Exhibit 2.1
AGREEMENT AND PLAN OF MERGER
by and among
OPTIKA INC.,
SELECT TECHNOLOGIES ACQUISITION, INC.,
SELECT TECHNOLOGIES, INC.
and
DEL XXXX AND XXXXXX XXXX
May 29, 2003
AGREEMENT AND PLAN OF MERGER
This AGREEMENT AND PLAN OF MERGER (this "Agreement"), dated as of
May 29, 2003, is made and entered into by and among Optika Inc., a Delaware
corporation ("Parent"), Optika Technologies, Inc., a Delaware corporation and
wholly owned subsidiary of Parent ("Merger Sub"), Select Technologies, Inc., an
Idaho corporation (the "Company"), and Del Xxxx and Xxxxxx Xxxx (each, a
"Stockholder" and, collectively, the "Stockholders"). Merger Sub and the Company
are sometimes collectively referred to as the "Constituent Corporations."
WHEREAS, the Company is engaged in the business of developing,
marketing, licensing, distributing and selling software and related products and
services (the "Business"); and
WHEREAS, the respective Boards of Directors of Parent, Merger Sub
and the Company have determined that it is advisable and in the best interests
of the respective corporations and their stockholders that the Company be merged
with and into the Merger Sub in accordance with the applicable provisions of the
General Corporation Law of the State of Delaware (the "DGCL"), the State of
Idaho ("Idaho Law") and the terms of this Agreement, pursuant to which the
Merger Sub will be the surviving corporation and will be a wholly owned
subsidiary of Parent (the "Merger"); and
WHEREAS, the Stockholders own 100% of the issued and outstanding
capital stock of the Company and their agreement to indemnify Parent for certain
potential liabilities following the Merger is a material inducement to the
agreements of Parent and Merger Sub to the Merger; and
WHEREAS, for federal income tax purposes, it is intended that the
Merger shall qualify as a "reorganization," within the meaning of Section 368(a)
of the Internal Revenue Code of 1986, as amended (the "Code"), and each of
Parent, Merger Sub and the Company shall be a "party to a reorganization,"
within the meaning of Section 368(b) of the Code, with respect to the Merger;
and
WHEREAS, Parent, Merger Sub, the Company and the Stockholders desire
to make certain representations, warranties, covenants, and agreements in
connection with, and establish various conditions precedent to, the Merger; and
NOW, THEREFORE, in consideration of the representations, warranties,
covenants and agreements set forth in this Agreement and in the Certificate of
Merger (as defined in Section 1.03 hereof), the parties hereto hereby agree as
follows:
ARTICLE I
THE MERGER
1.01 The Merger. At the Effective Time (as defined in Section 1.03
hereof), subject to the terms and conditions of this Agreement and the
Certificate of Merger (as defined in Section 1.03 hereof), the Company shall be
merged with and into the Merger Sub, the separate existence of the Company shall
cease, and the Merger Sub shall continue as the surviving corporation. The
Merger Sub, in its capacity as the corporation surviving the Merger, is
hereinafter sometimes referred to as the "Surviving Corporation."
1.02 Effect of Merger. The effect of the Merger shall be as set
forth in Section 259 of the DGCL and Idaho Law, and the Surviving Corporation
shall succeed to and possess all the properties, rights, privileges, immunities,
powers, franchises and purposes, and be subject to all the duties, liabilities,
debts, obligations, restrictions and disabilities, of the Constituent
Corporations, all without further act or deed.
1.03 Effective Time. The consummation of the Merger shall be
effected as promptly as practicable, but in no event more than three business
days after the satisfaction or waiver of the conditions set forth in Article VII
of this Agreement, and the parties hereto will cause the Merger to be
consummated by filing a Certificate of Merger (the "Certificate of Merger") with
the Delaware Secretary of State in accordance with the relevant provisions of
DGCL, and any and all filings which may be required pursuant to Idaho Law, as
the case may be. The Merger shall become effective at the time and date
specified in the Certificate of Merger. The time of effectiveness is herein
referred to as the "Effective Time." The day on which the Effective Time shall
occur is herein referred to as the "Effective Date."
1.04 Directors and Officers. From and after the Effective Time, the
directors of the Surviving Corporation shall be the persons who were the
directors of Merger Sub immediately prior to the Effective Time, and the
officers of the Surviving Corporation shall be the persons who were the officers
of Merger Sub immediately prior to the Effective Time. Said directors and
officers of the Surviving Corporation shall hold office for the term specified
in, and subject to the provisions contained in, the Certificate of Incorporation
and Bylaws of the Surviving Corporation and applicable law. If, at or after the
Effective Time, a vacancy shall exist on the Board of Directors or in any of the
offices of the Surviving Corporation, such vacancy shall be filled in the manner
provided in the Certificate of Incorporation and Bylaws of the Surviving
Corporation.
1.05 Articles of Incorporation; Bylaws. From and after the Effective
Time and until further amended in accordance with applicable law, the
Certificate of Incorporation of the Surviving Corporation shall be identical to
the Certificate of Incorporation of Merger Sub as in effect immediately prior to
the Effective Time except the name of the Surviving Corporation shall be "Optika
Technologies, Inc." From and after the Effective Time and until further amended
in accordance with law, the Bylaws of the Surviving Corporation shall be
identical to the Bylaws of Merger Sub as in effect immediately prior to the
Effective Time.
1.06 Taking of Necessary Action; Further Action. Parent, Merger Sub,
the Stockholders and the Company, respectively, shall each use its or their best
efforts to take all such action as may be necessary or appropriate to effectuate
the Merger under the DGCL and Idaho Law at the time specified in Section 1.03
hereof. If, at any time after the Effective Time, any further action is
necessary or desirable to carry out the purposes of this Agreement and to vest
the Surviving Corporation with full right, title and possession to all
properties, rights, privileges, immunities, powers and franchises of either of
the Constituent Corporations, the officers of the Surviving Corporation are
fully authorized in the name of each Constituent Corporation or otherwise to
take, and shall take, all such lawful and necessary action.
1.07 Intent to Qualify as Reorganization; No Tax Representations by
Parent. The parties intend to adopt this Agreement and the Merger as a plan of
reorganization under Section 368(a) of the Code. However, neither Parent nor any
attorney, accountant or other advisor of Parent has made, nor makes any
representations or warranties to Company or to the Stockholders regarding the
tax treatment of the Merger and any other transactions contemplated by this
Agreement or the Merger, whether the Merger will qualify as a plan of
reorganization under Section 368(a) of the Code, or any of the tax consequences
to the Stockholders of this Agreement, the Merger or any of the transactions
contemplated hereby or thereby, and the Company and the Stockholders acknowledge
that Company and the Stockholders are relying solely on their own tax advisors
in connection with this Agreement and the transactions contemplated by this
Agreement.
1.08 The Closing. The closing of the transactions contemplated by
this Agreement (the "Closing") will take place at the offices of Optika Inc.,
0000 Xxxxxx Xxxxx, Xxxxx 000, Xxxxxxxx Xxxxxxx, Xxxxxxxx, or at such other place
or in such other manner as is mutually agreeable to Parent and the Company. The
Closing will be effective as of the Effective Time and the date of the Closing
is referred to herein as the Closing Date.
ARTICLE II
CONVERSION OF SECURITIES
2.01 Merger Consideration.
(a) Merger Consideration. The aggregate consideration to be
paid by Parent in the Merger upon conversion of all shares of the Company's
Common Stock (the "Company Common Stock"), shall be $625,000 in cash (the "Base
Cash Consideration"), as adjusted pursuant to Section 2.01(b) (the "Adjusted
Cash Consideration") plus 500,000 shares of common stock, $.001 par value, of
Parent ("Parent Common Stock"), together defined as the "Merger Consideration".
Upon expiration of the Escrow Period (defined in the Escrow Agreement, a copy of
which is attached hereto as Exhibit A, the "Escrow Agreement"), Parent shall pay
to Stockholders $100,000, subject to the terms and conditions of the Escrow
Agreement and Sections 2.02(b) and 6.01 and Article IX of this Agreement.
Parent's obligation to pay this future payment shall be secured by the Escrow
Account (defined below).
(b) Adjustments to Base Cash Consideration. The Base Cash
Consideration shall be increased, dollar for dollar, to the extent that the
Closing Working Capital (as hereinafter defined) exceeds $50,000, and the Base
Cash Consideration shall be decreased, dollar for dollar, to the extent that the
Closing Working Capital (as hereinafter defined) is less than negative $50,000;
provided; however, that there shall be no adjustment to the Base Cash
Consideration to the extent that the Closing Working Capital is less than or
equal to $50,000 and greater than or equal to negative $50,000. Closing Working
Capital shall be computed as set forth in Exhibit B attached hereto, and set
forth in a Closing Certificate dated as of the last business day immediately
preceding the Closing Date executed on behalf of Company by its Chief Executive
Officer (the "Closing Certificate"). In addition, the Base Cash Consideration
shall be further decreased, dollar for dollar, to the extent that Parent elects
to pay all or part of that certain obligation of the Stockholders to the
Company, which is currently in the amount of $205,911 as of the date of this
Agreement, by and on their behalf at Closing, as further described in Section
7.02(m) herein (the "Stockholder Receivable").
2.02 Conversion of Securities.
(a) At the Effective Time, by virtue of the Merger and without
any action on the part of Parent, Merger Sub or the Company (i) each share of
the Company Common Stock that is issued and outstanding immediately prior to the
Effective Time and held by Del Xxxx shall be cancelled and extinguished and be
converted into the right to receive upon surrender of certificates formerly
representing the shares of the Company Common Stock held by him, (A) 250,000
shares of Parent Common Stock and (B) the quotient obtained by dividing the
Adjusted Cash Consideration by the total number of shares of Company Common
Stock issued and outstanding multiplied by the total number of shares of Company
Common Stock held by Xx. Xxxx as of the Effective Time and (ii) each share of
the Company Common Stock that is issued and outstanding immediately prior to the
Effective Time and held by Xxxxxx Xxxx shall be cancelled and extinguished and
be converted into the right to receive upon surrender of certificates formerly
representing the shares of the Company Common Stock, (A) 250,000 shares of
Parent Common Stock and (B) the quotient obtained by dividing the Adjusted Cash
Consideration by the total number of shares of Company Common Stock issued and
outstanding multiplied by the total number of shares of Company Common Stock
held by Xx. Xxxx as of the Effective Time.
(b) Escrow. Simultaneously with the Merger on the Effective Date,
Parent shall deposit $100,000 (the "Escrow Amount") in escrow (the "Escrow
Account") pursuant to Section 6.01 of this Agreement. The Escrow Account shall
be established in accordance with the terms and conditions of the Escrow
Agreement and Section 6.01 of this Agreement to secure Parent's obligation to
pay the Stockholders the future payment referenced in Section 2.01(a) of this
Agreement; provided however, that Parent has the right to offset its obligation
by Stockholders' indemnification obligations to Parent under Article IX of this
Agreement.
(c) Cancellation of Company Stock. Each share of the Company Common
Stock issued and outstanding immediately prior to the Effective Time and held in
the treasury of the Company or owned by the Company or any direct or indirect
subsidiary the Company or Parent or the Merger Sub shall be canceled and
extinguished and no payment shall be made with respect thereto.
2.03 Exchange of Certificates.
(a) Delivery Procedures. At the Closing, the Stockholders
shall receive in exchange for certificates evidencing the outstanding shares of
Company Common Stock held by each of them (the "Certificates") (i) certificates
evidencing that number of shares of Parent Common Stock into which the shares
formerly evidenced by such Certificates are to be converted in accordance with
Section 2.02(a) and (ii) that portion of the Adjusted Cash Consideration to
which each such Stockholder is entitled pursuant to Section 2.02(a). The
Certificates so surrendered shall forthwith be canceled. On and after the
Effective Time each Certificate, until surrendered for exchange, shall be deemed
to evidence ownership of and to represent the Merger Consideration into which
the Stockholder's shares of Company Common Stock shall have been converted. At
the Closing, Parent shall deliver to the Stockholders certificates evidencing
ownership of Parent Common Stock ("Parent Certificates").
(b) No Further Rights in Company Stock. All shares of Parent
Common Stock issued pursuant to this Agreement and the Adjusted Cash
Consideration issued pursuant to this Agreement shall be deemed to have been
issued or paid in full satisfaction of all rights of the Stockholders pertaining
to the shares of Company Common Stock held by them.
(c) No Transfer of Company Common Stock by Stockholders.
Effective as of the date of this Agreement, the Stockholders shall not cause any
of the Company Common Stock held by them to be assigned or transferred in any
manner, and there shall be no transfers on the stock transfer books of the
Company of the shares of the Company Common Stock that were outstanding
immediately prior to the date of this Agreement.
2.04 Restrictions on Transfer.
(a) The Parent Common Stock to be issued to the Stockholders
will not be registered under the Securities Act of 1933, as amended (the
"Securities Act"), and Parent shall have no obligation to cause such shares to
be registered under the Securities Act. Each certificate representing Parent
Common Stock issued to the Stockholders or to any subsequent holder shall
include a legend in substantially the following form; provided, however, that
such legend shall not be required if a transfer is being made in connection with
a sale of Parent Common Stock registered under the Securities Act, or in
connection with a sale in compliance with Rule 144 or, if applicable, Rule 145
under the Securities Act (each, a "Public Sale"), or if the opinion of counsel
for Parent is to the further effect that neither such legend nor the
restrictions on transfer in this Section 2.05 are required in order to ensure
compliance with the Securities Act:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE
SECURITIES LAW, AND MAY NOT BE TRANSFERRED, SOLD OR OTHERWISE
DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION
THEREFROM.
(b) The restrictions set forth in this Section 2.04 shall
terminate and cease to be effective with respect to any of the Parent Common
Stock issued pursuant to this Agreement (i) upon the sale of any such Parent
Common Stock, if such Parent Common Stock has been registered under the
Securities Act, or (ii) upon receipt by Parent of an opinion of counsel (which
counsel is reasonably acceptable to Parent, it being agreed that Holland & Xxxx,
LLP is reasonably acceptable counsel), in form reasonably satisfactory to
Parent, to the effect that compliance with such restrictions is not necessary to
comply with the Securities Act with respect to the transfer of such Parent
Common Stock.
