Exhibit 2.1
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
YDI WIRELESS, INC.
T-XXX ACQUISITION CORPORATION
AND
TERABEAM CORPORATION
DATED AS OF APRIL 14, 2004
AGREEMENT AND PLAN OF MERGER
This AGREEMENT AND PLAN OF MERGER (this "Agreement") is made and entered
into as of April 14, 2004 among YDI WIRELESS, INC., a Delaware corporation
("Parent"), T-XXX ACQUISITION CORPORATION, a Washington corporation and a wholly
owned subsidiary of Parent ("Merger Sub"), and TERABEAM CORPORATION, a
Washington corporation (the "Company").
RECITALS
A. Upon the terms and subject to the conditions of this Agreement and in
accordance with the Washington Business Corporation Act (the "Washington
Corporate Law"), Parent and the Company will enter into a business combination
transaction pursuant to which Merger Sub will merge with and into the Company
(the "Merger").
B. The Board of Directors of each of the Company, Parent, and Merger Sub
(i) has determined that the Merger is in the best interests of each company and
their respective stockholders and (ii) has approved this Agreement, the Merger,
and the other transactions contemplated by this Agreement.
C. The Company, Parent, and Merger Sub desire to make certain
representations and warranties and other agreements in connection with the
Merger.
D. The parties intend, by executing this Agreement, to adopt a plan of
reorganization within the meaning of Section 368 of the Internal Revenue Code of
1986, as amended (the "Code").
NOW, THEREFORE, in consideration of the covenants, promises and
representations set forth herein, and for other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, the parties agree
as follows:
ARTICLE I
THE MERGER
1.1 The Merger. At the Effective Time (as defined in Section 1.2)
and subject to and upon the terms and conditions of this Agreement and the
applicable provisions of the Washington Corporate Law, Merger Sub shall be
merged with and into the Company, the separate corporate existence of Merger Sub
shall cease, and the Company shall continue as the surviving corporation. The
Company as the surviving corporation after the Merger is hereinafter sometimes
referred to as the "Surviving Corporation." At the Effective Time, the purpose
of the Surviving Corporation shall be to conduct and engage in all lawful
activities and business to the maximum extent permitted by the Washington
Corporate Law.
1
1.2 Effective Time. Subject to the provisions of this Agreement, the
parties hereto shall cause the Merger to be consummated by filing Articles of
Merger (the "Articles of Merger") with the Secretary of State of the State of
Washington in accordance with the relevant provisions of the Washington
Corporate Law (the time of such filing or such subsequent date or time as the
parties shall agree and specify in the Articles of Merger being the "Effective
Time") as soon as practicable on or after the Closing Date (as herein defined).
The closing of the Merger (the "Closing") shall take place at the offices of the
Parent at a time and date to be specified by the parties, which shall be no
later than the second business day after the satisfaction or waiver of the
conditions set forth in Section 6.1 or at such other time, date, and location as
the parties hereto agree (the "Closing Date").
1.3 Effect of the Merger. At the Effective Time, the effect of the
Merger shall be as provided in this Agreement and the applicable provisions of
the Washington Corporate Law. Without limiting the generality of the foregoing,
and subject thereto, at the Effective Time, all the property, rights,
privileges, powers, and franchises of the Company and Merger Sub shall vest in
the Surviving Corporation, and all debts, liabilities, and duties of the Company
and Merger Sub shall become the debts, liabilities, and duties of the Surviving
Corporation.
1.4 Articles of Incorporation; By-laws.
(a) Unless otherwise determined by Parent prior to the
Effective Time, at the Effective Time, the Articles of Incorporation of Merger
Sub, as in effect immediately prior to the Effective Time, shall be the Articles
of Incorporation of the Surviving Corporation until thereafter amended as
provided by law and such Articles of Incorporation; provided, however, that
Article 1 of the Articles of Incorporation of the Surviving Corporation shall be
amended to read as follows: "The name of the corporation is Terabeam
Corporation." At the Effective Time, the authorized capital stock of the
Surviving Corporation shall be 3,000 shares of common stock, no par value per
share.
(b) The By-laws of Merger Sub, as in effect immediately prior
to the Effective Time, shall be the By-laws of the Surviving Corporation until
thereafter amended.
1.5 Directors and Officers. The directors of Merger Sub shall be the
initial directors of the Surviving Corporation, until their respective
successors are duly elected or appointed and qualified. The officers of Merger
Sub shall be the initial officers of the Surviving Corporation, until their
respective successors are duly elected or appointed and qualified.
