EXECUTION COPY
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
ART ADVANCED RECOGNITION TECHNOLOGIES, INC.
WRITE ACQUISITION CORPORATION
SCANSOFT, INC.
AND WITH RESPECT TO
ARTICLE I, ARTICLE VII AND ARTICLE IX ONLY
BESSEMER VENTURE PARTNERS VI, LP
AS STOCKHOLDER REPRESENTATIVE
DATED AS OF NOVEMBER 14, 2004
TABLE OF CONTENTS
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ARTICLE I THE MERGER..................................................................................................2
1.1 THE MERGER..........................................................................................2
1.2 EFFECTIVE TIME......................................................................................2
1.3 EFFECT OF THE MERGER................................................................................2
1.4 CERTIFICATE OF INCORPORATION AND BYLAWS.............................................................2
1.5 DIRECTORS AND OFFICERS..............................................................................3
1.6 EFFECT OF MERGER ON THE CAPITAL STOCK OF THE CONSTITUENT CORPORATIONS...............................3
1.7 DISSENTING SHARES..................................................................................16
1.8 SURRENDER OF CERTIFICATES AND PAYMENT OF TOTAL CONSIDERATION.......................................16
1.9 NO FURTHER OWNERSHIP RIGHTS IN COMPANY CAPITAL STOCK...............................................18
1.10 LOST, STOLEN OR DESTROYED CERTIFICATES.............................................................18
1.11 TAKING OF NECESSARY ACTION; FURTHER ACTION.........................................................19
ARTICLE II REPRESENTATIONS AND WARRANTIES OF THE COMPANY.............................................................19
2.1 ORGANIZATION OF THE COMPANY........................................................................19
2.2 COMPANY CAPITAL STRUCTURE..........................................................................19
2.3 SUBSIDIARIES.......................................................................................21
2.4 AUTHORITY..........................................................................................22
2.5 NO CONFLICT........................................................................................23
2.6 CONSENTS...........................................................................................23
2.7 COMPANY FINANCIAL STATEMENTS.......................................................................24
2.8 NO UNDISCLOSED LIABILITIES.........................................................................25
2.9 NO CHANGES.........................................................................................25
2.10 TAX MATTERS........................................................................................27
2.11 RESTRICTIONS ON BUSINESS ACTIVITIES................................................................31
2.12 TITLE TO PROPERTIES; ABSENCE OF LIENS AND ENCUMBRANCES.............................................31
2.13 INTELLECTUAL PROPERTY..............................................................................32
2.14 AGREEMENTS, CONTRACTS AND COMMITMENTS..............................................................37
2.15 INTERESTED PARTY TRANSACTIONS......................................................................38
2.16 GOVERNMENTAL AUTHORIZATION.........................................................................38
2.17 LITIGATION.........................................................................................38
2.18 BROKERS' AND FINDERS' FEES.........................................................................39
2.19 EMPLOYEE BENEFIT PLANS AND COMPENSATION............................................................39
2.20 INSURANCE..........................................................................................45
2.21 COMPLIANCE WITH LAWS...............................................................................45
2.22 WARRANTIES; INDEMNITIES............................................................................45
2.23 COMPLETE COPIES OF MATERIALS.......................................................................45
2.24 INAPPLICABILITY OF CERTAIN STATUTES................................................................45
2.25 GRANTS, INCENTIVES AND SUBSIDIES...................................................................45
2.26 ENCRYPTION AND OTHER RESTRICTED TECHNOLOGY.........................................................46
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TABLE OF CONTENTS
(CONTINUED)
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2.27 REPRESENTATIONS COMPLETE...........................................................................46
2.28 ACCOUNTS, LOCKBOXES, SAFE DEPOSIT BOXES............................................................46
ARTICLE III REPRESENTATIONS AND WARRANTIES OF PARENT AND SUB.........................................................46
3.1 ORGANIZATION, STANDING AND POWER; SUBSIDIARIES.....................................................46
3.2 AUTHORITY..........................................................................................47
3.3 CONSENTS...........................................................................................47
3.4 INTERIM OPERATIONS OF SUB..........................................................................47
3.5 NO CONFLICT........................................................................................48
3.6 LIENS AND INDEBTEDNESS.............................................................................48
ARTICLE IV CONDUCT PRIOR TO THE EFFECTIVE TIME.......................................................................48
4.1 CONDUCT OF BUSINESS OF THE COMPANY.................................................................48
4.2 NO SOLICITATION....................................................................................52
4.3 PROCEDURES FOR REQUESTING PARENT CONSENT...........................................................53
ARTICLE V ADDITIONAL AGREEMENTS......................................................................................53
5.1 STOCKHOLDER APPROVAL...............................................................................53
5.2 ISRAELI APPROVALS..................................................................................54
5.3 ACCESS TO INFORMATION..............................................................................55
5.4 CONFIDENTIALITY....................................................................................56
5.5 EXPENSES...........................................................................................56
5.6 PUBLIC DISCLOSURE..................................................................................56
5.7 CONSENTS...........................................................................................57
5.8 FIRPTA COMPLIANCE..................................................................................57
5.9 REASONABLE EFFORTS.................................................................................57
5.10 NOTIFICATION OF CERTAIN MATTERS....................................................................57
5.11 ADDITIONAL DOCUMENTS AND FURTHER ASSURANCES........................................................57
5.12 FINANCIALS.........................................................................................58
5.13 ACQUISITION OF MINORITY INTEREST OF ART, LTD.......................................................58
5.14 EMPLOYEE RELEASE, NON-COMPETITION AND WAIVER PLAN..................................................58
5.15 GRANT OF STOCK OPTIONS.............................................................................58
5.16 SPREADSHEET........................................................................................59
5.17 INDEMNIFICATION OF DIRECTORS AND OFFICERS..........................................................59
5.18 TERMINATION OF BENEFIT PLANS.......................................................................60
5.19 ADDITIONAL AGREEMENTS REGARDING STOCKHOLDER VOTE, TERMINATION OF AGREEMENT AND THE MERGER..........60
ARTICLE VI CONDITIONS TO THE MERGER..................................................................................61
6.1 CONDITIONS TO OBLIGATIONS OF EACH PARTY TO EFFECT THE MERGER.......................................61
6.2 CONDITIONS TO THE OBLIGATIONS OF PARENT AND SUB....................................................62
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TABLE OF CONTENTS
(CONTINUED)
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6.3 CONDITIONS TO OBLIGATIONS OF THE COMPANY...........................................................65
ARTICLE VII SURVIVAL OF REPRESENTATIONS AND WARRANTIES...............................................................66
7.1 SURVIVAL OF REPRESENTATIONS, WARRANTIES AND COVENANTS..............................................66
7.2 INDEMNIFICATION....................................................................................66
7.3 HOLDBACK ARRANGEMENTS..............................................................................66
7.4 STOCKHOLDER REPRESENTATIVE.........................................................................71
ARTICLE VIII TERMINATION, AMENDMENT AND WAIVER.......................................................................73
8.1 TERMINATION........................................................................................73
8.2 EFFECT OF TERMINATION..............................................................................75
8.3 AMENDMENT..........................................................................................75
8.4 EXTENSION; WAIVER..................................................................................75
ARTICLE IX GENERAL PROVISIONS........................................................................................75
9.1 NOTICES............................................................................................75
9.2 INTERPRETATION.....................................................................................76
9.3 COUNTERPARTS.......................................................................................76
9.4 ENTIRE AGREEMENT; ASSIGNMENT.......................................................................77
9.5 SEVERABILITY.......................................................................................77
9.6 OTHER REMEDIES.....................................................................................77
9.7 GOVERNING LAW......................................................................................77
9.8 RULES OF CONSTRUCTION..............................................................................77
9.9 WAIVER OF JURY TRIAL...............................................................................78
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INDEX OF EXHIBITS
EXHIBIT DESCRIPTION
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Exhibit A Employee Release, Non-Competition and Waiver Plan
Exhibit B Form of Stockholder Written Consent
Exhibit C Form of Certificate of Merger
Exhibit D Form of Irrevocable Release, Waiver of Claims and Non-Competition Agreement
Exhibit E Form of Legal Opinion of Counsel to the Company
Exhibit F Terms of Non-Voting Company Common Stock
SCHEDULES
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4.2(b) Restricted Party
5.2 Required Israeli Consents
5.5 Scheduled Expenses
6.1(e) Antitrust Approvals
6.2(b) Governmental Approvals
6.2(c) Required Contract Consents
6.2(o) Corporate Authority
8.1(f) Excluded Third Party Claim
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THIS
AGREEMENT AND PLAN OF MERGER (this "AGREEMENT") is made and
entered into as of November 14, 2004 by and among ScanSoft, Inc., a Delaware
corporation ("PARENT"), Write Acquisition Corporation, a Delaware corporation
and a wholly-owned subsidiary of Parent ("SUB"), ART Advanced Recognition
Technologies, Inc., a Delaware corporation (the "COMPANY"), and with respect to
ARTICLE I, ARTICLE VII and ARTICLE IX hereof only, Bessemer Venture Partners VI,
LP as stockholder representative (the "STOCKHOLDER REPRESENTATIVE").
RECITALS
A. The Boards of Directors of each of Parent, Sub and the Company
believe it is advisable and in the best interests of each company and its
respective stockholders that Parent acquire the Company through the statutory
merger of Sub with and into the Company (the "MERGER") and, in furtherance
thereof, have approved this Agreement and the Merger.
B. Pursuant to the Merger, among other things, and subject to the terms
and conditions of this Agreement, (i) all of the issued and outstanding capital
stock of the Company shall be converted into the right to receive the
consideration set forth herein and (ii) all of the issued and outstanding
options and warrants to purchase capital stock of the Company shall be exercised
or terminated.
C. A portion of the consideration otherwise payable by Parent in
connection with the Merger, and a portion of the amounts otherwise payable to
the Participants (as defined in SECTION 1.6(a)) pursuant to the Employee
Release, Non-Competition and Waiver Plan, which is attached hereto as EXHIBIT A
(the "EMPLOYEE RELEASE, NON-COMPETITION AND WAIVER PLAN"), shall be held back by
Parent as security for the indemnification obligations set forth in this
Agreement.
D. The Company, on the one hand, and Parent and Sub, on the other hand,
desire to make certain representations, warranties, covenants and other
agreements in connection with the Merger.
E. Immediately following the execution and delivery of this Agreement
by the Company, the Company shall obtain the irrevocable approval and adoption
of the Merger, this Agreement and the transactions contemplated hereby,
including each of the matters set forth in SECTION 5.1 hereof, pursuant to an
Action by Written Consent, in the form attached hereto as EXHIBIT B (the
"STOCKHOLDER WRITTEN CONSENT"), signed by each member of the Company's Board of
Directors (the "BOARD") (and any affiliated entities) and each officer of the
Company, in each case in his, her or its capacity as a stockholder of the
Company, and such other Stockholders who, together with the foregoing, represent
a sufficient number of shares of the voting capital stock of the Company
necessary to approve and adopt the Merger, this Agreement and the transactions
contemplated hereby, including each of the matters set forth in SECTION 5.1
hereof, by the Required Stockholder Vote (as defined in SECTION 2.4), in
accordance with the applicable provisions of the General Corporation Law of the
State of Delaware ("DELAWARE LAW") and the Charter Documents (as defined in
SECTION 2.1).
NOW, THEREFORE, in consideration of the mutual agreements, covenants
and other promises set forth herein, the mutual benefits to be gained by the
performance thereof, and for other good and valuable consideration, the receipt
and sufficiency of which are hereby acknowledged and accepted, the parties
hereby agree as follows:
ARTICLE I
THE MERGER
1.1 THE MERGER. At the Effective Time (as defined in SECTION 1.2) and
subject to and upon the terms and conditions of this Agreement and the
applicable provisions of Delaware Law, Sub shall be merged with and into the
Company, the separate corporate existence of Sub shall cease, and the Company
shall continue as the surviving corporation and as a wholly-owned subsidiary of
Parent. The surviving corporation after the Merger is sometimes referred to
hereinafter as the "SURVIVING CORPORATION."
1.2 EFFECTIVE TIME. Unless this Agreement is earlier terminated
pursuant to SECTION 8.1 hereof, the closing of the Merger (the "CLOSING") will
take place as promptly as practicable after the execution and delivery hereof by
the parties hereto, but no later than two (2) Business Days following
satisfaction or waiver of the conditions set forth in ARTICLE VI hereof (other
than those conditions that by their nature are to be satisfied at the Closing,
but subject to the fulfillment or waiver of those conditions), at the offices of
Xxxxxx Xxxxxxx Xxxxxxxx & Xxxxxx, Professional Corporation, 00 Xxxx 00xx Xxxxxx,
00xx Xxxxx, Xxx Xxxx, Xxx Xxxx, unless another time or place is mutually agreed
upon in writing by Parent and the Company. The date upon which the Closing
actually occurs shall be referred to herein as the "CLOSING DATE." On the
Closing Date, the parties hereto shall cause the Merger to be consummated by
filing a Certificate of Merger in substantially the form attached hereto as
EXHIBIT C (the "CERTIFICATE OF MERGER"), with the Secretary of State of the
State of Delaware, in accordance with the applicable provisions of Delaware Law
(the time of the acceptance of such filing by the Secretary of State of the
State of Delaware shall be referred to herein as the "EFFECTIVE TIME").
1.3 EFFECT OF THE MERGER. At the Effective Time, the effect of the
Merger shall be as provided in the applicable provisions of Delaware Law.
Without limiting the generality of the foregoing, and subject thereto, at the
Effective Time, except as otherwise agreed to pursuant to the terms of this
Agreement, all of the property, rights, privileges, powers and franchises of the
Company and Sub shall vest in the Surviving Corporation, and all debts,
liabilities and duties of the Company and Sub shall become the debts,
liabilities and duties of the Surviving Corporation.
1.4 CERTIFICATE OF INCORPORATION AND BYLAWS.
(a) Unless otherwise determined by Parent prior to the
Effective Time, and subject to the terms and conditions of this Agreement,
including SECTION 5.17, the certificate of incorporation of the Surviving
Corporation shall be amended and restated as of the Effective Time to be
identical to the certificate of incorporation of Sub as in effect immediately
prior to the Effective
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Time, until thereafter amended in accordance with Delaware Law and as provided
in such certificate of incorporation, in all cases in a manner consistent with
this Agreement; provided, however, that at the Effective Time, ARTICLE I of the
certificate of incorporation of the Surviving Corporation shall be amended and
restated in its entirety to read as follows: "The name of the corporation is ART
Advanced Recognition Technologies, Inc."
(b) Unless otherwise determined by Parent prior to the
Effective Time, and subject to the terms and conditions of this Agreement,
including SECTION 5.17, the bylaws of Sub, as in effect immediately prior to the
Effective Time, shall be the bylaws of the Surviving Corporation at the
Effective Time until thereafter amended in accordance with Delaware Law and as
provided in the certificate of incorporation of the Surviving Corporation and
such bylaws, in all cases in a manner consistent with this Agreement.
1.5 DIRECTORS AND OFFICERS.
(a) DIRECTORS OF COMPANY. Unless otherwise determined by
Parent prior to the Effective Time, the directors of Sub immediately prior to
the Effective Time shall be the directors of the Surviving Corporation
immediately after the Effective Time, each to hold the office of a director of
the Surviving Corporation in accordance with the provisions of Delaware Law and
the certificate of incorporation and bylaws of the Surviving Corporation until
their successors are duly elected and qualified.
(b) OFFICERS OF COMPANY. Unless otherwise determined by Parent
prior to the Effective Time, the officers of Sub immediately prior to the
Effective Time shall be the officers of the Surviving Corporation immediately
after the Effective Time, each to hold office in accordance with the provisions
of the bylaws of the Surviving Corporation.
1.6 EFFECT OF MERGER ON THE CAPITAL STOCK OF THE CONSTITUENT
CORPORATIONS.
(a) DEFINITIONS. For all purposes of this Agreement, the
following terms shall have the following respective meanings:
(i) "AFR" shall mean the short-term applicable
federal rate then in effect for purposes of Section 1274(d) of the Code.
(ii) "AGGREGATE JUNIOR PREFERRED STOCK PREFERENCE"
shall mean that amount of cash equal to the sum of (A) the Series A Preferred
Stock Preference and (B) the Series B Preferred Stock Preference.
(iii) "AGGREGATE SENIOR PREFERRED STOCK PREFERENCE"
shall mean that amount of cash equal to the sum of (A) the Series C Preferred
Stock Preference and (B) the Series D Preferred Stock Preference.
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(iv) "BUSINESS DAY[S]" shall mean each day that is
not a Saturday, Sunday or holiday on which banking institutions located in
New
York,
New York are authorized or obligated by law or executive order to close.
(v) "CHANGE OF CONTROL" shall mean (A) a merger or
consolidation of Parent into or with any other person or entity in a transaction
or series of related transactions that results in more than Fifty Percent (50%)
of the voting securities of Parent or the surviving or resulting entity in such
transaction or series of related transactions that are outstanding immediately
after the consummation thereof being held by persons or entities other than
those persons or entities that (individually or collectively) held such voting
securities of Parent immediately prior to the consummation thereof, or (B) a
sale or other disposition of all or substantially all of the assets or voting
securities of ART Advanced Recognition Technologies, Ltd. ("ART LTD.").
(vi) "CODE" shall mean the Internal Revenue Code of
1986, as amended.
(vii) "COMPANY CAPITAL STOCK" shall mean the Company
Common Stock, the Company Preferred Stock and any other shares of capital stock,
if any, of the Company, taken together.
(viii) "COMPANY COMMON STOCK" shall mean shares of
common stock, par value $0.001 per share, of the Company.
(ix) "COMPANY MATERIAL ADVERSE EFFECT" shall mean any
change, event, occurrence, circumstance or effect (any such item, an "EFFECT"),
individually or when taken together with all other Effects that have occurred
prior to the date of determination of the occurrence of such Company Material
Adverse Effect, that is or is reasonably likely to be materially adverse to the
business, assets (whether tangible or intangible), condition (financial or
otherwise), or operations of the Company and its Subsidiaries (taken as a
whole); provided, however, that in no event shall any of the following, alone or
in combination with any other factor, be deemed to constitute, nor shall any of
the following be taken into account in determining whether there has been or
will be, a Company Material Adverse Effect: (A) any Effect relating to the
industry in which the Company and its Subsidiaries operate generally (which
Effects in each case do not disproportionately affect the Company and its
Subsidiaries (taken as a whole) in any material respect); (B) any change in
accounting requirements or principles or any change in applicable laws, rules or
regulations or the interpretation thereof applicable to the Company; (C) any
change in any economy in which the Company or any of its Subsidiaries operates,
conducts business or participates in capital markets (which changes in each case
do not disproportionately affect the Company and its Subsidiaries (taken as a
whole) in any material respect); (D) any Effect relating to (1) a claim by the
party identified on SCHEDULE 8.1(f) attached hereto (a "SPECIAL CLAIM")
(excluding any portion of such Special Claim alleging that the Company or any
Subsidiary infringes or violates any patent of such party (a "SPECIAL PATENT
CLAIM")), which Effect is reasonably likely to result in Losses (as defined in
SECTION 7.2, including lost profits and diminution in value) less than Two
Million Dollars ($2,000,000), or (2) a Special Patent Claim or any portion of a
Special Claim that constitutes a Special Patent Claim.
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(x) "COMPANY OPTIONS" shall mean all issued and
outstanding options (including commitments to grant options, but excluding
Company Warrants and Company Preferred Stock) to purchase or otherwise acquire
Company Common Stock, whether or not vested, held by any person or entity, each
of whom are listed on SECTION 2.2(a)(ii) of the Disclosure Schedule.
(xi) "COMPANY PREFERRED STOCK" shall mean shares of
Company Series A Preferred Stock, Company Series B Preferred Stock, Company
Series C Preferred Stock and Company Series D Preferred Stock, taken together.
(xii) "COMPANY SERIES A PREFERRED STOCK" shall mean
shares of Series A Convertible Participating Preferred Stock, par value $0.001
per share, of the Company.
(xiii) "COMPANY SERIES B PREFERRED STOCK" shall mean
shares of Series B Convertible Participating Preferred Stock, par value $0.001
per share, of the Company.
(xiv) "COMPANY SERIES C PREFERRED STOCK" shall mean
shares of Series C Convertible Participating Preferred Stock, par value $0.001
per share, of the Company.
(xv) "COMPANY SERIES D PREFERRED STOCK" shall mean
shares of Series D Convertible Participating Preferred Stock, par value $0.001
per share, of the Company.
(xvi) "COMPANY WARRANTS" shall mean all issued and
outstanding warrants or other rights (including commitments to grant warrants or
other rights, but excluding Company Options and Company Preferred Stock) to
purchase or otherwise acquire Company Capital Stock, whether or not vested, held
by any person or entity, each of whom are listed on SECTION 2.2(a)(II) of the
Disclosure Schedule.
(xvii) "DEEMED EXERCISED OPTION" shall mean each
Company Option outstanding as of the second Business Day prior to the Closing
Date having a per share exercise price that is less than the Participating Stock
Amount, provided that the holder thereof shall have explicitly consented to the
deemed exercise of such Company Option, which means that as of the Effective
Time, such Company Option shall be deemed to have been exercised for Company
Capital Stock and such holder shall be treated in all respects as a Stockholder
hereunder, including the holdback and indemnification provisions set forth in
SECTION 1.8(b) and ARTICLE VII hereof.
(xviii) "DEEMED OPTION EXERCISE AMOUNT" shall mean,
with respect to each Deemed Exercised Option, the product obtained by
multiplying (A) the number of shares of Company Common Stock issuable upon
exercise of such Deemed Exercised Option and (B) the applicable per share
exercise price with respect to such Deemed Exercised Option.
(xix) "DEFERRED EMPLOYEE RELEASE AMOUNT" shall mean
an amount of cash equal to 6.7811% of the Total Deferred Consideration (for
example, if the Total Deferred Consideration is $16,500,000, the Deferred
Employee Release Amount would be $1,118,881.50), subtracting from such amount
the Participant Expenses (as defined in SECTION 5.5).
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(xx) "DEFERRED STOCKHOLDER AMOUNT" shall mean an
amount of cash equal to 93.2189% of the Total Deferred Consideration (for
example, if the Total Deferred Consideration is $16,500,000, the Deferred
Stockholder Amount would be $15,381,118.50), which amount shall be distributed
to the Stockholders in exchange for their shares of Company Capital Stock
pursuant to this ARTICLE I.
(xxi) "EMPLOYEE RELEASE ALLOCATION" shall mean the
spreadsheet delivered by the Company in accordance with SECTION 5.14 hereof,
which spreadsheet sets forth the allocation of the Employee Release Amount in
detail, including (A) the Release Payment due each Participant out of the
Initial Employee Release Amount in the First Installment (as defined in SECTION
1.6(g)(i)), (B) the Release Payment due each Participant out of the Deferred
Employee Release Amount in the Second Installment (as defined in SECTION
1.6(g)(i)), and (C) the portion of each Release Payment that is subject to the
Holdback (as defined in SECTION 7.3(a)) in accordance with SECTION 1.8(b) and
ARTICLE VII hereof.
(xxii) "EMPLOYEE RELEASE AMOUNT" shall mean an amount
of cash equal to the sum of (A) the Initial Employee Release Amount and (B) the
Deferred Employee Release Amount, which amount shall be distributed to the
eligible Participants pursuant to the Employee Release, Non-Competition and
Waiver Plan according to the allocation of such amount set forth in the Employee
Release Allocation (it being understood that (1) only those Participants that
deliver a valid and enforceable Release prior to the Closing shall be eligible
to receive such Participant's portion of the Employee Release Amount and (2) the
Employee Release Amount shall be distributed in two separate installments, in
accordance with SECTION 1.6(g) and the Employee Release Allocation).
(xxiii) "ESTIMATED THIRD PARTY EXPENSES" shall mean
the amount of Third Party Expenses (as defined in SECTION 5.5) incurred by the
Company or any Subsidiary (as defined in SECTION 2.3) on or after October 5,
2004 that are paid or expected to be payable by the Company or the Surviving
Corporation and estimated by the Company in good faith and based on reasonable
assumptions as of the Closing Date, as reflected on the Statement of Expenses
(as defined in SECTION 5.5).
(xxiv) "GAAP" shall mean United States generally
accepted accounting principles consistently applied.
(xxv) "HOLDBACK AMOUNT" shall mean an amount of cash
equal to Seven and One Half Percent (7.5%) of the Total Consideration (by way of
example, if the Total Consideration is $26,500,000, then the Holdback Amount is
$1,987,500), which amount shall be withheld from the Total Deferred
Consideration pursuant to SECTION 1.8(b) hereof, plus any interest earned on
such amount pursuant to SECTION 1.6(g)(iii) hereof.
(xxvi) "INITIAL STOCKHOLDER AMOUNT" shall mean an
amount of cash equal to Eight Million Six Hundred Twenty Seven Thousand Forty
Dollars ($8,627,040).
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(xxvii) "INITIAL EMPLOYEE RELEASE AMOUNT" shall mean
an amount of cash equal to One Million Three Hundred Seventy Two Thousand Nine
Hundred Sixty Dollars ($1,372,960).
(xxviii) "KNOWLEDGE" shall mean, with respect to the
Company, the actual knowledge of the Company's officers and directors; provided,
however, that the Company's officers shall have made due and diligent inquiry of
those employees and consultants of the Company whom such officers reasonably
believe would have actual knowledge of the matters represented.
(xxix) "LIEN" shall mean any lien, pledge, charge,
claim, mortgage, security interest or other encumbrance of any sort.
(xxx) "OPTION EXERCISE AMOUNT" shall mean the sum of
(A) the aggregate amount of cash proceeds received by the Company between the
date hereof and the second Business Day prior to the Closing Date in
consideration for the exercise of any Company Options and Company Warrants
between the date hereof and the Closing Date, which exercises and proceeds
received shall be set forth in the Spreadsheet (as defined in SECTION 5.16),
plus (B) the aggregate amount of the Deemed Option Exercise Amounts.
(xxxi) "PARENT COMMON STOCK" shall mean shares of
common stock, $0.001 par value per share, of Parent.
(xxxii) "PARENT MATERIAL ADVERSE EFFECT" shall mean
any Effect, individually or when taken together with all other Effects that have
occurred prior to the date of determination of the occurrence of such Parent
Material Adverse Effect, that is or is reasonably likely to be materially
adverse to the business, assets (whether tangible or intangible), condition
(financial or otherwise), or operations of Parent and its subsidiaries (taken as
a whole); provided, however, that in no event shall any of the following, alone
or in combination with any other factor, be deemed to constitute, nor shall any
of the following be taken into account in determining whether there has been or
will be, a Parent Material Adverse Effect: (A) any change in the price per share
of Parent Common Stock or in the trading volume of Parent Common Stock; (B) any
Effect relating to the industry in which Parent and its subsidiaries operate
generally (which Effects in each case do not disproportionately affect Parent
and its subsidiaries (taken as a whole) in any material respect); (C) any change
in accounting requirements or principles or any change in applicable laws, rules
or regulations or the interpretation thereof applicable to Parent; or (D) a
change in any economy in which Parent or any of its subsidiaries operates,
conducts business or participates in capital markets (which changes in each case
do not disproportionately affect Parent and its subsidiaries (taken as a whole)
in any material respect).
(xxxiii) "PARTICIPANT" shall mean each employee of
the Company that is eligible to participate in the Employee Release,
Non-Competition and Waiver Plan pursuant to the terms thereof.
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(xxxiv) "PARTICIPATING CONSIDERATION" shall mean that
amount of cash remaining after subtracting (A) the sum of (1) the Aggregate
Senior Preferred Stock Preference and (2) the Aggregate Junior Preferred Stock
Preference from (B) the Total Stockholder Consideration.
(xxxv) "PARTICIPATING STOCK AMOUNT" shall mean an
amount of cash equal to the quotient obtained by dividing (A) the Participating
Consideration by (B) the Total Outstanding Shares.
(xxxvi) "PLANS" shall mean the Company's 1991 Stock
Option Plan and 0000 Xxxxxxx Share Plan.
(xxxvii) "PRIME RATE" shall mean the Prime Rate as
reported by the Wall Street Journal (the base rate on corporate loans posted by
at least Seventy Five Percent (75%) of the Thirty (30) largest banks in the
United States).
