-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, FtzuQTbA5uimTozxwZRoLMETTvDEMNZtFDYGlzytTU3H364NGRBW46rA8rCT3EFi m304rOGa/Ubt4G7EBXop/w== 0001012870-01-001187.txt : 20010316 0001012870-01-001187.hdr.sgml : 20010316 ACCESSION NUMBER: 0001012870-01-001187 CONFORMED SUBMISSION TYPE: SC 13D PUBLIC DOCUMENT COUNT: 4 FILED AS OF DATE: 20010315 SUBJECT COMPANY: COMPANY DATA: COMPANY CONFORMED NAME: EXTENDED SYSTEMS INC CENTRAL INDEX KEY: 0001051490 STANDARD INDUSTRIAL CLASSIFICATION: COMPUTER PERIPHERAL EQUIPMENT, NEC [3577] IRS NUMBER: 820399670 STATE OF INCORPORATION: DE FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: SC 13D SEC ACT: SEC FILE NUMBER: 005-55473 FILM NUMBER: 1569649 BUSINESS ADDRESS: STREET 1: 5777 MEEKER AVENUE CITY: BOISE STATE: ID ZIP: 83713 BUSINESS PHONE: 2023227575 MAIL ADDRESS: STREET 1: 5777 MEEKER AVE CITY: BOISE STATE: ID ZIP: 83713 FILED BY: COMPANY DATA: COMPANY CONFORMED NAME: PALM INC CENTRAL INDEX KEY: 0001100389 STANDARD INDUSTRIAL CLASSIFICATION: COMPUTER TERMINALS [3575] IRS NUMBER: 943150688 STATE OF INCORPORATION: DE FISCAL YEAR END: 0531 FILING VALUES: FORM TYPE: SC 13D BUSINESS ADDRESS: STREET 1: 5470 GREAT AMERICA PARKWAY CITY: SANTA CLARA STATE: CA ZIP: 95052 BUSINESS PHONE: 4083269000 MAIL ADDRESS: STREET 1: 5470 GREAT AMERICA PARKWAY CITY: SANTA CLARA STATE: CA ZIP: 95052-8145 SC 13D 1 0001.txt STATEMENT OF BENEFICIAL OWNERSHIP ================================================================================ UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 SCHEDULE 13D Under the Securities Exchange Act of 1934 Extended Systems Incorporated - -------------------------------------------------------------------------------- (Name of Issuer) COMMON STOCK - -------------------------------------------------------------------------------- (Title of Class of Securities) 69664210-7 - -------------------------------------------------------------------------------- (CUSIP Number) JUDY BRUNER Senior Vice President and Chief Financial Officer PALM, INC. 5470 Great America Parkway Santa Clara, California 95052 (408) 326-9000 - -------------------------------------------------------------------------------- (Name, Address and Telephone Number of Person Authorized to Receive Notices and Communications) March 6, 2001 - -------------------------------------------------------------------------------- (Date of Event which Requires Filing of this Statement) If the filing person has previously filed a statement on Schedule 13G to report the acquisition which is the subject of this Schedule 13D, and is filing this schedule because of Sections 240.13-1(e), 240.13d-(f) or 240.13d-1(g), check the following box. [_] Note: Schedules filed in paper format shall include a signed original and five copies of the schedule, including all exhibits. See Section 240.13d-7(b) for other parties to whom copies are to be sent. The information required on the remainder of this cover page shall not be deemed to be "filed" for the purpose of Section 18 of the Securities Exchange Act of 1934 ("Act") or otherwise subject to the liabilities of that section of the Act but shall be subject to all other provisions of the Act (however, see the Notes). CUSIP No. 69664210-7 ----------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------------------- 1. Names of Reporting Person. SS or I.R.S. Identification No. of above person. Palm, Inc. I.R.S. Identification No.: 94-3150688 ----------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------------------- 2. Check the Appropriate Box if a Member of a Group* (a) [_] ---------------------------------------------------------------------------------- (b) [_] ---------------------------------------------------------------------------------- Not applicable - ------------------------------------------------------------------------------------------------------------- 3. SEC Use Only ----------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------------------- 4. Source of Funds* OO --------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------------------- 5. Check Box if Disclosure of Legal Proceedings Is Required Pursuant to Items 2(d) or 2(e) [_] - ------------------------------------------------------------------------------------------------------------- 6. Citizenship or Place of Organization State of Delaware -------------------------------------------------- - ------------------------------------------------------------------------------------------------------------ Number of 7. Sole Voting Power 2,141,091 (See (1) below) Shares ---------------------------------------------------------------- Beneficially -------------------------------------------------------------------------------------------- Owned by each 8. Shared Voting Power 2,301,786 (See (2) below) Reporting -------------------------------------------------------------- Person With -------------------------------------------------------------------------------------------- 9. Sole Dispositive Power 2,141,091 (See (1) below) ----------------------------------------------------------- -------------------------------------------------------------------------------------------- 10. Shared Dispositive Power N/A --------------------------------------------------------- - ------------------------------------------------------------------------------------------------------------- 11. Aggregate Amount Beneficially Owned by Each Reporting Person 4,442,877 (See (1) and (2) below) ---------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------------------- 12. Check Box if the Aggregate Amount in Row (11) Excludes Certain Shares* [_] - ------------------------------------------------------------------------------------------------------------- 13. Percent of Class Represented by Amount in Row (11) Approximately 32.9 percent (See (3) below) ---------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------------------- 14. Type of Reporting Person* CO ---------------------------------------------------------------------------------------- ---------------------------------------------------------------------------------------- ---------------------------------------------------------------------------------------- ---------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------
*See Instructions Before Filling Out. (1) In the event that the Option described in Items 3 and 4 below becomes exercisable, and is exercised in full, Palm, Inc., a Delaware corporation ("Palm"), will have sole voting power with respect to, and the sole power to dispose of, that number of shares of Common Stock, par value $0.001 per share, of Extended Systems, Inc., a Delaware corporation ("Extended Systems"), equal to 19.9% of the then outstanding shares of Extended Systems Common Stock, which, based upon the 10,759,249 shares of Extended Systems Common Stock outstanding as of March 6, 2001 (as represented by Extended Systems in the Merger Agreement described in Items 3 and 4 below), currently equals 2,141,091 shares of Extended Systems Common Stock. Prior to the exercise of the Option, Palm is not entitled to any rights as a stockholder of Extended Systems as to the shares of Extended Systems Common Stock issuable upon exercise of the Option. The Option may only be exercised upon the occurrence of certain events described in Item 4 below, none of which has occurred as of the date hereof. Palm expressly disclaims beneficial ownership of any of the shares of Extended Systems Common Stock which are issuable to Palm upon exercise of the Option until such time as Palm purchases any such shares of Extended Systems Common Stock upon any such exercise of the Option. (2) 2,602,522 shares of Extended Systems Common Stock are subject to Voting Agreements between Palm and certain officers and directors of Extended Systems, as described in Items 3 and 4 below, of which 2,301,786 shares are either outstanding on the date hereof or are issuable upon the exercise of outstanding options which are either vested or will vest within 60 days of March 6, 2001. Palm expressly disclaims beneficial ownership of any of the shares of Extended Systems Common Stock subject to the Voting Agreements. Based on the 11,363,149 shares of Extended Systems Common Stock outstanding after the issuance of 603,900 shares of Extended Systems Common Stock upon the exercise of outstanding options which are either vested or will vest within 60 days of March 6, 2001 (but excluding the shares of Extended Systems Common Stock issuable upon exercise of the Option), the 2,301,786 shares of Extended Systems Common Stock subject to the Voting Agreements which Palm may be deemed to beneficially own as of March 6, 2001 represent approximately 20.3% of the outstanding Extended Systems Common Stock. (3) Based upon 13,504,240 shares of Extended Systems Common Stock outstanding after the issuance of 2,141,091 shares of Extended Systems Common Stock upon the exercise of the Option described in Items 3 and 4 below, and the issuance of 603,900 shares of Extended Systems Common Stock upon the exercise of outstanding options which are either vested or will vest within 60 days of March 6, 2001. Item 1. Security and Issuer This statement on Schedule 13D (this "Statement") relates to the Common Stock, par value $0.001 per share, of Extended Systems, Inc., a Delaware corporation ("Extended Systems" or "Issuer"). The principal executive offices of Extended Systems are located at 5777, North Meeker Avenue, Boise, Idaho 83713. Item 2. Identity and Background The name of the corporation filing this Statement is Palm, Inc., a Delaware corporation ("Palm"). Palm a global provider of handheld computing devices. The address of Palm's principal business is 5470 Great America Parkway, Santa Clara, California 95052. Set forth on Schedule A hereto is (i) the name of each of the executive officers and directors of Palm, (ii) the residence or business address of each of the directors of Palm, (iii) present principal occupation or employment, if any, of each of the executive officers and directors of Palm, and the name, principal business and address of any corporation or other organization in which such employment is conducted, in each case as of the date hereof. The address of the executive offices of Palm is the same as the address of Palm's principal business. Neither Palm nor, to the knowledge of Palm, any person named on Schedule A hereto (i) during the last five years, has been convicted in a criminal proceeding (excluding traffic violations or similar misdemeanors), or (ii) during the last five years, was a party to a civil proceeding of a judicial or administrative body of competent jurisdiction and as a result of such proceeding was or is subject to a judgment, decree, or final order enjoining future violations of, or prohibiting or mandating activities subject to, Federal or state securities laws or finding any violation with respect to such laws. To the knowledge of Palm, except as set forth on Schedule A hereto, each of the individuals set forth on Schedule A hereto is a citizen of the United States. Item 3. Source and Amount of funds or Other Consideration Pursuant to an Agreement and Plan of Reorganization, dated as of March 6, 2001, a copy of which is attached hereto as Exhibit 2 (the "Merger Agreement"), by and between Palm and Extended Systems, and subject to the conditions set forth therein (including adoption and approval of the Merger Agreement and the Merger (as defined below) by stockholders of Extended Systems and receipt of applicable regulatory approvals), Extended Systems will merge with and into Palm (such events constituting the "Merger"). At the effective time of the Merger, Extended Systems will cease to exist as a corporation and all of the business, assets, liabilities and obligations of Extended Systems will be merged with and into Palm, with Palm remaining as the surviving corporation (sometimes referred to herein as the "Surviving Corporation"). As an inducement to Palm to enter into the Merger Agreement and in consideration thereof, Palm and Extended Systems entered into a Stock Option Agreement, dated as of March 6, 2001, a copy of which is attached hereto as Exhibit 10 (the "Stock Option Agreement"), pursuant to which Extended Systems granted Palm an irrevocable option (the "Option") to acquire, subject to certain conditions, up to a number of shares of Extended Systems Common Stock equal to 19.9% of the issued and outstanding Extended Systems Common Stock as of March 6, 2001, or 2,141,091 shares (subject to adjustment based on an increase or decrease in the issued and outstanding Extended Systems Common Stock), for a purchase price of $22.00 per share. Extended Systems' obligation to issue shares to Palm pursuant to the exercise of the Option is subject to the occurrence of certain events described in Item 4 below, which may not occur. The granting of the Option was negotiated as a material term of the transactions contemplated by the Merger Agreement. Palm did not pay additional consideration to Extended Systems in connection with the Stock Option Agreement or the granting of the Option by Extended Systems. In the event the Option becomes exercisable, Palm anticipates that it will use working capital to fund the exercise price of the Option. As a further inducement to Palm to enter into the Merger Agreement and in consideration thereof, certain officers and directors of Extended Systems (collectively, the "Stockholders") entered into individual Voting Agreements with Palm, a copy of the form of which is attached hereto as Exhibit 9 (each, a "Voting Agreement" and, collectively, the "Voting Agreements"), whereby each Stockholder agreed, severally and not jointly, to vote all of the shares of Extended Systems Common Stock beneficially owned by such Stockholder in favor of adoption and approval of the Merger Agreement and approval of the Merger and certain related matters. Palm did not pay additional consideration to any Stockholder in connection with the execution and delivery of the Voting Agreements. References to, and descriptions of, the Merger, the Merger Agreement, the Stock Option Agreement and the Voting Agreements set forth herein are qualified in their entirety by reference to the copies of the Merger Agreement, the Stock Option Agreement and the Voting Agreements included as Exhibits 2, 9, and 10, respectively, to this Statement, which are incorporated by reference herein in their entirety where such references and descriptions appear. Item 4: Purpose of Transaction (a)-(b) As described in Item 3 above, this Statement relates to the acquisition of Extended Systems by Palm pursuant to a statutory merger of Extended Systems with and into Palm, pursuant to which, at the effective time of the Merger, the separate existence of Extended Systems will cease and Palm will continue as the Surviving Corporation. By virtue of the Merger, each holder of outstanding shares of Extended Systems Common Stock will receive, in exchange for each share of Extended Systems Common Stock held by such holder, a number of shares of common stock, par value $0.001 per share, of Palm ("Palm Common Stock") based on the average closing price for Palm for the ten (10) trading days ending two (2) business days prior to the Extended Systems' stockholders' meeting. If the average closing price of Palm Common Stock is between $16.60 and $22.00 per share, Extended Systems' stockholders will receive a number of shares equal to $22.00 per share divided by the Palm average closing price. If the average price is at or above $22.00, Extended Systems' stockholders will receive one (1) Palm share for each Extended Systems' share and if the average price is at or below $16.60, Extended Systems' stockholders will receive 1.325 Palm shares for each Extended Systems' share. In connection with the Merger, Palm will also assume each outstanding option to purchase Extended Systems Common Stock under Extended Systems' existing stock option plans and each such option will represent the right to acquire a number of shares of Palm Common Stock, as adjusted based on the exchange ratio, with the exercise price adjusted accordingly. Also in connection with the Merger, each purchase right under Extended Systems' 1998 Employee Stock Purchase Plan will be exercised, and each share of Extended Systems Common Stock issued as a result thereof will be converted into the right to receive a number of shares of Palm Common Stock equal to the exchange ratio. Pursuant to the Stock Option Agreement, Extended Systems granted Palm the Option to acquire, subject to certain conditions, up to a number of shares of Extended Systems Common Stock equal to 19.9% of the issued and outstanding Extended Systems Common Stock as of March 6, 2001, or 2,141,091 shares (subject to adjustments based on an increase or decrease in the issued and outstanding Extended Systems Common Stock), for a purchase price of $22.00 per share. Extended Systems' obligation to issue shares to Palm pursuant to the exercise of the Option is subject to the occurrence of certain events (each, an "Exercise Event"), which may not occur. In general, an Exercise Event may be deemed to have occurred where: (a) (i) the Board of Directors of Extended Systems withdraws, modifies or changes its recommendation of the Merger Agreement, or the Merger, in a manner adverse to Palm or its stockholders, (ii) Extended Systems fails to include in the prospectus/proxy statement the unanimous recommendation of the Board of Directors of Extended Systems in favor of the adoption and approval of the Merger Agreement and the approval of the Merger, (iii) the Board of Directors of Extended Systems fails to reaffirm its unanimous recommendation in favor of the adoption and approval of the Merger Agreement and the approval of the Merger within ten (10) business days after Palm requests in writing that such recommendation be reaffirmed, (iv) the Board of Directors of Extended Systems approves or recommends an Acquisition Proposal (as defined in the Merger Agreement), or (v) the commencement of a tender or exchange offer relating to securities of Extended Systems by a person unaffiliated with Palm and Extended Systems fails to send to its securityholders within ten (10) days thereafter a statement disclosing that Extended Systems recommends rejection of such tender or exchange offer; or (b) immediately prior to the consummation of a tender or exchange offer for 25% or more of any class of Extended Systems' capital stock. Pursuant to the Voting Agreements, each of the Stockholders has irrevocably appointed the directors of Palm as such Stockholder's lawful attorneys and proxies with respect to certain prescribed matters related to the Merger. The foregoing proxies give the directors of Palm the limited right to vote or deliver a consent with respect to each of the shares of Extended Systems Common Stock beneficially owned by the Stockholders, at every annual, special, adjourned or postponed meeting of the stockholders of Extended Systems and in every written consent in lieu of such a meeting: (a) in favor of the approval of the Merger and the adoption and approval of the Merger Agreement, and in favor of each of the other actions contemplated by the Merger Agreement and any action required in furtherance thereof; (b) against approval of any proposal made in opposition to, or in competition with, consummation of the Merger and the transactions contemplated by the Merger Agreement; (c) against any other action that is intended, or could reasonably be expected to, impede, interfere with, delay, postpone, discourage or adversely affect the Merger or any of the other transactions contemplated by the Merger Agreement; and (d) in favor of waiving any notice that may have been or may be required relating to any reorganization of Extended Systems or any subsidiary of Extended Systems, any reclassification or recapitalization of the capital stock of Extended Systems or any subsidiary of Extended Systems, or any sale of assets, change of control, or acquisition of Extended Systems or any subsidiary of Extended Systems by any other person, or any consolidation or merger of Extended Systems or any subsidiary of Extended Systems with or into any other person. The Stockholders may vote their shares of Extended Systems Common Stock on all other matters submitted to the stockholders of Extended Systems for their approval. The Voting Agreements terminate upon the earlier to occur of (a) such date and time as the Merger Agreement shall have been validly terminated pursuant to its terms, and (b) such date and time as the Merger shall become effective in accordance with the terms and conditions set forth in the Merger Agreement. The purpose of the Stock Option Agreement and the Voting Agreements is to enable Palm and Extended Systems to consummate the transactions contemplated under the Merger Agreement. (c) Not applicable. (d) Upon the consummation of the Merger, the directors and officers of Surviving Corporation will be the directors and officers of Palm immediately prior to the effective time of the Merger. (e) Other than as a result of the Merger described in Item 3 and Item 4 above, not applicable. (f) Other than as a result of the Merger described in Item 3 and Item 4 above, not applicable. (g) Upon consummation of the Merger, the Certificate of Incorporation of Palm, as in effect immediately prior to the effective time of the Merger, will be the Certificate of Incorporation of the Surviving Corporation until thereafter amended in accordance with the General Corporation Law of the State of Delaware and such Certificate of Incorporation. Upon consummation of the Merger, the Bylaws of Palm, as in effect immediately prior to the Merger, will be, at the effective time of the Merger, the Bylaws of the Surviving Corporation until thereafter amended in accordance with the General Corporation Law of the State of Delaware, the Certificate of Incorporation of Palm and the Bylaws of Palm. (h)-(i) Upon consummation of the Merger, Extended Systems Common Stock will be deregistered under the Securities Exchange Act of 1934, as amended, and delisted from the Nasdaq National Market. (j) Other than described above, Palm currently has no plan or proposals which relate to, or may result in, any of the matters listed in Items 4(a) - (j) of Schedule 13D, inclusive, although Palm reserves the right to develop such plans. References to, and descriptions of, the Merger, the Merger Agreement, the Stock Option Agreement and the Voting Agreements set forth herein are qualified in their entirety by reference to the copies of the Merger Agreement, the Stock Option Agreement and the Voting Agreements included as Exhibits 2, 9, and 10, respectively, to this Statement, which are incorporated by reference herein in their entirety where such references and descriptions appear. Item 5. Interest in Securities of the Issuer (a)-(b) In the event that the Option becomes exercisable, and is exercised in full, Palm will have sole voting power with respect to, and the sole power to dispose of, that number of shares of Extended Systems Common Stock equal to 19.9% of the then outstanding shares of Extended Systems Common Stock, which, based upon the 10,759,249 shares of Extended Systems Common Stock outstanding as of March 6, 2001 (as represented by Extended Systems in the Merger Agreement described in Items 3 and 4 above), currently equals 2,141,091 shares of Extended Systems Common Stock. Prior to the exercise of the Option, Palm is not entitled to any rights as a stockholder of Extended Systems as to the shares of Extended Systems Common Stock issuable upon exercise of the Option. The Option may only be exercised upon the occurrence of the Exercise Events described in Item 4 above, none of which has occurred as of the date hereof. Palm expressly disclaims beneficial ownership of any of the shares of Extended Systems Common Stock which are issuable to Palm upon exercise of the Option until such time as Palm purchases any such shares of Extended Systems Common Stock upon any such exercise of the Option. As a result of the Voting Agreements, Palm may be deemed to be the beneficial owner of at least 2,301,786 shares of Extended Systems Common Stock as of March 6, 2001. Such Extended Systems Common Stock constitutes approximately 20.3% of the issued and outstanding shares of Extended Systems Common Stock, based on the 10,759,249 shares of Extended Systems Common Stock outstanding as of March 6, 2001 (as represented by Extended Systems in the Merger Agreement described in Items 3 and 4 above) and assuming the issuance of 603,900 shares of Extended Systems Common Stock upon the exercise of outstanding options which are either vested or will vest within 60 days of March 6, 2001. Palm also may be deemed to have shared voting power with respect to the foregoing shares of Extended Systems Common Stock with respect to those matters described above. However, Palm (a) is not entitled to any rights as a stockholder of Extended Systems as to the foregoing shares of Extended Systems Common Stock, and (b) disclaims any beneficial ownership of the shares of Extended Systems Common Stock which are covered by the Voting Agreements. To the knowledge of Palm, no other person listed on Schedule A hereto has an equity or other ownership interest in Extended Systems. Set forth on Schedule B hereto is the name of those stockholders of Extended Systems that have entered into a Voting Agreement with Palm, and to the knowledge of Palm, each of their respective present principal occupation or employment, including the name, principal business and address of any corporation or other organization in which such employment is conducted. (c) To the knowledge of Palm, no transactions in the class of securities reported on this Statement have been effected during the past 60 days by the persons named in response to Item 5(a) and Item 2. (d) To the knowledge of Palm, no other person has the right to receive or the power to direct the receipt of dividends from, or the proceeds from the sale of, the class of securities reported on this Statement. (e) Not applicable. Item 6. Contracts, Arrangements, Understandings or Relationships with Respect to Securities of the Issuer Other than the Merger Agreement and the exhibits thereto, including the Stock Option Agreement and the Voting Agreements, to the knowledge of Palm, there are no contracts, arrangements, understandings or relationships (legal or otherwise) among the persons named in Item 2 and between such persons and any person with respect to any securities of Extended Systems, including, but not limited to transfer or voting of any of the class of securities reported on this Statement, finder's fees, joint ventures, loan or option arrangements, puts or calls, guarantees of profits, division of profits or loss, or the giving or withholding of proxies. Item 7. Material to Be Filed as Exhibits The following documents are filed as exhibits to this Statement: 2. Agreement and Plan of Reorganization, dated as of March 6, 2001, by and among Palm, Inc., a Delaware corporation ("Palm"), and Extended Systems, Inc., a Delaware corporation. 9. Form of Voting Agreement, dated as of March 6, 2001, by and between Palm and certain stockholders of Extended Systems set forth on Schedule B hereto. 10. Stock Option Agreement, dated as of March 6, 2001, by and between Palm, Inc., a Delaware corporation, and Extended Systems, Inc., a Delaware corporation. Signature After reasonable inquiry and to the best of my knowledge and belief, I certify that the information set forth in this Statement is true, complete and correct. March 15, 2001 - -------------------------------------------------------------------------------- Date /s/ Judy Bruner - -------------------------------------------------------------------------------- Signature Judy Bruner, Senior Vice President and Chief Financial Officer - -------------------------------------------------------------------------------- Name/Title SCHEDULE A DIRECTORS AND EXECUTIVE OFFICERS OF PALM, INC. The following table sets forth the name, business address and present principal occupation or employment of each executive officer and director of Palm. Except as otherwise indicated below, the business address of each person set forth on this Schedule A is: c/o Palm, Inc., 5470 Great America Parkway, Santa Clara, California 95052.
Name of Executive Officer Title and Present Principal Occupation - ------------------------------------------- ----------------------------------------------------------- Carl J. Yankowski Chief Executive Officer Judy Bruner Senior Vice President and Chief Financial Officer Alan J. Kessler Chief Operating Officer, Platform and Products Barry Cottle Chief Operating Officer, Content and Access Stephen Yu Vice President, General Counsel and Secretary Stewart Gill Vice President, Human Resources
Name of Director Title and Present Principal Occupation - ------------------------------------------- ----------------------------------------------------------- Carl J. Yankowski Chief Executive Officer of Palm Eric A. Benhamou Chairman of the Board of Directors 3Com Corporation Santa Clara Site 5400 Bayfront Plaza Santa Clara, CA 95052 Gordon A. Campbell President and Chairman of the Board Techfarm, Inc. 200 W. Evelyn Ave., Suite 100 Mountain View, CA 94041 Jean-Jacques Damlamian* Group Executive Vice President France Telecom 6 Place d'Alleray 75505 Paris Cedex 15 Michael Homer Chief Executive Officer Zodiac Networks, Inc. 1350 Villa Avenue Mountain View, CA 94041 David C. Nagel President and Chief Technology Officer AT&T Labs 295 North Maple Avenue Basking Ridge, New Jersey 07920 Susan G. Swenson President, Chief Operating Officer and Director Leap Wireless International, Inc. 10307 Pacific Center Ct. San Diego, CA 92121 * citizen of France
SCHEDULE B STOCKHOLDERS PARTY TO A VOTING AGREEMENT WITH PALM, INC. The following table sets forth the name and present principal occupation or employment of each Stockholder of Extended Systems that has entered into a Voting Agreement with Palm in connection with the Merger Agreement, and the aggregate number of shares of Extended Systems Common Stock beneficially owned by each such Stockholder as of March 6, 2001. Except as otherwise indicated below, the business address of each Stockholder set forth on this Schedule B is: c/o Extended Systems, Inc., 5777, North Meeker Avenue, Boise, Idaho 83713.
Stockholder Party to Voting Agreement Shares Beneficially Owned - ---------------------------------------------------------------------- ------------------------------------------- Douglas B. Winterrowd................................................. 1,092,657 (1) Raymond A. Smelek..................................................... 338,674 (2) Holmes Lundt.......................................................... 328,127 (3) Steven D. Simpson..................................................... 222,698 (4) S. Scott Wald......................................................... 75,846 (5) Karla K. Rosa......................................................... 76,490 (6) Brad Surkamer......................................................... 53,730 (7) Scott J. Ritchie...................................................... 47,564 (8) John M. Russell 40,000 (9) John Katsaros......................................................... 0
