EXHIBIT 2.1
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
CARRIER ACCESS CORPORATION,
PING ACQUISITION CORPORATION,
PARAGON NETWORKS INTERNATIONAL INC.
AND
GRANITE VENTURES L.L.C. AS STOCKHOLDER REPRESENTATIVE
DATED AS OF NOVEMBER 13, 2003
TABLE OF CONTENTS
PAGE
----
INDEX OF EXHIBITS AND SCHEDULES...................................................... iv
ARTICLE I THE MERGER................................................................. 2
1.1 The Merger......................................................... 2
1.2 Effective Time..................................................... 2
1.3 Effect of the Merger............................................... 2
1.4 Certificate of Incorporation; Bylaws; Directors and Officers....... 2
1.5 Definitions........................................................ 3
1.6 Effect on Company Capital Stock, Options and Warrants.............. 6
1.7 Dissenting Shares.................................................. 8
1.8 Exchange Procedures; Surrender of Certificates..................... 9
1.9 No Further Ownership Rights in Company Capital Stock............... 10
1.10 Lost, Stolen or Destroyed Certificates............................. 10
1.11 Withholding Rights................................................. 10
1.12 Taking of Necessary Action; Further Action......................... 10
ARTICLE II REPRESENTATIONS AND WARRANTIES OF THE COMPANY............................. 11
2.1 Organization of the Company........................................ 11
2.2 Company Capital Structure.......................................... 11
2.3 Subsidiaries....................................................... 12
2.4 Authority.......................................................... 12
2.5 No Conflict; Consents.............................................. 13
2.6 Company Financial Statements....................................... 13
2.7 No Undisclosed Liabilities......................................... 14
2.8 No Changes......................................................... 14
2.9 Tax and Other Returns and Reports.................................. 16
2.10 Restrictions on Business Activities................................ 18
2.11 Title to Properties; Absence of Liens and Encumbrances............. 18
2.12 Intellectual Property.............................................. 19
2.13 Interested Party Transactions...................................... 24
2.14 Compliance with Laws............................................... 25
2.15 Litigation......................................................... 25
2.16 Insurance.......................................................... 25
2.17 Minute Books....................................................... 25
2.18 Environmental Matters.............................................. 25
2.19 Brokers' and Finders' Fees......................................... 26
2.20 Employee Matters and Benefit Plans................................. 27
2.21 Employees.......................................................... 31
2.22 Governmental Authorization......................................... 31
2.23 Agreements, Contracts and Commitments.............................. 32
-i-
TABLE OF CONTENTS
(CONTINUED)
PAGE
----
2.24 Accounts Receivable................................................ 33
2.25 Complete Copies of Materials....................................... 33
2.26 Representations Complete........................................... 33
ARTICLE III REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB.................. 34
3.1 Organization, Standing and Power................................... 34
3.2 Authority.......................................................... 34
3.3 No Conflict........................................................ 34
3.4 Parent Common Stock................................................ 34
3.5 SEC Filings; Parent Financial Statements........................... 34
3.6 Litigation......................................................... 35
3.7 Capitalization..................................................... 35
3.8 Form S-3 Eligibility............................................... 36
3.9 Nasdaq Listing Requirements........................................ 36
ARTICLE IV CONDUCT PRIOR TO THE EFFECTIVE TIME....................................... 36
4.1 Conduct of Business of the Company and its Subsidiaries............ 36
4.2 No Solicitation.................................................... 39
ARTICLE V ADDITIONAL AGREEMENTS...................................................... 39
5.1 Company Stockholder Approval....................................... 39
5.2 Issuance of Parent Common Stock.................................... 41
5.3 Termination of Agreements.......................................... 42
5.4 Access to Company Information...................................... 42
5.5 Confidentiality.................................................... 42
5.6 Expenses........................................................... 43
5.7 Public Disclosure.................................................. 43
5.8 Consents........................................................... 43
5.9 FIRPTA Compliance.................................................. 43
5.10 Reasonable Efforts................................................. 44
5.11 Company's Auditors; Audit Report................................... 44
5.12 Notification of Certain Matters.................................... 44
5.13 Additional Documents and Further Assurances........................ 44
5.14 Employees.......................................................... 44
5.15 Key Employees and Employment Agreements............................ 45
5.16 Company Employee Plans............................................. 45
5.17 Disqualified Individuals under 280G................................ 45
5.18 Spreadsheet........................................................ 46
5.19 Statement of Expenses.............................................. 46
-ii-
TABLE OF CONTENTS
(CONTINUED)
PAGE
----
5.20 Parent Stock Options............................................... 46
5.21 Reorganization Treatment........................................... 46
ARTICLE VI CONDITIONS TO THE MERGER.................................................. 47
6.1 Conditions to Obligations of Each Party to Effect the Merger....... 47
6.2 Additional Conditions to Obligations of the Company................ 48
6.3 Additional Conditions to the Obligations of Parent and Merger Sub.. 48
ARTICLE VII SURVIVAL OF REPRESENTATIONS AND WARRANTIES; INDEMNITY; ESCROW............ 50
7.1 Survival of Representations, Warranties and Covenants; Indemnity... 50
7.2 Escrow Arrangements................................................ 51
ARTICLE VIII TERMINATION, AMENDMENT AND WAIVER....................................... 58
8.1 Termination........................................................ 58
8.2 Effect of Termination.............................................. 59
8.3 Amendment.......................................................... 59
8.4 Extension; Waiver.................................................. 60
ARTICLE IX GENERAL PROVISIONS........................................................ 60
9.1 Notices............................................................ 60
9.2 Interpretation..................................................... 61
9.3 Counterparts....................................................... 61
9.4 Entire Agreement................................................... 62
9.5 Severability....................................................... 62
9.6 Other Remedies..................................................... 62
9.7 Specific Performance............................................... 62
9.8 Governing Law...................................................... 62
9.9 Arbitration........................................................ 63
9.10 Rules of Construction.............................................. 63
9.11 Assignment......................................................... 63
9.12 Absence of Third Party Beneficiary Rights.......................... 63
-iii-
INDEX OF EXHIBITS AND SCHEDULES
EXHIBIT DESCRIPTION
Exhibit A Form of Employment Agreement
Exhibit B Form of Written Consent
Exhibit C Declaration of Registration Rights
Exhibit D Form of Escrow Agreement
Exhibit E Form of Legal Opinion of Counsel to Parent
Exhibit F Form of Legal Opinion of Counsel to the Company
SCHEDULE DESCRIPTION
1.6(g) Cash Merger Consideration Recipients
2.1 Officers and Directors of the Company
2.2(a) Company Capital Structure
2.2(b) Voting and Co-Sale Agreement
2.3 Subsidiaries
2.5 Conflicts; Consents
2.6 Company Financial Statements
2.7 Undisclosed Liabilities
2.8 No Changes
2.9 Tax Returns and Audits
2.11(a) Real Property
2.11(b) Liens
2.11(c) Equipment
2.12(b) Products
2.12(c) Registered Intellectual Property
2.12(d) No Further Action
2.12(h) Intellectual Property Liens
2.12(j) Third Party Intellectual Property
2.12(k) Technology Used and Necessary
2.12(l) Licenses Granted
2.12(o) Intellectual Property Contracts
2.12(s) Effect of Transaction on Intellectual Property
2.12(t) Open Source Materials
2.12(v) College or University Services
2.12(w) Personally Identifiable Information
2.12(x) Escrow of Company Source Code
2.13 Interested Party Transactions
2.14 Compliance with Laws
2.15 Litigation
2.16 Insurance
2.19 Brokers' and Finders' Fees
-iv-
2.20(b) Employee Plans
2.20(d) Employee Plan Compliance
2.20(g) Post Employment Obligations
2.20(i) Effect of Transaction; Excess Parachute Payments
2.20(l) Employment Matters
2.20(m) Labor
2.20(n) International Employee Plans
2.22 Governmental Authorizations
2.23(a) Agreements, Contracts and Commitments
2.23(b) Top 15 Customers
2.23(c) Agreements not in Full Force and Effect
2.23(d) Rights of Return
5.3 Agreements to be Terminated
5.15 Key Employees
-v-
AGREEMENT AND PLAN OF MERGER
This AGREEMENT AND PLAN OF MERGER (this "AGREEMENT") is made and
entered into as of November 13, 2003 by and among Carrier Access Corporation, a
Delaware corporation ("PARENT"), Ping Acquisition Corporation, a Delaware
corporation and a wholly-owned subsidiary of Parent ("MERGER SUB"), Paragon
Networks International Inc., a Delaware corporation (the "COMPANY"), and, with
respect to Article VII and Article IX hereof, Granite Ventures L.L.C. (the
"STOCKHOLDER REPRESENTATIVE").
RECITALS
A. The Boards of Directors of each of the Parent, the Company and
Merger Sub believe it is in the best interests of their respective companies and
stockholders that Parent acquire the Company through the statutory merger of
Merger Sub with and into the Company (the "MERGER") and, in furtherance thereof,
have approved the Merger, this Agreement and the transactions contemplated
hereby.
B. Pursuant to the Merger, among other things, (i) all of the
issued and outstanding capital stock of the Company shall be converted into the
right to receive the consideration, if any, as set forth herein and (ii) all
issued and outstanding options and warrants to purchase capital stock of the
Company shall be exercised or terminated prior to the Closing.
C. A portion of the consideration otherwise payable by Parent in
connection with the Merger shall be placed in escrow by Parent, and the release
of such amount shall be contingent upon certain events and conditions, all as
set forth in Article VII hereof.
D. Concurrent with the execution and delivery of this Agreement,
as a condition and further inducement to Parent to enter into this Agreement,
certain employees of the Company are entering into Employment Agreements in
substantially the form attached hereto as Exhibit A (the "EMPLOYMENT
AGREEMENTS").
E. Immediately following the execution and delivery of this
Agreement, certain stockholders of the Company shall deliver an irrevocable
written consent in substantially the form attached hereto as Exhibit B (the
"WRITTEN CONSENT") to Parent approving and adopting the Agreement and approving
the Merger.
F. The Company, Parent and Merger Sub desire to make certain
representations and warranties and other agreements in connection with the
Merger.
G. The parties hereto intend that the Merger qualify as a
"reorganization" within the meaning of Section 368(a) of the Code, and that this
Agreement shall be, and is hereby adopted as, a plan of reorganization for
purposes of Section 368(a) of the Code.
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
below) and subject to and upon the terms and conditions of this Agreement and
the applicable provisions of the General Corporation Law of Delaware ("DELAWARE
LAW"), Merger Sub shall be merged with and into the Company, the separate
corporate existence of Merger Sub shall cease, and the Company shall continue as
the surviving corporation and as a wholly-owned subsidiary of Parent. The
Company as the surviving corporation after the Merger is hereinafter sometimes
referred to as the "SURVIVING CORPORATION."
1.2 Effective Time. Unless this Agreement is earlier terminated
pursuant to Section 8.1 hereof, the closing of the Merger (the "CLOSING") will
take place as promptly as practicable, but no later than five (5) business days,
following satisfaction or waiver of the conditions set forth in Article VI
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, 000 Xxxx Xxxx Xxxx, Xxxx Xxxx,
Xxxxxxxxxx, unless another place or time is agreed to in writing by Parent and
the Company. The date upon which the Closing actually occurs is herein referred
to as the "CLOSING DATE." On the Closing Date, the parties hereto shall cause
the Merger to be consummated by filing a Certificate of Merger with the
Secretary of State of the State of Delaware (the "CERTIFICATE OF MERGER"), in
accordance with the relevant provisions of applicable law (the time of
acceptance by the Secretary of State of the State of Delaware of such filing
being referred to herein as the "EFFECTIVE TIME").
1.3 Effect of the Merger. At the Effective Time, the effect of the
Merger shall be as provided in this Agreement, the Certificate of Merger and
applicable provisions of Delaware Law. Without limiting the generality of the
foregoing, and subject thereto, at the Effective Time, all the property, rights,
privileges, powers and franchises of the Company and Merger Sub shall vest in
the Surviving Corporation, and all debts, liabilities and duties of the Company
and Merger Sub shall become the debts, liabilities and duties of the Surviving
Corporation.
1.4 Certificate of Incorporation; Bylaws; Directors and Officers.
(a) Unless otherwise determined by Parent prior to the
Effective Time, at the Effective Time, the Certificate of Incorporation of the
Company shall be amended and restated in its entirety to be identical to the
Certificate of Incorporation of Merger Sub as in effect immediately prior to the
Effective Time, which shall be the Certificate of Incorporation of the Surviving
Corporation until thereafter amended as provided by Delaware Law and such
Certificate of Incorporation; provided, however, that Article I of the
Certificate of Incorporation shall be amended to read as follows: "The name of
this corporation is Paragon Networks International Inc."
-2-
(b) Unless otherwise determined by Parent prior to the
Effective Time, the Bylaws of Merger Sub, as in effect immediately prior to the
Effective Time, shall be the Bylaws of the Surviving Corporation (except that
all references to Merger Sub in the Bylaws of the Surviving Corporation shall be
changed to Paragon Networks International Inc.) until thereafter amended as
provided by law and as provided in the Certificate of Incorporation of the
Surviving Corporation and such Bylaws.
(c) Unless otherwise determined by Parent prior to the
Effective Time, the directors of Merger Sub immediately prior to the Effective
Time shall be the directors of the Surviving Corporation immediately after the
Effective Time, each to hold office in accordance with Delaware Law and the
Certificate of Incorporation and Bylaws of the Surviving Corporation. Unless
otherwise determined by Parent prior to the Effective Time, the officers of
Merger Sub immediately prior to the Effective Time shall be the initial officers
of the Surviving Corporation immediately after the Effective Time, each to hold
office in accordance with the Bylaws of the Surviving Corporation.
1.5 Definitions.
(a) "AGGREGATE B-2 AND C PREFERRED PREFERENCE" shall mean
the sum of the Series B-2 Preferred Preference and the Series C Preferred
Preference.
(b) "AVERAGE PARENT SHARE PRICE" shall mean the average
closing sale price of a share of Parent Common Stock on the Nasdaq National
Market for each of the ten trading days immediately prior to the Closing Date.
(c) "CODE" means the Internal Revenue Code of 1986, as
amended.
(d) "COMPANY CAPITAL STOCK" shall mean the Company Common
Stock and the Company Preferred Stock.
(e) "COMPANY COMMON STOCK" shall mean shares of common
stock, $0.01 par value per share, of the Company.
(f) "COMPANY OPTION PLANS" shall mean the Company's 1994
Equity Incentive Plan and 2001 Equity Incentive Plan.
(g) "COMPANY OPTIONS" shall mean all issued and
outstanding options to purchase or otherwise acquire Company Common Stock
(whether or not vested) held by any person or entity.
(h) "COMPANY PREFERRED STOCK" shall mean the Company
Series A Preferred Stock, Company Series B-1 Preferred Stock, Company Series B-2
Preferred Stock, Company Series C Preferred Stock and Company Series D Preferred
Stock.
-3-
(i) "COMPANY SERIES A PREFERRED STOCK" shall mean the
shares of Series A Preferred Stock, $0.01 par value per share, of the Company.
(j) "COMPANY SERIES B-1 PREFERRED STOCK" shall mean the
shares of Series B-1 Preferred Stock, $0.01 par value per share, of the Company.
(k) "COMPANY SERIES B-2 PREFERRED STOCK" shall mean the
shares of Series B-2 Preferred Stock, $0.01 par value per share, of the Company.
(l) "COMPANY SERIES C PREFERRED STOCK" shall mean the
shares of Series C Preferred Stock, $0.01 par value per share, of the Company.
(m) "COMPANY SERIES D PREFERRED STOCK" shall mean the
shares of Series D Preferred Stock, $0.01 par value per share, of the Company.
(n) "COMPANY STOCKHOLDERS" shall mean the persons who are
the holders of Company Common Stock or Company Preferred Stock immediately prior
to the Effective Time (including persons who become holders of Company Common
Stock upon the conversion of Company Preferred Stock or the exercise of Company
Options or Company Warrants immediately prior to the Effective Time).
(o) "COMPANY WARRANTS" shall mean all issued and
outstanding warrants to purchase or otherwise acquire Company Capital Stock held
by any person or entity.
(p) "ESCROW AGENT" shall mean U.S. Bank Trust N.A. or
another institution mutually acceptable to Parent and the Stockholder
Representative.
(q) "ESCROW AMOUNT" shall mean (i) fifteen percent (15%)
of the aggregate Merger Shares issuable to the Company Stockholders on the
Closing Date, and (ii) fifteen percent (15%) of the aggregate Merger Cash
payable to the Company Stockholders on the Closing Date.
(r) "EXCHANGE ACT" shall mean the Securities Exchange Act
of 1934.
(s) "EXCHANGE AGENT" shall mean Computer Share Investor
Services.
(t) "KNOWLEDGE" shall mean the knowledge of J. Xxxxxxx
Xxxxxxx, Xxxxx Xxxxxx, Xxxx Xxxxxxxx, Xxxxxxxx Xxxxx, Xxxx Xxxxxxxx and Xxxxxxx
Xxxxxxx.
(u) "MATERIAL ADVERSE EFFECT" shall mean any change,
event or effect that, individually or when taken together with all other such
changes, events or effects that have occurred prior to the date of determination
of the occurrence of the Material Adverse Effect, is or is reasonably likely to
be materially adverse to (a) the business, assets (including intangible assets),
liabilities, condition (financial or otherwise), results of operations,
capitalization or prospects of the Company or (b) the Company's ability to
consummate the transactions contemplated by this Agreement.
-4-
(v) "MERGER CASH" shall mean, with respect to any Company
Stockholder listed on Schedule 1.6(g) hereto, the aggregate amount of cash
issuable to such Company Stockholder pursuant to Section 1.6(g) hereof.
(w) "MERGER CONSIDERATION VALUE" shall mean an amount
equal to $17,466,585.
(x) "MERGER SHARES" shall mean, with respect to any
Company Stockholder, subject to Section 1.6 hereof, the number of shares of
Parent Common Stock such Company Stockholder is entitled to receive, if any, in
connection with the Merger.
(y) "PARENT COMMON STOCK" shall mean shares of common
stock, $0.001 par value per share, of Parent.
(z) "PARENT OPTION PLANS" shall mean the Company's 1998
Stock Incentive Plan and 1995 Stock Option Plan.
(aa) "PARENT TRANSACTION AGREEMENTS" shall mean the
Employment Agreements and the Escrow Agreement.
(bb) "PRO RATA PORTION" shall mean (i) with respect to
each recipient of Merger Shares, an amount equal to the quotient obtained by
dividing the number of Merger Shares by the Total Parent Share Number, and (ii)
with respect to each recipient of Merger Cash, an amount equal to the quotient
obtained by dividing (A) the amount of such Merger Cash, by (B) the Merger
Consideration Value.
(cc) "REMAINING AVAILABLE SHARES" shall mean the
difference obtained by subtracting the Total Series D Parent Share Number from
the Total Parent Share Number.
(dd) "SECURITIES ACT" shall mean the Securities Act of
1933.
(ee) "SERIES B-2 PREFERRED PREFERENCE" shall mean the
amount equal to the product of the Total Outstanding Series B-2 Preferred Shares
multiplied by the Series B-2 Preferred Preference Per Share.
(ff) "SERIES B-2 PREFERRED PREFERENCE PER SHARE" shall
mean, for each share of the Total Outstanding Series B-2 Preferred Shares, an
amount equal to $0.191.
(gg) "SERIES C PREFERRED PREFERENCE" shall mean the amount
equal to the product of the Total Outstanding Series C Preferred Shares
multiplied by the Series C Preferred Preference Per Share.
(hh) "SERIES C PREFERRED PREFERENCE PER SHARE" shall mean,
for each share of the Total Outstanding Series C Preferred Shares, an amount
equal to $0.25.
-5-
(ii) "SERIES D PREFERRED PREFERENCE" shall mean the amount
equal to the product of the Total Outstanding Series D Preferred Shares
multiplied by the Series D Preferred Preference Per Share.
(jj) "SERIES D PREFERRED PREFERENCE PER SHARE" shall mean,
for each share of the Total Outstanding Series D Preferred Shares, an amount
equal to $0.234.
(kk) "TOTAL OUTSTANDING SERIES B-2 PREFERRED SHARES" shall
mean the aggregate number of shares of Company Series B-2 Preferred Stock issued
and outstanding immediately prior to the Effective Time.
(ll) "TOTAL OUTSTANDING SERIES C PREFERRED SHARES" shall
mean the aggregate number of shares of Company Series C Preferred Stock issued
and outstanding immediately prior to the Effective Time.
(mm) "TOTAL OUTSTANDING SERIES D PREFERRED SHARES" shall
mean the aggregate number of shares of Company Series D Preferred Stock issued
and outstanding immediately prior to the Effective Time.
(nn) "TOTAL PARENT SHARE NUMBER" shall mean the number of
shares of Parent Common Stock which results from the quotient obtained by
dividing the Merger Consideration Value by the Average Parent Share Price.
