AGREEMENT AND PLAN OF REORGANIZATION
BY AND AMONG
NAYNA NETWORKS, INC.
SSDI ACQUISITION CORPORATION,
AND
SOUTH SEAS DATA, INC.
May 17, 2005
1. Definitions...........................................................1
2. The Merger............................................................5
2.1 The Merger...................................................5
2.2 Closing; Effective Time......................................5
2.3 Effect of the Merger.........................................5
2.4 Articles of Incorporation; Bylaws............................5
2.5 Directors and Officers.......................................5
2.6 Effect on Capital Stock......................................5
2.7 Surrender of Certificates....................................7
2.8 No Further Ownership Rights in SSDI Capital Stock............9
2.9 Lost, Stolen or Destroyed Certificates.......................9
2.10 Tax Consequences.............................................9
2.11 Taking of Necessary Action; Further Action..................10
3. Representations and Warranties of SSDI...............................10
3.1 Organization, Standing and Power............................10
3.2 Authority...................................................10
3.3 Governmental Authorization..................................11
3.4 Financial Statements........................................11
3.5 Capital Structure...........................................12
3.6 Absence of Certain Changes..................................12
3.7 Absence of Undisclosed Liabilities..........................13
3.8 Litigation..................................................13
3.9 Restrictions on Business Activities.........................13
3.10 Intellectual Property.......................................13
3.11 Interested Party Transactions...............................17
3.12 Minute Books................................................17
3.13 Complete Copies of Materials................................17
3.14 Material Contracts..........................................17
3.15 Inventory...................................................18
3.16 Accounts Receivable.........................................18
3.17 Customers and Suppliers.....................................18
3.18 Employees and Consultants...................................19
3.19 Title to Property...........................................19
3.20 Environmental Matters.......................................19
3.21 Taxes.......................................................20
3.22 Employee Benefit Plans......................................22
3.23 Employee Matters............................................24
3.24 Insurance...................................................24
3.25 Compliance With Laws........................................25
3.26 Brokers' and Finders' Fee...................................25
3.27 Privacy Policies and Web Site Terms and Conditions..........25
3.28 International Trade Matters.................................26
3.29 Representations Complete....................................26
4. Representations and Warranties of Nayna and Merger Sub...............27
4.1 Organization, Standing and Power............................27
4.2 Authority...................................................27
4.3 Capital Structure...........................................28
4.4 Financial Statements........................................28
4.5 Absence of Certain Charges..................................29
4.6 Absence of Undisclosed Liabilities..........................29
4.7 Minute Book.................................................30
4.8 Title to Property...........................................30
4.9 Compliance With Laws........................................30
4.10 Issuance of Shares..........................................30
4.11 Litigation..................................................30
4.12 Interim Operations of Merger Sub............................31
4.13 Representations Complete....................................31
4.14 SEC Documents; Financial Statements.........................31
5. Conduct Prior to the Effective Time..................................32
5.1 Conduct of Business of SSDI.................................32
5.2 No Solicitation.............................................34
6. Additional Agreements................................................35
6.1 Preparation of Solicitation Statement.......................35
6.2 Approval of Shareholders....................................36
6.3 Sale of Shares Pursuant to Regulation D.....................36
6.4 Access to Information.......................................36
6.5 Confidentiality.............................................37
6.6 Public Disclosure...........................................37
6.7 Regulatory Approval; Further Assurances.....................37
6.8 Blue Sky Laws...............................................38
6.9 Nonaccredited Stockholders..................................38
6.10 Listing of Addditional Shares...............................38
6.11 Employees...................................................39
6.12 Reorganization..............................................39
6.13 Expenses....................................................39
6.14 Registration of Shares Issued in the Merger.................39
6.15 Line of Credit..............................................42
6.16 Distribution of Assets......................................42
7. Conditions to the Merger.............................................42
7.1 Conditions to Obligations of Each Party to Effect
the Merger................................................42
7.2 Additional Conditions to the Obligations of Nayna
and Merger Sub............................................43
7.3 Additional Conditions to Obligations of SSDI................45
8. Termination, Amendment and Waiver....................................45
8.1 Termination.................................................45
8.2 Effect of Termination.......................................46
8.3 Amendment...................................................46
8.4 Extension; Waiver...........................................46
9. Indemnification......................................................46
9.1 Survival of Warranties......................................46
9.2 SSDI Indemnification........................................46
9.3 Nayna Indemnification.......................................47
10. General Provisions...................................................47
10.1 Notices.....................................................47
10.2 Definitions.................................................48
10.3 Counterparts................................................48
10.4 Entire Agreement; Nonassignability; Parties in Interest.....48
10.5 Severability................................................49
10.6 Remedies Cumulative.........................................49
10.7 Governing Law...............................................49
10.8 Rules of Construction.......................................49
10.9 Amendment; Waiver...........................................49
10.10 Enforcement.................................................50
10.11 Survival....................................................50
LIST OF EXHIBITS
Exhibit A Agreement of Merger
Exhibit B Escrow Agreement
Exhibit C Investor Representation Statement
AGREEMENT AND PLAN OF REORGANIZATION
This AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") is made and
entered into as of May 17, 2005 by and among Nayna Networks, Inc., a Nevada
corporation ("Nayna"), SSDI Acquisition Corporation, a Delaware corporation
("Merger Sub") and wholly owned subsidiary of Nayna, South Seas Data, Inc., a
Colorado corporation ("SSDI"), and, solely with respect to Sections 6.11 and 9
hereof, John A. Marzano ("Principal Shareholder"), the principal shareholder of
SSDI ("Shareholders' Agent").
RECITALS
A. The Boards of Directors of SSDI, Nayna and Merger Sub believe
it is in the best interests of their respective companies and the shareholders
of their respective companies that SSDI and Merger Sub combine into a single
company through the statutory merger of Merger Sub with and into SSDI (the
"Merger") and, in furtherance thereof, have approved the Merger.
B. Pursuant to the Merger, among other things, the outstanding
shares of SSDI common stock, no par value ("SSDI Common Stock"), shall be
converted into the right to receive the Merger Consideration (as defined in
Section 2.6(a)) upon the terms and subject to the conditions set forth herein.
C. SSDI, Nayna and Merger Sub desire to make certain
representations and warranties and other agreements in connection with the
Merger.
D. The parties intend, by executing this Agreement, to adopt a
plan of reorganization within the meaning of Section 368 of the Internal Revenue
Code of 1986, as amended (the "Code"), and to cause the Merger to qualify as a
reorganization under the provisions of Section 368(a) of the Code.
NOW, THEREFORE, in consideration of the covenants and representations
set forth herein, and for other good and valuable consideration, the parties
agree as follows:
1. Definitions. As used in this Agreement, the following terms shall
have the following meanings:
"Agreement of Merger" has the meaning set forth in Section y2.1.
"Average Closing Price" has the meaning set forth in Section y2.6(e).
"CERCLA" has the meaning set forth in Section 3.20(a)(i).
"Certificates" has the meaning set forth in Section y2.7(c).
"Closing" has the meaning set forth in Section y2.2.
"Closing Date" has the meaning set forth in Section y2.2.
"COBRA" has the meaning set forth in Section y3.22(e).
"Code" has the meaning set forth in Recital D.
"Colorado Law" has the meaning set forth in Section y2.1.
"Confidential Information" has the meaning set forth in Section
y3.10(i).
"Confidentiality Agreement" has the meaning set forth in Section y6.5.
"Copyrights" has the meaning set forth in Section y3.10(a)(iii).
"Delaware Law" has the meaning set forth in Section y2.1.
"Dissenting Shares" has the meaning set forth in Section y2.6(f).
"Dissenting Shareholder" has the meaning set forth in Section y2.6(f).
"Effective Time" has the meaning set forth in Section y2.2.
"Environmental Laws" has the meaning set forth in Section y3.20(a)(i).
"ERISA" has the meaning set forth in Section y3.22(a).
"ERISA Affiliate" has the meaning set forth in Section y3.22(a).
"Escrow Agreement" has the meaning set forth in Section 2.6(a).
"Exchange Act" has the meaning set forth in Section y3.4.
"Exchange Agent" has the meaning set forth in Section y2.7(a).
"Exchange Fund" has the meaning set forth in Section y2.7(b).
"Exchange Ratio" has the meaning set forth in Section y2.6(a).
"Governmental Entity" has the meaning set forth in Section y3.2.
"Hazardous Materials" has the meaning set forth in Section
y3.20(a)(ii).
"HIPAA" has the meaning set forth in Section y3.22(e).
"Holder" has the meaning set forth in Section y6.14(a).
"Holder Indemnitee" has the meaning set forth in Section y6.14(e).
"HSR" has the meaning set forth in Section y3.2.
"Indemnified Person" has the meaning set forth in Section y6.14(g).
"Indemnifying Person" has the meaning set forth in Section y6.14(g).
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"Individuals" has the meaning set forth in Section y3.27(a)(ii).
"Intellectual Property" has the meaning set forth in Section y3.10(a).
"Issued Patents" has the meaning set forth in Section y3.10(a)(i).
"Material" has the meaning set forth in Section y10.2.
"Material Adverse Effect" has the meaning set forth in Section y10.2.
"Material Contract" has the meaning set forth in Section y3.14.
"Merger" has the meaning set forth in Recital A.
"Merger Consideration" has the meaning set forth in Section y2.6(a).
"Merger Sub" has the meaning set forth in the introductory paragraph.
"NASD" has the meaning set forth in Section y4.2.
"Nayna" has the meaning set forth in the introductory paragraph.
"Nayna Common Stock" has the meaning set forth in Section y2.6(a).
"Nayna Disclosure Schedule" has the meaning set forth in Section y4.
"Patent Applications" has the meaning set forth in Section
y3.10(a)(ii).
"Patents" has the meaning set forth in Section y3.10(a)(ii).
"Price-Protected Securities" has the meaning set forth in Section
2.6(a).
"Privacy Statements" has the meaning set forth in Section y3.27(a)(ii).
"Registrable Securities" has the meaning set forth in Section 2.6(a).
"Registration Date" has the meaning set forth in Section 2.6(a).
"Registration Statement" has the meaning set forth in Section 2.6(a).
"Resumption Notice" has the meaning set forth in Section y6.14(c).
"RCRA" has the meaning set forth in Section y3.20(a)(i).
"Returns" has the meaning set forth in Section y3.21(b).
"SEC" has the meaning set forth in Section y4.2.
"Securities Act" has the meaning set forth in Section y2.6(f).
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"Shareholders' Agent" has the meaning set forth in the introductory
paragraph.
"Subsidiary" has the meaning set forth in Section y10.2.
"Surviving Corporation" has the meaning set forth in Section y2.1.
"Suspension Notice" has the meaning set forth in Section y6.14(c).
"Suspension Right" has the meaning set forth in Section y6.14(c).
"SSDI" has the meaning set forth in the introductory paragraph.
"SSDI Balance Sheet" has the meaning set forth in Section y3.7.
"SSDI Balance Sheet Date" has the meaning set forth in Section y3.6.
"SSDI Capital Stock" has the meaning set forth in Section y2.6(b).
"SSDI Common Stock" has the meaning set forth in Recital B.
"SSDI Disclosure Schedule" has the meaning set forth in Section y3.
"SSDI Employee Plans" has the meaning set forth in Section y3.22(a).
"SSDI Financial Statements" has the meaning set forth in Section y3.4.
"SSDI Intellectual Property" has the meaning set forth in Section
y3.10(c).
"SSDI Products" has the meaning set forth in Section y3.10(c)(ii).
"SSDI Sites" has the meaning set forth in Section y3.27(a)(i).
"SSDI Software" has the meaning set forth in Section y3.10(k).
"SSDI's Current Facilities" has the meaning set forth in Section
y3.20(b).
"SSDI's Facilities" has the meaning set forth in Section y3.20(b).
"Tax" and "Taxes" have the meanings set forth in Section y3.21(a).
"Termination Date" has the meaning set forth in Section y9.1.
"Terms and Conditions" has the meaning set forth in Section
y3.27(a)(iii).
"Third Party Intellectual Property" has the meaning set forth in
Section y3.10(d).
"Trademarks" has the meaning set forth in Section y3.10(a)(iv).
"U.S. Person" has the meaning set forth in Section y7.2(i).
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2. The Merger.
2.1 The Merger. At the Effective Time and subject to and upon the
terms and conditions of this Agreement, the Agreement of Merger attached hereto
as Exhibit A (the "Agreement of Merger") and the applicable provisions of the
Delaware General Corporation Law ("Delaware Law") and the Colorado Business
Corporation Act ("Colorado Law"), Merger Sub shall be merged with and into SSDI,
the separate corporate existence of Merger Sub shall cease and SSDI shall
continue as the surviving corporation (the "Surviving Corporation").
2.2 Closing; Effective Time. The closing of the transactions
contemplated hereby (the "Closing") shall take place as soon as practicable, but
no later than two (2) business days, after the satisfaction or waiver of each of
the conditions set forth in Section y7 hereof, or at such other time as the
parties hereto agree (the "Closing Date"). The Closing shall take place at the
Company's offices, or at such other location as the parties hereto agree. In
connection with the Closing, the parties hereto shall cause the Merger to be
consummated by filing the Agreement of Merger, together with Articles of Merger,
with the Secretary of State of the State of Colorado, in accordance with the
relevant provisions of Colorado Law (the time of such filing being the
"Effective Time"). The parties shall also promptly cause a Certificate of Merger
to be filed with the Secretary of State of the State of Delaware, in accordance
with the relevant provisions of Delaware Law.
2.3 Effect of the Merger. At the Effective Time, the effect of the
Merger shall be as provided in this Agreement, the Agreement of Merger and the
applicable provisions of Colorado Law and Delaware Law. Without limiting the
generality of the foregoing, and subject thereto, at the Effective Time, all the
property, rights, privileges, powers and franchises of SSDI and Merger Sub shall
vest in the Surviving Corporation, and all debts, liabilities and duties of SSDI
and Merger Sub shall become the debts, liabilities and duties of the Surviving
Corporation.
2.4 Articles of Incorporation; Bylaws.
(a) At the Effective Time, Article II of the Articles of
Incorporation of SSDI shall be amended to read in its entirety: "The total
authorized capital stock of the corporation shall be 1,000 shares of Common
Stock."
(b) The Bylaws of SSDI, as in effect immediately prior to the
Effective Time, shall be the Bylaws of the Surviving Corporation until
thereafter amended.
2.5 Directors and Officers. At the Effective Time, the directors and
officers of Merger Sub immediately prior to the Effective Time shall be the
directors and officers of the Surviving Corporation, to serve until their
respective successors are duly elected or appointed and qualified.
2.6 Effect on Capital Stock. At the Effective Time, by virtue of the
Merger and without any action on the part of Merger Sub, SSDI or the holders of
any of the following securities:
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(a) Conversion of SSDI Capital Stock. Subject to adjustment as
may be required hereunder and the Escrow Agreement in the form attached hereto
as Exhibit B ("Escrow Agreement"), each share of SSDI Common Stock issued and
outstanding immediately prior to the Effective Time shall be converted and
exchanged, without any action on the part of the holders thereof, into the right
to receive that number of validly issued, fully paid and nonassessable shares of
the common stock, $.001 par value, of Nayna ("Nayna Common Stock") which equal
the amount obtained by dividing 600,000 of Nayna Common Stock (the "Merger
Consideration") by the number of shares of SSDI Common Stock issued and
outstanding immediately prior to the Effective Time (the "Exchange Ratio"),
subject to Section y2.6(e).
Nayna hereby agrees to use its reasonable commercial efforts to
cause the shares of the Merger Consideration (the "Registrable Securities") to
be registered under the Securities Act so as to permit the resale thereof, and
in connection therewith shall use its commercially reasonable efforts to prepare
and file a registration statement with the SEC with respect to the Registrable
Securities (the "Registration Statement") pursuant to Section 6.14 below. The
350,000 of the Registrable Securities (the "Price-Protected Securities") shall
be subject to adjustment based on the price of Nayna Common Stock prior to the
date on which the Registrable Securities are registered under the Securities Act
(the "Registration Date"). If the average of the closing prices of Nayna Common
Stock as reported on the applicable U.S. exchange on which Nayna Common Stock is
then trading during the twenty trading days ending one day prior to the
Registration Date (the "Average Closing Price") is less than $1.80, then Nayna
shall issue an additional number of registered shares of Nayna Common Stock
which when added to the number of shares of Price-Protected Securities and
multiplied by the Average Closing Price would produce an aggregate value of
$630,000.00. If the Average Closing Price is more than $2.40, then the SSDI
shareholders shall retain that portion of the Price-Protected Securities which
when multiplied by the Average Closing Price would produce an aggregate value of
$840,000.00 and return to Nayna the remainder of the Price-Protected Securities.
In order to secure the mutual obligations hereunder, Nayna will issue the
Price-Protected Securities into an escrow account to be governed by the Escrow
Agreement.
(b) Cancellation of SSDI Capital Stock Owned by Nayna. At the
Effective Time, each share of SSDI Common Stock ("SSDI Capital Stock") owned by
Nayna or any direct or indirect wholly owned subsidiary of Nayna immediately
prior to the Effective Time shall be canceled and extinguished without any
conversion thereof.
