EXHIBIT 2.1
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
SMITH MICRO SOFTWARE, INC.,
TAG ACQUISITION CORPORATION,
TAG ACQUISITION CORPORATION II,
PHOTAGS, INC.,
HARRY FOX,
AS STOCKHOLDERS' AGENT,
AND CERTAIN STOCKHOLDERS OF
PHOTAGS, INC.
APRIL 3, 2006
TABLE OF CONTENTS
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ARTICLE 1 THE MERGER..................................................... 2
1.1 The Merger...................................................... 2
1.2 Closing; Effective Time......................................... 2
ARTICLE 2 THE SURVIVING CORPORATION...................................... 3
2.1 Certificate of Incorporation.................................... 3
2.2 Bylaws.......................................................... 3
2.3 Directors and Officers of Surviving Corporation................. 3
2.4 Directors and Officers of Subsidiaries of Surviving
Corporation..................................................... 3
ARTICLE 3 EFFECT OF MERGER ON CAPITAL STOCK.............................. 3
3.1 Effect of Merger on Capital Stock............................... 3
3.2 Dissenting Shares............................................... 5
3.3 Earn-Out........................................................ 6
3.4 Escrowed Shares................................................. 7
3.5 Surrender of Certificates....................................... 8
3.6 No Further Ownership Rights in Company Stock.................... 8
3.7 Lost, Stolen or Destroyed Certificates.......................... 9
3.8 Taking of Necessary Action; Further Action...................... 9
3.9 Fees and Expenses............................................... 9
3.10 Tax Treatment of Escrowed Shares and Earn-Out................... 9
ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE PRINCIPAL
STOCKHOLDERS................................................... 9
4.1 Due Organization; Good Standing; Authority; Binding Nature of
Agreements...................................................... 10
4.2 Certificate of Incorporation and Bylaws; Records................ 10
4.3 Capitalization; Ownership of Stock.............................. 11
4.4 Subsidiaries.................................................... 12
4.5 Financial Statements............................................ 13
4.6 Absence of Changes.............................................. 14
4.7 Title to Assets; Equipment; Real Property, Leases............... 16
4.8 Bank Accounts................................................... 16
4.9 Accounts Receivable............................................. 17
4.10 Accounts Payable................................................ 17
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(continued)
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4.11 Proprietary Assets.............................................. 17
4.12 Contracts....................................................... 19
4.13 Compliance With Legal Requirements.............................. 20
4.14 Governmental Authorizations..................................... 21
4.15 Tax Matters..................................................... 21
4.16 Employee and Labor Matters...................................... 24
4.17 Benefit Plans; ERISA............................................ 26
4.18 Environmental Matters........................................... 29
4.19 Sale of Products; Performance of Services....................... 29
4.20 Insurance....................................................... 29
4.21 Related Party Transactions...................................... 30
4.22 Proceedings; Orders............................................. 30
4.23 Non-Contravention; Consents..................................... 31
4.24 Customers and Suppliers......................................... 32
4.25 Brokers......................................................... 33
4.26 Powers of Attorney.............................................. 33
4.27 Voting Arrangements............................................. 33
4.28 Board Approval.................................................. 33
4.29 Vote Required................................................... 33
4.30 Full Disclosure................................................. 33
4.31 State Takeover Statutes; Stockholder Rights Plan................ 33
4.32 Spreadsheet..................................................... 33
4.33 Complete Copies of Materials.................................... 33
4.34 Stockholder Information......................................... 34
4.35 Adjustment Amount............................................... 34
4.36 CDI Budget...................................................... 34
ARTICLE 5 REPRESENTATIONS AND WARRANTIES OF THE PRINCIPAL STOCKHOLDERS... 34
5.1 Ownership of Company Stock...................................... 34
5.2 Litigation...................................................... 34
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TABLE OF CONTENTS
(continued)
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5.3 Absence of Claims by the Principal Stockholders................. 35
5.4 No Conflict..................................................... 35
5.5 Authority....................................................... 35
ARTICLE 6 REPRESENTATIONS AND WARRANTIES OF ACQUIROR, MERGER SUB AND
MERGER SUB II.................................................. 35
6.1 Due Organization; Good Standing; Authority; Binding Nature of
Agreements...................................................... 36
6.2 Non-Contravention; Consents..................................... 36
6.3 Brokers......................................................... 36
6.4 SEC Reports; Absence of Changes................................. 36
ARTICLE 7 ADDITIONAL AGREEMENTS.......................................... 37
7.1 Additional Agreements........................................... 37
7.2 Public Announcements............................................ 37
7.3 Confidentiality................................................. 37
7.4 Conveyance Taxes................................................ 38
7.5 Spreadsheet..................................................... 38
7.6 Termination of Company Plans.................................... 38
7.7 Registration Rights............................................. 38
7.8 Blue Sky Laws................................................... 45
ARTICLE 8 CLOSING & POST-CLOSING DELIVERIES.............................. 46
8.1 Closing Deliveries of Company and Principal Stockholders........ 46
8.2 Closing Deliveries of Acquiror and Merger Sub................... 47
8.3 Post-Closing Covenants of Acquiror, Surviving Corporation, and
Principal Stockholders.......................................... 47
ARTICLE 9 ESCROW AND INDEMNIFICATION..................................... 47
9.1 Company Indemnification Obligations............................. 47
9.2 Escrow Period................................................... 48
9.3 Claims Upon Escrow Account...................................... 48
9.4 Objections to Claims............................................ 48
9.5 Resolution of Conflicts......................................... 49
9.6 Stockholders' Agent............................................. 49
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(continued)
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9.7 Actions of the Stockholders' Agent.............................. 50
9.8 Third Party Claims.............................................. 50
9.9 Principal Stockholder Indemnification Obligations............... 51
9.10 Remedies Exclusive.............................................. 52
ARTICLE 10 MISCELLANEOUS PROVISIONS...................................... 52
10.1 Survival of Representations and Covenants....................... 52
10.2 Transfer Taxes.................................................. 52
10.3 Tax Returns..................................................... 52
10.4 Notices......................................................... 52
10.5 Time of the Essence............................................. 53
10.6 Headings........................................................ 53
10.7 Counterparts.................................................... 53
10.8 Governing Law................................................... 54
10.9 Waiver.......................................................... 54
10.10 Amendments...................................................... 54
10.11 Severability.................................................... 54
10.12 Parties in Interest............................................. 54
10.13 Entire Agreement................................................ 54
10.14 Construction.................................................... 54
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AGREEMENT AND PLAN OF MERGER
This AGREEMENT AND PLAN OF MERGER (this "Agreement") is made and entered
into as of April 3, 2006 by and among Smith Micro Software, Inc., a Delaware
corporation ("Acquiror"), Tag Acquisition Corporation, a Delaware corporation
and a wholly owned subsidiary of Acquiror ("Merger Sub"), and Tag Acquisition
Corporation II, a Delaware corporation and wholly owned subsidiary of Acquiror
(the "Merger Sub II"), Photags, Inc., a Delaware corporation (the "Company"),
Harry Fox, as Stockholders' Agent, and each of the Principal Stockholders listed
on the signature page hereto. Certain capitalized terms used in this Agreement
are defined in Exhibit A hereto.
RECITALS
WHEREAS, the Boards of Directors, or a duly authorized committee thereof,
of Acquiror, Merger Sub, Merger Sub II and the Company have each determined that
the acquisition of the Company by Acquiror through the statutory merger of
Merger Sub with and into the Company and upon consummation thereof, the
statutory merger of the Company with and into Merger Sub II (the "Merger") is in
the best interests of their respective companies and stockholders and presents
an opportunity for their respective companies to achieve long-term strategic and
financial benefits, and accordingly have approved and adopted this Agreement and
approved the transactions contemplated by this Agreement;
WHEREAS, the Boards of Directors of Merger Sub, Merger Sub II and the
Company have determined to recommend that the sole stockholder of Merger Sub and
Merger Sub II and the stockholders of the Company adopt and approve this
Agreement and approve the Merger and the transactions contemplated by this
Agreement;
WHEREAS, pursuant to the Merger, among other things, and subject to the
terms and conditions of this Agreement, all of the capital stock of the Company
shall be converted into the right to receive the consideration set forth in
Section 3.1(b) hereof;
WHEREAS, a portion of the consideration otherwise payable by Acquiror in
connection with the Merger shall be placed in escrow by Acquiror as security for
the indemnification obligations set forth in this Agreement;
WHEREAS, immediately after the Effective Time, the Company, as a wholly
owned subsidiary of Acquiror, will be merged (the "Second Step Merger") with and
into Merger Sub II.
WHEREAS, for federal income tax purposes, it is intended that the Merger,
considered together with the Second Step Merger, shall qualify as a
"reorganization" within the meaning of Section 368(a) of the Code, and this
Agreement shall constitute a plan of reorganization pursuant to Section 368 of
the Code, and each of the Company, Merger Sub and Merger Sub II will be a "party
to a reorganization" within the meaning of Section 368 of the Code.
WHEREAS, the Company and the Principal Stockholders, on the one hand, and
Acquiror and Merger Sub, on the other hand, desire to make certain
representations, warranties, covenants and other agreements in connection with
the Merger; and
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WHEREAS, in connection with the Merger, the board of directors and
shareholders of each of Advanced Strategies Corp., a New York corporation ("ASC
USA") and Advanced Strategies Israel, a company organized under the laws of the
State of Israel and a wholly owned subsidiary of ASC USA ("ASC Israel"), desire
to grant to Acquiror an option to acquire CDI, a company organized under the
laws of the state of Israel and wholly owned subsidiary of ASC USA ("CDI"), for
a period of ten (10) years following the Effective Time.
NOW, THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants and agreements set forth herein, the
parties hereto agree as follows:
ARTICLE 1
THE MERGER
1.1 The Merger.
(a) First Step. Subject to the terms and conditions of this Agreement
and the applicable provisions of the General Corporation Law of the State of
Delaware (the "DGCL"), at the Effective Time (as defined in Section 1.2 hereof),
Merger Sub shall be merged with and into the Company, which shall be the
surviving corporation in the Merger, and the separate existence of Merger Sub
shall thereupon cease. Without limiting the generality of the foregoing, at the
Effective Time, all property, rights, powers, privileges and franchises of the
Company and Merger Sub shall vest in the Surviving Corporation, and all debts,
liabilities and duties of the Company and Merger Sub shall become the debts,
liabilities and duties of the surviving corporation. Immediately following the
Effective Time, the surviving corporation shall be a wholly owned subsidiary of
Acquiror.
(b) Second Step. Immediately following the Effective Time, Acquiror
shall cause the Company, as the surviving corporation and wholly owned
subsidiary of Acquiror, to be merged with and into the Merger Sub II in a Second
Step Merger. There will be no conditions to the closing of the Second Step
Merger other than the closing of the Merger. Following the Second Step Merger,
the separate existence of the Company will cease and the Merger Sub II will
continue as the surviving corporation of the Second Step Merger (the "Surviving
Corporation") under the name "Photags, Inc." Upon the consummation of the Second
Step Merger, all property, rights, powers, privileges, and franchises of the
Company and the Merger Sub II will vest in the Surviving Corporation, and all
liabilities and duties of the Company and the Merger Sub II will become the
liabilities and duties of the Surviving Corporation.
1.2 Closing; Effective Time. The closing of the transactions contemplated
by this Agreement (the "Closing") shall take place at the offices of Morrison &
Foerster LLP, 555 West Fifth Street, Suite 3500, Los Angeles, California 90013,
one (1) business day following the satisfaction of the conditions to Closing set
forth in Article 8 (the "Closing Date"). In connection with the Closing, the
parties hereto shall cause the Merger to be consummated by duly filing a
properly executed certificate of merger, in the form attached hereto as Exhibit
B (the "Certificate of Merger"), with the Secretary of State of the State of
Delaware, in accordance with the relevant provisions of the DGCL. The Second
Step Merger shall become effective upon the filing of an appropriate certificate
of merger with the Secretary of State of the State of
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Delaware (the "Certificate of Merger II") in accordance with the relevant
provisions of the DGCL, which filing shall be made by Acquiror on behalf of the
Company and the Merger Sub II immediately after the Effective Time. When used in
this Agreement, the term "Effective Time" shall mean the date and time at which
the Certificate of Merger has been accepted for filing by the Secretary of State
of the State of Delaware or at such later time as is provided in the Certificate
of Merger.
ARTICLE 2
THE SURVIVING CORPORATION
2.1 Certificate of Incorporation. The certificate of incorporation of
Merger Sub immediately prior to the Effective Time shall be the certificate of
incorporation of the Surviving Corporation from and after the Effective Time;
provided, however, that at the Effective Time, Article I of the certificate of
incorporation of the Surviving Corporation shall be amended and restated in its
entirety to read as follows: "The name of the corporation is Photags, Inc."
2.2 Bylaws. The bylaws of the Merger Sub in effect immediately prior to the
Effective Time shall be the bylaws of the Surviving Corporation from and after
the Effective Time.
2.3 Directors and Officers of Surviving Corporation. The directors and
officers of the Company shall resign effective as of the Effective Time. The
directors of Merger Sub immediately prior to the Effective Time shall be the
initial directors of the Surviving Corporation, each to hold office in
accordance with the certificate of incorporation and bylaws of the Surviving
Corporation, and the officers of Merger Sub immediately prior to the Effective
Time shall be the initial and only officers of the Surviving Corporation, in
each case until their respective successors are duly elected or appointed and
qualified.
2.4 Directors and Officers of Subsidiaries of Surviving Corporation.
Directors and officers of any subsidiaries of the Company shall resign effective
as of the Effective Time. The directors of Merger Sub immediately prior to the
Effective Time shall be the initial directors of any subsidiary of the Surviving
Corporation, each to hold office in accordance with the provisions of the laws
of the respective jurisdiction of organization and the respective certificate of
incorporation and bylaws of the Surviving Corporation or equivalent
organizational documents of each such subsidiary, and the officers of Merger Sub
immediately prior to the Effective Time shall be the initial and only officers
of any subsidiary of the Surviving Corporation, in each case until their
respective successors are duly elected or appointed and qualified.
ARTICLE 3
EFFECT OF MERGER ON CAPITAL STOCK
3.1 Effect of Merger on Capital Stock.
(a) For purposes of this Agreement, the following terms shall have the
following respective meanings:
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(i) "Adjustment Amount" shall mean, as of the Closing Date: the
sum of (A) the Excess Third Party Expenses (defined in Section 3.9) and (B)
liabilities of the Company exceeding $2,000,000 as of the Closing Date
(including, without limitation, any liabilities for Company Debt and Company
Severance and Release Payments). The Company shall provide a complete accounting
of the Adjustment Amount as set forth on Schedule 3.1(a)(i) hereof to Acquiror
within five (5) business days prior to the Closing.
(ii) "Company Debt" shall mean the amount of any principal,
interest, penalties or other payments accrued as of the Closing Date.
(iii) "Company Severance and Release Payments" shall mean any
payments to employees of the Company or any of its subsidiaries for agreed
severance or bonuses in connection with the Merger listed on Schedule
3.1(a)(iii) hereof.
(iv) "Initial Consideration" shall mean that number of shares of
the Common Stock of the Acquiror ("Acquiror Common Stock") having an aggregate
Fair Market Value equal to $4,000,000 minus the Adjustment Amount.
(b) At the Effective Time, by virtue of the Merger and without any
action on the part of Merger Sub, the Company or any of the Company
Stockholders, each outstanding share of Company Stock shall be cancelled and
extinguished and, subject to the terms conditions contained in this Agreement,
including, without limitation, the escrow provisions set forth in Section 3.4
and Article 9 hereof, be converted automatically into the right to receive, upon
surrender of certificates representing shares of Company Stock (the
"Certificates"), such portion of the Initial Consideration, if any, as follows:
(i) that number of Acquiror Common Stock equal to the Share
Exchange Ratio, and
(ii) a right to receive the Earn-Out Share Exchange Ratio.
(c) The number of shares of Acquiror Common Stock each Company
Stockholder is entitled to receive for the shares of Company Common Stock held
by such Company Stockholder shall be rounded up or down to the nearest whole
share and computed after aggregating all shares of Company Common Stock held by
such Company Stockholder.
(d) The Company, Acquiror and the Surviving Corporation, shall be
entitled to deduct and withhold from any consideration payable or otherwise
deliverable pursuant to this Agreement to any holder or former holder of Company
Stock such amounts as may be required to be deducted or withheld therefrom under
any provision of federal, state, local or foreign tax law or under any other
applicable legal requirement. To the extent such amounts are properly deducted
or withheld, such amounts shall be treated for all purposes under this Agreement
as having been paid to the person to whom such amounts would otherwise have been
paid.
(e) Notwithstanding anything in this Agreement to the contrary, to the
extent that the Acquiror reasonably determines, that any amount of the
consideration payable or otherwise deliverable to any person under this
Agreement could be treated for applicable tax purposes as compensation or a
payment for services, as a condition to payment of such
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consideration, the intended recipient shall either (i) pay Acquiror in cash the
full amount that Acquiror determines to withhold with respect to Taxes or (ii)
make an alternative arrangement for such withholding that is reasonably
acceptable to Acquiror.
(f) In the event that any Company Stockholder has outstanding loans
from the Company as of the Effective Time, the amount of Initial Consideration
payable to such Company Stockholder pursuant to this Section 3.1 shall be
reduced by an amount equal to the outstanding principal plus accrued interest of
such Company Stockholder's loans as of the Effective Time. Such loans shall be
satisfied as to the amount by which the consideration is reduced pursuant to
this Section 3.1(f).
(g) No Company Stock Options shall be assumed by Acquiror, and the
Company agrees to take all action necessary to effect the termination of all
Company Stock Options at, or prior to, the Effective Time in accordance with
their terms, including but not limited to, the giving of any notice required
under any agreements relating to the Company Stock Options. Any acceleration of
vesting of any Company Stock Options or any lapse of repurchase rights of any
shares of Company Stock as a result of the transactions contemplated by this
Agreement shall be set forth in Section 4.3(d) of the Company Disclosure
Schedule. At the Effective Time, the Company agrees to effect the termination of
the Company's Stock Incentive Plan, if any. No outstanding Company Warrants or
Company Notes shall be assumed by Acquiror, and the Company agrees to take all
action necessary to arrange for each of the Company Warrants and Notes to be
exercised or cancelled and extinguished at, or prior to, the Effective Time,
including, but not limited to, the giving of any notice required under any
agreements relating to the Company Warrants or Notes.
(h) At the Effective Time, all shares of Company Stock that are owned
by Company as treasury stock and each share of Company Stock owned by any direct
or indirect wholly owned subsidiary of Company shall be canceled and
extinguished without any rights to conversion thereof and no consideration shall
be delivered in exchange therefore. At the Effective Time, any shares of Company
Stock that are owned by Acquiror, Merger Sub or any other wholly owned
subsidiary of Acquiror shall be canceled and retired and extinguished without
any conversion thereof and no consideration shall be delivered in exchange
therefor.
(i) At the Effective Time, by virtue of the Merger and without any
action on the part of the holder thereof, each share of the common stock, $0.001
par value per share, of Merger Sub that is issued and outstanding immediately
prior to the Effective Time shall be converted into and continue as one share of
the common stock of the Surviving Corporation.
3.2 Dissenting Shares.
(a) Notwithstanding any other provisions of this Agreement to the
contrary, any shares of Company Stock held by a holder who has not effectively
withdrawn or lost such holder's dissenters' rights under Section 242 of the DGCL
(the "Dissenting Shares") shall not be converted into or represent a right to
receive that portion of the Initial Consideration for Company Stock set forth in
Section 3.1(b) hereof, but the holder thereof shall only be entitled to such
rights as are provided by the DGCL.
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(b) Notwithstanding the provisions of Section 3.2(a) hereof, if any
holder of Dissenting Shares shall effectively withdraw or lose (through failure
to perfect or otherwise) such holder's dissenters' rights under DGCL, then, as
of the later of the Effective Time and the occurrence of such event, such
holder's shares shall automatically be cancelled, extinguished and represent
only the right to receive that portion of the Initial Consideration and Earn-Out
Payment, if any, as set forth in Sections 3.1(b) and 3.3 hereof, without
interest thereon, and subject to the escrow provisions of Article 9 hereof, upon
surrender of the certificate representing such shares.
(c) The Company shall give Acquiror (i) prompt notice of any written
demand for appraisal received by the Company pursuant to DGCL, and (ii) the
opportunity to participate in all negotiations and proceedings with respect to
such demands. The Company shall not, except with the prior written consent of
Acquiror, voluntarily make any payment with respect to any such demands or offer
to settle or settle any such demands. Notwithstanding the foregoing, to the
extent that Acquiror or the Company (A) makes any payment or payments in respect
of any Dissenting Shares in excess of the consideration that otherwise would
have been payable in respect of such shares in accordance with this Agreement or
(B) incurs any other costs or expenses, (including specifically, but without
limitation, attorneys' fees, costs and expenses in connection with any action or
proceeding or in connection with any investigation) in respect of any Dissenting
Shares (excluding payments for such shares) (together "Dissenting Share
Payments"), Acquiror shall be entitled to recover, subject to the terms of
Article 9 hereof, the amount of such Dissenting Share Payments.
3.3 Earn-Out.
(a) Earn-Out Payment. In addition to the Initial Consideration, Merger
Sub and the Acquiror agree to pay, as set forth below, if and when earned, an
earned payout amount (the "Earn-Out Payment") equal to shares of Acquiror Common
Stock having a Fair Market Value equal to $3,500,000 (subject to adjustment as
set forth below) (the "Earn-Out Shares") if the Net Product Revenues during the
fifteen (15) month period commencing on April 1, 2006 and ending June 30, 2007
(the "Earn-Out Period") equals or exceeds $4,200,000 (the "Target Revenue"). In
the event that the Target Revenue is less than $4,200,000, then the Earn-Out
Payment shall be reduced by the same percentage that the actual Net Product
Revenue (the "Actual Revenue") is less than the Target Revenue; provided,
however if the Actual Revenue is less than $1,200,000 then the Earn-Out Payment
shall be reduced to zero (0). In addition, the Earn-Out Payment will be reduced
dollar for dollar for expenses that exceed the expense budget for the Earn-Out
Period as agreed upon by Acquiror and the Company. In no event shall the
Earn-Out Payment exceed $3,500,000. The Earn-Out Shares shall be issued by the
Acquiror within fifteen (15) days of the determination that the Target Revenue
amount has been achieved, whether or not fifteen (15) months shall have passed
from April 1, 2006. Subject to the condition that the Stockholders' Agent
provides Acquiror with written evidence that within thirty (30) days of the
Closing Date 100% of the unanimous written consent of the Company Stockholders
authorized the following allocation of the Earn-Out Payment, if any: (A) the
first $875,000 of Earn-Out Shares, if any, shall be paid to the Company
Stockholders, and (B) the remaining balance, if any, of the $3,500,000 of
Earn-Out Shares or such lessor amount, if any, shall be paid to an escrow
account to be established by the Company's current management. In
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the event written evidence of such authorization is not provided, the Earn-Out
Payment shall be paid to the Company's Stockholders.
(b) Sale of Business; Change-in-Control of Acquiror In the event that,
during the Earn-Out Period, Acquiror sells or disposes of the Surviving
Corporation or substantially all of the assets of its business that sells the
Company Products ( a "Business Sale"), then, for purposes of calculating the
Earn-Out Payment set forth in Section 3.3(a) above, the Net Product Revenues
shall be based deemed to equal to the Target Revenue on the actual Net Product
Revenues for the period from April 1, 2006 through the closing date of the
Business Sale, as annualized for a fifteen month period and the Earn-Out Payment
shall be paid in full.
(c) Date and Form of Earn-Out Payment. A computation of the Net
Product Revenues for the Earn-Out Period shall be prepared by Acquiror in the
form of a report (the "Earn-Out Report") and delivered to the Stockholders'
Agent and delivered within fifteen (15) business days following such time that
the Acquiror's audit review for the period ended June 30, 2007 has been
completed by the Acquiror's auditors. Upon the earlier of (i) two (2) business
days after the failure of Stockholders' Agent to notify Acquiror in writing of a
dispute with the Earn-Out Payment within ten (10) calendar days of the delivery
of the Earn-Out Report to the Stockholders' Agent, (ii) the resolution of all
disputes, pursuant to Section 3.3(d), by Acquiror and Stockholders' Agent, and
(iii) the resolution of all disputes, pursuant to Section 3.3(d), by an
independent accounting firm mutually acceptable to Acquiror and the Company
Stockholders (the "Independent Accounting Firm").