(xxxviii) "RELEASE PAYMENT" shall mean with respect
to each Participant, the payment by Parent of such Participant's portion of the
Employee Release Amount as set forth in the Employee Release Allocation, it
being understood that (A) only those Participants that deliver a valid and
enforceable Release prior to the Closing shall be eligible to receive such
Participant's Release Payment, (B) each Release Payment shall be distributed in
two separate installments, in accordance with SECTION 1.6(g) hereof and the
Employee Release Allocation and (C) only those Participants that have delivered
a Release, which is in full force and effect, shall be eligible to receive such
Participant's Release Payment in the Second Installment (as defined in SECTION
1.6(g)(i)).
(xxxix) "RELATED AGREEMENTS" shall mean the Employee
Release, Non-Competition and Waiver Plan, the Releases and the Certificate of
Merger.
(xl) "SEC" shall mean the United States Securities
and Exchange Commission.
(xli) "SERIES A PREFERRED STOCK AMOUNT" shall mean an
amount of cash equal to $1.5692 per share of Company Series A Preferred Stock.
(xlii) "SERIES A PREFERRED STOCK PREFERENCE" shall
mean an amount of cash equal to the product obtained by multiplying the Series A
Preferred Stock Amount by the Total Outstanding Series A Preferred Shares.
(xliii) "SERIES B PREFERRED STOCK AMOUNT" shall mean
an amount of cash equal to $10.00 per share of Company Series B Preferred Stock.
(xliv) "SERIES B PREFERRED STOCK PREFERENCE" shall
mean an amount of cash equal to the product obtained by multiplying the Series B
Preferred Stock Amount by the Total Outstanding Series B Preferred Shares.
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(xlv) "SERIES C PREFERRED STOCK AMOUNT" shall mean an
amount of cash equal to $1.24682 per share of Company Series C Preferred Stock.
(xlvi) "SERIES C PREFERRED STOCK PREFERENCE" shall
mean an amount of cash equal to the product obtained by multiplying the Series C
Preferred Stock Amount by the Total Outstanding Series C Preferred Shares.
(xlvii) "SERIES D PREFERRED STOCK AMOUNT" shall mean
an amount of cash equal to $1.46022 per share of Company Series D Preferred
Stock.
(xlviii) "SERIES D PREFERRED STOCK PREFERENCE" shall
mean an amount of cash equal to the product obtained by multiplying the Series D
Preferred Stock Amount by the Total Outstanding Series D Preferred Shares.
(xlix) "STOCKHOLDERS" shall mean holders of shares of
Company Capital Stock.
(l) "THIRD PARTY EXPENSE ADJUSTMENT AMOUNT" shall
mean the amount by which the Estimated Third Party Expenses exceed Two Hundred
Fifty Thousand Dollars ($250,000), as reflected in the Statement of Expenses.
(li) "TOTAL CONSIDERATION" shall mean an amount of
cash equal to the sum obtained by adding (A) Ten Million Dollars ($10,000,000)
and (B) the Total Deferred Consideration.
(lii) "TOTAL DEFERRED CONSIDERATION" shall mean an
amount of cash equal to the difference obtained by subtracting (A) the Third
Party Expense Adjustment Amount from (B) the sum of (1) Sixteen Million Five
Hundred Thousand Dollars ($16,500,000) and (2) the Option Exercise Amount.
(liii) "TOTAL OUTSTANDING SERIES A PREFERRED SHARES"
shall mean the aggregate number of shares of Company Series A Preferred Stock
(including any rights convertible into, or exercisable or exchangeable for,
shares of Company Series A Preferred Stock on an as-converted, exercised, or
exchanged basis, other than any such rights which are cancelled, exercised or
terminated prior to the Effective Time) issued and outstanding immediately prior
to the Effective Time.
(liv) "TOTAL OUTSTANDING SERIES B PREFERRED SHARES"
shall mean the aggregate number of shares of Company Series B Preferred Stock
(including any rights convertible into, or exercisable or exchangeable for,
shares of Company Series B Preferred Stock on an as-converted, exercised, or
exchanged basis, other than any such rights which are cancelled, exercised or
terminated prior to the Effective Time) issued and outstanding immediately prior
to the Effective Time.
(lv) "TOTAL OUTSTANDING SERIES C PREFERRED SHARES"
shall mean the aggregate number of shares of Company Series C Preferred Stock
(including any rights convertible
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into, or exercisable or exchangeable for, shares of Company Series C Preferred
Stock on an as-converted, exercised, or exchanged basis, other than any such
rights which are cancelled, exercised or terminated prior to the Effective Time)
issued and outstanding immediately prior to the Effective Time.
(lvi) "TOTAL OUTSTANDING SERIES D PREFERRED SHARES"
shall mean the aggregate number of shares of Company Series D Preferred Stock
(including any rights -convertible into, or exercisable or exchangeable for,
shares of Company Series D Preferred Stock on an as-converted, exercised, or
exchanged basis, other than any such rights which are cancelled, exercised or
terminated prior to the Effective Time) issued and outstanding immediately prior
to the Effective Time.
(lvii) "TOTAL OUTSTANDING SHARES" shall mean the
aggregate number of shares of Company Capital Stock, plus the maximum aggregate
number of shares of Company Capital Stock issuable upon full exercise, exchange
or conversion of all Company Options, Company Warrants and any other rights
whether vested or unvested, convertible into, exercisable for or exchangeable
for, shares of Company Capital Stock issued and outstanding immediately prior to
the Effective Time, on an as converted to Company Common Stock basis.
Notwithstanding the foregoing, Total Outstanding Shares shall not include any
shares of (i) Company Capital Stock otherwise issuable upon the exercise of
Company Options, Company Warrants or other rights that expire or are cancelled
concurrently with or immediately prior to the Effective Time to the extent not
exercised (other than Deemed Exercised Options, which shall be treated as having
been fully exercised for cash immediately prior to the Effective Time) or (ii)
Company Common Stock issuable upon exercise of Company Option or Company
Warrants having a per share exercise price that is greater than the
Participating Stock Amount.
(lviii) "TOTAL STOCKHOLDER CONSIDERATION" shall mean
an amount of cash equal to Ninety Percent (90%) of the Total Consideration.
(b) EFFECT ON COMPANY CAPITAL STOCK.
(i) COMPANY COMMON STOCK. Subject to the terms and
conditions of this Agreement, at the Effective Time, by virtue of the Merger and
without any action on the part of Sub, the Company or any Stockholder, each
share of Company Common Stock (other than any Dissenting Shares) issued and
outstanding immediately prior to the Effective Time will be canceled and
extinguished and be converted automatically into the right to receive, upon
surrender of the certificate representing such share of Company Common Stock in
the manner provided in SECTION 1.8, the Participating Stock Amount.
Notwithstanding the foregoing, the amount of cash distributable to Stockholders
with respect to shares of Company Common Stock shall be made and/or reduced
accordingly pursuant to (A) the deferred payment provisions of SECTION 1.6(g)
hereof and (B) the holdback provisions of SECTION 1.8(b) and ARTICLE VII hereof.
(ii) COMPANY SERIES A PREFERRED STOCK. Subject to the
terms and conditions of this Agreement, at the Effective Time, by virtue of the
Merger and without any action on the part of Sub, the Company or any
Stockholder, each share of Company Series A Preferred
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Stock (other than any Dissenting Shares) issued and outstanding immediately
prior to the Effective Time will be canceled and extinguished and be converted
automatically into the right to receive, upon surrender of the certificate
representing such share of Company Series A Preferred Stock in the manner
provided in SECTION 1.8, the Series A Preferred Stock Amount plus the
Participating Stock Amount. Notwithstanding the foregoing, the amount of cash
distributable to Stockholders with respect to shares of Company Series A
Preferred Stock shall be made and/or reduced accordingly pursuant to (A) the
deferred payment provisions of SECTION 1.6(g) hereof and (B) the holdback
provisions of SECTION 1.8(b) and ARTICLE VII hereof.
(iii) COMPANY SERIES B PREFERRED STOCK. Subject to
the terms and conditions of this Agreement, at the Effective Time, by virtue of
the Merger and without any action on the part of Sub, the Company or any
Stockholder, each share of Company Series B Preferred Stock (other than any
Dissenting Shares) issued and outstanding immediately prior to the Effective
Time will be canceled and extinguished and be converted automatically into the
right to receive, upon surrender of the certificate representing such share of
Company Series B Preferred Stock in the manner provided in SECTION 1.8, the
Series B Preferred Stock Amount plus the Participating Stock Amount.
Notwithstanding the foregoing, the amount of cash distributable to Stockholders
with respect to shares of Company Series B Preferred Stock shall be made and/or
reduced accordingly pursuant to (A) the deferred payment provisions of SECTION
1.6(g) hereof and (B) the holdback provisions of SECTION 1.8(b) and ARTICLE VII
hereof.
(iv) COMPANY SERIES C PREFERRED STOCK. Subject to the
terms and conditions of this Agreement, at the Effective Time, by virtue of the
Merger and without any action on the part of Sub, the Company or any
Stockholder, each share of Company Series C Preferred Stock (other than any
Dissenting Shares) issued and outstanding immediately prior to the Effective
Time will be canceled and extinguished and be converted automatically into the
right to receive, upon surrender of the certificate representing such share of
Company Series C Preferred Stock in the manner provided in SECTION 1.8, the
Series C Preferred Stock Amount plus the Participating Stock Amount.
Notwithstanding the foregoing, the amount of cash distributable to Stockholders
with respect to shares of Company Series C Preferred Stock shall be made and/or
reduced accordingly pursuant to (A) the deferred payment provisions of SECTION
1.6(g) hereof and (B) the holdback provisions of SECTION 1.8(b) and ARTICLE VII
hereof.
(v) COMPANY SERIES D PREFERRED STOCK. Subject to the
terms and conditions of this Agreement, at the Effective Time, by virtue of the
Merger and without any action on the part of Sub, the Company or any
Stockholder, each share of Company Series D Preferred Stock (other than any
Dissenting Shares) issued and outstanding immediately prior to the Effective
Time will be canceled and extinguished and be converted automatically into the
right to receive, upon surrender of the certificate representing such share of
Company Series D Preferred Stock in the manner provided in SECTION 1.8, the
Series D Preferred Stock Amount plus the Participating Stock Amount.
Notwithstanding the foregoing, the amount of cash distributable to Stockholders
with respect to shares of Company Series D Preferred Stock shall be made and/or
reduced accordingly pursuant to (A) the deferred payment provisions of SECTION
1.6(g) hereof and (B) the holdback provisions of SECTION 1.8(b) and ARTICLE VII
hereof.
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(c) TREATMENT OF COMPANY OPTIONS AND COMPANY WARRANTS.
(i) Parent shall not assume any Company Options or
Company Warrants. The Company shall cause the termination, effective immediately
prior to the Effective Time, of all outstanding Company Options and Company
Warrants that then remain unexercised so that no Company Options or Company
Warrants remain outstanding immediately prior to the Effective Time. Thereafter,
the holders of Company Options and Company Warrants shall, as of the Effective
Time, cease to have any further right or entitlement to acquire any Company
Capital Stock or any shares of capital stock or other securities of Parent or
the Surviving Corporation under the terminated Company Options or Company
Warrants. For purposes of this SECTION 1.6(c)(i), each Deemed Exercised Option
shall be treated as having been fully exercised for cash immediately prior to
the Effective Time, and the Deemed Option Exercise Amount with respect to such
Deemed Exercise Option shall be retained by Parent and deducted from the
consideration otherwise payable to the holder of such Deemed Exercised Option
hereunder.
(ii) The Company shall cause the termination,
effective immediately prior to the Effective Time, of all Plans.
(iii) The Company shall obtain all consents necessary
to cause the termination of all Company Options and Company Warrants as provided
under subparagraph (i) above. The Company shall take all other actions necessary
or appropriate, including providing all required notices on a timely basis, so
that, as of the Effective Time and as a result of the Merger, (A) no options,
warrants or other rights to acquire any Company Capital Stock or any securities,
debt or other rights convertible into or exchangeable or exercisable for Company
Capital Stock are outstanding, (B) no person holding Company Capital Stock,
Company Options or Company Warrants shall, on and after the Effective Time, have
any right, title or interest in or to the Company or the Surviving Corporation
or any securities of the Company or the Surviving Corporation, other than, in
the case of the holders of Company Capital Stock, the right to payments of
consideration in the manner described in this Agreement, and (C) no person
holding Company Capital Stock, Company Options or Company Warrants shall by
virtue of any such securities have any right to acquire any securities of
Parent.
(d) WITHHOLDING TAXES. Notwithstanding any other provision in
this Agreement, Parent, the Company, Sub, and the Paying Agent (as defined in
SECTION 1.8) shall have the right to deduct and withhold Taxes from any payments
contemplated by this Agreement, including the Release Payments under the
Employee Release, Non-Competition and Waiver Plan, if such withholding is
required by law and to request any necessary Tax forms, including Form W-9 or
the appropriate series of Form W-8, as applicable, or any similar information,
from the recipients of payments contemplated by this Agreement. To the extent
that amounts are so withheld, such withheld amounts shall be treated for all
purposes of this Agreement as having been delivered and paid to the Stockholder
or other recipient of payments in respect of which such deduction and
withholding was made. The parties acknowledge and agree that Parent shall
distribute the Release Payments and that the amount of withholding with respect
to any Release Payment shall be calculated based upon the entire amount of such
payment (including any portion of such payment
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subject to the Holdback, and such withheld amount shall be deducted from the
portion of such payment that is received by the Participant.
(e) LOANS. In the event that any Stockholder or Participant
has outstanding loans from the Company or any of its Subsidiaries as of the
Effective Time, other than travel advances or other employee advances not in
excess of Nine Thousand Dollars ($9,000) in any individual case ("COMPANY
LOANS"), the consideration payable to such Stockholder or Participant pursuant
to this SECTION 1.6 shall be reduced by an amount equal to the outstanding
principal plus accrued interest of such party's loans as of the Effective Time.
Such loans shall be repaid in full by reducing the Stockholder's or
Participant's portion of the First Installment to the extent that the portion of
the First Installment payable to such Stockholder or Participant is sufficient
to cover such amount, and out of such party's portion of the Second Installment
(as defined in SECTION 1.6(g)(i)) thereafter. Such loans shall be satisfied as
to the amount by which the consideration is reduced pursuant to this SECTION
1.6(e). To the extent the consideration payable to such Stockholder or
Participant is so reduced, such amount shall be treated for all purposes under
this Agreement as having been paid to such party.
(f) CAPITAL STOCK OF SUB. Each share of Common Stock of Sub
issued and outstanding immediately prior to the Effective Time shall be
converted into and exchanged for one validly issued, fully paid and
nonassessable share of Common Stock of the Surviving Corporation. Each stock
certificate of Sub evidencing ownership of any such shares shall continue to
evidence ownership of such shares of capital stock of the Surviving Corporation.
(g) INSTALLMENT PAYMENTS.
(i) Notwithstanding anything to the contrary
contained herein, the Total Consideration shall be paid by Parent in two (2)
installments, (A) the first installment, comprised of Ten Million Dollars
($10,000,000), to be paid at the Effective Time in accordance with SECTION 1.8
hereof (the "FIRST INSTALLMENT"), and (B) the second installment, comprised of
the Total Deferred Consideration, to be paid within three (3) Business Days
following December 15, 2005 (the "SECOND INSTALLMENT"), which Second Installment
shall be subject in all respects to the holdback and indemnification provisions
set forth in SECTION 1.8(b) and ARTICLE VII hereof. Each Participant shall be
entitled to receive and Parent shall pay or cause the Paying Agent to pay,
subject in the case of the Second Installment to the holdback provisions of
SECTION 1.8(b) and ARTICLE VII hereof, the Employee Release Amount in accordance
with SECTION 5.14 hereof. Each Stockholder shall be entitled to receive and
Parent shall pay or cause the Paying Agent to pay, subject in the case of the
Second Installment to the holdback provisions of SECTION 1.8(b) and ARTICLE VII
hereof, upon surrender of the certificate(s) representing shares of Company
Capital Stock in the manner provided in SECTION 1.8 hereof as follows:
(1) in the First Installment, an amount of cash equal
to the product obtained by multiplying (A) the amount of cash such Stockholder
is entitled pursuant to SECTION 1.6(b) hereof by (B) the quotient obtained by
dividing (x) the Initial Stockholder Amount by (y) the Total Stockholder Amount;
and
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(2) in the Second Installment, an amount of
cash equal to the product obtained by multiplying (A) the amount of cash such
Stockholder is entitled pursuant to SECTION 1.6(b) hereof by (B) the quotient
obtained by dividing (x) the Deferred Stockholder Amount by (b) the Total
Stockholder Amount.
(ii) ACKNOWLEDGEMENT. The parties hereto acknowledge
and agree that (A) neither the Total Deferred Consideration nor the Holdback
Amount (including any interest thereon as set forth below) represents an
ownership interest on the part of the Stockholders or the Participants, but a
contractual obligation of Parent to pay such amounts in the manner provided
herein, (B) the right to receive any portion of the Total Deferred Consideration
and the Holdback Amount (including any interest thereon as set forth below) is
not transferable by any Stockholder or Participant, except by means of a
transfer, without consideration, of such right (1) upon death by will or the
laws of descent and distribution, (2) upon divorce pursuant to applicable law or
(3) by operation of applicable community property law, (C) the Total Deferred
Consideration and the Holdback Amount are integral components of the Total
Consideration, (D) there is no reasonable expectation of profit with respect to
the period of deferral of payment of the Total Deferred Consideration or the
Holdback Amount, (E) the Total Deferred Consideration and the Holdback Amount
each constitute an installment obligation for U.S. federal income tax purposes,
and recipients thereof shall report consistently with such characterization, (F)
the Stockholder Representative may recover Stockholder Representative Expenses
from the Second Installment as set forth in SECTION 7.4(b) hereof, and (G)
Participant Expenses (as defined in SECTION 5.5) shall be deducted from the
Deferred Employee Release Amount hereunder.
(iii) INTEREST. Following the Effective Time, Parent
shall pay interest with respect to the Total Deferred Consideration (other than
the Holdback Amount) to each of the Stockholders and the Participants on that
amount of cash payable in accordance with the terms of this Agreement to such
Stockholder or Participant pursuant to SECTION 1.6(b) or SECTION 5.14 hereof
(before Tax withholding), on the 90th day following the Effective Time, the
180th day following the Effective Time, the 270th day following the Effective
Time and on December 15, 2005, which interest (A) shall be calculated based upon
the actual number of days in such period and (B) shall have a rate equal to the
average of the then applicable (1) Prime Rate and (2) AFR, such average to be
calculated as of the first day of such period (i.e., the Effective Time for the
first period, the 91st day following the Effective Time for the second period,
the 181st day following the Effective Time for the third period, and the 271st
day following the Effective Time for the fourth period). Following the Effective
Time, interest shall accrue on the Holdback Amount at the same rate for each
applicable period as interest shall accrue on the Total Deferred Consideration
and such accrued interest shall be retained by Parent and become a part of the
Holdback. To the extent that such interest is not necessary for the satisfaction
of claims made for Losses pursuant to SECTION 7.3(c) hereof, interest accrued on
the Holdback shall be paid concurrently with the release of the Holdback Amount
pursuant to ARTICLE VII hereof. Notwithstanding anything to the contrary
contained herein, in the event that Parent shall fail to pay or cause the Paying
Agent to pay the Total Deferred Consideration, or any installment of interest
payable thereon when due, whether at maturity or upon acceleration pursuant to
SECTION 1.6(h)(i) hereof, subject in all respects and in accordance with SECTION
1.8 hereof and the holdback and indemnification provisions of SECTION 1.8(b) and
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ARTICLE VII hereof, such unpaid amount shall thereafter accrue, until paid in
full, simple interest at the rate of Twelve Percent (12%) per annum, based upon
the actual number of days elapsed.
(h) TOTAL DEFERRED CONSIDERATION. Notwithstanding anything to
the contrary contained herein or the Related Agreements, the parties hereto
acknowledge and agree that (i) the rights and obligations contained in this
SECTION 1.6(h) shall only apply to the payment by Parent of the Total Deferred
Consideration and the interest payable thereon pursuant to SECTION 1.6(g)
hereof, (ii) only the Stockholder Representative shall be entitled to enforce
the rights and obligations contained in this SECTION 1.6(h), (iii) Parent shall
incur no liability in connection with, and no beneficiary hereunder or party
hereto shall have any claim, action or right to enforce any instrument, whether
in law or equity, against Parent (or its affiliates) with respect to any
reduction of the Total Deferred Consideration due to (A) satisfaction of Direct
Indemnity Costs pursuant to SECTION 7.3(d) hereof or (B) satisfaction of
Stockholder Representative Expenses pursuant to SECTION 7.4(b) hereof, and (iv)
in no event shall payment of the Total Deferred Consideration in accordance with
SECTION 1.6 hereof constitute a waiver of any of Parent's rights hereunder.
(i) ACCELERATION. The Total Deferred Consideration
shall become immediately due and payable by Parent, such amount to be paid
within three (3) Business Days of any of the following: (A) Parent commences any
proceeding in bankruptcy or for dissolution, liquidation, winding-up, or other
relief under state or federal bankruptcy laws; (B) such proceedings are
commenced against Parent, or a receiver or trustee is appointed for Parent or a
substantial part of its property, and such proceeding or appointment is not
dismissed or discharged within sixty (60) days after its commencement; (C)
Parent is unable to, or admits in writing its inability to, pay its debts when
they become due; (D) Parent makes an assignment for the benefit of creditors, or
petitions or applies to any tribunal for the appointment of a custodian,
receiver or trustee for it or a substantial portion of its assets or has a
receiver, custodian or trustee appointed for all or a substantial portion of its
assets; (E) a Change of Control; or (F) Parent takes any action effectuating,
approving or consenting to any of the foregoing.
(ii) WAIVERS. With respect to this SECTION 1.6(h)
only, Parent hereby waives demand for performance and notice of non-performance
and no delay on the part of the Stockholder Representative in exercising any
right hereunder shall operate as a waiver of such right or any other right. The
rights and remedies provided in this SECTION 1.6(h) shall be cumulative and not
exclusive of any rights or remedies provided by law.
(iii) EXPENSES. In the event that the Stockholder
Representative makes a claim that Parent has failed to pay an obligation
hereunder when due in accordance with SECTION 1.6(g) hereof, all reasonable
fees, costs and expenses that arise out of such action shall be paid solely by,
and shall be the sole responsibility of, Parent, unless (A) the difference
between (1) the amount asserted by Parent and (2) the amount as finally
determined by the final resolution of such action, is less than (B) the
difference between (x) the amount asserted by the Stockholder Representative and
(y) the amount as finally determined by the final resolution of such action, in
which case such fees, costs and expenses shall be paid solely by, and shall be
the sole responsibility of, the Stockholders and Participants on a pro rata
basis based on each such party's interest in the Total Deferred
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Consideration, provided that the Stockholder Representative shall initially pay
such fees, costs and expenses, which shall constitute Stockholder Representative
Expenses.
1.7 DISSENTING SHARES.
(a) Notwithstanding any other provisions of this Agreement to
the contrary, any shares of Company Capital Stock held by a holder who has not
voted for the Merger, and who has not effectively withdrawn or lost such
holder's appraisal rights under Delaware Law (collectively, the "DISSENTING
SHARES") shall not be converted into or represent a right to receive the
applicable consideration for Company Capital Stock set forth in SECTION 1.6
hereof, but the holder thereof shall only be entitled to such rights as are
provided by Delaware Law.
(b) Notwithstanding the provisions of SECTION 1.7(a) hereof,
if any holder of Dissenting Shares shall effectively withdraw or lose (through
failure to perfect or otherwise) such holder's appraisal rights under Delaware
Law, then, as of the later of the Effective Time and the occurrence of such
event, such holder's shares shall automatically be converted into and represent
only the right to receive the consideration for Company Capital Stock, as
applicable, set forth in SECTION 1.6 hereof, without interest thereon, upon
surrender of the certificate representing such shares.
(c) The Company shall give Parent (i) prompt notice of any
written demand for appraisal received by the Company pursuant to the applicable
provisions of Delaware Law, and (ii) the opportunity to participate in all
negotiations and proceedings with respect to such demands. The Company shall
not, except with the prior written consent of Parent, make any payment with
respect to any such demands or offer to settle or settle any such demands.
Notwithstanding the foregoing, to the extent that Parent or the Company (A)
makes any payment or payments in respect of any Dissenting Shares in excess of
the consideration that otherwise would have been payable in respect of such
shares in accordance with this Agreement or (B) incurs any other costs or
expenses, (including attorneys' fees, costs and expenses in connection with any
action or proceeding or in connection with any investigation) in respect of any
Dissenting Shares (excluding payments for such shares) (together "DISSENTING
SHARE PAYMENTS"), Parent shall be entitled to recover under the terms of ARTICLE
VII hereof the amount of such Dissenting Share Payments without regard to the
Threshold Amount (as defined in SECTION 7.3(b)).
1.8 SURRENDER OF CERTIFICATES AND PAYMENT OF TOTAL CONSIDERATION.
(a) PAYING AGENT. The Secretary of Parent, or an institution
selected by Parent, shall serve as the paying agent (Parent (or an officer
thereof) in such capacity, or such institution, the "PAYING AGENT") for the
Merger.
(b) PARENT TO PROVIDE CASH. Parent shall (i) at the Effective
Time, pay or cause the Paying Agent to pay the Initial Stockholder Amount in
accordance with this ARTICLE I, to be distributed pursuant to SECTION 1.6(b)
hereof in exchange for outstanding shares of Company Capital Stock in the manner
provided in SECTION 1.6(g) hereof, and the Initial Employee Release Amount, to
be distributed pursuant to the Employee Release, Non-Competition and Waiver Plan
according to the
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allocation of such amount set forth in the Employee Release Allocation, and (ii)
within three (3) Business Days following December 15, 2005, pay or cause the
Paying Agent to pay the Deferred Stockholder Amount for exchange in accordance
with this ARTICLE I, to be distributed pursuant to SECTION 1.6(b) hereof in
exchange for outstanding shares of Company Capital Stock in the manner provided
in SECTION 1.6(g) hereof, and the Deferred Employee Release Amount, to be
distributed pursuant to the Employee Release, Non-Competition and Waiver Plan
according to the allocation of such amount set forth in the Employee Release
Allocation; provided, however, that on behalf of the Stockholders and the
Participants, Parent shall retain the Holdback Amount from the Total Deferred
Consideration and with respect to each Stockholder and Participant, Parent shall
be deemed to have retained such Stockholder's or Participant's Pro Rata Portion
(as defined in SECTION 7.3(a)) of the Holdback Amount from the portion of the
Total Deferred Consideration payable to such Stockholder or Participant in the
Second Installment. With respect to any amount of cash payable by Parent
pursuant to this Agreement, amounts payable to each recipient hereunder shall be
rounded to the nearest cent (with amounts greater than or equal to $0.005
rounded up).
(c) EXCHANGE PROCEDURES. At least Seven (7) Business Days
prior to the Closing Date, the Paying Agent shall mail a letter of transmittal
(which (i) shall specify that the delivery shall be effected, and risk of loss
and title to their shares of Company Capital Stock shall pass, only upon proper
delivery of the Company Stock Certificates (as defined below) to the Paying
Agent, (ii) shall require each Stockholder to (A) acknowledge its holdback and
indemnification obligations pursuant to this Agreement, (B) acknowledge the
deferred payment procedures set forth in SECTION 1.6(g) hereof, and (C)
acknowledge the appointment of the Stockholder Representative as its
attorney-in-fact, as contemplated by SECTION 7.4 hereof, and (iii) shall contain
such other customary provisions as Parent or the Paying Agent may reasonably
specify, (a "LETTER OF TRANSMITTAL") to each Stockholder at the address set
forth opposite each such Stockholder's name on SECTION 2.2(a)(i) of the
Disclosure Schedule, unless such Stockholder provides a different address in the
Letter of Transmittal for receipt of such payment or provides a different
address in writing in compliance with the procedures set forth in the Letter of
Transmittal. After receipt of such Letter of Transmittal, the Stockholders shall
surrender the certificates representing their shares of Company Capital Stock
(the "COMPANY STOCK CERTIFICATES") to the Paying Agent for cancellation together
with a duly completed and validly executed Letter of Transmittal. Upon surrender
of a Company Stock Certificate for cancellation to the Paying Agent, together
with such Letter of Transmittal, duly completed and validly executed in
accordance with the instructions thereto, the holder of such Company Stock
Certificate shall be entitled to receive from the Paying Agent in exchange
therefor, the cash amounts representing the First Installment, to which such
holder is entitled pursuant to SECTION 1.6(g) hereof, and the Company Stock
Certificate so surrendered shall be cancelled; provided, however, that only
those Stockholders with respect to which the Paying Agent has received a duly
completed and validly executed Letter of Transmittal and appropriate Company
Stock Certificates (collectively, "EXCHANGE MATERIALS") at least two (2)
Business Days prior to the Closing shall be entitled to be paid at the Closing
(otherwise, Stockholders shall be paid after the Closing and reasonably promptly
following the receipt of Exchange Materials by the Paying Agent). With respect
to each of the First Installment and the Second Installment, any Stockholder due
in excess of Two Hundred Fifty Thousand Dollars ($250,000) in any such
installment in exchange for their shares of Company Capital Stock pursuant to
SECTION 1.6(g) hereof may request a wire transfer
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to effect payment of such amount (otherwise payment shall be made by check);
provided, however, that the Paying Agent has no obligation to make such payment
by wire transfer unless valid and complete wire transfer instructions are
included in the Spreadsheet (as defined in SECTION 5.16) with respect to such
Stockholder. Until so surrendered, each Company Stock Certificate outstanding
after the Effective Time will be deemed, for all corporate purposes thereafter,
to evidence only the right to receive the cash amounts payable in exchange for
shares of Company Capital Stock. No portion of the Total Consideration will be
paid to the holder of any unsurrendered Company Stock Certificate with respect
to shares of Company Common Stock formerly represented thereby until the holder
of record of such Company Stock Certificate shall surrender such Company Stock
Certificate (or other suitable documentation in accordance with SECTION 1.10) to
the Paying Agent.
