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Exhibit 2.1
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
RSA SECURITY INC.,
FALCON ACQUISITION CORP.,
SECURANT TECHNOLOGIES, INC.
AND
RH INVESTMENTS 2001 LLC
July 30, 2001
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TABLE OF CONTENTS
Page
ARTICLE I THE MERGER.............................................................................................1
1.1 The Merger.................................................................................1
1.2 The Closing................................................................................2
1.3 Actions at the Closing.....................................................................2
1.4 Additional Action..........................................................................3
1.5 Conversion of Shares.......................................................................3
1.6 Dissenting Shares..........................................................................9
1.7 Exchange of Shares........................................................................10
1.8 Adjustments Before and After the Closing..................................................12
1.9 Payments on Account of Adjustments........................................................14
1.10 Shareholders' Representative.............................................................14
1.11 Escrow...................................................................................17
1.12 Articles of Incorporation and By-laws....................................................17
1.13 Directors and Officers...................................................................17
1.14 No Further Rights........................................................................18
1.15 Closing of Transfer Books................................................................18
1.16 Taxes....................................................................................18
ARTICLE II REPRESENTATIONS AND WARRANTIES OF THE COMPANY........................................................18
2.1 Organization, Qualification and Corporate Power...........................................18
2.2 Capitalization............................................................................18
2.3 Authorization of Transaction..............................................................20
2.4 Noncontravention..........................................................................20
2.5 Subsidiaries..............................................................................21
2.6 Financial Statements......................................................................21
2.7 Absence of Certain Changes................................................................22
2.8 Undisclosed Liabilities...................................................................22
2.9 Tax Matters...............................................................................22
2.10 Assets...................................................................................26
2.11 Owned Real Property......................................................................27
2.12 Intellectual Property....................................................................27
2.13 Real Property Leases.....................................................................29
2.14 Contracts................................................................................30
2.15 Powers of Attorney.......................................................................32
2.16 Insurance................................................................................32
2.17 Litigation...............................................................................33
2.18 Employees and Subcontractors.............................................................33
2.19 Employee Benefits........................................................................34
2.20 Environmental Matters....................................................................37
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2.21 Legal Compliance.........................................................................38
2.22 Permits..................................................................................38
2.23 Certain Business Relationships With Affiliates...........................................39
2.24 Brokers' Fees............................................................................39
2.25 Books and Records........................................................................39
2.26 Prepayments, Prebilled Invoices and Deposits.............................................39
2.27 Banking Facilities.......................................................................40
2.28 Accounts Receivable......................................................................40
2.29 Warranties...............................................................................40
2.30 Customers and Suppliers..................................................................40
2.31 Disclosure...............................................................................41
ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE BUYER AND THE TRANSITORY SUBSIDIARY...........................41
3.1 Organization and Corporate Power..........................................................41
3.2 Authorization of Transaction..............................................................41
3.3 Noncontravention..........................................................................42
3.4 Broker's Fees.............................................................................42
3.5 Sufficient Resources......................................................................42
ARTICLE IV COVENANTS............................................................................................42
4.1 Closing Efforts...........................................................................42
4.2 Governmental and Third-Party Notices and Consents.........................................42
4.3 Shareholder Approval; Termination of Options and Warrants.................................43
4.4 Operation of Business.....................................................................44
4.5 Access to Information.....................................................................47
4.6 Notice of Breaches........................................................................47
4.7 Exclusivity...............................................................................47
4.8 Expenses..................................................................................48
4.9 Additional Financial Statements...........................................................48
4.10 Benefit Plans............................................................................48
4.11 Amendment to Financial Advisor Agreement.................................................49
4.12 Satisfaction of Disclosure Items.........................................................49
4.13 Bridge Financing.........................................................................49
ARTICLE V CONDITIONS TO CONSUMMATION OF MERGER..................................................................49
5.1 Conditions to Each Party's Obligations....................................................49
5.2 Conditions to Obligations of the Buyer and the Transitory Subsidiary......................50
5.3 Conditions to Obligations of the Company..................................................52
ARTICLE VI INDEMNIFICATION......................................................................................53
6.1 Indemnification by the Company Shareholders...............................................53
6.2 Indemnification by the Buyer..............................................................54
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6.3 Indemnification Claims....................................................................54
6.4 Survival of Representations and Warranties................................................57
6.5 Limitations...............................................................................58
ARTICLE VII TERMINATION.........................................................................................58
7.1 Termination of Agreement..................................................................58
7.2 Effect of Termination.....................................................................60
ARTICLE VIII DEFINITIONS........................................................................................60
ARTICLE IX MISCELLANEOUS........................................................................................64
9.1 Press Releases and Announcements..........................................................64
9.2 No Third Party Beneficiaries..............................................................64
9.3 Entire Agreement..........................................................................64
9.4 Succession and Assignment.................................................................64
9.5 Counterparts and Facsimile Signature......................................................64
9.6 Headings..................................................................................64
9.7 Notices...................................................................................64
9.8 Governing Law.............................................................................65
9.9 Amendments and Waivers....................................................................66
9.10 Severability.............................................................................66
9.11 Submission to Jurisdiction...............................................................66
9.12 Construction.............................................................................66
9.13 Specific Performance.....................................................................67
Exhibit A - Shareholder Agreement
Exhibit B-1 - Merger Agreement
Exhibit B-2 - Certificate of Merger
Exhibit C - Escrow Agreement
Exhibit D - Opinion of Counsel to the Company
Exhibit E - Non-Competition Agreements
Schedule 4.4(c) Approved Bridge Financing Providers
Schedule 4.8 Expenses of Professional Advisors
Schedule 5.2(i) Non-Competition Parties
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Disclosure Schedule
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AGREEMENT AND PLAN OF MERGER
This Agreement and Plan of Merger (the "Agreement") is entered into as of
July 30, 2001, by and among RSA SECURITY INC., a Delaware corporation (the
"Buyer"); FALCON ACQUISITION CORP., a Delaware corporation and a wholly-owned
subsidiary of the Buyer (the "Transitory Subsidiary"); SECURANT TECHNOLOGIES,
INC., a California corporation (the "Company"); and RH Investments 2001 LLC, a
Delaware limited liability company, solely in its capacity as Shareholders'
Representative (as defined herein) and solely for the purposes set forth in
Sections 1.8, 1.10, 9.7, 9.8, 9.11 and 9.13 and Article VI. The Buyer, the
Transitory Subsidiary and the Company are referred to collectively herein as the
"Parties."
This Agreement contemplates a merger of the Transitory Subsidiary into the
Company. In such merger, the shareholders of the Company will receive cash in
exchange for their shares of capital stock of the Company.
Concurrently with the execution of this Agreement, and as a condition and
inducement of the willingness of Buyer to enter into this Agreement, certain
shareholders of the Company have executed Shareholder Agreements in favor of the
Buyer in the form attached hereto as EXHIBIT A (the "Shareholder Voting
Agreement"), pursuant to which such shareholders have agreed to vote and to give
Buyer a proxy to vote all of the shares of capital stock of the Company that
such shareholders own in favor of the transactions described herein.
Now, therefore, in consideration of the representations, warranties and
covenants herein contained, the Parties agree as follows.
ARTICLE I
THE MERGER
1.1 THE MERGER. Upon and subject to the terms and conditions of this
Agreement, the Transitory Subsidiary shall merge with and into the Company (with
such merger referred to herein as the "Merger") at the Effective Time (as
defined below). From and after the Effective Time, the separate corporate
existence of the Transitory Subsidiary shall cease and the Company shall
continue as the surviving corporation in the Merger (the "Surviving
Corporation"). The "Effective Time" shall be the later to occur of (i) the time
at which the Surviving Corporation files the Agreement of Merger in the form
attached hereto as EXHIBIT B-1 (the "Agreement of Merger") or other appropriate
documents, together with the required officers' certificates and the
certificates of satisfaction from the California Franchise Tax Board for the
Transitory Subsidiary and the Company (collectively, the "California Merger
Filings"), in accordance with Section 1103 of the California General Corporation
Law, with the Secretary of State of the State of California, and (ii) the time
at which the Surviving Corporation files a certificate of merger in the form
attached hereto as Exhibit B-2 or other appropriate documents prepared and
executed in accordance with Section 252(c) of the Delaware General Corporation
Law with the Secretary of
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State of the State of Delaware (the "Delaware Merger Filings"). The Merger shall
have the effects set forth in Section 1107 of the California General Corporation
Law and in Section 259 of the Delaware General Corporation Law.
1.2 THE CLOSING. The closing of the transactions contemplated by this
Agreement (the "Closing") shall take place at the offices of Hale and Dorr LLP,
60 State Street, Boston, Massachusetts 02109, commencing at 9:00 a.m. local time
on August 31, 2001, or, if all of the conditions to the obligations of the
Parties to consummate the transactions contemplated hereby have not been
satisfied or waived by such date, on such mutually agreeable later date as soon
as practicable (and in any event not later than three business days) after the
satisfaction or waiver of all conditions (excluding the delivery of any
documents to be delivered at the Closing by any of the Parties) set forth in
Article V hereof (the "Closing Date").
1.3 ACTIONS AT THE CLOSING. At the Closing:
(a) the Company shall deliver to the Buyer and the Transitory
Subsidiary the various certificates, instruments and documents referred to in
Section 5.2;
(b) the Buyer and the Transitory Subsidiary shall deliver to the
Company the various certificates, instruments and documents referred to in
Section 5.3;
(c) the Surviving Corporation shall file the California Merger Filings
with the Secretary of State of the State of California and the Delaware Merger
Filings with the Secretary of State of the State of Delaware;
(d) the Buyer shall deliver the Preliminary Merger Consideration (as
defined in Section 1.8(a)) to a bank, trust company or other entity reasonably
satisfactory to the Company appointed by the Buyer to act as the exchange agent
(the "Exchange Agent") in accordance with Section 1.7 (subject to reduction by
such adjustments, if any, as may be required by Sections 1.8(a) in respect of
the Preliminary Balance Sheet and 1.10(a) in respect of the Shareholders'
Representative Fund and the Expenses);
(e) the Buyer shall cause the Shareholders' Representative Fund and
the Expenses to be paid from the Merger Consideration, respectively, pursuant to
the written directions received by the Buyer under Section 1.10(a), and the
Buyer shall also pay (without reducing the Merger Consideration) the $300,000
sum of professional expenses to be borne by the Buyer under Section 4.8 to the
professionals entitled thereto as identified by written notice given to the
Buyer prior to the Closing by the Company and the Shareholders' Representative;
and
(f) the Buyer, the Shareholders' Representative (as defined in Section
1.10) and United States Trust Company (the "Escrow Agent") shall execute and
deliver the Escrow Agreement attached hereto as EXHIBIT C (the "Escrow
Agreement") and the Buyer or the
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Transitory Subsidiary shall deposit $20,000,000 with the Escrow Agent in
accordance with Section 1.11.
1.4 ADDITIONAL ACTION. The Surviving Corporation may, at any time and from
time to time from and after the Effective Time, take any action, including
executing and delivering any document, in the name and on behalf of either the
Company or the Transitory Subsidiary, in order to consummate and give effect to
the transactions contemplated by this Agreement.
1.5 CONVERSION OF SHARES.
(a) DEFINITIONS. For the purposes hereof, the following definitions
shall apply:
(i) "Aggregate Participation Amount" shall mean (A) the Net
Merger Consideration less (B) to the extent the following preferences are
payable in accordance with the provisions hereof, the sum of (1) the product of
(x) the Series A Preference and (y) the number of Company Series A Shares, AND
(2) the product of (x) the Series B Preference and (y) the number of Company
Series B Shares, AND (3) the product of (x) Series C Preference and (y) and the
number of Company Series C Shares, AND (4) the product of (x) the Series C-1
Preference and the number of Company Series C-1 Shares.
(ii) "Company Common Shares" shall mean shares of Company's
common stock, no par value.
(iii) "Company Option" shall mean each unexpired option to
acquire Company Common Shares.
(iv) "Company Series A Shares" shall mean shares of the Company's
Series A preferred stock, no par value.
(v) "Company Series B Shares" shall mean shares of the Company's
Series B preferred stock, no par value.
(vi) "Company Series C Shares" shall mean shares of the Company's
Series C preferred stock, no par value.
(vii) "Company Series C-1 Shares" shall mean shares of the
Company's Series C-1 preferred stock, no par value.
(viii) "Company Shares" shall mean the sum of the Company Common
Shares, Company Series A Shares, Company Series B Shares, Company Series C
Shares, Company Series C-1 Shares and the Company Vested Options.
(ix) "Company Vested Options" shall mean the number of shares of
the Company's Common Stock (i) underlying the vested portion of each Company
Option as such
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may be amended on or before the Effective Time, to the extent such amendment is
permitted under Section 4.4(a), (ii) which are not otherwise included in
outstanding Company Common Shares for purposes of this Section 1.5, and (iii)
which (A) are issued as of the Effective Time pursuant to exercise of the
Company Vested Options conditional upon the Closing being completed or (B)
underlie the portion, if any, of the Company Vested Options for which a direct
cash payment is otherwise allocated pursuant to this Section 1.5 without the
requirement that such options be exercised.
(x) "Merger Consideration" shall mean $140,000,000.
(xi) "Net Merger Consideration" shall mean the Merger
Consideration less (A) Expenses (as defined in Section 1.10 hereof) and, (B) the
Shareholders' Representative Fund (as defined in Section 1.10 hereof), (C) the
Retention Bonus Fund (defined below), (D) the SM Non-Compete Payment (defined
below) and (E) any withholding, payroll, employment or similar Taxes (as defined
in Section 2.9 hereof) required to be withheld or paid by the Buyer, the
Company, or the Surviving Corporation with respect to any amounts payable or
contemplated hereunder ("Withholding Taxes").
(xii) "Net Participation Amount" shall mean the Aggregate
Participation Amount less the Escrow Fund (as defined in Section 1.11).
(xiii) "Outstanding Company Shares" shall mean the aggregate
number of Company Shares outstanding at the Effective Time.
(xiv) "Per Share Net Participation Amount" shall mean the Net
Participation Amount divided by the Outstanding Company Shares.
(xv) "Per Share Escrow Amount" shall mean the Escrow Fund divided
by the Outstanding Company Shares.
(xvi) "Restated Articles" shall mean the Company's 6th Amended &
Restated Articles of Incorporation.
(xvii) "Series A Preference" shall mean $0.17.
(xviii) "Series B Preference" shall mean $1.48.
(xix) "Series C Preference" shall mean $3.99.
(xx) "Series C-1 Preference" shall mean $3.99.
(b) CONVERSION OF COMPANY SHARES.
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(i) COMPANY COMMON STOCK. As of the Effective Time, each
Company Common Share that is issued and outstanding immediately prior to the
Effective Time (except for Dissenting Shares) shall, by virtue of the Merger and
without any action on the part of any Party or holder thereof, be cancelled and
converted into the right to receive:
(A) an amount in cash equal to the Per Share Net
Participation Amount; and
(B) a conditional amount of cash per share equal to the Per
Share Escrow Amount.
(ii) COMPANY SERIES A PREFERRED STOCK. As of the Effective Time,
each Company Series A Share that is issued and outstanding immediately prior to
the Effective Time (except for Dissenting Shares) shall by virtue of the Merger
and without any action on the part of any Party or holder thereof, be cancelled
and converted into the right to receive:
(A) an amount in cash equal to the Series A Preference;
(B) an amount in cash equal to the Per Share Net
Participation Amount; and
(C) a conditional amount in cash equal to the Per Share
Escrow Amount.
Notwithstanding the foregoing, in the event that the sum of (A), (B) and (C)
above is in excess of $0.51, then, in accordance with Section 2(a)(iv) of
Article IV of the Restated Articles, each Company Series A Share shall be deemed
a "Company Common Share" for purposes of this Section 1.5 and each holder
thereof shall be entitled to receive the consideration described in Section
1.5(b)(i) in the manner provided therein.
(iii) COMPANY SERIES B PREFERRED STOCK. As of the Effective Time,
each Company Series B Share that is issued and outstanding immediately prior to
the Effective Time (except for Dissenting Shares) shall by virtue of the Merger
and without any action on the part of any Party or holder thereof, be cancelled
and converted into the right to receive:
(A) an amount in cash equal to the Series B Preference;
(B) an amount in cash equal to the Per Share Net
Participation Amount; and
(C) a conditional amount in cash equal to the Per Share
Escrow Amount.
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Notwithstanding the foregoing, in the event that the sum (A), (B) and (C) above
is in excess of $4.44, then, in accordance with Section 2(a)(iv) of Article IV
of the Restated Articles, each Company Series B Share shall be deemed a "Company
Common Share" for purposes of this Section 1.5 and each holder thereof shall be
entitled to receive the consideration described in Section 1.5(b)(i) in the
manner provided therein.
(iv) COMPANY SERIES C PREFERRED STOCK. As of the Effective Time,
each Company Series C Share that is issued and outstanding immediately prior to
the Effective Time (except for Dissenting Shares) shall by virtue of the Merger
and without any action on the part of any Party or holder thereof, be cancelled
and converted into the right to receive:
(A) an amount in cash equal to the Series C Preference;
(B) an amount in cash equal to the Per Share Net
Participation Amount; and
(C) a conditional amount in cash equal to the Per Share
Escrow Amount.
Notwithstanding the foregoing, in the event that the sum of (A), (B) and (C)
above is in excess of $11.97, then, in accordance with Section 2(a)(iv) of
Article IV of the Restated Articles, each Company Series C Share shall be deemed
a "Company Common Share" for purposes of this Section 1.5 and each holder
thereof shall be entitled to receive the consideration described in Section
1.5(b)(i) in the manner provided therein.
(v) COMPANY SERIES C-1 PREFERRED STOCK. As of the Effective
Time, each Company Series C-1 Share that is issued and outstanding immediately
prior to the Effective Time (except for Dissenting Shares) shall by virtue of
the Merger and without any action on the part of any Party or holder thereof, be
cancelled and converted into the right to receive:
(A) an amount in cash equal to the Series C-1 Preference;
(B) an amount in cash equal to the Per Share Net
Participation Amount; and
(C) a conditional amount in cash equal to the Per Share
Escrow Amount.
Notwithstanding the foregoing, in the event that the sum of (A), (B) and (C)
above is in excess of $11.97, then, in accordance with Section 2(a)(iv) of
Article IV of the Restated Articles, each Company Series C-1 Share shall be
deemed a "Company Common Share" for purposes of this Section 1.5 and each holder
thereof shall be entitled to receive the consideration described in Section
1.5(b)(i) in the manner provided therein.
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(c) COMPANY OPTIONS.
(i) COMPANY STOCK OPTIONS. As of the Effective Time, as the
Company may designate at least two (2) business days prior to the Closing, and
subject to the reduction in the cash payments for amounts specified in Section
1.5(c)(ii) and (iii), each Company Vested Option that is outstanding immediately
prior to the Effective Time shall either (A) be exercised as of the Effective
Time conditional upon the Closing on the basis that the shares issued upon
exercise on such date will be entitled to an amount in cash equal to the Per
Share Net Participation Amount and a conditional amount of cash per share equal
to the Per Share Escrow Amount, or (B) be deemed cancelled and converted into
the right to receive an amount in cash equal to the Per Share Net Participation
Amount and a conditional amount in cash equal to the Per Share Escrow Amount.
Thereafter, without impairing the rights of the holders of Company Vested
Options to receive cash payments to the extent set forth herein, the holders of
Company Options shall, as of the Effective Time, cease to have any further right
or entitlement to acquire any Company Common Shares or any shares of capital
stock of the Buyer or the Surviving Corporation under the cancelled Company
Options.
(ii) WITHHOLDING FROM CASH FOR COMPANY OPTIONS. The Buyer shall
withhold from the cash payments made with respect to Company Vested Options held
by employees of the Company or any Subsidiary (as defined below), in lieu of
paying the withheld amounts to those holders of Company Vested Options, all
Withholding Taxes. After the Closing, the Buyer will timely file, or will cause
the Surviving Corporation to timely file, any related returns of such
Withholding Taxes and will timely remit, or cause the timely remission of, these
withheld amounts to the taxing authorities entitled to receive the same. It is
the express intention of the Parties that the Exchange Fund shall be reduced to
the extent of any Withholding Taxes, which, to the extent withheld from such
fund, shall not be treated as a liability of the Company for purposes of the
Closing Balance Sheet. The Company and the Shareholders' Representative agree to
provide the Buyer with such information as it may reasonably require in order to
calculate any Withholding Taxes.
(iii) ADJUSTMENTS TO PAYMENTS OR SHARES UNDER CERTAIN OPTIONS. To
the extent that the Company has permitted any Company Vested Options to be
cancelled in exchange for cash payments, or exercised on the basis that a number
of shares is withheld in payment of the applicable exercise price, the cash
payments to be received by the holder the of those Company Vested Options or
number of shares issued or deemed issued, as applicable, under those Company
Vested Options shall be reduced by the applicable aggregate exercise price not
paid in cash by the holders of the Company Vested Options.
(iv) OTHER RIGHTS TO ACQUIRE COMPANY SHARES. The Company shall
take all other actions necessary or appropriate so that, as of the Effective
Time and as a result of the Merger, (A) no options, warrants or other rights to
acquire any Company Shares or any securities, debt or other rights convertible
into or exchangeable or exercisable for shares of Company's capital stock are
outstanding, and (B) no person other than the holders of Company
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Shares and/or Company Options, prior to the Closing, shall have any right, title
or interest in or to the ownership of the Company or the Surviving Corporation
or any securities issued by Company or the Surviving Corporation, and (C) the
holders of Company Shares and holders of Company Options shall, on and after the
Closing, have no right, title or interest in or to Company or the Surviving
Corporation or any securities of Company or the Surviving Corporation, other
than the right to payments of cash in the manner described herein, and (D) no
person holding Company Shares and/or Company Options or rights to acquire
Company Shares or Company Options shall by virtue of any such securities have
any right to acquire any securities of the Buyer.
