EXHIBIT 2.4
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PURCHASE AGREEMENT
BETWEEN
KONINKLIJKE PHILIPS ELECTRONICS N.V.
AND
SCANSOFT, INC.
DATED AS OF OCTOBER 7, 2002
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TABLE OF CONTENTS
ARTICLE I
DEFINITIONS AND TERMS
Section 1.1 Specific Definitions.............................................1
Section 1.2 Other Terms.....................................................12
Section 1.3 Other Definitional Provisions; Interpretation...................12
ARTICLE II
PURCHASE AND SALE OF THE BUSINESS
Section 2.1 Purchase and Sale of Transferred Shares and Local Assets and
Assumption of Local Liabilities.................................12
Section 2.2 Closing.........................................................13
Section 2.3 Post-Closing Adjustments........................................14
Section 2.4 Deliveries by Purchaser or the Local Purchasers.................18
Section 2.5 Deliveries by Seller and the Local Sellers......................18
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF SELLER, THE TRANSFERRED
SUBSIDIARY AND THE LOCAL SELLERS
Section 3.1 Organization and Qualification..................................19
Section 3.2 Corporate Authorization.........................................20
Section 3.3 Capitalization..................................................20
Section 3.4 Consents and Approvals..........................................21
Section 3.5 Noncontravention................................................21
Section 3.6 Assets Necessary to Conduct the Business........................22
Section 3.7 Financial Statements............................................22
Section 3.8 Litigation and Claims...........................................22
Section 3.9 Taxes...........................................................22
Section 3.10 Employee Benefits...............................................23
Section 3.11 Labor Matters...................................................24
Section 3.12 Compliance with Laws............................................24
Section 3.13 Environmental Matters...........................................25
Section 3.14 Contracts.......................................................25
Section 3.15 Title to Property; Condition....................................25
Section 3.16 Finders' Fees...................................................26
Section 3.17 Absence of Change...............................................26
Section 3.18 Insurance.......................................................26
Section 3.19 Asset Acquisitions or Dispositions..............................26
Section 3.20 Permits.........................................................26
Section 3.21 Transactions with Affiliates....................................27
Section 3.22 Intellectual Property...........................................27
Section 3.23 Customers.......................................................29
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Section 3.24 Purchase for Investment.........................................29
Section 3.25 No Undisclosed Liabilities......................................29
Section 3.26 Real Estate.....................................................30
Section 3.27 Absence of Knowledge of Breach..................................30
Section 3.28 Southwestern Agreement..........................................30
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PURCHASER AND
LOCAL PURCHASERS
Section 4.1 Organization and Qualification..................................30
Section 4.2 Corporate Authorization.........................................31
Section 4.3 Capitalization..................................................31
Section 4.4 Issuance, Sale and Delivery of the Convertible Debenture
and the Purchaser Common Shares.................................32
Section 4.5 Consents and Approvals..........................................32
Section 4.6 Noncontravention................................................33
Section 4.7 Purchaser Reports; Financial Statements.........................33
Section 4.8 Litigation and Claims...........................................34
Section 4.9 Taxes...........................................................34
Section 4.10 Employee Benefits...............................................35
Section 4.11 Labor Matters...................................................35
Section 4.12 Compliance with Laws............................................35
Section 4.13 Environmental Matters...........................................36
Section 4.14 Contracts.......................................................36
Section 4.15 Title to Property...............................................36
Section 4.16 Finders' Fees...................................................36
Section 4.17 Absence of Change...............................................36
Section 4.18 Insurance.......................................................36
Section 4.19 Permits.........................................................36
Section 4.20 Intellectual Property...........................................37
Section 4.21 Security Measures...............................................38
Section 4.22 Contributions...................................................38
Section 4.23 Prior Offerings.................................................38
Section 4.24 Financial Capability; No Financing..............................38
Section 4.25 Purchase for Investment.........................................38
Section 4.26 No Undisclosed Liabilities......................................39
Section 4.27 Absence of Knowledge of Breach..................................39
ARTICLE V
COVENANTS
Section 5.1 Pre-Closing Covenants of Seller.................................39
Section 5.2 Pre-Closing Covenants of Purchaser..............................41
Section 5.3 Other Pre-Closing Covenants and Certain Agreements..............42
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Section 5.4 Other Post-Closing Covenants....................................43
Section 5.5 Third Party Confidentiality Agreements..........................51
Section 5.6 Financial and Other Required Information........................52
Section 5.7 Seller's Right to Observe Purchaser's Board of Directors........52
Section 5.8 Seller Research and Development Group...........................52
Section 5.9 Employee Relations and Benefits.................................52
Section 5.10 Employee Consultation...........................................56
Section 5.11 Insurance Matters...............................................57
Section 5.12 Names Following Closings........................................57
Section 5.13 Intracompany Debt; Special Dividend.............................58
Section 5.14 Sales to Seller and Affiliates..................................58
Section 5.15 German Labor Costs; German Lease................................59
Section 5.16 Comverse........................................................62
Section 5.17 Restructuring...................................................62
Section 5.18 Aachen Lease....................................................62
Section 5.19 Intellectual Property Deliveries................................62
ARTICLE VI
CONDITIONS TO CLOSING
Section 6.1 Conditions to the Obligations of Purchaser and Seller...........63
Section 6.2 Conditions to the Obligations of Purchaser......................63
Section 6.3 Conditions to the Obligations of Seller.........................64
ARTICLE VII
SURVIVAL; INDEMNIFICATION
Section 7.1 Survival........................................................65
Section 7.2 Indemnification by Purchaser....................................66
Section 7.3 Indemnification by Seller.......................................66
Section 7.4 Third Party Claim Indemnification Procedures....................67
Section 7.5 Computation of Losses Subject to Indemnification................68
Section 7.6 Seller Employee Indemnity.......................................69
Section 7.7 Purchaser Employee Indemnity....................................69
Section 7.8 Threshold for Recovery; Aggregate Limit on Indemnity............69
Section 7.9 Knowledge.......................................................70
Section 7.10 Exclusive Remedy; Limitation on Liability.......................70
ARTICLE VIII
TERMINATION
Section 8.1 Termination.....................................................71
Section 8.2 Effect of Termination...........................................71
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ARTICLE IX
MISCELLANEOUS
Section 9.1 Notices.........................................................72
Section 9.2 Amendment.......................................................73
Section 9.3 Assignment......................................................73
Section 9.4 Entire Agreement................................................73
Section 9.5 Disclosure Schedules............................................74
Section 9.6 Fulfillment of Obligations......................................74
Section 9.7 Parties in Interest; No Third Party Beneficiaries...............74
Section 9.8 Public Disclosure...............................................74
Section 9.9 Return of Information...........................................75
Section 9.10 Expenses........................................................75
Section 9.11 Amounts Paid and Calculated in Euro; Receivables
and Payable Currency............................................75
Section 9.12 No Other Representations or Warranties; No Statements
Made as to Projections or Prospects; Authorized
Representatives; Bulk Sales.....................................75
Section 9.13 GOVERNING LAW AND VENUE; WAIVER OF JURY TRIAL...................76
Section 9.14 NO RIGHT TO DISSOLUTION UNDER LAW; TEXTUAL INTERPRETATION
OF THIS AGREEMENT TO CONTROL....................................77
Section 9.15 Counterparts....................................................77
Section 9.16 Headings........................................................77
Section 9.17 Severability....................................................77
Section 9.18 Scheduled Entities..............................................78
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EXHIBITS
EXHIBIT A: Technology Transfer and License Agreement
EXHIBIT B: Trademark Transfer Agreement
EXHIBIT C: Transition Services Agreement
EXHIBIT D: Promissory Note
EXHIBIT E: Knowledge of Sellers
EXHIBIT F: Real Property
EXHIBIT G: Convertible Debenture
EXHIBIT H: Form of Local Asset Transfer Agreement
EXHIBIT I: Key Employees
EXHIBIT J: Plan of Distribution Agreement
EXHIBIT K: Contract Research Agreement
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PURCHASE AGREEMENT, dated as of October 7, 2002, between KONINKLIJKE
PHILIPS ELECTRONICS N.V., a limited liability company organized under the laws
of The Netherlands ("Seller") and ScanSoft, Inc., a Delaware corporation
("Purchaser") (each a "Party", and collectively, "Parties").
W I T N E S S E T H:
WHEREAS, Seller desires to sell to Purchaser, and Purchaser desires
to purchase from Seller, the Business (as hereinafter defined);
WHEREAS, Seller will, or will cause its Affiliates to, transfer,
assign and convey the Assets (as hereinafter defined) and the Assumed
Liabilities (as hereinafter defined) in Germany to the Transferred Subsidiary as
soon as reasonably practicable after the date hereof (the "Restructuring"), and
Seller will own all of the issued and outstanding shares of common stock of the
Transferred Subsidiary (the "Transferred Shares");
WHEREAS, the Parties hereto desire that Seller sell, transfer,
assign and convey, and cause the Local Sellers (as hereinafter defined) to sell,
transfer, assign and convey, to Purchaser, and that Purchaser purchase and
assume, and cause the Local Purchasers (as hereinafter defined) to purchase and
assume, from Seller or the Local Sellers, the Business by way of the purchase of
all of the Transferred Shares on a 100% equity basis, the sale, assignment,
transfer and conveyance to Purchaser and the Local Purchasers of all of Seller's
and Local Sellers' right, title and interest in and to the Local Assets (as
hereinafter defined) and the assumption by Purchaser and the Local Purchasers of
the Local Liabilities (as hereinafter defined), such that Purchaser and its
Affiliates will have, after consummation of the transactions contemplated
herein, all right, title and interest to the Assets, and shall be subject to the
Assumed Liabilities, all except as otherwise provided herein;
WHEREAS, the Parties hereto are entering into a binding letter of
intent, dated as of the date hereof (the "Letter of Intent") with the intent to
enter into a joint licensing program.
NOW, THEREFORE, in consideration of the mutual covenants and
undertakings contained herein, and subject to and on the terms and conditions
herein set forth, the Parties agree as follows:
ARTICLE I
DEFINITIONS AND TERMS
Section 1.1 Specific Definitions. As used in this Agreement, the
following terms shall have the meanings set forth or as referenced below:
"Aachen Lease" shall mean the Lease Agreement, dated January 30, 1996, as
amended, between Philips Speech Processing Aachen, Zweigniederlassung der
Philips GmbH, and Xxxx Xxxxx zu Hohenlohe-Oehringen.
"Actuarial Memorandum" shall have the meaning set forth in Section 2.3(b).
"Affiliate" shall mean, with respect to any Person, any Persons directly or
indirectly controlling, controlled by, or under common control with, such other
Person as of the date on which, or at any time during the period for which, the
determination of affiliation is being made.
"Agreement" shall mean this Agreement, as the same may be amended, modified or
supplemented from time to time in accordance with the terms hereof.
"Ancillary Agreements" shall mean each of (i) the Technology Transfer and
License Agreement, the Trademark Transfer Agreement and the Transition Services
Agreement, forms of which are attached hereto as Exhibits A, B, and C
respectively, (ii) the Local Asset Transfer Agreement, a form of which is
attached hereto as Exhibit H, and (iii) the agreements attached and executed
pursuant to any of the foregoing agreements (the "Ancillary Agreement Exhibits")
effective, with respect thereto, only as of the execution of each of such
Ancillary Agreement Exhibits.
"Assets" shall mean
(a) all of Seller's and its Affiliates' right, title and interest,
as applicable, in and to Seller's and its Affiliates' rights, assets and
properties (other than the Proprietary Rights) that are necessary to conduct or
primarily related to the Business substantially as conducted on the date hereof
and immediately prior to the Closing, including the following:
(i) Accounts receivable and other receivables;
(ii) Rights of the Business under the Contracts;
(iii) Books and Records;
(iv) Computer hardware, servers, machinery, equipment,
automobiles and other vehicles and other similar items, including
rights to the warranties received from the manufacturers and
distributors of such items and to any related claims, credits,
rights of recovery and setoff with respect to such items;
(v) Furniture, furnishings and other similar property,
including desks, tables, chairs, file cabinets and other storage
devices and office supplies;
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(vi) Rights under any Governmental Authorizations;
(vii) Prepaid expenses; and
(viii) Rights under express or implied warranties from
suppliers, licensors and vendors of the Business;
(b) all the Proprietary Rights transferred or licensed pursuant to
the Technology Transfer and License Agreement and the Trademark Transfer
Agreement.
Notwithstanding the above, the Assets shall not include any of
Seller's and its Affiliates' right, title and interest, as applicable, in and to
the following:
(i) Cash and cash equivalents;
(ii) Intracompany accounts receivable (except the accounts
receivable incurred in the ordinary course of business and reflected
on the balance sheet for the Business as of the Closing), settlement
accounts and other intracompany accounts, balances and claims;
(iii) Telephone cards, credit cards, auto repair cards and
fuel cards currently supplied by Seller to the Transferred
Employees;
(iv) Generally commercially available third party
off-the-shelf software residing on or used in operation of the
Assets that is not transferable by Seller without paying a fee;
(v) All shared corporate services provided to the Business by
the following departments of Seller (including employees (other than
Transferred Employees), assets (other than assets owned or held by
the Business), rights (other than any and all rights transferred or
licensed pursuant to the Ancillary Agreements) used to provide such
services): IT, corporate finance, accounts payable, regulatory and
quality, treasury, payroll, risk management, legal, intellectual
property, facilities management, real estate management, human
resources, tax administration, benefits, and customer service
center, training and personnel development, recruiting, office
services (travel, mail delivery, fleet management), and Philips
executive administration;
(vi) Rights under the Contracts that expire or terminate by
operation of their respective terms or by operation of Law prior to
the Closing other than as a result of this transaction; and
(vii) Seller's rights and interests arising out of this
Agreement or the Ancillary Agreements.
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"Assumed Liabilities" shall mean all liabilities and obligations, including
those with respect to operation of the Business as of, on or prior to the
Closing and thereafter, whether contingent or otherwise, arising out of, related
to, or in connection with the Business, the Assets or the Transferred Employees,
other than Excluded Liabilities.
"Audited Financial Statements" shall mean the audited financial statements of
the Business for the two fiscal years ended December 31, 2001 and December 31,
2002 that are required to be filed by Purchaser with the SEC.
"Books and Records" shall mean originals or copies of all books, operating
records, ledgers, databases, reports, plans and files or other similar
documentation (in any written form or medium) of the Business, including price
lists, customer lists, vendor lists, mailing lists, warranty information,
catalogs, sales promotion literature, advertising materials, brochures, records
of operation, standard forms of documents, manuals of operations or business
procedures, research materials and product testing reports, other than the
documentation the transfer of which is restricted by any applicable Law.
"Business" shall mean Seller's (a) speech processing business currently known as
the Telephony business unit based on the SpeechPearl(TM) recognition engine and
the SpeechMania(TM) platform, consisting of products, business activities and
operations in connection with providing speech recognition, natural language
understanding and dialog software technology for use in network based services
such as voice activated dialing, directory assistance, voice portals and
interactions with customers, and (b) business currently known as the Voice
Control business control business unit based on the SpeechWave(TM) and Vocon(TM)
recognition engines consisting of products, business activities and operations
in connection with providing speech recognition, natural language understanding
and dialog software technology for use on mobile or embedded platforms
(including digital signal processors). Notwithstanding the foregoing, "Business"
shall not refer to the products, business activities and operations of the
business unit currently known as Dictation Systems, consisting of providing
speech recognition software technology, applications and solutions in the area
of text generation by dictation, transcription, and/or correction, as currently
based on the Philips SpeechMagic(TM) engine.
"Business Day" shall mean any day other than Saturday or Sunday or a day on
which banks in The Netherlands or New York are generally closed.
"Business Proprietary Rights" shall have the meaning set forth in Section
3.22(a).
"Cash Purchase Price Component" shall have the meaning set forth in Section
2.1(a).
"Claim Notice" shall have the meaning set forth in Section 7.4.
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"Closing" shall have the meaning set forth in Section 2.2.
"Closing Date" shall have the meaning set forth in Section 2.2.
"Closing Time" shall have the meaning set forth in Section 2.2.
"COBRA" shall mean the Consolidated Omnibus Budget Reconciliation Act of 1986,
as amended.
"Code" shall mean the Internal Revenue Code of 1986, as amended.
"Competing Business" shall have the meaning set forth in Section 5.4(a)(i)
"Competition Laws" shall mean statutes, rules, regulations, orders, decrees,
administrative and judicial doctrines, and other laws that are designed or
intended to prohibit, restrict or regulate actions having the purpose or effect
of monopolization or restraint of trade.
"Comverse Liabilities" shall have the meaning set forth in Section 5.16.
"Conversion Rate" shall have the meaning set forth in the Convertible Debenture.
"Contracts" shall mean all agreements, contracts, leases and subleases, purchase
orders, arrangements, commitments, licenses and sublicenses and any other valid
and legally binding arrangements (including all amendments, supplements and
modifications thereto), other than the Proprietary Rights, necessary to conduct
or primarily relating to the Business.
"Convertible Debenture" shall mean the Zero Coupon Convertible Subordinated Note
due 2005 in the form attached hereto as Exhibit G.
"Convertible Debenture Price Component" shall have the meaning set forth in
Section 2.1(a).
"Cost Statements" shall have the meaning set forth in Section 5.15(c).
"CPA Firm" shall have the meaning set forth in Section 2.3(d).
"Delayed Purchase Price Component" shall have the meaning set forth in Section
2.1(a).
"Disclosure Schedules" shall mean each and every Schedule, Exhibit and
Annex to this Agreement and the contents thereof.
"Encumbrances" shall have the meaning set forth in Section 3.3(a).
"Ending German Labor Costs Statement" shall have the meaning set forth in
Section 2.3(g)(i).
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"Environmental Law" shall mean any applicable law, statute, ordinance, rule,
regulation, code, order, decree or injunction enacted for the protection of the
environment (including, without limitation, air, water vapor, surface water,
groundwater and soils) against contamination with hazardous substances or wastes
each as in effect and as enforced by relevant governmental authorities on the
Closing Date.
"ERISA" shall mean the Employment Retirement Security Act of 1974, as amended.
"ERISA Affiliate" shall have the meaning set forth in Section 3.10(b).
"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended.
"Excluded Liabilities" shall mean (i) the liabilities and obligations with
respect to operation of the Business prior to the Closing arising out of,
related to, or in connection with the Business, the Assets or the Transferred
Employees, except for such liabilities and obligations (a) reflected or reserved
in the Reference Balance Sheet (including the notes thereto) in accordance with
the accounting policies of Seller, disclosed in the Disclosure Schedules or
otherwise known to Purchaser on the date hereof, or (b) incurred in the ordinary
course of business of the Business; in each case of clauses (a) and (b), not
including any intracompany debt of the Business, and (ii) the liabilities and
obligations arising out of third party claims of patent infringement prior to
Closing.
"Final Net Asset Value" shall have the meaning set forth in Section 2.3(f).
"Final Statement of Net Assets" shall have the meaning set forth in Section
2.3(e).
"GAAP" shall have the meaning set forth in Section 4.7.
"German Employees" shall have the meaning set forth in Section 5.15(a).
"German Indemnified Liabilities" shall have the meaning set forth in Section
5.15(a).
"German Liability Period" shall mean the period beginning on the date of this
Agreement and ending on December 31, 2003.
"German Liability Reserve Account" shall have the meaning set forth in Section
5.15(a).
"Governmental Authorizations" shall mean all licenses, permits, certificates and
other authorizations and approvals of any Governmental Body required under
applicable Laws to carry on the Business as conducted at the Closing.
"Governmental Body" shall mean any legislative, executive or judicial unit of
any governmental entity (foreign, federal, state or local) or any department,
commission, board, agency, bureau, official or other regulatory, administrative
or judicial authority thereof.
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"Indemnified Party" shall have the meaning set forth in Section 7.4.
"Indemnifying Party" shall have the meaning set forth in Section 7.4.
"Key Employees" shall mean the individuals listed in Exhibit I.
"Knowledge" shall mean, in the case of Seller, the actual knowledge of the
persons set forth on Exhibit E.
"Laws" shall mean any applicable law, statute, ordinance, rule, regulation,
order, judgment or decree of any jurisdiction.
"Legally Required" shall mean required under the laws of the country, the labor
union, works council or collective bargaining agreement.
"Letter of Intent" shall have the meaning set forth in the Recitals to this
Agreement.
"Licensed Technology" means: (i) the Licensed Technical Information licensed
pursuant to the Technology Transfer and License Agreement; and (ii) any and all
Technical Information licensed by Seller or any Affiliate of Seller to any
Person of the Transferred Subsidiary.
"Local Asset Transfer Agreement" shall have the meaning set forth in Section
2.1(c).
"Local Assets" shall mean the Assets not held by the Transferred Subsidiary.
"Local Liabilities" shall mean all Assumed Liabilities outside Germany.
"Local Purchasers" shall mean Purchaser and the Affiliates of Purchaser, as the
case may be, which will be accepting the transfers of the Local Assets and Local
Liabilities.
"Local Sellers" shall mean Seller and the Affiliates of Seller, as the case may
be, which will be making the transfers of the Local Assets and Local
Liabilities.
"Losses" shall have the meaning set forth in Section 7.2.
"Management of Purchaser" shall mean the executive officers and the general
counsel of Purchaser.
"Material Adverse Change" shall mean an occurrence, change, effect, fact,
circumstance or event or combination thereof within the Business that has had or
would be reasonably expected to have a Material Adverse Effect.
"Material Adverse Effect" shall mean an effect that is material and adverse to
the business, operations, financial condition or results of operation of the
Business taken as a whole; provided that a Material Adverse Effect shall not
include an effect resulting from (i) any change in Law or accounting standards
or
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interpretations thereof applicable to the Business, (ii) any change in
economic or business conditions or industry-wide or financial market conditions
generally, (iii) any change in local, regional, national or international
conditions affecting the Business, (iv) any termination of the employment of
employees of the Business generally not bound by employment contracts that
prevent their voluntary resignation, or (v) entering into this Agreement or the
Ancillary Agreements and the consummation of the transactions contemplated
hereby, including, but not limited to, compliance with the pre-Closing covenants
set forth herein.
"Material Contract" shall have the meaning set forth in Section 3.14.
"Monthly Purchaser Labor Costs Statement" shall have the meaning set forth in
Section 5.15(c).
"Monthly Seller Labor Costs Statement" shall have the meaning set forth in
Section 5.15(b).
"Non-Disclosure Agreement" shall mean the non-disclosure agreement that Philips
International B.V. entered into with Purchaser in connection with Seller's
effort to transfer the Business.
"Note" shall mean the promissory note in the form attached hereto as Exhibit D.
"Note Purchase Price Component" shall have the meaning set forth in Section
2.1(a).
"Notice Period" shall have the meaning set forth in Section 7.4.
"Order" shall have the meaning set forth in Section 6.1(b).
"Other Business Technical Information" shall have the meaning set forth in the
Technology Transfer and License Agreement.
"Other IPR" shall have the meaning set forth in the Technology Transfer and
License Agreement.
"Party" shall have the meaning set forth in the Preamble to this Agreement.
"Patent" shall have the meaning set forth in the Technology Transfer and License
Agreement.
"Pension Plan" shall have the meaning set forth in Section 3.10(b).
"Pension Provision Amount" shall have the meaning set forth in Section 2.3(b).
"Permitted Encumbrances" shall have the meaning set forth in Section 3.15(a).
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"Person" shall mean an individual, a corporation, a partnership, an association,
a trust or other entity or organization or a government or any agency or
political subdivision thereof.
"Plans" shall mean each "employee benefit plan" (within the meaning of Section
3(3) of the Employee Retirement Income Security Act of 1974, as amended), and
all severance, change in control or employment plan, program or agreement, and
vacation, incentive, bonus, stock option, stock purchase, and restricted stock
plan, program or policy.
"Preliminary Statement of Net Assets" shall have the meaning set forth in
Section 2.3(b).
"Proposed Adjustments" shall have the meaning set forth in Section 2.3(c).
"Proprietary Rights" shall have the meaning set forth in Section 3.22(a).
"Purchase" shall have the meaning set forth in Section 2.1.
"Purchase Price" shall have the meaning set forth in Section 2.1.
"Purchaser" shall have the meaning set forth in the Preamble to this Agreement.
"Purchaser Adjustment Payment" shall have the meaning set forth in Section
2.3(f).
"Purchaser Audit Date" shall be December 31, 2001.
"Purchaser Common Shares" shall mean any share of the Common Stock, par value
$0.001 per share, of Purchaser.
"Purchaser Corrected Receivable and Payable Amount" shall have the meaning set
forth in Section 5.4(j)(ii).
"Purchaser Indemnified Parties" shall have the meaning set forth in Section 7.3.
"Purchaser Material Adverse Change" shall mean an occurrence, change, effect,
fact, circumstance or event or combination thereof within Purchaser that has had
or would be reasonably expected to have a Purchaser Material Adverse Effect.
"Purchaser Material Adverse Effect" shall mean an effect that is material and
adverse to the business, operations, financial condition or results of operation
of Purchaser; provided that a Purchaser Material Adverse Effect shall not
include an effect resulting from (i) any change in Law or accounting standards
or interpretations thereof applicable to Purchaser, (ii) any change in economic
or business conditions or industry-wide or financial market conditions
generally, (iii) any change in the trading price of the Purchaser Common Shares
absent any other event which would constitute a Purchaser Material Adverse
Effect, (iv) any change in local, regional, national or international conditions
affecting Purchaser,
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or (v) entering into this Agreement or the Ancillary Agreements and the
consummation of the transactions contemplated hereby, including, but not limited
to, compliance with the pre-Closing covenants set forth herein.
"Purchaser Plans" shall have the meaning set forth in Section 5.9(b).
"Purchaser Preferred Shares" shall mean any share of Preferred Stock, par value
$0.001 per share, of Purchaser.
"Purchaser Proprietary Rights" shall have the meaning set forth in Section
4.20(a).
"Purchaser Reports" shall have the meaning set forth in Section 4.7.
"Purchaser's 401(k) Plan" shall have the meaning set forth in Section 5.9(f).
"Purchaser's Stock Option Plans" shall mean the stock option plans listed in
Exhibit L.
"Real Property" shall mean the real property leased by the Business that is
listed on Exhibit F hereto.
"Reference Balance Sheet" shall have the meaning set forth in Section 2.3(a).
"Reference NAV" shall have the meaning set forth in Section 2.3(f).
"Registered IP" means all United States, international and foreign: (i) Patents
and Patent applications (including provisional applications); (ii) registered
Trademarks, applications to register Trademarks, intent-to-use applications, or
other registrations or applications related to Trademarks; (iii) registered
copyrights and applications for copyright registration; (iv) domain name
registrations; and (v) any other Proprietary Rights that are the subject of an
application, certificate, filing, registration or other document issued, filed
with or recorded by any Governmental Body.
"Relevant Affiliates" shall have the meaning set forth in Section 3.1(a).
"Restructuring" shall have the meaning set forth in the Recitals to this
Agreement.
"Retained Trademarks" shall have the meaning set forth in Section 5.12(a).
"Retirement Plan Liabilities" shall the meaning set forth in Section 5.9(l).
"Sales Taxes" shall have the meaning set forth in Section 5.4(e)(iv).
"Scheduled Entities" shall have the meaning set forth in Section 9.18.
"SEC" shall mean the Securities and Exchange Commission.
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"Securities Act" shall mean the Securities Act of 1933, as amended.
"Seller" shall have the meaning set forth in the Preamble to this Agreement.
"Seller Adjustment Payment" shall have the meaning set forth in Section 2.3(f).
"Seller Corporate Policies" shall have the meaning set forth in Section 5.11.
"Seller Corrected Receivable and Payable Amount" shall have the meaning set
forth in Section 5.4(j)(i).
"Seller Group" shall mean Seller and its Affiliates other than the Transferred
Subsidiary.
"Seller Indemnified Parties" shall have the meaning set forth in Section 7.2.
"Seller's 401(k) Plan" shall have the meaning set forth in Section 5.9(f).
"Seller's Objection" shall have the meaning set forth in Section 2.3(c).
"Tax Returns" shall mean all reports and returns required to be filed by the
Transferred Subsidiary with respect to Taxes of the Business.
"Taxes" shall mean all federal, state, local or foreign taxes, including but not
limited to income, corporate income, gross receipts, windfall profits, value
added, severance, property, production, sales, use, license, excise, franchise,
employment, withholding, excise, transfer (including real property transfer or
gains), stamp, documentary, filing and recordation taxes or similar taxes,
together with any interest, additions or penalties with respect thereto and any
interest in respect of such additions or penalties.
"Transferred Employees" shall mean (A) for purposes of the representations and
warranties made as of the Closing, all employees of the Business whose names
will be set forth on Schedule TE updated as of the Closing, and (B) for all
other purposes, all employees of the Business whose names will be set forth on
Schedule TE prepared as of the date of this Agreement.
"Transferred Shares" shall have the meaning set forth in the Recitals to this
Agreement.
"Transferred Subsidiary" shall mean the entity to be incorporated in Germany to
be a wholly-owned Affiliate of Seller for the purpose of conducting the Business
in and/or from Germany pursuant to the Restructuring.
"Unaudited Financial Statements" shall mean the unaudited balance sheet of the
Business as of December 31, 2001, the unaudited income statements of the
Business for the twelve-month period ended December 31, 2001 and the six-month
period ended June 30, 2002, all attached hereto on Schedule 3.7, and the
Reference Balance Sheet.
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"U.S. Employees" shall have the meaning set forth in Section 3.10(b).
"Versorgungswerk Plan" shall have the meaning set forth in Section 5.9(l)
"waiving party" shall have the meaning set forth in Section 7.9.
"WARN" shall have the meaning set forth in Section 5.9(j).
Section 1.2 Other Terms. Other terms may be defined elsewhere in the
text of this Agreement and, unless otherwise indicated, shall have such meaning
throughout this Agreement.
Section 1.3 Other Definitional Provisions; Interpretation. (a) The
words "herein" and "hereunder" and words of similar import, when used in this
Agreement, shall refer to this Agreement as a whole and not to any particular
provision of this Agreement.
(b) Terms defined in the singular shall have a comparable meaning
when used in the plural, and vice versa.
(c) This Agreement shall be construed without regard to any
presumption or rule requiring construction or interpretation against the party
drafting or causing any instrument to be drafted.
(d) Whenever the words "include", "including", or "includes" appear
in this Agreement, they shall be read to be followed by the words "without
limitation" or words having similar import.
(e) Terms used and not defined herein shall have the meaning
assigned to such terms, if any, in the Ancillary Agreements.
ARTICLE II
PURCHASE AND SALE OF THE BUSINESS
Section 2.1 Purchase and Sale of Transferred Shares and Local Assets
and Assumption of Local Liabilities.
(a) On the terms and subject to the conditions set forth herein,
Seller agrees to consummate the Restructuring as soon as reasonably practicable
after the date hereof, and, at the Closing, Seller agrees to sell, transfer,
assign, convey and deliver the Transferred Shares to Purchaser, and Seller
further agrees to sell, transfer, assign and deliver, or cause the Local Sellers
to sell, transfer, assign and deliver, to Purchaser or the Local Purchaser (or
other Affiliates, as applicable), as the case may be, all of Seller's and each
Local Seller's (or other Affiliates', as applicable) right, title and interest
in and to the relevant Local Assets, and Purchaser agrees to purchase the
Transferred Shares, and Purchaser further agrees to purchase, or cause the
relevant Local Purchasers to purchase,
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all of Seller's and each Local Seller's right, title and interest in and to the
Local Assets (the "Purchase") for an aggregate purchase price of US$27,524,000
and euro 8,000,000, (the "Purchase Price"), subject to adjustment pursuant to
Section 2.3 below, with the US$27,524,000 payable by issuance of the Convertible
Debenture (the "Convertible Debenture Price Component"), and the euro 8,000,000
payable by: euro 2,000,000 payable in immediately available funds (the "Cash
Purchase Price Component"), euro 1,000,000 payable no later than on December 31,
2003 (the "Delayed Purchase Price Component") and euro 5,000,000 payable by the
issuance of the Note (the "Note Purchase Price Component"). The parties will
agree in good faith on an approach to valuation of the assets and legal entities
acquired directly and indirectly pursuant to this Agreement. In this regard,
Seller will perform an evaluation of the respective fair market values of such
assets and legal entities by a nationally-recognized U.S. accounting firm, the
costs of which will be borne exclusively by Purchaser.
(b) Purchaser hereby agrees to assume and does assume, (and shall
cause the Local Purchasers, as appropriate, to agree to assume and to assume),
and agrees to pay, perform, and discharge when due, and indemnify and hold
harmless Seller and its Affiliates against (and shall cause the Local
Purchasers, as appropriate, to assume and agree to pay, perform, and discharge
when due, and indemnify and hold harmless Seller and its Affiliates against) all
of the Local Liabilities. It is expressly agreed and understood that neither
Purchaser nor any of its Affiliates shall assume, nor shall the Transferred
Subsidiary be liable for, any Excluded Liability.
(c) The Local Assets shall be sold, conveyed, transferred, assigned
and delivered, and the Local Liabilities shall be assumed, pursuant to transfer
and assumption agreements and such other instruments in such form as may be
necessary to effect a conveyance of the Local Assets and an assumption of the
Local Liabilities in each of the jurisdictions in which such transfers and
assumptions are to be made. Such transfer and assumption agreements shall be
prepared by Seller and shall be in substantially the form attached hereto as
Exhibit H (the "Local Asset Transfer Agreement"), with only such deviations
therefrom as are required by local law and as agreed by Seller and Purchaser,
and Seller shall, or shall cause the appropriate Local Sellers to, execute such
Local Asset Transfer Agreements no later than at the Closing or as of the
Closing, and Purchaser shall, or shall cause one or more of the Local Purchasers
to execute such Local Asset Transfer Agreements no later than at the Closing or
as of the Closing.
Section 2.2 Closing. The closing of the Purchase provided for in
Section 2.1 hereof (the "Closing") shall take place at the offices of Xxxxxxxx &
Xxxxxxxx at 000 Xxxxx Xxxxxx, Xxx Xxxx, XX 00000 on the first Business Day after
all conditions set forth in Article VI (other than those conditions that by
their nature are to be satisfied at the Closing but subject to the fulfillment
or waiver of those conditions) shall have been satisfied or waived, provided
that Seller shall have the right to delay the Closing until January 31, 2003, or
on such other date and at such other time and place as Seller and Purchaser may
hereafter mutually agree upon in writing, and in such other places as are
necessary to effect the transactions to be consummated at the Closing. The date
on which
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the Closing is to occur as provided by this Section 2.2 is herein called the
"Closing Date" and the time and date on which the Closing is to occur as
provided in this Section 2.2 are herein called the "Closing Time".
Notwithstanding the foregoing, the Closing shall for all purposes be deemed to
occur at 12:01 a.m., New York City time, on the Closing Date.
Section 2.3 Post-Closing Adjustments.
(a) Preparation of Reference Balance Sheet. As promptly as
reasonably practicable after the date hereof, Seller and Purchaser will mutually
agree to a Statement of Net Assets as of June 30, 2002 (the "Reference Balance
Sheet"). The Reference Balance Sheet will be prepared as follows:
(i) The starting point in such preparation will be the
statements of net assets set forth on Schedule 2.3(a)(i) and
Schedule 2.3(a)(ii);
(ii) Adjustments will be made to reflect the following ground
rules:
(A) accruals should be based upon historically incurred
costs and not be so called "cookie-jar" revenues;
(B) costs which have been "pushed down" from parent company
entities should be eliminated;
(C) accounting will be consistent with U.S. GAAP;
(D) in no event will the net asset value of the Reference
Balance Sheet be less than negative euro 291,275, nor
greater than euro 2,007,000;
(E) for areas not yielding to a straightforward application
of the above principles, the guiding principle will be
fairness to both Parties; and
(F) notwithstanding anything to the contrary in this Section
2.3, the Statement of Net Assets as of the Closing Date
will be prepared consistent with the application of the
ground rules contained in subparagraphs (A) through (E)
of this Sections 2.3(ii).
(iii) If the parties cannot agree within 20 Business Days of
the date hereof to the Reference Balance Sheet, a representative of
KPMG LLP selected by Seller and a representative of
PricewaterhouseCoopers selected by Purchaser shall jointly prepare
the Reference Balance Sheet, which shall be binding on the Parties.
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(b) Preparation of the Statement of Net Assets. As promptly as
reasonably possible after the Closing Date, but in any event within 30 days
thereafter, Purchaser shall prepare and deliver to Seller a statement setting
forth the balance sheet for the Business as of the Closing (the "Preliminary
Statement of Net Assets") prepared using the same accounting policies,
principles, bases and methods and using the same level of prudence as used in
the preparation of the Reference Balance Sheet. The Preliminary Statement of Net
Assets will contain a statement of provisions existing immediately prior to the
Closing with respect to the liabilities relating to the Transferred Employees
assumed under the plans, funded by way of a book reserve, set forth in the
Actuarial Memorandum (the "Actuarial Memorandum"), which provisions shall be
prepared in accordance with the applicable actuarial methods and assumptions set
forth in the Actuarial Memorandum (such amount, as adjusted below, the "Pension
Provision Amount"). If a book reserve system is used by Seller or its Affiliates
in a certain country, then Purchaser shall include a provision in the balance
sheet for that country which is equal to the actuarial present value of the
pension rights accrued up to the Closing as calculated under the relevant local
book reserve system concerned. Seller shall provide Purchaser and its
independent certified public accountants full access to any information,
including work papers of its accountants, and to any employees of Seller and its
Affiliates to the extent necessary for Purchaser to prepare the Preliminary
Statement of Net Assets.
(c) Seller's Review of the Preliminary Statement of Net Assets.
Seller and its accountants shall complete its review of the Preliminary
Statement of Net Assets within 30 days after delivery by Purchaser of the
Preliminary Statement of Net Assets. In the event that Seller has any objections
to the Preliminary Statement of Net Assets, Seller shall inform Purchaser in
writing of such objection ("Seller's Objection") within such 30 day period and
shall set forth with specificity the nature of Seller's Objection and the
adjustments to the Preliminary Statement of Net Assets which Seller believes
should be made (the "Proposed Adjustments"). Purchaser shall provide Seller and
its independent certified public accountants full access to any information,
including work papers of its accountants, and to any employees of Purchaser and
its Affiliates to the extent necessary for Seller to review the Preliminary
Statement of Net Assets and to prepare the Proposed Adjustments. If Seller does
not deliver a Seller's Objection to Purchaser prior to the expiration of such 30
day period, the Preliminary Statement of Net Assets shall be final, binding and
conclusive on both Purchaser and Seller.
(d) Purchaser's Response to any Seller's Objection; CPA Firm Review.
Purchaser shall then have 30 days to review and respond to Seller's Objection.
If Seller and Purchaser are unable to resolve all of their disagreements with
respect to the determination of the foregoing item within 30 days following the
completion of Purchaser's review of Seller's Objection, Seller or Purchaser or
both of them may refer their remaining differences to an auditing partner in a
mutually acceptable nationally recognized public accounting firm (the "CPA
Firm"). Such partner shall be selected internally by the CPA Firm. The CPA Firm
shall, acting as experts and not as arbitrators, determine on the same basis and
using the same principles and methods as were used in respect of the Reference
Balance Sheet in Section 2.3(a), and only with respect to the
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remaining differences so submitted, whether and to what extent, if any, the
Preliminary Statement of Net Assets requires adjustment. The CPA Firm (i) shall
not make any determination with respect to the substantive meaning of the terms
of this Agreement and (ii) shall only make a determination as to any adjustment
required to the Preliminary Statement of Net Assets to the extent the Parties
agree on the applicable standards to be applied thereto under this Agreement.
