EXHIBIT 2.1
EXECUTION COPY
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
TELELOGUE, INC.
TENNIS ACQUISITION CORPORATION
SCANSOFT, INC.
PEQUOT VENTURE PARTNERS II, L.P.
PVP II TELELOGUE PROM NOTE 2 GRANTOR TRUST
PALISADE PRIVATE PARTNERSHIP II, L.P.
NJTC VENTURE FUND SBIC, LP
XXXXXX XXXX
AS STOCKHOLDER REPRESENTATIVE
AND
U.S. BANK NATIONAL ASSOCIATION
AS ESCROW AGENT
DATED AS OF MAY 4, 2004
TABLE OF CONTENTS
PAGE
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ARTICLE I THE MERGER............................................................................. 2
1.1 The Merger......................................................................... 2
1.2 Effective Time..................................................................... 2
1.3 Effect of the Merger............................................................... 2
1.4 Certificate of Incorporation and Bylaws............................................ 2
1.5 Directors and Officers............................................................. 3
1.6 Effect of Merger on the Capital Stock of the Constituent Corporations.............. 3
1.7 Dissenting Shares.................................................................. 9
1.8 Surrender of Certificates.......................................................... 9
1.9 No Further Ownership Rights in Company Capital Stock............................... 11
1.10 Lost, Stolen or Destroyed Certificates............................................. 11
1.11 Taking of Necessary Action; Further Action......................................... 11
ARTICLE II REPRESENTATIONS AND WARRANTIES OF THE COMPANY......................................... 12
2.1 Organization of the Company........................................................ 12
2.2 Company Capital Structure.......................................................... 12
2.3 Subsidiaries....................................................................... 14
2.4 Authority.......................................................................... 14
2.5 No Conflict........................................................................ 14
2.6 Consents........................................................................... 15
2.7 Company Financial Statements....................................................... 15
2.8 No Undisclosed Liabilities......................................................... 15
2.9 No Changes......................................................................... 16
2.10 Tax Matters........................................................................ 18
2.11 Restrictions on Business Activities................................................ 20
2.12 Title to Properties; Absence of Liens and Encumbrances; Condition of
Equipment; Customer Information.................................................... 20
2.13 Intellectual Property.............................................................. 21
2.14 Agreements, Contracts and Commitments.............................................. 25
2.15 Interested Party Transactions...................................................... 26
2.16 Governmental Authorization......................................................... 27
2.17 Litigation......................................................................... 27
2.18 Minute Books....................................................................... 27
2.19 Environmental Matters.............................................................. 27
2.20 Brokers' and Finders' Fees; Third Party Expenses................................... 28
2.21 Employee Benefit Plans and Compensation............................................ 28
2.22 Insurance.......................................................................... 32
2.23 Compliance with Laws............................................................... 32
2.24 Warranties; Indemnities............................................................ 32
2.25 Complete Copies of Materials....................................................... 32
2.26 Representations Complete........................................................... 32
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TABLE OF CONTENTS
(CONTINUED)
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ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE PRINCIPAL STOCKHOLDERS......................... 33
3.1 Ownership of Company Capital Stock................................................. 33
3.2 Absence of Claims by the Principal Stockholders.................................... 33
3.3 Authority.......................................................................... 33
3.4 No Conflict........................................................................ 34
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF PARENT AND SUB...................................... 34
4.1 Organization, Standing and Power................................................... 34
4.2 Authority.......................................................................... 34
4.3 Consents........................................................................... 35
4.4 Capital Resources.................................................................. 35
4.5 Broker's and Finders' Fees......................................................... 35
4.6 No Conflicts....................................................................... 35
4.7 Interim Operations of Sub.......................................................... 35
ARTICLE V CONDUCT PRIOR TO THE EFFECTIVE TIME.................................................... 35
5.1 Conduct of Business of the Company................................................. 35
5.2 No Solicitation.................................................................... 39
5.3 Procedures for Requesting Parent Consent........................................... 39
ARTICLE VI ADDITIONAL AGREEMENTS................................................................. 40
6.1 Stockholder Approval............................................................... 40
6.2 Access to Information.............................................................. 41
6.3 Confidentiality.................................................................... 41
6.4 Expenses........................................................................... 41
6.5 Public Disclosure.................................................................. 42
6.6 Consents........................................................................... 42
6.7 FIRPTA Compliance.................................................................. 42
6.8 Reasonable Efforts................................................................. 42
6.9 Notification of Certain Matters.................................................... 43
6.10 Additional Documents and Further Assurances........................................ 43
6.11 New Employment Arrangements........................................................ 43
6.12 Severance Packages................................................................. 43
6.13 Termination of 401(k) Plan......................................................... 44
6.14 Financials......................................................................... 44
6.15 D&O Insurance...................................................................... 44
ARTICLE VII CONDITIONS TO THE MERGER............................................................. 44
7.1 Conditions to Obligations of Each Party to Effect the Merger....................... 44
7.2 Conditions to the Obligations of Parent and Sub.................................... 45
7.3 Conditions to Obligations of the Company and the Principal Stockholders............ 47
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TABLE OF CONTENTS
(CONTINUED)
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ARTICLE VIII SURVIVAL OF REPRESENTATIONS AND WARRANTIES, ESCROW.................................. 48
8.1 Survival of Representations, Warranties and Covenants.............................. 48
8.2 Indemnification.................................................................... 49
8.3 Escrow Arrangements................................................................ 49
8.4 Stockholder Representative......................................................... 56
8.5 Maximum Payments; Remedy........................................................... 57
ARTICLE IX EARNOUT............................................................................... 58
9.1 Earnout Arrangements............................................................... 58
9.2 Earnout Targets.................................................................... 59
9.3 Achievement of Milestones.......................................................... 59
9.4 Failure to Achieve Milestones; Milestones Cumulative............................... 59
9.5 Calculation of Earnout Distributions; Stockholder Representative Objections........ 60
9.6 Integration........................................................................ 60
ARTICLE X TERMINATION, AMENDMENT AND WAIVER...................................................... 61
10.1 Termination........................................................................ 61
10.2 Effect of Termination.............................................................. 62
10.3 Amendment.......................................................................... 62
10.4 Extension; Waiver.................................................................. 62
ARTICLE XI GENERAL PROVISIONS.................................................................... 62
11.1 Notices............................................................................ 62
11.2 Interpretation..................................................................... 64
11.3 Counterparts....................................................................... 64
11.4 Entire Agreement; Assignment....................................................... 64
11.5 Severability....................................................................... 64
11.6 Other Remedies..................................................................... 65
11.7 Governing Law...................................................................... 65
11.8 Rules of Construction.............................................................. 65
11.9 Waiver of Jury Trial............................................................... 65
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INDEX OF EXHIBITS
EXHIBIT DESCRIPTION
Exhibit A Form of Voting Agreement
Exhibit B Form of Certificate of Merger
Exhibit C Form of Legal Opinion of Counsel of the Company
Exhibit D Form of Proprietary Information, Confidentiality and Assignment
Agreement
SCHEDULES
The Disclosure Schedule
6.11 Key Employees
7.2(d) Agreements to be Terminated
7.2(e) Liens to be Terminated
7.2(p) Terminated Employees
8.3(c) Escrow Fund Contributions
9.2(a)(iv) 2004 Customers
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THIS AGREEMENT AND PLAN OF MERGER (the "AGREEMENT") is made and entered
into as of May 4, 2004 by and among ScanSoft, Inc., a Delaware corporation
("PARENT"), Tennis Acquisition Corporation, a Delaware corporation and a
wholly-owned subsidiary of Parent ("SUB"), Telelogue, Inc., a Delaware
corporation (the "COMPANY"), Pequot Venture Partners II, L.P., PVP II Telelogue
Prom Note 2 Grantor Trust, Palisade Private Partnership II, L.P., and NJTC
Venture Fund SBIC, LP (each, a "PRINCIPAL STOCKHOLDER," and collectively the
"PRINCIPAL STOCKHOLDERS"), Xxxxxx Xxxx as stockholder representative (the
"STOCKHOLDER REPRESENTATIVE"), and U.S. Bank National Association, as escrow
agent (the "ESCROW AGENT").
RECITALS
A. The Boards of Directors of each of Parent, Sub and the Company
believe it is in the best interests of each company and its respective
stockholders that Parent acquire the Company through the statutory merger of Sub
with and into the Company (the "MERGER") and, in furtherance thereof, have
approved the Merger.
B. Pursuant to the Merger, among other things, and subject to the terms
and conditions of this Agreement, all of the issued and outstanding capital
stock of the Company shall be converted into the right to receive the
consideration set forth herein. Notwithstanding the foregoing, the Merger
Consideration (as defined herein), even if fully earned, is sufficient only to
discharge in part the Series B Preferred Preference (as defined herein) and,
accordingly, no distributions of Merger Consideration will be made to the
holders of any other classes of Company Capital Stock (as defined herein) other
than the Series B Preferred Stock (as defined herein), and such other classes of
Company Capital Stock will be cancelled at the Effective Time (as defined
herein) for no consideration as a result of the Merger.
C. Five Hundred Thousand ($500,000) U.S. dollars otherwise payable by
Parent in connection with the Merger shall be placed in escrow by Parent as
security for the indemnification obligations set forth in this Agreement.
D. The Company and the Principal Stockholders, on the one hand, and
Parent and Sub, on the other hand, desire to make certain representations,
warranties, covenants and other agreements in connection with the Merger.
E. Concurrent with the execution and delivery of this Agreement, as a
material inducement to Parent and Sub to enter into this Agreement, all officers
and directors of the Company, the Principal Stockholders and certain other
stockholders of the Company are entering into Voting Agreements, in
substantially the form attached hereto as EXHIBIT A (the "VOTING AGREEMENTS"),
with Parent, pursuant to which such stockholders have irrevocably agreed to vote
in favor of the Merger and the transactions contemplated thereby and to other
matters set forth therein.
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 hereof)
and subject to and upon the terms and conditions of this Agreement and the
applicable provisions of the General Corporation Law of the State of Delaware
("DELAWARE LAW"), Sub shall be merged with and into the Company, the separate
corporate existence of Sub shall cease, and the Company shall continue as the
surviving corporation and as a wholly-owned subsidiary of Parent. The surviving
corporation after the Merger is sometimes referred to hereinafter as the
"SURVIVING CORPORATION."
1.2 EFFECTIVE TIME. Unless this Agreement is earlier terminated pursuant
to SECTION 10.1 hereof, the closing of the Merger (the "CLOSING") will take
place as promptly as practicable after the execution and delivery hereof by the
parties hereto, and following satisfaction or waiver of the conditions set forth
in ARTICLE VII hereof, at the offices of Xxxxxx Xxxxxxx Xxxxxxxx & Xxxxxx,
Professional Corporation, 00 Xxxx 00xx Xxxxxx, 00xx Xxxxx, Xxx Xxxx, Xxx Xxxx,
unless another time or place is mutually agreed upon in writing by Parent and
the Company. The date upon which the Closing actually occurs shall be referred
to herein as the "CLOSING DATE." On the Closing Date, the parties hereto shall
cause the Merger to be consummated by filing a Certificate of Merger in
substantially the form attached hereto as EXHIBIT B, with the Secretary of State
of the State of Delaware (the "CERTIFICATE OF MERGER"), in accordance with the
applicable provisions of Delaware Law (the time of the acceptance of such filing
by the Secretary of State of the State of Delaware such filing shall be referred
to herein as the "EFFECTIVE TIME").
1.3 EFFECT OF THE MERGER. At the Effective Time, the effect of the
Merger shall be as provided in the applicable provisions of Delaware Law.
Without limiting the generality of the foregoing, and subject thereto, at the
Effective Time, except as otherwise agreed to pursuant to the terms of this
Agreement, all of the property, rights, privileges, powers and franchises of the
Company and Sub shall vest in the Surviving Corporation, and all debts,
liabilities and duties of the Company and Sub shall become the debts,
liabilities and duties of the Surviving Corporation.
1.4 CERTIFICATE OF INCORPORATION AND BYLAWS.
(a) Unless otherwise determined by Parent prior to the Effective
Time, the certificate of incorporation of the Surviving Corporation shall be
amended and restated as of the Effective Time to be identical to the certificate
of incorporation of Sub as in effect immediately prior to the Effective Time,
until thereafter amended in accordance with Delaware Law and as provided in such
certificate of incorporation; provided, however, that at the Effective Time,
ARTICLE I of the certificate of incorporation of the Surviving Corporation shall
be amended and restated in its entirety to read as follows: "The name of the
corporation is Telelogue, Inc."
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(b) Unless otherwise determined by Parent prior to the Effective
Time, the bylaws of Sub, as in effect immediately prior to the Effective Time,
shall be the bylaws of the Surviving Corporation at the Effective Time until
thereafter amended in accordance with Delaware Law and as provided in the
certificate of incorporation of the Surviving Corporation and such bylaws.
1.5 DIRECTORS AND OFFICERS.
(a) DIRECTORS OF COMPANY. Unless otherwise determined by Parent
prior to the Effective Time, the directors of Sub immediately prior to the
Effective Time shall be the directors of the Surviving Corporation immediately
after the Effective Time, each to hold the office of a director of the Surviving
Corporation in accordance with the provisions of Delaware Law and the
certificate of incorporation and bylaws of the Surviving Corporation until their
successors are duly elected and qualified.
(b) OFFICERS OF COMPANY. Unless otherwise determined by Parent
prior to the Effective Time, the officers of Sub immediately prior to the
Effective Time shall be the officers of the Surviving Corporation immediately
after the Effective Time, each to hold office in accordance with the provisions
of the bylaws of the Surviving Corporation.
1.6 EFFECT OF MERGER ON THE CAPITAL STOCK OF THE CONSTITUENT
CORPORATIONS.
(a) DEFINITIONS. For all purposes of this Agreement, the following
terms shall have the following respective meanings:
(i) "BUSINESS DAY[S]" shall mean each day that is not a
Saturday, Sunday or holiday on which banking institutions located in New York,
New York are authorized or obligated by law or executive order to close.
(ii) "COMMON CONSIDERATION" shall mean the Common
Consideration Per Share multiplied by the Total Outstanding Common Shares.
(iii) "COMMON CONSIDERATION PER SHARE" shall mean, with
respect to each share of Company Common Stock, (a) the Merger Consideration,
less the sum of the Series A-1 Preferred Consideration and Series B Preferred
Consideration, divided by (b) the Total Outstanding Common Shares.
(iv) "COMPANY CAPITAL STOCK" shall mean the Company Common
Stock, the Company Preferred Stock and any other shares of capital stock, if
any, of the Company, taken together.
(v) "COMPANY COMMON STOCK" shall mean shares of common
stock, $0.0001 par value per share, of the Company.
(vi) "COMPANY COMMON STOCKHOLDER" shall mean a holder of
Company Common Stock, each of whom are listed on SECTION 2.2(a)(1) of the
Disclosure Schedule.
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(vii) "COMPANY MATERIAL ADVERSE EFFECT" shall mean any change,
event or effect that is materially adverse to the business, prospects, assets
(whether tangible or intangible), financial condition, operations or
capitalization of the Company, taken as a whole; provided, however, that any
change, event or effect relating to the industry in which the Company operates
as a whole and which does not affect the Company disproportionately shall not,
by itself, be deemed to constitute a Company Material Adverse Effect.
(viii) "COMPANY OPTIONS" shall mean all issued and outstanding
options (including commitments to grant options, but excluding Company Warrants)
to purchase or otherwise acquire Company Capital Stock (whether or not vested)
held by any person or entity, each of whom are listed on SECTION 2.2(b) of the
Disclosure Schedule.
(ix) "COMPANY PREFERRED STOCK" shall mean the Company Series
A-1 Preferred Stock and the Company Series B Preferred Stock, taken together.
(x) "COMPANY PREFERRED STOCKHOLDER" shall mean a holder of
Company Preferred Stock, each of whom are listed on SECTION 2.2(a)(1) of the
Disclosure Schedule.
(xi) "COMPANY SERIES A-1 PREFERRED STOCK" shall mean the
Series A-1 Preferred Stock, par value $0.0001 per share, of the Company.
(xii) "COMPANY SERIES A-1 PREFERRED STOCKHOLDER" shall mean a
holder of Company Series A-1 Preferred Stock, each of whom are listed on SECTION
2.2(a)(1) of the Disclosure Schedule.
(xiii) "COMPANY SERIES B PREFERRED STOCK" shall mean the
Series B Preferred Stock, par value $0.0001 per share, of the Company.
(xiv) "COMPANY SERIES B PREFERRED STOCKHOLDER" shall mean a
holder of Company Series B Preferred Stock, each of whom are listed on SECTION
2.2(a)(1) of the Disclosure Schedule.
(xv) "COMPANY UNVESTED COMMON STOCK" shall mean any shares of
Company Common Stock issued and outstanding immediately prior to the Effective
Time that are unvested or are subject to a repurchase option, risk of forfeiture
or other condition under any applicable stock restriction agreement or other
agreement with the Company.
(xvi) "COMPANY WARRANTS" shall mean all issued and outstanding
warrants or other rights (including commitments to grant warrants or other
rights, but excluding Company Options) to purchase or otherwise acquire Company
Capital Stock (whether or not vested) held by any person or entity, each of whom
are listed on SECTION 2.2(b) of the Disclosure Schedule.
(xvii) "ESCROW AGENT" shall mean U.S. Bank National
Association, or another institution acceptable to Parent and the Stockholder
Representative.
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(xviii) "ESCROW AMOUNT" shall mean Five Hundred Thousand
($500,000) U.S. dollars and any interest thereon received by the Escrow Agent
from time to time following the investment thereof under Section 8.3(d) hereof.
(xix) "ESTIMATED COMPANY EXPENSES" shall mean the total
amount of Third Party Expenses (as defined in SECTION 6.4 hereof) reflected on
the Statement of Expenses (as defined in SECTION 6.4).
(xx) "GAAP" shall mean United States generally accepted
accounting principles consistently applied.
(xxi) "KNOWLEDGE" or "KNOWN" shall mean, (i) with respect
to the Company, the knowledge of Xxxxxx Xxxxx, Xxxx Mane, Xxxx Xxxxxxxx, Xxxxx
Xxxx, Xxxx Xxxxxxx, and Xxxxxxxx Lyudovyk; provided, however, that such persons
shall have made due and diligent inquiry of those employees of the Company whom
such persons reasonably believe would have actual knowledge of the matters
represented, and (ii) with respect to the Principal Stockholders, the knowledge
of such Principal Stockholders.
(xxii) "LIEN" shall mean any lien, pledge, charge, claim,
mortgage, security interest or other encumbrance of any sort.
(xxiii) "MERGER CONSIDERATION" shall mean, subject to
SECTION 1.6(c), an amount equal to (x) Four Million U.S. dollars ($4,000,000),
less (y) the Estimated Company Expenses.
(xxiv) "PLANS" shall mean the Company's 2002 Incentive Plan
and the Company's Stock Option Plan.
(xxv) "RELATED AGREEMENTS" shall mean the Certificate of
Merger and the Voting Agreements.
(xxvi) "SEC" shall mean the United States Securities and
Exchange Commission.
(xxvii) "SERIES A-1 PREFERRED CONSIDERATION" shall mean the
Series A-1 Preferred Consideration Per Share multiplied by the Total Outstanding
Series A-1 Preferred Shares.
(xxviii) "SERIES A-1 PREFERRED CONSIDERATION PER SHARE" shall
mean, with respect to each share of Company Series A-1 Preferred Stock, the
lesser of (i) the Series A-1 Preferred Preference Per Share, and (ii) (a) the
Merger Consideration, less the Series B Preferred Consideration, divided by (b)
the Total Outstanding Series A-1 Preferred Shares.
(xxix) "SERIES A-1 PREFERRED PREFERENCE" shall mean that
amount equal to the Total Outstanding Series A-1 Preferred Shares multiplied by
the Series A-1 Preferred Preference Per Share.
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(xxx) "SERIES A-1 PREFERRED PREFERENCE PER SHARE" shall
mean, for each share of Company Series A-1 Preferred Stock, an amount equal to
$1.00.
(xxxi) "SERIES B PREFERRED CONSIDERATION" shall mean the
Series B Preferred Consideration Per Share multiplied by the Total Outstanding
Series B Preferred Shares.
(xxxii) "SERIES B PREFERRED CONSIDERATION PER SHARE" shall
mean, with respect to each share of Company Series B Preferred Stock, the lesser
of (i) the Series B Preferred Preference Per Share, and (ii) the Merger
Consideration, divided by the Total Outstanding Series B Preferred Shares.
(xxxiii) "SERIES B PREFERRED PREFERENCE" shall mean that
amount equal to the Total Outstanding Series B Preferred Shares multiplied by
the Series B Preferred Preference Per Share.
(xxxiv) "SERIES B PREFERRED PREFERENCE PER SHARE" shall
mean, for each share of Company Series B Preferred Stock, an amount equal to
$1.00.
(xxxv) "STOCKHOLDER" shall mean any holder of any Company
Capital Stock immediately prior to the Effective Time.
(xxxvi) "TOTAL OUTSTANDING COMMON SHARES" shall mean the
aggregate number of shares of Company Common Stock issued and outstanding
immediately prior to the Effective Time.
(xxxvii) "TOTAL OUTSTANDING SERIES A-1 PREFERRED SHARES"
shall mean the aggregate number of shares of Company Series A-1 Preferred Stock
issued and outstanding immediately prior to the Effective Time.
(xxxviii) "TOTAL OUTSTANDING SERIES B PREFERRED SHARES" shall
mean the aggregate number of shares of Company Series B Preferred Stock issued
and outstanding immediately prior to the Effective Time.
(xxxix) "TOTAL OUTSTANDING SHARES" shall mean the Total
Outstanding Common Shares, Total Outstanding Series A-1 Preferred Shares and
Total Outstanding Series B Preferred Shares, collectively.
(b) EFFECT ON CAPITAL STOCK. At the Effective Time, by virtue of
the Merger and without any action on the part of Sub, the Company or the holders
of shares of the Company Capital Stock, each outstanding share of Company
Capital Stock (excluding, for the avoidance of doubt, unexercised Company
Options and Company Warrants) issued and outstanding immediately prior to the
Effective Time (other than Dissenting Shares (as defined in SECTION 1.7(a)
hereof)), upon the terms and subject to the conditions set forth in this SECTION
1.6 and throughout this Agreement, including, without limitation, the escrow
arrangements set forth in SECTION 1.8 and ARTICLE VIII hereof, will be cancelled
and extinguished and be converted automatically into the right to receive,
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upon surrender of the certificate representing such shares of Company Capital
Stock in the manner provided in SECTION 1.8 hereof, an amount of cash (without
interest) as set forth below:
(i) each outstanding share of Company Series B Preferred
Stock will be converted automatically into an amount of cash equal to the Series
B Preferred Consideration Per Share, less an amount of cash to be contributed to
the Escrow Fund (as defined in SECTION 8.3(a)) on behalf of the holder of each
such share equal to (A) the Escrow Amount, divided by (B) the Total Outstanding
Series B Preferred Shares;
(ii) each outstanding share of Company Series A-1 Preferred
Stock will be converted automatically into an amount of cash equal to the Series
A-1 Preferred Consideration Per Share; and
(iii) each outstanding share of Company Common Stock will be
converted automatically into an amount of cash equal to the Common Consideration
Per Share.
