AGREEMENT AND PLAN OF REORGANIZATION
BY AND AMONG
POLYCOM, INC.
PERISCOPE ACQUISITION CORPORATION
AND
ATLAS COMMUNICATION ENGINES, INC.
DATED AS OF NOVEMBER 18, 1999
TABLE OF CONTENTS
PAGE
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INDEX OF EXHIBITS AND SCHEDULES. . . . . . . . . . . . . . . . . . . . . . . . . . iv
ARTICLE I THE MERGER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2
1.1 The Merger. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2
1.2 Effective Time. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2
1.3 Effect of the Merger. . . . . . . . . . . . . . . . . . . . . . . . . . .2
1.4 Articles of Incorporation; Bylaws . . . . . . . . . . . . . . . . . . . .2
1.5 Directors and Officers. . . . . . . . . . . . . . . . . . . . . . . . . .3
1.6 Maximum Shares to Be Issued; Effect on Capital Stock. . . . . . . . . . .3
1.7 Dissenting Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . .6
1.8 Surrender of Certificates . . . . . . . . . . . . . . . . . . . . . . . .6
1.9 No Further Ownership Rights in Company Common Stock . . . . . . . . . . .8
1.10 Lost, Stolen or Destroyed Certificates. . . . . . . . . . . . . . . . . .8
1.11 Tax and Accounting Consequences . . . . . . . . . . . . . . . . . . . . .8
1.12 Taking of Necessary Action; Further Action. . . . . . . . . . . . . . . .8
ARTICLE II REPRESENTATIONS AND WARRANTIES OF THE COMPANY . . . . . . . . . . . . . .9
2.1 Organization of the Company . . . . . . . . . . . . . . . . . . . . . . .9
2.2 Company Capital Structure . . . . . . . . . . . . . . . . . . . . . . . .9
2.3 Subsidiaries. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
2.4 Authority . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
2.5 Company Financial Statements. . . . . . . . . . . . . . . . . . . . . . 11
2.6 No Undisclosed Liabilities. . . . . . . . . . . . . . . . . . . . . . . 11
2.7 No Changes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
2.8 Tax and Other Returns and Reports . . . . . . . . . . . . . . . . . . . 13
2.9 Restrictions on Business Activities . . . . . . . . . . . . . . . . . . 15
2.10 Title to Properties; Absence of Liens and Encumbrances. . . . . . . . . 15
2.11 Intellectual Property . . . . . . . . . . . . . . . . . . . . . . . . . 15
2.12 Agreements, Contracts and Commitments . . . . . . . . . . . . . . . . . 16
2.13 Interested Party Transactions . . . . . . . . . . . . . . . . . . . . . 19
2.14 Compliance with Laws. . . . . . . . . . . . . . . . . . . . . . . . . . 19
2.15 Litigation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
2.16 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
2.17 Environmental Matters . . . . . . . . . . . . . . . . . . . . . . . . . 19
2.18 Brokers' and Finders' Fees; Third Party Expenses. . . . . . . . . . . . 20
2.19 Compliance with Federal and State Securities Laws . . . . . . . . . . . 20
2.20 Employee Matters and Benefit Plans. . . . . . . . . . . . . . . . . . . 21
2.21 Employees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
2.22 Governmental Authorization. . . . . . . . . . . . . . . . . . . . . . . 24
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2.23 Xxxx-Xxxxx-Xxxxxx . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
2.24 Third Party Consents. . . . . . . . . . . . . . . . . . . . . . . . . . 24
2.25 Representations Complete. . . . . . . . . . . . . . . . . . . . . . . . 24
ARTICLE III REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB. . . . . . . . 25
3.1 Organization, Standing and Power. . . . . . . . . . . . . . . . . . . . 25
3.2 Authority . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
3.3 Parent Capital Structure; Issuance of Shares. . . . . . . . . . . . . . 25
3.4 SEC Filings; Parent Financial Statements. . . . . . . . . . . . . . . . 26
3.5 No Conflict . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
3.6 Governmental Approvals. . . . . . . . . . . . . . . . . . . . . . . . . 27
3.7 Third Party Consents. . . . . . . . . . . . . . . . . . . . . . . . . . 27
3.8 Absence of Changes or Events. . . . . . . . . . . . . . . . . . . . . . 27
3.9 Brokers' and Finder's Fees. . . . . . . . . . . . . . . . . . . . . . . 27
ARTICLE IV CONDUCT PRIOR TO THE EFFECTIVE TIME . . . . . . . . . . . . . . . . . . 27
4.1 Conduct of Business of the Company. . . . . . . . . . . . . . . . . . . 27
4.2 No Solicitation . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
ARTICLE V ADDITIONAL AGREEMENTS. . . . . . . . . . . . . . . . . . . . . . . . . . 31
5.1 Issuance of Parent Common Stock . . . . . . . . . . . . . . . . . . . . 31
5.2 Shareholder Approval. . . . . . . . . . . . . . . . . . . . . . . . . . 32
5.3 Access to Company Information . . . . . . . . . . . . . . . . . . . . . 32
5.4 Confidentiality . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
5.5 Expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
5.6 Public Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
5.7 FIRPTA Compliance . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
5.8 Reasonable Efforts. . . . . . . . . . . . . . . . . . . . . . . . . . . 33
5.9 Notification of Certain Matters . . . . . . . . . . . . . . . . . . . . 33
5.10 Additional Documents and Further Assurances . . . . . . . . . . . . . . 33
5.11 Nasdaq Listing; Blue Sky Laws . . . . . . . . . . . . . . . . . . . . . 33
5.12 Xxxx-Xxxxx-Xxxxxx Filings . . . . . . . . . . . . . . . . . . . . . . . 34
5.13 Form S-8. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
5.14 Employees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
5.15 Pooling Treatment . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
5.16 Tax-Free Reorganization . . . . . . . . . . . . . . . . . . . . . . . . 34
5.17 Tax Returns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
5.18 Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
5.19 Pooling Break-up. . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
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5.20 Termination of 401(k) Plan. . . . . . . . . . . . . . . . . . . . . . . 35
5.21 Credit for Deductibles. . . . . . . . . . . . . . . . . . . . . . . . . 35
5.22 D2 Payment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
5.23 Tax Distribution. . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
ARTICLE VI CONDITIONS TO THE MERGER. . . . . . . . . . . . . . . . . . . . . . . . 36
6.1 Conditions to Obligations of Each Party to Effect the Merger. . . . . . 36
6.2 Additional Conditions to Obligations of the Company . . . . . . . . . . 37
6.3 Additional Conditions to the Obligations of Parent and Merger
Sub . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
ARTICLE VII SURVIVAL OF REPRESENTATIONS AND WARRANTIES; ESCROW . . . . . . . . . . 39
7.1 Survival of Representations and Warranties; Indemnity . . . . . . . . . 39
7.2 Escrow Arrangements . . . . . . . . . . . . . . . . . . . . . . . . . . 40
7.3 Indemnity - Further Provisions. . . . . . . . . . . . . . . . . . . . . 47
ARTICLE VIII TERMINATION, AMENDMENT AND WAIVER . . . . . . . . . . . . . . . . . . 48
8.1 Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
8.2 Effect of Termination . . . . . . . . . . . . . . . . . . . . . . . . . 49
8.3 Amendment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
8.4 Extension; Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
ARTICLE IX GENERAL PROVISIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . 50
9.1 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
9.2 Interpretation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
9.3 Counterparts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
9.4 Entire Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
9.5 Severability. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
9.6 Other Remedies. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
9.7 Specific Performance. . . . . . . . . . . . . . . . . . . . . . . . . . 52
9.8 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
9.9 Rules of Construction . . . . . . . . . . . . . . . . . . . . . . . . . 52
9.10 Assignment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
9.11 Attorneys' Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
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INDEX OF EXHIBITS AND SCHEDULES
EXHIBIT DESCRIPTION
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Exhibit A Form of Shareholder Certificate
Exhibit B Form of Legal Opinion of Counsel to Parent
Exhibit C Form of Legal Opinion of Counsel to the Company
Exhibit D Form of Noncompetition Agreement
Exhibit E Form of Employment Agreement
Exhibit F Form of Voting Agreement
Exhibit G Form of Affiliate Agreement
Exhibit H Form of Escrow Agreement
SCHEDULE DESCRIPTION
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2.1 Organization of the Company
2.2(a) Company Capital Structure
2.2(b) Company Options
2.3 Subsidiaries
2.4 Authority
2.5 Company Financial Statements
2.6 Undisclosed Liabilities
2.7 No Changes
2.8(b) Tax Returns and Audits
2.9 Restrictions of Business Activities
2.10(a) Title to Properties
2.10(b) Absence of Liens and Encumbrances
2.11(a) Intellectual Property
2.11(b) Material Licenses
2.11(c) Intellectual Property Rights
2.12(a) Agreements, Contracts and Commitments
2.12(b) Breaches, Violations and Defaults
2.13 Interested Party Transactions
2.14 Compliance with Laws
2.15 Litigation
2.20(b) Employee Plans and Employee Agreements
2.20(d) Employee Plan Compliance
2.20(g) Post-Employment Obligations
2.20(i) Effect of Transaction
2.20(k) Labor
2.24 Third Party Consents
4.1 Conduct of the Business
6.2(f) Personal Guarantees
6.3(c) Third Party Consents Required of the Company
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AGREEMENT AND PLAN OF REORGANIZATION
This AGREEMENT AND PLAN OF REORGANIZATION (this "AGREEMENT") is made
and entered into as of November 18, 1999 among Polycom, Inc., a Delaware
corporation ("PARENT"), Periscope Acquisition Corporation, a California
corporation and a wholly-owned subsidiary of Parent ("MERGER SUB"), and Atlas
Communication Engines, Inc., a California corporation (the "COMPANY").
RECITALS
A. The Boards of Directors of each of the Parent, Company and
Merger Sub believe it is in the best interests of each company and their
respective shareholders that Parent acquire the Company through the statutory
merger of Merger Sub with and into the Company (the "MERGER") and, in
furtherance thereof, have approved the Merger.
B. Pursuant to the Merger, among other things, and subject to the
terms and conditions of this Agreement, all of the issued and outstanding
shares of common stock of the Company ("COMPANY COMMON STOCK") shall be
converted into the right to receive shares of Common Stock of Parent ("PARENT
COMMON STOCK") as set forth herein, and all outstanding options (whether
vested or unvested) to acquire shares of Company Common Stock shall be
assumed by Parent and shall thereafter represent options to acquire shares of
Parent Common Stock upon payment to Parent of the applicable exercise price
under such options.
C. A portion of the shares of Parent Common Stock issued by Parent
in connection with the Merger shall be placed in escrow by Parent, the
release of which shares shall be contingent upon certain events and
conditions, all as set forth in Article VII hereof.
D. The Company, Parent and Merger Sub desire to make certain
representations and warranties and other agreements in connection with the
Merger.
E. The parties intend, by executing this Agreement, to adopt a
plan of reorganization within the meaning of Section 368 of the Internal
Revenue Code of 1986, as amended (the "CODE").
NOW, THEREFORE, in consideration of the covenants, promises and
representations set forth herein, and for other good and valuable
consideration, intending to be legally bound hereby the parties agree as
follows:
ARTICLE I
THE MERGER
1.1 THE MERGER. At the Effective Time (as defined in Section 1.2)
and subject to and upon the terms and conditions of this Agreement and the
applicable provisions of the California General Corporation Law ("CALIFORNIA
LAW"), Merger Sub shall be merged with and into the Company, the separate
corporate existence of Merger Sub shall cease and the Company shall continue
as the surviving corporation and as a wholly-owned subsidiary of Parent. The
Company as the surviving corporation after the Merger is hereinafter
sometimes referred to as the "SURVIVING CORPORATION."
1.2 EFFECTIVE TIME. Unless this Agreement is earlier terminated
pursuant to Section 8.1, the closing of the Merger (the "CLOSING") will take
place as promptly as practicable, but no later than five (5) business days,
following satisfaction or waiver of the conditions set forth in Article VI,
at the offices of Xxxxxx Xxxxxxx Xxxxxxxx & Xxxxxx, 000 Xxxx Xxxx Xxxx, Xxxx
Xxxx, Xxxxxxxxxx, unless another place or time is agreed to by Parent and the
Company. The date upon which the Closing actually occurs is herein referred
to as the "CLOSING DATE." On the Closing Date, the parties hereto shall
cause the Merger to be consummated by filing the Agreement of Merger (or like
instrument) with the Secretary of State of California (the "AGREEMENT OF
MERGER"), in accordance with the relevant provisions of applicable law (the
time of acceptance by the Secretary of State of California of such filing
being referred to herein as the "EFFECTIVE TIME").
1.3 EFFECT OF THE MERGER. At the Effective Time, the effect of the
Merger shall be as provided in the applicable provisions of California Law.
Without limiting the generality of the foregoing, and subject thereto, at the
Effective Time, all the property, rights, privileges, powers and franchises
of the Company and Merger Sub shall vest in the Surviving Corporation, and
all debts, liabilities and duties of the Company and Merger Sub shall become
the debts, liabilities and duties of the Surviving Corporation.
1.4 ARTICLES OF INCORPORATION; BYLAWS.
(a) Unless otherwise determined by Parent prior to the
Effective Time, at the Effective Time, the Articles of Incorporation of
Merger Sub shall be the Articles of Incorporation of the Surviving
Corporation until thereafter amended as provided by law and such Articles of
Incorporation; provided, however, that Article I of the Articles of
Incorporation shall be amended to read as follows: "The name of this
corporation is Atlas Communication Engines, Inc."
(b) The Bylaws of Merger Sub, as in effect immediately prior
to the Effective Time, shall be the Bylaws of the Surviving Corporation until
thereafter amended.
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1.5 DIRECTORS AND OFFICERS. The directors of Merger Sub
immediately prior to the Effective Time shall be the initial directors of the
Surviving Corporation, each to hold office in accordance with the Articles of
Incorporation and Bylaws of the Surviving Corporation. The officers of
Merger Sub immediately prior to the Effective Time shall be the initial
officers of the Surviving Corporation, each to hold office in accordance with
the Bylaws of the Surviving Corporation.
1.6 MAXIMUM SHARES TO BE ISSUED; EFFECT ON CAPITAL STOCK. The
maximum number of shares of Parent Common Stock to be issued (including
Parent Common Stock to be reserved for issuance upon exercise of all of the
Company's outstanding options) in exchange for the acquisition by Parent of
all outstanding Company Common Stock shall be equal to the Aggregate Parent
Share Number (as defined in Section 1.6(g)(iii))). Subject to the terms and
conditions of this Agreement, as of the Effective Time, by virtue of the
Merger and without any action on the part of Merger Sub, the Company or the
holder of any shares of the Company Common Stock, the following shall occur:
(a) CONVERSION OF COMPANY COMMON STOCK. Each share of
Common Stock of the Company (the "COMPANY COMMON STOCK") issued and
outstanding immediately prior to the Effective Time (other than any shares of
Company Common Stock to be canceled pursuant to Section 1.6(b) and any
Dissenting Shares (as defined and to the extent provided in Section 1.7(a)))
will be canceled and extinguished and be converted automatically into the
right to receive that number of shares of Parent Common Stock equal to the
Exchange Ratio (as defined in Section 1.6(g)(v) below) upon surrender of the
certificate representing such share of Company Common Stock in the manner
provided in Section 1.8. Consistent with and pursuant to Parent's existing
Preferred Shares Rights Agreement, dated as of June 15, 1998, (the "RIGHTS
AGREEMENT"), between Parent and BankBoston N.A., as rights agent, one right
issuable pursuant to the Rights Agreement or any other right issued in
substitution thereof (a "RIGHT"), shall be issued together with and shall
attach to each share of Parent Common Stock issued pursuant to this Section
1.6(a), unless the Rights shall have expired or been redeemed prior to the
Effective Time.
(b) CANCELLATION OF COMPANY-OWNED STOCK. Each share of
Company Common Stock owned by the Company or any direct or indirect
wholly-owned subsidiary of the Company immediately prior to the Effective
Time shall be canceled and extinguished without any conversion thereof.
(c) STOCK OPTIONS. At the Effective Time, all options to
purchase Company Common Stock then outstanding under the Company's 1996
Incentive Stock Option Plan (the "OPTION PLAN") or otherwise shall be assumed
by Parent in accordance with provisions described below.
(i) At the Effective Time, each outstanding option to
purchase shares of Company Common Stock (each a "COMPANY OPTION") under the
Option Plan or otherwise, whether vested or unvested, shall be assumed by
Parent. Each Company Option so assumed by Parent under this Agreement shall
continue to have, and be subject to, the same terms and conditions set forth
in the Option Plan and/or as provided in the respective option agreements
governing such Company
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Option immediately prior to the Effective Time, except that (A) such Company
Option shall be exercisable (when vested) for that number of whole shares of
Parent Common Stock equal to the product of the number of shares of Company
Common Stock that were issuable upon exercise of such Company Option
immediately prior to the Effective Time multiplied by the Exchange Ratio,
rounded up to the nearest whole number of shares of Parent Common Stock and
(B) the per share exercise price for the shares of Parent Common Stock
issuable upon exercise of such assumed Company Option shall be equal to the
quotient determined by dividing the exercise price per share of Company
Common Stock at which such Company Option was exercisable immediately prior
to the Effective Time by the Exchange Ratio, rounded up to the nearest whole
cent.
(ii) It is the intention of the parties that the
Company Options assumed by Parent qualify following the Effective Time as
incentive stock options as defined in Section 422 of the Internal Revenue
Code of 1986, as amended (the "CODE"), to the extent the Company Options
qualified as incentive stock options immediately prior to the Effective Time.
(iii) Promptly following the Effective Time, Parent
will issue to each holder of an outstanding Company Option a document
evidencing the foregoing assumption of such Company Option by Parent.
(iv) Promptly following the Effective Time, and in any
event no later than sixty (60) days after the Effective Time, Parent will
file with the Securities and Exchange Commission (the "SEC") a Registration
Statement on Form S-8 or other appropriate form under the Securities Act of
1933, as amended, and the rules and regulations promulgated thereunder (the
"SECURITIES ACT"), to register Parent Common Stock issuable upon exercise of
the Company Options assumed by Parent pursuant to this Section 1.6(c) and use
its commercially reasonable best efforts to cause such Registration Statement
to remain effective until the exercise or expiration of such options.