(d) PAYING AGENT TO RETURN TOTAL CONSIDERATION. At any time
following December 15, 2005, Parent shall be entitled to require the Paying
Agent to deliver to Parent or its designated successor or assign all amounts
that have been deposited with the Paying Agent pursuant to SECTION 1.8(b)
hereof, and any and all interest thereon or other income or proceeds thereof,
not disbursed to the holders of Company Stock Certificates pursuant to SECTION
1.8(c) hereof, and thereafter the holders of Company Stock Certificates shall be
entitled to look only to Parent (subject to the terms of SECTION 1.8(e) hereof)
only as general creditors thereof with respect to any and all amounts that may
be payable to such holders of Company Stock Certificates pursuant to SECTION 1.6
hereof upon the due surrender of such Company Stock Certificates in the manner
set forth in SECTION 1.8(c) hereof.
(e) NO LIABILITY. Notwithstanding anything to the contrary in
this SECTION 1.8, none of the Paying Agent, the Surviving Corporation, or any
party hereto shall be liable to a holder of shares of Company Capital Stock for
any amount properly paid to a public official pursuant to any applicable
abandoned property, escheat or similar law.
1.9 NO FURTHER OWNERSHIP RIGHTS IN COMPANY CAPITAL STOCK. The cash
amounts paid in respect of the surrender for exchange of shares of Company
Capital Stock in accordance with the terms hereof shall be deemed to be full
satisfaction of all rights pertaining to such shares of Company Capital Stock,
and there shall be no further registration of transfers on the records of the
Surviving Corporation of shares of Company Capital Stock, which were outstanding
immediately prior to the Effective Time. If, after the Effective Time, Company
Stock Certificates are presented to the Surviving Corporation for any reason,
they shall be canceled and exchanged as provided in this ARTICLE I.
1.10 LOST, STOLEN OR DESTROYED CERTIFICATES. In the event any Company
Stock Certificates shall have been lost, stolen or destroyed, the Paying Agent
shall issue in exchange for such lost, stolen or destroyed certificates, upon
the making of an affidavit of that fact by the holder thereof, such amount, if
any, as may be required pursuant to SECTION 1.6 hereof; provided, however, that
Parent may, in its discretion and as a condition precedent to the issuance
thereof, require the Stockholder who is the owner of such lost, stolen or
destroyed certificates to either (a) deliver a bond in such amount as it may
reasonably direct and as customary under the circumstances or (b) provide an
indemnification agreement in a form and substance reasonably acceptable to
Parent, against any
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claim that may be made against Parent or the Paying Agent with respect to the
certificates alleged to have been lost, stolen or destroyed.
1.11 TAKING OF NECESSARY ACTION; FURTHER ACTION. 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 assets, property, rights, privileges, powers
and franchises of the Company, then Parent, Sub, and the officers and directors
of the Company, Parent and Sub are fully authorized in the name of their
respective corporations or otherwise to take, and will take, all such lawful and
necessary action.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to Parent and Sub, subject
to such exceptions as are specifically disclosed in the disclosure schedule
(referencing the appropriate section and paragraph numbers, except where it is
readily apparent based on the substance of such disclosure that an exception
with respect to one section, subsection, paragraph or clause of a single section
or subsection also applies to another section, subsection, paragraph or clause
of a single section or subsection) supplied by the Company to Parent (the
"DISCLOSURE SCHEDULE") and dated as of the date hereof, on the date hereof and
as of the Effective Time, as though made at the Effective Time, as follows (it
being agreed and understood that references to the "Company" in this ARTICLE II
shall, unless the context otherwise provides, in each case refer to the Company
and each of its Subsidiaries, and the Disclosure Schedule should clearly set
forth any specific exceptions applicable to any Subsidiary):
2.1 ORGANIZATION OF THE COMPANY. The Company is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware. The Company has all requisite corporate power and authority to own,
lease and operate its properties and to carry on its business as currently
conducted. The Company is duly qualified or licensed to do business and, where
applicable, in good standing as a foreign corporation in each jurisdiction in
which the failure to be so qualified would be reasonably likely to have a
Company Material Adverse Effect. The Company has delivered a true and correct
copy of its certificate of incorporation and bylaws, each as amended to date and
in full force and effect on the date hereof (collectively, the "CHARTER
DOCUMENTS"), to Parent. SECTION 2.1 of the Disclosure Schedule lists the
directors and officers of the Company as of the date hereof. The operations now
being conducted by the Company are not now and have never been conducted by the
Company under any other name. SECTION 2.1 of the Disclosure Schedule also lists
every state or foreign jurisdiction in which the Company has employees or
maintains an office or other facility.
2.2 COMPANY CAPITAL STRUCTURE.
(a) The authorized capital stock of the Company consists of
30,000,000 shares of Common Stock, of which 12,174,035 shares are issued and
outstanding, 15,000,000 shares of
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Preferred Stock, of which 1,316,505 shares have been designated Series A
Preferred Stock, all of which are issued and outstanding, 110,970 shares have
been designated Series B Preferred Stock, all of which are issued and
outstanding, 2,977,754 shares have been designated Series C Preferred Stock, all
of which are issued and outstanding, and 5,935,153 shares have been designated
Series D Preferred Stock, all of which are issued and outstanding. As of the
date hereof, the capitalization of the Company is as set forth in SECTION
2.2(a)(i) of the Disclosure Schedule. The Company Capital Stock is held by the
persons with the record addresses and in the amounts set forth in SECTION
2.2(a)(i) of the Disclosure Schedule. There are no declared or accrued but
unpaid dividends with respect to any shares of Company Capital Stock. No
dividends have ever been declared with respect to any Company Capital Stock. The
Company has reserved 2,663,848 shares of Company Common Stock for issuance to
employees and directors of, and consultants to, the Company upon the issuance of
stock or the exercise of options granted under the Plans or any other plan,
agreement or arrangement (whether written or oral, formal or informal), of which
407,968 shares are issuable, as of the date hereof, upon the exercise of
outstanding, unexercised options. SECTION 2.2(a)(ii) of the Disclosure Schedule
sets forth for each outstanding Company Option and Company Warrant, as
applicable, the name of the holder of such option or warrant, the record address
of such holder, the number of shares of Company Capital Stock issuable upon the
exercise of such option or warrant, the exercise price per share of such option
or warrant, the vesting schedule for such option or warrant, including the
extent vested to date and whether such option is a nonstatutory option or
intended to qualify as an incentive stock option as defined in Section 422 of
the Code. SECTION 2.2(a)(iii) of the Disclosure Schedule sets forth the
outstanding principal, accrued interest and applicable rate of interest of all
outstanding loans to any Stockholder or Participant, if any. Except for the
Company Options and Company Warrants set forth in SECTION 2.2(a)(ii) of the
Disclosure Schedule, there are no options, warrants, calls, rights, convertible
securities, commitments or agreements of any character, written or oral, to
which the Company is a party or by which the Company is bound obligating the
Company to issue, deliver, sell, repurchase or redeem, or cause to be issued,
delivered, sold, repurchased or redeemed, any shares of Company Capital Stock or
obligating the Company to grant, extend, change the price of, otherwise amend or
enter into any such option, warrant, call, right, commitment or agreement. There
are no outstanding or authorized stock appreciation, phantom stock, profit
participation, or other similar rights with respect to the Company.
(b) All outstanding shares of Company Capital Stock are duly
authorized, validly issued, fully paid and non-assessable and not subject to
preemptive rights created by statute, the Charter Documents of the Company, or
any agreement to which the Company is a party or by which it is bound. All
shares of Company Capital Stock, Company Options and Company Warrants issued or
if applicable, repurchased (in the case of shares that were outstanding and
repurchased by the Company), after January 1, 1999 have (i) been issued or
repurchased in compliance with all applicable securities laws and other
applicable Legal Requirements (as defined below) and (ii) been issued or
repurchased in material compliance with all applicable requirements set forth in
any Contract (as defined in SECTION 2.5). For the purposes of this Agreement,
"LEGAL REQUIREMENTS" means any federal, state or foreign law, or material local
or municipal law, or other law, statute, constitution, principle of common law,
resolution, ordinance, code, edict, decree, rule, regulation, ruling or
requirement issued, enacted, adopted, promulgated, implemented or otherwise put
into
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effect by or under the authority of any Governmental Entity. The Company has
not, and will not have, suffered or incurred any liability (contingent or
otherwise) or claim, loss, damage, deficiency, cost or expense relating to or
arising out of the issuance or repurchase of any Company Capital Stock or
options or warrants to purchase Company Capital Stock, or out of any agreements
or arrangements relating thereto (including any amendment of the terms of any
such agreement or arrangement). There are no shares of Company Capital Stock
that are unvested and subject to forfeiture or the Company's right of
repurchase.
(c) Except for the Plans, the Company has never adopted,
sponsored or maintained any stock option plan or any other similar plan or
agreement providing for equity compensation to any person. Except as
contemplated hereby, there are no voting trusts, proxies, or other agreements or
understandings with respect to the voting stock of the Company. Except as
contemplated hereby, there are no agreements to which the Company is a party
relating to the registration, sale or transfer (including agreements relating to
rights of first refusal, co-sale rights or "drag-along" rights) of any Company
Capital Stock. Except as set forth in SECTION 2.2(a) of the Disclosure Schedule
and other than pursuant to the Employee Release, Non-Competition and Waiver
Plan, no person or entity has any right or claim to any portion of the Total
Consideration, including with respect to the allocation of the Total
Consideration among the recipients thereof.
(d) The allocation of the Total Consideration set forth in
SECTION 1.6(b) hereof is consistent with (i) the Charter Documents of the
Company as amended as of immediately prior to the Effective Time, (ii) each and
every Contract and (iii) any Legal Requirement.
2.3 SUBSIDIARIES. SECTION 2.3 of the Disclosure Schedule lists each
corporation, limited liability company, partnership, association, joint venture
or other business entity of which the Company owns, directly or indirectly, more
than Fifty Percent (50%) of the stock or other equity interest entitled to vote
on the election of the members of the board of directors or similar governing
body (each, a "SUBSIDIARY"). Except as set forth in SECTION 2.3 of the
Disclosure Schedule, the Company does not have and has never had any
subsidiaries or affiliated companies and does not otherwise own and has never
otherwise owned any shares of capital stock or any interest in, or control,
directly or indirectly, any other corporation, limited liability company,
partnership, association, joint venture or other business entity. Each entity
listed on SECTION 2.3 of the Disclosure Schedule that is no longer in existence
has been duly dissolved in accordance with its charter documents and the laws of
the jurisdiction of its incorporation or organization and there are no
outstanding liabilities or obligations (outstanding, contingent or otherwise),
including Taxes, with respect to any such entity. Each Subsidiary is a
corporation duly organized, validly existing and, where applicable, in good
standing under the laws of the jurisdiction of its incorporation or
organization. Each Subsidiary has the corporate power to own its properties and
to carry on its business as currently conducted and as currently contemplated to
be conducted. Each Subsidiary is duly qualified or licensed to do business and,
where applicable, in good standing as a foreign corporation in each jurisdiction
in which the failure to be so qualified would be reasonably likely to have a
Company Material Adverse Effect. The Company has delivered a true and correct
copy of the certificate of incorporation and bylaws (or equivalent
organizational documents) of each Subsidiary, each as amended to date and in
full force and effect on the date hereof, to Parent.
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SECTION 2.3 of the Disclosure Schedule lists the directors and officers of each
Subsidiary as of the date of this Agreement. The operations now being conducted
by each Subsidiary are not now and have never been conducted under any other
name. SECTION 2.3 of the Disclosure Schedule also lists, for each Subsidiary,
every state or foreign jurisdiction in which such Subsidiary has employees or
maintains an office or other facility. All of the outstanding shares of capital
stock of each Subsidiary are owned of record and beneficially by the Company.
All outstanding shares of stock of each Subsidiary are duly authorized, validly
issued, fully paid and non-assessable and not subject to preemptive rights
created by statute, the charter documents or bylaws of such Subsidiary, or any
agreement to which such Subsidiary is a party or by which it is bound, and have
been issued in compliance with all applicable legal requirements. There are no
options, warrants, calls, rights, commitments or agreements of any character,
written or oral, to which each Subsidiary is a party or by which it is bound
obligating the Subsidiary to issue, deliver, sell, repurchase or redeem, or
cause to be issued, sold, repurchased or redeemed, any shares of the capital
stock of each Subsidiary or obligating each Subsidiary to grant, extend, change
the price of, otherwise amend or enter into any such option, warrant, call
right, commitment or agreement. There are no outstanding or authorized stock
appreciation, phantom stock, profit participation, or other similar rights with
respect to any of the Subsidiaries. Neither the Company nor any Subsidiary has
agreed or is obligated to make any future investment in or capital contribution
to any person or entity.
2.4 AUTHORITY. The Company has all requisite power and authority to
enter into this Agreement and any Related Agreements to which it is a party and,
subject to obtaining the approval of the Stockholders, to consummate the
transactions contemplated hereby and thereby. The execution and delivery of this
Agreement and any Related Agreements to which the Company is a party and the
consummation of the transactions contemplated hereby and thereby have been duly
authorized by all necessary corporate action on the part of the Company and no
further action is required on the part of the Company to authorize this
Agreement and any Related Agreements to which it is a party and the transactions
contemplated hereby and thereby, subject only to the approval of this Agreement
by the Stockholders. The vote of the Stockholders required to approve this
Agreement, the Merger and the transactions contemplated hereby is (a) the
approval of at least a majority of the Company Common Stock and Company
Preferred Stock, voting together as a single class and on an as-converted basis,
(b) the approval of at least Seventy Five Percent (75%) of the Company Series C
Preferred Stock and Company Series D Preferred Stock, voting together as a
single class and on an as-converted basis, (c) the approval of at least a
majority of the Company Series A Preferred Stock, voting as a separate class,
(d) the approval of at least a majority of the Company Series B Preferred Stock,
voting as a separate class, (e) the approval of at least a majority of the
Company Series C Preferred Stock, voting as a separate class and (f) the
approval of at least a majority of the Company Series D Preferred Stock, voting
as a separate class ((a) - (f) together, the "REQUIRED STOCKHOLDER VOTE"). This
Agreement and the Merger have been unanimously approved by the Board. This
Agreement and each of the Related Agreements to which the Company is a party has
been or in the case of any Related Agreement to be executed by the Company after
the date hereof, at the Closing will have been, duly executed and delivered by
the Company and assuming the due authorization, execution and delivery by the
other parties hereto and thereto, constitute the valid and binding obligations
of the Company enforceable against it in accordance with their respective terms,
except as such enforceability may be subject to the laws of general application
relating to
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bankruptcy, insolvency, and the relief of debtors and rules of law governing
specific performance, injunctive relief, or other equitable remedies.
2.5 NO CONFLICT. The execution and delivery by the Company of this
Agreement and any Related Agreement to which the Company is a party and, subject
to obtaining the Required Stockholder Vote, the Required Contract Consents and
the Israeli Required Consents, the consummation of the transactions contemplated
hereby and thereby, will not conflict with or result in any violation of or
default under (with or without notice or lapse of time, or both) or give rise to
a right of termination, cancellation, modification or acceleration of any
obligation or loss of any benefit under (any such event, a "CONFLICT"), (a) any
provision of the Charter Documents of the Company, (b) any mortgage, indenture,
lease, contract, covenant, plan, insurance policy or other agreement,
instrument, arrangement, understanding or commitment, permit, concession,
franchise or license (each a "CONTRACT" and collectively the "CONTRACTS") to
which the Company is a party or by which any of its respective properties or
assets (whether tangible or intangible) are bound, or (c) any judgment, order,
decree, statute, law, ordinance, rule or regulation applicable to the Company or
any of its properties (whether tangible or intangible) or assets. The Company is
in material compliance with and has not breached, violated or defaulted under,
or received written or, to its Knowledge, oral notice that it has breached,
violated or defaulted under, any of the terms or conditions of any Material
Contract (as defined in SECTION 2.14), nor does the Company have Knowledge of
any event that would constitute such a breach, violation or default with the
lapse of time, giving of notice or both. Each Material Contract is in full force
and effect. To the Knowledge of the Company, no party obligated to the Company
pursuant to any Material Contract is subject to any breach, violation or default
thereunder. SECTION 2.5 of the Disclosure Schedule sets forth all necessary
consents, waivers and approvals of parties to any Contracts as are required
thereunder in connection with the Merger, or for any such Contract to remain in
full force and effect without limitation, modification or alteration after the
Effective Time so as to preserve all rights of, and benefits to, the Company
under such Contracts from and after the Effective Time. Following the Effective
Time, the Surviving Corporation will be permitted to exercise all of its rights
under the Company's Contracts without the payment of any additional amounts or
consideration other than ongoing fees, royalties or payments which the Company
would otherwise be required to pay pursuant to the terms of such Contracts had
the transactions contemplated by this Agreement not occurred.
2.6 CONSENTS. No consent, waiver, approval, order, permit or
authorization of, or registration, declaration or filing with, or notification
to, any court, administrative agency or commission or other federal, state,
county, local or other foreign governmental or regulatory authority,
instrumentality, agency or commission (each, a "GOVERNMENTAL ENTITY"), is
required by, or with respect to, the Company in connection with the execution
and delivery of this Agreement and any Related Agreement to which the Company is
a party or the consummation of the transactions contemplated hereby and thereby,
including the Merger, except (a): for (i) consent of the Office of the Chief
Scientist of the Israeli Ministry of Trade & Industry ("OCS") to the change in
ownership of the Company to be effected by the Merger (together with all such
additional consents of OCS required by Parent in its reasonable discretion)
(collectively, the "OCS APPROVAL"); (ii) filings with, and approval by, the
Investment Center of the Israeli Ministry of Trade & Industry (the "INVESTMENT
CENTER") of the change in ownership of the Company to be effected by the Merger
(the
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"INVESTMENT CENTER APPROVAL"); (iii) compliance with any pre merger notification
requirements under any foreign competition or antitrust laws that the parties
reasonably determine to apply; (iv) the filing of the Certificate of Merger with
the Secretary of State of the State of Delaware; and (v) the adoption of this
Agreement and approval of the transactions contemplated by this Agreement by the
Stockholders; and (b) where the failure to obtain such consents, approvals,
authorizations or permits, or to make such filings or notifications: (A) would
not, individually or in the aggregate, reasonably be expected after the
Effective Time to have a Company Material Adverse Effect or Parent Material
Adverse Effect, or (B) would not prevent or materially delay consummation of the
Merger or otherwise prevent the parties hereto from performing their obligations
under this Agreement.
2.7 COMPANY FINANCIAL STATEMENTS.
(a) SECTION 2.7 of the Disclosure Schedule sets forth the
Company's (i) audited balance sheet as of December 31, 2003, 2002 and 2001, and
in each case the related audited consolidated statements of income, cash flow
and stockholders' equity for each of the twelve (12) month periods then ended
(the "YEAR-END FINANCIALS"), and (ii) unaudited balance sheet as of September
30, 2004, and the related unaudited statement of income, cash flow and
stockholders' equity for the nine months then ended (the "INTERIM FINANCIALS").
The Year-End Financials and the Interim Financials (collectively referred to as
the "FINANCIALS") are true and correct in all material respects and have been
prepared in accordance with GAAP consistently applied on a consistent basis
throughout the periods indicated and consistent with each other (except that the
Interim Financials do not contain footnotes and other presentation items that
may be required by GAAP). The Financials present fairly the Company's financial
condition, operating results and cash flows as of the dates and during the
periods indicated therein, subject in the case of the Interim Financials to
normal year-end adjustments, which are not material in amount or significance in
any individual case or in the aggregate. The Company's unaudited consolidated
balance sheet as of September 30, 2004 (the "BALANCE SHEET DATE") is referred to
hereinafter as the "CURRENT BALANCE SHEET."
(b) As of the Closing Date, the Company has established and
maintains, adheres to and enforces a system of internal accounting controls,
which are effective in providing assurance regarding the reliability of
financial reporting and the preparation of financial statements in accordance
with GAAP, including policies and procedures that (i) require the maintenance of
records that in reasonable detail accurately and fairly reflect the transactions
and dispositions of the assets of the Company, (ii) provide reasonable assurance
that transactions are recorded as necessary to permit preparation of financial
statements in accordance with GAAP, and that receipts and expenditures of the
Company are being made only in accordance with appropriate authorizations of
management and the Board and (iii) provide reasonable assurance regarding
prevention or timely detection of unauthorized acquisition, use or disposition
of the assets of the Company. Neither the Company (including, to the Company's
Knowledge, any current or former employee, consultant or director of the Company
or any of its Subsidiaries), nor to the Company's Knowledge, the Company's
independent auditors, has identified or been made aware of (A) any significant
deficiency or material weakness in the system of internal accounting controls
utilized by the Company or any of its Subsidiaries, (B) any fraud, whether or
not material, that involves the
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Company's management or other current or former employees, consultants directors
of the Company or any of the its Subsidiaries who have a role in the preparation
of financial statements or the internal accounting controls utilized by the
Company or its Subsidiaries, or (C) any claim or allegation regarding any of the
foregoing.
(c) SECTION 2.7(c) of the Disclosure Schedule sets forth the
aggregate amount as of the date hereof, of the Company's cash plus cash
equivalents.
2.8 NO UNDISCLOSED LIABILITIES. The Company has no liability,
indebtedness, obligation, expense, claim, deficiency, guaranty or endorsement of
any type, whether accrued, absolute, contingent, matured, unmatured or other
(whether or not required to be reflected in financial statements in accordance
with GAAP), which individually or in the aggregate (a) has not been reflected in
the Current Balance Sheet, or (b) has not arisen in the regular and ordinary
course of business consistent with past practices since the Balance Sheet Date,
other than any liability the Company may have to Parent based on or arising out
of the allegations by Parent in the pending patent litigation between the
Company and Parent (the "PATENT LITIGATION").
2.9 NO CHANGES. Since the Balance Sheet Date, each of the Company and
its Subsidiaries has conducted its respective business only in the ordinary
course consistent with past practice, and there has not been, occurred or arisen
any:
(a) any transaction involving more than Twenty Thousand
Dollars ($20,000) or adversely affecting any Company Intellectual Property;
(b) amendments or changes to the Charter Documents or the
organizational documents of any Subsidiary;
(c) capital expenditure or commitment by the Company exceeding
Twenty Thousand Dollars ($20,000) individually or One Hundred Thousand Dollars
($100,000) in the aggregate;
(d) employment dispute, including but not limited to, claims
or matters raised by any individuals or any workers' representative
organization, bargaining unit or union regarding labor trouble or claim of
wrongful discharge or other unlawful employment or labor practice or action with
respect to the Company;
(e) change in accounting methods or practices (including any
change in depreciation or amortization policies or rates) by the Company other
than as required by GAAP;
(f) change in any material election in respect of Taxes (as
defined below), adoption or change in any accounting method in respect of Taxes,
agreement or settlement of any claim or assessment in respect of Taxes, or
extension or waiver of the limitation period applicable to any claim or
assessment in respect of Taxes;
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(g) revaluation by the Company of any of its assets (whether
tangible or intangible), including, writing down the value of inventory or
writing off, discounting or otherwise compromising any notes or accounts
receivable in an amount in excess of Five Thousand Dollars ($5,000);
(h) declaration, setting aside or payment of a dividend or
other distribution (whether in cash, stock or property) in respect of any
Company Capital Stock, or any split, combination or reclassification in respect
of any shares of Company Capital Stock, or any issuance or authorization of any
issuance of any other securities in respect of, in lieu of or in substitution
for shares of Company Capital Stock, or any direct or indirect repurchase,
redemption, or other acquisition by the Company of any shares of Company Capital
Stock (or options, warrants or other rights convertible into, exercisable or
exchangeable therefor), except in accordance with the agreements evidencing
Company Options or Company Warrants;
(i) except for any Release Payment, increase in the salary or
other compensation payable or to become payable by the Company to any of its
respective officers, directors, employees or advisors, or the declaration,
payment or commitment or obligation of any kind for the payment (whether in cash
or equity) by the Company of a severance payment, termination payment, bonus or
other additional salary or compensation to any such person;
(j) sale, lease or other disposition of any of the assets
(whether tangible or intangible) or properties of the Company, including, but
not limited to, the sale of any accounts receivable of the Company, or any
creation of any security interest in such assets or properties;
(k) loan by the Company to any person or entity, or purchase
by the Company or of any debt securities of any person or entity;
(l) incurring by the Company of any indebtedness, amendment of
the terms of any outstanding loan agreement, guaranteeing by the Company of any
indebtedness, issuance or sale of any debt securities of the Company or
guaranteeing of any debt securities of others, except for advances to employees
for travel and business expenses in the regular and ordinary course of business
consistent with past practices;
(m) waiver or release of any material right or claim of the
Company;
(n) commencement or settlement of any lawsuit by the Company,
the commencement, settlement, notice or, to the Knowledge of the Company, threat
of any lawsuit or proceeding or other investigation against the Company or its
affairs, or any reasonable basis for any of the foregoing;
(o) notice of any claim or potential claim of ownership,
interest or right by any person other than the Company of the Company
Intellectual Property (as defined in SECTION 2.13) owned by or developed or
created by the Company or of infringement by the Company of any other person's
Intellectual Property (as defined in SECTION 2.13);
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(p) issuance or sale, or contract or agreement to issue or
sell, by the Company of any shares of Company Capital Stock or securities
convertible into, or exercisable or exchangeable for, shares of Company Capital
Stock, or any securities, warrants, options or rights to purchase any of the
foregoing, except for issuances of Company Options or Company Capital Stock upon
the exercise of Company Options issued under the Plans and Company Warrants;
(q) (i) sale or license of any Company Intellectual Property
or execution, modification or amendment of any agreement with respect to the
Company Intellectual Property with any person or entity or with respect to the
Intellectual Property of any person or entity, (ii) purchase or license of any
Intellectual Property or execution, modification or amendment of any agreement
with respect to the Intellectual Property of any person or entity, (iii)
agreement or modification or amendment of an existing agreement with respect to
the development of any Intellectual Property with a third party, or (iv) change
in pricing or royalties set or charged by the Company to its customers or
licensees or in pricing or royalties set or charged by persons who have licensed
Intellectual Property to the Company;
(r) event or condition of any character that has had or is
reasonably likely to have a Company Material Adverse Effect, or any of the
events set forth in SECTION 8.1(f) hereof;
(s) lease, license, sublease or other occupancy of any Leased
Real Property by the Company;
(t) payment, discharge, waiver or satisfaction, in any amount
in excess of Twenty Thousand Dollars ($20,000) in any one case, or One Hundred
Thousand Dollars ($100,000) in the aggregate, of any claim, liability, right or
obligation (absolute, accrued, asserted or unasserted, contingent or otherwise
of the Company), other than payments, discharges or satisfactions in the regular
and ordinary course of business, of liabilities reflected or reserved against in
the Current Balance Sheet;
(u) Third Party Expenses incurred by the Company prior to
October 5, 2004;
(v) agreement, arrangement or understanding with respect to
any material extension of any due date or grace period of any Contract to
forebear from collecting or declaring any amount past due or any waiver of
rights thereof; or
(w) agreement, arrangement or understanding by the Company to
do any of the things described in the preceding clauses (a) through (v) of this
SECTION 2.9 (other than negotiations with Parent and its representatives
regarding the transactions contemplated by this Agreement and the Related
Agreements).