(oo) "TOTAL SERIES D PARENT SHARE NUMBER" shall mean the
number of shares of Parent Common Stock which results from the quotient obtained
by dividing the Series D Preferred Preference by the Average Parent Share Price.
1.6 Effect on Company Capital Stock, Options and Warrants. Subject
to the terms and conditions of this Agreement, including, without limitation,
the escrow provisions set forth in Article VII, as of the Effective Time, by
virtue of the Merger and without any action on the part of Parent, Merger Sub,
the Company or the holder of any shares of Company Capital Stock, Company
Options or Company Warrants, the following shall occur:
(a) Company Series D Preferred Stock. Subject to Section
1.6(g) hereof, each share of Company Series D Preferred Stock issued and
outstanding immediately prior to the Effective Time will be converted
automatically into a number of shares of Parent Common Stock equal to the
quotient obtained by dividing the Series D Preferred Preference Per Share by the
Average Parent Share Price.
(b) Company Series C Preferred Stock. Subject to Section
1.6(g) hereof, each share of Company Series C Preferred Stock issued and
outstanding immediately prior to the Effective Time will be converted
automatically into a number of shares of Parent Common Stock equal to the
product obtained by multiplying (i) the quotient that results from dividing (A)
the Series C Preferred Preference Per Share by (B) the Aggregate B-2 and C
Preferred Preference, by (ii) the Remaining Available Shares.
-6-
(c) Company Series B-2 Preferred Stock. Subject to
Section 1.6(g) hereof, each share of Company Series B-2 Preferred Stock issued
and outstanding immediately prior to the Effective Time will be converted
automatically into a number of shares of Parent Common Stock equal to the
product obtained by multiplying (i) the quotient that results from dividing (A)
the Series B-2 Preference Per Share by (B) the Aggregate B-2 and C Preferred
Preference, by (ii) the Remaining Available Shares.
(d) Company Series B-1 Preferred Stock. Each share of
Company Series B-1 Preferred Stock issued and outstanding immediately prior to
the Effective Time will be cancelled and extinguished without any present or
future right to receive any portion of the Total Parent Share Number.
(e) Company Series A Preferred Stock. Each share of
Company Series A Preferred Stock issued and outstanding immediately prior to the
Effective Time will be cancelled and extinguished without any present or future
right to receive any portion of the Total Parent Share Number.
(f) Company Common Stock. Each share of Company Common
Stock issued and outstanding immediately prior to the Effective Time will be
cancelled and extinguished without any present or future right to receive any
portion of the Total Parent Share Number.
(g) Cash Merger Consideration. Notwithstanding the
foregoing provisions of this Section 1.6, the Company Stockholders listed on
Schedule 1.6(g) hereto shall receive cash in lieu of any Parent Common Stock to
which they would otherwise be entitled by virtue of this Section 1.6. Such
amount of cash shall be equal to the product obtained by multiplying (i) the
number of any shares of Parent Common Stock (including any fraction of such
shares) to which such Company Stockholder would otherwise be entitled under this
Section 1.6, by (ii) the Average Parent Share Price.
(h) Treasury Shares. Any shares of Company Capital Stock
held in the treasury of the Company shall be canceled and extinguished without
any present or future right to receive any portion of the Total Parent Share
Number.
(i) Dissenting Shares. Notwithstanding anything set forth
in this Section 1.6, any Dissenting Shares shall be treated as set forth in
Section 1.7 hereof.
(j) Company Options. No outstanding Company Options
(whether vested or unvested) shall be assumed by Parent as a result of the
Merger, and at the Effective Time, each Company Option will by virtue of the
Merger, and without any further action on the part of any holder thereof, be
cancelled and extinguished.
(k) Company Warrants. No outstanding Company Warrants
shall be assumed by Parent, and at the Effective Time, each Company Warrant will
by virtue of the Merger, and without any further action on the part of any
holder thereof, be cancelled and extinguished. At least one business day prior
to the Closing, the Company shall enter into agreements with the holders of each
-7-
warrant to purchase Company Preferred Stock providing for the exercise or
cancellation of such warrant prior to, or contingent upon, the Closing.
(l) Further Action regarding Company Options and
Warrants. Prior to the Effective Time, and subject to the review and approval of
Parent, the Company shall take all actions necessary to effect the transactions
anticipated by Sections 1.6(j) and (k) under all Company Option agreements, all
Company Warrant agreements and any other plan or arrangement of the Company
(whether written or oral, formal or informal).
(m) Capital Stock of Merger Sub. Each share of Common
Stock of Merger Sub issued and outstanding immediately prior to the Effective
Time shall be converted into and exchanged for one validly issued, fully paid
and nonassessable share of Common Stock of the Surviving Corporation. Each stock
certificate of Merger Sub evidencing ownership of any such shares of Common
Stock of Merger Sub shall, as of the Effective Time, evidence ownership of such
shares of Common Stock of the Surviving Corporation.
(n) Fractional Shares. No fraction of a share of Parent
Common Stock will be issued by virtue of the Merger, but in lieu thereof each
holder of Company Capital Stock who would otherwise be entitled to a fraction of
a share of Parent Common Stock (after aggregating all fractional shares of
Parent Common Stock that otherwise would be received by such holder) shall, upon
surrender of such holder's Certificates(s) (as defined in Section 1.8(b)),
receive from Parent an amount of cash (rounded to the nearest whole cent),
without interest, equal to the product of (i) such fraction, multiplied by (ii)
the Average Parent Share Price.
(o) Adjustments to Calculations. Each of the calculations
described in this Section 1.6 shall be adjusted to reflect fully the effect of
any stock split, reverse split, stock dividend (including any dividend or
distribution of securities convertible into Company Capital Stock),
recapitalization or other like change with respect to Company Capital Stock or
Parent Common Stock that occurs or has a record date after the date hereof and
prior to the Effective Time.
1.7 Dissenting Shares.
(a) Notwithstanding any provision of this Agreement to
the contrary, any shares of Company Capital Stock held by a holder who has
demanded and perfected appraisal or dissenters' rights for such shares in
accordance with Delaware Law and who, as of the Effective Time, has not
effectively withdrawn or lost such appraisal or dissenters' rights ("DISSENTING
SHARES") shall not be converted into or represent a right to receive Merger
Shares or Merger Cash (if any) pursuant to Section 1.6 hereof, but the holder
thereof shall only be entitled to such rights as are granted by Delaware Law.
(b) Notwithstanding the provisions of Section 1.7(a)
above, if any holder of shares of Company Capital Stock who is otherwise
entitled to exercise dissenters' rights under Delaware Law shall effectively
withdraw or lose (through failure to perfect or otherwise) such dissenters'
rights, then, as of the later of the Effective Time and the occurrence of such
event, such holder's shares shall automatically be converted into and represent
only the right to receive Merger
-8-
Shares or Merger Cash (if any) pursuant to Section 1.6 hereof, without interest
on the payment and subject to the provisions of Section 1.8 and Article VII
hereof, upon surrender of the certificate representing such shares.
(c) The Company shall give Parent (i) prompt notice of
any written demands for the exercise of dissenters' rights in respect of any
shares of Company Capital Stock, any withdrawals of such demands, and any other
instruments served pursuant to Delaware Law (including without limitation
instruments concerning appraisal or dissenters' rights) and received by the
Company and (ii) the opportunity to participate in all negotiations and
proceedings with respect to such demands. The Company shall not, except with the
prior written consent of Parent, voluntarily make any payment with respect to
any demands for the exercise of dissenters' rights in respect of any shares of
Company Capital Stock or offer to settle or settle any such demands.
1.8 Exchange Procedures; Surrender of Certificates.
(a) Parent to Deposit Escrow Amount. Promptly after the
Effective Time, Parent shall make available to the Exchange Agent for exchange
in accordance with this Article I, the Merger Shares and Merger Cash issuable
pursuant to Section 1.6 hereof; provided, however, that on behalf of the Company
Stockholders entitled to receive the Merger Shares or Merger Cash, Parent shall
deposit into an escrow account the Escrow Amount. Each Company Stockholder
entitled to receive Merger Shares or Merger Cash shall be deemed to have
contributed their Pro Rata Portion of the Escrow Amount.
(b) Exchange Procedures. As soon as practicable after the
Effective Time, Parent shall cause the Exchange Agent to mail to each holder of
record of a certificate or certificates (the "CERTIFICATES") which immediately
prior to the Effective Time represented outstanding shares of Company Capital
Stock and which shares were converted into the right to receive Merger Shares or
Merger Cash as set forth in Section 1.6 hereof, (i) a letter of transmittal
(which shall be in customary form and shall specify that delivery shall be
effected, and risk of loss and title to the Certificates shall pass, only upon
delivery of the Certificates to the Exchange Agent) and (ii) instructions for
use in effecting the surrender of the Certificates in exchange for Merger Shares
or Merger Cash as set forth in Section 1.6. Upon surrender of a Certificate for
cancellation to the Exchange Agent, together with such letter of transmittal,
duly completed and validly executed in accordance with the instructions thereto,
the holder of such Certificate shall be entitled to receive in exchange therefor
such holder's Merger Shares or Merger Cash as set forth in Section 1.6 hereof
less the portion of the Escrow Amount contributed on behalf of such holder, and
the Certificate so surrendered shall forthwith be canceled. As soon as
practicable after the Effective Time, and subject to and in accordance with the
provisions of Article VII hereof, Parent shall deposit the Escrow Amount with
the Escrow Agent (as defined in Article VII hereof). The Escrow Amount so
deposited with the Escrow Agent shall be available to compensate Parent as
provided in Article VII hereof. From the Closing and until so surrendered, each
outstanding Certificate that, prior to the Effective Time, represented shares of
Company Capital Stock will be deemed from and after the Effective Time, for all
corporate purposes, to represent solely the right to receive the applicable
consideration set forth in Section 1.6 hereof, if any.
-9-
(c) No Liability. Notwithstanding anything to the
contrary in this Section 1.8 hereof, none of the Exchange 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
Merger Shares or Merger Cash issued pursuant to the Merger upon the surrender
for exchange of shares of Company Capital Stock in accordance with the terms
hereof, shall be deemed to have been issued in 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 that were outstanding immediately prior to the
Effective Time. If, after the Effective Time, Certificates are presented to the
Surviving Corporation for any reason, they shall be canceled and exchanged as
provided in this Article I.
1.10 Lost, Stolen or Destroyed Certificates. In the event any
Certificates evidencing shares of Company Capital Stock shall have been lost,
stolen or destroyed, the Exchange Agent shall deliver in exchange for such lost,
stolen or destroyed Certificates, upon receiving notice from the holder thereof
and upon the making of an affidavit of that fact by such holder, such amount 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 owner of such lost, stolen or destroyed Certificates to deliver a
bond in such customary sum as it may reasonably direct as indemnity against any
claim that may be made against Parent or the Exchange Agent with respect to the
Certificates alleged to have been lost, stolen or destroyed.
1.11 Withholding Rights. Parent or the Exchange Agent shall be
entitled to deduct and withhold from the Merger Shares or Merger Cash otherwise
issuable pursuant to this Agreement to any person who was a holder of Company
Capital Stock immediately prior to the Effective Time such amounts as Parent or
the Exchange Agent is required to deduct and withhold with respect to the making
of such payment under the Code, or any provision of state, local or foreign tax
law. To the extent that amounts are so withheld by Parent or the Exchange Agent,
such withheld amounts shall be treated for all purposes of this Agreement as
having been paid to the holder of the shares of Parent Common Stock in respect
of which such deduction and withholding was made by Parent or the Exchange
Agent.
1.12 Taking of Necessary Action; Further Action. If, at any time
after the Effective Time, any such further action is necessary or reasonably
desirable to carry out the purposes of this Agreement and to vest the Surviving
Corporation with full right, title and possession to all assets, property,
rights, privileges, powers and franchises of the Company and Merger Sub, the
officers and directors of the Company and Merger Sub are fully authorized in the
name of their respective corporations or otherwise to take, and will take, all
such lawful and necessary action.
ARTICLE II
-10-
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to Parent and Merger Sub,
subject to such exceptions as are clearly disclosed in each applicable section
and subsection of the disclosure schedule supplied by the Company to Parent
(collectively, the "DISCLOSURE SCHEDULES") and dated as of the date hereof, that
on the date hereof and also at and as of the Closing Date as though then made
(except to the extent such representations and warranties speak as of an earlier
date) as follows:
2.1 Organization of the Company. The Company and each of its
subsidiaries is a corporation duly organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation. The Company
and each of its subsidiaries have the corporate power and authority to own its
properties and to carry on its business as now being conducted. The Company and
each of its subsidiaries is duly qualified to do business and in good standing
as a foreign corporation in each state or other jurisdiction where the character
of the properties owned, leased or operated by it or the nature of its
activities make such qualification necessary and where the failure to be so
qualified would have a Material Adverse Effect on the Company. The Company has
delivered to Parent a true and correct copy of its Certificate of Incorporation
and Bylaws, each as amended to date, as well as true and correct copies of any
comparable governing document for each of its subsidiaries. Schedule 2.1 lists
the directors and officers of the Company and each of its subsidiaries. Except
as set forth in Schedule 2.1, the operations now being conducted by the Company
and its subsidiaries are not now and have never been conducted by the Company or
any of its subsidiaries under any other name.
2.2 Company Capital Structure.
(a) The authorized capital stock of the Company consists
of 275,000,000 shares of authorized Company Common Stock, of which 11,455,625
shares are issued and outstanding on the date of this Agreement, 26,027,328
shares of Company Series A Preferred Stock, all of which shares are issued and
outstanding on the date of this Agreement, 14,539,342 shares of Company Series
B-1 Preferred Stock, all of which shares are issued and outstanding on the date
of this Agreement, 7,974,403 shares of Company Series B-2 Preferred Stock, all
of which shares are issued and outstanding on the date of this Agreement,
30,399,900 shares of Company Series C Preferred Stock, all of which shares are
issued and outstanding on the date of this Agreement and 66,000,000 shares of
Company Series D Preferred Stock, of which 50,274,120 shares are issued and
outstanding on the date of this Agreement. Except as set forth in the
immediately preceding sentence, no shares of capital stock or other securities
of the Company are issued, reserved for issuance (except as set forth in Section
2.2(b) below) or outstanding. The number of shares of Company Common Stock into
which each share of Company Preferred Stock is convertible is set forth on
Schedule 2.2(a). On the date of this Agreement, the Company Capital Stock is
held of record by the persons, with the addresses of record and in the amounts
on the list provided to Parent. Except as set forth on Schedule 2.2(a), 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 Certificate of Incorporation or the Bylaws of the Company or any
agreement to which the Company
-11-
is a party or by which it is bound. All outstanding shares of Company Capital
Stock have been issued in compliance with applicable federal and state
securities laws.
(b) The Company has one warrant to purchase 200,000
shares of Series D Preferred Stock outstanding. All other Company Warrants and
all Company Options represent the right to receive shares of Company Common
Stock. The holders of Company Options and Company Warrants have been or will be
properly given, or shall have properly waived, any required notice prior to the
Merger and upon termination of the notice periods contained in the relevant
instrument, all Company Warrants and all Company Options will be cancelled in
accordance with their terms. Except for the Company Options and Company
Warrants, there are no options, warrants, calls, rights, commitments or
agreements of any character, written or oral, to which the Company is a party or
by which it is bound obligating the Company to issue, deliver, sell, repurchase
or redeem, or cause to be issued, delivered, sold, repurchased or redeemed, any
shares of Company Capital Stock or obligating the Company to grant, extend,
accelerate the vesting of, change the price of, otherwise amend or enter into
any such option, warrant, call, right, commitment or agreement. There are no
outstanding or authorized stock appreciation, phantom stock, profit
participation, or other equity-based compensation awards or similar rights
(whether payable in cash or otherwise) with respect to the Company, nor is there
a commitment to issue any such award or right. Except as contemplated hereby,
there are no voting trusts, proxies, or other agreements or understandings with
respect to the voting stock of the Company. The holders of Company Capital
Stock, Company Options and Company Warrants have been or will be properly given,
or shall have properly waived, any required notice prior to the Merger.
2.3 Subsidiaries. Except as set forth on Schedule 2.3, the Company
does not have and has never had any subsidiaries, affiliates (as defined in Rule
405 promulgated under the Securities Act) or a relationship with another entity
whereby they were under common control, and does not otherwise own and, during
the past five years, has not otherwise owned any shares of capital stock or any
interest in, or control of, directly or indirectly, any other corporation,
partnership, association, joint venture or other business entity. The authorized
capital stock of each subsidiary, as well as the issued and outstanding shares
of capital stock of each subsidiary, is listed on Schedule 2.3. All outstanding
shares of the capital stock of each subsidiary are, and at the Effective Time
will be, duly authorized, validly issued, fully paid and non-assessable and not
subject to preemptive rights created by statute, their respective charter
documents or any agreement of which the Company or any of its subsidiaries is a
party or by which it is bound.
2.4 Authority. The Company has all requisite power and authority
to enter into this Agreement and the Escrow Agreement and to consummate the
transactions contemplated hereby and thereby. The vote required of the Company
Stockholders to duly approve the Merger and this Agreement is that number of
shares as would constitute a majority of (i) the outstanding shares of Company
Series D Preferred Stock, (ii) the outstanding shares of Company Preferred
Stock, voting together as a single class on an as-converted to Company Common
Stock basis, and (iii) the outstanding shares of Company Common Stock and
Company Preferred Stock, voting together as a single class on an as-converted to
Company Common Stock basis (the "COMPANY STOCKHOLDER APPROVAL"). Except for the
Company Stockholder Approval, no other corporate proceedings on the
-12-
part of the Company are necessary to authorize this Agreement or to consummate
the transactions contemplated hereby. The Company's Board of Directors has
unanimously approved the Merger and this Agreement and has directed that this
Agreement be submitted to the Company Stockholders for approval. This Agreement
has been duly executed and delivered by the Company and, assuming the due
authorization, execution and delivery by the other parties hereto, constitutes
the valid and binding obligation of the Company, enforceable against the Company
in accordance with its respective terms except (a) as limited by applicable
bankruptcy, insolvency, reorganization, moratorium and other laws of general
application affecting enforcement of creditors' rights generally and (b) as
limited by laws relating to the availability of specific performance, injunctive
relief or other equitable remedies.
2.5 No Conflict; Consents. Subject only to the Company Stockholder
Approval, the execution and delivery of this Agreement by the Company does not,
and, as of the Effective Time, the consummation of the transactions contemplated
hereby will not, conflict with, or result in any violation of, or default under
(with or without notice or lapse of time, or both), or give rise to a right of
termination, cancellation or acceleration of any obligation or loss of any
benefit under (any such event, a "CONFLICT") (a) any provision of the
Certificate of Incorporation or Bylaws of the Company or any comparable
governing documents for each of its subsidiaries or (b) any material mortgage,
indenture, lease, contract or other agreement or instrument, permit, concession,
franchise, license, judgment, order, decree, statute, law, ordinance, rule or
regulation to which the Company or any of its subsidiaries or any of their
properties or assets is subject. No consent, waiver, approval, order or
authorization of, or registration, declaration or filing with, any court,
administrative agency or commission or other federal, state, county, local or
foreign governmental authority, instrumentality, agency or commission
("GOVERNMENTAL ENTITY") or any third party, including a party to any agreement
with the Company (so as not to trigger any Conflict), is required by or with
respect to the Company in connection with the execution and delivery of this
Agreement or the consummation of the transactions contemplated hereby, except
for (a) the filing of the Certificate of Merger with the Secretary of State of
the State of Delaware and (b) such consents, waivers, approvals, orders,
authorizations, registrations, declarations and filings as may be required under
applicable federal and state securities laws, and (c) such other consents,
waivers, authorizations, filings, approvals and registrations which are set
forth on Schedule 2.5.
2.6 Company Financial Statements. The Company's audited balance
sheets for each of the three fiscal years ended June 30, 2003, and the related
audited statement of operations, cash flows and stockholders equity for each
fiscal year then ended, together with the report thereon of
PricewaterhouseCoopers LLP, have previously been delivered to Parent and
Schedule 2.6 sets forth the Company's unaudited balance sheet as of September
30, 2003 (the "CURRENT BALANCE SHEET") and the related statement of operations,
cash flows and stockholders equity for the three months then ended
(collectively, the "COMPANY FINANCIAL STATEMENTS"). The Company Financial
Statements are complete and correct in all material respects and have been
prepared in accordance with generally accepted accounting principles ("GAAP")
applied on a consistent basis throughout the periods indicated and consistent
with each other. The Company Financial Statements present fairly the financial
condition and operating results and cash flows of the Company as of the dates
and during the periods indicated therein, subject to normal year-end adjustments
in the case of unaudited
-13-
Company Financial Statements, which such adjustments will not be material in
amount or significance.
