EXHIBIT 10.61
Option Agreement
This Option Agreement (the "Agreement") dated as of March 30, 2001 by and
between Network Peripherals Inc., a Delaware corporation ("NPI"), and
FalconStor, Inc. a Delaware corporation ("FalconStor").
WHEREAS, FalconStor desires to receive a capital investment from NPI to
continue and expand its business.
WHEREAS, NPI has agreed to provide Twenty Five Million Dollars ($25,000,000)
of capital to FalconStor in the form of an equity investment (the "Equity
Investment").
WHEREAS, contemporaneously with the execution of this Agreement, NPI and
FalconStor are entering into and executing stock purchase and related
agreements, including a registration rights agreement and an investors' rights
agreement, to consummate the Equity Investment (the "Equity Investment
Agreements").
WHEREAS, NPI and FalconStor have negotiated the terms upon which NPI
proposes to enter into discussions to (i) invest in FalconStor, (ii) engage in
a series of transactions whereby a wholly owned subsidiary of NPI will merge
with and into FalconStor with FalconStor surviving as the continuing entity
(the "Merger Transaction") and (iii) resolve certain other related matters.
WHEREAS, a substantial and material inducement to NPI to consummate the
Equity Investment is the grant by FalconStor to NPI of an option to execute the
Merger Transaction and FalconStor's execution and delivery of this Agreement
and the execution and delivery of the Voting Agreement (as defined below).
NOW, THEREFORE, for good and valuable consideration, including the execution
and delivery of the Equity Investment Agreements, the receipt and sufficiency
of which is hereby acknowledged, the parties hereto agree as follows:
Section 1. Option to Merge with FalconStor. FalconStor hereby grants to NPI,
and NPI accepts, an option to execute the Merger Transaction on the terms set
forth in the Merger Agreement (as defined below) (the "Option"). The Option
shall be irrevocable during the term of this Agreement and may be exercised by
delivery of written notice to FalconStor of such exercise; provided, however,
that the Option shall only be exercisable during the 14-day period (the
"Exercise Period") immediately following (i) written notice by FalconStor to
NPI of the issuance and sale of additional shares of Series C Convertible
Preferred Stock (the "Series C Sale"), or (ii) four (4) weeks from the date of
this Agreement, whichever occurs first, unless extended by the written consent
of FalconStor and NPI. In the event of a Series C Sale, FalconStor shall
deliver a notice within twenty-four (24) hours to NPI notifying NPI of such
sale. Immediately upon exercise of the Option, the parties hereto will, acting
at all times in good faith, take, or cause to be taken, all actions and do, or
cause to be done, all things necessary, proper or advisable under applicable
laws and regulations to execute and deliver a definitive agreement (the "Merger
Agreement") to consummate the Merger Transaction on the terms set forth in the
form of merger agreement attached hereto as Exhibit A as promptly as
practicable after the date on which NPI exercises the Option, including (i)
taking all corporate actions necessary to authorize, approve and direct the
execution and delivery of the Merger Agreement, (ii) authorizing and directing
their executive officers, accountants and legal counsel to devote all necessary
resources, utilizing their best efforts, to achieve the execution and delivery
of the Merger Agreement, (iii) preparing and filing as promptly as practicable
all documentation to effect all necessary applications, notices, petitions,
filings and other documents and to obtain as promptly as practicable all third
party consents and all consents necessary or advisable to be obtained from any
governmental entity in order to execute and deliver the Merger Agreement, (iv)
taking all reasonable steps as may be necessary to obtain all such third party
consents and consents of governmental entities necessary or advisable to be
obtained from any governmental entity in order to execute and deliver the
Merger Agreement
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and (v) defending any actions challenging this Agreement or the Merger
Agreement or the transactions contemplated hereby or thereby, including seeking
to have any stay or temporary restraining order entered by any governmental
entity vacated or reversed.