1.6 Effect on Capital Stock. At the Effective Time, by virtue of the
Merger and without any action on the part of Merger Sub, the Company, or the
holders of any of the following securities:
(a) Conversion of Company Common Stock. Each share of Company
Voting Stock and of Company Nonvoting Stock (as those terms are defined in
Section 2.2(a)) issued and outstanding immediately prior to the Effective Time
(other than any shares of Company Common Stock (as defined in Section 2.2(a)) to
be canceled pursuant to Section 1.6(b) and Company Dissenting Shares (as defined
in Section 1.6(c) below)) will be canceled and extinguished and be automatically
converted (subject to Sections 1.6(f) and (g)) into the right to
2
receive either: (i) 0.220 shares of common stock, par value $0.01 per share, of
Parent (the "Parent Common Stock") if the Volume-Weighted Average Price of the
Parent Common Stock over the twenty (20) consecutive trading days ending three
(3) trading days prior to the Closing Date (the "Measurement Period") is equal
to, or less than, $5.40 per share (as adjusted for stock splits, combinations,
recapitalizations and the like); or (ii) 0.200 shares of Parent Common Stock if
the Volume-Weighted Average Price of the Parent Common Stock over the
Measurement Period is above $5.40 per share (as adjusted for stock splits,
combinations, recapitalizations and the like) (in either case, the "Exchange
Ratio"), together with cash in lieu of fractional shares pursuant to Section
1.6(g) below (collectively, the "Merger Consideration"), and the right to
receive a certificate therefor, upon surrender of the certificate representing
such share of Company Common Stock in the manner provided in Section 1.7 (or in
the case of a lost, stolen, or destroyed certificate, upon delivery of an
affidavit (and bond, if required) in the manner provided in Section 1.9).
Certificates representing shares of Parent Common Stock issued in connection
with the Merger shall be issued in accordance with Section 1.7 below. For
purposes of this Agreement, the "Volume-Weighted Average Price" of Parent Common
Stock shall be equal to the sum of "X" for each trading day during the
Measurement Period (each such day, a "Subject Day") as calculated using the
following formula:
X = ((Y +Z) / 2) * (A/B)
where X = the weighted average price component for the Subject Day
(rounded to the nearest xxxxx).
Y = the highest sale price of Parent Common Stock on the Subject
Day as reported by the OTC Bulletin Board
(xxxx://xxx.xxxxx.xxx).
Z = the lowest sale price of Parent Common Stock on the Subject
Day as reported by the OTC Bulletin Board.
A = the total number of shares of Parent Common Stock traded on
the Subject Day as reported by the OTC Bulletin Board.
B = the total number of shares of Parent Common Stock traded
during the Measurement Period as reported by the OTC Bulletin
Board.
(b) Cancellation of Company-Owned Stock. Each share of Company
Common Stock owned by any direct or indirect wholly owned subsidiary of the
Company immediately prior to the Effective Time shall be canceled and
extinguished without any conversion thereof.
(c) Dissenting Shares. Notwithstanding anything in this
Agreement to the contrary, shares of Company Common Stock that have not been
voted for adoption of this Agreement and with respect to which appraisal rights
shall have been properly perfected in accordance with Chapter 23B.13 of the
Washington Corporate Law (the "Company Dissenting Shares") shall not be
converted into the right to receive the Merger Consideration in accordance with
this Agreement, at or after the Effective Time, unless and until the holder of
such Company Dissenting Shares withdraws its demand for such appraisal in
accordance with the Washington
3
Corporate Law or becomes ineligible for such appraisal. If a holder of Company
Dissenting Shares shall withdraw its demand for such appraisal in accordance
with the Washington Corporate Law or shall become ineligible for such appraisal,
then, as of the later of the Effective Time or the occurrence of such event,
such holder's Company Dissenting Shares shall cease to be Company Dissenting
Shares and shall be deemed to have converted as of the Effective Time into the
right to receive the Merger Consideration into which its Company Common Stock
would otherwise have converted as of the Effective Time pursuant to this
Agreement. The Company shall give prompt notice to Parent of any demands
received by the Company for appraisal of any shares of capital stock of the
Company, and Parent shall have the right to participate in all negotiations,
proceedings, and settlements with respect to such demands. Before the Effective
Time, the Company shall not, without the prior written consent of Parent, which
consent shall not be unreasonably withheld, make any payment with respect to, or
settle or offer to settle, any such demands or agree to do any of the foregoing.
(d) Stock Options and Warrants. All options and warrants to
purchase Company Common Stock outstanding immediately prior to the Effective
Time shall be treated in accordance with Section 5.11 hereof.
(e) Capital Stock of Merger Sub. Each share of Common Stock,
par value $.01 per share, of Merger Sub issued and outstanding immediately prior
to the Effective Time shall be converted into and exchanged for one validly
issued, fully paid, and nonassessable share of Common Stock, par value $.01 per
share, of the Surviving Corporation. Each stock certificate of Merger Sub
evidencing ownership of any such shares shall continue to evidence ownership of
such shares of capital stock of the Surviving Corporation.