(c) Capital Stock of Merger Sub. At the Effective Time, each
share of common stock of Merger Sub issued and outstanding immediately prior to
the Effective Time shall be converted into and exchanged for one validly issued,
fully paid and nonassessable share of common stock of the Surviving Corporation.
Each stock certificate of Merger Sub evidencing ownership of any such shares
shall continue to evidence ownership of such shares of capital stock of the
Surviving Corporation.
(d) Adjustments to Exchange Ratio. The Exchange Ratio shall be
adjusted to reflect fully the effect of any stock split, reverse split, stock
dividend (including any dividend or distribution of securities convertible into
Nayna Common Stock, (or SSDI Common Stock), reorganization, recapitalization or
other like change with respect to Nayna Common Stock or SSDI Common Stock
occurring after the date hereof and prior to the Effective Time.
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(e) Fractional Shares. No fraction of a share of Nayna Common
Stock will be issued, but in lieu thereof each holder of shares of SSDI Common
Stock who would otherwise be entitled to a fraction of a share of Nayna Common
Stock (after aggregating all fractional shares of Nayna Common Stock to be
received by such holder) shall receive from Nayna an amount of cash (rounded to
the nearest whole cent) equal to the product of (i) such fraction, multiplied by
(ii) the average of the closing prices of Nayna Common Stock as reported on the
Over The Counter Bulletin Board during the twenty trading days ending one day
prior to the Effective Time. The fractional share interests of each SSDI
shareholder shall be aggregated, so that no SSDI shareholder shall receive cash
in respect of fractional share interests in an amount greater than the value of
one full share of Nayna Common Stock.
(f) Dissenters' Rights. Notwithstanding any provision of this
Agreement to the contrary, any shares of SSDI Common Stock held by a holder who
has demanded and perfected such holder's right for appraisal of such shares in
accordance with Colorado Law and who, as of the Effective Time, has not
effectively withdrawn or lost such right to appraisal ("Dissenting Shares"), if
any, shall not be converted into the Merger Consideration but shall instead be
converted into the right to receive such consideration as may be determined to
be due with respect to such Dissenting Shares pursuant to Colorado Law. SSDI
shall give Nayna prompt notice of any demand received by SSDI to require SSDI to
purchase shares of Common Stock of SSDI, and Nayna shall have the right to
direct and participate in all negotiations and proceedings with respect to such
demand. SSDI agrees that, except with the prior written consent of Nayna, or as
required under the Colorado Law, it will not voluntarily make any payment with
respect to, or settle or offer to settle, any such purchase demand. Each holder
of Dissenting Shares ("Dissenting Shareholder") who, pursuant to the provisions
of Colorado Law, becomes entitled to payment of the fair value for shares of
SSDI Capital Stock shall receive payment therefore (but only after the value
therefore shall have been agreed upon or finally determined pursuant to such
provisions). If, after the Effective Time, any Dissenting Shares shall lose
their status as Dissenting Shares, Nayna shall issue and deliver, upon surrender
by such shareholder of a certificate or certificates representing shares of SSDI
Capital Stock, the portion of the Merger Consideration to which such shareholder
would otherwise be entitled under this Section y2.6 and the Agreement of Merger.
(g) Certificate Legends. The shares of Nayna Common Stock to be
issued pursuant to this Section y2.6 shall not have been registered and shall be
characterized as "restricted securities" under the federal securities laws, and
under such laws such shares may be resold without registration under the
Securities Act of 1933, as amended (the "Securities Act"), only in certain
limited circumstances. Each certificate evidencing shares of Nayna Common Stock
to be issued pursuant to this Section y2.6 shall bear the following legend:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR
INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933. SUCH SHARES MAY NOT BE SOLD OR OTHERWISE TRANSFERRED IN THE
ABSENCE OF SUCH REGISTRATION WITHOUT AN EXEMPTION UNDER THE SECURITIES
ACT OR AN OPINION OF LEGAL COUNSEL REASONABLY ACCEPTABLE TO THE COMPANY
THAT SUCH REGISTRATION IS NOT REQUIRED."
and any legends required by state securities laws.
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2.7 Surrender of Certificates.
(a) Exchange Agent. Interwest Transfer Co., Inc. or such other
institution selected by Nayna with the reasonable consent of SSDI shall act as
exchange agent (the "Exchange Agent") in the Merger.
(b) Nayna to Provide Common Stock and Cash. Promptly after the
Effective Time, Nayna shall supply or cause to be supplied to the Exchange Agent
for exchange in accordance with this Section y2 through such reasonable
procedures as Nayna may adopt (i) certificates evidencing the shares of Nayna
Common Stock issuable pursuant to Section y2.6(a) in exchange for shares of SSDI
Capital Stock outstanding immediately prior to the Effective Time; and (ii) cash
in an amount sufficient to permit payment of cash in lieu of fractional shares
pursuant to Section y2.6(a) (collectively, (i) and (ii) shall be referred to as
the "Exchange Fund").
(c) Exchange Procedures. Promptly after the Effective Time, the
Surviving Corporation shall cause to be mailed to each holder of record of a
certificate or certificates (the "Certificates") that immediately prior to the
Effective Time represented outstanding shares of SSDI Common Stock, whose shares
were converted into the right to receive shares of Nayna Common Stock (and cash
in lieu of fractional shares) pursuant to Section y2.6, (i) a letter of
transmittal (which shall specify that delivery shall be effected, and risk of
loss and title to the Certificates shall pass, only upon receipt of the
Certificates by the Exchange Agent, and shall be in such form and have such
other provisions as Nayna may reasonably specify); (ii) such other customary
documents as may be required pursuant to such instructions; and (iii)
instructions for use in effecting the surrender of the Certificates in exchange
for certificates representing shares of Nayna Common Stock (and cash in lieu of
fractional shares). Upon surrender of a Certificate for cancellation to the
Exchange Agent or to such other agent or agents as may be appointed by Nayna,
together with such letter of transmittal and other documents, duly completed and
validly executed in accordance with the instructions thereto, the holder of such
Certificate shall be entitled to receive in exchange therefore (i) the number of
whole shares of Nayna Common Stock; (ii) any dividends or other distributions to
which such holder is entitled pursuant to Section y2.7(d); and (iii) cash
(without interest) in respect of fractional shares as provided in Section
y2.6(e), and the Certificate so surrendered shall forthwith be canceled. Until
so surrendered, each outstanding Certificate that prior to the Effective Time
represented shares of SSDI Common Stock will be deemed from and after the
Effective Time, for all corporate purposes other than the payment of dividends,
to evidence the ownership of the number of full shares of Nayna Common Stock
into which such shares of SSDI Common Stock shall have been so converted and the
right to receive an amount in cash in lieu of the issuance of any fractional
shares in accordance with Section y2.6.
(d) Distributions With Respect to Unexchanged Shares. No
dividends or other distributions with respect to Nayna Common Stock with a
record date after the Effective Time will be paid to the holder of any
unsurrendered Certificate with respect to the shares of Nayna Common Stock
represented thereby until the holder of record of such Certificate shall
surrender such Certificate. Subject to applicable law, following surrender of
any such Certificate, there shall be paid to the record holder of the
certificates representing whole shares of Nayna Common Stock issued in exchange
therefor, without interest at the time of such surrender, the amount of any such
dividends or other distributions with a record date after the Effective Time
theretofore payable (but for the provisions of this Section y2.7(d)) with
respect to such shares of Nayna Common Stock.
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(e) Transfers of Ownership. At the Effective Time, the stock
transfer books of SSDI shall be closed, and there shall be no further
registration of transfers of SSDI Common Stock thereafter on the records of
SSDI. If any certificate for shares of Nayna Common Stock is to be issued in a
name other than that in which the Certificate surrendered in exchange therefor
is registered, it will be a condition of the issuance thereof that the
Certificate so surrendered will be properly endorsed and otherwise in proper
form for transfer and that the person requesting such exchange will have paid to
Nayna or any agent designated by it any transfer or other taxes required by
reason of the issuance of a certificate for shares of Nayna Common Stock in any
name other than that of the registered holder of the Certificate surrendered, or
established to the satisfaction of Nayna or any agent designated by it that such
tax has been paid or is not payable.
(f) Termination of Exchange Fund. Any portion of the Exchange
Fund which remains undistributed to the shareholders of SSDI one year after the
Effective Time shall be delivered to Nayna, upon demand, and any shareholders of
SSDI who have not previously complied with this Section y2.7 shall thereafter
look only to Nayna for payment of their claim for the Merger Consideration and
any dividends or distributions with respect to Nayna Common Stock.
(g) No Liability. Notwithstanding anything to the contrary in
this Section y2.7, none of the Exchange Agent, the Surviving Corporation or any
party hereto shall be liable to any person for any amount properly paid to a
public official pursuant to any applicable abandoned property, escheat or
similar law.
(h) Dissenting Shares. The provisions of this Section y2.7 shall
also apply to Dissenting Shares that lose their status as such, except that the
obligations of Nayna under this Section y2.7 shall commence on the date of loss
of such status and the holder of such shares shall be entitled to receive in
exchange for such shares the Merger Consideration to which such holder is
entitled pursuant to Section y2.6 hereof.
2.8 No Further Ownership Rights in SSDI Capital Stock. The Merger
Consideration delivered upon the surrender for exchange of shares of SSDI
Capital Stock in accordance with the terms hereof (including any dividends,
distributions or cash paid in lieu of fractional shares) shall be deemed to have
been issued in full satisfaction of all rights pertaining to such shares of SSDI
Capital Stock, and there shall be no further registration of transfers on the
records of the Surviving Corporation of shares of SSDI 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 Section y2.
2.9 Lost, Stolen or Destroyed Certificates. In the event any
Certificates shall have been lost, stolen or destroyed, the Exchange Agent shall
issue in exchange for such lost, stolen or destroyed Certificates, upon the
making of an affidavit of that fact by the holder thereof such Merger
Consideration (and dividends, distributions and cash in lieu of fractional
shares) as may be required pursuant to Section y2.6; provided, however, that
Nayna may, in its discretion and as a condition precedent to the issuance
thereof, require the owner of such lost, stolen or destroyed Certificates to
deliver a bond in such sum as it may reasonably direct as indemnity against any
claim that may be made against Nayna, the Surviving Corporation or the Exchange
Agent with respect to the Certificates alleged to have been lost, stolen or
destroyed.
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2.10 Tax Consequences. It is intended by the parties hereto that the
Merger shall constitute a reorganization within the meaning of Section 368(a) of
the Code.
2.11 Taking of Necessary Action; Further Action. Each of Nayna,
Merger Sub and SSDI will take all such reasonable and lawful action as may be
necessary or desirable in order to effectuate the Merger in accordance with this
Agreement as promptly as possible. If, at any time after the Effective Time, any
further action is necessary or desirable to carry out the purposes of this
Agreement and to vest the Surviving Corporation with full right, title and
possession to all assets, property, rights, privileges, powers and franchises of
SSDI and Merger Sub, the officers and directors of SSDI 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, so long as such action is
not inconsistent with this Agreement.
3. Representations and Warranties of SSDI. SSDI represents and warrants to
Nayna and Merger Sub that the statements contained in this Section y3 are true
and correct, except as disclosed in a document of even date herewith and
delivered by SSDI to Nayna on the date hereof referring to the representations
and warranties in this Agreement (the "SSDI Disclosure Schedule"). The SSDI
Disclosure Schedule will be arranged in paragraphs corresponding to the numbered
and lettered paragraphs contained in this Section y3, and the disclosure in any
such numbered and lettered section of the SSDI Disclosure Schedule shall qualify
only the corresponding subsection in this Section y3 (except to the extent
disclosure in any numbered and lettered section of the SSDI Disclosure Schedule
is specifically cross-referenced in another numbered and lettered section of the
SSDI Disclosure Schedule).
3.1 Organization, Standing and Power. SSDI is a corporation duly
organized, validly existing and in good standing under the laws of the state of
Colorado. SSDI has the corporate power to own its properties and to carry on its
business as now being conducted and as proposed to be conducted and is duly
qualified to do business and is in good standing in each jurisdiction in which
the failure to be so qualified and in good standing could reasonably be expected
to have a Material Adverse Effect (as defined in Section 10.2) on SSDI. SSDI has
delivered a true and correct copy of the Articles of Incorporation and Bylaws or
other charter documents, as applicable, of SSDI, each as amended to date, to
Nayna. SSDI is not in violation of any of the provisions of its Articles of
Incorporation or Bylaws or equivalent organizational documents. SSDI has no
Subsidiaries (as defined in Section 10.2). Except as set forth on Section y3.1
of the SSDI Disclosure Schedule, SSDI does not directly or indirectly own any
equity or similar interest in, or any interest convertible or exchangeable or
exercisable for, any equity or similar interest in, any corporation,
partnership, joint venture or other business association or entity.
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3.2 Authority. SSDI has all requisite corporate power and authority
to enter into this Agreement and to consummate the transactions contemplated
hereby. The execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly authorized by all necessary
corporate action on the part of SSDI subject only to the approval of the Merger
by SSDI's shareholders as contemplated by Section y7.1(a). The affirmative vote
of the holders of a majority of the shares of SSDI's Common Stock outstanding on
the record date for the Written Consent of Shareholders relating to this
Agreement is the only vote of the holders of any of SSDI's Capital Stock
necessary under Colorado Law to approve this Agreement and the transactions
contemplated hereby. The Board of Directors of SSDI has unanimously (a) approved
this Agreement and the Merger; (b) determined that in its opinion the Merger is
in the best interests of the shareholders of SSDI and is on terms that are fair
to such shareholders; and (c) recommended that the shareholders of SSDI approve
this Agreement and the Merger. This Agreement has been duly executed and
delivered by SSDI and constitutes the valid and binding obligation of SSDI
enforceable against SSDI in accordance with its terms, except that such
enforceability may be limited by bankruptcy, insolvency, moratorium or other
similar laws affecting or relating to creditors' rights generally, and is
subject to general principles of equity. Except as set forth on Schedule 3.2,
the execution and delivery of this Agreement by SSDI does not, and the
consummation of the transactions contemplated hereby 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 or
acceleration of any material obligation or loss of any material benefit under
(a) any provision of the Articles of Incorporation or Bylaws of SSDI, as
amended; or (b) any mortgage, indenture, lease, contract or other agreement or
instrument, permit, concession, franchise, license, judgment, order, decree,
statute, law, ordinance, rule or regulation applicable to SSDI or any of their
properties or assets, in the case of clause (b), except for such conflicts,
violations, defaults, rights of termination, cancellation or acceleration as
could not individually or in the aggregate, reasonably be expected to have a
Material Adverse Effect on SSDI. No consent, approval, order or authorization
of, or registration, declaration or filing with, any court, administrative
agency or commission or other governmental authority or instrumentality
("Governmental Entity") is required by or with respect to SSDI in connection
with the execution and delivery of this Agreement or the consummation of the
transactions contemplated hereby, except for (a) the filing of the Agreement of
Merger, together with the required officers' certificates, and the filing of the
Articles of Merger, each as provided in Section y2.2; (b) filings required under
Regulation D of the Securities Act of 1933; (c) such consents, approvals,
orders, authorizations, registrations, declarations and filings as may be
required under applicable state securities laws; (d) such filings as may be
required under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended ("HSR"); and (e) such other consents, authorizations, filings, approvals
and registrations which, if not obtained or made, could not be reasonably
expected to have a Material Adverse Effect on SSDI and could not reasonably be
expected to prevent, or materially alter or delay, any of the transactions
contemplated by this Agreement.
3.3 Governmental Authorization. SSDI has obtained each federal,
state, county, local or foreign governmental consent, license, permit, grant, or
other authorization of a Governmental Entity (a) pursuant to which SSDI
currently operates or holds any interest in any of its properties; or (b) that
is required for the operation of SSDI's business or the holding of any such
interest and all of such authorizations are in full force and effect except
where the failure to obtain or have any such authorizations could not reasonably
be expected to have a Material Adverse Effect on SSDI.
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3.4 Financial Statements.
(a) SSDI will deliver to Nayna prior to Closing its audited
financial statements for each of the fiscal years ended December 31, 2003 and
2004 and its unaudited financial statements for the four month period ended
April 30, 2005 (collectively, the "SSDI Financial Statements"). The SSDI
Financial Statements have been prepared in accordance with generally accepted
accounting principles (except that the unaudited financial statements do not
contain footnotes and are subject to normal recurring year-end audit
adjustments, the effect of which will not, individually or in the aggregate, be
materially adverse) applied on a consistent basis throughout the periods
presented and consistent with each other. The SSDI Financial Statements fairly
present the consolidated financial condition, operating results and cash flow of
SSDI as of the dates, and for the periods, indicated therein, subject to normal
year-end audit adjustments and the absence of footnotes in the case of the
unaudited SSDI Financial Statements.