(v) NO INFERRED AMENDMENTS TO COMPANY OPTIONS. No provision of
this Section 1.5 or other provision of this Agreement is intended by its terms
to amend any Company Option or to give any rights to any holders of Company
Options to require accelerated vesting or other amendments to Company Options,
except to the extent that the Company in its discretion and prior to the
Closing, elects to implement any such accelerated vesting or other amendments in
accordance with and subject to the provisions of Section 4.4(a) hereof.
(d) RETENTION BONUS PROGRAM. The Company may (but is not obligated
to), not later than five (5) business days before the Closing, designate a
portion of the Merger Consideration to be separately funded by the Buyer within
the Exchange Fund (the "Retention Bonus Fund") and paid as retention bonuses to
those Company employees whose employment with the Surviving Corporation
continues for six months after the Effective Time on terms to be specified by
the Company prior to the Closing, provided that such arrangements are approved
before the Closing by the Buyer, which approval shall not be unreasonably
withheld or delayed, and such arrangements, including amounts needed to fund
applicable employer and employee withholding requirements upon payment of the
retention bonuses, do not increase the cash payments of the Merger Consideration
otherwise payable by the Buyer under this Agreement. To the extent that such
retention bonuses are not paid under the terms specified, the Exchange Agreement
shall specify that the sums not paid will be promptly distributed to the holders
of Company Shares in the proportionate amounts otherwise established by the
Exchange Agreement.
(e) SM NON-COMPETE PAYMENT. If and only if (i) Shawn McLaren has
executed and delivered on or before the date of this Agreement the Shareholder
Voting Agreement and Non-Competition Agreement in the forms attached hereto to
be signed by him, and (ii) the Closing occurs pursuant to this Agreement, the
Buyer shall deduct from the Preliminary Merger Consideration (defined in Section
1.8(a)) and, on the Closing Date, pay or cause the Surviving Corporation to pay
to Shawn McLaren the sum of Eight Hundred Thousand Dollars ($800,000.00) (the
"SM Non-Compete Payment"), in immediately available funds to an account
designated by Shawn McLaren at least two (2) business days prior to the Closing.
The Parties agree that the SM Non-Compete payment is to be made in consideration
of obligations under the Non-Competition Agreement executed and delivered by
Shawn McLaren pursuant to
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this Agreement, and do not intend that such payment be in the nature of a
severance payment or other payment for his past employment by the Company.
(f) PRELIMINARY ALLOCATION OF PROCEEDS. The Company has prepared
Schedule 1.5 attached hereto (the "Preliminary Allocation Schedule") as a
preliminary summary of the allocation of proceeds to holders of Company Shares
contemplated by this Section 1.5 based on, among other things, the Company's
allocation of preferences set forth in Section 1.5(b), certain assumptions
concerning Company Options and the Retention Bonus Fund, and estimates of the
adjustments to the Merger Consideration required under this Agreement as of the
Effective Time, but EXCLUDING any assumptions concerning (i) estimated
Withholding Taxes, (ii) the adjustments, if any, based on the Closing Balance
Sheet described in Sections 1.8 and 1.9, or (iii) any claims against the Escrow
Fund. The Parties acknowledge and agree that the Company and the Buyer will
jointly amend Schedule 1.5 as of the Effective Time to (i) reflect the actual
adjustments and allocation of proceeds then required by the applicable
provisions of this Agreement and the respective rights, preferences and
privileges of the Company Shares, and (ii) instruct the Exchange Agent as to the
portion of the Exchange Fund payable as of the Effective Time to specific
holders of Company Shares. The Parties acknowledge that the aggregate dollar
amount allocated to holders of Company Shares at the Closing may differ from the
Preliminary Allocation Schedule based upon (i) final amounts allocated to the
Expenses, the Shareholders' Representative Fund, the Retention Bonus Fund, the
SM Non-Compete Payment, Withholding Taxes, and adjustments based on the Closing
Balance Sheet, (ii) the number of Company Common Shares issued or deemed issued
as of the Effective Time pursuant to Company Options and other outstanding
securities of the Company convertible into or exercisable for Company Common
Shares, and (iii) other applicable provisions of this Agreement. Notwithstanding
the foregoing or anything to the contrary set forth herein, in no event shall
the aggregate amounts payable by the Buyer to the Exchange Fund, the Escrow
Fund, the Shareholders' Representative Fund and the Retention Bonus Fund, when
added to the sum of the SM Non-Compete Payment and any amounts withheld or paid
to fund any Withholding Taxes, exceed $140,000,000, but without regard to any
positive or negative adjustments provided for in Section 1.8 hereof.
(g) COMPANY TREASURY SHARES. Each Company Share held in the Company's
treasury immediately prior to the Effective Time and each Company share owned
beneficially by the Buyer or the Transitory Subsidiary shall be cancelled and
retired without payment therefor.
(h) TRANSITORY SUB SHARES. Each share of common stock, $.01 par value
per share, of the Transitory Subsidiary issued and outstanding immediately prior
to the Effective Time shall be converted into and thereafter evidence one share
of common stock, $.01 par value per share, of the Surviving Corporation.
1.6 DISSENTING SHARES.
(a) For purposes of this Agreement, "Dissenting Shares" means Company
Shares held as of the Effective Time by shareholders of record of the Company
immediately
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prior to the Effective Time ("Company Shareholders") who have not voted such
Company Shares in favor of the adoption of this Agreement and the Merger and
with respect to which appraisal shall have been duly demanded and perfected in
accordance with Chapter 13 of the California General Corporation Law and not
effectively withdrawn or forfeited prior to the Effective Time. Dissenting
Shares shall not be converted into or represent the right to receive the Merger
Consideration which the Company Shareholders are entitled to receive pursuant to
Section 1.5(a), unless such Company Shareholder's right to appraisal shall have
ceased in accordance with Section 1309 of the California General Corporation Law
or the Company Shareholder shall have properly withdrawn his, her or its demand
for appraisal. If such Company Shareholder has so forfeited or withdrawn his,
her or its right to appraisal of Dissenting Shares, then, as of the occurrence
of such event, such holder's Dissenting Shares shall cease to be Dissenting
Shares and shall be converted into and represent the right to receive the Merger
Consideration payable in respect of such Company Shares pursuant to Section 1.5.
(b) The Company shall give the Buyer prompt notice of any written
demands for appraisal of any Company Shares, withdrawals of such demands, and
any other instruments that relate to such demands received by the Company. Until
such time, if any, as the number of Dissenting Shares exceeds five percent (5%)
of the number of outstanding Company Shares on an as-converted basis, the
Company shall provide the Buyer with the opportunity to direct all negotiations
and proceedings with respect to demands for appraisal under the California
General Corporation Law; provided, however, that prior to the Effective Time the
Buyer shall not be permitted to settle any such demand for appraisal without the
Company's consent, which consent shall not be unreasonably withheld, conditioned
or delayed. In the event the number of Dissenting Shares exceeds five percent
(5%) of the number of outstanding Common Shares on an as-converted basis, (i)
prior to the Effective Time, the Buyer and the Company shall mutually agree on
the method by which negotiations and proceedings with respect to such demands
for appraisal under the California General Corporation Law shall be conducted
and (ii) from and after the Effective Time, the Buyer shall direct all such
negotiations and proceedings. The Company shall not, except with the prior
written consent of the Buyer, make or agree to make any payment with respect to
any demands for appraisal of Company Shares or offer to settle or settle any
such demands.
1.7 EXCHANGE OF SHARES.
(a) Prior to the Effective Time, the Buyer and the Shareholders'
Representative shall enter into an agreement with the Exchange Agent, in
customary form reasonably acceptable to the Buyer and the Shareholders'
Representative (the "Exchange Agreement"), to (i) effect the exchange for the
Merger Consideration of certificates that, immediately prior to the Effective
Time, represented Company Shares converted into the Merger Consideration
pursuant to Section 1.5 ("Certificates") and (ii) pay any excess Adjusted Merger
Consideration (as defined in Section 1.8(f) to the Company Shareholders in
accordance with the provisions of Section 1.9 of this Agreement. On the Closing
Date, the Buyer shall deliver to the Exchange Agent, in trust for the benefit of
holders of Certificates, a wire transfer in the amount
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of $120,000,000, subject to the adjustments provided in Sections 1.8 and 1.10
(the "Exchange Fund"). As soon as practicable after the Effective Time (but in
no event later than five (5) business days thereafter), the Buyer shall cause
the Exchange Agent to send a notice and a transmittal form to each holder of a
Certificate advising such holder of the effectiveness of the Merger and the
procedure for surrendering to the Exchange Agent such Certificate in exchange
for the Merger Consideration payable pursuant to Section 1.5. Each holder of a
Certificate, upon proper surrender thereof to the Exchange Agent in accordance
with the instructions in such notice, shall be entitled to receive in exchange
therefor (subject to any taxes required to be withheld and without interest) the
Merger Consideration payable to such holder pursuant to Section 1.5. Until
properly surrendered, each such Certificate shall be deemed for all purposes to
evidence only the right to receive the Merger Consideration payable pursuant to
Section 1.5. Holders of Certificates shall not be entitled to receive the Merger
Consideration to which they would otherwise be entitled until such Certificates
are properly surrendered.
(b) If any Merger Consideration is to be delivered to a person other
than the person in whose name the Certificate surrendered in exchange therefor
is registered, it shall be a condition to the delivery of such Merger
Consideration that (i) the Certificate so surrendered shall be transferable, and
shall be properly assigned, endorsed or accompanied by appropriate stock powers,
(ii) such transfer shall otherwise be proper and (iii) the person requesting
such transfer shall pay to the Exchange Agent any transfer or other taxes
payable by reason of the foregoing or establish to the satisfaction of the
Exchange Agent that such taxes have been paid or are not required to be paid.
Notwithstanding the foregoing, neither the Exchange Agent nor any Party shall be
liable to a holder of Company Shares for any Merger Consideration payable to
such holder pursuant to Section 1.5 that are delivered to a public official
pursuant to applicable abandoned property, escheat or similar laws.
(c) In the event any Certificate shall have been lost, stolen or
destroyed, upon the making of an affidavit of that fact by the person claiming
such Certificate to be lost, stolen or destroyed, the Exchange Agent shall
deliver in exchange for such lost, stolen or destroyed Certificate the Merger
Consideration payable in exchange therefor pursuant to Section 1.5. The Exchange
Agent may, in its discretion and as a condition precedent to the issuance
thereof, require the owner of such lost, stolen or destroyed Certificate to give
the Exchange Agent a bond for the benefit of the Exchange Agent and the Buyer in
such sum as it may direct as indemnity against any claim that may be made
against the Exchange Agent and/or the Buyer with respect to the Certificate
alleged to have been lost, stolen or destroyed.
(d) Any portion of the Exchange Fund which remains undistributed to
the holders of Company Shares for six (6) months after the Effective Time shall
be delivered to the Buyer, upon demand, and any holder of Company Shares who has
not previously complied with this Section 1.7 shall thereafter look only to the
Buyer, as a general unsecured creditor, for payment of its Merger Consideration
pursuant to Section 1.5.
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1.8 ADJUSTMENTS BEFORE AND AFTER THE CLOSING. The Merger Consideration
shall be subject to adjustment as follows:
(a) Not later than three business days prior to the Closing Date, the
Company shall prepare and deliver to the Buyer a balance sheet of the Seller as
of a date (the "Preliminary Closing Balance Sheet Date") within five business
days of the Closing Date (the "Preliminary Closing Balance Sheet"). The
Preliminary Closing Balance Sheet shall be prepared in accordance with the
provisions relating to the preparation of the Closing Balance Sheet (as defined
below) set forth in this Section 1.8. The Preliminary Closing Balance Sheet
shall be accompanied by (i) all relevant backup materials and schedules, in
detail reasonably acceptable to the Buyer, and (ii) a statement setting forth
the amount, if any, by which the estimated Closing Working Capital (as
hereinafter defined) is greater than, or less than, the Target Amount (as
hereinafter defined) (the "Preliminary Closing Working Capital"). In the event
that the Preliminary Closing Working Capital on the Preliminary Closing Balance
Sheet is $50,000 or more less than the Target Amount, the amount of such
deficiency shall be deducted from the $120,000,000 portion of the Merger
Consideration otherwise payable at the Closing under Section 1.7(a) (as so
adjusted, the "Preliminary Merger Consideration").
(b) Not later than 30 calendar days after the Closing Date, the
Shareholders' Representative shall deliver to the Buyer a balance sheet of the
Company and the Subsidiaries (as defined in Section 2.4) as of the Closing Date
(the "Closing Balance Sheet"). The Closing Balance Sheet shall be audited by
Ernst & Young LLP (the "Company's Auditor") and shall be prepared in accordance
with United States generally accepted accounting principles ("GAAP") applied
consistently with the Company's past practice (to the extent such past practices
are consistent with GAAP), subject to the adjustments set forth in this Section
1.8 (which shall be in addition to and not in lieu of those required by GAAP).
The cost of the preparation of the Closing Balance Sheet shall be paid one half
by the Company Shareholders, whose share of the cost thereof shall be paid from
the Escrow Fund (as defined in Section 1.11), and one half by the Buyer;
provided, however that the Buyer's share of the cost of the preparation of the
Closing Balance Sheet shall not exceed $30,000. The Closing Balance Sheet shall
(i) exclude as liabilities of the Company up to $300,000 of financial advisor,
legal and accounting expenses incurred by the Company and its Subsidiaries (as
defined in Section 2.4) to be borne by the Buyer and the Surviving Corporation
pursuant to Section 4.8 of this Agreement, and also exclude as liabilities the
portion of those expenses which are deducted from the Preliminary Merger
Consideration and paid to the professional advisors as of the Closing from
amounts otherwise included in the Preliminary Merger Consideration; and (ii)
exclude as an asset any loan payable to the Company by any employee or former
employee of the Company or any of its Subsidiaries, provided that all repayments
of such loans by applications of the Preliminary Merger Consideration or other
payments received by the Company within thirty (30) days after the Closing Date
shall be included as assets of the Company for purposes of the Closing Balance
Sheet and adjustments in the Merger Consideration relating thereto. The Buyer
shall afford the Shareholders' Representative and the Company's Auditor
reasonable access to the Company's books and
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records during normal business hours for purposes of the preparation of the
Closing Balance Sheet.
(c) The Closing Balance Sheet delivered pursuant to paragraph (b)
above shall be accompanied by (i) relevant backup materials and schedules, in
detail reasonably acceptable to the Buyer, (ii) copies of all accounting work
papers relevant to the preparation of the Closing Balance Sheet, and (iii) a
statement setting forth the amount, if any, by which the Closing Working Capital
is greater than, or less than, $3,500,000 (the "Target Amount") (the amount of
such difference, as it may be adjusted pursuant to the resolution of any
disputes resolved pursuant to paragraph (d) below, the "Closing Working Capital
Adjustment") (with the Closing Working Capital Adjustment to be expressed as a
positive number if the Closing Working Capital on the Closing Balance Sheet is
greater than the Target Amount and as a negative number if the Closing Working
Capital on the Closing Balance Sheet is less than the Target Amount). For
purposes of this Agreement, "Closing Working Capital" shall mean the total
consolidated current assets of the Company and its Subsidiaries minus the total
consolidated current liabilities of the Company and its Subsidiaries (including
in current assets all cash and cash equivalents, accounts receivable, unbilled
receivables, inventory and prepaid expenses and excluding from current assets
all income tax assets, and including in current liabilities accounts payable and
accrued expenses, and excluding from current liabilities income tax
liabilities).
(d) In the event that the Buyer disputes the Closing Balance Sheet or
the calculation of the Closing Working Capital, the Buyer shall notify the
Shareholders' Representative in writing (the "Dispute Notice") of the amount,
nature and basis of such dispute, within 30 calendar days after delivery of the
Closing Balance Sheet. In the event of such a dispute, the Buyer and the
Shareholders' Representative shall first use their diligent good faith efforts
to resolve such dispute between themselves. If the parties are unable to resolve
the dispute within 30 calendar days after delivery of the Dispute Notice, then
any remaining items in dispute shall be submitted to an independent nationally
recognized accounting firm selected in writing by the Shareholders'
Representative and the Buyer or, if the Shareholders' Representative and the
Buyer fail or refuse to select a firm within 10 calendar days after written
request therefor by the Shareholders' Representative or the Buyer, such an
independent nationally recognized accounting firm shall be selected in
accordance with the rules of the Boston, Massachusetts office of the American
Arbitration Association (the "Arbitrator"). All determinations pursuant to this
paragraph (d) shall be in writing and shall be delivered to the Parties. The
determination of the Arbitrator as to the resolution of any dispute shall be
binding and conclusive upon all Parties. A judgment on the determination made by
the Arbitrator pursuant to this Section 1.8 may be entered in and enforced by
any court having jurisdiction thereover.
(e) The fees and expenses of the Arbitrator in connection with the
resolution of disputes pursuant to paragraph (d) above shall be shared equally
by the Company Shareholders and the Buyer; PROVIDED, however, that if the
Arbitrator determines that one Party has adopted a position or positions with
respect to the Closing Balance Sheet or the calculation
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of the Closing Working Capital that is frivolous or clearly without merit, the
Arbitrator may, in its discretion, assign a greater portion of any such fees and
expenses to such Party.
(f) Immediately upon the expiration of the 30-day period for giving
the Dispute Notice, if no Dispute Notice is given, or upon notification by the
Buyer to the Shareholders' Representative that no Dispute Notice will be given,
or immediately upon the resolution of disputes, if any, pursuant to this Section
1.8, the Merger Consideration shall be adjusted as follows (as so adjusted, the
"Adjusted Merger Consideration"):
(i) If the Closing Working Capital Adjustment is negative, such
deficiency shall be deducted from the Merger Consideration to obtain the
Adjusted Merger Consideration.
(ii) If the Closing Working Capital Adjustment is zero, the
Adjusted Merger Consideration shall be equal to the Merger Consideration.
(iii) If the Closing Working Capital Adjustment is positive, such
additional amount shall be added to the Merger Consideration to obtain the
Adjusted Merger Consideration.
1.9 PAYMENTS ON ACCOUNT OF ADJUSTMENTS. In the event the Adjusted Merger
Consideration is greater than the Preliminary Merger Consideration, the Buyer
shall pay the amount owing to the Company Shareholders upon the expiration of
the 30-day period for giving the Dispute Notice, if no Dispute Notice is given,
or upon notification by the Buyer to the Shareholders' Representative that no
Dispute Notice will be given, or immediately upon final resolution of any
dispute in connection with the determination of the Adjusted Merger
Consideration. In the event the Adjusted Merger Consideration is less than the
Preliminary Merger Consideration, the Company Shareholders shall pay the amount
owing to the Buyer upon the expiration of the 30-day period for giving the
Dispute Notice, if no Dispute Notice is given, or upon notification by the Buyer
to the Shareholders' Representative that no Dispute Notice will be given, or
immediately upon final resolution of any dispute in connection with the
determination of the Adjusted Merger Consideration. Any amounts payable to the
Buyer pursuant to this Section 1.9 shall be promptly paid solely from the Escrow
Fund. Any amounts payable to the Company Shareholders pursuant to this Section
1.9 shall be promptly deposited with the Exchange Agent for distribution by the
Exchange Agent to the Company Shareholders.
1.10 SHAREHOLDERS' REPRESENTATIVE.
(a) In order to efficiently administer the transactions contemplated
hereby, including (i) the determination of the Closing Working Capital
Adjustment and the Adjusted Merger Consideration, (ii) the waiver of any
condition to the obligations of the Company and the Company Shareholders to
consummate the transactions contemplated hereby, and (iii) the defense and/or
settlement of any claims for which the Company Shareholders may be required to
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indemnify the Buyer and/or the Surviving Corporation pursuant to Article VI
hereof, the Company Shareholders, by the approval and adoption of this
Agreement, shall designate RH Investments 2001 LLC as their representative (the
"Shareholders' Representative"). The parties acknowledge that the Company and
the Shareholders' Representative shall, prior to the Closing, direct by joint
written notice(s) to the Buyer and the Exchange Agent that, on the Closing Date
(i) a portion of the Preliminary Merger Consideration, not to exceed an amount
to be disclosed in the Information Statement (as defined in Section 4.3) (the
"Shareholders' Representative Fund"), shall be withheld and paid directly by the
Buyer to an account designated in such notice, as a fund for the fees and
expenses of the Shareholders' Representative incurred in connection with this
Agreement, with any balance of the Shareholders' Representative Fund not
incurred for such purposes to be returned to the Company Shareholders in
proportion to their interests in the Escrow Fund, and in such manner that the
Shareholders' Representative and the Company may prior to the Closing agree in
writing, and (ii) a portion of the Preliminary Merger Consideration, in excess
of the $300,000 of such expenses to be borne by the Buyer under Section 4.8, but
not to exceed an amount to be disclosed in the Information Statement, shall be
paid directly by the Buyer to certain financial and professional advisors and
legal counsel to the Company in amounts to be set forth in such joint written
notice (such amounts, after deducting such $300,000 sum, the "Expenses").
