-----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, O9CZYiXfIHh2yVVG1VxopcLMHzkhygciOlvsEHg7sFOLKKEhxK2C656fhnkjoiuS XdFzEj3S5EjPlzggU6g1Eg== /in/edgar/work/0000950149-00-002111/0000950149-00-002111.txt : 20000930 0000950149-00-002111.hdr.sgml : 20000930 ACCESSION NUMBER: 0000950149-00-002111 CONFORMED SUBMISSION TYPE: SC 13D PUBLIC DOCUMENT COUNT: 4 FILED AS OF DATE: 20000928 SUBJECT COMPANY: COMPANY DATA: COMPANY CONFORMED NAME: COBALT NETWORKS INC CENTRAL INDEX KEY: 0001053355 STANDARD INDUSTRIAL CLASSIFICATION: [3670 ] IRS NUMBER: 770440751 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SC 13D SEC ACT: SEC FILE NUMBER: 005-57649 FILM NUMBER: 731001 BUSINESS ADDRESS: STREET 1: 555 ELLIS AVENUE CITY: MOUNTAIN VIEW STATE: CA ZIP: 94043 BUSINESS PHONE: 6509302500 MAIL ADDRESS: STREET 1: 555 ELLIS STREET CITY: MOUNTAIN VIEW STATE: CA ZIP: 94043 FILED BY: COMPANY DATA: COMPANY CONFORMED NAME: SUN MICROSYSTEMS INC CENTRAL INDEX KEY: 0000709519 STANDARD INDUSTRIAL CLASSIFICATION: [3571 ] IRS NUMBER: 942805249 STATE OF INCORPORATION: DE FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: SC 13D BUSINESS ADDRESS: STREET 1: 901 SAN ANTONIO RD CITY: PALO ALTO STATE: CA ZIP: 94303 BUSINESS PHONE: 6509601300 MAIL ADDRESS: STREET 1: 901 SAN ANTONIO ROAD CITY: PALO ALTO STATE: CA ZIP: 94303 SC 13D 1 f65850sc13d.txt SCHEDULE 13D 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 SCHEDULE 13D UNDER THE SECURITIES EXCHANGE ACT OF 1934 COBALT NETWORKS, INC. - -------------------------------------------------------------------------------- (Name of Issuer) COMMON STOCK - -------------------------------------------------------------------------------- (Title of Class of Securities) 19074R101 - -------------------------------------------------------------------------------- (CUSIP Number) MICHAEL H. MORRIS, ESQ. SUN MICROSYSTEMS, INC. 901 SAN ANTONIO ROAD PALO ALTO, CALIFORNIA 94303 (650) 960-1300 - -------------------------------------------------------------------------------- (Name, Address and Telephone Number of Person Authorized to Receive Notices and Communications) SEPTEMBER 18, 2000 - -------------------------------------------------------------------------------- (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). 2 SCHEDULE 13D - ------------------- ------------------ CUSIP NO. 19074R101 PAGE 2 OF 11 PAGES - ------------------- ------------------ - ------------------------------------------------------------------------------- 1 NAME OF REPORTING PERSON S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON Sun Microsystems, Inc. I.R.S. Identification No.: 94-2805249 - ------------------------------------------------------------------------------- 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) [ ] Not applicable - ------------------------------------------------------------------------------- 6 CITIZENSHIP OR PLACE OF ORGANIZATION State of Delaware - ------------------------------------------------------------------------------- 7 SOLE VOTING POWER NUMBER OF - 6,036,386 (See (1) below.) SHARES -------------------------------------------------------- BENEFICIALLY 8 SHARED VOTING POWER OWNED BY - 3,854,416 (See (2) below.) EACH -------------------------------------------------------- REPORTING 9 SOLE DISPOSITIVE POWER PERSON WITH - 6,036,386 (See (1) below.) -------------------------------------------------------- 10 SHARED DISPOSITIVE POWER Not applicable - ------------------------------------------------------------------------------- 11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON - 9,890,802 (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 26.7 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, Sun Microsystems, Inc., a Delaware corporation ("Sun"), 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 Cobalt Networks, Inc., a Delaware corporation ("Cobalt"), equal to 19.9% of the then outstanding shares of Cobalt Common Stock, which, based upon the 30,333,599 shares of Cobalt Common Stock outstanding as of September 14, 2000 (as represented by Cobalt in the Merger Agreement described in Items 3 and 4 below), currently equals 6,036,386 shares of Cobalt Common Stock. Prior to the exercise of the Option, Sun is not entitled to any rights as a stockholder of Cobalt as to the shares of Cobalt 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. Sun expressly disclaims beneficial ownership of any of the shares of Cobalt Common Stock which are issuable to Sun upon exercise of the Option until such time as Sun purchases any such shares of Cobalt Common Stock upon any such exercise of the Option. (2) 5,800,828 shares of Cobalt Common Stock are subject to Voting Agreements between Sun and certain officers, directors and other stockholders of Cobalt, as described in Items 3 and 4 below, of which 3,854,416 shares are either outstanding on date hereof or are issuable upon the exercise of outstanding options which are either vested or will vest within 60 days of September 18, 2000. Sun expressly disclaims beneficial ownership of any of the shares of Cobalt Common Stock subject to the Voting Agreements. Based on the 31,050,287 shares of Cobalt Common Stock outstanding after the issuance of 716,688 shares of Cobalt Common Stock upon the exercise of outstanding options which are either vested or will vest within 60 days of September 18, 2000 (but excluding the shares of Cobalt Common Stock issuable upon exercise of the Option), the 3,854,416 shares of Cobalt Common Stock subject to the Voting Agreements which Sun may be deemed to beneficially own as of September 18, 2000 represent approximately 12.4% of the outstanding Cobalt Common Stock. (3) Based upon 37,086,673 shares of Cobalt Common Stock outstanding after the issuance of 6,036,386 shares of Cobalt Common Stock upon the exercise of the Option described in Items 3 and 4 below, and the issuance of 716,688 shares of Cobalt Common Stock upon the exercise of outstanding options which are either vested or will vest within 60 days of September 18, 2000. 3 SCHEDULE 13D - ------------------- ------------------ CUSIP NO. 19074R101 PAGE 3 OF 11 PAGES - ------------------- ------------------ ITEM 1. SECURITY AND ISSUER. This statement on Schedule 13D (this "Statement") relates to the Common Stock, par value $0.001 per share, of Cobalt Networks, Inc., a Delaware corporation ("Cobalt" or "Issuer"). The principal executive offices of Cobalt are located at 555 Ellis Avenue, Mountain View, California 94043. ITEM 2 IDENTITY AND BACKGROUND. The name of the corporation filing this Statement is Sun Microsystems, Inc., a Delaware corporation ("Sun"). Sun is a leading worldwide provider of high-speed microprocessors, scalable systems, software, network storage, mission-critical support and professional services. The address of Sun's principal business is 901 San Antonio Road, Palo Alto, California 94303. Set forth on Schedule A hereto is (i) the name of each of the executive officers and directors of Sun, (ii) the residence or business address of each of the directors of Sun, (iii) present principal occupation or employment of each of the executive officers and directors of Sun, 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 Sun is the same as the address of Sun's principal business. Neither Sun nor, to the knowledge of Sun, 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 Sun, 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 Merger and Reorganization, dated as of September 18, 2000, a copy of which is attached hereto as Exhibit 1 (the "Merger Agreement"), by and among Sun, Azure Acquisition Corporation, a Delaware corporation and a wholly-owned subsidiary of Sun ("Merger Sub"), and Cobalt, and 4 SCHEDULE 13D - ------------------- ------------------ CUSIP NO. 19074R101 PAGE 4 OF 11 PAGES - ------------------- ------------------ subject to the conditions set forth therein (including adoption and approval of the transactions contemplated thereby by stockholders of Cobalt and receipt of applicable regulatory approvals), Merger Sub will merge with and into Cobalt and Cobalt will become a wholly-owned subsidiary of Sun (such events constituting the "Merger"). At the effective time of the Merger, Merger Sub will cease to exist as a corporation and all of the business, assets, liabilities and obligations of Merger Sub will be merged with and into Cobalt, with Cobalt remaining as the surviving corporation (sometimes referred to herein as the "Surviving Corporation"). As an inducement to Sun to enter into the Merger Agreement and in consideration thereof, Sun and Cobalt entered into a Stock Option Agreement, dated as of September 18, 2000, a copy of which is attached hereto as Exhibit 2 (the "Stock Option Agreement"), pursuant to which Cobalt granted Sun an irrevocable option (the "Option") to acquire, subject to certain conditions, up to a number of shares of Cobalt Common Stock equal to 19.9% of the issued and outstanding Cobalt Common Stock as of the first date, if any, upon which an event occurs giving rise to Sun's right to exercise the Option, for a purchase price of $57.63 per share. Cobalt's obligation to issue shares to Sun 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. Sun did not pay additional consideration to Cobalt in connection with the Stock Option Agreement or the granting of the Option by Cobalt. In the event the Option becomes exercisable, Sun anticipates that it will use working capital to fund the exercise price of the Option. As a further inducement to Sun to enter into the Merger Agreement and in consideration thereof, certain officers, directors and other stockholders of Cobalt (collectively, the "Stockholders") entered into individual Voting Agreements with Sun, a copy of the form of which is attached hereto as Exhibit 3 (each, a "Voting Agreement" and, collectively, the "Voting Agreements"), whereby each Stockholder agreed, severally and not jointly, to vote all of the shares of Cobalt 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. Sun 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 1, 2, and 3, respectively, to this Statement, which are incorporated by reference herein in their entirety where such references and descriptions appear. 5 SCHEDULE 13D - ------------------- ------------------ CUSIP NO. 19074R101 PAGE 5 OF 11 PAGES - ------------------- ------------------ ITEM 4. PURPOSE OF TRANSACTION. (a) - (b) As described in Item 3 above, this Statement relates to the acquisition of Cobalt by Sun pursuant to a statutory merger of Merger Sub, a wholly-owned subsidiary of Sun, with and into Cobalt, pursuant to which, at the effective time of the Merger, the separate existence of Merger Sub will cease and Cobalt will continue as the Surviving Corporation and as a wholly-owned subsidiary of Sun. By virtue of the Merger, each holder of outstanding shares of Cobalt Common Stock will receive, in exchange for each share of Cobalt Common Stock held by such holder, 0.5 shares of Common Stock, par value $0.00067 per share, of Sun (including, with respect to each such share of Sun Common Stock, the associated Rights (as defined in that certain Amended and Restated Rights Agreement, dated as of February 11, 1998, as amended April 14, 1999 and April 26, 2000, by and between Sun and BankBoston, N.A., as Rights Agent)) ("Sun Common Stock"). In connection with the Merger, Sun will also assume each outstanding option to purchase Cobalt Common Stock under Cobalt's existing stock option plans, and thereafter, each such option will represent the right to acquire shares of Sun Common Stock. Also in connection with the Merger, each purchase right under Cobalt's Employee Stock Purchase Plan will be exercised, and each share of Cobalt Common Stock issued as a result thereof will be converted into the right to receive 0.5 shares of Sun Common Stock. Pursuant to the Stock Option Agreement, Cobalt granted Sun the Option to acquire, subject to certain conditions, up to a number of shares of Cobalt Common Stock equal to 19.9% of the issued and outstanding Cobalt Common Stock as of the first date, if any, upon which an event occurs giving rise to Sun's right to exercise the Option, for a purchase price of $57.63 per share. Cobalt's obligation to issue shares to Sun 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 occur if the Merger Agreement is terminated because: (a) (i) the Board of Directors of Cobalt or any committee thereof shall for any reason have withdrawn or shall have amended or modified, in either case, in a manner adverse to Sun its unanimous recommendation in favor of the adoption and approval of the Merger Agreement or the approval of the Merger; (ii) Cobalt shall have failed to include in the proxy statement/prospectus relating to the Merger the unanimous recommendation of the Board of Directors of Cobalt in favor of the adoption and approval of the Merger Agreement and the approval of the Merger; (iii) the Board of Directors of Cobalt shall have failed to reaffirm its unanimous recommendation in favor of the adoption and approval of the Merger Agreement and the approval of the Merger within 10 business days after Sun requests in writing that such recommendation be reaffirmed at any time following the announcement of an Acquisition Proposal (as defined in the Merger Agreement); (iv) the Board of Directors of Cobalt or any committee thereof shall have approved or recommended any Acquisition Proposal; (v) Cobalt shall have entered into any letter of intent or similar document or any agreement, contract or commitment accepting any Acquisition 6 SCHEDULE 13D - ------------------- ------------------ CUSIP NO. 19074R101 PAGE 6 OF 11 PAGES - ------------------- ------------------ Proposal; (vi) Cobalt shall have breached any of the terms of Section 5.5 of the Merger Agreement (relating to the solicitation of alternative transactions); or (vii) a tender or exchange offer relating to not less than 15% of the then outstanding shares of capital stock Cobalt shall have been commenced by a person unaffiliated with Sun, and Cobalt shall not have sent to its securityholders pursuant to Rule 14e-2 promulgated under the Securities Act of 1933, as amended, within 10 business days after such tender or exchange offer is first commenced, a statement indicating that Cobalt recommends rejection of such tender or exchange offer; or (b) (i) the Merger shall not have been consummated by March 16, 2001, or the requisite approval of the stockholders of Cobalt contemplated by the Merger Agreement shall not have been obtained by reason of the failure to obtain the requisite vote at a meeting of the stockholders of Cobalt, (ii) prior to the date of termination of the Merger Agreement, a third party shall have announced an Acquisition Proposal, and (iii) within 12 months following the termination of the Merger Agreement, (x) a Company Acquisition (as defined in the Merger Agreement) is consummated or Cobalt enters into an agreement or letter of intent providing for a Company Acquisition, or (y) a third party commences a tender or exchange offer for a Company Acquisition and, at any time thereafter, such Company Acquisition is consummated. Pursuant to the Voting Agreements, each of the Stockholders has irrevocably appointed the directors of Sun 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 Sun the limited right to vote or deliver a consent with respect to each of the shares of Cobalt Common Stock beneficially owned by the Stockholders, at every annual, special, adjourned or postponed meeting of the stockholders of Cobalt 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 of the following actions (other than those actions that relate to the Merger and the transactions contemplated by the Merger Agreement): (i) any merger, consolidation, business combination, sale of assets, reorganization or recapitalization of Cobalt or any subsidiary of Cobalt with any party, (ii) any sale, lease or transfer of any significant part of the assets of Cobalt or any subsidiary of Cobalt, (iii) any reorganization, recapitalization, dissolution, liquidation or winding up of Cobalt or any subsidiary of Cobalt, (iv) any material change in the capitalization of Cobalt or any subsidiary of Cobalt, or the corporate structure of Cobalt or any subsidiary of Cobalt, or (v) any other action that is intended, or could reasonably be expected to, impede, interfere with, delay, postpone, discourage 7 SCHEDULE 13D - ------------------- ------------------ CUSIP NO. 19074R101 PAGE 7 OF 11 PAGES - ------------------- ------------------ 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 Cobalt or any subsidiary of Cobalt, any reclassification or recapitalization of the capital stock of Cobalt or any subsidiary of Cobalt, or any sale of assets, change of control, or acquisition of Cobalt or any subsidiary of Cobalt by any other person, or any consolidation or merger of Cobalt or any subsidiary of Cobalt with or into any other person. The Stockholders may vote their shares of Cobalt Common Stock on all other matters submitted to the stockholders of Cobalt 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 Sun and Cobalt to consummate the transactions contemplated under the Merger Agreement. (c) Not applicable. (d) Upon the consummation of the Merger, the directors of the Surviving Corporation will be the directors of Merger Sub immediately prior to the effective time of the Merger, until their respective successors are duly elected or appointed and qualified. Upon consummation of the Merger, the initial officers of the Surviving Corporation will be the officers of Merger Sub immediately prior to the effective time of the Merger, until his respective successor is duly appointed. Sun will appoint each of the directors and officers of Merger Sub. (e) Other than as a result of the Merger described in Item 3 and Item 4 above, not applicable. (f) Not applicable. (g) Upon consummation of the Merger, the Certificate of Incorporation of Cobalt will be amended and restated in its entirety to be the same as in substance as the Certificate of Incorporation of Merger Sub, as in effect immediately prior to the effective time of the Merger (except that the name of Cobalt will remain Cobalt Networks, Inc.), and such Certificate of Incorporation of Cobalt, as so amended and restated, 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 Merger Sub, as in effect immediately prior to the Merger, will be, at 8 SCHEDULE 13D - ------------------- ------------------ CUSIP NO. 19074R101 PAGE 8 OF 11 PAGES - ------------------- ------------------ 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 Cobalt and such Bylaws. (h) - (i) Upon consummation of the Merger, the Cobalt 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, Sun 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 Sun 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 1, 2, and 3, 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, Sun will have sole voting power with respect to, and the sole power to dispose of, that number of shares of Cobalt Common Stock equal to 19.9% of the then outstanding shares of Cobalt Common Stock, which, based upon the 30,333,599 shares of Cobalt Common Stock outstanding as of September 14, 2000 (as represented by Cobalt in the Merger Agreement described in Items 3 and 4 above), currently equals 6,036,386 shares of Cobalt Common Stock. Prior to the exercise of the Option, Sun is not entitled to any rights as a stockholder of Cobalt as to the shares of Cobalt 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. Sun expressly disclaims beneficial ownership of any of the shares of Cobalt Common Stock which are issuable to Sun upon exercise of the Option until such time as Sun purchases any such shares of Cobalt Common Stock upon any such exercise of the Option. As a result of the Voting Agreements, Sun may be deemed to be the beneficial owner of at least 3,854,416 shares of Cobalt Common Stock as of September 18, 2000. Such Cobalt Common Stock constitutes approximately 12.4% of the issued and outstanding shares of Cobalt Common Stock, based on the 30,333,599 shares of Cobalt Common Stock outstanding as of September 14, 2000 (as represented by Cobalt in the Merger Agreement described in Items 3 and 4 above) and assuming the issuance of 716,688 shares of Cobalt Common Stock upon the exercise of outstanding options which are either vested or will vest within 60 days of September 18, 2000. Sun also may be deemed to have shared voting 9 SCHEDULE 13D - ------------------- ------------------ CUSIP NO. 19074R101 PAGE 9 OF 11 PAGES - ------------------- ------------------ power with respect to the foregoing shares of Cobalt Common Stock with respect to those matters described above. However, Sun (a) is not entitled to any rights as a stockholder of Cobalt as to the foregoing shares of Cobalt Common Stock, and (b) disclaims any beneficial ownership of the shares of Cobalt Common Stock which are covered by the Voting Agreements. To the knowledge of Sun, other than William N. Joy, the Co-founder and Chief Scientist of Sun, who held 2,435 shares of Cobalt Common Stock as of September 18, 2000, no other person listed on Schedule A hereto has an equity or other ownership interest in Cobalt. Set forth on Schedule B hereto is the name of those stockholders of Cobalt that have entered into a Voting Agreement with Sun, and to the knowledge of Sun, 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 Sun, 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 Sun, 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, UNDERSTANDING 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 Sun, there are no contracts, arrangements, understandings or relationships (legal or otherwise) among the persons named in Item 2 of Schedule 13D and between such persons and any person with respect to any securities of Cobalt, 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. MATERIALS TO BE FILED AS EXHIBITS. The following documents are filed as exhibits to this Statement: 10 SCHEDULE 13D - ------------------- ------------------- CUSIP NO. 19074R101 PAGE 10 OF 11 PAGES - ------------------- ------------------- 1. Agreement and Plan of Merger and Reorganization, dated as of September 18, 2000, by and among Sun Microsystems, Inc., a Delaware corporation ("Sun"), Azure Acquisition Corporation, a Delaware corporation and a wholly-owned subsidiary of Sun, and Cobalt Networks, Inc., a Delaware corporation. 2. Stock Option Agreement, dated as of September 18, 2000, by and between Sun Microsystems, Inc., a Delaware corporation, and Cobalt Networks, Inc., a Delaware corporation. 3. Form of Voting Agreement, dated as of September 18, 2000, by and between Sun and certain stockholders of Cobalt set forth on Schedule B hereto. 11 SCHEDULE 13D - ------------------- ------------------- CUSIP NO. 19074R101 PAGE 11 OF 11 PAGES - ------------------- ------------------- 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. SUN MICROSYSTEMS, INC. September 28, 2000 ---------------------------------------- (Date) /s/ Michael Morris ---------------------------------------- (Signature) Michael H. Morris Vice President, General Counsel and Secretary ---------------------------------------- (Name/Title) 12 SCHEDULE A DIRECTORS AND EXECUTIVE OFFICERS OF SUN MICROSYSTEMS, INC. The following table sets forth the name, business address and present principal occupation or employment of each executive officer and director of Sun. Except as otherwise indicated below, the business address of each person set forth on this Schedule A is: c/o Sun Microsystems, Inc., 901 San Antonio Road, Palo Alto, California 94303.