(d) Resolution of Disputes. Stockholders' Agent may dispute the
Earn-Out Report by delivery of a written notice to Acquiror (the "Earn-Out
Payment Disagreement Notice") within ten (10) calendar days of receiving the
Earn-Out Report. If Stockholders' Agent delivers an Earn-Out Payment
Disagreement Notice to Acquiror, Acquiror and Stockholders' Agent shall attempt
to reconcile the parties' differences, and any resolution by them as to any
disputed amounts shall be final, binding and conclusive on the parties. If
Acquiror and Stockholders' Agent are unable to reach a resolution within fifteen
(15) days after the delivery of the Earn-Out Payment Disagreement Notice,
Acquiror and Stockholders' Agent shall submit their respective determinations
and calculations and the items remaining in dispute for resolution to an
Independent Accounting Firm mutually acceptable to both parties. The parties
shall cause the Independent Accounting Firm to submit a report to Acquiror and
Stockholders' Agent with a determination regarding the remaining disputed items,
within thirty (30) days after submission of the matter, and such report shall be
final, binding and conclusive on Acquiror and Stockholders' Agent. The fees,
costs and expenses of the Independent Accounting Firm shall be paid by Acquiror
and Stockholders' Agent in the same proportion that the aggregate amount of such
remaining disputed items so submitted to the Independent Accounting Firm that is
unsuccessfully disputed by each such party as finally determined by the
Independent Accounting bears to the total amount of such remaining disputed
items.
3.4 Escrowed Shares. Acquiror will withhold from delivery shares of
Acquiror Common Stock having an aggregate Fair Market Value at Closing of no
more than $1,000,000 (the "Escrowed Shares") from the Initial Consideration that
would otherwise be delivered at Closing to the Company Stockholders pursuant to
this Agreement, and will deliver such Escrowed Shares to the Escrow Agent as
security for the Company Indemnification Obligations under Article 9.
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3.5 Surrender of Certificates.
(a) On or after the Closing Date (but in no event later than eight (8)
business days after the Effective Time), Acquiror shall mail a letter of
transmittal (the "Letter of Transmittal") to each Company Stockholder at the
address set forth opposite each such Company Stockholder's name on the
Spreadsheet (as defined in Section 7.5 hereof). After receipt of such Letter of
Transmittal, the Company Stockholders will surrender the certificates
representing their shares of Company Stock for cancellation together with a duly
completed and countersigned Letter of Transmittal. Upon surrender of a stock
certificate representing shares of the Company Stock for cancellation together
with such Letter of Transmittal, duly completed and validly executed in
accordance with the instructions thereto, the holder of such stock certificate
shall be entitled to receive in exchange therefor the amount of the Initial
Consideration, less the Escrowed Shares, to which such holder is entitled
pursuant to Section 3.1(b) hereof, and all stock certificates so surrendered
shall be cancelled. Until so surrendered, each stock certificate representing
shares of Company Stock outstanding after the Effective Time will be deemed from
and for all corporate purposes thereafter, to evidence only the right to receive
the portion of the Initial Consideration for which such shares of Company Stock
shall have been so exchanged. No payments of any portion of the Initial
Consideration will be made until the holder of Company Stock surrenders his, her
or its stock certificate(s) pursuant hereto.
(b) If any portion of the Initial Consideration is to be paid to a
Person with a name other than that in which the Company Stock certificate
surrendered in exchange therefor is registered, it will be a condition of such
payment that the certificate so surrendered will be properly endorsed and
otherwise in proper form for transfer and that the Person requesting such
exchange will have paid to Acquiror or any agent designated by it any transfer
or other taxes required by reason of the payment of any portion of the Initial
Consideration in any name other than that of the registered holder of the
certificate surrendered, or established to the satisfaction of Acquiror or any
agent designated by it that such tax has been paid or is not payable.
(c) Notwithstanding anything to the contrary in this Section 3.5,
neither the Acquiror, the Surviving Corporation, nor any party hereto shall be
liable to a holder of shares of Company Stock for any amount properly paid to a
public official pursuant to any applicable abandoned property, escheat or
similar law.
3.6 No Further Ownership Rights in Company Stock. The payment of the
Initial Consideration paid in respect of the surrender for exchange of shares of
Company Stock in accordance with the terms hereof and the right to receipt of
the Earn-Out Payment, if any, shall be deemed to be full satisfaction of all
rights pertaining to such shares of Company Stock, and there shall be no further
registration of transfers on the records of the Surviving Corporation of shares
of Company Stock which were outstanding immediately prior to the Effective Time.
If, after the Effective Time, any stock certificates representing shares of
Company Stock are presented to the Surviving Corporation for any reason, they
shall be cancelled and exchanged as provided in this Article 3.
8
3.7 Lost, Stolen or Destroyed Certificates. In the event any certificates
evidencing shares of Company Stock shall have been lost, stolen or destroyed,
Acquiror shall pay in exchange for such lost, stolen or destroyed certificates,
upon the making of an affidavit of that fact by the holder thereof, such amount
of Initial Consideration, if any, as may be required pursuant to Section 3.1(b)
hereof; provided, however, that Acquiror may, in its discretion and as a
condition precedent to such payment, require the Company Stockholder who is the
owner of such lost, stolen or destroyed certificates to either (a) deliver a
bond in such amount as it may reasonably direct or (b) provide an
indemnification agreement in a form and substance acceptable to Acquiror,
against any claim that may be made against Acquiror with respect to the
certificates alleged to have been lost, stolen or destroyed.
3.8 Taking of Necessary Action; Further Action. If at any time after the
Effective Time, any further action is necessary or desirable to carry out the
purposes of this Agreement and to vest the Surviving Corporation with full
right, title and possession to all assets, property, rights, privileges, powers
and franchises of the Company, Acquiror, Merger Sub, and the officers and
directors of the Company, Acquiror and Merger Sub are fully authorized in the
name of their respective corporations or otherwise to take, and will take, all
such lawful and necessary action.
3.9 Fees and Expenses.
All costs and expenses incurred in connection with this Agreement and the
transactions contemplated hereby, including the fees and disbursements of
counsel, financial advisors and accountants (the "Third Party Expenses"), shall
be paid by the party incurring such costs and expenses, whether or not the
Merger is consummated. Notwithstanding the foregoing, the Acquiror shall pay the
Third Party Expenses of the Company not to exceed $50,000 at the Closing. Any
Estimated Third Party Expenses in excess of $50,000 at Closing shall be
considered "Excess Third Party Expenses." "Estimated Third Party Expenses" shall
mean the amount of Third Party Expenses payable by the Company estimated as of
the Closing Date by the Company in good faith and based on reasonable
assumptions.
3.10 Tax Treatment of Escrowed Shares and Earn-Out. The Acquiror shall
determine the Tax treatment of any payment or delivery of the Escrowed Shares or
the Earn-Out Shares, including the portion of any such Escrowed Shares or the
Earn-Out Shares which shall constitute interest for Tax purposes, and the
parties hereto shall, for all Tax purposes, report in a manner consistent with
the Acquiror's determination.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND
THE PRINCIPAL STOCKHOLDERS
Except as specifically set forth in the disclosure schedule delivered by
the Company and the Principal Stockholders to Acquiror at or prior to the
execution of this Agreement and dated as of the date hereof (the "Company
Disclosure Schedule"), the parts of which are numbered to correspond to the
Section numbers of this Agreement, the Company and, severally and not jointly,
to the best of their Knowledge, each of the Principal Stockholders (except for
Au Sai Chuen, a stockholder of the Company), hereby represent and warrant to
Acquiror and Merger Sub on the date hereof, as follows:
9
4.1 Due Organization; Good Standing; Authority; Binding Nature of
Agreements.
(a) The Company is a corporation duly organized, validly existing and
in good standing under the laws of the State of Delaware, and has all necessary
corporate power and authority: (i) to conduct its business in the manner in
which its business is currently being conducted and in the manner in which its
business is proposed to be conducted; (ii) to own and use its assets in the
manner in which its assets are currently owned and used and in the manner in
which its assets are proposed to be owned and used; (iii) to perform its
obligations under all Company Contracts; and (iv) to enter into and perform all
of its obligations under the Transactional Agreements.
(b) The Company has never conducted any business under or otherwise
used, for any purpose or in any jurisdiction, any fictitious name, assumed name,
trade name or name other than the name set forth in its certificate of
incorporation, as amended.
(c) The Company is duly qualified and in good standing (as
appropriate) as a foreign corporation in each of the jurisdictions in which the
nature of its business or the ownership or leasing of its properties requires
such qualification, except where the failure to so qualify and be in good
standing would not have a Company Material Adverse Effect. Section 4.1(c) of the
Company Disclosure Schedule sets forth a true and complete list of each
jurisdiction in which the Company has an officer or a paid representative
(employee or consultant) or owns or leases property and of each jurisdiction in
which the Company is qualified to do business.
(d) Neither the Company nor any of its stockholders has ever approved,
or commenced any proceeding or made any election contemplating, the dissolution
or liquidation of the Company or the winding up or cessation of the Company's
business or affairs.
(e) The execution, delivery and performance of the Transactional
Agreements have been duly authorized by all necessary action on the part of the
Company, its board of directors and the stockholders holding a majority of the
outstanding shares of Company Common Stock.
(f) Each of the Transactional Agreements constitutes the legal, valid
and binding obligation of the Company, enforceable against the Company in
accordance with its terms and conditions, subject to (i) bankruptcy, insolvency,
reorganization, arrangement, moratorium and other similar laws of general
applicability relating to or affecting creditors' rights generally, and (ii)
general principles of equity.
4.2 Certificate of Incorporation and Bylaws; Records.
(a) The Company has delivered to Acquiror accurate and complete copies
of: (i) the certificate of incorporation, as amended to date, and bylaws, as
amended to date, and other charter documents, each in full force and effect on
the date hereof, including all amendments thereto, of the Company; (ii) the
stock records of the Company; and (iii) the minutes and other records of the
meetings and other proceedings (including any actions taken by written consent
or otherwise without a meeting) of the stockholders and the board of directors
of the Company, and any predecessor thereto. There have been no meetings or
other proceedings of the stockholders
10
or the board of directors of the Company, and any predecessor thereto, that are
not reflected in such minutes or other records.
(b) There has not been any violation of any of the provisions of the
Company's charter documents or of any resolutions adopted by the stockholders or
the board of directors of the Company, and any predecessor thereto, and to the
Knowledge of the Company, no event has occurred, and no condition or
circumstance exists, that likely would (with or without notice or lapse of time)
constitute or result directly or indirectly in such a violation.
(c) The minute books of the Company (copies of which have been
provided to Acquiror) are accurate, up to date and complete in all respects, and
such minute books of the Company, and any predecessor thereto, are in the actual
possession and direct control of the Company.
4.3 Capitalization; Ownership of Stock. Immediately prior to the Effective
Time:
(a) The authorized capital stock of the Company consists of 2,000,000
shares of Company Common Stock, of which 1,140,000 shares are issued and
outstanding. As of the date hereof, the capitalization of the Company and the
names of the holders thereof are set forth in Section 4.3(a) of the Company
Disclosure Schedule. All shares of Company Stock are owned of record by the
Company Stockholders free and clear of any Encumbrances imposed by the Company.
(b) All of the shares of Company Stock currently outstanding (i) have
been duly authorized and validly issued, (ii) are fully paid and nonassessable,
and (iii) have been issued in full compliance with all applicable securities
laws and other applicable Legal Requirements.
(c) Section 4.3(c) of the Company Disclosure Schedule contains a list
of equity incentive plans that are currently in effect. There is no (i)
outstanding preemptive right, subscription, option, call, warrant or right
(whether or not currently exercisable) to acquire any shares of the capital
stock or other securities of the Company or any of its subsidiaries; (ii)
outstanding security, instrument or obligation that is or may become convertible
into or exchangeable for any shares of the capital stock or other securities of
the Company or any of its subsidiaries; (iii) Contract under which the Company
is or may become obligated to sell or otherwise issue any shares of its capital
stock or any other securities; or (iv) condition or circumstance that likely
would directly or indirectly give rise to or provide a basis for the assertion
of a claim by any Person to the effect that such Person is entitled to acquire
or receive any shares of capital stock or other securities of the Company. All
issued and outstanding options to purchase equity securities have been offered,
sold and delivered by the Company in compliance with all applicable securities
laws and other Legal Requirements.
(d) Section 4.3(d) of the Company Disclosure Schedule sets forth for
all holders of Company Stock Options or Company Stock that is subject to
acceleration as a result of the transactions contemplated by this Agreement or
any other events, (i) the name of the holder of such Company Stock Options or
Company Stock, (ii) the exercise price of Company Stock Options and the
repurchase price of Company Stock, (iii) the vesting commencement date
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and vesting terms of such Company Stock Options and the date of purchase and
vesting terms of Company Stock, (iv) the number of shares of such Company Stock
Options or Company Stock that will accelerate as a result of the transactions
contemplated by this Agreement or any other events and (v) a complete
description of any acceleration provisions.
(e) Since incorporation, the Company has not repurchased, redeemed or
otherwise reacquired, and has not agreed, committed or offered (in writing or
otherwise) to reacquire, any shares of Company Stock or other securities. Any
securities reacquired by the Company were (or will have been) reacquired in full
compliance with the applicable provisions of all applicable Legal Requirements.
(f) The allocation of the Initial Consideration and Earn-Out Payment,
if any, set forth in Sections 3.1(b) and 3.3 hereof is consistent with the
certificate of incorporation of the Company in effect immediately prior to the
Effective Time.
4.4 Subsidiaries. Section 4.4(a) of the Company Disclosure Schedule lists
each entity in which the Company owns any shares of capital stock or any
interest in, or controls, directly or indirectly, any other corporation, limited
liability company, partnership, association, joint venture or other business
entity. Section 4.4(b) of the Company Disclosure Schedule lists each
corporation, limited liability company, partnership, association, joint venture
or other business entity of which the Company owns, directly or indirectly, more
than 50% of the stock or other equity interest entitled to vote on the election
of the members of the board of directors or similar governing body. Other than
the subsidiaries, the Company does not have and has never had any subsidiaries
or affiliated companies and does not otherwise own and has never otherwise owned
any shares of capital stock or any interest in, or control, directly or
indirectly, any other corporation, limited liability company, partnership,
association, joint venture or other business entity. Each entity listed on
Section 4.4(a) of the Company Disclosure Schedule that is no longer in existence
has been duly dissolved in accordance with its charter documents and the laws of
the jurisdiction of its incorporation or organization and there are no
outstanding liabilities or obligations (outstanding, contingent or otherwise),
including taxes, with respect to any such entity. Each subsidiary is a
corporation duly organized, validly existing and in good standing under the laws
of the jurisdiction of its incorporation or organization. Each subsidiary has
the corporate power to own its properties and to carry on its business as
currently conducted and as currently contemplated to be conducted. Each
subsidiary is duly qualified or licensed to do business and in good standing as
a foreign corporation in each jurisdiction in which the character or location of
its assets or properties (whether owned, leased or licensed) or the nature of
its business make such qualifications necessary. A true and correct copy of each
subsidiary's charter documents and bylaws, each as amended to date and in full
force and effect on the date hereof, has been delivered to Acquiror. Section
4.4(c) of the Company Disclosure Schedule lists the directors and officers of
each subsidiary as of the date of this Agreement. The operations now being
conducted by each subsidiary are not now and have never been conducted under any
other name. All of the outstanding shares of capital stock of each subsidiary
are owned of record and beneficially by the Company. All outstanding shares of
stock of each subsidiary are duly authorized, validly issued, fully paid and
non-assessable and not subject to preemptive rights created by statute, the
charter documents or bylaws of such subsidiary, or any agreement to which such
subsidiary is a party or by which it is bound, and have been issued in
compliance with all applicable legal requirements. There are no options,
warrants, calls, rights,
12
commitments or agreements of any character, written or oral, to which any
subsidiary is a party or by which it is bound obligating the subsidiary to
issue, deliver, sell, repurchase or redeem, or cause to be issued, sold,
repurchased or redeemed, any shares of the capital stock of such subsidiary or
obligating such subsidiary to grant, extend, accelerate the vesting of, change
the price of, otherwise amend or enter into any such option, warrant, call
right, commitment or agreement. There is no outstanding or authorized stock
appreciation, phantom stock, profit participation, or other similar rights with
respect to any of the subsidiaries. Neither the Company nor any subsidiary has
agreed or is obligated to make any future investment in or capital contribution
to any Person.
4.5 Financial Statements.
(a) The Company has delivered to Acquiror the following financial
statements and notes (collectively, the "Financial Statements"), which are
attached hereto as Schedule 4.5(a):
(i) the audited consolidated balance sheet, income statement and
statement of cash flows of the Company and its subsidiaries at and for the year
ended December 31, 2005; and
(ii) the unaudited consolidated balance sheet, income statement
and statement of cash flows of the Company and its subsidiaries for the quarter
period ended March 31, 2006 (the "Unaudited Interim Balance Sheet").
(b) Subject to the representations made in this Section 4.5, all of
the Financial Statements are accurate and complete in all material respects. The
Financial Statements are in accordance with the books and records of the
Company, present fairly the consolidated financial condition and operating
results of the Company as of the dates, and for the periods, indicated therein,
and have been prepared in conformity with GAAP, subject, in the case of the
unaudited consolidated financial statements, to normal recurring year-end
adjustments, the effect of which will not be material to the consolidated
financial condition or operating results of the Company.
(c) At the date of the Unaudited Interim Balance Sheet, (i) neither
the Company nor any of its subsidiaries had any Liabilities of any nature
required by GAAP to be provided for in such Unaudited Interim Balance Sheet
which were not provided for, (ii) neither the Company nor any of its
subsidiaries had any Liabilities of any nature which were not required by GAAP
to be provided for in the Unaudited Interim Balance Sheet, and (iii) all
reserves established by the Company and its subsidiaries and set forth in the
Unaudited Interim Balance Sheet were adequate in all material respects for the
purposes for which they were established.
(d) Neither the Company nor any of its subsidiaries has any
Liabilities in excess of $10,000 individually or $25,000 in the aggregate,
except for (i) Liabilities identified as such in the "liabilities" column of the
Unaudited Interim Balance Sheet; (ii) accounts payable incurred and accrued by
the Company or any of its subsidiaries in the Ordinary Course of Business since
the date of the Unaudited Interim Balance Sheet; (iii) Company Debt, (iv) and
13
those Liabilities incurred in connection with the execution of and performance
under this Agreement.
4.6 Absence of Changes. Since the date of the Unaudited Interim Balance
Sheet, there has not been, occurred or arisen any:
(a) transaction by the Company or any of its subsidiaries except in
the ordinary course of business as conducted on that date and consistent with
past practices;
(b) event or condition of any character that has had or is reasonably
likely to have a Company Material Adverse Effect;
(c) material loss, damage or destruction to any of the Company's
assets or any of its subsidiaries' assets not covered by insurance;
(d) (i) declaration, accruement, setting aside or payment of any
dividend or making any other distribution in respect of any shares of capital
stock of the Company or any of its subsidiaries, or (ii) repurchase, redemption
or other acquisition of any shares of capital stock or other securities of the
Company or any of its subsidiaries, except for the repurchase of shares of
Company Common Stock from employees, officers, directors, consultants or other
persons performing services for the Company pursuant to agreements under which
the Company has the option to repurchase such shares at cost upon the occurrence
of certain events, such as the termination of employment, which repurchases are
reflected on Section 4.3(e) of the Company Disclosure Schedule;
(e) sale or other issuance of any shares of Company Stock or any other
securities of the Company or any of its subsidiaries;
(f) modifications, amendments or changes to the certificate of
incorporation or bylaws, other charter documents or organizational documents of
the Company or any of its subsidiaries, and neither the Company nor any of its
subsidiaries has effected or been a party to any recapitalization,
reclassification of shares, stock split, reverse stock split or similar
transaction;
(g) purchased or other acquisition any asset from any other Person by
the Company or any of its subsidiaries;
(h) lease or license of any asset from any other Person by the Company
or any of its subsidiaries;
(i) individual capital expenditures by the Company or any of its
subsidiaries;
(j) sale or other transfer, lease or license of any asset to any other
Person by the Company or any of its subsidiaries;
(k) writing off as uncollectible, or establishment any reserve with
respect to, any account receivable or other indebtedness of the Company or any
of its subsidiaries;
14
(l) pledge or hypothecation of any of asset of the Company or any of
its subsidiaries, and neither the Company nor any of its subsidiaries had
otherwise permitted any of its assets to become subject to any Encumbrance;
(m) loan or advance to any other Person by the Company or any of its
subsidiaries, including without limitation, any stockholder (excluding routine
advances to employees and consultants for expenses not exceeding $1,000 in any
individual case or $10,000 in the aggregate);
(n) (i) establishment or adoption of any Plan by the Company or any of
its subsidiaries or (ii) payment of any bonus or making of any profit sharing or
similar payment to, or increase the amount of the wages, salary, commissions,
fringe benefits or other compensation or remuneration payable to, any of the
directors, officers or employees of the Company and any of its subsidiaries, and
neither the Company nor any of its subsidiaries has adopted any review or
compensation policies;
(o) entering into, and neither the Company nor the assets owned or
used by the Company or any of its subsidiaries has become bound by, any
Contract;
(p) amendment or termination of any Contract by which the Company or
any of its subsidiaries, or any of the assets owned or used by the Company or
any of its subsidiaries, is or was bound, or under which the Company or any of
its subsidiaries has or had any rights or interest;
(q) borrowing or agreement to borrow by the Company or any of its
subsidiaries; change in the contingent obligations of the Company of any of its
subsidiaries by way of guaranty, endorsement, indemnity, warranty or otherwise;
or grant of a mortgage or security interest in any property of the Company or
any of its subsidiaries (other than endorsements of checks and indemnities and
warranties entered into in the Ordinary Course of Business); and neither the
Company nor any of its subsidiaries has incurred, assumed or otherwise become
subject to any Liabilities, other than Liabilities incurred by the Company or
its subsidiaries in the Ordinary Course of Business;
(r) discharge of any Encumbrance or discharge or payment of any
indebtedness or other Liability;
(s) forgiveness of any debt or otherwise the release or waiver of any
right or claim;
(t) change in any methods of accounting or accounting practices of the
Company or any of its subsidiaries in any respect (except as required by GAAP);
(u) entry into any transaction by the Company or any of its
subsidiaries or taking any other action outside the Ordinary Course of Business;
and
(v) agreement or commitment (in writing or otherwise) by the Company
or any of its subsidiaries, or any officer or employee on behalf of the company
or any of its subsidiaries, to take any of the actions referred to in clauses
(a) through (u) above.
15
4.7 Title to Assets; Equipment; Real Property, Leases.
(a) The Company and each of its subsidiaries own, and have good, valid
and marketable title to, all assets it purports to own, including (i) all assets
reflected on the Unaudited Interim Balance Sheet; (ii) all assets acquired by
the Company or any of its subsidiaries since the date of the Unaudited Interim
Balance Sheet; and (iii) all other assets reflected in the Company's books and
records as being owned by the Company or any of its subsidiaries. All of said
assets are owned by the Company or its subsidiaries free and clear of any
Encumbrances, except liens for current taxes and assessments not delinquent and
minor Encumbrances that have arisen in the Ordinary Course of Business that do
not (individually or in the aggregate) materially detract from the value of the
assets subject thereto or materially impair the operations of the Company or any
of its subsidiaries.
(b) Section 4.7(b) of the Company Disclosure Schedule identifies all
equipment, furniture, fixtures, improvements and other tangible and intangible
assets owned by or leased to the Company and its subsidiaries.
(c) To the Knowledge of the Company, each asset identified in Section
4.7(b) of the Company Disclosure Schedule (i) is free of defects and
deficiencies and in good condition and repair, consistent with its age and
intended use (ordinary wear and tear excepted); (ii) complies in all respects,
and is being operated and otherwise used in full compliance, with all applicable
Legal Requirements; and (iii) is adequate in all respects for the uses to which
it is being put.
(d) Neither the Company nor any of its subsidiaries own any real
property or any interest in real property, including any leaseholds created
under the real property leases.
(e) Section 4.7(e) of the Company Disclosure Schedule identifies all
tangible personal property assets that are being leased or licensed to the
Company or any of its subsidiaries with respect to which annual lease or license
payments exceed $10,000.