2.10 TAX MATTERS.
(a) DEFINITION OF TAXES. For the purposes of this Agreement,
the term "TAX" or, collectively, "TAXES" shall mean (i) any and all domestic and
foreign taxes, assessments and other governmental charges, duties, impositions
and liabilities, including taxes based upon or measured by
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gross receipts, income, profits, sales, use and occupation, and value added, ad
valorem, transfer, franchise, withholding, payroll, recapture, employment,
excise and property taxes as well as public imposts, fees and social security
charges (including but not limited to health, unemployment and pension
insurance), together with all interest, penalties and additions imposed with
respect to such amounts, (ii) any liability for the payment of any amounts of
the type described in clause (i) of this SECTION 2.10(a) as a result of being a
member of an affiliated, consolidated, combined or unitary group for any period
(including any liability under United States Treas. Reg. Section 1.1502-6 or any
comparable provision of domestic or foreign law or any arrangement for group Tax
relief within a jurisdiction or similar arrangement), and (iii) any liability
for the payment of any amounts of the type described in clauses (i) or (ii) of
this SECTION 2.10(a) as a result of any express or implied obligation to
indemnify any other person or as a result of any obligation under any agreement
or arrangement with any other person with respect to such amounts and including
any liability for taxes of a predecessor entity.
(b) TAX RETURNS AND AUDITS.
(i) Each of the Company and its Subsidiaries has (A)
prepared and timely filed all required material domestic and foreign returns,
estimates, information statements and reports ("RETURNS") relating to any and
all Taxes concerning or attributable to the Company or any of its Subsidiaries
or their respective operations, and such Returns are true and correct and have
been completed in accordance with applicable law and (B) timely paid all Taxes
required to be paid.
(ii) Each of the Company and its Subsidiaries has
paid or withheld with respect to its Employees and other third parties, all
domestic and foreign income taxes and social security charges and similar fees,
and other Taxes required to be paid or withheld, and has timely paid such Taxes
withheld over to the appropriate authorities (including for all purposes under
this Agreement, the Investment Center with respect to the status of ART, Ltd. as
an "Approved Enterprise" under Israel's Law for the Encouragement of Capital
Investment, 1959).
(iii) Neither the Company nor any of its Subsidiaries
has been delinquent in the payment of any Tax, nor is there any Tax deficiency
outstanding, assessed or proposed against the Company or any of its
Subsidiaries, nor has the Company or any of its Subsidiaries executed any waiver
of any statute of limitations on or extending the period for the assessment or
collection of any Tax.
(iv) No audit or other examination of any Return of
the Company or any of its Subsidiaries is presently in progress, nor has the
Company or any of its Subsidiaries been notified of any request for such an
audit or other examination. No adjustment relating to any Return filed by the
Company or any of its Subsidiaries has been proposed formally in writing or, to
the Knowledge of the Company or any of its Subsidiaries, informally by any Tax
authority to the Company or any representative thereof.
(v) As of the Balance Sheet Date, neither the Company
nor any of its Subsidiaries had any liabilities for unpaid Taxes which have not
been accrued or reserved on the Current Balance Sheet, whether asserted or
unasserted, contingent or otherwise, and neither the
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Company nor any of its Subsidiaries has incurred any liability for Taxes since
the Balance Sheet Date other than in the regular and ordinary course of
business.
(vi) The Company has made available to Parent or its
legal counsel, copies of all material Returns for the Company and its
Subsidiaries filed for all periods since its inception.
(vii) There are (and immediately following the
Effective Time there will be) no Liens on the assets of the Company or any of
its Subsidiaries relating or attributable to Taxes, other than Liens for Taxes
not yet due and payable. Neither the Company nor any of its Subsidiaries has
Knowledge of any reasonable basis for the assertion of any claim relating or
attributable to Taxes, which, if adversely determined, would result in any Lien
on the assets of the Company or any of its Subsidiaries.
(viii) Neither the Company nor any of its
Subsidiaries has (A) ever 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 the Company), (B) ever been a
party to any Tax sharing, indemnification, allocation or similar agreement, (C)
any liability for the Taxes of any person (other than the Company or its
Subsidiaries) under Treasury Regulation Section 1.1502-6 (or any similar
provision of domestic or foreign law or any arrangement for group Tax relief
within a jurisdiction or similar arrangement), as a transferee or successor, by
contract or agreement, or otherwise and (D) ever been a party to any joint
venture, partnership or other arrangement that is or should be treated as a
partnership for Tax purposes.
(ix) Neither the Company nor any of its Subsidiaries
has been, at any time, a "United States Real Property Holding Corporation"
within the meaning of Section 897(c)(2) of the Code.
(x) Neither the Company nor any of its Subsidiaries
has constituted either a "distributing corporation" or a "controlled
corporation" in a distribution of stock intended to qualify for tax-free
treatment under Section 355 of the Code.
(xi) Neither the Company nor any of its Subsidiaries
has engaged in a transaction that is the same as or substantially similar to one
of the types of transactions that the Internal Revenue Service has determined to
be a tax avoidance transaction and identified by notice, regulation, or other
form of published guidance as a listed transaction, as set forth in Treas. Reg.
Section 1.6011-4(b)(2).
(xii) ART, Ltd. qualifies as an Industrial Company
according to the meaning of that term in the Law for the Encouragement of
Industry (Taxes), 1969 and, after any applicable Tax holiday, Section 47(A1) of
the Law Encouragement of Capital Investment, 1959 applies to the ART, Ltd.,
considering its level of foreign investment. As of the date hereof, Ninety
Percent (90%) or more of ART, Ltd.'s shares are owned by non-Israeli residents.
The consummation of the Merger will not have any adverse effect on such
qualification as an Industrial Company.
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(xiii) Each of the Company and its Subsidiaries is in
compliance in all material respects with all terms and conditions of any Tax
exemptions, Tax holiday or other Tax reduction agreement, approval or order of
any government and, subject to receipt of the Investment Center Approval and the
other Approvals required herein, the consummation of the Merger will not have
any adverse effect on the validity and effectiveness of any such Tax exemptions,
Tax holiday or other Tax reduction agreement or order.
(xiv) The Disclosure Schedule lists each material tax
incentive granted to or enjoyed by the Company or its Subsidiaries under the
laws of the State of Israel, the period for which such tax incentive applies,
and the nature of such tax incentive. The Company and its Subsidiaries have
complied with all material requirements of Israeli law to be entitled to claim
all such incentives. Subject to receipt of the Investment Center Approval,
consummation of the Merger will not adversely affect the continued qualification
for the incentives or the terms or duration thereof or require any recapture of
any previously claimed incentive, and no consent or approval of any Governmental
Entity is required, other than as set forth on SECTION 2.10(b)(xiv) of the
Disclosure Schedule, prior to the consummation of the Merger in order to
preserve the entitlement of the Surviving Corporation or its Subsidiaries to any
such incentive.
(xv) Neither the Company nor any of its Subsidiaries
will be required to include any income or gain or exclude any deduction or loss
from Taxable income as a result of (A) any change in method of accounting under
Section 481(c) of the Code, (B) closing agreement under Section 7121 of the
Code, (C) deferred intercompany gain or excess loss account under Treasury
Regulations under Section 1502 of the Code (or in the case of each of (A), (B),
and (C), under any similar provision of applicable law), (D) installment sale or
open transaction disposition or (E) prepaid amount.
(xvi) Each of the Company and its Subsidiaries is and
has at all times been resident for Tax purposes in its country of incorporation
or formation and is not and has not at any time been treated as resident in any
other country for any Tax purpose (including any Tax treaty or other arrangement
for the avoidance of double taxation). Neither the Company nor any of its
Subsidiaries is subject to Tax in any country other than its country of
incorporation or formation by virtue of having a permanent establishment or
other fixed place of business in that country.
(xvii) The prices for any property or services (or
for the use of property) provided by or to the Company and each of its
Subsidiaries have been arm's length prices, determined using a method permitted
by the Treasury Regulations promulgated under Section 482 of the Code. Any cost
sharing arrangement to which the Company or any of its Subsidiaries is a party
is a qualified cost sharing arrangement as such terms are defined in Treasury
Regulations Section 1.482-7.
(xviii) There has been no indication from any Tax
authority that the consummation of the Merger would adversely affect the ability
to set off for tax purposes in the future any and all losses accumulated by the
Company and its Subsidiaries as of the Closing Date.
(c) EXECUTIVE COMPENSATION TAX. There is no contract,
agreement, plan or arrangement to which the Company or any of its Subsidiaries
is a party, including the provisions of
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this Agreement or the Employee Release, Non-Competition and Waiver Plan,
covering any Employee of the Company or any of its Subsidiaries, which,
individually or collectively, could give rise to the payment of any amount that
would not be deductible pursuant to Sections 280G, 404 or 162(m) of the Code.
2.11 RESTRICTIONS ON BUSINESS ACTIVITIES. Except for the Related
Agreements, there is no agreement (non-competition or otherwise), commitment,
judgment, injunction, order or decree to which the Company is a party or
otherwise binding upon the Company, which has or may reasonably be expected to
have the effect of prohibiting or impairing any business practice of the
Company, any acquisition of property (tangible or intangible) by the Company,
the conduct of business by the Company, or otherwise limiting the freedom of the
Company to engage in any line of business or to compete with any person. Without
limiting the generality of the foregoing, the Company has not entered into any
agreement under which the Company is restricted from selling, licensing,
manufacturing or otherwise distributing any of its technology or products or
from providing services to customers or potential customers or any class of
customers, in any geographic area, during any period of time, or in any segment
of the market.
2.12 TITLE TO PROPERTIES; ABSENCE OF LIENS AND ENCUMBRANCES.
(a) The Company does not own any real property, nor has the
Company ever owned any real property. SECTION 2.12(a) of the Disclosure Schedule
sets forth a list of all real property currently leased, subleased or licensed
by or from the Company or otherwise used or occupied by the Company for the
operation of its business (the "LEASED REAL PROPERTY"), the name of the lessor,
licensor, sublessor, master lessor and/or lessee, the date and term of the
lease, license, sublease or other occupancy right and each amendment thereto
(the "LEASE AGREEMENTS") and, with respect to any current lease, license,
sublease or other occupancy right the aggregate annual rental payable
thereunder. All such Lease Agreements are valid and effective in accordance with
their respective terms, and there is not, under any of such leases, any existing
default, no rentals are past due, or event of default (or event which with
notice or lapse of time, or both, would constitute a default). The Company has
not received any written or, to its Knowledge, oral notice of a default, alleged
failure to perform, or any offset or counterclaim with respect to any such Lease
Agreement, which has not been fully remedied and withdrawn. The Closing will not
affect the enforceability against any person of any such Lease Agreement or the
rights of the Company to the continued use and possession of the Leased Real
Property for the conduct of business as presently conducted.
(b) The Leased Real Property (i) is, to the Knowledge of the
Company, in good operating condition and repair, free from structural, physical
and mechanical defects and (ii) is suitable for the conduct of the business as
presently conducted. Neither the operation of the Company on the Leased Real
Property nor, to the Company's Knowledge, such Leased Real Property, including
the improvements thereon, violate in any material respect any applicable
building code, zoning requirement or statute relating to such property or
operations thereon, and any such non-violation is not dependent on so-called
non-conforming use exceptions.
(c) The Company has good and valid title to, or, in the case
of leased properties and assets, valid leasehold interests in, all of its
tangible properties and assets, real, personal and
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mixed, used or held for use in its business, free and clear of any Liens, except
(i) as reflected in the Current Balance Sheet, (ii) Liens for Taxes not yet due
and payable, and (iii) such imperfections of title and encumbrances, if any,
which do not materially detract from the value or interfere with the present use
of such property.
2.13 INTELLECTUAL PROPERTY. To the extent that any representation or
warranty of the Company or any Subsidiary set forth in this SECTION 2.13 would
be deemed incorrect, inaccurate or misleading but for a specific disclosure
regarding the Patent Litigation, such disclosure is hereby deemed made with
respect to any and all such representations and warranties set forth in this
SECTION 2.13.
(a) DEFINITIONS. For all purposes of this Agreement, the
following terms shall have the following respective meanings:
"COMPANY INTELLECTUAL PROPERTY" shall mean any and
all Intellectual Property and Intellectual Property Rights that are owned by or
exclusively licensed to the Company.
"COMPANY SOURCE CODE" shall mean any software source
code or related proprietary or confidential information or algorithms of any
Company Intellectual Property.
"INTELLECTUAL PROPERTY" shall mean any or all of the
following (i) works of authorship including computer programs, source code, and
executable code, whether embodied in software, firmware or otherwise,
architecture, documentation, designs, files, records, databases, and data, (ii)
inventions (whether or not patentable), discoveries, improvements, and
technology, (iii) proprietary and confidential information, trade secrets and
know how, (iv) databases, data compilations and collections and technical data,
(v) logos, trade names, trade dress, trademarks and service marks, (vi) domain
names, web addresses and sites, (vii) tools, methods and processes, and (viii)
any and all instantiations of the foregoing in any form and embodied in any
media.
"INTELLECTUAL PROPERTY RIGHTS" shall mean worldwide
common law and statutory rights associated with (i) patents and patent
applications, (ii) copyrights, copyright registrations and copyright
applications, "moral" rights and mask work rights, (iii) the protection of trade
and industrial secrets and confidential information, (iv) other proprietary
rights relating to intangible intellectual property, (v) trademarks, trade names
and service marks, (vi) analogous rights to those set forth above, and (vii)
divisions, continuations, renewals, reissuances and extensions of the foregoing
(as applicable).
"IP AGREEMENTS" means all contracts, licenses, and
agreements to which the Company is a party with respect to any Intellectual
Property or Intellectual Property Rights.
"REGISTERED INTELLECTUAL PROPERTY" shall mean
Intellectual Property and Intellectual Property Rights that have been
registered, applied for, filed, certified or otherwise perfected, issued, or
recorded with or by any state, government or other public or quasi-public legal
authority.
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(b) SECTION 2.13(b) of the Disclosure Schedule (i) lists all
Registered Intellectual Property owned by, or filed in the name of, the Company
(the "COMPANY REGISTERED INTELLECTUAL PROPERTY") and (ii) lists any proceedings
or actions before any court, tribunal (including the United States Patent and
Trademark Office (the "PTO") or equivalent authority anywhere in the world)
related to any of the Company Registered Intellectual Property or Company
Intellectual Property.
(c) Each item of Company Registered Intellectual Property is
valid and subsisting (except with respect to applications for Company Registered
Intellectual Property), and all necessary registration, maintenance and renewal
fees in connection with such Company Registered Intellectual Property have been
paid and all necessary documents and certificates in connection with such
Company Registered Intellectual Property have been filed with the relevant
patent, copyright, trademark or other authorities in the United States or
foreign jurisdictions, as the case may be, for the purposes of maintaining such
Registered Intellectual Property.
(d) All Company Intellectual Property will be fully
transferable and licensable by Surviving Corporation and/or Parent without
restriction and without payment of any kind to any third party.
(e) To the extent that any Intellectual Property has been
developed or created independently or jointly by any person other than the
Company for which the Company has, directly or indirectly, provided
consideration for such development or creation, the Company has a written
agreement with such person with respect thereto, and the Company thereby has
obtained ownership of, and is the exclusive owner of, all such Intellectual
Property therein and associated Intellectual Property Rights by operation of law
or by valid assignment, and has required the waiver of all non-assignable
rights, including but not limited to, all author or moral rights. Each such
agreement is listed in SECTION 2.13(e) of the Disclosure Schedule.
(f) The Company has not (i) transferred ownership of, or
granted any exclusive license of or exclusive right to use, or authorized the
retention of any exclusive rights to use or joint ownership of, any Intellectual
Property or Intellectual Property Rights that is or was Company Intellectual
Property, to any other person or (ii) permitted the Company's rights in such
Company Intellectual Property to enter into the public domain.
(g) The Company Intellectual Property constitutes all of the
Intellectual Property and Intellectual Property Rights used in or necessary to
the conduct of the business of the Company as it currently is conducted or
planned to be conducted, including the design, development, marketing,
manufacture, use, import and sale of any product, technology or service
(including products, technology or services currently under development).
(h) SECTION 2.13(h) of the Disclosure Schedule lists all IP
Agreements, which are in effect as of the Closing Date.
(i) No third party that has licensed Intellectual Property or
Intellectual Property Rights to the Company has ownership rights or license
rights to improvements or derivative works made by the Company in such
Intellectual Property that has been licensed to the Company.
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(j) There are no Contracts between the Company and any other
person with respect to Company Intellectual Property or other Intellectual
Property used in and/or necessary to the conduct of the business as it is
currently conducted or planned to be conducted under which there is any material
dispute regarding the scope of such agreement, or performance under such
agreement including with respect to any payments to be made or received by the
Company thereunder.
(k) SECTION 2.13(k) of the Disclosure Schedule lists all items
of the Company Intellectual Property as of the date hereof which were developed
with (i) funding, facilities or resources provided by or are subject to
restriction, constraint, control, supervision, or limitation imposed by OCS or
any other Governmental Entity or quasi-Governmental Entity, or (ii) funding,
facilities or resources provided by or are subject to restriction, constraint,
control, supervision, or limitation imposed a university, college, educational
institution, research center, foundation or similar institution (collectively,
an "INSTITUTION"). Except as set forth in SECTION 2.13(k) of the Disclosure
Schedule, (i) all Company Intellectual Property is freely transferable,
conveyable, and/or assignable by the Company and/or Parent or the Surviving
Corporation to any entity located in any jurisdiction in the world without any
restriction, constraint, control, supervision, or limitation whatsoever that
could be imposed by OCS or any other Governmental Entity or quasi-Governmental
Entity or any Institution, (ii) no restriction, constraint, control,
supervision, or limitation whatsoever has been, can be or will be imposed by OCS
or any other Governmental Entity or quasi-Governmental Entity or Institution on
the place, method and scope of exploitation of any Company Intellectual Property
(including the operation of the business of the Company as it is currently
conducted, including the design, development, use, import, branding,
advertising, promotion, marketing, manufacture and sale of any products,
technologies or services of the Company or any of its Subsidiaries and any
products, technology or services currently under development by the Company),
(C) no Governmental Entity or quasi-Governmental Entity or Institution has any
claim or right in or to any Company Intellectual Property, and (D) to the
Knowledge of the Company, no current or former employee, consultant or
independent contractor of the Company who was involved in, or who contributed
to, the creation or development of any Company Intellectual Property, has
performed services for any Governmental Entity or quasi-Governmental Entity or
Institution, during a period of time during which such employee, consultant or
independent contractor was also performing services for the Company.
(l) The operation of the business of the Company as it is
currently conducted, or is contemplated to be conducted, by the Company,
including but not limited to the design, development, use, import, branding,
advertising, promotion, marketing, distribution, manufacture and sale of any
product, technology or service (including products, technology or services
currently under development) of the Company has not infringed or
misappropriated, does not infringe or misappropriate, and will not infringe or
misappropriate when conducted by Parent and/or Surviving Corporation following
the Closing in the manner currently planned to be conducted (provided that the
Company makes no representation regarding infringement occurring after the
Effective Time to the extent that such infringement is attributable to changes
made to the Company Intellectual Property after the Effective Time or
combinations of the Company Intellectual Property with any Intellectual Property
of any other party after the Effective Time), any Intellectual Property Rights
of any person, violate any right of any person (including any right to privacy
or publicity), or constitute
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obscenity, defamation, or unfair competition or trade practices under the laws
of any jurisdiction. The Company has not received notice from any person
claiming that such operation or any act, any product, technology or service
(including products, technology or services currently under development) or
Intellectual Property of the Company infringes or misappropriates any
Intellectual Property Rights of any person or constitutes unfair competition or
trade practices under the laws of any jurisdiction (nor does the Company have
Knowledge of any basis therefor).
(m) Neither this Agreement, nor the transactions contemplated
by this Agreement, including the assignment to Parent by operation of law or
otherwise of any contracts or agreements to which the Company is a party, will
result in: (i) Parent or the Surviving Corporation automatically granting
pursuant to any IP Agreement to any third party any right to or with respect to
any Intellectual Property Rights owned by, or licensed to, any of them, (ii)
Parent or the Surviving Corporation, being bound by, or subject to, any
non-compete or other material restriction on the operation or scope of their
respective businesses pursuant to any IP Agreement, or (iii) Parent or the
Surviving Corporation being obligated to pay any royalties or other material
amounts to any party to an IP Agreement pursuant to such IP Agreement in excess
of those payable by any of them, respectively, in the absence of this Agreement
or the transactions contemplated hereby.
(n) To the Knowledge of the Company, no person or entity has
infringed or misappropriated or is infringing or misappropriating any Company
Intellectual Property.
(o) The Company has taken all commercially reasonable steps
that are required or necessary to protect the Company's rights in confidential
information and trade secrets of the Company or provided by any other person to
the Company. Without limiting the foregoing, the Company has, and enforces, a
policy requiring each employee, consultant, and contractor to execute
proprietary information, confidentiality and assignment agreements substantially
in the Company's standard form, which is set forth on SECTION 2.13(o) of the
Disclosure Schedule and all current and former employees, consultants and
contractors of the Company have executed such an agreement in substantially the
Company's standard form.
(p) No Company Intellectual Property (including all Registered
Intellectual Property Rights), Intellectual Property Rights, product,
technology, or service of the Company is subject to any (i) proceeding or
outstanding decree, order, judgment or settlement agreement or stipulation that
restricts in any manner the use, transfer or licensing thereof by the Company or
is reasonably likely to adversely affect the validity, use or enforceability of
such Company Intellectual Property, Intellectual Property Rights, product,
technology or service, or (ii) Lien.
(q) The Company has complied in all material respects with all
applicable laws and its internal privacy policies relating to (i) the privacy of
users of its products, services, and Web sites and (ii) the collection, storage,
and transfer of any personally identifiable information collected by or on
behalf of the Company.
(r) Except as set forth on SECTION 2.13(r) of the Disclosure
Schedule, neither the Company nor any person or entity acting on the Company's
behalf has disclosed, delivered or licensed to any person or entity, agreed to
disclose, deliver or license to any person or entity, or
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permitted the disclosure or delivery to any escrow agent or other person or
entity of any Company Source Code. No event has occurred, and no circumstance or
condition exists, that (with or without notice or lapse of time or both) will,
or would reasonably be expected to, result in the disclosure or delivery by or
on behalf of the Company of any Company Source Code.
(s) SECTION 2.13(s) of the Disclosure Schedule lists all
software or other material that is distributed as "freeware," "free software,"
"open source software" or under a similar licensing or distribution model
(including but not limited to the GNU General Public License) ("OPEN SOURCE
SOFTWARE") that the Company uses or licenses, identifies the applicable license
or distribution model under which the Company makes such use, and identifies
that which is incorporated into, combined with, or distributed in conjunction
with any Company products or services ("INCORPORATED OPEN SOURCE SOFTWARE"). The
Company's use and/or distribution of each component of Incorporated Open Source
Software complies with all material provisions of the applicable license
agreement, and in no case does such use or distribution give rise under such
license agreement to any rights in any third parties under any Company
Intellectual Property or obligations for the Company with respect to any Company
Intellectual Property, including any obligation to disclose or distribute any
Company Source Code, to license any such Intellectual Property for the purpose
of making derivative works, or to distribute any such Intellectual Property
without charge. To the Knowledge of the Company, no third party has (i)
combined, bundled, or merged Open Source Software with the Company's products or
services; or (ii) used the Company's products or services to link to, shared
data structures with, or make function calls to Open Source Software.
(t) The Company has implemented procedures consistent with
standard industry practices to ensure that the Company's products and the
software within the Company Intellectual Property are free from viruses,
disabling codes, or other malicious code.
(u) The Company's products sold, licensed, or delivered by or
for the Company and all services provided by the Company on or prior to the
Effective Time conform and will conform in all material respects to applicable
contractual commitments, express and implied warranties, product specifications
and product documentation and to written representations provided to customers.
The Company has provided Parent with all material documentation and notes
relating to the testing of the Company's products, and all material information
about unresolved bugs and unresolved non-conformities in the Company's products.
(v) The Company does not have any commitment to license any
Intellectual Property or Intellectual Property Rights to any standards body, to
any person or entity by virtue of that person or entity being a member of a
standards body, or to any person or entity by virtue of that person or entity
having implemented a standard administered or promulgated by a standards body.
(w) To the extent that the Company has exported any products,
goods or services, or any technical information or other technology within its
control, it has done so in all respects as required by U.S. export laws and
regulations, including those rules and regulations promulgated and enforced by
the Bureau of Export Administration.
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(x) All Company Intellectual Property (including without
limitation know-how) is owned by ART, Ltd. Development, ownership, use, and
transfer of all Company Intellectual Property is, and has at all times been, in
accordance with all permits issued to the Company by OCS and applicable Legal
Requirements, including the Law for the Encouragement of Industrial Research and
Development, 5744-1984 and the rules and regulations promulgated thereunder (the
"LAW"). Nothing in the registration of any type of Intellectual Property,
including patents, in the name of the Company, violates any provisions of
Israeli law, including the Law.
2.14 AGREEMENTS, CONTRACTS AND COMMITMENTS. Except as set forth in
SECTION 2.14 of the Disclosure Schedule (specifying the appropriate paragraph),
the Company is not a party to, nor is it bound by any of the following (each, a
"MATERIAL CONTRACT"):
(a) any employment or consulting agreement, contract or
commitment with an employee or individual consultant or salesperson, or
consulting or sales agreement, contract, or commitment with a firm or other
organization;
(b) any agreement or plan, including any stock option plan,
stock appreciation rights plan or stock purchase plan, any of the benefits of
which will be increased, or the vesting of benefits of which will be
accelerated, by the occurrence of any of the transactions contemplated by this
Agreement or the value of any of the benefits of which will be calculated on the
basis of any of the transactions contemplated by this Agreement;
(c) any fidelity or surety bond or completion bond;
(d) any lease of personal property having a value in excess of
Fifty Thousand Dollars ($50,000) individually or One Hundred Thousand Dollars
($100,000) in the aggregate;
(e) any agreement of indemnification or guaranty;
(f) any agreement, contract or commitment relating to capital
expenditures and involving future payments in excess of Fifty Thousand Dollars
($50,000) individually or One Hundred Thousand Dollars ($100,000) in the
aggregate;
(g) any agreement, contract or commitment relating to the
disposition or acquisition of assets or any interest in any business enterprise
outside the regular and ordinary course of the Company's business;
(h) any mortgages, indentures, guarantees, loans or credit
agreements, security agreements or other agreements or instruments relating to
the borrowing of money or extension of credit;
(i) any purchase order or contract for the purchase of
materials involving in excess of Fifty Thousand Dollars ($50,000) individually
or One Hundred Thousand Dollars ($100,000) in the aggregate;
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(j) any agreement containing covenants or other obligations
granting any person exclusive rights, "most favored nations" or similar terms;
(k) any dealer, distribution, joint marketing or development
agreement;
(l) any sales representative, original equipment manufacturer,
manufacturing, value added, remarketer, reseller, or independent software
vendor, or other agreement for use or distribution of the products, technology
or services of the Company;
(m) any IP Agreements; or
(n) any other agreement, contract or commitment that involves
Fifty Thousand Dollars ($50,000) individually or One Hundred Thousand Dollars
($100,000) in the aggregate or more and is not cancelable without penalty within
thirty (30) days.
2.15 INTERESTED PARTY TRANSACTIONS. To the Knowledge of the Company, no
officer, director or Stockholder (nor any immediate family member of any of such
persons, or any trust, partnership or corporation in which any of such persons
has or has had an interest), has or has had, directly or indirectly, (a) an
interest in any entity which furnished or sold, or furnishes or sells, services,
products, technology or Intellectual Property that the Company furnishes or
sells, or proposes to furnish or sell, or (b) any interest in any entity that
purchases from or sells or furnishes to the Company, any goods or services, or
(c) a beneficial interest in any Material Contract; provided, however, that
ownership of no more than one percent of the outstanding voting stock of a
publicly traded corporation shall not be deemed to be an "interest in any
entity" for purposes of this SECTION 2.15. SECTION 2.15 of the Disclosure
Schedule sets forth all agreements between the Company and any affiliates
thereof, including ART, Ltd.
