Capitalization of the Company and its Subsidiaries The Company's authorized capital stock consists solely of (a) 20,000,000 shares of common stock, $0.05 par value per share ("Company Common Stock"), and (b) 10,000,000 shares of preferred stock, $1.00 par value per share ("Company Preferred Stock"). As of October 31, 1997, (i) 3,891,981 shares of Company Common Stock were issued and outstanding, (ii) 201,385 shares of Company Common Stock were issuable upon the exercise of outstanding options, an additional 230,749 shares of Company Common Stock were issuable upon the exercise of options that are not currently outstanding but are reserved for issuance upon the designation of optionees by the Board of Directors of the Company and 154,175 shares of Company Common Stock were issuable upon the exercise or conversion of outstanding warrants or convertible securities granted or issuable (on a contingent basis or otherwise) by the Company, and (iii) no shares of Company Preferred Stock were issued and outstanding. Since October 31, 1997, except as disclosed in Section 4.4 of the Company Disclosure Schedule, the Company has not issued any shares of its capital stock except upon the exercise of such options, warrants or convertible securities. Each outstanding share of capital stock of the Company and each Subsidiary is duly authorized and validly issued, fully paid and nonassessable and free of any preemptive rights. As of the date hereof, other than as set forth above, in the Company SEC Documents (as defined in Section 4.7) or in Section 4.4 to the Company Disclosure Schedule, there are no outstanding shares of capital stock or subscriptions, options, warrants, puts, calls, agreements, understandings, claims or other commitments or rights of any type relating to the issuance, sale or transfer by the Company or either Subsidiary of any securities of the Company or either Subsidiary, nor are there outstanding any securities which are convertible into or exchangeable for any shares of capital stock of the Company or either Subsidiary; and neither the Company nor either Subsidiary has any obligation of any kind to issue any additional securities or to pay for securities of the Company or either Subsidiary or any predecessor. The Company has no outstanding bonds, debentures, notes or other similar obligations the holders of which have the right to vote generally with holders of Company Common Stock.
Capitalization of the Company (a) Schedule 4.29 sets forth a true and complete list of all of the issued and outstanding Equity Interests of the Company. Such Equity Interests of the Company have been duly authorized, are validly issued and are fully paid and, except to the extent otherwise provided under the law of the Company’s jurisdiction of formation, non-assessable and were issued in conformity with the Organizational Documents of the Company and all applicable contracts or Laws and were not issued in violation of, and are not subject to, any purchase option, call option, right of first refusal, preemptive right, subscription right or any similar right under any provision of applicable Law, the Organizational Documents of the Company or any contract to which the Company is or was a party or by which it is or was otherwise bound. There are no certificates representing any of the Equity Interests of the Company. Seller has made available to Buyer true and complete copies of the Organizational Documents, minute books, membership interest certificate books, membership interest transfer books and equity ledgers of the Company to the extent the same are in existence.
(b) There are no rights or Contracts (including options, warrants, calls and preemptive rights) obligating the Company (A) to issue, sell, pledge, dispose of or encumber any Equity Interest of the Company, (B) to redeem, purchase or acquire in any manner any Equity Interests of the Company or (C) to make any dividend or distribution of any kind with respect to the Equity Interests of the Company (or to allow any participation in the profits or appreciation in value of the Company). There are no outstanding or authorized membership interest appreciation, phantom unit, profit participation, or similar rights affecting the Equity Interests of the Company. There are no agreements, instruments, proxies, judgments or decrees, whether written or oral, express or implied, other than this Agreement, relating to the voting of, sale, assignment, conveyance, transfer, delivery, right of first refusal, option or limitation on transfer of any Equity Interests of the Company.
