Exhibit 2.1
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AGREEMENT AND PLAN OF MERGER
BY AND AMONG
SMITH MICRO SOFTWARE, INC.,
TEL ACQUISITION CORP.,
ECUTEL SYSTEMS, INC.,
THE STOCKHOLDER REPRESENTATIVE AND
THE PRINCIPAL STOCKHOLDERS
DATED AS OF JANUARY 31, 2007
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TABLE OF CONTENTS
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ARTICLE I THE MERGER..................................................... 1
1.1 The Merger....................................................... 1
1.2 Effective Time................................................... 1
1.3 Effect of the Merger............................................. 2
1.4 Certificate of Incorporation; By-laws............................ 2
1.5 Directors and Officers........................................... 2
1.6 Merger Consideration; Effect on Capital Stock; Holdback;
Adjustment....................................................... 3
1.7 Dissenting Shares................................................ 6
1.8 Surrender of Certificates........................................ 6
1.9 Taking of Necessary Action; Further Action....................... 7
ARTICLE II REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE
PRINCIPAL STOCKHOLDERS........................................ 8
2.1 Organization of the Company...................................... 8
2.2 Authority........................................................ 8
2.3 No Conflict...................................................... 9
2.4 Consents......................................................... 9
2.5 Subsidiary....................................................... 10
2.6 Company Capital Structure........................................ 11
2.7 Company Financial Statements and Internal Controls............... 13
2.8 Liabilities...................................................... 13
2.9 Absence of Certain Changes....................................... 14
2.10 Accounts Receivable.............................................. 17
2.11 Restrictions on Business Activities.............................. 17
2.12 Real Property; Leases............................................ 18
2.13 Assets; Absence of Liens and Encumbrances........................ 19
2.14 Intellectual Property............................................ 19
2.15 Product Warranties; Defects; Liabilities; Services............... 23
2.16 Company Contracts................................................ 23
2.17 Change of Control Payments....................................... 26
2.18 Interested Party Transactions.................................... 26
2.19 Compliance with Laws............................................. 26
2.20 Litigation....................................................... 27
2.21 Insurance........................................................ 27
2.22 Minute Books..................................................... 27
2.23 Environmental Matters............................................ 27
2.24 Brokers' and Finders' Fees....................................... 28
2.25 Employee Benefit Plans........................................... 28
2.26 Employment Matters............................................... 31
2.27 Tax Matters...................................................... 34
2.28 Foreign Corrupt Practices Act.................................... 36
2.29 Bank Accounts.................................................... 36
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TABLE OF CONTENTS
(continued)
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2.30 Customers; Distributors.......................................... 36
2.31 Company Customer Information..................................... 37
2.32 Governmental Authorization....................................... 37
2.33 Representations Complete......................................... 37
ARTICLE III REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB...... 37
3.1 Organization of Parent and Merger Sub............................ 37
3.2 Authority........................................................ 38
3.3 No Conflict...................................................... 38
3.4 Brokers' and Finders' Fees....................................... 38
ARTICLE IV CERTAIN COVENANTS............................................. 38
4.1 Conduct of Business of the Company and Subsidiary................ 38
4.2 Access to Information............................................ 40
4.3 Confidentiality.................................................. 40
4.4 Public Disclosure................................................ 40
4.5 Consents......................................................... 40
4.6 Conditions to the Merger; Further Assurances..................... 41
4.7 Notification of Certain Matters.................................. 41
4.8 Company Contracts................................................ 41
4.9 Termination of Company Investors Rights.......................... 41
4.10 No Solicitation.................................................. 42
4.11 Certain Employment Matters....................................... 42
4.12 Section 280G Approval............................................ 44
4.13 Tax Matters...................................................... 44
4.14 Exercise and Termination of Company Stock Rights................. 46
4.15 Indemnification of Directors and Officers of the Company......... 47
4.16 Resignation of Officers and Directors............................ 47
ARTICLE V CONDITIONS TO THE MERGER....................................... 47
5.1 Conditions to the Obligations of the Company..................... 47
5.2 Conditions to the Obligations of Parent and Merger Sub........... 48
ARTICLE VI INDEMNIFICATION, STOCKHOLDER REPRESENTATIVE, RELEASE BY
PRINCIPAL STOCKHOLDERS........................................ 51
6.1 Survival of Representations, Warranties and Covenants............ 51
6.2 Indemnification.................................................. 51
6.3 Limitations...................................................... 53
6.4 Procedure for Claims Against Holdback Amount..................... 53
6.5 Merger Consideration Adjustment.................................. 55
6.6 Stockholder Representative; Power of Attorney.................... 55
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TABLE OF CONTENTS
(continued)
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6.7 No Subrogation................................................... 57
6.8 Release by Principal Stockholders................................ 57
ARTICLE VII TERMINATION, AMENDMENT AND WAIVER............................ 58
7.1 Termination...................................................... 58
7.2 Effect of Termination............................................ 59
7.3 Amendment........................................................ 59
7.4 Extension; Waiver................................................ 59
ARTICLE VIII DEFINITIONS, CONSTRUCTION, ETC.............................. 60
ARTICLE IX GENERAL PROVISIONS............................................ 68
9.1 Notices.......................................................... 68
9.2 Entire Agreement................................................. 69
9.3 Agreement Binding................................................ 69
9.4 Severability..................................................... 70
9.5 Specific Performance............................................. 70
9.6 Company Disclosure Schedule...................................... 70
9.7 Expenses......................................................... 70
9.8 Successors and Assigns; Parties in Interest...................... 70
9.9 Waiver........................................................... 71
9.10 Governing Law; Venue............................................. 71
9.11 Waiver of Jury Trial............................................. 71
9.12 Other Remedies................................................... 72
9.13 Counterparts; Facsimile Delivery................................. 72
9.14 Attorneys' Fees.................................................. 72
9.15 Time of the Essence.............................................. 72
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Exhibit Description
Exhibit A Form of Opinion of Arent Fox LLP
Schedule Description
Schedule 5.2(h) Employees
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EXECUTION VERSION
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (this "Agreement") is made and entered
into as of January 31, 2007 by and among SMITH MICRO SOFTWARE, INC., a Delaware
corporation ("Parent"), TEL ACQUISITION CORP., a Delaware corporation and
wholly-owned subsidiary of Parent ("Merger Sub"), ECUTEL SYSTEMS, INC., a
Delaware corporation (the "Company"), JOHN J. MCDONNELL, JR., as Stockholder
Representative, and each of the PRINCIPAL STOCKHOLDERS listed on the signature
page hereto. Certain capitalized terms used in this Agreement are defined in
Article XIII hereto.
RECITALS
A. Parent, Merger Sub and the Company intend to effect a merger (the
"Merger") of the Company with and into Merger Sub in accordance with this
Agreement and the General Corporation Law of the State of Delaware (the "DGCL"),
with the Merger Sub to be the surviving corporation of the Merger.
B. The Company Board has unanimously (i) determined that the Merger is fair
to, and in the best interests of, the Company and the Stockholders, (ii)
approved this Agreement, the Merger and the other transactions contemplated by
this Agreement and (iii) recommended that the Stockholders adopt and approve
this Agreement and the other transactions contemplated by this Agreement, and
approve the Merger.
C. Each Principal Stockholder, and Stockholders holding (x) at least 95% of
the total number of issued and outstanding shares of Company Common Stock and
Company Preferred Stock voting together as a single class on an as-converted
basis and (y) 100% of the total number of issued and outstanding shares of
Company Preferred Stock voting separately as a single class, have voted in favor
of or otherwise approved this Agreement, the Merger and the transactions
contemplated hereby and thereby.
NOW, THEREFORE, in consideration of the covenants, promises and
representations set forth herein, and for other good and valuable consideration,
and intending to be legally bound hereby, the parties agree as follows:
ARTICLE I
THE MERGER
1.1 The Merger. At the Effective Time, and subject to and upon the terms
and conditions of this Agreement and the provisions of the DGCL, the Company
shall be merged with and into Merger Sub, the separate corporate existence of
the Company shall cease, and Merger Sub shall continue as the surviving
corporation and as a wholly-owned subsidiary of Parent. The surviving
corporation after the Merger is sometimes referred to herein as the "Surviving
Corporation."
1.2 Effective Time. Unless this Agreement is earlier terminated pursuant to
Section 7.1, the closing of the transactions contemplated by this Agreement (the
"Closing") will take place as promptly as practicable, but no later than one (1)
Business Day, following the
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satisfaction or waiver of the conditions set forth in Article V (other than
conditions that by their nature are to be satisfied at the Closing, but subject
to the satisfaction or waiver of such conditions), at the offices of Morrison &
Foerster LLP, Los Angeles, California, unless another place or date is agreed to
by Parent and the Company. The date upon which the Closing occurs is herein
referred to as the "Closing Date." On the Closing Date, the parties hereto shall
cause the Merger to be consummated by filing a properly executed Certificate of
Merger satisfying the requirements of the DGCL (the "Certificate of Merger")
with the Secretary of State of the State of Delaware in accordance with the
relevant provisions of the DGCL (the time of acceptance by the Secretary of
State of the State of Delaware of such filing being referred to herein as the
"Effective Time").
1.3 Effect of the Merger. At the Effective Time, the effect of the Merger
shall be as provided in this Agreement and the applicable provisions of the
DGCL. Without limiting the generality of the foregoing, and subject thereto, at
the Effective Time, all rights and property of the Company and Merger Sub shall
vest in the Surviving Corporation, and all debts and liabilities of the Company
and Merger Sub shall become debts and liabilities of the Surviving Corporation.
1.4 Certificate of Incorporation; By-laws.
(a) Unless otherwise determined by Parent prior to the Effective Time,
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 Ecutel Systems, Inc."
(b) The By-laws of Merger Sub in effect immediately prior to the
Effective Time shall be the By-laws of the Surviving Corporation from and after
the Effective Time.
1.5 Directors and Officers.
(a) 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 By-laws
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.
(b) Directors and officers of the Subsidiary shall resign effective as
of the Effective Time. At the Effective Time, the Surviving Corporation shall
appoint the directors of Merger Sub immediately prior to the Effective Time as
the initial directors of the 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
By-laws of the Surviving Corporation or equivalent organizational documents of
each such subsidiary, and the Surviving Corporation shall appoint the officers
of Merger Sub immediately
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prior to the Effective Time as the initial and only officers of the Subsidiary
of the Surviving Corporation, in each case until their respective successors are
duly elected or appointed and qualified.
1.6 Merger Consideration; Effect on Capital Stock; Holdback; Adjustment.
(a) Merger Consideration. The maximum aggregate consideration ("Merger
Consideration") to be paid by Parent and Merger Sub in the Merger to holders of
outstanding shares of Company Capital Stock shall be Eight Million Dollars
($8,000,000) in cash, of which (i) Seven Million Dollars ($7,000,000) (the
"Closing Payment") shall be payable by Parent at Closing and (ii) One Million
Dollars ($1,000,000) (the "Holdback Amount") shall be payable by Parent subject
to and in accordance with Section 1.6(b).
(b) Holdback Amount.
(i) As security for the Company Indemnification Obligations, at
the Closing, Parent shall deposit into an interest-bearing escrow account from
the Merger Consideration an amount of cash equal to the Holdback Amount. On the
six-month anniversary of the Closing Date (or, if such date is not a Business
Day, the first Business Day thereafter) (the "Holdback Due Date"), Parent shall
cause the Holdback Amount to be released to the Stockholder Representative for
distribution to the Stockholders in accordance with the terms and provisions
hereof and an escrow agreement by and among Parent, the Stockholder
Representative and an escrow agent to be selected by Parent (the "Escrow
Agreement"); provided, however, that Parent may withhold from such delivery (i)
any amounts applied in satisfaction of the Company Indemnification Obligations
and (ii) any amounts then in dispute related to Company Indemnification
Obligations (which amounts shall be promptly released to the Stockholder
Representative upon resolution of any such dispute in favor of the
Stockholders).
(ii) Each Principal Stockholder shall be deemed to have
contributed his, her or its Allocable Share of the Holdback Amount to provide a
source of funding to the Indemnified Parties for any Company Indemnification
Obligations. Nothing in this Section 1.6(b) shall be construed as limiting the
liability of the Company and the Principal Stockholders to the Holdback Amount,
nor shall payments from the Holdback Amount be considered as liquidated damages
for any breach under this Agreement.
(c) Allocation Certificate. At least two (2) Business Days prior to
the Closing Date, the Company shall deliver to Parent a certificate (the
"Allocation Certificate") of the Company signed by the Chief Executive Officer
of the Company certifying, in each case as of the Closing:
(i) (x) the identity of each record holder of Company Capital
Stock and the number of shares of Company Common Stock and/or Company Preferred
Stock held by each such Stockholder and (y) the identity of each holder of
Company Stock Rights, the number of shares of Company Common Stock and/or
Company Preferred Stock covered by the Company Stock Rights held by such holder,
the exercise prices and vesting schedules thereof, the number and type of shares
of Company Capital Stock subject to each Company Stock Right that will be
exercisable as of the Closing, and whether such Company Stock Right is qualified
as an "incentive stock option" under section 422 of the Code; and
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(ii) (w) the number of Fully Diluted Common Shares; (x) the
amount, as determined by the Board of Directors of the Company in good faith, of
the Closing Payment required to be paid to each Stockholder under the Company
Certificate of Incorporation and other applicable agreements; (y) such portion,
as determined by the Board of Directors of the Company in good faith, of the
Holdback Amount (if any), expressed in dollar and/or percentage terms, that
would be required to be paid to each Stockholder under the Company Certificate
of Incorporation and other applicable agreements (the "Allocable Share"); and
(z) the amount of any required withholding (if any) of the Closing Payment and
Allocable Share with respect to each such Stockholder.
(d) Effect on Company Capital Stock. At the Effective Time, by virtue
of the Merger and without any action on the part of Parent, Merger Sub, the
Company or the Stockholders:
(i) each share of Company Stock held in the treasury of the
Company and each share of Company Stock owned by Parent or any direct or
indirect wholly owned subsidiary of Parent or of the Company immediately prior
to the Effective Time shall be cancelled and extinguished without any conversion
thereof, and no payment or distribution shall be made with respect thereto;
(ii) the shares of Company Common Stock issued and outstanding
immediately prior to the Effective Time (other than any shares of Company Stock
to be canceled pursuant to Section 1.6(d)(i) and any Dissenting Shares) shall be
converted into the right to receive (A) the amounts set forth on Schedule
1.6(c); and (B) the Allocable Share of that portion of the Holdback Amount (if
any) released pursuant to Section 1.6(b) and set forth on Schedule 1.6(c); and
(iii) the shares of Series A-1 Preferred Stock issued and
outstanding immediately prior to the Effective Time (other than any Dissenting
Shares) shall be converted into the right to receive (A) the amounts set forth
on Schedule 1.6(c), and (B) the Allocable Share of that portion of the Holdback
Amount (if any) released pursuant to Section 1.6(b) and set forth on Schedule
1.6(c).
(e) Company Options. No Company Option shall be assumed by the
Surviving Corporation or Parent, and the Company agrees to take all actions
necessary to effect the foregoing treatment of the Company Options. Any
acceleration of vesting of any Company Options or any lapse of repurchase rights
of any shares of Company Capital Stock as a result of the transactions
contemplated by this Agreement shall be set forth in Schedule 1.6(e).
(i) Prior to the Effective Time, each option or other right to
acquire shares of Company Common Stock under or pursuant to the Company Option
Plan that is outstanding, unexercised, unexpired and vested (the "Vested Company
Option") prior to the Effective Time shall be canceled and extinguished
immediately upon the Effective Time in exchange for the payment set forth on
Schedule 1.6(c).
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(ii) Prior to the Effective Time, each option or other right to
acquire shares of Company Common Stock under or pursuant to the Company Option
Plan that is outstanding, unexercised, unexpired and unvested (the "Unvested
Company Option") prior to the Effective Time shall be canceled and extinguished
immediately upon the Effective Time without any payment, in accordance with its
terms.
(iii) Prior to the Effective Time, the Company Board shall adopt
any resolutions and take any actions which are necessary to effectuate Sections
1.6(e)(i) and (ii), including obtaining consent from holders of outstanding
Company Options as necessary. Conditional upon the Closing, the Company shall
(i) take all appropriate or necessary steps to effect the termination of the
Company Option Plan as of the Effective Time, and (ii) take all actions
necessary so that following the Effective Time, there shall be no outstanding
Company Options.
(iv) The Company shall provide notice (in a form reasonably
satisfactory to Parent) to each holder of an outstanding Company Option
describing the treatment of such Company Option in accordance with this Section
1.6(e).
(f) Company Warrants.
(i) At the Effective Time, by virtue of the Merger and without
any action on the part of Parent, Merger Sub, the Company or the holders of
Company Warrants, each Company Warrant outstanding and vested immediately prior
to the Effective Time shall be cancelled and extinguished immediately upon the
Effective Time without payment.
(ii) No Company Warrant shall be assumed by the Surviving
Corporation or Parent, and the Company agrees to take all action necessary to
arrange for each Company Warrant to be 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 any Company Warrant.
(g) Withholding Rights; Deductions from Consideration. Each of the
Surviving Corporation and Parent shall be entitled to deduct and withhold from
any payment to any Person under this Agreement or any Related Agreements (i)
such amounts as it is required to deduct and withhold with respect to the making
of such payment or any other Tax withholding obligation with respect to the
Merger or the exercise or vesting of any Company Stock Right or restricted stock
under the Code or any provision of state, local or foreign Tax Law and (ii) the
amount of any outstanding loans (including any accrued but unpaid interest
thereon and any other amounts in respect thereof) owed by such Person to the
Company as of the Closing. To the extent that amounts are so withheld or
deducted by the Surviving Corporation or by Parent, as the case may be, such
withheld amounts shall be treated for all purposes of this Agreement as having
been paid to such Person in respect of which such deduction and withholding was
made by the Surviving Corporation or by Parent, as the case may be. Parent or
the Surviving Corporation, as the case may be, shall pay over to the appropriate
Governmental Entity amounts withheld under clause (i) above.
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(h) No Further Ownership Rights in Company Capital Stock. The cash
amounts, if any, paid or payable upon the surrender for exchange of shares of
Company Capital Stock in accordance with the terms hereof shall be deemed to
have been issued in full satisfaction of all rights pertaining to such shares of
Company Capital Stock, and there shall be no further registration of transfers
on the records of the Surviving Corporation of shares of Company Capital Stock
which were outstanding immediately prior to the Effective Time. If, after the
Effective Time, Certificates are presented to the Surviving Corporation for any
reason, they shall be canceled and exchanged as provided in this Article I.
(i) Capital Stock of Merger Sub. Each share of common stock of Merger
Sub issued and outstanding immediately prior to the Effective Time shall remain
issued and outstanding shares in the Surviving Corporation. Each stock
certificate of Merger Sub evidencing ownership of any such shares shall continue
to evidence ownership of such shares in the Surviving Corporation.
1.7 Dissenting Shares.
(a) Notwithstanding any provision of this Agreement to the contrary,
any shares of Company Capital Stock held by a Stockholder who demands and
perfects appraisal rights for such shares in accordance with the DGCL and who,
as of the Effective Time, has not effectively withdrawn or lost such appraisal
rights (collectively, "Dissenting Shares"), shall not be converted into or
represent the right to receive any portion of the Merger Consideration pursuant
to Section 1.6, but the holder thereof shall only be entitled to such rights as
are granted by the DGCL.
(b) If any Stockholder who holds Dissenting Shares as of the Effective
Time effectively withdraws or loses (through passage of time, failure to demand
or perfect, or otherwise) the right to demand and perfect appraisal rights under
the DGCL, then, as of the later of the Effective Time and the occurrence of such
event, such holder's shares that were Dissenting Shares shall automatically be
converted into and represent only the right to receive any portion of the Merger
Consideration pursuant to and subject to Section 1.6 without interest thereon
upon surrender of the certificate representing such shares.
(c) The Company shall give Parent (i) prompt notice of any written
demands for appraisal of any shares of Company Capital Stock, withdrawals of
such demands, and any other instruments or notices served pursuant to the DGCL
on the Company and (ii) the opportunity to participate in all negotiations and
proceedings with respect to demands for appraisal under the DGCL. The Company
shall not, except with the prior written consent of Parent, voluntarily make any
payment with respect to any demands for appraisal of Company Capital Stock, or
offer to settle any such demands.
1.8 Surrender of Certificates.
(a) Parent to Provide Cash to Stockholder Representative. At the
Effective Time, Parent shall deposit with the Stockholder Representative for
distribution in accordance with Section 1.8(b) an amount of cash equal to the
Closing Payment. On the Holdback Due Date, Parent shall deliver the Holdback
Amount (minus any withholding pursuant to
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Section 1.6(b)) to the Stockholder Representative for distribution to the
Stockholders in the manner set forth in Section 1.6(b). Any amount of Merger
Consideration remaining with the Stockholder Representative after the 12-month
anniversary of the Closing Date shall be remitted to Parent and thereafter any
Stockholder shall direct any claims for payment hereunder to Parent.
(b) Exchange Procedures. At the Closing, Parent will deliver to the
Stockholder Representative, for delivery to each holder of record of a
certificate or certificates (the "Certificates") that immediately prior to the
Effective Time represented outstanding shares of Company Capital Stock, forms of
(i) a letter of transmittal (the "Letter of Transmittal") which shall specify
that delivery of Certificates shall be effected, and risk of loss and title to
the Certificates shall pass, only upon delivery of the Certificates to the
Stockholder Representative and shall be in such form and have such other
provisions as Parent may specify and (ii) instructions for use in effecting the
surrender of the Certificates in exchange for the amount of the Closing Payment
payable in exchange therefor. The Letter of Transmittal shall indicate that
applicable withholding Taxes with respect to the cashing out of the Company
Stock Rights, if applicable, and the vesting of shares of Company Capital Stock
that are restricted stock will be withheld from the Merger Consideration
otherwise payable to each holder of Company Stock Rights who receives a payment
with respect to his or her Company Stock Rights in connection with the Merger or
upon the exchange of shares of Company Capital Stock that are restricted stock,
and that other amounts may be withheld from any Stockholder in accordance with
the terms of this Agreement. Following the Effective Time and delivery to the
Stockholder Representative of a duly completed and executed Letter of
Transmittal, together with surrender of a Certificate (or Certificates) for
cancellation, the Stockholder shall be entitled to receive in exchange therefor
the portion of the Closing Payment to which such Stockholder is entitled
pursuant to Section 1.6 and the Certificate(s) so surrendered shall be canceled.
Following the Effective Time, until so surrendered, each outstanding Certificate
that, prior to the Effective Time, represented shares of Company Capital Stock
will be deemed from and after the Effective Time, for all corporate purposes, to
evidence only the right to receive the portion of Merger Consideration as
provided in this Article I.
(c) No Liability. Notwithstanding anything to the contrary in this
Section 1.8, none of the Stockholder Representative, Parent, the Surviving
Corporation or any party hereto shall be liable for any amount properly paid to
a public official pursuant to any applicable abandoned property, escheat or
similar Law.
(d) Lost, Stolen or Destroyed Certificates. In the event any
Certificates shall have been lost, stolen or destroyed, the Stockholder
Representative shall issue in exchange for such lost, stolen or destroyed
Certificates, upon the making of an affidavit of that fact by the holder
thereof, the Merger Consideration required pursuant to Section 1.6; provided,
however, that the Stockholder Representative may, in its discretion and as a
condition precedent to the payment thereof, require the owner of such lost,
stolen or destroyed Certificates to deliver a bond in such sum as it may direct
as indemnity against any claim that may be made against the Stockholder
Representative, the Surviving Corporation or Parent with respect to the
Certificates alleged to have been lost, stolen or destroyed.