Name of Executive Officer Title and Present Principal Occupation - ------------------------- -------------------------------------- Scott G. McNealy Chairman of the Board of Directors and Chief Executive Officer Edward J. Zander President, Chief Operating Officer William T. Agnello Senior Vice President, Workplace Resources Crawford W. Beveridge Executive Vice President and Chief Human Resources Officer Mel Friedman Senior Vice President, Customer Advocacy Lawrence W. Hambly Executive Vice President, Enterprise Services H. William Howard Senior Vice President, Chief Information Officer Masood A. Jabbar Executive Vice President, Global Sales Operations William N. Joy Co-Founder and Chief Scientist Michael E. Lehman Executive Vice President, Corporate Resources and Chief Financial Officer John P. Loiacono Senior Vice President, Chief Marketing Officer John S. McFarlane Executive Vice President, Network Service Providers
13
Name of Executive Officer Title and Present Principal Occupation - ------------------------- -------------------------------------- Michael H. Morris Senior Vice President, General Counsel and Secretary Gregory M. Papadopoulos Senior Vice President and Chief Technology Officer Michael L. Popov Vice President, Corporate Controller Janpieter T. Scheerder* Executive Vice President, Storage Products Jonathan I. Schwartz Senior Vice President, Corporate Strategy and Planning John C. Shoemaker Executive Vice President, System Products Group Patricia C. Sueltz Executive Vice President, Software Systems Group Mark E. Tolliver Executive Vice President and President, iPlanet, Sun-Netscape Alliance
* Citizen of Indonesia. 14
Name of Director Title and Present Principal Occupation - ---------------- -------------------------------------- Scott G. McNealy Chairman of the Board of Directors and Chief Executive Officer of Sun James L. Barksdale Managing Partner, The Barksdale Group Director 2730 Sand Hill Road, Suite 100 Menlo Park, CA 94025 L. John Doerr General Partner/Managing Director, Kleiner Director Perkins Caufield & Byers 2750 Sand Hill Road Menlo Park, CA 94025 Judith L. Estrin Chief Executive Officer, Packet Design, Inc. Director 66 Willow Place Menlo Park, CA 94025 Robert J. Fisher Member, Board of Directors, The Gap, Inc. Director c/o Pisces, Inc. One Maritime Plaza Suite 1400 San Francisco, CA 94111 Robert L. Long Independent Management Consultant Director 220 Glen Garry Avenue Melbourne Beach, FL 32951 M. Kenneth Oshman Chairman of the Board of Directors, President Director and Chief Executive Officer Echelon Corporation 415 Oakmead Parkway Suite 1400 Sunnyvale, CA 94085 Naomi O. Seligman Senior Partner, Ostriker von Simson, Inc. Director 152 West 57th Street 35th Floor New York, NY 10019
15 SCHEDULE B STOCKHOLDERS PARTY TO A VOTING AGREEMENT WITH SUN MICROSYSTEMS, INC. The following table sets forth the name and present principal occupation or employment of each Stockholder of Cobalt that has entered into a Voting Agreement with Sun in connection with the Merger Agreement, and the aggregate number of shares of Cobalt Common Stock beneficially owned by each such Stockholder as of September 18, 2000. Except as otherwise indicated below, the business address of each Stockholder set forth on this Schedule B is: c/o Cobalt Networks, Inc., 555 Ellis Avenue, Mountain View, California 94043.
Stockholder Party to Voting Agreement Shares Beneficially Owned - ------------------------------------- ------------------------- Gordon A. Campbell, 699,614 Managing Member of Techfund Capital 111 West Evelyn Avenue, Suite 101 Sunnyvale, California 94086 Techfund Capital, LP 527,149 111 West Evelyn Avenue, Suite 101 Sunnyvale, California 94086 Techfund Capital II, LP 2,364 111 West Evelyn Avenue, Suite 101 Sunnyvale, California 94086 Techfund Capital Management, LLC 200,321 111 West Evelyn Avenue, Suite 101 Sunnyvale, California 94086 Techfund Capital Management II, LLC 10,405 111 West Evelyn Avenue, Suite 101 Sunnyvale, California 94086 Stephen W. DeWitt, 1,061,630(1) Chief Executive Officer, President and Director of Cobalt Networks, Inc. Vivek Mehra, 830,632(2) Chief Technology Officer and Vice President, Products of Cobalt Networks,
16 Inc. Gary A. Martell, 73,968(3) Chief Operating Officer Kenton D. Chow, 84,032(4) Chief Financial Officer, Vice President, Finance and Secretary of Cobalt Networks, Inc. Patrick J. Conte, 32,434(5) Vice President, Sales, Americas and Asia Pacific of Cobalt Networks, Inc. Kelly Herrell, 58,125(6) Vice President, Marketing of Cobalt Networks, Inc. George M. Korchinsky, 98,479(7) Vice President, EMEA Operations of Cobalt Networks, Inc. Sharon McCorkle, 29,049(8) Vice President, Operations of Cobalt Networks, Inc. Christopher W. Hogan, 29,665 Vice President of Cobalt Networks, Inc. Gary F. Bengier, 12,500(9) Chief Financial Officer and Vice President, Operations of eBay Inc. Stephen J. Luczo, 13,718(10) Chief Executive Officer and Director of Seagate Technology, Inc. Carl F. Pascarella, 12,500(11) President and Chief Executive Officer of Vias USA Mark F. Spagnolo, 13,000(12)
17 President and Chief Executive officer of UUNET Jordon A. Levy, 64,831(13) Managing Partner of Seed Capital Partners Total: 3,854,416(14)
(1) Includes 700,000 outstanding shares of Cobalt Common Stock, and 361,630 shares of Cobalt Common Stock issuable upon the exercise of options to purchase Cobalt Common Stock which are exercisable within 60 days of September 18, 2000. (2) Includes 799,382 outstanding shares of Cobalt Common Stock, and 31,250 shares of Cobalt Common Stock issuable upon the exercise of options to purchase Cobalt Common Stock which are exercisable within 60 days of September 18, 2000. (3) Includes 48,968 outstanding shares of Cobalt Common Stock, and 25,000 shares of Cobalt Common Stock issuable upon the exercise of options to purchase Cobalt Common Stock which are exercisable within 60 days of September 18, 2000. (4) Includes 47,991 outstanding shares of Cobalt Common Stock, and 36,041 shares of Cobalt Common Stock issuable upon the exercise of options to purchase Cobalt Common Stock which are exercisable within 60 days of September 18, 2000. (5) Includes 351 outstanding shares of Cobalt Common Stock, and 32,083 shares of Cobalt Common Stock issuable upon the exercise of options to purchase Cobalt Common Stock which are exercisable within 60 days of September 18, 2000. (6) Includes 20,000 outstanding shares of Cobalt Common Stock, and 38,125 shares of Cobalt Common Stock issuable upon the exercise of options to purchase Cobalt Common Stock which are exercisable within 60 days of September 18, 2000. (7) Includes 9,729 outstanding shares of Cobalt Common Stock, and 88,750 shares of Cobalt Common Stock issuable upon the exercise of options to purchase Cobalt Common Stock which are exercisable within 60 days of September 18, 2000. (8) Includes 240 outstanding shares of Cobalt Common Stock, and 28,809 shares of Cobalt Common Stock issuable upon the exercise of options to purchase Cobalt Common Stock which are exercisable within 60 days of September 18, 2000. 18 (9) Consists of 12,500 shares of Cobalt Common Stock issuable upon the exercise of options to purchase Cobalt Common Stock which are exercisable within 60 days of September 18, 2000. (10) Includes 1,218 outstanding shares of Cobalt Common Stock, and 12,500 shares of Cobalt Common Stock issuable upon the exercise of options to purchase Cobalt Common Stock which are exercisable within 60 days of September 18, 2000. (11) Consists of 12,500 shares of Cobalt Common Stock issuable upon the exercise of options to purchase Cobalt Common Stock which are exercisable within 60 days of September 18, 2000. (12) Includes 500 outstanding shares of Cobalt Common Stock, and 12,500 shares of Cobalt Common Stock issuable upon the exercise of options to purchase Cobalt Common Stock which are exercisable within 60 days of September 18, 2000. (13) Includes 39,831 outstanding shares of Cobalt Common Stock, and 25,000 shares of Cobalt Common Stock issuable upon the exercise of options to purchase Cobalt Common Stock which are exercisable within 60 days of September 18, 2000. (14) Includes 3,137,728 outstanding shares of Cobalt Common Stock, and 716,688 shares of Cobalt Common Stock issuable upon the exercise of options to purchase Cobalt Common Stock which are exercisable within 60 days of September 18, 2000. EX-1 2 f65850ex1.txt AGREEMENT AND PLAN OF MERGER 1 EXHIBIT 1 EXECUTION COPY AGREEMENT AND PLAN OF MERGER AND REORGANIZATION BY AND AMONG SUN MICROSYSTEMS, INC. AZURE ACQUISITION CORPORATION AND COBALT NETWORKS, INC. Dated as of September 18, 2000 PROJECT BLUE 2 EXECUTION COPY AGREEMENT AND PLAN OF MERGER AND REORGANIZATION THIS AGREEMENT AND PLAN OF MERGER AND REORGANIZATION is made and entered into as of September 18, 2000, by and among Sun Microsystems, Inc., a Delaware corporation ("Parent"), Azure Acquisition Corporation, a Delaware corporation and a wholly-owned subsidiary of Parent ("Merger Sub"), and Cobalt Networks, Inc., a Delaware corporation (the "Company"). RECITALS: A. Upon the terms and subject to the conditions set forth this Agreement (as defined in Section 1.2 hereof) and in accordance with the General Corporation Law of the State of Delaware ("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 hereof) is consistent with and in furtherance of the long-term business strategy of the Company, and fair to and in the best interests of, the Company and its stockholders, (ii) has unanimously approved this Agreement, the Merger and the other transactions contemplated by this Agreement, and (iii) has unanimously determined to recommend that the stockholders of the Company adopt and approve this Agreement and approve the Merger. C. Concurrently with the execution of this Agreement, and as a condition and inducement to Parent's willingness to enter into this Agreement, certain affiliates of the Company are entering into Voting Agreements, in the form attached hereto as Exhibit A (each, a "Voting Agreement" and, collectively, the "Voting Agreements"), with Parent. D. Concurrently with the execution of this Agreement, and as a condition and inducement to Parent's willingness to enter into this Agreement, certain affiliates of the Company are entering into Affiliate Agreements, in the form attached hereto as Exhibit B (each, a "Affiliate Agreement" and, collectively, the "Affiliate Agreements"), with Parent. E. Concurrently with the execution of this Agreement, and as a condition and inducement to Parent's willingness to enter into this Agreement, certain stockholders of the Company are entering into Non-Competition Agreements, in the form attached hereto as Exhibit C (each, a "Non-Competition Agreement" and, collectively, the "Non-Competition Agreements"), with Parent. F. 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 entering into a Stock Option Agreement in favor of Parent, in the form attached hereto as Exhibit D (the "Stock -1- 3 Option Agreement"). The Board of Directors of the Company has unanimously approved the Stock Option Agreement. G. Concurrently with the execution of this Agreement, and as a condition and inducement to Parent's willingness to enter into this Agreement, certain officers, directors and other employees of the Company have agreed to waive certain severance and other rights that may be triggered as a direct or indirect result of the transactions contemplated hereby (each, an "Severance and Acceleration Waiver") and, collectively, the "Severance and Acceleration Waivers"). H. The parties hereto 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"). I. The parties hereto intend for the Merger to be accounted for as a purchase. AGREEMENT NOW, THEREFORE, in consideration of foregoing premises, the mutual covenants, promises and representations set forth herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged and accepted, the parties hereto hereby agree as follows: ARTICLE I THE MERGER 1.1 The Merger. At the Effective Time (as defined in Section 1.2 hereof) and subject to and upon the terms and conditions of this Agreement and the applicable provisions of Delaware Law, Merger Sub shall be merged with and into the Company (the "Merger"), the separate corporate existence of Merger Sub shall cease and the Company shall continue as the surviving corporation. The Company, 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 (or such later time as may be agreed in writing by the Company and Parent and specified in the Certificate of Merger) being referred to herein as the "Effective Time") as soon as practicable on or after the Closing Date (as defined below). Unless the context otherwise requires, the term "Agreement" as used herein refers collectively to this Agreement and Plan of Merger and Reorganization and the Certificate of Merger. The closing of the Merger and the other transactions contemplated hereby (the "Closing") shall take place at the offices of Wilson Sonsini Goodrich & Rosati, Professional Corporation, 650 Page Mill Road, Palo Alto, California 94304, at a time and date to be specified by the parties hereto, which time and date shall be no later than the second (2nd) business day after the satisfaction or waiver of the conditions set forth in Article VI hereof, or at such other -2- 4 location, time and date as the parties hereto shall mutually agree in writing (the date upon which the Closing actually occurs being referred to herein as 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 and Merger Sub shall vest in the Surviving Corporation, and all debts, liabilities and duties of the Company and Merger Sub shall become the debts, liabilities and duties of the Surviving Corporation. 1.4 Certificate of Incorporation; Bylaws. (a) Certificate of Incorporation. At the Effective Time, the Certificate of Incorporation of the Company shall be amended and restated in its entirety to be the same in substance as the Certificate of Incorporation of Merger Sub, as in effect immediately prior to the Effective Time (except that the name of the Company shall remain Cobalt Networks, Inc.), and such Certificate of Incorporation of the Company, as so amended and restated, shall be the Certificate of Incorporation of the Surviving Corporation until thereafter amended in accordance with Delaware Law and such Certificate of Incorporation. (b) Bylaws. The Bylaws of Merger Sub, as in effect immediately prior to the Effective Time, shall be, at the Effective Time, the Bylaws of the Surviving Corporation until thereafter amended in accordance with Delaware Law, the Certificate of Incorporation of the Surviving Corporation and such Bylaws. 1.5 Directors and Officers. (a) Directors. The initial directors of the Surviving Corporation shall be the directors of Merger Sub immediately prior to the Effective Time, until their respective successors are duly elected or appointed and qualified. (b) Officers. The initial officers of the Surviving Corporation shall be the officers of Merger Sub immediately prior to the Effective Time, until their respective successors are duly appointed. 1.6 Effect on Capital Stock. Subject to the terms and conditions set forth in this Agreement, at the Effective Time, by virtue of the Merger and without any action on the part of Merger Sub, 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, par value $0.001 per share, of the Company ("Company Common Stock") issued and outstanding immediately prior to the Effective Time, other than any shares of Company Common Stock to be canceled pursuant to Section 1.6(b) hereof, shall be canceled and extinguished and automatically converted (subject to Section 1.6(e) and Section 1.6(f) hereof) into the right to receive 0.50 (the "Exchange Ratio") shares of Common Stock, par value $0.00067 per share, of Parent (including, with respect to each such share of Common Stock of Parent, the associated Rights (as defined in -3- 5 that certain Second Amended and Restated Shares Rights Agreement, dated as of February 11, 1998, as amended April 14, 1999 and April 26, 2000) (the "Parent Rights Agreement") between the Company and BankBoston, N.A., as Rights Agent (the "Parent Common Stock") upon surrender of the certificate representing such share of Company Common Stock in the manner set forth in Section 1.7 hereof (or in the case of a lost, stolen or destroyed certificate, upon delivery of an affidavit (and bond, if required) in the manner set forth in Section 1.9 hereof). 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 the shares of Parent Common Stock issued in exchange for such shares of Company Common Stock shall 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 Company shall take all action that may be 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 Parent, the Company or any direct or indirect wholly-owned subsidiary of Parent or the Company, immediately prior to the Effective Time shall be canceled and extinguished without any conversion thereof or consideration paid therefor. (c) Stock Options; Employee Stock Purchase Plans. (i) At the Effective Time, all options to purchase Company Common Stock then outstanding under (A) the Company's Amended and Restated 1997 Employee Stock Plan (the "Employee Stock Plan"), (B) the Company's 1999 Director Option Plan (the "Director Option Plan"), (C) the Chili!Soft, Inc. Inc. 1997 Stock Option Plan (the "1997 Chili!Soft, Inc. Plan"), (D) the Chili!Soft, Inc. 1998 Stock Option Plan (the "1998 Chili!Soft, Inc. Plan"), (E) the Chili!Soft, Inc. 1999 Stock Option Plan (the "1999 Chili!Soft, Inc. Plan" and, together with the Employee Stock Plan, the Director Option Plan, the 1997 Chili!Soft, Inc. Plan and the 1998 Chili!Soft, Inc. Plan, the "Company Stock Plans"), shall be assumed by Parent in accordance with the terms of Section 5.9(a) hereof. (ii) At the Effective Time, all purchase rights outstanding under the Company's 1999 Employee Stock Purchase Plan (the "Employee Stock Purchase Plan") shall be treated as set forth in Section 5.9(b) hereof. (d) Capital Stock of Merger Sub. Each share of Common Stock, par value $0.001 per share, of Merger Sub (the "Merger Sub Common Stock") issued and outstanding immediately prior to the Effective Time shall be converted into one validly issued, fully paid and nonassessable share of Common Stock, par value $0.001 per share, of the Surviving Corporation. Each certificate evidencing ownership of shares of Merger Sub Common Stock immediately prior to the Effective Time shall, as of the Effective Time, evidence ownership of an equivalent number of shares of capital stock of the Surviving Corporation. -4- 6 (e) Adjustments to Exchange Ratio. The Exchange Ratio shall be adjusted to reflect appropriately the effect of any forward or reverse stock split, stock dividend (including any dividend or distribution of securities convertible into Parent Common Stock or Company Common Stock), extraordinary cash dividends, reorganization, recapitalization, reclassification, combination, exchange of shares or other like change with respect to Parent Common Stock (including, without limitation, the two-for-one forward stock split, to be paid in the form of a stock dividend, approved by the Board of Directors of Parent on August 16, 2000 (the "Parent Stock Split"), which will be effected (if at all) only upon the approval of a proposed increase in the authorized number of shares of Parent Common Stock by the stockholders of Parent at the currently scheduled Annual Meeting of Stockholders of Parent to be held on November 8, 2000) (the "Parent Share Increase") or Company Common Stock occurring on or after the date hereof and prior to the Effective Time. (f) Fractional Shares. No fraction of a share of Parent Common Stock shall be issued by virtue of the Merger, but in lieu thereof, each holder of shares of Company Common Stock who would otherwise be entitled to a fraction of a share of Parent Common Stock (after aggregating all fractional shares of Parent Common Stock that otherwise would be received by such holder) shall, upon surrender of such holder's Certificates(s) (as defined in Section 1.7(c) hereof), receive from Parent an amount of cash (rounded to the nearest whole cent), without interest, equal to the product obtained by multiplying (x) such fraction, by (y) the average closing price on the Nasdaq National Market System ("Nasdaq"), as reported in The Wall Street Journal, Western Edition (or, in the event of a good faith dispute as to the accuracy of the price reported therein, another authoritative source reasonably agreed on by the parties hereto), of one (1) share of Parent Common Stock for the five (5) consecutive trading days ending on the trading day immediately prior to the day on which the Effective Time shall occur. 1.7 Surrender of Certificates. (a) Exchange Agent. EquiServe Limited Partnership, or another bank or trust company selected by Parent (which shall be reasonably acceptable to the Company), shall act as the exchange agent (the "Exchange Agent") in the Merger. (b) Parent to Provide Common Stock. Promptly following 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 hereof in exchange for outstanding shares of Company Common Stock, and cash in an amount estimated to be sufficient for payment in lieu of fractional shares pursuant to Section 1.6(f) hereof, and any dividends or distributions to which holders of shares of Company Common Stock may be entitled pursuant to Section 1.7(d) hereof. (c) Exchange Procedures. Promptly following the Effective Time, Parent shall cause the Exchange Agent to mail to each holder of record (as of the Effective Time) of a certificate or certificates (each, a "Certificate" and, collectively, the "Certificates"), which immediately prior to the Effective Time represented outstanding shares of Company Common Stock whose shares were converted into the right to receive shares of Parent Common Stock pursuant to Section 1.6 hereof, cash in lieu of any fractional shares pursuant to Section 1.6(f) -5- 7 hereof, and any dividends or other distributions pursuant to Section 1.7(d) hereof, (i) a letter of transmittal in customary form (which shall specify that delivery shall 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 contain such other 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(f) hereof, and any dividends or other distributions pursuant to Section 1.7(d) hereof. Upon surrender of Certificates for cancellation to the Exchange Agent or to such other agent or agents as may be reasonably 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 into which their shares of Company Common Stock were converted at the Effective Time pursuant to Section 1.6 hereof, payment in lieu of fractional shares which such holders have the right to receive pursuant to Section 1.6(f) hereof, and any dividends or other distributions payable pursuant to Section 1.7(d), and the Certificates so surrendered shall forthwith be canceled. Until so surrendered, outstanding Certificates shall be deemed from and after the Effective Time, for all corporate purposes, subject to Section 1.7(d) hereof as to dividends and other distributions, to evidence only 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 pursuant to Section 1.6 hereof, and the right to receive an amount in cash in lieu of the issuance of any fractional shares pursuant to Section 1.6(f) hereof and any dividends or other distributions payable pursuant to Section 1.7(d) hereof. (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 shall 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(f) 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 representing 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 representing 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. -6- 8 (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 requirement. 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 other 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 in accordance with the terms hereof (including any cash paid in respect thereof pursuant to Section 1.6(f) or Section 1.7(d) hereof) 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, at any time following 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 that 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, certificates representing the shares of Parent Common Stock into which the shares of Company Common Stock represented by such Certificates were converted pursuant to Section 1.6 hereof, cash for fractional shares, if any, as may be required pursuant to Section 1.6(f) hereof and any dividends or distributions payable pursuant to Section 1.7(d) hereof; provided, however, that Parent and the Exchange Agent may, in their discretion and as a condition precedent to the issuance of such certificates representing shares of Parent Common Stock, cash and other distributions, 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 Surviving Corporation or the Exchange Agent with respect to the Certificates alleged to have been lost, stolen or destroyed. 1.10 Tax and Accounting Consequences. (a) Tax. 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. -7- 9 (b) Accounting. It is intended by the parties hereto that the Merger shall be accounted for as a purchase. 1.11 Taking of Necessary Action; Further Action. If, at any time following the Effective Time, any further action is necessary or desirable to carry out the purposes and intent of this Agreement and to vest the Surviving Corporation with full right, title and possession to all assets, property, rights, privileges, powers and franchises of the Company and Merger Sub, the officers and directors of the Company and Merger Sub shall take all such lawful and necessary action. ARTICLE II REPRESENTATIONS AND WARRANTIES OF THE COMPANY The Company hereby represents and warrants to Parent and Merger Sub, as of the date hereof and as of the Closing Date as though made at the Closing Date, subject to such exceptions as are specifically disclosed in writing (with reference to a specific section of this Agreement to which each such exception applies) in a disclosure letter supplied by the Company to Parent, dated as of the date hereof and certified by a duly authorized officer of Company (the "Company Disclosure Letter"), which disclosure shall provide an exception to or otherwise qualify or respond to the representations or warranties of the Company specifically referred to in such disclosure and any other representation or warranty of the Company to the extent that it is reasonably apparent from such disclosure that such disclosure is applicable to such other representation or warranty, as follows: 2.1 Organization and Qualification; Subsidiaries. (a) Each of the Company and its subsidiaries is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation and has the requisite corporate power and authority to own, lease and operate its assets and properties and to carry on its business as it is now being conducted. Each of the Company and its subsidiaries is in possession of all franchises, grants, authorizations, licenses, permits, easements, consents, certificates, approvals and orders ("Approvals") necessary to own, lease and operate the properties it purports to own, operate or lease and to carry on its business as it is now being conducted, except where the failure to have such Approvals would not, individually or in the aggregate, be material to the Company. Each of the Company and its subsidiaries is duly qualified or licensed as a foreign corporation to do business, and is in good standing, in each jurisdiction where the character of the properties owned, leased or operated by it or the nature of its activities makes such qualification or licensing necessary, except for such failures to be so duly qualified or licensed and in good standing that would not, either individually or in the aggregate, be material to the Company. (b) Company has no subsidiaries except for the corporations identified in Section 2.1(b) of the Company Disclosure Letter. Neither the Company nor any of its subsidiaries has agreed, is obligated to make, or is bound by, any written, oral or other agreement, contract, sub-contract, lease, binding understanding, instrument, note, option, warranty, purchase order, license, sub-license, insurance policy, benefit plan, commitment, or -8- 10 undertaking of any nature, as of the date hereof or as may hereafter be in effect under which it may become obligated to make, any future investment in or capital contribution to any other entity. Neither the Company nor any of its subsidiaries directly or indirectly owns any equity or similar interest in or any interest convertible, exchangeable or exercisable for, any equity or similar interest in, any corporation, partnership, joint venture or other business, association or entity. 