Exhibit 2.1
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AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
AMONG
BLUE COAT SYSTEMS, INC.,
PIVOT ACQUISITION CORP.,
PERMEO TECHNOLOGIES, INC.
AND
CHRIS PACITTI, as
STOCKHOLDERS' REPRESENTATIVE
Dated as of December 30, 2005
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TABLE OF CONTENTS
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Page
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ARTICLE I THE MERGER..........................................................2
SECTION 1.01 The Merger...............................................2
SECTION 1.02 Effective Time; Closing..................................3
SECTION 1.03 Effect of the Merger.....................................3
SECTION 1.04 Certificate of Incorporation and Bylaws of the
Surviving Corporation................................................3
SECTION 1.05 Directors and Officers...................................3
ARTICLE II MERGER CONSIDERATION; EXCHANGE OF CERTIFICATES.....................4
SECTION 2.01 Merger Consideration.....................................4
SECTION 2.02 Exchange of Certificates................................14
SECTION 2.03 Stock Transfer Books....................................17
SECTION 2.04 Company Stock Options; Warrants.........................17
SECTION 2.05 Reserved................................................18
SECTION 2.06 Dissenting Shares.......................................18
ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE COMPANY....................18
SECTION 3.01 Organization and Qualification..........................19
SECTION 3.02 Certificate of Incorporation and Bylaws.................19
SECTION 3.03 No Subsidiaries.........................................20
SECTION 3.04 Capitalization..........................................20
SECTION 3.05 Authority Relative to This Agreement....................22
SECTION 3.06 No Conflict; Required Filings and Consents..............23
SECTION 3.07 Permits; Compliance.....................................23
SECTION 3.08 Financial Statements....................................24
SECTION 3.09 Absence of Certain Changes or Events....................25
SECTION 3.10 Absence of Litigation...................................25
SECTION 3.11 Employee Benefit Plans; Labor Matters...................26
SECTION 3.12 Contracts...............................................29
SECTION 3.13 Environmental Matters...................................31
SECTION 3.14 Intellectual Property...................................32
SECTION 3.15 Taxes...................................................35
SECTION 3.16 Vote Required...........................................38
SECTION 3.17 Assets; Absence of Liens and Encumbrances...............38
SECTION 3.18 Owned Real Property.....................................38
SECTION 3.19 Certain Interests.......................................38
SECTION 3.20 Insurance Policies......................................39
SECTION 3.21 Restrictions on Business Activities.....................39
SECTION 3.22 Brokers.................................................39
SECTION 3.23 State Takeover Statutes.................................40
SECTION 3.24 Customers and Suppliers.................................40
SECTION 3.25 Inventory...............................................40
SECTION 3.26 Accounts Receivable; Bank Accounts......................40
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SECTION 3.27 Powers of Attorney......................................40
SECTION 3.28 Offers..................................................40
SECTION 3.29 Warranties..............................................41
SECTION 3.30 Books and Records.......................................41
SECTION 3.31 Tax Matters.............................................41
SECTION 3.32 No Illegal Payments.....................................41
SECTION 3.33 Reserved................................................41
SECTION 3.34 No Misstatements........................................41
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB...........42
SECTION 4.01 Organization and Qualification..........................42
SECTION 4.02 Authority Relative to This Agreement....................43
SECTION 4.03 Capital Structure.......................................43
SECTION 4.04 No Conflict; Required Filings and Consents..............44
SECTION 4.05 SEC Filings; Financial Statements.......................44
SECTION 4.06 Interim Operations of Merger Sub........................45
SECTION 4.07 Valid Issuance of Parent Shares.........................45
SECTION 4.08 Brokers.................................................45
SECTION 4.09 Tax Matters.............................................45
SECTION 4.10 Litigation..............................................45
SECTION 4.11 Intellectual Property...................................45
SECTION 4.12 NASDAQ Requirements.....................................46
SECTION 4.13 Absence of Parent Material Adverse Effect...............46
SECTION 4.14 No Misstatements........................................46
ARTICLE V CONDUCT OF BUSINESSES PENDING THE MERGER...........................46
SECTION 5.01 Conduct of Business by the Company Pending the Merger...46
SECTION 5.02 Litigation..............................................49
SECTION 5.03 Notification of Certain Matters.........................50
ARTICLE VI ADDITIONAL AGREEMENTS.............................................50
SECTION 6.01 California Permit; Company Stockholder Approval.........50
SECTION 6.02 Access to Information; Confidentiality..................52
SECTION 6.03 No Solicitation of Transactions.........................52
SECTION 6.04 Employee Benefits Matters...............................53
SECTION 6.05 Further Action; Consents; Filings.......................54
SECTION 6.06 Plan of Reorganization..................................55
SECTION 6.07 No Public Announcement..................................55
SECTION 6.08 Expenses................................................55
SECTION 6.09 Affiliate Agreements....................................55
SECTION 6.10 Reserved................................................55
SECTION 6.11 Indemnification of Officers and Directors...............55
SECTION 6.12 Nasdaq National Market Listing..........................56
SECTION 6.13 Section 16 Relief.......................................56
SECTION 6.14 Certificate Amendment...................................56
SECTION 6.15 Conversion Schedule.....................................57
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SECTION 6.16 Liquidation Bonus Plan..................................57
ARTICLE VII CONDITIONS TO THE MERGER.........................................58
SECTION 7.01 Conditions to the Obligations of Each Party.............58
SECTION 7.02 Conditions to the Obligations of Parent and Merger Sub..58
SECTION 7.03 Conditions to the Obligations of the Company............61
ARTICLE VIII TERMINATION, AMENDMENT AND WAIVER...............................62
SECTION 8.01 Termination.............................................62
SECTION 8.02 Effect of Termination...................................63
SECTION 8.03 Amendment...............................................63
SECTION 8.04 Waiver..................................................63
ARTICLE IX INDEMNIFICATION...................................................63
SECTION 9.01 Survival of Representations and Warranties..............63
SECTION 9.02 Indemnification by the Company Stockholders.............64
SECTION 9.03 Reserved................................................66
SECTION 9.04 Indemnification Procedures..............................66
SECTION 9.05 Stockholders' Representative............................68
ARTICLE X GENERAL PROVISIONS.................................................69
SECTION 10.01 Notices.................................................69
SECTION 10.02 Certain Definitions.....................................70
SECTION 10.03 Severability............................................71
SECTION 10.04 Assignment; Binding Effect; Benefit.....................71
SECTION 10.05 Incorporation of Exhibits...............................71
SECTION 10.06 Specific Performance....................................72
SECTION 10.07 Governing Law; Forum....................................72
SECTION 10.08 Time of the Essence.....................................72
SECTION 10.09 Reserved................................................72
SECTION 10.10 Construction and Interpretation.........................72
SECTION 10.11 Further Assurances......................................73
SECTION 10.12 Headings................................................73
SECTION 10.13 Counterparts............................................73
SECTION 10.14 Entire Agreement........................................73
SECTION 10.15 Schedules...............................................73
Exhibit A Form of Voting Agreement
Exhibit B Form of Escrow Agreement
Exhibit C Form of Company Affiliate Agreement
Exhibit D Form of Company Counsel Legal Opinion
Exhibit E Form of FIRPTA Notification Letter
Exhibit F Form of FIRPTA Notice to IRS
Schedule 2.01(b) Schedule of Merger Consideration
Schedule 6.09 Affiliates
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AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
AGREEMENT AND PLAN OF MERGER AND REORGANIZATION, dated as of December
30, 2005 (this "Agreement"), among BLUE COAT SYSTEMS, INC., a Delaware
corporation ("Parent"), PIVOT ACQUISITION CORP., a Delaware corporation and a
wholly owned subsidiary of Parent ("Merger Sub"), PERMEO TECHNOLOGIES, INC., a
Delaware corporation (the "Company"), and Chris Pacitti, as Stockholders'
Representative (as defined in Section 9.05 hereof).
W I T N E S S E T H
WHEREAS, upon the terms and subject to the conditions of this Agreement
and in accordance with the Delaware General Corporation Law (the "DGCL"), Parent
and the Company will enter into a business combination transaction pursuant to
which Merger Sub will merge with and into the Company (the "Merger");
WHEREAS, the Board of Directors of the Company has (i) determined that
the Merger is fair to, and in the best interests of, the Company and its
stockholders, (ii) unanimously approved and adopted this Agreement, the Merger,
and the other transactions contemplated by this Agreement, and (iii) determined
to unanimously recommend that the stockholders of the Company approve and adopt
this Agreement and the Merger;
WHEREAS, the Boards of Directors of each of Parent and Merger Sub have
(i) determined that the Merger is consistent with and in furtherance of the
long-term business strategy of Parent and fair to, and in the best interests of,
Parent, Merger Sub and their respective stockholders and (ii) approved and
adopted this Agreement, the Merger, and the other transactions contemplated by
this Agreement;
WHEREAS, Parent, as the sole stockholder of Merger Sub, has approved and
adopted this Agreement, the Merger, and the other transactions contemplated by
this Agreement;
WHEREAS, for Federal income tax purposes, the Merger is intended to
qualify as a reorganization under the provisions of Section 368(a) of the United
States Internal Revenue Code of 1986, as amended (the "Code");
WHEREAS, each person listed on Schedule 6.09 hereto owns such number of
shares of common stock, $0.001 par value, of the Company (the "Company Common
Stock"), such number of shares of Series A Convertible Preferred Stock, par
value $0.001 per share, of the Company (the "Company Series A Preferred Stock"),
such number of shares of Series B Convertible Preferred Stock, par value $0.001
per share, of the Company (the "Company Series B Preferred Stock"), such number
of shares of Series C Convertible Preferred Stock, par value $0.001 per share,
of the Company (the "Company Series C Preferred Stock"), and such number of
shares of Series C-1 Convertible Preferred Stock, par value $0.001 per share, of
the Company (the "Company Series C-1 Preferred Stock" and, together with the
Company Series A Preferred Stock, Company Series B Preferred Stock and Company
Series C Preferred Stock, the "Company Preferred Stock," and, the Company Common
Stock together with the Company Preferred Stock, the "Company Stock") as is set
forth opposite such stockholder's name in Section 3.04 of the Company Disclosure
Schedule (as defined in Article III) (such stockholders being referred to herein
as the "Principal Stockholders");
WHEREAS, pursuant to the Merger, each outstanding share of Company Stock
shall be converted into the right to receive shares of Parent's authorized
common stock, par value $0.0001 per share ("Parent Common Stock"), and cash, at
the rates determined in this Agreement;
WHEREAS, as a condition and inducement to Parent's and Merger Sub's
entering into this Agreement and incurring the obligations set forth herein,
concurrently with the execution and delivery of this Agreement, each of the
Principal Stockholders is entering into a voting agreement with Parent
(a "Voting Agreement"), dated the date hereof and substantially in the form
attached hereto as Exhibit A;
WHEREAS, a portion of the Parent Common Stock otherwise issuable by
Parent in connection with the Merger shall be placed in escrow by Parent, the
release of which amount shall be contingent upon certain events and conditions,
all as set forth in this Agreement and the Escrow Agreement (as defined in
Section 2.02(b)); and
WHEREAS, certain capitalized terms used in this Agreement are defined in
Section 10.02 of this Agreement.
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants and agreements herein contained, and intending to be legally bound
hereby, Parent, Merger Sub, the Company and the Stockholders' Representative
hereby agree as follows:
ARTICLE I
THE MERGER
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SECTION 1.01 The Merger. Upon the terms of this Agreement and
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subject to the conditions set forth in this Agreement, and in accordance with
the DGCL, at the Effective Time (as defined in Section 1.02), Merger Sub shall
be merged with and into the Company (the "Reverse Merger"). As a result of the
Reverse Merger, the separate corporate existence of Merger Sub shall cease, and
the Company shall continue as the surviving corporation of the Reverse Merger
(the "Surviving Corporation"). As soon as reasonably practicable following the
consummation of the Reverse Merger, but in any event within sixty (60) days
thereafter, the Company shall be merged (the "Second-Step Merger") with and into
Parent or a wholly-owned, first-tier subsidiary of Parent; provided, however,
that such Second-Step Merger shall not be required if Parent and the
Stockholders' Representative determine in good faith in writing after
consultation with their respective counsel that the consummation of the Reverse
Merger, by itself, is sufficient to cause the Merger to satisfy the requirement
of Code Section 368(a)(2)(E)(ii). Following the Second-Step Merger, if it
occurs, the separate corporate existence of the Company shall cease and Parent
or its wholly-owned subsidiary, as the case may be, shall continue as the
Surviving Corporation. The Reverse Merger is referred to herein as the "Merger."
For purposes of Section 3.31, Section 4.09 and Section 6.06, if the Second-Step
Merger is consummated, then "Merger" shall refer to the Reverse Merger and the
Second-Step Merger, collectively or seriatim, as appropriate.
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SECTION 1.02 Effective Time; Closing. As promptly as practicable
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following the satisfaction or waiver of the conditions set forth in Article VII
(or such other date as may be agreed by Parent and the Company), the parties
hereto shall cause the Merger to be consummated by (i) filing a certificate of
merger (the "Certificate of Merger") with the Secretary of State of the State of
Delaware in such form as is required by, and executed in accordance with, the
relevant provisions of the DGCL and (ii) making all other filings and recordings
required under the DGCL. The term "Effective Time" means the date and time of
the filing of the Certificate of Merger (or such later time as may be agreed by
each of the parties hereto and specified in the Certificate of Merger).
Immediately prior to the filing of the Certificate of Merger, a closing (the
"Closing") will be held at the offices of Gunderson Dettmer Stough Villeneuve
Franklin & Hachigian, LLP ("Gunderson Dettmer"), 155 Constitution Drive, Menlo
Park, California (or such other place as the parties may agree). The date on
which the Closing shall occur is referred to herein as the "Closing Date."
SECTION 1.03 Effect of the Merger. At and after the Effective Time,
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the Merger shall have the effects as set forth in the applicable provisions of
the DGCL. Without limiting the generality of the foregoing, and subject thereto,
at the Effective Time, all the property, rights, privileges, powers and
franchises of each of the Company and Merger Sub shall vest in the Surviving
Corporation, and all debts, liabilities, obligations, restrictions, disabilities
and duties of each of the Company and Merger Sub shall become the debts,
liabilities, obligations, restrictions, disabilities and duties of the Surviving
Corporation.
SECTION 1.04 Certificate of Incorporation and Bylaws of the Surviving
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Corporation.
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(a) At the Effective Time, the Certificate of Incorporation
of the Company as the Surviving Corporation shall be amended and restated to
read the same as the Certificate of Incorporation of Merger Sub as in effect
immediately prior to the Effective Time, except that Section 1 of the amended
and restated Certificate of Incorporation of the Surviving Corporation, instead
of reading the same as Section 1 of the Certificate of Incorporation of Merger
Sub, shall read as follows: "The name of this corporation is Permeo
Technologies, Inc."
(b) At the Effective Time, the Bylaws of the Company as the
Surviving Corporation shall be amended to read the same as the Bylaws of Merger
Sub as in effect immediately prior to the Effective Time, except that all
references to Merger Sub in the Bylaws of the Surviving Corporation shall be
changed to refer to Permeo Technologies, Inc.
SECTION 1.05 Directors and Officers. The directors of Merger Sub
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immediately prior to the Effective Time shall be the initial directors of the
Surviving Corporation, each to hold office in accordance with the Certificate of
Incorporation and Bylaws of the Surviving Corporation, and the officers of
Merger Sub immediately prior to the Effective Time shall be the initial officers
of the Surviving Corporation, in each case until their respective successors are
duly elected or appointed and qualified.
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ARTICLE II
MERGER CONSIDERATION; EXCHANGE OF CERTIFICATES
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SECTION 2.01 Merger Consideration. The consideration in the Merger
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consists of (i) shares of Parent Common Stock, (ii) cash and (iii) a payment
under the Company's Liquidation Bonus Plan. If the Average Closing Price (as
defined below) is $45.00, the Aggregate Merger Consideration (as defined below)
will be $59,999,980.00 (assuming that the Bridge Amount (as defined below) is
not greater than $1,000,000). The Aggregate Merger Consideration will fluctuate
as described in this Section 2, based on changes in the Average Closing Price.
The Parent Common Stock issued in the Merger, or Parent Shares (as defined
below), consists of 1,104,444 shares of Parent Common Stock, less an amount
necessary to compensate for the Bonus Amount (as defined below); provided,
however, that the Parent Shares will be subject to adjustment if the Average
Closing Price is below $36.00 or above $54.00 (as described below). The cash
paid in the Merger will be $10,300,000.00, reduced by certain bridge loan and
litigation amounts. The Parent Cash is also subject to adjustment if the Average
Closing Price is below $36.00 or above $54.00 (as described below). The payment
under the Company's Liquidation Bonus Plan, or Bonus Amount, will be twelve
percent (12%) of the Aggregate Merger Consideration. The foregoing description
is a general summary, and is subject to the more detailed description set forth
herein.
The Company has four different series of Preferred Stock outstanding
(and since the Company Series B Preferred Stock has cumulative dividends and was
issued on three different issue dates, this Section 2 treats the Company Series
B Preferred Stock as three different series of Preferred Stock). The Company
Preferred Stock is entitled to certain liquidation preferences over the Company
Common Stock. After the payment of the aggregate liquidation preferences of the
Company Preferred Stock, the Company Preferred Stock will share or participate
with the Company Common Stock in any remaining proceeds. Since the holder's of
Company Stock receive cash and stock in the Merger, this Section 2 describes
cash and stock exchange ratios for each series of the Company Preferred Stock
and for the Company Common Stock.
Schedule 2.01 of this Agreement is a spreadsheet that calculates each of
the exchange ratios in the Merger, assuming that the Average Closing Price is
$45.00 and based on the capitalization of the Company included in the Company's
representation as to capitalization contained in Section 3.04 of this Agreement.
(a) At the Effective Time, by virtue of the Merger and
without any action on the part of Parent, Merger Sub, the Company or the holders
of any of the following securities:
(i)
(1) each share of Company Series C-1
Preferred Stock issued and outstanding immediately prior to the Effective Time
(other than any shares of Company Series C-1 Preferred Stock to be canceled
pursuant to Section 2.01(a)(ii) and any Dissenting Shares (as defined in Section
2.06)) shall be converted into the right to receive (a) such number of shares of
Parent Common Stock equal to the sum of (i) the Series C-1 Stock Exchange Ratio
and (ii) the product obtained by multiplying the Participating Stock Exchange
Ratio by the then effective Conversion Rate of the Company Series C-1 Preferred
Stock, and (b) an amount of cash equal to the sum of (i) the Series C-1 Cash
Exchange Ratio and (ii) the product obtained by multiplying the Participating
Cash Exchange Ratio by the then effective Conversion Rate of the Company Series
C-1 Preferred Stock (each such term as defined in Section 2.01(b));
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(2) each share of Company Series C Preferred
Stock issued and outstanding immediately prior to the Effective Time (other than
any shares of Company Series C Preferred Stock to be canceled pursuant to
Section 2.01(a)(ii) and any Dissenting Shares (as defined in Section 2.06))
shall be converted into the right to receive (a) such number of shares of Parent
Common Stock equal to the sum of (i) the Series C Stock Exchange Ratio and (ii)
the product obtained by multiplying the Participating Stock Exchange Ratio by
the then effective Conversion Rate of the Company Series C Preferred Stock, and
(b) an amount of cash equal to the sum of (i) the Series C Cash Exchange Ratio
and (ii) the product obtained by multiplying the Participating Cash Exchange
Ratio by the then effective Conversion Rate of the Company Series C Preferred
Stock (each such term as defined in Section 2.01(b));
(3) each share of Company Series B Preferred
Stock originally issued as of April 30, 2002 ("Company Series B April 2002
Preferred Stock") and issued and outstanding immediately prior to the Effective
Time (other than any shares of Company Series B Preferred Stock to be canceled
pursuant to Section 2.01(a)(ii) and any Dissenting Shares (as defined in Section
2.06)) shall be converted into the right to receive (a) such number of shares of
Parent Common Stock equal to the sum of (i) the Series B April 2002 Stock
Exchange Ratio and (ii) the product obtained by multiplying the Participating
Stock Exchange Ratio by the then effective Conversion Rate of the Company Series
B Preferred Stock, and (b) an amount of cash equal to the sum of (i) the Series
B April 2002 Cash Exchange Ratio and (ii) the product obtained by multiplying
the Participating Cash Exchange Ratio by the then effective Conversion Rate of
the Company Series B Preferred Stock (each such term as defined in Section
2.01(b));
(4) each share of Company Series B Preferred
Stock originally issued as of September 18, 2002 ("Company Series B September
2002 Preferred Stock") and issued and outstanding immediately prior to the
Effective Time (other than any shares of Company Series B Preferred Stock to be
canceled pursuant to Section 2.01(a)(ii) and any Dissenting Shares (as defined
in Section 2.06)) shall be converted into the right to receive (a) such number
of shares of Parent Common Stock equal to the sum of (i) the Series B September
2002 Stock Exchange Ratio and (ii) the product obtained by multiplying the
Participating Stock Exchange Ratio by the then effective Conversion Rate of the
Company Series B Preferred Stock, and (b) an amount of cash equal to the sum of
(i) the Series B September 2002 Cash Exchange Ratio and (ii) the product
obtained by multiplying the Participating Cash Exchange Ratio by the then
effective Conversion Rate of the Company Series B Preferred Stock (each such
term as defined in Section 2.01(b));
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(5) each share of Company Series B Preferred
Stock originally issued as of May 20, 2003 ("Company Series B May 2003 Preferred
Stock") and issued and outstanding immediately prior to the Effective Time
(other than any shares of Company Series B Preferred Stock to be canceled
pursuant to Section 2.01(a)(ii) and any Dissenting Shares (as defined in Section
2.06)) shall be converted into the right to receive (a) such number of shares of
Parent Common Stock equal to the sum of (i) the Series B May 2003 Stock Exchange
Ratio and (ii) the product obtained by multiplying the Participating Stock
Exchange Ratio by the then effective Conversion Rate of the Company Series B
Preferred Stock, and (b) an amount of cash equal to the sum of (i) the Series B
May 2003 Cash Exchange Ratio and (ii) the product obtained by multiplying the
Participating Cash Exchange Ratio by the then effective Conversion Rate of the
Company Series B Preferred Stock (each such term as defined in Section 2.01(b));
(6) each share of Company Series A Preferred
Stock issued and outstanding immediately prior to the Effective Time (other than
any shares of Company Series A Preferred Stock to be canceled pursuant to
Section 2.01(a)(ii) and any Dissenting Shares (as defined in Section 2.06))
shall be converted into the right to receive (a) such number of shares of Parent
Common Stock equal to the sum of (i) the Series A Stock Exchange Ratio and (ii)
the product obtained by multiplying the Participating Stock Exchange Ratio by
the then effective Conversion Rate of the Company Series A Preferred Stock, and
(b) an amount of cash equal to the sum of (i) the Series A Cash Exchange Ratio
and (ii) the product obtained by multiplying the Participating Cash Exchange
Ratio by the then effective Conversion Rate of the Company Series A Preferred
Stock (each such term as defined in Section 2.01(b)); and
(7) each share of Company Common Stock
issued and outstanding immediately prior to the Effective Time (other than any
shares of Company Common Stock to be canceled pursuant to Section 2.01(a)(ii)
and any Dissenting Shares (as defined in Section 2.06)) shall be converted into
the right to receive (a) such number of shares of Parent Common Stock equal to
the Participating Stock Exchange Ratio and (b) an amount of cash equal to the
Participating Cash Exchange Ratio (each as defined in Section 2.01(b));
(ii) each share of Company Stock held in the treasury
of the Company and each share of Company Stock owned by Parent or any direct or
indirect wholly owned subsidiary of Parent or of the Company immediately prior
to the Effective Time shall be cancelled and extinguished without any conversion
thereof and no payment or distribution shall be made with respect thereto; and
(iii) each share of common stock, par value $.0001 per
share, 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, par value $$.0001 per share, of the
Surviving Corporation. The stock certificate evidencing shares of common stock
of Merger Sub shall then evidence ownership of the outstanding shares of common
stock of the Surviving Corporation.
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(b) As used in this Agreement, the following terms have the
following meanings:
(i) "Aggregate Merger Consideration" means the sum
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of (x) the product obtained by multiplying the Parent Shares by the Average
Closing Price, (y) the Parent Cash and (z) the Bonus Amount.
(ii) "Average Closing Price" means the average
---------------------
closing price per share of Parent Common Stock on The Nasdaq National Market
over the ten (10) trading day period ending on and including the trading day
that is the third trading day prior to the Closing Date.
(iii) "Bonus Amount" means an amount equal to twelve
------------
percent (12%) of the Aggregate Merger Consideration.
(iv) "Bridge Amount" means, solely with respect to
-------------
the Bridge Notes that remain outstanding at the Effective Time (such Bridge
Notes, the "Closing Bridge Notes"), the aggregate amount in excess of $1,000,000
that, immediately after the Effective Time, would be required to be paid to the
holders of the Closing Bridge Notes in order to fully pay all obligations owing
under the Closing Bridge Notes. For avoidance of doubt, such amount shall
include (x) the aggregate amount of principal and accrued interest that remains
outstanding under the Closing Bridge Notes at the Effective Time plus (y) the
aggregate of any additional payments that, immediately after the Effective Time,
will be required to be paid under the Closing Bridge Notes as a result of the
consummation of the Merger (or a combination of the Merger and the occurrence of
another event or events).
(v) "Bridge Note" shall mean any promissory note,
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simple or convertible, that is issued by the Company to any party, including
Parent, on or after the date of this Agreement and prior to the Effective Time.
(vi) "Company Preferred Stock Liquidation Preference
----------------------------------------------
Parent Cash" means the sum of (a) the product obtained by multiplying the Series
- -----------
A Cash Exchange Ratio by the number of shares of Company Series A Preferred
Stock outstanding immediately prior to the Effective Time, (b) the product
obtained by multiplying the Series B April 2002 Cash Exchange Ratio by the
number of shares of Company Series B April 2002 Preferred Stock outstanding
immediately prior to the Effective Time, (c) the product obtained by multiplying
the Series B September 2002 Cash Exchange Ratio by the number of shares of
Company Series B September 2002 Preferred Stock outstanding immediately prior to
the Effective Time, (d) the product obtained by multiplying the Series B May
2003 Cash Exchange Ratio by the number of shares of Company Series B May 2003
Preferred Stock outstanding immediately prior to the Effective Time, (e) the
product obtained by multiplying the Series C Cash Exchange Ratio by the number
of shares of Company Series C Preferred Stock outstanding immediately prior to
the Effective Time, and (f) the product obtained by multiplying the Series C-1
Cash Exchange Ratio by the number of shares of Company Series C-1 Preferred
Stock outstanding immediately prior to the Effective Time.