(f) Adjustments to Exchange Ratio. If between the date hereof
and the Effective Time, the outstanding shares of Parent Common Stock or Company
Common Stock shall be changed into a different number of shares by reason of any
reclassification, recapitalization, reorganization, split-up, combination or
exchange of shares, or if any dividend payable in stock or other securities
shall be declared thereon with a record date within such period, the Exchange
Ratio shall be adjusted accordingly to provide to the holders of Company Common
Stock the same economic benefit as was contemplated by this Agreement prior to
such reclassification, recapitalization, reorganization, split-up, combination,
exchange, or dividend. For the purposes of avoiding any ambiguity, any
conversions of Company Nonvoting Stock into Company Voting Stock shall not
affect the Exchange Ratio.
(g) Fractional Shares. No fraction of a share of Parent Common
Stock will be issued by virtue of the Merger, but in lieu thereof each holder of
shares of Company Common Stock who would otherwise be entitled to a fraction of
a share of Parent Common Stock (after aggregating all fractional shares of
Parent Common Stock to be received by such holder) shall receive from Parent,
without interest, an amount of cash (rounded to the nearest whole cent) equal to
the product of (i) such fraction, multiplied by (ii) the Volume-Weighted Average
Price of the Parent Common Stock over the Measurement Period.
1.7 Surrender of Certificates.
4
(a) Exchange Agent. Registrar and Transfer Company, or another
similar institution selected by Parent, shall act as the exchange agent (the
"Exchange Agent") in the Merger.
(b) Parent to Provide Common Stock. Promptly after the
Effective Time, Parent shall make available to the Exchange Agent for exchange
in accordance with this Article I, through such reasonable procedures as Parent
may adopt, the shares of Parent Common Stock issuable pursuant to Section 1.6 in
exchange for outstanding shares of Company Common Stock and cash in an amount
sufficient for payment in lieu of fractional shares pursuant to Section 1.6(g).
(c) Exchange Procedures. Promptly after the Effective Time,
the Surviving Corporation shall cause to be mailed to each holder of record of a
certificate or certificates (the "Certificates") which immediately prior to the
Effective Time represented outstanding shares of Company Common Stock whose
shares were converted into the right to receive shares of Parent Common Stock
and cash in lieu of fractional shares pursuant to Section 1.6, (i) a letter of
transmittal (which shall specify that delivery shall be effected, and risk of
loss and title to the Certificates shall pass, only upon delivery of the
Certificates to the Exchange Agent and shall be in such form and have such other
provisions as Parent may reasonably specify) and (ii) instructions for use in
effecting the surrender of the Certificates in exchange for certificates
representing shares of Parent Common Stock and cash in lieu of fractional
shares. Upon surrender of a Certificate for cancellation to the Exchange Agent
or to such other agent or agents as may be appointed by Parent, together with
such letter of transmittal, duly completed and validly executed in accordance
with the instructions thereto, the holder of such Certificate shall be entitled
to receive in exchange therefor a certificate representing the number of whole
shares of Parent Common Stock and cash in lieu of fractional shares which such
holder has the right to receive pursuant to Section 1.6, and the Certificate so
surrendered shall forthwith be canceled. Until so surrendered, each outstanding
Certificate that, prior to the Effective Time, represented shares of Company
Common Stock will be deemed from and after the Effective Time, for all corporate
purposes other than the payment of dividends, to evidence the right to receive
the number of full shares of Parent Common Stock into which such shares of
Company Common Stock shall have been so converted and the right to receive a
certificate representing shares of Parent Common Stock and an amount in cash in
lieu of the issuance of any fractional shares in accordance with Section 1.6.
(d) Distributions With Respect to Unexchanged Shares. No
dividends or other distributions declared or made after the date of this
Agreement with respect to Parent Common Stock with a record date after the
Effective Time will be paid to the holder of any unsurrendered Certificate with
respect to the shares of Parent Common Stock represented thereby until the
holder of record of such Certificate shall surrender such Certificate. Subject
to applicable law, following surrender of any such Certificate, there shall be
paid to the record holder of the certificates representing whole shares of
Parent Common Stock issued in exchange therefor, without interest, at the time
of such surrender, the amount of dividends or other distributions with a record
date after the Effective Time payable with respect to such whole shares of
Parent Common Stock.
5
(e) Transfers of Ownership. If any certificate for shares of
Parent Common Stock is to be issued in a name other than that in which the
certificate surrendered in exchange therefor is registered, it will be a
condition of the issuance thereof that the certificate so surrendered will be
properly endorsed and otherwise in proper form for transfer and that the person
requesting such exchange will have paid to Parent or any agent designated by it
any transfer or other taxes required by reason of the issuance of a certificate
for shares of Parent Common Stock in any name other than that of the registered
holder of the certificate surrendered, or established to the satisfaction of
Parent or any agent designated by it that such tax has been paid or is not
payable.