2.2 Certificate of Incorporation and Bylaws. The Company has previously furnished to Parent a complete and correct copy of its Certificate of Incorporation and Bylaws as amended to date. Such Certificate of Incorporation, Bylaws and equivalent organizational documents of each of its subsidiaries are in full force and effect. Neither the Company nor any of its subsidiaries is in violation of any of the provisions of its Certificate of Incorporation or Bylaws or equivalent organizational documents. 2.3 Capitalization. (a) The authorized capital stock of the Company consists of one hundred and twenty million (120,000,000) shares of Company Common Stock and ten million (10,000,000) shares of Preferred Stock ("Company Preferred Stock"), each having a par value of $0.001 per share. As of the close of business on September 14, 2000, (i) 30,333,599 shares of Company Common Stock were issued and outstanding, all of which are validly issued, fully paid and nonassessable, (ii) no shares of Company Common Stock were held in treasury by the Company or by any subsidiaries of the Company, (iii) 2,208,440 shares of Company Common Stock were available for future issuance pursuant to the Employee Stock Purchase Plan, (iv) 4,957,461 shares of Company Common Stock were reserved for issuance upon the exercise of outstanding options to purchase Company Common Stock under the Employee Stock Purchase Plan, (v) 328,328 shares of Company Common Stock were reserved for issuance upon the exercise of outstanding options to purchase Company Common Stock under the Director Option Plan, (vi) 9,177 shares of Company Common Stock were reserved for issuance upon the exercise of outstanding options to purchase Company Common Stock under the 1997 Chili!Soft Stock Plan, (vii) 18,085 shares of Company Common Stock were reserved for issuance upon the exercise of outstanding options to purchase Company Common Stock under the 1998 Chili!Soft Stock Plan, and (viii) 381,259 shares of Company Common Stock were reserved for issuance upon the exercise of outstanding options to purchase Company Common Stock under the 1999 Chili!Soft Stock Plan. Between the close of business on September 14, 2000 and the date hereof, no shares of Company Common Stock have been issued other than upon exercise of vested Company Stock Options (as defined in Section 5.9 hereof) listed on Section 2.3(b) of the Company Disclosure Letter. As of the date hereof, no shares of Company Preferred Stock are issued or outstanding. Except as set forth in Section 2.3(a) of the Company Disclosure Letter, 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 Stock Option as a result of the Merger or any other transactions contemplated by this Agreement, or as a result of the termination of employment of any holder of any such option. (b) Section 2.3(b) of the Company Disclosure Letter sets forth the following information with respect to each Company Stock Option outstanding as to the date of the -9- 11 Agreement: (i) the name of the optionee; (ii) the particular plan pursuant to which such Company Stock Option was granted; (iii) the number of shares of Company Common Stock subject to such Company Stock Option; (iv) the exercise price of such Company Stock Option; (v) the date on which such Company Stock Option was granted; (vi) the extent to which each such option is vested and unvested as of a recent practicable date; (vii) the date on which such Company Stock Option expires and (viii) whether the exercisability of such option will be accelerated in any way by the transactions contemplated by this Agreement, and indicates the extent of any such acceleration. Section 2.3(b) of the Company Disclosure Letter also shall set forth the vesting schedule generally applicable to Company Stock Options, and shall specifically identify each Company Stock Option with a vesting schedule that is different than such generally applicable vesting schedule (including a description of each such different vesting schedule). The Company has made available to Parent accurate and complete copies of all stock option plans pursuant to which the Company has granted such Company Stock Options that are currently outstanding and the form of all stock option agreements evidencing such Company Stock Options. All shares of Company Common Stock subject to the issuance aforesaid, upon issuance on the terms and conditions specified in the instrument pursuant to which they are issuable, would be duly authorized, validly issued, fully paid and non assessable. All outstanding shares of Company Common Stock, all outstanding Company Stock 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 federal, state, local, municipal, foreign or other law, statute, constitution, principle of common law, resolution, ordinance, code, edict, decree, rule, regulation, ruling or requirement issues, enacted, adopted, promulgated, implemented or otherwise put into effect by or under the authority of any Governmental Entity (as defined below) and (ii) all requirements set forth in applicable contracts, agreements, and instruments. (c) Except for (i) securities Company owns, directly or indirectly through one or more subsidiaries, free and clear of all liens, pledges, hypothecations, charges, mortgages, security interests, encumbrances, claims, infringements, interferences, options, right of first refusals, preemptive rights, community property interests 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 possession, exercise or transfer of any other attribute of ownership of any asset, but excluding any restrictions on transfer imposed by federal or state securities laws), and (ii) shares of capital stock or other similar ownership interests of 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. Except as set forth in Section 2.3(c) of the Company Disclosure Letter or as set forth in Section 2.3(b) hereof, and except for the Stock Option 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 Company or any of its subsidiaries is a party or by which it is bound obligating Company or any of its subsidiaries to issue, deliver -10- 12 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 Voting Agreements, no voting trust, proxy, rights plan, antitakeover plan or other agreement or understanding to which the Company or any of its subsidiaries is a party or by which they are bound with respect to any equity security of any class of the Company or with respect to any equity security, partnership interest or similar ownership interest of any class of any of its subsidiaries. Stockholders of the Company will not be entitled to dissenters' rights under applicable state law in connection with the Merger. 2.4 Authority Relative to this Agreement. The Company has all necessary corporate power and authority to execute and deliver this Agreement and the Stock Option Agreement and to perform its obligations hereunder and thereunder and, subject to obtaining the approval of the stockholders of the Company of the Merger, to consummate the transactions contemplated hereby and thereby. The execution and delivery of this Agreement and the Stock Option Agreement by the Company and the consummation by the Company of the transactions contemplated hereby and thereby have been duly and validly 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, the Stock Option Agreement or to consummate the transactions so contemplated (other than, with respect to the Merger, the approval and adoption of this Agreement and the approval of the Merger by holders of a majority of the outstanding shares of Company Common Stock in accordance with Delaware Law and the Company's Certificate of Incorporation and Bylaws). This Agreement and the Stock Option Agreement have been duly and validly executed and delivered by the Company and, assuming the due authorization, execution and delivery by Parent and Merger Sub, constitute legal and binding obligations of the Company, enforceable against the Company in accordance with their respective terms, except as enforceability may be subject to and limited by laws of general application relating to bankruptcy, insolvency and the relief of debtors, and rules of law governing specific performance, injunctive relief or other equitable remedies. 2.5 No Conflict; Required Filings and Consents. (a) The execution and delivery of this Agreement and the Stock Option Agreement by Company do not, and the performance of this Agreement and the Stock Option Agreement by Company will not, (i) conflict with or violate the Certificate of Incorporation or Bylaws or equivalent organizational documents of the Company or any of its subsidiaries, (ii) subject to obtaining the approval of the Company's stockholders in favor of approval and adoption of this Agreement and approval of the Merger, and obtaining the consents, approvals, authorizations and permits and making registrations, filings and notifications set forth in Section 2.5(b) hereof (or Section 2.5(b) of the Company Disclosure Letter), conflict with or violate any law, rule, regulation, order, judgment or decree applicable to the Company or any of its subsidiaries or by which its or any of their respective properties is bound or affected, or (iii) result in any breach of or constitute a default (or an event that with notice or lapse of time or -11- 13 both would become a default) under, or impair the Company's or any of its subsidiaries' 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 lien or encumbrance on any of the 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 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 properties are bound or affected. (b) The execution and delivery of this Agreement and the Stock Option Agreement by the Company do not, and the performance of this Agreement by the Company will not, require any consent, approval, authorization or permit of, or registration, filing with or notification to, any court, administrative agency, commission, governmental or regulatory authority, domestic or foreign (each, a "Governmental Entity" and, collectively, "Governmental Entities"), except for (i) applicable requirements, if any, of the Securities Act of 1933, as amended (the "Securities Act"), the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and state securities laws ("Blue Sky Laws"), the pre-merger notification requirements (the "HSR Approval") of the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR Act"), and foreign Governmental Entities and the rules and regulations promulgated thereunder, (ii) the rules and regulations of The Nasdaq Stock Market, Inc., (iii) the filing and recordation of the Merger Certificate as required by the Delaware Law, and (iv) where the failure to obtain such consents, approvals, authorizations or permits, or to make such filings or notifications, would not be material to the Company or Parent or have a Material Adverse Effect (as defined in Section 8.3(c) hereof) on the parties hereto, prevent or materially delay consummation of the Merger or otherwise prevent the parties hereto from performing their obligations under this Agreement. 2.6 Compliance; Permits. (a) Neither the Company nor any of its subsidiaries is in conflict with, or in default or violation of, (i) any law, rule, regulation, order, judgment or decree applicable to the Company or any of its subsidiaries or by which its 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 properties is bound or affected, except for any conflicts, defaults or violations 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 or regulatory body or authority is, to the knowledge of the Company, pending or threatened against the Company or its subsidiaries, nor has any governmental or regulatory body or authority indicated an intention to conduct the same, other than, in each such case, those the outcome of which could not, individually or in the aggregate, 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 or any of its subsidiaries. -12- 14 (b) The Company and its subsidiaries hold all permits, licenses, variances, exemptions, orders and approvals from Governmental Entities which are material to operation of the business of the Company and its subsidiaries taken as a whole (collectively, the "Company Permits"). The Company and its subsidiaries are in compliance in all material respects with the terms of the Company Permits. 2.7 SEC Filings; Financial Statements. (a) The Company has made available to Parent a correct and complete copy of each report, schedule, registration statement and definitive proxy statement filed by the Company with the Securities and Exchange Commission ("SEC") since November 5, 1999 (the "Company SEC Reports"), which are all the forms, reports and documents required to be filed by Company with the SEC since such date. The Company SEC Reports (i) were prepared in accordance with the requirements of the Securities Act or the Exchange Act, as the case may be, and (ii) did not at the time they were filed and if amended or superseded by a filing prior to the date of this Agreement then on the date of such filing) contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. None of the Company's subsidiaries is required to file any reports or other documents with the SEC. (b) Each set of consolidated financial statements (including, in each case, any related notes thereto) contained in the Company SEC Reports was prepared in accordance with 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 statements, do not contain footnotes as permitted by Form 10-Q of the Exchange Act) and each fairly presents the consolidated financial position of the Company and its subsidiaries as at the respective dates thereof and the consolidated results of its operations and cash flows for the periods indicated, except that the unaudited interim financial statements were or are subject to normal adjustments which were not or are not expected to be material in amount. (c) The Company has previously 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. 2.8 No Undisclosed Liabilities. Neither the Company nor any of its subsidiaries has any liabilities (absolute, accrued, contingent or otherwise) of a nature required to be disclosed on a balance sheet or in the related notes to the consolidated financial statements prepared in accordance with GAAP 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 (i) liabilities provided for in the Company's balance sheet as of June 30, 2000 or (ii) liabilities incurred since June 30, 2000 in the ordinary course of business, none of which is material to the business, results of operations or financial condition of the Company and its subsidiaries, taken as a whole. -13- 15 2.9 Absence of Certain Changes or Events. Since June 30, 2000, there has not been any Material Adverse Effect on the Company. Since December 31, 1999, there has not been: (i) 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 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 following their termination pursuant to the terms of their pre-existing stock option or purchase agreements, (ii) any split, combination or reclassification of any of the Company's or any of its subsidiaries' capital stock, (iii) 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, (iv) entry by the Company or any of its subsidiaries into any licensing or other agreement with regard to the acquisition or disposition of any Intellectual Property (as defined in Section 2.19 hereof) other than licenses in the ordinary course of business consistent with past practice or any amendment or consent with respect to any licensing agreement filed or required to be filed by the Company with the SEC, and other than licenses disclosed on Section 2.19(j) of the Company Disclosure Letter, (v) any material change by the Company in its accounting methods, principles or practices, except as required by concurrent changes in GAAP, (vi) 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, or (vii) any sale of assets of the Company other than in the ordinary course of business. 2.10 Absence of Litigation. There are no claims, actions, suits or proceedings pending or, to the knowledge of the Company, threatened (or, to the knowledge of the Company, any governmental or regulatory investigation pending or threatened) against the Company or any of its subsidiaries or any properties or rights of the Company or any of its subsidiaries, before any Governmental Entity. 2.11 Employee Benefit Plans. (a) All employee compensation, incentive, fringe or benefit plans, programs, policies, commitments or other arrangements (whether or not set forth in a written document and including, without limitation, all "employee benefit plans" (within the meaning of Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended ("ERISA")) (the "Plans") covering (i) any active, former employee, director or consultant of the Company, (ii) any subsidiary of Company, or (iii) any trade or business (whether or not incorporated) which is a member of a controlled group or which is under common control with the Company within the meaning of Section 414 of the Code (an "Affiliate"), or with respect to which the Company has -14- 16 or may in the future have liability, are listed in Section 2.11(a) of the Company Disclosure Letter. The Company has provided to Parent: (i) correct and complete copies of all documents embodying each Plan including (without limitation) all amendments thereto, all related trust documents, and all material written agreements and contracts relating to each such Plan; (ii) 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 Plan; (iii) the most recent summary plan description together with the summary(ies) of material modifications thereto, if any, required under ERISA with respect to each Plan; (iv) all IRS determination, opinion, notification and advisory letters; (v) all material correspondence to or from any governmental agency relating to any Plan; (vi) all COBRA forms and related notices; (vii) all discrimination tests for each Plan for the most recent three (3) plan years; (viii) the most recent annual actuarial valuations, if any, prepared for each Plan; (xi) if the Plan is funded, the most recent annual and periodic accounting of Plan assets; (x) all material written agreements and contracts relating to each Plan, including, but not limited to, administrative service agreements, group annuity contracts and group insurance contracts; (xi) all material communications to employees or former employees regarding in each case, relating to any amendments, terminations, establishments, increases or decreases in benefits, acceleration of payments or vesting schedules or other events which would result in any material liability under any Plan or proposed Plan; (xii) all policies pertaining to fiduciary liability insurance covering the fiduciaries for each Plan; and (xiii) all registration statements, annual reports (Form 11-K and all attachments thereto) and prospectuses prepared in connection with any Plan. (b) Each Plan has been maintained and administered in all material respects in compliance with its terms and with the requirements prescribed by any and all statutes, orders, rules and regulations (foreign or domestic), including but not limited to ERISA, and the Code, which are applicable to such Plans. No suit, action or other litigation (excluding claims for benefits incurred in the ordinary course of Plan activities) has been brought, or to the knowledge of the Company is threatened, against or with respect to any such Plan. There are no audits, inquiries or proceedings pending or, to the knowledge of the Company, threatened by the Internal Revenue Service or Department of Labor with respect to any Plans. All contributions, reserves or premium payments required to be made or accrued as of the date hereof to the Plans have been timely made or accrued. Section 2.11(b) of the Company Disclosure Letter includes a listing of the accrued vacation liability of Company as of August 25, 2000. Any Plan intended to be qualified under Section 401(a) of the Code and each trust intended to qualify under Section 501(a) of the Code (i) has either obtained a favorable determination, notification, advisory and/or opinion letter, as applicable, as to its qualified status from the Internal Revenue Service or still has a remaining period of time under applicable Treasury Regulations or Internal Revenue Service pronouncements in which to apply for such letter and to make any amendments necessary to obtain a favorable determination, and (ii) incorporates or has been amended to incorporate all provisions required to comply with the Tax Reform Act of 1986 and subsequent legislation or still has a remaining period of time under applicable Treasury Regulations or Internal Revenue Service pronouncements in which to amend the Plan. The Company does not have any plan or commitment to establish any new Plan, to modify any Plan (except to the extent required by law or to conform any such Plan 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 -15- 17 into any new Plan. Each 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). (c) Neither the Company, nor any of its subsidiaries, nor any of their Affiliates has at any time ever maintained, established, sponsored, participated in, or contributed to any plan subject to Title IV of ERISA or Section 412 of the Code and at no time has the Company or any of its subsidiaries contributed to or been requested to contribute to any "multiemployer plan," as such term is defined in ERISA or to any plan described in Section 413(c) of the Code. To the knowledge of the Company, neither the Company, any of its subsidiaries, nor any officer or director of the Company or any of its subsidiaries is subject to any liability or penalty under Section 4975 through 4980B of the Code or Title I of ERISA. There are no audits, inquiries or proceedings pending or, to the knowledge of the Company, threatened by the IRS or DOL with respect to any Company Employee Plan. 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. (d) Neither the Company, any of its subsidiaries, nor any of their Affiliates has, prior to the Effective Time and in any material respect, violated any of the health continuation requirements of the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended ("COBRA"), the requirements of Family Medical Leave Act of 1993, as amended, the requirements of the Women's Health and Cancer Rights Act, as amended, the requirements of the Newborns' and Mothers' Health Protection Act of 1996, as amended, or any similar provisions of state law applicable to employees of the Company or any of its subsidiaries. None of the Plans promises or provides retiree medical or other retiree welfare benefits to any person except as required by applicable law and neither the Company nor any of its subsidiaries has represented, promised or contracted (whether in oral or written form) to provide such retiree benefits to any employee, former employee, director, consultant or other person, except to the extent required by statute. (e) Neither the Company nor any of its subsidiaries is bound by or subject to (and none of its respective assets or properties is bound by or subject to) any arrangement with any labor union. No employee of the Company or any of its subsidiaries is represented by any labor union or covered by any collective bargaining agreement and, to the knowledge of the Company, no campaign to establish such representation is in progress. There is no pending or, to the knowledge of the Company, threatened labor dispute involving the Company or any of its subsidiaries and any group of its employees nor has the Company or any of its subsidiaries experienced any labor interruptions over the past three (3) years, and the Company and its subsidiaries consider their relationships with their employees to be good. The Company and its subsidiaries are in compliance in all material respects with all applicable foreign, federal, state and local laws, rules and regulations regarding employment, employment practices, terms and conditions of employment and wages and hours. (f) Neither the execution and delivery of this Agreement nor the consummation of the transactions contemplated hereby will (i) result in any payment (including severance, unemployment compensation, golden parachute, bonus or otherwise) becoming due to -16- 18 any stockholder, director or employee of the Company or any of its subsidiaries under any Plan or otherwise, (ii) materially increase any benefits otherwise payable under any Plan, or (iii) result in the acceleration of the time of payment or vesting of any such benefits. (g) 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 of the Code. (h) Each International Employee Plan (as defined below) has been established, maintained and administered in 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. For purposes of this Section "International Employee Plan" shall mean each Plan that has been adopted or maintained by the Company or any of its subsidiaries, whether informally or formally, for the benefit of current or former employees of the Company or any of its subsidiaries outside the United States. (i) Except as set forth in Section 2.11(i) of the Company Disclosure Letter, no Company Employee Plan provides, reflects or represents any liability to provide retiree benefits health 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 health benefits, except to the extent required by statute. 2.12 Labor Matters. (i) There are no material claims pending or, to the knowledge of each of the Company and its respective subsidiaries, threatened, between the Company or any of its subsidiaries and any of their respective employees; (ii) as of the date of this Agreement, neither the Company nor any of its subsidiaries is a party to any collective bargaining agreement or other labor union contract applicable to persons employed by Company or its subsidiaries nor does the Company or its subsidiaries know of any activities or proceedings of any labor union to organize any such employees; and (iii) as of the date of this Agreement, neither the Company nor any of its subsidiaries has any knowledge of any strikes, slowdowns, work stoppages or lockouts, or threats thereof, by or with respect to any employees of the Company or any of its subsidiaries. 