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(vii) "Company Preferred Stock Liquidation Preference
----------------------------------------------
Parent Shares" means the sum of (a) the product obtained by multiplying the
- -------------
Series A Stock Exchange Ratio by the number of shares of Company Series A
Preferred Stock outstanding immediately prior to the Effective Time, (b) the
product obtained by multiplying the Series B April 2002 Stock Exchange Ratio by
the number of shares of Company Series B April 2002 Preferred Stock outstanding
immediately prior to the Effective Time, (c) the product obtained by multiplying
the Series B September 2002 Stock Exchange Ratio by the number of shares of
Company Series B September 2002 Preferred Stock outstanding immediately prior to
the Effective Time, (d) the product obtained by multiplying the Series B May
2003 Stock Exchange Ratio by the number of shares of Company Series B May 2003
Preferred Stock outstanding immediately prior to the Effective Time, (e) the
product obtained by multiplying the Series C Stock Exchange Ratio by the number
of shares of Company Series C Preferred Stock outstanding immediately prior to
the Effective Time, and (f) the product obtained by multiplying the Series C-1
Stock Exchange Ratio by the number of shares of Company Series C-1 Preferred
Stock outstanding immediately prior to the Effective Time.
(viii) "Conversion Rate" of a series of Company
---------------
Preferred Stock means the rate at which one share of such series of Company
Preferred Stock converts into Company Common Stock.
(ix) "Escrow Shares" means a number of shares of
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Parent Common Stock equal to fifteen percent (15%) of the sum the (A) Parent
Shares and (B) the quotient obtained by dividing the Bonus Amount by the Average
Closing Price.
(x) "Fully Diluted Common Shares Amount" means a
----------------------------------
number of shares of Company Common Stock equal to the sum of (x) the number of
shares of Company Common Stock issued and outstanding immediately prior to the
Effective Time and (y) the number of shares of Company Common Stock issuable
upon exercise, conversion and/or exchange of all securities issued and
outstanding immediately prior to the Effective Time that are exercisable,
convertible and/or exchangeable for shares of Company Common Stock (or other
capital stock of the Company), including, without limitation, (i) the Company
Preferred Stock, and (ii) all vested Company Options (as defined in Section 2.04
below), whether or not exercisable. Notwithstanding the foregoing, "Fully
Diluted Common Shares Amount" shall not include unvested Company Options issued
and outstanding immediately prior to the Effective Time.
(xi) "Litigation Amounts" means any amounts paid by
------------------
the Company on or after the date of this Agreement and on or before the
Effective Time in connection with the matter described in Item #1 of Section
3.10 of the Company Disclosure Schedule.
(xii) "Parent Cash" means $10,300,000 less (i) the
-----------
Bridge Amount and (ii) the Litigation Amounts; provided, however, that
(1) if the Average Closing Price is between
$31.50 and $36.00, then Parent Cash shall be increased by that amount of cash
calculated using the following formula: 0.20 * ( ($39,700,000 - (1,104,444 *
Average Closing Price) ) * 0.75);
8
(2) if the Average Closing Price is equal to
or below $31.50, then Parent Cash shall be increased by that amount of cash
calculated using the following formula: $750,000.00 + (0.20 * ( ($34,700,000 -
(1,104,444 * Average Closing Price) ) * 0.50) );
(3) if the Average Closing Price is between
$54.00 and $58.50, then Parent Cash shall be reduced by that amount of cash
calculated using the following formula: 0.143 * ( ( (1,104,444 * Average Closing
Price) - $59,700,000) * 0.75); and
(4) if the Average Closing Price is equal to
or above $58.50, then Parent Cash shall be reduced by that that amount of cash
calculated using the following formula: $536,250.00 + (0.143 * ( ( (1,104,444 *
Average Closing Price) - $64,700,000) * 0.50) ).
(xiii) By way of examples, (A) if the Average Closing
Price is $34.00, the amount of Parent Cash shall be increased by $322,335.60
pursuant to (1) above; (B) if the Average Closing Price is $29.00, the amount of
Parent Cash shall be increased by $1,017,112.40 pursuant to (2) above; (C) if
the Average Closing Price is $56.00, the amount of Parent Cash shall be reduced
by $230,465.66 pursuant to (3) above; and (D) if the Average Closing Price is
$61.00, the amount of Parent Cash shall be reduced by $727,232.51 shares
pursuant to (4) above.
(xiv) "Parent Cash Percentage" means the quotient
----------------------
obtained by dividing (x) the Parent Cash, by (y) the sum of (i) the Parent Cash
and (ii) the product obtained by multiplying the Parent Shares by the Average
Closing Price.
(xv) "Parent Shares" means 1,104,444 shares of Parent
-------------
Common Stock, less the quotient obtained by dividing the Bonus Amount by the
Average Closing Price; provided, however, that
(1) if the Average Closing Price is between
$31.50 and $36.00, then Parent Shares shall be increased by that number of
shares calculated using the following formula: 0.80 * ( ( ($39,700,000 -
(1,104,444 * Average Closing Price) ) * 0.75) / Average Closing Price), rounded
to the nearest whole share;
(2) if the Average Closing Price is equal to
or below $31.50, then Parent Shares shall be increased by that number of shares
calculated using the following formula: ($3,000,000 / Average Closing Price) +
(0.80 * ( ( ($34,700,000 - (1,104,444 * Average Closing Price) ) * 0.50 ) /
Average Closing Price) ), rounded to the nearest whole share;
(3) if the Average Closing Price is between
$54.00 and $58.50, then Parent Shares shall be reduced by that number of shares
calculated using the following formula: 0.857 * ( ( ( (1,104,444 * Average
Closing Price) - $59,700,000) * 0.75 ) / Average Closing Price), rounded to the
nearest whole share; and
9
(4) if the Average Closing Price is equal to
or above $58.50, then Parent Shares shall be reduced by that number of shares
calculated using the following formula: ($3,213,750.00 / Average Closing Price)
+ (0.857 * ( ( ( (1,104,444 * Average Closing Price) - $64,700,000) * 0.50) /
Average Closing Price) ), rounded to the nearest whole share.
By way of examples, (A) if the Average Closing Price is $34.00, the number of
Parent Shares shall be increased by 37,922 shares pursuant to (1) above; (B) if
the Average Closing Price is $29.00, the number of Parent Shares shall be
increased by 140,291 shares pursuant to (2) above; (C) if the Average Closing
Price is $56.00, the number of Parent Shares shall be reduced by 24,664 shares
pursuant to (3) above; and (D) if the Average Closing Price is $61.00, the
number of Parent Shares shall be reduced by 71,448 shares pursuant to (4) above.
Notwithstanding any of the foregoing, in no event will the number of Parent
Shares be greater than 1,900,000 shares.
(xvi) "Parent Shares Percentage" means the quotient
------------------------
obtained by dividing (x) the product obtained by multiplying the Parent Shares
by the Average Closing Price, by (y) the sum of (i) the Parent Cash and (ii) the
product obtained by multiplying the Parent Shares by the Average Closing Price.
(xvii) "Participating Cash Exchange Ratio" means the
---------------------------------
quotient obtained by dividing (x) the Parent Cash less the Company Preferred
Stock Liquidation Preference Parent Cash, by (y) the Fully Diluted Common Shares
Amount.
(xviii) "Participating Stock Exchange Ratio" means the
----------------------------------
quotient obtained by dividing (x) the Parent Shares less the Company Preferred
Stock Liquidation Preference Parent Shares, by (y) the Fully Diluted Common
Shares Amount.
(xix) "Series A Cash Exchange Ratio" means the product
----------------------------
obtained by multiplying the Series A Liquidation Preference by the Parent Cash
Percentage.
(xx) "Series B April 2002 Cash Exchange Ratio" means
---------------------------------------
the product obtained by multiplying the Series B April 2002 Liquidation
Preference by the Parent Cash Percentage.
(xxi) "Series B May 2003 Cash Exchange Ratio" means
-------------------------------------
the product obtained by multiplying the Series B May 2003 Liquidation Preference
by the Parent Cash Percentage.
(xxii) "Series B September 2002 Cash Exchange Ratio"
-------------------------------------------
means the product obtained by multiplying the Series B September 2002
Liquidation Preference by the Parent Cash Percentage.
(xxiii) "Series C Cash Exchange Ratio" means the product
-----------------------------------------------
obtained by multiplying the Series C Liquidation Preference by the Parent Cash
Percentage.
(xxiv) "Series C-1 Cash Exchange Ratio" means the
------------------------------
product obtained by multiplying the Series C-1 Liquidation Preference by the
Parent Cash Percentage.
10
(xxv) "Series A Liquidation Preference" means $5.1894
-------------------------------
(as adjusted for any stock splits, stock dividends, combinations, subdivisions,
recapitalizations or the like with respect to the Company Series A Preferred
Stock occurring after the date of this Agreement and prior to the Effective
Time).
(xxvi) "Series B April 2002 Liquidation Preference"
------------------------------------------
means the sum of $1.00 (as adjusted for any stock splits, stock dividends,
combinations, subdivisions, recapitalizations or the like with respect to the
Company Series B April 2002 Preferred Stock occurring after the date of this
Agreement and prior to the Effective Time) and the Series B April 2002 Dividend
Amount.
(xxvii) "Series B September 2002 Liquidation Preference"
----------------------------------------------
means the sum of $1.00 (as adjusted for any stock splits, stock dividends,
combinations, subdivisions, recapitalizations or the like with respect to the
Company Series B September 2002 Preferred Stock occurring after the date of this
Agreement and prior to the Effective Time) and the Series B September 2002
Dividend Amount.
(xxviii) "Series B May 2003 Liquidation Preference"
----------------------------------------
means the sum of $1.00 (as adjusted for any stock splits, stock dividends,
combinations, subdivisions, recapitalizations or the like with respect to the
Company Series B May 2003 Preferred Stock occurring after the date of this
Agreement and prior to the Effective Time) and the Series B May 2003 Dividend
Amount.
(xxix) "Series C Liquidation Preference" means the sum
-------------------------------
of $1.28570951 (as adjusted for any stock splits, stock dividends, combinations,
subdivisions, recapitalizations or the like with respect to the Company Series C
Preferred Stock occurring after the date of this Agreement and prior to the
Effective Time) and the Series C Dividend Amount.
(xxx) "Series C-1 Liquidation Preference" means the
---------------------------------
sum of $0.76636 (as adjusted for any stock splits, stock dividends,
combinations, subdivisions, recapitalizations or the like with respect to the
Company Series C-1 Preferred Stock occurring after the date of this Agreement
and prior to the Effective Time) and the Series C-1 Dividend Amount.
(xxxi) "Series B April 2002 Dividend Amount" means that
-----------------------------------
dollar amount of dividends that have accrued but have not been paid in respect
of a share of Company Series B April 2002 Preferred Stock, which dollar amount
is equal to 8% of $1.00 (as adjusted for any stock splits, stock dividends,
combinations, subdivisions, recapitalizations or the like with respect to the
Company Series B Preferred Stock occurring after the date of this Agreement and
prior to the Effective Time) per annum (compounded annually on the anniversary
of the original issuance date) for each share of Company Series B April 2002
Preferred Stock, calculated from the date of original issuance by the Company of
shares of Company Series B April 2002 Preferred Stock through and including the
Closing Date. For avoidance of doubt, "Series B April 2002 Dividend Amount"
shall not include that dollar amount of dividends that have otherwise been paid
by the Company, or will be paid by the Company at or prior to the Effective
Time, in respect of a share of Company Series B April 2002 Preferred Stock.
11
(xxxii) "Series B September 2002 Dividend Amount" means
---------------------------------------
that dollar amount of dividends that have accrued but have not been paid in
respect of a share of Company Series B September 2002 Preferred Stock, which
dollar amount is equal to 8% of $1.00 (as adjusted for any stock splits, stock
dividends, combinations, subdivisions, recapitalizations or the like with
respect to the Company Series B Preferred Stock occurring after the date of this
Agreement and prior to the Effective Time) per annum (compounded annually on the
anniversary of the original issuance date) for each share of Company Series B
September 2002 Preferred Stock, calculated from the date of original issuance by
the Company of shares of Company Series B September 2002 Preferred Stock through
and including the Closing Date. For avoidance of doubt, "Series B September 2002
Dividend Amount" shall not include that dollar amount of dividends that have
otherwise been paid by the Company, or will be paid by the Company at or prior
to the Effective Time, in respect of a share of Company Series B September 2002
Preferred Stock.
(xxxiii)"Series B May 2003 Dividend Amount" means that
---------------------------------
dollar amount of dividends that have accrued but have not been paid in respect
of a share of Company Series B May 2003 Preferred Stock, which dollar amount is
equal to 8% of $1.00 (as adjusted for any stock splits, stock dividends,
combinations, subdivisions, recapitalizations or the like with respect to the
Company Series B Preferred Stock occurring after the date of this Agreement and
prior to the Effective Time) per annum (compounded annually on the anniversary
of the original issuance date) for each share of Company Series B May 2003
Preferred Stock, calculated from the date of original issuance by the Company of
shares of Company Series B May 2003 Preferred Stock through and including the
Closing Date. For avoidance of doubt, "Series B May 2003 Dividend Amount" shall
not include that dollar amount of dividends that have otherwise been paid by the
Company, or will be paid by the Company at or prior to the Effective Time, in
respect of a share of Company Series B May 2003 Preferred Stock.
(xxxiv) "Series C Dividend Amount" means that dollar
------------------------
amount of dividends that have accrued but have not been paid in respect of a
share of Company Series C Preferred Stock, which dollar amount is equal to 8% of
$1.28570951 (as adjusted for any stock splits, stock dividends, combinations,
subdivisions, recapitalizations or the like with respect to the Company Series C
Preferred Stock occurring after the date of this Agreement and prior to the
Effective Time) per annum (compounded annually on the anniversary of the
original issuance date) for each share of Company Series C Preferred Stock,
calculated from the date of first issuance by the Company of shares of Company
Series C Preferred Stock through and including the Closing Date. For avoidance
of doubt, "Series C Dividend Amount" shall not include that dollar amount of
dividends that have otherwise been paid by the Company, or will be paid by the
Company at or prior to the Effective Time, in respect of a share of Company
Series C Preferred Stock.
(xxxv) "Series C-1 Dividend Amount" means that dollar
--------------------------
amount of dividends that have accrued but have not been paid in respect of a
share of Company Series C-1 Preferred Stock, which dollar amount is equal to 8%
of $0.76636 (as adjusted for any stock splits, stock dividends, combinations,
subdivisions, recapitalizations or the like with respect to the Company Series
C-1 Preferred Stock occurring after the date of this Agreement and prior to the
Effective Time) per annum (compounded annually on the anniversary of the
original issuance date) for each share of Company Series C-1 Preferred Stock,
calculated from the date of first issuance by the Company of shares of Company
Series C-1 Preferred Stock through and including the Closing Date. For avoidance
of doubt, "Series C-1 Dividend Amount" shall not include that dollar amount of
dividends that have otherwise been paid by the Company, or will be paid by the
Company at or prior to the Effective Time, in respect of a share of Company
Series C-1 Preferred Stock.
12
(xxxvi) "Series A Stock Exchange Ratio" means the
-----------------------------
product obtained by multiplying (i) the quotient obtained by dividing the Series
A Liquidation Preference by the Average Closing Price, by (ii) the Parent Shares
Percentage.
(xxxvii) "Series B April 2002 Stock Exchange Ratio"
----------------------------------------
means the product obtained by multiplying (i) the quotient obtained by dividing
the Series B April 2002 Liquidation Preference by the Average Closing Price, by
(ii) the Parent Shares Percentage.
(xxxviii) "Series B September 2002 Stock Exchange Ratio"
--------------------------------------------
means the product obtained by multiplying (i) the quotient obtained by dividing
the Series B September 2002 Liquidation Preference by the Average Closing Price,
by (ii) the Parent Shares Percentage.
(xxxix) "Series B May 2003 Stock Exchange Ratio" means
--------------------------------------
the product obtained by multiplying (i) the quotient obtained by dividing the
Series B May 2003 Liquidation Preference by the Average Closing Price, by (ii)
the Parent Shares Percentage.
(xl) "Series C Stock Exchange Ratio" means the
-----------------------------
product obtained by multiplying (i) the quotient obtained by dividing the Series
C Liquidation Preference by the Average Closing Price, by (ii) the Parent Shares
Percentage.
(xli) "Series C-1 Stock Exchange Ratio" means the
-------------------------------
product obtained by multiplying (i) the quotient obtained by dividing the Series
C-1 Liquidation Preference by the Average Closing Price, by (ii) the Parent
Shares Percentage.
(c) If, during the period between the date hereof and the
Effective Time, any change in the capital stock of Parent shall occur by reason
of reclassification, recapitalization, stock split or combination, exchange or
readjustment of shares, or any stock dividend thereon with a record date during
such period or any similar event, the definitions set forth in Section 2.01(b)
shall be adjusted, to the extent appropriate, to reflect such stock dividend,
subdivision, reclassification, recapitalization, split, combination, exchange or
readjustment of shares.
(d) If any shares of Company Common Stock outstanding
immediately prior to the Effective Time are unvested or are subject to a
repurchase option, risk of forfeiture or other condition under any applicable
restricted stock purchase agreement, stock option exercise agreement or other
agreement with the Company, then the Parent Shares issued in exchange for such
shares of Company Common Stock will also be unvested and/or subject to the same
repurchase option, risk of forfeiture or other condition, and the certificates
representing such Parent Shares may accordingly be marked with appropriate
legends. Notwithstanding the foregoing the Parent Shares issued in exchange for
any shares of Company Common Stock outstanding immediately prior to the
Effective Time that fully vest automatically at the Effective Time shall be
fully vested Parent Shares and shall be issued free of legends other than
legends required by the Affiliate Agreement entered into by the recipient
thereof.
13
SECTION 2.02 Exchange of Certificates.
------------------------
(a) Exchange Procedures. From and after the Effective Time,
-------------------
a bank or trust company to be designated by Parent, and reasonably approved by
the Company (it being agreed by the parties that [Equiserve] is an acceptable
exchange agent), shall act as exchange agent (the "Exchange Agent") in effecting
the exchange of the applicable Parent Shares and Parent Cash for certificates
which immediately prior to the Effective Time represented outstanding shares of
Company Stock ("Company Share Certificates") and which were converted into the
right to receive the applicable Parent Shares and Parent Cash pursuant to
Section 2.01. At least one day prior to the fairness hearing pursuant to Section
6.01(a), Parent shall deliver to the Company (i) a letter of transmittal (the
"Letter of Transmittal") in a form approved by Parent and the Company, (ii) the
instructions for use in surrendering such Company Share Certificates and
receiving the applicable Parent Shares and Parent Cash pursuant to Section 2.01,
(iii) a Form W-8 and Form W-9 and (iv) such other documents as may reasonably be
required by the Exchange Agent. The Company shall distribute such Letter of
Transmittal in connection with the notice of the meeting or the solicitation of
written consents contemplated by Section 6.01(b). To the extent a completed
Letter of Transmittal has not been tendered to Parent by or on behalf of a
record holder of Company Share Certificates at Closing, the Parent and the
Exchange Agent shall mail to such record holder the Letter of Transmittal and
the instructions for use. Promptly after the Effective Time, but in no event
later than five (5) business days following the Effective Time, Parent shall
cause to be deposited in trust with the Exchange Agent the Parent Shares and
Parent Cash less the Escrow Shares.
Within 15 days following the surrender of each Company Share Certificate
for cancellation to the Exchange Agent (or to Parent with respect to those
delivered to Parent at Closing), together with a properly completed Letter of
Transmittal and such other documents as may reasonably be required by the
Exchange Agent (including any applicable Form W-8 or Form W-9):
(i) Parent shall cause to be issued to the holder of
such Company Share Certificate in exchange therefor (A) a separate stock
certificate representing the Parent Shares to which such holder is entitled
pursuant to Section 2.01 (less the Escrow Shares attributable to the pro rata
interest of such holder in the Escrow Fund pursuant to Section 2.02(b)) and (B)
that portion of the Parent Cash to which such holder is entitled pursuant to
Section 2.01; and
(ii) the Company Share Certificates so surrendered
shall forthwith be cancelled.
In the event of a transfer of ownership of shares of Company Stock that
is not registered in the transfer records of the Company, the applicable Parent
Shares and Parent Cash may be issued to a person other than the person in whose
name the Company Share Certificate so surrendered is registered if the Company
Share Certificate representing such shares of Company Stock is presented to
Parent, accompanied by all documents required to evidence and effect such
transfer and evidence that (i) the shares are transferable and (ii) any
applicable stock transfer taxes have been paid.
14
Until surrendered as contemplated by this Article II, each Company Share
Certificate shall, subject to appraisal rights under the DGCL and Section 2.06,
be deemed at any time after the Effective Time to represent only the right to
receive upon surrender the applicable Parent Shares and Parent Cash with respect
to the shares of Company Stock formerly represented thereby to which such holder
is entitled pursuant to Section 2.01.
(b) Escrow Fund. Prior to or simultaneously with the
-----------
Closing, the Stockholders' Representative and Parent shall enter into an escrow
agreement (the "Escrow Agreement") with an escrow agent selected by Parent and
reasonably acceptable to the Stockholders' Representative (the "Escrow Agent"),
substantially in the form of Exhibit B hereto. Pursuant to the terms of the
Escrow Agreement, Parent shall deposit one or more certificates in the name of
the Escrow Agent representing the Escrow Shares into an escrow account, which
account is to be managed by the Escrow Agent (the "Escrow Account"). Any Escrow
Shares in the Escrow Account are referred to herein as the "Escrow Fund". In
connection with such deposit of the Escrow Shares with the Escrow Agent and as
of the Effective Time, each holder of Company Stock will be deemed to have
received and deposited with the Escrow Agent each such holder's pro rata
interest in the Escrow Fund as determined as of the Closing by reference to the
number of Parent Shares distributed in exchange for shares of Company Stock to
such holder at the Closing (including, in the case of Michael Bennett or his
assignees, any shares of Parent Common Stock issued to Mr. Bennett or his
assignees pursuant to Section 6.16, but excluding any shares of Parent Common
Stock issued to persons other than Michael Bennett or his assignees pursuant to
Section 6.16), relative to the number of Parent Shares distributed in exchange
for Company Stock to all stockholders of the Company (the "Company
Stockholders") at the Closing (including any shares of Parent Common Stock
issued to Mr. Bennett or his assignees pursuant to Section 6.16, but excluding
any shares of Parent Common Stock issued to persons other than Michael Bennett
or his assignees pursuant to Section 6.16), without any act of the Company
Stockholders. Distributions of any Escrow Shares from the Escrow Account shall
be governed by the terms and conditions of the Escrow Agreement. The adoption of
this Agreement and the approval of the Merger by the Company Stockholders shall
constitute approval of the Escrow Agreement and of all the arrangements relating
thereto, including, without limitation, the placement of the Escrow Shares in
escrow and the appointment of the Stockholders' Representative. No portion of
the Escrow Fund shall be contributed in respect of any Company Option or any
warrant or other security exercisable or convertible into Company Stock. No
Parent Shares contributed to the Escrow Fund shall be unvested or subject to any
right of repurchase, risk of forfeiture or other condition in favor of the
Surviving Corporation.
(c) Distributions with Respect to Unexchanged Parent Shares.
-------------------------------------------------------
No dividends or other distributions declared or made after the Effective Time
with respect to Parent Shares comprising part of the Aggregate Merger
Consideration with a record date after the Effective Time shall be paid to the
holder of any unsurrendered Company Share Certificate with respect to the Parent
Shares represented thereby until the holder of such Company Share Certificate
shall surrender such Company Share Certificate in accordance with this Section
2.02 (at which time such holder shall be entitled to all such dividends or other
distributions).
15
(d) No Further Rights in Company Stock. The Parent Shares
----------------------------------
and Parent Cash issued upon the conversion of shares of Company Stock in
accordance with the terms hereof shall be deemed to have been issued in full
satisfaction of all rights pertaining to such shares of Company Stock.
(e) No Fractional Shares. Notwithstanding any other
--------------------
provision of this Agreement, no fractional shares of Parent Common Stock shall
be issued upon the conversion and exchange of Company Share Certificates, and no
holder of Company Share Certificates shall be entitled to receive a fractional
share of Parent Common Stock. In the event that any holder of Company Stock
would otherwise be entitled to receive a fractional share of Parent Common Stock
(after aggregating all shares and fractional shares of Parent Common Stock
issuable to such holder), then such holder will receive an aggregate number of
shares of Parent Common Stock rounded up or down to the nearest whole share
(with 0.5 being rounded up).
(f) No Liability. Neither Parent nor the Surviving
------------
Corporation shall be liable to any holder of shares of Company Stock for any
such shares of Parent Common Stock (or dividends or distributions with respect
thereto) or cash properly and legally delivered to a public official pursuant to
any abandoned property, escheat or similar Law (as defined in Section 3.06(a)).
(g) Withholding Rights. Each of the Exchange Agent, the
------------------
Surviving Corporation and Parent shall be entitled to deduct and withhold from
the consideration otherwise payable pursuant to this Agreement to any holder of
shares of Company Stock such amounts as it is required to deduct and withhold
with respect to the making of such payment under the Code, or any provision of
state, local or foreign Tax (as defined in Section 3.15(c)) Law. To the extent
that amounts are so withheld by the Exchange Agent, the Surviving Corporation or
Parent, as the case may be, such withheld amounts shall be treated for all
purposes of this Agreement as having been paid to the holder of the shares of
Company Stock in respect of which such deduction and withholding were made by
the Exchange Agent, the Surviving Corporation or Parent, as the case may be.
(h) Affiliates. Notwithstanding anything to the contrary
----------
contained in this Agreement, no Parent Shares (or certificates therefor) or
Parent Cash shall be issued in exchange for any Company Stock Certificates to
any person who, prior to the Effective Time, may be an "affiliate" (as that term
is used in Rule 145 under the Securities Act of 1933, as amended (the
"Securities Act")) of the Company (each such person, an "Affiliate") until such
person shall have delivered to Parent and the Company a duly executed Affiliate
Agreement as contemplated by Section 6.09.