4.8 Bank Accounts. Section 4.8 of the Company Disclosure Schedule
accurately sets forth, with respect to each account maintained by or for the
benefit of the Company or any of its subsidiaries at any bank or other financial
institution:
(a) the name and location of the institution at which such account is
maintained;
(b) the name in which such account is maintained and the account
number of such account;
(c) a description of such account and the purpose for which such
account is used;
(d) the balance in such account as of the Closing Date; and
(e) the names of all individuals authorized to draw on or make
withdrawals from such account.
16
There are no safe deposit boxes or similar arrangements maintained by or for the
benefit of the Company or any of its subsidiaries.
4.9 Accounts Receivable. Section 4.9 of the Company Disclosure Schedule
sets forth an accurate and complete list of all accounts receivable existing as
of the Closing Date. Each accounts receivable is:
(a) a valid and legally binding obligation of the account debtor
enforceable in accordance with its terms, free and clear of all Encumbrances,
and not subject to any known setoffs, adverse claims, counterclaims,
assessments, defaults, prepayments, defenses, and conditions precedent;
(b) a true and correct statement of the account for merchandise
actually sold and delivered to, or for services actually performed for and
accepted by, such account debtors.
4.10 Accounts Payable. Section 4.10 of the Company Disclosure Schedule sets
forth an accurate and complete list of all accounts payable existing as of the
Closing Date. Each accounts payable is:
(a) a valid and legally binding obligation of the Company or it
subsidiaries enforceable in accordance with its terms, free and clear of all
Encumbrances, and not subject to setoffs, adverse claims, counterclaims,
assessments, defaults, prepayments, defenses, and conditions precedent; and
(b) a true and correct statement of the account for merchandise
actually purchased and delivered to, or for services actually performed for and
accepted by, the Company or its subsidiaries.
4.11 Proprietary Assets. Section 4.11(a) of the Company Disclosure
Schedule sets forth all Registered Intellectual Property Rights registered,
applied for, or filed or issued in the name of Company or any of its
subsidiaries, or otherwise owned by Company or any of its subsidiaries. No
interference, opposition, reissue, reexamination, or other similar proceeding is
pending before any Government Body in which the ownership of any such Registered
Intellectual Property Right by the Company or any of its subsidiaries, or the
scope, validity, or enforceability of any such Registered Intellectual Property
Right, is being or has been contested or challenged. The Company has no
Knowledge of any facts that would render any such Registered Intellectual
Property Right invalid or unenforceable. The Company and each of its
subsidiaries have made all filings and payments necessary to maintain all such
Proprietary Assets that are owned by the Company or any of its subsidiaries. The
Company and each of its subsidiaries have recorded in a timely manner all
assignments to the Company or any of its subsidiaries of any such Proprietary
Assets owned by the Company or any of its subsidiaries with the relevant
Government Bodies.
(b) Section 4.11(a) of the Company Disclosure Schedule sets forth each
contract or agreement pursuant to which the Company has, as of the date of this
Agreement, granted to any other Person any license under, or other right or
interest in, any Intellectual Property Rights or Technology owned or otherwise
controlled by the Company or any of its subsidiaries.
17
(c) Section 4.11(a) of the Company Disclosure Schedule sets forth each
contract or agreement pursuant to which any other Person has, as of the date of
this Agreement, granted to the Company or any of its subsidiaries any license
under, or other right or interest in, any Technology or Intellectual Property
Rights.
(d) All current and former employees, independent contractors and
consultants of the Company or each of its subsidiaries have executed a
Proprietary Information and Inventions Agreement in the form previously provided
to Acquiror. Such agreements constitute valid and binding obligations of the
Company or each of its subsidiaries and such person, fully enforceable in
accordance with their respective terms under all applicable laws. To the
Knowledge of the Company, no such employee, independent contractor or
consultants is in violation thereof. Neither the Company nor any of its
subsidiaries believe it is or will be necessary to utilize any inventions, trade
secrets or proprietary information of any employees, independent contractors or
consultants of the Company or its subsidiaries made prior to their employment or
other engagement by the Company or its subsidiaries, except for inventions,
trade secrets or proprietary information identified in Section 4.11(d) of the
Company Disclosure Schedule, which have been assigned to the Company or any of
its subsidiaries. No employee, independent contractor or consultant who has
performed services related to the Company's business or any of its subsidiaries'
business has (or upon Closing, will have) any right, title, or interest in any
Intellectual Property Rights or Technology owned by or otherwise controlled by
the Company or any of its subsidiaries or that are otherwise used in connection
with the Company's business or the business of any of its subsidiaries.
(e) The Company and each of its subsidiaries have taken reasonable
steps in accordance with normal industry practice to maintain the value and
confidentiality of and otherwise protect its rights in all of its trade secrets
and other material confidential information. To the Knowledge of Company, there
has been no misappropriation or other unauthorized use or disclosure of any such
trade secrets or other material confidential information by any other Person.
(f) Neither the Company nor any of its subsidiaries has ever provided
source code to another Person, including without limitation in connection with
any license agreement or any source code escrow, and neither the Company nor any
of its subsidiaries has ever entered into any agreement under which it is
obligated to do so in the future.
(g) Neither the operation of the Company's business or its
subsidiaries' business as currently conducted or proposed to be conducted in the
future, nor the Company's use or exploitation or any of its subsidiaries' use or
exploitation of Intellectual Property Rights or Technology in connection
therewith, violates or infringes any Intellectual Property Rights of any other
Person. Neither the Company nor any of its subsidiaries has at any time received
any notice or other communication (in writing or otherwise) of any actual,
alleged, possible or potential infringement of any Intellectual Property Right
of any other Person. To the Company's Knowledge, no Person is infringing, and no
Intellectual Property Rights or Technology owned or used by any other Person
infringes or conflicts with, any Intellectual Property Rights or Technology
owned or used by Company or any of its subsidiaries. Except for any mass market,
commercially available software provided to end user customers in the ordinary
course of business pursuant to Company's standard form of "shrinkwrap" or
"clickwrap" end user license
18
agreement, neither the Company nor any of its subsidiaries has entered into any
agreement to indemnify any other person against any charge of infringement,
misappropriation or other conflict with respect to any Proprietary Asset.
(h) There are no royalties, honoraria, fees or other payments payable
by the Company or any of its subsidiaries to any Person by reason of the
ownership, use, license, sale or disposition of any Intellectual Property Rights
or Technology owned by or otherwise controlled by the Company or any of its
subsidiaries or that are otherwise used in connection with the Company's
business or any of its subsidiaries' business.
(i) The Intellectual Property Rights and Technology owned by or
licensed to the Company and to each of its subsidiaries include all Intellectual
Property Rights and Technology necessary to conduct their business to the same
extent and in the same manner as currently conducted. Such ownership or right to
use, and to license others to use, are free and clear of, and without liability
under, all claims and right of any Person (other than the licensor, and, to the
Company's Knowledge, any claims and rights of any Person against such
licensors).
(j) All proprietary software developed by the Company any its
subsidiaries and currently sold, licensed or otherwise used by the Company or
any of its subsidiaries in their business is free from significant programming
errors, operates in substantial conformity with its user documentation and other
descriptions and standards applicable thereto provided by the Company or its
subsidiaries, and does not contain any virus, timer, clock, counter, or other
limiting design, instruction or routine, that would, without the user's
knowledge and consent, erase data or programming code or cause such software to
become inoperable or otherwise incapable of being used in the full manner for
which it was designed and created.
(k) Section 4.11(a) of the Company Disclosure Schedule lists, for each
product of Company and each of its subsidiaries (including, without limitation,
each product currently under development), all Freely Available Software (as
defined below) that (i) is incorporated in or bundled with such product, or from
which any portion of such product is derived, or (ii) is used in connection with
the development of such product. Section 4.11(a) of the Company Disclosure
Schedule also lists, for each such item of Freely Available Software, the
agreement under which such item is licensed to the Company. The terms under
which the Company has licensed any Freely Available Software do not and will not
have the effect of requiring any products of Company or any of its subsidiaries,
or any portions thereof, modifications thereto or derivative works thereof, to
be (A) disclosed or distributed in source code form, (B) licensed to other
Persons for the purpose of making derivative works or redistributing such
software, or (C) licensed or otherwise distributed to other Persons at no
charge. "Freely Available Software" means any software program(s) available
without charge for use, modification and/or distribution, including any open
source software.
4.12 Contracts.
(a) Section 4.12(a) of the Company Disclosure Schedule lists all of
the Company Contracts.
19
(b) Each Company Contract is valid and in full force and effect, and
is enforceable by the Company or any of its subsidiaries, as applicable, in
accordance with its material terms, except as enforceability may be limited by
bankruptcy and other similar laws and general principles of equity.
(c) Neither the Company nor any of its subsidiaries nor, to the
Company's Knowledge, any other party to a Company Contract is in default under
any Company Contract. No event has occurred, and, to the Company's Knowledge, no
circumstance or condition exists, that likely would (with or without notice or
lapse of time) (i) result in a violation or breach of any of the provisions of
any Company Contract, (ii) give any Person the right to declare a default or
exercise any remedy or hinder any Company Contract, (iii) give any Person the
right to accelerate the maturity or performance of any Company Contract, or (iv)
give any Person the right to cancel, terminate or modify any Company Contract
except for the passage of time. Neither the Company nor any of its subsidiaries
has waived any of its rights under any Company Contract.
(d) (i) Neither the Company nor any of its subsidiaries is a guarantor
of and has otherwise agreed to cause, insure or become liable for, and has
pledged any of its assets to secure, the performance or payment of any
obligation or other Liability of any other Person; and (ii) neither the Company
nor any of its subsidiaries has ever been a party to or bound by any joint
venture agreement, partnership agreement, profit sharing agreement, cost sharing
agreement, loss sharing agreement or similar Contract.
(e) To the Knowledge of the Company, the performance of the Company
Contracts will not result in any violation of or failure to comply with any
Legal Requirement.
(f) There are no proposed Contracts as to which any bid, offer,
written proposal, term sheet or similar document has been submitted or received
by the Company or any of its subsidiaries that would commit the Company or any
of its subsidiaries to deliver goods or provide services with a value in excess
of $25,000 and is outstanding.
(g) No party to any Company Contract has notified the Company or any
of its subsidiaries or made a claim to the effect that the Company or any of its
subsidiaries has failed to perform a material obligation thereunder. In
addition, to the Knowledge of the Company and each of its subsidiaries, there is
no plan, intention or indication of any contracting party to any Company
Contract to cause the termination, cancellation or modification of such Contract
or to reduce or otherwise change its activity thereunder so as to adversely
affect the benefits derived or expected to be derived therefrom by the Company
or any of its subsidiaries.
4.13 Compliance With Legal Requirements.
(a) The Company and each of its subsidiaries are in compliance with
each material Legal Requirement that is applicable to it or to the conduct of
its business or the ownership or use of any of its assets.
(b) To the Knowledge of the Company, no event has occurred, and no
condition or circumstance exists, that likely would (with or without notice or
lapse of time) constitute or result directly or indirectly in a violation by the
Company or its subsidiaries of, or a
20
failure on the part of the Company or its subsidiaries to comply with, any Legal
Requirement, except such failures as would not have a Company Material Adverse
Effect.
(c) Neither the Company nor any of its subsidiaries has received any
notice or other communication (in writing or otherwise) from any Governmental
Body, or any other Person, regarding (i) any actual, alleged, possible or
potential violation of, or failure to comply with, any Legal Requirement or (ii)
any actual, alleged, possible or potential obligation on the part of the Company
or any of its subsidiaries to undertake, or to bear all or any portion of the
cost of, any cleanup or any remedial, corrective or response action of any
nature.
(d) To the Company's Knowledge, there does not exist (i) any
significant deficiency in the design or operation of internal controls which
could adversely affect the Company's or any of its subsidiaries' ability to
record, process, summarize and report financial data (the "Internal Controls")
nor any material weaknesses in the Internal Controls; or (ii) any fraud, whether
or not material, that involves management or other employees who have a
significant role in the Company's Internal Controls or in any of its
subsidiaries' Internal Controls.
(e) Since January 1, 2002, there has been no change in the Company's
Internal Controls or any of its subsidiaries' ability, including any corrective
actions with regard to significant deficiencies and material weaknesses.
(f) The Company and each of its subsidiaries are in full compliance
with its ethics policy, if any, and no waivers contrary to the ethics policy,
exist.
4.14 Governmental Authorizations. The Company and each of its subsidiaries
has all licenses, permits, franchises, orders or approvals of any federal,
state, local or foreign governmental or regulatory body required for the conduct
of the business of the Company and each of its subsidiaries, except where not
having such license, permit, franchise, order or approval would not result in a
Company Material Adverse Effect; all are in full force and effect; and no
proceeding is pending or, to the Knowledge of the Company, threatened to revoke
or limit any of the foregoing.
4.15 Tax Matters.
(a) Each Tax required to have been paid, or claimed by any
Governmental Body to be payable, by the Company or any of its subsidiaries
(whether pursuant to any Tax Return or otherwise) has been duly paid in full on
a timely basis. Any Tax required to have been withheld or collected by the
Company or any of its subsidiaries has been duly withheld and collected, and (to
the extent required) each such Tax has been paid to the appropriate Governmental
Body. The Company and each of its subsidiaries has complied with all information
and backup withholding requirements, including maintenance of required records
with respect thereto, in connection with amounts paid over or owing to any
employee, creditor, independent contractor, or other third party. There are no
liens on any of the assets of the Company or any of its subsidiaries with
respect to Taxes, other than liens for Taxes not yet due and payable or for
Taxes and for which appropriate reserves have been established.
(b) All Tax Returns required to be filed by and on behalf of the
Company and its subsidiaries on or prior to the Effective Time ("Company
Returns") (i) have been or will be
21
filed when due, and (ii) have been, or will be when filed, accurately and
completely prepared in compliance with all applicable Legal Requirements. All
amounts shown on the Company Returns to be due on or before the date hereof, and
all amounts otherwise payable in connection with the Company Returns on or
before the date hereof, have been paid. The Company has made available to
Acquiror accurate and complete copies of all Company Returns filed by the
Company and its subsidiaries. Neither the Company nor any of its subsidiaries
has been a member of an affiliated group filing a consolidated federal income
Tax Return (other than a group the common parent of which was the Company).
Neither the Company nor any of its subsidiaries does business in or derives
income from any state, local, territorial or foreign taxing jurisdiction other
than those for which all Tax Returns have been furnished to Acquiror.
(c) The liability of the Company and its subsidiaries for unpaid Taxes
for all periods ending on or before the date of the Financial Statements does
not, in the aggregate, exceed the amount of the current liability accruals for
Taxes (excluding reserves for deferred taxes) reported in the Financial
Statements. The Company has established in the Ordinary Course of Business
reserves for the payment of all Taxes for the period from the date of the
Financial Statements through the date hereof and has disclosed the dollar amount
of such reserves to the Acquiror, and the liability of the Company and its
subsidiaries for unpaid Taxes for the period from the date of the Financial
Statements through the date hereof will not exceed the amount of such reserves.
(d) No examination or audit of any Company Return has been conducted
by any Governmental Body or Taxing Authority, nor is any such examination or
audit in process, pending or threatened. The Company has delivered to Acquiror
accurate and complete copies of all audit reports, statements of deficiencies,
closing or other agreements, and similar documents received by the Company or
its subsidiaries relating to Company Returns or Taxes of the Company or any of
its subsidiaries. Neither the Company nor any of its subsidiaries is a party to
any action or proceeding for assessment or collection of Taxes, nor has such
event been asserted or threatened (either in writing or verbally, formally or
informally) against the Company or any of its subsidiaries. No extension or
waiver of the limitation period applicable to any of the Company Returns or
Taxes of the Company or any of its subsidiaries has been granted (by the Company
or any other Person) that are still in effect, and no such extension or waiver
has been requested from the Company or any of its subsidiaries.
(e) No claim or other Proceeding is pending, or has been threatened,
against or with respect to the Company or any of its subsidiaries in respect of
any Tax. There are no unsatisfied Liabilities for Taxes with respect to any
notice of deficiency or similar document received by the Company or any of its
subsidiaries, nor does the Company or any of its subsidiaries expect to receive
notice that a Company Return has not been filed or paid Taxes required to be
paid by it. The Company has not been, nor will be, required to include any
adjustment in taxable income for any tax period (or portion thereof) pursuant to
Section 481 or 263A of the Code or any comparable provision under state or
foreign Tax laws as a result of transactions or events occurring, or accounting
methods employed, prior to the Closing. The Company is in compliance with the
terms and conditions of any applicable Tax exemptions, Tax agreements or Tax
orders of any Governmental Body to which it may be subject or which it may have
claimed, and the transactions contemplated by this Agreement will not have any
adverse effect on such compliance.
22
(f) Neither the Company nor any of its subsidiaries has entered into
any compensatory agreement or arrangement or Contract with respect to the
performance of services which payment thereunder would result in a nondeductible
expense to the Company or its subsidiaries pursuant to Section 280G of the Code
or an excise tax to the recipient of such payment pursuant to Section 4999of the
Code. The Company is not a party to, or otherwise obligated under, any contract,
agreement, plan or arrangement that provides for the gross-up of Taxes imposed
by Section 409A(a)(1)(B) or 4999 of the Code.
(g) Neither the Company nor any of its subsidiaries is liable for
Taxes incurred by any individual, trust, corporation, partnership or other
entity other than Company and its subsidiaries, either as a transferee, by
contract, or pursuant to Treasury Regulations Section 1.1502-6, or pursuant to
any other provision of federal, state or local law or regulation. Neither the
Company nor any of its subsidiaries is, or has ever been, a party to or bound by
any tax indemnity agreement, tax sharing agreement, tax allocation agreement or
similar Contract.
(h) Neither the Company nor any of its subsidiaries is a party to any
joint venture, partnership or other arrangement or contract which could be
treated as a partnership for United States federal income tax purposes.
(i) Neither the Company nor any of its subsidiaries has a permanent
establishment in any foreign country, as defined in any applicable Tax treaty or
convention between the United States of America and such foreign country.
(j) Neither the Company nor any of its subsidiaries is a United States
real property holding corporation within the meaning of Section 897(c)(2) of the
Code and neither the Company nor any of its subsidiaries has been a United
States real property holding corporation within the applicable period specified
in Section 897(c)(1)(A)(ii) of the Code. Acquiror is not required to withhold
Tax on the purchase of the stock of the Company by reason of Section 1445 of the
Code.
(k) Neither the Company nor any of its subsidiaries has been the
"distributing corporation" (within the meaning of Section 355(c)(2) of the Code)
with respect to a transaction described in Section 355 of the Code within the
3-year period ending as of the date of this Agreement.
(l) Section 4.15 of the Company Disclosure Schedule contains accurate
and complete descriptions of the Company's basis in its assets, the Company's
current and accumulated earnings and profits, the Company's tax carryovers,
excess loss accounts in the Company, tax elections affecting the Company, and
any deferred intercompany transactions. The Company does not have a net
operating loss or similar Tax attribute presently subject to limitation under
Code Sections 382, 383, or 384, or the U.S. federal consolidated return
regulations, or comparable state law.
(m) Neither the Company nor any of its subsidiaries has been a party
to any "reportable transaction" within the meaning of Treasury Regulations
Section 1.6011-4(b), any "confidential corporate tax shelter" within the meaning
of Treasury Regulations Section 301.6111-2, or any "potentially abusive tax
shelter" within the meaning of Treasury
23
Regulations Section 301.6112-1(b). Company and each of its subsidiaries have
disclosed on the Company Returns all positions taken therein that could give
rise to a substantial understatement penalty within the meaning of Section 6662
of the Code. Neither the Company nor any of its subsidiaries has participated in
a "listed transaction" within the meaning of Treasury Regulations Section
301.6011-4(b)(2) (determined without regard to whether such transaction is a
"reportable transaction" under such regulation).
(n) The Company and each of its subsidiaries at all times has been in
material compliance with and have utilized the arm's length standard for course
of dealing transactions applicable to controlled taxpayers as contemplated in
Section 482 of the Code, the Treasury Regulations promulgated thereunder and any
analogous provision of state, local or foreign Tax law. The Company and each of
its subsidiaries has properly and in a timely manner documented its respective
transfer pricing methodology as required by Section 6662(e) (and any related
sections) of the Code, the Treasury Regulations promulgated thereunder and any
analogous provisions of state, local or foreign Tax law.
4.16 Employee and Labor Matters.
(a) Section 4.16(a) of the Company Disclosure Schedule accurately sets
forth, with respect to each employee of the Company and each of its subsidiaries
(including any employee who is on a leave of absence or on layoff status) (i)
the name of such employee and the date as of which such employee was originally
hired; (ii) such employee's title; (iii) such employee's annualized compensation
as of the date of this Agreement; (iv) each Plan (as defined in Section 4.17
hereof) in which such employee participates or is eligible to participate; and
(v) any Governmental Authorization that is held by such employee and that is
used in connection with the Company's business or its subsidiaries' business.
(b) Section 4.16(b) of the Company Disclosure Schedule contains a list
of individuals who are currently performing services for the Company or any of
its subsidiaries and are classified as "consultants" or "independent
contractors," and the respective compensation of each such "consultant" or
"independent contractor."
(c) Neither the Company nor any of its subsidiaries is a party to or
bound by any employment agreement or any union contract, collective bargaining
agreement or similar Contract, or any other Contract to provide severance
payments or benefits to any employee upon termination of employment.
(d) Neither the Company nor any of its subsidiaries has ever been a
party to or bound by any Contract that creates or grants to any Person, or
provides for the creation or grant of, any stock appreciation right, phantom
stock right or similar right or interest.
(e) The employment of each of the Company's and any of its
subsidiaries' employees is terminable by the Company or its subsidiaries,
respectively, at will without any penalty or severance obligation to Company or
its subsidiaries. The Company has delivered to Acquiror accurate and complete
copies of all employee manuals and handbooks, policy statements and employment
agreements relating to the employment of the current employees of the Company.
24
(f) To the Knowledge of the Company (i) no employee of the Company or
any of its subsidiaries intends to terminate his or her employment with the
Company or such subsidiary and neither the Company nor any of its subsidiaries
has a present intention to terminate the employment of any employee; (ii) to the
Company's Knowledge, no employee of the Company or any of its subsidiaries has
received in the last two (2) years, nor is currently considering, an offer to
join a business that likely would be competitive with the Company's business;
and (iii) no employee of the Company or any of its subsidiaries is a party to or
is bound by any confidentiality agreement, noncompetition agreement or other
Contract (with any Person) that likely would have an adverse effect on (A) the
performance by such employee of any of his or her duties or responsibilities as
an employee of the Company or any of its subsidiaries, or (B) the Company's
business or operations.
(g) To the Company's Knowledge, no employee who is a party to any
proprietary information, confidentiality, noncompetition, employment or similar
agreement with any third party is in breach of such agreement.
(h) Neither the Company nor any of its subsidiaries has engaged, or
ever been engaged, in any unfair labor practice (as defined under the National
Labor Relations Act or any comparable law in any jurisdiction outside the United
States of America). There has never been any slowdown, work stoppage, labor
dispute or union organizing activity, or any similar activity or dispute,
affecting the Company or any of its subsidiaries or any of their employees while
employed by the Company and such subsidiaries. There is not now pending, and to
the Knowledge of the Company no Person has threatened to commence, any such
slowdown, work stoppage, labor dispute or union organizing activity or any
similar activity or dispute, nor has any event occurred, nor does any condition
or circumstance exist, that likely would directly or indirectly give rise to or
provide a basis for the commencement of any such slowdown, work stoppage, labor
dispute or union organizing activity or any similar activity or dispute. Company
and its subsidiaries have complied in all material respects with all contractual
obligations and Legal Requirements relating to the employment of individuals,
immigration, equal employment opportunity, nondiscrimination, wages (including
but not limited to the proper classification of as exempt or non-exempt and the
payment of any overtime), worker classifications (including proper
classification of any independent contractors or consultants), hours, benefits,
collective bargaining, the payment of social security and similar Taxes,
occupational safety and health, workers' compensation, leaves of absence, and
layoffs and plant closing (including but not limited to any obligations under
the Worker Readjustment and Notification Act, 29 U.S.C. Section 2101 or any
other comparable law in any jurisdiction outside the United States of America).