2.7 No Undisclosed Liabilities. Except as set forth in Schedule
2.7, neither the Company nor any of its subsidiaries has any liability,
indebtedness, obligation, expense, claim, deficiency, guaranty or endorsement of
any type, whether accrued, absolute, contingent, matured, unmatured or other
(whether or not required to be reflected in financial statements in accordance
with GAAP) (each, a "LIABILITY"), that, individually or in the aggregate, has
not been reflected or reserved against in the Company Financial Statements.
2.8 No Changes. Except as set forth in Schedule 2.8, since June
30, 2003, there has not been, occurred or arisen any:
(a) transaction by the Company or any of its subsidiaries
except in the ordinary course of business as conducted on that date and
consistent with past practices;
(b) amendments or changes to the Certificate of
Incorporation or Bylaws of the Company or the comparable governing documents of
each of its subsidiaries;
(c) capital expenditure or commitment by the Company or
any of its subsidiaries in excess of $10,000 in any individual case or $20,000
in the aggregate;
(d) payment, discharge or satisfaction, in any amount in
excess of $10,000 in any one case, or $20,000 in the aggregate, of any claim,
liability or obligation (absolute, accrued, asserted or unasserted, contingent
or otherwise), other than the payment, discharge or satisfaction in the ordinary
course of business of liabilities reflected or reserved against in the Current
Balance Sheet;
(e) destruction of, damage to or loss of any material
assets, business or customer of the Company or any of its subsidiaries (whether
or not covered by insurance);
(f) claim of wrongful discharge or other unlawful labor
practice or action with respect to the Company or any of its subsidiaries;
(g) change in accounting methods or practices (including
any change in depreciation or amortization policies or rates) by the Company or
any of its subsidiaries;
(h) revaluation by the Company of any of its or any of
its subsidiaries' assets (whether tangible or intangible);
(i) declaration, setting aside or payment of a dividend
or other distribution with respect to the Company Capital Stock, or any direct
or indirect redemption, purchase or other acquisition by the Company of any of
its 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 lieu of or in substitution for shares of
Company Capital Stock;
-14-
(j) increase in the salary or other compensation or
benefits (including, but not limited to, options or other equity-based
compensation awards) payable or to become payable by the Company or any of its
subsidiaries to any of their officers, directors, employees or advisors, or the
declaration, payment or commitment or obligation of any kind for the payment of
a bonus or other additional salary or compensation or benefits (including, but
not limited to, options or other equity-based compensation awards) to any such
person except as otherwise contemplated by this Agreement;
(k) sale, lease, license or other disposition of any of
the assets or properties of the Company or any of its subsidiaries, or the
creation of any security interest in such assets or properties, other than
agreements with customers and suppliers entered into in the ordinary course of
business and consistent with past practices;
(l) amendment or termination of any material contract,
agreement or license to which the Company or any of its subsidiaries is a party
or by which it is bound;
(m) loan by the Company or any of its subsidiaries to any
person or entity, incurring by the Company or any of its subsidiaries of any
indebtedness, guaranteeing by the Company or any of its subsidiaries of any
indebtedness, issuance or sale of any debt securities of the Company or any of
its subsidiaries or guaranteeing of any debt securities of others, except for
advances to employees for travel and business expenses in the ordinary course of
business, consistent with past practices;
(n) waiver or release of any right or claim of the
Company or any of its subsidiaries, including any write-off or other compromise
of any account receivable of the Company or any of its subsidiaries;
(o) commencement, settlement or notice or threat of
commencement of any lawsuit or proceeding against or investigation of the
Company or any of its subsidiaries or their affairs or any reasonable basis for
any of the foregoing;
(p) notice of any claim or notice of any potential claim
of ownership by a third party of the Company Intellectual Property (as defined
in Section 2.12) or of infringement by the Company or any of its subsidiaries of
any third party's Intellectual Property Rights;
(q) issuance or sale, or contract to issue or sell, by
the Company of any shares of Company Capital Stock, or securities exchangeable,
convertible or exercisable therefor, or of any other of its securities, other
than pursuant to the exercise of Company Options outstanding on the date hereof
and granted under the Company Option Plans;
(r) change in pricing or royalties set or charged by the
Company or any of its subsidiaries to its customers or licensees or in pricing
or royalties set or charged by persons who have licensed Intellectual Property
to the Company or any of its subsidiaries;
-15-
(s) commitment to any person to (i) develop software
without charge or (ii) incorporate any software into any of the Company's
products;
(t) exclusive license, distribution, marketing or sales
agreement entered into or any agreement to enter into any exclusive license,
distribution, marketing or sales agreement;
(u) event or condition of any character that has or could
reasonably be expected to have a Material Adverse Effect;
(v) new or changed material tax election or tax
accounting method, closing agreement, 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; or
(w) agreement by the Company or any of its subsidiaries
or any of their officers or employees thereof to do any of the things described
in the preceding clauses (a) through (v) (other than negotiations with Parent
and its representatives regarding the transactions contemplated by this
Agreement).
2.9 Tax and Other Returns and Reports.
(a) Definition of Taxes. For the purposes of this
Agreement, "TAX" or, collectively, "TAXES," means (i) any and all federal,
state, local and foreign taxes, assessments and other governmental charges,
duties, impositions and liabilities, including taxes based upon or measured by
gross receipts, income, profits, sales, use and occupation, and value added, ad
valorem, transfer, franchise, withholding, payroll, recapture, employment,
environmental, custom duty, stamp, alternative or add-on minimum, excise,
capital and property taxes, 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 2.9(a) as a result
of being a member of an affiliated, consolidated, combined or unitary group for
any period, and (iii) any liability for the payment of any amounts of the type
described in clause (i) or (ii) of this Section 2.9(a) as a result of any
express or implied liability for another person's taxes or as a result of any
obligations under any agreements or arrangements with any other person with
respect to such amounts and including any liability for taxes of a predecessor
or transferor entity.
(b) Tax Returns and Audits. Except as set forth in
Schedule 2.9:
(i) With respect to any Return (as hereinafter
defined) for which the applicable statute of limitations has not yet expired,
the Company and each of its subsidiaries as of the Effective Time will have
prepared and filed on a timely basis (taking into account all extensions of due
dates), all required federal, state, local and non-U.S. returns, estimates,
information statements and reports due to be filed on or before the Effective
Time ("RETURNS") relating to any and all Taxes concerning or attributable to the
Company, its subsidiaries or their operations, and such Returns are true and
correct and have been completed in accordance with applicable law.
-16-
(ii) With respect to any Tax for which the
applicable statute of limitations has not yet expired, the Company and each of
its subsidiaries as of the Effective Time (A) will have paid or accrued all
Taxes it is required to pay or accrue and (B) will have withheld with respect to
its employees (and timely remitted to the appropriate taxing authority) all
federal and state income taxes, FICA, FUTA and other Taxes required to be
withheld.
(iii) Neither the Company nor any of its
subsidiaries is currently delinquent in the payment of any Tax nor is there any
Tax deficiency outstanding, assessed or, to the Company's Knowledge, proposed
against the Company or any of its subsidiaries, nor has the Company or any of
its subsidiaries executed any outstanding waiver of any statute of limitations
on or extension of the period for the assessment or collection of any Tax. There
are no powers of attorney with respect to Taxes of the Company or any of its
subsidiaries currently in force.
(iv) To the Knowledge of the Company, no audit or
other examination of any Return of the Company or any of its subsidiaries is
presently in progress, nor has the Company been notified of any request for such
an audit or other examination.
(v) To the Knowledge of the Company, no claim
has ever been made by an authority in a jurisdiction where the Company or any of
its subsidiaries does not file Returns that the Company or any of its
subsidiaries is or may be subject to taxation by that jurisdiction.
(vi) Neither the Company nor any of its
subsidiaries has any liabilities for unpaid Taxes which have not been accrued or
reserved against on the Current Balance Sheet included in the Company Financial
Statements, whether asserted or unasserted, contingent or otherwise, and to the
Company's Knowledge, there is no basis for the assertion of any such liability
attributable to the Company, any of its subsidiaries or their assets or
operations. Neither the Company nor any of its subsidiaries will have incurred
any liability for Taxes for the period commencing after the date of the Current
Balance Sheet included in the Company Financial Statements and ending
immediately prior to the Effective Time, other than in the ordinary course of
business.
(vii) The Company has made available to Parent
copies of all Returns for the Company and each of its subsidiaries for all
periods since inception.
(viii) There are (and as of immediately following
the Closing there will be) no liens, pledges, charges, claims, security
interests or other encumbrances of any sort ("LIENS") on the assets of the
Company or any of its subsidiaries relating to or attributable to the failure of
the Company to pay its Taxes, other than Liens for Taxes not yet due and
payable.
(ix) Except as set forth on Schedule 2.20 (i), as
of the Effective Time, there is no contract, agreement, plan or arrangement,
including but not limited to the provisions of this Agreement, covering any
Employee that, individually or collectively, could give rise to the payment of
any amount that would not be deductible pursuant to Sections 280G or 404 of the
Code.
-17-
(x) 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 Company), (B) ever been a
party to a tax sharing or allocation agreement (nor does the Company owe any
amount under any such agreement), (C) any liability for the Taxes of any person
(other than Company or any of its subsidiaries) under Treas. Reg. Section
1.1502-6 (or any similar provision of state, local or foreign law), 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 could
be treated as a partnership for Tax purposes.
(xi) The Company is not, and has not been at any
time, a "United States real property holding corporation" within the meaning of
Section 897(c)(2) of the Code.
(xii) No adjustment relating to any Return filed
by the Company or any of its subsidiaries has been proposed in writing or, to
the Company's Knowledge, orally by any tax authority to the Company, any of its
subsidiaries or any of their respective representatives.
(xiii) Neither the Company nor any of its
subsidiaries has constituted either a "distributing corporation" or a
"controlled corporation" in a distribution of stock qualifying for tax-free
treatment under Section 355 of the Code within the 2 year period ending on the
date hereof.
(xiv) The Company has not engaged in a transaction
that is the same 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).
2.10 Restrictions on Business Activities. There is no agreement
(noncompete or otherwise), commitment, judgment, injunction, order or decree to
which the Company or any of its subsidiaries is a party or otherwise binding
upon the Company or any of its subsidiaries which has or reasonably would be
expected to have the effect of prohibiting or impairing any business practice
(including, without limitation, the licensing of any product) of the Company or
any of its subsidiaries, any acquisition of property (tangible or intangible) by
the Company or any of its subsidiaries or the conduct of business by the Company
or any of its subsidiaries. Without limiting the foregoing, neither the Company
nor any of its subsidiaries has entered into any agreement under which the
Company or any of its subsidiaries is restricted from selling, licensing or
otherwise distributing or providing any of its products or services to any class
of customers, in any geographic area, during any period of time or in any
segment of the market.
2.11 Title to Properties; Absence of Liens and Encumbrances.
(a) Neither the Company nor any of its subsidiaries owns
any real property. Schedule 2.11(a) sets forth a list of all real property
currently leased by the Company or any of its subsidiaries, the name of the
lessor and the date of the lease and each amendment thereto and the aggregate
annual rental and/or other fees payable under any such lease. All such current
leases are in full force and effect, are valid and effective in accordance with
their respective terms, and there is
-18-
not, under any of such leases, any existing default or event of default (or
event which with notice or lapse of time, or both, would constitute a default)
by the Company or any of its subsidiaries or, to the Company's Knowledge, any
other party.
(b) The Company and each of its subsidiaries has valid
leasehold interests in its leased properties and assets, good and valid title to
all of its tangible properties and assets used or held for use in its business,
free and clear of any Liens, except as reflected in the Company Financial
Statements or in Schedule 2.11(b) and except for liens for taxes not yet due and
payable and such imperfections of title and encumbrances, if any, which are not
material in character, amount or extent, and which do not materially detract
from the value, or materially interfere with the present use, of the property
subject thereto or affected thereby.
(c) Schedule 2.11(c) lists all material items of
equipment (the "EQUIPMENT") owned or leased by the Company and each of its
subsidiaries, and such Equipment is (i) adequate for the conduct of the business
of the Company and each of its subsidiaries as currently conducted and (ii) in
good operating condition, subject to normal wear and tear.
2.12 Intellectual Property.
(a) Definitions. For all purposes of this Agreement, the
following terms shall have the following respective meanings:
(i) "TECHNOLOGY" shall mean any or all of the
following: (A) works of authorship including, without limitation, computer
programs, algorithms, routines, source code and executable code, whether
embodied in software or otherwise, documentation, designs, files, records and
data; (B) inventions (whether or not patentable), improvements, and technology;
(C) proprietary and confidential information, including technical data and
customer and supplier lists, trade secrets, show how, know how and techniques;
(D) databases, data compilations and collections and technical data; (E)
processes, devices, prototypes, schematics, bread boards, net lists, mask works,
test methodologies and hardware development tools; (F) logos, trade names, trade
dress, trademarks, service marks, World Wide Web addresses and domain names,
tools, methods and processes; and all instantiations of the foregoing in any
form and embodied in any media.
(ii) "INTELLECTUAL PROPERTY RIGHTS" shall mean
any or all of the following and all rights in, arising out of, or associated
therewith: (A) all United States and foreign patents and utility models and
applications therefor and all reissues, divisions, re-examinations, renewals,
extensions, provisionals, continuations and continuations-in-part thereof, and
equivalent or similar rights anywhere in the world in inventions and discoveries
including without limitation invention disclosures ("PATENTS"); (B) all trade
secrets and other rights in know-how and confidential or proprietary
information; (C) all copyrights, copyrights registrations and applications
therefor and all other rights corresponding thereto throughout the world
("COPYRIGHTS"); (D) all industrial designs and any registrations and
applications therefor throughout the world; (E) mask works, mask work
registrations and applications therefor, and all other rights corresponding
thereto throughout the world ("MASK WORKS"); (F) all rights in World Wide Web
addresses and domain names and applications and registrations therefor, all
trade names, logos, common law trademarks and service
-19-
marks, trademark and service xxxx registrations and applications therefor and
all goodwill associated therewith throughout the world ("TRADEMARKS"); and (G)
any similar, corresponding or equivalent rights to any of the foregoing anywhere
in the world.
(iii) "COMPANY INTELLECTUAL PROPERTY" shall mean
any Technology and Intellectual Property Rights including the Company Registered
Intellectual Property Rights (as defined below) that are owned by, or
exclusively licensed to, the Company or any of its subsidiaries.
(iv) "REGISTERED INTELLECTUAL PROPERTY RIGHTS"
shall mean all United States, international and foreign: (A) Patents, including
applications therefor; (B) registered Trademarks, applications to register
Trademarks, including intent-to-use applications, or other registrations or
applications related to Trademarks; (C) Copyrights registrations and
applications to register Copyrights; (D) registered Mask Works and applications
to register Mask Works; and (E) any other Intellectual Property Right that is
the subject of an application, certificate, filing, registration or other
document issued by, filed with, or recorded by, any state, government or other
public legal authority at any time.
(b) Schedule 2.12(b) contains a complete and accurate
list (by name and version number) of all products, software or service offerings
of the Company or any of its subsidiaries that have been sold, distributed or
otherwise disposed of since April 2001 or which the Company or any of its
subsidiaries has under development (collectively, "COMPANY PRODUCTS").
(c) Schedule 2.12(c) lists all Registered Intellectual
Property Rights owned by, filed in the name of, or applied for, by the Company
or any of its subsidiaries (the "COMPANY REGISTERED INTELLECTUAL PROPERTY
RIGHTS") and lists any proceedings or actions of which the Company has actual
notice before any court, tribunal (including the United States Patent and
Trademark Office (the "PTO") or equivalent authority anywhere in the world) the
outcome of which may adversely affect the Company's rights to any of the Company
Registered Intellectual Property Rights or Company Intellectual Property.
(d) All necessary documents and certificates in
connection with such Company Registered Intellectual Property Rights 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 Rights. Except as set forth on
Schedule 2.12(d), there are no actions that must be taken by the Company or any
of its subsidiaries within one hundred twenty (120) days of the Closing Date,
including the payment of any registration, maintenance or renewal fees or the
filing of any responses to PTO office actions, documents, applications or
certificates for the purposes of obtaining, maintaining, perfecting or
preserving or renewing any Registered Intellectual Property Rights. Neither the
Company nor any of its subsidiaries has claimed any status in the application
for or registration of any Registered Intellectual Property Rights, including
"small business status," that would not be applicable to Parent.
(e) In each case in which the Company or any of its
subsidiaries has acquired exclusive ownership rights in Technology or
Intellectual Property Right from any person, the Company or its subsidiaries has
obtained a valid and enforceable assignment sufficient to
-20-
irrevocably transfer all rights in such Technology and the associated
Intellectual Property Rights to the Company or its subsidiaries. To the maximum
extent provided for by, and in accordance with, applicable laws and regulations,
the Company or its subsidiaries has recorded each such assignment of a
Registered Intellectual Property Right assigned to the Company or its
subsidiaries with the relevant Governmental Entity.
(f) The Company has no Knowledge of any facts or
circumstances that would render any Company Intellectual Property invalid or
unenforceable.
(g) All Company Intellectual Property will be fully
transferable, alienable or licensable by Surviving Corporation and/or Parent
without restriction and without payment of any kind to any third party.
(h) Except as set forth on Schedule 2.12(h), each item of
Company Intellectual Property is free and clear of any Liens except for
non-exclusive licenses granted to end-user customers in the ordinary course of
business and consistent with past practices. The Company is the exclusive owner
or exclusive licensee of all Company Intellectual Property. Without limiting the
generality of the foregoing, the Company is the exclusive owner of all
trademarks and trade names used in connection with the operation or conduct of
the business of the Company and its subsidiaries, including the sale,
distribution or provision of any Company Products by the Company or any of its
subsidiaries.
(i) Neither the Company nor any of its subsidiaries has
transferred ownership of, or granted any exclusive license of or right to use,
or authorized the retention of any exclusive rights to use or joint ownership
of, any Technology or Intellectual Property Right that is or was Company
Intellectual Property, to any other person.
(j) Except as set forth on Schedule 2.12(j), all
Technology used in or necessary to the creation of the Company Products was
written and created solely by either (i) employees of the Company acting within
the scope of their employment or (ii) by third parties who have validly and
irrevocably assigned all of their rights, including Intellectual Property Rights
therein, to the Company, and no third party owns or has any rights to any of the
Company Intellectual Property.
(k) Except as set forth on Schedule 2.12(k), the Company
Intellectual Property constitutes all the Technology and Intellectual Property
Rights used in and/or necessary to the conduct of the business of the Company
and its subsidiaries as it currently is conducted, including, without
limitation, the design, development, manufacture, use, import and sale of
Company Products.
(l) Except as set forth on Schedule 2.12(l), no person
who has licensed any Technology or Intellectual Property Rights to the Company
or any of its subsidiaries has ownership rights or license rights to
improvements made by the Company or any of its subsidiaries in such Technology
or Intellectual Property Rights.
-21-
(m) The operation of the business of the Company as it is
currently conducted, or is contemplated to be conducted as it relates to
products under development, including but not limited to the design,
development, use, import, branding, advertising, promotion, marketing,
manufacture and sale of Company Products does not and will not when conducted by
Parent and/or Surviving Corporation in substantially the same manner following
the Closing, infringe or misappropriate any Intellectual Property Right of any
person, violate any right of any person (including any right to privacy or
publicity), or constitute unfair competition or trade practices under the laws
of any jurisdiction, and neither the Company nor any of its subsidiaries has
received notice from any person claiming that such operation or any act,
product, technology or service (including products, technology or services
currently under development) of the Company or any of its subsidiaries infringes
or misappropriates any Intellectual Property Right of any person or constitutes
unfair competition or trade practices under the laws of any jurisdiction in
which the Company currently conducts business (nor does the Company have
Knowledge of any basis therefor).
(n) To the Company's Knowledge, no Company Intellectual
Property or service of the Company or any of its subsidiaries is subject to any
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 its subsidiaries or may affect the validity, use or
enforceability of such Company Intellectual Property.
(o) Other than inbound "shrink-wrap" and similar
publicly-available commercial binary code end-user licenses, and other than
inbound commercial binary code end-user licenses for internal use for which the
up-front fees were less than one hundred thousand dollars ($100,000) or for
which the annual maintenance and support fees are less than ten thousand dollars
($10,000), and other than customer contracts entered into in the ordinary course
of business, Schedule 2.12(o) lists all contracts, licenses and agreements to
which the Company or any of its subsidiaries is a party with respect to any
Technology or Intellectual Property Rights. Neither the Company nor any of its
subsidiaries is in breach of, nor has the Company or any of its subsidiaries
failed to perform under, any of the foregoing contracts, licenses or agreements
and, to the Company's Knowledge, no other party to any such contract, license or
agreement is in breach thereof or has failed to perform thereunder.
(p) To the Company's Knowledge, there are no contracts,
licenses or agreements between the Company (or any of its subsidiaries) and any
other person with respect to Company Intellectual Property under which there is
any 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 or any of its subsidiaries thereunder.
(q) To the Company's Knowledge, no person is infringing
or misappropriating any Company Intellectual Property Right.