(f) No Liability. Notwithstanding anything to the contrary in
this Section 1.7, none of the Exchange Agent, the Surviving Corporation, or any
party hereto shall be liable to a holder of shares of Parent Common Stock or
Company Common Stock for any amount properly paid to a public official pursuant
to the requirements of any applicable abandoned property, escheat or similar
law.
1.8 No Further Ownership Rights in Company Common Stock. All
shares of Parent Common Stock issued upon the surrender for exchange of shares
of Company Common Stock in accordance with the terms hereof (including any cash
paid in respect thereof) shall be deemed to have been issued in full
satisfaction of all rights pertaining to such shares of Company Common Stock,
and, after the Effective Time, there shall be no further registration of
transfers on the records of the Surviving Corporation of shares of Company
Common Stock which were outstanding immediately prior to the Effective Time. If,
after the Effective Time, Certificates are presented to the Surviving
Corporation for any reason, they shall be canceled and exchanged as provided in
this Article I.
1.9 Lost, Stolen, or Destroyed Certificates. In the event any
certificates evidencing shares of Company Common Stock shall have been lost,
stolen, or destroyed, the Exchange Agent shall, upon the making of an affidavit
of that fact by the holder thereof, issue in exchange for such shares of Company
Common Stock such shares of Parent Common Stock and cash in lieu of fractional
shares as may be required pursuant to Section 1.6; provided, however, that
Parent may, in its discretion and as a condition precedent to the issuance
thereof, require the owner of such lost, stolen, or destroyed certificates to
deliver an affidavit of lost certificate and indemnity agreement on such terms
as it may reasonably specify and, if required by the Exchange Agent, a bond in
such sum as the Exchange Agent may reasonably specify as indemnity against any
claim that may be made against Parent, the Surviving Corporation, or the
Exchange Agent with respect to the certificates alleged to have been lost,
stolen, or destroyed.
1.10 Tax Consequences. It is intended by the parties hereto that the
Merger shall constitute a reorganization within the meaning of Section 368 of
the Code.
1.11 Taking of Necessary Actions; Further Action. If, at any time
after the Effective Time, any other action is necessary or desirable to carry
out the purposes of this Agreement and to vest the Surviving Corporation with
full right, title, and possession to all assets, property, rights, privileges,
powers, and franchises of the Company and Merger Sub, the officers and directors
of the Company and Merger Sub are fully authorized in the name of their
6
respective corporations or otherwise to take, and will take, all such lawful and
necessary action, so long as such action is consistent with this Agreement.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to Parent and Merger Sub, subject to
the exceptions specifically disclosed in the disclosure letter supplied by the
Company to Parent (the "Company Letter") and dated as of the date hereof, as
follows:
2.1 Organization of the Company. The Company is a corporation duly
organized and validly existing under the laws of the jurisdiction of its
incorporation, has the corporate power to own, lease, and operate its property
and to carry on its business as now being conducted, and is duly qualified to do
business and in good standing as a foreign corporation in each jurisdiction in
which the failure to be so qualified would have a Material Adverse Effect (as
defined below) on the Company. The Company does not own any subsidiaries and
does not directly or indirectly own any equity or similar interest in, or any
interest convertible into or exchangeable or exercisable for any interest in,
any corporation, partnership, joint venture, or other business association or
entity other than the securities of any publicly traded entity held for
investment only and constituting less than 5% of the outstanding capital stock
of any such entity. For purposes of this Agreement, the term "subsidiary" means
any Person (other than a natural person) of which the Company or Parent, as the
case may be, owns, either directly or indirectly, a majority of the total
combined voting power of all classes of equity thereof having general voting
power under ordinary circumstances to elect a majority of the board of directors
or its equivalent. The Company has made available to counsel for Parent a true
and correct copy of the Articles of Incorporation and By-laws of the Company and
similar governing instruments of its material subsidiaries, each as amended to
date. For purposes of this Agreement, "Material Adverse Effect" shall mean a
material adverse effect on the business, properties, assets (including
intangible assets), financial condition, or results of operations of a Person
(as defined below), taken as a whole, but shall not include any of the foregoing
arising out of, related to, or otherwise by virtue of (a) conditions affecting
the economy or the financial markets generally (except to the extent that such
conditions have a disproportionate adverse effect on such Person compared to
other companies similarly situated as to size, financial strength, and/or other
relevant factors), (b) the announcement of or pendency of any of the
transactions contemplated by this Agreement, (c) events, circumstances, or
conditions generally affecting the industry in which such Person operates
(except to the extent that such events, circumstances, or conditions have a
disproportionate adverse effect on such Person compared to other companies
similarly situated as to size, financial strength, and/or other relevant
factors), (d) any change in law or generally accepted accounting principles, (e)
as to Parent, any change in the market price or trading volume of the securities
of such Person (provided, that if such change in market price or trading volume
is caused by an underlying cause or effect which would otherwise constitute a
Material Adverse Effect, such underlying cause or effect shall nonetheless
continue to constitute and qualify hereunder as a Material Adverse Effect), or
(f) as to the Company, any action, effect, circumstance, change or condition
resulting from, or directly or indirectly connected with or related to, the Cost
Reduction Plan (as defined in Section 4.1 below). For purposes of this
7
Agreement, "Person" shall mean any natural person, corporation, general
partnership, limited partnership, limited liability company, proprietorship, or
other business organization.
