that each
\nparty shall remain liable for any breaches of this Agreement prior to its
\ntermination; provided further that, the provisions of Sections 5.3, 5.4 and 5.5,
\nArticle IX and this Section 8.2 shall remain in full force and effect and
\nsurvive any termination of this Agreement.<\/p>\n
8.3 Amendment. This Agreement may be amended by the parties hereto at any
\n ———
\ntime by execution of an instrument in writing signed on behalf of each of the
\nparties hereto.<\/p>\n
8.4 Extension; Waiver. At any time prior to the Closing, Buyer, on the
\n —————–
\none hand, and Seller, and the Company, on the other hand, 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
\n ——-
\nwriting and shall be deemed given if delivered personally or by commercial
\nmessenger or courier service, or mailed by certified or express mail (return
\nreceipt requested) or sent via facsimile (with acknowledgment of complete
\ntransmission) to the parties at the following addresses (or at such other
\naddress for a party as shall be specified by like notice), provided, however,
\n ——– ——-
\nthat notices sent by mail will not be deemed given until received:<\/p>\n
(a) if to Buyer at any time or to the Company after the Closing, to:<\/p>\n
Concentric Network Corporation
\n 10590 Tantau Avenue
\n Cupertino, California 95014
\n Attention: Michael Anthofer
\n Telephone No.: (408) 342-2800
\n Facsimile No: (408) 342-2876<\/p>\n
with a copy to:<\/p>\n
-42-<\/p>\n
Wilson Sonsini Goodrich & Rosati
\n Professional Corporation
\n 650 Page Mill Road
\n Palo Alto, California 94304
\n Attention: David J. Segre, Esq.
\n Telephone No.: (650) 493-9300
\n Facsimile No.: (650) 493-6811<\/p>\n
(b) if to Seller or the Company before the Closing, to:<\/p>\n
InterNex Communications, Inc.
\n 2302 Walsh Avenue
\n Santa Clara, CA 95051
\n Telephone No.: (408) 496-5467
\n Facsimile No.: (408) 235-7963
\n Attention: Gloria C. Wahl<\/p>\n
with a copy to:<\/p>\n
Enterprise Law Group, Inc.
\n Menlo Oaks Corporate Center
\n 4400 Bohannon Drive, Suite 280
\n Menlo Park, California 94025
\n Telephone No.: (650) 462-4700
\n Facsimile No.: (650) 462-4747
\n Attention: Nelson D. Crandall, Esq.\/Wayland M. Brill, Esq.<\/p>\n
(c) If to Seller or the Escrow Representative after the Closing, to:<\/p>\n
1130 Tournament Drive
\n Hillsborough, California 94010
\n Telephone No: (650) 578-9329
\n Facsimile No.: (650) 574-1870
\n Attention: Gloria C. Wahl<\/p>\n
with a copy to:<\/p>\n
Enterprise Law Group, Inc.
\n Menlo Oaks Corporate Center
\n 4400 Bohannon Drive, Suite 280
\n Menlo Park, California 94025
\n Telephone No.: (650) 462-4700
\n Facsimile No.: (650) 462-4747
\n Attention: Nelson D. Crandall, Esq.\/Wayland M. Brill, Esq.<\/p>\n
-43-<\/p>\n
(d) If to the Escrow Agent, to:<\/p>\n
First Trust of California, N.A.
\n One California Street, 4th Floor
\n San Francisco, CA 94111
\n Telephone No: (415) 273-4532
\n Facsimile No.: (415) 273-4593
\n Attention: Ann Gadsby<\/p>\n
9.2 Interpretation. The words “include,” “includes” and “including” when
\n ————–
\nused herein shall be deemed in each case to be followed by the words “without
\nlimitation.” The table of contents and headings contained in this Agreement are
\nfor reference 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
\n ————
\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.<\/p>\n
9.4 Entire Agreement; Assignment. This Agreement, the Exhibits hereto,
\n —————————-
\nthe Disclosure Schedule, the Nondisclosure Agreement, and the documents and
\ninstruments 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 both
\nwritten and oral, among the parties with respect to the subject matter hereof;
\n(b) are not intended to confer upon any other person any rights or remedies
\nhereunder; and (c) shall not be assigned by operation of law or otherwise,
\nexcept that Buyer may assign its rights and delegate its obligations hereunder
\nto its affiliates as long as Buyer remains ultimately liable for all of Buyer’s
\nobligations hereunder.<\/p>\n
9.5 Severability. In the event that any provision of this Agreement or
\n ————
\nthe application thereof, becomes or is declared by a court of competent
\njurisdiction to be illegal, void or unenforceable, the remainder of this
\nAgreement will continue in full force and effect and the application of such
\nprovision to other persons or circumstances will be interpreted so as reasonably
\nto effect the intent of the parties hereto. The parties further agree to
\nreplace such void or unenforceable provision of this Agreement with a valid and
\nenforceable provision that will achieve, to the extent possible, the economic,
\nbusiness and other purposes of such void or unenforceable provision.<\/p>\n
9.6 Other Remedies. Except as otherwise provided herein, any and all
\n ————–
\nremedies herein expressly conferred upon a party will be deemed cumulative with
\nand not exclusive of any other remedy conferred hereby, or by law or equity upon
\nsuch party, and the exercise by a party of any one remedy will not preclude the
\nexercise of any other remedy.<\/p>\n
-44-<\/p>\n
9.7 Governing Law. This Agreement shall be governed by and construed in
\n ————-
\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 irrevocably consents to the exclusive jurisdiction
\nand venue of any court within Santa Clara County, State of California, in
\nconnection with any matter based upon or arising out of this Agreement or the
\nmatters contemplated herein, 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, venue and such process.<\/p>\n
9.8 Rules of Construction. The parties hereto agree that they have been
\n ———————
\nrepresented by counsel during the negotiation and execution of this Agreement
\nand, therefor, 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
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]<\/p>\n
-45-<\/p>\n
IN WITNESS WHEREOF, Buyer, Seller, the Company, the Escrow Agent and the
\n Escrow Representative have caused this Agreement to be signed, all as of the
\n date first written above.<\/p>\n
CONCENTRIC NETWORK INTERNEX COMMUNICATIONS, INC.
\n CORPORATION<\/p>\n
By: \/s\/ Henry R. Nothhaft By: \/s\/ Gloria C. Wahl
\n _______________________ _________________________
\n Henry R. Nothhaft Gloria C. Wahl
\n President and Chief Executive Officer President and
\n Chief Executive Officer<\/p>\n
INTERNEX INFORMATION SERVICES, ESCROW REPRESENTATIVE:
\n INC.<\/p>\n
By: \/s\/ Gloria C. Wahl By: \/s\/ Gloria C. Wahl
\n _______________________ _________________________
\n Gloria C. Wahl GLORIA C. WAHL
\n President and Chief
\n Executive Officer<\/p>\n
ESCROW AGENT:<\/p>\n
By: \/s\/
\n __________________________<\/p>\n
Name:________________________<\/p>\n
Title:_______________________<\/p>\n
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