Notwithstanding the foregoing, the Merger Consideration, even if fully earned,
is sufficient only to discharge in part the Series B Preferred Preference and,
accordingly, no distributions of Merger Consideration will be made to the
holders of any other classes of Company Capital Stock other than the Series B
Preferred Stock, and such other classes of Company Capital Stock will be
cancelled at the Effective Time for no consideration as a result of the Merger.
The Escrow Fund (i) shall be held by the Escrow Agent in accordance with the
terms of this Agreement, and (ii) shall be held and disbursed solely for the
purposes and in accordance with the terms of this Agreement.
(c) EARNOUT. Notwithstanding subparagraph (b) above, the Merger
Consideration shall, initially, be reduced for all purposes of this Agreement
(including the calculation of the Series A-1 Preferred Consideration Per Share,
the Series B Preferred Consideration Per Share and the Common Consideration Per
Share) by an amount equal to Two Million U.S. dollars ($2,000,000), and such Two
Million U.S. dollars ($2,000,000) will not be paid initially, but instead will
constitute the "EARNOUT AMOUNT" to be earned pursuant to ARTICLE IX. The
obligation of the Company to pay such Earnout Amount shall be contingent upon
the achievement of the milestones specified in ARTICLE IX. Upon such time, and
only upon such time, as a portion of the Earnout Amount is earned, if any, in
accordance with ARTICLE IX, such earned amount shall be added back to the Merger
Consideration for all purposes of this Agreement (including the calculation of
the Series A-1 Preferred Consideration Per Share, the Series B Preferred
Consideration Per Share and the Common Consideration Per Share), and at such
time, and only upon such time, as such earned amounts are payable in accordance
with ARTICLE IX, the portion of the recalculated Series A-1 Preferred
Consideration Per Share, Series B Preferred Consideration Per Share or Common
Consideration Per Share not theretofore paid shall be paid in accordance with
subparagraph (b) above.
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(d) ASSUMPTION OF COMPANY OPTIONS; TREATMENT OF COMPANY WARRANTS.
(i) Parent shall not assume any Company Options or Company
Warrants. The Company shall cause, effective immediately prior to the Effective
Time, all outstanding Company Options to be rendered null and void. The Company
shall cause the termination, effective immediately prior to the Effective Time,
of all outstanding Company Warrants so that no Company Warrants remain
outstanding immediately prior to the Effective Time. Thereafter, the holders of
Company Options and Company Warrants shall, as of and after the Effective Time,
cease to have any further right or entitlement to acquire any Company Capital
Stock or any shares of capital stock of Parent or the Surviving Corporation or
any other consideration whatsoever under the terminated Company Warrants or null
and void Company Options.
(ii) The Company shall cause the termination, effective
immediately prior to the Effective Time, of all Plans.
(iii) The Company shall take all actions necessary to cause
all Company Options to be rendered null and void as provided under subparagraph
(i) above. The Company shall obtain all consents necessary to cause all Company
Warrants to terminate as provided under subparagraph (i) above. The Company
shall take all other actions necessary or appropriate so that, as of the
Effective Time and as a result of the Merger, (i) no options, warrants or other
rights to acquire any Company Capital Stock or any securities, debt or other
rights convertible into or exchangeable or exercisable for Company Capital Stock
are outstanding (except for Company Options that will be rendered null and void
at the Effective Time), (ii) no person holding Company Capital Stock, Company
Options or Company Warrants shall, on and after the Closing, have any right,
title or interest in or to the Company or the Surviving Corporation or any
securities of the Company or the Surviving Corporation, other than, in the case
of the holders of Company Capital Stock, the right to payments of cash in the
manner described in this Agreement, and (iii) no person holding Company Capital
Stock, Company Options or Company Warrants shall by virtue of any such
securities have any right to acquire any securities of Parent.
(e) WITHHOLDING TAXES. Notwithstanding any other provision in this
Agreement, Parent, the Company, Sub, and the Exchange Agent (as defined in
SECTION 1.8) shall have the right to deduct and withhold Taxes (as defined in
SECTION 2.10) from any payments to be made hereunder (including with respect to
the Earnout Amount) if such withholding is required by law and to request any
necessary Tax forms, including Form W-9 or the appropriate series of Form W-8,
as applicable, or any similar information, from the Stockholders and any other
recipients of payments hereunder. To the extent that amounts are so withheld,
such withheld amounts shall be treated for all purposes of this Agreement as
having been delivered and paid to the Stockholder or other recipient of payments
in respect of which such deduction and withholding was made.
(f) STOCKHOLDER LOANS. In the event that any Stockholder has
outstanding loans from the Company as of the Effective Time, the consideration
payable to such Stockholder pursuant to this SECTION 1.6 shall be reduced by the
amount of the outstanding principal plus accrued interest of such Stockholder's
loans as of the Effective Time. Such loans shall be satisfied as to the amount
by which the consideration is reduced pursuant to this SECTION 1.6(f).
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(g) CAPITAL STOCK OF SUB. Each share of Common Stock of Sub issued
and outstanding immediately prior to the Effective Time shall be converted into
and exchanged for one validly issued, fully paid and nonassessable share of
Common Stock of the Surviving Corporation. Each stock certificate of Sub
evidencing ownership of any such shares shall continue to evidence ownership of
such shares of capital stock of the Surviving Corporation.
1.7 DISSENTING SHARES.
(a) Notwithstanding any other provisions of this Agreement to the
contrary, any shares of Company Capital Stock held by a holder who has not voted
for the Merger, or who has not effectively withdrawn or lost such holder's
appraisal rights under Delaware Law (collectively, the "DISSENTING SHARES")
shall not be converted into or represent a right to receive the applicable
consideration for Company Capital Stock set forth in SECTION 1.6 hereof, but the
holder thereof shall only be entitled to such rights as are provided by Delaware
Law.
(b) Notwithstanding the provisions of SECTION 1.7(a) hereof, if
any holder of Dissenting Shares shall effectively withdraw or lose (through
failure to perfect or otherwise) such holder's appraisal rights under Delaware
Law, then, as of the later of the Effective Time and the occurrence of such
event, such holder's shares shall automatically be converted into and represent
only the right to receive the consideration for Company Capital Stock, as
applicable, set forth in SECTION 1.6 hereof, without interest thereon, upon
surrender of the certificate representing such shares.
(c) The Company shall give Parent (i) prompt notice of any written
demand for appraisal received by the Company pursuant to the applicable
provisions of Delaware Law, and (ii) the opportunity to participate in all
negotiations and proceedings with respect to such demands. The Company shall
not, except with the prior written consent of Parent, make any payment with
respect to any such demands or offer to settle or settle any such demands.
Notwithstanding the foregoing, to the extent that Parent or the Company (i)
makes any payment or payments in respect of any Dissenting Shares in excess of
the consideration that otherwise would have been payable in respect of such
shares in accordance with this Agreement or (ii) incurs any other costs or
expenses, (including specifically, but without limitation, attorneys' fees,
costs and expenses in connection with any action or proceeding or in connection
with any investigation) in respect of any Dissenting Shares (excluding payments
for such shares) (together "DISSENTING SHARE PAYMENTS"), Parent shall be
entitled to recover under the terms of ARTICLE VIII hereof the amount of such
Dissenting Share Payments without regard to the Threshold Amount (as defined in
SECTION 8.3(a) hereof).
1.8 SURRENDER OF CERTIFICATES.
(a) EXCHANGE AGENT. The Secretary of Parent, or an institution
selected by Parent, shall serve as the exchange agent (Parent in such capacity,
or such institution, the "EXCHANGE AGENT") for the Merger.
(b) PARENT TO PROVIDE CASH. Promptly after the Effective Time,
Parent shall make available to the Exchange Agent for exchange in accordance
with this ARTICLE I the cash payable at
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the Effective Time pursuant to SECTION 1.6 hereof in exchange for outstanding
shares of Company Capital Stock, less the Escrow Amount which Parent shall
deposit into the Escrow Fund (as defined in SECTION 8.3(a) hereof) on behalf of
the Stockholders pursuant to ARTICLE VIII hereof.
(c) EXCHANGE PROCEDURES. On or after the Closing Date, Parent
shall mail a letter of transmittal to each Stockholder at the address set forth
opposite each such Stockholder's name on SECTION 2.2(a)(1) of the Disclosure
Schedule. After receipt of such letter of transmittal, the Stockholders will
surrender the certificates representing their shares of Company Capital Stock
(the "COMPANY STOCK CERTIFICATES") to the Exchange Agent for cancellation
together with a duly completed and validly executed letter of transmittal. Upon
surrender of a Company Stock Certificate for cancellation to the Exchange Agent,
together with such letter of transmittal, duly completed and validly executed in
accordance with the instructions thereto, subject to the terms of SECTION 1.8(e)
hereof, the holder of such Company Stock Certificate shall be entitled to
receive from the Exchange Agent in exchange therefor, the cash amounts to which
such holder is entitled pursuant to SECTION 1.6 hereof, and the Company Stock
Certificate so surrendered shall be cancelled. Until so surrendered, each
Company Stock Certificate outstanding after the Effective Time will be deemed,
for all corporate purposes thereafter, to evidence only the right to receive the
consideration (if any) payable in exchange for shares of Company Capital Stock
(without interest) into which such shares of Company Capital Stock shall have
been so converted. No portion of the Merger Consideration will be paid to the
holder of any unsurrendered Company Stock Certificate with respect to shares of
Company Common Stock formerly represented thereby until the holder of record of
such Company Stock Certificate shall surrender such Company Stock Certificate
pursuant hereto. Notwithstanding the foregoing, Parent and the Company may
mutually agree on an alternative method by which the Stockholders may surrender
their Company Stock Certificates in exchange for the cash amounts to which such
Stockholders are entitled pursuant to SECTION 1.6 hereof.
(d) DISTRIBUTIONS WITH RESPECT TO UNEXCHANGED SHARES. No interest
shall be payable on any cash deliverable upon the exchange of any Company
Capital Stock for cash.
(e) TRANSFERS OF OWNERSHIP. If any cash amounts are to be
disbursed pursuant to SECTION 1.6 hereof to a person other than the person or
entity whose name is reflected on the Company Stock Certificate surrendered in
exchange therefor, it will be a condition of the issuance or delivery thereof
that the certificate so surrendered will be properly endorsed and otherwise in
proper form for transfer and that the person requesting such exchange will have
paid to Parent or any agent designated by it any transfer or other Taxes
required by reason of the disbursement of cash amounts to a person other than
that of the registered holder of the certificate surrendered, or established to
the satisfaction of Parent or any agent designated by it that such Tax has been
paid or is not payable.
(f) EXCHANGE AGENT TO RETURN CASH CONSIDERATION. At any time
following the last day of the sixth (6th) month following the Effective Time,
Parent shall be entitled to require the Exchange Agent to deliver to Parent or
its designated successor or assign all cash amounts that have been deposited
with the Exchange Agent pursuant to SECTION 1.8(b) hereof, and any and all
interest thereon or other income or proceeds thereof, not disbursed to the
holders of Company Stock Certificates pursuant to SECTION 1.8(c) hereof, and
thereafter the holders of Company Stock
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Certificates shall be entitled to look only to Parent (subject to the terms of
SECTION 1.8(g) hereof) only as general creditors thereof with respect to any and
all cash amounts that may be payable to such holders of Company Stock
Certificates pursuant to SECTION 1.6 hereof upon the due surrender of such
Company Stock Certificates in the manner set forth in SECTION 1.8(c) hereof.
(g) NO LIABILITY. Notwithstanding anything to the contrary in this
SECTION 1.8, neither the Exchange Agent, the Surviving Corporation, nor any
party hereto shall be liable to a holder of shares of Company Capital Stock for
any amount properly paid to a public official pursuant to any applicable
abandoned property, escheat or similar law.
1.9 NO FURTHER OWNERSHIP RIGHTS IN COMPANY CAPITAL STOCK. The cash
amounts paid in respect of the surrender for exchange of shares of Company
Capital Stock in accordance with the terms hereof shall be deemed to be full
satisfaction of all rights pertaining to such shares of Company Capital Stock,
and there shall be no further registration of transfers on the records of the
Surviving Corporation of shares of Company Capital Stock which were outstanding
immediately prior to the Effective Time. If, after the Effective Time, Company
Stock Certificates are presented to the Surviving Corporation for any reason,
they shall be canceled and exchanged as provided in this ARTICLE I.
1.10 LOST, STOLEN OR DESTROYED CERTIFICATES. In the event any Company
Stock Certificates shall have been lost, stolen or destroyed, the Exchange Agent
shall issue in exchange for such lost, stolen or destroyed certificates, upon
the making of an affidavit of that fact by the holder thereof, such amount, if
any, as may be required pursuant to SECTION 1.6 hereof; provided, however, that
Parent may, in its discretion and as a condition precedent to the issuance
thereof, require the Stockholder who is the owner of such lost, stolen or
destroyed certificates to either (i) deliver a bond in such amount as it may
reasonably direct or (ii) provide an indemnification agreement in a form and
substance acceptable to Parent, 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 TAKING OF NECESSARY ACTION; FURTHER ACTION. If at any time after the
Effective Time, any further action is necessary or desirable to carry out the
purposes of this Agreement and to vest the Surviving Corporation with full
right, title and possession to all assets, property, rights, privileges, powers
and franchises of the Company, Parent, Sub, and the officers and directors of
the Company, Parent and Sub are fully authorized in the name of their respective
corporations or otherwise to take, and will take, all such lawful and necessary
action.
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ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to Parent and Sub, subject to
such exceptions as are specifically disclosed in the disclosure schedule
(referencing the appropriate section and paragraph numbers) supplied by the
Company to Parent (the "DISCLOSURE SCHEDULE") and dated as of the date hereof,
on the date hereof and as of the Effective Time, as though made at the Effective
Time, as follows:
2.1 ORGANIZATION OF THE COMPANY. The Company is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware. The Company has the corporate power to own its properties and to carry
on its business as currently conducted. The Company is duly qualified or
licensed to do business and in good standing as a foreign corporation in each
jurisdiction in which it conducts business. The Company has delivered a true and
correct copy of its certificate of incorporation and bylaws, each as amended to
date and in full force and effect on the date hereof (collectively, the "CHARTER
DOCUMENTS"), to Parent. SECTION 2.1 of the Disclosure Schedule lists the
directors and officers of the Company as of the date hereof. The operations now
being conducted by the Company are not now and have never been conducted by the
Company under any other name. SECTION 2.1 of the Disclosure Schedule also lists
every state or foreign jurisdiction in which the Company has employees or
facilities or otherwise carries on business.
2.2 COMPANY CAPITAL STRUCTURE.
(a) The authorized capital stock of the Company consists of
17,000,000 shares of Common Stock, of which 1,098,389 shares are issued and
outstanding, 13,000,000 shares of Preferred Stock, of which 3,666,667 shares
have been designated Series A-1 Preferred Stock, all of which are issued and
outstanding, and 7,750,000 shares have been designated Series B Preferred Stock,
7,500,000 shares of which are issued and outstanding. As of the date hereof, the
capitalization of the Company is as set forth in SECTION 2.2(a)(1) of the
Disclosure Schedule. The Company Capital Stock is held by the persons with the
domicile addresses and in the amounts set forth in SECTION 2.2(a)(1) of the
Disclosure Schedule. All outstanding shares of Company Capital Stock are duly
authorized, validly issued, fully paid and non-assessable and not subject to
preemptive rights created by statute, the Charter Documents of the Company, or
any agreement to which the Company is a party or by which it is bound, and have
been issued in compliance with federal and state securities laws. All
outstanding shares of Company Capital Stock, Company Options and Company
Warrants have been issued or repurchased (in the case of shares that were
outstanding and repurchased by the Company or any stockholder of the Company) in
compliance with all applicable federal, state, foreign, or local statutes, laws,
rules, or regulations, including federal and state securities laws. The Company
has not, and will not have, suffered or incurred any liability (contingent or
otherwise) or claim, loss, damage, deficiency, cost or expense relating to or
arising out of the issuance or repurchase of any Company Capital Stock or
options or warrants to purchase Company Capital Stock, or out of any agreements
or arrangements relating thereto
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(including any amendment of the terms of any such agreement or arrangement).
There are no declared or accrued but unpaid dividends with respect to any shares
of Company Capital Stock. The Company has no other capital stock authorized,
issued or outstanding. SECTION 2.2(a)(2) of the Disclosure Schedule sets forth
for all holders of Company Unvested Common Stock, the name of the holder of such
Company Unvested Common Stock, the repurchase price of such Company Unvested
Common Stock, and the vesting schedule for such Company Unvested Common Stock,
including the extent vested to date and whether the vesting of such Company
Unvested Common Stock will be accelerated by the transaction contemplated by
this Agreement. The Series B Liquidation Preference (as such term is defined in
the certificate of incorporation of the Company, as amended) is $1.00, and the
Series A-1 Liquidation Preference (as such term is defined in the certificate of
incorporation of the Company, as amended) is $1.00.
(b) Except for the Plans, the Company has never adopted, sponsored
or maintained any stock option plan or any other plan or agreement providing for
equity compensation to any person. The Company has reserved (x) 2,157,947 shares
of Company Common Stock for issuance to employees and directors of, and
consultants to, the Company upon the issuance of stock or the exercise of
options granted under the Company's 2002 Incentive Plan, (y) 7,814 shares of
Company Common Stock for issuance to employees and directors of, and consultants
to, the Company upon the exercise of options granted under the Company's Stock
Option Plan, which Plan has been terminated but for such outstanding options,
and (z) no shares of Company Common Stock in respect of any other plan,
agreement or arrangement (whether written or oral, formal or informal). Of such
reserved shares, (i) 713,434 shares are issuable, as of the date hereof, upon
the exercise of outstanding, unexercised options, and (ii) 5,288 shares have
been issued upon the exercise of options previously granted and remain
outstanding as of the date hereof. Except for the Company Options (all of which
are to be rendered null and void at or prior to the Effective Time) and Company
Warrants (all of which are to be terminated at or prior to the Effective Time)
set for in SECTION 2.2(b) of the Disclosure Schedule, there are no options,
warrants, calls, rights, convertible securities, commitments or agreements of
any character, written or oral, to which the Company is a party or by which the
Company is bound obligating the Company to issue, deliver, sell, repurchase or
redeem, or cause to be issued, delivered, sold, repurchased or redeemed, any
shares of the 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 similar rights with respect to the Company. Except as
contemplated hereby, there are no voting trusts, proxies, or other agreements or
understandings with respect to the voting stock of the Company. Except as set
forth on SECTION 2.2(b) of the Disclosure Schedule, there are no agreements to
which the Company is a party relating to the registration, sale or transfer
(including agreements relating to rights of first refusal, co-sale rights or
"drag-along" rights) of any Company Capital Stock. As a result of the Merger,
Parent will be the sole record and beneficial holder of all issued and
outstanding Company Capital Stock and all rights to acquire or receive any
shares of Company Capital Stock, whether or not such shares of Company Capital
Stock are outstanding.
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(c) The allocation of the Merger Consideration set forth in
SECTION 1.6(b) is consistent with the certificate of incorporation of the
Company as amended as of immediately prior to the Effective Time.
2.3 SUBSIDIARIES. The Company does not have and has never had any
subsidiaries or affiliated companies and does not otherwise own and has never
otherwise owned any shares of capital stock or any interest in, or control,
directly or indirectly, any other corporation, limited liability company,
partnership, association, joint venture or other business entity.
2.4 AUTHORITY. The Company has all requisite power and authority to
enter into this Agreement and any Related Agreements to which it is a party and
to consummate the transactions contemplated hereby and thereby. The execution
and delivery of this Agreement and any Related Agreements to which the Company
is a party and the consummation of the transactions contemplated hereby and
thereby have been duly authorized by all necessary corporate action on the part
of the Company and no further action is required on the part of the Company to
authorize the Agreement and any Related Agreements to which it is a party and
the transactions contemplated hereby and thereby, subject only to the approval
of this Agreement by the Stockholders. The vote required to approve this
Agreement by the Stockholders is set forth in SECTION 2.4 of the Disclosure
Schedule. This Agreement and the Merger have been unanimously approved by the
Board of Directors of the Company. This Agreement and each of the Related
Agreements to which the Company is a party has been duly executed and delivered
by the Company and assuming the due authorization, execution and delivery by the
other parties hereto and thereto, constitute the valid and binding obligations
of the Company enforceable against it in accordance with their respective terms,
except as such enforceability may be subject to the laws of general application
relating to bankruptcy, insolvency, and the relief of debtors and rules of law
governing specific performance, injunctive relief, or other equitable remedies.
2.5 NO CONFLICT. The execution and delivery by the Company of this
Agreement and any Related Agreement to which the Company is a party, and the
consummation of the transactions contemplated hereby and thereby, will not
conflict with or result in any violation of or default under (with or without
notice or lapse of time, or both) or give rise to a right of termination,
cancellation, modification or acceleration of any obligation or loss of any
benefit under (any such event, a "CONFLICT") (i) any provision of the
certificate of incorporation, bylaws or charter documents of the Company, as
amended, (ii) any Material Contract (as defined in SECTION 2.14), or (iii) any
judgment, order, decree, statute, law, ordinance, rule or regulation applicable
to the Company or any of its properties (whether tangible or intangible) or
assets. The Company is in compliance with and has not breached, violated or
defaulted under, or received notice that it has breached, violated or defaulted
under, any of the terms or conditions of any Material Contract, nor does the
Company have Knowledge of any event that would constitute such a breach,
violation or default with the lapse of time, giving of notice or both. Each
Material Contract is in full force and effect, and the Company is not subject to
any default thereunder, nor to the Knowledge of the Company is any party
obligated to the Company pursuant to any such Material Contract subject to any
default thereunder. SECTION 2.5 of the Disclosure Schedule sets forth all
necessary consents, waivers and approvals of parties to any Material Contracts
as are required thereunder in connection with the Merger, or for any such
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Material Contract to remain in full force and effect without limitation,
modification or alteration after the Effective Time so as to preserve all rights
of, and benefits to, the Company under such Material Contracts from and after
the Effective Time. Following the Effective Time, the Surviving Corporation will
be permitted to exercise all of its rights under the Material Contracts without
the payment of any additional amounts or consideration other than ongoing fees,
royalties or payments which the Company would otherwise be required to pay
pursuant to the terms of such Material Contracts had the transactions
contemplated by this Agreement not occurred.
2.6 CONSENTS. No consent, notice, 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
other foreign governmental authority, instrumentality, agency or commission
(each, a "GOVERNMENTAL ENTITY"), is required by, or with respect to, the Company
in connection with the execution and delivery of this Agreement and any Related
Agreement to which the Company is a party or the consummation of the
transactions contemplated hereby and thereby, except for (i) such consents,
notices, waivers, approvals, orders, authorizations, registrations, declarations
and filings as may be required under applicable securities laws, (ii) the filing
of the Certificate of Merger with the Secretary of State of the State of
Delaware and (iii) the adoption of this Agreement and approval of the
transactions contemplated by this Agreement by the Stockholders.