(r) The Company and its subsidiaries have taken all steps
that are reasonably required to protect the Company's rights in confidential
information and trade secrets of the Company or provided by any other person to
the Company.
-22-
(s) Except as set forth on Schedule 2.12(s), neither this
Agreement nor the transactions contemplated by this Agreement, including the
assignment to Parent or Surviving Corporation, by operation of law or otherwise,
of any contracts or agreements to which the Company is a party, will result in
(i) either Parent's or the Surviving Corporation's granting to any third party
any right to or with respect to any Technology or Intellectual Property Right
owned by, or licensed to, either of them, other than rights Technology or
Intellectual Property Rights owned by or licensed to the Company and required to
be granted to a third party absent such assignment to Parent or Surviving
Corporation, (ii) either the Parent's or the Surviving Corporation's being bound
by, or subject to, any non-compete or other restriction on the operation or
scope of their respective businesses, other than any non-compete or other such
restriction applicable to the Company absent such assignment to Parent or
Surviving Corporation, or (iii) either the Parent's or the Surviving
Corporation's being obligated to pay any royalties or other amounts to any third
party in excess of those payable by Parent or Surviving Corporation,
respectively, prior to the Closing.
(t) Schedule 2.12(t) lists all software or other material
that is distributed as "free software", "open source software" or under a
similar licensing or distribution model (including but not limited to the GNU
General Public License (GPL), GNU Lesser General Public License (LGPL), Mozilla
Public License (MPL), BSD licenses, the Artistic License, the Netscape Public
License, the Sun Community Source License (SCSL) the Sun Industry Standards
License (SISL) and the Apache License) (collectively, "OPEN SOURCE MATERIALS")
used by the Company in any way. The Company has not (i) incorporated Open Source
Materials into, or combined Open Source Materials with, the Intellectual
Property; (ii) distributed Open Source Materials in conjunction with any
Intellectual Property; or (iii) used Open Source Materials that create, or
purport to create, obligations for the Company with respect to Intellectual
Property Rights or grant, or purport to grant, to any third party, any rights or
immunities under Intellectual Property Rights (including, but not limited to,
using any Open Source Materials that require, as a condition of use,
modification and/or distribution of such Open Source Materials that other
software incorporated into, derived from or distributed with such Open Source
Materials be (x) disclosed or distributed in source code form, (y) be licensed
for the purpose of making derivative works, or (z) be redistributable at no
charge).
(u) The Company has no liability (and, to the Knowledge
of the Company, there is no legitimate basis for any present or future action,
suit, proceeding, hearing, investigation, charge, complaint, claim or demand
against the Company giving rise to any material liability relating to the
foregoing contracts) for replacement or repair thereof or other damages in
connection therewith in excess of any reserves therefor reflected on the Company
Financial Statements.
(v) No (i) government funding; (ii) facilities of a
university, college, other educational institution or research center; or (iii)
funding from any person (other than funds received in consideration for Company
Capital Stock) was used in the development of the Intellectual Property Rights
owned by 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 Intellectual Property Rights, has performed
services for the government, university, college or other educational
institution or research center during a period of time during which such
employee, consultant or independent contractor was also performing services for
the Company.
-23-
(w) The Company has not collected any personally
identifiable information from any third parties except the type described on
Schedule 2.12(w). The Company has complied with all applicable laws in the
jurisdictions in which it conducts business and its internal privacy policies
relating to (i) the privacy of users of their products and services and all
Internet websites owned, maintained or operated by the Company and (ii) the
collection, storage and transfer of any personally identifiable information
collected by the Company or by third parties having authorized access to the
records of the Company. The execution, delivery and performance of this
Agreement complies with all applicable laws relating to privacy and with the
Company's privacy policies. Copies of all current and prior privacy policies of
the Company, including the privacy policies included in the Company's Internet
website, are attached to Schedule 2.12(w). No such privacy policy has been
inaccurate, misleading or deceptive or in violation of any applicable laws.
(x) Except as disclosed on Schedule 2.12(x), neither the
Company nor any other person acting on its behalf has disclosed, delivered or
licensed to any person, agreed to disclose, deliver or license to any person, or
permitted the disclosure or delivery to any escrow agent or other person 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 the Company
or any person acting on their behalf to any person of any Company Source Code.
Schedule 2.12(x) identifies each contract pursuant to which the Company has
deposited, or is or may be required to deposit, with an escrow-holder or any
other person, any Company Source Code, and describes whether the execution of
this Agreement or the consummation of the Merger or any of the other
transactions contemplated by this Agreement, in and of itself, would reasonably
be expected to result in the release from escrow of any Company Source Code. As
used in this Section 2.12(x), "COMPANY SOURCE CODE" means, collectively, any
software source code, or any material portion or aspect of software source code
of any Technology.
2.13 Interested Party Transactions. Except as set forth on Schedule
2.13, no officer, director, affiliate (as defined in Rule 405 promulgated under
the Securities Act) or, to the Company's Knowledge, Company Stockholder (nor, to
the Company's Knowledge, any parent, grandparent, sibling, descendant or spouse
of any of such persons, or any trust, partnership or corporation in which any of
such persons has or has had an economic interest), has or has had, directly or
indirectly, (a) an economic interest in any entity which furnished or sold, or
furnishes or sells, services or products that the Company or any of its
subsidiaries furnishes or sells, or proposes to furnish or sell, or (b) an
economic interest in any entity that purchases from or sells or furnishes to,
the Company or any of its subsidiaries, any goods or services or (c) a
beneficial interest in any contract or agreement to which the Company or any of
its subsidiaries is a party; provided, that ownership of no more than three
percent (3%) of the outstanding voting stock of a publicly traded corporation
shall not be deemed an "economic interest in any entity" for purposes of this
Section 2.13.
-24-
2.14 Compliance with Laws. The Company and each of its subsidiaries
have complied in all material respects with, are not in violation of, and have
not received any notices of violation with respect to, any foreign, federal,
state or local statute, law or regulation.
2.15 Litigation. Except as set forth in Schedule 2.15, there is no
action, suit or proceeding of any nature pending or, to the Company's Knowledge,
threatened against the Company, its subsidiaries, their properties or any of
their officers or directors, in their respective capacities as such. Except as
set forth in Schedule 2.15, there is no investigation pending or threatened
against the Company, its subsidiaries, their properties or any of their officers
or directors by or before any Governmental Entity. Schedule 2.15 sets forth,
with respect to any such pending or threatened action, suit, proceeding or
investigation, the forum, the parties thereto, the subject matter thereof and
the amount of damages claimed or other remedy requested. To the Company's
Knowledge, no Governmental Entity has at any time challenged or questioned the
legal right of the Company or any of its subsidiaries to manufacture, offer or
sell any of its products or services in the present manner or style thereof.
2.16 Insurance. The Company and its subsidiaries maintain valid and
enforceable insurance policies and fidelity bonds covering the assets, business,
equipment, properties, operations, employees, officers and directors of the
Company and its subsidiaries. Such insurance policies and fidelity bonds,
identified on Schedule 2.16, contain provisions that are reasonable and
customary in the Company's industry, and there is no claim by the Company or any
of its subsidiaries pending under any of such policies or bonds as to which
coverage has been denied by the underwriters of such policies or bonds. All
premiums due and payable under all such policies and bonds have been paid, and
the Company and each of its subsidiaries are otherwise in compliance with the
terms of such policies and bonds (or other policies and bonds providing
substantially similar insurance coverage). The Company has no Knowledge of any
threatened termination of any of such policies.
2.17 Minute Books. The minute books of the Company and each of its
subsidiaries furnished to Parent prior to the date hereof, or that will be
furnished to Parent prior to the Closing Date, are the only minute books of the
Company and its subsidiaries and accurately reflect all meetings of directors
(including committees thereof) and stockholders or actions by written consent of
the board of directors or the Company Stockholders and its subsidiaries since
the time of incorporation of the Company and its subsidiaries, as the case may
be.
2.18 Environmental Matters.
(a) Hazardous Material. Neither the Company nor any of
its subsidiaries has: (i) operated any underground storage tanks at any property
that the Company or any of its subsidiaries has at any time owned, operated,
occupied or leased; or (ii) illegally released in violation of applicable law
any amount of any substance that has been designated by any Governmental Entity
or by applicable federal, state or local law to be radioactive, toxic, hazardous
or otherwise a danger to health or the environment, including, without
limitation, PCBs, asbestos, petroleum, urea-formaldehyde and all substances
listed as hazardous substances pursuant to the Comprehensive Environmental
Response, Compensation, and Liability Act of 1980, as amended, or defined as a
hazardous waste pursuant to the United States Resource Conservation and Recovery
Act
-25-
of 1976, as amended, and the regulations promulgated pursuant to said laws (a
"HAZARDOUS MATERIAL") ; provided, however, that such term shall not be deemed to
include (a) limited quantities of substances typically used and reasonably
necessary for the ordinary operation and maintenance of any real property, so
long as such substances are used, transported, stored and handled in accordance
with applicable environmental laws; (b) oil, petroleum, petroleum fractions or
petroleum derived substances used for purposes of heating or providing emergency
power for any real property, so long as such substances are used, transported,
stored and handled in accordance with applicable environmental laws; or (c)
asbestos containing materials or urea formaldehyde foam in a non-friable
condition or properly encapsulated as permitted by environmental laws, and
subject to an operations and maintenance plan implemented in conformance with
applicable environmental laws. No Hazardous Materials are present as a result of
the actions of the Company, or, to the Company's Knowledge, as a result of any
actions of any third party or otherwise, in, on or under any property, including
the land and the improvements, ground water and surface water thereof, that the
Company or any of its subsidiaries has at any time owned, operated, occupied or
leased.
(b) Hazardous Materials Activities. Neither the Company
nor any of its subsidiaries has transported, stored, used, manufactured,
disposed of, released or exposed its employees or others to Hazardous Materials
in violation of any law in effect on or before the Closing Date, nor has the
Company or any of its subsidiaries disposed of, transported, sold, or
manufactured any product containing a Hazardous Material (any or all of the
foregoing being collectively referred to as "HAZARDOUS MATERIALS ACTIVITIES") in
violation of any rule, regulation, treaty or statute promulgated by any
Governmental Entity in effect prior to or as of the date hereof to prohibit,
regulate or control Hazardous Materials or any Hazardous Material Activity.
(c) Permits. The Company and each of its subsidiaries
currently hold all environmental approvals, permits, licenses, clearances and
consents (the "ENVIRONMENTAL PERMITS") necessary for the conduct of the
Hazardous Material Activities and other businesses of the Company and each of
its subsidiaries as such activities and businesses are currently being
conducted.
(d) Environmental Liabilities. No action, proceeding,
revocation proceeding, amendment procedure, writ, injunction or claim is pending
or, to the Company's Knowledge, threatened concerning any Environmental Permit,
Hazardous Material or any Hazardous Materials Activity of the Company or any of
its subsidiaries.
2.19 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 or any similar charges in connection with this
Agreement or any transaction contemplated hereby.
-26-
2.20 Employee Matters and Benefit Plans.
(a) Definitions. With the exception of the definition of
"AFFILIATE" set forth in Section 2.20(a)(i) below (which definition shall apply
only to this Section 2.20), for purposes of this Agreement, the following terms
shall have the meanings set forth below:
(i) "AFFILIATE" shall mean any 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;
(ii) "COBRA" shall mean the Consolidated Omnibus
Budget Reconciliation Act of 1985, as amended and as codified in Section 4980B
of the Code and Sections 601 through 608 of ERISA;
(iii) "COMPANY EMPLOYEE PLAN" shall mean any plan,
program, policy, practice, contract, agreement or other arrangement providing
for compensation, severance, termination pay, deferred compensation, performance
awards, stock or stock-related awards, fringe benefits or other employee
benefits or remuneration of any kind, whether written or unwritten or otherwise,
funded or unfunded, including without limitation, each "employee benefit plan,"
within the meaning of Section 3(3) of ERISA which is or has been maintained,
contributed to, or required to be contributed to, by the Company, any of its
subsidiaries or any Affiliate for the benefit of any Employee, or with respect
to which the Company, or any of its subsidiaries or any Affiliate has or may
have any liability or obligation;
(iv) "DOL" shall mean the Department of Labor;
(v) "EMPLOYEE" shall mean any current or former
or retired employee, consultant or director of the Company or any of its
subsidiaries or any Affiliate;
(vi) "EMPLOYMENT AGREEMENT" shall mean each
management, employment, severance, consulting, relocation, repatriation,
expatriation, visa, work permit or other agreement, contract or understanding
(whether written or unwritten) between the Company, any of its subsidiaries or
any Affiliate and any Employee;
(vii) "ERISA" shall mean the Employee Retirement
Income Security Act of 1974, as amended;
(viii) "FMLA" shall mean the Family Medical Leave
Act of 1993, as amended;
(ix) "INTERNATIONAL EMPLOYEE PLAN" shall mean
each Company Employee Plan that has been adopted or maintained by the Company or
any Affiliate (whether formally or informally and whether written or unwritten)
or with respect to which the Company, any of its subsidiaries or any Affiliate
will or may have any liability for the benefit of Employees who perform services
outside the United States;
-27-
(x) "IRS" shall mean the Internal Revenue
Service;
(xi) "MULTIEMPLOYER PLAN" shall mean any Pension
Plan (as defined below) which is a "multiemployer plan," as defined in Section
3(37) of ERISA; and
(xii) "PENSION PLAN" shall mean each Company
Employee Plan which is an "employee pension benefit plan," within the meaning of
Section 3(2) of ERISA.
(b) Schedule. Schedule 2.20(b) contains an accurate and
complete list of each Company Employee Plan, International Employee Plan and
each Employment Agreement. Neither the Company nor any of its subsidiaries has
any plan or commitment to establish any new Company Employee Plan, International
Employee Plan or Employment Agreement, to modify any Company Employee Plan,
International Employee Plan or Employment Agreement (except to the extent
required by law or to conform any such Company Employee Plan, International
Employee Plan or Employment 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 adopt or enter into any Company Employee Plan,
International Employee Plan or Employment Agreement.
(c) Documents. The Company has provided or made available
to Parent correct and complete copies of: (i) all documents embodying each
Company Employee Plan, International Employee Plan and Employment Agreement
including (without limitation) all amendments thereto and all related trust
documents, administrative service agreements, group annuity contracts, group
insurance contracts, and policies pertaining to fiduciary liability insurance
covering the fiduciaries for each Plan; (ii) the most recent annual actuarial
valuations, if any, prepared for each Company Employee Plan; (iii) 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; (iv) if the Company Employee Plan is
funded, the most recent annual and periodic accounting of Company Employee Plan
assets; (v) the most recent summary plan description together with the
summary(ies) of material modifications thereto, if any, required under ERISA
with respect to each Company Employee Plan; (vi) all IRS determination opinion,
notification and advisory letters, and all applications and correspondence to or
from the IRS or the DOL with respect to any such application or letter; (vii)
all communications material to any Employee or Employees relating to any Company
Employee Plan, any International Employee Plan and any proposed Company Employee
Plans, in each case, relating to any amendments, terminations, establishments,
increases or decreases in benefits, acceleration of payments or vesting
schedules or other events which would result in any liability to the Company or
any of its subsidiaries; (viii) all correspondence to or from any governmental
agency relating to any Company Employee Plan or International Employee Plan;
(ix) samples of all COBRA forms and related notices (or such forms and notices
as required under comparable law); (x) where applicable, the three (3) most
recent plan years discrimination tests for each Company Employee Plan; and (xi)
all registration statements, annual reports (Form 11-K and all attachments
thereto) and prospectuses prepared in connection with each Company Employee
Plan.
(d) Employee Plan Compliance. Except as set forth on
Schedule 2.20(d), (i) the Company has performed in all material respects all
obligations required to be performed by it under,
-28-
is not in default or violation of, and has no Knowledge of any default or
violation by any other party to, each Company Employee Plan and International
Employee Plan, and each Company Employee Plan and International Employee Plan
has been established and maintained in accordance with their terms and in
compliance with all applicable laws, statutes, orders, rules and regulations,
including but not limited to ERISA or the Code; (ii) each Company Employee Plan
intended to qualify under Section 401(a) of the Code and each trust intended to
qualify under Section 501(a) of the Code is a prototype plan permitted under
applicable IRS rules to have full reliance on the prototype sponsor's favorable
opinion letter or has either received a favorable determination opinion,
notification or advisory letter from the IRS with respect to each such Company
Employee Plan as to its qualified status under the Code, including all
amendments to the Code effected by the Tax Reform Act of 1986 and subsequent
legislation, or has remaining a period of time under applicable Treasury
regulations or IRS pronouncements in which to apply for such a letter and make
any amendments necessary to obtain a favorable determination as to the qualified
status of each such Company Employee Plan without penalty; (iii) 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 4975 of the Code or Section
408 of ERISA (or any administrative class exemption issued thereunder), has
occurred with respect to any Company Employee Plan; (iv) there are no actions,
suits or claims pending, or, to the Company's Knowledge, threatened or
reasonably anticipated (other than routine claims for benefits) against any
Company Employee Plan or International Employee Plan or against the assets of
any Company Employee Plan or International Employee Plan; (v) each Company
Employee Plan and International Employee Plan can be amended, terminated or
otherwise discontinued after the Effective Time, without liability to Parent,
the Company or any Affiliates (other than ordinary administration expenses or
the issuance of shares upon exercise of previously granted Company Options);
(vi) there are no audits, inquiries or proceedings pending or, to the Knowledge
of the Company or any Affiliates, threatened by the IRS or DOL with respect to
any Company Employee Plan; and (vii) neither the Company nor any Affiliate is
subject to any penalty or tax with respect to any Company Employee Plan under
Section 502(i) of ERISA or Section 4975 through 4980 of the Code.
(e) Pension Plan. Neither the Company nor any Affiliate
has ever maintained, established, sponsored, participated in, or contributed to,
any Pension Plan which is subject to Title IV of ERISA or Section 412 of the
Code.
(f) Collectively Bargained, Multiemployer and Multiple
Employer Plans. At no time has the Company, any of its subsidiaries or any
Affiliate contributed to or been obligated to contribute to any Multiemployer
Plan. Neither the Company, its subsidiaries nor any 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.
(g) No Post-Employment Obligations. Except as set forth
in Schedule 2.20(g), no Company Employee Plan or International Employee Plan
provides, or reflects or represents any liability to provide retiree health or
other welfare benefits to any person for any reason, except as may be required
by COBRA or other applicable statute, and neither the Company nor any of its
subsidiaries has ever represented, promised or contracted (whether in oral or
written form) to any
-29-
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 health or
other welfare benefits, except to the extent required by statute.
(h) Health Care Compliance. Neither the Company, its
subsidiaries nor any Affiliate has, prior to the Effective Time and in any
material respect, violated any of the health care continuation requirements of
COBRA, the requirements of FMLA, the requirements of the Health Insurance
Portability and Accountability Act of 1996, the requirements of the Women's
Health and Cancer Rights Act of 1998, the requirements of the Newborns' and
Mothers' Health Protection Act of 1996, or any amendment to each such act, or
any similar provisions of state law applicable to its Employees. No Company
Employee Plan or International Employee Plan provides health benefits that are
not fully insured through an insurance contract.
(i) Effect of Transaction.
(i) Except as set forth on Schedule 2.20(i), the
execution of this Agreement and the consummation of the transactions
contemplated hereby will not (either alone or upon the occurrence of any
additional or subsequent events) constitute an event under any Company Employee
Plan, International Employee Plan, Employment 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.
(ii) Except as set forth on Schedule 2.20(i), no
payment or benefit which will or may be made by the Company, its subsidiaries or
its Affiliates with respect to any Employee will be characterized as a
"parachute payment," within the meaning of Section 280G(b)(2) of the Code.
Schedule 2.20(i) lists all persons who the Company reasonably believes are, with
respect to the Company or any subsidiary of the Company, "disqualified
individuals" (within the meaning of Section 280G of the Code and the regulations
promulgated thereunder).
(j) Past Acquisitions. Neither the Company nor any
Affiliate is currently obligated to provide an Employee with any compensation or
benefits pursuant to an agreement (e.g., an acquisition agreement) with a former
employer of such Employee.
(k) Executive Loans. Neither the Company nor any
Affiliate has violated Section 402 of the Xxxxxxxx-Xxxxx Act of 2002 and the
execution of this Agreement and the consummation of the transactions
contemplated hereby will not, to the Knowledge of the Company, cause such a
violation.
(l) Employment Matters. The Company and each of its
subsidiaries (i) is in compliance in all respects with all applicable foreign,
federal, state and local laws, rules and regulations respecting employment,
employment practices, terms and conditions of employment and wages and hours, in
each case, with respect to Employees; (ii) has withheld 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; (iii) is not liable for any
arrears of wages or any taxes or any penalty
-30-
for failure to comply with any of the foregoing; and (iv) is not liable for any
payment to any trust or other fund governed by or maintained by or on behalf of
any governmental authority, with respect to unemployment compensation benefits,
social security or other benefits or obligations for Employees (other than
routine payments to be made in the normal course of business and consistent with
past practice). There are no pending, or to the Company's Knowledge, threatened
or reasonably anticipated claims or actions against the Company or any of its
subsidiaries under any worker's compensation policy or long-term disability
policy.