2.16 GOVERNMENTAL AUTHORIZATION. Each consent, license, permit, grant
or other authorization (a) pursuant to which the Company currently conducts any
material operations or holds any interest in any of its material properties, or
(b) which is required for the operation of the Company's business as currently
conducted or currently contemplated to be conducted, or the holding of any such
interest (collectively, "COMPANY AUTHORIZATIONS"): (i) has been issued or
granted to the Company, as applicable; or (ii) in the case of the Company's
business as currently contemplated to be conducted, the Company reasonably
believes it can obtain such Company Authorizations in the ordinary course
without incurring material costs or adverse consequences. The Company
Authorizations are in full force and effect and constitute all Company
Authorizations required to permit the Company to operate or conduct its business
or hold any interest in its properties or assets.
2.17 LITIGATION. Other than the Patent Litigation, there is no action,
suit, claim or proceeding of any nature pending, or to the Knowledge of the
Company, threatened, against the Company, its properties (tangible or
intangible) or any of its officers or directors (in their capacities as such),
nor to the Knowledge of the Company is there any reasonable basis therefor.
There is no investigation or other proceeding pending or, to the Knowledge of
the Company, threatened, against the Company, any of its properties (tangible or
intangible) or any of its officers or directors (in their
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capacities as such) by or before any Governmental Entity, nor to the Knowledge
of the Company is there any reasonable basis therefor. No Governmental Entity is
currently challenging or questioning, or to the Knowledge of the Company, has at
any time challenged or questioned, the legal right of the Company to conduct its
operations as presently or previously conducted or as presently contemplated to
be conducted.
2.18 BROKERS' AND FINDERS' FEES. The Company has not incurred, nor will
it incur, directly or indirectly, any liability for brokerage or finders' fees
or agents' commissions, fees related to investment banking or similar advisory
services or any similar charges in connection with this Agreement or any
transaction contemplated hereby, including pursuant to any "fee tail"
arrangement or provision of any engagement letter.
2.19 EMPLOYEE BENEFIT PLANS AND COMPENSATION.
(a) DEFINITIONS. For all purposes of this Agreement, the
following terms shall have the following respective meanings:
"COMPANY EMPLOYEE PLAN" shall mean any plan, program,
policy, practice, contract, agreement or other arrangement providing for
compensation, severance, termination pay, deferred compensation, retirement
benefits, performance awards, stock or stock-related awards, fringe benefits or
other employee benefits or remuneration of any kind, whether written, unwritten
or otherwise, funded or unfunded, including each "employee benefit plan," within
the meaning of Section 3(3) of ERISA which is or has been maintained,
contributed to, or required to be contributed to, by the Company or any ERISA
Affiliate for the benefit of any Employee, or with respect to which the Company
or any ERISA Affiliate has or may have any liability or obligation.
"COBRA" shall mean the Consolidated Omnibus Budget
Reconciliation Act of 1985, as amended.
"DOL" shall mean the United States Department of
Labor.
"EMPLOYEE" shall mean any current or former employee,
consultant or director of the Company or any ERISA Affiliate.
"EMPLOYEE AGREEMENT" shall mean each management,
employment, severance, consulting, relocation, repatriation, expatriation, visa,
work permit or other agreement, or contract (including any offer letter or any
agreement providing for acceleration of Company Options or any other agreement
providing for compensation or benefits) between the Company or any ERISA
Affiliate and any Employee.
"ERISA" shall mean the Employee Retirement Income
Security Act of 1974, as amended.
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"ERISA AFFILIATE" shall mean any other person or
entity under common control with the Company or any of its Subsidiaries within
the meaning of Section 414(b), (c), (m) or (o) of the Code, and the regulations
issued thereunder.
"FMLA" shall mean the Family Medical Leave Act of
1993, as amended.
"HIPAA" shall mean the Health Insurance Portability
and Accountability Act of 1996, as amended.
"INTERNATIONAL EMPLOYEE PLAN" shall mean each Company
Employee Plan or Employee Agreement that has been adopted or maintained by the
Company or any ERISA Affiliate, whether formally or informally or with respect
to which the Company or any ERISA Affiliate will or may have any liability with
respect to Employees who perform services outside the United States.
"IRS" shall mean the United States Internal Revenue
Service.
"PENSION PLAN" shall mean each Company Employee Plan
that is an "employee pension benefit plan," within the meaning of Section 3(2)
of ERISA.
(b) SCHEDULE. SECTION 2.19(b)(1) of the Disclosure Schedule
contains an accurate and complete list of each Company Employee Plan and each
Employee Agreement currently in effect with an Employee pursuant to which the
Company has any outstanding obligations or liabilities. Neither the Company nor
any Subsidiary has made any plan or commitment to establish any new Company
Employee Plan or Employee Agreement, to modify any Company Employee Plan or
Employee Agreement (except to the extent required by law or to conform any such
Company Employee Plan or Employee Agreement to the requirements of any
applicable law, in each case as previously disclosed to Parent in writing, or as
required by this Agreement), or to enter into any Company Employee Plan or
Employee Agreement. SECTION 2.19(b)(2) of the Disclosure Schedule sets forth a
table setting forth the name and salary of each employee of the Company.
(c) DOCUMENTS. The Company has provided to Parent (i) correct
and complete copies of all documents embodying each Company Employee Plan and
each Employee Agreement including all amendments thereto and all related trust
documents, (ii) the three (3) most recent annual reports (Form Series 5500 and
all schedules and financial statements attached thereto), if any, required under
ERISA or the Code in connection with each Company Employee Plan, (iii) if the
Company Employee Plan is funded, the most recent annual and periodic accounting
of Company Employee Plan assets, (iv) the most recent summary plan description
together with the summary(ies) of material modifications thereto, if any,
required under ERISA with respect to each Company Employee Plan, (v) all written
agreements and contracts relating to each Company Employee Plan, including
administrative service agreements and group insurance contracts, (vi) all
communications (or such forms and notices as required under comparable law) to
any Employee or Employees relating to any Company Employee Plan and any proposed
Company Employee Plans, in each case, relating to any amendments, terminations,
establishments, increases or decreases in benefits, acceleration of payments or
vesting schedules or other events which have not been adopted and likely would
result in any material liability to the Company, (vii) all correspondence to or
from any
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governmental agency relating to any Company Employee Plan, (viii) all COBRA
forms and related notices (or such forms and notices as required under
comparable law), (ix) all discrimination tests for each Company Employee Plan
for the three (3) most recent plan years, (x) the most recent IRS determination
or opinion letter issued with respect to each Company Employee Plan, (xi) all
policies pertaining to fiduciary liability insurance covering the fiduciaries of
each Company Employee Plan, and (xii) the most recent actuarial valuations, if
any, prepared for each Company Employee Plan.
(d) EMPLOYEE PLAN COMPLIANCE. The Company and each ERISA
Affiliate performed all material obligations required to be performed by them
under each Company Employee Plan, and each Company Employee Plan has been
established and maintained in material compliance with its terms and in
accordance with all applicable laws, statutes, orders, rules and regulations,
including but not limited to ERISA or the Code. Any Company Employee Plan
intended to be qualified under Section 401(a) of the Code has obtained a
favorable determination letter (or opinion letter, if applicable) since January
1, 2002 as to its qualified status under the Code. No "prohibited transaction,"
within the meaning of Section 4975 of the Code or Sections 406 and 407 of ERISA,
and not otherwise exempt under Section 408 of ERISA, has occurred with respect
to any Company Employee Plan. There are no actions, suits or claims pending or,
to the Knowledge of the Company, threatened or reasonably anticipated (other
than routine claims for benefits) against any Company Employee Plan or against
the assets of any Company Employee Plan. Each Company Employee Plan can be
amended, terminated or otherwise discontinued after the Effective Time in
accordance with its terms, without liability to Parent, the Company or any ERISA
Affiliate (other than ordinary administration expenses). There are no audits,
inquiries or proceedings pending or to the Knowledge of the Company or any ERISA
Affiliates, threatened by the IRS, DOL, or any other Governmental Entity with
respect to any Company Employee Plan. Neither the Company nor any ERISA
Affiliate is subject to any penalty or tax with respect to any Company Employee
Plan under Section 502(i) of ERISA or Sections 4975 through 4980 of the Code.
The Company has timely made all contributions and other payments required by and
due under the terms of each Company Employee Plan.
(e) NO PENSION PLANS. Neither the Company nor any ERISA
Affiliate has ever maintained, established, sponsored, participated in, or
contributed to, any (i) Pension Plans subject to Title IV of ERISA. At no time
has the Company or any ERISA Affiliate contributed to or been obligated to
contribute to any Multiemployer Plan. Neither the Company nor any ERISA
Affiliate has at any time ever maintained, established, sponsored, participated
in or contributed to any multiple employer plan or to any plan described in
Section 413 of the Code.
(f) NO SELF-INSURED PLANS. Neither the Company nor any ERISA
Affiliate has ever maintained, established sponsored, participated in or
contributed to any self-insured welfare plan that provides benefits to employees
(including any such plan pursuant to which a stop-loss policy or contract
applies).
(g) NO POST-EMPLOYMENT OBLIGATIONS. No Company Employee Plan
or Employee Agreement provides, or reflects or represents any liability to
provide, retiree life insurance, retiree health or other retiree employee
welfare benefits to any person for any reason, except as may be required by
COBRA or other applicable statute, and the Company has never
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represented, promised or contracted (whether in oral or written form) to any
Employee (either individually or to Employees as a group) or any other person
that such Employee(s) or other person would be provided with retiree life
insurance, retiree health or other retiree employee welfare benefits, except to
the extent required by statute.
(h) COBRA; FMLA; HIPAA. The Company and each ERISA Affiliate
has, prior to the Effective Time, complied in all material respects with COBRA,
FMLA, HIPAA, the Women's Health and Cancer Rights Act of 1998, the Newborns' and
Mothers' Health Protection Act of 1996, and any similar provisions of state law
applicable to its Employees. Neither the Company nor any ERISA Affiliate has
unsatisfied obligations to any Employees or qualified beneficiaries pursuant to
COBRA, HIPAA, or any state law governing health care coverage or extension.
(i) EFFECT OF TRANSACTION. The execution of this Agreement and
the consummation of the transactions contemplated hereby will not (either alone
or upon the occurrence of any additional or subsequent events) constitute an
event under any Company Employee Plan, Employee Agreement, trust or loan that
will or may result in any payment (whether of severance pay or otherwise),
acceleration, forgiveness of indebtedness, vesting, distribution, increase in
benefits or obligation to fund benefits with respect to any Employee.
(j) EMPLOYMENT MATTERS. The Company is in compliance with all
applicable foreign, federal, state and local laws, rules and regulations
respecting employment, employment practices, terms and conditions of employment,
employee safety and wages and hours, and in each case, with respect to
Employees: (i) has withheld and reported all amounts required by law or by
agreement to be withheld and reported with respect to wages, salaries and other
payments to Employees, (ii) is not liable for any arrears of wages, severance
pay or any Taxes or any penalty for failure to comply with any of the foregoing,
and (iii) is not liable for any payment to any trust or other fund governed by
or maintained by or on behalf of any Governmental Entity, with respect to
unemployment compensation benefits, social security or other benefits or
obligations for Employees (other than routine payments to be made in the normal
course of business and consistent with past practice). There are no actions,
suits, claims or administrative matters pending, or to the Company's Knowledge,
threatened, or reasonably anticipated against the Company or any of its
Employees relating to any Employee, Employee Agreement or Company Employee Plan.
There are no pending or threatened or reasonably anticipated claims or actions
against Company or any Company trustee under any worker's compensation policy.
The services provided by each of the Company's and its ERISA Affiliates'
Employees is terminable at the will of the Company and its ERISA Affiliates and
any such termination would result in no liability to the Company or any ERISA
Affiliate. Neither the Company nor any ERISA Affiliate has direct or indirect
material liability or material obligation with respect to any misclassification
of any person as an independent contractor rather than as an employee, or with
respect to any employee leased from another employer.
(k) LABOR. No work stoppage or labor strike against the
Company is pending, or to the Knowledge of the Company, threatened, or
reasonably anticipated. The Company does not know of any activities or
proceedings of any labor union to organize any Employees. There are no actions,
suits, claims, labor disputes or grievances pending or threatened or reasonably
anticipated
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relating to any labor matters involving any Employee, including charges of
unfair labor practices. The Company has not engaged in any unfair labor
practices within the meaning of the National Labor Relations Act. The Company is
not presently, nor has it been in the past, been a party to, or bound by, any
collective bargaining agreement or union contract with respect to Employees and
no collective bargaining agreement is being negotiated by the Company. Neither
the Company nor any ERISA Affiliate has incurred any material liability or
material obligation under the Worker Adjustment and Retraining Notification Act
or any similar state or local law, which remains unsatisfied.
(l) NO INTERFERENCE OR CONFLICT. To the Knowledge of the
Company, no Stockholder, director, officer, Employee or consultant of the
Company is obligated under any contract or agreement, subject to any judgment,
decree, or order of any court or administrative agency that would interfere with
such person's efforts to promote the interests of the Company or that would
interfere with the Company's business. Neither the execution nor delivery of
this Agreement, nor the carrying on of the Company's business as presently
conducted or proposed to be conducted nor any activity of such officers,
directors, Employees or consultants in connection with the carrying on of the
Company's business as presently conducted or currently proposed to be conducted
will conflict with or result in a breach of the terms, conditions, or provisions
of, or constitute a default under, any contract or agreement under which any of
such officers, directors, Employees, or consultants is now bound and as to which
the Company has Knowledge.
(m) INTERNATIONAL EMPLOYEE PLAN. Each International Employee
Plan has been established, maintained and administered in material compliance
with its terms and conditions and with the requirements prescribed by any and
all statutory or regulatory laws that are applicable to such International
Employee Plan. Furthermore, no International Employee Plan has unfunded
liabilities, that as of the Effective Time, will not be offset by insurance or
fully accrued in accordance with GAAP. Except as required by law, no condition
exists that would prevent the Company from terminating or amending any
International Employee Plan at any time for any reason without liability to the
Company or any ERISA Affiliate (other than ordinary administration expenses or
routine claims for benefits).
(n) ISRAELI EMPLOYEES. Solely with respect to Employees who
reside or work in Israel ("ISRAELI EMPLOYEES"), except as set forth in SECTION
2.19(n) of the Disclosure Schedule: (i) the Company is not a party to any
collective bargaining contract, collective labor agreement or other contract or
arrangement with a labor union, trade union or other organization or body
involving any of its Israeli Employees, or is otherwise required (under any
legal requirement, under any Contract or otherwise) to provide benefits or
working conditions beyond the minimum benefits and working conditions required
by law to be provided pursuant to rules and regulation of the Histadrut (General
Federation of Labor), the Coordinating Bureau of Economic Organization and the
Industrialists' Association. The Company has not recognized or received a demand
for recognition from any collective bargaining representative with respect to
any of its Israeli Employees. The Company does not have and is not subject to,
and no Israeli Employee of the Company benefits from, any extension order
(tzavei harchava) or any contract or arrangement with respect to employment or
termination thereof; (ii) all of the Israeli Employees are "at will" employees
subject
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to the termination notice provisions included in employment agreements or
applicable law; (iii) there is no Contract between the Company and any of its
Israeli Employees or directors that cannot be terminated by the Company upon
less than three (3) months notice without giving rise to a claim for damages or
compensation (except for statutory severance pay); (iv) the Company's
obligations to provide statutory severance pay to its Israeli Employees pursuant
to the Severance Pay Law (5723-1963) are fully funded or accrued on the
Financials and the Company does not use the provisions of Section 14 of the
Severance Pay Law with respect to such statutory severance pay; (v) except as
set forth in SECTION 2.19(n) of the Disclosure Schedule, the Company has no
Knowledge of any circumstance that could give rise to any valid claim by a
current or former Israeli Employee for compensation on termination of employment
(beyond the statutory severance pay to which employees are entitled); (vi) all
amounts that the Company is legally or contractually required either (A) to
deduct from its Israeli Employees' salaries or to transfer to such Israeli
Employees' pension or provident, life insurance, incapacity insurance,
continuing education fund or other similar funds or (B) to withhold from their
Israeli Employees' salaries and benefits and to pay to any Governmental Entity
as required by the Ordinance and National Insurance Law or otherwise have, in
each case, been duly deducted, transferred, withheld and paid, and the Company
does not have any outstanding obligation to make any such deduction, transfer,
withholding or payment; and (vii) the Company is in compliance in all material
respects with all applicable legal requirements and contracts relating to
employment, employment practices, wages, bonuses and other compensation matters
and terms and conditions of employment related to its Israeli Employees,
including but not limited to The Prior Notice to the Employee Law 2002, The
Notice to Employee (Terms of Employment) Law 2002, the Prevention of Sexual
Harassment Law (5758-1998), and The Employment by Human Resource Contractors Law
1996. All obligations of the Company with respect to statutorily required
severance payments to Israeli Employees have been fully satisfied or have been
fully funded by contributions to appropriate insurance funds pursuant to the
Severance Pay Law (5723-1963). Other than as set forth in SECTION 2.19(n) of the
Disclosure Schedule: (x) as of the date hereof, the Company has not engaged any
Israeli employees whose employment would require special licenses or permits,
and (y) there are no unwritten Company policies or customs which, by extension,
could entitle Israeli Employees to benefits in addition to what they are
entitled by law (including unwritten customs concerning the payment of statutory
severance pay when it is not legally required). The Company has not engaged any
consultants, sub-contractors or freelancers who, according to Israeli law, would
be entitled to the rights of an employee vis a vis the Company, including rights
to severance pay, vacation, recuperation pay (dmei havaraa) and other employee
related statutory benefits. For purposes of this Agreement, the term "ISRAELI
EMPLOYEE" shall be construed to include consultants, sales agents and other
independent contractors who spend (or spent) a majority of their working time in
Israel on the business of the Company or a Subsidiary (each of whom shall be so
identified in SECTION 2.19(n) of the Disclosure Schedule). In addition, the
Company has provided to Parent: (1) a correct and complete summary of the
calculations concerning the components of the Israeli Employees' salaries,
including any components which are not included in the basis for calculation of
amounts set aside for purposes of statutory severance pay and pension; (2) any
and all agreements with human resource contractors, or with consultants,
sub-contractors or freelancers; (3) a summary of its policies, procedures and
customs regarding termination of Israeli Employees; and (4) a summary of any
dues it pays to the Histadrut Labor Organization and whether the Company
participates in the expenses of any worker's committee (Va'ad Ovdim).
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2.20 INSURANCE. SECTION 2.20 of the Disclosure Schedule lists all
insurance policies and fidelity bonds covering the assets, business, equipment,
properties, operations, employees, officers and directors of the Company,
including the type of coverage, the carrier, the amount of coverage, the term
and the annual premiums of such policies. There is no claim by the Company
pending under any of such policies or bonds as to which coverage has been
questioned, denied or disputed. All premiums due and payable under all such
policies and bonds have been paid, and the Company is otherwise in material
compliance with the terms of such policies and bonds. The Company does not have
Knowledge of threatened termination of, or premium increase with respect to, any
of such policies. The Company has never maintained, established, sponsored,
participated in or contributed to any self-insurance plan.
2.21 COMPLIANCE WITH LAWS. The Company has complied in all material
respects with, is not in violation in any material respect of, and has not
received any notices of violation with respect to, any Legal Requirement, except
where failure to comply with such Legal Requirement would not reasonably be
expected to have a Company Material Adverse Effect. The Company has not violated
any applicable rule, regulation, or law of OCS or any other Governmental Entity
or quasi-Governmental entity regarding the development or ownership of Company
Intellectual Property
2.22 WARRANTIES; INDEMNITIES. Except for the warranties and indemnities
contained in those contracts and agreements set forth in SECTION 2.22 of the
Disclosure Schedule and warranties implied by law, the Company has not given any
warranties or indemnities relating to products or technology sold or services
rendered by the Company.
2.23 COMPLETE COPIES OF MATERIALS. The Company has delivered or made
available true and complete copies of (a) each document and Contract (or
summaries of same) that has been requested by Parent or its counsel and (b) each
document or Contract that is referenced or contained in the Disclosure Schedule.
2.24 INAPPLICABILITY OF CERTAIN STATUTES. Other than competition
statutes, the Company is not subject to any business combination, control share
acquisition, fair price or similar statute that applies to the Merger or any
other transaction contemplated by this Agreement. The Company is not subject to
Section 2115 of the California General Corporation Law.
2.25 GRANTS, INCENTIVES AND SUBSIDIES. SECTION 2.25 of the Disclosure
Schedule provides a complete list, as of the date hereof, of all pending and
outstanding grants, incentives, exemptions and subsidies (collectively,
"GRANTS") from the Government of the State of Israel or any agency thereof, or
from any foreign governmental or administrative agency, granted to the Company,
including grant of Approved Enterprise Status from the Investment Center and
grants from OCS. The Company has made available to the Parent, prior to the date
hereof, correct copies of all documents evidencing Grants submitted by the
Company and of all letters of approval, certificates of completion, and
supplements and amendments thereto, granted to the Company, and all material
correspondence related thereto. SECTION 2.25 of the Disclosure Schedule lists,
as of the date hereof: (a) all material undertakings of the Company given in
connection with the Grants; (b) the aggregate amount of each Grant; (c) the
aggregate outstanding obligations of the Company under each Grant with respect
to royalties; (d) the outstanding amounts to be paid by OCS to the Company and
(e) the
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composition of such obligations or amount by the product or product family to
which it relates. The Company is in compliance, in all material respects, with
the terms and conditions of all Grants and, except as disclosed in SECTION 2.25
of the Disclosure Schedule, has duly fulfilled, in all material respects, all
the undertakings required thereby. To the Knowledge of the Company, there exists
no event or other set of circumstances, which would reasonably be expected to
lead to the revocation or material modification of any of the Grants.
2.26 ENCRYPTION AND OTHER RESTRICTED TECHNOLOGY. The Company's business
as currently conducted does not involve the use or development of, or engagement
in, encryption technology, or other technology whose development,
commercialization or export is restricted under Israeli law, and the Company's
business as currently conducted does not require the Company to obtain a license
from the Israeli Ministry of Defense or an authorized body thereof pursuant to
Section 2(a) of the Control of Products and Services Declaration (Engagement in
Encryption), 1974, as amended, or other legislation regulating the development,
commercialization or export of technology.
2.27 REPRESENTATIONS COMPLETE. None of the representations or
warranties made by the Company (as modified by the Disclosure Schedule) in this
Agreement, and none of the statements made in any exhibit, schedule or
certificate furnished by or on behalf of the Company pursuant to this Agreement,
when taken as a whole, contains, or will contain at the Effective Time, any
untrue statement of a material fact, or omits or will omit at the Effective Time
to state any material fact necessary in order to make the statements contained
herein or therein, in the light of the circumstances under which made, not
misleading.
2.28 ACCOUNTS, LOCKBOXES, SAFE DEPOSIT BOXES. SECTION 2.28 of the
Disclosure Schedule contains a complete and accurate list of (i) the name and
address of each bank, savings and loan association or other financial
institution in which the Company or any of its Subsidiaries has an account,
lockbox or safe deposit box, (ii) the number of any such account, (iii) the name
of all of persons authorized to draw thereon or with access thereto, and (iv)
all persons, if any, holding powers of attorney from the Company or any of its
Subsidiaries (other than powers of attorney held by current and former customs
brokers) and a summary statement of the terms thereof.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF PARENT AND SUB
Each of Parent and Sub hereby represents and warrants to the Company on
the date hereof and as of the Effective Time, as though made at the Effective
Time, as follows:
3.1 ORGANIZATION, STANDING AND POWER; SUBSIDIARIES. Parent is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware. Sub is a corporation duly organized, validly existing
and in good standing under the laws of the State of Delaware. Each of Parent and
its subsidiaries, including Sub, has all requisite corporate power and authority
to own, learn and operate its properties and to carry on its business as now
being conducted, and is duly qualified or licensed to do business and, where
applicable, is in good standing
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as a foreign corporation in each jurisdiction in which the failure to be so
qualified or licensed would have a Parent Material Adverse Effect. Each of
Parent's Significant Subsidiaries (as defined below) is a corporation or other
organization duly organized, validly existing and in good standing under the
laws of the jurisdiction of its incorporation or organization, has the requisite
power and authority to own, lease and operate its properties and to carry on its
business as now being conducted and is duly qualified and in good standing to do
business in each jurisdiction in which the nature of its business or the
ownership or leasing of its properties makes such qualification necessary other
than in such jurisdictions where the failure to be so organized, existing and in
good standing or so qualified, individually or in the aggregate, would not
reasonably be expected to have a Parent Material Adverse Effect. For purposes of
this Agreement, "SIGNIFICANT SUBSIDIARIES" shall have the meaning set forth in
Rule 1.02 of Regulation S-X of the SEC.
3.2 AUTHORITY. Each of Parent and Sub has all requisite corporate power
and authority to enter into this Agreement and any Related Agreements to which
it is a party and to consummate the transactions contemplated hereby and
thereby. The execution and delivery of this Agreement and any Related Agreements
to which it is a party and the consummation of the transactions contemplated
hereby and thereby have been duly authorized by all necessary corporate action
on the part of Parent and Sub. This Agreement and any Related Agreements to
which Parent and Sub are parties have been duly executed and delivered by Parent
and Sub and assuming the due authorization, execution and delivery by the other
parties hereto and thereto, constitute the valid and binding obligations of
Parent and Sub, enforceable against each of Parent and Sub in accordance with
their terms, except as such enforceability may be limited by principles of
public policy and subject to the laws of general application relating to
bankruptcy, insolvency and the relief of debtors and rules of law governing
specific performance, injunctive relief or other equitable remedies.
3.3 CONSENTS. No consent, waiver, approval, order, permit or
authorization of, or registration, declaration or filing with, or notification
to, any Governmental Entity, is required by or with respect to Parent or Sub in
connection with the execution and delivery of this Agreement and any Related
Agreements to which Parent or Sub is a party or the consummation of the
transactions contemplated hereby and thereby, except: (a) for (i) the OCS
Approval; (ii) the Investment Center Approval; (iii) compliance with any pre
merger notification requirements under any foreign competition or antitrust laws
that the parties reasonably determine to apply; (iv) the filing of the
Certificate of Merger with the Secretary of State of the State of Delaware, and
(v) the adoption of this Agreement and approval of the transactions contemplated
by this Agreement by the Stockholders, and (b) where the failure to obtain such
consents, waivers, approvals, orders, permits or authorizations, or to make such
registrations, declarations, filings or notifications: (A) will not,
individually or in the aggregate, have a Parent Material Adverse Effect, or (B)
would not prevent or materially delay consummation of the Merger or otherwise
prevent the parties hereto from performing their respective obligations under
this Agreement.
3.4 INTERIM OPERATIONS OF SUB. Sub was formed solely for the purpose of
engaging in the transactions contemplated by this Agreement and has engaged in
no business activities other than as contemplated by this Agreement.
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3.5 NO CONFLICT. The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby will not, Conflict with, or
result in any Conflict with (a) any provision of the certificate of
incorporation or bylaws of Parent or Sub, as amended, respectively, (b) any
Contract to which Parent or Sub or any of their respective properties or assets
are subject and which has been filed as an exhibit to Parent's Annual Report on
Form 10-K for the year ended December 31, 2003 ("PARENT 10-K") and such other
filings under the Securities Act of 1933, as amended (the "SECURITIES ACT") or
the Securities Exchange Act of 1934, as amended (the "EXCHANGE ACT"), which are
made subsequent to the Parent 10-K and prior to the date hereof, (c) any
judgment, order, decree, statute, law, ordinance, rule or regulation applicable
to Parent or Sub or any of their respective properties or assets, or (d) any
debentures, notes or other evidence of indebtedness of Parent currently in
effect, except (i) in each case of (a), (b), or (c) where such Conflict will not
have a Parent Material Adverse Effect or (ii) in each case of (a), (b), (c) or
(d) where such Conflict will not otherwise materially adversely effect Parent's
ability to perform its obligations pursuant to SECTION 1.6 hereof. No consent of
any third party is required in order for Parent to enter into, or otherwise
fulfill, the obligations contained in SECTION 1.6 hereof.