(i) Lost Certificates. If any Company Share Certificate
-----------------
shall have been lost, stolen or destroyed, upon the making of an affidavit of
that fact by the person claiming such Company Share Certificate to be lost,
stolen or destroyed, Parent shall issue in exchange for such lost, stolen or
destroyed Company Share Certificate, the applicable Parent Shares (and dividends
or other distributions pursuant to Section 2.02(c)) and Parent Cash to which
such person is entitled pursuant to the provisions of this Article II; provided,
however, that such affidavit shall contain the agreement of the person claiming
such Company Share Certificate to be lost, stolen or destroyed to indemnify
Parent for any losses incurred by Parent as a result of any action taken or
omitted to have been taken by such person with respect to such lost, stolen or
destroyed Company Share Certificate .
16
(j) Return of Parent Shares. Promptly following the end of
-----------------------
the sixth full calendar month after the Effective Time, the Exchange Agent shall
return to Parent all of the remaining Parent Shares and Parent Cash in the
Exchange Agent's possession and the Exchange Agent's duties shall terminate.
Thereafter, upon the surrender of a Company Share Certificate to Parent,
together with a properly executed Letter of Transmittal and forms of stock power
and such other documents as may reasonably be required by Parent, and subject to
applicable abandoned property, escheat and similar Laws, the holder of such
Company Share Certificate shall be entitled to receive in exchange therefor the
applicable Parent Shares (and dividends or other distributions pursuant to
Section 2.02(c)) and Parent Cash without any interest thereon.
SECTION 2.03 Stock Transfer Books. At the Effective Time, the stock
--------------------
transfer books of the Company shall be closed and there shall be no further
registration of transfers of shares of Company Stock thereafter on the records
of the Company. From and after the Effective Time, the holders of certificates
representing shares of Company Stock outstanding immediately prior to the
Effective Time shall cease to have any rights with respect to such shares of
Company Stock, except as otherwise provided in this Agreement or by Law.
SECTION 2.04 Company Stock Options. At the Effective Time, Parent shall
---------------------
assume all options to purchase Common Stock issued by the Company pursuant to
the Stock Plan (as defined in Section 3.04(b)), whether vested or unvested and
whether exercisable or unexercisable (each a "Company Option"). The Company's
repurchase right with respect to any unvested shares acquired by the exercise of
Company Options shall be assigned to Parent by virtue of the Merger and without
any further action on the part of the Company or the holder of such unvested
shares. Immediately after the Effective Time, each Company Option outstanding
immediately prior to the Effective Time shall be deemed to constitute an option
to acquire, on the same terms and conditions as were applicable under such
Company Option at the Effective Time, such number of shares of Parent Common
Stock (rounded down to the nearest whole number) that is equal to the product
obtained by multiplying the number of shares of Company Common Stock subject to
the unexercised portion of such Company Option by the Option Exchange Ratio. The
per share exercise price for the shares of Parent Common Stock issuable upon
exercise of such assumed Company Option shall be equal to the quotient obtained
by dividing the exercise price per share of such Company Option in effect
immediately prior to the Effective Time by the Option Exchange Ratio (rounded up
to the nearest whole cent). The term, vesting schedule, and all of the other
terms of the Company Options shall otherwise remain unchanged. It is the
intention of the parties that the assumption by Parent of the Company Options
hereunder satisfies the requirements of Treasury Regulation Section 1.424-1 (as
if all such options were incentive stock options) and of Proposed Treasury
Regulation Section 1.409A-1(b)(5)(v)(D) and the provisions of this Section 2.04
shall be interpreted and applied consistent with such intention. Within 15 days
after the Effective Time, Parent will issue to each person who, immediately
prior to the Effective Time, was a holder of a Company Option a document
evidencing the foregoing assumption of such option by Parent. Within 15 days
after the Effective Time, Parent shall file a registration statement on Form S-8
(or any successor or other appropriate forms) that will register the shares of
Parent Common Stock subject to assumed Company Options to the extent permitted
by Federal securities laws and shall use its commercially reasonable efforts to
maintain the effectiveness of such registration statement or registration
statements (and maintain the current status of the prospectus or prospectuses
contained therein) for so long as such options remain outstanding. The term
"Option Exchange Ratio" means the quotient obtained by dividing (a) the sum of
(i) the Participating Cash Exchange Ratio and (ii) the product obtained by
multiplying the Participating Stock Exchange Ratio and the Average Closing
Price, by (b) the Average Closing Price.
17
SECTION 2.05 Reserved.
--------
SECTION 2.06 Dissenting Shares.
-----------------
(a) Notwithstanding any provision of this Agreement to the
contrary, shares of Company Stock that are outstanding immediately prior to the
Effective Time and which are held by stockholders who have exercised and
perfected appraisal rights for such shares of Company Stock in accordance with
the DGCL (collectively, the "Dissenting Shares") shall not be converted into or
represent the right to receive the applicable Parent Shares and Parent Cash.
Such stockholders shall be entitled to receive payment of the appraised value of
such shares of Company Stock held by them in accordance with the DGCL, unless
and until such stockholders fail to perfect or effectively withdraw or otherwise
lose their appraisal rights under the DGCL. All Dissenting Shares held by
stockholders who shall have failed to perfect or who effectively shall have
withdrawn or lost their right to appraisal of such shares of Company Stock under
the DGCL shall thereupon be deemed to have been converted into and to have
become exchangeable for, as of the Effective Time, the right to receive the
applicable Parent Shares and Parent Cash (and dividends or other distributions
pursuant to Section 2.02(c), if any), without any interest thereon, upon the
surrender, in the manner provided in Section 2.02 (including the provision for
the Escrow Shares pursuant to Section 2.02(b)), of the corresponding Company
Share Certificate.
(b) The Company shall give Parent (i) prompt notice of any
demands for appraisal received by the Company, withdrawals of such demands, and
any other related instruments served pursuant to the DGCL and received by the
Company and (ii) after the Effective Time, the opportunity to direct all
negotiations and proceedings with respect to demands for appraisal under the
DGCL. The Company shall not, except with the prior written consent of Parent,
make any payment with respect to any demands for appraisal or offer to settle or
settle any such demands.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
---------------------------------------------
The Company hereby represents and warrants to Parent and Merger Sub that
the statements contained in this Article III are true and correct as of the date
of this Agreement and as of the Effective Time (except for any such
representation and warranty that expressly is made as of a specific date, which
such representation and warranty shall be true and correct as of such date),
subject to such qualifications as set forth in the disclosure schedule delivered
by the Company to Parent and Merger Sub concurrently with the execution of this
Agreement (the "Company Disclosure Schedule"). The Company Disclosure Schedule
shall be arranged according to specific sections in this Article III and shall
provide exceptions to, or otherwise qualify in reasonable detail, only the
corresponding section in this Article III and any other section hereof where it
is reasonably apparent, upon a reading of such disclosure, that the disclosure
would also qualify or apply to such other section.
18
SECTION 3.01 Organization and Qualification. The Company is a
------------------------------
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware and has all requisite corporate power and authority to
own, lease and otherwise hold and operate its properties and other assets and to
carry on its business as it is now being conducted, except where the failure to
be so organized, existing or in good standing or to have such corporate power
and authority has not had, and would not reasonably be expected to have,
individually or in the aggregate, a Company Material Adverse Effect (as defined
below). The Company is duly qualified or licensed as a foreign corporation to do
business, and is in good standing, in each jurisdiction where the character of
the properties owned, leased or operated by it or the nature of its business
makes such qualification or licensing necessary, except where the failure to be
so qualified or licensed and in good standing has not had, and would not
reasonably be expected to have, individually or in the aggregate, a Company
Material Adverse Effect. Section 3.01 of the Company Disclosure Schedule sets
forth each jurisdiction where the Company is qualified or licensed as a foreign
corporation and each other jurisdiction in which the Company owns or leases real
property or has employees or engages full-time individual independent
contractors. The term "Company Material Adverse Effect" means any event, change,
violation, inaccuracy, circumstance or effect (regardless of whether or not such
events, changes, violations, inaccuracies, circumstances or effects are
inconsistent with the representations or warranties made by the Company in this
Agreement) that is, or would reasonably be expected to be, individually or in
the aggregate, materially adverse to the business, financial condition or
results of operations of the Company; provided that none of the following
(individually or in combination) shall be deemed to constitute, or shall be
taken into account in determining whether there is or would reasonably be
expected to be, a Company Material Adverse Effect: any events, changes,
violations, inaccuracies, circumstances or effects resulting from or arising in
connection with (i) any changes in general economic or business conditions that
do not materially disproportionately impact the Company or (ii) any changes or
events affecting the industry in which the Company operates that do not
materially disproportionately impact the Company, (iii) the announcement or
pendency of the Merger (provided that the exception in this clause (iii) shall
not be used to excuse a breach of a representation or warranty of the Company
contained in this Agreement that arises from the execution and delivery of this
Agreement or the consummation of the transactions contemplated by this
Agreement), (iv) any action taken at the request of Parent or Merger Sub or as
contemplated or permitted by this Agreement, or (v) any matter disclosed in the
Company Disclosure Schedule.
SECTION 3.02 Certificate of Incorporation and Bylaws. The Company has
---------------------------------------
heretofore made available to Parent a complete and correct copy of (a) the
Certificate of Incorporation and the Bylaws of the Company, including all
amendments thereto, (b) the minute books containing all consents, actions and
meetings of the stockholders of the Company and the Company's Board of Directors
and any committees thereof, and (c) the stock transfer books of the Company
setting forth all issuances or transfers of any capital stock of the Company.
Such Certificate of Incorporation and Bylaws are in full force and effect. The
Company is not in violation of any of the provisions of its Certificate of
Incorporation or Bylaws. The corporate minute books, stock certificate books and
stock registers of the Company are complete and accurate, and, to the Company's
knowledge, the signatures appearing on all documents contained therein are the
true or facsimile signatures of the persons purported to have signed the same.
19
SECTION 3.03 No Subsidiaries. The Company does not control, directly or
---------------
indirectly, or have any direct or indirect equity participation or similar
interest in any corporation, partnership, limited liability company, joint
venture, trust or other business association. There are no contractual
obligations of the Company to make any equity investment, loan or capital
contribution to any other person.
SECTION 3.04 Capitalization.
--------------
(a) The authorized capital stock of the Company consists of
35,000,000 shares of Company Common Stock and 24,125,986 shares of Company
Preferred Stock, of which 681,858 shares are designated Company Series A
Preferred Stock, 5,299,045 shares are designated Company Series B Preferred
Stock, 9,622,258 shares are designated Company Series C Preferred Stock, and
8,522,825 shares are designated Company Series C-1 Preferred Stock. As of the
date hereof, (i) 2,738,112 shares of Company Common Stock are issued and
outstanding, all of which are duly authorized, validly issued, fully paid and
nonassessable, (ii) no shares of Company Common Stock are held in the treasury
of the Company, (iii) 2,278,267 shares of Company Common Stock are reserved for
future issuance pursuant to outstanding Company Options, and (iv) no shares of
Company Common Stock are reserved for future issuance pursuant to outstanding
Company warrants. As of the date of this Agreement, (A) 681,858 shares of
Company Series A Preferred Stock are issued and outstanding, (B) 5,299,045
shares of Company Series B Preferred Stock are issued and outstanding, of which
(a) 1,000,000 shares are Company Series B April Preferred Stock, (b) 4,000,000
shares are Company Series B September Preferred Stock and (c) 299,045 shares are
Company Series B May Preferred Stock, (C) 9,622,258 shares of Company Series C
Preferred Stock are issued and outstanding and (D) 3,914,615 shares of Company
Series C-1 Preferred Stock are issued and outstanding, all of which are duly
authorized, validly issued, fully paid and nonassessable. Each share of Company
Series A Preferred Stock is convertible into 1.06482665 shares of Company Common
Stock. Each share of Company Series B Preferred Stock is convertible into
1.03306852 shares of Company Common Stock. Each share of Company Series C
Preferred Stock is convertible into 1.06482665 shares of Company Common Stock.
Each share of Company Series C-1 Preferred Stock is convertible into one share
of Company Common Stock. There are no other shares of Company Preferred Stock
outstanding. As of the date hereof, the outstanding shares of Company Common
Stock, Company Series A Preferred Stock, Company Series B Preferred Stock,
Company Series C Preferred Stock and Company Series C-1 Preferred Stock are
owned as set forth in Section 3.04(a) of the Company Disclosure Schedule.
Section 3.04(a) of the Company Disclosure Schedule also provides an accurate and
complete description of the terms of each repurchase option or right of first
refusal which is held by the Company and to which any of such shares is subject.
(b) The Company has reserved 5,377,885 shares of Company
Common Stock for issuance under the Company's 2001 Stock Option Plan (the "Stock
Plan") of which options to purchase 3,329,416 shares of Company Common Stock are
outstanding as of the date of this Agreement. Section 3.04(b) of the Company
Disclosure Schedule accurately sets forth with respect to each Company Option
that is outstanding as of the date of this Agreement:
20
(i) the name of the holder of such Company Option; (ii) the total number of
shares of Company Common Stock that was originally subject to such Company
Option; (iii) the number of shares of Company Common Stock that remain subject
to such Company Option, (iv) the date on which such Company Option was granted
and the term of such Company Option; (v) the vesting schedule and vesting
commencement date for such Company Option; (vi) the exercise price per share of
Company Common Stock purchasable under such Company Option; (vii) whether such
Company Option has been designated an "incentive stock option" as defined in
Section 422 of the Code; and (viii) the current employee or independent
contractor status of the holder of such Company Option. No Company Option will
by its terms require an adjustment in connection with the Merger, except as
contemplated by this Agreement. Neither the consummation of transactions
contemplated by this Agreement, nor any action taken or to be taken by the
Company in connection with such transactions, will result in (i) any
acceleration of exercisability or vesting, whether or not contingent on the
occurrence of any event after consummation of the Merger, in favor of any
optionee under any Company Option; (ii) any additional benefits for any optionee
under any Company Option; or (iii) the inability of Parent after the Effective
Time to exercise any right or benefit held by the Company prior to the Effective
Time with respect to any Company Option assumed by Parent or any shares of
Company Common Stock previously issued upon exercise of a Company Option,
including, without limitation, the right to repurchase an optionee's unvested
shares on termination of such optionee's employment. The assumption by Parent of
Company Options in accordance with Section 2.04(a) hereunder will not give rise
to any event described in clauses (i) through (iii) in the immediately preceding
sentence or constitute a breach of the Stock Plan or any agreement entered into
pursuant to such plan.
(c) Except as described in Section 3.04(b) above or as set
forth in Section 3.04(b) of the Company Disclosure Schedule, there are no
options, warrants or other rights, agreements, arrangements or commitments of
any character, whether or not contingent, relating to the issued or unissued
capital stock of the Company or obligating the Company to issue or sell any
share of capital stock of, or other equity interest in, the Company. All shares
of Company Stock so subject to issuance, upon issuance in accordance with the
terms and conditions specified in the instruments pursuant to which they are
issuable, will be duly authorized, validly issued, fully paid and nonassessable.
The holders of Company Options have been or will be given, or shall have
properly waived, any required notice of the Merger prior to the Effective Time.
(d) The Company does not have outstanding any bonds,
debentures, notes or other obligations the holders of which have the right to
vote (or which are convertible into or exercisable for securities having the
right to vote) with the stockholders of the Company on any matter.
(e) All of the securities offered, sold or issued by the
Company (i) have been offered, sold or issued in compliance with the
requirements of the Federal securities laws and any applicable state securities
or "blue sky" laws and (ii) are not subject to any preemptive right, right of
first refusal, right of first offer or right of rescission.
21
(f) Except as set forth in Section 3.04(f) of the Company
Disclosure Schedule, the Company has never repurchased, redeemed or otherwise
reacquired any shares of capital stock or other securities of the Company, other
than unvested securities in the ordinary course upon termination of employment
or consultancy. There are no outstanding contractual obligations of the Company
to repurchase, redeem or otherwise acquire any share of capital stock of, or
other equity interest in, the Company. Except for the Voting Agreements, there
are no stockholder agreements, voting trusts or other agreements or
understandings to which the Company is a party, or of which the Company is
aware, that (i) relate to the voting, registration or disposition of any
securities of the Company, (ii) grant to any person or group of persons the
right to elect, or designate or nominate for election, a director to the Board
of Directors of the Company, or (iii) grant to any person or group of persons
information rights.
(g) An updated Section 3.04 of the Company Disclosure
Schedule reflecting changes permitted by this Agreement in the capitalization of
the Company between the date hereof and the Effective Time shall be delivered by
the Company to Parent on the Closing Date.
SECTION 3.05 Authority Relative to This Agreement.
------------------------------------
(a) The Company has all necessary corporate power and
authority to execute and deliver this Agreement and, subject to obtaining the
necessary approvals of the Company Stockholders, to perform its obligations
hereunder and to consummate the Merger and the other transactions contemplated
by this Agreement. The execution and delivery of this Agreement by the Company
and the consummation by the Company of the Merger and the other transactions
contemplated by this Agreement have been duly and validly authorized by all
necessary corporate action and no other corporate proceedings on the part of the
Company are necessary to authorize this Agreement or to consummate the Merger
and the other transactions contemplated by this Agreement (other than the
approval and adoption of this Agreement and the Merger by the Company
Stockholders as described in Section 3.16 hereof and the filing and recordation
of appropriate merger documents as required by the DGCL). This Agreement has
been duly and validly executed and delivered by the Company and, assuming the
due authorization, execution and delivery by Parent and Merger Sub, constitutes
a legal, valid and binding obligation of the Company, enforceable against the
Company in accordance with its terms, subject to the effect of any applicable
bankruptcy, reorganization, insolvency, moratorium or similar Laws affecting
creditors' rights generally and subject, as to enforceability, to the effect of
general principles of equity.
(b) Without limiting the generality of the foregoing, the
Board of Directors of the Company, at a meeting duly called and held or through
valid action by written consent, has unanimously (i) determined that the Merger
and the other transactions contemplated hereby are fair to, and in the best
interests of, the Company and its stockholders, (ii) approved and adopted the
Merger, this Agreement and the other transactions contemplated hereby in
accordance with the provisions of the DGCL and the Company's charter documents,
and (iii) directed that this Agreement and the Merger be submitted to the
Company Stockholders for their approval and adoption and (iv) resolved to
recommend that the Company Stockholders vote in favor of the approval and
adoption of this Agreement.
22
SECTION 3.06 No Conflict; Required Filings and Consents.
------------------------------------------
(a) The execution and delivery of this Agreement by the
Company do not, and the performance of this Agreement (following the approval
and adoption of this Agreement and the Merger by the Company Stockholders as
described in Section 3.16 hereof) by the Company will not, (i) conflict with or
violate the Certificate of Incorporation or Bylaws of the Company, (ii) assuming
that all consents, approvals, authorizations and other actions described in
Section 3.06(b) have been obtained and all filings and obligations described in
Section 3.06(b) have been made or complied with, conflict with or violate any
foreign or domestic (Federal, state or local) law, statute, ordinance,
franchise, permit, concession, license, writ, rule, regulation, order,
injunction, judgment or decree ("Law") applicable to the Company or by which any
property or asset of the Company is bound or affected, or (iii) conflict with,
result in any breach of or constitute a default (or an event which with notice
or lapse of time or both would become a default) under, require consent,
approval or notice under, give to others any right of termination, amendment,
acceleration or cancellation of, require any payment under, or result in the
creation of a lien or other encumbrance on any property or asset of the Company
pursuant to, any material note, bond, mortgage, indenture, contract, agreement,
lease, license, permit, franchise or other instrument or obligation to which the
Company is a party or by which any property or asset of the Company is bound,
except in the case of clauses (ii) and (iii) where such conflicts, violations,
breaches or defaults would not reasonably be expected to have, individually or
in the aggregate, a Company Material Adverse Effect. Any consents set forth in
Schedule 3.06(a) of the Company Disclosure Schedule shall be referred to herein
as the "Material Consents."
(b) The execution and delivery of this Agreement by the
Company do not, and the performance of this Agreement by the Company will not,
require any consent, approval, order, permit, or authorization from, or
registration, notification or filing with, any domestic or foreign governmental,
regulatory or administrative authority, agency or commission, any court,
tribunal or arbitral body, or any quasi-governmental or private body exercising
any regulatory, taxing, importing or other governmental authority (a
"Governmental Entity") on the part of the Company, except for (i) if necessary,
the pre-merger notification requirements of the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended, and the rules and regulations promulgated
thereunder (the "HSR Act"), (ii) the filing and recordation of appropriate
merger documents as required by the DGCL, (iii) the filing of necessary
documents in connection with an application for a permit from the California
Department of Corporations pursuant to Section 25121 of the California Corporate
Securities Law of 1968, and (iv) such other consents, approvals, orders,
authorizations, registrations or permits, filings or notifications that if not
obtained or made could not reasonably be expected, individually or in the
aggregate, to prevent or materially delay the consummation of the transactions
contemplated by this Agreement.
SECTION 3.07 Permits; Compliance.
-------------------
(a) The Company is in possession of all franchises, grants,
authorizations, licenses, permits, easements, variances, exceptions, consents,
certificates, approvals and orders of any Governmental Entity necessary for the
Company to own, lease and otherwise hold and operate its properties and other
assets and to carry on its business as it is now being conducted, except where
the failure of the Company to possess such Company Permits would not reasonably
be expected to have, individually or in the aggregate, a Company Material
Adverse Effect (the "Company Permits"). All Company Permits are in full force
and effect in all material respects and will remain so after the Closing and no
suspension or cancellation of any Company Permit is pending or, to the knowledge
of the Company, threatened. The Company has not received any notice or other
communication from any Governmental Entity regarding (i) any actual or possible
violation of or failure to comply with any term or requirement of any Company
Permit, or (ii) any actual or possible revocation, withdrawal, suspension,
cancellation, termination or modification of any Company Permit, except for
notices or other communications relating to matters that have been cured, waived
or otherwise resolved in all material respects.
23
(b) The Company is not in conflict with, or in default or
violation of, (i) any Law applicable to the Company or by which any property or
asset of the Company is bound or affected, (ii) any material note, bond,
mortgage, indenture, contract, agreement, lease, license, permit, franchise or
other instrument or obligation to which the Company is a party or by which the
Company or any property or asset of the Company is bound or affected, or (iii)
any Company Permit, except in each case, for any conflicts, defaults or
violations that would not reasonably be expected to have, individually or in the
aggregate, a Company Material Adverse Effect. No event has occurred or
circumstances exist that (with or without the passage of time or the giving of
notice) is likely to result in a material violation of, material conflict with
or material failure on the part of the Company to comply with, any Law. The
Company has not received any notice regarding such a violation of, conflict
with, or failure to comply with, any Law.
SECTION 3.08 Financial Statements.
--------------------
(a) True and complete copies of (i) the unaudited balance
sheets of the Company as of March 31, 2005, 2004 and 2003, and the related
unaudited statement of operations for the years then ended (collectively
referred to herein as the "Annual Financial Statements"), and (ii) the unaudited
balance sheet of the Company as of November 30, 2005 (the "Reference Balance
Sheet"), and the related statements of operations, changes in stockholders'
equity and changes in cash flows for the eight months ended November 30, 2005
(collectively referred to herein as the "Interim Financial Statements"), are
attached as Section 3.08(a) of the Company Disclosure Schedule. The Annual
Financial Statements and the Interim Financial Statements were prepared in
accordance with United States generally accepted accounting principles ("U.S.
GAAP") applied on a consistent basis throughout the periods indicated (except
that footnotes and schedules required by U.S. GAAP may not be included therein)
and each present fairly, in all material respects, the financial position and
results of operations of the Company as at the respective dates thereof and for
the respective periods indicated therein, except as otherwise noted therein
(subject to normal and recurring year-end adjustments which were not and are not
expected, individually or in the aggregate, to be material).
(b) Except to the extent incurred since November 30, 2005 in
the ordinary course of business, consistent with past practice, the Company does
not have any liabilities that would be required to be reflected in the
liabilities column of a balance sheet or the footnotes to financial statements
prepared in accordance with U.S. GAAP ("Liabilities") in excess of the aggregate
amount recorded or reserved against on the Reference Balance Sheet. Except as
set forth in Section 3.08(b) of the Company Disclosure Schedule, reserves are
reflected on the Reference Balance Sheet and on the books of account and other
financial records of the Company against all Liabilities of the Company in
amounts that have been established on a basis consistent with the past practice
of the Company and in accordance with U.S. GAAP. Except as set forth in Section
3.08(b) of the Company Disclosure Schedule, there are no outstanding material
warranty claims against the Company.
24
(c) Except as set forth on Section 3.08(c) of the Company
Disclosure Schedule, the Company maintains a standard system of accounting
established and administered in accordance with U.S. GAAP. Except as set forth
on Section 3.08(c) of the Company Disclosure Schedule, the Company maintains a
system of internal accounting controls sufficient to provide reasonable
assurance that (i) transactions are executed in accordance with management's
general or specific authorizations, (ii) transactions are recorded as necessary
to permit preparation of financial statements in conformity with U.S. GAAP and
to maintain asset accountability, (iii) access to assets is permitted only in
accordance with management's general or specific authorization, and (iv) the
recorded accountability for assets is compared with the existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences. The Company has made available to Parent complete and correct
copies of, all written descriptions of, and all policies, manuals and other
documents promulgating such internal accounting controls.
SECTION 3.09 Absence of Certain Changes or Events. Between September 30,
------------------------------------
2005 and the date of this Agreement, except as contemplated by or as disclosed
in this Agreement, the Company has conducted its business only in the ordinary
course and in a manner consistent with past practice and, since such date, (a)
there has not been any Company Material Adverse Effect and (b) the Company has
not taken or legally committed to take any of the actions specified in Sections
5.01(a) through 5.01(cc).
SECTION 3.10 Absence of Litigation. There is no litigation, suit, claim,
---------------------
action, proceeding or investigation pending or, to the knowledge of the Company,
threatened against the Company, or any property or asset owned or used by the
Company or any person whose liability the Company has assumed, either
contractually or by operation of Law, before any arbitrator or Governmental
Entity (a "Legal Proceeding") that would reasonably be expected, if resolved
adversely to the Company, to (i) materially impair the operations of the Company
as currently conducted, including, without limitation, any claim of infringement
of any Company Intellectual Property, (ii) result in losses to the Company in
excess of $50,000, (iii) materially impair the ability of the Company to perform
its obligations under this Agreement or (iv) prevent, delay or make illegal the
consummation of the transactions contemplated by this Agreement. To the
Company's knowledge, no event has occurred, and no claim, dispute or other
condition or circumstance exists, that would reasonably be expected to give rise
to or serve as a basis of the commencement of any Legal Proceeding. None of the
Company, the officers or directors thereof in their capacity as such, or any
material property or asset of the Company is subject to any continuing order of,
consent decree, settlement agreement or other similar written agreement with,
or, to the knowledge of the Company, continuing investigation by, any
Governmental Entity, or any order, writ, judgment, injunction, decree,
determination or award of any court, arbitrator or Governmental Entity. The
Company does not have any plans to initiate any Legal Proceeding against any
third party.
