Exhibit 10.1
AGREEMENT AND PLAN OF MERGER
By and Among
VOLT DELTA RESOURCES LLC,
as Parent,
LSSI RESOURCES CORP.,
as Merger Sub,
And
LSSi CORP.,
as the Company,
WARBURG PINCUS PRIVATE EQUITY VIII, L.P.,
GRANITE VENTURES, LLC,
H&Q LSSI INVESTORS, L.P.,
and GEORGICA ADVISORS, LLC,
as the Principal Stockholders
Dated as of
June 18, 2007
TABLE OF CONTENTS
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Page
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ARTICLE I DEFINED TERMS AND INTERPRETATION.....................................2
1.1 Certain Definitions...............................................2
1.2 Terms Defined Elsewhere..........................................11
1.3 Interpretation...................................................14
ARTICLE II THE MERGER.........................................................14
2.1 The Merger.......................................................14
2.2 Closing..........................................................15
2.3 Effective Time...................................................15
2.4 Effect of the Merger.............................................15
2.5 Certificate of Incorporation and By-laws of the Surviving
Corporation.....................................................15
2.6 Directors and Officers of the Surviving Corporation..............15
2.7 Company Actions..................................................16
2.8 Additional Actions...............................................16
ARTICLE III CONVERSION OF COMPANY STOCK; COMPANY OPTIONS, COMPANY WARRANTS
AND INCENTIVE PLAN; DELIVERY AND PAYMENT OF MERGER
CONSIDERATION....................................................16
3.1 The Merger.......................................................16
3.2 Delivery of the Merger Consideration.............................18
3.3 Allocation and Payment of Merger Consideration...................23
3.4 Dissenters' Rights...............................................26
3.5 Stock Transfer Books.............................................27
3.6 Equityholder Representative......................................27
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE PRINCIPAL
STOCKHOLDERS......................................................28
4.1 Organization and Qualification; Subsidiaries.....................28
4.2 Charter Documents; Corporate Books...............................29
4.3 Capitalization; Subsidiaries.....................................29
4.4 Authority........................................................31
4.5 No Conflict; Required Filings and Consents.......................31
4.6 Compliance with Licenses; Applicable Laws........................32
4.7 Financial Statements; No Undisclosed Liabilities.................33
4.8 Conduct of the Business..........................................34
4.9 Absence of Certain Changes or Events.............................35
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4.10 Labor and Employee Matters.......................................35
4.11 Company Contracts................................................37
4.12 Litigation.......................................................41
4.13 Environmental Matters............................................41
4.14 Intellectual Property............................................43
4.15 Relationships with Customers and Suppliers.......................48
4.16 Tangible Assets..................................................48
4.17 Tax Matters......................................................48
4.18 Insurance........................................................50
4.19 Internal Controls; Accounts Receivable...........................51
4.20 Real Estate......................................................51
4.21 Employee Benefit Matters.........................................53
4.22 Opinion of Financial Advisors....................................55
4.23 Brokers..........................................................56
4.24 Indebtedness.....................................................56
4.25 Change of Control and Severance..................................56
4.26 Related Party Transactions.......................................56
4.27 Commercial Bribery...............................................57
4.28 Money Laundering.................................................57
4.29 Foreign Corrupt Practices Act....................................57
4.30 Material Facts...................................................57
ARTICLE V REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB.............58
5.1 Organization and Qualification...................................58
5.2 Authority........................................................58
5.3 No Conflict......................................................58
5.4 Consents and Approvals...........................................59
5.5 Ownership of Merger Sub; No Prior Activities.....................59
5.6 Absence of Litigation............................................59
5.7 Brokers..........................................................60
5.8 Vote Required....................................................60
5.9 Availability of Funds............................................60
5.10 No Knowledge of Company Breach...................................60
ARTICLE VI COVENANTS 60
6.1 Conduct of Business by the Company Pending the Effective Time....60
6.2 Stockholders' Approval...........................................63
6.3 No Control.......................................................63
6.4 Irrevocable Consent..............................................63
6.5 Access...........................................................63
6.6 No Shop..........................................................64
6.7 Cooperation; Reasonable Best Efforts.............................65
6.8 HSR Act..........................................................66
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6.9 Certain Notices..................................................66
6.10 Public Announcements.............................................67
6.11 Termination of Company Contracts.................................68
6.12 Insurance Policies...............................................68
6.13 State Takeover Statutes..........................................69
6.14 Cooperation in Securing Financing................................70
6.15 Further Assurances...............................................70
6.16 Disbursement of Cash.............................................70
6.17 Certain Actions in Respect of Company Stockholders and MIP
Participants....................................................70
6.18 Disclosure.......................................................73
6.19 Duty to Assume, Defend and Indemnify.............................73
6.20 MIP Tax Benefit..................................................74
6.21 Contract Buy-Out.................................................75
6.22 Bring-Down Letters...............................................75
6.23 Revenue..........................................................75
6.24 Consent..........................................................76
6.25 Qualification....................................................76
6.26 Customers........................................................76
6.27 Exchange of Advice...............................................76
ARTICLE VII CLOSING CONDITIONS................................................76
7.1 Conditions to Obligations of Each Party Under This Agreement.....76
7.2 Additional Conditions to Obligations of Parent and Merger Sub....77
7.3 Additional Conditions to Obligations of the Company and the
Principal Stockholders..........................................79
ARTICLE VIII TERMINATION, AMENDMENT AND WAIVER................................80
8.1 Termination......................................................80
8.2 Effect of Termination............................................81
8.3 Fees and Expenses................................................82
8.4 Extension; Waiver................................................82
8.5 Amendment........................................................82
ARTICLE IX SURVIVAL; INDEMNIFICATION..........................................82
9.1 Survival.........................................................82
9.2 Indemnification by the Company Stockholders......................82
9.3 Indemnification Escrow Amount....................................83
9.4 Indemnification by Parent and the Surviving Corporation..........83
9.5 Limits on Indemnification........................................83
9.6 Notice and Payment of Claims other than Related to Taxes.........85
9.7 Mitigation of Damages; No Double Recovery........................86
9.8 Exclusive Remedy.................................................86
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ARTICLE X TAX MATTERS.........................................................87
10.1 Tax Matters......................................................87
10.2 Cooperation on Tax Matters.......................................88
10.3 Tax Sharing Agreements...........................................89
10.4 Certain Taxes....................................................89
10.5 Contest Provision................................................89
10.6 Disclosure Requirements of Company Stockholders..................90
ARTICLE XI GENERAL PROVISIONS.................................................91
11.1 Notices..........................................................91
11.2 Headings.........................................................91
11.3 Severability.....................................................91
11.4 Entire Agreement.................................................91
11.5 Assignment.......................................................92
11.6 Mutual Drafting..................................................92
11.7 Governing Law; Consent to Jurisdiction; Waiver of Trial by Jury..92
11.8 Counterparts.....................................................93
11.9 Specific Performance.............................................93
11.10 Representations and Warranties and Company Disclosure Schedule...93
11.11 No Fiduciary Duty................................................93
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EXHIBITS
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Exhibit A Form of Certificate of Merger
Exhibit B Certificate of Incorporation and By-laws of Merger Sub
Exhibit C Initial Directors and Officers of the Surviving Corporation
Exhibit D Form of Escrow Agreement
Exhibit E Form of Irrevocable Consent
Exhibit F Form of Opinion of Xxxxxxxx Xxxxxxx LLP
Exhibit G Licenses and other Government Approvals
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AGREEMENT AND PLAN OF MERGER
This AGREEMENT AND PLAN OF MERGER, dated as of June 18, 2007, by and
among VOLT DELTA RESOURCES LLC, a Nevada limited liability company ("Parent"),
LSSI RESOURCES CORP., a Delaware corporation and a wholly-owned Subsidiary of
Parent ("Merger Sub"), LSSi CORP., a Delaware corporation (the "Company"),
WARBURG PINCUS PRIVATE EQUITY VIII, L.P. ("Warburg Pincus"), GRANITE VENTURES,
LLC ("Granite"), H&Q LSSI INVESTORS, L.P. ("H&Q LSSI") and GEORGICA ADVISORS,
LLC ("Georgica" and together with Warburg Pincus, Granite and H&Q LSSI, the
"Principal Stockholders"). Parent, Merger Sub, the Company and the Principal
Stockholders are referred to collectively herein as, the "Parties" and each
individually, as a "Party."
WHEREAS, the respective Boards of Directors of Parent, Merger Sub and
the Company have approved and declared advisable the merger of Merger Sub with
and into the Company (the "Merger") upon the terms and subject to the conditions
of this Agreement and Plan of Merger, including the exhibits and disclosure
schedules attached hereto (the "Agreement") and in accordance with the General
Corporation Law of the State of Delaware (the "DGCL");
WHEREAS, the respective Boards of Directors of Parent and the Company
have determined that the Merger is in furtherance of, and consistent with, their
respective business strategies and is in the best interest of their respective
stockholders, and Parent has approved this Agreement and the Merger as the sole
stockholder of Merger Sub; and
WHEREAS, the Company shall use its best efforts to cause each of the
Principal Stockholders to execute and deliver to the Company, Parent and Merger
Sub the Irrevocable Consent immediately following the execution and delivery of
this Agreement.
NOW, THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants and agreements set forth in this
Agreement, and other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, and intending to be legally bound
hereby, the Parties agree as follows:
ARTICLE I
DEFINED TERMS AND INTERPRETATION
1.1 Certain Definitions. For purposes of this Agreement, the term:
"Action" shall mean any complaint, claim, controversy, dispute,
disagreement, charge, lawsuit, action, suit, arbitration, mediation, inquiry,
audit, proceeding or investigation or other proceeding by or before any
Governmental Authority, court, or judicial or arbitration tribunal.
"Affiliate" shall mean a Person that directly or indirectly, through
one or more intermediaries, controls, is controlled by, or is under common
control with, the first-mentioned Person, where "control" shall mean the
possession, directly or indirectly or as trustee or executor, of the power to
direct or cause the direction of the management or policies of a Person, whether
through the ownership of stock or as trustee or executor, by contract or
otherwise; provided, that in no event shall any of the Principal Stockholders or
any of their Affiliates (other than Subsidiaries of the Company) be deemed to be
an Affiliate of the Company for purposes of this Agreement.
"Applicable Law" shall mean, with respect to any Person, any U.S. or
foreign, federal, state, provincial or local law, statute, ordinance,
regulation, rule, code, order, common law, other requirement or rule of law or
stock exchange rule applicable to such Person or any of its respective
properties, assets, officers, directors, employees, independent contractors,
consultants or agents.
"Business" shall mean the business currently conducted by the Company
and the Company Subsidiaries consisting of obtaining, compiling and furnishing,
supplying and delivering under license (or similar contractual arrangements),
and licensing Data, access to Databases and systems (hardware and software), as
well as support, maintenance and associated services, and specifically including
the Products, the Product Components and the businesses described in
xxx.xxxx.xxx on the date of this Agreement, attached to Section 1.1(a) of the
Company Disclosure Schedule.
"Business Day" shall mean any day other than a Saturday, Sunday and any
day which is a legal holiday under the laws of the State of New York or is a day
on which banking institutions located in the State of New York are authorized or
required by Applicable Law or other governmental action to close.
"Code" shall mean the United States Internal Revenue Code of 1986, as
amended.
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"Company Convertible Note" shall mean Indebtedness of the Company which
is convertible into Company Stock in accordance with its terms.
"Company Employees" shall mean employees of the Company and all Company
Subsidiaries, all of whom, domestic and foreign, are listed in Section 4.10.2 of
the Company Disclosure Schedule.
"Company Option" means each outstanding unexercised Option to purchase
Company Stock, whether or not then vested, conditioned or fully exercisable,
granted on or prior to the date hereof to any current or former employee or
director of the Company or any Company Subsidiary or any other Person.
"Company Warrant" shall mean a warrant to purchase shares of Company
Stock.
"Confidential Information" shall mean any business, marketing,
technical, scientific or other information disclosed by any Party which, at the
time of disclosure, is designated as confidential (or like designation), is
disclosed in circumstances of confidence, or would be understood by a Party,
exercising reasonable business judgment, to be confidential. It is understood
that Confidential Information includes design documentation, implementation
details, Trade Secrets, pricing and sales information, business plans, marketing
plans, research plans, financial data, forecasts, computer programs, code,
algorithms, inventions, know-how, recording techniques, budgets and projections,
business processes and systems and Customer, Supplier and personnel information.
"Contract" shall mean any note, bond, mortgage, indenture, lease,
license, occupancy agreement (either written or oral), management agreement,
permit, concession, franchise, contract, agreement or other instrument or
obligation.
"Customers" shall mean clients, prospective customers and clients,
distributors and resellers.
"Data" shall mean information of all kinds that is owned or licensed by
the Company or any Company Subsidiary including names, addresses, zip codes,
telephone numbers, driving directions, e-mail addresses, domain names, telephone
company listings, business category headings, yellow page listings, white page
listings, restaurant reviews, driver licenses, social security numbers, any
other information that is assembled, compiled or otherwise developed for the
purpose of providing directory assistance services or any other information
service of any kind by any means including human assisted, automated, or via the
Internet or any other communications medium.
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"Database" shall mean the stored Data in any medium including
electronic or paper form.
"Deferred Intercompany Transaction" has the meaning set forth in Reg.
ss.1.1502 13.
"Environmental Laws" shall mean any Applicable Law relating to the
protection of the environment or to occupational health and safety.
"Environmental Permit" shall mean any identification number or License
required under or issued pursuant to any Environmental Law.
"Equityholder Representative" shall mean, Warburg Pincus, or its
designees.
"Equity Interest" shall mean any share, capital stock, partnership,
member or similar interest in any entity and any option, warrant, note, right or
other security convertible, exchangeable or exercisable therefor.
"Escrow Agent" shall mean the escrow agent named in the Escrow
Agreement.
"Escrow Agreement" shall mean the Escrow Agreement to be entered into
by and among Parent, Merger Sub, the Equityholder Representative and the Escrow
Agent, substantially in the form of Exhibit D attached hereto.
"European Indebtedness" shall mean the Indebtedness of the Company
under (i) the lease agreement with IBM Global Financing and (ii) payments due to
infoContact S.p.A. under the LSSi S.p.A. Share Purchase Agreement.
"Exchange Act" shall mean the United States Securities Exchange Act of
1934, as amended, and the rules and regulations promulgated thereunder.
"Facility" shall mean real property, computer servers, network
equipment, and any other systems wherever located, including hosting
environments wherever located, a partitioned (or unpartitioned) piece of
another's server or system or computer wherever located, or any other place
where Data may be stored.
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"GAAP" shall mean generally accepted accounting principles as applied
in the United States, consistently applied.
"Governmental Authority" shall mean any U.S. or foreign, federal,
state, provincial or local governmental, regulatory or administrative authority,
agency or commission or any court, tribunal or judicial or arbitral body.
"Governmental Order" shall mean any order, writ, judgment, injunction,
decree, stipulation, determination, award or finding entered by or with any
Governmental Authority.
"Hazardous Materials" shall mean any natural or artificial substance
(whether in the form of solid, gas, vapor or liquid alone or in combination with
any other substance), which is dangerous or harmful in any way to any form of
life, toxic, unsafe, risky, treacherous, perilous, annoying, harmful, noxious,
tending to cause disease or impair health, whether known or unknown, or
suspected to do so, and includes anything regulated in any way by Environmental
Laws or any Governmental Authority.
"HSR Act" shall mean the Xxxx-Xxxxx-Xxxxxx Antitrust Improvements Act
of 1976, as amended, and the rules and regulations promulgated thereunder.
"Indebtedness" shall mean, with respect to any Person at a particular
time and, in each case, except between or among the Company and any Company
Subsidiary, (i) any obligation for borrowed money or issued in substitution for,
or exchange of indebtedness for, borrowed money, (ii) any obligation evidenced
by any note, bond, debenture or other debt security, (iii) any obligation for
the deferred purchase price of property or services with respect to which such
Person is liable, contingently or otherwise, as obligor or otherwise (other
than, with respect to the Company and any Company Subsidiary, trade payables and
other current Liabilities incurred in the Ordinary Course of Business), (iv) any
commitment by which such Person assures a creditor against loss (including,
without limitation, contingent reimbursement obligations with respect to letters
of credit), (v) any obligation for borrowed money guaranteed in any manner by
such Person (including, without limitation, guarantees in the form of an
agreement to repurchase or reimburse), (vi) any obligations under capitalized or
synthetic leases with respect to which such Person is liable, contingently or
otherwise, as obligor, guarantor or otherwise, or with respect to which
obligations such Person assures a creditor against loss, (vii) any obligation
secured by a Lien on such Person's assets, (viii) any Liability under any
deferred compensation plans, severance plans, bonus plans, employment
agreements, or any other plan, agreement or arrangement with any such Person,
which Liability is payable or becomes due as a result of the Merger, and (ix)
any fees, penalties, premiums or accrued and unpaid interest with respect to the
foregoing (in the case of prepayments or otherwise).
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"Independent Accounting Firm" shall mean XX Xxxx LLP, Xxxxxx LLP or
such other internationally recognized accounting firm as Parent and Equityholder
Representative shall in good faith agree upon.
"Institutional Lender" shall mean any bank, investment bank or other
financial institution providing loans or other financing in connection with the
Merger.
"Insured Persons" means all insureds and/or protected Persons currently
covered under the Westchester Policy, the U.S. Specialty Policy or the
CyberTech+ Policy, as applicable.
"Intellectual Property" shall mean all proprietary and intellectual
property rights, in any jurisdiction, whether owned or held for use under valid
License by the Company or a Company Subsidiary and used in the Business,
including such rights in and to: (i) trademarks, service marks, brand names,
trade dress, trade names, business names, internet domain names and other
similar indications of origin and the goodwill associated therewith
("Trademarks"); (ii) patents and pending patent applications (including all
provisionals, divisionals, continuations, continuations-in-part, re-examination
and reissue patents), utility models, inventors' certificates and invention
disclosures ("Patents"); (iii) copyrights and copyrightable material subject
matter, including copyrights in writings and other works of authorship, product
documentation, marketing materials, brochures, and training materials, and moral
rights related to each of the foregoing ("Copyrights"); (iv) mask works or
integrated circuit topographies ("Mask Works"); (v) industrial designs
("Industrial Designs"); (vi) computer programs, including all object code,
source code, algorithms, subroutines, technical specifications, data contained
in or supporting the computer programs and associated documentation and all
translations, compilations, arrangements, adaptations and derivative works
thereof, in each case whether patentable, copyrightable or not, and all
embodiments thereof in all forms of media ("Software"); (vii) trade secrets and
other confidential proprietary business or technical information, including
proprietary and confidential Data, Databases, ideas, formulas, compositions,
compilations, discoveries and improvements, know-how, show-how, manufacturing
and production methods, processes and techniques, research and development
information, drawings, designs, specifications, plans, proposals and technical
and systems data, analytical models, investment and lending strategies and
records, financial and other products, financial, marketing and business data,
pricing and cost information, business and marketing plans and Customer and
supplier lists and information, and confidential and proprietary Software, Mask
Works, and Industrial Designs, in each case whether patentable, copyrightable or
not, including proprietary and confidential information ("Trade Secrets") and
together with Trademarks, Patents, Copyrights, Mask Works, Industrial Designs
and Software, the "Intellectual Property Rights".
"Inventory" shall mean raw materials, work-in-process and finished
goods, supplies, parts, spare parts, hardware, equipment and other inventory
(including in transit, or consignment or in the possession of a third Person) to
the extent dedicated to, embodied in or constituting products used in the
Business and owned by the Company or any Company Subsidiary.
6
"IRS" shall mean the United States Internal Revenue Service.
"Knowledge of the Company" or "the Company's Knowledge" shall mean the
actual knowledge, after reasonable due inquiry, of the event or circumstance in
question, of those individuals identified in Section 1.1(b) of the Company
Disclosure Schedule.
"Knowledge of the Parent" or "to the Parent's Knowledge" shall mean the
actual knowledge, after reasonable due inquiry, of the event or circumstance in
question, of those individuals identified in Section 1.1(a) of the Parent
Disclosure Schedule.
"Liabilities" or "Liability" shall mean any and all debts, liabilities,
Indebtedness and obligations, whether accrued or fixed, absolute or contingent,
matured or unmatured, including those arising under any Applicable Law, Action
or Governmental Order and those arising under any Contract.
"License" shall mean any license, permit, certification, qualification,
franchise, approval, registrations, qualifications, rights, variances,
permissive uses, accreditations, certificates, certifications, consents,
contracts, interim licenses, interim permits and other authorizations of every
nature whatsoever required by, or issued under, any Applicable Laws required or
issued by any Governmental Authority.
"Lien" shall mean any lien, encumbrance, pledge, mortgage, deed of
trust, security interest, UCC-1 financing statement, claim, lease, sublease,
charge, claim, levy, option, right of first refusal, warrant, tenancy,
restriction, easement, servitude, proxy, voting trust or agreement, transfer
restriction under any shareholder or similar agreement or encumbrance.
"Material Adverse Effect" shall mean, with respect to the Business, the
Company or any Company Subsidiary, as applicable, any effect that is, or would
reasonably be expected to be, material and adverse to the properties, assets and
liabilities, business, results of operations or financial condition of, the
Company and the Company Subsidiaries taken as a whole, but shall not include any
effect relating to (i) changes after the date hereof in GAAP or in Applicable
Laws by any applicable Governmental Authorities that affect in general the
Business or the businesses in which the Company and the Company Subsidiaries are
engaged, as applicable, (ii) this Agreement and the transactions, or any
announcement of the transactions, contemplated hereby and thereby, (iii) actions
or omissions of a Party to this Agreement required to be taken by this Agreement
or taken with the prior express written consent of the other Parties to this
Agreement, (iv) changes in general economic conditions, or the occurrence of
other events or developments affecting generally the industries in which the
Business is conducted or the Company and the Company Subsidiaries conduct the
Businesses and (v) war, act of terrorism, civil unrest or similar event. For the
avoidance of doubt, occurrence of the events in Section 6.27 of the Company
Disclosure Schedule shall constitute a Material Adverse Effect.
7
"MIP" shall mean the LSSi Corp. Management Incentive Plan, dated as of
December 27, 2005.
"MIP Participant" shall mean a Person who is a participant in the MIP.
"Option" with respect to any Person, shall mean any security, right
(including any preemptive right, conversion right, stock appreciation right,
exercise right, redemption right or repurchase right), subscription, warrant,
option, "phantom" stock right or other Contract that directly or indirectly
gives or provides for the right to (i) purchase or otherwise receive or be
issued any shares of capital stock (or other equity securities or beneficial or
other interests) of such Person or any security of any kind convertible into or
exchangeable or exercisable for any shares of capital stock (or other equity
securities or beneficial or other interests) of such Person or (ii) receive any
benefits or rights similar to any rights enjoyed by or accruing to the holder of
shares of capital stock (or other equity securities or beneficial or other
interests) of such Person, including any rights to participate in the equity,
income or election of directors or officers (or persons of a similar capacity)
of such Person.
"Option Holder" shall mean a holder of a Company Option.
"Ordinary Course of Business" shall mean for the Company and each of
the Company Subsidiaries, the operation of the Business in the ordinary and
usual course consistent with past custom and practice, including both day-to-day
and seasonal operations and including, in particular, without any changes in its
accounting practices.
"Permitted Encumbrance" shall mean any restrictions, limitations or
conditions contained in (a) the Company Contracts or (b) Contracts granting
rights to any licensee to use any Intellectual Property (it being understood
that, in each case, such encumbrances are not security interests).
"Person" shall mean an individual, corporation, limited liability
company, partnership, association, trust, unincorporated organization or other
entity.
8
"Product Component" shall mean a component of a Product sold by or on
behalf of the Company or any Company Subsidiary, which component (a) is used or
is necessary in any way for the design, development, marketing, manufacture,
distribution, furnishing, providing, sale, licensing, or use of any products or
services by or on behalf of the Company or any Company Subsidiary after the
Effective Time, (b) is similar or comparable to a component used within a
Product sold or distributed by the Company or any Company Subsidiary prior to
the Effective Time, or (c) is used after the Effective Time within the Product
sold by or on behalf of Parent or a Subsidiary of Parent in a manner similar to
the manner in which such component was used within the Product by the Company or
any Company Subsidiary prior to the Effective Time.
"Products" shall mean the products and services of the Business,
derived through the amalgamation, integration and normalization of the Data,
including but not limited to Data, Databases, Database Management, EDA Services,
File Install, FollowMe 000, Xxxxxx Xxxxxxxx, Xxxxxxxx Verification, National
Listing Databases, National CNAM File, New Movers, Online Directory, Phone
Append, Prospect Database, Vintage Data and all United States and foreign Data
and Databases, and the master database, and other information owned, created,
compiled, possessed, derived, used or maintained by the Company or any Company
Subsidiary or, licensed, sold or supplied by the Company or any Company
Subsidiary to Third Parties, and including all versions, releases, modules and
embodiments thereof, in existence or made available at any Facility or installed
or made available by any means at any of the Business' Customers' Facilities
and, including those listed and generally described in Section 1.1(c) of the
Company Disclosure Schedule, and including all versions, releases and modules
thereof in existence or available at a Facility or installed at any of the
Facilities of the Business' Customers' and for purposes of this Agreement
includes future, current and historical or past Products, whether completed or
marketed or not, at all developmental stages, including works in progress and
abandoned projects, and for purposes of this Agreement after the date hereof
includes all products developed by the Company in any way similar to the
Products and the Product Components.
"Representatives" shall mean, with respect to a Party, such Party's
directors, officers, employees, agents, advisors or Affiliates, or
representatives of its agents, advisors or Affiliates.
"SEC" shall mean the United States Securities and Exchange Commission.
"Securities Act" shall mean the United States Securities Act of 1933,
as amended, and the rules and regulations promulgated thereunder.
"Stockholders' Agreement" shall mean that certain "LSSi Corp.
Stockholders Agreement," dated as of August 22, 2003, among the Company and
Investors listed therein.
9
"Subsidiary" of any Person shall mean any corporation, partnership,
joint venture, limited liability company, trust or estate of which (or in which)
more than fifty percent (50%) of (a) the issued and outstanding capital stock
having ordinary voting power to elect a majority of the board of directors of
such entity, or (b) the interest in the capital or profits of such entity is at
the time directly or indirectly owned or controlled by such Person, by such
Person and one or more of its other Subsidiaries or by one or more of such
Person's other Subsidiaries.
"Suppliers" includes vendors, licensors and others who furnish or
supply Intellectual Property, Products, Data, Databases or components of any of
the foregoing, material and/or services to the Company or any Company Subsidiary
by any means and for any purpose under a Contract.
"Takeover Proposal" shall mean any inquiry, proposal or offer relating
to (i) the acquisition of more than twenty percent (20%) of the outstanding
shares of capital stock or any other voting securities of the Company by any
Third Party, (ii) a merger, consolidation, business combination, reorganization,
share exchange, sale of assets, recapitalization, liquidation, dissolution or
similar transaction, or a series of any such transactions, which would result in
any Third Party acquiring the assets of the Company and the Company Subsidiaries
(including capital stock or other Equity Interests of Company Subsidiaries)
representing twenty percent (20%) or more of the consolidated assets, revenues
or earnings of the Company and the Company Subsidiaries, immediately prior to
such transaction (whether by purchase of assets, acquisition of stock or other
Equity Interests of a Company Subsidiary or otherwise) (iii) any other
transaction which would result in a Third Party acquiring the assets of the
Company and the Company Subsidiaries (including capital stock or other Equity
Interests of Company Subsidiaries) representing twenty percent (20%) or more of
the consolidated assets, revenues or earnings of the Company and the Company
Subsidiaries, immediately prior to such transaction (whether by purchase of
assets, acquisition of stock or other Equity Interests of a Company Subsidiary
or otherwise) or (iv) any combination of the foregoing.
"Tax Returns" shall mean any return, declaration, report, claim for
refund, or information return or statement relating to Taxes, required to be
filed with any Governmental Authority, including any schedule or attachment
thereto, and including any amendment thereof.
"Taxes" shall mean any and all taxes, fees, levies, duties, tariffs,
imposts and other similar charges (together with any and all interest,
penalties, additions to tax and additional amounts imposed with respect thereto)
imposed by any Governmental Authority, including those on or measured by or
referred to as income, franchise, windfall or other profits, gross receipts,
property, sales, use, net worth, capital stock, payroll, employment, social
security, workers' compensation, unemployment compensation, excise, withholding,
ad valorem, stamp, transfer, value-added and provider taxes.
10
"Third Party" shall mean any Person other than the Company, any Company
Subsidiary, Parent or Merger Sub.
"Third Party Licenses" shall mean those licenses set forth in Section
1.1(d) of the Company Disclosure Schedule.
"Warrant Holder" shall mean a holder of a Company Warrant.
1.2 Terms Defined Elsewhere. The following terms are defined elsewhere in
this Agreement, as indicated below:
"401(k) Plan" Section 7.2(f)(iv)
"Acceptable Confidentiality Agreement" Section 6.6(b)
"Additional Agreement" or "Additional Section 3.6.1
Agreements"
"Additional Consent" Section 6.17.1
"Agreement" Recitals
"Allocation Spreadsheet" Section 3.1.1(b)
"Applicable Policies" Section 6.12.2
"Arbitration Firm" Section 3.2.4(b)
"Audit Adjustment" Section 6.20(b)
"Audited Financial Statements" Section 4.7.1
"Balance Sheet" Section 4.7.1
"Cash Consideration" Section 3.2.1
"Certificate of Merger" Section 2.3
"Certificates" Section 3.3.2(b)
"Certification of Non-Foreign Status" Section 10.6(a)(ii)
"CLEC" Section 4.5.2
"Closing" Section 2.2
"Closing Date" Section 2.2
"Closing Date Adjustment" Section 3.2.2
"Closing Working Capital Statement" Section 3.2.4(b)
"Company" Preamble
"Company Benefit Plans" Section 4.21.1
"Company Common Stock" Section 4.3.1
"Company Contract" Section 4.11.1
"Company Disclosure Schedule" Article IV
"Company Financial Advisors" Section 4.22
"Company Leased Properties" Section 4.20.2
11
"Company Preferred Stock" Section 4.3.1
"Company Recommendation" Section 2.7
"Company Stock" Section 4.3.1
"Company Stockholder" Section 2.7
"Company Subsidiary" and "Company Section 4.1.1
Subsidiaries"
"Confidentiality Agreement" Section 11.4
"Contract Termination Escrow Amount" Section 3.2.1(a)
"Contract Termination Excess" Section 3.2.1(a)
"Contributor" Section 6.19(e)
"Customer Complaints" Section 4.12.3
"CyberTech+ Policy" Section 6.12.1(c)
"Damages" Section 9.2
"Defaulting Stockholder" Section 10.6(b)
"DGCL" Recitals
"Dispute Notice" Section 3.2.4(b)
"Dissenting Shares" Section 3.1.1(a)
"Dissenting Stockholders" Section 3.1.1(a)
"Effective Time" Section 2.3
"Equityholder Reserve" Section 3.2.1(d)
"ERISA" Section 4.21.1
"ERISA Affiliate" Section 4.21.1
"Estimated Working Capital" Section 3.2.2(c)
"Estimated Working Capital Statement" Section 3.2.4(a)
"FCPA" Section 4.29
"Final Cash Consideration Decrease" Section 3.2.4(e)
"Final Cash Consideration Increase" Section 3.2.4(d)
"Final Working Capital" Section 3.2.2(e)
"Financial Statements" Section 4.7.1
"Georgica" Preamble
"Granite" Preamble
"Grant Damages" Section 9.2(c)
"H&Q LSSI" Preamble
"Indemnification Escrow Amount" Section 3.2.1(b)
"Indemnification Escrow Excess" Section 3.2.1(b)
"Irrevocable Consent" Section 6.4
"Joinder Agreement" Section 6.17.2
"Lease" and "Leases" Section 4.20.2
"Leave Employee" Section 4.10.2
"Letter of Intent" Section 11.4
"Letter of Transmittal" Section 3.3.2(b)
"Long-Form Joinder Agreement" Section 6.17.3
"Merger" Recitals
"Merger Consideration" Section 3.1.1(a)
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"Merger Sub" Preamble
"MIP Payment" Section 3.1.3
"MIP-Related Taxes" Section 3.1.3
"Money Laundering Laws" Section 4.28
"Net Cash Consideration" Section 3.2.1(f)
"Non-Performing Party" Section 11.9
"OFCCP" Section 4.10.9
"Parent" Preamble
"Parent Disclosure Schedule" Article V
"Parent Indemnitees" Section 9.2
"Party" or "Parties" Preamble
"Paying Agent" Section 3.3.2(a)
"Payment Fund" Section 3.3.2(a)
"Pension Plan" Section 4.21.1
"Performing Party" Section 11.9
"Post-Closing Payment Holders" Section 3.3.1(c)
"Potential Acquiror" Section 6.6(b)
"Pre-Closing Certificate" Section 3.2.4(a)
"Pre-Closing Tax" Section 10.1.2
"Pre-Closing Tax Returns" Section 10.1.1
"Press Release" Section 6.10
"Principal Stockholders" Preamble
"Pro Rata" Section 3.2.1(a)
"Released Claims" Section 6.17.3
"Releasor" Section 6.17.3
"Realized Tax Benefit" Section 6.20(b)
"Reserve Excess" Section 3.2.1(d)
"Short-Form Joinder Agreement" Section 6.17.4
"Stockholder Approval" Section 4.4.1
"Stockholder Claim" Section 6.19(a)
"Stockholder Claim Damages" Section 9.5.1
"Stockholder Released Claims" Section 6.17.4
"Stockholder Releasor" Section 6.17.4
"Straddle Period Returns" Section 10.1.2
"Surviving Corporation" Section 2.1
"Target Amount" Section 3.2.2(a)
"Tax Audit" Section 10.5.1
"Tax Benefit Payment" Section 6.20(b)
"Termination Date" Section 8.1(b)(i)
"TIN Certification" Section 10.6.(a)(i)
"Twenty Day Period" Section 6.6(b)
"Unaudited Interim Financial Statements" Section 4.7.1
"U.S. Specialty Policy" Section 6.12.1(b)
"Warburg Pincus" Preamble
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"Westchester Policy" Section 6.12.1(a)
"Working Capital" Section 3.2.2(d)
"Working Capital Decrease" Section 3.2.2(b)
"Working Capital Increase" Section 3.2.2(a)
1.3 Interpretation. In this Agreement, unless otherwise specified, the
following rules of interpretation apply:
(a) references to Sections, Subsections, Schedules, Annexes, Exhibits,
Clauses and Parties are references to sections or sub-sections, schedules,
annexes, exhibits and clauses of, and Parties to, this Agreement;
(b) references to any Person include references to such Person's
predecessors, successors and permitted assigns;
(c) words importing the singular include the plural and vice versa;
(d) words importing one gender include the other gender;
(e) references to the word "including" do not imply any limitation;
(f) references to months are to calendar months;
(g) the words "hereof", "herein" and "hereunder" and words of similar
import, when used in this Agreement, refer to this Agreement as a whole and not
to any particular provision of this Agreement;
(h) references to "$" or "Dollars" refer to U.S. dollars;
(i) to the extent this Agreement refers to information or documents
having been made available (or delivered or provided) to Parent or Merger Sub,
the Company shall be deemed to have satisfied such obligation if the Company or
any Company Representatives have made such information or document available (or
delivered or provided such information or document) to any of Parent, Merger
Sub, or any Representative thereof; and
(j) a defined term has its defined meaning throughout this Agreement
and in each Exhibit and Schedule to this Agreement, regardless of whether it
appears before or after the place where it is defined.
ARTICLE II
THE MERGER
2.1 The Merger. Upon the terms and subject to satisfaction or written
waiver of the conditions set forth in this Agreement, and in accordance with the
DGCL, at the Effective Time, Merger Sub shall be merged with and into the
Company. As a result of the Merger, the separate corporate existence of Merger
Sub shall cease and the Company shall continue as the surviving corporation of
the Merger (the "Surviving Corporation").