2.13 Registration Statement; Proxy Statement/Prospectus. None of the information supplied or to be supplied by the Company for inclusion or incorporation by reference in (i) the Registration Statement (as defined in Section 5.1(a) hereof) will, at the time the Registration Statement 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 light of the circumstances under which they are made, not misleading, and (ii) the Proxy Statement/Prospectus (as defined in Section 5.1(a) hereof) to be filed with the SEC by Company pursuant to Section 5.1(a) hereof will, on the dates mailed to the stockholders -17- 19 of the Company, at the time of the Company Stockholders' Meeting (as defined in Section 5.2(a) hereof) and 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 light of the circumstances under which they are made, not misleading. The Proxy Statement/Prospectus 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. Notwithstanding the foregoing, the Company makes no representation or warranty with respect to any information supplied by Parent or Merger Sub which is contained in any of the foregoing documents. 2.14 Restrictions on Business Activities. There is no agreement, commitment, judgment, injunction, order or decree binding upon the Company or any of its subsidiaries or to which the Company or any of its subsidiaries is a party which has or could reasonably be expected to have the effect of prohibiting or impairing any business practice of the Company or any of its subsidiaries, any acquisition of property by the Company or any of its subsidiaries or the conduct of business by the Company or any of its subsidiaries as currently conducted. 2.15 Title to Property. Neither the Company nor any of its subsidiaries owns any material real property. The Company and each of its subsidiaries have good and defensible title to all of their material properties and assets, free and clear of all liens, charges and encumbrances except liens for taxes not yet due and payable and such liens or other imperfections of title, if any, as do not materially detract from the value of or interfere with the present use of the property affected thereby; and all leases pursuant to which Company or any of its subsidiaries lease from others material amounts of real or personal property are in good standing, valid and effective in accordance with their respective terms, and there is not, under any of such leases, any existing material default or event of default (or any event which with notice or lapse of time, or both, would constitute a material default and in respect of which Company or subsidiary has not taken adequate steps to prevent such default from occurring). All the plants, structures and equipment of Company and its subsidiaries, except such as may be under construction, are in good operating condition and repair, in all material respects. 2.16 Taxes. (a) Definition of Taxes. For all purposes of and under 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") -18- 20 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, individually or in the aggregate, 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 required to be withheld, except such Taxes which are not, individually or in the aggregate, material to the Company. (iii) Neither the Company nor any of its subsidiaries has been delinquent in the payment of any material Tax nor is there any material 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 extending 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. (vi) Neither the Company nor any of its subsidiaries has any liability for any unpaid Taxes which has not been accrued for or reserved on the Company's balance sheet as of June 30, 2000 in accordance with GAAP, 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. (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 or any other person that, individually or collectively, could reasonably be expected to 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. -19- 21 (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 federal and applicable state, local or foreign Tax purposes. (x) None of the Company's or its subsidiaries' assets are tax exempt use property within the meaning of Section 168(h) of the Code. (xi) 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. 2.17 Environmental Matters. (a) Definitions. For all purposes of and under this Agreement, the following terms shall have the following respective meanings: (i) "Hazardous Material" means any material or substance that is prohibited or regulated by any Environmental Law or that has been designated by any Governmental Entity to be radioactive, toxic, hazardous or otherwise a danger to health, reproduction or the environment. (ii) "Business Facility" means any property including the land, the improvements thereon, the groundwater thereunder and the surface water thereon, that is or at any time has been owned, operated, occupied, controlled or leased by the Company or any of its subsidiaries in connection with the operation of its business. (iii) "Disposal Site" means a landfill, disposal site, disposal agent, waste hauler or recycler of Hazardous Materials, or any real site other than a Business Facility receiving Hazardous Materials used or generated by a Business Facility. (iv) "Environmental Laws" means all applicable laws, rules, regulations, orders, treaties, statutes, and codes promulgated by any Governmental Entity which prohibit, regulate or control any Hazardous Material or any Hazardous Material Activity, including, without limitation, the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, the Resource Recovery and Conservation Act of 1976, the Federal Water Pollution Control Act, the Clean Air Act, the Hazardous Materials Transportation Act, the Clean Water Act, comparable laws, rules, regulations, ordinances, orders, treaties, statutes, and codes of other Governmental Entities the regulations promulgated pursuant to any of the foregoing, and all amendments and modifications of any of the foregoing, all as amended to date. (v) "Hazardous Materials Activity" means the transportation, transfer, recycling, storage, use, treatment, manufacture, removal, remediation, release, exposure of others -20- 22 to, sale, or distribution of any Hazardous Material or any product or waste containing a Hazardous Material, or product manufactured with Ozone depleting substances. (vi) "Environmental Permit" means any approval, permit, registration, certification, license, clearance or consent required to be obtained from any private person or any Governmental Entity with respect to a Hazardous Materials Activity which is or was conducted by the Company. (b) Condition of Property. Parent and Company expressly acknowledge that the Company's corporate offices are located in the Middlefield-Ellis-Wisman ("MEW") federal Superfund Site in Mountain View, California, which has been listed by the United States Environmental Protection Agency ("EPA") on the federal National Priority List under the federal Comprehensive Environmental Response, Compensation and Liability Act, 42 USC Section 9601 et seq. Parent and Company further expressly acknowledge that Hazardous Materials, including chemicals designated by the State of California and EPA as carcinogens and reproductive toxicants, have been released and are present in soil and groundwater throughout the MEW Superfund Site. Neither the Company nor its subsidiaries have incurred any liability to date with respect to the MEW Superfund Site, and neither the Company nor its subsidiaries reasonably expect to incur any material liability with respect to the MEW Superfund Site in the future. Excluding the MEW Superfund Site and except in a manner that could not reasonably be expected to subject the Company or its subsidiaries to material liability, to the knowledge of the Company, no Hazardous Materials are present on any Business Facility, or were present on any other Business Facility at the time it ceased to be owned, operated, occupied, controlled or leased by the Company on any of its subsidiaries. To the knowledge of the Company, there are no underground storage tanks, asbestos which is friable or likely to become friable or PCBs present on any Business Facility currently owned, operated, occupied, controlled or leased by the Company or any subsidiaries or as a consequence of the acts of the Company or its subsidiaries or agents. (c) Hazardous Materials Activities. The Company and its subsidiaries have conducted all Hazardous Material Activities relating to their business in compliance in all material respects with all applicable Environmental Laws. The Hazardous Material Activities of the Company and it subsidiaries prior to the Closing have not resulted in the exposure of any person to a Hazardous Material in a manner which has caused or could reasonably be expected to the Company or its subsidiaries to incur liability. (d) Permits. To the knowledge of the Company, the Company holds all Environmental Permits necessary for the conduct of the business of the Company and its subsidiaries, and all such Environmental Permits are valid and in full force and effect. The Company and its subsidiaries have complied in all material respects with all covenants and conditions of any such Environmental Permit. To the knowledge of the Company, no circumstances exist which could cause any such Environmental Permit to be revoked, modified, or rendered non-renewable upon payment of the permit fee. (e) Environmental Litigation. No action, proceeding, revocation proceeding, amendment procedure, writ, injunction or claim is pending, or to the best of the Company's -21- 23 knowledge, threatened, concerning or relating to any Environmental Permit or any Hazardous Materials Activity of the Company or any of its subsidiaries relating to their business, or any Business Facility. (f) Offsite Hazardous Material Disposal. No action, proceeding, liability or claim has been filed against the Company or, to the actual knowledge of the Company, is threatened against any Disposal Site or against the Company or any of its subsidiaries with respect to any transfer or release of Hazardous Materials relating to the Business to a Disposal Site. (g) Reports and Records. The Company has delivered to Parent or made available for inspection by Parent and its agents, representatives and employees all records in the Company's possession concerning the Hazardous Materials Activities of the Company and its subsidiaries relating to their business and all environmental audits and environmental assessments of any Business Facility conducted at the request of, or otherwise in the possession of the Company. The Company has complied with all environmental disclosure obligations imposed by applicable law with respect to this transaction. 2.18 Brokers. Except for the fees payable to Goldman Sachs & Co. pursuant to an engagement letter dated September 1, 2000, a copy of which has been provided to Parent, the Company has not incurred, nor will it incur, directly or indirectly, any liability for brokerage or finders fees or agent's commissions or any similar charges in connection with this Agreement or any transaction contemplated hereby. 2.19 Intellectual Property. (a) For the purposes of this Agreement, the following terms have the following definitions: (i) "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 mask works, mask work registrations and applications therefor, and any equivalent or similar rights in semiconductor masks, layouts, architectures or topology; (v) domain names, uniform resource locators ("URLs") and other names and locators associated with the Internet (collectively, "Domain Names"), (vi) all computer software, including all source code, object code, firmware, development tools, files, records and data, and all media on which any of the foregoing is recorded; (vii) all industrial designs and any registrations and applications therefor throughout the world; (viii) all trade names, logos, common law trademarks and service marks, trademark and service mark registrations and applications therefor throughout the world; (ix) all databases and data collections and all rights therein throughout the world; (x) all moral and economic rights of -22- 24 authors and inventors, however denominated, throughout the world, and (xi) any similar or equivalent rights to any of the foregoing anywhere in the world. (ii) "Company Intellectual Property" shall mean any Intellectual Property that is owned by, or exclusively licensed to, the Company or any of its subsidiaries. (iii) "Registered Intellectual Property" means all United States, international and foreign: (i) patents and patent applications (including provisional applications); (ii) registered trademarks, applications to register trademarks, intent-to-use applications, or other registrations or applications related to trademarks; (iii) registered copyrights and applications for copyright registration; and (iv) any other Intellectual Property that is the subject of an application, certificate, filing, registration or other document issued, filed with, or recorded by any state, government or other public legal authority. (iv) "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. (b) Section 2.19(b) of the Company Disclosure Letter contains a complete and accurate list of (i) 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, and (ii) all proceedings or actions before any court or tribunal (including the United States Patent and Trademark Office (the "PTO") or equivalent authority anywhere else in the world) related to any of the Company Registered Intellectual Property. (c) Section 2.19(c) of the Company Disclosure Letter contains a complete and accurate list (by name and version number) of all products, software or service offerings of the Company or any of its subsidiaries (collectively, "Company Products") that have been sold, distributed or otherwise disposed of in the ten (10)-year period preceding the date hereof or which the Company or any of its subsidiaries currently intends to sell, distribute or otherwise dispose of in the future, including any products or service offerings under development. (d) No Company Intellectual Property or Company Product is subject to any proceeding or outstanding decree, order, judgment, contract, license, agreement, or stipulation restricting in any manner the use, transfer, or licensing thereof by Company or any of its subsidiaries, or which may affect the validity, use or enforceability of such Company Intellectual Property or Company Product. (e) Each 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 prosecuting, maintaining or perfecting such Company Registered Intellectual Property. -23- 25 (f) Section 2.19(f) of the Company Disclosure Letter contains a complete and accurate list of all actions that are required to be taken by the Company within ninety (90) days of the date hereof with respect to any of the Company Registered Intellectual Property. (g) The Company owns and has good and exclusive title to each item of Company Intellectual Property owned by it, free and clear of any lien or encumbrance (excluding non-exclusive licenses and related restrictions granted in the ordinary course). Without limiting the generality of the foregoing, (i) the Company is the exclusive owner of all trademarks and trade names used in connection with the operation or conduct of the business of the Company and its subsidiaries, including the sale, distribution or provision of any Company Products by the Company or any of its subsidiaries, (ii) the Company owns exclusively, and has good title to, all copyrighted works that are included or incorporated into Company Products or which the Company or any of its subsidiaries otherwise purports to own, and (iii) to the extent that any patents would be infringed by any Company Products, the Company is the exclusive owner of such patents. (h) To the extent that any technology, software or Intellectual Property has been developed or created independently or jointly by a third party for the Company or any of its subsidiaries, or is incorporated into any of the Company Products, the Company and its subsidiaries have a written agreement with such third party with respect thereto and the Company and its subsidiaries thereby either (i) have obtained ownership of, and is the exclusive owner of, or (ii) have obtained perpetual, non-terminable licenses (sufficient for the conduct of its business as currently conducted and as proposed to be conducted) to all such third party's Intellectual Property in such work, material or invention by operation of law or by valid assignment, to the fullest extent it is legally possible to do so. (i) 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 Company Intellectual Property, to any third party, or knowingly permitted the Company's rights in such Company Intellectual Property to lapse or enter the public domain. (j) Other than "shrink wrap" and similar widely available commercial end-user licenses, Section 2.19(j) of the Company Disclosure Letter contains a complete and accurate list of all 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, or (ii) pursuant to which a third party has licensed or transferred any Intellectual Property to the Company or any of its subsidiaries. (k) All contracts, licenses and agreements relating to either (i) Company Intellectual Property, or (ii) Intellectual Property of a third party licensed to the Company or any of its subsidiaries, 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, suspension of, or acceleration of any payments with respect to, such contracts, licenses and agreements. Each of the Company and its subsidiaries is in material compliance with, and has not materially breached any term of any such contracts, licenses and agreements and, to the knowledge of the Company, all other parties to such contracts, licenses -24- 26 and agreements are in compliance with, and have not materially breached any term of, such contracts, licenses and agreements. Following the Closing Date, the Surviving Corporation will be permitted to exercise all of the Company's and its subsidiaries' rights under such contracts, licenses and agreements to the same extent the Company and its subsidiaries 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 or any of its subsidiaries would otherwise be required to pay. Neither this Agreement nor the transactions contemplated by this Agreement, including the assignment to Parent or Merger Sub by operation of law or otherwise of any contracts or agreements to which the Company is or any of its subsidiaries are a party, will result in (i) either Parent's or the Merger Sub's granting to any third party any right to or with respect to any material Intellectual Property right owned by, or licensed to, either of them, (ii) either the Parent's or the Merger Sub's being bound by, or subject to, any non-compete or other material restriction on the operation or scope or their respective businesses, or (iii) either the Parent's or the Merger Sub's being obligated to pay any royalties or other material amounts to any third party in excess of those payable by Parent or Merger Sub, respectively, prior to the Closing. (l) The operation of the business of the Company and its subsidiaries as such business currently is conducted and reasonably contemplated to be conducted, including (i) the Company's and its subsidiaries' design, development, manufacture, distribution, reproduction, marketing or sale of the products, software or services of the Company and its subsidiaries (including Company Products), and (ii) the Company's use of any product, device or process, has not, does not and will not infringe or misappropriate the Intellectual Property of any third party or, to its knowledge, constitute unfair competition or trade practices under the laws of any jurisdiction. (m) The Company Intellectual Property constitutes all the material Intellectual Property used in and/or necessary to the conduct of the business of the Company and its subsidiaries as it currently is conducted, and as it is currently planned to be conducted by the Company and its subsidiaries, including, without limitation, the design, development, manufacture, use, import and sale of products, technology and performance of services (including the Company Products). (n) Neither the Company nor any of its subsidiaries has received notice from any third party that the operation of the business of the Company or any of its subsidiaries or any act, product or service of the Company or any of its subsidiaries, infringes or misappropriates the Intellectual Property of any third party or constitutes unfair competition or trade practices under the laws of any jurisdiction. (o) To the knowledge of the Company, no person has or is infringing or misappropriating any Company Intellectual Property. (p) The Company and each of its subsidiaries has taken reasonable steps to protect Company's and its subsidiaries' rights in Company's confidential information and trade secrets that it wishes to protect or any trade secrets or confidential information of third parties provided to Company or any of its subsidiaries, and, without limiting the foregoing, each of -25- 27 Company and its subsidiaries has and enforces a policy requiring each employee and contractor to execute a proprietary information/confidentiality agreement substantially in the form provided to Parent and all current and former employees and contractors of Company and any of its subsidiaries have executed such an agreement, except where the failure to do so is not reasonably expected to be material to Company. (q) To the knowledge of the Company, all of the Company's and its subsidiaries' products (including Company Products) (i) will record, store, process, calculate and present calendar dates falling on and after (and if applicable, spans of time including) January 1, 2000, and will calculate any information dependent on or relating to such dates in the same manner, and with the same functionality, data integrity and performance, as the products record, store, process, calculate and present calendar dates on or before December 31, 1999, or calculate any information dependent on or relating to such dates (collectively, "Year 2000 Compliant"), (ii) will lose no functionality with respect to the introduction of records containing dates falling on or after January 1, 2000, and (iii) will be interoperable with other products used and distributed by Parent that may reasonably deliver records to the Company's or any of its subsidiaries' products or receive records from the Company's or any of its subsidiaries' products, or interact with the Company's or any of its subsidiaries' products. All of the Company's or its subsidiaries' Information Technology (as defined below) is Year 2000 Compliant, and will not cause an interruption in the ongoing operations of the Company's or any of its subsidiaries' business on or after January 1, 2000. For purposes of the foregoing, the term "Information Technology" shall mean and include all software, hardware, firmware, telecommunications systems, network systems, embedded systems and other systems, components and/or services (other than general utility services including gas, electric, telephone and postal) that are owned or used by the Company or any of its subsidiaries in the conduct of their business, or purchased by the Company or any of its subsidiaries from third-party suppliers. 2.20 Agreements, Contracts and Commitments. (a) Neither the Company nor any of its subsidiaries is a party to or is bound by: (i) 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 (30) days notice without liability or financial obligation to the Company; (ii) any agreement or plan, including, without limitation, any stock option plan, stock appreciation right plan or stock purchase plan, any of the benefits of which will be increased, or the vesting of benefits of which will be accelerated, by the occurrence of any of the transactions contemplated by this Agreement or the value of any of the benefits of which will be calculated on the basis of any of the transactions contemplated by this Agreement; (iii) any agreement of indemnification or any guaranty other than any agreement of indemnification entered into in connection with the sale or license of hardware or software products in the ordinary course of business; -26- 28 (iv) 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; (v) 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; (vi) any dealer, distributor, 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 ninety (90) days or less, or any material agreement pursuant to which 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 Company or any of its subsidiaries and which may not be canceled without penalty upon notice of ninety (90) days or less; (vii) 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 Company and its subsidiaries taken as a whole; (viii) any agreement, contract or commitment currently in force to license any third party to manufacture or reproduce any Company Product, service or technology or any agreement, contract or commitment currently in force to sell or distribute any Company Products, services or technology, except agreements with distributors or sales representative in the normal course of business cancelable without penalty upon notice of ninety (90) days or less and substantially in the form previously provided to Parent; (ix) any mortgages, indentures, guarantees, loans or credit agreements, security agreements or other agreements or instruments relating to the borrowing of money or extension of credit, other than accounts receivables and payables in the ordinary course of business; (x) any material settlement agreement entered into within five (5) years prior to the date of this Agreement; or (xi) any other agreement, contract or commitment that has a value of $300,000 or more in any individual case. (b) 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 -27- 29 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 set forth in the Company Disclosure Letter (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). 2.21 Insurance. The Company maintains insurance policies and fidelity bonds covering the assets, business, equipment, properties, operations, employees, officers and directors of the Company and its subsidiaries (collectively, the "Insurance Policies") which the Company reasonably believes are of the type and in amounts customarily carried by persons conducting businesses similar to those of the Company and its subsidiaries. There is no material claim by the Company or any of its subsidiaries pending under any of the material Insurance Policies as to which coverage has been questioned, denied or disputed by the underwriters of such policies or bonds. The Company is not aware of, and has not received notice under any Insurance Policies of, (i) an insurer's intention or threat to cancel or terminate any of the Insurance Policies, (ii) an insurer's intention or threat to increase the premiums due under any of the Insurance Policies. 2.22 Opinion of Financial Advisor. The Company has received the opinion of its financial advisor, Goldman Sachs & Co., to the effect that, as of the date hereof, the Exchange Ratio pursuant to this Agreement is fair from a financial point of view to the stockholders of the Company, and will provide a copy of such opinion to Parent within three (3) business days of the date of this Agreement. 