25
SECTION 3.11 Employee Benefit Plans; Labor Matters.
-------------------------------------
(a) Schedule 3.11(a) of the Company Disclosure Schedule
lists (i) all employee benefit plans (as defined in Section 3(3) of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA")) and all bonus,
stock option, stock purchase, stock appreciation right, restricted stock,
phantom stock, incentive, deferred compensation, disability or life insurance,
retiree medical, cafeteria benefit, dependent care, director or employee loan,
fringe benefit, sabbatical, supplemental retirement, severance or other benefit
plans, programs or arrangements, and all employment, termination, severance or
other contracts or agreements (whether in writing or not) to which the Company
is a party, with respect to which the Company has any obligation or which are
maintained, contributed to or sponsored by the Company for the benefit of any
current or former employee, officer or director of the Company, (ii) each
employee benefit plan for which the Company could incur liability under Section
4069 of ERISA in the event such plan has been or were to be terminated, (iii)
any plan in respect of which the Company could incur liability under Section
4212(c) of ERISA, and (iv) any employment agreements, offer letters or other
contracts, arrangements or understandings between the Company and any employee
of the Company (whether in writing or not), including, without limitation, any
contracts, arrangements or understandings relating to a sale of the Company
(each, a "Plan," and collectively, the "Plans").
(b) Each Plan is in writing and the Company has made
available to Parent with a true and complete copy of each Plan (or a written
summary where the Plan is not in writing) and a true and complete copy of each
material document, if any, prepared in connection with each such Plan,
including, without limitation, (i) a copy of each trust or other funding
arrangement, (ii) each summary plan description and summary of material
modifications, (iii) the three (3) most recent annual reports (Form 5500 series
and all schedules and financial statements attached thereto), if any, required
under ERISA or the Code in connection with each Plan, (iv) the most recently
received Internal Revenue Service determination letter for each Plan intended to
qualify under ERISA or the Code, (v) the most recently prepared financial
statement in connection with each such Plan, (vi) any material correspondence
with the Internal Revenue Service or the Department of Labor with respect to
each such Plan and (vii) each form of notice of grant and stock option agreement
used to document Company Options. The Company does not have an express or
implied commitment, whether legally enforceable or not, (x) to create, incur
liability with respect to, or cause to exist, any other employee benefit plan,
program or arrangement, (y) to enter into any contract or agreement to provide
compensation or benefits to any individual, or (z) to modify, change or
terminate any Plan, other than with respect to a modification, change or
termination required by ERISA or the Code.
(c) None of the Plans is a multi-employer plan (within the
meaning of Section 3(37) or 4001(a)(3) of ERISA) (a "Multi-employer Plan") or a
single employer pension plan (within the meaning of Section 4001(a)(15) of
ERISA) for which the Company could incur liability under Section 4063 or 4064 of
ERISA (a "Multiple Employer Plan"). Each Plan is subject only to the Laws of the
United States or a political subdivision thereof.
(d) None of the Plans provides for the payment of severance,
termination or similar benefits to any person or obligates the Company to pay
severance, termination or similar-type benefits solely or partially as a result
of any transaction contemplated by this Agreement or as a result of a "change in
ownership or control," within the meaning of such term under Section 280G of the
Code.
26
Neither the execution and delivery of this Agreement nor the consummation of the
transactions contemplated hereby, either alone or together with another event,
will (i) result in any payment (including, without limitation, severance,
unemployment compensation, golden parachute, forgiveness of indebtedness or
otherwise) becoming due under any Plan, whether or not such payment is
contingent, (ii) increase any benefits otherwise payable under any Plan or other
arrangement, (iii) result in the acceleration of the time of payment, vesting or
funding of any benefits including, but not limited to, the acceleration of the
vesting and exercisability of any Company Option, whether or not contingent, or
(iv) affect in any material respects any Plan's current treatment under any Laws
including any Tax or social contribution Law. No Plan provides, or reflects or
represents any liability to provide, retiree health, retiree disability, or
retiree life insurance benefits to any person for any reason, except as may be
required by the Consolidated Omnibus Budget Reconciliation Act of 1985, as
amended ("COBRA"), or other applicable statute, and the Company has never
represented, promised or contracted (whether in oral or written form) to any
employee (either individually or to employees as a group) or any other person
that such employee or other person would be provided with retiree health,
retiree disability, or retiree life insurance benefits, except to the extent
required by statute.
(e) Each Plan is now and always has been operated in all
material respects in accordance with its terms and the requirements of all
applicable Laws, regulations and rules promulgated thereunder including, without
limitation, ERISA and the Code. The Company has performed all obligations
required to be performed by it under, is not in any respect in default under or
in violation of, and has no knowledge of any default or violation by any party
to, any Plan. No action, claim or proceeding is pending or, to the knowledge of
the Company, threatened with respect to any Plan (other than claims for benefits
in the ordinary course) and no fact or event exists that could give rise to any
such action, claim or proceeding. Neither the Company nor any person that is a
member of the same controlled group as the Company or under common control with
the Company within the meaning of Section 414 of the Code (each, an "ERISA
Affiliate") is subject to any penalty or Tax with respect to any Plan under
Section 502(i) of ERISA or Sections 4975 through 4980 of the Code. Each Plan can
be amended, terminated or otherwise discontinued at any time without material
liability to Parent, the Company or any of their ERISA Affiliates (other than
ordinary administration expenses). Neither the Company nor any affiliate has,
prior to the Effective Time and in any material respect, violated any of the
health care continuation requirements of COBRA, the requirements of the Family
Medical Leave Act of 1993, the requirements of the Health Insurance Portability
and Accountability Act of 1996, the requirements of the Women's Health and
Cancer Rights Act of 1998, the requirements of the Newborns' and Mothers' Health
Protection Act of 1996, or any amendment to each such act, or any similar
provisions of state Law applicable to its employees.
(f) Each Plan intended to qualify under Section 401(a) or
Section 401(k) of the Code and each trust intended to qualify under Section
501(a) of the Code (i) has received a favorable determination, opinion,
notification or advisory letter from the Internal Revenue Service with respect
to each such Plan as to its qualified status under the Code, including all
amendments to the Code effected by the Tax Reform Act of 1986 and subsequent
legislation, and no fact or event has occurred since the date of such
determination letter or letters from the Internal Revenue Service that would
reasonably be expected to adversely affect the qualified status of any such Plan
or the exempt status of any such trust, or (ii) has remaining a period of time
under applicable Treasury regulations or Internal Revenue Service pronouncements
in which to apply for such a letter and make any amendments necessary to obtain
a favorable determination as to the qualified status of each such Plan.
27
(g) Neither the Company nor any ERISA Affiliate has
incurred any liability under, arising out of or by operation of Title IV of
ERISA (other than liability for premiums to the Pension Benefit Guaranty
Corporation arising in the ordinary course), including, without limitation, any
liability in connection with (i) the termination or reorganization of any
employee benefit plan subject to Title IV of ERISA or (ii) the withdrawal from
any Multi-employer Plan or Multiple Employer Plan, and no fact or event exists
which could give rise to any such liability.
(h) Section 3.11(h) to the Company Disclosure Schedule lists
all "nonqualified deferred compensation plans" (within the meaning of Section
409A of the Code) to which the Company is a party. Each such nonqualified
deferred compensation plan to which the Company is a party complies with the
requirements of paragraphs (2), (3) and (4) of Section 409A(a) by its terms and
has been operated in accordance with such requirements. No event has occurred
that would be treated by Section 409A as a transfer of property for purposes of
Section 83 of the Code.
(i) The Company has not terminated, suspended, discontinued
contributions to or withdrawn from any employee pension benefit plan, as defined
in Section 3(2) of ERISA, including, without limitation, any Multi-employer
Plan. All contributions, premiums or payments required to be made or accrued
with respect to any Plan have been made on or before their due dates. All such
contributions have been fully deducted for income tax purposes and no such
deduction has been challenged or disallowed by any Governmental Entity and no
fact or event exists which could give rise to any such challenge or
disallowance.
(j) Except as set forth in Section 3.11(j) of the Company
Disclosure Schedule, (i) the Company is not a party to any collective bargaining
agreement or other labor union contract applicable to persons employed by the
Company or in the Company's business, and currently there are no organizational
campaigns, petitions or other unionization activities seeking recognition of a
collective bargaining unit that could affect the Company; (ii) there are no
controversies, strikes, slowdowns or work stoppages pending or, to the best
knowledge of the Company after due inquiry, threatened between the Company and
any of its employees, and the Company has not experienced any such controversy,
strike, slowdown or work stoppage within the past three years; (iii) the Company
has not breached or otherwise failed to comply with the provisions of any
collective bargaining or union contract and there are no grievances outstanding
against the Company under any such agreement or contract; (iv) the Company has
not engaged in any unfair labor practice, and there are no unfair labor practice
complaints pending against the Company before the National Labor Relations Board
or any other Governmental Entity or any current union representation questions
involving employees of the Company; (v) the Company is currently in compliance
with all applicable Laws relating to the employment of labor, including those
related to wages, hours, worker classification (including the proper
classification of independent contractors and consultants), collective
bargaining, workers' compensation and the payment and withholding of Taxes and
other sums as required by the appropriate Governmental Entity and has withheld
and paid to the appropriate Governmental Entity or is holding for
28
payment not yet due to such Governmental Entity all amounts required to be
withheld from employees of the Company and is not liable for any arrears of
wages, Taxes, penalties or other sums for failure to comply with any of the
foregoing; (vi) the Company has paid in full to all employees or adequately
accrued for in accordance with U.S. GAAP consistently applied all wages,
salaries, commissions, bonuses, benefits and other compensation due to or on
behalf of such employees; (vii) there is no claim with respect to payment of
wages, salary, overtime pay, workers compensation benefits or disability
benefits that has been asserted or threatened against the Company or that is now
pending before any Governmental Entity with respect to any person currently or
formerly employed by the Company; (viii) the Company is not a party to, or
otherwise bound by, any consent decree with, or citation by, any Governmental
Entity relating to employees or employment practices; (ix) the Company is in
compliance with all Laws and regulations relating to occupational safety and
health Laws and regulations, and there is no charge or proceeding with respect
to a violation of any occupational safety or health standards that has been
asserted or is now pending or threatened with respect to the Company; (x) the
Company is in compliance with all Laws and regulations relating to
discrimination in employment, and there is no charge of discrimination in
employment or employment practices for any reason, including, without
limitation, age, gender, race, religion or other legally protected category,
which has been asserted or, to the knowledge of the Company, threatened against
the Company or that is now pending before the United States Equal Employment
Opportunity Commission or any other Governmental Entity; and (xi) each employee
of the Company who is located in the United States and is not a United States
citizen has all approvals, authorizations and papers necessary to work in the
United States in accordance with applicable Law.
(k) Section 3.11(k) of the Company Disclosure Schedule
contains a true and complete list of (i) all individuals who serve as employees
of or consultants to the Company as of the date hereof, (ii) in the case of each
employee, the position and base compensation payable to such individual, and
(iii) in the case of each such consultant, the consulting rate payable to such
individual.
(l) To the Company's knowledge, no employee of or consultant
to the Company has been injured in the workplace or in the course of his or her
employment or consultancy, except for injuries which are covered by insurance or
for which a claim has been made under worker's compensation or similar Laws.
SECTION 3.12 Contracts.
---------
(a) Section 3.12(a) of the Company Disclosure Schedule lists
(under the appropriate subsection) each of the following written or oral
contracts and agreements to which the Company is a party as of the date of this
Agreement (such contracts and agreements being the "Material Contracts"):
(i) each contract and agreement for the purchase or
lease of personal property with any supplier or for the furnishing of services
to the Company with payments greater than $25,000 per year;
29
(ii) all broker, exclusive dealing or exclusivity,
distributor, dealer, manufacturer's representative, franchise, agency, sales
promotion, market research, marketing, consulting and advertising contracts and
agreements to which the Company is a party or any other contract that
compensates any person based on any sales by the Company;
(iii) all leases and subleases of real property;
(iv) all contracts and agreements relating to
indebtedness other than trade indebtedness of the Company, including any
contracts and agreements in which the Company is a guarantor of indebtedness;
(v) all contracts and agreements with any
Governmental Entity to which the Company is a party;
(vi) all contracts and agreements that limit or
purport to limit the ability of the Company to compete in any line of business
or with any person or in any geographic area or during any period of time;
(vii) reserved;
(viii) all contracts and agreements between or among
the Company and any stockholder of the Company or any affiliate of such person;
(ix) all contracts and agreements relating to the
voting and any rights or obligations of a stockholder of the Company;
(x) all contracts to manufacture for, supply to or
distribute to any third party any products or components that contemplate an
exchange of consideration with an aggregate value greater than $25,000;
(xi) all contracts regarding the acquisition,
issuance or transfer of any securities and each contract affecting or dealing
with any securities of the Company, including, without limitation, any
restricted stock agreements or escrow agreements;
(xii) all contracts providing for indemnification of
any officer, director, employee or agent of the Company;
(xiii) all contracts related to or regarding the
performance of consulting, advisory or similar services by any third party
(other than any such contracts that (i) contemplate an exchange of consideration
with an aggregate value less than $1,000 per annum and (ii) where the services
performed did not include the development of Company Intellectual Property);
(xiv) all other contracts not otherwise required to be
disclosed or specifically excluded from disclosure pursuant to this Section 3.12
that have a term of more than 60 days and that may not be terminated by the
Company, without penalty, within 30 days after the delivery of a termination
notice by the Company;
(xv) any material agreement not otherwise required
to be disclosed or specifically excluded from disclosure pursuant to this
Section 3.12 of the Company that is terminable upon or prohibits assignment or a
change of ownership or control of the Company;
30
(xvi) all other contracts and agreements, whether or
not made in the ordinary course of business, that contemplate a future exchange
of consideration with an aggregate value greater than $25,000; and
(xvii) any agreement of guarantee, assumption or
endorsement of, or any similar commitment with respect to, the obligations,
liabilities (whether accrued, absolute, contingent or otherwise) or indebtedness
of any person other than software licenses, professional services contracts or
reseller or distribution agreements entered into in the ordinary course of
business.
(b) Each Material Contract (i) is valid and binding on the
Company and, to the knowledge of the Company, on the other parties thereto, and
is in full force and effect, and (ii) to the knowledge of the Company, upon
consummation of the transactions contemplated by this Agreement, shall continue
in full force and effect without penalty or other adverse consequence. The
Company is not in breach or violation of, or default under, any Material
Contract and, to the knowledge of the Company, no other party to any Material
Contract is in breach or violation thereof or default thereunder.
(c) The Company has delivered or made available to Parent
accurate and complete copies of all Material Contracts identified in Section
3.12(a) of the Company Disclosure Schedule, including all amendments thereto.
Section 3.12(a) of the Company Disclosure Schedule provides an accurate
description of the terms of each Material Contract that is not in written form.
(d) Except as set forth in Section 3.12(d) of the Company
Disclosure Schedule, to the Company's knowledge, no event has occurred, and no
circumstance or condition exists, that (with or without notice or lapse of time)
will, or would reasonably be expected to, (i) result in a breach or violation
of, or default under, any Material Contract, (ii) give any entity the right to
declare a default, seek damages or exercise any other remedy under any Material
Contract, (iii) give any entity the right to accelerate the maturity or
performance of any Material Contract or (iv) give any entity the right to
cancel, terminate or modify any Material Contract.
SECTION 3.13 Environmental Matters.
---------------------
(a) The Company (i) is in compliance in all material
respects with all applicable Environmental Laws (as defined below), (ii) holds
all material Environmental Permits (as defined below) necessary to conduct the
Company's business and (iii) is in compliance in all material respects with its
Environmental Permits.
(b) The Company has not released and, to the knowledge of
the Company, no other person has released Hazardous Materials (as defined below)
in a manner that is not in compliance with Environmental Laws on any real
property owned or leased by the Company or, during its ownership or occupancy of
such property, on any property formerly owned or leased by the Company.
31
(c) The Company has not received any written request for
information, or been notified that it is a potentially responsible party, under
CERCLA (as defined below) or any similar Law of any state, locality or any other
jurisdiction. The Company has not entered into or agreed to any consent decree
or order nor is the Company subject to any judgment, decree or judicial order
relating to compliance with Environmental Laws, Environmental Permits or the
investigation, sampling, monitoring, treatment, remediation, removal or cleanup
of Hazardous Materials and, to the knowledge of the Company, no investigation,
litigation or other proceeding is pending or threatened in writing with respect
thereto.
(d) To the knowledge of the Company, none of the real
property currently or formerly owned or leased by the Company is listed or, to
the knowledge of the Company, proposed to be listed on the "National Priorities
List" under CERCLA, as updated through the date of this Agreement, or any
similar list of sites in the United States or any other jurisdiction requiring
investigation or cleanup.
For purposes of this Agreement:
"CERCLA" means the U.S. Comprehensive Environmental Response,
------
Compensation and Liability Act of 1980, as amended as of the date hereof.
"Environmental Laws" means any Federal, state or local statute, law,
------------------
ordinance, regulation, rule, code or order of the United States, or any other
jurisdiction and any enforceable judicial or administrative interpretation
thereof, including any judicial or administrative order, consent decree or
judgment, relating to pollution or protection of the environment or natural
resources, including, without limitation, those relating to the use, handling,
transportation, treatment, storage, disposal, release or discharge of Hazardous
Materials, as in effect as of the date of this Agreement.
"Environmental Permits" means any permit, approval, identification
---------------------
number, license and other authorization required under any applicable
Environmental Law.
"Hazardous Materials" means (i) any petroleum, petroleum products,
-------------------
by-products or breakdown products, radioactive materials, asbestos-containing
materials or polychlorinated biphenyls or (ii) any chemical, material or
substance defined or regulated as toxic or hazardous or as a pollutant or
contaminant or waste under any applicable Environmental Law.
SECTION 3.14 Intellectual Property.
---------------------
(a) The Company owns or is licensed for, and in any event
possesses sufficient and legally enforceable rights with respect to, all Company
Intellectual Property (as defined below) that is or has been used in its
business, as presently or proposed to be conducted, or necessary to conduct any
such business without any conflict with or infringement or misappropriation of
any rights or property of any person ("Infringement"). Such ownership, licenses
and rights are exclusive (A) except with respect to Inventions (as defined
below) that are not differentiators of the Company's business and (B) except
with respect to third-party, generally available "off-the-shelf" software and
shrink-wrapped software and commercially available software, in each case that
are not part of any previous, current or proposed product or service offering of
the Company. "Intellectual Property" means (i) inventions (whether or not
patentable);
32
trade names, trade and service marks, logos, domain names, URLs and
other designations ("Marks"); works of authorship; mask works; data; technology,
know-how, trade secrets, ideas and information; designs; formulas; algorithms;
processes; methods; schematics; computer software (in source code and/or object
code form); and all other intellectual property of any sort ("Inventions") and
(ii) patent rights; Mark rights; copyrights; mask work rights; sui generis
database rights; trade secret rights; and all other intellectual and industrial
property rights of any sort throughout the world, and all applications,
registrations, issuances and the like with respect thereto ("IP Rights").
"Company Intellectual Property" means all Intellectual Property that was or is
used, exercised, or exploited ("Used") by the Company in any business, or that
may be necessary to conduct any such business. All copyrightable matter within
Company Intellectual Property that is necessary to conduct the business of the
Company has been created by persons who were employees of the Company at the
time of creation and no third party has or will have "moral rights" (to the
extent effectively waived) or rights to terminate any assignment or license with
respect thereto.
(b) To the extent included in Company Intellectual Property
and owned by the Company, Section 3.14(b) of the Company Disclosure Schedule
lists (by name, number, jurisdiction and owner) all patents and patent
applications; all registered and unregistered Marks; and all registered
copyrights and mask works; and all other issuances, registrations, applications
and the like with respect to those or any other IP Rights. All the foregoing (i)
are valid, in force and subsisting to the extent such concepts are applicable,
and (ii) along with all related filings, registrations and correspondence, have
been provided to Parent. No cancellation, termination, expiration or abandonment
of any of the foregoing (except natural expiration or termination at the end of
the full possible term, including extensions and renewals) is anticipated by the
Company, except where such event would not reasonably be expected to have a
Company Material Adverse Effect. The Company is not aware of any material
questions or challenges (or any material basis therefor) with respect to the
patentability or validity of any claims of any of the foregoing patents or
patent applications or the validity of any such IP Rights.
(c) Section 3.14(c) of the Company Disclosure Schedule
lists: (i) all licenses, sublicenses and other agreements to which the Company
is a party and pursuant to which any person has been assigned, authorized to
Use, granted any lien or encumbrance regarding, or given access to any Company
owned Company Intellectual Property other than (A) distribution of standard
object code product pursuant to a standard form end-user, object code,
internal-use software license and support/maintenance agreements entered into in
the ordinary course of business or (B) access provided under a standard form
nondisclosure/nonuse agreement; and (ii) all licenses, sublicenses and other
agreements pursuant to which the Company has been assigned or authorized to Use
or has incurred or may incur any material obligation in connection with (A) any
third party Intellectual Property that may be used in the development of,
require payment with respect to, has been incorporated or embodied in, or forms
all or any part of any current product, service or Intellectual Property
offering of the Company or (B) any Company Intellectual Property, and (iii) each
agreement pursuant to which the Company has deposited or is required to deposit
with an escrowholder or any other person all or part of the source code (or any
algorithm or documentation contained in or relating to any source code) of any
Company Intellectual Property ("Source Materials"). The Company has not entered
into any agreement to indemnify, hold harmless or defend any other person with
respect to any assertion of Infringement, other than indemnification provisions
contained in standard forms of end user licenses or Company's standard forms of
distribution agreements used in transactions arising in the ordinary course of
business. Any standard form referred to above in this section has been clearly
identified as such and provided to Parent.
33
(d) No event or circumstance has occurred, exists or is
contemplated (including, without limitation, the authorization, execution or
delivery of this Agreement or the consummation of any of the transactions
contemplated hereby) that (with or without notice or the lapse of time) could
reasonably be expected to result in (i) the breach or violation of any license,
sublicense or other agreement required to be listed in Section 3.14 of the
Company Disclosure Schedule, which breach or violation could reasonably be
expected to have a Company Material Adverse Effect, or (ii) the loss or
expiration of any material right or option by the Company (or the gain thereof
by any third party) under any such license, sublicense or other agreement or
(iii) the release, disclosure or delivery to any third party of any part of the
Source Materials. Further, the Company makes all the same representations and
warranties with respect to each license, sublicense and agreement listed on
Section 3.14 of the Company Disclosure Schedule as are made with respect to
Material Contracts elsewhere in this Agreement.
(e) There is, to the knowledge of the Company, no
unauthorized Use, material disclosure, or Infringement of any Company
Intellectual Property by any third party, including, without limitation, any
employee or former employee of the Company. The Company has not brought or
threatened any action, suit or proceeding against any third party for any
Infringement of any Company Intellectual Property or any breach of any license,
sublicense or agreement involving Company Intellectual Property.
(f) The Company has taken reasonable steps to protect and
preserve the confidentiality of all Company Intellectual Property owned by the
Company (or that is subject to Company confidentiality obligations to a third
party) not otherwise disclosed in published patents or patent applications or
registered copyrights or other publicly available filed or published documents
in connection with applying for, obtaining or securing IP Rights herein which
constitute trade secrets of the Company ("Company Confidential Information").
All use by and disclosure to employees or others of Company Confidential
Information has been pursuant to the terms of valid and binding written
confidentiality and nonuse/restricted-use agreements or agreements that contain
similar obligations. The Company has not disclosed or delivered to any third
party, or permitted the disclosure or delivery to any escrow agent or other
third party, any part of the Source Materials.
(g) Each current and former employee and contractor of the
Company who is or was involved in, or who has contributed to, the creation or
development of any Company Intellectual Property has executed and delivered (and
to the Company's knowledge, is in compliance with) an agreement in substantially
the form of the Company's standard Proprietary Information and Inventions
Agreement (in the case of an employee) or Consulting Agreement (in the case of a
contractor).
(h) The Company has not received any communication from a
third party alleging or suggesting that the Company has been or may be engaged
in, liable for or contributing to any Infringement, nor does the Company have
any reason to expect that any such communication will be forthcoming.
34
(i) The Company is not aware that any of its employees is
obligated under any agreement, commitment, judgment, decree, order or otherwise
(an "Employee Obligation") that could reasonably be expected to interfere with
the use of his or her reasonable best efforts to promote the interests of the
Company or that could reasonably be expected to conflict with any of their
businesses. Neither the execution nor delivery of this Agreement nor the conduct
of the Company's business, will conflict with or result in a breach of the
terms, conditions or provisions of, or constitute a default under, any Employee
Obligation or any obligation of any contractors of which it is aware. To the
Company's knowledge, the Company is not Using, and it will not be necessary to
Use, (i) any Inventions of any of their past or present employees or contractors
(or people currently intended to be hired) made prior to or outside the scope of
their employment by the Company or (ii) any confidential information or trade
secret of any former employer of any such person.
(j) All Software is free of all viruses, worms, trojan
horses and other material known infections or intentionally harmful routines and
does not contain any bugs, errors, or problems of a material nature that, to the
Company's knowledge, could reasonably be expected to materially disrupt its
operation or have an material adverse impact on the operation of other software
programs or operating systems. "Software" means software, programs, databases
and related documentation, in any form (including Internet sites, Internet
content and links) that is (i) material to the operation of the business of the
Company, including, but not limited to, that operated by the Company on its web
sites or used by the Company in connection with processing customer orders,
storing customer information, or storing or archiving data, or (ii)
manufactured, distributed, sold, licensed or marketed by the Company.
(k) The Company has obtained all approvals and agreements
necessary or appropriate (including, without limitation, assurances from
customers regarding further export) for exporting any Company Intellectual
Property to any country outside the United States and importing any Company
Intellectual Property by Company into any country in which they are or have been
disclosed, sold or licensed for Use, and all such export and import approvals in
the United States and throughout the world are valid, current, outstanding and
in full force and effect.
SECTION 3.15 Taxes.