(1) Includes 1,092,657 outstanding shares of Extended Systems Common Stock, and no shares of Extended Systems Common Stock issuable upon the exercise of options to purchase Extended Systems Common Stock which are exercisable within 60 days of March 6, 2001. (2) Includes 116,903 outstanding shares of Extended Systems Common Stock, and 221,771 shares of Extended Systems Common Stock issuable upon the exercise of options to purchase Extended Systems Common Stock which are exercisable within 60 days of March 6, 2001. (3) Includes 311,663 outstanding shares of Extended Systems Common Stock, and 16,464 shares of Extended Systems Common Stock issuable upon the exercise of options to purchase Extended Systems Common Stock which are exercisable within 60 days of March 6, 2001. (4) Includes 51,143 outstanding shares of Extended Systems Common Stock, and 171,555 shares of Extended Systems Common Stock issuable upon the exercise of options to purchase Extended Systems Common Stock which are exercisable within 60 days of March 6, 2001. (5) Includes 14,000 outstanding shares of Extended Systems Common Stock, and 61,846 shares of Extended Systems Common Stock issuable upon the exercise of options to purchase Extended Systems Common Stock which are exercisable within 60 days of March 6, 2001. (6) Includes 31,337 outstanding shares of Extended Systems Common Stock, and 45,153 shares of Extended Systems Common Stock issuable upon the exercise of options to purchase Extended Systems Common Stock which are exercisable within 60 days of March 6, 2001. (7) Includes 9,192 outstanding shares of Extended Systems Common Stock, and 44,538 shares of Extended Systems Common Stock issuable upon the exercise of options to purchase Extended Systems Common Stock which are exercisable within 60 days of March 6, 2001. (8) Includes 34,991 outstanding shares of Extended Systems Common Stock, and 12,573 shares of Extended Systems Common Stock issuable upon the exercise of options to purchase Extended Systems Common Stock which are exercisable within 60 days of March 6, 2001. (9) Includes 10,000 outstanding shares of Extended Systems Common Stock, and 30,00 shares of Extended Systems Common Stock issuable upon the exercise of options to purchase Extended Systems Common Stock which are exercisable within 60 days of March 6, 2001. EX-2 2 0002.txt AGREEMENT & PLAN OF REORGANIZATION EXHIBIT 2 AGREEMENT AND PLAN OF REORGANIZATION BY AND BETWEEN PALM, INC. AND EXTENDED SYSTEMS INCORPORATED Dated as of March 6, 2001 TABLE OF CONTENTS Page ---- ARTICLE I THE MERGER............................................. 2 1.1 The Merger............................................ 2 1.2 Effective Time; Closing............................... 2 1.3 Effect of the Merger.................................. 2 1.4 Certificate of Incorporation; Bylaws.................. 2 1.5 Directors and Officers................................ 2 1.6 Effect on Capital Stock............................... 3 1.7 Surrender of Certificates............................. 4 1.8 No Further Ownership Rights in Company Common Stock... 6 1.9 Lost, Stolen or Destroyed Certificates................ 6 1.10 Tax Consequences...................................... 6 1.11 Taking of Necessary Action; Further Action............ 6 ARTICLE II REPRESENTATIONS AND WARRANTIES OF THE COMPANY......... 7 2.1 Organization of the Company........................... 7 2.2 Company Capital Structure............................. 8 2.3 Obligations With Respect to Capital Stock............. 9 2.4 Authority; Non-Contravention.......................... 10 2.5 SEC Filings; Company Financial Statements............. 11 2.6 Absence of Certain Changes or Events.................. 12 2.7 Taxes................................................. 12 2.8 Title to Properties; Absence of Liens and Encumbrances......................................... 15 2.9 Intellectual Property................................. 15 2.10 Compliance; Permits; Restrictions..................... 18 2.11 Litigation............................................ 18 2.12 Brokers' and Finders' Fees............................ 19 2.13 Transactions with Affiliates.......................... 19 2.14 Employee Benefit Plans................................ 19 2.15 Environmental Matters................................. 23 2.16 Year 2000 Compliance.................................. 24 2.17 Agreements, Contracts and Commitments................. 24 2.18 Change of Control Payments............................ 25 2.19 Disclosure............................................ 25 2.20 Board Approval........................................ 26 2.21 Fairness Opinion...................................... 26 2.22 Section 203 of the Delaware General Corporation Law Not Applicable....................................... 26 ARTICLE III REPRESENTATIONS AND WARRANTIES OF PARENT............. 26 3.1 Organization, Standing and Power...................... 27 -i- TABLE OF CONTENTS (continued) Page ---- 3.2 Capital Structure..................................... 27 3.3 Authority; Non-Contravention.......................... 28 3.4 SEC Filings; Parent Financial Statements.............. 29 3.5 No Material Adverse Effect............................ 30 3.6 Disclosure............................................ 30 3.7 Litigation............................................ 30 3.8 Board Approval........................................ 30 3.9 Taxes................................................. 30 3.10 Brokers' and Finders' Fees............................ 31 ARTICLE IV CONDUCT PRIOR TO THE EFFECTIVE TIME................... 31 4.1 Conduct of Business by the Company.................... 31 ARTICLE V ADDITIONAL AGREEMENTS.................................. 33 5.1 Prospectus/Proxy Statement; Registration Statement; Other Filings; Board Recommendations................. 33 5.2 Meeting of Company Stockholders....................... 34 5.3 Confidentiality; Access to Information................ 36 5.4 No Solicitation....................................... 36 5.5 Public Disclosure..................................... 38 5.6 Reasonable Efforts; Notification...................... 38 5.7 Third Party Consents.................................. 39 5.8 Stock Options and Employee Benefits................... 40 5.9 Form S-8.............................................. 41 5.10 Indemnification....................................... 41 5.11 Nasdaq Listing........................................ 41 5.12 Company Affiliate Agreement........................... 42 5.13 Employment of Key Employees........................... 42 5.14 Treatment as Reorganization........................... 42 ARTICLE VI CLOSING CONDITIONS.................................... 43 6.1 Conditions to Obligations of Each Party to Effect the Merger............................................... 43 6.2 Additional Conditions to Obligations of the Company... 43 6.3 Additional Conditions to the Obligations of Parent.... 44 ARTICLE VII TERMINATION, AMENDMENT AND WAIVER.................... 45 7.1 Termination........................................... 45 7.2 Notice of Termination; Effect of Termination.......... 47 7.3 Fees and Expenses..................................... 47 7.4 Amendment............................................. 48 -ii- TABLE OF CONTENTS (continued) Page ---- 7.5 Extension; Waiver..................................... 48 ARTICLE VIII GENERAL PROVISIONS.................................. 48 8.1 Non-Survival of Representations and Warranties........ 48 8.2 Notices............................................... 48 8.3 Interpretation; Knowledge............................. 50 8.4 Counterparts.......................................... 50 8.5 Entire Agreement; Third Party Beneficiaries........... 51 8.6 Severability.......................................... 51 8.7 Other Remedies; Specific Performance.................. 51 8.8 Governing Law......................................... 51 8.9 Rules of Construction................................. 51 8.10 Assignment............................................ 51 8.11 WAIVER OF JURY TRIAL.................................. 52 -iii- INDEX OF EXHIBITS ----------------- Exhibit A Company Voting Agreement Exhibit B Stock Option Agreement Exhibit C List of Company Affiliates Exhibit D Company Affiliates Agreement -iv- AGREEMENT AND PLAN OF REORGANIZATION This AGREEMENT AND PLAN OF REORGANIZATION is made and entered into as of March 6, 2001, (this "Agreement"), between Palm, Inc., a Delaware corporation ("Parent") and Extended Systems Incorporated, a Delaware corporation (the "Company"). RECITALS -------- A. Upon the terms and subject to the conditions of this Agreement and in accordance with the Delaware General Corporation Law ("Delaware Law"), Parent and the Company intend to enter into a business combination transaction. B. The Board of Directors of the Company (i) has determined that the Merger (as defined in Section 1.1) is fair to, and in the best interests of, the Company and its stockholders, (ii) has approved this Agreement, the Merger and the other transactions contemplated by this Agreement and (iii) subject to the terms and conditions of this Agreement, has determined to recommend that the stockholders of the Company adopt and approve this Agreement and approve the Merger. C. The Board of Directors of Parent (i) has determined that the Merger (as defined in Section 1.1) is fair to, and in the best interests of, Parent and its stockholders and (ii) has approved this Agreement, the Merger and the other transactions contemplated by this Agreement. D. Concurrently with the execution of this Agreement, and as a condition and inducement to Parent's and Company's respective willingness to enter into this Agreement, certain stockholders of Company are entering into Voting Agreements in substantially the form attached hereto as Exhibit A (the "Company --------- Voting Agreements"). E. Concurrently with the execution of this Agreement, and as a condition and inducement to Parent's willingness to enter into this Agreement, the Company is executing and delivering a Stock Option Agreement in favor of Parent in substantially the form attached hereto as Exhibit B (the "Stock Option --------- Agreement"). The Board of Directors of the Company has approved the Stock Option Agreement. F. The parties intend, by executing this Agreement, to adopt a plan of reorganization within the meaning of Section 368 of the Internal Revenue Code of 1986, as amended (the "Code"). NOW, THEREFORE, in consideration of the covenants, promises and representations set forth herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows: ARTICLE I THE MERGER 1.1 The Merger. At the Effective Time (as defined in Section 1.2) and ---------- subject to and upon the terms and conditions of this Agreement and the applicable provisions of Delaware Law, the Company shall be merged with and into Parent (the "Merger"), the separate corporate existence of the Company shall cease and Parent shall continue as the surviving corporation. Parent as the surviving corporation after the Merger is hereinafter sometimes referred to as the "Surviving Corporation". 1.2 Effective Time; Closing. Subject to the provisions of this Agreement, ----------------------- the parties hereto shall cause the Merger to be consummated by filing a Certificate of Merger with the Secretary of State of the State of Delaware in accordance with the relevant provisions of Delaware Law (the "Certificate of Merger") (the time of such filing with the Secretary of State of the State of Delaware (or such later time as may be agreed in writing by the Company and Parent and specified in the Certificate of Merger) being the "Effective Time") as soon as practicable on or after the Closing Date (as herein defined). Unless the context otherwise requires, the term "Agreement" as used herein refers collectively to this Agreement and Plan of Reorganization and the Certificate of Merger. The closing of the Merger (the "Closing") shall take place at the offices of Wilson Sonsini Goodrich & Rosati, Professional Corporation, at a time and date to be specified by the parties, which shall be no later than the second business day after the satisfaction or waiver of the conditions set forth in Article VI, or at such other time, date and location as the parties hereto agree in writing (the "Closing Date"). 1.3 Effect of the Merger. At the Effective Time, the effect of the Merger -------------------- shall be as provided in this Agreement and the applicable provisions of Delaware Law. Without limiting the generality of the foregoing, and subject thereto, at the Effective Time all the property, rights, privileges, powers and franchises of the Company shall vest in the Surviving Corporation, and all debts, liabilities and duties of the Company shall become the debts, liabilities and duties of the Surviving Corporation. 1.4 Certificate of Incorporation; Bylaws. ------------------------------------ (a) At the Effective Time, the Certificate of Incorporation of Parent, as in effect immediately prior to the Effective Time, shall be the Certificate of Incorporation of the Surviving Corporation until thereafter amended as provided by law and such Certificate of Incorporation of the Surviving Corporation. (b) The Bylaws of Parent, as in effect immediately prior to the Effective Time, shall be, at the Effective Time, the Bylaws of the Surviving Corporation until thereafter amended. 1.5 Directors and Officers. The directors of the Surviving Corporation ---------------------- shall be the directors of Parent immediately prior to the Effective Time. The officers of the Surviving Corporation shall be the officers of Parent immediately prior to the Effective Time. -2- 1.6 Effect on Capital Stock. Subject to the terms and conditions of this ----------------------- Agreement, at the Effective Time, by virtue of the Merger and without any action on the part of the Company or the holders of any of the following securities, the following shall occur: (a) Conversion of Company Common Stock. Each share of Common Stock ---------------------------------- of the Company ("Company Common Stock") issued and outstanding immediately prior to the Effective Time, other than any shares of the Company Common Stock to be canceled pursuant to Section 1.6(b), will be automatically converted (subject to Section 1.6(d)) into the right to receive the Exchange Ratio (as defined below) upon surrender of the Certificate (as defined in Section 1.7(c)) representing such share of the Company Common Stock in the manner provided in Section 1.7 (or in the case of a lost, stolen or destroyed certificate, upon delivery of an affidavit (and bond, if required) in the manner provided in Section 1.9). For purposes of this Agreement, the "Exchange Ratio" is a number of shares of Common Stock, par value of $0.001 per share of Parent ("Parent Common Stock") equal to $22 divided by the Average Parent Common Stock Price; provided, however, that if such quotient is greater than 1.325, the Exchange Ratio will equal 1.325, and if such quotient is less than 1.0, the Exchange Ratio will equal 1.0. The "Average Parent Common Stock Price" is the simple average of the closing stock price of the Parent Common Stock as reported by the Nasdaq National Market System ("Nasdaq") for the ten trading days ending two business days prior to (but not including) the date of the Company Stockholders' Meeting (as defined in Section 5.2). If any shares of Company Common Stock outstanding immediately prior to the Effective Time are unvested or are subject to a repurchase option, risk of forfeiture or other condition under any applicable restricted stock purchase agreement or other agreement with the Company, then (except as otherwise provided in such restricted stock purchase agreement or other agreement) the shares of Parent Common Stock issued in exchange for such shares of Company Common Stock will also be unvested and subject to the same repurchase option, risk of forfeiture or other condition, and the certificates representing such shares of Parent Common Stock may accordingly be marked with appropriate legends. The parties shall take all action that may be reasonably necessary to ensure that, from and after the Effective Time, Parent is entitled to exercise any such repurchase option or other right set forth in any such restricted stock purchase agreement or other agreement. (b) Cancellation of Parent-Owned Stock. Each share of Company Common ---------------------------------- Stock held by the Company or owned by Parent or any direct or indirect wholly- owned subsidiary of the Company or of Parent immediately prior to the Effective Time shall be canceled and extinguished without any conversion thereof. (c) Stock Options; Employee Stock Purchase Plans. At the Effective -------------------------------------------- Time, all options to purchase Company Common Stock then outstanding under Company's 1984 Incentive Stock Option ("ISO") Plan, as amended (the "1984 Plan"), Company's 1987 Restricted Stock Purchase Plan, as amended (the "1987 Plan"), Company's 1994 ISO Plan (the "1994 Plan"), Company's 1998 Stock Plan (the "1998 Plan"), Company's Approved Share Option Scheme ("UK Plan") and Company's 1998 Directors Option Plan (the "Director Plan" and, together with the 1984 Plan, 1987 Plan, 1994 Plan, 1998 Plan and UK Plan, the "Company Stock Option Plans") shall be assumed by Parent in accordance with Section 5.8 hereof. At the Effective Time, rights -3- outstanding under the Company's 1998 Employee Stock Purchase Plan (the "Company Purchase Plan") shall be treated as set forth in Section 5.8 hereof. (d) Fractional Shares. No fraction of a share of Parent Common Stock ----------------- will be issued by virtue of the Merger, but in lieu thereof each holder of shares of Company Common Stock immediately prior to the Effective Time who would otherwise be entitled to a fraction of a share of Parent Common Stock (after aggregating all fractional shares of Parent Common Stock that otherwise would be received by such holder) shall, upon surrender of such holder's Certificate(s) (as defined in Section 1.7(c)), receive from Parent an amount of cash (rounded to the nearest whole cent), without interest, equal to the product of (i) such fraction, multiplied by (ii) the average closing price of one share of Parent Common Stock for the ten (10) most recent days that Parent Common Stock has traded, ending on the last trading day prior to the Closing Date, as reported on the Nasdaq. (e) No Effect on Parent Stock. Each share of Parent Common Stock and ------------------------- any other shares of Parent capital stock or securities convertible into Parent capital stock issued and outstanding immediately prior the Effective Time, will remain issued and outstanding without change. (f) Adjustments to Exchange Ratio. The Exchange Ratio shall be ----------------------------- adjusted to reflect appropriately the effect of any stock split, reverse stock split, stock dividend (including any dividend or distribution of securities convertible into Parent Common Stock or Company Common Stock), reorganization, recapitalization, reclassification or other like change with respect to Parent Common Stock or Company Common Stock occurring on or after the date hereof and prior to the Effective Time. 1.7 Surrender of Certificates. ------------------------- (a) Exchange Agent. Parent shall select an institution reasonably -------------- satisfactory to the Company to act as the exchange agent (the "Exchange Agent") in the Merger. (b) Parent to Provide Common Stock. Promptly after the Effective ------------------------------ Time, Parent shall make available to the Exchange Agent for exchange in accordance with this Article I, the shares of Parent Common Stock issuable pursuant to Section 1.6 in exchange for the shares of Company Common Stock that were outstanding immediately prior to the Effective Time and cash in an amount sufficient for payment in lieu of fractional shares pursuant to Section 1.6(d) and for payment of any dividends or distributions to which holders of shares of Company Common Stock may be entitled pursuant to Section 1.7(d). (c) Exchange Procedures. Promptly after the Effective Time, Parent ------------------- shall cause the Exchange Agent to mail to each holder of record (as of the Effective Time) of Company Common Stock whose shares were converted into the right to receive shares of Parent Common Stock pursuant to Section 1.6, cash in lieu of any fractional shares pursuant to Section 1.6(d) and any dividends or other distributions pursuant to Section 1.7(d), (i) a letter of transmittal for their certificate or certificates (the "Certificates") which immediately prior to the Effective Time represented outstanding shares of Company Common Stock (which shall specify that delivery shall -4- be effected, and risk of loss and title to the Certificates shall pass, only upon delivery of the Certificates to the Exchange Agent and shall be in such form and have such other customary provisions as Parent may reasonably specify) and (ii) instructions for use in effecting the surrender of the Certificates in exchange for certificates representing shares of Parent Common Stock, cash in lieu of any fractional shares pursuant to Section 1.6(d) and any dividends or other distributions pursuant to Section 1.7(d). Upon surrender of Certificates for cancellation to the Exchange Agent or to such other agent or agents as may be appointed by Parent, together with such letter of transmittal, duly completed and validly executed in accordance with the instructions thereto, the holders of such Certificates shall be entitled to receive in exchange therefor certificates representing the number of whole shares of Parent Common Stock, payment in lieu of fractional shares which such holders have the right to receive pursuant to Section 1.6(d) and any dividends or distributions payable pursuant to Section 1.7(d), and the Certificates so surrendered shall forthwith be canceled. Until so surrendered, outstanding Certificates will be deemed from and after the Effective Time, for all corporate purposes, subject to Section 1.7(d) as to the payment of dividends, to evidence the ownership of the number of full shares of Parent Common Stock into which such shares of Company Common Stock shall have been so converted and the right to receive an amount in cash in lieu of the issuance of any fractional shares in accordance with Section 1.6(d) and any dividends or distributions payable pursuant to Section 1.7(d). (d) Distributions With Respect to Unexchanged Shares. No dividends ------------------------------------------------ or other distributions declared or made after the date of this Agreement with respect to Parent Common Stock with a record date after the Effective Time will be paid to the holders of any unsurrendered Certificates with respect to the shares of Parent Common Stock represented thereby until the holders of record of such Certificates surrender such Certificates. Subject to applicable law, following surrender of any such Certificates, the Exchange Agent shall deliver to the record holders thereof, without interest, certificates representing whole shares of Parent Common Stock issued in exchange therefor along with payment in lieu of fractional shares pursuant to Section 1.6(d) hereof and the amount of any such dividends or other distributions with a record date after the Effective Time payable with respect to such whole shares of Parent Common Stock. (e) Transfers of Ownership. If certificates for shares of Parent ---------------------- Common Stock are to be issued in a name other than that in which the Certificates surrendered in exchange therefor are registered, it will be a condition of the issuance thereof that the Certificates so surrendered will be properly endorsed and otherwise in proper form for transfer and that the persons requesting such exchange will have paid to Parent or any agent designated by it any transfer or other taxes required by reason of the issuance of certificates for shares of Parent Common Stock in any name other than that of the registered holder of the Certificates surrendered, or established to the satisfaction of Parent or any agent designated by it that such tax has been paid or is not payable. (f) Required Withholding. Each of the Exchange Agent, Parent and the -------------------- Surviving Corporation shall be entitled to deduct and withhold from any consideration payable or otherwise deliverable pursuant to this Agreement to any holder or former holder of Company Common Stock such amounts as may be required to be deducted or withheld therefrom under the Code or under any provision of state, local or foreign tax law or under any other applicable Legal -5- Requirement (as defined in Section 2.2(c)). To the extent such amounts are so deducted or withheld, such amounts shall be treated for all purposes under this Agreement as having been paid to the person to whom such amounts would otherwise have been paid. (g) No Liability. Notwithstanding anything to the contrary in this ------------ Section 1.7, neither the Exchange Agent, Parent, the Surviving Corporation nor any party hereto shall be liable to a holder of shares of Parent Common Stock or Company Common Stock for any amount properly paid to a public official pursuant to any applicable abandoned property, escheat or similar law. 1.8 No Further Ownership Rights in Company Common Stock. All shares of --------------------------------------------------- Parent Common Stock issued upon the surrender for exchange of shares of Company Common Stock in accordance with the terms hereof (including any cash paid in respect thereof pursuant to Section 1.6(d) and 1.7(d)) shall be deemed to have been issued in full satisfaction of all rights pertaining to such shares of Company Common Stock, and there shall be no further registration of transfers on the records of the Surviving Corporation of shares of Company Common Stock which were outstanding immediately prior to the Effective Time. If after the Effective Time Certificates are presented to the Surviving Corporation for any reason, they shall be canceled and exchanged as provided in this Article I. 1.9 Lost, Stolen or Destroyed Certificates. In the event any Certificates -------------------------------------- shall have been lost, stolen or destroyed, the Exchange Agent shall issue in exchange for such lost, stolen or destroyed Certificates, upon the making of an affidavit of that fact by the holder thereof, such shares of Parent Common Stock, cash for fractional shares, if any, as may be required pursuant to Section 1.6(d) and any dividends or distributions payable pursuant to Section 1.7(d); provided, however, that Parent may, in its discretion and as a condition precedent to the issuance thereof, require the owner of such lost, stolen or destroyed Certificates to deliver a bond in such sum as it may reasonably direct as indemnity against any claim that may be made against Parent, the Company or the Exchange Agent with respect to the Certificates alleged to have been lost, stolen or destroyed. 1.10 Tax Consequences. It is intended by the parties hereto that the ---------------- Merger shall constitute a reorganization within the meaning of Section 368 of the Code. The parties hereto adopt this Agreement as a "plan of reorganization" within the meaning of Sections 1.368-2(g) and 1.368-3(a) of the United States Income Tax Regulations. 1.11 Taking of Necessary Action; Further Action. If, at any time after ------------------------------------------ the Effective Time, any further action is necessary or desirable to carry out the purposes of this Agreement and to vest the Surviving Corporation with full right, title to and possession of all assets, property, rights, privileges, powers and franchises of the Company, the officers and directors of the Company will take all such lawful and necessary action, so long as such action is consistent with this Agreement. -6- ARTICLE II REPRESENTATIONS AND WARRANTIES OF THE COMPANY As of the date hereof and as of the Closing Date, the Company represents and warrants to Parent, subject to the exceptions specifically disclosed in writing in the disclosure letter and referencing a specific representation supplied by the Company to Parent dated as of the date hereof and certified by a duly authorized officer of the Company (the "Company Disclosure Schedule"), as follows: 2.1 Organization of the Company. --------------------------- (a) The Company has no subsidiaries, except for the corporations identified in Part 2.1(a)(i) of the Company Disclosure Schedule; and neither the Company nor any of the other corporations identified in Part 2.1(a)(i) of the Company Disclosure Schedule owns any capital stock of, or any equity interest of any nature in, any other entity, other than the entities identified in Part 2.1(a)(ii) of the Company Disclosure Schedule, except for passive investments in equity interests of public companies as part of the cash management program of the Company. Neither the Company nor any subsidiary thereof has agreed or is obligated to make, or is bound by any written, oral or other agreement, contract, subcontract, lease, binding understanding, instrument, note, option, warranty, purchase order, license, sublicense, insurance policy, benefit plan or legally binding commitment or undertaking of any nature, as in effect as of the date hereof or as may hereinafter be in effect ("Contract") under which Contract it may become obligated to make, any future investment in or capital contribution to any other entity. Neither the Company, nor any subsidiary thereof, has, at any time, been a general partner of any general partnership, limited partnership or other entity. (b) The Company and each of its subsidiaries is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation and has all necessary corporate power and authority: (i) to conduct its business in the manner in which its business is currently being conducted; (ii) to own and use its assets in the manner in which its assets are currently owned and used; and (iii) to perform its obligations under all Contracts by which it is bound. (c) The Company and each of its subsidiaries is qualified to do business as a foreign corporation, and is in good standing, under the laws of all jurisdictions where the nature of its business requires such qualification and where the failure to so qualify would have a Material Adverse Effect (as defined in Section 8.3) on the Company. (d) The Company has delivered or made available to Parent a true and correct copy of the Certificate of Incorporation (including any Certificate of Designations) and Bylaws of the Company and similar governing instruments of each of its subsidiaries, each as amended to date (collectively, the "Company Charter Documents"), and each such instrument is in full force and effect. The Company is not in violation of any of the provisions of the Company Charter Documents. None of the Company's subsidiaries is in violation of any provision of its Articles or Certificate of Incorporation or Bylaws or other similar governing instruments. -7- 2.2 Company Capital Structure. ------------------------- (a) The authorized capital stock of the Company consists of: (i) 75,000,000 shares of Company Common Stock, par value $0.001 per share, of which 10,759,249 shares have been issued and are outstanding as of the date of this Agreement; and (ii) 5,000,000 shares of Preferred Stock ("Company Preferred Stock"), par value $0.001 per share, of which no shares are outstanding as of the date of this Agreement. The Company has no convertible promissory notes outstanding. All of the outstanding shares of capital stock of the Company have been duly authorized and validly issued, and are fully paid and nonassessable. As of the date of this Agreement, there are no shares of Company Common Stock held in treasury by the Company. Upon consummation of the Merger, (A) the shares of Parent Common Stock issued in exchange for any shares of Company Common Stock that are subject to a Contract pursuant to which the Company has the right to repurchase, redeem or otherwise reacquire any shares of Company Common Stock will, without any further act of Parent, the Company or any other person, become subject to the restrictions, conditions and other provisions contained in such Contract, and (B) Parent will automatically succeed to and become entitled to exercise the Company's rights and remedies under any such Contract. (b) As of the date of this Agreement: (i) 2,591,519 shares of Company Common Stock are subject to issuance pursuant to outstanding options to purchase Company Common Stock under the Company Stock Option Plans; and (ii) 700,000 shares of Company Common Stock are reserved for future issuance under the Company Purchase Plan. (Stock options granted by the Company pursuant to the Company Stock Option Plans are referred to in this Agreement as "Company Options"). Part 2.2(b) of the Company Disclosure Schedule sets forth the following information with respect to each Company Option outstanding as of the date of this Agreement: (i) the name and address of the optionee; (ii) the particular plan pursuant to which such Company Option was granted; (iii) the number of shares of Company Common Stock subject to such Company Option; (iv) the exercise price of such Company Option; (v) the date on which such Company Option was granted; (vi) the applicable vesting schedule; (vii) the date on which such Company Option expires and (viii) whether the exercisability of such option will be accelerated in any way by the transactions contemplated by this Agreement, and the extent of any such acceleration. The Company has made available to Parent accurate and complete copies of all stock option plans pursuant to which the Company has granted stock options that are currently outstanding and the form of all stock option agreements evidencing such options. All shares of Company Common Stock subject to issuance as aforesaid, upon issuance on the terms and conditions specified in the instruments pursuant to which they are issuable, would be duly authorized, validly issued, fully paid and nonassessable. There are no commitments or agreements of any character to which the Company is bound, obligating the Company to accelerate the vesting of any Company Option as a result of the Merger, other than Company Options issued to directors pursuant to the Director Plan which provides that the options granted under such plan shall become fully exercisable if, following a merger, the optionee's status as a director of the Company or of the successor corporation, as applicable, is terminated other than upon a voluntary resignation by the optionee. -8- (c) All outstanding shares of Company Common Stock, all outstanding Company Options, and all outstanding shares of capital stock of each subsidiary of the Company have been issued and granted in compliance with (i) all applicable securities laws and other applicable Legal Requirements (as defined below) and (ii) all requirements set forth in applicable Contracts. For the purposes of this Agreement, "Legal Requirements" means any federal, state, local, municipal, foreign or other law, statute, constitution, principle of common law, resolution, ordinance, code, edict, decree, rule, regulation, ruling or requirement issued, enacted, adopted, promulgated, implemented or otherwise put into effect by or under the authority of any Governmental Entity (as defined below). 2.3 Obligations With Respect to Capital Stock. Except as set forth in ----------------------------------------- Part 2.3 of the Company Disclosure Schedule, there are no equity securities, partnership interests or similar ownership interests of any class of any Company equity security, or any securities exchangeable or convertible into or exercisable for such equity securities, partnership interests or similar ownership interests, issued, reserved for issuance or outstanding. Except for securities the Company owns free and clear of all claims and Encumbrances, directly or indirectly through one or more subsidiaries, and except for shares of capital stock or other similar ownership interests of certain subsidiaries of the Company that are owned by certain nominee equity holders as required by the applicable law of the jurisdiction of organization of such subsidiaries (which shares or other interests do not materially affect the Company's control of such subsidiaries), as of the date of this Agreement, there are no equity securities, partnership interests or similar ownership interests of any class of equity security of any subsidiary of the Company, or any security exchangeable or convertible into or exercisable for such equity securities, partnership interests or similar ownership interests, issued, reserved for issuance or outstanding. For the purposes of this Agreement "Encumbrances" means any lien, pledge, hypothecation, charge, mortgage, security interest, encumbrance, claim, infringement, interference, option, right of first refusal, preemptive right, community property interest or restriction of any nature (including any restriction on the voting of any security, any restriction on the transfer of any security or other asset, any restriction on the receipt of any income derived from any asset, any restriction on the use of any asset and any restriction on the possession, exercise or transfer of any other attribute of ownership of any asset). Except as set forth in Part 2.3 of the Company Disclosure Schedule or as set forth in Section 2.2 hereof and except for the Stock Option Agreement, as of the date of this Agreement, there are no subscriptions, options, warrants, equity securities, partnership interests or similar ownership interests, calls, rights (including preemptive rights), commitments or agreements of any character to which the Company or any of its subsidiaries is a party or by which it is bound obligating the Company or any of its subsidiaries to issue, deliver or sell, or cause to be issued, delivered or sold, or repurchase, redeem or otherwise acquire, or cause the repurchase, redemption or acquisition of, any shares of capital stock, partnership interests or similar ownership interests of the Company or any of its subsidiaries or obligating the Company or any of its subsidiaries to grant, extend, accelerate the vesting of or enter into any such subscription, option, warrant, equity security, call, right, commitment or agreement. As of the date of this Agreement, except as contemplated by this Agreement, there are no registration rights and there is, except for the Company Voting Agreement, no voting trust, proxy, rights plan, antitakeover plan or other agreement or understanding to which the Company is a party or by which it is bound with respect to any equity security of any class of the Company or with respect to any equity security, -9- partnership interest or similar ownership interest of any class of any of its subsidiaries. Stockholders of the Company will not be entitled to dissenters' or appraisal rights under applicable state law in connection with the Merger. 