(c) The restrictive legend set forth in subsection (a) above
shall be promptly removed by the Parent upon termination of all applicable
restrictions, at Parent's sole cost and expense.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE STOCKHOLDERS
Each of the Company and the Stockholders hereby represents and warrants to
Parent and Merger Sub that, except as set forth in the Disclosure Schedule
delivered by the Company to Parent and Merger Sub on the date hereof (the
"Disclosure Schedule") (which Disclosure Schedule sets forth the exceptions to
the representations and warranties contained in this Article III under captions
referencing the Sections to which such exceptions apply; provided, however that
any exception or disclosure appearing under any caption on the Disclosure
Schedule shall be deemed to be made with respect to and responsive to any other
Section unless such exception or disclosure would not be reasonably interpreted
to apply to such other Section). For the purpose of this Article III,
"knowledge" shall mean, with respect to any fact, circumstance, event or other
matter in question, (a) the knowledge of such fact, circumstance, event or other
matter after reasonable inquiry of (i) an individual, if used in reference to an
individual, or (ii) as applicable, any officer or inside director of such party,
if used in reference to an entity, and (b) the actual knowledge of such fact,
circumstance, event or other matter of any outside director of such party, if
used in reference to an entity.
3.01 Incorporation; Corporate Power and Authority. The Company is a
corporation duly incorporated, validly existing and in good standing under the
laws of the State of Idaho and has all requisite corporate power and authority
and all authorizations, licenses, permits and certifications necessary to carry
on its business as now being conducted and to own, lease and operate its assets.
The Company is duly qualified as a foreign corporation to do business in every
jurisdiction in which the nature of its portion of its business or its ownership
of property requires it to be qualified, except where the failure to be so
qualified would not, individually or in the aggregate, have a Material Adverse
Effect (as defined below). The Company is not in material violation of any of
the provisions of its Certificate of Incorporation or Bylaws and has delivered
to Parent accurate and complete copies of its Certificate of Incorporation and
Bylaws, as currently in effect. As used in this Agreement, the term "Material
Adverse Effect" means any change, effect, event or condition that has had or
could reasonably be expected to (i) have a material adverse effect on the
business, assets, results of operations, business prospects, condition
(financial or otherwise) or customer, supplier or employee relations of the
Company or (ii) prevent or materially delay the Company's ability to consummate
the Merger or the other transactions contemplated hereby.
3.02 Subsidiaries. The Company does not own any stock, partnership
interest, limited liability company interest, joint venture interest or any
other security or ownership interest issued by any other corporation,
organization or entity, and the Company does not own any such security or
ownership interest in any such entity that is involved with or contributes to
the operation of the business of the Company.
3.03 Capitalization.
(a) The authorized capital stock of the Company consists
solely of 30,000 shares of authorized Common Stock, of which 20,075 shares are
issued and outstanding. The Company Common Stock is held of record solely by the
Stockholders, with the addresses of record and in the amounts set forth in the
Disclosure Schedule under the caption referencing this Section 3.03(a). The
Disclosure Schedule under the caption referencing this Section 3.03(a) also
indicates for each Stockholder (i) the share certificate numbers held by such
person and (ii) whether such holder has the sole power to vote and dispose of
such shares. All issued and outstanding shares of Company Common Stock are duly
authorized, validly issued, fully paid, nonassessable and free of preemptive
rights. All issued and outstanding shares of Company Common Stock have been
offered, sold and delivered by the Company in compliance with applicable federal
and state securities laws.
(b) There are no options, warrants, calls, subscriptions,
convertible securities, rights (including preemptive rights), commitments or
agreements of any character to which the Company is a party or by which it is
bound obligating the Company to issue, exchange, transfer, sell, repurchase,
redeem or otherwise acquire any shares of Company Common Stock or other equity
securities, or obligating the Company to grant, extend, accelerate the vesting
of or enter into any such subscription, option, warrant, equity security, call,
right, commitment or agreement. Except as contemplated by this Agreement, or as
described in the Disclosure Schedule under the caption referencing Section
3.03(b), there are no registration rights agreements, no voting trust, proxy or
other agreement or understanding to which the Company is a party or by which it
is bound with respect to any equity security of any class of the Company.
3.04 Execution, Delivery; Valid and Binding Agreement;
Stockholder Approval.
(a) The Company has all requisite power and authority to enter
into this Agreement and to consummate the transactions contemplated hereby. The
execution, delivery and performance of this Agreement by the Company and the
consummation of the transactions contemplated hereby have been duly and validly
authorized by all requisite corporate action and no other corporate proceedings
on the Company's part are necessary to authorize the execution, delivery or
performance of this Agreement. This Agreement has been duly executed and
delivered by the Company and each of the Stockholders and constitutes the valid
and binding obligation of each of them enforceable in accordance with its terms
and the Certificate of Merger and the other documents contemplated hereby, when
executed and delivered by the Company, will constitute the valid and binding
obligations of the Company, enforceable in accordance with their respective
terms.
(b) The Board of Directors of the Company has, by resolutions
duly adopted, unanimously (a) approved this Agreement and the Certificate of
Merger and the transactions contemplated hereby and thereby, including the
Merger, (b) determined that the Merger is in the best interests of the
stockholders of the Company and is on terms that are fair to such stockholders
and (c) resolved to recommend approval of this Agreement and the Merger by the
Stockholders. The affirmative written consent of the Stockholders is the only
action of the holders of any of the Company's Stock necessary to approve this
Agreement and the transactions contemplated thereby and such approval has been
obtained on or before the date hereof in compliance with the Certificate of
Incorporation and Bylaws of the Company and all other applicable legal
requirements. None of the resolutions described in this Section 3.03(b) has been
amended or otherwise modified in any respect since the date of adoption thereof
and all such resolutions remain in full force and effect.
3.05 No Breach. The execution, delivery and performance of this
Agreement by the Company and the Stockholders does not and the consummation of
the transactions contemplated hereby will not: (a) contravene any provision of
the Certificate of Incorporation or Bylaws of the Company; (b) violate or
conflict in any material respect with any foreign, federal, state or local law,
statute, ordinance, rule, regulation or any decree, writ, injunction, judgment
or order of any court or administrative or other governmental body or of any
arbitration award which is either applicable to, binding upon or enforceable
against the Company or the business or any assets of the Company; (c) conflict
with, result in any breach of any of the provisions of, or constitute a default
(or any event which would, with the passage of time or the giving of notice or
both, constitute a default) under, result in a violation of, result in the
creation of a right of termination, amendment, modification, abandonment or
acceleration under any indenture, mortgage, lease, license, loan agreement or
other material agreement or instrument which is either binding upon or
enforceable against the Company or the Stockholders; (d) result in the creation
of any material lien, security interest, charge or encumbrance upon the Company
or any of the assets of the Company; or (e) require any authorization, consent,
approval, exemption or other action by or notice to any court, commission,
governmental body regulatory authority, agency or tribunal wherever located (a
"Governmental Entity") or any other third party, other than (i) the filing of
the Certificate of Merger with the Secretary of State of the State of Delaware,
(ii) such consents, waivers, approvals, orders, authorizations, registrations,
declarations and filings as may be required under applicable federal and state
securities laws and (iii) consents set forth in the Disclosure Schedule under
the caption referencing this Section 3.05.
3.06 Financial Statements.
(a) The Company has delivered to Parent true and complete
copies of (i) the unaudited balance sheets, as of December 31, 2001 and 2002 ,
of the Company and the unaudited statements of earnings, and stockholders'
equity of the Company for each of the years then ended (collectively, the
"Annual Financial Statements"), (ii) the unaudited balance sheet, as of April
30, 2003, of the Company (the "Latest Balance Sheet") and the unaudited
statements of earnings, and stockholders' equity of the Company for the
four-month period then ended (such statements and the Company Latest Balance
Sheet being herein referred to as the "Latest Financial Statements"), and (iii)
the unaudited balance sheet, as of May 29, 2003, (the "Closing Balance Sheet").
(b) The Annual Financial Statements and the Latest Financial
Statements are based upon the information contained in the books and records of
the Company and fairly present the financial condition of the Company as of the
dates thereof and results of operations for the periods referred to therein. The
Annual Financial Statements have been prepared in accordance with accounting
principles historically used by the Company applied on a consistent basis
throughout the periods indicated. The Latest Financial Statements have been
prepared on a basis consistent with the Annual Financial Statements and in
accordance with accounting principles historically used by the Company
applicable to unaudited interim financial statements of the Company and reflect
adjustments necessary to provide a statement of the results for the interim
period(s) presented. The Closing Balance Sheet has been prepared in accordance
with generally accepted accounting principles ("GAAP").
(c) All accounts, books and ledgers related to the business of
the Company are properly and accurately kept and are complete in all material
respects, and there are no material inaccuracies or discrepancies contained or
reflected therein. Except as set forth in the Disclosure Schedule under the
caption referencing this Section 3.06(c), the Company has none of its records,
systems, controls, data, or information recorded, stored, maintained, operated
or otherwise wholly or partly dependent on or held by any means (including any
electronic, mechanical or photographic process, whether computerized or not)
which (including all means of access thereto and therefrom) are not under the
exclusive ownership (excluding licensed software programs) and direct control of
the Company.
3.07 Absence of Undisclosed Liabilities. The Company does not have
any liabilities (whether accrued, absolute, contingent, unliquidated or
otherwise, whether due or to become due, whether known or unknown, and
regardless of when asserted) arising out of transactions or events heretofore
entered into, or any action or inaction, or any state of facts existing, with
respect to or based upon transactions or events heretofore occurring, except (i)
as reflected in the Latest Balance Sheet, (ii) liabilities which have arisen
after the date of the Latest Balance Sheet in the ordinary course of business
(none of which is a material uninsured liability for breach of contract, breach
of warranty, tort, infringement, claim or lawsuit), none of which exceed $5,000
individually or $20,000 in the aggregate, or (iii) as otherwise set forth in the
Disclosure Schedule under the caption referencing this Section 3.07.
3.08 No Material Adverse Changes. Since the date of the Latest
Balance Sheet (the "Balance Sheet Date"), there has been no change in the
Company which change has had or, with the passage of time, is reasonably likely
to have, a Material Adverse Effect.
3.09 Absence of Certain Developments. Since the Latest Balance Sheet
Date, other than as described in the Disclosure Schedule under the caption
referencing this Section 3.09, the Company has not and the Stockholders have not
on behalf of the Company:
(a) borrowed any amount or incurred or become subject to any
liability for borrowed money in excess of $5,000 in the aggregate, except (i)
current liabilities incurred in the ordinary course of business and (ii)
liabilities under contracts entered into in the ordinary course of business,
none of which liabilities exceeds $5,000 individually or $20,000 in the
aggregate;
(b) mortgaged, pledged or subjected to any lien, charge or any
other encumbrance, any of the assets of the Company with a fair market value in
excess of $5,000 individually or $20,000 in the aggregate except (i) liens for
current taxes not yet due and payable, (ii) liens imposed by law and incurred in
the ordinary course of business for obligations not yet due to carriers,
warehousemen, laborers, materialmen and the like, (iii) liens in respect of
pledges or deposits under workers' compensation laws or (iv) liens set forth
under the caption referencing this Section 3.09 in the Disclosure Schedule
(collectively, the "Permitted Liens");
(c) discharged or satisfied any lien or encumbrance or paid
any liability, in each case with a value in excess of $5,000, other than current
liabilities paid in the ordinary course of business;
(d) sold, assigned or transferred (including, without
limitation, transfers to any employees, affiliates or stockholders) any tangible
assets of its business except sales of inventory in the ordinary course of
business;
(e) sold, assigned or transferred (including, without
limitation, transfers to any employees, affiliates or stockholders) any patents,
trademarks, trade names, copyrights, trade secrets or other intangible assets,
except for any software licenses in the ordinary course of business;
(f) disclosed, to any person other than Parent and authorized
representatives of Parent, any proprietary confidential information, other than
pursuant to a confidentiality agreement prohibiting the use or further
disclosure of such information, which agreement is identified in the Disclosure
Schedule under the caption referencing this Section 3.09 and is in full force
and effect on the date hereof;
(g) waived any rights of material value or suffered any
extraordinary losses or adverse changes in collection loss experience, whether
or not in the ordinary course of business or consistent with past practice;
(h) taken any other action or entered into any other
transaction other than in the ordinary course of business and in accordance with
past custom and practice, or entered into any transaction with any "insider" (as
defined in Section 3.22 hereof) other than employment arrangements otherwise
disclosed in this Agreement and the Disclosure Schedule, or the transactions
contemplated by this Agreement;
(i) suffered any material theft, damage, destruction or loss
of or to any property or properties owned or used by it, whether or not covered
by insurance;
(j) entered into or modified any employment, severance or
similar agreements or arrangements with or granted any bonuses, salary or
benefits increases, severance or termination pay to, any officer or employee, or
consultant;
(k) adopted or amended any bonus, profit sharing,
compensation, stock option, pension, retirement, deferred compensation,
employment or other employee benefit plan, trust, fund or group arrangement for
the benefit or welfare of any employees or any bonus, profit sharing,
compensation, stock option, pension, retirement, deferred compensation,
employment or other employee benefit plan, agreement, trust, fund or
arrangements for the benefit or welfare of any employee, officer, director or
affiliate, other than as is required or advisable to comply with changes in
applicable law;
(l) made any capital expenditure or commitment therefor in
excess of $5,000 individually or $10,000 in the aggregate;
(m) made any loans or advances to, or guarantees for the
benefit of, any persons;
(n) acquired (by merger, exchange, consolidation, acquisition
of stock or assets or otherwise) any corporation, partnership, limited liability
company, joint venture or other business organization or division or material
assets thereof;
(o) accelerated, beyond the normal cycle, collection of
accounts receivable;
(p) allowed any accounts payable owed to trade creditors to
remain outstanding more than 45 days, unless disputed in good faith;
(q) accrued, declared or paid any dividends or other
distributions with respect to any shares of the capital stock of the Company or
redeemed or purchased, directly or indirectly, any shares of capital stock or
any outstanding options or other rights to acquire any of such stock;
(r) issued, sold or transferred any of its equity securities,
securities convertible into or exchangeable for its equity securities or
warrants, options or other rights to acquire its equity securities, or any bonds
or debt securities;
(s) made charitable contributions or pledges in excess of
$1,000 individually, or $5,000 in the aggregate; or
(t) took or agreed to take in writing, or otherwise took any
of the actions described above.