Section 2. Other Negotiations. During the term of this Agreement, neither
NPI nor FalconStor will (and it will use its best efforts to ensure that its
officers, directors, employees, agents and affiliates do not on its behalf)
take any action to solicit, initiate, seek, encourage or support any inquiry,
proposal or offer from, furnish any information to, or participate in any
negotiations with, any corporation, partnership, person or other entity or
group (each, a "Person") (other than discussions with the other party hereto)
regarding any acquisition of such party, any merger or consolidation with such
party, or any acquisition of all or substantially all of the stock or assets of
such party, (an "Acquisition Proposal"); provided, however, that if, at any
time during the term of this Agreement, the Board of Directors of either party
by majority vote determines in good faith, after receiving advice from its
outside counsel, that failing to take such action would constitute a breach of
the fiduciary duties of the such Board of Directors, such party may, in
response to a bona fide written Acquisition Proposal which did not result from
a breach of this Section 2 and which such Board of Directors determines in its
reasonable judgment, to be more favorable to its stockholders (taking into
account, among other things, all legal, financial, regulatory and other aspects
of the proposal and identity of the offeror) as compared to the transactions
contemplated by the Merger Agreement and which is reasonably capable of being
consummated ("Superior Proposal"); provided, however, that any such offer shall
not be deemed to be a Superior Proposal if any financing required to consummate
the transaction contemplated by such offer is not committed and is not
reasonably capable of being obtained by such third party, (i) furnish
information or provide access with respect to such party and each of its
subsidiaries to such Person pursuant to a customary confidentiality agreement
(as determined by such party after consultation with its outside counsel) and
(ii) participate in discussions and negotiations regarding such Superior
Proposal (it being understood that neither the sale and issuance by FalconStor
of additional shares of its Series C Convertible Preferred Stock nor the sale
by NPI of any Assets, as defined in the Letter Agreement dated March 21, 2001
by and between NPI and FalconStor, shall breach or violate the terms of this
Agreement). Each of NPI and FalconStor agrees that any such negotiations in
progress as of the date hereof will be terminated or suspended until this
Agreement is terminated pursuant to Section 5. Each party hereto will
immediately notify the other party hereto regarding any contact by any third
party regarding any offer, proposal or inquiry regarding any Acquisition
Proposal. In no event will either party hereto accept or enter into an
agreement concerning any such third party transaction prior to the Termination
of this Agreement pursuant to Section 5. Each party hereto represents and
warrants that it has the legal right to terminate or suspend any such pending
negotiations and agrees to indemnify the other party hereto, its
representatives and agents from and against any claims by any party to such
negotiations based upon or arising out of the discussion or any consummation of
the transactions contemplated by this Agreement.
Section 3. Representations and Warranties of FalconStor. FalconStor hereby
represents and warrants to NPI as follows:
a. FalconStor has the corporate power and authority to enter into this
Agreement and to carry out its obligations hereunder. The execution and
delivery of this Agreement and the consummation of the transactions
contemplated hereby have been duly and validly authorized by the Board of
Directors of FalconStor, and no other corporate proceedings on the part of
FalconStor are necessary to authorize the execution and delivery of this
Agreement or the performance by FalconStor of its obligations hereunder.
This Agreement has been duly and validly executed and delivered by
FalconStor and constitutes a valid and binding agreement of FalconStor,
enforceable against FalconStor in accordance with its terms.
b. The execution, delivery and performance of this Agreement and the
consummation of the transactions contemplated hereby will not (i) conflict
with or result in any breach of any provision of the certificate of
incorporation, bylaws or similar organizational documents of FalconStor, or
(ii) result in a violation or breach of, or constitute (with or without due
notice or lapse of time or both) a default (or give rise to any right of
termination, amendment, cancellation or acceleration) under, any of the
terms,
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conditions or provisions of any note, bond, mortgage, indenture, lease,
license, contract, agreement or other instrument or obligation to which
FalconStor is a party or by which any of its properties or assets may be
bound, or (iii) violate any order, writ, injunction, decree, judgment,
permit, license, ordinance, law, statute, rule or regulation applicable to
FalconStor or any of its properties or assets.
c. The holders of capital stock of FalconStor who are parties to the
Voting Agreement (the "Holders"), attached hereto as Exhibit B (the "Voting
Agreement"), hold a sufficient number of shares of FalconStor's Common
Stock, Series A Preferred Stock and Series B Preferred Stock to approve the
Merger Agreement and the transactions contemplated thereby.