Operation of the Company’s Business (a) During the Pre-Closing Period:
(i) the Company shall ensure that each of the Company Entities conducts its business and operations: (A) in the ordinary course and in accordance with past practices; and (B) in material compliance with all applicable Laws and with the requirements of all Contracts of Company Entities that constitute Material Contracts;
(ii) the Company shall use commercially reasonable efforts to ensure that each of the Company Entities preserves intact its current business organization, keeps available the services of its current officers and other key employees and maintains its relations and goodwill with all suppliers, customers, landlords, creditors, licensors, licensees, distributors, resellers, employees and other Persons having material business relationships with the respective Company Entities;
(iii) the Company shall promptly notify Parent in writing of (A) any notice from any Person alleging that the Consent of such Person is or may be required in connection with any of the Transactions and (B) any Legal Proceeding commenced, or, to the Knowledge of the Company, threatened against, relating to, involving or otherwise affecting any of the Company Entities that relates to the Merger or any of the other Transactions;
(iv) use commercially reasonable efforts to keep in full force all insurance policies referred to in Section 3.26 (other than any such policies that are immediately replaced with substantially similar policies), provided that if it is unable to do so, it shall notify Parent at least 20 days before such policies terminate or otherwise lapse; and
(v) the Company shall (to the extent requested by Parent and permitted under applicable Law) cause the officers and other key employees of the Company Entities to freely communicate (without limitation) with Parent regarding the Company Entities’ results of operations and material developments.
(b) Without limiting the generality of the foregoing, during the Pre-Closing Period, except as set forth in Schedule 5.2(b) or with Parent’s prior written consent and except as permitted by Section 6.2(d), the Company (A) shall not, and (B) shall not permit any of the other Company Entities to:
(i) amend its certificate of incorporation or bylaws or comparable organizational documents or create any new Subsidiaries;
(ii) issue, sell, deliver or agree or commit to issue, sell or deliver (whether through the issuance or granting of options, warrants, commitments, subscriptions, rights to purchase or otherwise) any security of any Company Entity, except for the issuance and sale of shares of Company Common Stock pursuant to Company Equity Awards outstanding as of the date of this Agreement upon the exercise or vesting thereof, as applicable;
(iii) directly or indirectly acquire, repurchase or redeem any security of any Company Entity, except in connection with Tax withholdings and exercise price settlements upon the exercise, vesting or issuance of shares under Company Equity Awards;
(iv) (A) split, combine, subdivide or reclassify any shares of capital stock, or (B) declare, set aside or pay any dividend or other distribution (whether in cash, shares or property or any combination thereof) in respect of any shares of capital stock, or make any other actual, constructive or deemed distribution in respect of the shares of capital stock, except for cash dividends made by any direct or indirect wholly-owned Subsidiary of the Company to the Company or one of its wholly-owned Subsidiaries;
(v) propose or adopt a plan of complete or partial liquidation, dissolution, merger, consolidation, restructuring, recapitalization or other reorganization of any Company Entity, except for this Agreement and the Transactions;
(vi) (A) redeem, repurchase, prepay, defease, cancel, incur, create, assume or otherwise acquire or modify in any material respect any long-term or short-term debt for borrowed monies or issue or sell any debt securities or calls, options, warrants or other rights to acquire any debt securities of any Company Entity or enter into any agreement having the economic effect of any of the foregoing, except for (1) debt incurred in the ordinary course of business under letters of credit, lines of credit or other credit facilities or arrangements in effect on the date hereof, (2) loans or advances between the Company and any direct or indirect Subsidiaries, or between any direct or indirect Subsidiaries of the Company in the ordinary course of business consistent with past practices, and (3) the issuance of credit to new customers for the purchase of products or services of the Company Entities in the ordinary course of business consistent with past practices, (B) assume, guarantee, endorse or otherwise become liable or responsible (whether directly, contingently or otherwise) for the obligations of any other Person, except with respect to obligations of direct or indirect wholly-owned Subsidiaries of the Company in place on the date of this Agreement, (C) make any loans, advances (other than any retainer for legal services) or capital contributions to or investments in any other Person (other than the Company or any direct or indirect wholly-owned Subsidiaries), except for travel advances or business expenses in the ordinary course of business consistent with past practice to employees of the Company Entities, or (D) mortgage or pledge any asset owned or used by any Company Entity, or create or suffer to exist any Encumbrance thereupon (other than Permitted Encumbrances), except pursuant to the terms of any letters of credit, lines of credit or other credit facilities or arrangements, in effect on the date hereof;