2.7 COMPANY FINANCIAL STATEMENTS. SECTION 2.7 of the Disclosure Schedule
sets forth the Company's (i) unaudited balance sheet as of December 31, 2003 and
the related consolidated statement of income, cash flow and stockholders' equity
for the twelve (12) month period then ended (the "2003 YEAR-END FINANCIALS"),
(ii) audited balance sheet as of December 31, 2002 and the related consolidated
statements of income, cash flow and stockholders' equity for the twelve (12)
month period then ended (the "2002 YEAR-END FINANCIALS"), and (iii) unaudited
balance sheet as of March 31, 2004 (the "BALANCE SHEET DATE"), and the related
unaudited statement of income, cash flow and stockholders' equity for the three
months then ended (the "INTERIM FINANCIALS"). The 2003 Year-End Financials, the
2002 Year-End Financials, and the Interim Financials (collectively referred to
as the "FINANCIALS") have been, and the Additional Financials (as defined in
SECTION 6.14) will be, prepared in accordance with GAAP consistently applied on
a consistent basis throughout the periods indicated and consistent with each
other (except that the Interim Financials and any unaudited Additional
Financials do not contain footnotes and other presentation items that may be
required by GAAP). The Financials present, and the Additional Financials will
present, fairly the Company's financial condition, operating results and cash
flows as of the dates and during the periods indicated therein, subject in the
case of the Interim Financials and any unaudited Additional Financials to normal
year-end adjustments, which are not material in amount or significance in any
individual case or in the aggregate. The Company's unaudited consolidated
balance sheet as of the Balance Sheet Date is referred to hereinafter as the
"CURRENT BALANCE SHEET."
2.8 NO UNDISCLOSED LIABILITIES.
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(a) Except as set forth on SECTION 2.8(a) of the Disclosure
Schedule, the Company has no liability, indebtedness, obligation, expense,
claim, deficiency, guaranty or endorsement of any type, whether accrued,
absolute, contingent, matured, unmatured or other (whether or not required to be
reflected in financial statements in accordance with GAAP), other than Taxes
incurred since the Balance Sheet Date but not yet due and performance and
payment obligations arising under Material Contracts since the Balance Sheet
Date, which individually or in the aggregate (i) has not been reflected or
reserved against in the Current Balance Sheet, or (ii) has not arisen in the
ordinary course of business consistent with past practices since the Balance
Sheet Date.
(b) Except as set forth on SECTION 2.8(b) of the Disclosure
Schedule, the Company has no liability, indebtedness, or obligation to any
employee, director or consultant, other than severance payments expressly set
forth in, and provided for by, employment agreements disclosed in SECTION 2.14
of the Disclosure Schedule, which individually or in the aggregate (i) has not
been reflected or reserved against in the Current Balance Sheet, or (ii) has not
arisen in the ordinary course of business consistent with past practices since
the Balance Sheet Date.
2.9 NO CHANGES. Except as set forth on SECTION 2.9 of the Disclosure
Schedule, since the Balance Sheet Date, there has not been, occurred or arisen
any:
(a) transaction by the Company except in the ordinary course of
business as conducted on that date and consistent with past practices;
(b) amendments or changes to the certificate of incorporation or
bylaws of the Company;
(c) capital expenditure or commitment by the Company exceeding
$15,000 individually or $37,500 in the aggregate;
(d) employment dispute, including but not limited to, claims or
matters raised by any individuals or any workers' representative organization,
bargaining unit or union regarding labor trouble or claim of wrongful discharge
or other unlawful employment or labor practice or action with respect to the
Company;
(e) change in accounting methods or practices (including any
change in depreciation or amortization policies or rates) by the Company other
than as required by GAAP;
(f) change in any material election in respect of Taxes (as
defined below), adoption or change in any accounting method in respect of Taxes,
agreement or settlement of any claim or assessment in respect of Taxes, or
extension or waiver of the limitation period applicable to any claim or
assessment in respect of Taxes;
(g) revaluation by the Company of any of its assets (whether
tangible or intangible), including without limitation, writing down the value of
inventory or writing off notes or accounts receivable;
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(h) declaration, setting aside or payment of a dividend or other
distribution (whether in cash, stock or property) in respect of any Company
Common Stock or any Company Preferred Stock, or any split, combination or
reclassification in respect of any shares of Company Common Stock or Company
Preferred Stock, or any issuance or authorization of any issuance of any other
securities in respect of, in lieu of or in substitution for shares of Company
Common Stock or Company Preferred Stock, or any direct or indirect repurchase,
redemption, or other acquisition by the Company of any shares of Company Common
Stock or Company Preferred Stock (or options, warrants or other rights
convertible into, exercisable or exchangeable therefor), except in accordance
with the agreements evidencing Company Options or Company Unvested Common Stock;
(i) increase in the salary or other compensation payable or to
become payable by the Company to any of its respective officers, directors,
employees or advisors, or the declaration, payment or commitment or obligation
of any kind for the payment (whether in cash or equity) by the Company of a
severance payment, termination payment, bonus or other additional salary or
compensation to any such person;
(j) sale, lease or other disposition of any of the assets (whether
tangible or intangible) or properties of the Company, including, but not limited
to, the sale of any accounts receivable of the Company, or any creation of any
security interest in such assets or properties;
(k) loan by the Company to any person or entity, or purchase by
the Company or of any debt securities of any person or entity;
(l) incurring by the Company of any indebtedness, amendment of the
terms of any outstanding loan agreement, guaranteeing by the Company of any
indebtedness, issuance or sale of any debt securities of the Company or
guaranteeing of any debt securities of others, except for advances to employees
for travel and business expenses in the ordinary course of business consistent
with past practices;
(m) waiver or release of any right or claim of the Company,
including any write-off or other compromise of any account receivable of the
Company;
(n) commencement or settlement of any lawsuit by the Company, the
commencement, settlement, notice or, to the Knowledge of the Company, threat of
any lawsuit or proceeding or other investigation against the Company or its
affairs, or any reasonable basis for any of the foregoing;
(o) notice of any claim or potential claim of ownership, interest
or right by any person other than the Company of the Company Intellectual
Property (as defined in SECTION 2.13 hereof) owned by or developed or created by
the Company or of infringement by the Company of any other person's Intellectual
Property (as defined in SECTION 2.13 hereof);
(p) issuance or sale, or contract or agreement to issue or sell,
by the Company of any shares of Company Capital Stock or securities convertible
into, or exercisable or exchangeable for, shares of Company Capital Stock, or
any securities, warrants, options or rights to purchase any
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of the foregoing, except for issuances of Company Capital Stock upon the
exercise of options issued under the Plans;
(q) (i) sale or license of any Company Intellectual Property or
execution, modification or amendment of any agreement with respect to the
Company Intellectual Property with any person or entity or with respect to the
Intellectual Property of any person or entity, or (ii) purchase or license of
any Intellectual Property or execution, modification or amendment of any
agreement with respect to the Intellectual Property of any person or entity,
(iii) agreement or modification or amendment of an existing agreement with
respect to the development of any Intellectual Property with a third party, or
(iv) change in pricing or royalties set or charged by the Company to its
customers or licensees or in pricing or royalties set or charged by persons who
have licensed Intellectual Property to the Company;
(r) event or condition of any character that has had or is
reasonably likely to have a Company Material Adverse Effect;
(s) lease, license, sublease or other occupancy of any Leased Real
Property by the Company; or
(t) agreement by the Company, or any officer or employees on
behalf of the Company, to do any of the things described in the preceding
clauses (a) through (s) of this SECTION 2.9 (other than negotiations with Parent
and its representatives regarding the transactions contemplated by this
Agreement and the Related Agreements).
2.10 TAX MATTERS.
(a) DEFINITION OF TAXES. For the purposes of this Agreement, the
term "TAX" or, collectively, "TAXES" shall mean (i) any and all federal, state,
local and foreign taxes, assessments and other governmental charges, duties,
impositions and liabilities, including taxes based upon or measured by gross
receipts, income, profits, sales, use and occupation, and value added, ad
valorem, transfer, franchise, withholding, payroll, recapture, employment,
excise and property taxes as well as public imposts, fees and social security
charges (including but not limited to health, unemployment and pension
insurance), together with all interest, penalties and additions imposed with
respect to such amounts, (ii) any liability for the payment of any amounts of
the type described in clause (i) of this SECTION 2.10(a) as a result of being a
member of an affiliated, consolidated, combined or unitary group for any period,
and (iii) any liability for the payment of any amounts of the type described in
clauses (i) or (ii) of this SECTION 2.10(a) as a result of any express or
implied obligation to indemnify any other person or as a result of any
obligation under any agreement or arrangement with any other person with respect
to such amounts and including any liability for taxes of a predecessor entity.
(b) TAX RETURNS AND AUDITS.
(i) The Company has (a) prepared and timely filed all
required federal, state, local and foreign returns, estimates, information
statements and reports ("RETURNS") relating to any and all Taxes concerning or
attributable to the Company or its operations and such Returns are
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true and correct and have been completed in accordance with applicable law and
(b) timely paid all Taxes it is required to pay.
(ii) The Company has withheld with respect to its Employees
and other third parties, all federal, state and foreign income taxes and social
security charges and similar fees, Federal Insurance Contribution Act ("FICA"),
Federal Unemployment Tax Act ("FUTA") and other Taxes required to be withheld,
and has timely paid such Taxes withheld over to the appropriate authorities.
(iii) There is no Tax deficiency outstanding, assessed or
proposed against the Company, nor has the Company executed any waiver of any
statute of limitations on or extending the period for the assessment or
collection of any Tax.
(iv) No audit or other examination of any Return of the
Company is presently in progress, nor has the Company been notified of any
request for such an audit or other examination. No adjustment relating to any
Return filed by the Company has been proposed formally or, to the Knowledge of
the Company, informally by any Tax authority to the Company or any
representative thereof.
(v) As of the date of the Current Balance Sheet, the Company
had no liabilities for unpaid Taxes which have not been accrued or reserved on
the Current Balance Sheet, whether asserted or unasserted, contingent or
otherwise, and the Company has not incurred any liability for Taxes since the
date of the Current Balance Sheet other than in the ordinary course of business.
(vi) The Company has made available to Parent or its legal
counsel, copies of all Tax Returns for the Company filed for all periods since
its inception.
(vii) There are (and immediately following the Effective Time
there will be) no Liens on the assets of the Company relating to or attributable
to Taxes, other than Liens for Taxes not yet due and payable. The Company has no
Knowledge of any basis for the assertion of any claim relating or attributable
to Taxes which, if adversely determined, would result in any Lien on the assets
of the Company.
(viii) None of the Company's assets is treated as "tax-exempt
use property," within the meaning of Section 168(h) of the Internal Revenue Code
of 1986, as amended (the "CODE").
(ix) The Company has not filed any consent agreement under
Section 341(f) of the Code or agreed to have Section 341(f)(2) of the Code apply
to any disposition of a subsection (f) asset (as defined in Section 341(f)(4) of
the Code) owned by the Company.
(x) The Company has not (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 any Tax sharing,
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indemnification, allocation or similar agreement, (c) any liability for the
Taxes of any person (other than Company) under Treasury Regulation Section
1.1502-6 (or any similar provision of state, local or foreign law), as a
transferee or successor, by contract or 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 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) The Company has not constituted either a "distributing
corporation" or a "controlled corporation" in a distribution of stock intended
to qualify for tax-free treatment under Section 355 of the Code (x) in the two
(2) years prior to the date of this Agreement or (y) in a distribution which
could otherwise constitute part of a "plan" or "series of related transactions"
(within the meaning of Section 355(e) of the Code) in conjunction with the
Merger.
(xiii) The Company has not engaged in a transaction that is
the same as or substantially similar to one of the types of transactions that
the Internal Revenue Service has determined to be a tax avoidance transaction
and identified by notice, regulation, or other form of published guidance as a
listed transaction, as set forth in Treas. Reg. Section 1.6011-4(b)(2).
(c) EXECUTIVE COMPENSATION TAX. There is no contract, agreement,
plan or arrangement to which the Company is a party, including, without
limitation, the provisions of this Agreement, covering any Employee of the
Company, which, individually or collectively, could give rise to the payment of
any amount that would not be deductible pursuant to Sections 280G, 404 or 162(m)
of the Code.
2.11 RESTRICTIONS ON BUSINESS ACTIVITIES. There is no agreement
(non-competition or otherwise), commitment, judgment, injunction, order or
decree to which the Company is a party or otherwise binding upon the Company
which has or may reasonably be expected to have the effect of prohibiting or
impairing any business practice of the Company, any acquisition of property
(tangible or intangible) by the Company, the conduct of business by the Company,
or otherwise limiting the freedom of the Company to engage in any line of
business or to compete with any person. Without limiting the generality of the
foregoing, the Company has not entered into any agreement under which the
Company is restricted from selling, licensing, manufacturing or otherwise
distributing any of its technology or products or from providing services to
customers or potential customers or any class of customers, in any geographic
area, during any period of time, or in any segment of the market.
2.12 TITLE TO PROPERTIES; ABSENCE OF LIENS AND ENCUMBRANCES; CONDITION OF
EQUIPMENT; CUSTOMER INFORMATION.
(a) The Company does not own any real property, nor has the
Company ever owned any real property. SECTION 2.12(a) of the Disclosure Schedule
sets forth a list of all real property currently leased, subleased or licensed
by or from the Company or otherwise used or occupied by the Company for the
operation of its business (the "LEASED REAL PROPERTY"), the name
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of the lessor, licensor, sublessor, master lessor and/or lessee, the date and
term of the lease, license, sublease or other occupancy right and each amendment
thereto (the "LEASE AGREEMENTS") and, with respect to any current lease,
license, sublease or other occupancy right the aggregate annual rental payable
thereunder. All such Lease Agreements are valid and effective in accordance with
their respective terms, and there is not, under any of such leases, any existing
default, no rentals are past due, or event of default (or event which with
notice or lapse of time, or both, would constitute a default). The Company has
not received any notice of a default, alleged failure to perform, or any offset
or counterclaim with respect to any such Lease Agreement, which has not been
fully remedied and withdrawn. The Closing will not affect the enforceability
against any person of any such Lease Agreement or the rights of the Company to
the continued use and possession of the Leased Real Property for the conduct of
business as presently conducted.
(b) The Leased Real Property is in good operating condition and
repair, free from structural, physical and mechanical defects and is
structurally sufficient and otherwise suitable for the conduct of the business
as presently conducted. Neither the operation of the Company on the Leased Real
Property nor, to the Company's Knowledge, such Leased Real Property, including
the improvements thereon, violate in any material respect any applicable
building code, zoning requirement or statute relating to such property or
operations thereon, and any such non-violation is not dependent on so-called
non-conforming use exceptions.
(c) Except as set forth on SECTION 2.12(c) of the Disclosure
Schedule, the Company has good and valid title to, or, in the case of leased
properties and assets, valid leasehold interests in, all of its tangible
properties and assets, real, personal and mixed, used or held for use in its
business, free and clear of any Liens, except (i) as reflected in the Current
Balance Sheet, (ii) Liens for Taxes not yet due and payable, and (iii) such
imperfections of title and encumbrances, if any, which do not detract from the
value or interfere with the present use of the property subject thereto or
affected thereby.
(d) SECTION 2.12(d) of the Disclosure Schedule lists all material
items of equipment (the "EQUIPMENT") owned or leased by the Company, and such
Equipment is (i) adequate for the conduct of the business of the Company as
currently conducted and as currently contemplated to be conducted, and (ii) in
good operating condition, regularly and properly maintained, subject to normal
wear and tear.
2.13 INTELLECTUAL PROPERTY.
(a) DEFINITIONS. For all purposes of this Agreement, the following
terms shall have the following respective meanings:
"INTELLECTUAL PROPERTY" shall mean any or all of the following
(i) works of authorship including, without limitation, computer programs, source
code, and executable code, whether embodied in software, firmware or otherwise,
architecture, documentation, designs, files, records, databases, and data, (ii)
inventions (whether or not patentable), discoveries, improvements, and
technology, (iii) proprietary and confidential information, trade secrets and
know how, (iv) databases, data compilations and collections and technical data,
(v) logos, trade names, trade
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dress, trademarks and service marks, (vi) domain names, web addresses and sites,
(vii) tools, methods and processes, and (viii) any and all instantiations of the
foregoing in any form and embodied in any media.
"INTELLECTUAL PROPERTY RIGHTS" shall mean worldwide common law
and statutory rights associated with (i) patents and patent applications, (ii)
copyrights, copyright registrations and copyright applications, "moral" rights
and mask work rights, (iii) the protection of trade and industrial secrets and
confidential information, (iv) other proprietary rights relating to intangible
intellectual property, (v) trademarks, trade names and service marks, (vi)
analogous rights to those set forth above, and (vii) divisions, continuations,
renewals, reissuances and extensions of the foregoing (as applicable).
"IP AGREEMENTS" means all contracts, licenses, and agreements
to which the Company is a party with respect to any Intellectual Property or
Intellectual Property Rights, including without limitation with respect to the
receipt or provision of directory assistance services and related
telecommunications services and access to listings of telephone service
subscribers.
"COMPANY INTELLECTUAL PROPERTY" shall mean any and all
Intellectual Property and Intellectual Property Rights that are owned by or
exclusively licensed to the Company. All material Company Intellectual Property
is identified in SECTION 2.13(a) of the Disclosure Schedule.
"REGISTERED INTELLECTUAL PROPERTY" shall mean Intellectual
Property and Intellectual Property Rights that have been registered, applied
for, filed, certified or otherwise perfected, issued, or recorded with or by any
state, government or other public or quasi-public legal authority.
(b) SECTION 2.13(b) of the Disclosure Schedule (i) lists all
Registered Intellectual Property owned by, or filed in the name of, the Company
(the "COMPANY REGISTERED INTELLECTUAL PROPERTY") and (ii) lists any proceedings
or actions before any court, tribunal (including the United States Patent and
Trademark Office (the "PTO") or equivalent authority anywhere in the world)
related to any of the Company Registered Intellectual Property or Company
Intellectual Property.
(c) To the Knowledge of the Company, each item of Company
Registered Intellectual Property is valid or subsisting according to its
registered, issued or pending status (as the case may be). All necessary
registration, maintenance and renewal fees previously due in connection with
such Company Registered Intellectual Property have been paid and all necessary
documents and certificates previously due in connection with such Company
Registered Intellectual Property have been filed with the relevant patent,
copyright, trademark or other authorities in the United States or foreign
jurisdictions, as the case may be, for the purposes of maintaining such
Registered Intellectual Property.
(d) All Company Intellectual Property will be fully transferable
and licensable by Surviving Corporation and/or Parent without restriction and
without payment of any kind to any third party.
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(e) Except as set forth on SECTION 2.13(e) of the Disclosure
Schedule, to the extent that any Intellectual Property has been developed or
created independently or jointly by any person other than the Company for which
the Company has, directly or indirectly, provided consideration for such
development or creation, the Company has a written agreement with such person
with respect thereto, and the Company thereby has obtained ownership of, and is
the exclusive owner of, all such Intellectual Property therein and associated
Intellectual Property Rights by operation of law or by valid assignment, and has
required the waiver of all non-assignable rights, including but not limited to,
all author or moral rights.
(f) The Company has not (i) transferred ownership of, or granted
any exclusive license of or exclusive right to use, or authorized the retention
of any exclusive rights to use or joint ownership of, any Intellectual Property
or Intellectual Property Rights that is or was Company Intellectual Property, to
any other person or (ii) other than as set forth on SECTION 2.13(f) of the
Disclosure Schedule, permitted the Company's rights in such Company Intellectual
Property to enter into the public domain.
(g) Other than software and documentation licensed under the
licenses set forth on SECTION 2.13(g) of the Disclosure Schedule, the Company
Intellectual Property constitutes all of the Intellectual Property and
Intellectual Property Rights used in or necessary to the conduct of the business
of the Company as it currently is conducted or planned to be conducted,
including, without limitation, the design, development, marketing, manufacture,
use, import and sale of any product, technology or service (including products,
technology or services currently under development).
(h) Other than the licenses set forth in SECTION 2.13(g) of the
Disclosure Schedule, SECTION 2.13(h) of the Disclosure Schedule lists all IP
Agreements which are in effect as of the Closing Date.
(i) No third party that has licensed Intellectual Property or
Intellectual Property Rights to the Company has ownership rights or license
rights to improvements or derivative works made by the Company in such
Intellectual Property that has been licensed to the Company.
(j) There are no contracts, licenses or agreements between the
Company and any other person with respect to Company Intellectual Property or
other Intellectual Property used in and/or necessary to the conduct of the
business as it is currently conducted or planned to be conducted under which
there is any dispute regarding the scope of such agreement, or performance under
such agreement including with respect to any payments to be made or received by
the Company thereunder.
(k) The operation of the business of the Company as it is
currently conducted by the Company, including but not limited to the design,
development, use, import, branding, advertising, promotion, marketing,
distribution, manufacture and sale of any product, technology or service
(including products, technology or services currently under development) of the
Company has not infringed or misappropriated, does not infringe or
misappropriate, and will not infringe or misappropriate when conducted by Parent
and/or Surviving Corporation following the Closing in the manner currently
conducted, any Intellectual Property Rights of any person, violate any right of
any
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person (including any right to privacy or publicity), materially breach any IP
Agreement, or constitute obscenity, defamation, or unfair competition or trade
practices under the laws of any jurisdiction. The Company has not received
notice from any person claiming that such operation or any act, any product,
technology or service (including products, technology or services currently
under development) or Intellectual Property of the Company infringes or
misappropriates any Intellectual Property Rights of any person or constitutes
unfair competition or trade practices under the laws of any jurisdiction (nor
does the Company have Knowledge of any basis therefor).
(l) Neither this Agreement nor the transactions contemplated by
this Agreement, including the assignment to Parent by operation of law or
otherwise of any contracts or agreements to which the Company is a party, will
result in: (i) Parent or the Surviving Corporation granting to any third party
any right to or with respect to any Intellectual Property Rights owned by, or
licensed to, any of them, (ii) Parent or the Surviving Corporation, being bound
by, or subject to, any non-compete or other material restriction on the
operation or scope of their respective businesses, or (iii) Parent or the
Surviving Corporation being obligated to pay any royalties or other material
amounts to any third party in excess of those payable by the Company in the
absence of this Agreement or the transactions contemplated hereby.
(m) Other than as set forth on SECTION 2.13(m) of the Disclosure
Schedule, to the Knowledge of the Company, no person or entity has infringed or
misappropriated or is infringing or misappropriating any Company Intellectual
Property.
(n) The Company has taken all reasonable steps that are required
or necessary to protect the Company's rights in confidential information and
trade secrets of the Company or provided by any other person to the Company.
Without limiting the foregoing, the Company has, and enforces, a policy
requiring each employee, consultant, and contractor to execute proprietary
information, confidentiality and assignment agreements substantially in the
Company's standard forms (in the forms set forth in EXHIBIT D), and all current
and former employees, consultants and contractors of the Company have executed
such an agreement in substantially the Company's standard form.