3.10 Title to Properties.
(a) The Company does not own any real property. The real
property demised by the leases (the "Leases") described under the caption
referencing this Section 3.10 in the Disclosure Schedule constitutes all of the
real property rented, used or occupied by the Company in connection with its
business (the "Real Property"). The Real Property has direct access, to public
roads and to all utilities, including electricity, sanitary sewer, water,
natural gas and other utilities.
(b) The Leases are in full force and effect and the Company
holds a valid and existing leasehold interest under each of their respective
Leases for the term set forth under such caption in the Disclosure Schedule. The
Company has delivered to Parent complete and accurate copies of each of its
Leases, and none of the Leases has been modified in any respect, except to the
extent that such modifications are disclosed by the copies delivered to the
Company. The Company is not in default in any material respect, and no
circumstances exist which, if unremedied, would, either with or without notice
or the passage of time or both, result in such default under any of the Leases;
nor, to the knowledge of the Company and the Stockholders, is any other party to
any of the Leases in default in any material respect thereunder.
(c) The Company owns good and marketable title to each of the
tangible properties and tangible assets reflected on the Latest Balance Sheet or
acquired since the date thereof, free and clear of all liens and encumbrances,
except for (i) liens set forth under the caption referencing this Section 3.10
in the Disclosure Schedule, (ii) the Real Property subject to the Leases, (iii)
personal property used by the Company and subject to lease, all of which leases
are identified in the Disclosure Schedule under the caption referencing this
Section 3.10, and (iv) assets disposed of since the date of the Latest Balance
Sheet in the ordinary course of business.
(d) The Disclosure Schedule, under the caption referencing
this Section 3.10, sets forth a description of all the assets of the Company
which constitute equipment, machinery, motor vehicles, furniture, fixtures,
furnishings and leasehold improvements with a net book value in excess of $2,500
individually. Except as otherwise described in the Disclosure Schedule under the
caption referencing this Section 3.10, all of the buildings, machinery,
equipment and other tangible assets that are necessary for the conduct of its
business are in good condition and repair, ordinary wear and tear excepted with
respect to all of such assets, and are usable in the ordinary course of
business. The Company owns, or leases under valid leases, all buildings,
machinery, equipment and other tangible assets necessary for the conduct of its
business as currently conducted.
(e) To the Company's knowledge, the Company is not in
violation in any material respect of any applicable zoning ordinance or other
law, regulation or requirement relating to the operation of any properties used
in the operation of its business, and the Company is not aware of any such
violation, or the existence of any threatened or actual condemnation proceeding
with respect to any of the Real Property, except, in each case, with respect to
violations the potential consequences of which do not or are not reasonably
likely, individually or in the aggregate, to have a Material Adverse Effect.
3.11 Accounts Receivable. All of the accounts receivable of the
Company are valid and legally binding, represent bona fide transactions and
arose in the ordinary course of business. None of such accounts receivable are
subject to valid counterclaims or setoffs, and all are collectible in accordance
with their terms, except to the extent of any bad debt reserves reflected on the
Latest Balance Sheet.
3.12 Inventory. The Company's inventory of supplies, work in process
and finished products relating to its business consists of items of a quality
and quantity usable and, with respect to finished products only, salable at the
Company's normal profit levels, in each case, in the ordinary course of its
business. The Company has on hand or has ordered and expects timely delivery of
such quantities of supplies as are reasonably required to maintain the
manufacture and shipment of the Company's products at their normal production
levels.
3.13 Tax Matters.
(a) The Company and any Plans (as defined in Section 3.20
hereof), as the case may be (each, a "Tax Affiliate" and, collectively, the "Tax
Affiliates"), has: (i) timely filed (or has had timely filed on its behalf) all
returns, declarations, reports, estimates, information returns, and statements
("Returns") required to be filed or sent by it in respect of any Taxes (as
defined in subsection (j) below) due or payable on or prior to the date hereof
or required to be filed or sent by it by any taxing authority having
jurisdiction, which Returns are true and correct and have been completed in
accordance with applicable law; (ii) timely and properly paid (or has had paid
on its behalf) all Taxes payable with respect to such Returns and/or the periods
to which such Returns pertain; (iii) complied with all applicable laws, rules,
and regulations relating to the withholding of Taxes and the payment thereof
(including, without limitation, withholding of Taxes under Sections 1441 and
1442 of the Code, or similar provisions under any foreign laws), and timely and
properly withheld from individual employee wages and paid over to the proper
governmental authorities all amounts required to be so withheld and paid over
under all applicable laws.
(b) There are no liens for Taxes upon any of the assets,
except liens for Taxes not yet due.
(c) The Company has not been delinquent in the payment of any
Tax. No deficiency for any Taxes has been proposed, asserted or assessed against
the Company or the Tax Affiliates that has not been resolved and paid in full.
No waiver, extension or comparable consent given by the Company or the Tax
Affiliates regarding the application of the statute of limitations with respect
to any Taxes or Returns is outstanding, nor is any request for any such waiver
or consent pending. There has been no Tax audit or other administrative
proceeding or court proceeding with regard to any Taxes or Returns, nor is any
such Tax audit or other proceeding pending, nor has there been any notice to the
Company by any Taxing authority regarding any such Tax, pending audit or other
pending proceeding, or, to the knowledge of the Company and the Stockholders, is
any such Tax audit or other proceeding threatened with regard to any Taxes or
Returns. The Company expects no assessment of any additional Taxes on the
Company or the Tax Affiliates and is not aware of any unresolved questions,
claims or disputes concerning the liability for Taxes on the Company or the Tax
Affiliates which would exceed the estimated reserves established on its books
and records.
(d) Neither the Company nor any Tax Affiliate is a party to
any agreement, contract or arrangement that would result, separately or in the
aggregate, in the payment of any "excess parachute payments" within the meaning
of Section 280G of the Code and the consummation of the transactions
contemplated by this Agreement will not be a factor causing payments to be made
by the Company or any Tax Affiliate that are not deductible (in whole or in
part) under Section 280G of the Code.
(e) Neither the Company nor any Tax Affiliate has requested
any extension of time within which to file any Return, which Return has not
since been filed.
(f) The Company has no liabilities for unpaid Taxes which have
not been accrued or reserved against in the Annual Financial Statements, whether
asserted or unasserted, contingent or otherwise, and the Company has not
incurred any liability for Taxes since the date of the Latest Balance Sheet
other than in the ordinary course of business consistent with past practice.
(g) The Company and any Tax Affiliate have provided to Parent
copies of all federal and state income and all state sales and use Tax Returns
for the last three (3) calendar years.
(h) The Company has (i) never been a member of an affiliated
group (within the meaning of Code Section 1504(a)) filing a consolidated federal
income Tax Return (other than a group the common parent of which was Company)
and (ii) no liability for the Taxes of any person (other than Company or any of
its Subsidiaries) under Treasury Regulation Section 1.1502-6 (or any similar
provision of state, local or foreign law), as a transferee or successor, by
contract, or otherwise.
(i) The Company is not a party to any tax sharing,
indemnification or allocation agreement and does not owe any amount under any
such agreements.
(j) For purposes of this Agreement, the term "Tax" or "Taxes"
means all taxes, charges, fees, levies, or other assessments, including, without
limitation, all net income, gross income, gross receipts, sales, use, ad
valorem, transfer, franchise, profits, license, withholding, payroll,
employment, social security, unemployment, disability, workers' compensation,
excise, estimated, severance, stamp, occupation, property, or other taxes,
customs duties, fees, assessments, or charges of any kind whatsoever, including,
without limitation, all interest and penalties thereon, and additions to tax or
additional amounts imposed by any taxing authority, domestic or foreign, upon
either the Company or any Tax Affiliate.
3.14 Contracts and Commitments.
(a) The Disclosure Schedule, under the caption referencing
this Section 3.14, lists the following agreements, whether oral or written, to
which the Company is a party and, which are currently in effect (the
"Contracts"):
(i) collective bargaining agreement or contract with
any labor union;
(ii) bonus, pension, profit sharing, retirement or
other form of deferred compensation plan, other than as described under the
caption referencing Section 3.20 hereof in the Disclosure Schedule;
(iii) hospitalization insurance or other welfare benefit
plan or practice, whether formal or informal, other than as described under the
caption referencing Section 3.20 hereof in the Disclosure Schedule;
(iv) stock purchase or stock option plan;
(v) contract for the employment of any officer,
individual employee or other person on a full-time or consulting basis or
relating to severance pay for any such person;
(vi) confidentiality or nondisclosure agreement,
excluding non-exclusive license agreements entered into in the ordinary course
of business;
(vii) contract, agreement or understanding relating to
the voting of any of the Company Common Stock or the election of directors of
the Company;
(viii) agreement or indenture relating to the borrowing
of money or to mortgaging, pledging or otherwise placing a lien (other than a
purchase money security lien) on any of the assets of the Company;
(ix) guarantee of any obligation for borrowed money or
otherwise;
(x) lease or agreement under which it is lessee of, or
holds or operates any property, real or personal, owned by any other party for
which the annual rental exceeds $5,000;
(xi) lease or agreement under which it is lessor of, or
permits any third party to hold or operate, any property, real or personal for
which the annual rental exceeds $5,000;
(xii) contract or group of related contracts with the
same party for the purchase of products or services under which the undelivered
balance of such products or services is in excess of $5,000;
(xiii) contract or group of related contracts with the
same party for the sale of products or services under which the undelivered
balance of such products or services has a sales price in excess of $5,000;
(xiv) contract or group of related contracts with the
same party (other than any contract or group of related contracts for the
purchase or sale of products or services) continuing over a period of more than
six months from the date or dates thereof, not terminable by it on 30 days' or
less notice without penalty and involving more than $5,000;
(xv) contract which prohibits the Company from freely
engaging in business anywhere in the world;
(xvi) contract for the distribution of any of the
products of the Company (including any distributor, sales and original equipment
manufacturer contract);
(xvii) license agreement or other agreement providing
for the payment or receipt of royalties or other compensation by the Company in
connection with the intellectual property rights listed under the caption
referencing Section 3.15 hereof in the Disclosure Schedule;
(xviii) contract or commitment for capital expenditures
in excess of $5,000 individually;
(xix) agreement for the sale of any capital asset with
a net book value in excess of $5,000;
(xx) all contracts terminable by the other party
thereto upon a change of control of the Company or upon the failure of the
Company to satisfy financial or performance criteria specified in such contract
as provided therein; or
(xxi) other agreement which is either material to the
Company or was not entered into in the ordinary course of business.
(b) The Company has performed in all material respects all
obligations required to be performed by it in connection with the Contracts and
is not in receipt of any claim of default under any such Contract or is aware of
any basis for such claim. The Company does not have a present expectation or
intention of not fully performing any material obligation pursuant to any
Contract other than the failure to obtain any consents required by any third
parties to the assignment of such Contracts or to the change of control upon the
Merger, neither of which shall not be deemed to be a breach hereunder. Neither
the Company nor the Stockholders have any knowledge of any breach or anticipated
breach by any other party to any Contract.
(c) Prior to the date of this Agreement, to the knowledge of
the Company and the Stockholders, Parent has been supplied with a true and
complete copy of each written Contract, and a written description of each oral
Contract, together with all amendments, waivers or other changes thereto.
3.15 Intellectual Property Rights.
(a) Definitions.
(i) "Copyrights" shall mean rights in original
works of authorship including, without limitation, computer programs, as
those terms are used in 17 U.S.C. ss.101 et seq., and rights under
corresponding foreign laws.
(ii) "Intellectual Property Rights" shall mean the
Copyrights, Patent Rights, Trademarks and Trade Secrets that are owned or
controlled by the Company or the Stockholders on the Effective Date.
(iii) "Know-How" shall mean proprietary information
contained in (A) design documents, (B) specifications and performance criteria,
(C) operating instructions and maintenance manuals, (D) source and object code
copies of the Owned Software in electronic and printed forms, (E) designs for
Software Systems, (F) computer software tools owned by the Company and related
documentation, including, without limitation, source and object code copies
therefor in electronic and printed forms, (G) prototypes, models or samples, (H)
files related to the Owned Software and Software Systems of the Company stored
on any storage device or media that is under the control of the Company or the
Stockholders, (I) files relating to applications for Intellectual Property
Rights and (J) all other tangible proprietary materials used in or held for use
in connection with the Owned Software or the business of the Company, or
otherwise related to the Company, as of the Effective Date.
(iv) "Licensed Software" shall mean all software and
all software design tools used or intended for use by the Company under license
(or for which the Company has a right to reproduce and distribute copies),
including without limitation those identified in the Disclosure Schedule under
the caption referencing this Section 3.15(a)(iv).
(v) "Owned Software" shall mean the computer
programs that the Company or the Stockholders has developed, is developing or
plans to develop, or has marketed, is marketing or plans to market, exclusive of
any Licensed Software, in connection with the operation of the Company as
presently conducted or presently planned to be conducted, including without
limitation those which are identified in the Disclosure Schedule under the
caption referencing this Section 3.15(a)(v).
(vi) "Owned Software Documentation" shall mean the
manuals and specifications for the Owned Software or Software Systems, which
documentation is identified in the Disclosure Schedule under the caption
referencing this Section 3.15(a)(vi).
(vii) "Patent Rights" shall mean the rights provided
by a United States or foreign patent, including renewals, reissues,
reexaminations or extensions thereof, and on any applications for the foregoing,
including any divisions, continuations and continuations-in-part thereof filed
by the Company or the Stockholders on or before the Effective Date, including
without limitation those identified in the Disclosure Schedule under the caption
referencing this Section 3.15(a)(vii).