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2.2 Closing. Subject to the terms and conditions of this Agreement, the
closing of the Merger (the "Closing") shall take place on a day that is a
Business Day (i) at the offices of Xxxxxxxx Xxxxxxx LLP, 000 Xxxxxxxxx Xxxxxx,
Xxx Xxxx, Xxx Xxxx 00000 at 10:00 a.m., New York City time, no later than the
second (2nd) Business Day following the satisfaction of the conditions set forth
in Article VII (other than (a) those conditions that are waived in writing in
accordance with the terms of this Agreement by the Party or Parties for whose
benefit such conditions exist and (b) any such conditions which, by their terms,
are to be satisfied at the Closing) or (ii) at such other place, time and/or
date as the Parties may otherwise agree. The date upon which the Closing shall
occur is referred to herein as the "Closing Date".
2.3 Effective Time. If all of the conditions to the Merger set forth in
Article VII have been fulfilled or waived and this Agreement shall not have been
terminated as provided in Article VIII, the Parties shall cause a certificate of
merger substantially in the form of Exhibit A attached hereto (the "Certificate
of Merger") to be properly executed and filed in accordance with the DGCL and
the terms of this Agreement on the Closing Date. The Merger shall become
effective at such time as the Certificate of Merger is duly filed with the
Secretary of State of the State of Delaware or at such other time as is
specified by the Parties as the Effective Time in the Certificate of Merger (the
"Effective Time").
2.4 Effect of the Merger. At the Effective Time, the effect of the Merger
shall be as provided in the applicable provisions of the DGCL. Without limiting
the generality of the foregoing, at the Effective Time, except as otherwise
provided herein, all the property, rights, privileges, powers and franchises of
the Company and Merger Sub shall vest in the Surviving Corporation, and all
debts, Liabilities and duties of the Company and Merger Sub shall become the
debts, Liabilities and duties of the Surviving Corporation.
2.5 Certificate of Incorporation and By-laws of the Surviving Corporation.
At the Effective Time, the certificate of incorporation and by-laws of the
Surviving Corporation shall be amended in their entirety to contain the
provisions set forth in the certificate of incorporation and by-laws of Merger
Sub attached as Exhibit B hereto, except that the name of the Surviving
Corporation shall at the Effective Time be changed to the name of the Company.
2.6 Directors and Officers of the Surviving Corporation. The directors of
Merger Sub immediately prior to the Effective Time (and identified as the
initial directors of the Surviving Corporation in Exhibit C hereto) shall be the
initial directors of the Surviving Corporation, and shall each hold office in
accordance with the certificate of incorporation and by-laws of the Surviving
Corporation. The persons identified in Exhibit C hereto as the initial officers
of the Surviving Corporation shall be the initial officers of the Surviving
Corporation, and shall each hold office in accordance with the certificate of
incorporation and by-laws of the Surviving Corporation.
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2.7 Company Actions. The Company represents that the board of directors of
the Company has, at a meeting duly called and held, unanimously (a) approved
this Agreement and the transactions contemplated herein, including the Merger,
(b) recommended that the holders of Company Stock (each, a "Company
Stockholder") approve and adopt this Agreement (the "Company Recommendation"),
(c) determined that this Agreement and the transactions contemplated herein,
including the Merger, are fair to and in the best interests of the Company
Stockholders, (d) determined that the Merger Consideration to be paid for
Company Stock in the Merger is fair to all of the Company Stockholders and (e)
declared that this Agreement is advisable.
2.8 Additional Actions. If, at any time after the Effective Time, the
Surviving Corporation shall consider or be advised that any deeds, bills of
sale, assignments or assurances in law or any other acts are necessary or
desirable to vest, perfect or confirm, of record or otherwise, in the Surviving
Corporation its right, title or interest in, to or under any of the rights,
properties or assets of the Company or any Company Subsidiary, the Company and
each Company Subsidiary and each of their officers and directors shall be deemed
to have granted to the Surviving Corporation an irrevocable power of attorney to
execute and deliver all such deeds, assignments and assurances in law and to
take all acts necessary, proper or desirable to vest, perfect or confirm title
to and possession of such rights, properties or assets in the Surviving
Corporation, and the officers of the Surviving Corporation are authorized in the
name of the Company and each Company Subsidiary to take any and all such action.
ARTICLE III
CONVERSION OF COMPANY STOCK; COMPANY OPTIONS, COMPANY WARRANTS AND
INCENTIVE PLAN; DELIVERY AND PAYMENT OF MERGER CONSIDERATION
3.1 The Merger.
3.1.1 Conversion of Company Stock; Cancellation of Options. At the
Effective Time, by virtue of the Merger and without any action on the part of
Merger Sub, the Company or the Company Stockholders, the following shall occur:
(a) Each share of Company Stock issued and outstanding immediately
prior to the Effective Time (other than any shares of Company Stock to be
cancelled pursuant to Section 3.1.1(d) and any shares of Company Stock which are
held by Company Stockholders who have not voted in favor of this Agreement or
consented thereto in writing and who have complied with the requirements of
Section 262 of the DGCL ("Dissenting Stockholders")), shall be converted,
subject to Section 3.3.5, into the right to receive the Net Cash Consideration
applicable to such Company Stock as set forth on the Allocation Spreadsheet, and
any amounts that become payable to the Company Stockholders, Option Holders and
the MIP Participants as Contract Termination Excess, Indemnification Escrow
Excess, Reserve Excess and Final Cash Consideration Increase pursuant to Section
3.2, plus interest earned thereon in accordance with the terms of the Escrow
Agreement (collectively, the "Merger Consideration"). At the Effective Time, all
such shares of Company Stock (other than shares of Company Stock held by
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Dissenting Stockholders ("Dissenting Shares") which will be treated in
accordance with Section 3.4) shall no longer be outstanding and shall
automatically be cancelled and retired and shall cease to exist, and each
Certificate which immediately prior to the Effective Time represented shares of
Company Stock shall thereafter represent the right to receive the Merger
Consideration therefor. Dissenting Shares will represent the right, if any, to
receive payment (as provided in Section 6.19) of the "fair value" of such shares
of Company Stock as determined in accordance with Section 262 of the DGCL.
Certificates previously representing shares of Company Stock (other than
Dissenting Shares) shall be exchanged for the Merger Consideration, without
interest, upon the surrender of such Certificates in accordance with the
provisions of Section 3.3.
(b) Section 3.1.1(b) of the Company Disclosure Schedule is a
preliminary schedule (the "Allocation Spreadsheet") showing (i) the name,
address and contact information for each holder of Company Stock, each Option
Holder and each Warrant Holder (which names include all Persons who have claimed
or, to the Knowledge of the Company or the knowledge of any Principal
Stockholder, could claim, any such status), regardless of whether or not such
holder will receive any consideration pursuant to the transaction contemplated
by this Agreement, and each MIP Participant, (ii) the amount to be received in
cash by each holder of Company Stock, Option Holder and MIP Participant at the
Effective Time as provided for in this Article III, based on the formulas and
assumptions set forth therein, and (iii) a true, complete and correct list of
(y) the aggregate number of shares of each class of Company Stock held by each
Company Stockholder and (z) the allocation of the amounts payable to each MIP
Participant under the MIP. The Parties hereby acknowledge and agree that between
the date of this Agreement and the Effective Time, the Allocation Spreadsheet
shall be updated as necessary by the Equityholder Representative to reflect (1)
changes in the Merger Consideration pursuant to Section 3.2, (2) changes to the
equity structure of the Company arising prior to the Closing, including as a
result of the exercise, if any, of Company Options or Company Warrants and the
conversion of the Company Convertible Notes, and (3) the granting of interests
under the MIP (but only as permitted pursuant to this Agreement), in each case,
in a manner in which the Equityholder Representative shall deem appropriate.
(c) Each Company Option and Company Warrant issued and outstanding
immediately prior to the Closing (whether or not vested) shall, by virtue of the
Merger, become without any exercise thereof, solely the right to receive such
portion of the Merger Consideration to which such holder would have been
entitled had such holder exercised such Company Option or Company Warrant
immediately prior to the Effective Time and paid the exercise price therefor.
The Company represents and warrants to Parent that immediately prior to the
Effective Time, the portion of the Merger Consideration to which each Warrant
Holder would be entitled in the event of such exercise and payment is less than
the exercise price for such or Company Warrant.
(d) Each share of Company Stock held by Parent, Merger Sub, any
Subsidiary of Parent or Merger Sub, or in the treasury of the Company or by any
Company Subsidiary immediately prior to the Effective Time shall be cancelled
and extinguished without any conversion thereof and no payment shall be made
with respect thereto.
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(e) Each share of common stock, no par value, of Merger Sub issued and
outstanding immediately prior to the Effective Time shall be converted into and
be exchanged for one (1) newly and validly issued, fully paid and nonassessable
share of common stock of the Surviving Corporation. Following the Effective
Time, each certificate evidencing ownership of shares of Merger Sub common stock
shall evidence ownership of such shares of the Surviving Corporation.
3.1.2 Change in Shares. If between the date of this Agreement and the
Effective Time the outstanding shares of Company Stock shall have been changed
into a different number of shares or a different class, by reason of any stock
dividend, subdivision, reclassification, recapitalization, split, combination or
exchange of shares, the Allocation Spreadsheet shall be correspondingly adjusted
to reflect such stock dividend, subdivision, reclassification, recapitalization,
split, combination or exchange of shares.
3.1.3 MIP Payments. Prior to the calendar day on which the Effective Time
occurs, upon the receipt from each MIP Participant of an Additional Consent and
a Joinder Agreement as provided in Sections 6.17.2 and 6.17.3 hereof, the
Company shall pay an amount equal to ten percent (10%) of the Net Cash
Consideration payable pursuant Section 3.2, subject to applicable withholding
Taxes, to the participants in the MIP as set forth on the Allocation Spreadsheet
(collectively, the "MIP Payment") and the Company shall remit or accrue the
liability for the payment of all applicable withholding Taxes and employer Taxes
with respect thereto ("MIP-Related Taxes").
3.2 Delivery of the Merger Consideration.
3.2.1 Delivery of Merger Consideration. At the Closing, upon the terms
and subject to the conditions contained herein, Parent shall deliver an amount
equal to the difference between (i) Seventy Million Dollars ($70,000,000) and
(ii) the principal outstanding as of the Closing Date of the European
Indebtedness (the difference between (i) and (ii), the "Cash Consideration"),
subject to the Closing Date Adjustment pursuant to Section 3.2.2, in the manner
set forth below:
(a) $1,300,000 (the "Contract Termination Escrow Amount") for the
purpose of paying actual Contract termination and cancellation charges in
accordance with the provisions of Section 6.11 shall be paid by Parent directly
to the Escrow Agent in immediately available funds to the account or accounts
designated by the Escrow Agent not less than two (2) Business Days prior to the
Closing Date, which amount shall be distributed pursuant to the Escrow
Agreement; provided that any excess over such actual termination and
cancellation charges (the "Contract Termination Excess"), shall be paid in
accordance with Section 6.11 to the Company Stockholders, Option Holders and MIP
Participants Pro Rata. For purposes of this Agreement, "Pro Rata" means pro rata
in proportion to the aggregate amounts payable to such Persons pursuant to the
Allocation Spreadsheet; provided, that each such Person has previously received
Net Cash Consideration pursuant to Section 3.3.1 or Section 3.3.2 (and if any
such Person shall have received Net Cash Consideration pursuant to Section
3.3.2, the amount to be paid to such Person shall be delivered to the Paying
Agent for distribution in connection with Section 3.3.2);
18
(b) Seven Million Dollars ($7,000,000) (the "Indemnification Escrow
Amount") for the purpose of paying any indemnification claims to any Parent
Indemnitee under and pursuant to the provisions of Article IX and any Final Cash
Consideration Decrease due Parent shall be paid by Parent directly to the Escrow
Agent in immediately available funds to the account or accounts designated not
less than two (2) Business Days prior to the Closing Date by the Escrow Agent,
which amount shall be distributed pursuant to the Escrow Agreement; provided
that, subject to the terms of the Escrow Agreement, any portion of the
Indemnification Escrow Amount remaining after payments to (i) any Parent
Indemnitee pursuant to Article IX of this Agreement and (ii) Parent with respect
to the payment, if any, of the Final Cash Consideration Decrease pursuant to
Section 3.2.4(e) (the "Indemnification Escrow Excess"), shall, on February 1,
2009, be paid to the Company Stockholders, Option Holders and MIP Participants
Pro Rata in accordance with Section 3.2.5 hereof;
(c) An amount of cash sufficient to fully repay all of the Indebtedness
of the Company and its Subsidiaries, including (i) all Indebtedness, if any,
associated with the MIP Payment and any MIP-Related Taxes which have not been
fully paid and (ii) any Indebtedness of the Company or its Subsidiaries that is
not shown on the balance sheets of such entities or that is not otherwise
reflected in the books and records thereof), except the European Indebtedness
and the Indebtedness set forth in Section 3.2.1(c) of the Company Disclosure
Schedule, shall be paid by the Parent on behalf of the Company and the Company
Subsidiaries at the Closing directly to the holders of such Indebtedness against
receipt by the Company and Parent of duly executed payoff letters in customary
form, which shall be reasonably acceptable to Parent, and documentation
reasonably acceptable to the Parent releasing any Liens securing such
Indebtedness;
(d) An amount equal to Three Hundred Fifty Thousand Dollars ($350,000)
(which amount represents: (X) One Hundred Thousand Dollars ($100,000) for the
reasonable and demonstrable costs and expenses payable by the Company and the
Company Stockholders in connection with the consummation of the Merger as
estimated and set forth in Section 3.2.1(d) of the Company Disclosure Schedule
and (Y) Two Hundred Fifty Thousand Dollars ($250,000) which may be applied to
any expenses and liabilities of the Principal Stockholders, at their sole
discretion (the "Equityholder Reserve")) shall be paid by Parent in immediately
available funds to an account designated by the Equityholder Representative not
less than two (2) Business Days prior to the Closing Date; provided that any
excess over such expenses and liabilities (the "Reserve Excess"), shall, within
ninety (90) days after the Closing Date or such other date as the Equityholder
Representative shall determine, be thereafter paid to the Company Stockholders,
Option Holders and MIP Participants Pro Rata;
(e) An amount equal to the Taxes required to be withheld pursuant to
Sections 10.4 and 10.6 of this Agreement and any other Taxes required to be
withheld pursuant to any provision of the Code and the regulations promulgated
thereunder and any corresponding or like provision of state, or foreign law,
shall be deducted from the amount payable and paid over by Parent to the
appropriate Governmental Authority; and
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(f) the remainder (the "Net Cash Consideration"), shall be paid by
Parent in accordance with the provisions of Section 3.3.
3.2.2 Closing Cash Consideration Adjustment. The Cash Consideration to be
paid at the Closing pursuant to Section 3.2.1 shall be increased (if applicable)
by an amount equal to any Working Capital Increase, or decreased (if applicable)
by an amount equal to any Working Capital Decrease. The net amount by which the
Cash Consideration is adjusted at the Closing in accordance with the preceding
sentence is referred to as the "Closing Date Adjustment." As used herein:
(a) "Working Capital Increase" means the amount, if any, by which the
Estimated Working Capital (according to the Pre-Closing Certificate) exceeds
$2,226,000 (the "Target Amount").
(b) "Working Capital Decrease" means the amount, if any, by which the
Target Amount exceeds the Estimated Working Capital (according to the
Pre-Closing Certificate).
(c) "Estimated Working Capital" means the Company's estimate of Working
Capital as of the second Business Day immediately prior to the Closing Date
(after giving effect to the transactions contemplated hereby but before giving
effect to any other transactions) set forth on the Estimated Working Capital
Statement;
(d) "Working Capital" as of any date shall mean, with respect to the
Company, all consolidated current assets less all consolidated current
Liabilities; provided, that current assets and current Liabilities shall exclude
any assets and Liabilities relating to: (i) Indebtedness repaid as of the
Closing, including any Indebtedness related to the MIP Payment and any
Indebtedness related to the MIP-Related Taxes, (ii) accruals for expenses of the
Company relating to the transactions contemplated by this Agreement be paid as
of the Closing, (iii) accruals for expenses associated with the 2006 Employee
Bonus and Incentive Plan and the 2007 Employee Bonus and Incentive Plan and (iv)
accruals for Taxes for the fiscal year ended December 31, 2006, (v) $1,300,000
which represents an amount equal to the termination costs associated with
terminating the Contracts listed in Section 6.11 of the Company Disclosure
Schedule; (vi) any amounts relating to the matter referred to in Sections 9.2(c)
and 9.2(d) of this Agreement; and (vii) the cost of the Run-Off Periods and
Endorsements for the Applicable Policies as provided in Section 6.12.2; provided
further that current assets and Liabilities shall include Seven Hundred Thousand
Dollars ($700,000) which represents the Parties' good faith estimate of one-half
(1/2) of the total severance costs associated with the termination of employees
and independent contractors as a result of the Merger, and no Party shall be
liable to any other Party to the extent that the actual severance costs incurred
in connection with the consummation of the Merger (in connection with the
termination of employees and independent contractors or otherwise) are greater
than or less than such amount.
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(e) "Final Working Capital" means the final determination of Working
Capital as of the Closing Date (after giving effect to the transactions
contemplated hereby but before giving effect to any other transactions)
determined in accordance with Section 3.2.4(b); and
3.2.3 Final Cash Consideration Adjustment. Upon the determination of the
Final Working Capital in accordance with Section 3.2.4(b), either (a) the Parent
shall pay to the Company Stockholders, Option Holders and the MIP Participants
Pro Rata the amount of the Final Cash Consideration Increase in accordance with
Section 3.2.4(d) or, alternatively, (b) the Company Stockholders shall pay to
the Parent the amount of the Final Cash Consideration Decrease in accordance
with Section 3.2.4(e).
3.2.4 Working Capital Adjustment.
(a) At least two (2) Business Days prior to the Closing Date, the
Company shall cause to be prepared and delivered to Parent (i) a statement of
Estimated Working Capital prepared using the same accounting methods,
principles, practices, procedures and estimation methodologies as those utilized
in preparing the Balance Sheet, subject to the adjustments described in the
definition of Working Capital as of the Closing Date (the "Estimated Working
Capital Statement") and (ii) a certificate (the "Pre-Closing Certificate"), in a
form reasonably satisfactory to Parent, signed by the Company's Chief Financial
Officer and its President stating the amount of the Working Capital in the
Estimated Working Capital Statement and certifying that such amount is the best
estimate thereof by the Company and the reasonable, good faith belief of and
forecast by the Company, after due consideration and consultation with the
outside accountants of the Company, of Working Capital at such time. The
Estimated Working Capital Statement shall be using the same accounting methods,
principles, practices, procedures and estimation methodologies as those utilized
in preparing the Balance Sheet, subject to the adjustments described in the
definition of Working Capital.
(b) As promptly as practicable, but no later than ninety (90) days
after the Closing Date, Parent shall deliver to the Equityholder Representative
a statement of Working Capital as of the Closing Date (the "Closing Working
Capital Statement"). The Closing Working Capital Statement shall be prepared
using the same accounting methods, principles, practices, procedures and
estimation methodologies as those utilized in preparing the Balance Sheet,
subject to the adjustments described in the definition of Working Capital. The
Equityholder Representative may dispute the preparation or amount of Working
Capital as set forth in the Closing Working Capital Statement by delivering to
Parent within thirty (30) days after delivery of the Closing Working Capital
Statement a written notice (a "Dispute Notice") which Dispute Notice shall set
forth with specificity the basis for such dispute and the Equityholder
Representative's computation of Working Capital as of two (2) Business Days
immediately prior to the Closing Date. In the event that the Equityholder
Representative does not give Parent a Dispute Notice within such thirty (30)-day
period, the Closing Working Capital Statement will be final, conclusive and
21
binding on the Parties and the Working Capital set forth thereon shall become
the Final Working Capital. In the event the Equityholder Representative shall
give Parent a Dispute Notice, the Equityholder Representative and Parent shall
negotiate in good faith to resolve such dispute. If the Equityholder
Representative and Parent, notwithstanding such good faith effort, fail to
resolve such dispute within thirty (30) days after Parent gives the Equityholder
Representative the Dispute Notice, then the Equityholder Representative and
Parent jointly shall engage the Independent Accounting Firm (the "Arbitration
Firm") to resolve such dispute and to determine the Final Working Capital. The
Arbitration Firm shall only be authorized to choose between the Working Capital
set forth in the Closing Working Capital Statement and the Equityholder
Representative's computation of Working Capital set forth in the Dispute Notice.
All determinations made by the Arbitration Firm shall be final, conclusive and
binding on the Parties. The costs and expenses of the Arbitration Firm, along
with the costs and expenses of the Party whose position is selected by the
Arbitration Firm, shall be paid by the Party whose position is not selected by
the Arbitration Firm.
(c) For purposes of complying with the terms set forth in this Section
3.2.4, each Party shall cooperate with and make reasonably available to the
other Parties and their respective Representatives all information, records,
data and working papers, and will permit reasonable access to its facilities and
personnel, as may be reasonably required in connection with the preparation and
analysis of the Estimated Working Capital Statement and the Closing Working
Capital Statement.
(d) If the Final Working Capital is greater than the Estimated Working
Capital, then, subject to Section 3.3.8, the Cash Consideration shall be
increased by the amount of such difference (the "Final Cash Consideration
Increase") and Parent shall, within five (5) days after the date upon which such
determination is made, pay to the Company Stockholders, Option Holders and the
MIP Participants, in the manner directed by the Equityholder Representative,
their Pro Rata share of any Final Cash Consideration Increase.
(e) If the Final Working Capital is less than the Estimated Working
Capital, then the Cash Consideration shall be decreased by the amount of such
difference (the "Final Cash Consideration Decrease") and the Equityholder
Representative shall direct the Escrow Agent to pay such amount to Parent out of
the Escrow Amount pursuant to the Escrow Agreement within five (5) days after
the date upon which such determination is made.
(f) All actions taken by Equityholder Representative hereunder shall be
binding upon each Company Stockholder and Option Holder. Without limiting the
generality of the foregoing, the Equityholder Representative shall have full
power and authority, on behalf of each Company Stockholder and Option Holder to
interpret the terms and provisions of this Agreement, to dispute or fail to
dispute the composition or amount of Working Capital or any item on the Closing
Working Capital Statement, to negotiate and compromise any dispute which may
arise under this Section 3.2.4, and to sign any releases or other documents with
respect to any such dispute.
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3.2.5 Distribution of Escrow Amount. Upon release of the Indemnification
Escrow Excess pursuant to the terms of the Escrow Agreement and Section 3.2.1(b)
hereof, such amount shall be paid in the following sequence: (i) first, up to
the first Three Million Dollars ($3,000,000) of such amount, less any amounts
allocable to Dissenting Shareholders, shall be paid to the Company Stockholders,
Option Holders and MIP Participants Pro Rata, and (ii) next, up to the next
Three Million Five Hundred Thousand Dollars ($3,500,000) of such amount, less
any amounts allocable to Dissenting Shareholders, shall be paid to the Persons
that were holders of the Company's Series E Redeemable Convertible Preferred
stock immediately prior to the Effective Time until such Persons shall have been
paid the full amount of the preference payable to such Persons under the terms
of such Series E Redeemable Convertible Preferred stock and (iii) the balance,
less any amounts allocable to Dissenting Shareholders, to the Company
Stockholders, Option Holders and MIP Participants Pro Rata.
3.3 Allocation and Payment of Merger Consideration.
3.3.1 Closing Payments. Parent shall make payment of the Net Cash
Consideration as follows:
(a) for each Company Stockholder entitled pursuant to Section 3.1.1 to
receive Net Cash Consideration of at least Five Hundred Thousand Dollars
($500,000), by wire transfer at the Closing of immediately available funds to
the account or accounts designated not less than two (2) Business Days prior to
the Closing Date by such Company Stockholder; provided, that such Person deliver
to Parent prior to the Closing, a duly executed Letter of Transmittal and the
Certificates representing such Person's shares of Company Stock;
(b) for each other Company Stockholder who delivers to Parent prior to
the Closing a duly executed Letter of Transmittal and the Certificates
representing such Person's shares of Company Stock, Parent shall deliver at the
Closing a certified bank check or, in Parent's discretion, a wire transfer at
the Closing of immediately available funds to the account or accounts designated
not less than two (2) Business Days prior to the Closing Date by such Company
Stockholder; and
(c) for each Company Stockholder and Option Holder other than those
paid at the Closing pursuant to Sections 3.3.1(a) and 3.3.1(b) (the
"Post-Closing Payment Holders"), Parent shall make payment pursuant to Section
3.3.2.
3.3.2 Payment Procedures Regarding Company Stock.
(a) At the Effective Time, Parent shall deposit, or shall cause to be
deposited, with any Person designated by Parent and reasonably satisfactory to
the Equityholder Representative (the "Paying Agent"), for the benefit of the
Post-Closing Payment Holders, for exchange in accordance with this Article III,
through the Paying Agent, cash in U.S. dollars in an amount sufficient to pay
the Net Cash Consideration payable to such Post-Closing Payment Holder (such
23
cash, together with any other Merger Consideration to be paid to Post-Closing
Payment Holders, hereinafter referred to as the "Payment Fund") payable pursuant
to Section 3.1 in exchange for outstanding shares of Company Stock. Parent shall
cause the Paying Agent, pursuant to irrevocable instructions, to promptly
deliver the Merger Consideration contemplated to be paid pursuant to Section 3.1
out of the Payment Fund. The Payment Fund shall be invested by the Paying Agent
as directed by Parent; provided, however, that: (i) no such investment or losses
thereon shall affect the Merger Consideration payable to the holders of Company
Stock and following any losses Parent shall promptly provide additional funds to
the Paying Agent for the benefit of the holders of the shares of the Company
Stock in the amount of any such losses; and (ii) such investments shall be in
obligations of or guaranteed by the United States of America or any agency or
instrumentality thereof and backed by the full faith and credit of the United
States of America, in commercial paper obligations rated A-1 or P-1 or better by
Xxxxx'x Investors Service, Inc. or Standard & Poor's Corporation, respectively,
or in certificates of deposit, bank repurchase agreements or banker's
acceptances of commercial banks with capital exceeding $1 billion (based on the
most recent financial statements of such bank that are then publicly available).
Any net profit resulting from, or interest or income produced by, such
investments shall be payable to the Surviving Corporation or Parent, as Parent
directs. The Payment Fund shall not be used for any other purpose.
(b) Promptly following the Effective Time (but in no event later than
five (5) Business Days following the Effective Time), the Paying Agent shall
mail to each Post-Closing Payment Holder that is a holder of record of a
certificate or certificates which immediately prior to the Effective Time
represented outstanding shares of Company Stock (the "Certificates") (i) a
letter of transmittal in customary form (which shall specify that delivery shall
be effected, and risk of loss and title to the Certificates shall pass, only
upon proper delivery of the Certificates to the Paying Agent (the "Letter of
Transmittal") and (ii) instructions for use in effecting the surrender of the
Certificates in exchange for the Merger Consideration. Upon surrender of a
Certificate for cancellation to the Paying Agent together with, if applicable,
such Letter of Transmittal, properly completed and duly executed, and such other
documents as may be required pursuant to such instructions, the holder of such
Certificate shall be entitled to receive in exchange therefor the Merger
Consideration which such holder has the right to receive hereunder, and the
Certificate so surrendered shall forthwith be cancelled. No interest will be
paid or accrued on any Merger Consideration payable to such holders. In the
event of a transfer of ownership of shares of Company Stock which is not
registered in the transfer records of the Company, the Merger Consideration may
be issued to a transferee if the Certificate representing such shares of Company
Stock is presented to the Paying Agent, accompanied by all documents required to
evidence and effect such transfer and by evidence that any applicable stock
transfer taxes have been paid. Until surrendered as contemplated by this Section
3.3.2(b), each Certificate shall be deemed at any time after the Effective Time
to represent only the right to receive upon such surrender the Merger
Consideration or the right to demand to be paid the "fair value" of the shares
represented thereby as contemplated by Section 3.4.
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(c) Payment of the aggregate Merger Consideration hereunder by Parent
to the Paying Agent shall for all purposes be deemed to be full, complete, due
and proper payment thereof by Parent to the Post-Closing Payment Holders, and
Parent shall have no further responsibility, liability or obligation of any kind
with respect to such payment to any Post-Closing Payment Holders or the
Equityholder Representative, or any other Person, regardless of any negligence,
fraud, defalcation or mishandling of funds or otherwise by or on behalf of the
Paying Agent.
3.3.3 Release of Option Holders, Warrant Holders and Company
Stockholders. Each Principal Stockholder shall deliver to Parent at the Closing,
and the Company shall use its good faith efforts to obtain from (a) each other
Option Holder, (b) each other Warrant Holder and (c) each other Company
Stockholder, a written acknowledgment that effective as of the Effective Time,
all Company Options held by such Option Holder, and all Company Warrants held by
such Warrant Holder, and all Company Stock held by such Company Stockholder, as
applicable, shall, in each case, without any action on the part of the Company,
such Option Holder, Warrant Holder or Company Stockholder, be deemed terminated,
cancelled, void and of no further force and effect as between the Company, the
Surviving Corporation and the Option Holder, Warrant Holder and Company
Stockholder, as applicable, and a release whereby each such Person
unconditionally, irrevocably and completely releases any such Person's rights,
claims or interest in, to or under such Company Option, Company Warrant or
Company Stock, as applicable, against the Company, Parent and the Surviving
Corporation, in a form reasonably acceptable to Parent. The provisions of this
Section 3.3.3 shall survive the consummation of the Merger.
3.3.4 Further Rights in Company Stock. All Merger Consideration paid in
accordance with the terms hereof shall be deemed to have been issued in full
satisfaction of all rights pertaining to such shares of Company Stock and
Company Options.
3.3.5 Termination of Payment Fund. Any portion of the Payment Fund which
remains undistributed to the Company Stockholders and Option Holders for one (1)
year after the Effective Time shall be delivered to the Surviving Corporation
upon demand, and any Company Stockholders or Option Holders who have not
theretofore complied with this Article III shall thereafter look only to the
Surviving Corporation only as general unsecured creditors thereof for payment of
any Merger Consideration, without any interest or dividends thereon.
3.3.6 No Liability. None of Parent, the Company or the Surviving
Corporation shall be liable to any Company Stockholders or Option Holders for
any cash from the Payment Fund delivered to a public official pursuant to any
abandoned property, escheat or similar Applicable Law. If any Certificates shall
not have been surrendered upon the second (2nd) anniversary of the Closing Date
(or immediately prior to such earlier date on which any Merger Consideration,
dividends (whether in cash, stock or property) or other distributions with
respect to Company Stock in respect of such Certificate would otherwise escheat
to or become the property of any Governmental Authority), any such shares, cash,
dividends or distributions in respect of such Certificate shall, to the extent
permitted by Applicable Law, become the property of the Surviving Corporation,
free and clear of all claims or interests of any Person previously entitled
thereto.
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3.3.7 Lost Certificates. If any Certificate shall have been lost, stolen
or destroyed, upon the making of an affidavit of that fact by the Person
claiming such Certificate to be lost, stolen or destroyed and, if required by
Parent, the posting by such Person of a bond, in such reasonable and customary
amount as Parent may direct, as indemnity against any claim that may be made
against it with respect to such lost, stolen or destroyed Certificate, the
Paying Agent or Parent, as applicable, will pay in exchange for such lost,
stolen or destroyed Certificate the Merger Consideration without any interest
thereon.
3.3.8 Withholding. Each of Parent, the Surviving Corporation and the
Paying Agent shall be entitled to deduct and withhold from the consideration
otherwise payable pursuant to this Agreement to any Company Stockholders, Option
Holders or MIP Participant such amounts as may be required to be deducted and
withheld under the Code or any other Applicable Law with respect to the making
of such payment. To the extent that amounts are so deducted or withheld, such
deducted or withheld amounts shall be treated for all purposes of this Agreement
as having been paid to the Company Stockholders, Option Holders or MIP
Participant, as applicable, in respect of whom such deduction and withholding
was made.
3.4 Dissenters' Rights. Notwithstanding anything in this Agreement to the
contrary, if any Dissenting Stockholder shall demand to be paid the "fair value"
of such Dissenting Stockholder's shares of Company Stock, as provided in Section
262 of the DGCL, such shares of Company Stock shall not be converted into or
exchangeable for the right to receive the Merger Consideration otherwise
allocable to such Dissenting Stockholder at the Effective Time (except as
provided in this Section 3.4) and shall entitle such Dissenting Stockholder only
to payment of the fair value of such shares of Company Stock, in accordance with
Section 262 of the DGCL, unless and until such Dissenting Stockholder fails to
perfect or withdraws (in accordance with Section 262(k) of the DGCL) or
effectively loses the right to dissent. The Company shall give the Parent prompt
written notice of any demands for appraisal, withdrawals of demands for
appraisal and any other instruments served pursuant to Section 262 (or any
successor or replacement) of the DGCL which are received by the Company. The
Company will not voluntarily make a payment with respect to any demands for
appraisal and will not, except with the prior written consent of the Parent,
settle or offer to settle any such demands. The Company shall not, except with
the prior written consent of Parent, voluntarily make any payment with respect
to, or settle or offer to settle, any such demand for payment of fair value of a
Dissenting Stockholder's shares of Company Stock prior to the Effective Time.
The Company shall give Parent notice thereof prior to the Effective Time and
Parent shall have the right to participate at its own expense in all
negotiations and proceedings with respect to any such demands. If any Dissenting
Stockholder shall have effectively failed to perfect or withdrawn (in accordance
with Section 262(k) of the DGCL) or lost the right to dissent, then as of the
later of the Effective Time or the occurrence of such event, the shares of
Company Stock held by such Dissenting Stockholder shall be cancelled and
converted into and represent the right to receive the Merger Consideration.
26
3.5 Stock Transfer Books. At the Effective Time, the stock transfer books
of the Company shall be closed (after giving effect to the payment for
Certificates described in Section 3.3) and thereafter, there shall be no further
registration of transfers of shares of Company Stock theretofore outstanding on
the records of the Company. From and after the Effective Time, the holders of
Certificates shall cease to have any rights with respect to such shares of
Company Stock except as otherwise provided herein or by Applicable Law. On or
after the Effective Time, any Certificates presented to the Paying Agent or
Parent for any reason shall be converted into the Merger Consideration.
3.6 Equityholder Representative.
3.6.1 Appointment. The Equityholder Representative is hereby irrevocably
appointed and authorized to act as the representative for the Company
Stockholders party to this Agreement, including the Principal Stockholders, and
the MIP Participants party to this Agreement with respect to any matter
requiring action or decision by the Equityholder Representative pursuant to this
Agreement and all post-Closing matters requiring any action or decision by the
Company Stockholders, Option Holders or the MIP Participants, including without
limitation to (i) execute and deliver all documents necessary or desirable to
carry out the intent of this Agreement, the Escrow Agreement, and any other
documents, instruments and/or agreements contemplated thereby (the "Additional
Agreements," and each, an "Additional Agreement"), (ii) to give and receive on
behalf of the Company Stockholders party to this Agreement or MIP Participants
party to this Agreement any and all notices from or to any Company Stockholder,
Option Holder and the MIP Participants under this Agreement and any Additional
Agreement, (iii) grant any consent or approval on behalf of the Company
Stockholders, Option Holders and the MIP Participants under this Agreement and
any Additional Agreement and make all other elections or decisions contemplated
by this Agreement and any Additional Agreement, and to amend, modify or
supplement any of the foregoing in each such Company Stockholder's, Option
Holder's and MIP Participant's name, place and stead, as if such Company
Stockholder, Option Holder and MIP Participant had personally done such act, and
the Equityholder Representative hereby accepts such appointment. The death,
incapacity, dissolution, liquidation, insolvency or bankruptcy of any Company
Stockholder, Option Holder or MIP Participant shall not terminate such
appointment or the authority and agency of the Equityholder Representative. The
power-of-attorney granted in this section is coupled with an interest and is
irrevocable. The Company Stockholders, Option Holders and MIP Participants shall
agree to indemnify, defend and hold harmless the Equityholder Representative
from and against any and all loss, damage, liability and expense that may be
incurred by the Equityholder Representative arising out of or in connection with
his acceptance or appointment as the Equityholder Representative under this
Agreement (except such as may result from the Equityholder Representative's bad
faith or gross negligence), including the legal costs and expenses of defending
itself against any claim or liability in connection with its performance under
this Agreement and any Additional Agreements executed and delivered by the
Equityholder Representative in connection with this Agreement or any Additional
Agreement.