(o) Other than standard proceedings involving applications for
Intellectual Property Rights pending before the U.S. Patent and Trademark Office
or foreign patent offices which are set forth on SECTION 2.13(b) of the
Disclosure Schedule, no Company Intellectual Property (including all Registered
Intellectual Property Rights), Intellectual Property Rights, product,
technology, or service of the Company is subject to any (i) proceeding or
outstanding decree, order, judgment or settlement agreement or stipulation that
restricts in any manner the use, transfer or licensing thereof by the Company or
may affect the validity, use or enforceability of such Company Intellectual
Property, Intellectual Property Rights, product, technology or service, or (ii)
Lien.
(p) Except as set forth on SECTION 2.13(p) of the Disclosure
Schedule, no government funding, facilities or resources of a university,
college, other educational institution or research center or funding from third
parties was used in the development of the Company Intellectual Property and no
Governmental Entity, university, college, other educational institution or
research center has any claim or right in or to the Company Intellectual
Property. Except as set forth
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on SECTION 2.13(p) of the Disclosure Schedule, to the Company's Knowledge, no
current or former employee, consultant or independent contractor of the Company
who was involved in, or who contributed to, the creation or development of any
Company Intellectual Property, has performed services for the government, a
university, college or other educational institution, or a research center,
during a period of time during which such employee, consultant or independent
contractor was also performing services for the Company.
(q) The Company has complied with all applicable laws and its
internal privacy policies relating to (a) the privacy of users of its products,
services, and Web sites and (b) the collection, storage, and transfer of any
personally identifiable information collected by or on behalf of the Company.
(r) Except as set forth on SECTION 2.13(r) of the Disclosure
Schedule, neither the Company nor any person or entity acting with the Company's
authority or Knowledge has disclosed, delivered or licensed to any person or
entity, agreed to disclose, deliver or license to any person or entity, or
permitted the disclosure or delivery to any escrow agent or other person or
entity of any Company Source Code. To the Knowledge of the Company, no event has
occurred, and no circumstance or condition exists, that (with or without notice
or lapse of time or both) will, or would reasonably be expected to, result in
the disclosure or delivery by or on behalf of the Company of any Company Source
Code. Company Source Code means any software source code or related proprietary
or confidential information or algorithms of any Company Intellectual Property.
(s) SECTION 2.13(s) of the Disclosure Schedule lists all software
or other material that is distributed as "freeware," "free software," "open
source software" or under a similar licensing or distribution model (including
but not limited to the GNU General Public License) that the Company uses or
licenses, and identifies the license agreement to which its use is subject and
that which is incorporated into, combined with, or distributed in conjunction
with any Company products or services ("Incorporated Open Source Software"). The
Company's use and/or distribution of each component of Incorporated Open Source
Software complies with all material provisions of the applicable license
agreement, and in no case does such use or distribution give rise under such
license agreement to any rights in any third parties under any Company
Intellectual Property or obligations for the Company with respect to any Company
Intellectual Property, including without limitation any obligation to disclose
or distribute any such Intellectual Property in source code form, to license any
such Intellectual Property for the purpose of making derivative works, or to
distribute any such Intellectual Property without charge.
2.14 AGREEMENTS, CONTRACTS AND COMMITMENTS. Except as set forth in
SECTION 2.14 of the Disclosure Schedule (specifying the appropriate paragraph),
the Company is not a party to, nor is it bound by any of the following (each, a
"MATERIAL CONTRACT"):
(a) any employment or consulting agreement, contract or commitment
with an employee or individual consultant or salesperson, or consulting or sales
agreement, contract, or commitment with a firm or other organization;
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(b) any agreement or plan, including, without limitation, any
stock option plan, stock appreciation rights plan or stock purchase plan, any of
the benefits of which will be increased, or the vesting of benefits of which
will be accelerated, by the occurrence of any of the transactions contemplated
by this Agreement or the value of any of the benefits of which will be
calculated on the basis of any of the transactions contemplated by this
Agreement;
(c) any fidelity or surety bond or completion bond;
(d) any lease of personal property having a value in excess of
$15,000 individually or $37,500 in the aggregate;
(e) any agreement of indemnification or guaranty;
(f) any agreement, contract or commitment relating to capital
expenditures and involving future payments in excess of $15,000 individually or
$37,500 in the aggregate;
(g) any agreement, contract or commitment relating to the
disposition or acquisition of assets or any interest in any business enterprise
outside the ordinary course of the Company's business;
(h) any mortgages, indentures, guarantees, loans or credit
agreements, security agreements or other agreements or instruments relating to
the borrowing of money or extension of credit;
(i) any purchase order or contract for the purchase of materials
involving in excess of $15,000 individually or $37,500 in the aggregate;
(j) any agreement containing covenants or other obligations
granting any person exclusive rights, "most favored nations" or similar terms;
(k) any dealer, distribution, joint marketing or development
agreement;
(l) any sales representative, original equipment manufacturer,
manufacturing, value added, remarketer, reseller, or independent software
vendor, or other agreement for use or distribution of the products, technology
or services of the Company;
(m) any IP Agreements; or
(n) any other agreement, contract or commitment that involves
$15,000 individually or $37,500 in the aggregate or more and is not cancelable
without penalty within thirty (30) days.
2.15 INTERESTED PARTY TRANSACTIONS. No officer, director or stockholder
of the Company (nor any ancestor, sibling, descendant or spouse of any of such
persons, or any trust, partnership or corporation in which any of such persons
has or has had an interest), has or has had, directly or indirectly, (i) an
interest in any entity which furnished or sold, or furnishes or sells, services,
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products, technology or Intellectual Property that the Company furnishes or
sells, or proposes to furnish or sell, or (ii) any interest in any entity that
purchases from or sells or furnishes to the Company, any goods or services, or
(iii) a beneficial interest in any Material Contract to which the Company is a
party; provided, however, that ownership of no more than one percent (1%) of the
outstanding voting stock of a publicly traded corporation shall not be deemed to
be an "interest in any entity" for purposes of this SECTION 2.15. No Shareholder
has any loans outstanding from the Company.
2.16 GOVERNMENTAL AUTHORIZATION. Each material consent, license, permit,
grant or other authorization (i) pursuant to which the Company currently
operates or holds any interest in any of its properties, or (ii) which is
required for the operation of the Company's business as currently conducted or
currently contemplated to be conducted or the holding of any such interest
(collectively, "COMPANY AUTHORIZATIONS") has been issued or granted to the
Company, as the case may be. The Company Authorizations are in full force and
effect and constitute all Company Authorizations required to permit the Company
to operate or conduct its business or hold any interest in its properties or
assets.
2.17 LITIGATION. There is no action, suit, claim or proceeding of any
nature pending, or to the Knowledge of the Company, threatened, against the
Company, its properties (tangible or intangible) or any of its officers or
directors, nor to the Knowledge of the Company is there any reasonable basis
therefor. There is no investigation or other proceeding pending or, to the
Knowledge of the Company, threatened, against the Company, any of its properties
(tangible or intangible) or any of its officers or directors by or before any
Governmental Entity, nor to the Knowledge of the Company is there any reasonable
basis therefor. No Governmental Entity has at any time challenged or questioned
the legal right of the Company to conduct its operations as presently or
previously conducted or as presently contemplated to be conducted.
2.18 MINUTE BOOKS. The minutes of the Company made available to counsel
for Parent contain complete and accurate records of all actions taken, and
summaries of all meetings held, by the stockholders, the Board of Directors of
the Company (and any committees thereof) since the time of incorporation of the
Company, as the case may be.
2.19 ENVIRONMENTAL MATTERS. To the Knowledge of the Company, the Company
has complied with all applicable laws, statutes, ordinances, rules, regulations,
codes, orders, decrees or injunctions enacted for the protection of the
environment (including, without limitation, air, water vapor, surface water,
groundwater and soils) against contamination with hazardous substances or wastes
("ENVIRONMENTAL LAWS") except, in any such case, as is not reasonably likely to
result in a Company Material Adverse Effect. There is no environmental suit,
action, claim or proceeding pending, or to the Knowledge of the Company,
threatened, naming the Company as party thereto, except as is not reasonably
likely to result in a Company Material Adverse Effect. Notwithstanding any other
representations and warranties in this ARTICLE II, the representations and
warranties contained in this SECTION 2.19 constitute the sole representations
and warranties of the Company with respect to any Environmental Law or
environmental liabilities, costs or obligations of any nature.
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2.20 BROKERS' AND FINDERS' FEES; THIRD PARTY EXPENSES. Except as set
forth in SECTION 2.20 of the Disclosure Schedule, the Company has not incurred,
nor will it incur, directly or indirectly, any liability for brokerage or
finders' fees or agents' commissions, fees related to investment banking or
similar advisory services or any similar charges in connection with the
Agreement or any transaction contemplated hereby. SECTION 2.20 of the Disclosure
Schedule sets forth the principal terms and conditions of any agreement, written
or oral, with respect to such fees.
2.21 EMPLOYEE BENEFIT PLANS AND COMPENSATION.
(a) DEFINITIONS. For all purposes of this Agreement, the following
terms shall have the following respective meanings:
"COMPANY EMPLOYEE PLAN" shall mean any plan, program, policy,
practice, contract, agreement or other arrangement providing for compensation,
severance, termination pay, deferred compensation, retirement benefits,
performance awards, stock or stock-related awards, fringe benefits or other
employee benefits or remuneration of any kind, whether written, unwritten or
otherwise, funded or unfunded, including without limitation, each "employee
benefit plan," within the meaning of Section 3(3) of ERISA which is or has been
maintained during the last two years, contributed to, or required to be
contributed to, by the Company or any ERISA Affiliate for the benefit of any
Employee, or with respect to which the Company or any ERISA Affiliate has or may
have any liability or obligation and any International Employee Plan.
"COBRA" shall mean the Consolidated Omnibus Budget
Reconciliation Act of 1985, as amended.
"DOL" shall mean the United States Department of Labor.
"EMPLOYEE" shall mean any current or former employee,
consultant or director of the Company or any ERISA Affiliate.
"EMPLOYEE AGREEMENT" shall mean each management, employment,
severance, consulting, relocation, repatriation, expatriation, visas, work
permit or other agreement, or contract (including, without limitation, any offer
letter or any agreement providing for acceleration of Company Options or Company
Unvested Common Stock, or any other agreement providing for compensation or
benefits) between the Company or any ERISA Affiliate and any Employee.
"ERISA" shall mean the Employee Retirement Income Security Act
of 1974, as amended.
"ERISA AFFILIATE" shall mean any other person or entity under
common control with the Company within the meaning of Section 414(b), (c), (m)
or (o) of the Code, and the regulations issued thereunder.
"FMLA" shall mean the Family Medical Leave Act of 1993, as
amended.
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"HIPAA" shall mean the Health Insurance Portability and
Accountability Act of 1996, as amended.
"INTERNATIONAL EMPLOYEE PLAN" shall mean each Company Employee
Plan or Employee Agreement that has been adopted or maintained by the Company or
any ERISA Affiliate, or with respect to which the Company or any ERISA Affiliate
will or may have any liability with respect to Employees who perform services
outside the United States.
"IRS" shall mean the United States Internal Revenue Service.
"PBGC" shall mean the United States Pension Benefit Guaranty
Corporation.
"PENSION PLAN" shall mean each Company Employee Plan that is
an "employee pension benefit plan," within the meaning of Section 3(2) of ERISA.
(b) SCHEDULE. SECTION 2.21(b)(1) of the Disclosure Schedule
contains an accurate and complete list of each Company Employee Plan, each
Employee Agreement under each Company Employee Plan, and each Employee
Agreement. The Company has not made any plan or commitment to establish any new
Company Employee Plan or Employee Agreement, to modify any Company Employee Plan
or Employee Agreement (except to the extent required by law or to conform any
such Company Employee Plan or Employee Agreement to the requirements of any
applicable law, in each case as previously disclosed to Parent in writing, or as
required by this Agreement), or to enter into any Company Employee Plan or
Employee Agreement. SECTION 2.21(b)(2) of the Disclosure Schedule sets forth a
table setting forth the name and salary of each employee of the Company.
(c) DOCUMENTS. The Company has provided to Parent (i) correct and
complete copies of all documents embodying each Company Employee Plan and each
Employee Agreement including, without limitation, all amendments thereto and all
related trust documents, (ii) the three (3) most recent annual reports (Form
Series 5500 and all schedules and financial statements attached thereto), if
any, required under ERISA or the Code in connection with each Company Employee
Plan, (iii) if the Company Employee Plan is funded, the most recent annual and
periodic accounting of Company Employee Plan assets, (iv) the most recent
summary plan description together with the summary(ies) of material
modifications thereto, if any, required under ERISA with respect to each Company
Employee Plan, (v) all material written agreements and contracts relating to
each Company Employee Plan, including, without limitation, administrative
service agreements and group insurance contracts, (vi) all communications
material to any Employee or Employees relating to any Company Employee Plan and
any proposed Company Employee Plans, in each case, relating to any amendments,
terminations, establishments, increases or decreases in benefits, acceleration
of payments or vesting schedules or other events which have not been adopted and
likely would result in any material liability to the Company, (vii) all
correspondence to or from any governmental agency relating to any Company
Employee Plan that could result in material liability to the Company, (viii) a
sample of each current COBRA form and any related notices, (ix) all
discrimination tests for each Company Employee Plan for the three (3) most
recent plan years, and
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(x) the most recent IRS determination or opinion letter issued with respect to
each Company Employee Plan.
(d) EMPLOYEE PLAN COMPLIANCE. The Company has performed, in all
material respects, all obligations required to be performed by them under each
Company Employee Plan, and each Company Employee Plan has been established and
maintained in material compliance with its terms and in material compliance with
all applicable laws, statutes, orders, rules and regulations, including but not
limited to ERISA or the Code. Any Company Employee Plan intended to be qualified
under Section 401(a) of the Code has obtained a favorable determination letter
(or opinion letter, if applicable) since January 1, 2000 as to its qualified
status under the Code. No "prohibited transaction," within the meaning of
Section 4975 of the Code or Sections 406 and 407 of ERISA, and not otherwise
exempt under Section 408 of ERISA, has occurred with respect to any Company
Employee Plan. There are no actions, suits or claims pending or, to the
Knowledge of the Company, threatened or reasonably anticipated (other than
routine claims for benefits) against any Company Employee Plan or against the
assets of any Company Employee Plan. Each Company Employee Plan can be amended,
terminated or otherwise discontinued after the Effective Time in accordance with
its terms, without liability to Parent, the Company or any ERISA Affiliate
(other than ordinary administration expenses). There are no audits, inquiries or
proceedings pending or to the Knowledge of the Company or any ERISA Affiliates,
threatened by the IRS, DOL, or any other Governmental Entity with respect to any
Company Employee Plan. Neither the Company nor any ERISA Affiliate is subject to
any penalty or tax with respect to any Company Employee Plan under Section
502(i) of ERISA or Sections 4975 through 4980 of the Code. The Company has
timely made all contributions and other payments required by and due under the
terms of each Company Employee Plan.
(e) NO PENSION PLANS. Neither the Company nor any ERISA Affiliate
has ever maintained, established, sponsored, participated in, or contributed to,
any Pension Plans subject to Title IV of ERISA. At no time has the Company or
any ERISA Affiliate contributed to or been obligated to contribute to any
Multiemployer Plan. Neither the Company nor any ERISA Affiliate has at any time
ever maintained, established, sponsored, participated in or contributed to any
multiple employer plan or to any plan described in Section 413 of the Code.
(f) NO SELF-INSURED PLANS. Neither the Company nor any ERISA
Affiliate has ever maintained, established sponsored, participated in or
contributed to any self-insured plan that provides benefits to employees
(including, without limitation, any such plan pursuant to which a stop-loss
policy or contract applies).
(g) NO POST-EMPLOYMENT OBLIGATIONS. No Company Employee Plan or
Employment Arrangement provides, retiree life insurance, retiree health or other
retiree employee welfare benefits to any person for any reason, except as may be
required by COBRA or other applicable statute, and to the Knowledge of the
Company, the Company has never represented, promised or contracted (whether in
oral or written form) to any Employee (either individually or to Employees as a
group) or any other person that such Employee(s) or other person would be
provided with retiree life insurance, retiree health or other retiree employee
welfare benefits, except to the extent required by statute.
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(h) EFFECT OF TRANSACTION. The execution of this Agreement and the
consummation of the transactions contemplated hereby will not (either alone or
upon the occurrence of any additional or subsequent events) constitute an event
under any Company Employee Plan, Employee Agreement 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.
(i) SECTION 280G. No payment or benefit which has been, will be or
may be made by the Company or any ERISA Affiliates with respect to any Employee
will, or could reasonably be expected to, be characterized as a "parachute
payment," within the meaning of Section 280G(b)(2) of the Code.
(j) EMPLOYMENT MATTERS. The Company is in material compliance with
all applicable foreign, federal, state and local laws, rules and regulations
respecting employment, employment practices, terms and conditions of employment,
employee safety and wages and hours. There are no pending or, to the Knowledge
of the Company, threatened or reasonably anticipated claims or actions against
Company or any Company trustee under any worker's compensation policy. The
services provided by each of the Company's and its ERISA Affiliates' Employees
is terminable at the will of the Company and its ERISA Affiliates and any such
termination would result in no liability to the Company or any ERISA Affiliate
other than compensation and benefits earned prior to the date of such
termination and not yet paid or contributed. Neither the Company nor any ERISA
Affiliate has direct or indirect material liability with respect to any
misclassification of any person as an independent contractor rather than as an
employee, or with respect to any employee leased from another employer.
(k) LABOR. No work stoppage or labor strike against the Company is
pending, or to the Knowledge of the Company, threatened, or reasonably
anticipated. The Company does not know of any activities or proceedings of any
labor union to organize any Employees. There are no actions, suits, claims,
labor disputes or grievances pending or threatened or reasonably anticipated
relating to any labor matters involving any Employee, including, without
limitation, charges of unfair labor practices. To the Knowledge of the Company,
the Company has not engaged in any unfair labor practices within the meaning of
the National Labor Relations Act. The Company is not presently, nor has it been
in the past, been a party to, or bound by, any collective bargaining agreement
or union contract with respect to Employees and no collective bargaining
agreement is being negotiated by the Company.
(l) NO INTERFERENCE OR CONFLICT. To the Knowledge of the Company,
no stockholder, director, officer, Employee or consultant of the Company is
obligated under any contract or agreement, subject to any judgment, decree, or
order of any court or administrative agency that would interfere with such
person's efforts to promote the interests of the Company or that would interfere
with the Company's business. Neither the execution nor delivery of this
Agreement, nor the carrying on of the Company's business as presently conducted
or proposed to be conducted nor any activity of such officers, directors,
Employees or consultants in connection with the carrying on of the Company's
business as presently conducted or currently proposed to be
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conducted will, to the Knowledge of the Company, conflict with or result in a
breach of the terms, conditions, or provisions of, or constitute a default
under, any contract or agreement under which any of such officers, directors,
Employees, or consultants is now bound.
(m) INTERNATIONAL EMPLOYEE PLAN. Neither the Company nor any ERISA
Affiliate currently or has it ever had the obligation to maintain, establish,
sponsor, participate in, be bound by or contribute to any International Employee
Plan.
2.22 INSURANCE. SECTION 2.22 of the Disclosure Schedule lists all
insurance policies and fidelity bonds covering the assets, business, equipment,
properties, operations, employees, officers and directors of the Company,
including the type of coverage, the carrier, the amount of coverage, the term
and the annual premiums of such policies. There is no claim by the Company
pending under any of such policies or bonds as to which coverage has been
questioned, denied or disputed or that the Company has a reason to believe will
be denied or disputed by the underwriters of such policies or bonds. In
addition, there is no pending claim of which its total value (inclusive of
defense expenses) will exceed the policy limits. All premiums due and payable
under all such policies and bonds have been paid, (or if installment payments
are due, will be paid if incurred prior to the Closing Date) and the Company is
otherwise in material compliance with the terms of such policies and bonds (or
other policies and bonds providing substantially similar insurance coverage).
Such policies and bonds (or other policies and bonds providing substantially
similar coverage) have been in effect since the Company's incorporation and
remain in full force and effect. The Company has no Knowledge or reasonable
belief of threatened termination of, or premium increase with respect to, any of
such policies. The Company has never maintained, established, sponsored,
participated in or contributed to any self-insurance plan.
2.23 COMPLIANCE WITH LAWS. The Company has materially complied with, is
not in material violation of, and has not received any notices of material
violation with respect to, any foreign, federal, state or local statute, law or
regulation.
2.24 WARRANTIES; INDEMNITIES. Except for the warranties and indemnities
contained in those contracts and agreements set forth in SECTION 2.13(l) of the
Disclosure Schedule and warranties implied by law, the Company has not given any
warranties or indemnities relating to products or technology sold or services
rendered by the Company.
2.25 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 Schedule) in this Agreement,
and none of the statements made in any exhibit, schedule or certificate
furnished by the Company pursuant to this Agreement 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.
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ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE PRINCIPAL STOCKHOLDERS
Each of the Principal Stockholders hereby represents and warrants to
Parent and Sub on behalf of itself, and not on behalf of the other Principal
Stockholders, subject to such exceptions as are specifically disclosed in the
Disclosure Schedule and dated as of the date hereof, on the date hereof and as
of the Effective Time, as though made at the Effective Time, as follows:
3.1 OWNERSHIP OF COMPANY CAPITAL STOCK. Each Principal Stockholder is
the sole record and beneficial owner of the Company Capital Stock designated as
being owned by such Principal Stockholder opposite such Principal Stockholder's
name in SECTION 2.2(a)(1) of the Disclosure Schedule, except as otherwise noted
in SECTION 2.2(a)(1) of the Disclosure Schedule. Except as set forth in SECTION
3.1 of the Disclosure Schedule, such Company Capital Stock is not subject to any
Liens or to any rights of first refusal of any kind, and such Principal
Stockholder has not granted any rights to purchase such Company Capital Stock to
any other person or entity. Each Principal Stockholder has the sole right to
transfer such Company Capital Stock to Parent. Except as set forth in SECTION
3.1 of the Disclosure Schedule, such Company Capital Stock constitutes all of
the Company Capital Stock owned, beneficially or of record, by such Principal
Stockholder, and such Principal Stockholder has no options, warrants or other
rights to acquire Company Capital Stock. Upon the Effective Time, in exchange
for the consideration paid pursuant to ARTICLE I hereof, Parent will receive
good title to such Company Capital Stock, subject to no Liens retained, granted
or permitted by such Principal Stockholder or the Company.
3.2 ABSENCE OF CLAIMS BY THE PRINCIPAL STOCKHOLDERS. Except as set forth
in SECTION 3.2 of the Disclosure Schedule, none of the Principal Stockholders
have any claim against the Company, whether present or future, contingent or
unconditional, fixed or variable under any contract or on any other basis
whatsoever, whether in equity or at law.