2.4 Authority; Non-Contravention. ---------------------------- (a) The Company has all requisite corporate power and authority to enter into this Agreement and the Stock Option Agreement and to consummate the transactions contemplated hereby and thereby. The execution and delivery of this Agreement and the Stock Option Agreement and the consummation of the transactions contemplated hereby and thereby have been duly authorized by all necessary corporate action on the part of the Company, subject only to the approval and adoption of this Agreement and the approval of the Merger by the Company's stockholders and the filing of the Certificate of Merger pursuant to Delaware Law. A vote of the holders of a majority of the outstanding shares of the Company Common Stock is sufficient for the Company's stockholders to approve and adopt this Agreement and approve the Merger. This Agreement and the Stock Option Agreement have each been duly executed and delivered by the Company and, assuming due execution and delivery by Parent, constitute(s) valid and binding obligations of the Company, enforceable against the Company in accordance with their terms, except as enforceability may be limited by bankruptcy, insolvency (including, without limitation, all laws relating to fraudulent transfers), reorganization, moratorium and other similar laws and general principles of equity (regardless of whether enforcement is considered in a proceeding in equity or at law). The execution and delivery of this Agreement and the Stock Option Agreement by the Company do not, and the performance of this Agreement and the Stock Option Agreement by the Company will not, (i) conflict with or violate the Company Charter Documents, (ii) subject to obtaining the approval and adoption of this Agreement and the approval of the Merger by the Company's stockholders as contemplated in Section 5.2 and compliance with the requirements set forth in Section 2.4(b) below, conflict with or violate any law, rule, regulation, order, judgment or decree applicable to the Company or any of its subsidiaries or by which the Company or any of its subsidiaries or any of their respective material properties is bound or affected, or (iii) result in any material breach of or constitute a material default (or an event that with notice or lapse of time or both would become a material default) under, or impair the Company's rights or alter the rights or obligations of any third party under, or give to others any rights of termination, amendment, acceleration or cancellation of, or result in the creation of a material lien or Encumbrance on any of the material properties or assets of the Company or any of its subsidiaries pursuant to, any material note, bond, mortgage, indenture, contract, agreement, lease, license, permit, franchise, concession, or other instrument or obligation to which the Company or any of its subsidiaries is a party or by which the Company or any of its subsidiaries or its or any of their respective assets are bound or affected. Part 2.4(a) of the Company Disclosure Schedule lists all consents, waivers and approvals under any of the Company's or any of its subsidiaries' agreements, contracts, licenses or leases required to be obtained in connection with the consummation of the transactions contemplated hereby, which, if individually or in the aggregate not obtained, would result in a material loss of benefits to the Company, Parent or the Surviving Corporation as a result of the Merger. -10- (b) No consent, approval, order or authorization of, or registration, declaration or filing with any court, administrative agency or commission or other governmental authority or instrumentality, foreign or domestic ("Governmental Entity"), is required to be obtained or made by the Company in connection with the execution and delivery of this Agreement and the Stock Option Agreement or the consummation of the Merger, except for (i) the filing of the Certificate of Merger with the Secretary of State of the State of Delaware and appropriate documents with the relevant authorities of other states in which the Company is qualified to do business, (ii) the filing of the Prospectus/Proxy Statement (as defined in Section 2.19) with the Securities and Exchange Commission ("SEC") in accordance with the Securities Exchange Act of 1934, as amended (the "Exchange Act"), (iii) such consents, approvals, orders, authorizations, registrations, declarations and filings as may be required under applicable federal, foreign and state securities (or related) laws and the Hart- Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR Act"), and the securities or antitrust laws of any foreign country, and (iv) such other consents, authorizations, filings, approvals and registrations which if not obtained or made would not be material to the Company or Parent or have a material adverse effect on the ability of the parties hereto to consummate the Merger. 2.5 SEC Filings; Company Financial Statements. ----------------------------------------- (a) The Company has filed all forms, reports and documents required to be filed by the Company with the SEC since March 2, 1998 and has made available to Parent such forms, reports and documents in the form filed with the SEC. All such required forms, reports and documents (including those that the Company may file subsequent to the date hereof), as amended, are referred to herein as the "Company SEC Reports." As of their respective dates, the Company SEC Reports (i) were prepared in accordance and complied in all material respects with the requirements of the Securities Act of 1933, as amended (the "Securities Act"), or the Exchange Act, as the case may be, and the rules and regulations of the SEC thereunder applicable to such Company SEC Reports and (ii) did not at the time they were filed contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. None of the Company's subsidiaries is required to file any forms, reports or other documents with the SEC. (b) Each of the consolidated financial statements (including, in each case, any related notes thereto) contained in the Company SEC Reports (the "Company Financials"), including each Company SEC Report filed after the date hereof until the Closing, (i) complied as to form in all material respects with the published rules and regulations of the SEC with respect thereto, (ii) was prepared in accordance with United States generally accepted accounting principles ("GAAP") applied on a consistent basis throughout the periods involved (except as may be indicated in the notes thereto or, in the case of unaudited interim financial statements, as may be permitted by the SEC on Form 10-Q under the Exchange Act) and (iii) fairly presented the consolidated financial position of the Company and its subsidiaries as at the respective dates thereof and the consolidated results of the Company's operations and cash flows for the periods indicated, except that the unaudited interim financial statements may not contain footnotes and were or are subject to normal -11- and recurring year-end adjustments. The balance sheet of the Company contained in the Company SEC Reports as of December 31, 2000 is hereinafter referred to as the "Company Balance Sheet." (c) Except as disclosed in the Company Financials, since the date of the Company Balance Sheet neither the Company nor any of its subsidiaries has any liabilities required under GAAP to be set forth on a consolidated balance sheet (absolute, accrued, contingent or otherwise) which are, individually or in the aggregate, material to the business, results of operations or financial condition of the Company and its subsidiaries taken as a whole, except for liabilities incurred since the date of the Company Balance Sheet in the ordinary course of business consistent with past practices and liabilities incurred pursuant to this Agreement. (d) The Company has heretofore furnished to Parent a complete and correct copy of any amendments or modifications, which have not yet been filed with the SEC but which are required to be filed, to agreements, documents or other instruments which previously had been filed by the Company with the SEC pursuant to the Securities Act or the Exchange Act. 2.6 Absence of Certain Changes or Events. Since the date of the Company ------------------------------------ Balance Sheet there has not been: (i) any Material Adverse Effect on the Company, (ii) any declaration, setting aside or payment of any dividend on, or other distribution (whether in cash, stock or property) in respect of, any of the Company's or any of its subsidiaries' capital stock, or any purchase, redemption or other acquisition by the Company or any of its subsidiaries of any of the Company's capital stock or any other securities of the Company or its subsidiaries or any options, warrants, calls or rights to acquire any such shares or other securities except for repurchases from employees or independent contractors following their termination pursuant to the terms of their pre- existing stock option or purchase agreements, (iii) any split, combination or reclassification of any of the Company's or any of its subsidiaries' capital stock, (iv) any granting by the Company or any of its subsidiaries of any increase in compensation or fringe benefits, except for normal increases of cash compensation in the ordinary course of business consistent with past practice, or any payment by the Company or any of its subsidiaries of any bonus, except for bonuses made in the ordinary course of business consistent with past practice, or any granting by the Company or any of its subsidiaries of any increase in severance or termination pay or any entry by the Company or any of its subsidiaries into any currently effective employment, severance, termination or indemnification agreement or any agreement the benefits of which are contingent or the terms of which are materially altered upon the occurrence of a transaction involving the Company of the nature contemplated hereby, (v) entry by the Company or any of its subsidiaries into any licensing or other agreement with regard to the acquisition or disposition of any material Intellectual Property (as defined in Section 2.9) other than licenses in the ordinary course of business consistent with past practice, (vi) any amendment or consent with respect to any licensing agreement filed or required to be filed by the Company with the SEC, (vii) any material change by the Company in its accounting methods, principles or practices, except as required by concurrent changes in GAAP, or (viii) any revaluation by the Company of any of its assets, including, without limitation, writing down the value of capitalized inventory or writing off notes or accounts receivable other than in the ordinary course of business. 2.7 Taxes. ----- -12- (a) Definition of Taxes. For the purposes of this Agreement, "Tax" ------------------- or "Taxes" refers to any and all federal, state, local and foreign taxes, assessments and other governmental charges, duties, impositions and liabilities relating to taxes, including taxes based upon or measured by gross receipts, income, profits, sales, use and occupation, and value added, ad valorem, transfer, franchise, withholding, payroll, recapture, employment, excise and property taxes, together with all interest, penalties and additions imposed with respect to such amounts and any obligations under any agreements or arrangements with any other person with respect to such amounts and including any liability for taxes of a predecessor or transferor entity. (b) Tax Returns and Audits. ---------------------- (i) The Company and each of its subsidiaries have timely filed all federal, state, local and foreign returns, estimates, information statements and reports ("Returns") relating to Taxes required to be filed by the Company and each of its subsidiaries with any Tax authority, except such Returns which are not material to the Company. The Company and each of its subsidiaries have paid all Taxes shown to be due on such Returns. (ii) The Company and each of its subsidiaries as of the Effective Time will have withheld with respect to its employees all federal and state income taxes, Taxes pursuant to the Federal Insurance Contribution Act ("FICA"), Taxes pursuant to the Federal Unemployment Tax Act ("FUTA") and other Taxes (including foreign Taxes) required to be withheld. (iii) Neither the Company nor any of its subsidiaries is currently delinquent in the payment of any Tax nor is there any Tax deficiency outstanding, proposed or assessed against the Company or any of its subsidiaries, nor has the Company or any of its subsidiaries executed any unexpired waiver of any statute of limitations on or extended the period for the assessment or collection of any Tax. (iv) No audit or other examination of any Return of the Company or any of its subsidiaries by any Tax authority is presently in progress, nor has the Company or any of its subsidiaries been notified of any request for such an audit or other examination. (v) No adjustment relating to any Returns filed by the Company or any of its subsidiaries has been proposed in writing formally or informally by any Tax authority to the Company or any of its subsidiaries or any representative thereof which has not yet been finally resolved. (vi) Neither the Company nor any of its subsidiaries has any liability for unpaid Taxes which has not been accrued for or reserved on the Company Balance Sheet, whether asserted or unasserted, contingent or otherwise, which is material to the Company, other than any liability for unpaid Taxes that may have accrued since the date of the Company Balance Sheet in connection with the operation of the business of the Company and its subsidiaries in the ordinary course. -13- (vii) There is no contract, agreement, plan or arrangement to which the Company or any of its subsidiaries is a party as of the date of this Agreement, including but not limited to the provisions of this Agreement, covering any employee or former employee of the Company or any of its subsidiaries that, individually or collectively, could give rise to the payment of any amount that would not be deductible pursuant to Sections 280G, 404 or 162(m) of the Code. There is no contract, agreement, plan or arrangement to which the Company is a party or by which it is bound to compensate any individual for excise taxes paid pursuant to Section 4999 of the Code. (viii) Neither the Company nor any of its subsidiaries has filed any consent agreement under Section 341(f) of the Code or agreed to have Section 341(f)(2) of the Code apply to any disposition of a subsection (f) asset (as defined in Section 341(f)(4) of the Code) owned by the Company or any of its subsidiaries. (ix) Neither the Company nor any of its subsidiaries is party to or has any obligation under any tax-sharing, tax indemnity or tax allocation agreement or arrangement. Neither the Company nor any of its subsidiaries has ever been a member of a group filing a consolidated, unitary, combined or similar Return (other than Returns which include only the Company and any of its subsidiaries) under any federal, state, local or foreign law. Neither the Company nor any of its subsidiaries is party to any joint venture, partnership or other arrangement that could be treated as a partnership for Tax purposes. (x) Except as may be required as a result of the Merger, the Company and its subsidiaries have not been and will not be required to include any adjustment in Taxable income for any Tax period (or portion thereof) pursuant to Section 481 or Section 263A of the Code or any comparable provision under state or foreign Tax laws as a result of transactions, events or accounting methods employed prior to the Closing. (xi) None of the Company's or its subsidiaries' assets are tax exempt use property within the meaning of Section 168(h) of the Code. (xii) Part 2.7 of the Company Disclosure Schedule lists (A) any foreign Tax holidays, (B) any intercompany transfer pricing agreements, or other arrangements that have been established by the Company or any of its subsidiaries with any Tax authority and (C) any expatriate programs or policies affecting the Company or any of its subsidiaries. The Company and each of its subsidiaries are in full compliance with each such holiday, agreement, arrangement, program or policy. The consummation of the Merger will not have any adverse effect on the continued validity and effectiveness of any such holiday, agreement, arrangement, program or policy relative to any government authority. (xiii) Neither the Company nor any subsidiary of the Company has participated as either a "distributing corporation" or a "controlled corporation" in a distribution of stock qualifying for tax-free treatment under Section 355 of the Code. (xiv) To the knowledge of the Company, neither the Company nor any of its affiliates has taken or agreed to take any action that would prevent the Merger from qualifying as a -14- reorganization within the meaning of Section 368(a) of the Code. The Company is not aware of any agreement, plan or other circumstances that would prevent the Merger from qualifying as a reorganization within the meaning of Section 368(a) of the Code. 2.8 Title to Properties; Absence of Liens and Encumbrances ------------------------------------------------------ (a) Part 2.8(a) of the Company Disclosure Schedule lists the real property interests owned by the Company and its subsidiaries as of the date of this Agreement. Part 2.8(a)(i) of the Company Disclosure Schedule lists all real property leases to which the Company or any of its subsidiaries is a party as of the date of this Agreement and each amendment thereto that is in effect as of the date of this Agreement. Except as disclosed on Schedule 2.8(a)(i), all such current leases are in full force and effect, are valid and effective in accordance with their respective terms, and there is not, under any of such leases, any existing default or event of default (or event which with notice or lapse of time, or both, would constitute a default) that would give rise to a material claim. Other than the ownership interests disclosed in Schedule 2.8(a) and the leaseholds created under the real property leases identified in Part 2.8(a)(i) of the Company Disclosure Schedule, the Company and its subsidiaries do not own or lease any other interest in real property. (b) The Company and each of its subsidiaries has good and valid title to, or, in the case of leased properties and assets, valid leasehold interests in, all of its tangible properties and assets, real, personal and mixed, used or held for use in its business, free and clear of any liens, pledges, charges, claims, security interests or other customary encumbrances of any sort ("Liens"), except as reflected in the Company Financials and except for liens for taxes not yet due and payable and such Liens or other imperfections of title and encumbrances, if any, which are not material in character, amount or extent, and which do not materially detract from the value, or materially interfere with the present use, of the property subject thereto or affected thereby. 2.9 Intellectual Property. For the purposes of this Agreement, the --------------------- following terms have the following definitions: "Intellectual Property" shall mean any or all of the following and all rights in, arising out of, or associated therewith: (i) all United States, international and foreign patents and applications therefor and all reissues, divisions, renewals, extensions, provisionals, continuations and continuations-in-part thereof; (ii) all inventions (whether patentable or not), invention disclosures, improvements, trade secrets, proprietary information, know how, technology, technical data and customer lists, and all documentation relating to any of the foregoing; (iii) all copyrights, copyrights registrations and applications therefor, and all other rights corresponding thereto throughout the world; (iv) all industrial designs and any registrations and applications therefor throughout the world; (v) all trade names, logos, URLs, common law trademarks and service marks, trademark and service mark registrations and applications therefor throughout the world; (vi) all databases and data collections and all rights therein throughout the world; (vii) all moral and economic rights of authors and inventors, however denominated, throughout the world, and (viii) any similar or equivalent rights to any of the foregoing anywhere in the world. -15- "Company Intellectual Property" shall mean any Intellectual Property that is owned by, or exclusively licensed to, the Company or any of its subsidiaries. "Registered Intellectual Property" means all United States, international and foreign: (i) patents and patent applications (including provisional applications); (ii) registered trademarks and service marks, applications to register trademarks and service marks, intent-to-use applications, or other registrations or applications related to trademarks and service marks; (iii) registered copyrights and applications for copyright registration; and (iv) any other Intellectual Property that is the subject of an application, certificate, filing, registration or other document issued, filed with, or recorded by any state, government or other public legal authority. "Company Registered Intellectual Property" means all of the Registered Intellectual Property owned by, or filed in the name of, the Company or any of its subsidiaries. (a) No material Company Intellectual Property or product or service of the Company is subject to any proceeding or outstanding decree, order, judgment, agreement, or stipulation restricting in any manner the use, transfer, or licensing thereof by the Company, or which could reasonably be anticipated to affect the validity, use or enforceability of such Company Intellectual Property. (b) Part 2.9(b) of the Company Disclosure Schedule is a complete and accurate list of all Company Registered Intellectual Property and specifies, where applicable, the jurisdictions in which each such item of Company Registered Intellectual Property has been issued or registered or in which an application for such issuance and registration has been filed, including the respective registration or application numbers. Each material item of Company Registered Intellectual Property is valid and subsisting, all necessary registration, maintenance and renewal fees currently due in connection with such Company Registered Intellectual Property have been made and all necessary documents, recordations and certificates in connection with such Company Registered Intellectual Property have been filed with the relevant patent, copyright, trademark or other authorities in the United States or foreign jurisdictions, as the case may be, for the purposes of maintaining such Company Registered Intellectual Property. (c) The Company or one of its subsidiaries owns and has good and exclusive title to, or has joint ownership or license (sufficient for the conduct of its business as currently conducted) to, each material item of Company Intellectual Property or other Intellectual Property used by the Company free and clear of any lien or encumbrance (excluding licenses and related restrictions); and the Company is the exclusive owner of all trademarks, trade names and service marks used in connection with the operation or conduct of the business of the Company, including the sale of any products or the provision of any services by the Company. (d) The Company or one of its subsidiaries owns exclusively, and has good title to, all copyrighted works that are Company products or which the Company or any of its subsidiaries otherwise expressly purports to own. -16- (e) To the extent that any Intellectual Property has been developed or created for the Company or any of its subsidiaries by a third party for the Company or any of its subsidiaries, the Company or one of its subsidiaries has a written agreement with such third party with respect thereto and the Company or such subsidiary thereby either (i) has obtained ownership of, and is the exclusive owner of, or (ii) has obtained a license (sufficient for the conduct of its business as currently conducted) to all such third party's Intellectual Property in such work, material or invention by operation of law or by valid assignment or license, to the fullest extent it is legally possible to do so. (f) Neither the Company nor any of its subsidiaries has transferred ownership of, or granted any exclusive license with respect to, any Intellectual Property that is or was material to the Company Intellectual Property, to any third party. (g) Part 2.9(g) of the Company Disclosure Schedule lists all material contracts, licenses and agreements to which the Company or any of its subsidiaries is a party (i) with respect to Company Intellectual Property licensed or transferred to any third party (other than end-user licenses in the ordinary course); or (ii) pursuant to which a third party has licensed or transferred any material Intellectual Property to the Company or any of its subsidiaries. (h) All material contracts, licenses and agreements listed in Part 2.9(g) of the Company Disclosure Schedule are in full force and effect. The consummation of the transactions contemplated by this Agreement will neither violate nor result in the breach, modification, cancellation, termination, or suspension of such contracts, licenses and agreements. The Company and each of its subsidiaries is in material compliance with, and has not materially breached any term any of such contracts, licenses and agreements and, to the knowledge of the Company, all other parties to such contracts, licenses and agreements are in compliance with, and have not materially breached any term of any such contracts, licenses and agreements. Following the Closing Date, the Surviving Corporation will be permitted to exercise all of the Company's rights under such contracts, licenses and agreements to the same extent the Company would have been able to had the transactions contemplated by this Agreement not occurred and without the payment of any additional amounts or consideration other than ongoing fees, royalties or payments which the Company would otherwise be required to pay. (i) The operation of the business of the Company as such business currently is conducted, including the Company's design, development, manufacture, marketing and sale of the products or services of the Company (including with respect to products currently under development) has not and does not infringe or misappropriate the Intellectual Property of any third party or constitute unfair competition or trade practices under the laws of any jurisdiction. (j) The Company has not received written notice, or to the Company's knowledge, oral notice from any third party that the operation of the business of the Company or any act, product or service of the Company, infringes or misappropriates the Intellectual Property of any third party or constitutes unfair competition or trade practices under the laws of any jurisdiction. -17- (k) To the knowledge of the Company, no person has or is infringing or misappropriating any Company Intellectual Property. (l) The Company has taken commercially reasonable steps to protect the Company's rights in the Company's confidential information and trade secrets that it wishes to protect or any trade secrets or confidential information of third parties provided to the Company, and, without limiting the foregoing, the Company has and enforces a policy requiring each employee and contractor to execute a proprietary information/confidentiality agreement substantially in the form provided to counsel to Parent and all current and former employees and contractors of the Company and its subsidiaries have executed such an agreement, except where the failure to do so is not reasonably expected to be material to the Company. 2.10 Compliance; Permits; Restrictions. --------------------------------- (a) Neither the Company nor any of its subsidiaries is, in any material respect, in conflict with, or in default or in violation of (i) any law, rule, regulation, order, judgment or decree applicable to the Company or any of its subsidiaries or by which the Company or any of its subsidiaries or any of their respective properties is bound or affected, or (ii) any material note, bond, mortgage, indenture, contract, agreement, lease, license, permit, franchise or other instrument or obligation to which the Company or any of its subsidiaries is a party or by which the Company or any of its subsidiaries or its or any of their respective businesses or properties is, or the Company believes is reasonably likely to be, bound or affected, except for conflicts, violations and defaults that (individually or in the aggregate) would not cause the Company to lose any material benefit or incur any material liability. No investigation or review by any Governmental Entity is pending or, to the Company's knowledge, has been threatened in a writing delivered to the Company, against the Company or any of its subsidiaries, nor, to the Company's knowledge, has any Governmental Entity indicated an intention to conduct an investigation of the Company or any of its subsidiaries. There is no material agreement, judgment, injunction, order or decree binding upon the Company or any of its subsidiaries which has or could reasonably be expected to have the effect of prohibiting or materially impairing any business practice of the Company or any of its subsidiaries, any acquisition of material property by the Company or any of its subsidiaries or the conduct of business by the Company as currently conducted. (b) The Company and its subsidiaries hold, to the extent legally required, all permits, licenses, variances, exemptions, orders and approvals from Governmental Entities that are material to and required for the operation of the business of the Company as currently conducted (collectively, the "Company Permits"). The Company and its subsidiaries are in compliance in all material respects with the terms of the Company Permits, except where the failure to be in compliance with the terms of the Company Permits would not be material to the Company. 2.11 Litigation. Except as disclosed in Part 2.11 of the Company ---------- Disclosure Schedule, there are no claims, suits, actions or proceedings pending or, to the knowledge of the Company, threatened against the Company or any of its subsidiaries, before any court, governmental department, commission, agency, instrumentality or authority, or any arbitrator that seeks to restrain or enjoin the consummation of the transactions contemplated by this Agreement or which could -18- reasonably be expected, either singularly or in the aggregate with all such claims, actions or proceedings, to be material to the Company. No Governmental Entity has at any time challenged or questioned in a writing delivered to the Company the legal right of the Company to design, manufacture, offer or sell any of its products or services in the present manner or style thereof. As of the date hereof, to the knowledge of the Company, no event has occurred, and no claim, dispute or other condition or circumstance exists, that will, or that would reasonably be expected to, cause or provide a bona fide basis for a director or executive officer of the Company to seek indemnification from the Company. The Company has never been subject to an audit, compliance review, investigation or like contract review by the GSA office of the Inspector General or other Governmental Entity or agent thereof in connection with any government contract (a "Government Audit"), to the Company's knowledge no Government Audit is threatened or reasonably anticipated, and in the event of such Government Audit, to the knowledge of the Company no basis exists for a finding of noncompliance with any material provision of any government contract or a refund of any amounts paid or owed by any Governmental Entity pursuant to such government contract. For each item disclosed in the Company Schedule pursuant to this Section 2.11, a true and complete copy of all correspondence and documentation with respect thereto has been provided to Parent. 2.12 Brokers' and Finders' Fees. The Company has not incurred, nor will -------------------------- it incur, directly or indirectly, any liability for brokerage or finders' fees or agents' commissions or any similar charges in connection with this Agreement or any transaction contemplated hereby. 2.13 Transactions with Affiliates. Except as set forth in the Company SEC ---------------------------- Reports, since the date of the Company's last proxy statement filed with the SEC, no event has occurred as of the date of this Agreement that would be required to be reported by the Company pursuant to Item 404 of Regulation S-K promulgated by the SEC. Part 2.13 of the Company Disclosure Schedule identifies each person who is an "affiliate" (as that term is used in Rule 145 promulgated under the Securities Act) of the Company as of the date of this Agreement. 