(b) The Company Shareholders by the approval and adoption of this
Agreement authorize the Shareholders' Representative (i) to make all decisions
relating to the determination of the Closing Working Capital Adjustment and the
Adjusted Merger Consideration, (ii) to take all action necessary in connection
with the waiver of any condition to the obligations of the Company Shareholders
to consummate the transactions contemplated hereby, or the defense and/or
settlement of any claims for which the Company Shareholders may be required to
indemnify the Buyer and/or the Surviving Corporation pursuant to Article VI
hereof, (iii) to give and receive all notices required to be given under the
Agreement, and (iv) to take any and all additional action as is contemplated to
be taken by or on behalf of the Company Shareholders by the terms of this
Agreement.
(c) In the event that the Shareholders' Representative dies, becomes
unable to perform his or her responsibilities hereunder or resigns from such
position, the Company Shareholders holding, prior to the Closing, a majority of
the Company Shares (on an as-converted basis) immediately prior to the Effective
Time are authorized to and shall select another representative to fill such
vacancy and such substituted representative shall be deemed to be the
Shareholders' Representative for all purposes of this Agreement and the
documents delivered pursuant hereto.
(d) All decisions and actions by the Shareholders' Representative,
including without limitation any agreement between the Shareholders'
Representative and the Buyer relating to the determination of the Closing
Working Capital Adjustment and/or the Adjusted Merger Consideration, or the
defense or settlement of any claims for which the Company Shareholders may be
required to indemnify the Buyer and/or the Surviving Corporation pursuant
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to Article VI hereof, shall be binding upon all of the Company Shareholders, and
no Company Shareholder shall have the right to object, dissent, protest or
otherwise contest the same.
(e) The Shareholders' Representative shall not have any liability to
any of the Parties or the Company Shareholders for any act done or omitted
hereunder as Shareholders' Representative while acting in good faith and in the
exercise of reasonable judgment, and any act done or omitted pursuant to the
advice of counsel shall be conclusive evidence of such good faith. The Company
Shareholders shall severally indemnify the Shareholders' Representative and hold
him harmless against any loss, liability or expense incurred without gross
negligence or bad faith on the part of the Shareholders' Representative and
arising out of or in connection with the acceptance or administration of his
duties hereunder.
(f) By his, her or its approval of the Merger, this Agreement and the
Escrow Agreement, each Company Shareholder agrees, in addition to the foregoing,
that:
(i) the Buyer shall be entitled to rely conclusively on the
instructions and decisions of the Shareholders' Representative as to the
determination of the Closing Working Capital Adjustment and/or the Adjusted
Merger Consideration, or the settlement of any claims for indemnification by the
Buyer and/or the Surviving Corporation pursuant to Article VI hereof, or any
other actions required or permitted to be taken by the Shareholders'
Representative hereunder, and no party hereunder shall have any cause of action
against the Buyer for any action taken by the Buyer in reliance upon the
instructions or decisions of the Shareholders' Representative;
(ii) all actions, decisions and instructions of the
Shareholders' Representative shall be conclusive and binding upon all of the
Company Shareholders and no Company Shareholder shall have any cause of action
against the Shareholders' Representative for any action taken, decision made or
instruction given by the Shareholders' Representative under this Agreement,
except for Fraud (as defined in Section 6.4) or willful misconduct by the
Shareholders' Representative in connection with the matters described in this
Section 1.10;
(iii) the provisions of this Section 1.10 are independent and
severable, are irrevocable and coupled with an interest and shall be enforceable
notwithstanding any rights or remedies that any Company Shareholder may have in
connection with the transactions contemplated by this Agreement;
(iv) remedies available at law for any breach of the provisions
of this Section 1.10 are inadequate; therefore, the Buyer and the Surviving
Corporation shall be entitled to temporary and permanent injunctive relief
without the necessity of proving damages if either the Buyer and/or the
Surviving Corporation brings an action to enforce the provisions of this Section
1.10; and
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(v) the provisions of this Section 1.10 shall be binding upon
the executors, heirs, legal representatives, personal representatives, successor
trustees and successors of each Company Shareholder, and any references in this
Agreement to a Company Shareholder or the Company Shareholders shall mean and
include the successors to the Company Shareholder's rights hereunder, whether
pursuant to testamentary disposition, the laws of descent and distribution or
otherwise.
1.11 ESCROW.
(a) On the Closing Date, the Buyer shall (or shall cause the
Transitory Subsidiary to) deliver to the Escrow Agent a wire transfer in the
amount of $20,000,000, which amount shall be deemed withheld from the total
$140,000,000 of Merger Consideration defined in Section 1.5(a) of this Agreement
and shall be deposited with the Escrow Agent for the purpose of securing the
indemnification and Merger Consideration adjustment obligations of the Company
Shareholders set forth in this Agreement. Such $20,000,000 (together with all
accrued interest thereon, the "Escrow Fund") shall be deemed to have been
withheld from each Company Shareholder pro rata in the same proportion as the
total amount of Merger Consideration payable to such Shareholder under Section
1.5 bears to the Merger Consideration payable to all holders of Company Shares
pursuant to Section 1.5. The Escrow Fund shall be held by the Escrow Agent under
the Escrow Agreement pursuant to the terms thereof. The Escrow Fund shall be
held as a trust fund and shall not be subject to any lien, attachment, trustee
process or any other judicial process of any creditor of any party, and shall be
held and disbursed solely for the purposes and in accordance with the terms of
the Escrow Agreement.
(b) The adoption of this Agreement and the approval of the Merger by
the Company Shareholders shall constitute approval of the Escrow Agreement and
of all of the arrangements relating thereto, including without limitation the
placement of the Escrow Fund in escrow in accordance with the terms thereof.
1.12 ARTICLES OF INCORPORATION AND BY-LAWS.
(a) The Articles of Incorporation of the Surviving Corporation
immediately following the Effective Time shall be in the form attached to the
Agreement of Merger.
(b) The By-laws of the Surviving Corporation immediately following
the Effective Time shall be the same as the By-laws of the Transitory Subsidiary
immediately prior to the Effective Time, except that the name of the corporation
set forth therein shall be changed to the name of the Company.
1.13 DIRECTORS AND OFFICERS. The directors of the Transitory Subsidiary
shall become the directors of the Surviving Corporation as of the Effective
Time. Officers of the Transitory Subsidiary shall become the officers of the
Surviving Corporation as of the Effective Time, in their respective positions as
with the Transitory Subsidiary.
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1.14 NO FURTHER RIGHTS. From and after the Effective Time, no Company
Shares shall be deemed to be outstanding, and holders of certificates formerly
representing Company Shares shall cease to have any rights with respect thereto
except as provided herein or by law.
1.15 CLOSING OF TRANSFER BOOKS. At the Effective Time, the stock transfer
books of the Company shall be closed and no transfer of Company Shares shall
thereafter be made. If, after the Effective Time, certificates formerly
representing Company Shares are presented to the Buyer or the Surviving
Corporation, they shall be cancelled and exchanged for the Merger Consideration
in accordance with Section 1.5, subject to Section 1.11 and to applicable law in
the case of Dissenting Shares.
1.16 TAXES. Notwithstanding any other provision in this Agreement, the
Buyer shall have the right to withhold or cause the Exchange Agent to withhold
Taxes from any payments to be made hereunder (including any payments to be made
under the Escrow Agreement) if such withholding is required by law and to
collect Forms W-8 or W-9, as applicable, from the Company Shareholders.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to the Buyer and the Transitory
Subsidiary that the statements contained in this Article II are true and
correct, except as set forth in the disclosure schedule attached hereto (the
"Disclosure Schedule"). The Disclosure Schedule shall be initialed by the
Parties and shall be arranged in sections and paragraphs corresponding to the
numbered and lettered sections and paragraphs contained in this Article II, and
the disclosures in any section or paragraph of the Disclosure Schedule shall
qualify other sections and paragraphs in this Article II only to the extent it
is clear from a reading of the disclosure that such disclosure is applicable to
such other sections and paragraphs.
2.1 ORGANIZATION, QUALIFICATION AND CORPORATE POWER. The Company is a
corporation duly organized, validly existing and in corporate and tax good
standing under the laws of the State of California. The Company is duly
qualified to conduct business and is in corporate and tax good standing under
the laws of each jurisdiction in which the nature of its businesses or the
ownership or leasing of its properties requires such qualification, and each
such jurisdiction is set forth in Section 2.1 of the Disclosure Schedule. The
Company has all requisite corporate power and authority to carry on the
businesses in which it is engaged and to own and use the properties owned and
used by it. The Company has furnished to the Buyer true and complete copies of
its Articles of Incorporation and By-laws, each as amended and as in effect on
the date hereof. The Company has at all times complied with, and is not in
default under or in violation of any provision of, its Articles of Incorporation
or By-laws.
2.2 CAPITALIZATION. The authorized capital stock of the Company consists
of (a) 50,000,000 Common Shares, of which, as of the date of this Agreement,
10,983,440 shares
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are issued and outstanding and no shares are held in the treasury of the
Company, and (b) 25,000,000 Preferred Shares, of which (i) 3,646,542 shares have
been designated as Series A Preferred Stock, all of which, as of the date of
this Agreement, shares are issued and outstanding, (ii) 3,743,233 shares have
been designated as Series B Preferred Stock, of which, as of the date of this
Agreement, 3,707,666 shares are issued and outstanding, (iii) 8,300,000 shares
have been designated as Series C Preferred Stock, of which, as of the date of
this Agreement, 2,418,058 shares are issued and outstanding, and (iv) 12,000,000
shares have been designated as Series C-1 Preferred Stock, of which, as of the
date of this Agreement, 5,600,620 shares are issued and outstanding. Section 2.2
of the Disclosure Schedule sets forth a complete and accurate list of (i) all
shareholders of the Company, indicating the number and class or series of
Company Shares held by each Shareholder and (for Shares other than Common
Shares) the number of Common Shares (if any) into which such Company Shares are
convertible, (ii) all outstanding options to purchase Company Shares pursuant to
the Company's 1996 Stock Plan, 1997 Director & Officer Stock Plan and 2001 Stock
Plan (the "Option Plans") or otherwise ("Options") and warrants to purchase
Company Shares other than Options ("Warrants"), indicating (A) the holder
thereof, (B) the number and class or series of Company Shares subject to each
Option and Warrant and (for Company Shares other than Common Shares) the number
of Common Shares (if any) into which such Company Shares are convertible, (C)
the exercise price, date of grant, vesting schedule and expiration date for each
Option or Warrant, and (D) any terms regarding the acceleration of vesting, and
(iii) the Stock Option Plans and other stock or equity-related plans of the
Company. All of the Options and Warrants will terminate and be of no further
force or effect at or immediately prior to the Effective Time, and none of the
Company, the Buyer, the Transitory Subsidiary or the Surviving Corporation
shall, thereafter, have any liability or obligation, including any obligation to
pay any Merger Consideration, with respect thereto. All of the issued and
outstanding Company Shares are, and all Company Shares that may be issued upon
exercise of Options or Warrants will be (upon issuance in accordance with their
terms), duly authorized, validly issued, fully paid, nonassessable and free of
all preemptive rights. Other than the Options and Warrants listed in Section 2.2
of the Disclosure Schedule, there are no outstanding or authorized options,
warrants, rights, agreements or commitments to which the Company is a party or
which are binding upon the Company providing for the issuance or redemption of
any of its capital stock. There are no outstanding or authorized stock
appreciation, phantom stock or similar rights with respect to the Company. There
are no agreements to which the Company is a party or by which it is bound with
respect to the voting (including without limitation voting trusts or proxies),
registration under the Securities Act of 1933, as amended (the "Securities
Act"), or any foreign securities law, or sale or transfer (including without
limitation agreements relating to preemptive rights, rights of first refusal,
co-sale rights or "drag-along" rights) of any securities of the Company. To the
best knowledge of the Company, there are no agreements among other parties, to
which the Company is not a party and by which it is not bound, with respect to
the voting (including without limitation voting trusts or proxies) or sale or
transfer (including without limitation agreements relating to rights of first
refusal, co-sale rights or "drag-along" rights) of any securities of the
Company. All of the issued and outstanding Company Shares were issued in
compliance with applicable federal and state securities laws.
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2.3 AUTHORIZATION OF TRANSACTION. The Company has all requisite power and
authority to execute and deliver this Agreement and to perform its obligations
hereunder. The execution and delivery of this Agreement and, subject to the
adoption of this Agreement and the approval of the Merger by (i) a majority of
the votes represented by the outstanding Preferred Stock entitled to vote on
this Agreement and the Merger, voting as a single class, and (ii) a majority of
the votes represented by the outstanding Common Stock entitled to vote on this
Agreement and the Merger Agreement, voting as a single class (collectively, the
"Requisite Shareholder Approval"), the performance by the Company of this
Agreement and the consummation by the Company of the transactions contemplated
hereby have been duly and validly authorized by all necessary corporate action
on the part of the Company. Without limiting the generality of the foregoing,
the Board of Directors of the Company, at a meeting duly called and held, by the
unanimous vote of all directors (i) determined that the Merger is fair and in
the best interests of the Company and its shareholders, (ii) adopted this
Agreement in accordance with the provisions of the Delaware General Corporation
Law and the California General Corporation Law, and (iii) directed that this
Agreement and the Merger be submitted to the shareholders of the Company for
their adoption and approval and resolved to recommend that the shareholders of
Company vote in favor of the adoption of this Agreement and the approval of the
Merger. This Agreement has been duly and validly executed and delivered by the
Company and, assuming the due authorization, execution and delivery by the Buyer
and the Transitory Subsidiary, constitutes a valid and binding obligation of the
Company, enforceable against the Company in accordance with its terms.
2.4 NONCONTRAVENTION. Subject to compliance with the applicable
requirements of the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended (the "Hart-Scott-Rodino Act") and the filing of the California Merger
Filings and the Delaware Merger Filings, neither the execution and delivery by
the Company of this Agreement, nor the consummation by the Company or the
Company Shareholders of the transactions contemplated hereby, will (a) conflict
with or violate any provision of the Articles of Incorporation or By-laws of the
Company, (b) require on the part of the Company or any corporation, partnership,
limited liability company or other form of business association (a "Business
Entity") with respect to which the Company, directly or indirectly, has the
power to vote or direct the voting of sufficient securities to elect a majority
of the directors or managers (a "Subsidiary") any filing with, or any permit,
authorization, consent or approval of, any court, arbitrational tribunal,
administrative agency or commission or other governmental or regulatory
authority or agency (a "Governmental Entity"), (c) conflict with, result in a
breach of, constitute (with or without due notice or lapse of time or both) a
default under, result in the acceleration of, create in any party the right to
accelerate, terminate, modify or cancel, or require any notice, consent or
waiver under, any contract, lease, sublease, license, sublicense, franchise,
permit, indenture, agreement or mortgage for borrowed money, instrument of
indebtedness, Security Interest (as defined below) or other arrangement to which
the Company or any Subsidiary is a party or by which the Company or any
Subsidiary is bound or to which any of their assets is subject, (d) result in
the imposition of any Security Interest upon any assets of the Company or any
Subsidiary or (e) violate any order, writ, injunction, decree, statute, rule or
regulation applicable to the Company, any Subsidiary or any
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of their properties or assets. For purposes of this Agreement, "Security
Interest" means any mortgage, pledge, security interest, encumbrance, charge or
other lien (whether arising by contract or by operation of law), other than (i)
mechanic's, materialmen's and similar liens, (ii) liens arising under worker's
compensation, unemployment insurance, social security, retirement and similar
legislation, and (iii) liens on goods in transit incurred pursuant to
documentary letters of credit, in each case arising in the ordinary course of
business consistent with past custom and practice (including with respect to
frequency and amount) ("Ordinary Course of Business") of the Company and the
Subsidiaries and not material to the Company and the Subsidiaries, taken as a
whole.
2.5 SUBSIDIARIES. Section 2.5 of the Disclosure Schedule sets forth for
each Subsidiary (a) its name and jurisdiction of incorporation, (b) the number
of shares of authorized capital stock of each class of its capital stock, (c)
the number of issued and outstanding shares of each class of its capital stock,
the names of the holders thereof and the number of shares held by each such
holder, (d) the number of shares of its capital stock held in treasury, and (e)
its directors, managers and officers. Each Subsidiary is a corporation duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation. Each Subsidiary is duly qualified to conduct
business and is in corporate and tax good standing under the laws of each
jurisdiction in which the nature of its businesses or the ownership or leasing
of its properties requires such qualification, each of which is listed in
Section 2.5 of the Disclosure Schedule. Each Subsidiary has all requisite
corporate power and authority to carry on the businesses in which it is engaged
and to own and use the properties owned and used by it. The Company has
delivered to the Buyer correct and complete copies of the charter and By-laws of
each Subsidiary, as amended to date. No Subsidiary is in default under or in
violation of any provision of its charter or By-laws. All of the issued and
outstanding shares of capital stock of each Subsidiary are duly authorized,
validly issued, fully paid, nonassessable and free of preemptive rights. All
shares of each Subsidiary that are held of record or owned beneficially by
either the Company or any Subsidiary are held or owned free and clear of any
restrictions on transfer (other than restrictions under the Securities Act and
state securities laws), claims, Security Interests, options, warrants, rights,
contracts, calls, commitments, equities and demands. There are no outstanding or
authorized options, warrants, rights, agreements or commitments to which the
Company or any Subsidiary is a party or which are binding on any of them
providing for the issuance, disposition or acquisition of any capital stock of
any Subsidiary. There are no outstanding stock appreciation, phantom stock or
similar rights with respect to any Subsidiary. There are no voting trusts,
proxies, or other agreements or understandings with respect to the voting of any
capital stock of any Subsidiary. The Company does not control directly or
indirectly or have any direct or indirect equity participation or similar
interest in any corporation, partnership, limited liability company, joint
venture, trust, or other business association which is not a Subsidiary.
2.6 FINANCIAL STATEMENTS. The Company has provided to the Buyer (a) the
audited consolidated balance sheet and statements of income, changes in
shareholders' equity and cash flows of the Company and the Subsidiaries as of
and for the fiscal year ended December 31,
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1999; and (b) the audited consolidated balance sheet (the "Most Recent Balance
Sheet") and statements of income, changes in shareholders' equity and cash flows
of the Company and the Subsidiaries for the fiscal year ended December 31, 2000
(the "Balance Sheet Date"). Such financial statements (collectively, the
"Financial Statements") have been prepared in accordance with GAAP applied on a
consistent basis throughout the periods covered thereby, fairly present the
financial condition, results of operations and cash flows of the Company and the
Subsidiaries as of the respective dates thereof and for the periods referred to
therein and are consistent with the books and records of the Company and the
Subsidiaries.
2.7 ABSENCE OF CERTAIN CHANGES. Since the Balance Sheet Date, (a) there
has not been any material adverse change in the assets, business, financial
condition, results of operations or future prospects of the Company and its
Subsidiaries, taken as a whole, nor to the Company's best knowledge has there
occurred any event or development which could reasonably be foreseen to result
in such a material adverse change in the future, and (b) neither the Company nor
any Subsidiary has taken any of the actions set forth in paragraphs (a) through
(o) of Section 4.4 below without, in the case of events arising after the date
of this Agreement, the prior written consent of the Buyer.
2.8 UNDISCLOSED LIABILITIES. None of the Company and its Subsidiaries has
any liability (whether known or unknown, whether absolute or contingent, whether
liquidated or unliquidated and whether due or to become due), except for (a)
liabilities accrued or expressly reserved for on the Most Recent Balance Sheet,
a copy of which is included in Section 2.8 of the Disclosure Schedule, (b)
liabilities which have arisen since the Balance Sheet Date in the Ordinary
Course of Business and which are similar in nature and amount to the liabilities
which arose during the comparable period of time in the immediately preceding
fiscal period and (c) contractual liabilities incurred in the Ordinary Course of
Business of the Company and its Subsidiaries which are not required by GAAP to
be reflected on a balance sheet and that are not in the aggregate material.
2.9 TAX MATTERS.
(a) For purposes of this Agreement:
(i) The term "Taxes" means (x) all taxes, and any and all other
charges, fees, levies, duties, deficiencies, customs or other similar
assessments or liabilities in the nature of a tax, including without limitation
any income, gross receipts, ad valorem, premium, value-added, excise, severance,
stamp, occupation, windfall profits, real property, personal property, sales,
use, transfer, transfer gains, withholding, employment, unemployment, insurance,
social security, business license, business organization, environmental, workers
compensation, payroll, profits, license, lease, service, service use, and
franchise taxes imposed by any federal, state, local, or foreign government, or
any agency or political subdivision thereof, (y) any interest, fines, penalties,
assessments, or additions resulting from, attributable to, or incurred in
connection with any items described in this paragraph or any contest or dispute
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thereof, and (z) any items described in this paragraph that are attributable to
another person but that the Company or any Subsidiary is liable to pay by law,
by contract, or otherwise; and
(ii) The term "Tax Returns" means all reports, returns,
declarations, statements, forms, or other information required to be supplied to
a taxing authority or to any individual or entity in connection with Taxes and
any associated schedules or work papers provided in connection with such items.
(b) Each of the Company and the Subsidiaries has properly filed on a
timely basis all Tax Returns that it was required to file, and all such Tax
Returns were correct and complete in all respects. Each of the Company and the
Subsidiaries has properly paid on a timely basis all Taxes, whether or not shown
on any of its Tax Returns, that were due and payable. All Taxes that the Company
and any Subsidiary is or was required by law to withhold or collect have been
withheld or collected and, to the extent required, have been properly paid on a
timely basis to the appropriate Governmental Entity.