(d) CAPITAL STOCK OF MERGER SUB. Each share of Common Stock
of Merger Sub issued and outstanding immediately prior to the Effective Time
shall be converted into and exchanged for one validly issued, fully paid and
nonassessable share of Common Stock of the Surviving Corporation. Each stock
certificate of Merger Sub evidencing ownership of any such shares of Common
Stock of Merger Sub shall, as of the Effective Time, evidence ownership of
such shares of Common Stock of the Surviving Corporation.
(e) ADJUSTMENTS TO EXCHANGE RATIO. The Exchange Ratio shall
be adjusted to reflect fully the effect of any stock split, reverse split,
stock dividend (including any dividend or distribution of securities
convertible into Company Common Stock), recapitalization or other like change
with respect to Company Common Stock that occurs or has a record date after
the date hereof and prior to the Effective Time.
(f) FRACTIONAL SHARES. No fraction of a share of Parent
Common Stock will be issued, but in lieu thereof, each holder of shares of
Company Common Stock who would otherwise
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be entitled to a fraction of a share of Parent Common Stock (after
aggregating all fractional shares of Parent Common Stock to be received by
such holder) shall be entitled to receive, without any interest, from Parent
an amount of cash (rounded to the nearest whole cent) equal to the product of
(i) such fraction, multiplied by (ii) the Average Price of a share of Parent
Common Stock (as defined in Section 1.6(g)(iii)).
(g) DEFINITIONS.
(i) AGGREGATE COMPANY COMMON NUMBER. The "AGGREGATE
COMPANY COMMON NUMBER" shall mean the aggregate number of shares of Company
Common Stock outstanding immediately prior to the Effective Time.
(ii) AGGREGATE COMPANY OPTION NUMBER. The "AGGREGATE
COMPANY OPTION NUMBER" shall mean the aggregate number of shares of Company
Common Stock issuable upon the exercise of all outstanding Company Options
(vested and unvested) to acquire shares of Company Common Stock immediately
prior to the Effective Time.
(iii) AGGREGATE PARENT SHARE NUMBER. The "AGGREGATE
PARENT SHARE NUMBER" shall be the number of shares of Parent Common Stock
determined by dividing (A) $99.5 million ($99,500,000) by (B) the average
closing sale price of a share of Parent Common Stock, as reported on The
Nasdaq National Market, for the ten (10) most recent trading days ending on
the trading day immediately preceding the date of this Agreement (the
"AVERAGE PRICE"); provided, however, that the $99.5 million amount in clause
(A) herein (the "CONSIDERATION") shall be reduced, dollar for dollar, by the
amount of any reduction in the Company's shareholders' equity from September
30, 1999 to the date which is two (2) business days before the Closing Date
as shown on the respective balance sheets as of such dates (excluding
amortization and depreciation consistent with past practices) as prepared and
certified by the Company's Chief Executive Officer in accordance with GAAP
and consistent with past practices (the "PURCHASE PRICE REDUCTION"); but
provided, further that (i) the Tax Distribution, (ii) the Appraisal Rights
and (iii) Third Party Expenses (all as defined below) shall not effect a
Purchase Price Reduction, it being agreed that the foregoing items (i), (ii)
and (iii) shall not be reflected on the balance sheet as of the date which is
two (2) business days before the Closing Date. The Average Price shall be
adjusted to reflect fully the effect of any stock split, stock dividend
(including any dividend or distribution of securities convertible into Parent
Common Stock), reorganization, recapitalization or other like change with
respect to Parent Common Stock that occurs or has a record date after the
date hereof and prior to the Effective Time.
(iv) ESCROW AMOUNT. The "ESCROW AMOUNT" shall be a
number of shares of Parent Common Stock obtained by multiplying (x) the
Aggregate Parent Share Number by (y) 0.05.
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(v) EXCHANGE RATIO. The "EXCHANGE RATIO" shall mean
the quotient obtained by dividing (x) the Aggregate Parent Share Number by
(y) the sum of (A) the Aggregate Company Common Number, plus (B) the
Aggregate Company Option Number.
1.7 DISSENTING SHARES.
(a) Notwithstanding any provision of this Agreement to the
contrary, any shares of Company Common Stock held by a holder who has
demanded and perfected appraisal or dissenters' rights for such shares in
accordance with California Law and who, as of the Effective Time, has not
effectively withdrawn or lost such appraisal or dissenters' rights
("DISSENTING SHARES") shall not be converted into or represent a right to
receive Parent Common Stock pursuant to Section 1.6, but the holder thereof
shall only be entitled to such rights as are granted by California Law.
(b) Notwithstanding the provisions of subsection (a), if any
holder of shares of Company Common Stock who is otherwise entitled to
exercise dissenters' rights under California Law shall effectively withdraw
or lose (through failure to perfect or otherwise) such dissenters' rights,
then, as of the later of the Effective Time and the occurrence of such event,
such holder's shares shall automatically be converted into and represent only
the right to receive Parent Common Stock and payment for any fractional share
as provided in Sections 1.6(a) and (f), without interest thereon, upon
surrender of the certificate representing such shares.
(c) The Company shall give Parent (i) prompt notice of any
written demands for the exercise of dissenters' rights in respect of any
shares of Company Common Stock, withdrawals of such demands, and any other
instruments served pursuant to California Law (including without limitation
instruments concerning appraisal or dissenters' rights) and received by the
Company and (ii) the opportunity to participate in all negotiations and
proceedings with respect to such demands. The Company shall not, except with
the prior written consent of Parent, voluntarily make any payment with
respect to any demands for the exercise of dissenters' rights in respect of
any shares of Company Common Stock or offer to settle or settle any such
demands.
1.8 SURRENDER OF CERTIFICATES.
(a) EXCHANGE AGENT. Xxxxxx Xxxxxxx Xxxxxxxx & Xxxxxx, P.C.
shall serve as Exchange Agent in the Merger.
(b) PARENT TO PROVIDE COMMON STOCK. Promptly after the
Effective Time, Parent shall make available to the Exchange Agent for
exchange in accordance with this Article I, the Aggregate Parent Share Number
in exchange for outstanding shares of Company Common Stock and Company
Options; provided that, on behalf of certain of the holders of Company Common
Stock, Parent shall cause the Exchange Agent to deposit into an escrow
account a number of shares of Parent Common Stock equal to the Escrow Amount
out of the Aggregate Parent Share Number. The portion of the Escrow Amount
contributed on behalf of each holder of Company Common Stock
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shall be in proportion to the aggregate number of shares of Parent Common
Stock to which such holder would otherwise be entitled to receive under
Section 1.6 by virtue of ownership of outstanding shares of Company Common
Stock.
(c) EXCHANGE PROCEDURES. As soon as practicable after the
Effective Time, Parent shall cause the Exchange Agent to mail to each holder
of record of a certificate or certificates (the "CERTIFICATES") which
immediately prior to the Effective Time represented outstanding shares of
Company Common Stock and which shares were converted into the right to
receive shares of Parent Common Stock pursuant to Section 1.6, (i) a letter
of transmittal (which shall be in customary form and shall specify that
delivery shall be effected, and risk of loss and title to the Certificates
shall pass, only upon delivery of the Certificates to the Exchange Agent) and
(ii) instructions for use in effecting the surrender of the Certificates in
exchange for certificates representing shares of Parent Common Stock. Upon
surrender of a Certificate to the Exchange Agent, together with such letter
of transmittal, duly completed and validly executed in accordance with the
instructions thereto, the holder of such Certificate shall be entitled to
receive in exchange therefor a certificate representing the number of whole
shares of Parent Common Stock (less the number of shares of Parent Common
Stock to be deposited in the Escrow Fund on such holder's behalf pursuant to
Article VII hereof), plus cash in lieu of fractional shares in accordance
with Section 1.6(f), to which such holder is entitled pursuant to Section
1.6, and any dividends or other distributions to which holder is entitled
pursuant to Section 1.8(d) (collectively, the "ADDITIONAL PAYMENTS"), and the
Certificate so surrendered shall forthwith be cancelled. At the Effective
Time, Parent shall cause to be distributed to the Escrow Agent (as defined in
Article VII) a certificate or certificates representing that number of shares
of Parent Common Stock equal to the Escrow Amount, which certificate shall be
registered in the name of the Escrow Agent. Such shares shall be
beneficially owned by the holders on whose behalf such shares were deposited
in the Escrow Fund and shall be available to compensate Parent as provided in
Article VII. From the Closing and until so surrendered, each outstanding
Certificate that, prior to the Effective Time, represented shares of Company
Common Stock will be deemed from and after the Effective Time, for all
corporate purposes, to represent solely (i) ownership of the number of full
shares of Parent Common Stock into which such shares of Company Common Stock
shall have been so exchanged and (ii) the right to receive the Additional
Payments, if any.
(d) DISTRIBUTIONS WITH RESPECT TO UNEXCHANGED SHARES. No
dividends or other distributions with respect to Parent Common Stock declared
or made with a record date after the Effective Time will be paid to the
holder of any unsurrendered Certificate with respect to the shares of Parent
Common Stock represented thereby until the holder of record of such
Certificate shall surrender such Certificate. Subject to applicable law,
following surrender of any such Certificate, there shall be paid to the
record holder of the certificates representing whole shares of Parent Common
Stock issued in exchange therefor, without interest, at the time of such
surrender, the amount of dividends or other distributions with a record date
after the Effective Time theretofore paid with respect to such whole shares
of Parent Common Stock.
(e) TRANSFERS OF OWNERSHIP. If any certificate for shares
of Parent Common Stock is to be issued in a name other than that in which the
certificate surrendered in exchange therefor is
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registered, it will be a condition of the issuance thereof that the
certificate so surrendered will be properly endorsed and otherwise in proper
form for transfer and that the person requesting such exchange will have paid
to Parent or any agent designated by it any transfer or other taxes required
by reason of the issuance of a certificate for shares of Parent Common Stock
in any name other than that of the registered holder of the certificate
surrendered, or established to the reasonable satisfaction of Parent or any
agent designated by it that such tax has been paid or is not payable.
(f) NO LIABILITY. Notwithstanding anything to the contrary
in this Section 1.8, none of the Exchange Agent, the Surviving Corporation or
any party hereto shall be liable to a holder of shares of Parent Common Stock
or Company Common Stock for any amount properly paid to a public official
pursuant to any applicable abandoned property, escheat or similar law.
1.9 NO FURTHER OWNERSHIP RIGHTS IN COMPANY COMMON STOCK. All
shares of Parent Common Stock issued pursuant to the Merger upon the
surrender for exchange of shares of Company Common Stock in accordance with
the terms hereof (including any cash paid in respect thereof) shall be deemed
to have been issued in full satisfaction of all rights pertaining to such
shares of Company Common Stock, and there shall be no further registration of
transfers on the records of the Surviving Corporation of shares of Company
Common Stock which were outstanding immediately prior to the Effective Time.
If, after the Effective Time, Certificates are presented to the Surviving
Corporation for any reason, they shall be canceled and exchanged as provided
in this Article I.
1.10 LOST, STOLEN OR DESTROYED CERTIFICATES. In the event any
Certificates evidencing shares of Company Common Stock shall have been lost,
stolen or destroyed, the Exchange Agent shall issue in exchange for such
lost, stolen or destroyed Certificates, upon receiving notice from the holder
thereof and upon the making of an affidavit of that fact by such holder, such
shares of Parent Common Stock and the Additional Payments, if any; provided,
however, that Parent may, in its discretion and, as a condition precedent to
the issuance thereof, require the owner of such lost, stolen or destroyed
Certificates to deliver a bond in such sum as it may reasonably direct as
indemnity against any claim that may be made against Parent or the Exchange
Agent with respect to the Certificates alleged to have been lost, stolen or
destroyed.
1.11 TAX AND ACCOUNTING CONSEQUENCES. It is intended by the parties
hereto that the Merger shall constitute a reorganization within the meaning
of Section 368 of the Code. The parties hereto adopt this Agreement as a
"plan of reorganization" within the meaning of Sections 1.368-2(g) and
1.368-3(a) of the United States Income Tax Regulations. It is intended by
the parties hereto that the Merger shall be treated as a "pooling" for
accounting purposes.
1.12 TAKING OF NECESSARY ACTION; FURTHER ACTION. If, at any time
after the Effective Time, any such further action is necessary or reasonably
desirable to carry out the purposes of this Agreement and to vest the
Surviving Corporation with full right, title and possession to all assets,
property, rights, privileges, powers and franchises of the Company and Merger
Sub, the officers and
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directors of the Company and Merger Sub are fully authorized in the name of
their respective corporations or otherwise to take, and will take, all such
lawful and necessary action.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to Parent and Merger Sub,
subject to such exceptions as are disclosed in the disclosure letter supplied
by the Company to Parent which identify the Section to which such disclosure
relates (the "COMPANY SCHEDULES") and dated as of the date hereof, as follows:
2.1 ORGANIZATION OF THE COMPANY. The Company is a corporation duly
organized, validly existing and in good standing under the laws of the State
of California. The Company has the corporate power and authority to own its
properties and to carry on its business as now being conducted. The Company
is duly qualified to do business and in good standing as a foreign
corporation in each state or other jurisdiction in which the failure to be so
qualified would have a material adverse effect on the business, assets
(including intangible assets), financial condition, results of operations or
prospects of the Company (hereinafter referred to as a "COMPANY MATERIAL
ADVERSE EFFECT"). The Company has delivered a true and correct copy of its
Articles of Incorporation and Bylaws, each as amended to date, to Parent.
2.2 COMPANY CAPITAL STRUCTURE.
(a) The authorized capital stock of the Company consists of
(i) 100,000,000 shares of authorized Common Stock, no par value per share
("COMMON"), of which 3,012,000 shares are issued and outstanding (the
"COMPANY COMMON STOCK"). Except as set forth in the immediately preceding
sentence, no shares of capital stock or other equity securities of the
Company are issued, reserved for issuance except as set forth in Section
2.2(b) below or outstanding. The Company Common Stock is held of record by
the persons, with the addresses of record and in the amounts set forth on
SCHEDULE 2.2(a). All outstanding shares of Company Common Stock are, and at
the Effective Time will be, duly authorized, validly issued, fully paid and
non-assessable and not subject to preemptive rights created by statute, the
Articles of Incorporation or Bylaws of the Company or any agreement to which
the Company is a party or by which it is bound.
(b) In addition, there are currently issued and outstanding
options outstanding to purchase (i) an aggregate of 1,023,960 shares of
Company Common Stock issued to employees, directors and consultants pursuant
to the Company Option Plan and (ii) an aggregate of 60,000 shares of Company
Common Stock issued outside of the Company Option Plan. The Company Options
are held by the persons and in the amounts set forth on SCHEDULE 2.2(b).
There are no other options, warrants, calls, rights, commitments or
agreements of any character, written or oral, to which the Company is a party
or by which it is bound obligating the Company to issue, deliver, sell,
repurchase or redeem, or cause to be issued, delivered, sold, repurchased or
redeemed, any shares of
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the capital stock of the Company or obligating the Company to grant, extend,
accelerate the vesting of, change the price of, otherwise amend or enter into
any such option, warrant, call, right, commitment or agreement. There are no
outstanding or authorized stock appreciation, phantom stock, profit
participation, or other similar rights with respect to the Company.
2.3 SUBSIDIARIES. Except as set forth on SCHEDULE 2.3, the Company
does not have and has never had any subsidiaries or affiliated companies and
does not otherwise own and has never otherwise owned any shares of capital
stock or any interest in, or control, directly or indirectly, any other
corporation, partnership, association, joint venture or other business entity.
2.4 AUTHORITY. Subject only to the requisite approval of the
Merger and this Agreement by the Company's shareholders, the Company has all
requisite corporate power and authority to enter into this Agreement and to
consummate the transactions contemplated hereby. The execution and delivery
of this Agreement and the consummation of the transactions contemplated
hereby have been duly authorized by all necessary corporate action on the
part of the Company, subject only to the approval of the Merger by the
Company's shareholders. The Company's Board of Directors has unanimously
approved the Merger and this Agreement. This Agreement has been duly
executed and delivered by the Company and constitutes the valid and binding
obligation of the Company, enforceable in accordance with its terms except
(i) as limited by applicable bankruptcy, insolvency, reorganization,
moratorium and other laws of general application affecting enforcement of
creditors' rights generally and (ii) as limited by laws relating to the
availability of specific performance, injunctive relief or other equitable
remedies. Subject only to the approval of the Merger and this Agreement by
the Company's shareholders, the execution and delivery of this Agreement by
the Company does not, and, as of the Effective Time, the consummation of the
transactions contemplated hereby will not, conflict with, or result in any
violation of, or default under (with or without notice or lapse of time, or
both), or give rise to a right of termination, cancellation or acceleration
of any obligation or loss of any material benefit under (any such event, a
"CONFLICT") (i) any provision of the Articles of Incorporation or Bylaws of
the Company or (ii) any mortgage, indenture, lease, contract or other
agreement or instrument, permit, concession, franchise, license, judgment,
order, decree, statute, law, ordinance, rule or regulation applicable to the
Company or its properties or assets. No consent, waiver, approval, order or
authorization of, or registration, declaration or filing with, any court,
administrative agency or commission or other federal, state, county, local or
foreign governmental authority, instrumentality, agency or commission
("GOVERNMENTAL ENTITY") or any third party (so as not to trigger any
Conflict), is required by or with respect to the Company in connection with
the execution and delivery of this Agreement or the consummation of the
transactions contemplated hereby, except for (i) the filing of the Agreement
of Merger with the California Secretary of State, (ii) such consents,
waivers, approvals, orders, authorizations, registrations, declarations and
filings as may be required under applicable federal and state securities
laws, (iii) such filings as are required under the Xxxx-Xxxxx-Xxxxxx
Antitrust Improvements Act of 0000 (xxx "XXX XXX"), if any, (iv) such
consents, waivers, approvals, orders, authorizations, registrations,
declarations and filings as shall have been obtained prior to the
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Effective Time, and (v) such other consents, waivers, authorizations,
filings, approvals and registrations which are set forth on SCHEDULE 2.4.