(b) SSDI maintains and will continue to maintain a system of
internal accounting controls sufficient to provide reasonable assurance that (i)
transactions are executed with management's general or specific authorizations;
(ii) transactions are recorded as necessary to permit preparation of financial
statements of SSDI and to maintain accountability for assets; (iii) access to
SSDI's assets is permitted only in accordance with management's authorization;
and (iv) the recorded accountability for assets is compared with existing assets
at reasonable intervals and appropriate action is taken with respect to any
differences. SSDI is not party to or otherwise involved in any "off-balance
sheet arrangements" (as defined in Item 303 of Regulation S-K under the
Securities Exchange Act of 1934, as amended (the "Exchange Act").
3.5 Capital Structure. The authorized capital stock of SSDI consists
of 50,000 shares of SSDI Common Stock, of which there were issued and
outstanding as of the close of business on December 31, 2004, 5,000 shares. No
SSDI preferred stock is authorized nor issued. All outstanding shares of SSDI
Common Stock are duly authorized, validly issued, fully paid and non-assessable
and are free of any liens or encumbrances other than any liens or encumbrances
created by or imposed upon the holders thereof, and are not subject to rights of
first refusal created by statute, the Articles of Incorporation or Bylaws of
SSDI or any agreement to which SSDI is a party or by which it is bound. There
are no options, warrants, calls, rights, commitments or agreements of any
character to which SSDI is a party or by which it is bound, obligating SSDI to
issue, deliver, sell, repurchase or redeem or cause to be issued, delivered,
sold, repurchased or redeemed, any shares of SSDI Capital Stock or obligating
SSDI to grant, extend, accelerate the vesting of, change the price of, or
otherwise amend or enter into any such option, warrant, call, right, commitment
or agreement. Except as set forth on Schedule 3.5, there are no other contracts,
commitments or agreements relating to voting, purchase or sale of SSDI Capital
Stock (a) between or among SSDI and any of its shareholders; and (b) to SSDI's
knowledge, between or among any of SSDI's shareholders, except for the
shareholders delivering the Shareholder Agreements. All shares of outstanding
SSDI Common Stock and rights to acquire SSDI Common Stock were issued in
compliance with all applicable federal and state securities laws.
12
3.6 Absence of Certain Changes. Since December 31, 2004 (the "SSDI
Balance Sheet Date"), SSDI has conducted its business in the ordinary course
consistent with past practice and there has not occurred (a) any change, event
or condition (whether or not covered by insurance) that has resulted in, or
could reasonably be expected to result in, a Material Adverse Effect on SSDI;
(b) any acquisition, sale or transfer of any material asset of SSDI other than
in the ordinary course of business and consistent with past practice; (c) any
change in accounting methods or practices (including any change in depreciation
or amortization policies or rates) by SSDI or any revaluation by SSDI of any of
its assets; (d) any declaration, setting aside, or payment of a dividend or
other distribution with respect to the shares of SSDI or any direct or indirect
redemption, purchase or other acquisition by SSDI of any of its shares of
capital stock; (e) any Material Contract entered into by SSDI, other than in the
ordinary course of business and as provided to Nayna, or any material amendment
or termination of, or default under, any Material Contract (as defined in
Section 3.14) to which SSDI is a party or by which it is bound; (f) any
amendment or change to the Articles of Incorporation or Bylaws of SSDI; (g) any
increase in or modification of the compensation or benefits payable or to become
payable by SSDI to any of its directors or employees; or (h) any negotiation or
agreement by SSDI to do any of the things described in the preceding clauses (a)
through (g) (other than negotiations with Nayna and its representatives
regarding the transactions contemplated by this Agreement). At the Effective
Time, there will be no accrued but unpaid dividends on shares of SSDI's capital
stock.
3.7 Absence of Undisclosed Liabilities. SSDI has no material
obligations or liabilities of any nature (matured or unmatured, fixed or
contingent) other than (a) those set forth or adequately provided for in the
balance sheet of SSDI as of the SSDI Balance Sheet Date (the "SSDI Balance
Sheet"); (b) those incurred in the ordinary course of business and not required
to be set forth in the SSDI Balance Sheet under generally accepted accounting
principles; (c) those incurred in the ordinary course of business since the SSDI
Balance Sheet Date and consistent with past practice; and (d) those incurred in
connection with the execution of this Agreement.
3.8 Litigation. There is no private or governmental action, suit,
proceeding, claim, arbitration or investigation pending before any Governmental
Entity, foreign or domestic, or, to the knowledge of SSDI, threatened against
SSDI or any of its properties or any of its officers or directors (in their
capacities as such) that, individually or in the aggregate, could reasonably be
expected to have a Material Adverse Effect on SSDI. There is no judgment, decree
or order against SSDI, or, to the knowledge of SSDI, any of its respective
directors or officers (in their capacities as such), that could prevent, enjoin,
or materially alter or delay any of the transactions contemplated by this
Agreement, or that could reasonably be expected to have a Material Adverse
Effect on SSDI. All litigation to which SSDI is a party (or, to the knowledge of
SSDI, threatened to become a party) is described in Section y3.8 of the SSDI
Disclosure Schedule.
3.9 Restrictions on Business Activities. There is no agreement,
judgment, injunction, order or decree binding upon SSDI that has or could
reasonably be expected to have the effect of prohibiting or materially impairing
any current or future business practice of SSDI, any acquisition of property by
SSDI or the conduct of business by SSDI as currently conducted or as proposed to
be conducted by SSDI.
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3.10 Intellectual Property.
(a) For purposes of this Agreement, "Intellectual Property"
means:
(i) all issued patents, reissued or reexamined patents,
revivals of patents, utility models, certificates of invention, registrations of
patents and extensions thereof, regardless of country or formal name
(collectively, "Issued Patents");
(ii) all published or unpublished nonprovisional and
provisional patent applications, reexamination proceedings, invention
disclosures and records of invention (collectively "Patent Applications" and,
with the Issued Patents, the "Patents");
(iii) all copyrights, copyrightable works, semiconductor
topography and mask work rights, including all rights of authorship, use,
publication, reproduction, distribution, performance transformation, moral
rights and rights of ownership of copyrightable works, semiconductor topography
works and mask works, and all rights to register and obtain renewals and
extensions of registrations, together with all other interests accruing by
reason of international copyright, semiconductor topography and mask work
conventions (collectively, "Copyrights");
(iv) trademarks, registered trademarks, applications for
registration of trademarks, service marks, registered service marks,
applications for registration of service marks, trade names, registered trade
names and applications for registrations of trade names (collectively,
"Trademarks") and domain name registrations;
(v) all technology, ideas, inventions, designs, proprietary
information, manufacturing and operating specifications, know-how, formulae,
trade secrets, technical data, computer programs, hardware, software and
processes; and (vi) all other intangible assets, properties and rights (whether
or not appropriate steps have been taken to protect, under applicable law, such
other intangible assets, properties or rights).
(b) SSDI owns and has good and marketable title to, or possesses
legally enforceable rights to use, all Intellectual Property used or currently
proposed to be used in the business of SSDI as currently conducted or as
proposed to be conducted by SSDI. The Intellectual Property owned by and
licensed to SSDI collectively constitutes all of the Intellectual Property
necessary to enable SSDI to conduct its business as such business is currently
being conducted. No current or former officer, director, stockholder, employee,
consultant or independent contractor has any right, claim or interest in or with
respect to any SSDI Intellectual Property (as defined in Section 3.10(c) below).
(c) With respect to each item of Intellectual Property
incorporated into any product of SSDI or otherwise used in the business of SSDI
(except "off the shelf" or other software widely available through regular
commercial distribution channels at a cost not exceeding $10,000 on standard
terms and conditions, as modified for SSDI's operations) ("SSDI Intellectual
Property"), Section y3.10 of the SSDI Disclosure Schedule lists:
14
(i) all Issued Patents and Patent Applications, all
registered Trademarks, and pending trademark registrations and all registered
Copyrights, including the jurisdictions in which each such Intellectual Property
has been issued or registered or in which any such application for such issuance
and registration has been filed; and
(ii) the following agreements relating to each of the
products of SSDI (the "SSDI Products") or other SSDI Intellectual Property: all
(A) agreements granting any right to distribute or sublicense a SSDI Product on
any exclusive basis; (B) any exclusive licenses of Intellectual Property to or
from SSDI; (C) agreements pursuant to which the amounts actually paid or payable
under firm commitments to SSDI are $10,000 or more; (D) joint development
agreements; (E) any agreement by which SSDI grants any ownership right to any
SSDI Intellectual Property owned by SSDI; (F) any order relating to Intellectual
Property; (G) any option relating to any SSDI Intellectual Property; and (H)
agreements pursuant to which any party is granted any rights to access source
code or to use source code to create derivative works of SSDI Products.
(d) Section y3.10 of the SSDI Disclosure Schedule contains an
accurate list as of the date of this Agreement of all licenses, sublicenses and
other agreements to which SSDI is a party and pursuant to which SSDI is
authorized to use any Intellectual Property owned by any third party, excluding
"off the shelf" or other software widely available through regular commercial
distribution channels at a cost not exceeding $10,000 on standard terms and
conditions ("Third Party Intellectual Property").
(e) There is no unauthorized use, disclosure, infringement or
misappropriation of any SSDI Intellectual Property, including any Third Party
Intellectual Property, by any third party, including any employee or former
employee of SSDI. SSDI has not entered into any agreement to indemnify any other
person against any charge of infringement of any Intellectual Property, other
than indemnification provisions contained in standard sales or agreements to end
users arising in the ordinary course of business, the forms of which have been
delivered to Nayna or its counsel. There are no royalties, fees or other
payments payable by SSDI to any Person by reason of the ownership, use, sale or
disposition of Intellectual Property.
(f) SSDI is not in breach of any license, sublicense or other
agreement relating to the SSDI Intellectual Property or Third Party Intellectual
Property. Neither the execution, delivery or performance of this Agreement or
any ancillary agreement contemplated hereby nor the consummation of the Merger
or any of the transactions contemplated by this Agreement will contravene,
conflict with or result in any limitation on Nayna's right to own or use any
SSDI Intellectual Property, including any Third Party Intellectual Property.
(g) All Patents, registered Trademarks and registered Copyrights
held by SSDI are valid and subsisting. All maintenance and annual fees have been
fully paid and all fees paid during prosecution and after issuance of any Patent
comprising or relating to such item have been paid in the correct entity status
amounts. SSDI is not infringing, misappropriating or making unlawful use of, or
received any notice or other communication (in writing or otherwise) of any
actual, alleged, possible or potential infringement, misappropriation or
unlawful use of any proprietary asset owned or used by any third party. There is
no proceeding pending or threatened, nor has any claim or demand been made that
challenges the legality, validity, enforceability or ownership of any item of
SSDI Intellectual Property or Third Party Intellectual Property or alleges a
claim of infringement of any Patents, Copyrights or Trademarks, or violation of
any trade secret or other proprietary right of any third party. SSDI has not
brought a proceeding alleging infringement of SSDI Intellectual Property or
breach of any license or agreement involving Intellectual Property against any
third party.
15
(h) When appropriate current and former officers and employees of
SSDI have executed and delivered to SSDI an agreement (containing no exceptions
or exclusions from the scope of its coverage) regarding the protection of
proprietary information and the assignment to SSDI of any Intellectual Property
arising from services performed for SSDI by such persons. When appropriate
current and former consultants and independent contractors to SSDI involved in
the development, modification, marketing and servicing of any SSDI Products or
SSDI Intellectual Property have executed and delivered to SSDI an agreement
(containing no exceptions or exclusions from the scope of its coverage)
regarding the protection of proprietary information and the assignment to SSDI
of any Intellectual Property arising from services performed for SSDI by such
persons. No employee or independent contractor of SSDI is in violation of any
term of any patent disclosure agreement or employment contract or any other
contract or agreement relating to the relationship of any such employee or
independent contractor with SSDI. No current or former officer, director,
stockholder, employee, consultant or independent contractor has any right, claim
or interest in or with respect to any SSDI Intellectual Property.
(i) SSDI has taken all commercially reasonable and customary
measures and precautions necessary to protect and maintain the confidentiality
of all SSDI Intellectual Property (except such SSDI Intellectual Property whose
value would be unimpaired by public disclosure) and otherwise to maintain and
protect the full value of all SSDI Intellectual Property. All use, disclosure or
appropriation of Intellectual Property not otherwise protected by patents,
patent applications or copyright ("Confidential Information") owned by SSDI by
or to a third party has been pursuant to the terms of a written agreement
between SSDI and such third party. All use, disclosure or appropriation of
Confidential Information not owned by SSDI has been pursuant to the terms of a
written agreement between SSDI and the owner of such Confidential Information,
or is otherwise lawful.
(j) No product liability claims have been communicated in writing
to or, to SSDI's knowledge, threatened against SSDI.
(k) A complete list of each of the SSDI Products and SSDI's
proprietary software ("SSDI Software"), together with a brief description of
each, is set forth in Section y3.10 of the SSDI Disclosure Schedule. The SSDI
Software and SSDI Products conform in all material respects with any
specification, documentation, performance standard, representation or statement
provided with respect thereto by or on behalf of SSDI.
(l) SSDI is not subject to any proceeding or outstanding decree,
order, judgment or stipulation restricting in any manner the use, transfer or
licensing of any SSDI Intellectual Property by SSDI, or which may affect the
validity, use or enforceability of such SSDI Intellectual Property. SSDI is not
subject to any agreement that restricts in any material respect the use,
transfer, delivery or licensing by SSDI of the SSDI Intellectual Property or
SSDI Products.
16
(m) No Public Software (as defined below) forms part of the any
SSDI Product, services provided by SSDI ("SSDI Service") or SSDI Intellectual
Property, and no Public Software was or is used in connection with the
development of any SSDI Product, SSDI Service or SSDI Intellectual Property or
is incorporated into, in whole or in part, or has been distributed with, in
whole or in part, any SSDI Product, SSDI Service or SSDI Intellectual Property.
As used in this Section y3.10y(m), "Public Software" means any software that
contains, or is derived in any manner (in whole or in part) from, any software
that is distributed as free software (as defined by the Free Software
Foundation), open source software (e.g., Linux or software distributed under any
license approved by the Open Source Initiative as set forth www.opensource.org)
or similar licensing or distribution models which requires the distribution of
source code to licensees, including software licensed or distributed under any
of the following licenses or distribution models, or licenses or distribution
models similar to any of the following: (i) GNU's General Public License (GPL)
or Lesser/Library GPL (LGPL); (ii) the Artistic License (e.g., PERL); (iii) the
Mozilla Public License; (iv) the Netscape Public License; (v) the Sun Community
Source License (SCSL); (vi) the Sun Industry Standards License (SISL); (vii) the
BSD License; or (viii) the Apache License.
3.11 Interested Party Transactions. SSDI is not indebted to any
director, officer, employee or agent of SSDI (except for amounts due as normal
salaries and bonuses and in reimbursement of ordinary expenses), and, except as
set forth on Schedule 3.11, no such person is indebted to SSDI. There have been
no transactions during the two-year period ending on the date hereof that would
require disclosure if SSDI were subject to disclosure under Item 404 of
Regulation S-K under the Securities Act.
3.12 Minute Book. Nayna and Merger Sub have been provided copies of
the minute book of SSDI, which contains a record of each meeting and consent of
the Board of directors and the shareholders from the time of incorporation of
SSDI through the date of this agreement. The descriptions of all transactions
referred to in such records are accurate in all material respects.
3.13 Complete Copies of Materials. SSDI has delivered or made
available true and complete copies of each document that has been requested by
Nayna or its counsel in connection with their due diligence review of SSDI.
3.14 Material Contracts. All of SSDI's Material Contracts (as defined
in this Section 3.14 below) are listed in Section y3.14 of the SSDI Disclosure
Schedule. With respect to each Material Contract: (a) the Material Contract is
legal, valid, binding and enforceable and in full force and effect with respect
to SSDI, and, to SSDI's knowledge, is legal, valid, binding, enforceable and in
full force and effect with respect to each other party thereto, in either case
subject to the effect of bankruptcy, insolvency, moratorium or other similar
laws affecting the enforcement of creditors' rights generally and except as the
availability of equitable remedies may be limited by general principles of
equity; (b) the Material Contract will continue to be legal, valid, binding and
enforceable and in full force and effect immediately following the Effective
Time in accordance with its terms as in effect prior to the Effective Time,
subject to the effect of bankruptcy, insolvency, moratorium or other similar
17
laws affecting the enforcement of creditors' rights generally and except as the
availability of equitable remedies may be limited by general principles of
equity; and (c) neither SSDI nor, to SSDI's knowledge, any other party is in
breach or default, and no event has occurred that with notice or lapse of time
would constitute a breach or default by SSDI or, to SSDI's knowledge, by any
such other party, or permit termination, modification or acceleration, under
such Material Contract. "Material Contract" means any written or oral contract,
agreement or commitment to which SSDI is a party (a) with expected receipts or
expenditures in excess of $10,000; (b) required to be listed pursuant to Section
y3.10(c)(ii) or Section y3.10(d); (c) requiring SSDI to indemnify any Person;
(d) granting any exclusive rights to any party; (e) evidencing indebtedness for
borrowed or loaned money of $10,000 or more, including guarantees of such
indebtedness; or (f) that could reasonably be expected to have a Material
Adverse Effect on SSDI if breached by SSDI in such a manner as would (I) permit
any other party to cancel or terminate the same (with or without notice of
passage of time); (II) provide a basis for any other party to claim money
damages (either individually or in the aggregate with all other such claims
under that contract) from SSDI; or (III) give rise to a right of acceleration of
any material obligation or loss of any material benefit under such Material
Contract.