(m) Labor. No work stoppage or labor strike against the
Company or any of its subsidiaries is pending, threatened or reasonably
anticipated. Neither the Company nor its subsidiaries knows of any activities or
proceedings of any labor union to organize any Employees. Except as set forth in
Schedule 2.20(m), there are no actions, suits, claims, labor disputes or
grievances pending, or, to the Company's Knowledge, threatened or reasonably
anticipated relating to any labor, safety or discrimination matters involving
any Employee, including, without limitation, charges of unfair labor practices
or discrimination complaints, which, if adversely determined, would,
individually or in the aggregate, result in any liability to the Company or any
of its subsidiaries. Neither the Company nor any of its subsidiaries has engaged
in any unfair labor practices within the meaning of the National Labor Relations
Act. Except as set forth in Schedule 2.20(m), neither the Company nor any of its
subsidiaries is presently, nor has it been in the past, a party to, or bound by,
any collective bargaining agreement or union contract with respect to Employees,
and no collective bargaining agreement is being negotiated by the Company or any
of its subsidiaries.
(n) International Employee Plans. Each International
Employee Plan has been established, maintained and administered in 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. Except as required by law, no condition exists that would prevent
the Company or Parent from terminating or amending any International Employee
Plan at any time for any reason without liability to the Company, its
subsidiaries or its Affiliates (other than ordinary administration expenses or
routine claims for benefits).
2.21 Employees. To the Company's Knowledge, no employee of the
Company or any of its subsidiaries (a) is in violation of any term of any
employment contract, patent disclosure agreement, non-competition agreement, or
any restrictive covenant to a former employer relating to the right of any such
employee to be employed by the Company or any of its subsidiaries because of the
nature of the business conducted or presently proposed to be conducted by the
Company or any of its subsidiaries or to the use of trade secrets or proprietary
information of others and (b) has given notice to the Company or any of its
subsidiaries that any employee intends to terminate his or her employment with
the Company or any of its subsidiaries.
2.22 Governmental Authorization. The Company and each of its
subsidiaries possess all consents, licenses, permits, grants or other
authorizations issued to the Company or its subsidiaries
-31-
by a Governmental Entity (a) pursuant to which the Company and its subsidiaries
currently operates or holds any interest in any of its properties or (b) which
are required for the operation of its business or the holding of any such
interest, other than, in each case, such consents, licenses, permits, grants or
authorizations of which the failure to obtain would not, either individually or
in the aggregate, have a Material Adverse Effect (herein collectively called
"COMPANY AUTHORIZATIONS"), which Company Authorizations are in full force and
effect and constitute all Company Authorizations required to permit the Company
and each of its subsidiaries to operate or conduct its business or hold any
interest in its properties or assets.
2.23 Agreements, Contracts and Commitments.
(a) Except as set forth on Schedule 2.23(a), neither the Company
nor any of its subsidiaries has, is a party to, or is bound by:
(i) any fidelity or surety bond or completion bond;
(ii) any lease of personal property having a value
individually in excess of $25,000;
(iii) any agreement of indemnification or guaranty, other
than such indemnification obligations in the software license agreements of the
Company and its subsidiaries entered into in the ordinary course of business
consistent with past practices and which indemnification obligations are capped
at an amount not to exceed the revenues generated under such agreements;
(iv) any agreement, contract or commitment containing any
covenant limiting the freedom of the Company to engage in any line of business
or to compete with any person, including without limitation, any exclusive
license agreements or distribution agreements;
(v) any agreement, contract or commitment relating to
capital expenditures and involving future payments in excess of $10,000
individually or $25,000 in the aggregate;
(vi) any agreement, contract or commitment relating to the
disposition or acquisition of assets or any interest in any business enterprise
outside the ordinary course of business;
(vii) any mortgages, indentures, loans or credit
agreements, security agreements or other agreements or instruments relating to
the borrowing of money or extension of credit, including guaranties referred to
in clause (iii) hereof;
(viii) any purchase order or contract for the purchase of
raw materials involving $25,000 or more;
(ix) any construction contract;
-32-
(x) any distribution, joint marketing or development
agreement;
(xi) any agreement, contract or commitment pursuant to
which the Company or any of its subsidiaries has granted or may grant in the
future, to any party a source-code license or option or other right to use or
acquire source-code; or
(xii) any other agreement, contract or commitment that
involves $25,000 or more or is not cancelable without penalty on no more than
thirty (30) days notice.
(b) Schedule 2.23(b) sets forth a list of the Company's
top 15 customers according to revenue for the fiscal year ended June 30, 2003.
Schedule 2.23(b) lists all effective agreements between such customers and the
Company.
(c) Except for such alleged breaches, violations and
defaults, and events that would constitute a breach, violation or default with
the lapse of time, giving of notice, or both, all of which are noted in Schedule
2.23(c), neither the Company nor any of its subsidiaries has materially
breached, violated or defaulted under, or received notice that it has breached,
violated or defaulted under, any of the terms or conditions of any contract
required to be set forth on Schedule 2.23(a), Schedule 2.23(b) or Schedule 2.12.
Each such contract is in full force and effect and, except as otherwise
disclosed in Schedule 2.23(c), is not subject to any default thereunder of which
the Company has Knowledge by any party obligated to the Company or any of its
subsidiaries pursuant thereto.
(d) Schedule 2.23(d) sets forth all rights of return
provided by the Company to any customer or distributor, and describes any
exercise of such rights during the past 12 months.
2.24 Accounts Receivable.
(a) The Company has provided Parent with a list of all
accounts receivable of the Company and its subsidiaries as of October 31, 2003,
together with a range of days elapsed since invoice.
(b) All such accounts receivable arose in the ordinary
course of business and are carried at values determined in accordance with GAAP
consistently applied. No person has any Lien on any such accounts receivable,
and no written request within the past six months or agreement for deduction or
discount has been made with respect to any such accounts receivable.
2.25 Complete Copies of Materials. The Company has delivered or
made available true and complete copies of each document (or summaries of same)
that has been requested by Parent or its counsel.
2.26 Representations Complete. None of the representations or
warranties made by the Company (as modified by the Disclosure Schedules), nor
any statement made in any Schedule or certificate furnished by the Company
pursuant to this Agreement, or furnished in or in connection with documents
mailed or delivered to the Company Stockholders in connection with soliciting
their
-33-
consent to this Agreement and the Merger, contains or will contain at the
Effective Time, any untrue statement of a material fact, or omits or will omit
at the Effective Time to state any material fact necessary in order to make the
statements contained herein or therein, in the light of the circumstances under
which made, not misleading.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
OF PARENT AND MERGER SUB
Parent and Merger Sub represent and warrant to the Company as follows:
3.1 Organization, Standing and Power. Parent is a corporation duly
organized, validly existing and in good standing under the laws of the state of
Delaware. Merger Sub is a corporation duly organized, validly existing and in
good standing under the laws of the state of Delaware. Each of Parent and Merger
Sub has the corporate power and authority to own its properties and to carry on
its business as now being conducted.
3.2 Authority. Parent and Merger Sub have all requisite corporate
power and authority to enter into this Agreement and the Parent Transaction
Agreements and to consummate the transactions contemplated hereby. No other
corporate proceedings on the part of Parent or Merger Sub are necessary to
authorize this Agreement or the Parent Transaction Agreements or to consummate
the transactions contemplated hereby. This Agreement has been duly executed and
delivered by Parent and Merger Sub and, assuming the due authorization,
execution and delivery by the Company, constitutes the valid and binding
obligations of Parent and Merger Sub, enforceable in accordance with its terms
except (a) as limited by applicable bankruptcy, insolvency, reorganization,
moratorium and other laws of general application affecting enforcement of
creditors' rights generally and (b) as limited by laws relating to the
availability of specific performance, injunctive relief or other equitable
remedies.
3.3 No Conflict. Neither the execution and delivery of this
Agreement by Parent or Merger Sub, nor the consummation by Parent or Merger Sub
of the transactions contemplated hereby nor compliance by Parent or Merger Sub
with any of the provisions hereof, will (a) conflict with or result in a breach
of any provision of Parent's or Merger Sub's Certificate of Incorporation or
Bylaws, (b) constitute or result in a default under, or require any consent
pursuant to, or result in the creation of any lien on any asset of Parent or
Merger Sub under, any contract of Parent or Merger Sub that has been filed as an
exhibit to Parent's filings under the Securities Act or Securities Exchange Act
of 1934, as amended (the "EXCHANGE ACT").
3.4 Parent Common Stock. The shares of Parent Common Stock to be
issued pursuant to the Merger have been duly authorized, and upon issuance
pursuant to Section 1.6 of this Agreement, will be validly issued, fully paid
and nonassessable.
3.5 SEC Filings; Parent Financial Statements. Parent has filed
with the SEC all registration statements, proxy statements, periodic reports,
schedules, forms and all other documents
-34-
required to be filed by the Parent with the SEC since January 1, 2001. All such
registration statements, proxy statements, periodic reports, schedules, forms
and all other documents required to be filed (including those that Parent is
required to or may file after the date hereof and prior to the Effective Time)
are referred to herein as the "Parent SEC Documents." Parent has filed all
exhibits to the Parent SEC Documents required by Item 601(b)(10) of Regulation
S-K promulgated under the Securities Act. As of the time it was filed with the
SEC (or, if amended or superseded by a filing prior to the date of this
Agreement, then on the date of such filing): (i) each of the Parent SEC
Documents complied in all material respects with the applicable requirements of
the Securities Act or the Exchange Act (as the case may be); and (ii) none of
the Parent SEC Documents contained any untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary in
order to make the statements therein, in the light of the circumstances under
which they were made, not misleading.
(b) The consolidated financial statements (including any
related notes) contained in the Parent SEC Documents (the "PARENT FINANCIAL
STATEMENTS"): (i) complied as to form in all material respects with the
published rules and regulations of the SEC applicable thereto; (ii) were
prepared in accordance with GAAP applied on a consistent basis throughout the
periods covered (except as may be indicated in the notes to such financial
statements or, in the case of unaudited statements, as permitted by Form 10-Q of
the SEC, and except that the unaudited financial statements may not contain
footnotes and are subject to normal and recurring year-end adjustments which
will not, individually or in the aggregate, be material in amount); and (iii)
fairly presented the consolidated financial position of the Parent and its
consolidated Subsidiaries as of the respective dates thereof and the
consolidated results of operations and cash flows of the Parent and its
consolidated Subsidiaries for the periods covered thereby. The Parent has
furnished or made available to the Company a complete and correct copy of any
amendments or modifications, which have not yet been filed with the SEC but that
the Parent intends to file as of the date hereof, to any Parent SEC Documents
previously filed with the SEC.
3.6 Litigation. There is no action, suit, proceeding, claim,
arbitration or investigation pending, or as to which Parent or Merger Sub has
received any notice of assertion against Parent or Merger Sub, which in any
manner challenges or seeks to prevent, enjoin, alter or materially delay the
execution and delivery of this Agreement or the consummation of any of the
transactions contemplated by this Agreement.
3.7 Capitalization. The authorized capital stock of Parent
consists of 60,000,000 shares of Parent Common Stock, of which 25,024,925 shares
were issued and outstanding on the date of this Agreement, and 5,000,000 shares
of Preferred Stock, par value $0.001 per share, none of which shares were issued
and outstanding on the date of this Agreement. Parent has reserved 8,092,014
shares of Parent Common Stock for issuance to employees and consultants pursuant
to the Parent Option Plans, of which on the date of this Agreement 3,509,744
shares are subject to outstanding, unexercised options, 2,678,872 shares remain
available for future grant and 2,020,899 shares have been issued pursuant to the
exercise of options issued under the Parent Option Plans. Except as set forth in
the immediately preceding sentence, no shares of capital stock or other
securities of Parent are issued, reserved for issuance or outstanding. All
outstanding shares of Parent Common Stock are
-35-
duly authorized, validly issued, fully paid and non-assessable. All outstanding
shares of Parent Common Stock have been issued in compliance with applicable
federal and state securities laws. There is no record date for the declaration,
setting aside or payment of a dividend or other distribution with respect to the
Parent Common Stock, or any direct or indirect redemption, purchase or other
acquisition by the Parent of any of its capital stock or any split, combination
or reclassification in respect of any shares of Parent Common Stock, or any
issuance or authorization of any issuance of any other securities in lieu of or
in substitution for shares of Parent Common Stock, later than the beginning of
the 10 day period referred to in the definition of "Average Parent Share Price."
3.8 Form S-3 Eligibility. Parent is eligible to use Form S-3 for
the re-sale registration of securities under the Securities Act, as contemplated
by the Declaration of Registration Rights.
3.9 Nasdaq Listing Requirements. Parent has not received a notice
since October 31, 2001 that it is not in compliance with the qualification and
listing requirements of the Nasdaq National Market.
ARTICLE IV
CONDUCT PRIOR TO THE EFFECTIVE TIME
4.1 Conduct of Business of the Company and its Subsidiaries.
During the period from the date of this Agreement and continuing until the
earlier of the termination of this Agreement and the Effective Time and except
to the extent that Parent shall otherwise consent in writing, the Company will,
and will cause each of its subsidiaries to, carry on their business in the
usual, regular and ordinary course in substantially the same manner as
heretofore conducted, to pay their debts and Taxes when due, to pay or perform
other obligations when due, and, to the extent consistent with such business, to
use all reasonable efforts consistent with past practice and policies to
preserve intact their present business organization, keep available the services
of their present officers and employees and preserve their relationships with
customers, suppliers, distributors, licensors, licensees, and others having
business dealings with it, all with the goal of preserving unimpaired its
goodwill and ongoing businesses at the Effective Time. The Company shall
promptly notify Parent of any event or occurrence or emergency not in the
ordinary course of business, and any material event involving or adversely
affecting the Company, any of its subsidiaries or their business. Except as
expressly contemplated by this Agreement, neither the Company nor any of its
subsidiaries shall, without the prior written consent of Parent, which consent
shall not be unreasonably withheld or delayed:
(a) enter into any commitment or transaction not in the
ordinary course of business;
(b) (i) transfer to any person or entity any rights to
the Company Intellectual Property, (ii) enter into or amend any agreement with
respect to the Company Intellectual Property with any person or entity or with
respect to the Intellectual Property Rights of any person or entity (other than
intellectual property rights acquired under "shrink-wrap" and similar widely
available
-36-
commercial binary code end-user licenses), (iii) buy or license any Intellectual
Property Rights, (iv) enter into any agreement with respect to the development
of any Intellectual Property Rights or Technology, (v) modify its standard
warranty terms for the Company Products or amend or modify any Company Product
or service warranties in effect as of the date hereof in any manner that is
adverse to the Company or any of its subsidiaries;
(c) enter into or materially amend any agreements
pursuant to which any other party is granted manufacturing, marketing,
distribution or similar rights of any type or scope with respect to any Company
Products or Technology owned by the Company;
(d) materially amend or otherwise modify (or agree to do
so), or violate the terms of, any of the agreements set forth or described in
the Disclosure Schedule;
(e) commence any litigation or any dispute resolution
process;
(f) except as provided in this Agreement, declare, set
aside or pay any dividends on or make any other distributions (whether in cash,
stock or property) in respect of any of the Company Capital Stock, or split,
combine or reclassify any of the 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 the Company Capital Stock, or repurchase, redeem or otherwise
acquire, directly or indirectly, any shares of the Company Capital Stock (or
options, warrants or other rights exercisable therefor), other than pursuant to
the Company's repurchase right under employee restricted stock purchase
agreements;
(g) except for the issuance of shares of Company Common
Stock upon exercise of the presently outstanding Company Options or Company
Warrants, issue, grant, deliver or sell or authorize or propose the issuance,
grant, delivery or sale of, or purchase or propose the purchase of, any shares
of the Company Capital Stock or securities convertible into, or subscriptions,
rights, warrants or options to acquire, or other agreements or commitments of
any character obligating it to issue any Company Capital Stock or other
convertible securities;
(h) cause or permit any amendments to the Company's
Certificate of Incorporation or Bylaws or any comparable governing documents of
any of the Company's subsidiaries;
(i) acquire or agree to acquire by merging or
consolidating with, or by purchasing any assets or equity securities of, or by
any other manner, any business or any corporation, partnership, association or
other business organization or division thereof, or otherwise acquire or agree
to acquire any assets which are material, individually or in the aggregate, to
the business of the Company and its subsidiaries;
(j) sell, lease, license, loan or otherwise dispose of
any of the properties or assets of the Company or any of its subsidiaries except
in the ordinary course of business and consistent with past practice;
-37-
(k) authorize any additional or new capital expenditure
or expenditures that individually is in excess of $10,000 or in the aggregate
are in excess of $25,000;
(l) incur any indebtedness for borrowed money or
guarantee any such indebtedness or issue or sell any debt securities of the
Company or guarantee any debt securities of others;
(m) except as provided in this Agreement, grant any
severance or termination pay (whether in cash, stock, or other equity
instruments) to any director, officer, employee or consultant;
(n) adopt or, except as may be required by law or by
Section 5.16 hereof, amend or terminate any employee benefit plan, program,
policy or arrangement (including without limitation any amendment which
accelerates vesting under any such employee benefit plan, program, policy or
arrangement or any existing Company Employee Plan) except to the extent such
amendments do not result in a material increase in cost, or enter into any
employment contract, extend any employment offer or loan, pay or agree to pay
any special bonus or special remuneration to any director, employee or
consultant, or increase the salaries, wage rates or benefits of its employees,
nor grant any equity-based compensation award (whether payable in cash, shares
or otherwise);
(o) revalue any of its assets, including without
limitation writing down the value of inventory or writing off notes or accounts
receivable;
(p) pay, discharge or satisfy, in an amount in excess of
$10,000 in any one case or $20,000 in the aggregate, any claim, liability or
obligation (absolute, accrued, asserted or unasserted, contingent or otherwise),
other than the payment, discharge or satisfaction that is either necessary in
order for the Company to implement Section 5.16 hereof or in the ordinary course
of business of liabilities reflected or reserved against in the Company
Financial Statements;
(q) make or change any material election in respect of
Taxes, adopt or change any accounting method in respect of Taxes, enter into any
closing agreement, settle any claim or assessment in respect of Taxes, or
consent to any extension or waiver of the limitation period applicable to any
claim or assessment in respect of Taxes;
(r) enter into any strategic alliance, joint development
or joint marketing arrangement or agreement;
(s) fail to pay or otherwise satisfy its monetary
obligations as they become due;
(t) waive or commit to waive any rights with a value in
excess of $10,000, in any one case, or $20,000, in the aggregate;
(u) cancel or amend any insurance policy;
-38-
(v) alter, or enter into any commitment to alter, its
interest in any corporation, association, joint venture, partnership or business
entity in which the Company directly or indirectly holds any interest on the
date hereof; or
(w) take, or agree in writing or otherwise to take, any
of the actions described in Sections 4.1(a) through (v) above, or any other
action that would prevent the Company from performing or cause the Company not
to perform its covenants hereunder.
4.2 No Solicitation.
(a) Until the earlier of the Effective Time and the date
of termination of this Agreement pursuant to the provisions of Section 8.1
hereof, the Company will not (nor will the Company permit any of the Company's
officers, directors, agents, representatives or affiliates to) directly or
indirectly, take any of the following actions with any party other than Parent
and its designees: (a) solicit, initiate or encourage any Acquisition Proposal
from, or conduct discussions with or engage in negotiations with, any person,
relating to, any Acquisition Transaction, (b) provide information with respect
to it to any person, other than Parent, relating to, or otherwise cooperate
with, facilitate or encourage any effort or attempt by any such person with
regard to, any Acquisition Transaction, (c) enter into an agreement with any
person providing for any Acquisition Transaction or (d) make or authorize any
statement, recommendation or solicitation in support of any Acquisition
Transaction except as otherwise permitted by Section 5.1(b). The Company shall
immediately cease and cause to be terminated any such contacts or negotiations
with third parties relating to any such transaction or proposed transaction. In
addition to the foregoing, if the Company receives prior to the Effective Time
or the termination of this Agreement any Acquisition Proposal, the Company shall
immediately notify Parent thereof, including information as to the identity of
the offeror or the party making any such offer or proposal and the specific
terms of such Acquisition Proposal, as the case may be, and such other
information related thereto as Parent may reasonably request. Except as
contemplated by this Agreement, disclosure by the Company of the terms hereof
(other than the prohibition of this section and other than disclosure by the
Company to its authorized representatives, consultants and advisors) shall be
deemed to be a violation of this Section 4.2.