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3.6.2 Reliance. Each party hereto shall be entitled to rely exclusively
upon any communication given or other action taken by the Equityholder
Representative on behalf of the Company Stockholders, Option Holders and the MIP
Participants pursuant to this Agreement, and shall not be liable for any action
taken or not taken in good faith reliance on a communication or other
instruction from the Equityholder Representative on behalf of the Company
Stockholders, Option Holders and the MIP Participants.
3.6.3 Limitation on Liability. The Equityholder Representative, solely in
its capacity as such, shall have no liability to Parent, Merger Sub or the
Surviving Corporation under this Agreement or any Additional Agreement, and
shall have no liability whatsoever to the Company Stockholders, the Option
Holders, the MIP Participants or any Person claiming by, through or under them,
for or in respect of any of its acts or omissions, except only for its bad
faith.
3.6.4 Additional Limitation. Notwithstanding the foregoing, the
Equityholder Representative, each Company Stockholder, each MIP Participant, the
Company, Parent and Merger Sub expressly acknowledge that the Equityholder
Representative shall have no authority or responsibility to act on behalf of any
Company Stockholder or any MIP Participant in connection with any claim, action
or proceeding initiated against such Company Stockholder or MIP Participant
alleging a breach by such Company Stockholder or MIP Participant of such Company
Stockholder's or MIP Participant's, as applicable, individual representations,
warranties or covenants made in this Agreement or any letter of transmittal.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE PRINCIPAL STOCKHOLDERS
Subject to such exceptions as are disclosed in the disclosure schedule
(the "Company Disclosure Schedule") delivered by the Company to Parent
concurrently with the execution and delivery of this Agreement, (i) the Company
represents and warrants to Parent and Merger Sub the items contained in this
Article IV to the extent applicable to the Company and its Subsidiaries, and
(ii) subject to Article IX of this Agreement, each Principal Stockholder
severally and not jointly represents and warrants to Parent and Merger Sub the
items contained in Section 4.23 and Section 4.26, to the extent applicable to
such Principal Stockholder, each of which is true and correct as of the date
hereof and as of the Closing Date (except for such representations and
warranties made as of another date, which shall, in each case, be true and
correct as of such other date):
4.1 Organization and Qualification; Subsidiaries.
4.1.1 The Company is a corporation duly organized, validly existing and
in good standing under the laws of the State of Delaware. Section 4.1.1 of the
Company Disclosure Schedule contains a complete list of all of the Subsidiaries
of the Company (each, a "Company Subsidiary" and collectively, the "Company
Subsidiaries"), including (a) its respective jurisdiction of incorporation or
28
organization, as the case may be (b) its authorized capital stock, (c) the
number of shares of its capital stock issued and outstanding and (d) the
Company's direct and indirect Equity Interests therein. Except for Equity
Interests in the Company's Subsidiaries, the Company does not own, directly or
indirectly, any capital stock or other ownership interest in any Person. No
Company Subsidiary owns, directly or indirectly, any capital stock or other
ownership interest in any Person, except for the capital stock and/or other
ownership interest in another wholly-owned Subsidiary of the Company. Each
Company Subsidiary is directly or indirectly wholly owned by the Company.
4.1.2 Each Company Subsidiary has been duly organized, and is validly
existing and in good standing under the laws of the jurisdiction of its
incorporation or organization, as the case may be. The Company and each Company
Subsidiary has the requisite power and authority necessary to own, lease and
operate its properties and to carry on its business as it is now being
conducted. The Company and each Company Subsidiary is duly qualified or licensed
and in good standing under the laws of each such jurisdiction in which the
conduct of the Business or the ownership or lease of its properties or assets
requires such qualification, licensing or authorization. Section 4.1.2 of the
Company Disclosure Schedule sets forth each such jurisdiction with respect to
the Company and each Company Subsidiary.
4.2 Charter Documents; Corporate Books. The Company has heretofore made
available to Parent a complete and correct copy of the certificate of
incorporation and the bylaws of the Company and each Company Subsidiary in full
force and effect. Neither the Company nor any Company Subsidiary is in violation
of any of the provisions of its certificate of incorporation or bylaws or other
organizational documents, as applicable. Copies of all minute books of the
Company and all Company Subsidiaries have been made available by the Company to
Parent and, to the Company's Knowledge, all of the minutes of meetings of the
boards of directors and stockholders of the Company and its Subsidiaries are
contained in such minute books.
4.3 Capitalization; Subsidiaries.
4.3.1 The authorized capital stock of the Company consists of 335,000,000
shares of common stock, par value $0.002 per share (the "Company Common Stock");
22,000,000 shares of Series A Convertible Preferred stock, par value $0.001 per
share; 22,000,000 shares of Series A1 Convertible Preferred stock, par value
$0.001 per share; 6,666,667 shares of Series B Convertible Preferred Stock, par
value $0.001 per share; 6,666,667 shares of Series B1 Convertible Preferred
stock, par value $0.001 per share; 30,914,354 shares of Series C Convertible
Preferred stock, par value $0.001 per share; 30,914,354 shares of Series C1
Convertible Preferred stock, par value $0.001 per share; and 183,230,315 shares
of Series E Redeemable Convertible Preferred stock, par value $0.001 per share
(collectively, the "Company Preferred Stock," and together with the Company
Common Stock, the "Company Stock"). Except for Company Stock issued after the
date of this Agreement upon exercise of Company Options, Company Warrants or
Company Convertible Notes outstanding as of the date of this Agreement, as of
the date of this Agreement, there are (a) 18,689,481 shares of Company Common
Stock (other than treasury shares) issued and outstanding, (b) 0 shares of
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Company Common Stock held in the treasury of the Company, (c) 22,000,000 shares
of Series A Convertible Preferred stock, par value $0.001 per share issued and
outstanding; (d) 0 shares of Series A1 Convertible Preferred stock, par value
$0.001 per share issued and outstanding; (e) 6,666,667 shares of Series B
Convertible Preferred stock, par value $0.001 per share were issued and
outstanding; (f) 0 shares of Series B1 Convertible Preferred stock, par value
$0.001 per share were issued and outstanding; (g) 30,914,354 shares of Series C
Convertible Preferred stock, par value $0.001 per share were issued and
outstanding; (h) 0 shares of Series C1 Convertible Preferred stock, par value
$0.001 per share were issued and outstanding; and (i) 151,849,306 shares of
Series E Redeemable Convertible Preferred stock, par value $0.001 per share were
issued and outstanding. As of the date of this Agreement (i) 41,700,837 of
Company Common Stock are issuable upon exercise of outstanding Company Options,
(ii) 3,200,000 shares of Company Common Stock are issuable upon exercise of
outstanding Company Warrants and (iii) 29,977,083 shares of Company Common Stock
are issuable upon exercise of Company Convertible Notes issued and outstanding.
Section 4.3.1 of the Company Disclosure Schedule sets forth the name of (A) each
Option Holder and each Warrant Holder, together with the grant date, exercise
price, number of shares of Company Stock issuable upon exercise of each such
Company Option or Company Warrant, as applicable, vesting schedule of each such
Company Option or Company Warrant, as applicable, the number of vested and
unvested Company Options of each Option Holder and Company Warrants of each
Warrant Holder, and, with respect to Company Options, the specific Company stock
plan pursuant to which such Company Option was issued, and (B) each Company
Stockholder and any other holder of an Equity Interest in the Company, together
with, as of June 1, 2007, the number of shares of Company Stock or other Equity
Interest held by each Company Stockholder and each other holder of an Equity
Interest in the Company.
4.3.2 All of the issued and outstanding shares of Company Stock have been
duly authorized and validly issued and are fully paid and nonassessable. Except
for the shares of Company Stock issuable upon the conversion of outstanding
Company Options, Company Warrants and Company Convertible Notes, there are no
Options of any character to which the Company or any Company Subsidiary is a
party or by which the Company or any Company Subsidiary is bound relating to the
issued or unissued Equity Interests of the Company, or securities convertible
into or exchangeable for such Equity Interests, or obligating the Company to
issue or sell any shares of its capital stock or other Equity Interests, or
securities convertible into or exchangeable for such capital stock of, or other
Equity Interests in, the Company. Except as set forth in Section 4.3.1, there
are no outstanding contractual obligations of the Company or any Company
Subsidiary affecting the voting rights of or requiring the repurchase,
redemption or disposition of, any Equity Interests in the Company. Except as set
forth in Section 4.3.1, as otherwise would be permitted by this Agreement or
upon exercise or conversion of Company Options, Company Warrants or Company
Convertible Notes outstanding as of the date hereof, since December 31, 2006,
the Company has not issued any shares of its capital stock, or securities
convertible into or exchangeable for such capital stock or any other Equity
Interests in the Company.
30
4.3.3 Each issued and outstanding share of capital stock or other Equity
Interest of each Company Subsidiary is duly authorized, validly issued, fully
paid, nonassessable and is held, directly or indirectly, by the Company or
another Company Subsidiary, free and clear of all Liens. Except as set forth in
Section 4.3.1, there are no Options or other commitments, understandings,
restrictions or arrangements relating to the issuance or sale with respect to
any shares of capital stock or other Equity Interests of any Company Subsidiary,
including any right of conversion or exchange under any outstanding security,
instrument or agreement.
4.4 Authority.
4.4.1 The Company has all necessary corporate power and authority to
execute and deliver this Agreement, to perform its obligations hereunder and to
consummate the transactions contemplated hereby. The execution and delivery of
this Agreement by the Company and the consummation by the Company of the
transactions contemplated hereby have been duly and validly authorized by all
necessary corporate action and no other corporate proceedings on the part of the
Company or the Principal Stockholders and no stockholder votes are necessary to
authorize this Agreement or to consummate the transactions provided for herein
other than, with respect to the Merger, the affirmative vote of (i) the holders
of a majority of the voting power of the Company Stockholders and (ii) the
holders of a majority of the voting power of the Series E Redeemable Convertible
Preferred Stock, to adopt this Agreement and approve the transactions provided
for herein (the "Stockholder Approval"). This Agreement has been duly authorized
and validly executed and delivered by the Company and, assuming this Agreement
is a valid and binding obligation of Parent and Merger Sub, this Agreement
constitutes a legal, valid and binding obligation of the Company, enforceable
against the Company in accordance with its terms, except to the extent that its
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other laws affecting the enforcement of creditors'
rights generally or by general equitable principles.
4.4.2 Upon consummation of the Merger, (a) Parent will own all of the
outstanding capital stock of the Surviving Corporation and (b) all the holders
of Company Options and Company Warrants shall be entitled only to receive their
Pro Rata portion of the Merger Consideration, if any, upon payment of the
exercise price therefor.
4.5 No Conflict; Required Filings and Consents.
4.5.1 The execution, delivery and performance by the Company of this
Agreement and the consummation of the transactions contemplated hereby do not
and will not (i) assuming that Stockholder Approval is obtained, conflict with
or violate any provision of the certificate of incorporation or the by-laws of
the Company or any equivalent organizational documents of any Company
Subsidiary, (ii) assuming that all consents, approvals and authorizations
described in Section 4.5.2 will have been obtained prior to the Effective Time,
and all filings and notifications described in Section 4.5.2 will have been
made, and any waiting periods thereunder will have terminated or expired prior
to the Effective Time, materially conflict with or violate any Applicable Laws
or (iii) except as set forth in Section 4.5.1 of the Company Disclosure
Schedule, require any consent or approval under, result in any breach of or any
loss of any benefit under, or constitute a default (or an event which with
notice or lapse of time or both would become a default) under, or give to any
Person any right of termination, purchase, vesting, amendment, acceleration or
cancellation of, or result in the creation of a Lien on any property or asset of
the Company or any Company Subsidiary pursuant to, any Contract to which the
Company or any Company Subsidiary is a party or by which any of their respective
properties or assets are bound.
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4.5.2 The execution, delivery and performance of this Agreement by the
Company do not and the consummation of the transactions contemplated hereby will
not, require any consent, approval, authorization or other action by, or filing
with or notification to, any Governmental Authority, except (i) under the rules
and regulations of the HSR Act or any other antitrust, competition, trade or
other Applicable Laws, (ii) the filing and recordation of the Certificate of
Merger as required by the DGCL or (iii) under the rules and regulations of any
Governmental Authority with respect to the continuation of the competitive local
exchange carrier ("CLEC") Licenses (or their equivalent).
4.6 Compliance with Licenses; Applicable Laws.
4.6.1 A list of all Licenses held by or granted to the Company and any
Company Subsidiary as of the date hereof is set forth in Section 4.6.1 of the
Company Disclosure Schedule, which includes all Licenses which are used in or
required for the operation of the Business as presently conducted. The Company
and each Company Subsidiary holds all Licenses necessary for the operation of
the Business as currently operated, and neither the Company nor any Company
Subsidiary has (i) received any written notice from any Governmental Authority
or (ii) received, as of the date hereof, any written notice from any Person
other than a Governmental Authority, that it (a) fails to hold, or (b) is in
violation of, or (c) is, or any of its Customers are, acting beyond the scope of
any such Licenses. All such Licenses are valid and in full force and effect, and
neither the Company nor any Company Subsidiary is in default or violation (and
no event has occurred which, with notice or the lapse of time or both, would
constitute a default or violation) of any term, condition or provision of, or
has received any notice threatening to revoke, any License to which it is a
party.
4.6.2 As of the date hereof, neither the Company nor any Company
Subsidiary has received any written notice that it is, and neither the Company
nor any Company Subsidiary is, in violation of any Applicable Law or
Governmental Order applicable to the Business or any of their assets or
properties of the Company or any Company Subsidiary.
4.6.3 Except for events or circumstances set forth in Sections 4.10,
4.13, 4.14, 4.17, 4.20, 4.21, 4.27, 4.28 and 4.29 with respect to which the
Company, is making the representations and warranties set forth in such
sections, no event has occurred or circumstance exists that (with or without
notice or lapse of time or both) would reasonably be expected to constitute or
result in a material violation by the Company or any Company Subsidiary of, or a
failure on the part of the Company or any Company Subsidiary to be in material
compliance with, any Applicable Law or Governmental Order.
32
4.7 Financial Statements; No Undisclosed Liabilities.
4.7.1 Section 4.7.1 of the Company Disclosure Schedule sets forth (a) the
audited consolidated financial statements of the Company and the Company
Subsidiaries including the balance sheets, related statements of income and cash
flows and changes in stockholder equity for the periods ended December 31, 2006,
December 31, 2005 and December 31, 2004, together with all accompanying notes
thereto (the "Audited Financial Statements") and (b) the consolidated unaudited
balance sheet of the Company and the Company Subsidiaries, as of April 30, 2007
and the related unaudited consolidated statements of income and cash flows and
changes in stockholder equity for the four (4) month period then ended including
the notes prepared in connection therewith (the "Unaudited Interim Financial
Statements" and together with the Audited Financial Statements, the "Financial
Statements"). Except as shown or provided for in the Financial Statements or as
otherwise described in Section 4.7.1 of the Company Disclosure Schedule, such
Financial Statements (i) have been prepared in accordance with the accounting
principles and books and records of the Company; (ii) have been prepared in
accordance with GAAP; (iii) reflect and provide adequate reserves in respect of,
all known Liabilities of the Company and the Company Subsidiaries in accordance
with GAAP, including all known contingent Liabilities as of their respective
dates, and (iv) present fairly in all material respects the consolidated
financial position, results of operations and cash flows of the Company and its
consolidated Company Subsidiaries as of the dates or for the period indicated.
For purposes of this Agreement, the "Balance Sheet" shall mean the consolidated
balance sheet of the Company for the year ended December 31, 2006 contained in
the Audited Financial Statements.
4.7.2 Except as set forth in Section 4.7.2 of the Company Disclosure
Schedule, neither the Company nor any Company Subsidiary has any Liabilities of
any character whatsoever, whether or not accrued and whether or not fixed or
contingent, other than (i) Liabilities reflected in the Audited Financial
Statements, (ii) Liabilities incurred in the Ordinary Course of Business
subsequent to December 31, 2006, (iii) Liabilities of a nature not required to
be disclosed on a balance sheet or in the notes to financial statements prepared
in accordance with GAAP and (iv) Liabilities incurred in connection with
performance of this Agreement. Neither the Company nor any of the Company
Subsidiaries have any equity, financial or creditor interest, direct or
indirectly, in any special purpose entity.
4.7.3 Section 4.7.3 of the Company Disclosure Schedule contains a list of
all Liabilities of the Company and each Company Subsidiary (i) which have been
expressly identified in letters from counsel of the Company to the Company's
auditors or (ii) in letters from management of the Company to its auditors in
connection with the audit of its 2006 Audited Financial Statements, or (iii)
about which (A) the Company has Knowledge, (B) are in excess of Twenty-Five
Thousand Dollars ($25,000) individually and (C) are not otherwise identified in
(i) or (ii) above, in each case, which are not reflected in the Company's 2006
Audited Financial Statements because they are of a nature not required to be
disclosed on a balance sheet or in the notes to financial statements prepared in
accordance with GAAP.
33
4.8 Conduct of the Business. Except as set forth in Section 4.8 of the
Company Disclosure Schedule, from December 31, 2006 to the date hereof, the
Business has been conducted in the Ordinary Course of Business and the assets
and properties of Company and each Company Subsidiary have been maintained in
substantially the same manner as maintained prior to the date of the Balance
Sheet and in at least such order and condition as is necessary to continue to
conduct the Business in the Ordinary Course of Business, and, without limiting
the foregoing, neither the Company nor any Company Subsidiary has:
(a) incurred any obligation or Liability or entered into any
transaction which could reasonably be expected to result in monetary obligations
to the Company in excess of Twenty-Five Thousand Dollars ($25,000), except in
the Ordinary Course of Business or in connection with the performance of this
Agreement;
(b) increased or established any reserve for Taxes or other Liability
on its books or otherwise provided therefor, except as may have been required in
accordance with GAAP due to the operations or income of the Company or the
Company Subsidiaries since the date of the Balance Sheet;
(c) subjected any of the assets, properties or business of the Company
or the Company Subsidiaries to any Lien; sold, assigned or transferred any
asset, property or business or cancelled any debt or claim, or waived any right,
except in the Ordinary Course of Business;
(d) except in the Ordinary Course of Business, sold, assigned,
transferred, encumbered (other than Permitted Encumbrances) or permitted to
lapse any rights with respect to any Intellectual Property Rights or other
material intangible asset owned by the Company or a Company Subsidiary;
(e) granted any general or uniform increase in the rates of pay of
employees of the Company or the Company Subsidiaries or any increase in salary
payable or to become payable to any officer, employee, consultant or agent of
the Company or the Company Subsidiaries, or increased the compensation
(including perquisites) payable to any officer, employee, consultant or agent of
the Company or the Company Subsidiaries for any period before or after the date
of the balance sheet included in the Unaudited Interim Financial Statements, or
by means of any bonus or pension plan, Contract or other commitment increased
the compensation of any officer, employee, consultant or agent of the Company or
the Company Subsidiaries;
(f) made or authorized any capital expenditures for additions to plant
and equipment accounts of the Company or the Company Subsidiaries in excess of
Twenty-Five Thousand Dollars ($25,000) in the aggregate;
(g) made any loan or payment to, or entered into any Contract with, any
Company Stockholders or any Affiliate (but excluding any Company Subsidiary), or
agreed to take any such action;
34
(h) issued, sold or transferred, or agreed to issue, sell or transfer,
any stock, note, bond, debenture or other corporate debt or Equity Interest of
the Company or the Company Subsidiaries, whether newly issued or held in
treasury;
(i) except for this Agreement, entered into any transaction other than
in the Ordinary Course of Business;
(j) experienced any damage, destruction or loss (whether or not covered
by insurance) adversely affecting its properties, assets or business, or
experienced any other adverse change in its assets, liabilities, or financial
condition from that disclosed on the Balance Sheet;
(k) delayed or postponed the payment of accounts payable and other
Liabilities outside the Ordinary Course of Business;
(l) except in the Ordinary Course of Business, granted any license or
sublicense of any rights under or with respect to any Intellectual Property;
(m) made any loan or payment to, or entered into any other Contract
with, any of its directors, officers, and employees other than compensation paid
and advances and reimbursements for expenses made in the Ordinary Course of
Business;
(n) entered into any employment Contract or collective bargaining
agreement, written or oral, or modified the terms of any existing such Contract
or agreement;
(o) terminated any Company Contract or made any material amendment or
modification of any Company Contract on terms less beneficial in all material
respects to the Company or any Company Subsidiary than, the terms of such
Company Contract prior to the making of such amendment or modification, except
for Contracts that terminated pursuant to their terms;
(p) taken any action which would have the effect of terminating, or
giving any Governmental Authority the right to terminate, any License;
(q) except as required by GAAP, made any material change in any method
of accounting or accounting practice by the Company or any Company Subsidiary or
any material write-up or write-down in the value of their respective inventory
or accounts receivable or a reversal of any material accruals or deviations from
past policies and practice with respect to product sales, markdowns, discounts
or promotions; or
(r) entered into or made any Contract to do any of the foregoing.
4.9 Absence of Certain Changes or Events. Since December 31, 2006, there
has not been any Material Adverse Effect.
4.10 Labor and Employee Matters.
35
4.10.1 (a) Neither the Company nor any Company Subsidiary is a party to or
bound by any collective bargaining agreement or similar agreement with any labor
organization, or work rules or practices agreed to with any labor organization
or employee association applicable to any Company Employees, (b) no Company
Employees are represented by any labor organization and there are no
organizational campaigns, demands or proceedings pending or, to the Knowledge of
the Company, threatened by any labor organization or group of employees seeking
recognition or certification as collective bargaining representative of any
group of Company Employees, (c) there are no unfair labor practice charges or
complaints pending against the Company or any Company Subsidiary, or, to the
Knowledge of the Company, threatened before the National Labor Relations Board
or any analogous foreign, state or local agency, (d) there are no grievance or
arbitration proceedings arising under any collective bargaining agreement or
policy of the Company or any Company Subsidiary pending or, to the Knowledge of
the Company, threatened against the Company or any Company Subsidiary, and (e)
there are no strikes, controversies, slowdowns, work stoppages, lockouts or
labor disputes pending or, to the Knowledge of the Company, threatened against
or affecting the Company or any Company Subsidiary, and there has not been any
such action during the past three (3) years.
4.10.2 Section 4.10.2 of the Company Disclosure Schedule sets forth with
respect to each Company Employee and each consultant or independent contractor
engaged by the Company or any Company Subsidiary as of the date hereof, and each
such employee's, consultant's or independent contractor's (as applicable) (a)
name, (b) position, (c) date of hire, (d) base wage rate, (e) vacation accrual
rate, (f) accrued unused vacation days and the base salary equivalent for such
accrued unused vacation days, (g) sick leave accrual rate, (h) entitlement to
other compensation, including any bonus to which such Company Employee may be
entitled as of the Effective Time pursuant to any incentive plan or other bonus
policy or practice maintained by the Company or any Company Subsidiary, (i) work
location, (j) telecommuting status and (k) home address. Also set forth in
Section 4.10.2 of the Company Disclosure Schedule is (i) the name of each
Company Employee who, on the date hereof, is on a leave of absence approved by
the Company or any Company Subsidiary or recognized by Applicable Law, including
but not limited to family and medical leave, workers compensation leave,
military leave or leave related to short or long-term disability (a "Leave
Employee"), and, with respect to each such Leave Employee, to the extent
permitted by Applicable Law, the reason for such leave and such Leave Employee's
expected return date and (ii) the name of each Company Employee who has any
License or clearance issued by any Governmental Authority which is used in the
operation of the Business.
4.10.3 The Company and each Company Subsidiary is, and has at all times
during at least the last three (3) years been in material compliance with all
Applicable Laws respecting labor relations, immigration, employment and
employment practices, and the terms and conditions of employment, including
employment standards, equal employment opportunity, family and medical leave,
wages, wage and hour laws, hours of work and occupational health and safety and,
with respect to Company Employees working outside of the United States,
comparable laws of the country in which such Company Employees work.
36
4.10.4 As of the date hereof, the Company and each Company Subsidiary have
not received written notice of any Actions related to the Company or any Company
Subsidiary pending or threatened, in or before any Governmental Authority
responsible for the enforcement of any Applicable Law regarding breach or
violation of any express or implied collective bargaining agreement or contract
of employment, any Applicable Law governing labor relations, employment or the
termination thereof or other illegal, discriminatory, wrongful or tortious
conduct in connection with the employment relationship, the terms and conditions
of employment, or applications for employment with the Company or any Company
Subsidiary.
4.10.5 As of the date hereof, the Company and each Company Subsidiary have
not received written notice of the intent of any Governmental Authority
responsible for the enforcement of Applicable Laws related to immigration,
labor, equal employment opportunity, family and medical leave, wages, wage and
hour laws, hours of work, occupational health and safety or any other Applicable
Law governing the employment relationship to conduct an investigation with
respect to or relating to the Company or any Company Subsidiary, and no such
investigation is in progress.
4.10.6 [Reserved.]
4.10.7 Set forth in Section 4.10.7 of the Company Disclosure Schedule is
name of each employee that either the Company or any Company Subsidiary has laid
off within the past six (6) months. The Company and each Company Subsidiary is,
and during the ninety (90)-day period prior to the date of this Agreement, has
been in compliance in all material respects with the Worker Adjustment and
Retraining Notification Act of 1988, as amended, and any similar state or local
law that requires notice to employees in the event of a plant closing or mass
layoff.
4.10.8 The Company and each Company Subsidiary has materially complied
with all employment verification procedures, including proper completion of Form
I-9, as such procedures relate to all Company Employees. As of the date hereof
there are no current foreign national employees of the Company or any of the
Company Subsidiaries on whose behalf the Company or any of the Company
Subsidiaries has submitted applications and petitions to the U.S. Department of
Labor, U.S. Immigration and Naturalization Service, and U.S. Department of State
for immigration employment and visa benefits.
4.10.9 There are no businesses or assets of the Company involving federal
Contracts giving rise to any reporting or filing obligations with the Office of
Federal Contract Compliance Programs ("OFCCP") and, to the extent applicable,
the Company and each Company Subsidiary has complied in all material respects
with all hiring and employment obligations applicable under OFCCP rules and
regulations.
4.11 Company Contracts.
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4.11.1 The Company has delivered to Parent true and complete copies of (a)
the types of contracts described in Section 4.11.2 of the this Agreement and (b)
all Customer and Data Contracts which are, in the case of both (a) and (b), now
in effect, or which although terminated, contain surviving obligations,
liabilities or responsibilities to which the Company or a Company Subsidiary is
a party or by which they or their property are bound, (collectively "Company
Contracts" and each a "Company Contract").
4.11.2 Except as set forth in Section 4.11.2 of the Company Disclosure
Schedule, neither the Company nor any Company Subsidiary is a party to, or is
liable under (either directly or indirectly, contingently or absolutely) any
written or oral:
(a) Contract not made in the Ordinary Course of Business, other than
this Agreement;
(b) Employment, worker, contractor or consulting Contract which is not
terminable without cost or other liability to either the Company or any Company
Subsidiary, or any successor thereof, upon notice of thirty (30) days or less;
(c) Contract or collective bargaining agreement with any labor union or
any other program or contractual commitment involving employees, workers,
contractors or consultants;
(d) Contract with any Company Employee containing any non-competition
or non-solicitation clauses;
(e) bonus, pension, profit-sharing, retirement, stock purchase, stock
option, incentive compensation, hospitalization, insurance or similar plan,
Contract or understanding providing for employees, workers, contractors or
consultants benefits of any kind;
(f) Lease with respect to any property, real or personal, whether as
lessor or lessee;
(g) Contract for the purchase of real property, equipment or fixed
assets;
(h) Contract for the future purchase of materials, supplies or
inventory which may not be terminated without cost upon notice of thirty (30)
days or less;
(i) Contract for the sale or purchase of goods, services, Products,
Product Components or other assets calling for annual payments in excess of
Twenty-Five Thousand Dollars ($25,000);
(j) Contract for the performance of services of any kind for or by the
Company or any Company Subsidiary calling for annual payments in excess of
Twenty-Five Thousand Dollars ($25,000);
38
(k) insurance Contract other than those listed in Section 4.18 of the
Company Disclosure Schedule or those contemplated by Section 6.12;
(l) Contract which cannot be terminated by the Company or any Company
Subsidiary without cost or liability to the Company or such Company Subsidiary
(or any successor thereof) upon thirty (30) days notice or less;
(m) manufacturers' representative, sales agency, dealer or advertising
Contract;
(n) agreement or indenture for the borrowing or lending of money;
(o) agreement or indenture for the mortgaging or pledging of, or
otherwise placing a Lien or security interest on, any assets or properties of
the Company or any Company Subsidiary;
(p) Option or other Contract for the issuance of any debt or equity
security, or the conversion of any obligation, instrument or security, into debt
or equity securities of the Company or any Company Subsidiary, other than
Company Options, Company Warrants and Company Convertible Notes;
(q) guaranty of any obligation for borrowed money or otherwise,
excluding endorsements made for collection;
(r) settlement agreement of any administrative or judicial proceedings;
(s) agreement under which the Company or any Company Subsidiary has
advanced or agreed to advance moneys;
(t) commercial agency agreement and other commission Contracts
specifying a commercial agency territory and containing exclusiveness
provisions;
(u) agreement with professional advisers or consultants;
(v) confidentiality agreement (other than those contained in Contracts
delivered to Parent and other than those called for by any other Section of this
Agreement);
(w) Contract with Third Parties to provide or joint venture in the
provision of research or development;
(x) Contract for joint ventures, strategic alliances, partnerships,
licensing arrangements or sharing of profits or proprietary information;
(y) Contract which, as a consequence of Merger, require any consent or
approval, result in any breach of or any loss of any benefit, or constitute a
default (or an event which with notice or lapse of time or both would become a
default) thereunder, or give to any Person any right of termination, purchase,
vesting, amendment, acceleration or cancellation thereof, or result in the
creation of a Lien (other than Permitted Liens) on any property or asset of the
Company or any Company Subsidiary; and
39
(z) any other agreement (or group of related agreements), regardless of
the amount of consideration, pursuant to which the consequences of a default or
termination could reasonably be expected to result in a Material Adverse Effect.
4.11.3 As of the date hereof, except as set forth in Section 4.11.3 of the
Company Disclosure Schedule, neither the Company nor any Company Subsidiary has
made any offer or proposal to a Third Party which, upon acceptance by such Third
Party, would become a Contract.
4.11.4 Each Company Contract is a legal, valid and binding obligation of
the Company or a Company Subsidiary, as applicable, is in full force and effect
and, assuming it is a legal, valid and binding obligation of the counterparty
thereto, enforceable against the Company or such Company Subsidiary, as
applicable, in accordance with its terms, except to the extent that its
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other laws affecting the enforcement of creditors'
rights generally or by general equitable principles. Neither the Company nor any
Company Subsidiary has received written notice, nor has Knowledge of a reason
why any Company Contract is not a legal, valid and binding obligation of the
counterparty thereto or is not in full force and effect and enforceable against
such counterparty in accordance with its terms. Neither the Company nor any
Company Subsidiary is in breach of, or default under, any Company Contract. To
the Company's Knowledge, as of the date hereof, no counterparty to a Company
Contract, is in breach or violation of, or default under, any Company Contract.
Neither the Company nor any Company Subsidiary has received any claim of
default, alleged default, anticipatory breach or delay, or failure in performing
under any Company Contract, and there are no agreements of any of the parties
relating to such Company Contracts which have not been disclosed to Parent in
the Company Disclosure Schedule. To the Company's Knowledge, no event has
occurred which would result in a breach or violation of, or a default under, any
Company Contract (in each case, with or without notice or lapse of time or
both), in each case by the Company or any Company Subsidiary. The contract with
the Customer identified in Section 4.11.4 of the Company Disclosure Schedule has
the meaning set forth therein.
4.11.5 Neither the Company nor any Company Subsidiary is a party to a
Contract (a) receiving grants or applying for subsidies, investment bonuses and
other official grants including Contracts that are connected with subsidies,
bonuses or grants nor (b) providing for existing and imminent obligations,
either now or upon Closing, to reimburse granted subsidies, investment bonuses
and other official grants.
4.11.6 Three are no agreements or understandings, other than those set
forth in Section 6.11 of the Company Disclosure Schedule, which would impact the
termination or cancellation amounts owed under any Contract set forth in Section
6.11 of the Company Disclosure Schedule.
40
4.12 Litigation.
4.12.1 Except as set forth in Section 4.12.1 of the Company Disclosure
Schedule (a) as of the date hereof (i) there is no Action pending or, to the
Knowledge of the Company, threatened against the Company or any Company
Subsidiary or any of their assets or properties at law or in equity, or before
or by any Governmental Authority (including inquiries as to the qualification of
the Company or any Company Subsidiary to hold or receive any Licenses) and (ii)
neither the Company nor any Company Subsidiary or any officer of the Company or
any Company Subsidiary has Knowledge of any basis for any of the foregoing and
(b) none of the Company or any of the Company Subsidiaries is subject to any
outstanding Governmental Order. Section 4.12.1 of the Company Disclosure
Schedule sets forth all lawsuits, arbitrations and proceedings involving the
Company or any of its Subsidiaries before Governmental Authority during the six
(6) years preceding the date hereof.
4.12.2 Neither the Company nor any Company Subsidiary are in default with
respect to any Governmental Order known to or served upon the Company or any
Company Subsidiary. There is no pending Action brought by the Company or any
Company Subsidiaries against others.
4.12.3 To the Knowledge of the Company, Section 4.12.3 of the Company
Disclosure Schedule contains a true and complete list of every written complaint
or claim of defect, default or breach in the five (5) years preceding the date
hereof by any Customer concerning, regarding or in connection with any Product
sold, offered, or offered for sale by the Company or any Company Subsidiary,
separately by product line (the "Customer Complaints"), none of which
constitutes a breach or default under the Contract with such Customer. The
Company is capable of resolving any and all Customer Complaints which are
existing and not resolved as of the date of this Agreement within 90 days from
the date hereof in the Ordinary Course of Business.
4.12.4 The Company has provided to Parent copies of the letters received
by the Company's auditors from counsel to the Company in connection with the
audit of its Audited Financial Statements since 2004, and in connection with any
investigation conducted by or at the direction of its counsel at the request of
the Company or its board of directors.
4.13 Environmental Matters.
4.13.1 Neither the Company nor any Company Subsidiary has as of the date
hereof, received any written notice that it is not, and each of the Company and
each Company Subsidiary (a) is in compliance with all applicable Environmental
Laws relating to the Business or the assets or properties of the Company and
each Company Subsidiary, and (b) has obtained and is in compliance with all
Environmental Permits which are required to conduct the Business or for the
ownership and use of the properties or assets of the Company and each Company
Subsidiary.
41
4.13.2 There are no Actions pursuant to any Environmental Law pending or
threatened relating to the Business or the properties or assets of the Company
or any Company Subsidiary, or which may give rise to any obligation on the part
of the Company or any Company Subsidiary to undertake, or to bear all or any
portion of the cost of, any remedial action of any nature under any
Environmental Law.
4.13.3 The operations, practices, policies and procedures of the Company,
each Company Subsidiary and each of their employees have been conducted and,
prior to the Closing will be conducted, in material compliance with, and have
not and will not, prior to the Closing, give rise to any loss, Liability,
damage, costs, expenses or other adverse effect under, all Applicable Laws,
Governmental Orders, regulations, directives and restrictions concerning
protection of the environment, the disposal of Hazardous Materials and health
and safety, and all Governmental Orders, rules, regulations, directives and
restrictions issued thereunder or promulgated in connection therewith.