2.14 Employee Benefit Plans. ---------------------- (a) Definitions. With the exception of the definition of ----------- "Affiliate" set forth in Section 2.14(a)(i) below (which definition shall apply only to this Section 2.14), for purposes of this Agreement, the following terms shall have the meanings set forth below: (i) "Affiliate" shall mean any other person or entity under common control with the Company within the meaning of Section 414(b), (c), (m) or (o) of the Code and the regulations issued thereunder; (ii) "Company Employee Plan" shall mean any plan, program, policy, practice, contract, agreement or other arrangement providing for compensation, severance, termination pay, performance awards, stock or stock- related awards, fringe benefits or other employee benefits or remuneration of any kind, whether written or unwritten or otherwise, funded or unfunded, including without limitation, each "employee benefit plan," within the meaning of -19- Section 3(3) of ERISA which is or has been maintained, contributed to, or required to be contributed to, by the Company or any Affiliate for the benefit of any Employee; (iii) "COBRA" shall mean the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended; (iv) "DOL" shall mean the Department of Labor; (v) "Employee" shall mean any current, former, or retired employee, officer, or director of the Company or any Affiliate; (vi) "Employee Agreement" shall mean each management, employment, severance, consulting, relocation, repatriation, expatriation, visas, work permit or similar agreement or contract between the Company or any Affiliate and any Employee or consultant; (vii) "ERISA" shall mean the Employee Retirement Income Security Act of 1974, as amended; (viii) "FMLA" shall mean the Family Medical Leave Act of 1993, as amended; (ix) "International Employee Plan" shall mean each Company Employee Plan that has been adopted or maintained by the Company, whether informally or formally, for the benefit of Employees outside the United States; (x) "IRS" shall mean the Internal Revenue Service; (xi) "Multiemployer Plan" shall mean any "Pension Plan" (as defined below) which is a "multiemployer plan," as defined in Section 3(37) of ERISA; (xii) "PBGC" shall mean the Pension Benefit Guaranty Corporation; and (xiii) "Pension Plan" shall mean each Company Employee Plan which is an "employee pension benefit plan," within the meaning of Section 3(2) of ERISA. (b) Schedule. Part 2.14(b) of the Company Disclosure Schedule -------- contain an accurate and complete list of each Company Employee Plan and each material Employee Agreement. The Company does not have any plan or commitment to establish any new Company Employee Plan, to modify any Company Employee Plan or Employee Agreement (except to the extent required by law or to conform any such Company Employee Plan or Employee Agreement to the requirements of any applicable law, in each case as previously disclosed to Parent in writing, or as required by this Agreement), or to enter into any Company Employee Plan or material Employee Agreement, nor does it have any intention or commitment to do any of the foregoing. (c) Documents. The Company has provided to Parent: (i) correct and --------- complete copies of all documents embodying to each Company Employee Plan and each Employee -20- Agreement including all amendments thereto and written interpretations thereof; (ii) the most recent annual actuarial valuations, if any, prepared for each Company Employee Plan; (iii) the three (3) most recent annual reports (Form Series 5500 and all schedules and financial statements attached thereto), if any, required under ERISA or the Code in connection with each Company Employee Plan or related trust; (iv) if the Company Employee Plan is funded, the most recent annual and periodic accounting of Company Employee Plan assets; (v) the most recent summary plan description together with the summary of material modifications thereto, if any, required under ERISA with respect to each Company Employee Plan; (vi) all IRS determination, opinion, notification and advisory letters, and rulings relating to Company Employee Plans and copies of all applications and correspondence to or from the IRS or the DOL with respect to any Company Employee Plan; (vii) all material written agreements and contracts relating to each Company Employee Plan, including, but not limited to, administrative service agreements, group annuity contracts and group insurance contracts; (viii) all communications material to any Employee or Employees relating to any Company Employee Plan and any proposed Company Employee Plans, in each case, relating to any amendments, terminations, establishments, increases or decreases in benefits, acceleration of payments or vesting schedules or other events, any of which would result in any material liability to the Company; (ix) all COBRA forms and related notices; and (x) all registration statements and prospectuses prepared in connection with each Company Employee Plan. (d) Employee Plan Compliance. (i) The Company has performed in all ------------------------ material respects all obligations required to be performed by it under, is not in default or violation of, and has no knowledge of any default or violation by any other party to each Company Employee Plan, and each Company Employee Plan has been established and maintained in all material respects in accordance with its terms and in compliance with all applicable laws, statutes, orders, rules and regulations, including but not limited to ERISA or the Code; (ii) each Company Employee Plan intended to qualify under Section 401(a) of the Code and each trust intended to qualify under Section 501(a) of the Code has either received a favorable determination letter from the IRS with respect to each such Plan as to its qualified status under the Code, including all amendments to the Code effected by the Tax Reform Act of 1986 and subsequent legislation, or has remaining a period of time under applicable Treasury regulations or IRS pronouncements in which to apply for such a determination letter and make any amendments necessary to obtain a favorable determination; (iii) no "prohibited transaction," within the meaning of Section 4975 of the Code or Sections 406 and 407 of ERISA, and not otherwise exempt under Section 408 of ERISA, has occurred with respect to any Company Employee Plan; (iv) there are no actions, suits or claims pending, or, to the knowledge of the Company, threatened or reasonably anticipated (other than routine claims for benefits) against any Company Employee Plan or against the assets of any Company Employee Plan; (v) each Company Employee Plan can be amended, terminated or otherwise discontinued after the Effective Time in accordance with its terms, without liability to Parent, the Company or any of its Affiliates (other than ordinary administration expenses typically incurred in a termination event); (vi) there are no audits, inquiries or proceedings pending or, to the knowledge of the Company or any Affiliates, threatened by the IRS or DOL with respect to any Company Employee Plan; and (vii) neither the Company nor any Affiliate is subject to any penalty or tax with respect to any Company Employee Plan under Section 402(i) of ERISA or Sections 4975 through 4980 of the Code. -21- (e) Pension Plans. The Company does not now, nor has it ever, ------------- maintained, established, sponsored, participated in, or contributed to, any Pension Plan which is subject to Title IV of ERISA or Section 412 of the Code. (f) Multiemployer Plans. At no time has the Company contributed to ------------------- or been requested to contribute to any Multiemployer Plan. (g) No Post-Employment Obligations. No Company Employee Plan ------------------------------ provides, or has any liability to provide, retiree life insurance, retiree health or other retiree employee welfare benefits to any person for any reason, except as may be required by COBRA or other applicable statute, and the Company has never represented, promised or contracted (whether in oral or written form) to any Employee (either individually or to Employees as a group) or any other person that such Employee(s) or other person would be provided with retiree life insurance, retiree health or other retiree employee welfare benefit, except to the extent required by statute. (h) No Violations. Neither the Company nor any Affiliate has, prior ------------- to the Effective Time, in any material respect, violated any of the health care continuation requirements of COBRA, the requirements of FMLA, the requirements of the Health Insurance Portability and Accountability Act of 1996, the requirements of the Women's Health and Cancer Rights Act of 1998, the requirements of the Newborns' and Mothers' Health Protection Act of 1996, or any amendment to each such act, or any similar provisions of state law applicable to its Employees. (i) Effect of Transaction. (i) The execution of this Agreement and --------------------- the consummation of the transactions contemplated hereby will not (either alone or upon the occurrence of any additional or subsequent events) constitute an event under any Company Employee Plan, Employee Agreement, trust or loan that will or may result in any payment (whether of severance pay or otherwise), acceleration, forgiveness of indebtedness, vesting, distribution, increase in benefits or obligation to fund benefits with respect to any Employee; and (ii) no payment or benefit which will or may be made by the Company or its Affiliates with respect to any Employee will be characterized as a "parachute payment," within the meaning of Section 280G(B)(2) of the Code. (j) Employment Matters. The Company and each of its subsidiaries: ------------------ (i) is in compliance in all material respects with all applicable foreign, federal, state and local laws, rules and regulations respecting employment, employment practices, terms and conditions of employment and wages and hours, in each case, with respect to Employees; (ii) has withheld all amounts required by law or by agreement to be withheld from the wages, salaries and other payments to Employees; (iii) is not liable for any arrears of wages or any taxes or any penalty for failure to comply with any of the foregoing; and (iv) is not liable for any material payment to any trust or other fund or to any governmental or administrative authority, with respect to unemployment compensation benefits, social security or other benefits or obligations for Employees (other than routine payments to be made in the normal course of business and consistent with past practice). There are no pending, threatened or reasonably anticipated claims or actions against the Company or any of its subsidiaries under any worker's compensation policy or long-term disability policy. To the Company's knowledge, no employee of the Company has violated any employment contract, nondisclosure agreement or noncompetition agreement by which such employee is bound due to such employee -22- being employed by the Company and disclosing to the Company or using trade secrets or proprietary information of any other person or entity. (k) Labor. No general work stoppage or labor strike against the ----- Company is pending, threatened or reasonably anticipated. The Company does not know of any activities or proceedings of any labor union to organize any Employees. There are no actions, suits, claims, labor disputes or grievances pending, or, to the knowledge of the Company, threatened or reasonably anticipated relating to any labor, safety or discrimination matters involving any Employee, including, without limitation, charges of unfair labor practices or discrimination complaints, which, if adversely determined, would, individually or in the aggregate, result in any material liability to the Company. Neither the Company nor any of its subsidiaries has engaged in any unfair labor practices within the meaning of the National Labor Relations Act. The Company and its subsidiaries are not presently, nor has any of them been in the past, a party to, or bound by, any collective bargaining agreement or union contract with respect to Employees and no collective bargaining agreement is being negotiated by the Company or any of its subsidiaries. (l) International Employee Plan. Each International Employee Plan --------------------------- has been established, maintained and administered in material compliance with its terms and conditions and with the requirements prescribed by any and all statutory or regulatory laws that are applicable to such International Employee Plan. Furthermore, no International Employee Plan has unfunded liabilities, that as of the Effective Time, will not be offset by insurance or fully accrued. Except as required by law, no condition exists that would prevent the Company or Parent from terminating or amending any International Employee Plan at any time for any reason. 2.15 Environmental Matters. --------------------- (a) Hazardous Material. Except as would not result in material ------------------ liability to the Company, no underground storage tanks and no amount of any substance that has been designated by any Governmental Entity or by applicable federal, state or local law to be radioactive, toxic, hazardous or otherwise a danger to health or the environment, including, without limitation, PCBs, asbestos, petroleum, urea-formaldehyde and all substances listed as hazardous substances pursuant to the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as amended, or defined as a hazardous waste pursuant to the United States Resource Conservation and Recovery Act of 1976, as amended, and the regulations promulgated pursuant to said laws, but excluding office and janitorial supplies, (a "Hazardous Material") are present, as a result of the actions of the Company or any of its subsidiaries or any affiliate of the Company, or, to the Company's knowledge, as a result of any actions of any third party or otherwise, in, on or under any property, including the land and the improvements, ground water and surface water thereof, that the Company or any of its subsidiaries has at any time owned, operated, occupied or leased. (b) Hazardous Materials Activities. Except as would not result in a ------------------------------ material liability to the Company (in any individual case or in the aggregate) (i) neither the Company nor any of its subsidiaries has transported, stored, used, manufactured, disposed of, released or exposed its employees or others to Hazardous Materials in violation of any law in effect on or before the Closing Date, and (ii) neither the Company nor any of its subsidiaries has disposed of, transported, sold, -23- used, released, exposed its employees or others to or manufactured any product containing a Hazardous Material (collectively "Hazardous Materials Activities") in violation of any rule, regulation, treaty or statute promulgated by any Governmental Entity in effect prior to or as of the date hereof to prohibit, regulate or control Hazardous Materials or any Hazardous Material Activity. (c) Permits. The Company and its subsidiaries currently hold all ------- environmental approvals, permits, licenses, clearances and consents (the "Company Environmental Permits") necessary for the conduct of the Company's and its subsidiaries' Hazardous Material Activities and other businesses of the Company and its subsidiaries as such activities and businesses are currently being conducted. (d) Environmental Liabilities. No action, proceeding, revocation ------------------------- proceeding, amendment procedure, writ or injunction is pending, and to the Company's knowledge, no action, proceeding, revocation proceeding, amendment procedure, writ or injunction has been threatened by any Governmental Entity against the Company or any of its subsidiaries in a writing delivered to the Company concerning any Company Environmental Permit, Hazardous Material or any Hazardous Materials Activity of the Company or any of its subsidiaries. The Company is not aware of any fact or circumstance which could involve the Company or any of its subsidiaries in any environmental litigation or impose upon the Company any material environmental liability. 2.16 Year 2000 Compliance. Neither the Company nor any of its -------------------- subsidiaries has given any warranties or indemnities that remain outstanding and that pertain to products or technology sold by the Company or any subsidiary under which claims have been made that such products or technology fail to correctly handle date and time entry recognition, calculations that accommodate same century and multi-century formulas and date values, leap year recognition and calculations, or date data interface values that reflect the century. Additionally, neither the Company nor any of its subsidiaries have any outstanding warranty or indemnification obligation under which claims have been made that the Company's products and technology fail to correctly manage and manipulate data involving dates and times, including single century formulas and multi-century formulas, or that they cause an abnormal ending scenario within the application or generate incorrect values or invalid results involving such dates. 2.17 Agreements, Contracts and Commitments. Except as otherwise set forth ------------------------------------- in Part 2.17 of the Company Disclosure Schedule, as of the date hereof neither the Company nor any of its subsidiaries is a party to or is bound by: (a) any employment or consulting agreement, contract or commitment with any officer or director or higher level employee or member of the Company's Board of Directors, other than those that are terminable by the Company or any of its subsidiaries on no more than thirty days notice without liability or financial obligation, except to the extent general principles of wrongful termination law may limit the Company's or any of its subsidiaries' ability to terminate employees at will; -24- (b) any agreement of indemnification or any guaranty other than any agreement of indemnification entered into in connection with the sale or license of software or hardware products in the ordinary course of business; (c) any agreement, contract or commitment containing any covenant limiting in any respect the right of the Company or any of its subsidiaries to engage in any line of business or to compete with any person or granting any exclusive distribution rights; (d) any agreement, contract or commitment currently in force relating to the disposition or acquisition by the Company or any of its subsidiaries after the date of this Agreement of a material amount of assets not in the ordinary course of business or pursuant to which the Company or any of its subsidiaries has any material ownership interest in any corporation, partnership, joint venture or other business enterprise other than the Company's subsidiaries; (e) any joint marketing or development agreement currently in force under which the Company or any of its subsidiaries have continuing material obligations to jointly market any product, technology or service and which may not be canceled without penalty upon notice of 90 days or less, or any material agreement pursuant to which the Company or any of its subsidiaries have continuing material obligations to jointly develop any intellectual property that will not be owned, in whole or in part, by the Company or any of its subsidiaries and which may not be canceled without penalty upon notice of 90 days or less; or (f) any agreement, contract or commitment currently in force to provide source code to any third party for any product or technology that is material to the Company and its subsidiaries taken as a whole. Neither the Company nor any of its subsidiaries, nor to the Company's knowledge any other party to a Company Contract (as defined below), is in breach, violation or default under, and neither the Company nor any of its subsidiaries has received written notice that it has breached, violated or defaulted under, any of the material terms or conditions of any of the agreements, contracts or commitments to which the Company or any of its subsidiaries is a party or by which it is bound that are required to be disclosed in the Company Disclosure Schedule pursuant to clauses (a) through (f) above or pursuant to Section 2.9 hereof or are required to be filed with any Company SEC Report (any such agreement, contract or commitment, a "Company Contract") in such a manner as would permit any other party to cancel or terminate any such Company Contract, or would permit any other party to seek material damages or other remedies (for any or all of such breaches, violations or defaults, in the aggregate). 2.18 Change of Control Payments. Part 2.18 of the Company Disclosure -------------------------- Schedule sets forth each plan or agreement pursuant to which any amounts may become payable (whether currently or in the future) to current or former employees and directors of the Company or any of its subsidiaries as a result of or in connection with the Merger. 2.19 Disclosure. None of the information supplied by or on behalf of the ---------- Company for inclusion or incorporation by reference in the registration statement on Form S-4 (or similar -25- successor form) to be filed with the SEC by Parent in connection with the issuance of Parent Common Stock in the Merger (including amendments or supplements thereto) (the "Registration Statement") will, at the time the Registration Statement is filed with the SEC or at the time it becomes effective under the Securities Act, contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in the light of the circumstances under which they are made, not misleading. None of the information supplied or to be supplied by or on behalf of the Company for inclusion or incorporation by reference in the Prospectus/Proxy Statement to be filed with the SEC as part of the Registration Statement (the "Prospectus/Proxy Statement"), will, at the time the Prospectus/Proxy Statement is mailed to the stockholders of the Company, at the time of the Company Stockholders' Meeting or as of the Effective Time, contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in the light of the circumstances under which they are made, not misleading. The Prospectus/Proxy Statement will comply as to form in all material respects with the provisions of the Exchange Act and the rules and regulations promulgated by the SEC thereunder, except that no representation or warranty is made by the Company with respect to statements made or incorporated by reference therein based on information supplied by Parent for inclusion or incorporation by reference in the Prospectus/Proxy Statement. 2.20 Board Approval. The Board of Directors of the Company has, as of the -------------- date of this Agreement, unanimously (i) approved this Agreement and the transactions contemplated hereby, subject to stockholder approval, (ii) approved the Stock Option Agreement and the transactions contemplated thereby, (iii) determined that the Merger is in the best interests of the stockholders of the Company and is on terms that are fair to such stockholders, and (iv) recommended that the stockholders of the Company approve and adopt this Agreement and approve the Merger. 2.21 Fairness Opinion. The Company's Board of Directors has received a ---------------- written opinion from J.P. Morgan H & Q, dated as of the date hereof, to the effect that as of the date hereof, the Exchange Ratio is fair to the Company's stockholders from a financial point of view and has delivered to Parent a copy of such opinion. 2.22 Section 203 of the Delaware General Corporation Law Not Applicable. ------------------------------------------------------------------ The Board of Directors of Company has taken all actions so that the restrictions contained in Section 203 of the Delaware General Corporation Law applicable to a "business combination" (as defined in such Section 203) will not apply to the execution, delivery or performance of this Agreement or the Stock Option Agreement or to the consummation of the Merger or the other transactions contemplated by this Agreement and the Stock Option Agreement. ARTICLE III REPRESENTATIONS AND WARRANTIES OF PARENT As of the date hereof and as of the Closing Date, Parent represents and warrants to the Company, subject to the exceptions specifically disclosed in writing in the disclosure letter and referencing a specific representation supplied by Parent to the Company dated as of the date hereof and certified by a duly authorized officer of Parent (the "Parent Disclosure Schedule"), as follows: -26- 3.1 Organization, Standing and Power. -------------------------------- (a) Parent is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation and has all necessary power and authority: (i) to conduct its business in the manner in which its business is currently being conducted; (ii) to own and use its assets in the manner in which its assets are currently owned and used; and (iii) to perform its obligations under all Contracts by which it is bound. (b) Parent is qualified to do business as a foreign corporation, and is in good standing, under the laws of all jurisdictions where the nature of its business requires such qualification and where the failure to be so qualified (either individually or collectively) would have a Material Adverse Effect on Parent. (c) Parent has delivered or made available to the Company a true and correct copy of the Certificate of Incorporation and Bylaws of Parent, each as amended to date (collectively, the "Parent Charter Documents"), and each such instrument is in full force and effect. Parent is not in violation of any of the provisions of the Parent Charter Documents. 3.2 Capital Structure. ----------------- (a) The authorized capital stock of Parent consists of: (i) 2,000,000,000 shares of Common Stock, $0.001 par value, of which 566,512,760 shares have been issued and are outstanding as of March 2, 2001; and (ii) 125,000,000 shares of Preferred Stock, $0.001 par value per share, of which no shares have been issued or are outstanding as of the date of this Agreement. All of the outstanding shares of Parent's Common Stock have been duly authorized and validly issued, and are fully paid and nonassessable. (b) As of the date of this Agreement: (i) 18,987,717 shares of Parent Common Stock are subject to issuance pursuant to outstanding options to purchase Common Stock under Parent's 1999 Stock Plan and Amended and Restated 1999 Director Option Plan; and (ii) 14,863,914 shares of Common Stock are reserved for future issuance under Parent's 1999 Employee Stock Purchase Plan (the "Parent Purchase Plan"). (Stock options granted by Parent pursuant to Parent's stock option plans and stock options assumed by Parent pursuant to various corporate transactions collectively are referred to in this Agreement as "Parent Options"). Parent has made available to the Company accurate and complete copies of all stock option plans pursuant to which Parent has granted stock options that are currently outstanding and the form of all stock option agreements evidencing such options. All shares of Parent Common Stock subject to issuance as aforesaid, upon issuance on the terms and conditions specified in the instruments pursuant to which they are issuable, would be duly authorized, validly issued, fully paid and nonassessable. (c) All outstanding shares of Parent Common Stock, and all outstanding Parent Options, have been issued and granted in compliance with (i) all applicable securities laws and other applicable Legal Requirements and (ii) all requirements set forth in applicable Contracts. -27- (d) Except for Parent Options, warrants disclosed in Parent SEC Reports that have not been subsequently cancelled and shares of Parent Common Stock reserved for issuance under Parent's 1999 Stock Plan, Amended and Restated 1999 Director Option Plan and Parent Purchase Plan, there are no options, warrants or other rights, agreements, arrangements or commitments of any character relating to the issued or unissued capital stock of Parent or conditionally or absolutely obligating Parent to issue or sell any shares of capital stock of, or other equity interests in, Parent or its subsidiaries. There are no outstanding obligations of Parent to repurchase, redeem or otherwise acquire any shares of Parent Common Stock. 3.3 Authority; Non-Contravention. ---------------------------- (a) Parent has all requisite corporate power and authority to enter into this Agreement and the Stock Option Agreement and to consummate the transactions contemplated hereby and thereby. The execution and delivery of this Agreement, the Stock Option Agreement and the consummation of the transactions contemplated hereby and thereby have been duly authorized by all necessary corporate action on the part of Parent, subject only to the filing of the Certificate of Merger pursuant to Delaware Law. The Board of Directors of Parent has approved the Merger and this Agreement. This Agreement and the Stock Option Agreement have each been duly executed and delivered by Parent and, assuming the due execution and delivery by the Company, constitute valid and binding obligations of Parent, enforceable against Parent in accordance with their terms, except as enforceability may be limited by bankruptcy and other similar laws and general principles of equity. The execution and delivery of this Agreement and the Stock Option Agreement by Parent do not, and as of the Effective Time, the performance of this Agreement and the Stock Option Agreement by Parent will not, (i) conflict with or violate the Parent Charter Documents, (ii) subject to compliance with the requirements set forth in Section 3.3(b) below, conflict with or violate any law, rule, regulation, order, judgment or decree applicable to Parent or by which Parent or any of its properties are bound or affected except where such conflict or violation would not have a material adverse effect on Parent, or (iii) except as would not have a material adverse effect on Parent, result in any material breach of or constitute a material default (or an event that with notice or lapse of time or both would become a material default) under, or impair Parent's rights or alter the rights or obligations of any third party under, or give to others any rights of termination, amendment, acceleration or cancellation of, or result in the creation of a material lien or Encumbrance on any of the material properties or assets of Parent pursuant to, any material note, bond, mortgage, indenture, contract, agreement, lease, license, permit, franchise, concession, or other instrument or obligation to which Parent is a party or by which Parent or its assets are bound or affected. (b) No consent, waiver approval, order or authorization of, or registration, declaration or filing with any Governmental Entity, is required to be obtained or made by Parent in connection with the execution and delivery of this Agreement and the Stock Option Agreement or the consummation of the Merger, except for (i) the filing of the Certificate of Merger with the Secretary of State of the State of Delaware, (ii) such consents, approvals, orders, authorizations, registrations, declarations and filings as may be required under applicable federal, foreign and state securities (or related) laws and the HSR Act, and the securities or antitrust laws of any foreign country, (iii) filing of the Registration Statement and the Prospectus/Proxy Statement and a Schedule -28- 13D with regard to the Company Voting Agreement and the Stock Option Agreement in accordance with the Securities Act and the Exchange Act, as the case may be, and the effectiveness of the Registration Statement and (iv) such other consents, authorizations, filings, approvals and registrations which if not obtained or made would not be material to Parent or have a Material Adverse Effect (as defined in Section 8.3(c)) on the ability of the parties hereto to consummate the Merger. 3.4 SEC Filings; Parent Financial Statements. ---------------------------------------- (a) Parent has filed all forms, reports and documents required to be filed by Parent with the SEC since March 2, 2000 and has made available to the Company such forms, reports and documents in the form filed with the SEC. All such required forms, reports and documents (including those that Parent may file subsequent to the date hereof) are referred to herein as the "Parent SEC Reports". As of their respective dates, Parent SEC Reports (i) were prepared in accordance and complied in all material respects with the requirements of the Securities Act, or the Exchange Act, as the case may be, and the rules and regulations of the SEC thereunder applicable to such Parent SEC Reports and (ii) did not at the time they were filed contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. None of Parent's subsidiaries is required to file any forms, reports or other documents with the SEC. (b) Each of the consolidated financial statements (including, in each case, any related notes thereto) contained in the Parent SEC Reports (the "Parent Financials"), including each Parent SEC Report filed after the date hereof until the Closing, (i) complied as to form in all material respects with the published rules and regulations of the SEC with respect thereto, (ii) was prepared in accordance with United States generally accepted accounting principles ("GAAP") applied on a consistent basis throughout the periods involved (except as may be indicated in the notes thereto or, in the case of unaudited interim financial statements, as may be permitted by the SEC on Form 10-Q under the Exchange Act) and (iii) fairly presented the consolidated financial position of Parent and its subsidiaries as at the respective dates thereof and the consolidated results of Parent's operations and cash flows for the periods indicated, except that the unaudited interim financial statements may not contain footnotes and were or are subject to normal and recurring year- end adjustments. The balance sheet of Parent contained in Parent SEC Report as of December 1, 2000 is hereinafter referred to as the "Parent Balance Sheet". Except as disclosed in the Parent Financials, since the date of the Parent Balance Sheet neither Parent nor any of its subsidiaries has any liabilities required under GAAP to be set forth on a consolidated balance sheet (absolute, accrued, contingent or otherwise) which are, individually or in the aggregate, material to the business, results of operations or financial condition of Parent and its subsidiaries taken as a whole, except for liabilities incurred since the date of the Parent Balance Sheet in the ordinary course of business consistent with past practices and liabilities incurred pursuant to this Agreement. (c) Parent has heretofore furnished to the Company a complete and correct copy of any amendments or modifications which have not yet been filed with the SEC but which are -29- required to be filed, to agreements, documents or other instruments which previously had been filed by Parent with the SEC pursuant to the Securities Act or the Exchange Act. 3.5 No Material Adverse Effect. Since the date of the Parent Balance -------------------------- Sheet and through the date hereof, there has not been any Material Adverse Effect on Parent. 