2.23 Board Approval. The Board of Directors of 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 Company and is on terms that are fair to such stockholders, and (iv) recommended that the stockholders of Company approve and adopt this Agreement and approve the Merger. 2.24 Vote Required. The affirmative vote of the holders of a majority of the outstanding shares of Company Common Stock is the only vote of the holders of any class or series of the Company's capital stock necessary to approve and adopt this Agreement and approve the Merger. 2.25 State Takeover Statutes. The Board of Directors of the Company has approved the Merger, this Agreement, the Stock Option Agreement and the Voting Agreements, and such approval is sufficient to render inapplicable to the Merger, this Agreement, the Stock Option Agreement and the Voting Agreements and the transactions contemplated by this Agreement, the Stock Option Agreement and the Voting Agreements, the provisions of Section 203 of the Delaware Law to the extent, if any, such Section is applicable to the Merger, this Agreement, the Stock Option Agreement and the Voting Agreements and the transactions contemplated by this Agreement, the Stock Option Agreement and the Voting Agreements. No other state takeover statute or similar statute or regulation applies to or purports to apply to the Merger, this -28- 30 Agreement, the Stock Option Agreement and the Voting Agreements or the transactions contemplated by this Agreement, the Stock Option Agreement and the Voting Agreements. ARTICLE III REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB Parent and Merger Sub jointly and severally represent and warrant to the Company, as of the date hereof and as of the Closing Date as though made at the Closing Date, as follows: 3.1 Organization and Qualification; Subsidiaries. Each of Parent and its subsidiaries is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation and has the requisite corporate power and authority to own, lease and operate its assets and properties and to carry on its business as it is now being conducted, except, in the case of Parent's subsidiaries, for such failures to be so duly organized, validly existing and in good standing that would not, either individually or in the aggregate, have a Material Adverse Effect on Parent. Each of Parent and its subsidiaries is in possession of all Approvals necessary to own, lease and operate the properties it purports to own, operate or lease and to carry on its business as it is now being conducted, except where the failure to have such Approvals would not, individually or in the aggregate, have a Material Adverse Effect on Parent. Each of Parent and its subsidiaries is duly qualified or licensed as a foreign corporation to do business, and is in good standing, in each jurisdiction where the character of the properties owned, leased or operated by it or the nature of its activities makes such qualification or licensing necessary, except for such failures to be so duly qualified or licensed and in good standing that would not, either individually or in the aggregate, have a Material Adverse Effect on Parent. 3.2 Certificate of Incorporation and Bylaws. Parent has previously furnished to Company a complete and correct copy of its Certificate of Incorporation and Bylaws as amended to date. Such Certificate of Incorporation, Bylaws and equivalent organizational documents of each of its subsidiaries are in full force and effect. Neither Parent nor any of its subsidiaries is in violation of any of the provisions of its Certificate of Incorporation or Bylaws or equivalent organizational documents. 3.3 Capitalization. Before giving effect to the Parent Stock Split and the Parent Share Increase, the authorized capital stock of Parent consists of (i) three billion and six hundred million (3,600,000,000) shares of Parent Common Stock and of (ii) ten million (10,000,000) shares of Preferred Stock, par value $0.00067 per share ("Parent Preferred Stock"). At the close of business on September 12, 2000 (i) 1,609,171,019 shares of Parent Common Stock were issued and outstanding, all of which are validly issued, fully paid and nonassessable, (ii) 137,210,572 shares of Parent Common Stock were held in treasury by Parent or by subsidiaries of Parent, (iii) 63,305,420 shares of Parent Common Stock were reserved for future issuance pursuant to Parent's employee stock purchase plan, (iv) 218,104,814 shares of Parent Common Stock were reserved for issuance upon the exercise of outstanding options ("Parent Options") to purchase Parent Common Stock. As of the date hereof, no shares of Parent Preferred Stock were issued or outstanding, other than shares of Parent Preferred Stock reserved for future issuance pursuant to the Rights (as defined in the Parent Rights Agreement). The authorized capital stock of Merger Sub consists of 1,000 shares of common stock, par value -29- 31 $0.001 per share, all of which, as of the date hereof, are issued and outstanding. All of the outstanding shares of Parent's and Merger Sub's respective capital stock have been duly authorized and validly issued and are fully paid and nonassessable. 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, shall, and the shares of Parent Common Stock to be issued pursuant to the Merger will be, duly authorized, validly issued, fully paid and nonassessable. All of the outstanding shares of capital stock (other than directors' qualifying shares) of each of Parent's subsidiaries is duly authorized, validly issued, fully paid and nonassessable and all such shares (other than directors' qualifying shares) are owned by Parent or another subsidiary free and clear of all security interests, liens, claims, pledges, agreements, limitations in Parent's voting rights, charges or other encumbrances of any nature whatsoever, except as would not, either individually or in the aggregate, have a Material Adverse Effect on Parent. 3.4 Authority Relative to this Agreement. Each of Parent and Merger Sub has all necessary corporate power and authority to execute and deliver this Agreement and the Stock Option Agreement, and to perform its obligations hereunder and thereunder and to consummate the transactions contemplated hereby and thereby. The execution and delivery of this Agreement and the Stock Option Agreement by Parent and Merger Sub and the consummation by Parent and Merger Sub of the transactions contemplated hereby and thereby have been duly and validly authorized by all necessary corporate action on the part of Parent and Merger Sub and no other corporate proceedings on the part of Parent or Merger Sub are necessary to authorize this Agreement and the Stock Option Agreement, or to consummate the transactions so contemplated. The Board of Directors of Parent has, as of the date this Agreement, approved this Agreement and the Stock Option Agreement and the transactions contemplated hereby and thereby, and no further corporate action is required on the part of Parent to authorize this Agreement or the Stock Option Agreement or the transactions contemplated hereby or thereby. This Agreement and the Stock Option Agreement have been duly and validly executed and delivered by Parent and Merger Sub and, assuming the due authorization, execution and delivery by Company, constitute legal and binding obligations of Parent and Merger Sub, enforceable against Parent and Merger Sub in accordance with their respective terms, except as enforceability may be subject to and limited by laws of general application relating to bankruptcy, insolvency and the relief of debtors, and rules of law governing specific performance injunctive relief or other equitable remedies. 3.5 No Conflict; Required Filings and Consents. (a) The execution and delivery of this Agreement by Parent and Merger Sub and the Stock Option Agreement by Parent do not, and the performance of this Agreement by Parent and Merger Sub and the Stock Option Agreement by Parent shall not, (i) conflict with or violate the Certificate of Incorporation, Bylaws or equivalent organizational documents of Parent or any of its subsidiaries, (ii) subject to obtaining the consents, approvals, authorizations and permits and making the registrations, filings and notifications, set forth in Section 3.5(b) hereof, conflict with or violate any law, rule, regulation, order, judgment or decree applicable to Parent or any of its subsidiaries or by which it or their respective properties are bound or affected, or (iii) result in any breach of or constitute a default (or an event that with notice or lapse of time or both would become a default) under, or impair Parent's or any such subsidiary's rights or alter -30- 32 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 lien or encumbrance on any of the properties or assets of Parent or any of its subsidiaries pursuant to, any material note, bond, mortgage, indenture, contract, agreement, lease, license, permit, franchise or other instrument or obligation to which Parent or any of its subsidiaries is a party or by which Parent or any of its subsidiaries or its or any of their respective properties are bound or affected, except to the extent such conflict, violation, breach, default, impairment or other effect could not in the case of clauses (ii) or (iii) individually or in the aggregate, reasonably be expected to have a Material Adverse Effect on Parent. (b) The execution and delivery of this Agreement by Parent and Merger Sub and the Stock Option Agreement by Parent do not, and the performance of this Agreement by Parent and Merger Sub shall not, require any consent, approval, authorization or permit of, or registration, filing with or notification to, any Governmental Entity, except for (i) applicable requirements, if any, of the Securities Act, the Exchange Act, Blue Sky Laws, the pre-merger notification requirements of the HSR Act and of foreign governmental entities and the rules and regulations promulgated thereunder, (ii) the rules and regulations of The Nasdaq Stock Market, Inc., (iii) the filing and recordation of the Certificate of Merger as required by the Delaware Law and (iv) where the failure to obtain such consents, approvals, authorizations or permits, or to make such filings or notifications, (A) would not prevent consummation of the Merger or otherwise prevent Parent or Sub from performing their respective obligations under this Agreement or (B) could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect on Parent. 3.6 SEC Filings. (a) Parent has made available to the Company a correct and complete copy of each report, schedule, registration statement and definitive proxy statement filed by Parent with the SEC on or after July 1, 1999 and prior to the date of this Agreement (the "Parent SEC Reports"), which are all the forms, reports and documents required to be filed by Parent with the SEC since such date. The Parent SEC Reports (i) were prepared in accordance with the requirements of the Securities Act or the Exchange Act, as the case may be, and (ii) did not at the time they were filed (or if amended or superseded by a filing prior to the date of this Agreement then on the date of such filing) contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. None of Parent's subsidiaries is required to file any reports or other documents with the SEC. (b) Each set of consolidated financial statements (including, in each case, any related notes thereto) contained in the Parent SEC Reports was prepared in accordance with 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 statements, do not contain footnotes as permitted by Form 10-Q of the Exchange Act) and each fairly presents in all material respects the consolidated financial position of Parent and its subsidiaries at the respective dates thereof and the consolidated results of its operations and cash flows for the periods indicated, except that the -31- 33 unaudited interim financial statements were or are subject to normal adjustments which were not or are not expected to be material in amount. 3.7 Absence of Changes. Since June 30, 2000, there has not been any Material Adverse Effect on Parent. 3.8 Registration Statement; Proxy Statement/Prospectus. None of the information supplied or to be supplied by Parent for inclusion or incorporation by reference in (i) the Registration Statement will, at the time the Registration Statement 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 light of the circumstances under which they are made, not misleading; and (ii) the Proxy Statement/Prospectus will, at the dates mailed to the stockholders of Company, at the time of the Company Stockholders' Meeting and 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 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. Notwithstanding the foregoing, Parent makes no representation or warranty with respect to any information supplied by the Company which is contained in any of the foregoing documents. ARTICLE IV CONDUCT PRIOR TO THE EFFECTIVE TIME 4.1 Conduct of Business by the Company. (a) During the period commencing with the execution and delivery of this Agreement and continuing until the earlier to occur 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 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, 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, Company will promptly notify Parent of any material event involving its business or operations. (b) Except as permitted or required by the terms of this Agreement, or as set forth in Section 4.1 of the Company Disclosure Letter, during the period commencing with the execution and delivery 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 any of its subsidiaries to do any of the following, except to the extent that Parent shall otherwise consent in writing: -32- 34 (i) 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; (ii) grant any severance or termination pay 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, or amend or modify or alter in any respect any severance plan, agreement or arrangement existing on the date hereof, or grant any equity-based compensation (except as permitted by Section 4.1(b)(iv) hereof), whether payable in cash or stock; (iii) transfer or license to any person or entity, or otherwise extend, amend or modify any rights to the Company Intellectual Property, or enter into any agreements or make other commitments or arrangements to grant, transfer or license to any person future patent rights other than non-exclusive licenses granted to end-users in the ordinary course of business and consistent with past practice; (iv) 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 of the Company or any of its subsidiaries, or split, combine or reclassify any such capital stock, or issue or authorize the issuance of any other securities in respect of, in lieu of or in substitution for any such capital stock; (v) purchase, redeem or otherwise acquire, directly or indirectly, any shares of capital stock of the Company or any of 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; (vi) issue, deliver, sell, authorize, pledge or otherwise encumber (or propose any of the foregoing with respect to) any shares of capital stock of the Company or of any subsidiaries of the Company or any securities convertible into, or exercisable or exchangeable for, shares of such capital stock, or any subscriptions, rights, warrants or options to acquire any shares of such capital stock, or enter into other agreements or commitments of any kind or character obligating the Company or any of its subsidiaries to issue any shares of such capital stock or securities convertible, or exercisable or exchangeable for, shares of such capital stock, other than (A) the issuance, delivery and/or sale of (x) shares of Company Common Stock pursuant to the exercise of stock options therefor outstanding on the date of this Agreement, and (y) shares of Company Common Stock issuable to participants in the Employee Stock Purchase Plan consistent with the terms thereof, and (B) the granting of stock options, in the ordinary course of business and consistent with past practices, to newly hired employees who are not executive officers of the Company in an aggregate amount not to exceed the amount set forth in Section 4.1 of the Company Disclosure Letter; -33- 35 (vii) 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); (viii) acquire or agree to acquire by merging or consolidating with, or by purchasing any equity interest in or a portion of the assets of, or by any other manner, any business or any corporation, limited liability company, general or limited partnership, business trust, unincorporated association or other business organization, entity or division thereof, or otherwise acquire or agree to acquire all or substantially all of the assets of any of the foregoing, or purchase any equity interest in any of the foregoing or enter into any joint ventures, strategic partnerships or similar alliances; (ix) sell, lease, license, encumber or otherwise dispose of any properties or assets, except sales of inventory in the ordinary course of business consistent with past practice, and except for the sale, lease or disposition (other than through licensing) of property or assets which are not material, individually or in the aggregate, to the business of Company and its subsidiaries; (x) 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 in connection with the financing of ordinary course trade payables consistent with past practice; (xi) adopt or amend any employee benefit plan, policy or arrangement, or employee stock purchase or 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 business and consistent with past practice, with newly hired employees who are terminable "at will" and who are not officers of the Company), 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; (xii) (A) pay, discharge, settle or satisfy any claims, liabilities or obligations (whether absolute or contingent, asserted or unasserted, accrued or unaccrued, or otherwise) or litigation (whether or not commenced prior to the date of this Agreement), other than the payment, discharge, settlement or satisfaction, in the ordinary course of business consistent with past practice or in accordance with their terms as in existence as of the date hereof, or (B) waive the benefits of, agree to modify in any manner, terminate, release any person from or knowingly fail to enforce any confidentiality or similar agreement to which the Company or any of its subsidiaries is a party or of which the Company or any of its subsidiaries is a beneficiary; -34- 36 (xiii) make any payments outside of the ordinary course of business in excess of $300,000 in the case of any individual or series of related payments, or $1,000,000 in the aggregate, excluding payments permitted by this Section 4.1. (xiv) modify, amend or terminate any material contract or agreement to which the Company or any of its subsidiaries is a party, or waive, delay the exercise of, release or assign any material rights or claims thereunder; (xv) enter into, renew or modify any contracts, agreements or obligations relating to the distribution, sale, license or marketing by third parties of the products of the Company or any of its subsidiaries, or products licensed by the Company or any of its subsidiaries, other than non-exclusive contracts, agreements or obligations which may be cancelled by the Company without penalty and with prior notice of sixty (60) days or less; (xvi) except as required by GAAP, revalue any assets of the Company or any of its subsidiaries, or make any change in accounting methods, principles or practices; (xvii) incur or enter into any agreement, contract or other commitment or arrangement requiring the Company or any of its subsidiaries to make payments in excess of $300,000 in any individual case, or $1,000,000 in the aggregate; (xviii)engage in any action that could reasonably be expected to cause the Merger to fail to qualify as a "reorganization" under Section 368(a) of the Code, whether or not otherwise permitted by the provisions of this Article IV; (xix) engage in any action with the intent to, directly or indirectly, adversely impact or materially delay the consummation of the Merger or any of the other transactions contemplated by this Agreement; or (xx) hire any employee with an annual compensation level in excess of $100,000, except for employees who are not executive officers and are hired on an "at-will" basis in the ordinary course of business consistent with past practices; (xxi) make any Tax election that is reasonably likely to adversely affect in any material respect the Tax liabilities or Tax attributes of the Company or any of its subsidiaries, or settle or compromise any material income Tax liability, or consent to any extension or waiver of any limitations period with respect to Taxes; (xxii) other than fees payable to pursuant to the engagement letter referred to in Section 2.18 hereof, make any individual or series of related payments outside of the ordinary course of business (including payments to legal, accounting or other professional service advisors) in excess of $1,000,000 in the aggregate; (xxiii)agree in writing or otherwise to take any of the actions described in Section 4.1(b)(i) through Section 4.1(b)(xxii), inclusive. -35- 37 4.2 Conduct of Business by 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, except as permitted by the terms of this Agreement and the Stock Option Agreement, without the prior written consent of the Company, Parent shall not engage in any action that would reasonably be expected to cause the Merger to fail to qualify as a "reorganization" under Section 368(a) of the Code. ARTICLE V ADDITIONAL AGREEMENTS 5.1 Proxy Statement/Prospectus; Registration Statement; Other Filings; Board Recommendations. (a) As promptly as practicable after the execution of this Agreement, the Company and Parent shall prepare and file with the SEC a proxy statement/prospectus to be delivered to the stockholders of the Company in connection with the Merger (the "Proxy Statement/Prospectus"), and Parent shall prepare and file with the SEC a registration statement on Form S-4, in which the Proxy Statement/Prospectus will be included as a prospectus, in connection with the issuance of the Parent Common Stock in or as a result of the Merger (the "Registration Statement"). Each of the Company and Parent shall promptly provide to the other all such information concerning its business and financial statements and affairs as reasonably may be required or appropriate for inclusion in the Proxy Statement/Prospectus or the Registration Statement, or in any amendments or supplements thereto, and to cause its counsel and auditors to cooperate with the other party's counsel and auditors in the preparation of the Proxy Statement/Prospectus and the Registration Statement. Each of the Company and Parent shall respond to any comments of the SEC, and shall use its respective commercially reasonable efforts to have the Registration Statement declared or ordered effective under the Securities Act as promptly as practicable after such filing, the Company shall cause the Proxy Statement/Prospectus to be mailed to its stockholders at the earliest practicable time after the Registration Statement is declared or ordered effective by the SEC. As promptly as practicable after the date of this Agreement, each of the Company and Parent shall prepare and file any other filings required to be filed by it under the Exchange Act, the Securities Act or any other Federal, foreign, state "blue sky" or related laws relating to the Merger and the transactions contemplated by this Agreement (the "Other Filings"). Each of the Company and Parent shall notify the other promptly upon the receipt of any comments from the SEC or its staff or any other government officials and of any request by the SEC or its staff or any other government officials for amendments or supplements to the Registration Statement, the Proxy Statement/Prospectus or any Other Filing, or for additional information and shall 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 Proxy Statement/Prospectus, the Merger or any Other Filing. Each of the Company and Parent shall cause all documents that it is responsible for filing with the SEC or other regulatory authorities under this Section 5.1(a) 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 Proxy Statement/Prospectus, the Registration Statement or any Other Filing, the Company or Parent, as -36- 38 the case may be, shall 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 the stockholders of the Company, such amendment or supplement. (b) The Proxy Statement/Prospectus shall include (i) the unanimous recommendation of the Board of Directors of the Company in favor of adoption and approval of this Agreement and approval of the Merger, subject to the right of the Board of Directors of the Company to withhold, withdraw, amend, modify or change its recommendation and recommend a Superior Offer in accordance with Section 5.2(c) hereof, and (ii) the opinion of Goldman Sachs & Co. referred to in Section 2.22 hereof. 