(vii) except as may be required by applicable Law or the terms of this Agreement or of any Company Employee Plan as in effect on the date of this Agreement, (A) enter into, adopt, amend (including acceleration of vesting), modify or terminate any bonus, profit sharing, incentive, compensation, severance, retention, termination, option, appreciation right, performance unit, stock equivalent, share purchase agreement, pension, retirement, deferred compensation, employment, change in control, pension, retirement, collective bargaining or other employee benefit agreement, trust, plan, fund or other arrangement for the compensation, benefit or welfare of any Company Associate, (B) increase the compensation payable or to become payable to any Company Associate, pay or agree to pay any special bonus or special remuneration to any Company Associate, or pay or agree to pay any benefit not required by any Company Employee Plan as in effect as of the date hereof, except in the ordinary course of business consistent with past practice with respect to any Company Associate who is not a member of the board of directors or officer, (C) hire any employee with an annual base salary in excess of $100,000 or at the level of Vice President, (D) grant or pay any severance or termination pay to (or amend any such existing arrangement with) any current or former member of the board of directors, officer, employee or independent contractor of any Company Entity, except in the ordinary course of business with respect to any employee or independent contractor who is not a member of the board of directors or officer, (E) increase benefits payable under any existing severance or termination pay policies or similar employment agreements, or (F) accelerate the vesting or payment of, or fund or in any other way secure the payment, compensation or benefits under, any Company Employee Plan to the extent not required by the terms of this Agreement or such Company Employee Plan as in effect on the date of this Agreement;
(viii) commence any Legal Proceeding or settle any pending or threatened Legal Proceeding, except for the settlement of any Legal Proceeding solely for money damages not in excess of $250,000 in the aggregate and as would not be reasonably likely to have any adverse impact on any other Legal Proceeding;
(ix) except as may be required as a result of a change in applicable Law or in GAAP, make any material change in any of the accounting methods, principles or practices used by it or change an annual accounting period;
(x) (A) make or change any material Tax election, (B) settle or compromise any material federal, state, local or foreign income Tax liability, (C) consent to any extension or waiver of any limitation period with respect to any claim or assessment for material Taxes, (D) change any annual Tax accounting period or method of Tax accounting, (E) file any materially amended Tax Return, (F) enter into any closing agreement with respect to any Tax or (G) surrender any right to claim a material Tax refund;
(xi) (A) acquire (by merger, consolidation or acquisition of stock or assets or otherwise) any other Entity or any material equity interest therein, (B) sell or otherwise dispose of, lease or license any properties or assets of any Company Entity (other than in the ordinary course of business), which are material to the Company Entities, taken as a whole, (C) acquire, lease or license any material right or other asset from any Person (other than in the ordinary course of business consistent with past practice);
(xii) make any capital expenditures in excess of $50,000 individually or $200,000 in the aggregate;
(xiii) make any material changes or modifications to any investment or risk management policy or other similar policies (including with respect to hedging), or any cash management policy;
(xiv) other than in the ordinary course of business, enter into, or amend in any material respect, terminate or fail to renew, any Material Contract;
(xv) change any of its product return policies, product maintenance polices, service policies, product modification or upgrade policies in any material respect;
(xvi) enter into any material transaction with any of its Affiliates (other than a Company Entity) other than pursuant to written arrangements in effect on the date of this Agreement and excluding any employment, compensation or similar arrangements otherwise expressly permitted pursuant to this Section 5.2(b);
(xvii) abandon or permit to lapse any right to any material patent or patent application;
(xviii) take any action that is intended or is reasonably likely to result in the conditions set forth in Sections 7.1, 7.2, 7.3 (except after compliance with Section 6.2(d)), 7.5, 7.7, 7.11, 7.12, 7.13, 7.15 and 7.16 not being satisfied; or
(xix) agree or commit to take any of the actions described in clauses above in this Section 5.2(b).
(c) During the Pre-Closing Period, the Company shall promptly notify Parent in writing of any event, condition, fact or circumstance that would make the timely satisfaction of any of the conditions set forth in ARTICLE 7 impossible or unlikely or that has had or could reasonably be expected to have or result in a Material Adverse Effect. Without limiting the generality of the foregoing, the Company shall promptly advise Parent in writing of any Legal Proceeding or material claim commenced or, to the Company’s Knowledge, threatened against or with respect to any of the Company Entities. No notification given to Parent pursuant to this Section 5.2(c) or any information or knowledge obtained pursuant to Section 5.1 shall limit or otherwise affect any of the representations, warranties, covenants or obligations of the Company contained in this Agreement or any of the remedies available to Parent under this Agreement.
(d) During the Pre-Closing Period, the Company shall promptly notify Parent in writing if the Company has the right to exercise any right or option to repurchase shares of its capital stock from any Company Associate or other Person upon termination of such Person’s service to any of the Company Entities. The Company shall not exercise any such repurchase right except to the extent directed by Parent in writing.