-----
(a) All material Tax (as defined below) returns, statements,
reports, declarations and other forms and documents (including without
limitation estimated Tax returns and reports and material information returns
and reports) required to be filed with any Tax Authority (as defined below) with
respect to any Taxable (as defined below) period ending on or before the
Closing, by or on behalf of the Company (collectively, "Tax Returns" and
individually, a "Tax Return"), have been or will be completed and filed when due
(including any extensions of such due date) and all amounts shown due on such
Tax Returns on or before the Effective Time have been or will be paid on or
before such date. The Interim Financial Statements (i) fully accrue all actual
and contingent liabilities for Taxes (as defined below) with respect to all
periods through November 30, 2005, and the Company has not and will not incur
any Tax liability in excess of the amount reflected (excluding any amount
thereof that reflects timing differences between the recognition of income for
purposes of U.S. GAAP and for Tax purposes) on the Reference Balance Sheet
included in the Interim Financial Statements with respect to such periods, and
35
(ii) properly accrues in accordance with U.S. GAAP all material liabilities for
Taxes payable after November 30, 2005, with respect to all transactions and
events occurring on or prior to such date. All information set forth in the
notes to the Interim Financial Statements relating to Tax matters is true,
complete and accurate in all material respects. The Company has not incurred any
material Tax liability since November 30, 2005, other than in the ordinary
course of business and the Company has made adequate provisions for all Taxes
since that date in accordance with U.S. GAAP on at least a quarterly basis.
(b) The Company has withheld and paid to the applicable
financial institution or Tax Authority all amounts required to be withheld with
respect to Taxes. To the knowledge of the Company, no Tax Returns filed with
respect to Taxable years through the most recently concluded Taxable year end in
the case of the United States, have been examined and closed. The Company has
not granted any extension or waiver of the limitation period applicable to any
Tax Returns that is still in effect and there is no material claim, audit,
action, suit, proceeding, or (to the knowledge of the Company) investigation now
pending or threatened against or with respect to Taxes of the Company. No notice
of deficiency for any Taxes has been proposed, asserted or assessed against the
Company that has not been resolved and paid in full. There are no liens for
Taxes (other than for Taxes not yet due) upon the assets of the Company. The
Company has never been a member of an affiliated group of corporations, within
the meaning of Section 1504 of the Code. The Company is in full compliance with
all the terms and conditions of any Tax exemption or other Tax-sharing agreement
or order of a foreign government, and the consummation of the Merger will not
have any adverse effect on the continued validity and effectiveness of any such
Tax exemption or other Tax-sharing agreement or order. Neither the Company nor
any person on behalf of the Company has entered into or will enter into any
agreement or consent pursuant to the collapsible corporation provisions of
Section 341(f) of the Code (or any corresponding provision of state, local or
foreign income tax Law) or agreed to have Section 341(f)(2) of the Code (or any
corresponding provision of state, local or foreign income tax Law) apply to any
disposition of any asset owned by the Company. None of the assets of the Company
is property that the Company is required to treat as being owned by any other
person pursuant to the so-called "safe harbor lease" provisions of former
Section 168(f)(8) of the Code. None of the assets of the Company directly or
indirectly secures any debt the interest on which is tax exempt under Section
103(a) of the Code. None of the assets of the Company is "tax-exempt use
property" within the meaning of Section 168(h) of the Code. The Company has not
made and will not make a deemed dividend election under Treas. Reg.
Section 1.1502-32(f)(2) or a consent dividend election under Section 565 of the
Code. The Company has never been a party (either as a distributing corporation,
a distributed corporation or otherwise) to any transaction intended to qualify
under Section 355 of the Code or any corresponding provision of state Law. The
Company has not participated in (and will not participate in) an international
boycott within the meaning of Section 999 of the Code. No Company Stockholder is
other than a United States person within the meaning of the Code. The Company
does not have and has not had a permanent establishment in any foreign country,
as defined in any applicable Tax treaty or convention between the United States
of America and such foreign country and the Company has not engaged in a trade
or business within any foreign country. The Company has never elected to be
treated as an S-corporation under Section 1362 of the Code or any corresponding
provision of Federal or state Law. All material elections with respect
to the Company's Taxes are reflected on the Company's Tax Returns, copies of
which have been provided to Parent. After the date of this Agreement, no
material election with respect
36
to Taxes will be made without the prior written consent of Parent, which consent
will not be unreasonably withheld or delayed. The Company is not party to any
joint venture, partnership, or other arrangement or contract which could be
treated as a partnership for Federal income tax purposes. The Company is not
currently and never has been subject to the reporting requirements of Section
6038A of the Code. There is no agreement, contract or arrangement to which the
Company is a party that could, individually or collectively, result in the
payment of any amount that would not be deductible by reason of Sections 280G
(as determined without regard to Section 280G(b)(4)), 162 (other than 162(a)) or
404 of the Code. The Company is not a party to or bound by any Tax indemnity,
Tax sharing or Tax allocation agreement (whether written or unwritten or arising
under operation of Federal Law as a result of being a member of a group filing
consolidated Tax Returns, under operation of certain state Laws as a result of
being a member of a unitary group, or under comparable Laws of other states or
foreign jurisdictions) that includes a party other than the Company nor does the
Company owe any amount under any such agreement. The Company has previously
provided or made available to Parent true and correct copies of all income,
franchise, and sales Tax Returns, and, as reasonably requested by Parent, prior
to or following the date hereof, presently existing information statements and
reports. The Company is not, and has not been, a United States real property
holding corporation (as defined in Section 897(c)(2) of the Code) during the
applicable period specified in Section 897(c)(1)(A)(ii) of the Code. Other than
by reason of the Merger, the Company has not been and will not be required to
include any material adjustment in Taxable income for any Tax period (or portion
thereof) pursuant to Section 481 or 263A of the Code or any comparable provision
under state or foreign Tax Laws as a result of transactions, events or
accounting methods employed prior to the Merger.
(c) For purposes of this Agreement, the following terms have
the following meanings: "Tax" (and, with correlative meaning, "Taxes" and
"Taxable") means any and all taxes including, without limitation, (i) any net
income, alternative or add-on minimum tax, gross income, gross receipts, sales,
use, ad valorem, transfer, franchise, profits, value added, net worth, license,
withholding, payroll, employment, excise, severance, stamp, occupation, premium,
property, environmental or windfall profit tax, custom, duty or other tax,
governmental fee or other like assessment or charge of any kind whatsoever,
together with any interest or any penalty, addition to tax or additional amount
imposed by any Governmental Entity responsible for the imposition of any such
tax (domestic or foreign) (a "Tax Authority"), (ii) any liability for the
payment of any amounts of the type described in (i) as a result of being a
member of an affiliated, consolidated, combined or unitary group for any taxable
period or as the result of being a transferee or successor thereof and (iii) any
liability for the payment of any amounts of the type described in (i) or (ii) as
a result of any express or implied obligation to indemnify any other person. As
used in this Section 3.15, the term "Company" means the Company and any entity
included in, or required under U.S. GAAP to be included in, any of the Annual
Financial Statements or the Interim Financial Statements.
(d) Target has not engaged in an transaction that is the
same or substantially similar to one of the types of transactions that the
Internal Revenue Service has determined to be a tax avoidance transaction and
identified by notice, regulation, or other form of published guidance as a
listed transaction, as set forth in Treas. Reg. Section 1.6011-4(b)(2).
37
SECTION 3.16 Vote Required. The only votes of the holders of any classes
-------------
or series of capital stock of the Company necessary to approve and adopt this
Agreement, the Merger and the other transactions contemplated by this Agreement
are (i) the affirmative vote of the holders of a majority of the outstanding
shares of the Company Common Stock and the Company Preferred Stock, voting as a
single class, and (ii) the affirmative vote of the holders of at least seventy
percent (70%) of the Company Common Stock issuable upon conversion of the
outstanding shares of the Company Preferred Stock, voting as a single class, in
favor of the approval and adoption of this Agreement and the Merger. The shares
of Company Common Stock and the Company Preferred Stock subject to the Voting
Agreements are sufficient to secure the affirmative vote of the holders of (i) a
majority of the outstanding shares of the Company Common Stock and the Company
Common Stock issuable upon conversion of the outstanding shares of the Company
Preferred Stock, voting as a single class, and (ii) at least seventy percent
(70%) of the Company Common Stock issuable upon conversion of the outstanding
shares of the Company Preferred Stock, voting as a single class, in favor of the
approval and adoption of this Agreement and the Merger.
SECTION 3.17 Assets; Absence of Liens and Encumbrances. Except as set
-----------------------------------------
forth in Section 3.17 of the Company Disclosure Schedule, the Company owns,
leases or has the legal right to use all of the material assets and properties
(other than Intellectual Property, which is covered by Section 3.14 hereof)
currently used in the conduct of the business of the Company (all such
properties and assets being the "Assets"). The Company has good and marketable
title to, or, in the case of leased or subleased Assets, valid and subsisting
leasehold interests in, all the Assets, free and clear of all mortgages, liens,
pledges, charges, claims, defects of title, restrictions, infringements,
security interests or encumbrances of any kind or character ("Liens") except for
(i) Liens for current Taxes not yet due and payable or that are otherwise not
material; (b) statutory or common law Liens to secure obligations to landlords,
lessors or renters under leases or rental agreements; (c) statutory or common
law Liens in favor of carriers, warehousemen, mechanics and materialmen, to
secure claims for labor, materials or supplies and other like Liens; and (d)
Liens that do not, individually or in the aggregate, materially detract from the
value, or materially interfere with the present or contemplated use of the
Assets subject thereto or affected thereby. The equipment of the Company used in
the operation of its business is, taken as a whole, in good operating condition
and repair, ordinary wear and tear excepted.
SECTION 3.18 Owned Real Property. The Company does not own any real
-------------------
property.
SECTION 3.19 Certain Interests.
-----------------
(a) No Affiliate, officer or director of the Company and, to
the knowledge of the Company, no immediate relative or spouse (or immediate
relative of such spouse) who resides with, or is a dependent of, any such
officer or director:
(i) has any direct or indirect financial interest
in any creditor, competitor, supplier manufacturer, agent, representative,
distributor or customer of the Company; provided, however, that (A) the
ownership of securities representing no more than 5% of the outstanding voting
power of any creditor, competitor, supplier manufacturer, agent, representative,
distributor or customer, and which are listed on any national securities
exchange or traded actively in the national over-the-counter market, shall not
be deemed to be a "financial interest" as long as the person owning such
securities has no other connection or relationship with such creditor,
competitor, supplier manufacturer, agent, representative, distributor or
customer, and (B) ownership of securities held by or acquired through a venture
capital fund shall not constitute a "financial interest";
38
(ii) owns, directly or indirectly, in whole or in
part, or has any other interest in, any tangible or intangible property that the
Company uses in the conduct of its business (except for any such ownership or
interest resulting from the ownership of securities in a public company or
ownership or interest held by or acquired through a venture capital fund);
(iii) has any claim or cause of action against the
Company; or
(iv) has outstanding any indebtedness to the Company.
(b) Except for the payment of employee compensation in the
ordinary course of business, consistent with past practice, the Company has no
liability or any other obligation of any nature whatsoever to any Company
Stockholder or any affiliate thereof or to any officer or director of the
Company or, to the knowledge of the Company, to any immediate relative or spouse
(or immediate relative of such spouse) of any such officer or director.
SECTION 3.20 Insurance Policies. Section 3.20 of the Company Disclosure
------------------
Schedule sets forth as of the date of this Agreement (i) a true and complete
list of all insurance policies to which the Company is a party or is a
beneficiary or named insured and (ii) any material claims made thereunder or
made under any other insurance policy within the past three years. True and
complete copies of all such policies have been provided to Parent. All premiums
due on such policies have been paid, and the Company is otherwise in compliance
in all material respects with the terms of such policies. The Company has not
failed to give any notice or present any material claim under any such policy in
a timely fashion, except where such failure would not prejudice the Company's
ability to make a claim. Such insurance policies are in full force and effect.
Since the date of adoption of such policies and through the date of this
Agreement, the Company has not received any notice or other communication
regarding any actual or possible (i) cancellation or threatened termination of
any insurance policy, or (ii) refusal of any coverage or rejection of any claim
under any insurance policy.
SECTION 3.21 Restrictions on Business Activities. There is no agreement,
-----------------------------------
commitment, judgment, injunction, order or decree binding upon the Company or to
which the Company is a party which has or would reasonably be expected to have
the effect of prohibiting or materially impairing any business practice material
to the Company, any acquisition of property by the Company or the conduct of
business by the Company as currently conducted.
SECTION 3.22 Brokers. No broker, finder or investment banker is entitled
-------
to any brokerage, finder's or other fee or commission in connection with the
origination, negotiation or execution of this Agreement, the Merger or the other
transactions contemplated by this Agreement based upon arrangements made by or
on behalf of the Company.
39
SECTION 3.23 State Takeover Statutes. The Board of Directors of the
-----------------------
Company has taken all action necessary to ensure that any restrictions on
business combinations contained in the DGCL will not prevent the Merger and the
other transactions contemplated by this Agreement. No other similar
anti-takeover statute or regulation is applicable to the Company, the shares of
Company Stock, the Merger or the other transactions contemplated by this
Agreement.
SECTION 3.24 Customers and Suppliers. Section 3.24 of the Company
-----------------------
Disclosure Schedule contains a complete list of the Company's 25 largest
customers based upon aggregate billings during the fiscal years ended March 31,
2004 and 2005 and the eight month period ended November 30, 2005. No customer
listed on Section 3.24 of the Company Disclosure Schedule has, within the past
12 months, cancelled or otherwise terminated, or, to the Company's knowledge,
made any threat to cancel or terminate, its relationship with the Company, or
decreased materially its usage of the Company's services or products. No
material supplier of the Company has cancelled or otherwise terminated any
contract with the Company prior to the expiration of the contract term, or made
any threat to the Company to cancel, reduce the supply or otherwise terminate
its relationship with the Company. The Company has not (i) breached any material
agreement with or (ii) engaged in any fraudulent conduct with respect to, any
customer or supplier of the Company.
SECTION 3.25 Inventory. All inventory of the Company, whether or not
---------
reflected on the Reference Balance Sheet, consists of a quality and quantity
usable and saleable in the ordinary course of business, except for obsolete
items and items of below-standard quality, all of which have been written-off or
written-down to net realizable value on the Reference Balance Sheet. All
inventories not written-off have been priced at the lower of cost or market
value on a first-in, first-out basis. The quantities of each type of inventory,
whether raw materials, work-in-process or finished goods, are not excessive in
the present circumstances of the Company.
SECTION 3.26 Accounts Receivable; Bank Accounts. All accounts receivable
----------------------------------
of the Company reflected on the Reference Balance Sheet are valid receivables
arising from bona fide transactions entered into in the ordinary course of
business and, to the Company's knowledge, are collectible when due, without
setoff or counterclaim and net of the applicable reserve for bad debts on the
Reference Balance Sheet. All accounts receivable reflected in the financial or
accounting records of the Company that have arisen since the date of the
Reference Balance Sheet are valid receivables subject to no setoffs or
counterclaims and, to the Company's knowledge, are current and collectible
(within 90 days after the date on which they first became due and payable), net
of a reserve for bad debts in an amount proportionate to the reserve shown on
the Reference Balance Sheet. Section 3.26 of the Company Disclosure Schedule
describes each account maintained by or for the benefit of the Company at any
bank or other financial institution.
SECTION 3.27 Powers of Attorney. There are no outstanding powers of
------------------
attorney executed on behalf of the Company.
SECTION 3.28 Offers. The Company has suspended or terminated, and has
------
the legal right to terminate or suspend, all negotiations and discussions of any
acquisition, merger, consolidation or sale of all substantially all of the
assets of Company with parties other than Parent and Merger Sub.
40
SECTION 3.29 Warranties. No product or service manufactured, sold,
----------
leased, licensed or delivered by the Company is subject to any guaranty,
warranty, right of return, right of credit or other indemnity other than (i) the
applicable standard terms and conditions of sale or lease of the Company, which
are set forth in Section 3.29 of the Company Disclosure Schedule or immaterial
deviations therefrom that are customary and (ii) manufacturers' warranties for
which the Company has no liability. Section 3.29 of the Company Disclosure
Schedule sets forth the aggregate expenses incurred by the Company in fulfilling
its obligations under their guaranty, warranty, right of return and indemnity
provisions during each of the fiscal years and the interim period covered by the
Annual Financial Statements and the Interim Financial Statements and the Company
does not know of any reason why such expenses should significantly increase as a
percentage of sales in the future.
SECTION 3.30 Books and Records. The minute books and other similar
-----------------
records of the Company contain complete and accurate records of all actions
taken at any meetings of the Company's stockholders, Board of Directors or any
committee thereof and of all written consents executed in lieu of the holding of
any such meeting.
SECTION 3.31 Tax Matters. Neither the Company nor any of its affiliates
-----------
has taken or agreed to take any action, other than an action expressly
contemplated by this Agreement or the Escrow Agreement, that would prevent the
Merger from constituting a reorganization qualifying under Section 368(a) of the
Code. The Company is not aware of any agreement, plan or other circumstance that
would prevent the Merger from qualifying as a reorganization under Section
368(a) of the Code.
SECTION 3.32 No Illegal Payments. None of the Company or, to the
-------------------
knowledge of the Company, any affiliate, officer, agent or employee thereof,
directly or indirectly, has, on behalf of or with respect to the Company, (a)
made any unlawful domestic or foreign political contributions, (b) made any
payment or provided services which were not legal to make or provide or which
the Company or any affiliate thereof or any such officer, employee or other
person should reasonably have known were not legal for the payee or the
recipient of such services to receive, (c) received any payment or any services
which were not legal for the payer or the provider of such services to make or
provide, (d) with respect to the Company, had any material transactions or
payments which are not recorded in its accounting books and records or (e) with
respect to the Company, had any off-book bank or cash accounts or "slush funds."
SECTION 3.33 Reserved.
--------
SECTION 3.34 No Misstatements. To the Company's knowledge, no
----------------
representation or warranty made by the Company in this Agreement, the Company
Disclosure Schedule or any certificate delivered or deliverable pursuant to the
terms hereof contains or will contain, when taken as a whole, any untrue
statement of a material fact, or omits, or will omit, when taken as a whole, to
state a material fact, necessary in order to make the statements made, in light
of the circumstances under which they were made, not misleading.
41
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB
-------------------------------------------------------
Parent and Merger Sub hereby represent and warrant to the Company that
the statements contained in this Article IV are true and correct as of the date
of this Agreement and as of the Effective Time (except for any such
representation and warranty that expressly is made as of a specific date, which
such representation and warranty shall be true and correct as of such date),
subject to such qualifications as set forth in (i) the disclosure schedule
delivered by Parent to the Company concurrently with the execution of this
Agreement (the "Parent Disclosure Schedule") and (ii) the Parent SEC Reports (as
defined in Section 4.05). The Parent Disclosure Schedule shall be arranged
according to specific sections in this Article IV and shall provide exceptions
to, or otherwise qualify in reasonable detail, only the corresponding section in
this Article IV and any other section hereof where it is reasonably apparent,
upon a reading of such disclosure, that the disclosure would also qualify or
apply to such other section.
SECTION 4.01 Organization and Qualification.
------------------------------
(a) Parent is a corporation duly incorporated, validly
existing and in good standing under the laws of the State of Delaware and has
all requisite corporate power and authority to own, lease and otherwise hold and
operate its properties and other assets and to carry on its business as it is
now being conducted, except where the failure to be so organized, existing or in
good standing or to have such corporate power and authority has not had, and
would not reasonably be expected to have, individually or in the aggregate, a
Parent Material Adverse Effect (as defined below). Parent is duly qualified or
licensed as a foreign corporation to do business, and is in good standing, in
each jurisdiction where the character of the properties owned, leased or
operated by it or the nature of its business makes such qualification or
licensing necessary, except where the failure to be so qualified or licensed and
in good standing has not had, and would not reasonably be expected to have,
individually or in the aggregate, a Parent Material Adverse Effect. The term
"Parent Material Adverse Effect" means any event, change, violation, inaccuracy,
circumstance or effect (regardless of whether or not such events, changes,
violations, inaccuracies, circumstances or effects are inconsistent with the
representations or warranties made by Parent in this Agreement) that is, or
would reasonably be expected to be, individually or in the aggregate, materially
adverse to the business, financial condition or results of operations of Parent
and its subsidiaries taken as a whole; provided that none of the following
(individually or in combination) shall be deemed to constitute, or shall be
taken into account in determining whether there has been or would reasonably be
expected to be, a Parent Material Adverse Effect: any events, changes,
violations, inaccuracies, circumstances or effects resulting from or arising in
connection with (i) any changes in general economic or business conditions that
do not materially disproportionately impact Parent and its subsidiaries taken as
a whole, (ii) any changes or events affecting the industry in which Parent and
its subsidiaries operate that do not materially disproportionately impact Parent
and its subsidiaries taken as a whole, (iii) the announcement or pendency of the
Merger (provided that the exception in this clause (iii) shall not be used to
excuse a breach of a representation or warranty of Parent contained in this
Agreement that arises from the execution and delivery of this Agreement or the
consummation of the transactions contemplated by this Agreement), (iv) any
decline in the trading price of Parent Common Stock, (v) any adverse change in
the United States securities market or (vi) any failure by Parent to meet the
revenue or earnings predictions of equity analysts as reflected in the First
Call consensus estimates, or any other revenue or earnings estimate, or any
other revenue or earnings prediction or expectation, for any period ending (or
for which earnings are released) on or after the date of this Agreement and
prior to the Closing Date.
42
(b) Merger Sub is a corporation duly incorporated, validly
existing and in good standing under the laws of the State of Delaware.
SECTION 4.02 Authority Relative to This Agreement. Each of Parent and
------------------------------------
Merger Sub has all necessary corporate power and authority to execute and
deliver this Agreement, and to perform its obligations hereunder and to
consummate the Merger and the other transactions contemplated by this Agreement.
The execution and delivery of this Agreement by each of Parent and Merger Sub
and the consummation by each of Parent and Merger Sub of the Merger and the
other transactions contemplated by this Agreement have been duly and validly
authorized by all necessary corporate action, and no other corporate proceedings
on the part of Parent or Merger Sub are necessary to authorize this Agreement or
to consummate the Merger and the other transactions contemplated by this
Agreement (other than with respect to the Merger, the filing and recordation of
appropriate merger documents as required by the DGCL). This Agreement has been
duly and validly executed and delivered by each of Parent and Merger Sub and,
assuming the due authorization, execution and delivery by the Company,
constitutes a legal, valid and binding obligation of each of Parent and Merger
Sub, enforceable against each of Parent and Merger Sub in accordance with its
terms, subject to the effect of any applicable bankruptcy, reorganization,
insolvency, moratorium or similar Laws affecting creditors' rights generally and
subject, as to enforceability, to the effect of general principles of equity.
SECTION 4.03 Capital Structure.
-----------------
(a) As of the date hereof, the authorized capital stock of
Parent consists of (i) 200,000,000 shares of Parent Common Stock and (ii)
10,000,000 shares of preferred stock, par value $.0001 per share, of Parent
("Parent Preferred Stock"). As of November 30, 2005, (i) 12,919,916 shares of
Parent Common Stock were issued and outstanding, all of which are duly
authorized, validly issued, fully paid and non-assessable and (ii) 3,826,237
shares of Parent Common Stock were reserved for future issuance pursuant to
outstanding, unexercised options to purchase Parent Common Stock. As of the date
hereof, no shares of Parent Preferred Stock were issued and outstanding.
(b) As of November 30, 2005, except for outstanding options
referred to in clause (ii) of the second sentence of Section 4.03(a), there are
no outstanding options, warrants, or other agreements relating to the issuance
of capital stock of Parent or obligating Parent to issue or sell any shares of
its capital stock.
43
SECTION 4.04 No Conflict; Required Filings and Consents.
------------------------------------------
(a) The execution and delivery of this Agreement by each of
Parent and Merger Sub do not, and the performance of this Agreement by each of
Parent and Merger Sub will not, (i) conflict with or violate their respective
organizational documents, (ii) assuming that all consents, approvals,
authorizations and other actions described in Section 4.04(b) have been obtained
and all filings and obligations described in Section 4.04(b) have been made or
complied with, conflict with or violate in any material respect any Law
applicable to Parent or Merger Sub or by which any property or asset of Parent
or Merger Sub is bound or affected, or (iii) conflict with, result in any
material breach of or constitute a material default (or an event which with
notice or lapse of time or both would become a default) under, require consent,
approval or notice under, give to others any right of termination, amendment,
acceleration or cancellation of, require any payment under, or result in the
creation of a lien or other encumbrance on any property or asset of the Parent
or Merger Sub pursuant to, any material note, bond, mortgage, indenture,
contract, agreement, lease, license, permit, franchise or other instrument or
obligation to which the Parent or Merger Sub is a party or by which any property
or asset of the Company is bound, except in the case of clauses (ii) and (iii)
where such conflicts, violations, breaches or defaults would not reasonably be
expected to have, individually or in the aggregate, a Parent Material Adverse
Effect.
(b) The execution and delivery of this Agreement by each of
Parent and Merger Sub do not, and the performance of this Agreement by each of
Parent and Merger Sub will not, require any consent, approval, order,
authorization, registration or permit of, or filing with or notification to, any
Governmental Entity on the part of Parent, except for (i) if necessary, the
pre-merger notification requirements of the HSR Act and the rules and
regulations promulgated thereunder, (ii) the filing and recordation of
appropriate merger documents as required by the DGCL, (iii) the filing of a
Current Report on Form 8-K pursuant to the Exchange Act of 1934, as amended (the
"Exchange Act"), (iv) the filing of necessary documents in connection with an
application for a permit from the California Department of Corporations pursuant
to Section 25121 of the California Corporate Securities Law of 1968, (v) if
necessary, the filing of a listing application with the Nasdaq National Market
with respect to the shares of Parent Common Stock to be issued pursuant to this
Agreement and the Company Options, (vi) the filing of a Form S-8 pursuant to the
Securities Act with respect to the Company Options, (vii) if necessary, the
filing of a registration statement on Form S-3 with respect to the shares of
Parent Common Stock to be issued pursuant to this Agreement, and (viii) such
other consents, approvals, orders, authorizations, registrations or permits,
filings or notifications that if not obtained or made could not reasonably be
expected, individually or in the aggregate, to prevent or materially delay the
consummation of the transactions contemplated by this Agreement.
SECTION 4.05 SEC Filings; Financial Statements.