(c) The unpaid Taxes of the Company and the Subsidiaries for periods
through the date of the Most Recent Balance Sheet do not exceed the accruals and
reserves for Taxes (excluding reserves for deferred Taxes) set forth on the Most
Recent Balance Sheet. All Taxes attributable to the period from and after the
date of the Most Recent Balance Sheet and continuing through the Closing Date
are attributable to the conduct by the Company and the Subsidiaries of their
respective operations in the Ordinary Course of Business and are consistent both
as to type and amount with Taxes attributable to such comparable period in the
immediately preceding year.
(d) Neither the Company nor any Subsidiary is or has ever been a
member of any group of corporations with which it has filed (or been required to
file) consolidated, combined, or unitary Tax Returns, other than a group of
which only the Company and the Subsidiaries are or were members. Neither the
Company nor any Subsidiary has any actual or potential liability under Treasury
Regulation Section 1.1502-6 (or any similar provision of federal, state, local,
or foreign law), as a transferee or successor, by contract, or otherwise for any
Taxes of any person (including without limitation any affiliated, combined, or
unitary group of corporations or other entities that included the Company or any
Subsidiary during a prior Tax period) other than the Company and the
Subsidiaries. Neither the Company nor any Subsidiary is a party to, bound by, or
obligated under any Tax allocation, Tax sharing, or Tax indemnity agreement.
(e) The Company has delivered to the Buyer correct and complete
copies of all income Tax Returns, examination reports, and statements of
deficiencies assessed against or agreed to by any of the Company or any
Subsidiary with respect to all taxable years for which the applicable statute of
limitations has not run. No examination or audit of any Tax Return of the
Company or any Subsidiary by any Governmental Entity is currently in progress
or, to the best knowledge of the Company or any Subsidiary, threatened or
contemplated, and neither the
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Company nor any Subsidiary knows of any basis upon which a Tax deficiency or
assessment could reasonably be expected to be asserted against the Company or
any Subsidiary. Neither the Company nor any Subsidiary has been informed by any
jurisdiction that the jurisdiction believes that the Company or any Subsidiary
was required to file any Tax Return that was not filed.
(f) Neither the Company nor any Subsidiary has in effect currently any
waiver of any statute of limitations with respect to Taxes or agreed to an
extension of time with respect to an assessment of or deficiency in Taxes that
is currently in effect.
(g) Neither the Company nor any Subsidiary is a party to any Tax
litigation or, to the best knowledge of the Company or any Subsidiary, is the
subject of any Tax audit. Neither the Company nor any Subsidiary is and neither
has been a party to any specific transaction the main purpose of which has been
to avoid, defer, or reduce Taxes. Neither the Company nor any Subsidiary is and
neither has been a party to any transaction or agreement that is in conflict
with the Tax rules on transfer pricing in any relevant jurisdiction. The Company
has disclosed on its federal income Tax Returns all positions taken therein that
could give rise to a substantial understatement of federal income Tax within the
meaning of Section 6662 of the Internal Revenue Code of 1986, as amended (the
"Code").
(h) There are no liens or other encumbrances with respect to Taxes
upon any of the assets or properties of the Company or any Subsidiary, other
than with respect to Taxes not yet due and payable.
(i) Neither the Company nor any Subsidiary is a "consenting
corporation" within the meaning of Section 341(f) of the Code, and none of the
assets of the Company or any Subsidiary are subject to an election under Section
341(f) of the Code.
(j) Neither the Company nor any Subsidiary has been a United States
real property holding corporation within the meaning of Section 897(c)(2) of the
Code during the applicable period specified in Section 897(c)(1)(A)(ii) of the
Code.
(k) Neither the Company nor any Subsidiary has made any payments, is
obligated to make any payments or is a party to any agreement, contract,
arrangement, or plan that could obligate it to make any payments, that are or
could be, separately or in the aggregate, (i) "excess parachute payments" within
the meaning of Section 280G of the Code (without regard to Section 280G(b)(4)
thereof), or (ii) subject to the deduction limitations of Section 162(m) of the
Code.
(l) No Company Shareholder holds Company Shares that are
non-transferable and subject to a substantial risk of forfeiture within the
meaning of Section 83 of the Code with respect to which a valid election under
Section 83(b) of the Code has not been made, and no payment to any Company
Shareholder of any portion of the consideration payable pursuant to this
Agreement will result in compensation or other income to such Company
Shareholder with
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respect to which the Buyer, the Company or any Subsidiary would be required to
deduct or withhold any Taxes.
(m) None of the assets of the Company or any Subsidiary (i) is
property that is required to be treated as being owned by any other person
pursuant to the provisions of former Section 168(f)(8) of the Code, (ii) is
"tax-exempt use property" within the meaning of Section 168(h) of the Code, or
(iii) directly or indirectly secures any debt the interest on which is tax
exempt under Section 103(a) of the Code.
(n) Neither the Company nor any Subsidiary has undergone or is
required to undergo, nor has the Company or any Subsidiary agreed to undergo,
and is not required (nor will be required as a result of the transactions
contemplated in this Agreement) to undergo a change in its method of accounting
resulting in an adjustment to its taxable income pursuant to Section 481 of the
Code. Neither the Company nor any Subsidiary will be required to include any
item of income in, or exclude any item of deduction from, taxable income for any
taxable period (or portion thereof) ending after the Closing Date as a result of
any (i) change in method of accounting for a taxable period ending on or prior
to the Closing Date under Code Section 481(c) (or any corresponding or similar
provision of state, local or foreign income Tax law); (ii) "closing agreement"
as described in Code Section 7121 (or any corresponding or similar provision of
state, local or foreign income Tax law) executed on or prior to the Closing
Date; (iii) deferred intercompany gain or any excess loss account described in
Treasury Regulations under Code Section 1502 (or any corresponding or similar
provision of state, local or foreign income Tax law); (iv) installment sale or
open transaction disposition made on or prior to the Closing Date; or (v)
prepaid amount received on or prior to the Closing Date.
(o) Neither the Company nor any Subsidiary has participated in or
cooperated with an international boycott within the meaning of Section 999 of
the Code.
(p) There is no limitation on the utilization by the Company or any
Subsidiary of its net operating losses, built-in losses, Tax credits, or similar
items under Section 382, 383, or 384 of the Code or comparable provisions of
state law (other than any such limitation arising as a result of the
consummation of the transactions contemplated by this Agreement).
(q) Neither the Company nor any Subsidiary has distributed to its
shareholders or security holders stock or securities of a controlled
corporation, nor have stock or securities of the Company or any Subsidiary been
distributed, in a transaction to which Section 355 of the Code applies (i) in
the two years prior to the date of this Agreement or (ii) in a distribution that
could otherwise constitute part of a "plan" or "series of related transactions"
(within the meaning of Section 355(e) of the Code).
(r) Neither the Company nor any Subsidiary is or has been required to
make a basis reduction pursuant to Treasury Regulation Section 1.1502-20(b) or
Treasury Regulation Section 1.337(d)-2(b).
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(s) Neither the Company nor any Subsidiary is or has ever been a
passive foreign investment company within the meaning of Sections 1291 - 1297 of
the Code.
(t) Neither the Company nor any Subsidiary has ever incurred (or been
allocated) an "overall foreign loss" as defined in Section 904(f)(2) of the Code
which has not been previously recaptured in full as provided in Sections
904(f)(1) and/or 904(f)(3) of the Code.
(u) Neither the Company nor any Subsidiary is a party to any gain
recognition agreement under Section 367 of the Code.
(v) Neither the Company nor any Subsidiary owns any interest in an
entity that is characterized as a partnership for federal income tax purposes.
(w) The Tax bases of the assets of the Company and its Subsidiaries
for purposes of determining future amortization, depreciation and other federal
income tax deductions are accurately reflected on the Company's and
Subsidiaries' Tax books and records.
(x) At all times prior to June 30, 1998, the Company was properly
treated as an S corporation for federal income Tax purposes and for purposes of
filing any other Tax Returns in which the Company purported to be an S
corporation.
2.10 ASSETS.
(a) Each of the Company and the Subsidiaries owns or leases all
tangible assets necessary for the conduct of its businesses as presently
conducted and as presently proposed to be conducted. Each such tangible asset is
free from defects, has been maintained in accordance with normal industry
practice, is in good operating condition and repair (subject to normal wear and
tear) and is suitable for the purposes for which it presently is used.
(b) No asset of the Company (tangible or intangible) is subject to any
Security Interest.
(c) Section 2.10(c) of the Disclosure Schedule sets forth (i) a true,
correct and complete list of all items of tangible personal property, including
without limitation purchased and capitalized software, owned by the Company or
any Subsidiary as of the date hereof, or not owned by the Company or any
Subsidiary but in the possession of or used in the business of the Company or
any Subsidiary (the "Personal Property"), other than individual assets with a
book value of less than $10,000, and (ii) a description of the owner of, and any
agreement relating to the use of, each item of Personal Property not owned by
the Company or any Subsidiary and the circumstances under which such Property is
used. Each item of Personal Property not owned by the Company or any Subsidiary
is in such condition that upon the return of such property to its owner in its
present condition at the end of the relevant lease term or as otherwise
contemplated by the applicable agreement between the Company or any Subsidiary
and the owner or lessor
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thereof, the obligations of the Company or such Subsidiary to such owner or
lessor will be discharged.
2.11 OWNED REAL PROPERTY. None of the Company or any Subsidiary owns, or
has ever owned, any real property.
2.12 INTELLECTUAL PROPERTY.
(a) Each of the Company and the Subsidiaries owns, or is licensed or
otherwise possesses legally enforceable rights to use, all Intellectual Property
(as defined below in this Section 2.12) that are used to conduct its business as
currently conducted or currently planned to be conducted. Each item of
Intellectual Property owned or used in the operation of the business of the
Company or any Subsidiary at any time during the period covered by the Financial
Statements will be owned or available for use by the Surviving Corporation or a
Subsidiary on identical terms and conditions immediately following the Closing.
Each of the Company and the Subsidiaries has taken reasonable measures to
protect the proprietary nature of each item of Intellectual Property and to
maintain in confidence all trade secrets and confidential information that it
owns or, to its best knowledge, uses.
(b) No other person or Business Entity has any rights to any of the
Intellectual Property owned or used by the Company or any Subsidiary (other than
any rights in any such Intellectual Property (i) not owned by the Company or any
Subsidiary that constitutes commercially available software generally available
to the public or (ii) owned by the Company or any Subsidiary and granted
pursuant to software licenses or other agreements entered into in the Ordinary
Course of Business), and, to the best knowledge of the Company, no other person
or Business Entity is infringing, violating or misappropriating any of the
Intellectual Property that the Company or any Subsidiary owns or uses. The
Company or a Subsidiary has acquired all rights to Intellectual Property
developed or held by any employees or third parties who developed such
Intellectual Property for the Company or any Subsidiary. For purposes of this
Agreement, "Intellectual Property" means all (A) patents, patent applications,
patent disclosures and all related continuations, continuations in part,
divisionals, reissues, reexaminations, utility models, certificates of invention
and design patents, patent applications, registrations and applications for
registrations, (B) trademarks, service marks, domain names, trade dress, logos,
trade names and corporate names and registrations and applications for
registration thereof, (C) copyrights and registrations and applications for
registration thereof, (D) computer software, data and documentation, (E) trade
secrets and confidential business information, whether patentable or
unpatentable and whether or not reduced to practice, know-how, manufacturing and
production processes and techniques, research and development information,
copyrightable works, financial, marketing and business data, pricing and cost
information, business and marketing plans and customer and supplier lists and
information, (F) other proprietary rights relating to any of the foregoing, and
(G) copies and tangible embodiments thereof.
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(c) None of the products or services marketed or distributed by the
Company or any of the Subsidiaries, and none of the activities or business
conducted by the Company or any of the Subsidiaries, infringes, violates or
constitutes a misappropriation of (or in the past infringed, violated or
constituted a misappropriation of) any Intellectual Property rights of any other
person or Business Entity. Neither the Company nor any Subsidiary has received
any complaint, claim or notice alleging any such infringement, violation or
misappropriation, and to the best knowledge of the Company there is no basis for
any such complaint, claim or notice.
(d) Section 2.12(d) of the Disclosure Schedule identifies each (i)
patent or registration that has been issued to the Company or any Subsidiary
with respect to any of its Intellectual Property, (ii) pending patent
application or application for registration that the Company or any Subsidiary
has made with respect to any of its Intellectual Property, and (iii) material
license or other material agreement pursuant to which the Company or any
Subsidiary has granted any rights to any third party with respect to any of its
Intellectual Property. The Company has delivered to the Buyer or Buyer's
counsel, correct and complete copies of all such patents, registrations,
applications, licenses and agreements (as amended to date) and written abstracts
and filing information relating to all such applications. With respect to each
item of Intellectual Property that the Company or any Subsidiary owns:
(i) subject to such rights as have been granted by the Company
or any Subsidiary under agreements entered into with end user customers in the
Ordinary Course of Business of the Company and the Subsidiaries, the Company or
a Subsidiary possesses all right, title and interest in and to such item;
(ii) such item is not subject to any outstanding judgment,
order, decree, stipulation or injunction; and
(iii) except in accordance with the terms of the Company's
standard forms of Proprietary Software License and Maintenance Agreement,
Solution Integrator Agreement, Reseller Agreement, Referral Partner Agreement
and Agreement of Securant Technologies Alliance Partnership Program, copies of
which have previously been provided to the Buyer or Buyer's counsel, neither the
Company nor any Subsidiary has agreed to indemnify any person or Business Entity
for or against any infringement, misappropriation or other conflict with respect
to such item.
(e) Section 2.12(e) of the Disclosure Schedule identifies each item
of Intellectual Property used by the Companies or the Subsidiaries in the
operation of the business of the Company and the Subsidiaries at any time during
the period covered by the Financial Statements, or that the Company or any
Subsidiary plans to use in the future, that is owned by a party other than the
Company or a Subsidiary (other than commercially available desktop software
applications generally available to the public, which are not listed in Section
2.12(e) of the Disclosure Schedule but with respect to which the representations
set forth below in this Section 2.11(e) are true). The Company has supplied the
Buyer or Buyer's counsel with correct
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and complete copies of all licenses, sublicenses or other agreements (as amended
to date) pursuant to which the Company or any Subsidiary uses such Intellectual
Property, all of which are listed on Section 2.12(e) of the Disclosure Schedule.
With respect to each such item of Intellectual Property:
(i) the license, sublicense or other agreement covering such
item is legal, valid, binding, enforceable and in full force and effect with
respect to the Company or any Subsidiary party thereto, and to the best
knowledge of the Company, is legal, valid, binding, enforceable and in full
force and effect with respect to each other party thereto;
(ii) such license, sublicense or other agreement will continue
to be legal, valid, binding, enforceable and in full force and effect
immediately following the Closing in accordance with the terms thereof as in
effect prior to the Closing;
(iii) neither the Company or any Subsidiary nor, to the best
knowledge of the Company, any other party to such license, sublicense or other
agreement is in breach or default thereof, and no event has occurred which with
notice or lapse of time would constitute a breach or default or permit
termination, modification or acceleration thereunder;
(iv) the underlying item of Intellectual Property is not subject
to any outstanding judgment, order, decree, stipulation or injunction to which
the Company or any Subsidiary is a party or has been specifically named, nor to
the best knowledge of the Company, subject to any other outstanding judgment,
order, decree, stipulation or injunction;
(v) neither the Company nor any Subsidiary has agreed to
indemnify any person or Business Entity for or against any interference,
infringement, misappropriation or other conflict with respect to such item other
than pursuant to license agreements entered into in the Ordinary Course of
Business; and
(vi) no license or other fee is payable solely as the result of
any transfer or assignment of such license, sublicense or other agreement by the
terms thereof or the terms of any other agreement or arrangement with the other
party or parties thereto.
2.13 REAL PROPERTY LEASES. Section 2.13 of the Disclosure Schedule lists
all real property leased or subleased to the Company or any Subsidiary and lists
the term of such lease, any extension and expansion options, and the rent
payable thereunder. The Company has delivered to the Buyer correct and complete
copies of the leases and subleases (as amended to date) listed in Section 2.13
of the Disclosure Schedule. With respect to each lease and sublease listed in
Section 2.13 of the Disclosure Schedule:
(a) the lease or sublease is legal, valid, binding, enforceable and
in full force and effect with respect to the Company or any Subsidiary party
thereto, and to the best knowledge of the Company, is legal, valid, binding,
enforceable and in full force and effect with respect to each other party
thereto, subject, in each case, to (i) laws of general application
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relating to public policy, bankruptcy, insolvency and the relief of debtors, and
(ii) rules of law governing specific performance, injunctive relief and other
equitable remedies;
(b) the lease or sublease will continue to be legal, valid, binding,
enforceable and in full force and effect immediately following the Closing in
accordance with the terms thereof as in effect prior to the Closing, subject to
(i) laws of general application relating to public policy, bankruptcy,
insolvency and the relief of debtors, and (ii) rules of law governing specific
performance, injunctive relief and other equitable remedies;
(c) neither the Company nor any Subsidiary party to the lease or
sublease is in breach or default thereunder, to the best knowledge of the
Company, no other party to the lease or sublease is in breach or default, and no
event has occurred which, with notice or lapse of time, would constitute a
breach or default or permit termination, modification, or acceleration
thereunder;
(d) there are no disputes, oral agreements or enforceable forbearance
programs in effect as to the lease or sublease;
(e) neither the Company nor any Subsidiary has assigned, transferred,
conveyed, mortgaged, deeded in trust or encumbered any interest in the leasehold
or subleasehold;
(f) all facilities leased or subleased thereunder are supplied with
utilities and other services necessary for the operation of said facilities; and
(g) no construction, alteration or other leasehold improvement work
with respect to the lease or sublease remains to be paid for or performed by the
Company or any Subsidiary.
2.14 CONTRACTS. Section 2.14 of the Disclosure Schedule lists the following
written arrangements (including without limitation written agreements) to which
the Company or any Subsidiary is a party:
(a) any written arrangement (or group of related written arrangements)
for the lease of personal property from or to third parties providing for lease
payments in excess of $10,000 per annum or having a remaining term longer than
six (6) months;
(b) any written arrangement (or group of related written arrangements)
for the licensing or distribution of software, products or other personal
property or for the furnishing or receipt of services (i) which calls for
performance over a period of more than six (6) months, (ii) which involves more
than the sum of $10,000, or (iii) in which the Company or any Subsidiary has
granted rights to license, sublicense or copy, "most favored nation" pricing
provisions or exclusive marketing or distribution rights relating to any
products or territory or has agreed to
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purchase a minimum quantity of goods or services or has agreed to purchase goods
or services exclusively from a certain party;
(c) any written arrangement establishing a partnership or joint
venture;
(d) any written arrangement (or group of related written arrangements)
under which it has created, incurred, assumed, or guaranteed (or may create,
incur, assume, or guarantee) indebtedness (including capitalized lease
obligations) involving more than $10,000 or under which it has imposed (or may
impose) a Security Interest on any of its assets, tangible or intangible;
(e) any written arrangement concerning confidentiality or
noncompetition (other than (i) the Company's standard form of confidentiality,
nonsolicitation and non-competition agreement with its employees, a copy of
which has been provided to the Buyer, (ii) the nondisclosure agreements entered
into among any of the Parties in connection with the transactions contemplated
by this Agreement, and (iii) nondisclosure agreements entered into with
prospective customers of the Company or any Subsidiary which do not impose any
ongoing obligations on the Company or any Subsidiary);
(f) any written arrangement involving any of the Company Shareholders
or their Affiliates (for the purpose of this Agreement, "Affiliate" shall mean
(A) in the case of an individual, the members of the immediate family (including
parents, siblings and children) of (i) the individual and (ii) the individual's
spouse, and (iii) any Business Entity that directly or indirectly, through one
or more intermediaries controls, or is controlled by, or is under common control
with any of the foregoing individuals, or (B) in the case of a Business Entity,
another Business Entity or a person that directly or indirectly, through one or
more intermediaries controls, or is controlled by, or is under common control
with the Business Entity), other than agreements providing for reimbursement of
travel and related out of pocket expenses incurred in the Ordinary Course of
Business;
(g) any written arrangement under which the consequences of a default
or termination could have a material adverse effect on the assets, business,
financial condition, results of operations or future prospects of the Company or
any Subsidiary;
(h) any agency, distributor, sales representative, franchise or
similar agreements to which the Company or any Subsidiary is a party or by which
the Company or any Subsidiary is bound; and
(i) any other written arrangement (or group of related written
arrangements) either involving more than $10,000 or not entered into in the
Ordinary Course of Business of the Company or any Subsidiary.
The Company has delivered to the Buyer a correct and complete copy of each
written arrangement (as amended to date) listed in Section 2.14 of the
Disclosure Schedule. With
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respect to each written arrangement so listed: (i) the written arrangement is
legal, valid, binding and enforceable and in full force and effect with respect
to the Company or any Subsidiary party thereto and, to the best knowledge of the
Company, the written arrangement is legal, valid, binding and in enforceable and
in full force and effect with respect to each other party thereto, subject, in
each case, to (a) laws of general application relating to public policy,
bankruptcy, insolvency and the relief of debtors, and (b) rules of law governing
specific performance, injunctive relief and other equitable remedies; (ii) the
written arrangement will continue to be legal, valid, binding and enforceable
and in full force and effect immediately following the Closing in accordance
with the terms thereof as in effect prior to the Closing; and (iii) neither the
Company or any Subsidiary nor, to the best knowledge of the Company, any other
party, is in breach or default, and no event has occurred which with notice or
lapse of time would constitute a breach or default by the Company or any
Subsidiary or, to the best knowledge of the Company, by any such other party, or
permit termination, modification or acceleration, under the written arrangement.