The CPA Firm shall be instructed to deliver its written determination to
Purchaser and Seller no later than 20 days after the remaining differences
underlying Seller's Objection were referred to it. The CPA Firm's determination
shall be final, binding and conclusive upon Purchaser and Seller. The fees and
disbursements of the CPA Firm shall be shared by Purchaser and Seller in
proportion to the difference between Purchaser's and Seller's aggregate
respective proposed positions and the ultimate determination made by the
arbitrator. Purchaser and Seller shall make available to the CPA Firm and each
other the Books and Records and any work papers (including those of the Parties'
respective accountants) relating to the Preliminary Statement of Net Assets and
all other items reasonably requested by the CPA Firm.
(e) Determination of Final Statement of Net Assets. The "Final
Statement of Net Assets" shall be (i) the Preliminary Statement of Net Assets in
the event that no Seller's Objection is delivered to Purchaser during the 30-day
period specified above, or (ii) the Preliminary Statement of Net Assets,
adjusted in accordance with Seller's Objection in the event that Purchaser does
not respond to Seller's Objection within the 30-day period following receipt by
Purchaser of Seller's Objection, or (iii) the Preliminary Statement of Net
Assets, as adjusted by either (x) the agreement of Seller and Purchaser or (y)
the CPA Firm, as applicable.
(f) Calculation and Payment of Adjustment Payments. Promptly after
the determination of the Final Statement of Net Assets pursuant to Section
2.3(e), (i) to the extent the net asset value of the Business set forth in the
Final Statement of Net Assets reduced by (A) the amount of any non-cash
reversals of individual accrual or of other liability or provision accounts made
after June 30, 2002, (B) cash and (C) intracompany debt (the "Final Net Asset
Value") exceeds the net asset value contained in the Reference Balance Sheet
(which amount shall exclude in such calculation (B) - (C) above) (the "Reference
NAV") Purchaser shall promptly pay Seller an amount equal to such excess (a
"Purchaser Adjustment Payment"), payable in immediately available funds, or (ii)
to the extent the Final Net Asset Value is less than the Reference NAV, Seller
shall promptly pay Purchaser an amount equal to such difference (a "Seller
Adjustment Payment"), payable in immediately available funds. For clarity, (x)
it is agreed and understood that references to net asset value and the term
"NOC" used on Schedules 2.3(a)(i) and (ii) are used interchangeably, and (y) if
anything in this Section 2.3(f) conflicts with the ground rules set forth in
Section 2.3(a)(ii), such ground rules in Section 2.3(a)(ii) shall apply.
(g) Adjustment for German Labor Issues.
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(i) Within fifteen (15) Business Days after December 31, 2003,
Purchaser shall deliver to Seller a statement (the "Ending German
Labor Costs Statement"), which shall set forth in detail the total
costs and expenses incurred by Seller and Purchaser in connection
with the German Indemnified Liabilities applied to the German
Liability Reserve Account and the costs and expenses accrued with
respect to German Indemnified Liabilities during the German
Liability Period to be incurred after the German Liability Period.
Seller shall, within ten (10) Business Days of receipt of the Ending
German Labor Costs Statement, raise any objections to the amounts
set forth in such statement and deliver a written description
thereof to Purchaser. If Seller does not deliver an objection to
Purchaser within such ten (10) Business Day period, the Ending
German Labor Costs Statement so delivered shall be final, binding
and conclusive on both Purchaser and Seller.
(ii) If Seller shall deliver a written objection to the Ending
German Labor Costs Statement, upon receipt, Purchaser shall have ten
(10) Business Days to review and respond to Seller's objection. If
Seller and Purchaser are unable to resolve all of their
disagreements within ten (10) Business Days of Purchaser's review of
Seller's objection, Seller or Purchaser or both may refer their
remaining differences to an arbitrator to resolve, such arbitrator
to be mutually acceptable to Purchaser and Seller. Such arbitrator's
decision shall be final, binding and conclusive upon Purchaser and
Seller. The fees and disbursements of the arbitrator shall be shared
by Purchaser and Seller in proportion to the difference between
Purchaser's and Seller's aggregate respective proposed positions and
the ultimate determination made by the arbitrator.
(iii) Within three (3) Business Days after the Ending German
Labor Costs Statement becomes final and conclusive (either by
agreement between Purchaser and Seller or by determination of the
arbitrator), (A) all costs and expenses indicated on the Ending
German Labor Costs Statement as accrued but to be incurred after the
German Liability Period shall be debited against the German
Liability Reserve Account, (B) the amount of all costs and expenses
indicated on the Ending German Labor Costs Statement as accrued but
to be incurred after the German Liability Period by Purchaser shall
be paid to Purchaser by Seller by cash or wire transfer, and (C)
two-thirds of the balance remaining outstanding in the German
Liability Reserve Account after application of (A) above and Section
5.15 shall be paid to Purchaser by Seller by cash or wire transfer
as a purchase price adjustment hereunder.
(h) Allocation of Adjustment Payments. The Parties agree that the
allocation of the Purchase Price set forth in Schedule 2.1 among the assets of
the Transferred Subsidiary and the Local Assets (net of the Local Liabilities)
shall be
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adjusted to appropriately account for any Purchaser Adjustment Payment or Seller
Adjustment Payment in a manner consistent with the allocation of the Purchase
Price set forth in Schedule 2.1 taking into account the nature of the
adjustments.
Section 2.4 Deliveries by Purchaser or the Local Purchasers. At the
Closing, Purchaser or the Local Purchasers shall deliver to Seller or the Local
Sellers, the following:
(a) The Convertible Debenture representing the US$27,524,000
Convertible Debenture Price Component;
(b) Euro 2,000,000 in cash by wire transfer of immediately available
funds to an account designated by Seller in writing at least 3 Business Days
prior to the Closing Date representing the Cash Purchase Price Component;
(c) The Note in the form of Exhibit D hereto representing the euro
5,000,000 Note Purchase Price Component.
(d) The assignment and conveyance instruments referred to in Section
2.1 and such other instruments or documents as shall be necessary to convey the
Transferred Shares, Assets and Assumed Liabilities and consummate the
transactions contemplated hereby in each jurisdiction;
(e) The certificates to be delivered pursuant to Section 6.3 hereof
in accordance with the terms thereof; and
(f) Such other documents and instruments as counsel for Purchaser
and Seller mutually agree to be reasonably necessary to consummate the
transactions described herein.
In addition to the above, no later than on December 31, 2003,
Purchaser shall deliver to Seller euro 1,000,000 in cash by wire transfer of
immediately available funds to an account designated by Seller in writing
representing the Delayed Purchase Price Component.
Section 2.5 Deliveries by Seller and the Local Sellers. At the
Closing, Seller shall, and shall cause the Local Sellers and all other necessary
Affiliates to, deliver to Purchaser or the Local Purchasers the following:
(a) All of the Transferred Shares by whatever means necessary to
effectively convey the Transferred Shares in accordance with the laws and
regulations of Germany;
(b) The assignment and conveyance instruments referred to in Section
2.1 and such other instruments or documents as shall be necessary to convey the
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Transferred Shares, Assets and Assumed Liabilities and consummate the
transactions contemplated hereby in each jurisdiction;s
(c) The certificates and other documents and other items required to
be delivered pursuant to the Ancillary Agreements or Section 6.2 hereof in
accordance with the terms thereof; and
(d) Such other documents and instruments as counsel for Purchaser
and Seller mutually agree to be reasonably necessary to consummate the
transactions described herein.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF SELLER, THE TRANSFERRED
SUBSIDIARY AND THE LOCAL SELLERS
As of the date hereof and as of the Closing Date, Seller, for itself
and, where appropriate, on behalf of the Transferred Subsidiary and the Local
Sellers, jointly and severally, represent and warrant to Purchaser (except (x)
representations and warranties made with respect to the Transferred Subsidiary,
which Seller represents and warrants only as of the Closing Date and (y) any
representations and warranties that are expressly made as of a specific date,
which Seller represents and warrants only as of such date), as follows:
Section 3.1 Organization and Qualification.
(a) Each of Seller and its Affiliates that are parties to any of the
Ancillary Agreements (the "Relevant Affiliates") has been duly organized, and is
validly existing and in good standing under the laws of the jurisdiction of its
incorporation, with all requisite corporate power and authority to own the
Transferred Shares and to carry on the Business as currently conducted. Seller
and the Relevant Affiliates are qualified to do business and are in good
standing as a foreign corporation in each jurisdiction where the ownership or
operation of its properties or conduct of its business requires such
qualification, except where the failure to be so qualified or in good standing,
when taken together with all other such failures, would not have a Material
Adverse Effect.
(b) The Transferred Subsidiary has been duly organized, and is
validly existing and in good standing under the laws of the jurisdiction of its
incorporation, with all requisite corporate power and authority to own or lease
its assets and to carry on its business as currently conducted. The Transferred
Subsidiary is qualified to do business and is in good standing as a foreign
corporation in each jurisdiction where the ownership or operation of its
properties or conduct of its business requires such qualification, except where
the failure to be so qualified or in good standing, when taken together with all
other such failures, would not have a Material Adverse Effect. Seller has made
available to Purchaser complete and correct copies of the Transferred
Subsidiary's certificate of incorporation and by-laws, or other applicable
organizational documents, each as amended to date. The Transferred Subsidiary's
certificate of incorporation and by-laws,
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or such other applicable organizational documents, so delivered are in full
force and effect. The Transferred Subsidiary is neither in default under nor in
violation of any provision of its charter or bylaws.
Section 3.2 Corporate Authorization.
(a) Each of Seller and the Relevant Affiliates has all requisite
corporate power and authority and has taken all corporate action necessary in
order to execute and deliver this Agreement, if it is a party hereto, and each
of the Ancillary Agreements to which it is a party, to perform its obligations
hereunder and thereunder and to consummate the transactions contemplated for it
hereby (including the Restructuring) and thereby. The execution, delivery and
performance by Seller and the Relevant Affiliates of this Agreement, if it is a
party hereto, of each of the Ancillary Agreements and the Restructuring has been
duly and validly authorized and no additional corporate authorization or consent
is required in this respect.
(b) This Agreement is, and each of the Ancillary Agreements to which
Seller or any of the Relevant Affiliates is a party will be, when executed, a
valid and legally binding obligation of Seller or the respective Relevant
Affiliate, enforceable against Seller or the respective Relevant Affiliate in
accordance with its terms, subject to bankruptcy, insolvency, fraudulent
transfer, reorganization, moratorium and similar laws of general applicability
relating to or affecting creditors' rights and to general equity principles.
(c) Seller has the corporate power and authority to cause its
Affiliates, including the Local Sellers, to consummate the transactions
contemplated hereby and by each of the Ancillary Agreements to which such
Affiliates are a party.
Section 3.3 Capitalization.
(a) Each of the outstanding shares of capital stock and other equity
interest of the Transferred Subsidiary is duly authorized, validly issued, fully
paid and nonassessable and is owned by Seller, free and clear of all liens,
pledges, charges, security interests, restrictions, claims and other
encumbrances or third party right of any kind (collectively, "Encumbrances").
(b) The Transferred Subsidiary does not have any outstanding capital
stock or other equity interests other than the outstanding Transferred Shares.
Seller is the sole record and beneficial owner of all outstanding Transferred
Shares.
(c) There are no preemptive or other outstanding rights, options,
warrants, conversion rights, stock appreciation rights, redemption rights,
repurchase rights, agreements, arrangements or commitments of any character
under which the Transferred Subsidiary is or may become obligated to issue or
sell, or giving any Person a right to subscribe for or acquire, or any way
dispose of any shares of the capital stock, or any securities or obligations
exercisable or exchangeable for or convertible into any
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shares of the capital stock, of the Transferred Subsidiary, and no securities or
obligations evidencing such rights are authorized, issued or outstanding. The
Transferred Shares are not subject to any voting trust agreement or other
contract, obligation, commitment, agreement or arrangement restricting or
otherwise relating to the voting, dividend rights or disposition of the
Transferred Shares.
(d) Seller has good and valid title to the Transferred Shares to be
sold hereunder, free and clear of all Encumbrances, and upon delivery of the
Transferred Shares by Seller, good and valid title to the Transferred Shares,
free and clear of all Encumbrances, will pass to Purchaser.
(e) None of the Transferred Subsidiary's share capital has been
decreased or refunded to shareholders, whether overtly or covertly, and all
relevant provisions of the relevant Laws have been complied with, in particular
but without limitation in relation to any capital increase, capital decrease or
similar procedure affecting share capital. No capital contributions in kind or
hidden capital contributions in kind have been made with respect to the
Transferred Subsidiary.
Section 3.4 Consents and Approvals. Except as set forth in Schedule
3.4, no consent, approval, order, waiver or authorization is required to be
obtained or made by Seller, the Local Sellers or the Transferred Subsidiary
from, and no notice, declaration, registration or filing is required to be given
or made by Seller, the Local Sellers or the Transferred Subsidiary to or with
any Governmental Body in connection with the execution, delivery and performance
by Seller, the Local Sellers and the Transferred Subsidiary of this Agreement or
any of the Ancillary Agreements, as applicable, other than in all cases where
the failure to obtain such consent, approval, waiver or authorization, or to
give or make such notice of filing would not, individually or in the aggregate,
be reasonably expected to materially impair or delay the ability of Seller or
the Local Sellers to transfer to Purchaser all, or a material portion of, the
Assets as contemplated by this Agreement.
Section 3.5 Noncontravention. Except as set forth on Schedule 3.5,
the execution, delivery and performance by Seller, the Local Sellers or the
Transferred Subsidiary of this Agreement and each of the Ancillary Agreements,
as applicable, and the consummation of the transactions contemplated hereby and
thereby, does not or will not (i) violate any provision of the charter, bylaws
or other organizational documents of Seller, the Local Sellers or the
Transferred Subsidiary, (ii) result in a material breach of or material default
under, require notice or consent under (or give rise to any right of payment,
termination, cancellation or acceleration under) any of the terms, conditions or
provisions of any Material Contract, except for such breaches or defaults (or
rights of termination, cancellation or acceleration) as to which requisite
waivers or consents have been obtained, and (iii) assuming the consents,
approvals, waivers, authorizations, notices and filings set forth in Schedules
3.4 and 4.5 are granted or made, as the case may be, violate or result in a
breach of or constitute a default under any law, rule, regulation, judgment,
injunction, order, decree or other restriction of any court or governmental
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authority to which Seller, a Local Seller or the Transferred Subsidiary is
subject, including any Governmental Authorization, other than in the case of
clause (iii) any violation, breach or default, or any required consent or change
in rights, which, individually or in the aggregate, would not be reasonably
expected to have a Material Adverse Effect.
Section 3.6 Assets Necessary to Conduct the Business. Except as set
forth in Schedule 3.6 and taking into account Purchaser's and the Transferred
Subsidiary's rights under the Ancillary Agreements, the Assets constitute all
the material assets, properties and rights, other than the Proprietary Rights,
that are necessary to conduct or primarily related to the Business substantially
as conducted on the date hereof and immediately prior to the Closing.
Section 3.7 Financial Statements. Except as described in the notes
thereto, the Unaudited Financial Statements have been prepared in accordance
with the accounting policies of Seller, as consistently applied by Seller during
the dates of the Unaudited Financial Statements, and fairly present, in all
material respects, the financial condition and results of operations of the
Business as of the date thereof.
Section 3.8 Litigation and Claims.
(a) Except as set forth in Schedule 3.8, there is no civil, criminal
or administrative action, suit, demand, claim, hearing, proceeding or
investigation pending or, to the Knowledge of Seller, threatened, that arise out
of, relate to, or in connection with the Business, the Assets or the Transferred
Employees, except those which, individually involve a claim for monetary damages
of less than euro 10,000 or euro 40,000 in the aggregate. Since the date of the
Reference Balance Sheet, none of the Transferred Subsidiary or Seller or Local
Sellers has affirmatively waived or released or, to the Knowledge of Seller,
compromised any material right or claim (or series of related material rights
and claims) that arise out of, relate to, or in connection with the Business,
the Assets or the Transferred Employees.
(b) None of the Transferred Subsidiary, Seller nor any of the Local
Sellers is a party or subject to any order, writ, judgment, award or injunction
of any Governmental Body applicable thereto other than those that, individually
or in the aggregate, would not be reasonably expected to have a Material Adverse
Effect.
Section 3.9 Taxes. Except as set forth in Schedule 3.9,
(a) all Tax Returns that are required to be filed on or before the
Closing Date by the Transferred Subsidiary have been or will be timely filed on
or before the Closing Date taking into account the applicable extensions, and
all such Tax Returns are or will be true and complete in all material respects;
(b) all Taxes shown to be due on the Tax Returns referred to in
paragraph (a) hereto have been or will be timely paid in full;
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(c) adequate provision has been made for the payment of Taxes for
which Seller, with respect to the Business, or the Transferred Subsidiary may be
liable that are not yet due and payable have been recorded as reserves or
current liabilities on the Reference Balance Sheet;
(d) no issues that have been raised by any relevant taxing authority
in connection with the examination of any of the Tax Returns referred to in
paragraph (a) hereto are currently pending;
(e) all deficiencies asserted or assessments made, if any, as a
result of such examinations have been paid in full;
(f) no waivers of statutes of limitation have been given by or
requested with respect to any Taxes of the Transferred Subsidiary, with respect
to the Business;
(g) there are no liens on any of the assets of the Transferred
Subsidiary that arose in connection with any failure (or alleged failure) to pay
any Tax;
(i) the income tax basis of the assets held by the Transferred
Subsidiary and transferred pursuant to this agreement under the tax laws of
Germany is equal to the amounts specified in Schedule 3.9(i).
Section 3.10 Employee Benefits.
(a) All material Plans, contracts or arrangements covering
Transferred Employees are set forth in Schedule 3.10 (except for Plans required
by statute), and all obligations of Seller with respect to such Plans comply in
all material respects with the applicable law and administrative rules and
regulations of any Governmental Body.
(b) Except as set forth on Schedule 3.10, (i) the consummation of
the transactions contemplated by this Agreement will not (A) entitle any
Transferred Employee to severance pay, or (B) accelerate the time of payment or
vesting, or increase the amount of compensation due to any such Transferred
Employee, except for an amount not material to the Business, (ii) with respect
to the Transferred Employees employed only in the United States (the "U.S.
Employees") or Transferred Employees formerly employed in the United States no
liability under Subtitle C or D of Title IV of ERISA has been or is expected to
be incurred by the Transferred Subsidiary with respect to any ongoing, frozen or
terminated "single-employer plan", within the meaning of Section 4001(a)(15) of
ERISA, currently or formerly maintained by the Transferred Subsidiary or any
single-employer plan of any entity which is considered one employer with the
Transferred Subsidiary under Section 4001 of ERISA or Section 414 of the Code
(an "ERISA Affiliate"), except as would not reasonably be expected to have a
Material Adverse Effect; (iii) with respect to the U.S. Employees no Plan which
is an "employee
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pension benefit plan" within the meaning of Section 3(2) of ERISA ("Pension
Plan") sponsored by the Transferred Subsidiary is covered by Title IV of ERISA,
and under each Pension Plan sponsored by an ERISA Affiliate, as of the last day
of the most recent plan year ended prior to the date hereof, the actuarially
determined present value of all "benefit liabilities" within the meaning of
Section 4001(a)(16) of ERISA (as determined on the basis of actuarial
assumptions contained in the Pension Plan's most recent actuarial valuation),
did not exceed the then current value of the assets of such Pension Plan, and
there has been no material change in the financial condition of such Pension
Plan since the last day of the most recent plan year, except as would not
reasonably be expected to have a Material Adverse Effect; and (iv) with respect
to the U.S. Employees, the Transferred Subsidiary has not engaged in a
transaction with respect to any employee benefit plan that, assuming the taxable
period of such transaction expired as of the date hereof, could subject any of
the Transferred Subsidiary to a tax or penalty imposed by either Section 4975 of
the Code or Section 502(i) of ERISA, except as would not reasonably be expected
to have a Material Adverse Effect.
(c) With respect to the U.S. Employees, the Transferred Subsidiary
does not currently maintain or contribute to any "multiemployer plans", within
the meaning of Section 4001(a)(3) of ERISA, and there is no withdrawal liability
with respect to a "multiemployer plan" that remains unsatisfied. Except as set
forth on Schedule 3.10, the Transferred Subsidiary does not have any obligations
of any retiree health, welfare or other non-pension benefits with respect to any
U.S. Employees.
(d) With respect to any Plan in respect of the U.S. Employees, (i)
no actions, suits or claims (other than routine claims for benefits in the
ordinary course) are pending or, to the Knowledge of Seller, threatened and (ii)
no facts or circumstances exist that could reasonably be expected to give rise
to any such actions, suits or claims, except in the case of (i) and (ii) as
would not reasonably be expected to have a Material Adverse Effect.
Section 3.11 Labor Matters.
(a) Except as set forth in Schedule 3.11, Seller and the Transferred
Subsidiary is in compliance with all labor laws and regulations with respect to
and applicable to the Business and the Transferred Employees, except for any
noncompliance that would not be reasonably expected to have a Material Adverse
Effect.
(b) Except as set forth in Schedule 3.11, with respect to the
Business, there are no strikes or other labor disputes against Seller or the
Transferred Subsidiary pending or, to Seller's Knowledge, threatened other than
as would not be reasonably expected to have a Material Adverse Effect.
Section 3.12 Compliance with Laws. Except as set forth in Schedule
3.12, with respect to the Business and the Assets, each of Seller, the Relevant
Affiliates and the Transferred Subsidiary are in compliance with all applicable
Laws, except where
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the failure so to comply, individually or in the aggregate, would not be
reasonably expected to have a Material Adverse Effect.
Section 3.13 Environmental Matters. To Seller's Knowledge, the
Business is operating at the Closing in compliance with all Environmental Laws
except, in any such case, as would not be reasonably expected to have a Material
Adverse Effect. Except as set forth in Schedule 3.13, there is no environmental
suit, action, claim or proceeding pending, or to the Knowledge of Seller,
threatened, with respect to the Business, except as would not reasonably be
expected to have a Material Adverse Effect. Notwithstanding any other
representations and warranties in this Article III, the representations and
warranties contained in this Section 3.13 constitute the sole representations
and warranties of Seller with respect to any Environmental Law or environmental
liabilities, costs or obligations of any nature.
Section 3.14 Contracts. Schedule 3.14 sets forth a list, as of the
date hereof, of each Contract (each, a "Material Contract") that (i) constitutes
indebtedness to any third party for an amount in excess of euro 75,000 and that
is an Assumed Liability, (ii) constitutes a guarantee on behalf of any third
party for an amount in excess of euro 10,000 and that is an Assumed Liability,
(iii) contains covenants or other obligations granting any Person exclusive
rights, "most-favored nations" or similar terms or limiting the freedom in any
material respect of the Business to compete in any line of business with any
Person or in any area or territory, (iv) constitutes an agreement to supply
goods or services to any of the 15 largest customers of the Business listed on
Schedule 3.23, (v) is for the lease of personal property to or from any Person
providing for lease payments in excess of euro 75,000 per annum; (vi) concerns a
limited liability partnership, limited liability company or similar legal
entity, (vii) any other agreement (other than an employment, consulting or
similar agreement) the performance of which involves consideration in excess of
euro 100,000, or (viii) that is material to the Business and was not entered
into in the ordinary course of business. Seller has made available to Purchaser
a correct and complete copy of each Material Contract, other than those contract
disclosure of the terms of which is subject to non-disclosure requirements.
Except as set forth in Schedule 3.14, each Material Contract is a valid and
binding agreement of Seller or its Affiliate, as the case may be, and, to the
Knowledge of Seller, of each other party thereto and is in full force and
effect. Except as otherwise set forth in Schedule 3.14, there are no material
defaults by Seller or the Local Sellers and, to Seller's Knowledge, there are no
material defaults by other parties under any Material Contract which defaults
have not been cured or waived. To the Knowledge of Seller, no event has occurred
that, with notice or lapse of time would constitute a breach or default, or
permit termination, material modification, or acceleration under a Material
Contract.
Section 3.15 Title to Property; Condition. (a) Except as set forth
in Schedule 3.15, assuming, for purposes of the date hereof, effectiveness of
the transactions contemplated by the Restructuring, the Transferred Subsidiary
and the Local Sellers have good title to, or a valid and binding leasehold
interest in, or the right to use, the Assets free and clear of all mortgages and
Encumbrances, except for (i) any Encumbrances
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disclosed or reflected in the Reference Balance Sheet, (ii) liens for Taxes,
assessments and other governmental charges not yet due and payable or due but
not delinquent or being contested in good faith by appropriate proceedings,
(iii) mechanics', workmen's, repairmen's, warehousemen's, carriers' or other
similar liens arising or incurred in the ordinary course of business, original
purchase price, conditional sales contracts and equipment leases with third
parties entered into in the ordinary course of business, (iv) retention of title
Encumbrances and (v) Encumbrances which are immaterial to the Assets to which
they relate (all items permitted under this paragraph (a) together with any
matter set forth in Schedule 3.15, are referred to collectively herein as the
"Permitted Encumbrances").
(b) To the Knowledge of Seller, all tangible property and assets
described in paragraph (a) above are free from defects (patent and latent), have
been maintained in accordance with normal industry practice and are in
satisfactory operating condition and repair (subject to normal wear and tear).
Section 3.16 Finders' Fees. There is no investment banker, broker,
finder or other intermediary that has been retained by or is authorized to act
on behalf of Seller or the Transferred Subsidiary who might be entitled to any
fee or commission from the Transferred Subsidiary or Purchaser in connection
with the transactions contemplated by this Agreement and the Ancillary
Agreements.
Section 3.17 Absence of Change. Since the date of the Reference
Balance Sheet, the Business has not suffered a Material Adverse Change.
Section 3.18 Insurance. Schedule 3.18 sets forth a list of all
material insurance policies or binders which are currently in effect insuring
the Business and each such policy is in full force and effect.
Section 3.19 Asset Acquisitions or Dispositions. Since the date of
the Reference Balance Sheet, neither Seller nor any of its Affiliates have, with
respect to the Business, made any material asset acquisitions or dispositions,
other than as part of any transactions contemplated pursuant to this Agreement
or the Ancillary Agreements or in the ordinary course of business.
Section 3.20 Permits. Except for licenses, permits, authorizations
and consents which have been applied for and which are expected to be granted in
due course, the absence of which does not materially impair the operation of the
Business, Seller, the Transferred Subsidiary and the Local Sellers possess or
have been assigned all governmental or similar regulatory licenses, permits,
authorizations and consents necessary to operate the Business in compliance with
applicable Laws in all material respects in the places and in the manner in
which the Business is carried out on the date hereof and, except as set forth in
Schedule 3.20, each such license, permit, authorization and consent is in full
force and effect and, to the Knowledge of Seller, neither Seller, the
Transferred Subsidiary nor the Local Sellers are in default thereof. Except as
set forth in Schedule 3.20, to the Knowledge of Seller, there are no
circumstances which indicate that
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any such necessary licenses, permits, authorizations or consents will be or are
likely to be revoked or not renewed, in whole or in part, in the ordinary course
of events.
Section 3.21 Transactions with Affiliates. Other than (a) the
transactions contemplated by this Agreement and the Ancillary Agreements, (b) in
the ordinary course of business and on an arm's length basis, (c) as set forth
in Schedule 3.21 or (d) as reflected in the Unaudited Financial Statements,
there are no transactions or agreements between the Business, on the one hand,
and any other unit, division or Affiliate of Seller, on the other, that require
the fulfillment of any obligations, liabilities or payments by the Business on
or after the Closing Date.
Section 3.22 Intellectual Property. Except as set forth in Schedule
3.22:
(a) (i) To the Knowledge of Seller, Seller, an Affiliate of Seller
or a Transferred Subsidiary, as applicable, owns, or is licensed or otherwise
possesses rights to use all patents, inventions, discoveries, formulae,
processes, domain names, trademarks, trade names, service marks, copyrights,
works of authorship, technology, know-how, computer software programs, computer
applications, trade secrets and any other proprietary rights (collectively, the
"Proprietary Rights") used in the Business as currently conducted (collectively,
the "Business Proprietary Rights"), and (ii) to the Knowledge of Seller, all
Business Proprietary Rights owned or exclusively held by Seller or its
Affiliates are valid and subsisting except for any such failures as are not
reasonably likely to have a Material Adverse Effect.
(b) All Business Proprietary Rights which are transferred under any
Ancillary Agreement which are Registered IP are currently in compliance with
formal legal requirements (including payment of filing fees and proofs of use)
and, to the Knowledge of Seller, each item of Registered IP is valid and
enforceable.
(c)
(i) neither Seller nor its Affiliates, with respect to the
Business, nor the Transferred Subsidiary is, nor will be as a result
of the execution and delivery of this Agreement or the performance
of its obligations hereunder, in violation of any licenses,
sublicenses and other agreements used in the Business as currently
conducted as to which it is a party and pursuant to which it is
authorized to use any third-party Proprietary Rights;
(ii) to the Knowledge of Seller, the operation of the Business
by Seller does not and immediately after Closing will not (A)
infringe or misappropriate the Proprietary Rights of any third
person or (B) violate the rights of any third person (including
rights to privacy or publicity). Neither Seller nor any of its
Affiliates has received written notice from any third person
claiming that the Business, the Assets or Licensed Technology
infringes or misappropriates the Proprietary Rights of any
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third person or constitutes unfair competition or trade practices
under the laws of any jurisdiction;
(iii) to the Knowledge of Seller, there is no impairment,
dilution or other violation or misuse, unauthorized use,
infringement or misappropriation by any third party of any of the
Business Proprietary Rights owned or exclusively held by Seller or
its Affiliates as it primarily relates to the Business; and
(iv) Seller and its Affiliates have taken commercially
reasonable steps to protect, maintain and safeguard any Business
Proprietary Rights owned or exclusively held by Seller as it
primarily relates to the Business, the value of which relies upon
the maintenance of confidentiality.
(d) Seller and its Affiliates have all rights necessary to enter
into the Technology Transfer and License Agreement and the Trademark Transfer
Agreement and to convey the rights therein conveyed. The Proprietary Rights (i)
transferred or licensed to Purchaser pursuant to the Technology Transfer and
License Agreement, (ii) assigned to Purchaser pursuant to the Trademark Transfer
Agreement, and (iii) otherwise provided pursuant to the Transition Services
Agreement constitute all Proprietary Rights primarily related to or necessary
for the operation of the Business as conducted by Seller or its Affiliates
immediately prior to Closing or (except as set forth in Schedule 3.22(d) or with
respect to agreements, laws or orders which bound to Purchaser prior to Closing)
by Purchaser immediately after Closing.
(e) Neither this Agreement nor the transactions contemplated hereby,
including the assignment to Purchaser, by operation of law or otherwise, of any
Contracts to which Seller or any of its Affiliates is a party, will to the
Knowledge of Seller result in: (i) Purchaser granting to any third party any
right to or with respect to any Proprietary Rights owned by, or licensed to,
Purchaser prior to the Closing; (ii) Purchaser being bound by, or subject to,
any non-compete restriction on the operation of the Business; or (iii) Purchaser
being obligated to pay any royalties or other amounts to any third party in
excess of those payable by Purchaser or Seller or any of its Affiliates prior to
the Closing).
(f) Each item of the Proprietary Rights transferred under the
Technology Transfer and License Agreement and Trademark Transfer Agreement is
free and clear of any security interests, pledges, debtor's liens or other
encumbrances of a similar nature. To the Knowledge of Seller, none of the
Proprietary Rights transferred under the Technology Transfer and License
Agreement and Trademark Transfer Agreement is subject to any proceeding
currently pending before any court or tribunal (including the USPTO or
equivalent authority anywhere in the world, other than an ongoing prosecution of
an application or any related appeals), action, decree, order or
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judgment that restricts its use, transfer or licensing, or that renders it
invalid or unenforceable.
(g) Seller is not a party to any agreements with SpeechWorks
International, Inc., Nuance Communications Inc., International Business Machines
Corporation, Microsoft Corporation or Phonetic Systems, Inc. regarding the
licensing of source code, patents or speech data that comprise any of the
Proprietary Rights licensed or transferred to Purchaser under the Technology
Transfer and License Agreement (except as set forth in Schedule 3.22). To the
Knowledge of Seller, the list of contracts set forth on Schedule 3.22 (g),
includes all material licenses of Proprietary Rights by or to the Business
except cross-licenses which do not specifically refer to the Business or
licenses granted to third parties in the ordinary course of business.
(h) To the Knowledge of Seller, none of the Software transferred or
licensed to Purchaser pursuant to the Technology Transfer and License Agreement
contains any open source code which requires any further disclosure, grants of
licenses or other access to third parties of such Software.
Section 3.23 Customers. Schedule 3.23 contains a list setting forth
(a) the 15 largest customers of the Business, by revenue amount, for the fiscal
year ended December 31, 2001, and (b) the amount for which each such customer
was invoiced during the periods set forth therein. The Business does not have
any credit or vendor financing attributable to it for any of these 15 largest
customers. All sale orders and other commitments for sales in connection with
the Business have been made in the ordinary course of business consistent with
past practices. Except as set forth on Schedule 3.23, none of the 15 largest
customers of the Business listed on Schedule 3.23 has, since the end of the
fiscal year ended December 31, 2001 through the date of this Agreement,
cancelled or terminated, or provided written notice to Seller or any of its
Affiliates of its intention to cancel or terminate, its Contract with Seller or
any of its Affiliates, provided, however, that, for purposes of this last
sentence of Section 3.23, none of the Contracts that expired or terminated by
operation of its terms shall be deemed to be "cancelled" or "terminated" by any
of the 15 largest customers.
Section 3.24 Purchase for Investment. Seller is aware that the
Convertible Debenture and Note it will receive hereunder are not registered
under the Securities Act, or under any state securities laws. Seller is
purchasing such securities solely for investment, with no present intention to
distribute such securities to any Person, and Purchaser will not sell or
otherwise dispose of such securities except in compliance with the registration
requirements or exemption provisions under the Securities Act and the rules and
regulations promulgated thereunder, or any other applicable securities laws.
Section 3.25 No Undisclosed Liabilities. To the Knowledge of Seller,
as of the date hereof, there are no material liabilities or obligations arising
out of, related to, or in connection with the Business, the Assets or the
Transferred Employees, other than
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the liabilities and obligations (a) reflected or reserved in the Reference
Balance Sheet (including the notes thereto), disclosed in the Disclosure
Schedules or otherwise known to Purchaser, (b) incurred in the ordinary course
of business subsequent to the date of the Reference Balance Sheet, or (c) as
provided in this Agreement, the Ancillary Agreements or the Disclosure
Schedules.
Section 3.26 Real Estate. The Real Property set forth on Exhibit F
is a complete and accurate list, as of the date hereof, of all of the material
real property used primarily for the conduct of the Business as presently
conducted. Assuming, for purposes of the date hereof, effectiveness of the
transactions contemplated by the Restructuring, a Transferred Subsidiary or a
Local Seller has a valid and binding leasehold interest in, or the right to use
of the Real Property. There is no condemnation pending or, to the Knowledge of
Seller, threatened condemnation affecting the Real Property.
Section 3.27 Absence of Knowledge of Breach. As of the date hereof,
Seller does not have Knowledge of any breach by Purchaser or a Local Purchaser
of any of their respective representations, warranties or covenants contained in
this Agreement or any Ancillary Agreement that would entitle Seller to claim any
rights under any provision of Article VII of this Agreement.
Section 3.28 Southwestern Agreement. No specific penalties have been
or will be triggered under the Master Agreement 99007249 for the Voice Activated
Dialing Adjunct Device, dated April 5, 2002, between Southwestern Telephone LP
and Philips Speech Processing (as amended, orally or otherwise) as a result of
the late deliveries of services or products by Seller.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PURCHASER AND LOCAL
PURCHASERS
As of the date hereof and as of the Closing Date (except as
expressly stated otherwise), Purchaser, for itself and, where appropriate, on
behalf of the Local Purchasers, jointly and severally, represent and warrant, to
Seller, as follows:
Section 4.1 Organization and Qualification. Purchaser and the Local
Purchasers are each a corporation duly organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation, with all
requisite corporate power and authority to own and operate and to carry on its
business as currently conducted. Purchaser and the Local Purchasers are
qualified to do business and are in good standing as a foreign corporation in
each jurisdiction where the ownership or operation of its properties or conduct
of its business requires such qualification, except where the failure to be so
qualified or in good standing, when taken together with all other such failures,
is not reasonably likely to have a Purchaser Material Adverse Effect. Purchaser
has made available to Seller a complete and correct copy of Purchaser's and the
Local Purchasers certificates of incorporation and by-laws, or other applicable
organizational documents, each as amended to date. Purchaser's and the Local
Purchasers' certificates of incorporation and by-laws, or other applicable
organizational documents,
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each as amended to date. Purchaser's and the Local Purchaser's certificates of
incorporation and by-laws, or such other applicable organizational documents, so
delivered are in full force and effect. None of Purchaser and the Local
Purchasers is in default under or in violation of any provision of its charter
or bylaws.
Section 4.2 Corporate Authorization.
(a) Each of Purchaser and the Local Purchasers has all requisite
corporate power and authority and has taken all corporate action necessary in
order to execute and deliver this Agreement, if it is a party hereto, and each
of the Ancillary Agreements, and to perform its obligations hereunder and
thereunder and to consummate the transactions contemplated hereby and thereby.
The execution, delivery and performance by Purchaser and the Local Purchasers of
this Agreement, if it is a party hereto, and each of the Ancillary Agreements
has been duly and validly authorized and no additional corporate authorization
or consent is required in this respect.
(b) This Agreement is, and each of the Ancillary Agreements to which
Purchaser or any of the Local Purchasers is a party will be when executed, a
valid and legally binding obligation of Purchaser or the Local Purchasers
enforceable against Purchaser or the Local Purchasers in accordance with its
terms, subject to bankruptcy, insolvency, fraudulent transfer, reorganization,
moratorium and similar laws of general applicability relating to or affecting
creditors' rights and to general equity principles.
Section 4.3 Capitalization.
(a) The authorized capital stock of Purchaser consists of
140,000,000 Purchaser Common Shares, of which 63,372,979 shares were outstanding
as of the close of business on September 30, 2002, and 40,000,000 Purchaser
Preferred Shares, par value $0.001 per share, of which 3,562,238 shares were
outstanding as of the close of business on September 30, 2002. All of the
outstanding Purchaser Shares and Purchaser Preferred Shares have been duly
authorized and are validly issued, fully paid and nonassessable. Other than
18,083,893 shares of the Purchaser Common Shares reserved for issuance under the
Purchaser's Stock Option Plans, Purchaser has no shares reserved for issuance.
(b) Except as set forth on Schedule 4.3(b), there are no preemptive
or other outstanding rights, options, warrants, conversion rights, stock
appreciation rights, redemption rights, repurchase rights, agreements,
arrangements or commitments of any kind under which Purchaser is or may become
obligated to issue or sell to any Person a right to subscribe for or acquire or
in any way dispose of any shares of Purchaser's capital stock, or any securities
or obligations exercisable or exchangeable for or convertible into any shares of
Purchaser's capital stock, and no securities or obligations evidencing such
rights are authorized, issued or outstanding. Except as set forth on Schedule
4.3, to the knowledge of the Management of Purchaser, the shares of Purchaser
Stock are not subject to any voting trust agreement or other contract,
obligation, commitment, agreement or arrangement restricting or otherwise
relating to the voting, dividend rights or disposition of such shares. Purchaser
does not have outstanding any
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bonds, debentures, notes or other obligations the holders of which have the
right to vote (or convertible into or exercisable for securities having the
right to vote) with the stockholders of Purchaser on any matter.