4.13.4 There are under Applicable Laws, Governmental Orders, regulations,
directives and restrictions concerning protection of the environment and health
and safety, no outstanding notices of violations or consent orders to which the
Company, its properties, any of the Company Subsidiaries or any of their
properties are subject or may become subject. As of the date of the Balance
Sheet, the Company had set aside adequate capital reserves to fund all pending
and threatened notices of violations, all as reflected on the Balance Sheet.
4.13.5 The Company has delivered to Parent copies of all reports or other
documents furnished by the Company or any Company Subsidiary during the past
five (5) years to any Governmental Authority and copies or complete and accurate
summaries of all notices, orders or other documents or correspondence, written
or oral, notifying or indicating to the Company or any Company Subsidiary that
any of the Company's or such Company Subsidiary's buildings or improvements, or
the operation or maintenance thereof, as now maintained and operated, contravene
any zoning or building Applicable Law or ordinance or other administrative
regulation or violate any restrictive covenant or any provision of federal,
state or local Applicable Law.
4.13.6 To the Knowledge of the Company, there are no ground or water
contamination or objects located on the any Company Properties or underground
which lead, or could reasonably be expected to lead to a Liability of the
Company or any Company Subsidiary for pollution or contamination, such as tanks,
containers, pipe lines, or existing conflicts/disputes concerning planning and
building Applicable Laws and regulations or concerning Applicable Laws on the
effect of noise, smells or chemicals on adjoining property.
4.13.7 Neither the Company, nor any Company Subsidiary has been engaged in
any business which in any way manufactured, distributed, sold, handled,
processed, purchased or stored any Hazardous Materials (other than Hazardous
Materials of the type which can be purchased without any License and which were
not utilized in the conduct of the Business in any significant way).
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4.14 Intellectual Property.
4.14.1 Section 4.14.1 of the Company Disclosure Schedule sets forth a
complete and accurate list of the (i) issued patents and patent applications,
(ii) trademark registrations and applications, (iii) copyright registrations and
applications, and (iv) domain names in any jurisdiction, owned by the Company or
any Company Subsidiary as of the date hereof.
4.14.2 The Company or a Company Subsidiary is the owner of all right,
title and interest in, or has a valid right or license to use without further
payment to a third party (except as disclosed in Section 4.14.5 of the Company
Disclosure Schedule), free and clear of any and all Liens (other than Permitted
Encumbrances), all of the Intellectual Property Rights which are used or are
necessary (i) for the design, development, marketing, distribution, sale,
licensing, furnishing, supply, delivery, creation of derivatives, development,
manufacture or use of Products, (ii) for the design, development, marketing,
distribution, sale, licensing, creation of derivatives, manufacture or use of
the Products, and (iii) to conduct the Business, in each of the foregoing (i),
(ii), and (iii), as currently conducted by the Company or a Company Subsidiary.
4.14.3 As of the date hereof, no written claims of infringement relating
to any of the Intellectual Property have been received by the Company or any
Company Subsidiary from any Third Party and no such claims of infringement have
been settled in the last five (5) years. To the Knowledge of the Company, there
is no valid basis for any such claim of infringement relating to any of the
Intellectual Property Rights which are used or necessary in the Business by the
Company or the Company's Subsidiaries.
4.14.4 The specifications and documentation relating to the Intellectual
Property Rights owned or licensed by the Company or any Company Subsidiary which
are necessary to conduct the Business (A) are kept (1) in accordance with
industry standards and (2) are current, complete, accurate, and sufficient in
detail and content to allow its full and appropriate use by the Company or any
Company Subsidiary without reliance on the knowledge or memory of any
individual; and (B) will be delivered to Parent at the Effective Time.
4.14.5 Section 4.14.5 of the Company Disclosure Schedule sets forth a
complete and accurate list, as of the date hereof, of each Contract (including
royalties or other future obligations of any kind or co-ownership agreement)
with a third party pursuant to which the Company or any Company Subsidiary
obtains any Intellectual Property used in, or necessary to conduct the Business,
that is owned by a party other than the Company or a Company Subsidiary. As of
the date hereof, neither the Company nor any Company Subsidiary is obligated to
pay any royalties or other compensation to any third party in respect of its
ownership, use or license of any Intellectual Property, except as listed in
Section 4.14.5 of the Company Disclosure Schedule. As of the date hereof,
neither the Company nor any Company Subsidiary has received written notice of
any actual or threatened Actions with respect to any Third Party Licenses or any
Intellectual Property Rights or Intellectual Property.
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4.14.6 To the Knowledge of the Company, no Person is engaging in any
activity that infringes in any respect upon the Intellectual Property Rights
owned by the Company or any Company Subsidiary that are used or necessary (i)
for the design, development, marketing, distribution, sale, licensing,
furnishing, supply, delivery, manufacture or use of Products, (ii) for the
design, development, marketing, distribution, sale, licensing, furnishing,
supply, delivery, manufacture or use of the Products of the Company or any
Company Subsidiary; or (iii) to conduct the Business.
4.14.7 With respect to all of the Intellectual Property owned by the
Company or any Company Subsidiary that has been developed by or on behalf of the
Company or a Company Subsidiary, the Company has a policy requiring its (x)
former and current employees to execute written agreements assigning to the
Company or a Company Subsidiary all rights to such Intellectual Property Rights,
and (y) independent contractors hired to write source code on behalf of the
Company or any Company Subsidiary, whom the Company or a Company Subsidiary
directly or indirectly paid for such development or creations, to execute
written agreements whereby such independent contractors assign to the Company or
a Company Subsidiary, all right, title and interest in the Intellectual Property
in such code, and, to the Knowledge of the Company, there has been no violation
of such policy. To the Knowledge of the Company, no former or current Company
Employee has entered into any written agreement with a third party that
restricts or limits in any way the scope or type of work in which either the
Company or any Company Employee may be engaged, or which requires the Company or
any Company Employee to transfer or assign any Intellectual Property Rights, or
disclose information concerning his or her work to anyone other than the Company
or any Company Subsidiary.
4.14.8 Patents. Except as set forth in Section 4.14.1 of the Company
Disclosure Schedule, neither the Company nor any of its Subsidiaries own any
other patents or patent applications.
4.14.9 Trademarks. Except as set forth in Section 4.14.1 of the Company
Disclosure Schedule (and with the exception of common law rights), neither the
Company nor any of its Subsidiaries own any other trademarks or trademark
applications.
4.14.10 Copyrights. Except as set forth in Section 4.14.1 of the Company
Disclosure Schedule (and with the exception of common law rights), neither the
Company nor any of its Subsidiaries own any other copyrights.
4.14.11 Trade Secrets.
(a) Reasonable precautions have been taken by the Company and each
Company Subsidiary to protect the secrecy, confidentiality, and value of the
Trade Secrets owned by the Company or any Company Subsidiary. The Trade Secrets
owned by the Company or any Company Subsidiary are not part of the public
knowledge or literature and, to the Knowledge of the Company, have not been
copied, published, used, divulged, appropriated, released or distributed by any
Person or removed from the premises of the Company or a Company Subsidiary,
except by employees, independent contractors, and other Persons who are subject
to a written confidentiality and non-disclosure agreement.
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(b) All Company Employees have executed written agreements prohibiting
the use of any Trade Secrets owned by the Company or a Company Subsidiary after
their employment by the Company or such Company Subsidiary has ceased, and, to
the Knowledge of the Company, there has been no violation of such policy.
(c) Any tangible or electronically accessible copies of the Trade
Secrets owned by the Company or any Company Subsidiary have been marked with
proper confidentiality notices.
(d) Reasonable precautions have been taken by the Company and each
Company Subsidiary to protect the secrecy, confidentiality, and value of all
Trade Secrets, and to the Knowledge of the Company, no Trade Secrets or source
code has been copied, published, used, divulged, disclosed, appropriated,
released or distributed by any Person, except by employees, independent
contractors, and other Persons who are subject to a written confidentiality and
non-disclosure agreement, and no such source code is subject to disclosure or
release to any Person as a result of the Merger.
4.14.12 Data; Databases and Products. As of the date hereof:
(a) The Database is updated from updates received from the telephone
company carriers and other Data providers on a daily basis or as often as such
Data is released by the telephone company carriers or other Data providers to
third parties such as the Company.
(b) The process of compiling the Database using the Data includes the
cleansing of disruptive content including: surveillance software, time bombs,
viruses, Trojan horses and similar system, data or database corruption content.
(c) The Data, Database and Products meet the contractual obligations
regarding quality and other data-related warranties made by the Company or its
Subsidiaries to Customers in each Contract with such Customers.
(d) The Databases provide a method of access using commercially
available database software, both for maintenance, updates and retrieval by end
users and Customers. The Database load and update process includes (A) methods
and means to: (1) remove duplicate listing data; and (2) guard against the
disclosure of non published listings; (B) the supplier of each listing stored in
the Database in an appropriately documented file; and (C) procedures to back out
erroneous updates. Each listing in the Database is stored using commercially
reasonable methods consistent with industry practice.
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(e) The use of the Data, Database and Products by the Company or a
Company Subsidiary does not infringe the rights (including the Intellectual
Property) of others.
(f) The use or any transfer of the Data, as necessary (A) for the
design, development, marketing, distribution, sale, licensing, furnishing,
supply, delivery, manufacture or use of the Products, (B) for the design,
development, marketing, distribution, sale, licensing, furnishing, supply,
delivery, manufacture or use of Products; and (C) to conduct the Business, in
each of the foregoing (A), (B), and (C), as currently conducted by the Company
or any Company Subsidiary, does not violate any foreign, federal, state and
local laws, statutes, ordinances, tariffs, rules and regulations regarding the
transfer of data, privacy or security. To the Knowledge of the Company, no Data
has been lost or disclosed to Third Parties without authorization, and there
have been no breaches with respect to the security of such Data.
(g) The Company and each Company Subsidiary have in place disaster
recovery plans, procedures and facilities and have taken commercially reasonable
steps to prevent destruction of the Data and the Database and to restrict
unauthorized access thereto.
(h) Current copies of the database software sufficient to compile
(loading and updating) the Database, including source code, have been
appropriately recorded on machine readable media, clearly identified and stored
by the Company and each Company Subsidiary in an appropriate secure, fire-proof
storage location, physically separated from the systems area, and, together with
the applicable documentation, is accurate and contains sufficient detail and
content to allow the full and proper use by the Company or any Company
Subsidiary without reliance on the special knowledge or memory of other Persons.
Section 4.14.12(h) of the Company Disclosure Schedule sets forth a complete and
accurate list of the locations for copies of all database software sufficient to
compile (loading and updating) the Database, including source code, of the
Company and any Company Subsidiary.
4.14.13 Software. As of the date hereof:
(a) All of the Software included in the Intellectual Property Rights
which are used or necessary: (i) for the design, development, marketing,
distribution, sale, licensing, furnishing, supply, delivery, manufacture or use
of the Database; (ii) for the design, development, marketing, distribution,
sale, licensing, furnishing, supply, delivery, manufacture or use of Products;
(iii) to conduct the Business as presently conducted; (iv) for the design,
development, marketing, distribution, sale, licensing, furnishing, supply,
delivery, manufacture or use of the Products of the Company or any Company
Subsidiary; (v) for the design, development, marketing, distribution, sale,
licensing, furnishing, supply, delivery, manufacture or use of the Database; or
(vi) to conduct the Business, in each of the foregoing (i), (ii), (iii), (iv),
(v) and (vi), as currently conducted by the Company or any Company Subsidiary,
works as necessary in a production/live environment under real business
conditions in accordance with the specifications and documentation.
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(b) All of the Software used by the Company or any Company Subsidiary
performs in such a manner to enable the Company and each Company Subsidiary to
operate the Business as currently operated, including the provision of Products
to Customers. The Company takes commercially reasonable steps to eliminate from
the Software viruses, back doors, trap doors, Trojan horses and other malicious
or destructive code software routines that may or may be used to permit
unauthorized access to software, hardware or data or modify, delete, damage,
disable, erase, interrupt, interfere with or otherwise harm the same. To the
Knowledge of the Company, the Software is free of software code designed for
surveillance purposes or to identify, track or obtain information from or about
a user without that user's knowledge and affirmative consent may or may be used
to permit unauthorized access to software, hardware or data or modify, delete,
damage, disable, erase, interrupt, interfere with or otherwise harm the same.
The Software is accompanied by sufficient documentation to enable repair and
maintenance of the Software.
(c) None of the Software owned by the Company or any Company Subsidiary
is the subject of any source code escrow agreement or any other agreement
requiring the disclosure of source code to any third party. Neither the Company
nor any Company Subsidiary has provided, directly or indirectly, the source code
for any of the Software owned by the Company or any Company Subsidiary to any
other Person or by license, transfer, sale, escrow or otherwise which would
enable any Person to reverse engineer, disassemble or decompile any such
Software to create such source code (except for consultant access to source code
subject to a written confidentiality and non-disclosure agreement).
(d) Current copies of the source code for any of the Software owned by
the Company or any Company Subsidiary have been appropriately recorded on
machine readable media, clearly identified and stored by the Company and each
Company Subsidiary in an appropriate secure, fire-proof storage location,
physically separated from the systems area and, together with the applicable
documentation, is accurate and contains sufficient detail and content to allow
the full and proper use by the Company or any Company Subsidiary without
reliance on the special knowledge or memory of other Persons. Section 4.14.13(d)
of the Company Disclosure Schedule sets forth a complete and accurate list of
the locations for copies of all source code for such Software of the Company and
any Company Subsidiary.
(e) Set forth in Section 4.14.13(e) of the Company Disclosure Schedule
are disaster recovery plans, procedures and facilities and other steps taken by
the Company and each Company Subsidiary to prevent destruction of its Software
and to restrict unauthorized access thereto.
(f) The Company and the Company Subsidiaries, as applicable, own or
have a valid right or license to use all of the Software necessary to interface
to the various listing sources in order to receive, maintain, integrate and
update any Data used and necessary (A) for the design, development, marketing,
distribution, sale, licensing, furnishing, supply, delivery, manufacture or use
of Products; (B) for the design, development, marketing, distribution, sale,
licensing, furnishing, supply, delivery, manufacture or use of the Database; (C)
for the design, development, marketing, distribution, sale, licensing,
furnishing, supply, delivery, manufacture or use of the Company's Databases and
(D) to conduct the Business, in each of the foregoing (A), (B), (C) and (D), as
currently conducted by the Company or any Company Subsidiary.
47
4.15 Relationships with Customers and Suppliers. Section 4.15 of the Company
Disclosure Schedule sets forth: (a) a list of Customers of the Business
representing at least ninety percent (90%) of revenues of the Business for the
fiscal years ended December 31, 2006, December 31, 2005, and December 31, 2004,
and for the three (3) months ended March 31, 2007; and (b) a list of Suppliers
to the Business representing at least ninety percent (90%) in volume of
purchases from all Suppliers to the Business for the fiscal years ended December
31, 2006, December 31, 2005, and December 31, 2004 and for the three (3) months
ended March 31, 2007. As of the date hereof, neither the Company nor any Company
Subsidiary has received any written notice from any of its Customers to the
effect that, or has any reason to suspect or believe that, any Customer will or
will seek to stop, decrease the rate of, or change the terms (whether related to
payment, price or otherwise) with respect to, buying materials, products or
services from the Business (whether as a result of the consummation of the
transactions contemplated hereby or otherwise). As of the date hereof, neither
the Company nor any Company Subsidiary has received any written notice from any
of its Suppliers to the effect that, or has any reason to suspect or believe,
any Supplier will stop, decrease the rate of, or change the terms (whether
related to payment, price or otherwise) with respect to, supplying materials,
Products, Product Components or services to the Business (whether as a result of
the consummation of the transactions contemplated hereby or otherwise).
4.16 Tangible Assets.
4.16.1 The tangible assets of the Company and the Company Subsidiaries
were acquired in the Ordinary Course of Business. Other than tangible assets
disposed of in the Ordinary Course of Business since the date of the Balance
Sheet, the Company and each Company Subsidiary has good title to, or a valid
leasehold interest in, or valid right to use, all material tangible assets (a)
used by them, (b) located on their premises (c) shown on the Unaudited Interim
Financial Statements, or (d) acquired after the date thereof, free and clear of
all Liens (other than Permitted Liens and Liens disclosed on the consolidated
Balance Sheet).
4.16.2 Subject to the applicable reserves in the Financial Statements,
each item of machinery, tools and equipment and other tangible asset which is
material to the conduct of the Business is in good operating order, condition
and repair and, except for items disposed of in the Ordinary Course of Business
since December 31, 2006, is in a good state of maintenance and repair,
reasonable wear and tear excepted, and is suitable for the continued conduct of
the Business in the manner conducted since December 31, 2006 and as proposed to
be conducted.
4.17 Tax Matters.
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4.17.1 The Company and the Company Subsidiaries have duly and timely filed
with the appropriate Governmental Authorities all Tax Returns required to be
filed by them and such Tax Returns are true, complete and accurate and correctly
reflect the Tax Liability required to be reported thereon, in all material
aspects. Such Tax Returns do not contain a disclosure statement under Section
6662(d)(2)(B) of the Code (or any predecessor provision or comparable provision
of state, local or foreign law). Except as set forth in Section 4.17.1 of the
Company Disclosure Schedule, the Company is not currently the beneficiary of any
extension of time within which to file any Tax Return. No agreements or waivers
have been made by or on behalf of the Company for the extension of time for the
assessment of any Tax or for any applicable statute of limitations.
4.17.2 The Company has paid or adequately provided in the Financial
Statements for all material Taxes of the Company and the Company Subsidiaries
(whether or not shown on any Tax Return) accrued through the date of the
Financial Statements. Except as set forth in Section 4.17.1 of the Company
Disclosure Schedule, the Company is not currently the beneficiary of any
extension of time within which to pay any Taxes. All material Taxes of the
Company and the Company Subsidiaries accrued following the end of the most
recent period covered by the Financial Statements have been accrued in the
Ordinary Course of Business and any such Taxes due on or before the Closing Date
have been, or will be, paid on or before such date.
4.17.3 Section 4.17.3 of the Company's Disclosure Schedule sets forth (1)
all Tax Returns of the Company or a Company Subsidiary which have been examined
by a Governmental Authority, which are presently under examination, or with
respect to which a Governmental Authority has notified the Company or a Company
Subsidiary of its intent to examine and the status of such examination and
includes a copy of each examination report of all such examinations which have
been closed and sets forth the open items as to each examination which has not
been closed and (2) all disputes or claims concerning Tax Liability of the
Company or a Company Subsidiary either (A) claimed or raised by any Governmental
Authority in writing, or (B) as to which any officer (or employee responsible
for Tax matters) of the Company or any Company Subsidiary has knowledge based
upon personal contact with any agent of such Governmental Authority. The Company
has reported to the applicable state Governmental Authority all adjustments made
as a result of an examination by the Internal Revenue Service. The results of
any settlements and any necessary adjustments in state income tax resulting
therefrom are properly reflected in the Financial Statements.
4.17.4 Neither the Company nor any Company Subsidiary (i) has been a
member of any affiliated group filing a consolidated federal income Tax Return
or any combined, unitary or similar Tax Return, other than the group of which
the Company is presently the common parent, and (ii) has any Liability for the
Taxes of any other "person" as defined in Section 7701(a)(1) of the Code under
Treas. Reg. ss.1.1502-6 (or any similar provision of state, local, or foreign
Applicable Law), as a transferee or successor, by contract, or otherwise.
49
4.17.5 No material deficiencies for Taxes or other assessments relating to
Taxes have been claimed, proposed or assessed against the Company or any Company
Subsidiary (that has not been resolved).
4.17.6 No claim has ever been made by a Governmental Authority in a
jurisdiction where the Company or any Company Subsidiary does not file Tax
Returns that it or they are or may be subject to Taxation by that jurisdiction.
4.17.7 Neither the Company nor any Company Subsidiary is a party to or
bound by any Tax indemnity, Tax sharing or Tax allocation agreement.
4.17.8 The Company and each of the Company Subsidiaries have not engaged
in any "listed" transaction within the meaning of Treasury Regulations Section
1.6011-4(b).
4.17.9 Each of the Company and each of the Company Subsidiaries have
complied with all Applicable Laws relating to the withholding of Taxes and have,
within the time and manner prescribed by law, paid to the proper Governmental
Authority all material amounts required to be withheld and paid under all
Applicable Laws.
4.17.10 Except for Taxes for the payment of which an adequate reserve has
been established on the Balance Sheet, there are no Tax Liens, whether imposed
by any federal, state, local or foreign taxing authority, outstanding against
any of the assets, properties or business of the Company or any Company
Subsidiary (other than for Taxes not yet due and payable).
4.17.11 Neither the Company nor any Company Subsidiary is required to
include in income any adjustment pursuant to Section 481(a) of the Code by
reason of a change in accounting method or otherwise.
4.17.12 Prior to the Effective Time, the Company shall have delivered all
MIP Payments to all MIP Participants in the amounts to be paid under the MIP
prior to the calendar day on which the Effective Time occurs and shall remit to
the appropriate Governmental Authority all appropriate employment Taxes with
respect thereto (both employee and employer portions) or accrue the liability
for such employment Taxes in the Estimated Working Capital Statement.
4.18 Insurance. All policies of insurance, together with the premiums
currently paid thereon, covering the property, plant, machinery, equipment and
inventory used in the Business and business interruption, or providing for
general, product, personal, professional (errors and omissions) and fiduciary
Liability coverage, are described in Section 4.18 of the Company Disclosure
Schedule. All such policies will be outstanding and in full force and effect at
the Closing Date. Except as set forth in Section 4.18 of the Company Disclosure
Schedule, there are no claims, actions, suits or proceedings arising out of or
based upon any of such policies of insurance and no basis for any such claim,
action, suit or proceeding exists and there were no claims for damages of more
than Twenty-Five Thousand Dollars ($25,000) per case or existing or possible
insurance claims during the past three (3) years. There are no notices of any
pending or threatened terminations or substantial premium increases with respect
to any of such policies and the Company and each Company Subsidiary are in
compliance with all conditions contained therein.
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4.19 Internal Controls; Accounts Receivable.
4.19.1 The Company and each of the Company Subsidiaries maintain a system
of internal accounting controls sufficient to provide reasonable assurance that:
(a) transactions are executed in accordance with management's general or
specific authorizations; (b) transactions are recorded as necessary to permit
preparation of financial statements in conformity with GAAP and to maintain
asset accountability; (c) access to assets is permitted only in accordance with
management's general or specific authorization; and (d) the recorded
accountability for assets is compared with the existing assets at reasonable
intervals and appropriate action is taken with respect to any differences.
4.19.2 The accounts receivable of the Company and each Company Subsidiary
set forth in the Unaudited Interim Financial Statements of the Company for the
period ended March 31, 2007 and arising subsequent to the date of such financial
statements represent sales made or services rendered by the Company and/or a
Company Subsidiary in the Ordinary Course of Business and consist of all
accounts or notes receivable of the Company and the Company Subsidiaries as of
such dates. Payment in respect to such accounts receivable will not be
contingent upon the fulfillment of any other agreement, past or future, and to
the Knowledge of the Company, the amounts due, or to become due, in respect of
such accounts receivable are not subject to valid setoffs or counterclaims
asserted, except in each case to the extent reserved or for which provision is
made in such financial statements. All of the accounts receivable of the Company
and the Company Subsidiaries arose in the Ordinary Course of Business pursuant
to bona fide transactions involving goods delivered or services rendered by the
Company or a Company Subsidiary, and constitute valid claims, and are
collectible in the Ordinary Course of Business, subject to reserves in such
financial statements. No Customer has delivered written notice to the Company to
the effect that such Customer believes that any net accounts receivable of the
Company are not collectible and the Company has no Knowledge that any accounts
receivable would not be collectible in the ordinary course.
4.20 Real Estate.
4.20.1 Neither the Company nor any Company Subsidiary own, operate or
manage, nor have owned, operated or managed at any time, any real property.
4.20.2 Section 4.20.2 of the Company Disclosure Schedule sets forth a true
and complete list of all real property leased, licensed or occupied by the
Company or the Company Subsidiaries as lessee, sublessee, licensee or occupant
(the "Company Leased Properties"). The Company Leased Properties are leased or
licensed to, or occupied by, the Company or a Company Subsidiary pursuant to
written leases, subleases, licenses or occupancy agreements, true, correct and
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complete copies, including all amendments thereto, and all overleases in the
case of subleases, of which have been made available to Parent (each a "Lease"
and collectively the "Leases"). The Company has made available or delivered to
Parent a true and complete copy of each such Lease. With respect to each of the
Leases, except as otherwise set forth in the Leases or Section 4.20.2 of the
Company Disclosure Schedule: (i) such Lease is valid, binding, enforceable and
in full force and effect; (ii) the Company's or the Company Subsidiary's
possession and quiet enjoyment of the Leased Premises under such Lease, and
there are no disputes with respect to such Lease; (iii) neither the Company nor
any Company Subsidiary has received written notice that the Company or such
Company Subsidiary is in breach or default under such Lease, and the Company has
no Knowledge of any state of facts which with notice or lapse of time or both
would constitute such a breach or default, and neither the Company nor any
Company Subsidiary has sent a notice of default to any third party under any
Lease; (iv) neither the Company nor any Company Subsidiary has subleased,
licensed or otherwise granted any Person the right to use or occupy such Leased
Company Properties; (v) neither the Company nor any Company Subsidiary has
mortgaged, collaterally assigned or granted any other security interest in such
Lease or any interest therein; (vi) all rent due and owing by the Company or any
Company Subsidiary under such Lease has been paid in full; (vii) neither the
Company nor any Company Subsidiary has received any written notice to the effect
that such Lease will not be renewed at the termination of the term thereof or
that any such Lease will be renewed only at a substantially higher rent; and
(viii) to the Knowledge of the Company, the full security deposit required under
such Lease continues to be held by the landlord thereunder
4.20.3 As of the date hereof, to the Company's Knowledge, neither the
Company nor any Company Subsidiary has received any written notice that (i) any
condemnation or rezoning proceedings are pending or threatened with respect to
any of the Company Leased Properties or (ii) any zoning, building or similar
requirement or Governmental Authority is or will be violated in any material
respect for any property by the continued maintenance, operation or use of any
buildings or other improvements on any of the Company Leased Properties or by
the continued maintenance, operation or use of the parking areas.
4.20.4 The Company Leased Properties include all interests in real
property necessary to conduct the Business as currently conducted.
4.20.5 The Company has obtained, or caused the Company Subsidiaries to
obtain, all Licenses necessary for the operation for its Company Leased
Properties, all of which are in full force and effect, and neither the Company
nor any Company Subsidiary has received any written notice from any Governmental
Authority or other entity having jurisdiction over any Company Leased Properties
or any portion thereof describing a violation of or threatening a suspension,
revocation, modification or cancellation of any such License. To the Company's
Knowledge, there are no pending or threatened condemnation, fire, health,
safety, building, zoning, land use, assessment, or similar proceedings relating
to the Company Leased Properties. Except for Permitted Liens, there are no
parties other than the Company or a Company Subsidiary in possession of any
Company Leased Properties and there are no sublease, concession, occupancy,
license or similar arrangements affecting any Company Leased Properties. Neither
the Company nor any of its Subsidiaries has initiated nor has any plans to
initiate any construction, improvements or alterations at any Company Leased
Properties.
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4.20.6 Since January 1, 1999, to the Company's Knowledge, the Company and
each Company Subsidiary has at all times been a tenant in a multi-tenant
building, and has only used the space occupied or leased by it for general
office use.
4.21 Employee Benefit Matters.
4.21.1 Section 4.21.1 of the Company Disclosure Schedule contains an
accurate and complete list of all pension plans (including each "employee
pension benefit plan" (as defined in Section 3(2) of the United States Employee
Retirement Income Security Act of 1974, as amended ("ERISA") (a "Pension
Plan")), supplemental pension plans, profit sharing plans, retirement plans,
savings plans, retirement savings plans, bonus plans, incentive compensation
plans, deferred compensation plans, stock purchase plans, stock option or other
equity based plans, phantom stock plans, vacation plans, leave of absence plans,
employee assistance plans, automobile leasing/subsidy/allowance plans,
redundancy or severance plans, relocation plans, family support plans, medical,
health, hospitalization or life insurance plans, including retiree health and
life plans, workers' compensation insurance policies, dental plans, vision
plans, disability plans, sick leave plans, retention plans, compensation
policies, including any overtime, on-call or call-in policies, death benefit
plans, employment agreements with Company key employees, employee welfare plans
(including each "employee welfare benefit plan" (as defined in Section 3(1) of
ERISA)) and any other similar plans, programs, arrangements or policies that are
maintained, contributed to or required to be contributed to by the Company, any
Company Subsidiary or any ERISA Affiliate with respect to Company Employees,
other employees, non employee directors or other service providers
(collectively, the "Company Benefit Plans"). The term "ERISA Affiliate" means
each entity that is a member of a controlled group or affiliated service group
of which the Company is a member or that is treated as a single employer with
the Company under Section 414(b), 414(c), 414(m) or 414(o) of the Code or under
ERISA. With respect to each Company Benefit Plan, except as listed and
identified in Section 4.21.1 of the Company Disclosure Schedule by reference to
the following applicable paragraph:
(a) The Company has made available to Parent a true and complete copy
of the plan document and all amendments thereto, the trust or other funding
agreement document therefor, if any, and all amendments thereto, the most recent
annual report on Form 5500 filed with the IRS, and the most recent summary plan
description and each summary of material modifications thereto, if applicable,
and each recordkeeping and other service agreement pertaining to the operation
or administration thereof of each of the Company Benefit Plans (including, for
the avoidance of doubt, any employment agreements with Company Employees), or if
such plan document or summary plan description does not exist, an accurate,
written summary of such Company Benefit Plans.
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(b) As of the date hereof, there is no plan or commitment, whether
legally binding or not, to create any additional Company Benefit Plan or modify,
change or terminate any existing Company Benefit Plan, and there are no Actions
by or on behalf of Company Employees or their beneficiaries or dependents
pending against the Company or any Company Subsidiary with respect to the
Company Benefit Plans and, to the Knowledge of the Company, no such Actions have
been threatened.
(c) With respect to each Company Benefit Plan: (i) no Lien imposed
under the Code, ERISA or any other Applicable Law exists; and (ii) all
contributions, premiums and expenses to or in respect of such Company Benefit
Plan have been timely paid in full or, to the extent not yet due, have been
adequately accrued in all material respects on the Financial Statements.
(d) No Company Benefit Plan, nor the Company, nor any Company
Subsidiary nor any ERISA Affiliate with respect to any Company Benefit Plan, is
under audit or is the subject of an Action by the IRS, the U.S. Department of
Labor, the Pension Benefit Guaranty Corporation or any other Governmental
Authority, nor is any such audit or Action pending or, to the Knowledge of the
Company, threatened.
(e) No Company Benefit Plan is a "multiemployer plan" as defined in
Section 3(3) of ERISA and neither the Company, any Company Subsidiary nor any
ERISA Affiliate has previously maintained or had an obligation to contribute to
a "multiemployer plan" (as defined above); and if any Company Benefit Plan is
such a "multiemployer plan", the Company any Company Subsidiary and each ERISA
Affiliate may terminate its participation in such multiemployer plan without any
withdrawal liability.
(f) Each Company Benefit Plan has been maintained, funded and
administered in accordance with its terms and all Applicable Laws, including
without limitation complying with all written plan document, reporting,
disclosure, fiduciary and prohibited transaction requirements applicable
thereto.
(g) Each Pension Plan that is intended to be a Tax-qualified plan under
Section 401(a) of the Code has been the subject of a determination letter from
the IRS to the effect that such Pension Plan as established, amended and
currently in effect and any related trust is qualified and exempt from Federal
income Taxes under Sections 401(a) and 501(a), respectively, of the Code, and no
such determination letter has been revoked and, to the Knowledge of the Company,
no such revocation has been threatened.
(h) To the Knowledge of the Company, each Company Benefit Plan subject
to Section 409A of the Code has been operated in good faith compliance with the
requirements of Section 409A of the Code and the available guidance thereunder.
(i) Each Company Benefit Plan that is intended to be a cafeteria plan
within the meaning of Section 125 of the Code and each trust or other entity
that is intended to be a voluntary employees' beneficiary association within the
meaning of Section 501(c)(9) of the Code, meets the applicable requirements of
such Code sections, respectively.
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(j) If the Company, any Company Subsidiary or ERISA Affiliate were to
terminate each Company Benefit Plan, or the participation of the Company, any
Company Subsidiary or ERISA Affiliate therein, and each recordkeeping and other
service agreement pertaining to the operation or administration thereof as of or
prior to the Closing Date, such termination would be without any Liability other
than (i) those amounts which are recorded as Liabilities on the Company's, any
Company Subsidiary's or an ERISA Affiliate's books and records and (ii)
reasonable administrative costs associated with the termination thereof.
(k) No Pension Plan is subject to Title IV of ERISA or Section 412 of
the Code; and if any Pension Plan is subject to Title IV of ERISA or Section 412
of the Code, no such Pension Plan has an accumulated funding deficiency for
purposes of Section 412 of the Code, each such Pension Plan is fully funded on
both an ongoing and a termination basis and neither the Company, any Company
Subsidiary nor any ERISA Affiliate has not incurred any Liability (other than a
Liability to pay premiums) under Title IV of ERISA of the Code with respect
thereto.
4.21.2 Except for any obligations under the Company Benefit Plans listed
and identified as such in Section 4.21.2 of the Company Disclosure Schedule,
neither the Company nor any Company Subsidiary has any obligation to provide
health, life insurance, death benefits or any other compensation or benefits of
any kind with respect to Company Employees beyond their termination of
employment or service, other than as required under Section 4980B of the Code or
other Applicable Law.
4.21.3 Except as set forth in Section 4.21.3 of the Company Disclosure
Schedule (or as expressly provided in this Agreement), neither the execution and
delivery of this Agreement nor the consummation of the transactions contemplated
hereby will (a) entitle any Company Employee to any payment, including severance
pay, the payment of benefits or compensation upon a change-in-control, or any
payment on account of Company Options pursuant to Section 3.3.3 other than as
set forth on the Allocation Spreadsheet, (b) increase the amount of any
compensation due to any Company Employee, (c) accelerate the vesting or funding
of any compensation, stock incentive or other property or benefit of any Company
Employee or (d) result in an excess parachute payment to any Company Employee
within the meaning of Code Section 280G.
4.21.4 Evading Liability within the meaning of Section 4069(a) of ERISA is
not a principal purpose for the Company's entering into the transactions
contemplated by this Agreement.
4.22 Opinion of Financial Advisors. On or prior to the date of this
Agreement, the Board of Directors of the Company has received an opinion from
Duff & Xxxxxx, LLC (the "Company Financial Advisors"), that the Merger
Consideration is fair from a financial point of view to the holders of Company
Common Stock.
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4.23 Brokers. No broker, finder, financial advisor, investment banker or
other Person (other than the Company Financial Advisors, the fees and expenses
of which will be paid by the Company) is entitled to any brokerage, finder's,
financial advisor's or other similar fee or commission in connection with the
Merger based upon arrangements made by or on behalf of the Company or any
Company Subsidiary or any Principal Stockholder.
4.24 Indebtedness. All Indebtedness of the Company and the Company
Subsidiaries, including all Indebtedness associated with the MIP Payment and any
MIP-Related Taxes, except for the European Indebtedness and that Indebtedness
set forth in Section 3.2.1(c) of the Company Disclosure Schedule, and Liens
securing such Indebtedness, shall be prepaid, extinguished and released at or
prior to the Effective Time.