1.9 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
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and to vest the Surviving Corporation with full right, title and possession to
all assets, property, rights, privileges, powers and franchises of the Company
and Merger Sub, the officers and directors of the Company and Merger Sub are
fully authorized in the name of their respective corporations or otherwise to
take, and will take, all such lawful and necessary action.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE
PRINCIPAL STOCKHOLDERS
The Company and each Principal Stockholder hereby represents and warrants
to each of Parent and Merger Sub as of the date hereof and as of the Closing,
subject to such exceptions as are set forth in the disclosure letter dated as of
the date hereof and delivered herewith to Parent (the "Company Disclosure
Schedule"), as follows:
2.1 Organization of the Company. The Company is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware. The Company has the full corporate power and authority to own, lease
and operate its properties and to carry on its business as now being conducted
and as now proposed to be conducted. The Company is duly qualified or licensed
to do business and is in good standing as a foreign corporation in each
jurisdiction listed on Schedule 2.1(a) and in each jurisdiction in which the
conduct of its business or the ownership, leasing, holding or use of its
properties makes such qualification necessary, except such other jurisdictions
where the failure to be so qualified or licensed or in good standing could not
reasonably be expected to have a Company Material Adverse Effect. The Company
has delivered a true and correct copy of the Company Certificate of
Incorporation and its By-laws, each as amended to date and in full force and
effect on the date hereof, to Parent. The Company has not violated the Company
Certificate of Incorporation or its By-Laws in any material respect. Schedule
2.1(b) lists every state or foreign jurisdiction in which the Company has
facilities, maintains an office or has an Employee. Neither the Company nor its
predecessors has conducted any business under or otherwise used for any purpose
in any jurisdiction any fictitious name, assumed name, trade name or other name.
2.2 Authority.
(a) The Company has all requisite corporate power and authority to
enter into this Agreement and each of the Certificate of Merger and any other
agreements, certificates or documents contemplated thereby or hereby
(collectively, the "Related Agreements") to which it is or will be a party and
to consummate the transactions contemplated hereby and thereby. The Company
Board has unanimously (i) determined that the Merger is fair to, and in the best
interests of, the Company and the Stockholders, (ii) approved this Agreement,
the Related Agreements and the transactions contemplated hereby and thereby,
including the Merger and (iii) recommended that the Stockholders adopt and
approve this Agreement, the Related Agreements and the transactions contemplated
hereby and thereby, and approve the Merger. Each Principal Stockholder, and
Stockholders holding (i) at least 95% of the total number of issued and
outstanding shares of Company Common Stock and Company Preferred Stock voting
together as a single class on an as-converted basis and (ii) 100% of the total
number of issued and outstanding shares of Company Preferred Stock voting
separately as a single class, have voted in favor of or otherwise approved this
Agreement, the Merger and the transactions
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contemplated hereby and thereby. The Company has delivered to Parent certified
copies of the resolutions adopted by the Company Board and the written consent
of the Stockholders who have approved this Agreement and the Merger
(collectively, the "Transaction Approvals"). The Transaction Approvals
constitute all necessary corporate and stockholder action on the part of the
Company Board and the Stockholders for the authorization, execution and delivery
of this Agreement and the Related Agreements by the Company and the performance
by the Company of the Merger and the other transactions contemplated hereby and
thereby, and such approvals have not been revoked.
(b) This Agreement has been, and each of the Related Agreements to
which the Company is a party will be at the Closing, duly executed and delivered
by the Company and, assuming the due authorization, execution and delivery by
the other parties hereto and thereto (other than the Company), this Agreement
constitutes, and in the case of the Related Agreements they will at Closing
constitute, valid and binding obligations of the Company, enforceable against
the Company in accordance with their respective terms, except as such
enforceability may be subject to applicable bankruptcy, reorganization,
insolvency, moratorium and similar Laws affecting the enforcement of creditors'
rights generally and by general principles of equity; provided, however, that
the Certificate of Merger will not be effective until filed with the Secretary
of State of the State of Delaware.
2.3 No Conflict. The execution and delivery by the Company of this
Agreement and the Related Agreements to which the Company is a party, and the
consummation of the transactions contemplated hereby and thereby, do not and
will not conflict with or result in any violation of or default under (with or
without notice or lapse of time, or both) or give rise to a right of
termination, cancellation, modification or acceleration of any obligation or
loss of any benefit under, or result in the imposition or creation of any Lien
upon any of the properties or assets (tangible or intangible) under (i) any
provision of the Company Certificate of Incorporation, the Company's By-laws or
other organizational documents of the Company or the Subsidiary, (ii) any
Company Material Contract, (iii) any Company Authorization or (iv) any Law
applicable to the Company or the Subsidiary or any of their respective
properties or assets (whether tangible or intangible). Schedule 2.3 sets forth
all notices to, and all necessary consents, waivers and approvals of, parties to
any Company Contract as are required thereunder in connection with the Merger,
or for any such Company Contract to remain in full force and effect without
limitation, modification or alteration (including payment of any additional
amounts or consideration other than ongoing fees, royalties or payments which
the Company or the Subsidiary, as the case may be, would otherwise be required
to pay pursuant to the terms of such Company Contracts had the transactions
contemplated by this Agreement not occurred) after the Effective Time so as to
preserve all rights of, and benefits to, the Company and the Subsidiary, as the
case may be, under such Company Contracts from and after the Effective Time.
2.4 Consents. No consent, waiver, approval, order or authorization of, or
registration, declaration or filing with, or notice to any court, administrative
agency or commission or other federal, state, county, local or foreign
governmental authority, instrumentality, agency or commission (each, a
"Governmental Entity") or any third party, is required by, or with respect to,
the Company or the Subsidiary in connection with the execution and delivery of
this Agreement and the Related Agreements to which the Company or the Subsidiary
is a party or the consummation of the transactions contemplated hereby and
thereby, except for the filing of the Certificate of Merger with the Secretary
of State of the State of Delaware.
9
2.5 Subsidiary.
(a) Except for the Subsidiary, the Company does not own and has never
otherwise owned, directly or indirectly, any capital stock of or any other
equity interest in, or controlled, directly or indirectly, any other Person, and
the Company is not and has not otherwise been, directly or indirectly, a party
to, member of or participant in any partnership, joint venture or similar
business entity. The Subsidiary is material to the Company's business,
operations and financial condition. The Subsidiary is duly organized, validly
existing and in good standing (to the extent applicable) under the Laws of its
jurisdiction of formation. The Subsidiary has the full corporate power and
authority to own, lease and operate its properties and to carry on its business
as now being conducted and as now proposed to be conducted. The Subsidiary is
duly qualified or licensed to do business and is in good standing (to the extent
applicable) as a foreign organization in each jurisdiction listed on Schedule
2.5(a) and in each jurisdiction in which the conduct of its business or the
ownership, leasing, holding or use of its properties makes such qualification
necessary, except such other jurisdictions where the failure to be so qualified
or licensed or in good standing could not reasonably be expected to have a
Company Material Adverse Effect. The Company has delivered a true and correct
copy of the Subsidiary's Certificate of Incorporation and By-Laws (or other
comparable organizational documents), each as amended to date and in full force
and effect on the date hereof, to Parent. The Subsidiary has not violated its
Certificate of Incorporation or By-Laws or comparable organizational documents
in any material respect. Schedule 2.5(a) lists every jurisdiction in which the
Subsidiary has facilities, maintains an office or has an Employee. Neither the
Subsidiary nor any of its predecessors have conducted any business under or
otherwise used for any purpose in any jurisdiction any fictitious name, assumed
name, trade name or other name.
(b) The capitalization of the Subsidiary, including the identity of
each holder of an outstanding equity interest therein, is as set forth on
Schedule 2.5(b). All of the outstanding capital stock of, or other ownership
interests in, the Subsidiary, is owned by the Company, directly or indirectly,
free and clear of any Lien and free of any other limitation or restriction
(including any restriction on the right to vote, sell or otherwise dispose of
such capital stock or other ownership interests). There are no outstanding (i)
securities of the Company or the Subsidiary convertible into or exchangeable for
shares of capital stock or other voting securities or ownership interests in the
Subsidiary or (ii) options or other rights to acquire from the Company or the
Subsidiary, or obligation on the part of the Company or the Subsidiary to issue,
any capital stock, voting securities or other ownership interests in, or any
securities convertible into or exchangeable for any capital stock, voting
securities or ownership interests in, the Subsidiary (the items in clauses (i)
and (ii) being referred to collectively as the "Subsidiary Securities"). There
are no outstanding obligations of the Company or the Subsidiary to repurchase,
redeem or otherwise acquire any outstanding Subsidiary Securities. All of the
outstanding share capital of the Subsidiary has been duly authorized and is
validly issued, fully paid and non-assessable.
10
2.6 Company Capital Structure.
(a) The authorized capital stock of the Company consists of: (i)
20,200,000 shares of Company Common Stock, of which 3,218,245 shares are issued
and outstanding; and (ii) 7,300,000 shares of Company Preferred Stock, of which
7,150,000 shares have been designated Series A-1 Preferred Stock, of which
6,856,221 shares are issued and outstanding. Each share of Series A-1 Preferred
Stock is convertible into one share of Company Common Stock. No other shares of
Company Preferred Stock are issued or outstanding. The Company Capital Stock,
including all shares subject to the Company's right of repurchase, is held of
record and beneficially by the Persons with the addresses and in the amounts set
forth on Schedule 2.6(a). All outstanding shares of Company Capital Stock (i)
have been duly authorized and validly issued and are fully paid, non-assessable
and not subject to preemptive rights or similar rights created by statute, the
Company Certificate of Incorporation, the By-laws of the Company or any Company
Contract, and (ii) have been offered, sold and delivered by the Company in
compliance with all applicable Laws, including federal and state securities
laws. All preferential rights of the Company Preferred Stock in connection with
the sale of substantially all of the assets of the Company or a merger involving
the Company are set forth in the Company Certificate of Incorporation. Except as
set forth on Schedule 2.6(a), there are no declared or accrued but unpaid
dividends with respect to any shares of Company Capital Stock.
(b) (i) Except for the Company's 2003 Stock Option Plan, as amended
(the "Company Option Plan"), neither the Company nor the Subsidiary has ever
adopted, sponsored or maintained any stock option plan or any other plan or
agreement providing for equity compensation to any Person. The Company Option
Plan has been duly authorized, approved and adopted by the Company Board and the
Stockholders and is in full force and effect. With respect to the Company
Options, (i) each Company Option intended to qualify as an "incentive stock
option" under Section 422 of the Code so qualifies, (ii) each grant of a Company
Option was duly authorized no later than the date on which the grant of such
Company Option was by its terms to be effective (the "Grant Date") by all
necessary corporate action, including, as applicable, approval by the Company
Board (or a duly constituted and authorized committee thereof), or a duly
authorized delegate thereof, and any required stockholder approval by the
necessary number of votes or written consents, (iii) each such grant was made in
accordance with the terms of the applicable Company Option Plan and under all
applicable Laws, including federal and state securities Laws, and (iv) the per
share exercise price of each Company Option was not less than the fair market
value of a share of Company Common Stock on the applicable Grant Date. The
Company has reserved for issuance to Employees and directors of, and consultants
to, the Company 570,000 shares of Company Common Stock under the Company Option
Plan, of which options to purchase 409,500 shares of Company Common Stock have
been granted and are outstanding. Schedule 2.6(b) sets forth for each
outstanding Company Option, the name of the holder of such option, the domicile
address of such holder, an indication of whether such holder is an Employee of
the Company, the date of grant or issuance of such option, the number of shares
of Company Common Stock subject to such option, the exercise price of such
option, the vesting schedule for such option, including the extent vested to the
date of this Agreement and whether and to what extent the exercisability of such
option will be accelerated and become exercisable as a result of the
transactions contemplated by this Agreement, and whether such option is a
Nonstatutory Option or an incentive stock option as defined in Section 422 of
the Code.
11
(ii) The Company has issued warrants (each a "Company Warrant")
for the purchase of an aggregate of 240,000 shares of Company Common Stock. All
Company Warrants have been offered, issued and delivered by the Company in
compliance with all applicable Laws, including federal and state securities
Laws. Schedule 2.6(b) sets forth for each outstanding Company Warrant, the name
of the holder of such Company Warrant, the domicile address of such holder, an
indication of whether such holder is an Employee of the Company, the date of
grant or issuance of such Company Warrant, the number of shares of Company
Capital Stock (and the class and series thereof) subject to such Company
Warrant, the exercise price of such Company Warrant, the vesting schedule for
such Company Warrant, including the extent vested to the date of this Agreement
and whether and to what extent the exercisability of such Company Warrant will
be accelerated and become exercisable as a result of the transactions
contemplated by this Agreement.
(iii) Except for the Company Options and Company Warrants, there
are no Company Stock Rights or agreements of any character, written or oral,
obligating the Company or the Subsidiary to issue, deliver, sell, repurchase or
redeem, or cause to be issued, delivered, sold, repurchased or redeemed, any
Company Capital Stock or any capital stock or equity or other ownership interest
of the Subsidiary or obligating the Company or the Subsidiary to grant, extend,
accelerate the vesting of, change the price of, otherwise amend or enter into
any such Company Stock Right. There are no outstanding or authorized stock
appreciation, phantom stock, profit participation, or other similar rights with
respect to the Company or the Subsidiary.
(iv) (A) Each Company Warrant, by its terms, will be
automatically exercised or will be cancelled and extinguished at, or prior to,
the Effective Time and the payment, if any, required to be paid to the holder
thereof at the Effective Time is equal to the amount determined in accordance
with Section 1.6(e)(i); or (B) each holder of a Company Warrant has agreed in
writing that such Company Warrant shall be exercised or cancelled and
extinguished at, or prior to, the Effective Time and the payment, if any,
required to be paid to the holder thereof at the Effective Time shall be equal
to the amount determined in accordance with Section 1.6(e).
(c) Except for the Investors Rights Agreement, dated as of March 1,
2005 (the "Investors Rights Agreement"), the Stockholders Agreement, dated as of
March 1, 2005 (the "Stockholders Agreement"), and the Right of First Refusal and
Co-Sale Agreement, dated as of March 1, 2005 (the "Right of First Refusal"),
there are no (i) voting trusts, proxies, or other agreements or understandings
with respect to the voting stock of the Company or the Subsidiary to which the
Company or the Subsidiary is a party, by which the Company or the Subsidiary is
bound, or of which the Company has knowledge, or (ii) agreements or
understandings to which the Company or the Subsidiary is a party, by which the
Company or the Subsidiary is bound, or of which the Company has knowledge
relating to the registration, sale or transfer (including agreements relating to
rights of first refusal, "co-sale" rights or "drag-along" rights) of any Company
Capital Stock. The execution and delivery of this Agreement, the Related
Agreements and the consummation of the transactions contemplated hereby and
thereby does not implicate any rights or obligations under the Investors Rights
Agreement, Stockholders Agreement or Right of First Refusal that have not been
complied with or waived. The holders of Company Capital Stock and Company Stock
Rights have been or will be properly given, or shall have properly waived, any
required notice prior to the Merger.
12
2.7 Company Financial Statements and Internal Controls.
(a) Schedule 2.7 sets forth the consolidated balance sheets and the
related consolidated statements of operations, stockholders equity (deficit) and
cash flows of the Company and the Subsidiary for the fiscal years ended December
31, 2006, 2005 and 2004, (the balance sheet included therein at December 31,
2006 being the "Company Balance Sheet", and December 31, 2006 being the "Balance
Sheet Date") (collectively, the "Company Financial Statements"). The Company
Financial Statements are accurate and complete and have been prepared in
accordance with generally accepted accounting principles effective in the United
States ("GAAP") applied on a basis consistent throughout the periods indicated
and consistent with each other, except for the absence of footnotes. The Company
Financial Statements fairly present, in all material respects, the consolidated
financial condition, results of operations and cash flows of the Company and the
Subsidiary as of the dates and during the periods indicated therein.
(b) The Company and the Subsidiary have in place systems and processes
that are customary for a company at the same stage of development as the Company
that are designed to (i) provide reasonable assurances regarding the reliability
of the Company Financial Statements and (ii) in a timely manner accumulate and
communicate to the Company's principal executive officer and principal financial
officer the type of information that would be required to be disclosed in the
Company Financial Statements (such systems and processes are herein referred to
as the "Controls"). Neither the Company nor the Subsidiary nor, to the Company's
knowledge, any Employee, auditor, accountant or representative of the Company or
the Subsidiary has received or otherwise had or obtained knowledge of any
complaint, allegation, assertion or claim, whether written or oral, regarding
the Controls or the Company Financial Statements. To the Company's knowledge,
there have been no instances of fraud, whether or not material, which occurred
during any period covered by the Company Financial Statements.
(c) To the Company's knowledge, no Employee has provided information
to any Governmental Entity regarding the commission of any crime or the
violation of any Law applicable to the Company, the Subsidiary or any part of
their respective operations.
(d) The Company has in place a revenue recognition policy consistent
with GAAP.
(e) The Company has Net Assets of $(15,745.65).
2.8 Liabilities.
(a) Neither the Company nor the Subsidiary has (i) any liability,
indebtedness, obligation, expense, claim, deficiency, guaranty or endorsement of
any type, whether accrued, absolute, contingent, matured, unmatured or other
(whether or not required to be reflected in Company Financial Statements in
accordance with GAAP), other than (A) as has been reflected in the Company
Balance Sheet, (B) as relate to obligations to provide services under customer
contracts and are in amounts that are less than $10,000 individually or $25,000
in the aggregate, (C) as relate to obligations to pay future rent under leases
and are in amounts that are less than $10,000 individually or $25,000 in the
aggregate, or (D) as has arisen in the ordinary course of
13
the Company's business consistent with past practices since the Balance Sheet
Date in amounts that are less than $10,000 individually or $25,000 in the
aggregate, or (ii) any "off-balance sheet arrangements" (as such term is defined
in Item 303(a)(4) of Regulation S-K promulgated under the Exchange Act).
(b) Schedule 2.8(b) sets forth an accurate and complete breakdown of
(i) the aging of the accounts payable of the Company and the Subsidiary as of
December 31, 2006; (ii) any customer deposits or other deposits held by the
Company and the Subsidiary as of the date hereof; and (iii) all notes payable
and other indebtedness of the Company and the Subsidiary as of the date hereof.
(c) All accounts payable of the Company and the Subsidiary as of
December 31, 2006 are reflected on the unaudited Company Financial Statements.
All accounts payable of the Company and the Subsidiary that arose after December
31, 2006 have been recorded on the accounting books and records of the Company.
All outstanding accounts payable of the Company and the Subsidiary represent
valid obligations arising from bona fide purchases of assets or services, which
assets or services have been delivered to the Company or the Subsidiary. Since
December 31, 2006, the Company and the Subsidiary have each paid all of its
accounts payable in the ordinary course of business consistent with past
practices and has not delayed or renegotiated payment of, or refused to pay, any
of its accounts payable, except consistent with its past practices.
(d) Neither the Company nor the Subsidiary has, at any time, (i) made
a general assignment for the benefit of creditors, (ii) filed, or had filed
against it, any bankruptcy petition or similar filing, (iii) suffered the
attachment or other judicial seizure of all or a substantial portion of its
assets, (iv) admitted in writing its inability to pay its debts as they become
due, or (v) been convicted of, or pleaded guilty or no contest to, any felony.
To the knowledge of the Company, none of its current officers, directors or
Employees has been convicted of, or pleaded guilty or no contest to, any felony.
(e) Neither the Company nor the Subsidiary is or has been a party to
any agreement whereby it has guaranteed or otherwise agreed to cause, insure or
become liable for, or pledged any of its assets to secure, the performance or
payment of, any obligation or other liability of any Person (other than the
Company or a Subsidiary).
(f) Neither the Company nor the Subsidiary is insolvent.
2.9 Absence of Certain Changes. Except as set forth in Schedule 2.9, since
the Balance Sheet Date there has not been, occurred or arisen any:
(a) transaction by the Company or the Subsidiary, except in the
ordinary course of business and consistent with past practices;
(b) amendments or changes to the Company Certificate of Incorporation
or By-laws of the Company or comparable documents of the Subsidiary;
14
(c) capital expenditure or capital commitment by the Company or the
Subsidiary in any amount in excess of $10,000 in any individual case or $25,000
in the aggregate;
(d) payment, discharge or satisfaction, in any amount in excess of
$10,000 in any one case or $25,000 in the aggregate, of any claim, liability or
obligation (absolute, accrued, asserted or unasserted, contingent or otherwise
of the Company or the Subsidiary), other than payments, discharges or
satisfactions in the ordinary course of business and consistent with past
practices of liabilities reflected or reserved against in the Company Balance
Sheet;
(e) destruction of, damage to or loss of any material assets, business
or customer of the Company or the Subsidiary (whether or not covered by
insurance);
(f) work stoppage, labor strike or other labor trouble, or any action,
suit, claim, labor dispute or grievance relating to any labor, employment and/or
safety matter involving the Company or the Subsidiary, including charges of
wrongful discharge, discrimination, wage and hour violations, or other unlawful
labor and/or employment practices or actions;
(g) change in accounting methods or practices (including any change in
depreciation or amortization policies or rates) by the Company or the
Subsidiary;
(h) revaluation by the Company or the Subsidiary of any of their
assets, including the writing down of the value of inventory or writing off of
notes or accounts receivable;
(i) (x) declaration, setting aside or payment of a dividend or other
distribution (whether in cash, stock or property) with respect to any Company
Capital Stock or Subsidiary Securities, or any direct or indirect redemption,
purchase or other acquisition by the Company or the Subsidiary of any Company
Capital Stock or Subsidiary Securities, other than repurchases of Company Common
Stock from Employees, 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 termination of employment or other
services, (y) any split, combination or reclassification of any Company Capital
Stock, or (z) any issuance or authorization of the issuance of any other
securities in respect of, in lieu of or in substitution for, any Company Capital
Stock or Subsidiary Securities;
(j) increase in the salary or other compensation payable or to become
payable by the Company or the Subsidiary to any of their officers, directors,
Employees, consultants, contractors, or advisors, including the modification of
any existing compensation or equity arrangements with such individuals
(including any repricing of any Company Stock Rights or any amendment of any
vesting terms related thereto held by such individuals), or the declaration,
payment or commitment or obligation of any kind for the payment by the Company
or the Subsidiary of a bonus or other additional salary or compensation to any
such Person;
(k) employee terminations and/or layoffs, and the Company and the
Subsidiary have preserved intact and kept available the services of its
employees, in each case in accordance with past practice, it being understood
that termination of employees with poor performance ratings or for cause shall
not constitute a violation of this clause (k);
15
(l) (i) grant of any severance or termination pay to any director,
officer or Employee, except payments made pursuant to written agreements
outstanding on the date hereof and as disclosed in the Company Disclosure
Schedule, (ii) adoption or amendment of any employee benefit plan or severance
plan, (iii) entering into any employment contract, extension of any employment
offer, payment or agreement to pay any bonus or special remuneration to any
director or Employee or (iv) increase in the salaries, wage, rates or other
compensation of Employees, other than payments made pursuant to standard written
agreements outstanding on the date hereof and disclosed in Schedule 2.16;
(m) entering into of any Company Contract (including any strategic
alliance, joint development or joint marketing agreement or any loan agreement
or instrument), any termination, extension, amendment or modification of the
terms of any Company Contract or any waiver, release or assignment of any
material rights or claims thereunder, except in the ordinary course of business
and consistent with past practices;
(n) sale, lease, license or other disposition of any of the assets or
properties of the Company or the Subsidiary, or creation of any Lien in such
assets or properties, except sales of inventory in the ordinary course of
business and consistent with past practices;
(o) loan by the Company or the Subsidiary to any Person, incurrence by
the Company or the Subsidiary of any indebtedness, guarantee by the Company or
the Subsidiary of any indebtedness, issuance or sale of any debt securities of
the Company or the Subsidiary or purchase of or guaranteeing of any debt
securities of others, except for advances to Employees for travel and business
expenses in the ordinary course of business and consistent with past practices;
(p) waiver or release of any right or claim of the Company or the
Subsidiary, including any write-off or other compromise of any account
receivable of the Company, except in the ordinary course of business and
consistent with past practices;
(q) commencement, or notice or threat of commencement, of any lawsuit
or proceeding against or investigation of the Company or the Subsidiary or their
affairs, or commencement or settlement of any litigation by the Company or the
Subsidiary;
(r) (i) transfer or sale by the Company or the Subsidiary of any
rights to the Company Intellectual Property or the entering into of any license
agreement (other than non-exclusive end-user license agreements entered into by
the Company in the ordinary course of business consistent with past practices
that do not include any rights with respect to source code), distribution
agreement, reseller agreement, security agreement, assignment or other
conveyance or option for the foregoing, with respect to the Company Intellectual
Property with any Person, (ii) the purchase or other acquisition of any
Intellectual Property or the entering into of any license agreement,
distribution agreement, reseller agreement, security agreement, assignment or
other conveyance or option for the foregoing, with respect to the Intellectual
Property of any Person, (iii) change in pricing or royalties set or charged by
the Company or the Subsidiary to its
16
customers or licensees or in pricing or royalties set or charged by Persons who
have licensed Intellectual Property to the Company or the Subsidiary or (iv)
entering into, or amendment of, any agreement with respect to the development of
any Intellectual Property with a third party;
(s) agreement, or modification to any agreement, pursuant to which any
Person was granted marketing, distribution, development, manufacturing or
similar rights of any type or scope with respect to any products, services or
technology of the Company or the Subsidiary;
(t) except as set forth in Schedule 2.6(b), issuance, grant, delivery
or sale (or authorization of the same) by the Company or the Subsidiary of any
Company Capital Stock, any Company Options, any Company Warrants, any other
Company Stock Right or the Subsidiary Securities;
(u) event, occurrence, change, effect or condition of any character,
which individually or in the aggregate, has had or reasonably could be expected
to have a Company Material Adverse Effect; or
(v) agreement by the Company or the Subsidiary, or any officer or
Employees thereof, to do any of the things described in the preceding clauses
(a) through (u) (other than negotiations with Parent and its representatives
regarding the transactions contemplated by this Agreement and the Related
Agreements).