Section 4.4 Issuance, Sale and Delivery of the Convertible Debenture
and the Purchaser Common Shares.
(a) The Note and the Convertible Debenture to be issued and
delivered by Purchaser under this Agreement have been duly authorized for
issuance and sale to Seller pursuant to this Agreement and, when issued and
delivered by Purchaser pursuant to this Agreement against payment of the
consideration set forth in this Agreement, will be validly issued and free and
clear of all pledges, liens and encumbrances.
(b) The Purchaser Common Shares issuable upon conversion of the
Convertible Debenture have been duly authorized for issuance and will be, as of
the Closing Date, reserved for issuance and, upon such conversion in accordance
with the terms of the Convertible Debenture, such Purchaser Common Shares will
be validly issued and fully paid and nonassessable and free and clear of all
pledges, liens and encumbrances, and the holders of such Purchaser Common Shares
will be entitled to all rights and preferences accorded to a holder of Purchaser
Common Shares.
(c) The issuance of the Note and the Convertible Debentures is not
subject to preemptive or other similar rights. No further approval or authority
of the stockholders or the Board of Directors of Purchaser will be required for
the issuance and sale of the Note and the Convertible Debenture to be sold by
Purchaser as contemplated in this Agreement.
(d) The issuance of the Purchaser Common Shares upon conversion of
the Convertible Debenture will not be subject to preemptive or other similar
rights. No further approval or authority of the stockholders or the Board of
Directors of Purchaser will be required for the issuance of the Purchaser Common
Shares upon conversion of the Convertible Debenture.
(e) Subject to the accuracy of Seller's representations and
warranties in Article III of this Agreement, the offer, sale, and issuance of
the Convertible Debentures in conformity with the terms of this Agreement
constitute transactions exempt from the registration requirements of Section 5
of the Securities Act and from the registration or qualification requirements of
the laws of any applicable state or United States jurisdiction.
Section 4.5 Consents and Approvals. Except as set forth in Schedule
4.5, no consent, approval, order, waiver or authorization is required to be
obtained or made by Purchaser or the Local Purchasers from, and no notice,
declaration, registration or filing is required to be given or made by Purchaser
or the Local Purchasers to or with any Governmental Body in connection with the
execution, delivery and performance by Purchaser and the Local Purchasers of
this Agreement, the Note, the
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Convertible Debenture or any of the Ancillary Agreements, as applicable, other
than in all cases where the failure to obtain such consent, approval, waiver or
authorization, or to give or make such notice of filing would not, individually
or in the aggregate, be reasonably expected to materially impair or delay the
ability of Purchaser or the Local Purchasers to effect the Closing.
Section 4.6 Noncontravention. Except as set forth in Schedule 4.6,
the execution, delivery and performance by Purchaser of this Agreement, the Note
and the Convertible Debenture and by Purchaser and the Local Purchasers of the
Ancillary Agreements, and the consummation of the transactions contemplated
hereby and thereby, does not and will not (i) violate any provision of the
charter, by-laws or other organizational documents of Purchaser or the
appropriate Local Purchaser, (ii) result in a breach of or default under,
require notice or consent under (or give rise to any right of payment,
termination, cancellation or acceleration under) any of the terms, conditions or
provisions of any material contract to which Purchaser or its Affiliates are a
party or by which any of their respective properties or assets are bound, except
for such breaches or defaults (or rights of termination, cancellation or
acceleration) as to which requisite waivers or consents have been obtained, and
(iii) assuming the consents, approvals, waivers, authorizations, notices and
filings set forth in Schedules 3.4 and 4.5 are granted or made, as the case may
be, violate or result in a breach of or constitute a default under any law,
rule, regulation, judgment, injunction, order, decree or other restriction of
any court or governmental authority to which Purchaser or the appropriate Local
Purchaser is subject, including any Governmental Authorization, other than in
the cases of clauses (ii) and (iii) any violation, breach or default, or any
required consent or change in rights, which, individually or in the aggregate,
would not be reasonably expected to have a Purchaser Material Adverse Effect.
Section 4.7 Purchaser Reports; Financial Statements. Purchaser has
made available to Seller each registration statement, report, proxy statement or
information statement prepared by it since the Purchaser Audit Date, including
(i) the Purchaser's Annual Report on Form 10-K for the year ended December 31,
2001, (ii) the Purchaser's Quarterly Reports on Form 10-Q for the periods ended
March 31, 2002 and June 30, 2002, and (iii) the Purchaser's Proxy Statement for
its Annual Meeting of Stockholders held on June 14, 2002, each in the form
(including exhibits, annexes and any amendments thereto) filed with the SEC
(collectively, including any such reports filed subsequent to the date hereof
and as amended, the "Purchaser Reports"). All Purchaser Reports fully comply in
all material respects with the applicable requirements of the Securities Act,
the Exchange Act and the rules and regulations promulgated thereunder. Each of
the consolidated balance sheets included in or incorporated by reference into
the Purchaser Reports (including the related notes and schedules) fairly
presents, in all material respects, or will fairly present, in all material
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respects, the consolidated financial position of Purchaser and its subsidiaries
as of its date and each of the consolidated statements of income and of changes
in financial position included in or incorporated by reference into the
Purchaser Reports (including any related notes and schedules) fairly presents,
in all material respects, or will fairly present, in all material respects, the
results of operations, retained earnings and changes in financial position, as
the case may be, of Purchaser and its subsidiaries for the periods set forth
therein (subject, in the case of unaudited statements, to notes and normal
year-end audit adjustments that will not be material in amount or effect), in
each case in accordance with applicable U.S. generally accepted accounting
principles consistently applied during the periods involved ("GAAP"), except as
may be noted therein.
Section 4.8 Litigation and Claims.
(a) Except as set forth in Schedule 4.8 or in the Purchaser Reports,
there is no material civil, criminal or administrative action, suit, demand,
claim, hearing, proceeding or investigation pending or, to the knowledge of the
Management of Purchaser, threatened, that relates to the business of Purchaser
other than those that, individually or in the aggregate, are not reasonably
expected to have a Purchaser Material Adverse Effect.
(b) Purchaser is not a party or subject to any order, writ,
judgment, award or injunction of any Governmental Body applicable thereto other
than those that, individually or in the aggregate, are not reasonably expected
to have a Purchaser Material Adverse Effect.
Section 4.9 Taxes. Except as set forth in Schedule 4.9,
(a) all Tax Returns that are required to be filed on or before the
Closing Date by Purchaser or its Subsidiaries have been or will be timely filed
on or before the Closing Date taking into account the applicable extensions, and
all such Tax Returns are or will be true and complete in all material respects;
(b) all Taxes shown to be due on the Tax Returns referred to in
paragraph (a) hereto have been or will be timely paid in full;
(c) adequate provision has been made for the payment of Taxes for
which Purchaser or its Subsidiaries may be liable that are not yet due and
payable have been recorded as reserves or current liabilities on the Reference
Balance Sheet;
(d) no issues that have been raised by any relevant taxing authority
in connection with the examination of any of the Tax Returns referred to in
paragraph (a) hereto are currently pending;
(e) all deficiencies asserted or assessments made, if any, as a
result of such examinations have been paid in full;
(f) no waivers of statutes of limitation have been given by or
requested with respect to any Taxes of Purchaser or its Subsidiaries; and
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(g) there are no liens on any of the assets of Purchaser or its
Subsidiaries that arose in connection with any failure (or alleged failure) to
pay any Tax.
Section 4.10 Employee Benefits.
(a) All obligations of Purchaser with respect to material Plans,
contracts or arrangements covering current or former employees of Purchaser
comply in all material respects with the applicable laws and administrative
rules and regulations of any Governmental Body.
(b) Except as set forth on Schedule 4.10, (i) no liability under
Subtitle C or D of Title IV of ERISA has been or is expected to be incurred by
Purchaser with respect to any ongoing, frozen or terminated "single-employer
plan", within the meaning of Section 4001(a)(15) of ERISA, currently or formerly
maintained by Purchaser or any of them, or any subsidiary of Purchaser or any
single-employer plan of any entity which is considered one employer with
Purchaser under Section 4001 of ERISA or Section 414 of the Code, except as
would not reasonably be expected to have a Material Adverse Effect; (ii) no
Pension Plan sponsored by Purchaser or any of its subsidiaries is covered by
Title IV of ERISA; and (iii) Purchaser has not engaged in a transaction with
respect to any employee benefit plan that, assuming the taxable period of such
transaction expired as of the date hereof, could subject Purchaser or any of its
subsidiaries to a tax or penalty imposed by either Section 4975 of the Code or
Section 502(i) of ERISA, except as would not reasonably be expected to have a
Material Adverse Effect.
(c) Neither Purchaser nor any of its subsidiaries currently
maintains or contributes to any "multiemployer plans", within the meaning of
Section 4001(a)(3) of ERISA, and there is no withdrawal liability with respect
to a "multiemployer plan" that remains unsatisfied.
Section 4.11 Labor Matters.
(a) Except as set forth in Schedule 4.11, Purchaser is in compliance
with all labor laws and regulations, except for any noncompliance that would not
be reasonably expected to have a Purchaser Material Adverse Effect.
(b) Except as set forth in Schedule 4.11, there are no strikes or
other labor disputes against Purchaser pending or, to the knowledge of the
Management of Purchaser, threatened other than as would not be reasonably
expected to have a Purchaser Material Adverse Effect.
Section 4.12 Compliance with Laws. Except as set forth in Schedule
4.12, the business of Purchaser is being conducted in compliance with all
applicable Laws, except where the failure so to comply, individually or in the
aggregate, would not be reasonably expected to have a Purchaser Material Adverse
Effect.
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Section 4.13 Environmental Matters. To the knowledge of the
Management of Purchaser, Purchaser has complied with all applicable
Environmental Laws except, in any such case, as would be not be reasonably
expected to have a Purchaser Material Adverse Effect. Except as set forth in
Schedule 4.13, there is no environmental suit, action, claim or proceeding
pending, or to the knowledge of the Management of Purchaser, threatened, naming
Purchaser as party thereto, except as would not reasonably be expected to have a
Purchaser Material Adverse Effect. Notwithstanding any other representations and
warranties in this Article IV, the representations and warranties contained in
this Section 4.13 constitute the sole representations and warranties of
Purchaser with respect to any Environmental Law or environmental liabilities,
costs or obligations of any nature.
Section 4.14 Contracts. The contracts described in the Purchaser
Reports or incorporated by reference therein are in full force and effect on the
date hereof, except for contracts which by their terms have expired or
terminated, or the termination or expiration of which would not, individually or
in the aggregate, have a Purchaser Material Adverse Effect. Neither Purchaser
nor, to the knowledge of the Management of Purchaser, any other party is in
material breach of or default under any such contracts.
Section 4.15 Title to Property. The Purchaser owns or leases all of
the properties it purports to own or lease, as the case may be.
Section 4.16 Finders' Fees. There is no investment banker, broker,
finder or other intermediary which has been retained by or is authorized to act
on behalf of Purchaser or any Affiliate of Purchaser who might be entitled to
any fee or commission from Seller in connection with the transactions
contemplated by this Agreement.
Section 4.17 Absence of Change. Since Purchaser Audit Date,
Purchaser has not suffered a Purchaser Material Adverse Effect.
Section 4.18 Insurance. The Purchaser maintains insurance of the
type and in the amount that the Purchaser reasonably believes is adequate for
its business, including, but not limited to, insurance covering all real and
personal property owned or leased against theft, damage, destruction, acts of
vandalism and all other risks customarily insured against by similarly situated
companies, all of which insurance is in full force and effect.
Section 4.19 Permits. Except for licenses, permits, authorizations
and consents which have been applied for and which are expected to be granted in
due course, the absence of which does not materially impair the operation of its
business, Purchaser possesses or has been assigned all governmental or similar
regulatory licenses, permits, authorizations and consents necessary to operate
its business in compliance with applicable Laws in all material respects in the
places and in the manner in which Purchaser's business is carried out on the
date hereof, except where the failure to possess
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or be assigned such licenses, permits, authorizations or consents is not
reasonably likely to have a Purchaser Material Adverse Effect, and, except as
set forth in Schedule 4.19, each such license, permit, authorization and consent
is in full force and effect and the Purchaser is not in default thereof. Except
as set forth in Schedule 4.19, to the knowledge of the Management of Purchaser,
there are no circumstances which indicate that any such necessary licenses,
permits, authorizations or consents will be or are likely to be revoked or not
renewed, in whole or in part, in the ordinary course of events.
Section 4.20 Intellectual Property. Except as set forth in Schedule
4.20:
(a) To the knowledge of Management of Purchaser, Purchaser owns or
is licensed to use all patents, patent applications, inventions, Trademarks,
copyrights, know-how, manufacturing processes, formulae, trade secrets, licenses
and rights in any thereof and any other intangible property and assets that are
material to the business of Purchaser as now conducted (the "Purchaser
Proprietary Rights"). For the purposes hereof, "Purchaser Proprietary Rights"
does not include commercially available third party software licensed by
Purchaser;
(b) Purchaser has not given or received any notice of, any pending
conflicts with or infringement of the rights of others with respect to any
Purchaser Proprietary Rights or with respect to any license of Purchaser
Proprietary Rights which are material to the business of Purchaser;
(c) no material action, suit, arbitration, or legal, administrative
or other proceeding, or investigation is pending, or, to the knowledge the
Management of Purchaser, threatened, which involves any Purchaser Proprietary
Rights, nor, to the knowledge of the Management of Purchaser, is there any
reasonable basis therefore;
(d) Purchaser is not subject to any judgment, order, writ,
injunction or decree of any court or any Federal, state, local, foreign or other
governmental department, commission, board, bureau, agency or instrumentality,
domestic or foreign, or any arbitrator, and has not entered into or is not a
party to any contract which restricts or impairs the use of any such Purchaser
Proprietary Rights in a manner which would have a Purchaser Material Adverse
Effect;
(e) Purchaser has not received written notice of any pending
conflict with or infringement upon any third-party proprietary rights, nor, to
the knowledge of the Management of Purchaser, is there a reasonable basis
therefore;
(f) Purchaser has not entered into any consent, indemnification,
forbearance to xxx or settlement agreement with respect to Purchaser Proprietary
Rights other than in the ordinary course of business, except for such consents,
indemnifications, forbearances or settlements as would not have a Purchaser
Material Adverse Effect. No claims have been asserted by any person with respect
to the validity of Purchaser's ownership or right to use the Purchaser
Proprietary Rights and, to the knowledge of the
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Management of Purchaser, there is no reasonable basis for any such claim to be
successful;
(g) Purchaser has complied, in all material respects, with its
obligations relating to the protection of the Purchaser Proprietary Rights which
are material to the business of Purchaser used pursuant to licenses;
(h) To the knowledge of the Management of Purchaser, no Person is
infringing on or violating the Purchaser Proprietary Rights, which infringement
or violation would reasonably be expected to have a Purchaser Material Adverse
Effect;
(i) The entering to this Agreement or any of the herein Ancillary
Agreements or the consummation of the transactions contemplated herein will not
result in the loss or material impairment of any Material Purchaser Proprietary
Rights based on any agreements between Purchaser and any third party
pre-existing the Closing Date;
(j) Except as would not have a Purchaser Material Adverse Effect,
Purchaser has taken all commercially reasonable steps to protect and maintain
Purchaser Proprietary Rights.
Section 4.21 Security Measures. Purchaser takes security measures
reasonably designed to enable Purchaser to assert trade secret protection in its
non-patented technology.
Section 4.22 Contributions. To the knowledge of the Management of
Purchaser, neither Purchaser nor any employee or agent of, on behalf of or at
the request of, Purchaser has made any payment of funds of Purchaser or received
or retained any funds in violation of any state or federal law, rule or
regulation.
Section 4.23 Prior Offerings. All offers and sales of capital stock
of Purchaser before the date of this Agreement were at all relevant times duly
registered or exempt from the registration requirements of the Securities Act
and were duly registered or subject to an available exemption from the
registration requirements of the applicable state securities or "blue sky" laws.
Section 4.24 Financial Capability; No Financing. Purchaser has and
will have at the Closing sufficient funds to effect the payment due by it at the
Closing Time and all other transactions contemplated by this Agreement.
Purchaser is not subject to any third party financing commitments or
arrangements in connection with the transactions contemplated hereby.
Section 4.25 Purchase for Investment. Purchaser is aware that the
Transferred Shares are not registered under the Securities Act, or under any
state securities laws. Purchaser is purchasing such equity interests solely for
investment, with no present intention to distribute any such equity interests to
any Person, and Purchaser will not sell or otherwise dispose of such equity
interests except in compliance with the
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registration requirements or exemption provisions under the Securities Act and
the rules and regulations promulgated thereunder, or any other applicable
securities laws.
Section 4.26 No Undisclosed Liabilities. To the knowledge of the
Management of Purchaser, as of the date hereof, Purchaser has no material
liabilities or obligations, other than the liabilities and obligations (a)
reflected or reserved in the latest consolidated balance sheets included in or
incorporated by reference into the Purchaser Reports (including the notes
thereto), disclosed in the Disclosure Schedules or otherwise known to Seller,
(b) incurred in the ordinary course of business subsequent to the date of latest
consolidated balance sheet included in or incorporated by reference into the
Purchaser Reports, or (c) as provided in this Agreement, Ancillary Agreements or
the Disclosure Schedules.
Section 4.27 Absence of Knowledge of Breach. As of the date hereof,
the Management of Purchaser does not have knowledge of any breach by Seller or a
Local Seller of any of their respective representations, warranties or covenants
contained in this Agreement or any Ancillary Agreement that would entitle
Purchaser to claim any rights under any provision of Article VII of this
Agreement.
ARTICLE V
COVENANTS
Section 5.1 Pre-Closing Covenants of Seller. During the period from
the date hereof to the Closing, except as otherwise provided for in this
Agreement or the Ancillary Agreements or the transactions contemplated hereby or
thereby, including, but not limited to, any disentanglement or separation of the
Business by Seller or the Local Sellers pursuant to the Restructuring, or as
disclosed in the Disclosure Schedules hereto, or as Purchaser shall otherwise
consent in electronic mail or writing (which consent shall not be unreasonably
withheld), Seller covenants and agrees, on behalf of itself and its Affiliates,
with respect to the Business:
(a) No Adverse Transaction. They will not enter into any transaction
that would be reasonably expected to have a material and adverse effect on the
business, operations, financial condition or results of operation of the
Business taken as a whole or materially and adversely affect Purchaser's ability
to purchase the Business as contemplated hereunder;
(b) No Material Employee Benefits Increase. Subject to Section 5.9
hereof, they will not hire any new employee or consultant of the Business, nor
increase the salary, wage, rate of compensation, severance or termination pay,
commission, bonus or other direct or indirect remuneration payable to, or other
compensation of, any Transferred Employee, or enter into any contract or other
binding commitment in respect of any such increase nor amend, adopt or terminate
any employee benefit plan or arrangement covering any Transferred Employee in
any way that increases the amount of liability of the Business in respect of the
Transferred Employees, in any case excluding (i) changes that are required by
applicable law, (ii) to satisfy obligations under the terms
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of any agreement or plan in effect as of the date hereof, or (iii) increases in
liability pursuant to the collective labor or similar agreements existing on the
date of this Agreement;
(c) Preservation of the Business. They will operate the Business in
the ordinary and usual course of business, and use commercially reasonable
efforts to: (i) preserve the present business organization intact; and (ii)
preserve any business relationships with customers, suppliers and others having
business dealings with the Business;
(d) Assets. They will not sell, license, transfer, or otherwise
dispose of any Assets and not subject any of the Assets to any further
Encumbrance, other than (i) as reflected, reserved or otherwise disclosed in the
Reference Balance Sheet, or (ii) in the ordinary course of business, consistent
with past practice; provided, however, that the exclusion in (ii) above shall
not apply to Encumbrances on Proprietary Rights.
(e) Insurance. Other than where such coverage ceases to be available
in the then prevailing insurance market, they will maintain insurance coverage
of the Business at substantially presently existing levels; not permit any of
the current insurance (or reinsurance) policies of the Business to be canceled
or terminated or any of the coverage thereunder to lapse, unless simultaneously
with such termination, cancellation or lapse, replacement policies providing
substantially similar coverage to coverage remaining under those canceled,
terminated or lapsed are in full force and effect;
(f) Material Contracts. They will not enter into, terminate or amend
in any material respect, any Material Contract, nor enter into, terminate or
materially amend any lease for Real Property, nor take any action that (with or
without notice or lapse of time or both) would constitute a material violation
or breach of, or material default under, any Material Contract or lease for Real
Property;
(g) Debt. They will not incur or assume any indebtedness for
borrowed money that would constitute an Assumed Liability, other than in the
ordinary course of business;
(h) Capital Expenditures. They will not make capital expenditures or
commitments for additions to property, plant or equipment constituting capital
assets on behalf of the Business, other than in the ordinary course of business
not in excess of euro 50,000 in the aggregate;
(i) Compliance with Laws. They will comply in all material respects
with all Laws applicable in any material respect to the Business, the Assets and
the Assumed Liabilities;
(j) Certain Arrangements. They will not enter into any contract or
transaction primarily relating to the Business pursuant to which Seller or its
Affiliates receive prepaid royalties, prepaid engineering fees or provide
prepaid services in excess
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of euro 50,000, or any transaction pursuant to which any party may consume or
redistribute multiple licenses or services for one set fee; and
(k) Related Party Transactions. They will not engage in any
transaction with respect to the Business, on the one hand, with Seller or any
Affiliate of Seller, on the other hand, other than in the ordinary course of
business on an arm's length basis.
(l) Catch All Provision. They will not enter into any agreement with
respect to any of the foregoing.
Any request by Seller hereunder shall be made in accordance with
Section 9.1 hereof, but without requiring a notice to anyone other than
Purchaser, and shall be accompanied by a brief description of the purpose of
such request. Purchaser shall respond to Seller's request within two (2)
Business Days from the date such request is deemed to be duly made. Purchaser
shall not unreasonably withhold its consent to any such request made by Seller.
Section 5.2 Pre-Closing Covenants of Purchaser. During the period
from the date hereof to the Closing, except as otherwise provided for in this
Agreement or the Ancillary Agreements or the transactions contemplated hereby or
thereby or as disclosed in the Disclosure Schedules hereto, or as Seller shall
otherwise consent in electronic mail or writing (which consent shall not be
unreasonably withheld), Purchaser covenants and agrees, on behalf of itself and
their Affiliates:
(a) No Adverse Transaction. They will not enter into any transaction
that would be reasonably expected to materially and adversely affect Purchaser's
ability to purchase, or, to the knowledge of the Management of Purchaser,
Seller's ability to sell, the Business as contemplated hereunder; and
(b) No Changes in Capital Structure. They will not take any action
that would have been prohibited by Section 3 of the Convertible Debenture if the
Convertible Debenture was outstanding at the time of such action. If they take
any action that would have resulted in any adjustment to the Conversion Rate (as
defined in the Convertible Debenture) if the Convertible Debenture was
outstanding at the time of such action, they will cause the Conversion Rate at
the time of issuance of the Convertible Debenture to be appropriately adjusted
to account for such action.
(c) Catch All Provision. They will not enter into any agreement with
respect to any of the foregoing.
Any request by Purchaser hereunder shall be made in accordance with
Section 9.1 hereof but without requiring a notice to anyone other than Seller,
and shall be accompanied by a brief description of the purpose of such request.
Seller shall respond to Purchaser's request within two (2) Business Days from
the date such request is deemed to
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be duly made. Seller shall not unreasonably withhold its consent to any such
request made by Purchaser.
Section 5.3 Other Pre-Closing Covenants and Certain Agreements.
(a) Commercially Reasonable Efforts. Seller and Purchaser will use
commercially reasonable efforts to take all action and to do all things, and
will cause their Affiliates to take all action and do all things, necessary,
proper or advisable to consummate and make effective the transactions
contemplated by this Agreement and the Ancillary Agreements including, without
limitation, fulfilling but not waiving the conditions precedent to the other
party's obligations hereunder (including those contained in Article VI hereof),
securing as promptly as practicable all consents, approvals, waivers and
authorizations and making any filings required under applicable Law, including
those required by the Competition Laws (and promptly filing any additional
information requested as soon as practicable after receipt of request thereof)
required in connection with the transactions contemplated hereby and agree to
use such foregoing efforts to effect the Closing as soon as practicable;
provided, however, that neither Seller nor Purchaser or any of their Affiliates
shall be required to make any payment therefor, other than filing, recordation
or similar fees payable to any Governmental Body, which fees shall be paid by
Purchaser.
(b) Ancillary Agreements; Plan of Distribution Agreement; Contract
Research Agreement. At the Closing, Purchaser and Seller shall execute and
deliver or cause the execution and delivery of the Ancillary Agreements, the
Note, the Convertible Debenture, the Plan of Distribution Agreement and Contract
Research Agreement, all substantially in the forms attached hereto.
(c) Duty to Update. Seller and Purchaser shall have the continuing
obligation until the Closing promptly to supplement or amend the Disclosure
Schedules with respect to any matter hereafter arising or discovered that, if
existing or known at the date of this Agreement, would have been required to be
set forth or described in the Disclosure Schedules; provided, however, that for
the purpose of the rights and obligations of the parties under this Agreement
and subject to the provisions of Section 7.9, any such supplemental or amended
Disclosure Schedule shall not be deemed to have been disclosed as of the date of
this Agreement and shall not be deemed to have remedied any misrepresentation or
breach of any representation or warranty or covenant hereunder unless so agreed
in writing by Purchaser and Seller.
(d) Access. Subject to Section 9.12, at the request of Purchaser,
Seller (i) will permit, and Seller will cause its Affiliates to permit,
representatives of Purchaser to have access at reasonable times to the premises,
properties, personnel, Books and Records (including Tax records), contracts and
documents, of, or pertaining to, the Business, and (ii) will facilitate and, if
requested, participate in, meetings, conferences and discussions between
Purchaser and the customers of the Business; provided that Seller or its
Affiliates may refuse such access, facilitation or participation if, in their
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reasonable judgment, such access, facilitation or participation would be
prohibited by Law. In addition to any applicable provisions of the
Non-Disclosure Agreement executed by Seller, on the one hand, and Purchaser, on
the other, related to the subject matter of this Agreement, Purchaser will, and
will cause its representatives and Affiliates to, (i) treat and hold as such any
confidential information it receives from any of Seller, the Local Sellers or
their respective Affiliates or representatives in the course of the reviews of
the Business contemplated by this Section 5.3(d) or otherwise; (ii) will not use
any of the confidential information except in connection with this Agreement,
and, if this Agreement is terminated for any reason whatsoever; and (iii) will
return to Seller all tangible embodiments (and all copies) of such confidential
information which are in its possession or the possession of any other person on
its behalf or as a result of its delivery thereto.
(e) Regulatory Approvals. Purchaser and Seller shall use, and shall
cause their Affiliates to use, their reasonable best efforts to take or cause to
be taken all actions necessary, proper or advisable to obtain any consent,
waiver, approval or authorization relating to any applicable Competition Law
that is required for the consummation of the transactions contemplated by this
Agreement, which efforts shall include the proffer by Purchaser of its
willingness to accept an order providing for the divestiture by Purchaser of
such assets and operations as are necessary for Purchaser to fully consummate
the transactions contemplated by this Agreement, and an offer to hold separate
such assets and operations pending such divestiture.
(f) No Negotiation or Solicitation. Until the Closing or the
termination of this Agreement, Seller shall not, and shall cause its Affiliates
to not (a) solicit, initiate, entertain, accept or encourage the submission of
any proposal or offer from any Person relating to the direct or indirect
acquisition of the Business or substantially all Assets, or (b) participate in
any discussions or negotiations (and as of the date hereof, Seller shall
immediately cease any discussions or negotiations that are ongoing) regarding,
furnish any information with respect to, assist or participate in, or facilitate
in any other manner any effort or attempt by any Person to do or seek any of the
foregoing. Seller shall notify Purchaser in writing if any Person makes any
proposal, offer, inquiry or contact with respect to any of the foregoing no
later that three (3) Business Days after receipt of such offer or proposal.
Section 5.4 Other Post-Closing Covenants.
(a) Covenant Not to Compete.
(i) Seller understands that Purchaser shall be entitled to
protect and preserve the going concern value of the Business to the
extent permitted by Law and that Purchaser would not have entered
into this Agreement absent the provisions of this Section 5.4(a)
and, therefore, for a period of thirty (30) months from the Closing
Date, Seller shall not, and shall cause each of its Affiliates not
to, directly or indirectly, engage in
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any Competing Business in any jurisdiction in the world in
competition with the Business.
"Competing Business" means (A) speech processing telephony business
activities and operations consisting of providing speech recognition, natural
language understanding and dialog software technology for the telephony-network
based services of voice activated dialing, directory assistance, voice portals
and customer care/call center applications, and (B) voice control business
activities and operations consisting of providing speech recognition and natural
language understanding software technology for use on mobile or embedded
platform, both (A) and (B), as at the date hereof and as of the Closing Date.
(ii) Section 5.4(a)(i) shall be deemed not breached as a
result of the ownership by Seller or any of its Affiliates of:
(A) less than an aggregate of 10% of any class of stock of a
person engaged, directly or indirectly, in the Competing
Business; or
(B) less than 10% in value of any instrument of indebtedness
of a person engaged, directly or indirectly, in the
Competing Business.
(iii) Nothing in Section 5.4(a)(i) shall restrict Seller or
its Affiliates from:
(A) carrying on or developing business activities and
operations of the business unit currently known as
Dictation Systems consisting of providing software
technology, applications and solutions in the area of
text generation by dictation, speech recognition,
transcription, and/or correction, as currently
conducted;
(B) acquiring or licensing any third-party speech
recognition technology to be integrated into any of
Seller's or its Affiliates' products or services outside
of the Competing Business;
(C) designing, developing, marketing, selling or
distributing any semiconductor IC's incorporating speech
recognition technology, and voice control technology;
(D) acquiring the whole or any part of a person which
carries on the Competing Business or the whole or any
part of a business which includes the carrying on of the
Competing Business, except that where more than 10% of
the revenues
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of the person or of the business acquired as set out in
the latest available audited accounts of that person or
business consists of the Competing Business, Seller
shall use its reasonable efforts to dispose of such
Competing Business as promptly as practicable;
(E) acquiring or holding any interest in any joint venture
(whether incorporated or unincorporated), except where
such joint venture is a subsidiary of Seller; provided
that less than 10% of the turnover or the income of such
joint venture is generated, directly or indirectly, by
the Competing Business.
(iv) Notwithstanding any other provision of this Agreement, it
is understood and agreed that the remedy of indemnity payments
pursuant to ARTICLE VII and other remedies at law would be
inadequate in the case of any breach of the covenants contained in
Section 5.4(a)(i). Purchaser shall be entitled to seek equitable
relief, without posting a bond, including the remedy of specific
performance, with respect to any breach or attempted breach of such
covenants.
(v) Notwithstanding anything to the contrary, this Section
5.4(a) shall not apply to any transaction in which a third party is
acquiring a majority equity interest in Purchaser or Purchaser is
transferring or is otherwise combining all or a substantial portion
of its business to or with a third party (regardless of the form of
such transaction).
(b) Nonsolicitation. For a period of 18 months following the Closing
Date, Seller agrees to use its reasonable endeavors to procure that it and its
group will not solicit the services of any Key Employees. Notwithstanding the
foregoing, this Section 5.4(b) shall not prevent Seller Group from (i) employing
any person who contacts Seller Group on his or her own initiative without
solicitation by Seller Group and (ii) making general searches for employees by
use of advertisements or the media which are not directly targeted at the Key
Employees and from employing any such persons as a result of such searches.
(c) Litigation Support. In the event and for so long as Purchaser,
Seller or any Local Seller actively is contesting or defending against any
charge, complaint, suit, hearing or investigation of a third party in connection
with (i) any transaction contemplated under this Agreement or (ii) any fact,
circumstance, action, failure to act or transaction on or prior to the Closing
Date involving the Business, all Parties will cooperate, and Seller shall cause
the Local Sellers to cooperate with such Party and such Party's counsel in the
contest or defense, make available their personnel and provide such testimony
and access to their books and records as shall be reasonably necessary in
connection with the contest or defense, all at the sole cost and expense of the
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contesting or defending Party except to the extent the contesting or defending
Party is entitled to indemnification therefor hereunder.
(d) Cooperation and Access to Financial Books and Records. If
required by Seller or any Local Seller for the purpose of the preparation of Tax
filings (in addition to any rights granted in subsections (e) or (f) below)
and/or financial reporting or internal review, Purchaser will provide, and will
cause its Affiliates and the Transferred Subsidiary to provide, all reasonable
cooperation to Seller or the Local Seller in regard thereto until 12 months
after the expiration of the applicable statute of limitations. Such cooperation
in any event shall include that Purchaser, if so requested by Seller or the
Local Seller for this purpose, give reasonable access, and shall cause its
Affiliates and the Transferred Subsidiary to give access, to all relevant books
and relevant financial records relating to the Transferred Subsidiary and the
Business and shall allow Seller and the Local Seller to make copies thereof at
Seller's expense.
(e) Tax Matters.
(i) Seller shall be responsible for and shall pay all Taxes,
and file all related Tax Returns concerning the Transferred
Subsidiary for any taxable period or portion thereof prior to the
Closing. In addition, to the extent Buyer is held liable for Taxes
connected to the Business relating to periods prior to Closing,
Seller shall be responsible for and shall pay all Taxes and file all
related Tax Returns concerning the Business (other than the
Transferred Subsidiary) relating to any taxable period or portion
thereof prior to the Closing. To the extent Buyer is held liable for
Taxes related to this agreement and as a result of any tax sharing,
indemnity or allocation arrangements entered into by Seller or
Seller's group, Seller shall be responsible for and shall pay such
Taxes.
(ii) Restructuring and Transfer Taxes. All Taxes to which a
Transferred Subsidiary is or becomes subject to as a result of (A)
Seller's internal corporate restructuring of the Business for the
purposes of effecting the transactions contemplated hereunder, and
(B) the transfer of the Transferred Subsidiary to Purchaser at
Closing as contemplated hereunder, together with any interest,
additions or penalties with respect thereto and any interest in
respect of such additions or penalties, in any such cases on an
after-tax basis within the Transferred Subsidiary, taking into
account, without limitation, any related deductions available, shall
be borne by Seller, except for (X) transfer taxes, documentary,
filing and recordation taxes, stamp duties, and any other such taxes
levied on the transfer of the Business, the Transferred Shares or
the Assets, which shall be borne by Purchaser or the relevant Local
Purchaser, and (Y) all Sales Taxes levied on the transfer of the
Business, the Transferred Shares or the Assets, which shall be borne
75% by Purchaser or the relevant Local Purchaser and 25% by Seller
or the relevant Local Seller, in each case, net
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of refunds actually or constructively received or credits actually
or constructively used. Any Taxes or fees resulting from any
subsequent transfer or encumbrance, other than by Seller or a Local
Seller to Purchaser or a Local Purchaser at Closing hereunder, of
all or any portion of the Business or any assets or liabilities
thereof on or subsequent to the Closing shall be borne entirely by
Purchaser.
(iii) Purchaser's Claiming, Receiving or Using Refunds and
Overpayments. If, after the Closing, Purchaser or its Affiliates (1)
receive any refund, or (2) utilize the benefit of any overpayment or
tax credit, in respect of Taxes of the Transferred Subsidiary or of
Seller or its Affiliates in respect of the Business that (x) is not
reflected as an asset (or reduction of a provision) on the Reference
Balance Sheet and (y) relates to Taxes that (A) were paid by Seller,
the Local Sellers or the Transferred Subsidiary prior to the Closing
Date or by Seller, any Affiliate of Seller or the Transferred
Subsidiary prior to the Closing or (B) were the subject of
indemnification by Seller pursuant to Article VII hereto, Purchaser
shall promptly transfer, or cause to be transferred to Seller, the
entire amount of the refund or overpayment or credit (including
interest accrued thereon) received or utilized by Purchaser, its
Affiliates or the Transferred Subsidiary. Purchaser agrees to notify
Seller promptly of both the discovery of a right to claim any such
refund or overpayment or credit and the receipt of any such refund
or utilization of any such overpayment or credit. Purchaser agrees
to claim any such refund or to utilize any such overpayment or
credit, if available with respect to the Transferred Subsidiary, and
to furnish to Seller all information, records and assistance
necessary to verify the amount of the refund or overpayment or
credit.
(iv) Sales Taxes. The Purchase Price and any other sum payable
by Purchaser or a Local Purchaser under this Agreement or a Local
Asset Transfer AGREEMENT shall be exclusive of any form of Taxes
levied by reference to added value or sale of goods or services
(including, without limitation, all such value added taxes and sales
taxes as may be levied in accordance with Directive 77/388/EEC)
whenever and wherever imposed ("Sales Taxes"). Seller and Purchaser
shall and shall procure respectively that each Local Seller and each
Local Purchaser use all reasonable endeavors to secure that the sale
of the Business insofar as it is carried on in the European Union is
treated as neither a supply of goods nor a supply of services for
the purposes of Sales Taxes applicable in the relevant member state
and insofar as it is carried on outside the European Union qualifies
for any such relief or exemption from Sales Taxes as may be
available under applicable Laws. If any Sales Taxes are levied on
the transfer of the Business (or a portion thereof) under this
Agreement or a Local Asset Transfer Agreement, Purchaser shall, or
shall procure that the relevant Local Purchaser shall, in addition
to the Purchase Price as may be
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payable under the relevant agreement, pay to Seller or the Local
Seller (as the case may be) 75% of the amount of any Sales Taxes
which is levied on the sale of the Business (or any portion
thereof), net of refunds actually or constructively received or
credits actually or constructively used, within five Business Days
after receipt of a valid Sales Taxes invoice, together with any
interest and, insofar as the same arise as a result of a default or
omission on the part of Purchaser or a Local Purchaser, any
penalties, other than interest arising solely as a result of Seller
or a Local Seller failing to account for such Sales Taxes to the
relevant authority after receipt thereof from Purchaser or a Local
Purchaser. Seller or the relevant Local Sellers shall bear the
balance of such Sales Taxes. For the avoidance of doubt, in no event
shall any multiple payments be required under Section 5.4(e)(ii) and
this Section 5.4(e)(iv) with respect to a Sales Tax with respect to
the same event.
(v) Assistance and Cooperation. After the Closing Date, each
of Seller and Purchaser shall:
(A) assist (and cause their respective affiliates to assist)
the other Party in preparing any Tax Returns or reports
which such other Party is responsible for preparing and
filing in accordance with this section;
(B) cooperate fully in preparing for any audits of, or
disputes with any taxing authorities regarding, any Tax
Returns with respect to the Transferred Subsidiary;
(C) make available to the other Party and to any taxing
authority as reasonably requested all information,
records, and documents relating to Taxes of the
Transferred Subsidiary;
(D) provide timely notice to the other in writing of any
pending or threatened tax audits or assessments with
respect to which the other may have a liability under
this section; and
(E) furnish the other with copies of all correspondence
received from any taxing authority in connection with
any such tax audit or information request.
(f) Maintenance of Purchaser Books and Records. Until the applicable
statute of limitations (including periods of waiver) has run for any Tax Returns
filed or required to be filed covering the periods up to and including the
Closing Date, Purchaser shall, and shall cause its Affiliates or the Transferred
Subsidiary to, retain all Books and Records with respect to the Business in
existence on the Closing Date and after the Closing Date will provide Seller and
any Local Seller access to such Books and
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Records for inspection and copying at Seller's sole expense by Seller or the
Local Seller or their respective agents upon reasonable request and upon
reasonable notice. After the expiration of such period, no such Books and
Records shall be destroyed by Purchaser without first advising Seller in writing
and giving Seller or the Local Seller a reasonable opportunity to obtain
possession thereof, any costs of transferring such Books and Records to be paid
by Seller.