3.15 Inventory. The inventories shown on the SSDI Balance Sheet or
thereafter acquired by SSDI, were acquired and maintained in the ordinary course
of business, are of good and merchantable quality, and consist of items of a
quantity and quality usable or salable in the ordinary course of business. Since
the SSDI Balance Sheet Date, SSDI has continued to replenish inventories in a
normal and customary manner consistent with past practices. SSDI has not
received notice that it will experience in the foreseeable future any difficulty
in obtaining, in the desired quantity and quality and at a reasonable price and
upon reasonable terms and conditions, the raw materials, supplies or component
products required for the manufacture, assembly or production of its products.
The values at which inventories are carried reflect the inventory valuation
policy of SSDI, which is consistent with its past practice and in accordance
with generally accepted accounting principles applied on a consistent basis.
SSDI is not under any liability or obligation with respect to the return of any
item of inventory in the possession of wholesalers, retailers or other
customers. Since the SSDI Balance Sheet Date, adequate provision has been made
on the books of SSDI in the ordinary course of business consistent with past
practices to provide for all slow-moving, obsolete or unusable inventories to
their estimated useful or scrap values, and such inventory reserves are adequate
to provide for such slow-moving, obsolete or unusable inventory and inventory
shrinkage.
3.16 Accounts Receivable. Subject to any reserves set forth therein,
the accounts receivable shown on the SSDI Financial Statements are valid and
genuine, have arisen solely out of bona fide sales and deliveries of goods,
performance of services, and other business transactions in the ordinary course
of business consistent with past practices in each case with persons other than
affiliates, are not subject to any prior assignment, lien or security interest,
and are not subject to valid defenses, set-offs or counter claims. The accounts
receivable are collectible in accordance with their terms at their recorded
amounts, subject only to the reserve for doubtful accounts on the SSDI Financial
Statements.
3.17 Customers and Suppliers. As of the date hereof, no customer and
no supplier of SSDI has canceled or otherwise terminated, or made any written
threat to SSDI to cancel or otherwise terminate its relationship with SSDI or
has at any time on or after the SSDI Balance Sheet Date, decreased materially
its services or supplies to SSDI in the case of any such supplier, or its usage
of the services or products of SSDI in the case of such customer, and to SSDI's
knowledge no such supplier or customer has indicated either orally or in writing
that it intends to cancel or otherwise terminate its relationship with SSDI or
to decrease materially its services or supplies to SSDI or its usage of the
services or products of SSDI, as the case may be. SSDI has not knowingly
breached, so as to provide a benefit to SSDI that was not intended by the
parties, any agreement with, or engaged in any fraudulent conduct with respect
to, any customer or supplier of SSDI.
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3.18 Employees and Consultants. Section y3.18 of the SSDI Disclosure
Schedule or a letter delivered to Nayna by SSDI contains a list of the names of
all employees (including without limitation part-time employees and temporary
employees), leased employees, independent contractors and consultants of SSDI,
together with their respective salaries or wages, other compensation, dates of
employment and positions.
3.19 Title to Property. SSDI has good and marketable title to all of
its properties, interests in properties and assets, real and personal, reflected
in the SSDI Balance Sheet or acquired after the SSDI Balance Sheet Date (except
properties, interests in properties and assets sold or otherwise disposed of
since the SSDI Balance Sheet Date in the ordinary course of business), or with
respect to leased properties and assets, valid leasehold interests therein, free
and clear of all mortgages, liens, pledges, charges or encumbrances of any kind
or character, except (a) the lien of current taxes not yet due and payable; (b)
such imperfections of title, liens and easements as do not and will not
materially detract from or interfere with the use of the properties subject
thereto or affected thereby, or otherwise materially impair business operations
involving such properties; (c) liens securing debt that is reflected on the SSDI
Balance Sheet; and (d) such other mortgages, liens, pledges, charges or
encumbrances as could not, individually or in the aggregate, reasonably be
expected to have a Material Adverse Effect on SSDI. The plants, property and
equipment of SSDI that are used in the operations of SSDI's business are in all
material respects in good operating condition and repair, subject to normal wear
and tear. All properties used in the operations of SSDI are reflected in the
SSDI Balance Sheet to the extent required by generally accepted accounting
principles. All leases to which SSDI is a party are in full force and effect and
are valid, binding and enforceable in accordance with their respective terms,
except as such enforceability may be limited by bankruptcy, insolvency,
moratorium or other similar laws affecting or relating to creditors' rights
generally; and general principles of equity, regardless of whether asserted in a
proceeding in equity or at law. True and correct copies of all such leases have
been provided to Nayna. SSDI owns no real property.
3.20 Environmental Matters.
(a) The following terms shall be defined as follows:
(i) "Environmental Laws" shall mean any applicable foreign,
federal, state or local governmental laws (including common laws), statutes,
ordinances, codes, regulations, rules, policies, permits, licenses,
certificates, approvals, judgments, decrees, orders, directives, or requirements
that pertain to the protection of the environment, protection of public health
and safety, or protection of worker health and safety, or that pertain to the
handling, use, manufacturing, processing, storage, treatment, transportation,
discharge, release, emission, disposal, re-use, recycling, or other contact or
involvement with Hazardous Materials (as defined in Section 3.20(ii)),
including, without limitation, the federal Comprehensive Environmental Response,
Compensation and Liability Act of 1980, 42 U.S.C. Section 9601, et seq., as
amended ("CERCLA"), and the federal Resource Conservation and Recovery Act, 42
U.S.C. Section 6901, et seq., as amended ("RCRA").
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(ii) "Hazardous Materials" shall mean any material, chemical,
compound, substance, mixture or by-product that is identified, defined,
designated, listed, restricted or otherwise regulated under Environmental Laws
as a "hazardous constituent," "hazardous substance," "hazardous material,"
"acutely hazardous material," "extremely hazardous material," "hazardous waste,"
"hazardous waste constituent," "acutely hazardous waste," "extremely hazardous
waste," "infectious waste," "medical waste," "biomedical waste," "pollutant,"
"toxic pollutant," "contaminant" or any other formulation or terminology
intended to classify or identify substances, constituents, materials or wastes
by reason of properties that are deleterious to the environment, natural
resources, worker health and safety, or public health and safety, including
without limitation ignitability, corrosivity, reactivity, carcinogenicity,
toxicity and reproductive toxicity. The term "Hazardous Materials" shall include
without limitation any "hazardous substances" as defined, listed, designated or
regulated under CERCLA, any "hazardous wastes" or "solid wastes" as defined,
listed, designated or regulated under RCRA, any asbestos or asbestos-containing
materials, any polychlorinated biphenyls, and any petroleum or hydrocarbonic
substance, fraction, distillate or by-product.
(b) SSDI is and has been in compliance with all Environmental
Laws relating to the properties or facilities used, leased or occupied by SSDI
at any time (collectively, "SSDI's Facilities;" such properties or facilities
currently used, leased or occupied by SSDI are defined herein as "SSDI's Current
Facilities"), and no discharge, emission, release, leak or spill of Hazardous
Materials has occurred at any of SSDI's Facilities that may or will give rise to
liability of SSDI under Environmental Laws. To SSDI's knowledge, there are no
Hazardous Materials (including without limitation asbestos) present in the
surface waters, structures, groundwaters or soils of or beneath any of SSDI's
Current Facilities. To SSDI's knowledge, there neither are nor have been any
aboveground or underground storage tanks for Hazardous Materials at SSDI's
Current Facilities. To SSDI's knowledge, no SSDI employee or other person has
claimed that SSDI is liable for alleged injury or illness resulting from an
alleged exposure to a Hazardous Material. No civil, criminal or administrative
action, proceeding or investigation is pending against SSDI, or, to SSDI's
knowledge, threatened against SSDI, with respect to Hazardous Materials or
Environmental Laws; and SSDI is not aware of any facts or circumstances that
could form the basis for assertion of a claim against SSDI or that could form
the basis for liability of SSDI, regarding Hazardous Materials or regarding
actual or potential noncompliance with Environmental Laws.
3.21 Taxes.
(a) As used in this Agreement, the terms "Tax" and, collectively,
"Taxes" mean any and all federal, state and local taxes of any country,
assessments and other governmental charges, duties, impositions and liabilities,
including taxes based upon or measured by gross receipts, income, profits,
sales, use and occupation, and value added, ad valorem, stamp transfer,
franchise, withholding, payroll, recapture, employment, excise and property
taxes, together with all interest, penalties and additions imposed with respect
to such amounts and any obligations under any agreements or arrangements with
any other person with respect to such amounts and including any liability for
taxes of a predecessor entity;
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(b) SSDI has prepared and timely filed all returns, estimates,
information statements and reports required to be filed by SSDI with any taxing
authority ("Returns") relating to any and all Taxes concerning or attributable
to SSDI or its operations with respect to Taxes for any period ending on or
before the Closing Date and such Returns are true and correct in all material
respects and have been completed in accordance with applicable law;
(c) SSDI, as of the Effective Time, (i) will have paid all Taxes
shown to be payable on such Returns covered by Section y3.21y(a), and (ii) will
have withheld with respect to its employees all Taxes required to be withheld;
(d) There is no Tax deficiency outstanding or assessed or, to
SSDI's knowledge, proposed against SSDI that is not reflected as a liability on
the SSDI Balance Sheet, nor has SSDI executed any agreements or waivers
extending any statute of limitations on or extending the period for the
assessment or collection of any Tax;
(e) SSDI has no liabilities for unpaid Taxes that have not been
accrued for or reserved on the SSDI Balance Sheet, whether asserted or
unasserted, contingent or otherwise and SSDI has no knowledge of any basis for
the assertion of any such liability attributable to SSDI, its assets or
operations;
(f) SSDI is not a party to any tax-sharing agreement or similar
arrangement with any other party, and SSDI has not assumed any obligation to pay
any Tax obligations of, or with respect to any transaction relating to, any
other person or agreed to indemnify any other person with respect to any Tax;
(g) SSDI's Returns have never been audited by a government or
taxing authority, nor is any such audit in process or pending, and SSDI has not
been notified of any request for such an audit or other examination;
(h) SSDI has never been a member of an affiliated group of
corporations filing a consolidated federal income tax return;
(i) SSDI has disclosed to Nayna (i) any Tax exemption, Tax
holiday or other Tax-sparing arrangement that SSDI has in any jurisdiction,
including the nature, amount and lengths of such Tax exemption, Tax holiday or
other Tax-sparing arrangement; and (ii) any expatriate tax programs or policies
affecting SSDI. SSDI is in compliance with all terms and conditions required to
maintain such Tax exemption, Tax holiday or other Tax-sparing arrangement or
order of any governmental entity and the consummation of the transactions
contemplated hereby will not have any adverse effect on the continuing validity
and effectiveness of any such Tax exemption, Tax holiday or other Tax-sparing
arrangement or order;
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(j) SSDI has made available to Nayna copies of all Returns filed
for all periods since SSDI's inception;
(k) SSDI has not filed any consent agreement under Section 341(f)
of the Code or agreed to have Section 341(f)(4) apply to any disposition of
assets owned by SSDI;
(l) SSDI has not been at any time a United States Real Property
Holding Corporation within the meaning of Section 897(c)(2) of the Code; and
(m) SSDI is not a party to any contract, agreement, plan or
arrangement, including but not limited to the provisions of this Agreement,
covering any employee or former employee of SSDI that, individually or
collectively, could give rise to the payment of any amount that would not be
deductible pursuant to Sections 280G, 464 or 162(m) of the Code by SSDI or
Merger Sub as an expense under applicable law.
3.22 Employee Benefit Plans.
(a) Section y3.22 of the SSDI Disclosure Schedule contains a
complete and accurate list of each plan, program, policy, practice, contract,
agreement or other arrangement providing for employment, compensation,
retirement, deferred compensation, loans, severance, separation, relocation,
repatriation, expatriation, visas, work permits, termination pay, performance
awards, bonus, incentive, stock option, stock purchase, stock bonus, phantom
stock, stock appreciation right, supplemental retirement, fringe benefits,
cafeteria benefits or other benefits, whether written or unwritten, including
without limitation each "employee benefit plan" within the meaning of Section
3(3) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA"), which is or has been sponsored, maintained, contributed to, or
required to be contributed to by SSDI and, with respect to any such plans which
are subject to Code Section 401(a), any trade or business (whether or not
incorporated) that is or at any relevant time was treated as a single employer
with SSDI within the meaning of Section 414(b), (c), (m) or (o) of the Code, (an
"ERISA Affiliate") for the benefit of any person who performs or who has
performed services for SSDI or with respect to which SSDI or any ERISA Affiliate
has or may have any liability (including without limitation contingent
liability) or obligation (collectively, the "SSDI Employee Plans"). SSDI has not
adopted or maintained, whether formally or informally, any SSDI Employee Plan
for the benefit of employees outside the United States.
(b) Documents. SSDI has furnished to Nayna true and complete
copies of documents embodying each of the SSDI Employee Plans and related plan
documents, including without limitation trust documents, group annuity
contracts, plan amendments, insurance policies or contracts, participant
agreements, employee booklets, administrative service agreements, summary plan
descriptions, compliance and nondiscrimination tests for the last three plan
years, standard COBRA forms and related notices, registration statements and
prospectuses and, to the extent still in its possession, any material employee
communications relating thereto. With respect to each SSDI Employee Plan that is
subject to ERISA reporting requirements, SSDI has provided copies of the Form
5500 reports filed for the last five plan years. SSDI has furnished Nayna with
the most recent Internal Revenue Service determination or opinion letter issued
with respect to each such SSDI Employee Plan, and to SSDI's knowledge nothing
has occurred since the issuance of each such letter that could reasonably be
expected to cause the loss of the tax-qualified status of any SSDI Employee Plan
subject to Code Section 401(a).
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(c) Compliance. (i) Each SSDI Employee Plan has been administered
in accordance with its terms and in compliance with the requirements prescribed
by any and all statutes, rules and regulations (including ERISA and the Code),
except as could not reasonably be expected to have, individually or in the
aggregate, a Material Adverse Effect on SSDI; and SSDI and each ERISA Affiliate
have performed all material obligations required to be performed by them under,
are not in material respect in default under or violation of and have no
knowledge of any material default or violation by any other party to, any of the
SSDI Employee Plans; (ii) any SSDI Employee Plan intended to be qualified under
Section 401(a) of the Code has either obtained from the Internal Revenue Service
a favorable determination letter as to its qualified status under the Code,
including all currently effective amendments to the Code, or has time remaining
to apply under applicable Treasury Regulations or Internal Revenue Service
pronouncements for a determination or opinion letter and to make any amendments
necessary to obtain a favorable determination or opinion letter; (iii) none of
the SSDI Employee Plans promises or provides retiree medical or other retiree
welfare benefits to any person; (iv) there has been no "prohibited transaction,"
as such term is defined in Section 406 of ERISA or Section 4975 of the Code,
with respect to any SSDI Employee Plan; (v) none of SSDI or any ERISA Affiliate
is subject to any liability or penalty under Sections 4976 through 4980 of the
Code or Title I of ERISA with respect to any SSDI Employee Plan; (vi) all
contributions required to be made by SSDI or any ERISA Affiliate to any SSDI
Employee Plan have been paid or accrued; (vii) with respect to each SSDI
Employee Plan, no "reportable event" within the meaning of Section 4043 of ERISA
(excluding any such event for which the thirty (30) day notice requirement has
been waived under the regulations to Section 4043 of ERISA) nor any event
described in Section 4062, 4063 or 4041 or ERISA has occurred; (viii) each SSDI
Employee Plan subject to ERISA has prepared in good faith and timely filed all
requisite governmental reports, which were true and correct as of the date
filed, and has properly and timely filed and distributed or posted all notices
and reports to employees required to be filed, distributed or posted with
respect to each such SSDI Employee Plan; (ix) no suit, administrative
proceeding, action or other litigation has been brought, or to the knowledge of
SSDI is threatened, against or with respect to any such SSDI Employee Plan,
including any audit or inquiry by the IRS or United States Department of Labor;
and (x) there has been no amendment to, written interpretation or announcement
by SSDI or any ERISA Affiliate that would materially increase the expense of
maintaining any SSDI Employee Plan above the level of expense incurred with
respect to that Plan for the most recent fiscal year included in the SSDI
Financial Statements.
(d) No Title IV or Multiemployer Plan. Neither SSDI nor any ERISA
Affiliate has ever maintained, established, sponsored, participated in,
contributed to, or is obligated to contribute to, or otherwise incurred any
obligation or liability (including without limitation any contingent liability)
under any "multiemployer plan" (as defined in Section 3(37) of ERISA) or to any
"pension plan" (as defined in Section 3(2) of ERISA) subject to Title IV of
ERISA or Section 412 of the Code. None of SSDI or any ERISA Affiliate has any
actual or potential withdrawal liability (including without limitation any
contingent liability) for any complete or partial withdrawal (as defined in
Sections 4203 and 4205 of ERISA) from any multiemployer plan.