3.6 Disclosure. None of the information supplied by or on behalf of ---------- Parent for inclusion in the Registration Statement will, at the time the Registration Statement is filed with the SEC or at the time it becomes effective under the Securities Act, contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in the light of the circumstances under which they are made, not misleading. None of the information supplied or to be supplied by or on behalf of Parent for inclusion or incorporation by reference in the Prospectus/Proxy Statement will, at the time the Prospectus/Proxy Statement is mailed to the stockholders of the Company, at the time of the Company Stockholders' Meeting or as of the Effective Time, contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in the light of the circumstances under which they are made, not misleading. The Registration Statement will comply as to form in all material respects with the provisions of the Securities Act and the rules and regulations promulgated by the SEC thereunder, except that no representation or warranty is made by Parent with respect to statements made or incorporated by reference therein based on information supplied by the Company for inclusion or incorporation by reference in the Prospectus/Proxy Statement. 3.7 Litigation. Except as disclosed in Part 3.7 of the Parent Disclosure ---------- Schedule or as contained in the Parent SEC Reports, there are no claims, suits, actions or proceedings pending or, to the knowledge of Parent, threatened against Parent before any court, governmental department, commission, agency, instrumentality or authority, or any arbitrator that seeks to restrain or enjoin the consummation of the transactions contemplated by this Agreement or which could reasonably be expected, either singularly or in the aggregate with all such claims, actions or proceedings, to have a material adverse effect on Parent. No Governmental Entity has at any time challenged or questioned in a writing delivered to Parent the legal right of Parent to design, manufacture, offer or sell any of its products or services in the present manner or style thereof. As of the date hereof, to the knowledge of Parent, no event has occurred, and no claim, dispute or other condition or circumstance exists, that will, or that would reasonably be expected to, cause or provide a bona fide basis for a director or executive officer of Parent to seek indemnification from Parent. 3.8 Board Approval. The Board of Directors of Parent has, as of the date -------------- of this Agreement, approved this Agreement and the Stock Option Agreement and the transactions contemplated hereby and thereby. 3.9 Taxes. To the knowledge of Parent, neither Parent nor any of its ----- affiliates has taken or agreed to take any action that would prevent the Merger from qualifying as a reorganization within the meaning of Section 368(a) of the Code. Parent is not aware of any agreement, plan or other circumstances that would prevent the Merger from qualifying as a reorganization within the meaning of Section 368(a) of the Code. -30- 3.10 Brokers' and Finders' Fees. Parent has not incurred, nor will it -------------------------- incur, directly or indirectly, any liability for brokerage or finders' fees or agents' commissions or any similar charges in connection with this Agreement or any transaction contemplated hereby. ARTICLE IV CONDUCT PRIOR TO THE EFFECTIVE TIME 4.1 Conduct of Business by the Company. Except as specifically provided ---------------------------------- by this Agreement (including without limitation the actions contemplated by Schedule 4.1(i) hereto), during the period from the date of this Agreement and - --------------- continuing until the earlier of the termination of this Agreement pursuant to its terms or the Effective Time, the Company and each of its subsidiaries shall, except to the extent that Parent shall otherwise consent in writing, carry on its business, in all material respects, in the usual, regular and ordinary course, in substantially the same manner as heretofore conducted and in compliance with all applicable laws and regulations, pay its debts and taxes when due subject to good faith disputes over such debts or taxes, pay or perform other material obligations when due subject to good faith disputes over such obligations, and use its commercially reasonable efforts consistent with past practices and policies to (i) preserve intact its present business organization, (ii) keep available the services of its present officers and employees and (iii) preserve its relationships with customers, suppliers, distributors, licensors, licensees, and others with which it has business dealings. In addition, except as permitted by the terms of this Agreement, and except as provided in Part 4 of the Company Disclosure Schedule, without the prior written consent of Parent, during the period from the date of this Agreement and continuing until the earlier of the termination of this Agreement pursuant to its terms or the Effective Time, the Company shall not do any of the following and shall not permit its subsidiaries to do any of the following: (a) Waive any stock repurchase rights, accelerate, amend or change the period of exercisability of options or restricted stock, or reprice options granted under any employee, consultant, director or other stock plans or authorize cash payments in exchange for any options granted under any of such plans; (b) Grant any severance or termination pay (whether in cash, equity- based or otherwise) to any officer or employee except pursuant to written agreements outstanding, or policies existing, on the date hereof and as previously disclosed in writing or made available to Parent, or adopt any new severance plan; (c) Transfer or license to any person or entity or otherwise extend, amend or modify in any material respect any rights to the Company Intellectual Property, or enter into grants to future patent rights, other than non-exclusive licenses in the ordinary course of business and consistent with past practice; (d) Declare, set aside or pay any dividends on or make any other distributions (whether in cash, stock, equity securities or property) in respect of any capital stock or split, combine -31- or reclassify any capital stock or issue or authorize the issuance of any other securities in respect of, in lieu of or in substitution for any capital stock; (e) Purchase, redeem or otherwise acquire, directly or indirectly, any shares of capital stock of the Company or its subsidiaries, except repurchases of unvested shares at cost in connection with the termination of the employment relationship with any employee pursuant to stock option or purchase agreements in effect on the date hereof; (f) Issue, deliver, sell, authorize, pledge or otherwise encumber, any shares of capital stock or any securities convertible into shares of capital stock, or subscriptions, rights, warrants or options to acquire any shares of capital stock or any securities convertible into shares of capital stock, or enter into other agreements or commitments of any character obligating it to issue any such shares or convertible securities, other than (i) issuance of shares of the Company Common Stock pursuant to the exercise of stock options therefor outstanding as of the date of this Agreement and (ii) issuance of shares of the Company Common Stock to participants in the Company Purchase Plan pursuant to the terms thereof; (g) Cause, permit or propose any amendments to its Certificate of Incorporation, Bylaws or other charter documents (or similar governing instruments of any of its subsidiaries); (h) Acquire or agree to acquire by merging or consolidating with, or by purchasing any equity interest in or a material portion of the assets of, or by any other manner, any business or any corporation, partnership, association or other business organization or division thereof, or otherwise acquire or agree to acquire any assets which are material, individually or in the aggregate, to the business of the Company or enter into any material joint ventures, strategic partnerships or alliances; (i) Sell, lease, license, encumber or otherwise dispose of any properties or assets which are material, individually or in the aggregate, to the business of the Company, except (i) sales of inventory and used equipment in the ordinary course of business consistent with past practice, (ii) disposition of assets and other actions as set forth on Schedule 4.1(i) hereto in the manner --------------- set forth therein, and (iii) the granting of non-exclusive licenses in the ordinary course of business and consistent with past practice; (j) Incur any indebtedness for borrowed money or guarantee any such indebtedness of another person, issue or sell any debt securities or options, warrants, calls or other rights to acquire any debt securities of the Company, enter into any "keep well" or other agreement to maintain any financial statement condition or enter into any arrangement having the economic effect of any of the foregoing other than (i) in connection with the financing of ordinary course trade payables consistent with past practice or (ii) pursuant to existing credit facilities or equipment leasing arrangements in the ordinary course of business; (k) Adopt or amend any employee benefit plan or employee stock purchase or employee stock option plan, or enter into any employment contract or collective bargaining agreement (other than offer letters and letter agreements entered into in the ordinary course of -32- business consistent with past practice with employees who are terminable "at will"), pay any special bonus or special remuneration to any director or employee, or increase the salaries or wage rates or fringe benefits (including rights to severance or indemnification) of its directors, officers, employees or consultants other than in the ordinary course of business, consistent with past practice, or change in any material respect any management policies or procedures; (l) Make or change any Tax election, settle or compromise any material Tax liability, or consent to any extension or waiver of any limitations period with respect to Taxes. (m) Modify, amend or terminate any Company Contract or other material contract or agreement to which the Company or any subsidiary thereof is a party or waive, release or assign any material rights or claims thereunder; (n) Enter into any contracts, agreements, or obligations relating to the distribution, sale, license or marketing by third parties of the Company's products or products licensed by the Company other than in the ordinary course of business consistent with past practice; (o) Enter into any licensing, distribution, sponsorship, advertising, merchant program or similar contracts, agreements, or obligations other than in the ordinary course of business consistent with past practice; (p) Materially revalue any of its assets or, except as required by GAAP, make any change in accounting methods, principles or practices; (q) Take any action (including any action by its Board of Directors) to cause the Company's representation set forth in Section 2.22 hereof to be untrue in any respect; or (r) Agree in writing or otherwise to take any of the actions described in (a) through (q) above. ARTICLE V ADDITIONAL AGREEMENTS 5.1 Prospectus/Proxy Statement; Registration Statement; Other Filings; ------------------------------------------------------------------ Board Recommendations. As promptly as practicable after the execution of this - --------------------- Agreement, the Company and Parent will prepare and file the Prospectus/Proxy Statement with the SEC and Parent will prepare and file with the SEC the Registration Statement in which the Prospectus/Proxy Statement will be included as a prospectus. Each of the Company and Parent will respond to any comments of the SEC, will use its respective commercially reasonable efforts to have the Registration Statement declared effective under the Securities Act as promptly as practicable after such filing and the Company will cause the Prospectus/Proxy Statement to be mailed to its stockholders at the earliest practicable time after the Registration Statement is declared effective by the SEC. As promptly as practicable after the date of this Agreement, each of the Company and Parent will prepare and file (i) with the United States Federal Trade Commission (the "FTC") and the Antitrust Division of the United States Department of Justice ("DOJ") Notification and Report Forms relating to the -33- transactions contemplated herein as required by the HSR Act, as well as comparable pre-merger notification forms required by the merger notification or control laws and regulations of any applicable jurisdiction, as agreed to by the parties (the "Antitrust Filings") and (ii) any other filings required to be filed by it under the Exchange Act, the Securities Act or any other Federal, state or foreign laws relating to the Merger and the transactions contemplated by this Agreement (the "Other Filings"). The Company and Parent each shall promptly supply the other with any information which may be required in order to effectuate any filings pursuant to this Section 5.1. Each of the Company and Parent will notify the other promptly upon the receipt of any comments from the SEC or its staff or any other government officials in connection with any filing made pursuant hereto and of any request by the SEC or its staff or any other government officials for amendments or supplements to the Registration Statement, the Prospectus/Proxy Statement or any Antitrust Filings or Other Filing or for additional information and will supply the other with copies of all correspondence between such party or any of its representatives, on the one hand, and the SEC, or its staff or any other government officials, on the other hand, with respect to the Registration Statement, the Prospectus/Proxy Statement, the Merger or any Antitrust Filing or Other Filing. Each of the Company and Parent will cause all documents that it is responsible for filing with the SEC or other regulatory authorities under this Section 5.1 to comply in all material respects with all applicable requirements of law and the rules and regulations promulgated thereunder. Whenever any event occurs which is required to be set forth in an amendment or supplement to the Prospectus/Proxy Statement, the Registration Statement or any Antitrust Filing or Other Filing, the Company or Parent, as the case may be, will promptly inform the other of such occurrence and cooperate in filing with the SEC or its staff or any other government officials, and/or mailing to stockholders of the Company, such amendment or supplement. 5.2 Meeting of Company Stockholders. ------------------------------- (a) Promptly after the date hereof, the Company will take all action necessary in accordance with Delaware Law and its Certificate of Incorporation and Bylaws to convene a meeting of the Company's stockholders to consider adoption and approval of this Agreement and approval of the Merger (the "Company Stockholders' Meeting") to be held as promptly as practicable, and in any event (to the extent permissible under applicable law) within 45 days after the declaration of effectiveness of the Registration Statement. Subject to Section 5.2(c) hereof, the Company will use its commercially reasonable efforts to solicit from its stockholders proxies in favor of the adoption and approval of this Agreement and the approval of the Merger and will take all other action necessary or advisable to secure the vote or consent of its stockholders required by the rules of Nasdaq and to secure the vote or consent of its stockholders required by Delaware Law to obtain such approvals. Notwithstanding anything to the contrary contained in this Agreement, the Company may adjourn or postpone the Company Stockholders' Meeting to the extent necessary to ensure that any necessary supplement or amendment to the Prospectus/Proxy Statement is provided to the Company's stockholders in advance of a vote on the Merger and this Agreement or, if as of the time at which the Company Stockholders' Meeting is originally scheduled (as set forth in the Prospectus/Proxy Statement) there are insufficient shares of Company Common Stock represented (either in person or by proxy) to constitute a quorum necessary to conduct the business of the Company's Stockholders' Meeting. The Company shall ensure that the Company Stockholders' -34- Meeting is called, noticed, convened, held and conducted, and that all proxies solicited by the Company in connection with the Company Stockholders' Meeting are solicited, in compliance with the Delaware Law, the Company's Certificate of Incorporation and Bylaws, the rules of Nasdaq and all other applicable legal requirements. The Company's obligation to call, give notice of, convene and hold the Company Stockholders' Meeting in accordance with this Section 5.2(a) shall not be limited to or otherwise affected by the commencement, disclosure, announcement or submission to the Company of any Acquisition Proposal (as defined in Section 5.4(a)), or by any withdrawal, amendment or modification of the recommendation of the Board of Directors of the Company with respect to the Merger and/or this Agreement. (b) Subject to Section 5.2(c): (i) the Board of Directors of the Company shall unanimously recommend that the Company's stockholders vote in favor of and adopt and approve this Agreement and approve the Merger at the Company Stockholders' Meeting; (ii) the Prospectus/Proxy Statement shall include a statement to the effect that the Board of Directors of the Company has unanimously recommended that the Company's stockholders vote in favor of and adopt and approve this Agreement and the Merger at the Company Stockholders' Meeting; and (iii) neither the Board of Directors of the Company nor any committee thereof shall withdraw, amend or modify, or publicly propose or resolve to withdraw, amend or modify in a manner adverse to Parent, the unanimous recommendation of the Board of Directors of the Company that the Company's stockholders vote in favor of and adopt and approve this Agreement and the Merger. For purposes of this Agreement, said recommendation of the Board of Directors shall be deemed to have been modified in a manner adverse to Parent if said recommendation shall no longer be unanimous. (c) Nothing in this Agreement shall prevent the Board of Directors of the Company from recommending a Superior Offer (as defined below) or withholding, withdrawing, amending or modifying its unanimous recommendation in favor of the Merger if at any time prior to the Effective Time (i) a Superior Offer is made to the Company or its stockholders and is not withdrawn, (ii) the Company shall have provided written notice to Parent (a "Notice of Superior Offer") advising Parent that the Company has received a Superior Offer, specifying the material terms and conditions of such Superior Offer and identifying the person or entity making such Superior Offer, (iii) Parent shall not have, within three (3) (which shall include at least two (2) business days) days of Parent's receipt of the Notice of Superior Offer, made an offer that the Board of Directors of the Company by a majority vote determines in its good faith judgment (based on, among other things, the advice of a financial adviser of nationally recognized reputation) to be at least as favorable to the Company's stockholders as such Superior Offer (it being agreed that the Board of Directors of the Company shall convene a meeting to consider any such offer by Parent promptly following the receipt thereof), (iv) the Board of Directors of the Company concludes in good faith, after consultation with its outside counsel, that, in light of such Superior Offer, the withholding, withdrawal, amendment or modification of such recommendation is required in order for the Board of Directors of the Company to comply with its fiduciary obligations to the Company's stockholders under applicable law and (v) neither the Company nor any of its representatives shall have violated any of the restrictions set forth in Section 5.4 or this Section 5.2. The Company shall provide Parent with such prior notice (both in time and form) as is provided to the members of -35- the Company's Board of Directors of any meeting of the Company's Board of Directors at which the Company's Board of Directors is reasonably expected to consider any Acquisition Transaction (as defined below). Nothing contained in this Section 5.2(c) shall limit the Company's obligation to hold and convene the Company Stockholders' Meeting (regardless of whether the unanimous recommendation of the Board of Directors of the Company shall have been withdrawn, amended or modified). For purposes of this Agreement "Superior Offer" shall mean an unsolicited, bona fide written offer made by a reputable and responsible third party to acquire, directly or indirectly, including pursuant to a tender offer, exchange offer, merger, consolidation, business combination, recapitalization, liquidation, dissolution or similar transaction, for consideration consisting of cash and/or securities, more than 80% of the total outstanding voting securities of the Company or all or substantially all the assets of the Company on terms that the Board of Directors of the Company determines, in its reasonable judgment (based on, among other things, the advice of a financial adviser of nationally recognized reputation) to be more favorable to the Company stockholders than the terms of the Merger; provided, however, that any such offer shall not be deemed to be a "Superior Offer" unless any financing required to consummate the transaction contemplated by such offer is either committed or in the good faith judgment of the Board of Directors of the Company, capable of and reasonably likely to be obtained. (d) Nothing contained in this Agreement shall prohibit the Company or its Board of Directors from taking and disclosing to its stockholders a position contemplated by Rules 14d-9 and 14e-2(a) promulgated under the Exchange Act or as otherwise required by applicable law. 5.3 Confidentiality; Access to Information. -------------------------------------- (a) The parties acknowledge that the Company and Parent have previously executed a Confidentiality Agreement, dated as of October 15, 2000 (the "Confidentiality Agreement"), which Confidentiality Agreement will continue in full force and effect in accordance with its terms. (b) Access to Information. The Company will afford Parent and its --------------------- accountants, counsel and other representatives reasonable access during normal business hours to the properties, books, records and personnel of the Company during the period prior to the Effective Time to obtain all information concerning the business, including the status of product development efforts, properties, results of operations and personnel of the Company, as Parent may reasonably request. No information or knowledge obtained by Parent in any investigation pursuant to this Section 5.3 will affect or be deemed to modify any representation or warranty contained herein or the conditions to the obligations of the parties to consummate the Merger. 5.4 No Solicitation. --------------- (a) Subject to the provisions of Section 5.2(c), from and after the date of this Agreement until the Effective Time or termination of this Agreement pursuant to Article VII, the Company and its subsidiaries will not, nor will they authorize or permit any of their respective officers, directors, affiliates or employees or any investment banker, attorney or other advisor or representative retained by any of them to, directly or indirectly, (i) solicit, initiate, encourage or -36- induce the making, submission or announcement of any Acquisition Proposal (as hereinafter defined), (ii) participate in any discussions or negotiations regarding, or furnish to any person any non-public information with respect to, or take any other action to facilitate any inquiries or the making of any proposal that constitutes or may reasonably be expected to lead to, any Acquisition Proposal, (iii) engage in discussions with any person with respect to any Acquisition Proposal, except as to the existence of these provisions, (iv) approve, endorse or recommend any Acquisition Proposal or (v) enter into any letter of intent or similar document or any contract, agreement or commitment contemplating or otherwise relating to any Acquisition Transaction; provided, however, that nothing contained in this Section 5.4 shall prohibit the - ----------------- Board of Directors of the Company from (i) in response to an unsolicited, bona fide written Acquisition Proposal from a reputable and responsible third party for a Company Acquisition that the Board of Directors of the Company has reasonably concluded (based on, among other things, the advice of a financial advisor of nationally recognized reputation), is reasonably expected to lead to a Superior Offer, furnishing nonpublic information to the party making such Acquisition Proposal, and submitting to the party making such Acquisition Proposal written questions, the sole purpose of which is to elicit clarifications as to the material terms of such Acquisition Proposal so as to enable the Board of Directors of the Company to make a determination whether to construe such Acquisition Proposal as a Superior Offer, to the extent that (A) the Board of Directors of the Company concludes in good faith, after consultation with its outside counsel, that its fiduciary obligations under applicable law require it to do so, (B) (x) concurrently with furnishing any such nonpublic information to, or written questions to such party, the Company gives Parent written notice of the Company's intention to furnish nonpublic information, or written questions to such party and (y) the Company receives from such party an executed confidentiality agreement containing customary limitations on the use and disclosure of all nonpublic written and oral information furnished to such party on behalf of the Company, the terms of which are at least as restrictive as the terms contained in the Confidentiality Agreement, and (C) contemporaneously with furnishing any such nonpublic information to such party, the Company furnishes such nonpublic information to Parent (to the extent such nonpublic information has not been previously furnished by the Company to Parent) and (ii) in response to an unsolicited, bona fide written Acquisition Proposal that constitutes a Superior Offer, engaging in negotiations with the party making such Acquisition Proposal to the extent that (A) the Board of Directors of the Company concludes in good faith, after consultation with its outside counsel, that its fiduciary obligations under applicable law require it to do so, (B) (x) concurrently with entering into negotiations with such party, the Company gives Parent written notice of the Company's intention to enter into negotiations with such party and (y) the Company receives from such party an executed confidentiality agreement containing customary limitations on the use and disclosure of all nonpublic written and oral information furnished to such party on behalf of the Company, the terms of which are at least as restrictive as the terms contained in the Confidentiality Agreement. The Company and its subsidiaries will immediately cease any and all existing activities, discussions or negotiations with any parties conducted heretofore with respect to any Acquisition Proposal. Without limiting the foregoing, it is understood that any violation of the restrictions set forth in the preceding two sentences by any officer, director or employee of the Company or any of its subsidiaries or any investment banker, attorney or other advisor or representative of the Company or any of its subsidiaries shall be deemed to be a breach of this Section 5.4 by the Company. -37- For purposes of this Agreement, "Acquisition Proposal" shall mean any offer or proposal (other than an offer or proposal by Parent) relating to any Acquisition Transaction. For purposes of this Agreement, "Acquisition Transaction" shall mean any transaction or series of related transactions involving: (i) any purchase from the Company or acquisition by any person or "group" (as defined under Section 13(d) of the Exchange Act and the rules and regulations thereunder) of more than a 10% interest in the total outstanding voting securities of the Company or any of its subsidiaries or any tender offer or exchange offer that if consummated would result in any person or "group" (as defined under Section 13(d) of the Exchange Act and the rules and regulations thereunder) beneficially owning 10% or more of the total outstanding voting securities of the Company or any of its subsidiaries or any merger, consolidation, business combination or similar transaction involving the Company; (ii) any sale, lease (other than in the ordinary course of business or as contemplated by Schedule 4.1(i)), exchange, transfer, license (other than in the ordinary course of business or as contemplated by Schedule 4.1(i)), acquisition or disposition of more than 10% of the assets of the Company; or (iii) any liquidation or dissolution of the Company. (b) In addition to the obligations of the Company set forth in paragraph (a) of this Section 5.4, the Company as promptly as practicable (but in any event within twenty-four (24) hours) shall advise Parent orally and in writing of any Acquisition Proposal or any request for non-public information or inquiry which the Company reasonably believes would lead to an Acquisition Proposal or to any Acquisition Transaction, or any inquiry with respect to or which the Company reasonably should believe would lead to any Acquisition Proposal, the material terms and conditions of such Acquisition Proposal, or request or inquiry, and the identity of the person or group making any such request, Acquisition Proposal or inquiry. Additionally, as promptly as practical (but in any event within twenty-four (24) hours) the Company shall provide to Parent all written materials received from or sent to any person or entity making an Acquisition Proposal and written summaries of any oral modifications to such written materials. The Company will keep Parent informed as promptly as practicable in all material respects of the status and details (including material amendments or proposed material amendments) of any such request, Acquisition Proposal or inquiry. 5.5 Public Disclosure. Parent and the Company will attempt to consult ----------------- with each other, and to the extent practicable, agree, before issuing any press release or otherwise making any public statement with respect to the Merger, this Agreement or any Acquisition Proposal and will not issue any such press release or make any such public statement prior to such consultation, except as may be required by law or any listing agreement with a national securities exchange. The parties have agreed to the text of the joint press release announcing the signing of this Agreement. 5.6 Reasonable Efforts; Notification. -------------------------------- (a) Upon the terms and subject to the conditions set forth in this Agreement, each of the parties agrees to use all reasonable efforts to take, or cause to be taken, all actions, and to do, or cause to be done, and to assist and cooperate with the other parties in doing, all things necessary, proper or advisable to consummate and make effective, in the most expeditious manner practicable, the Merger and the other transactions contemplated by this Agreement, including using reasonable -38- efforts to accomplish the following: (i) the taking of all reasonable acts necessary to cause the conditions precedent set forth in Article VI to be satisfied, (ii) the obtaining of all necessary actions or nonactions, waivers, consents, approvals, orders and authorizations from Governmental Entities and the making of all necessary registrations, declarations and filings (including registrations, declarations and filings with Governmental Entities, if any) and the taking of all reasonable steps as may be necessary to avoid any suit, claim, action, investigation or proceeding by any Governmental Entity, (iii) the obtaining of all necessary consents, approvals or waivers from third parties, (iv) the defending of any suits, claims, actions, investigations or proceedings, whether judicial or administrative, challenging this Agreement or the consummation of the transactions contemplated hereby, including seeking to have any stay or temporary restraining order entered by any court or other Governmental Entity vacated or reversed and (v) the execution or delivery of any additional instruments necessary to consummate the transactions contemplated by, and to fully carry out the purposes of, this Agreement. In connection with and without limiting the foregoing, the Company and its Board of Directors shall, if any state takeover statute or similar statute or regulation is or becomes applicable to the Merger, this Agreement or any of the transactions contemplated by this Agreement, use all reasonable efforts to ensure that the Merger and the other transactions contemplated by this Agreement may be consummated as promptly as practicable on the terms contemplated by this Agreement and otherwise to minimize the effect of such statute or regulation on the Merger, this Agreement and the transactions contemplated hereby. Notwithstanding anything herein to the contrary, nothing in this Agreement shall be deemed to require Parent or the Company or any subsidiary or affiliate thereof to agree to any divestiture by itself or any of its affiliates of shares of capital stock or of any business, assets or property, or the imposition of any material limitation on the ability of any of them to conduct their businesses or to own or exercise control of such assets, properties and stock. (b) The Company shall give prompt notice to Parent of any representation or warranty made by it contained in this Agreement becoming untrue or inaccurate, or any failure of the Company to comply with or satisfy in any material respect any covenant, condition or agreement to be complied with or satisfied by it under this Agreement, in each case, such that the conditions set forth in Section 6.3(a) or 6.3(b) would not be satisfied, provided, however, that no such notification shall affect the representations, warranties, covenants or agreements of the parties or the conditions to the obligations of the parties under this Agreement. (c) Parent shall give prompt notice to the Company of any representation or warranty made by it contained in this Agreement becoming untrue or inaccurate, or any failure of Parent to comply with or satisfy in any material respect any covenant, condition or agreement to be complied with or satisfied by it under this Agreement, in each case, such that the conditions set forth in Section 6.2(a) or 6.2(b) would not be satisfied, provided, however, that no such notification shall affect the representations, warranties, covenants or agreements of the parties or the conditions to the obligations of the parties under this Agreement. 