d. To FalconStor's knowledge, each Holder has the power, corporate or
otherwise, and authority to enter into the Voting Agreement and to carry
out its obligations thereunder. To FalconStor's knowledge, the execution
and delivery of the Voting Agreement and the consummation of the
transactions contemplated thereby by each Holder have been duly and validly
authorized by such Holder and no other proceedings, corporate or otherwise,
on the part of the Holders are necessary to authorize the execution and
delivery of the Voting Agreement or the performance by the Holders of their
obligations thereunder. To FalconStor's knowledge, the Voting Agreement has
been duly and validly executed and delivered by each Holder and constitutes
a valid and binding agreement of such Holder, enforceable against such
Holder in accordance with its terms.
Section 4. Representations and Warranties of NPI. NPI hereby represents and
warrants to FalconStor as follows:
a. NPI has the corporate power and authority to enter into this
Agreement and to carry out its obligations hereunder. The execution and
delivery of this Agreement and the consummation of the transactions
contemplated hereby have been duly and validly authorized by the Board of
Directors of NPI, and no other corporate proceedings on the part of NPI are
necessary to authorize the execution and delivery of this Agreement or the
performance by NPI of its obligations hereunder. The Board of Directors of
NPI has received the opinion of Xxxxxx Brothers Inc., substantially to the
effect that as of the date hereof the consideration to be issued and
delivered by NPI in the Merger Transaction is fair to NPI from a financial
point of view. This Agreement has been duly and validly executed and
delivered by NPI and constitutes a valid and binding agreement of NPI,
enforceable against NPI in accordance with its terms.
b. The execution, delivery and performance of this Agreement and the
consummation of the transactions contemplated hereby will not (i) conflict
with or result in any breach of any provision of the certificate of
incorporation, bylaws or similar organizational documents of NPI, or (ii)
result in a violation or breach of, or constitute (with or without due
notice or lapse of time or both) a default (or give rise to any right of
termination, amendment, cancellation or acceleration) under, any of the
terms, conditions or provisions of any note, bond, mortgage, indenture,
lease, license, contract, agreement or other instrument or obligation to
which NPI is a party or by which any of its properties or assets may be
bound, or (iii) violate any order, writ, injunction, decree, judgment,
permit, license, ordinance, law, statute, rule or regulation applicable to
NPI or any of its properties or assets.
Section 5. Term; Termination; Effect of Termination.
a. This Agreement shall be effective as of the date first above written.
b. This Agreement shall terminate automatically upon the execution and
delivery of the Merger Agreement by both NPI and FalconStor.
c. This Agreement shall terminate upon the mutual written consent of NPI
and FalconStor.
d. In the event that (i) the Option is not exercised timely or (ii) the
Merger Agreement is not executed and delivered by both FalconStor and NPI
(A) within 14 days from the date of the exercise of the Option if the
Option is exercised within the first seven (7) days of the Exercise Period
or (B) if the Option is exercised with the second seven (7) days of the
Exercise Period within the period starting on the
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date the Option is exercised and ending seven (7) days after the Exercise
Period terminates, FalconStor, by action of its Board of Directors, shall
have the right to terminate this Agreement under this Section 5(d)
(provided that such termination of this Agreement under Section 5(d) is not
due to FalconStor's failure to fulfill any obligation under this Agreement
has been the cause of or resulted in the failure of the Merger Agreement to
be executed and delivered by FalconStor by such date).
e. In the event that this Agreement terminates pursuant to Section 5(d)
(provided that such termination of this Agreement under Section 5(d) is not
due to FalconStor's failure to fulfill any obligation under this Agreement
has been the cause of or resulted in the failure of the Merger Agreement to
be executed and delivered by FalconStor by such date) then (i) NPI hereby
covenants to vote all shares of preferred stock purchased by NPI pursuant
to the Equity Investment Agreements in accordance with the recommendation
of the Board of Directors of FalconStor, other than in respect of a
Disposition Transaction (as that term is defined in the Certificate of
Designations of the Series C Convertible Preferred Stock of FalconStor) in
which case NPI shall vote as it deems appropriate and (ii) NPI shall
concurrently (or on the following business day) pay to FalconStor a
termination fee of $3 Million.
f. In the event this Agreement is terminated pursuant to Section 5, this
Agreement shall immediately become void and there shall be no liability or
obligation on the part of NPI and FalconStor or their respective officers,
directors, stockholders or affiliates except to the extent that the
termination is a result of a willful and material breach by a party to this
Agreement of any representation, warranty or covenant contained in this
Agreement; provided, however, that the provisions of Section 6(k) and the
obligations of NPI under Section 5(e) shall remain in full force and effect
and survive any termination of this Agreement.