5.2 Meeting of Company Stockholders. (a) Promptly after the date hereof, the Company shall take all action necessary in accordance with Delaware Law and its Certificate of Incorporation and Bylaws to convene a meeting of the stockholders of the Company (the "Company Stockholders' Meeting") to be held as promptly as practicable, and in any event (to the extent permissible under Delaware Law and the Certificate of Incorporation and Bylaws of the Company) within forty five (45) calendar days, following the declaration of effectiveness of the Registration Statement, for the purpose of voting upon this Agreement and the Merger. Subject to the terms of Section 5.2(c) hereof, the Company shall use 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 shall take all other commercially reasonable action necessary or advisable to secure the vote or consent of its stockholders required by the rules of The Nasdaq Stock Market, Inc. or Delaware Law to obtain such approvals. The Company may adjourn or postpone the Company Stockholders' Meeting (i) if and to the extent necessary to ensure that any necessary supplement or amendment to the Proxy Statement/Prospectus is provided to the Company's stockholders in advance of a vote on this Agreement and the Merger, or (ii) if, as of the time for which the Company Stockholders' Meeting is originally scheduled (as set forth in the Proxy Statement/Prospectus), 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 Stockholders' Meeting. The Company shall ensure that the Company Stockholders' 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 Delaware Law, and the Certificate of Incorporation and Bylaws of the Company, the rules of The Nasdaq Stock Market, Inc. and all other applicable legal requirements. Notwithstanding anything to the contrary contained in this Agreement, 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 below), or by any withholding, withdrawal, amendment, modification or change of the recommendation of the Board of Directors of the Company with respect to this Agreement and/or the Merger. (b) Unless the Board of Directors of the Company shall have withheld, withdrawn, amended, modified or changed its recommendation of this Agreement and the Merger in compliance with Section 5.2(c) hereof: (i) the Board of Directors of the Company shall -37- 39 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 Proxy Statement/Prospectus 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 approve the Merger at the Company Stockholders' Meeting; and (iii) neither the Board of Directors of the Company nor any committee thereof shall withhold, withdraw, amend, modify, change or propose or resolve to withhold, withdraw, amend, modify or change, in each case 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 approve the Merger. For all purposes of and under this Agreement, the foregoing recommendation of the Board of Directors of the Company shall be deemed to have been modified in a manner adverse to Parent if such recommendation by the Board of Directors of the Company or any committee thereof shall no longer be unanimous. (c) Nothing in this Agreement shall prevent the Board of Directors of the Company from withholding, withdrawing, amending, modifying or changing its unanimous recommendation in favor of the adoption and approval of this Agreement and approval of the Merger if (i) a Superior Offer (as defined below) is made to the Company and is not withdrawn, (ii) neither the Company nor any of its representatives shall have violated the terms of Section 5.5 hereof and the Company is not then in material breach of this Agreement, and (iii) the Board of Directors of the Company reasonably concludes in good faith, after consultation with its outside counsel, that, in light of such Superior Offer, the withholding, withdrawal, amendment, modification or changing 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 Delaware Law with respect to such Superior Offer; provided, however, that prior to publicly withholding, withdrawing, amending, modifying or changing its recommendation in favor of the adoption and approval of this Agreement and approval of the Merger, the Company shall have given Parent at least three (3) business days prior written notice (or such lesser prior notice as provided to the members of Company's Board of Directors) thereof and the opportunity to meet with the Company and its counsel. Nothing contained in this Section 5.2 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 withheld, withdrawn, amended, modified or changed pursuant hereto). As used in this Agreement, the term "Superior Offer" shall mean any bona fide, unsolicited written Acquisition Proposal (as defined in Section 5.5(b) hereof) for all of the outstanding shares of Company Common Stock on terms that the Board of Directors of the Company determines in good faith, after considering the advice of a financial advisor of nationally recognized reputation and taking into account all the terms and conditions of the Acquisition Proposal, are more favorable to the Company's stockholders than the terms of the Merger; provided, however, that any such offer shall not be deemed to be a "Superior Offer" pursuant hereto if any financing required to consummate the transaction contemplated by such offer is both not committed and not likely, in the judgment of the Board of Directors of the Company, to be obtained by such third party on a timely basis. 5.3 Confidentiality. The parties hereto acknowledge that the Company and Parent have previously executed a Confidential Disclosure Agreement, dated as of September 8, 2000 -38- 40 (the "Confidentiality Agreement"), which Confidentiality Agreement will continue in full force and effect in accordance with its terms. 5.4 Access to Information. During the period commencing with the execution and delivery of this Agreement until the earlier to occur of the termination of this Agreement pursuant to its terms and the Effective Time, the Company shall 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 to obtain all information concerning the business of the Company, including, without limitation, the status of the Company's product development efforts, properties, results of operations and personnel, as Parent may reasonably request. No information or knowledge obtained by Parent during the course of any investigation conducted pursuant to this Section 5.4 shall affect, or be deemed to modify in any respect any representation or warranty contained herein or the conditions to the obligations of the parties to consummate the Merger contained herein. 5.5 No Solicitation. (a) During the period commencing with the execution and delivery of this Agreement until the earlier to occur of the termination of this Agreement pursuant to its terms and the Effective Time, the Company and its subsidiaries shall not, nor will they authorize or permit any of their respective officers or directors, or any investment banker, attorney or other advisor or representative retained by any of them to, nor will they authorize any of their respective affiliates or employees to, or indirectly, (i) solicit, initiate, knowingly encourage or induce the making, submission or announcement of any Acquisition Proposal (as defined in Section 5.5(b) hereof), (ii) participate in any discussions or negotiations regarding, or furnish to any person any information with respect to, or take any other action to knowingly 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 or negotiations with any person with respect to any Acquisition Proposal (it being understood and agreed that informing any person as to the existence of these provisions, or requesting additional information regarding the terms and conditions of any Acquisition Proposal from the person making such Acquisition Proposal, without in each case providing additional information, shall not constitute a discussion or negotiation in violation of this Section 5.5(a)), (iv) subject to the terms of Section 5.2(c) hereof, 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 prior to the adoption and approval of this Agreement and the approval of the Merger by the requisite vote of the stockholders of the Company, nothing in this Agreement (including the first sentence of this Section 5.5(a)) shall prohibit the Company from furnishing information regarding the Company or any of its subsidiaries to, or entering into a confidentiality agreement with, or entering into or conducting discussions or negotiations with, any person or group in response to a Superior Offer submitted by such person or group (and not withdrawn) if (1) neither the Company nor any representative of the Company and its subsidiaries shall have violated any of the restrictions set forth above in this Section 5.5, (2) the Board of Directors of the Company concludes in good faith, after consultation with its outside legal counsel, that such action is required in order for the Board of Directors of the Company to comply with its fiduciary obligations to the Company's stockholders -39- 41 under Delaware Law (3) at least three (3) business days prior to furnishing any such information to, or entering into discussions or negotiations with, such person or group, the Company gives Parent written notice of the identity of such person or group and of the Company's intention to furnish information to, or enter into discussions or negotiations with, such person or group, and (y) the Company receives from such person or group an executed confidentiality agreement at least as restrictive as the Confidentiality Agreement, and (4) contemporaneously with furnishing any such information to such person or group, the Company furnishes such information to Parent (to the extent such information has not been previously furnished by the Company to Parent). In addition, nothing in this Agreement shall prohibit the Company from complying with Rule 14e-2 promulgated under the Exchange Act with regard to an Acquisition Proposal. The Company and its subsidiaries shall immediately cease any and all existing activities, discussions or negotiations with any parties conducted heretofore with respect to any Acquisition Proposal. Without limiting the generality of the foregoing, the parties hereto understand and agree that any violation of the restrictions set forth in this Section 5.5(a) by any officer or director 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 5.5(a) by the Company. In addition to the foregoing, the Company shall (i) provide Parent with at least forty eight (48) hours prior notice (or such lesser prior notice as provided to the members of the Board of Directors of the Company, but in no event less than twelve (12) hours unless the Company shall have previously notified Parent of a prior meeting of the Board of Directors of the Company to consider such Superior Offer) of any meeting of the Board of Directors of the Company at which the Board of Directors of the Company is reasonably expected to consider a Superior Offer, and (ii) provide Parent with at least three (3) business days prior written notice (or such lesser prior notice as provided to the members of the Board of Directors of the Company) of a meeting of the Board of Directors of the Company at which the Board of Directors of the Company is reasonably expected to recommend a Superior Offer to the stockholders of the Company and together with such notice a copy of the proposed form of agreement, letter of intent or other definitive document containing the terms and conditions of such Superior Offer. (b) For all purposes of and under this Agreement, the term "Acquisition Proposal" shall mean any offer or proposal (other than an offer or proposal by Parent) providing for any Acquisition Transaction. For all purposes of and under this Agreement, the term "Acquisition Transaction" shall mean any transaction or series of related transactions, other than the transactions contemplated by this Agreement, involving: (i) any acquisition or purchase from the Company by any person or "group" (as defined under Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder) of more than a fifteen percent (15%) 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 fifteen percent (15%) 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 pursuant to which the stockholders of the Company immediately preceding such transaction would hold less than eighty-five percent (85%) of the equity interests in the surviving or resulting entity of such transaction; (ii) any sale, lease (other than in the ordinary course of business), exchange, transfer, license (other than in the ordinary -40- 42 course of business), acquisition or disposition of more than fifteen percent (15%) of the assets of the Company; or (iii) any liquidation or dissolution of the Company. (c) In addition to the obligations of the Company set forth in Section 5.5(a) hereof, the Company shall advise Parent, as promptly as practicable, and in any event within twenty four (24) hours, orally and in writing, of (i) any request for information which the Company reasonably believes is likely to lead to an Acquisition Proposal or, (ii) any Acquisition Proposal, or (iii) any inquiry with respect to or which the Company reasonably believes could lead to any Acquisition Proposal, the (iv) material terms and conditions of any such request, Acquisition Proposal or inquiry, and (v) the identity of the person or group making any such request, Acquisition Proposal or inquiry. The Company shall keep Parent informed in all material respects of the status and details (including material amendments or proposed amendments) of any such request, Acquisition Proposal or inquiry. 5.6 Public Disclosure. Parent and the Company shall consult with each other, and to the extent practicable, agree, before issuing any press release or otherwise making any public statement with respect to this Agreement, the Merger or an Acquisition Proposal, and shall not issue any such press release or make any such public statement prior to such consultation, except as may be required by applicable law or any listing agreement with a national securities exchange or The Nasdaq Stock Market, Inc. The parties hereto have agreed to the text of the joint press release announcing the signing of this Agreement. 5.7 Reasonable Efforts; Notification. (a) Upon the terms and subject to the conditions and limitations set forth in this Agreement (including, without limitation, the Company's rights under Section 5.2 and Section 5.5 hereof), each of the parties hereto shall use its commercially reasonable best 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 hereto 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, without limitation, using reasonable efforts to accomplish the following: (i) the taking of all reasonable actions necessary to cause the conditions precedent set forth in Article VI hereof 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 which may be required or desirable as a result of, or in connection with, the transactions contemplated by this Agreement, (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, without limitation, 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 certificates, instruments and other documents necessary to consummate the transactions contemplated by, and to fully carry out the purposes of, this Agreement. In -41- 43 connection with and without limiting the foregoing, but subject to the conditions and limitations set forth in this Agreement (including, without limitation, the Company's rights under Section 5.2 and Section 5.5 hereof) 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 commercially 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 to the contrary in this Agreement, 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 upon becoming aware that any representation or warranty made by the Company in this Agreement has become untrue or inaccurate, or that the Company has failed 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 Section 6.3(b) hereof would not be satisfied, provided, however, that no such notification shall affect the representations, warranties, covenants or agreements of the Company, or the conditions to the obligations of the parties under this Agreement. (c) Parent shall give prompt notice to the Company upon becoming aware that any representation or warranty made by Parent or Merger Sub in this Agreement has become untrue or inaccurate, or that Parent or Merger Sub has failed 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 Section 6.2(b) hereof would not be satisfied, provided, however, that no such notification shall affect the representations, warranties, covenants or agreements of Parent or Merger Sub, or the conditions to the obligations of the parties under this Agreement. 5.8 Third Party Consents. As soon as practicable following the date hereof, Parent and the Company shall each use its respective commercially reasonable efforts to obtain any consents, waivers and approvals under any of its or its subsidiaries' respective agreements, contracts, licenses or leases required to be obtained in connection with the consummation of the transactions contemplated hereby and by the Stock Option Agreement. 5.9 Company Stock Options; Employee Stock Purchase Plan. (a) Company Stock Options. At the Effective Time, each outstanding option to purchase shares of Company Common Stock (each, a "Company Stock Option") under any Company Stock Plan, whether or not vested, shall be assumed by Parent by virtue of the Merger and without any action on the part of Parent, the Company or any holders of Company Stock Options, and, to the extent required under any Company Stock Plan, Parent shall issue -42- 44 assumption agreements to all holders of Company Stock Options within thirty (30) calendar days following the Effective Time. Each Company Stock Option so assumed by Parent under this Agreement shall continue to have, and be subject to, the same terms and conditions of such options immediately prior to the Effective Time (including, without limitation, any repurchase rights or vesting provisions, but after giving effect to the amendments entered into pursuant to Section 6.3(b) hereof), except that (i) each Company Stock Option shall 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 obtained by multiplying (x) the number of shares of Company Common Stock that were issuable upon the exercise in full of such Company Stock Option immediately prior to the Effective Time, by (y) 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 the exercise of each such assumed Company Stock Option shall be equal to the quotient obtained by dividing (x) the exercise price per share of Company Common Stock at which such Company Stock Option was exercisable immediately prior to the Effective Time, by (y) the Exchange Ratio, rounded up to the nearest whole cent. (b) Employee Stock Purchase Plan. Prior to the Effective Time, outstanding purchase rights under the Employee Stock Purchase Plan shall be exercised in accordance with Section 19 of the Employee Stock Purchase Plan, and each share of Company Common Stock 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 Employee Stock Purchase Plan. The Company shall terminate the Employee Stock Purchase Plan, effective at or prior the Closing. 5.10 Form S-8. As soon as is reasonably practicable following the Effective Time, to the extent available for use by Parent, Parent shall file a registration statement on Form S-8 (or any successor form thereto) to register under the Securities Act the issuance of the shares of Parent Common Stock issuable upon the exercise of all Company Stock Options assumed by parent pursuant to Section 5.9 hereof, to the extent that the issuance of such shares may be registered on Form S-8 (or any successor form thereto). 5.11 Indemnification; Directors' and Officers' Insurance. (a) From and after the Effective Time, Parent shall, and shall cause the Surviving Corporation to, fulfill and honor in all respects the obligations of the Company and its subsidiaries under any indemnification agreements between (i) the Company or any of its subsidiaries and (ii) any of their respective directors and officers, as in effect on the date hereof (the "Indemnified Parties"), and any indemnification provisions in the Company's Certificate of Incorporation or Bylaws, as in effect on the date hereof, or in any equivalent organizational documents of any subsidiary of the Company, as the case may be. The Certificate of Incorporation and Bylaws of the Surviving Corporation shall contain provisions with respect to exculpation and indemnification that are at least as favorable to the Indemnified Parties as those contained in the Certificate of Incorporation and Bylaws of the Company, as in effect on the date hereof, and the exculpation and indemnification provisions of the equivalent organizational -43- 45 documents of each subsidiary of the Company as in effect on the date hereof shall remain in full force and effect, and no such provisions shall be amended, repealed or otherwise modified for a period of six (6) years following the Effective Time in any manner that would adversely affect the rights thereunder of individuals who, immediately prior to the Effective Time, were directors, officers, employees or agents of the Company or any subsidiary of the Company, unless such modification is required by applicable law. (b) For a period of four (4) years following the Effective Time, Parent shall maintain in effect a policy of directors' and officers' insurance covering those persons who are currently covered, or will be covered on or prior to the Effective Time, by the Company's directors' and officers' insurance policy in effect as of the date hereof (a copy of which has been heretofore delivered to Parent) for actions or omissions occurring on or prior to the Effective Time, which insurance policy shall contain terms and conditions (including, without limitation, coverage amounts and scope) that are at least as favorable in the aggregate as the terms and conditions of the Company's directors' and officers' insurance policy in effect as of the date hereof; provided, however, that notwithstanding the foregoing, Parent shall not be required to pay an annual premium on such insurance policy that is greater than one hundred and fifty percent (150%) of the annual premium payable under the Company's directors' and officers' insurance policy in effect as of the date hereof as set forth in Section 5.11 of the Company Disclosure Letter (the "Current Premium"), and if the annual premium for such coverage would at any time exceed one hundred and fifty percent (150%) of the Current Premium, the Surviving Corporation shall maintain insurance policies which provide the maximum and best coverage then available at an annual premium equal to one hundred and fifty percent (150%) of the Current Premium; and provided further, however, that notwithstanding the foregoing, Parent may satisfy its obligations under this Section 5.11(b) by purchasing a "tail" policy under the Company's existing directors' and officers' insurance policy which (i) has an effective term of four (4) years from the Effective Time, (ii) covers those persons who are currently covered, or will be covered on or prior to the Effective Time, by the Company's directors' and officers' insurance policy in effect as of the date hereof for actions and omissions occurring on or prior to the Effective Time, and (iii) contains terms and conditions (including, without limitation, coverage amounts) that are at least as favorable in the aggregate as the terms and conditions of the Company's directors' and officers' insurance policy in effect as of the date hereof. (c) Parent and the Surviving Corporation jointly and severally agree to pay all expenses, including reasonable attorneys' fees, that may be incurred by any Indemnified Party in enforcing the indemnity and other obligations provided for in this Section 5.11 to the extent that such Indemnified Party is determined to be entitled to indemnification under this Section 5.11. (d) The provisions of this Section 5.11 shall operate for the benefit of, and shall be enforceable by, each of the Indemnified Parties, and their heirs, representatives, successors and assigns. 5.12 Nasdaq Listing. Parent shall use its commercially reasonable best efforts to cause the shares of Parent Common Stock issuable, and those required to be reserved for issuance, in connection with the Merger, to be authorized for listing on Nasdaq, at or prior to the Closing Date, upon official notice of issuance. -44- 46 5.13 Company Affiliates. Section 5.13 of the Company Disclosure Letter contains a complete and accurate list of those persons who may be deemed to 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 shall provide Parent with such information and documents as Parent reasonably requests for purposes of reviewing and verifying such list. The Company shall 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 who has not delivered an Affiliate Agreement on or prior to the date hereof, an executed Affiliate Agreement. The Affiliate Agreements 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 Parent Common Stock, consistent with the terms of each Affiliate Agreement. 5.14 Regulatory Filings; Reasonable Efforts. As soon as may be reasonably practicable, the Company and Parent each shall file 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 transactions contemplated hereby 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 hereto. The Company and Parent each shall promptly (i) supply the other with any information which may be required in order to effectuate such filings, and (ii) supply any additional information which reasonably may be required by the FTC, the DOJ or the competition or merger control authorities of any other jurisdiction and which the parties hereto may reasonably deem appropriate; provided, however, that Parent shall not be required to agree to any divestiture by Parent or the Company or any of Parent's subsidiaries or affiliates of shares of capital stock or of any business, assets or property of Parent, the Company or any Parent's subsidiaries or affiliates, or the imposition of any material limitations on the ability of any of the foregoing to conduct their respective businesses or to own or exercise control of such assets, properties and capital stock. 5.15 Company 401(k) Plan. The Company shall terminate, or cause to be terminated, its 401(k) plan and any other 401(k) plan (including, without limitation, the Chili!Soft 401(k) plan) sponsored by the Company or any Affiliate, effective no later than the day immediately preceding the Closing Date. ARTICLE VI CONDITIONS TO THE MERGER 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 or fulfillment, at or prior to the Closing Date, of the following conditions: (a) Company Stockholder Approval. This Agreement shall have been duly approved and adopted, and the Merger shall have been duly approved, by the requisite vote under Delaware Law, by the stockholders of the Company. -45- 47 (b) Registration Statement Effective; Proxy Statement/Prospectus. The SEC shall have declared or ordered the Registration Statement to be 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 Proxy Statement/Prospectus, shall have been initiated or threatened in writing (and not abandoned or withdrawn) by the SEC. (c) No Order; 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 Brobeck Phleger & Harrison 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; provided, however, that if the counsel to either Parent or the Company shall not render such opinion, this condition shall nonetheless be deemed to be satisfied with respect to such party if counsel to the other party hereto shall render such opinion to such party. The parties hereto agree to make such reasonable representations as requested by such counsel for the purpose of rendering such opinions. (e) Nasdaq Listing. The shares of Parent Common Stock issuable to the stockholders of the Company in connection with the Merger pursuant to this Agreement, and such other shares required to be reserved for issuance in connection with the Merger, shall have been authorized for listing on the Nasdaq, upon official notice of issuance, or shall be exempt from such requirement under then applicable laws, regulations and rules of The Nasdaq Stock Market, Inc. 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 or fulfillment, 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: (a) Representations and Warranties. The representations and warranties of Parent and Merger Sub contained in this Agreement (i) shall have been true and correct in all respects as of the date of this Agreement and (ii) shall be true and correct in all respects on and 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), (A) in each case, or in the aggregate, as does not constitute a Material Adverse Effect on Parent, (B) for changes contemplated by this Agreement, and (C) for those representations and warranties which address matters only as of a particular date (which -46- 48 representations shall have been true and correct (subject to the Material Adverse Effect qualifications as set forth in the preceding clause (A)) as of such particular date) (it being understood that, for purposes of determining the accuracy of such representations and warranties, all "Material Adverse Effect" qualifications and other qualifications based on the word "material" or similar phrases contained in such representations and warranties shall be disregarded). The Company shall have received a certificate with respect to the foregoing signed on behalf of Parent by duly authorized officer thereof. (b) Agreements and Covenants. Parent and Merger Sub shall in all material respects have performed or complied with all agreements and covenants required by this Agreement to be performed or complied with by them on or prior to the Closing Date, and the Company shall have received a certificate to such effect signed on behalf of Parent by a duly authorized officer thereof. 