2.5 COMPANY FINANCIAL STATEMENTS. SCHEDULE 2.5 sets forth the
Company's (i) audited balance sheets as of December 31, 1998, and the related
audited statements of operations, cash flows and shareholders equity
(deficit) for the fiscal year then ended, together with the report thereon of
Damitz, Brooks, Nightingale, Xxxxxx & Morissett, and (ii) the Company's
unaudited balance sheets as of December 31, 1996 and 1997, and the related
unaudited statements of operations, cash flows and shareholders equity
(deficit) for the two fiscal years just ended and unaudited balance sheet as
of September 30, 1999 (the "SEPTEMBER BALANCE SHEET") and the related
unaudited statement of operations, cash flow and shareholder's equity
(deficit) for the nine-month period then ended (collectively, the "COMPANY
FINANCIAL STATEMENTS"). The Company Financial Statements have been prepared
in accordance with generally accepted accounting principles ("GAAP") applied
on a basis consistent throughout the periods indicated and consistent with
each other. The Company Financial Statements present fairly the financial
condition and operating results and cash flows of the Company as of the dates
and during the periods indicated therein (subject, in the case of any
unaudited interim financial statements, to normal year-end adjustments and to
the extent they may not include footnotes or may be condensed or summary
statements).
2.6 NO UNDISCLOSED LIABILITIES. Except as set forth in SCHEDULE
2.6, the Company does not have any liability, indebtedness, obligation,
expense, claim, deficiency, guaranty or endorsement of any type, whether
accrued, absolute, contingent, matured, unmatured or other (whether or not
required to be reflected in financial statements in accordance with GAAP),
that in the aggregate exceed $30,000, and which (i) has not been reflected or
reserved against in the September Balance Sheet, or (ii) has arisen other
than in the ordinary course of the Company's business and consistent with
past practices since September 30, 1999, other than the tax distribution(s)
to Xxxxxxx and Xxxxx Xxxxxxxxx which distribution(s) shall be equal to that
amount necessary to pay the income taxes relating to the S Corporation income
to Xxxxxxx and Xxxxx Xxxxxxxxx, as certified by a duly qualified Certified
Public Accountant, for all taxable period(s) beginning with 1999 and ending
on or before the Closing Date (the "TAX DISTRIBUTION") or Third Party
Expenses up to $150,000 or appraisal rights of Dissenting Shares (the
"APPRAISAL RIGHTS").
2.7 NO CHANGES. Except as set forth in SCHEDULE 2.7, since
September 30, 1999, there has not been, occurred or arisen any:
(a) transaction by the Company except in the ordinary course
of business as conducted on that date and consistent with past practices;
(b) amendments or changes to the Articles of Incorporation
or Bylaws of the Company;
(c) capital expenditure or commitment by the Company of
$25,000 in any individual case or $35,000 in the aggregate.
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(d) destruction of, damage to or loss of any material
assets, business or customer of the Company (whether or not covered by
insurance);
(e) labor trouble or claim of wrongful discharge or other
unlawful labor practice or action;
(f) change in accounting methods or practices (including any
change in depreciation or amortization policies or rates) by the Company;
(g) revaluation by the Company of any of its assets;
(h) declaration, setting aside or payment of a dividend or
other distribution with respect to the capital stock of the Company other
than the Tax Distribution or Appraisal Rights, or any direct or indirect
redemption, purchase or other acquisition by the Company of any of its
capital stock;
(i) increase in the salary or other compensation payable or
to become payable by the Company to any of its officers, directors, employees
or advisors, or the declaration, payment or commitment or obligation of any
kind for the payment of a bonus or other additional salary or compensation to
any such person except as otherwise contemplated by this Agreement;
(j) sale, lease, license or other disposition of any of the
assets or properties of the Company, except in the ordinary course of
business as conducted on that date and consistent with past practices;
(k) amendment or termination of any material contract,
agreement or license to which the Company is a party or by which it is bound;
(l) loan by the Company to any person or entity, incurring
by the Company of any indebtedness, guaranteeing by the Company of any
indebtedness, issuance or sale of any debt securities of the Company or
guaranteeing of any debt securities of others, except for advances to
employees for travel and business expenses in the ordinary course of
business, consistent with past practices;
(m) waiver or release of any right or claim of the Company,
including any write-off of provisions for uncollectible accounts receivable
of the Company;
(n) commencement or notice or overt threat of commencement
of any lawsuit or proceeding against or investigation of the Company or its
affairs;
(o) notice of any claim of ownership by a third party of the
Company's Intellectual Property (as defined in Section 2.11 below) or of
infringement by the Company of any third party's Intellectual Property rights;
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(p) issuance or sale by the Company of any shares of capital
stock, or securities exchangeable, convertible or exercisable therefor, or of
any other of its securities;
(q) change in pricing or royalties set or charged by the
Company to its customers or licensees or in pricing or royalties set or
charged by persons who have licensed Intellectual Property to the Company;
(r) event or condition of any character that has or could
reasonably be expected to have a Material Adverse Effect on the Company; or
(s) negotiation or agreement by the Company or any officer
or employees thereof to do any of the things described in the preceding
clauses (a) through (r) (other than negotiations with Parent and its
representatives regarding the transactions contemplated by this Agreement).
2.8 TAX AND OTHER RETURNS AND REPORTS.
(a) DEFINITION OF TAXES. For the purposes of this
Agreement, "TAX" or, collectively, "TAXES", means any and all federal, state,
local and foreign taxes, assessments and other governmental charges, duties,
impositions and liabilities, including taxes based upon or measured by gross
receipts, income, profits, sales, use and occupation, and value added, ad
valorem, transfer, franchise, withholding, payroll, recapture, employment,
excise and property taxes, together with all interest, penalties and
additions imposed with respect to such amounts and any obligations under any
agreements or arrangements with any other person with respect to such amounts
and including any liability for taxes of a predecessor entity.
(b) TAX RETURNS AND AUDITS. Except as set forth in SCHEDULE
2.8:
(i) The Company as of the Effective Time will have
prepared and filed on a timely basis, all required federal, state, local and
foreign returns, estimates, information statements and reports due to be
filed on or before the Effective Time ("RETURNS") relating to any and all
Taxes concerning or attributable to the Company or its operations and such
Returns are true, correct and complete in all material respects and have been
completed in accordance with applicable law.
(ii) The Company as of the Effective Time: (A) will
have paid or accrued all Taxes it is required to pay or accrue and (B) will
have withheld with respect to its employees all federal and state income
taxes, FICA, FUTA and other Taxes required to be withheld.
(iii) The Company has not been delinquent in the
payment of any Tax nor is there any Tax deficiency outstanding, proposed or
assessed against the Company, nor has the Company executed any waiver of any
statute of limitations on or extending the period for the assessment or
collection of any Tax.
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(iv) No audit or other examination of any Return of
the Company is presently in progress, nor has the Company been notified of
any request for such an audit or other examination.
(v) The Company does not have any liabilities for
unpaid federal, state, local and foreign Taxes which have not been accrued or
reserved against on the September Balance Sheet whether asserted or
unasserted contingent or otherwise, and the Company has no knowledge of any
basis for the assertion of any such liability attributable to the Company,
its assets or operations.
(vi) The Company has provided to Parent copies of all
federal and state income and all state sales and use Tax Returns for all
periods through its fiscal year ended December 31, 1998.
(vii) There are (and as of immediately following the
Closing there will be) no liens, pledges, charges, claims, security interests
or other encumbrances of any sort ("LIENS") on the assets of the Company
relating to or attributable to Taxes, other than Liens for Taxes not yet due
and payable.
(viii) The Company has no knowledge of any basis for the
assertion of any claim relating or attributable to Taxes which, if adversely
determined, would result in any Lien on the assets of the Company.
(ix) None of the Company's assets are treated as
"tax-exempt use property" within the meaning of Section 168(h) of the Code.
(x) As of the Effective Time, there will not be any
contract, agreement, plan or arrangement, including but not limited to the
provisions of this Agreement, covering any employee or former employee of the
Company that, individually or collectively, could give rise to the payment of
any amount that would not be deductible pursuant to Sections 280G, 162 or 404
of the Code.
(xi) The Company has not filed any consent agreement
under Section 341(f) of the Code or agreed to have Section 341(f)(2) of the
Code apply to any disposition of a subsection (f) asset (as defined in
Section 341(f)(4) of the Code) owned by the Company.
(xii) The Company is not a party to a tax sharing or
allocation agreement nor does the Company owe any amount under any such
agreement.
(xiii) The Company is not, and has not been at any time,
a "United States real property holding corporation" within the meaning of
Section 897(c)(2) of the Code.
(xiv) The Company files its income tax returns on the
accrual method of accounting and the Company's aggregate tax basis in its
assets for purposes of determining its future
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amortization, depreciation and other federal income tax deductions is not
materially inconsistent with the amounts reported on the Company's federal
income tax returns, taken as a whole.
(c) SUBCHAPTER S STATUS. The Company is, and at all times
during its existence has been, an S Corporation under and within the meaning
of Section 1361 of the Code, and under all applicable state Tax laws and
regulations.
2.9 RESTRICTIONS ON BUSINESS ACTIVITIES. Except as set forth on
SCHEDULE 2.9, there is no agreement (noncompete or otherwise), commitment,
judgment, injunction, order or decree to which the Company is a party or
otherwise binding upon the Company which has or reasonably would be expected
to have the effect of prohibiting or materially impairing any business
practice (including, without limitations, the licensing of any product) of
the Company, any acquisition of property (tangible or intangible) by the
Company or the conduct of business by the Company. Without limiting the
foregoing, the Company has not entered into any agreement under which the
Company is restricted from selling, licensing or otherwise distributing any
of its products to any class of customers, in any geographic area, during any
period of time or in any segment of the market.
2.10 TITLE TO PROPERTIES; ABSENCE OF LIENS AND ENCUMBRANCES.
(a) The Company owns no real property, nor has it ever owned
any real property. SCHEDULE 2.10(a) sets forth a list of all real property
currently leased by the Company, the name of the lessor and the date of the
lease and each amendment thereto. All such current leases are in full force
and effect, are valid and effective in accordance with their respective
terms, and there is not, under any of such leases, any existing default or
event of default (or event which with notice or lapse of time, or both, would
constitute a default) by the Company or, to the knowledge of the Company, any
other party.
(b) The Company has good and valid title to, or, in the case
of leased properties and assets, valid leasehold interests in, all of its
tangible properties and assets used or held for use in its business, free and
clear of any Liens (as defined in Section 2.8(b)(vii)), except as reflected
in the Company Financials or in SCHEDULE 2.10(b) and except for liens for
taxes not yet due and payable and such imperfections of title and
encumbrances, if any, which are not material in character, amount or extent,
and which do not materially detract from the value, or materially interfere
with the present use, of the property subject thereto or affected thereby.
2.11 INTELLECTUAL PROPERTY.
(a) Except as set forth in SCHEDULE 2.11(a), The Company is
the sole and exclusive owner of (free and clear of any encumbrances), or is
licensed or otherwise possesses legally enforceable rights to use, all
patents, registered and unregistered trademarks, trade names, service marks,
trade secrets, copyrights, and any applications therefor, net lists,
schematics, technology, know-how, computer software programs or applications
(in both source code and object code form), and tangible or intangible
proprietary information or material that are required for the
-15-
conduct of business of the Company as currently conducted by the Company (the
"INTELLECTUAL PROPERTY RIGHTS") except where the failure to have such rights
would not result in a Company Material Adverse Effect. SCHEDULE 2.11(a) sets
forth a complete list of all material patents, registered and unregistered
trademarks, registered copyrights, trade names and service marks, and any
applications therefor, included in the Intellectual Property Rights, and
specifies, where material to the Company, the jurisdictions in which each
such Intellectual Property Right has been issued or registered and the names
of all registered owners.
(b) SCHEDULE 2.11(b) sets forth a complete list of all
material licenses, sublicenses and other agreements to which the Company is a
party and pursuant to which the Company or any other person is authorized to
use any Intellectual Property Right (excluding object code end-user licenses
granted to end-users in the ordinary course of business that permit use of
software products without a right to modify, distribute or sublicense the
same ("END-USER LICENSES")) and includes the identity of all parties thereto.
Except as set forth in SCHEDULE 2.11(b), the execution and delivery of this
Agreement by the Company, and the consummation of the transactions
contemplated hereby, will neither cause the Company to be in violation or
default under any such license, sublicense or agreement in any material
respect, nor entitle any other party to any such license, sublicense or
agreement to terminate or modify such license, sublicense or agreement.
(c) No claims with respect to the Intellectual Property
Rights have been asserted or are threatened by any person against the
Company, nor to the best of the Company's knowledge, are there any valid
grounds for any BONA FIDE claims against the Company's Intellectual Property
Rights, (i) to the effect that the production, sale, licensing or use of any
of the products of the Company infringes on any copyright, patent, trademark,
service xxxx, trade secret or other proprietary right, (ii) against the use
by the Company of any trademarks, service marks, trade names, trade secrets,
copyrights, patents, technology, know-how or computer software programs and
applications used in the Company's business as currently conducted by the
Company, or (iii) challenging the ownership by the Company, or the validity
of, any of the Intellectual Property Rights. All registered trademarks,
service marks and copyrights held by the Company are valid and subsisting.
The Company has not infringed, and the business of the Company as currently
conducted does not infringe or otherwise violate any copyright, patent,
trademark, service xxxx or other proprietary right of any third party where
such infringement or violation would have a Company Material Adverse Effect.
To the Company's knowledge, there is no unauthorized use, infringement or
trade secret misappropriation of any of the Intellectual Property Rights by
any third party, including any employee or former employee of the Company.
No Intellectual Property Right owned by the Company or product of the Company
or any of its subsidiaries is subject to any outstanding decree, order,
judgment, or stipulation restricting in any manner the licensing thereof by
the Company. Each current employee or consultant of the Company has executed
a proprietary information and confidentiality agreement substantially in the
Company's standard form (a copy of which has been provided to Parent).
2.12 AGREEMENTS, CONTRACTS AND COMMITMENTS. Except as set forth on
SCHEDULE 2.12(a), the Company does not have, is not a party to nor is it
bound by:
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(i) any collective bargaining agreements;
(ii) any agreements or arrangements that contain any
severance pay or post-employment liabilities or obligations;
(iii) any bonus, deferred compensation, pension, profit
sharing or retirement plans, or any other employee benefit plans or
arrangements;
(iv) any employment or consulting agreement or
contract with an employee or individual consultant or salesperson or
consulting agreement or contract, under which a firm or other organization
provides services to the Company pursuant to which the Company is obligated
to make payments in excess of $30,000 per year;
(v) any agreement or plan, including, without
limitation, any stock option plan, stock appreciation rights plan or stock
purchase plan, any of the benefits of which will be increased, or the vesting
of benefits of which will be accelerated, by the occurrence of any of the
transactions contemplated by this Agreement or the value of any of the
benefits of which will be calculated on the basis of any of the transactions
contemplated by this Agreement;
(vi) any fidelity or surety bond or completion bond;
(vii) any lease of personal property having a value
individually in excess of $30,000;
(viii) any agreement of indemnification or guaranty;
(ix) any agreement, contract or commitment containing
any covenant limiting the freedom of the Company to engage in any line of
business or to compete with any person;
(x) any agreement, contract or commitment relating to
capital expenditures and involving future payments in excess of $25,000
individually or $40,000 in the aggregate;
(xi) any agreement, contract or commitment relating to
the disposition or acquisition of assets or any interest in any business
enterprise outside the ordinary course of the Company's business;
(xii) any mortgages, indentures, loans or credit
agreements, security agreements or other agreements or instruments relating
to the borrowing of money or extension of credit, including guaranties
referred to in clause (viii) hereof;
(xiii) any purchase order or contract for the purchase
of raw materials involving $35,000 or more;
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(xiv) any construction contract;
(xv) any material distribution, joint marketing or
development agreement;
(xvi) any agreement, contract or commitment pursuant to
which the Company has granted or may grant in the future, to any party a
source-code license or option or other right to use or acquire source-code; or
(xvii) any other agreement, contract or commitment that
involves $35,000 or more or is not cancelable without penalty within thirty
(30) days.
SCHEDULE 2.12(a) sets forth a list of the Company's top 15 customers
according to revenue for the fiscal year ended December 31, 1998, and each
customer with which the Company currently has an agreement that the Company
in good faith expects to be one of the Company's top 15 customers for the
fiscal year ending December 31, 1999, and a list of all effective agreements
between such customer and the Company.
Except for such alleged breaches, violations and defaults, and events
that would constitute a breach, violation or default with the lapse of time,
giving of notice, or both, all of which are noted in SCHEDULE 2.12(b), the
Company has not breached, violated or defaulted under, or received notice
that it has breached, violated or defaulted under, any of the terms or
conditions of any agreement, contract or commitment required to be set forth
on SCHEDULE 2.12(a) or SCHEDULE 2.11(b) (any such agreement, contract or
commitment, a "CONTRACT"). Each Contract is in full force and effect and,
except as otherwise disclosed in SCHEDULE 2.12(b), is not subject to any
material default thereunder of which the Company has knowledge by any party
obligated to the Company pursuant thereto.
SCHEDULE 2.12(c) lists all contracts, licenses and agreements between
the Company and any other person wherein the Company has agreed to, or
assumed, any material obligation or material duty to warrant, indemnify,
reimburse, hold harmless, guaranty or otherwise assume or incur any material
obligation or liability or provide a right of rescission with respect to the
infringement or misappropriation by the Company or such other person of the
intellectual property of any person or entity other than the Company.
To the extent that the products currently offered by the Company
record, store, process, calculate or present calendar dates falling on and
after (and if applicable, spans of time including) January 1, 2000, they do
so accurately and calculate any information dependent on or relating to such
dates in the same manner, and with the same functionality, data integrity and
performance, as the products record, store, process, calculate and present
calendar dates on or before December 31, 1999, or calculate any information
dependent on or relating to such dates (collectively, "YEAR 2000 COMPLIANT").
All of the products currently offered by the Company (i) will lose no
functionality with respect to the introduction of records containing dates
falling on or after January 1, 2000. All of the Company's internal computer
and technology products and systems are Year 2000 Compliant.