---------------------------------
(a) Parent has timely filed all forms, reports and documents
required to be filed by it with the Securities and Exchange Commission (the
"SEC") since April 30, 2005 (collectively, the "Parent SEC Reports"). As of the
respective dates they were filed (and if amended or superseded by a filing prior
to the date of this Agreement, then on the date of such filing), (i) the Parent
SEC Reports complied in all material respects with the requirements of the
Securities Act or the Exchange Act, as the case may be, and (ii) none of the
Parent SEC Reports 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 made therein, in the light of the circumstances under which
they were made, not misleading. Parent has complied in all material respects
with all Federal and state securities laws.
44
(b) Each of the consolidated financial statements
(including, in each case, any notes thereto) contained in the Parent SEC Reports
was prepared in accordance with U.S. GAAP applied on a consistent basis
throughout the periods indicated (except as may be indicated in the notes
thereto or, in the case of unaudited statements, as permitted by Form 10-Q or
8-K promulgated by the SEC) and each presented fairly, in all material respects,
the consolidated financial position and results of operations of Parent and its
consolidated subsidiaries as at the respective dates thereof and for the
respective periods indicated therein, except as otherwise noted therein
(subject, in the case of unaudited statements, to normal and recurring year-end
adjustments which were not and are not expected, individually or in the
aggregate, to be material).
SECTION 4.06 Interim Operations of Merger Sub. Merger Sub was formed by
--------------------------------
Parent 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. Merger Sub has no
liabilities and, except for a subscription agreement pursuant to which all of
its authorized capital stock was issued to Parent, is not a party to any
agreement other than this Agreement and agreements with respect to the
appointment of registered agents and similar matters.
SECTION 4.07 Valid Issuance of Parent Shares. The shares of Parent
-------------------------------
Common Stock to be issued pursuant to this Agreement will, when issued, be duly
authorized, validly issued, fully paid and non-assessable.
SECTION 4.08 Brokers. No broker, finder or investment banker is entitled
-------
to any brokerage, finder's or other fee or commission in connection with the
Merger or the other transactions contemplated by this Agreement based upon
arrangements made by or on behalf of Parent or Merger Sub.
SECTION 4.09 Tax Matters. Neither Parent nor Merger Sub nor any of their
-----------
affiliates has taken or agreed to take any action, other than an action
expressly contemplated by this Agreement or the Escrow Agreement, that would
prevent the Merger from constituting a reorganization qualifying under Section
368(a) of the Code. Parent is not aware of any agreement, plan or other
circumstance that would prevent the Merger from qualifying as a reorganization
under Section 368(a) of the Code.
SECTION 4.10 Litigation. There is no litigation, suit, claim, action,
----------
proceeding or investigation pending or, to the knowledge of the Parent,
threatened against Parent, or any property or asset owned or used by Parent or
any person whose liability Parent has assumed, either contractually or by
operation of Law, before any arbitrator or Governmental Entity (a "Legal
Proceeding") that would reasonably be expected, if resolved adversely to Parent,
to result in a Parent Material Adverse Effect. To Parent's knowledge, no event
has occurred, and no claim, dispute or other condition or circumstance exists,
that would reasonably be expected to give rise to or serve as a basis of the
commencement of any such Legal Proceeding.
SECTION 4.11 Intellectual Property. Parent owns or is licensed for, and
---------------------
in any event possesses sufficient and legally enforceable rights with respect
to, all Intellectual Property used in its business, as presently conducted or
necessary to conduct any such business without, to Parent's knowledge (with
respect to patents and trademarks), any conflict with or infringement or
misappropriation of any rights or property of any person.
45
SECTION 4.12 NASDAQ Requirements. Parent is not required to obtain
-------------------
stockholder approval of this Agreement or the transactions contemplated hereby
pursuant to the rules of NASDAQ applicable to listed companies ("NASDAQ Rules").
Parent will, if required by NASDAQ Rules, file a Listing of Additional Shares
Notification Form with NASDAQ in respect of the Parent Common Stock to be issued
pursuant to this Agreement.
SECTION 4.13 Absence of Parent Material Adverse Effect. Between October
-----------------------------------------
31, 2005 and the date of this Agreement, there has not been any Parent Material
Adverse Effect.
SECTION 4.14 No Misstatements. To Parent's knowledge, no representation
----------------
or warranty made by Parent or Merger Sub in this Agreement, the Parent
Disclosure Schedule or any certificate delivered or deliverable pursuant to the
terms hereof contains or will contain, when taken as a whole, any untrue
statement of a material fact, or omits, or will omit, when taken as a whole, to
state a material fact, necessary in order to make the statements made, in light
of the circumstances under which they were made, not misleading.
ARTICLE V
CONDUCT OF BUSINESSES PENDING THE MERGER
----------------------------------------
SECTION 5.01 Conduct of Business by the Company Pending the Merger.
-----------------------------------------------------
During the period from the date of this Agreement and continuing until the
earlier of the termination of this Agreement or the Effective Time, the Company
agrees (except to the extent that Parent shall otherwise consent in writing), to
carry on its business in the ordinary course of business consistent with past
practices and to use all commercially reasonable efforts consistent with past
practices and policies to preserve intact its present business organization,
keep available the services of its present officers and key employees and
consultants 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 would be unimpaired at the
Effective Time. The Company shall promptly notify Parent of any event or
occurrence not in the ordinary course of business of the Company.
By way of amplification and not limitation, except as specifically
contemplated by this Agreement or as specifically set forth in Section 5.01 of
the Company Disclosure Schedule, the Company shall not, between the date of this
Agreement and the Effective Time, directly or indirectly, do any of the
following without the prior written consent of Parent:
(a) amend or otherwise change its Certificate of
Incorporation or Bylaws or equivalent organizational documents, except as
specifically contemplated by this Agreement or the Voting Agreement;
(b) issue, sell, pledge, dispose of, grant, encumber,
authorize or propose the issuance, sale, pledge, disposition, grant or
encumbrance of any shares of its capital stock of any class, or any options,
warrants, convertible securities or other rights of any kind to acquire any
shares of such capital stock or any other ownership interest (including, without
limitation, any phantom interest), of the Company, except pursuant to the terms
of options, warrants or preferred stock outstanding on the date of this
Agreement;
46
(c) sell, lease, license, pledge, grant, encumber or
otherwise dispose of any of its properties or assets which are material,
individually or in the aggregate, to its business;
(d) declare, set aside, make or pay any dividend or other
distribution, payable in cash, stock, property or otherwise, with respect to any
of its capital stock;
(e) split, combine, subdivide, redeem 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
purchase or otherwise acquire, directly or indirectly, any shares of its capital
stock except from former employees, directors and consultants at cost in
accordance with agreements providing for the repurchase of shares in connection
with any termination of service by such party and except to the extent required
to complete the Merger;
(f) acquire (including, without limitation, by merger,
consolidation, or acquisition of stock or assets) any interest or any assets in
any corporation, partnership, other business organization or any division
thereof;
(g) institute or settle any Legal Proceeding (other than
those set forth on Section 3.10 of the Company Disclosure Schedule);
(h) other than pursuant to the provisions of Section 6.01(d)
regarding the issuance of promissory notes, incur any indebtedness for borrowed
money or issue any debt securities or assume, guarantee or endorse, or otherwise
as an accommodation become responsible for, the obligations of any person, or
make any loans or advances, except for advances to employees in the ordinary
course of business;
(i) authorize any capital expenditure in excess of $25,000,
individually or in the aggregate;
(j) enter into any lease or contract for the purchase or
sale of any property, real or personal;
(k) waive or release any material right or claim;
(l) except as specifically contemplated by this Agreement,
increase, or agree to increase, the compensation payable, or to become payable,
to its officers or employees, or grant any severance or termination pay to, or
enter into any employment or severance agreement with, any of its directors,
officers or other employees, or establish, adopt, enter into or amend any
collective bargaining, bonus, profit sharing, thrift, compensation, stock
option, restricted stock, pension, retirement, deferred compensation,
employment, termination, severance or other Plan, agreement, trust, fund, policy
or arrangement for the benefit of any director, officer or employee; provided,
however, that the foregoing provisions of this subsection shall not apply to any
amendments to employee benefit plans described in Section 3(3) of ERISA that may
be required by Law;
47
(m) accelerate, amend or change the period of exercisability
or the vesting schedule of restricted stock or Company Options granted under any
option plan, employee stock plan or other agreement or authorize cash payments
in exchange for any Company Options granted under any of such plans except as
specifically required by the terms of such plans or any such agreement or any
related agreement in effect as of the date of this Agreement and disclosed in
the Company Disclosure Schedule;
(n) extend any offers of employment to potential employees,
consultants or independent contractors or terminate any existing employment
relationships;
(o) amend or terminate any Material Contract;
(p) enter into any contract or agreement material to the
business, results of operations or financial condition of the Company;
(q) enter into, amend or terminate any contract, agreement,
commitment or arrangement that, if fully performed, would not be permitted under
this Section 5.01;
(r) other than in the ordinary course of business consistent
with past practice, enter into any licensing, distribution, OEM agreements,
sponsorship, advertising, merchant program or other similar contracts,
agreements or obligations;
(s) pay, discharge or satisfy any material claim, liability
or obligation (absolute, accrued, asserted, unasserted, contingent or
otherwise), except in the ordinary course of business, consistent with past
practice;
(t) take any action, with respect to accounting policies,
principles or procedures;
(u) make or change any Tax or accounting election, change
any annual accounting period, adopt or change any accounting method, file any
amended Tax Return, enter into any closing agreement, settle any Tax claim or
assessment relating to the Company, surrender any right to claim refund of
Taxes, consent to any extension or waiver of the limitation period applicable to
any Tax claim or assessment relating to the Company, or take any other action or
omit to take any action that would have the effect of increasing the Tax
liability of the Company or Parent;
(v) (i) sell, assign, lease, terminate, abandon, transfer,
permit to be encumbered or otherwise dispose of or, except in connection with
the issuance of promissory notes pursuant to the provisions of Section 6.01(d),
grant any security interest in and to any item of the Company Intellectual
Property, in whole or in part (and provided that such security interest must be
terminable upon repayment or conversion of the indebtedness to which it
relates), (ii) grant any license with respect to any Company Intellectual
Property, other than a license of Software granted to customers of the Company
to whom the Company licenses such Software in the ordinary course of business,
(iii) develop, create or invent any Intellectual Property jointly with any third
party, or (iv) disclose, or allow to be disclosed, any confidential Company
Intellectual Property, unless such Company Intellectual Property is subject to a
confidentiality or non-disclosure covenant protecting against disclosure
thereof;
48
(w) except as specifically contemplated by this Agreement or
otherwise pursuant to a previously adopted bonus plan disclosed on the Company
Disclosure Schedule, make (or become obligated to make) any bonus payments to
any of its officers or employees;
(x) revalue any of its assets, including writing down the
value of inventory or writing off notes or accounts receivable except in the
ordinary course of business;
(y) fail to maintain its equipment and other assets in good
working condition and repair according to the standards it has maintained up to
the date of this Agreement, subject only to ordinary wear and tear;
(z) permit any insurance policy naming it as a beneficiary
or a loss payable payee to be cancelled or terminated without notice to Parent;
(aa) write off as uncollectible, or establish any
extraordinary reserve with respect to, any account receivable or other
indebtedness in excess of $10,000 with respect to a single matter, or in excess
of $25,000 in the aggregate;
(bb) make any loans, advances or capital contributions to, or
investments in, any other person or third party, other than travel loans or
advances in the ordinary course of business consistent with past practice;
(cc) knowingly take any action or fail to take any reasonable
action that would cause there to be a Company Material Adverse Effect; or
(dd) take, or agree in writing or otherwise to take, any of
the actions described in subsections (a) through (cc) above, or any action which
is reasonably likely to make any of the Company's representations or warranties
contained in this Agreement untrue or incorrect on the date made (to the extent
so limited) or as of the Effective Time.
Notwithstanding anything to the contrary herein, but subject to the terms of any
promissory notes issued to Parent as set forth in Section 6.01(d) below, without
Parent's consent, the Company may (a) issue promissory notes to parties other
than Parent in a principal amount not to exceed $1,000,000, the terms of which
provide that (i) payment of the outstanding principal and any accrued interest
under any such note will constitute full repayment under such note and (ii) upon
such repayment, any security interest in the Company's assets related thereto is
terminated and (b) settle the legal proceedings set forth on Section 3.10 of the
Company Disclosure Schedule in the manner the Company deems appropriate.
SECTION 5.02 Litigation. The Company shall notify Parent in writing
----------
promptly after learning of any claim, action, suit, arbitration, mediation,
proceeding or investigation by or before any court, arbitrator or arbitration
panel, board or other Governmental Entity initiated by it or against it, or
known by the Company to be threatened against the Company or any of its
officers, directors, employees or stockholders in their capacity as such.
49
SECTION 5.03 Notification of Certain Matters. Parent shall give prompt
-------------------------------
notice to the Company, and the Company shall give prompt notice to Parent, of
(i) the occurrence, or non-occurrence, of any event the occurrence, or
non-occurrence, of which would be likely to cause (x) any representation or
warranty contained in this Agreement to be untrue or inaccurate or (y) any
covenant, condition or agreement contained in this Agreement not to be complied
with or satisfied; and (ii) any failure or inability of Parent or the Company,
as the case may be, to comply with or satisfy any covenant, condition or
agreement to be complied with or satisfied by it hereunder; provided, however,
that the delivery of any notice pursuant to this Section 5.03 shall not limit or
otherwise affect the remedies available hereunder to the party receiving such
notice.
ARTICLE VI
ADDITIONAL AGREEMENTS
---------------------
SECTION 6.01 California Permit; Company Stockholder Approval.
-----------------------------------------------
(a) As promptly as practicable after the execution of this
Agreement, Parent shall prepare the necessary documents and Parent shall apply
for a permit (a "California Permit") from the California Department of
Corporations (after a hearing before such Department) pursuant to Section 25121
of the California Corporate Securities Law of 1968, as amended (the "Fairness
Hearing Law"), such that the issuance of the Parent Common Stock in the Merger
shall be exempt from registration under the Securities Act by virtue of the
exemption from the registration contained in Section 3(a)(10) thereof, and the
Company shall prepare a related information statement or other disclosure
document (the "Information Statement") to be distributed to the Company
Stockholders. The Company shall cooperate with, and provide information to,
Parent in connection with Parent's application for the California Permit. The
Company and Parent will respond to any comments from the California Commissioner
of Corporations and use their reasonable best efforts to cause the California
Permit to be granted as soon as reasonably practicable after such filing;
provided, however, that neither Parent nor the Company shall be required to
modify any of the terms of the Merger in order to cause the California Secretary
of State to approve the fairness of such terms and conditions. The Company shall
provide and include in the Information Statement such information relating to
the Company as may be required pursuant to the Fairness Hearing Law or by the
California Department of Corporations. The Information Statement shall include
the unanimous recommendation of the Board of Directors of the Company to the
Company Stockholders to vote in favor of the approval and adoption of the
Merger, this Agreement and the other transactions contemplated hereby. None of
the information supplied by the Company to Parent in connection with the
California Permit application or any other document prepared to comply with
Federal or state securities laws shall contain any untrue statement of material
fact or omit to state any material fact necessary in order to make the
statements contained therein not misleading. None of the information supplied by
Parent in connection with the California Permit application or any other
document prepared to comply with Federal or state securities laws shall contain
any untrue statement of material fact or omit to state any material fact
necessary in order to make the statements contained therein not misleading.
50
(b) The Company shall promptly, after the date of this
Agreement and in accordance with applicable Law, the Company's Certificate of
Incorporation and Bylaws and the Fairness Hearing Law, convene a meeting of its
stockholders or solicit written consents to obtain their approval and adoption
of this Agreement, the Merger, and the other transactions contemplated by this
Agreement. The Company shall ensure that the stockholders' meeting is called,
noticed, convened, held and conducted, and that all proxies solicited by the
Company in connection with the stockholders' meeting are solicited or, in the
alternative, that written consents are solicited from its stockholders, in
compliance with applicable Law, the Company's Certificate of Incorporation and
Bylaws, and all other applicable legal requirements. The Company agrees to use
its reasonable best efforts to take all action necessary or advisable to secure
the necessary votes required by applicable Law, the Company's Certificate of
Incorporation and Bylaws to effect the Merger.
(c) Parent and the Company agree that, if Parent has not
received the California Permit referenced in Section 6.01(a) above by March 31,
2006, unless otherwise agreed to by Parent and the Company, Parent and the
Company shall use reasonable best efforts to promptly effect the Closing by
means of a private placement exemption from the registration requirements of the
Securities Act, so long as such an exemption is available pursuant to federal
and state securities laws. If the Closing is effected by means of such an
available exemption, in connection therewith Parent and the Company agree to
negotiate in good faith and enter into a registration rights agreement that
contains customary provisions, including but not limited to Parent's obligation,
as soon as practicable after the Effective Time, to file a registration
statement on Form S-3 with respect to the shares of Parent Common Stock issued
pursuant to this Agreement.
(d) Beginning February 1, 2006, the Company may issue to
Parent promissory note(s) (i) in an aggregate principal amount of up to
$1,000,000 and that bear simple interest at an annual rate of 10%, (ii) that
grant Parent a first priority security interest in all of the Company's assets
(including but not limited to all Company-owned Company Intellectual Property),
(iii) that are senior to all other debt obligations of the Company, (iv) that
may be prepaid but shall be due and payable to Parent on the 120th day following
the date of termination of this Agreement pursuant to the provisions of the
Section 8.01 below, and (v) that include such other terms that are mutually
acceptable to Parent and the Company negotiating in good faith. Following
Parent's receipt of notice that the Company has elected to exercise its rights
under this Section 6.01(d), Parent and the Company shall negotiate in good faith
a mutually acceptable form of promissory note for use in connection with the
provisions of this Section 6.01(d). Within two business days of the completion
of such negotiation, Parent shall deliver (by wire transfer of immediately
available funds to the account designated by the Company) the principal amount
of the initial promissory note. Thereafter, Parent shall deliver (by wire
transfer of immediately available funds to the account designated by the
Company) the principal amount of each additional promissory note within two
business days of Parent's receipt of notice that the Company has elected to
exercise its rights under this Section 6.01(d).
51
SECTION 6.02 Access to Information; Confidentiality.
--------------------------------------
(a) From the date of this Agreement to the Effective Time,
the Company shall: (i) provide to Parent (and its officers, directors,
employees, accountants, consultants, legal counsel, advisors, agents and other
representatives (collectively, "Representatives")) reasonable access at
reasonable times upon prior notice to the directors, officers, employees,
agents, properties, offices and other facilities of the Company and to the books
and records thereof and (ii) furnish promptly such information concerning the
business, properties, contracts, assets, liabilities, personnel and other
aspects of the Company as Parent or its Representatives may reasonably request.
(b) The parties shall comply with, and shall cause their
respective Representatives to comply with, all of their respective obligations
under the Non-Disclosure Agreement, dated December 13, 2005 (the "Non-Disclosure
Agreement"), between the Company and Parent. Notwithstanding anything herein to
the contrary, each party (and its Representatives) may consult any tax advisor
regarding the tax treatment and tax structure of the transactions contemplated
hereby and may disclose to any person, without limitation of any kind, the tax
treatment and tax structure of the transactions contemplated hereby and all
materials (including opinions or other tax analyses) that are provided relating
to such treatment or structure.
SECTION 6.03 No Solicitation of Transactions.
-------------------------------
(a) The Company will not, directly or indirectly, and will
instruct its Representatives not to, directly or indirectly, solicit, initiate
or knowingly encourage (including by way of furnishing nonpublic information),
or take any other action to knowingly facilitate, any inquiries or the making of
any proposal or offer (including, without limitation, any proposal or offer to
its stockholders) that constitutes, or may reasonably be expected to lead to,
any Competing Transaction (as defined below), or enter into or maintain or
continue discussions or negotiate with any person in furtherance of such
inquiries or to obtain a Competing Transaction, or agree to or endorse any
Competing Transaction, or authorize or knowingly permit any of the officers,
directors or employees of the Company, or any investment banker, financial
advisor, attorney, accountant or other representative retained by the Company,
to take any such action. The Company will notify Parent promptly after receipt
by the Company (or any of its officers, directors, employees, agents, advisors
or other representatives) of any proposal for, or inquiry respecting, any
Competing Transaction, or any request for nonpublic information in connection
with such proposal or inquiry or for access to the properties, books or records
of the Company by any person that informs or has informed the Company that it is
considering making or has made such a proposal or inquiry. Such notice to Parent
shall indicate in reasonable detail the identity of the person making such
proposal or inquiry and the terms and conditions of such proposal or inquiry.
The Company immediately shall cease and cause to be terminated all existing
discussions or negotiations with any parties conducted heretofore with respect
to a Competing Transaction. The Company agrees not to release any third party
from, or waive any provision of, any confidentiality or standstill agreement to
which it is a party.
(b) A "Competing Transaction" means any of the following
---------------------
involving the Company (other than the Merger and the other transactions
contemplated by this Agreement): (i) a merger, consolidation, share exchange,
business combination or other similar transaction; (ii) any sale, lease,
exchange, transfer or other disposition of a material portion of the assets or
debt or equity securities of such party, except as permitted pursuant to Section
6.01(d); (iii) a tender offer or exchange offer for 15% or more of the
outstanding voting securities of such party; or (iv) any solicitation in
opposition to approval by the stockholders of the Company of this Agreement and
the Merger.
52
SECTION 6.04 Employee Benefits Matters.
-------------------------
(a) All employees of the Company shall continue in their
existing benefit plans until such time as, in Parent's sole discretion, an
orderly transition can be accomplished to employee benefit plans and programs
maintained by Parent for its and its affiliates' employees in the United States.
Parent shall take such reasonable actions, to the extent permitted by Parent's
benefits programs, as are necessary to allow eligible employees of the Company
to participate in the health, welfare and other benefit programs of Parent or
alternative benefits programs in the aggregate that are substantially equivalent
to those applicable to employees of Parent in similar functions and positions on
similar terms (it being understood that equity incentive plans are not
considered employee benefits). Pending such action, Parent shall maintain the
effectiveness of the Company's benefit plans to the extent permitted by such
benefit plans.
(b) Prior to the Effective Time, the Company shall take all
necessary actions to solicit the requisite stockholder approval under Section
280G(b)(5) of the Code of any payments or benefits that could be considered
"excess parachute payments" within the meaning of Section 280G of the Code with
respect to all "disqualified individuals" within the meaning of Section 280G of
the Code that have agreed (prior to the solicitation of stockholder approval of
the Merger) to subject their existing benefits and payments to the stockholder
approval requirements of Section 280G(b)(5) of the Code, as contemplated in the
Proposed Treasury Regulations promulgated thereunder. The Company further agrees
that whether or not its stockholders approve any such excess parachute payments,
neither Parent nor the Surviving Corporation shall have any responsibility or
liability with respect to any excise taxes owed by the recipients of any such
payments.
(c) By giving the Company written notice not less than three
business days prior to the Closing Date, Parent may request that the Company
take all necessary corporate action to terminate its 401(k) plan (the "401(k)
Plan") effective as of the date immediately prior to the Closing Date, but
contingent on the Closing. If Parent provides such notice to the Company, Parent
shall receive from the Company evidence that the Company's Board of Directors
has adopted resolutions to terminate the 401(k) Plan (the form and substance of
which resolutions shall be subject to review and approval of Parent), effective
as of the date immediately preceding the Closing Date.
(d) With respect to all stock purchase, stock option and
stock award agreements (including any restricted stock, stock purchase, stock
option or stock award agreement under the Stock Plan) between the Company and
any current or former employee, director, consultant or founder effective as of
the Effective Time, any and all rights of repurchase under each such agreement
shall be assigned to Parent (or to such other entity as Parent shall designate)
by virtue of the Merger and without any further action on the part of the
Company, such assignment to be effective as of the Effective Time.
53
SECTION 6.05 Further Action; Consents; Filings.
---------------------------------
(a) Upon the terms and subject to the conditions hereof,
each of the parties hereto shall use its reasonable best efforts to (i) take, or
cause to be taken, all appropriate action and do, or cause to be done, all
things necessary, proper or advisable under applicable Law or otherwise to
consummate and make effective the Merger and the other transactions contemplated
by this Agreement, (ii) obtain from any Governmental Entity or any other person
all consents, licenses, permits, waivers, approvals, authorizations or orders
required to be obtained or made by Parent or the Company or any of their
subsidiaries in connection with the authorization, execution and delivery of
this Agreement and the consummation of the Merger and the other transactions
contemplated by this Agreement, including if necessary those required under the
HSR Act, and (iii) make all necessary filings, and thereafter make any other
required submission, with respect to this Agreement, the Merger and the other
transactions contemplated by this Agreement required under applicable Law. The
parties hereto shall cooperate with each other in connection with the making of
all such filings, including by providing copies of all such documents to the
nonfiling party and its advisors prior to filing and, if requested, by accepting
all reasonable additions, deletions or changes suggested in connection
therewith.
(b) If necessary, Parent and the Company shall file as soon
as practicable after the date hereof notifications under the HSR Act and each of
Parent and the Company shall use commercially reasonable efforts to respond as
promptly as practicable to all reasonable inquiries or requests and to resolve
such objections, if any, as may be asserted by any Governmental Entity with
respect to the transactions contemplated by this Agreement under the HSR Act,
the Sherman Act, as amended, the Clayton Act, as amended, the Federal Trade
Commission Act, as amended, and any other Federal, state or foreign statutes,
rules, regulations, orders or decrees that are designed to prohibit, restrict or
regulate actions having the purpose or effect of monopolization or restraint of
trade.
(c) Notwithstanding anything to the contrary in
Section 6.05(a) or (b), (i) neither Parent nor any of its subsidiaries shall be
required to divest (including, without limitation, through a licensing
arrangement) any of their respective businesses, product lines or assets, or to
take or agree to take any other action or agree to any limitation that would
reasonably be expected, individually or in the aggregate, to have a Parent
Material Adverse Effect and (ii) the Company shall not be required to divest
(including, without limitation, through a licensing arrangement) any of its
businesses, product lines or assets, or to take or agree to take any other
action or agree to any limitation that would reasonably be expected to have a
Company Material Adverse Effect.
(d) From the date of this Agreement until the earlier of the
Effective Time or the termination of this Agreement, each party shall promptly
notify the other party in writing of any pending or, to the knowledge of such
party, threatened action, proceeding or investigation by any Governmental Entity
or any other person (i) challenging or seeking material damages in connection
with this Agreement or the transactions contemplated hereunder or (ii) seeking
to restrain or prohibit the consummation of the Merger or the transactions
contemplated hereunder or otherwise limit the right of Parent or its
subsidiaries to own or operate all or any portion of the business, assets or
properties of the Company.