6.3 Additional Conditions to the Obligations of Parent and Merger Sub. The obligations of Parent and Merger Sub to consummate and effect the Merger shall be subject to the satisfaction or fulfillment, 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. The representations and warranties of the Company contained in this Agreement (i) shall have been true and correct in all respects as of the date of this Agreement and (ii) shall be true and correct in all respects on and as of the Closing Date with the same force and effect as if made on and as of the Closing Date, except, with respect to clauses (i) and (ii), (A) in each case, or in the aggregate, as does not constitute a Material Adverse Effect on the Company; provided, however, that such Material Adverse Effect qualifier shall be inapplicable with respect to representations and warranties contained in Sections 2.3(a) (other than an inaccuracy in the aggregate amount of no greater than 50,000 shares of Company Common Stock and shares of Company Common Stock issuable upon exercise of Company Stock Options), 2.3(c), 2.4, 2.18, 2.22, 2.23, 2.24 and 2.25, each of which individually shall have been true and correct in all respects as of the date of this Agreement and shall be true and correct in all material respects on and as of the Closing Date, and provided, further, that such Material Adverse Effect qualifier shall be inapplicable with respect to representations and warranties contained in Section 2.19, which individually shall have been true and correct in all material respects as of the date of this Agreement and shall be true and correct in all material respects on and as of the Closing Date, (B) for changes contemplated by this Agreement, and (C) for those representations and warranties which address matters only as of a particular date (which representations shall have been true and correct (subject to the Material Adverse Effect qualifications and limitations set forth in the preceding clause (A)) as of such particular date) (it being understood that, for purposes of determining the accuracy of such representations and warranties, (x) all "Material Adverse Effect" and materiality qualifications and other qualifications based on the word "material" or similar phrases contained in such representations and warranties shall be disregarded, and (y) any update of or modification to the Company Disclosure Letter made or purported to have been made after the date of this Agreement shall be disregarded). Parent shall have received a certificate with respect to the foregoing signed on behalf of Company by a duly authorized officer thereof. -47- 49 (b) Agreements and Covenants. The Company shall in all material respects have performed or complied 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 Company by a duly authorized officer thereof. (c) Non-Competition Agreements. Each of the employees who have executed a Non-Competition Agreement shall continue to be employed by the Company as of the Closing, shall not have notified (whether formally or informally) Parent or the Company of such employee's intention of leaving the employ of Parent or the Company following the Effective Time, and shall not have rescinded the Non-Competition Agreement to which such employee is a party. (d) Consents. The Company shall have obtained the consents, waivers and approvals required to be obtained in connection with the consummation of the transactions contemplated hereby, which consents, waivers and approvals are set forth in Section 6.3(d) of the Company Disclosure Letter. (e) Severance and Acceleration Waivers. Each of the Severance and Acceleration Waivers shall be in full force and effect. 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 has been obtained in respect of this Agreement and the Merger: (a) by mutual written consent of Parent and the Company, duly authorized by the respective Boards of Directors of Parent and the Company; (b) by either Parent or the Company if the Merger shall not have been consummated by March 16, 2001 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 breach of this Agreement; (c) by either Parent or the Company 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, permanently enjoining or otherwise permanently prohibiting the Merger, which order, decree, ruling or other action is final and nonappealable and remains in effect at the time of termination; (d) by either Parent or the Company if the requisite approval of the stockholders of the Company contemplated by this Agreement shall not have been obtained by reason of the failure to obtain the requisite vote at a meeting of the stockholders of the Company, duly convened therefor or at any adjournment or postponement thereof; provided, however, that the right to terminate this Agreement under this Section 7.1(d) shall not be available to a party in -48- 50 the event that the failure to obtain the requisite approval of the stockholders of the Company shall have been caused by the action or failure to act of such party proposing to exercise its right of termination under this Section 7.1(d), and such action or failure to act constitutes a breach of this Agreement; (e) by Parent if a Triggering Event (as defined below) shall have occurred; (f) 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) hereof 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, however, 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(f) for thirty (30) calendar days following the delivery of written notice from the Company to Parent of such breach, provided Parent continues to exercise commercially reasonable efforts to cure such breach (it being understood and agreed that the Company may not terminate this Agreement pursuant to this Section 7.1(f) if the Company shall have materially breached this Agreement or if such breach by Parent is cured during such thirty (30) calendar day period); (g) 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 Company shall have become untrue, in either case such that the conditions set forth in Section 6.3(a) or Section 6.3(b) hereof 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, however, 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(g) for thirty (30) calendar days following the delivery of written notice from Parent to the Company of such breach, provided the Company continues to exercise commercially reasonable efforts to cure such breach (it being understood and agreed that Parent may not terminate this Agreement pursuant to this Section 7.1(g) if Parent shall have materially breached this Agreement or if such breach by the Company is cured during such thirty (30) calendar day period); (h) by Parent, if there has been a Material Adverse Effect with respect to the Company and its subsidiaries that is not curable by the Company through the exercise of its commercially reasonable efforts; or (i) by Company, if there has been a Material Adverse Effect with respect to Parent that is not curable by Parent through the exercise of its commercially reasonable efforts. For the purposes of this Agreement, a "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 either case, in a manner adverse to Parent its unanimous recommendation in favor of the adoption and approval of the Agreement or the -49- 51 approval of the Merger; (ii) the Company shall have failed to include in the Proxy Statement/Prospectus 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 shall have failed 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 at any time following the announcement of an Acquisition Proposal; (iv) the Board of Directors of the Company or any committee thereof shall have approved or recommended any Acquisition Proposal; (v) the Company shall have entered into any letter of intent or similar document or any agreement, contract or commitment accepting any Acquisition Proposal; (vi) the Company shall have breached any of the terms of Section 5.5 hereof; or (vii) a tender or exchange offer relating to not less than fifteen percent (15%) of the then-outstanding shares of capital stock of the Company shall have been commenced by a person unaffiliated with Parent and the Company shall not have sent to its securityholders pursuant to Rule 14e-2 promulgated under the Securities Act, within ten (10) business days after such tender or exchange offer is first commenced, a statement indicating that the Company recommends rejection of such tender or exchange offer. 7.2 Notice of Termination; Effect of Termination. Any termination of this Agreement pursuant to Section 7.1 hereof shall be effective immediately upon the delivery of written notice of the terminating party to the other party or parties hereto. In the event of the termination of this Agreement pursuant to Section 7.1 hereof, this Agreement shall be of no further force or effect, except (i) as set forth in this Section 7.2, and as set forth in Section 7.3 and Article VIII (miscellaneous) hereof, each of which shall survive the termination of this Agreement, and (ii) nothing herein shall relieve any party hereto from any liability for any willful or intentional breach of this Agreement. No termination of this Agreement shall affect the obligations of the parties hereto 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 otherwise provided 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 fees and 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 Proxy Statement/Prospectus (including any preliminary materials related thereto) and the Registration Statement (including financial statements and exhibits) and any amendments or supplements thereto, and any fees required to be paid under the HSR Act. (b) Company Payments. (i) Notwithstanding anything to the contrary set forth in this Agreement, in the event that this Agreement is terminated by Parent pursuant to Section 7.1(e) hereof, the Company shall pay to Parent in immediately available funds, within one (1) business day after demand by Parent, an amount in cash equal to $59,000,000 (the "Termination Fee"). -50- 52 (ii) Notwithstanding anything to contrary set forth in this Agreement, in the event that (A) this Agreement is terminated by Parent or the Company, as applicable, pursuant to Section 7.1(b) or Section 7.1(d) hereof, (B) following the date hereof and prior to the termination of this Agreement, a third party shall have announced an Acquisition Proposal, and (C) within twelve (12) months following the termination of this Agreement, a Company Acquisition (as defined in Section 7.3(b)(iv) hereof) is consummated or the Company enters into an agreement or letter of intent providing for a Company Acquisition, or a third party commences a tender or exchange offer for a Company Acquisition, then the Company shall pay to Parent, in immediately available funds, an amount in cash equal to the Termination Fee upon (x) the consummation of such Company Acquisition, or (y) the entry by the Company into such agreement or letter of intent. (iii) The Company acknowledges that the agreements set forth 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 shall fail 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 final 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 reasonable 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 The Chase Manhattan Bank in effect on the date such payment was required to be made. Payment of the fees described in this Section 7.3(b) shall not be in lieu of damages incurred in the event of any willful or intentional breach of this Agreement. (iv) For all purposes of and under this Agreement, the term "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 fifty percent (50%) 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 fifty percent (50%) 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 fifty percent (50%) 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, but only by execution of an instrument in writing, signed on behalf of each of the parties hereto by a duly authorized officer thereof. 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, -51- 53 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. Any 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, Parent and Merger Sub contained in this Agreement shall terminate at the Effective Time, and only the covenants that by their terms survive or call for action to be taken after 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 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 Parent, Merger Sub or the Company (following the Effective Time), to: Sun Microsystems, Inc. 901 San Antonio Road Palo Alto, CA 94303 Attention: General Counsel Telephone No.: (650) 960-1300 Telecopy No.: (650) 336-0530 with a copy to: Wilson Sonsini Goodrich & Rosati Professional Corporation 650 Page Mill Road Palo Alto, California 94304-1050 Attention: Larry W. Sonsini, Esq. Katherine A. Martin, Esq. Telephone No.: (650) 493-9300 Telecopy No.: (650) 493-6811 -52- 54 and to: Wilson Sonsini Goodrich & Rosati Professional Corporation One Market, Spear Street Tower Suite 3300 San Francisco, California 94105 Attention: Michael S. Dorf, Esq. Telephone No.: (415) 947-2000 Telecopy No.: (415) 947-2099 (b) if to the Company (prior to the Effective Time), to: Cobalt Networks, Inc. 555 Ellis Street Mountain View, CA 94043 Attention: President Telephone No.: (650) 623-2500 Telecopy No.: (650) 623-2546 with a copy to: Brobeck, Phleger & Harrison LLP Two Embarcadero Place 2200 Geng Road Palo Alto, California 94303 Attention: Rod J. Howard, Esq. John Montgomery, Esq. Telephone No.: (650) 424-0160 Telecopy No.: (650) 496-2885 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 taken together with such entity as a whole. Reference to the subsidiaries of an entity (the "Parent Entity") shall be deemed to include all direct and indirect subsidiaries of such Parent Entity, but shall not include any entity of which less than twenty percent (20%) of the outstanding voting securities or other equity interests are owned by the Parent Entity. -53- 55 (b) For purposes of this Agreement the term "knowledge" means with respect to a party hereto, with respect to any matter in question, that any of the executive officers of such party 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 materially adverse to the business, assets (including intangible assets), capitalization, financial condition or results of operations of such entity and its subsidiaries taken as a whole. 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; provided, however, that in no event shall any of the following, alone or in combination, be deemed to constitute, nor shall any of the following be taken into account in determining whether there has been or will be a Material Adverse Effect on any entity: (i) any change in such entity's stock price or trading volume in and of itself; or (ii) any change, event, violation, inaccuracy, circumstance or effect that such entity successfully bears the burden of proving results from changes affecting any of the industries in which such entity operates generally or the United States economy generally (which changes in each case do not disproportionately affect such entity); or (iii) any change, event, violation, inaccuracy, circumstance or effect resulting from the disruption or loss of existing or prospective customer, distributor or supplier relationships that such entity successfully bears the burden of proving results from the public announcement or pendency of the transactions contemplated hereby. 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. 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 Letter (i) 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 (ii) are not intended to confer upon any other person any rights or remedies hereunder, except as specifically provided in Section 5.11 hereof. 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 -54- 56 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. 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. 8.11 WAIVER OF JURY TRIAL. EACH OF PARENT, THE COMPANY AND MERGER SUB 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, THE COMPANY OR MERGER SUB IN THE NEGOTIATION, ADMINISTRATION, PERFORMANCE AND ENFORCEMENT HEREOF. [Remainder of Page Intentionally Left Blank] -55- 57 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their respective thereunto duly authorized offices, as of the date first written above. SUN MICROSYSTEMS, INC. By:________________________________________ Name:______________________________________ Title:_____________________________________ AZURE ACQUISITION CORPORATION By:________________________________________ Name:______________________________________ Title:_____________________________________ COBALT NETWORKS, INC. By:________________________________________ Name:______________________________________ Title:_____________________________________ *** AGREEMENT AND PLAN OF MERGER AND REORGANIZATION *** EX-2 3 f65850ex2.txt STOCK OPTION AGREEMENT 1 EXHIBIT 2 EXECUTION COPY STOCK OPTION AGREEMENT THIS STOCK OPTION AGREEMENT (this "Agreement") is made and entered into as of September 18, 2000 by and between Sun Microsystems, Inc., a Delaware corporation ("Parent"), and Cobalt Networks, Inc., a Delaware corporation (the "Company"). RECITALS: A. Parent, Merger Sub (as defined below) 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 a wholly-owned subsidiary of Parent ("Merger Sub") with and into the Company, pursuant to which all outstanding capital stock of the Company will be converted into the right to receive Common Stock of Parent. Capitalized terms used but not otherwise defined herein shall have the respective meanings ascribed thereto in the Reorganization Agreement. B. As a condition to Parent's willingness to enter into the Reorganization Agreement, Parent has requested that the Company agree, and the Company has so agreed, to grant to Parent an option to acquire shares of Common Stock, par value $0.0001 per share, of the Company ("Company Shares"), upon the terms and subject to the conditions set forth herein. AGREEMENT NOW, THEREFORE, in consideration of the foregoing premises, the mutual covenants, promises and representations set forth herein and in the Reorganization Agreement, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged and accepted, the parties hereto hereby agree as follows: 1. Grant of Option. On the terms and subject to the conditions set forth herein, 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 Company Shares as of the first date, if any, upon which an Exercise Event (as defined in Section 2(a) hereof) shall occur (the "Option Shares"), for a purchase price of $57.63 per share (the "Exercise Price"). 2. Exercise of Option. The Option may be exercised by Parent, in whole or in part, at any time or from time to time if the Reorganization Agreement is terminated pursuant to Section 7.1(b), Section 7.1(d) or Section 7.1(e) thereof, and an event causing the Termination Fee to become payable pursuant to Section 7.3(b) of the Reorganization Agreement occurs (any of such events being referred to herein as an "Exercise Event"). In the event that Parent shall elect to exercise the Option pursuant to this Section 2, Parent shall deliver to the Company a written notice (each an "Exercise Notice") specifying the total number of Option Shares that Parent wishes to acquire at such time pursuant to the exercise of the Option. 2 3. Closing of Option Exercise. (a) Each closing of a purchase of Option Shares pursuant to the exercise of the Option (a "Closing") shall occur on a date and at a time, prior to the termination of the Option pursuant to Section 4 hereof, designated by Parent in an Exercise Notice delivered to the Company at least two (2) business days prior to the date of such Closing, which Closing shall be held at the principal offices of the Company. Subject to the terms of Section 3(b) hereof, at any Closing, 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, such certificate to be registered in the name of Parent and to bear the legend set forth in Section 10 hereof, against payment by Parent to the Company of the aggregate purchase price in cash for the Company Shares so designated and being purchased at such Closing by delivery of a certified check or bank check, or wire transfer of immediately available funds to an account designated by the Company in writing. (b) The Company shall not be required to issue Option Shares to Parent pursuant to the exercise of the Option unless and until all of the following conditions have been satisfied or fulfilled: (i) all waiting periods under the HSR Act and any foreign laws which are applicable to the issuance of the Option Shares hereunder shall have expired or been terminated, and all foreign antitrust approvals applicable to such issuance shall have been obtained and shall be in full force and effect; (ii) 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 will have been obtained or made, as the case may be; and (iii) no preliminary or permanent injunction or other order by any court of competent jurisdiction prohibiting or otherwise restraining such issuance will be in effect, and no statute, rule, regulation, executive order, decree or other order applicable to the Company which has the effect of making such issuance unlawful shall be in effect. It is understood and agreed that at any time during which the Option is exercisable, the parties will use their respective reasonable best efforts to satisfy all conditions to Closing, so that a Closing may take place as promptly as practicable. 4. Termination of Option. The Option shall terminate upon the earlier to occur of (i) the Effective Time, (ii) twelve (12) full months following the date on which the Reorganization Agreement is terminated pursuant to Section 7.1(b) or Section 7.1(d) thereof, if no event causing the Termination Fee to become payable pursuant to Section 7.3(b)(ii) of the Reorganization Agreement has occurred during such twelve (12) month period, (iii) twelve (12) full months following the date on which the Reorganization Agreement is terminated pursuant to Section 7.1(e) thereof, (iv) in the event the Reorganization Agreement has been terminated pursuant to Section 7.1(b) or Section 7.1(d) thereof and the Termination Fee became payable -2- 3 pursuant to Section 7.3(b)(ii) thereof, twelve (12) full months following the payment of the Termination Fee; and (v) the date on which the Reorganization Agreement is terminated if neither a Triggering Event nor the announcement of an Acquisition Proposal by a third party occurred on or prior to the date of such termination; provided, however, that if the Option cannot be exercised by reason of any applicable governmental order or because the waiting period under the HSR Act related to the issuance of the Option Shares shall not have expired or been terminated, then the Option shall not terminate until the tenth (10th) business day after such impediment to exercise has been removed or has become final and not subject to appeal. 5. Representations, Warranties and Covenants of the Company. The Company hereby represents, warrants and covenants to Parent as follows: (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 the performance by the Company of its obligations hereunder, 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 such legality, validity, binding effect and enforceability may be limited by bankruptcy, insolvency, reorganization, arrangement, moratorium, fraudulent transfer and other similar laws affecting the rights of creditors generally, general principles of equity (whether enforcement is sought in a proceeding in equity or at law). (d) Except for any filings required under the HSR Act and applicable foreign laws, the Company has taken all necessary corporate and other action to authorize and reserve for issuance, and to permit the Company 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 to enable Parent to exercise the Option in full, and shall 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, will be duly authorized and 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 claims, liens, charges, encumbrances and security interests of any kind or nature whatsoever, excluding those imposed by or in respect of Parent. -3- 4 (f) The execution and delivery of this Agreement by the Company do not, and the performance by the Company of its obligations hereunder will not, (i) conflict with or violate the Certificate of Incorporation or Bylaws or equivalent organizational documents of the Company or any of its subsidiaries, (ii) conflict with or violate any law, rule, regulation, order, judgment or decree applicable to the Company or any of its subsidiaries or by which its or any of their respective properties is bound or affected, or (iii) result in any breach of, or constitute a default (or an event that with notice or lapse of time or both would become a default) under, or impair the Company's or any of its subsidiaries' 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 lien or encumbrance on any of the 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 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 properties are bound or affected. (g) The execution and delivery of this Agreement by the Company does not, and the performance by the Company of its obligations hereunder will not, require any consent, approval, authorization or permit of, or filing with, or notification to, any Governmental Entity except pursuant to the HSR Act and any applicable foreign antitrust laws. 6. Parent "Put" Rights. (a) Right to "Put" Option Shares. At the request of and upon notice by Parent to the Company (the "Put Notice"), at any time prior to the termination of the Option pursuant to Section 4 hereof (the "Purchase Period"), the Company (or any successor entity thereof) shall purchase the Option from Parent, to the extent not previously exercised, at the purchase price set forth in Section 6(a)(i) hereof (subject to and as limited by Section 6(a)(iii) hereof), and the Option Shares, if any, previously acquired by Parent pursuant to the exercise of the Option, at the price set forth in Section 6(a)(ii) hereof (subject to and as limited by Section 6(a)(iii) hereof): (i) The product obtained by multiplying (x) the difference between (A) the Market/Tender Offer Price (as defined below) for the Company Shares as of the date Parent delivers a Put Notice, and (B) the Exercise Price, by (y) the aggregate number of Company Shares that may then be purchased pursuant to the exercise of the Option, but only if the Market/Tender Offer Price is greater than the Exercise Price. For all purposes of and under this Agreement, the term "Market/Tender Offer Price" shall mean the higher of (A) the highest price per share offered as of such date pursuant to any Acquisition Proposal which was made prior to such date, and (B) the highest closing sale price of Company Shares then on the Nasdaq National Market during the twenty (20) consecutive trading days ending on the trading day immediately preceding such date. For purposes of determining the highest price offered pursuant to any Acquisition Proposal which involves consideration other than cash, the value of such consideration shall be equal to the higher of (A) if securities of the same class of the proponent of such consideration are traded on any national securities exchange or by any registered securities association, a value based on the final closing sale price during regular trading hours or the median between the final bid and asked prices at the close of regular trading hours for such securities on their principal trading market on such date, and (B) the value ascribed to such -4- 5 consideration by the proponent of such Acquisition Proposal, or if no such value is ascribed, a value determined in good faith by the Board of Directors of the Company. (ii) The product obtained by multiplying (x) the sum of (A) the Exercise Price paid by Parent for Company Shares previously acquired pursuant to the exercise of the Option, and (B) the difference between (1) the Market/Tender Offer Price, and (2) such Exercise Price (but only if the Market/Tender Offer Price is greater than the Exercise Price), by (y) the number of Company Shares so purchased. (iii) Notwithstanding anything to the contrary set forth in this Section 6(a), the Company shall not be required to pay Parent, pursuant to the exercise by Parent of its rights under this Section 6, any amounts in excess of (x) $79,000,000, plus (y) the Exercise Price paid by Parent for Company Shares previously acquired pursuant to the exercise of the Option, minus (z) any amounts paid to Parent by the Company pursuant to Section 7.3(b) of the Reorganization Agreement. (b) Payment and Redelivery of Option or Option Shares. In the event that Parent exercises its rights under Section 6(a) hereof, the Company shall, within five (5) business days after Parent delivers a Put Notice to the Company pursuant to Section 6(a) hereof, pay to Parent the required amount in cash by wire transfer of immediately available funds to an account designated by Parent in writing, and Parent shall surrender to the Company the Option and the certificates evidencing the Company Shares previously purchased by Parent pursuant to the exercise of the Option. 