(g) Access to Seller Books and Records Regarding Tax. Following the
Closing, if required by Purchaser or the Transferred Subsidiary in connection
with any Tax Return or for the preparation of tax filings, Seller agrees, and
shall cause the Local Sellers to agree, to use reasonable efforts to provide or
arrange access to all relevant books and financial records of Seller directly
relating to the Transferred Subsidiary and the Business prior to the Closing
and, to the extent the information contained therein is not also contained in
the Books and Records transferred to Purchaser at the Closing, shall allow
Purchaser or the Transferred Subsidiary, on such reasonable terms and conditions
determined by Seller, to make and keep copies of the portions of such books and
financial records directly related to the Business prior to the Closing at
Purchaser's sole expense; provided that in addition to any other terms
established by Seller or the Local Sellers any information contained in such
books and financial records which does not relate to the Transferred Subsidiary
and the Business prior to the Closing need not be made available and in the
event of disclosure of such information shall remain and be treated as
confidential by Purchaser and the Transferred Subsidiary in accordance with the
terms applicable to confidential information set forth in Section 5.3(d).
(h) Further Assurances. Without affecting the terms of this
Agreement or the Ancillary Agreements, at any time after the Closing Date,
Seller and Purchaser shall, and Seller shall cause the Local Sellers to promptly
execute, acknowledge and deliver, or cause to be executed, acknowledged and
delivered, any other assurances or documents reasonably requested by Seller, the
Local Sellers, Purchaser or their respective designees, as the case may be, and
necessary for Seller, the Local Sellers, Purchaser or their respective
designees, as the case may be, to give effect to this Agreement.
(i) Equitable Assignment.
(i) Notwithstanding anything to the contrary contained in this
Agreement, to the extent that the sale, assignment, transfer,
conveyance or delivery or attempted sale, assignment, transfer,
conveyance or delivery to Purchaser or the Local Purchasers, as
required hereunder, of any Assets is prohibited by any applicable
Law or would require any governmental or third party authorizations,
approvals, consents or waivers and such authorizations, approvals,
consents or waivers shall not have been obtained prior to the
Closing, the Closing shall occur notwithstanding the foregoing
(unless Purchaser shall in good faith determine that the inability
to sell, assign, transfer, convey or deliver any of such Assets
would be
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reasonably likely to have a Material Adverse Effect on the
Business), without any adjustment to the Purchase Price and this
Agreement shall not constitute a sale, assignment, transfer,
conveyance or delivery, or any attempted sale, assignment, transfer,
conveyance or delivery thereof.
(ii) Following the Closing, the Parties shall use commercially
reasonable efforts and shall cooperate with each other, to obtain as
promptly as practicable such authorizations, approvals, consents or
waivers referenced in clause (i) above; provided, however, that none
of Seller, the Transferred Subsidiary or Purchaser or any of their
Affiliates shall be required to make any payment therefor, other
than filing, recordation or similar fees payable to any governmental
authority, which fees shall be paid by Purchaser. Pending such
authorization, approval, consent or waiver, the Parties shall
cooperate with each other in any reasonable and lawful arrangements,
to be effective from and after the Closing Date, designed to
effectively transfer to Purchaser or the Local Purchasers the rights
and benefits of, and entitlements to exercise Seller's or the Local
Sellers' rights under, and effectively cause Purchaser to assume all
liabilities and costs (to the extent such liabilities and costs are
Assumed Liabilities hereunder) with respect to, such Assets. Once
such authorization, approval, consent or waiver for the sale,
assignment, transfer, conveyance or delivery of any Assets not sold,
assigned, transferred, conveyed or delivered at the Closing is
obtained, Seller shall assign, transfer, convey and deliver, or
cause to be assigned, transferred, conveyed and delivered, such
Assets to Purchaser or the Local Purchasers for no additional
consideration. Except as contemplated by this Agreement, to the
extent that any such Assets cannot be transferred or the full
benefits of, rights to use and liabilities of use of any such Assets
cannot be provided to Purchaser or the Local Purchasers following
the Closing pursuant to this Section 5.4(i), Purchaser, Seller and
the Transferred Subsidiary shall, and shall cause their Affiliates
to, enter into such arrangements, to be effective from and after the
Closing Date, as permitted by law (including subleasing or
subcontracting, if permitted) to provide to Purchaser the economic
(taking into account Tax costs and benefits) and operational
equivalent of obtaining such authorization, approval, consent or
waiver, the performance by Purchaser or the Local Purchasers of the
obligations thereunder and the effective transfer to Purchaser or
the Local Purchasers of the rights and benefits of, and entitlements
to exercise Seller's or the Local Sellers' rights under, and the
effective assumption by Purchaser or the Local Purchasers of all
liabilities and costs (to the extent such liabilities and costs are
Assumed Liabilities hereunder) with respect to, such Assets. Seller
and its Affiliates shall hold in trust for and pay to Purchaser
promptly upon receipt thereof such Assets and all income, proceeds
and other monies received by Seller or any of its Affiliates in
connection with its use of any such Assets in connection with
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the arrangements under this Section 5.4(i). Seller and its
Affiliates shall be permitted to set off against such amounts any
direct costs (it being understood that Seller does not waive any
claim for indirect costs) associated with the retention and
maintenance of such Assets.
(j) Seller and Purchaser Cooperation Regarding Payables and
Receivables.
(i) Any amounts (A) paid by Seller or a Local Seller to
satisfy any account payable that is an Assumed Liability after the
Closing Date, and (B) received by Seller or a Local Seller after the
Closing Date in satisfaction of accounts receivable that are Assets
hereunder (to the extent such amounts have not already been
transferred to Purchaser), shall be determined by Seller every 30
days following the Closing Date on an ongoing basis by netting any
such amounts paid with any such amounts received, as applicable, and
such net amount shall be the "Seller Corrected Receivable and
Payable Amount".
(ii) Any amounts (A) paid by Purchaser or the Transferred
Subsidiary in respect of any Seller business to satisfy any account
payable which is not an Assumed Liability and (B) received by
Purchaser or the Transferred Subsidiary in satisfaction of any
account receivable that is not an Asset hereunder any Assumed
Liabilities, shall be determined by Purchaser every 30 days
following the Closing Date on an ongoing basis by netting any such
amounts paid with any such amounts received, as applicable, and such
net amount shall be the "Purchaser Corrected Receivable and Payable
Amount".
(iii) On an ongoing basis following the Closing Date, unless
otherwise agreed, Seller and Purchaser shall net and promptly settle
as between each of them the Seller Corrected Receivable and Payable
Amount and the Purchaser Corrected Receivable and Payable Amount.
(k) Purchaser shall at all times reserve and keep available out of
its authorized but unissued Purchaser Common Shares, solely for the purpose of
affecting the conversion of the Convertible Debenture, such number of Purchaser
Common Shares as shall from time to time be sufficient to effect the conversion
of the Convertible Debenture, and if, at any time, the number of authorized but
unissued Purchaser Common Shares shall not be sufficient to effect the
conversion of the Convertible Debenture, Purchaser shall take such corporate
action as may be necessary to increase its authorized but unissued Purchaser
Common Shares to sufficient number.
Section 5.5 Third Party Confidentiality Agreements. As promptly as
practicable after the date hereof, Seller shall request that all parties who
received any confidential or proprietary information of or relating to the
Business since January 1, 2002 in connection with the proposed sale of the
Business either return or destroy such
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confidential or proprietary information in accordance with the provisions of the
applicable confidentiality agreement.
Section 5.6 Financial and Other Required Information. Seller shall
cause its Affiliates, officers, employees and shall use commercially reasonable
efforts to cause its auditors and other representatives to cooperate with and
assist Purchaser, as Purchaser may reasonably request, to enable Purchaser to
prepare, in connection with the Purchase, the Current Report on Form 8-K and any
additional amendments or supplements thereto required by the Exchange Act and
the rules and regulations promulgated thereunder. In connection therewith,
Seller shall use commercially reasonable efforts to, as promptly as practicable
after the date hereof, prepare the Audited Financial Statements and such other
financial statements (audited, if required) and other information to the extent
required by the Exchange Act and the rules and regulations promulgated
thereunder to be included in the Current Report on Form 8-K (including any
amendments or supplements thereto) and other filings required to be made by
Purchaser in connection with the Purchase, and shall use commercially reasonable
efforts to deliver such statements and information to Purchaser prior to the
Closing. Such financial statements (audited, if required) shall be prepared from
the books and records of the Business (in each case, as of the date of such
financial statements) and in conformity with the requirements of the Exchange
Act and rules and regulations promulgated thereunder. Purchaser shall, and shall
cause its Affiliates, officer, employees and other representative to, provide
all requested assistance to, and fully cooperate with, Seller and its
Affiliates, officers, employees, auditors and other representatives in
fulfilling Seller's obligations under this Section 5.6.
Section 5.7 Seller's Right to Observe Purchaser's Board of
Directors. For as long as Seller is deemed under the SEC rules to be a
beneficial owner of at least 3% of Purchaser's outstanding capital stock,
Purchaser shall arrange for a Seller's representative (i) to observe (in person,
by telephone or otherwise) all meetings of Purchaser's board of directors and
all meetings of the committees of Purchaser's board of directors open to all
Purchaser's directors, (ii) to receive, simultaneously with Purchaser's
directors, copies of all notices, resolutions, written consents and all other
documents (in draft and final forms) distributed to Purchaser's directors, (iii)
to conduct inspections and obtain copies of all Purchaser's books and records
available for inspection to Purchaser's directors, and (iv) to have access to
Purchaser's directors and executive officers.
Section 5.8 Seller Research and Development Group. Subject to and
pursuant to the terms of the Contract Research Agreement, Seller shall afford
Purchaser and its employees reasonable access to and use of, at no additional
charge, during the period ending on June 30, 2004, Philips Research. After the
completion of such period, Seller agrees to negotiate in good faith with
Purchaser regarding terms and conditions for further access to and use of
Philips Research.
Section 5.9 Employee Relations and Benefits.
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(a) The parties hereto intend that there shall be continuity of
employment with respect to all Transferred Employees as follows; (i) where the
Transferred Employees are employed by a Transferred Subsidiary, the employment
of such Transferred Employees shall not be terminated upon the Closing and the
rights, powers, duties, liabilities and obligations of Seller to or in respect
of such Transferred Employees in respect of any contract of employment with such
Transferred Employees in force immediately before the Closing shall be
transferred to Purchaser and/or one of its Affiliates in accordance with those
local employment laws and together with the transfer of the Transferred Shares,
(ii) where local employment laws provide for an automatic transfer of employees
upon the transfer of a business as a going concern, the employment of the
employees shall not be terminated upon the Closing and the rights, powers,
duties, liabilities and obligations of Seller to or in respect of the employees
in respect of any contract of employment with the employees in force immediately
before the Closing shall be transferred to Purchaser and/or one of its
Affiliates in accordance with those local employment laws, and (iii) where the
local employment laws do not provide for the automatic transfer of employees
upon the transfer of a business or part of a business as a going concern (or in
any jurisdiction where the local employment laws do provide for the automatic
transfer of employees upon the transfer of a business or part of a business as a
going concern but for any reason any employee does not transfer by operation of
law), Purchaser and/or one of its Affiliates shall offer employment to the
Transferred Employees commencing on the Closing Date or upon the return of any
such Transferred Employee to active employment.
(b) Starting on the Closing Date and ending on the date 1 year after
the Closing Date, each Transferred Employee that is a U.S. Employee shall be
eligible to participate in employee benefit and severance plans, agreements,
programs, policies and arrangements of Purchaser and/or one of its Affiliates
(the "Purchaser Plans") that are not less favorable in the aggregate than the
employee benefit plans, programs and arrangements in effect with respect to
similarly situated employees of Purchaser. Each Transferred Employee that is not
a U.S. Employee shall be employed by Purchaser on terms as required by local
employment laws or in accordance to local custom in the United Kingdom, the
Netherlands, and France. Nothing in this Section 5.9(b) shall be construed to
entitle any Transferred Employee to continue his or her employment with
Purchaser or an Affiliate of Purchaser.
(c) Seller (i) shall use commercially reasonable efforts to
cooperate with Purchaser to effect the transfer of employment of the Transferred
Employees to Purchaser and/or one of its Affiliates, (ii) shall not engage in
any activity intended to discourage any Transferred Employee from accepting an
offer of employment from Purchaser and/or one of its Affiliates and (iii) shall
use commercially reasonable efforts to provide that Transferred Employees (other
than Transferred Employees who have applied for a position outside the Business
prior to the date hereof) will not be employed or offered employment by
businesses of Seller (other than the Business) after the date hereof and prior
to the Closing Date; provided, however, that Seller and its Affiliates
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shall be permitted to take any action they are legally required to take in order
to comply with local employment laws.
(d) Subject to Section 5.15, Purchaser shall assume and shall
indemnify Seller and the Local Sellers against all liabilities and obligations
to provide any severance to (i) any U.S. Employee who is not offered employment
by Purchaser and/or one of its Affiliates pursuant to Section 5.9(a), (ii) any
U.S. Employees who are entitled to severance under Purchaser's severance policy
due to Purchaser's noncompliance with Section 5.9(a) and (iii) any U.S. Employee
whose employment is terminated by Purchaser or its Affiliates following the
Closing Date; provided, however, Purchaser shall not assume or indemnify Seller
or its Local Sellers for any severance due under a Plan.
(e) Seller shall retain responsibility for and continue to pay all
medical, life insurance, disability and other welfare plan expenses and benefits
for each Transferred Employee with respect to claims incurred by such
Transferred Employees or their covered dependents prior to the Closing. Expenses
and benefits with respect to claims incurred by Transferred Employees or their
covered dependents after the Closing shall be the responsibility of Purchaser.
For purposes of this paragraph, a claim is deemed incurred: in the case of
health, dental and/or prescription drug benefits, upon the provision of
services, materials or supplies with respect to the claim; in the case of life,
accidental death and dismemberment and business travel accident insurance
benefits, upon the death or accident giving rise to such benefits; in the case
of short-term disability and long-term disability benefits, upon the date on
which an individual has been absent from active employment for the requisite
period of time and has been diagnosed with an injury or illness that reasonably
qualifies the individual for short-term disability or long-term disability
benefits under the applicable plan; and in the case of workers compensation
benefits, when the event giving rise to the benefits occurs.
(f) Except as required by applicable law or as may be agreed to by
Seller and Purchaser, or as reflected otherwise in the Actuarial Memorandum, as
of the Closing Date the Transferred Employees shall cease to accrue further
benefits under the employee benefit plans and arrangements maintained by Seller
and its Affiliates and shall commence participation in the Purchaser Plans.
Seller shall take all necessary actions to fully vest the Transferred Employees
in their account balances under the Philips Electronics North America
Corporation Employee Savings Plan ("Seller's 401(k) Plan") or any other
qualified profit-sharing plan maintained by Seller. Purchaser shall take all
steps necessary to permit each such Transferred Employee who has received an
eligible rollover distribution (as defined in Section 402(c)(4) of the Code)
from Seller's 401(k) Plan, if any, to roll such eligible rollover distribution
as part of any lump sum distribution to the extent permitted by Seller's 401(k)
Plan into an account under Purchaser's Employee Savings Plan ("Purchaser's
401(k) Plan"). With regard to Transferred Employees who are not U.S. Employees,
in the event of any conflict between the terms of the Actuarial Memorandum and
the terms of this Section 5.9, the terms of the Actuarial Memorandum shall
prevail.
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(g) With respect to any plan that is a "welfare benefit plan" (as
defined in Section 3(1) of ERISA) maintained by Purchaser, Purchaser shall (i)
cause there to be waived any pre-existing condition and waiting periods and (ii)
if the Closing Date occurs after February 15, 2003, give effect, in determining
any deductible and maximum out-of-pocket limitations, to claims incurred and
amounts paid by, and amounts reimbursed to, U.S. Employees with respect to
similar plans maintained by Seller and its Affiliates immediately prior to the
Closing Date.
(h) U.S. Employees shall be given credit for all service with Seller
or any of its Affiliates, to the same extent as such service was credited for
such purpose by Seller, under each Purchaser Plan in which such U.S. Employees
are eligible to participate for purposes of eligibility, vesting and benefit
accrual (other than under a defined benefit pension plan in which no assets are
transferred pursuant to this Agreement).
(i) With respect to any accrued but unused vacation time (including
flexible time-off and sick pay accrued under the applicable vacation policy) to
which any Transferred Employee is entitled pursuant to the vacation policy
applicable to such Transferred Employee immediately prior to the Closing Date,
Purchaser shall assume the liability for such accrued vacation and allow such
Transferred Employee to use such accrued vacation or pay such accrued vacation
to the Transferred Employee immediately following the Closing Date (to the
extent required by applicable law).
(j) Seller agrees to provide any required notice under the Worker
Adjustment and Retraining Notification Act ("WARN") and any other applicable
U.S. Law and to otherwise comply with any such statute with respect to any
"plant closing" or "mass layoff" (as defined in WARN) or similar event affecting
U.S. Employees and occurring on or prior to the Closing (other than employment
terminations and other events resulting from the affirmative action of Purchaser
or its Affiliates). Purchaser shall indemnify and hold harmless Seller and the
Local Sellers with respect to any liability under WARN or other applicable law
arising from the actions (or inactions) of Purchaser or its Affiliates after the
Closing Date.
(k) (i) Purchaser shall indemnify and hold harmless Seller and the
Local Sellers with respect to any liability under COBRA or other applicable U.S.
law arising from the actions (or inactions) of Purchaser or its Affiliates after
the Closing Date. Seller shall retain all liabilities, including with respect to
any Qualifying Event (as defined in Treasury Regulation section 54.4980B-4,
Q&A-1), under COBRA incurred on or prior to the Closing Date or arising as a
result of the transactions contemplated hereby. Notwithstanding the immediately
preceding sentence, to the extent required by Treasury Regulation section
54.4980B-9, Q&A-8(c), Purchaser shall perform all obligations under COBRA and
the foregoing provisions of the Code and ERISA with respect to each employee of
Seller who is an "M&A qualified beneficiary" with respect to
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the transactions contemplated by this Agreement, as such term is defined by
Treasury Regulation section 54.4980B-9, Q&A-4.
(l) To the extent Legally Required, as of the Closing Date, the
liabilities of the Versorgungswerk der Deutschen Philips Unternehmen (the
"Versorgungswerk Plan") in respect of the Transferred Employees who are not U.S.
Employees (the "Retirement Plan Liabilities") shall be assumed by Purchaser or
an Affiliate of Purchaser. To the extent such Retirement Plan Liabilities are so
assumed then, at the option of the Purchaser (i) to the extent permitted by
applicable Law, assets from the Versorgungswerk Plan equal to the value of the
Retirement Plan Liabilities with respect to services performed through the
Closing Date by the Transferred Employees who are not U.S. Employees and are
members of the Versorgungswerk Plan (such value to be referred to as "Asset
Transfer Value") shall be transferred by Seller within one month after the
Closing Date (unless an alternative time is agreed to by Seller and Purchaser)
to a trust, insurance arrangement or similar vehicle (whichever is allowed by
Law), in form and substance and with such terms and conditions as are acceptable
to Purchaser or (ii) Purchaser may become a participating employer, as of the
Closing Date, in the Versorgungswerk Plan. The actuarial assumptions to
calculate the Asset Transfer Value shall be reasonably determined by Seller and
Purchaser prior to the Closing Date pursuant to applicable Laws and applicable
actuarial standards. To the extent Seller and Purchaser cannot agree on the
actuarial assumptions to calculate the Asset Transfer Value then the parties
shall engage a third party actuary to make such a determination prior to the
Closing Date. Seller shall take all actions necessary to accomplish the
foregoing, including but not limited to taking any appropriate board action.
(ii) In case of any pension plan covering Transferred
Employees that is set forth in Schedule in the Actuarial Memorandum
which is funded by way of a book reserve, the liability value
relating to the employment of the Transferred Employees covered by
such pension plans shall be transferred as provided in Section 2.3.
(m) If requested by Purchaser, Seller shall provide to Purchaser,
with respect to each Transferred Employee that is a U.S. Employee, such
employee's name, position held, annual base salary, annual target incentive
compensation and date of hire. Upon the reasonable good faith request of
Purchaser, Seller shall provide Purchaser with other reasonable information
necessary to comply with the terms of this Section 5.9.
Section 5.10 Employee Consultation. Seller and Purchaser shall, and
shall cause their respective Affiliates to, comply with all obligations either
under the Transfer Regulations or other national laws to provide information to
the other party for
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onward transmission to Transferred Employees or employee representatives and/or
to provide such information directly to Transferred Employees or employee
representatives. Seller and Purchaser shall indemnify each other against all
Losses resulting from any failure to provide such information in a timely
manner. Purchaser shall accept and be responsible for the outcome of any
consultation procedures under applicable codetermination legislation applicable
in member countries of the European Union.
Section 5.11 Insurance Matters. Purchaser acknowledges that the
policies and insurance coverage maintained on behalf of the Business are part of
the corporate insurance program maintained by Seller (the "Seller Corporate
Policies"), and such coverage will not be available or transferred to Purchaser
or any of its Affiliates. In furtherance and not in limitation of the foregoing,
Purchaser agrees not to and to cause each of its Affiliate not to bring any
claim for recovery under any of the Seller Corporate Policies, whether or not
such Person may be so entitled in accordance with the terms of such Seller
Corporate Policies. Furthermore, Purchaser agrees that if at any time in the
future it shall sell, directly or indirectly, the shares of capital stock of any
entity into which it transfers the assets or liabilities of the Business, it
shall use reasonable efforts to obtain the express agreement of the direct or
indirect purchaser of such entity to the matters set forth in this Section 5.11.
Section 5.12 Names Following Closings.
(a) Purchaser acknowledges that the PHILIPS name, marks and logos
(collectively, the "Retained Trademarks") are and shall remain the property of
Seller and that, except as otherwise set forth in this Section 5.12, nothing in
this Agreement or any Ancillary Agreement shall transfer or license or shall
operate as an agreement to transfer or license any right, title or interest in
the Retained Trademarks to Purchaser or any Affiliate of Purchaser.
(b) Except as set forth in Section 5.12(c), Purchaser agrees that it
shall not, and shall cause its Affiliates and, following the Closing, the
Transferred Subsidiary not to use any trademarks or business or corporate names
or logos of Philips or consisting of or incorporating the Retained Trademarks,
or any trademark or business or corporate name or logo confusingly similar to
the foregoing in relation to any goods or services or in the conduct of their
respective businesses from time to time.
(c) For the shorter of (i) the 6 month period immediately following
the Closing Date or (ii) until all existing product inventories whose Retained
Trademarks cannot be permanently masked over have been depleted, the Transferred
Subsidiary shall have the right to use (i) the Retained Trademarks, but only to
the extent and only in the manner used by Seller in the conduct of the Business
immediately prior to the Closing Date, and to the extent used on printed
materials, only on such materials prepared by Seller in the conduct of the
Business prior to the Closing Date; and (ii) on-hand product boxes and related
materials bearing the Retained Trademarks, as printed and as used immediately
prior to the Closing Date; provided, however, that any goods or services
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provided in connection with the Retained Trademarks shall be of similar quality
as those provided historically in connection with the Retained Trademarks. No
later than the expiration of such period, Purchaser and the Transferred
Subsidiary must (A) permanently cease all uses of the Retained Trademarks and
all derivations thereof or designations confusingly similar to the Retained
Trademarks, including without limitation on letterhead and signage, in telephone
listings, advertising and trade directories, and in connection with governmental
permits, provided that non-promotional uses of the Retained Trademarks for
historical reference as required by law shall be permitted. No later than 7
months after the Closing Date, Purchaser shall certify that it and the
Transferred Subsidiary have complied with the foregoing provisions of this
Section 5.12. Except as otherwise provided in this Section 5.12, neither
Purchaser nor the Transferred Subsidiary will or will assist others to (x) use
or claim ownership of any trademarks, service marks or trade names owned or
legitimately claimed by Seller as of the Closing Date (including without
limitation the Retained Trademarks), or derivatives thereof, or designations
confusingly similar to the foregoing; (y) file, maintain or acquire
registrations or applications for registration for any of the foregoing
designations, whether as trademarks, Internet domain names, or otherwise; or (z)
challenge, oppose, or move to cancel or expunge Seller's interest in such
designations or any associated registrations and applications for registration.
Seller may prior to the Closing cause the Transferred Subsidiary to change their
respective corporate names, if necessary, to a name that does not include the
Philips name or any name intended or likely to be confused or associated with
the Philips name.
Section 5.13 Intracompany Debt; Special Dividend. At or prior to the
Closing, Seller shall cause any and all intracompany debt to be repaid in full
and extinguished, such that no indebtedness to Seller or its Affiliates by the
Transferred Subsidiary or Purchaser or its Affiliates shall exist after the
Closing. Notwithstanding anything to the contrary contained in this Agreement
and subject to applicable law, immediately prior to the Closing the Transferred
Subsidiary may declare and pay to holders of its capital stock a special
dividend equal to all or a portion of the unrestricted cash or cash equivalents
held by the Transferred Subsidiary immediately prior to the Closing. If for any
reason, the Transferred Subsidiary may not transfer to Seller any portion of the
cash and cash equivalents held by the Transferred Subsidiary immediately prior
to the Closing, then, as soon as practicable after the Closing, Purchaser shall
pay to Seller in immediately available funds an amount equal to all the cash and
cash equivalents held by the Transferred Subsidiary immediately after the
Closing.
Section 5.14 Sales to Seller and Affiliates. Seller shall, or shall
cause its Affiliates to, purchase or license speech and language products on an
arm's length basis from Purchaser for a period ending on December 31, 2003 for
the total aggregate amount of euro 2 million. Purchaser shall sell or license
such products to Seller or its Affiliates at the prices and on the terms at
least as favorable to Seller and its Affiliates as the best prices and terms
offered by Purchaser to any Person in transactions comparable in scope and
volume. For purposes of this Section 5.14 if an Affiliate of Seller is deemed to
be an Affiliate of Seller at some moment during such period ending on December
31, 2003,
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such Affiliate of Seller shall be deemed to be an Affiliate of Seller during the
entire such period. Seller's obligations under this Section 5.14 shall be
automatically discharged in full if Purchaser is unable to timely fulfill its
license and product delivery obligations in a manner reasonably satisfactory to
Seller.
Section 5.15 German Labor Costs; German Lease.
(a) The employees of the Business, with either primary place of
employment in Germany or with their employment relationship governed by German
law (the "German Employees") shall be noted as such on Schedule 5.10.
Immediately after the execution of this Agreement, Seller shall establish a
non-cash reserve account with the initial notional reserve amount of euro
5,000,000 (the "German Liability Reserve Account") that will be used solely to
account for any and all liabilities and obligations of Purchaser, Purchaser's
Affiliates, Seller or Seller's Affiliates that are paid or accrued during the
German Liability Period with respect to: (i) severance payments and all other
claims and costs (including accrued vacation) arising out of or related to the
employment relationship and/or its termination incurred prior to or by
termination of the respective employment relationship, (ii) severance payments
and all other claims and costs (including accrued vacation) arising out of or
related to the employment relationship and/or its termination incurred prior to
or by termination of the respective employment agreement with respect to those
German Employees who elect not to transfer to Purchaser or one of its
Affiliates, (iii) severance payments and all other claims and costs (including
accrued vacation) arising out of or related to the employment relationship
and/or its termination incurred prior to or by termination of the respective
employment relationship with respect to those German Employees who resign from
employment with Purchaser or one of its Affiliates, (iv) severance payments and
all other claims and costs (including accrued vacation) arising out of or
related to the employment relationship incurred prior to or by termination of
the respective employment relationship and/or its termination post-Closing
compensation with respect to those German Employees who are identified by
Purchaser on the earlier of (A) 15th day after reaching agreement with the works
counsel, or (B) 90th day after, the Closing Date as being redundant and targeted
for termination prior to the end of the German Liability Period, (v) severance
payments and all other claims and costs (including accrued vacation) arising out
of or related to the employment relationship and/or its termination incurred
prior to or by termination of the respective employment relationship with
respect to those German Employees that are "involuntarily terminated," as
reasonably determined by Purchaser, (vi) up to euro 450,000 of the costs and
expenses associated with the termination or restructuring of the Aachen Lease as
provided in Section 5.18, and (vii) all reasonable legal fees associated with
the above referenced actions; collectively, (i) through (vi) shall be referred
to as the "German Indemnified Liabilities"; provided, however, that the "German
Indemnified Liabilities" shall not include either (A) any severance payments or
other claims or costs (including accrued vacation) related to the employment
relationship and/or its termination incurred at any time in connection with the
respective employment relationship with respect to any German Employees whose
employment terminates subsequent to the termination of employment of 60% of the
German Employees employed by Seller or its
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Affiliates as of the date of this Agreement, or (B) any expenses or other claims
and costs arising out of or related to the employment relationship and/or its
termination of any German Employee who (i) has been intentionally mislead by
Seller as to the Restructuring and the transfer of the Transferred Shares to
Purchaser, and (ii) objects to the transfer to the Transferred Subsidiary after
the one month period following the initial dissemination of information pursuant
section 613a of German Civil Code.
(b) Seller shall pay directly any costs and expenses it incurs with
respect to German Indemnified Liabilities. Within five (5) Business Days after
the end of each month (beginning with the first full month following the date
hereof), Seller shall deliver to Purchaser a statement which shall set forth in
detail the total costs and expenses incurred by Seller in connection with the
German Indemnified Liabilities for the preceding month (the "Monthly Seller
Labor Costs Statement"). Purchaser shall, within five (5) Business Days of
receipt of each Monthly Seller Labor Costs Statement, raise any objections to
the amounts set forth in such statement it may have and deliver a written
description thereof to Seller. If Purchaser does not deliver an objection to
Seller within such five (5) Business Day period, the Monthly Seller Labor Costs
Statement so delivered shall be final, binding and conclusive on both Seller and
Purchaser with respect to the liabilities of the month in question. Within three
(3) Business Days after the applicable Monthly Seller Labor Costs Statement
becomes final and conclusive (either by agreement between Purchaser and Seller
or by determination of the arbitrator as provided in subparagraph (d) below),
the outstanding balance in the German Liability Reserve Account shall be reduced
by the amount of costs and expenses incurred during such month in connection
with the German Indemnified Liabilities as set forth in the applicable final
Monthly Seller Labor Costs Statement.
(c) Purchaser shall pay directly any costs or expenses it incurs
with respect to German Indemnified Liabilities. Within five (5) Business Days
after the end of each month (beginning with the first full month following the
date hereof) Purchaser shall deliver to Seller a statement which shall set forth
in detail the total costs and expenses incurred by Purchaser in connection with
the German Indemnified Liabilities for the preceding month (the "Monthly
Purchaser Labor Costs Statement", and with the Monthly Seller Labor Costs
Statement, the "Costs Statements"). Seller shall, within five (5) Business Days
of receipt of each Monthly Purchaser Labor Costs Statement, raise any objections
to the amounts set forth in such statement it may have and deliver a written
description thereof to Purchaser. If Seller does not deliver an objection to
Purchaser within such five (5) Business Day period, the Monthly Purchaser Labor
Costs Statement so delivered shall be final, binding and conclusive on both
Seller and Purchaser with respect to the liabilities of the month in question.
Within three (3) Business Days after the applicable Monthly Purchaser Labor
Costs Statement becomes final and conclusive (either by agreement between
Purchaser and Seller or by determination of the arbitrator as provided in
subparagraph (d) below), to the extent of the outstanding balance in the German
Liability Reserve Account, Seller shall pay Purchaser by cash or wire transfer
an amount equal to the costs and expenses incurred in connection with the German
Indemnified Liabilities as set forth in the applicable final Monthly Purchaser
Labor Costs
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Statement and such amount shall reduce the outstanding balance in the German
Liability Reserve Account. If it is agreed between Purchaser and Seller, or
finally determined by the arbitrator as provided in subparagraph (d) below, that
the costs and expenses reflected as incurred in such month under the Monthly
Purchaser Labor Costs Statement must be reduced, Purchaser shall be solely
responsible for such costs and shall not be entitled to any payments from Seller
with respect to such costs.
(d) If either Purchaser or Seller shall deliver a written objection
to the Costs Statement delivered by the other for any particular month, the
delivering party shall have five (5) Business Days to review and respond to such
objection. If Seller and Purchaser are unable to resolve all of their
disagreements within five (5) Business Days of such review of the objection,
Seller or Purchaser or both may refer their remaining differences to an
arbitrator to resolve, such arbitrator to be mutually acceptable to Purchaser
and Seller. Such arbitrator's decision shall be final, binding and conclusive
upon Purchaser and Seller. The fees and disbursements of the arbitrator shall be
shared by Purchaser and Seller in proportion to the difference between
Purchaser's and Seller's aggregate respective proposed positions and the
ultimate determination made by the arbitrator.
(e) In the event the German Indemnified Liabilities shall in the
aggregate exceed euro 5,000,000, Seller and Purchaser shall continue to pay such
costs as incurred and prepare and deliver Costs Statements on a monthly basis as
contemplated above. Upon agreement or final arbitration of the applicable Costs
Statement as contemplated above, Seller shall bear, be responsible for and
reimburse Purchaser, within three (3) Business Days, one-third of such excess
costs as set forth on the applicable final Monthly Purchaser Labor Costs
Statement, and Purchaser shall bear, be responsible for and reimburse Seller,
within three (3) Business Days, two-thirds of such excess costs as set forth on
the applicable final Monthly Seller Labor Costs Statement.
(f) Any costs or expenses for German Indemnified Liabilities
incurred after the German Liability Period that were not accrued during the
German Liability Period shall be the sole responsibility of the party incurring
such costs (except to the extent otherwise recoverable under Article VII
herein), and the incurring party shall indemnify and hold harmless the
non-incurring party for the full amount of such costs and expenses.
(g) Notwithstanding anything else in this Section 5.15 or Section
2.3(g) hereof to the contrary, consent of the other Party shall be required if,
at any time, either Party proposes or expects to incur or accrue any German
Indemnified Liability in a non-customary or extraordinary amount.
(h) For purposes of this Section 5.15 and Section 2.3(g) hereof, a
cost or expense shall be deemed "accrued" only if the exact cash amount of all
future payments in satisfaction of the respective German Indemnified Liability
is conclusively determined during the German Liability Period, and with respect
to German Employees,
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is conclusively determined during the German Liability Period in accordance with
the local termination and severance practices.
Section 5.16 Comverse. On the closing Date, Seller shall have no
less than 175 fully functional and operational VPRO boards in inventory and
otherwise suitable for sale to Comverse Technologies, Inc. ("Comverse"). Seller
shall indemnify and hold Purchaser harmless for one-half of any costs arising
out of or attributable to warranty claims on VPRO boards sold to Comverse
described on Schedule 3.8 which are incurred after depletion of the
aforementioned 175 units in inventory; provided that Seller shall indemnify and
hold Purchaser harmless for all of such costs if and to the extent less than 175
fully functional and operational VPRO boards are in inventory on the Closing
Date (the "Comverse Liabilities").
Section 5.17 Restructuring. The Parties agree to cooperate in good
faith as promptly as practicable after the date hereof to determine and
implement the specific procedures and actions to be taken to effect the
Restructuring, or a mutually acceptable alternative thereto, in compliance with
applicable laws and regulations with the view to minimizing any adverse effects
on Seller and Purchaser. Purchaser shall be responsible for one half, and Seller
shall be responsible for the other half, of all the out-of-pocket costs and
expenses related to, arising out of, or incurred in connection with, the
Restructuring (but not for the capital contribution itself or for the ordinary
course operations of the Business in Germany prior to Closing). It is agreed and
understood that any cash or capital contribution by Seller or its Affiliates to
the Transferred Subsidiary shall require the consent of Purchaser, not to be
unreasonably withheld.
Section 5.18 Aachen Lease. Seller and Purchaser shall cooperate in
good faith with respect to the restructuring or termination of the Aachen Lease
in order to minimize any and all adverse consequences to Seller and Purchaser.
Purchaser shall indemnify and hold Seller harmless against all costs associated
with such restructuring or termination to the extent such costs are not German
Indemnified Liabilities as provided in Section 5.15.
Section 5.19 Intellectual Property Deliveries. Seller covenants that
it will deliver to Purchaser all documents reasonably necessary for Seller to be
able to record the transfer of the A-Patents (including any foreign equivalents)
and all Registered Trademarks to be transferred pursuant to the Trademark
Transfer Agreement in the U.S., E.U., Canada, Mexico and Japan (to the extent so
Registered) on or before the Closing Date and with respect to Trademarks
Registered in other jurisdictions, Seller shall use its best efforts to do so
prior to Closing but if necessary as promptly as possible following Closing.
Seller further covenants to thereafter provide such assistance (including
without limitation the execution of further documents) as Purchaser reasonably
requires in order make such recordations and any other recordation necessary to
effect Purchaser's rights to any intellectual property granted under any of the
Ancillary Agreements.
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ARTICLE VI
CONDITIONS TO CLOSING
Section 6.1 Conditions to the Obligations of Purchaser and Seller.
The obligations of the Parties to effect the Closing are subject to the
reasonable satisfaction (or written waiver) prior to the Closing of the
following conditions:
(a) Competition Laws. All required filings under any applicable
Competition Laws shall have been made and any required waiting period under such
laws applicable to the transactions contemplated hereby shall have expired or
been earlier terminated and approval shall have been obtained, except those that
the failure to make or to obtain are not, individually or in the aggregate,
reasonably likely to have a Material Adverse Effect.
(b) No Injunctions. No court or governmental authority of competent
jurisdiction shall have enacted, issued, promulgated, enforced or entered any
statute, rule, regulation, or nonappealable judgment, decree, injunction or
other order (collectively, "Order") which is in effect on the Closing Date and
prohibits the consummation of the transactions contemplated hereby or by the
Ancillary Agreements.
Section 6.2 Conditions to the Obligations of Purchaser. The
obligation of Purchaser to effect the Closing is subject to the satisfaction (or
written waiver) prior to the Closing, of the following conditions:
(a) Representations and Warranties. The representations and
warranties of Seller contained herein shall be true and correct in all material
respects (other than those representations and warranties that are qualified by
"Material Adverse Effect" or similar materiality qualifier, which
representations and warranties shall be true and correct in all respects) both
as of the date of this Agreement and as of the Closing, as if made as of the
Closing (except that representations and warranties that are made as of a
specific date need be true and correct only as of such date), and Purchaser
shall have received certificates to such effect dated the Closing Date and
executed by a duly authorized officer of Seller; provided, however, that
notwithstanding anything herein to the contrary, this Section 6.2(a) shall be
deemed to have been satisfied even if such representations or warranties are not
so true and correct unless the failure of such representations or warranties to
be so true and correct, individually or in the aggregate, has had, or is
reasonably likely to have, a Material Adverse Effect or is reasonably likely to
prevent or to materially burden or materially impair the ability of Seller to
consummate the transactions contemplated by this Agreement.
(b) Covenants. The material covenants and agreements of Seller and
its Affiliates to be performed on or prior to the Closing shall have been duly
performed by the Closing in all material respects, and Purchaser shall have
received certificates to such effect dated the Closing Date and executed by a
duly authorized officer of Seller.
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(c) Local Asset Transfer Agreements. Seller shall have executed and
delivered or caused the Local Sellers to execute and deliver, all Local Asset
Transfer Agreements that Seller and Purchaser have agreed to execute and deliver
pursuant to Section 2.1(c) of this Agreement.