54
SECTION 6.06 Plan of Reorganization. This Agreement is intended to
----------------------
constitute a "plan of reorganization" within the meaning of Section 1.368-2(g)
of the income tax regulations promulgated under the Code. From and after the
date of this Agreement, each party hereto shall use its reasonable best efforts
to cause the Merger to qualify, and will not knowingly take any action, cause
any action to be taken, fail to take any action or cause any action to fail to
be taken which action or failure to act could prevent the Merger from qualifying
as a reorganization under the provisions of Section 368(a) of the Code.
SECTION 6.07 No Public Announcement. The initial press release relating
----------------------
to this Agreement shall be a joint press release the text of which has been
agreed to by each of Parent and the Company. Thereafter, unless otherwise
required by applicable Law, the Company shall not issue any press release or
otherwise make any public statements with respect to this Agreement, the Merger
or any of the other transactions contemplated by this Agreement without the
prior written consent of Parent.
SECTION 6.08 Expenses. Whether or not the Merger is consummated, all
--------
costs and expenses incurred in connection with this Agreement, the Merger and
other transactions contemplated by this Agreement (including, without
limitation, the fees and expenses of financial advisors, accountants and legal
counsel) (i) if incurred by Parent and Merger Sub, shall be paid by Parent, (ii)
if incurred by the Company (the "Stockholder Expenses"), shall be paid by Parent
at the Closing in an amount not to exceed $410,000 less any Stockholder Expenses
paid by the Company prior to the Closing. At least two business days prior to
the Closing, the Company shall provide to Parent (a) a list in reasonable detail
of all Stockholder Expenses and the amounts of such Stockholder Expenses, in
each case estimated through Closing and sufficient to cover estimated
post-Closing matters and (b) the Company's estimated positive cash balance
immediately prior to the Effective Time ("Estimated Closing Cash").
SECTION 6.09 Affiliate Agreements. The Company shall use its reasonable
--------------------
best efforts to cause each person listed on Schedule 6.09 to execute and deliver
to Parent, as promptly as practicable after the execution of this Agreement, an
Affiliate Agreement in the form attached hereto as Exhibit C.
SECTION 6.10 Reserved.
--------
SECTION 6.11 Indemnification of Officers and Directors. For a period of
-----------------------------------------
six years from and after the Closing Date, Parent and the Surviving Corporation
agree to indemnify (including advancement of expenses) and hold harmless all
past and present officers and directors of the Company to the same extent such
persons are indemnified by the Company as of the date of this Agreement pursuant
to the Company's Certificate of Incorporation or Bylaws, employment agreements,
indemnification agreements identified on the Company Disclosure Schedule, or
under applicable Law for acts or omissions which occurred at or prior to the
Effective Time. This indemnification shall not apply to any claim or action by
any such officer or director brought against the Company or any of its
predecessors, successors, assigns, officers, directors, stockholders, employees
or agents for any Losses (as defined below) paid to a Parent Indemnified Party
(as defined below) pursuant to Article IX of this Agreement. If Parent, the
Surviving Corporation or any of its successors or assigns (i) consolidates with
or merges into any other person and shall not be the continuing or surviving
corporation or entity of such consolidation or merger or
55
(ii) transfers or conveys all or substantially all of its properties and assets
to any person, then, and in each such case, to the extent necessary, proper
provision shall be made so that the successors, assigns and recipients of such
properties and assets of Parent and the Surviving Corporation, as the case may
be, shall assume the obligations set forth in this Section 6.11. The rights of
all past and present officers and directors of the Company under this Section
6.11 are in addition to, and not in substitution for, any other rights to
indemnification or contribution that any such person may have by contract,
applicable Law or otherwise. The Company hereby represents to Parent that no
claim for indemnification has been made by any director or officer of the
Company and, to the knowledge of the Company, no basis exists for any such claim
for indemnification.
SECTION 6.12 Nasdaq National Market Listing. If necessary, Parent shall
------------------------------
promptly prepare and file with The Nasdaq National Market a listing application
with respect to the shares of Parent Common Stock to be issued pursuant to this
Agreement and pursuant to the Company Options, and shall use its reasonable best
efforts to obtain, prior to the Effective Time, approval for the listing of such
shares of Parent Common Stock, subject to official notice to The Nasdaq National
Market of issuance.
SECTION 6.13 Section 16 Relief. Provided that the Company delivers to
-----------------
Parent the Section 16 Information (as defined below) in a timely fashion, the
Board of Directors of Parent, or a committee of two or more Non-Employee
Directors thereof (as such term is defined for purposes of Rule 16b-3 under the
Exchange Act), shall adopt resolutions prior to the consummation of the Merger
providing that the receipt by the Company Insiders (as defined below) of the
Parent Common Stock upon conversion of the Company Stock, and of options for
Parent Common Stock upon conversion of the Company Options, in each case
pursuant to the transactions contemplated hereby and to the extent such
securities are listed in the Section 16 Information, are intended to be exempt
from liability pursuant to Section 16(b) under the Exchange Act. Such
resolutions shall comply with the approval conditions of Rule 16b-3 under the
Exchange Act for purposes of such Section 16(b) exemption, including, but not
limited to, specifying the name of the Company Insiders, the number of
securities to be acquired or disposed of for each such person, the material
terms of any derivative securities, and that the approval is intended to make
the receipt of such securities exempt pursuant to Rule 13b-3(d). "Section 16
Information" shall mean information regarding the Company Insiders, the number
of shares of the Company Stock held by each such Company Insider and expected to
be exchanged for Parent Common Stock in connection with the Merger, and the
number and description of the Company Options held by each such Company Insider
and expected to be converted into options for Parent Common Stock in connection
with the Merger. "Company Insiders" shall mean those officers and directors of
the Company who will be subject to the reporting requirement of Section 16(b) of
the Exchange Act with respect to Parent and who are listed in the Section 16
Information.
SECTION 6.14 Certificate Amendment. Prior to the Closing Date, the
---------------------
Company shall amend its Certificate of Incorporation to eliminate all
requirements that accrued but unpaid dividends on each share of Company Series B
Preferred Stock, Company Series C Preferred Stock and Company Series C-1
Preferred Stock shall be payable in cash upon the liquidation, dissolution or
winding up of the Company.
56
SECTION 6.15 Conversion Schedule. Section 6.15 of the Company Disclosure
-------------------
Schedule is a schedule prepared by the Company (the "Preliminary Conversion
Schedule") showing the applicable number of Parent Shares and Parent Cash to be
issued to each holder of shares of Company Stock and each holder of rights to
acquire capital stock of the Company, including the corresponding number of
Escrow Shares to be deposited in the Escrow Fund, as of the execution of this
Agreement as if the Effective Time and the exchange of shares pursuant to the
Merger had occurred as of the date of the execution of this Agreement (but
assuming that the Average Closing Price is $45 and that the number of vested
Company Options is 1,577,292 and that accrued dividends on Company Series B
Preferred Stock, Company Series C Preferred Stock and Company Series C-1
Preferred Stock have been calculated through February 28, 2006). The Company and
the Stockholders' Representative shall prepare a final schedule as of the
Effective Time (the "Final Conversion Schedule"), and an officer of the Company
shall certify the Final Conversion Schedule and deliver such schedule to Parent
at Closing. The number of options listed as "vested options" on the Final
Conversion Schedule shall accurately reflect the number of options to purchase
Company Common Stock that shall be vested as of the Effective Time. Each option
whose vesting terms provide for "single trigger" acceleration such that all or
some number of shares of Company Common Stock that represent the unvested
portion thereof shall become vested in connection with the transactions
contemplated hereunder, and each option whose vesting terms provide for "double
trigger" acceleration such that all or some number of shares of Company Common
Stock that represent the unvested portion thereof shall become vested as a
result of the option holder's termination of employment in connection with the
transactions contemplated hereunder (including the holder's termination of
employment promptly following the Effective Time if Parent has given the Company
notice of such termination at least 7 days prior to the Effective Time), shall
have the accelerated portion of such option treated as "vested" as of the
Effective Time.
SECTION 6.16 Liquidation Bonus Plan. As promptly as practicable after
----------------------
the Effective Time, and in no event later than five business days following the
Effective Time, Parent shall deliver to each of the individuals specified in the
Final Liquidation Bonus Plan Schedule cash in an amount equal to 42% of the
individual's applicable Bonus Amount and shares of Parent Common Stock having a
value equal to 58% of the individual's applicable Bonus Amount (measured using
the Average Closing Price), which shall constitute full satisfaction of the
claims of such recipients with respect thereto. The Company's Chief Executive
Officer ("Company CEO") immediately prior to the Effective Time shall prepare a
final schedule as of the Effective Time (the "Final Liquidation Bonus Plan
Schedule"), and the Company CEO shall certify the Final Liquidation Bonus Plan
Schedule and deliver such schedule to Parent at Closing. The payments to each
eligible individual called for under the Final Liquidation Bonus Plan Schedule
shall be made upon receipt by Parent of an acknowledgement that such payment
constitutes full satisfaction of the claims of such recipient with respect
thereto and a general release of claims (in a form prescribed by Parent) of all
known and unknown claims that the individual may then have against Parent, the
Company or persons affiliated with the Company; provided that such general
release shall not release claims relating to rights arising under this Agreement
or the Escrow Agreement, rights to severance, benefits or other rights as set
forth in a written agreement between the Company and such individual, or rights
to indemnification, accrued compensation and benefits. To the extent required by
applicable Law, Parent shall withhold from the cash otherwise deliverable to
each eligible individual an amount equal to the applicable withholding taxes
relating to the payment to the recipient of his or her allocable portion of the
Bonus Amount. A portion of the shares of Parent Common Stock issued to Michael
Bennett or his assignees pursuant to this Section 6.16 shall be deposited in
escrow as described in Section 2.02(b) of this Agreement. If, prior to the
issuance of shares of Parent Common Stock as set forth herein, any change in the
capital stock of Parent shall occur by reason of reclassification,
recapitalization, stock split or combination, exchange or readjustment of
shares, or any stock dividend thereon, the Bonus Amount shall be adjusted, to
the extent appropriate, to reflect such stock dividend, subdivision,
reclassification, recapitalization, split, combination, exchange or readjustment
of shares.
57
ARTICLE VII
CONDITIONS TO THE MERGER
------------------------
SECTION 7.01 Conditions to the Obligations of Each Party. The respective
-------------------------------------------
obligations of the Company, Parent and Merger Sub to consummate the Merger are
subject to the satisfaction or waiver of the following conditions:
(a) Stockholder Approval. This Agreement shall have been
--------------------
approved and adopted by the requisite affirmative vote of the stockholders of
the Company in accordance with the DGCL and the Company's Certificate of
Incorporation and Bylaws;
(b) No Order. No Governmental Entity or court of competent
--------
jurisdiction located or having jurisdiction in the United States shall have
enacted, issued, promulgated, enforced or entered any statute, rule, regulation,
decree, judgment, injunction or other order, whether temporary, preliminary or
permanent (each an "Order") which is then in effect and has the effect of making
the Merger illegal or otherwise prohibiting consummation of the Merger;
(c) HSR Act. Any waiting period (and any extension thereof)
-------
applicable to the consummation of the Merger under the HSR Act shall have
expired or been terminated; and
(d) Compliance with the Securities Act. The California
----------------------------------
Department of Corporations shall have issued an approval under the Fairness
Hearing Law (following a hearing upon the fairness of the terms and conditions
of the Merger, conducted pursuant to the Fairness Hearing Law) for the issuance
of the shares of Parent Common Stock to be issued pursuant to this Agreement,
and all applicable requirements of Section 3(a)(10) of the Securities Act shall
have been satisfied.
SECTION 7.02 Conditions to the Obligations of Parent and Merger Sub. The
------------------------------------------------------
obligations of Parent and Merger Sub to consummate the Merger are subject to the
satisfaction or waiver of the following additional conditions:
(a) Representations and Warranties. (i) Except as would not
------------------------------
reasonably be likely to have a Company Material Adverse Effect, each of the
representations and warranties made by the Company in Sections 3.01 through 3.13
and Sections 3.15 through 3.34 of this Agreement shall be true and correct in
all respects as of the Effective Time with the same force and effect as if made
on and as of the Effective Time, except that those representations and
warranties that address matters only as of a particular date shall remain true
and correct as of such date (it being understood that, for purposes of
determining the accuracy of such
58
representations and warranties, all "Company Material Adverse Effect"
qualifications and other qualifications based on the word "material" or similar
phrases contained in such representations and warranties shall be disregarded),
and Parent shall have received a certificate of the Chief Executive Officer of
the Company to that effect. Each of the representations and warranties made by
the Company in Section 3.14 of this Agreement that are qualified as to
materiality or Company Material Adverse Effect, or any similar standard or
qualification, shall be true and correct in all respects, and each of the
representations and warranties made by the Company in Section 3.14 of this
Agreement that are not qualified as to materiality or Company Material Adverse
Effect, or any similar standard or qualification, shall be true and correct in
all material respects, in each case as of the Effective Time with the same force
and effect as if made on and as of the Effective Time, except that those
representations and warranties that address matters only as of a particular date
shall remain true and correct as of such date. Parent shall have received a
certificate of the Chief Executive Officer of the Company to the effects
described above;
(b) Agreements and Covenants. The Company shall have
------------------------
performed or complied in all material respects with all agreements and covenants
required by this Agreement to be performed or complied with by it on or prior to
the Effective Time and Parent shall have received a certificate of the Chief
Executive Officer of the Company to that effect;
(c) Approvals. Parent shall have received, each in form and
---------
substance reasonably satisfactory to Parent, all authorizations, consents,
orders and approvals (i) required by any Governmental Entity or official, if
any, (ii) set forth in Section 7.02(c) of the Company Disclosure Schedule or
(iii) the failure of which to obtain would have, or could reasonably be expected
to have, a Company Material Adverse Effect;
(d) Vote in Favor of the Merger. Stockholders holding at
---------------------------
least 90% of the Company Stock outstanding immediately prior to the Effective
Time (on an as-converted basis) must have voted such stock in favor of or
consented in writing to the approval and adoption of this Agreement and the
other transactions contemplated by this Agreement;
(e) Reserved.
--------
(f) Employment Agreements. The individuals set forth on
---------------------
Schedule 7.02(q)(i) of the Company Disclosure Schedule shall have entered into
employment agreements with Parent, and such employment agreements shall remain
in full force and effect and shall not have been anticipatorily breached or
repudiated by such individuals;
(g) Reserved.
--------
(h) Affiliate Agreements. Each of the persons listed on
--------------------
Schedule 6.09 shall have executed and delivered to Parent an Affiliate Agreement
and such agreement shall remain in full force and effect and shall not have been
anticipatorily breached or repudiated by any of such affiliates;
(i) No Restraints. There shall not be pending or threatened
-------------
in writing any suit, action, investigation or proceeding to which a Governmental
Entity is a party (i) seeking to restrain or prohibit the consummation of the
Merger or any of the other transactions contemplated by this Agreement or
seeking to obtain from Parent or the Company any damages that are material or
(ii) seeking to prohibit or limit the ownership or operation by Parent or the
Company of any material portion of their respective businesses or assets;
59
(j) Escrow Agreement. Parent and the Stockholders'
----------------
Representative shall have entered into the Escrow Agreement and the Escrow
Agreement shall be in full force and effect and shall not have been
anticipatorily breached or repudiated by the Stockholders' Representative;
(k) Termination of Employee Plans. The Company shall have
-----------------------------
terminated the Plans identified by Parent prior to Closing if (i) such Plans may
be terminated contingent upon the Closing, (ii) such Plans may be terminated
without material cost or expense and (iii) Parent shall have identified and
communicated to the Company at least 30 days prior to Closing that such Plans
shall be terminated prior to Closing. The Company shall have provided Parent
with evidence, reasonably satisfactory to Parent, as to the termination of such
Plans;
(l) Opinion of the Company's Counsel. Parent shall have
--------------------------------
received the opinion of DLA Piper Rudnick Gray Cary US LLP, counsel to the
Company, substantially in the form attached hereto as Exhibit D;
(m) Secretary's Certificate. Parent shall have received (i)
-----------------------
a certificate executed by the Secretary of the Company attaching and certifying
as to true and correct copies of the Company's current Certificate of
Incorporation and Bylaws and copies of the resolutions of the Company's Board of
Directors and the Company Stockholders approving and adopting this Agreement and
the Merger;
(n) Reserved.
--------
(o) FIRPTA Compliance. The Company shall, prior to the
-----------------
Closing Date, provide Parent with a properly executed Foreign Investment in Real
Property Tax Act of 1980 ("FIRPTA") Notification Letter and a form of notice to
the Internal Revenue Service in accordance with the requirements of Treasury
Regulation Section 1.897-2(h)(2) substantially in the forms attached hereto as
Exhibit E and Exhibit F, respectively;
(p) Parachute Payments. Prior to the Effective Time, the
------------------
Company shall have solicited the requisite stockholder approval under Section
280G(b)(5) of the Code of any payments or benefits that could be considered
"excess parachute payments" within the meaning of Section 280G of the Code with
respect to any "disqualified individuals" as defined in Section 280G of the Code
who have agreed (prior to the solicitation of stockholder approval of the
Merger) to forfeit any payments that would otherwise be non-deductible if such
stockholder approval is not obtained;
(q) Employees. All of the individuals set forth on Schedule
---------
7.02(q)(i) of the Company Disclosure Schedule, 80% of the individuals set forth
on Schedule 7.02(q)(ii) of the Company Disclosure Schedule and 50% of the
individuals set forth on Schedule 7.02(q)(iii) of the Company Disclosure
Schedule shall be employed in good standing by the Company;
60
(r) Board and Officer Resignations. The Company shall have
------------------------------
received written letters of resignation from each of the current members of the
Board of Directors and officers of the Company, in each case effective at the
Effective Time;
(s) Reserved;
--------
(t) Termination of the Company's Agreements. Parent shall
---------------------------------------
have been furnished evidence reasonably satisfactory to it that the agreements
set forth in Section 7.02(t) of the Company Disclosure Schedule shall have
terminated prior to, or shall terminate upon, the Effective Time; all rights
granted by the Company to its stockholders and in effect prior to the Closing,
including, but not limited to, rights of co-sale, voting, registration, first
refusal, first offer, preemptive, board observation or information or
operational covenants, shall have terminated prior to the Closing Date; and
(u) Termination of 401(k) Plan. If requested by Parent
--------------------------
pursuant to Section 6.04(c), the Company shall have terminated the 401(k) Plan
effective at least one day prior to the Closing Date (but contingent on the
Closing) and all contributions payable to the 401(k) Plan shall have been made.
The Company shall have provided to Parent executed resolutions of the Board of
Directors of the Company authorizing the termination.
(v) Amendment of Certificate of Incorporation. The
-----------------------------------------
Certificate of Incorporation of the Company shall have been amended as set forth
in the Voting Agreement and to eliminate all requirements that accrued but
unpaid dividends on each share of Company Series B Preferred Stock, Company
Series C Preferred Stock and Company Series C-1 Preferred Stock shall be payable
in cash upon the liquidation, dissolution or winding up of the Company.
SECTION 7.03 Conditions to the Obligations of the Company. The
--------------------------------------------
obligations of the Company to consummate the Merger are subject to the
satisfaction or waiver of the following additional conditions:
(a) Representations and Warranties. Except as would not
------------------------------
reasonably be likely to have a Parent Material Adverse Effect, each of the
representations and warranties made by Parent and Merger Sub in this Agreement
shall be true and correct in all respects as of the Effective Time with the same
force and effect as if made on and as of the Effective Time, except that those
representations and warranties that address matters only as of a particular date
shall remain true and correct as of such date (it being understood that, for
purposes of determining the accuracy of such representations and warranties, all
"Parent Material Adverse Effect" qualifications and other qualifications based
on the word "material" or similar phrases contained in such representations and
warranties shall be disregarded), and the Company shall have received a
certificate of the Chief Executive Officer of Parent to that effect;
(b) Agreements and Covenants. Each of Parent and Merger Sub
------------------------
shall have performed or complied in all material respects with all agreements
and covenants required by this Agreement to be performed or complied with by
them on or prior to the Effective Time, and the Company shall have received a
certificate of a duly authorized officer of Parent to that effect; and
61
(c) Listing. If necessary, Parent shall have filed with The
-------
Nasdaq National Market a listing application with respect to the shares of
Parent Common Stock to be issued pursuant to this Agreement and pursuant to the
Company Options.
ARTICLE VIII
TERMINATION, AMENDMENT AND WAIVER
---------------------------------
SECTION 8.01 Termination. This Agreement may be terminated and the
-----------
Merger and the other transactions contemplated by this Agreement may be
abandoned at any time prior to the Effective Time, notwithstanding any requisite
approval and adoption of this Agreement and the transactions contemplated by
this Agreement, as follows:
(a) by mutual written consent duly authorized by the Boards
of Directors of each of Parent and the Company;
(b) by either Parent or the Company if the Effective Time
shall not have occurred on or before April 30, 2006; provided, however, that the
right to terminate this Agreement under this Section 8.01(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 Effective
Time to occur on or before April 30, 2006;
(c) by either Parent or the Company upon the issuance of any
Order which is final and nonappealable which would (i) prevent the consummation
of the Merger, (ii) prohibit Parent's or the Company's ownership or operation of
any portion of the business of the Company or (iii) compel Parent or the Company
to dispose of or hold separate, as a result of the Merger, any portion of the
business or assets of the Company or Parent;
(d) by Parent upon a breach of any representation, warranty,
covenant or agreement on the part of the Company set forth in this Agreement, or
if any representation or warranty of the Company shall have become untrue, in
either case such that the conditions set forth in Sections 7.02(a) and 7.02(b)
could not be satisfied ("Terminating Company Breach"); provided, however, that,
if such Terminating Company Breach is curable by the Company through the
exercise of its reasonable best efforts and for so long as the Company continues
to exercise such reasonable best efforts, Parent may not terminate this
Agreement under this Section 8.01(d) unless such breach is not cured within 20
days after notice thereof is provided by Parent to the Company (but no cure
period is required for a breach which, by its nature, cannot be cured); or
(e) by the Company upon a breach of any representation,
warranty, covenant or agreement on the part of Parent and Merger Sub set forth
in this Agreement, or if any representation or warranty of Parent and Merger Sub
shall have become untrue, in either case such that the conditions set forth in
Sections 7.03(a) and 7.03(b) could not be satisfied ("Terminating Parent
Breach"); provided, however, that, if such Terminating Parent Breach is curable
by Parent and Merger Sub through the exercise of their respective reasonable
best efforts and for so long as Parent and Merger Sub continue to exercise such
reasonable best efforts, the Company may not terminate this Agreement under this
Section 8.01(e) unless such breach is not cured within 20 days after notice
thereof is provided by the Company to Parent (but no cure period is required for
a breach which, by its nature, cannot be cured).
62
SECTION 8.02 Effect of Termination. In the event of termination of this
---------------------
Agreement pursuant to Section 8.01, this Agreement and the Acquisition Documents
shall forthwith become void, there shall be no liability under this Agreement or
the Acquisition Documents on the part of Parent, Merger Sub or the Company or
any of their respective officers, directors or affiliates, and all rights and
obligations of each party hereto shall cease; provided, however, that (i)
Section 6.02(b), Section 6.08, Section 8.02 and Article X shall remain in full
force and effect and survive any termination of this Agreement and (ii) nothing
herein shall relieve any party from liability for the willful breach of any of
its representations or warranties or the breach of any of its covenants or
agreements set forth in this Agreement.
SECTION 8.03 Amendment. Prior to the Closing, this Agreement may not be
---------
amended except by an instrument in writing signed by Parent and the Company and,
in respect of matters that expressly relate to the Stockholders' Representative,
the Stockholders' Representative. After the Closing, this Agreement may not be
amended except by an instrument in writing signed by Parent and the
Stockholders' Representative.
SECTION 8.04 Waiver. At any time prior to the Effective Time, any party
------
hereto may (a) extend the time for the performance of any obligation or other
act of any other party hereto, (b) waive any inaccuracy in the representations
and warranties contained herein or in any document delivered pursuant hereto,
and (c) waive compliance with any agreement or condition contained herein. Any
such extension or waiver shall be valid if set forth in an instrument in writing
signed by the party or parties to be bound thereby.
ARTICLE IX
INDEMNIFICATION
---------------
SECTION 9.01 Survival of Representations and Warranties. The
------------------------------------------
representations and warranties of the Company and the Company Stockholders
contained in this Agreement, the Voting Agreements and any other document or
certificate delivered pursuant to this Agreement (collectively, the "Acquisition
Documents") shall survive the Effective Time for a period of 12 months. The
representations and warranties of Parent contained in the Acquisition Documents
shall not survive beyond the Effective Time. Neither the period of survival nor
the liability of a party hereto with respect to representations and warranties
shall be affected by any investigation made at any time (whether before or after
the Effective Time) by or on behalf of a party hereto or by any actual, implied
or constructive knowledge or notice of any facts or circumstances that a party
hereto may have as a result of any such investigation or otherwise. The parties
hereto agree that reliance shall not be an element of any claim for
misrepresentation or indemnification under this Agreement. The waiver by Parent
of any condition based on the accuracy of any such representation or warranty,
or based on the performance of, or compliance with, any covenant or obligation,
shall not affect the right to indemnification or other remedy based on such
representations, warranties, covenants or obligations. If written notice of a
claim has been given prior to the expiration of the applicable representations
and warranties by Parent to the Stockholders' Representative, then the relevant
representations and warranties shall survive as to such claim until such claim
has been finally resolved.