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2.13 INTERESTED PARTY TRANSACTIONS. Except as set forth on SCHEDULE
2.13, no officer, director, affiliate (as defined under Regulation C under
the Securities Act of 1933, as amended) or, to the knowledge of the Company,
shareholder of the Company (nor, to the knowledge of the Company, any
ancestor, sibling, descendant or spouse of any of such persons, or any trust,
partnership or corporation in which any of such persons has or has had an
economic interest), has or has had, directly or indirectly, (i) an economic
interest in any entity which furnished or sold, or furnishes or sells,
services or products that the Company furnishes or sells, or proposes to
furnish or sell, or (ii) an economic interest in any entity that purchases
from or sells or furnishes to, the Company, any goods or services or (iii) a
beneficial interest in any contract or agreement set forth in SCHEDULE
2.12(a) or SCHEDULE 2.11(b); provided, that ownership of no more than five
percent (5%) of the outstanding voting stock of a publicly traded corporation
shall not be deemed an "economic interest in any entity" for purposes of this
Section 2.13.
2.14 COMPLIANCE WITH LAWS. The Company has complied in all material
respects with, is not in material violation of, and has not received any
notices of violation with respect to, any foreign, federal, state or local
statute, law or regulation, except where any such violations or failures to
comply would not, individually or in the aggregate, have a Material Adverse
Effect.
2.15 LITIGATION. Except as set forth in SCHEDULE 2.15, there is no
action, suit or proceeding of any nature pending or, to the best of the
Company's knowledge, threatened against the Company, its properties or any of
its officers or directors, in their respective capacities as such. Except as
set forth in SCHEDULE 2.15, to the best of the Company's knowledge there is
no investigation pending or threatened against the Company, its properties or
any of its officers or directors by or before any Governmental Entity.
SCHEDULE 2.15 sets forth, with respect to any such pending or threatened
action, suit, proceeding or investigation, the forum, the parties thereto,
the subject matter thereof and the amount of damages claimed or other remedy
requested. No Governmental Entity has at any time challenged or questioned
the legal right of the Company to manufacture, offer or sell any of its
products in the present manner or style thereof.
2.16 INSURANCE. The insurance policies and fidelity bonds covering
the assets, business, equipment, properties, operations, employees, officers
and directors of the Company contain provisions which are reasonable and
customary in the Company's industry, and there is no material claim by the
Company pending under any of such policies or bonds as to which coverage has
been questioned, denied or disputed by the underwriters of such policies or
bonds. All premiums due and payable under all such policies and bonds have
been paid and the Company is otherwise in material compliance with the terms
of such policies and bonds (or other policies and bonds providing
substantially similar insurance coverage). The Company has no knowledge of
any threatened termination of, or material premium increase with respect to,
any of such policies.
2.17 ENVIRONMENTAL MATTERS.
(a) HAZARDOUS MATERIAL. The Company has not: (i) operated
any underground storage tanks at any property that the Company has at any
time owned, operated, occupied or leased;
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or (ii) illegally released in violation of applicable law any material amount
of any substance that has been designated by any Governmental Entity or by
applicable federal, state or local law to be radioactive, toxic, hazardous or
otherwise a danger to health or the environment, including, without
limitation, PCBs, asbestos, petroleum, urea-formaldehyde and all substances
listed as hazardous substances pursuant to the Comprehensive Environmental
Response, Compensation, and Liability Act of 1980, as amended, or defined as
a hazardous waste pursuant to the United States Resource Conservation and
Recovery Act of 1976, as amended, and the regulations promulgated pursuant to
said laws, (a "HAZARDOUS MATERIAL"), but excluding office and janitorial
supplies properly and safely maintained. No Hazardous Materials are present,
as a result of the actions of the Company, or, to the Company's knowledge, as
a result of any actions of any third party or otherwise, in, on or under any
property, including the land and the improvements, ground water and surface
water thereof, that the Company has at any time owned, operated, occupied or
leased.
(b) HAZARDOUS MATERIALS ACTIVITIES. The Company has not
transported, stored, used, manufactured, disposed of, released or exposed its
employees or others to Hazardous Materials in violation of any law in effect
on or before the Closing Date, nor has the Company disposed of, transported,
sold, or manufactured any product containing a Hazardous Material (any or all
of the foregoing being collectively referred to as "HAZARDOUS MATERIALS
ACTIVITIES") in violation of any rule, regulation, treaty or statute
promulgated by any Governmental Entity in effect prior to or as of the date
hereof to prohibit, regulate or control Hazardous Materials or any Hazardous
Material Activity.
(c) PERMITS. The Company currently holds all environmental
approvals, permits, licenses, clearances and consents (the "ENVIRONMENTAL
PERMITS") necessary for the conduct of the Company's Hazardous Material
Activities and other businesses of the Company as such activities and
businesses are currently being conducted.
(d) ENVIRONMENTAL LIABILITIES. No action, proceeding,
revocation proceeding, amendment procedure, writ, injunction or claim is
pending, or to the Company's knowledge, threatened concerning any
Environmental Permit, Hazardous Material or any Hazardous Materials Activity
of the Company. The Company is not aware of any fact or circumstance which
could involve the Company in any environmental litigation or impose upon the
Company any environmental liability.
2.18 BROKERS' AND FINDERS' FEES; THIRD PARTY EXPENSES. The Company
has not incurred, nor will it incur, directly or indirectly, any liability
for brokerage or finders' fees or agents' commissions or any similar charges
in connection with this Agreement or any transaction contemplated hereby.
2.19 COMPLIANCE WITH FEDERAL AND STATE SECURITIES LAWS. None of the
outstanding Company Common Stock or other securities of the Company was
issued in violation of the Securities Act of 1933, as amended, or any
applicable state Blue Sky laws.
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2.20 EMPLOYEE MATTERS AND BENEFIT PLANS.
(a) DEFINITIONS. With the exception of the definition of
"AFFILIATE" set forth in Section 2.20(a)(i) below (such definition shall only
apply to this Section 2.20), for purposes of this Agreement, the following
terms shall have the meanings set forth below:
(i) "AFFILIATE" shall mean any person or entity under
common control with the Company within the meaning of Section 414(b), (c),
(m) or (o) of the Code and the regulations thereunder;
(ii) "ERISA" shall mean the Employee Retirement Income
Security Act of 1974, as amended;
(iii) "COMPANY EMPLOYEE PLAN" shall refer to any plan,
program, policy, practice, contract, agreement or other arrangement providing
for compensation, severance, termination pay, performance awards, stock or
stock-related awards, fringe benefits or other employee benefits or
remuneration of any kind, whether formal or informal, funded or unfunded,
including without limitation, each "employee benefit plan", within the
meaning of Section 3(3) of ERISA which is or has been maintained, contributed
to, or required to be contributed to, by the Company or any Affiliate for the
benefit of any Employee, and pursuant to which the Company or any Affiliate
has or may have any material liability, contingent or otherwise;
(iv) "EMPLOYEE" shall mean any current, former, or
retired employee, officer, or director of the Company or any Affiliate;
(v) "EMPLOYEE AGREEMENT" shall refer to each
management, employment, severance, consulting, relocation, repatriation,
expatriation, visa, work permit or similar agreement or contract between the
Company or any Affiliate and any Employee or consultant;
(vi) "IRS" shall mean the Internal Revenue Service;
(vii) "MULTIEMPLOYER PLAN" shall mean any Pension Plan
which is a "multiemployer plan", as defined in Section 3(37) of ERISA; and
(viii) "PENSION PLAN" shall refer to each Company
Employee Plan which is an "employee pension benefit plan", within the meaning
of Section 3(2) of ERISA.
(b) SCHEDULE. SCHEDULE 2.20(b) contains an accurate and
complete list of each Company Employee Plan and each Employee Agreement. The
Company does not have any plan or commitment, stated or unstated, whether
legally binding or not, to establish any new Company Employee Plan or
Employee Agreement, to modify any Company Employee Plan or Employee Agreement
(except to the extent required by law or to conform any such Company Employee
Plan or
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Employee Agreement to the requirements of any applicable law, in each case as
previously disclosed to Parent in writing, or as required by this Agreement),
or to enter into any Company Employee Plan or Employee Agreement.
(c) DOCUMENTS. The Company has provided or made available
to Parent (i) correct and complete copies of all documents embodying or
relating to each Company Employee Plan and each Employee Agreement including
all amendments thereto and written interpretations thereof; (ii) the most
recent annual actuarial valuations, if any, prepared for each Company
Employee Plan; (iii) the three most recent annual reports (Series 5500 and
all schedules thereto), if any, required under ERISA or the Code in
connection with each Company Employee Plan or related trust; (iv) if the
Company Employee Plan is funded, the most recent annual and periodic
accounting of Company Employee Plan assets; (v) the most recent summary plan
description together with the most recent summary of material modifications,
if any, required under ERISA with respect to each Company Employee Plan; (vi)
all IRS determination letters and rulings relating to Company Employee Plans
and copies of all applications and correspondence to or from the IRS or the
Department of Labor ("DOL") with respect to any Company Employee Plan; (vii)
all material written agreements and contracts relating to each Company
Employee Plan, including but not limited to, administration service
agreements, group annuity contracts and group insurance contracts; (viii) all
communications material to any Employee or Employees relating to any Company
Employee Plan and any proposed Company Employee Plans, in each case, relating
to any amendments, terminations, establishments, increases or decreases in
benefits, acceleration of payments or vesting schedules or other events which
would result in any material liability to the Company; and (ix) all
registration statements and prospectuses prepared in connection with each
Company Employee Plan.
(d) EMPLOYEE PLAN COMPLIANCE. Except as set forth on
SCHEDULE 2.20(d), (i) the Company has performed in all material respects all
obligations required to be performed by it under each Company Employee Plan
and each Company Employee Plan has been established and maintained in all
material respects in accordance with its terms and in compliance with all
applicable laws, statutes, orders, rules and regulations, including but not
limited to ERISA or the Code; (ii) each Company Employee Plan intended to
qualify under Section 401(a) of the Code and each trust intended to qualify
under Section 501(a) of the Code has either received a favorable
determination letter with respect to each such Plan from the IRS or has
remaining a period of time under applicable Treasury regulations or IRS
pronouncements in which to apply for such a determination letter and make any
amendments necessary to obtain a favorable determination; (iii) no
"prohibited transaction", within the meaning of Section 4975 of the Code or
Section 406 of ERISA, has occurred with respect to any Company Employee Plan;
(iv) there are no actions, suits or claims pending and served, or, to the
knowledge of the Company, threatened or anticipated (other than routine
claims for benefits) against any Company Employee Plan or against the assets
of any Company Employee Plan; (v) each Company Employee Plan can be amended,
terminated or otherwise discontinued after the Effective Time in accordance
with its terms, without liability to the Company, Parent or any of its
Affiliates (other than ordinary administration expenses typically incurred in
a termination event);
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(vi) there are no inquiries or proceedings pending or, to the knowledge of
the Company or any Affiliates, threatened by the IRS or DOL with respect to
any Company Employee Plan; and (vii) neither the Company nor any Affiliate is
subject to any penalty or tax with respect to any Company Employee Plan under
Section 402(i) of ERISA or Section 4975 through 4980 of the Code.
(e) PENSION PLANS. The Company does not now, nor has it
ever, maintained, established, sponsored, participated in, or contributed to,
any Pension Plan which is subject to Part 3 of Subtitle B of Title I of
ERISA, Title IV of ERISA or Section 412 of the Code.
(f) MULTIEMPLOYER PLANS. At no time has the Company
contributed to or been required to contribute to any Multiemployer Plan.
(g) NO POST-EMPLOYMENT OBLIGATIONS. Except as set forth in
SCHEDULE 2.20(g), no Company Employee Plan provides, or has any liability to
provide, life insurance, medical or other employee benefits to any Employee
upon his or her retirement or termination of employment for any reason,
except as may be required by statute, and the Company has never represented
to, promised to or contracted with (whether in oral or written form) any
Employee (either individually or to or with Employees as a group) that such
Employee(s) would be provided with life insurance, medical or other employee
welfare benefits upon their retirement or termination of employment, except
to the extent required by statute.
(h) COBRA. Neither the Company nor any Affiliate has, prior
to the Effective Time and in any material respect, violated any of the health
care continuation requirements of the Consolidated Omnibus Budget
Reconciliation Act of 1985 or any similar provisions of state law applicable
to its employees.
(i) EFFECT OF TRANSACTION. Except as set forth on SCHEDULE
2.20(i), the execution of this Agreement and the consummation of the
transactions contemplated hereby will not (either alone or upon the
occurrence of any additional or subsequent events) constitute an event under
any Company Employee Plan, Employee Agreement, trust or loan that will or may
result in any payment (whether of severance pay or otherwise), acceleration,
forgiveness of indebtedness, vesting, distribution, increase in benefits or
obligation to fund benefits with respect to any Employee.
(j) EMPLOYMENT MATTERS. The Company (i) is in compliance in
all material respects with all applicable foreign, federal, state and local
laws, rules and regulations respecting employment, employment practices,
terms and conditions of employment and wages and hours, in each case, with
respect to Employees; (ii) has withheld all amounts required by law or by
agreement to be withheld from the wages, salaries and other payments to
Employees; (iii) is not liable for any arrears of wages or any taxes or any
penalty for failure to comply with any of the foregoing; and (iv) is not
liable for any payment to any trust or other fund or to any governmental or
administrative authority, with respect to unemployment compensation benefits,
social security or other benefits or obligations for Employees (other than
routine payments to be made in the normal course of business and consistent
with past practice).
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(k) LABOR. No work stoppage or labor strike against the
Company is pending or, to the best knowledge of the Company, threatened.
Except as set forth in SCHEDULE 2.20(k), the Company is not involved in or,
to the knowledge of the Company, threatened with, any labor dispute,
grievance, or litigation relating to labor, safety or discrimination matters
involving any Employee, including, without limitation, charges of unfair
labor practices or discrimination complaints, which, if adversely determined,
would result in any liability to the Company. Neither the Company nor any of
its subsidiaries has engaged in any unfair labor practices within the meaning
of the National Labor Relations Act which would directly or indirectly result
in any liability to the Company. Except as set forth in SCHEDULE 2.20(k),
the Company is not presently, nor has it been in the past, a party to, or
bound by, any collective bargaining agreement or union contract with respect
to Employees and no collective bargaining agreement is being negotiated by
the Company.
2.21 EMPLOYEES. To the best of the Company's knowledge, no employee
of the Company (i) is in violation of any term of any employment contract,
patent disclosure agreement, non-competition agreement, or any restrictive
covenant to a former employer relating to the right of any such employee to
be employed by the Company because of the nature of the business conducted or
presently proposed to be conducted by the Company or to the use of trade
secrets or proprietary information of others and (ii) has given notice to the
Company, nor is the Company otherwise aware, that any employee intends to
terminate his or her employment with the Company.
2.22 GOVERNMENTAL AUTHORIZATION. The Company possesses all material
consents, licenses, permits, grants or other authorizations issued to the
Company by a governmental entity (i) pursuant to which the Company currently
operates or holds any interest in any of its properties or (ii) which is
required for the operation of its business or the holding of any such
interest, other than such consents, licenses, permits, grants or
authorizations the failure to obtain which would not, either individually or
in the aggregate, have a Material Adverse Effect (herein collectively called
"COMPANY AUTHORIZATIONS"), which Company Authorizations are in full force and
effect and constitute all Company Authorizations required to permit the
Company to operate or conduct its business or hold any interest in its
properties or assets.
2.23 XXXX-XXXXX-XXXXXX. Xxxxxxx Xxxxxxxxx is the "ultimate parent
entity" of Atlas Communication Engines, Inc. as defined in 16 C.F.R. 801.1,
and the Xxxx-Xxxxx-Xxxxxx Antitrust Improvements Act of 1976, as amended.
For purposes of 15 U.S.C. sec. 18a, the "ultimate parent entity" of the
Company (as that term is defined in 16 C.F.R. 801.1) does not have annual net
sales or total assets of $10 million or more.
2.24 THIRD PARTY CONSENTS. Except as set forth on SCHEDULE 2.24, no
consent or approval is needed from any person or entity in order to
consummate any of the transactions contemplated by this Agreement.
2.25 REPRESENTATIONS COMPLETE. None of the representations or
warranties made by the Company (as modified by the Company Schedules), nor
any statement made in any Schedule or certificate furnished by the Company
pursuant to this Agreement (excluding any financial
-24-
projections, forecasts, estimates or other forward-looking financial
statements which may be provided by the Company), or furnished in connection
with the Company shareholder consent documents mailed or delivered to the
shareholders of the Company in connection with soliciting their consent to
this Agreement and the Merger (excluding any information furnished by
Parent), contains or will contain at the Effective Time, any untrue statement
of a material fact, or omits or will omit at the Effective Time to state any
material fact necessary in order to make the statements contained herein or
therein, in the light of the circumstances under which made, not misleading.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB
Parent and Merger Sub represent and warrant to the Company as follows:
3.1 ORGANIZATION, STANDING AND POWER. Parent is a corporation duly
organized, validly existing and in good standing under the laws of the state
of Delaware. Merger Sub is a corporation duly organized, validly existing
and in good standing under the laws of the state of California. Each of
Parent and Merger Sub has the corporate power to own its properties and to
carry on its business as now being conducted. Parent is duly qualified to do
business and in good standing as a foreign corporation in each state in which
the failure to be so qualified would have a material adverse effect on the
business, financial condition or results of operations of Parent and its
subsidiaries, taken as a whole ("PARENT MATERIAL ADVERSE EFFECT").
3.2 AUTHORITY. Parent and Merger Sub have all requisite corporate
power and authority to enter into this Agreement and to consummate the
transactions contemplated hereby. The execution and delivery of this
Agreement and the consummation of the transactions contemplated hereby have
been duly authorized by all necessary corporate action on the part of Parent
and Merger Sub. The Parent's Board of Directors has approved the Merger and
this Agreement. This Agreement has been duly executed and delivered by
Parent and Merger Sub and constitutes the valid and binding obligations of
Parent and Merger Sub, enforceable in accordance with its terms except (i) as
limited by applicable bankruptcy, insolvency, reorganization, moratorium and
other laws of general application affecting enforcement of creditors' rights
generally and (ii) as limited by laws relating to the availability of
specific performance, injunctive relief or other equitable remedies.