(d) Ancillary Agreements. Seller shall have executed and delivered,
and shall have caused the appropriate Local Sellers to execute and deliver, the
Ancillary Agreements in substantially the forms attached hereto.
(e) Plan of Distribution Agreement and Contract Research Agreement.
Seller shall have executed and delivered to Purchaser the Plan of Distribution
Agreement and the Contract Research Agreement, both substantially in the forms
attached hereto.
(f) Financial Statements. Seller shall have delivered to Purchaser
the Audited Financial Statements and such other financial statements (audited,
if required) and other information to the extent required by the Exchange Act
and the rules and regulations promulgated thereunder to be included in the
Current Report on Form 8-K (including any amendments or supplements thereto) or
other filings required to be made by Purchaser in connection with the Purchase.
(g) No Material Adverse Effect. There shall not have occurred a
Material Adverse Change.
Section 6.3 Conditions to the Obligations of Seller. The obligation
of Seller to effect the Closing is subject to the satisfaction (or written
waiver) prior to the Closing of the following conditions:
(a) Representations and Warranties. The representations and
warranties of Purchaser contained herein shall be true and correct in all
material respects (other than those representations and warranties that are
qualified by "Purchaser Material Adverse Effect" or similar materiality
qualifier, which representations and warranties shall be true and correct in all
respects) both as of the date of this Agreement and as of the Closing, as if
made as of the Closing (except that representations and warranties that are made
as of a specific date need be true and correct only as of such date), and Seller
shall have received a certificate to such effect dated the Closing Date and
executed by a duly authorized officer of Purchaser; provided, however, that
notwithstanding anything herein to the contrary, this Section 6.3(a) shall be
deemed to have been satisfied even if such representations or warranties are not
so true and correct unless the failure of such representations or warranties to
be so true and correct is reasonably likely to prevent or to materially burden
or materially impair the ability of Purchaser to consummate the transactions
contemplated by this Agreement.
(b) Covenants. The material covenants and agreements of Purchaser to
be performed on or prior to the Closing shall have been duly performed by the
Closing in all material respects, and Seller shall have received a certificate
to such effect dated the Closing Date and executed by a duly authorized officer
of Purchaser.
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(c) Local Asset Transfer Agreements. Purchaser shall have executed
and delivered or caused its relevant Affiliates to execute and deliver, all
Local Asset Transfer Agreements that Seller and Purchaser have agreed to execute
and deliver pursuant to Section 2.1(c) of this Agreement.
(d) Ancillary Agreements. Purchaser shall have executed and
delivered or caused its relevant Affiliates to execute and deliver the Ancillary
Agreements in substantially the forms attached hereto.
(e) Note, Convertible Debenture, Plan of Distribution Agreement and
Contract Research Agreement. Purchaser shall have executed and delivered to
Seller the Note, the Convertible Debenture, the Plan of Distribution Agreement
and the Contract Research Agreement, all substantially in the forms attached
hereto.
(f) No Purchaser Material Adverse Effect. There shall not have
occurred a Purchaser Material Adverse Change.
ARTICLE VII
SURVIVAL; INDEMNIFICATION
Section 7.1 Survival. (a) All of the representations and warranties
of Seller and Purchaser contained in this Agreement or the Ancillary Agreements
and all claims and causes of action with respect thereto shall terminate
eighteen (18) months after the Closing Date, except that (i) the representations
and warranties in Section 3.1, Section 3.2, Section 3.3, Section 4.1, Section
4.2, Section 4.3 and Section 4.4 shall have no expiration date, (ii) the
representations and warranties in Section 3.9 and Section 4.9 shall survive
until the applicable statute of limitations has run for any such pre-Closing tax
period, and (iii) the representations and warranties in Section 3.10, Section
3.11, Section 4.10 and Section 4.11 shall survive until the applicable statute
of limitations has run.
(b) Any claim for a breach of any covenants or agreements of either
Purchaser or Seller hereunder or under any of the Ancillary Agreements, must be
made by the earlier of (i) 9 months after the date on which the Party making the
claim becomes aware or should reasonably have become aware of the breach for
which indemnification is sought and (ii) unless any covenant or agreement by its
express terms survives for a different period of time, 3 years after the
Closing, except in the case of a claim relating to Taxes under Section 5.4(e)
hereof, in which case such claim must only be made within 60 days after the
expiration of the applicable statute of limitations (or extensions or waivers
thereof) in relation to the Taxes for which an indemnity is sought.
(c) It is understood that in the event notice of any claim for
indemnification under this Agreement or the Ancillary Agreements shall have been
given (in accordance with Section 9.1) within the applicable survival period,
the claims and rights to indemnification relating to such breaches of
representations and warranties, covenants or agreements that are the subject of
such indemnification claim shall survive
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until such time as such claim is finally resolved; provided that the Party
making such claim is diligently pursuing it throughout.
Section 7.2 Indemnification by Purchaser. Purchaser hereby agrees
that it shall indemnify, defend and hold harmless Seller, the Local Sellers and
their Affiliates and if applicable, Seller's and each Local Seller's successors
and permitted assigns and (if no Closing occurs) the Transferred Subsidiary (the
"Seller Indemnified Parties") from, against and in respect of any direct
damages, losses, charges, deficiencies, interest, penalties, and reasonable
costs and expenses (including without limitation reasonable attorneys' fees
(except with respect to any litigation between an Indemnifying Party and an
Indemnified Party (each as defined below), to the extent the Indemnifying Party
is the prevailing party therein)), and excluding any indirect, special,
incidental or consequential damages, in any of such cases, whether or not
foreseeable (such as, without limitation, punitive damages, loss of anticipated
profits, prospective profits or savings) (collectively, "Losses") asserted
against and imposed on or sustained, incurred or suffered by any of the Seller
Indemnified Parties in any such case to the extent arising out of, or resulting
from or relating to (i) any matter constituting a breach of any representation
or warranty made by Purchaser or the Local Purchasers contained in this
Agreement or any of the Ancillary Agreements; (ii) the breach of any covenant or
agreement of Purchaser contained in this Agreement or of Purchaser and the Local
Purchasers contained in the Ancillary Agreements; (iii) Purchaser's or the Local
Purchasers' actions or omissions with respect to any assets, contract, agreement
or arrangement under which Purchaser or the Local Purchasers has or have been
provided benefits or been granted rights (whether or not exercised) by Seller in
accordance with Section 5.4(i); (iv) the breach by Purchaser or the Local
Purchasers of Section 2.1(b); (v) Purchaser's failure to comply with, any
applicable bulk sales or bulk transfer or similar Laws of any jurisdiction that
may be applicable to the sales or transfer of any of the Assets to Purchaser,
(vi) any claim, demand or liability for Taxes imposed on Seller or its
Affiliates for which Purchaser or its Affiliates are responsible pursuant to
this Agreement; and (vii) Assumed Liabilities, except to the extent such Assumed
Liability resulted from or constitutes a breach of a Seller's representation or
warranty hereunder. Seller shall not be entitled to recover twice for the same
Loss. Any claim of whatsoever nature arising out of or in connection with this
Agreement or the Ancillary Agreement of any Seller Indemnified Party shall only
be enforceable by Seller for itself or as agent for the relevant Seller
Indemnified Party, as applicable, upon the terms of this Agreement.
Section 7.3 Indemnification by Seller. Seller hereby agrees that it
shall indemnify, defend and hold harmless Purchaser and its Affiliates and, if
applicable, Purchaser's successors and permitted assigns (the "Purchaser
Indemnified Parties") from, against and in respect of any Losses asserted
against and imposed on or sustained, incurred or suffered by any of the
Purchaser Indemnified Parties in any such case to the extent arising out of, or
resulting from or relating to (i) any matter constituting a breach of any
representation or warranty made by Seller or any of its Affiliates contained in
this Agreement or any of the Ancillary Agreements, notwithstanding that such
breach may otherwise constitute an Assumed Liability hereunder; (ii) the breach
of any covenant or
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agreement of Seller or any of its Affiliates contained in this Agreement or any
of the Ancillary Agreements; (iii) Seller's failure to comply with, any
applicable bulk sales or bulk transfer or similar Laws of any jurisdiction that
may be applicable to the sales or transfer of any of the Assets to Purchaser;
(iv) any claim, demand or liability for Taxes imposed on Purchaser or its
Affiliates for which Seller or its Affiliates are responsible pursuant to this
Agreement; (v) the Comverse Liabilities; and (vi) Excluded Liabilities.
Purchaser shall not be entitled to recover twice for the same Loss. Any claim of
whatsoever nature arising out of or in connection with this Agreement or the
Ancillary Agreement of any Purchaser Indemnified Party shall only be enforceable
by Purchaser for itself or as agent for the relevant Purchaser Indemnified
Party, as applicable, upon the terms of this Agreement.
Section 7.4 Third Party Claim Indemnification Procedures. With
respect to third party claims, all claims for indemnification by any Person that
may be entitled to indemnification hereunder (an "Indemnified Party") shall be
asserted and resolved as set forth in this Section 7.4. In the event that any
written claim or demand for which a Party may be required to pay an indemnity
hereunder (such Party, an "Indemnifying Party") is asserted against or sought to
be collected from any Indemnified Party by a third party, such Indemnified Party
shall promptly, but in no event more than 20 Business Days following such
Indemnified Party's receipt of such claim or demand or knowledge thereof, notify
the Indemnifying Party of such claim or demand and the amount or the estimated
amount thereof to the extent then feasible (which estimate shall not be
conclusive of the final amount of such claim and demand) (the "Claim Notice"),
but failure to give such notice timely shall not relieve the Indemnifying Party
of any liabilities hereunder unless and to the extent the Indemnifying Party has
suffered prejudice by such failure. The Indemnifying Party shall have 30
Business Days from its receipt of the Claim Notice (the "Notice Period") to
notify the Indemnified Party (a) whether or not the Indemnifying Party disputes
the liability of the Indemnifying Party to the Indemnified Party hereunder with
respect to such claim or demand and (b) whether or not it will defend the
Indemnified Party against such claim or demand. All costs and expenses incurred
by the Indemnifying Party in defending such claim or demand shall be a liability
of, and shall be paid by, the Indemnifying Party; provided, however, that the
amount of such costs and expenses that shall be a liability of the Indemnifying
Party hereunder shall be subject to the limitations set forth in this Article
VII. Except as hereinafter provided, in the event that the Indemnifying Party
notifies the Indemnified Party within the Notice Period that it will defend the
Indemnified Party against such claim or demand, the Indemnifying Party shall
have the right to defend the Indemnified Party by appropriate proceedings and
shall have the power to direct and control such defense, through counsel
reasonably acceptable to the Indemnified Party; provided, however, the
Indemnifying Party shall possess such right to assume the defense of such
Third-Party Claim to the extent that the demand for money damages is less than
the remaining limitations set forth in Section 7.8. If any Indemnified Party or
Indemnifying Party, as the case may be, desires to participate in any such
defense it may do so, provided that it shall comply with reasonable instructions
from the Indemnifying Party or the Indemnified Party, as the case may be, and at
its sole cost and expense. The
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Indemnifying Party, if it has assumed the defense of any third party claim as
provided in this Agreement, shall not consent or otherwise agree to a compromise
or settlement of, or the entry of any judgment arising from, any such third
party claim without the prior written consent of the Indemnified Party, which
shall not be unreasonably withheld. Any compromise or settlement shall provide
for a complete written release by such third party of the Indemnified Party. The
Indemnified Party shall have the sole and exclusive right to settle any third
party claim, on such terms and conditions as it deems reasonably appropriate, to
the extent such third party claim involves equitable or other non-monetary
relief against the Indemnified Party, and shall have the right to settle any
third party claim involving money damages for which the Indemnifying Party has
not assumed the defense pursuant to this Section 7.4 with the written consent of
the Indemnifying Party, which consent shall not be unreasonably withheld or
delayed. To the extent the Indemnifying Party shall direct, control or
participate in the defense or settlement of any third party claim or demand, the
Indemnified Party will give the Indemnifying Party and its counsel access to,
during normal business hours, the relevant business records and other documents,
and shall permit them to consult with the employees and counsel of the
Indemnified Party. Regardless of which Person assumes control of the defense of
any claim, each Party shall cooperate and provide the other Party reasonable
assistance in the defense thereof, including, but not limited to, by providing
the other party with reasonable access to employees and officers (including as
witnesses) and other information.
Section 7.5 Computation of Losses Subject to Indemnification. Losses
for which an Indemnified Party would be entitled to indemnification hereunder
shall be determined net of: (i) any insurance proceeds actually recovered by
such Indemnified Party, provided, however, that the Indemnified Party shall not
be required to submit an insurance claim; (ii) indemnity payments to which such
party or its Affiliates receives from parties other than the Indemnifying Party
hereunder in respect of such matter; (iii) reserves reflected in the Final
Statement of Net Assets or adjustments to the Purchase Price which relate to the
Loss being determined hereunder; and (iv) any other economic benefit, cost of
offset (including any Tax savings, benefits of Tax losses and deferrals, and the
Tax offset of the receipt of any indemnification or insurance payments) realized
by such party or its Affiliates by the receipt of cash, cash equivalents or
other customarily quantifiable property by such party in respect of such matter,
or any other direct demonstrable economic gain, except that with respect to
Losses in the nature of additional Taxes, (a) such economic benefit need not be
in the form of cash, cash equivalents or customarily quantifiable property, and
(b) with respect to adjustments relating to the timing of Tax deductions and
similar items, such losses shall be limited to the time value of the Loss.
Notwithstanding anything to the contrary, Losses shall not include any damages
to the extent attributable to a failure to mitigate damages after the
Indemnified Party or its Affiliates became aware of the event or omissions which
caused such damages (it being understood that the concept of mitigation of
damages shall be applied with regard to what is commercially reasonable under
the circumstances). Notwithstanding anything in this Section 7.5, in no event
shall an Indemnifying Party be
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required to pay more than 100% of the gross Losses of an Indemnified Party under
this Agreement.
Section 7.6 Seller Employee Indemnity. Subject to Section 5.15
hereof, in addition to any other indemnification provided for in this Agreement,
Seller shall indemnify and keep indemnified the Purchaser Indemnified Parties
against all Losses asserted against and imposed on or sustained, incurred or
suffered by any of the Purchaser Indemnified Parties, arising out of or in
connection with any Plan covering Transferred Employees (except to the extent
liability under such Plan has been assumed by Purchaser) or any claim by a
Transferred Employee (whether in contract or in tort or under statute for any
remedy including for breach of contract, unfair dismissal, redundancy, statutory
redundancy, equal pay, sex, race or disability discrimination, unlawful
deductions from wages or for breach of statutory duty or of any nature) as a
result of anything done or omitted to be done by Seller or its Affiliate prior
to the Closing except to the extent that any such Losses are reflected in the
Final Statement of Net Assets. Any claim for indemnification under this Section
7.6 must be made within 12 months of the Closing Date.
Section 7.7 Purchaser Employee Indemnity. Subject to Section 5.15
hereof, in addition to any other indemnification provided for in this Agreement,
Purchaser shall indemnify the Seller Indemnified Parties from and against all
Losses asserted against and imposed on or sustained, incurred or suffered by any
of the Seller Indemnified Parties which arise from any Plan covering Transferred
Employees (to the extent liability under such Plan has been assumed by
Purchaser) or from the employment by the Transferred Subsidiary, Purchaser or
its Affiliates of any Transferred Employees on or after the Closing Date or are
attributable to any act, omission, breach or default by Purchaser or its
Affiliates in relation to any of the Transferred Employees. This shall include,
but shall not be limited to, subject to Section 5.15 hereof, Losses arising out
of the termination or dismissal of any Transferred Employee, any failure by
Purchaser or its Affiliates to offer or continue to offer any Transferred
Employee terms and conditions of employment and working conditions which are no
less favorable than those which applied to the relevant Transferred Employee
immediately prior to the Closing Date and any failure by Purchaser or its
Affiliates to comply with its or their obligations under any local employment
laws. Any claim for indemnification under this Section 7.7 must be made within
12 months of the Closing Date.
Section 7.8 Threshold for Recovery; Aggregate Limit on Indemnity.
Seller shall not be required to indemnify any Purchaser Indemnified Party, and
Purchaser shall not be required to indemnify any Seller Indemnified Party, and
neither Seller nor Purchaser shall have any liability pursuant to this Article
VII unless the aggregate for all such Losses for which Seller or Purchaser
would, but for this clause, be liable thereunder exceeds euro 350,000, and then
only be entitled to recover Losses in excess of euro 150,000. The maximum
aggregate liability of Seller (on behalf of itself and as agent for the Local
Sellers) to all Purchaser Indemnified Parties taken together for all Losses by
all Purchaser Indemnified Parties with respect to this Agreement and the
Ancillary
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Agreements shall not exceed euro 14,000,000. The maximum aggregate liability of
Purchaser (on behalf of itself and as agent for the Local Purchasers) to all
Seller Indemnified Parties taken together for all Losses by all Seller
Indemnified Parties with respect to this Agreement and the Ancillary Agreements
shall not exceed euro 14,000,000. Notwithstanding the above provisions of this
Section 7.8, none of the limitations or thresholds provided in this Section 7.8
shall apply to any claim for fraud or intentional misrepresentation or for any
claim with respect to an Assumed Liability or an Excluded Liability.
Section 7.9 Knowledge. Notwithstanding anything else to the
contrary, neither Seller nor Purchaser shall be under any obligation for any
indemnification hereunder with respect to the breach of any representations and
warranties to the extent that the facts and circumstances giving rise thereto
are set forth in this Agreement, the Ancillary Agreements or disclosed in the
Disclosure Schedules as of the date of this Agreement in accordance with Section
9.5 hereof. If prior to the Closing any party (the "waiving party") has
knowledge that any representation, warranty or covenant of the other party
contained in this Agreement or any Ancillary Agreement is breached, the effect
of which is a failure of any condition to the waiving party's obligations set
forth in Article VI, and the waiving party proceeds with the Closing, the
waiving party shall be deemed to have waived such noncompliance and the waiving
party and its successors, assigns and affiliates shall not be entitled to xxx
for damages or to assert any other right or remedy for any Losses arising from
any matters relating to such facts or circumstances, notwithstanding anything to
the contrary contained herein or in any certificate delivered pursuant hereto.
For purposes of this Section 7.9, if the waiving party receives a notice from
the other party that such other party's representations, warranties or covenants
are breached and, in such other party's reasonable judgment, the effect of such
breach or breaches is a failure of a condition to the waiving party's
obligations set forth in Article VI, such breach or breaches shall be deemed to
have the effect of a failure of a condition to the waiving party's obligations
set forth in Article VI. This Section 7.9 shall not apply to any breaches that
are intentional.
Section 7.10 Exclusive Remedy; Limitation on Liability.
Notwithstanding anything else to the contrary contained in this Agreement, the
Ancillary Agreements or otherwise, Purchaser Indemnified Parties' sole and
exclusive remedy after the Closing Date against Seller and its Affiliates, and
Seller Indemnified Parties' sole and exclusive remedy after the Closing Date
against Purchaser and its Affiliates, subject always to any additional remedies
contemplated in the Ancillary Agreements, shall be a claim for indemnification
made pursuant to this Article VII, which claim shall be satisfied in cash;
provided, however, this Section 7.10 shall not limit or prevent any Party from
pursuing and obtaining (i) specific performance of any of the transactions
contemplated by this Agreement or any Ancillary Agreement or (ii) remedies under
applicable Law for fraud or intentional misrepresentation.
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ARTICLE VIII
TERMINATION
Section 8.1 Termination. This Agreement may only be terminated by
specific and detailed written notice setting forth the basis for the
termination, including, as applicable, details of the conditions which have not
been satisfied, to all other Parties at any time prior to the Closing as
follows:
(a) By agreement of Purchaser and Seller;
(b) By either Purchaser or Seller if any Order permanently
restraining, enjoining or otherwise prohibiting consummation of the transactions
contemplated herein shall become final and non-appealable;
(c) By Seller, by giving written notice of such termination to
Purchaser, if the Closing shall not have occurred on or before February 28,
2003; provided that Seller is not in material breach of its representations,
warranties or obligations under this Agreement;
(d) By Purchaser, by giving written notice of such termination to
Seller, if the Closing shall not have occurred on or before February 28, 2003;
provided that Purchaser is not in material breach of its representations,
warranties or obligations under this Agreement.
(e) By Seller, if there has been a material breach by Purchaser of
any representation, warranty, covenant or agreement contained in this Agreement
that is not curable or, if curable, is not cured within 30 days after written
notice of such breach is given by Seller to Purchaser, and as a result of any
such material breach or breaches either of the conditions set forth in Section
6.3(a) or (b) would not be satisfied at the Closing.
(f) By Purchaser, if there has been a material breach by Seller of
any representation, warranty, covenant or agreement contained in this Agreement
that is not curable or, if curable, is not cured within 30 days after written
notice of such breach is given by Purchaser to the party committing such
material breach, and as a result of any such breach or breaches either of the
conditions set forth in Section 6.2(a) or (b) would not be satisfied at the
Closing.
Section 8.2 Effect of Termination. In the event of the termination
of this Agreement in accordance with Section 8.1 hereof, this Agreement shall
thereafter become void and have no effect, and no Party shall have any liability
to any other Party, their successors or permitted assigns or with respect to
their respective Affiliates, directors, officers or employees, except for the
obligations of the Parties contained in this Section 8.2 in the confidentiality
provisions in Section 5.3(e) and in Section 5.4(g) and Article IX and except
that nothing herein will relieve any Party from liability, pursuant to Article
VII, for any breach of this Agreement prior to such termination.
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ARTICLE IX
MISCELLANEOUS
Section 9.1 Notices. All notices or other communications hereunder
shall be deemed to have been duly given and made if in writing and if served by
personal delivery upon the party for whom it is intended, if delivered by
registered or certified mail, return receipt requested, or by an international
courier service, or by telecopier or e-mail, to the person at the address set
forth below, or such other address as may be designated in writing hereafter, in
the same manner, by such person:
To Purchaser, or to the Transferred Subsidiary after the Closing:
ScanSoft, Inc.
0 Xxxxxxxxxx Xxxxx
Xxxxxxx, XX 00000
X.X.X.
Attention: Chief Financial Officer
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
E-mail: Xxxxxxx.Xxxxxx@xxxxxxxx.xxx
With a copy to:
Xxxxxx Xxxxxxx Xxxxxxxx & Xxxxxx, P.C.
0000 Xxxxx Xxxxxx Xxxxx, Xxxxx 000
XxXxxx, XX 00000
X.X.X.
Attention: Xxxxxx X. Xxxxxxx, Esq.
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
E-mail: Xxxxxxxx@xxxx.xxx
Xxxxxx Xxxxxxx Xxxxxxxx & Xxxxxx, P.C.
00 Xxxx 00xx Xxxxxx, 00xx Xxxxx
Xxx Xxxx, XX 00000
U.S.A.
Attention: Xxxx X. Xxxxx, Esq.
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
E-mail: Xxxxxx@xxxx.xxx
To Seller:
KONINKLIJKE PHILIPS ELECTRONICS N.V.
Xxxxxxxx Center Xxxxxxxxxxx 0
X.X. Xxx 00000
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1070 MX Amsterdam
The Netherlands
Attention: General Secretary
Telephone: x00 00 000 0000
Facsimile: x00 00 000 0000
With a copy to:
XXXXXXXX & XXXXXXXX
000 Xxxxx Xxxxxx
Xxx Xxxx, XX 00000
Telephone: (000) 000-0000
Telecopy: (000) 000-0000
Attn: Xxxx Xxxxxxxx
To the Transferred Subsidiary prior to the Closing:
KONINKLIJKE PHILIPS ELECTRONICS N.V.
Xxxxxxxx Center Xxxxxxxxxxx 0
X.X. Xxx 00000
0000 XX Xxxxxxxxx
The Netherlands
Attention: General Secretary
Telephone: x00 00 000 0000
Facsimile: x00 00 000 0000
With a copy to:
XXXXXXXX & XXXXXXXX
000 Xxxxx Xxxxxx
Xxx Xxxx, XX 00000
Telephone: (000) 000-0000
Telecopy: (000) 000-0000
Attn: Xxxx Xxxxxxxx
Section 9.2 Amendment. Any provision of this Agreement may be
amended if, and only if, such amendment is in writing and signed, in the case of
an amendment, by Purchaser and Seller.
Section 9.3 Assignment. No Party to this Agreement may assign any of
its rights or obligations hereunder without the prior written consent of the
other Parties hereto which consent may be withheld in the sole discretion of the
Party from whom consent is sought.
Section 9.4 Entire Agreement. This Agreement (including all
Disclosure Schedules hereto) contains the entire agreement among the Parties
with
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respect to the subject matter hereof and supersedes all prior agreements and
understandings, oral or written, with respect to such matters, except as
provided under any Ancillary Agreement, the Letter of Intent and for the
Non-Disclosure Agreement by Seller, on the one hand, and Purchaser, on the
other, related to the subject matter of this Agreement (to the extent such
agreement would otherwise fall within the notion of prior agreements and
understandings as meant in this Section 9.4), which will remain in full force
and effect pursuant to the terms thereof. Any subsequent agreement among the
Parties in respect of the subject matter hereof shall further be subject to the
terms of this Agreement except to the extent such agreement expressly (i) states
that it supersedes this Agreement in relevant part and (ii) refers to this
Section 9.4.
Section 9.5 Disclosure Schedules. If a disclosure is made in one of
or in any part of any of the Disclosure Schedules to this Agreement, such
disclosure will be deemed to have also been made in each other Disclosure
Schedule hereto where the context reasonably relates and it is reasonably
apparent that such disclosure relates to such other Disclosure Schedule. The
fact that any item or information has been included in any of the Disclosure
Schedules to this Agreement shall not be construed to establish, in whole or in
part, any standard of the extent disclosure is required (including any standard
of materiality), for purposes of the Disclosure Schedules or this Agreement.
Matters reflected in the Disclosure Schedules are not necessarily limited to
matters required by this Agreement to be reflected in the Disclosure Schedules;
such additional matters are set forth for information purposes and do not
necessarily include other matters of a similar nature.
Section 9.6 Fulfillment of Obligations. Any obligation of any Party
to any other Party under this Agreement or any of the Ancillary Agreements,
which obligation is performed, satisfied or fulfilled by a current Affiliate of
such Party, shall be deemed to have been performed, satisfied or fulfilled by
such Party.
Section 9.7 Parties in Interest; No Third Party Beneficiaries. This
Agreement shall inure to the benefit of and be binding upon the Parties hereto
and their respective successors and permitted assigns. Nothing in this
Agreement, express or implied, is intended to confer upon any Person other than
Purchaser, Seller or their successors or permitted assigns, any rights or
remedies under or by reason of this Agreement. Notwithstanding the foregoing, it
is agreed and understood that Purchaser is a third party beneficiary of the
transactions contemplated by the Restructuring.
Section 9.8 Public Disclosure. Notwithstanding anything herein to
the contrary, each of the Parties to this Agreement hereby agrees with the other
Parties hereto that, except as may be required to comply with the requirements
of any applicable Laws, or the rules and regulations of each stock exchange upon
which the securities of one of the Parties is listed, no press release or
similar public announcement or communication shall ever, whether prior to or
subsequent to the Closing, be made or caused to be made concerning the execution
or performance of this Agreement unless specifically approved in writing in
advance by all Parties hereto.
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Section 9.9 Return of Information. (a) If for any reason whatsoever
the transactions contemplated by this Agreement are not consummated, Purchaser
shall promptly return to Seller the Books and Records and all data room contents
and other written information related to the Business and all copies or
summaries thereof furnished by Seller, the Business or any of their respective
agents, employees, or representatives (including all copies, if any, thereof),
and shall not use or disclose the information contained in such books and
records or other documents for any purpose or make such information available to
any other entity or person.
Section 9.10 Expenses. Except as otherwise expressly provided in
this Agreement, whether or not the transactions contemplated by this Agreement
are consummated, all costs and expenses incurred in connection with this
Agreement and the transactions contemplated hereby shall be borne by the party
incurring such expenses.
Section 9.11 Amounts Paid and Calculated in Euro; Receivables and
Payable Currency. Except as otherwise provided herein, any amounts which are
contemplated to be calculated or paid hereunder shall be calculated and paid in
Euro.
Section 9.12 No Other Representations or Warranties; No Statements
Made as to Projections or Prospects; Authorized Representatives; Bulk Sales. (a)
Except for the representations and warranties contained in Article III hereof,
neither Seller, any Local Seller, their Affiliates, nor any other Person on
behalf of Seller, any Local Seller or their Affiliates makes any other express
or implied representation or warranty in connection with the transactions
contemplated hereunder, notwithstanding the delivery or disclosure to Purchaser
or any of its representatives or any other Person of any documentation or other
information by Seller, any Local Seller or any of their respective
representatives or any other Person with respect to any one or more of the
foregoing.
(b) Except for the representations and warranties contained in
Article IV hereof, neither Purchaser, nor any other Person on behalf of
Purchaser or its Affiliate makes any other express or implied representation or
warranty in connection with the transactions contemplated hereunder,
notwithstanding the delivery or disclosure to Seller or any of its
representatives or any other Person of any documentation or other information by
Purchaser or any of its representatives or any other person with respect to any
one or more of the foregoing.
(c) Notwithstanding anything else to the contrary, the Parties agree
and acknowledge that neither Purchaser, their Affiliates, nor any other Person
may rely upon any documents, information or material of any nature, including
without limitation, with respect to any projections, estimates or potential
prospects of the Business or otherwise which may have been discussed with or
provided to Purchaser or its representatives at any time, whether pursuant to
Section 5.3(e), Section 5.4(i) or otherwise, and that the only representations
and warranties or, without limiting the generality of the foregoing, information
as to the status or prospects of Business, upon which Purchaser may rely, are as
referred to in (a) above.
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(d) Notwithstanding anything else to the contrary, the Parties agree
and acknowledge that no persons who are employed by or are agents of Seller are
or were entitled to make any statements or enter into any obligations on behalf
of Seller upon which Purchaser may rely other than as are expressly set forth in
this Agreement or the Ancillary Agreements.
(e) The Parties waive compliance with the requirements of the bulk
sales Laws (or similar Laws for the protection of creditors) of any jurisdiction
in connection with the transactions contemplated hereby.
Section 9.13 GOVERNING LAW AND VENUE; WAIVER OF JURY TRIAL. (a) THIS
AGREEMENT SHALL BE DEEMED TO BE MADE IN AND IN ALL RESPECTS SHALL BE
INTERPRETED, CONSTRUED AND GOVERNED BY AND IN ACCORDANCE WITH THE LAW OF THE
STATE OF NEW YORK WITHOUT REGARD TO THE CONFLICT OF LAW PRINCIPLES THEREOF. THE
PARTIES HEREBY IRREVOCABLY SUBMIT TO THE JURISDICTION OF THE COURTS OF THE STATE
OF NEW YORK AND THE FEDERAL COURTS OF THE UNITED STATES OF AMERICA LOCATED IN
THE STATE OF NEW YORK SOLELY IN RESPECT OF THE INTERPRETATION AND ENFORCEMENT OF
THE PROVISIONS OF THIS AGREEMENT AND OF THE DOCUMENTS REFERRED TO IN THIS
AGREEMENT, AND IN RESPECT OF THE TRANSACTIONS CONTEMPLATED HEREBY, AND HEREBY
WAIVE, AND AGREE NOT TO ASSERT, AS A DEFENSE IN ANY ACTION, SUIT OR PROCEEDING
FOR THE INTERPRETATION OR ENFORCEMENT HEREOF OR OF ANY SUCH DOCUMENT, THAT IT IS
NOT SUBJECT THERETO OR THAT SUCH ACTION, SUIT OR PROCEEDING MAY NOT BE BROUGHT
OR IS NOT MAINTAINABLE IN SAID COURTS OR THAT THE VENUE THEREOF MAY NOT BE
APPROPRIATE OR THAT THIS AGREEMENT OR ANY SUCH DOCUMENT MAY NOT BE ENFORCED IN
OR BY SUCH COURTS, AND THE PARTIES HERETO IRREVOCABLY AGREE THAT ALL CLAIMS WITH
RESPECT TO SUCH ACTION OR PROCEEDING SHALL BE HEARD AND DETERMINED IN SUCH A NEW
YORK STATE OR FEDERAL COURT. THE PARTIES HEREBY CONSENT TO AND GRANT ANY SUCH
COURT JURISDICTION OVER THE PERSON OF SUCH PARTIES AND OVER THE SUBJECT MATTER
OF SUCH DISPUTE AND AGREE THAT MAILING OF PROCESS OR OTHER PAPERS IN CONNECTION
WITH ANY SUCH ACTION OR PROCEEDING IN THE MANNER PROVIDED IN SECTION 9.1 OR IN
SUCH OTHER MANNER AS MAY BE PERMITTED BY LAW SHALL BE VALID AND SUFFICIENT
SERVICE THEREOF.
(b) EACH PARTY ACKNOWLEDGES AND AGREES THAT ANY CONTROVERSY WHICH
MAY ARISE UNDER THIS AGREEMENT IS LIKELY TO INVOLVE COMPLICATED AND DIFFICULT
ISSUES, AND THEREFORE EACH SUCH PARTY HEREBY IRREVOCABLY AND UNCONDITIONALLY
WAIVES ANY RIGHT SUCH PARTY MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY
LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT,
OR THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT. EACH PARTY CERTIFIES AND
ACKNOWLEDGES THAT (I) NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY
HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE
EVENT OF LITIGATION, SEEK TO ENFORCE THE
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FOREGOING WAIVER, (II) EACH PARTY UNDERSTANDS AND HAS CONSIDERED THE
IMPLICATIONS OF THIS WAIVER, (III) EACH PARTY MAKES THIS WAIVER VOLUNTARILY, AND
(IV) EACH PARTY HAS BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER
THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION 9.13.
Section 9.14 NO RIGHT TO DISSOLUTION UNDER LAW; TEXTUAL
INTERPRETATION OF THIS AGREEMENT TO CONTROL. (a) THE PARTIES HEREBY WAIVE ANY
RIGHT TO SEEK OR CLAIM DISSOLUTION OR ANNULMENT OF THIS AGREEMENT OR ANY OF THE
ANCILLARY AGREEMENTS UNDER APPLICABLE LAW, WHETHER BASED UPON ITS OWN OR ANY
OTHER PARTY'S MATERIAL BREACH OR MUTUAL OR UNILATERAL MISTAKE OR OTHERWISE AND
ALL PARTIES HEREBY EXPRESSLY CONSENT TO BE LIMITED TO AND TO PURSUE ALL CLAIMS
RELATING TO THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT AND THE ANCILLARY
AGREEMENTS, UNDER THE REMEDIES EXPRESSLY PROVIDED FOR OR PERMITTED HEREUNDER.
(b) SELLER AND PURCHASER ARE BOTH PROFESSIONAL PARTIES WHO HAVE BEEN
ADVISED BY PROFESSIONAL ADVISERS AND CONSULTANTS AS WELL AS BY THEIR LEGAL
COUNSEL. THIS AGREEMENT ACCURATELY AND CORRECTLY REFLECTS THEIR AGREEMENT AS TO,
AMONGST OTHER THINGS, THE DIVISION OF ECONOMIC AND FINANCIAL RISKS WHICH ARE
INHERENT IN TRANSACTIONS OF THIS KIND. ACCORDINGLY, IT IS THEIR EXPRESS WISH
THAT IN THE INTERPRETATION OF THIS AGREEMENT THE TEXTUAL INTERPRETATION THEREOF
SHALL PREVAIL.
Section 9.15 Counterparts. This Agreement may be executed in one or
more counterparts, each of which shall be deemed an original, and all of which
together shall constitute one and the same Agreement. Copies of executed
counterparts transmitted by telecopy, telefax or other electronic transmission
service shall be considered original executed counterparts for purposes of this
Section 9.15, provided that receipt of copies of such counterparts is confirmed.
Section 9.16 Headings. The heading references herein and the table
of contents hereto are for convenience purposes only, do not constitute a part
of this Agreement and shall not be deemed to limit or affect any of the
provisions hereof.
Section 9.17 Severability. The provisions of this Agreement shall be
deemed severable and the invalidity or unenforceability of any provision shall
not affect the validity or enforceability of the other provisions hereof. If any
provision of this Agreement, or the application thereof to any person or entity
or any circumstance, is invalid or unenforceable, (a) a suitable and equitable
provision shall be substituted
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therefor in order to carry out, so far as may be valid and enforceable, the
intent and purpose of such invalid or unenforceable provision and (b) the
remainder of this Agreement and the application of such provision to other
persons, entities or circumstances shall not be affected by such invalidity or
unenforceability, nor shall such invalidity or unenforceability affect the
validity or enforceability of such provision, or the application thereof, in any
other jurisdiction.
Section 9.18 Scheduled Entities. "Scheduled Entities" shall be
defined as those entities listed on Schedule 9.18.
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IN WITNESS WHEREOF, the Parties have executed or caused this
Agreement to be executed as of the date first written above.
KONINKLIJKE PHILIPS ELECTRONICS N.V.
By: /s/ Xxxx Xxxxxxxx
__________________________
Name: Xxxx Xxxxxxxx
Title: Director of Legal Affairs,
Deputy Secretary
SCANSOFT, INC.
By: /s/ Xxxx X. Xxxxx
__________________________
Name: Xxxx X. Xxxxx
Title: CEO and Chairman of the Board
EXHIBIT A
TECHNOLOGY TRANSFER AND LICENSE AGREEMENT
FORM OF TECHNOLOGY TRANSFER AND LICENSE AGREEMENT
This TECHNOLOGY TRANSFER AND LICENSE AGREEMENT, dated as of ________,
2002, between KONINKLIJKE PHILIPS ELECTRONICS N.V., a limited liability
company organized under the laws of The Netherlands ("Seller"), ScanSoft,
Inc., a Delaware corporation ("Purchaser").
W I T N E S S E T H:
WHEREAS, Seller and Purchaser have entered into the Principal Agreement
(as defined below) whereby Seller agrees to sell to Purchaser, and Purchaser
agrees to purchase certain assets from Seller; and
WHEREAS, in connection with such transaction Seller wishes to assign,
or cause its Affiliates to assign, and the Purchaser wishes to accept assignment
of, certain technology and intellectual property rights as provided for in this
Agreement.
NOW, THEREFORE, in consideration of the mutual covenants and
undertakings contained herein, and subject to and on the terms and conditions
herein set forth, the Parties agree as follows:
ARTICLE I
DEFINITIONS AND TERMS
Section 1.1 Definitions Incorporated from the Principal Agreement.
Unless otherwise defined herein, all defined terms used in this Agreement shall
have the same meaning as ascribed to them in the Principal Agreement.
Section 1.2 Specific Definitions. As used in this Agreement, the
following terms shall have the meanings set forth or as referenced below:
"Agreement" shall mean this Agreement (including all Schedules,
Appendices, Annexes and Exhibits hereto), as the same may be amended or
supplemented from time to time in accordance with the terms hereof.
"Confidential Information" shall have the meaning given to such term in
Section 4.7.
"Consolidated Subsidiaries" shall mean each of the entities as is now
in existence as, or as will be incorporated to be, wholly-owned Affiliates of
Purchaser for the purpose of conducting the Business.
"Licensed Other IPR" means all Other IPR (other than the Transferred
Other Business IPR And Technical Information) that, as of the Closing Date, is
(i) related to, used in, necessary to, or would otherwise be infringed by, the
current and reasonably contemplated future conduct of the Business, including
the development, manufacture, use, distribution, sale, support and other
exploitation of the Products or (ii) embodied by any of the Transferred Other
Business IPR And Technical Information and the Licensed Technical Information,
including all Other IPR described or listed in Schedule [A]and (iii) owned or
licensable.