Neither the Company nor any Subsidiary is a party to any oral contract,
agreement or other arrangement, or any oral amendment to any written agreement,
which, if reduced to written form, would be required to be listed in Section
2.14 of the Disclosure Schedule under the terms of this Section 2.14. Neither
the Company nor any Subsidiary is restricted by any arrangement from carrying on
its business anywhere in the world.
2.15 POWERS OF ATTORNEY. There are no outstanding powers of attorney
executed on behalf of the Company or any Subsidiary.
2.16 INSURANCE.
(a) Section 2.16 of the Disclosure Schedule lists each insurance
policy (including fire, theft, casualty, general liability, workers'
compensation, business interruption, environmental, product liability and
automobile insurance policies and bond and surety arrangements) to which the
Company or any Subsidiary is a party, a named insured, or otherwise the
beneficiary of coverage at any time within the past year. Each such insurance
policy is in full force and effect and will continue to be in full force and
effect immediately following the Closing in accordance with the terms thereof as
in effect prior to the Closing. All premiums due and payable under all such
policies have been paid, neither the Company nor any Subsidiary may be liable
for retroactive premiums or similar payments, and the Company and the
Subsidiaries are otherwise in compliance with the terms of such policies. The
Company has no knowledge of any threatened termination of, or material premium
increase with respect to, any such policy.
(b) Neither the Company nor any Subsidiary is in breach or default
(including with respect to the payment of premiums or the giving of notices)
under such policy, and no event has occurred which, with notice or the lapse of
time, would constitute such a breach or default or permit termination,
modification or acceleration, under such policy; and neither the Company nor any
Subsidiary has received any notice from the insurer disclaiming coverage or
reserving rights with respect to a particular claim or such policy in general.
Section 2.16 of the Disclosure Schedule identifies all claims asserted by the
Company or any Subsidiary pursuant to
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any insurance policy since January 1, 1999 and describes the nature and status
of such claim. Neither the Company nor any Subsidiary has incurred any loss,
damage, expense or liability covered by any such insurance policy for which it
has not properly asserted a claim under such policy. Each of the Company and the
Subsidiaries is covered by insurance in scope and amount that the Company
believes is customary and reasonable for the businesses in which it is engaged.
2.17 LITIGATION. Except as identified and described in Section 2.17 of the
Disclosure Schedule, (a) there is no action, suit, proceeding or investigation
to which the Company or any Subsidiary is a party (either as a plaintiff or
defendant) pending or, to the best knowledge of the Company, threatened before
any court, Governmental Entity or arbitrator, and to the best knowledge of the
Company, there is no basis for any such action, suit, proceeding or
investigation; (b) neither the Company or any Subsidiary nor, to the best
knowledge of the Company, any officer, director or employee of the Company or
any Subsidiary has been permanently or temporarily enjoined by any order,
judgment or decree of any court or Governmental Entity from engaging in or
continuing to conduct the business of the Company or any Subsidiary; and (c) no
order, judgment or decree of any court or Governmental Entity has been issued in
any proceeding to which the Company or any Subsidiary is or was a party or, to
the best knowledge of the Company, in any other proceeding that enjoins or
requires the Company or any Subsidiary to take an action of any kind with
respect to its business, assets or properties. None of the actions, suits,
proceedings or investigations set forth in Section 2.17 of the Disclosure
Schedule, individually or collectively, if determined adversely to the interests
of the Company or any of its Subsidiaries, could have a material adverse effect
on the assets, business, financial condition, results of operations or future
prospects of the Company and the Subsidiaries taken as a whole.
2.18 EMPLOYEES AND SUBCONTRACTORS.
(a) Section 2.18(a) of the Disclosure Schedule contains a list of all
employees of the Company and each Subsidiary, along with the position, date of
hire and the annual rate of compensation of each such person including salary
and other benefits (or, with respect to employees compensated on an hourly or
per diem basis, the hourly or per diem rate of compensation) and estimated or
target annual incentive compensation of each such employee. Each such employee
has entered into a confidentiality/assignment of inventions agreement with the
Company or a Subsidiary, a copy of which has previously been delivered to the
Buyer. Neither the Company nor any Subsidiary is a party to or bound by any
collective bargaining agreement, nor has any of them experienced any strikes,
grievances, claims of unfair labor practices or other collective bargaining
disputes. Neither the Company nor any Subsidiary has any knowledge of any
organizational effort made or threatened, either currently or within the past
two years, by or on behalf of any labor union with respect to employees of the
Company or any Subsidiary.
(b) Section 2.18(b) of the Disclosure Schedule sets forth (i) a list
of all subcontractors currently performing services or under contract to perform
future services for the
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Company or a Subsidiary and (ii) the start date, type of services to be
provided, estimated completion date and hourly or per diem pay rate of such
subcontractors.
(c) Neither the Company nor any officer or director of the Company
nor, to the Company's best knowledge, any of the Company Shareholders, any key
employee of the Company, nor any director, officer or key employee of any of the
Company Shareholders or any of the Subsidiaries, or any relatives of any of the
foregoing, owns, directly or indirectly, individually or collectively, any
interest in any corporation, company, partnership, entity or organization which
is in a business similar or competitive to the businesses of the Company and the
Subsidiaries or which has any existing undisclosed contractual relationship with
the Company or any of the Subsidiaries, other than stock of publicly-traded
companies, which holdings are less than five (5%) percent.
(d) Neither the Company nor any of the Subsidiaries has violated any
labor legislation, regulation or agreement in any relevant jurisdiction.
(e) Since December 31, 2000, no increases have been made in the
compensation of any employee of the Company or any Subsidiary.
(f) The Company has complied with all applicable laws and regulations
concerning the hiring and employment of employees and has not received any
notice of its failure so to comply.
2.19 EMPLOYEE BENEFITS.
(a) Section 2.19(a) of the Disclosure Schedule contains a complete and
accurate list of all Employee Benefit Plans (as defined below) maintained, or
contributed to, by the Company, any Subsidiary, or any ERISA Affiliate (as
defined below). For purposes of this Agreement, "Employee Benefit Plan" means
any "employee pension benefit plan" (as defined in Section 3(2) of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA")), any "employee
welfare benefit plan" (as defined in Section 3(1) of ERISA), and any other
written or oral plan, agreement or arrangement involving direct or indirect
compensation, including without limitation insurance coverage, severance
benefits, disability benefits, pension, retirement plans, profit sharing,
deferred compensation, bonuses, stock options, stock purchase, phantom stock,
stock appreciation or other forms of incentive compensation or post-retirement
compensation. Full reservations have been made in the Financial Statements for
all present and future liabilities in respect of pensions and other payments
related to compensation to be paid to employees. For purposes of this Agreement,
"ERISA Affiliate" means any entity which is a member of (i) a controlled group
of corporations (as defined in Section 414(b) of the Code), (ii) a group of
trades or businesses under common control (as defined in Section 414(c) of the
Code), or (iii) an affiliated service group (as defined under Section 414(m) of
the Code or the regulations under Section 414(o) of the Code), any of which
includes the Company or a Subsidiary. Complete and accurate copies of (i) all
Employee Benefit Plans which have been
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reduced to writing, (ii) written summaries of all unwritten Employee Benefit
Plans, (iii) all related trust agreements, insurance contracts and summary plan
descriptions, (iv) all annual reports filed on IRS Form 5500, 5500C or 5500R for
the last three plan years for each Employee Benefit Plan, (v) copies of the most
recent reports relating to compliance with Sections 401(k), 401(m) and 410(b) of
the Code, and (vi) all employee handbooks have been delivered to the Buyer. Each
Employee Benefit Plan has been administered in accordance with its terms and
each of the Company, the Subsidiaries and the ERISA Affiliates has met its
obligations with respect to such Employee Benefit Plan and has made all required
contributions thereto. The Company, each Subsidiary and all Employee Benefit
Plans are in compliance with the currently applicable provisions of ERISA and
the Code and other applicable federal, state and local laws and the regulations
thereunder (including without limitation Section 4980B of the Code, Subtitle K,
Chapter 100 of the Code and Sections 601 through 608 and Section 701 ET SEQ. of
ERISA). All filings and reports as to each Employee Benefit Plan required to
have been submitted to the Internal Revenue Service or to the United States
Department of Labor have been duly submitted.
(b) There are no inquiries or investigations by any Governmental
Entity, termination proceedings or other claims (except claims for benefits
payable in the normal operation of the Employee Benefit Plans and proceedings
with respect to qualified domestic relations orders), suits or proceedings
against or involving any Employee Benefit Plan or asserting any such claims
under any Employee Benefit Plan.
(c) All the Employee Benefit Plans that are intended to be qualified
under Section 401(a) of the Code have received determination letters from the
Internal Revenue Service to the effect that such Employee Benefit Plans are
qualified and the plans and the trusts related thereto are exempt from federal
income taxes under Sections 401(a) and 501(a), respectively, of the Code, no
such determination letter has been revoked and revocation has not been
threatened, and no such Employee Benefit Plan has been amended or operated since
the date of its most recent determination letter or application therefor in any
respect, and no act or omission has occurred, that would adversely affect its
qualification. Neither the Company nor any of its Subsidiaries has taken any
action, or failed to take an action, that would increase the cost of any
Employee Benefit Plan, nor will the transactions contemplated by this Agreement
give rise to any increased cost or liabilities with respect to any Employee
Benefit Plan. Each Employee Benefit Plan which is required to satisfy Section
401(k)(3) or Section 401(m)(2) of the Code has been tested for compliance with,
and satisfies the requirements of, Section 401(k)(3) and Section (m)(2) of the
Code for each plan year ending prior to the Closing Date.
(d) Neither the Company, any Subsidiary, nor any ERISA Affiliate has
ever maintained an Employee Benefit Plan subject to Section 412 of the Code or
Title IV of ERISA.
(e) At no time has the Company, any Subsidiary or any ERISA Affiliate
been obligated to contribute to any "multiemployer plan" (as defined in Section
4001(a)(3) of ERISA).
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(f) There are no unfunded obligations under any Employee Benefit Plan
providing benefits after termination of employment to any employee of the
Company or any Subsidiary (or to any beneficiary of any such employee),
including but not limited to retiree health coverage and deferred compensation,
but excluding continuation of health coverage required to be continued under
Section 4980B of the Code or any similar state law and insurance conversion
privileges under state law. The assets of each Employee Benefit Plan which is
funded are reported at their fair market value on the books and records of such
Employee Benefit Plan.
(g) No act or omission has occurred and no condition exists with
respect to any Employee Benefit Plan maintained by the Company, any Subsidiary
or any ERISA Affiliate that would subject the Company, any Subsidiary or any
ERISA Affiliate to any (i) fine, penalty, tax or liability imposed under ERISA
or the Code (other than liabilities incurred in the Ordinary Course of Business
that are consistent with the Code and ERISA, including liabilities for benefits,
contributions, premiums and other similar costs), or (ii) contractual
indemnification or contribution obligation protecting any fiduciary, insurer or
service provider with respect to any Employee Benefit Plan.
(h) No Employee Benefit Plan is funded by, associated with, or related
to a "voluntary employee's beneficiary association" within the meaning of
Section 501(c)(9) of the Code.
(i) No Employee Benefit Plan, plan documentation or agreement, summary
plan description or other written communication distributed generally to
employees by its terms prohibits the Company from amending or terminating any
such Employee Benefit Plan and any Employee Benefit Plan may be terminated
without liability to the Company, any Subsidiary, the Surviving Corporation or
the Buyer, except for benefits accrued through the date of termination and
administrative and professional costs incurred in such termination. No former
employees participate in any welfare benefit plans listed in Section 2.19(a) of
the Disclosure Schedule. No Employee Benefit Plan includes in its assets any
securities issued by the Company or any Subsidiary. No Employee Benefit Plan has
been subject to tax under Section 511 of the Code.
(j) Section 2.19(j) of the Disclosure Schedule discloses each: (i)
agreement with any director, executive officer or other key employee of the
Company or any Subsidiary (A) the benefits of which are contingent, or the terms
of which are altered, upon the occurrence of a transaction involving the Company
or any Subsidiary of the nature of any of the transactions contemplated by this
Agreement, (B) providing any term of employment or compensation guarantee or (C)
providing severance benefits or other benefits after the termination of
employment of such director, executive officer or key employee; (ii) agreement,
plan or arrangement under which any person may receive payments from the Company
or any Subsidiary that may be subject to the tax imposed by Section 4999 of the
Code or included in the determination of such person's "parachute payment" under
Section 280G of the Code; and (iii) agreement or plan binding the Company or any
Subsidiary, including without limitation any
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stock option plan, stock appreciation right plan, restricted stock plan, stock
purchase plan, severance benefit plan, or any Employee Benefit Plan, any of the
benefits of which will be increased, or the vesting of the 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.
(k) Section 2.22(k) of the Disclosure Schedule sets forth the policy
of the Company and any Subsidiary with respect to accrued vacation, accrued sick
time and earned time-off and the amount of such liabilities as of December 31,
2000.
(l) Each individual who has received compensation for the performance
of services on behalf of the Company, any of the Company's Subsidiaries or its
ERISA Affiliates, has been properly classified as an employee or independent
contractor in accordance with applicable law.
2.20 ENVIRONMENTAL MATTERS.
(a) Each of the Company and the Subsidiaries has complied and is in
compliance with all applicable Environmental Laws (as defined below). There is
no pending or, to the best knowledge of the Company, threatened civil or
criminal litigation, written notice of violation, formal administrative
proceeding, or investigation, inquiry or information request by any Governmental
Entity, relating to any Environmental Law involving the Company or any
Subsidiary. For purposes of this Agreement, "Environmental Law" means any
federal, state or local law, statute, rule or regulation or the common law
relating to the environment or occupational health and safety, including without
limitation any statute, regulation or order pertaining to (i) treatment,
storage, disposal, generation and transportation of toxic or hazardous
substances or solid or hazardous waste; (ii) air, water and noise pollution;
(iii) groundwater and soil contamination; (iv) the release or threatened release
into the environment of toxic or hazardous substances, or solid or hazardous
waste, including without limitation emissions, discharges, injections, spills,
escapes or dumping of pollutants, contaminants or chemicals; (v) the protection
of wild life, marine sanctuaries and wetlands, including without limitation all
endangered and threatened species; (vi) storage tanks, vessels and containers;
(vii) underground and other storage tanks or vessels, abandoned, disposed or
discarded barrels, containers and other closed receptacles; (viii) health and
safety of employees and other persons; and (ix) manufacture, processing, use,
distribution, treatment, storage, disposal, transportation or handling of
pollutants, contaminants, chemicals or industrial, toxic or hazardous substances
or oil or petroleum products or solid or hazardous waste. As used above, the
terms "release" and "environment" shall have the meaning set forth in the
federal Comprehensive Environmental Response, Compensation and Liability Act of
1980 ("CERCLA").
(b) There have been no releases of any Materials of Environmental
Concern (as defined below) into the environment at any parcel of real property
or any facility formerly or currently owned, leased, operated or controlled by
the Company or a Subsidiary for which the
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Company or any Subsidiary may be liable under any Environmental Law. With
respect to any such releases of Materials of Environmental Concern, the Company
or a Subsidiary has given all required notices to Governmental Entities (copies
of which have been provided to the Buyer). Neither the Company nor any
Subsidiary is aware of any other releases of Materials of Environmental Concern
at parcels of real property or facilities (including, without limitation, those
owned, leased, operated or controlled by the Company or a Subsidiary) that could
reasonably be expected to have an impact on the real property or facilities
owned, operated or controlled by the Company or a Subsidiary. For purposes of
this Agreement, "Materials of Environmental Concern" means any chemicals,
pollutants or contaminants, hazardous substances (as such term is defined under
CERCLA or any Environmental Law), solid wastes and hazardous wastes (as such
terms are defined under the federal Resources Conservation and Recovery Act or
any Environmental Law), toxic materials, oil or petroleum and petroleum
products, asbestos, or any other material subject to regulation under any
Environmental Law.
(c) Set forth in Section 2.20(c) of the Disclosure Schedule is a list
of all environmental reports, investigations and audits possessed or controlled
by the Company or any Subsidiary (whether conducted by or on behalf of the
Company, a Subsidiary or a third party, and whether done at the initiative of
the Company or a Subsidiary or directed by a Governmental Entity or other third
party) issued or conducted during the past ten years and relating to premises
currently or previously owned, leased, or operated by the Company or a
Subsidiary. Complete and accurate copies of each such report, and the results of
each such investigation or audit, have been provided to the Buyer.
(d) Neither the Company nor any Subsidiary is aware of any material
environmental liability on the part of any of the solid or hazardous waste
transporters and treatment, storage and disposal facilities that have been
utilized by the Company or a Subsidiary.
2.21 LEGAL COMPLIANCE. Each of the Company and the Subsidiaries, and the
conduct and operations of their respective businesses, are and have been in
compliance with each law (including rules and regulations thereunder) of any
federal, state, local or foreign government, or any Governmental Entity, which
(a) affects or relates to this Agreement or the transactions contemplated hereby
or (b) is applicable to the Company or a Subsidiary or their respective
businesses.
2.22 PERMITS. Section 2.22 of the Disclosure Schedule sets forth a list of
all permits, licenses, registrations, certificates, orders or approvals from any
Governmental Entity (including without limitation those issued or required under
applicable export laws or regulations, Environmental Laws and those relating to
the occupancy or use of owned or leased real property) ("Permits") issued to or
held by the Company or any Subsidiary. Such listed Permits are the only Permits
that are required for the Company and the Subsidiaries to conduct their
respective businesses as presently conducted or as proposed to be conducted.
Each such Permit is in full force and effect and, to the best knowledge of the
Company, no suspension or cancellation of such Permit is threatened and there is
no basis for believing that such Permit will not be
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renewable upon expiration. Each such Permit will continue in full force and
effect immediately following the Closing.
2.23 CERTAIN BUSINESS RELATIONSHIPS WITH AFFILIATES. No Affiliate of the
Company or of any Subsidiary (a) owns any property or right, tangible or
intangible, which is used in the business of the Company or any Subsidiary, (b)
has any claim or cause of action against the Company or any Subsidiary, (c) is a
party to any contract or other arrangement, written or verbal, with the Company
or any Subsidiary, or (d) owes any money to the Company or any Subsidiary or is
owed money by the Company or any Affiliate (the agreements, arrangements and
relationships described in this sentence are hereinafter referred to as "Related
Party Transactions"). Section 2.23 of the Disclosure Schedule describes any
Related Party Transactions.
2.24 BROKERS' FEES. Except as disclosed in Section 2.24 of the Disclosure
Schedule, neither the Company nor any Subsidiary has any liability or obligation
to pay any fees or commissions to any broker, finder or agent with respect to
the transactions contemplated by this Agreement.
2.25 BOOKS AND RECORDS. The minute books and other similar records of the
Company and each Subsidiary contain true and complete records of all actions
taken at any meetings of the Company's or such Subsidiary's shareholders, Board
of Directors or any committee thereof and of all written consents executed in
lieu of the holding of any such meeting. The books and records of the Company
and each Subsidiary accurately reflect the assets, liabilities, business,
financial condition and results of operations of the Company or such Subsidiary
and have been maintained in accordance with good business and bookkeeping
practices.
2.26 PREPAYMENTS, PREBILLED INVOICES AND DEPOSITS.
(a) Section 2.26(a) of the Disclosure Schedule sets forth (i) all
prepayments, prebilled invoices and deposits that have been received by the
Company or any Subsidiary as of the date hereof from customers for products to
be shipped, or services to be performed, after the Closing Date, and (ii) with
respect to each such prepayment, prebilled invoice or deposit, (A) the party and
contract credited, (B) the date received or invoiced, (C) the products and/or
services to be delivered, and (D) the conditions for the return of such
prepayment, prebilled invoice or deposit. All such prepayments, prebilled
invoices and deposits are properly accrued for on the Most Recent Balance Sheet
in accordance with GAAP applied on a consistent basis with the past practice of
the Company and the Subsidiaries.
(b) Section 2.26(b) of the Disclosure Schedule sets forth (i) all
prepayments, prebilled invoices and deposits that have been made or paid by the
Company or any Subsidiary as of the date hereof to vendors or suppliers for
products to be shipped, or services to be performed, after the Closing Date, and
(ii) with respect to each such prepayment, prebilled invoice or deposit, (A) the
party to whom such prepayment, prebilled invoice or deposit was
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made or paid, (B) the date made or paid, (C) the products and/or services to be
delivered, and (D) the conditions for the return of such prepayment, prebilled
invoice or deposit. All such prepayments, prebilled invoices and deposits are
properly accrued for on the Most Recent Balance Sheet in accordance with GAAP
applied on a consistent basis with the past practices of the Company.
2.27 BANKING FACILITIES. Section 2.27 of the Disclosure Schedule
identifies:
(a) each bank, savings and loan or similar financial institution in
which the Company or any Subsidiary has an account or safety deposit box and the
numbers of the accounts or safety deposit boxes maintained by the Company or
such Subsidiary thereat; and
(b) the names of all persons authorized to draw on each such account
or to have access to any such safety deposit box facility, together with a
description of the authority (and conditions thereof, if any) of each such
person with respect thereto.
2.28 ACCOUNTS RECEIVABLE. All accounts receivable of the Company and the
Subsidiaries reflected on the Most Recent Balance Sheet are valid receivables
subject to no setoffs or counterclaims and are current and collectible (within
90 days after the date on which it first became due and payable), net of the
applicable reserve for bad debts on the Most Recent Balance Sheet. All accounts
receivable reflected in the financial or accounting records of the Company that
have arisen since the Balance Sheet Date are valid receivables subject to no
setoffs or counterclaims and are collectible (within 90 days after the date on
which it first became due and payable), net of a reserve for bad debts in an
amount proportionate to the reserve shown on the Most Recent Balance Sheet.