3.6 LIENS AND INDEBTEDNESS. Other than this Agreement and the Related
Agreements, there is no Lien or other evidence of indebtedness of Parent that is
senior in any respect to the obligation of Parent to pay the Total Deferred
Consideration to the recipients hereunder and any interest payable thereon in
accordance with the terms herein. Parent is not in material default with respect
to any material debenture, note or other evidence of indebtedness.
ARTICLE IV
CONDUCT PRIOR TO THE EFFECTIVE TIME
4.1 CONDUCT OF BUSINESS OF THE COMPANY. During the period from the date
of this Agreement and continuing until the earlier of the termination of this
Agreement pursuant to the provisions of ARTICLE VIII hereof or the Effective
Time, the Company agrees, and agrees to cause each of its Subsidiaries, to
conduct its business, except to the extent that Parent shall otherwise consent
in writing, in the usual, regular and ordinary course in substantially the same
manner as heretofore conducted, to pay their respective debts and Taxes when due
(subject to Parent's right pursuant to SECTION 4.1(e) hereof to review and
approve the filing of any Tax Returns), to pay or perform other obligations when
due (including all accounts payable), to preserve its cash (other than valid
Third Party Expenses, expenses associated with the ordinary course of operations
of the Company consistent with past practice, and costs and expenses incurred in
connection with the Patent Litigation) and, to the extent consistent with such
business, to preserve intact their respective present business organizations,
use reasonable commercial efforts to keep available the services of their
respective present officers and key employees and preserve their respective
relationships with customers, suppliers, distributors, licensors, licensees, and
others having business dealings with them, all with the goal of preserving
unimpaired the goodwill and ongoing businesses of the Company and its
Subsidiaries at the Effective Time. The Company shall promptly notify Parent of
any event or occurrence or emergency not in the regular and ordinary course of
business of the Company or its Subsidiaries and any material event involving the
Company or its Subsidiaries that
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arises during the period from the date of this Agreement and continuing until
the earlier of the termination date of this Agreement pursuant to the provisions
of SECTION 9.1 hereof or the Effective Time. In addition to the foregoing,
except as expressly contemplated by this Agreement and except as expressly set
forth in SECTION 4.1 of the Disclosure Schedule, neither the Company nor any of
its Subsidiaries shall, without the prior written consent of Parent, from and
after the date of this Agreement:
(a) cause or permit any amendments to its certificate of
incorporation, bylaws or other organizational documents;
(b) make any expenditures or enter into any commitment or
transaction exceeding Twenty Five Thousand Dollars ($25,000) individually or One
Hundred Thousand Dollars ($100,000) in the aggregate, except that Parent's
consent shall not be unreasonably withheld if such expenditures are to defend a
Special Claim or Special Patent Claim;
(c) pay, discharge, waive or satisfy, in an amount in excess
of Twenty Five Thousand Dollars ($25,000) in any one case, or One Hundred
Thousand Dollars ($100,000) in the aggregate, any claim, liability, right or
obligation (absolute, accrued, asserted or unasserted, contingent or otherwise),
other than the payment, discharge or satisfaction in the regular and ordinary
course of business of liabilities reflected or reserved against in the Current
Balance Sheet or incurred in the regular and ordinary course of business
consistent with past practice since the Balance Sheet Date;
(d) adopt or change accounting methods or practices (including
any change in depreciation or amortization policies) other than as required by
GAAP;
(e) make or change any material election in respect of Taxes,
adopt or change any accounting method in respect of Taxes, enter into any
closing agreement, settle any claim or assessment in respect of Taxes, consent
to any extension or waiver of the limitation period applicable to any claim or
assessment in respect of Taxes or file any Tax Return unless a copy of such Tax
Return has been delivered to Parent for review a reasonable time prior to filing
and Parent has approved such Tax Return;
(f) revalue any of its assets (whether tangible or
intangible), including writing down the value of inventory or writing off,
discounting or otherwise compromising any notes or accounts receivable other
than in the regular and ordinary course of business consistent with past
practice;
(g) declare, set aside, or pay any dividends on or make any
other distributions (whether in cash, stock or property) in respect of any
Company Capital Stock, or split, combine or reclassify any Company Capital Stock
or issue or authorize the issuance of any other securities in respect of, in
lieu of or in substitution for shares of Company Capital Stock, or repurchase,
redeem or otherwise acquire, directly or indirectly, any shares of Company
Capital Stock (or options, warrants or other rights exercisable therefor);
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(h) increase the salary or other compensation payable or to
become payable to any officer, director, employee or advisor, or make any
declaration, payment or commitment or obligation of any kind for the payment
(whether in cash or equity) of a severance payment, termination payment, bonus
or other additional salary or compensation to any such person, except payments
made pursuant to written agreements outstanding on the date hereof and disclosed
in the Disclosure Schedule;
(i) sell, lease, license, pledge, assign or otherwise dispose
of or grant any security interest in any of its properties or assets, including
the sale of any accounts receivable, except properties or assets (whether
tangible or intangible) which are not Company Intellectual Property and only in
the regular and ordinary course of business and consistent with past practices;
(j) make any loan to any person or entity or purchase debt
securities of any person or entity or amend the terms of any outstanding loan
agreement, other than travel advances or other employee advances (not in excess
of Nine Thousand Dollars ($9,000) in any individual case or Fifty Thousand
Dollars ($50,000) in the aggregate outstanding at any time) in the regular and
ordinary course of business consistent with past practice;
(k) incur any indebtedness for borrowed money, guarantee any
indebtedness of any person or entity, issue or sell any debt securities, or
guarantee any debt securities of any person or entity;
(l) waive or release any material right or claim;
(m) commence or settle any lawsuit, threat of any lawsuit or
proceeding or other investigation against the Company;
(n) issue, grant, deliver or sell or authorize or propose the
issuance, grant, delivery or sale of, or purchase or propose the purchase of,
any Company Capital Stock or any securities convertible into, exercisable or
exchangeable for, or subscriptions, rights, warrants or options to acquire, or
other agreements or commitments of any character obligating it to issue or
purchase any such shares or other convertible securities, except for the
issuance of Company Capital Stock pursuant to the exercise of outstanding
Company Options and Company Warrants;
(o) (i) sell, lease, license or transfer to any person or
entity any rights to any Company Intellectual Property or enter into any
agreement or modify any existing agreement with respect to any Company
Intellectual Property with any person or entity or with respect to any
Intellectual Property of any person or entity, (ii) purchase or license any
Intellectual Property or enter into any agreement or modify any existing
agreement with respect to the Intellectual Property of any person or entity,
except for "shrink-wrap" and similar widely available binary code and end-user
commercial licenses entered into in the ordinary course of business and not to
exceed Twenty Five Thousand Dollars ($25,000) individually or One Hundred
Thousand Dollars ($100,000) in the aggregate, (iii) enter into any agreement or
modify any existing agreement with respect to the development of any
Intellectual Property with a third party, or (iv) change pricing or royalties
set or
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charged by the Company to its customers or licensees, or the pricing or
royalties set or charged by persons who have licensed Intellectual Property to
the Company or any of its Subsidiaries;
(p) enter into or amend any Contract pursuant to which any
other party is granted marketing, distribution, development, manufacturing or
similar rights of any type or scope with respect to any products or technology
of the Company or any of its Subsidiaries;
(q) enter into any agreement to purchase or sell any interest
in real property, grant any security interest in any real property, enter into
any lease, sublease, license or other occupancy agreement with respect to any
real property or alter, amend, modify or terminate any of the terms of any Lease
Agreements;
(r) materially amend or otherwise modify in any material
respect (or agree to do so), other than in the regular and ordinary course of
business consistent with past practice, or violate the terms of, any of the
Material Contracts;
(s) acquire or agree to acquire by merging or consolidating
with, or by purchasing any assets or equity securities of, or by any other
manner, any business or any corporation, partnership, association or other
business organization or division thereof, or otherwise acquire or agree to
acquire any assets which are material, individually or in the aggregate, to the
business of the Company and its Subsidiaries, taken as a whole;
(t) adopt or amend any Company Employee Plan, enter into any
employment contract, pay or agree to pay any bonus or special remuneration to
any director or Employee, or increase or modify the salaries, wage rates, or
other compensation (including any equity-based compensation, whether payable in
cash, stock, or otherwise) of its Employees except payments made pursuant to
written agreements outstanding on the date hereof and disclosed in SECTION
4.1(t) of the Disclosure Schedule;
(u) enter into any strategic alliance, affiliate agreement or
joint marketing arrangement or agreement;
(v) hire, promote, demote, terminate any Employees, change the
employment status or titles of any of the Employees, or encourage any Employees
to resign;
(w) alter, or enter into any commitment to alter, its interest
in any corporation, association, joint venture, partnership or business entity
in which the Company or any of its Subsidiaries directly or indirectly holds any
interest;
(x) cancel, materially amend or renew any insurance policy; or
(y) take, or agree in writing or otherwise to take, any of the
actions described in SECTIONS 4.1(a) through 4.1(x) hereof, or any other action
that would (i) prevent the Company from performing, or cause the Company not to
perform, any of its covenants hereunder, or (ii) take any action intended to
cause or result in any of its representations and warranties contained herein
being
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untrue or incorrect, whether or not (in each case) otherwise permitted by the
provisions of this ARTICLE IV.
4.2 NO SOLICITATION.
(a) Until the earlier of (i) the Effective Time, or (ii) the
date of termination of this Agreement pursuant to the provisions of SECTION 8.1
hereof, the Company shall not (nor shall the Company authorize, direct or permit
any of its officers, directors, employees, Stockholders, agents,
representatives, Subsidiaries or affiliates to), directly or indirectly, take
any of the following actions with any party other than Parent and its designees:
(A) solicit, encourage, seek, entertain, support, assist, initiate or
participate in any inquiry, negotiations or discussions, or enter into any
agreement with any person, with respect to any offer or proposal to acquire all
or any material part of the business, properties or technologies of the Company,
or any amount of the Company Capital Stock (whether or not outstanding), whether
by merger, purchase of assets, tender offer, license or otherwise, or effect any
such transaction, (B) except in the ordinary course of business consistent with
past practice (it being understood and agreed that any offer or proposal of the
type referred to in clause (A) or (C) of this paragraph shall not be considered
to be in the ordinary course of business) and subject to appropriate
non-disclosure obligations, disclose any information not customarily disclosed
to any person concerning the business, technologies or properties of the
Company, or afford to any person or entity access to its properties,
technologies, books or records, not customarily afforded such access, or (C)
assist or cooperate with any person to make any proposal to purchase all or any
part of the Company Capital Stock or assets of the Company. The Company shall
immediately cease and cause to be terminated any such negotiations, discussion
or agreements (other than with Parent) that are the subject matter of clause
(A), (B) or (C) above. In the event that the Company or any of the Company's
officers, directors, employees, Stockholders, agents, representatives,
Subsidiaries or affiliates shall receive, prior to the Effective Time or the
termination of this Agreement in accordance with SECTION 8.1 hereof, any
inquiry, offer or proposal, directly or indirectly, of the type referenced in
clause (A) or (C) above, or any request for disclosure or access as referenced
in clause (B) above, the Company shall (or shall cause such officer, director,
employee, Stockholder, agent, representative, Subsidiary or affiliate to)
immediately (1) suspend any discussions with such offeror or party with regard
to such inquiries offers, proposals, or requests and (2) notify Parent thereof,
including information as to the identity of the offeror or the party making any
such inquiry offer, proposal or request and the specific terms of such inquiry
offer, proposal or request, as the case may be, and such other information
related thereto as Parent may reasonably request. The parties hereto agree that
irreparable damage would occur in the event that the provisions of this SECTION
4.2(a) were not performed in accordance with their specific terms or were
otherwise breached. It is accordingly agreed by the parties hereto that Parent
shall be entitled to an immediate injunction or injunctions, without the
necessity of proving the inadequacy of money damages as a remedy and without the
necessity of posting any bond or other security, to prevent breaches of the
provisions of this SECTION 4.2(a) and to enforce specifically the terms and
provisions hereof in any court of the United States or any state having
jurisdiction, this being in addition to any other remedy to which Parent may be
entitled at law or in equity. Without limiting the foregoing, it is understood
that any violation of the restrictions set forth above by any officer, director,
employee,
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Stockholder, agent, representative, Subsidiary or affiliate of the Company shall
be deemed to be a breach of this Agreement by the Company.
(b) Until the earlier of (i) the Effective Time, or (ii) the
date of termination of this Agreement pursuant to the provisions of SECTION 8.1
hereof, Parent shall not 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 the party identified on SCHEDULE 4.2(b)
attached hereto (the "RESTRICTED PARTY") regarding any acquisition of the
Restricted Party by Parent, any merger or consolidation with or involving the
Restricted Party, or any acquisition of any material portion of the stock or
assets of the Restricted Party by Parent ("RESTRICTED PARTY ACQUISITION").
Notwithstanding the previous sentence, nothing in this SECTION 4.2(b) shall
restrict Parent's ability to take any and all action Parent deems necessary or
appropriate in connection with any litigation, claim or suit involving the
Restricted Party, except that Parent shall not participate in any negotiations
with the Restricted Party regarding any Restricted Party Acquisition in
connection with settling any such litigation, claim or suit.
4.3 PROCEDURES FOR REQUESTING PARENT CONSENT. If the Company desires to
take an action, which would be prohibited pursuant to SECTION 4.1 of this
Agreement without the written consent of Parent, prior to taking such action the
Company may request such written consent by sending an e-mail or facsimile to
both of the following individuals:
(a) General Counsel
Telephone: (000)000-0000
Facsimile: (000) 000-0000
E-mail address: xx-xxxx.xxxxxxxx@xxxxxxxx.xxx
(b) Senior Vice President Corporate Development
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
E-mail address: xxxxxxx.xxxxxx@xxxxxxxx.xxx
ARTICLE V
ADDITIONAL AGREEMENTS
5.1 STOCKHOLDER APPROVAL.
(a) As soon as practicable after the date hereof, the Company
shall obtain the Required Stockholder Vote by obtaining the Stockholder Written
Consents in accordance with Delaware Law and the Charter Documents. In
connection with seeking to obtain such Stockholder Written Consents, the Company
shall submit to the Stockholders the Soliciting Materials (as defined below),
which shall (i) include a solicitation of the Stockholders for approval of this
Agreement and the transactions contemplated hereby, including the Merger, by the
Required Stockholder Vote, (ii) specify that adoption of this Agreement shall
constitute approval by the Stockholders of the appointment of Bessemer Venture
Partners VI, LP as Stockholder Representative, under and as
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defined in this Agreement, (iii) include information regarding the Company and
Parent and a summary of the Merger, this Agreement and the transactions
contemplated hereby, and (iv) include a statement that appraisal rights are
available for the Company Capital Stock pursuant to Section 262 of Delaware Law
and a copy of such Section 262. Any materials to be submitted to the
Stockholders in connection with the solicitation of their approval of this
Agreement, the Merger and the transactions contemplated hereby (the "SOLICITING
MATERIALS"), shall include the unanimous recommendation of the Board in favor of
this Agreement, the Merger and the transactions contemplated hereby, and the
conclusion of the Board that that the terms and conditions of the Merger are
fair and reasonable to the Stockholders. Anything to the contrary contained
herein notwithstanding, the Soliciting Materials shall be subject to the review
and approval of Parent prior to distribution, such approval not to be
unreasonably withheld or delayed. The Company and Parent will promptly advise
the other in writing if at any time prior to the Closing the Company or Parent,
as the case may be, shall obtain knowledge of any facts that might make it
necessary or appropriate to amend or supplement the Soliciting Materials in
order to make the statements contained therein not misleading or to comply with
applicable law; provided, however, that Parent shall only be required to provide
notice of any such facts to the extent such facts relate to information
furnished in writing by Parent or Sub for the express purposes of being included
in such Soliciting Materials. The Board shall not alter, modify, change or
revoke its unanimous approval of this Agreement, the Merger and the transactions
contemplated hereby, and its unanimous recommendation to the Stockholders to
vote in favor of this Agreement, the Merger and the transactions contemplated
hereby.
(b) Promptly following receipt of Stockholder Written Consents
from Stockholders constituting the Required Stockholder Vote, the Company shall
deliver notice of the approval of the Merger by written consent of the Company's
Stockholders, pursuant to the applicable provisions of Delaware Law (the
"STOCKHOLDER NOTICE"), to all Stockholders that did not execute a Stockholder
Written Consent informing them that this Agreement, the Merger and the
transactions contemplated hereby were adopted and approved by the Stockholders
and that appraisal rights are available for their shares of Company Capital
Stock pursuant to Section 262 of Delaware Law (which notice shall include a copy
of such Section 262), and shall promptly inform Parent of the date on which the
Stockholder Notice was sent. The Company shall use commercially reasonable
efforts to cause Stockholders holding no more than Five Percent (5%) of the
outstanding shares of Company Capital Stock to continue to have a right to
exercise appraisal, dissenters' or similar rights under applicable law with
respect to their Company Capital Stock by virtue of the Merger. Notwithstanding
the foregoing, the Company shall give Stockholders sufficient notice to the
effect that no Stockholder will be able to exercise appraisal rights following
the Closing if such Stockholder has not perfected such appraisal rights in
accordance with Section 262 of Delaware Law prior to the Closing.
5.2 ISRAELI APPROVALS.
(a) GOVERNMENT FILINGS. Each party to this Agreement shall use
all reasonable efforts to deliver and file, as promptly as practicable after the
date of this Agreement, each notice, report or other document required to be
delivered by such party to, or filed by such party with, any
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Israeli Governmental Entity with respect to the Merger, which filings are listed
in SCHEDULE 5.2 hereto (the "REQUIRED ISRAELI CONSENTS"). Without limiting the
generality of the foregoing, the Company and Parent shall use all reasonable
efforts to obtain, as promptly as practicable after the date of this Agreement,
the following consents and approvals, and any other consents and approvals that
may be required pursuant to Israeli Legal Requirements in connection with the
Merger: (i) the OCS Approval; and (ii) the Investment Center Approval.
(b) LEGAL PROCEEDINGS. Each party to this Agreement shall: (i)
give the other parties prompt notice of the commencement of any legal proceeding
by or before any Israeli Governmental Entity with respect to the Merger; (ii)
keep the other parties informed as to the status of any such legal proceeding;
and (iii) promptly inform the other parties of any communication to the
Commissioner of Israeli Restrictive Trade Practices, OCS, the Investment Center
or any other Israeli Governmental Entity regarding the Merger. The parties to
this Agreement will consult and cooperate with one another, and will consider in
good faith the views of one another, in connection with any analysis,
appearance, presentation, memorandum, brief, argument, opinion or proposal made
or submitted in connection with any Israeli legal proceeding relating to the
Merger. In addition, except as may be prohibited by any Israeli Governmental
Entity or by any Israeli Legal Requirement, in connection with any such legal
proceeding under or relating to the Israeli Restrictive Trade Practices Law or
any other Israeli antitrust or fair trade law, each party hereto will permit
authorized representatives of the other party to be present at each meeting or
conference relating to any such legal proceeding and to have access to and be
consulted in connection with any document, opinion or proposal made or submitted
to any Israeli Governmental Entity in connection with any such legal proceeding.
(c) REGULATORY FILINGS. Each of the Company and Parent shall
cause all documents that it is responsible for filing with any Governmental
Entity under this SECTION 5.2 to comply as to form and substance in all material
respects with the applicable Israeli Legal Requirements. Whenever any event
occurs which is required to be set forth in an amendment or supplement to any
such document or filing, the Company or Parent, as the case may be, shall
promptly inform the other of such occurrence and cooperate in filing with the
applicable Governmental Entity, such amendment or supplement.
5.3 ACCESS TO INFORMATION. The Company shall afford Parent and its
accountants, counsel and other representatives, reasonable access during the
period from the date hereof and prior to the Effective Time to (a) all of the
properties, books, contracts (including customer contracts), commitments and
records of the Company, excluding Company Source Code, (b) all other information
concerning the business, properties and personnel (subject to restrictions
imposed by applicable law) of the Company as Parent may reasonably request, and
(c) all Employees, vendors and customers of the Company as identified by Parent.
The Company agrees to provide to Parent and its accountants, counsel and other
representatives copies of internal financial statements (including Tax Returns
and supporting documentation) promptly upon request. No information or knowledge
obtained in any investigation pursuant to this SECTION 5.3 or otherwise shall
affect or be deemed to modify any representation or warranty contained herein or
the conditions to the
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obligations of the parties to consummate the Merger in accordance with the terms
and provisions hereof.
5.4 CONFIDENTIALITY. Each of the parties hereto hereby agrees that the
information obtained in any investigation pursuant to SECTION 5.3 hereof, or
pursuant to the negotiation and execution of this Agreement or the effectuation
of the transactions contemplated hereby, shall be governed by the terms of the
Confidential Disclosure Agreement effective as of November 25, 2003, as amended
(the "CONFIDENTIAL DISCLOSURE AGREEMENT"), between the Company and Parent, and
Section 2.4(c) of that certain letter agreement between the Company and Parent
dated as of October 6, 2004, as if such information constituted information
exchanged in the course of negotiating the "proposed transaction" (as defined in
such letter agreement).
5.5 EXPENSES. Whether or not the Merger is consummated, all fees and
expenses incurred in connection with the Merger including all legal, financial
advisory, consulting and all other fees and expenses of third parties incurred
by a party in connection with the negotiation and effectuation of the terms and
conditions of this Agreement and the transactions contemplated hereby, including
in the case of the Company, any expenses set forth on SCHEDULE 5.5 attached
hereto ("SCHEDULED EXPENSES") and any Excess Tail Amount (as defined in SECTION
5.17(b)), whether incurred before or after the Effective Time (collectively,
"THIRD PARTY EXPENSES"), shall be the obligation of the respective party
incurring such fees and expenses. Any fees and expenses (including any Taxes)
payable by a party or any of its subsidiaries in connection with the Employee
Release, Non-Competition and Waiver Plan or any Release Payment thereunder (but
not the Release Payments themselves), whether before or after the Effective
Time, shall be deducted from the Deferred Employee Release Amount hereunder
("PARTICIPANT EXPENSES"). The Company shall provide Parent with a bona fide
statement of Estimated Third Party Expenses incurred by the Company at least
five (5) Business Days prior to the Closing Date in form reasonably satisfactory
to Parent (the "STATEMENT OF EXPENSES"). Any Third Party Expenses incurred by
the Company after October 5, 2004 in excess of the greater of (a) the aggregate
Estimated Third Party Expenses as set forth on the Statement of Expenses and (b)
Two Hundred Fifty Thousand Dollars ($250,000) ("EXCESS THIRD PARTY EXPENSES"),
shall be subject to the indemnification provisions of ARTICLE VII and shall not
be limited by or count towards the Threshold Amount (as defined in SECTION
7.3(b)). Third Party Expenses shall not be incurred by the Company after the
Closing Date without the express prior written consent of Parent. The Company
shall use its best efforts to obtain, at least two (2) Business Days prior to
the Closing Date, final invoices from its legal, financial advisory, consulting
and other similar advisors reflecting the portion of Third Party Expenses
payable to each such advisor as of the Closing Date, including a statement from
each such advisor that the amount reflected on such invoice represents payment
in full for all services rendered to the Company (including its Subsidiaries)
and in return for such payment, fully releasing the Company, Parent and the
Surviving Corporation from any and all liability arising for services performed
prior to the Effective Time (each, an "ADVISOR RELEASE").
5.6 PUBLIC DISCLOSURE. No party shall issue any statement or
communication to any third party (other than their respective agents that are
bound by confidentiality restrictions) regarding the subject matter of this
Agreement or the transactions contemplated hereby, including, if applicable,
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the termination of this Agreement and the reasons therefor, without the consent
of the other party, except that this restriction shall be subject to Parent's
obligation to comply with applicable securities laws and the rules of The Nasdaq
National Market.
5.7 CONSENTS. The Company shall use commercially reasonable efforts to
obtain all necessary consents, waivers and approvals of any party to any
Contract as are required thereunder in connection with the Merger or for any
such Contracts to remain in full force and effect so as to preserve all rights
of, and benefits to, the Company or the Surviving Corporation under such
Contracts from and after the Effective Time.
5.8 FIRPTA COMPLIANCE. On the Closing Date, the Company shall deliver
to Parent a properly executed statement (a "FIRPTA COMPLIANCE CERTIFICATE") in a
form reasonably acceptable to Parent for purposes of satisfying Parent's
obligations under Treasury Regulation Section 1.1445-2(c)(3).
5.9 REASONABLE EFFORTS. Subject to the terms and conditions provided in
this Agreement, each of the parties hereto shall use commercially reasonable
efforts to take promptly, or cause to be taken, all actions, and to do promptly,
or cause to be done, all things necessary, proper or advisable under applicable
laws and regulations to consummate and make effective the transactions
contemplated hereby, to satisfy the conditions to the obligations to consummate
the Merger, to obtain all necessary waivers, consents and approvals and to
effect all necessary registrations and filings and to remove any injunctions or
other impediments or delays, legal or otherwise, in order to consummate and make
effective the transactions contemplated by this Agreement for the purpose of
securing to the parties hereto the benefits contemplated by this Agreement;
provided, 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, of
shares of capital stock or of any business, assets or property of Parent or its
subsidiaries or affiliates, or of the Company, its Subsidiaries or affiliates,
or the imposition of any material limitation on the ability of any of them to
conduct their businesses or to own or exercise control of such assets,
properties and stock, other than the restrictions and obligations imposed by OCS
as disclosed in SECTION 2.13(k) of the Disclosure Schedule.
5.10 NOTIFICATION OF CERTAIN MATTERS. The Company shall give prompt
notice to Parent of: (a) the occurrence or non-occurrence of any event, the
occurrence or non-occurrence of which is likely to cause any representation or
warranty of the Company contained in this Agreement to be untrue or inaccurate
in any material respect at or prior to the Effective Time, and (b) any failure
of the Company to comply with or satisfy any covenant, condition or agreement to
be complied with or satisfied by it hereunder; provided, however, that the
delivery of any notice pursuant to this SECTION 5.10 shall not (i) limit or
otherwise affect any remedies available to the party receiving such notice or
(ii) constitute an acknowledgment or admission of a breach of this Agreement. No
disclosure by the Company pursuant to this SECTION 5.10 shall be deemed to amend
or supplement the Disclosure Schedule or prevent or cure any misrepresentations,
breach of warranty or breach of covenant.
5.11 ADDITIONAL DOCUMENTS AND FURTHER ASSURANCES. Each party hereto, at
the request of another party hereto, shall execute and deliver such other
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instruments and do and perform such other acts and things as may be necessary or
desirable for effecting completely the consummation of the Merger and the
transactions contemplated hereby.
5.12 FINANCIALS. The Company shall use all reasonable efforts to supply
Parent and Sub with any financial information that Parent reasonably and
practically requests, including but not limited to audited or unaudited balance
sheets and the related consolidated statement of income, cash flow and
stockholders' equity for the periods then ended (collectively, the "ADDITIONAL
FINANCIALS"), in order to effectuate filings, notices, petitions or statements
required by any Governmental Entity in connection with the Merger and the
transactions contemplated hereby or as otherwise determined necessary or
advisable by Parent in its reasonable judgment, including any Current Report on
Form 8-K or any other report required pursuant to the Exchange Act. In
connection therewith, the Company shall cause its auditors to deliver any
opinions or consents necessary for Parent to file the Additional Financials or
Financial Statements, and shall take such actions, and shall cause its auditors
to take such actions, to prepare and complete as Parent may reasonably require
for such purposes, audits for any fiscal years and any required interim period
reviews as prescribed by the rules and regulations of the SEC, and the Company
shall cause its auditors to deliver any opinions or consents necessary for
Parent to file such audited financial statements for such fiscal years or
reviews of interim periods.
5.13 ACQUISITION OF MINORITY INTEREST OF ART, LTD. The Company shall
use its commercially reasonable efforts to acquire all outstanding shares of
ART, Ltd. that it does not own prior to the Closing.