Section 6. Miscellaneous Provisions.
a. Specific Performance. The parties agree that irreparable damage would
occur in the event that any of the provisions of this Agreement were not
performed in accordance with their specific terms or were otherwise
breached. It is accordingly agreed that the parties shall be entitled to an
injunction or injunctions to prevent breaches of this Agreement and to
enforce specifically the terms and provisions of this Agreement, this being
in addition to any other remedy to which they are entitled at law or in
equity.
b. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware, without giving effect to
the choice of law principles thereof.
c. Descriptive Headings. The descriptive headings herein are inserted
for convenience of reference only and are not intended to be part of or to
affect the meaning or interpretation of this Agreement.
d. Parties in Interest. This Agreement shall be binding upon and inure
solely to the benefit of each party hereto and its successors and permitted
assigns, and nothing in this Agreement, express or implied, is intended to
or shall confer upon any other person any rights, benefits or remedies of
any nature whatsoever under or by reason of this Agreement.
e. Severability. The provisions of this Agreement shall be deemed
severable and the invalidity or unenforceability of any provision shall not
affect the validity or enforceability of the other provisions hereof. If
any provision of this Agreement, or the application thereof to any person
or any circumstance, is invalid or unenforceable, (a) a suitable and
equitable provision shall be substituted therefor in order to carry out, so
far as may be valid and enforceable, the intent and purpose of such invalid
or unenforceable provision and (b) the remainder of this Agreement and the
application of such provision to other persons or circumstances shall not
be affected by such invalidity or unenforceability, nor shall such
invalidity or unenforceability affect the validity or enforceability of
such provision, or the application thereof, in any other jurisdiction.
f. Counterparts. This Agreement may be executed in two or more
counterparts, all of which shall be considered one and the same agreement
and shall become effective when one or more counterparts have been signed
by each of the parties and delivered to the other parties.
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g. Further Assurance. Each party to this Agreement agrees (i) to furnish
upon request to the other party such further information, (ii) to execute
and deliver to the other party such other documents and (iii) to do such
other acts and things as the other party reasonably requests for the
purpose of carrying out the intent of this Agreement and the documents and
instruments referred to herein.
h. Interpretation.
6.h.1 The words "hereof," "herein," and words of similar import
shall, unless otherwise stated, be construed to refer to this Agreement
as a whole and not to any particular provision of this Agreement, and
article, section, paragraph, exhibit, and schedule references are to
the articles, sections, paragraphs, exhibits, and schedules of this
Agreement unless otherwise specified. Whenever the words "include,"
"includes," or "including" are used in this Agreement, they shall be
deemed to be followed by the words "without limitation." All terms
defined in this Agreement shall have the defined meanings contained
herein when used in any certificate or other document made or delivered
pursuant hereto unless otherwise defined therein. The definitions
contained in this Agreement are applicable to the singular as well as
the plural forms of such terms and to the masculine as well as to the
feminine and neuter genders of such terms. Any agreement, instrument,
or statute defined or referred to herein or in any agreement or
instrument that is referred to herein means such agreement, instrument,
or statute as from time to time, amended, qualified or supplemented,
including (in the case of agreements and instruments) by waiver or
consent and (in the case of statutes) by succession of comparable
successor statutes and all attachments thereto and instruments
incorporated therein. References to a person are also to its permitted
successors and assigns.
6.h.2 The phrases "the date of this Agreement," "the date hereof,"
and terms of similar import, unless the context otherwise requires,
shall be deemed to refer to March 30, 2001.