(viii) "Software Systems" shall mean any
combination developed by the Company or its Stockholders of the Owned Software
and Licensed Software, whether or not used with third party hardware, firmware
or software, except for customer installed and implemented third party software.
(ix) "Trade Secrets" shall mean all proprietary
information that is used or held by the Company or the Stockholders and that (A)
derives independent economic value, actual or potential, from not being
generally known to, and not being readily ascertainable through proper means by,
third parties who can obtain economic value from its disclosure or use and (B)
is the subject of efforts by the Company or the Stockholders that have been
reasonable under the circumstances to maintain its secrecy, such as, without
limitation, source and object code, software documentation, computer program
designs, and information regarding future business opportunities.
(x) "Trademarks" shall mean trade names,
trademarks, service marks, trade dress, product configurations, and domain names
that are used or intended to be used by the Company or the Stockholders and all
(A) goodwill and common law rights associated therewith, (B) registration
applications pending thereon in any state and in any country and (C)
registrations issued thereon in any state and in any country including, but not
limited to, those tradenames, trademarks, service marks or domain names
identified in the Disclosure Schedule under the caption referencing this Section
3.15(a)(x).
(b) Representations and Warranties.
(i) The Company owns or has the exclusive right to
use the Intellectual Property Rights and the Know-How and has the right to
disclose all the Know-How to Parent. The Company has taken all reasonable action
to protect the Intellectual Property Rights, including without limitation, use
of reasonable secrecy measures to protect the Trade Secrets included in the
Intellectual Property Rights. All source code in the Owned Software is
reasonably protected as a Trade Secret and all object code in the Owned Software
has been distributed pursuant to a valid license prohibiting reverse engineering
and providing that the rights in such object code shall remain with the Company,
except as may be disclosed in Schedule 3.15(b)(i).
(ii) The Intellectual Property Rights together with
the third party rights licensed to the Company under the Licensed Software
agreements comprise all intellectual property rights used or held for use by the
Company in, and constitute all intellectual property rights necessary for the
conduct of, the business of the Company as presently conducted or presently
planned to be conducted. As of the Closing, all Intellectual Property Rights
owned or developed by the Stockholders has been fully and irrevocably
transferred to the Company, and the Stockholders represent and warrant that, as
of the Closing, they will have no ownership rights in the Intellectual Property
Rights independent of the Company.
(iii) The Intellectual Property Rights do not
infringe, misappropriate or violate the intellectual property rights of any
third party. No claim by any third party contesting the validity or
enforceability of any Intellectual Property Rights has been made or threatened,
and the Company has not received any notice of and neither the Company nor the
Stockholders has knowledge of any facts suggesting any infringement,
misappropriation or violation by others of any Intellectual Property Rights.
(iv) The products and services offered by the
Company, the Company's products under development, and the Company's development
activities have not resulted in the infringement, violation, illicit copying or
misappropriation by the Company of any third party intellectual property rights,
and no such infringement, violation, illicit copying, or misappropriation by the
Company will result with respect to Parent's continuing operation of the
business of the Company as now conducted or as presently planned to be
conducted.
(v) The Licensed Software listed in the Disclosure
Schedule under the caption referencing Section 3.15(a)(iv) constitutes all
software for which the Company has obtained a license to use the intellectual
property rights of third parties in exchange for a royalty or any other
consideration. Except for the licenses for Licensed Software listed in the
Disclosure Schedule under the caption referencing Schedule 3.15(a)(iv) and other
than "shrink-wrap" commercial software, there are no other agreements requiring
the Company to make payments or provide any consideration for, or restricting
the Company's right to use, any intellectual property rights of third parties.
Except as set forth on the Disclosure Schedule under the caption referencing
this Section 3.15(b)(v), there is no software or equipment of any kind needed in
order to make the Owned Software and Software Systems fully operational and
capable of performing in accordance with their specifications for the Company's
customers in all material respects.
(vi) The Company owns, has the unrestricted right to
use and has sole and exclusive possession of and has good and valid title to, or
sufficient license or other rights to, all of the Intellectual Property Rights,
free and clear of any lien, encumbrance, security interest, charge, mortgage,
option, pledge, or restriction on transfer of any nature whatsoever, except as
disclosed in Schedule 3.15(b)(vi).
(vii) The Intellectual Property Rights are in
compliance with formal legal requirements (including the payment of filing,
examination and maintenance fees and proofs of use), are valid and enforceable.
Neither the Company nor the Stockholders has applied for or obtained any
Patents. No Trademarks have been or are involved in any opposition, invalidation
or cancellation proceeding and, to the knowledge of Company and the
Stockholders, there is no basis for the commencement of any such proceeding. The
Trademarks are valid and enforceable, and to the knowledge of the Company and
the Stockholders, no infringement is taking place.
(viii) Except as set forth in the Disclosure
Schedule under the caption referencing this Section 3.15(b)(viii), the Company
is not obligated or under any liability whatsoever to make any payments by way
of royalties, fees or otherwise to any owner of, or licensor of, or other
claimant to, any Intellectual Property Rights or any third party intellectual
property rights.
(ix) Except as set forth in the Disclosure Schedule
under the caption referencing this Section 3.15(b)(ix), all current and former
employees, contractors and consultants of the Company who have ever been
involved in the technical or scientific aspects of the business of the Company
have executed written agreements with the Company which assign to the Company
all rights to any inventions, improvements, or discoveries of information made
by them during their service to the Company. To the knowledge of the Company and
the Stockholders, no employee, contractor or consultant of the Company has
entered into any agreement which restricts or limits in any way the scope or
type of work in which such employee, contractor or other consultant may be
engaged or requires such employee, contractor, or consultant to transfer,
assign, or disclose information concerning such employee's, contractor's, or
consultant's work to anyone other than the Company.
3.16 Software Warranties. Specifically with respect to the Owned
Software and without limiting Section 3.15 hereof, the Company hereby represents
and warrants as follows:
(a) The Company is the sole proprietor of the Owned Software
and the sole proprietor or a licensee of the Software Systems and has not
granted to any third party any license for or access to the Owned Software or
Software Systems other than object code licenses to end-users or licenses
authorizing the distribution of such object code licenses to such end-users
(directly or through intermediary distributors);
(b) The Company has the full power and authority to exploit
commercially all rights in the Owned Software or (to the extent permitted under
the third party license agreements for the Licensed Software) the Software
Systems and has never previously assigned, transferred or otherwise encumbered
these rights other than non-exclusive object code licenses to end-users or
non-exclusive licenses authorizing to distribution of such object code licenses
to such end-users (directly or through intermediary distributors, all of which
are set forth on the Disclosure Schedule under the caption referencing this
Section 3.15(b));
(c) No portion of the Owned Software has been obtained from or
copied from public domain software, nor put in the public domain by the Company.
As used in this paragraph (c), "public domain" shall mean copyrightable material
for which the copyright or any other intellectual property right therein has
been disclaimed by the owner thereof so that such materials are free to be used
without restriction and without accounting to such owner;
(d) The Owned Software or Software Systems and the
reproduction, distribution, preparation of derivative works based upon,
performance of or display of the Owned Software do not infringe any statutory or
common law copyright;
(e) The Disclosure Schedule, under the caption referencing
this Section 3.16(e), lists all computer programs and modules comprising the
Owned Software and Software Systems;
(f) The Owned Software and the reproduction, preparation of
derivative works based upon, performance of or display of the Owned Software and
its use in the conduct of the business of the Company as now conducted does not
infringe or violate any intellectual property right of any third party;
(g) The Owned Software and Software Systems delivered, or
tested and ready to be delivered, to customers of the Company are free from
defects interfering with the operation of such Owned Software or Software
Systems for their intended purpose (except for such defects which, in the
ordinary course of the business of the Company consistent with the past practice
of the Company, would be corrected by the Company without extraordinary cost)
and contain no errors or defects which could result in the catastrophic or
substantial failure of a telecommunications transmission system of which they
are a part, and such Owned Software and Software Systems are free from viruses,
worms, trojan horses or other such "foreign" code which could interrupt normal
processing, corrupt data, render such software unusable or otherwise materially
interfere with the operations of such Owned Software or Software Systems or
associated software or equipment, except that the Owned Software or Software
Systems may include a "license manager" that protects against improper copying
or use and that provides time and capacity controls if so programmed;
(h) The Company has full and exclusive control of the source
code for the Owned Software and Software Systems (other than Licensed Software
contained therein), except as set forth in the Disclosure Schedule referencing
this Section 3.16(h); and
(i) The Company's use of the Licensed Software, including the
reproduction, distribution, preparation of derivative works based upon,
performance of or display of the Licensed Software, do not infringe any
statutory or common law copyright or violate or breach any terms of any
agreement applicable thereto.
3.17 Litigation. There are no material actions, suits, proceedings,
orders or investigations pending or, to the knowledge of the Company and the
Stockholders, threatened against the Company, at law or in equity, or before or
by any federal, state, municipal or other governmental department, commission,
board, bureau, agency or instrumentality, domestic or foreign, and there is no
reasonable basis known to the Company or the Stockholders for any of the
foregoing.
3.18 Warranties. The Disclosure Schedule summarizes under the
caption referencing this Section 3.18 all claims outstanding, pending or, to the
knowledge of the Company and the Stockholders threatened for breach of any
warranty relating to any products sold by the Company prior to the date hereof.
The description of the Company's product warranties set forth under the caption
referencing this Section 3.18 is correct and complete. The reserves for warranty
claims on the Latest Balance Sheet are consistent with the Company's prior
practices and are fully adequate to cover all warranty claims made or to be made
against any products of the Company sold prior to the date hereof.
3.19 Employees.
(a) Except as set forth in the Disclosure Schedule under the
caption referencing this Section 3.19:
(i) to the knowledge of the Company and the
Stockholders, no officer, manager or any employee listed as a "significant
employee" on the Disclosure Schedule referencing this Section 3.19
(collectively, "Significant Employees") of the Company and no group of the
Company's employees has any plans to terminate his, her or its employment; (ii)
the Company has substantially complied with all laws relating to the employment
of labor, including provisions thereof relating to wages, hours, equal
opportunity, collective bargaining and the payment of social security and other
taxes; (iii) the Company has no material labor relations problem pending and its
labor relations are satisfactory; (iv) there are no workers' compensation claims
pending against the Company nor is the Company aware of any facts that would
give rise to such a claim; (v) to the knowledge of the Company and the
Stockholders, no employee is subject to any secrecy or noncompetition agreement
or any other agreement or restriction of any kind that would impede in any way
the ability of such employee to carry out fully all activities of such employee
in furtherance of the business of the Company; (vi) no employee or former
employee of the Company has any claim with respect to any Intellectual Property
Rights of the Company; and (vii) no employee or, to the best knowledge of the
Company and the Stockholders, former employee has worked or is working for a
direct competitor of the Company, with or on a product that is in competition
with or derived from or similar to a present or past product of the Company. The
Disclosure Schedule, under the caption referencing this Section 3.19, lists, as
of the date set forth in the Disclosure Schedule, each employee who performs
functions in connection with the business and the position, title, remuneration
(including any scheduled salary or remuneration increases), date of employment
and accrued vacation pay of each such employee.
3.20 Employee Benefit Plans.
(a) "ERISA" means the Employee Retirement Income Security Act
of 1974, as amended, and "Plan" means every plan, fund, contract, program and
arrangement (whether written or not) which is maintained or contributed to by
the Company for the benefit of present or former employees or with respect to
which the Company otherwise has current or potential liability. "Plan" includes
any arrangement intended to provide: (i) medical, surgical, health care,
hospitalization, dental, vision, workers' compensation, life insurance, death,
disability, legal services, severance, sickness, accident, or cafeteria plan
benefits (whether or not defined in Section 3(1) of ERISA), (ii) pension, profit
sharing, stock bonus, retirement, supplemental retirement or deferred
compensation benefits (whether or not tax qualified and whether or not defined
in Section 3(2) of ERISA), (iii) bonus, incentive compensation, stock option,
stock appreciation right, phantom stock or stock purchase benefits, change in
control benefits or (iv) salary continuation, unemployment, supplemental
unemployment, termination pay, vacation or holiday benefits (whether or not
defined in Section 3(3) of ERISA). Section 3.20 of the Disclosure Schedule sets
forth all Plans by name and brief description identifying: (i) the type of Plan,
including a specific reference to any Plan which provides benefits (or increased
benefits or vesting) as a result of a change in control of the Company, (ii) the
funding arrangements for the Plan, (iii) the sponsorship of the Plan, and (iv)
the participating employers in the Plan.
(b) To the extent required (either as a matter of law or to
obtain the intended tax treatment and tax benefits), all Plans comply with the
requirements of ERISA and the Code. With respect to the Plans, (i) all required
contributions which are due have been made and recorded on the books and records
of the Company for all future contribution obligations; (ii) there are no
actions, suits or claims pending, other than routine uncontested claims for
benefits; and (iii) there have been no prohibited transactions (as defined in
Section 406 of ERISA or Section 4975 of the Code). Except as otherwise disclosed
in the Disclosure Schedule under the caption referencing this Section 3.20(b),
all benefits under the Plans are payable either through a fully-funded trust or
an insurance contract and no Plan is self-funded.
(c) Parent has received true and complete copies of (i) all
Plan documents, including related trust agreements or funding arrangements; (ii)
the most recent determination letter, if any, received by the Company from the
IRS regarding the Plans and any amendment to any Plan made subsequent to any
Plan amendments covered by any such determination letter; (iii) the most recent
financial statements for the Plans; (iv) the most recently prepared actuarial
valuation reports; (v) any current summary plan descriptions; (vi) annual
returns/reports on Form 5500 and summary annual reports for each of the most
recent three plan years; (vii) any filings (including drafts of intended
filings) with the IRS or the Department of Labor ("DOL") within the last three
years preceding the date of this Agreement; and (viii) any material
correspondence to or from the IRS or DOL within the last three years preceding
the Effective Date in connection with any Plan. To the knowledge of the Company
and the Stockholders, nothing has occurred that could adversely affect the
qualification of the Plans and their related trusts.