4.25 Change of Control and Severance. Section 4.25 of the Company Disclosure
Schedule sets forth a true and correct schedule of all Contracts to which the
Company or any Company Subsidiary is a party (a) providing for termination by
one party in the event of a merger or a change of control, (b) prohibiting a
merger or change of control, or (c) providing for severance, termination,
incentive plan, performance plan, retirement plan or any other payment which may
be payable by the Company, the Surviving Corporation, Parent or any other Person
prior to, on, or after the Effective Time, in each case, as a result of the
execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby, as well as any funding or escrow requirements
relating thereto, including any such payments that are conditioned upon events
or circumstances in addition to the Merger and the transactions contemplated
thereby.
4.26 Related Party Transactions. Except as set forth in Section 4.26 of the
Company Disclosure Schedule, and except for (i) Contracts between the Company
and any Company Subsidiary, (ii) Contracts, plans, arrangements and payments
under an individual's compensation arrangements as a Company Employee, (iii)
Contracts relating to such Person's status as a Company Stockholder (including
stockholders' agreements, registration rights agreements and other similar
agreements), (iv) Contracts which shall terminate as of the Effective Time
(copies of all of which as described in (i) through (iv) above have been
provided by the Company to Parent and listed in the Company Disclosure Schedule)
and (v) Contracts between any Affiliate of the Principal Stockholders and the
Company, none of the Principal Stockholders, officers, directors or Affiliates
of, or any Person holding an Equity Interest in, the Company or any Company
Subsidiary, or members of their families, is a party to any Contract (including
any lease (for real property or otherwise), Contract for employment or Contract
for the furnishing of services), understanding, Indebtedness or proposed
transaction with the Company or any Company Subsidiary or is directly or
indirectly interested in any Company Contract. All of the Contracts set forth in
Section 4.26 of the Company Disclosure Schedule and all of the Contracts between
an Affiliate of the Principal Stockholders and the Company were entered into on
an arm's length basis on substantially similar terms as would be agreed upon
between unrelated parties. Neither the Company nor any Company Subsidiary has
guaranteed or assumed any obligations of their respective officers, directors,
Affiliates, or Persons holding an Equity Interest in either the Company or any
Company Subsidiary, or members of any of their families.
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4.27 Commercial Bribery. Neither the Company nor any of the Company
Subsidiaries nor, to the Knowledge of the Company, any director, officer, agent,
employee or Affiliate of the Company or any of the Company Subsidiaries has
taken any action, directly or indirectly, that would constitute an offer,
payment, promise to pay or authorization of the payment of any money, or other
property, gift, promise to give, or authorization of the giving of anything of
value to any Person or political party or official thereof or any candidate for
political office, in contravention of Applicable Law, and the Company and each
of the Company Subsidiaries and their respective Affiliates have instituted and
maintain policies and procedures designed to ensure, and which are reasonably
expected to continue to ensure, continued compliance therewith.
4.28 Money Laundering. The operations of the Company and the Company
Subsidiaries are and have been for the last six (6) years conducted in
compliance with Applicable Laws relating to money laundering in all
jurisdictions in which the Business is conducted (collectively, the "Money
Laundering Laws") and no Action by or before Governmental Authority or any
arbitrator involving the Company or any of the Company Subsidiaries with respect
to the Money Laundering Laws is pending or threatened.
4.29 Foreign Corrupt Practices Act. Neither the Company nor any of the
Company Subsidiaries, nor any director, officer, agent, employee or Affiliate of
the Company or any of the Company Subsidiaries is aware of or has taken any
action, directly or indirectly, that would result in a violation of the Foreign
Corrupt Practices Act of 1977, as amended, and the rules and regulations
thereunder (the "FCPA"), including making use of the mails or any means or
instrumentality of interstate commerce corruptly in furtherance of an offer,
payment, promise to pay or authorization of the payment of any money, or other
property, gift, promise to give, or authorization of the giving of anything of
value to any "foreign official" (as such term is defined in the FCPA) or any
foreign political party or official thereof or any candidate for foreign
political office, in contravention of the FCPA and the Company and the Company
Subsidiaries are in compliance with the FCPA. To the Knowledge of the Company,
in the last six (6) years, neither the Company nor any of the Company
Subsidiaries, nor any director, officer, agent, employee or Affiliate of the
Company or of any Company Subsidiary has taken any action that would constitute
a violation of the FCPA.
4.30 Material Facts. To the Knowledge of the Company, this Agreement, the
Company Disclosure Schedule furnished contemporaneously herewith, and the other
agreements, documents, certificates to be delivered in connection herewith, do
not contain any untrue statement of a material fact or omit to state a material
fact necessary to make the statements contained herein or therein, in light of
the circumstances in which they were made, not misleading.
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ARTICLE V
REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB
Subject to such exceptions as are disclosed in the disclosure schedule
(the "Parent Disclosure Schedule") delivered by Parent to the Company
concurrently with the execution and delivery of this Agreement, Parent and
Merger Sub jointly and severally represent and warrant to the Company as follows
each of which is true and correct as of the date hereof and as of the Closing
Date (except for such representations and warranties made as of another date,
which shall, in each case, be true and correct as of such other date):
5.1 Organization and Qualification. Parent is a limited liability company
and Merger Sub is a corporation, in each case, duly organized, validly existing
and in good standing under the laws of the States of Nevada and Delaware,
respectively. Each of Parent and Merger Sub has the requisite power and
authority and all necessary governmental approvals to own, lease and operate its
properties and to carry on its business as it is now being conducted. Each of
Parent and Merger Sub is duly qualified or licensed to do business, and is in
good standing, in each jurisdiction where the character of the properties owned,
leased or operated by it or the nature of its business makes such qualification,
licensing or good standing necessary. Parent has heretofore made available to
the Company complete and correct copies of the certificate of formation,
certificate of incorporation, operating agreement and by-laws, as applicable, of
Parent and Merger Sub, together with all amendments thereto, as currently in
effect.
5.2 Authority. Each of Parent and Merger Sub has all necessary corporate
power and authority to execute and deliver this Agreement, to perform its
obligations hereunder and to consummate the transactions provided for herein.
The execution and delivery of this Agreement, by each of Parent and Merger Sub,
and the consummation by Parent and Merger Sub of the transactions provided for
herein have been duly and validly authorized by all necessary corporate action
on the part of Parent and Merger Sub, and no other corporate proceedings on the
part of Parent or Merger Sub are necessary to authorize this Agreement or to
consummate the transactions provided for herein. This Agreement has been duly
authorized and validly executed and delivered by Parent and Merger Sub and,
assuming this Agreement is a valid and binding obligation of the Company and the
Principal Stockholders, this Agreement constitutes a legal, valid and binding
obligation of Parent and Merger Sub, enforceable against each of them in
accordance with its terms, except to the extent that its enforceability may be
limited by applicable bankruptcy, insolvency, reorganization, moratorium or
other laws affecting the enforcement of creditors' rights generally or by
general equitable principles.
5.3 No Conflict. The execution, delivery and performance of this Agreement
by Parent and Merger Sub and the consummation by Parent and Merger Sub of the
transactions contemplated hereby, do not and will not: (a) violate or conflict
with the certificate of formation, certificate of incorporation, by-laws,
operating agreement or other constituent documents of Parent or Merger Sub; (b)
assuming that all consents, approvals, authorizations and Licenses described in
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Section 5.4 will have been obtained prior to the Effective Time and all filings
and notifications described in Section 5.4 will have been made and any waiting
periods thereunder will have terminated or expired prior to the Effective Time,
conflict with or violate any Applicable Law or Governmental Order applicable to
Parent or Merger Sub; (c) result in any material breach of, or constitute a
material default (or event which with the giving of notice or lapse of time, or
both, would become a default) under, or give to any Person any material rights
of termination, purchase, amendment, acceleration or cancellation of, or result
in the creation of any Lien (other than Permitted Liens and Permitted
Encumbrances) on any of the material assets or properties of Parent or Merger
Sub pursuant to, any material Contract relating to such assets or properties to
which Parent , Merger Sub or any of their respective Subsidiaries is a party or
by which any of such assets or properties is bound.
5.4 Consents and Approvals. The execution, delivery and performance by
Parent and Merger Sub of this Agreement do not and the consummation of the
transaction contemplated hereby will not require any consent, approval,
authorization or other action, or filing with or notification to, any
Governmental Authority or other Person, except (i) under the HSR Act or any
other antitrust, competition, trade or other regulatory Applicable Laws, (ii)
the filing and recordation of the Certificate of Merger as required by the DGCL,
(iii) under the rules and regulations of any Governmental Authority with respect
to the continuation of the CLEC Licenses, or (iv) with respect to matters other
than those referred to in the previous clauses (i), (ii) and (iii), where
failure to obtain such consents, approvals, authorizations or to make such
filings or notifications would not (a) prevent or materially delay the
consummation of the Merger, (b) otherwise prevent or materially delay
performance by the Parent or Merger Sub of any of its material obligations under
the Agreement, (c) affect the ability to obtain any consent or other approval of
any Governmental Authority or (d) result in violation of any Applicable Law
other than a de minimus civil violation of any Applicable Law.
5.5 Ownership of Merger Sub; No Prior Activities. Parent owns one hundred
percent (100%) of the issued and outstanding capital stock of Merger Sub. Merger
Sub was formed solely for the purpose of engaging in the transactions
contemplated by this Agreement. Except for obligations or Liabilities incurred
in connection with its formation and the transactions contemplated by this
Agreement, Merger Sub has not and will not have incurred, directly or
indirectly, through any Subsidiary or Affiliate, any obligations or Liabilities
or engaged in any business activities of any type or kind whatsoever or entered
into any agreements or arrangements with any Person other than employment and
consulting agreements being entered into with certain employees of the Company
by Merger Sub which are to become effective at the Closing Date.
5.6 Absence of Litigation. As of the date hereof, (a) there is no suit,
claim, action, proceeding, arbitration or investigation pending or to the
Knowledge of Parent, threatened against Parent or Merger Sub which seeks to, or
would reasonably be expected to, restrain, enjoin or delay the consummation of
the Merger or any of the other transactions provided for herein, or which seeks
damages in connection therewith and (b) no injunction has been entered or issued
with respect to the transactions provided for herein.
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5.7 Brokers. Except for fees or commissions that will be paid by Parent to
Xxxxxx Xxxxxx & Co., which fees will be paid or accrued prior to the Effective
Time, no broker, finder or investment banker is entitled to a fee or commission
in connection with the transactions contemplated by this Agreement based upon
arrangements made by or on behalf of Parent or Merger Sub.
5.8 Vote Required. No vote of the holders of any class or series of capital
stock or other Equity Interests of Parent or Merger Sub is necessary to approve
the Merger (other than in the case of Merger Sub, any required vote by Parent as
the holder of one hundred percent (100%) of Merger Sub's Equity Interests).
5.9 Availability of Funds. Parent is currently solvent and will have at the
Closing Date sufficient funds to deliver the Cash Consideration, and any Closing
Date Adjustment.
5.10 No Knowledge of Company Breach. Parent has no Knowledge of any facts or
circumstances that would serve as the basis for a claim by Parent or the
Surviving Corporation against any Company Stockholder based upon a breach of any
of the representations or warranties of the Company or the Principal
Stockholders contained in this Agreement, or a breach of any of the Company's or
any Company Stockholders' covenants or agreements to be performed by any of them
at or prior to Closing. The Knowledge by Parent of the existence of a Contract
shall not give rise to an assumption that Parent had knowledge of any
undisclosed breach of such Contract. The burden of proof with respect to an
alleged breach of this Section 5.10 by Parent shall be on the Company
Stockholders.
ARTICLE VI
COVENANTS
6.1 Conduct of Business by the Company Pending the Effective Time. The
Company agrees that, between the date of this Agreement and the Effective Time,
except as set forth in Section 6.1 in the Company Disclosure Schedule, as
otherwise contemplated by this Agreement, as required by Applicable Law or as
consented to in writing by Parent, the Company will, and will cause each Company
Subsidiary to, in all material respects (i) conduct the Business substantially
in the Ordinary Course of Business and (ii) use commercially reasonable best
efforts to preserve the current relationships of the Company and each Company
Subsidiary with such of the Customers, Suppliers and other Persons with which
the Company or any Company Subsidiary has significant business relations as is
reasonably necessary to preserve substantially intact the Business. Without
limiting the foregoing, and as an extension thereof, except (1) as set forth in
Section 6.1 of the Company Disclosure Schedule, (2) as otherwise contemplated by
this Agreement, (3) as required by Applicable Law, (4) in connection with any
payments to any holder of an Equity Interest in the Company in order to obtain a
consent or release in connection with this Agreement or the Merger, or (5) as
consented to in writing by Parent (such consent not to be unreasonably withheld
or delayed), the Company shall not, and shall not permit any Company Subsidiary
to, between the date of this Agreement and the Effective Time, directly or
indirectly, do, or agree to do, any of the following (provided that with respect
to any act taken by the Company under subclauses (2) through (4) above, the
Company shall notify Parent thereof):
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(a) amend or otherwise change the certificate of incorporation or
by-laws of the Company or equivalent organizational documents of any Company
Subsidiary;
(b) except as necessary to comply with the requirements of any
Contracts of the Company or a Company Subsidiary existing on the date hereof,
issue, deliver, sell, pledge or encumber, or authorize, propose or agree to the
issuance, delivery, sale, pledge or encumbrance of, any shares of its capital
stock, or securities convertible into or exchangeable for, or Options or rights
of any kind to acquire, any shares of any class or series of its capital stock
(other than pursuant to the exercise of Options and other contractual rights
existing on the date hereof which are disclosed in Section 6.1 of the Company
Disclosure Schedule);
(c) except as permitted under this Agreement, declare, set aside, make
or pay any dividend or other distribution (other than cash distributions) with
respect to any of its capital stock (other than dividends paid by a wholly-owned
Company Subsidiary to the Company or to any other wholly-owned Company
Subsidiary) or enter into any agreement with respect to the voting of capital
stock owned by it;
(d) reclassify, combine, split or subdivide, directly or indirectly,
any of its capital stock or other Equity Interests;
(e) acquire (including by merger, consolidation, or acquisition of
stock or assets), outside of the Ordinary Course of Business, any interest in
any Person or any division thereof or any assets, other than any acquisitions
that are in progress on the date hereof and the terms and conditions of which
are disclosed in Section 6.1 of the Company Disclosure Schedule;
(f) incur any Indebtedness or issue any debt securities or assume,
guarantee or endorse, or otherwise as an accommodation become responsible for,
the obligations of any Person (other than a wholly-owned Company Subsidiary) for
borrowed money, except for (i) Indebtedness incurred in the Ordinary Course of
Business, pursuant to existing credit lines disclosed in Section 6.1 of the
Company Disclosure Schedule, (ii) Indebtedness owing by any wholly-owned Company
Subsidiary to the Company or any other wholly-owned Company Subsidiary, (iii)
Indebtedness incurred with respect to acquisitions permitted pursuant to Section
6.1; and (iv) Indebtedness to pay the MIP Payment and any MIP-Related Taxes;
provided, that any such Indebtedness (including any related Taxes) described in
(iv) above shall be repaid at the Closing pursuant to Section 3.2.1(c).
(g) grant any Lien (other than a Permitted Lien) in any of its material
assets to secure any Indebtedness, except in connection with such Indebtedness
permitted under the preceding Section 6.1;
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(h) issue any debt securities or assume, endorse, or otherwise become
responsible for, the obligations of any Person, or make any loans or advances
(other than advances to employees in the Ordinary Course of Business);
(i) authorize, or make any commitment with respect to, any single
capital expenditure which is in excess of Twenty-Five Thousand Dollars ($25,000)
or capital expenditures which are, in the aggregate, in excess of Fifty Thousand
Dollars ($50,000) for the Company and the Company Subsidiaries taken as a whole
other than emergency repairs and repairs compelled by legal or safety
requirements, and the Company shall consult with Parent in respect of all such
items;
(j) enter into any new line of business outside of its Business;
(k) make investments in Persons other than wholly-owned Subsidiaries,
other than in the Ordinary Course of Business;
(l) except as set forth in Section 6.1 of the Company Disclosure
Schedule, adopt or amend any material Company Benefit Plan, increase in any
material manner the compensation or fringe benefits of any director, officer or
employee of the Company or pay any material benefit not provided for by any
existing Company Benefit Plan, in each case except (i) as reasonably necessary
to comply with Applicable Law, (ii) in the Ordinary Course of Business
(including without limitation to address the requirements of written agreements
or Contracts the Company and each Company Subsidiary has entered into as of the
date hereof), (iii) in connection with entering into, with respect to newly
hired employees, or extending with respect to existing employees, any employment
or other compensatory agreements with individuals or directors of the Company or
any Company Subsidiary and other executive personnel) in the Ordinary Course of
Business, and comparable to compensatory amounts for individuals of similar
responsibility in the Company, (iv) in connection with entering into the
retention agreements or programs specified in Section 6.1 of the Company
Disclosure Schedule, (v) general annual salary increases in the Ordinary Course
of Business and granted and effective not earlier than the dates the Company has
historically granted salary increases or (vi) the termination or amendment of
any Company Benefit Plan that may be subject to Code Section 409A consistent
with Code Section 409A and any guidance issued thereunder; provided, such
termination or amendment does not increase the Liability of Company or Parent
without the express written consent of Parent.
(m) except as otherwise contemplated by this Agreement, including
Sections 6.1, or as otherwise required by Applicable Law or Governmental
Authority, adopt or enter into a plan of complete or partial liquidation,
dissolution, merger, consolidation, restructuring, recapitalization or other
reorganization of the Company or any Company Subsidiary (other than the Merger);
(n) file any Tax Return taking a position inconsistent with the
Company's or any Company Subsidiaries' past practice, except as required by
Applicable Law; or
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(o) knowingly commit or agree to take any of the foregoing actions or
take or fail to take any action which would result in any representation or
warranty of the Company or the Principal Stockholders contained in this
Agreement which is qualified as to materiality (whether by reference to a
Material Adverse Effect or otherwise) becoming untrue as of the Effective Time,
or any representation or warranty not so qualified becoming untrue in any
material respect (whether by reference to a Material Adverse Effect or
otherwise) as of the Effective Time.
6.2 Stockholders' Approval. Subject to the conditions contained in Article
VII of this Agreement, the Company's Board of Directors shall recommend that the
Company Stockholders vote to approve the Merger and adopt this Agreement;
provided, however, that the Company's Board of Directors may change the Company
Recommendation in any manner if its recommendation of the Merger would be
reasonably likely to be inconsistent with the Company's Board of Directors'
fiduciary duties under Applicable Law, as concluded by the Company's Board of
Directors in good faith after consultation with its legal and financial
advisors. The Company shall take, as promptly as practicable after the date of
this Agreement, all action necessary in accordance with its certificate of
incorporation, by-laws and all Applicable Laws to cause the Company's
Stockholders to act on this Agreement.
6.3 No Control. Nothing contained in this Agreement shall give Parent or
Merger Sub, directly or indirectly, the right to control or direct the Company's
or any Company Subsidiary's operations prior to the Effective Time.
6.4 Irrevocable Consent. Immediately following the execution of the
Agreement, the Company shall use its best efforts to cause each of the Principal
Stockholders other than Granite to execute and deliver to the Company an
irrevocable consent substantially in the form of Exhibit E attached hereto (each
an "Irrevocable Consent"), wherein each such Person (i) approves and adopts of
this Agreement and (ii) agrees that it will not transfer (except for transfers
to Affiliates) or relinquish its right to vote any of its Equity Interest in the
Company prior to the earlier of the Effective Time or the termination of this
Agreement.
6.5 Access. From the date hereof until the Effective Time (upon reasonable
advance notice to the Company), so that an uninterrupted and efficient transfer
of the Business may be accomplished, the Company shall cause the officers,
directors, employees, auditors and agents of the Company to (i) afford the
officers, employees and authorized agents and representatives of Parent
reasonable access, during normal business hours, to the offices, properties,
books and records of the Company and Company Employees (ii) furnish to the
officers, employees and authorized agents and representatives of Parent such
available additional financial and operating data and other information
regarding the Company and Company Employees as Parent may from time to time
reasonably request; provided, however, that the Company shall not be required to
provide (or cause to be provided) any such information or access to the extent
that such information or access would cause the Company or any Company
Subsidiary to violate any Applicable Law, legal privilege or legal obligations,
including confidentiality restrictions, applicable to it; provided, further,
however, that the Company shall use its reasonable efforts to obtain any
necessary consents in order to provide Parent with any information or access
that the Company is not required to provide because of contractual restrictions
by which it is bound. All non-public or otherwise Confidential Information
regarding the Company and the Company Subsidiaries obtained by Parent or any
Representative of Parent pursuant to this Section 6.5 or Section 6.14 shall be
kept confidential by Parent in accordance with the provisions of the
Confidentiality Agreement.
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6.6 No Shop.
(a) From and after the date hereof until the Effective Time or the
earlier termination of this Agreement, neither the Company (and the Company
shall cause each Representative of the Company not to), nor any Principal
Stockholder nor any other Company Stockholder shall directly or indirectly,
encourage, solicit, initiate or otherwise engage in discussions or negotiations
with, or provide any information to, any Person (other than Parent, Merger Sub
and their Affiliates, Representatives and assignees) concerning any proposal
concerning the merger, consolidation, sale of Equity Interests in or a
substantial amount of the assets of the Company. Each Principal Stockholder and
the Company hereby agrees that it will promptly advise Parent and Merger Sub of
any such proposal, including the identity of the Person making such proposal and
the nature and terms thereof.
(b) Notwithstanding anything to the contrary contained herein, neither
the Company, the Board of Directors of the Company (or any committee thereof),
nor any Company Stockholder nor any of their Representatives shall be
prohibited, during the Twenty Day Period (as defined below) from (i) responding
to any Person that has made an unsolicited bona fide written Takeover Proposal
(which did not result from a breach of this Section 6.6) after the date hereof
that has not been withdrawn (a "Potential Acquiror") for the sole purpose of
clarifying such proposal and any material contingencies and the capability of
consummation; or (ii) furnishing information to, or entering into discussions or
negotiations with any such Potential Acquiror if, and only if, in either case,
(x) the Board of Directors of the Company, after consultation with its outside
counsel, has, within two (2) Business Days after receiving such unsolicited
Takeover Proposal, determined in good faith that the failure to cause the
Company to take such action would be inconsistent with its fiduciary duties
under Applicable Law and in the case of clause (ii) above, (y) the Company first
enters into a confidentiality agreement with the Potential Acquiror on terms no
less favorable to Company than the Confidentiality Agreement (an "Acceptable
Confidentiality Agreement") and provides a copy thereof to Parent. For purposes
hereof, the "Twenty Day Period" shall mean that period of time commencing on the
date that the Company receives an unsolicited bona fide written Takeover
Proposal as provided above, and continuing until the earlier of (A) twenty (20)
days thereafter or (B) all of the conditions to Closing set forth in Article VII
have been met or waived in writing by the Party for whose benefit such
conditions exist.
(c) The Company (i) will promptly (but in any event within three (3)
calendar days) notify Parent orally and in writing of the receipt of any
Takeover Proposal or any inquiry by which a Potential Acquiror expresses an
interest or intention to make a Takeover Proposal, including any request for
non-public information, the terms and conditions of such request, Takeover
Proposal or inquiry and the identity of the Potential Acquiror making such
request, Takeover Proposal or inquiry and (ii) will keep Parent fully informed
of the status and details (including amendments and proposed amendments) of any
such request, Takeover Proposal or inquiry.
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(d) Upon breach of any provisions of this Section 6.6, in addition to
any other remedy to which Parent and Merger Sub may be entitled to at law or in
equity, Parent shall be entitled to injunctive relief since the remedy at law
would be inadequate and insufficient.
6.7 Cooperation; Reasonable Best Efforts.
6.7.1 Subject to the terms and conditions of this Agreement, and except
as otherwise specifically provided in Section 6.8, each of the Parties shall use
its commercially reasonable best efforts to take, or cause to be taken, all
actions, and to do, or cause to be done, and to assist and cooperate with the
other Parties in doing, all things necessary, proper or advisable under
Applicable Laws to consummate and make effective, in the most expeditious manner
practicable, the transactions provided for in this Agreement, including (i)
preparing and filing, as soon as practicable, all forms, registrations and
notices required to be filed to consummate the transactions contemplated by this
Agreement and the taking of all such actions as are necessary to obtain any
requisite Licenses, approvals (including the approval of the change of control
of the CLEC Licenses), consents, Governmental Orders, exemptions or waivers by,
or to avoid an action or proceeding by, any Third Party or Governmental
Authority, including filings pursuant to the HSR Act, with the United States
Federal Trade Commission and the Antitrust Division of the United States
Department of Justice (and the preparation and filing, as soon as practicable,
of any form or report required by any other Governmental Authority, relating to
antitrust, competition, trade or other regulatory matters), (ii) causing the
satisfaction of all conditions set forth in Article VII (including the prompt
termination of any waiting period under the HSR Act (including any extension of
the initial thirty (30) day waiting period thereunder)), (iii) defending all
lawsuits or other legal, regulatory or other proceedings to which it is a party
that challenge or affect this Agreement or the consummation of the transactions
contemplated by this Agreement and (iv) having lifted or rescinded any
injunction or restraining order or other Governmental Order which may adversely
affect the ability of the Parties to consummate the transactions contemplated by
this Agreement.
6.7.2 The Company and Parent shall have the right to review in advance,
and to the extent reasonably practicable (and permitted by Applicable Law) each
will consult the other on, all the information relating to the other and each of
their respective Subsidiaries and Affiliates, if applicable, that appears in any
filing made with, or written materials submitted to, any Third Party or any
Governmental Authority in connection with the Merger.
6.7.3 Each Party shall promptly inform the others of any communication
from any Governmental Authority regarding any of the transactions contemplated
by this Agreement and keep the others informed of the status of the proceedings
related to obtaining any approvals of any Governmental Authority or Third Party
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or other Person (including with respect to the termination or expiration of any
waiting period). To the greatest extent practicable, each Party shall consult
with the others in advance of any meeting or conference with a Governmental
Authority or, in connection with any proceeding by a Third Party or other
Person, with any other Person, relating to this Agreement and the transactions
contemplated hereby and, to the extent permitted by such applicable Governmental
Authority or other Person, give the other Parties the opportunity to attend and
participate in such meetings and conferences. If any Party receives a request
for additional information or documentary material from any such Governmental
Authority or other Person with respect to the transactions provided for in this
Agreement, then such Party will endeavor in good faith to make, or cause to be
made, as soon as reasonably practicable and after consultation with the other
Party, an appropriate response in compliance with such request.
6.8 HSR Act. The Parties shall, as promptly as practicable, prepare and
file any notifications required under the HSR Act with respect to the
transactions contemplated hereby. The Parties shall enter into good faith
negotiations regarding how, in the best interests of both Parties, to respond to
any inquiries or requests received from the Federal Trade Commission or the
Department of Justice for additional information or documentation in connection
with antitrust or related matters. Each Party shall (A) give the other Parties
notice of the commencement or threat of commencement of any legal proceeding by
or before any court or Governmental Authority with respect to the Merger or any
of the other transactions contemplated by this Agreement, (B) keep the other
Parties informed as to the status of any such legal proceeding or threat, and
(C) inform the other Parties of any communication to or from the Federal Trade
Commission, the Department of Justice or any other Governmental Authority
regarding the Merger. Except as may be (i) prohibited by any Governmental
Authority or by any Applicable Law or (ii) necessary in order to protect the
confidential information of Parent, Parent, on the one hand, and the Company, on
the other hand, will (1) consult and cooperate with one another, and will
consider in good faith the views of one another, in connection with any
analysis, appearance, presentation, memorandum, brief, argument, opinion or
proposal made or submitted in connection with any legal proceeding under or
relating to the HSR Act and (2) will permit authorized Representatives of the
other to be present at each meeting or conference relating to any such legal
proceeding to and be consulted in connection with any document, opinion or
proposal made or submitted to any Governmental Authority in connection with any
such legal proceeding. The foregoing notwithstanding, Parent shall have no
obligation to agree to any request or demand for action or inaction, or any
other proposal, made by any antitrust regulatory agency as a condition for any
antitrust related approval of the transaction, or any combination thereof, if
the action or inaction requested or demanded could, in the reasonable discretion
of Parent, impact its ability to enjoy all of the anticipated synergies,
efficiencies and/or profitability of the proposed transaction.
6.9 Certain Notices.
(a) From and after the date of this Agreement until the Effective Time,
each Party hereto shall promptly notify the other Party of (i) the occurrence,
or non-occurrence, of any event that would be likely to cause any condition to
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the obligations of any Party to effect the Merger and the other transactions
provided for in this Agreement not to be satisfied, (ii) the failure of the
Company, Merger Sub or Parent, as the case may be, to comply with or satisfy any
covenant, condition or agreement to be complied with or satisfied by it pursuant
to this Agreement which would reasonably be expected to result in any condition
to the obligations of any Party to effect the Merger and the other transactions
provided for in this Agreement not to be satisfied or (iii) any matter hereafter
arising or discovered that, if existing or known at the date hereof, would have
been required to be set forth or described in a Disclosure Schedule on the date
hereof or would have caused the representations and warranties of such Party
made pursuant to this Agreement not to be true, correct and complete as of the
date hereof or the date on which such matters arose or were discovered;
provided, however, that the delivery of any notice pursuant to this Section 6.9
shall not cure any breach of any representation or warranty requiring disclosure
of such matter at or prior to the execution of this Agreement or otherwise limit
or affect the remedies available hereunder to the Party receiving such notice.
(b) After the date of this Agreement and prior to Closing, the Company
shall have notified the PUC of the State of California, and taken all necessary
actions required under Applicable Laws in order to terminate the CLEC License of
the Company in such State and the associated authority to conduct its business
as a CLEC.
(c) After the date of this Agreement and prior to Closing, the Company
shall have notified the PUC of the State of Ohio, and taken all necessary
actions required under Applicable Laws in order to obtain consent from the Ohio
CPUC with regard to the change of control (as a result of the Merger) under the
Company's certificate of public convenience.
(d) To the extent permitted by Applicable Law, after the date of this
Agreement and prior to Closing, the Company shall notify Parent in writing on a
bi-weekly basis of any Customer Complaints classified by the Company in the
Ordinary Course of Business as "major" or "critical."
6.10 Public Announcements. Each of the Parties hereto agrees that, promptly
following the execution of this Agreement, Parent shall (a) issue or cause to be
issued a press release (which shall be mutually acceptable in form and substance
to the Company and the Parent) announcing the execution of this Agreement (the
"Press Release") and (b) file or cause to be filed a current report with the SEC
on Form 8-K attaching the Press Release as an exhibit. Thereafter, none of the
Parties shall (and each of the Parties shall cause its Representatives not to)
issue any press release or make any public announcement concerning this
Agreement or the transactions contemplated hereby without obtaining the prior
written approval of (i) the Company, in the event the disclosing Party is Parent
or Merger Sub or any of their respective Representatives, or (ii) Parent, in the
event the disclosing party is the Company, any Company Subsidiary or any of
their respective Representatives, or any Principal Stockholder, such consent not
to be unreasonably withheld or delayed; provided, however, that if a Party
determines, based upon advice of counsel, that disclosure is otherwise required
by Applicable Law or the rules or regulations of any stock exchange upon which
the securities of such Party is listed, such Party may make such disclosure to
the extent so required; provided, further, that such disclosure is made in
consultation with the other Parties to this Agreement. Notwithstanding anything
to the contrary in the foregoing, and Parent may file a copy of this Agreement
either as an exhibit to the Form 8-K described herein or to its next Form 10-Q.
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6.11 Termination of Company Contracts. The Contract Termination Escrow
Amount will be delivered to the Escrow Agent pursuant to Section 3.2.1(a) for
purposes of reimbursing Parent (or the Surviving Corporation, as applicable) for
the aggregate actual fees or termination charges incurred in connection with
terminating the Company Contracts listed in Section 6.11 of the Company
Disclosure Schedule. Parent will utilize its good faith efforts in negotiating
the termination of such Contracts to reduce the amount of termination or
cancellation charges incurred in connection with such terminations; provided,
notwithstanding anything to the contrary herein, Parent (or the Surviving
Corporation, as applicable) shall not be required to take any position in
connection with such negotiations which, in Parent's (or the Surviving
Corporation's, as applicable) reasonable discretion, would jeopardize its
relationship with the counterparty to any such Contract. To the extent that the
actual amount of fees or termination charges incurred in connection with the
termination of any of the Company Contracts listed in Section 6.11 of the
Company Disclosure Schedule is less than the amount set forth opposite such
Contract, any such difference shall be paid to the Company Stockholders, Option
Holders and the MIP Participants Pro Rata in accordance with Section 3.2.1(a)
promptly upon termination of such Contract but in no event later than 30
Business Days following such termination. None of the Company Stockholders,
Option Holders, MIP Participants or any other holder of Equity Interest or other
interests in the Company shall be liable for any amounts in excess of the
Contract Termination Escrow Amount and in no event shall Parent, Merger Sub or
the Surviving Corporation be entitled to reimbursement from any Company
Stockholder, Option Holder, MIP Participant or any other holder of Equity
Interest or other interests in the Company for any fees or termination charges
incurred in connection with termination of the Company Contracts listed in
Section 6.11 of the Company Disclosure Schedule, individually or in the
aggregate, in excess of the Contract Termination Escrow Amount.
6.12 Insurance Policies.
6.12.1 Prior to the Effective Time, the Company shall, at its cost,
acquire (pursuant to the terms therein) and fully pay for a six (6) year
"Run-Off Period" to provide extended coverage for all insureds and/or protected
persons currently covered under the following policies (complete and accurate
copies of which have heretofore been made available to Parent) in respect of
acts or omissions occurring at or prior to the Effective Time:
(a) the Westchester Fire Insurance Company Business and Management
Indemnity Policy #BMI20038261 (all coverage sections) (the "Westchester
Policy"); and
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(b) the U.S. Specialty Insurance Company Excess Indemnity Policy
#14-MGU-07-A13688 (the "U.S. Specialty Policy"); provided, that the limit of
liability of the insurer for this Run-Off Period shall be twice the limit of
liability set forth in Item 3 of the Declarations of the U.S. Specialty Policy.
(c) Prior to the Effective Time, the Company shall, at Parent's
election and cost, acquire (pursuant to the terms therein) an unlimited Extended
Reporting Period Endorsement to the existing St. Xxxx Travelers Insurance
Company CyberTech+ Policy #TT05800459, including CyberTech+ (i) Technology
Errors and Omissions Liability Protection, (ii) Network and Information Security
Liability Protection and (iii) Communications and Media Liability Protection
(the "CyberTech+ Policy") to provide extended coverage for all Insured Persons
in respect of acts or omissions occurring at or prior to the Effective Time. A
complete and accurate copy of the CyberTech+ Policy has heretofore been made
available to the Parent.
6.12.2 The premiums for the Run-Off Periods and Endorsements for (i) the
Westchester Policy, (ii) the U.S. Specialty Policy, and (iii) the CyberTech+
Policies (collectively, the "Applicable Policies") shall be prepaid in full at
the Effective Time and shall be non-cancelable; provided, that to the extent the
cost of such policies is to be borne by Parent as provided above, Parent has
paid for such policies. To the extent that the cost of the above Run-Off Periods
and Endorsements are borne by the Company, they shall be reflected on the
Company's income statement for the period ending immediately prior to the
Effective Time as an expense, and shall not be included in the determination of
Working Capital.
6.12.3 The rights of each Insured Person under Section 6.12.1 shall be in
lieu of any right such Person might have under the certificate of incorporation
and by-laws of the Company, the certificate of incorporation and the by-laws of
the Surviving Corporation or any comparable organizational documents of their
respective Subsidiaries, or under any agreement of any Insured Person with the
Company, the Surviving Corporation or any of their respective Subsidiaries.
6.12.4 The provisions of this Section 6.12 shall survive the consummation
of the Merger and are intended to be for the benefit of, and shall be
enforceable by, each of the Insured Persons, their respective heirs and
representatives.