5.14 EMPLOYEE RELEASE, NON-COMPETITION AND WAIVER PLAN. The Company
shall provide Parent with the Employee Release Allocation at least five (5)
Business Days prior to the Closing. Parent shall (a) promptly following the
Effective Time, distribute the Initial Employee Release Amount pursuant to the
Employee Release, Non-Competition and Waiver Plan according to the allocation of
such amount set forth in the Employee Release Allocation and (b) within three
(3) Business Days following December 15, 2005, distribute the Deferred Employee
Release Amount, subject to the acceleration provisions of SECTION 1.6(h)(i)
hereof and the holdback and indemnification provisions of SECTION 1.8(b) and
ARTICLE VII hereof, pursuant to the Employee Release, Non-Competition and Waiver
Plan according to the allocation of such amount set forth in the Employee
Release Allocation. The Company shall use all reasonable efforts to cause all
Participants in the Employee Release, Non-Competition and Waiver Plan to execute
a valid and enforceable Irrevocable Release, Waiver of Claims and
Non-Competition Agreement (a "RELEASE") prior to the Closing, substantially in
the form attached hereto as EXHIBIT D. Notwithstanding anything to the contrary
contained herein, no person may receive any Release Payment unless such person
executes and delivers a valid and enforceable Release to the Company or Parent
prior to the Closing and such Release is in full force and effect at the time of
any such Release Payment.
5.15 GRANT OF STOCK OPTIONS. Reasonably promptly following the
Effective Time, Parent shall provide those employees that accept offers to work
for Parent and/or the Surviving Corporation with option grants to purchase
shares of Parent Common Stock in amounts and with terms consistent with Parent's
applicable human resources policies; provided, however, that in order to receive
an
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option grant, such employee must either (a) be bound by the Employee Release,
Non-Competition and Waiver Plan and an effective Release, or (b) execute and
deliver to Parent a valid and enforceable agreement containing provisions
relating to non-competition and non-solicitation and waivers of rights
substantially similar to those set forth in the Employee Release,
Non-Competition and Waiver Plan and the Release in the reasonable judgment of
Parent.
5.16 SPREADSHEET. The Company shall prepare, and deliver to Parent at
least two (2) Business Days prior to the Closing Date, a spreadsheet (the
"SPREADSHEET") in form reasonably acceptable to the Paying Agent and Parent,
which Spreadsheet shall be certified by the Chief Executive Officer of the
Company as complete, correct and in accordance with the Charter Documents as of
the Closing and which shall separately list, as of the Closing, all Stockholders
and their respective addresses, the number of shares of Company Capital Stock
held by such persons (including identification by class or series and the
respective certificate numbers), the exercises and proceeds that make up the
Option Exercise Amount, the exercises and proceeds that make up the Deemed
Option Exercise Amount, the amount of cash due and payable to each Stockholder
as of the First Installment and the Second Installment, each Stockholder's Pro
Rata Portion of the Holdback, indicating which Stockholders delivered Exchange
Materials prior to the Closing (including valid and complete wire instructions
for any recipients of wire transfers pursuant to SECTION 1.8(c)), details with
respect to any Company Loans (other than travel advances or other employee
advances not in excess of Nine Thousand Dollars ($9,000) in any individual case)
and such other information relevant thereto, which the Paying Agent or Parent
may reasonably request.
5.17 INDEMNIFICATION OF DIRECTORS AND OFFICERS.
(a) INDEMNITY. From and after the Effective Time, Parent will,
and will cause the Surviving Corporation, to fulfill and honor the obligations
of the Company pursuant to any indemnification agreements between the Company
and its directors and officers (the "COMPANY INDEMNIFIED PARTIES") in effect on
the date hereof and listed on SECTION 5.17 of the Disclosure Schedule (copies of
which have been provided to Parent), and any provisions providing for the
indemnification of the Company Indemnified Parties contained in the Charter
Documents as in effect on the date hereof, subject to applicable law. The
Certificate of Incorporation and Bylaws of the Surviving Corporation will
contain provisions with respect to exculpation and indemnification that are
substantially similar to those contained in the Charter Documents as in effect
on the date hereof, which provisions will not be amended, repealed or otherwise
modified for a period of six (6) years from the Effective Time in a manner that
would adversely affect the rights thereunder of the Company Indemnified Parties,
unless such modification is required by applicable law; provided, however, that
Parent reserves the right to merge the Surviving Corporation into Parent or
another wholly-owned subsidiary of Parent at any point for legitimate corporate
purposes. Any Company Indemnified Party wishing to claim indemnification under
this SECTION 5.17, upon becoming aware of any such claim, shall promptly notify
the Surviving Corporation, and shall deliver to the Surviving Corporation the
undertaking contemplated by Section 145 of Delaware Law.
(b) INSURANCE. For a period of three (3) years after the
Effective Time, Parent will cause the Surviving Corporation to maintain
directors' and officers' liability insurance covering
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those persons who are covered by the Company's directors' and officers'
liability insurance policy as of the date hereof, including all current
directors of the Company, on terms substantially comparable, in the aggregate,
to those applicable as of the date hereof to the current directors and officers
of Company covering all periods prior to the Effective Time (the "D&O TAIL");
provided, however, that any costs or payments in excess of Seventy Five Thousand
Dollars ($75,0000) in the aggregate for the D&O Tail (the "EXCESS TAIL AMOUNT")
shall constitute Third Party Expenses incurred by the Company.
(c) THIRD-PARTY BENEFICIARIES. This SECTION 5.17 shall survive
the consummation of the Merger, is intended to be for the benefit of, and shall
be enforceable by the Company Indemnified Parties and their heirs and personal
representatives and shall be binding on Parent and the Surviving Corporation and
their successors and assigns.
5.18 TERMINATION OF BENEFIT PLANS. Unless requested otherwise in
writing by Parent no later than three (3) Business Days prior to the Closing
Date, the Company shall take (or cause to be taken) all actions necessary or
appropriate to terminate, effective no later than the date immediately preceding
the Closing Date, any and all Company U.S. Employee Plans (as defined below)
that provide for group severance, separation or salary continuation or that
contain a cash or deferred arrangement intended to qualify under Section 401(k)
of the Code (the "COMPANY DEFERRAL PLANS"). Unless the Company receives notice
otherwise from Parent, Parent shall receive from the Company, prior to the
Effective Time, evidence that the Company's Board of Directors has adopted
resolutions to terminate the Company Deferral Plans (the form and substance of
which resolutions shall be subject to review and approval of Parent, which
approval shall not be unreasonably withheld), effective no later than the date
immediately preceding the Closing Date. "COMPANY U.S. EMPLOYEE PLANS" as used
herein means any plan, program, policy, practice, contract, agreement or other
arrangement providing for compensation, severance, termination pay, deferred
compensation, retirement benefits, performance awards, stock or stock-related
awards, fringe benefits or other employee benefits or remuneration of any kind,
whether written, unwritten or otherwise, funded or unfunded, including each
"employee benefit plan," within the meaning of Section 3(3) of ERISA, which is
or has been maintained, contributed to, or required to be contributed to, by the
Company or any ERISA Affiliate for the benefit of any Employee that performs
services for the Company or any ERISA Affiliate in the United States, or with
respect to which the Company or any ERISA Affiliate has or may have any
liability or obligation in the United States.
5.19 ADDITIONAL AGREEMENTS REGARDING STOCKHOLDER VOTE, TERMINATION OF
AGREEMENT AND THE MERGER.
(a) Notwithstanding anything in this Agreement or in any
Related Agreement to the contrary, in the event that the Company shall not have
obtained the irrevocable approval and adoption of the Merger, this Agreement and
the transactions contemplated hereby, including each of the matters set forth in
SECTION 5.1 hereof (other than allocation of the Total Consideration (including
the Employee Release Amount)), pursuant to the Stockholder Written Consent
signed by holders of (i) at least a majority of the outstanding Company Common
Stock and Company Preferred Stock, voting together as a single class and on an
as-converted basis and (ii) not less than
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seventy five percent (75%) of the outstanding Company Series C Preferred Stock
and Company Series D Preferred Stock, voting together as a separate class and
not as separate series, and on an as-converted basis, such that the Merger can
be completed as contemplated by paragraph (b) below (the "MINIMUM VOTE"), by
December 1, 2004, then at any time after such date and until the approval and
adoption in accordance with this paragraph is obtained, Parent shall be entitled
to terminate this Agreement and the Merger, and such termination shall have the
same effect as a termination of this Agreement in accordance with SECTION 8.1
hereof; provided, however, that in the event of any such termination by Parent
pursuant to this paragraph, the Company shall pay to Parent a termination fee in
the amount of One Million Dollars ($1,000,000) payable in same day funds within
three (3) Business Days after demand by Parent.
(b) Notwithstanding anything in this Agreement or in any
Related Agreement to the contrary, in the event that the Company shall not have
obtained the irrevocable approval and adoption of the Merger, this Agreement and
the transactions contemplated hereby, including each of the matters set forth in
SECTION 5.1 hereof (including the allocation of the Total Consideration
(including the Employee Release Amount)), pursuant to the Stockholder Written
Consent by the Required Stockholder Vote in accordance with the applicable
provisions of Delaware Law and the Charter Documents by the Closing, but the
Company shall have obtained the Minimum Vote, then (i) this Agreement shall
automatically be deemed to have been amended to provide that the Total
Consideration (including the Employee Release Amount) shall be allocated among
the Stockholders in strict compliance with the applicable provisions of Delaware
Law and the Charter Documents, and no Stockholder or Participant shall have any
right to receive any portion of the Total Consideration other than in accordance
therewith except as may be agreed to by specific Stockholders and Participants
in their discretion, (ii) by virtue of such approval and adoption, the condition
set forth in SECTION 6.1(d) hereof shall be deemed to have been satisfied in all
respects notwithstanding the Company's failure to obtain the Required
Stockholder Vote, and (iii) each of the parties hereto shall take any and all
such other actions as shall be necessary and proper to accomplish the foregoing,
including making such appropriate changes to the Certificate of Merger to
reflect the amended allocation of the Total Consideration as contemplated by
this paragraph (b).
ARTICLE VI
CONDITIONS TO THE MERGER
6.1 CONDITIONS TO OBLIGATIONS OF EACH PARTY TO EFFECT THE MERGER. The
respective obligations of the Company and Parent to effect the Merger shall be
subject to the satisfaction, at or prior to the Effective Time, of the following
conditions, any of which may be waived in writing by mutual agreement of Parent
and the Company:
(a) NO ORDER. No Governmental Entity shall have enacted,
issued, promulgated, enforced or entered any statute, rule, regulation,
executive order, decree, injunction or other order (whether temporary,
preliminary or permanent) which is in effect and which has the effect of making
the Merger illegal or otherwise prohibiting consummation of the Merger.
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(b) NO INJUNCTIONS OR RESTRAINTS; ILLEGALITY. No temporary
restraining order, preliminary or permanent injunction or other order issued by
any court of competent jurisdiction or other legal restraint or prohibition
preventing the consummation of the Merger shall be in effect, nor shall any
proceeding brought by an administrative agency or commission or other
governmental authority or instrumentality, domestic or foreign, seeking any of
the foregoing be threatened or pending.
(c) LITIGATION. There shall be no action, suit, claim, order,
injunction or proceeding of any nature pending, or overtly threatened, against
Parent or the Company (or any of their respective subsidiaries), their
respective properties or assets or any of their respective officers or directors
arising out of, or in any way connected with, the Merger or the other
transactions contemplated by the terms of this Agreement, which if determined
adversely to Parent or the Company (or such subsidiary), would be reasonably
likely to (i) result in a Parent Material Adverse Effect, (ii) result in a
Company Material Adverse Effect, or (iii) restrict the ability of any of the
parties hereto to consummate the Merger in accordance with the terms hereof.
(d) STOCKHOLDER APPROVAL. Stockholders constituting the
Required Stockholder Vote shall have approved this Agreement, and the
transactions contemplated hereby, including the Merger and the appointment of
the Stockholder Representative.
(e) REGULATORY APPROVALS. All material foreign antitrust
approvals required to be obtained prior to the Merger in connection with the
transactions contemplated hereby and listed in SCHEDULE 6.1(e) attached hereto
(the "ANTITRUST APPROVALS") have been obtained.
6.2 CONDITIONS TO THE OBLIGATIONS OF PARENT AND SUB. The obligations of
Parent and Sub to consummate and effect this Agreement and the transactions
contemplated hereby shall be subject to the satisfaction at or prior to the
Effective Time of each of the following conditions, any of which may be waived,
in writing, by Parent and Sub:
(a) REPRESENTATIONS, WARRANTIES AND COVENANTS. (i) The
representations and warranties of the Company contained in this Agreement shall
be true and correct (without giving effect to any limitation as to "materiality"
or "Material Adverse Effect" set forth herein) on the date hereof and on and as
of the Closing Date as though such representations and warranties were made on
and as of such time (other than the representations and warranties of the
Company as of a specified date, which shall be true and correct on such date);
provided, however, that the Company shall be deemed to have satisfied the
conditions set forth in this clause (i) if such failures to so be true or
correct would not, individually or in the aggregate, be reasonably likely to
constitute a Company Material Adverse Effect (it being understood and agreed
that such Company Material Adverse Effect qualification shall not apply to any
fraudulent breach by the Company of the representations and warranties of the
Company unless such fraudulent breaches would not, individually or in the
aggregate, be reasonably likely to result in Losses in excess of Five Hundred
Thousand Dollars ($500,000)), and (ii) the Company shall have performed and
complied in all material respects with all covenants and obligations under this
Agreement required to be performed and complied with by it as of the Closing;
provided, however, that the Company shall be deemed to have satisfied the
conditions set forth in this clause (ii) if such failures to so perform or
comply
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would not, individually or in the aggregate, be reasonably likely to result in
Losses (including lost profits and diminution in value) in excess of Five
Hundred Thousand Dollars ($500,000).
(b) GOVERNMENTAL APPROVAL. Approvals from any court,
administrative agency, commission, or other federal, state, county, local or
other foreign governmental authority, instrumentality, agency, or commission (if
any) deemed appropriate or necessary by Parent and listed in SCHEDULE 6.2(b)
attached hereto, shall have been timely obtained, including the Required Israeli
Consents and the Antitrust Approvals.
(c) THIRD PARTY CONSENTS. The Company shall have delivered to
Parent all consents, waivers and approvals listed in SCHEDULE 6.2(c) attached
hereto ("REQUIRED CONTRACT CONSENTS"), which Required Contract Consents shall be
reasonably acceptable to Parent in form and substance.
(d) NO COMPANY MATERIAL ADVERSE EFFECT. There shall not have
occurred (i) any Company Material Adverse Effect since the date of this
Agreement or (ii) any of the events set forth in SECTION 8.1(f) hereof.
(e) RESIGNATION OF OFFICERS AND DIRECTORS. Parent shall have
received a written resignation from each of the officers and directors of (i)
the Company and (ii) each of the Subsidiaries, effective as of the Effective
Time.
(f) LEGAL OPINION. Parent shall have received a legal opinion
from legal counsel to the Company, substantially in the form attached hereto as
EXHIBIT E.
(g) APPRAISAL RIGHTS. Dissenting Shares shall represent Five
Percent (5%) or less of the Total Outstanding Shares.
(h) CERTIFICATE OF THE COMPANY. Parent shall have received a
certificate, validly executed by the Chief Executive Officer of the Company for
and on the Company's behalf, to the effect that, as of the Closing:
(i) The representations and warranties of the Company
contained in this Agreement were true and correct (without giving effect to any
limitation as to "materiality" or "Material Adverse Effect" set forth herein) on
the date of this Agreement and are true and correct on and as of the Closing
Date as though such representations and warranties were made on and as of such
time (other than the representations and warranties of the Company as of a
specified date, which shall be true and correct on such date); provided,
however, that the Company shall be deemed to have satisfied the conditions set
forth in this clause (i) if such failures to so be true or correct would not,
individually or in the aggregate, be reasonably likely to constitute a Company
Material Adverse Effect (it being understood and agreed that such Company
Material Adverse Effect qualification shall not apply to any fraudulent breach
by the Company of the representations and warranties of the Company unless such
fraudulent breaches would not, individually or in the aggregate, be reasonably
likely to result in Losses in excess of Five Hundred Thousand Dollars
($500,000)); and
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(ii) all covenants and obligations under this
Agreement to be performed or complied with by the Company on or before the
Closing have been so performed or complied with in all material respects;
provided, however, that the Company shall be deemed to have satisfied the
conditions set forth in this clause (ii) if such failures to so perform or
comply would not, individually or in the aggregate, be reasonably likely to
result in Losses (including lost profits and diminution in value) in excess of
Five Hundred Thousand Dollars ($500,000).
(i) CERTIFICATE OF SECRETARY OF COMPANY. Parent shall have
received a certificate, validly executed by the Secretary of the Company,
certifying as to (i) the terms and effectiveness of the Charter Documents, (ii)
the valid adoption of resolutions of the Board (whereby the Merger and the
transactions contemplated hereunder were unanimously approved by the Board) and
(iii) that Stockholders constituting the Required Stockholder Vote have approved
this Agreement, the Merger and the consummation of the transactions contemplated
hereby.
(j) FIRPTA CERTIFICATE. Parent shall have received a copy of
the FIRPTA Compliance Certificate, validly executed by a duly authorized officer
of the Company.
(k) EXERCISE OR TERMINATION OF COMPANY OPTIONS AND COMPANY
WARRANTS. Parent shall have received evidence reasonably satisfactory to it that
all outstanding Company Options and all outstanding Company Warrants shall have
been exercised in full or terminated prior to the Effective Time.
(l) CORPORATE AUTHORITY. Each officer of the Company shall
have surrendered his or her authority over all Company bank accounts set forth
in SCHEDULE 6.2(l) attached hereto, and evidence of the foregoing (in form and
substance reasonably satisfactory to Parent) shall have been delivered to
Parent.
(m) ADDITIONAL FINANCIALS. The Company shall have provided
Parent with the Additional Financials, including each auditor's consent, dated
as of the Closing Date, with respect to the Company's historical financial
statements necessary for Parent to meet its obligations under the Exchange Act
and to file any Current Report on Form 8-K.
(n) SPREADSHEET. The Company shall have (i) delivered a true
and complete version of the Spreadsheet to Parent at least two (2) Business Days
prior to the Closing Date, certified by the Chief Executive Officer of the
Company as complete, correct and in accordance with the Charter Documents as of
the Closing and (ii) delivered a complete and accurate version of the Employee
Release Allocation to Parent at least five (5) Business Days prior to the
Closing Date.
(o) THIRD PARTY EXPENSES. The Company shall have delivered the
Statement of Expenses and all Advisor Releases to Parent at least two (2)
Business Days prior to the Closing Date, each in form and substance reasonably
satisfactory to Parent.
(p) AGREEMENT. The Stockholder Representative shall have
delivered the executed affidavit, which affidavit was attached to the agreement
dated concurrently herewith between the Stockholder Representative and Parent,
to Parent in the event that Parent has delivered a
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substituted affidavit to the Stockholder Representative in accordance with the
terms of such agreement.
6.3 CONDITIONS TO OBLIGATIONS OF THE COMPANY. The obligations of the
Company to consummate and effect this Agreement and the transactions
contemplated hereby shall be subject to the satisfaction at or prior to the
Effective Time of each of the following conditions, any of which may be waived,
in writing, exclusively by the Company:
(a) REPRESENTATIONS, WARRANTIES AND COVENANTS. (i) The
representations and warranties of Parent and Sub contained in this Agreement
shall be true and correct (without giving effect to any limitation as to
"materiality" or "Material Adverse Effect" set forth herein) on the date hereof
and on and as of the Closing Date as though such representations and warranties
were made on and as of such time (other than the representations and warranties
of Parent and Sub as of a specified date, which shall be true and correct as of
such date); provided, however, that Parent and Sub shall be deemed to have
satisfied the conditions set forth in this clause (i) if such failures to so be
true or correct would not, individually or in the aggregate, be reasonably
likely to constitute a Parent Material Adverse Effect (it being understood and
agreed that such Parent Material Adverse Effect qualification shall not apply to
any fraudulent breach by Parent of the representations and warranties of
Parent), and (ii) each of Parent and Sub shall have performed and complied in
all material respects with all covenants and obligations under this Agreement
required to be performed and complied with by such parties as of the Closing.
(b) CERTIFICATE OF PARENT. The Company shall have received a
certificate, validly executed on behalf of Parent by a Vice President for and on
its behalf to the effect that, as of the Closing:
(i) The representations and warranties of Parent and
Sub contained in this Agreement were true and correct (without giving effect to
any limitation as to "materiality" or "Material Adverse Effect") on the date of
this Agreement and are true and correct on and as of the Closing Date as though
such representations and warranties were made on and as of such time (other than
the representations and warranties of Parent and Sub as of a specified date,
which shall be true and correct as of such date); provided, however, that Parent
and Sub shall be deemed to have satisfied the conditions set forth in this
clause (i) if such failures to so be true or correct would not, individually or
in the aggregate, be reasonably likely to constitute a Parent Material Adverse
Effect (it being understood and agreed that such Parent Material Adverse Effect
qualification shall not apply to any fraudulent breach by Parent of the
representations and warranties of Parent); and
(ii) all covenants and obligations under this
Agreement to be performed by Parent and Sub on or before the Closing have been
so performed in all material respects.
(c) AGREEMENT. That certain agreement dated concurrently
herewith between the Stockholder Representative and Parent and the affidavit
attached thereto, or any substitute affidavit in lieu thereof in accordance with
the terms of such agreement, shall be in full force and effect in accordance
with its terms.
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ARTICLE VII
SURVIVAL OF REPRESENTATIONS AND WARRANTIES
7.1 SURVIVAL OF REPRESENTATIONS, WARRANTIES AND COVENANTS. The
representations and warranties of the Company contained in this Agreement, or in
any certificate or other instrument delivered pursuant to this Agreement, shall
survive until December 15, 2005 (the "SURVIVAL DATE"). The representations and
warranties of Parent and Sub contained in this Agreement, or in any certificate
or other instrument delivered pursuant to this Agreement, shall terminate at the
Closing.
7.2 INDEMNIFICATION. Following and as a result of the Merger, subject
to the provisions of this ARTICLE VII, from and after the Effective Time, the
Stockholders and the Participants (collectively, the "INDEMNIFYING PARTIES")
shall, subject to SECTION 7.3(c) hereof, jointly and severally indemnify and
hold Parent and its officers, directors, and affiliates, including the Surviving
Corporation (the "INDEMNIFIED PARTIES"), harmless against any and all claims,
losses, liabilities, damages, royalties, awards, judgments, penalties,
deficiencies, costs and expenses, including reasonable attorneys' fees and
expenses of investigation and defense (excluding attorneys' fees and expenses of
investigation and defense arising out of and relating to a Special Claim or a
Special Patent Claim, but including lost profits and diminution in value in the
case of any injunctive or equitable relief granted in connection with any such
Special Claim or Special Patent Claim) and lost profits and diminution of value
for the first Five Hundred Thousand Dollars ($500,000) of claims for damages
arising under clause (b) of this SECTION 7.2 (hereinafter individually a "LOSS"
and collectively "LOSSES"), actually incurred or sustained by the Indemnified
Parties, or any of them, directly or indirectly, as a result of (a) any breach
or inaccuracy of any representation or warranty of the Company contained in this
Agreement or in any certificate or other instrument delivered pursuant to this
Agreement, (b) any failure by the Company to perform or comply with any covenant
or other agreement applicable to it contained in this Agreement, (c) any
Dissenting Share Payments, (d) any Excess Third Party Expenses incurred by the
Company, or (e) any failure of the Spreadsheet to be complete, correct or in
accordance with the Charter Documents. The Indemnifying Parties shall not have
any right of contribution from any Indemnified Party with respect to any Loss
claimed by an Indemnified Party.
7.3 HOLDBACK ARRANGEMENTS.
(a) HOLDBACK. By virtue of this Agreement and as sole security
for the indemnity obligations provided for in SECTION 7.2 hereof (except for Non
Exclusive Losses, as defined in SECTION 7.3(c)), at the Effective Time, without
any act by any Indemnifying Party, Parent will retain the Holdback Amount from
the Total Deferred Consideration, such retention of the Holdback Amount to
constitute a Holdback, plus any interest earned thereon in accordance with
SECTION 1.6(g)(iii) hereof (the "HOLDBACK") to be governed by the terms set
forth herein. The Holdback shall be available to compensate the Indemnified
Parties for any claims by such parties for any Losses suffered or incurred by
them and for which they are entitled to recovery under this ARTICLE VII. The
Holdback shall consist of (i) with respect to each Stockholder, Seven and
One-Half Percent (7.5%) of the amount of cash payable to such Stockholder in the
Merger pursuant to
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SECTION 1.6(b) hereof, (ii) with respect to each Participant, Seven and One-Half
Percent (7.5%) of the amount of cash otherwise payable to such Participant
pursuant to the Employee Release, Non-Competition and Waiver Plan before
withholding for Taxes, and (iii) any interest, as earned, in accordance with
SECTION 1.6(g)(iii) hereof. As used herein, "PRO RATA PORTION" means, with
respect to each Indemnifying Party, a ratio equal to (A) that amount of cash
subject to the Holdback on such Indemnifying Party's behalf, divided by (B) the
Holdback Amount. For the purposes of clarity, the Holdback Amount shall equal
Seven and One-Half Percent (7.5%) of the Total Consideration, but will not be
withheld from the First Installment and will be withheld in full from the Second
Installment.
(b) THRESHOLD AMOUNT. Notwithstanding any provision of this
Agreement to the contrary, except as set forth in the second sentence of this
SECTION 7.3(b), an Indemnified Party may not recover any Losses under SECTION
7.2 unless and until the Indemnified Parties shall have suffered Losses in
excess of Two Hundred Sixty Five Thousand Dollars ($265,000) in the aggregate
(the "THRESHOLD AMOUNT"), at which point Parent shall be entitled to recover all
such Losses. Notwithstanding the foregoing, Parent shall be entitled to recover
for, and the Threshold Amount shall not apply as a threshold to, any and all
claims or payments made with respect to any and all (i) Losses incurred as a
result of fraud or any intentional breach of any covenant by the Company, (ii)
Losses resulting from any breach of any representation or warranty contained in
SECTION 2.2(a) (Company Capital Structure) or SECTION 2.18 (Brokers' and
Finders' Fees), (iii) Dissenting Share Payments, (iv) Excess Third Party
Expenses incurred by the Company, or (v) Losses resulting from any failure of
the Spreadsheet to be complete, correct or in accordance with the Charter
Documents. For the purposes hereof, "OFFICER'S CERTIFICATE" shall mean a
certificate signed by any officer of Parent: (A) stating that an Indemnified
Party has paid, sustained, incurred, or accrued, or reasonably anticipates that
it will have to pay, sustain, incur, or accrue Losses, and (B) specifying in
reasonable detail the individual items of Losses included in the amount so
stated, the date each such item was paid, sustained, incurred, or accrued, or
the basis for such anticipated liability, and the nature of the
misrepresentation, breach of warranty or covenant to which such item is related.
(c) SATISFACTION OF CLAIMS. Except to the extent that Losses
(i) resulted from fraud, (ii) were in connection with any breach of a
representation or warranty contained in SECTION 2.2(a) (Company Capital
Structure) or SECTION 2.18 (Brokers' and Finders' Fees) and any claims relating
to such Losses are asserted in writing by an Indemnified Party within ninety
(90) calendar days following the Closing Date, or (iii) were in connection with
any failure of the Spreadsheet to be complete, correct or in accordance with the
Charter Documents and any claims relating to such Losses are asserted in writing
by an Indemnified Party within ninety (90) days following the Closing Date
(collectively, "NON EXCLUSIVE LOSSES"), claims by an Indemnified Party for
Losses (including claims by an Indemnified Party relating to the matters set
forth in clauses (ii) and (iii) above asserted more than ninety (90) calendar
days following the Closing Date and on or before the termination of the Holdback
Period) shall be satisfied solely from the Holdback. Claims by an Indemnified
Party for Non Exclusive Losses relating to the matters set forth in clauses (ii)
and (iii) above asserted within ninety (90) calendar days following the Closing
Date shall be satisfied as follows: first, from the Holdback, to the extent the
Indemnified Parties have not made prior claims (whether or not such claims have
been paid, satisfied or resolved) that, if satisfied, would make the
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Holdback insufficient to satisfy the claim for Non Exclusive Losses relating to
the matters set forth in clauses (ii) and (iii) above; second, from the
Indemnifying Parties directly. Notwithstanding anything to the contrary
contained herein, payment by Parent of the Total Deferred Consideration shall in
no way constitute a waiver of Parent's right to pursue a claim for Non Exclusive
Losses against any Indemnifying Party (it being understood that Parent shall
have no right to withhold payment of the Total Deferred Consideration in
accordance with SECTION 1.6(g) hereof in excess of the Holdback Amount). Claims
by an Indemnified Party for Non-Exclusive Losses not otherwise satisfied from
the Holdback shall be satisfied by each Indemnifying Party in proportion to such
Indemnifying Party's Fractional Interest (as defined below). In no event shall
any Indemnifying Party be liable hereunder for any amounts in respect of Non
Exclusive Losses in excess of (A) the portion of the Total Consideration
pursuant to SECTION 1.6(b) hereof paid or payable to such Indemnifying Party
(whether or not such amount is then due or has been paid) or (B) such party's
Fractional Interest of such Non Exclusive Losses. As used herein, "FRACTIONAL
INTEREST" shall mean, with respect to each Indemnifying Party, a fraction (1)
the numerator of which equals (x) with respect to each Stockholder, the amount
of cash payable to such Stockholder in the Merger pursuant to SECTION 1.6(b)
hereof and (y) with respect to each Participant, the amount of cash otherwise
payable to such Participant pursuant to the Employee Release, Non-Competition
and Waiver Plan before withholding for Taxes, if any, and (2) the denominator of
which equals the sum of (x) the aggregate amount of cash payable to all
Stockholders in the Merger pursuant to SECTION 1.6(b) hereof and (y) the
aggregate amount of cash payable to all Participants pursuant to the Employee
Release, Non-Competition and Waiver Plan before withholding for Taxes.