3.3 PARENT CAPITAL STRUCTURE; ISSUANCE OF SHARES.
(a) The authorized capital stock of Parent consists of
5,000,000 shares of Preferred Stock, $0.001 par value, none of which is
issued outstanding, and 50,000,000 shares of Common Stock, $0.0005 par value,
of which 32,829,013 shares were issued and outstanding as of November 3,
1999. As of September 30, 1999, Parent had reserved an aggregate of
9,475,369 shares of Common Stock for issuance pursuant to Parent's 1996 Stock
Incentive Plan and ViaVideo 1996 Stock Option/Stock Issuance Plan, under
which options to purchase 4,454,191 shares were outstanding, and 690,144
shares of Common Stock for issuance pursuant to the Parent Employee
-25-
Stock Purchase Plan. Except as set forth in the immediately preceding
sentence, no shares of capital stock or other equity securities of the Parent
are issued, reserved for issuance or outstanding except as set forth in the
Parent Financial Statements except for the Rights. Under the Rights
Agreement, until the distribution date, (i) the Rights will be evidenced
(subject to the provisions of Sections 3(b) and (3(c) thereof) by the
certificates for Parent Common Stock registered in the names of the holders
thereof (which certificates shall also be deemed to be Rights Certificates,
as such term is defined in the Rights Agreement) and not by separate Rights
Certificates and (ii) the right to receive Rights Certificates will be
transferable only in connection with the transfer of Parent Common Stock.
(b) The shares of Parent Common Stock to be issued pursuant
to the Merger and upon valid exercise of the Company Options assumed by
Parent have been duly authorized by all necessary corporate action and, when
issued in accordance with the terms and provisions of this Agreement, will be
validly issued, fully paid and non-assessable.
3.4 SEC FILINGS; PARENT FINANCIAL STATEMENTS. Parent has furnished
or made available to the Company true and correct copies of its Annual Report
on Form 10-K for the year ended December 31, 1998 and its Quarterly Reports
on Form 10-Q for the quarters ended March 31, 1999, June 30, 1999 and
September 30, 1999 and its definitive Proxy Statement dated April 7, 1999,
each as filed with the Securities and Exchange Commission ("SEC") under the
Securities Exchange Act of 1934, as amended (the "EXCHANGE ACT") (all of the
foregoing being collectively referred to as the "SEC DOCUMENTS"). The SEC
Documents constitute all reports filed by the Parent under the Exchange Act
since December 31, 1998. As of their respective filing dates, the SEC
Documents complied in all material respects with the requirements of the
Exchange Act, and the applicable rules and regulations of the SEC thereunder,
and none of the SEC Documents contained any untrue statement of a material
fact or omitted to state a material fact required to be stated therein or
necessary to make the statements made therein, in light of the circumstances
in which they were made, not misleading, except to the extent corrected by a
document subsequently filed with the SEC prior to the date hereof and
delivered to the Company. The financial statements of Parent, including the
notes thereto, included in the SEC Documents (the "PARENT FINANCIAL
STATEMENTS") comply as to form in all material respects with applicable
accounting requirements and with the published rules and regulations of the
SEC with respect thereto, have been prepared in accordance with GAAP
consistently applied (except as may be indicated in the notes thereto or, in
the case of unaudited statements, as permitted by Form 10-Q of the SEC) and
present fairly the consolidated financial position of Parent at the dates
thereof and of its consolidated results of operations and cash flows for the
periods then ended (subject, in the case of unaudited statements, to normal,
recurring audit adjustments).
3.5 NO CONFLICT. Neither the execution and delivery of this
Agreement by Parent or Merger Sub, nor the consummation by Parent or Merger
Sub of the transactions contemplated hereby, nor compliance by Parent or
Merger Sub with any of the provisions hereof, will (i) conflict with or
result in a breach of any provision of Parent's or Merger Sub's Certificate
or Articles of Incorporation or Bylaws, (ii) constitute or result in a
default under, or require any consent pursuant to, or result in the creation
of any lien on any material asset of any Parent or Merger Sub under, any
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contract of Parent or Merger Sub, where such default or lien, or any failure
to obtain such consent, is reasonably likely to have, individually or in the
aggregate, a Parent Material Adverse Effect.
3.6 GOVERNMENTAL APPROVALS. No consent, waiver, approval, order or
authorization of, or registration declaration or filing with, any
Governmental Entity or any third party is required by or with respect to
Parent or Merger Sub in connection with the execution and delivery of this
Agreement or the consummation of the transactions contemplated hereby, except
for (i) the filing of the Agreement of Merger with the California Secretary
of State, (ii) such consents, waivers, approvals, orders, authorizations,
registrations, declarations and filings as may be required under applicable
federal and state securities laws, if any, (iii) such consents, waivers,
approvals, orders, authorizations, registrations, declarations and filings as
shall have been obtained prior to the Effective Time, (iv) such consents,
waivers, approvals, orders, authorizations, registrations, declarations and
filings the failure to obtain which would not either materially delay the
ability of Parent or Merger Sub to consummate the Merger or have a Parent
Material Adverse Effect.
3.7 THIRD PARTY CONSENTS. No consent or approval is needed from
any person or entity in order for Parent and Merger Sub to consummate any of
the transactions contemplated by this Agreement.
3.8 ABSENCE OF CHANGES OR EVENTS. Since September 30, 1999, except
as set forth and disclosed in the SEC Documents and in the periodic reports
filed by Parent under the Exchange Act since September 30, 1999 and prior to
the date of this Agreement, including all exhibits filed with the Parent's
third quarter Form 10-Q Report, there has not been any event that has had a
Parent Material Adverse Effect; provided, however, that a Parent Material
Adverse Effect shall not be deemed to have occurred as a result of (i) any
events or conditions affecting the economy or Parent's industry in general,
(ii) any events or conditions resulting from the execution and/or
announcement of this Agreement, or (iii) in and of itself, any change in the
market price of Parent's Common Stock.
3.9 BROKERS' AND FINDER'S FEES. Except for fees payable solely by
Parent to Xxxxxx Xxxxxx Partners, LLC, Parent has not incurred, nor will it
incur, directly or indirectly, any liability for brokerage or finders' fees
or agents' commissions or any similar charges in connection with this
Agreement or any transaction contemplated hereby.
ARTICLE IV
CONDUCT PRIOR TO THE EFFECTIVE TIME
4.1 CONDUCT OF BUSINESS OF THE COMPANY. During the period from the
date of this Agreement and continuing until the earlier of the termination of
this Agreement and the Effective Time, the Company agrees (except to the
extent that Parent shall otherwise consent in writing) to carry on its
business in the usual, regular and ordinary course in substantially the same
manner as
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heretofore conducted, to pay its debts and Taxes when due, to pay or perform
other obligations when due, and, to the extent consistent with such business,
to use all reasonable efforts consistent with past practice and policies to
preserve intact its present business organization, keep available the
services of its present officers and key employees and preserve its
relationships with customers, suppliers, distributors, licensors, licensees,
and others having business dealings with it, all with the goal of preserving
unimpaired its goodwill and ongoing businesses at the Effective Time. The
Company shall promptly notify Parent of any event or occurrence or emergency
not in the ordinary course of business, and any material event involving or
adversely affecting the Company or its business. Except as expressly
contemplated by this Agreement, or disclosed in SCHEDULE 4.1, the Company
shall not, without the prior written consent of Parent:
(a) Enter into any commitment or transaction not in the
ordinary course of business.
(b) Transfer to any person or entity any rights to the
Company Intellectual Property Rights (other than pursuant to End-User
Licenses in the ordinary course of business);
(c) Enter into or amend any agreements pursuant to which any
other party is granted manufacturing, marketing, distribution or similar
rights of any type or scope with respect to any products of the Company;
(d) Amend or otherwise modify (or agree to do so), except in
the ordinary course of business, or violate the terms of, any of the
agreements set forth or described in the Company Schedules;
(e) Commence any litigation;
(f) Declare, set aside or pay any dividends on or make any
other distributions other than the Tax Distribution or Appraisal Rights
(whether in cash, stock or property) in respect of any of its capital stock,
or split, combine or reclassify any of its capital stock or issue or
authorize the issuance of any other securities in respect of, in lieu of or
in substitution for shares of capital stock of the Company, or repurchase,
redeem or otherwise acquire, directly or indirectly, any shares of its
capital stock (or options, warrants or other rights exercisable therefor),
other than pursuant to the Company's repurchase right under employee
restricted stock purchase agreements;
(g) Except for the issuance of shares of Company Common
Stock upon exercise of the presently outstanding Company Options, issue,
grant, deliver or sell or authorize or propose the issuance, grant, delivery
or sale of, or purchase or propose the purchase of, any shares of its capital
stock or securities convertible into, or subscriptions, rights, warrants or
options to acquire, or other agreements or commitments of any character
obligating it to issue any such shares or other convertible securities;
(h) Cause or permit any amendments to its Articles of
Incorporation or Bylaws;
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(i) Acquire or agree to acquire by merging or consolidating
with, or by purchasing any assets or equity securities of, or by any other
manner, any business or any corporation, partnership, association or other
business organization or division thereof, or otherwise acquire or agree to
acquire any assets which are material, individually or in the aggregate, to
the business of the Company;
(j) Sell, lease, license or otherwise dispose of any of its
properties or assets, except in the ordinary course of business and
consistent with past practice;
(k) Incur any indebtedness for borrowed money or guarantee
any such indebtedness or issue or sell any debt securities of the Company or
guarantee any debt securities of others, other than the Tax Distribution;
(l) Grant any severance or termination pay to any director,
officer, employee or consultant, except payments made pursuant to written
agreements outstanding on the date hereof (which are disclosed on Schedule
4.1(l));
(m) Adopt or amend any employee benefit plan, program,
policy or arrangement, or enter into any employment contract, extend any
employment offer, pay or agree to pay any special bonus or special
remuneration to any director, employee or consultant, or increase the
salaries or wage rates of its employees;
(n) Revalue any of its assets, including without limitation
writing down the value of inventory or writing off notes or accounts
receivable other than in the ordinary course of business and consistent with
past practice;
(o) Pay, discharge or satisfy, in an amount in excess of
$15,000 in any one case or $30,000 in the aggregate, any claim, liability or
obligation (absolute, accrued, asserted or unasserted, contingent or
otherwise), other than the payment, discharge or satisfaction in the ordinary
course of business of liabilities reflected or reserved against in the
Company Financial Statements;
(p) Make or change any material election in respect of
Taxes, adopt or change any accounting method in respect of Taxes, enter into
any closing agreement, settle any claim or assessment in respect of Taxes, or
consent to any extension or waiver of the limitation period applicable to any
claim or assessment in respect of Taxes other than the Tax Distribution;
(q) Take any action, including the acceleration of vesting
of any restricted stock or any options or other rights to acquire shares of
the capital stock of the Company which would be reasonably likely to
jeopardize the tax-free reorganization hereunder;
(r) Enter into any strategic alliance, joint development or
joint marketing agreement;
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(s) Waive or commit to waive any rights with a value in
excess of $10,000, in any one case, or $20,000, in the aggregate;
(t) Cancel, materially amend or renew any insurance policy
other than in the ordinary course of business;
(u) Alter, or enter into any commitment to alter, its
interest in any corporation, association, joint venture, partnership or
business entity in which the Company directly or indirectly holds any
interest on the date hereof; or
(v) Take, or agree in writing or otherwise to take, any of
the actions described in Sections 4.1(a) through (u) above, or any other
action that would prevent the Company from performing or cause the Company
not to perform its covenants hereunder in any material respect.
4.2 NO SOLICITATION. Until the earlier of the Effective Time and
the date of termination of this Agreement pursuant to the provisions of
Section 8.1 hereof, the Company will not (nor will the Company permit any of
the Company's officers, directors, agents, representatives or affiliates to)
directly or indirectly, take any of the following actions with any party
other than Parent and its designees: (a) solicit, initiate, entertain or
encourage any proposals or offers from, or conduct discussions with or engage
in negotiations with, any person, relating to, any possible acquisition of
the Company or any of its subsidiaries (whether by way of merger, purchase of
capital stock, purchase of assets or otherwise), any material portion of its
or their capital stock or assets or any equity interest in the Company or any
of its Subsidiaries, (b) provide non-public information with respect to it to
any person, other than Parent, relating to, or otherwise cooperate with,
facilitate or encourage any effort or attempt by any such person with regard
to, any possible acquisition of the Company or any of its subsidiaries
(whether by way of merger, purchase of capital stock, purchase of assets or
otherwise), any material portion of its or their capital stock or assets or
any equity interest in the Company or any of its subsidiaries, (c) enter into
an agreement with any person, other than Parent, providing for the
acquisition of the Company or any of its subsidiaries (whether by way of
merger, purchase of capital stock, purchase of assets or otherwise), any
material portion of its or their capital stock or assets or any equity
interest in the Company or any of its subsidiaries, or (d) make or authorize
any statement, recommendation or solicitation in support of any possible
acquisition of the Company or any of its subsidiaries (whether by way of
merger, purchase of capital stock, purchase of assets or otherwise), any
material portion of its or their capital stock or assets or any equity
interest in the Company or any of its subsidiaries, by any person, other than
by Parent. The Company shall immediately cease and cause to be terminated any
such contracts or negotiations with third parties relating to any such
transaction or proposed transaction. In addition to the foregoing, if the
Company receives prior to the Effective Time or the termination of this
Agreement any offer or proposal relating to any of the above, the Company
shall immediately notify Parent thereof, including information as to the
identity of the offeror or the party making any such offer or proposal and
the specific terms of such offer or proposal, as the case may be, and such
other information related thereto as Parent may reasonably request. Except
as contemplated by this
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Agreement, disclosure by the Company of the terms hereof (other than the
prohibition of this section) shall be deemed to be a violation of this Section
4.2.
ARTICLE V
ADDITIONAL AGREEMENTS
5.1 ISSUANCE OF PARENT COMMON STOCK
(a) Except as provided in Section 1.6(c)(iv), the shares of
Parent's Common Stock to be issued pursuant to the Merger have not been
registered under the Securities Act of 1933, as amended (the "Securities
Act"), in reliance upon exemptions from registration provided by Rule 506
and/or Section 4(2) under the Securities Act. The certificates for shares of
Parent Common Stock to be issued pursuant to the Merger shall bear
appropriate legends to identify such shares as being "restricted securities"
within the meaning of Rule 144(a)(3) under the Securities Act and to comply
with applicable state securities laws. The Parent Common Stock being offered
and sold pursuant to this Agreement in reliance upon such exemptions from
registration is based in part upon the representations of each shareholder of
the Company contained in the Shareholder Certificate attached hereto as
EXHIBIT A.
(B) RESTRICTIVE LEGENDS: STOP TRANSFER INSTRUCTIONS. Each
certificate representing shares of Parent Common Stock issued pursuant to
Article I, other than certificates issued in connection with certificates
issued to optionholders whose shares have been registered pursuant to Section
1.6(c)(iv), shall bear a legend substantially in the form set forth below,
which legend shall be removed by delivery of substitute certificates upon the
second anniversary of the Effective Time or, for shares sold by a
shareholder, at such earlier time as requested by a shareholder after a
registration statement with respect to the shares represented by such
certificate has become effective. The sale or transfer of such shares of
Parent Common Stock may only be made (A) in conformity with the provisions of
Rule 144 under the Securities Act of 1933, as amended (the "SECURITIES ACT")
or (B) pursuant to the receipt by Parent of an opinion in form and substance
reasonably satisfactory to Parent from counsel reasonably satisfactory to
Parent to the effect that such transfer may be made without registration
under the Securities Act.
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT").
SUCH SHARES MAY NOT BE TRANSFERRED, SOLD, OFFERED FOR SALE, PLEDGED OR
OTHERWISE DISPOSED OF, DIRECTLY OR INDIRECTLY, UNLESS (I) THERE IS AN
OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS
NOT REQUIRED UNDER THE ACT OR (II) SUCH TRANSFER MAY BE MADE PURSUANT TO
RULE 144 OF THE ACT."
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Parent may instruct its transfer agent to stop the transfer of any shares of
Parent Common Stock issued pursuant to Article I unless Parent shall have
been provided evidence of compliance with the restrictions set forth in such
legend reasonably satisfactory to Parent.
5.2 SHAREHOLDER APPROVAL. Promptly following the execution of the
Agreement, the Company shall submit this Agreement and the transactions
contemplated hereby to its shareholders for approval and adoption by written
consent as provided by California Law and its Articles of Incorporation and
Bylaws. The Company shall use its best efforts to solicit and obtain the
consent of its shareholders holding 98% of Company Common Stock to approve
the Merger and this Agreement and to enable the Closing to occur as promptly
as practicable.
5.3 ACCESS TO COMPANY INFORMATION. Subject to any applicable
contractual confidentiality obligations (which the Company shall use its
reasonable best efforts to cause to be waived), Company shall afford to
Parent and its accountants, counsel and other representatives, reasonable
access during normal business hours during the period prior to the Effective
Time to (a) all of its properties, books, contracts, agreements and records,
and (b) all other information concerning the business, properties and
personnel (subject to restrictions imposed by applicable law) of Company as
Parent may reasonably request. No information or knowledge obtained in any
investigation pursuant to this Section 5.3 shall affect or be deemed to
modify any representation or warranty contained herein or the conditions to
the obligations of the parties to consummate the Merger.
5.4 CONFIDENTIALITY. Each of the parties hereto hereby agrees to
maintain the confidentiality of the information obtained in any investigation
pursuant to Section 5.3, or pursuant to the negotiation of this Agreement, in
accordance with the provisions of the confidentiality agreement between
Parent and the Company dated as of November 10, 1999.
5.5 EXPENSES. If the Merger is not consummated, all fees and
expenses incurred in connection with the Merger including, without
limitation, all legal, accounting, financial advisory, consulting and all
other fees and expenses of third parties ("THIRD PARTY EXPENSES") shall be
the obligation of the party that incurred such Third Party Expenses. If the
Merger is consummated, the reasonable Third Party Expenses incurred by the
Company in connection with the negotiation and effectuation of the terms and
conditions of this Agreement and the transactions contemplated hereby shall
be paid by Parent at the Effective Time; provided that any such expenses in
excess of $150,000 shall entitle Parent to a Purchase Price Reduction in
accordance with Section 1.6(g)(iii).