2.10 Accounts Receivable. Schedule 2.10 lists all accounts receivable of
the Company and the Subsidiary as of December 31, 2006, together with an aging
schedule indicating a range of days elapsed since being invoiced. All of the
accounts receivable of the Company and the Subsidiary represent bona fide
transactions that arose in the ordinary course of business, are carried at
values determined in accordance with GAAP consistently applied and will be good
and collectible in full within 90 days of the Closing Date, except to the extent
of any reserve for uncollectible accounts receivable set forth on the most
recent balance sheet included in the Company Financial Statements. No Person has
any Lien on any accounts receivable of the Company or the Subsidiary, and no
request or agreement for deduction or discount has been made with respect to any
accounts receivable of the Company or the Subsidiary.
2.11 Restrictions on Business Activities.
(a) There is no Company Contract (non-competition or otherwise) or
judgment, injunction, order or decree to which the Company or the Subsidiary is
a party, subject or otherwise binding upon the Company or the Subsidiary, that
has had or could reasonably be expected to have the effect of prohibiting or
impairing any business practice of the Company or the Subsidiary, any
acquisition of property (tangible or intangible) by the Company or the
Subsidiary, the conduct of business by the Company or the Subsidiary, or
otherwise limiting the freedom of the Company or the Subsidiary to engage in any
line of business or to compete with any Person, in each case whether arising as
a result of a change in control of the Company or the Subsidiary or otherwise.
Without limiting the generality of the foregoing, neither the Company nor the
Subsidiary has (i) entered into any agreement under which the Company or the
Subsidiary is restricted from selling, licensing, manufacturing or otherwise
distributing any of its
17
technology or products or from providing services to customers or potential
customers or any class of customers, in any geographic area, during any period
of time, or in any segment of the market or (ii) granted any Person exclusive
rights to sell, license, manufacture or otherwise distribute any of the
Company's or the Subsidiary's technology or products in any geographic area or
with respect to any customers or potential customers or any class of customers
during any period of time or in any segment of the market.
(b) There is no Company Contract (non-competition or otherwise) or
judgment, injunction, order or decree to which the Company or the Subsidiary is
a party, subject or otherwise binding upon the Company or the Subsidiary that
could reasonably be expected to have the effect of prohibiting or impairing any
business practice of Parent or the Subsidiary, any acquisition of property
(tangible or intangible) by Parent or the Subsidiary, the conduct of business by
Parent or the Subsidiary, or otherwise limiting the freedom of Parent or the
Subsidiary to engage in any line of business or to compete with any Person after
the Effective Time.
2.12 Real Property; Leases.
(a) None of the real property used or occupied by the Company or the
Subsidiary, in each case, together with all buildout, fixtures and improvements
created thereon ("Company Real Property"), is owned by the Company or the
Subsidiary, nor has the Company or the Subsidiary ever owned any real property.
All of the Company Real Property is leased or subleased by the Company or the
Subsidiary, or the Company or the Subsidiary has an interest in such Company
Real Property pursuant to a warehousing, license or occupancy agreement.
(b) Schedule 2.12(b) sets forth all leases, subleases and other
agreements pursuant to which the Company and the Subsidiary derives its rights
in the Company Real Property (the "Leases"), including, with respect to each
such Lease, the identity of the landlord or sublandlord, the addresses, the date
of such Lease and each amendment thereto, and the aggregate annual rent.
(c) The Leases are in good standing and are valid, binding and
enforceable in accordance with their respective terms, and there does not exist
under any such Lease any default by the Company or the Subsidiary or, to the
Company's knowledge, by any other Person, or any event that, with or without
notice or lapse of time or both, would constitute a default by the Company or
the Subsidiary or, to the Company's knowledge, by any other Person, except for
such defaults as could not individually or in the aggregate reasonably be
expected to have a Company Material Adverse Effect. The Company has delivered to
Parent complete copies of all Leases, including all amendments and agreements
related thereto, and the Leases constitute the entire agreement between the
Company or the Subsidiary and each landlord or sublandlord with respect to the
Company Real Property. All rent and other charges currently due and payable
under the Leases have been paid.
(d) The Company or the Subsidiary is the holder of the tenant's
interest under the Leases and has not assigned the Leases or subleased all or
any portion of the premises leased thereunder. Neither the Company nor the
Subsidiary has made any alterations, additions or improvements to the premises
leased under the Leases that are required to be removed (or of
18
which any landlord or sublandlord could require removal) at the termination of
the applicable Lease term. The Company or the Subsidiary owns all trade
fixtures, equipment and personal property located in the premises leased under
the Leases and the landlords thereunder have no Lien thereon or claim thereto.
2.13 Assets; Absence of Liens and Encumbrances.
(a) Schedule 2.13(a) accurately identifies all equipment, materials,
tangible prototypes, tools, supplies, vehicles, furniture, fixtures,
improvements and other tangible assets of the Company or the Subsidiary with an
individual book value of greater than $5,000, and accurately sets forth the
original cost and book value of each of such asset.
(b) The Company and the Subsidiary has good and valid title to, or, in
the case of Company Real Property and leased properties and assets, valid
leasehold interests in, all of its tangible properties and assets, real,
personal and mixed, used or held for use in its business, free and clear of any
Liens, except as reflected in the Company Financial Statements and except for
Liens for ad valorem Taxes not yet due and payable and such imperfections of
title and encumbrances, if any, which are not material in character, amount or
extent, and which do not materially detract from the value, or materially
interfere with the present use, of the property subject thereto or affected
thereby.
(c) All facilities, machinery, equipment, fixtures, vehicles, and
other personal properties owned, leased or used by the Company or the Subsidiary
(i) are adequate for the conduct of the business of the Company and the
Subsidiary as currently conducted and as currently proposed to be conducted,
(ii) are in good operating condition, subject to normal wear and tear, and
reasonably fit and usable for the purposes for which they are being used, and
(iii) comply in all respects with, and are being operated and otherwise used in
full compliance with, all applicable Law, except for such violations as could
not individually or in the aggregate reasonably be expected to have a Company
Material Adverse Effect.
(d) The execution and delivery by the Company of this Agreement and
the Related Agreements to which the Company is a party, and the consummation of
the transactions contemplated hereby and thereby, do not and will not result in
the imposition of any Liens upon or with respect to any of the properties of the
Company.
2.14 Intellectual Property.
(a) (i) Schedule 2.14(a) lists: (A) all Company Registered
Intellectual Property, (B) all hardware products and tools, software and
firmware products and tools and services that are currently sold, published,
offered, or under development by the Company and the Subsidiary, and (C) all
licenses, sublicenses and other agreements to which the Company or the
Subsidiary is a party and pursuant to which the Company or the Subsidiary or any
other Person is authorized to use any of the Company Intellectual Property or
exercise any rights with respect thereto.
(ii) The Company has complied with all requirements of the United
States and foreign patent offices or applicable Governmental Bodies to maintain
the Company Patents, including payment of all required fees to such offices or
agencies. The Company has no
19
knowledge of any prior art references or prior public uses, sales, offers for
sale or disclosures which could invalidate the Company Patents or any claim
thereof, or of any conduct the result of which could render the Company Patents
or any claim thereof invalid or unenforceable.
(iii) The original, first and joint inventors of the subject
matter claimed in the patents and patent applications included in the Company
Registered Intellectual Property (the "Company Patents") are properly
represented in the Company Patents, and the applicable statutes governing
marking of products covered by the inventions in the Company Patents have been
fully complied with
(b) Each item of Company Intellectual Property is either (i) owned
solely by the Company or the Subsidiary free and clear of any Liens, or (ii)
rightfully used and authorized for use by the Company or the Subsidiary and
their permitted successors pursuant to a valid and enforceable written license.
All of the Company Intellectual Property that is used or held for use by the
Company or the Subsidiary pursuant to a license or other grant of a right by a
third party to use its proprietary information is separately identified as such
in Schedule 2.14(b). The Company and the Subsidiary have all rights in the
Company Intellectual Property necessary to carry out the Company's and the
Subsidiary's former, current and currently planned activities, including rights
to make, use, exclude others from using, reproduce, modify, adapt, create
derivative works based on, translate, distribute (directly and indirectly),
transmit, display and perform publicly, license, rent, lease, assign and sell
the Company Intellectual Property in all geographic locations and fields of use,
and to sublicense any or all such rights to third parties, including the right
to grant further sublicenses.
(c) The Company and the Subsidiary are in compliance with and have not
breached, violated or defaulted under, or received notice that any of them have
breached, violated or defaulted under, any of the terms or conditions of any
license, sublicense or other agreement to which the Company or the Subsidiary is
a party or is otherwise bound relating to any of the Company Intellectual
Property, nor does the Company have knowledge of any event or occurrence that
could reasonably be expected to constitute such a breach, violation or default
(with or without the lapse of time, giving of notice or both). Each such
agreement is in full force and effect, and neither the Company nor the
Subsidiary is in default thereunder, nor to the knowledge of the Company is any
party obligated to the Company or the Subsidiary pursuant to any such agreement
in default thereunder. Following the Closing Date, the Surviving Corporation
will be permitted to exercise all of the Company's rights under such contracts,
licenses and agreements to the same extent the Company and the Subsidiary would
have been able to had the transactions contemplated by this Agreement not
occurred and without the payment of any additional amounts or consideration
other than fees, royalties or payments which the Company or the Subsidiary would
otherwise have been required to pay had the transactions contemplated by this
Agreement not occurred. Neither the Company nor the Subsidiary is obligated to
provide any consideration (whether financial or otherwise) to any third party,
nor is any third party otherwise entitled to any consideration, with respect to
any exercise of rights by the Company or the Subsidiary or the Surviving
Corporation, as successor to the Company or the Subsidiary, in the Company
Intellectual Property.
(d) The use of the Company Intellectual Property by the Company and
the Subsidiary, as previously used, as currently used and as currently proposed
to be used, has not
20
infringed and does not and will not infringe any other Person's copyright, trade
secret rights, right of privacy, right in personal data, moral right, patent,
trademark, service mark, trade name, firm name, logo, trade dress, mask work or
other intellectual property right, or give rise to any claim of unfair
competition. No funds or facilities of any university were used in the
development of Company Intellectual Property. No claims (i) challenging the
validity, enforceability, effectiveness or ownership by the Company or the
Subsidiary of any of the Company Intellectual Property or (ii) to the effect
that the use, reproduction, modification, manufacture, distribution, licensing,
sublicensing, sale, or any other exercise of rights in any Company Intellectual
Property by the Company and the Subsidiary or by any licensee of the Company of
the Subsidiary, infringes or will infringe on any intellectual property or other
proprietary or personal right of any Person have been asserted against the
Company or the Subsidiary or, to the Company's knowledge, are threatened by any
Person nor, to the Company's knowledge, does there exist any valid basis for
such a claim. There are no legal or governmental proceedings, including
interference, re-examination, reissue, opposition, nullity, or cancellation
proceedings pending that relate to any of the Company Intellectual Property,
other than review of pending patent and trademark applications, and neither the
Company nor the Subsidiary is aware of any information indicating that such
proceedings are threatened or contemplated by any Governmental Entity or any
other Person. All Company Registered Intellectual Property is valid and
subsisting. To the Company's knowledge, there is no unauthorized use,
infringement, or misappropriation of any Company Intellectual Property by any
third party or Employee.
(e) The Company and the Subsidiary have secured from all parties
(including Employees) who have created any portion of, or otherwise have any
rights in or to, the Company Intellectual Property owned by the Company or the
Subsidiary valid and enforceable written assignments of any such work,
invention, improvement or other rights to the Company and the Subsidiary and
have provided true and complete copies of such assignments to Parent.
(f) The transactions contemplated under this Agreement will not alter,
impair or otherwise affect any rights of the Company or the Subsidiary in any
Company Intellectual Property.
(g) The Company Intellectual Property owned by the Company or the
Subsidiary is not subject to any source code escrow or similar agreement.
(h) The Company and the Subsidiary have taken commercially reasonable
measures to protect the proprietary nature of the Company Intellectual Property
and to maintain in confidence all trade secrets and confidential information
owned or used by the Company or the Subsidiary. The Company and the Subsidiary
have secured from all parties (including Employees) who have created any portion
of, or otherwise have any rights in or to, Company Intellectual Property owned
by Company or the Subsidiary valid and enforceable written assignments of any
such work, invention, improvement or other rights to Company and the Subsidiary
and have provided true and complete copies of such assignments to Parent.
(i) The Company Intellectual Property does not contain any computer
code designed to disrupt, disable or harm in any manner the operation of any
software or hardware. None of the Company Intellectual Property contains any
worm, bomb, backdoor, clock, timer or other disabling device, code, design or
routine which causes the software or any portion thereof to be erased,
inoperable or otherwise incapable of being used, either automatically, with the
passage of time or upon command by any party.
21
(j) Schedule 2.14(j) lists all licenses, sublicenses and other
agreements pursuant to which the Company is authorized to use any Intellectual
Property of third Persons that is (i) incorporated in or bundled with the
Products or the Company Intellectual Property or (ii) used in connection with,
any Company Product or Service, or any product or service currently under
development. Schedule 2.14(j) also provides a brief description of any present
or future royalty or payment obligations for any Intellectual Property of third
Persons.
(k) Except as set forth on Schedule 2.14(k), the Company Intellectual
Property does not include any Publicly Available Software. Neither the Company
nor the Subsidiary have used Publicly Available Software in whole or in part in
the former, current or currently planned development of any part of the Company
Intellectual Property in a manner that may subject the Company Intellectual
Property, in whole or in part, to all or part of the license obligations of any
Publicly Available Software. No source code licensee of the Company has received
from the Company or distributed to any third party any combination of Publicly
Available Software and Company Intellectual Property in a manner that may
subject the Company Intellectual Property, in whole or in part, to all or part
of the license obligations of any Publicly Available Software.
(l) None of the Company's or the Subsidiary's professional services
agreements with their customers, agreements with merchants, agreements with
outside consultants for the performance of professional services on the behalf
of the Company, the Subsidiary or any of their respective customers, nor any
agreement or license with any end user or reseller of the Company's or the
Subsidiary's products, confers upon any Person other than the Company or the
Subsidiary any ownership right with respect to any Intellectual Property
developed in connection with such agreement or license.
(m) Neither the Company nor the Subsidiary has transferred ownership
of, or granted any exclusive license with respect to, any Company Intellectual
Property to any Person.
(n) Neither the Company nor the Subsidiary has participated in any
standards setting activities or joined any standards setting organizations that
would affect the proprietary nature of the Company Intellectual Property or
restrict the ability of the Company or the Subsidiary to enforce, license, or
exclude others from using the Company Intellectual Property.
(o) The Company has never agreed to indemnify any Person for or
against any interference, infringement, misappropriation, or other conflict with
respect to any of the Company Intellectual Property or any Intellectual Property
that was formerly Company Intellectual Property.
(p) Schedule 2.14(p) contains a list, including names, addresses,
contact names, telephone numbers, termination date and next renewal date, of all
agreements pursuant to which the Company is obligated to provide support
services (such agreements, as supplemented below, are referred to collectively
as the "Support Agreements"). Except for the nonstandard support agreements
specified as such in Schedule 2.14(p), all of the Support Agreements are in
22
all respects in the form of the Contract identified as the Standard Support
Agreement set forth in Schedule 2.14(p) (the "Standard Support Agreement").
Neither the Standard Support Agreement nor any other agreement would obligate
the Parent after the date of this Agreement to provide any improvement,
enhancement, change in functionality or other alteration to the performance of
any Company Product or Service, other than error corrections and upgrades if and
when made available to Company's customers generally. The versions of the
Company Products currently supported by the Company are set forth on Schedule
2.14(p). Neither the Company nor its Affiliates has granted any other Person the
right to furnish support or maintenance services with respect to the Products to
any other third Person.
2.15 Product Warranties; Defects; Liabilities; Services.
(a) Each product (including any software product) manufactured, sold,
licensed, leased or delivered by the Company or the Subsidiary (the "Company
Products") has been in conformity with the specifications for such Company
Product, all applicable contractual commitments and all applicable express and
implied warranties, except for such violations as could not individually or in
the aggregate reasonably be expected to have a Company Material Adverse Effect.
Neither the Company nor the Subsidiary has any liability or obligation (and to
the Company's knowledge, there is no basis for any present or future action,
suit, proceeding, hearing, investigation, charge, complaint, claim or demand
against the Company or the Subsidiary giving rise to any liability or
obligation) for replacement or repair thereof or other damages in connection
therewith except liabilities or obligations for replacement or repair incurred
in the ordinary course of business consistent with past practice. No Company
Product is subject to any guaranty, warranty, or other indemnity beyond the
applicable standard terms and conditions of sale, license or lease or beyond
that implied or imposed by applicable Law. Schedule 2.15 includes a copy of the
standard terms and conditions of sale, license, or lease for each of the Company
Products.
(b) All services provided by the Company or the Subsidiary to any
third party ("Services") were performed in conformity with the terms and
requirements of all applicable warranties and other Company Contracts and with
all applicable Laws, except for such violations as could not individually or in
the aggregate reasonably be expected to have a Company Material Adverse Effect.
There is no claim pending or, to the Company's knowledge, threatened against the
Company or the Subsidiary relating to any Services and, to the Company's
knowledge, there is no reasonable basis for the assertion of any such claim.
2.16 Company Contracts.
(a) Schedule 2.16 contains a brief description of each Company
Contract (including names of parties, date of execution, brief subject matter,
dollar amount and termination date), including without limitation the following
types of agreements to which the Company is a party:
(i) any collective bargaining agreement;
23
(ii) any employment or consulting agreement, contract or
commitment with any officer, director, Employee, contractor, consultant, advisor
or member of the Company's or the Subsidiary's board of directors;
(iii) any bonus or any other incentive compensation, deferred
compensation, severance, salary continuation, pension, profit sharing or
retirement plan, or any other employee benefit plan or arrangement that is not
listed on Schedule 2.25(a);
(iv) any commission and/or sales agreement with an Employee,
individual consultant or salesperson, or under which a firm or other
organization provides commission or sales-based services to the Company or the
Subsidiary, that is not listed on Schedules 2.26(b) or 2.26(c);
(v) any stock option plan, stock appreciation rights plan or
stock purchase plan, and any agreement or plan any of the benefits of which will
be increased, or the vesting of benefits of which will be accelerated, by the
occurrence of the Merger or any of the other transactions contemplated by this
Agreement and the Related Agreements or the value of any of the benefits of
which will be calculated on the basis of the Merger or any of the other
transactions contemplated by this Agreement or the Related Agreements;
(vi) any fidelity or surety bond or completion bond;
(vii) any lease of personal property having a value individually
in excess of $10,000;
(viii) any agreement of indemnification or guaranty to any
Person;
(ix) any agreement containing any covenant limiting the freedom
of the Company or the Subsidiary to engage in any line of business or in any
geographic territory or to compete with any Person, or which grants to any
Person any exclusivity to any geographic territory, any customer, or any product
or service;
(x) any agreement relating to capital expenditures and involving
future payments in excess of $10,000;
(xi) any agreement relating to the disposition of assets or any
interest in any business enterprise outside the ordinary course of the Company's
or the Subsidiary's business or any agreement relating to the acquisition of
assets or any interest in any business enterprise;
(xii) any mortgages, indentures, loans or credit agreements,
security agreements or other agreements or instruments relating to the borrowing
of money or the extension of credit;
(xiii) any purchase order or contract (including for services)
involving $10,000 or more;
24
(xiv) any dealer, distribution, joint marketing (including any
pilot program), development, content provider, destination site or merchant
agreement;
(xv) any joint venture, partnership, strategic alliance or other
agreement involving the sharing of profits, losses, costs or liabilities with
any Person or any development, data-sharing, marketing, resale, distribution or
similar arrangement relating to any product or service;
(xvi) any agreement pursuant to which the Company or the
Subsidiary has granted or may be obligated to grant in the future, to any
Person, a source code license or option or other right to use or acquire source
code, including any agreements which provide for source code escrow
arrangements;
(xvii) any sales representative, original equipment manufacturer,
value added re-seller, remarketer or other agreement for distribution of the
Company's or the Subsidiary's products or services, or the products or services
of any other Person;
(xviii) any agreement pursuant to which the Company or the
Subsidiary has advanced or loaned any amount to any Stockholder of the Company
or any director, officer, Employee, or consultant thereof or of the Subsidiary,
other than business travel advances in the ordinary course of business
consistent with past practice;
(xix) any commitment to any customer or third party to deliver
products or services, including all end-user licenses;
(xx) any commitment to any customer or third party to provide
support or maintenance, to develop or customize any product or service, or to
provide, support, customize or develop any third-party product, service or
platform, other than those included in Schedule 2.14(p);
(xxi) any contractual obligations that the Company would be
required to disclose pursuant to Item 303(a)(5) of Regulation S-K promulgated
under the Exchange Act if the Company were an issuer with a class of securities
registered pursuant to the Exchange Act;
(xxii) each proposed agreement as to which any bid, offer,
written proposal, term sheet or similar document has been submitted or received
by the Company; or
(xxiii) any other agreement that involves $10,000 or more or is
not cancelable by the Company or a Subsidiary without penalty within 60 days.
(b) Each Company Contract is in full force and effect and is valid,
binding and enforceable against each party thereto in accordance with its terms.
The Company and the Subsidiary are in compliance with and have not breached,
violated or defaulted under, or received notice that they have breached,
violated or defaulted under, any of the terms or conditions of any such Company
Contract, nor does the Company have knowledge of any event or occurrence that
would constitute such a breach, violation or default (with or without the lapse
of time, giving of notice or both) or knowledge of any default by any third
party, except for such breaches, violations or defaults as could not
individually or in the aggregate reasonably be expected to have a Company
Material Adverse Effect.
25
2.17 Change of Control Payments. Schedule 2.17 sets forth (i) each plan,
program, agreement or arrangement pursuant to which any amounts may become
payable (whether currently or in the future) to current or former officers,
directors or Employees in cash or property or the vesting of property) directly
or indirectly as a result of, a change of control of the Company or the
Subsidiary as a result of or in connection with the Merger or any of the other
transactions contemplated by this Agreement or the Related Agreements and (ii) a
summary of the nature and amounts that may become payable pursuant to each such
plan, program, agreement or arrangement. Without limiting the generality of the
foregoing, no amount paid or payable by the Company in connection with the
Merger or the other transactions contemplated by this Agreement, including
accelerated vesting of options (either solely as a result thereof or as a result
of such transactions in conjunction with any other event) will be an "excess
parachute payment" with the meaning of Section 280G of the Code.