Except as set forth in Company Disclosure Schedule 4.16(h), there has not been,
there is not presently existing, and to Company's Knowledge there is not
threatened any Proceeding against or affecting Company or its subsidiaries
relating to the alleged violation of any contractual obligation or Legal
Requirement pertaining to labor relations or employment matters, including any
charge or complaint filed by an employee or union with the National Labor
Relations Board, the Equal Employment Opportunity Commission, or any comparable
Governmental Body, organizational activity, or any other labor or employment
dispute or litigation against or affecting Company or its subsidiaries.
(i) Each employee of the Company and its subsidiaries is in compliance
with all applicable visa and work permit requirements. No visa or work permit
held by an employee
25
of the Company or any of its subsidiaries will expire during the six month
period beginning at the date of this Agreement.
4.17 Benefit Plans; ERISA.
(a) Section 4.17(a) of the Company Disclosure Schedule lists all
written (i) Employee Benefit Plans of the Company and each of its subsidiaries,
(ii) employment agreements, including, but not limited to, any individual
benefit arrangement, policy or practice with respect to any current or former
employee or director of the Company or any of its subsidiaries or any ERISA
Affiliate, and (iii) other employee benefit, bonus or other incentive
compensation, stock option, stock purchase, stock appreciation, severance pay,
lay-off or reduction in force, change in control, sick pay, vacation pay, salary
continuation, retainer, leave of absence, educational assistance, service award,
employee discount, fringe benefit plans, arrangements, policies or practices,
whether legally binding or not, which the Company or any of its subsidiaries or
any ERISA Affiliate maintains, contributes to or has any obligation to or
liability for (collectively, the "Plans").
(b) None of the Plans is a Defined Benefit Plan, and neither the
Company nor any of its subsidiaries nor any ERISA Affiliate has ever sponsored,
maintained or contributed to, or ever been obligated to contribute to, a Defined
Benefit Plan.
(c) None of the Plans is a Multiemployer Plan, and neither the Company
nor any of its subsidiaries nor any ERISA Affiliate has ever contributed to, or
ever been obligated to contribute to, a Multiemployer Plan.
(d) Neither the Company nor any of its subsidiaries maintains,
contributes to, or has any obligations under any plan, program, or agreement
that provides health benefits to any employees, former employees, or their
beneficiaries after their termination of employment or retirement except as
required under Section 4980B of the Code and Sections 601 through 608 of ERISA
or similar applicable state law.
(e) Each Plan that is an Employee Benefit Plan complies by its terms
and in operation with the requirements provided by any and all statutes, orders
or governmental rules or regulations currently in effect and applicable to the
Plan, including but not limited to ERISA and the Code.
(f) Benefits under each Plan that is an "employee welfare benefit
plan" (within the meaning of Section 3(1) of ERISA) are provided exclusively
through insurance contracts or policies issued by an insurance company, health
maintenance organization, or similar organization unrelated to the Company or
any of its subsidiaries or any ERISA Affiliate, the premiums for which are paid
directly by the employer or employee organization from its general assets or
partly from its general assets and partly from contributions by its employees.
No insurance policy or contract relating to any such Plan requires or permits
retroactive increase in premiums or payments due thereunder.
(g) All reports, forms and other documents required to be filed with
any Governmental Body or furnished to employees with respect to any Plan
(including without
26
limitation, summary plan descriptions, Forms 5500 and summary annual reports)
have been timely filed or furnished and are accurate in all material respects.
(h) Each Plan that is intended to be qualified under Section 401(a) of
the Code (and any related trust intended to be exempt from tax under Section
501(a) of the Code) is the subject of a favorable IRS determination,
notification, or opinion letter issued after January 1, 1997 and has been timely
amended, adopted and administered in compliance with the applicable provisions
of the Economic Growth and Tax Relief Reconciliation Act of 2001 and subsequent
legislation enacted through the date hereof, and Section 501 of the Code. To
Company's Knowledge, nothing has occurred since the issuance of the IRS's most
recent favorable determination letter (or opinion or notification letter, if
applicable) that could reasonably be expected to adversely affect the
qualification of such Plan or the tax exempt status of its related trust. The
Company has provided Acquiror with the most recent determination, opinion or
notification letter (as applicable) the Internal Revenue Service has issued
relating to each such Plan.
(i) All contributions for all periods ending prior to the Closing
(including periods from the first day of the current plan year to the Closing)
have been made prior to the Closing by the Company or any of its subsidiaries or
the applicable ERISA Affiliate, except contributions for the payroll periods
ending during the month in which the Closing occurs.
(j) All insurance premiums have been paid in full, subject only to
normal retrospective adjustments in the ordinary course, with regard to the
Plans for coverage months ending on or before the Closing.
(k) With respect to each Plan:
(i) no prohibited transactions (as defined in Section 406 or 407
of ERISA or Section 4975 of the Code) have occurred for which a statutory
exemption is not available;
(ii) no action or claims (other than routine claims for benefits
made in the ordinary course of Plan administration for which Plan administrative
review procedures have not been exhausted) are pending, threatened or imminent
against or with respect to the Plan, any employer who is participating (or who
has participated) in any Plan or any fiduciary (as defined in Section 3(21) of
ERISA) of the Plan which would have a Company Material Adverse Effect;
(iii) Neither the Company nor any fiduciary of the Company or any
of its subsidiaries has any Knowledge of any facts which could give rise to any
such action or claim; and
(iv) there are no audits, inquiries, investigations, or
proceedings pending or, to the Knowledge of the Company or any ERISA Affiliate,
threatened by any Governmental Body with respect to any Plan.
(l) Each of the Plans provides that it may be amended or terminated at
any time except with respect to benefits protected under Section 411(d) of the
Code. None of the Plans are subject to any surrender fees, deferred sales
charges, commissions, or other fees upon
27
termination other than the normal and reasonable administrative fees associated
with its amendment, transfer or termination. No action or omission of the
Company, any of its subsidiaries, or any of their directors, officers,
employees, or agents in any way restricts, impairs or prohibits Company or any
successor thereto from amending, merging, or terminating any Plan in accordance
with the express terms of any such Plan and applicable law.
(m) To Company's Knowledge, (i) each Plan that is a "nonqualified
deferred compensation plan" (within the meaning of Section 409(A)(d)(1) of the
Code) has been operated in good faith compliance with Section 409A of the Code,
IRS Notice 2005-1, Proposed Regulations issued under Code Section 409A, Fed.
Reg. Vol. 70, No. 191, p. 57984 (10/4/2005), and any subsequent guidance
relating thereto; and (ii) no additional Tax under Section 409A(a)(1)(B) of the
Code has been or is reasonably expected to be incurred by a participant in any
such Plan.
(n) Neither the Company nor any of its subsidiaries nor any ERISA
Affiliate has any liability or is threatened with any liability (whether joint
or several) (i) for any excise tax imposed by Sections 4971, 4975, 4976, 4977 or
4979 of the Code, or (ii) for a fine under Section 502 of ERISA.
(o) True, correct and complete copies of all documents creating or
evidencing any Plan listed in the Company Disclosure Schedule including (without
limitation) (i) all amendments thereto and all related trust documents,
administrative service agreements, group annuity contracts, group insurance
contracts, and policies pertaining to fiduciary liability insurance covering the
fiduciaries for each Plan; (ii) all Internal Revenue Service determination,
opinion, notification and advisory letters, and all applications and
correspondence to or from the Internal Revenue Service or the Department of
Labor with respect to any such application or letter; (iii) all written
communications to any employee or employees relating to any Plan and any
proposed Plans, in each case, relating to any amendments, terminations,
establishments, increases or decreases in benefits, acceleration of payments or
vesting schedules or other events which would result in any material liability
to the Company or any of its subsidiaries received by employees in the last
three (3) years; (iv) all correspondence to or from any governmental agency
relating to any Plan since January 1, 2002; (v) all COBRA forms and related
notices provided since January 1, 2002 (or such forms and notices as required
under comparable law); (vi) nondiscrimination test reports for each applicable
Plan for the last three (3) years; (vii) all registration statements, annual
reports (Form 11-K and all attachments thereto) and prospectuses prepared in
connection with each Plan for the last three (3) years; and (viii) all reports,
forms and other documents required to be filed with any Governmental Body in the
last three (3) years (including, without limitation, summary plan descriptions,
Forms 5500 and summary annual reports for all plans subject to ERISA) have been
delivered to Acquiror. There are no negotiations, demands or proposals which are
pending or have been made which concern matters now covered, or that would be
covered, by the type of agreements listed in the Company Disclosure Schedule.
(p) All expenses and liabilities relating to all of the Plans
described in the Company Disclosure Schedule have been, and will on the Closing
be fully and properly accrued on the Company's books and records and disclosed
in accordance with GAAP and in Plan financial statements.
28
4.18 Environmental Matters. The Company and each of its subsidiaries are
and have been at all times in compliance in all material respects with all
Environmental Laws. The Company and each of its subsidiaries have now and at all
times have had all the necessary permits required under Environmental Laws for
the operation of its business, and are not and have not been in violation of any
of the terms and conditions of any of its permits. Neither the Company nor any
of its subsidiaries has received any notice or other communication (in writing
or otherwise) that alleges that the Company or any of its subsidiaries is not in
compliance with any Environmental Law. Neither the Company nor any of its
subsidiaries has generated, manufactured, produced, transported, imported, used,
treated, refined, processed, handled, stored, discharged, released, or disposed
of any Hazardous Materials (whether lawfully or unlawfully) at any of the
properties occupied or controlled by the Company or any of its subsidiaries on
or at any time prior to the date hereof other than common household and office
products in de minimis quantities. There are not and have not been any releases
or threatened releases of any Hazardous Materials in any quantity (other than
common household and office products in de minimis quantities) at, on, or from
any of the properties occupied or controlled by the Company or any of its
subsidiaries, and to the Knowledge of the Company (a) there are no circumstances
that may prevent or interfere with the Company's or any of its subsidiaries'
compliance with any Environmental Law and (b) no former owner or user of the
properties occupied or controlled by the Company or any of its subsidiaries
engaged in any type of manufacturing or commercial activity which might be
reasonably expected to generate, manufacture, produce, transport, import, use,
treat, refine, process, handle, store, discharge, release, or dispose of any
Hazardous Materials (whether lawfully or unlawfully) on properties occupied or
controlled by the Company or any of its subsidiaries.
4.19 Sale of Products; Performance of Services. Neither the Company nor any
of its subsidiaries have made any express warranties or guarantees relating to
its products or services that are in effect as of the date hereof. No customer
or other Person has ever asserted or threatened to assert any material claim
against the Company or any of its subsidiaries (i) under or based upon any
warranty provided by or on behalf of the Company or any of its subsidiaries, or
(ii) under or based upon any other warranty relating to any product sold by the
Company or any of its subsidiaries or any services performed by the Company or
any of its subsidiaries. To the Knowledge of the Company, no event has occurred,
and no condition or circumstance exists, that likely would (with or without
notice or lapse of time) directly or indirectly give rise to or serve as a basis
for the assertion of any such claim.
4.20 Insurance. The Company and each of its subsidiaries maintains with
third parties policies of fire and casualty, liability and other forms of
insurance in such amounts, with such deductibles and retained amounts, and
against such risks and losses, as are customarily carried by Persons conducting
businesses or owning assets similar in type and size to those of Company and its
subsidiaries, including without limitation all legally required workers'
compensation insurance and casualty, fire and general liability insurance. There
is no claim pending under any of such policies or bonds as to which coverage has
been questioned, denied or disputed by the underwriters of such policies or
bonds. All premiums due and payable under all such policies and bonds have been
timely paid, and the Company and each of its subsidiaries are otherwise in
compliance with the terms of such policies and bonds and all such policies are
in full force and effect. The Company has no Knowledge of any threatened
termination of, or material premium increase with respect to, any of such
policies.
29
4.21 Related Party Transactions. Except as set forth in Company Disclosure
Schedule 4.21:
(a) To the Company's Knowledge, no Related Party has, and no Related
Party has at any time had, any direct or, except as a stockholder of the
Company, indirect interest of any nature in any asset used in or otherwise
relating to the business of the Company or any of its subsidiaries;
(b) No Related Party is, or has been indebted to the Company or any of
its subsidiaries;
(c) To the Company's Knowledge, no Related Party has entered into, or
has had any direct or indirect financial interest in, any Contract, transaction
or business dealing of any nature involving the Company or any of its
subsidiaries and no such Contract, transaction or business dealing of any nature
is necessary to operate the business of the Company and each of its subsidiaries
as it is currently conducted;
(d) To the Company's Knowledge, no Related Party is competing, or has
at any time competed, directly or indirectly, with the Company in any market
served by the Company or any of its subsidiaries;
(e) To the Company's Knowledge, no Related Party has any claim or
right against the Company or any of its subsidiaries; and
(f) To the Company's Knowledge, no event has occurred, and no
condition or circumstance exists, that likely would (with or without notice or
lapse of time) directly or indirectly give rise to or serve as a basis for any
claim or right in favor of any Related Party against the Company or any of its
subsidiaries.
4.22 Proceedings; Orders.
(a) There is no pending Proceeding, and to the Knowledge of the
Company, no Person has threatened to commence any Proceeding (i) that involves
the Company or any of its subsidiaries or that otherwise relates to or likely
would affect the Company's or its subsidiaries' business or any of the assets
owned or used by the Company or any of its subsidiaries (whether or not the
Company or any of its subsidiaries is named as a party thereto); or (ii) that
challenges, or that may have the effect of preventing, delaying, making illegal
or otherwise interfering with, any of the Transactions. To the Knowledge of the
Company, no event has occurred, and no claim, dispute or other condition or
circumstance exists, that likely would directly or indirectly give rise to or
serve as a basis for the commencement of any such Proceeding.
(b) No Proceeding has ever been commenced by or against the Company or
any of its subsidiaries, and no Proceeding otherwise involving or relating to
the Company or any of its subsidiaries has been pending or, to the Company's
Knowledge, threatened at any time.
(c) There is no Order to which the Company or any of its subsidiaries,
or any of the assets owned or used by the Company or any of its subsidiaries, is
subject.
30
(d) To the Knowledge of the Company, no Principal Stockholder, officer
or employee of the Company or any of its subsidiaries is or was subject to any
Order that prohibits or prohibited such officer or employee from engaging in or
continuing any conduct, activity or practice relating to the Company's and each
of its subsidiaries' business.
(e) There is no Order, or to the Knowledge of the Company, proposed
Order (other than any proposed Order that would be applicable generally to the
digital media software industry) that, if issued or otherwise put into effect,
(i) likely would have a material adverse effect on the ability of the Company to
comply with or perform any covenant or obligation under this Agreement or (ii)
may have the effect of preventing, delaying, making legal or otherwise
interfering with any of the Transactions.
4.23 Non-Contravention; Consents. Except as set forth in Section 4.23 of
the Company Disclosure Schedule, neither the execution and delivery of this
Agreement or the other Transactional Agreements, nor the consummation or
performance of any of the Transactions, will directly or indirectly (with or
without notice or lapse of time):
(a) contravene, conflict with or result in a violation of (i) any of
the provisions of the Company's or any of its subsidiaries charter documents, or
(ii) any resolution adopted by the stockholders, the Company's board of
directors or any committee of the Company's board of directors, if any;
(b) to the Knowledge of the Company, contravene, conflict with or
result in a violation of, or give any Governmental Body or other Person the
right to challenge any of the Transactions or to exercise any remedy or obtain
any relief under, any Legal Requirement or any Order to which the Company or any
of its subsidiaries, or any of the assets owned or used by the Company or any of
its subsidiaries, is subject;
(c) cause the Company or any of its subsidiaries to become subject to,
or to become liable for the payment of, any Tax;
(d) cause any of the assets owned or used by the Company or any of its
subsidiaries to be reassessed or revalued by any Taxing Authority or other
Governmental Body;
(e) contravene, conflict with or result in a violation of any of the
terms or requirements of, or give any Governmental Body the right to revoke,
withdraw, suspend, cancel, terminate or modify, any Governmental Authorization
that is held by the Company or any of its subsidiaries or any of their employees
or that otherwise relates to the Company's or its any of its subsidiaries'
business or to any of the assets owned or used by the Company;
(f) contravene, conflict with or result in a violation or breach of,
or result in a default under, any provision of any of the Company Contracts;
(g) give any Person the right to (i) declare a default or exercise any
remedy under any Company Contract (including any release of source code), (ii)
accelerate the maturity or performance of any Company Contract, or (iii) cancel,
terminate or modify any Company Contract;
31
(h) give any Person the right to any payment by the Company or any of
its subsidiaries or give rise to any acceleration or change in the award, grant,
vesting or determination of options, warrants, rights, severance payments or
other contingent obligations of any nature whatsoever of the Company or any of
its subsidiaries in favor of any Person, in any such case as a result of the
change in control of the Company or otherwise resulting from the Transactions;
or
(i) result in the imposition or creation of any Encumbrance upon or
with respect to any asset owned or used by the Company or any of its
subsidiaries.
Except for the filing of the Certificate of Merger with the Secretary of State
of Delaware, neither the Company nor any of its subsidiaries will be required to
make any filing with or give any notice to, or obtain any Consent from, any
Person in connection with the execution and delivery of this Agreement and the
other Transactional Agreements or the consummation or performance of any of the
Transactions. As of the Effective Time, all such filings, notices and Consents
will have been duly made, given or obtained and are in full force and effect,
other than those which by their nature are required to be made, given or
obtained after the execution of this Agreement, all of which shall be made,
given or obtained within the time required therefor.
4.24 Customers and Suppliers.
(a) Customers. There has not been any material adverse change in the
business relationship of the Company or any of its subsidiaries with any
material customer who accounted for more than five percent (5%) of the Company's
gross sales during the period from January 1, 2004 to the Closing Date. Section
4.24(a) of the Company Disclosure Schedule sets forth an accurate and complete:
(i) list of the customers of the Company who accounted for ninety
percent (90%) or more of the Company's revenue for each of the last three (3)
fiscal years,
(ii) breakdown of the revenues received from each such customer
for each of the last three (3) fiscal years, and
(iii) breakdown of all customer deposits in an amount greater
than $5,000 held by the Company as of the date of this Agreement.
(iv) Suppliers. There has not been any material adverse change in
the business relationship of the Company or any of its subsidiaries with any
material supplier, sole source supplier or any supplier from whom the Company
purchased more than five percent (5%) of the total goods or services which it
purchased during the period from January 1, 2004 to the Closing Date. Section
4.24(a)(iv) of the Company Disclosure Schedule sets forth an accurate and
complete:
(v) list of all active suppliers of the Company (e.g., suppliers
who have any continuing obligations to the Company or who are owed any payments
from the Company),
(vi) breakdown of the amounts paid to each such supplier for each
of the last three (3) fiscal years,
32
(vii) list of all sole source suppliers of significant goods or
services to the Company with respect to which practical alternative sources of
supply are not available on comparable terms and conditions, and
(viii) breakdown of the amounts paid to each such sole source
supplier for each of the last three (3) fiscal years.
4.25 Brokers. Neither the Company nor any stockholder has agreed or become
obligated to pay, or taken any action that likely would result in any Person
claiming to be entitled to receive, any brokerage commission, finder's fee or
similar commission or fee in connection with any of the Transactions.
4.26 Powers of Attorney. Neither the Company nor any of its subsidiaries
has given a power of attorney to any Person.
4.27 Voting Arrangements. To the Company's Knowledge, there are no
outstanding stockholder agreements, voting trusts, proxies or other arrangements
or understandings relating to the voting of any shares of the capital stock of
the Company.
4.28 Board Approval. The board of directors of the Company has, as of the
date of this Agreement, unanimously (i) approved, subject to stockholder
approval, this Agreement and the transactions contemplated hereby, (ii)
determined that the Merger is in the best interests of the stockholders and is
on terms that are fair to such stockholders and (iii) recommended that the
stockholders approve this Agreement and the Merger.
4.29 Vote Required. The affirmative vote of the holders of a majority of
the outstanding Company Common Stock entitled to vote with respect to the Merger
are the only votes of the holders of any class or series of Company Stock
necessary to approve this Agreement and the transactions contemplated hereby.
4.30 Full Disclosure. No statement contained in any representation or
warranty contained herein or any statement contained in any certificate or
schedule furnished or to be furnished by the Company to Acquiror or Merger Sub
in, or pursuant to the provisions of, this Agreement contains or shall contain
any untrue statement of a material fact or omits or will omit to state any
material fact necessary, in the light of the circumstances under which it was
made, in order to make the statements herein or therein not misleading.
4.31 State Takeover Statutes; Stockholder Rights Plan. No state
anti-takeover statute or similar charter or bylaw provisions of the Company are
applicable to the Merger, this Agreement and the transactions contemplated
hereby. The Company is not a party to any "stockholder rights plan" or similar
anti-takeover plan or device.
4.32 Spreadsheet. The information contained in the Spreadsheet (as defined
in Section 7.5 hereof) is complete and correct.
4.33 Complete Copies of Materials. The Company has delivered or made
available true and complete copies of each document (or summaries of same) that
has been requested by Acquiror or its counsel.
33
4.34 Stockholder Information. The information furnished on or in any
document mailed, delivered or otherwise furnished to stockholders by the Company
in connection with the solicitation of their consent to this Agreement and the
Merger, will not contain, at or prior to the Effective Time, any untrue
statement of a material fact and will not omit to state any material fact
necessary in order to make the statements made therein, in light of the
circumstances under which made not misleading.
4.35 Adjustment Amount. The accounting of the Adjustment Amount provided to
the Company pursuant to Section 1.1(a) are accurate and complete in all
respects.
4.36 CDI Budget. The CDI Budget delivered to the Acquiror by the Company
(i) has been prepared in accordance with the Company's historical accounting
practices, (ii) the projections contained therein were prepared in good faith,
and (iii) the Company believes there is a reasonable basis for such projections.
ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF THE PRINCIPAL STOCKHOLDERS
Except as specifically set forth in the Company Disclosure Schedule, each
of the Principal Stockholders, severally and not jointly, to his or her or its
Knowledge, hereby represents and warrants to Acquiror and Merger Sub on the date
hereof:
5.1 Ownership of Company Stock. Such Principal Stockholder is the sole
record and beneficial owner of the Company Stock designated as being owned by
such Principal Stockholder opposite such Principal Stockholder's name in Section
4.3(a) of the Company Disclosure Schedule. Such Company Stock is not subject to
any Encumbrances of any kind, and such Principal Stockholder has not granted any
rights to purchase such Company Stock to any other person or entity. Each
Principal Stockholder has the sole right to transfer such Company Stock to
Acquiror. Such Company Stock constitutes all of the Company Stock owned,
beneficially or of record, by such Principal Stockholder, and such Principal
Stockholder has no options, warrants or other rights to acquire Company Stock.
Upon the Effective Time and assuming the filing and acceptance of the
Certificate of Merger, in exchange for the consideration paid pursuant to
Section 3.1(b) hereof, Acquiror will receive good title to such Company Stock
owned by such Principal Stockholder, subject to no Encumbrances retained,
granted or permitted by such Principal Stockholder or the Company.
5.2 Litigation. There is no action, suit, claim or proceeding of any nature
pending, or to the Knowledge of such Principal Stockholder, threatened, against
such Principal Stockholder, arising out of or relating to (a) such Principal
Stockholder's beneficial ownership of Company Capital Stock or rights to acquire
Company Capital Stock, (b) such Principal Stockholder's capacity as a
Stockholder, (c) the transactions contemplated by this Agreement, (d) any
contribution of assets (tangible and intangible) by such Principal Stockholder
(or any of its affiliates) to the Company (or any of its affiliates), or (e) any
other agreement between such Principal Stockholder (or any of its affiliates)
and the Company (or any of its affiliates), nor to the Knowledge of such
Principal Stockholder, is there any reasonable basis therefor. There is no
investigation or other proceeding pending or, to the Knowledge of such Principal
Stockholder, threatened, against such Principal Stockholder arising out of or
relating to the matters noted in
34
clauses (a) through (e) of the preceding sentence by or before any Governmental
Body, nor to the Knowledge of such Principal Stockholder, is there any
reasonable basis therefor. There is no action, suit, claim or proceeding pending
or, to the Knowledge of such Principal Stockholder, threatened, against such
Principal Stockholder with respect to which such Principal Stockholder has a
contractual right or a right pursuant to DGCL to indemnification from the
Company related to facts and circumstances existing prior to the Effective Time,
nor are there any facts or circumstances that would give rise to such an action,
suit, claim or proceeding.