5.6 PUBLIC DISCLOSURE. No disclosure (whether or not in response
to an inquiry) of the existence or nature of this Agreement shall be made by
any party hereto unless approved by duly authorized officers of both Parent
and the Company prior to release, provided that such approval shall not be
unreasonably withheld and subject in any event to Parent's obligation to
comply with applicable securities law and Nasdaq Stock Market regulations.
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5.7 FIRPTA COMPLIANCE. On the Closing Date, the Company shall
deliver to Parent a properly executed statement in a form reasonably
acceptable to Parent for purposes of satisfying Parent's obligations under
Treasury Regulation Section 1.1445-2(c)(3).
5.8 REASONABLE EFFORTS. Subject to the terms and conditions
provided in this Agreement, each of the parties hereto shall use its
reasonable efforts to take promptly, or cause to be taken, all actions, and
to do promptly, or cause to be done, all things necessary, proper or
advisable under applicable laws and regulations to consummate and make
effective the transactions contemplated hereby, to obtain all necessary
waivers, consents and approvals (including, but not limited to, those
required under the Contracts) in a manner that does not materially alter the
underlying obligations of the parties and, in any event, is on terms equally
favorable to the Company and to effect all necessary registrations and
filings, and to remove any injunctions or other impediments or delays, legal
or otherwise, in order to consummate and make effective the transactions
contemplated by this Agreement for the purpose of securing to the parties
hereto the benefits contemplated by this Agreement; provided that Parent
shall not be required to agree to any divestiture by Parent or the Company or
any of Parent's subsidiaries or affiliates of shares of capital stock or of
any business, assets or property of Parent or its subsidiaries or affiliates
or the Company or its affiliates, or the imposition of any material
limitation on the ability of any of them to conduct their businesses or to
own or exercise control of such assets, properties and stock.
5.9 NOTIFICATION OF CERTAIN MATTERS. The Company shall give prompt
notice to Parent, and Parent shall give prompt notice to the Company, of (i)
the occurrence or non-occurrence of any event which is likely to cause any
representation or warranty of the Company and Parent or Merger Sub,
respectively, contained in this Agreement to be untrue or inaccurate in any
material respect at or prior to the Effective Time and (ii) any failure of
the Company, Parent or Merger Sub, as the case may be, to comply with or
satisfy any covenant, condition or agreement to be complied with or satisfied
by it hereunder; provided, however, that the delivery of any notice pursuant
to this Section 5.9 shall not limit or otherwise affect any remedies
available to the party receiving such notice.
5.10 ADDITIONAL DOCUMENTS AND FURTHER ASSURANCES. Each party
hereto, at the request of the other party hereto, shall execute and deliver
such other instruments and do and perform such other acts and things as may
be reasonably necessary or desirable for effecting completely and promptly
the consummation of this Agreement and the transactions contemplated hereby;
provided that nothing in this Section 5.10 shall be construed to obligate any
party to waive any of the closing conditions set forth in Article VI.
5.11 NASDAQ LISTING; BLUE SKY LAWS.
(a) On or before the Closing Date, Parent shall apply for
the additional listing on the Nasdaq National Market of the shares of Parent
Common Stock issuable, and those required to be reserved for issuance, in
connection with the Merger, upon official notice of issuance.
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(b) Parent shall take such steps as may be necessary to
comply with the securities and blue sky laws of all jurisdictions which are
applicable to the issuance of the Parent Common Stock pursuant hereto. The
Company shall use its commercially reasonable best efforts, at Parent's
expense, to assist Parent as may be necessary to comply with the securities
and blue sky laws of all jurisdictions which are applicable in connection
with the issuance of Parent Common Stock pursuant hereto.
5.12 XXXX-XXXXX-XXXXXX FILINGS. Each of Parent and Company shall,
if required, promptly make its filings under the Xxxx-Xxxxx-Xxxxxx Antitrust
Improvements Act of 1976, as amended (the "HSR ACT") and shall make any
required submissions under the HSR Act with respect to the Merger, and shall
cooperate with respect to the foregoing. Parent and Company shall give prior
notice and consult prior to any meeting Company or Parent has with the United
States Federal Trade Commission or Department of Justice with respect to the
filings of Company and Parent under the HSR Act or any review by either of
the foregoing agencies. Each of Parent and Company agrees to use its best
efforts to cause the condition to closing referred to in Section 6.1(c) to be
met and agrees to take all reasonable steps necessary to obtain early
termination of the waiting period under the HSR Act.
5.13 FORM S-8. Promptly following the Effective Time, and in any
event no later than sixty (60) days after the Effective Time, Parent shall
file a registration statement on Form S-8 for the shares of Parent Common
Stock issuable with respect to assumed Company Options and Parent
specifically acknowledges that each person who, immediately prior to the
Effective Time, is a holder of Company Common Stock and/or Company Options
shall be a third party beneficiary of the obligation of the Parent with
respect thereto and shall have the right to enforce all such obligations.
5.14 EMPLOYEES. As soon as practicable after the date of this
Agreement, the Chief Executive Officer of the Company and the Chief Executive
Officer of Parent will use their best efforts to agree upon the guidelines
within which the Company will proceed with respect to retention of existing
Company employees. As soon as practicable after the Effective Time, Parent
shall merge Company's 401(k) plan into the 401(k) plan maintained by Parent.
Parent shall, and shall cause the Surviving Corporation to, permit the
employees of the Surviving Corporation to participate in all employee benefit
plans offered to similarly situated employees of Parent to the full extent of
their eligibility therefor.
5.15 POOLING TREATMENT. Each of the parties shall use their
commercially reasonable best efforts to not take any actions that would
prevent pooling of interests accounting treatment for the merger.
5.16 TAX-FREE REORGANIZATION. Parent and the Company shall each
treat the Merger as a reorganization within the meaning of Section 368(a) of
the Code. Parent and Company agree to not take any action which could
reasonably be expected to cause the Merger to fail to qualify as a
reorganization under Section 368(a) of the Code. Each party has consulted
with its own tax advisors with respect to the tax consequences of the Merger.
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5.17 TAX RETURNS. The Principal Shareholders shall have the
responsibility for preparing the final returns of the Company. Such returns
shall be prepared in accordance with applicable law and past practices
consistently applied and shall be subject to review and approval by Parent,
which approval shall not be unreasonably withheld.
5.18 INDEMNIFICATION.
(a) After the Effective Time, Parent will cause the
Surviving Corporation to indemnify and hold harmless the present and former
officer and directors of the Company (the "INDEMNIFIED PARTIES") in respect
of acts or omissions occurring on or prior to the Effective Time to the
extent provided under Company's then effective Articles of Incorporation and
Bylaws or any indemnification agreement with Company officers and directors
to which the Company is a party, in each case in effect immediately prior to
the Effective Time; provided that such indemnification shall be subject to
any limitation imposed from time to time under applicable law and shall not,
under any circumstances, decrease any indemnity owed Parent from the Escrow
Fund or the Principal Shareholders pursuant to Article VII below. The
parties specifically acknowledge that a payment under this Section 5.18 will
constitute a Loss for the purposes of Article VII to the extent that the
underlying cause for such payment would otherwise constitute a Loss.
(b) The provisions of this Section 5.18 are intended to be
for the benefit of and shall be enforceable by, each Indemnified Party, and
his or her heirs and representatives.
5.19 POOLING BREAK-UP. In the event that Polycom decides not to
consummate the Merger on the basis of Section 6.3(k), and the failure to
satisfy such section is not a result of information undisclosed by the
Company or incorrectly disclosed by the Company, Parent shall promptly
reimburse the Company for Third Party Expenses up to a maximum amount of
$150,000.
5.20 TERMINATION OF 401(K) PLAN. The Company and its Affiliates, as
applicable, each agrees to terminate its 401(k) plan immediately prior to
Closing, unless the Parent, in its sole and absolute discretion, agrees to
sponsor and maintain such plans by providing the Company with written notice
of such election at least three (3) days before the Effective Time. Unless
the Parent provides such notice to the Company, the Parent shall receive from
the Company evidence that the Company's and each Affiliate's (as applicable)
401(k) plan has been terminated pursuant to resolutions of each such entity's
Board of Directors (the form and substance of which resolutions shall be
agreed to by both Company and the Parent), effective as of the day
immediately preceding the Closing Date. Notwithstanding the taking of any
action pursuant to this Section 5.20, any such action shall in no event
result in a Purchase Price Reduction or a claim for Losses under Article VII.
5.21 CREDIT FOR DEDUCTIBLES. Parent will, or will cause the
Surviving Corporation to, make its commercially reasonable best efforts to
(i) waive all limitations as to preexisting conditions, exclusions and
waiting periods with respect to participation and coverage requirements
applicable to the employees of the Company under any welfare plan that such
employees may be eligible to participate in after the Effective Time, (ii) to
the extent Parent elects to terminate a welfare plan of
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Company's in the middle of a plan year, then under the corresponding welfare
plan of Parent or surviving corporation, provide each employee of the company
with credit for the corresponding plan year period (or any co-payments and
deductibles paid prior to the Effective Time in satisfying any applicable
deductible or out-of-pocket requirements under any welfare plans that such
employees are eligible to participate in after the Effective Time for that
same plan year, and (iii) provide each employee of the Company with credit
for all service with the company and its affiliates through any reasonable
means of calculation under each employee benefit plan, program, or
arrangement of the Purchaser or its affiliates in which such employees are
eligible to participate; PROVIDED, HOWEVER, that in no event shall the
employees be entitle to any credit to the extent that it would result in a
duplication of benefits with respect to the same period of service and such
service shall only be credited to the extent permitted by law.
5.22 D2 PAYMENT. Parent commits to pay $500,000 for a signed
technology agreement reasonably satisfactory to Parent from D2 (the "D2
AGREEMENT").
5.23 TAX DISTRIBUTION. Parent agrees to cause the Company to pay to
Xxxxxxx and Xxxxx Xxxxxxxxx the Tax Distribution by April 10, 2000 and
Xxxxxxx and Xxxxx Xxxxxxxxx shall have the ability to enforce such right
against Parent.
ARTICLE VI
CONDITIONS TO THE MERGER
6.1 CONDITIONS TO OBLIGATIONS OF EACH PARTY TO EFFECT THE MERGER.
The respective obligations of each party to this Agreement to effect the
Merger shall be subject to the satisfaction at or prior to the Closing of the
following conditions:
(a) SHAREHOLDER APPROVAL. This Agreement and the Merger
shall have been approved and adopted by the shareholders of the Company by
the requisite vote under applicable law and the Company's Articles of
Incorporation.
(b) NO INJUNCTIONS OR RESTRAINTS; ILLEGALITY. No temporary
restraining order, preliminary or permanent injunction or other order issued
by any court of competent jurisdiction or other legal or regulatory restraint
or prohibition preventing the consummation of the Merger shall be in effect.
(c) GOVERNMENT APPROVALS. All approvals of governments and
government agencies necessary to consummate the Merger hereunder, shall have
been received. All applicable waiting periods under the HSR Act shall have
expired or early termination shall have been granted by either the Federal
Trade Commission or the United States Department of Justice.
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(d) NASDAQ NATIONAL MARKET LISTING. The shares of Parent
Common Stock issuable to shareholders and optionholders of the Company
pursuant to this Agreement in connection with the Merger shall have been
authorized for listing on the Nasdaq National Market upon official notice of
issuance.
(e) ESCROW AGREEMENT. Parent, Company, Escrow Agent and the
Shareholder's Agent (as defined in Article VII hereof) shall have entered
into an Escrow Agreement substantially in the form attached hereto as EXHIBIT
H.
(f) TAX OPINIONS. Each of Parent and Company shall have
received substantially identical written opinions from their respective
counsel, in form and substance reasonably satisfactory to them, to the effect
that the Merger will constitute a reorganization within the meaning of
Section 368(a) of the Code. In rendering such opinions, counsel shall be
entitled to rely upon representations of Parent, Merger Sub and Company and
certain shareholders of Company.
6.2 ADDITIONAL CONDITIONS TO OBLIGATIONS OF THE COMPANY. The
obligations of the Company to consummate the Merger and the transactions
contemplated by this Agreement shall be subject to the satisfaction at or
prior to the Closing of each of the following conditions, any of which may be
waived, in writing, exclusively by the Company:
(a) REPRESENTATIONS AND WARRANTIES. The representations and
warranties of Parent and Merger Sub contained in this Agreement shall be true
and correct in all material respects on and as of the Closing, except for
changes contemplated by this Agreement and except for those representations
and warranties which address matters only as of a particular date (which
shall remain true and correct as of such date), with the same force and
effect as if made on and as of the Effective Time, except, in all such cases,
for such breaches, inaccuracies or omissions of such representations and
warranties which have neither had nor reasonably would be expected to have a
Parent Material Adverse Effect; and the Company shall have received a
certificate to such effect signed on behalf of Parent by a duly authorized
officer of Parent.
(b) AGREEMENTS AND COVENANTS. Parent and Merger Sub shall
have performed or complied in all material respects with all agreements and
covenants required by this Agreement to be performed or complied with by them
on or prior to the Effective Time, and the Company shall have received a
certificate to such effect signed by a duly authorized officer of Parent.
(c) LEGAL OPINION. The Company shall have received a legal
opinion from Xxxxxx Xxxxxxx Xxxxxxxx & Xxxxxx, Professional Corporation,
counsel to Parent and Merger Sub, in substantially the form attached hereto
as EXHIBIT B.
(d) EMPLOYMENT AND NONCOMPETITION AGREEMENTS. To the extent
that the individuals named in Sections 6.3(g) and 6.3(i) below have executed
the agreements referenced in such sections, Parent shall have also executed
such documents.
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(e) OPTION ASSUMPTION. Parent shall have delivered to each
holder of a Company Option a certificate specifying the terms and
effectiveness of Parent's assumption of the Company Options as provided in
this Agreement.
(f) PERSONAL GUARANTEE. Parent shall have assumed or
otherwise arranged for the termination of the personal guarantees of Xxxxxxx
Xxxxxxxxx for certain business expenses of the Company as set forth on
SCHEDULE 6.2(f) attached hereto.
6.3 ADDITIONAL CONDITIONS TO THE OBLIGATIONS OF PARENT AND MERGER
SUB. The obligations of Parent and Merger Sub to consummate the Merger and
the transactions contemplated by this Agreement shall be subject to the
satisfaction at or prior to the Closing of each of the following conditions,
any of which may be waived, in writing, exclusively by Parent:
(a) REPRESENTATIONS AND WARRANTIES. The representations and
warranties of the Company contained in this Agreement shall be true and
correct in all material respects on and as of the Closing, except for changes
contemplated by this Agreement and except for those representations and
warranties which address matters only as of a particular date (which shall
remain true and correct as of such date), with the same force and effect as
if made on and as of the Effective Time, except, in all such cases, for such
breaches, inaccuracies or omissions of such representations and warranties
which have neither had nor reasonably would be expected to have a Company
Material Adverse Effect; and Parent and Merger Sub shall have received a
certificate to such effect signed on behalf of the Company by the chief
executive officer of the Company;
(b) AGREEMENTS AND COVENANTS. The Company shall have
performed or complied in all material respects with all agreements and
covenants required by this Agreement to be performed or complied with by it
on or prior to the Effective Time, and Parent and Merger Sub shall have
received a certificate to such effect signed by the chief executive officer
of the Company;
(c) THIRD PARTY CONSENTS. Parent shall have been furnished
with evidence satisfactory to it that the Company has obtained the consents,
approvals and waivers set forth in SCHEDULE 6.3(c) and that such consents do
not alter materially the terms of such obligations and are, in any event, no
less favorable to the Company.
(d) LEGAL OPINION. Parent shall have received a legal
opinion from Milbank, Tweed, Xxxxxx & XxXxxx LLP, legal counsel to the
Company, in substantially the form attached hereto as EXHIBIT C.
(e) MATERIAL ADVERSE CHANGE. Since the September Balance
Sheet, no event shall have occurred that would constitute a Company Material
Adverse Effect.
(f) SHAREHOLDER APPROVAL. Holders of at least 98% of the
outstanding shares of Company Common Stock shall have voted to approve of the
Merger, and holders of no more than
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1% of the outstanding shares of Company Common Stock shall have exercised
dissenters' or similar rights under applicable law with respect to their
shares.
(g) NONCOMPETITION AGREEMENTS. Each of Xxxxxxx Xxxxxxxxx,
Xxxxx Xxxxxxx, Xxxx Xxxxxxxxx and Xxxxxxx Xxxxxxx shall have executed and
delivered to Parent a Noncompetition Agreement in substantially the form
attached hereto as EXHIBIT D, and the Noncompetition Agreements shall be in
full force and effect.
(h) SHAREHOLDER CERTIFICATE. Each of the Principal
Shareholders shall, not later than the Effective Time, have executed and
delivered to Parent the Shareholder Certificate in the form attached hereto
as EXHIBIT A.
(i) EMPLOYMENT AGREEMENTS. Each of Xxxxxxx Xxxxxxxxx, Xxxxx
Xxxxxxx, Xxxx Xxxxxxxxx and Xxxxxxx Xxxxxxx shall have executed and delivered
to Parent an Employment Agreement in substantially the form attached hereto
as EXHIBIT E, and the Employment Agreements shall be in full force and effect.
(j) AFFILIATE AGREEMENTS. Each of Xxxxxxx Xxxxxxxxx, Xxxxx
Xxxxxxxxx and Xxxxxxx Xxxxx shall have delivered to Parent an executed
Affiliate Agreement in substantially the form attached hereto as EXHIBIT G
which shall be in full force and effect; provided that pursuant to the
Affiliate Agreement for Xxxxxxx Xxxxx, Parent shall agree that (1) resale of
Xx. Xxxxx'x Parent Company Stock shall be permitted under the Registration
Statement on Form S-8 contemplated by Section 1.6(c)(i)v, (2) Parent shall
remove any legends on Xx. Xxxxx'x Parent Company Stock promptly upon his
request any time after such Registration Statement is filed with the SEC, and
(3) Parent shall not impede or restrict the sale of Xx. Xxxxx'x Parent
Company Stock, including by requiring the delivery of legal opinions, so long
as such sale is made after the filing of such Registration Statement and
otherwise in compliance with such Affiliate Agreement.