2.18 Interested Party Transactions.
(a) To the Company's knowledge, no officer, director or Affiliate of
the Company or the Subsidiary (nor any ancestor, sibling, descendant or spouse
of any of such Persons, or any trust, partnership or corporation in which any of
such Persons has or has had an economic interest), has or has had, directly or
indirectly, (i) an economic interest in any Person which furnished or sold, or
furnishes or sells, services or products that the Company or the Subsidiary
furnishes or sells, or proposes to furnish or sell, or (ii) an economic interest
in any Person that purchases from or sells or furnishes to, the Company or the
Subsidiary, any goods or services or (iii) a beneficial interest in any Company
Contract; provided, however, that ownership of no more than 1% of the
outstanding voting stock of a publicly traded corporation shall not be deemed an
"economic interest in any entity" for purposes of this Section 2.18.
(b) There are no receivables of the Company or the Subsidiary owed by
any director, officer, Employee, or consultant to the Company or the Subsidiary
(or any ancestor, sibling, descendant, or spouse of any such Persons, or any
trust, partnership, or corporation in which any of such Persons has an economic
interest), other than advances in the ordinary and usual course of business for
reimbursable business expenses (as determined in accordance with the Company's
established employee reimbursement policies and consistent with past practice).
None of the Company's Stockholders has agreed to, or assumed, any obligation or
duty to guaranty or otherwise assume or incur any obligation or liability of the
Company or the Subsidiary.
2.19 Compliance with Laws. The Company and the Subsidiary has complied with
and is in compliance with, is not in violation of, and has not received any
notices of violation with respect to, any Law, except for such violations as
could not individually or in the aggregate reasonably be expected to have a
Company Material Adverse Effect. Neither the Company nor the Subsidiary has
received any written notice from any Governmental Entity or any other Person
regarding any actual, alleged, possible or potential violation of, or failure to
comply with, any Law. The Company and the Subsidiary is in compliance with its
stated privacy policies contained on any websites maintained by or on behalf of
the Company or the Subsidiary and all applicable privacy and anti-SPAM Laws,
except for such violations as could not individually or in the aggregate
reasonably be expected to have a Company Material Adverse Effect.
26
2.20 Litigation. There is no action, suit or proceeding of any nature
pending or, to the Company's knowledge, threatened against the Company or the
Subsidiary, any of their respective properties or assets or any of their
respective officers, directors or Employees, nor, to the knowledge of the
Company, is there any reasonable basis therefor. There is no investigation
pending or, to the Company's knowledge, threatened against the Company or the
Subsidiary, any of their respective properties or any of their respective
officers, directors or Employees by or before any Governmental Entity. No
Governmental Entity has at any time challenged or questioned the legal right of
the Company or the Subsidiary to conduct its operations as presently or
previously conducted or as presently proposed to be conducted and none of the
Company, the Subsidiary or their properties is subject to any order that
materially impairs the Company's or such Subsidiary's ability to operate.
Schedule 2.20 lists each action, suit or proceeding that has ever been commenced
by or against the Company or the Subsidiary and includes a brief background of
each such proceeding and the status or outcome of each such proceeding.
2.21 Insurance. Schedule 2.21 sets forth all insurance policies and
fidelity bonds covering the assets, business, equipment, properties, operations,
Employees, officers and directors of the Company, the Subsidiary or any
Affiliate thereof, including the type of coverage, the carrier, the amount of
coverage, the term and the annual premiums of such policies. There is no claim
by the Company or the Subsidiary or any Affiliate thereof pending under any of
such policies or bonds as to which coverage has been questioned, denied or
disputed or that the Company has a reason to believe will be denied or disputed
by the underwriters of such policies or bonds. There is no pending claim that
will exceed the policy limits. All premiums due and payable under all such
policies and bonds have been paid (or if installment payments are due, will be
paid if incurred prior to the Closing) and the Company, the Subsidiary and its
Affiliates are otherwise in material compliance with the terms of such policies
and bonds. The Company has no knowledge of a threatened termination of, or
premium increase with respect to, any of such policies. None of the Company, the
Subsidiary or any Affiliate of either has ever maintained, established,
sponsored, participated in or contributed to any self-insurance plan or program.
2.22 Minute Books. The corporate minutes of the Company and the Subsidiary
made available to counsel for Parent contain complete and accurate records of
all actions taken, and summaries of all meetings held, by the Stockholders and
the board of directors of the Company and the Subsidiary (and any committees
thereof) since the time of incorporation of the Company and the Subsidiary, as
the case may be. The books, records and accounts of the Company are true,
complete and correct, and are stated in reasonable detail and accurately and
fairly reflect the transactions and dispositions of the assets of the Company.
2.23 Environmental Matters.
(a) Hazardous Material. Neither the Company nor the Subsidiary has (i)
operated any underground storage tanks at any property that the Company or the
Subsidiary has at any time owned, operated, occupied or leased; or (ii) released
any substance that has been designated by any Governmental Entity or by
applicable Law to be radioactive, toxic, hazardous
27
or otherwise a danger to health or the environment, including PCBs, asbestos,
petroleum, urea-formaldehyde and all substances listed as hazardous substances
pursuant to the Comprehensive Environmental Response, Compensation, and
Liability Act of 1980, as amended, or defined as a hazardous waste pursuant to
the federal Resource Conservation and Recovery Act of 1976, as amended, and the
regulations promulgated pursuant to said Laws (a "Hazardous Material"), but
excluding office and janitorial supplies properly and safely maintained. No
Hazardous Materials are present, as a result of the actions of the Company or
the Subsidiary, or, to the Company's knowledge, as a result of any actions of
any third party or otherwise, in, on or under any property, including the land
and the improvements, ground water and surface water thereof, that the Company
or the Subsidiary has at any time owned, operated, occupied or leased.
(b) Hazardous Materials Activities. Neither the Company nor the
Subsidiary has transported, stored, used, manufactured, disposed of, released or
exposed its Employees or others to Hazardous Materials in violation of any Law,
nor has the Company or the Subsidiary disposed of, transported, sold, or
manufactured any product containing a Hazardous Material (any or all of the
foregoing being collectively referred to as "Hazardous Materials Activities"),
in violation of any Law promulgated to prohibit, regulate or control Hazardous
Materials or any Hazardous Materials Activity.
(c) Permits. The Company and the Subsidiary currently hold all Company
Authorizations necessary for the conduct of their respective Hazardous Material
Activities and other business as such activities and business are currently
being conducted and as currently proposed to be conducted.
(d) Environmental Liabilities. No action, proceeding, investigation,
revocation proceeding, amendment procedure, writ, injunction or claim is pending
or, to the Company's knowledge, threatened, concerning any Company
Authorization, Hazardous Material or any Hazardous Materials Activity of the
Company or the Subsidiary. Neither the Company nor the Subsidiary is aware of
any fact or circumstance which could reasonably involve the Company or the
Subsidiary in any environmental litigation or impose upon the Company or the
Subsidiary any environmental liability.
2.24 Brokers' and Finders' Fees. Except as set forth on Schedule 2.24,
neither the Company nor the Subsidiary has incurred, or will incur, directly or
indirectly, any liability for brokerage or finders' fees or agents' commissions
or any similar charges in connection with this Agreement, the Merger or any
other transaction contemplated hereby or by the Related Agreements. The Company
has previously provided Parent with a copy of all agreements set forth on
Schedule 2.24.
2.25 Employee Benefit Plans.
(a) Schedule. Schedule 2.25(a) sets forth each Company Employee Plan.
Neither the Company nor the Subsidiary has any stated plan, intention or
commitment to establish any new Company Employee Plan, to modify any Company
Employee Plan (except to the extent required by Law or to conform any such
Company Employee Plan to the requirements of any applicable Law, in each case as
previously disclosed to Parent in writing, or as required by this Agreement), or
to enter into any Company Employee Plan.
28
(b) Documents. The Company has previously provided to Parent (i)
correct and complete copies of all documents embodying or relating to each
Company Employee Plan, including all amendments thereto and written
interpretations thereof; (ii) the most recent annual actuarial valuations, if
any, prepared for each Company Employee Plan; (iii) the three most recent annual
reports (Series 5500 and all schedules thereto), if any, required under ERISA or
the Code in connection with each Company Employee Plan or related trust; (iv) if
any Company Employee Plan is funded, the most recent annual and periodic
accounting of Company Employee Plan assets; (v) the most recent summary plan
description together with the most recent summary of material modifications, if
any, with respect to each Company Employee Plan; (vi) all IRS determination,
opinion, notification and advisory letters and rulings relating to Company
Employee Plans and copies of all applications and correspondence (including
specifically any correspondence regarding actual or potential audits or
investigations) to or from the IRS, DOL or any other Governmental Entity with
respect to any Company Employee Plan, (vii) all material written agreements and
contracts relating to each Company Employee Plan, including fidelity or ERISA
bonds, administrative service agreements, group annuity contracts and group
insurance contracts; (viii) all communications material to any Employee or
Employees relating to any Company Employee Plan and any proposed Company
Employee Plans, in each case relating to any amendments, terminations,
establishments, increases or decreases in benefits, acceleration of payments or
vesting schedules or other events which would result in any material liability
to the Company and which are not reflected in the current summary plan
description and plan document; (ix) all forms and notices relating to the
provision of post-employment continuation of health coverage; (x) all policies
pertaining to fiduciary liability insurance covering the fiduciaries of each
Company Employee Plan; (xi) all discrimination and qualification tests, if any,
for each Company Employee Plan for the most recent plan year; and (xii) all
registration statements, annual reports and prospectuses prepared in connection
with each Company Employee Plan.
(c) Employee Plan Compliance. (i) The Company and the Subsidiary have
performed all obligations required to be performed by them under each Company
Employee Plan and each Company Employee Plan has been established and maintained
in accordance with its terms and in compliance with all applicable Law,
including ERISA and the Code, except for such violations as could not
individually or in the aggregate reasonably be expected to have a Company
Material Adverse Effect; (ii) each Company Employee Plan intended to qualify
under Section 401(a) of the Code and each trust intended to qualify under
Section 501(a) of the Code is so qualified and has either received a favorable
determination letter or opinion letter from the IRS with respect to such Company
Employee Plan as to its qualified status under the Code, including all
amendments to the Code effected by the so called "GUST" and EGTRRA legislation,
or has a period of time remaining under applicable Treasury regulations or IRS
pronouncements in which to apply for and obtain such a letter; (iii) no
non-exempt "prohibited transaction," within the meaning of Section 4975 of the
Code or Section 406 of ERISA, has occurred with respect to any Company Employee
Plan; (iv) there are no actions, suits or claims pending, or, to the knowledge
of the Company, threatened or anticipated (other than routine claims for
benefits) against any Company Employee Plan or fiduciary thereto or against the
assets of any Company Employee Plan; (v) each Company Employee Plan can be
amended, terminated or otherwise discontinued after the Effective Time in
accordance with its terms, without liability to the Company, the Subsidiary,
Parent or any of its ERISA Affiliates (other than ordinary administration
expenses typically incurred in a termination event) at any time;
29
(vi) there are no audits, inquiries or proceedings pending or, to the knowledge
of the Company, threatened by the IRS or DOL with respect to any Company
Employee Plan; (vii) all annual reports and other filings required by the DOL or
the IRS have been timely made; (viii) neither the Company nor the Subsidiary nor
any ERISA Affiliate is subject to any penalty or Tax with respect to any Company
Employee Plan under Section 501(i) of ERISA or Section 4975 through 4980D of the
Code, (ix) all contributions, premiums or payments required to be made with
respect to any Company Employee Plan have been made in all material respects on
or before their due dates, and (x) no Company Employee Plan is sponsored or
maintained by any Co-Employer.
(d) Plan Status. None of the Company, the Subsidiary or any ERISA
Affiliate now, or has ever, maintained, established, sponsored, participated in,
or contributed to, any Pension Plan which is subject to Title IV of ERISA or
Section 412 of the Code. Neither the Company nor any ERISA Affiliate has
incurred, nor do they reasonably expect to incur, any liability with respect to
any transaction described in Section 4069 of ERISA. No Company Employee Plan is
a Multiple Employer Plan as defined in Section 210 of ERISA.
(e) Multiemployer Plans. At no time has the Company, the Subsidiary or
any ERISA Affiliate contributed to or been requested to contribute to any
"multiemployer plan", as defined in Section 3(37) of ERISA.
(f) No Post-Employment Obligations. No Company Employee Plan provides,
or has any liability to provide, life insurance, medical or other employee
welfare benefits to any Employee after his or her retirement or termination of
employment for any reason, except as may be required by Law, and neither the
Company nor the Subsidiary has ever represented, promised or contracted (whether
in oral or written form) to any Employee (either individually or to Employees as
a group) that such Employee(s) would be provided with life insurance, medical or
other employee welfare benefits after his or her their retirement or termination
of employment, except to the extent required by Law.
(g) Effect of Transaction.
(i) The execution and delivery by the Company of this Agreement
and any Related Agreement to which the Company is a party, and the consummation
of the transactions contemplated hereby and thereby, will not conflict with or
result in any violation of or default under (with or without notice or lapse of
time, or both), or give rise to a right of termination, cancellation,
modification or acceleration of any obligation or loss of any benefit under any
Company Employee Plan, trust or loan that will or may result in any payment
(whether of severance pay or otherwise), acceleration, forgiveness of
indebtedness, vesting, distribution, increase in benefits or obligation to fund
benefits with respect to any Employee.
(ii) No payment or benefit, whether under a Company Employee
Plan, an agreement or otherwise which will or may be made by the Company, the
Subsidiary or Parent or any of their respective Affiliates with respect to any
Employee resulting from this transaction will be characterized as an "excess
parachute payment," within the meaning of Section 280G(b)(2) of the Code.
30
(iii) No Company Employee Plan (1) provides for the payment of
separation, severance, termination or similar-type benefits to any person, or
(2) obligates the Company or any Subsidiary or ERISA Affiliate to pay
separation, severance, termination or similar-type benefits solely or partially
as a result of any transaction contemplated by this Agreement.
(h) Section 409A. No Company Employee Plan, employment agreement or
other arrangement provides a gross-up or other indemnification for any Taxes
which may be imposed for failure to comply with the requirements of Section 409A
of the Code. To the Company's knowledge, based on published guidance from the
Treasury Department and the IRS to date, including transition relief provided
therein, no employee is subject to additional Taxes by reason of a failure by a
Company Employee Plan, employment agreement or other arrangement to comply with
the requirements of Section 409A of the Code.
2.26 Employment Matters.
(a) Schedule 2.26(a) sets forth, with respect to each Employee
(including any Employee who is on a leave of absence or on layoff status subject
to recall) (i) the name of such Employee and the date as of which such Employee
was originally hired by the Company or the Subsidiary, and whether the Employee
is on an active or inactive status; (ii) such Employee's title; (iii) such
Employee's annualized compensation as of the date of this Agreement, including
base salary, vacation and/or paid time off accrual amounts, bonus and/or
commission potential, severance pay potential, and any other compensation forms;
(iv) each current benefit plan in which such Employee participates or is
eligible to participate; (v) any governmental authorization, permit or license
that is held by such Employee and that is used in connection with the Company's
business; and (vi) whether the Employee has executed the Company's standard form
nondisclosure, confidentiality and assignment of inventions agreement.
(b) Schedule 2.26(b) contains a list of individuals who are currently
performing services for the Company or the Subsidiary and are classified as
"consultants" or "independent contractors," the respective compensation of each
such "consultant" or "independent contractor" and whether the Company is party
to a consulting or independent contractor agreement with the individual. Any
such agreements have been delivered to Parent and are set forth on Schedule
2.26(b). Any Persons now or heretofore engaged by the Company or the Subsidiary
as independent contractors, rather than Employees, have been properly classified
as such, are not entitled to any compensation or benefits to which regular,
full-time Employees are or were at the relevant time entitled, and were and have
been engaged in accordance with all applicable Laws.
(c) Each Employment Agreement is set forth on Schedule 2.26(c) and a
copy of each Employment Agreement and any amendment thereto has been provided to
Parent. Except as set forth in Schedule 2.26(c), the employment of each of the
Employees is terminable by the Company at will.
(d) The Company and the Subsidiary has delivered to Parent accurate
and complete copies of all employee manuals and handbooks, employment policy
statements, Employment Agreements, and other materials relating to the
employment of the current employees.
31
(e) (i) None of the Company's Employees have given the Company or the
Subsidiary notice or any other communication terminating his or her employment
with the Company or the Subsidiary, or terminating his or her employment upon a
sale of, or business combination relating to, the Company or the Subsidiary or
in connection with the transactions contemplated by this Agreement, or expressed
or otherwise indicated that he or she will not accept employment with Parent;
(ii) neither the Company nor the Subsidiary has a present intention to terminate
the employment of any current employee; (iii) to the Company's knowledge, no
current employee has received, or is currently considering, an offer to join a
business that likely would be competitive with the Company's or the Subsidiary's
business; (iv) to the Company's knowledge, no Employee, consultant or contractor
is a party to or is bound by any employment contract, patent disclosure
agreement, noncompetition agreement, any other restrictive covenant or other
contract with any Person, or subject to any judgment, decree or order of any
court or administrative agency, any of which could reasonably be expected to
have a material adverse effect in any way on (A) the performance by such Person
of any of his or her duties or responsibilities for the Company or the
Subsidiary, or (B) the Company's business or operations; (v) to the Company's
knowledge, no current Employee, contractor or consultant is in violation of any
term of any employment contract, patent disclosure agreement, noncompetition
agreement, or any other restrictive covenant to a former employer or entity
relating to the right of any such Employee, contractor or consultant to be
employed or retained by the Company or the Subsidiary, as the case may be; and
(vi) neither the Company nor the Subsidiary is, and neither has ever been,
engaged in any dispute or litigation with an Employee regarding intellectual
property matters.
(f) Neither the Company nor the Subsidiary is presently, nor have they
been in the past, a party to or bound by any union contract, collective
bargaining agreement or similar contract. Neither the Company nor the Subsidiary
knows of any activities or proceedings of any labor union to organize any
Employees.
(g) Neither the Company nor the Subsidiary is presently engaged or has
ever been engaged in any unfair labor practice of any nature, that, if adversely
determined, would result in any liability to the Company or the Subsidiary.
There has never been any slowdown, work stoppage, labor dispute or union
organizing activity, or any similar activity or dispute, affecting the Company,
the Subsidiary or any Employees. There is not now pending and, to the Company's
knowledge, no Person has threatened to commence, any such slowdown, work
stoppage, labor dispute, union organizing activity or any similar activity or
dispute, nor has any event occurred, nor does any condition or circumstance
exist, that could reasonably be expected to directly or indirectly give rise to
or provide a basis for the commencement of any such slowdown, work stoppage,
labor dispute, union organizing activity or any similar activity or dispute.
(h) The Employees have been, and currently are, properly classified
under the Fair Labor Standards Act of 1938, as amended, and under any applicable
Law. Neither the Company nor the Subsidiary is delinquent to, or has failed to
pay, any of its Employees, consultants or contractors for any wages (including
overtime), salaries, commissions, bonuses,
32
benefits or other compensation for any services performed by them or amounts
required to be reimbursed to such individuals. Neither the Company nor the
Subsidiary is liable for any payment to any trust or other fund or to any
Governmental Entity, with respect to unemployment compensation benefits, social
security or other benefits or obligations for Employees (other than routine
payments to be made in the normal course of business and consistent with past
practice).
(i) Neither the Company nor the Subsidiary has an established
severance pay practice or policy. Except as set forth in Schedule 2.26(i), (i)
neither the Company nor the Subsidiary is liable for any severance pay, bonus
compensation, acceleration of payment or vesting of any equity interest, or
other payments (other than accrued salary, vacation, or other paid time off in
accordance with the Company's and the Subsidiary's policies) to any Employee
arising from the termination of employment under any benefit or severance
policy, practice, agreement, plan, program of the Company or the Subsidiary,
applicable Law or otherwise; and (ii) as a result of or in connection with the
transactions contemplated hereunder or as a result of the termination by the
Company or the Subsidiary of any Persons employed by the Company or the
Subsidiary on or prior to the Closing Date, the Company will not have (A) any
liability that exists or arises, or may be deemed to exist or arise, under any
Company or the Subsidiary' benefit or severance policy, practice, agreement,
plan, program, Law applicable thereto or otherwise, including severance pay,
bonus compensation or similar payment, or (B) to accelerate the time of payment
or vesting, or increase the amount of or otherwise enhance any benefit due any
Employee. Accordingly, as of the Closing Date, the Company shall have satisfied
in full all of its obligations to such Employees, consultants and/or contractors
for any severance pay, accelerated vesting, or any other payments whatsoever.
(j) The Company and the Subsidiary are in compliance with all
applicable Laws, agreements, contracts and promises respecting employment,
employment practices, employee benefits, terms and conditions of employment,
immigration matters, labor matters, and wages and hours, in each case, with
respect to its Employees, except for such violations, breaches or defaults as
could not individually or in the aggregate reasonably be expected to have a
Company Material Adverse Effect.
(k) There are no claims pending or, to the Company's knowledge,
threatened, before any Governmental Entity by any Employees for compensation,
pending severance benefits, vacation time, vacation pay or pension benefits, or
any other claim threatened or pending before any Governmental Entity (or any
state "referral agency") from any Employee or any other Person arising out of
the Company's or the Subsidiary's status as employer, whether in the form of
claims for employment discrimination, harassment, retaliation, unfair labor
practices, grievances, wrongful discharge, breach of contract, tort, unfair
competition or otherwise. In addition, there are no pending, threatened or
reasonably anticipated claims or actions against the Company or the Subsidiary
under any workers compensation policy or long-term disability policy.
(l) The Company and the Subsidiary, and to the Company's knowledge
each Employee, is in compliance with all applicable visa and work permit
requirements, and no visa or work permit held by an Employee will expire during
the six (6) month period beginning at the date of this Agreement.
33
(m) Neither the execution, delivery and performance of this Agreement,
nor the carrying on of the Company's and Subsidiary's business as presently
conducted or as presently proposed to be conducted, nor any activity of any
officers, directors, Employees or consultants of the Company or a Subsidiary in
connection with the carrying on of the Company's and Subsidiary's business as
presently conducted or as presently proposed to be conducted, will conflict with
or result in a breach of the terms, conditions or provisions of, or constitute a
default under, any contract or agreement under which any of such officers,
directors, Employees or consultants is now bound.
2.27 Tax Matters.
(a) The Company and the Subsidiary have timely filed all Tax Returns
required to be filed (determined without regard to extensions). The Company and
the Subsidiary have paid all Taxes owed (whether or not shown, or required to be
shown, on Tax Returns). The Company and the Subsidiary have withheld and paid
all Taxes required to have been withheld and paid. All Tax Returns filed by the
Company and the Subsidiary were complete and correct, and such Tax Returns
correctly reflected the facts regarding the income, business, assets,
operations, activities, status and other matters of the Company and the
Subsidiary and any other information required to be shown thereon. Neither the
Company nor the Subsidiary has participated, within the meaning of Treasury
Regulation Section 1.6011-4(c), in (i) any "reportable transaction" within the
meaning of Section 6011 of the Code and the Treasury Regulations thereunder,
(ii) any "confidential corporate tax shelter" within the meaning of Section 6111
of the Code as and to the extent applicable until amended by the American Jobs
Creation Act of 2004 and the Treasury Regulations thereunder, or (iii) any
"potentially abusive tax shelter" within the meaning of Section 6112 of the Code
as and to the extent applicable until amended by the American Jobs Creation Act
of 2004 and the Treasury Regulations thereunder. The Company and the Subsidiary
have disclosed on their Tax Returns all positions taken therein that could give
rise to a substantial understatement of Tax within the meaning of Section 6662
of the Code (or any similar provision of state, local or foreign Tax law). There
are no Liens for Taxes upon any of the Company's or the Subsidiary's assets,
other than Liens for ad valorem Taxes not yet due and payable and there is no
reasonable basis for the imposition of such Liens.