"Licensed Technical Information" means: (i) all Technical Information
(other than that which is Transferred Other Business IPR And Technical
Information) that, as of the Closing Date, is related to, used in, or necessary
for the operation of the Business, including the development, manufacture, use,
distribution, sale, support or other exploitation of the Products, including all
Technical Information described or listed in Schedule A hereto; (ii) any
Technical Information disclosed to, or learned by, the Purchaser as a result of
the transactions contemplated hereby, including the employment by the Purchaser
of the Transferred Employees; and (iii) owned or licensable.
"Transferred Other Business IPR And Technical Information" shall mean
any and all Other IPR and Technical Information which is (i) owned by Seller or
its Affiliates and (ii) originated solely within the Business prior to the
Closing Date.
"Other IPR" shall mean any and all intellectual property rights (such
as mask work rights, copyrights, works of authorship design rights and database
rights) including any intellectual property rights in or to any Product Software
but expressly excluding any: (i) trademarks, service marks, trade names, logos,
slogans, domain names, or business names (which shall be solely addressed by the
Trademark Transfer and License Agreement), (ii) Patents, and (iii) Technical
Information. Notwithstanding the foregoing, with respect to Software, Other IPR
means only the Product Software and Software created in the Business and used
only in the Business.
"Patents" shall mean patents, patent applications, utility models and
other governmental grants for the protection of inventions anywhere in the world
and all continuations, divisions, reissues, re-examinations, renewals and
extensions of any of the foregoing rights. Patents shall be categorized as
follows:
"A-Patents" shall mean the Patents listed in Appendix A to this
Agreement; provided, however, that so long as on or prior to the Closing Date
the Definitive Agreement referred to in the Letter of Intent is executed, the
Additional Patents (as defined therein) will also be A-Patents hereunder. In the
event that such Definitive Agreement is not executed on or prior to the Closing
Date, the parties agree that such Patents shall be C-Patents hereunder. All
Patents which (i) originated within the Business, (ii) are exclusively usable
within the Business prior to the Closing Date, and (iii) have or would be
entitled to the benefit of a priority date prior to the Closing Date are listed
on Appendix A.
A-2
"B-Patents" shall mean the Patents listed in Appendix B to this
Agreement. All Patents which (i) originated within the Business (excluding
A-Patents), and (ii) have or would be entitled to the benefit of a priority date
prior to the Closing Date are listed on Appendix B.
"C-Patents" shall mean any and all Patents, excluding the A-Patents and
B-Patents, owned by Seller and issued or issuing on any patent applications that
have or would be entitled to the benefit of a priority date prior to the Closing
Date and in respect of which: (i) Seller has the free right to grant licenses
under such Patents and (ii) which would, absent a license, be infringed by the
Business at the Closing Date, including the design, use, manufacture, sale,
offer for sale, importation and support of the Products.
"Products" shall mean any and all (i) products manufactured, sold or
offered for sale by or for the Business as at the Closing Date, including any
services related thereto; (ii) products under development by or for the Business
for which Purchaser can demonstrate by written documentation that a material
development activity on the basis of an approved budget was in operation; (iii)
the Product Software; and (iv) all products listed on Schedule 1.2(i).
"Product Software" shall mean any and all Software used or intended for
use in the design, development or production of Products at the Closing Date
(whether or not as part of the Products and including any such Software that
constitutes a Product), including the design and development of the Products and
including all Software listed on Schedule 1.2(k).
"Principal Agreement" shall mean that certain Purchase Agreement dated
as of October , 2002 relating to the sale and transfer of the Business to
Purchaser which has been entered into between Seller and Purchaser.
"Software" means any and all computer software and code, including
assemblers, applets, compilers, source code, object code, data (including image,
voice and sound data), design tools and user interfaces, source code listings
and documentation, in any form or format, however fixed.
"Technical Information" shall mean any and all technical information,
technology, know how, trade secrets, formulae, algorithms, routines, netlists,
verilog files, emulation and simulation reports, test vectors, Software, files,
data-bases (including voice data-bases), devices, hardware, processes, designs,
drawings, specifications and the like, and any documentation relating to or
containing any intellectual property, all in whatever form held (including on
paper, electronically, on magnetic media or otherwise) but expressly excluding
all of the foregoing relating to Software other than the Product Software.
Section 1.3 Other Terms. Other terms may be defined elsewhere in the
text of this Agreement and, unless otherwise indicated, shall have such meaning
throughout this Agreement.
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Section 1.4 Other Definitional Provisions.
(a) The words "herein" and "hereunder" and words of similar import,
when used in this Agreement, shall refer to this Agreement as a whole and not to
any particular provision of this Agreement.
(b) The terms defined in the singular shall have a comparable meaning
when used in the plural, and vice versa.
(c) This Agreement shall be construed without regard to any presumption
or rule requiring construction or interpretation against the party drafting or
causing any instrument to be drafted.
(d) Whenever the words "include", "including", or "includes" appear in
this Agreement, they shall be read to be followed by the words "without
limitation" or words having similar import.
ARTICLE II
ASSIGNMENT OF A-PATENTS
Section 2.1 Subject to this Article II and effective upon the Closing
Date of the Principal Agreement, Seller hereby irrevocably assigns, and shall
cause its appropriate Affiliates to assign, to Purchaser, in perpetuity,
throughout the world, with effect from the Closing Date all of its right, title
and interest in and to the A-Patents, including all rights to recover past,
present and future damages for the infringement of any of the A-Patents.
Section 2.2 The Purchaser acknowledges and agrees that the assignment
as provided in Section 2.1 is subject to Seller and its Affiliates retaining an
irrevocable, perpetual, non-exclusive, worldwide, fully paid-up, royalty free
license, to use such A-Patents for their own activities (including, without
limitation, the right to design, develop, make, have made, sell, offer for sale,
import, use and service products and services with use of or incorporating such
A-Patents). For the avoidance of doubt, Seller and its Affiliates agree that the
license granted under this Section 2.2 is subject to the obligations of Seller
contained in Section 5.4(a) of the Principle Agreement.
Section 2.3 The Purchaser acknowledges and agrees that the assignment
provided in Section 2.1 is subject to any and all licenses and other rights and
prior commitments that may have been granted by Seller or its Affiliates with
respect to the A-Patents prior to the Closing Date and any renewals thereof.
Section 2.4 The Purchaser shall bear any and all costs of filing,
prosecution and maintenance of the A-Patents first becoming due and payable
after the Closing Date, including any statutory remuneration or other
compensation payable to inventors with respect to the A-Patents (even if the
event giving rise to the obligation occurred prior to the Closing Date). Seller
shall be responsible for any and all costs for
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remuneration or other compensation with respect to the A-Patents becoming due
and payable prior to the Closing Date, and shall reimburse the Purchaser for
such costs if Seller has not paid them prior to the Closing Date and Purchaser
pays them after the Closing Date on behalf of Seller. Seller agrees to continue
to maintain and continue any current prosecutions of the A-Patents prior to the
Closing Date consistent with its past practice.
Section 2.5 Purchaser agrees not to, and to cause its successors and
assigns and any subsequent assignees or transferees of the A-Patents not to,
enforce or authorize any person to enforce any of the A-Patents against Seller
or its Affiliates and their customers to the extent such customers have an
actual or implied license to such A-Patent(s) with respect to a product or
service purchased directly or indirectly from Seller or its Affiliates.
Section 2.6 Before taking any enforcement action relating to any
A-Patent against a third party, Purchaser shall, and shall cause its successors
and assigns and any subsequent assignees or transferees of the A-Patents to,
notify Seller in writing at least twenty (20) Business Days (or, if the
Purchaser will seek immediate injunctive relief, then as promptly as
practicable) of the intended enforcement action and the name of such third party
and a specification of the relevant A-Patents and such other information as
Seller may require to evaluate whether such third party is entitled to use such
A-Patents under any prior grants and to promptly provide such other information
as Seller may reasonably request. Within twenty (20) Business Days (or, if
Purchaser will seek immediate injunctive relief, then as promptly as
practicable) after receipt of such notice, Seller shall identify whether such
Party is entitled to use of such A-Patents. Purchaser agrees not to, and to
cause its successors and assigns and subsequent assignees or transferees of the
A-Patents not to, enforce or authorize any person to enforce any of the
A-Patents against any such third party of which it is timely and properly
notified by Seller (i) that such party is entitled to use of such A-Patent
pursuant to a prior grant and (ii) of any relevant additional information as
Seller has the right to disclose.
ARTICLE III
LICENSE OF B-PATENTS AND C-PATENTS
Section 3.1 Seller hereby grants, and agrees to cause its appropriate
Affiliates to grant, to Purchaser with effect from the Closing Date an
irrevocable, perpetual, non-terminable, non-exclusive, worldwide, fully paid and
royalty free license, to use the B-Patents to use, make, have made, sell, offer
for sale, import and service and otherwise exploit and dispose of made products
using the B-Patents in connection with Purchaser's current and future products.
Section 3.2 For the avoidance of doubt, Seller retains the right to
grant additional non-exclusive licenses in the B-Patents but such right is
subject to Section 5.4(a) of the Principle Agreement (and may not be used to
circumvent by licensing the
A-5
purposes of such section), except for any cross-license agreements to which
Philips is now or may in the future become a party which are not limited to the
B-Patents.
Section 3.3 Subject to Section 3.4, Seller hereby grants, and agrees to
cause its appropriate Affiliates to grant, to Purchaser and its Affiliates an
irrevocable, perpetual, non-terminable, non-exclusive, worldwide, fully paid up
and royalty free license under the C-Patents to use, make, have made, sell,
offer for sale, import and service and otherwise exploit and dispose of products
using the C-Patents in the field of speech technology (which shall include
speech technology used as a component of products relying primarily on other
technologies). Notwithstanding the foregoing, upon the occurrence of an
Assertion Event (as defined in Section 7.2 hereof), in accordance with Section
7.2, the license to the C-Patents granted in this Section will be reduced in its
scope such that the license is only to use, make, have made, sell, offer for
sale, import and service, and otherwise exploit and dispose of the Products
existing as at the Closing Date and natural successors of such Products.
Section 3.4 Purchaser and its Affiliates acknowledge and agree that the
licenses provided in Section 3.3 do not include any right to make, have made,
sell or service any magnetic, integrated circuit, mechanical, electronic,
optical or software components or otherwise perform under any C-Patents in
respect of such components, except in respect of speech components and those
components which were actually produced and not abandoned by the Business at the
Closing Date.
Section 3.5 If Seller for any reason wishes to abandon or transfer to a
third party, any of the B-Patents in any country, Seller shall not be obliged to
maintain the same, but shall first notify Purchaser who shall have the right
within thirty (30) days after receiving such notice to take an assignment of
that Patent subject to:
(i) Seller and its Affiliates retaining a royalty-free,
irrevocable, unrestricted, worldwide, non-exclusive license
under such Patent;
(ii) any prior commitments relating to such Patent; and
(iii) Purchaser bearing all costs of the prosecution and
maintenance of the Patent concerned from the date of
assignment, including remunerations payable to inventors
according to national laws with respect to such Patent.
ARTICLE IV
ASSIGNMENT AND LICENSE OF OTHER IPR AND TECHNICAL INFORMATION
Section 4.1 Subject to this Article IV, Seller hereby assigns, and
agrees to cause its appropriate Affiliates to assign, to Purchaser all of
Seller's or its appropriate Affiliate's right, title and interest in and to any
and all Transferred Other Business IPR And Technical Information.
A-6
Section 4.2 Subject to this Article IV, Seller hereby grants, and
agrees to cause its appropriate Affiliates to grant, to Purchaser with effect
from the Closing Date an irrevocable, perpetual, non-exclusive, worldwide, fully
paid-up and royalty free license to and under all of the Licensed Other IPR and
Licensed Technical Information to use, disclose, copy, distribute, make, have
made, make derivative works from, sell, and otherwise fully exploit in its
business. For the avoidance of doubt, Philips and its Affiliates shall have no
obligation to transfer any Other IPR or Technical Information or know-how to
Purchaser after the Closing Date (except as may otherwise expressly be required
in the Corporate Research & Development Agreement between the parties).
Section 4.3 Philips agrees and acknowledges that all of the Software
comprising the Products is either transferred to Purchaser pursuant to Section
4.1 or licensed to Purchaser pursuant to Section 4.2.
Section 4.4 The Purchaser acknowledges and agrees that the assignment
provided in Section 4.1 is subject to Seller and its Affiliates retaining an
irrevocable, perpetual, non-exclusive, worldwide, fully paid-up, royalty free
license to use the Transferred Other Business IPR And Technical Information for
their own activities (including, without limitation, the right to design,
develop, make, have made, and service products and services with use of or
incorporating such Transferred Other Business IPR And Technical Information).
For the avoidance of doubt, Seller and its Affiliates agree that the license
granted under this Section 4.3 is subject to the obligations of Seller contained
in Section 5.4(a) of the Principle Agreement and may not be used to circumvent
by licensing the purposes of said Section 5.4(a).
Section 4.5 The Purchaser acknowledges and agrees that the assignment
as provided in Section 4.1 is subject to any and all licenses and other rights
and prior commitments that may have been granted by Seller or its Affiliates
with respect to such Other IPR and Technical Information prior to the Closing
Date.
Section 4.6 The Purchaser agrees not to, and to cause its Affiliates,
successors and assigns and any subsequent assignees or transferees of the
Transferred Other Business IPR And Technical Information not to, enforce or
authorize any person to enforce any Transferred Other Business IPR And Technical
Information against Seller or its Affiliates and their customers to the extent
such customers have an actual or implied license to such Transferred Other
Business IPR And Technical Information from Seller, with respect to product or
service purchased, directly or indirectly, from Seller or its Affiliates.
Section 4.7 Before taking any enforcement action relating to any
Transferred Other Business IPR And Technical Information against a third party,
Purchaser shall, and shall cause its successors and assigns and any subsequent
assignees or transferees of the Transferred Other Business IPR And Technical
Information to, notify Seller in writing at least twenty (20) Business Days (or,
if the Purchaser will seek immediate injunctive relief, then as promptly as
practicable) of the intended enforcement
A-7
action and the name of such third party and a specification of the relevant
Transferred Other Business IPR And Technical Information and such other
information as Seller may require to evaluate whether such third party is
entitled to use such Transferred Other Business IPR And Technical Information
under any prior grants and to promptly provide such other information as Seller
may reasonably request. Within twenty (20) Business Days (or, if Purchaser will
seek immediate injunctive relief, then as promptly as practicable) after receipt
of such notice, Seller shall identify whether such Party is entitled to use of
such Transferred Other Business IPR And Technical Information. Purchaser agrees
not to, and to cause its successors and assigns and subsequent assignees or
transferees of the Transferred Other Business IPR And Technical Information not
to, enforce or authorize any person to enforce any of the Transferred Other
Business IPR And Technical Information against any such third party of which it
is timely and properly notified by Seller (i) that such party is entitled to use
of such Transferred Other Business IPR And Technical Information pursuant to a
prior grant and (ii) of any relevant additional information as Seller has the
right to disclose.
Section 4.8 During the course of performance of this Agreement, Seller
or its Affiliates, on the one hand and Purchaser or its Affiliates, on the other
hand (each a "Party"), may disclose certain Confidential Information to the
other Party. Each Party shall, and shall cause its Affiliates to, maintain the
confidentiality of such Confidential Information and shall not, and cause its
Affiliates not to, use, disclose, or otherwise exploit any Confidential
Information for any purpose not expressly contemplated by this Agreement.
Notwithstanding the foregoing, the Party receiving Confidential Information may,
to the extent necessary to effect the meaning and purpose of this Agreement,
disclose the other Party's Confidential Information to third parties in
connection with fulfilling its obligations or enjoying its rights under this
Agreement, Confidential Information on the same terms as, and together, with its
own confidential information. For the purpose of this Agreement, the term
"Confidential Information" as used herein shall mean any data or information
that is designated as confidential by either Party or its Affiliates.
Notwithstanding the foregoing, Confidential Information is deemed not to include
information that (i) is publicly available or in the public domain at the time
disclosed; (ii) is or becomes publicly available or enters the public domain
through no fault of the Party receiving information purported to be
confidential; (iii) is rightfully communicated to the other Party by persons not
bound by confidentiality obligations with respect thereto; (iv) is already in
the other Party's or its Affiliates' possession free of any confidentiality
obligations with respect thereto; (v) is determined to be independently
developed based on reasonable documentation or (vi) is approved for release or
disclosure by Party disclosing information without restriction. As of the
Closing Date, for the avoidance of doubt, the Transferred Other Business IPR And
Technical Information shall be considered the Purchaser's Confidential
Information (to the extent such information otherwise qualifies as Confidential
Information).
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ARTICLE V
DELIVERY AND ALLOCATION
Section 5.1 Delivery of Technical Information. At no charge to the
Purchaser, Seller shall deliver, or cause its appropriate Affiliate to deliver,
to the Purchaser all Technical Information assigned hereunder as it exists on
the Closing Date, and such other tangible items as may be requested to affect
the licenses and transfers hereunder. To the extent that any Software or
Technical Information is capable of being delivered electronically, upon
Purchaser's request, Seller shall deliver such items to Purchaser by electronic
means. Without limiting the foregoing, Seller shall deliver to Purchaser all
files and documents, including patent prosecution files and legal opinions (or
portions thereof) related to the A - Patents.
Section 5.2 Allocation. On the Closing, Purchaser shall designate in
writing to Seller how to allocate the assignments of the A-Patents hereunder
among Purchaser and its Affiliates. Seller shall cooperate with the Purchaser in
effecting such allocation.
Section 5.3 Bankruptcy. All licenses granted to a licensee under or
pursuant to this Agreement are, and shall otherwise be deemed to be, for
purposes of Section 365(n) of the United States Bankruptcy Code, licenses to
rights of "Intellectual Property Rights" as defined thereunder. Notwithstanding
any provision contained herein to the contrary, if a licensor under this
Agreement is under any proceeding under the Bankruptcy Code and the trustee in
bankruptcy of such licensor, or such licensor as a debtor in possession,
rightfully elects to reject the licenses granted to the licensee under this
Agreement, the licensee may, pursuant to 11 U.S.C. Section 365(n)(1) and (2),
retain any and all of the licensee's rights under such licenses, to the maximum
extent permitted by law, otherwise subject to the terms of this Agreement.
Section 5.4 Assignments. Until the consummation of the formal
assignment of the A-Patents and transfer of the related files, Seller will,
without demanding any further consideration therefor, at the reasonable request
and expense of Purchaser, do all lawful and just acts, that may be or become
reasonably necessary for transferring, conveying, prosecuting, sustaining,
obtaining continuations, continuations-in-part, or divisionals of reissuing, or
re-examining the A-Patents and any Other IPR and Technical Information to be
assigned hereunder, and for evidencing, maintaining, recording and perfecting
Purchaser's rights to the A-Patents and any Other IPR and Technical Information
assigned under this Agreement, including but not limited to execution and
acknowledgement of assignments and other instruments in a form reasonably
required by Purchaser for each jurisdiction.
Section 5.5 Power of Attorney. In furtherance of the foregoing, Seller
irrevocably constitutes and appoints Purchaser, with full power of substitution,
to be its true and lawful attorney, and in its name, place or stead, to execute,
acknowledge, swear to and file, all instruments, conveyances, certificates,
agreements and other documents,
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and to take any action which shall be necessary, appropriate or desirable to
effectuate the transfer of the A-Patents and any Other IPR and Technical
Information to be assigned to Purchaser in accordance with the terms of this
Agreement; provided, however, that such power shall be exercised by Purchaser
only in the event that Seller fails after thirty (30) days notice to take the
necessary actions required to effect or record the transfer of such A-Patents or
Other IPR or Technical Information as Purchaser has reasonably requested.
ARTICLE VI
INDEMNIFICATION
Section 6.1 The representations and warranties set forth in Section
3.22 of the Principal Agreement are in lieu of, cancel and supersede any other
representations or warranties given by or on behalf of Seller or its Affiliates
or any of their respective representatives or agents or any other Person at any
occasion, whether in writing or verbally, express or implied, if any. Further,
the parties acknowledge and agree that neither Seller nor its Affiliates shall
have any obligation under this Agreement to maintain or support any of the
Patents, Other IPR or Technical Information or to provide any upgrades or
enhancements thereto to Purchaser or its Affiliates.
Section 6.2 After the Closing occurs, any claim for a breach of any
covenants or agreements of Seller or its Affiliates hereunder or of any of the
representations and warranties contained in Section 3.22 of the Principal
Agreement shall only be enforceable by Purchaser (on behalf of itself and its
Affiliates) against Seller or its Affiliates in accordance with the provisions
of the Principal Agreement and liability (and limitations on such liability) in
respect of any breach of such representations and warranties shall be determined
solely in accordance with the terms of the Principal Agreement.
ARTICLE VII
OTHER COVENANTS
Section 7.1 Subject to compliance with Section 3.4, neither Seller nor
its Affiliates shall have any obligation to prosecute or maintain any Patents,
or to notify Purchaser if Seller or its Affiliates abandon any such Patents.
With respect to any (alleged) infringement or violation by a third party
involving any of the B-Patents, C-Patents, Other IPR or Technical Information
licensed to Purchaser hereunder and/or any of Seller's intellectual property
rights relating to the Patents, Other IPR or Technical Information licensed to
Purchaser and its Affiliates hereunder, Seller or its Affiliates as the case may
be, shall have the right, but not the duty, to assert or commence any action for
infringement or violation of such Patents, Other IPR or Technical Information
against such third party. Any decision to assert or commence any such action
shall be solely with Seller or its Affiliates, as the case may be. At the
request of Seller, Purchaser and its Affiliates shall cooperate, in any
reasonable manner, in taking such action.
Section 7.2 If Purchaser asserts in litigation any patents that
ScanSoft Inc. owns that have or would be entitled to a filing date prior to the
Closing Date (the
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"Non-Assertion Patents") against products of Seller or its Affiliates in the
field of integrated dictation systems in the medical, legal and other
professional markets but excluding general dictation software packaged and sold
through conventional indirect software channels (such an event, an "Assertion
Event"), then Seller, upon written notice to Purchaser (which notice may be
effective immediately), may reduce the scope of the license granted under
Section 3.3 hereof, as provided therein. The covenant contained in this Section
7.2 shall continue to apply with respect to the Non-Assertion Patents,
irrespective of any transfers thereof.
Section 7.3 Each of Seller and Purchaser agrees to negotiate in good
faith a license to the other party (or, if applicable, the other party's
customers or affiliates) on commercially reasonable terms to use any patent
infringed by such party. It is acknowledged and agreed that in the event that
the parties are unable to reach agreement through such negotiations, each party
retains all its remedies under the law.
Section 7.4 Notwithstanding anything herein to the contrary, Seller
shall not be obliged to grant a license hereunder which results in Seller
incurring an obligation to pay royalties or other consideration to third parties
unless Purchaser, at its option, reimburses Seller on an as incurred basis (or
obtains a release of Seller of such obligation). Seller shall promptly inform
Purchaser of any such royalties or other consideration and Purchaser shall
promptly inform Seller whether it wishes to exercise such option.
Section 7.5 Seller agrees that it shall bear any and all costs relating
to the assignment of the A-Patents and the Transferred Other Business IPR And
Technical Information pursuant to this Agreement.
Section 7.6 Seller and Purchaser shall execute and deliver all such
documents and perform all further acts and things as may reasonably required to
implement or give effect to this Agreement and the assignment and licenses
contemplated thereby.
Section 7.7 If Philips learns of any patents in the text to speech
field that have or would be entitled to the benefit of a priority date prior to
the Closing Date that were not transferred to Purchaser as A Patents, then
Seller shall transfer such patents to Purchaser (including taking such actions
under Section 5.4 as necessary to do so).
Section 7.8 Where the consent of any third party is required to enable
the Purchaser to be entitled to the benefit of any rights assigned or licensed
under this Agreement, the Parties shall use commercially reasonable endeavors to
procure such consent.
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ARTICLE VIII
TERMINATION
Section 8.1 Term. This Agreement shall become effective on the Closing
Date and shall remain in effect until terminated upon mutual agreement of the
Parties.
ARTICLE IX
MISCELLANEOUS
Section 9.1 Notices. All notices or other communications hereunder
shall be deemed to have been duly given and made if in writing and if served by
personal delivery upon the party for whom it is intended, if delivered by
registered or certified mail, return receipt requested, or by an international
courier service, or by telecopier, to the person at the address set forth below,
or such other address as may be designated in writing hereafter, in the same
manner, by such person:
To Purchaser:
SCANSOFT, INC.
0 Xxxxxxxxxx Xxxxx,
Xxxxxxx, XX 00000
X.X.X.
Attention: Chief Financial Officer
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
E-mail: Xxxxxxx.Xxxxxx@xxxxxxxx.xxx
With a copy to:
XXXXXX XXXXXXX XXXXXXXX & XXXXXX
000 Xxxx Xxxx Xxxx
Xxxx Xxxx, XX 00000-0000
Attention: Xxxxxx X. Xxxxxxxx, Esq.
Facsimile: (000) 000-0000
To Seller:
KONINKLIJKE PHILIPS ELECTRONICS N.V.
Xxxxxxxx Center Xxxxxxxxxxx 0
X.X. Xxx 00000
A-12
1070 MX Amsterdam
The Netherlands
Attention: General Secretary
Telephone: x00 00 000 0000
Facsimile: x00 00 000 0000
With a copy to:
XXXXXXXX & XXXXXXXX
000 Xxxxx Xxxxxx
Xxx Xxxx, XX 00000
Telephone: (000) 000-0000
Telecopy: (000) 000-0000
Attn: Xxxx Xxxxxxxx
Section 9.2 Amendment. Any provision of this Agreement may be amended
if, and only if, such amendment is in writing and signed, in the case of an
amendment, by Purchaser and Seller.
Section 9.3 Assignment and Sublicensing (a) Except as provided
otherwise herein, none of the rights licensed hereunder is sublicensable, except
that (i) Seller and Purchaser each may sublicense its Affiliates, provided that
each such sublicensed Affiliate agrees to be bound and abide by the terms of
this Agreement and that Seller or Purchaser, as the case may be, causes such
Affiliate to do so; and (ii) Seller and Purchaser each may sublicense developers
or joint ventures (but in any case only to the extent that any product from such
outsourced development is used in its business only or for products as use or
sold by Seller or Purchaser, as applicable), have-made manufacturers,
distributors, customers and end users, in each case, in their respective
capacities as such. For clarification purposes, such sublicenses may be
transferred only in connection with a sale of all or substantially all of the
assets of the sublicensee to which the sublicense relates, or otherwise in
connection with a change of control, merger, reorganization, restructuring,
spin-out or similar transaction.
(b) Neither this Agreement nor any right or obligation under this
Agreement is transferable (whether by assignment, merger, stock purchase,
operation of law or otherwise, (any such transfer, a "Transfer")) in whole or in
part by any Party without the prior written consent of the other Party, which
consent shall not be unreasonably withheld (it being understood that transfer to
a competitor, would be a reasonable basis on which to withhold such consent),
except that such transfers to an Affiliate of Seller or Purchaser, as
applicable, shall be permissible without the need for consent. Neither Party may
transfer this Agreement or any right or obligation under this Agreement to an
Affiliate for the sole or material purpose of, or which transfer to an Affiliate
has a material effect of, circumventing the transfer restriction contained in
the preceding sentence. Notwithstanding the foregoing, Purchaser may Transfer
this Agreement without the need for consent in connection with a sale of all or
substantially
A-13
all of the business to which this Agreement relates (or otherwise in connection
with a stock purchase, merger, reorganization, restructuring or change of
control or otherwise), so long as the sale does not result involve any of the
entities listed in Schedule 9.17 to the Principal Agreement (the "Scheduled
Entities") or their Affiliates. In the event that such a sale does involve any
of the Scheduled Entities: (i) if the Transfer occurs in connection with the
acquisition of Purchaser by one of the Scheduled Entities as a subsidiary, this
Agreement may be transferred with the Purchaser without the need for consent and
will remain in full force and effect so long as such Scheduled Entity confirms
to Seller in writing that it will abide by the scope of the use of the C-Patents
licensed to Purchaser as provided herein and will otherwise abide with the terms
of this agreement (and that it will not transfer other business lines to
Purchaser or otherwise attempt to circumvent the limitations on use of the
C-Patents in this Agreement), and (ii) if the Transfer does not occur as set
forth in (i), this Agreement will continue in full force in effect with respect
to the entity to which this Agreement is transferred without the need for
consent, except that the license granted in Section 3.3 will be reduced in its
scope such that the license is only to use, make, have made, sell, offer for
sale, import and service, and otherwise exploit and dispose of the products of
the business existing or in planning as of three months prior to the execution
of any agreement, consent, order or similar document which results in such
Transfer , and natural successors of such products (such license, a "Reduced C
License"). Further, without limiting the foregoing, Purchaser shall be entitled
to transfer this Agreement without the need for consent in part(s) one time (but
only one time) provided that any rights to C -Patents so transferred shall be
limited to a Reduced C License but Purchaser's right with respect to the
C-Patents shall be remain in effect as set forth herein and unaffected (even if
otherwise purported to be transferred).
(c) Notwithstanding the foregoing provisions (a) and (b) of this
Section 9.3, all rights to Technical Information and Other IP licensed under
this Agreement are freely sublicensable provided that such sublicensee is bound
by confidentiality restrictions no less stringent than those set forth in
Section 4.7.
Section 9.4 Entire Agreement. This Agreement (including all Appendixes,
Schedules, Exhibits and Annexes hereto) contains the entire agreement among the
Parties with respect to the subject matter hereof and supersedes all prior
agreements and understandings, oral or written, with respect to such matters,
except for the Principal Agreement (including all Appendixes, Schedules,
Exhibits, Annexes and Ancillary Agreements thereto) and the Non-Disclosure
Agreement by Seller, on the one hand, and Purchaser, on the other, related to
the subject matter of this Agreement (to the extent such agreements would
otherwise fall within the notion of prior agreements and understandings as meant
in this Section 9.4), which will remain in full force and effect pursuant to the
terms thereof. Any subsequent agreement among the Parties in respect of the
subject matter hereof shall further be subject to the terms of this Agreement
except to the extent such agreement expressly (i) states that it supersedes this
Agreement in relevant part and (ii) refers to this Section 9.4. For
clarification purposes, nothing
A-14
contained in this Agreement shall in any way reduce or limit any of Seller's or
its Affiliates' obligations under Section 5.4 of the Principal Agreement.
Section 9.5 Parties In Interest; No Third Party Beneficiaries. This
Agreement shall inure to the benefit of and be binding upon the Parties hereto
and their respective successors and permitted assigns. Unless this Agreement
expressly provides otherwise, nothing in this Agreement is intended to confer
upon any Person other than Seller and Purchaser or their successors or permitted
assigns, any rights or remedies under or by reason of this Agreement.
Section 9.6 GOVERNING LAW; DISPUTE RESOLUTION. THIS AGREEMENT SHALL BE
DEEMED TO BE MADE IN AND IN ALL RESPECTS SHALL BE INTERPRETED, CONSTRUED AND
GOVERNED BY AND IN ACCORDANCE WITH THE LAW OF THE STATE OF NEW YORK WITHOUT
REGARD TO THE CONFLICT OF LAW PRINCIPLES THEREOF. PARTIES HERETO AGREE THAT ANY
ACTION OR PROCEEDING IN RESPECT OF ANY CLAIM ARISING OUT OF OR RELATED TO THIS
AGREEMENT SHALL BE SOLELY CONDUCTED BY SELLER AND PURCHASER THROUGH PURCHASER
(ON BEHALF OF ITSELF AND ITS AFFILIATES) IN ACCORDANCE WITH THE PROCEDURE
PROVIDED IN THE PRINCIPAL AGREEMENT.
Section 9.7 Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, and all of which
together shall constitute one and the same Agreement. Copies of executed
counterparts transmitted by telecopy, telefax or other electronic transmission
service shall be considered original executed counterparts for purposes of this
Section 9.7, provided that receipt of copies of such counterparts is confirmed.
Section 9.8 Headings. The heading references herein are for convenience
purposes only, do not constitute a part of this Agreement and shall not be
deemed to limit or affect any of the provisions hereof.
Section 9.9 Severability. The provisions of this Agreement shall be
deemed severable and the invalidity or unenforceability of any provision shall
not affect the validity or enforceability of the other provisions hereof. If any
provision of this Agreement, or the application thereof to any person or entity
or any circumstance, is invalid or unenforceable, (a) a suitable and equitable
provision shall be substituted therefor in order to carry out, so far as may be
valid and enforceable, the intent and purpose of such invalid or unenforceable
provision and (b) the remainder of this Agreement and the application of such
provision to other persons, entities or circumstances shall not be affected by
such invalidity or unenforceability, nor shall such invalidity or
unenforceability affect the validity or enforceability of such provision, or the
application thereof, in any other jurisdiction.
Section 9.10 Fulfillment of Obligations. Any obligation of any Party to
the other Party under this Agreement, which obligation is performed, satisfied
or fulfilled
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by a current Affiliate of such Party, shall be deemed to have been performed,
satisfied or fulfilled by such Party.
Section 9.11 English Language. This Agreement shall be made in the
English language, which language shall be controlling in all respects, and all
versions hereof in any other language shall not be binding upon the parties. All
communications and notices to be made pursuant to this Agreement, including all
Exhibits and related documentation, shall be in the English language.
Section 9.12 Expenses. Except as otherwise set forth herein, each Party
shall pay its own legal, accounting and other expenses incidental to this
Agreement and the consummation of the transactions contemplated thereby.
A-16
IN WITNESS WHEREOF, the Parties have executed or caused this Agreement
to be executed as of the date first written above.
KONINKLIJKE PHILIPS ELECTRONICS N.V.
By:
---------------------------------
Name:
Title:
SCANSOFT, INC.
By:
---------------------------------
Name:
Title:
A-17
EXHIBIT D
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED, OR QUALIFIED UNDER APPLICABLE STATE SECURITIES LAWS,
AND MAY NOT BE SOLD, ASSIGNED OR TRANSFERRED WITHOUT AN EFFECTIVE REGISTRATION
STATEMENT FOR SUCH SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
UNLESS THE COMPANY HAS RECEIVED THE WRITTEN OPINION OF COUNSEL, REASONABLY
SATISFACTORY TO THE COMPANY TO THE EFFECT THAT SUCH SALE, ASSIGNMENT OR TRANSFER
DOES NOT INVOLVE A TRANSACTION REQUIRING REGISTRATION OF SUCH SECURITIES UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS.
SCANSOFT, INC.
PROMISSORY NOTE
Euro 5,000,000 __________ __, 200_
1. Principal and Interest. ScanSoft, Inc. (the "COMPANY"), a Delaware
corporation, for value received, hereby promises to pay to the order of
KONINKLIJKE PHILIPS ELECTRONICS N.V., a limited liability company organized
under the laws of The Netherlands ("PAYEE") in lawful euro money at the
principal office of the Company, the principal amount of Euro Five Million (euro
5,000,000), together with simple interest at the rate of five per cent per
annum. Accrued interest shall be payable in cash at the time the Company pays
the principal amount of this Note. This Note is due and payable on demand, which
may be made at any time after December 31, 2003 (the "MATURITY DATE").
2. No Payment if Unlawful. Notwithstanding anything herein to the
contrary, no payment hereunder shall be required at any time that such payment
would be unlawful under any applicable law.
3. Attorneys' Fees. If the indebtedness represented by this Note or any
part thereof is collected in bankruptcy, receivership or other judicial
proceedings or if this Note is placed in the hands of attorneys for collection
after default, Company agrees to pay, in addition to the principal and interest
payable hereunder, reasonable attorneys' fees and costs incurred by Payee.
4. Prepayment. This Note may be pre-paid by the Company at any time.
5. Acceleration. This Note shall become immediately due and payable if (i)
the Company commences any proceeding in bankruptcy or for dissolution,
liquidation, winding-up, or other relief under state or federal bankruptcy laws;
(ii) such proceedings are commenced against the Company, or a receiver or
trustee is appointed for the Company or a substantial part of its property, and
such proceeding or appointment is not dismissed or discharged within 60 days
after its commencement; (iii) the Company is unable to, or admits in writing its
inability to, pay its debt when they become due; (iv) the Company makes an
assignment for the benefit of creditors, or petitions or applies to any tribunal
for the appointment of a custodian, receiver or trustee for it or a substantial
portion of its
assets or has a receiver, custodian or trustee appointed for all or a
substantial portion of its assets; or (v) the Company takes any action
effectuating, approving or consenting to any of the foregoing.
6. Waivers. Company hereby waives presentment, demand for performance,
notice of non-performance, protest, notice of protest and notice of dishonor. No
delay on the part of Payee in exercising any right hereunder shall operate as a
waiver of such right or any other right. The rights and remedies herein provided
shall be cumulative and not exclusive of any rights or remedies provided by law.
No course of dealing between the Company and Payee shall operate as a waiver of
any rights by Payee. This Note is being delivered in and shall be construed in
accordance with the laws of the State of New York, without regard to the
conflicts of laws provisions thereof.
7. Representations and Warranties.
(a) By the Payee. Payee represents and warrants to the Company as
follows:
(i) Investment Intent. Payee, by acceptance of this Note,
represents and warrants to the Company that this Note is for Payee's own account
for investment and not with view to resale or distribution of this Note. Payee
is an "accredited investor" within the meaning of Rule 501 of Regulation D under
the Securities Act of 1933, as amended (the "ACT"). Payee understands that the
Note has not been registered under the Act by reason of a specific exemption
from the registration provisions of the Act that depends upon, among other
things, the bona fide nature of the investment intent as expressed herein.
(ii) Rule 144. Payee acknowledges that the Note must be held
indefinitely unless subsequently registered under the Act, or unless an
exemption from such registration is available. Payee is aware of the provisions
of Rule 144 promulgated under the Act that permit limited resale of securities
purchased in a private placement subject to the satisfaction of certain
conditions. Payee acknowledges that if such conditions are not obtained, Payee
may be required to hold the Note indefinitely.
(b) By the Company. The Company represents and warrants to Payee as
follows:
(i) Authorization. The Company has duly authorized the sale
and issuance of the Note. All corporate action on the part of the Company, its
directors and stockholders necessary for the issuance of the Note and the
performance of the Company's obligations under the Note have been duly taken.
The Note is a valid, binding and enforceable obligation of the Company, subject
to applicable bankruptcy, insolvency, organization or similar laws relating to
or affecting the enforcement of creditor's rights and to the availability of the
remedy of specific performance. The execution and delivery of the Note and the
performance by the Company of its terms do not violate, conflict with or result
in a material breach of (i) the Company's Certificate of Incorporation, as
amended through the Closing; (ii) the Company's bylaws; or (iii) any judgment,
decree, order, statute, injunction, rule or regulation of any governmental
authority.
(ii) Valid Issuance. Based in part upon the representations of
Payee above, this Note has been issued in compliance with all federal and state
securities laws (including Section 4(2) of the Act). Without limiting the
generality of the foregoing, neither the Company nor any agent on its behalf has
solicited or will solicit any offers to sell, or has offered to sell or will
offer to sell, any equity, debt or other securities of the Company to any person
or persons so as to bring the issuance or sale by the Company of this Note
within the registration provisions of the Act.