6.13 State Takeover Statutes. Parent, the Company and their respective
Boards of Directors shall (i) take all reasonable action necessary to ensure
that no state takeover statute or similar statute or regulation is or becomes
applicable to this Agreement or the transactions provided for in this Agreement
and (ii) if any "fair price," "moratorium," "control share acquisition",
"business combination" or other similar anti-takeover statute or regulation is
or may become applicable to the Merger or the other transactions contemplated by
this Agreement, take all reasonable action necessary to ensure that the
transactions provided for herein may be consummated as promptly as practicable
on the terms contemplated by this Agreement and otherwise to minimize the effect
of such statute or regulation on this Agreement or the transactions provided for
in this Agreement. The Company shall, upon the request of Parent, take all
reasonable steps to assist in any challenge by Parent to the validity or
applicability to the transactions provided for herein, including the Merger, of
any state takeover law.
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6.14 Cooperation in Securing Financing. From the date of this Agreement
until the Closing Date, the Company shall, and shall cause each Company
Subsidiary to, provide all cooperation reasonably requested by Parent in
connection with obtaining the financing to consummate the transactions
contemplated by this Agreement in (i) supplying to any Institutional Lender all
agreements, documents, instruments, reports, financial information and
statements, and other information regarding the Company and the Company
Subsidiaries, the Company Properties, the Business and the other activities of
or related to any of the foregoing, (ii) attempting to respond to questions
raised by Institutional Lenders, and (iii) permitting access to the Company
Leased Properties during normal business hours and with reasonable notice, in
each case, subject to execution of a customary confidentiality agreement
reasonably acceptable to the Company. Parent shall, promptly upon request by the
Company, reimburse the Company for all reasonable out-of-pocket costs incurred
by the Company or the Company Subsidiaries in connection with such cooperation.
6.15 Further Assurances. Parent and the Company shall execute and deliver
such certificates and other documents and take such other actions as may
reasonably be requested by the other Party in order to consummate or implement
the transactions contemplated hereby; provided, however, that nothing in this
Section 6.15 shall require any Party hereto to waive any condition set forth in
Article VII.
6.16 Disbursement of Cash. Notwithstanding anything to the contrary
contained in this Agreement, prior to the Closing Date the Company and its
Subsidiaries shall have the right to distribute cash and to pay down any
Indebtedness of the Company.
6.17 Certain Actions in Respect of Company Stockholders and MIP
Participants.
6.17.1 Each of the Company and the Principal Stockholders shall use its
reasonable best efforts to obtain promptly after the date hereof a consent (the
"Additional Consent") from all Company Stockholders and MIP Participants, if
applicable, that have not theretofore executed and delivered the Irrevocable
Consent to the Company to the effect that each such Person (a) approves and
adopts this Agreement and (b) agrees that it will not transfer (except for
transfers to Affiliates) or relinquish its right to vote any of its Equity
Interest in the Company prior to the earlier of the Effective Time or the
termination of this Agreement.
6.17.2 To the extent that any Company Stockholder or MIP Participant who
executes and delivers an Additional Consent to the Company or any MIP
Participant is not a party to this Agreement, each of the Company and the
Principal Stockholders shall use its reasonable best efforts to cause such
Company Stockholder and MIP Participant to execute a joinder to this Agreement
(a "Joinder Agreement"), pursuant to which, among other things, such Company
Stockholder or MIP Participant, as the case may be, shall become a party to this
Agreement.
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6.17.3 By execution of this Agreement, an Additional Consent or a Joinder
Agreement containing the release set forth in this Section 6.17.3 (the
"Long-Form Joinder Agreement"), each Principal Stockholder, each MIP Participant
and each signatory to a Long-Form Joinder Agreement (in each case, for him, her
or itself and all of his, her or its heirs, beneficiaries, successors and
assigns and any other persons or entities claiming an interest, beneficial or
otherwise) (each, a "Releasor"), effective as of the Closing, hereby knowingly
and voluntarily, fully, finally and irrevocably remises, releases, acquits,
satisfies and forever discharges the Company (which for purposes of this Section
6.17.3 means the Company and its parent, affiliates, divisions, subsidiaries
and/or related business entities, shareholders, predecessors (including, without
limitation, Merger Sub), successors, each of its, and their respective
Subsidiaries and Affiliates, the Company Stockholders, the Board of Directors,
Parent and the Surviving Corporation, and each of their respective past, present
and future officers, directors, employees, agents, representatives,
administrators and attorneys, successors and assigns or any of them, from any
and all manner of debts, accountings, bonds, warranties, representations,
covenants, promises, contracts, agreements, controversies, Damages, judgments,
executions, actions, claims, demands, Liabilities (including, without
limitation, actions for contribution or indemnity (whether under the certificate
of incorporation or by-laws of the Company, any indemnification agreement or
otherwise), any decision or action taken by the Company under or pursuant to
this Agreement and, to the maximum extent such claims may lawfully be released,
any claim arising out of or related to Releasor's employment or separation from
employment with the Company, including, but not limited to, any claims for
wages, severance pay, bonuses, commissions, stock, stock options or accrued
vacation, and claims arising under Title VII of the Civil Rights Act of 1964,
the Civil Rights Act of 1991, the Age Discrimination in Employment Act, the
Americans with Disabilities Act, the Equal Pay Act, the Family and Medical Leave
Act, the Worker Adjustment and Retraining Notification Act, the New Jersey Law
Against Discrimination, the New Jersey Conscientious Employee Protection Act,
the North Carolina Equal Employment Practices Act, the New York Human Rights Law
and the New York City Administrative Code), obligations and causes of action of
any kind or nature whatsoever, whether at law or in equity, either now accrued
or hereafter maturing, which such Releasor now has or hereafter can, shall or
may have by reason of any matter, cause or thing, from the beginning of the
world to and including the Closing Date, whether known or unknown, but expressly
excluding (i) the claims of employees of the Company or any Company Subsidiary
for accrued and unpaid wages not to exceed those which would have been accrued
and unpaid pursuant to the Company or the Company Subsidiary's normal payroll
cycle, (ii) claims relating to such Releasor's right to receive the Merger
Consideration pursuant to the terms of this Agreement and (iii) if such Person
is an Insured Person, the rights under Section 6.12.1 (together, the "Released
Claims").
6.17.4 By execution of this Agreement, an Additional Consent or a Joinder
Agreement containing the release set forth in Section 6.17.4 (the "Short-Form
Joinder Agreement"), each Company Stockholder, other than the Principal
Stockholders, MIP Participants or signatories to a Long-Form Joinder Agreement
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(in each case, for him, her or itself and all of his, her or its heirs,
beneficiaries, successors and assigns and any other persons or entities claiming
an interest, beneficial or otherwise) (each, a "Stockholder Releasor"),
effective as of the Closing, hereby knowingly and voluntarily, fully, finally
and irrevocably remises, releases, acquits, satisfies and forever discharges the
Company (which for purposes of this Section 6.17.4 means the Company and its
parent, affiliates, divisions, subsidiaries and/or related business entities,
shareholders, predecessors (including, without limitation, Merger Sub),
successors, each of its, and their respective Subsidiaries and Affiliates, the
Company Stockholders, the Board of Directors, Parent and the Surviving
Corporation, and each of their respective past, present and future officers,
directors, employees, agents, representatives, administrators and attorneys,
successors and assigns or any of them, from any and all manner of debts,
accountings, bonds, warranties, representations, covenants, promises, contracts,
agreements, controversies, Damages, judgments, executions, actions, claims,
demands, Liabilities (including, without limitation, actions for contribution or
indemnity (whether under the certificate of incorporation or by-laws of the
Company, any indemnification agreement or otherwise), any decision or action
taken by the Company under or pursuant to this Agreement, obligations and causes
of action of any kind or nature whatsoever, whether at law or in equity, either
now accrued or hereafter maturing, which such Stockholder Releasor now has or
hereafter can, shall or may have by reason of any matter, cause or thing, from
the beginning of the world to and including the Closing Date, whether known or
unknown, but expressly excluding (i) the claims of employees of the Company or
any Company Subsidiary for accrued and unpaid wages not to exceed those which
would have been accrued and unpaid pursuant to the Company or the Company
Subsidiary's normal payroll cycle, (ii) claims relating to such Stockholder
Releasor's right to receive the Merger Consideration pursuant to the terms of
this Agreement and (iii) if such Person is an Insured Person, the rights under
Section 6.12.1 (together, the "Stockholder Released Claims").
6.17.5 As part of the release set forth in Section 6.17.3 or Section
6.17.4 above, Releasor or Stockholder Releasor hereby represents and warrants
that Releasor or Stockholder Releasor has not sold, assigned, granted, conveyed
or transferred to any individual, firm, corporation or entity any such
liabilities, obligations, claims, demands, rights of action, causes of action,
lawsuits, costs, attorneys fees', damages, losses or expenses, such that no
party other than Releasor or Stockholder Releasor possesses the power to grant
the full and final release granted in Section 6.17.3 or Section 6.17.4.
6.17.6 Each Releasor and each Stockholder Releasor further agrees never to
commence any suit, Action or other proceeding against the Company or any of the
Company Stockholders, the Board of Directors, Parent or the Surviving
Corporation and each of their respective past, present and future Subsidiaries
or Affiliates and each of their respective officers, directors, employees,
agents, representatives, administrators and attorneys, successors and assigns or
any of them with respect to any such Released Claim or Stockholder Released
Claim, as the case may be.
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6.18 Disclosure. Each Party shall promptly notify the other Parties in
writing with respect to any matters hereafter arising or discovered that, if
existing or known on the date hereof, would, in the case of the Company and the
Principal Stockholders, have been required to be set forth or described in the
Company Disclosure Schedule on the date hereof or for any Party would cause the
representations and warranties of such Party made pursuant to this Agreement not
to be true, correct and complete as of the date hereof or the date on which such
matters arose or were discovered. Without limiting the generality of the
foregoing the Company shall promptly notify Parent of the occurrence of any
event or circumstance that, although not resulting in a breach of any of the
Company's representations and warranties hereunder made as of the date hereof,
would have resulted in such representation or warranty not being true if such
representation or warranty were made as of a subsequent date. For the avoidance
of doubt, any notice in accordance with the immediately preceding sentence shall
not affect the rights of Parent to indemnification under Article IX hereof.
6.19 Duty to Assume, Defend and Indemnify.
(a) Notwithstanding anything in this Agreement to the contrary, the
Principal Stockholders shall be fully responsible, without limitation of time or
amount, for any Damages from (i) any Company Stockholder, Option Holder or
Warrant Holder, (ii) any former Company Stockholder, Option Holder or Warrant
Holder and (iii) and any Person having an Equity Interest or claim to any Equity
Interest in the Company prior to the Merger, based upon, arising out of,
relating to or in connection with the consummation of the Merger, including the
payment (or non-payment) of the Merger Consideration or the allocation thereof
or any Action for appraisal brought by any Dissenting Stockholder pursuant to
Section 262 of the DGCL (any of the foregoing, a "Stockholder Claim"); provided,
that: (A) the Principal Stockholders' obligations pursuant to this Section 6.19
shall apply only to claims brought by any current or former Company Stockholder,
Option Holder, Warrant Holder and any other holder of an Equity Interest in the
Company solely in his or her capacity as such, and not to claims brought (1) by
any employee of the Company or any Company Subsidiary solely in his or her
capacity as such, (2) by any party whose claim arises solely because of the
failure of Parent to deliver all or any portion of the Merger Consideration, (3)
under any Contract or other agreement of the Company or any Company Subsidiary
or (4) by an indemnified party whose claim is covered under Article IX of this
Agreement, and (B) in no event shall any Principal Stockholder be liable for any
amount in excess of the aggregate Merger Consideration actually received by such
Principal Stockholder. Upon receipt of notification that any Person has made a
Stockholder Claim, the Principal Stockholders shall severally (with respect to
each Principal Stockholder, up to the full amount of Merger Consideration
received by such Principal Stockholder), but not jointly, assume the entire
responsibility and liability on behalf of the Company, Parent, Merger Sub and
the Surviving Corporation, and each of their respective past, present and future
officers, directors, employees, successors and assigns or any of them, and shall
conduct with due diligence and in good faith the defense of such Stockholder
Claim, represented by counsel of its/their choice, which must be reasonably
satisfactory to Parent, and shall defend against, negotiate, settle or otherwise
deal with any such Stockholder Claim; provided, that Parent shall have the
right, at Parent's expense, to be represented therein by advisory counsel of its
own selection.
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(b) Parent agrees to provide reasonable cooperation to the Principal
Stockholders in connection with the defense, negotiation or settlement of any
Stockholder Claim, including providing access to any of the books and records of
the Company which existed prior to the Effective Time which are in Parent's (or
the Surviving Corporation's) possession.
(c) If any Stockholder Claim arises as to which any obligation of the
Principal Stockholders provided for in this Section 6.19 may apply, and the
Principal Stockholders fail to assume the defense of such claim within ten (10)
Business Days after the receipt by the Principal Stockholders of a notice of
such a Stockholder Claim, then Parent shall be entitled to proceed under and
pursuant to the procedures set forth in Section 9.6 of this Agreement and shall
be entitled to reimbursement of any costs and expenses in connection therewith
from the Indemnification Escrow Amount; provided, that if Parent is so
reimbursed, the Principal Stockholders shall be liable to Parent for any
shortfall in the Indemnification Escrow Amount for Damages recoverable under
Article IX which arises as a result of Parent's reimbursement under this Section
6.19(c) (up to the Indemnification Escrow Amount).
(d) For purposes of this Section 6.19, each Principal Stockholder
irrevocably: (i) submits to jurisdiction of the courts of any State of the
United States where such Action may be pending, (ii) waives any objection which
it may have at any time to the laying of venue of any such Action brought in any
such court, (iii) waives any claim that such Action has been brought in an
inconvenient forum, and (iv) further waives the right to object, with respect to
such Action, that such court does not have any jurisdiction over such Principal
Stockholder. For purposes hereof, each Principal Stockholder hereby appoints the
Equityholder Representative as its agent for service of process.
(e) Each Company Stockholder and MIP Participant (each "Contributor")
agrees to contribute to any payments made in connection with this Section 6.19
and Article IX (to the extent not paid from the Indemnification Escrow Amount)
such proportion of any such payments to reflect such Contributor's pro rata
share of the Merger Consideration as set forth on the Allocation Spreadsheet.
Notwithstanding the provisions of this Section 6.19(e), no Contributor shall be
required to contribute any amount in excess of the aggregate Merger
Consideration actually received by such Contributor.
6.20 MIP Tax Benefit.
(a) Between the date of this Agreement and the Closing Date, the
Company shall use its reasonable best efforts to cause the MIP Payment Amount to
come within the exemption provided by Treasury Regulation ss.1.280G-1,
Q&A-6(a)(2), such that such payments are not excess parachute payments within
the meaning of Section 280G of the Code. The Company shall provide Parent copies
of any documentation reasonably requested by Parent to ensure that the Company
has complied with the provisions of Section 3.1.3 and this Section 6.20.
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(b) If and to the extent that Parent (or the Surviving Corporation, as
applicable) elects, in its sole and absolute discretion, to obtain any tax
benefit in connection with the MIP Payment Amount, then, within sixty (60) days
after filing such Tax Return, Parent (or the Surviving Corporation, as
applicable) shall pay (the "Tax Benefit Payment") forty percent (40%) of the
Realized Tax Benefit to the Company Stockholders, Option Holders and the MIP
Participants Pro Rata. The "Realized Tax Benefit" in any year in which a tax
deduction relating to the MIP Payment Amount is deducted will equal the amount
by which the aggregate tax liability (including any alternative minimum taxes)
of Parent (or the Surviving Corporation, if not consolidated with Parent)
determined as if the MIP Payment Amount were not deductible by the Company
exceeds the aggregate tax liability of Parent (including any alternative minimum
taxes) on the tax returns actually filed by Parent (or the Surviving
Corporation, if not consolidated with Parent) taking into account, in each case,
any adjustments to the tax deduction relating to the MIP Payment Amount
subsequently made by any Governmental Authority. If any Tax Benefit Payment is
made and it is subsequently finally determined by a Governmental Authority that
the available deduction relating to the MIP Payment Amount is less than the
amount claimed (an "Audit Adjustment"), then forty percent (40%) of the
reduction in the Realized Tax Benefit for each year in which a Tax Benefit
Payment has been made arising from such Audit Adjustment, together with forty
percent (40%) of any interest and penalties paid to such Governmental Authority
as a result of such Audit Adjustment, shall be offset against any future Tax
Benefit Payments.
(c) For a period of six (6) years after the Closing, Parent shall
provide the Equityholder Representative and any other Principal Stockholder who
so requests, access to review those portions of any Tax Returns or other
documentation of Parent or the Surviving Corporation to the extent necessary to
verify any utilization of any net operating loss deductions which are directly
related to the MIP Payment Amount as described in (b) above, including the
calculation of any Realized Tax Benefit.
6.21 Contract Buy-Out. Prior to the Closing, the Company shall, at Parent's
request and sole expense (provided that such expenses are approved in advance by
Parent), enter into good faith negotiations to terminate the payment obligations
of the Company pursuant to the Contract identified in Section 6.21 of the
Company Disclosure Schedule; provided, that the terms of any agreement reached
with respect thereto, including any buy-out or cancellation charges in
connection therewith, shall be subject to the prior written consent of Parent.
6.22 Bring-Down Letters. The Company will use its reasonable best efforts,
at Parent's sole expense, to cause each of the law firms listed in Section 6.22
of the Parent Disclosure Schedule to deliver executed copies of the information
request letters in a form reasonably acceptable to Parent.
6.23 Revenue. The monthly revenue in 2007 resulting from the Contract listed
in Section 6.23 of the Company Disclosure Schedule shall not exceed the amounts
set forth in such Section 6.23 of the Company Disclosure Schedule.
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6.24 Consent. The Company shall use its commercially reasonable best efforts
to obtain the required consent pursuant to the contract listed in Section 6.24
of the Company Disclosure Schedule.
6.25 Qualification. The Company shall use its best efforts to cause each of
the Company and the Company Subsidiaries to be in good standing under the laws
of its respective state of incorporation and in all jurisdictions set forth in
Section 4.1.2 of the Company Disclosure Schedule, to the extent that such
concept is applicable in the particular jurisdiction.
6.26 Customers. Subject to Applicable Law, promptly after the date hereof
the Company shall arrange meetings between Customers designated by Parent and
representatives of Parent and the Company to discuss the contemplated
transaction and its potential advantages to such Customers; provided that in no
event shall Parent or Merger Sub or their respective Representatives contact,
directly or indirectly, or meet with, any Customers without the Company's prior
written consent, which shall not be unreasonably withheld or delayed; provided,
further, that such consent of the Company shall not be required if Customer is a
customer of Parent or has been solicited during the past twelve months to become
a customer of Parent and provided, further, that any such meetings shall not
involve discussions as to pricing or other competitively sensitive information.
6.27 Exchange of Advice. The Company and Parent will promptly advise each
other of the occurrence of any events set forth in Section 6.27 of the Company
Disclosure Schedule.
ARTICLE VII
CLOSING CONDITIONS
7.1 Conditions to Obligations of Each Party Under This Agreement. The
respective obligations of each Party to effect the Merger and the other
transactions contemplated herein shall be subject to the satisfaction, or
waiver, at or prior to the Closing Date of the following conditions:
(a) The Stockholder Approval shall have been obtained.
(b) All Licenses and other approvals of Governmental Authorities set
forth on Exhibit G shall have been obtained or made and none shall have been
suspended, revoked or terminated, nor shall any action or proceeding as to such
License or approval be pending or, to the Knowledge of the Company, threatened,
and all applicable waiting periods under the HSR Act shall have expired or been
terminated.
(c) No Applicable Law or Governmental Order issued by any court of
competent jurisdiction or other Governmental Authority or other legal restraint
or prohibition prohibiting the consummation of the Merger shall be in effect;
provided, however, that each of the Parties shall have used its commercially
reasonable best efforts to resist, resolve or lift, as applicable, any such
Governmental Order and shall have complied in all material respects with its
obligations under Sections 6.7 and 6.8.
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7.2 Additional Conditions to Obligations of Parent and Merger Sub. The
obligations of Parent and Merger Sub to effect the Merger and the other
transactions contemplated herein are also subject to the following conditions,
any one or more of which may be waived in writing by Parent:
(a) The representations and warranties of the Company and the Principal
Stockholders set forth in this Agreement shall be true and correct as of the
Effective Time as if made at and as of the Effective Time (except for those
representations and warranties which address matters only as of an earlier date
which shall have been true and correct as of such earlier date), disregarding
for these purposes any exception in such representations and warranties relating
to materiality or a Material Adverse Effect, except for such failures to be true
and correct which, individually or in the aggregate, do not result in a Material
Adverse Effect; provided, however, that this exception does not limit the
requirement that the other conditions in Section 7.2 be satisfied.
(b) The Company, the Company Subsidiaries and the Principal
Stockholders shall have performed or complied in all material respects with all
agreements and covenants required by this Agreement to be performed or complied
with by them on or prior to the Effective Time.
(c) The Principal Stockholders and the Company shall have delivered to
Parent:
(i) a certificate from each Principal Stockholder in form and
substance reasonably acceptable to Parent, to the effect that the conditions set
forth in Sections 7.2(a) and 7.2(b) have been satisfied;
(ii) a certificate of an executive officer of the Company in form
and substance reasonably acceptable to Parent, to the effect that the conditions
set forth in Sections 7.2(a) and 7.2(b) have been satisfied;
(iii) a certificate in form and substance reasonably acceptable to
Parent from each Person of the Company with Knowledge identified in Section
1.1(b) of the Company Disclosure Schedule to the effect that, to such Person's
knowledge, the condition set forth in Section 7.2(a) has been satisfied by the
Company;
(iv) a certificate by the Secretary or Assistant Secretary (or
comparable officer) of the Company and each Principal Stockholder as to the
incumbency and authority of each Person executing this Agreement and any
document executed and delivered by or on behalf of each of them, and setting
forth and certifying the resolutions of the Board of Directors (or comparable
governing body) of the Company and the Principal Stockholders, authorizing or
ratifying, as the case may be, and approving the execution and delivery of this
Agreement and the consummation of the transactions contemplated hereby;
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(v) copies of the certificates of incorporation, articles of
incorporation or comparable organizational documents and by-laws of each of the
Company and each Company Subsidiary, each certified by the Secretary or
Assistant Secretary thereof;
(vi) a legal opinion in the form set forth in Section 7.2(c)(vi) of
the Company Disclosure Schedule, from legal counsel to the Company identified
therein;
(vii) written resignations of each of the directors and officers of
each Company Subsidiary, which resignations shall be dated and take effect
contemporaneously with the Effective Time;
(viii) the Escrow Agreement, duly executed by the Equityholder
Representative; and
(ix) copies of the extended reporting period policy endorsements
and any other insurance documents obtained by the Company prior to the Effective
Time in accordance with the provisions of Section 6.12.1, showing, as
applicable, that such policies are non-cancelable and have been paid for in
full;
(x) a final version of the Allocation Spreadsheet, as prepared by
the Equityholder Representative pursuant to Section 3.1.1(b); and
(xi) an executed Additional Consent, and Joinder Agreement from
each MIP Participant who received any portion of the MIP Payment as provided in
Section 3.1.3.
(d) Parent shall have received evidence, in form and substance
reasonably satisfactory to Parent, that all Indebtedness of the Company, except
for the European Indebtedness and that Indebtedness set forth in Section
3.2.1(c) of the Company Disclosure Schedule, and Liens securing such
Indebtedness shall be paid off and released at the Effective Time.
(e) Parent shall have received, in form and substance reasonably
acceptable to Parent, (1) evidence of the termination of that certain Amended
and Restated Employment Agreement between the Company and Xxxx XxXxxxxx, dated
as of April 20, 2006, as amended by that certain Amendment No. 1 to the
Employment Agreement, dated February 12, 2007 and (2) a non-compete agreement
from Xxxx XxXxxxxx with respect to the business of Parent.
(f) The Company shall:
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(i) have taken all appropriate action to amend all of the Company
Benefit Plans to cause their form to be updated for compliance with all
Applicable Law through the Closing Date;
(ii) unless otherwise directed by Parent not later than three (3)
days prior to the Closing, have taken all appropriate action to terminate all
Company Benefit Plans pursuant to the terms thereof, such termination to be
effective immediately prior to and contingent upon the Closing, provided that
any payment to be made as a result of such plan termination which is
nonqualified deferred compensation subject to Section 409A of the Code shall not
be made;
(iii) have delivered to the Parent and the Merger Sub a certificate
of an executive officer of the Company in form and substance reasonably
acceptable to Parent, to the effect that the conditions set forth in Sections
7.2(f)(i), (ii) and (iv) have been satisfied, together with copies of executed
and adopted documentation (including resolutions of the board of directors of
the Company reasonably acceptable to Parent) to effect the actions required in
Sections 7.2(f)(i), (ii) and (iv); and
(iv) five (5) days prior to the Closing Date, have provided to the
Parent an Internal Revenue Service Form 5310 and applicable schedules, which are
complete with all information known at that time (including any plan or trust
amendments and termination documentation necessary or appropriate in connection
with the obligations in Sections 7.2(f)(i) and (ii)), required to submit an
application for a determination on the tax qualification of the Company's 401(k)
plan and trust (the "401(k) Plan") as so amended and terminated in a form
reasonably satisfactory to the Parent.
(g) The Company shall have notified the PUC of the State of California,
and taken all necessary actions required under Applicable Laws in order to
terminate the CLEC License of the Company in such State and the associated
authority to conduct its business as a CLEC.
(h) The Company shall have notified the PUC of the State of Ohio, and
taken all necessary actions required under Applicable Laws in order to obtain
consent from the Ohio CPUC for the change of control under the Company's
certificate of public convenience.
7.3 Additional Conditions to Obligations of the Company and the Principal
Stockholders. The obligation of the Company and the Principal Stockholders to
effect the Merger and the other transactions contemplated herein are also
subject to the following conditions, any one of which may be waived in writing
by the Company:
(a) The representations and warranties of Parent and Merger Sub set
forth in this Agreement shall be true and correct as of the Effective Time as if
made at and as of the Effective Time, disregarding for these purposes any
exception in such representations and warranties relating to materiality, except
for such failures to be true and correct which, individually or in the
aggregate, do not have a material adverse effect on the ability of Parent or
Merger Sub to perform its obligations hereunder or which would not prevent or
materially impede, interfere with, hinder or delay the consummation of the
Merger.
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(b) Parent and Merger Sub shall have performed or complied in all
material respects with all agreements and covenants required by this Agreement
to be performed or complied with by Parent and/or Merger Sub on or prior to the
Effective Time.
(c) Persons due no more than five percent (5%) of the Merger
Consideration shall have perfected appraisal rights under Section 262 of the
DGCL.
(d) No Stockholder Claim shall have been initiated.
(e) Persons entitled to at least ninety-five percent (95)% of the Net
Cash Consideration shall have executed this Agreement or a Joinder Agreement.
(f) Parent and Merger Sub shall have delivered to the Company:
(i) a certificate of an executive officer of each of Parent and
Merger Sub in form and substance reasonably acceptable to the Company, to the
effect that the conditions set forth in Sections 7.3(a) and 7.3(b) have been
satisfied;
(ii) a certificate by the Secretary or Assistant Secretary of
Parent and of Merger Sub as to the incumbency and authority of each Person
executing this Agreement and any document executed and delivered by or on behalf
of each of them, and setting forth and certifying the resolutions of the manager
of Parent and the Board of Directors of Merger Sub, authorizing or ratifying, as
the case may be, and approving the execution and delivery of this Agreement and
the consummation of the transactions contemplated hereby;
(iii) copies of the certificate of formation, certificate of
incorporation, operating agreement, by-laws or comparable organizational
documents of each of Parent and Merger Sub, each certified by the Secretary or
Assistant Secretary thereof;
(iv) a legal opinion of Xxxxxxxx Xxxxxxx LLP, counsel to Parent and
Merger Sub, in the form of Exhibit F attached hereto; and
(v) the Escrow Agreement, duly executed by Parent.
ARTICLE VIII
TERMINATION, AMENDMENT AND WAIVER
8.1 Termination. This Agreement may be terminated, and the Merger
contemplated hereby may be abandoned, at any time prior to the Effective Time,
by action taken or authorized by the Board of Directors of the terminating Party
or Parties, whether before or after the Stockholder Approval:
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(a) By mutual written consent of Parent and the Company;
(b) by either Parent or the Company:
(i) if the Merger shall not have been consummated by January 31,
2008 (the "Termination Date"); provided, however, that the right to terminate
this Agreement under this Section 8.1(b)(i) shall not be available to any Party
whose breach of any provision of this Agreement has been the cause of, or
resulted in, the failure of the Merger to occur on or before the Termination
Date; provided, further, that the Company or the Parent shall have the right to
extend the Termination Date for up to ninety (90) days solely for the purpose of
securing Government Approvals to satisfy the condition of Section 7.1(b); or
(ii) if there shall be (A) any Applicable Law that makes
consummation of the Merger illegal or otherwise prohibited or (B) any
Governmental Order of any Governmental Authority having competent jurisdiction
permanently restraining, enjoining or otherwise prohibiting the Company, Parent
or Merger Sub from consummating the Merger which such Governmental Order has
become final and nonappealable;
(c) by the Company, if (x) Parent or Merger Sub shall have breached any
of the covenants or agreements contained in this Agreement to be complied with
by Parent or Merger Sub such that the condition set forth in Section 7.3(b)
would not be satisfied, (y) there exists a breach of any representation or
warranty of Parent or Merger Sub contained in this Agreement such that the
condition set forth in Section 7.3(a) would not be satisfied and, in the case of
(x) or (y), such breach is incapable of being cured by the Termination Date or
is not cured by Parent or Merger Sub, as applicable, within twenty (20) Business
Days after Parent or Merger Sub receives written notice of such breach from the
Company.
(d) by Parent, if (x) the Company shall have breached any of the
covenants or agreements contained in this Agreement to be complied with by the
Company such that the condition set forth in Section 7.2(b) would not be
satisfied or (y) there exists a breach of any representation or warranty of the
Company contained in this Agreement such that the condition set forth in Section
7.2(a) would not be satisfied, and, in the case of either (x) or (y), such
breach is incapable of being cured by the Termination Date or is not cured by
the Company within twenty (20) Business Days after the Company receives written
notice of such breach from Parent or Merger Sub.
8.2 Effect of Termination. Except as otherwise set forth in this Section
8.2, in the event of a termination of this Agreement by either the Company or
Parent as provided in Section 8.1, this Agreement shall forthwith become void
and there shall be no liability or obligation on the part of Parent, Merger Sub
or the Company or their respective officers or directors; provided, however,
that (i) the provisions of this Section 8.2, and Sections 8.3, 8.4, Article IX,
Article XI and the Confidentiality Agreement shall remain in full force and
effect and survive any termination of this Agreement and (ii) no Party shall be
relieved or released from any liabilities or damages arising out of its willful
and material breach of any provision of this Agreement. In no event shall any
Party be liable for punitive damages.
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8.3 Fees and Expenses. Except as otherwise expressly set forth in this
Agreement, all fees and expenses incurred in connection herewith and the
transactions contemplated hereby shall be paid by the Party incurring such
expenses, whether or not the Merger is consummated, except that each of Parent
and the Company shall bear and pay fifty percent (50%) of the HSR Act filing
fees payable to Governmental Authorities.
8.4 Extension; Waiver. At any time prior to the Effective Time, Parent and
the Equityholder Representative may, to the extent permitted by Applicable Law,
subject to Section 8.5, (i) extend the time for the performance of any of the
obligations or other acts of the other Parties, (ii) waive any inaccuracies in
the representations and warranties contained herein or in any document delivered
pursuant hereto, or (iii) waive compliance with any of the agreements or
conditions contained herein; provided, however, that after any approval of this
Agreement by the Company Stockholders, there may not be any extension or waiver
of this Agreement which decreases the Merger Consideration or which adversely
affects the rights of the Company Stockholders hereunder without the approval of
such Company Stockholders. Any agreement on the part of a Party to any such
extension or waiver shall be valid only if set forth in a written instrument
signed on behalf of such Party. The failure of any Party to assert any of its
rights under this Agreement or otherwise shall not constitute a waiver of those
rights.
8.5 Amendment. This Agreement may be amended by the Parties by action taken
by or on behalf of their respective Boards of Directors at any time prior to the
Effective Time; provided, however, that, after approval of the Agreement by the
stockholders of the Company, no amendment may be made without further
stockholder approval which, by Applicable Law, requires further approval by such
stockholders. This Agreement may not be amended except by an instrument in
writing signed by the Parties.
ARTICLE IX
SURVIVAL; INDEMNIFICATION
9.1 Survival. The representations and warranties contained in Article IV
and Article V shall survive the Closing and expire on January 31, 2009. The
covenants and agreements of the Parties shall survive in accordance with their
terms.
9.2 Indemnification by the Company Stockholders. Subject to the limitations
set forth in Section 9.5 below, each Company Stockholder (including, for the
avoidance of doubt, the Principal Stockholders) shall indemnify, defend and hold
Parent and the Surviving Corporation harmless from and against any and all
Liabilities, debts, obligations, losses, damages, actions, suits, proceedings,
demands, assessments, Taxes, out-of-pocket costs or other expenses out-of-pocket
(including attorneys and consultants' fees and disbursements) (collectively,
"Damages") which either Parent or the Surviving Corporation, or any stockholder,
director, officer, employee or agent of either of them (collectively, the
"Parent Indemnitees") may suffer or incur, based upon or resulting from:
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(a) any breach of any representation or warranty made by the Company or
any Principal Stockholder in Article IV;
(b) any failure of the Company or any Principal Stockholder to perform
or to comply with any covenant or condition required to be performed by, or
complied with, the Company or the Principal Stockholders hereunder; or
(c) any Damages resulting from the claim set forth in Section 9.2(c) of
the Company Disclosure Schedule, but only to the extent that either Parent or
the Surviving Corporation are not otherwise indemnified for such Damages (the
"Grant Damages"); provided that (1) the Company Stockholders shall have no
liability for Grant Damages until the total of all Grant Damages exceeds
$331,000, and then only for the amount by which such Grant Damages exceed
$331,000 and (2) in no event shall the Company Stockholders, individually or in
the aggregate, be liable for any Grant Damages in excess of $1,150,000;
provided, that the indemnification obligations of each Company Stockholder
under sub-clauses (a) and (b) (but not (c)) above shall also be subject to the
provisions of Section 5.10.
9.3 Indemnification Escrow Amount. As security for the indemnity provided
for in Section 9.2 by virtue of this Agreement and the Escrow Agreement, the
Indemnification Escrow Amount will be deemed to have been received and deposited
with the Escrow Agent by the Company Stockholders without any act of the
Company, any Company Subsidiary or any Company Stockholder. The Company
Stockholders shall not have any right to contribution from the Company for any
claim made by Parent or the Surviving Corporation after the Effective Time under
this Agreement or otherwise.
9.4 Indemnification by Parent and the Surviving Corporation. Parent and the
Surviving Corporation agree to indemnify, defend and hold each of the Company
Stockholders and their respective officers, directors, stockholders, affiliates,
employees and agents harmless from and against any and all Damages to which such
Person may suffer or incur, based upon or resulting from:
(a) any breach of any representation or warranty made by Parent or
Merger Sub in Article V; and
(b) any failure by Parent, Merger Sub or the Surviving Corporation to
perform or to comply with any covenant or condition required to be performed by,
or complied with, either of them hereunder.
9.5 Limits on Indemnification.
9.5.1 The total liability of any Company Stockholder (including, for the
avoidance of doubt, the Principal Stockholders) for Damages with respect to
which they shall have an indemnification obligation under Section 9.2 shall be
satisfied out of and limited to the Indemnification Escrow Amount; provided,
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however, notwithstanding anything in this Agreement to the contrary, with
respect to (a) Damages for which any Company Stockholder (including, for the
avoidance of doubt, the Principal Stockholders) has an indemnification
obligation arising out of (i) a breach of a representation set forth in Section
3.1.1(c) or (ii) Section 6.19 (the "Stockholder Claim Damages"), and (b) Damages
arising from fraud, deliberate or willful breach of this Agreement, or the
breach of any representations and warranties arising from reckless or
intentional misstatements or omissions, or the gross negligence of the Company
or the Principal Stockholders, subject to Section 9.5.2, the total liability of
the Principal Stockholders for Damages shall not be limited to the
Indemnification Escrow Amount.