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(e) COBRA, FMLA, HIPAA, Cancer Rights. With respect to each SSDI
Employee Plan, SSDI has complied with (i) the applicable health care
continuation and notice provisions of the Consolidated Omnibus Budget
Reconciliation Act of 1985 ("COBRA") and the regulations thereunder or any state
law governing health care coverage extension or continuation; (ii) the
applicable requirements of the Family and Medical Leave Act of 1993 and the
regulations thereunder; (iii) the applicable requirements of the Health
Insurance Portability and Accountability Act of 1996 ("HIPAA"); and (iv) the
applicable requirements of the Cancer Rights Act of 1998, except to the extent
that such failure to comply could not reasonably be expected, individually or in
the aggregate, to have a Material Adverse Effect on SSDI. SSDI has no material
unsatisfied obligations to any employees, former employees or qualified
beneficiaries pursuant to COBRA, HIPAA or any state law governing health care
coverage extension or continuation.
(f) Effect of Transaction. The consummation of the transactions
contemplated by this Agreement will not (i) entitle any current or former
employee or other service provider of SSDI or any ERISA Affiliate to severance
benefits or any other payment (including without limitation unemployment
compensation, golden parachute, bonus or benefits under any SSDI Employee Plan),
except as expressly provided in this Agreement; or (ii) accelerate the time of
payment or vesting of any such benefits or increase the amount of compensation
due any such employee or service provider. No benefit payable or that may become
payable by SSDI pursuant to any SSDI Employee Plan or as a result of or arising
under this Agreement shall constitute an "excess parachute payment" (as defined
in Section 280G(b)(1) of the Code) subject to the imposition of an excise Tax
under Section 4999 of the Code or the deduction for which would be disallowed by
reason of Section 280G of the Code. Each SSDI Employee Plan can be amended,
terminated or otherwise discontinued after the Effective Time in accordance with
its terms, without material liability to Acquirer or SSDI other than ordinary
administration expenses typically incurred in a termination event.
3.23 Employee Matters. SSDI is in compliance with all currently
applicable laws and regulations respecting terms and conditions of employment,
including without limitation applicant and employee background checking,
immigration laws, discrimination laws, verification of employment eligibility,
employee leave laws, classification of workers as employees and independent
contractors, wage and hour laws, and occupational safety and health laws. There
are no proceedings pending or, to SSDI's knowledge, reasonably expected or
threatened, between SSDI, on the one hand, and any or all of its current or
former employees, on the other hand, including without limitation any claims for
actual or alleged harassment or discrimination based on race, national origin,
age, sex, sexual orientation, religion, disability, or similar tortuous conduct,
breach of contract, wrongful termination, defamation, intentional or negligent
infliction of emotional distress, interference with contract or interference
with actual or prospective economic disadvantage. There are no claims pending,
or, to SSDI's knowledge, reasonably expected or threatened, against SSDI under
any workers' compensation or long-term disability plan or policy. SSDI has no
material unsatisfied obligations to any employees, former employees, or
qualified beneficiaries pursuant to COBRA, HIPAA, or any state law governing
health care coverage extension or continuation. SSDI is not a party to any
collective bargaining agreement or other labor union contract, nor does SSDI
know of any activities or proceedings of any labor union to organize its
employees. SSDI has provided all employees with all wages, benefits, relocation
benefits, stock options, bonuses and incentives, and all other compensation that
became due and payable through the date of this Agreement.
24
3.24 Insurance. SSDI has policies of insurance and bonds of the type
and in amounts customarily carried by persons conducting businesses or owning
assets similar to those of SSDI. There is no material claim pending under any of
such policies or bonds as to which coverage has been questioned, denied or
disputed by the underwriters of such policies or bonds. All premiums due and
payable under all such policies and bonds have been paid and SSDI is otherwise
in compliance with the terms of such policies and bonds. SSDI has no knowledge
of any threatened termination of, or material premium increase with respect to,
any of such policies.
3.25 Compliance With Laws. SSDI has complied with, is not in
violation of and has not received any notices of violation with respect to, any
federal state, local or foreign statute, law or regulation with respect to the
conduct of its business, or the ownership or operation of its business.
3.26 Brokers' and Finders' Fee. Except for IBG Business Services,
Inc., no broker, finder or investment banker is entitled to brokerage or
finders' fees or agents' commissions or investment bankers' fees or any similar
charges in connection with the Merger, this Agreement or any transaction
contemplated hereby. SSDI has provided a complete and correct copy of SSDI's
agreement with IBG Business Services, Inc. to Nayna or its counsel.
3.27 Privacy Policies and Web Site Terms and Conditions.
(a) For purposes of this Section y3.27:
(i) "SSDI Sites" means all of SSDI's public sites on the
World Wide Web.
(ii) "Privacy Statements" means, collectively, any and all
of SSDI's privacy policies published on the SSDI Sites or otherwise made
available by SSDI regarding the collection, retention, use and distribution of
the personal information of individuals, including, without limitation, from
visitors of any of the SSDI Sites ("Individuals"); and
(iii) "Terms and Conditions" means any and all of the visitor
terms and conditions published on the SSDI Sites governing Individuals' use of
and access to the SSDI Sites.
(b) A Privacy Statement is posted and is accessible to
Individuals at all times on each SSDI Site. SSDI maintains a hypertext link to a
Privacy Statement from the homepage of each SSDI Site, and SSDI uses its best
efforts to include a hypertext link to a Privacy Statement from every page of
the SSDI Sites on which personal information is collected from Individuals.
(c) The Privacy Statements are clearly written and include, at a
minimum, accurate notice to Individuals about SSDI's collection, retention, use
and disclosure policies and practices with respect to Individuals' personal
information. The Privacy Statements are accurate and consistent with the Terms
and Conditions and SSDI's actual practices with respect to the collection,
retention, use and disclosure of Individuals' personal information.
25
(d) SSDI (i) complies with the Privacy Statements as applicable
to any given set of personal information collected by SSDI from Individuals;
(ii) complies with all applicable privacy laws and regulations regarding the
collection, retention, use and disclosure of personal information; and (iii)
takes all appropriate and industry standard measures to protect and maintain the
confidential nature of the personal information provided to SSDI by Individuals.
SSDI has adequate technological and procedural measures in place to protect
personal information collected from Individuals against loss, theft and
unauthorized access or disclosure. SSDI does not knowingly collect information
from or SSDI children under the age of thirteen. SSDI does not sell, rent or
otherwise make available to third parties any personal information submitted by
individuals.
(e) SSDI's collection, retention, use and distribution of all
personal information collected by SSDI from Individuals is governed by the
Privacy Statement pursuant to which the data was collected. Each Privacy
Statement contains rules for the review, modification and deletion of personal
information by the applicable Individual, and SSDI is and has been at all times
in compliance with such rules. All versions of the Privacy Statements are
attached hereto in Section 3.27 of the SSDI Disclosure Schedule. Other than as
constrained by the Privacy Statements and by applicable laws and regulations,
SSDI is not restricted in its use and/or distribution of personal information
collected by SSDI.
(f) SSDI has the full power and authority to transfer all rights
SSDI has in all Individuals' personal information in SSDI's possession and/or
control to Nayna. The Privacy Statements expressly permit the transfer of all
personal information collected from Individuals by SSDI in accordance with the
acquisition or sale of all or substantially all of the assets of SSDI. SSDI is
not a party to any Material Contract, or is subject to any other obligation
that, following the Effective Time, would prevent Nayna and/or its affiliates
from using the information governed by the Privacy Statements in a manner
consistent with applicable privacy laws and industry standards regarding the
disclosure and use of information. No claims or controversies have arisen
regarding the Privacy Statements or the implementation thereof or of any of the
foregoing.
(g) The Terms and Conditions are posted and are accessible to
Individuals at all times on the SSDI Site. The Terms and Conditions expressly
permit the transfer of personal information collected from Individuals by SSDI
in accordance with the acquisition or sale of all or substantially all of the
assets of SSDI. No claims or controversies have arisen regarding the Terms and
Conditions or the implementation thereof or of any of the foregoing.
3.28 International Trade Matters. SSDI is, and at all times has been,
in compliance with and has not been and is not in material violation of any
International Trade Law (defined below), including but not limited to, all laws
and regulations related to the import and export of commodities, software, and
technology from and into the United States, and the payment of required duties
and tariffs in connection with same. SSDI has no basis to expect, nor has any of
them or any other person for whose conduct they are or may be held to be
responsible received, any actual or threatened order, notice, or other
communication from any governmental body of any actual or potential violation or
failure to comply with any International Trade Law. "International Trade Law"
shall mean U.S. statutes, laws and regulations applicable to international
transactions, including, but not limited to, the Export Administration Act, the
Export Administration Regulations, the Foreign Corrupt Practices Act, the Arms
Export Control Act, the International Traffic in Arms Regulations, the
International Emergency Economic Powers Act, the Trading with the Enemy Act, the
U.S. Customs laws and regulations, the Foreign Asset Control Regulations, and
any regulations or orders issued thereunder.
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3.29 Representations Complete. None of the representations or
warranties made by SSDI herein or in any Schedule or Exhibit hereto, including
the SSDI Disclosure Schedule, or certificate furnished by SSDI pursuant to this
Agreement or any written statement furnished to Nayna pursuant hereto or in
connection with the transactions contemplated hereby, when all such documents
are read together in their entirety, contain, or will contain at the Effective
Time, any untrue statement of a material fact, or omits or will omit at the
Effective Time to state any material fact necessary in order to make the
statements contained herein or therein, in the light of the circumstances under
which made, not misleading.
4. Representations and Warranties of Nayna and Merger Sub. Nayna and
Merger Sub represent and warrant to SSDI that the statements contained in this
Section y4 are true and correct, except as disclosed in a document of even date
herewith and delivered by Nayna to SSDI on the date hereof referring to the
representations and warranties in this Agreement (the "Nayna Disclosure
Schedule"). The Nayna Disclosure Schedule will be arranged in paragraphs
corresponding to the lettered and numbered paragraphs contained in this Section
y4, and the disclosure in any such numbered and lettered section of the Nayna
Disclosure Schedule shall qualify only the corresponding section in this Section
y4 (except to the extent disclosure in any numbered and lettered section of the
Nayna Disclosure Schedule is specifically cross-referenced in another numbered
and lettered section of the Nayna Disclosure Schedule.
4.1 Organization, Standing and Power. Each of Nayna and Merger Sub is
a corporation duly organized, validly existing and in good standing under the
laws of the state of Delaware. Each of Nayna and Merger Sub has the corporate
power to own its properties and to carry on its business as now being conducted
and as proposed to be conducted and is duly qualified to do business and is in
good standing in each jurisdiction in which the failure to be so qualified and
in good standing could reasonably be expected to have a Material Adverse Effect
on Nayna. Nayna has delivered a true and correct copy of the Certificate of
Incorporation and Bylaws or other charter documents, as applicable, of Nayna and
Merger Sub, each as amended to date, to SSDI. Neither Nayna nor Merger Sub is in
violation of any of the provisions of its Certificate of Incorporation or
Bylaws.
4.2 Authority. Nayna and Merger Sub have all requisite corporate
power and authority to enter into this Agreement and to consummate the
transactions contemplated hereby. The execution and delivery of this Agreement
and the consummation of the transactions contemplated hereby have been, or will
have been by the Closing, duly authorized by all necessary corporate action on
the part of Nayna and Merger Sub. This Agreement has been duly executed and
delivered by Nayna and Merger Sub and constitutes the valid and binding
obligations of Nayna and Merger Sub enforceable against Nayna and Merger Sub in
accordance with its terms, except as may be limited by bankruptcy, insolvency,
27
reorganization, moratorium or other similar laws affecting or relating to
creditors' rights generally, and subject to general principles of equity. The
execution and delivery of this Agreement do not, and the consummation of the
transactions contemplated hereby 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 or acceleration of
any material obligation or loss of a material benefit under (a) any provision of
the Certificate of Incorporation or Bylaws of Nayna or any of its Subsidiaries;
or (b) any material mortgage, indenture, lease, contract or other agreement or
instrument, permit, concession, franchise, license, judgment, order, decree,
statute, law, ordinance, rule or regulation applicable to Nayna or any of its
Subsidiaries or their properties or assets No consent, approval, order or
authorization of or registration, declaration or filing with any Governmental
Entity is required by or with respect to Nayna or any of its Subsidiaries in
connection with the execution and delivery of this Agreement by Nayna and Merger
Sub or the consummation by Nayna and Merger Sub of the transactions contemplated
hereby, except for (a) the filing of the Agreement of Merger, together with the
required officers' certificates, and the filing of the Certificate of Merger,
each as provided in Section y2.2; (b) filings required under Regulation D of the
Securities Act following the Effective Time; (c) the filing of a Form 8-K with
the Securities and Exchange Commission ("SEC") and National Association of
Securities Dealers ("NASD") within 15 days after the Closing Date; (d) such
filings as may be required under applicable state securities laws and the
securities laws of any foreign country; (e) such filings as may be required
under HSR; (f) the filing with the Nasdaq Stock Market of a Notification Form
for Listing of Additional Shares with respect to the shares of Nayna Common
Stock issuable upon conversion of the SSDI Common Stock in the Merger and upon
exercise of options under the SSDI Option Plan assumed by Nayna; and (g) such
other consents, authorizations, filings, approvals and registrations which, if
not obtained or made, could not reasonably be expected to have a Material
Adverse Effect on Nayna and could not prevent, materially alter or delay any of
the transactions contemplated by this Agreement.
4.3 Capital Structure. The authorized capital stock of Nayna consists
of 1,000,000,000 shares of common stock, $0.0001 par value, of which there were
issued and outstanding as of the close of business on the date hereof, 35,802504
shares of Common Stock. There are no other outstanding shares of capital stock
or voting securities of Nayna other than shares of Nayna Common Stock issued
after that same date upon the exercise of options issued under the Nayna Stock
Option Plan (the "Nayna Option Plan"). All outstanding shares of Nayna have been
duly authorized, validly issued, fully paid and are nonassessable. As of the
close of business on that same date, Nayna has reserved (a) 5,967,480 shares of
Nayna Common Stock for issuance to employees, directors and independent
contractors pursuant to the Nayna Option Plan, of which 4,517,277 shares are
subject to outstanding, unexercised options and 639,660 shares have been
exercised and are outstanding; and (b) 108,425 shares of Nayna Common Stock for
issuance pursuant to outstanding warrants (the "Nayna Warrants"). Other than
this Agreement, the Nayna Option Plan and the Nayna Warrants, there are no other
options, warrants, calls, rights, commitments or agreements of any character to
which Nayna is a party or by which either of them is bound obligating Nayna to
issue, deliver, sell, repurchase or redeem, or cause to be issued, delivered,
sold, repurchased or redeemed, any shares of the capital stock of Nayna or
obligating Nayna to grant, extend or enter into any such option, warrant, call,
right, commitment or agreement.
28
4.4 Issuance of Shares. The issuance and delivery of the Nayna Common
Stock as Merger Consideration in accordance with this Agreement shall be, at or
prior to the Effective Time, duly authorized by all necessary corporate action
on the part of Nayna, and, when issued at the Effective Time as contemplated
hereby, such shares of Nayna Common Stock will be duly and validly issued, fully
paid and nonassessable. Such Nayna Common Stock, when so issued and delivered in
accordance with the provisions of this Agreement, shall be free and clear of all
liens and encumbrances and adverse claims, other than restrictions on transfer
created by applicable securities laws and will not have been issued in violation
of their respective properties or any preemptive rights or rights of first
refusal or similar rights.
4.5 Litigation. There is no private or governmental action, suit,
proceeding, claim, arbitration or investigation pending before any agency, court
or tribunal, foreign or domestic, or, to the knowledge of Nayna threatened
against Nayna or any of its properties or any of its officers or directors (in
their capacities as such) that, individually or in the aggregate, could
reasonably be expected to have a Material Adverse Effect on Nayna. There is no
judgment, decree or order against Nayna or any of its Subsidiaries or, to the
knowledge of Nayna, or any of its directors or officers (in their capacities as
such) that could prevent, enjoin or materially alter or delay any of the
transactions contemplated by this Agreement, or that could reasonably be
expected to have a Material Adverse Effect on Nayna.
4.6 Interim Operations of Merger Sub. Merger Sub was formed solely
for the purpose of engaging in the transactions contemplated by this Agreement,
has engaged in no other business activities and has conducted its operations
only as contemplated by this Agreement.
4.7 Representations Complete. None of the representations or
warranties made by Nayna or Merger Sub herein or in any Schedule hereto,
including the Nayna Disclosure Schedule, or certificate furnished by Nayna or
Merger Sub pursuant to this Agreement, or the Nayna SEC Documents, or any
written statement furnished to SSDI pursuant hereto or in connection with the
transactions contemplated hereby, when all such documents are read together in
their entirety, contains or will contain at the Effective Time any untrue
statement of a material fact or omits or will omit at the Effective Time to
state any material fact necessary in order to make the statements contained
herein or therein, in the light of the circumstances under which made, not
misleading.