(d) The Company does not maintain or contribute to (and has
never contributed to) any multi-employer plan, as defined in Section 3(37) of
ERISA. The Company has no actual or potential liabilities under Title IV of
ERISA, including under Section 4201 of ERISA for any complete or partial
withdrawal from a multi-employer plan.
(e) The Company has no actual or potential liability for death
or medical benefits after separation from employment, other than (i) death
benefits under the employee benefit plans or programs (whether or not subject to
ERISA) set forth in Section 3.20 of the Disclosure Schedule and (ii) health care
continuation benefits described in Section 4980B of the Code.
(f) Neither the Company nor any of its directors, officers,
employees or other "fiduciaries", as such term is defined in Section 3(21) of
ERISA, has committed any breach of fiduciary responsibility imposed by ERISA or
any other applicable law with respect to the Plans which would subject the
Company, Parent or any of their respective directors, officers or employees to
any material liability under ERISA or any applicable law.
(g) There are no other trades or businesses, whether or not
incorporated, which, together with the Company, would be deemed to be a "single
employer" within the meaning of Code Sections 414(b), (c) or (m).
(h) Except with respect to Taxes on benefits paid or provided,
no Tax has been waived or excused, has been paid or is owed by any person
(including, but not limited to, any Plan, any Plan fiduciary or the Company)
with respect to the operations of, or any transactions with respect to, any
Plan. No action has been taken by the Company, nor has there been any failure by
the Company to take any action, nor is any action or failure to take action
contemplated by the Company (including all actions contemplated under this
Agreement), that would subject any person or entity to any liability or Tax
imposed by the IRS or DOL in connection with any Plan. No reserve for any Taxes
has been established with respect to any Plan by the Company nor has any advice
been given to the Company with respect to the need to establish such a reserve.
(i) There are no (i) legal, administrative or other
proceedings or governmental investigations or audits, or (ii) complaints to or
by any Governmental Entity, which are pending, anticipated or, to the knowledge
of the Company and the Stockholders, threatened, against any Plan or its assets,
or against any Plan fiduciary or administrator, or against the Company or its
officers or employees with respect to any Plan.
(j) There are no leased employees, as defined in Section
414(n) of the Code, providing services to the Company, that must be taken into
account with respect to the requirements under Section 414(n)(3) of the Code.
(k) Each Plan may be terminated directly or indirectly by its
then-current sponsor, the Parent and the Company, as applicable, in its sole
discretion, at any time before or after the Effective Date in accordance with
its terms, without causing the Parent or the Company to incur any liability to
any person, entity or government agency for any conduct, practice or omission of
the Company which occurred prior to the Effective Date, except for liabilities,
to and the rights of, the employees thereunder accrued prior to the Effective
Date, or if later, the time of termination, and except for continuation rights
required by the Consolidated Omnibus Budget Reconciliation Act of 1985, as
amended, or other applicable law.
3.21 Insurance. The Disclosure Schedule, under the caption
referencing this Section 3.21, lists and briefly describes each insurance policy
maintained by the Company and sets forth the date of expiration of each such
insurance policy. All of such insurance policies are in full force and effect
and are issued by insurers of recognized responsibility. The Company is not in
default with respect to its obligations under any of the insurance policies. The
Company and the Stockholders have no knowledge of any threatened termination of
any of such policies.
3.22 Affiliate Transactions. Except as disclosed in the Disclosure
Schedule under the caption referencing this Section 3.22, and other than
pursuant to this Agreement, no Stockholder, director or Significant Employee of
the Company or any member of the immediate family of any such Stockholder,
director or Significant Employee, or any entity in which any of such persons
owns any beneficial interest (other than any publicly held corporation whose
stock is traded on a national securities exchange or in the over-the-counter
market and less than one percent of the stock of which is beneficially owned by
any of such persons) (collectively "insiders"), has any agreement with the
Company (other than normal employment arrangements) or any interest in any
property, real, personal or mixed, tangible or intangible, used in or pertaining
to the business of the Company (other than ownership of capital stock of the
Company). None of the aforementioned parties has any direct or indirect interest
(other than any publicly held corporation whose stock is traded on a national
securities exchange or in the over-the-counter market and less than one percent
of the stock of which is beneficially owned by any of such persons) in any
competitor, vendor, supplier or customer of the Company or in any person, firm
or entity from whom or to whom the Company leases any property, or in any other
person, firm or entity with whom the Company transacts business of any nature.
For purposes of this Section 3.22, the members of the immediate family of a
Stockholder, director or Significant Employee shall consist of the spouse,
parents, children, siblings, mothers- and fathers-in-law, sons- and
daughters-in-law, and brothers- and sisters-in-law of such director or
Significant Employee.
3.23 Customers. The Disclosure Schedule, under the caption
referencing this Section 3.23, lists all customers under maintenance contracts
with the Company, the expiration date of such agreements, and the amount paid to
the Company by each such customer within the past twelve months. To the
knowledge of the Company and the Selling Stockholders, no customer listed on the
Disclosure Schedule under the caption referencing this Section 3.23 has
indicated that it will or may stop or materially decrease the rate of business
done with the Company.
3.24 Compliance with Laws; Permits.
(a) The Company and its officers, directors, agents and
employees have complied in all material respects with all applicable laws,
regulations and other requirements, including, but not limited to, federal,
state, local and foreign laws, ordinances, rules, regulations and other
requirements pertaining to product labeling, consumer products safety, equal
employment opportunity, employee retirement, affirmative action and other hiring
practices, occupational safety and health, workers' compensation, unemployment
and building and zoning codes, which affect the business, the assets of the
Company or the Real Property and to which the Company may be subject, and no
claims have been filed against the Company alleging a violation of any such
laws, regulations or other requirements. The Company and the Stockholders have
no knowledge of any action, pending or threatened, to change the zoning or
building ordinances or any other laws, rules, regulations or ordinances
affecting the assets of the Company or the Real Property. The Company is not
relying on any exemption from or deferral of any such applicable law, regulation
or other requirement that would not be available to the Surviving Corporation.
(b) The Company has, in full force and effect, all material
licenses, approvals, permits and certificates, from federal, state and foreign
authorities (including, without limitation, federal and state agencies
regulating occupational health and safety) and all material licenses, approvals,
permits and certificates from local authorities, in each case, necessary to
conduct its business and own and operate its assets in all material respects
(collectively, the "Permits"). A true and complete list of all the Permits is
set forth under the caption referencing this Section 3.24 in the Disclosure
Schedule. The Company has conducted its business in compliance with all material
terms and conditions of the Permits.
(c) Neither the Company nor any person representing the
Company has at any time: (i) made any payment in material violation of the
Foreign Corrupt Practices Act; or (ii) made any payment to any foreign, federal
or state governmental officer or official, or other person charged with similar
public or quasi-public duties, other than payments required or permitted by the
laws of the United States or any jurisdiction thereof.
(d) In particular, but without limiting the generality of the
foregoing, the Company has not materially violated and has no liability, and has
not received a notice or charge asserting any violation of or liability under,
the federal Occupational Safety and Health Act of 1970 or any other federal or
state acts (including rules and regulations thereunder) regulating or otherwise
affecting employee health and safety.
3.25 Bank Accounts. The Disclosure Schedule under the caption
referencing this Section 3.25 sets forth a full and complete list of all bank
accounts and safe deposit boxes of the Company, the number of each such account
or box, and the names of the persons authorized to draw on such accounts or to
access such boxes. All cash in such accounts is held in demand deposits and is
not subject to any restriction or documentation as to withdrawal.
3.26 Indemnification Obligations; Certain Proceedings. The Company
and the Stockholders have no knowledge of any action, proceeding or other event
pending or threatened against any officer or director of the Company which would
give rise to any indemnification obligation of the Company to its officers and
directors under its Certificate of Incorporation, Bylaws or any agreement
between the Company and any of its officers or directors. None of the
Stockholders has since May 1, 1993 (i) filed a petition under the Federal
bankruptcy laws or any state insolvency law, or had a receiver, fiscal agent or
similar officer appointed by a court for their business or property, or for any
partnership in which they were a general partner or any corporation or business
association of which they were an executive officer at or within two years
before such filing or (ii) been arrested, indicted or convicted in a criminal
proceeding or been named the subject of a pending criminal proceeding (excluding
traffic violations).
3.27 Brokerage. No third party shall be entitled to receive any
brokerage commissions, finder's fees, fees for financial advisory services or
similar compensation in connection with the transactions contemplated by this
Agreement based on any arrangement or agreement made by or on behalf of the
Company.
3.28 No Existing Discussions. Neither the Company, the Stockholders,
nor any director, officer, stockholder, employee or agent of the Company or the
Stockholders is engaged, directly or indirectly, in any discussions or
negotiations with any third party relating to any transaction that would be
inconsistent with the accomplishment of the Merger hereunder or the Merger, such
as any merger, consolidation, sale of assets or similar business combination
transaction involving the Company.
3.29 Closing Certificate. The Closing Working Capital set forth on
the Closing Certificate will, as of the Closing Date, (a) be derived from and be
in accordance with the books and records of the Company and (b) fairly and
accurately represent the Closing Working Capital at the Closing Date in
conformity with generally accepted accounting principles ("GAAP") and the
methodology set forth in Exhibit B attached hereto (provided; however, that if
Exhibit B expressly provides for a deviation from GAAP, such deviation shall not
be deemed to be in violation of this Section 3.29). All of the amounts included
in Closing Working Capital per items (i) of Exhibit B, representing amounts
owing from customers for goods delivered or services provided as of the Closing
Date, and (ii) of Exhibit B, representing amounts invoiced by the Company to
customers for annual maintenance agreements that have expired or will expire
within sixty (60) days of the Closing Date but which are unpaid as of the
Closing Date, will be collected by the Company within 90 days following the
Closing Date.
3.30 Disclosure. Neither this Agreement nor any of the Exhibits
hereto nor any of the documents delivered by or on behalf of the Company or the
Stockholders pursuant to Article VII hereof nor the Disclosure Schedule nor any
of the Annual and Latest Financial Statements hereof, taken as a whole, contain
any untrue statement of a material fact regarding the Company or the Business or
the transactions contemplated by this Agreement. This Agreement, the Exhibits
hereto, the documents delivered to Parent by or on behalf of the Company and the
Stockholders pursuant to Article VII hereof, the Disclosure Schedule and the
Financial Statements, taken as a whole, do not omit any material fact necessary
to make the statements contained herein or therein, in light of the
circumstances in which they were made, not misleading, and there is no fact
which has not been disclosed to Parent of which the Company or the Stockholders
is aware which has or could reasonably be anticipated to have a Material Adverse
Effect.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB
Parent and Merger Sub hereby represent and warrant to the Company
and the Stockholders that:
4.01 Incorporation and Corporate Power. Each of Parent and Merger
Sub is a corporation duly incorporated, validly existing and in good standing
under the laws of the state of its incorporation, with the requisite corporate
power and authority to enter into this Agreement and perform its obligations
hereunder. The execution, delivery and performance of this Agreement has been
duly and validly approved and authorized by Parent's Board of Directors in
compliance with applicable law (including the DGCL) and Parent's Certificate of
Incorporation.
4.02 Execution, Delivery; Valid and Binding Agreement. The
execution, delivery and performance of this Agreement by Parent and Merger Sub
and the execution of the Certificate of Merger by Merger Sub, and the
consummation of the transactions contemplated hereby and thereby have been duly
and validly authorized by all requisite corporate action, and no other corporate
proceedings on its part are necessary to authorize the execution, delivery or
performance of this Agreement or the Certificate of Merger. This Agreement has
been duly executed and delivered by Parent and Merger Sub and constitutes the
valid and binding obligation of Parent and Merger Sub, enforceable in accordance
with its terms and the Certificate of Merger, when executed and delivered by
Merger Sub, will constitute the valid and binding obligation of Merger Sub,
enforceable in accordance with its terms.
4.03 No Breach. The execution, delivery and performance of this
Agreement by Parent and Merger Sub and the consummation by Parent and Merger Sub
of the transactions contemplated hereby do not conflict with or result in any
breach of any of the provisions of, constitute a default under, result in a
violation of, result in the creation of a right of termination under the
provisions of the Articles of Incorporation or Bylaws of Parent or the
Certificate of Incorporation or Bylaws of Merger Sub or any indenture, mortgage,
lease, loan agreement or other agreement or instrument by which either Parent or
Merger Sub is bound or affected the breach, default, violation or termination of
which would result in a material adverse effect on Parent or Merger Sub. No
consent, approval, order or authorization of, or registration, declaration or
filing with, any Governmental Entity, is required by or with respect to Parent
or Merger Sub in connection with the execution and delivery of this Agreement by
Parent and Merger Sub or the consummation by Parent and Merger Sub of the
transactions contemplated hereby except for (a) the filing of the Certificate of
Merger with the Secretary of State of the State of Delaware and (b) such
consents, approvals, orders, authorizations, registrations, declarations and
filings as may be required under applicable state and federal securities laws.
4.04 Parent Common Stock. The description of the authorized capital
stock of Parent in the Parent SEC reports (as that term is defined below) is
accurate in all material respects. The shares of Parent Common Stock to be
issued pursuant to the Merger will, when issued and delivered in accordance with
this Agreement, be duly authorized, validly issued, fully paid and nonassessable
and issued pursuant to a valid exemption from registration under the Securities
Act and Regulation D promulgated thereunder; provided, however, that the Parent
Common Stock to be issued hereunder will be subject to restrictions on transfer
under applicable federal and state securities laws.
4.05 SEC Filings; Financial Statements. Parent has made or will make
available to the Company a true and complete copy of its latest Annual Report on
Form 10-K, definitive proxy statement, annual report to shareholders and all
periodic reports filed by Parent with the Securities and Exchange Commission
("SEC") since the end of Parent's last fiscal year (collectively, as
supplemented and amended since the time of filing, the "Parent SEC Reports").