(b) None of the Tax Returns filed by the Company or the Subsidiary or
Taxes payable by the Company or the Subsidiary have been the subject of an
audit, action, suit, proceeding, claim, examination, deficiency or assessment by
any Governmental Entity, and no such audit, action, suit, proceeding, claim,
examination, deficiency or assessment is currently pending or to the Company's
knowledge, is contemplated.
(c) Neither the Company nor the Subsidiary is currently the
beneficiary of any extension of time within which to file any Tax Return, and
neither the Company nor the Subsidiary has waived any statute of limitation with
respect to any Tax or agreed to any extension of time with respect to a Tax
assessment or deficiency. All material elections with respect to Taxes affecting
the Company or the Subsidiary, as of the date hereof, are set forth in the
Company Financial Statements or in Schedule 2.27(c).
(d) Neither the Company nor the Subsidiary is a party to any
agreement, contract, arrangement or plan (including the Company Stock Rights)
that has resulted or would
34
result, separately or in the aggregate, in the payment of (i) any "excess
parachute payments" within the meaning of Section 280G of the Code (without
regard to the exceptions set forth in Sections 280G(b)(4) and 280G(b)(5) of the
Code) or (ii) any amount for which a deduction would be disallowed or deferred
under Section 162 or Section 404 of the Code. Except as set forth on Schedule
2.27(d), none of the shares of outstanding capital stock of the Company or the
Subsidiary is subject to a "substantial risk of forfeiture" within the meaning
of Section 83 of the Code. No portion of the Merger Consideration is subject to
the Tax withholding provisions of Section 3406 of the Code, or of Subchapter A
of Chapter 3 of the Code or of any other provision of Law.
(e) Neither the Company nor the Subsidiary is a party to or member of
any joint venture, partnership, limited liability company or other arrangement
or contract which could be treated as a partnership for federal income Tax
purposes. Neither the Company nor the Subsidiary is, or has been, a U.S. real
property holding company (as defined in Section 897(c)(2) of the Code) during
the applicable period specified in Section 897(c)(1)(A)(ii) of the Code. Neither
the Company nor the Subsidiary owns an interest in real property in any
jurisdiction in which a Tax is imposed, or the value of the interest reassessed,
on the transfer of an interest in real property and which treats the transfer of
an interest in an entity that owns an interest in real property as a transfer of
the interest in real property. Neither the Company nor the Subsidiary has ever
been either a "controlled corporation" or a "distributing corporation" (within
the meaning of Section 355(a)(1)(A) of the Code) with respect to a transaction
that was described in, or intended to qualify as a Tax-free transaction pursuant
to Section 355 of the Code. Neither the Company nor the Subsidiary has net
operating losses or other Tax attributes presently subject to limitation under
Sections 382, 383 or 384 of the Code, or the federal consolidated return
regulations (other than limitations imposed as a result of the transactions
contemplated by this Agreement). Neither the Company nor the Subsidiary has made
or agreed to make any adjustment under Section 481(a) of the Code (or any
corresponding provision of state, local or foreign Tax law) by reason of a
change in accounting method or otherwise, and will not be required to make such
an adjustment as a result of the transactions contemplated by this Agreement.
Neither the Company nor the Subsidiary has participated in an international
boycott as defined in Section 999 of the Code. Neither the Company nor the
Subsidiary has ever (i) made an election under Section 1362 of the Code to be
treated as an S corporation for federal income Tax purposes or (ii) made a
similar election under any comparable provision of any state, local or foreign
Tax law. Neither the Company nor the Subsidiary owns, directly or indirectly,
any interests in an entity that is or has been a "passive foreign investment
company" within the meaning of Section 1297 of the Code or a "controlled foreign
corporation" within the meaning of Section 957 of the Code.
(f) Neither the Company nor the Subsidiary is a party to any Tax
sharing agreement or similar arrangement (including an indemnification agreement
or arrangement). Neither the Company nor the Subsidiary has ever been a member
of a group filing a consolidated federal income Tax Return or a combined,
consolidated, unitary or other affiliated group Tax Return for state, local or
foreign Tax purposes (other than a group the common parent of which is the
Company), and neither the Company nor the Subsidiary has any liability for the
Taxes of any Person (other than the Company) under Treasury Regulation Section
1.1502-6 (or any corresponding provision of state, local or foreign Tax law), or
as a transferee or successor, or by contract, or otherwise.
35
(g) The unpaid Taxes of the Company and the Subsidiary did not, as of
the Balance Sheet Date, exceed the reserve for actual Taxes (as opposed to any
reserve for deferred Taxes established to reflect timing differences between
book and Tax income) as shown on the Company Balance Sheet, and will not exceed
such reserve as adjusted for the passage of time through the Closing Date in
accordance with the reasonable past custom and practice of the Company and the
Subsidiary in filing Tax Returns. Neither the Company nor the Subsidiary will
incur any liability for Taxes from the Balance Sheet Date through the Closing
Date other than in the ordinary course of business and consistent with
reasonable past practice.
(h) Schedule 2.27(h) lists all jurisdictions (whether foreign or
domestic) to which any Tax is properly payable by the Company or the Subsidiary.
No claim has ever been made by a Tax Authority in a jurisdiction where the
Company or the Subsidiary does not file Tax Returns that the Company or the
Subsidiary is or may be subject to Tax in that jurisdiction. Neither the Company
nor the Subsidiary has, or has ever had, a permanent establishment or other
Taxable presence in any foreign country, as determined pursuant to applicable
foreign law and any applicable Tax treaty or convention between the United
States and such foreign country.
(i) The Company has delivered to Parent correct and complete copies of
all Tax Returns, examination reports, and statements of deficiencies assessed
against or agreed to by any of the Company and the Subsidiary.
(j) Since the Balance Sheet Date, there has not been any change in any
method of Tax accounting or any making of a Tax election or change of an
existing election by the Company or the Subsidiary.
(k) Schedule 2.27(k) sets forth for each outstanding Company Option
whether such right is a Nonstatutory Option or an incentive stock option as
defined in Section 422 of the Code.
2.28 Foreign Corrupt Practices Act. Neither the Company nor the Subsidiary
(including any of their officers or directors) has taken any action which would
cause it to be in violation of the Foreign Corrupt Practices Act of 1977, as
amended, or any rules or regulations thereunder.
2.29 Bank Accounts. Schedule 2.29 contains a true and complete list of the
name of each bank or other financial institution at which the Company or the
Subsidiary has an account, deposit or safe deposit box, the account number
thereof and the names of all Persons authorized to draw thereon or to have
access thereto.
2.30 Customers; Distributors. Schedule 2.30 accurately identifies, and
provides an accurate summary of the revenues received from, each customer that,
together with such customer's Affiliates, contributed more than ten percent
(10%) of the consolidated gross revenues of the Company and the Subsidiary in
fiscal years ended December 31, 2006 and 2005. Neither the Company nor the
Subsidiary has received written notice from any customer listed on Schedule 2.30
indicating that such customer intends to reduce or not continue its business
relationship with the Company and the Subsidiary. Neither the Company nor the
Subsidiary has received notice from any distributor of any of the Company's
products indicating that any such distributor intends to cease acting as a
distributor of such products or otherwise dealing with the Company and the
Subsidiary.
36
2.31 Company Customer Information. Neither the Company nor the Subsidiary
has sold, transferred, disclosed, made available to the public or otherwise
released for distribution any of its customer files and other customer
information relating to the Company's or the Subsidiary current and former
customers (the "Company Customer Information"). Except for information as
provided to sales representatives (which information is subject to a customary
non-disclosure agreement), no Person other than the Company or the Subsidiary
possesses or has any claims or rights with respect to use of the Company
Customer Information.
2.32 Governmental Authorization. Schedule 2.32 lists each consent, license,
permit, grant or other authorization issued to the Company, the Subsidiary or
any Employee by a Governmental Entity (i) pursuant to which the Company or the
Subsidiary currently operates or holds any interest in any of its properties or
(ii) which is required for the operation of its business as currently conducted
or as currently proposed to be conducted or the holding of any such interest
(collectively, the "Company Authorizations"). The Company Authorizations are in
full force and effect and constitute all Company Authorizations required to
permit the Company and the Subsidiary to operate or conduct its business as
currently conducted or as currently proposed to be conducted or to hold any
interest in its properties or assets. None of the Company, the Subsidiary nor
any Employee is in violation of any material term of any Company Authorization.
2.33 Representations Complete. None of the representations or warranties
made by the Company in this Agreement or any Related Agreement, nor any
statement made in the Company Disclosure Schedule or any certificate furnished
by the Company pursuant to this Agreement, when taken together, contains any
untrue statement of a material fact, or omits to state any material fact
necessary in order to make the statements contained herein or therein, in the
light of the circumstances under which they were made, not misleading.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB
Parent and Merger Sub represent and warrant to the Company and the
Principal Stockholders as follows:
3.1 Organization of Parent and Merger Sub. Parent is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware. Merger Sub is a corporation duly organized, validly existing and in
good standing under the laws of the State of Delaware. Each of Parent and Merger
Sub has the full corporate power and authority to own its properties and to
carry on its business as now being conducted and is duly qualified to do
business and is in good standing in each jurisdiction in which the conduct of
its business or the ownership, leasing, holding or use of its properties makes
such qualification necessary, except such jurisdictions where the failure to be
so qualified or licensed or in good standing could not reasonably be expected to
have a material adverse effect on the ability of Parent or Merger Sub to perform
its obligations pursuant to this Agreement and the Related Agreements and to
consummate the Merger and the transactions contemplated hereby and thereby in a
timely manner (a "Parent Material Adverse Effect").
37
3.2 Authority. Each of Parent and Merger Sub has all requisite corporate
power and authority to enter into this Agreement and the Related Agreements to
which it is a party and to consummate the transactions contemplated hereby and
thereby. The execution and delivery of this Agreement and the Related Agreements
to which Parent or Merger Sub is a party and the consummation of the
transactions contemplated hereby and thereby have been duly authorized by all
necessary corporate action on the part of Parent and Merger Sub. This Agreement
has been, and each of the Related Agreements to which Parent or Merger Sub is a
party will be at the Closing, duly executed and delivered by Parent and Merger
Sub and, assuming the due authorization, execution and delivery by the other
parties hereto and thereto (other than Parent and Merger Sub), this Agreement
constitutes, and in the case of the Related Agreements they will at Closing
constitute, valid and binding obligations of Parent and Merger Sub, enforceable
against each of Parent and Merger Sub in accordance with their respective terms,
except as such enforceability may be subject to applicable bankruptcy,
reorganization, insolvency, moratorium and similar Laws affecting the
enforcement of creditors' rights generally and by general principles of equity.
No consent, waiver, approval, order or authorization of, or registration,
declaration or filing with, or notice to, any Governmental Entity, is required
by or with respect to Parent or Merger Sub in connection with the execution and
delivery of this Agreement and the Related Agreements by Parent and Merger Sub
or the consummation by Parent and Merger Sub of the transactions contemplated
hereby or thereby except for (i) the filing of the Certificate of Merger with
the Secretary of State of the State of Delaware and (ii) such other filings,
authorizations, consents and approvals that if not obtained or made could not
reasonably be expected to have a Parent Material Adverse Effect.
3.3 No Conflict. The execution and delivery by Parent and Merger Sub of
this Agreement and the Related Agreements to which either is a party, and the
consummation of the transactions contemplated hereby and thereby, do not and
will not conflict with or result in any violation of or default under (with or
without notice or lapse of time, or both) or give rise to a right of
termination, cancellation, modification or acceleration of any obligation or
loss of any benefit under (i) any provision of the Certificate of Incorporation
or By-laws of Parent or Merger Sub, as in effect on the date hereof, (ii) any
material contract to which Parent or Merger Sub is a party or to which they or
any of their respective properties or assets (whether tangible or intangible) is
subject or bound, or (iii) any Law applicable to Parent or Merger Sub or any of
their respective properties (whether tangible or intangible) or assets, except,
in the case of (ii) or (iii), for such conflicts, violations or defaults as
could not individually or in the aggregate reasonably be expected to have a
Parent Material Adverse Effect.
3.4 Brokers' and Finders' Fees. Neither Parent nor Merger Sub has incurred,
or will incur, directly or indirectly, any liability for brokerage or finders'
fees or agents' commissions or any similar charges in connection with this
Agreement, the Merger or any other transaction contemplated hereby or by the
Related Agreements.
ARTICLE IV
CERTAIN COVENANTS
4.1 Conduct of Business of the Company and Subsidiary. During the period
from the date of this Agreement and continuing until the earlier of the
termination of this Agreement and the Effective Time, the Company will (except
to the extent that Parent shall otherwise consent in
38
writing), and will cause the Subsidiary to, carry on its business in the usual
and ordinary course in substantially the same manner as heretofore conducted,
pay its debts and Taxes when due, pay or perform other obligations when due, and
use all reasonable best efforts consistent with past practice and policies to
preserve intact its present business organization, keep available the services
of its present officers and key employees and preserve its relationships with
customers, suppliers, distributors, licensors, licensees, and others having
business dealings with it, all with the goal of preserving unimpaired its
goodwill and ongoing businesses at the Effective Time. The Company shall
promptly notify Parent of any materially negative event involving or adversely
affecting the Company, the Subsidiary or their respective businesses. Except as
expressly contemplated by this Agreement, the Company shall not, and shall cause
the Subsidiary to not, without the prior written consent of Parent:
(a) reprice any Company Stock Rights or accelerate the vesting of any
Company Stock Right or restricted stock;
(b) make any payments or enter into any commitment or transaction
outside of the ordinary course of business consistent with past practices or in
excess of $10,000 in any individual case;
(c) issue, grant, deliver or sell, or authorize or propose the
issuance, grant, delivery or sale of, or purchase or propose the purchase of,
any Company Capital Stock, Subsidiary Securities or Company Stock Rights (except
for the issuance of Company Capital Stock upon exercise of presently outstanding
Company Stock Rights; provided, that (i) the Company timely pays in cash all
Taxes required to be withheld and paid in connection with such exercise or
conversion, (ii) the amount of such Taxes is contributed to the Company in cash
by the Person exercising or converting such Company Stock Right, (iii) for
purpose of determining the amount of such Taxes, the fair market value of the
Company Capital Stock received pursuant to such exercise or conversion is equal
to the maximum aggregate consideration payable with respect to such Company
Capital Stock pursuant to this Agreement, including for this purpose any
consideration payable as part of the Holdback Amount and (iv) the Company
promptly notifies Parent of such exercise or conversion);
(d) acquire or agree to acquire by merging or consolidating with, or
by purchasing any assets or equity securities of, or by any other manner, any
business or any Person or division thereof, or otherwise acquire or agree to
acquire outside of the ordinary course of business any assets in any amount, or
in the ordinary course of business in an amount in excess of $10,000 in the case
of a single transaction or in excess of $25,000 in the aggregate;
(e) hire or engage any employees or consultants, or encourage any
Employees or consultants to resign from the Company or the Subsidiary, or
promote any Employees or change the employment status or titles of any of the
Employees, except for the hiring of employees at non-executive levels in the
ordinary course of business at compensation rates comparable to other Employees
at similar levels;
(f) engage in any action with the intent to directly or indirectly
adversely impact any of the transactions contemplated by this Agreement;
39
(g) fail to keep in full force all insurance policies described in
Section 2.21;
(h) enter into any agreement pursuant to which the Company makes
representations or warranties or assumes support obligations that are materially
more burdensome on the Company than the representations, warranties and support
obligations made in the Company's standard forms of end-user license agreement,
reseller agreements and Standard Support Agreement;
(i) take any action that would have been a breach of any of the
provisions of Section 2.9 had such action occurred after the Balance Sheet Date
and prior to the date of this Agreement (without regard for disclosures on the
Company Disclosure Schedule); or
(j) take, or agree in writing or otherwise to take, any of the actions
described in Sections 4.1(a) through (i) above, or any other action that would
prevent the Company from performing or cause the Company not to perform its
obligations hereunder.
4.2 Access to Information. The Company shall provide Parent and its
accountants, legal counsel, and other representatives complete and timely access
during normal business hours during the period prior to the Effective Time to
(a) all of the properties, facilities, books, Company Contracts, records,
customers and Employees of the Company and the Subsidiary and (b) all other
information concerning the business, finances, properties, products, services
and personnel of the Company and the Subsidiary as Parent may reasonably
request. The Company agrees to provide Parent and its accountants, legal
counsel, and other representatives copies of internal financial statements
promptly upon request. No information or knowledge obtained in any investigation
pursuant to this Section 4.2 or otherwise shall affect or be deemed to modify or
qualify any representation or warranty of the Company or the conditions to the
obligations of the parties to consummate the Merger.
4.3 Confidentiality. The parties acknowledge that the Company and Parent
have previously executed a Non-Disclosure Agreement, dated as of November 15,
2006 (the "Confidentiality Agreement"), which Confidentiality Agreement will
continue in full force and effect in accordance with its terms.
4.4 Public Disclosure. Except as contemplated by this Agreement or as
otherwise required by Law (including applicable securities Laws) or, as to
Parent, by regulatory authority or stock listing or trading agreement, no
disclosure (whether or not in response to an inquiry) of this Agreement or the
subject matter hereof shall be made prior to the Effective Time by any party
hereto (other than disclosures to Stockholders in connection with the approval
of this Agreement and other than any filing by Parent with the Securities and
Exchange Commission or other Governmental Entity) unless approved by Parent and
the Company prior to release; provided that such approval shall not be
unreasonably withheld.
4.5 Consents. The Company shall promptly apply for or otherwise seek and
use its best efforts to promptly obtain all consents and approvals required to
be obtained by it in connection with the Merger, including all consents,
waivers, or approvals under any of the Company Contracts in order to preserve
the benefits thereunder for the Surviving Corporation and otherwise in
connection with the Merger.
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4.6 Conditions to the Merger; Further Assurances. Each of the parties to
this Agreement shall use its reasonable best efforts to effectuate the
transactions contemplated hereby and to fulfill and cause to be fulfilled the
conditions to closing under this Agreement. Each of the parties to this
Agreement shall use its reasonable best efforts to comply promptly with all
legal requirements which may be imposed on such party with respect to the Merger
and will promptly cooperate with and furnish information to any other party
hereto in connection with any such requirements imposed upon such other party in
connection with the Merger. Each party will use its reasonable best efforts to
obtain and make (and will cooperate with the other parties in obtaining or
making) any consent, authorization, order or approval of, or any registration,
declaration, or filing with, or an exemption by, any Governmental Entity, or
other third party, required to be obtained or made by such party or its
subsidiaries in connection with the Merger or the taking of any action
contemplated thereby or by this Agreement. Each party hereto, at the request of
another party hereto, shall execute and deliver such other instruments and do
and perform such other acts and things as may be reasonably necessary or
desirable for effecting completely the consummation of the Merger and the other
transactions contemplated by this Agreement and the Related Agreements.
4.7 Notification of Certain Matters. The Company shall give prompt written
notice to Parent, and Parent shall give prompt written notice to the Company, of
(i) the occurrence or non-occurrence of any event which is likely to cause any
representation or warranty of the Company, on the one hand, or Parent or Merger
Sub, on the other hand, contained in this Agreement to be untrue or inaccurate
in any material respect at or prior to the Effective Time, (ii) any failure of
the Company or Parent, as applicable, to comply with or satisfy in any material
respect any covenant, condition or agreement to be complied with or satisfied by
it hereunder and (iii) any event, condition, fact or circumstance that could
reasonably be expected to make the timely satisfaction of any of the conditions
set forth in Article V incapable of satisfaction; provided, however, that the
delivery of any notice pursuant to this Section 4.7 shall not limit or otherwise
affect any remedies available to the party receiving such notice.
4.8 Company Contracts. Upon Parent's request, the Company shall contact, on
behalf of Parent, identified parties ("Third Parties") with whom the Company has
Company Contracts (the "Identified Contracts"). Unless other instructed by
Parent, the Company shall not disclose to such Third Parties any information
relating to the Merger, this Agreement or any of the transactions contemplated
hereby, except for the existence of this Agreement and the fact that a purchaser
has conditionally agreed to purchase the Company. The Company shall use all
reasonable best efforts to assist Parent to transition and negotiate such
Identified Contracts. Until the Closing, the Company shall adhere to the terms
of the Identified Contracts in all material respects.
4.9 Termination of Company Investors Rights. The Company shall take all
such steps as may be necessary to (i) terminate, as of the Closing, the
Investors Rights Agreement, Stockholders Agreement, Right of First Refusal, and
all other investor rights granted by the Company to its Stockholders and in
effect prior to the Closing, including rights of co-sale, voting, registration,
first refusal, board observation or information or operational covenants and
(ii) deliver all required notifications of the Merger and the other transactions
contemplated hereby to the holders of Company Capital Stock and Company Stock
Rights.
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4.10 No Solicitation.
(a) Until the earlier of the Effective Time and the date of
termination of this Agreement pursuant to Section 7.1, neither the Company nor
the Subsidiary or any of their respective officers, directors, Employees,
Stockholders, Affiliates, financial advisors or representatives (collectively,
the "Representatives"), directly or indirectly, take any of the following
actions with any Person other than Parent and its designees: (i) solicit,
initiate, entertain or agree to any proposals or offers from any Person relating
to (A) any merger, share exchange, business combination, reorganization,
consolidation or similar transaction involving the Company or the Subsidiary,
(B) the acquisition of beneficial ownership of any equity interest in the
Company or the Subsidiary, whether by issuance by the Company or the Subsidiary
or by purchase (through a tender offer, exchange offer, negotiated purchase or
otherwise) from the stockholders of the Company or otherwise, other than upon
exercise of warrants and options outstanding as of the date of this Agreement,
(C) the license or transfer of all or a material portion of the assets of the
Company or (D) any transaction that may be inconsistent with or that may have an
adverse effect upon the Merger (any of the transactions described in clauses (A)
through (D), a "Third-Party Acquisition"); (b) participate in any discussions or
negotiations regarding, or furnish to any person any information with respect
to, or otherwise cooperate with, facilitate or encourage any effort or attempt
by any Person to do or seek, a Third-Party Acquisition.
(b) If the Company or any Representative receives an unsolicited
inquiry or offer relating to a Third-Party Acquisition, the Company will (i)
promptly notify Parent of the same and the details thereof, (ii) provide to
Parent a copy of any written inquiry or offer and all correspondence related
thereto, and (iii) keep Parent informed of the status thereof.
(c) The Company and Parent agree that, in the event of a breach by the
Company, the Subsidiary or any Representative of the covenants set forth in this
Section 4.10, the actual damages resulting from such breach would be difficult
to determine and Parent may not have an adequate remedy at law. Accordingly, if
the Company or any Representative breaches this Section 4.10 and the Company
subsequently (i) enters into a definitive agreement relating to, or (ii)
consummates, a Third-Party Acquisition prior to the twelve-month anniversary of
the date on which this Agreement is terminated pursuant to Section 7.1, then the
Company agrees to pay to Parent $1,500,000 in cash upon demand by Parent as
liquidated damages, which the Company and Parent agree represents a reasonable
approximation of the damages to Parent that will result from such breach. As a
special inducement for Parent to enter into this Agreement, the Company
covenants that at no time will it contest the amount of such liquidated damages.
4.11 Certain Employment Matters.
(a) Offers of Employment. The Hiring Affiliate presently intends (but
is not obligated), prior to the Closing Date, to extend offers of employment to
each of the Employees, on terms and conditions that the Hiring Affiliate
determines in its sole discretion. At any time before or after the Closing Date,
the Hiring Affiliate may contact the Employees in connection with preparing,
making or determining whether to make offers of new employment with the Hiring
Affiliate. The Company shall cooperate with and use its reasonable best efforts
to assist
42
the Hiring Affiliate in its efforts to secure satisfactory employment
arrangements with the Employees and to obtain executed Offer Package Agreements
from each Employee receiving an offer of employment with the Hiring Affiliate.