63
SECTION 9.02 Indemnification by the Company Stockholders. (a) After the
-------------------------------------------
Effective Time, Parent and its affiliates (including, after the Effective Time,
the Surviving Corporation), officers, directors, employees, agents, successors
and assigns (collectively, the "Parent Indemnified Parties") shall be
indemnified and held harmless by the Company Stockholders, jointly and
severally, for any and all liabilities, losses, damages of any kind, claims,
costs, expenses, fines, fees, deficiencies, interest, awards, judgments, amounts
paid in settlement and penalties (including, without limitation, attorneys',
consultants' and experts' customary fees and expenses and other costs of
defending, investigating or settling claims) suffered, incurred, accrued (in
accordance with U.S. GAAP) or paid by them (including, without limitation, in
connection with any action brought or otherwise initiated by any of them)
(collectively, "Losses"), without adjustment for any tax deduction relating
thereto, arising out of or resulting from:
(i) any inaccuracy or breach of any representation
or warranty (for purposes of determining the dollar amount of Losses only,
without giving effect to any qualification as to materiality (or similar
qualifications) contained therein) made by the Company or any Company
Stockholder in the Acquisition Documents;
(ii) the breach of any covenant or agreement made by
the Company or any Company Stockholder in the Acquisition Documents;
(iii) in the event that any Company Stockholder
properly exercises appraisal rights under applicable Law, the amount, if any, by
which the fair market value (determined in accordance with applicable Law) of
the Dissenting Shares exceeds the amount such Company Stockholder was otherwise
entitled to receive pursuant to Section 2.01 of this Agreement (including any
amount that would have been held in the Escrow Fund with respect to such Company
Stockholder), and all costs, fees and expenses incurred by Parent in connection
with any exercise of appraisal rights (irrespective of the outcome of any such
exercise);
(iv) any Stockholder Expenses other than those
required to be paid by Parent at Closing pursuant to Section 6.08;
(v) the events described in Item #1 of Section 3.10
of the Company Disclosure Schedule; or
(vi) the events described in Item #2 of Section 3.10
of the Company Disclosure Schedule. The indemnification obligations of the
Company Stockholders set forth in Sections 9.02(a)(v) and 9.02(a)(vi) are
referred to herein collectively as the "Specific Litigation Indemnification
Obligations."
64
(b) As used herein, "Losses" are not limited to matters
asserted by third parties, but include Losses incurred or sustained by the
Parent Indemnified Parties in the absence of claims by third parties. The amount
of any Losses required to be paid by the Company Stockholders shall, in respect
of any Loss, (i) be reduced by any recoveries actually received by the Parent
Indemnified Party under insurance policies in respect of such Loss, net of any
costs associated with collecting such amounts, and net of any deductible
incurred in obtaining such amounts, and (ii) be increased by the present value
of the amount of any annual insurance premium increases caused by any insurance
recovery referenced in clause (i) above (with such insurance premium increase to
be determined by information provided by the insurance company; or if such
information is not adequately provided, as reasonably determined by the
Stockholders' Representative and the Parent Indemnified Party in good faith).
(c) Notwithstanding anything to the contrary contained in
this Agreement, except with respect to (A) claims for equitable remedies and (B)
claims based on fraud, deceit or willful misconduct, the indemnification
provided in this Article IX, which indemnification shall be limited to and
satisfied exclusively by the Escrow Fund, shall be the sole and exclusive
post-Closing recourse and remedy available to the Parent Indemnified Parties
against the Company Stockholders for any Losses. In addition, notwithstanding
anything to the contrary contained in this Agreement, the Company Stockholders
shall have no liability for any Losses pursuant to this Article IX until the
total of all Losses for which Parent Indemnified Parties are entitled to
indemnification pursuant to this Section 9.02 exceeds $300,000 in the aggregate
(such first $300,000 in Losses referred to herein as the "Basket"), after which
time the Company Stockholders shall be liable in full (subject to the limit of
the Escrow Fund) for all indemnifiable Losses (including the Basket); provided,
however, the liability of the Company Stockholders with respect to the Specific
Litigation Indemnification Obligations shall be without regard to the Basket
limitations. Any Losses subject to the Specific Litigation Indemnification
Obligations shall not count toward the Basket.
(d) By virtue of their adoption of this Agreement and their
approval of the transactions contemplated hereby, the Company Stockholders
acknowledge and agree that, if the Surviving Corporation suffers, incurs or
otherwise becomes subject to any Losses (any such Losses, "Surviving Corporation
Losses") as a result of or in connection with any inaccuracy in or breach of any
representation, warranty, covenant or obligation, then (without limiting any of
the rights of the Surviving Corporation as an Indemnitee) Parent shall also be
deemed, by virtue of its ownership of the stock of the Surviving Corporation, to
have incurred Losses as a result of and in connection with such inaccuracy or
breach. For the avoidance of doubt and to avoid duplication, the Surviving
Corporation shall not be indemnified for that portion of Surviving Corporation
Losses for which Parent is indemnified.
(e) No stockholder of the Company shall have any right of
contribution, right of indemnity or other right or remedy against the Surviving
Corporation in connection with any indemnification obligation or any other
liability to which such stockholder may become subject under or in connection
with this Agreement.
(f) Notwithstanding anything herein to the contrary, the
Company's representations and warranties contained in Article III of this
Agreement shall, for purposes of the Company Stockholders' indemnification
obligations, be deemed to be made as of the date of this Agreement and as of the
Effective Time (except for any such representation or warranty that expressly
speaks of an earlier date) without regard to the exceptions set forth in the
certificates delivered in connection with Section 7.02(a).
65
(g) Notwithstanding anything in the Acquisition Documents to
the contrary, the Specific Litigation Indemnification Obligations shall survive
for a period of 24 months following the Effective Time.
SECTION 9.03 Reserved.
--------
SECTION 9.04 Indemnification Procedures.
--------------------------
(a) For purposes of this Section 9.04, a party against which
indemnification may be sought is referred to as the "Indemnifying Party" and the
party which may be entitled to indemnification is referred to as the
"Indemnified Party".
(b) The obligations and liabilities of Indemnifying Parties
under this Article IX with respect to Losses arising from actual or threatened
claims or demands by any third party which are subject to the indemnification
provided for in this Article IX ("Third Party Claims") shall be governed by and
contingent upon the following additional terms and conditions: if an Indemnified
Party shall receive notice of any Third Party Claim, the Indemnified Party shall
give the Stockholders' Representative notice of such Third Party Claim within 60
days of the receipt by the Indemnified Party of such notice; provided, however,
that the failure to provide such notice shall not release an Indemnifying Party
from any of its obligations under this Article IX except to the extent that such
Indemnifying Party is materially prejudiced by such failure. The notice of claim
shall describe in reasonable detail (i) the facts known to the Indemnified Party
giving rise to such indemnification claim, (ii) if applicable, the
representation or warranty that is alleged to have been inaccurate or covenant
or agreement that is alleged to have been breached, (iii) the basis for such
claim, including the provision of any related documents that are reasonably
available to the Indemnified Party and (iv) the amount or good faith estimate of
the amount arising therefrom.
(c) If the Indemnifying Party acknowledges in writing its
obligation to indemnify the Indemnified Party hereunder against any Losses that
may result from such Third Party Claim, then the Indemnifying Party shall be
entitled to assume and control the defense of such Third Party Claim through
counsel of its choice (such counsel to be reasonably acceptable to the
Indemnified Party) if it gives notice of its intention to do so to the
Indemnified Party within 10 days of the receipt of such notice from the
Indemnified Party; provided, however, that the Indemnifying Party shall not have
the right to assume the defense of the Third Party Claim if (i) any such claim
seeks, in addition to or in lieu of monetary losses, any injunctive or other
equitable relief, (ii) the Indemnifying Party fails to provide reasonable
assurance to the Indemnified Party of the adequacy of the Escrow Fund to provide
indemnification in accordance with the provisions of this Agreement and the
Escrow Agreement with respect to such proceeding, (iii) there is reasonably
likely to exist a conflict of interest that would make it inappropriate (in the
judgment of the Indemnified Party in its reasonable discretion) for the same
counsel to represent both the Indemnified Party and the Indemnifying Party, (iv)
settlement of, or an adverse judgment with respect to, the Third Party Claim may
establish (in the good faith judgment of the Indemnified Party) a precedential
custom or practice adverse to the business interests of the Indemnified Party or
would increase the Tax liability of the Indemnified Party, or (v) such Third
Party Claim relates to the Specific Litigation Indemnification Obligations;
provided further, that if by reason of the Third Party Claim a Lien, attachment,
garnishment,
66
execution or other encumbrance is placed upon any of the property or assets of
such Indemnified Party, the Indemnifying Party, if it desires to exercise its
right to assume such defense of the Third Party Claim, must agree to use a
portion of the Escrow Fund to furnish a satisfactory indemnity bond to obtain
the prompt release of such Lien, attachment, garnishment, execution or other
encumbrance. If the Indemnifying Party assumes the defense of a Third Party
Claim, it will conduct the defense actively, diligently and at its own expense,
and it will hold all Indemnified Parties harmless from and against all Losses
caused by or arising out of any settlement thereof. The Indemnified Party shall
cooperate with the Indemnifying Party in such defense and make available to the
Indemnifying Party, at the Indemnifying Party's expense, all witnesses,
pertinent records, materials and information in the Indemnified Party's
possession or under the Indemnified Party's control relating thereto as is
reasonably requested by the Indemnifying Party. Except with the written consent
of the Indemnified Party (not to be unreasonably withheld), the Indemnifying
Party will not, in the defense of a Third Party Claim, consent to the entry of
any judgment or enter into any settlement (i) which does not include as an
unconditional term thereof the giving to the Indemnified Party by the third
party of a release from all liability with respect to such suit, claim, action,
or proceeding; (ii) unless there is no finding or admission of (A) any violation
of Law by the Indemnified Party (or any affiliate thereof), (B) any liability on
the part of the Indemnified Party (or any affiliate thereof) or (C) any
violation of the rights of any person and no effect on any other claims of a
similar nature that may be made by the same third party against the Indemnified
Party (or any affiliate thereof); or (iii) which exceeds the then current value
of the sum of the Escrow Shares remaining in the Escrow Fund.
(d) In the event that the Indemnifying Party fails or
elects not to assume the defense of an Indemnified Party against such Third
Party Claim which the Indemnifying Party had the right to assume pursuant to
Section 9.04(c), the Indemnified Party shall have the right, at the expense of
the Indemnifying Party, to defend or prosecute such claim in any manner as it
may reasonably deem appropriate and may settle such claim after giving written
notice thereof to the Indemnifying Party, on such terms as such Indemnified
Party may deem appropriate, and the Indemnified Party may seek prompt
reimbursement from the Escrow Fund for any Losses incurred in connection with
such settlement. If no settlement of such Third Party Claim is made, the
Indemnified Party may seek prompt reimbursement from the Escrow Fund for any
Losses arising out of any judgment rendered with respect to such claim. Any
Losses for which an Indemnified Party is entitled to indemnification hereunder
shall be promptly paid as suffered, incurred or accrued (in accordance with U.S.
GAAP). If the Indemnifying Party does not elect to assume the defense of a Third
Party Claim which it has the right to assume hereunder, the Indemnified Party
shall have no obligation to do so.
(e) In the event that the Indemnifying Party is not entitled
to assume the defense of the Indemnified Party against such Third Party Claim
pursuant to Section 9.04(c), the Indemnified Party shall have the right, at the
expense of the Indemnifying Party, to defend or prosecute such claim and consent
to the entry of any judgment or enter into any settlement with respect to the
Third Party Claim in any manner it may reasonably deem appropriate after giving
written notice thereof to the Indemnifying Party, and the Indemnified Party may
seek prompt reimbursement from the Escrow Fund for any Losses incurred in
connection with such judgment or settlement, subject to the limitations set
forth in the Escrow Agreement with respect to the Specific Litigation
Indemnification Obligations.
67
In such case, the Indemnified Party shall conduct the defense of the Third Party
Claim actively and diligently, and the Indemnifying Party shall cooperate with
the Indemnified Party in such defense and make available to the Indemnified
Party, at the Indemnifying Party's expense, all such witnesses, records,
materials and information in the Indemnifying Party's possession or under the
Indemnifying Party's control relating thereto as is reasonably requested by the
Indemnified Party. If no settlement of such Third Party Claim is made, the
Indemnified Party may seek prompt reimbursement from the Escrow Fund for any
Losses arising out of any judgment rendered with respect to such claim. Any
Losses for which an Indemnified Party is entitled to indemnification hereunder
shall be promptly paid as suffered, incurred or accrued (in accordance with U.S.
GAAP).
SECTION 9.05 Stockholders' Representative.
----------------------------
(a) Chris Pacitti (such person and any successor or
successors being the "Stockholders' Representative") shall act as the
representative of the Company Stockholders, and shall be authorized to act on
behalf of the Company Stockholders and to take any and all actions required or
permitted to be taken by the Stockholders' Representative under this Agreement
with respect to any claims (including the settlement thereof) made by a Parent
Indemnified Party for indemnification pursuant to this Article IX and with
respect to any actions to be taken by the Stockholders' Representative pursuant
to the terms of the Escrow Agreement (including, without limitation, the
exercise of the power to (i) authorize the delivery of Escrow Shares to a Parent
Indemnified Party in satisfaction of claims by a Parent Indemnified Party, (ii)
agree to, negotiate, enter into settlements and compromises of, and comply with
orders of courts with respect to any claims for indemnification and (iii) take
all actions necessary in the judgment of the Stockholders' Representative for
the accomplishment of the foregoing). In all matters relating to this Article
IX, the Stockholders' Representative shall be the only party entitled to assert
the rights of the Company Stockholders, and the Stockholders' Representative
shall perform all of the obligations of the Company Stockholders hereunder. The
Parent Indemnified Parties shall be entitled to rely on all statements,
representations and decisions of the Stockholders' Representative.
(b) The Company Stockholders shall be bound by all actions
taken by the Stockholders' Representative in his, her or its capacity thereof,
except for any action that conflicts with the limitations set forth in
subsection (d) below. The Stockholders' Representative shall promptly, and in
any event within five business days, provide written notice to the Company
Stockholders of any material action taken on behalf of them by the Stockholders'
Representative pursuant to the authority delegated to the Stockholders'
Representative under this Section 9.05. The Stockholders' Representative shall
at all times act in his or her capacity as Stockholders' Representative in a
manner that the Stockholders' Representative believes to be in the best interest
of the Company Stockholders. Neither the Stockholders' Representative nor any of
its directors, officers, agents or employees, if any, shall be liable to any
person for any error of judgment, or any action taken, suffered or omitted to be
taken under this Agreement or the Escrow Agreement, except in the case of its
gross negligence, bad faith or willful misconduct. The Stockholders'
Representative may consult with legal counsel, independent public accountants
and other experts selected by it. The Stockholders' Representative shall not
have any duty to ascertain or to inquire as to the performance or observance of
any of the terms, covenants or conditions of this Agreement or the Escrow
Agreement. As to any matters not expressly provided for in this Agreement or the
Escrow Agreement, the Stockholders' Representative shall not exercise any
discretion or take any action.
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(c) Each Company Stockholder shall indemnify and hold
harmless and reimburse the Stockholders' Representative from and against such
Company Stockholder's ratable share of any and all liabilities, losses, damages,
claims, costs or expenses suffered or incurred by the Stockholders'
Representative arising out of or resulting from any action taken or omitted to
be taken by the Stockholders' Representative under this Agreement or the Escrow
Agreement, other than such liabilities, losses, damages, claims, costs or
expenses arising out of or resulting from the Stockholders' Representative's
gross negligence, bad faith or willful misconduct.
(d) Notwithstanding anything to the contrary herein or in
the Escrow Agreement, the Stockholders' Representative is not authorized to, and
shall not, accept on behalf of any Company Stockholder any merger consideration
to which such Company Stockholder is entitled under this Agreement and the
Stockholders' Representative shall not in any manner exercise, or seek to
exercise, any voting power whatsoever with respect to shares of capital stock of
the Company or Parent now or hereafter owned of record or beneficially by any
Company Stockholder unless the Stockholders' Representative is expressly
authorized to do so in a writing signed by such Company Stockholder.
ARTICLE X
GENERAL PROVISIONS
------------------
SECTION 10.01 Notices. All notices, requests, claims, demands and other
-------
communications hereunder shall be in writing and shall be given (and shall be
deemed to have been duly given upon receipt) by delivery in person, by cable,
telecopy, facsimile, overnight delivery service or by registered or certified
mail (postage prepaid, return receipt requested) to the respective parties at
the following addresses (or at such other address for a party as shall be
specified in a notice given in accordance with this Section 10.01):
(a) if to Parent or Merger Sub:
Blue Coat Systems, Inc.
420 N. Mary Avenue
Sunnyvale, California 94085
Facsimile No.: (408) 220-2327
Attention: General Counsel
with a copy to:
Gunderson Dettmer Stough Villeneuve
Franklin & Hachigian, LLP
155 Constitution Drive
Menlo Park, California 94025
Facsimile No.: (650) 321-2800
Attention: Daniel E. O'Connor, Esq.
69
(b) if to the Company:
Permeo Technologies, Inc.
1501 South Mopac
Building 1, Suite A200
Austin, Texas 78746
Facsimile No.: (512) 334-3614
Attention: Chief Executive Officer
with a copy to:
DLA Piper Rudnick Gray Cary US LLP
1221 South MoPac Expressway
Austin, Texas 78746
Facsimile No.: (512) 457-7001
Attention: Philip W. Russell, Esq.
(c) if to the Stockholders' Representative:
Chris Pacitti
300 West Sixth Street, Suite 2300
Austin, Texas 78701
Facsimile No.: (512) 476-3952
SECTION 10.02 Certain Definitions. As used in this Agreement, the
-------------------
following terms shall have the following meanings:
(i) "affiliate" of a specified person means a person
---------
who directly or indirectly through one or more intermediaries controls, is
controlled by, or is under common control with such specified person.
(ii) "beneficial owner" with respect to any shares
----------------
means a person who shall be deemed to be the beneficial owner of such shares (i)
which such person or any of its affiliates or associates (as such term is
defined in Rule 12b-2 promulgated under the Exchange Act) beneficially owns,
directly or indirectly, (ii) which such person or any of its affiliates or
associates has, directly or indirectly, (A) the right to acquire (whether such
right is exercisable immediately or subject only to the passage of time),
pursuant to any agreement, arrangement or understanding or upon the exercise of
consideration rights, exchange rights, warrants or options, or otherwise, or (B)
the right to vote pursuant to any agreement, arrangement or understanding, or
(iii) which are beneficially owned, directly or indirectly, by any other persons
with whom such person or any of its affiliates or associates or person with whom
such person or any of its affiliates or associates has any agreement,
arrangement or understanding for the purpose of acquiring, holding, voting or
disposing of any shares.
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(iii) "business day" means any day on which banks are
------------
not required or authorized to close in San Francisco, California and Austin,
Texas.
(iv) "control" (including the terms "controlled by"
-------
and "under common control with") means the possession, directly or indirectly or
as trustee or executor, of the power to direct or cause the direction of the
management and policies of a person, whether through the ownership of voting
securities, as trustee or executor, by contract or credit arrangement or
otherwise.
(v) "Federal" means United States Federal.
-------
(vi) "person" means an individual, corporation,
------
partnership, limited partnership, syndicate, person (including, without
limitation, a "person" as defined in Section 13(d)(3) of the Exchange Act),
trust, association or entity or government, political subdivision, agency or
instrumentality of a government.
(vii) "subsidiary" or "subsidiaries" of any person
---------- ------------
means any corporation, partnership, joint venture or other legal entity of which
such person (either alone or through or together with any other subsidiary)
owns, directly or indirectly, more than 50% of the stock or other equity
interests, the holders of which are generally entitled to vote for the election
of the board of directors or other governing body of such corporation or other
legal entity.
SECTION 10.03 Severability. If any term or other provision of this
------------
Agreement is invalid, illegal or incapable of being enforced by any rule of Law
or public policy, all other conditions and provisions of this Agreement shall
nevertheless remain in full force and effect so long as the economic or legal
substance of the transactions contemplated by this Agreement is not affected in
any manner materially adverse to any party. Upon such determination that any
term or other provision is invalid, illegal or incapable of being enforced, the
parties hereto shall negotiate in good faith to modify this Agreement so as to
effect the original intent of the parties as closely as possible in a mutually
acceptable manner in order that the transactions contemplated by this Agreement
be consummated as originally contemplated to the fullest extent possible.
SECTION 10.04 Assignment; Binding Effect; Benefit. Neither this
-----------------------------------
Agreement nor any of the rights, interests or obligations hereunder shall be
assigned by any of the parties hereto (whether by operation of Law or otherwise)
without the prior written consent of the other parties. Subject to the preceding
sentence, this Agreement shall be binding upon and shall inure to the benefit of
the parties hereto and their respective successors and assigns. Notwithstanding
anything contained in this Agreement to the contrary, nothing in this Agreement,
expressed or implied, is intended to confer on any person other than the parties
hereto or their respective successors and assigns any rights, remedies,
obligations or liabilities under or by reason of this Agreement.
SECTION 10.05 Incorporation of Exhibits. The Company Disclosure
-------------------------
Schedule, the Parent Disclosure Schedule, the Schedules and all Exhibits
attached hereto and referred to herein are hereby incorporated herein and made a
part hereof for all purposes as if fully set forth herein.
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SECTION 10.06 Specific Performance. The parties hereto agree that
--------------------
irreparable damage would occur in the event any provision of this Agreement was
not performed in accordance with the terms hereof and that the parties shall be
entitled to specific performance of the terms hereof in addition to any other
remedy at law or in equity.
SECTION 10.07 Governing Law; Forum. This Agreement shall be governed by,
--------------------
and construed in accordance with, the laws of the State of Delaware applicable
to contracts executed in and to be performed in that state and without regard to
any applicable conflicts of law. In any action between the parties hereto
arising out of or relating to this Agreement or any of the transactions
contemplated by this Agreement: (i) each of the parties irrevocably and
unconditionally consents and submits to the exclusive jurisdiction and venue of
the Delaware Court of Chancery; and (ii) each of the parties irrevocably
consents to service of process by first class certified mail, return receipt
requested, postage prepaid.
SECTION 10.08 Time of the Essence. For purposes of this Agreement and
-------------------
the transactions contemplated by this Agreement, time is of the essence.
SECTION 10.09 Reserved.
--------
SECTION 10.10 Construction and Interpretation.
-------------------------------
(a) For purposes of this Agreement, whenever the context
requires, the singular number shall include the plural, and vice versa; the
masculine gender shall include the feminine and neuter genders; the feminine
gender shall include the masculine and neuter genders; and the neuter gender
shall include the masculine and feminine genders.
(b) Neither this Agreement nor any uncertainty or ambiguity
herein shall be construed or resolved against any party, whether under any rule
of construction or otherwise. No party to this Agreement shall be considered the
draftsman. The parties acknowledge and agree that this Agreement has been
reviewed, negotiated, and accepted by all parties and their attorneys and shall
be construed and interpreted according to the ordinary meaning of the words used
so as fairly to accomplish the purposes and intentions of all parties hereto.
(c) As used in this Agreement, the words "include" and
"including," and variations thereof, shall not be deemed to be terms of
limitation, but rather shall be deemed to be followed by the words "without
limitation."
(d) Except as otherwise indicated, all references in this
Agreement to "Articles," "Sections," "Schedules" and "Exhibits" are intended to
refer to an Article or Section of, or Schedule or Exhibit to, this Agreement.
(e) Except as otherwise indicated, all references (i) to any
agreement (including this Agreement), contract or Law are to such agreement,
contract or Law as amended, modified, supplemented or replaced from time to
time, and (ii) to any Governmental Entity include any successor to that
Governmental Entity.
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SECTION 10.11 Further Assurances. Each party hereto shall execute and
------------------
cause to be delivered to each other party hereto such instruments and other
documents, and shall take such other actions, as such other party may reasonably
request (prior to, at or after the Closing) for the purpose of carrying out or
evidencing any of the transactions contemplated by this Agreement.
SECTION 10.12 Headings. The descriptive headings contained in this
--------
Agreement are included for convenience of reference only and shall not affect in
any way the meaning or interpretation of this Agreement.
SECTION 10.13 Counterparts. This Agreement may be executed and delivered
------------
(including by facsimile transmission) in two or more counterparts, each of which
when executed and delivered shall be deemed to be an original but all of which
taken together shall constitute one and the same agreement.
SECTION 10.14 Entire Agreement. This Agreement (including the Exhibits,
----------------
the Schedules, the Company Disclosure Schedule and the Parent Disclosure
Schedule) and the Non-Disclosure Agreement constitute the entire agreement among
the parties with respect to the subject matter hereof and supersede all prior
agreements and understandings among the parties with respect thereto. No
addition to or modification of any provision of this Agreement shall be binding
upon any party hereto unless made in writing and signed by all parties hereto.
SECTION 10.15 Schedules. The Parent Disclosure Schedule and the Company
---------
Disclosure Schedule (the "Disclosure Schedules") contain a series of schedules
corresponding to the sections contained in Articles III and IV. Matters set
forth in the Disclosure Schedules are not necessarily limited to matters
required by the Agreement to be reflected in the Disclosure Schedules. Such
additional matters are set forth for information purposes and the Disclosure
Schedules do not necessarily include other matters of a similar nature
[Remainder of page intentionally left blank]
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IN WITNESS WHEREOF, each of Parent, Merger Sub, the Company and the
Stockholders' Representative has executed or has caused this Agreement to be
executed by its duly authorized officer as of the date first written above.
BLUE COAT SYSTEMS, INC.
By: /s/ Brian NeSmith
----------------------------
Name: Brian NeSmith
Title: Chief Executive Officer
PIVOT ACQUISITION CORP.
By: /s/ Brian NeSmith
----------------------------
Name: Brian NeSmith
Title: Chief Executive Officer
PERMEO TECHNOLOGIES, INC.
By: /s/ Michael S. Bennett
----------------------------
Name: Michael S. Bennett
Title: Chief Executive Officer
CHRIS PACITTI
/s/ Chris Pacitti
----------------------------
Chris Pacitti, solely as
Stockholders' Representative
74
SCHEDULE 2.01(b)
SCHEDULE OF MERGER CONSIDERATION
SCHEDULE 6.09
AFFILIATES
Sierra Ventures VII, L.P.
Sierra Ventures Associates VII, LLC
Sierra Ventures VIII-A, L.P.
Sierra Ventures VIII-B, L.P.
Sierra Ventures Associates VIII, LLC
Austin Ventures VII, L.P.
Austin Ventures VIII, L.P.
AV Labs I, L.P.
Michael Bennett
Steve Odom*
*Steve Odom is not a Principal Stockholder and, accordingly,
shall not be required to execute a Voting Agreement
EXHIBIT A
FORM OF VOTING AGREEMENT
EXHIBIT B
FORM OF ESCROW AGREEMENT
EXHIBIT C
FORM OF COMPANY AFFILIATE AGREEMENT
EXHIBIT D
FORM OF COMPANY COUNSEL LEGAL OPINION
EXHIBIT E
FORM OF FIRPTA NOTIFICATION LETTER
EXHIBIT F
FORM OF FIRPTA NOTICE TO IRS