(k) OPINION OF ACCOUNTANTS. Parent shall have received a
letter for PricewaterhouseCoopers LLP ("PWC") dated as of the Closing Date
regarding that firm's concurrence with Parent's management's and Company's
management's conclusions that the business combination to be effected by the
Merger will qualify as a pooling of interests transaction under general
accepted accounting principles if consummated in accordance with this
Agreement. In addition, Company shall have provided to PWC a letter, as
reasonably requested, to assist PWC making of that firm's letter.
ARTICLE VII
SURVIVAL OF REPRESENTATIONS AND WARRANTIES; ESCROW
7.1 SURVIVAL OF REPRESENTATIONS AND WARRANTIES; INDEMNITY. The
Company's representations and warranties in this Agreement or in any
instrument delivered pursuant to this
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Agreement (each as modified by the Company Schedules) shall survive the
Merger and continue until the earlier of one year or the first release of
audited financial statements containing the combined results of Parent and
the Company (the "EXPIRATION DATE"); provided, however, that the Company's
representations and warranties relating or pertaining to (i) Section 2.2,
(ii) any federal or state income tax or Returns related to such federal or
state income tax set forth in Section 2.8 hereof or (iii) Section 2.11
(collectively, the "SPECIFIC REPRESENTATIONS") shall not terminate until 5
p.m., California time, on the first anniversary of the Closing Date (the
"FINAL EXPIRATION DATE"). The stockholders of the Company (the "PRINCIPAL
SHAREHOLDERS") shall indemnify Parent and its affiliates for any Loss (as
defined in Section 7.2 below) incurred by Parent, its officers, directors or
affiliates (including the Surviving Corporation) directly or indirectly as a
result of an inaccuracy or breach of the representations and warranties of
the Company contained in the Specific Representations; provided, however,
that the maximum indemnity shall, in the case of Section 2.2, be equal to the
Aggregate Parent Share Number issuable to the stockholders of the Company in
the Merger, and shall, in the case of the above-referenced portions of
Section 2.8 and the entirety of Section 2.11, be equal to 10% of the
Aggregate Parent Share Number issuable to the stockholders of the Company in
the Merger (the "PARENT INDEMNIFICATION"). If payment is made for
indemnification in cash instead of in shares, the value of the Aggregate
Parent Share Number shall be calculated using the average closing sale price
for the ten (10) most recent trading days ending on the Closing Date.
Neither Parent, nor its officers, directors or affiliates (including the
Surviving Corporation) shall be entitled to any claim against the Escrow
Fund, the Specific Representations or otherwise with respect to any matter
for which Parent was entitled to a Purchase Price Reduction in accordance
with Section 1.6(g)(iii). Delivery of indemnification amounts shall be pro
rata from the stockholders. Provided that D2 does not refuse to provide the
D2 Agreement, Parent shall not be entitled to any recourse against the
Company, or its shareholders, optionholders, affiliates, directors, officers,
employees or agents, for Losses incurred by the Company in connection with
any claim for damages by D2 against the Company. To the extent that the
Consideration has been reduced pursuant to Section 1.6(g)(iii), the Losses
covering such reduction shall not be recovered by Parent pursuant to this
section.
7.2 ESCROW ARRANGEMENTS.
(a) ESCROW FUND. At the Effective Time the Company's
shareholders will be deemed to have received and consented to the deposit
with the Escrow Agent (as defined below) of the Escrow Amount (plus any
additional shares as may be issued upon any stock split, stock dividend or
recapitalization effected by Parent after the Effective Time), without any
act required on the part of any shareholder. As soon as practicable after
the Effective Time, the Escrow Amount, without any act required on the part
of any shareholder, will be deposited with an escrow agent acceptable to
Parent and the Shareholder Agent (as defined in Section 7.2(g)(i) below) as
Escrow Agent (the "ESCROW AGENT"), such deposit to constitute an escrow fund
(the "ESCROW FUND") to be governed by the terms set forth herein and at
Parent's cost and expense. The portion of the Escrow Amount contributed on
behalf of each shareholder of the Company shall be in proportion to the
aggregate Parent Common Stock to which such holder would otherwise be
entitled under Sections
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1.6(a) and 1.6(b). The Escrow Amount shall be contributed entirely out of
the shares of Parent Common Stock issuable upon the Merger in respect of
Company Common Stock. The Escrow Fund is available to compensate Parent and
its affiliates for any claims, losses, liabilities, damages, deficiencies,
costs and expenses, including reasonable attorneys' fees and expenses, and
expenses of investigation and defenses (hereinafter individually a "LOSS" and
collectively "LOSSES") incurred by Parent, its officers, directors, or
affiliates (including the Surviving Corporation) directly or indirectly as a
result of any inaccuracy or breach of a representation or warranty of the
Company contained in Article II herein, or any failure by the Company to
perform or comply with any covenant contained herein. Parent and the Company
each acknowledge that such Losses, if any, would relate to unasserted
contingent liabilities existing at the Effective Time, which if resolved at
the Effective Time would have led to a reduction in the aggregate Merger
consideration. Parent may not receive any shares from the Escrow Fund unless
and until Officer's Certificates (as defined in paragraph (d) below)
identifying Losses, the aggregate amount of which exceed $100,000 have been
delivered to the Escrow Agent as provided in paragraph (e); in such case,
Parent may only recover from the Escrow Fund its Losses above the first
$100,000. Parent shall not be entitled to any recourse against the Company,
or its shareholders, optionholders, affiliates, directors, officers,
employees or agents, for Losses other than by way of the Escrow Fund except
for Losses incurred by Parent relating to or arising, directly or indirectly,
out of any breach of the representations and warranties set forth in the
Specific Representations or for fraud, misrepresentation or willful
misconduct, and the Escrow Fund shall be the sole and exclusive remedy of
Parent and Merger Sub for any inaccuracy or breach of a representation or
warranty of the Company contained in Article II herein, or any failure by the
Company to perform or comply with any covenant contained herein except for
the Parent Indemnification as provided in Section 7.1 and except for fraud,
misrepresentation or willful misconduct.
(b) ESCROW PERIOD; DISTRIBUTION UPON TERMINATION OF ESCROW
PERIODS. Subject to the following requirements, the Escrow Fund shall be in
existence immediately following the Effective Time and shall, without further
action by the parties, terminate at 5:00 p.m., (Pacific Time) on the
Expiration Date (the "ESCROW PERIOD"); provided that the Escrow Period shall
not terminate with respect to such amount (or some portion thereof), that
together with the aggregate amount remaining in the Escrow Fund is necessary
in the reasonable judgment of Parent (subject to reduction as may be
determined by arbitration of the matter as provided in Section 7.2(f) hereof
in the event of the objection of the Shareholder Agent in the manner provided
in Section 7.2(e) hereof) to satisfy any unsatisfied claims concerning facts
and circumstances existing prior to the termination of such Escrow Period and
to the extent specified in any Officer's Certificate delivered to the Escrow
Agent prior to termination of such Escrow Period. As soon as all such claims
have been resolved, the Escrow Agent shall transfer to the shareholders of
the Company, pursuant to written instructions by Parent, to be delivered
promptly by Parent, the remaining portion of the Escrow Fund not required to
satisfy such claims. Deliveries of Escrow Amounts to the shareholders of the
Company pursuant to this Section 7.2(b) shall be made in proportion to their
respective original contributions to the Escrow Fund.
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(c) PROTECTION OF ESCROW FUND.
(i) The Escrow Agent shall hold and safeguard the
Escrow Fund during the Escrow Period, shall treat such fund as a trust fund
in accordance with the terms of this Agreement and not as the property of
Parent and shall hold and dispose of the Escrow Fund only in accordance with
the terms hereof.
(ii) Any shares of Parent Common Stock or other equity
securities and any cash dividends issued or distributed by Parent (including
shares issued upon a stock split) ("NEW SHARES") in respect of Parent Common
Stock in the Escrow Fund which have not been released from the Escrow Fund as
of the time of such issuance or distribution by Parent shall be added to the
Escrow Fund and become a part thereof. New Shares and cash dividends issued
in respect of shares of Parent Common Stock which have been released from the
Escrow Fund as of the time of such issuance or distribution by Parent shall
not be added to the Escrow Fund but shall be distributed to the recordholders
thereof.
(iii) Each shareholder shall be entitled to control the
vote of the shares of Parent Common Stock contributed to the Escrow Fund by
such shareholder (and on any voting securities added to the Escrow Fund in
respect of such shares of Parent Common Stock), and the Escrow Agent in whose
name the shares are held shall vote such shares on all matters as instructed
by the respective shareholders in writing.
(d) CLAIMS UPON ESCROW FUND.
(i) Upon receipt by the Escrow Agent at any time on
or before the last day of the Escrow Period of a certificate signed by any
officer of Parent (an "OFFICER'S CERTIFICATE"): (A) stating that Parent has
paid or properly accrued under GAAP or reasonably anticipates that it will
have to pay or accrue Losses, and (B) specifying in reasonable detail the
individual items of Losses included in the amount so stated, the date each
such item was paid or properly accrued, or the basis for such reasonably
anticipated liability, and the nature of the misrepresentation, breach of
warranty or covenant to which such item is related, the Escrow Agent shall,
subject to the provisions of Section 7.2(e) hereof, transfer to Parent out of
the Escrow Fund, as promptly as practicable, shares of Parent Common Stock
held in the Escrow Fund in an amount equal to such Losses; provided, however,
that to the extent an Officer's Certificate alleges only the basis for an
anticipated liability, no amount shall be distributed until such liability is
actually paid or accrued under GAAP. Such payments of shares from the Escrow
Fund will be made pro rata in proportion to the shareholders original
contributions to the Escrow Fund.
(ii) For the purposes of determining the number of
shares of Parent Common Stock to be delivered to Parent out of the Escrow
Fund pursuant to Section 7.2(d)(i) hereof, the shares of Parent Common Stock
shall be valued at the closing sale price on the Closing Date. Parent and
the Shareholder Agent shall certify such Average Price in a certificate
signed by
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both Parent and the Shareholder Agent, and shall deliver such certificate to
the Escrow Agent at Closing.
(e) OBJECTIONS TO CLAIMS. At the time of delivery of any
Officer's Certificate to the Escrow Agent, a duplicate copy of such
certificate shall be delivered to the Shareholder Agent and for a period of
thirty (30) days after such delivery, the Escrow Agent shall make no transfer
to Parent of any Escrow Amounts pursuant to Section 7.2(d) hereof unless the
Escrow Agent shall have received written authorization from the Shareholder
Agent to make such transfer. After the expiration of such thirty (30) day
period, the Escrow Agent shall transfer shares of Parent Common Stock from
the Escrow Fund in accordance with Section 7.2(d) hereof, provided that no
such transfer may be made if the Shareholder Agent shall object in a written
statement to the claim made in the Officer's Certificate, and such statement
shall have been delivered to the Escrow Agent prior to the expiration of such
thirty (30) day period.
(f) RESOLUTION OF CONFLICTS; ARBITRATION.
(i) In case the Shareholder Agent shall object in
writing to any claim or claims made in any Officer's Certificate as provided
in Section 7.2(e) hereof, the Shareholder Agent and Parent shall attempt in
good faith to agree upon the rights of the respective parties with respect to
each of such claims. If the Shareholder Agent and Parent should so agree, a
memorandum setting forth such agreement shall be prepared and signed by both
parties and shall be furnished to the Escrow Agent. The Escrow Agent shall
be entitled to rely on any such memorandum and distribute shares of Parent
Common Stock from the Escrow Fund in accordance with the terms thereof.
(ii) If no such agreement can be reached after good
faith negotiation, either Parent or the Shareholder Agent may demand
arbitration of the matter unless the amount of the damage or loss is at issue
in pending litigation with a third party, in which event arbitration shall
not be commenced until such amount is ascertained or both parties agree to
arbitration; and in either such event the matter shall be settled by
arbitration conducted by three arbitrators. Parent and the Shareholder Agent
shall each select one arbitrator, and the two arbitrators so selected shall
select a third arbitrator. The arbitrators shall set a limited time period
and establish procedures designed to reduce the cost and time for discovery
while allowing the parties an opportunity, adequate in the sole judgment of
the arbitrators, to discover relevant information from the opposing parties
about the subject matter of the dispute. The arbitrators shall rule upon
motions to compel or limit discovery and shall have the authority to impose
sanctions, including attorneys fees and costs, to the extent as a court of
competent law or equity, should the arbitrators determine that discovery was
sought without substantial justification or that discovery was refused or
objected to without substantial justification. The decision of a majority of
the three arbitrators as to the validity and amount of any claim in such
Officer's Certificate shall be binding and conclusive upon the parties to
this Agreement, and notwithstanding anything in Section 7.2(e) hereof, the
Escrow Agent shall be entitled to act in accordance with such decision and
make or withhold payments out of the Escrow Fund in accordance therewith.
Such decision shall be written and shall be supported by written findings of
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fact and conclusions which shall set forth the award, judgment, decree or
order awarded by the arbitrators.
(iii) Judgment upon any award rendered by the
arbitrators may be entered in any court having jurisdiction. Any such
arbitration shall be held in San Jose, California under the rules then in
effect of the American Arbitration Association. For purposes of this Section
7.2(f), in any arbitration hereunder in which any claim or the amount thereof
stated in the Officer's Certificate is at issue, Parent shall be deemed to be
the prevailing party in the event that the arbitrators award Parent an amount
equal to at least one-half (1/2) of the disputed amount; otherwise, the
Principal Shareholders of the Company as represented by the Shareholder Agent
shall be deemed to be the prevailing party. The non-prevailing party to an
arbitration shall pay its own expenses, the fees of each arbitrator, the
administrative costs of the arbitration, and the expenses, including without
limitation, reasonable attorneys' fees and costs, incurred by the other party
to the arbitration. In the event that Parent is not the prevailing party,
the Shareholder Agent's costs shall come out of the Escrow Fund.
(g) SHAREHOLDER AGENT; POWER OF ATTORNEY.
(i) In the event that the Merger is approved,
effective upon such vote, and without further act of any shareholder, Xxxxxxx
Xxxxxxxxx shall be appointed as agent and attorney-in-fact (the "SHAREHOLDER
AGENT") for each shareholder of the Company (except such shareholders, if
any, as shall have perfected their appraisal or dissenters' rights under
California Law), for and on behalf of shareholders of the Company, to give
and receive notices and communications, to authorize delivery to Parent of
shares of Parent Common Stock from the Escrow Fund in satisfaction of claims
by Parent, to object to such deliveries, to agree to, negotiate, enter into
settlements and compromises of, and demand arbitration and comply with orders
of courts and awards of arbitrators with respect to such claims, and to take
all actions necessary or appropriate in the judgment of Shareholder Agent for
the accomplishment of the foregoing. Such agency may be changed by the
shareholders of the Company from time to time upon not less than thirty (30)
days prior written notice to Parent; provided that the Shareholder Agent may
not be removed unless holders of a two-thirds interest of the Escrow Fund
agree to such removal and to the identity of the substituted agent. Any
vacancy in the position of Shareholder Agent may be filled by approval of the
holders of a majority in interest of the Escrow Fund. No bond shall be
required of the Shareholder Agent, and the Shareholder Agent shall not
receive compensation for its services. Notices or communications to or from
the Shareholder Agent shall constitute notice to or from each of the
shareholders of the Company.
(ii) The Shareholder Agent shall not be liable for any
act done or omitted hereunder as Shareholder Agent while acting in good faith
and in the exercise of reasonable judgment. The shareholders of the Company
on whose behalf the Escrow Amount was contributed to the Escrow Fund shall
severally on a pro rata basis (based on the Aggregate Parent Common Stock to
which such shareholders are entitled) indemnify the Shareholder Agent and
hold the Shareholder Agent harmless against any loss, liability or expense
incurred without gross negligence or willful misconduct on the part of the
Shareholder Agent and arising out of or in connection with
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the acceptance or administration of the Shareholder Agent's duties hereunder,
including the reasonable fees and expenses of any legal counsel retained by
the Shareholder Agent.
(h) ACTIONS OF THE SHAREHOLDER AGENT. A decision, act,
consent or instruction of the Shareholder Agent shall constitute a decision
of all the shareholders for whom a portion of the Escrow Amount otherwise
issuable to them are deposited in the Escrow Fund and shall be final, binding
and conclusive upon each of such shareholders, and the Escrow Agent and
Parent may rely upon any such decision, act, consent or instruction of the
Shareholder Agent as being the decision, act, consent or instruction of each
every such shareholder of the Company. The Escrow Agent and Parent are
hereby relieved from any liability to any person for any acts done by them in
accordance with such decision, act, consent or instruction of the Shareholder
Agent.
(i) THIRD-PARTY CLAIMS. In the event Parent becomes aware
of a third-party claim which Parent reasonably believes may result in a
demand against the Escrow Fund, Parent shall notify the Shareholder Agent of
such claim in accordance with Section 7.2(e), and the Shareholder Agent, as
representative for the shareholders of the Company, shall be entitled, at his
expense, to participate in any defense of such claim. Parent shall have the
right in its sole discretion to control the defense of all such claims and to
settle any such claim; provided, however, that no settlement of any such
claim with third-party claimants in excess of $50,000 individually or in the
aggregate shall permit any claim against the Escrow Fund, except with the
consent of the Shareholder Agent, which consent shall not be unreasonably
withheld. In the event that the Shareholder Agent has consented to any such
settlement and acknowledged that the claim is a valid claim against the
Escrow Fund, the Shareholder Agent shall be deemed to have agreed to the
claim by Parent against the Escrow Fund in an amount equal to such settlement.
(j) ESCROW AGENT'S DUTIES.
(i) The Escrow Agent shall be obligated only for the
performance of such duties as are specifically set forth herein, and as set
forth in any additional written escrow instructions which the Escrow Agent
may receive after the date of this Agreement which are signed by an officer
of Parent and the Shareholder Agent, and may rely and shall be protected in
relying or refraining from acting on any instrument reasonably believed to be
genuine and to have been signed or presented by the proper party or parties.
The Escrow Agent shall not be liable for any act done or omitted hereunder as
Escrow Agent while acting in good faith and in the exercise of reasonable
judgment, and any act done or omitted pursuant to the advice of counsel shall
be conclusive evidence of such good faith, provided that the Escrow Agent has
exercised reasonable care in the selection of such counsel.