(b) For purposes of this Agreement, (i) "ACQUISITION
PROPOSAL" shall mean any offer or proposal (other than an offer or proposal by
Parent or its affiliates) relating to any Acquisition Transaction, and (ii)
"ACQUISITION TRANSACTION" shall mean any possible acquisition (other than by
Parent or its affiliates) of the Company or any of its subsidiaries (whether by
way of merger, purchase of capital stock, purchase of assets or otherwise), any
material portion of its or their capital stock or assets or any equity interest
in the Company or any of its subsidiaries.
ARTICLE V
ADDITIONAL AGREEMENTS
5.1 Company Stockholder Approval.
-39-
(a) Immediately following the execution of this
Agreement, the Company shall deliver to Parent the Written Consent which shall
have been executed by a sufficient number of the Company Stockholders to satisfy
the Company Stockholder Approval. As soon as practicable after the execution of
this Agreement, the Company shall deliver a written notice and information
statement (the "INFORMATION STATEMENT") which satisfies the requirements of
Delaware Law to each of the Company Stockholders who did not execute the Written
Consent for the purpose of providing notice to such Company Stockholders of the
approval and adoption of the Agreement and approval of the Merger and the
transactions contemplated hereby. Each of Parent and the Company agrees to
provide promptly to the other such information concerning its business and
financial statements and affairs as, in the reasonable judgment of the providing
party or its counsel, may be required or appropriate for inclusion in any
amendments or supplements to the Information Statement. Each of the parties
hereto will promptly advise the other parties in writing if at any time prior to
the Effective Time either the Company or Parent shall obtain knowledge of any
facts that might make it necessary or appropriate to amend or supplement the
Information Statement in order to make the statements contained or incorporated
by reference therein not misleading or to comply with applicable law. The Board
of Directors of the Company shall unanimously recommend to the Company
Stockholders that such stockholders approve and adopt the Agreement and approve
the Merger and the transactions contemplated hereby, and the Information
Statement shall indicate that such recommendation was made, and, except as
otherwise permitted by this Section 5.1, the conclusion of the Board of
Directors of the Company that the terms and conditions of the Merger are fair
and in the best interests of the Company Stockholders. Notwithstanding anything
to the contrary contained herein, the Company shall not include in the
Information Statement any information with respect to Parent or its affiliates
or associates, the form and content of which information shall not have been
approved by Parent prior to such inclusion (which approval will not be
unreasonably withheld). The information supplied by the Company or Parent for
inclusion or incorporation by reference in the Information Statement will not,
at the time the Information Statement is delivered to the Company Stockholders,
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading.
(b) Nothing in this Agreement shall prevent the Board of
Directors of the Company from withholding, withdrawing, amending, modifying or
changing its unanimous recommendation in favor of the approval and adoption of
this Agreement and the approval of the Merger and recommending a Superior
Proposal (as defined below) if (i) a Superior Proposal is made to the Company
and is not withdrawn, (ii) neither Company nor any of its representatives shall
have violated the terms of Section 4.2 hereof, and (iii) the Board of Directors
of Company reasonably concludes in good faith, after consultation with its
outside counsel, that, in light of such Superior Proposal, the withholding,
withdrawal, amendment, modification or changing of such recommendation and
recommending such Superior Proposal are required in order for the Board of
Directors of Company to comply with its fiduciary obligations under applicable
law; provided, however, that prior to publicly withholding, withdrawing,
amending, modifying or changing its recommendation in favor of the approval and
adoption of this Agreement and approval of the Merger, the Company shall have
given Parent at least two (2) business days prior written notice (or such lesser
prior notice as provided to the members of the Company's Board of Directors)
thereof
-40-
and the opportunity to meet with Company and its counsel. Nothing contained in
this Section 5.1 shall limit the Company's obligation to deliver the Written
Consent as set forth in Section 5.1(a) above (regardless of whether the
unanimous recommendation of the Board of Directors of Company shall have been
withheld, withdrawn, amended, modified or changed pursuant hereto).
(c) For purposes of this Agreement, "SUPERIOR PROPOSAL"
shall mean any bona fide, unsolicited written Acquisition Proposal involving the
acquisition of all outstanding voting securities of the Company with respect to
which (i) if any cash consideration is involved, shall not be subject to any
financing contingency, and with respect to which the Company's Board of
Directors shall have reasonably determined (taking into account the advice of
the Company's financial advisors) that the acquiring party is capable of
consummating the proposed Acquisition Transaction on the terms proposed, and
(ii) the Company's Board of Directors shall have reasonably and in good faith
determined that the proposed Acquisition Transaction provides greater value to
the shareholders of Company than the Merger (taking into account the advice of
Company's financial advisors).
5.2 Issuance of Parent Common Stock.
(a) Sale of Parent Common Stock. Each of Parent, Merger
Sub and the Company hereto acknowledges and agrees that the shares of Parent
Common Stock issuable to the Company Stockholders pursuant to Section 1.6
hereof, shall constitute "restricted securities" within the meaning of the
Securities Act. The certificates for shares of Parent Common Stock to be issued
in the Merger shall bear appropriate legends to identify such privately placed
shares as being restricted under the Securities Act and to comply with
applicable state securities laws. The Company acknowledges and understands that
Parent is relying upon certain written representations made by each stockholder
of the Company in issuing the shares of Parent Common Stock.
(b) Registration Statement on Form S-3. Parent shall use
commercially reasonable efforts to (i) prepare and file, within ninety (90) days
following the Closing Date, a registration statement on Form S-3 with the SEC
covering the resale of the shares of Parent Common Stock to be issued to the
Company Stockholders pursuant to the Merger, and (ii) cause such registration
statement to be declared effective no later than 180 days following the Closing
Date. Such registration shall be subject to the terms and conditions set forth
in the Declaration of Registration Rights in the form attached hereto as Exhibit
C (the "DECLARATION OF REGISTRATION RIGHTS").
(c) Nasdaq National Market Listing. If required under
Nasdaq National Market regulations, Parent shall file a "Notification Form:
Listing of Additional Shares", together with the necessary supporting
documentation, promptly after signing this Agreement and shall use its
commercially reasonable efforts to authorize for listing on The Nasdaq National
Market the shares of Parent Common Stock issuable in connection with the Merger,
upon official notice of issuance.
(d) Blue Sky Laws. Parent shall take such steps as may be
necessary to comply with the securities and blue sky laws of all jurisdictions
that are applicable to the issuance of the Merger Shares pursuant hereto. The
Company shall use its best efforts to assist Parent as may be
-41-
necessary to comply with the securities and blue sky laws of all jurisdictions
that are applicable in connection with the issuance of the Merger Shares
pursuant hereto.
(e) Additional Assurances. At the request of Parent, the
Company shall use its commercially reasonable efforts to cause each of the
Company Stockholders to execute and deliver to Parent such instruments and do
and perform such acts and things as may be necessary or desirable for complying
with all applicable securities laws and state corporate law.
5.3 Termination of Agreements. The Company shall cause those
agreements listed on Schedule 5.3 to be terminated.
5.4 Access to Company Information. The Company shall afford to
Parent and its accountants, counsel and other representatives, reasonable access
during normal business hours during the period prior to the Effective Time to
(a) all of the properties, books, contracts, agreements and records of the
Company and its subsidiaries, (b) all other information concerning the business,
properties and personnel (subject to restrictions imposed by applicable law) of
the Company and its subsidiaries as Parent may reasonably request, and (c) all
employees of the Company and its subsidiaries as identified by Parent. Prior to
the Effective Time, any communication regarding the subject matter of this
Agreement and the transactions contemplated hereby between Parent (and its
accountants, counsel and other representatives) and the Company's employees or
customers shall be made only after consultation with the Company's chief
executive officer, who shall make himself reasonably available for such
consultation. The Company agrees to provide 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 5.4 shall
affect or be deemed to modify any representation or warranty contained herein or
the conditions to the obligations of the parties to consummate the Merger.
5.5 Confidentiality.
(a) Each of the parties hereto shall (and shall cause
each of its representatives to) not disclose any information provided by the
other party with respect to the negotiation and execution of this Agreement or
the consummation of the transactions contemplated hereby, including for the
purposes of due diligence ("CONFIDENTIAL INFORMATION"), and shall (and shall
cause each of its representatives to) use the Confidential Information only with
respect to the consummation of the transactions contemplated hereby or as
otherwise provided by this Agreement; provided, however, that the following
shall be deemed not to be Confidential Information: (a) information that the
receiving party can demonstrate was already in its possession prior to the
disclosure thereof by the other party, (b) information that is generally known
to the public and did not become so known through the violation of this Section
5.5 or any other confidentiality agreement between Parent and the Company by the
receiving party or its representatives, (c) information that becomes available
to the receiving party on a non-confidential basis from a source other than the
other party or its representatives, provided that such source is not known by
the receiving party to be bound by a contractual, legal or fiduciary obligation
of confidentiality to the other party with respect to that information, and (d)
information that is required to be disclosed by law or by the rules and
-42-
regulations of the National Association of Securities Dealers. The Company
acknowledges that the Parent Common Stock is publicly traded and that any
Confidential Information with respect to Parent could be considered to be
material non-public information within the meaning of U.S. federal and state
securities laws. Accordingly, the Company acknowledges and agrees not to (and
shall inform each of its officers, directors and employees not to) engage in any
transactions in Parent Common Stock in violation of applicable xxxxxxx xxxxxxx
laws.
(b) Notwithstanding anything herein to the contrary, any
party of this Agreement (and any employee, representative, or other agent of any
party to this Agreement) may disclose to any and all persons, without limitation
of any kind, the tax treatment and tax structure of the transactions
contemplated by this Agreement (the "Transactions") and all materials of any
kind (including opinions or other tax analyses) that are provided to it relating
to such tax treatment and tax structure; provided, however, that such disclosure
may not be made (i) until the earlier of (A) the date of the public announcement
of discussions relating to the Transactions, (B) the date of the public
announcement of the Transactions or (C) the date of the execution of an
agreement to enter into the Transactions and (ii) to the extent required to be
kept confidential to comply with any applicable federal or state securities
laws. For the avoidance of doubt, the parties acknowledge and agree that the tax
treatment and tax structure of any Transaction does not include the name of any
party to the Transaction or any sensitive business information (including,
without limitation, the name and other specific information about any party's
intellectual property or other proprietary assets) unless such information is
necessary to understand the purported or claimed federal income tax treatment of
the Transaction.
5.6 Expenses. If the Merger is not consummated, all fees and
expenses incurred in connection with the Merger including, without limitation,
all legal, accounting, financial advisory, consulting, investment banking and
all other fees and expenses of third parties ("THIRD PARTY EXPENSES") shall be
the obligation of the party that incurred such Third Party Expenses.
5.7 Public Disclosure. No disclosure (whether or not in response
to an inquiry) of the existence or nature of this Agreement or the transactions
contemplated hereby shall be made by any party hereto unless approved by duly
authorized officers of both Parent and the Company prior to release, provided
that such approval shall not be unreasonably withheld and subject in any event
to Parent's obligation to comply with applicable laws and the rules and
regulations of the Nasdaq Stock Market.
5.8 Consents. The Company shall obtain the consents, waivers and
approvals as may be required in connection with the Merger (all of such required
consents, waivers and approvals are set forth in Schedule 2.5) so as to preserve
all rights of, and benefits to, the Company thereunder from and after the
Effective Time.
5.9 FIRPTA Compliance. On the Closing Date, the Company shall
deliver to Parent a properly executed statement in a form reasonably acceptable
to Parent for purposes of satisfying Parent's obligations under Treasury
Regulation Section 1.1445-2(c)(3) (the "FIRPTA COMPLIANCE CERTIFICATE").
-43-
5.10 Reasonable Efforts. Subject to the terms and conditions
provided in this Agreement, each of the parties hereto shall use its reasonable
efforts to take promptly, or cause to be taken, all actions, and to do promptly,
or cause to be done, all things necessary, proper or advisable under applicable
laws and regulations to consummate and make effective the transactions
contemplated hereby, to obtain all necessary waivers, consents and approvals and
to effect all necessary registrations and filings, and to remove any injunctions
or other impediments or delays, legal or otherwise, in order to consummate and
make effective the transactions contemplated by this Agreement for the purpose
of securing to the parties hereto the benefits contemplated by this Agreement;
provided that Parent shall not be required to agree to any divestiture by Parent
or the Company or any of Parent's subsidiaries or affiliates of shares of
capital stock or of any business, assets or property of Parent or its
subsidiaries or affiliates or the Company or its affiliates, or the imposition
of any material limitation on the ability of any of them to conduct their
businesses or to own or exercise control of such assets, properties and stock.
5.11 Company's Auditors; Audit Report. The Company will use its
best efforts to cause its management and its independent auditors to facilitate
on a timely basis the preparation of financial statements (including pro forma
financial statements, if required) as required by Parent to comply with
applicable SEC regulations.
5.12 Notification of Certain Matters. The Company shall give prompt
notice to Parent, and Parent shall give prompt notice to the Company, of (a) the
occurrence or non-occurrence of any event that is likely to cause any
representation or warranty of the Company and Parent or Merger Sub,
respectively, contained in this Agreement to be untrue or inaccurate at or prior
to the Effective Time and (b) any failure of the Company, Parent or Merger Sub,
as the case may be, to comply with or satisfy any covenant, condition or
agreement to be complied with or satisfied by it hereunder; provided, however,
that the delivery of any notice pursuant to this Section 5.12 shall not limit or
otherwise affect any remedies available to the party receiving such notice. No
disclosure by the Company pursuant to this Section 5.12, however, shall be
deemed to amend or supplement the Disclosure Schedule or prevent or cure any
misrepresentations, breach of warranty or breach of covenant.
5.13 Additional Documents and Further Assurances. Each party
hereto, at the request of the other party hereto, shall execute and deliver such
other instruments and do and perform such other acts and things as may be
necessary or reasonably desirable for effecting completely and promptly the
consummation of this Agreement and the transactions contemplated hereby;
provided that nothing in this Section 5.13 shall be construed to obligate any
party to waive any of the closing conditions set forth in Article VI.
5.14 Employees. As soon as practicable after the date of this
Agreement, the Chief Executive Officer of the Company and the Director of Human
Resources of Parent will use commercially reasonable efforts to agree upon the
guidelines within which the Company will proceed with respect to the retention
following the Effective Time of certain existing Company employees. Parent shall
provide Company employees who continue employment following the Closing Date
("CONTINUING EMPLOYEES") with employee benefits that are, in the aggregate,
-44-
substantially similar to those provided to employees of Parent who are similarly
situated; provided, however, that to the extent any Continuing Employee receives
cash pursuant to the Retention Program, any equity compensation which such
Continuing Employee might otherwise receive pursuant to Parent's standard equity
compensation policies and programs will be offset by the value of such cash
received pursuant to the Retention Program. To the extent permitted by
applicable law, Parent shall (i) cause Continuing Employees to be credited with
service with Parent for purposes of eligibility and vesting under any employee
benefit plan or program established or maintained by Parent or its Affiliates
from time to time for the benefit of its employees, provided, however, that such
service credit shall not be recognized for purposes of benefit accruals,
entitlements or to the extent it would result in the duplication of benefits,
and (ii) make available to all Continuing Employees who are participating (or
have elected to participate) immediately prior to the Closing Date in any group
health plan of Company or any of its Affiliates (including medical, dental and
vision benefits) a successor group health plan (including medical, dental and
vision benefits) immediately following the Closing Date which has no waiting
period for such Continuing Employees with respect to eligibility to enroll and
participate and no exclusion or limitations based on pre-existing conditions for
such Continuing Employees.
5.15 Key Employees and Employment Agreements. Parent has presented
offers of employment to certain Company employees set forth on Schedule 5.15
hereto (the "KEY EMPLOYEES"). Each Key Employee has executed an Employment
Agreement in substantially the form set forth as Exhibit A concurrently with the
execution of this Agreement, which Employment Agreement shall be effective as of
the Effective Time.
5.16 Company Employee Plans. The Company shall take all such
actions as are necessary or appropriate to terminate all group severance,
separation or salary continuation plans, programs or arrangements, effective no
later than the day immediately preceding the Effective Time, provided that any
and all 401(k) plans shall not be terminated if Parent provides written notice
at least seven (7) days prior to the Effective Time to the Company that such
401(k) plan(s) shall not be terminated. Parent shall receive from Company
evidence that Company's plan(s) and/or program(s) have been terminated pursuant
to resolutions of such entity's Board of Directors (the form and substance of
such resolutions shall be subject to review and approval of Parent), effective
no later than the day immediately preceding the Closing Date. In the event that
distribution or rollover of assets from the trust of a 401(k) plan which is
terminated is reasonably anticipated to trigger liquidation charges, surrender
charges, or other fees to be imposed upon the account of any participant or
beneficiary of such terminated plan or upon the Company or plan sponsor, then
the Company shall take such actions as are necessary to reasonably estimate the
amount of such charges and/or fees and provide such estimate in writing to
Parent as soon as possible following the date of this Agreement (but in no event
less than five (5) days prior to the Effective Time). The Company shall also
take such other actions in furtherance of terminating such Company Employee
Plans as required by such Company Employee Plans and/or as Parent may reasonably
require.
5.17 Disqualified Individuals under 280G.
-45-
(a) On or about the date which is five (5) business days
prior to the Closing Date, the Company shall, as and to the extent necessary,
deliver to Parent a certificate which sets forth any additional information, not
set forth on Schedule 2.20(i) hereto, which the Company reasonably believes
would affect the determination of the persons who are, with respect to the
Company or any subsidiary of the Company, deemed to be "disqualified
individuals" (within the meaning of Section 280G of the Code and the regulations
promulgated thereunder) as of the date of each such certificate.
(b) Any agreements, contracts or arrangements that may
result, separately or in the aggregate, in the payment of any amount or the
provision of any benefit that would not be deductible by reason of Section 280G
of the Code shall have been approved by such number of stockholders of Company
as is required by the terms of Section 280G(b)(5)(B) of the Code in order for
such payments and benefits not to be deemed parachute payments under Section
280G of the Code, with such approval to be obtained in a manner which satisfies
all applicable requirements of such Section 280G(b)(5)(B) of the Code and the
proposed Treasury Regulations thereunder, including Q&A-7 of Section 1.280G-1 of
such proposed regulations, or, in the absence of such stockholder approval, none
of those payments or benefits shall be paid or provided, pursuant to the waivers
of those payments and benefits to be executed by the affected individuals in
form and substance reasonably satisfactory to Parent.
5.18 Spreadsheet. The Company shall prepare a spreadsheet (the
"SPREADSHEET") in form acceptable to Parent, which spreadsheet shall be
certified as complete and correct by the Chief Executive Officer of the Company
as of the Closing and which shall separately list, as of the Closing, all
holders of Company Capital Stock and their respective addresses as reflected in
the Company's records, the number of shares of Company Capital Stock held by
such persons (including whether such shares are restricted or unrestricted
Company Common Stock, Company Series A Preferred Stock, Company Series B-1
Preferred Stock, Company Series B-2 Preferred Stock, Company Series C Preferred
Stock or Company Series D Preferred Stock), the number of Merger Shares (if any)
and the amount of Merger Cash (if any) to be received by such persons, the
amount to be deposited into the Escrow Fund on behalf of each holder, and such
other information relevant thereto or which the Exchange Agent or Parent may
reasonably request.
5.19 Statement of Expenses. The Company shall provide Parent with a
statement of an estimate of Third Party Expenses incurred by the Company two (2)
business days prior to the Closing Date (the "STATEMENT OF EXPENSES").
5.20 Parent Stock Options. Following the Closing, at Parent's sole
discretion and in consultation with former management of the Company who are
employees of Parent or an affiliate of Parent, Parent may issue options to
purchase Parent Common Stock to former employees of the Company who become
employees of Parent or an affiliate of Parent, which options, if granted, will
have an exercise price equal to the fair market value of Parent Common Stock on
the date of grant, and will vest in accordance with Parent's standard vesting
terms.
5.21 Reorganization Treatment.
-46-
(a) The parties intend the Merger to qualify as a
"reorganization" under Section 368(a) of the Code. Each party agrees to use its
respective commercially reasonable efforts to cause the Merger to qualify as a
"reorganization" under Section 368(a) of the Code and will not take any action
that would reasonably be expected to prevent the Merger from qualifying as a
"reorganization" within the meaning of Section 368(a) of the Code. However, none
of the parties makes any representation or warranty to any other or to any
stockholder of any party regarding the tax treatment of the Merger or whether
the Merger will qualify as a "reorganization" under the Code. Each of the
parties hereto acknowledges that it is relying on its own advisors in connection
with the Tax treatment of the Merger and the other transactions contemplated by
this Agreement.
(b) Each of the parties agrees that it will not take any
position on any federal, state or local income or franchise tax return, or take
any other tax reporting position, that is inconsistent with the treatment of the
Merger as a "reorganization" within the meaning of Section 368(a) of the Code.
ARTICLE VI
CONDITIONS TO THE MERGER
6.1 Conditions to Obligations of Each Party to Effect the Merger.
The respective obligations of each party to this Agreement to effect the Merger
shall be subject to the satisfaction at or prior to the Closing of the following
conditions:
(a) Stockholder Approval. The Company Stockholder
Approval shall have been obtained.