2.2 Company Capital Structure
(a) The authorized capital stock of the Company consists of
300,000,000 shares of Common Stock, no par value per share, with voting rights
("Company Voting Stock"), 50,000,000 shares of Common Stock, no par value,
without voting rights ("Company Nonvoting Stock" and, together with the Company
Voting Stock, the "Company Common Stock"), and 100,000,000 shares of preferred
stock. As of April 8, 2004, 47,006,125 shares of Company Voting Stock were
issued and outstanding, no shares of Company Nonvoting Stock were issued and
outstanding, and no shares of preferred stock were issued or outstanding. All
such shares have been duly authorized, and all such issued and outstanding
shares have been validly issued, are fully paid and nonassessable, and are free
of any liens or encumbrances other than any liens or encumbrances created by or
imposed upon the holders thereof. Since December 31, 2003, there have been no
changes in the capital structure of the Company other than issuances of Company
Common Stock upon the exercise of outstanding options and warrants. The Company
has provided to Parent a true and correct list of all holders of shares of
Company Common Stock as of April 8, 2004, showing the stockholder's name,
address, type of Company Common Stock held, and number of shares held.
(b) As of April 8, 2004, (i) the Company had reserved
3,558,593 shares of Company Voting Stock for issuance upon exercise of warrants,
16,555,881 shares of Company Voting Stock for issuance upon exercise of stock
options, and 28,427,730 shares of Company Nonvoting Stock for issuance upon
exercise of stock options, (ii) there were warrants outstanding to purchase
3,558,593 shares of Company Voting Stock, (iii) there were options outstanding
to purchase 16,555,881 shares of Company Voting Stock, and (iv) there were
options outstanding to purchase 28,427,730 shares of Company Nonvoting Stock.
All of the options were issued pursuant to the Company Stock Option Plans (as
defined in Section 5.11 below). All shares of Company Common Stock subject to
issuance as aforesaid have been duly authorized and, upon issuance on the terms
and conditions specified in the instruments pursuant to which they are issuable,
will be validly issued, fully paid, and nonassessable. Since December 31, 2003,
there have been no amendments of any Company stock options or warrants. The
Company has provided to Parent a true and correct list of all holders of
warrants or options to buy shares of Company Common Stock as of April 8, 2004,
showing the security holder's name, address, type of Company Common Stock that
may be purchased, number of warrants or options held, exercise price of the
warrants or options, and expiration date of the warrants or options.
(c) All securities issued by the Company, including stock,
options, and warrants, both currently outstanding and formerly outstanding, were
validly issued in transactions exempt from the registration requirements of the
Securities Act of 1933, as amended (the "Securities Act") and in accordance with
any applicable state securities laws.
(d) The Company has provided to Parent copies of (i) all proxy
statements relating to the Company's meetings of stockholders (whether annual or
special) held since January 1, 2000, (ii) all information statements relating to
stockholder actions since January 1, 2000, (iii) all other reports, letters,
notices, and other documents relating to the
8
purchase, sale, or repurchase of Company securities provided to the Company's
stockholders, option holders, or warrant holders since January 1, 2000, and (iv)
all amendments and supplements to all such proxy statements, information
statements, and other documents. As of their respective dates, the materials
described in clauses (i) through (iv) above (y) were prepared in material
compliance with all requirements of law and regulations applicable to such
materials and (z) did not at the time they were provided to Company security
holders contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading.
2.3 Obligations With Respect to Capital Stock.
(a) Except as set forth in Section 2.2, there are no equity
securities of any class of the Company, or any security convertible or
exchangeable into or exercisable for such equity securities, issued, reserved
for issuance, or outstanding. Except as set forth in Section 2.2, there are no
options, warrants, equity securities, calls, rights, commitments, or agreements
of any character to which the Company is a party or by which it is bound
obligating the Company to issue, deliver, or sell, or cause to be issued,
delivered, or sold, additional shares of capital stock of the Company or
obligating the Company to grant, extend, accelerate the vesting of, or enter
into any such option, warrant, equity security, call, right, commitment, or
agreement.