5.3 Absence of Claims by the Principal Stockholders. Such Principal
Stockholder has no claim against the Company whether present or future,
contingent or unconditional, fixed or variable under any contract or on any
other basis whatsoever, whether in equity or at law.
5.4 No Conflict. The execution and delivery by such Principal Stockholder
of the Transactional Agreements to which it is a party and the consummation of
any of the Transactions will not conflict with (a) any provision of the charter
documents of such Principal Stockholder if such Principal Stockholder is an
entity, (b) any material mortgage, indenture, lease, contract or other agreement
or instrument, permit, concession, franchise or license to which such Principal
Stockholder or any of its properties or assets is subject, or (c) any judgment,
order, decree, statute, law, ordinance, rule or regulation applicable to such
Principal Stockholder or its properties or assets.
5.5 Authority. Each Principal Stockholder that is an entity has all
requisite power and authority, and each Principal Stockholder that is an
individual has capacity, to enter into the Transactional Agreements to which it
or he, as the case may be, is a party and to consummate the Transactions. The
execution and delivery of the Transactional Agreements to which such Principal
Stockholder is a party and the consummation of the Transactions have been duly
authorized by all necessary corporate action on the part of such Principal
Stockholder and no further action is required on the part of such Principal
Stockholder to authorize the Transactional Agreements to which it is a party and
the Transactions. The Transactional Agreements to which such Principal
Stockholder is a party has been duly executed and delivered by such Principal
Stockholder, and assuming the due authorization, execution and delivery by the
other parties hereto and thereto, constitute the valid and binding obligations
of such Principal Stockholder, enforceable against each such party in accordance
with their respective terms, except as such enforceability may be subject to the
laws of general application relating to bankruptcy, insolvency, and the relief
of debtors and rules of law governing specific performance, injunctive relief,
or other equitable remedies.
ARTICLE 6
REPRESENTATIONS AND WARRANTIES OF ACQUIROR, MERGER SUB AND
MERGER SUB II
The Acquiror, Merger Sub and Merger Sub II hereby represent and warrant to
Company on the date hereof as follows:
35
6.1 Due Organization; Good Standing; Authority; Binding Nature of
Agreements.
(a) Acquiror is a corporation duly organized, validly existing and in
good standing under the laws of the State of Delaware, and has all necessary
corporate power and authority to enter into and perform its obligations under
the Transactional Agreements. Merger Sub is a corporation duly organized,
validly existing and in good standing under the laws of the State of Delaware,
and has all necessary corporate power and authority to enter into and perform
its obligations under the Transactional Agreements to which it is a party.
(b) Merger Sub and Merger II have been recently formed for the purpose
of effecting the Merger and have not conducted any business except in connection
with preparation for, and in furtherance of, the Merger. Acquiror owns all of
the issued and outstanding capital stock of Merger Sub and Merger Sub II.
(c) The execution, delivery and performance of each of the
Transactional Agreements to which it is a party have been duly authorized by all
necessary action on the part of each of Acquiror, Merger Sub and Merger Sub II,
their respective boards of directors, and the sole stockholder of Merger Sub and
Merger Sub II.
(d) Each of the Transactional Agreements to which it is a party
constitutes the legal, valid and binding obligation of Acquiror, Merger Sub and
Merger Sub II, enforceable against Acquiror, Merger Sub and Merger Sub II in
accordance with its terms and conditions.
6.2 Non-Contravention; Consents. Neither the execution and delivery of this
Agreement or the Transactional Agreements to which Acquiror, Merger Sub or
Merger Sub II, as the case may be, is a party, nor the consummation or
performance of any of the Transactions, will directly or indirectly (with or
without notice or lapse of time) contravene, conflict with or result in a
violation of (a) any of the provisions of Acquiror's certificate of
incorporation or bylaws, (b) Merger Sub or Merger Sub II's certificate of
incorporation or bylaws, or (c) any resolution adopted by Merger Sub's or Merger
Sub II's sole stockholder, Acquiror's, Merger Sub's or Merger Sub II's board of
directors or any committee of Acquiror's, Merger Sub's or Merger Sub II's board
of directors, or Acquiror's stockholders. With the exception of the filing of
the Certificate of Merger and Certificate of Merger II in the State of Delaware
and any necessary filings pursuant to federal and state securities laws or the
rules of other governmental bodies, Acquiror, Merger Sub and Merger Sub II will
not be required to make any filing with or give any notice to, or to obtain any
Consent from, any Person in connection with the execution and delivery of this
Agreement or the consummation or performance of any of the Transactions.
6.3 Brokers. Acquiror has not agreed or become obligated to pay, or taken
any action that likely would result in any Person claiming to be entitled to
receive, any brokerage commission, finder's fee or similar commission or fee in
connection with any of the Transactions.
6.4 SEC Reports; Absence of Changes.
(a) Acquiror has filed with the SEC all forms, reports, schedules,
registration statements and preliminary or definitive proxy or information
statements required to be filed by it with the SEC since January 20, 2005 (such
reports, the "Acquiror SEC Reports"). As of their
36
respective dates, the Acquiror SEC Reports complied as to form in all material
respects with the requirements of the Exchange Act or the Securities Act, as the
case may be, and the rules and regulations of the SEC thereunder applicable to
such Acquiror SEC Reports. As of their respective dates, the Acquiror SEC
Reports did not contain any untrue statement of a material fact or omit to state
a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading. Acquiror has filed all material contracts and agreements and
other documents or instruments required to be filed as exhibits to the Acquiror
SEC Reports.
(b) Since the date of the most recent financial statements appearing
in the Acquiror SEC Reports, except for liabilities incurred in connection with
the Transactions, since such date Acquiror has conducted its business only in
the ordinary course, and since such date there has not occurred any event having
an Acquiror Material Adverse Effect or, to Acquiror's knowledge, any event or
development which is reasonably likely to cause an event having an Acquiror
Material Adverse Effect.
ARTICLE 7
ADDITIONAL AGREEMENTS
7.1 Additional Agreements. In the event that any further action is
necessary or desirable to carry out the purposes of this Agreement at any time
after the Effective Time, the proper officers and directors of Acquiror and the
Company (or of the Surviving Corporation on behalf of the Company) are
authorized to take all such necessary action.
7.2 Public Announcements. The Company and the Principal Stockholders and,
prior to the Effective Time, Acquiror shall not issue any press release or make
any public statement with respect to the Merger or the Transaction Documents
without the prior written consent of the other party; provided, however, that
the Acquiror may issue a press release or make a public statement with respect
to the Merger or this Agreement prior to the Effective Time if required under
applicable Legal Requirements and the rules of the Nasdaq Stock Market. Each of
Acquiror and the Company shall make all filings as required by any Governmental
Body and shall promptly provide the other party with copies of filings made by
such party between the date hereof and the Effective Time. The Company shall
take reasonable steps to require all Company Stockholders to comply with the
provisions of this Section 7.2.
7.3 Confidentiality. Each of the parties hereto hereby agrees that the
information obtained in any investigation pursuant to Section 7.3 hereof, or
pursuant to the negotiation and execution of this Agreement or the effectuation
of the transactions contemplated hereby, shall be governed by the terms of the
Confidentiality Agreement between the Company and Acquiror. In this regard, the
Company acknowledges that the Acquiror Common Stock is publicly traded and that
any information obtained during the course of its due diligence could be
considered to be material non-public information within the meaning of federal
and state securities laws. Accordingly, the Company and the Principal
Stockholders acknowledge and agree not to engage in any discussions,
correspondence or transactions in the Acquiror Common Stock in violation of
applicable securities laws. Additionally, the Company, each of the Principal
Stockholders and Acquiror shall not disclose the terms of the Merger or any
Transactional Agreement or any discussions related thereto to any of their
respective employees (other than the extent necessary
37
to consummate the transaction contemplated hereby), customers or any other
Person without the prior written consent of the other party; provided, however,
the Company or Acquiror may disclose such terms and discussions to each
respective party's accounting, legal, and financial advisors who are under
non-disclosure agreements which are similarly restrictive as the Confidentiality
Agreement. The Company shall take reasonable steps to require all Company
Stockholders to comply with the provisions of this Section 7.3.
7.4 Conveyance Taxes. Acquiror and the Company shall cooperate in the
preparation, execution and filing of all returns, questionnaires, applications,
or other documents regarding any real property transfer or gains, sales, use,
transfer, value added, stock transfer and stamp taxes, any transfer, recording,
registration and other fees, and any similar taxes which become payable in
connection with the transactions contemplated hereby that are required or
permitted to be filed on or before the Effective Time.
7.5 Spreadsheet. The Company shall deliver a spreadsheet, (the
"Spreadsheet") substantially in the form attached hereto as Schedule 7.5, which
spreadsheet shall be certified as complete and correct by the Chief Executive
Officer and Chief Financial Officer of the Company as of the Closing and which
shall separately list, as of the Closing, all Company Stockholders and their
current respective addresses, the number and class and/or series of shares of
Company Stock held by such persons and the respective certificate numbers, the
date of acquisition of such shares, the amount of shares of Acquiror Common
Stock to be issued to each holder, the number of shares, if any, to be paid by
the Company Stockholder in settlement of outstanding Company Stockholder loans,
the number of Acquiror Common Stock to be deposited into the Escrow Account on
behalf of each holder, and such other information relevant thereto or which the
Acquiror may reasonably request. The Company shall deliver to Acquiror the
Spreadsheet three (3) business days prior to the Closing Date.
7.6 Termination of Company Plans. If requested by Acquiror, the Company
shall, immediately prior to the Closing Date, terminate any one or more of the
Plans and shall provide to Acquiror a copy of the resolutions of the Board of
Directors of the Company and any plan amendments effecting such termination.
7.7 Registration Rights
(a) "Effectiveness Date" means with respect to the Registration
Statement the earlier of the 90th day following the Filing Date and the date
which is within five (5) days of the date on which the SEC informs Acquiror that
the SEC (i) will not review the Registration Statement or (ii) that Acquiror may
request the acceleration of the effectiveness of the Registration Statement.
(b) The term "Holder" means any holder of outstanding Registrable
Securities who is (i) a Company Stockholder; or (ii) any person to which the
registration rights provided for in this Agreement shall have been properly
assigned or otherwise transferred in accordance with Section 7.7(l) hereof;
38
(c) The terms "register," "registered" and "registration" refer to a
registration effected by preparing and filing a registration statement in
compliance with the Securities Act and the declaration or ordering of the
effectiveness of such registration statement;
(d) The term "Registrable Securities" means: (i) Acquiror Common Stock
issued to the Company Stockholders in the Merger, and (ii) the shares of
Acquiror Common Stock issued or issuable as a result of any stock dividend or
stock split or in connection with a combination of shares, recapitalization,
merger, consolidation or other reorganization and any other securities issued
pursuant to any other pro rata distribution with respect to, or in exchange for
or in replacement of Acquiror Common Stock; provided, however, that shares of
Acquiror Common Stock shall not be treated as Registrable Securities if such
shares: (v) are Earn-Out Shares or Escrowed Shares; (w) are sold under any
registration under the Securities Act or pursuant to the Shelf Registration
Statement (as defined below); (x) are sold by a person in a transaction in which
rights under this Agreement are not assigned in accordance with the terms of
this Agreement; (y) are sold pursuant to Rule 144 (including any successor
provision, "Rule 144") promulgated under the Securities Act; (z) in the opinion
of counsel to Acquiror, may be sold in a transaction exempt from the
registration and prospectus delivery requirements of the Securities Act so that
all transfer restrictions and legends with respect thereto are removed from the
certificates representing such shares upon the consummation of such sale;
(e) "Registration Expenses" shall mean all expenses incurred by
Acquiror in compliance with Section 7.7 hereof, whether or not any registration
statement is filed or becomes effective and whether or not any Registrable
Securities are sold pursuant to such registration statement, including, without
limitation, all registration and filing fees, printing expenses, fees and
disbursements of counsel for Acquiror, blue sky fees and expenses and the
expense of any special audits incident to or required by any such registration
(but excluding the compensation of regular employees of Acquiror, which shall be
paid in any event by Acquiror);
(f) "Selling Expenses" shall mean all underwriting discounts and
selling commissions applicable to the sale of Registrable Securities and all
fees and disbursements of counsel for the Holders, if any, relating to the sale
or disposition of the Registrable Securities pursuant to any registration
statement filed pursuant to this Section 7.7.
(g) Company Registration.
(i) Shelf Registration. Acquiror shall prepare and file with the
SEC a registration statement (the "Registration Statement") covering for resale
all Registrable Securities within ninety (90) days of the date hereof and use
its best efforts to cause such Registration Statement to become effective as
soon as possible, but no later than one hundred eighty (180) days from the date
of this Agreement. The Registration Statement shall be on Form S-3 (except if
Acquiror is not then eligible to register for resale the Registrable Securities
on Form S-3 and such ineligibility is attributable to the failure of Company to
deliver the financial statements of the Company, in a timely manner, pursuant to
Section 8.3(a) hereof, in which event Acquiror shall have no further duties or
obligations under this Agreement). Acquiror shall use its best efforts to cause
the Registration Statement to be declared effective under the Securities Act as
promptly as possible after the filing of its Form 8-K Report containing
pro-
39
forma financial information regarding its acquisition of the Company, but in any
event no later than ninety (90) days after the date of filing of such Form 8-K
Report.
(ii) Underwriting. If the registration of which Acquiror gives
notice is for a registered public offering involving an underwriting, Acquiror
shall so advise the Holders in the written notice given to the Stockholders'
Agent. In such event, the right of a Holder to registration pursuant to this
Section 7.7 shall be conditioned upon the Holder's participation in such
underwriting and the inclusion of Holder's Registrable Securities in the
underwriting to the extent provided herein. Each Holder shall (together with
Acquiror and any other stockholders distributing their securities through such
underwriting) enter into an underwriting agreement in customary form with the
representative of the underwriter or underwriters selected by Acquiror.
Notwithstanding any other provision of this Section 7.7(g), if the
representative determines that marketing factors require a limitation on the
number of shares to be underwritten, the representative may limit the number of
Registrable Securities to be included in the registration and underwriting.
Acquiror shall so advise all holders of securities requesting registration, and
the number of shares of securities that are entitled to be included in the
registration and underwriting shall be allocated in the following manner: The
securities of Acquiror held by the Holders participating in such registration
(other than securities held by holders who by contractual right demanded such
registration) shall be excluded from such registration and underwriting on a pro
rata basis (based on the number of shares held) to the extent required by such
limitation. If a Holder disapproves of the terms of any such underwriting, a
Holder may elect to withdraw therefrom by written notice to Acquiror and the
underwriter. Any Registrable Securities or other securities excluded or
withdrawn from such underwriting shall be withdrawn from such registration.
(h) Registration Expenses. All Registration Expenses incurred in
connection with any registration, qualification or compliance pursuant to this
Section 7.7 shall be borne by Acquiror, and any and all Selling Expenses shall
be borne by the Holders.
(i) Registration Procedures. In connection with Acquiror's
registration obligations hereunder, Acquiror shall:
(i) Prepare and file with the SEC a Registration Statement on
Form S-3 (or if Acquiror is not then eligible to register for resale the
Registrable Securities on Form S-3 such registration shall be on another
appropriate form in accordance herewith) in accordance with the method or
methods of distribution thereof as specified by the Stockholders' Agent (except
if otherwise directed by the Stockholders' Agent), and cause the Registration
Statement to become effective and remain effective as provided herein.
(ii) (i) Prepare and file with the SEC such amendments, including
post-effective amendments, to the Registration Statement as may be necessary to
keep the Registration Statement continuously effective as to the applicable
Registrable Securities for a period of three hundred and sixty (360) days;
provided, however, that such 360-day period shall be extended for a period of
time equal to the period during which a Holder refrains from selling any
securities included in such registration in accordance with the provisions set
forth in Section 7.7(l) hereof (together the "Effectiveness Period"); (ii) cause
the related prospectus to be amended or supplemented by any required prospectus
supplement, and as so supplemented or
40
amended to be filed pursuant to Rule 424 (or any similar provisions then in
force) promulgated under the Securities Act; (iii) respond as promptly as
possible to any comments received from the SEC with respect to the Registration
Statement or any amendment thereto and as promptly as possible provide the
Holders true and complete copies of all correspondence from and to the SEC
relating to the Registration Statement; and (iv) comply in all material respects
with the provisions of the Securities Act and the Exchange Act with respect to
the disposition of all Registrable Securities covered by the Registration
Statement during the applicable period in accordance with the intended methods
of disposition by the Holders thereof set forth in the Registration Statement as
so amended or in such prospectus as so supplemented.
(iii) Notify the Stockholders' Agent (i) of Registrable
Securities to be sold and any special counsel to the Holders as promptly as
possible (and, in the case of (i)(A) below, not less than five (5) business days
prior to such filing) and (if requested by the Stockholders' Agent) confirm such
notice in writing no later than one (1) business day following the day (A) when
a prospectus or any prospectus supplement or post-effective amendment to the
Registration Statement is proposed to be filed; (B) when the SEC notifies
Acquiror whether there will be a "review" of such Registration Statement and
whenever the SEC comments in writing on such Registration Statement and (C) with
respect to the Registration Statement or any post-effective amendment, when the
same has become effective; (ii) of any request by the SEC or any other Federal
or state governmental authority for amendments or supplements to the
Registration Statement or prospectus or for additional information; (iii) of the
issuance by the SEC of any stop order suspending the effectiveness of the
Registration Statement covering any or all of the Registrable Securities or the
initiation of any Proceedings for that purpose; (iv) if at any time any of the
representations and warranties of Acquiror contained in any agreement
contemplated hereby cease to be true and correct in all material respects; (v)
of the receipt by Acquiror of any notification with respect to the suspension of
the qualification or exemption from qualification of any of the Registrable
Securities for sale in any jurisdiction, or the initiation or threatening of any
Proceeding for such purpose; and (vi) of the occurrence of any event that makes
any statement made in the Registration Statement or prospectus or any document
incorporated or deemed to be incorporated therein by reference untrue in any
material respect or that requires any revisions to the Registration Statement,
prospectus or other documents so that, in the case of the Registration Statement
or the prospectus, as the case may be, it will not contain any untrue statement
of a material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading.
(iv) The Company shall promptly furnish to Holder's counsel, if
any, without charge, (i) any correspondence from the SEC or the SEC's staff to
Acquiror or its representatives relating to any Registration Statement and (ii)
promptly after the same is prepared and filed with the SEC, a copy of any
written response to the correspondence received from the SEC.
(v) Cooperate with the Holders to facilitate the timely
preparation and delivery of certificates representing Registrable Securities to
be sold pursuant to a Registration Statement, which certificates shall be free
of all restrictive legends, and to enable such Registrable Securities to be in
such denominations and registered in such names as such Holder may request at
least two (2) business days prior to any sale of Registrable Securities.
41
(j) Indemnification.
(i) Acquiror will, notwithstanding any termination of this
Agreement, indemnify the Holders and each of its officers, directors, agents,
brokers, investment advisors and employees, and each person who controls any
such Holder, the officers, directors, agents and employees of each such
controlling person, to the fullest extent permitted by applicable law with
respect to each registration which has been effected pursuant to this Agreement,
and each underwriter, if any, and each person who controls any underwriter,
against all claims, losses, damages and liabilities (or actions in respect
thereof) arising out of or based on any untrue statement (or alleged untrue
statement) of a material fact contained in any prospectus, offering circular or
other document (including any related registration statement, notification or
the like) incident to any such registration, qualification or compliance, or
based on any omission (or alleged omission) to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, or any violation by Acquiror of the Securities Act or any rule or
regulation thereunder applicable to Acquiror and relating to action or inaction
required of Acquiror in connection with any such registration, qualification or
compliance, and will reimburse such Holder and its directors and officers for
any legal or any other expenses reasonably incurred in connection with
investigating or defending any such claim, loss, damage, liability or action;
provided that Acquiror will not be liable in any such case to the extent that
any such claim, loss, damage, liability or expense arises out of or is based on
any untrue statement or omission based upon written information furnished to
Acquiror by such Holder or underwriter. Such indemnity shall remain in full
force and effect regardless of any investigation made by or on behalf of an
Indemnified Party (as defined in Section 5(c) hereof) and shall survive the
transfer of the Registrable Securities by such Holder.
(ii) Each Holder will, if Registrable Securities held by it are
included in the securities as to which such registration, qualification or
compliance is being effected, indemnify Acquiror, each of its directors and
officers and each underwriter, if any, of Acquiror's securities covered by such
a registration statement, each person who controls Acquiror or such underwriter,
each other stockholder of Acquiror participating in such registration, and each
of their respective officers, directors, and partners, and each person
controlling such other stockholder, in each case, against all claims, losses,
damages and liabilities (or actions in respect thereof) arising out of or based
on any untrue statement (or alleged untrue statement) of a material fact
contained in any such registration statement, prospectus, offering circular or
other document made by such Holder, or any omission (or alleged omission) to
state therein a material fact required to be stated therein or necessary to make
the statements by such Holder or Holders therein not misleading, and will
reimburse Acquiror and such other stockholders, directors, officers, members,
partners, persons, underwriters or control persons for any legal or any other
expenses reasonably incurred in connection with investigating or defending any
such claim, loss, damage, liability or action, in each case to the extent, but
only to the extent, that such untrue statement (or alleged untrue statement) or
omission (or alleged omission) is made in such registration statement,
prospectus, offering circular or other document in reliance upon and in
conformity with written information furnished to Acquiror by such Holder or
Holders.
(iii) Each party entitled to indemnification under this Section
7.7(j) (the "Indemnified Party") shall give notice to the party required to
provide indemnification (the "Indemnifying Party") promptly after such
Indemnified Party has actual knowledge of any claim
42
as to which indemnity may be sought, and shall permit the Indemnifying Party to
assume the defense of any such claim or any litigation resulting therefrom;
provided that counsel for the Indemnifying Party, who shall conduct the defense
of such claim or any litigation resulting therefrom, shall be approved by the
Indemnified Party (whose approval shall not unreasonably be withheld) and the
Indemnified Party may participate in such defense at such party's expense
(unless the Indemnified Party shall have reasonably concluded that there may be
a conflict of interest between the Indemnifying Party and the Indemnified Party
in such action, in which case the fees and expenses of counsel shall be at the
expense of the Indemnifying Party), and provided further that the failure of any
Indemnified Party to give notice as provided herein shall not relieve the
Indemnifying Party of its obligations under this Agreement unless the
Indemnifying Party is materially prejudiced thereby. No Indemnifying Party, in
the defense of any such claim or litigation shall, except with the consent of
each Indemnified Party, consent to entry of any judgment or enter into any
settlement which does not include as an unconditional term thereof the giving by
the claimant or plaintiff to such Indemnified Party of a release from all
liability in respect to such claim or litigation. Each Indemnified Party shall
furnish such information regarding itself or the claim in question as an
Indemnifying Party may reasonably request in writing and as shall be reasonably
required in connection with the defense of such claim and litigation resulting
therefrom.
(iv) If the indemnification provided for in this Section 7.7(j)
is held by a court of competent jurisdiction to be unavailable to an Indemnified
Party with respect to any loss, liability, claim, damage or expense referred to
herein, then the Indemnifying Party, in lieu of indemnifying such Indemnified
Party hereunder, shall contribute to the amount paid or payable by such
Indemnified Party as a result of such loss, liability, claim, damage or expense
in such proportion as is appropriate to reflect the relative fault of the
Indemnifying Party on the one hand and of the Indemnified Party on the other in
connection with the statements or omissions which resulted in such loss,
liability, claim, damage or expense, as well as any other relevant equitable
considerations. The relative fault of the Indemnifying Party and of the
Indemnified Party shall be determined by reference to, among other things,
whether the untrue (or alleged untrue) statement of a material fact or the
omission (or alleged omission) to state a material fact relates to information
supplied by the Indemnifying Party or by the Indemnified Party and the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such statement or omission. Notwithstanding anything to the contrary
contained herein, a Holder shall be liable or required to contribute under this
Section 7.7(j)(iv) only that amount as does not exceed the net proceeds to such
Holder as a result of the sale of Registrable Securities pursuant to the
Registration Statement. No person guilty of fraudulent misrepresentation (within
the meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any Person who was not guilty of such fraudulent
misrepresentation.
(v) Notwithstanding the foregoing, to the extent that the
provisions on indemnification and contribution contained in the underwriting
agreement entered into in connection with any underwritten public offering
contemplated by this Section 7.7 are in conflict with the foregoing provisions,
the provisions in such underwriting agreement shall be controlling.