Any offer of employment shall be subject to the Hiring Affiliate's policies and
procedures, including background checks and confirmation of immigration status
of each such Employee. Each Employee who accepts an offer of employment with the
Hiring Affiliate, executes and delivers each Offer Package Agreement and
actually transfers to employment with the Hiring Affiliate is hereafter referred
to as a "Continuing Employee." The employment of the Continuing Employees by the
Surviving Corporation shall end at the close of business on the date designated
by the Hiring Affiliate and the employment of the Continuing Employees by the
Hiring Affiliate shall commence at 12:01 A.M. on the day after such date. The
Continuing Employees will be employed by the Hiring Affiliate on an at-will
basis (terminable with or without cause and with or without notice) and
otherwise on terms of employment determined by the Hiring Affiliate.
(b) Offer Package Agreements. Each Continuing Employee shall be
required, as a condition to employment with the Hiring Affiliate, to execute and
deliver to Parent, on or prior to the Closing Date, Parent's form of (i)
Proprietary Information Agreement, (ii) such agreements and documents as the
Hiring Affiliate requires generally of its employees (the "Offer Package
Agreements").
(c) No Right to Continued Employment or Benefits. Neither Parent nor
the Hiring Affiliate is under any obligation to hire or retain any Employee, or
provide any Employee with any particular benefits, or make any payments or
provide any benefits to those Employees whom the Hiring Affiliate chooses not to
employ or subsequently terminates.
(d) Termination of Employment with the Company. Prior to the Closing
Date, Parent may deliver to the Company a schedule of Employees whom the Company
shall terminate (the "Terminated Employees"), effective as of the Closing Date.
The Company shall satisfy in full all Termination Payments with respect to the
Terminated Employees.
(e) FICA, Employment Taxes. The Company shall be responsible for all
FICA, payroll and employment Taxes relating to each Employee until the
termination of his or her employment with the Company, including any payments
made with respect to Company Stock Rights. The Hiring Affiliate shall be
responsible for all FICA, payroll and employment taxes relating to the
Continuing Employees commencing from the date on which their employment with the
Hiring Affiliate commences.
(f) Company Employee Plans. Effective immediately preceding the
Closing, the Company will terminate any and all Company Employee Plans intended
to qualify as a qualified cash or deferred arrangement under Section 401(k) of
the Code and, at the request of Parent, the Company will provide Parent with
evidence that such Company Employee Plans have been terminated effective
immediately prior to the Closing pursuant to resolutions duly adopted by the
Company Board. The form and substance of such resolutions shall be subject to
the reasonable approval of Parent. In addition, at the request of Parent, the
Company will terminate any and all other Company Employee Plans, including any
group health, dental, severance, separation or salary continuation plans,
programs or arrangements, effective either immediately prior to the Closing or
thereafter as specified by Parent and, at the request of Parent, the
43
Company will provide Parent with evidence that such Company Employee Plans have
been so terminated pursuant to resolutions duly adopted by the Company Board.
The Company also shall take such other actions in furtherance of terminating
such Company Employee Plans as Parent may reasonably require.
4.12 Section 280G Approval. If the Company is obligated to make any
payments, or is a party to any Company Contract that under certain circumstances
could obligate it to make any payments, that will not be deductible under
Section 280G of the Code if the stockholder approval requirements of Section
280G(b)(5)(B) of the Code are not satisfied, then the Company shall use its
reasonable best efforts to obtain such stockholder approval promptly after the
date hereof and in any event prior to the Closing Date.
4.13 Tax Matters.
(a) Conduct of the Company. From the date hereof until the Effective
Time, neither the Company nor the Subsidiary shall make or change any material
election in respect of Taxes, adopt or change any accounting method in respect
of Taxes, enter into any closing agreement, settle any claim or assessment in
respect of Taxes, or consent to any extension or waiver of the limitation period
applicable to any claim or assessment in respect of Taxes, or file or amend any
Tax return, except with the prior written consent of Parent.
(b) Certain Taxes. All transfer, documentary, sales, use, stamp,
registration and other such Taxes and fees (including any penalties and
interest) incurred in connection with the transactions contemplated by this
Agreement shall be paid by the Stockholders when due, and the Stockholders will,
at their own expense, file all necessary Tax Returns and other documentation
with respect to all such transfer, documentary, sales, use, stamp, registration
and other Taxes and fees, and, if required by applicable Law, Parent will join
in the execution of any such Tax Returns and other documentation, provided,
however, the Stockholders shall not be liable for any such Taxes or fees as may
arise, or to the extent any such Taxes or fees are increased as a result of, any
relocation of the operations of the Company (other than a relocation of the
Company's headquarters from one site in Virginia to another site in Virginia).
Within a reasonable period of time following any request from the Stockholders
Representative, Parent shall make available or cause to be made available, at
the Stockholders' expense, such former employees of the Company as are then
employees of Parent or its affiliate in connection with, and such materials of
the Company as are relevant to, the preparation of such Tax Returns as the
Stockholder Representative may reasonably request. At Parent's discretion, the
amount paid to any Person pursuant to this Agreement will be reduced by the
amount of Taxes payable by such Person pursuant to this Section 4.13(b). Any
amount so withheld will be promptly remitted to the appropriate Tax Authority.
(c) Clearance Certificates. Prior to the Closing, the Company shall
deliver to Parent a clearance certificate or similar document(s) which may be
required by any Tax Authority to relieve Parent of (i) any obligation to
withhold Taxes in connection with the transactions contemplated by this
Agreement and (ii) any liability for Taxes (determined without regard to
provisions of this Agreement assigning responsibility therefor) for which relief
is available by reason of the filing of an appropriate certificate or other
document.
44
(d) Tax Returns. (i) The Company will promptly provide or make
available to Parent, for Parent's review and approval (which shall not be
unreasonably delayed or withheld) prior to filing, copies of all Tax Returns,
reports and information statements that are required to be filed after the date
of this Agreement and prior to the Closing Date.
(ii) The Stockholder Representative shall prepare or cause to be
prepared all income Tax Returns of the Company that are filed after the Closing
Date that relate to any Tax period ending on or before the Closing Date, except
that the Company and the Parent agree to use the alternate procedure set forth
in Rev. Proc. 2004-53 with respect to wage reporting. Except as may be otherwise
required by law, all such Tax Returns shall be prepared on a basis consistent
with the past practice of the Company and in a manner that does not have the
effect of accelerating deductions or deferring income. In preparing or causing
to be prepared such Tax Returns the Stockholder Representative shall allocate
the proceeds deemed realized by the Company as a result of the Merger among the
Company's assets in a manner consistent with the valuation report prepared by an
independent appraiser (which valuation shall be prepared in a manner consistent
with Code Section 1060), the costs of whom shall be borne by Parent, and Parent
and its affiliates shall prepare their Tax Returns consistent with such
allocation. Parent shall use reasonable efforts to cause such appraisal to be
prepared within 45 days of the Effective Time. Within a reasonable period of
time following any request by the Stockholder Representative, Parent shall make
available or cause to be made available, at the Stockholders' expense, such
former employees of the Company as are then employees of Parent or its
affiliates in connection with, and such materials of the Company as are relevant
to, the preparation of such Tax Returns as the Stockholder Representative may
reasonably request. The Stockholder Representative will provide all such Tax
Returns to Parent, and shall provide Parent with access to all backup support
relating to such Tax Returns, at least 30 days prior to the deadline for filing
such returns for Parent's review and approval (which shall not be unreasonably
delayed or withheld) of such Tax Returns. If required by applicable Law, Parent
will join in the execution of any such Tax Returns and other documentation.
(e) Tax Contests. Notwithstanding any of the foregoing but subject to
Section 6.4(c), Parent will have the right to conduct any Tax audit or other Tax
contest relating to the Surviving Corporation.
(f) Tax Carryforwards. The Company agrees to cooperate with Parent and
provide any factual information requested by Parent that is reasonably necessary
for Parent to determine the limitations, if any, on the Company's tax
carryforwards under Sections 382, 383 and 384 of the Code. In furtherance of the
foregoing, and without limiting the generality of the foregoing, the Company
agrees that, on or before the Closing Date, it will use its reasonable best
efforts to provide to Parent the following information: (i) any information
known to the Company regarding the ownership of the equity of the Company from
the time the Company was formed through the date hereof (including any
capitalization tables, option tables or redemption tables known to the Company
with respect to the equity of the Company showing the ownership of Company stock
and/or options, the dates any such stock or options were issued or transferred,
and the prices and (if applicable) strike prices at which any such stock or
options were issued), (ii) any information known to the Company regarding any
relationships between or among the Stockholders, (iii) any valuation-type
spreadsheets, memoranda, offering documents, resolutions of the Company Board,
or similar materials of the Company that have been prepared by or for
45
the Company in connection with any stock offerings, option issuances, changes in
option pricing or redemptions, if any, and (iv) any written analysis known to
the Company that has been conducted regarding whether there is any limitation on
its Tax carryforwards under the foregoing Code sections.
(g) Tax Allocation. For purposes of this Agreement, (i) any Taxes
relating to a taxable period that begins on or before, but ends after, the
Closing Date (a "Straddle Period") that are not based on or measured by income
or receipts of the Company and its subsidiaries shall be attributable to the
Pre-Closing Tax Period in an amount equal to the amount of such Taxes for the
entire Straddle Period multiplied by a fraction, the numerator of which is the
number of days during the Straddle Period that are in the Pre-Closing Tax Period
and the denominator of which is the total number of days in the Straddle Period;
and (ii) any Taxes based on or measured by the income or receipts of the Company
or its subsidiaries relating to a Straddle Period shall be attributed to the
Pre-Closing Tax Period based on an interim closing of the books as of the close
of business on the Closing Date. For purposes of this Agreement, a "Pre-Closing
Tax Period" means any taxable period ending on or before the Closing Date and
that portion of any Straddle Period that ends on the Closing Date. For the
avoidance of doubt, any Taxes resulting from the transactions contemplated by
this Agreement shall be attributable to a Pre-Closing Tax Period for purposes of
this Agreement.
(h) Section 338 Election. Parent shall not make nor permit to be made
any election under Code Section 338 with respect to the Company in connection
with the Merger. In the event Parent shall make or permit to be made any
election under Code Section 338 with respect to the Subsidiary in connection
with the Merger, the Stockholders shall have no obligation to pay or indemnify
Parent or the Company against any Tax that would not have been incurred absent
such election. Parent shall notify the Stockholder Representative of its intent
to make or permit to be made an election under Code Section 338 with respect to
the Subsidiary within 60 days following the Effective Time.
(i) Retention of Records. Parent shall retain or cause to be retained
all records relating to the finances and Taxes of the Company for all taxable
periods ending on or prior to the Closing Date until the expiration of the
statutes of limitations (including any extensions thereof) for the taxable
period or periods to which such records relate. Within a reasonable period of
time following any request by the Stockholder Representative, Parent agrees to
provide the Stockholder Representative, at the Stockholders' expense, with such
information and assistance as is reasonably necessary and requested by the
Stockholder Representative, including access to records and personnel, for the
preparation of any Tax Returns or for the defense of any Tax claim or
assessment, whether in connection with an audit or otherwise; provided, however,
that such access and assistance do not unreasonably disrupt the normal
operations of Parent.
4.14 Exercise and Termination of Company Stock Rights. Immediately after
the date of this Agreement, the Company shall deliver proper notice to each
holder of a Company Option pursuant to the Company Option Plan and to each
holder of a Company Warrant informing such holder of the effect of the Merger on
the Company Options and Company Warrants. Prior to the Effective Time, the
Company shall take all action necessary to (i) terminate the Company Option Plan
and (ii) terminate each Company Option still outstanding as of immediately prior
to the Effective Time.
46
4.15 Indemnification of Directors and Officers of the Company. During the
period ending six years after the Effective Time, Parent will ensure that the
Surviving Corporation fulfills and honors the obligations of the Company to the
Company's present and former directors and officers (the "Indemnified D&Os")
pursuant to the terms of the Company Certificate of Incorporation as in effect
on the date hereof, except to the extent Parent would have had a claim for
indemnification with respect to any such claim under Section 6.2 determined
without regard to any limitations set forth in Article VI that otherwise would
apply to any such indemnification claim.
4.16 Resignation of Officers and Directors. The Company shall obtain the
resignations of all officers and directors of the Company and such officers and
directors of the Subsidiary as Parent designates in writing, effective as of the
Effective Time.
ARTICLE V
CONDITIONS TO THE MERGER
5.1 Conditions to the Obligations of the Company. The obligations of the
Company to consummate the Merger and the transactions contemplated by this
Agreement shall be subject to the satisfaction at or prior to the Closing of
each of the following conditions, any of which may be waived, in writing,
exclusively by the Company:
(a) Representations and Warranties. The representations and warranties
of Parent and Merger Sub contained in this Agreement shall have been true and
correct (in the case of representations and warranties qualified as to
materiality) or true and correct in all material respects (in the case of other
representations and warranties) on and as of the date of this Agreement and
shall be so true and correct on and as of the Closing Date with the same force
and effect as if made on and as of the Closing Date, except for (i) those
representations and warranties which address matters only as of a particular
date (which shall remain so true and correct as of such date), and (ii) those
failures to be so true and correct as could not reasonably be expected to have a
Parent Material Adverse Effect.
(b) Agreements and Covenants. Parent and Merger Sub shall have
performed or complied in all material respects with all covenants and
obligations of this Agreement required to be performed or complied with by them
on or prior to the Closing Date.
(c) Closing Certificate. Parent and Merger Sub shall have executed and
delivered to the Company a certificate, executed by an officer of Parent and
Merger Sub, that each of the conditions set forth in Sections 5.2(a) and (b) has
been satisfied in all respects.
(d) No Injunctions or Restraints; Illegality. No temporary restraining
order, preliminary or permanent injunction or other order issued by any court of
competent jurisdiction or other legal or regulatory restraint or prohibition
preventing the consummation of the Merger shall be in effect, and there shall be
no pending action, proceeding or other application before any Governmental
Entity seeking any such order, restraint or prohibition.
47
(e) Escrow Agreement. Parent shall have executed and delivered the
Escrow Agreement.
(f) Other Documents. The Company shall have received such customary
documents from Parent and Merger Sub as the Company may reasonably request in
good faith for the purpose of facilitating the consummation of the Merger and
the other transactions contemplated by this Agreement and the Related
Agreements.
5.2 Conditions to the Obligations of Parent and Merger Sub. The obligations
of Parent and Merger Sub to consummate the Merger and the transactions
contemplated by this Agreement shall be subject to the satisfaction at or prior
to the Closing of each of the following conditions, any of which may be waived,
in writing, exclusively by Parent:
(a) Representations and Warranties. The representations and warranties
of the Company contained in this Agreement shall have been true and correct (in
the case of representations and warranties qualified as to materiality) or true
and correct in all material respects (in the case of other representations and
warranties) on and as of the date of this Agreement and shall be so true and
correct on and as of the Closing Date with the same force and effect as if made
on and as of the Closing Date, except for those representations and warranties
which address matters only as of a particular date (which shall remain so true
and correct as of such date).
(b) Agreements and Covenants. The Company shall have performed or
complied in all material respects with all covenants and obligations of this
Agreement required to be performed or complied with by it on or prior to the
Closing Date.
(c) No Adverse Change. There shall not have occurred any material
adverse change in the business, condition, assets, operations or results of
operations of the Company.
(d) Stockholder Approval; Dissenters' Rights. The Transaction
Approvals shall have been obtained and shall be in full force and effect. Each
Principal Stockholder, and Stockholders holding at least 95% of the outstanding
voting capital stock of the Company (calculated on an as-converted basis) and
100% of the outstanding Series A-1 Preferred Stock, shall have approved this
Agreement, the Merger and the transactions contemplated hereby and thereby.
Stockholders holding not more than 1% of the outstanding shares of Company
Capital Stock (calculated on an as-converted basis) shall have exercised, or
shall have continuing rights to exercise, appraisal or dissenters' rights under
the DGCL with respect to the transactions contemplated by this Agreement.
(e) Closing Certificate. The Company shall have executed and delivered
to Parent a certificate of the Company, executed by the Chief Executive Officer
and Chief Financial Officer of the Company, that each of the conditions set
forth in Sections 5.2(a)-(d) and (o)-(q) has been satisfied in all respects.
(f) Secretary's Certificate. The Company shall have delivered to
Parent a certificate of the Company executed by the Secretary of the Company,
dated as of the Closing Date, certifying: (i) the Transaction Approvals, (ii)
the Company Certificate of Incorporation and the By-Laws of the Company, and
(iii) the name, title, incumbency and signatures of the officers authorized to
execute this Agreement and the Related Agreements to which the Company is a
party.
48
(g) Opinion of Counsel. Parent shall have received an opinion letter
of Arent Fox LLP, dated the Closing Date, substantially in the form of Exhibit
A.
(h) Employment Acceptances. Parent shall have received copies of an
employment acceptance letter and Offer Package Agreement, which shall not have
been revoked or terminated, executed by at least 75% of all Employees to whom
employment is offered by the Hiring Affiliate (including the Employees listed on
Schedule 5.2(h)). None of the Key Employees shall have revoked his or her
acceptance of employment with the Hiring Affiliate, attempted to revoke or
terminate any Offer Package Agreement or other agreement with Parent or the
Hiring Affiliate, or otherwise indicated his or her intention not to commence
employment with the Hiring Affiliate or continue employment with the Company, as
applicable, following the Closing Date.
(i) Non-Competition Agreements. Parent shall have received executed
copies of Non-Competition Agreements in such form provided to the Company prior
to the execution of this Agreement from the individuals identified in Schedule
5.2(i), which agreements shall not have been revoked or terminated as of the
Closing Date.
(j) Third-Party Consents. Parent shall have been furnished with
evidence satisfactory to it that the Company has obtained the consents,
approvals and waivers required to be obtained by the Company for the
consummation of the Merger, including all consents, waivers or approvals under
any of the Company Contracts in order to preserve the benefits thereunder for
the Surviving Corporation and otherwise in connection with the Merger. Each of
such required consents, waivers and approvals is set forth on Schedule 5.2(j).
(k) Termination of Company Investors Rights. Parent shall have been
furnished with evidence satisfactory to it that (i) the Investors Rights
Agreement, Stockholders Agreement, Right of First Refusal, and all other
investor rights granted by the Company to its Stockholders and in effect prior
to the Closing, including rights of co-sale, voting, registration, first
refusal, board observation or information or operational covenants, shall have
terminated as of or prior to the Closing and (ii) all required notifications of
the Merger and the other transactions contemplated hereby to the holders of
Company Capital Stock and Company Stock Rights have been properly delivered.
(l) Termination of Company Stock Rights. Parent shall have been
furnished with evidence satisfactory to it that (i) each Company Stock Right
will be cancelled and extinguished at or prior to the Effective Time and (ii)
the aggregate payment required to be paid to the holders of Company Stock Rights
at the Effective Time is materially equal to the amount determined in accordance
with Section 1.6(e)(i).
(m) Tax Certificate. The Company shall have delivered to Parent a
properly executed statement satisfying the requirements of Treasury Regulation
Sections 1.897-2(h) and 1.1445-2(c)(3) in a form reasonably acceptable to
Parent.
49
(n) Resignations. Parent shall have received resignation letters
executed and delivered by the directors and officers of the Company and such
officers and directors of the Subsidiary as have been identified by Parent prior
to the Closing Date.
(o) Legal Action. There shall not be any threatened or pending action,
proceeding or other application before any court or Governmental Entity brought
by any Person or Governmental Entity: (i) against the Company seeking material
damages or other material relief, (ii) challenging or seeking to restrain or
prohibit the consummation of the Merger or the other transactions contemplated
by this Agreement, or seeking to obtain any material damages from Parent, Merger
Sub or the Company as a result of the Merger or such other transactions; or
(iii) seeking to prohibit or impose any limitations on Parent's ownership or
operation of all or any portion of the Company's business or assets, or to
compel Parent to dispose of or hold separate all or any portion of its or the
Company's business or assets as a result of the transactions contemplated by the
Agreement which if successful would have an adverse effect on Parent's ability
to receive the anticipated benefits of the Merger.
(p) No Injunctions or Restraints; Illegality. No temporary restraining
order, preliminary or permanent injunction or other order issued by any court of
competent jurisdiction or other legal or regulatory restraint or prohibition
preventing the consummation of the Merger shall be in effect, and there shall be
no pending action, proceeding or other application before any Governmental
Entity seeking any such order, restraint or prohibition.
(q) Signing Date Financial Statements. The Company shall have
delivered to Parent the Signing Date Financial Statements, and Parent shall have
reviewed and approved the Signing Date Financial Statements.
(r) Release of Encumbrances. Parent shall have received evidence
satisfactory to it of the release of all Liens on any of the Company's assets.
(s) Termination of Senior Management Agreements. Parent shall have
received evidence satisfactory to it of the termination at or prior to the
Effective Time of (i) the Senior Management Agreement dated October 24, 2003 by
and among the Company and Thomas P. Matthews (the "Matthews Agreement"), and
(ii) the Senior Management Agreement dated November 6, 2003 by and among the
Company and Dzung Tran (the "Tran Agreement"); provided that Sections 7 and 8 of
each of the Matthews Agreement and the Tran Agreement shall survive such
termination.
(t) Preferred Stock Waivers. Parent shall have received evidence
satisfactory to it of the waiver, at or prior to the Effective Time, by the
holders of the Company's outstanding shares of Series A-1 Preferred Stock of a
portion of the Merger Consideration payable to such holders pursuant to the
terms of the Company's Certificate of Incorporation, as amended.
(u) Escrow Agreement. The Stockholder Representative shall have
executed and delivered the Escrow Agreement.
(v) Thomas Manchot. Thomas Manchot shall have executed and delivered
this Agreement.
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(w) Other Documents. Parent shall have received such customary
documents from the Company as Parent may reasonably request in good faith for
the purpose of facilitating the consummation of the Merger and the other
transactions contemplated by this Agreement and the Related Agreements.
ARTICLE VI
INDEMNIFICATION, STOCKHOLDER REPRESENTATIVE, RELEASE BY
PRINCIPAL STOCKHOLDERS
6.1 Survival of Representations, Warranties and Covenants.
(a) The representations and warranties of the Company set forth in
this Agreement or in any certificate, document or other instrument delivered by
or on behalf of the Company pursuant to or in connection with this Agreement
shall survive the execution and delivery of this Agreement, any investigation by
or on behalf of Parent or Merger Sub, and the Effective Time and shall terminate
at 5:00 P.M. Eastern time on the 24-month anniversary of the Closing Date,
except that the representations and warranties of the Company set forth in
Sections 2.1, 2.2, 2.3, 2.6, 2.7(e), 2.23, 2.25, 2.26 and 2.27 (the "Fundamental
Representations") shall so survive but shall terminate on the date that is 3
months following the expiration of all applicable statutes of limitation (as the
same may be extended or waived), and except, in all cases, with respect to any
Loss, claim or breach of which any Indemnified Party shall have provided written
notice to the Stockholder Representative prior to such termination.
(b) The representations and warranties of Parent and Merger Sub set
forth in this Agreement or in any certificate, document or other instrument
delivered by or on behalf of Parent or Merger Sub pursuant to or in connection
with this Agreement shall terminate at the Effective Time.
(c) The respective covenants, agreements and obligations of the
Company, Parent and Merger Sub set forth in this Agreement or in any
certificate, document or other instrument delivered pursuant to this Agreement
shall survive the execution and delivery of this Agreement, any investigation by
or on behalf of any party hereto, and the Effective Time without limitation.