4.8 SEC Documents; Financial Statements. Nayna has filed all reports,
schedules, forms, statements and other documents required to be filed by it with
the SEC pursuant to the reporting requirements of the Securities Exchange Act of
1934 (the "1934 Act") (all of the foregoing filed prior to the date hereof
(including all exhibits included therein and financial statements and schedules
thereto and documents incorporated by reference therein) being hereinafter
referred to as the "SEC Documents"). Except as set forth on Schedule 4.14, each
of the SEC Documents was filed with the SEC within the time frames prescribed by
the SEC for the filing of such SEC Documents such that each filing was timely
filed with the SEC. None of the late filings set forth on Schedule 4.14 will
adversely affect Nayna's ability to use SEC Form S-3 for registration of
securities after the date hereof. As of their respective dates, the SEC
Documents complied in all material respects with the requirements of the 1934
Act and the rules and regulations of the SEC promulgated thereunder applicable
to the SEC Documents. None of the SEC Documents, at the time they were filed
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with the SEC, contained any untrue statement of a material fact or omitted to
state a material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which they were
made, not misleading. As of their respective dates, the consolidated financial
statements of Nayna and its Subsidiaries included in the SEC Documents complied
as to form in all material respects with applicable accounting requirements and
the published rules and regulations of the SEC with respect thereto. None of
Nayna or any of its Subsidiaries, or any of their respective officers, directors
or affiliates (as defined below) or, to Nayna's knowledge, any shareholder of
Nayna has made any other filing with the SEC, issued any press release or made
any other public statement or communication on behalf of Nayna or any of its
Subsidiaries or otherwise relating to Nayna or any of its subsidiaries that
contains any untrue statement of a material fact or omits any statement of
material fact necessary in order to make the statements therein, in the light of
the circumstances under which they are or were made, not misleading or has
provided any other information to SSDI that contains any untrue statement of a
material fact or omits to state any material fact necessary in order to make the
statements therein, in the light of the circumstances under which they are or
were made, not misleading. None of Nayna, any of its Subsidiaries and any of
their respective officers, directors, employees or agents has provided SSDI with
any material, nonpublic information. Nayna is not required to file and will not
be required to file any agreement, note, lease, mortgage, deed or other
instrument entered into prior to the date hereof and to which Nayna or any
Subsidiary is a party or by which Nayna or any Subsidiary is bound that has not
been previously filed as an exhibit (including by way of incorporation by
reference) to its reports filed or made with the SEC under the 1934 Act. The
auditing firm, which has expressed its opinion with respect to the consolidated
financial statements included in Nayna's annual report on Form 10-KSB for the
last completed fiscal year (the "Audit Opinion"), is independent of Nayna
pursuant to the standards set forth in Rule 2-01 of Regulation S-X promulgated
by the SEC, and such firm was otherwise qualified to render the Audit Opinion
under applicable law and the rules and regulation of the SEC. There is no
transaction, arrangement or other relationship between Nayna and an
unconsolidated or other off-balance-sheet entity that is required to be
disclosed by Nayna in its reports pursuant to the 1934 Act that has not been so
disclosed in the SEC Documents.
5. Conduct Prior to the Effective Time.
5.1 Conduct of Business of SSDI. During the period from the date of
this Agreement and continuing until the earlier of the termination of this
Agreement or the Effective Time, SSDI agrees (except to the extent expressly
contemplated by this Agreement or as consented to in writing by Nayna): (a) to
carry on its business in the usual regular and ordinary course in substantially
the same manner as heretofore conducted; (b) to pay its debts and Taxes when due
subject (i) to good faith disputes over such debts or Taxes; and (ii) to Nayna's
consent to the filing of material Tax Returns, if applicable; (c) to pay or
perform other obligations when due; and (d) to use all reasonable efforts to
preserve intact its present business organizations, 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, to the end that its goodwill and ongoing businesses
shall be unimpaired at the Effective Time. SSDI agrees to promptly notify Nayna
of (a) any event or occurrence not in the ordinary course of SSDI's business,
and of any event which could reasonably be expected to have a Material Adverse
Effect on SSDI; and (b) any change in its capitalization as set forth in Section
y3.5. Without limiting the foregoing, except as expressly contemplated by this
Agreement or the SSDI Disclosure Schedule, SSDI shall not do, cause or permit
any of the following, without the prior written consent of Nayna:
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(a) Charter Documents. Cause or permit any amendments to its
Articles of Incorporation or Bylaws;
(b) Dividends; Changes in Capital Stock. Except as provided on
Schedule 5.1(b), declare or pay any dividends on or make any other distributions
(whether in cash, stock or property) in respect of any of its capital stock, or
split, combine or reclassify any of its capital stock or issue or authorize the
issuance of any other securities in respect of, in lieu of or in substitution
for shares of its capital stock, or repurchase or otherwise acquire, directly or
indirectly, any shares of its capital stock except from former employees,
directors and consultants in accordance with agreements providing for the
repurchase of shares in connection with any termination of service to it;
(c) Stock Option Plans, Etc. Accelerate, amend or change the
period of exercisability or vesting of options or other rights granted under its
stock plans or authorize cash payments in exchange for any options or other
rights granted under any of such plans;
(d) Issuance of Securities. Issue, deliver or sell or authorize
or propose the issuance, delivery or sale of, or purchase or propose the
purchase of, any shares of its capital stock or securities convertible into, or
subscriptions, rights, warrants or options to acquire, or other agreements or
commitments of any character obligating it to issue any such shares or other
convertible securities other than the issuance of shares of its Common Stock
pursuant to the exercise of stock options, warrants or other rights therefore
outstanding as of the date of this Agreement;
(e) Intellectual Property. Transfer to any person or entity any
rights to its Intellectual Property;
(f) Exclusive Rights. Enter into or amend any agreements pursuant
to which any other party is granted exclusive marketing or other exclusive
rights of any type or scope with respect to any of SSDI Products or SSDI
Intellectual Property;
(g) Dispositions. Sell, lease, license or otherwise dispose of or
encumber any of its properties or assets that are material, individually or in
the aggregate, to its business, taken as a whole;
(h) Indebtedness. Incur any indebtedness for borrowed money, or
guarantee any such indebtedness, or issue or sell any debt securities or
guaranty any debt securities of others, in excess of $50,000 in the aggregate;
(i) Agreements. Enter into, terminate or amend, in a manner that
will adversely affect the business of SSDI, (i) any agreement involving the
obligation to pay or the right to receive $10,000 or more, (ii) any agreement
relating to the license, transfer or other disposition or acquisition of
Intellectual Property rights or rights to market or sell SSDI Products or (iii)
any other agreement material to the business or prospects of SSDI or that is or
would be a Material Contract;
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(j) Payment of Obligations. Pay, discharge or satisfy, in an
amount in excess of $25,000 in the aggregate, any claims, liabilities or
obligations (absolute, accrued, asserted or unasserted, contingent or otherwise)
arising other than in the ordinary course of business, other than the payment,
discharge or satisfaction of liabilities reflected or reserved against in the
SSDI Financial Statements;
(k) Capital Expenditures. Make any capital expenditures, capital
additions or capital improvements, in excess of $25,000 in the aggregate;
(l) Insurance. Materially reduce the amount of any material
insurance coverage provided by existing insurance policies;
(m) Termination or Waiver. Terminate or waive any right of
substantial value, other than in the ordinary course of business;
(n) Employee Benefit Plans; New Hires; Pay Increases. Amend any
SSDI Employee Plan or adopt any plan that would constitute a SSDI Employee Plan
except in order to comply with applicable laws or regulations, or hire any new
officer-level employee, pay any special bonus, special remuneration or special
noncash benefit (except payments and benefits made pursuant to written
agreements outstanding on the date hereof) increase the benefits, salaries or
wage rates of its employees;
(o) Severance Arrangements. Grant or pay any severance or
termination pay or benefits (i) to any director or officer or (ii) except for
payments made pursuant to written agreements outstanding on the date hereof and
disclosed on the SSDI Disclosure Schedule, to any other employee;
(p) Lawsuits. Commence a lawsuit other than (i) for the routine
collection of bills, (ii) in such cases where SSDI in good faith determines that
failure to commence suit would result in the material impairment of a valuable
aspect of SSDI's business, provided that it consults with Nayna prior to the
filing of such a suit or (iii) for a breach of this Agreement;
(q) Acquisitions. Acquire or agree to acquire by merging with, or
by purchasing a substantial portion of the stock or assets of, or by any other
manner, any business or any corporation, partnership, association or other
business organization or division thereof or otherwise acquire or agree to
acquire any assets that are material individually or in the aggregate, to its
business, taken as a whole;
(r) Taxes. Other than in the ordinary course of business, make or
change any material election in respect of Taxes, adopt or change any accounting
method in respect of Taxes, file any material tax Return or any amendment to a
material tax Return, enter into any closing agreement, settle any material claim
or assessment in respect of Taxes, or consent to any extension or waiver of the
limitation period applicable to any material claim or assessment in respect of
Taxes;
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(s) Revaluation. Revalue any of its assets, including without
limitation writing down the value of inventory or writing off notes or accounts
receivable other than in the ordinary course of business or as required by
changes in generally accepted accounting principles; or
(t) Other. Take or agree in writing or otherwise to take, any of
the actions described in Sections y5.2(a) through y(s) above, or any action that
would cause a material breach of its representations or warranties contained in
this Agreement or prevent it from materially performing or cause it not to
materially perform its covenants hereunder.
5.2 No Solicitation.
(a) From and after the date of this Agreement until the earlier
of the termination of this Agreement or the Effective Time, SSDI shall not,
directly or indirectly through any officer, director, employee, representative
or agent of SSDI or otherwise: (i) solicit, initiate, or encourage any inquiries
or proposals that constitute, or could reasonably be expected to lead to, a
proposal or offer for a merger, consolidation, share exchange, business
combination, sale of all or substantially all assets, sale of shares of capital
stock or similar transactions involving SSDI other than the transactions
contemplated by this Agreement (any of the foregoing inquiries or proposals an
"Acquisition Proposal"); (ii) engage or participate in negotiations or
discussions concerning, or provide any non-public information to any person or
entity relating to, any Acquisition Proposal; or (iii) agree to, enter into,
accept, approve or recommend any Acquisition Proposal. SSDI represents and
warrants that it has the legal right to terminate any pending discussions or
negotiations relating to an Acquisition Proposal without payment of any fee or
other penalty.
(b) SSDI shall notify Nayna immediately (and no later than 24
hours) after receipt by SSDI (or its advisors) of any Acquisition Proposal or
any request for nonpublic information in connection with an Acquisition Proposal
or for access to the properties, books or records of SSDI by any person or
entity that informs SSDI that it is considering making, or has made, an
Acquisition Proposal. Such notice shall be made orally and in writing and shall
indicate in reasonable detail the identity of the offeror and the terms and
conditions of such proposal, inquiry or contact.
6. Additional Agreements.
6.1 Preparation of Solicitation Statement.
(a) As soon as practicable after the execution of this Agreement,
SSDI shall prepare, with the cooperation of Nayna, a solicitation statement for
the solicitation of approval of the shareholders of SSDI describing this
Agreement, the Agreement of Merger and the transactions contemplated hereby and
thereby. Nayna shall provide such information about Nayna as SSDI shall
reasonably request. The information supplied by SSDI for inclusion in the
solicitation statement to be sent to the shareholders of SSDI shall not, on the
date the solicitation statement is first mailed to SSDI's shareholders or at the
Effective Time, contain any statement that, at such time, is false or misleading
with respect to any material fact, or omit to state any material fact necessary
in order to make the statements made therein, in light of the circumstances
under which they are made, not false or misleading, or omit to state any
material fact necessary to correct any statement in any earlier communication
that has become false or misleading. Notwithstanding the foregoing, SSDI makes
no representation, warranty or covenant with respect to any information supplied
by Nayna or Merger Sub that is contained in any of the foregoing documents. The
information supplied by Nayna or Merger Sub for inclusion in the solicitation
statement shall not, on the date the solicitation statement is first mailed to
SSDI's shareholders or at the Effective Time, contain any statement that, at
such time, is false or misleading with respect to any material fact, or omit to
state any material fact necessary in order to make the statements therein, in
light of the circumstances under which they are made, not false or misleading,
or omit to state any material fact necessary to correct any statement in any
earlier communication that has become false or misleading. Notwithstanding the
foregoing, Nayna and Merger Sub make no representation, warranty or covenant
with respect to any information supplied by SSDI that is contained in any of the
foregoing documents.
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(b) The solicitation statement shall constitute a disclosure
document for the offer and issuance of shares of Nayna Common Stock to be
received by the holders of SSDI Capital Stock in the Merger. Nayna and SSDI
shall each use reasonable commercial efforts to cause the solicitation statement
to comply with applicable federal and state securities laws requirements. Each
of Nayna and SSDI agrees to provide promptly to the other such information
concerning its business and financial statements and affairs as, in the
reasonable judgment of the providing party or its counsel, may be required or
appropriate for inclusion in the solicitation statement or in any amendments or
supplements thereto, and to cause its counsel and auditors to cooperate with the
other's counsel and auditors in the preparation of the solicitation statement.
SSDI will promptly advise Nayna, and Nayna will promptly advise SSDI, in writing
if at any time prior to the Effective Time either SSDI or Nayna shall obtain
knowledge of any facts that might make it necessary or appropriate to amend or
supplement the solicitation statement in order to make the statements contained
or incorporated by reference therein not misleading or to comply with applicable
law. The solicitation statement shall contain the recommendation of the Board of
Directors of SSDI that the SSDI shareholders approve the Merger and this
Agreement and the conclusion of the Board of Directors that the terms and
conditions of the Merger are fair and reasonable to the shareholders of SSDI.
Anything to the contrary contained herein notwithstanding, SSDI shall not
include in the solicitation statement any information with respect to Nayna or
its affiliates or associates, the form and content of which information shall
not have been approved by Nayna prior to such inclusion.
6.2 Approval of Shareholders. SSDI shall promptly after the date
hereof take all action necessary in accordance with the Colorado Law and its
Articles of Incorporation and Bylaws to obtain the written consent of the SSDI
shareholders approving the Merger as soon as practicable. Subject to Section
y6.1, SSDI shall use its efforts to solicit from shareholders of SSDI written
consents in favor of the Merger and shall take all other action necessary or
advisable to secure the vote or consent of shareholders required to effect the
Merger.
6.3 Sale of Shares Pursuant to Regulation D. The parties hereto
acknowledge and agree that the shares of Nayna Common Stock issuable to the SSDI
shareholders pursuant to Section y2.6 hereof shall constitute "restricted
securities" within the Securities Act. The certificates of Nayna Common Stock
shall bear the legends set forth in Section y2.6(f). SSDI will use its best
efforts to cause each SSDI shareholder to execute and deliver to Nayna an
Investor Representation Statement in the form attached hereto as Exhibit D. It
is acknowledged and understood that Nayna is relying on the written
representations made by each shareholder of SSDI in the Investor Representation
Statements.
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6.4 Access to Information.
(a) SSDI shall afford Nayna and its accountants, counsel and
other representatives, reasonable access during normal business hours during the
period prior to the Effective Time to (i) all of SSDI's properties, personnel,
books, contracts, commitments and records and (ii) all other information
concerning the business, properties and personnel of SSDI as Nayna may
reasonably request.
(b) Subject to compliance with applicable law, from the date
hereof until the Effective Time, each of Nayna and SSDI shall confer on a
regular and frequent basis with one or more representatives of the other party
to report operational matters of materiality and the general status of ongoing
operations.
(c) No information or knowledge obtained in any investigation
pursuant to this Section y6.4 or otherwise shall affect or be deemed to modify
any representation or warranty contained herein or the conditions to the
obligations of the parties to consummate the Merger.
6.5 Confidentiality. The parties acknowledge that Nayna and SSDI have
previously executed a confidentiality agreement (the "Confidentiality
Agreement"), which Confidentiality Agreement is hereby incorporated herein by
reference and shall continue in full force and effect in accordance with its
terms.
6.6 Public Disclosure. Unless otherwise permitted by this Agreement,
Nayna and SSDI shall consult with each other before issuing any press release or
otherwise making any public statement or making any other public (or
non-confidential) disclosure (whether or not in response to an inquiry)
regarding the terms of this Agreement and the transactions contemplated hereby,
and neither shall issue any such press release or make any such statement or
disclosure without the prior approval of the other (which approval shall not be
unreasonably withheld), except as may be required by law or by obligations
pursuant to any listing agreement with any national securities exchange or with
Nasdaq.
6.7 Regulatory Approval; Further Assurances.
(a) Each party shall use all reasonable efforts to file, as
promptly as practicable after the date of this Agreement, all notices, reports
and other documents required to be filed by such party with any Governmental
Entity with respect to the Merger and the other transactions contemplated by
this Agreement, and to submit promptly any additional information requested by
any such Governmental Entity. Without limiting the generality of the foregoing,
SSDI and Nayna shall, promptly after the date of this Agreement, prepare and
file the notifications required under the HSR Act in connection with the Merger.