(ii) The Escrow Agent is hereby expressly authorized
to disregard any and all warnings given by any of the parties hereto or by
any other person, excepting only orders or process of courts of law, and is
hereby expressly authorized to comply with and obey orders, judgments or
decrees of any court. In case the Escrow Agent obeys or complies with any
such order, judgment or decree of any court, the Escrow Agent shall not be
liable to any of the parties hereto or
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to any other person by reason of such compliance, notwithstanding any such
order, judgment or decree being subsequently reversed, modified, annulled,
set aside, vacated or found to have been entered without jurisdiction.
(iii) The Escrow Agent shall not be liable in any
respect on account of the identity, authority or rights of the parties
executing or delivering or purporting to execute or deliver this Agreement or
any documents or papers deposited or called for hereunder absent gross
negligence or willful misconduct.
(iv) The Escrow Agent shall not be liable for the
expiration of any rights under any statute of limitations with respect to
this Agreement or any documents deposited with the Escrow Agent absent gross
negligence or willful misconduct.
(v) In performing any duties under the Agreement, the
Escrow Agent shall not be liable to any party for damages, losses, or
expenses, except for gross negligence or willful misconduct on the part of
the Escrow Agent. The Escrow Agent shall not incur any such liability for
(A) any act or failure to act made or omitted in good faith, or (B) any
action taken or omitted in reliance upon any instrument, including any
written statement of affidavit provided for in this Agreement that the Escrow
Agent shall in good faith believe to be genuine, nor will the Escrow Agent be
liable or responsible for forgeries, fraud, impersonations, or determining
the scope of any representative authority. In addition, the Escrow Agent may
consult with the legal counsel in connection with Escrow Agent's duties under
this Agreement and shall be fully protected in any act taken, suffered, or
permitted by him/her in good faith in accordance with the advice of counsel
provided that the Escrow Agent has exercised reasonable care in the selection
of such counsel. The Escrow Agent is not responsible for determining and
verifying the authority of any person acting or purporting to act on behalf
of any party to this Agreement.
(vi) If any controversy arises between the parties to
this Agreement, or with any other party, concerning the subject matter of
this Agreement, its terms or conditions, the Escrow Agent will not be
required to determine the controversy or to take any action regarding it.
The Escrow Agent may hold all documents and shares of Parent Common Stock and
may wait for settlement of any such controversy by final appropriate legal
proceedings. In such event, the Escrow Agent will not be liable for damage.
Furthermore, the Escrow Agent may at its option, file an action of
interpleader requiring the parties to answer and litigate any claims and
rights among themselves. The Escrow Agent is authorized to deposit with the
clerk of the court all documents and shares of Parent Common Stock held in
escrow, except all cost, expenses, charges and reasonable attorney fees
incurred by the Escrow Agent due to the interpleader action and which the
parties jointly and severally agree to pay. Upon initiating such action, the
Escrow Agent shall be fully released and discharged of and from all
obligations and liability imposed by the terms of this Agreement.
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(vii) The parties and their respective successors and
assigns agree jointly and severally to indemnify and hold Escrow Agent
harmless against any and all losses, claims, damages, liabilities, and
expenses, including reasonable costs of investigation, counsel fees, and
disbursements that may be imposed on Escrow Agent or incurred by Escrow Agent
in connection with the performance of his/her duties under this Agreement,
including but not limited to any litigation arising from this Agreement or
involving its subject matter.
(viii) The Escrow Agent may resign at any time upon
giving at least thirty (30) days written notice to the parties; provided,
however, that no such resignation shall become effective until the
appointment of a successor escrow agent which shall be accomplished as
follows: the parties shall use their best efforts to mutually agree on a
successor escrow agent within thirty (30) days after receiving such notice.
If the parties fail to agree upon a successor escrow agent within such time,
the Escrow Agent shall have the right to appoint a successor escrow agent
authorized to do business in the State of California; provided, however, that
such successor escrow agent shall have a minimum of $100 million in assets.
The successor escrow agent shall execute and deliver an instrument accepting
such appointment and it shall, without further acts, be vested with all the
estates, properties, rights, powers, and duties of the predecessor escrow
agent as if originally named as escrow agent. The Escrow Agent shall be
discharged from any further duties and liability under this Agreement.
(k) FEES. All fees of the Escrow Agent for performance of
its duties hereunder shall be paid by Parent. It is understood that the fees
and usual charges agreed upon for services of the Escrow Agent shall be
considered compensation for ordinary services as contemplated by this
Agreement. In the event that the conditions of this Agreement are not
promptly fulfilled, or if the Escrow Agent renders any service not provided
for in this Agreement, or if the parties request a substantial modification
of its terms, or if any controversy arises, or if the Escrow Agent is made a
party to, or intervenes in, any litigation pertaining to this escrow or its
subject matter, the Escrow Agent shall be reasonably compensated by Parent
for such extraordinary services and reimbursed for all costs, attorney's
fees, and expenses occasioned by such default, delay, controversy or
litigation.
7.3 INDEMNITY - FURTHER PROVISIONS.
(a) LIMITATION. Notwithstanding any other provision of this
Agreement, no claim for indemnification may be made against any Principal
Shareholder unless and until the entire Escrow Fund has been released to the
Principal Shareholders or the Parent, or unless the entire remaining balance
is subject to an Officer's Certificate, as contemplated by Section 7.2(d),
and the Principal Shareholders shall only be responsible for Losses with
respect to the Specific Representations in excess of the funds available
therefore in the Escrow Fund;
(b) PAYMENT. The Principal Shareholder may satisfy any
indemnification claim, at their option, by either paying cash or tendering
shares of Parent Stock, valued at the average closing sale price for the ten
(10) most recent trading days ending on the trading day immediately preceding
the date of payment of such claim; and
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(c) CAP. No claim for indemnification shall be made against
any Principal Shareholder in excess of the Parent Common Stock issued to the
Principal Shareholders in the Merger (as determined in the next sentence),
not including the Escrow Amount, provided that claims with respect to
Sections 2.8 and 2.11 may not exceed 10% of the Parent Common Stock issued to
the Principal Shareholders in the Merger (as determined in the next sentence)
including (for this purpose only) the Escrow Amount. For purposes of this
Section 7.3(c), shares of Parent Common Stock shall be valued at the closing
sale price on the Closing Date.
ARTICLE VIII
TERMINATION, AMENDMENT AND WAIVER
8.1 TERMINATION. This Agreement may be terminated and the Merger
abandoned at any time prior to the Effective Time of the Merger, whether
before or after approval of the Merger by the shareholders of the Company:
(a) by mutual written consent of the Company and Parent;
(b) by either Parent or the Company if: (i) the Effective
Time has not occurred by December 31, 1999 (provided that the right to
terminate this Agreement under this clause 8.1(b)(i) shall not be available
to any party whose failure to fulfill any obligation hereunder has been the
cause of, or resulted in, the failure of the Effective Time to occur on or
before such date); (ii) there shall be a final nonappealable order of a
federal or state court in effect preventing consummation of the Merger; or
(iii) there shall be any statute, rule, regulation or order enacted,
promulgated or issued or deemed applicable to the Merger by any Governmental
Entity that would make consummation of the Merger illegal; or by either
Parent or the Company if the Effective Time has not occurred by March 31,
2000;
(c) by either Company or Parent if a Governmental Entity
shall have issued an order, decree or ruling or taken any other action (an
"ORDER"), in any case having the effect of permanently restraining, enjoining
or otherwise prohibiting the Merger, which order, decree or ruling is final
and nonappealable;
(d) by either Company or Parent if the required approval of
the shareholders of Company contemplated by this Agreement shall not have
been obtained by reason of the failure to obtain the required vote or written
consent of Company shareholders (provided that the right to terminate this
Agreement under this Section 8.1(d) shall not be available to Company where
the failure to obtain Company shareholder approval shall have been caused by
the action or failure to act of Company in breach of this Agreement or of
Xxxxxxx Xxxxxxxxx in breach of the Voting Agreement);
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(e) by Parent if there shall be any action taken, or any
statute, rule, regulation or order enacted, promulgated or issued or deemed
applicable to the Merger, by any Governmental Entity, which would: (i)
prohibit Parent's or the Company's ownership or operation of any portion of
the business of the Company or (ii) compel Parent or the Company to dispose
of or hold separate, as a result of the Merger, any portion of the business
or assets of the Company or Parent;
(f) by Company if it is not in material breach of its
obligations under this Agreement and there has been, a breach of any
representation, warranty, covenant or agreement on the part of Parent set
forth in this Agreement, or if any representation or warranty of Parent shall
have become untrue, in either case such that the conditions set forth in
Section 6.2(a) or Section 6.2(b) would not then be satisfied; PROVIDED that
if such inaccuracy in Parent's representations and warranties or breach by
Parent is curable by Parent through the exercise of its commercially
reasonable efforts, then Company may only terminate this Agreement under this
Section 8.1(f) if the breach is not cured within ten (10) days following the
date of written notice from Company of such breach (but no cure period shall
be required for a breach which by its nature cannot be cured); or
(g) by Parent if it is not in material breach of its
obligations under this Agreement and there has been upon a breach of any
representation, warranty, covenant or agreement on the part of Company set
forth in this Agreement, or if any representation or warranty of Company
shall have become untrue, in either case such that the conditions set forth
in Section 6.3(a) or Section 6.3(b) would not then be satisfied; PROVIDED,
that if such inaccuracy in Company's representations and warranties or breach
by Company is curable by Company through the exercise of its commercially
reasonable efforts, then Company may only terminate this Agreement under this
Section 8.1(g) if the breach is not cured within ten (10) days the date of
written notice from Parent of such breach (but no cure period shall be
required for a breach which by its nature cannot be cured).
Where action is taken to terminate this Agreement pursuant to this
Section 8.1, it shall be sufficient for such action to be authorized by the
Board of Directors (as applicable) of the party taking such action.
8.2 EFFECT OF TERMINATION. In the event of termination of this
Agreement as provided in Section 8.1, this Agreement shall forthwith become
void and there shall be no liability or obligation on the part of Parent,
Merger Sub or the Company, or their respective officers, directors or
shareholders, provided that each party shall remain liable for any breaches
of this Agreement prior to its termination; and provided further that, the
provisions of Sections 5.4, 5.5, 5.6 and Article VIII of this Agreement shall
remain in full force and effect and survive any termination of this Agreement.
8.3 AMENDMENT. Except as is otherwise required by applicable law
after the shareholders of the Company approve this Agreement, this Agreement
may be amended by the parties hereto at any time prior to the Effective Time
only by execution of an instrument in writing signed on behalf of each of the
parties hereto. This Agreement may be amended after the Effective Time only
by
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execution of an instrument in writing signed on behalf of Parent, Merger Sub
and the Principal Shareholders.
8.4 EXTENSION; WAIVER. At any time prior to the Effective Time,
Parent and Merger Sub, on the one hand, and the Company, on the other, may,
to the extent legally allowed, (i) extend the time for the performance of any
of the obligations of the other party hereto, (ii) waive any inaccuracies in
the representations and warranties made to such party contained herein or in
any document delivered pursuant hereto, and (iii) waive compliance with any
of the agreements or conditions for the benefit of such party contained
herein. Any agreement on the part of a party hereto to any such extension or
waiver shall be valid only if set forth in an instrument in writing signed on
behalf of such party.
ARTICLE IX
GENERAL PROVISIONS
9.1 NOTICES. All notices and other communications hereunder shall
be in writing, shall be effective when received, and shall in any event be
deemed to have been received (i) when delivered, if delivered personally or
by commercial delivery service, (ii) three (3) business days after deposit
with U.S. Mail, if mailed by registered or certified mail (return receipt
requested), (iii) one (1) business day after the business day of deposit with
Federal Express or similar overnight courier for next day delivery (or, two
(2) business days after such deposit if deposited for second business day
delivery), if delivered by such means, or (iv) one (1) business day after
delivery by facsimile transmission with copy by U.S. Mail, if sent via
facsimile plus mail copy (with acknowledgment of complete transmission), to
the parties at the following addresses (or at such other address for a party
as shall be specified by like notice):
(a) if to Parent or Merger Sub, to:
Polycom, Inc.
0000 Xxxxxxxx Xxxxxx
Xxx Xxxx, XX 00000
Attention: Xxxxxxx Xxxxxx
Telephone No.: (000) 000-0000
Facsimile No.: (000) 000-0000
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with a copy to:
Xxxxxx Xxxxxxx Xxxxxxxx & Xxxxxx, P.C.
000 Xxxx Xxxx Xxxx
Xxxx Xxxx, Xxxxxxxxxx 00000-0000
Attention: Xxxx X. Xxxxxxxxx, Esq.
Telephone No.: (000) 000-0000
Facsimile No.: (000) 000-0000
(b) if to the Company, to:
Atlas Communication Engines, Inc.
000 Xxxxx Xx Xxxxxx Xxxx
Xxxxx Xxxxxxx, XX 00000
Attention: Xxx Xxxxxxxxx
Telephone No.: (000) 000-0000
Facsimile No.: (000) 000-0000
with a copy to:
Milbank, Tweed, Xxxxxx & XxXxxx LLP
000 Xxxxx Xxxxxxxx Xxxxxx
Xxx Xxxxxxx, XX 00000
Attention: Xxxx X Xxxxxxxx
Telephone No.: (000) 000-0000
Facsimile No.: (000) 000-0000
9.2 INTERPRETATION. When a reference is made in this Agreement to
Exhibits, such reference shall be to an Exhibit to this Agreement unless
otherwise indicated. The words "INCLUDE," "INCLUDES" and "INCLUDING" when
used herein shall be deemed in each case to be followed by the words "without
limitation." The word "AGREEMENT" when used herein shall be deemed in each
case to mean any contract, commitment or other agreement, whether oral or
written, that is legally binding. The table of contents and headings
contained in this Agreement are for reference purposes only and shall not
affect in any way the meaning or interpretation of this Agreement. When
reference is made herein to "THE BUSINESS OF" an entity, such reference shall
be deemed to include the business of all direct and indirect subsidiaries of
such entity. Reference to the subsidiaries of an entity shall be deemed to
include all direct and indirect subsidiaries of such entity.
9.3 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each
of the parties and delivered to the other party, it being understood that all
parties need not sign the same counterpart.
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9.4 ENTIRE AGREEMENT. This Agreement, the Company Schedules, and
the documents and instruments and other agreements among the parties hereto
referenced herein: (a) constitute the entire agreement among the parties
with respect to the subject matter hereof and supersede all prior agreements
and understandings, both written and oral, among the parties with respect to
the subject matter hereof, it being understood that the Confidentiality
Agreement shall continue in full force and effect until the Closing and shall
survive any termination of this Agreement; and (b) are not intended to confer
upon any other person any rights or remedies hereunder.
9.5 SEVERABILITY. In the event that any provision of this
Agreement or the application thereof, becomes or is declared by a court of
competent jurisdiction to be illegal, void or unenforceable, the remainder of
this Agreement will continue in full force and effect and the application of
such provision to other persons or circumstances will be interpreted so as
reasonably to effect the intent of the parties hereto. The parties further
agree to replace such void or unenforceable provision of this Agreement with
a valid and enforceable provision that will achieve, to the extent possible,
the economic, business and other purposes of such void or unenforceable
provision.
9.6 OTHER REMEDIES. Except as otherwise provided herein, any and
all remedies herein expressly conferred upon a party will be deemed
cumulative with and not exclusive of any other remedy conferred hereby, or by
law or equity upon such party, and the exercise by a party of any one remedy
will not preclude the exercise of any other remedy.
9.7 SPECIFIC PERFORMANCE. The parties hereto agree that
irreparable damage would occur in the event that any of the provisions of
this Agreement were not performed in accordance with their specific terms or
were otherwise breached. It is accordingly agreed that the parties shall be
entitled to an injunction or injunctions to prevent breaches of this
Agreement and to enforce specifically the terms and provisions hereof in any
court of the United States or any state having jurisdiction, this being in
addition to any other remedy to which they are entitled at law or in equity.
9.8 GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of California, regardless
of the laws that might otherwise govern under applicable principles of
conflicts of laws thereof; provided that issues involving the corporate
governance of any of the parties hereto shall be governed by their respective
jurisdictions of incorporation. Each of the parties hereto irrevocably
consents to the exclusive jurisdiction of any state or federal court within
the State of California, in connection with any matter based upon or arising
out of this Agreement or the matters contemplated herein, other than issues
involving the corporate governance of any of the parties hereto, agrees that
process may be served upon them in any manner authorized by the laws of the
State of California for such persons and waives and covenants not to assert
or plead any objection which they might otherwise have to such jurisdiction
and such process.
9.9 RULES OF CONSTRUCTION. The parties hereto agree that they have
been represented by counsel during the negotiation and execution of this
Agreement and, therefore, waive the application
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of any law, regulation, holding or rule of construction providing that
ambiguities in an agreement or other document will be construed against the
party drafting such agreement or document.
9.10 ASSIGNMENT. No party may assign either this Agreement or any
of its rights, interests, or obligations hereunder without the prior written
approval of the of the other party. Subject to the preceding sentence, this
Agreement shall be binding upon and shall inure to the benefit of the parties
hereto and their respective successors and permitted assigns.
9.11 ATTORNEYS' FEES. Should a suit or arbitration be brought to
enforce or interpret any provision of this Agreement, the prevailing party
shall be entitled to recover reasonable attorneys' fees to be fixed in amount
by the court or the arbitrator(s).
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
signed by their duly authorized respective officers as of the date first written
above.
POLYCOM, INC.
As to Article VII:
/s/ Xxxxxxx Xxxxxxxxx By: /s/ Xxxxxx Xxxxxxx
------------------------------------ -------------------------------
Xxxxxxx Xxxxxxxxx Name:
--------------------------
Title:
--------------------------
/s/ Xxxxx Xxxxxxxxx
------------------------------------
Xxxxx Xxxxxxxxx
PERISCOPE ACQUISITION CORPORATION
By: /s/ Xxxxxxx Xxxxxx
-------------------------------
Name:
--------------------------
Title:
--------------------------
ATLAS COMMUNICATION ENGINES, INC.
By: /s/ Xxxxxxx Xxxxxxxxx
-------------------------------
Name: Xxxxxxx Xxxxxxxxx
Title: President and Chief
Executive Officer
SHAREHOLDER AGENT
By: /s/ Xxxxxxx Xxxxxxxxx
-------------------------------
Name: Xxxxxxx Xxxxxxxxx
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