9.5.2 Any amounts payable from the Indemnification Escrow Amount shall be
deemed to be joint and several liabilities of the Company Stockholders. Any
amounts payable in excess of the Indemnification Escrow Amount pursuant to
Section 9.5.1 shall be several and not joint liabilities of the Principal
Stockholders. In no event shall any liability for indemnification for any
Company Stockholder exceed the pro rata portion of the Merger Consideration
payable to such Person hereunder. Notwithstanding anything in this Agreement to
the contrary, no Company Stockholder shall have any obligation to indemnify
Parent and the Surviving Corporation pursuant to the provisions of Section 9.2
(i) with respect to any claim or series of related claims unless and until the
aggregate of all Damages suffered or incurred in connection with such claim or
series of related claims exceeds Fifty Thousand Dollars ($50,000) (it being
understood that, subject to subsection (ii) below, all such Damages, including
the first Dollar thereof shall be subject to indemnification if such threshold
is exceeded) and (ii) unless and until the aggregate of all Damages suffered or
incurred by Parent which would otherwise be subject to indemnification hereunder
exceeds One Million Dollars ($1,000,000) (it being understood that in the event
such threshold is exceeded, only such Damages in excess of Five Hundred Thousand
Dollars ($500,000) shall be subject to indemnification); provided, that the
foregoing limitations shall not apply with respect to (y) claims brought
pursuant to the provisions of Section 9.2(c) and (z) to claims regarding
Stockholder Claim Damages. For the avoidance of doubt, adjustments to the Merger
Consideration under Section 3.2.4 shall not constitute Damages for purposes of
this Article IX and shall not be limited by the monetary baskets set forth
herein.
9.5.3 Solely for the purposes of determining Damages pursuant to this
Article IX (and not a Party's right to indemnification hereunder), any
requirement in a representation or warranty that an event or fact be material or
result in a Material Adverse Effect, which is a condition to such event or fact
constituting an inaccuracy or breach of such representation or warranty, shall
be disregarded for purposes of determining Damages and any and all Damages
arising out of the inaccuracy or breach of such representation or warranty shall
be taken into account for purposes of determining the rights of the Parties to
indemnification pursuant to this Article IX, but if Damages arise from breaches
of more than one representation or warranty, only the highest amount of Damages
from all such breaches shall be included in determining Damages.
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9.5.4 Notwithstanding anything contained in this Agreement to the
contrary, Parent and the Surviving Corporation shall not be entitled to any
indemnification pursuant to the provisions of this Article IX relating to any
facts or circumstances with respect to which Parent was in breach under Section
5.10 of this Agreement.
9.6 Notice and Payment of Claims other than Related to Taxes.
9.6.1 Promptly after receipt by an indemnified party of notice of the
commencement of any action, such indemnified party shall, if a claim in respect
thereof is to be made against the indemnifying party, send notice of the
commencement thereof to the indemnifying party. The failure of the indemnified
party to give such notice shall not relieve the indemnifying party of its
obligations under this Article IX except to the extent that the indemnifying
party is actually and materially prejudiced by the failure to give such notice.
In case any such action shall be brought against any indemnified party and it
shall notify the indemnifying party of the commencement thereof, the
indemnifying party shall be entitled to participate in, and, to the extent that
it shall wish, to assume the defense thereof, with counsel reasonably
satisfactory to such indemnified party, and after notice from the indemnifying
party to such indemnified party of its election so to assume the defense
thereof, the indemnifying party shall not be liable to such indemnified party in
respect of such action for any legal or other expenses subsequently incurred by
the indemnified party after the date such notice is given to such indemnified
party in connection with the defense thereof. The indemnified party, however,
shall have the right, but not the obligation, to participate at its own cost and
expense in such defense by counsel of its own choice. In the event that the
indemnifying party and the indemnified party are named parties in or are subject
to such action and either such party determines with the advice of counsel that
there may be one or more legal defenses available to it and that a material
conflict of interest between such parties may exist in respect of such action,
the indemnifying party may decline to assume the defense on behalf of the
indemnified party or the indemnified party may retain the defense on its own
behalf and in either such case the indemnifying party shall be required to pay
any legal or other expenses, including reasonable documented attorneys' fees and
disbursements, incurred by the indemnified party in such defense. If the
indemnifying party shall assume the defense of any action with respect to which
it has an indemnification obligation under this Article IX, the indemnified
party shall cooperate with it. The indemnifying party shall not, without the
consent of the indemnified party, consent to the entry of any judgment or enter
into any settlement or compromise which does not include as an unconditional
term thereof the giving by the claimant or plaintiff to such indemnified party
of a release from all liability in respect of such action or claim. Except as is
otherwise provided hereinabove, no indemnifying party shall be liable for any
settlement of any claim or action pursuant to this Article IX effected without
the prior written consent of such indemnifying party, such consent not to be
unreasonably withheld, conditioned or delayed.
9.6.2 Any claim on account of any Damages referred to in Section 9.2 or
9.4 that does not result from a Third Party claim shall be asserted by written
notice given by the indemnified party to the indemnifying party not more than
thirty (30) days after the indemnified party becomes aware of such Damages. The
indemnifying party shall have a period of sixty (60) days after such notice is
given within which to respond thereto. If the indemnifying party does not
respond within such sixty (60) day period or rejects such claim in whole or in
part within such sixty (60) day period, the indemnified party shall be free to
pursue such remedies as may be available to such party under Applicable Law.
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9.6.3 Any liability for indemnification under this Article IX shall be
paid on demand in U.S. Dollars after such liability shall have been finally
determined. The liability for damages hereunder shall be deemed to be "finally
determined" for purposes of this Article IX when the parties to such action have
so determined by mutual agreement or, if disputed, when a final non-appealable
order of a Governmental Authority having competent jurisdiction shall have been
entered.
9.7 Mitigation of Damages; No Double Recovery.
(a) If any event shall occur which would otherwise entitle a party to
assert a claim for indemnification under Section 9.2 or 9.4 hereof, no Damages
shall be deemed to have been sustained by such indemnified party to the extent
of:
(i) any Tax savings realized by the indemnified party as a result
thereof; and
(ii) any net proceeds received by such indemnified party from any
insurance policy with respect thereto.
(b) Damages shall not include lost profits or consequential, special,
indirect, incidental or punitive damages.
(c) Each Party that receives indemnification hereunder shall use its
commercially reasonable efforts to mitigate any Damages for which any party
hereunder is required to provide indemnification under this Article IX.
(d) No Person shall be entitled to recover any amount under Section 9.2
or 9.4 (i) to the extent such Person or its Affiliates have already been
compensated therefor under Section 3.2.4 or (ii) to the extent such Person has
been compensated for the subject matter of such giving rise to such Damage under
a separate section of this Agreement.
9.8 Exclusive Remedy. Parent, Merger Sub, the Company and the Principal
Stockholders acknowledge and agree that, from and after the Effective Time, the
foregoing indemnification provisions in this Article IX shall be the exclusive
remedy of each of them with respect to the transactions contemplated by this
Agreement.
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ARTICLE X
TAX MATTERS
10.1 Tax Matters. The following provisions shall govern the allocation of
responsibility as between Company and Parent for certain Tax matters following
the Closing Date:
10.1.1 Tax Periods Ending on or Before the Closing Date. Parent shall duly
and timely prepare or cause to be duly and timely prepared, in accordance with
past practice, except as required by Applicable Law, and file or cause to be
filed all Tax Returns for the Company and the Company Subsidiaries for all
periods ending on or prior to the Closing Date which are filed after the Closing
Date (the "Pre-Closing Tax Returns"). The Escrow Agent shall reimburse Parent
for Taxes of the Company and the Company Subsidiaries with respect to such
periods within fifteen (15) days after payment by Parent and its Subsidiaries of
such Taxes to the extent such Taxes are not reflected in the reserve for Tax
Liability (rather than any reserve for deferred Taxes established to reflect
timing differences between book and Tax income) shown on the face of the Closing
Balance Sheet.
10.1.2 Tax Periods Beginning Before and Ending After the Closing Date.
Parent shall duly and timely prepare or cause to be duly and timely prepared, in
accordance with past practice, except as required by Applicable Law, and file or
cause to be filed any Tax Returns of the Company and the Company Subsidiaries
for Tax periods which begin before the Closing Date and end after the Closing
Date (the "Straddle Period Returns"). Escrow Agent shall deliver to Parent
within fifteen (15) days after the date on which Taxes are paid with respect to
such periods an amount equal to the portion of such Taxes which relates to the
portion of such Taxable period ending on the Closing Date to the extent such
Taxes are not reflected in the reserve for Tax Liability (rather than any
reserve for deferred Taxes established to reflect timing differences between
book and Tax income) shown on the face of the Closing Balance Sheet. For
purposes of this Section, in the case of any Taxes that are imposed on a
periodic basis and are payable for a Taxable period that includes (but does not
end on) the Closing Date, the portion of such Tax which relates to the portion
of such Taxable period ending on the Closing Date (the "Pre-Closing Tax") shall
(x) in the case of any Taxes other than Taxes based upon or related to income or
receipts, be deemed to be the amount of such Tax for the entire Taxable period
multiplied by a fraction the numerator of which is the number of days in the
Taxable period ending on the Closing Date and the denominator of which is the
number of days in the entire Taxable period, and (y) in the case of any Tax
based upon or related to income or receipts be deemed equal to the amount which
would be payable if the relevant Taxable period ended on the Closing Date. Any
credits relating to a Taxable period that begins before and ends after the
Closing Date shall be taken into account as though the relevant Taxable period
ended on the Closing Date. All determinations necessary to give effect to the
foregoing allocations shall be made in a manner consistent with prior practice
of the Company and the Company Subsidiaries.
10.1.3 Dispute Resolution for Tax Returns to be Filed after the Closing
Date. Parent shall provide the Principal Stockholders with copies of the
Pre-Closing Tax Returns or the Straddle Period Returns at least forty (40)
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Business Days prior to the due date thereof, and in the case of the Straddle
Period Returns, accompanied by a statement setting forth and calculating in
reasonable detail the Pre-Closing Tax, to review and comment on each such Tax
Return described in the preceding sentence prior to filing. If, within ten (10)
Business Days of the receipt of the Pre-Closing Tax Return or the Straddle
Period Return, the Principal Stockholders notify Parent that it disputes the
manner of preparation of the Pre-Closing Tax Return or the Straddle Period
Return, then Parent and the Principal Stockholders shall attempt to resolve
their disagreement within five (5) Business Days following the Principal
Stockholders' notification to Parent of such disagreement. If Parent and the
Principal Stockholders are unable to resolve their disagreement, the dispute
shall be submitted to the Independent Accounting Firm, whose expense shall be
borne equally by Parent and the Principal Stockholders, for resolution within
fifteen (15) Business Days of such submission. The decision of the Independent
Accounting Firm with respect to such dispute shall be binding upon Parent and
the Principal Stockholders.
10.1.4 If required under Applicable Law or after having received the
Equityholder Representative's consent in writing, from and after the Closing
Date, Parent may file any amended Tax Return, carryback claim, or other
adjustment request with respect to the Company and the Company Subsidiaries for
any period that includes or ends on or before the Closing Date. Notwithstanding
that such filing may be required under Applicable Law, Parent will notify the
Principal Stockholders before any such action is taken by Parent.
10.2 Cooperation on Tax Matters.
(a) Parent, the Company and the Company Subsidiaries and Principal
Stockholders shall cooperate fully, as and to the extent reasonably requested by
the other party, in connection with the filing of Tax Returns pursuant to this
Section and any audit, litigation or other proceeding with respect to Taxes.
Such cooperation shall include the retention and (upon the other party's
request) the provision of records and information which are reasonably relevant
to any such audit, litigation or other proceeding and making employees available
on a mutually convenient basis to provide additional information and explanation
of any material provided hereunder. The Company and the Company Subsidiaries and
Principal Stockholders agree (A) to retain all books and records with respect to
Tax matters pertinent to the Company and the Company Subsidiaries relating to
any taxable period beginning before the Closing Date until the expiration of the
statute of limitations (and, to the extent notified by Parent or Principal
Stockholders, any extensions thereof) of the respective taxable periods, and to
abide by all record retention agreements entered into with any Governmental
Authority, and (B) to give the other party reasonable written notice prior to
transferring, destroying or discarding any such books and records and, if the
other party so requests, the Company and the Company Subsidiaries or Principal
Stockholders, as the case may be, shall allow the other party to take possession
of such books and records.
(b) Parent and Principal Stockholders further agree, upon request, to
use their reasonable efforts to obtain any certificate or other document from
any Governmental Authority or any other Person as may be necessary to mitigate,
reduce or eliminate any Tax that could be imposed (including, but not limited
to, with respect to the transactions contemplated hereby). The reasonable costs
incurred by Parent and Principal Stockholders during the process of obtaining
said certificate or other document shall be borne by the party that benefits of
the mitigation, reduction or elimination of any Tax.
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10.3 Tax Sharing Agreements. All Tax sharing agreements or similar
agreements with respect to or involving Parent and Principal Stockholders shall
be terminated as of the Closing Date and, after the Closing Date, Parent and
Principal Stockholders shall not be bound thereby or have any liability
thereunder.
10.4 Certain Taxes. All transfer, documentary, sales, use, stamp,
registration and other such Taxes and fees (including any penalties and
interest) incurred in connection with this Agreement (including any New York
State Real Estate Transfer Tax, New York City Transfer Tax, New York State Stock
Transfer Tax and any similar tax imposed in other states or subdivisions), shall
be paid by Escrow Agent out of the Indemnification Escrow Amount when due, and
Principal Stockholders will, at their own expense, file all necessary Tax
Returns and other documentation with respect to all such transfer, documentary,
sales, use, stamp, registration and other Taxes and fees, and, if required by
applicable law, Parent will, and will cause its Affiliates to, join in the
execution of any such Tax Returns and other documentation.
10.5 Contest Provision.
10.5.1 Notice Requirement. Parent shall promptly notify the Equityholder
Representative in writing upon receipt by Parent, the Company or the Company
Subsidiaries of notice of any pending or threatened audits, adjustments or
assessments (a "Tax Audit") which may affect the liability for Taxes of the
Company or the Company Subsidiaries for which Parent would be entitled to any
indemnification out of the Indemnification Escrow Amount. If Parent fails to
give such prompt notice to the Equityholder Representative, it shall not be
entitled to indemnification, if any, for any Taxes arising in connection with
such Tax Audit if such failure to give notice materially adversely affects the
right of the Company Stockholders to participate in the Tax Audit.
10.5.2 Control and Settlement. The Equityholder Representative shall at
the expense of the Company Stockholders control the complete defense and
settlement of the interest of itself and each other party in any Tax Audit that
may affect the liability for Taxes of the Company or the Company Subsidiaries
for which Parent would be entitled to any indemnification, if any, out of the
Indemnification Escrow Amount. Parent, at its own expense, shall reasonably
cooperate and shall cause the Company and the Company Subsidiaries to reasonably
cooperate with the Equityholder Representative. The Equityholder Representative
shall provide copies of all correspondence with any Governmental Authority to
Parent, shall keep Parent reasonably informed as to the status of any Tax Audit
and shall consider in good faith any comments of Parent with respect to the
handling of such Tax Audit, and provided further, that the Equityholder
Representative shall not be entitled to settle any Tax Audit without the consent
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of Parent, which consent shall not be unreasonably withhold. In the event that
the Equityholder Representative wishes to settle a Tax Audit, but Parent
withholds its consent, Parent shall be entitled to take over the control of and
to settle such Tax Audit in its sole discretion, provided that the
indemnification obligation out of the Indemnification Escrow Amount with respect
to such Tax Audit shall not be greater than such obligation would have been had
such Tax Audit been settled of in the manner originally contemplated by the
Equityholder Representative. If a Tax Audit involves Taxes for which both the
Company Stockholders and the Parent may be liable, the Equityholder
Representative and the Parent shall attempt in good faith to sever the Tax Audit
and each shall control the Tax Audit involving Taxes for which it may be liable
(taking into account any indemnification obligation imposed pursuant to this
Agreement). If the Tax Audit cannot be severed, Parent shall at its own expense
control the complete defense and settlement of the interest of itself and each
other party in such Tax Audit. In any other Tax Audit, Parent, in its sole
discretion and at its expense, shall control the complete defense of the
interest of itself and each other party.
10.6 Disclosure Requirements of Company Stockholders.
(a) Each Company Stockholder shall use its reasonable best efforts to
deliver or caused to be delivered to Parent the following at least fifteen (15)
Business Days prior to the Closing:
(i) a duly completed, dated and signed Form W-9, or in the case of
a Company Stockholder who is not a U.S. Person, a Form W-8BEN (such Form W-9 or
W-8BEN, collectively a "TIN Certification"); and
(ii) a duly complete, dated and signed certification (a
"Certification of Non-Foreign Status") that such person is not a foreign person
in the form set forth in Treasury Regulation ss.1.1445-5(b)(2)(ii)(D).
(b) If Parent shall advise the Company that any Company Stockholder (a
"Defaulting Stockholder") has failed to timely deliver to Parent a TIN
Certification or a Certification of Non-Foreign Status, the Company shall by the
later of (i) five (5) Business Days prior to Closing or (ii) five (5) Business
Days after Parent shall have notified the Company provide the Company with a
schedule setting forth the amount to be paid to each such Defaulting
Stockholder.
(c) If any Company Stockholder does not provide such a TIN
Certification, Parent is authorized to withhold with respect to the amount
payable on account of such Company Stockholder such backup withholding as the
Company determines in its sole discretion to be advisable.
(d) If any Company Stockholder does not provide such Certification of
Non-Foreign Status Parent is authorized to withhold such Taxes as Parent shall
determine as if the Company were a U.S. Real Property Holding Company within the
meaning of Section 897 of the Code.
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ARTICLE XI
GENERAL PROVISIONS
11.1 Notices. Any notices or other communications required or permitted
under, or otherwise in connection with this Agreement, shall be in writing and
shall be deemed to have been duly given when delivered in person or upon
confirmation of receipt when transmitted by facsimile transmission or by
electronic mail (but only if followed by transmittal by national overnight
courier or hand for delivery on the next Business Day) or on receipt after
dispatch by registered or certified mail, postage prepaid, addressed, or on the
next business day if transmitted by national overnight courier, in each case to
the addresses set forth in Section 11.1 of the Parent Disclosure Schedule and
the Company Disclosure Schedule, as applicable.
11.2 Headings. The 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 Severability. If any term or other provision of this Agreement is
invalid, illegal or incapable of being enforced by any rule of Applicable Law or
public policy, all other conditions and provisions of this Agreement shall
nevertheless remain in full force and effect so long as the economic or legal
substance of the transactions contemplated hereby is not affected in any manner
materially adverse to any Party. Upon such determination that any term or other
provision is invalid, illegal or incapable of being enforced, the Parties shall
negotiate in good faith to modify this Agreement so as to effect the original
intent of the Parties as closely as possible in an acceptable manner to the end
that transactions contemplated hereby are fulfilled to the greatest extent
possible.
11.4 Entire Agreement. This Agreement (together with the Exhibits, Parent
Disclosure Schedule, Company Disclosure Schedule and the other documents
delivered pursuant hereto) and the Confidentiality Agreement previously entered
into by Parent and the Company, dated February 7, 2006 (the "Confidentiality
Agreement"), constitutes the entire agreement of the Parties and supersedes all
prior agreements and undertakings, both written and oral, between the Parties,
or any of them, with respect to the subject matter hereof and thereof, including
the Letter of Intent between Parent and the Company, dated February 13, 2007
(the "Letter of Intent"). This Agreement is not intended to confer upon any
other Person other than the parties hereto any rights or remedies hereunder,
other than in the case of Sections 6.10 and 6.12 and Article IX and except that
the Company Stockholders, Option Holders and MIP Participants are intended third
party beneficiaries of Article III hereof. Each party hereto agrees that, except
for the representations and warranties contained in this Agreement and the
Company Disclosure Schedule and the Parent Disclosure Schedule, none of Parent,
Merger Sub, the Company, any Company Subsidiary or any Company Stockholder makes
any other representations or warranties, and each hereby disclaims any other
representations or warranties made by itself or any of its respective officers,
directors, employees, agents, financial and legal advisors or other
representatives, with respect to the execution and delivery of this Agreement or
the Merger, notwithstanding the delivery or disclosure to the other or the
other's representatives of any documentation or other information with respect
to any one or more of the foregoing.
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11.5 Assignment. Neither this Agreement nor any of the rights, interests or
obligations hereunder shall be assigned by any of the Parties (whether by
operation of Applicable Law or otherwise) without the prior written consent of
the other Parties. No assignment by any Party shall relieve such Party of any of
its obligations hereunder. Subject to the foregoing, this Agreement will be
binding upon, inure to the benefit of and be enforceable by the Parties and
their respective successors and permitted assigns.
11.6 Mutual Drafting. Each Party has participated in the drafting of this
Agreement, which each Party acknowledges is the result of extensive negotiations
between the Parties in the City and State of New York.
11.7 Governing Law; Consent to Jurisdiction; Waiver of Trial by Jury.
(a) This Agreement shall be governed by, and construed in accordance
with, the local laws of the State of New York, without regard to conflict of law
principles that would result in the application of any Applicable Law other than
the law of the State of New York, except that the Merger shall be effected in
accordance with the DGCL.
(b) The Parties agree that irreparable damage would occur in the event
that any of the provisions of this Agreement are not performed in accordance
with their specific terms or are otherwise breached. It is accordingly agreed
that the Parties shall be entitled to an injunction or injunctions to prevent
breaches of this Agreement and to enforce specifically the terms and provisions
of this Agreement, in addition to any other remedy to which they are entitled
pursuant to the terms of this Agreement, at law or in equity. Any legal action,
suit or proceeding arising out of or relating to this Agreement or the
transactions contemplated hereby shall be brought solely in a state court of the
County, City and State of New York; provided, that if (and only after) such
courts determine that they lack subject matter jurisdiction over any such legal
action, suit or proceeding, such legal action, suit or proceeding shall be
brought in the Federal courts of the United States located in the State of New
York. Each Party hereby irrevocably submits to the exclusive jurisdiction of
such courts in respect of any legal action, suit or proceeding arising out of or
relating to this Agreement or the transactions contemplated hereby, and hereby
waives, and agrees not to assert, as a defense in any such action, suit or
proceeding, any claim that it is not subject personally to the jurisdiction of
such courts, that the action, suit or proceeding is brought in an inconvenient
forum, that the venue of the action, suit or proceeding is improper or that this
Agreement or the transactions contemplated hereby may not be enforced in or by
such courts. Each Party agrees that notice or the service of process in any
action, suit or proceeding arising out of or relating to this Agreement or the
transactions contemplated hereby shall be properly served or delivered if
delivered in the manner contemplated by Section 11.1.
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(c) Notwithstanding anything contained herein to the contrary, any
dispute with respect to the payment of any portion of the Contract Termination
Escrow Amount or the Indemnification Amount shall be governed exclusively by the
dispute resolution provisions of the Escrow Agreement.
11.8 Counterparts. This Agreement may be executed by facsimile and in one or
more counterparts, and by the different Parties in separate counterparts, each
of which when executed shall be deemed to be an original but all of which taken
together shall constitute one and the same agreement.
11.9 Specific Performance. Each Party (the "Non-Performing Party")
acknowledges and agrees that the other Party (the "Performing Party") would be
damaged irreparably in the event that the obligations of such Non-Performing
Party to consummate the Merger are not performed in accordance with their
specific terms or are otherwise breached. Accordingly, the Parties agree that,
in connection with any breach or non-performance of a Non-Performing Party
hereunder, in addition to any other remedy to which a Performing Party may be
entitled at law or in equity in any court having personal and subject matter
jurisdiction, the Performing Party shall be entitled to an injunction or
injunctions, and to enforce specifically the consummation of the Merger as long
as (a) the Performing Party itself is not otherwise in breach of any of its
obligations under this Agreement in a manner that would permit the
Non-Performing Party to terminate this Agreement, and (b) all of the conditions
to the Performing Party's obligations have been fulfilled.
11.10 Representations and Warranties and Company Disclosure Schedule. The
Company will use its commercially reasonable best efforts to identify
disclosures in the Company Disclosure Schedule by referring to a specific
section of this Agreement with cross references as appropriate; provided,
however that, the failure to repeat an item identified in a Company Disclosure
Schedule, employ a section reference or cross-reference such item in another
section where such reference would be appropriate shall not, in and of itself,
constitute a breach of a representation or warranty of the section from which
the reference is omitted.
11.11 No Fiduciary Duty. The Parties acknowledge that no party to this
Agreement (nor any of their respective directors, officers, employees,
representatives or agents) has assumed a fiduciary duty or fiduciary obligation
to any other party by reason of entering into this Agreement.
[signature pages follow]
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IN WITNESS WHEREOF, Parent, Merger Sub, the Company and the Principal
Stockholders have caused this Agreement to be executed as of the date first
written above by their respective officers thereunto duly authorized.
VOLT DELTA RESOURCES LLC
By:
-----------------------------------
Name:
Title:
LSSI RESOURCES CORP.
By:
-----------------------------------
Name:
Title:
LSSi CORP.
By:
-----------------------------------
Name:
Title:
WARBURG PINCUS PRIVATE EQUITY
VIII, L.P.
By:
-----------------------------------
Name:
Title:
GRANITE VENTURES, LLC
By:
-----------------------------------
Name:
Title:
[signatures continued on the following page]
H&Q LSSI INVESTORS, L.P.
By:
-----------------------------------
Name:
Title:
GEORGICA ADVISORS, LLC
By:
-----------------------------------
Name:
Title:
Exhibit A
---------
CERTIFICATE OF MERGER
OF
LSSI Resources Corp.
a Delaware corporation,
with and into
LSSi CORP.,
a Delaware corporation
It is hereby certified that:
1. The constituent business corporations participating in the merger
are:
(i) LSSI Resources Corp. which is incorporated under the laws
of the State of Delaware; and
(ii) LSSi Corp., which is incorporated under the laws of the
State of Delaware.
2. An Agreement and Plan of Merger has been approved, adopted,
certified, executed, and acknowledged by each of the aforesaid constituent
corporations in accordance with the provisions of subsection (c) of Section 251
of the Delaware General Corporation Law.
3. The surviving corporation in the merger herein certified is LSSi
Corp.
4. The Certificate of Incorporation of LSSi Corp. in effect
immediately prior to the filing of the Certificate of Merger shall be amended
and restated as Exhibit A hereto and shall become the Certificate of
Incorporation of said surviving corporation.
5. A copy of the executed Agreement and Plan of Merger is on file at
the office of the surviving corporation located at 000 Xxxxxxxxx Xxxxxx, 00xx
Xxxxx, Xxx Xxxx, XX 00000, and a copy of such Agreement and Plan of Merger will
be furnished by the surviving corporation, on request and without cost, to any
stockholder of either constituent corporation.
[Intentionally left blank]
IN WITNESS WHEREOF, the undersigned has affirmed the statements herein
as true, under penalties of perjury, as of the ____ day of _________, 2007.
LSSI RESOURCES CORP.
By:
-----------------------------------
Name:
Title:
LSSi CORP.
By:
-----------------------------------
Name:
Title:
Exhibit B
---------
Certificate of Incorporation and By-laws of Merger Sub
Exhibit C
---------
Initial Directors and Officers of the Surviving Corporation
Exhibit D
---------
ESCROW AGREEMENT
ESCROW AGREEMENT, dated as of ___________, 2007 (this
"Agreement"), by and among WARBURG PINCUS PRIVATE EQUITY VIII, L.P., a Delaware
limited partnership in its capacity as the Equityholder Representative for and
on behalf of the Company Stockholders (as hereinafter defined) (the
"Equityholder Representative"), VOLT DELTA RESOURCES LLC, a Nevada limited
liability company (the "Parent"), LSSi Corp, a Delaware corporation and a
wholly-owned subsidiary of Parent (the "Company"), and __________________ Bank,
as the escrow agent (the "Escrow Agent").
WHEREAS, this Agreement is entered into in connection with the
closing under that certain Agreement and Plan of Merger, dated June __, 2007, by
and among the Company, Warburg Pincus Private Equity VIII, L.P., H&Q LSSi
Investors, L.P., Granite Ventures, LLC, and Georgica Partners, L.P.
(collectively, the "Principal Stockholders"), on the one hand, and Parent and
LSSI Resources Corp., a Delaware corporation ("Merger Sub"), on the other hand
(the "Merger Agreement"). Capitalized terms used, but not otherwise defined
herein, shall have the meaning given to such terms in the Merger Agreement;
WHEREAS, pursuant to Section 3.6.1 of the Merger Agreement,
Warburg has been appointed as the Equityholder Representative in connection with
the transactions contemplated herein and therein; and
WHEREAS, as required by the Merger Agreement, Parent desires to
deliver to the Escrow Agent certain specified amounts of cash to be held by the
Escrow Agent pursuant to the terms set forth in this Agreement.
NOW, THEREFORE, in consideration of the mutual covenants and
agreements of the parties contained herein, and other good and valuable
consideration, the receipt and legal sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
1. Appointment of Escrow Agent; Delivery and Deposit of Cash
with Escrow Agent.
(a) The Escrow Agent is hereby appointed to act as escrow agent
hereunder, to hold in escrow the Escrow Funds (defined below) and to direct the
disposition thereof in accordance with the terms and conditions of this
Agreement, and the Escrow Agent hereby accepts such appointment.
(b) Simultaneously with the execution and delivery of this
Agreement, the Parent is:
(i) depositing with the Escrow Agent cash in the amount
of One Million Three Hundred Thousand Dollars ($1,300,000) (the
"Contract Termination Escrow Cash"); and
(ii) depositing with the Escrow Agent cash in the amount
of Seven Million Dollars ($7,000,000) (the "Indemnity Escrow Cash").
(c) The Escrow Agent hereby acknowledges receipt of the
Contract Termination Escrow Cash and the Indemnity Escrow Cash.
(d) The Escrow Agent shall hold the Escrow Funds in accordance
with the terms and provisions of this Agreement, and shall not release any of
the Escrow Funds except in accordance with the terms and provisions of this
Agreement.
(e) For purposes of this Agreement:
(i) Any and all interest, dividends, payments, earnings
(whether direct or indirect), proceeds and other distributions that may
be earned on or paid or issued in respect of the Contract Termination
Escrow Cash is collectively referred to hereinafter as the "Contract
Termination Escrow Proceeds"; and the Contract Termination Escrow
Proceeds together with the Contract Termination Escrow Cash, as such
amounts may from time to time be reduced by distributions to the Parent
in accordance with the terms and provisions of this Agreement, are
collectively referred to hereinafter as the "Contract Termination Escrow
Fund";
(ii) Any and all interest, dividends, payments, earnings
(whether direct or indirect), proceeds and other distributions that may
be earned on or paid or issued in respect of the Indemnity Escrow Cash
is collectively referred to hereinafter as the "Indemnity Escrow
Proceeds"; and the Indemnity Escrow Proceeds together with the Indemnity
Escrow Cash, as such amounts may from time to time be reduced by
distributions to the Parent in accordance with the terms and provisions
of this Agreement, are collectively referred to hereinafter as the
"Indemnity Escrow Fund"; and
(iii) The Contract Termination Escrow Fund and the
Indemnity Escrow Fund are collectively referred to herein as the "Escrow
Funds."
(f) The Escrow Agent shall invest and reinvest the Escrow Funds
only in (i) short-term securities issued or guaranteed as to principal and
interest by the government of the United States, (ii) certificates of deposit
issued by a commercial bank or trust company organized under the laws of the
United States of America with a combined capital and surplus of at least
$50,000,000, or (iii) shares of any so-called "Money Market Fund" or "Mutual
Fund" which has its assets invested in investments substantially consisting of
the types described in clauses (i) and (ii) above. Investments shall be made
promptly upon receipt of available funds by the Escrow Agent. The Escrow Agent
shall not be responsible for or liable for any loss suffered in connection with
any investments of funds made by it in accordance with this Section 1(f).
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(g) The Escrow Agent shall not sell, transfer or in any manner
whatsoever encumber the Escrow Funds except pursuant to the terms and conditions
of this Agreement.
(h) Taxes.
(i) Parent agrees to assume any and all obligations of
the Escrow Agent imposed now or in the future by any applicable tax law with
respect to the payment of the Escrow Funds or any portion thereof to Parent or
the Company under this Agreement. Similarly, the Equityholder Representative, on
behalf of the Company Stockholders, Option Holders and MIP Participants, agrees
to assume any and all obligations of the Escrow Agent imposed now or in the
future by any applicable tax law with respect to the payment of the Escrow Funds
or any portion thereof to the Company Stockholders, Option Holders and MIP
Participants under this Agreement, and the Equityholder Representative may
satisfy such obligations from the amounts payable to such Persons from the
Escrow Funds. Parent, in respect of payments made to it or the Company, and the
Equityholder Representative, in respect of payments made to the Company
Stockholders, Option Holders and MIP Participants, shall indemnify and hold the
Escrow Agent harmless from and against any taxes, additions for late payment,
interest, penalties and other expenses, that may be assessed against the Escrow
Agent on any such payment or activities in respect of taxes for which Parent or
the Equityholder Representative, as the case may be, is obligated under this
Section 1(h). Parent and the Equityholder Representative shall instruct the
Escrow Agent in writing with respect to charges, certifications and governmental
reporting in connection with its acting as the Escrow Agent. Parent, in respect
of payments made to it or the Company, and the Equityholder Representative, in
respect of payments made to the Company Stockholders, Option Holders and MIP
Participants, as the case may be, shall indemnify and hold the Escrow Agent
harmless from any liability on account of taxes, assessments or other
governmental charges, including without limitation the withholding or deduction
or the failure to withhold or deduct such taxes, assessments and charges, and
any liability for failure to obtain proper certifications or to properly report
to governmental authorities, to which the Escrow Agent may be or become subject
in connection with the performance of its duties as the Escrow Agent, including
costs and expenses (including reasonable legal fees and expenses), interest and
penalties.
(ii) At the end of each tax year, interest which has been
earned on the Indemnity Escrow Cash or Indemnity Escrow Fund shall be allocated
to the Person that receives the money from the Escrow Agent in accordance with
the provisions of this Agreement, except that, if no Person has received money
from the Escrow Agent at the end of any tax year, interest which has been earned
on the Indemnity Escrow Cash or Indemnity Escrow Fund shall be added to the
Indemnity Escrow Fund. At the end of each tax year, interest which has been
earned on the Contract Termination Escrow Cash or Contract Termination Escrow
3
Fund shall be allocated to the Company Stockholders, Option Holders and MIP
Participants in accordance with the Allocation Spreadsheet. To the extent
required by law, the Escrow Agent annually shall file information returns with
the United States Internal Revenue Service. The parties shall provide the Escrow
Agent with all forms and information necessary to complete such information
returns, including completed, executed Forms W-9 for each of the Company
Stockholders, Option Holders, the MIP Participants and Parent, which Forms W-9
shall, to the extent practicable, be delivered to the Escrow Agent at the time
of execution of this Agreement. In the event that any of the Company
Stockholders, Option Holders, MIP Participants or Parent has a change of
address, either the Equityholder Representative or Parent, as the case may be,
shall notify the Escrow Agent with 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.
(iii) Parent and the Equityholder Representative understand
that, in the event such tax identification numbers are not certified to the
Escrow Agent, the Internal Revenue Code, as amended from time to time, may
require withholding of a portion of any interest or other income earned on the
investment of the Escrow Account.
2. Property Other than Securities or Cash.
(a) The Escrow Agent shall not be required to hold any Contract
Termination Escrow Proceeds or Indemnity Escrow Proceeds that consist of
property other than securities or cash.