6.2 Indemnification. Subject to the last paragraph of this Section 6.2, as
an integral term of the Merger, the Company and each Principal Stockholder shall
indemnify, defend and hold harmless Parent, Merger Sub, the Surviving
Corporation and each of their officers, directors, employees, members, agents
and Affiliates (the "Indemnified Parties") against any and all claims, losses,
liabilities, damages, deficiencies, diminution in value, reduction in net
operating losses, interest and penalties, costs and expenses, including
reasonable attorneys' fees and expenses, and expenses of investigation and
defense (collectively "Losses") incurred or suffered by any such Indemnified
Party directly or indirectly as a result of, with respect to or in connection
with:
(a) the failure of any representation or warranty of the Company set
forth herein or in any certificate, document or other instrument delivered
pursuant to or in connection with this Agreement to be true and correct in all
respects as of the date of this Agreement and as
51
of the Closing Date (disregarding for purposes of this Section 6.2 any
"materiality", "in all material respects", "Company Material Adverse Effect" or
similar qualification contained therein or with respect thereto for purposes of
calculating Losses);
(b) any failure by the Company to fully perform, fulfill or comply
with any covenant set forth herein or in any certificate, document or other
instrument delivered pursuant to or in connection with this Agreement;
(c) any Dissenting Share Payments;
(d) any Acquisition Expenses that remain unpaid as of the Effective
Time;
(e) any loss, liability or expense of the Stockholder Representative;
(f) any claims by any current or former holder of Company Capital
Stock, Company Options, Company Warrants or other Company Stock Rights relating
to or arising out of the Merger, this Agreement, the transactions contemplated
hereby or any Person's status as an equity holder or ownership of equity
interests in the Company at any time on or prior to the date of this Agreement,
including the allocation of the Merger Consideration, whether for breach of
fiduciary duty or otherwise, or any claims by any current or former officer,
director or stockholder to indemnification by the Company or the Surviving
Corporation with respect to any such claims;
(g) regardless of any disclosure on the Company Disclosure Schedule,
any "excess parachute payment" (within the meaning of Section 280G(b) of the
Code) made by the Company on or prior to the Closing Date or otherwise required
to be paid by the Company or the Surviving Corporation pursuant to Company
Contracts entered into on or prior to the Closing Date;
(h) any claims by any Person, including an Indemnified D&O pursuant to
Section 4.15, that arise out of acts or omissions that constitute a breach of
this Agreement or a breach of fiduciary duty owed by such Indemnified D & O;
(i) any acts or omissions of the Company, the Subsidiary or any of
their respective Representatives occurring prior to the Effective Time that
constitute a breach of fiduciary duty or intentional or willful misconduct;
(j) subject to the proviso at the end of the first sentence of Section
4.13(b) and Section 4.13(h), any Taxes imposed upon the Company, the Subsidiary
or for which they are otherwise liable for any Pre-Closing Tax Period,
including, without limitation, any Taxes for which the Company and the
Subsidiary are liable as a result of the transactions contemplated by this
Agreement;
(k) any action, suit or proceeding relating directly or indirectly to
any actual or alleged breach, failure, liability or matter of the type referred
to in clauses (a) through (j) above, including any action, suit or proceeding
commenced by any Indemnified Party for the purpose of enforcing any of its
rights under this Section 6.
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The obligations of the Principal Stockholders under this Section 6.2 shall be
several and not joint, except that the obligations of McDonnell & Associates,
L.P. and Thomas Manchot shall be joint, and the obligations of CNF Investments,
LLC and Thomas Manchot shall be joint.
6.3 Limitations.
(a) No claims shall be made by any Indemnified Party for
indemnification pursuant to Section 6.2(a), other than a claim arising from any
breach or inaccuracy of any of the Fundamental Representations and the
representations and warranties of the Company set forth in Section 2.14, unless
and until the aggregate amount of Losses for which the Indemnified Parties seek
to be indemnified pursuant to Section 6.2(a) exceed $60,000 (the "Threshold
Amount"), at which time the Indemnified Parties shall be entitled to
indemnification for all such Losses (including all Losses included within the
Threshold Amount). Notwithstanding the preceding sentence, claims arising from
any breach or inaccuracy of any of the Fundamental Representations and the
representations and warranties of the Company set forth in Section 2.14 may be
made without regard to the Threshold Amount.
(b) No Principal Stockholder shall have any liability for money
damages pursuant to Section 6.2 (i) unless and until the aggregate Holdback
Amount has been exhausted in satisfaction of any Losses, (ii) subject to the
last paragraph of Section 6.2, in an amount in excess of such Principal
Stockholder's proportionate share of $2,500,000 (provided that this Section
6.3(b)(ii) shall not apply to liabilities arising from any breach or inaccuracy
of any of the Fundamental Representations and the representations and warranties
of the Company set forth in Section 2.14), and (iii) in an amount in excess of
the Merger Consideration paid or payable to such Principal Stockholder under
this Agreement.
(c) The limitations set forth in this Section 6.3 shall not apply with
respect to (i) fraud, intentional misrepresentation or willful breach or
misconduct, (ii) any breach of which the Company had knowledge on or prior to
the Effective Time, (iii) any equitable remedy, including a preliminary or
permanent injunction or specific performance, or (iv) claims relating to Taxes.
(d) The representations, warranties, covenants and obligations of the
Company, and the rights and remedies that may be exercised by the Indemnified
Parties based on such representations, warranties, covenants and obligations,
will not be limited or affected by any investigation conducted by Parent or
Merger Sub or any agent of Parent or Merger Sub with respect to, or any
knowledge acquired (or capable of being acquired) by Parent or Merger Sub or any
agent of Parent or Merger Sub at any time, whether before or after the execution
and delivery of this Agreement or the Closing, with respect to, the accuracy or
inaccuracy of or compliance with any such representation, warranty, covenant or
obligation. The wavier by Parent or Merger Sub of any of the conditions set
forth in Article V will not affect or limit the provisions of this Article VI.
6.4 Procedure for Claims Against Holdback Amount.
(a) Claims. The Holdback Amount shall be available as a non-exclusive
resource to reimburse the Indemnified Parties for any Losses for which they are
entitled to be
53
indemnified pursuant to Section 6.2 (the "Company Indemnification Obligations").
Upon receipt by the Stockholder Representative on or before the Holdback Due
Date of a certificate signed by any appropriately authorized officer of Parent
(a "Holdback Certificate") (i) stating the aggregate amount of Losses or an
estimate thereof, in each case to the extent known or determinable at such time,
and (ii) specifying in reasonable detail the individual items of such Losses
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 Parent shall, subject to the other provisions
of this Agreement, reduce the Holdback Amount by the amount of such Losses in
satisfaction of the Company Indemnification Obligations.
(b) Objection to Holdback Certificate.
(i) The Stockholder Representative shall have thirty (30) days
after delivery to it of a Holdback Certificate to deliver to Parent a written
response to such Holdback Certificate (a "Holdback Response"). If after such
thirty (30) day period the Stockholder Representative has not delivered a
Holdback Response to Parent or it has delivered a Holdback Response which does
not dispute any portion of the Holdback Certificate, the reduction of the
Holdback Amount specified in the Holdback Certificate shall become final. If the
Holdback Response disputes any claims contained in the Holdback Certificate, the
Stockholder Representative and Parent shall attempt in good faith for an
additional thirty (30) days to agree upon the rights of the respective parties
with respect to each of such claims. If the Stockholder Representative and
Parent should so agree, a certificate setting forth such agreement shall be
prepared and signed by both parties and Parent shall promptly pay over to the
Stockholder Representative any portion of the Holdback Amount that it has agreed
to pay.
(ii) If no such agreement can be reached after good faith
negotiations, either Parent or the Stockholder Representative 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, Parent (on the one hand) and the
Stockholder Representative (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 the
Holdback Certificate shall be binding and conclusive upon the parties to this
Agreement.
(iii) Judgment upon any award rendered by the arbitrators may be
entered in any court having jurisdiction. Any such arbitration shall be
conducted under the commercial rules then in effect of the American Arbitration
Association. Any arbitration shall be held in Wilmington, Delaware. The
non-prevailing party to an arbitration shall pay its own expenses, the fees of
each arbitrator, the administrative fee of the American Arbitration Association,
and the expenses, including, without limitation, the reasonable attorneys' fees
and costs, incurred by the prevailing party to the arbitration (as determined by
the arbitrators).
(c) Third-Party Claims. Promptly after the assertion by any third
party of any claim against any Indemnified Party (a "Third-Party Claim") that,
in the judgment of such Indemnified Party, may result in the incurrence by such
Indemnified Party of Losses for which
54
such Indemnified Party would be entitled to indemnification pursuant to this
Agreement, such Indemnified Party shall deliver to the Stockholder
Representative a written notice describing in reasonable detail such Third-Party
Claim; provided, however, that no delay on the part of the Indemnified Party in
notifying the Stockholder Representative shall relieve any Stockholder of any
liability or obligations hereunder, except to the extent that the Stockholders
have been materially prejudiced thereby, and then only to such extent. The
Indemnified Party shall have the right in its sole discretion to conduct the
defense of any such Third-Party Claim; provided, however, that the Stockholders
shall not be liable to indemnify any Indemnified Party for any settlement of any
such Third-Party Claim effected without the prior written consent of the
Stockholder Representative, which consent shall not be unreasonably withheld,
conditioned or delayed. If any such action or claim is settled with the prior
written consent of the Stockholder Representative, or if there be a final
judgment for the plaintiff in any such action, the Indemnified Party shall be
entitled to indemnification for the amount of any Loss relating thereto.
6.5 Merger Consideration Adjustment. The Company, Parent and the Principal
Stockholders agree to treat each indemnification payment pursuant to this
Article VI as an adjustment to the Merger Consideration for all Tax purposes and
shall take no position contrary thereto unless required to do so by applicable
Tax Law pursuant to a determination as defined in Section 1313(a) of the Code.
6.6 Stockholder Representative; Power of Attorney.
(a) Each Principal Stockholder and, by virtue of the adoption of this
Agreement and the approval of the Merger by the Stockholders, each other
Stockholder (regardless of whether or not such other Stockholder votes in favor
of the adoption of this Agreement and the approval of the Merger, whether at a
meeting or by written consent in lieu thereof), hereby initially appoints, as of
the date of this Agreement, John J. McDonnell, Jr. (together with his permitted
successors, the "Stockholder Representative"), as his, her or its true and
lawful agent and attorney-in-fact to enter into any Related Agreement and any
transactions contemplated by this Agreement, and to: (i) give and receive
notices and communications to or from Parent (on behalf of itself or any other
Indemnified Party) relating to this Agreement or any of the transactions and
other matters contemplated hereby or thereby (except to the extent that this
Agreement expressly contemplates that any such notice or communication shall be
given or received by such Stockholders individually); (ii) receive payment of
the Merger Consideration from Parent or Merger Sub and transmit such payment to
Company Stockholders as appropriate; (iii) object to and settle any claims by
Parent to the Holdback Amount; (iv) consent or agree to, negotiate, enter into
settlements and compromises of, and agree to arbitration and comply with orders
of courts and awards of arbitrators with respect to such claims; (v) assert,
negotiate, enter into settlements and compromises of, and agree to arbitration
and comply with orders of courts and awards of arbitrators with respect to, any
other claim by any Indemnified Party against any such Stockholder or by any such
Stockholder against any Indemnified Party or any dispute between any Indemnified
Party and any such Stockholder, in each case relating to this Agreement or the
transactions contemplated hereby or thereby; (vi) amend this Agreement or any
other Related Agreement or other agreement referred to herein or contemplated
hereby; and (vii) take all actions necessary or appropriate in the judgment of
the Stockholder Representative for the accomplishment of the foregoing, in each
case without having to seek or obtain the consent of any Person under any
circumstance.
55
(b) John J. McDonnell, Jr. hereby accepts his appointment as
Stockholder Representative.
(c) The person serving as the Stockholder Representative may be
replaced from time to time by the holders of a majority in interest of the
Holdback Amount upon not less than 10 days' prior written notice to Parent and
with Parent's written consent, which shall not be unreasonably withheld. No bond
shall be required of the Stockholder Representative, and the Stockholder
Representative shall receive no compensation for his services. Notices or
communications to or from the Stockholder Representative shall constitute notice
to or from each of the Stockholders.
(d) The Stockholder Representative shall not be liable to any
Stockholder for any act done or omitted hereunder as the Stockholder
Representative 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
Stockholders shall jointly and severally indemnify the Stockholder
Representative and hold him harmless against any loss, liability or expense
incurred without gross negligence or bad faith on the part of the Stockholder
Representative and arising out of or in connection with the acceptance or
administration of his duties hereunder. The Stockholder Representative may
arrange to receive reimbursement directly from the Stockholders for any and all
expenses, charges and liabilities, including attorneys' fees, reasonably
incurred by the Stockholder Representative in the performance or discharge of
his rights and obligations under this agreement; provided, however, that neither
Parent nor the Surviving Corporation shall have any liability with respect to
such items.
(e) The Stockholder Representative shall have access to relevant
information about the Surviving Corporation and the reasonable assistance of the
Surviving Corporation's officers and Employees for purposes of performing his
duties and exercising his rights hereunder; provided that the Stockholder
Representative shall treat confidentially and not disclose any nonpublic
information from or about the Surviving Corporation to anyone (except on a need
to know basis to individuals who agree to treat such information
confidentially).
(f) Any notice or communication given or received by, and any
decision, action, failure to act within a designated period of time, agreement,
consent, settlement, resolution or instruction of, the Stockholder
Representative shall constitute a notice or communication to or by, or a
decision, action, failure to act within a designated period of time, agreement,
consent, settlement, resolution or instruction of all the Stockholders and shall
be final, binding and conclusive upon each such Stockholder; and each
Indemnified Party shall be entitled to rely upon any such notice, communication,
decision, action, failure to act within a designated period of time, agreement,
consent, settlement, resolution or instruction as being a notice or
communication to or by, or a decision, action, failure to act within a
designated period of time, agreement, consent, settlement, resolution or
instruction of, each and every such Stockholder. Each Indemnified Party is
hereby relieved from any liability to any Person for any acts done by them in
accordance with any such notice, communication, decision, action, failure to act
within a designated period of time, agreement, consent or instruction of the
Stockholder Representative.
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(g) Except for matters that are subject to Section 6.4, and without
limiting the generality or effect of Section 6.6(a), any and all claims and
disputes between or among any Indemnified Party, the Stockholder Representative
and/or any one or more Stockholders relating to this Agreement or the
transactions contemplated hereby shall in the case of any claim or dispute
asserted by or against or involving any such Stockholder (other than any claim
against or dispute with the Stockholder Representative), be asserted or
otherwise addressed solely by the Stockholder Representative on behalf of such
Stockholder (and not by such Stockholder acting on its own behalf).
6.7 No Subrogation. Following the Closing, no Stockholder shall have any
right of indemnification, contribution or subrogation against the Company or the
Subsidiary with respect to any indemnification made by or on behalf of any
Stockholder under Section 6.2 if the Merger and the transactions contemplated by
this Agreement are consummated.
6.8 Release by Principal Stockholders.
(a) Each of the Principal Stockholders, for itself, its Affiliates,
predecessors, successors, representatives and assigns (the "Releasors"), as the
case may be, hereby irrevocably releases and forever discharges the Company, the
Subsidiary and their respective past, present and future Representatives (other
than the Principal Stockholders) (the "Releasees"), as the case may be, from (i)
any and all claims, liabilities, costs, expenses, rights, causes of action,
suits, litigation, proceedings, arbitrations, demands, however arising, whether
at law or equity, actual or contingent, known or unknown arising solely out of,
or relating solely to, the Releasors ownership (direct or indirect) of any debt
or equity interests in the Company and (ii) any and all obligations, whether
previously or now existing, which the Company or the Subsidiary may have to, or
have incurred for the benefit or on behalf of, any Releasor, whether pursuant to
any Law, agreement, provision of the Company Certificate of Incorporation or
otherwise, arising solely out of, or relating solely to, the Releasors'
ownership (direct or indirect) of any debt or equity interests in the Company.
Each Principal Stockholder acknowledges and agrees that the Merger Consideration
received by each of them was fully negotiated and bargained for and constitutes
full and fair consideration for the agreements and releases by each of them set
forth in this Agreement.
(b) Each Principal Stockholder confirms that it has carefully read the
provisions of this Section 6.8 and that it has reviewed such provisions with its
respective attorneys and has consulted therewith regarding its rights and
obligations hereunder, that it has had ample and sufficient opportunity to
consider the terms of this Section 6.8 without duress or coercion. Accordingly,
each Principal Stockholder forever waives all rights to assert that the release
contained in this Section 6.8 was the result of a mistake in law or in fact or
to assert that any or all of the legal theories or factual assumptions used for
negotiating purposes are for any reason inaccurate or inappropriate.
(c) Each Principal Stockholder acknowledges that, in executing the
release contained in this Section 6.8, they are not relying on any
representations, warranties, assurances,
57
statements, or other information of any kind provided or made by any of the
Releasees or their counsel. Each Principal Stockholder is aware that they are
releasing claims as to which they may be currently unaware and only later may
come to learn, but are nevertheless willing to enter into this release. It is
the intention of each Principal Stockholder that, notwithstanding the
possibility they discover or gain a more complete understanding of the facts,
events or Law which, if presently known or fully understood, would have affected
this release, this release shall be deemed to have fully, finally, and forever
settled all claims released hereby. The release in this Section 6.8 extends to
claims and obligations that the Releasors do not know or suspect to exist in
their favor, which, if known by such Releasor, would have materially affected
its decision to enter into this release. The releases herein given shall be, and
remain in effect as, full and complete releases notwithstanding the discovery or
existence of any additional or different claim or fact.
ARTICLE VII
TERMINATION, AMENDMENT AND WAIVER
7.1 Termination. This Agreement may be terminated and the Merger abandoned
at any time prior to the Closing Date, regardless of whether this Agreement
and/or the Merger have been approved by the Stockholders:
(a) by written agreement of the Company, Parent and Merger Sub;
(b) by either Parent or the Company if (i) the Closing Date has not
occurred by June 30, 2007 (the "Termination Date"); provided, that the right to
terminate this Agreement under this clause 7.1(b)(i) shall not be available to
any party whose failure to fulfill any obligation hereunder has been the cause
of, or resulted in, the failure of the Closing Date to occur on or before the
Termination Date and such action or failure constitutes a breach of this
Agreement; (ii) there shall be a final nonappealable order of a Governmental
Entity in effect preventing consummation of the Merger; or (iii) there shall be
any Law enacted, promulgated or issued or deemed applicable to the Merger by any
Governmental Entity that would make consummation of the Merger illegal;
(c) by Parent if there shall have been any action taken, or any Law
enacted, promulgated or issued or deemed applicable to the Merger, by any
Governmental Entity, which would (i) prohibit Parent's or the Company's
ownership or operation of any portion of the business of the Company or (ii)
compel Parent or the Company to dispose of or hold separate, as a result of the
Merger, any portion of the business or assets of the Company or Parent;
(d) by Parent if it is not in material breach of its obligations under
this Agreement and there has been a breach of any representation, warranty,
covenant or agreement contained in this Agreement on the part of the Company and
as a result of such breach the conditions set forth in Section 5.2(a) or 5.2(b),
as the case may be, would not then be satisfied; provided, that if such breach
is curable by the Company prior to the Termination Date through the exercise of
its commercially reasonable efforts, then Parent may not terminate this
Agreement under this Section 7.1(d) prior to the earlier of the Termination Date
or that date which is 15 days following the Company's receipt of written notice
from Parent of such breach, it being understood that Parent may not terminate
this Agreement pursuant to this Section 7.1(d) if such breach by the Company is
cured within such 15 day period so that the conditions would then be satisfied;
or
58
(e) by the Company if it is not in material breach of its obligations
under this Agreement and there has been a breach of any representation,
warranty, covenant or agreement contained in this Agreement on the part of
Parent or Merger Sub and as a result of such breach the conditions set forth in
Section 5.1(a) or 5.1(b), as the case may be, would not then be satisfied;
provided, that if such breach is curable by Parent prior to the Termination Date
through the exercise of its commercially reasonable efforts, then the Company
may not terminate this Agreement under this Section 7.1(e) prior to the earlier
of the Termination Date or that date which is 15 days following Parent's receipt
of written notice from the Company of such breach, it being understood that the
Company may not terminate this Agreement pursuant to this Section 7.1(e) if such
breach by Parent is cured within such 15 day period so that the conditions would
then be satisfied.
7.2 Effect of Termination. Any termination of this Agreement under Section
7.1 will be effective immediately upon the delivery of written notice by the
terminating party to the other parties hereto. In the event of the termination
of this Agreement as provided in Section 7.1, this Agreement shall be of no
further force or effect, except (i) as set forth in Sections 4.3 and 4.4, this
Section 7.2, Section 7.3 and Article IX, each of which shall survive the
termination of this Agreement, and (ii) nothing herein shall relieve any party
from liability for any willful breach of this Agreement. No termination of this
Agreement shall affect the obligations of the parties contained in the
Confidentiality Agreement, all of which obligations shall survive termination of
this Agreement.
7.3 Amendment. Except as is otherwise required by applicable Law, prior to
the Closing this Agreement may be amended by the parties hereto at any time by
execution of an instrument in writing signed by Parent, Merger Sub and the
Company. Except as is otherwise required by applicable Law, after the Closing
this Agreement may be amended by the parties hereto at any time by execution of
an instrument in writing signed by Parent, Merger Sub and the Stockholder
Representative.
7.4 Extension; Waiver. At any time prior to the Effective Time, Parent and
Merger Sub, on the one hand, and the Company, on the other, may, to the extent
legally allowed, (i) extend the time for the performance of any of the
obligations of the other party hereto, (ii) waive any inaccuracies in the
representations and warranties made to such party contained herein or in any
document delivered pursuant hereto or (iii) waive compliance with any of the
agreements or conditions for the benefit of such party contained herein. Any
agreement on the part of a party hereto to any such extension or waiver shall be
valid only if, and to the extent, set forth, in an instrument in writing signed
on behalf of such party.
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ARTICLE VIII
DEFINITIONS, CONSTRUCTION, ETC.
(a) Definitions. For purposes of this Agreement:
"Acquisition Expenses" shall mean all fees and expenses incurred by the
Company or the Subsidiary in connection with the Merger or the other
transactions contemplated by this Agreement, including all "change of control,"
severance, or similar payments and all legal, accounting, investment banking,
tax and financial advisory and all other fees and expenses of third parties
incurred in connection with the negotiation and effectuation of the terms and
conditions of this Agreement and the transactions contemplated hereby
(including, without limitation, any success fees payable to Bowen Advisors, Inc.
and Thomas Matthews and any "change of control" payments payable to Thomas
Matthews and Dzung Tran).
"Affiliate" shall mean, with respect to the Person to which it refers, a
Person that directly or indirectly, through one or more intermediaries,
controls, is controlled by or is under common control with, such Person.
"Aggregate Preferred Preference" shall have the meaning set forth in
Section 1.6(d)(v).
"Agreement" shall have the meaning set forth in the Preamble.
"agreement" shall mean any written, oral, implied or other legally binding
agreement, contract, lease, license, 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 or undertaking of any nature.
"Allocable Share" shall have the meaning set forth in Section
1.6(c)(ii)(y).
"Allocation Certificate" shall have the meaning set forth in Section
1.6(c).
"Balance Sheet Date" shall have the meaning set forth in Section 2.7(a).
"Business Day" shall mean any day of the year on which national banking
institutions in the State of Delaware are open to the public for conducting
business and are not required to close.
"Certificate of Merger" shall have the meaning set forth in Section 1.2.
"Certificates" shall have the meaning set forth in Section 1.8(b).
"Closing" shall have the meaning set forth in Section 1.2.
"Closing Date" shall have the meaning set forth in Section 1.2.
"Closing Payment" shall have the meaning set forth in Section 1.8(c).
"Code" shall mean the United States Internal Revenue Code of 1986, as
amended.
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"Co-Employer" shall mean any Person that is or was considered to be a
co-employee with the Company or the Subsidiary.
"Company" shall have the meaning set forth in the Preamble.
"Company Authorizations" shall have the meaning set forth in Section 2.32.
"Company Balance Sheet" shall have the meaning set forth in Section 2.7(a).
"Company Board" shall mean the board of directors of the Company.
"Company Capital Stock" shall mean the Company Common Stock and the Company
Preferred Stock, collectively.
"Company Certificate of Incorporation" shall mean the Company's Certificate
of Incorporation, as amended.
"Company Common Stock" shall mean the Company's common stock, $0.001 par
value per share.
"Company Contract" shall mean any mortgage, indenture, lease, contract,
insurance policy, covenant or other agreement (written or oral), instrument or
commitment, permit, concession, franchise or license to which the Company or the
Subsidiary is a party or to which they or any of their respective properties or
assets (whether tangible or intangible) is subject or bound.