(vi) The foregoing indemnity agreement of Acquiror and the
Holders is subject to the condition that, insofar as they relate to any loss,
claim, liability or damage made in
43
a preliminary prospectus but eliminated or remedied in the amended prospectus on
file with the SEC at the time the registration statement in question becomes
effective or the amended prospectus filed with the SEC pursuant to SEC Rule
424(b) (the "Final Prospectus"), such indemnity agreement shall not inure to the
benefit of any underwriter if a copy of the Final Prospectus was furnished to
the underwriter and was not furnished to the person asserting the loss,
liability, claim or damage at or prior to the time such action is required by
the Securities Act.
(k) Information by Holders. The Holders shall furnish to Acquiror such
information regarding such Holder and the distribution proposed by the Holders
as Acquiror may reasonably request in writing and as shall be reasonably
required in connection with any registration, qualification or compliance
referred to in this Agreement.
(l) Market-Stand Off. Each Holder agrees, if requested by Acquiror and
an underwriter of common stock (or other securities) of Acquiror, not to sell or
otherwise transfer or dispose of any common stock (or other securities) of
Acquiror held by such Holder during the 90-day period following the effective
date of a registration statement of Acquiror filed under the Securities Act. If
requested by the underwriters, the Holders shall execute a separate agreement to
the foregoing effect. Acquiror may impose stop-transfer instructions with
respect to the shares (or securities) subject to the foregoing restriction until
the end of said 90-day period. The provisions of this Section 7.7(l) shall be
binding upon any transferee who acquires Registrable Securities, whether or not
such transferee is entitled to the registration rights provided hereunder.
(m) Limitations. Acquiror shall not be obligated to take any action to
effect any registration pursuant to this Section 7.7 in any particular
jurisdiction in which Acquiror would be required to execute a general consent to
service of process in effecting such registration, qualification or compliance
under the securities or blue sky laws of such jurisdiction within the United
States and its possessions and territories unless Acquiror is already subject to
service in such jurisdiction and except as may be required by the Securities
Act.
(n) No Underwriting. No sale of Registrable Securities under any
registration statement pursuant to this Agreement may be effected pursuant to
any underwritten offering without Acquiror's prior written consent, which may be
withheld in its sole and absolute discretion.
(o) Termination. The registration rights set forth in this Agreement
shall not be available to a Holder if, in the opinion of counsel to Acquiror,
all of the Registrable Securities then owned by such Holder could be sold in any
90-day period pursuant to Rule 144 under the Securities Act (without giving
effect to the provisions of Rule 144(k))
(p) Suspension of Registration Statement. Notwithstanding anything to
the contrary set forth in this Agreement, Acquiror's obligation under this
Agreement to amend or supplement a Shelf Registration Statement shall be
suspended (and each Holder agrees that it will forthwith discontinue disposition
of Registrable Securities pursuant to the Shelf Registration Statement) in the
event and during such period as circumstances exist (including, without
limitation (i) an underwritten offering by Acquiror if Acquiror is advised in
writing by an independent investment banking firm that sale of the shares under
the Shelf Registration
44
Statement would have a material adverse effect on Acquiror's offering or (ii)
pending negotiations relating to, or consummation of, a transaction, or the
occurrence of an event or the existence of facts and circumstances that would
require additional disclosure of material information by Acquiror in the
registration statement or such filing, as to which Acquiror has a bona fide
business purpose for preserving confidentiality or which renders Acquiror unable
to comply with SEC requirements) (such circumstances being hereinafter referred
to as a "Suspension Event") that would make it impractical or unadvisable in the
good faith judgment of the Board of Directors of Acquiror, to amend or
supplement the Shelf Registration Statement (or to permit dispositions of
Registrable Securities under the Shelf Registration Statement), but such
suspension shall continue only for so long as such event or its effect is
continuing, provided, further, that the aggregate number of days in any
consecutive twelve (12) month period during which such suspension shall continue
does not exceed 30 days per occurrence or more than 60 days in the aggregate.
Any such suspension may not occur until after at least thirty (30) days after
the effectiveness of the Shelf Registration Statement. Acquiror shall notify the
Holder of the existence and, in the case of circumstances referred to in clause
(i) of this Section 7.7(k), of the nature of any Suspension Event by providing a
suspension notice (a "Suspension Notice") to such Holder. If not more than 72
hours prior to the receipt of a Suspension Notice, a Holder has provided
Acquiror with written notice of a proposed sale of Registrable Securities, the
Holder may sell Registrable Securities as specified in such notice, and
thereafter the Holder shall suspend all sales of Registrable Securities until
such sales may be recommenced pursuant to the provisions of this Section. The
Holders may recommence effecting sales of the Registrable Securities pursuant to
the Shelf Registration Statement or such filings following further notice to
such effect from Acquiror to the Stockholders' Agent, which notice shall be
given by Acquiror not later than two (2) business days after the conclusion of
any Suspension Event (a "Termination Notice"). If so directed by Acquiror, each
Holder will deliver to Acquiror all copies, other than permanent file copies
then in such Holder's possession, of the prospectus covering such shares of
Registrable Securities that was current at the time of receipt of such notice.
(q) Transfer of Registration Rights. Except as otherwise provided
herein, the rights to cause Acquiror to register securities granted by Acquiror
under Section 7.7(d) may be assigned or otherwise conveyed to a transferee,
assignee or successor of Registrable Securities, who shall be considered a
"Holder" for purposes of this Agreement; provided that, (i) such transfer is
effected in accordance with applicable federal and state securities laws, (ii)
such transferee, assignee or successor becomes a party to this Agreement or
agrees in writing to be subject to the terms hereof to the same extent as if he
were an party hereto, and (iii) Acquiror is given written notice by such Holder
of said transfer, stating the name and address of said transferee, assignee or
successor and identifying the securities with respect to which such registration
rights are being assigned.
7.8 Blue Sky Laws. Acquiror shall use commercially reasonable best efforts
to comply with the securities and blue sky laws of all jurisdictions which are
applicable to the issuance of the Acquiror Common Stock in connection with the
Merger. The Company shall take such steps to assist Acquiror as may be necessary
to comply with the securities and blue sky laws of all jurisdictions which are
applicable in connection with the issuance of Acquiror Common Stock in
connection with the Merger.
45
ARTICLE 8
CLOSING & POST-CLOSING DELIVERIES
8.1 Closing Deliveries of Company and Principal Stockholders. At the
Closing, the Company and Principal Stockholders shall deliver, or cause to be
delivered, to Acquiror the following:
(a) an executed option to acquire CDI, executed by the board of
directors and shareholders of ASC USA and ASC Israel, in the form of the Option
Agreement attached hereto as Exhibit C (the "CDI Option");
(b) executed consulting agreements between Acquiror and each employee
of CDI, in form and substance reasonably satisfactory to Acquiror;
(c) an executed services agreement between Acquiror and Estelle
Cleary, Executive Vice President of the Company, effective as of the Closing
Date, substantially in the form attached hereto as Exhibit D (the "Services
Agreement");
(d) an executed escrow agreement between Acquiror, the Principal
Stockholders and Stockholders' Agent, substantially in the form attached hereto
as Exhibit E (the "Escrow Agreement");
(e) executed consents from each of the counterparties to Company
Contracts set forth on Section 4.23 of the Company Disclosure Schedule for the
authorization, execution and delivery of the Transactional Agreements and the
consummation of the Transactions, in form and substance reasonably satisfactory
to Acquiror;
(f) the resignations of the directors and officers of Company in
office immediately prior to the Effective Time, effective as of the Effective
Time;
(g) evidence, in a form reasonably satisfactory to Acquiror, of the
termination of the Sublease Agreement, dated October 1, 2005, between the
Company and ASC USA;
(h) resolutions of the board of directors of the Company, certified by
the Secretary of the Company, authorizing the execution, delivery and
performance of this Agreement, the CDI Option and the Transactions;
(i) resolutions of the stockholders of the Company authorizing the
Transactions, duly approved by the holders of 75% of the outstanding shares of
Company Common Stock, and certified by the Secretary of the Company;
(j) a complete and correct accounting of the Adjustment Amount;
(k) evidence, in a form and substance reasonably satisfactory to
Acquiror, that the Agreements with customers set forth in Schedule 8.1(m) have
been amended to remove exclusivity provisions;
46
(l) an affidavit, in a form reasonably satisfactory to Acquiror,
stating under penalty of perjury that the Company's shares are not a "United
States real property interest" as defined in Section 897(c) of the Code; and
(m) the requisite stockholder approval under Section 280G(b)(5) of the
Code (in a manner reasonably satisfactory to Acquiror) of any payments or
benefits that could be considered "excess parachute payments" within the meaning
of Section 280G of the Code (which initial determination shall be made by the
Company and shall be subject to review and approval by Acquiror) to any person
which required each such person to subject his existing benefits and payments to
the stockholder approval requirements of Section 280G(b)(5) of the Code, as
contemplated in the Treasury Regulations promulgated thereunder.
8.2 Closing Deliveries of Acquiror and Merger Sub. At the Closing, the
Acquiror and Merger Sub shall deliver, or cause to be delivered, to Company and
the Principal Stockholders the following:
(a) a copy of the resolutions of the board of directors of the Merger
Sub, certified by the Secretary of Merger Sub, authorizing the execution,
delivery and performance of the Transactional Agreements to which Merger Sub is
a party and the Transactions to be performed by Merger Sub; and
(b) a copy of the resolutions of the sole stockholder of Merger Sub
authorizing the Transactions, and certified by the Secretary of Merger Sub.
8.3 Post-Closing Covenants of Acquiror, Surviving Corporation, and
Principal Stockholders.
(a) Immediately following the Effective Time, Acquiror shall, and
shall cause the Company, as the corporation surviving following the Merger, and
the Merger Sub II, to complete the Second Step Merger pursuant to the Second
Step Agreement of Merger.
ARTICLE 9
ESCROW AND INDEMNIFICATION
9.1 Company Indemnification Obligations.
(a) Pursuant to Section 3.4, at Closing Acquiror shall set aside the
Escrowed Shares in a segregated Escrow Account. Subject to the limitations
contained in this Article 9, the Escrowed Shares shall be available to
compensate Acquiror for any loss, expense, liability or other damage, including
reasonable attorneys' fees (collectively, "Damages") to the extent of Damages
incurred by Acquiror by reason of the breach or alleged breach by the Company of
any representation, warranty, covenant or agreement of the Company contained in
this Agreement or in any document, schedule or certificate delivered by the
Company pursuant hereto (provided that, in the event of any such breach or
inaccuracy, for purposes of determining the amount of any Loss no effect will be
given to any qualification as to "materiality", a "Company Material Adverse
Effect" or "Knowledge" contained therein) (collectively, the "Company
Indemnification Obligations").
47
(b) Acquiror shall be entitled to set-off the amount of any Company
Indemnification Obligation in excess of the Escrow Account against any amount,
right or obligation owing to a Company Stockholder under this Agreement or any
other agreement, including without limitation the Earn-Out Payment.
(c) Notwithstanding the representations and warranties and the related
disclosures in the Schedule of Exceptions, the Company Indemnification
Obligations shall include any Damages arising from, or related to the claims set
forth on Section 4.22(b) of the Schedule of Exceptions with respect to U.S.
Patent 4,698,672 (the "672 Matter").
9.2 Escrow Period. The Escrow Account shall commence on the Closing Date
and terminate on August 2, 2007 (the "Escrow Period"), provided, however, 1/4
(one quarter) of the Escrowed Shares shall be released October 2, 2006, and 1/4
(one quarter) of the Escrowed Shares shall be released on May 2, 2007 and the
remaining 1/2 (one half) of the Escrowed Shares shall be release on August 2,
2007; provided, further, that the portion of the Escrowed Shares which, in the
reasonable judgment of Acquiror and subject to the objection of the
Stockholders' Agent and the subsequent resolution of the matter in the manner
provided in Section 9.5, is necessary to satisfy any unsatisfied claims
specified in any Officer's Certificate theretofore delivered to the
Stockholders' Agent prior to termination of the Escrow Period with respect to
Damages incurred or litigation pending prior to expiration of the Escrow Period,
shall remain in the Escrow Account until such claims have been finally resolved,
or, if earlier, until released in accordance with the terms hereof.
9.3 Claims Upon Escrow Account. Upon receipt by the Escrow Agent on or
before the last day of the Escrow Period of a certificate signed by any
appropriately authorized officer of Acquiror (an "Officer's Certificate"):
(a) Stating the aggregate amount of Acquiror's Damages or an estimate
thereof, in each case to the extent known or determinable at such time, and
(b) Specifying in reasonable detail the individual items of such
Damages included in the amount so stated, the date each such item was paid or
properly accrued or arose, and the nature of the misrepresentation, breach or
claim to which such item is related, then the Escrow Agent shall, subject to the
provisions of Sections 9.3, 9.7 and 9.8 hereof, deliver to Acquiror out of the
Escrow Fund, as promptly as practicable, such number of shares from the Escrow
Amount having a Fair Market Value equal to such Damages, all in accordance with
the Escrow Agreement and Section 9.6 below. The Acquiror shall determine the Tax
treatment of any and all amounts remaining in the Escrow Account, including any
net profit from, or interest or income produced by the Escrowed Shares, and the
parties hereto shall, for Tax reporting purposes, report in a manner consistent
with the Acquiror's determination.
9.4 Objections to Claims. At the time of delivery of any Officer's
Certificate to the Escrow Agent, a duplicate copy of such Officer's Certificate
shall be delivered to the Stockholders' Agent and for a period of thirty (30)
days after such delivery, the Escrow Agent shall make no delivery of any portion
of the Escrow Amount pursuant to Section 9.5 unless the Escrow Agent shall have
received written authorization from the Stockholders' Agent to make such
delivery. After the expiration of such thirty (30) day period, the Escrow Agent
shall make
48
delivery of the portion of the Escrow Amount in the Escrow Fund in accordance
with Section 9.5, provided that no such delivery may be made if the
Stockholders' Agent shall object in a written statement to the claim made in the
Officer's Certificate, and such statement shall have been delivered to the
Escrow Agent and to Acquiror prior to the expiration of such thirty (30) day
period.
9.5 Resolution of Conflicts.
(a) In case the Stockholders' Agent shall object in writing to any
claim or claims made in any Officer's Certificate, the Acquiror shall have
thirty (30) days to respond in a written statement to the objection. If after
such thirty (30) day period there remains a dispute as to any claims, the
Stockholders' Agent and Acquiror shall attempt in good faith for thirty (30)
days to agree upon the rights of the respective parties with respect to each of
such claims. If the Stockholders' Agent and Acquiror should so agree, a
memorandum setting forth such agreement shall be prepared and signed by both
parties and, if Acquiror has requested delivery of a portion of the Escrow
Amount, shall be furnished to the Escrow Agent. The Escrow Agent shall be
entitled to rely on any such memorandum and shall distribute the portion of the
Escrow Amount from the Escrow Account in accordance with the terms of the
memorandum.
(b) If no such agreement can be reached after good faith negotiations,
either Acquiror or the Stockholders' Agent may, by written notice to the other,
demand arbitration of the matter, unless the amount of the damage or loss is at
issue in pending litigation with a third party, in which event arbitration shall
not be commenced until such amount is ascertained or both parties agree to
arbitration; and in either such event the matter shall be settled by arbitration
conducted by three (3) arbitrators. Within fifteen (15) days after such written
notice is sent, Acquiror (on the one hand) and the Stockholders' Agent (on the
other hand) shall each select one arbitrator, and the two arbitrators so
selected shall select a third arbitrator. The decision of the arbitrators as to
the validity and amount of any claim in such Officer's Certificate shall be
binding and conclusive upon the parties to this Agreement, and notwithstanding
anything in Sections 9.1 through 9.5, the Escrow Agent shall be entitled to act
in accordance with such decision and make or withhold payments out of the Escrow
Fund in accordance with such decision.
9.6 Stockholders' Agent.
(a) Harry Fox is hereby constituted and appointed as agent (the
"Stockholders' Agent") for and on behalf of the Company, and the Company
Stockholders and the participants in the escrow established for the Company's
management (the "Management Participants") pursuant and subject to the
conditions set forth in Section 3(a) hereof, to give and receive notices and
communications, to authorize delivery to Acquiror of the portion of the Escrowed
Shares from the Escrow Account in satisfaction of claims by Acquiror, to object
to such deliveries, to agree to, negotiate, enter into settlements and
compromises of, and demand arbitration and comply with orders of courts and
awards of arbitrators with respect to such claims, and to take all actions
necessary or appropriate in the judgment of the Stockholders' Agent for the
accomplishment of the foregoing. Such agency may be changed by the holders of a
majority in interest of the Company Stockholders or the Management Participants,
as the case may be, from time to time upon not less than ten (10) days' prior
written notice to Acquiror. No
49
bond shall be required of the Stockholders' Agent. Notices or communications to
or from the Stockholders' Agent shall constitute notice to or from each of the
Company Stockholders and Management Participants. If the Stockholders' Agent
shall die, become disabled or otherwise be unable to fulfill his
responsibilities as agent of Company Stockholders, then the Principal
Stockholders and Management Participants shall each, within ten days after such
death or disability, by a majority vote of the shares of Company Common Stock
held by all Principal Stockholders at Closing and, with respect to the
Management Participants, by a vote of a majority percentage of interest in the
escrow established pursuant to Section 3(a), be entitled to appoint a successor
agent and, promptly thereafter, shall notify Acquiror of the identity of such
successor. Any such successor shall become the "Stockholders' Agent" for
purposes of this Agreement. If for any reason there is no Stockholders' Agent at
any time, all references herein to the Stockholders' Agent shall be deemed to
refer to the Principal Stockholders acting by a majority vote of the shares of
Company Common Stock held by all Principal Stockholders at Closing.
(b) The Stockholders' Agent shall not be liable for any act done or
omitted hereunder as Stockholders' Agent while acting in good faith, and any act
done or omitted pursuant to the advice of counsel shall be conclusive evidence
of such good faith. The Principal Stockholders shall jointly and severally
indemnify the Stockholders' Agent and hold him harmless against any loss,
liability or expense incurred without gross negligence or bad faith on the part
of the Stockholders' Agent and arising out of or in connection with the
acceptance or administration of his duties under this Agreement.
(c) The Stockholders' Agent shall have reasonable access to
information about Company and Acquiror and the reasonable assistance of
Company's and Acquiror's officers and employees for purposes of performing its
duties and exercising its rights under this Article 9, provided that the
Stockholders' Agent shall treat confidentially and not disclose any nonpublic
information from or about Company or Acquiror to anyone (except on a need to
know basis to individuals who agree to treat such information confidentially).
9.7 Actions of the Stockholders' Agent. A decision, act, consent or
instruction of the Stockholders' Agent shall be final, binding and conclusive,
and the Acquiror may rely upon any decision, act, consent or instruction of the
Stockholders' Agent. Acquiror is hereby relieved from any liability to any
person for any acts done by it in accordance with such decision, act, consent or
instruction of the Stockholders' Agent.
9.8 Third Party Claims. In the event Acquiror becomes aware of a
third-party claim which Acquiror believes may result in a Company
Indemnification Obligation, Acquiror shall notify the Stockholders' Agent of
such claim, and the Stockholders' Agent and the Company Stockholders shall be
entitled, at their expense, to participate in any defense of such claim.
Acquiror shall have the right in its sole discretion to settle any such claim;
provided, however, that Acquiror may not effect the settlement of any such claim
without the consent of the Stockholders' Agent, which consent shall not be
unreasonably withheld. In the event that the Stockholders' Agent has consented
to any such settlement, the Stockholders' Agent shall have no power or authority
to object to the amount of any claim by Acquiror against the Company
Stockholders for indemnity with respect to such settlement, unless such claim is
in an amount in excess of any amount consented to by the Stockholders' Agent.
50
9.9 Principal Stockholder Indemnification Obligations.
(a) Each Principal Stockholder, severally in an amount equal to the
proportion of Company Common Stock held by such Principal Stockholder compared
to all Principal Stockholders at Closing, shall indemnify, defend and hold
Acquiror, and its affiliates, representatives, advisors, agents and assigns
(collectively, the "Indemnified Persons") harmless from and against any loss,
expense, liability or other damage, including reasonable attorney's fees, that
any Indemnified Person has incurred by reason of the breach or alleged breach by
such Principal Stockholder of the representations and warranties set forth in
Article 4 or Article 5 hereof (collectively, the "Principal Stockholder
Indemnification Obligations") incurred as a result of, based upon or arising
from:
(b) Any breach or alleged breach by such Principal Stockholder or the
Company of any representation or warranty contained in this Agreement by such
Principal Stockholder or the Company, including, without limitation, any Damages
arising from, or related to the 672 Matter.
(c) Any breach by the Company of, or any failure by the Company to
perform or comply with, any of its obligations contained in this Agreement; or
(d) Any Taxes which are imposed on the Company or any of its
subsidiaries in respect of its income, business, property or operations or for
which the Company or any of its subsidiaries may otherwise be liable: (A) for
any taxable period ending on or prior to the Closing Date or for any Pre-Closing
Period; (B) resulting by reason of the liability of the Company or any of its
subsidiaries pursuant to Treasury Regulations Section 1.1502-6 or any analogous
state, local or foreign law or regulation or by reason of the Company or any of
its subsidiaries having been a member of any consolidated, combined or unitary
group, or having incurred Tax liability as a transferee or by contract, on or
prior to the Closing Date; (C) in respect of any Post-Closing Period,
attributable to events, transactions, sales, deposits, services or rentals
occurring, received or performed in a Pre-Closing Period; (D) in respect of any
Post-Closing Period, attributable to any change in accounting method employed by
the Company or any of its subsidiaries during any Pre-Closing Period; (E) in
respect of any Post-Closing Period, attributable to any items of income or gain
of a partnership including the Company or any of its subsidiaries as a partner,
to the extent such items are properly attributable to periods of the partnership
ending on or before the Closing Date; provided, however, that the Principal
Stockholders' liability under the foregoing provisions of this Section
9.9(a)(iii) shall be reduced as to any item to the extent that such item was
specifically and fully reserved for in the Company's reserves, as described
under Section 4.15(c) of this Agreement. For purposes of this Section
9.9(a)(iii), whenever it is necessary to determine the liability for Taxes of
the Company or any of its subsidiaries for a portion of a taxable year or period
that begins before and ends after the Closing Date, the determination of the
Taxes of the Company or any of its subsidiaries for the portion of the year or
period ending on, and the portion of the year or period beginning after, the
Closing Date shall be determined by assuming that Company had a taxable year or
period which ended at the Closing Date, except that exemptions, allowances or
deductions that are calculated on an annual basis shall be apportioned on a time
basis. In the case of property Taxes and similar Taxes which apply ratably to a
taxable period, the amount of Taxes allocable to the portion of the taxable
period that ends on the Closing Date shall be apportioned on a time basis.
51
(e) Notwithstanding Section 9.9(a), (i) Au Sai Chuen, a stockholder of
the Company, shall not be deemed to be a Principal Stockholder for purposes of
Section 9.9(a), and (ii) the Principal Stockholders shall have no liability
under Section 9.9(a) unless and until the Escrow Account has been exhausted in
satisfaction of any Company Indemnification Obligations relating to the same
matter giving rise to a Principal Stockholder Indemnification Obligation.
9.10 Remedies Exclusive. Except with respect to willful misconduct, fraud,
and the 672 Matter, the remedies provided in this Article 9 shall be the
exclusive remedy of Acquiror after the Closing in connection with, arising out
of, or related to this Agreement and the transactions contemplated hereby.
ARTICLE 10
MISCELLANEOUS PROVISIONS
10.1 Survival of Representations and Covenants. All representations,
warranties, covenants and agreements of the Company and the Principal
Stockholders contained in this Agreement shall not be deemed waived or otherwise
affected by any investigation made on or behalf of the Acquiror and such
representations, warranties, covenants and agreements shall survive until August
1, 2007, except for the representations and warranties contained in Sections
4.15, which shall continue in full force and effect until 90 days after all
applicable statutes of limitations, including waivers and extensions, have
expired with respect to each matter addressed therein.. All representations,
warranties, covenants and agreements of Acquiror contained in this Agreement
shall survive until the Effective Time, except for covenants and agreements
which by their terms must be performed after the Effective Time.