-2-
8. Notices. Any notice, other communication or payment required or
permitted hereunder shall be in writing and shall be deemed to have been given
upon delivery if personally delivered or upon deposit if deposited in the United
States mail for mailing by certified mail, postage prepaid, and addressed as
follows:
If to Payee:
KONINKLIJKE PHILIPS ELECTRONICS N.V.
Xxxxxxxx Center Xxxxxxxxxxx 0
X.X. Xxx 00000
0000 XX Xxxxxxxxx
The Netherlands
Attention: General Secretary
Telephone: x00 00 000 0000
Facsimile: x00 00 000 0000
With a copy to:
XXXXXXXX & XXXXXXXX
000 Xxxxx Xxxxxx
Xxx Xxxx, XX 00000
Telephone: (000) 000-0000
Telecopy: (000) 000-0000
Attn: Xxxx Xxxxxxxx
If to Company:
ScanSoft, Inc.
0 Xxxxxxxxxx Xxxxx
Xxxxxxx, XX 00000
X.X.X.
Attention: Chief Financial Officer
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
With a copy to:
Xxxxxx Xxxxxxx Xxxxxxxx & Xxxxxx, P.C.
0000 Xxxxx Xxxxxx Xxxxx, Xxxxx 000
XxXxxx, XX 00000
X.X.X.
Attention: Xxxxxx X. Xxxxxxx, Esq.
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
-3-
Each of the above addressees may change its address for purposes of this
paragraph by giving to the other addressee notice of such new address in
conformance with this paragraph.
9. Amendment. This Note may be amended, or any provision hereof may be
waived, in a writing signed by the Company and Payee.
10. Severability. In the event that one or more of the provisions of this
Note shall for any reason be held invalid, illegal or unenforceable in any
respect, such invalidity, illegality or unenforceability shall not affect any
other provision of this Note, but this Note shall be construed as if such
invalid, illegal or unenforceable provision had never been contained herein.
11. No Impairment. The Company shall not intentionally take any action
which would impair the rights and privileges of this Note as set forth herein or
the rights and privileges of Payee as set forth herein or as afforded under
applicable law.
12. Replacement Note. In the event that Payee notifies the Company that
this Note has been lost, stolen or destroyed, a replacement Note identical in
all respects to the original Note shall be issued by the Company to Payee.
13. Assignment. Neither this Note nor any of the rights, interests or
obligations hereunder may be assigned, by operation of law or otherwise, in
whole or in part, by either party without the prior written consent of the other
party.
14. Successors and Assigns. Subject to the restrictions on assignment
described in Section 13 above, the rights and obligations of the Company and
Payee of this Note shall be binding upon and benefit the successors, assigns,
heirs, administrators and transferees of the parties.
[SIGNATURE PAGE TO FOLLOW]
-4-
This Note has been executed as of the date first set forth above.
SCANSOFT, INC. KONINKLIJKE PHILIPS ELECTRONICS N.V.
By: By:
------------------------------------- -------------------------------
Name: Name:
------------------------------------- -------------------------------
Title: Title:
------------------------------------- -------------------------------
EXHIBIT G
THIS SECURITY AND THE COMMON STOCK ISSUABLE UPON ITS CONVERSION HAVE NOT
BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT"), AND MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE
TRANSFERRED EXCEPT PURSUANT TO AN AVAILABLE EXEMPTION FROM REGISTRATION UNDER
THE SECURITIES ACT AND IN ACCORDANCE WITH ALL APPLICABLE SECURITIES LAWS OF THE
STATES OF THE UNITED STATES AND OTHER JURISDICTIONS AND IN NO EVENT MAY THIS
NOTE BE TRANSFERRED WITHOUT THE CONSENT OF THE COMPANY OTHER THAN IN WHOLE TO
HOLDER'S PARENT OR A MAJORITY OWNED SUBSIDIARY OF THE HOLDER. THE COMMON STOCK
ISSUABLE UPON CONVERSION OF THIS NOTE SHALL BE SUBJECT TO THAT CERTAIN PLAN OF
DISTRIBUTION AGREEMENT DATED JANUARY __, 2003 BY AND BETWEEN __________ AND
__________.
SCANSOFT, INC.
ZERO COUPON CONVERTIBLE SUBORDINATED NOTE DUE 2006
[DATE] [______________]
ScanSoft, Inc., a Delaware corporation (the "Company"), for value
received, hereby promises to pay to [Koninklijke Philips Electronics N.V. (the
"Holder") or its designated majority-owned subsidiary] the principal sum of
Twenty-Seven Million Five Hundred and Twenty-Four Thousand U.S. Dollars
($27,524,000) on January ___ 2006 (the third anniversary from the date of
issuance) or such earlier date as required by the provisions of this Note. After
January ___, 2006, the Company will pay interest on any overdue principal and
interest amount at the rate of 3% per quarter payable quarterly.
1. CONVERSION.
(a) The Holder of this Note is entitled at any time before the close
of business on the date this Note is paid in full pursuant to the terms hereof,
but prior to such payment (or, if the Holder has exercised his right to require
the Company to redeem this Note or a portion hereof pursuant to Section 2
hereof, then in respect of this Note or such portion hereof, until and
including, but (unless the Company defaults in making the payment due upon
redemption) not after, 5:00 p.m., New York City time, on the Business Day prior
to the Redemption Date), to convert this Note (or any portion of the principal
amount hereof that is an integral multiple of $1,000), into fully paid and
nonassessable Common Stock (as hereinafter defined) of the Company at the rate
of 166.6667 shares of Common Stock for each $1,000 principal amount of this Note
(or at the then current adjusted rate if an adjustment has been made as provided
below) (the "Conversion Rate") by surrender of this Note accompanied by written
notice to the Company that the Holder hereof elects to convert this Note (or if
less than the entire principal amount hereof is to be converted, specifying the
portion hereof to be converted). If less than the entire principal amount of
this Note is to be converted, it shall be surrendered to the Company at the
Designated Office (with, if the Company so requires, due
endorsement by, or a written instrument of transfer in form reasonably
satisfactory to the Company duly executed by the Holder hereof or his attorney
duly authorized in writing), and the Company shall execute and make available
for delivery to the Holder without service charge, a new Note, containing
identical terms and conditions, each in an authorized denomination in aggregate
principal amount equal to and in exchange for the unconverted portion of the
principal of the Note so surrendered. The Company shall deliver to the Holder of
this Note as soon as practicable after delivery by the Holder of this Note to
the Company, but not more than fifteen (15) Trading Days after such delivery,
the certificates representing shares of Common Stock issuable upon conversion of
this Note and cash in lieu of any fractional shares.
(b) The Conversion Rate will be subject to adjustments from time to time
as follows:
(1) If the Company shall pay or make a dividend or other
distribution on Common Stock of the Company payable in Common Stock, the
Conversion Rate in effect at the opening of business on the day following the
Determination Date (as hereinafter defined) for such dividend or other
distribution shall be increased by dividing such Conversion Rate by a fraction
of which the numerator shall be the number of shares of Common Stock outstanding
at the close of business on such Determination Date and the denominator shall be
the sum of such number of shares of Common Stock and the total number of shares
of Common Stock constituting such dividend or other distribution, such increase
to become effective immediately after the opening of business on the day
following such Determination Date.
(2) If the Company shall issue rights, options or warrants to
holders of its Common Stock entitling them to subscribe for or purchase Common
Stock at a price per share less than the current market price per share
(determined as provided in paragraph (7) of this Section 1(b)) of the Common
Stock on the Determination Date for such distribution, the Conversion Rate in
effect at the opening of business on the day following such Determination Date
shall be increased by dividing such Conversion Rate by a fraction of which the
numerator shall be the number of shares of Common Stock outstanding at the close
of business on such Determination Date plus the number of shares of Common Stock
which the aggregate of the offering price of the total number of shares of
Common Stock so offered for subscription or purchase would purchase at such
current market price and the denominator shall be the number of shares of Common
Stock outstanding at the close of business on such Determination Date plus the
number of shares of Common Stock so offered for subscription or purchase, such
increase to become effective immediately after the opening of business on the
day following such Determination Date. Upon the expiration of any right, option
or warrant to purchase Common Stock the issuance of which resulted in an
adjustment to the Conversion Rate pursuant to this paragraph (2) of Section
1(b), if any such right, option or warrant shall expire and shall not have been
exercised, the Conversion Rate shall immediately upon such expiration be
recomputed to the Conversion Rate which would have been in effect had the
adjustment of the Conversion Rate made upon the issuance of such right, option
or warrant been made on the basis of offering for subscription or purchase only
that number of shares of Common Stock actually purchased upon the exercise of
such right, option and warrant actually exercised.
(3) If the outstanding Common Stock of the Company shall be
subdivided into a greater number of shares of Common Stock, the Conversion Rate
in effect at the opening of
-2-
business on the day following the day upon which such subdivision becomes
effective shall be proportionately increased, and, conversely, if outstanding
Common Stock shall each be combined into a smaller number of shares of Common
Stock, the Conversion Rate in effect at the opening of business on the day
following the day upon which such combination becomes effective shall be
proportionately reduced, such increase or reduction, as the case may be, to
become effective immediately after the opening of business on the day following
the day upon which such subdivision or combination becomes effective.
(4) If the Company shall, by dividend or otherwise, distribute to
all holders of its Common Stock evidences of its indebtedness, shares of any
class of capital stock, or other property (including securities, but excluding
(i) any rights, options or warrants referred to in paragraph (2) of this Section
1(b), (ii) any dividend or distribution paid exclusively in cash, (iii) any
dividend or distribution referred to in paragraph (1) of this Section 1(b) and
(iv) any merger or consolidation to which Section 1(f) applies (the "Distributed
Property"), the Conversion Rate shall be adjusted so that the same shall equal
the rate determined by dividing the Conversion Rate in effect immediately prior
to the close of business on the Determination Date for such distribution by a
fraction of which the numerator shall be the current market price per share
(determined as provided in paragraph (7) of this Section 1(b)) of the Common
Stock on such Determination Date less the then fair market value of the portion
of the assets, shares or evidences of indebtedness so distributed applicable to
one share of Common Stock and the denominator shall be such current market price
per share of the Common Stock, such adjustment to become effective immediately
prior to the opening of business on the day following such Determination Date;
provided, however, that if the Distributed Property consists of shares of
capital stock of a subsidiary, the Company will make adequate provision so that
the Holder shall have the right to receive upon conversion the amount of such
shares of capital stock that such Holder would have received if such Holder had
converted such Note on the record date, in which case there will be no
adjustment to the Conversion Price.
Under the provisions of the Company's Rights Plan, upon conversion of the
Note into Common Stock, to the extent that the Rights Plan is still in effect
upon such conversion, the Holder will receive, in addition to the Common Stock,
the rights described therein (whether or not the rights have separated from the
Common Stock at the time of conversion), subject to the limitations set forth in
the Rights Plan. Any distribution of rights or warrants pursuant to the Rights
Plan in compliance with the requirements set forth in the immediately preceding
sentence of this paragraph shall not constitute a distribution of rights or
warrants pursuant to this Section 1(b).
(5) If the Company shall, by dividend or otherwise, distribute to
all holders of its Common Stock cash (excluding any cash that is distributed as
part of a distribution referred to in paragraph (4) of Section 1(b)) in
aggregate amount that, combined together with (I) the aggregate amount of any
other cash distributions to all holders of its Common Stock made exclusively in
cash within the twelve (12) months preceding the date of payment of such
distribution and in respect of which no adjustment pursuant to this paragraph
(5) of Section 1(b) has been made and (II) the aggregate of any cash plus the
fair market value of consideration payable in respect of any tender offer by the
Company or any of its subsidiaries for all or any portion of the Common Stock
(other than Common Stock purchased by the Company at or below fair market value)
concluded within the twelve (12) months preceding the date of payment of such
distribution (the "combined cash amount"), exceeds fifty percent (50%) of the
net earnings of the Company
-3-
determined in accordance with GAAP for the trailing twelve month period
preceding the date of such distribution (the "aggregate earnings"), then, and in
each such case, immediately after the close of business on such date for
determination, the Conversion Rate shall be adjusted so that the same shall
equal the rate determined by dividing the Conversion Rate in effect immediately
prior to the close of business on the date fixed for determination of the
stockholders entitled to receive such distribution by a fraction (i) the
numerator of which shall be equal to the current market price per share of the
Common Stock on the date fixed for such determination less an amount equal to
the quotient of (x) the excess of such combined cash amount over the aggregate
earnings divided by (y) the number of shares of Common Stock outstanding on such
date for determination and (ii) the denominator of which shall be equal to the
current market price per share of the Common Stock on such date for
determination.
(6) If the Company issues Common Stock or securities (including
options and warrants) convertible into, or exchangeable for, Common Stock at a
price per share (or having a conversion or exchange price per share) that is
less than the fair market value per share of the Common Stock at the date of
issuance (but excluding issuances: (a) pursuant to any bona fide plan for the
benefit of employees or directors of the Company now in effect or any comparable
plans adopted in the future, provided such future plans contain terms and
conditions that, taken as a whole, are no more favorable than the Company's
current plans; (b) to acquire all or any portion of a business in an
arm's-length transaction between the Company and an unaffiliated third party
including, if applicable, issuances upon exercise of options or warrants assumed
in connection with such an acquisition; and (c) pursuant to the exercise of
warrants, rights or options, or upon the conversion of convertible securities,
which are issued and outstanding on the date hereof, or which may be issued in
the future at fair value and with an exercise price or conversion price at least
equal to the current market price per share (determined as provided in paragraph
(7) of this Section 1(b)) of the Common Stock at the time of issuance of such
warrant, right, option or convertible security, the Conversion Rate in effect at
the opening of business on the day following the date on which any such issuance
is made shall be increased by multiplying such Conversion Rate by a fraction of
which the numerator shall be the sum of the number of shares of Common Stock
(assuming for purposes hereof the conversion or exercise of all outstanding
securities convertible into or exchangeable for Common Stock) outstanding on
such date plus the number of additional shares of Common Stock issued (or into
which the convertible securities may convert), and the denominator of which
shall be the sum of the number of shares of Common Stock (assuming for purposes
hereof the conversion or exercise of all outstanding securities convertible into
or exchangeable for Common Stock) outstanding on such date plus the number of
shares of Common Stock which the aggregate consideration receivable by the
Company for the total number of shares of Common Stock so issued (or into which
the convertible securities may convert) would purchase at the fair market value
per share of the Common Stock on such date. An adjustment made pursuant to this
paragraph (6) shall be made on the next Business Day following the date on which
any such issuance is made and shall be effective retroactively immediately after
the close of business on such date. For purposes of this paragraph (6), the
aggregate consideration receivable by the Company in connection with the
issuance of shares of Common Stock or of securities convertible into shares of
Common Stock shall be deemed to be equal to the sum of the aggregate offering
price (before deduction of underwriting discounts or commissions and expenses
payable to third parties) of all such securities plus the minimum aggregate
amount, if any, payable upon conversion of any such convertible securities into
shares of Common Stock.
-4-
(7) For the purpose of any computation under paragraphs (2), (4),
(5) or (6) of this Section 1(b), the current market price per share of Common
Stock on any date shall be deemed to be the average of the daily Closing Prices
for the five (5) consecutive Trading Days commencing ten (10) Trading Days
before the earlier of (i) the day in question and (ii) the day before the "ex"
date with respect to the issuance or distribution requiring such computation.
For purposes of this paragraph, the term "ex date", when used with respect to
any issuance or distribution, means the first date on which the Common Stock
trades regular way in the applicable securities market or on the applicable
securities exchange without the right to receive such issuance or distribution.
(c) The Company shall promptly notify the Holder pursuant to Section
8(b) of any adjustment to the Conversion Rate required by paragraphs (1), (2),
(3), (4), (5) and (6) of this Section 1(b).
(d) The Company shall at all times reserve and keep available, free
from preemptive rights, out of its authorized but unissued Common Stock, for the
purpose of effecting the conversion of the Note, the full number of shares of
Common Stock then issuable upon the conversion of this Note.
(e) The Company agrees that all Common Stock which may be delivered
upon conversion of the Note, upon such delivery, will have been duly authorized
and validly issued and will be fully paid and nonassessable and free of
preemptive rights (and shall be issued out of the Company's authorized but
unissued Common Stock).
(f) In the event of any recapitalization or reclassification of the
Common Stock (other than a change in par value, or as a result of a subdivision
or combination covered by paragraph (3) of this Section 1(b)) (collectively, a
"Capital Reorganization"), the Company shall execute and deliver to the Holder a
supplemental agreement providing that the Holder has the right thereafter,
during the period this Note shall be convertible as specified in Section 1(a),
to convert this Note only into the kind and amount of securities, cash and other
property receivable upon such Capital Reorganization by a holder of the number
of shares of Common Stock of the Company into which this Note might have been
converted immediately prior to such Capital Reorganization, and, if holders of
the Company's Common Stock are given the right to elect the kind or amount of
securities, cash or other property receivable upon such Capital Reorganization,
then the Holder shall be provided the right to so elect and notice of such right
to elect on the same terms and conditions offered to the holders of the
Company's Common Stock.
(g) The Company shall not consummate a transaction pursuant to which it
is acquired by or merged or consolidated into another Person or convey, transfer
or sell all or substantially all of its assets (an "Acquisition Event"), unless
the successor Person (or its ultimate parent, if applicable) agrees to enter
into a supplemental agreement pursuant to which such Person (or its ultimate
parent, if applicable) (or the acquiror if there is no successor Person) shall
agree that this Note shall become convertible into the common stock of such
Person (or its ultimate parent, if applicable) at a Conversion Rate such that
this Note shall be no more in-the-money or out-of-the-money as this Note should
have been immediately prior to such Acquisition Event; provided, however, that
no such supplemental agreement shall be required in the event that the Holder
elects to
-5-
exercise its rights under Section 2 hereof with respect to such Acquisition
Event. Such supplemental agreements shall provide for adjustments, which, for
events subsequent to the effective date of such supplemental agreement, shall be
equivalent to the adjustments provided for in this Section 1. The above
provisions of this Section 1(f) shall similarly apply to successive Capital
Reorganizations or Acquisition Events. If this Section 1(f) applies to any event
or occurrence, then the other provisions of Section 1(b) shall not apply to the
extent their application would result in duplicative adjustments in the
Conversion Rate.
(h) Any stock certificate representing shares of Common Stock issued
upon conversion of the Note shall bear a restricted securities legend in the
form and substance to be determined by the Company, unless such shares of Common
Stock have been sold pursuant to a registration statement that has been declared
effective under the Securities Act (and which continues to be effective at the
time of such transfer) or sold pursuant to Rule 144(k) of the Securities Act, or
unless otherwise agreed by the Company in writing with written notice thereof to
the transfer agent for the Common Stock.
2. RIGHT TO ACCELERATE REDEMPTION.
(a) In the event that:
(1) the Company enters into a definitive agreement to effect a
Change in Control (as hereinafter defined) (a "Pending Change in Control"), then
the Holder shall have the right, at the Holder's option, to require the Company
to redeem this Note, or any portion of the principal amount hereof that is equal
to $1,000 or any integral multiple thereof, on the date the Change in Control
occurs; provided that the Holder's right to require the Company to redeem shall
be conditioned upon the occurrence of such Change in Control; or
(2) a Change in Control shall occur without the occurrence of a
prior and related Pending Change in Control, then the Holder shall have the
right, at the Holder's option, to require the Company to redeem this Note, or
any portion of the principal amount hereof that is equal to $1,000 or any
integral multiple thereof, on the Redemption Date that is sixty (60) calendar
days (or such longer period as required by applicable law) after the date on
which the Company gives notice of such Change in Control to the Holder; and
in either case at a purchase price equal to the outstanding
principal amount hereof. The Company agrees to give the Holder notice, in the
manner provided in Section 8(b), of any Change in Control or Pending Change in
Control, as the case may be, promptly and in any event within five (5) Business
Days of the occurrence thereof. The date of such redemption shall be referred to
herein as the "Redemption Date."
(b) To exercise a redemption right, the Holder shall deliver to the
Company on or before the 5th Business Day prior to the Redemption Date (provided
that the Company shall have delivered notice of the Change in Control or Pending
Change in Control as provided above), together with this Note, written notice of
the Holder's exercise of such right, which notice shall set forth the name of
the Holder, the principal amount of this Note to be redeemed (and, if this Note
is to be redeemed in part, the portion of the principal amount thereof to be
redeemed) and a statement that an
-6-
election to exercise the redemption right is being made thereby. Such written
notice shall be irrevocable, except that the right of the Holder to convert this
Note (or the portion hereof with respect to which the redemption right is being
exercised) shall continue until the close of business on the Trading Day prior
to the Redemption Date. The Holder's right to require the redemption of the
Note, in whole or in part, pursuant to the terms of this Section 2 shall expire
at 12:01 a.m., New York City time, on the day following the 5th Business Day
prior to the Redemption Date.
(c) If this Note is to be redeemed only in part, it shall be
surrendered to the Company at the Designated Office (with, if the Company so
requires, due endorsement by, or a written instrument of transfer in form
satisfactory to the Company duly executed by the Holder hereof or his attorney
duly authorized in writing), and the Company shall execute and make available
for delivery to the Holder without service charge, a new Note, containing
identical terms and conditions, each in an authorized denomination in aggregate
principal amount equal to and in exchange for the unredeemed portion of the
principal of the Note so surrendered.
(d) For purposes of this Section 2:
(1) the term "beneficial owner" shall be determined in accordance
with Rule 13d-3 promulgated by the Securities and Exchange Commission pursuant
to the Exchange Act;
(2) a "Change in Control" shall be deemed to have occurred at the
time, after the original issuance of this Note, of:
(i) the acquisition by any Person of beneficial ownership,
directly or indirectly, through a purchase, merger or other acquisition
transaction or series of transactions, of shares of capital stock of the Company
entitling such Person to exercise 40% or more of the total voting power of all
shares of capital stock of the Company entitled to vote generally in the
elections of directors (any shares of voting stock of which such Person is the
beneficial owner that are not then outstanding being deemed outstanding for
purposes of calculating such percentage) other than any such acquisition by the
Company; or
(ii) any consolidation or merger of the Company into, any
other Person, any merger of another Person with or into the Company, or any
conveyance, transfer, sale, lease or other disposition of all or substantially
all of the assets of the Company to another Person (other than (a) any such
transaction pursuant to which holders of Common Stock immediately prior to such
transaction have the entitlement to exercise, directly or indirectly, 60% or
more of the total voting power of all shares of capital stock entitled to vote
generally in the election of directors of the continuing or surviving Person
immediately after such transaction and (b) any merger (x) which does not result
in any reclassification, conversion, exchange or cancellation of outstanding
Common Stock or (y) which is effected solely to change the jurisdiction of
incorporation of the Company and results in a reclassification, conversion or
exchange of outstanding Common Stock into solely shares of common stock,
provided that with respect to clauses (x) and (y) the holders of Common Stock
immediately prior to any such transaction have the entitlement to exercise,
directly or indirectly, 60% or more of the total voting power of all shares of
capital stock entitled to vote generally in the election of directors of the
continuing or surviving Person immediately after such transaction).
-7-
3. CERTAIN COVENANTS.
Notwithstanding anything contained in the provisions of paragraphs (4) and
(5) of Section 1 of this Note, so long as this Note remains outstanding and no
Event of Default has occurred or is continuing, the Company will not declare or
pay any dividend or distribution (other than distributions of equity securities
of the Company) on, or redeem or purchase, any share of any equity security of
the Company, except that the Company may purchase shares of its Common Stock to
the extent that the aggregate amount of all such purchases (net of any sales by
the Company of shares of its Common Stock) during the period from the date
hereof does not exceed in the aggregate the greatest of (i) 50% of the net
earnings of Company determined in accordance with GAAP from October __, 2002,
(ii) an amount of Common Stock of the Company equal to the sum of 5% of the
outstanding Common Stock of the Company plus any and all Common Stock of the
Company issued and sold by the Company after the date hereof , or (iii)
$10,000,000; provided, however, that in the event that and so long as an Event
of Default has occurred and is continuing, the Company shall be prohibited from
redeeming or purchasing any share of any equity security of the Company. The
restrictions contained in this Section 3 shall be of no further force and effect
upon the conversion into Common Stock of one-half or more of the principal
amount of this Note pursuant to the terms hereof; provided, that in the event
that an Event of Default shall occur and only for as long as such Event of
Default shall be continuing, the Company will not declare or pay any dividend or
distribution or redeem or purchase any shares of any equity security of the
Company.
4. EVENTS OF DEFAULT.
(a) "Event of Default", wherever used herein, means any one of the
following events (whatever the reason for such Event of Default and whether it
shall be voluntary or involuntary or be effected by operation of law or pursuant
to any judgment, decree or order of any court or any order, rule or regulation
of any administrative or governmental body):
(1) default in the payment of any principal on this Note when
due or interest upon this Note when it becomes due and payable and continuance
of such default for a period of fifteen (15) days;
(2) a material breach of the covenants (other than any notice
provisions contained herein) specified in this Note and continuance of such
breach for a period of fifteen (15) days after there has been given, by
registered or certified mail, to the Company by the Holder a written notice
specifying such breach and requiring it to be remedied and stating that such
notice is a "Notice of Default" hereunder;
(3) the entry by a court having jurisdiction in the premises
of (A) a decree or order for relief in respect of the Company (or its parent, if
applicable) in an involuntary case or proceeding under any applicable Federal or
State bankruptcy, insolvency, reorganization or other similar law or (B) a
decree or order approving as properly filed a petition seeking reorganization,
arrangement, adjustment or composition of or in respect of the Company (or its
parent, if applicable) under any applicable Federal or State law, or appointing
a custodian, receiver, liquidator, assignee,
-8-
trustee, sequestrator or other similar official of the Company, or ordering the
winding up or liquidation of its affairs, and the continuance of any such decree
or order for relief or any such other decree or order unstayed and in effect for
a period of 60 consecutive days; or
(4) the commencement by the Company (or its parent, if
applicable) of a voluntary case or proceeding under any applicable Federal or
State bankruptcy, insolvency, reorganization or other similar law or of any
other case or proceeding to be adjudicated a bankrupt or insolvent, or the
consent by the Company (or its parent, if applicable) to the entry of a decree
or order for relief in respect of the Company (or its parent, if applicable) in
an involuntary case or proceeding under any applicable Federal or State
bankruptcy, insolvency, reorganization or other similar law or to the
commencement of any bankruptcy or insolvency case or proceeding against the
Company (or its parent, if applicable), or the filing by the Company of a
petition or answer or consent seeking reorganization or similar relief under any
applicable Federal or State law, or the consent by it to the filing of such
petition or to the appointment of or taking possession by a custodian, receiver,
liquidator, assignee, trustee, sequestrator or other similar official of the
Company, or the making by the Company of an assignment for the benefit of
creditors, or the admission by the Company (or its parent, if applicable) in
writing of its inability to pay its debts generally as they become due, or the
taking of corporate action by the Company in furtherance of any such action.
(b) If an Event of Default occurs and is continuing, the principal
of this Note shall ipso facto become immediately due and payable without any
declaration or other act of the Holder.
5. CONSOLIDATION, MERGER, ETC.
The Company shall not consolidate with or merge into any other Person or,
directly or indirectly, convey, transfer or sell all or substantially all of its
properties and assets to any Person, unless:
(a) if the Company shall consolidate with or merge into another
Person or convey, transfer, sell or lease all or substantially all of its
properties and assets to any Person, the Person formed by such consolidation or
into which the Company is merged or the Person which acquires by conveyance,
transfer or sale, or which leases, all or substantially all the properties and
assets of the Company shall be a corporation, limited liability company,
partnership or trust, shall be organized and validly existing under the laws of
the United States of America, any State thereof or the District of Columbia, and
shall expressly assume, if other than the Company, by an agreement supplemental
hereto, executed and delivered to the Holder in form satisfactory to the Holder,
the due and punctual payment of the principal of this Note and the performance
or observance of every covenant of this Note (including the conversion
provisions contained herein) on the part of the Company to be performed or
observed, including the conversion rights provided herein; and
(b) upon any consolidation of the Company with, or merger of the
Company into, any other Person or any conveyance, transfer, sale or lease of all
or substantially all of the properties and assets of the Company in accordance
with Section 5(a), the successor Person formed by such consolidation or into
which the Company is merged or to which such conveyance, transfer, sale or lease
is made shall enter into a supplemental agreement pursuant to which such Person
shall succeed
-9-
to, and be substituted for, and may exercise every right and power of, the
Company under this Note with the same effect as if such successor Person had
been named as the Company herein, and thereafter the predecessor Person shall be
relieved of all obligations and covenants under this Note.
6. SUBORDINATION.
(a) The Company covenants and agrees, and the Holder by its
acceptance hereof likewise covenants and agrees, that this Note is subject to
the provisions of this Section 6; and the Holder by acceptance hereby accepts
and agrees to be bound by such provisions.
The payment of the principal of this Note (including, but not limited to,
the redemption price with respect to this Note) shall, to the extent and in the
manner hereinafter set forth, be subordinated in right of payment to the prior
payment in full, in cash or in such other form of payment as may be acceptable
to the holders of Senior Debt, of all Senior Debt, whether outstanding at the
date of original issuance of this Note or thereafter incurred or created.
No provision of this Section 6 shall prevent the occurrence of any default
or Event of Default under this Note.
(b) Payments to the Holder. No payment (including pursuant to any
redemption of this Note) shall be made with respect to the principal of this
Note, if:
(1) a default in the payment of principal, premium, if any, or
interest or other payment due on Senior Debt (other than indebtedness for trade
payables) occurs and is continuing beyond any applicable period of grace (a
"Payment Default"); or
(2) a default, other than a Payment Default, occurs and is
continuing with respect to Designated Senior Debt that then permits holders of
the Designated Senior Debt as to which such default related to accelerate its
maturity and the Holder and the Company receive a written notice of such default
(a "Payment Blockage Notice") from a representative of Designated Senior Debt or
a holder of Designated Senior Debt or the Company (a "Non-Payment Default").
The Company may and shall resume payments on this Note (1) in the case of
a Payment Default, on the date upon which such default is cured or waived or
ceases to exist, and (2) in the case of a Non-Payment Default with respect to
Designated Senior Debt, on the earlier of the date on which the Non-Payment
Default is cured or waived or ceases to exist or 179 days have passed after the
date on which the applicable Payment Blockage Notice is received. The Company
will provide prompt notice to the Holder if a Payment Default occurs or it
receives a Payment Blockage Notice.
Notwithstanding the foregoing, in the event that the Holder receives any
payment or distribution of assets of the Company of any kind in contravention of
any term of this Section 6, whether in cash, property or securities, including,
without limitation, by way of setoff or otherwise, before all Senior Debt is
paid in full, in cash or such other form of payment as may be acceptable to the
holders of Senior Debt, then such payment or distribution shall be held by the
recipient or recipients in trust for the benefit of, and shall immediately be
paid over or delivered to, the holders of Senior Debt or their respective
representative or representatives, or to the trustee or trustees under any
indenture pursuant to which any instruments evidencing any Senior Debt may have
been issued,
-10-
as their respective interests may appear, as calculated by the Company, for
application to the payment of all Senior Debt remaining unpaid to the extent
necessary to make payment in full, in cash or such other form of payment as may
be acceptable to the holders of Senior Debt, of all Senior Debt remaining
unpaid, after giving effect to any concurrent payment or distribution, or
provision therefor, to or for the holders of such Senior Debt.
(c) Bankruptcy and Dissolution, Etc. Upon any payment by the
Company, or distribution of assets of the Company of any kind or character,
whether in cash, property or securities, to creditors upon any dissolution,
winding-up, liquidation or reorganization of the Company, whether voluntary or
involuntary or in bankruptcy, insolvency, receivership or other proceedings, all
amounts due or to become due upon all Senior Debt shall first be paid in full,
in cash or in such other form of payment as may be acceptable to the holders of
Senior Debt, before any payment is made on account of the principal of this
Note; and upon any such dissolution, winding-up, liquidation or reorganization
or bankruptcy, insolvency, receivership or other such proceedings, any payment
by the Company, or distribution of assets of the Company of any kind or
character, whether in cash, property or securities, to which the Holder would be
entitled, except for the provisions of this Section 6, shall (except as
aforesaid) be paid by the Company or by any receiver, trustee in bankruptcy,
liquidating trustee, agent or other Person making such payment or distribution,
or by the Holder if received by it, directly to the holders of Senior Debt (pro
rata to such holders on the basis of the respective amounts of Senior Debt held
by such holders, or as otherwise required by law or a court order) or their
respective representative or representatives, or to the trustee or trustees
under any indenture pursuant to which any instruments evidencing any Senior Debt
may have been issued, as their respective interests may appear, to the extent
necessary to pay all Senior Debt in full in cash or in such other form of
payment as may be acceptable to the holders of Senior Debt after giving effect
to any concurrent payment or distribution to or for the holders of Senior Debt,
before any payment or distribution is made to the Holder.
Notwithstanding the foregoing, in the event that the Holder receives any
payment or distribution of assets of the Company of any kind in contravention of
any term of this Note, whether in cash, property or securities, including,
without limitation, by way of setoff or otherwise, before all Senior Debt is
paid in full, in cash or such other form of payment as may be acceptable to the
holders of Senior Debt, then such payment or distribution shall be held by the
recipient or recipients in trust for the benefit of, and shall immediately be
paid over or delivered to, the holders of Senior Debt or their respective
representative or representatives, or to the trustee or trustees under any
indenture pursuant to which any instruments evidencing any Senior Debt may have
been issued, as their respective interests may appear, as calculated by the
Company, for application to the payment of all Senior Debt remaining unpaid to
the extent necessary to make payment in full, in cash or such other form of
payment as may be acceptable to the holders of Senior Debt, of all Senior Debt
remaining unpaid, after giving effect to any concurrent payment or distribution,
or provision therefor, to or for the holders of such Senior Debt.
For purposes of Section 6(b) hereof and this Section 6(c), the words
"cash, property or securities" shall not be deemed to include shares of stock of
the Company as reorganized or readjusted, or securities of the Company or any
other corporation provided for by a plan of reorganization or readjustment, the
payment of which is subordinated (at least to the extent provided in this
Section 6 with respect to this Note) to the payment of all Senior Debt which may
at the time
-11-
be outstanding. The consolidation of the Company with, or the merger of the
Company into, another corporation or the liquidation or dissolution of the
Company following the conveyance or transfer of its property as an entirety, or
substantially as an entirety, to another corporation upon the terms and
conditions provided for in Section 5 shall not be deemed a dissolution,
winding-up, liquidation or reorganization for the purposes of this Section 6(c)
if such other corporation shall, as a part of such consolidation, merger,
conveyance or transfer, comply with the conditions stated in Section 5.
(d) Subrogation. Subject to the payment in full in cash, or in such
other form of payment as may be acceptable to the holders of Senior Debt, of all
Senior Debt, the rights of the Holder shall be subrogated to the extent of the
payments or distributions made to the holders of such Senior Debt pursuant to
the provisions of this Section 6 (equally and ratably with the holders of all
indebtedness of the Company which by its express terms is subordinated to other
indebtedness of the Company to substantially the same extent as this Note is
subordinated and is entitled to like rights of subrogation) to the rights of the
holders of Senior Debt to receive payments or distributions of cash, property or
securities of the Company applicable to the Senior Debt until the principal of
this Note shall be paid in full; and, for the purposes of such subrogation, no
payments or distributions to the holders of the Senior Debt of any cash,
property or securities to which the Holder would be entitled except for the
provisions of this Section 6, and no payment over pursuant to the provisions of
this Section 6, to or for the benefit of the holders of Senior Debt by Holder,
shall, as between the Company, its creditors other than holders of Senior Debt,
and the Holder, be deemed to be a payment by the Company to or on account of the
Senior Debt; and no payments or distributions of cash, property or securities to
or for the benefit of the Holder pursuant to the subrogation provisions of this
Section 6, which would otherwise have been paid to the holders of Senior Debt
shall be deemed to be a payment by the Company to or for the account of this
Note. It is understood that the provisions of this Section 6 are and are
intended solely for the purposes of defining the relative rights of the Holder,
on the one hand, and the holders of the Senior Debt, on the other hand.
Nothing contained in this Section 6 or elsewhere in this Note is intended
to or shall impair, as among the Company, its creditors other than the holders
of Senior Debt, and the Holder, the obligation of the Company, which is absolute
and unconditional, to pay to the Holder the principal of this Note as and when
the same shall become due and payable in accordance with their terms, or is
intended to or shall affect the relative rights of the Holder and creditors of
the Company other than the holders of the Senior Debt, nor shall anything herein
or therein prevent the Holder from exercising all remedies otherwise permitted
by applicable law upon default under this Note, subject to the rights, if any,
under this Section 6 of the holders of Senior Debt in respect of cash, property
or securities of the Company received upon the exercise of any such remedy.
Upon any payment or distribution of assets of the Company referred to in
this Section 6, the Holder shall be entitled to rely upon any order or decree
made by any court of competent jurisdiction in which such bankruptcy,
dissolution, winding-up, liquidation or reorganization proceedings are pending,
or a certificate of the receiver, trustee in bankruptcy, liquidating trustee,
agent or other Person making such payment or distribution, delivered to the
Holder, for the purpose of ascertaining the Persons entitled to participate in
such distribution, the holders of the Senior Debt and other indebtedness of the
Company, the amount thereof or payable thereon, the amount or amounts paid or
distributed thereon and all other facts pertinent thereto or to this Section 6.
-12-
(e) No Impairment of Subordination. No right of any present or
future holder of any Senior Debt to enforce subordination as herein provided
shall at any time in any way be prejudiced or impaired by any act or failure to
act on the part of the Company or by any act or failure to act, in good faith,
by any such holder, or by any noncompliance by the Company with the terms,
provisions and covenants of this Note, regardless of any knowledge thereof which
any such holder may have or otherwise be charged with.
Without in any way limiting the generality of the foregoing paragraph, the
holders of the Senior Debt may, at any time and from time to time, without the
consent of or notice to the Holder, without incurring responsibility to the
Holder, and without impairing or releasing the subordination provided in this
Note or the obligations of the Holder to the holders of the Senior Debt, do any
one or more of the following: (a) change the manner, place, or terms of payment
(including any change in the rate of interest) or extend the time of payment of,
or renew, amend, modify, alter, or grant any waiver or release with respect to,
or consent to any departure from, any Senior Debt or any instrument evidencing
the same or any agreement evidencing, governing, creating, guaranteeing or
securing any Senior Debt; (b) sell, exchange, release, or otherwise deal with
any property pledged, mortgaged or otherwise securing Senior Debt; (c) release
any Person liable under or in respect of the Senior Debt; (d) fail or delay in
the perfection of liens securing the Senior Debt; (e) exercise or refrain from
exercising any rights against Company and any other Person; or (f) amend, or
grant any waiver or release with respect to, or consent to any departure from,
any guarantee for all or any of the Senior Debt.
(f) Certain Conversions Deemed Payment. For the purposes of this
Section 6 only, (1) the issuance and delivery of junior securities upon
conversion of this Note in accordance with Section 1 shall not be deemed to
constitute a payment or distribution on account of the principal of this Note or
on account of the purchase or other acquisition of this Note, and (2) the
payment, issuance or delivery of cash (including cash paid for fractional shares
upon conversion of this Note in accordance with Section 1), property or
securities (other than junior securities) upon conversion of this Note in
accordance with Section 1 shall be deemed to constitute payment on account of
the principal of this Note. For the purposes of this Section, the term "junior
securities" means (a) shares of any stock of any class of the Company and (b)
securities of the Company which are subordinated in right of payment to all
Senior Debt which may be outstanding at the time of issuance or delivery of such
securities to substantially the same extent as, or to a greater extent than,
this Note is so subordinated as provided in this Section 6. Nothing contained in
this Section 6 or elsewhere in this Note is intended to or shall impair, as
among the Company, its creditors other than holders of Senior Debt and the
Holder, the right, which is absolute and unconditional, of the Holder to convert
this Note in accordance with Section 1.