3.3 AUTHORITY. Each Principal Stockholder that is an entity has all
requisite power and authority, and each Principal Stockholder that is an
individual has capacity, to enter into this Agreement and any Related Agreements
to which it or he, as the case may be, is a party and to consummate the
transactions contemplated hereby and thereby. The execution and delivery of this
Agreement and any Related Agreements to which such Principal Stockholder is a
party and the consummation of the transactions contemplated hereby and thereby
have been duly authorized by all necessary corporate action on the part of such
Principal Stockholder and no further action is required on the part of such
principal stockholder to authorize the Agreement and any Related Agreements to
which it is a party and the transactions contemplated hereby and thereby. This
Agreement and each of the Related Agreements to which such Principal Stockholder
is a party has been duly executed and delivered by such Principal Stockholder,
and assuming the due authorization, execution and delivery by the other parties
hereto and thereto, constitute the valid and binding obligations of such
Principal Stockholder, enforceable against each such party in accordance with
their respective terms, except as such enforceability may be subject to the laws
of general application relating to
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bankruptcy, insolvency, and the relief of debtors and rules of law governing
specific performance, injunctive relief or other equitable remedies.
3.4 NO CONFLICT. The execution and delivery by each Principal
Stockholder of this Agreement and any Related Agreement to which it is a party
do not, and the consummation of the transactions contemplated hereby and thereby
will not, conflict with (i) any provision of the charter documents of such
Principal Stockholder if such Principal Stockholder is an entity, (ii) any
material mortgage, indenture, lease, contract or other agreement or instrument,
permit, concession, franchise or license to which such Principal Stockholder or
any of its properties or assets is subject, or (iii) any judgment, order,
decree, statute, law, ordinance, rule or regulation applicable to such Principal
Stockholder or its properties or assets.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PARENT AND SUB
Each of Parent and Sub hereby represents and warrants to the Company that
on the date hereof and as of the Effective Time, as though made at the Effective
Time, as follows:
4.1 ORGANIZATION, STANDING AND POWER. Parent is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware. Sub is a corporation duly organized, validly existing and in good
standing under the laws of Delaware. Each of Parent and Sub has the corporate
power to own its properties and to carry on its business as now being conducted
and is duly qualified or licensed to do business and is in good standing in each
jurisdiction in which the failure to be so qualified or licensed would have a
material adverse effect on the business, assets (including intangible assets),
condition (financial or otherwise), results of operations or capitalization of
Parent (a "PARENT MATERIAL ADVERSE EFFECT"); provided, however, that in no event
shall either of the following, alone or in combination with the other, be deemed
to constitute, nor shall either of the following be taken into account in
determining whether there has been or will be a Parent Material Adverse Effect:
(i) a change in the price per share of Parent Common Stock or a change in the
trading volume of Parent Common Stock or (ii) any occurrence relating to the
industry in which Parent operates as a whole, other than that which affects
Parent disproportionately.
4.2 AUTHORITY. Each of Parent and Sub has all requisite corporate power
and authority to enter into this Agreement and any Related Agreements to which
it is a party and to consummate the transactions contemplated hereby and
thereby. The execution and delivery of this Agreement and any Related Agreements
to which it is a party and the consummation of the transactions contemplated
hereby and thereby have been duly authorized by all necessary corporate action
on the part of Parent and Sub. This Agreement and any Related Agreements to
which Parent and Sub are parties have been duly executed and delivered by Parent
and Sub and constitute the valid and binding obligations of Parent and Sub,
enforceable against each of Parent and Sub in accordance with their terms,
except as such enforceability may be limited by principles of public policy and
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subject to the laws of general application relating to bankruptcy, insolvency
and the relief of debtors and rules of law governing specific performance,
injunctive relief or other equitable remedies.
4.3 CONSENTS. No consent, waiver, approval, order or authorization of,
or registration, declaration or filing with, any Governmental Entity, is
required by or with respect to Parent or Sub in connection with the execution
and delivery of this Agreement and any Related Agreements to which Parent or Sub
is a party or the consummation of the transactions contemplated hereby and
thereby, except for (i) such consents, waivers, approvals, orders,
authorizations, registrations, declarations and filings as may be required under
applicable securities laws, (ii) such consents, waivers, approvals, orders,
authorizations, registrations, declarations and filings which, if not obtained
or made, would not have a Parent Material Adverse Effect, and (iii) the filing
of the Certificate of Merger with the Secretary of State of the State of
Delaware.
4.4 CAPITAL RESOURCES. Parent has sufficient capital resources to pay
the Merger Consideration.
4.5 BROKER'S AND FINDERS' FEES. Neither Parent nor Sub has 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.
4.6 NO CONFLICTS. The execution and delivery of this Agreement and any
Related Agreement to which Parent or Sub is a party do not, and the consummation
of the transactions contemplated hereby will not, conflict with, or result in
any conflict with (i) any provision of the certificate of incorporation or
bylaws of Parent or Sub, as amended, respectively, (ii) any mortgage, indenture,
lease, contract or other agreement or instrument, permit, concession, franchise
or license to which Parent or any of its respective properties or assets are
subject and which has been filed as an exhibit to Parent's Annual Report on Form
10-K for the year ended December 31, 2003 ("PARENT 10-K") and such other filings
under the Securities Act of 1933, as amended (the "SECURITIES ACT") or the
Securities and Exchange Act of 1934, as amended (the "EXCHANGE ACT") which are
made subsequent to the Parent 10-K and prior to the date hereof, or (iii) any
judgment, order, decree, statute, law, ordinance, rule or regulation applicable
to Parent or Sub or their respective properties or assets, except in each case
where such conflict will not have a Parent Material Adverse Effect.
4.7 INTERIM OPERATIONS OF SUB. Sub was formed solely for the purpose of
engaging in the transactions contemplated by this Agreement and has engaged in
no business activities other than as contemplated by this Agreement.
ARTICLE V
CONDUCT PRIOR TO THE EFFECTIVE TIME
5.1 CONDUCT OF BUSINESS OF THE COMPANY. During the period from the date
of this Agreement and continuing until the earlier of the termination of this
Agreement or the Effective Time, the Company agrees to conduct its business,
except to the extent that Parent shall otherwise consent in writing, in the
usual, regular and ordinary course in substantially the same manner as
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heretofore conducted, to pay the debts and Taxes of the Company when due
(subject to Parent's right pursuant to SECTION 5.1(e) to review and approve the
filing of any Tax Returns), to pay or perform other obligations when due, and,
to the extent consistent with such business, to preserve intact the present
business organizations of the Company, keep available the services of the
present officers and key employees of the Company and preserve the relationships
of the Company with customers, suppliers, distributors, licensors, licensees,
and others having business dealings with them, all with the goal of preserving
unimpaired the goodwill and ongoing businesses of the Company at the Effective
Time. The Company shall promptly notify Parent of any event or occurrence or
emergency not in the ordinary course of business of the Company and any material
event involving the Company that arises during the period from the date of this
Agreement and continuing until the earlier of the termination date of this
Agreement or the Effective Time. In addition to the foregoing, except as
expressly contemplated by this Agreement and except as expressly set forth in
SECTION 5.1 of the Disclosure Schedule, the Company shall not, without the prior
written consent of Parent, from and after the date of this Agreement:
(a) cause or permit any amendments to the certificate of
incorporation, bylaws or other organizational documents of the Company;
(b) make any expenditures or enter into any commitment or
transaction exceeding $15,000 individually or $37,500 in the aggregate or any
commitment or transaction of the type described in SECTION 2.9 hereof;
(c) pay, discharge, waive or satisfy, in an amount in excess of
$15,000 in any one case, or $37,500 in the aggregate, any claim, liability,
right or obligation (absolute, accrued, asserted or unasserted, contingent or
otherwise), other than (i) the payment, discharge or satisfaction in the
ordinary course of business of liabilities reflected or reserved against in the
Current Balance Sheet, or (ii) the payment or discharge of the bridge loans
disclosed in SECTION 2.8 of the Disclosure Schedule (the "BRIDGE LOANS");
(d) adopt or change accounting methods or practices (including any
change in depreciation or amortization policies) other than as required by GAAP;
(e) make or change any material election in respect of Taxes,
adopt or change any accounting method in respect of Taxes, enter into any
closing agreement, settle any claim or assessment in respect of Taxes, consent
to any extension or waiver of the limitation period applicable to any claim or
assessment in respect of Taxes or file any Tax Return unless a copy of such Tax
Return has been delivered to Parent for review a reasonable time prior to filing
and Parent has approved such Tax Return;
(f) revalue any of its assets (whether tangible or intangible),
including without limitation writing down the value of inventory or writing off
notes or accounts receivable other than in the ordinary course of business
consistent with past practice;
(g) declare, set aside, or pay any dividends on or make any other
distributions (whether in cash, stock or property) in respect of any Company
Capital Stock, or split, combine or
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reclassify any Company Capital Stock or issue or authorize the issuance of any
other securities in respect of, in lieu of or in substitution for shares of
Company Capital Stock, or repurchase, redeem or otherwise acquire, directly or
indirectly, any shares of Company Capital Stock (or options, warrants or other
rights exercisable therefor) except in accordance with the agreements evidencing
Company Unvested Common Stock;
(h) increase the salary or other compensation payable or to become
payable to any officer, director, employee or advisor, or make any declaration,
payment or commitment or obligation of any kind for the payment (whether in cash
or equity) of a severance payment, termination payment, bonus or other
additional salary or compensation to any such person, except payments made
pursuant to written agreements outstanding on the date hereof and disclosed in
the Disclosure Schedule;
(i) sell, lease, license or otherwise dispose of or grant any
security interest in any of its properties or assets, including without
limitation the sale of any accounts receivable of the Company, except properties
or assets (whether tangible or intangible) which are not Company Intellectual
Property and only in the ordinary course of business and consistent with past
practices;
(j) make any loan to any person or entity or purchase debt
securities of any person or entity or amend the terms of any outstanding loan
agreement;
(k) incur any indebtedness, guarantee any indebtedness of any
person or entity, issue or sell any debt securities, or guarantee any debt
securities of any person or entity, other than the Bridge Loans;
(l) waive or release any right or claim of the Company, including
any write-off or other compromise of any account receivable of the Company;
(m) commence or settle any lawsuit, threat of any lawsuit or
proceeding or other investigation against the Company;
(n) issue, grant, deliver or sell or authorize or propose the
issuance, grant, delivery or sale of, or purchase or propose the purchase of,
any Company Capital Stock or any securities convertible into, exercisable or
exchangeable for, or subscriptions, rights, warrants or options to acquire, or
other agreements or commitments of any character obligating it to issue or
purchase any such shares or other convertible securities, except for the
issuance of Company Capital Stock pursuant to the exercise of outstanding
Company Options and Company Warrants;
(o) sell, lease, license or transfer to any person or entity any
rights to any Company Intellectual Property or enter into any agreement or
modify any existing agreement with respect to any Company Intellectual Property
with any person or entity or with respect to any Intellectual Property of any
person or entity, (ii) purchase or license any Intellectual Property or enter
into any agreement or modify any existing agreement with respect to the
Intellectual Property of any person or entity, (iii) enter into any agreement or
modify any existing agreement with respect to the development of any
Intellectual Property with a third party, or (iv) change pricing or royalties
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set or charged by the Company to its customers or licensees, or the pricing or
royalties set or charged by persons who have licensed Intellectual Property to
the Company;
(p) enter into or amend any Contract pursuant to which any other
party is granted marketing, distribution, development, manufacturing or similar
rights of any type or scope with respect to any products or technology of the
Company;
(q) enter into any agreement to purchase or sell any interest in
real property, grant any security interest in any real property, enter into any
lease, sublease, license or other occupancy agreement with respect to any real
property or alter, amend, modify or terminate any of the terms of any Lease
Agreements; or
(r) amend or otherwise modify (or agree to do so), or violate the
terms of, any of the Material Contracts set forth or described in the Disclosure
Schedule;
(s) acquire or agree to acquire by merging or consolidating with,
or by purchasing any assets or equity securities of, or by any other manner, any
business or any corporation, partnership, association or other business
organization or division thereof, or otherwise acquire or agree to acquire any
assets which are material, individually or in the aggregate, to the business of
the Company;
(t) adopt or amend any Company Employee Plan, enter into any
employment contract, pay or agree to pay any bonus or special remuneration to
any director or Employee, or increase or modify the salaries, wage rates, or
other compensation (including, without limitation, any equity-based
compensation) of its Employees except payments made pursuant to written
agreements outstanding on the date hereof;
(u) enter into any strategic alliance, affiliate agreement or
joint marketing arrangement or agreement;
(v) take any action to accelerate the vesting schedule of any of
the outstanding Company Options, Company Unvested Common Stock or Company
Warrants;
(w) hire, promote, demote or terminate any Employees, or encourage
any Employees to resign from the Company;
(x) 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;
(y) cancel, amend or renew any insurance policy; or
(z) take, or agree in writing or otherwise to take, any of the
actions described in SECTIONS 5.1(a) through 5.1(y) hereof, or any other action
that would (i) prevent the Company or any of the Principal Stockholders from
performing, or cause the Company or any of the Principal
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Stockholders not to perform, their respective covenants hereunder or (ii) cause
or result in any of its respective representations and warranties contained
herein being untrue or incorrect.
5.2 NO SOLICITATION. Until the earlier of (i) the Effective Time, or
(ii) the date of termination of this Agreement pursuant to the provisions of
SECTION 10.1 hereof, neither the Company nor the Principal Stockholders shall
(nor shall the Company or the Principal Stockholders permit, as applicable, any
of their respective officers, directors, employees, stockholders, 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, encourage, seek, entertain, support, assist, initiate or participate in
any inquiry, negotiations or discussions, or enter into any agreement, with
respect to any offer or proposal to acquire all or any material part of the
business, properties or technologies of the Company, or any amount of the
Company Capital Stock (whether or not outstanding), whether by merger, purchase
of assets, tender offer, license or otherwise, or effect any such transaction,
(b) disclose any information not customarily disclosed to any person concerning
the business, technologies or properties of the Company, or afford to any person
or entity access to its properties, technologies, books or records, not
customarily afforded such access, (c) assist or cooperate with any person to
make any proposal to purchase all or any part of the Company Capital Stock or
assets of the Company, or (d) enter into any agreement with any person providing
for the acquisition of the Company (other than inventory in the ordinary course
of business), whether by merger, purchase of assets, license, tender offer or
otherwise. The Company shall immediately cease and cause to be terminated any
such negotiations, discussion or agreements (other than with Parent) that are
the subject matter of clause (a), (b), (c) or (d) above. In the event that the
Company, any Principal Stockholder, or any of the Company's affiliates shall
receive, prior to the Effective Time or the termination of this Agreement in
accordance with SECTION 10.1 hereof, any offer, proposal, or request, directly
or indirectly, of the type referenced in clause (a), (c), or (d) above, or any
request for disclosure or access as referenced in clause (b) above, the Company
or such Principal Stockholder, as applicable, shall immediately (x) suspend any
discussions with such offeror or party with regard to such offers, proposals, or
requests and (y) notify Parent thereof, including information as to the identity
of the offeror or the party making any such offer or proposal and the specific
terms of such offer or proposal, as the case may be, and such other information
related thereto as Parent may reasonably request. The parties hereto agree that
irreparable damage would occur in the event that the provisions of this SECTION
5.2 were not performed in accordance with their specific terms or were otherwise
breached. It is accordingly agreed by the parties hereto that Parent shall be
entitled to an immediate injunction or injunctions, without the necessity of
proving the inadequacy of money damages as a remedy and without the necessity of
posting any bond or other security, to prevent breaches of the provisions of
this SECTION 5.2 and to enforce specifically the terms and provisions hereof in
any court of the United States or any state having jurisdiction, this being in
addition to any other remedy to which Parent may be entitled at law or in
equity. Without limiting the foregoing, it is understood that any violation of
the restrictions set forth above by any officer, director, agent, representative
or affiliate of the Company shall be deemed to be a breach of this Agreement by
the Company.
5.3 PROCEDURES FOR REQUESTING PARENT CONSENT. If the Company desires to
take an action which would be prohibited pursuant to SECTION 5.1 of this
Agreement without the written
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consent of Parent, prior to taking such action the Company may request such
written consent by sending an e-mail or facsimile to both of the following
individuals:
(a) General Counsel
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
(b) Senior Vice President Corporate Development
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
ARTICLE VI
ADDITIONAL AGREEMENTS
6.1 STOCKHOLDER APPROVAL.
(a) As soon as practicable after the date hereof, the Company
shall use its best efforts to obtain the Sufficient Stockholder Vote (as defined
below), pursuant to a written stockholder consent, all in accordance with
Delaware Law and the Charter Documents. In connection with such written
stockholder consent, the Company shall submit to the Stockholders the Soliciting
Materials (as defined below), which shall include any and all information
required under applicable law and a solicitation of (A) the approval of the
holders of the Company Common Stock and Company Preferred Stock, voting together
as a single class, to this Agreement and the transactions contemplated hereby,
including the Merger, and (B) the approval of the holders of 75% of the Company
Series B Preferred Stock, voting separately as a class, to this Agreement and
the transactions contemplated hereby, including the Merger ((A) and (B)
together, the "SUFFICIENT STOCKHOLDER VOTE"). Any materials to be submitted to
the Stockholders in connection with the solicitation of their approval of the
Merger and this Agreement, including any stockholder consent (the "SOLICITING
MATERIALS") shall be subject to review and approval by Parent and shall also
include the unanimous recommendation of the Board of Directors of the Company in
favor of the Merger and this Agreement and the transactions contemplated hereby,
and the conclusion of the Company's Board of Directors that that the terms and
conditions of the Merger are fair and reasonable to the Stockholders. Anything
to the contrary contained herein notwithstanding, the Soliciting Materials shall
be subject to the review and approval of Parent prior to distribution, such
approval not to be unreasonably withheld or delayed.
(b) Immediately upon receipt of written consents of its
Stockholders constituting the Sufficient Stockholder Vote, the Company shall
deliver notice of the approval of the Merger by written consent of the Company's
Stockholders, pursuant to the applicable provisions of Delaware Law (the
"STOCKHOLDER NOTICE"), to all Stockholders that did not execute such written
consent informing them that this Agreement and the Merger were adopted and
approved by the stockholders of the Company and that appraisal rights are
available for their Company Capital Stock pursuant to Section 262 of Delaware
Law (which notice shall include a copy of such Section 262), and shall
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promptly inform Parent of the date on which the Stockholder Notice was sent.
Notwithstanding the foregoing, the Company shall give Stockholders sufficient
notice to the effect that no Stockholder will be able to exercise appraisal
rights if such Stockholder has not perfected such appraisal rights in accordance
with Section 262 of Delaware Law.
6.2 ACCESS TO INFORMATION. The Company shall afford Parent and its
accountants, counsel and other representatives, reasonable access during the
period from the date hereof and prior to the Effective Time to (i) all of the
properties, books, contracts, commitments and records of the Company, including
the Company's source code, (ii) all other information concerning the business,
properties and personnel (subject to restrictions imposed by applicable law) of
the Company as Parent may reasonably request, and (iii) all employees of the
Company as identified by Parent. The Company agrees to provide to Parent and its
accountants, counsel and other representatives copies of internal financial
statements (including Tax Returns and supporting documentation) promptly upon
request. No information or knowledge obtained in any investigation pursuant to
this SECTION 6.2 or otherwise 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 in accordance with the terms and
provisions hereof.
6.3 CONFIDENTIALITY. Each of the parties hereto hereby agrees that the
information obtained in any investigation pursuant to SECTION 6.2 hereof, or
pursuant to the negotiation and execution of this Agreement or the effectuation
of the transactions contemplated hereby, shall be governed by the terms of the
Confidential Disclosure Agreement effective as of __________, ____ (the
"CONFIDENTIAL DISCLOSURE AGREEMENT"), between the Company and Parent. In this
regard, the Company acknowledges that Parent's common stock is publicly traded
and that any information obtained by Company regarding Parent could be
considered to be material non-public information within the meaning of federal
and state securities laws. Accordingly, the Company and the Principal
Stockholders acknowledge and agree not to engage in any transactions in the
Parent Common Stock in violation of applicable xxxxxxx xxxxxxx laws.
6.4 EXPENSES. Whether or not the Merger is consummated, all fees and
expenses incurred in connection with the Merger including, without limitation,
all consulting and all other fees and expenses of third parties incurred by a
party in connection with the negotiation and effectuation of the terms and
conditions of this Agreement and the transactions contemplated hereby ("THIRD
PARTY EXPENSES"), shall be the obligation of the respective party incurring such
fees and expenses. Notwithstanding the foregoing, the following fees and
expenses shall not be considered Third Party Expenses, and such fees and
expenses will be borne by the Company: accounting (including the costs of any
audit and any costs incurred as a result of the compliance with SECTION 6.14
hereof), severance/termination (including severance packages negotiated pursuant
to SECTION 6.12 hereof), up to $50,000 of legal, and up to $112,500 of financial
advisory fees and expenses. The Company shall provide Parent with a statement of
estimated Third Party Expenses incurred by the Company at least five (5)
business days prior to the Closing Date in form reasonably satisfactory to
Parent (the "STATEMENT OF EXPENSES"). Any Third Party Expenses incurred by the
Company in excess of the aggregate estimated Transaction Expenses as set forth
on the Statement of Expenses ("EXCESS THIRD PARTY EXPENSES"), shall be subject
to the indemnification provision of ARTICLE VIII and shall not be
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limited by or count towards the Threshold Amount (as defined in SECTION 8.3(a)
hereof) or maximum amount of indemnification provided in SECTION 8.5. Third
Party Expenses shall not be incurred by the Company after the Closing Date
without the express prior written consent of Parent.
6.5 PUBLIC DISCLOSURE. No party shall issue any statement or
communication to any third party (other than their respective agents that are
bound by confidentiality restrictions) regarding the subject matter of this
Agreement or the transactions contemplated hereby, including, if applicable, the
termination of this Agreement and the reasons therefor, without the consent of
the other party, except that this restriction shall be subject to Parent's
obligation to comply with applicable securities laws and the rules of the Nasdaq
Stock Market.
6.6 CONSENTS. The Company shall obtain all necessary consents, waivers
and approvals of any parties to any Contract (including with respect to the
Lease Agreements) as are required thereunder in connection with the Merger or
for any such Material Contracts to remain in full force and effect, all of which
are listed in SECTION 2.14 of the Disclosure Schedule, so as to preserve all
rights of, and benefits to, the Company under such Contract from and after the
Effective Time. Such consents, waivers and approvals shall be in a form
reasonably acceptable to Parent. In the event that the other parties to any such
Contract, including lessor or licensor of any Leased Real Property, conditions
its grant of a consent, waiver or approval (including by threatening to exercise
a "recapture" or other termination right) upon the payment of a consent fee,
"profit sharing" payment or other consideration, including increased rent
payments or other payments under the Contract, the Company shall be responsible
for making all payments required to obtain such consent, waiver or approval and
shall indemnify, defend, protect and hold harmless Parent from all losses,
costs, claims, liabilities and damages arising from the same.