5.7 Third Party Consents. As soon as practicable following the date -------------------- hereof, Parent and the Company will each use its commercially reasonable efforts to obtain any consents, waivers and approvals under any of its or its subsidiaries' respective agreements, contracts, licenses or leases -39- required to be obtained in connection with the consummation of the transactions contemplated hereby. 5.8 Stock Options and Employee Benefits. ----------------------------------- (a) At the Effective Time, each outstanding Company Option, whether or not exercisable and regardless of the respective exercise prices thereof, will be assumed by Parent. Each Company Option so assumed by Parent under this Agreement will continue to have, and be subject to, the same terms and conditions set forth in the applicable Company Option and Company Stock Option Plan immediately prior to the Effective Time (including, without limitation, any repurchase rights or vesting provisions), except that (i) each Company Option will be exercisable (or will become exercisable in accordance with its terms) for that number of whole shares of Parent Common Stock equal to the product of the number of shares of Company Common Stock that were issuable upon exercise of such Company Option immediately prior to the Effective Time multiplied by the Exchange Ratio, rounded down to the nearest whole number of shares of Parent Common Stock and (ii) the per share exercise price for the shares of Parent Common Stock issuable upon exercise of such assumed Company Option will be equal to the quotient determined by dividing the exercise price per share of Company Common Stock at which such Company Option was exercisable immediately prior to the Effective Time by the Exchange Ratio, rounded up to the nearest whole cent. (b) It is intended that Company Options assumed by Parent shall qualify following the Effective Time as incentive stock options as defined in Section 422 of the Code to the extent Company Options qualified as incentive stock options immediately prior to the Effective Time and the provisions of this Section 5.8 shall be applied consistent with such intent. (c) Outstanding rights to purchase shares of Company Common Stock shall be exercised in accordance with the Company Purchase Plan, and each share of Company Common Stock purchased or to be purchased pursuant to such exercise shall by virtue of the Merger, and without any action on the part of the holder thereof, be converted into the right to receive a number of shares of Parent Common Stock equal to the Exchange Ratio, without issuance of certificates representing issued and outstanding shares of Company Common Stock to participants under the Company Purchase Plan. The rights of participants in the Company Purchase Plan with respect to any offering then underway under the Company Purchase Plan shall be determined by treating the last business day prior to the Effective Time as the last day of such offering and by making such other pro rata adjustments as may be necessary to reflect the shortened offering but otherwise treating such shortened offering as a fully effective and completed offering for all purposes under the Company Purchase Plan. As of the Effective Time, the Company Purchase Plan shall be terminated. Employees of the Company who become employees of Parent shall be eligible to participate in the employee stock purchase plan of Parent (the "Parent ESPP") (subject to such plan's terms and conditions) at the next regularly scheduled offering period under the Parent ESPP. (d) Effective as of the day immediately preceding the Closing Date, the Company and its Affiliates, as applicable, shall each terminate any and all plans intended to include a Code Section 401(k) arrangement (unless Parent provides written notice to the Company that such 401(k) -40- plan(s) shall not be terminated). Unless Parent provides such written notice to the Company, no later than five (5) business days prior to the Closing Date, the Company shall provide Parent with evidence that such 401(k) plan(s) have been terminated (effective as of the day immediately preceding the Closing Date) pursuant to resolutions of the Board of Directors of the Company. The form and substance of such resolutions shall be subject to review and approval of Parent. The Company also shall take such other actions in furtherance of terminating such 401(k) plan(s) as Parent may reasonably request. 5.9 Form S-8. Parent agrees to file a registration statement on Form S-8 -------- for the shares of Parent Common Stock issuable with respect to assumed Company Options as soon as is reasonably practicable after the Effective Time, and in any event not more than thirty (30) business days thereafter, and intends to maintain the effectiveness of such registration statement thereafter for so long as any of such options or other rights remain outstanding. 5.10 Indemnification. --------------- (a) From and after the Effective Time, Parent will cause the Surviving Corporation to fulfill and honor in all respects the existing obligations of the Company pursuant to any indemnification agreements and obligations (including obligations arising under the Company's Certificate of Incorporation or Bylaws) between the Company and its current and former directors and officers as of the Effective Time (the "Indemnified Parties"). (b) For a period of six years after the Effective Time, Parent will use its commercially reasonable efforts to maintain in effect, if available, directors' and officers' liability insurance covering those persons who are currently covered by the Company's directors' and officers' liability insurance policy on terms comparable to those applicable to the current directors and officers of the Company; provided, however, that in no event will Parent or the Surviving Corporation be required to expend in excess of 150% of the annual premium currently paid by the Company for such coverage (or such coverage as is available for such 150% of such annual premium). (c) This Section 5.10 is intended to be for the benefit of, and shall be enforceable by the Indemnified Parties and their heirs and personal representatives and shall be binding on the Surviving Corporation and its successors and assigns. In the event the Surviving Corporation or its successor or assign (i) consolidates with or merges into any other person and shall not be the continuing or surviving corporation or entity in such consolidation or merger or (ii) transfers all or substantially all of its properties and assets to any person, then, and in each case, proper provision shall be made so that the successor and assign of the Surviving Corporation honor the indemnification obligations set forth in this Section 5.10. 5.11 Nasdaq Listing. Parent agrees to take all commercially reasonable -------------- efforts and to submit all appropriate filings and applications to cause the shares of Parent Common Stock issuable, and those required to be reserved for issuance, in connection with the Merger, to be approved for listing on Nasdaq upon official notice of issuance. -41- 5.12 Company Affiliate Agreement. Set forth on Exhibit C is a list of --------------------------- --------- those persons who may be, in the Company's reasonable judgment, affiliates of the Company within the meaning of Rule 145 promulgated under the Securities Act (each a "Company Affiliate"). The Company will provide Parent with such information and documents as Parent reasonably requests for purposes of reviewing such list. The Company will use its commercially reasonable efforts to deliver or cause to be delivered to Parent, as promptly as practicable on or following the date hereof, from each Company Affiliate an executed affiliate agreement in substantially the form attached hereto as Exhibit D (the "Company --------- Affiliate Agreement"), each of which will be in full force and effect as of the Effective Time. Parent will be entitled to place appropriate legends on the certificates evidencing any Parent Common Stock to be received by a Company Affiliate pursuant to the terms of this Agreement, and to issue appropriate stop transfer instructions to the transfer agent for the Parent Common Stock, consistent with the terms of the Company Affiliate Agreement. 5.13 Employment of Key Employees. Promptly following the date hereof, --------------------------- Parent shall endeavor to negotiate in good faith with each of the employees of the Company set forth on Schedule 5.13 hereof (the "Key Employees") regarding ------------- the terms of employment with Parent of the Key Employees following the Effective Time. Parent shall consult with the Chief Executive Officer of the Company regarding appropriate terms of such employment. The terms offered by Parent shall provide for "at-will employment", be market competitive (taking into account the skill set of the Key Employee and the market for these skills in the geographic location such Key Employee is employed) and shall include title, base salary (which shall not be less than the base salary in effect for such Key Employee at the Company as of the date hereof) and benefits (including stock options, if appropriate) that are commensurate with such Key Employee's employment history with the Company and that take into account the acquisition of the Company by Parent and the integration of the Company's operations into Parent's business organization. The terms of offers of employment shall also include noncompetition and nonsolicitation provisions to be binding on the Key Employees which provisions shall be customary for transactions similar to the Merger. Without limiting the foregoing, in particular, the noncompetition and nonsolicitation provisions may last for the longer of (i) a two-year period following the Effective Time and (ii) a one year period following termination of the Key Employee's service with Parent. In the event of the Key Employee's termination of employment by Parent without cause (as opposed to voluntary termination or termination with cause), Parent shall have the unilateral right to terminate the noncompetition provisions (with no payment obligations to the Key Employee) or to continue the noncompetition provisions provided that the Key Employee is paid an amount equal to the Key Employee's periodic base salary (as in effect immediately prior to termination of employment without cause) during all or part of the duration of the noncompetition provisions, in which case such provisions shall continue in effect during the duration of such payments. 5.14 Treatment as Reorganization. Neither Parent or the Company, nor any --------------------------- of their respective affiliates, will take any action prior to or following the Closing that would reasonably be expected to jeopardize the status of the Merger as a reorganization with the meaning of Section 368(a) of the Code. -42- 5.15 Asset Dispositions. As soon as reasonably practicable after the date ------------------ hereof, the Company shall commence and complete those actions as are set forth in Schedule 4.1(i) to this Agreement. --------------- ARTICLE VI CLOSING CONDITIONS 6.1 Conditions to Obligations of Each Party to Effect the Merger. The respective obligations of each party to this Agreement to effect the Merger shall be subject to the satisfaction at or prior to the Closing Date of the following conditions: (a) Company Stockholder Approval. This Agreement shall have been ---------------------------- approved and adopted, and the Merger shall have been duly approved, by the requisite vote under applicable law, by the stockholders of the Company. (b) Registration Statement Effective; Proxy Statement. The SEC shall ------------------------------------------------- have declared the Registration Statement effective. No stop order suspending the effectiveness of the Registration Statement or any part thereof shall have been issued and no proceeding for that purpose, and no similar proceeding in respect of the Prospectus/Proxy Statement, shall have been initiated or threatened in writing by the SEC. (c) No Prohibition; HSR Act. No Governmental Entity shall have ----------------------- enacted, issued, promulgated, enforced or entered any statute, rule, regulation, executive order, decree, injunction or other order (whether temporary, preliminary or permanent) which is in effect and which has the effect of making the Merger illegal or otherwise prohibiting consummation of the Merger. All waiting periods, if any, under the HSR Act relating to the transactions contemplated hereby will have expired or terminated early and all material foreign antitrust approvals required to be obtained prior to the Merger in connection with the transactions contemplated hereby shall have been obtained. (d) Tax Opinions. Parent and the Company shall each have received ------------ written opinions from their respective tax counsel (Wilson Sonsini Goodrich & Rosati, Professional Corporation, and Gray Cary Ware & Freidenrich LLP, respectively), in form and substance reasonably satisfactory to them, to the effect that the Merger will constitute a reorganization within the meaning of Section 368(a) of the Code and such opinions shall not have been withdrawn. The parties to this Agreement agree to make such customary representations as requested by such counsel for the purpose of rendering such opinions. (e) Nasdaq Listing. The shares of Parent Common Stock to be issued -------------- in the Merger shall have been authorized for listing on Nasdaq, subject to notice of issuance. 6.2 Additional Conditions to Obligations of the Company. The obligation --------------------------------------------------- of the Company to consummate and effect the Merger shall be subject to the satisfaction at or prior to the Closing Date of each of the following conditions, any of which may be waived, in writing, exclusively by the Company: -43- (a) Representations and Warranties. Except for those representations ------------------------------ and warranties which address matters only as of a particular date (which shall be true and correct in all material respects as of such date), each representation and warranty of Parent contained in this Agreement (i) shall have been true and correct as of the date of this Agreement and (ii) shall be true and correct as of the Closing Date with the same force and effect as if made on the Closing Date, except with respect to clauses (i) and (ii) above where the failure to be true and correct does not constitute a Material Adverse Effect on Parent (disregarding for purposes of evaluating whether this condition is satisfied, any "Material Adverse Effect" or other materiality qualifications contained in the representations and warranties), provided, however, such ----------------- Material Adverse Effect qualification shall be inapplicable to the representations and warranties contained in Sections 3.3 and 3.8. The Company shall have received a certificate with respect to the foregoing signed on behalf of Parent by an authorized officer of Parent. (b) Agreements and Covenants. Parent shall have performed or ------------------------ complied in all material respects with all agreements and covenants required by this Agreement to be performed or complied with by it on or prior to the Closing Date, and the Company shall have received a certificate to such effect signed on behalf of Parent by an authorized officer of Parent. (c) Material Adverse Effect. No Material Adverse Effect with respect ----------------------- to Parent shall have occurred since the date of this Agreement. 6.3 Additional Conditions to the Obligations of Parent. The obligations --------------------------------------------------- of Parent to consummate and effect the Merger shall be subject to the satisfaction at or prior to the Closing Date of each of the following conditions, any of which may be waived, in writing, exclusively by Parent: (a) Representations and Warranties. Except for those representations ------------------------------ and warranties which address matters only as of a particular date (which shall be true and correct in all material respects as of such date), each representation and warranty of the Company contained in this Agreement (i) shall have been true and correct as of the date of this Agreement and (ii) shall be true and correct as of the Closing Date with the same force and effect as if made on the Closing Date, except with respect to clauses (i) and (ii) above where the failure to be true and correct does not constitute a Material Adverse Effect on the Company (disregarding for purposes of evaluating whether this condition is satisfied, any "Material Adverse Effect" or other materiality qualifications contained in the representations and warranties), provided, -------- however, such Material Adverse Effect qualification shall be inapplicable to the - ------- representations and warranties contained in Sections 2.20, 2.21 and 2.22 and the first four sentences of Section 2.4. Parent shall have received a certificate with respect to the foregoing signed on behalf of the Company by the Chief Executive Officer and the Chief Financial Officer of the Company. (b) Agreements and Covenants. The Company shall have performed or ------------------------ complied in all material respects with all agreements and covenants required by this Agreement to be performed or complied with by it at or prior to the Closing Date, and Parent shall have received a certificate to such effect signed on behalf of the Company by the Chief Executive Officer and the Chief Financial Officer of the Company. -44- (c) Material Adverse Effect. No Material Adverse Effect with respect ----------------------- to the Company and its subsidiaries shall have occurred since the date of this Agreement and be continuing. (d) Employment Matters. At least 75% of the Key Employees shall have ------------------ accepted an offer of employment with Parent to be effective at the Effective Time and shall have executed and delivered employment, noncompetition and nonsolicitation agreements with Parent in form and substance reasonably acceptable to Parent consistent with the terms described in Section 5.13. In the event Parent breaches its obligations under Section 5.13 in any material respect the condition set forth in this Section 6.3(d) shall be deemed satisfied. (e) Third Party Consents. Parent shall have received all consents, -------------------- waivers, approvals and assignments listed on Schedule 6.3(e) to this Agreement. --------------- ARTICLE VII TERMINATION, AMENDMENT AND WAIVER 7.1 Termination. This Agreement may be terminated at any time prior to ----------- the Effective Time, whether before or after the requisite approval of the stockholders of the Company: (a) by mutual written consent duly authorized by the Boards of Directors of Parent and the Company; (b) by either the Company or Parent if the Merger shall not have been consummated by August 31, 2001 (the "End Date") for any reason; provided, however, that the right to terminate this Agreement under this Section 7.1(b) shall not be available to any party whose action or failure to act has been a principal cause of or resulted in the failure of the Merger to occur on or before such date and such action or failure to act constitutes a material breach of this Agreement; (c) by either the Company or Parent if a Governmental Entity shall have issued an order, decree or ruling or taken any other action, in any case having the effect of permanently restraining, enjoining or otherwise prohibiting the Merger, which order, decree, ruling or other action is final and nonappealable; (d) by either the Company or Parent if the required approval of the stockholders of the Company contemplated by this Agreement shall not have been obtained by reason of the failure to obtain the required vote at a meeting of the Company stockholders duly convened therefor or at any adjournment thereof; provided, however, that the right to terminate this Agreement under this Section 7.1(d) shall not be available to the Company where the failure to obtain the Company stockholder approval shall have been primarily caused by (i) the action or failure to act of the Company and such action or failure to act constitutes a material breach by the Company of this Agreement or (ii) a breach of any Company Voting Agreement by any party thereto other than Parent; -45- (e) by Parent (at any time prior to the adoption and approval of this Agreement and the Merger by the required vote of the stockholders of the Company) (i) if a Company Triggering Event (as defined below) shall have occurred or (ii) the Company shall have entered into negotiations with respect to an Acquisition Proposal pursuant to Section 5.4(a) hereof and such negotiations shall not have been terminated prior to the eighth (8th) business day following commencement of such negotiations or the Company shall have otherwise engaged in negotiations with respect to any Acquisition Proposal for an aggregate of more than seven (7) business days ; (f) by Parent, upon a breach of any representation, warranty, covenant or agreement on the part of the Company set forth in this Agreement, or if any representation or warranty of the Company shall have become untrue, in either case such that the conditions set forth in Section 6.3(a) or Section 6.3(b) would not be satisfied as of the time of such breach or as of the time such representation or warranty shall have become untrue, provided, that if such inaccuracy in the Company's representations and warranties or breach by the Company is curable by the Company through the exercise of its commercially reasonable efforts, then Parent may not terminate this Agreement under this Section 7.1(f) prior to the End Date, provided the Company continues to exercise commercially reasonable efforts to cure such breach (it being understood that Parent may not terminate this Agreement pursuant to this paragraph (f) if Parent shall have materially breached this Agreement or if such breach by the Company is cured prior to the End Date). (g) by the Company, upon a breach of any representation, warranty, covenant or agreement on the part of Parent set forth in this Agreement, or if any representation or warranty of Parent shall have become untrue, in either case such that the conditions set forth in Section 6.2(a) or Section 6.2(b) would not be satisfied as of the time of such breach or as of the time such representation or warranty shall have become untrue, provided, that if such inaccuracy in Parent's representations and warranties or breach by Parent is curable by Parent through the exercise of its commercially reasonable efforts, then the Company may not terminate this Agreement under this Section 7.1(g) prior to the End Date, provided Parent continues to exercise commercially reasonable efforts to cure such breach (it being understood that the Company may not terminate this Agreement pursuant to this paragraph (g) if Company shall have materially breached this Agreement or if such breach by Parent is cured prior to the End Date). For the purposes of this Agreement, a "Company Triggering Event" shall be deemed to have occurred if: (i) the Board of Directors of the Company or any committee thereof shall for any reason have withdrawn or shall have amended or modified in a manner adverse to Parent its unanimous recommendation in favor of, the adoption and approval of the Agreement or the approval of the Merger; (ii) the Company shall have failed to include in the Prospectus/Proxy Statement the unanimous recommendation of the Board of Directors of the Company in favor of the adoption and approval of the Agreement and the approval of the Merger; (iii) the Board of Directors of the Company fails to reaffirm its unanimous recommendation in favor of the adoption and approval of the Agreement and the approval of the Merger within ten (10) business days after Parent requests in writing that such recommendation be reaffirmed; (iv) the Board of Directors of the Company or any committee thereof shall have approved or recommended any Acquisition Proposal; or (v) a tender or exchange offer relating to securities of the Company shall have been commenced by a Person -46- unaffiliated with Parent and the Company shall not have sent to its securityholders pursuant to Rule 14e-2 promulgated under the Exchange Act, within ten (10) business days after such tender or exchange offer is first published sent or given, a statement disclosing that the Company recommends rejection of such tender or exchange offer. 7.2 Notice of Termination; Effect of Termination. Any termination of this -------------------------------------------- Agreement under Section 7.1 above will be effective immediately upon the delivery of a valid written notice from the terminating party to the other party hereto. In the event of the termination of this Agreement as provided in Section 7.1, this Agreement shall be of no further force or effect, except (i) as set forth in this Section 7.2, Section 7.3 and Article 8 (miscellaneous), each of which shall survive the termination of this Agreement, and (ii) nothing herein shall relieve any party from liability for any willful breach of this Agreement. No termination of this Agreement shall affect the obligations of the parties contained in the Confidentiality Agreement, all of which obligations shall survive termination of this Agreement in accordance with their terms. 7.3 Fees and Expenses ----------------- (a) General. Except as set forth in this Section 7.3, all fees and ------- expenses incurred in connection with this Agreement and the transactions contemplated hereby shall be paid by the party incurring such expenses whether or not the Merger is consummated; provided, however, that Parent and the Company ----------------- shall share equally all fees and expenses, other than attorneys' and accountants fees and expenses, incurred in relation to the printing and filing (with the SEC) of the Prospectus/Proxy Statement (including any preliminary materials related thereto) and the Registration Statement (including financial statements and exhibits) and any amendments or supplements thereto. (b) Company Payments. In the event that this Agreement is terminated ---------------- by Parent or the Company, as applicable, pursuant to Sections 7.1(b), (d) or (e), the Company shall promptly, but in no event later than two days after the date of such termination, pay Parent a fee equal to eleven million U.S. Dollars ($11,000,000) in immediately available funds (the "Termination Fee"); provided, -------- however, that in the case of termination under Section 7.1(b) or 7.1(d), such - ------- payment shall be made only if following the date hereof and prior to the termination of this Agreement, a third party has publicly announced an Acquisition Proposal and within 12 months following the termination of this Agreement a Company Acquisition (as defined below) is consummated, and provided, -------- further that in the case of termination under Section 7.1(e), such payment shall - ------- be made only if within nine (9) months following termination of this Agreement, a Company Acquisition is consummated or the Company enters into an agreement providing for a Company Acquisition. The Company acknowledges that the agreements contained in this Section 7.3(b) are an integral part of the transactions contemplated by this Agreement, and that, without these agreements, Parent would not enter into this Agreement; accordingly, if the Company fails to pay in a timely manner the amounts due pursuant to this Section 7.3(b), and, in order to obtain such payment, Parent makes a claim that results in a judgment against the Company for the amounts set forth in this Section 7.3(b), the Company shall pay to Parent its reasonable costs and expenses (including attorneys' fees and expenses) in connection with such suit, together with interest on the amounts set forth in this Section 7.3(b) at the prime rate of Bank of America in effect on the date such payment was required to be made. Payment of the fees described in this -47- Section 7.3(b) shall not be in lieu of damages incurred in the event of breach of this Agreement. For the purposes of this Agreement "Company Acquisition" shall mean any of the following transactions (other than the transactions contemplated by this Agreement); (i) a merger, consolidation, business combination, recapitalization, liquidation, dissolution or similar transaction involving the Company pursuant to which the stockholders of the Company immediately preceding such transaction hold less than 60% of the aggregate equity interests in the surviving or resulting entity of such transaction, (ii) a sale or other disposition by the Company of assets representing in excess of 40% of the aggregate fair market value of the Company's business immediately prior to such sale or (iii) the acquisition by any person or group (including by way of a tender offer or an exchange offer or issuance by the Company), directly or indirectly, of beneficial ownership or a right to acquire beneficial ownership of shares representing in excess of 40% of the voting power of the then outstanding shares of capital stock of the Company. 7.4 Amendment. Subject to applicable law, this Agreement may be amended --------- by the parties hereto at any time by execution of an instrument in writing signed on behalf of each of Parent and the Company. 7.5 Extension; Waiver. At any time prior to the Effective Time any party ----------------- hereto may, to the extent legally allowed, (i) extend the time for the performance of any of the obligations or other acts of the other parties hereto, (ii) waive any inaccuracies in the representations and warranties made to such party contained herein or in any document delivered pursuant hereto and (iii) waive compliance with any of the agreements or conditions for the benefit of such party contained herein. Any agreement on the part of a party hereto to any such extension or waiver shall be valid only if set forth in an instrument in writing signed on behalf of such party. Delay in exercising any right under this Agreement shall not constitute a waiver of such right. ARTICLE VIII GENERAL PROVISIONS 8.1 Non-Survival of Representations and Warranties. The representations ---------------------------------------------- and warranties of the Company and Parent contained in this Agreement shall terminate at the Effective Time, and only the covenants that by their terms survive the Effective Time shall survive the Effective Time. 8.2 Notices. All notices and other communications hereunder shall be in ------- writing and shall be deemed given if delivered personally or by commercial delivery service, or sent via facsimile (receipt confirmed) to the parties at the following addresses or facsimile numbers (or at such other address or facsimile numbers for a party as shall be specified by like notice): -48- (a) if to Parent, to: Palm, Inc. 5470 Great America Parkway Santa Clara, CA 95052 Attention: Douglas S. Solomon, Ph.D. Tel.: (408) 326-7487 Fax: (408) 326-9770 with a copy to: Palm, Inc. 5470 Great America Parkway Santa Clara, CA 95052 Attention: General Counsel Tel.: (408) 326-9000 Fax: (408) 326-9003 and a copy to: Wilson Sonsini Goodrich & Rosati Professional Corporation 650 Page Mill Road Palo Alto, California 94304-1050 Attention: Katherine A. Martin Martin W. Korman Robert Sanchez Tel.: (650) 493-9300 Fax: (650) 493-6811 (b) if to the Company, to: Extended Systems Incorporated 5777 N. Meeker Avenue Boise, ID 83713 Attention: Steve Simpson Tel.: (208) 322-7575 ext. 6056 Fax: (208) 377-1906 with a copy to: Gray Cary Ware & Freidenrich 400 Hamilton Avenue Palo Alto, California 94301 Attention: Bradley J. Rock Tel.: (650) 833-2111 Fax: (650) 833-2001 -49- 8.3 Interpretation; Knowledge. ------------------------- (a) When a reference is made in this Agreement to Exhibits, such reference shall be to an Exhibit to this Agreement unless otherwise indicated. When a reference is made in this Agreement to Sections, such reference shall be to a Section of this Agreement unless otherwise indicated the words "include," "includes" and "including" when used herein shall be deemed in each case to be followed by the words "without limitation." The table of contents and headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. When reference is made herein to "the business of" an entity, such reference shall be deemed to include the business of all direct and indirect subsidiaries of such entity. Reference to the subsidiaries of an entity shall be deemed to include all direct and indirect subsidiaries of such entity. (b) For purposes of this Agreement the term "knowledge" means with respect to Parent, with respect to any matter in question, that any of the Chief Executive Officer, Chief Financial Officer, General Counsel or Controller of Parent, has actual knowledge of such matter, and with respect to the Company, with respect to any matter in question that any of the Chief Executive Officer, Chief Financial Officer, Chief Technical Officer, General Counsel, Controller or any Vice President of the Company has actual knowledge of such matter. (c) For purposes of this Agreement, the term "Material Adverse Effect" when used in connection with an entity means any change, event, violation, inaccuracy, circumstance or effect that is or is reasonably likely to be materially adverse to the business, assets (including intangible assets), capitalization, financial condition or results of operations of such entity taken as a whole with its subsidiaries except to the extent that any such change, event, violation, inaccuracy, circumstance or effect directly and primarily results from (i) changes in general economic conditions or changes affecting the industry generally in which such entity operates (provided that such changes do not affect such entity in a disproportionate manner), (ii) changes in trading prices for such entity's capital stock or failure to meet analysts' expectations in and of itself, (iii) a shortfall in revenue caused by the delay or deferral of customer orders or the failure to sign new customers, in any event, caused by the announcement or pendency of the Merger, (iv) the disposition or the public announcement of the disposition of Company assets as contemplated by Section 4.1(i) of this Agreement, or (v) shareholder class action litigation arising from allegations of a breach of fiduciary duty relating to this Agreement. (d) For purposes of this Agreement, the term "person" shall mean any individual, corporation (including any non-profit corporation), general partnership, limited partnership, limited liability partnership, joint venture, estate, trust, company (including any limited liability company or joint stock company), firm or other enterprise, association, organization, entity or Governmental Entity. 