(b) There are no registration rights, and there is no voting
trust, proxy, rights agreement, "poison pill" anti-takeover plan or other
agreement or understanding to which the Company is a party or by which it is
bound with respect to any security of any class of the Company or with respect
to any security, partnership interest, or similar ownership interest of any
class of any of its subsidiaries. The execution and delivery of this Agreement
by the Company, the performance by the Company of its obligations hereunder, and
consummation by the Company of the transactions contemplated by this Agreement
will not, alone or together with any other event, nor has any event occurred
that would, (i) entitle any Person to any payment under or for any security,
option, warrant, call, right, commitment, or agreement of the Company or (ii)
result in an acceleration of vesting, a change in post-service exercisability
period, or an adjustment to the exercise price or number of shares issuable upon
exercise of any security, option, warrant, call, right, commitment, or agreement
of the Company.
2.4 Authority.
(a) The Company has all requisite corporate power and
authority to enter into this Agreement and to consummate the transactions
contemplated hereby. The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby have been duly authorized
by all necessary corporate action on the part of the Company, subject only to
the approval of the Merger by the vote of the holders of at least two-thirds
(2/3) of the Company Voting Stock issued and outstanding on the record date for
the Company Stockholders' Meeting. This Agreement has been duly executed and
delivered by the Company and constitutes the valid and binding obligation of the
Company, enforceable against the Company in accordance with its terms, except as
enforceability may be limited by bankruptcy and other similar laws and general
principles of equity. The execution and delivery
9
of this Agreement by the Company does not, and the consummation of the
transactions contemplated hereby will not, conflict with, or result in any
violation of, or default under (with or without notice or lapse of time, or
both), or give rise to a right of termination, cancellation or acceleration of
any obligation or loss of any benefit under (i) any provision of the Articles of
Incorporation or By-laws of the Company or (ii) any material mortgage,
indenture, lease, contract or other agreement, or any material permit,
concession, franchise, license, judgment, order, decree, statute, law,
ordinance, rule or regulation applicable to the Company or its properties or
assets.
(b) No consent, approval, order or authorization of, or
registration, declaration or filing with, any court, administrative agency or
commission or other governmental authority or instrumentality ("Governmental
Entity"), is required by or with respect to the Company in connection with the
execution and delivery of this Agreement by the Company or the consummation by
the Company of the transactions contemplated hereby, except for (i) the filing
of the Articles of Merger with the Washington Secretary of State, (ii) the
filing of the Permit Application, the Hearing Notice, and the Information
Statement (as those terms are defined in Section 5.1 below) with the California
Commissioner (as defined in Section 5.1 below), (iii) filings and other items
that may be required in connection with the Xxxx-Xxxxx-Xxxxxx Antitrust
Improvements Act of 1976, as amended (the "HSR Act"), (iv) such other consents,
approvals, orders, authorizations, registrations, declarations and filings as
may be required under applicable federal and state securities laws and the laws
of any foreign country, and (v) such other consents, authorizations, filings,
approvals and registrations which, if not obtained or made, would not have a
Material Adverse Effect on the Company.
2.5 SEC Filings; Company Financial Statements.
(a) The Company has never had any securities registered under
the Securities Act. The Company has never been subject to the periodic reporting
and other requirements of the Securities Exchange Act of 1934, as amended (the
"Exchange Act") and regulations promulgated pursuant thereto. The Company has
not ever filed, or been obligated or required to file, any forms, reports, or
other documents with the Securities and Exchange Commission (the "SEC").
(b) The Company has furnished Parent with copies of its
audited consolidated financial statements for the fiscal years ended December
31, 2000, 2001, and 2002 and with copies of its unaudited consolidated financial
statements for the fiscal year ended December 31, 2003 (collectively, including
in each case any related notes thereto, the "Company Financial Statements").
Each of the Company Financial Statements (i) was prepared in accordance with
United States generally accepted accounting principles ("GAAP") applied on a
consistent basis throughout the periods involved (except as may be indicated in
the notes thereto) and (ii) fairly presented the financial position of the
Company at and as of the respective dates thereof and the results of its
operations, cash flows, and changes in stockholders' equity (if presented) for
the periods indicated. The unaudited balance sheet of the Company as of December
31, 2003 provided by the Company to Parent is hereinafter referred to as the
"Company Balance Sheet."
10
2.6 Absence of Certain Changes or Events. Except with respect to the
actions contemplated by this Agreement, since the date of the Company Balance
Sheet, the Company has conducted its business only in the ordinary course and in
a manner consistent with past practice and, since such date, there has not been
(a) any Material Adverse Effect on the Company or any development that
reasonably would be expected to have a Material Adverse Effect on the Company,
(b) any material liability (direct or contingent) which did not arise in the
ordinary course of business, or (c) any other action or event that would have
required the consent of Parent pursuant to Section 4.1 had such action or event
occurred after the date of this Agreement.