(d) HOLDBACK PERIOD; DISTRIBUTION UPON TERMINATION OF HOLDBACK
PERIOD. Subject to the following requirements, the Holdback shall be in
existence immediately following the Effective Time and shall terminate at 11:59
p.m., local time at Parent's headquarters, on the Survival Date (the "HOLDBACK
PERIOD"), and the remaining Holdback Amount shall be distributed in accordance
with this ARTICLE VII within three (3) Business Days of expiration of the
Holdback Period; provided, however, that the Holdback Period shall not terminate
with respect to any amount which is necessary, in the reasonable good faith
judgment of Parent, to satisfy any unsatisfied claims specified in any Officer's
Certificate delivered to the Stockholder Representative prior to the Survival
Date with respect to facts and circumstances existing prior to the Survival
Date. As soon as each such unsatisfied claim has been resolved, Parent shall
deliver the remaining portion of the Holdback, if any, to the Indemnifying
Parties not required to satisfy such claims or any remaining claims. Deliveries
of any remaining portion of the Holdback Amount out of the Holdback to the
Indemnifying Parties pursuant to this SECTION 7.3(d) shall be made in proportion
to each Indemnifying Party's respective original Pro Rata Portion of the
Holdback Amount with the amount of cash delivered to each Indemnifying Party
being rounded to the nearest cent (with amounts greater than or equal to $0.005
rounded up); provided, however, that in the event any Non Exclusive Loss has
been satisfied directly by an Indemnifying Party and not from the Holdback
("DIRECT INDEMNITY COSTS"), such Indemnifying Party shall receive, prior to any
additional distribution of the remaining Holdback Amount to the Indemnifying
Parties, but after recovery by the Stockholder Representative of any Stockholder
Representative Expenses, such portion of the remaining Holdback Amount (if any)
that is equal to the Direct Indemnity Costs incurred by such Indemnifying Party
(it being understood that in the event that the remaining Holdback Amount is
insufficient to satisfy the
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aggregate amount of the Direct Indemnity Costs, each Indemnifying Party entitled
to recover such costs shall receive a pro rata portion of such amount based upon
the portion of the Direct Indemnity Costs incurred by each such Indemnifying
Party).
(e) CLAIMS FOR INDEMNIFICATION.
(i) Upon delivery to the Stockholder Representative
at any time on or before the termination of the Holdback Period of an Officer's
Certificate, Parent shall, subject to the provisions of SECTION 7.3(f) and
SECTION 7.3(g) hereof, permanently retain the portion of the Holdback equal to
the Losses set forth in such Officer's Certificate.
(ii) Failure by the Stockholder Representative to
object in writing within the 30-day period after delivery by Parent of the
Officer's Certificate shall be an irrevocable acknowledgment by the Stockholder
Representative and the Indemnifying Parties that the Indemnified Party is
entitled to the full amount of the claim for Losses set forth in such Officer's
Certificate.
(f) OBJECTIONS TO CLAIMS AGAINST THE HOLDBACK. At the time of
delivery of any Officer's Certificate to the Stockholder Representative and for
a period of thirty (30) days after such delivery, Parent shall not be entitled
to permanently retain any portion of the Holdback Amount pursuant to SECTION
7.3(e) hereof unless Parent shall have received written authorization from the
Stockholder Representative to make such permanent retention. After the
expiration of such thirty (30) day period, subject to the limitations set forth
in SECTION 7.3(e)(i) hereof, Parent shall be entitled to permanently retain for
its own account that portion of the Holdback that is equal to the amount of
Losses claimed in the Officer's Certificate; provided, however, that no such
permanent retention may be made if the Stockholder Representative shall object
in a written statement to the claim made in the Officer's Certificate (an
"OBJECTION NOTICE"), and such Objection Notice shall have been delivered to
Parent prior to the expiration of such thirty (30) day period. Notwithstanding
anything herein to the contrary, the Stockholder Representative hereby waives
the right to object to any claims against the Holdback in respect of any
Dissenting Share Payments ordered by any Governmental Entity (a "COURT ORDERED
DISSENTING SHARE PAYMENT"). The Stockholder Representative hereby authorizes
Parent to permanently retain for its own account that portion of the Holdback
equal to the amount of Losses claimed in any Officer's Certificate in respect of
any Court Ordered Dissenting Share Payment upon receipt of such Officer's
Certificate without regard to the thirty (30) day period set forth in this
SECTION 7.3(f).
(g) RESOLUTION OF CONFLICTS; ARBITRATION.
(i) In case the Stockholder Representative delivers
an Objection Notice in accordance with SECTION 7.3(f) hereof, the Stockholder
Representative and Parent shall attempt in good faith to agree upon the rights
of the respective parties with respect to each of such claims. If the
Stockholder Representative and Parent should so agree, a memorandum setting
forth such agreement shall be prepared and signed by both parties. Parent shall
be entitled to rely on any such memorandum and distribute or retain any portion
of the Holdback in accordance with the terms thereof.
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(ii) If no such agreement can be reached after good
faith negotiation and prior to thirty (30) days after delivery of an Objection
Notice, either Parent or the Stockholder Representative may demand arbitration
of the matter unless the amount of the Loss is at issue in pending litigation
with a third party, in which event arbitration shall not be commenced until such
amount is ascertained or both parties agree to arbitration, and in either such
event the matter shall be settled by arbitration conducted by one arbitrator
mutually agreeable to Parent and the Stockholder Representative. In the event
that, within thirty (30) days after submission of any dispute to arbitration,
Parent and the Stockholder Representative cannot mutually agree on one
arbitrator, then, within fifteen (15) days after the end of such thirty (30) day
period, Parent and the Stockholder Representative shall each select one
arbitrator. The two arbitrators so selected shall select a third arbitrator. If
the Stockholder Representative fails to select an arbitrator during this fifteen
(15) day period, then the parties agree that the arbitration will be conducted
by one arbitrator selected by Parent.
(iii) Any such arbitration shall be held in
New York
County, State of
New York, under the commercial arbitration rules then in effect
of the American Arbitration Association. The arbitrator or arbitrators, as the
case may be, shall set a limited time period and establish procedures designed
to reduce the cost and time for discovery while allowing the parties an
opportunity, adequate in the sole judgment of the arbitrator or majority of the
three arbitrators, as the case may be, to discover relevant information from the
opposing parties about the subject matter of the dispute. The arbitrator, or a
majority of the three arbitrators, as the case may be, shall rule upon motions
to compel or limit discovery and shall have the authority to impose sanctions,
including attorneys' fees and costs, to the same extent as a competent court of
law or equity, should the arbitrators or a majority of the three arbitrators, as
the case may be, determine that discovery was sought without substantial
justification or that discovery was refused or objected to without substantial
justification. The decision of the arbitrator or a majority of the three
arbitrators, as the case may be, as to the validity and amount of any claim in
such Officer's Certificate shall be final, binding, and conclusive upon the
parties to this Agreement. Such decision shall be written and shall be supported
by written findings of fact and conclusions which shall set forth the award,
judgment, decree or order awarded by the arbitrator(s), and Parent shall be
entitled to rely on, and distribute or retain any portion of the Holdback in
accordance with, the terms of such award, judgment, decree or order as
applicable. Within fifteen (15) days of a decision of the arbitrator(s)
requiring payment by one party to another, such party shall make the payment to
such other party.
(iv) All expenses relating to any arbitration
pursuant to this SECTION 7.3(g), including the respective expenses of each
party, the fees of each arbitrator and the administrative fee of the American
Arbitration Association, shall be paid solely by, and shall be the sole
responsibility of, the Stockholder Representative if (A) the difference between
(1) the amount asserted by Parent and (2) the amount as finally determined by
the arbitrator or a majority of the three arbitrators, as the case may be, is
less than (B) the difference between (x) the amount asserted by the Stockholder
Representative and (y) the amount as finally determined by the arbitrator or a
majority of the three arbitrators, as the case may be; otherwise, such fees,
costs and expenses shall be paid solely by, and shall be the sole responsibility
of, Parent.
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(v) Judgment upon any award rendered by the
arbitrator(s) may be entered in any court having jurisdiction. The forgoing
arbitration provisions shall apply to any dispute among the Indemnifying Parties
and the Indemnified Party under this ARTICLE VII hereof, whether relating to
claims upon the Holdback or to the other indemnification obligations set forth
in this ARTICLE VII.
(h) THIRD PARTY CLAIMS. In the event Parent becomes aware of a
third party claim (a "THIRD PARTY CLAIM"), which Parent reasonably believes may
result in a demand against the Holdback or for other indemnification pursuant to
this ARTICLE VII, Parent shall notify the Stockholder Representative of such
claim, and the Stockholder Representative shall be entitled on behalf of the
Indemnifying Parties, at its expense, to participate in, but not to determine or
conduct, the defense of such Third Party Claim. Parent shall have the right in
its sole discretion to conduct the defense of, and to settle, any such Third
Party Claim; provided, however, that (i) Parent shall provide the Stockholder
Representative with five (5) Business Days notice prior to entering into any
settlement of any Third Party Claim, and (ii) except with the consent of the
Stockholder Representative, no settlement of any such Third Party Claim with
third party claimants (including any royalties paid or payable in connection
with any such settlement) shall be determinative of the existence or amount of
Losses relating to such matter. In the event that the Stockholder Representative
has consented to any such settlement, the Indemnifying Parties shall have no
power or authority to object under any provision of this ARTICLE VII to the
amount of any Losses set forth in an Officer's Certificate resulting from any
Third Party Claim by Parent against the Holdback or against the Stockholders
directly, as the case may be, with respect to such settlement.
(i) PARENT'S DUTIES. Parent shall be obligated only for the
performance of such duties with respect to the Holdback as are specifically set
forth herein, and as set forth in any additional written instructions which
Parent may receive after the date of this Agreement which are signed by the
Stockholder Representative and acceptable to Parent in its good faith
discretion, and may rely and shall be protected in relying or refraining from
acting on any instrument reasonably believed to be genuine and to have been
signed or presented by the Stockholder Representative.
7.4 STOCKHOLDER REPRESENTATIVE.
(a) By virtue of the approval of this Agreement by the
Required Stockholder Vote and/or delivery of a Release to Parent and
participation in the Employee Release, Non-Competition and Waiver Plan, each of
the Indemnifying Parties shall be deemed to have agreed to appoint Bessemer
Venture Partners VI, LP as its agent and attorney in fact, as the Stockholder
Representative for and on behalf of the Indemnifying Parties to give and receive
notices and communications, to authorize payment to any Indemnified Party from
the Holdback in satisfaction of claims by any Indemnified Party, to object to
such payments, to agree to, negotiate, enter into settlements and compromises
of, and demand arbitration and comply with orders of courts and awards of
arbitrators with respect to such claims, to assert, negotiate, enter into
settlements and compromises of, and demand arbitration and comply with orders of
courts and awards of arbitrators with respect to, any other claim by any
Indemnified Party, in each case relating to this Agreement or the transactions
contemplated hereby and to take all other actions that are either (i) necessary
or
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appropriate in the judgment of the Stockholder Representative for the
accomplishment of the foregoing or (ii) specifically mandated by the terms of
this Agreement. Such agency may be changed by the Indemnifying Parties from time
to time upon not less than thirty (30) days prior written notice to Parent;
provided, however, that the Stockholder Representative may not be removed unless
holders of a two-thirds (2/3) interest of the Holdback agree to such removal and
to the identity of the substituted representatives. A vacancy in the position of
Stockholder Representative may be filled by the holders of a majority in
interest of the Holdback. No bond shall be required of the Stockholder
Representative, and the Stockholder Representative shall not receive any
compensation for its services. Notices or communications to or from the
Stockholder Representative shall constitute notice to or from the Indemnifying
Parties.
(b) The Stockholder Representative shall not be liable for any
act done or omitted hereunder as Stockholder Representative while acting in good
faith and in the exercise of reasonable judgment. Any act done or omitted
pursuant to the advice of legal counsel shall be conclusive evidence of such
good faith. The Indemnifying Parties shall indemnify the Stockholder
Representative and hold the Stockholder Representative harmless against any and
all losses, liabilities, claims, damages and expenses incurred without gross
negligence or bad faith on the part of the Stockholder Representative and
arising out of or in connection with the acceptance or administration of the
Stockholder Representative's duties hereunder, including reasonable costs of
investigating and the reasonable fees and expenses of any legal counsel retained
by the Stockholder Representative and the allocated costs of in-house counsel
("STOCKHOLDER REPRESENTATIVE EXPENSES"). The Stockholder Representative shall be
entitled to recovery of the full amount of Stockholder Representative Expenses
(i) from the Holdback prior to any distribution from the Holdback to the
Indemnifying Parties but after the satisfaction of all claims by Indemnified
Parties for Losses and (ii) if the Holdback is insufficient (after the
satisfaction of all claims by Indemnified Parties for Losses) to fully satisfy
the Stockholder Representative Expenses incurred, the Stockholder Representative
may recover such expenses from the Total Deferred Consideration on a pro rata
basis amongst the holders thereof. In no event shall any deduction from the
Total Deferred Consideration by the Stockholder Representative pursuant to this
SECTION 7.4(b) constitute an event of default under any instrument or agreement
or otherwise give rise to any liability on the part of Parent. A decision, act,
consent or instruction of the Stockholder Representative, including but not
limited to an amendment, extension or waiver of this Agreement pursuant to
SECTION 7.3 and SECTION 7.4 hereof, shall constitute a decision of the
Indemnifying Parties and shall be final, binding and conclusive upon the
Indemnifying Parties; and Parent may rely upon any such decision, act, consent
or instruction of the Stockholder Representative as being the decision, act,
consent or instruction of the Indemnifying Parties. Parent is hereby relieved
from any liability to any person for any acts done by it in accordance with such
decision, act, consent or instruction of the Stockholder Representative.
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ARTICLE VIII
TERMINATION, AMENDMENT AND WAIVER
8.1 TERMINATION. This Agreement may be terminated and the Merger
abandoned at any time prior to the Closing:
(a) by written agreement of both the Company and Parent;
(b) by Parent or the Company if the Closing Date shall not
have occurred by February 14, 2005, provided that the matters covered by clause
(iv) of SECTION 8.1(g) shall be subject to SECTION 8.1(g); provided, however,
that the right to terminate this Agreement under this SECTION 8.1(b) shall not
be available to any party whose action or failure to act has been a principal
cause of or resulted in the failure of the Merger to occur on or before such
date and such action or failure to act constitutes material breach of this
Agreement;
(c) by Parent or the Company if: (i) there shall be a final
non-appealable order of any Governmental Entity in effect preventing
consummation of the Merger, or (ii) there shall be any statute, rule, regulation
or order enacted, promulgated or issued or deemed applicable to the Closing by
any Governmental Entity that would make consummation of the Closing illegal;
(d) by Parent if there shall be any action taken, or any
statute, rule, regulation or order enacted, promulgated or issued or deemed
applicable to the Merger by any Governmental Entity, which would: (i) prohibit
Parent's ownership or operation of any portion of the business of the Company or
(ii) compel Parent or the Company to dispose of or hold separate all or any
portion of the business or assets of the Company or Parent as a result of the
Merger;
(e) by Parent if it is not in material breach of its
obligations under this Agreement and there has been a material breach of any
covenant or agreement of the Company contained in this Agreement such that the
conditions set forth in SECTION 6.2(a)(ii) hereof would not be satisfied and
such breach has not been cured within fifteen (15) calendar days after written
notice thereof to the Company; provided, however, that no cure period shall be
required for a breach which by its nature cannot be cured;
(f) by Parent, upon the occurrence of (i) a third party
(excluding the party identified on SCHEDULE (f)) initiating any bona fide
action, suit or other legal proceeding, or overtly threatening in writing to
initiate any such action, suit or other legal proceeding (as opposed to merely
reserving the right to do so) claiming or alleging that the Company or any of
its Subsidiaries materially infringes the Intellectual Property Rights of any
third party, which claim if determined adversely would in and of itself be
reasonably likely to have a Company Material Adverse Effect, or (ii) any
affirmative decision by LG Electronics, Inc., LG Information and Communications
Ltd. or any of their respective subsidiaries or affiliates (collectively, "LG
ELECTRONICS") to (A) discontinue use of Company Intellectual Property in
substantially all of LG Electronics' products or in substantially all of LG
Electronics' products incorporating Company Intellectual Property, or (B) select
another party to supplant the use of Company Intellectual Property by LG
Electronics in substantially all of LG Electronics' products or in substantially
all of LG Electronics' products incorporating Company Intellectual Property;
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(g) by Parent, (i) if there has been a breach of any
representation or warranty of the Company contained in this Agreement such that
the conditions set forth in SECTION 6.2(a)(i) hereof would not be satisfied,
(ii) if there has occurred a Company Material Adverse Effect, (iii) if there is
an action, suit, claim, order, injunction or proceeding that would cause the
condition set forth in SECTION 6.1(c)(ii) hereof to not be satisfied, or (iv) if
the Closing Date shall not have occurred by February 14, 2005, and the sole
reason for the failure of the Closing to occur before such date is one or more
of the matters described in clause (i), (ii) or (iii) of this SECTION 8.1(g). In
the event of any such termination (subject to the execution and delivery by
Parent, the Company and the Stockholder Representative of the release described
below), Parent shall pay to the Company a termination fee in the amount of Five
Hundred Thousand Dollars ($500,000) payable in same day funds, which termination
fee shall represent an investment in non-voting common stock of the Company at a
pre-money valuation of Twenty Six Million Five Hundred Thousand Dollars
($26,500,000) (the "PURCHASE PRICE"), which non-voting common stock shall not be
entitled to participate in any distribution of proceeds otherwise available to
any Stockholder in a sale of the Company, sale of any of the Company's assets,
liquidation, extraordinary dividend, or similar transaction, until such point as
the Stockholders (excluding Parent and its affiliates) receive an amount equal
to the Purchase Price, all on such terms as set forth in EXHIBIT F hereto;
provided, however, that Parent's obligation to pay such termination fee (but not
the effectiveness of such termination) is conditioned upon the delivery of
mutual releases of Parent, on the one hand, and the Company and the Stockholder
Representative, on the other (including on behalf of each of their respective
subsidiaries and affiliates), not later than the second (2nd) Business Day after
notice of such termination is delivered by Parent, of an irrevocable and
unconditional acknowledgement and release, which includes an irrevocable and
unconditional acknowledgement by the Company, the Stockholder Representative and
Parent that this Agreement is terminated in accordance with its terms and
unconditionally and irrevocably releases each of the parties hereto and their
respective affiliates from any and all claims, grievances, and liabilities
(whether in law or equity), based on, relating to, arising out of or in any way
connected with this Agreement, including the negotiation, execution or
termination hereof, any breach hereunder, or the transactions contemplated
hereby; provided, further, that such release shall in no respect restrict either
party's ability to take any and all action such party deems necessary or
appropriate in connection with the Patent Litigation following termination of
this Agreement in accordance with its terms, as long as such action does not
challenge, contest or object to any matter arising out of or in any way
connected with this Agreement, including the negotiation, execution or
termination hereof, any breach hereunder, or the transactions contemplated
hereby, in each case subject to the Litigation Agreement between Parent and the
Company dated concurrently herewith (the "LITIGATION AGREEMENT"); and
(h) by the Company if it is not in material breach of its
obligations under this Agreement and there has been a material breach of any
representation, warranty, covenant or agreement of Parent contained in this
Agreement such that the conditions set forth in SECTION 6.3(a) hereof would not
be satisfied and such breach has not been cured within fifteen (15) calendar
days after written notice thereof to Parent; provided, however, that no cure
period shall be required for a breach which by its nature cannot be cured.
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8.2 EFFECT OF TERMINATION. In the event of termination of this
Agreement as provided in Section 8.1 hereof, this Agreement shall forthwith
become void and there shall be no liability or obligation on the part of Parent
or the Company, or their respective officers, directors or stockholders;
provided, however, that each party hereto shall remain liable for any breaches
of this Agreement prior to its termination; and provided further, however, that,
the provisions of SECTIONS 5.4 (Confidentiality), 5.5 (Expenses) and 5.6 (Public
Disclosure) hereof, ARTICLE IX hereof and this SECTION 8.2 shall remain in full
force and effect and survive any termination of this Agreement pursuant to the
terms of this ARTICLE VIII.
8.3 AMENDMENT. This Agreement may be amended by the parties hereto at
any time by execution of an instrument in writing signed on behalf of the party
against whom enforcement is sought. For purposes of this SECTION 8.3, the
Indemnifying Parties agree that any amendment of this Agreement signed by the
Stockholder Representative shall be binding upon and effective against the
Indemnifying Parties whether or not they have signed such amendment.
8.4 EXTENSION; WAIVER. At any time prior to the Closing, Parent, on the
one hand, and the Company and the Stockholder Representative, on the other hand,
may, to the extent legally allowed, (i) extend the time for the performance of
any of the obligations of the other party hereto, (ii) waive any inaccuracies in
the representations and warranties made to such party contained herein or in any
document delivered pursuant hereto, and (iii) waive compliance with any of the
covenants, agreements or conditions for the benefit of such party contained
herein. Any agreement on the part of a party hereto to any such extension or
waiver shall be valid only if set forth in an instrument in writing signed on
behalf of such party. For purposes of this SECTION 8.4, the Indemnifying Parties
agree that any extension or waiver signed by the Stockholder Representative
shall be binding upon and effective against all Indemnifying Parties whether or
not they have signed such extension or waiver.
ARTICLE IX
GENERAL PROVISIONS
9.1 NOTICES. All notices and other communications hereunder shall be in
writing and shall be deemed given if delivered personally or by commercial
messenger or courier service, or mailed by registered or certified mail (return
receipt requested) or sent via facsimile (with acknowledgment of complete
transmission) to the parties at the following addresses (or at such other
address for a party as shall be specified by like notice); provided, however,
that notices sent by mail will not be deemed given until received:
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(a) if to Parent or Sub, to:
ScanSoft, Inc.
0 Xxxxxxxxxx Xxxxx
Xxxxxxx, XX 00000
Attention: Senior Vice President Corporate Development
Facsimile No.: (000) 000-0000
with a copy to:
Xxxxxx Xxxxxxx Xxxxxxxx & Xxxxxx
Professional Corporation
Two Fountain Square, Reston Town Center
00000 Xxxxxxx Xxxxx, Xxxxx 000
Xxxxxx, XX 00000
Attention: Xxxxxx Xxxxxxx, Esq.
Facsimile No.: (000) 000-0000
(b) if to the Company or the Stockholder Representative,
to:
Bessemer Venture Partners VI, LP
0000 Xxxxxx Xxxxxx
Xxxxxxxxx, XX 00000
Attention: Xxxxxx Xxxxxxx
Xxxxx Ring
Facsimile No.: (000) 000-0000
with a copy to:
Xxxxxx Xxxxxxx & Xxxxxxx LLP
0 Xxxx Xxxxxx
Xxx Xxxx, XX 00000
Attention: Xxxxxx X. Xxxxxxxx
Facsimile No.: (000) 000-0000
9.2 INTERPRETATION. The words "include," "includes" and "including"
when used herein shall be deemed in each case to be followed by the words
"without limitation." The table of contents and headings contained in this
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement.
9.3 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each of
the parties and delivered to the other party, it being understood that all
parties need not sign the same counterpart.
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9.4 ENTIRE AGREEMENT; ASSIGNMENT. This Agreement, the Exhibits and
Schedules hereto, the Disclosure Schedule, the Confidential Disclosure
Agreement, the Litigation Agreement, and the documents, instruments and other
agreements among the parties hereto referenced herein: (i) constitute the entire
agreement among the parties with respect to the subject matter hereof and
supersede all prior agreements and understandings both written and oral, among
the parties with respect to the subject matter hereof, including that certain
Letter by and between the Parent and the Company dated as of October 5, 2004,
(ii) except as expressly provided in SECTION 5.17 hereof, are not intended to
confer upon any other person any rights or remedies hereunder, and (iii) shall
not be assigned by operation of law or otherwise, except that Parent may assign
its rights and delegate its obligations hereunder to its affiliates as long as
Parent remains ultimately liable for all of Parent's obligations hereunder.
9.5 SEVERABILITY. In the event that any provision of this Agreement or
the application thereof, becomes or is declared by a court of competent
jurisdiction to be illegal, void or unenforceable, the remainder of this
Agreement will continue in full force and effect and the application of such
provision to other persons or circumstances will be interpreted so as reasonably
to effect the intent of the parties hereto. The parties further agree to replace
such void or unenforceable provision of this Agreement with a valid and
enforceable provision that will achieve, to the extent possible, the economic,
business and other purposes of such void or unenforceable provision.
9.6 OTHER REMEDIES. Any and all remedies herein expressly conferred
upon a party will be deemed cumulative with and not exclusive of any other
remedy conferred hereby, or by law or equity upon such party, and the exercise
by a party of any one remedy will not preclude the exercise of any other remedy.
9.7 GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of
New York, regardless of the laws that
might otherwise govern under applicable principles of conflicts of laws thereof.
Each of the parties hereto irrevocably consents to the exclusive jurisdiction
and venue of any court within
New York County, State of
New York, in connection
with any matter based upon or arising out of this Agreement or the matters
contemplated herein, agrees that process may be served upon them in any manner
authorized by the laws of the State of
New York for such persons and waives and
covenants not to assert or plead any objection which they might otherwise have
to such jurisdiction, venue and such process.
9.8 RULES OF CONSTRUCTION. The parties hereto agree that they have been
represented by counsel during the negotiation and execution of this Agreement
and, therefor, waive the application of any law, regulation, holding or rule of
construction providing that ambiguities in an agreement or other document will
be construed against the party drafting such agreement or document.
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9.9 WAIVER OF JURY TRIAL. EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY
WAIVES ALL RIGHT TO TRIAL BY JURY AND ANY ACTION, PROCEEDING OR COUNTERCLAIM
(WHETHER BASED ON CONTRACT, TORT, OR OTHERWISE) ARISING OUT OF OR RELATING TO
THIS AGREEMENT OR THE ACTIONS OF ANY PARTY HERETO IN NEGOTIATION,
ADMINISTRATION, PERFORMANCE OR ENFORCEMENT HEREOF.
[remainder of page intentionally left blank]
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IN WITNESS WHEREOF, Parent, Sub, the Company and the Stockholder
Representative have caused this Agreement to be signed, all as of the date first
written above.
SCANSOFT, INC.
By: /s/ Xxxx Xxxxx
---------------------------------------
Name:
Title:
ART ADVANCED RECOGNITION TECHNOLOGIES, INC.
By: /s/ Xxxxx Xxxxxxx
---------------------------------------
Name:
Title:
WRITE ACQUISITION CORPORATION
By: /s/ Xxxxx Xxxxxx Xxxxxx, Xx.
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Name:
Title:
WITH RESPECT TO ARTICLE I, ARTICLE VII AND
ARTICLE IX HEREOF ONLY:
STOCKHOLDER REPRESENTATIVE
BESSEMER VENTURE PARTNERS VI, LP
By: Deer V & Co. LLC, General Partner,
Managing Member
By: /s/ J. Xxxxxx Xxxxxxxx
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J. Xxxxxx Xxxxxxxx, Manager
SIGNATURE PAGE TO
AGREEMENT AND PLAN OF MERGER