SSDI and Nayna shall respond as promptly as practicable to (i) any inquiries or
requests received from the Federal Trade Commission or the Department of Justice
for additional information or documentations and (ii) any inquiries or requests
received from any state attorney general or other Governmental Entity in
35
connection with antitrust or related matters. Each of SSDI and Nayna shall (i)
give the other party prompt notice of the commencement of any Legal Proceeding
by or before any Governmental Entity with respect to the Merger or any of the
other transactions contemplated by this Agreement, (ii) keep the other party
informed as to the status of any such Legal Proceeding and (iii) promptly inform
the other party of any communication to or from the Federal Trade Commission,
the Department of Justice or any other Governmental Entity regarding the Merger.
SSDI and Nayna will consult and cooperate with one another, and will consider in
good faith the views of one another, in connection with any analysis,
appearance, presentation, memorandum, brief, argument, opinion or proposal made
or submitted in connection with any legal proceeding under or relating to HSR or
any other federal or state antitrust or fair trade law. In addition, except as
may be prohibited by any Governmental Entity or by any legal requirement, in
connection with any legal proceeding under or relating to HSR or any other
federal or state antitrust or fair trade law or any other similar legal
proceeding, each of SSDI and Nayna will permit authorized representatives of the
other party to be present at each meeting or conference relating to any such
legal proceeding and to have access to and be consulted in connection with any
document, opinion or proposal made or submitted to any Governmental Entity in
connection with any such legal proceeding.
(b) Subject to Section y6.7(c), Nayna and SSDI shall use all
reasonable efforts to take, or cause to be taken, all actions necessary to
effectuate the Merger and make effective the other transactions contemplated by
this Agreement. Without limiting the generality of the foregoing, but subject to
Section y6.7(c), each party to this Agreement shall: (i) make any filings and
give any notices required to be made and given by such party in connection with
the Merger and the other transactions contemplated by this Agreement; (ii) use
all reasonable efforts to obtain any consent required to be obtained (pursuant
to any applicable legal requirement or contract, or otherwise) by such party in
connection with the Merger or any of the other transactions contemplated by this
Agreement; and (iii) use all reasonable efforts to lift any restraint,
injunction or other legal bar to the Merger. Each party shall promptly deliver
to the other a copy of each such filing made, each such notice given and each
such consent obtained by such party during the period prior to the Effective
Time. Each party, at the reasonable request of the other party, shall execute
and deliver such other instruments and do and perform such other acts and things
as may be necessary or desirable for effecting completely the consummation of
this Agreement and the transactions contemplated hereby.
(c) Notwithstanding anything to the contrary contained in this
Agreement, Nayna shall not have any obligation under this Agreement to: (i)
dispose or transfer or cause any of its Subsidiaries to dispose of or transfer
any assets, or to commit to cause SSDI to dispose of any assets; (ii)
discontinue or cause any of its Subsidiaries to discontinue offering any product
or service, or commit to cause SSDI to discontinue offering any product or
service; (iii) license or otherwise make available, or cause any of its
Subsidiaries to license or otherwise make available, to any person, any
technology, software or other Intellectual Property, or commit to cause SSDI to
license or otherwise make available to any person any technology, software or
other Intellectual Property; (iv) hold separate or cause any of its Subsidiaries
to hold separate any assets or operations (either before or after the Closing
Date), or commit to cause SSDI to hold separate any assets or operations; or (v)
make or cause any of its Subsidiaries to make any commitment (to any
Governmental Entity or otherwise) regarding its future operations or the future
operations of SSDI.
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6.8 Blue Sky Laws. Nayna shall take such steps as may be necessary to
comply with the securities and blue sky laws of all jurisdictions applicable to
the issuance of the Nayna Common Stock in connection with the Merger. SSDI shall
use its commercially reasonable efforts to assist Nayna to comply with the
securities and blue sky laws of all jurisdictions applicable to the issuance of
Nayna Common Stock in connection with the Merger.
6.9 Nonaccredited Stockholders. Prior to the Effective Time, SSDI
shall not take any action, including the granting of employee stock options,
which would cause the number of SSDI shareholders who are not "accredited
investors" pursuant to Regulation D promulgated under the Securities Act to
increase to more than 35 during the term of this Agreement.
6.10 Listing of Additional Shares. Prior to the Effective Time, Nayna
shall file with the Nasdaq Stock Market a Notification Form for Listing of
Additional Shares with respect to the shares of Nayna Common Stock issuable upon
conversion of the SSDI Common Stock in the Merger.
6.11 Employees. SSDI will use commercially reasonable efforts in
consultation with Nayna to retain existing employees of SSDI through the
Effective Time and following the Merger. SSDI shall use its reasonable efforts
to: (a) cause each of such employees set forth in Section y6.11 of the SSDI
Disclosure Schedule to execute a mutually-acceptable employment agreement or
offer letter; (b) cause each person set forth in Section 6.14 of the SSDI
Disclosure Schedule to execute a mutually-acceptable Non-Competition and
Non-Solicitation agreement; and (c) cause each other SSDI employee to execute
and deliver to Nayna a Proprietary Rights and Non-Disclosure agreement in the
form provided by Nayna.
6.12 Reorganization. Nayna and SSDI shall each use its best efforts
to cause the business combination to be effected by the Merger to be qualified
as a "reorganization" described in Section 368 of the Code.
6.13 Expenses. Whether or not the Merger is consummated, all costs
and expenses incurred in connection with this Agreement and the transactions
contemplated hereby shall be paid by the party incurring such expense.
6.14 Registration of Shares Issued in the Merger.
(a) Nayna shall use its reasonable commercial efforts to cause
the Registrable Securities to be registered under the Securities Act so as to
permit the resale thereof, and in connection therewith shall use its
commercially reasonable efforts to prepare and file the Registration Statement
with the SEC as soon as practicable after the date hereof, but no later than
thirty (30) days after the issuance of the Registrable Securities, and shall use
its reasonable commercial efforts to cause the Registration Statement to become
effective as soon as possible after the Effective Time; provided, however, that
each holder of Registrable Securities ("Holder") shall provide all such
information and materials to Nayna and take all such action as may be required
in order to permit Nayna to comply with all applicable requirements of the SEC
and to obtain any desired acceleration of the effective date of such
Registration Statement. Such provision of information and materials is a
condition precedent to the obligations of Nayna pursuant to this Section y6.14.
Nayna shall not be required to effect more than one (1) registration under this
Section y6.14. The offering made pursuant to such registration shall not be
underwritten.
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(b) Nayna shall: (i) prepare and file with the SEC the
Registration Statement in accordance with Section y6.14(a) with respect to the
shares of Registrable Securities and shall use all commercially reasonable
efforts to cause the Registration Statement to remain effective for a period
ending on the first to occur of (A) the date all of the shares registered
thereunder may be sold under Rule 144 in one three-month period (assuming
compliance by the Holders with the provisions thereof) or (B) one (1) year after
the Effective Time, subject to Section y6.14(c); (ii) prepare and file with the
SEC such amendments and supplements to the Registration Statement and the
prospectus used in connection therewith as may be necessary, and comply with the
provisions of the Securities Act with respect to the sale or other disposition
of all securities proposed to be registered in the Registration Statement until
the termination of effectiveness of the Registration Statement; and (iii) for so
long as Nayna is required to cause the Registration Statement to remain
effective, furnish to each Holder such number of copies of any prospectus
(including any preliminary prospectus and any amended or supplemented
prospectus) as required by the Securities Act, and such other documents as each
Holder may reasonably request in order to effect the offering and sale of the
shares of Registrable Securities to be offered and sold.
(c) Notwithstanding any other provision of this Section y6.14,
Nayna shall have the right at any time to require that all Holders suspend open
market offers and sales of Registrable Securities whenever, and for so long as,
in the reasonable, good-faith judgment of Nayna after consultation with counsel,
there is in existence material undisclosed information or events with respect to
Nayna (the "Suspension Right"). In the event Nayna exercises the Suspension
Right, such suspension will continue for the period of time reasonably necessary
for disclosure to occur at a time that is not materially detrimental to Nayna or
until such time as the information or event is no longer material, each as
reasonably determined in good faith by Nayna after consultation with counsel.
Nayna will promptly give the Shareholders' Agent notice, in a writing signed by
an executive officer of Nayna, of any such suspension (the "Suspension Notice").
Nayna agrees to notify the Shareholders' Agent promptly upon termination of the
suspension (the "Resumption Notice"). Upon receipt of either a Suspension Notice
or Resumption Notice, the Purchaser Representative (as defined in Section
7.2(l)) shall immediately notify each Holder concerning the status of the
Registration Statement. The period during which Nayna is required to cause the
Registration Statement to remain effective shall be extended by a period equal
in length to any and all periods during which open market offers and sales of
Registrable Securities are suspended pursuant to exercise of the Suspension
Right.
(d) Nayna shall pay all of the out-of-pocket expenses, other than
underwriting discounts and commissions, incurred in connection with any
registration of Registrable Securities pursuant to this Section y6.14, including
without limitation all registration and filing fees, printing expenses, transfer
agents' and registrars' fees, the fees and disbursements of Nayna's outside
counsel and independent accountants, and the reasonable fees and disbursements
of a single counsel for the Holders.
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(e) To the fullest extent permitted by law, Nayna will indemnify,
defend, protect and hold harmless each selling Holder, each underwriter of
Registrable Securities being sold pursuant to this Section y6.14, each person,
if any, who controls any such Holder or underwriter within the meaning of the
Securities Act or the Exchange Act and their respective affiliates, officers,
directors, partners, successors and assigns (each a "Holder Indemnitee"),
against all actions, claims, losses, damages, liabilities and expenses to which
they or any of them become subject under the Securities Act, the Exchange Act or
under any other statute or at common law or otherwise and, except as hereinafter
provided, will promptly reimburse each Holder Indemnitee for any legal or other
expenses reasonably incurred in connection with investigating or defending any
actions whether or not resulting in any liability, insofar as such actions,
claims, losses, damages, liabilities and expenses arise out of or are based upon
any untrue statement or alleged untrue statement of material fact in any
registration statement and any prospectus filed pursuant to Section y6.14 or any
post-effective amendment thereto or arise out of or are based upon any omission
or alleged omission to state a material fact required to be stated therein or
necessary to make the statements therein not misleading or any violation by
Nayna of any rule or regulation promulgated under the Securities Act, the
Exchange Act or any statute, regulation or law applicable to Nayna and relating
to action or inaction required of Nayna in connection with such registration;
provided, however, that Nayna shall not be liable to any such Holder Indemnitee
in respect of any actions, claims, losses, damages, liabilities and expenses
resulting from any untrue statement or alleged untrue statement, or omission or
alleged omission made in reliance upon and in conformity with information
furnished in writing to Nayna by such Holder Indemnitee or any of such Holder
Affiliate specifically for use in connection with such registration statement
and prospectus or post-effective amendment.
(f) To the fullest extent permitted by law, each selling Holder
of Registrable Securities will indemnify Nayna, each person, if any, who
controls Nayna within the meaning of the Securities Act or the Exchange Act,
each underwriter of Registrable Securities and their respective affiliates,
officers, directors, partners, successors and assigns (each an "Nayna
Indemnitee") against any actions, claims, losses, damages, liabilities and
expenses to which they or any of them may become subject under the Securities
Act, the Exchange Act or under any other statute or at common law or otherwise,
and, except as hereinafter provided, will promptly reimburse each Nayna
Indemnitee for any legal or other expenses reasonably incurred in connection
with investigating or defending any actions, whether or not resulting in any
liability, insofar as such actions, claims, losses, damages, liabilities and
expenses arise out of or are based upon any untrue statement or alleged untrue
statement of a material fact in any registration statement and any prospectus
filed pursuant to Section y6.14 or any post-effective amendment thereto, or any
omission or alleged omission to state a material fact required to be stated
therein or necessary to make the statements therein not misleading, which untrue
statement or alleged untrue statement or omission or alleged omission was made
in reliance upon and in conformity with information furnished in writing to
Nayna by such Holder or underwriter specifically for use in connection with such
registration statement, prospectus or post-effective amendment; provided,
however, that the obligations of each such selling Holder hereunder shall be
limited to an amount equal to the proceeds to such Holder from the sale of such
Holder's Registrable Securities hereunder.
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(g) Each person entitled to indemnification under this Section
y6.14 (an "Indemnified Person") shall give notice to the party required to
provide indemnification (the "Indemnifying Person") promptly after such
Indemnified Person has actual knowledge of any claim as to which indemnity may
be sought and shall permit the Indemnifying Person to assume the defense of any
such claim and any litigation resulting therefrom; provided, however, that
counsel for the Indemnifying Person who conducts the defense of such claim or
any litigation resulting therefrom shall be approved by the Indemnified Person
(whose approval shall not unreasonably be withheld), and the Indemnified Person
may participate in such defense at such party's expense (unless the Indemnified
Person has reasonably concluded that there may be a conflict of interest between
the Indemnifying Person and the Indemnified Person in such action, in which case
the fees and expenses of counsel for the Indemnified Person shall be at the
expense of the Indemnifying Person); and provided, further, that the failure of
any Indemnified Person to give notice as provided herein shall not relieve the
Indemnifying Person of its obligations under this Section y6.14 except to the
extent that the Indemnifying Person is materially prejudiced thereby. No
Indemnifying Person, in the defense of any such claim or litigation, shall
(except with the consent of each Indemnified Person) consent to entry of any
judgment or enter into any settlement that does not include as an unconditional
term thereof the giving by the claimant or plaintiff to such Indemnified Person
of a release from all liability in respect to such claim or litigation. Each
Indemnified Person shall furnish such information regarding itself or the claim
in question as an Indemnifying Person may reasonably request in writing and as
shall be reasonably required in connection with the defense of such claim and
litigation resulting therefrom.
(h) In order to provide for just and equitable contribution to
joint liability under the Securities Act in any case in which Nayna or any
Holder makes a claim for indemnification pursuant to this Section y6.14 but it
is judicially determined (by the entry of a final judgment or decree by a court
of competent jurisdiction and the expiration of time to appeal or the denial of
the last right of appeal) that such indemnification may not be enforced in such
case notwithstanding that this Section y6.14 provides for indemnification in
such case, then Nayna and such Holder shall contribute to the aggregate losses,
claims, damages or liabilities to which they may be subject (after contribution
from others) in such proportion as is appropriate to reflect the relative fault
of Nayna on the one hand and the Holder on the other in connection with the
statements or omissions that resulted in such losses, claims, damages or
liabilities, as well as any other relevant equitable considerations or, if the
allocation provided herein is not permitted by applicable law, in such
proportion as shall be permitted by applicable law and reflect as nearly as
possible the allocation provided herein. The relative fault of Nayna on the one
hand and of the Holder on the other shall be determined by reference to, among
other things, whether the untrue or alleged untrue statement of a material fact
or omission or alleged omission to state a material fact relates to information
supplied by Nayna on the one hand or by the Holder on the other, and each
party's relative intent, knowledge, access to information and opportunity to
correct or prevent such statement or omission; provided, however, that in any
such case (i) no Holder will be required to contribute any amount in excess of
the proceeds received by such Holder from the sale of Registrable Securities
pursuant to the Registration Statement; and (ii) no person or entity guilty of
fraudulent misrepresentation within the meaning of Section 11(f) of the
Securities Act will be entitled to contribution from any person or entity who
was not guilty of such fraudulent misrepresentation.
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6.15 Line of Credit. Within three weeks after Closing, Nayna shall
obtain a line of credit, $250,000 of which shall be for the sole benefit and use
of SSDI in its business operations.
7. Conditions to the Merger.
7.1 Conditions to Obligations of Each Party to Effect the Merger. The
respective obligations of each party to this Agreement to consummate and effect
this Agreement and the transactions contemplated hereby shall be subject to the
satisfaction at or prior to the Effective Time of each of the following
conditions, any of which may be waived, in writing, by agreement of all the
parties hereto:
(a) Shareholder Approval. This Agreement and the Merger shall be
approved by the shareholders of SSDI by the requisite vote under Colorado Law
and SSDI's Articles of Incorporation.
(b) 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 and remain in
effect, nor shall any proceeding brought by an administrative agency or
commission or other governmental authority or instrumentality, domestic or
foreign, seeking any of the foregoing be pending, which could reasonably be
expected to have a Material Adverse Effect on Nayna, either individually or
combined with the Surviving Corporation after the Effective Time, nor shall
there be any action taken, or any statute, rule, regulation or order enacted,
entered, enforced or deemed applicable to the Merger, which makes the
consummation of the Merger illegal.
(c) Governmental Approval. Nayna, SSDI and Merger Sub shall have
timely obtained from each Governmental Entity all approvals, waivers and
consents, necessary for consummation of or in connection with the Merger and the
several transactions contemplated hereby, including such approvals, waivers and
consents as may be required under the Securities Act, under state blue sky laws
and under HSR, other than filings and approvals relating to the Merger or
affecting Nayna's ownership of SSDI or any of its properties if failure to
obtain such approval, waiver or consent could not reasonably be expected to have
a Material Adverse Effect on Nayna after the Effective Time.