8.4 Counterparts. This Agreement may be executed in one or more ------------ counterparts, all of which shall be considered one and the same agreement and shall become effective when one or more counterparts have been signed by each of the parties and delivered to the other party, it being understood that all parties need not sign the same counterpart. -50- 8.5 Entire Agreement; Third Party Beneficiaries. This Agreement and the ------------------------------------------- documents and instruments and other agreements among the parties hereto as contemplated by or referred to herein, including the Company Disclosure Schedule and the Parent Disclosure Schedule (a) constitute the entire agreement among the parties with respect to the subject matter hereof and supersede all prior agreements and understandings, both written and oral, among the parties with respect to the subject matter hereof, it being understood that the Confidentiality Agreement shall continue in full force and effect until the Closing and shall survive any termination of this Agreement; and (b) are not intended to confer upon any other person any rights or remedies hereunder, except as specifically provided in Section 5.10. 8.6 Severability. In the event that any provision of this Agreement or ------------ the application thereof, becomes or is declared by a court of competent jurisdiction to be illegal, void or unenforceable, the remainder of this Agreement will continue in full force and effect and the application of such provision to other persons or circumstances will be interpreted so as reasonably to effect the intent of the parties hereto. The parties further agree to replace such void or unenforceable provision of this Agreement with a valid and enforceable provision that will achieve, to the extent possible, the economic, business and other purposes of such void or unenforceable provision. 8.7 Other Remedies; Specific Performance. Except as otherwise provided ------------------------------------ herein, any and all remedies herein expressly conferred upon a party will be deemed cumulative with and not exclusive of any other remedy conferred hereby, or by law or equity upon such party, and the exercise by a party of any one remedy will not preclude the exercise of any other remedy. The parties hereto agree that irreparable damage would occur in the event that any of the provisions of this Agreement were not performed in accordance with their specific terms or were otherwise breached. It is accordingly agreed that the parties shall be entitled to seek an injunction or injunctions to prevent breaches of this Agreement and to enforce specifically the terms and provisions hereof in any court of the United States or any state having jurisdiction, this being in addition to any other remedy to which they are entitled at law or in equity. 8.8 Governing Law. This Agreement shall be governed by and construed in ------------- accordance with the laws of the State of Delaware, regardless of the laws that might otherwise govern under applicable principles of conflicts of law thereof. 8.9 Rules of Construction. The parties hereto agree that they have been --------------------- represented by counsel during the negotiation and execution of this Agreement and, therefore, waive the application of any law, regulation, holding or rule of construction providing that ambiguities in an agreement or other document will be construed against the party drafting such agreement or document. 8.10 Assignment. No party may assign either this Agreement or any of its ---------- rights, interests, or obligations hereunder without the prior written approval of the other parties. Any purported assignment in violation of this Section 8.10 shall be void. Subject to the preceding sentence, this Agreement shall be binding upon and shall inure to the benefit of the parties hereto and their respective successors and permitted assigns. -51- 8.11 WAIVER OF JURY TRIAL. EACH OF PARENT AND THE COMPANY HEREBY -------------------- IRREVOCABLY WAIVES ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM (WHETHER BASED ON CONTRACT, TORT OR OTHERWISE) ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE ACTIONS OF PARENT OR THE COMPANY IN THE NEGOTIATION, ADMINISTRATION, PERFORMANCE AND ENFORCEMENT HEREOF. [Remainder of Page Intentionally Left Blank] -52- IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their duly authorized respective officers as of the date first written above. PALM, INC. By: /s/ Carl J. Yankowski -------------------------------------------- Name: Carl J. Yankowski ------------------------------------------ Title: Chief Executive Officer ----------------------------------------- EXTENDED SYSTEMS INCORPORATED By: /s/ Steven D. Simpson -------------------------------------------- Name: Steven D. Simpson ------------------------------------------ Title: President and Chief Executive Officer ----------------------------------------- **** AGREEMENT AND PLAN OF REORGANIZATION **** EX-9 3 0003.txt FORM OF VOTING AGREEMENT Exhibit 9 COMPANY VOTING AGREEMENT This Company Voting Agreement ("Agreement") is made and entered into as of March 6, 2001, between Palm, Inc., a Delaware corporation ("Parent"), and the undersigned stockholder ("Stockholder") of Extended Systems Incorporated, a Delaware corporation (the "Company"). RECITALS -------- A. Parent and the Company have entered into an Agreement and Plan of Merger and Reorganization (the "Reorganization Agreement"), which provides for the merger (the "Merger") of the Company with and into Parent, pursuant to which all outstanding capital stock of the Company will be converted into the right to receive common stock of Parent, as set forth in the Reorganization Agreement. B. The Stockholder is the beneficial owner (as defined in Rule 13d-3 under the Securities Exchange Act of 1934, as amended (the "Exchange Act")) of such number of shares of the outstanding capital stock of the Company, and such number of shares of capital stock of the Company issuable upon the exercise of outstanding options and warrants, as is indicated on the signature page of this Agreement. C. In consideration of the execution of the Reorganization Agreement by Parent, the Stockholder (in his or her capacity as such) has agreed to vote the Shares (as defined below) and such other shares of capital stock of the Company over which the Stockholder has voting power, so as to facilitate consummation of the Merger. NOW, THEREFORE, intending to be legally bound hereby, the parties hereto hereby agree as follows: 1. Certain Definitions. Capitalized terms used but not defined herein ------------------- shall have the respective meanings ascribed thereto in the Reorganization Agreement. For all purposes of and under this Agreement, the following terms shall have the following respective meanings: 1.1 "Expiration Date" shall mean the earlier to occur of (i) such date and time as the Reorganization Agreement shall have been validly terminated pursuant to its terms, or (ii) such date and time as the Merger shall become effective in accordance with the terms and conditions set forth in the Reorganization Agreement. 1.2 "Person" shall mean any individual, any corporation, limited liability company, general or limited partnership, business trust, unincorporated association or other business organization or entity, or any governmental authority. 1.3 "Shares" shall mean: (i) all securities of the Company (including all shares of Company Common Stock and all options, warrants and other rights to acquire shares of Company Common Stock) owned by the Stockholder as of the date of this Agreement, and (ii) all additional securities of the Company (including all additional shares of Company Common Stock and all additional options, warrants and other rights to acquire shares of Company -1- Common Stock) of which the Stockholder acquires beneficial ownership during the period commencing with the execution and delivery of this Agreement until the Expiration Date. 1.4 Transfer. A Person shall be deemed to have effected a -------- "Transfer" of a security if such person directly or indirectly (i) sells, pledges, encumbers, grants an option with respect to, transfers or otherwise disposes of such security or any interest therein, or (ii) enters into an agreement or commitment providing for the sale of, pledge of, encumbrance of, grant of an option with respect to, transfer of or disposition of such security or any interest therein. 2. Transfer of Shares. ------------------ 2.1 Transferee of Shares to be Bound by this Agreement. The -------------------------------------------------- Stockholder hereby agrees that, at all times during the period commencing with the execution and delivery of this Agreement until the Expiration Date, the Stockholder shall not cause or permit any Transfer of any of the Shares to be effected, unless each Person to which any such Shares, or any interest therein, is or may be Transferred shall have executed a binding counterpart of this Agreement and a proxy in the form attached hereto as Exhibit A (with such --------- modifications as Parent may reasonably request). 2.2 Transfer of Voting Rights. The Stockholder hereby agrees that, ------------------------- at all times commencing with the execution and delivery of this Agreement until the Expiration Date, the Stockholder shall not deposit, or permit the deposit of, any Shares in a voting trust, grant any proxy in respect of the Shares, or enter into any voting agreement or similar arrangement or commitment in contravention of the obligations of the Stockholder under this Agreement with respect to any of the Shares. 3. Agreement to Vote Shares. Until the Expiration Date, at every meeting ------------------------ of stockholders of the Company called with respect to any of the following, and at every adjournment or postponement thereof, and on every action or approval by written consent of stockholders of the Company with respect to any of the following, the Stockholder shall vote, to the extent not voted by the person(s) appointed under the Proxy (as defined in Section 4 hereof), the Shares: --------- 3.1 in favor of approval of the Merger and the adoption and approval of the Reorganization Agreement, and in favor of each of the other actions contemplated by the Reorganization Agreement and the Proxy and any action required in furtherance thereof; 3.2 against approval of any proposal made in opposition to, or in competition with, consummation of the Merger and the transactions contemplated by the Reorganization Agreement; 3.3 against any other action that is intended, or could reasonably be expected to, impede, interfere with, delay, postpone, discourage or adversely affect the Merger or any of the other transactions contemplated by the Reorganization Agreement; and 3.4 in favor of waiving any notice that may have been or may be required relating to any reorganization of the Company or any subsidiary of the Company, any reclassification or -2- recapitalization of the capital stock of the Company or any subsidiary of the Company, or any sale of assets, change of control, or acquisition of the Company or any subsidiary of the Company by any other person, or any consolidation or merger of the Company or any subsidiary of the Company with or into any other person. Prior to the Expiration Date, the Stockholder shall not enter into any agreement or understanding with any person to vote or give instructions in any manner inconsistent with the terms of this Section 3. --------- 4. Irrevocable Proxy. Concurrently with the execution of this Agreement, ----------------- the Stockholder agrees to deliver to Parent a proxy in the form attached hereto as Exhibit A (the "Proxy"), which shall be irrevocable to the fullest extent --------- ----- permissible by applicable law, with respect to the Shares. 5. Representations and Warranties of the Stockholder. The Stockholder ------------------------------------------------- hereby represents and warrants to Parent that, as of the date hereof and at all times until the Expiration Date, the Stockholder (i) is (and will be, unless Transferred pursuant to Section 2(a) hereof) the beneficial owner of the shares ------------ of Company Common Stock, and the options, warrants and other rights to purchase shares of Company Common Stock, set forth on signature page of this Agreement, with full power to vote or direct the voting of the Shares for and on behalf of all beneficial owners of the Shares; (ii) the Shares are (and will be, unless Transferred pursuant to Section 2(a) hereof) free and clear of any liens, ------------ pledges, security interests, claims, options, rights of first refusal, co-sale rights, charges or other encumbrances of any kind or nature; (iii) does not beneficially own any securities of the Company other than the shares of Company Common Stock, and options, warrants and other rights to purchase shares of Company Common Stock, set forth on the signature page of this Agreement; and (iv) has (and will have, unless Transferred pursuant to Section 2(a) hereof) ------------ full power and authority to make, enter into and carry out the terms of this Agreement and the Proxy. 6. Legending of Shares. If so requested by Parent, the Stockholder hereby ------------------- agrees that the Shares shall bear a legend stating that they are subject to this Agreement and to an irrevocable proxy. Subject to the terms of Section 2 hereof, --------- the Stockholder hereby agrees that the Stockholder shall not Transfer the Shares without first having the aforementioned legend affixed to the certificates representing the Shares. 7. Termination. This Agreement shall terminate and be of no further force ----------- or effect as of the Expiration Date. 8. Miscellaneous. ------------- 8.1 Waiver. No waiver by any party hereto of any condition or any ------ breach of any term or provision set forth in this Agreement shall be effective unless in writing and signed by each party hereto. The waiver of a condition or any breach of any term or provision of this Agreement shall not operate as or be construed to be a waiver of any other previous or subsequent breach of any term or provision of this Agreement. 8.2 Severability. In the event that any term, provision, covenant ------------ or restriction set forth in this Agreement, or the application of any such term, provision, covenant or restriction to -3- any person, entity or set of circumstances, shall be determined by a court of competent jurisdiction to be invalid, unlawful, void or unenforceable to any extent, the remainder of the terms, provisions, covenants and restrictions set forth in this Agreement, and the application of such terms, provisions, covenants and restrictions to persons, entities or circumstances other than those as to which it is determined to be invalid, unlawful, void or unenforceable, shall remain in full force and effect, shall not be impaired, invalidated or otherwise affected and shall continue to be valid and enforceable to the fullest extent permitted by applicable law. 8.3 Binding Effect; Assignment. This Agreement and all of the terms -------------------------- and provisions hereof shall be binding upon, and inure to the benefit of, the parties hereto and their respective successors and permitted assigns, but, except as otherwise specifically provided herein, neither this Agreement nor any of the rights, interests or obligations of the Stockholder may be assigned to any other Person without the prior written consent of Parent. 8.4 Amendments. This Agreement may not be modified, amended, ---------- altered or supplemented, except upon the execution and delivery of a written agreement executed by each of the parties hereto. 8.5 Specific Performance; Injunctive Relief. Each of the parties --------------------------------------- hereto hereby acknowledge that (i) the representations, warranties, covenants and restrictions set forth in this Agreement are necessary, fundamental and required for the protection of Parent and to preserve for Parent the benefits of the Merger; (ii) such covenants relate to matters which are of a special, unique, and extraordinary character that gives each such representation, warranty, covenant and restriction a special, unique, and extraordinary value; and (iii) a breach of any such representation, warranty, covenant or restriction, or any other term or provision of this Agreement, will result in irreparable harm and damages to Parent which cannot be adequately compensated by a monetary award. Accordingly, Parent and the Stockholder hereby expressly agree that in addition to all other remedies available at law or in equity, Parent shall be entitled to the immediate remedy of specific performance, a temporary and/or permanent restraining order, preliminary injunction, or such other form of injunctive or equitable relief as may be used by any court of competent jurisdiction to restrain or enjoin any of the parties hereto from breaching any representations, warranties, covenants or restrictions set forth in this Agreement, or to specifically enforce the terms and provisions hereof. 8.6 Governing Law. This Agreement shall be governed by and ------------- construed, interpreted and enforced in accordance with the internal laws of the State of Delaware without giving effect to any choice or conflict of law provision, rule or principle (whether of the State of Delaware or any other jurisdiction) that would cause the application of the laws of any jurisdiction other than the State of Delaware. 8.7 Entire Agreement. This Agreement and the Proxy and the other ---------------- agreements referred to in this Agreement set forth the entire agreement and understanding of Parent and the Stockholder with respect to the subject matter hereof and thereof, and supersede all prior discussions, agreements and understandings between Parent and the Stockholder, both oral and written, with respect to the subject matter hereof and thereof. -4- 8.8 Notices. All notices and other communications pursuant to this ------- Agreement shall be in writing and deemed to be sufficient if contained in a written instrument and shall be deemed given if delivered personally, telecopied, sent by nationally-recognized overnight courier or mailed by registered or certified mail (return receipt requested), postage prepaid, to the respective parties at the following address (or at such other address for a party as shall be specified by like notice): (a) if to Parent, to: Palm, Inc. 5470 Great America Parkway Santa Clara, CA 95052 Attention: Douglas S. Solomon, Ph.D. Tel.: (408) 326-7487 Fax: (408) 326-9770 with a copy to: Palm, Inc. 5470 Great America Parkway Santa Clara, CA 95052 Attention: General Counsel Tel.: (408) 326-9000 Fax: (408) 326-9003 and a copy to: Wilson Sonsini Goodrich & Rosati Professional Corporation 650 Page Mill Road Palo Alto, California 94304-1050 Attention: Katherine A. Martin Martin W. Korman Robert Sanchez Tel.: (650) 493-9300 Fax: (650) 493-6811 (b) if to Stockholder, to the address for notice set forth on the last page hereof, or to such other address as any party may have furnished to the other in writing in accordance herewith, except that notices of change of address shall only be effective upon receipt. 8.9 Entire Agreement. This Agreement contains the entire ---------------- understanding of the parties in respect of the subject matter hereof, and supersedes all prior negotiations and understandings, both oral and written, between the parties with respect to such subject matter. -5- 8.10 Counterparts. This Agreement may be executed in several ------------ counterparts, each of which shall be an original, but all of which together shall constitute one and the same agreement. 8.11 Effect of Headings. The section headings herein are for ------------------ convenience only and shall not affect the construction or interpretation of this Agreement. [Remainder of Page Intentionally Left Blank] -6- IN WITNESS WHEREOF, the parties have caused this Company Voting Agreement to be duly executed on the date and year first above written. PALM, INC. By:_____________________________________ (Signature) Name:___________________________________ (Print Name) Title:__________________________________ STOCKHOLDER: ________________________________________ (Print Stockholder Name) By:_____________________________________ (Signature) Name:___________________________________ (Print Name) Title:__________________________________ ________________________________________ Telephone ________________________________________ Facsimile No. Shares beneficially owned: ______shares of the Company Common Stock ______shares of the Company Common Stock issuable upon the exercise of outstanding options, warrants or other rights Address: ________________________________________ ________________________________________ ****COMPANY VOTING AGREEMENT**** EXHIBIT A --------- IRREVOCABLE PROXY The undersigned stockholder of Extended Systems Incorporated, a Delaware corporation (the "Company"), hereby irrevocably (to the fullest extent permitted by law) appoints the directors on the Board of Directors of Palm, Inc., a Delaware corporation ("Parent"), and each of them, as the sole and exclusive attorneys and proxies of the undersigned, with full power of substitution and resubstitution, to vote and exercise all voting and related rights (to the full extent that the undersigned is entitled to do so) with respect to all of the shares of capital stock of the Company that now are or hereafter may be beneficially owned by the undersigned, and any and all other shares or securities of the Company issued or issuable in respect thereof on or after the date hereof (collectively, the "Shares") in accordance with the terms of this Proxy. The Shares beneficially owned by the undersigned stockholder of the Company as of the date of this Proxy are listed on the final page of this Proxy. Upon the execution of this Proxy by the undersigned, any and all prior proxies given by the undersigned with respect to any Shares are hereby revoked and the undersigned hereby agrees not to grant any subsequent proxies with respect to the Shares until after the Expiration Date (as defined below). This Proxy is irrevocable (to the fullest extent permitted by law), is coupled with an interest and is granted pursuant to that certain Voting Agreement of even date herewith by and between Parent and the undersigned stockholder (the "Voting Agreement"), and is granted in consideration of Parent entering into that certain Agreement and Plan of Merger and Reorganization (the "Reorganization Agreement"), by and among Parent and the Company, which provides for the merger of the Company with and into Parent in accordance with its terms (the "Merger"). As used herein, the term "Expiration Date" shall mean the earlier to occur of (i) such date and time as the Reorganization Agreement shall have been validly terminated pursuant to its terms, or (ii) such date and time as the Merger shall become effective in accordance with the terms and conditions set forth in the Reorganization Agreement. The attorneys and proxies named above, and each of them, are hereby authorized and empowered by the undersigned, at any time prior to the Expiration Date, to act as the undersigned's attorney and proxy to vote the Shares, and to exercise all voting, consent and similar rights of the undersigned with respect to the Shares (including, without limitation, the power to execute and deliver written consents) at every annual, special, adjourned or postponed meeting of stockholders of the Company and in every written consent in lieu of such meeting: (i) in favor of approval of the Merger and the adoption and approval of the Reorganization Agreement, and in favor of each of the other actions contemplated by the Reorganization Agreement and any action required in furtherance thereof; (ii) against approval of any proposal made in opposition to, or in competition with, consummation of the Merger and the transactions contemplated by the Reorganization Agreement; (iii) against any other action that is intended, or could reasonably be expected to, impede, interfere with, delay, postpone, discourage or adversely affect the Merger or any of the other transactions contemplated by the Reorganization Agreement; and (iv) in favor of waiving any notice that may have been or may be required relating to any reorganization of the Company or any subsidiary of the Company, any reclassification or recapitalization of the capital stock of the Company or any subsidiary of the Company, or any sale of assets, change of control, or acquisition of the Company or any subsidiary of the Company by any other person, or any consolidation or merger of the Company or any subsidiary of the Company with or into any other person. The attorneys and proxies named above may not exercise this Proxy to vote, consent or act on any other matter except as provided above. The undersigned stockholder may vote the Shares on all other matters. Any obligation of the undersigned hereunder shall be binding upon the successors and assigns of the undersigned. This Proxy is irrevocable (to the fullest extent permitted by law). This Proxy shall terminate, and be of no further force and effect, automatically upon the Expiration Date. [Remainder of Page Intentionally Left Blank] Dated: March 6, 2001 Signature of Stockholder:________________________ Print Name of Stockholder:_______________________ Shares beneficially owned: _______ shares of the Company Common Stock _______ shares of the Company Common Stock issuable upon the exercise of outstanding options, warrants or other rights **** IRREVOCABLE PROXY **** EX-10 4 0004.txt STOCK OPTION AGREEMENT Exhibit 10 STOCK OPTION AGREEMENT THIS STOCK OPTION AGREEMENT dated as of March 6, 2001 (the "Agreement") is entered into by and between Extended Systems Incorporated, a Delaware corporation (the "Company"), and Palm, Inc., a Delaware corporation ("Parent"). Capitalized terms used in this Agreement but not defined herein shall have the meanings ascribed thereto in the Merger Agreement (as defined below). Recitals -------- A. Concurrently with the execution and delivery of this Agreement, the Company and Parent are entering into an Agreement and Plan of Reorganization (the "Merger Agreement"), which provides that, among other things, upon the terms and subject to the conditions thereof, the Company and Parent will enter into a business combination transaction (the "Merger"). B. As a condition to Parent's willingness to enter into the Merger Agreement, Parent has requested that the Company agree, and the Company has so agreed, to grant to Parent an option to acquire shares of the Company's Common Stock, $0.001 par value (the "Company Shares"), upon the terms and subject to the conditions set forth herein. Agreement --------- NOW, THEREFORE, in consideration of the foregoing and of the mutual covenants and agreements set forth herein and in the Merger Agreement and for other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the parties hereto agree as follows: 1. Grant of Option. --------------- The Company hereby grants to Parent an irrevocable option (the "Option") to acquire up to a number of Company Shares equal to 19.9% of the issued and outstanding shares of common stock of the Company as of the first date, if any, upon which an Exercise Event (as defined in Section 2(a) below) shall occur (the "Option Shares"), in the manner set forth below by paying cash at a price of $22.00 per share (the "Exercise Price"). 2. Exercise of Option; Maximum Proceeds. ------------------------------------ (a) For all purposes of this Agreement, an "Exercise Event" shall mean the occurrence of either: (i) a Company Triggering Event (as such term is defined in the Merger Agreement) or (ii) the time immediately prior to the consummation of a tender or exchange offer for 25% or more of any class of the Company's capital stock. (b) Parent may deliver to the Company a written notice (an "Exercise Notice") specifying that it wishes to exercise and close a purchase of Option Shares at any time following the occurrence of an Exercise Event and specifying the total number of Option Shares it wishes to acquire. Provided that the conditions set forth in Section 3 to the Company's obligation to issue the 1 Option Shares to Parent hereunder have been satisfied or waived, and unless such Exercise Notice is withdrawn by Parent, the closing of a purchase of Option Shares (a "Closing") specified in such Exercise Notice shall take place at the principal offices of the Company upon such date prior to the termination of the Option as may be designated by Parent in writing. Notwithstanding the foregoing, upon the commencement of a tender or exchange offer for 25% or more of any class of the Company's capital stock (and/or during any time which such a tender or exchange offer remains open), Parent may deliver to the Company an Exercise Notice (a "Conditional Exercise Notice") specifying that it wishes to exercise and close a purchase of Option Shares immediately prior to the consummation of such tender or exchange offer. Unless the Conditional Exercise Notice is withdrawn by Parent, the Closing of the purchase of Options Shares specified in a Conditional Exercise Notice shall take place immediately prior to the consummation of such tender or exchange offer. In the event that such tender or exchange offer is not consummated prior to termination of the Option, such Conditional Exercise Notice shall be void and of no further force and effect. (c) The Option shall terminate upon the earliest to occur of (i) the Effective Time (as such term is defined in the Merger Agreement), (ii) termination of the Merger Agreement pursuant to any of Section 7.1(a), 7.1(c), 7.1(f) or 7.1(g) thereof, (iii) termination of the Merger Agreement pursuant to either of Section 7.1(b) or 7.1(d) thereof if prior thereto no Exercise Event shall have occurred, or (ii) 12 months following the termination of the Merger Agreement under any other circumstances; provided, however, that if the -------- ------- Option is exercisable but cannot be exercised by reason of any applicable government order or because the waiting period related to the issuance of the Option Shares under the HSR Act (as such term is defined in the Merger Agreement) shall not have expired or been terminated, or because any other condition to closing has not been satisfied, then the Option shall not terminate until the tenth business day after such impediment to exercise shall have been removed or shall have become final and not subject to appeal. (d) If Parent receives proceeds in connection with any sales or other dispositions of Option Shares or this Option (including by selling Option Shares to the Company pursuant to Sections 7(a), 7(f) or 8(c) hereof), which when aggregated with the amount of any dividends (or equivalent distributions under Section 9(a) hereof) received by Parent declared on Option Shares and the aggregate fees paid to Parent pursuant to Section 7.3 of the Merger Agreement, exceed the sum of (x) $11,000,000 plus (y) the Exercise Price multiplied by the number of Company Shares purchased by Parent pursuant to the Option, then all proceeds to Parent in excess of such sum shall be promptly remitted by Parent to the Company. 3. Conditions to Closing. --------------------- The obligation of the Company to issue Option Shares to Parent hereunder is subject to the conditions that (a) any waiting period under the HSR Act applicable to the issuance of the Option Shares hereunder shall have expired or been terminated; (b) all material consents, approvals, orders or authorizations of, or registrations, declarations or filings with, any Federal, state or local administrative agency or commission or other Federal state or local governmental authority or instrumentality, if any, required in connection with the issuance of the Option Shares hereunder shall have been obtained or made, as the case may be; and (c) no preliminary or permanent injunction or other order by any court of competent jurisdiction prohibiting or otherwise restraining such issuance shall be in effect. It is understood and agreed that at any time during which Parent shall be entitled 2 to deliver to the Company an Exercise Notice, the parties will use their respective reasonable efforts to satisfy all conditions to Closing, so that a Closing may take place as promptly as practicable, subject to Section 2(b). 4. Closing. ------- At any Closing, (a) the Company shall deliver to Parent a single certificate in definitive form representing the number of Company Shares designated by Parent in its Exercise Notice consistent with this Agreement, such certificate to be registered in the name of Parent and to bear the legend set forth in Section 10 hereof, against delivery of (b) payment by Parent to the Company of the aggregate purchase price for the Company Shares so designated and being purchased by wire transfer of immediately available funds to the account or accounts designated in writing by the Company. 