6.7 FIRPTA COMPLIANCE. On the Closing Date, the Company shall deliver to
Parent a properly executed statement (a "FIRPTA COMPLIANCE CERTIFICATE") in a
form reasonably acceptable to Parent for purposes of satisfying Parent's
obligations under Treasury Regulation Section 1.1445-2(c)(3).
6.8 REASONABLE EFFORTS. Subject to the terms and conditions provided in
this Agreement, the Company and Parent shall use commercially reasonable efforts
to take promptly, or cause to be taken, all actions, and to do promptly, or
cause to be done, all things necessary, proper or advisable under applicable
laws and regulations to consummate and make effective the transactions
contemplated hereby, to satisfy the conditions to the obligations to consummate
the Merger, to obtain all necessary waivers, consents and approvals and to
effect all necessary registrations and filings and to remove any injunctions or
other impediments or delays, legal or otherwise, in order to consummate and make
effective the transactions contemplated by this Agreement for the purpose of
securing to the other the benefits contemplated by this Agreement; provided,
however, that Parent shall not be required to agree to any divestiture by Parent
or the Company or any of Parent's subsidiaries or affiliates, of shares of
capital stock or of any business, assets or property of Parent or its
subsidiaries or affiliates, or of the Company, its 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.
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6.9 NOTIFICATION OF CERTAIN MATTERS. The Company or any Principal
Stockholder, as the case may be, shall give prompt notice to Parent of: (i) the
occurrence or non-occurrence of any event, the occurrence or non-occurrence of
which is likely to cause any representation or warranty of the Company or any
Principal Stockholder, respectively and as the case may be, contained in this
Agreement to be untrue or inaccurate at or prior to the Effective Time, and (ii)
any failure of the Company or any Principal Stockholder, 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 6.9 shall not (a) limit or otherwise affect any
remedies available to the party receiving such notice or (b) constitute an
acknowledgment or admission of a breach of this Agreement. No disclosure by the
Company or the Principal Stockholders pursuant to this SECTION 6.9 shall be
deemed to amend or supplement the Disclosure Schedule or prevent or cure any
misrepresentations, breach of warranty or breach of covenant.
6.10 ADDITIONAL DOCUMENTS AND FURTHER ASSURANCES. The Company and Parent,
at the request of the other, shall execute and deliver such other instruments
and do and perform such other acts and things as may be necessary or desirable
for effecting completely the consummation of the Merger and the transactions
contemplated hereby.
6.11 NEW EMPLOYMENT ARRANGEMENTS. Parent may offer certain Employees
"at-will" employment by Parent and/or the Surviving Corporation, to be effective
as of the Closing Date, upon proof of a legal right to work in the United
States. Such "at-will" employment will: (i) be set forth in offer letters on
Parent's standard form (each, an "OFFER LETTER"), (ii) be subject to and in
compliance with Parent's applicable policies and procedures, including, but not
limited to, employment background checks and the execution of an employee
proprietary information agreement, governing employment conduct and performance,
(iii) have terms, including the position and salary, which will be determined by
Parent after consultation with the Company's management, and (iv) supersede any
prior express or implied employment agreements, arrangement or offer letter in
effect prior to the Closing Date. Simultaneously with the execution of this
Agreement, each Employee set forth on SCHEDULE 6.11 (each, a "KEY EMPLOYEE")
shall execute an Offer Letter which shall be effective as of the Closing Date.
Each employee of the Company who remains an employee of Parent or the Surviving
Corporation after the Closing Date shall be referred to hereafter as a
"CONTINUING EMPLOYEE." Continuing Employees shall be eligible to receive
benefits consistent with Parent's applicable human resources policies. Parent
will or will cause the Surviving Corporation or appropriate subsidiary of Parent
to give Continuing Employees full credit under such policies for prior service
at the Company for purposes of eligibility, benefit accrual, and determination
of the level of benefits under Parent's benefit plans, programs or policies up
to a maximum of seven (7) years of credit for prior service at the Company,
provided that such credit does not result in duplication of benefits. In
furtherance of the foregoing, the Company shall terminate all employment
agreements and other arrangements with Employees effective as of the Closing
Date.
6.12 SEVERANCE PACKAGES. Parent shall work with Company to provide
certain employees of the Company who are not offered employment with Parent
appropriate severance packages.
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6.13 TERMINATION OF 401(k) PLAN. Effective as of the day immediately
preceding the Closing Date, each of the Company and any Affiliate (as such term
is defined in SECTION 2.21) shall terminate any and all Company Employee Plans,
intended to include a Code Section 401(k) arrangement (each, a "401(k) PLAN")
(unless Parent provides written notice to the Company that such 401(k) Plans
shall not be terminated). Unless Parent provides such written notice to the
Company, no later than five (5) business days prior to the Closing Date, the
Company shall provide Parent with evidence that such Company Employee Plan(s)
have been terminated (effective as of the day immediately preceding the Closing
Date) pursuant to resolutions of the Board of Directors of the Company or such
Affiliate, as the case may be. The form and substance of such resolutions shall
be subject to the reasonable review and approval of Parent. The Company also
shall take such other actions in furtherance of terminating such Company
Employee Plan(s) as Parent may reasonably require. In the event that termination
of a 401(k) Plan would reasonably be anticipated to trigger liquidation charges,
surrender charges or other fees 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 no later than fifteen (15) calendar
days prior to the Closing Date.
6.14 FINANCIALS. The Company shall use commercially reasonable efforts to
supply Parent and Sub with any information that Parent reasonably requests,
including but not limited to an (i) audited balance sheet as of December 31,
2003 and the related consolidated statement of income, cash flow and
stockholders' equity for the twelve (12) month period then ended, and (ii)
unaudited balance sheets as of March 31, 2004 and 2003, and the related
unaudited statements of income, cash flow and stockholders' equity for each of
the three months then ended (which financial statements shall have been reviewed
by the Company's auditors in accordance with Statement of Auditing Standards
100) (the financial statements required by (i) and (ii), collectively, the
"ADDITIONAL FINANCIALS"), in order to effectuate filings, notices, petitions or
statements required by any Governmental Entity in connection with the Merger and
the transactions contemplated hereby, including, without limitation, any filings
required under the Securities Act, the Exchange Act, or any rules and
regulations of the SEC.
6.15 D&O INSURANCE. From and after the Effective Time, neither Parent nor
the Surviving Corporation will take any action to terminate the D&O Tail (as
defined in SECTION 2.9 of the Disclosure Schedule), which has been pre-paid in
full, without the consent of the Stockholder Representative, so long as neither
Parent nor the Surviving Corporation is, or would be, required to (i) incur any
costs or expenses associated with such D&O Tail, or (ii) expend significant
efforts to maintain such D&O Tail.
ARTICLE VII
CONDITIONS TO THE MERGER
7.1 CONDITIONS TO OBLIGATIONS OF EACH PARTY TO EFFECT THE MERGER. The
respective obligations of the Company and Parent to effect the Merger shall be
subject to the satisfaction, at or prior to the Effective Time, of the following
conditions:
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(a) NO ORDER. No Governmental Entity shall have enacted, issued,
promulgated, enforced or entered any statute, rule, regulation, executive order,
decree, injunction or other order (whether temporary, preliminary or permanent)
which is in effect and which has the effect of making the Merger illegal or
otherwise prohibiting consummation of the Merger.
(b) NO INJUNCTIONS OR RESTRAINTS; ILLEGALITY. No temporary
restraining order, preliminary or permanent injunction or other order issued by
any court of competent jurisdiction or other legal restraint or prohibition
preventing the consummation of the Merger shall be in effect, nor shall any
proceeding brought by an administrative agency or commission or other
governmental authority or instrumentality, domestic or foreign, seeking any of
the foregoing be threatened or pending.
(c) LITIGATION. There shall be no action, suit, claim, order,
injunction or proceeding of any nature pending, or overtly threatened, against
Parent or the Company, their respective properties or any of their respective
officers or directors arising out of, or in any way connected with, the Merger
or the other transactions contemplated by the terms of this Agreement.
(d) STOCKHOLDER APPROVAL. Stockholders constituting the Sufficient
Stockholder Vote shall have approved this Agreement, and the transactions
contemplated hereby, including the Merger and the appointment of the Stockholder
Representative.
7.2 CONDITIONS TO THE OBLIGATIONS OF PARENT AND SUB. The obligations of
Parent and Sub to consummate and effect this Agreement and the transactions
contemplated hereby shall be subject to the satisfaction at or prior to the
Effective Time of each of the following conditions, any of which may be waived,
in writing, by Parent and Sub:
(a) REPRESENTATIONS, WARRANTIES AND COVENANTS. (i) The
representations and warranties of the Company and the Principal Stockholders in
this Agreement (other than the representations and warranties of the Company and
the Principal Stockholders as of a specified date, which shall be true and
correct as of such date) shall have been true and correct in all material
respects on the date they were made and shall be true and correct in all
material respects (without giving effect to any limitation as to "materiality"
or "Material Adverse Effect" set forth therein) on and as of the Closing Date as
though such representations and warranties were made on and as of such time, and
(ii) the Company and the Principal Stockholders shall have performed and
complied in all material respects with all covenants and obligations under this
Agreement required to be performed and complied with by such parties as of the
Closing.
(b) GOVERNMENTAL APPROVAL. Approvals from any court,
administrative agency, commission, or other federal, state, county, local or
other foreign governmental authority, instrumentality, agency, or commission (if
any) deemed appropriate or necessary by Parent shall have been timely obtained.
(c) THIRD PARTY CONSENTS. Company shall have delivered to Parent
all necessary consents, waivers and approvals of parties to any Material
Contract (including Lease Agreements) as
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are required thereunder in connection with the Merger, or for any such Contract
to remain in full force and effect without limitation, modification or
alteration after the Effective Time.
(d) TERMINATION OF AGREEMENTS. The Company shall have terminated
each of those agreements listed on SCHEDULE 7.2(d) to this Agreement and each
such agreement shall be of no further force or effect.
(e) RELEASE OF LIENS. Parent shall have received from the Company
a duly and validly executed copy of all agreements, instruments, certificates
and other documents, in form and substance reasonably satisfactory to Parent,
that are necessary or appropriate to evidence the release of all Liens set forth
in SCHEDULE 7.2(e) to this Agreement.
(f) NO MATERIAL ADVERSE EFFECT. There shall not have occurred any
event or condition of any character that has had or is reasonably likely to have
a Company Material Adverse Effect since the date of this Agreement.
(g) RESIGNATION OF OFFICERS AND DIRECTORS. Parent shall have
received a written resignation from each of the officers and directors of the
Company effective as of the Effective Time.
(h) LEGAL OPINION. Parent shall have received a legal opinion from
legal counsel to the Company, substantially in the form attached hereto as
EXHIBIT C.
(i) UNANIMOUS BOARD APPROVAL. This Agreement, the Merger and the
transactions contemplated hereby shall have been unanimously approved by the
Board of Directors of the Company, which unanimous approval shall not have been
modified or revoked.
(j) APPRAISAL RIGHTS. Stockholders holding no more than 5% of the
Total Outstanding Shares shall continue to have a right to exercise appraisal,
dissenters' or similar rights under applicable law with respect to their Company
Capital Stock by virtue of the Merger.
(k) CERTIFICATE OF THE COMPANY. Parent shall have received a
certificate, validly executed by the Chief Executive Officer of the Company for
and on the Company's behalf, to the effect that, as of the Closing:
(i) all representations and warranties made by the Company
in this Agreement (other than the representations and warranties of the Company
as of a specified date, which were true and correct as of such date) were
materially true and correct on the date they were made and are materially true
and correct in all material respects on and as of the Closing Date as though
such representations and warranties were made on and as of such time;
(ii) all covenants and obligations under this Agreement to be
performed or complied with by the Company on or before the Closing have been so
performed or complied with in all material respects; and
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(iii) the conditions to the obligations of Parent and Sub set
forth in this SECTION 7.2 have been satisfied in full (unless otherwise waived
in accordance with the terms hereof).
(l) CERTIFICATE OF SECRETARY OF COMPANY. Parent shall have
received a certificate, validly executed by the Secretary of the Company,
certifying as to (i) the terms and effectiveness of the Charter Documents, and
(ii) the valid adoption of resolutions of the Board of Directors of the Company
(whereby the Merger and the transactions contemplated hereunder were unanimously
approved by the Board of Directors) and (iii) that the Stockholders constituting
the Sufficient Stockholder Vote have approved this Agreement and the
consummation of the transactions contemplated hereby.
(m) CERTIFICATES OF GOOD STANDING. Parent shall have received a
long-form certificate of good standing from the Secretary of State of the State
of Delaware, and a good standing certificate from each jurisdiction in which the
Company is qualified to do business, each of which to be dated within a
reasonable period prior to Closing with respect to the Company.
(n) FIRPTA CERTIFICATE. Parent shall have received a copy of the
FIRPTA Compliance Certificate, validly executed by a duly authorized officer of
the Company.
(o) NEW EMPLOYMENT ARRANGEMENTS. Each of the Key Employees (i)
shall have entered into "at-will" employment arrangements with Parent and/or the
Surviving Corporation pursuant to their execution of an Offer Letter which shall
be in full force and effect, (ii) shall have agreed to be employees of Parent
after the Closing and (iii) shall be employees of the Company immediately prior
to the Effective Time.
(p) EMPLOYEES NOT OFFERED EMPLOYMENT WITH PARENT. On or prior to
the Closing Date, the Company shall have terminated the employment of each
Employee listed on SCHEDULE 7.2(p), and each such Employee shall have executed a
release in a form approved by Parent.
(q) FINANCIAL STATEMENTS. Parent shall have received from the
Company the Additional Financials.
(r) EXERCISE OR TERMINATION OF COMPANY OPTIONS AND COMPANY
WARRANTS. Parent shall have received evidence reasonably satisfactory to it that
(i) all outstanding Company Options shall have been rendered null and void
immediately prior to the Effective Time, and (ii) all outstanding Company
Warrants shall have been terminated immediately prior to the Effective Time.
7.3 CONDITIONS TO OBLIGATIONS OF THE COMPANY AND THE PRINCIPAL
STOCKHOLDERS. The obligations of the Company and each of the Principal
Stockholders to consummate and effect this Agreement and the transactions
contemplated hereby shall be subject to the satisfaction at or prior to the
Effective Time of each of the following conditions, any of which may be waived,
in writing, exclusively by the Company:
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(a) REPRESENTATIONS, WARRANTIES AND COVENANTS. (i) The
representations and warranties of Parent and Sub in this Agreement (other than
the representations and warranties of Parent and Sub as of a specified date,
which shall be true and correct as of such date) shall have been true and
correct on the date they were made and shall be true and correct in all material
respects (without giving effect to any limitation as to "materiality" or "Parent
Material Adverse Effect") on and as of the Closing Date as though such
representations and warranties were made on and as of such time, and (ii) each
of Parent and Sub shall have performed and complied in all material respects
with all covenants and obligations under this Agreement required to be performed
and complied with by such parties as of the Closing.
(b) BRIDGE LOANS. Parent shall cause the Bridge Loans to be
discharged in full as of the Closing.
(c) CERTIFICATE OF PARENT. Company shall have received a
certificate, validly executed on behalf of Parent by a Vice President for and on
its behalf to the effect that, as of the Closing:
(i) all representations and warranties made by Parent and
Sub in this Agreement (other than the representations and warranties of Parent
and Sub as of a specified date, which were true and correct as of such date)
were true and correct on the date they were made and are true and correct in all
material respects on and as of the Closing Date as though such representations
and warranties were made on and as of such time; and
(ii) all covenants and obligations under this Agreement to be
performed by Parent and Sub on or before the Closing have been so performed in
all material respects.
ARTICLE VIII
SURVIVAL OF REPRESENTATIONS AND WARRANTIES, ESCROW
8.1 SURVIVAL OF REPRESENTATIONS, WARRANTIES AND COVENANTS. The
representations and warranties of the Company and the Principal Stockholders
contained in this Agreement, or in any certificate or other instruments
delivered pursuant to this Agreement, shall survive for a period of twelve (12)
months following the Closing Date (the expiration of such twelve (12) month
period, the "SURVIVAL DATE", provided, however, that the representations and
warranties of the Company contained in SECTION 2.2, SECTION 2.10 and SECTION
2.19 hereof shall survive indefinitely and until the expiration of the
applicable statute of limitations respectively), and provided further, however,
that if, at any time prior to the date on which a representation or warranty
would otherwise expire, an Officer's Certificate (as defined in SECTION 8.3) is
delivered in accordance with this Article VIII alleging Losses and a claim for
recovery under SECTION 8.3, then the claim asserted in such notice shall survive
the date on which such representation or warranty would otherwise expire until
such claim is fully and finally resolved. The representations and warranties of
Parent and Sub contained in this Agreement, or in any certificate or other
instrument delivered pursuant to this Agreement, shall terminate at the Closing.
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8.2 INDEMNIFICATION.
(a) The Company and the Principal Stockholders (in the case of the
Principal Stockholders, only after the Effective Time) agree to indemnify and
hold Parent and its officers, directors, and affiliates, including the Surviving
Corporation (the "INDEMNIFIED PARTIES"), harmless against all claims, losses,
liabilities, damages, deficiencies, costs and expenses, including reasonable
attorneys' fees and expenses of investigation and defense, but excluding
consequential, special, incidental or indirect damages (hereinafter individually
a "LOSS" and collectively "LOSSES") incurred or sustained by the Indemnified
Parties, or any of them (including the Surviving Corporation), directly or
indirectly, as a result of (i) any breach or inaccuracy of a representation or
warranty of the Company contained in this Agreement or in any certificate or
other instruments delivered by or on behalf of the Company pursuant to this
Agreement, (ii) any failure by the Company at or prior to the Effective Time to
perform or comply with any covenant applicable to it contained in this
Agreement, (iii) the amount of any Excess Third Party Expenses, (iv) the amount
of any Dissenting Share Payments, or (v) any matters set forth on SECTION 2.8(b)
of the Disclosure Schedule. The Principal Stockholders shall not have any right
of contribution from the Surviving Corporation or Parent with respect to any
Loss claimed by an Indemnified Party. Notwithstanding anything in this SECTION
8.2 to the contrary, (x) an Indemnified Party shall not be entitled to receive
any amounts relating to a Loss or Losses to the extent such Indemnified Party
has received insurance proceeds for such Loss or Losses, and (y) any Tax benefit
actually realized and used to reduce Taxes in the then current period by an
Indemnified Party as a result of such Loss shall be deducted from the amount of
Losses otherwise recoverable hereunder.
(b) Each Principal Stockholder agrees to indemnify and hold the
Indemnified Parties harmless against all Losses incurred or sustained by the
Indemnified Parties, or any of them (including the Surviving Corporation),
directly or indirectly, as a result of (i) any breach or inaccuracy of a
representation or warranty made by such Principal Stockholder contained in
ARTICLE III of this Agreement, or (ii) any failure by such Principal Stockholder
to perform or comply with any covenant applicable to it contained in this
Agreement.
8.3 ESCROW ARRANGEMENTS.
(a) ESCROW FUND. By virtue of this Agreement and as security for
the indemnity obligations provided for in SECTION 8.2(a) hereof, at the
Effective Time, as between the parties hereto other than the Escrow Agent, the
Principal Stockholders will be deemed to have received and deposited with the
Escrow Agent the Escrow Amount, without any further act of the Principal
Stockholders. The Escrow Agent shall not be deemed to have received the Escrow
Amount until it actually receives the Escrow Amount. The Escrow Amount shall be
available to compensate the Indemnified Parties for any claims by such parties
for any Losses suffered or incurred by them and for which they are entitled to
recovery under SECTION 8.2(a) hereof. Any claims by the Indemnified Parties for
any Losses suffered or incurred by them and for which they are entitled to
recovery under SECTION 8.2(b), or claims that are otherwise subject to SECTION
8.5(b) or SECTION 8.5(d) hereof, shall be settled directly by the Principal
Stockholders, or a specific Principal Stockholder, as the case may be, without
regard for the Escrow Amount or the Escrow Fund. Promptly after the Closing, the
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Escrow Amount, without any act of the Principal Stockholders, will be deposited
with the Escrow Agent, such deposit of the Escrow Amount to constitute an escrow
fund (the "ESCROW FUND") to be governed by the terms set forth herein. The
Escrow Agent may execute this Agreement following the date hereof and prior to
the Closing, and such later execution, if so executed after the date hereof,
shall not affect the binding nature of this Agreement as of the date hereof
between the other signatories hereto.
(b) THRESHOLD AMOUNT. Notwithstanding any provision of this
Agreement to the contrary, except as set forth in the second sentence of this
SECTION 8.3(B), an Indemnified Party may not recover any Losses under SECTION
8.2(a)(I) unless and until one or more Officer's Certificates (as defined below)
identifying such Losses under SECTION 8.2(a)(i) in excess of $100,000 in the
aggregate (the "THRESHOLD AMOUNT") has or have been delivered to Escrow Agent
and the Stockholder Representative (as defined in SECTION 8.4 hereof) as
provided in SECTION 8.3(e), in which case Parent shall be entitled to recover
all Losses (if from the Escrow Fund, to the extent available) so identified
without regard to the Threshold Amount from the first dollar of such Losses.
Notwithstanding the foregoing, an Indemnified Party shall be entitled to recover
for, and the Threshold Amount shall not apply as a threshold to, any and all
claims or payments made with respect to (A) all Losses incurred pursuant to
clauses (ii), (iii), (iv) and (v) of SECTION 8.2(a) or SECTION 8.2(b) hereof,
and (B) Losses resulting from any breach of representation or warranty contained
in SECTION 2.2 (Company Capital Structure) hereof. For the purposes hereof,
"OFFICER'S CERTIFICATE" shall mean a certificate signed by any officer of
Parent: (1) stating that an Indemnified Party has paid, sustained, incurred, or
properly accrued, or reasonably anticipates that it will have to pay, sustain,
incur, or accrue Losses, and (2) specifying in reasonable detail the individual
items of Losses included in the amount so stated, the date each such item was
paid, sustained, incurred, or properly accrued, or the basis for such
anticipated liability, and the nature of the misrepresentation, breach of
warranty or covenant to which such item is related.
(c) ESCROW PERIOD; DISTRIBUTION UPON TERMINATION OF ESCROW
PERIODS. Subject to the following requirements, and the Escrow Agent's actual
receipt of the Escrow Amount, the Escrow Fund shall be in existence immediately
following the Effective Time and shall terminate at 5:00 p.m., New York City
time on the date twelve (12) months following the Closing Date (the "ESCROW
PERIOD"); provided, however, that the Escrow Period shall not terminate with
respect to any amount which, in the reasonable judgment of Parent, is necessary
to satisfy any unsatisfied claims specified in any Officer's Certificate
delivered to the Escrow Agent and the Stockholder Representative on the Business
Day prior to the Escrow Period termination date with respect to facts and
circumstances existing prior to the Survival Date. As soon as all such claims
have been fully and finally resolved, as confirmed in an Officer's Certificate
delivered to the Escrow Agent, the Escrow Agent shall deliver the remaining
portion of the Escrow Fund, if any, not required to satisfy such claims.