2.29 WARRANTIES. No product or service manufactured, sold, leased, licensed
or delivered by the Company or any Subsidiary is subject to any guaranty,
warranty, right of return, right of credit or other indemnity other than (i) the
applicable standard terms and conditions of sale or lease of the Company or the
appropriate Subsidiary, which are set forth in Section 2.29 of the Disclosure
Schedule, and (ii) manufacturers' warranties for which neither the Company nor
any Subsidiary has any liability. Section 2.29 of the Disclosure Schedule sets
forth the aggregate expenses incurred by the Company and the Subsidiaries in
fulfilling their obligations under their guaranty, warranty, right of return and
indemnity provisions during each of the fiscal years and the interim period
covered by the Financial Statements; and the Company knows of no reason why such
expenses should significantly increase as a percentage of sales in the future.
2.30 CUSTOMERS AND SUPPLIERS. Section 2.30 of the Disclosure Schedule sets
forth a list of (a) each customer that accounted for more than $10,000 of
revenue of the Company during the last full fiscal year or the interim period
through the Balance Sheet Date and the amount of revenues accounted for by each
such customer during each such period and (b) each supplier that is the sole
supplier of any significant product to the Company or a Subsidiary. No such
customer or supplier has indicated within the past year that it will stop, or
decrease the rate of, buying
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products or supplying products, as applicable, to the Company or any Subsidiary.
No unfilled customer order or commitment obligating the Company or any
Subsidiary to process, manufacture or deliver products or perform services will
result in a loss to the Company or any Subsidiary upon completion of
performance. No purchase order or commitment of the Company or any Subsidiary is
in excess of normal requirements, nor are prices provided therein in excess of
current market prices for the products or services to be provided thereunder.
2.31 DISCLOSURE. No representation or warranty by the Company contained in
this Agreement, and no statement contained in the Disclosure Schedule or any
other document, certificate or other instrument delivered to or to be delivered
by or on behalf of the Company pursuant to this Agreement, contains or will
contain any untrue statement of a material fact or omits or will omit to state
any material fact necessary, in light of the circumstances under which it was or
will be made, in order to make the statements herein or therein not misleading.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE BUYER
AND THE TRANSITORY SUBSIDIARY
Each of the Buyer and the Transitory Subsidiary represents and warrants to
the Company as follows:
3.1 ORGANIZATION AND CORPORATE POWER. Each of the Buyer and the Transitory
Subsidiary is a corporation duly organized, validly existing and in good
standing under the laws of the state of its incorporation. The Buyer has all
requisite corporate power and authority to carry on the businesses in which it
is engaged and to own and use the properties owned and used by it.
3.2 AUTHORIZATION OF TRANSACTION. Each of the Buyer and the Transitory
Subsidiary has all requisite power and authority to execute and deliver this
Agreement and (in the case of the Buyer) the Escrow Agreement, the Shareholder
Agreements and the Exchange Agreement and to perform its obligations hereunder
and thereunder. The execution and delivery by the Buyer and the Transitory
Subsidiary of this Agreement and (in the case of the Buyer) the Escrow
Agreement, the Shareholder Agreements and the Exchange Agreement and the
consummation by the Buyer and the Transitory Subsidiary of the transactions
contemplated hereby and thereby have been duly and validly authorized by all
necessary corporate action on the part of the Buyer and Transitory Subsidiary,
respectively. Each of this Agreement, and, in the case of the Buyer, the
Shareholder's Agreement has been (or, in the case of the Escrow Agreement and
the Exchange Agreement, will be) duly and validly executed and delivered by the
Buyer and the Transitory Subsidiary and constitutes (or, in the case of the
Escrow Agreement and the Exchange Agreement, will be) a valid and binding
obligation of the Buyer and the Transitory Subsidiary, enforceable against them
in accordance with its respective terms.
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3.3 NONCONTRAVENTION. Subject to compliance with the applicable
requirements of the Hart-Scott-Rodino Act and subject to the filing of the
California Merger Filings and the Delaware Merger Filings, and assuming (in the
case of clause (b) below) the accuracy of the Company's representations and
warranties in Section 2.6 above, neither the execution and delivery by the Buyer
or the Transitory Subsidiary of this Agreement or (in the case of the Buyer) the
Escrow Agreement, the Shareholder Agreements or the Exchange Agreement, nor the
consummation by the Buyer or the Transitory Subsidiary of the transactions
contemplated hereby or thereby, will (a) conflict with or violate any provision
of the Articles of Incorporation or By-laws of the Buyer or the Transitory
Subsidiary, (b) require on the part of the Buyer or the Transitory Subsidiary
any filing with, or permit, authorization, consent or approval of, any
Governmental Entity, (c) conflict with, result in breach of, constitute (with or
without due notice or lapse of time or both) a default under, result in the
acceleration of obligations under, create in any party any right to terminate,
modify or cancel, or require any notice, consent or waiver under, any contract
or instrument to which the Buyer or the Transitory Subsidiary is a party or by
which either is bound or to which any of their assets are subject, except for
(i) any conflict, breach, default, acceleration, termination, modification or
cancellation which would not adversely affect the consummation of the
transactions contemplated hereby or (ii) any notice, consent or waiver the
absence of which would not adversely affect the consummation of the transactions
contemplated hereby, or (d) violate any order, writ, injunction, decree,
statute, rule or regulation applicable to the Buyer or the Transitory Subsidiary
or any of their properties or assets.
3.4 BROKER'S FEES. Except for amounts payable to Salomon Smith Barney and
Credit Suisse First Boston, neither the Buyer nor the Transitory Subsidiary has
any liability or obligation to pay any fees or commissions to any broker, finder
or agent with respect to the transactions contemplated by this Agreement.
3.5 SUFFICIENT RESOURCES. The Buyer has, and at the Effective Time will
have, sufficient cash or cash equivalent funds available to pay the Merger
Consideration and establish the Escrow Fund in accordance with the provisions
hereof.
ARTICLE IV
COVENANTS
4.1 CLOSING EFFORTS. Each of the Parties shall use its or his best efforts,
to the extent commercially reasonable ("Reasonable Best Efforts"), to take all
actions and to do all things necessary, proper or advisable to consummate the
transactions contemplated by this Agreement, including without limitation using
its or his Reasonable Best Efforts to ensure that (a) its or his representations
and warranties remain true and correct in all material respects through the
Closing Date and (b) the conditions to the obligations of the other Parties to
consummate the Merger are satisfied.
4.2 GOVERNMENTAL AND THIRD-PARTY NOTICES AND CONSENTS.
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(a) Each Party shall use its or his Reasonable Best Efforts to
obtain, at its or his expense, all waivers, permits, consents, approvals or
other authorizations from Governmental Entities, and to effect all
registrations, filings and notices with or to Governmental Entities, as may be
required for such Party to consummate the transactions contemplated by this
Agreement and to otherwise comply with all applicable laws and regulations in
connection with the consummation of the transactions contemplated by this
Agreement. Without limiting the generality of the foregoing, each of the Parties
shall promptly file any Notification and Report Forms and related material that
it may be required to file with the Federal Trade Commission and the Antitrust
Division of the United States Department of Justice under the Hart-Scott-Rodino
Act, shall use its Reasonable Best Efforts to obtain an early termination of the
applicable waiting period, and shall make any further filings or information
submissions pursuant thereto that may be necessary, proper or advisable;
provided, however, that, notwithstanding anything to the contrary in this
Agreement, the Buyer shall not be obligated to respond to any HSR Additional
Action Request (as hereinafter defined). For purposes of this Agreement, an HSR
Additional Action Request shall mean (A) a formal request for additional
information or documentary material pursuant to 16 C.F.R. 803.20 under the
Hart-Scott-Rodino Act or (B) a request to sell or dispose of or hold separately
(through a trust or otherwise) any assets or businesses of the Buyer or its
Affiliates. Notwithstanding the foregoing, the Buyer shall be solely responsible
for any and all filing fees due under the Hart-Scott Rodino Act in connection
with the filings described above and neither the Company nor any Company
Shareholder shall have any obligation with respect to the payment of such filing
fees.
(b) The Company shall use its Reasonable Best Efforts to obtain, at
its expense, all such waivers, consents or approvals from third parties, and to
give all such notices to third parties, as are required to be listed in Section
2.4 of the Disclosure Schedule; provided, however, that any disclosure of the
existence of this Agreement or the transactions contemplated hereby by the
Company or its representatives in connection with the foregoing shall not be
deemed a breach of that certain Confidentiality Agreement dated as of May 16,
2001 between the Company and the Buyer (the "NDA").
4.3 SHAREHOLDER APPROVAL; TERMINATION OF OPTIONS AND WARRANTS.
(a) The Company shall use its Reasonable Best Efforts to obtain, as
promptly as practicable, the Requisite Shareholder Approval, either at a special
meeting of shareholders or pursuant to a written Shareholder consent, all in
accordance with the applicable requirements of the California General
Corporation Law and the Delaware General Corporation Law. In connection with
such special meeting of shareholders or written shareholder consent, the Company
shall provide to its shareholders a written proxy or information statement (the
"Information Statement") which includes (A) a summary of the material terms of
the Merger and this Agreement (which summary shall include a summary of the
material terms relating to the indemnification obligations of the Company
Shareholders, the escrow arrangements and the authority of the Shareholders'
Representative, and a statement that the adoption of this Agreement by the
shareholders of the Company shall constitute approval of such terms) and
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(B) a statement that appraisal rights are available for the Company Shares
pursuant to Chapter 13 of the California General Corporation Law and a copy of
such Chapter 13. The Buyer agrees to cooperate with the Company in the
preparation of the Information Statement. The Company agrees not to distribute
the Information Statement until the Buyer has had a reasonable opportunity to
review and comment on the Information Statement (which opportunity shall be
deemed reasonable if at least three (3) business days) and the Information
Statement has been approved by the Buyer (which approval may not be unreasonably
withheld or delayed). If the Requisite Shareholder Approval is obtained by means
of a written consent, the Company shall comply with 603 and other applicable
provisions of the California General Corporation Law, including, without
limitation, provisions regarding appraisal rights, and shall promptly inform the
Buyer of the date on which such notice was sent. The Company, acting through its
Board of Directors, shall include in the Information Statement the unanimous
recommendation of its Board of Directors that the shareholders of the Company
vote in favor of the adoption of this Agreement and the approval of the Merger.
(b) The Company shall ensure that the Information Statement does not
contain any untrue statement of a material fact or omit to state a material fact
necessary in order to make the statements made, in light of the circumstances
under which they were made, not misleading (provided that the Company shall not
be responsible for the accuracy or completeness of any information concerning
the Buyer or the Transitory Subsidiary furnished by the Buyer in writing for
inclusion in the Information Statement).
(c) The Company shall use its Reasonable Best Efforts to take all
actions required to terminate all outstanding Options, Warrants or other rights
to purchase Company Shares or other equity interests which have not been
exercised in full immediately prior to the Effective Time.
(d) Prior to the Effective Time, the Company shall take all actions
required to waive the Company's right of first refusal to acquire all Company
Shares issued or issuable upon the exercise of any Option or Warrant.
(e) Prior to the Effective Time, the Company shall submit to a
shareholder vote the right of any "disqualified individual" (as defined in
Section 280G(c) of the Code) to receive any and all payments that could be
deemed "parachute payments" under Section 280G(b) of the Code (without regard to
Section 280G(b)(4) of the Code), in a manner that satisfies the shareholder
approval requirements for the small business exemption of Code Section
280G(b)(5).
4.4 OPERATION OF BUSINESS. Except as otherwise required by this Agreement
or the Shareholders Agreements, during the period from the date of this
Agreement to the Effective Time, the Company shall (and shall cause each
Subsidiary to) conduct its operations in the Ordinary Course of Business and in
compliance with all applicable laws and regulations and, to the extent
consistent therewith, use its Reasonable Best Efforts to preserve intact its
current
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business organization, keep its physical assets in good working condition, keep
available the services of its current officers and employees and preserve its
relationships with customers, suppliers and others having business dealings with
it to the end that its goodwill and ongoing business shall not be impaired in
any material respect. Without limiting the generality of the foregoing, prior to
the Effective Time except as required by this Agreement or the Shareholders
Agreements, the Company shall not (and shall cause each Subsidiary not to),
without the written consent of the Buyer:
(a) issue, sell or deliver or agree or commit to issue, sell or
deliver (whether through the issuance or granting of options, warrants,
commitments, subscriptions, rights to purchase or otherwise) or authorize the
issuance, sale or delivery of, or redeem or repurchase, any stock or other
securities of the Company or any Subsidiary or any rights, warrants or options
to acquire any such stock or other securities (except pursuant to the conversion
or exercise of Preferred Shares, Options or Warrants outstanding on the date
hereof or the convertible promissory notes issued in the Bridge Financing (as
defined herein) (such notes, the "Bridge Notes")), or, except to the extent
necessary to give effect to the arrangements contemplated by Section 4.3(c),
amend any of the terms of (including without limitation the vesting of) any such
Options or Warrants, provided that nothing in this Section 4.4 shall prevent,
prohibit, limit or otherwise restrict the Company's ability to amend any
options, warrants or other rights to purchase or otherwise acquire securities of
the Company outstanding on the date hereof to permit the early exercise or
acceleration of any such options, warrants or other rights to purchase;
(b) split, combine or reclassify any shares of its capital stock or
declare, set aside or pay any dividend or other distribution (whether in cash,
stock or property or any combination thereof) in respect of its capital stock;
(c) create, incur or assume any indebtedness (including obligations in
respect of capital leases) other than ordinary trade payables incurred in the
Ordinary Course of Business; assume, guarantee, endorse or otherwise become
liable or responsible (whether directly, contingently or otherwise) for the
obligations of any other person or entity; or make any loans, advances or
capital contributions to, or investments in, any other person or entity;
PROVIDED, HOWEVER, that (i) the Company may close its Bridge Financing (as
hereinafter defined) and (ii) the Company may negotiate (but not commit to or
close) arrangements for a financing which does not result in a change in control
with those Business Entities set forth on SCHEDULE 4.4(c) or such other Business
Entities as may be approved by Buyer, which approval shall not be unreasonably
withheld or delayed. The Company shall promptly apprise Buyer of all material
developments regarding any such financing. "Bridge Financing" shall mean the
Company's current round of bridge financing from the Company's existing
shareholders of not more than an aggregate of $15,750,000 pursuant to that
certain Convertible Promissory Note and Warrant Purchase Agreement dated as of
May 17, 2001, as amended through the date of this Agreement (the "Bridge
Purchase Agreement") (approximately $11,600,000 of which has been raised prior
to the date of this Agreement);
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(d) enter into, adopt, terminate or amend any Employee Benefit Plan or
any employment or severance agreement or arrangement of the type described in
Section 2.19(j) or increase in any manner the compensation or fringe benefits
of, or materially modify the employment terms of, its directors, officers or
employees, generally or individually, or pay any bonus or other benefit to its
directors, officers or employees (except for existing payment obligations listed
in Section 2.19 of the Disclosure Schedule);
(e) acquire, sell, lease, license or dispose of any assets or property
(including without limitation any shares or other equity interests in or
securities of any Subsidiary or any corporation, partnership, association or
other business organization or division thereof), other than licenses, purchases
and sales of assets in the Ordinary Course of Business;
(f) mortgage or pledge any of its property or assets or subject any
such property or assets to any Security Interest;
(g) discharge or satisfy any Security Interest or pay or assume any
obligation or liability other than in the Ordinary Course of Business or in
connection with the conversion of the Bridge Notes pursuant to the Bridge
Purchase Agreement;
(h) amend its charter, by-laws or other organizational documents;
(i) change in any respect its accounting methods, principles or
practices, except insofar as may be required by a generally applicable change in
GAAP;
(j) enter into, amend, terminate, take or omit to take any action that
would constitute a violation of or default under, or waive any rights under, any
material contract or agreement;
(k) sell, assign, transfer or license any Intellectual Property, other
than in the Ordinary Course of Business;
(l) make or commit to make any capital expenditure in excess of
$10,000 per item or $25,000 in the aggregate;
(m) institute or settle any action, suit, proceeding, claim,
arbitration or investigation before any Governmental Entity or before any
arbitrator;
(n) take any action or fail to take any action permitted by this
Agreement with the knowledge that such action or failure to take action would
result in (i) any of the representations and warranties of the Company set forth
in this Agreement becoming untrue or (ii) any of the conditions to the Merger
set forth in Article V not being satisfied; or
(o) agree in writing or otherwise to take any of the foregoing
actions.
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4.5 ACCESS TO INFORMATION. The Company shall (and shall cause each
Subsidiary to) permit representatives of the Buyer to have full access (at all
reasonable times, and in a manner so as not to interfere with the normal
business operations of the Company and the Subsidiaries) to all premises,
properties, financial, accounting and Tax records, contracts, other records and
documents, and personnel, of or pertaining to the Company and each Subsidiary.
The officers and management of the Company and the Subsidiaries shall cooperate
fully with the Buyer's representatives and agents and shall make themselves
available to the extent necessary to complete the due diligence process and the
Closing. The Company shall, at the request of the Buyer, introduce the Buyer to
the principal suppliers, customers and employees of the Company and its
Subsidiaries to facilitate discussions between such persons and the Buyer in
regard to the conduct of the business of the Company and the Subsidiaries
following the Closing.
4.6 NOTICE OF BREACHES.
(a) From the date of this Agreement until the Effective Time, the
Company shall promptly deliver to the Buyer supplemental information concerning
events or circumstances occurring subsequent to the date hereof which would
render any representation, warranty or statement in this Agreement or the
Disclosure Schedule inaccurate or incomplete at any time after the date of this
Agreement until the Closing Date. No such supplemental information shall, except
as provided in Section 5.2(f), be deemed to cure any misrepresentation or breach
of warranty or constitute an amendment of any representation, warranty or
statement in this Agreement or the Disclosure Schedule.
(b) From the date of this Agreement until the Effective Time, the
Buyer shall promptly deliver to the Company supplemental information concerning
events or circumstances occurring subsequent to the date hereof which would
render any representation or warranty in this Agreement inaccurate or incomplete
at any time after the date of this Agreement until the Closing Date. No such
supplemental information shall be deemed to cure any misrepresentation or breach
of warranty or constitute an amendment of any representation or warranty in this
Agreement.
4.7 EXCLUSIVITY.
(a) The Company shall not, and the Company shall require each of its
officers, directors, employees, representatives and agents not to, directly or
indirectly, (i) initiate, seek, encourage or support any inquiry, proposal,
offer or bid from, negotiate with, provide any information to, or enter into any
agreement with any party (other than the Buyer) in connection with the sale or
transfer of all or any substantial portion of the Company's stock or assets
(whether by means of a stock sale, asset sale or otherwise), (ii) furnish any
non-public information concerning the business, properties or assets of the
Company, any Subsidiary or any division of the Company to any party (other than
the Buyer) or (iii) engage in discussions or negotiations with any party (other
than the Buyer) concerning any such transaction.
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(b) The Company shall immediately notify any party with which
discussions or negotiations of the nature described in paragraph (a) above were
pending that the Company is terminating such discussions or negotiations. If the
Company receives any inquiry, proposal or offer of the nature described in
paragraph (a) above, the Company shall, within one business day after such
receipt, notify the Buyer of such inquiry, proposal or offer, including the
identity of the other party and the terms of such inquiry, proposal or offer.
4.8 EXPENSES. Except as set forth in Article VI and the Escrow Agreement,
each of the Parties shall bear its or his own costs and expenses (including
legal fees and expenses) incurred in connection with this Agreement and the
transactions contemplated hereby. Notwithstanding the foregoing, if the Merger
is consummated and the Company and the Subsidiaries incur more than an aggregate
of $300,000 in financial advisor, legal and accounting fees and expenses in
connection with the Merger, any such fees in excess of $300,000 shall be
withheld from the Merger Consideration payable to the Company Shareholders at
Closing and paid directly to the professional advisors listed in SCHEDULE 4.8 in
accordance with the provisions of Sections 1.3(e) and 1.10(a).
4.9 ADDITIONAL FINANCIAL STATEMENTS. The Company shall deliver to the
Buyer not less than three (3) business days prior to Closing unaudited reviewed,
consolidated balance sheets and statements of income, changes in shareholders'
equity and cash flows of the Company and the Subsidiaries as of and for the
fiscal quarters ended March 31, 2001 and June 30, 2001 (the "Interim Financial
Statements"). The Interim Financial Statements shall be reviewed by the
Company's Auditors in accordance with Statement of Accounting Standards
Statement No. 71 and, when delivered to Buyer, shall be included in the
definition of "Financial Statements" for all purposes under this Agreement;
PROVIDED, HOWEVER, that the foregoing financial statements referred to in this
Section 4.9 shall be subject to normal recurring year-end adjustments (which
will not individually or in the aggregate be material) and shall not include
footnotes.
4.10 BENEFIT PLANS. At the request of the Buyer, the Company shall
terminate its 401(k) plan no later than one (1) day prior to the Effective Time.