2.7 Taxes.
(a) Definition of Taxes. For the purposes of this Agreement,
"Tax" or "Taxes" refers to any and all federal, state, local and foreign taxes,
assessments and other government charges, duties, impositions and liabilities
relating to taxes, including taxes based upon or measured by gross receipts, net
operating losses, income, profits, sales, use and occupation, and value added,
ad valorem, transfer, franchise, withholding, payroll, recapture, employment,
excise and property taxes, together with all interest, penalties and additions
imposed with respect to such amounts and any obligations under any agreements or
arrangements with any other person with respect to such amounts and including
any liability for taxes of a predecessor entity.
(b) Tax Returns and Audits.
(i) Each of the Company and its subsidiaries has timely
filed all federal, state, local and foreign returns, estimates, information
statements and reports ("Returns") relating to Taxes required to be filed by the
Company and each of its subsidiaries, except such Returns which are not material
to the Company. All such Returns were correct and complete in all material
respects. Each of the Company and its subsidiaries has paid all Taxes due and
owing by the Company and its subsidiaries (whether or not shown on any Tax
Return). The Company is not currently the beneficiary of any extension of time
within which to file any Return.
(ii) Except as is not material to the Company, the
Company will have withheld as of the Effective Time with respect to its
employees all income Taxes, FICA, FUTA, and other Taxes required to be withheld.
(iii) Except as is not material to the Company, neither
the Company nor any of its subsidiaries has been delinquent in the payment of
any Tax nor is there any Tax deficiency outstanding, proposed or assessed
against the Company or any of its subsidiaries, nor has the Company or any of
its subsidiaries executed any waiver of any statute of limitations on or
extending the period for the assessment or collection of any Tax.
(iv) Except as is not material to the Company, no audit
or other examination of any Return of the Company or any of its subsidiaries is
presently in progress, nor has the Company been notified of any request for such
an audit or other examination.
11
(v) The Company does not have any liability for unpaid
Taxes which have not been accrued for or reserved against on the Company Balance
Sheet in accordance with GAAP, whether asserted or unasserted, contingent or
otherwise, which is material to the Company, except liability for unpaid Taxes
which have accrued since the date of the Company Balance Sheet in the ordinary
course of business.
(vi) None of the Company's assets is treated as
"tax-exempt use property" within the meaning of Section 168(h) of the Code.
(vii) There is no contract, agreement, plan or
arrangement, including but not limited to the provisions of this Agreement,
covering any employee or former employee of the Company or any of its
subsidiaries that, individually or collectively, could give rise to the payment
of any amount for which a deduction will be disallowed by reason of Sections
280G, 404 or 162(b) through (o) of the Code.
(viii) Neither the Company nor any of its subsidiaries
has filed any consent agreement under Section 341(f) of the Code or agreed to
have Section 341(f)(2) of the Code apply to any disposition of a subsection (f)
asset (as defined in Section 341(f)(4) of the Code) owned by the Company or any
of its subsidiaries.
(ix) The Company is not, and has not been at any time, a
"United States real property holding corporation" within the meaning of Section
897(c)(2) of the Code.
(x) The Company is not a party to any tax allocation or
sharing agreement. None of the Company and its subsidiaries (A) has been a
member of an Affiliated Group (within the meaning of Section 1504(a) of the
Code, or any similar group defined under a similar provision of state, local, or
foreign law) filing a consolidated federal Return (other than a group the common
parent of which was the Company) or (B) has any liability for the taxes of any
person (other than any of the Company and its subsidiaries) under Treas. Reg.
ss.1.1502-6 (or any similar provision of state, local, or foreign law), as a
transferee or successor, by contract, or otherwise.
(xi) The Company has furnished Parent with a list of all
federal, state, local, and foreign Tax Returns filed with respect to the Company
and its subsidiaries for taxable periods ended on or after January 1, 2000,
which list indicates those Tax Returns that have been audited. The Company has
delivered to Parent correct and complete copies of all federal income Tax
Returns, examination reports, and statements of deficiencies assessed against,
or agreed to by the Company and its subsidiaries since January 1, 2000.
(xii) To the Company's knowledge, the Company will not
be required to include any item of income in, or exclude any item of deduction
from, taxable income for any taxable period (or portion thereof) ending after
the Closing Date as a result of any (A) change in method of accounting for a
taxable period ending on or prior to the Closing Date; (B) "closing agreement"
as described in Code ss. 7121 (or any corresponding or similar provision of
state, local or foreign income Tax law) executed on or prior to the Closing
Date; (C) intercompany transactions or any excess loss account described in
Treasury Regulations under
12
Code ss. 1502 (or any corresponding or similar provision of state, local or
foreign income Tax law); (D) installment sale or open transaction disposition
made on or prior to the Closing Date; or (E) prepaid amount received on or prior
to the Closing Date.