7. Registration Rights of Parent. (a) Following the termination of the Reorganization Agreement, Parent may by written notice to the Company (a "Registration Notice") request the Company to register under the Securities Act all or any part of the shares acquired by Parent pursuant to this Agreement (such shares requested to be registered being referred to in this Section 7 as "Registrable Securities") in order to permit the sale or other disposition of any or all shares of the Registrable Securities that have been acquired by or are issuable to Parent upon exercise of the Option in accordance with the intended method of sale or other disposition stated by Parent, including a "shelf" registration statement under Rule 415 under the Securities Act (or any successor provision thereto). Parent shall cause, and shall cause any underwriters of any sale or other disposition to cause, any sale or other disposition pursuant to such registration statement to be effected on a widely distributed basis so that, upon consummation thereof, no purchaser or transferee will own beneficially more than five percent (5%) of the then-outstanding voting power of the Company. Upon a request by Parent for registration of Registrable Securities pursuant to the delivery to the Company of a Registration Notice, the Company shall have the option, exercisable by written notice to Parent within ten (10) business days after the receipt of such Registration Notice, to irrevocably agree to purchase all or any part of the Registrable Securities for cash at a purchase price (the "Option Price") equal to the product obtained by multiplying (x) the number of Registrable Securities so purchased, by (y) the per share average of the closing sale prices of the Company's Common Stock on the Nasdaq National Market for the ten (10) consecutive trading days immediately preceding the date of the Registration Notice. Any such purchase of Registrable Securities by the Company hereunder shall take place at a -5- 6 closing to be held at the principle executive offices of the Company or its counsel at any reasonable date and time designated by the Company in such notice within ten (10) business days after delivery of such notice. The payment of the Option Price for the shares to be so purchased shall be made at the time of such closing by wire transfer in immediately available funds to an account designated by Parent in writing. (b) If the Company shall not elect to exercise its option to purchase Registrable Securities pursuant to Section 7(a) hereof with respect to all Registrable Securities, the Company shall use commercially reasonable efforts to effect, as promptly as practicable, the registration under the Securities Act of the unpurchased Registrable Securities requested to be registered in the Registration Notice and to keep such registration statement effective for such period (not in excess of one hundred and twenty (120) calendar days from the day such registration statement first becomes effective) as may be reasonably necessary to effect such sale or other disposition; provided, however, that Parent shall not be entitled to more than an aggregate of three (3) effective registration statements hereunder. The obligations of the Company to file a registration statement and to maintain its effectiveness pursuant hereto may be suspended for up to one hundred and twenty (120) calendar days in the aggregate if the Board of Directors of the Company shall have determined that the filing of such registration statement or the maintenance of its effectiveness would require premature disclosure of material nonpublic information that would materially and adversely affect the Company or otherwise interfere with or adversely affect any pending or proposed offering of securities of the Company or any other material transaction involving the Company. If consummation of the sale of any Registrable Securities pursuant to a registration hereunder shall not occur within one hundred and twenty (120) calendar 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 Company shall use commercially 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 Parent may reasonably request and to continue such registration or qualification in effect in such jurisdictions; provided, however, that the Company shall not be required to qualify to do business in, or to consent to general service of process in, any jurisdiction by reason of this provision. If the Company shall effect a registration under the Securities Act of Company Common Stock for its own account or for any other stockholders of the Company (other than on Form S-4 or Form S-8, or any successor form thereto), the Company shall allow Parent the right to participate in such registration by selling its Registrable Securities, and such participation will not affect the obligation of the Company to effect the registration of Registrable Securities for Parent pursuant to this Section 7; provided however, that, if the managing underwriters of such offering advise the Company in writing that in their opinion the number of shares of Company Common Stock requested to be included in such registration exceeds the number which can be sold in such offering, the Company shall include the shares requested to be included therein by Parent pro rata with the shares intended to be included therein by the Company. (c) In connection with the registration of any Registrable Securities pursuant to this Section 7, Parent shall provide the Company with such information with respect to Parent's Registrable Securities, the plan for distribution thereof, and such other information with respect to Parent as, in the reasonable judgment of counsel for the Company, is necessary to enable the Company to include in a registration statement all facts regarding Parent and its -6- 7 Registrable Securities required to be disclosed with respect to a registration of Registrable Securities thereunder. (d) The Company shall pay all fees and expenses incurred in connection with the registration of Registrable Securities pursuant to this Section 7, except for underwriting discounts and commissions and the fees and expenses of counsel to Parent, and the Company shall provide to the underwriters all such documentation (including certificates, opinions of counsel and "comfort" letters from auditors) as is customary in connection with underwritten public offerings and as such underwriters may reasonably require. In connection with any registration of Registrable Securities pursuant to this Section 7, Parent and the Company 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 Company shall indemnify Parent, each of its directors and officers and each person who controls Parent within the meaning of Section 15 of the Securities Act, and each underwriter of the Company'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 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 Company of any rule or regulation promulgated under the Securities Act applicable to the Company in connection with any such registration, qualification or compliance, and the Company shall reimburse Parent, and each of its directors and officers and each person who controls Parent 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, however, that the Company shall not be liable in any such case under this Section 7(e)(i) 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 Company by Parent, or director, officer or controlling person of Parent, or any underwriter seeking indemnification from the Company pursuant to this Section 7(e)(i). (ii) Parent shall indemnify the Company, each of its directors and officers and each underwriter of the Company's securities covered by such registration statement and each person who controls the Company within the meaning of Section 15 of the Securities Act, against all expenses, 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 -7- 8 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 Parent of any rule or regulation promulgated under the Securities Act applicable to Parent in connection with any such registration, qualification or compliance, and Parent shall reimburse the Company, and each of the Company's directors, officers, control persons and 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 Company by Parent for use therein; provided, however, that in no event will any liability for indemnification under this Section 7(e)(ii) exceed the net proceeds of the registered offering received by Parent. (iii) Each party entitled to indemnification under this Section 7(e) (the "Indemnified Party") shall give written notice to the party required to provide indemnification under this Section 7(e) (the "Indemnifying Party") promptly after such Indemnified Party has obtained actual knowledge of any claim as to which indemnity may be sought under this Section 7(e), and shall permit the Indemnifying Party to assume the defense of any such claim or any litigation resulting therefrom; provided, however, 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 or delayed), 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, however, that the failure of any Indemnified Party to give prompt 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(s) or plaintiff(s) 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 will not be unreasonably withheld or delayed). 8. Profit Limitation. (a) Notwithstanding any other provision in this Agreement or the Reorganization Agreement, in no event shall Parent's Total Profit (as defined below) exceed $79,000,000 (the "Maximum Profit") and, if Parent's Total Profit otherwise would exceed the Maximum Profit, Parent, at its sole discretion, shall either (i) reduce the number of Option Shares subject to the Option, (ii) deliver to the Company for cancellation Option Shares (or other securities into which such Option Shares are converted or exchanged) previously purchased by Parent, (iii) pay cash to the Company or (iv) any combination of the foregoing, so that Parent's -8- 9 actually realized Total Profit shall not exceed the Maximum Profit after taking into account the foregoing actions; provided, however, that to the extent the payment by the Company of cash to Parent in satisfaction of the Termination Fee pursuant to Section 7.3 of the Reorganization Agreement would cause Parent's Total Profit to exceed the Maximum Profit, then the Company need not pay such cash portion of the Termination Fee. (b) For purposes of this Agreement, "Total Profit" shall mean: (i) the aggregate amount (before taxes) of (A) any excess of (x) the net cash amounts or fair market value of any property received by Parent pursuant to a sale of Option Shares over (y) the Parent's aggregate purchase price for such Option Shares (or other securities), plus (B) any amounts received by Parent pursuant on the repurchase of the Option by the Company pursuant to Section 6, plus (C) any termination fee paid in cash by the Company and received by Parent pursuant to the Reorganization Agreement, minus (ii) the amounts of any cash previously paid by Parent to the Company pursuant to this Section 8 plus the value of the Option Shares previously delivered by Parent to the Company for cancellation pursuant to this Section 8. (c) For purposes of Section 8(a) and clause (ii) of Section 8(b), the value of any Option Shares delivered by Parent to the Company shall be the Market/Tender Offer Price of such Option Shares. 9. Adjustment Upon Changes in Capitalization; Stockholder 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 will 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) At any time prior to the termination of the Option pursuant to Section 4 hereof, 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 that contains provisions for the distribution or exercise of rights thereunder as a result of Parent or any affiliate or transferee thereof becoming the beneficial owner of shares of the Company by virtue of the Option being exercisable or having been exercised (or as a result of 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 -9- 10 RESTRICTIONS ON TRANSFER AS SET FORTH IN THE STOCK OPTION AGREEMENT DATED AS OF SEPTEMBER 18, 2000, A COPY OF WHICH MAY BE OBTAINED FROM THE ISSUER. It is understood and agreed that (i) the reference to restrictions arising under the Securities Act in the above legend shall be removed by delivery of substitute certificate(s) without such reference if such Option Shares have been registered pursuant to the Securities Act, such Option Shares have been sold in reliance on and in accordance with Rule 144 under the Securities Act or Parent has delivered to Company a copy of a letter from the staff of the SEC, or an opinion of counsel in form and substance reasonably satisfactory to the Company and its counsel, to the effect that such legend is not required for purposes of the Securities Act, and (ii) the reference to restrictions pursuant to this Agreement in the above legend will be removed by delivery of substitute certificate(s) without such reference if the Option Shares evidenced by certificate(s) containing such reference have been sold or transferred in compliance with the terms and provisions of this Agreement under circumstances that do not require the retention of such reference. 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 commercially reasonable best 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. Miscellaneous. (a) 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 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. Any Company Shares sold in compliance with the provisions of Section 7 hereof shall, upon consummation of such sale, be free of the restrictions imposed with respect to such shares by this Agreement and any transferee of such shares shall not be entitled to the rights of a party hereto. 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. (b) Specific Performance. The parties hereto recognize and agree that if for any reason any of the terms and 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 hereto agrees that, in addition to other remedies, the other party hereto shall be entitled to an injunction restraining any violation or threatened violation of the terms and provisions of this Agreement or the right to enforce any of the covenants or agreements set forth herein by specific performance. In the event that any action will be brought in equity to enforce -10- 11 the terms and provisions of the Agreement, neither party hereto will allege, and each party hereto hereby waives the defense, that there is an adequate remedy at law. (c) Entire Agreement. This Agreement and the Reorganization Agreement set forth the entire agreement and understanding of the Company and Parent with respect to the subject matter hereof, and supersede all other prior discussions, agreements and understandings between the Company and Parent, both written and oral, with respect to the subject matter hereof and thereof. (d) Further Assurances. Each party hereto 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. (e) Validity. The invalidity or unenforceability of any provision of this Agreement will not affect the validity or enforceability of the other provisions of this Agreement, which will 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 will negotiate in good faith and will 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. (f) Notices. All notices and other communications hereunder will be in writing and will 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 will be specified by like notice): If to Parent, to: SunMicrosystems, Inc. 901 San Antonio Road Palo Alto, CA 94303 Attention: General Counsel Telephone No.: (650) 960-1300 Telecopy No.: (650) 336-0530 with a copy to: Wilson Sonsini Goodrich & Rosati Professional Corporation 650 Page Mill Road Palo Alto, California 94304-1050 Attention: Larry W. Sonsini, Esq. Katharine A. Martin, Esq. Telephone: (650) 493-9300 Telecopy: (650) 493-6811 -11- 12 and to: Wilson Sonsini Goodrich & Rosati Professional Corporation One Market, Spear Street Tower Suite 3300 San Francisco, California 94105 Attention: Michael S. Dorf, Esq. Telephone: (415) 947-2000 Telecopy: (415) 947-2099 If to the Company, to: Cobalt Networks, Inc. 555 Ellis Street Mountain View, CA 94043 Attention: President Telephone No.: (650) 623-2500 Telecopy No.: (650) 623-2546 with a copy to: Brobeck, Phleger & Harrison LLP Two Embarcadero Place 2200 Geng Road Palo Alto, California 94303 Attention: Rod J. Howard, Esq. John Montgomery, Esq. Telephone No.: (650) 424-0160 Telecopy No.: (650) 496-2885 (g) Governing Law. This Agreement will 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.(h) Expenses. Except as otherwise expressly provided herein or in the Reorganization Agreement, all costs and expenses incurred in connection with the transactions contemplated by this Agreement will be paid by the party incurring such expenses. (h) 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. (i) Assignment. Neither of the parties hereto may 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 the other party, except that -12- 13 the rights and obligations hereunder will inure to the benefit of and be binding upon any successor of a party hereto. (j) Counterparts. This Agreement may be executed in several counterparts, each of which shall be deemed an original, and all of which together shall constitute one and the same instrument. [Remainder of Page Intentionally Left Blank] -13- 14 IN WITNESS WHEREOF, the undersigned have caused this Agreement to be executed by their respective thereunto duly authorized officers as of the date first written above. SUN MICROSYSTEMS, INC. By: _______________________________ Name: _____________________________ Title: ____________________________ COBALT NETWORKS, INC. By: _______________________________ Name: _____________________________ Title: ____________________________ * * * * * STOCK OPTION AGREEMENT * * * * * EX-3 4 f65850ex3.txt FORM OF VOTING AGREEMENT 1 EXHIBIT 3 FORM OF VOTING AGREEMENT THIS VOTING AGREEMENT (this "Agreement") is made and entered into as of September 18, 2000 by and between Sun Microsystems, Inc., a Delaware corporation ("Parent"), and the undersigned stockholder and/or option holder (the "Stockholder") of Cobalt Networks, Inc., a Delaware corporation (the "Company"). RECITALS: A. Parent, the Company and Merger Sub (as defined below) have entered into an Agreement and Plan of Merger and Reorganization (the "Reorganization Agreement"), which provides for the merger (the "Merger") of a wholly-owned subsidiary of Parent ("Merger Sub") with and into the Company, 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: (a) "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. (b) "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. 2 (c) "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 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. (d) 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. (a) 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, or discuss, negotiate or make any offer regarding any Transfer of any of the Shares, unless each Person to which any such Shares, or any interest therein, is or may be Transferred shall have (i) executed a counterpart of this Agreement and a proxy in the form attached hereto as Exhibit A (with such modifications as Parent may reasonably request), and (ii) agreed in writing to hold such Shares, or such interest therein, subject to all of the terms and conditions set forth in this Agreement. (b) 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: (a) 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; (b) 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; -2- 3 (c) against any of the following actions (other than those actions that relate to the Merger and the transactions contemplated by the Reorganization Agreement): (A) any merger, consolidation, business combination, sale of assets, reorganization or recapitalization of the Company or any subsidiary of the Company with any party, (B) any sale, lease or transfer of any significant part of the assets of the Company or any subsidiary of the Company, (C) any reorganization, recapitalization, dissolution, liquidation or winding up of the Company or any subsidiary of the Company, (D) any material change in the capitalization of the Company or any subsidiary of the Company, or the corporate structure of the Company or any subsidiary of the Company, or (E) 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 (d) 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. 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 -3- 4 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. (a) 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. (b) 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 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. (c) 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. (d) 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. (e) 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 -4- 5 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. (f) 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. (g) 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. (h) 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): If to Parent: Sun Microsystems, Inc. 901 San Antonio Road Palo Alto, CA 94303 Attention: General Counsel Telephone No.: (650) 960-1300 Telecopy No.: (650) 336-0530 with a copy to: Wilson Sonsini Goodrich & Rosati Professional Corporation 650 Page Mill Road Palo Alto, California 94304 Attention: Larry W. Sonsini, Esq. Katharine A. Martin, Esq. Telephone: (650) 493-9300 Facsimile: (650) 493-6811 -5- 6 and to: Wilson Sonsini Goodrich & Rosati Professional Corporation One Market, Spear Street Tower Suite 3300 San Francisco, California 94105 Attention: Michael S. Dorf, Esq. Telephone: (415) 947-2000 Telecopy: (415) 947-2099 If to the Stockholder: To the address for notice set forth on the signature page hereof. with a copy to: Cobalt Networks, Inc. 555 Ellis Street Mountain View, CA 94043 Attention: President Telephone No.: (650) 623-2500 Telecopy No.: (650) 623-2546 and to: Brobeck, Phleger & Harrison LLP Two Embarcadero Place 220 Geng Road Palo Alto, California 94303 Attention: Rod Howard, Esq. John Montgomery, Esq. Telephone: (650) 424-0160 Telecopy: (650) 947-2099 (i) Further Assurances. The Stockholder (in his or her capacity as such) shall execute and deliver any additional certificate, instruments and other documents, and take any additional actions, as Parent may deem necessary or desirable, in the reasonable opinion of Parent, to carry out and effectuate the purpose and intent of this Agreement. (j) Headings. The section headings set forth in this Agreement are for convenience of reference only and shall not affect the construction or interpretation of this Agreement in any manner. (k) Counterparts. This Agreement may be executed in several counterparts, each of which shall be deemed an original, and all of which together shall constitute one and the same instrument. [Remainder of Page Intentionally Left Blank] -6- 7 IN WITNESS WHEREOF, the undersigned have caused this Agreement to be duly executed as of the date first written above. SUN MICROSYSTEMS, INC. STOCKHOLDER: By: ___________________________________ By: ________________________________ Signature of Authorized Signatory Signature Name:___________________________________ Name:_______________________________ Title:__________________________________ Title:______________________________ ____________________________________ ____________________________________ Print Address ____________________________________ Telephone ____________________________________ Facsimile No. Share beneficially owned: ___________ shares of Company Common Stock ___________ shares of Company Common Stock issuable upon the exercise of outstanding options, warrants or other rights * * * * * VOTING AGREEMENT * * * * * 8 EXHIBIT A IRREVOCABLE PROXY The undersigned stockholder of Cobalt Networks, Inc., a Delaware corporation (the "Company"), hereby irrevocably (to the fullest extent permitted by law) appoints the directors on the Board of Directors of Sun Microsystems, 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, Blue Acquisition Corporation, a Delaware corporation and a wholly-owned subsidiary of Parent ("Merger Sub"), and the Company, which provides for the merger of Merger Sub with and into the Company 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; 9 (iii) against any of the following actions (other than those actions that relate to the Merger and the transactions contemplated by the Reorganization Agreement): (A) any merger, consolidation, business combination, sale of assets, reorganization or recapitalization of the Company or any subsidiary of the Company with any party, (B) any sale, lease or transfer of any significant part of the assets of the Company or any subsidiary of the Company, (C) any reorganization, recapitalization, dissolution, liquidation or winding up of the Company or any subsidiary of the Company, (D) any material change in the capitalization of the Company or any subsidiary of the Company, or the corporate structure of the Company or any subsidiary of the Company, or (E) 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 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. Dated: September ____, 2000 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 -----END PRIVACY-ENHANCED MESSAGE-----