The Parent SEC Reports, including all Parent SEC Reports filed after the date of
this Agreement (i) were or will be prepared in all material respects with all
applicable requirements of the Securities Act and the Exchange Act, as the case
may be, and (ii) did not at the time they were filed or will not at the time
they are filed, contain any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary in order to make
the statements therein, in light of the circumstances under which they were
made, not misleading.
ARTICLE V
COVENANTS PRIOR TO THE EFFECTIVE TIME
5.01 Conduct of Business Prior to the Effective Time. As used
herein, the term "Pre-Closing Period" means that time period beginning on the
date of this Agreement and ending upon the earlier to occur of (a) the Effective
Time and (b) the termination of this Agreement in accordance with the provisions
of Article VIII. The Company and each of the Stockholders hereby covenant and
agree with Parent that, during the Pre-Closing Period, the Company will not
enter into any transaction or agreement, make any payment, or take any action,
that is not within the ordinary course of the Company's business, consistent
with its past practices, without the prior written consent of an officer of
Parent. Without limiting the foregoing, the Company and each of the Stockholders
covenant and agree that, during the Pre-Closing Period neither the Company nor
the Stockholders (with respect to the Company) shall:
(a) take any action that would be inconsistent in any material
respects with any of its or their representations or warranties set forth in
Article III or which would be reasonably likely to cause a breach of any such
representation or warranty;
(b) sell, transfer, assign, convey, lease, license, encumber,
move, relocate or otherwise dispose of any of its assets or grant any lien,
security interest or Encumbrance on any of its assets;
(c) borrow or lend any money, or guarantee or act as a surety
for any obligation or indebtedness of any third party;
(d) materially increase or decrease its operating expenses;
(e) alter, amend or terminate any Contract or any other
contract, agreement, arrangement, commitment or undertaking to which the Company
is a party and which is material to the Business;
(f) enter into any contract, agreement, arrangement,
commitment or undertaking which could be characterized as a Contract except for
the Company's standard form(s) of end user license or the Company's standard
form of service agreement;
(g) license any Intellectual Property Rights to any third
party, except for end-user licenses of the Company's products to end-user
customers entered into in the ordinary course of the Company's business
consistent with its past practices on the terms of the Company's standard
end-user license, or enter into any other agreement that is not entered into in
the ordinary course of the Company's business, consistent with its past
practices;
(h) enter into any contract, agreement, arrangement,
commitment or undertaking for the purchase or sale of any property, real or
personal, tangible or intangible;
(i) initiate or file any lawsuit, action, arbitration or other
litigation proceeding;
(j) terminate the employment of any of its Significant
Employees;
(k) declare, set aside or pay any cash or stock dividend or
other distribution in respect of any shares of its capital stock, not redeem or
otherwise repurchase or acquire any shares of its capital stock or other
securities, not pay or distribute any cash or property to any of its
stockholders or security holders or make any other cash payment to any of its
stockholders or security holders that is not made in the ordinary course of its
business consistent with its past practices;
(l) pay, or enter into any agreement to pay, any bonus,
royalty, increased salary or special remuneration to any officer, director,
employee, consultant or stockholder, modify the salary or other compensation
payable by it to any such person or enter into any employment or consulting
agreement with any such person enter into any indemnification agreement or
agreement to advance expenses of defending any claim, suit or proceeding with
any such person;
(m) issue or sell any shares of Company's capital stock or any
other securities, and not issue, grant or create any warrants, obligations,
subscriptions, options, convertible securities, stock appreciation rights or
other commitments to issue shares of Company's capital stock;
(n) other than in connection with the Merger, merge,
consolidate or reorganize with, or acquire, or enter into any other business
combination with, or sell or transfer any of its assets or properties to, any
person or enter into any negotiations, discussions or agreement for such
purpose;
(o) make any material payments outside the ordinary course of
its business, consistent with its past practice;
(p) alter or amend the terms of any of Company's capital stock
or other securities or amend its Certificate of Incorporation or Articles of
Incorporation, as applicable, or Bylaws;
(q) waive or release any material right;
(r) change any insurance coverage or issue any certificates of
insurance (except for the planned renewal of existing policies on terms not
materially different from those in effect on the date of this Agreement);
(s) commence a lawsuit other than (i) for the routine
collection of bills, or (ii) in such cases where it in good faith determines
that the failure to commence suit would result in the material impairment of a
valuable aspect of the Business; provided that it consults with Parent before
the filing of such suit; and
(u) agree to do any of the things described in the preceding
clauses (a) through (s).
5.02 Access to Books and Records. Between the date hereof and the
Effective Time, the Company shall afford to Parent and its authorized
representatives (the "Parent Representatives") full access at all reasonable
times and upon reasonable notice to the offices, properties, books, records,
officers, employees and other items of the Company, and the work papers of the
Company's independent accountants, and otherwise provide such assistance as is
reasonably requested by Parent in order that Parent may have a full opportunity
to make such investigation and evaluation as it shall reasonably desire to make
of the business and affairs of the Company.
5.03. Share Transfers Prohibited. The Shareholders shall not
transfer or assign any shares of Company Common Stock held by them as of the
date of this Agreement, grant or convey any options, rights or other derivative
securities or interests in such shares, and shall not permit such shares to
become subject to any claims, liens or encumbrances of any kind whatsoever.
5.04 Regulatory Filings. As promptly as practicable after the
execution of this Agreement, the parties shall make or cause to be made all
filings and submissions under any laws or regulations applicable to such parties
for the consummation of the transactions contemplated herein and the Company and
the Stockholders will coordinate and cooperate with Parent (or its affiliates)
in exchanging such information necessary to make such filings.
5.05 Conditions. Each of Parent, Merger Sub, the Company and the
Stockholders shall take all commercially reasonable actions necessary or
desirable to comply promptly with all legal requirements which may be imposed on
such party with respect to the Merger and will promptly cooperate with and
furnish such information to any other party hereto in connection with any such
requirements imposed upon such other party in connection with the Merger. Each
party will take all reasonable actions to obtain (and will cooperate with the
other parties in obtaining) any consent, authorization, order or approval of or
any registration, declaration or filing with, or an exemption by any
governmental entity, or other third party, required to be obtained or made by
such party in connection with the Merger or the taking of any action
contemplated thereby or by this Agreement; provided, however, that Parent shall
not be required to agree to any divestiture by Parent or the Company or any of
Parent's subsidiaries or affiliates shares of capital stock or of any business,
assets or property of Parent or its subsidiaries or affiliates or of the Company
or its affiliates or the imposition of any material limitation on the ability of
any of them to conduct their business or to own or exercise control of such
assets, properties and stock.
5.06 No Negotiations. From and after the date of this Agreement
until the earlier to occur of the Effective Time or termination of this
Agreement pursuant to Article VIII hereof, neither the Company nor the
Stockholders shall, and the Company will instruct its officers, directors,
employees, agents, representatives and affiliates, not to, directly or
indirectly solicit, initiate or encourage submission of any proposal or offer
from any person or entity (including any of its or their officers or employees,
representatives, agents, or affiliates) relating to any liquidation,
dissolution, recapitalization, tender or exchange offer, solicitation of
proxies, merger, consolidation or acquisition or purchase of all or any material
portion of the assets of, or any equity interest in, the Company or other
similar transaction or business combination involving the Company (an
"Alternative Transaction") except as provided pursuant to this Agreement, or
participate in any discussions or negotiations regarding an Alternative
Transaction, or furnish to any other person any information with respect to an
Alternative Transaction, or otherwise cooperate in any way with, or assist or
participate in, facilitate or encourage, any effort or attempt by any other
person or entity to do or seek any of the foregoing. The Company shall promptly
notify Parent if any such proposal or offer, or any inquiry from or contact with
any person with respect thereto, is made and shall promptly provide Parent with
such information regarding such proposal, offer, inquiry or contact as Parent
may request.
5.07 Approvals and Consents. Each of the Company, the Stockholders
and Parent shall use their reasonable best efforts to obtain all consents and
approvals required to be obtained by it to carry out the transactions
contemplated by this Agreement, including all consents, waivers or approvals
under any of the Contracts in order to preserve the benefits thereunder for the
Surviving Corporation and otherwise in connection with the Merger and will
cooperate with Parent to obtain all such approvals and consents required of
Parent. All of such consents and approvals are set forth in the Disclosure
Schedule under the caption referencing Section 3.05.
5.08 Notification of Certain Matters. The Company and the
Stockholders, as the case may be, shall promptly notify Parent of (i) its or
them obtaining of knowledge as to the matters set forth in clauses (x), (y) and
(z) below, or (ii) the occurrence, or failure to occur, of any event, which
occurrence or failure to occur would be likely to cause (x) any representation
or warranty contained in this Agreement to be untrue or inaccurate in any
material respect at any time from the date hereof to the Effective Time,
including, without limitation, any Material Adverse Effect on the Company, (y)
any material failure of the Stockholders, the Company or of any officer,
director, employee or agent thereof, to comply with or satisfy any covenant,
condition or agreement to be complied with or satisfied by it under this
Agreement or (z) the institution of any claim, suit, action or proceeding
arising out of or related to the Merger or the transactions contemplated hereby;
provided, however, that no such notification shall affect the representations or
warranties of the parties or the conditions to the obligations of the parties
hereunder.
5.09 Invention Assignment and Confidentiality Agreements. The
Company and the Stockholders will use its and their reasonable best efforts to
obtain from each employee, contractor and consultant of the Company who has had
access to any software, technology or copyrightable, patentable or other
proprietary works owned or developed by the Company, or to any other
confidential or proprietary information of the Company or its clients, an
invention assignment and confidentiality agreement in a form reasonably
acceptable to Parent, duly executed by such employee, contractor or consultant
and delivered to the Company, as may be reasonably requested by Parent prior to
the Effective Time; provided, however, that Parent acknowledges and agrees that
the Company's standard form of proprietary information and inventions agreement
is reasonably acceptable to it.
5. Closing Certificate. At least two days prior to the Closing Date,
the Company will deliver to Parent a draft of the Closing Certificate.
ARTICLE VI
ADDITIONAL AGREEMENTS
6.01 Escrow Arrangements. Simultaneously with the Merger on the
Effective Date, the Parent will deposit the Escrow Amount with the Escrow Agent
(defined in the Escrow Agreement). The Escrow Agreement shall terminate on the
one year anniversary of the Effective Date (the "Escrow Period"); provided that
the Escrow Period shall not terminate with respect to all or any portion of the
Escrow Account that is subject to any pending but unresolved Claims of Parent
commenced prior to the Escrow Period. As soon as all such Claims have been
resolved, the Escrow Agent shall deliver to the Stockholders any remaining
proceeds of the Escrow Account not required to satisfy such claims, in
accordance with the provisions of the Escrow Agreement.
6.02 Further Actions. The Company and the Stockholders agree that
if, at any time after the Effective Time, Parent considers or is advised that
any further deeds, assignments or assurances are reasonably necessary or
desirable to vest, perfect, confirm or continue in Merger Sub or Parent title to
any property or rights of Company as provided herein, Parent and any of its
officers are hereby authorized by Company and the Stockholders to execute and
deliver all such proper deeds, assignments and assurances and do all other
things necessary or desirable to vest, perfect, confirm or continue title to
such property or rights in Parent or Merger Sub, and otherwise to carry out the
purposes of this Agreement, in the name of Company and the Stockholders or
otherwise; provided, however, that Parent provides written notice to the
Stockholders prior to executing or delivering any documents by or on their
behalf.
6.03 Adoption of Plan. Parent and Merger Sub shall adopt the plan of
reorganization set forth in this Agreement and otherwise comply with record
keeping, and reporting requirements contained in Treasury Regulation 1.368-3.
6.04 Preservation of Corporate Tax Treatment.
(a) (a) Continuity of Business Enterprise. Merger Sub will continue at least one
significant historic business line of the Company, or use at least a significant
portion of the Company's historic business assets in a business, in each case
within the meaning of Treas. Reg. ss. 1.368-1(d), as long as the Company has not
sold, transferred or otherwise disposed of its assets that would prevent Merger
Sub from doing so.
(b) Treatment as Forward Triangular Merger (Not a C Reorganization). Parent will
not liquidate Merger Sub or convert Merger Sub to an entity other than a
domestic corporation prior to the second anniversary date of the Effective Time.
(c) Asset and Stock Transfers. Parent has no plan or intention to sell,
exchange, transfer or otherwise dispose of any assets acquired by Merger Sub
from the Company in the Merger or the stock of Merger Sub, except for
dispositions made in the ordinary course of business or transfers described in
Section 368(a)(2)(C) of the Code, Treasury Regulation Section 1.368-2(k)(1), or
Revenue Ruling 2001-24, 2001-22 I.R.B. 1290.
ARTICLE VII
CONDITIONS TO CLOSING
7.01 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 of each of the following conditions on or
before the Effective Date:
(a) No Injunctions or Restraints. No judgment, order, decree,
statute, law, ordinance, rule or regulation entered, enacted, promulgated,
enforced or issued by any court or other Governmental Entity of competent
jurisdiction or other legal restraint or prohibition (collectively,
"Restraints") shall be in effect (i) imposing or seeking to impose limitations
on the ability of Parent to acquire or hold or to exercise full rights of
ownership of any securities of the Company; (ii) imposing or seeking to impose
limitations on the ability of Parent to combine and operate the business and
assets of the Company with any of its affiliates or other operations; (iii)
imposing or seeking to impose other material sanctions, damages, or liabilities
arising out of the Merger on Parent, Merger Sub or the Company, or any of their
officers or directors; (iv) requiring or seeking to require divestiture by
Parent of all or any portion of the business, assets, or property of the
Company; or (v) otherwise preventing the consummation of the Merger.
(b) Governmental Action. No action or proceeding shall be instituted
by any Governmental Entity seeking to prevent consummation of the Merger,
asserting the illegality of the Merger or seeking material damages in connection
with the transactions contemplated hereby which continues to be outstanding.