Deliveries of the Escrow Amount out of the Escrow Fund to the Principal
Stockholders pursuant to this SECTION 8.3(c) shall be made in proportion to the
total amounts deemed contributed on behalf of each Principal Stockholder to the
Escrow Fund in accordance with SECTION 1.6 (with respect to each Principal
Stockholder, its "PRO RATA PORTION"), as identified on SCHEDULE 8.3(c) hereto,
with the amount delivered to each Principal Stockholder rounded to the nearest
whole cent
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($0.01). Prior to any deliveries of the Escrow Amount out of the Escrow Fund,
Parent and/or the Principal Stockholders shall provide written wire-transfer
instructions to the Escrow Agent.
(d) PROTECTION OF ESCROW FUND.
(i) The Escrow Agent shall hold and safeguard the Escrow
Fund during the Escrow Period, in accordance with the terms of this Agreement
and shall hold and dispose of the Escrow Fund only in accordance with the terms
of this ARTICLE VIII.
(ii) The Escrow Amount shall be invested in the Escrow
Agent's Money Market Insured Savings Account and any interest paid on such
Escrow Amount shall be added to the Escrow Fund and become a part thereof. Any
losses on the investment shall be deducted from the Escrow Fund. Each Principal
Stockholder shall be liable and responsible for any Taxes due with respect to
income earned on such Principal Stockholder's Pro Rata Portion of the Escrow
Fund. The Principal Stockholders shall provide the Escrow Agent with executed
Forms W-9, which Forms W-9 shall be delivered to the Escrow Agent prior to the
Effective Time. In the event that a Principal Stockholder has a change of
address, he or it shall notify the Escrow Agent within thirty (30) days of such
change and shall provide the Escrow Agent with a revised Form W-9. Should the
Escrow Agent become liable for the payment of taxes, including withholding
taxes, relating to income derived from any funds held by it pursuant to this
Agreement or any payment made hereunder, the Escrow Agent may pay such taxes
from the Escrow Fund. The Principal Stockholders understand that the failure to
provide the Escrow Agent with an executed Form W-9 may result in the Escrow
Agent's withholding of the Escrow Amount which would otherwise be distributed to
such Principal Stockholder.
(e) CLAIMS FOR INDEMNIFICATION.
(i) Upon receipt by the Escrow Agent at any time on or
before the last day of the Escrow Period of an Officer's Certificate, the Escrow
Agent shall, subject to the provisions of SECTION 8.3(f) and SECTION 8.3(g)
hereof, deliver to Parent, as promptly as practicable, cash held in the Escrow
Fund equal to the amount of Losses specified in the Officer's Certificate (to
the extent available), in accordance with SECTION 8.3(b) hereof.
(ii) If the Stockholder Representative does not to object in
writing delivered to the Escrow Agent within the 30-day period after delivery by
the Parent of the Officer's Certificate, such failure to so object shall be an
irrevocable acknowledgment by the Stockholder Representative and the Principal
Stockholder or Principal Stockholders, as the case may be, that the Indemnified
Party is entitled to the full amount of the claim for Losses set forth in such
Officer's Certificate (to the extent available).
(f) OBJECTIONS TO CLAIMS AGAINST THE ESCROW FUND. 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
delivery to Parent of any Escrow Amount pursuant to SECTION 8.3(e) (other than
Agreed-Upon Losses as described below) hereof unless the Escrow Agent shall have
received written authorization from the Stockholder Representative to make such
delivery. After the
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expiration of such thirty (30) day period, the Escrow Agent shall make delivery
of an amount from the Escrow Fund in accordance with SECTION 8.3(b) equal to the
amount of Losses claimed in the Officer's Certificate (to the extent available),
provided that no such payment or delivery may be made if the Stockholder
Representative shall object in a written statement to the claim made in the
Officer's Certificate (an "OBJECTION NOTICE"), and such Objection Notice shall
have been delivered to the Escrow Agent prior to the expiration of such thirty
(30) day period.
(g) RESOLUTION OF CONFLICTS; ARBITRATION.
(i) In case the Stockholder Representative delivers an
Objection Notice in accordance with SECTION 8.3(f) (other than Agreed-Upon
Losses as defined in SECTION 8.3(g)(v) 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 in the case of a
claim against the Escrow Fund, shall be furnished to the Escrow Agent. The
Escrow Agent shall be entitled to rely on any such memorandum and make
distributions from the Escrow Fund in accordance with the terms thereof.
(ii) If no such agreement can be reached after good faith
negotiation and prior to thirty (30) days after delivery of an Objection Notice,
either Parent, on the one hand, or the Stockholder Representative on the other
hand, may demand arbitration of the matter unless the amount of the Loss is at
issue in pending litigation with a third party, in which event arbitration shall
not be commenced until such amount is ascertained or both parties agree to
arbitration, and in either such event the matter shall be settled by arbitration
conducted by one arbitrator mutually agreeable to Parent and the Stockholder
Representative. In the event that, within thirty (30) days after submission of
any dispute to arbitration, Parent and the Stockholder Representative cannot
mutually agree on one arbitrator, then, within fifteen (15) days after the end
of such thirty (30) day period, Parent and the Stockholder Representative shall
each select one arbitrator. The two arbitrators so selected shall select a third
arbitrator. If the Stockholder Representative fails to select an arbitrator
during this fifteen (15) day period, then the parties agree that the arbitration
will be conducted by one arbitrator selected by Parent.
(iii) Any such arbitration shall be held in New York, New
York, under the rules then in effect of the American Arbitration Association.
All expenses relating to the arbitration shall be paid, including without
limitation, the respective expenses of each party, the fees of each arbitrator
and the administrative fee of the American Arbitration Association, by (i) the
party submitting the claim if the award, judgment, decree or order awarded by
the arbitrator(s) constitutes less than fifty percent (50%) of the claimed Loss
or Losses subject to such arbitration proceeding, and (ii) by the non-claiming
party if the award, judgment, decree or order awarded by the arbitrator(s)
constitutes fifty percent (50%) or more of the claimed Loss or Losses subject to
such arbitration proceeding. The arbitrator or arbitrators, as the case may be,
shall set a limited time period and establish procedures designed to reduce the
cost and time for discovery while allowing the parties an opportunity, adequate
in the sole judgment of the arbitrator or majority of the three arbitrators, as
the case may be, to discover relevant information from the opposing parties
about the
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subject matter of the dispute. The arbitrator, or a majority of the three
arbitrators, as the case may be, shall rule upon motions to compel or limit
discovery and shall have the authority to impose sanctions, including attorneys'
fees and costs, to the same extent as a competent court of law or equity, should
the arbitrators or a majority of the three arbitrators, as the case may be,
determine that discovery was sought without substantial justification or that
discovery was refused or objected to without substantial justification. The
decision of the arbitrator or a majority of the three arbitrators, as the case
may be, as to the validity and amount of any claim in such Officer's Certificate
shall be final, binding, and conclusive upon the parties to this Agreement. Such
decision shall be written and shall be supported by written findings of fact and
conclusions, which shall set forth the award, judgment, decree or order awarded
by the arbitrator(s), and the Escrow Agent shall be entitled to rely on, and
make distributions from the Escrow Fund in accordance with, the terms of such
award, judgment, decree or order as applicable. Within ten (10) days of a
decision of the arbitrator(s) requiring payment by one party to another, such
party shall make the payment to such other party.
(iv) Judgment upon any award rendered by the arbitrator(s)
may be entered in any court having jurisdiction. The forgoing arbitration
provision shall apply to any dispute under this ARTICLE VIII, whether relating
to claims upon the Escrow Fund or to the other indemnification obligations set
forth in this ARTICLE VIII.
(v) This SECTION 8.3(g) shall not apply to claims against
the Escrow Fund made in respect of (A) any Dissenting Share Payments (as defined
in SECTION 1.7(c)), or (b) any Excess Third Party Expenses (as defined in
SECTION 6.4) (each, an "AGREED-UPON LOSS"). Claims against the Escrow Fund made
in respect of any Agreed-Upon Loss shall be resolved in the manner described in
SECTION 8.3(b) and SECTION 8.3(e) above.
(h) THIRD-PARTY CLAIMS. In the event Parent becomes aware of a
third party claim (other than a claim that is the subject of an Agreed-Upon
Loss) (a "THIRD PARTY CLAIM") which Parent reasonably believes may result in a
demand against the Escrow Fund or for other indemnification pursuant to this
ARTICLE VIII, Parent shall notify the Stockholder Representative of such claim,
and the Stockholder Representative shall be entitled, at its expense, to
participate in, but not to determine or conduct, the defense of such Third Party
Claim. Parent shall have the right in its sole discretion to conduct the defense
of, and to settle, any such claim; provided, however, that except with the
consent of the Stockholder Representative, no settlement of any such Third Party
Claim with third party claimants shall be determinative of the amount of Losses
relating to such matter, and provided further, however, Parent shall not settle
or compromise any third party claim without the Stockholder Representative's
consent unless Parent receives as part of such settlement a legal, binding and
enforceable unconditional release providing that such Third Party Claim is being
fully satisfied by reason of such compromise and settlement and that the
Indemnified Party (and the Indemnifying Party if it is a named party in such
claim) is (are) being released from any and all further obligations or
liabilities it (they) may have with respect thereto. In the event that the
Stockholder Representative has consented to any such settlement, the Principal
Stockholders or Principal Stockholder, as the case may be, shall have no power
or authority to object to the amount of any Third Party Claim by Parent against
the Escrow Fund. Notwithstanding anything in this
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Agreement to the contrary, this SECTION 8.3(g)(v) shall not apply to any third
party claim that is the subject of an Agreed-Upon Loss.
(i) ESCROW AGENT'S DUTIES.
(i) The Escrow Agent shall be obligated only for the
performance of such duties as are specifically set forth in this SECTION 8.3,
and shall not be responsible for any other parts of this Agreement, or any other
agreements, 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 except for acts
or omissions caused by its gross negligence or willful misconduct.
(ii) The Escrow Agent is hereby expressly authorized to
disregard any and all warnings given by any of the parties hereto or by any
other person, excepting only orders or process of courts of law, and is hereby
expressly authorized to comply with and obey orders, judgments or decrees of any
court. In case the Escrow Agent obeys or complies with any such order, judgment
or decree of any court, the Escrow Agent shall not be liable to any of the
parties hereto or to any other person by reason of such compliance,
notwithstanding any such order, judgment or decree being subsequently reversed,
modified, annulled, set aside, vacated or found to have been entered without
jurisdiction.
(iii) The Escrow Agent shall not be liable in any respect on
account of the identity, authority or rights of the parties executing or
delivering or purporting to execute or deliver this Agreement or any documents
or papers deposited or called for hereunder.
(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.
(v) In performing any duties under this Agreement, the
Escrow Agent shall not be deemed to have fiduciary duties, and shall not be
liable to any party for damages, losses, or expenses, including punitive damages
of any kind whatsoever 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 or 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
legal counsel in connection with performing the 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. 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.
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(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 the amounts in the Escrow Fund and may wait for
settlement of any such controversy by final appropriate legal proceedings or
other means as, in the Escrow Agent's discretion, may be required, despite what
may be set forth elsewhere in this Agreement. In such event, the Escrow Agent
will not be liable for damages. 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 the amounts in the Escrow Fund
held in escrow, except all costs, expenses, charges and reasonable attorney fees
incurred by the Escrow Agent due to the interpleader action (the "AGENT
INTERPLEADER EXPENSES") and which the parties agree to pay as follows: fifty
percent (50%) to be paid by Parent and fifty percent (50%) to be paid by the
Principal Stockholders on the basis of the Principal Stockholders' respective
Pro Rata Portion; provided, however, that the parties agree that such
Stockholder's Pro Rata Portion of the Agent Interpleader Expenses will be paid
by an equal amount (which shall be deemed a Loss) from such Stockholder's Pro
Rata Portion of the Escrow Fund. Upon initiating such action, the Escrow Agent
shall be fully released and discharged of and from all obligations and liability
imposed by the terms of this Agreement.
(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 any
claims related to taxes and reasonable costs of investigation, counsel fees,
including allocated costs of in-house counsel and disbursements that may be
imposed on Escrow Agent or incurred by Escrow Agent in connection with the
performance of his/her duties under this Agreement, including but not limited to
any litigation arising from this Agreement or involving its subject matter,
other than those arising out of the negligence or willful misconduct of the
Escrow Agent (the "AGENT INDEMNIFICATION EXPENSES"). As between the Parent and
the Principal Stockholders, the indemnification shall be allocated as follows:
fifty percent (50%) to be paid by Parent and fifty percent (50%) to be paid by
the Principal Stockholders on the basis of the Principal Stockholders' Pro Rata
Portion; provided, however, that the parties agree that such Stockholder's Pro
Rata Portion of the Agent Indemnification Expenses will be paid by an equal
amount (which shall be deemed a Loss) from such Stockholder's Pro Rata Portion
of the Escrow Fund. This SECTION 8.3(I)(VII) shall survive the termination of
this Agreement. The Escrow Agent shall have the right of set-off against the
Escrow Fund for all amounts due to it under this SECTION 8.3(i)(vii) and 8.3(j).
(viii) The Escrow Agent may resign at any time upon giving at
least thirty (30) days written notice to the Parent and the Stockholder
Representative; provided, however, that no such resignation shall become
effective until the appointment of a successor escrow agent which shall be
accomplished as follows: Parent and the Stockholder Representative 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
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New York, or appeal to a court of competent jurisdiction to appoint a successor
escrow agent. 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. Upon appointment of a
successor escrow agent, the Escrow Agent shall be discharged from any further
duties and liability under this Agreement.
(j) FEES. All fees of the Escrow Agent for performance of its
duties hereunder shall be paid by Parent in accordance with the standard fee
schedule of the Escrow Agent. 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 but that has been
requested by an officer of Parent, or if the parties request a substantial
modification of the terms of the Agreement, or if any controversy arises, or if
the Escrow Agent is made a party to, or intervenes in, any litigation pertaining
to the Escrow Fund or its subject matter, the Escrow Agent shall be reasonably
compensated for such extraordinary services and reimbursed for all costs,
attorney's fees, including allocated costs of in-house counsel, and expenses
occasioned by such default, delay, controversy or litigation.
(k) SUCCESSOR ESCROW AGENTS. Any corporation into which the Escrow
Agent in its individual capacity may be merged or converted or with which it may
be consolidated, or any corporation resulting from any merger, conversion or
consolidation to which the Escrow Agent in its individual capacity shall be a
party, or any corporation to which substantially all the corporate trust
business of the Escrow Agent in its individual capacity may be transferred,
shall be the Escrow Agent under this Escrow Agreement without further act.
8.4 STOCKHOLDER REPRESENTATIVE.
(a) By virtue of the approval of the Merger and this Agreement by
the requisite vote of the Stockholders, each of the Stockholders (including the
Principal Stockholders) shall be deemed to have agreed to appoint Xxxxxx Xxxx as
its agent and attorney-in-fact, as the Stockholder Representative for and on
behalf of the Stockholders (including the Principal Stockholders) to give and
receive notices and communications, to authorize payment to any Indemnified
Party from the Escrow Fund and directly against a Principal Stockholder or the
Principal Stockholders in satisfaction of claims by any Indemnified Party, to
object to such payments, to agree to, negotiate, enter into settlements and
compromises of, and demand arbitration and comply with orders of courts and
awards of arbitrators with respect to such claims, to negotiate, investigate and
resolve all matters relating to ARTICLE IX hereof, to assert, negotiate, enter
into settlements and compromises of, and demand arbitration and comply with
orders of courts and awards of arbitrators with respect to, any other claim by
any Indemnified Party against any Stockholder or by any such Stockholder against
any Indemnified Party or any dispute between any Indemnified Party and any such
Stockholder, in each case relating to this Agreement or the transactions
contemplated hereby, and to take all other actions that are either (i) necessary
or appropriate in the judgment of the Stockholder Representative for the
accomplishment of the foregoing or (ii) specifically mandated by the terms of
this
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Agreement. Such agency may be changed by the Stockholders from time to time upon
not less than thirty (30) days prior written notice to Parent; provided,
however, that the Stockholder Representative may not be removed unless Pequot
Venture Partners II, L.P. agrees to such removal and to the identity of the
substituted agent. No bond shall be required of the Stockholder Representative,
and the Stockholder Representative shall not receive any compensation for its
services. Notices or communications to or from the Stockholder Representative
shall constitute notice to or from the Stockholders (including the Principal
Stockholders). Notwithstanding anything to the contrary contained in this
Section 8.4, solely for purposes of claims by an Indemnified Party under Section
8.2(b) against a Principal Stockholder other than Pequot Venture Partners II,
L.P. or PVP II Telelogue Prom Note 2 Grantor Trust or affiliates thereof, the
term "Stockholder Representative" shall be deemed to mean, with respect to a
claim made against NJTC Venture Fund SBIC, LP, Xxx Xxxxxxxxxxx (or any successor
appointed by NJTC Venture Fund SBIC, LP), and with respect to a claim made
against Palisade Private Partnership II, L.P., Xxxx Xxxxxxx (or any successor
appointed by Palisades Private Partnership II, L.P.).
(b) The Stockholder Representative shall not be liable for any act
done or omitted hereunder as Stockholder Representative while acting in good
faith and in the exercise of reasonable judgment. The Principal Stockholders
shall indemnify the Stockholder Representative and hold the Stockholder
Representative harmless against any loss, liability 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
("STOCKHOLDER REPRESENTATIVE EXPENSES"). A decision, act, consent or instruction
of the Stockholder Representative, including but not limited to an amendment,
extension or waiver of this Agreement, shall constitute a decision of the
Stockholders and shall be final, binding and conclusive upon the 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 the Stockholders. The Escrow Agent and Parent are
hereby relieved from any liability to any person for any acts done by it in
accordance with such decision, act, consent or instruction of the Stockholder
Representative.
8.5 MAXIMUM PAYMENTS; REMEDY.
(a) Except as set forth in this SECTION 8.5, the maximum amount an
Indemnified Party may recover from a Principal Stockholder individually pursuant
to the indemnity set forth in SECTION 8.2(a) hereof for Losses shall be shall be
limited to an amount equal to such Principal Stockholder's Pro Rata Portion of
the Escrow Fund.
(b) Notwithstanding anything to the contrary set forth in this
Agreement, nothing in this Agreement shall limit the liability of any Principal
Stockholder in respect of Losses arising out of (i) any breaches of
representations and warranties or covenants of such Principal Stockholder, (ii)
any Losses resulting from any breach of representation or warranty contained in
SECTION 2.2 (Company Capital Structure), (iii) any fraud or intentional
misrepresentation in which a Principal Stockholder participated or of which a
Principal Stockholder had actual knowledge, (iv) any
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Management Payments (as defined in SECTION 8.5(d)), provided that the aggregate
liability of each Principal Stockholder for Management Payments shall not exceed
the Merger Consideration received by each such Principal Stockholder, or (v) any
Excess Third Party Expenses.
(c) Nothing herein shall limit the liability of the Company or any
Principal Stockholder for any breach or inaccuracy of any representation,
warranty or covenant applicable to it contained in this Agreement or any Related
Agreement if the Merger does not close.
(d) Notwithstanding anything to the contrary herein, in the event
that (i) any amounts shall be distributed to the Indemnified Parties in
satisfaction of claims for indemnification under SECTION 8.2(a)(v) (such
amounts, the "MANAGEMENT PAYMENTS"), and (ii) the Escrow Fund shall be
distributed in full to the Indemnified Parties (whether as a result of the
Management Payments or otherwise), and as a result a shortfall exists in the
Escrow Fund and otherwise valid claims against the Escrow Fund shall be unable
to be satisfied (an "UNSATISFIED CLAIM"), then the Indemnified Parties shall be
entitled to collect cash, directly from the Principal Stockholders, pro rata
based on the amounts previously held in the Escrow Fund on behalf of each, with
respect to such Unsatisfied Claim or Unsatisfied Claims, up to an aggregate
amount equal to the lesser of (x) the aggregate of the Management Payments
satisfied from the Escrow Fund, and (y) $500,000.
ARTICLE IX
EARNOUT
9.1 EARNOUT ARRANGEMENTS.
(a) EARNOUT GENERALLY. The parties acknowledge and agree that the
Company's projected revenue and deployment development targets (as described
below) are material factors in determining the valuation of the Company by
Parent. Therefore, notwithstanding any provision of this Agreement to the
contrary, Parent shall retain such an amount equal to Two Million U.S. dollars
($2,000,000) (the "EARNOUT AMOUNT") of the Merger Consideration otherwise
payable at the Effective Time to the Stockholders, and the obligation of the
Company to pay such Earnout Amount shall be contingent upon the achievement of
the milestones specified in this ARTICLE IX.
(b) EARNOUT AS MERGER CONSIDERATION. All calculations of payments
to be made pursuant to SECTION 1.6 shall disregard any portion of the Earnout
Amount not yet earned in accordance with this ARTICLE IX.
(c) DISTRIBUTION OF EARNOUT. Parent shall release and distribute
the portion of the Earnout Amount, and only such amount that is actually earned
and distributable pursuant to this ARTICLE IX, to the former Stockholders
pursuant to this ARTICLE IX, if any, in accordance with SECTION 1.6(b) and
SECTION 1.6(c), at such times as follows:
(i) on or before July 15, 2005, with respect to the 2004
Revenue Milestone; and
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(ii) on or before July 15, 2005, with respect to the 2004
Deployment Milestone.
(d) FORFEITED AMOUNTS. The right to receive all Earnout Amounts
that are not earned by the Stockholders pursuant to this ARTICLE IX will be
forfeited and Parent will permanently retain such Earnout Amounts.
9.2 EARNOUT TARGETS.
(a) DEFINITIONS. For purposes of this ARTICLE IX:
(i) "2004 DEPLOYMENT MILESTONE" shall mean the successful
deployment of an automated directory assistance speech processing system of the
Company (a "DIRECTORY ASSISTANCE SYSTEM") in MCI's facilities ("MCI'S NETWORK")
meeting the following requirements for at least three (3) consecutive months
prior to the first anniversary of the Closing Date: (i) 35% success rate for
fully Automating Calls (or, to the extent that an alternative minimum threshold
is defined in the definitive agreement with MCI, meeting or exceeding such
minimum), (ii) a minimum of at least 4,000,000 calls into the Directory
Assistance System deployed on MCI's Network per month, and (iii) a price of at
least $0.05 per automated call;
(ii) "2004 REVENUE MILESTONE" shall mean $2,000,000 of
Product Revenue; and
(iii) "AUTOMATING CALLS" shall mean receiving calls into the
system and terminating such calls without the intervention of a live operator
(or, to the extent that an alternative definition is included in the definitive
agreement with MCI, such definition).
(iv) "PRODUCT REVENUE" shall mean revenue, calculated in
accordance with GAAP, derived during 2004 from the deployment of Directory
Assistance Systems to customers set forth in SCHEDULE 9.2(A)(IV) of this
Agreement.