(g) Further Assurances. The Holder agrees upon request of the
Company to enter into a customary subordination agreement with any holder of
Designated Senior Debt provided that the arrangements thereunder do not
materially and adversely affect the rights of the Holder hereunder.
7. DEFINITIONS. Unless otherwise defined in this Note, the following
capitalized terms shall have the following respective meanings when used herein:
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"Business Day" means each Monday, Tuesday, Wednesday, Thursday and Friday
which is not a day on which the banking institutions in the City of New York are
authorized or obligated by law or executive order to close or be closed.
"Cash Distribution" means the distribution by the Company to all holders
of its Common Stock of cash, other than any cash that is distributed upon a
merger or consolidation to which Section 1(g) applies or as part of a
distribution referred to in paragraph (4) of Section 1(b).
"Closing Price" means, with respect to the Common Stock of the Company,
for any day, the reported last sale price per share on the Nasdaq National
Market, or, if the Common Stock is not admitted to trading on the Nasdaq
National Market, on the principal national securities exchange or inter-dealer
quotation system on which the Common Stock is listed or admitted to trading, or
if not admitted to trading on the Nasdaq National Market, or listed or admitted
to trading on any national securities exchange or inter-dealer quotation system,
the closing bid price per share in the over-the-counter market as furnished by
any New York Stock Exchange member firm selected from time to time by the
Company for that purpose, or if no closing price can be reasonably determined by
any of the foregoing methods, the price determined by the Company's Board of
Directors.
"Common Stock" means the Common Stock, par value $0.__ per share, of the
Company authorized at the date of this instrument as originally executed.
Subject to the provisions of Section 1, shares issuable on conversion of this
Note shall include only Common Stock or shares of any class or classes of common
stock resulting from any reclassification or reclassifications thereof or of a
successor to the Company upon the occurrence of an Acquisition Event as defined
in Section 1(f) hereof; provided, however, that if at any time there shall be
more than one such resulting class, the shares so issuable on conversion of this
Note shall include shares of all such classes, and the shares of each such class
then so issuable shall be substantially in the proportion which the total number
of shares of such class resulting from all such reclassifications bears to the
total number of shares of all such classes resulting from all such
reclassifications.
"Debt" means, with respect to any Person:
(a) All obligations, contingent or otherwise, of such Person (i) for
borrowed money (whether or not the recourse of the lender is to the whole
of the assets of such Person or only to a portion thereof), (ii) evidenced
by a note, debenture, bond or written instrument (including a purchase
money obligation), (iii) in respect of leases of such Person required, in
conformity with generally accepted accounting principles, to be accounted
for as capitalized lease obligations on the balance sheet of such Person
and all obligations and other liabilities (contingent or otherwise) under
any lease or related document (including a purchase agreement) in
connection with the lease of real property which provides that such Person
is contractually obligated to purchase or cause a third party to purchase
the leased property and thereby guarantee a minimum residual value of the
leased property to the lessor and the obligations of such Person under
such lease or related document to purchase or to cause a third party to
purchase such leased property; or (iv) in respect of letters of credit
(including reimbursement obligations with respect thereto), local
guarantees or bankers' acceptances;
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(b) All obligations secured by a mortgage, pledge, lien,
encumbrance, charge or adverse claim affecting title or resulting in an
encumbrance to which the property or assets of such Person are subject,
whether or not the obligations secured thereby shall have been assumed by
or shall otherwise be such Person's legal liability;
(c) To the extent not otherwise included, all obligations of such
Person under interest rate and currency swap agreements, cap, floor and
collar agreements, spot and forward contracts and similar agreements and
arrangements;
(d) All obligations of others of the type described in clauses (a),
(b), or (c) above assumed by or guaranteed in any manner by such Person or
in effect guaranteed by such Person through an agreement to purchase,
contingent or otherwise (and the obligations of such Person under any such
assumptions, guarantees or other such arrangements); and
(e) All obligations, contingent or otherwise, of such Person under
or in respect of any and all deferrals, renewals, extensions and
refundings of, or amendments, modifications or supplements to, any
liability of the kinds described in any of the preceding clauses (a), (b),
(c) or (d).
"Designated Office" means the following address:
[Address]
[Attention: Chief Financial Officer]
"Designated Senior Debt" means the Company's obligations under any
particular Senior Debt for borrowed money in either an original amount of at
least three million U.S. dollars ($3,000,000) or pursuant to a line of credit of
at least three million U.S. dollars ($3,000,000) in which the instrument
creating or evidencing the same or the assumption or guarantee thereof (or
related agreements or documents to which the Company is a party) expressly
provides that such Senior Debt shall be "Designated Senior Debt" for purposes of
this Note (provided that such instrument, agreement or other document may place
limitations and conditions on the right of such Senior Debt to exercise the
rights of the Designated Senior Debt).
"Determination Date" means, in the case of a dividend or other
distribution, including the issuance of rights, options or warrants, to
shareholders, the date fixed for the determination of shareholders entitled to
receive such dividend or other distribution and, in the case of a tender offer,
the last time that tenders could have been made pursuant to such tender offer.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"GAAP" means generally accepted accounting principals as in effect in the
United States of America, consistently applied.
"Person" means any individual, corporation, limited liability company,
partnership, joint venture, trust, estate, unincorporated organization or
government or any agency or political subdivision thereof.
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"Redemption Date" has the meaning given to such term in Section 2(a)
hereof.
["Rights Plan" means the Company's Preferred Stock Rights Agreement, dated
as of ___________, ____, between the Company and [Bank].]
"Securities Act" means the Securities Act of 1933, as amended.
"Senior Debt" means the principal of, premium, if any, interest on
(including any interest accruing after the filing of a petition by or against
the Company under any bankruptcy law, whether or not allowed as a claim after
such filing in any proceeding under such bankruptcy law) and any other payment
due pursuant to, any Debt, whether outstanding on the date of this Note or
thereafter incurred or created; provided that Senior Debt shall not include (i)
any indebtedness of any kind of the Company to any subsidiary of the Company, a
majority of the voting stock of which is owned, directly or indirectly, by the
Company, or (ii) any indebtedness which by its terms is pari passu in right of
payment with or subordinate in right of payment to this Note.
"Trading Day" means (i) if the Common Stock is admitted to trading on the
Nasdaq National Market or any other system of automated dissemination of
quotations of securities prices, a day on which trades may be effected through
such system; (ii) if the Common Stock is listed or admitted for trading on the
New York Stock Exchange or any other national securities exchange, a day on
which such exchange is open for business; or (iii) if the Common Stock is not
admitted to trading on the Nasdaq National Market or listed or admitted for
trading on any national securities exchange or any other system of automated
dissemination of quotation of securities prices, a day on which the Common Stock
is traded regular way in the over-the-counter market and for which a closing bid
and a closing asked price for the Common Stock are available.
8. OTHER.
(a) No provision of this Note shall alter or impair the obligation
of the Company, which is absolute and unconditional, to pay the principal of
this Note at the times, places and rate, and in the coin or currency, herein
prescribed or to convert this Note as herein provided.
(b) The Company will give prompt written notice to the Holder of any
change in the location of the Designated Office. Any notice to the Company or to
the Holder shall be given in the manner set forth in the _________ Agreement,
dated as of __________, 200_, among the Company and the Holder (the
"Agreement"), provided that the Holder, if not a party to the Agreement, may
specify alternative notice instructions to the Company.
(c) This Note and the Common Stock issuable upon conversion of this
Note have not been registered under the Securities Act, or the securities laws
of any state or other jurisdiction. Neither this Note nor the Common Stock
issuable upon conversion of this Note nor any interest or participation herein
may be reoffered, sold, assigned, transferred, pledged, encumbered or otherwise
disposed of (a "Transfer") in the absence of such registration or unless such
transaction is exempt from, or not subject to, registration. The Holder by its
acceptance of this Note or the Common Stock issuable upon conversion of this
Note agrees that it shall not offer, sell, assign, transfer, pledge,
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encumber or otherwise dispose of this Note or any portion thereof without the
prior written consent of the Company, which may be withheld in the Company's
sole discretion.
(d) Upon receipt by the Company of evidence reasonably satisfactory
to it of the loss, theft, destruction or mutilation of this Note, and in the
case of loss, theft or destruction, receipt of indemnity or security reasonably
satisfactory to the Company, and upon reimbursement to the Company of all
reasonable expenses incidental thereto, and upon surrender and cancellation of
such Note, if mutilated, the Company will deliver a new Note of like tenor and
dated as of such cancellation, in lieu of such Note.
(e) The Holder represents that it is an institutional "accredited
investor" within the meaning of Rule 501(a)(1)(3)(5) or (7) of the Securities
Act or a qualified institutional buyer (as defined in Rule 144A under the
Securities Act). The Holder has been advised that this Note has not been
registered under the Securities Act, or any state securities laws and,
therefore, cannot be resold unless it is registered under the Securities Act and
applicable state securities laws or unless an exemption from such registration
requirements is available. The Holder is aware that the Company is under no
obligation to effect any such registration or to file for or comply with any
exemption from registration. The Holder has not been formed solely for the
purpose of making this investment and is acquiring the Note for its own account
for investment, and not with a view to, or for resale in connection with, the
distribution thereof.
(f) Neither this Note nor any term hereof may be amended or waived
orally or in writing, except that any term of the Note may be amended and the
observance of any term of the Note may be waived (either generally or in a
particular instance and either retroactively or prospectively), and such
amendment or waiver shall be applicable to the Note, upon the approval of the
Company and the Holder.
(g) This Note is payable in U.S. dollars in immediately available
funds and in the manner specified in writing by an executive officer of the
Holder.
(h) The Common Stock issuable pursuant to this Note shall be subject
to the terms of the Plan of Distribution Agreement by and between ______________
and ______________, dated January __, 2003.
(I) THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH
THE INTERNAL LAWS OF THE STATE OF NEW YORK, INCLUDING, WITHOUT LIMITATION,
SECTION 5-1401 OF THE NEW YORK GENERAL OBLIGATIONS LAW.
[Remainder of page intentionally left blank.]
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IN WITNESS WHEREOF, the Company has caused this Note to be duly
executed.
Dated: ___________, 200_
SCANSOFT, INC.
By:__________________________
Name:
Title:
Attest: ________________________
Name:
Title:
EXHIBIT J
PLAN OF DISTRIBUTION AGREEMENT
THIS PLAN OF DISTRIBUTION AGREEMENT (this "Agreement") is made as of the
____ day of ________, 2002 by and between ScanSoft, Inc., a Delaware corporation
(the "Company"), on the one hand, and Koninklijke Philips Electronics, N.V., a
limited liability company organized and existing under the laws of the The
Netherlands ("Seller"), on the other hand. The Company and the Seller are
referred to collectively herein as the "Parties."
WHEREAS, the Company and the Seller have entered into the Asset Purchase
Agreement (the "Asset Purchase Agreement") dated as of __________, 2002, whereby
the Seller will receive a promissory note (the "Note") convertible into shares
(the "Shares") of Company common stock, $0.001 par value (the "Common Stock");
and
WHEREAS, the Company and the Seller desire to provide for the rights of
the Seller with respect to the disposition of the Shares according to the terms
of this Agreement.
NOW THEREFORE, THE PARTIES HEREBY AGREE AS FOLLOWS:
1. Disposition Alternatives.
1.1 Holding Period. Until the one year anniversary of the Closing
Date, as defined below (the "Holding Period"), Seller will not offer, sell,
contract to sell, pledge, lend or otherwise dispose of, directly or indirectly,
any Shares of the Common Stock it shall have received upon conversion of the
Note, enter into a transaction which would have the same effect, or enter into
any swap, collar, hedge or other arrangement that transfers, in whole or in
part, any of the economic consequences of ownership of the Shares, whether any
such aforementioned transaction is to be settled by delivery of the Shares or
such other securities, in cash or otherwise, or publicly disclose the intention
to make any such offer, sale, pledge or disposition, or to enter into any such
transaction, swap, hedge or other arrangement.
1.2 Notice of Desire to Liquidate. Not earlier than 45 days prior to
the expiration of the Holding Period, Seller will notify the Company in writing
(the "Sale Notice") in the event it desires to sell or otherwise transfer any of
the Shares. Within fifteen (15) days after delivery of the Sale Notice, Seller
and the Company shall begin discussing in good faith, with consultation from the
Company's investment bankers, a mutually agreeable plan of liquidation for the
Shares proposed to be sold by Seller. Factors to be considered in determining
such plan shall include, but not be limited to, the method most likely to
optimize the disposition value of the Shares, the maintenance of an orderly
public market in the Common Stock and the rights of other stockholders of the
Company. If the Company and Seller shall determine to (a) register for sale to
the public the Shares with the Commission, then the provisions of Section 2
shall apply to such registration (the "Public Offering Alternative"), (b)
dispose of the Shares pursuant to a private placement transaction, then the
provisions of Section 3 shall apply to such private placement (the "Private
Placement Alternative"), or (c) dispose of the Shares pursuant to any other
method (the "Other Disposition Method"), then the Shares shall be sold in
accordance with such method as mutually determined. If, after the one-year
anniversary of the Closing Date, Seller and the Company cannot or do not agree
on a plan of liquidation for the Shares as contemplated above, the provisions of
Section 4 shall apply (the "Programmed Sale Method"); provided that the
provisions of Section 2.2 shall nonetheless be available to Seller for the
disposition of the Shares.
1.3 Definitions.
(a) The term "Closing Date" has the meaning ascribed to such
term in the Asset Purchase Agreement.
(b) The term "Commission" means the Securities and Exchange
Commission or any other federal agency at the time administering the Securities
Act.
(c) The term "Exchange Act" means the Securities Exchange Act
of 1934, as amended, or any similar successor federal statute and the rules and
regulations thereunder, all as the same shall be in effect from time to time.
(d) The terms "register," "registered" and "registration"
refer to a registration effected by preparing and filing a registration
statement or similar document in compliance with the Securities Act, and the
declaration or ordering of effectiveness of such registration statement or
document by the Commission.
(e) The term "Registrable Securities" means the Shares
issuable upon conversion of the Note; provided, that any Shares that have been
sold to the public pursuant to a registered public offering or Rule 144 under
the Securities Act shall cease to be Registrable Securities.
(f) The term "Securities Act" means the Securities Act of
1933, as amended, or any similar successor federal statute and the rules and
regulations thereunder, all as the same shall be in effect from time to time.
2. Registration.
2.1 Public Offering Alternative; Demand Registration.
(a) If the Public Offering Alternative is chosen (or, after
the second anniversary of the Closing Date, upon the written request of Seller),
the Company shall use all commercially reasonable efforts to effect as soon as
practicable the registration under the Securities Act of the Registrable
Securities agreed (or after the second anniversary of the Closing Date,
requested) to be disposed pursuant to such registration; provided, that the
Company shall not be obligated to effect more than one (1) registration pursuant
to this Section 2.1. The Registrable Securities shall be disposed under this
Section 2.1 by means of an underwriting, and the underwriter or underwriters
shall be selected by the Company and shall be reasonably acceptable to the
Seller. Seller shall accept the terms of the underwriting as agreed upon between
the Company and the underwriters selected by it. The Company may include in such
underwritten offering securities for its own account or for the account of any
other stockholder of the Company; provided that such
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inclusion is not reasonably likely to adversely affect the price or quantity of
the Registrable Securities to be included in such offering.
(b) If the Company is qualified to use Form S-3 (or any
comparable successor form or forms) at the time any registration statement is to
be filed pursuant to this Section 2.1, such registration statement shall be
filed on Form S-3. If the Company is not qualified to use Form S-3 at the time
any registration statement is to be filed pursuant to this Section 2.1, such
registration statement shall be filed on Form S-1 (or any comparable successor
form or forms).
(c) Notwithstanding the foregoing, in the event that after the
second anniversary of the Closing Date Seller shall have requested registration
as provided above, if the Company shall furnish to the Seller a certificate
signed by the President of the Company stating that in the good faith judgment
of the Board of Directors of the Company it would be seriously detrimental to
the Company for such registration statement to be filed and it is therefore
essential to defer the filing of such registration statement, the Company shall
have the right to defer such filing for a period of not more than 60 days after
receipt of the request of the Seller (or, if the Company is engaged or has fixed
plans to engage in a registered public offering as to which the Holders may
include Registrable Securities pursuant to Section 2.2, not more than 180 days
after the effective date of such offering); provided, however that the Company
may not utilize this right more than once in any 12-month period.
2.2 Company Registration.
(a) If (but without any obligation to do so) the Company
proposes to register (including for this purpose a registration effected by the
Company for stockholders other than Seller) any of its stock or other securities
under the Securities Act in connection with the public offering of such
securities solely for cash (other than a registration relating solely to the
sale of securities to participants in a Company stock plan, or a registration on
any form which does not include substantially the same information as would be
required to be included in a registration statement covering the sale of the
Registrable Securities), the Company shall, at such time, promptly give Seller
written notice of such registration. Upon the written request of Seller given
within 20 days after the mailing of such notice by the Company, the Company
shall, subject to the provisions of subsection 2.2(b), cause to be registered
under the Securities Act all of the Registrable Securities that Seller has
requested to be registered.
(b) In connection with any offering involving an underwriting
of shares being issued by the Company, the Company shall not be required under
this Section 2.2 to include any of the Seller's securities in such underwriting
unless Seller accepts the terms of the underwriting as agreed upon between the
Company and the underwriters selected by it (or by other persons entitled to
select the underwriters), and then only in such quantity as will not, in the
opinion of the underwriters, jeopardize the success of the offering by the
Company. If the total amount of securities, including Registrable Securities,
requested by stockholders to be included in such offering exceeds the amount of
securities that the underwriters reasonably believe compatible with the success
of the offering, then the Company will include in such registration (i) first,
if the registration pursuant to this Section 2.2 was initiated by other
stockholders exercising demand registration rights ("Other Holders"), 100% of
the securities such Other Holders propose to sell (except to the extent
-3-
the terms of such Other Holders' registration rights provide otherwise); (ii)
second, 100% of the securities of the Company proposes to sell for its own
account; (iii) third, to the extent that the number of securities which such
Other Holders exercising demand registration rights and the Company propose to
sell is less than the number of securities which the Company has been advised
can be sold in such offering without having the adverse effect referred to
above, such number of Registrable Securities which Seller and any other
stockholder of the Company pursuant to contractual rights similar to those set
forth in this Section 2.2 have requested to be included in such registration,
pro rata based on the number of shares requested to be included in such
registration by Seller and each such stockholder; and (iv) fourth, to the extent
that the number of securities which are to be included in such registration
pursuant to clauses (i), (ii) and (iii) is, in the aggregate, less than the
number of securities which the Company has been advised can be sold in such
offering without having the adverse effect referred to above, such number of
other securities requested to be included in the offering for the account of any
other stockholders which, in the opinion of such managing underwriter(s), can be
sold without having the adverse effect referred to above.
2.3 Subordination. Notwithstanding anything set forth in Section 2.1
and 2.2, (i) the Holding Period shall remain in full force and effect with
respect to all Shares, and (ii) the registration provisions conferred herein are
subordinate in all respects to the registration rights conveyed to Xerox
Corporation in that certain Registration Rights Agreement by and among
Visioneer, Inc. and Xerox Corporation dated March 2, 1999, except to the extent
the Seller is an Other Holder is defined in that certain Registration Rights
Agreement by and among Visioneer, Inc. and Xerox Corporation dated March 2,
1999.
2.4 Obligations of the Company. Whenever required under this Section
2 to effect a registration, the Company shall, as expeditiously as reasonably
possible:
(a) Prepare and file with the Commission a registration
statement with respect to such Registrable Securities and use all reasonable
efforts to cause such registration statement to become effective, and, upon the
request of the Seller, keep such registration statement effective
("Effectiveness Period") until the earliest of (i) the date that is three (3)
months after the date such registration statement became effective; (ii) the
date on which the distribution contemplated by the registration statement has
been completed. In the event that, from time to time, in the judgment of the
Company, it is advisable to delay or suspend use of the prospectus relating to
such registration statement for a discrete period of time (a "Deferral Period")
due to pending material corporate developments or similar material events that
have not yet been publicly disclosed and as to which the Company believes public
disclosure will be prejudicial to the Company, the Company shall deliver a
certified resolution of the Board of Directors of the Company, signed by a duly
authorized officer of the Company, to the Seller, to the effect of the foregoing
and, upon receipt of such certificate, the Seller agrees not to dispose of its
Registrable Securities covered by such registration or prospectus; provided,
however, that any such Deferral Period shall be no longer than 45 days. The
Effectiveness Period shall be extended for a period of time equal to all such
Deferral Periods.
(b) Prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in connection
with such
-4-
registration statement as may be necessary to comply with the provisions of the
Securities Act with respect to the disposition of all securities covered by such
registration statement.
(c) Furnish to the Seller such numbers of copies of a
prospectus, including a preliminary prospectus, and any amendment or supplement
thereto and a reasonable number of copies of the then-effective registration
statement and any post-effective amendment thereto, all in conformity with the
requirements of the Securities Act, and such other documents as it may
reasonably request in order to facilitate the disposition of such Registrable
Securities.
(d) Use all reasonable commercial efforts to register and
qualify the securities covered by such registration statement under such other
securities or Blue Sky laws of such jurisdictions as shall be reasonably
requested by the Seller; provided that the Company shall not be required in
connection therewith or as a condition thereto to qualify to do business or to
file a general consent to service of process in any such states or
jurisdictions.
(e) Enter into and perform its obligations under an
underwriting agreement, in usual and customary form, with the managing
underwriter of the offering. Seller shall also enter into and perform its
obligations under such an agreement.
(f) Notify Seller, during any time when a prospectus is
required to be delivered under the Securities Act, of the happening of any event
as a result of which the prospectus included in such registration statement, as
then in effect, includes an untrue statement of a material fact or omits to
state a material fact required to be stated therein or necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading, and at the request of Seller prepare and furnish to Seller
a reasonable number of copies of a supplement or an amendment to such prospectus
as may be necessary so that, as thereafter delivered to the purchasers of such
Registrable Securities, such prospectus shall not include an untrue statement of
a material fact or omit to state a material fact required to be stated therein
or necessary to make the statements therein not misleading in the light of the
circumstances then existing.
(g) Furnish, at the request of Seller, on the date that such
Registrable Securities are delivered to the underwriters for sale in connection
with a registration pursuant to this Section 1, (i) an opinion, dated such date,
of the counsel representing the Company for the purposes of such registration,
in form and substance as is customarily given to underwriters in an underwritten
public offering, addressed to the underwriters and to Seller, and (ii) a letter
dated such date, from the independent certified public accountants of the
Company, in form and substance as is customarily given by independent certified
public accountants to underwriters in an underwritten public offering, addressed
to the underwriters.
(h) Cause all Registrable Securities covered by the
registration statement to be listed on each securities exchange or automated
quotation system on which shares of Common Stock are then listed.
(i) Permit a single firm of counsel designated by Seller, at
Seller's expense, to review the registration statement and all amendments and
supplements thereto a
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reasonable period of time prior to their filing with the Commission and state
authorities, and shall not file any document in a form to which such counsel
reasonably objects.
(j) Cause the Company's officers to participate in a
"roadshow", and cause the Company's officers, directors and independent
certified public accountants to otherwise supply all information reasonably
requested by Seller in connection with such registration; provided, however,
that the representatives, attorneys or accountants of Seller enter into a
confidentiality agreement, in form and substance reasonably satisfactory to the
Company, prior to the release or disclosure of any such information obtained by
the Company.
2.5 Obligations of the Holders.
(a) It shall be a condition precedent to the obligations of
the Company to take any action pursuant to Section 2.1 or Section 2.2 that the
Seller shall furnish to the Company such information regarding itself, the
Registrable Securities held by it, and the intended method of disposition of
such securities as shall be required to effect the registration of the
Registrable Securities.
(b) Upon the receipt by Seller of any notice from the Company
of (i) the existence of any fact or the happening of any event as a result of
which the prospectus included in a registration statement filed pursuant to the
terms hereof, as such registration statement is then in effect, includes an
untrue statement of a material fact or omits to state a material fact required
to be stated therein or necessary to make the statements therein, in the light
of the circumstances under which they were made, not misleading, (ii) the
issuance by the Commission of any stop order or injunction suspending or
enjoining the use or the effectiveness of such registration statement or the
initiation of any proceedings for that purpose, or the taking of any similar
action by the securities regulators of any state or other jurisdiction, or (iii)
the request by the Commission or any other federal or state governmental agency
for amendments or supplements to such registration statement or related
prospectus or for additional information related thereto, Seller shall forthwith
discontinue disposition of its Registrable Securities covered by such
registration or prospectus (other than in transactions exempt from the
registration requirements under the Securities Act) until Seller's receipt of
the supplemented or amended prospectus or until Seller is advised in writing by
the Company that the use of the applicable prospectus may be resumed. In such a
case, the Effectiveness Period shall be extended by the number of days from and
including the date of the giving of such notice to and including the date when
Seller shall have received a copy of the supplemented or amended prospectus or
when Seller is advised in writing by the Company that the use of the applicable
prospectus may be resumed. The Company shall use all reasonable commercial
efforts to limit the duration of any discontinuance of disposition of
Registrable Securities pursuant to this section.
2.6 Expenses.
(a) The Company shall bear and pay all expenses incurred in
connection with any registration, filing or qualification of Registrable
Securities with respect to a registration under this Section 2, including
(without limitation) all registration, filing and qualification fees, printers'
and accounting fees relating or apportionable thereto, fees and disbursements of
counsel for the Company, blue sky fees and expenses, including fees and
disbursements of counsel related to all
-6-
blue sky matters, fees and expenses of listing any Registrable Securities on any
securities exchange or automated quotation system on which shares of Common
Stock are then listed, the expenses of providing materials pursuant to Section
2.4 hereof, but excluding stock transfer taxes that may be payable by Seller,
fees and expenses of counsel for Seller, and all underwriting discounts and
commissions relating to Registrable Securities covered by such registration,
which shall be borne by Seller.
(b) Notwithstanding subsection 2.6(a), the Company shall not
be required to pay for any expenses of any registration proceeding begun
pursuant to Section 2.1 if the registration request is subsequently withdrawn at
the request of Seller; provided, however, that if such withdrawal occurs prior
to the date the registration statement shall have become effective and as of the
time of such withdrawal, Seller has learned of a material adverse change in the
business, properties, results of operations or financial condition of the
Company from that known to Seller at the time of the agreement contemplated by
Section 1 (or, if requested after the second anniversary of the Closing Date, at
the time of such request), and has withdrawn the request with reasonable
promptness following disclosure by the Company of such material adverse change,
then the Seller shall not be required to pay any of such expenses.
2.7 Indemnification. In the event any Registrable Securities are
included in a registration statement under this Section 2:
(a) To the extent permitted by law, the Company will indemnify
and hold harmless Seller, the officers and directors of Seller, any underwriter
(as defined in the Securities Act) for Seller and each person, if any, who
controls Seller or underwriter within the meaning of the Securities Act or the
Exchange Act, against any losses, claims, damages or liabilities (joint or
several) to which they may become subject under the Securities Act, the Exchange
Act or other federal or state law, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon any
of the following statements, omissions or violations (collectively, a
"Violation"): (i) any untrue statement or alleged untrue statement of a material
fact contained in such registration statement, including any preliminary
prospectus or final prospectus contained therein or any amendments or
supplements thereto, (ii) the omission or alleged omission to state therein a
material fact required to be stated therein, or necessary to make the statements
therein not misleading, or (iii) any violation or alleged violation by the
Company of the Securities Act, the Exchange Act, any state securities law or any
rule or regulation promulgated under the Securities Act, the Exchange Act or any
state securities law; and the Company will reimburse Seller, officer or
director, underwriter or controlling person for any legal or other expenses
reasonably incurred by them in connection with investigating or defending any
such loss, claim, damage, liability or action; provided, however, that the
indemnity agreement contained in this subsection 2.7(a) shall not apply to
amounts paid in settlement of any such loss, claim, damage, liability or action
if such settlement is effected without the consent of the Company (which consent
shall not be unreasonably withheld), nor shall the Company be liable in any such
case for any such loss, claim, damage, liability or action to the extent that it
arises out of or is based upon a Violation that occurs in reliance upon and in
conformity with written information furnished expressly for use in connection
with such registration by Seller, officer, director, underwriter or controlling
person.
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(b) To the extent permitted by law, Seller will indemnify and
hold harmless the Company, each of its directors, each of its officers who have
signed the registration statement, each person, if any, who controls the Company
within the meaning of the Securities Act, and any underwriter, and each person,
if any, who controls the underwriter, against any losses, claims, damages or
liabilities (joint or several) to which the Company or any such director,
officer, controlling person, or underwriter may become subject, under the
Securities Act, the Exchange Act or other federal or state law, insofar as such
losses, claims, damages or liabilities (or actions in respect thereto) arise out
of or are based upon any Violation, in each case to the extent (and only to the
extent) that such Violation occurs in reliance upon and in conformity with
written information furnished by Seller expressly for use in connection with
such registration; and Seller will reimburse any legal or other expenses
reasonably incurred by the Company or any such director, officer, controlling
person, or underwriter in connection with investigating or defending any such
loss, claim, damage, liability, or action; provided, however, that the indemnity
agreement contained in this subsection 2.7(b) shall not apply to amounts paid in
settlement of any such loss, claim, damage, liability or action if such
settlement is effected without the consent of Seller, which consent shall not be
unreasonably withheld; provided, that, in no event shall any indemnity under
this subsection 2.7(b) exceed the net proceeds from the sale of the Registrable
Securities received by Seller.
(c) Promptly after receipt by an indemnified party under this
Section 2.7 of notice of the commencement of any action (including any
governmental action), such indemnified party will, if a claim in respect thereof
is to be made against any indemnifying party under this Section 2.7, deliver to
the indemnifying party a written notice of the commencement thereof and the
indemnifying party shall have the right to participate in, and, to the extent
the indemnifying party so desires, jointly with any other indemnifying party
similarly noticed, to assume the defense thereof with counsel mutually
satisfactory to the parties; provided, however, that an indemnified party
(together with all other indemnified parties which may be represented without
conflict by one counsel) shall have the right to retain one separate counsel,
with the fees and expenses to be paid by the indemnifying party, if
representation of such indemnified party by the counsel retained by the
indemnifying party would be inappropriate due to actual or potential differing
interests between such indemnified party and any other party represented by such
counsel in such proceeding. The failure to deliver written notice to the
indemnifying party within a reasonable time of the commencement of any such
action, if prejudicial to its ability to defend such action, shall relieve such
indemnifying party of any liability to the indemnified party under this Section
2.7 to the extent the indemnifying party was actually damaged or suffered any
loss or incurred any additional expense as a result thereof, but the omission so
to deliver written notice to the indemnifying party will not relieve it of any
liability that it may have to any indemnified party otherwise than under this
Section 2.7. An indemnifying party shall not, without the prior written consent
of the indemnified parties, settle, compromise or consent to the entry of any
judgment with respect to any pending or threatened claim, action, suit or
proceeding in respect of which indemnification may be sought hereunder by such
indemnified parties (whether or not the indemnified parties are actual or
potential parties to such claim or action) unless such settlement, compromise or
consent includes a release of such indemnified party reasonably acceptable to
such indemnified party from all liability arising out of such claim, action,
suit or proceeding.
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(d) If the indemnification provided for in this Section 2.7 is
held by a court of competent jurisdiction to be unavailable to an indemnified
party with respect to any loss, liability, claim, damage, or expense referred to
therein, then the indemnifying party, in lieu of indemnifying such indemnified
party hereunder, shall contribute to the amount paid or payable by such
indemnified party as a result of such loss, liability, claim, damage, or expense
in such proportion as is appropriate to reflect the relative fault of the
indemnifying party on the one hand and of the indemnified party on the other in
connection with the statements or omissions that resulted in such loss,
liability, claim, damage, or expense as well as any other relevant equitable
considerations. The relative fault of the indemnifying party and of the
indemnified party shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission to state a material fact relates to information supplied by the
indemnifying party or by the indemnified party and the parties' relative intent,
knowledge, access to information, and opportunity to correct or prevent such
statement or omission.
(e) Notwithstanding the foregoing, to the extent that the
provisions on indemnification and contribution contained in the underwriting
agreement entered into in connection with the underwritten public offering are
in conflict with the foregoing provisions, the provisions in the underwriting
agreement shall control.
(f) The obligations of the Company and Seller under this
Section 2.7 shall survive the completion of any offering of Registrable
Securities in a registration statement under this Section 2, and otherwise.
3. Private Placement Alternative. If the Private Placement Alternative
shall apply, Seller shall work together with its investment bankers to identify
reputable institutional or other appropriate investors (the "Investors") to
purchase the desired number of Shares pursuant to a private placement
transaction without registration under the Securities Act. The Company shall
cause its officers to be available to meet with or make presentations to any
potential Investors significantly interested in purchasing the Shares. Upon
transfer of the Shares to the Investors, the Company agrees to promptly register
for resale such shares transferred under the Securities Act. The Company shall
bear and pay all expenses it incurs in connection with the Private Placement
Alternative, including counsel to the Company, but excluding stock transfer
taxes that may be payable by Seller, any placement or similar fees of any
investment bankers in the Private Placement Alternative, and fees and expenses
of counsel to Seller, all of which shall be borne by Seller.
4. Programmed Sale Method.
4.1 Limit on Dispositions. Notwithstanding anything to the contrary
in Section 1.1, if the Programmed Sale Method shall apply, the Holding Period
contained in Section 1.1 shall remain in full force and effect with respect to
all of the Shares; provided that if the Company and Seller do not agree on the
Public Offering Alternative, Private Placement Alternative or Other Disposition
Method, Seller may sell in the aggregate per fiscal quarter not greater than 25%
of the number of Shares into which the Note was initially convertible (subject
to adjustment for recapitalizations, stock splits and the like) (the "25% Cap").
If a number of Shares less than the 25% Cap are sold in any fiscal quarter, the
amount of such shortfall shall not be carried forward to subsequent fiscal
quarters. The 25% Cap shall cease to apply after the second anniversary of the
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Closing Date. In the event that Rule 144 or other exemption from registration
would not lawfully permit the sale by Seller in the public market of the Shares
in the amount contemplated above, the Company shall take reasonable actions,
including the registration of the Shares, to permit Seller to do so. In other
words, if the Shares are required to be registered in order for Seller to
implement the disposition plan described in this Section 4.1, the Company will
take reasonable actions to so register the Shares.
4.2 Reports Under the Exchange Act. In connection with the
Programmed Sale Method, and with a view to making available to Seller the
benefits of Rule 144 under the Securities Act (or any other rule or regulation
of the Commission that may at any time permit Seller to sell Shares to the
public without registration), the Company agrees to:
(a) make and keep public information available, as those terms
are understood and defined in Rule 144, at all times after the date hereof;
(b) file with the Commission in a timely manner all reports
and other documents required of the Company under the Securities Act and the
Exchange Act; and
(c) furnish to Seller, so long as Seller owns any Shares and
this Programmed Sale Method applies, upon request (i) a written statement by the
Company that it has complied with the reporting requirements of Rule 144, the
Securities Act and the Exchange Act, (ii) a copy of the most recent annual or
quarterly report of the Company and such other reports and documents so filed by
the Company and (iii) such other information as may be reasonably requested in
availing Seller of any rule or regulation of the Commission which permits the
selling of any such securities without registration.
5. Miscellaneous.
5.1 Successors and Assigns. Except as otherwise provided herein, the
terms and conditions of this Agreement shall inure to the benefit of and be
binding upon the respective successors and permitted assigns of the parties.
Nothing in this Agreement, express or implied, is intended to confer upon any
party other than the parties hereto or their respective successors and permitted
assigns any rights, remedies, obligations, or liabilities under or by reason of
this Agreement, except as expressly provided in this Agreement.
5.2 Notices. Unless otherwise provided, any notice, request, demand
or other communication required or permitted under this Agreement shall be given
in writing and shall be deemed effectively given upon personal delivery to the
party to be notified, or when sent by telecopier (with receipt confirmed and
promptly confirmed by personal delivery, U.S. first class mail, or courier), or
overnight courier service, or upon deposit with the United States Post Office,
by registered or certified mail, postage prepaid and addressed as follows (or at
such other address as a party may designate by notice to the other):
If to the Company: ScanSoft, Inc.
0 Xxxxxxxxxx Xxxxx
Xxxxxxx, XX 00000
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U.S.A.
Attention: Chief Financial Officer
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
With a copy to: Xxxxxx Xxxxxxx Xxxxxxxx & Xxxxxx, P.C.
0000 Xxxxx Xxxxxx Xxxxx, Xxxxx 000 XxXxxx,
XX 00000 X.X.X.
Attention: Xxxxxx X. Xxxxxxx, Esq.
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
Xxxxxx Xxxxxxx Xxxxxxxx & Xxxxxx, P.C.
00 Xxxx 00xx Xxxxxx, 00xx Xxxxx Xxx Xxxx, XX
00000 U.S.A.
Attention: Xxxx X. Xxxxx, Esq.
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
If to the Seller: Koninklijke Philips Electronics, N.V.
Xxxxxxxx Center Xxxxxxxxxxx 0
X.X. Xxx 00000
0000 XX Xxxxxxxxx
The Netherlands
Attention: General Secretary
Telephone: x00 00 000 0000
Facsimile: x00 00 000 0000
With a copy to: Xxxxxxxx & Xxxxxxxx
000 Xxxxx Xxxxxx
Xxx Xxxx, XX 00000
X.X.X.
Attention: Xxxx Xxxxxxxx
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
5.3 Severability. If one or more provisions of this Agreement are
held to be unenforceable, invalid or void by a court of competent jurisdiction,
such provision shall be excluded from this Agreement and the balance of this
Agreement shall be interpreted as if such provision were so excluded and shall
be enforceable in accordance with its terms.
5.4 Entire Agreement; Amendments.
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(a) This Agreement contains the entire understanding of the
parties with respect to the matters covered herein and supersedes all prior
agreements and understandings, written or oral, between the parties relating to
the subject matter hereof.
(b) Any term of this Agreement may be amended and the
observance of any term of this Agreement may be waived (either generally or in a
particular instance and either retroactively or prospectively), only with the
written consent of the Company and Seller. No waiver of any default with respect
to any provision, condition or requirement hereof shall be deemed to be a
continuing waiver in the future thereof or a waiver of any other provision,
condition or requirement hereof; nor shall any delay or omission of either party
to exercise any right hereunder in any manner impair the exercise of any such
right accruing to it thereafter.
5.5 Termination. This Agreement shall terminate once Seller has
disposed of all the Shares. Furthermore, the Company shall have no further
obligation to take any further action with respect to the sale of the Shares at
such time as it shall have satisfied its obligations under the Public Offering
Alternative or Private Placement Alternative, provided that Seller had an
opportunity to sell all the Shares in such Public Offering Alternative or
Private Placement Alternative.
5.6 Governing Law. This Agreement shall be governed by and construed
under the laws of the State of Delaware (irrespective of its choice of law
principles).
5.7 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
5.8 Titles and Subtitles. The titles and subtitles used in this
Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement. Any reference in this Agreement to a
statutory provision or rule or regulation promulgated thereunder shall be deemed
to include any similar successor statutory provision or rule or regulation
promulgated thereunder.
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IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
ScanSoft, Inc.
By: ________________________________
Name:
Title:
Koninklijke Philips Electronics, N.V.
By: ________________________________
Name:
Title:
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