7.02 Additional Conditions to Parent's and Merger Sub's Obligations.
The obligation of Parent and Merger Sub to consummate the transactions
contemplated by this Agreement is subject to the satisfaction or waiver (in
Parent's sole discretion) of each of the following conditions on or before the
Effective Date:
(a) Representations and Warranties True and Correct. The
representations and warranties of the Company and the Stockholders set forth in
Article III hereof shall be true and correct in all material respects at and as
of the Effective Date as though then made and as though the Effective Date had
been substituted for the date of this Agreement throughout such representations
and warranties (without taking into account any disclosures by the Company or
the Stockholders of discoveries, events or occurrences arising on or after the
date hereof);
(b) Covenants Performed. The Company and the Stockholders
shall have performed in all material respects all of the covenants and
agreements required to be performed and complied with by them under this
Agreement prior to the Closing;
(c) Consents Obtained. The Company shall have obtained, or
caused to be obtained, each consent and approval referred to in Section 5.05
hereof;
(d) No Material Adverse Change. Between the date of this
Agreement and the Effective Date, there shall not have occurred any change with
respect to the business, assets, properties, condition (financial or otherwise),
results of operations or prospects of the Company which would result in or would
be reasonably likely to have a Material Adverse Effect, whether or not resulting
from a breach in any representation, warranty or covenant contained herein;
(e) No Litigation. No suit, claim, cause of action,
arbitration, investigation or other proceeding with be pending or threatened
which contests, challenges or seeks to alter, enjoin or adversely affect the
Merger, the Merger or any other transaction contemplated hereby, or threatens to
impose material limitations on Parent's right (or the right of any Subsidiary of
Parent) to own, retain, use or operate any of its products, properties or assets
(including equity, properties or assets of Company on or after consummation of
the Merger or seeking a material disposition or divestiture of any such
properties or assets. In addition, no suit, claim, cause of action, arbitration,
investigation or other proceeding will be pending or threatened which in any
manner seeks to hold Parent liable for any actions, omissions or liabilities of
the Company.
(f) Opinion of Company Counsel. Parent and Merger Sub shall
have received from counsel for the Company and the Stockholders a written
opinion, dated the Effective Date, addressed to Parent and Merger Sub and
reasonably satisfactory to Parent's counsel, in form and substance substantially
as set forth in Exhibit C;
(g) Employment Agreements with Stockholders. Parent and each
of the Stockholders shall have entered into an Employment Agreement
substantially in the form attached as Exhibit D (the "Employment Agreements")
hereto.
(h) Noncompetition Agreements with Stockholders. Parent and
each of the Stockholders shall have entered into a Noncompetition Agreement in
substantially the form attached as Exhibit E hereto (the "Noncompetition
Agreements").
(i) Investment Representation Letters. Parent will have
received executed counterparts of investment representation letters from each of
the Stockholders in the form attached hereto as Exhibit F (the "Investment
Representation Letters"), and Parent shall be reasonably satisfied that each of
the Stockholders are "accredited investors" within the meaning of Regulation D
promulgated under the Securities Act;
(j) Stock Certificates. The Stockholders will have delivered
to Parent any and all of the Certificates or an affidavit of lost certificate in
form and substance reasonably acceptable to Parent.
(k) Closing Certificate. Parent will have received the Closing
Certificate in form and substance reasonably satisfactory to it; provided,
however, that such receipt and acceptance will not be deemed to be an agreement
by Parent that the amounts set forth in the Closing Certificate are accurate and
will not be deemed to be an acknowledgement or agreement by Parent that the
representations set forth in Section 3.30 are true and correct or diminish
Parent's remedies under this Agreement if the representations set forth in
Section 3.30 are not true and correct.
(l) Due Diligence. Parent will have conducted an all-inclusive
due diligence investigation of the Company and the Business, and will not have
discovered information from such investigation that is material and adverse to
the Company, the Business or the valuation of the Business.
(m) Outstanding Receivables from Stockholders. The Stockholder
Receivable shall have been repaid in full as of the Closing, and Parent shall
have received evidence of such repayment reasonably satisfactory to it;
provided; however, that Parent may elect, in its sole discretion, to repay such
Stockholder Receivable by and on behalf of the Stockholders at Closing and
reduce the Base Cash Consideration dollar for dollar as provided in Section
2.01(b) herein.
(n) Delivery of Certain Documents. On the Effective Date, the
Company and the Stockholders shall have delivered to Parent and Merger Sub all
of the following:
(i) a certificate of the President of the Company
and each of the Stockholders, dated the Effective Date, stating that the
conditions precedent set forth in subsections (a) - (e) above have been
satisfied;
(ii) a copy of the text of the resolutions adopted
by the Board of Directors and the stockholders of the Company authorizing the
execution, delivery and performance of this Agreement and the consummation of
the transactions contemplated by this Agreement, including the Merger and (ii)
the Certificate of Incorporation and Bylaws of the Company, along with a
certificate executed by the Secretary of the Company, certifying to Parent that
such copies are true, correct and complete copies of such resolutions,
Certificate of Incorporation and Bylaws, respectively, and that such
resolutions, Certificate of Incorporation and Bylaws were duly adopted and have
not been amended or rescinded;
(iii) copies of the third party and governmental
consents and approvals referred to in subsection (c) above;
(iv) the Company's minute books, stock transfer
records, corporate seal and other materials or copies thereof related to the
Company's corporate administration;
(v) a copy of the Certificate of Incorporation of
the Company, certified by the Secretary of State of the State of Idaho, and a
Certificate of Good Standing from the Secretary of State of the State of Idaho
evidencing the good standing of the Company in each such jurisdiction;
(vi) a copy, fully executed by the Company and the
Stockholders, as applicable, of the Escrow Agreement, the Investment
Representation Letters, the Employment Agreements and the Noncompetition
Agreements;
(vii) Parent shall have received the resignation in
writing of the directors and officers of the Company effective as of the
Effective Time;
(viii) Parent shall have received the final
Closing Certificate; and
(ix) such other certificates, documents and
instruments as Parent reasonably requests related to the transactions
contemplated hereby.
7.03 Additional Conditions to Obligations of the Company and the
Stockholders. The obligations of the Company and the Stockholders to consummate
the transactions contemplated by this Agreement are subject to the satisfaction
or waiver (in their sole discretion) of each of the following conditions on or
before the Effective Date:
(a) Representations and Warranties True and Correct. The
representations and warranties set forth in Article IV hereof will be true and
correct in all material respects at and as of the Closing as though then made
and as though the Effective Date had been substituted for the date of this
Agreement throughout such representations and warranties (without taking into
account disclosures by Parent of discoveries, events or occurrences arising on
or after the date hereof), except that any such representation or warranty made
as of a specified date (other than the date hereof) shall only need to have been
true on and as of such date;
(b) Covenants Performed. Parent shall have performed in all
material respects all the covenants and agreements required to be performed by
it under this Agreement prior to the Closing;
(c) Delivery of Certain Documents. On the Effective Date,
Parent will have delivered to the Company and the Stockholders, as applicable:
(i) a certificate of an Officer of Parent dated the
Effective Date, stating that the conditions precedent set forth in subsections
(a) and (b) above have been satisfied;
(ii) a copy of the Escrow Agreement and the
Employment Agreements executed by Parent, Merger Sub and the escrow agent,
as applicable; and
(iii) a copy of the resolutions adopted by
Parent and Merger Sub approving the transactions contemplated by this Agreement,
certified by the Secretary or Assistant Secretary of Parent and Merger Sub.
(d) Employment Offers. On or prior to the Closing Date, Parent will
have extended offers of employment to the current employees of the Company,
which offers shall provide for substantially similar salary and benefits as well
as comparable duties and responsibilities.
ARTICLE VIII
TERMINATION
8.01 Termination. This Agreement may be terminated at any time
-----------
prior to the Closing:
(a) by the mutual consent of Parent (on behalf of itself and
Merger Sub) and the Company;
(b) by either Parent (on behalf of itself and Merger Sub) or
the Company if there has been a material misrepresentation, breach of warranty
or breach of covenant on the part of the other in the representations,
warranties and covenants set forth in this Agreement; provided, that the
nonbreaching party may only terminate in the event that the breaching party has
not cured such materials breach within ten days after the party seeking to
terminate this Agreement has given the other party written notice of such
materials breach and its intention to terminate this Agreement pursuant to this
Section 8.01(b).
(c) by either Parent (on behalf of itself and Merger Sub) or
the Company if the transactions contemplated hereby have not been consummated by
June 30, 2003; provided, that, neither Parent nor the Company will be entitled
to terminate this Agreement pursuant to this Section 8.01(c) if such party's
willful breach of this Agreement has prevented the consummation of the
transactions contemplated hereby; or
(d) by Parent if, after the date hereof, there shall have been
a Material Adverse Effect or if, after the date hereof, an event shall have
occurred which, so far as reasonably can be foreseen, would result in any
Material Adverse Effect.
8.02 Effect of Termination. In the event of termination of this
Agreement by either Parent or the Company as provided in Section 8.01 hereof,
all provisions of this Agreement shall terminate and there shall be no liability
on the part of Parent, Merger Sub, or Parent's or Merger Sub's stockholders,
officers, or directors, except that: (i) Sections 10.01 (press releases), 10.02
(expenses) and 10.10 (governing law) hereof shall survive indefinitely, and (ii)
the parties shall remain liable for their willful breaches of this Agreement
prior to the time of such termination.
ARTICLE IX
SURVIVAL; INDEMNIFICATION
9.01 Survival of Representations and Warranties. Notwithstanding any
investigation or due diligence made by or on behalf of any of the parties hereto
or the results of any such investigation or due diligence and notwithstanding
the participation of such party in the Closing or in the preparation of any
documents, financial statements or schedules for and on behalf of another party,
each party shall be entitled to rely exclusively and entirely on the
representations and warranties contained in Article III and Article IV hereof
which shall survive the Closing for the greater of the following periods: (i)
one year from the Effective Time, or (ii) with respect to any specific
representation or warranty under which a party shall have made a claim for
indemnification hereunder prior to the first anniversary of the Effective Time
and as to which such claim has not been completely and finally resolved prior to
the first anniversary of the Effective Time, such representation or warranty
shall survive for the period of time beyond the first anniversary of the
Effective Time sufficient to resolve, completely and finally, the claim relating
to such representation or warranty; provided, however, that the representations
and warranties herein of the Company and the Stockholders set forth in Sections
3.07, 3.13, 3.15, 3.16 and 3.17 shall survive the Effective Time until the end
of the applicable statute of limitations.
9.02 Indemnification.
(a) Subject to the limitations of Section 9.02(b) hereof, each
of the Stockholders, jointly and severally, agrees to indemnify in full Parent,
Merger Sub, the Surviving Corporation and their respective officers, directors,
employees, agents, stockholders and subsidiaries (collectively, the "Parent
Indemnified Parties") and hold them harmless against any loss, liability,
deficiency, damage, expense or cost (including reasonable legal
expenses)(collectively "Losses"), which the Parent Indemnified Parties may
suffer, sustain or become subject to, as a result of (i) any misstatement or
omission in any of the representations and warranties of the Company or the
Stockholders contained in this Agreement or in any exhibits, schedules,
certificates or other documents delivered or to be delivered by or on behalf of
the Company pursuant to the terms of this Agreement or otherwise referenced or
incorporated in this Agreement (collectively, the "Related Documents"), (ii) any
breach of, or failure to perform, any agreement of the Company or the
Stockholders contained in this Agreement or any of the Related Documents
occurring prior to the Effective Time or (iii) the failure of the Company and
the Stockholders to obtain any consents required to be set forth in the
Disclosure Schedule under the caption referencing Section 3.05 prior to the
Effective Date other than, solely with respect to the customer contracts set
forth on Exhibit G attached hereto (the "Listed Agreements"), Losses
attributable to the termination of the maintenance agreements with such
customers effective as of the date of this Agreement as set forth on Exhibit G
(the "Maintenance Agreements"); provided, however, that (i) true, complete and
accurate copies of such Maintenance Agreements have been provided to Parent,
(ii) the Company and the Stockholders shall be responsible for any and all
Losses in excess of Parent's pro-rata share with respect to each Maintenance
Agreement (Parent's pro-rata share to be determined by dividing the total amount
payable to the Company pursuant to each such Maintenance Agreement by the number
of months covered under such agreement multiplied by the number of months
remaining on the agreement at the time of its termination) and (iii) the
foregoing limitation on the liability of the Company and the Stockholders shall
not be applicable to the breach of any of the representations or warranties of
the Company and the Stockholders in Article III hereof (collectively, the
"Parent Losses"). The indemnification provided by this Section 9.02(a) shall be
satisfied initially from the Escrow Amount (to the extent the Losses can be
satisfied through the Escrow Amount). The termination of the Escrow Period shall
not relieve the Stockholders from their indemnification obligations hereunder.
(b) The Stockholders will be liable to the Parent Indemnified
Parties for any Parent Loss, and Parent shall be entitled to set off against the
Escrow Amount (i) only if Parent delivers to each of the Stockholders a written
notice, setting forth in reasonable detail the identity, nature and amount of
Parent Losses related to such claim or claims, (ii) only if the aggregate amount
of all Parent Losses exceeds $20,000 (the "Basket Amount"), in which case the
Stockholders shall be obligated to indemnify the Parent Indemnified Parties for
the total amount of all such Parent Losses and (ii) the Stockholders' aggregate
liability for all amounts under this Section 9.02 shall not exceed an amount
equal to the sum of (a) the total Adjusted Cash Consideration (which shall
include the initial Escrow Account and any amounts paid by Parent at Closing in
satisfaction of the Stockholder Receivable) and (b) the fair market value of the
Parent Common Stock issued to the Stockholders in the Merger, determined based
on the closing price of the Parent Common Stock on the last business day
immediately prior to the Effective Time (the "Cap"); provided, however, that
notwithstanding anything herein to the contrary, neither the Basket Amount nor
the Cap shall be applicable to any claims brought by the Parent Indemnified
Parties for breach of the representations and warranties set forth in Sections
3.07, 3.13, 3.15, 3.16, 3.17 and 3.29 herein, pursuant to Section 9.02(a)(iii),
or for fraud. Parent's failure to provide the detail required by clause (i) in
the preceding sentence shall not constitute either a breach of this Agreement by
Parent or any basis for the Stockholders to assert that Parent did not comply
with the terms of this Section 9.02 sufficient to cause Parent to have waived
its rights under this Section 9.02, unless, and only to the extent, such failure
has materially and adversely affected the Stockholders' ability to defend
successfully such claim.