9.3 ACHIEVEMENT OF MILESTONES. The Earnout Amount shall be earned as
follows:
(a) REVENUE MILESTONE. An amount equal to one U.S. dollar ($1) for
each additional U.S. dollar of Product Revenue in excess of the 2004 Revenue
Milestone; provided, however, that the Earnout Amount earned pursuant to this
Section 9.3(a) shall not exceed Two Million U.S. dollars ($2,000,000), less any
amounts earned upon achievement of the 2004 Deployment Milestone; and
(b) DEPLOYMENT MILESTONE. An amount equal to Seven Hundred and
Fifty Thousand U.S. dollars ($750,000) if the 2004 Deployment Milestone is met.
9.4 FAILURE TO ACHIEVE MILESTONES; MILESTONES CUMULATIVE. Failure to
achieve the milestones specified in this ARTICLE IX shall result in forfeiture
of the applicable portion of the Earnout Amount as set forth in this SECTION 9.3
by the former Stockholders. Notwithstanding the
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foregoing, the failure to achieve one milestone specified in this ARTICLE IX
shall not restrict the ability to recover the Earnout Amount upon the
achievement of the other milestone.
9.5 CALCULATION OF EARNOUT DISTRIBUTIONS; STOCKHOLDER REPRESENTATIVE
OBJECTIONS.
(a) EARNOUT DISTRIBUTION. No later than May 31, 2005, Parent shall
deliver to the Stockholder Representative a memorandum (the "EARNOUT NOTICE")
specifying in reasonable detail the calculation of the portion of the Earnout
Amount earned, the recalculation of the Merger Consideration pursuant to SECTION
1.6(c) and the calculation of the distribution of the Earnout Amount to each of
the Stockholders pursuant to SECTION 1.6(b) and SECTION 1.6(c), with the basis
for such calculation and any supporting documentation, as applicable.
(b) STOCKHOLDER REPRESENTATIVE OBJECTION. The Stockholder
Representative shall have forty-five (45) days to make an objection (in writing)
to any item in the Earnout Notice, and such statement must be delivered to
Parent prior to the expiration of such forty-five (45) day period.
(c) RESOLUTION OF CONFLICTS.
(i) In case the Stockholder Representative shall have
objected in writing to the Earnout Notice in a timely manner or in case of any
other dispute relating to the Earnout Amount, the Stockholder Representative and
Parent will attempt in good faith to resolve such objection or dispute. Until
the parties reach an agreement, no payments of the Earnout Amount shall be made.
If the Stockholder Representative and Parent should so agree, a memorandum
setting forth such agreement will be prepared and signed by both parties, and
any payments to be made as set forth therein shall be made on the terms provided
therein.
(ii) In the event the parties cannot come to an agreement as
set forth in SECTION 9.5(c)(i) within thirty (30) days after the date on which
the Stockholder Representative objected in writing to the Earnout Notice or, in
the event the dispute does not relate to an Earnout Notice, the date on which
the parties determine that they are unable to reach agreement pursuant to
SECTION 9.5(c)(i), such dispute shall be resolved in the manner set forth in
SECTION 8.3(g) and no payments of the Earnout Amount shall be made until such
dispute shall have been resolved.
(d) EARNOUT RIGHTS NOT TRANSFERABLE. No Stockholder may sell,
exchange, transfer or otherwise dispose of his, her or its right to receive any
portion of the Earnout Amount, other than (i) by the laws of descent and
distribution or succession, or (ii) to affiliates of the Stockholder, provided
that the Stockholder shall have obtained an opinion of legal counsel reasonably
acceptable to Parent to the effect that the Earnout Amount may be so transferred
in compliance with applicable federal and state securities laws, and any
transfer in violation of this SECTION 9.5(d) shall be null and void and shall
not be recognized by Parent or the Surviving Corporation.
9.6 INTEGRATION. Notwithstanding anything to the contrary set forth in
this Agreement, nothing in this Agreement shall obligate Parent to operate its
business, including with respect to the timing of the sale or deployment of the
Company's products, or the business of the Surviving
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Corporation, in any particular manner. The Company further acknowledges that the
successful integration of the Company's technology and preparation of the
Company's products for sale by Parent requires engineering and build-out to
ensure such technology operates as contemplated by Parent without violating the
rights of third parties, which will likely result in delays in the deployment of
new Directory Assistance Systems. Notwithstanding such delays, the Company
acknowledges that neither the 2004 Deployment Milestone, nor the 2004 Revenue
Milestone, will be adjusted in any manner to account for such delays.
ARTICLE X
TERMINATION, AMENDMENT AND WAIVER
10.1 TERMINATION. Except as provided in SECTION 10.2 hereof, this
Agreement may be terminated and the Merger abandoned at any time prior to the
Closing:
(a) by unanimous agreement of the Company and Parent;
(b) by Parent or the Company if the Closing Date shall not have
occurred by May 31, 2004; provided, however, that the right to terminate this
Agreement under this SECTION 10.1(b) shall not be available to any party whose
action or failure to act has been a principal cause of or resulted in the
failure of the Merger to occur on or before such date and such action or failure
to act constitutes breach of this Agreement;
(c) by Parent or the Company if: (i) there shall be a final
non-appealable order of a federal or state court in effect preventing
consummation of the Merger, or (ii) there shall be any statute, rule, regulation
or order enacted, promulgated or issued or deemed applicable to the Closing by
any Governmental Entity that would make consummation of the Closing illegal;
(d) by Parent if there shall be any action taken, or any statute,
rule, regulation or order enacted, promulgated or issued or deemed applicable to
the Merger by any Governmental Entity, which would: (i) prohibit Parent's
ownership or operation of any portion of the business of the Company or (ii)
compel Parent or the Company to dispose of or hold separate all or any portion
of the business or assets of the Company or Parent as a result of the Merger;
(e) by Parent if it is not in material breach of its obligations
under this Agreement and there has been a breach of any representation,
warranty, covenant or agreement of the Company or the Principal Stockholders
contained in this Agreement such that the conditions set forth in SECTION 7.2(a)
hereof would not be satisfied and such breach has not been cured within ten (10)
calendar days after written notice thereof to the Company and the applicable
Principal Stockholder; provided, however, that no cure period shall be required
for a breach which by its nature cannot be cured; or
(f) by the Company if none of the Company or the Principal
Stockholders is in material breach of their respective obligations under this
Agreement and there has been a breach of any representation, warranty, covenant
or agreement of Parent contained in this Agreement such that
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the conditions set forth in SECTION 7.3(a) hereof would not be satisfied and
such breach has not been cured within ten (10) calendar days after written
notice thereof to Parent; provided, however, that no cure period shall be
required for a breach which by its nature cannot be cured.
10.2 EFFECT OF TERMINATION. In the event of termination of this Agreement
as provided in SECTION 10.1 hereof, this Agreement shall forthwith become void
and there shall be no liability or obligation on the part of Parent, the Company
or the Principal Stockholders, or their respective officers, directors or
stockholders, if applicable; provided, however, that each party hereto shall
remain liable for any breaches of this Agreement prior to its termination; and
provided further, however, that, the provisions of SECTIONS 6.3, 6.4 and 6.5
hereof, ARTICLE XI hereof and this SECTION 10.2 shall remain in full force and
effect and survive any termination of this Agreement pursuant to the terms of
this ARTICLE X.
10.3 AMENDMENT. This Agreement may be amended by the parties hereto at
any time by execution of an instrument in writing signed on behalf of the party
against whom enforcement is sought. For purposes of this SECTION 10.3, the
Stockholders (including the Principal Stockholders) agree that any amendment of
this Agreement signed by the Stockholder Representative shall be binding upon
and effective against the Stockholders whether or not they have signed such
amendment.
10.4 EXTENSION; WAIVER. At any time prior to the Closing, Parent, on the
one hand, and the Company and the Stockholder Representative, on the other hand,
may, to the extent legally allowed, (i) extend the time for the performance of
any of the obligations of the other party hereto, (ii) waive any inaccuracies in
the representations and warranties made to such party contained herein or in any
document delivered pursuant hereto, and (iii) waive compliance with any of the
covenants, agreements or conditions for the benefit of such party contained
herein. Any agreement on the part of a party hereto to any such extension or
waiver shall be valid only if set forth in an instrument in writing signed on
behalf of such party. For purposes of this SECTION 10.4, the Stockholders
(including the Principal Stockholders) agree that any extension or waiver signed
by the Stockholder Representative shall be binding upon and effective against
all Stockholders whether or not they have signed such extension or waiver.
ARTICLE XI
GENERAL PROVISIONS
11.1 NOTICES. All notices and other communications hereunder shall be in
writing and shall be deemed given if delivered personally or by commercial
messenger or courier service, or mailed by registered or certified mail (return
receipt requested) or sent via facsimile (with acknowledgment of complete
transmission) to the parties at the following addresses (or at such other
address for a party as shall be specified by like notice); provided, however,
that notices sent by mail will not be deemed given until received:
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(a) if to Parent or Sub, to:
ScanSoft, Inc.
0 Xxxxxxxxxx Xxxxx
Xxxxxxx, XX 00000
Attention: General Counsel
Facsimile No.: (000) 000-0000
with a copy to:
ScanSoft, Inc.
0 Xxxxxxxxxx Xxxxx
Xxxxxxx, XX 00000
Attention: Senior Vice President Corporate Development
Facsimile No.: (000) 000-0000
and to:
Xxxxxx Xxxxxxx Xxxxxxxx & Xxxxxx
Professional Corporation
Two Fountain Square, Reston Town Center
00000 Xxxxxxx Xxxxx, Xxxxx 000
Xxxxxx, XX 00000
Attention: Xxxxxx Xxxxxxx, Esq.
Facsimile No.: (000) 000-0000
(b) if to the Company or the Stockholder Representative, to:
Telelogue, Inc.
000 Xxxxx Xxx Xxxxx, Xxxxx 0000
Xxxxxx, XX 00000
Attention: Chief Executive Officer
Facsimile No.: (000) 000-0000
with a copy to:
Xxxxx Day
000 Xxxx 00xx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attention: Xxxxxx Xxxxxxxx
Facsimile No.: (000) 000-0000
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(c) If to the Principal Stockholders, to the addresses set forth
in SECTION 11.1 of the Disclosure Schedule;
with a copy to:
Xxxxx Day
000 Xxxx 00xx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attention: Xxxxxx Xxxxxxxx
Facsimile No.: (000) 000-0000
(d) If to the Escrow Agent, to:
U.S. Bank National Association
Corporate Trust Services
000 Xxxxxx Xxxxxx, 00xx Xxxxx
Xxxxxxxx, XX 00000
Attention: Xxxxxx Xxxxxxxxx
Facsimile No.: (000) 000-0000
11.2 INTERPRETATION. The words "include," "includes" and "including" when
used herein shall be deemed in each case to be followed by the words "without
limitation." The table of contents and headings contained in this Agreement are
for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
11.3 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.
11.4 ENTIRE AGREEMENT; ASSIGNMENT. This Agreement, the Exhibits hereto,
the Disclosure Schedule, the Confidential Disclosure Agreement, and the
documents and instruments and other agreements among the parties hereto
referenced herein: (i) constitute the entire agreement among the parties with
respect to the subject matter hereof and supersede all prior agreements and
understandings both written and oral, among the parties with respect to the
subject matter hereof, including, without limitation, that certain Term Sheet by
and between the Parent and the Company dated as of Xxxxx 0, 0000, (xx) are not
intended to confer upon any other person any rights or remedies hereunder, and
(iii) shall not be assigned by operation of law or otherwise, except that Parent
may assign its rights and delegate its obligations hereunder to its affiliates
as long as Parent remains ultimately liable for all of Parent's obligations
hereunder.
11.5 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
-64-
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.
11.6 OTHER REMEDIES. Any and all remedies herein expressly conferred upon
a party will be deemed cumulative with and not exclusive of any other remedy
conferred hereby, or by law or equity upon such party, and the exercise by a
party of any one remedy will not preclude the exercise of any other remedy.
11.7 GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York, regardless of the laws that
might otherwise govern under applicable principles of conflicts of laws thereof.
Each of the parties hereto irrevocably consents to the exclusive jurisdiction
and venue of any court within New York County, State of New York, in connection
with any matter based upon or arising out of this Agreement or the matters
contemplated herein, agrees that process may be served upon them in any manner
authorized by the laws of the State of New York for such persons and waives and
covenants not to assert or plead any objection which they might otherwise have
to such jurisdiction, venue and such process.
11.8 RULES OF CONSTRUCTION. The parties hereto agree that they have been
represented by counsel during the negotiation and execution of this Agreement
and, therefor, waive the application of any law, regulation, holding or rule of
construction providing that ambiguities in an agreement or other document will
be construed against the party drafting such agreement or document.
11.9 WAIVER OF JURY TRIAL. EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY
WAIVES ALL RIGHT TO TRIAL BY JURY AND ANY ACTION, PROCEEDING OR COUNTERCLAIM
(WHETHER BASED ON CONTRACT, TORT, OR OTHERWISE) ARISING OUT OF OR RELATING TO
THIS AGREEMENT OR THE ACTIONS OF ANY PARTY HERETO IN NEGOTIATION,
ADMINISTRATION, PERFORMANCE OR ENFORCEMENT HEREOF.
[remainder of page intentionally left blank]
-65-
IN WITNESS WHEREOF, Parent, Sub, the Company, the Principal Stockholders,
the Stockholder Representative and the Escrow Agent have caused this Agreement
to be signed, all as of the date first written above.
SCANSOFT, INC.
By: /s/ Xxxx X. Xxxxx
---------------------------------------
Name: Xxxx X. Xxxxx
Title: Chairman and Chief Executive Officer
TELELOGUE, INC.
By: /s/ Xxxxxx Xxxxx
---------------------------------------
Name: Xxxxxx Xxxxx
Title: Chief Executive Officer
TENNIS ACQUISITION CORPORATION
By: /s/ Xxxx X. Xxxxx
---------------------------------------
Name: Xxxx X. Xxxxx
Title: Chairman and Chief Executive Officer
STOCKHOLDER REPRESENTATIVE
/s/ Xxxxxx Xxxx
-------------------------------------------
Xxxxxx Xxxx
U.S. BANK TRUST, NATIONAL ASSOCIATION
By: /s/ Xxxxxx X. Xxxxxxxxx
---------------------------------------
Name: Xxxxxx X. Xxxxxxxxx
Title: Vice President
SIGNATURE PAGE TO AGREEMENT AND PLAN OF MERGER
PRINCIPAL STOCKHOLDERS
/s/ Xxxxxxxx Xxxxxx
-------------------------------------------
Pequot Venture Partners II, L.P.
/s/ Xxxxxxxx Xxxxxx
-------------------------------------------
PVP II Telelogue Prom Note 2 Grantor Trust
/s/ Xxxx X. Xxxxxxx
-------------------------------------------
Palisade Private Partnership II, L.P.
/s/ Xxxxxx Xxxxxxxxxxx
-------------------------------------------
NJTC Venture Fund SBIC, LP
SIGNATURE PAGE TO AGREEMENT AND PLAN OF MERGER
FIRST AMENDMENT TO
AGREEMENT AND PLAN OF MERGER
This FIRST AMENDMENT TO AGREEMENT AND PLAN OF MERGER (this
"AMENDMENT"), dated as of May 28, 2004, is made by and among ScanSoft, Inc., a
Delaware corporation ("PARENT"), Tennis Acquisition Corporation, a Delaware
corporation and a wholly-owned subsidiary of Parent ("SUB"), Telelogue, Inc., a
Delaware corporation (the "COMPANY"), and Xxxxxx Xxxx as stockholder
representative (the "STOCKHOLDER REPRESENTATIVE"). Capitalized terms used but
not otherwise defined herein have the meanings ascribed to them in the Agreement
and Plan of Merger, dated as of May 4, 2004, by and among Parent, Sub, the
Company, the Stockholder Representative and certain other parties thereto (the
"MERGER AGREEMENT").
RECITALS
WHEREAS, Parent, Sub, the Company, the Stockholder Representative
and certain other parties thereto have entered into the Merger Agreement,
pursuant to which the Company and Sub shall be merged and the Company shall
continue as the surviving corporation and a wholly-owned subsidiary of Parent;
and
WHEREAS, Parent, Sub, the Company and the Stockholder Representative
(on behalf of the Stockholders) desire to amend the Merger Agreement as set
forth herein, pursuant to Section 10.3 of the Merger Agreement;
NOW, THEREFORE, in consideration of the foregoing, and of the
agreements contained herein, the parties hereto hereby agree as follows:
1. Amendments.
(a) The first sentence of Section 1.2 of the Merger Agreement
is hereby amended by deleting the words "as promptly as practicable
after the execution and delivery hereof by the parties hereto, and
following" and replacing them with the following:
"on June 15, 2004, subject to the"
(b) The definition of "Knowledge" and "Known" in Section
1.6(a)(xxi) of the Merger Agreement is hereby amended by adding the
following language after the words "Xxxx Xxxxxxxx":
"(with respect to Xx. Xxxxxxxx, solely for purposes of the
Company's representations and warranties made as of the date
of this Agreement and not as of the Effective Date)"
(c) Section 6.11 of the Merger Agreement is hereby amended by
deleting the following sentence:
"Simultaneously with the execution of this Agreement, each
Employee set forth on SCHEDULE 6.11 (each, a "KEY EMPLOYEE")
shall execute an Offer Letter which shall be effective as of
the Closing Date."
(d) Subclause (ii) of Section 6.14 of the Merger Agreement is
hereby amended by deleting the words "and stockholders' equity".
(e) Section 7.2(f) of the Merger Agreement is hereby amended
by adding the following language to the end thereof:
"; provided, however, that this Section 7.2(f) shall not be
deemed to be unsatisfied solely as a result of the receipt, in
and of itself, by the Company of that certain letter, dated
May 7, 2004, from Nuance Communications, Inc., in the form
previously provided to Parent (it being understood and agreed
that all other rights of Parent, whether under this Section
7.2(f) or otherwise, with respect to the matters set forth in
such letter shall be, and hereby are, retained in full)."
(f) Section 7.2(k) of the Merger Agreement is hereby amended
by deleting the words "Chief Executive Officer" and replacing them
with the following:
"Chief Financial Officer"
(g) Section 7.2(o) of the Merger Agreement is hereby deleted
in its entirety.
(h) Section 7.2(p) of the Merger Agreement is hereby amended
by deleting the words ", and each such Employee shall have executed
a release in a form approved by Parent".
(i) Section 8.2(a)(v) of the Merger Agreement is hereby
amended by adding the following language after the words "Disclosure
Schedule":
"and, if Xxxxxx Xxxxx revokes the Xxxxx Separation Agreement
or does not execute or revokes the Xxxxx Supplemental Release
Agreement, or if Amir Mane revokes the Mane Separation
Agreement or does not execute or revokes the Mane Supplemental
Release Agreement, any claims asserted by Xxxxxx Xxxxx or Xxxx
Mane under the Age Discrimination in Employment Act of 1967
(the "AGE DISCRIMINATION CLAIMS") (but, with respect to claims
by Xx. Xxxxx, only to the extent of Losses arising from such
claims in excess of $110,000). As used herein, "XXXXX
SEPARATION AGREEMENT" shall mean the Separation Agreement,
dated May 28, 2004, among Xxxxxx Xxxxx, the Company and
Parent; "XXXXX SUPPLEMENTAL RELEASE AGREEMENT" means that
Supplemental Release Agreement
contemplated by the Xxxxx Separation Agreement to be executed
by Xx. Xxxxx, Parent and the Company on the Closing Date;
"MANE SEPARATION AGREEMENT" shall mean the Separation
Agreement, dated May 28, 2004, among Amir Mane, the Company
and Parent; "MANE SUPPLEMENTAL RELEASE AGREEMENT" means that
Supplemental Release Agreement contemplated by the Mane
Separation Agreement to be executed by Mr. Mane, Parent and
the Company on the Closing Date; "
(j) Section 8.5(b)(iv) of the Merger Agreement is hereby
amended by adding the following language to the end thereof:
", and provided further that the aggregate liability of all
Principal Stockholders for all Age Discrimination Claims shall
not exceed $100,000"
(k) Section 10.1 of the Merger Agreement is hereby amended by
deleting the words "May 31, 2004" and replacing them with the
following:
"June 15, 2004"
(l) Schedule 2.8(a) to the Merger Agreement is hereby amended
by adding the following language thereto:
"On May 28, 2004, Parent advanced funds to the Company in the
principal amount of $206,000, which advance for all purposes
under the Agreement shall be deemed to be a Bridge Loan. The
proceeds from such advance shall be used by the Company for
the purposes set forth on Exhibit A attached hereto."
2. Notification of Certain Matters. Pursuant to Section 6.9 of
the Merger Agreement, the Company hereby notifies Parent that on May 7,
2004, Nuance Communications, Inc., delivered a letter to the Company
pursuant to which Nuance asserted that all license rights to Nuance
software under the VAR Agreement, dated May 18, 2001, between Nuance and
the Company, will terminate upon consummation of the Merger (the "NUANCE
TERMINATION LETTER").
3. Miscellaneous.
(a) Effectiveness. Except as amended hereby, the Merger
Agreement remains unchanged and in full force and effect.
(b) Governing Law. This Amendment shall be governed by and
construed in accordance with the laws of the State of New York,
regardless of the laws that might otherwise govern under applicable
principles of conflicts of laws thereof. Each of the parties hereto
irrevocably consents to the exclusive jurisdiction and venue of any
court within New York County, State of New York, in connection with
any matter based upon or arising out of this Amendment or the
matters contemplated herein, agrees that process may be served upon
them in any
manner authorized by the laws of the State of New York for such
persons and waives and covenants not to assert or plead any
objection which they might otherwise have to such jurisdiction,
venue and such process.
(c) Counterparts. This Amendment may be executed in any number
of counterparts, each of which shall be deemed to be an original,
and all of which together will constitute one and the same
instrument.
(d) Execution. This Amendment may be executed by facsimile
signatures by any party hereto and such signature shall be deemed
binding for all purposes hereof, without delivery of an original
signature being thereafter required.
[Remainder of page intentionally left blank.]
IN WITNESS WHEREOF, Parent, Sub, the Company, and the Stockholder
Representative have caused this Amendment to be signed, all as of the date first
written above.
SCANSOFT, INC.
By: /s/ Xxxx X. Xxxxx
--------------------------------------
Name: Xxxx X. Xxxxx
Title: Chairman and Chief Executive Officer
TELELOGUE, INC.
By: /s/ Xxxxxx Xxxxx
--------------------------------------
Name: Xxxxxx Xxxxx
Title: Chief Executive Officer
TENNIS ACQUISITION CORPORATION
By: /s/ Xxxx X. Xxxxx
--------------------------------------
Name: Xxxx X. Xxxxx
Title: Chairman and Chief Executive Officer
STOCKHOLDER REPRESENTATIVE
/s/ Xxxxxx Xxxx
------------------------------------------
Xxxxxx Xxxx
EXHIBIT A
USE $ AMOUNT
--- ---------
Payroll 110,000
Employee Expense Reports 2,000
Itouchpoint 23,000
Focal 19,000
Miscellaneous 5,000
KPMG (Unfunded To Date) 17,000
OSC 2,000
NMSU 10,000
Communications Bills 6,000
Rent 12,000
TOTAL $ 206,000