10.2 Transfer Taxes. All sales, use and transfer taxes, including but not
limited to any value added, stock transfer, gross receipts, stamp duty and real,
personal or intangible property transfer taxes, any transfer, recording,
registration and other fees, and any similar taxes due by reason of the
consummation of the Transactions, including but not limited to any interest or
penalties in respect thereof, shall be paid by the Company Stockholders.
10.3 Tax Returns. The Company and each Principal Stockholder shall provide
or cause to be provided to Acquiror any information and documents that Acquiror
determines are necessary or desirable for Tax reporting with respect to CDI (or
otherwise with respect to Taxes in connection with the option to acquire CDI),
including but not limited to reporting in connection with the controlled foreign
corporation provisions of the Code.
10.4 Notices. All notices and other communications hereunder shall be in
writing and shall be deemed given when delivered personally, one day after being
delivered to an overnight courier or when faxed (with a confirmatory copy sent
by overnight courier) to the parties at the following addresses (or at such
other address for a party as shall be specified by like notice):
if to the Company:
Photags, Inc.
300 Garden City Plaza, #246
New York, NY 11530
Attention: Harry Fox
Fax: (516) 535-0781
52
with a copy to:
Lehman & Eilen LLP
Mission Bay Office Plaza, Suite 300
20283 State Road 7
Boca Raton, FL 33498
Attention: Hank Gracin, Esq.
Fax: (561) 237-0803
if to the Stockholders' Agent:
Harry Fox
300 Garden City Plaza, #246
New York, NY 11530
Attention: Harry Fox
Fax: (212) 656-1077
if to Acquiror, Merger Sub, or Merger Sub II:
Smith Micro Software, Inc.
51 Columbia
Aliso Viejo, CA 92656
Attention: Bruce Quigley,
VP Business Development & Investor Relations
Fax: (949) 389-1724
with a copy to:
Morrison & Foerster LLP
555 West Fifth Street, Suite 3500
Los Angeles, CA 90013
Attention: Allen Z. Sussman, Esq.
Fax: (213) 892-5454
10.5 Time of the Essence. Time is of the essence in the performance of each
of the terms hereof with respect to the obligations and rights of each party
hereto.
10.6 Headings. The headings contained in this Agreement are for convenience
of reference only, shall not be deemed to be a part of this Agreement and shall
not be referred to in connection with the construction or interpretation of this
Agreement.
10.7 Counterparts. This Agreement may be executed in several counterparts,
each of which shall constitute an original and all of which, when taken
together, shall constitute one agreement.
53
10.8 Governing Law. This Agreement shall be construed in accordance with
and governed by the internal laws of the State of California (as permitted by
Section 1646.5 of the California Civil Code (or any similar successor
provision)) without giving effect to any choice of law rule that would cause the
application of the laws of any jurisdiction other than the internal laws of the
State of California to the rights and duties of the parties.
10.9 Waiver.
(a) No failure on the part of any Person to exercise any power, right,
privilege or remedy under this Agreement, and no delay on the part of any Person
in exercising any power, right, privilege or remedy under this Agreement, shall
operate as a waiver of such power, right, privilege or remedy; and no single or
partial exercise or waiver of any such power, right, privilege or remedy shall
preclude any other or further exercise thereof or of any other power, right,
privilege or remedy.
(b) No Person shall be deemed to have waived any claim arising out of
this Agreement, or any power, right, privilege or remedy under this Agreement,
unless the waiver of such claim, power, right, privilege or remedy is expressly
set forth in a written instrument duly executed and delivered on behalf of such
Person; and any such waiver shall not be applicable or have any effect except in
the specific instance in which it is given.
10.10 Amendments. This Agreement may not be amended, modified, altered or
supplemented other than by means of a written instrument duly executed and
delivered on behalf of Acquiror, Merger Sub, the Company and the Principal
Stockholders.
10.11 Severability. In the event that any provision of this Agreement, or
the application of any such provision to any Person or set of circumstances,
shall be determined to be invalid, unlawful, void or unenforceable to any
extent, the remainder of this Agreement, and the application of such provision
to Persons or circumstances other than those as to which it is determined to be
invalid, unlawful, void or unenforceable, shall not be impaired or otherwise
affected and shall continue to be valid and enforceable to the fullest extent
permitted by law.
10.12 Parties in Interest. Except for the provisions of Article 9 hereof
applicable to the Company Stockholders, none of the provisions of this Agreement
is intended to provide any rights or remedies to any Person other than the
parties hereto and their respective successors and assigns (if any).
10.13 Entire Agreement. The Transactional Agreements (including Schedules
and Exhibits thereto) set forth the entire understanding of the parties relating
to the subject matter thereof and supersede all prior agreements and
understandings among or between any of the parties relating to the subject
matter thereof.
10.14 Construction.
(a) For purposes of this Agreement, whenever the context requires: the
singular number shall include the plural, and vice versa; the masculine gender
shall include the feminine and neuter genders; the feminine gender shall include
the masculine and neuter genders; and the neuter gender shall include the
masculine and feminine genders.
54
(b) The parties hereto agree that any rule of construction to the
effect that ambiguities are to be resolved against the drafting party shall not
be applied in the construction or interpretation of this Agreement.
(c) As used in this Agreement, the words "include" and "including,"
and variations thereof, shall not be deemed to be terms of limitation, but
rather shall be deemed to be followed by the words "without limitation."
(d) Except as otherwise indicated, all references in this Agreement to
"Sections," "Exhibits" and "Schedules" are intended to refer to Sections of this
Agreement and Exhibits and Schedules to this Agreement.
[Signature page follows]
55
IN WITNESS WHEREOF, each of Acquiror, Merger Sub, Merger Sub II and the
Company has caused this Agreement to be executed on its behalf by its officers
thereunto duly authorized, and each Principal Stockholder and the Stockholders'
Agent have executed this Agreement, all as of the date first above written.
SMITH MICRO SOFTWARE, INC.
By: /s/ William W. Smith, Jr.
------------------------------------
Name: William W. Smith, Jr.
Title: President & CEO
TAG ACQUISITION CORPORATION
By: /s/ William W. Smith, Jr.
------------------------------------
Name: William W. Smith, Jr.
Title: President
TAG ACQUISITION CORPORATION II
By: /s/ William W. Smith, Jr.
------------------------------------
Name: William W. Smith, Jr.
Title: President
PHOTAGS, INC.
By: /s/ Harry Fox
------------------------------------
Name: Harry Fox
Title: President & CEO
PRINCIPAL STOCKHOLDERS:
/s/ Harry Fox
----------------------------------------
Print Name: Harry Fox
C3 DEVELOPMENT LLC
/s/ Harry Fox
----------------------------------------
Print Name: Harry Fox
Title: Managing Member
ADVANCED STRATEGIES CORP.
/s/ Estelle F. Cleary
----------------------------------------
Print Name: Estelle F. Cleary
Title: Executive Vice President
/s/ Au Sei Chuan
----------------------------------------
Print Name: Au Sei Chuan
STOCKHOLDERS' AGENT:
/s/ Harry Fox
----------------------------------------
Print Name: Harry Fox
INDEX OF EXHIBITS AND SCHEDULES
Exhibits:
Exhibit A Certain Definitions
Exhibit B Certificate of Merger
Exhibit C Form of CDI Option
Exhibit D Form of Services Agreement
Exhibit E Form of Escrow Agreement
Schedules:
3.1(a)(i)
3.1(a) (iii)
4.23 Third Party Consents
EXHIBIT A
CERTAIN DEFINITIONS
For purposes of the Agreement (including this Exhibit A):
ACQUIROR. "Acquiror" shall have the meaning specified in the first
paragraph of the Agreement.
ACQUIROR COMMON STOCK. "Acquiror Common Stock" shall have the meaning
specified in Paragraph 3.1(a)(iv).
ACQUIROR MATERIAL ADVERSE EFFECT. "Acquiror Material Adverse Effect" shall
mean any change, event or effect that is materially adverse to the business,
assets (whether tangible or intangible), liabilities, operations, results of
operations, condition (financial or otherwise), prospects or capitalization of
the Acquiror or any of its subsidiaries.
ACQUIROR SEC REPORTS. "Acquiror SEC Reports" shall have the meaning
specified in Paragraph 6.4(a).
ACTUAL REVENUE. "Actual Revenue" shall have the meaning specified in
Paragraph 3.3(a).
ADJUSTMENT AMOUNT. "Adjustment Amount" shall have the meaning specified in
Section 3.1(a)(i) of the Agreement.
AGREEMENT. "Agreement" shall mean the Agreement and Plan of Merger to which
this Exhibit A is attached (including the Company Disclosure Schedule and all
Exhibits), as it may be amended from time to time.
ASC ISRAEL. "ASC Israel" shall have the meaning specified in the seventh
recital of the Agreement.
ASC USA. "ASC USA" shall have the meaning specified in the seventh recital
of the Agreement.
BUSINESS SALE. "Business Sale" shall have the meaning specified in
Paragraph 3.3(b).
CDI. "CDI" shall have the meaning specified in the seventh recital of the
Agreement.
CDI BUDGET. "CDI Budget" shall mean the Company's budget for the Earn-Out
Period with respect to the Company's Products and as approved by Acquiror in
accordance with Section 4.36.
CERTIFICATES. "Certificates" shall have the meaning specified in Paragraph
3.1(b).
CERTIFICATE OF MERGER. "Certificate of Merger" shall have the meaning
specified in Section 1.2 of the Agreement.
Exhibit A-1
CERTIFICATE OF MERGER II. "Certificate of Merger II shall have the meaning
specified in Section 1.2 of the Agreement.
CLOSING. "Closing" shall have the meaning specified in Section 1.2 of the
Agreement.
CLOSING DATE. "Closing Date" shall have the meaning specified in Section
1.2 of the Agreement.
COBRA. "COBRA" shall mean Consolidated Omnibus Budget Reconciliation Act of
1985.
CODE. The "Code" shall mean the Internal Revenue Code of 1986, as amended.
COMPANY. The "Company" shall have the meaning specified in the first
paragraph of the Agreement.
COMPANY COMMON STOCK. "Company Common Stock" shall mean shares of common
stock, par value $0.001 per share, of the Company.
COMPANY CONTRACT. "Company Contract" shall mean any Contract:
(a) to which Company or any of its subsidiaries is a party;
(b) by which the Company or any of their assets is or may become bound or
under which the Company has, or may become subject to, any obligation; or
(c) under which the Company has or may acquire any right or interest.
COMPANY DEBT. "Company Debt" shall have the meaning specified in Section
3.1(a)(i) of the Agreement.
COMPANY DISCLOSURE SCHEDULE. "Company Disclosure Schedule" shall have the
meaning specified in the preamble to Article 4 of the Agreement.
COMPANY INDEMNIFICATION OBLIGATIONS. "Company Indemnification Obligations"
shall have the meaning specified in Section 9.1(a) of the Agreement.
COMPANY MATERIAL ADVERSE EFFECT. "Company Material Adverse Effect" shall
mean any change, event or effect that is materially adverse to the business,
assets (whether tangible or intangible), liabilities, operations, results of
operations, condition (financial or otherwise), prospects or capitalization of
the Company or any of its subsidiaries.
COMPANY NOTES. "Company Notes" shall mean any issued and outstanding
convertible nonconvertible notes (including commitments to issue notes, but
excluding Company Stock Options) to purchase or otherwise acquire Company Stock
(whether or not vested) held by any Person.
COMPANY PRODUCTS. "Company Products" shall mean (a) the software
applications and products that the Company currently manufactures, markets,
sells or licenses for the digital
Exhibit A-2
camera industry, (b) such other products that are currently in development, and
(c) subsequent versions (including any upgrades or updates) of the products
covered by the foregoing clauses (a) and (c).
COMPANY RETURNS. "Company Returns" shall have the meaning specified in
Section 4.15(b) of the Agreement.
COMPANY SEVERANCE AND RELEASE PAYMENTS. "Company Severance and Release
Payments" shall have the meaning specified in Section 3.1(a)(i) of the
Agreement.
COMPANY STOCK. "Company Stock" shall mean the Company Common Stock and any
other shares of capital stock, if any, of the Company.
COMPANY STOCKHOLDER. "Company Stockholder" shall mean a holder of Company
Common Stock, each of whom is listed on Section 4.3(a) of the Company Disclosure
Schedule hereto, along with the number of shares held by each such holder.
COMPANY STOCK OPTIONS. "Company Stock Options" shall mean any issued and
outstanding options (including commitments to grant options, but excluding
Company Warrants) to purchase or otherwise acquire Company Stock (whether or not
vested) held by any Person.
COMPANY WARRANTS. "Company Warrants" shall mean any issued and outstanding
warrants (including commitments to grant warrants, but excluding Company Stock
Options) to purchase or otherwise acquire Company Stock (whether or not vested)
held by any Person.
CONFIDENTIALITY AGREEMENT. "Confidentiality Agreement" means the
nondisclosure agreement between Acquiror and the Company dated as of October 14,
2005.
CONSENT. "Consent" shall mean any approval, consent, ratification,
permission, waiver or authorization (including any Governmental Authorization).
CONTRACT. "Contract" shall mean, with respect to any Person, any legally
binding written, oral, implied or other agreement, contract, understanding,
arrangement, instrument, note, guaranty, indemnity, representation, warranty,
deed, assignment, power of attorney, certificate, purchase order, work order,
insurance policy, benefit plan, commitment, covenant, assurance, obligation,
promise or undertaking of any nature to which such Person is a party or by which
its properties or assets maybe bound or affected or under which it or its
business, properties or assets receive benefits, other than contracts which are
not material to the Company which have been entered into in the Ordinary Course
of Business.
DAMAGES. "Damages" shall have the meaning specified in Section 9.1 of the
Agreement.
DEFINED BENEFIT PLAN. "Defined Benefit Plan" shall mean either a plan
described in Section 3(35) of ERISA or a plan subject to the minimum funding
standards set forth in Section 302 of ERISA and Section 412 of the Code.
DGCL. "DGCL" shall have the meaning specified in Section 1.1(a) of the
Agreement.
Exhibit A-3
DISSENTING SHARES. "Dissenting Shares" shall have the meaning specified in
Section 3.2(a) of the Agreement.
DISSENTING SHARE PAYMENTS. "Dissenting Share Payments" shall have the
meaning set forth in Section 3.2(c) of the Agreement.
EARN-OUT PAYMENT. "Earn-Out Payment" shall have the meaning specified in
Section 3.3(a).
EARN-OUT PAYMENT DISAGREEMENT NOTICE. "Earn-Out Payment Disagreement
Notice" shall have the meaning specified in Section 3.3(d).
EARN-OUT PERIOD. "Earn-Out Period" shall have the meaning specified in
Section 3.3(a).
EARN-OUT REPORT. "Earn-Out Report" shall have the meaning specified in
Section 3.3(c).
EARN-OUT SHARE EXCHANGE RATIO. "Earn-Out Share Exchange Ratio" shall mean a
number equal to the quotient obtained by dividing (a) the Earn-Out Shares by (b)
the Total Outstanding Shares.
EARN-OUT SHARES. "Earn-Out Shares" shall have the meaning specified in
Section 3.3(a).
EFFECTIVE TIME. "Effective Time" shall have the meaning specified in
Section 1.2 of the Agreement.
EFFECTIVENESS DATE. "Effectiveness Date" shall have the meaning specified
in Section 7.7(a) of this Agreement.
EFFECTIVENESS PERIOD. "Effectiveness Period" shall have the meaning
specified in Section 7.7(i)(ii).
EMPLOYEE BENEFIT PLAN. "Employee Benefit Plan" shall have the meaning
specified in Section 3(3) of ERISA.
ENCUMBRANCE. "Encumbrance" shall mean any lien, pledge, hypothecation,
charge, mortgage, security interest, encumbrance, equity, trust, equitable
interest, claim, preference, right of possession, lease, tenancy, license,
encroachment, covenant, infringement, interference, Order, proxy, option, right
of first refusal, preemptive right, community property interest, legend, defect,
impediment, exception, reservation, limitation, impairment, imperfection of
title, condition or restriction of any nature (including any restriction on the
voting of any security, any restriction on the transfer of any security or other
asset, any restriction on the receipt of any income derived from any asset, any
restriction on the use of any asset and any restriction on the possession,
exercise or transfer of any other attribute of ownership of any asset).
ENTITY. "Entity" shall mean any corporation (including any non profit
corporation), general partnership, limited partnership, limited liability
partnership, joint venture, estate, trust, cooperative, foundation, society,
political party, union, company (including any limited liability company or
joint stock company), firm or other enterprise, association, organization or
entity.
Exhibit A-4
ENVIRONMENTAL LAW. "Environmental Law" shall mean any federal, state, local
or foreign Legal Requirement relating to pollution or protection of human health
or the environment.
ERISA. "ERISA" shall mean the Employee Retirement Income Security Act of
1974.
ERISA AFFILIATE. "ERISA Affiliate" shall mean any Person that is, was or
would be treated as a single employer with the Company under Section 4001 of
ERISA or Section 414(b), (c), (m) or (o) of the Code.
ESCROW ACCOUNT. "Escrow Account" shall have the meaning specified in
Section 3.4 of the Agreement.
ESCROW PERIOD. "Escrow Period" shall have the meaning specified in Section
9.2 of the Agreement.
ESCROWED SHARES. "Escrowed Shares" shall have the meaning specified in
Section 3.4 of the Agreement.
ESTIMATED THIRD PARTY EXPENSES. "Estimated Third Party Expenses" shall have
the meaning specified in Section 3.9 of the Agreement.
EXCESS THIRD PARTY EXPENSES. "Excess Third Party Expenses" shall have the
meaning specified in Section 3.9 of the Agreement.
EXCHANGE ACT. "Exchange Act" shall mean the Securities Exchange Act of
1934, as amended.
FAIR MARKET VALUE. "Fair Market Value" means the average of the Nasdaq
Official Closing Price of one share of Acquiror Common Stock for the ten (10)
trading days ending on the trading day that is three (3) trading days prior to
the Closing Date.
Final Prospectus. "Final Prospectus" shall have the meaning specified in Section
7.7(j)(vi) of the Agreement.
FINANCIAL STATEMENTS. "Financial Statements" shall have the meaning
specified in Section 4.5(a) of the Agreement.
FREELY AVAILABLE SOFTWARE. "Freely Available Software" shall have the
meaning specified in Section 4.11(k) of the Agreement.
GAAP. "GAAP" shall mean United States generally accepted accounting
principles, applied on a consistent basis across all periods presented.
GOVERNMENTAL AUTHORIZATION. "Governmental Authorization" shall mean any:
(a) permit, license, certificate, franchise, concession, approval, consent,
ratification, permission, clearance, confirmation, endorsement, waiver,
certification, designation, rating,
Exhibit A-5
registration, qualification or authorization that is issued, granted, given or
otherwise delivered by or under the authority of any Governmental Body or
pursuant to any Legal Requirement; or
(b) right under any Contract with any Governmental Body.
GOVERNMENTAL BODY. "Governmental Body" shall mean any:
(a) nation, principality, state, commonwealth, province, territory, county,
municipality, district or other jurisdiction of any nature;
(b) federal, state, local, municipal, foreign or other government;
(c) governmental or quasi governmental authority of any nature (including
any governmental division, subdivision, department, agency, bureau, branch,
office, commission, council, board, instrumentality, officer, official,
representative, organization, unit, body or Entity and any court or other
tribunal);
(d) multinational organization or body; or
(e) individual, Entity or body exercising, or entitled to exercise, any
executive, legislative, Judicial, administrative, regulatory, police, military
or Taxing Authority or power of any nature.
HAZARDOUS MATERIAL. "Hazardous Material" shall mean any substance,
chemical, waste or other material which is listed, defined or otherwise
identified as hazardous, toxic or dangerous under any applicable law; as well as
any petroleum, petroleum product or by-product, crude oil, natural gas, natural
gas liquids, liquefied natural gas, or synthetic gas useable for fuel, and
"source," "special nuclear," and "by-product" material as defined in the Atomic
Energy Act of 1954, 42 U.S.C. Sections 2011 et seq.
HOLDER. "Holder" shall have the meaning specified in Section 7.7(b) of the
Agreement.
INDEMNIFIED PARTY. "Indemnified Party" shall have the meaning specified in
Section 7.7(j)(iii) of the Agreement.
INDEPENDENT ACCOUNTING FIRM. "Independent Accounting Firm" shall have the
meaning specified in Section 3.3(c).
INITIAL CONSIDERATION. "Initial Consideration" shall have the meaning
specified in Section 3.1(a) of the Agreement.
INTELLECTUAL PROPERTY RIGHTS. "Intellectual Property Rights" shall mean,
under the laws of any jurisdiction in the world, all copyrights, mask work
rights, patent rights, trademark and trade name rights, trade secret rights,
industrial property rights, moral rights, and other types of proprietary rights
in Technology, and all applications, registrations, renewals, and other filings
with respect to any of the foregoing.
Exhibit A-6
INTERNAL CONTROLS. "Internal Controls" shall have the meaning specified in
Section 4.13(d) of the Agreement.
KNOWLEDGE. "Knowledge" shall mean, with respect to any fact, circumstance,
event or other matter in question, the actual knowledge of such fact,
circumstance, event or other matter of (a) an individual, if used in reference
to an individual, (b) any officer or director of the Company and each of its
subsidiaries, if used in reference to the Company, or (c) any officer or
director of such party, if used in reference to any Person that is not an
individual. Any such individual officer or director will be deemed to have
actual knowledge of a particular fact, circumstance, event or other matter if
such knowledge could reasonably have been expected to be obtained through
reasonable inquiry by such Person (which reasonable inquiry shall include
reasonable inquiry of Persons in charge of the matter in question).
LEGAL REQUIREMENT. "Legal Requirement" shall mean any federal, state,
local, municipal, foreign or other law, statute, legislation, constitution,
principle of common law, resolution, ordinance, code, edict, decree,
proclamation, treaty, convention, rule, regulation, ruling, directive,
pronouncement, requirement, specification, determination, decision, opinion or
interpretation that is or has been issued, enacted, adopted, passed, approved,
promulgated, made, implemented or otherwise put into effect by or under the
authority of any Governmental Body.
LETTER OF TRANSMITTAL. "Letter of Transmittal" shall have the meaning
specified in Section 3.5(a) of the Agreement.
LIABILITY. "Liability" shall mean any debt, obligation, duty or liability
of any nature including any unknown, undisclosed, unmatured, unsacred,
unasserted, contingent, indirect, conditional, implied, vicarious, derivative,
joint, several or secondary liability, regardless of whether such debt,
obligation, duty or liability would be required to be disclosed on a balance
sheet prepared in accordance with GAAP and regardless of whether such debt,
obligation, duty or liability is immediately due and payable.
MANAGEMENT PARTICIPANTS. "Management Participants" shall have the meaning
specified in Section 9.6 of the Agreement.
MERGER. "Merger" shall have the meaning specified in the first recital of
the Agreement.
MERGER SUB. "Merger Sub" shall have the meaning specified in the first
paragraph of the Agreement.
MERGER SUB II. "Merger Sub II" shall have the meaning specified in the
first paragraph of the Agreement.
MULTIEMPLOYER PLAN. "Multiemployer Plan" shall mean any Pension Plan (as
defined herein) that is a "multiemployer plan," as defined in Section 3(37) of
ERISA.
NET PRODUCT REVENUES. "Net Product Revenues" shall mean the revenue
received by Acquiror based on the Company's technology sold through existing
Company sales channels or new sales channels not currently serviced by the
Acquiror (on a consolidated basis) and up to $2,000,000 of the revenue received
by Acquiror's OEM and consumer sales groups for sales
Exhibit A-7
based on the Company's technology for the sale or license of Company Products
and New Company Products, net of discounts, returns, accounts receivables
write-offs and reasonable reserves, as calculated on a basis consistent with
Acquiror's accounting policies as described in its most recent public SEC
filings of Acquiror and GAAP and as calculated in accordance with the CDI
Budget.
NEW COMPANY PRODUCTS. "New Company Products" shall mean Company Products
which are based upon contributions from Acquiror's OEM sales and consumer
groups.
OFFICER'S CERTIFICATE. "Officer's Certificate" shall have the meaning
specified in Section 9.3 of the Agreement.
ORDER. "Order" shall mean any:
(a) order, judgment, injunction, edict, decree, ruling, pronouncement,
determination, decision, opinion, verdict, sentence, subpoena, writ or award
that is issued, made, entered, rendered or otherwise put into effect by or under
the authority of any court, administrative agency or other Governmental Body or
any arbitrator or arbitration panel; or
(b) Contract with any Governmental Body that is entered into in connection
with any Proceeding.