9.03 Indemnification by Parent.
(a) Subject to the limitations of Section 9.03(b) hereof,
Parent agrees to indemnify in full the Stockholders and the Company's officers,
directors, employees, agents, stockholders and subsidiaries (collectively, the
"Company Indemnified Parties") and hold them harmless against any Losses which
the Company Indemnified Parties may suffer, sustain or become subject to, (A)
prior to the first anniversary of the Effective Time, as a result of (i) any
misrepresentation in any of the representations and warranties of Parent
contained in this Agreement or in any of the Related Documents or (ii) any
breach of, or failure to perform, any agreement of Parent contained in this
Agreement or any of the Related Documents or (B) any Losses which the Company
Indemnified Parties may suffer, sustain or become subject to at any time after
the Effective Time arising as a result of the conduct of the business subsequent
to the Closing Date or the consummation of the transactions contemplated hereby
on the Closing Date (collectively, the "Company Losses").
(b) Parent will be liable to the Company Indemnified Parties
for any Company Loss (i) only if the Stockholders deliver Parent a written
notice, setting forth in reasonable detail the identity, nature and amount of
Company Losses related to such claim or claims prior to the first anniversary of
the Effective Time, (ii) only if the aggregate amount of all Company Losses
exceeds the Basket Amount, in which case Parent shall be obligated to indemnify
the Company Indemnified Parties for the total amount of all such Company Losses
and (iii) Parent's aggregate liability for all amounts under this Section 9.03
shall not exceed the Cap less the total Adjusted Cash Consideration (which shall
include the initial Escrow Account and any amounts paid by Parent at Closing in
satisfaction of the Stockholder Receivable). The Stockholders' failure to
provide the detail required by clause (i) in the preceding sentence shall not
constitute either a breach of this Agreement by them or any basis for Parent to
assert that they did not comply with the terms of this Section 9.03 sufficient
to cause them to have waived their rights under this Section 9.03, unless, and
only to the extent, such failure has materially and adversely affected Parent's
ability to defend successfully such claim.
9.04 Method of Asserting Claims. As used herein, an "Indemnified
Party" shall refer to a "Parent Indemnified Party" or "Company Indemnified
Party," as applicable, the "Notifying Party" shall refer to the party hereto
whose Indemnified Parties are entitled to indemnification hereunder, and the
"Indemnifying Party" shall refer to the party hereto obligated to indemnify such
Notifying Party's Indemnified Parties.
(a) In the event that any of the Indemnified Parties is made a
defendant in or party to any action or proceeding, judicial or administrative,
instituted by any third party for the liability or the costs or expenses of
which are Losses (any such third party action or proceeding being referred to as
a "Claim") the Notifying Party shall give the Indemnifying Party prompt notice
thereof. The failure to give such notice shall not affect any Indemnified
Party's ability to seek reimbursement unless such failure has materially and
adversely affected the Indemnifying Party's ability to defend successfully a
Claim. The Indemnifying Party shall be entitled to contest and defend such
Claim; provided, that the Indemnifying Party (i) has a reasonable basis for
concluding that such defense may be successful and (ii) can diligently contest
and defend such Claim. Notice of the intention to so contest and defend shall be
given by the Indemnifying Party to the Notifying Party within 20 business days
after the Notifying Party's notice of such Claim (but, in all events, at least
five business days prior to the date that an answer to such Claim is due to be
filed). Such contest and defense shall be conducted by reputable attorneys
retained by the Indemnifying Party. The Notifying Party shall be entitled at any
time, at its own cost and expense (which expense shall not constitute a Loss
unless the Notifying Party reasonably determines that the Indemnifying Party is
not adequately representing or, because of a conflict of interest, may not
adequately represent, any interests of the Indemnified Parties, and only to the
extent that such expenses are reasonable), to participate in such contest and
defense and to be represented by attorneys of its or their own choosing. If the
Notifying Party elects to participate in such defense, the Notifying Party will
cooperate with the Indemnifying Party in the conduct of such defense. Neither
the Notifying Party nor the Indemnifying Party may concede, settle or compromise
any Claim without the consent of the other party, which consents will not be
unreasonably withheld. Notwithstanding the foregoing, (i) if a Claim seeks
equitable relief or (ii) if the subject matter of a Claim relates to the ongoing
business of any of the Indemnified Parties, which Claim, if decided against any
of the Indemnified Parties, would materially adversely affect the ongoing
business or reputation of any of the Indemnified Parties, then, in each such
case, the Indemnified Parties alone shall be entitled to contest, defend and
settle such Claim in the first instance and, if the Indemnified Parties do not
contest, defend or settle such Claim, the Indemnifying Party shall then have the
right to contest and defend (but not settle) such Claim.
(b) In the event any Indemnified Party should have a claim against
any Indemnifying Party that does not involve a Claim, the Notifying Party shall
deliver a notice of such claim with reasonable promptness to the Indemnifying
Party. If the Indemnifying Party notifies the Notifying Party that it does not
dispute the claim described in such notice or fails to notify the Notifying
Party within 20 business days after delivery of such notice by the Notifying
Party whether the Indemnifying Party disputes the claim described in such
notice, the Loss in the amount specified in the Notifying Party's notice will be
conclusively deemed a liability of the Indemnifying Party and the Indemnifying
Party shall pay (subject to the Basket Amount, to the extent applicable), the
amount of such Loss to the Indemnified Party on demand. If the Indemnifying
Party has timely disputed their liability with respect to such claim, the
Indemnifying Party and the Notifying Party will proceed in good faith to
negotiate a resolution of such dispute, and if not resolved through the
negotiations of such individuals within 20 days after the delivery of the
Notifying Party's notice of such claim, such dispute shall be resolved fully and
finally in Colorado Springs, Colorado, by an arbitrator selected pursuant to and
an arbitration governed by Commercial Arbitration Rules of the American
Arbitration Association, as modified herein. The parties will jointly appoint a
mutually acceptable independent arbitrator, seeking assistance in such regard
from the American Arbitration Association. The arbitrator shall resolve the
dispute within 30 days after selection and judgment upon the award rendered by
such arbitrator may be entered in any court of competent jurisdiction. Each of
Parent, on the one hand, and the Stockholders, on the other, shall bear its own
fees and expenses in connection with such arbitration and shall bear 50% of the
fees and expenses of the arbitrator.
9.05 Sole and Exclusive Remedy. After the Closing, the rights set
forth in this Article IX shall be each party's sole and exclusive remedies
against the other party hereto for misrepresentations or breaches of covenants
contained in this Agreement and the Related Documents. Notwithstanding the
foregoing, nothing herein shall prevent any of the parties hereto from bringing
an action based upon allegations of fraud or other intentional breach of an
obligation of or with respect to the other parties in connection with this
Agreement and the Related Documents. In the event such action is brought, the
non- prevailing party shall pay all fees and expenses in connection with such
action.
ARTICLE X
MISCELLANEOUS
10.01 Press Releases and Announcements.
(a) Parent, Merger Sub, the Stockholders and the Company agree that the
existence, nature and terms and conditions of this Agreement and discussions
between the parties regarding the transactions contemplated hereby are, and
shall be treated as, confidential by the parties. Accordingly, each party agrees
that, without the written consent of the others, it (i) will make no public
comment concerning or announcement of the transactions contemplated hereby; (ii)
will respond to all inquiries concerning the transactions contemplated hereby by
stating that it is such company's policy not to comment on such inquiries; (iii)
will take reasonable steps to restrict knowledge of the transactions
contemplated hereby to those who need to know; and (iv) will notify the other
parties of any rumor external to the parties of the transactions contemplated
hereby. Notwithstanding the foregoing, the Company acknowledges and agrees that
Parent, as a public company, is subject to certain disclosure requirements under
applicable securities laws. For this reason, Parent reserves the right to
disclose the existence of and the status of negotiations at any time it decides
that securities laws or the rules of any stock exchange require such disclosure,
and Parent shall have the right to issue a press release regarding the
transactions contemplated hereby upon the signing of this Agreement and upon the
Closing; provided that, Parent agrees to notify the Company if Parent intends to
make a disclosure and, to the extent feasible, to provide the Company with the
text of the disclosure and opportunity to comment in advance of its release to
the public.
(b) Notwithstanding anything to the contrary in this Agreement or in any
other written or oral understanding or agreement to which the parties hereto are
parties or by which they are bound, each party to this Agreement has been and is
permitted to disclose the federal tax treatment and federal tax structure of the
Merger effective no later than the earlier of the date of the public
announcement of discussions relating to the Merger, the date of the public
announcement of the Merger, or the date of the execution of this Agreement (with
or without conditions) to enter into the Merger. This permission to disclose
includes the ability of each party to this Agreement to consult, without
limitation of any kind, any tax advisor (including a tax advisor independent
from all other entities involved in the Merger) regarding the federal tax
treatment or federal tax structure of the Merger. Any information relating to
the federal tax treatment or federal tax structure shall remain subject to the
confidentiality provisions hereof (and the foregoing sentence shall not apply)
to the extent reasonably necessary to enable the parties hereto, their
affiliates, directors and employees to comply with applicable securities laws.
This provision is intended to comply with Section 1.6011-4(b)(3)(ii)(B) of the
Treasury Regulations and shall be interpreted consistently therewith. The
parties to this Agreement acknowledge that this written authorization does not
constitute a waiver by any party of any privilege held by such party pursuant to
the attorney-client privilege or the confidentiality privilege of Code Section
7525(a).
10.02 Expenses. 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
("Transactional Expenses") incurred by a party in connection with the
negotiation and effectuation of the terms and conditions of this Agreement and
the transactions contemplated hereby (whether consummated or not) shall be the
obligation of the party incurring such fees and expenses; provided; however,
that the Stockholders and not the Company shall be responsible for the
Transactional Expenses of the Company and the Stockholders.
10.03 Further Assurances. Each of the Company, the Stockholders,
Parent and Merger Sub agree that, on and after the Effective Time, it and they
shall take all appropriate action and execute any documents, instruments or
conveyances of any kind which may be reasonably necessary or advisable to carry
out any of the provisions hereof.
10.04 Amendment and Waiver. This Agreement may not be amended or
waived except in a writing executed by the party against which such amendment or
waiver is sought to be enforced. No course of dealing between or among any
persons having any interest in this Agreement will be deemed effective to modify
or amend any part of this Agreement or any rights or obligations of any person
under or by reason of this Agreement.
10.05 Notices. All notices, demands and other communications to be
given or delivered under or by reason of the provisions of this Agreement will
be in writing and will be deemed to have been given when personally delivered,
or the next business day if sent by overnight courier, or three days after being
mailed by first class mail, return receipt requested. Notices, demands and
communications to Parent, the Company and the Stockholders will, unless another
address is specified in writing, be sent to the address indicated below:
Notices to Parent and Merger Sub: with a copy to:
-------------------------------- --------------
Optika Inc. E*Law Group
0000 Xxxxxx Xxxxx, Xxxxx 000 0000 X. 000xx Xxxxx
Xxxxxxxx Xxxxxxx, XX 00000 Xxxxxxxxxxx, XX 00000
Attn: Chief Financial Officer Attn: Xxxxxx X. Xxxxxxxxxxx, Esq.
Notices to the Company: with a copy to:
---------------------- --------------
Select Technologies, Inc. Holland & Xxxx LLP
000 Xxxxx Xxxx Xxxx Xxxx 000 X. Xxxxxxx Xxxx., Xxx. 0000
Xxxxx, XX 00000 Xxxxx, XX 00000
Attn: President Attn: J. Xxxxxxxxx Xxxx, Esq.
Notices to the Stockholders: with a copy to:
--------------------------- --------------
Del Xxxx Xxxxxxx & Xxxx LLP
0000 X. Xxxxxxx Xxx 000 X. Xxxxxxx Xxxx., Xxx. 0000
Xxxxx, XX 00000 Xxxxx, XX 00000
Attn: J. Xxxxxxxxx Xxxx, Esq.
Xxxxxx Xxxx
0000 X. Xxxxxxx Xxx
Xxxxx, XX 00000
10.06 Assignment. This Agreement and all of the provisions hereof
will be binding upon and inure to the benefit of the parties hereto and their
respective successors and permitted assigns, except that neither this Agreement
nor any of the rights, interests or obligations hereunder may be assigned by
either party hereto without the prior written consent of the other party hereto.
10.07 Severability. Whenever possible, each provision of this
Agreement will be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be prohibited
by or invalid under applicable law, such provision will be ineffective only to
the extent of such prohibition or invalidity, without invalidating the remainder
of such provision or the remaining provisions of this Agreement.
10.08 Complete Agreement. This Agreement, the Related Documents and
the other exhibits hereto, the Disclosure Schedule and the other documents
referred to herein contain the complete agreement between the parties and
supersede any prior understandings, agreements or representations by or between
the parties, written or oral, which may have related to the subject matter
hereof in any way.
10.09 Counterparts. This Agreement may be executed in one or more
counterparts, any one of which need not contain the signatures of more than one
party, but all such counterparts taken together will constitute one and the same
instrument.
10.10 Governing Law. Except to the extent that the DGCL governs the
effectuation of the Merger, the internal law, without regard to conflicts of
laws principles, of the State of Colorado will govern all questions concerning
the construction, validity and interpretation of this Agreement and the
performance of the obligations imposed by this Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
as of the day and year first above written.
OPTIKA INC.
By ______________________________________
Name:
Title:
OPTIKA TECHNOLOGIES, INC.
By______________________________________
Name:
Title:
SELECT TECHNOLOGIES, INC.
By______________________________________
Name:
Title:
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XXXXX X. XXXX, XX
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XXXXXX XXXX