On or as soon as practicable following the Effective Time, and subject to the
requirements of applicable law and existing contractual agreements, employees of
the Company and its Subsidiaries who continue employment with the Buyer
("Continuing Employees") shall be eligible to participate, on the same terms
applicable to similarly situated employees of the Buyer, in the following
broad-based benefit plans and programs maintained for similarly situated and
geographically located employees of the Buyer (or in substantially similar
programs): medical/dental/vision care, life insurance, disability income, sick
pay, holiday and vacation pay, 401(k) plan coverage, Internal Revenue Code
Section 125 benefit arrangements, non-stock based retirement programs qualified
under Section 401 of the Code, and dependent care assistance. Each Continuing
Employee shall be given credit under any such Buyer employee benefit plan in
which the employee becomes a participant, for purposes of any service
requirements for participation or vesting in any such plans and programs (and
not for purposes of benefit accrual), for his or her period of service with the
Company or a Subsidiary credited under a similar plan prior to the Effective
Time, subject to
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appropriate break in service rules or other applicable qualification
requirements. Subject to the requirements of applicable law and existing
contractual arrangements, each Continuing Employee and eligible dependent who,
at the Effective Time, was participating in an employee group health plan
maintained by the Company or a Subsidiary shall not be excluded from Buyer's
employee group health plan or limited in coverage thereunder by reason of any
waiting period restriction or pre-existing condition limitation. Nothing in this
Agreement shall be construed to obligate the Buyer, the Company or any of their
respective Subsidiaries to continue the employment of any Continuing Employee
for any period of time following the Effective Time.
4.11 AMENDMENT TO FINANCIAL ADVISOR AGREEMENT. Prior to the Effective Time,
the Company shall amend its engagement letter with Banc of America Securities
LLC ("BOA") dated as of June 8, 2001 to eliminate as of the Effective Time (i)
the Company's obligation to pay any fee to BOA after the Effective Time, and
(ii) BOA's right of first offer to act as the sole financial advisor to the
Company or any of its affiliates.
4.12 SATISFACTION OF DISCLOSURE ITEMS. The Company shall use its Reasonable
Best Efforts to resolve or eliminate to the Buyer's reasonable satisfaction
those matters set forth in Sections 2.2 (items 3, 5, 6 and 10), 2.7 (items 15
and 18), 2.9 (items 3, 9, 10, 11, 13), 2.13 (item 1), 2.14 (item 14), 2.23
(items 2, 3 and 6) (the "Disclosure Schedule Items").
4.13 BRIDGE FINANCING. In the event that the Closing has not occurred by
August 31, 2001, the Buyer shall provide the Company with such bridge financing,
in an amount not to exceed $5,000,000, as may be reasonably requested by the
Company, provided that the Company and the Buyer, acting in good faith, agree
upon commercially reasonable terms and conditions, which shall include, without
limitation, security for such bridge financing. The Buyer shall not be obligated
to provide any such financing in the event the Company is in material breach or
default of any of its obligations under this Agreement; PROVIDED, HOWEVER, that
the Buyer shall provide notice of any such material breach or default within
five (5) business days after receipt of Company's request for any such bridge
financing. Any such bridge financing shall be included as a liability of the
Company on the Closing Balance Sheet.
ARTICLE V
CONDITIONS TO CONSUMMATION OF MERGER
5.1 CONDITIONS TO EACH PARTY'S OBLIGATIONS. The respective obligations of
each Party to consummate the Merger are subject to the satisfaction of the
following conditions:
(a) this Agreement and the Merger shall have received the Requisite
Shareholder Approval by the Company Shareholders; and
(b) all applicable waiting periods (and any extensions thereof) under
the Hart-Scott-Rodino Act shall have expired or otherwise been terminated.
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5.2 CONDITIONS TO OBLIGATIONS OF THE BUYER AND THE TRANSITORY SUBSIDIARY.
The obligation of each of the Buyer and the Transitory Subsidiary to consummate
the Merger is subject to the satisfaction (or waiver by the Buyer) of the
following additional conditions:
(a) the number of Dissenting Shares shall not exceed two percent (2%)
of the number of outstanding Company Shares as of the Effective Time (calculated
on an as-converted basis);
(b) the Company and the Subsidiaries shall have obtained (and shall
have provided copies thereof to the Buyer) all of the waivers, permits,
consents, approvals or other authorizations, and effected all of the
registrations, filings and notices, referred to in Section 4.2 which are
required on the part of the Company or the Subsidiaries;
(c) the representations and warranties of the Company set forth in the
first sentence of Section 2.1 and in Section 2.3 and any representations and
warranties of the Company set forth in this Agreement that are qualified as to
materiality shall be true and correct, in all respects, and all other
representations and warranties of the Company set forth in this Agreement shall
be true and correct in all material respects, in each case as of the date of
this Agreement and as of the Effective Time as though made as of the Effective
Time, except to the extent such representations and warranties are specifically
made as of a particular date or as of the date of this Agreement (in which case
such representations and warranties shall be true and correct as of such date);
(d) the Company shall have performed or complied with its agreements
and covenants required to be performed or complied with under this Agreement as
of or prior to the Effective Time;
(e) no action, suit or proceeding shall be pending or threatened by or
before any Governmental Entity wherein an unfavorable judgment, order, decree,
stipulation or injunction would (i) prevent consummation of the Merger or any of
the transactions contemplated by this Agreement, (ii) cause the Merger or any of
the transactions contemplated by this Agreement to be rescinded following
consummation, or (iii) affect adversely the right of the Company or any of the
Subsidiaries to own, operate or control any of its assets or operations, and no
such judgment, order, decree, stipulation or injunction shall be in effect;
(f) the Company shall have delivered to the Buyer and the Transitory
Subsidiary a certificate (without qualification as to knowledge or materiality
or otherwise) (the "Company Certificate") to the effect that each of the
conditions specified in Section 5.1(a) and clauses (a) through (e) (insofar as
clause (e) relates to actions, suits or proceedings involving the Company or a
Subsidiary) of this Section 5.2 is satisfied in all respects; provided, however,
that in the event (i) the Company has complied with its obligations pursuant to
Section 4.6(a) and is unable to deliver a certificate which satisfies the
requirements of this Section 5.2(f) solely as a result of the occurrence of
events after the date of this Agreement ("Material Subsequent
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Events"), (ii) the Company delivers a Company Certificate which otherwise
satisfies the requirements of this Section 5.2(f) and is otherwise qualified
solely by the Material Subsequent Events and (iii) the Buyer is not obligated to
proceed to Closing as a result of the occurrence of the Material Subsequent
Events but nevertheless elects to do so in its sole discretion, then (A) the
Company shall nevertheless be deemed to have satisfied its obligations under
this Section 5.2(f) and (B) the Company's representations, warranties and
covenants as of the Closing Date contained in this Agreement shall be deemed
qualified by the Material Subsequent Events disclosed in the Company
Certificate;
(g) the Buyer shall have received from counsel to the Company an
opinion in the form attached hereto as EXHIBIT D, addressed to the Buyer dated
as of the Closing Date;
(h) the Buyer shall have received copies of the resignations,
effective as of the Effective Time, of each director and officer of the Company
and the Subsidiaries (other than any such resignations which the Buyer
designates, by written notice to the Company, as unnecessary);
(i) each Company Shareholder listed on Schedule 5.2(i) shall have
entered into non-competition and non-solicitation agreements with the Buyer in
substantially the form attached hereto as EXHIBIT E;
(j) (i) the Company shall have delivered to the Buyer and to the
Internal Revenue Service notices that the Company Shares are not a "U.S. real
property interest" in accordance with the Treasury Regulations under Sections
897 and 1445 of the Code, or (ii) the Company Shareholders shall have delivered
to the Buyer certifications that they are not foreign persons in accordance with
the Treasury Regulations under Section 1445 of the Code;
(k) the Company shall have delivered to the Buyer evidence
satisfactory to the Buyer that all outstanding Options, Warrants or other rights
to purchase Company Shares or other equity interests in the Company have been
exercised in full or terminated (without any further consideration or amounts
(whether in the form of securities, cash or otherwise) payable or issuable
thereunder after the Effective Time), effective immediately prior to the
Effective Time, provided that the Company shall notify the Buyer in advance of
paying cash to settle or terminate any such instruments and provide the Buyer a
reasonable opportunity to consult with the Company concerning such proposed cash
payment;
(l) the Interim Financial Statements delivered by the Company to the
Buyer pursuant to Section 4.9 shall disclose aggregate revenue of not less than
$9,000,000 for the six months ended June 30, 2001;
(m) if the Company shall not have resolved or eliminated all of the
Disclosure Schedule Items to the extent required under Section 4.12 to the
Buyer's reasonable satisfaction, then the Disclosure Schedule Items which remain
unresolved or not eliminated at the Closing
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shall be included within the matters set forth in Section 6.1(e) and specified
to Buyer's reasonable satisfaction. Any such Disclosure Schedule Items which
remain unresolved or not eliminated at the Closing may be satisfied by the Buyer
after the Effective Time without further approval or objection by the
Shareholders' Representative; provided, however, that the Buyer shall not
unreasonably withhold or delay the Buyer's consent to an agreement by the
Shareholders' Representative to assume the defense of selected unresolved items
pursuant to Section 6.3; and
(n) the Buyer shall have received such other certificates and
instruments (including without limitation certificates of good standing of the
Company and the Subsidiaries in their jurisdiction of organization and the
various foreign jurisdictions in which they are qualified, certified charter
documents, certificates as to the incumbency of officers and the adoption of
authorizing resolutions) as it shall reasonably request in connection with the
Closing.
5.3 CONDITIONS TO OBLIGATIONS OF THE COMPANY. The obligation of the
Company to consummate the Merger is subject to the satisfaction (or waiver by
the Company) of the following additional conditions:
(a) the representations and warranties of the Buyer and the Transitory
Subsidiary set forth in the first sentence of Section 3.1 and in Section 3.2 and
any representations and warranties of the Buyer and the Transitory Subsidiary
set forth in this Agreement that are qualified as to materiality shall be true
and correct in all respects, and all other representations and warranties of the
Buyer and the Transitory Subsidiary set forth in this Agreement shall be true
and correct in all material respects, in each case as of the date of this
Agreement and as of the Effective Time as though made as of the Effective Time,
except to the extent such representations and warranties are specifically made
as of a particular date or as of the date of this Agreement (in which case such
representations and warranties shall be true and correct as of such date);
(b) each of the Buyer and the Transitory Subsidiary shall have
performed or complied with its agreements and covenants required to be performed
or complied with under this Agreement as of or prior to the Effective Time;
(c) no action, suit or proceeding shall be pending or threatened by or
before any Governmental Entity wherein an unfavorable judgment, order, decree,
stipulation or injunction would (i) prevent consummation of the Merger or any of
the transactions contemplated by this Agreement, or (ii) cause the Merger or any
of the transactions contemplated by this Agreement to be rescinded following
consummation, and no such judgment, order, decree, stipulation or injunction
shall be in effect;
(d) the Buyer shall have delivered to the Company a certificate
(without qualification as to knowledge or materiality or otherwise) (the "Buyer
Certificate") to the effect that each of the conditions specified in clauses (a)
through (c) (insofar as clause (c) relates to
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actions, suits or proceedings involving the Buyer or the Transitory Subsidiary)
of this Section 5.3 is satisfied in all respects;
(e) the Company shall have received such other certificates and
instruments (including without limitation certificates of good standing of the
Buyer and the Transitory Subsidiary in their jurisdiction of organization,
certified charter documents, certificates as to the incumbency of officers and
the adoption of authorizing resolutions) as it shall reasonably request in
connection with the Closing;
(f) the Buyer and the Exchange Agent shall have entered into the
Exchange Agreement;
(g) the Buyer shall have delivered the Preliminary Merger
Consideration to the Exchange Agent in accordance with Section 1.7 and Section
1.11 hereof;
(h) the Buyer and the Escrow Agent shall have entered into the Escrow
Agreement; and
(i) the Buyer shall have delivered the Escrow Fund to the Escrow
Agent.
ARTICLE VI
INDEMNIFICATION
6.1 INDEMNIFICATION BY THE COMPANY SHAREHOLDERS. In the event the Closing
occurs, and subject to the limitations set forth in Section 6.5, the Company
Shareholders receiving the Merger Consideration pursuant to Section 1.5 shall
severally, and to the proportionate extent of each Company Shareholders'
interest in the Escrow Fund (except in the case of Fraud, in which case the
Company Shareholders shall be jointly and severally liable), indemnify the Buyer
in respect of, and hold it harmless against, any and all debts, obligations,
Taxes and other liabilities (whether absolute, accrued, contingent, fixed or
otherwise, or whether known or unknown, or due or to become due or otherwise),
monetary damages, fines, fees, penalties, interest obligations, deficiencies,
losses and expenses (including without limitation amounts paid in settlement,
interest, court costs, costs of investigators, fees and expenses of attorneys,
accountants, financial advisors and other experts, and other expenses of
litigation) ("Damages") incurred or suffered by the Surviving Corporation or the
Buyer or any Affiliate thereof resulting from, relating to or constituting:
(a) any misrepresentation, breach of warranty or failure to perform
any covenant or agreement of the Company contained in this Agreement or the
Company Certificate;
(b) any failure of any Company Shareholder to have good, valid and
marketable title to the issued and outstanding Company Shares issued in the name
of such Company Shareholder, free and clear of all Security Interests;
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(c) any claim by a shareholder or former shareholder of the Company,
or any other person or entity, seeking to assert, or based upon: (i) ownership
or rights to ownership of any shares of stock of the Company; (ii) any rights of
a shareholder (other than the right to receive the Merger Consideration pursuant
to this Agreement or appraisal rights under the applicable provisions of the
California General Corporation Law), including any option, preemptive rights or
rights to notice or to vote; (iii) any rights under the Articles of
Incorporation or By-laws of the Company; or (iv) any claim that his, her or its
shares were wrongfully repurchased by the Company;
(d) any sales, use, transfer, stamp, conveyance, value added,
recording, registration, documentary, filing or other similar Taxes and fees,
whether levied on the Buyer, the Company Shareholders, the Company or any of
their respective Affiliates, resulting from the Merger or otherwise on account
of this Agreement or the transactions contemplated hereby;
(e) any liability, obligation or claim arising out of or relating to
(i) the Disclosure Schedule Items which remain unresolved or not eliminated
pursuant to Section 5.2(m) and (ii) matters described in Sections 2.2 (items 7,
8 and 9), 2.7 (items 6, 8, 17 and 20), 2.8 (items 5, 6, 9, 10, 13, 14, 15, 16
and 17), 2.9, 2.14 (item 16), 2.17 and 2.18(f) of the Disclosure Schedule
(collectively, the "Section 6.1(e) Matters"); or
(f) any liability, obligation or claim arising out of or relating to
any payment required to be made under the terms of the Outlook Release, as
defined in Section 2.7 of the Disclosure Schedule.
6.2 INDEMNIFICATION BY THE BUYER. In the event the Closing occurs, and
subject to the limitations set forth in Section 6.5, the Buyer shall indemnify
the Company Shareholders in respect of, and hold them harmless against, any and
all Damages incurred or suffered by the Company Shareholders resulting from,
relating to or constituting any misrepresentation, breach of warranty or failure
to perform any covenant or agreement of the Buyer or the Transitory Subsidiary
contained in this Agreement or the Buyer Certificate.
6.3 INDEMNIFICATION CLAIMS.
(a) A party entitled, or seeking to assert rights, to indemnification
under this Article VI (an "Indemnified Party") shall give written notification
to the party from whom indemnification is sought (an "Indemnifying Party") of
the commencement of any suit or proceeding relating to a third party claim for
which indemnification pursuant to this Article VI may be sought. Such
notification shall be given within 20 business days after receipt by the
Indemnified Party of notice of such suit or proceeding, shall be accompanied by
reasonable supporting documentation submitted by such third party (to the extent
then in the possession of the Indemnified Party) and shall describe in
reasonable detail (to the extent known by the Indemnified Party) the facts
constituting the basis for such suit or proceeding and the amount of the claimed
damages; PROVIDED, HOWEVER, that no delay or deficiency on the part of the
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Indemnified Party in so notifying the Indemnifying Party shall relieve the
Indemnifying Party of any liability or obligation hereunder except to the extent
of any damage or liability caused by or arising out of such failure. Within 20
days after delivery of such notification, the Indemnifying Party may, upon
written notice thereof to the Indemnified Party, assume control of the defense
of such suit or proceeding with counsel reasonably satisfactory to the
Indemnified Party; PROVIDED, HOWEVER, that (i) the Indemnifying Party may only
assume control of such defense if it acknowledges in writing to the Indemnified
Party that any damages, fines, costs or other liabilities that may be assessed
against the Indemnified Party in connection with such suit or proceeding
constitute Damages for which the Indemnified Party shall be indemnified pursuant
to this Article VI, and (ii) the Indemnifying Party may not assume control of
the defense of a suit or proceeding involving criminal liability or in which any
relief other than monetary damages is sought against the Indemnified Party. If
the Indemnifying Party does not so assume control of such defense, the
Indemnified Party shall control such defense. The party not controlling such
defense (the "Non-controlling Party") may participate therein at its own
expense; PROVIDED, HOWEVER, that if the Indemnifying Party assumes control of
such defense and the Indemnified Party reasonably concludes that the
Indemnifying Party and the Indemnified Party have conflicting interests or
different defenses available with respect to such suit or proceeding, the
reasonable fees and expenses of counsel to the Indemnified Party shall be
considered "Damages" for purposes of this Agreement. The party controlling such
defense (the "Controlling Party") shall keep the Non-controlling Party advised
of the status of such suit or proceeding and the defense thereof and shall
consider in good faith recommendations made by the Non-controlling Party with
respect thereto. The Non-controlling Party shall furnish the Controlling Party
with such information as it may have with respect to such suit or proceeding
(including copies of any summons, complaint or other pleading which may have
been served on such party and any written claim, demand, invoice, billing or
other document evidencing or asserting the same) and shall otherwise cooperate
with and assist the Controlling Party in the defense of such suit or proceeding.
The Indemnifying Party shall not agree to any settlement of, or the entry of any
judgment arising from, any such suit or proceeding without the prior written
consent of the Indemnified Party, which shall not be unreasonably withheld or
delayed; PROVIDED, HOWEVER, that the consent of the Indemnified Party shall not
be required if the Indemnifying Party agrees in writing to pay any amounts
payable pursuant to such settlement or judgment and such settlement or judgment
includes a complete release of the Indemnified Party from further liability and
has no other adverse effect on the Indemnified Party. The Indemnified Party
shall not agree to any settlement of, or the entry of any judgment arising from,
any such suit or proceeding without the prior written consent of the
Indemnifying Party, which shall not be unreasonably withheld or delayed.
(b) In order to seek indemnification under this Article VI, an
Indemnified Party shall give written notification (a "Claim Notice") to the
Indemnifying Party which contains (i) a description and the amount (the "Claimed
Amount") of any Damages incurred or reasonably expected to be incurred by the
Indemnified Party, (ii) a statement that the Indemnified Party is entitled to
indemnification under this Article VI for such Damages and a reasonable
explanation of the basis therefor, and (iii) a demand for payment (in the manner
provided in paragraph (c)
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below) in the amount of such Damages. If the Indemnified Party is the Buyer, the
Indemnifying Party shall deliver a copy of the Claim Notice to the Escrow Agent.
(c) Within 20 days after delivery of a Claim Notice, the Indemnifying
Party shall deliver to the Indemnified Party a written response (the "Response")
in which the Indemnifying Party shall: (i) agree that the Indemnified Party is
entitled to receive all of the Claimed Amount (in which case the Response shall
be accompanied by a payment by the Indemnifying Party to the Indemnified Party
of the Claimed Amount, by check or by wire transfer, provided that if the
Indemnified Party is (A) the Buyer, the Indemnifying Party and the Indemnified
Party shall deliver to the Escrow Agent, within three days following the
delivery of the Response, a written notice executed by both parties instructing
the Escrow Agent to disburse the Claimed Amount to the Buyer, or (B) the Company
Shareholders, the Indemnifying Party shall pay the Claimed Amount in accordance
with a payment and distribution method reasonably acceptable to the Buyer and
the Shareholders' Representative), (ii) agree that the Indemnified Party is
entitled to receive part, but not all, of the Claimed Amount (the "Agreed
Amount") (in which case the Response shall be accompanied by a payment by the
Indemnifying Party to the Indemnified Party of the Agreed Amount, by check or by
wire transfer; provided that if the Indemnified Party is (A) the Buyer, the
Indemnifying Party and the Indemnified Party shall deliver to the Escrow Agent,
within three days following the delivery of the Response, a written notice
executed by both parties instructing the Escrow Agent to disburse the Agreed
Amount to the Buyer, or (B) the Company Shareholders, the Indemnifying Party
shall pay the Agreed Amount in accordance with a payment and distribution method
reasonably acceptable to the Buyer and the Shareholders' Representative), or
(iii) dispute that the Indemnified Party is entitled to receive any of the
Claimed Amount.
(d) Notwithstanding the other provisions of this Section 6.3, if a
third party asserts (other than by means of a lawsuit) that an Indemnified Party
is liable to such third party for a monetary or other obligation which may
constitute or result in Damages (not to exceed $200,000) for which such
Indemnified Party may be entitled to indemnification pursuant to this Article
VI, and such Indemnified Party reasonably determines that it has a valid
business reason to fulfill such obligation, then (i) such Indemnified Party
shall be entitled to satisfy such obligation, without prior notice to or consent
from the Indemnifying Party, (ii) such Indemnified Party may subsequently make a
claim for indemnification in accordance with the provisions of this Article VI,
and (iii) such Indemnified Party shall be reimbursed, in accordance with the
provisions of this Article VI, for any such Damages for which it is entitled to
indemnification pursuant to this Article VI (subject to the right of the
Indemnifying Party to dispute the Indemnified Party's entitlement to
indemnification, or the amount for which it is entitled to indemnification,
under the terms of this Article VI).