7.2 Additional Conditions to the Obligations of Nayna and Merger Sub.
The obligations of Nayna and Merger Sub to consummate and effect this Agreement
and the transactions contemplated hereby shall be subject to the satisfaction at
or prior to the Effective Time of each of the following conditions, any of which
may be waived, in writing, by Nayna:
(a) Representations, Warranties and Covenants. (i) The
representations and warranties of SSDI in this Agreement shall be true and
correct in all material respects, without regard to any qualification as to
materiality contained in such representation or warranty, on and as of the date
of this Agreement and on and as of the Closing as though such representations
and warranties were made on and as of such time (except for such representations
and warranties that speak specifically as of the date hereof or as of another
date, which shall be true and correct as of such date).
41
(b) Performance of Obligations. SSDI shall have performed and
complied in all material respects with all covenants, obligations and conditions
of this Agreement required to be performed and complied with by it as of the
Closing.
(c) Certificate of Officers. Nayna and Merger Sub shall have
received a certificate executed on behalf of SSDI by the chief executive officer
and chief financial officer of SSDI certifying that the conditions set forth in
Sections y7.2(a) and 7.2y(b) have been satisfied.
(d) Third Party Consents. All consents or approvals required to
be obtained in connection with the Merger and the other transactions
contemplated by this Agreement shall have been obtained and shall be in full
force and effect.
(e) No Governmental Litigation. There shall not be pending or
threatened any legal proceeding in which a Governmental Entity is or is
threatened to become a party or is otherwise involved, and neither Nayna nor
SSDI shall have received any communication from any Governmental Entity in which
such Governmental Entity indicates the probability of commencing any legal
proceeding or taking any other action: (i) challenging or seeking to restrain or
prohibit the consummation of the Merger; (ii) relating to the Merger and seeking
to obtain from Nayna or any of its Subsidiaries, or SSDI, any damages or other
relief that would be material to Nayna; (iii) seeking to prohibit or limit in
any material respect Nayna's ability to vote, receive dividends with respect to
or otherwise exercise ownership rights with respect to the stock of SSDI; or
(iv) that would materially and adversely affect the right of Nayna or SSDI to
own the assets or operate the business of SSDI.
(f) No Other Litigation. There shall not be pending any legal
proceeding: (i) challenging or seeking to restrain or prohibit the consummation
of the Merger or any of the other transactions contemplated by this Agreement;
(ii) relating to the Merger and seeking to obtain from Nayna or any of its
Subsidiaries, or SSDI, any damages or other relief that would be material to
Nayna; (iii) seeking to prohibit or limit in any material respect Nayna's
ability to vote, receive dividends with respect to or otherwise exercise
ownership rights with respect to any of SSDI Capital Stock; or (iv) which would
affect adversely the right of Nayna or SSDI to own the assets or operate the
business of SSDI.
(g) Employees. As of the Closing, there shall be sufficient SSDI
employees, in Nayna's reasonable good faith determination, to permit Nayna to
continue to operate the business of SSDI in the ordinary course of business
following the Closing.
(h) No Material Adverse Change. There shall not have occurred any
change in the financial condition, properties, assets (including intangible
assets), liabilities, business, operations, results of operations or prospects
of SSDI, taken as a whole, that, individually or in the aggregate, could
reasonably be expected to have a Material Adverse Effect on SSDI.
(i) Investor Representation Statement; Number of Shareholders.
Each of the SSDI's shareholders shall have delivered to Nayna a signed Investor
Representation Statement in substantially the form attached hereto as Exhibit D
and each such Statement shall be in full force and effect, and there shall be no
more than thirty-five (35) SSDI shareholders who are both (i) U.S. persons as
defined under Regulation S under the Securities Act (a "U.S. Person"); and (ii)
not "accredited investors" as defined in Rule 501 under the Securities Act.
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(j) Purchaser Representative. There shall be a Purchaser
Representative, as defined in Regulation D under the Securities Act, reasonably
satisfactory to Nayna, representing each holder of SSDI Capital Stock who is a
U.S. Person and not an "accredited investor" as defined in Rule 501 under the
Securities Act, and such Purchaser Representative shall have executed and
delivered documentation reasonably satisfactory to Nayna.
(k) Offer Letters and Non-Competition and Non-Solicitation
Agreements. The employees of SSDI set forth in Section y3.18 of the SSDI
Disclosure Schedule shall have accepted employment with Merger Sub pursuant to
the terms of a mutually-acceptable employment agreement or offer letter, as
applicable, and shall have entered into a mutually-acceptable Non-Competition
and Non-Solicitation Agreement.
(l) Dissenters' Rights. Not more than five percent (5%) of the
SSDI Capital Stock outstanding immediately prior to the Effective Time shall be
eligible as Dissenting Shares.
(m) Opinion. Counsel for SSDI shall have delivered to Nayna an
opinion in a form and substance reasonably satisfactory to Nayna and its
counsel.
(n) Financial Statements and Schedules. SSDI shall have delivered
the SSDI Financial Statements and all schedules required to be delivered by SSDI
pursuant to this Agreement, and the SSDI Financial Statements and such schedules
shall be satisfactory to Nayna in its sole discretion.
(o) Western Union. SSDI shall not have received from Western
Union, its affiliates or representatives a notice of cancellation or termination
or a request to modify or amend any terms of any existing agreement with Western
Union.
7.3 Additional Conditions to Obligations of SSDI. The obligations of
SSDI and its shareholders to consummate and effect this Agreement and the
transactions contemplated hereby shall be subject to the satisfaction at or
prior to the Effective Time of each of the following conditions, any of which
may be waived, in writing, by SSDI and its shareholders:
(a) Representations, Warranties and Covenants. (i) The
representations and warranties of Nayna and Merger Sub in this Agreement shall
be true and correct in all material respects without regard to any qualification
as to materiality contained in such representation or warranty on and as of the
date of this Agreement and on and as of the Closing Date as though such
representations and warranties were made on and as of such time (except for such
representations and warranties that speak specifically as of the date hereof or
as of another date, which shall be true and correct as of such date).
43
(b) Performance of Obligations. Nayna and Merger Sub shall have
performed and complied in all material respects with all covenants, obligations
and conditions of this Agreement required to be performed and complied with by
them as of the Closing.
(c) Certificate of Officers. SSDI shall have received a
certificate executed on behalf of Nayna and Merger Sub by the chief executive
officer and chief financial officer of Nayna and Merger Sub, respectively,
certifying that the conditions set forth in Sections y7.3(a) and y7.3(b) have
been satisfied.
(d) Separate Sale of SSDI Stock. The transactions contemplated by
that certain stock purchase agreement of even date herewith by and among the
shareholders of SSDI and the purchaser of SSDI stock shall have been
consummated.
8. Termination, Amendment and Waiver.
8.1 Termination. This Agreement may be terminated at any time prior
to the Effective Time (with respect to Section y8.1(b) through Section y8.1(d),
by written notice by the terminating party to the other party):
(a) by the mutual written consent of Nayna and SSDI;
(b) by either Nayna or SSDI if the Merger shall not have been
consummated by July 15, 2005; provided, however, that the right to terminate
this Agreement under this Section y8.1(b) shall not be available to any party
whose failure to fulfill any obligation under this Agreement has been the cause
of or resulted in the failure of the Merger to occur on or before such date;
(c) by either Nayna or SSDI if a court of competent jurisdiction
or other Governmental Entity shall have issued a nonappealable final order,
decree or ruling or taken any other action, in each case having the effect of
permanently restraining, enjoining or otherwise prohibiting the Merger, unless
the party relying on such order, decree or ruling or other action has not
complied with its obligations under this Agreement; or
(d) by Nayna or SSDI, if there has been a breach of any
representation, warranty, covenant or agreement on the part of the other party
set forth in this Agreement, which breach (i) causes the conditions set forth in
Section y7.1 or y7.2 (in the case of termination by Nayna) or Section y7.1 or
y7.3 (in the case of termination by SSDI) not to be satisfied and (ii) shall not
have been cured within ten (10) business days following receipt by the breaching
party of written notice of such breach from the other party.
8.2 Effect of Termination. In the event of termination of this
Agreement as provided in Section y8.1, there shall be no liability or obligation
on the part of Nayna, SSDI, Merger Sub or their respective officers, directors,
or stockholders, except to the extent that such termination results from the
willful breach by a party of any of its representations, warranties or covenants
set forth in this Agreement; provided, however, that the provisions of Sections
y6.5, y6.6, y6.13, and y10 shall remain in full force and effect and survive any
termination of this Agreement.
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8.3 Amendment. This Agreement may be amended by the parties hereto,
by action taken or authorized by their respective Boards of Directors. This
Agreement may not be amended except by an instrument in writing signed on behalf
of each of the parties hereto.
8.4 Extension; Waiver. At any time prior to the Effective Time, the
parties hereto, by action taken or authorized by their respective Boards of
Directors, may, to the extent legally allowed: (i) extend the time for the
performance of any of the obligations or other acts of the other parties hereto;
(ii) waive any inaccuracies in the representations and warranties contained
herein or in any document delivered pursuant hereto; and (iii) waive compliance
with any of the agreements or conditions contained herein. Any agreement on the
part of a party hereto to any such extension or waiver shall be valid only if
set forth in a written instrument signed on behalf of such party.
9. Indemnification.
9.1 Survival of Warranties. All representations and warranties made
by SSDI herein, or in any certificate, schedule or exhibit delivered pursuant
hereto, shall survive the Closing.
9.2 SSDI Indemnification. (i) Subject to the limitations set forth in
this Section y9, the shareholders of SSDI will jointly and severally indemnify
and hold harmless Nayna and the Surviving Corporation and their respective
officers, directors, agents, attorneys and employees, and each person, if any,
who controls or may control Nayna or the Surviving Corporation within the
meaning of the Securities Act from and against any and all losses, costs,
damages, liabilities and expenses arising from claims, demands, actions, causes
of action, including, without limitation, legal fees arising out of any
misrepresentation or breach of or default in connection with any of the
representations, warranties, covenants and agreements given or made by SSDI in
this Agreement, the SSDI Disclosure Schedule or any exhibit or schedule to this
Agreement.
9.3 Nayna Indemnification. (i) Subject to the limitations set forth
in this Section y9, Nayna will jointly and severally indemnify and hold harmless
shareholders of SSDI and the Surviving Corporation and their respective
officers, directors, agents, attorneys and employees, and each person, if any,
who controls or may control shareholders of SSDI or the Surviving Corporation
within the meaning of the Securities Act from and against any and all losses,
costs, damages, liabilities and expenses arising from claims, demands, actions,
causes of action, including, without limitation, legal fees arising out of any
misrepresentation or breach of or default in connection with any of the
representations, warranties, covenants and agreements given or made by Nayna in
this Agreement or any exhibit or schedule to this Agreement.
10. General Provisions.
10.1 Notices. All notices and other communications hereunder shall be
in writing and shall be deemed duly delivered: (i) upon receipt if delivered
personally; (ii) three (3) business days after being mailed by registered or
certified mail, postage prepaid, return receipt requested; (iii) one (1)
business day after it is sent by commercial overnight courier service; or (iv)
upon transmission if sent via facsimile with confirmation of receipt to the
parties at the following address (or at such other address for a party as shall
be specified upon like notice:
45
(a) if to Nayna or Merger Sub, to:
Nayna Networks, Inc.
180 Rose Orchard Way
San Jose, CA 95134
Attention:
Fax:
Tel:
with a copy to:
Hutchison & Mason, PLLC
3110 Edwards Mill Road
Raleigh, NC 27612
Attention: John M. Fogg
Fax: (919) 829-9696
Tel: (919) 829-9600
(b) if to SSDI, to:
South Seas Data, Inc.
109 Inverness Drive East
Englewood, Colorado 80112
Attention: John A. Marzano
Fax: (303) 649-1771
Tel: (303) 799-1500
with a copy to:
Banks & Imatani, P.C.
225 Union Blvd., Suite 310
Lakewood, CO 80228
Attention: Edward Imatani, Esq.
Fax: (303) 984-5606
Tel: (303) 984-5605
10.2 Definitions. In this Agreement any reference to any event,
change, condition or effect being "material" with respect to any entity or group
of entities means any material event, change, condition or effect related to the
financial condition, properties, assets (including intangible assets),
liabilities, business, operations or results of operations of such entity or
group of entities. In this Agreement any reference to a "Material Adverse
Effect" with respect to any entity or group of entities means any event, change
or effect that is materially adverse to the financial condition, properties,
assets, liabilities, business, operations, results of operations or prospects of
such entity and its subsidiaries, taken as a whole. In this Agreement any
reference to a party's "knowledge" means such party's actual knowledge after
reasonable inquiry of officers, directors and other employees of such party
reasonably believed to have knowledge of such matters. In this Agreement, an
entity shall be deemed to be a "Subsidiary" of a party if such party directly or
indirectly owns, beneficially or of record, at least 50% of the outstanding
equity or financial interests of such entity.
46
10.3 Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each of
the parties and delivered to the other parties, it being understood that all
parties need not sign the same counterpart.
10.4 Entire Agreement; Nonassignability; Parties in Interest. This
Agreement and the documents and instruments and other agreements specifically
referred to herein or delivered pursuant hereto, including the exhibits and
schedules hereto, including the SSDI Disclosure Schedule and the Nayna
Disclosure Schedule: (a) together 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 except for the Confidentiality Agreement,
which shall continue in full force and effect, and shall survive any termination
of this Agreement or the Closing, in accordance with its terms; and (b) are not
intended to confer upon any other person any rights or remedies hereunder and
shall not be assigned by operation of law or otherwise without the written
consent of the other party.
10.5 Severability. In the event that any provision of this Agreement
or the application thereof becomes or is declared by a court of competent
jurisdiction to be illegal, void or unenforceable, the remainder of this
Agreement will continue in full force and effect and the application of such
provision to other persons or circumstances will be interpreted so as reasonably
to effect the intent of the parties hereto. The parties further agree to replace
such void or unenforceable provision of this Agreement with a valid and
enforceable provision that will achieve, to the extent possible, the economic,
business and other purposes of such void or unenforceable provision.
10.6 Remedies Cumulative. Except as otherwise provided herein, any
and all remedies herein expressly conferred upon a party will be deemed
cumulative with and not exclusive of any other remedy conferred hereby, or by
law or equity upon such party, and the exercise by a party of any one remedy
will not preclude the exercise of any other remedy.
10.7 Governing Law. This Agreement shall be governed by and construed
in accordance with the internal laws of California applicable to parties
residing in California, without regard applicable principles of conflicts of
law. Each of the parties hereto irrevocably consents to the exclusive
jurisdiction of any court located within the County of Santa Clara, California
in connection with any matter based upon or arising out of this Agreement or the
matters contemplated hereby and it agrees that process may be served upon it in
any manner authorized by the laws of the State of California for such persons
and waives and covenants not to assert or plead any objection which it might
otherwise have to such jurisdiction and such process.
47
10.8 Rules of Construction. The parties hereto agree that they have
been represented by counsel during the negotiation, preparation and execution of
this Agreement and, therefore, waive the application of any law, regulation,
holding or rule of construction providing that ambiguities in an agreement or
other document will be construed against the party drafting such agreement or
document.
10.9 Amendment; Waiver. Any amendment or waiver of any of the terms
or conditions of this Agreement must be in writing and must be duly executed by
or on behalf of the party to be charged with such waiver. The failure of a party
to exercise any of its rights hereunder or to insist upon strict adherence to
any term or condition hereof on any one occasion shall not be construed as a
waiver or deprive that party of the right thereafter to insist upon strict
adherence to the terms and conditions of this Agreement at a later date.
Further, no waiver of any of the terms and conditions of this Agreement shall be
deemed to or shall constitute a waiver of any other term of condition hereof
(whether or not similar).
10.10 Enforcement. In the event of any controversy, claim, dispute,
or litigation between the parties hereto to enforce or interpret any of the
provisions of this Agreement or any right of a party hereto, the non-prevailing
party to such dispute or litigation agrees to pay to the prevailing party all
costs and expenses, including reasonable attorneys fees incurred by the
prevailing party, including without limitation, fees incurred during a trial of
any action and any fees incurred as a result of an appeal from a judgment
entered in such litigation.
10.11 Survival. The provisions set forth in Sections 6.6, 6.7, 6.8,
6.10, 6.11, 6.14, 9 and 10.10 hereof shall survive Closing.
[SIGNATURE PAGE IMMEDIATELY FOLLOWS]
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IN WITNESS WHEREOF, SSDI, Nayna, Merger Sub and Shareholders' Agent
have caused this Agreement to be executed and delivered by each of them or their
respective officers thereunto duly authorized, all as of the date first written
above.
SOUTH SEAS DATA, INC.
By: /s/ John A. Marzano
------------------------------------------
John A. Marzano
President
NAYNA NETWORKS, INC.
By: /s/ Naveen Bisht
-------------------------------------------
Naveen Bisht
President and Chief Executive Officer
SSDI ACQUISITION CORPORATION
By: /s/ Naveen Bisht
-------------------------------------------
Naveen Bisht
President and Chief Executive Officer
SHAREHOLDERS' AGENT
By: /s/ John A. Marzano
-------------------------------------------
John A. Marzano
49