(b) If the Escrow Agent shall hold any Contract Termination
Escrow Proceeds or any Indemnity Escrow Proceeds that consist of property other
than securities or cash, such property shall be disposed of in the manner in
which the Escrow Fund from which such property was derived is disposed of
pursuant to the provisions of this Agreement as jointly directed in writing by
the Parent and the Equityholder Representative.
3. Release of Contract Termination Escrow Fund.
(a) The Parent may deliver to the Escrow Agent at any time from
time to time, but not after six months after the Closing Date defined in the
Merger Agreement (the "Contract Termination Escrow Release Date"), one or more
written notices (each such notice, a "Contract Termination Payment Notice") in
substantially the form of Exhibit A attached hereto directing that the Escrow
Agent make such payment from the Contract Termination Escrow Fund to the Parent
or to the Company Stockholders, Option Holders, MIP Participants or other
holders of Equity Interests in the Company in accordance with the Allocation
Spreadsheet pursuant to the provisions of Section 6.11 of the Merger Agreement.
4
(b) Parent may deliver more than one Contract Termination
Payment Notice at any time up until the Contract Termination Escrow Fund is
released to Equityholder Representative pursuant to the provisions of Section
3(e) below.
(c) Each Contract Termination Payment Notice shall be signed by
the Parent and shall specify the Contract listed in Section 6.11 of the Parent
Disclosure Schedule to the Merger Agreement which has been terminated pursuant
to which such notice is being delivered and the dollar amount due Parent and, if
applicable, the total dollar amount due the Company Stockholders, Option
Holders, MIP Participants or other holders of Equity Interests in the Company
collectively, as directed by the Equityholder Representative in accordance with
the Allocation Spreadsheet; provided that the dollar amount due Parent shall not
exceed the applicable maximum amount for the specified Contract set forth in
Section 6.11 of the Company Disclosure Schedule.
(d) Upon receipt of a Contract Termination Payment Notice
countersigned by the Equityholder Representative, the Escrow Agent shall
promptly make such payment from the Contract Termination Escrow Fund as may be
directed in the Contract Termination Payment Notice.
(e) If the Contract Termination Payment Notice is not
countersigned by the Equityholder Representative, then, within ten (10) days
after the receipt of such Contract Termination Payment Notice, the Escrow Agent
shall deliver a copy of such Contract Termination Payment Notice to the
Equityholder Representative. If, within fifteen (15) days after delivery of such
Contract Termination Payment Notice by the Escrow Agent, the Escrow Agent does
not receive from the Equityholder Representative a Contract Termination Counter
Notice (as hereinafter defined), then the Escrow Agent shall promptly make such
payment from the Contract Termination Escrow Fund as may be directed in the
Contract Termination Payment Notice. If, within fifteen (15) days after delivery
of such Contract Termination Payment Notice by the Escrow Agent, the Escrow
Agent receives from the Equityholder Representative a written notice, signed by
the Equityholder Representative, certifying that a bona fide dispute exists
under the Merger Agreement as to the claim set forth in the Contract Termination
Payment Notice and setting forth in reasonable detail the basis for such dispute
(a "Contract Termination Counter Notice"), then the Escrow Agent shall not make
the payment directed in the Contract Termination Payment Notice, the Escrow
Agent shall deliver a copy of the Contract Termination Counter Notice to the
Parent, and such dispute shall be resolved and any such payment shall be made in
accordance with Section 6 hereof.
(f) On the Contract Termination Escrow Release Date, the Escrow
Agent shall pay to the Company Stockholders, Option Holders, MIP Participants or
other holders of Equity Interests in the Company in accordance with the
Allocation Spreadsheet as directed by the Equityholder Representative, the
remaining amount held in the Contract Termination Escrow Fund; provided,
however, that, the foregoing notwithstanding, no such amount shall be paid to
the extent that the release would cause the amount in the Contract Termination
Escrow Fund to be less than any and all Unliquidated Contract Termination
Demands as of such date. For purposes hereof, "Unliquidated Contract Termination
Demands" means the sum of the amounts claimed due Parent under all Contract
Termination Payment Notices that have not been paid to the Parent.
5
4. Release of Indemnity Escrow Fund.
(a) The Parent may deliver to the Escrow Agent, at any time and
from time to time, but not after January 31, 2009, one or more written notices
(each, an "Indemnity Payment Notice") in substantially the form of Exhibit B,
attached hereto, directing that the Escrow Agent either (i) make such payment
from the Indemnity Escrow Fund to the Parent or any Parent Indemnitee (as
defined in the Merger Agreement) in the amount so required to be paid pursuant
to Article IX of the Merger Agreement in respect of any Damages for which the
Parent or any other Parent Indemnitee shall be entitled to be indemnified
thereunder or (ii) if such amount of Damages has not been determined, withhold
from distribution from the Indemnity Escrow Fund Parent's reasonable good faith
estimate of any amount of Damages based upon the information available to Parent
which Parent in good faith believes may become due Parent or any Parent
Indemnitee pursuant to Article IX of the Merger Agreement. Each Indemnity
Payment Notice shall be signed by the Parent and shall specify the provision or
provisions of the Merger Agreement pursuant to which it is being delivered and
the dollar amount of the claim, if known, or if not known, Parent's good faith
estimate of what such dollar amount will be.
(b) The Parent may deliver more than one Indemnity Payment
Notice with respect to any underlying state of facts and shall not be prejudiced
by the dollar amount specified initially for such state of facts under any
Indemnity Payment Notice.
(c) If the Indemnity Payment Notice is countersigned by the
Equityholder Representative, then the Escrow Agent shall promptly make such
payment from the Indemnity Escrow Fund as may be directed in the Indemnity
Payment Notice.
(d) If the Indemnity Payment Notice is not countersigned by the
Equityholder Representative, then, within ten (10) days after the receipt of
such Indemnity Payment Notice, the Escrow Agent shall deliver a copy of such
Indemnity Payment Notice to the Equityholder Representative. If, within fifteen
(15) Business Days after delivery of such Indemnity Payment Notice by the Escrow
Agent, the Escrow Agent does not receive from the Equityholder Representative an
Indemnity Counter Notice (as hereinafter defined), then the Escrow Agent shall
promptly make such payment from the Indemnity Escrow Fund as may be directed in
the Indemnity Payment Notice. If, within fifteen (15) Business Days after
delivery of such Indemnity Payment Notice by the Escrow Agent, the Escrow Agent
receives from the Equityholder Representative a written notice, signed by the
Equityholder Representative, certifying that a bona fide dispute exists under
the Merger Agreement as to the claim set forth in the Indemnity Payment Notice
(an "Indemnity Counter Notice"), then the Escrow Agent shall not make the
payment directed in the Indemnity Payment Notice, the Escrow Agent shall deliver
a copy of the Indemnity Counter Notice to the Parent, and such dispute shall be
resolved and any payment and/or delivery shall be made in accordance with
Section 6 hereof.
6
(e) On the first Business Day after January 31, 2009, the
Parent and the Equityholder Representative shall direct the Escrow Agent to pay
to the Company Stockholders, Option Holders, MIP Participants or other holders
of Equity Interests in the Company in accordance with the Allocation Spreadsheet
as directed by the Equityholder Representative and in accordance with the Merger
Agreement (including Section 3.2.5 thereof), the remaining amount held in the
Indemnity Escrow Fund; provided, however, that, the foregoing notwithstanding,
no such amount shall be paid to the extent that the release would cause the
amount in the Indemnity Escrow Fund to be less than any and all Unliquidated
Indemnity Demands as of such date. For purposes hereof, "Unliquidated Indemnity
Demands" means the sum of (i) the amounts claimed under all Indemnity Payment
Notices that have not been resolved in accordance with this Agreement and (ii)
the amounts claimed under all Indemnity Payment Notices that have been resolved
in accordance with this Agreement but as to which the amount to be paid in
respect thereof, if any, has not been paid to the Parent.
5. Method of Payment. All payments under this Agreement shall
be made within 3 Business Days of the required release dates pursuant to this
Agreement and shall be made by wire transfer in immediately available funds to
such bank account or accounts designated in writing to the Escrow Agent by (1)
Parent, in the case of payments to Parent, (2) the Equityholder Representative,
in the case of payments to the Company Stockholders, Option Holders, the MIP
Participants or other holders of Equity Interests or (3) in the case of payments
to third parties, as Parent and the Equityholder Representative mutually agree.
6. Disputes or Conflicting Demands.
(a) Any provision hereof to the contrary notwithstanding, the
Escrow Agent shall release any portion of the Contract Termination Escrow Fund
or the Indemnity Escrow Fund, as applicable, (i) in accordance with joint
written instructions with respect to such release signed by the Parent and the
Equityholder Representative, or (ii) upon receipt of, and in accordance with, in
the case of a Litigable Dispute relating to the Indemnity Escrow Fund, a final,
non-appealable court order issued by a court of competent jurisdiction or, in
the case of an Arbitrable Dispute, a Final Arbitration Award, as applicable;
provided, that the Escrow Agent shall provide the Parent and the Equityholder
Representative with a copy of such order or Final Arbitration Award, as
applicable, at least fifteen (15) days prior to making any release in accordance
with such order or Final Arbitration Award, as applicable, or such lesser period
as may be required to comply therewith; provided, further, that any
determination of the Arbitration Firm made pursuant to Section 3.2.4(b) of the
Merger Agreement shall be deemed as a final, non-appealable court order herein.
7
(b) If any disputes arise or conflicting or adverse claims or
demands are made or notices served upon the Escrow Agent with respect to either
the Contract Termination Escrow Fund or the Indemnity Escrow Fund, including
without limitation any dispute with respect to any Contract Termination Payment
Notice under Section 3 hereof or any Indemnity Payment Notice under Section 4
hereof, the Escrow Agent shall refrain from complying with any such claims or
demands until such dispute or disagreement is resolved in accordance with the
Merger Agreement and this Agreement. In so doing, the Escrow Agent shall not be
or become liable for damages, losses, costs, expenses or interest to any person
for its failure to comply with such conflicting or adverse claims or demands.
The Escrow Agent shall continue to so refrain until it shall have received
satisfactory certification that such conflicting claims or demands shall have
been finally determined by a court of competent jurisdiction and are
non-appealable or by a Final Arbitration Award, as applicable, or shall have
been settled by agreement of the parties to such controversy, in which case the
Escrow Agent shall be notified thereof in a written notice signed by the Parent
and the Equityholder Representative.
7. Succession. The Escrow Agent may resign and be discharged
from its duties or obligations hereunder by giving fifteen (15) days advance
notice in writing of such resignation to the other parties hereto specifying a
date when such resignation shall take effect. Upon any such resignation, the
Equityholder Representative and the Parent shall promptly jointly designate a
successor escrow agent and the Escrow Agent shall deliver the Escrow Funds to
such successor. The Escrow Agent shall have the right to withhold an amount
equal to any amount due and owing to the Escrow Agent, plus any reasonable costs
and expenses the Escrow Agent shall reasonably believe may be incurred by the
Escrow Agent in connection with the termination of the Escrow Agreement. Any
corporation or association into which the Escrow Agent may be merged or
converted or with which it may be consolidated, or any corporation or
association to which all or substantially all the escrow business of the Escrow
Agent's corporate trust line of business may be transferred, shall be the Escrow
Agent under this Escrow Agreement without further act, other than notice thereof
to the Parent and the Equityholder Representative.
8. Further Assurances. The Parent and the Equityholder
Representative shall do such further acts and things and execute and deliver
such statements, assignments, agreements, instruments and other documents as the
Escrow Agent from time to time may reasonably request in connection with the
administration, maintenance, enforcement or adjudication of this Agreement in
order (a) to give the Escrow Agent confirmation and assurance of the Escrow
Agent's rights, powers, privileges, remedies and interests under this Agreement
and applicable law, (b) to better enable the Escrow Agent to exercise any such
right, power, privilege, remedy or interest or (c) to otherwise effectuate the
purpose and the terms and provisions of this Agreement, each in such form and
substance as may be reasonably acceptable to the Escrow Agent.
9. Reliance, Status, Indemnification, Etc. of the Escrow
Agent.
(a) The Escrow Agent shall be entitled to rely upon any notice,
consent, certificate, affidavit, statement, paper, document, writing or
communication (which to the extent permitted hereunder may be by telegram,
8
cable, telex, telecopier, or telephone) reasonably believed by the Escrow Agent
to be genuine and to have been signed, sent or made by the proper person or
persons, and upon opinions and advice of legal counsel (including its own
counsel or counsel for any party hereto), independent public accountants and
other experts selected by the Escrow Agent. In the event that the Escrow Agent
shall be uncertain as to its duties or rights or shall receive instructions with
respect to any property held by it in escrow pursuant to this Agreement which,
in the opinion of the Escrow Agent, are in conflict with any of the provisions
of this Agreement, the Escrow Agent shall be entitled to refrain from taking any
action and, in any such event, the Escrow Agent shall not be or become liable in
any way to any person for its failure or refusal to act, and the Escrow Agent
shall be entitled to continue to so refrain from acting until (i) it shall be
jointly directed otherwise in writing by the Parent and the Equityholders
Representative or (ii) such uncertainty or conflict is resolved by a final,
non-appealable judgment of a court of competent jurisdiction.
(b) In the event that instructions are given to the Escrow
Agent to transfer any portion of the Contract Termination Escrow Fund or the
Indemnity Escrow Fund, as applicable, whether in writing, by telecopier or
otherwise, the Escrow Agent is authorized to seek confirmation of such
instructions by telephone call-back to the person or persons designated on the
call-back schedule attached as Exhibit C hereto (the "Call-Back Schedule"), and
the Escrow Agent may rely upon the confirmations of anyone purporting to be the
person or persons so designated. The persons and telephone numbers for
call-backs may be changed only by a writing actually received and acknowledged
by the Escrow Agent. If the Escrow Agent is unable to contact any of the
authorized representatives identified in the Call-Back Schedule, the Escrow
Agent is hereby authorized to seek confirmation of such instructions by
telephone call-back to any one or more of the executive officers of the
Equityholder Representative or the Parent, as applicable ("Executive Officers"),
which shall include the titles of _______________, in the case of the Parent, or
____________, in the case of the Equityholder Representative, as the Escrow
Agent may select. Such Executive Officer shall deliver to the Escrow Agent a
fully executed incumbency certificate, and the Escrow Agent may rely upon the
confirmation of anyone purporting to be any such officer. The Escrow Agent and
the beneficiary's bank in any funds transfer may rely solely upon any account
numbers or similar identifying numbers provided by the Parent or the
Equityholder Representative, as applicable, to identify (i) the beneficiary,
(ii) the beneficiary's bank, or (iii) an intermediary bank. The Escrow Agent may
apply any of the Contract Termination Escrow Fund or the Indemnity Escrow Fund,
as applicable, for any payment order it executes using any such identifying
number, even when its use may result in a person other than the beneficiary
being paid, or the transfer of funds to a bank other than the beneficiary's bank
or an intermediary bank designated. The parties to this Agreement acknowledge
that the foregoing security procedure is commercially reasonable.
(c) The Escrow Agent is acting under this Agreement as a
stakeholder only and shall be considered an independent contractor with respect
to the Parent and the Equityholder Representative. No term or provision of this
Agreement is intended to create, nor shall any such term or provision be deemed
to have created, any principal-agent, trust, joint venture, partnership,
debtor-creditor or other relationship between or among the Escrow Agent and the
Parent or the Equityholder Representative. The Escrow Agent's only duties are
those expressly set forth in this Agreement, and the Parent and the Equityholder
Representative authorize the Escrow Agent to perform those duties in accordance
with its usual practices in holding funds of its own or those of other escrows.
The Escrow Agent may exercise or otherwise enforce any of its rights, powers,
privileges, remedies and interests under this Agreement and applicable law or
perform any of its duties under this Agreement by or through its directors,
officers, employees, attorneys, agents or designees.
9
(d) The Escrow Agent and its designees, and their respective
officers, directors, stockholders, employees, attorneys and agents
(collectively, the "Protected Parties") shall not be liable with respect to, and
the Equityholder Representative, the Company and the Parent, jointly and
severally, shall indemnify the Protected Parties and hold them harmless and
defend them from and against, any and all claims (and all actions, suits and
proceedings in respect thereof), liabilities, charges, losses, damages, costs,
reasonable attorneys' fees and other expenses (collectively, "Losses") that may
be imposed upon, incurred by, or asserted against any of them, arising out of or
related directly or indirectly to, or in connection with this Agreement, the
Escrow Funds, including but not limited to any such matter relating to the
taking of any action in accordance with the terms and provisions of this
Agreement, for any mistake or error in judgment, for compliance with any
applicable law or any attachment, order or other directive of any court or other
authority (irrespective of any conflicting term or provision of this Agreement
or the Merger Agreement), or for any act or omission of any other person engaged
by the Escrow Agent in connection with this Agreement (except with respect to
Losses that have been determined, by a court of competent jurisdiction in a
final, non-appealable judgment, to have been caused principally by the
indemnified person's own acts and omissions amounting to gross negligence or
willful misconduct); and each party hereto hereby waives any and all claims and
actions whatsoever against the Protected Parties arising out of or related
directly or indirectly to any and all of the foregoing acts, omissions and
circumstances, including the investment or disposition of the Escrow Funds.
Anything in this Agreement to the contrary notwithstanding, in no event shall
the Escrow Agent be liable for special, indirect or consequential damage of any
kind whatsoever (including but not limited to lost profits), even if the Escrow
Agent has been advised of the likelihood of such loss or damage and regardless
of the form of action. The foregoing indemnities in this paragraph shall survive
the resignation of the Escrow Agent or the termination of this Agreement.
10. Fees and Expenses of Escrow Agent. The fees set forth below
and reasonable expenses of the Escrow Agent in carrying out its duties hereunder
shall be paid from the Indemnity Escrow Fund. The Escrow Agent's annual fees
shall be $_____, and any change from such fees shall be subject to the written
approval of the Equityholder Representative and the Parent.
11. Miscellaneous.
10
(a) Notices. All notices, demands, consents, requests,
instructions and other communications to be given or delivered or permitted
under or by reason of the provisions of this Agreement or in connection with the
transactions contemplated hereby shall be in writing and shall be deemed to be
delivered and received by the intended recipient as follows: (i) if personally
delivered, on the Business Day of such delivery (as evidenced by the receipt of
the personal delivery service), (ii) if mailed certified or registered mail
return receipt requested, four (4) Business Days after being mailed, (iii) if
delivered by overnight courier (with all charges having been prepaid), on the
Business Day of such delivery (as evidenced by the receipt of the overnight
courier service of recognized standing), or (iv) if delivered by facsimile
transmission, on the Business Day of such delivery if sent by 5:00 p.m. in the
time zone of the recipient, or if sent after that time, on the next succeeding
Business Day (as evidenced by the printed confirmation of delivery generated by
the sending party's facsimile machine). If any notice, demand, consent, request,
instruction or other communication cannot be delivered because of a changed
address of which no notice was given (in accordance with this Section 11(a)), or
the refusal to accept same, the notice, demand, consent, request, instruction or
other communication shall be deemed received on the second Business Day the
notice is sent (as evidenced by a sworn affidavit of the sender). All such
notices, demands, consents, requests, instructions and other communications will
be sent to the following addresses or facsimile numbers as applicable:
If to the Equityholder Representative, to:
Warburg Pincus Private Equity VIII, L.P.
000 Xxxxxxxxx Xxxxxx, 00xx Xxxxx
Xxx Xxxx, XX 00000
Attention: Bilge Ogut and Xxxxxxx Xxxxxxxx
Facsimile: (000) 000-0000
If to the Parent, to:
Volt Delta Resources LLC
000 Xxxxxxxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000-0000
Telephone No.: (000) 000-0000
Facsimile No.: (000) 000-0000
Attn: Office of General Counsel
With a copy (which shall not constitute notice) to:
Xxxxxxxx Xxxxxxx LLP
The Chrysler Building
000 Xxxxxxxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Telephone No.: (000) 000-0000
Facsimile No.: (000) 000-0000 and (000) 000-0000
Attn.: Xxxxx Xxxxx, Esq. and
Xxxxxxx X. Xxxx, Esq.
11
If to the Escrow Agent:
[ ]
------------------
[ ]
------------------
[ ]
------------------
Telephone No.: [ ]
------------------
Facsimile No.: [ ]
------------------
Attention: [ ]
------------------
or to such other address as any party may specify by notice given to the other
party in accordance with this Section 11(a).
(b) Amendment. This Agreement may not be modified, amended,
altered or supplemented, except by a written agreement executed by each of the
parties hereto.
(c) Entire Agreement. This Agreement contains the entire
understanding and agreement of the parties relating to the subject matter hereof
and supersedes all prior and/or contemporaneous understandings and agreements of
any kind and nature (whether written or oral) among the parties with respect to
such subject matter, all of which are merged herein.
(d) Waiver. Any waiver by a party hereto of any breach of or
failure to comply with any provision or condition of this Agreement by any other
party hereto shall not be construed as, or constitute, a continuing waiver of
such provision or condition, or a waiver of any other breach of, or failure to
comply with, any other provision or condition of this Agreement, any such waiver
to be limited to the specific matter and instance for which it is given. No
waiver of any such breach or failure of any provision or condition of this
Agreement shall be effective unless in a written instrument signed by the party
granting the waiver and delivered to the other party hereto in the manner
provided for hereunder in Section 11(a). No failure or delay by any party to
enforce or exercise its rights hereunder shall be deemed a waiver hereof, nor
shall any single or partial exercise of any such right or any abandonment or
discontinuance of steps to enforce such rights, preclude any other or further
exercise thereof or the exercise of any other right.
(e) Governing Law; Jurisdiction. This Agreement shall be
governed by and construed in accordance with the laws of the State of New York
applicable to agreements made and to be performed in that State, without regard
to any of its principles of conflicts of laws or other laws that would result in
the application of the laws of another jurisdiction. Subject to Section 11(f)
below, each of the parties unconditionally and irrevocably consents to the
exclusive jurisdiction of the courts of the State of New York, New York County,
and the federal district court for the Southern District of New York (the "New
York Courts") with respect to any suit, action or proceeding arising out of or
relating to this Agreement that relates to the Indemnity Escrow Fund and (i)
includes a claim by a Person other than Parent, the Company or any of their
12
respective affiliates, or (ii) is based upon or results from any failure of any
Principal Stockholder to perform or comply with Section 6.19 of the Merger
Agreement (each of (i) and (ii) a "Litigable Dispute") , and each of the parties
hereby unconditionally and irrevocably waives any objection to venue in any such
court or to assert that any such court is an inconvenient forum, and agrees that
service of any summons, complaint, notice or other process relating to such
suit, action or other proceeding may be effected in the manner provided in
Section 11(a) hereof and to the non-exclusive jurisdiction of such courts for
the enforcement of any arbitral award rendered pursuant to Section 11(f) of this
Agreement. Each of the parties hereby unconditionally and irrevocably waives the
right to a trial by jury in any such action, suit or other proceeding.
(f) Arbitration.
(i) Notwithstanding Section 11(e) above, any dispute,
controversy or claim between Parent and the Company on the one
hand and the Equityholder Representative on the other hand that
is not included under Section 11(e) above (the "Arbitrable
Disputes"), shall on the demand of Parent or the Equityholder
Representative be finally settled by arbitration in accordance
with the Commercial Arbitration Rules of the American Arbitration
Association ("AAA") then in effect (the "Rules"), except as
modified herein. Any dispute or controversy regarding
arbitrability of a dispute, controversy or claim shall be subject
to Section 11(e) hereof.
(ii) The place of arbitration shall be New York, New York.
If the amount in controversy is $2 million or less (including all
claims and counterclaims) there shall be one arbitrator who shall
be agreed upon by Parent and the Equityholder Representative
within twenty (20) days of receipt by respondent of a copy of the
demand for arbitration. If the amount in controversy is more than
$2 million (including all claims and counterclaims) there shall
be three neutral and impartial arbitrators, one of whom shall be
appointed by each of Parent and the Equityholder Representative
within twenty (20) days of receipt by respondent(s) of the demand
for arbitration, and the third arbitrator, who shall chair the
arbitral tribunal, shall be appointed by the party appointed
arbitrators within fifteen (15) days of the appointment of the
second arbitrator. If any arbitrator is not appointed within the
time limit provided herein, such arbitrator shall be appointed by
the AAA in accordance with the listing, striking and ranking
procedure in the Rules. Any arbitrator appointed by the AAA shall
be a retired judge or a practicing attorney with no less than
fifteen years of experience with large commercial cases and an
experienced arbitrator.
(iii) In rendering an award, the arbitral tribunal shall be
required to follow the laws of the State of New York and shall be
governed by the terms of the Merger Agreement and this Agreement.
Any arbitration proceedings, decision or award rendered hereunder
13
and the validity, effect and interpretation of this arbitration
agreement shall be governed by the Federal Arbitration Act, 9
U.S.C. ss.1 et seq. The award shall be in writing and shall
briefly state the findings of fact and conclusions of law on
which it is based. The award shall be final and binding upon the
parties and shall be the sole and exclusive remedy between the
parties regarding any claims, counterclaims, issues or accounting
presented to the arbitrator(s) (the "Final Arbitration Award").
Judgment upon the award may be entered in any court having
jurisdiction. Any costs or fees (including attorneys' fees and
expenses) incident to enforcing the award shall be charged
against the party resisting such enforcement.
(iv) By agreeing to arbitration, the parties do not intend
to deprive any New York Court of its jurisdiction to issue a
pre-arbitral injunction, pre-arbitral attachment, or other order
in aid of arbitration proceedings and the enforcement of any
award. Without prejudice to such provisional remedies as may be
available under the jurisdiction of a New York Court, the
arbitral tribunal shall have full authority to grant provisional
remedies and to direct the parties to request that any court
modify or vacate any temporary or preliminary relief issued by
such court, and to award damages for the failure of any party to
respect the arbitral tribunal's orders to that effect. The
parties hereby submit to the exclusive jurisdiction of the New
York Courts for the purpose of an order to compel arbitration,
for preliminary relief in aid of arbitration or for a preliminary
injunction to maintain the status quo or prevent irreparable harm
prior to the appointment of the arbitrators, and to the
non-exclusive jurisdiction of the New York Courts for the
enforcement of any award issued hereunder.
(g) Binding Effect, No Assignment, etc. This Agreement shall be
binding upon and shall inure to the benefit of the parties hereto and their
respective legal representatives, successors and permitted assigns. Neither this
Agreement nor any right, interest or obligation hereunder may be assigned by any
party hereto without the prior written consent of each of the other parties, and
any attempt to do so shall be void ab initio and of no force and effect.
(h) Third Parties. Nothing herein is intended or shall be
construed to confer upon or give to any Person, other than the parties hereto
and the Parent Indemnitees, any rights, privileges or remedies under or by
reason of this Agreement.
(i) Headings. The section headings contained in this Agreement
are inserted for reference purposes only and shall not affect in any way the
meaning, construction or interpretation of this Agreement. Any reference to the
masculine, feminine, or neuter gender shall be a reference to such other gender
as is appropriate. References to the singular shall include the plural and vice
versa.
14
(j) Drafting History. This Agreement shall be construed and
interpreted without regard to any presumption against the party causing this
Agreement to be drafted. The parties acknowledge that this Agreement was
negotiated and drafted with each party being represented by competent counsel of
its choice and with each party having an equal opportunity to participate in the
drafting of the provisions hereof and shall therefore be construed as if drafted
jointly by the parties.
(k) Counterparts. This Agreement may be executed in two (2) or
more counterparts (including by facsimile signature, which shall constitute a
legal and valid signature), and by the different parties hereto in separate
counterparts, each of which when executed shall be deemed to be an original, and
all of which, when taken together, shall constitute one and the same document.
This Agreement shall become effective when one or more counterparts, taken
together, shall have been executed and delivered by all of the parties.
(l) Tax Ids. Upon execution of this Agreement, each party shall
provide the Escrow Agent with a fully executed W-8 or W-9 Internal Revenue
Service form, which shall include their Tax Identification Number (TIN) as
assigned by the Internal Revenue Service.
(m) Merger of Escrow Agent. 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.
(m) Force Majeure. In the event that the Escrow Agent is unable
to perform its obligations under the terms of this Agreement because of acts of
God, strikes, equipment or transmission failure or damage reasonably beyond its
control, or other cause reasonably beyond its control, the Escrow Agent shall
not be liable for damages to the other parties for any damages resulting from
such failure to perform from such causes. Performance under this Agreement shall
resume when the Escrow Agent is able to perform substantially.
(n) Compliance with Court Orders. In the event that any of the
Escrow Funds shall be attached, garnished or levied upon by any court order, or
the delivery thereof shall be stayed or enjoined by an order of a court, or any
order, judgment or decree shall be made or entered by any court order affecting
the property deposited under this Agreement, the Escrow Agent is hereby
expressly authorized, in its sole discretion, to obey and comply with all writs,
orders or decrees so entered or issued, which it is advised by legal counsel of
its own choosing is binding upon it, whether with or without jurisdiction, and
in the event that the Escrow Agent obeys or complies with any such writ, order
or decree it shall not be liable to any of the parties hereto or to any other
person, firm or corporation, by reason of such compliance notwithstanding that
such writ, order or decree may be subsequently reversed, modified, annulled, set
15
aside or vacated.
[The remainder of this page is intentionally left blank.]
16
The parties have executed and delivered this Escrow Agreement as
of the date first written above.
WARBURG PINCUS PRIVATE EQUITY VIII,
L.P.
By:
-----------------------------------
Name:
Title:
VOLT DELTA RESOURCES LLC
By:
-----------------------------------
Name:
Title:
LSSi CORP.
By:
-----------------------------------
Name:
Title:
______________ BANK
By:
-----------------------------------
Name:
Title:
Exhibit A
---------
Volt Delta Resources LLC
000 Xxxxxxxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000-0000
[Date]
[_____________]
[_____________]
[_____________]
Re: Contract Termination Escrow Demand
To Whom It May Concern:
Pursuant to Section 3 of the Escrow Agreement, dated as of ___________,
2007 (the "Escrow Agreement"), by and among Warburg Pincus Private Equity VIII,
L.P., in its capacity as the Equityholder Representative for and on behalf of
the Company Stockholders (as defined in the Merger Agreement as defined in the
Escrow Agreement) (the "Equityholder Representative"), Volt Delta Resources LLC,
a Nevada limited liability company (the "Parent"), and [______________], as the
escrow agent (the "Escrow Agent"), the Escrow Agent is hereby directed to pay
from the Contract Termination Escrow Fund as follows (check appropriate box):
|_| (i) to the Parent in the amount required to be paid pursuant to
Section 6.11 of the Merger Agreement regarding the termination of
[insert name of Contract terminated], which amount is equal to
$________; or
|_| (ii) to the Company Stockholders, Option Holders, MIP Participants
or other holders of Equity Interests in the Company in accordance with
the Allocation Spreadsheet as directed by the Equityholder
Representative in the amount required to be paid pursuant to Section
6.11 of the Merger Agreement regarding the termination of [insert name
of Contract terminated], which amount is equal to $________; or
Volt Delta Resources LLC
By:
-----------------------------
Name:
Title:
APPROVED:
Warburg Pincus Private Equity VIII, L.P.,
as Equityholder Representative
By:
-----------------------------
Name:
Title:
Exhibit B
---------
Volt Delta Resources LLC
000 Xxxxxxxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000-0000
[Date]
[_____________]
[_____________]
[_____________]
Re: Indemnity Payment Notice
To Whom It May Concern:
Pursuant to Section 4 of the Escrow Agreement, dated as of ___________,
2007 (the "Escrow Agreement"), by and among Warburg Pincus Private Equity VIII,
L.P., a [________] limited partnership, in its capacity as the Equityholder
Representative for and on behalf of the Company Stockholders (as defined in the
Merger Agreement as defined in the Escrow Agreement) (the "Equityholder
Representative"), Volt Delta Resources LLC, a Delaware limited liability company
(the "Parent"), and [______________], as the escrow agent (the "Escrow Agent"),
the Escrow Agent is hereby directed to pay from the Indemnity Escrow Fund to the
Parent or any Parent Indemnitee (as defined in the Merger Agreement as defined
in the Escrow Agreement) the amount of $____________ to be paid pursuant to
Article IX of the Merger Agreement with respect to the following Damages for
which the Parent or any other Parent Indemnitee are entitled to be indemnified
under [insert brief description of indemnified loss or losses], which amount is
equal to $___________.
The Parent agrees, upon request, to make available to the Equityholder
Representative all relevant information concerning the claim set out in the
Indemnity Payment Notice which is in or comes into the possession of the Parent.
Volt Delta Resources LLC
By:
-----------------------------
Name:
Title:
APPROVED:
Warburg Pincus Private Equity VIII, L.P.,
as Equityholder Representative
By:
-----------------------------
Name:
Title:
Exhibit C
---------
Call-Back Schedule
Telephone Number(s) for Call-backs and
Person(s) Designated to Confirm Funds Transfer Instructions
If to the Parent:
Wire Instructions:
--------------------
--------------------
--------------------
Account Name:
Account #:
ABA#:
Name Telephone Number
---- ----------------
1.
2.
If to the Equityholder Representative:
Wire Instructions:
--------------------
--------------------
--------------------
Account Name:
Account #:
ABA#:
Name Telephone Number
---- ----------------
1.
2.
Exhibit E
---------
IRREVOCABLE CONSENT AND AGREEMENT
---------------------------------
OF
--
STOCKHOLDERS
------------
OF
--
LSSi CORP.
----------
The undersigned (the "Principal Stockholders"), having not less than
the minimum number of votes that would be necessary to take the following action
at an annual or special meeting of stockholders of LSSi Corp. (the "Company") at
which all shares entitled to vote thereon were present and voted, do hereby
irrevocably adopt the following resolutions by written consent pursuant to
Section 228 of the Delaware General Corporation Law with the same force and
effect as if they were approved and adopted at a duly constituted meeting of the
stockholders:
Irrevocable Consent to Approve and Adopt the Merger Agreement
-------------------------------------------------------------
RESOLVED, that the Principal Stockholders, in their capacity as
stockholders of the Company, hereby irrevocably approve and adopt the Agreement
and Plan of Merger, dated as of June 18, 2007, by and between the Company, the
Principal Stockholders, Granite Ventures, LLC, Volt Delta Resources LLC and LSSI
Resources Corp. (the "Merger Agreement").
RESOLVED, that all actions heretofore taken by the officers, directors,
employees, agents and attorneys for the Company in connection with the Merger
Agreement and the transactions contemplated thereby, be, and they hereby are,
ratified and approved.
Agreement
---------
In consideration of the Merger Consideration (as defined in the Merger
Agreement) and other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, and intending to be legally bound
hereby, each Principal Stockholder agrees that it will not transfer (except for
transfers to affiliates) or relinquish its right to vote any of its Equity
Interest (as defined in the Merger Agreement) in the Company prior to the
earlier of the Effective Time (as defined in the Merger Agreement) or the
termination of the Merger Agreement.
[Execution Page Follows]
IN WITNESS WHEREOF, the undersigned, the Principal Stockholders of the
Company, have executed this Irrevocable Consent and Agreement, which may be
executed in counterparts, and which may be by facsimile, as of the ____ day of
June, 2007.
WARBURG PINCUS PRIVATE EQUITY VIII,
L.P.
By:
-----------------------------------
Name:
Title:
H&Q LSSI INVESTORS, L.P.
By:
-----------------------------------
Name:
Title:
GEORGICA ADVISORS, LLC
By:
-----------------------------------
Name:
Title:
[Irrevocable Consent and Agreement Signature Page]
Exhibit F
---------
Form of Opinion of Xxxxxxxx Xxxxxxx LLP
Exhibit G
---------
Licenses and other Government Approvals
California
Certificate of Public Convenience and Necessity (CPCN) to operate as a
limited facilities-based and resale provider of competitive
local-exchange services, and as a limited facilities based provider of
interexchange services shall have been terminated prior to the Closing.
Ohio
Approval to the change of control and merger by the Ohio Public
Utilities Commission with respect to the Certificate of public
convenience and necessity (CPCN) to provide competitive
telecommunication services in the State of Ohio.