(b) No Injunctions or Restraints; Illegality. No
temporary restraining order, preliminary or permanent injunction or other order
issued by any court of competent jurisdiction or other legal or regulatory
restraint or prohibition (i) preventing the consummation of the Merger, (ii)
prohibiting Parent's ownership or operation of any portion of the business of
the Company or (iii) compelling Parent or the Company to dispose of or hold
separate all or any material portion of the business or assets of the Company or
Parent as a result 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 shall be in effect.
(c) Government Approvals. All approvals of governments
and government agencies necessary to consummate the Merger hereunder, shall have
been received.
(d) 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.
-47-
(e) Escrow Agreement. Parent, Company, Escrow Agent and
the Stockholder Representative (as defined in Article VII hereof) shall have
entered into an Escrow Agreement substantially in the form attached hereto as
Exhibit D.
(f) Issuance of Parent Common Stock. The Total Parent
Share Number shall not exceed 19.9% of the total number of shares of Parent
Common Stock outstanding immediately prior to the Effective Time.
6.2 Additional Conditions to Obligations of the Company. The
obligations of the Company to consummate the Merger and the transactions
contemplated by this Agreement shall be subject to the satisfaction at or prior
to the Closing of each of the following conditions, any of which may be waived,
in writing, exclusively by the Company:
(a) Representations and Warranties. The representations
and warranties of Parent and Merger Sub contained in this Agreement shall be
true and correct in all material respects (except for those representations and
warranties that are by their terms qualified by a standard of materiality, which
representations and warranties shall have been true and correct in all respects)
as of the date of this Agreement and on and as of the Closing Date, except for
those representations and warranties which address matters only as of a
particular date (which shall remain true and correct as of such date), with the
same force and effect as if made on and as of the Effective Time, and the
Company shall have received a certificate to such effect signed on behalf of
Parent by a duly authorized officer of Parent.
(b) Agreements and Covenants. Parent and Merger Sub shall
have performed or complied in all material respects with each of the agreements
and covenants required by this Agreement to be performed or complied with by
them on or prior to the Effective Time, and the Company shall have received a
certificate to such effect signed by a duly authorized officer of Parent.
(c) Retention Program. Parent shall have adopted a
program to retain certain employees of the Company in the form delivered to
counsel for the Company on November 13, 2003 (the "RETENTION PROGRAM").
(d) Legal Opinion. The Company shall have received a
legal opinion from Xxxxxx Xxxxxxx Xxxxxxxx & Xxxxxx, legal counsel to Parent and
Merger Sub, in substantially the form attached hereto as Exhibit E.
6.3 Additional Conditions to the Obligations of Parent and Merger
Sub. The obligations of Parent and Merger Sub to consummate the Merger and the
transactions contemplated by this Agreement shall be subject to the satisfaction
at or prior to the Closing of each of the following conditions, any of which may
be waived, in writing, exclusively by Parent:
(a) Representations and Warranties. The representations
and warranties of the Company contained in this Agreement shall be true and
correct in all material respects (except for those representations and
warranties that are by their terms qualified by a standard of materiality,
-48-
which representations and warranties shall have been true and correct in all
respects) as of the date of this Agreement and on and as of the Closing Date,
except for those representations and warranties which address matters only as of
a particular date (which shall remain true and correct as of such date), with
the same force and effect as if made on and as of the Effective Time (it being
understood that, for purposes of determining the accuracy of such
representations and warranties, any update of or modification to the Disclosure
Schedule made or purported to have been made after the date of this Agreement
shall be disregarded), and Parent and Merger Sub shall have received a
certificate to such effect signed on behalf of the Company by the Chief
Executive Officer of the Company.
(b) Agreements and Covenants. The Company shall have
performed or complied in all material respects with each of the agreements and
covenants required by this Agreement to be performed or complied with by the
Company on or prior to the Effective Time, and Parent and Merger Sub shall have
received a certificate to such effect signed on behalf of the Company by the
Chief Executive Officer of the Company.
(c) Certificate of Secretary of the 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 Certificate of
Incorporation and the Bylaws of the Company, and (ii) the valid adoption of
resolutions of the Board of Directors of the Company and the Company
Stockholders approving this Agreement and the consummation of the transactions
contemplated hereby.
(d) Third Party Consents. Parent shall have been
furnished with evidence satisfactory to it that the Company has obtained all
required consents, approvals and waivers which are necessary in connection with
the Merger to transfer to the Surviving Corporation all rights of the Company
thereunder and which are set forth on Schedule 2.5.
(e) Termination of Agreements. The Company shall have
terminated each of those agreements listed on Schedule 5.3 to this Agreement,
and each such agreement shall be of no further force or effect in any respect.
(f) Legal Opinion. Parent shall have received a legal
opinion from Paul, Hastings, Xxxxxxxx & Xxxxxx LLP, legal counsel to the
Company, in substantially the form attached hereto as Exhibit F.
(g) Material Adverse Change. There shall not have
occurred any event or condition of any character that has had or is reasonably
likely to have a Material Adverse Effect determined without regard to whether
such change constitutes a breach of a representation or warranty.
(h) Resignation of Directors. The directors of the
Company in office immediately prior to the Effective Time shall have resigned as
directors of the Surviving Corporation effective immediately following the
Effective Time
-49-
(i) Dissenting Shares. The number of shares of Company
Capital Stock constituting Dissenting Shares shall not represent, immediately
prior to the Effective Time, more than five percent (5%) of the issued and
outstanding shares of Company Capital Stock.
(j) Employment Agreements. The Employment Agreements
entered into by the Key Employees shall remain in effect and shall not have been
revoked.
(k) Statement of Expenses. Parent shall have received
from the Company the Statement of Expenses pursuant to Section 5.19 hereof.
(l) Certificate of Good Standing. Parent shall have
received a certificate of good standing for the Company from the Secretary of
State of the State of Delaware, dated within a reasonable period prior to the
Closing Date, as well as similar certificates from the relevant jurisdictions of
each of the Company's subsidiaries.
(m) Certificate of Status of Foreign Corporation. Parent
shall have received a Certificate of Status of Foreign Corporation or similar
certificate of the Company issued by the Secretary of State of such states where
the Company is qualified to do business dated within a reasonable period prior
to the Closing certifying as to the good standing of the Company in such states.
ARTICLE VII
SURVIVAL OF REPRESENTATIONS AND WARRANTIES; INDEMNITY; ESCROW
7.1 Survival of Representations, Warranties and Covenants;
Indemnity. Notwithstanding any right of Parent or the Company (whether or not
exercised) to investigate the affairs of Parent or the Company (whether pursuant
to Section 5.4 hereof or otherwise) or a waiver by Parent or the Company of any
condition to Closing set forth in Article VI of this Agreement, each party shall
have the right to rely fully upon the representations, warranties, covenants and
agreements of the other party contained in this Agreement or in any instrument
delivered pursuant to this Agreement. All of the representations and warranties
of the Company contained in this Agreement or in any instrument delivered
pursuant to this Agreement shall survive the Merger and continue until 5:00
p.m., Colorado time, on the one year anniversary of the Closing Date (the
"EXPIRATION DATE"); provided, however, that the representations and warranties
contained in Section 2.9 (Tax and Other Returns and Reports) shall survive until
the expiration of all applicable statutes of limitations (giving effect to any
waiver, mitigation or extension thereof), and the representations and warranties
contained in Section 2.12 (Intellectual Property) shall survive the Merger and
continue until 5:00 p.m., Colorado time, on the three year anniversary of the
Closing Date. The covenants and agreements set forth in this Agreement and any
ancillary document hereto that are to be performed following the Closing Date
shall survive the Closing and continue in full force and effect until such
covenants and agreements are performed in accordance with the terms of this
Agreement and the applicable ancillary document. The representations and
warranties of Parent and Merger Sub contained in this Agreement, or in any
instrument delivered pursuant to this Agreement, shall terminate at the
-50-
Closing, except that the representations and warranties contained in Sections
3.1, 3.2, 3.3 and 3.4 shall survive the Merger and continue until 5:00 p.m.,
Colorado time, on the one year anniversary of the Closing Date.
7.2 Escrow Arrangements.
(a) Escrow Fund. At the Effective Time, the Company
Stockholders will be deemed to have received and consented to the deposit with
the Escrow Agent (as defined below) of the Escrow Amount without any act
required on the party of any Company Stockholder. As soon as practicable after
the Effective Time, Parent will deposit the Escrow Amount with the Escrow Agent,
such deposit to constitute an escrow fund (the "ESCROW FUND") to be governed by
the terms set forth herein and at Parent's cost and expense. The portion of the
Escrow Amount contributed on behalf of each Company Stockholder entitled to
receive Merger Shares or Merger Cash shall be determined with reference to the
Pro Rata Portion of each such Company Stockholder. The Escrow Fund is available
to compensate Parent and its officers, directors and affiliates, including the
Surviving Corporation (each, an "INDEMNIFIED PARTY" and collectively, the
"INDEMNIFIED PARTIES") for any claims, losses, liabilities, damages,
deficiencies, costs and expenses, including reasonable attorneys' fees and
expenses, and expenses of investigation and defenses (hereinafter individually a
"LOSS" and collectively "LOSSES") paid, incurred, accrued or sustained by the
Indemnified Parties, or any of them, directly or indirectly as a result of (i)
any inaccuracy or breach of a representation or warranty of the Company
contained in Article II herein as of the date of this Agreement or as of the
Closing Date, as though then made (except to the extent that such representation
or warranty speaks as of an earlier date), (ii) any failure by the Company to
perform or comply with any covenant contained in this Agreement or (iii) any
claim made by any person that such person is or was entitled (by contract or
otherwise) to receive any amount or property in such person's capacity (or
asserted capacity) as a holder of equity interests in the Company or contingent
equity interests or as a beneficiary of any rights in excess of the
consideration set forth in this Agreement by virtue of or as a result of the
Merger; provided, however, that there shall be no liability under this Section
7.2 unless the aggregate of all Losses exceeds One Hundred Thousand Dollars
($100,000) (the "AGGREGATE THRESHOLD"); provided, further, however, that in the
event the entire amount of any Losses accrued exceeds the Aggregate Threshold,
such entire amount may be recovered from the Escrow Fund. Parent, Merger Sub and
the Company each acknowledge that such Losses, if any, would relate to
unresolved contingencies existing at the Effective Time, which if resolved at
the Effective Time would have led to a reduction in the aggregate Merger
Consideration Value. Nothing herein shall limit the liability of the Company for
any breach of any representation, warranty or covenant if the Merger does not
close.
(i) For the purpose of this Article VII only,
when determining the amount of any Loss resulting from such inaccuracy or any
breach of a representation or warranty of the Company contained in Article II
hereof, any such representation or warranty of the Company that is qualified in
scope as to materiality (including Material Adverse Effect) shall be deemed to
be made or given without such qualification. There shall be no right of
contribution from any Indemnified Party with respect to any Loss. The Escrow
Agent may execute the Escrow Agreement following the date hereof and prior to
the Closing, and such later execution, if so executed after the date hereof,
-51-
shall not affect the binding nature of this Agreement as of the date hereof
between the other signatories hereto.
(b) Escrow Period; Distribution upon Termination of
Escrow Periods. Subject to the following requirements, the Escrow Fund shall be
in existence immediately following the Effective Time and shall terminate at
5:00 p.m., (Colorado Time) on the Expiration Date (the "ESCROW PERIOD");
provided that the Escrow Period shall not terminate with respect to such amount
(or some portion thereof), that is necessary in the reasonable judgment of
Parent (subject to reduction as may be determined by arbitration of the matter
as provided in Section 7.2(f) hereof in the event of the objection of the
Stockholder Representative (as defined in Section 7.2(h) hereof) in the manner
provided in Section 7.2(e) hereof) to satisfy any unsatisfied claims concerning
facts and circumstances existing prior to the termination of such Escrow Period
and to the extent specified in any Officer's Certificate (as defined below)
delivered to the Escrow Agent prior to termination of such Escrow Period. As
soon as all such claims have been resolved, the Escrow Agent shall transfer to
the Company Stockholders, pursuant to written instructions by Parent, the
remaining portion of the Escrow Fund, if any, not required to satisfy such
claims. Deliveries of Escrow Amounts to the Company Stockholders pursuant to
this Section 7.2(b) shall be made in proportion to each applicable stockholder's
Pro Rata Portion.
(c) Protection of Escrow Fund.
(i) The Escrow Agent shall hold and safeguard
the Escrow Fund during the Escrow Period, shall treat such fund as a trust fund
in accordance with the terms of this Agreement and shall hold and dispose of the
Escrow Fund only in accordance with the terms hereof. Any income earned on the
Merger Cash in the Escrow Fund, shall become part of, and be held as an
additional portion of the Escrow Fund in proportion to each Company
Stockholder's original contribution of Merger Cash to the Escrow Fund. For tax
reporting and withholding purposes, any income earned on the Merger Cash in the
Escrow Fund shall be treated as income earned by Parent and as payments of
interest by Parent to the applicable Company Stockholders in proportion to each
Company Stockholder's original contribution of Merger Cash to the Escrow Fund,
and shall be reported by the Escrow Agent as income to such applicable
stockholders.
(ii) Any shares of Parent Common Stock or other
equity securities issued or distributed by Parent (including shares issued upon
a stock split) ("NEW SHARES") in respect of shares of Parent Common Stock in the
Escrow Fund which have not been released from the Escrow Fund as of the time of
such issuance or distribution by Parent shall be added to the Escrow Fund and
become a part thereof. Cash dividends on Parent Common Stock and New Shares
issued in respect of shares of Parent Common Stock which have been released from
the Escrow Fund as of the time of such issuance or distribution by Parent shall
not be added to the Escrow Fund but shall be distributed to the Company
Stockholders in proportion to their respective original contribution to the
Escrow Fund.
(iii) Each Company Stockholder shall be entitled
to control the vote of the shares of Parent Common Stock contributed to the
Escrow Fund by such Company Stockholder (and on any voting securities added to
the Escrow Fund in respect of such shares of Parent Common
-52-
Stock), and the Escrow Agent in whose name the shares are held shall vote such
shares on all matters as instructed by the respective stockholders in writing.
(d) Claims Upon Escrow Fund. Subject to Section 7.2(e)
hereof, upon receipt by the Escrow Agent at any time on or before the last day
of the Escrow Period of a certificate signed by any officer of Parent (an
"OFFICER'S CERTIFICATE"): (i) stating that an Indemnified Party has paid or
properly accrued or reasonably anticipates that it will have to pay or accrue
Losses, and (ii) specifying in reasonable detail the individual items of Losses
included in the amount so stated, the date each such item was paid or properly
accrued, or the basis for such reasonably anticipated liability, and the nature
of the misrepresentation, breach of warranty or covenant or otherwise to which
such item is related, the Escrow Agent shall, subject to the provisions of
Section 7.2(e) hereof, transfer to Parent out of the Escrow Fund, as promptly as
practicable, funds held in the Escrow Fund in an amount equal to such Losses.
Such payments from the Escrow Fund will be made with reference to each
stockholder's Pro Rata Portion.
(e) Objections to Claims. At the time of delivery of any
Officer's Certificate to the Escrow Agent, a duplicate copy of such certificate
shall be delivered to the Stockholder Representative and for a period of thirty
(30) days after such delivery, the Escrow Agent shall make no transfer to Parent
of any Escrow Amounts pursuant to Section 7.2(d) hereof unless the Escrow Agent
shall have received written authorization from the Stockholder Representative to
make such transfer. After the expiration of such thirty (30) day period, the
Escrow Agent shall transfer the funds from the Escrow Fund in accordance with
Section 7.2(d) hereof, provided that no such transfer may be made if the
Stockholder Representative shall object in a written statement to the claim made
in the Officer's Certificate, and such statement shall have been delivered to
the Escrow Agent prior to the expiration of such thirty (30) day period.
(f) Resolution of Conflicts; Arbitration.
(i) In case the Stockholder Representative shall
object in writing to any claim or claims made in any Officer's Certificate as
provided in Section 7.2(e) 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 and shall be furnished to the Escrow Agent.
The Escrow Agent shall be entitled to rely on any such memorandum and distribute
funds from the Escrow Fund in accordance with the terms thereof.
(ii) If no such agreement can be reached after
good faith negotiation, either Parent or the Stockholder Representative may
demand arbitration of the matter unless the amount of the damage or loss is at
issue in pending litigation with a third party, in which event arbitration shall
not be commenced until such amount is ascertained or both parties agree to
arbitration; and in either such event the matter shall be settled by arbitration
conducted by three arbitrators. Parent and the Stockholder Representative shall
each select one arbitrator, and the two arbitrators so selected shall select a
third arbitrator. The arbitrators shall set a limited time period and establish
procedures designed to reduce the cost and time for discovery while allowing the
-53-
parties an opportunity, adequate in the sole judgment of the arbitrators, to
discover relevant information from the opposing parties about the subject matter
of the dispute. The arbitrators shall rule upon motions to compel or limit
discovery and shall have the authority to impose sanctions, including attorneys
fees and costs, to the extent as a court of competent law or equity, should the
arbitrators determine that discovery was sought without substantial
justification or that discovery was refused or objected to without substantial
justification. The decision of a majority of the three arbitrators as to the
validity and amount of any claim in such Officer's Certificate shall be binding
and conclusive upon the parties to this Agreement, and notwithstanding anything
in Section 7.2(e) hereof, the Escrow Agent shall be entitled to act in
accordance with such decision and make or withhold payments out of the Escrow
Fund in accordance therewith. Such decision shall be written and shall be
supported by written findings of fact and conclusions which shall set forth the
award, judgment, decree or order awarded by the arbitrators.
(iii) Judgment upon any award rendered by the
arbitrators may be entered in any court having jurisdiction. Any such
arbitration shall be held in Boulder County, Colorado, under the rules then in
effect of the American Arbitration Association.
(g) Third-Party Claims. In the event Parent becomes aware
of a third-party claim that Parent reasonably believes may result in a demand
against the Escrow Fund, Parent shall notify the Stockholder Representative of
such claim, and the Stockholder Representative shall be entitled, at its
expense, to participate in any defense of such claim. Parent shall have the
right in its sole discretion to control the defense of all such claims and to
settle any such claim; provided, however, that no settlement of any such claim
with third-party claimants shall alone be determinative of the amount of any
claim against the Escrow Fund, except with the consent of the Stockholder
Representative. In the event that the Stockholder Representative has consented
to any such settlement and acknowledged that the claim is a valid claim against
the Escrow Fund, the Stockholder Representative shall be deemed to have agreed
to the claim by Parent against the Escrow Fund in an amount equal to such
settlement.
(h) Stockholder Representative; Power of Attorney.
(i) In the event that the Merger is approved,
effective upon such vote, and without further act of any stockholder, Granite
Ventures L.L.C., shall be appointed as agent and attorney-in-fact (the
"STOCKHOLDER REPRESENTATIVE") for each Company Stockholder (except such
stockholders, if any, as shall have exercised their dissenters' rights under
Delaware Law), for and on behalf of the Company Stockholders, to give and
receive notices and communications, to authorize delivery to Parent of cash from
the Escrow Fund in satisfaction of claims by Parent, to object to such
deliveries, to agree to, negotiate, enter into settlements and compromises of,
and demand arbitration and comply with orders of courts and awards of
arbitrators with respect to such claims, and to take all actions necessary or
appropriate in the judgment of Stockholder Representative for the accomplishment
of the foregoing. Such agency may be changed by the Company Stockholders from
time to time upon not less than thirty (30) days prior written notice to Parent;
provided that the Stockholder Representative may not be removed unless holders
of a two-thirds interest of the Escrow Fund agree to such removal and to the
identity of the substituted agent. Any vacancy in the
-54-
position of Stockholder Representative may be filled by approval of the holders
of a majority in interest of the Escrow Fund. No bond shall be required of the
Stockholder Representative, and the Stockholder Representative shall not receive
compensation for his or her services. Notices or communications to or from the
Stockholder Representative shall constitute notice to or from each of the
Company Stockholders.
(ii) The Stockholder Representative shall not be
liable for any act done or omitted hereunder as Stockholder Representative in
good faith, absent gross negligence. The Company Stockholders on whose behalf
the Escrow Amount was contributed to the Escrow Fund shall indemnify the
Stockholder Representative and hold the Stockholder Representative harmless
against any claim, damage, loss, liability, fee or expense 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 the reasonable fees and
expenses of any legal counsel retained by the Stockholder Representative.
(i) Actions of the Stockholder Representative. A
decision, act, consent or instruction of the Stockholder Representative shall
constitute a decision of all the stockholders for whom a portion of the Escrow
Amount otherwise issuable to them are deposited in the Escrow Fund and shall be
final, binding and conclusive upon each of such stockholders, and the Escrow
Agent 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 each such stockholder of the Company. The Escrow Agent and Parent
are hereby relieved from any liability to any person for any acts done by them
in accordance with such decision, act, consent or instruction of the Stockholder
Representative.