6.h.3 The parties have participated jointly in the negotiation and
drafting of this Agreement. In the event an ambiguity or question of
intent or interpretation arises, this Agreement shall be construed as
if drafted jointly by the parties and no presumption or burden of proof
shall arise favoring or disfavoring any party by virtue of the
authorship of any provisions of this Agreement.
i. Notices. All notices, requests, instructions or other documents to be
given under this Agreement shall be in writing and shall be deemed given,
(i) five business days following sending by registered or certified mail,
postage prepaid, (ii) when sent if sent by facsimile; provided, however,
that the facsimile is promptly confirmed by telephone confirmation thereof,
(iii) when delivered, if delivered personally to the intended recipient,
and (iv) one business day following sending by overnight delivery via a
national courier service, and in each case, addressed to a party at the
following address for such party:
if to NPI, to: Network Peripherals Inc.
0000 Xxxxxxx Xxxxx
Xxxxxxx, Xxxxxxxxxx 00000
Attention: Xxxxx Xxxxx
Fax: (000) 000-0000
with copies to: Xxxx Xxxx Xxxx & Freidenrich LLP
0000 Xxxxxxxxx Xxxxx, Xxxxx 0000
Xxx Xxxxx, Xxxxxxxxxx 00000
Attention: Xxxxx X. Xxxxxxx, Esq.
Facsimile: (000) 000-0000
if to FalconStor, to: FalconStor Inc.
000 Xxxxxx Xxxx, Xxxxx 000
Xxxxxxxx, Xxx Xxxx 00000
Attention: XxxXxxx Xxxx
Facsimile: (000) 000-0000
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with a copy to: Xxxxxx Xxxxxxxx Frome Xxxxxxxxxx & Xxxxxxx LLP
000 Xxxx Xxxxxx
Xxx Xxxx, XX 00000-0000
Attention: Xxxxx Xxxxxxx, Esq.
Facsimile: (000) 000-0000
or to such other address or facsimile number as the person to whom notice
is given may have previously furnished to the other in writing in the
manner set forth above.
j. Entire Agreement; Assignment.
6.j.1 This Agreement constitutes the entire agreement between the
parties hereto in respect of the subject matter hereof and supersedes
all other prior agreements and understandings, both written and oral,
between the parties in respect of the subject matter hereof other than
the non-disclosure agreement between the parties effective as of March
30, 2001 (which shall remain in effect).
6.j.2 Neither this Agreement nor any of the rights, interests or
obligations hereunder shall be assigned by operation of law (including,
by merger or consolidation) or otherwise. Any assignment in violation
of the preceding sentence shall be void. Subject to the preceding
sentence, this Agreement will be binding upon, inure to the benefit of,
and be enforceable by, the parties and their respective successors and
permitted assigns.
k. Expenses. All fees and expenses incurred in connection with this
Agreement and the transactions contemplated hereby shall be paid by the
party incurring such expenses.
l. Attorneys' Fees. In the event of any Action at law or in equity in
relation to this Agreement, the prevailing party in such Action shall be
entitled to receive its reasonable attorneys' fees and all other costs and
expenses of such Action. For purposes of this Section, "Action" means any
action, appeal, petition, plea, charge, complaint, claim, suit, demand,
litigation, arbitration, mediation, hearing, inquiry, investigation or
similar event, occurrence, or proceeding at law or at equity.
[Remainder of the page intentionally left blank.]
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IN WITNESS WHEREOF, each of the parties has caused this Agreement to be duly
executed on its behalf as of the date first above written.
FALCONSTOR, INC.
/s/ XxxXxxx Xxxx
By: _________________________________
Name: XxxXxxx Xxxx
Title: Chief Executive Officer
NETWORK PERIPHERALS INC.
/s/ Xxxxx Xxxxx
By: _________________________________
Name: Xxxxx Xxxxx
Title: Chief Executive Officer
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WRITTEN NOTICE OF OPTION EXERCISE
NPI, by delivery of this written notice, hereby elects to exercise its
option to merge with FalconStor on the terms set forth in the Merger Agreement.
Dated: May 4, 2001
NETWORK PERIPHERALS INC.
/s/ Xxxxx Xxxxx
By: _________________________________
Name: Xxxxx Xxxxx
Title: Chief Executive Officer
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