5. Representations and Warranties of the Company. --------------------------------------------- The Company represents and warrants to Parent that (a) the Company is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware and has the corporate power and authority to enter into this Agreement and to carry out its obligations hereunder; (b) the execution and delivery of this Agreement by the Company and consummation by the Company of the transactions contemplated hereby have been duly authorized by all necessary corporate action on the part of the Company and no other corporate proceedings on the part of the Company are necessary to authorize this Agreement or any of the transactions contemplated hereby; (c) this Agreement has been duly executed and delivered by the Company and constitutes a legal, valid and binding obligation of the Company and, assuming this Agreement constitutes a legal, valid and binding obligation of Parent, is enforceable against the Company in accordance with its terms, except as enforceability may be limited by principles of public policy, bankruptcy, insolvency, reorganization, or other similar laws affecting the enforcement of creditors' rights generally, and by rules of law governing specific performance, injunctive relief and other equitable remedies; (d) except for any filings, authorizations, approvals or orders required under the HSR Act and any other applicable laws, the Company has taken all necessary corporate and other action to authorize and reserve for issuance and to permit it to issue upon exercise of the Option, and at all times from the date hereof until the termination of the Option will have reserved for issuance, a sufficient number of unissued Company Shares for Parent to exercise the Option in full and will take all necessary corporate or other action to authorize and reserve for issuance all additional Company Shares or other securities which may be issuable pursuant to Section 9(a) hereof upon exercise of the Option, all of which, upon their issuance and delivery in accordance with the terms of this Agreement and payment therefor by Parent, will be validly issued, fully paid and nonassessable; (e) upon delivery of the Company Shares and any other securities to Parent upon exercise of the Option, Parent will acquire such Company Shares or other securities free and clear of all material claims, liens, charges, encumbrances and security interests of any kind or nature whatsoever, excluding those imposed by Parent and restrictions under applicable securities laws; (f) the execution and delivery of this Agreement by the Company do not, and the performance of this Agreement by the Company will not, (i) violate the Certificate of Incorporation or Bylaws of the Company, (ii) conflict with or violate any order applicable to the Company or any of its subsidiaries or by which they or any of their material property is bound or affected or (iii) result in any breach of 3 or constitute a default (or an event which with notice or lapse of time or both would become a default) under, or give rise to any right of termination, amendment, acceleration or cancellation of, or result in the creation of a material lien or encumbrance on any material property or assets of the Company or any of its subsidiaries pursuant to, any material contract or agreement to which the Company or any of its subsidiaries is a party or by which the Company or any of its subsidiaries or any of their material property is bound or affected; and (g) the execution and delivery of this Agreement by the Company does not, and the performance of this Agreement by the Company will not, require any consent, approval, authorization or permit of, or filing with, or notification to, any Governmental Entity (as such term is defined in the Merger Agreement) except pursuant to the HSR Act. 6. Representations and Warranties of Parent. Parent represents and ---------------------------------------- warrants to the Company that: (a) Parent is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware and has all corporate power and authority required to enter into this Agreement and to carry out its obligations hereunder; (b) the execution and delivery of this Agreement by Parent and the consummation by Parent of the transactions contemplated hereby have been duly authorized by all necessary corporate action on the part of Parent, and no other corporate proceedings on the part of Parent and no action of its stockholders are necessary to authorize this Agreement or any of the transactions contemplated hereby; this Agreement has been duly and validly executed and delivered by Parent and, assuming the due authorization, execution and delivery hereof by the Company and the receipt of all required governmental approvals, constitutes the valid and binding obligation of Parent, enforceable against Parent in accordance with its terms, except as may be limited by applicable bankruptcy, insolvency, reorganization, or other similar laws affecting the enforcement of creditors' rights generally, and except that the availability of equitable remedies, including specific performance, may be subject to the discretion of any court before which any proceeding may be brought; (c) the execution and delivery of this Agreement by Parent does not, and (except for the expiration or early termination of the waiting period under the HSR Act) the performance of this Agreement by Parent and the consummation of the transactions contemplated hereby will not, require any consent, approval, order, authorization or permit of, filing with, or notification to any governmental or regulatory authority; and (d) Parent is an "accredited investor" as defined in Rule 501 under the Securities Act. Any Company Shares acquired by Parent upon exercise of the Option will be acquired for Parent's own account, for investment purposes only and will not be, and the Option is not being, acquired by Parent with a view to the public distribution thereof, in violation of any applicable provision of the Securities Act. 4 7. Registration Rights. ------------------- (a) Following the termination of the Merger Agreement, Parent (sometimes referred to herein as the "Holder") may by written notice (sometimes referred to herein as the "Registration Notice") to the Company (the "Registrant") request the Registrant to register under the Securities Act all or any part of the shares acquired by the Holder pursuant to this Agreement (such shares requested to be registered the "Registrable Securities") in order to permit the sale or other disposition of such shares pursuant to a bona fide firm commitment underwritten public offering in which the Holder and the underwriters shall effect as wide a distribution of such Registrable Securities as is reasonably practicable and shall use reasonable efforts to prevent any person or group from purchasing through such offering shares representing more than 1% of the outstanding shares of Common Stock of the Registrant on a fully diluted basis (a "Permitted Offering"); provided, -------- however, that any such Registration Notice must relate to a number of shares - ------- equal to at least 5% of the outstanding shares of Common Stock of the Registrant on a fully diluted basis and that any rights to require registration hereunder shall terminate with respect to any shares that may be sold pursuant to Rule 144(k) under the Securities Act or at such time as all of the Registrable Securities may be sold in any three month period pursuant to Rule 144 under the Securities Act. The Registration Notice shall include a certificate executed by the Holder and its proposed managing underwriter, which underwriter shall be an investment banking firm of internationally recognized standing reasonably acceptable to the Company (the "Manager"), stating that (i) the Holder and the Manager have a good faith intention to commence a Permitted Offering and (ii) the Manager in good faith believes that, based on the then prevailing market conditions, it will be able to sell the Registrable Securities at a per share price equal to at least 80% of the per share average of the closing sale prices of the Registrant's Common Stock on the Nasdaq National Market for the twenty trading days immediately preceding the date of the Registration Notice. The Registrant shall thereupon have the option exercisable by written notice delivered to the Holder within ten business days after the receipt of the Registration Notice, irrevocably to agree to purchase all (but not less than all) of the Registrable Securities for cash at a price (the "Option Price") equal to the product of (i) the number of Registrable Securities so purchased and (ii) the per share average of the closing sale prices of the Registrant's Common Stock on the Nasdaq National Market for the twenty trading days immediately preceding the date of the Registration Notice. Any such purchase of Registrable Securities by the Registrant hereunder shall take place at a closing to be held at the principal executive offices of the Registrant or its counsel at any reasonable date and time designated by the Registrant in such notice within 10 business days after delivery of such notice. The payment for the shares to be purchased shall be made by delivery at the time of such closing of the Option Price in immediately available funds. (b) If the Registrant does not elect to exercise its option to purchase pursuant to Section 7(a) with respect to all Registrable Securities, the Registrant shall use all reasonable efforts to effect, as promptly as practicable, the registration under the Securities Act of the Registrable Securities requested to be registered in the Registration Notice; provided, -------- however, that (i) the Holder shall not be entitled to more than an aggregate - ------- of two effective registration statements hereunder, provided however, that if the Registrant withdraws a filed registration statement at the request of the Holder (other than as the result of a material change in the Registrant's business or the Holder's learning of new material information concerning the Registrant), then such filing shall be deemed to have been an effective registration for purposes of this clause (i), (ii) the Registrant will 5 not be required to file any such registration statement during any period of time (not to exceed 45 days after a Registration Notice in the case of clause (A) below or 90 days after a Registration Notice in the case of clauses (B) and (C) below) when (A) the Registrant is in possession of material non-public information which it reasonably believes would be detrimental to be disclosed at such time and such information would have to be disclosed if a registration statement were filed at that time; (B) the Registrant is required under the Securities Act to include audited financial statements for any period in such registration statement and such financial statements are not yet available for inclusion in such registration statement; or (C) the Registrant determines, in its reasonable judgment, that such registration would interfere with any financing, acquisition or other material transaction involving the Registrant and (iii) the Registrant will not be required to maintain the effectiveness of any such registration statement for a period greater than 60 days. If consummation of the sale of any Registrable Securities pursuant to a registration hereunder does not occur within 180 days after the filing with the SEC of the initial registration statement therefor, the provisions of this Section 7 shall again be applicable to any proposed registration. The Registrant shall use all reasonable efforts to cause any Registrable Securities registered pursuant to this Section 7 to be qualified for sale under the securities or blue sky laws of such jurisdictions as the Holder may reasonably request and shall continue such registration or qualification in effect in such jurisdictions until the Holder has sold or otherwise disposed of all of the securities subject to the registration statement, but not for a period greater than 60 days; provided, however, that the Registrant shall not -------- ------- be required to qualify to do business in, or consent to general service of process in, any jurisdiction by reason of this provision. (c) The registration rights set forth in this Section 7 are subject to the condition that the Holder shall provide the Registrant with such information with respect to the Holder's Registrable Securities, the plan for distribution thereof, and such other information with respect to the Holder as, in the reasonable judgment of counsel for the Registrant, is necessary to enable the Registrant to include in a registration statement all material facts required to be disclosed with respect to a registration thereunder, including the identity of the Holder and the Holder's plan of distribution. (d) A registration effected under this Section 7 shall be effected at the Registrant's expense, except for underwriting discounts and commissions and the fees and expenses of counsel to the Holder, and the Registrant shall use all reasonable efforts to provide to the underwriters such documentation (including certificates, opinions of counsel and "comfort" letters from auditors) as are customary in connection with underwritten public offerings and as such underwriters may reasonably require. In connection with any registration, the Holder and the Registrant agree to enter into an underwriting agreement reasonably acceptable to each such party, in form and substance customary for transactions of this type with the underwriters participating in such offering. (e) Indemnification. --------------- (i) The Registrant will indemnify the Holder, each of its directors and officers and each person who controls the Holder within the meaning of Section 15 of the Securities Act, and each underwriter of the Registrant's securities, with respect to any registration, qualification or compliance which has been effected pursuant to this Agreement, against all expenses, claims, losses, damages or liabilities (or actions in respect thereof), including any of the foregoing incurred 6 in settlement of any litigation, commenced or threatened, arising out of or based on any untrue statement (or alleged untrue statement) of a material fact contained in any registration statement, prospectus, offering circular or other document, or any amendment or supplement thereto, incident to any such registration, qualification or compliance, or based on any omission (or alleged omission) to state therein a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances in which they were made, not misleading, or any violation by the Registrant of any rule or regulation promulgated under the Securities Act applicable to the Registrant in connection with any such registration, qualification or compliance, and the Registrant will reimburse the Holder and, each of its directors and officers and each person who controls the Holder within the meaning of Section 15 of the Securities Act, and each underwriter for any legal and any other expenses reasonably incurred in connection with investigating, preparing or defending any such claim, loss, damage, liability or action, provided that the Registrant will not be liable in any such case to the extent that any such claim, loss, damage, liability or expense arises out of or is based on any untrue statement or omission or alleged untrue statement or omission, made in reliance upon and in conformity with written information furnished to the Registrant by the Holder or director or officer or controlling person or underwriter seeking indemnification, provided, however, that the indemnity agreement contained in this subsection 7(e)(i) shall not apply to amounts paid in settlement of any such loss, claim, damage, liability or action if such settlement is effected without the consent of the Registrant, which consent shall not be unreasonably withheld. (ii) The Holder will indemnify the Registrant, each of its directors and officers and each underwriter of the Registrant's securities covered by such registration statement and each person who controls the Registrant within the meaning of Section 15 of the Securities Act, against all claims, losses, damages and liabilities (or actions in respect thereof), including any of the foregoing incurred in settlement of any litigation, commenced or threatened, arising out of or based on any untrue statement (or alleged untrue statement) of a material fact contained in any such registration statement, prospectus, offering circular or other document, or any omission (or alleged omission) to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, or any violation by the Holder of any rule or regulation promulgated under the Securities Act applicable to the Holder in connection with any such registration, qualification or compliance, and will reimburse the Registrant, such directors, officers or control persons or underwriters for any legal or any other expenses reasonably incurred in connection with investigating, preparing or defending any such claim, loss, damage, liability or action, in each case to the extent, but only to the extent, that such untrue statement (or alleged untrue statement) or omission (or alleged omission) is made in such registration statement, prospectus, offering circular or other document in reliance upon and in conformity with written information furnished to the Registrant by the Holder expressly for use therein, provided that in no event shall any indemnity under this Section 7(e) exceed the gross proceeds of the offering received by the Holder and provided further that the indemnity agreement contained in this subsection 7(e)(ii) shall not apply to amounts paid in settlement of any such loss, claim, damage, liability or action if such settlement is effected without the consent of the Holder, which consent shall not be unreasonably withheld. (iii) Each party entitled to indemnification under this Section 7(e) (the "Indemnified Party") shall give notice to the party required to provide indemnification (the "Indemnifying Party") promptly after such Indemnified Party has actual knowledge of any claim as 7 to which indemnity may be sought, and shall permit the Indemnifying Party to assume the defense of any such claim or any litigation resulting therefrom, provided that counsel for the Indemnifying Party, who shall conduct the defense of such claim or litigation, shall be approved by the Indemnified Party (whose approval shall not unreasonably be withheld), and the Indemnified Party may participate in such defense at such party's expense; provided, -------- however, that the Indemnifying Party shall pay such expense if representation - ------- of the Indemnified Party by counsel retained by the Indemnifying Party would be inappropriate due to actual or potential differing interests between the Indemnified Party and any other party represented by such counsel in such proceeding, and provided further that the failure of any Indemnified Party to -------- ------- give notice as provided herein shall not relieve the Indemnifying Party of its obligations under this Section 7(e) unless the failure to give such notice is materially prejudicial to an Indemnifying Party's ability to defend such action. No Indemnifying Party, in the defense of any such claim or litigation shall, except with the consent of each Indemnified Party, consent to entry of any judgment or enter into any settlement which does not include as an unconditional term thereof the giving by the claimant or plaintiff to such Indemnified Party of a release from all liability in respect to such claim or litigation. No Indemnifying Party shall be required to indemnify any Indemnified Party with respect to any settlement entered into without such Indemnifying Party's prior consent (which shall not be unreasonably withheld). (f) Repurchase at the Election of the Company. ----------------------------------------- (i) Except to the extent that Parent shall have previously exercised its rights under Section 7(a), at the request of the Company during the six-month period beginning one year following the Parent's exercise of the Option, the Company may repurchase from Parent, and Parent shall sell to the Company, all (but not less than all) the Company Shares acquired by Parent pursuant hereto and with respect to which Parent has beneficial ownership at the time of such repurchase, at a price equal to the sum of the greater of (I) one hundred ten percent (110%) of the Current Market Price (as defined in Section 7(f)(iii)) or (II) the sum of (X) the Exercise Price in respect of the shares so acquired plus (Y) Parent's Pre-Tax Carrying Cost (as defined in Section 7(f)(iii)), multiplied in either case by the number of shares so acquired (the "Section 7(f) Repurchase Consideration"); provided, that the Company's rights under this Section 7(f) shall be suspended (with any such rights being extended accordingly) during any period when the exercise of such rights would subject Parent to liability or disgorgement of profits pursuant to Section 16(b) of the Exchange Act. (ii) If the Company exercises its rights under this Section 7(f), the Company shall, within ten (10) business days pay the Section 7(f) Repurchase Consideration in immediately available funds and Parent shall surrender to the Company certificates evidencing the Company Shares purchased hereunder with respect to which Parent then has beneficial ownership, and Parent shall warrant that it has sole beneficial ownership of such shares and that all such shares are then free and clear of all claims, liens, charges, encumbrances and security interests of any nature whatsoever. (iii) As used in Section 7(f)(i), (A) "Current Market Price" shall mean the average of the last sale prices per share of the Company Shares on The Nasdaq National Market for the ten (10) trading days immediately preceding the date of the Company's request for repurchase pursuant to this Section 7(f), and (B) "Pre-Tax Carrying Cost" shall mean an amount equal to 8 interest on the aggregate purchase price paid by Parent for the Company Shares purchased pursuant to the Option from the date of purchase to the date of repurchase at the rate of interest announced by Citibank, N.A. as its prime or base lending or reference rate during such period, less any dividends received on the shares so purchased, divided by the number of shares so purchased. 8. Restrictions on Transfer. ------------------------ (a) Restrictions on Transfer. Prior to the Expiration Date (as ------------------------ defined in Section 2(c)), Parent shall not, directly or indirectly, by operation of law or otherwise, sell, assign, pledge, or otherwise dispose of or transfer any shares of capital stock of the Company acquired pursuant to this Agreement ("Restricted Shares") beneficially owned by Parent, other than (i) pursuant to Section 7, or (ii) in accordance with Sections 8(b) and 8(c). (b) Permitted Sales. Following the termination of the Merger --------------- Agreement, Parent shall be permitted to sell any Restricted Shares beneficially owned by it if such sale is made pursuant to a tender or exchange offer that has been approved or recommended, or otherwise determined to be fair to and in the best interests of the holders of common stock of the Company, by a majority of the members of the Board of Directors of the Company. (c) Right of First Refusal. At any time after the first ---------------------- occurrence of a Trigger Event and prior to the expiration of twenty-four (24) months immediately following the first purchase of Option Shares pursuant to this Agreement ("Expiration Date"), if Parent shall desire to sell, assign, transfer or otherwise dispose of all or any of the Company Shares or other securities acquired by it pursuant to this Agreement, it shall give the Company written notice of the proposed transaction (a "Parent Offer Notice"), identifying the proposed transferee, accompanied by a copy of an offer to purchase such shares or other securities signed by such transferee (if Parent shall have received such a written offer) and setting forth the terms of the proposed transaction. A Parent Offer Notice shall be deemed an offer by Parent to the Company, which may be accepted within five (5) business days of the receipt of such Parent Offer Notice, on the same terms and conditions and at the same price at which Parent is proposing to transfer such shares or other securities to such transferee. The purchase of any such shares or other securities by the Company shall be settled within five (5) business days of the date of the acceptance of the offer and the purchase price shall be paid to Parent in immediately available funds. In the event of the failure or refusal of the Company to purchase all the shares or other securities covered by a Parent Offer Notice, Parent may sell all, but not less than all, of such shares or other securities to the proposed transferee at no less than the price specified and on terms no more favorable to the transferee than those set forth in the Parent Offer Notice; provided that the provisions of this sentence shall not limit the rights Parent may otherwise have in the event the Company has accepted the offer contained in the Parent Offer Notice and wrongfully refuses to purchase the shares or other securities subject thereto. The requirements of this Section 8(c) shall not apply to (i) any disposition as a result of which the proposed transferee would own beneficially not more than four percent (4%) of the outstanding voting power of the Company, (ii) any disposition of the Company Shares or other securities by a person to whom Parent has assigned its rights under the Option with the consent of the Company, (iii) any sale by means of a public offering registered under the Securities Act, or (iv) any transfer to a wholly-owned subsidiary of Parent which agrees in writing to be bound by the terms hereof. 9 9. Adjustment Upon Changes in Capitalization; Rights Plans. ------------------------------------------------------- (a) In the event of any change in the Company Shares by reason of stock dividends, stock splits, reverse stock splits, mergers (other than the Merger), recapitalizations, combinations, exchanges of shares and the like, the type and number of shares or securities subject to the Option and the Exercise Price shall be adjusted appropriately, and proper provision shall be made in the agreements governing such transaction so that Parent shall receive, upon exercise of the Option, the number and class of shares or other securities or property that Parent would have received in respect of the Company Shares if the Option had been exercised immediately prior to such event or the record date therefor, as applicable. (b) Prior to such time as the Option is terminated, and at any time after the Option is exercised (in whole or in part, if at all), the Company shall not adopt (nor permit the adoption of) a stockholders rights plan unless such rights plan exempts from the distribution or exercise of rights thereunder this acquisition by Parent or any affiliate or transferee of the beneficial owner of shares of the Company by virtue of the Option being exercisable or having been exercised (or the Parent beneficially owning shares issuable in respect of any Option Shares). 10. Restrictive Legends. ------------------- Each certificate representing Option Shares issued to Parent hereunder shall include a legend in substantially the following form: THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY BE REOFFERED OR SOLD ONLY IF SO REGISTERED OR IF AN EXEMPTION FROM SUCH REGISTRATION IS AVAILABLE. SUCH SECURITIES ARE ALSO SUBJECT TO ADDITIONAL RESTRICTIONS ON TRANSFER AS SET FORTH IN THE STOCK OPTION AGREEMENT DATED AS OF MARCH 6, 2001, A COPY OF WHICH MAY BE OBTAINED FROM THE ISSUER. 11. Listing and HSR Filing. ---------------------- The Company, upon the request of Parent, shall promptly file an application to list the Company Shares to be acquired upon exercise of the Option for quotation on the Nasdaq National Market and shall use its reasonable efforts to obtain approval of such listing as soon as practicable. Promptly after the date hereof, each of the parties hereto shall promptly file with the Federal Trade Commission and the Antitrust Division of the United States Department of Justice all required premerger notification and report forms and other documents and exhibits required to be filed under the HSR Act to permit the acquisition of the Company Shares subject to the Option at the earliest possible date. 12. Binding Effect. -------------- This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and permitted assigns. Nothing contained in this Agreement, express or 10 implied, is intended to confer upon any person other than the parties hereto and their respective successors and permitted assigns any rights or remedies of any nature whatsoever by reason of this Agreement. Certificates representing shares sold in a registered public offering pursuant to Section 7 hereof shall not be required to bear the legend set forth in Section 10 hereof. 13. Specific Performance. -------------------- The parties recognize and agree that if for any reason any of the provisions of this Agreement are not performed in accordance with their specific terms or are otherwise breached, immediate and irreparable harm or injury would be caused for which money damages would not be an adequate remedy. Accordingly, each party agrees that in addition to other remedies the other party shall be entitled to an injunction restraining any violation or threatened violation of the provisions of this Agreement. In the event that any action shall be brought in equity to enforce the provisions of the Agreement, neither party will allege, and each party hereby waives the defense, that there is an adequate remedy at law. 14. Entire Agreement. ---------------- This Agreement and the Merger Agreement (including the appendices and exhibits thereto) constitute the entire agreement between the parties with respect to the subject matter hereof and supersede all other prior agreements and understandings, both written and oral, between the parties with respect to the subject matter hereof. 15. Further Assurances. ------------------ Each party will execute and deliver all such further documents and instruments and take all such further action as may be necessary in order to consummate the transactions contemplated hereby. 16. Validity. -------- The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of the other provisions of this Agreement, which shall remain in full force and effect. In the event any Governmental Entity of competent jurisdiction holds any provision of this Agreement to be null, void or unenforceable, the parties hereto shall negotiate in good faith and shall execute and deliver an amendment to this Agreement in order, as nearly as possible, to effectuate, to the extent permitted by law, the intent of the parties hereto with respect to such provision. 17. Notices. ------- All notices and other communications hereunder shall be in writing and shall be deemed given if delivered personally or by commercial delivery service, or sent via telecopy (receipt confirmed) to the parties at the following addresses or telecopy numbers (or at such other address or telecopy numbers for a party as shall be specified by like notice): (a) if to the Company, to: 11 Extended Systems Incorporated 5777 N. Meeker Avenue Boise, ID 83713 Attention: Steve Simpson Telephone: (208) 322-7575 ext. 6056 Facsimile: (208) 377-1906 with a copy to: Gray Cary Ware & Freidenrich 400 Hamilton Avenue Palo Alto, California 94301 Attention: Bradley J. Rock Telephone: (650) 833-2111 Facsimile: (650) 327-3699 (b) if to Parent, to: Palm, Inc. 5470 Great America Parkway Santa Clara, CA 95052 Attention: Douglas S. Solomon, Ph.D. Tel.: (408) 326-7487 Fax: (408) 326-9770 with a copy to: Palm, Inc. 5470 Great America Parkway Santa Clara, CA 95052 Attention: General Counsel Tel: (408) 326-9000 Fax: (408) 326-9003 with a copy to: Wilson Sonsini Goodrich & Rosati 650 Page Mill Road Palo Alto, CA 94304-1050 Attention: Katharine A. Martin W. Korman Robert Sanchez Telephone: (650) 493-9300 Facsimile: (650) 493-6811 12 18. Governing Law. ------------- This Agreement shall be governed by and construed in accordance with the laws of the State of Delaware applicable to agreements made and to be performed entirely within such State. 19. Counterparts. ------------ This Agreement may be executed in two counterparts, each of which shall be deemed to be an original, but both of which, taken together, shall constitute one and the same instrument. 20. Expenses. -------- Except as otherwise expressly provided herein or in the Merger Agreement, all costs and expenses incurred in connection with the transactions contemplated by this Agreement shall be paid by the party incurring such expenses. 21. Amendments; Waiver. ------------------ This Agreement may be amended by the parties hereto and the terms and conditions hereof may be waived only by an instrument in writing signed on behalf of each of the parties hereto, or, in the case of a waiver, by an instrument signed on behalf of the party waiving compliance. 22. Assignment. ---------- The Company may not sell, transfer, assign or otherwise dispose of any of its rights or obligations under this Agreement or the Option created hereunder to any other person, without the express written consent of Parent. The rights and obligations hereunder shall inure to the benefit of and be binding upon any successor of a party hereto. 13 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their respective duly authorized officers as of the date first above written. EXTENDED SYSTEMS INCORPORATED By: /s/ Steven D. Simpson ---------------------------------------- Name: Steven D. Simpson -------------------------------------- Title: President and Chief Executive Officer ------------------------------------- PALM, INC. By: /s/ Carl J. Yankowski ---------------------------------------- Name: Carl J. Yankowski -------------------------------------- Title: Chief Executive Officer ------------------------------------- ***STOCK OPTION AGREEMENT*** -----END PRIVACY-ENHANCED MESSAGE-----