ORDINARY COURSE OF BUSINESS. An action taken by or on behalf of the Company
shall not be deemed to have been taken in the "Ordinary Course of Business"
unless:
(a) such type of action is recurring in nature, consistent with the
Company's past practices and taken in the ordinary course of the Company's
normal day to day operations;
(b) such action is not required to be authorized by the Company's
stockholders, the Company's board of directors or any committee of the Company's
board of directors and does not require any other separate or special
authorization of any nature; and
PERSON. "Person" shall mean any individual, Entity or Governmental Body.
PLANS. "Plans" shall have the meaning specified in Section 4.17(a) of the
Agreement.
POST-CLOSING PERIOD. "Post-Closing Period" shall mean (a) all taxable
periods beginning after the Closing Date, and (b) the portion that begins after
the Closing Date of all taxable periods that include (but do not end on) the
Closing Date.
PRE-CLOSING PERIOD. "Pre-Closing Period" shall mean (a) all taxable periods
ending on or before the Closing Date, and (b) the portion through the end of the
Closing Date of all taxable periods that include (but do not end on) the Closing
Date.
PRINCIPAL STOCKHOLDER. "Principal Stockholder" (singular) or "Principal
Stockholders" (plural) shall mean Harry Fox, C3 Development LLC, a Delaware
limited liability company, Advanced Strategies Corp., a Delaware corporation,
and Au Sei Chuan.
Exhibit A-8
PRINCIPAL STOCKHOLDER INDEMNIFICATION OBLIGATIONS. "Principal Stockholder
Indemnification Obligations" shall have the meaning specified in Section 9.9(a)
of the Agreement.
PROCEEDING. "Proceeding" shall mean any action, suit, litigation,
arbitration, proceeding (including any civil, criminal, administrative,
investigative or appellate proceeding and any informal proceeding), prosecution,
contest, hearing, inquiry, inquest, audit, examination or investigation,
commenced, brought, conducted or heard by or before, or otherwise has involved,
any Governmental Body or any arbitrator or arbitration panel.
PROPRIETARY INFORMATION AND INVENTIONS AGREEMENT. "Proprietary Information
and Inventions Agreement" shall have the meaning specified in Section 4.11(d) of
the Agreement.
REGISTERED INTELLECTUAL PROPERTY RIGHTS. "Registered Intellectual Property
Rights" shall mean all patents, patent applications, registered trademarks and
service marks and applications for registration therefor, copyright
registrations and mask work registrations.
REGISTRABLE SECURITIES. "Registrable Securities" shall have the meaning
specified in Section 7.7(d) of the Agreement.
REGISTRATION EXPENSES. "Registration Expenses" shall have the meaning
specified in Section 7.7(e).
REGISTRATION STATEMENT. "Registration Statement" shall have the meaning
specified in Section 7.7(g).
RELATED PARTY. Each of the following shall be deemed to be a "Related
Party":
(a) each individual who is, or who has at any time been, an officer of the
Company or a predecessor thereto;
(b) each child, stepchild, grandchild, parent, stepparent, grandparent,
spouse, sibling, mother-in-law, father-in-law, son-in law, daughter-in-law,
brother-in-law, or sister-in-law of each of the individuals referred to in
clause "(a)" above, including adoptive relationships;
(c) any Entity (other than the Company) in which any one of the Persons
referred to in clauses "(a)" or "(b)" above holds (or in which more than one of
such individuals collectively hold), beneficially or otherwise, a material
voting, proprietary or equity interest.
REPRESENTATIVES. "Representatives" of a specified party shall mean
officers, directors, employees, attorneys, accountants, advisors and
representatives of such party. The Related Parties shall be deemed to be
"Representatives" of Company.
RULE 144. "Rule 144" shall have the meaning specified in Section 7.7(d) of
the Agreement.
SEC. "SEC" shall mean the Securities and Exchange Commission.
Exhibit A-9
SECOND STEP MERGER. "Second Step Merger" shall have the meaning specified
in the fifth recital of the Agreement.
SECOND STEP AGREEMENT OF MERGER. "Second Step Agreement of Merger" shall
have the meaning specified in Paragraph 1.1(b) of the Agreement.
SECURITIES ACT. "Securities Act" shall mean the Securities Act of 1933, as
amended.
SHARE EXCHANGE RATIO. "Share Exchange Ratio" shall mean a number equal to
the quotient obtained by dividing (a) the Initial Consideration by (b) the Total
Outstanding Shares.
STOCKHOLDERS' AGENT. "Stockholders' Agent" shall have the meaning specified
in Section 9.6(a) of the Agreement.
SPREADSHEET. "Spreadsheet" shall have the meaning specified in Section 7.5
of the Agreement.
SURVIVING CORPORATION. "Surviving Corporation" shall have the meaning
specified in Section 1.1 of the Agreement.
SUSPENSION EVENT. "Suspension Event" shall have the meaning specified in
Section 7.7(p) of the Agreement.
SUSPENSION NOTICE. "Suspension Notice" shall have the meaning specified in
Section 7.7(p) of the Agreement.
TARGET REVENUE. "Target Revenue" shall have the meaning specified in
Section 3.3(a) of the Agreement.
TAX. "Tax" shall mean any tax (including any income tax, franchise tax,
capital gains tax, estimated tax, gross receipts tax, value added tax, surtax,
excise tax, ad valorem tax, transfer tax, stamp tax, sales tax, use tax,
property tax, business tax, occupation tax, inventory tax, occupancy tax,
withholding tax or payroll tax), levy, assessment, tariff, impost, imposition,
toll, duty (including any customs duty), deficiency or fee, and any related
charge or amount (including any fine, penalty or interest), and other
obligations of the same or of a similar nature to any of the foregoing, (a)
imposed, assessed or collected by or under the authority of any Governmental
Body, or (b) payable pursuant to any tax sharing agreement or similar Contract.
TAX RETURN. "Tax Return" shall mean any return (including any information
return), report, statement, declaration, estimate, schedule, notice,
notification, form, election, certificate or other document or information that
is, has been or may in the future be filed with or submitted to, or required to
be filed with or submitted to, any Governmental Body in connection with the
determination, assessment, collection or payment of any Tax or in connection
with the administration, implementation or enforcement of or compliance with any
Legal Requirement relating to any Tax.
TAXING AUTHORITY. "Taxing Authority" shall mean any Governmental Body
exercising any authority to impose, regulate, levy, assess or administer the
imposition of any Tax.
Exhibit A-10
TECHNOLOGY. "Technology" shall mean algorithms, data, databases, hardware,
inventions (whether or not patentable), know-how, processes, proprietary
information, protocols, specifications, software, software code (in any form
including source code and executable or object code), techniques, works of
authorship, and other information, materials and technology (whether or not
embodied in any tangible form and including all tangible embodiments of the
foregoing such as instruction manuals, laboratory notebooks, prototypes,
samples, studies and summaries).
TERMINATION NOTICE. "Termination Notice" shall have the meaning specified
in Section 7.7(p) of the Agreement.
THIRD PARTY EXPENSES. "Third Party Expenses" shall have the meaning
specified in Section 3.9 of the Agreement.
TOTAL OUTSTANDING SHARES. "Total Outstanding Shares" shall mean the
aggregate number of shares of Company Capital Stock outstanding immediately
prior to the Effective Time.
TRANSACTIONAL AGREEMENTS. "Transactional Agreements" shall mean (a) this
Agreement, (b) the CDI Option, and (c) all other agreements, certificates,
instruments, documents and writings delivered by the Company, Acquiror, Merger
Sub or the Principal Stockholders in connection with the Transactions.
TRANSACTIONS. "Transactions" shall mean (a) the execution and delivery of
the respective Transactional Agreements, and (b) all of the transactions
contemplated by the respective Transactional Agreements, including, without
limitation, the Merger, and the performance by Company, Acquiror, the
stockholders, and the other parties to the Transactional Agreements of their
respective obligations under the Transactional Agreements.
UNAUDITED INTERIM BALANCE SHEET. "Unaudited Interim Balance Sheet" shall
have the meaning specified in Section 4.45(a)(ii) of the Agreement.
Exhibit A-11
EXHIBIT C
OPTION AGREEMENT
THIS OPTION AGREEMENT (the "Agreement"), dated as of April 5, 2006
("Agreement Date"), is entered into by and among Creative Development Israel
Ltd., a company organized under the laws of the State of Israel ("CDI"), Smith
Micro Software, Inc., a Delaware corporation ("Acquiror"), and the shareholders
of CDI who are signatories to this Agreement (the "Shareholders").
RECITALS
This Agreement is entered into upon the basis of the following facts and
intentions of the parties:
A. CDI provides software development services to Photags, Inc., a
Delaware corporation (the "Company"), and in connection therewith employs
individuals resident in the State of Israel dedicated to the development of such
software and other intellectual property for the Company (the "Business").
B. The Acquiror, the Company, Tag Acquisition Corp., a Delaware
corporation and wholly owned subsidiary of Acquiror ("Merger Sub"), and other
parties signatories thereto have entered into an Agreement and Plan of Merger,
dated as of April 3, 2006 (the "Merger Agreement"), pursuant to which the
Company will be merged into Merger Sub and become a wholly owned subsidiary of
Acquiror (the "Merger").
C. The Business is substantially dependent on the Company, and the
Company is dependent on CDI's services. Each of CDI, the Company, Acquiror, and
Merger Sub intend that CDI will continue to provide services to the Company
following the Merger.
D. Acquiror desires to obtain an exclusive option to acquire CDI or
substantially all of the assets of the Business from CDI (the "Acquisition") by
means of an asset purchase and/or merger transaction involving CDI and Acquiror
(including its subsidiaries or assignees, hereinafter collectively referred to
as "Acquiror"), and CDI and CDI's shareholders are willing to grant such
exclusive option to Acquiror.
E. The parent company of CDI consists of Advanced Strategies Israel, a
company organized under the laws of the State of Israel ("ASC Israel"), which is
a wholly owned subsidiary of Advanced Strategies Corp., a Delaware corporation
("ASC USA"), both of which desire to grant to Acquiror an option to acquire CDI.
F. The Board of Directors of CDI and the requisite number of
shareholders of CDI have approved this Agreement and the transactions
contemplated hereby.
G. Unless otherwise defined herein, capitalized terms shall have the
meanings assigned to them in the Merger Agreement.
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NOW, THEREFORE, for good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, the parties hereto agree as follows:
1. GRANT OF OPTION
(a) CDI and each of the Shareholders hereby grants to Acquiror an
exclusive option (the "Option") to, during the Option Period (as defined below),
(a) acquire CDI by means of a merger transaction with CDI, (b) acquire all of
the outstanding shares of capital stock of CDI from the Shareholders, and/or (c)
acquire from CDI substantially all its assets pursuant to an asset purchase
agreement, with the form and substance of such transaction to be in the sole
discretion of Acquiror, and all upon the terms, covenants and conditions
hereinafter set forth.
(b) Each of the Shareholders hereby consents to the grant of the Option
and each of the terms and conditions of this Agreement, and further agrees to
cooperate reasonably with Acquiror and CDI in implementing all of the terms and
conditions of this Agreement.
2. TERM AND EXERCISE
The term of this Option (i.e., the period of time during which the
Option may be exercised) (the "Option Period") shall commence on the Agreement
Date and expire at midnight (Eastern time) on April 5, 2017. Acquiror may
exercise the Option at any time during the Option Period by giving CDI an
Acquisition Election Notice as provided in Section 4 below.
3. EXERCISE PRICE
The exercise price which Acquiror agrees to pay in order to exercise the
Option and acquire CDI shall be Three Thousand Dollars ($3,000) (the "Purchase
Price").
4. THE ACQUISITION
(a) Subject to the other terms and conditions of this Agreement, the
Acquisition shall be consummated at the sole discretion of Acquiror pursuant to
an asset purchase agreement, merger agreement or stock purchase agreement in
form and substance reasonably acceptable to each of Acquiror, CDI and ASC Israel
("Purchase Agreement"), which Purchase Agreement shall contain, in substance,
the same representations, warranties, covenants and indemnification obligations
set forth in Article 4 of the Merger Agreement as if such representations and
warranties were made by CDI.
(b) Acquiror may exercise the Option delivering to CDI of a written
notice of such election (an "Acquisition Election Notice") in the form attached
hereto as Exhibit A. The Acquisition Election Notice shall set forth the
proposed closing date of the Acquisition. Within five (5) business days after
receipt of the Acquisition Election Notice, CDI shall deliver to Acquiror the
Purchase Agreement executed by appropriate officers/partners of CDI. The
Acquiror shall, within five (5) business days after receipt from the CDI of the
2
executed Purchase Agreement, execute and deliver to the CDI the Purchase
Agreement executed by the appropriate officers/partners of Acquiror.
(c) After execution and delivery of the Acquisition Election Notice and
the Purchase Agreement, upon the terms hereof and thereof and subject to the
conditions set forth therein, the Closing on the Acquisition shall occur as
provided in the Purchase Agreement. In the event of any conflict or
inconsistency between the Option Agreement and the executed Purchase Agreement,
the Purchase Agreement shall govern and control.
(d) Notwithstanding anything to the contrary in this Agreement, (x) none
of the parties hereto shall have any obligation to consummate the Acquisition
unless and until Acquiror delivers an Acquisition Election Notice and (y)
Acquiror is under no obligation to deliver any Acquisition Election Notice at
any time.
5. OPERATION OF CDI PENDING ACQUISITION
During the Option Period, and except for matters contemplated or
permitted by this Agreement or pursuant to Acquiror's prior written consent:
(a) CDI shall conduct the Business only in, and neither CDI nor any
Shareholder shall take any action except in, the ordinary course of business and
in a manner consistent with past practice, and CDI shall use its best efforts to
(i) preserve intact the Business and its organization, (ii) keep available the
services of its officers and employees and (iii) maintain its existing relations
and goodwill with customers, suppliers, regulators, distributors, creditors,
lessors, sales agents and others having business dealings with it.
(b) CDI and its Affiliates (as defined below) shall cease and cause to
be terminated any existing solicitation, initiation, facilitation,
encouragement, activity, discussion or negotiation with any parties conducted
heretofore by any such party, any subsidiary thereof, or their respective
officers, directors, employees, financial advisors, representatives and agents
with respect to an Acquisition Proposal (as defined herein) whether or not
initiated by such party. From and after the Agreement Date, neither CDI nor any
Affiliate thereof shall authorize or permit any investment banker, financial
advisor, attorney, accountant or other Person retained by or acting on behalf of
CDI or any such Affiliate to, nor shall CDI or any Affiliate directly or
indirectly, through any officer, director, employee, financial advisor,
representative or agent of such party (i) solicit, initiate, negotiate, assist,
facilitate, or encourage (including by way of furnishing information or permit
access to the assets, real property and books and records) or take any other
action to facilitate any inquiries or proposals that constitute, or could
reasonably be expected to lead to, a proposal or offer for a merger,
consolidation, business combination, sale of substantial assets, sale of shares
of capital stock (including, without limitation, by way of a tender or exchange
offer), direct or indirect acquisition of the Assets or the Business or similar
transaction involving CDI, the assets or the Business, other than the
transactions contemplated or permitted by this Agreement (an "Acquisition
Proposal"), (ii) engage in negotiations or discussions with any Third Party
concerning, or provide any non-public information to any Person or entity
relating to, any Acquisition Proposal, or (iii)
3
continue any prior discussions or negotiations with any Third Party concerning
any Acquisition Proposal. If CDI or any such Affiliate (or any such Person
acting for or on their behalf) receives from any Person any written offer,
inquiry or informational request relating to an Acquisition Proposal, CDI will
promptly, in writing, advise Acquiror of such written offer, inquiry or request
and deliver a copy of such written offer, inquiry or request to Merger Sub.
Notwithstanding the foregoing, this provision shall not prevent officers of the
CDI from communicating and meeting with any Person (except as it relates to an
Acquisition Proposal) or receiving unsolicited offers (but not agreeing to or
negotiating any such unsolicited offers with respect to any such communication,
meeting or otherwise) for the Assets and/or the Business. For purposes of this
Agreement, "Affiliate" shall mean any person or entity that directly, or
indirectly through one or more intermediaries, controls or is controlled by or
is under common control with the person specified. For purposes of this
definition, control of a person or entity means the power, direct or indirect,
to direct or cause the direction of the management and policies of such person
or entity whether by contract or otherwise and, in any event and without
limitation of the previous sentence, any person or entity owning ten percent
(10%) or more of the voting securities of another person shall be deemed to
control that person.
6. ACCESS TO INFORMATION
(a) From the Agreement Date to the earlier of the termination of this
Agreement or the closing date of the Acquisition, upon notice, (i) CDI will
provide to the Acquiror (and its representatives) reasonable access to all
information and documents which the Acquiror may reasonably request regarding
the Business, assets, liabilities, employees and other aspects of CDI; and (ii)
CDI will provide or cause to be provided to the Acquiror any information and
documents that Acquiror determines are necessary or desirable for tax reporting
with respect to CDI (or otherwise with respect to taxes in connection with the
option to acquire CDI), including but not limited to reporting in connection
with the controlled foreign corporation provisions of the Internal Revenue Code.
(b) No investigation pursuant to this Section 6 shall affect any
representation or warranty of CDI made in this Agreement or in the Purchase
Agreement or any condition to the obligations of any of the parties hereto.
7. RIGHT OF ENTRY
During the term hereof, CDI, its agents and contractors, shall cooperate
with Acquiror, to allow Acquiror, its agents and contractors to enter upon and
inspect, from time to time, the assets of CDI, including examining the physical
properties thereof, surveying and mapping the real property, evaluating the
feasibility of development activity thereon, and satisfying Acquiror with
respect to any conditions set forth herein and any representations, warranties
and covenants of CDI made herein.
8. INDEMNIFICATION
CDI agrees to indemnify Acquiror and any of their officers, directors,
shareholders, partners, agents, affiliates, consultants, successors and assigns
and hold each of them harmless
4
from and against any and all claims, demands, liabilities, costs, expenses,
penalties, damages and losses, including, without limitation, reasonable
attorneys' fees, resulting from any misrepresentations or breach of warranty or
breach of covenant made by CDI herein or in any document, certificate, or
exhibit given or delivered to Acquiror pursuant to or in connection with this
Agreement.
9. INSTRUMENT OF ACCESSION
CDI acknowledges and agrees that it will deliver a copy of this
Agreement to any shareholders and partners who have become shareholders or
partners after the vote by shareholders or partners, as applicable, to approve
this Agreement and the Purchase Agreement (the execution of which is subject to
the exercise of the Option), and the transactions contemplated herein and
therein, each of whom shall be required by CDI in connection with becoming such
a shareholder or partner to execute and deliver an instrument of accession to
this Agreement (in a form and with terms reasonably satisfactory to Acquiror)
acknowledging their understanding of and consent to the existence of this
Agreement, the Purchase Agreement and CDI's obligations hereunder and
thereunder.
10. NOTICES
Unless otherwise provided herein, all notices or other communications
required or permitted by this Agreement shall be in writing and shall be deemed
to have been duly given on the date of delivery if delivered personally to the
party to whom notice is given, on the same business day if sent by confirmed
facsimile transmission or on the date of actual delivery if sent by overnight
commercial courier or by first-class mail, registered or certified, with postage
prepaid and properly addressed to the party at its address set forth below, or
at any other address that any party may from time to time designate by written
notice to the others:
If to Acquiror, to:
Smith Micro Software, Inc.
51 Columbia
Aliso Viejo, CA 92656
Attention: Bruce Quigley,
VP Business Development & Investor Relations
Facsimile No.: (949) 389-1724
with a copy to:
Morrison & Foerster LLP
555 West Fifth Street, Suite 3500
Los Angeles, CA 90013
Attention: Allen Z. Sussman, Esq.
Fax: (213) 892-5454
5
If to CDI, to:
Advanced Strategies Corp.
300 Garden City Plaza
Suite 246
Garden City, NY. 11530
Facsimile No.: (516) 535-0781
Attn: Estelle Cleary
Any party from time to time may change its address, facsimile number or
other information for the purpose of notices to that party by giving notice
specifying such change to the other party hereto; provided that notice of a
changed address shall be effective only upon receipt thereof.
11. SUCCESSORS AND ASSIGNS
This Agreement and the rights hereunder may not be assigned by a party
to any other Person, other than by Acquiror or any entity wholly-owned directly
or indirectly by Acquiror (each a "Acquiror Entity"), without the mutual written
consent of all parties, which consent may be unreasonably withheld by any party.
Subject to the foregoing, this Agreement shall be binding upon, and inure to the
benefit of, the parties hereto and their respective successors, heirs,
administrators and assigns.
12. ALTERNATIVE STRUCTURE
In the event that the Business cannot be transferred in an asset sale or
merger without voter ratification or similar adverse requirements beyond those
that would be required in a purchase of the CDI by Acquiror, at Acquiror's
request the parties will cooperate in good faith to revise the structure of the
transaction into an entity purchase or alternative form of transaction that does
not trigger the same adverse approval requirements as an asset sale or merger.
13. AMENDMENTS
This Agreement may only be amended or modified by a written instrument
executed by CDI and Acquiror.
14. GOVERNING LAW
This Agreement shall be governed by and construed in accordance with the
laws of the State of California.
15. MERGER OF PRIOR AGREEMENTS
This Agreement, together with the Merger Agreement, its Exhibits, and
the Non-Disclosure Agreement, constitutes the entire Agreement between the
parties and supersedes
6
all prior agreements and understandings between the parties hereto relating to
the subject matter hereof.
16. ENFORCEMENT
In the event either party hereto fails to perform any of its obligations
under this Agreement or in the event a dispute arises concerning the meaning or
interpretation of any provision of this Agreement, the defaulting party or the
party not prevailing in such dispute, as the case may be, shall pay any and all
costs and expenses incurred by the other party in enforcing or establishing its
rights hereunder, including, without limitation, court costs and reasonable
attorneys' fees.
17. COUNTERPARTS
This Agreement may be executed in several counterparts, each of which
will be deemed an original, but all of which together will constitute one and
the same instrument.
18. TIME OF THE ESSENCE
Time is of the essence of this Agreement.
19. SPECIFIC PERFORMANCE; LIMITS ON DAMAGE REMEDY
Without limiting or waiving in any respect any rights or remedies of the
parties under this Agreement now or hereinafter existing at law or in equity or
by statute, each of the parties hereto shall be entitled to seek specific
performance of the obligations to be performed by the other in accordance with
the provisions of this Agreement. Notwithstanding any conflicting or
inconsistent provisions of this Agreement, except in the case of fraud, willful
misconduct or gross negligence, the maximum amount of damages that either party
may become liable to pay the other under this Agreement shall be limited in the
aggregate to the dollar amount that has been paid as the Option Payment.
[Signature page follows]
7
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the Agreement Date.
CDI: CREATIVE DEVELOPMENT ISRAEL LTD.,
a company organized under the laws of the
State of Israel
By: /s/ Harry Fox
-------------------------
Its: CEO
ACQUIROR: SMITH MICRO SOFTWARE, INC.
a Delaware corporation
By: /s/ William H. Smith, Jr.
-------------------------
Its: President & CEO
SHAREHOLDERS OF CDI: ADVANCED STRATEGIES CORP.,
a Delaware corporation
/s/ Estelle F. Cleary
-----------------------------
Print Name: Estelle F. Cleary
Title: Executive Vice President
ADVANCED STRATEGIES ISRAEL,
a company organized under the laws of the
State of Israel
/s/ Harry Fox
-----------------------------
Print Name: Harry Fox
Title: CEO
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EXHIBIT A
ACQUSITION ELECTION NOTICE
Date: ________________
To: CDI
Pursuant to Section 4(b) of the Option Agreement, dated as of April 5,
2006 (the "Option Agreement"), between CDI, a company organized under the laws
of the State of Israel ("CDI") and Smith Micro Software, Inc., a Delaware
corporation ("Acquiror"), the Acquiror hereby gives notice of its election to
enter into, and to cause CDI to enter into, an Agreement and Plan of Merger or
Purchase Agreement (the "Agreement") in a form reasonably acceptable to Acquiror
and CDI, and to consummate the transactions contemplated by the Agreement with a
Closing Date which shall be ________, _____. Capitalized terms used and not
defined herein shall have the respective meanings ascribed thereto in the
Agreement.
Very truly yours,
[PURCHASER]
By:
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Name:
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Title:
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