(e) In the event the Buyer makes a claim for indemnification pursuant
to the provisions of Section 6.1(f), then (i) the Buyer shall be entitled to
satisfy such obligation, without prior notice to or consent from the
Shareholders' Representative, and (ii) Buyer shall be reimbursed from the Escrow
Fund for any such Damages for which it is entitled to
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indemnification pursuant to this Article VI without approval of or objection by
the Shareholders' Representative.
(f) For purposes of this Section 6.3 and the last two sentences of
Section 6.4, (i) if the Company Shareholders comprise the Indemnifying Party,
any references to the Indemnified Party or the Indemnifying Party (except
provisions relating to an obligation to make or a right to receive any payments
provided for in Section 6.3 or Section 6.4) shall be deemed to refer to the
Shareholders' Representative, and (ii) if the Company Shareholders comprise the
Indemnified Party, any references to the Indemnified Party (except provisions
relating to an obligation to make or a right to receive any payments provided
for in Section 6.3 or Section 6.4) shall be deemed to refer to the Shareholders'
Representative. The Shareholders' Representative shall have full power and
authority on behalf of each Company Shareholder to take any and all actions on
behalf of, execute any and all instruments on behalf of, and execute or waive
any and all rights of, the Company Shareholders under this Article VI. The
Shareholders' Representative shall have no liability to any Company Shareholder
for any action taken or omitted on behalf of the Company Shareholders pursuant
to this Article VI.
(g) If at the time the last of the Section 6.1(e) Matters has been
fully resolved, the aggregate amount of the specific reserves, if any, for such
Section 6.1(e) Matters set forth on the Closing Balance Sheet is in excess of
the aggregate amount of Damages incurred by the Buyer with respect to such
Section 6.1(e) Matters, the amount of such excess shall be paid by the Buyer to
the Shareholders' Representative for distribution to the Company Shareholders in
proportion to their interests in the Escrow Fund.
6.4 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. Except in the case of
Fraud (which, for purposes of this Agreement, shall mean an intentional and/or
knowing: (i) perversion of truth for the purpose of inducing another to rely
upon it, (ii) false representation of a material fact or (iii) concealment of
material fact which should have been disclosed, which in each case is intended
to deceive another party), all representations and warranties contained in this
Agreement, the Company Certificate or the Buyer Certificate shall (a) survive
the Closing and any investigation at any time made by or on behalf of an
Indemnified Party and (b) shall expire on the date 18 months following the
Closing Date. If an Indemnified Party delivers to an Indemnifying Party, before
expiration of a representation or warranty, either a Claim Notice based upon a
breach of such representation or warranty, or a notice that, as a result of a
legal proceeding instituted by or claim made by a third party, the Indemnified
Party reasonably expects to incur Damages (an "Expected Claim Notice"), then the
applicable representation or warranty shall survive until, but only for purposes
of, the resolution of the matter covered by such notice. If the legal proceeding
or written claim with respect to which an Expected Claim Notice has been given
is definitively withdrawn or resolved in favor of the Indemnified Party, the
Indemnified Party shall promptly so notify the Indemnifying Party; and if the
Indemnified Party has delivered a copy of the Expected Claim Notice to the
Escrow Agent and funds have been retained in escrow after the Termination Date
(as defined in the Escrow Agreement) with respect to such Expected Claim Notice,
the Indemnifying Party and the Indemnified Party shall
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promptly deliver to the Escrow Agent a written notice executed by both parties
instructing the Escrow Agent to disburse such retained funds to the Company
Shareholders in accordance with the terms of the Escrow Agreement.
6.5 LIMITATIONS.
(a) Notwithstanding anything to the contrary herein, the Buyer shall
not be entitled to recover any portion of the Escrow Fund under this Article VI
unless and until the aggregate Damages are in excess of $250,000 (at which point
the Buyer shall be entitled to recover from the Escrow Fund the aggregate
Damages in excess of $100,000, and not just amounts in excess of $250,000);
provided that the limitation set forth above shall not apply to a claim against
the Escrow Fund pursuant to (x) Section 1.8, (y) Section 6.1(a) relating to a
breach of the representations and warranties set forth in Sections 2.1, 2.2, 2.3
or 2.9 (or the portions of the Company Certificate relating thereto), or (z)
Section 6.1(b), (c), (d), (e) or (f).
(b) Notwithstanding anything to the contrary herein, the Buyer shall
not be liable under this Article VI unless and until the aggregate Damages for
which it would otherwise be liable exceed $250,000 (at which point the Buyer
shall become liable for the aggregate Damages in excess of $100,000, and not
just amounts in excess of $250,000); provided that the limitation set forth
above shall not apply to a claim pursuant to Section 6.2 relating to a breach of
the representations and warranties set forth in Sections 3.1, 3.2 or 3.5 (or the
portions of the Buyer Certificate relating thereto).
(c) Except in the case of Fraud, the Escrow Agreement shall be the
exclusive means for the Buyer to collect any Damages for which it is entitled to
indemnification under this Article VI. Except in the case of Fraud or
intentional misrepresentation, the Buyer's liability for all Damages shall not
exceed $20,000,000.
(d) No Company Shareholder shall have any right of contribution
against the Company or the Surviving Corporation with respect to any breach by
the Company of any of its representations, warranties, covenants or agreements.
(e) The amount of any and all Damages for which indemnification is
provided pursuant to this Article VI shall be net of any amounts actually
received by the Indemnified Party under insurance policies with respect to such
Damages.
ARTICLE VII
TERMINATION
7.1 TERMINATION OF AGREEMENT. The Parties may terminate this Agreement
prior to the Effective Time (whether before or after Requisite Shareholder
Approval), as provided below:
(a) the Parties may terminate this Agreement by mutual written
consent;
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(b) the Buyer may terminate this Agreement by giving written notice to
the Company in the event the Company is in breach of any representation,
warranty or covenant contained in this Agreement, and such breach, individually
or in combination with any other such breach, (i) would cause the conditions set
forth in clauses (c) or (d) of Section 5.2 not to be satisfied and (ii) is not
cured within 20 days following delivery by the Buyer to the Company of written
notice of such breach;
(c) the Company may terminate this Agreement by giving written notice
to the Buyer in the event the Buyer or the Transitory Subsidiary is in breach of
any representation, warranty or covenant contained in this Agreement, and such
breach, individually or in combination with any other such breach, (i) would
cause the conditions set forth in clauses (a) or (b) of Section 5.3 not to be
satisfied and (ii) is not cured within 20 days following delivery by the Company
to the Buyer of written notice of such breach;
(d) any Party may terminate this Agreement by giving written notice to
the other Parties at any time after the Company Shareholders have voted on
whether to approve this Agreement and the Merger in the event this Agreement and
the Merger failed to receive the Requisite Shareholder Approval;
(e) the Buyer may terminate this Agreement by giving written notice to
the Company if the Closing shall not have occurred on or before September 30,
2001 by reason of the failure of any condition precedent under Section 5.1 or
5.2 hereof (unless the failure results directly from a breach by the Buyer or
the Transitory Subsidiary of any representation, warranty or covenant contained
in this Agreement);
(f) the Company may terminate this Agreement by giving written notice
to the Buyer and the Transitory Subsidiary if on or after September 1, 2001 the
Company shall have requested the bridge financing contemplated by Section 4.13
and the Buyer shall have thereafter notified the Company in writing that the
Buyer has elected not to provide such bridge financing as a result of the
occurrence of a material breach or default by the Company of any of its
obligations under this Agreement (which notice from the Buyer to the Company
shall also constitute an election by Buyer to terminate this Agreement pursuant
to the provisions of Section 7.1(b));
(g) the Company may terminate this Agreement by giving written notice
to the Buyer and the Transitory Subsidiary if the Closing shall not have
occurred on or before September 30, 2001 by reason of the failure of any
condition precedent under Section 5.1 or 5.3 hereof (unless the failure results
directly from a breach by the Company of any representation, warranty or
covenant contained in this Agreement); provided, however, that in the event the
Buyer provides bridge financing to the Company in accordance with the provisions
of Section 4.13, the Buyer shall have the right to extend the outside date for
termination of this Agreement by the Company from September 30, 2001 until
October 15, 2001; or
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(h) the Company may terminate this Agreement by giving written notice
to the Buyer and the Transitory Subsidiary if the Buyer receives an HSR
Additional Action Request from the Federal Trade Commission or the Antitrust
Division of the United States Department of Justice and does not elect to comply
with such HSR Additional Action Request within fourteen days of receipt of such
request.
7.2 EFFECT OF TERMINATION. If any Party terminates this Agreement pursuant
to Section 7.1, all obligations of the Parties hereunder shall terminate without
any liability of any Party to any other Party (except for any liability of any
Party for breaches of this Agreement).
ARTICLE VIII
DEFINITIONS
For purposes of this Agreement, each of the following defined terms is
defined in the Section of this Agreement indicated below.
Defined Term Section
- ------------ -------
Adjusted Merger Consideration 1.8(f)
Affiliate 2.14(f)
Aggregate Participation Amount 1.5(a)
Agreed Amount 6.3(c)
Agreement Introduction
Agreement of Merger 1.1
Arbitrator 1.8(d)
Balance Sheet Date 2.6
BOA 4.11
Bridge Financing 4.4(c)
Bridge Notes 4.4(a)
Bridge Purchase Agreement 4.4(c)
Business Entity 2.4
Buyer Introduction
Buyer Certificate 5.3(d)
California Merger Filings 1.1
CERCLA 2.20(a)
Certificates 1.7(a)
Claim Notice 6.3(b)
Claimed Amount 6.3(b)
Closing 1.2
Closing Balance Sheet 1.8(b)
Closing Date 1.2
Closing Working Capital 1.8(c)
Closing Working Capital Adjustment 1.8(c)
Code 2.7(g)
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Company Introduction
Company Certificate 5.2(f)
Company Common Shares 1.5(a)
Company Option 1.5(a)
Company Series A Shares 1.5(a)
Company Series B Shares 1.5(a)
Company Series C Shares 1.5(a)
Company Series C-1 Shares 1.5(a)
Company Shareholders 1.6(a)
Company Shares 1.5(a)
Company's Auditor 1.8(b)
Company Vested Options 1.5(a)
Continuing Employees 4.10
Controlling Party 6.3(a)
Damages 6.1
Delaware Merger Filings 1.1
Disclosure Schedule Article II
Disclosure Schedule Items 4.12
Dispute Notice 1.8(d)
Dissenting Shares 1.6(a)
Effective Time 1.1
Employee Benefit Plan 2.19(a)
Environmental Law 2.20(a)
ERISA 2.19(a)
ERISA Affiliate 2.19(a)
Escrow Agreement 1.3(f)
Escrow Agent 1.3(f)
Escrow Fund 1.11(a)
Exchange Agent 1.3(d)
Exchange Agreement 1.7(a)
Exchange Fund 1.7(a)
Expected Claim Notice 6.4
Expenses 1.10(a)
Financial Statements 2.6
Fraud 6.4
Fully Diluted Company Shares 1.5(b)
GAAP 1.8(b)
Governmental Entity 2.4
Hart-Scott-Rodino Act 2.4
HSR Additional Action Request 4.2(a)
Indemnified Party 6.3(a)
Indemnifying Party 6.3(a)
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Information Statement 4.3
Intellectual Property 2.12(b)
Interim Financial Statements 4.9
Materials of Environmental Concern 2.20(b)
Material Subsequent Event 5.2(f)
Merger 1.1
Merger Consideration 1.5(a)
Most Recent Balance Sheet 2.6
NDA 4.2(b)
Net Merger Consideration 1.5(a)
Net Participation Amount 1.5(a)
Non-controlling Party 6.3(a)
Option Plans 2.2
Options 2.2
Ordinary Course of Business 2.4
Outstanding Company Shares 1.5(a)
Parties Introduction
Permits 2.22
Per Share Escrow Amount 1.5(a)
Per Share Net Participation Amount 1.5(a)
Personal Property 2.10(c)
Preliminary Allocation Schedule 1.5(f)
Preliminary Closing Balance Sheet 1.8(a)
Preliminary Closing Balance Sheet Date 1.8(a)
Preliminary Closing Working Capital 1.8(a)
Preliminary Closing Merger Consideration 1.8(a)
Reasonable Best Efforts 4.1
Related Party Transactions 2.23
Response 6.3(c)
Restated Articles 1.5(a)
Requisite Shareholder Approval 2.3
Retention Bonus Fund 1.5(d)
Section 6.1(e) Matters 6.1(e)
Securities Act 2.2
Security Interest 2.4
Series A Preference 1.5(a)
Series B Preference 1.5(a)
Series C Preference 1.5(a)
Series C-1 Preference 1.5(a)
Shareholders' Representative 1.10(a)
Shareholders' Representative Fund 1.10(a)
Shareholder Voting Agreement Introduction
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SM Non-Compete Payment 1.5(e)
Subsidiary 2.4
Surviving Corporation 1.1
Target Amount 1.8(c)
Taxes 2.9(a)
Tax Returns 2.9(a)
Transitory Subsidiary Introduction
Warrants 2.2
Withholding Taxes 1.5(a)
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ARTICLE IX
MISCELLANEOUS
9.1 PRESS RELEASES AND ANNOUNCEMENTS. No Party shall issue any press
release or public announcement relating to the subject matter of this Agreement
without the prior written approval of the other Parties; PROVIDED, HOWEVER, that
any Party may make any public disclosure it believes in good faith is required
by applicable law, regulation or stock market rule (in which case the disclosing
Party shall use reasonable efforts to advise the other Parties and provide them
with a copy of the proposed disclosure prior to making the disclosure).
9.2 NO THIRD PARTY BENEFICIARIES. This Agreement shall not confer any
rights or remedies upon any person other than the Parties and their respective
successors and permitted assigns; PROVIDED, HOWEVER, that the provisions in
Article I concerning payment of the Merger Consideration are intended for the
benefit of the Company Shareholders and the provisions of Section 4.10 are
intended for the benefit of the Continuing Employees.
9.3 ENTIRE AGREEMENT. This Agreement and the exhibits and schedules
attached thereto constitute the entire agreement among the Parties and
supersedes any prior understandings, agreements or representations by or among
the Parties, written or oral, with respect to the subject matter hereof;
PROVIDED, HOWEVER, that the NDA shall remain in effect in accordance with its
terms.
9.4 SUCCESSION AND ASSIGNMENT. This Agreement shall be binding upon and
inure to the benefit of the Parties named herein and their respective successors
and permitted assigns. 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; provided that the Transitory Subsidiary may assign its
rights, interests and obligations hereunder to an Affiliate of the Buyer.
9.5 COUNTERPARTS AND FACSIMILE SIGNATURE. This Agreement may be executed in
two or more counterparts, each of which shall be deemed an original but all of
which together shall constitute one and the same instrument. This Agreement may
be executed by facsimile signature.
9.6 HEADINGS. The section headings contained in this Agreement are inserted
for convenience only and shall not affect in any way the meaning or
interpretation of this Agreement.
9.7 NOTICES. All notices, requests, demands, claims, and other
communications hereunder shall be in writing. Any notice, request, demand, claim
or other communication hereunder shall be deemed duly delivered four business
days after it is sent by registered or certified mail, return receipt requested,
postage prepaid, or one business day after it is sent for next business day
delivery via a reputable nationwide overnight courier service, in each case to
the intended recipient as set forth below:
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IF TO THE COMPANY: COPY TO:
Securant Technologies, Inc. Brobeck, Phleger & Harrison LLP
345 California Street, 23rd Floor One Market Square Tower
San Francisco, CA 94104 San Francisco, CA 94105
Attention: President Attention: Shane Byrne, Esq.
IF TO THE SHAREHOLDERS' REPRESENTATIVE: COPY TO:
RH Investments 2001 LLC Russo & Hale LLP
401 Florence Street 401 Florence Street
Palo Alto, California 94301 Palo Alto, California 94301
Attention: Jack Russo, Esq. Attention: Jack Russo, Esq.
IF TO THE BUYER OR THE TRANSITORY SUBSIDIARY: COPIES TO:
RSA Security Inc. RSA Security Inc.
36 Crosby Drive 20 Crosby Drive
Bedford, Massachusetts 01730 Bedford, Massachusetts 01730
Attention: President Attention: General Counsel
Hale and Dorr LLP
60 State Street
Boston, Massachusetts 02109
Attention: Hal J. Leibowitz, Esq.
Any Party may give any notice, request, demand, claim or other communication
hereunder using any other means (including personal delivery, expedited courier,
messenger service, telecopy, telex, ordinary mail or electronic mail), but no
such notice, request, demand, claim or other communication shall be deemed to
have been duly given unless and until it actually is received by the party for
whom it is intended. Any Party may change the address to which notices,
requests, demands, claims, and other communications hereunder are to be
delivered by giving the other Parties notice in the manner herein set forth.
9.8 GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the internal laws of the State of Delaware without giving effect
to any choice or conflict of law provision or rule (whether of the State of
Delaware or any other jurisdiction) that would cause the application of laws of
any jurisdictions other than those of the State of Delaware.
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9.9 AMENDMENTS AND WAIVERS. The Parties may mutually amend any provision
of this Agreement at any time prior to the Effective Time; PROVIDED, HOWEVER,
that any amendment effected subsequent to the Requisite Shareholder Approval
shall be subject to any restrictions contained in the Delaware General
Corporation Law and the California General Corporation Law. No amendment of any
provision of this Agreement shall be valid unless the same shall be in writing
and signed by all of the Parties. No waiver of any right or remedy hereunder
shall be valid unless the same shall be in writing and signed by the Party
giving such waiver. No waiver by any Party with respect to any default,
misrepresentation or breach of warranty or covenant hereunder shall be deemed to
extend to any prior or subsequent default, misrepresentation or breach of
warranty or covenant hereunder or affect in any way any rights arising by virtue
of any prior or subsequent such occurrence.
9.10 SEVERABILITY. Any term or provision of this Agreement that is invalid
or unenforceable in any situation in any jurisdiction shall not affect the
validity or enforceability of the remaining terms and provisions hereof or the
validity or enforceability of the offending term or provision in any other
situation or in any other jurisdiction. If the final judgment of a court of
competent jurisdiction declares that any term or provision hereof is invalid or
unenforceable, the Parties agree that the court making the determination of
invalidity or unenforceability shall have the power to limit the term or
provision, to delete specific words or phrases, or to replace any invalid or
unenforceable term or provision with a term or provision that is valid and
enforceable and that comes closest to expressing the intention of the invalid or
unenforceable term or provision, and this Agreement shall be enforceable as so
modified.
9.11 SUBMISSION TO JURISDICTION. Each of the Parties (a) submits to the
jurisdiction of any state or federal court sitting in Boston, Massachusetts in
any action or proceeding arising out of or relating to this Agreement, (b)
agrees that all claims in respect of such action or proceeding may be heard and
determined in any such court, and (c) agrees not to bring any action or
proceeding arising out of or relating to this Agreement in any other court. Each
of the Parties waives any defense of inconvenient forum to the maintenance of
any action or proceeding so brought and waives any bond, surety or other
security that might be required of any other Party with respect thereto. Any
Party may make service on another Party by sending or delivering a copy of the
process to the Party to be served at the address and in the manner provided for
the giving of notices in Section 9.7. Nothing in this Section 9.11, however,
shall affect the right of any Party to serve legal process in any other manner
permitted by law.
9.12 CONSTRUCTION.
(a) The language used in this Agreement shall be deemed to be the
language chosen by the Parties to express their mutual intent, and no rule of
strict construction shall be applied against any Party.
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(b) Any reference to any federal, state, local or foreign statute or
law shall be deemed also to refer to all rules and regulations promulgated
thereunder, unless the context requires otherwise.
9.13 SPECIFIC PERFORMANCE. Each of the Parties acknowledges and agrees that
one or more of the other Parties would be damaged irreparably in the event any
of the provisions of this Agreement are not performed in accordance with their
specific terms or otherwise are breached. Accordingly, each of the Parties
agrees that the other Parties shall be entitled to an injunction or injunctions
to prevent breaches of the provisions of this Agreement and to enforce
specifically this Agreement and the terms and provisions hereof in any action
instituted in any court of the United States or any state thereof having
jurisdiction over the Parties and the matter, in addition to any other remedy to
which it may be entitled, at law or in equity.
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IN WITNESS WHEREOF, the Parties have executed this Agreement as of the date
first above written.
RSA SECURITY INC.
By: /s/ Arthur W. Coviello, Jr.
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Title: Chief Executive Officer
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FALCON ACQUISITION CORP.
By: /s/ Margaret K. Seif
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Title: Vice President
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SECURANT TECHNOLOGIES, INC.
By: /s/ Jonti McLaren
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Title: President
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SHAREHOLDERS' REPRESENTATIVE
The undersigned has executed this
Agreement solely for the purposes
set forth in Sections 1.8, 1.10,
9.7, 9.8, 9.11 and 9.13 and Article
VI
RH Investments 2001 LLC
By: /s/ Jack Russo
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Jack Russo, Manager
The undersigned, being the duly elected Secretary of the Transitory
Subsidiary, hereby certifies that this Agreement has been adopted by a majority
of the votes represented by the outstanding shares of capital stock of the
Transitory Subsidiary entitled to vote on this Agreement.
/s/ Margaret K. Seif
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Secretary
The undersigned, being the duly elected Secretary of the Company, hereby
certifies that this Agreement has been adopted by (i) a majority of the votes
represented by the outstanding Preferred Stock entitled to vote on this
Agreement and the Merger, voting as a single class, and (ii) a majority of the
votes represented by the outstanding Common Stock entitled to vote on this
Agreement and the Merger Agreement, voting as a single class.
-----------------------------------
Secretary