"Company Customer Information" shall have the meaning set forth in Section
2.31.
"Company Disclosure Schedule" shall have the meaning set forth in Article
II.
"Company Employee Plan" shall mean any plan, program, policy, practice,
contract, agreement or other arrangement (written or oral) providing for
deferred compensation, profit sharing, bonus, severance, termination pay,
performance awards, stock or stock-related awards, fringe benefits, leave of
absence, welfare, educational assistance, pension or other employee benefits or
remuneration of any kind, whether formal or informal, funded or unfunded,
including but not limited to each "employee benefit plan" within the meaning of
Section 3(3) of ERISA, which is or has been maintained, contributed to, or
required to be contributed to, by the Company or the Subsidiary or ERISA
Affiliates for the benefit of any Employee, or pursuant to which the Company or
the Subsidiary has or may have any material liability contingent or otherwise.
"Company Financial Statements" shall have the meaning set forth in Section
2.7(a).
"Company Intellectual Property" shall mean any Intellectual Property that
has been used, is used, or is held for use in the business of the Company or the
Subsidiary as previously conducted, as currently conducted or as currently
proposed to be conducted.
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"Company Material Adverse Effect" shall mean a material adverse effect on
(a) the business, assets, liabilities, condition (financial or other), or
results of operations of the Company and the Subsidiary taken as a whole or (b)
the ability of the Company to perform its obligations pursuant to this Agreement
and the Related Agreements and to consummate the Merger and the transactions
contemplated hereby and thereby in a timely manner.
"Company Material Contract" shall mean any Company Contract (i) that was
not entered into in the ordinary course of business consistent with its past
practices; (ii) that involves or contemplates the payment of cash or other
consideration in an amount or having a value in excess of $10,000; (iii)
pursuant to which the Company or the Subsidiary has obligations regarding
product or service warranties; or (iv) pursuant to which the Company or the
Subsidiary is obligated to indemnify another Person.
"Company Option Plan" shall have the meaning set forth in Section 2.6(b).
"Company Options" shall have the meaning set forth in Section 2.6(b).
"Company Patents" shall have the meaning set forth in Section 2.14(a)(iii).
"Company Preferred Stock" shall mean the Company's preferred stock, $0.001
par value per share, including all classes and series of preferred stock which
have been designated by the Company.
"Company Products" shall have the meaning set forth in Section 2.15.
"Company Real Property" shall have the meaning set forth in Section
2.12(a).
"Company Registered Intellectual Property" shall mean all of the Registered
Intellectual Property owned by, under obligation of assignment to, or filed in
the name of, the Company or the Subsidiary.
"Company Stock Rights" shall mean: (i) all outstanding Company Options,
(ii) all outstanding Company Warrants and (iii) all other outstanding
subscriptions, options, calls, warrants or any other rights, whether or not
currently exercisable, to acquire any shares of Company Capital Stock or that
are or may become convertible into or exchangeable for any shares of Company
Capital Stock or another Company Stock Right. For purposes of clarity, shares of
Company Preferred Stock shall not be considered Company Stock Rights.
"Company Warrant" shall have the meaning set forth in Section 2.6(b).
"Confidentiality Agreement" shall have the meaning set forth in Section
4.3.
"Continuing Employee" shall have the meaning set forth in Section 4.11(a).
"Controls" shall have the meaning set forth in Section 2.7(b).
"Court" shall have the meaning set forth in Section 9.9(b).
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"DGCL" shall have the meaning set forth in Recital A.
"Dissenting Share Payments" shall mean (x) any payment in respect of
Dissenting Shares in excess of the consideration that otherwise would have been
payable in respect of such shares in accordance with this Agreement and (y) any
costs or expenses (including 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 (other than payment for such
shares).
"Dissenting Shares" shall have the meaning set forth in Section 1.7(a).
"DOL" shall mean the United States Department of Labor.
"Effective Time" shall have the meaning set forth in Section 1.2.
"Employee" shall mean any current, former, or retired employee, officer, or
director of the Company or the Subsidiary.
"Employment Agreement" shall refer to each management, employment,
severance, consulting, relocation, repatriation, expatriation, visa, work permit
or similar agreement or contract between the Company, the Subsidiary or any
Affiliate and any Employee or consultant.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974, as
amended.
"ERISA Affiliate" shall mean any Person that, together with the Company or
the Subsidiary, would be treated as a single employer under Section 414 of the
Code or Section 4001 of ERISA and the regulations thereunder.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended.
"Fully Diluted Common Shares" shall mean the total number of shares of
Company Common Stock outstanding at the Effective Time plus the total number of
shares of Company Common Stock issuable upon the conversion or exercise of any
securities convertible into or exercisable for shares of Company Common Stock
outstanding at the Effective Time that are vested and exercisable immediately
prior to the Effective Time, including the Company Preferred Stock, Company
Options, Company Warrants and any other Company Stock Rights, excluding,
however, the shares of Company Capital Stock described in Section 1.6(d)(i).
"Fundamental Representations" shall have the meaning set forth in Section
6.1(a).
"GAAP" shall have the meaning set forth in Section 2.7(a).
"Governmental Entity" shall have the meaning set forth in Section 2.4.
"Hazardous Material" shall have the meaning set forth in Section 2.23(a).
"Hazardous Materials Activities" shall have the meaning set forth in
Section 2.23(b).
63
"Hiring Affiliate" shall mean Parent or an Affiliate of Parent that hires a
Continuing Employee.
"Holdback Amount" shall have the meaning set forth in Section 1.6(a).
"Identified Contracts" shall have the meaning set forth in Section 4.8.
"Indemnified D&Os" shall have the meaning set forth in Section 4.15(a).
"Indemnified Parties" shall have the meaning set forth in Section 6.2.
"Intellectual Property" shall mean any or all of the following and all
rights in, arising out of, or associated therewith (i) all United States,
international and foreign patents and applications therefor and all reissues,
divisions, divisionals, renewals, extensions, provisionals, continuations and
continuations-in-part thereof, and all patents, applications, documents and
filings claiming priority to or serving as a basis for priority thereof; (ii)
all inventions (whether or not patentable), invention disclosures, improvements,
trade secrets, proprietary information, know how, computer software programs (in
both source code and object code form), technology, technical data and customer
lists, tangible or intangible proprietary information, and all documentation
relating to any of the foregoing; (iii) all copyrights, copyrights registrations
and applications therefor, and all other rights corresponding thereto throughout
the world; (iv) all industrial designs and any registrations and applications
therefor throughout the world; (v) all trade names, logos, common law trademarks
and service marks, trademark and service mark registrations and applications
therefor throughout the world; (vi) all databases and data collections and all
rights therein throughout the world; (vii) all moral and economic rights of
authors and inventors, however denominated, throughout the world; (viii) all Web
addresses, sites and domain names and numbers; and (ix) any similar or
equivalent rights to any of the foregoing anywhere in the world.
"Investors Rights Agreement" shall have the meaning set forth in Section
2.6(c).
"IRS" shall mean the United States Internal Revenue Service.
"Key Employee" shall mean each of Thomas Matthews, Tore Andersen, Dzung
Tran and Wayne Lutz.
"knowledge" (including any derivation thereof such as "known" or "knowing")
shall mean the actual knowledge of any officer or director of the Company or the
Subsidiary or any Key Employee, and such knowledge as would be reasonably
expected to be known by such individuals in the ordinary and usual course of the
performance of their professional responsibilities to the Company and the
Subsidiary.
"Law" shall mean any federal, state, foreign, or local law, statute,
ordinance, rule, regulation, writ, injunction, directive, order, judgment,
administrative interpretation, treaty, decree, administrative or judicial
decision and any other executive, legislative, regulatory or administrative
proclamation.
"Leases" shall have the meaning set forth in Section 2.12(b).
64
"Letter of Transmittal" shall have the meaning set forth in Section 1.8(b).
"Lien" shall mean any lien, pledge, mortgage, deed of trust, security
interest, claim, lease, license, charge, option, right of first refusal,
easement, restriction, reservation, servitude, proxy, voting trust or agreement,
transfer restriction under any shareholder or similar agreement, or encumbrance
of any nature whatsoever.
"Losses" shall have the meaning set forth in Section 6.2.
"Merger" shall have the meaning set forth in Recital A.
"Merger Consideration" shall have the meaning set forth in Section 1.6(a).
"Merger Sub" shall have the meaning set forth in the Preamble.
"Net Assets" shall mean the Company's current assets as set forth in the
Signing Date Financial Statements (with current accounts receivable defined as
those due within 90 days or less), less current liabilities (not including
deferred revenues or accrued expenses associated with the transactions
contemplated by this Agreement).
"Nonstatutory Option" shall mean any Company Option (or portion thereof)
that is not an incentive stock option within the meaning of Section 422 of the
Code.
"Offer Package Agreements" shall have the meaning set forth in Section
4.11(b).
"Parent" shall have the meaning set forth in the Preamble.
"Parent Material Adverse Effect" shall have the meaning set forth in
Section 3.1.
"Person" shall mean any individual, corporation, partnership, limited
liability company, firm, joint venture, association, joint-stock company, trust,
unincorporated organization, Governmental Entity or other entity.
"Principal Stockholders" shall mean CNF Investments, LLC, McDonnell &
Associates, L.P. and Thomas Manchot.
"Publicly Available Software" shall mean each of (i) any software that
contains, or is derived in any manner (in whole or in part) from, any software
that is distributed as free software, open source software (e.g., GNU General
Public License, Apache Software License), or pursuant to similar licensing and
distribution models; and (ii) any software that requires as a condition of use,
modification, and/or distribution of such software that such software or other
software incorporated into, derived from, or distributed with such software (a)
be disclosed or distributed in source code form; (b) be licensed for the purpose
of making derivative works; or (c) be redistributable at no or minimal charge.
"Registered Intellectual Property" shall mean all United States,
international and foreign: (i) patents and patent applications (including
provisional applications and design patents and applications) and all reissues,
divisions, divisionals, renewals, extensions, counterparts,
65
continuations and continuations-in-part thereof, and all patents, applications,
documents and filings claiming priority thereto or serving as a basis for
priority thereof; (ii) registered trademarks, service marks, applications to
register trademarks, applications to register service marks, intent-to-use
applications, or other registrations or applications related to trademarks;
(iii) registered copyrights and applications for copyright registration; (iv)
domain name registrations and Internet number assignments; and (v) any other
Intellectual Property that is the subject of an application, certificate,
filing, registration or other document issued, filed with, or recorded by any
Governmental Entity.
"Related Agreements" shall have the meaning set forth in Section 2.2(a).
"Representatives" shall have the meaning set forth in Section 4.10(a).
"Right of First Refusal" shall have the meaning set forth in Section
2.6(c).
"Series A-1 Preferred Stock" shall mean the Series A-1 Convertible
Preferred Stock of the Company, par value $0.001 per share.
"Series A-1 Preference" shall have the meaning set forth in Section
1.6(d)(iii).
"Services" shall have the meaning set forth in Section 2.15.
"Signing Date Financial Statements" shall mean a balance sheet and income
statement, prepared in accordance with GAAP, as of the date of this Agreement.
"Standard Support Agreement" shall have the meaning set forth in Section
2.14(p).
"Stockholder Representative" shall have the meaning set forth in Section
6.6(a).
"Stockholder" or "Stockholders" shall mean the holder(s) of shares of
Company Capital Stock.
"Stockholders Agreement" shall have the meaning set forth in Section
2.6(c).
"Subsidiary" shall mean Ecutel Europe, a Norwegian corporation.
"Subsidiary Securities" shall have the meaning set forth in Section 2.5(b).
"Support Agreements" shall have the meaning set forth in Section 2.14(p).
"Surviving Corporation" shall have the meaning set forth in Section 1.1.
"Tax" shall mean any federal, state, local and foreign net income,
alternative or add-on minimum, estimated, gross income, gross receipts, sales,
use, ad valorem, value added, transfer, franchise, capital profits, lease,
service, license, withholding, payroll, employment, excise, severance, stamp,
occupation, premium, property, environmental or windfall profit tax, customs
duty or other tax, governmental fee or other like assessment or charge of any
kind whatsoever (including any Tax liability incurred or borne as a transferee
or successor, or by contract or otherwise), together with all interest,
penalties, additions to tax and additional amounts with respect thereto.
66
"Tax Authority" shall mean any Governmental Entity responsible for the
imposition or collection of any Tax.
"Tax Returns" shall mean all returns, declarations, reports, claims for
refund, information statements and other documents relating to Taxes, including
all schedules and attachments thereto, and including all amendments thereof.
"Terminated Employees" shall have the meaning set forth in Section 4.11(f).
"Termination Date" shall have the meaning set forth in Section 7.1(b).
"Termination Payments" shall mean, with respect to any person whose
employment is terminated as of a given date, all legal obligations relating to
the termination of the employment of such person, including all amounts required
by any applicable Law to be paid to such person upon termination of employment,
including pay in lieu of notice, pay required by the WARN Act and any other
similar Laws, and all termination pay, severance pay, accrued vacation pay,
COBRA benefits and all wages, bonuses, sick leave, pensions, source deductions
and other remuneration benefits for such person accruing up to and including the
date of termination.
"Third Parties" shall have the meaning set forth in Section 4.8.
"Third-Party Acquisition" shall have the meaning set forth in Section
4.10(a).
"Third-Party Claim" shall have the meaning set forth in Section 6.4(b).
"Threshold Amount" shall have the meaning set forth in Section 6.3(a).
"Transaction Approvals" shall have the meaning set forth in Section 2.2(a).
"Unvested Company Option" shall have the meaning set forth in Section
1.6(e)(i).
"Unvested Company Option" shall have the meaning set forth in Section
1.6(e)(ii).
(b) Construction.
(i) 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.
(ii) 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.
67
(iii) 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."
(iv) 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.
(v) The table of contents and headings contained in this
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement.
ARTICLE IX
GENERAL PROVISIONS
9.1 Notices. All notices and other communications hereunder shall be in
writing and shall be deemed given if properly addressed (i) if delivered
personally, by commercial delivery service or by facsimile (with acknowledgment
of a complete transmission), on the day of delivery; or (ii) if delivered by
registered or certified mail (return receipt requested), three Business Days
after mailing; or (iii) if delivered by first class mail, three Business Days
after mailing. Notices shall be deemed to be properly addressed to any party
hereto if addressed to the following addresses (or at such other address for a
party as shall be specified by like notice):
(a) if to Parent or Merger Sub, to:
Smith Micro Software, Inc.
51 Columbia
Aliso Viejo, CA 92656
Attention: Robert Elliott
Telephone: (213) 892-5200
Facsimile: (213) 892-5454
with a copy to:
Morrison & Foerster LLP
555 West Fifth Street, Suite 3500
Los Angeles, CA 90013
Attention: Allen Z. Sussman, Esq.
Telephone: (213) 892-5200
Facsimile: (213) 892-5454
(b) if to the Company, to:
Ecutel Systems, Inc.
2300 Corporate Park Drive, Suite 410
Herndon, VA 20171
Attention: Thomas Matthews
Telephone: (571) 203-8331
68
Facsimile: (571) 203-8310
with a copy to:
Arent Fox LLP
1050 Connecticut Ave., NW
Washington, DC 20036-5339
Attention: Jeffrey E. Jordan, Esq.
Telephone: (202) 857-6473
Facsimile: (202) 857-6395
(c) if to the Stockholder Representative to:
John J. McDonnell, Jr.
7984 Georgetown Pike
Great Falls, VA 22102
Telephone: (703) 917-1565
Facsimile: (703) 917-1565
(d) if to any of the Principal Stockholders to:
McDonnell & Associates, L.P.
7984 Georgetown Pike
Great Falls, VA 22102
Telephone: (703) 917-1565
Facsimile: (703) 917-1565
CNF Investments, LLC
7500 Old Georgetown Rd.
Bethesda, MA 20814
Telephone: (301) 657-7191
Facsimile: (301) 657-7173
Thomas Manchot
Henkelstrasse 67
D-40191
Dusseldorf Germany
Telephone: 011-49-211-600-0170
Facsimile: [_____________]
9.2 Entire Agreement. Except for the Confidentiality Agreement, this
Agreement, the schedules and Exhibits hereto, and the documents and instruments
and other agreements among the parties hereto referenced herein constitute the
entire agreement among the parties with respect to the subject matter hereof and
supersede all prior agreements and understandings, both written and oral, among
the parties with respect to the subject matter hereof.
9.3 Agreement Binding. This Agreement shall be binding, effective as of the
date of this Agreement, on all parties who are signatories to this Agreement,
provided that Thomas
69
Manchot may execute this Agreement subsequent to the date hereof but prior to
Closing, and upon such execution Mr. Manchot shall, without further action by
Mr. Manchot or the other parties to this Agreement, become a party to and be
deemed a Principal Stockholder under, this Agreement.
9.4 Severability. In the event that any provision of this Agreement or the
application thereof becomes or is declared by a court of competent jurisdiction
to be illegal, void or unenforceable, the remainder of this Agreement will
continue in full force and effect and the application of such provision to other
Persons or circumstances will be interpreted so as reasonably to effect the
intent of the parties hereto. The parties further agree to replace such void or
unenforceable provision of this Agreement with a valid and enforceable provision
that will achieve, to the greatest extent possible, the economic, business and
other purposes of such void or unenforceable provision.
9.5 Specific Performance. The parties hereto agree that irreparable damage
would occur in the event that any of the provisions of this Agreement were not
performed in accordance with their specific terms or were otherwise breached. It
is accordingly agreed that the parties shall be entitled to an injunction or
injunctions to prevent breaches of this Agreement and to enforce specifically
the terms and provisions hereof in any court of the United States or any state
having jurisdiction, this being in addition to any other remedy to which they
are entitled at Law or in equity.
9.6 Company Disclosure Schedule. No matter disclosed in one section of the
Company Disclosure Schedule shall be deemed disclosed in another section of the
Company Disclosure Schedule unless it is reasonably apparent on its face that
the matter is responsive to another representation.
9.7 Expenses. Whether or not the Merger is consummated, all fees and
expenses incurred in connection with the Merger, including all legal,
accounting, tax and financial advisory, consulting, investment banking and all
other fees and expenses of third parties incurred by a party in connection with
the negotiation and effectuation of the terms and conditions of this Agreement
and the transactions contemplated hereby shall be the obligation of the party
incurring such fees and expenses.
9.8 Successors and Assigns; Parties in Interest.
(a) This Agreement shall be binding upon each Stockholder and each of
their respective personal representatives, executors, administrators, estates,
heirs, successors and assigns (if any) and Parent and Merger Sub and their
respect successors and assigns, if any. This Agreement shall inure to the
benefit of the parties hereto and the Indemnified Parties and the respective
successors and assigns (if any) of the foregoing. No obligation of the Company
in this Agreement shall become an obligation of the Surviving Corporation after
the Effective Time.
(b) No Party may assign any of its rights or delegate any of its
obligations under this Agreement without the prior written consent of Parent and
the Company, except that Parent may assign its rights and delegate its
obligations hereunder to any Affiliate without the Company's consent.
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(c) Except as provided in the following sentence, nothing in this
Agreement, express or implied, is intended to or shall confer upon any other
Person any rights, interests, benefits or other remedies of any nature under or
by reason of this Agreement. This Agreement is intended to benefit the
Indemnified Parties, each Indemnified Party shall be deemed a third-party
beneficiary of this Agreement and this Agreement shall be enforceable by the
Indemnified Parties. Except as set forth in this Section 9.7(c), none of the
provisions of this Agreement is intended to provide any rights or remedies to
any Person other than the parties and their respective successors and assigns,
if any.
9.9 Waiver. 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 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.
9.10 Governing Law; Venue.
(a) This Agreement shall be construed in accordance with, and governed
in all respects by, the internal laws of the State of Delaware.
(b) Unless otherwise explicitly provided in this Agreement, any
action, claim, suit or proceeding relating to this Agreement or the enforcement
of any provision of this Agreement shall be brought or otherwise commenced in
any state or federal court located in the State of Delaware (each, a "Court").
Each party hereto (i) expressly and irrevocably consents and submits to the
jurisdiction of each Court, and each appellate court located in the State of
Delaware, in connection with any such proceeding; (ii) agrees that each Court
shall be deemed to be a convenient forum; and (iii) agrees not to assert, by way
of motion, as a defense or otherwise, in any such proceeding commenced in any
Court, any claim that such Party is not subject personally to the jurisdiction
of such Court, that such Proceeding has been brought in an inconvenient forum,
that the venue of such proceeding is improper or that this Agreement or the
subject matter of this Agreement may not be enforced in or by such Court.
(c) The Stockholders and Stockholder Representative agree that, if any
claim, action suit or proceeding is commenced against any Indemnified Party by
any Person in or before any court or other tribunal anywhere in the world, then
such Indemnified Party may proceed against the Stockholders and Stockholder
Representative in or before such court or other tribunal with respect to any
indemnification claim or other claim arising directly or indirectly from or
relating directly or indirectly to such claim, action, suit or proceeding or any
of the matters alleged therein or any of the circumstances giving rise thereto.
9.11 Waiver of Jury Trial. EACH PARTY ACKNOWLEDGES AND AGREES THAT ANY
CONTROVERSY THAT MAY ARISE UNDER THIS AGREEMENT OR ANY RELATED AGREEMENT IS
LIKELY TO INVOLVE COMPLICATED AND DIFFICULT ISSUES, AND THEREFORE IT HEREBY
IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY
IN RESPECT OF ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING
TO THIS
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AGREEMENT, ANY RELATED AGREEMENT OR THE TRANSACTIONS CONTEMPLATED THEREBY.
9.12 Other Remedies. Except as otherwise expressly provided herein, any and
all remedies herein expressly conferred upon a party will be deemed cumulative
with and not exclusive of any other remedy conferred hereby, or by law or equity
upon such party, and the exercise by a party of any one remedy will not preclude
the exercise of any other remedy.
9.13 Counterparts; Facsimile Delivery. This Agreement may be executed in
two or more counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument. Any signature page
delivered by facsimile or electronic image transmission shall be binding to the
same extent as an original signature page. Any party that delivers a signature
page by facsimile or electronic image transmission shall deliver an original
counterpart to any other party that requests such original counterpart.
9.14 Attorneys' Fees. If any action, claim, suit or proceeding relating to
this Agreement or any of the Related Agreements or the enforcement of any
provision thereof is brought against any party, the prevailing party shall be
entitled to recover reasonable attorneys' fees, costs and disbursements, in
addition to any other relief to which the prevailing party may be entitled.
9.15 Time of the Essence. Time is of the essence of this Agreement.
[Remainder of Page Intentionally Left Blank]
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IN WITNESS WHEREOF, each of the parties to this Agreement has executed and
delivered this Agreement, or caused this Agreement to be executed and delivered
by its duly authorized representative, as of the date first written above.
SMITH MICRO SOFTWARE, INC. PRINCIPAL STOCKHOLDERS:
CNF Investments, LLC
By: /s/ William W. Smith, Jr. /s/ Robert T. Flanagan
--------------------------------- ----------------------------------------
Name: William W. Smith, Jr. Name: Robert T. Flanagan
Title: President and Chief Executive Title: Manager
Officer
TEL ACQUISITION CORP. McDonnell & Associates, L.P.
By: /s/ William W. Smith, Jr. /s/ John J. McDonnell, Jr.
--------------------------------- ----------------------------------------
Name: William W. Smith, Jr. Name: John J. McDonnell, Jr.
Title: President and Chief Executive Title: President, McDonnell Holdings
Officer Inc.,
General Parter of McDonnell
& Associates, L.P.
ECUTEL SYSTEMS, INC. Thomas Manchot
By: /s/ Thomas P. Matthews /s/ Thomas Machot
--------------------------------- ----------------------------------------
Name: Thomas P. Matthews
Title: President and Chief Executive
Officer
STOCKHOLDER REPRESENTATIVE
/s/ John J. McDonnell, Jr.
- -------------------------------------
Name: John J. McDonnell, Jr.
[SIGNATURE PAGE TO AGREEMENT AND PLAN OF MERGER]
EXHIBIT A
Form of Opinion of Arent Fox LLP
A-1