(j) Escrow Agent's Duties.
(i) The Escrow Agent shall be obligated only for
the performance of such duties as are specifically set forth herein, and as set
forth in any additional written escrow instructions that the Escrow Agent may
receive after the date of this Agreement that are signed by an officer of Parent
and the Stockholder Representative, and may rely and shall be protected in
relying or refraining from acting on any instrument reasonably believed to be
genuine and to have been signed or presented by the proper party or parties. The
Escrow Agent shall not be liable for any act done or omitted hereunder as Escrow
Agent while acting in good faith and in the exercise of reasonable judgment, and
any act done or omitted pursuant to the advice of counsel shall be conclusive
evidence of such good faith, provided that the Escrow Agent has exercised
reasonable care in the selection of such counsel.
(ii) The Escrow Agent is hereby expressly
authorized to disregard any and all warnings given by any of the parties hereto
or by any other person, excepting only orders or process of courts of law or the
arbitrators, and is hereby expressly authorized to comply with and obey orders,
judgments or decrees of any court or the arbitrators. In case the Escrow Agent
obeys or complies with any such order, judgment or decree of any court, the
Escrow Agent shall not be liable to any of the parties hereto or to any other
person by reason of such compliance, notwithstanding any
-55-
such order, judgment or decree being subsequently reversed, modified, annulled,
set aside, vacated or found to have been entered without jurisdiction.
(iii) The Escrow Agent shall not be liable in any
respect on account of the identity, authority or rights of the parties executing
or delivering or purporting to execute or deliver this Agreement or any
documents or papers deposited or called for hereunder absent gross negligence or
willful misconduct.
(iv) The Escrow Agent shall not be liable for the
expiration of any rights under any statute of limitations with respect to this
Agreement or any documents deposited with the Escrow Agent absent gross
negligence or willful misconduct.
(v) In performing any duties under the
Agreement, the Escrow Agent shall not be liable to any party for damages,
losses, or expenses, except for gross negligence or willful misconduct on the
part of the Escrow Agent. The Escrow Agent shall not incur any such liability
for (A) any act or failure to act made or omitted in good faith, or (B) any
action taken or omitted in reliance upon any instrument, including any written
statement of affidavit provided for in this Agreement that the Escrow Agent
shall in good faith believe to be genuine, nor will the Escrow Agent be liable
or responsible for forgeries, fraud, impersonations, or determining the scope of
any representative authority. In addition, the Escrow Agent may consult with the
legal counsel in connection with Escrow Agent's duties under this Agreement and
shall be fully protected in any act taken, suffered, or permitted by him/her in
good faith in accordance with the advice of counsel provided that the Escrow
Agent has exercised reasonable care in the selection of such counsel. The Escrow
Agent is not responsible for determining and verifying the authority of any
person acting or purporting to act on behalf of any party to this Agreement.
(vi) If any controversy arises between the
parties to this Agreement, or with any other party, concerning the subject
matter of this Agreement, its terms or conditions, the Escrow Agent will not be
required to determine the controversy or to take any action regarding it. The
Escrow Agent may hold all documents and funds held in escrow and may wait for
settlement of any such controversy by final appropriate legal proceedings. In
such event, the Escrow Agent will not be liable for damage.
Furthermore, the Escrow Agent may at its option, file an action of
interpleader requiring the parties to answer and litigate any claims and rights
among themselves. The Escrow Agent is authorized to deposit with the clerk of
the court all documents and funds held in escrow, except all cost, expenses,
charges and reasonable attorneys fees incurred by the Escrow Agent due to the
interpleader action and which the parties jointly and severally agree to pay.
Upon initiating such action, the Escrow Agent shall be fully released and
discharged of and from all obligations and liabilities imposed by the terms of
this Agreement.
(vii) The parties and their respective successors
and assigns agree jointly and severally to indemnify and hold Escrow Agent
harmless against any and all losses, claims, damages, liabilities, and expenses,
including reasonable costs of investigation, attorneys fees, and disbursements
that may be imposed on Escrow Agent or incurred by Escrow Agent in connection
-56-
with the performance of his/her duties under this Agreement, including but not
limited to any litigation arising from this Agreement or involving its subject
matter.
(viii) The Escrow Agent may resign at any time upon
giving at least thirty (30) days written notice to the parties; provided,
however, that no such resignation shall become effective until the appointment
of a successor escrow agent, which shall be accomplished as follows: the parties
shall use their best efforts to mutually agree on a successor escrow agent
within thirty (30) days after receiving such notice. If the parties fail to
agree upon a successor escrow agent within such time, the Escrow Agent shall
have the right to appoint a successor escrow agent authorized to do business in
the State of Colorado. The successor escrow agent shall execute and deliver an
instrument accepting such appointment and it shall, without further acts, be
vested with all the estates, properties, rights, powers and duties of the
predecessor escrow agent as if originally named as escrow agent. The Escrow
Agent shall be discharged from any further duties and liability under this
Agreement.
(k) Fees. All fees of the Escrow Agent for performance of
its duties hereunder shall be paid by Parent. It is understood that the fees and
usual charges agreed upon for services of the Escrow Agent shall be considered
compensation for ordinary services as contemplated by this Agreement. In the
event that the conditions of this Agreement are not promptly fulfilled, or if
the Escrow Agent renders any service not provided for in this Agreement, or if
the parties request a substantial modification of its terms, or if any
controversy arises, or if the Escrow Agent is made a party to, or intervenes in,
any litigation pertaining to this escrow or its subject matter, the Escrow Agent
shall be reasonably compensated by Parent for such extraordinary services and
reimbursed for all costs, attorneys fees, and expenses occasioned by such
default, delay, controversy or litigation.
(l) Escrow as the Sole Remedy. The Escrow Fund shall be
the sole and exclusive source of satisfaction of any claim made by the
Indemnified Parties for any Losses resulting from the matters set forth in this
Article VII; provided that nothing herein shall limit any remedy of an
Indemnified Party for Losses resulting from:
(i) fraud, intentional misrepresentation or
willful misconduct;
(ii) any breach or inaccuracy of a representation
or warranty contained in Section 2.2 (Company Capital Structure); or
(iii) any breach or inaccuracy of a representation
or warranty contained in Section 2.9 (Tax and Other Returns and Reports) or
Section 2.12 (Intellectual Property); provided, however, that with respect to
this subparagraph (iii) only, the remedy of the Indemnified Parties shall not
exceed the Escrow Amount;
provided, further, that the Indemnified Parties shall in no event be entitled to
indemnification for aggregate Losses in excess of the Merger Consideration
Value, and the liability under the indemnity of each Company Stockholder with
respect to any Losses hereunder shall be (i) limited to such Company
Stockholder's Pro Rata Share of any such Loss, and (ii) limited in the aggregate
to the Merger Shares or Merger Cash (as applicable) received by such Company
Stockholder pursuant to
-57-
the Merger. For the avoidance of doubt, the parties acknowledge that
indemnification for Losses resulting from fraud, intentional misrepresentation
or willful misconduct with respect to a particular representation or warranty
will only be available for the survival period of such representation or
warranty set forth in Section 7.1 hereof.
Notwithstanding anything contained herein to the contrary, nothing
shall prohibit Parent from seeking and obtaining recourse against the Company
Stockholders, or any of them, in the event that Parent issues to the Company
Stockholders, or any of them, more than the Merger Shares, if any, or Merger
Cash, if any, to which such stockholder is entitled pursuant to Article I of
this Agreement.
ARTICLE VIII
TERMINATION, AMENDMENT AND WAIVER
8.1 Termination. This Agreement may be terminated and the Merger
abandoned at any time prior to the Effective Time, whether before or after
approval of the Merger by the Company Stockholders:
(a) by mutual written consent of the Company and Parent;
(b) by either the Company or Parent if: (i) the Effective
Time has not occurred by January 31, 2004 (provided that the right to terminate
this Agreement under this Section 8.1(b)(i) shall not be available to any party
whose failure to fulfill any obligation hereunder has been the cause of, or
resulted in, the failure of the Effective Time to occur on or before such date);
(ii) there shall be a final nonappealable order of a federal or state court in
effect preventing consummation of the Merger; or (iii) there shall be any
statute, rule, regulation or order enacted, promulgated or issued or deemed
applicable to the Merger by any Governmental Entity that would make consummation
of the Merger illegal;
(c) by either Company or Parent if a Governmental Entity
shall have issued an order, decree or ruling or taken any other action, in any
case having the effect of permanently restraining, enjoining or otherwise
prohibiting the Merger, which order, decree or ruling is final and
nonappealable;
(d) by Parent if there shall be any action taken, or any
statute, rule, regulation or order enacted, promulgated or issued or deemed
applicable to the Merger, by any Governmental Entity, which would: (i) prohibit
Parent's or the Company's ownership or operation of any portion of the business
of the Company or (ii) compel Parent or the Company to dispose of or hold
separate, as a result of the Merger, any portion of the business or assets of
the Company or Parent;
(e) by Company if it is not in material breach of its
obligations under this Agreement and there has been a breach of any
representation, warranty, covenant or agreement on the part of Parent set forth
in this Agreement, or if any representation or warranty of Parent shall have
become untrue, in either case such that the conditions set forth in Section
6.2(a) or
-58-
Section 6.2(b) would not then be satisfied; provided that if such inaccuracy in
Parent's representations and warranties or breach by Parent is curable by Parent
through the exercise of its commercially reasonable efforts, then Company may
only terminate this Agreement under this Section 8.1(e) if the breach is not
cured within ten (10) days following the date of written notice from Company of
such breach (but no cure period shall be required for a breach which by its
nature cannot be cured);
(f) by Parent if it is not in material breach of its
obligations under this Agreement and there has been a breach of any
representation, warranty, covenant or agreement on the part of the Company set
forth in this Agreement, or if any representation or warranty of the Company
shall have become untrue, in either case such that the conditions set forth in
Section 6.3(a) or Section 6.3(b) would not then be satisfied; provided, that if
such inaccuracy in the Company's representations and warranties or breach by the
Company is curable by the Company through the exercise of its commercially
reasonable efforts, then Parent may only terminate this Agreement under this
Section 8.1(f) if the breach is not cured within ten (10) days following the
date of written notice from Parent of such breach (but no cure period shall be
required for a breach which by its nature cannot be cured);
(g) by Parent, if a Material Adverse Effect shall have
occurred after the date of this Agreement, and such Material Adverse Effect has
not been cured within thirty (30) days; provided, however, that no cure period
shall be required for a Material Adverse Effect which by its nature cannot be
cured; or
(h) by Parent, if Company has failed to deliver within
one (1) day following the execution of this Agreement a written consent of the
Company Stockholders representing the Company Stockholder Approval as described
in Section 5.1 hereof.
Where action is taken to terminate this Agreement pursuant to this
Section 8.1, it shall be sufficient for such action to be authorized by the
Board of Directors (as applicable) of the party taking such action.
8.2 Effect of Termination. In the event of termination of this
Agreement as provided in Section 8.1, this Agreement shall forthwith become void
and there shall be no liability or obligation on the part of Parent, Merger Sub
or the Company or their respective officers, directors, employees, agents,
consultants, representatives or stockholders; provided that each party shall
remain liable for any breaches of this Agreement prior to its termination; and
provided further that the provisions of Sections 5.5, 5.6, 5.7 and Article VIII
of this Agreement shall remain in full force and effect and survive any
termination of this Agreement.
8.3 Amendment
. Except as is otherwise required by applicable law after the Company
Stockholders approve this Agreement, this Agreement may be amended by the
parties hereto at any time only by execution of an instrument in writing signed
on behalf of each of the parties hereto.
-59-
8.4 Extension; Waiver. At any time prior to the Effective Time,
Parent and Merger Sub, on the one hand, and the Company, on the other, may, to
the extent legally allowed, (a) extend the time for the performance of any of
the obligations of the other party hereto, (b) waive any inaccuracies in the
representations and warranties made to such party contained herein or in any
document delivered pursuant hereto, and (c) waive compliance with any of the
agreements or conditions for the benefit of such party contained herein. Any
agreement on the part of a party hereto to any such extension or waiver shall be
valid only if set forth in an instrument in writing signed on behalf of such
party.
ARTICLE IX
GENERAL PROVISIONS
9.1 Notices. All notices and other communications hereunder shall
be in writing, shall be effective when received, and shall in any event be
deemed to have been received (a) when delivered, if delivered personally or by
commercial delivery service, (b) three (3) business days after deposit with U.S.
Mail, if mailed by registered or certified mail (return receipt requested), (c)
one (1) business day after the business day of deposit with Federal Express or
similar overnight courier for next day delivery (or two (2) business days after
such deposit if deposited for second business day delivery), if delivered by
such means, or (d) one (1) business day after delivery by facsimile transmission
with copy by U.S. Mail, if sent via facsimile plus mail copy (with
acknowledgment of complete transmission), to the parties at the following
addresses (or at such other address for a party as shall be specified by like
notice):
(a) if to Parent or Merger Sub, to:
Carrier Access Corporation
0000 Xxxxx Xxxxxxx
Xxxxxxx, XX 00000
Attention: Corporate Development Officer
Telephone No.: (000) 000-0000
Facsimile No.: (000) 000-0000
with a copy to:
Xxxxxx Xxxxxxx Xxxxxxxx & Xxxxxx
000 Xxxx Xxxx Xxxx
Xxxx Xxxx, Xxxxxxxxxx 00000-0000
Attention: Xxxx X. Xxxxxxxxx, Esq.
Xxx X. Xxxxxxxx, Esq.
Telephone No.: (000) 000-0000
Facsimile No.: (000) 000-0000
-60-
(b) if to the Company, to:
Paragon Networks International Inc.
00 Xxxxxxxx Xxxxx
Xxxxxxxxxx, XX 00000
Attention: Chief Executive Officer
Telephone No.: (000) 000-0000
Facsimile No.: (000) 000-0000
with a copy to:
Paul, Hastings, Xxxxxxxx & Xxxxxx LLP
0000 Xxxxxxxxxx Xxxxxxxxx
Xxxxxxxx, XX 00000
Attention: Xxxxxxx X. Xxxxxx, Esq.
Telephone No.: (000) 000-0000
Facsimile No.: (000) 000-0000
(c) if to the Stockholder Representative:
Granite Ventures LLC
Xxx Xxxx Xxxxxx
Xxx Xxxxxxxxx, XX 00000
Attention: Xxxxxx Xxxxxxxxx
Telephone No.: (000) 000-0000
Facsimile No.: (000) 000-0000
9.2 Interpretation. When a reference is made in this Agreement to
Exhibits, such reference shall be to an Exhibit to this Agreement unless
otherwise indicated. The words "INCLUDE," "INCLUDES" and "INCLUDING" when used
herein shall be deemed in each case to be followed by the words "without
limitation." The word "AGREEMENT" when used herein shall be deemed in each case
to mean any contract, commitment or other agreement, whether oral or written,
that is legally binding. The word "PERSON" or "PERSONS" when used herein shall
be deemed in each case to mean any individual, partnership, corporation
(including a business trust), joint stock company, a limited liability company,
an unincorporated association, a joint venture or other entity or a governmental
authority. The table of contents and headings contained in this Agreement are
for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement. When reference is made herein to "THE BUSINESS
OF" an entity, such reference shall be deemed to include the business of all
direct and indirect subsidiaries of such entity. Reference to the subsidiaries
of an entity shall be deemed to include all direct and indirect subsidiaries of
such entity.
9.3 Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each of
the parties and delivered to the other party, it being understood that all
parties need not sign the same counterpart.
-61-
9.4 Entire Agreement. This Agreement, the Disclosure Schedule, and
the documents and instruments and other agreements among the parties hereto
referenced herein: (a) constitute the entire agreement among the parties with
respect to the subject matter hereof and supersede all prior agreements and
understandings, both written and oral, among the parties with respect to the
subject matter hereof, it being understood that Section 5.5 shall continue in
full force and effect until the Closing and shall survive any termination of
this Agreement; and (b) are not intended to confer upon any other person any
rights or remedies hereunder, except as contemplated by Section 9.11 hereof.
9.5 Severability. In the event that any provision of this
Agreement or the application thereof, becomes or is declared by a court of
competent jurisdiction to be illegal, void or unenforceable, the remainder of
this Agreement will continue in full force and effect and the application of
such provision to other persons or circumstances will be interpreted so as
reasonably to effect the intent of the parties hereto. The parties further agree
to replace such void or unenforceable provision of this Agreement with a valid
and enforceable provision that will achieve, to the extent possible, the
economic, business and other purposes of such void or unenforceable provision.
9.6 Other Remedies. Except as otherwise provided herein, any and
all remedies herein expressly conferred upon a party will be deemed cumulative
with and not exclusive of any other remedy conferred hereby, or by law or equity
upon such party, and the exercise by a party of any one remedy will not preclude
the exercise of any other remedy.
9.7 Specific Performance. The parties hereto agree that
irreparable damage would occur in the event that any of the provisions of this
Agreement were not performed in accordance with their specific terms or were
otherwise breached. It is accordingly agreed that the parties shall be entitled
to an injunction or injunctions to prevent breaches of this Agreement and to
enforce specifically the terms and provisions hereof in any court of the United
States or any state having jurisdiction, this being in addition to any other
remedy to which they are entitled at law or in equity.
9.8 Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Delaware, regardless of
the laws that might otherwise govern under applicable principles of conflicts of
laws thereof; provided that issues involving the corporate governance of any of
the parties hereto shall be governed by their respective jurisdictions of
incorporation. Each of the parties hereto irrevocably consents to the exclusive
jurisdiction of any state or federal court within the State of Delaware, in
connection with any matter based upon or arising out of this Agreement or the
matters contemplated herein, other than issues involving the corporate
governance of any of the parties hereto, agrees that process may be served upon
them in any manner authorized by the laws of the State of Delaware for such
persons and waives and covenants not to assert or plead any objection that they
might otherwise have to such jurisdiction and such process.
-62-
9.9 Arbitration(a) . The parties shall attempt in good faith to
agree upon the rights of the respective parties with respect to any dispute or
controversy arising out of, relating to, or in connection with this Agreement or
the interpretation, validity, construction, performance, breach or complete
termination thereof.
(b) If no such agreement can be reached after good faith
negotiation, either of the parties may demand arbitration of the matter (except
any such dispute or controversy related to Article VIII of this Agreement) and
the matter shall be settled by arbitration conducted by three arbitrators.
Parent and the Company shall each select one arbitrator, and the two arbitrators
so selected shall select a third arbitrator. The arbitrators shall set a limited
time period and establish procedures designed to reduce the cost and time for
discovery while allowing the parties an opportunity, adequate in the sole
judgment of the arbitrators, to discover relevant information from the opposing
parties about the subject matter of the dispute. The arbitrators shall rule upon
motions to compel or limit discovery, and shall have the authority to impose
sanctions, including attorneys' fees and costs, to the same extent as a court of
competent law or equity, should the arbitrators determine that discovery was
sought without substantial justification or that discovery was refused or
objected to without substantial justification. The decision of a majority of the
three arbitrators shall be final, conclusive and binding 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 arbitrators.
(c) Judgment upon any award rendered by the arbitrator
may be entered in any court having jurisdiction. Any such arbitration shall be
held in Boulder County, Colorado under the rules then in effect of the American
Arbitration Association.
9.10 Rules of Construction. The parties hereto agree that they have
been represented by counsel during the negotiation and execution of this
Agreement and, therefore, waive the application of any law, regulation, holding
or rule of construction providing that ambiguities in an agreement or other
document will be construed against the party drafting such agreement or
document.
9.11 Assignment. No party may assign either this Agreement or any
of its rights, interests, or obligations hereunder without the prior written
approval of the of the other party. Subject to the preceding sentence, this
Agreement shall be binding upon and shall inure to the benefit of the parties
hereto and their respective successors and permitted assigns.
9.12 Absence of Third Party Beneficiary Rights. No provisions of
this Agreement are intended, nor shall be interpreted, to provide or create any
third party beneficiary rights or any other rights of any kind in any client,
customer, affiliate, partner of any party hereto or any other person or entity
unless specifically provided otherwise herein.
-63-
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
signed by their duly authorized respective officers as of the date first written
above.
CARRIER ACCESS CORPORATION
By: /s/ Xxxxx Xxxxxx
-------------------------------------
Name: Xxxxx Xxxxxx
Title: Corporate Development Officer
PING ACQUISITION CORPORATION
By: /s/ Xxxxx Xxxxxx
-------------------------------------
Name: Xxxxx Xxxxxx
Title: President
PARAGON NETWORKS INTERNATIONAL INC.
By: /s/ J. Xxxxxxx Xxxxxxx
-------------------------------------
Name: J. Xxxxxxx Xxxxxxx
Title: CEO
STOCKHOLDER REPRESENTATIVE
By: /s/ Xxx Xxxxxxxxx
-------------------------------------
Name: Granite Ventures, L.L.C.
Title: Managing Director
[SIGNATURE PAGE TO THE AGREEMENT AND PLAN OF MERGER]