2.8 Absence of Liens and Encumbrances. The Company has good and
valid title to, or, in the case of leased properties and assets, valid leasehold
interests in, all of its material tangible properties and assets, real, personal
and mixed, used in its business, free and clear of any liens or encumbrances
except as reflected in the Company Financial Statements and except for liens for
taxes not yet due and payable and such imperfections of title and encumbrances,
if any, which are not material in character, amount, or extent, and which do not
materially detract from the value, or materially interfere with the present use,
of the property subject thereto or affected thereby.
2.9 Intellectual Property.
(a) The Company, directly or indirectly, owns, or is licensed
or otherwise possesses legally enforceable rights to use, all patents,
trademarks, trade names, service marks, copyrights, and any applications
therefor, maskworks, net lists, schematics, technology, know-how, computer
software programs or applications (in both source code and object code form),
and tangible or intangible proprietary information or material (excluding
Commercial Software as defined in Paragraph (c) below) that are material to the
business of the Company as currently conducted or as proposed to be conducted by
the Company (the "Company Intellectual Property Rights").
(b) The Company is not in violation of any license,
sublicense, or agreement related directly to the Company Intellectual Property
Rights except such violations as do not materially impair the Company's rights
under such license, sublicense, or agreement. The execution and delivery of this
Agreement by the Company, and the consummation of the transactions contemplated
hereby, will neither cause the Company to be in violation or default under any
such license, sublicense, or agreement, nor entitle any other party to any such
license, sublicense, or agreement to terminate or modify such license,
sublicense, or agreement except such violations or defaults as do not materially
impair the Company's rights under such license, sublicense, or agreement. No
material claims with respect to the Company Intellectual Property Rights have
been asserted or, to the knowledge of the Company, are threatened by any Person
nor, to the knowledge of the Company, are there any valid grounds for any bona
fide material claims (i) to the effect that the manufacture, sale, licensing, or
use of any of the products of the Company as now manufactured, sold, licensed,
or used or proposed for manufacture, sale, licensing, or use by the Company
infringes on any copyright, patent, trade xxxx, service xxxx, or trade secret,
(ii) against the use by the Company of any trademarks, service marks, trade
names, trade secrets, copyrights, patents, technology, know-how, or computer
software programs and applications used in the Company's business as currently
conducted or as proposed to be conducted, or (iii) challenging the ownership by
the Company, validity, or effectiveness of any of the Company Intellectual
Property Rights. All material registered trademarks, service marks, and
copyrights held by the Company are valid and subsisting. To the knowledge of the
Company, there is no material unauthorized use, infringement, or
misappropriation of any of the Company Intellectual Property Rights by any third
party, including any employee or former employee of the Company. No Company
Intellectual Property Right owned by the Company or
13
product of the Company, or, to the knowledge of the Company, Company
Intellectual Property Right licensed by the Company is subject to any
outstanding decree, order, judgment, or stipulation restricting in any manner
the licensing thereof by the Company.
(c) "Commercial Software" means packaged commercially
available software programs generally available to the public through retail
dealers in computer software which have been licensed to the Company (or, in the
case of Section 3.9, to Parent) pursuant to end-user licenses and which are used
in the Company's business (or in Parent's business in the case of Section 3.9)
but are in no way a component of or incorporated in or specifically required to
develop or support any of the Company's (or of Parent's in the case of Section
3.9) products and related trademarks, technology and know-how.
2.10 Agreements, Contracts and Commitments. The Company does not
have, nor is it a party to or bound by:
(a) any collective bargaining agreements;
(b) any bonus, deferred compensation, incentive compensation,
pension, profit-sharing or retirement plans, or any other employee benefit plans
or arrangements;
(c) any employment or consulting agreement, contract or
commitment with any officer or director-level employee, not terminable by the
Company on thirty days' notice without liability, except to the extent general
principles of wrongful termination law may limit the Company's ability to
terminate employees at will;
(d) any agreement or plan, including, without limitation, any
stock option plan, stock appreciation right plan or stock purchase plan, any of
the benefits of which will be increased, or the vesting of benefits of which
will be accelerated, by the occurrence of any of the transactions contemplated
by this Agreement or the value of any of the benefits of which will be
calculated on the basis of any of the transactions contemplated by this
Agreement;
(e) any agreement, contract or commitment (excluding real and
personal property leases) which involves payment by the Company of $100,000 or
more (excluding amounts which are already owing by the Company at the date of
the Company Balance Sheet) and is not cancelable without penalty within thirty
(30) days;
(f) any agreement under which the Company is restricted from
selling, licensing, or otherwise distributing any of its products to any class
of customers, in any geographic area, during any period of time, or in any
segment of the market; or
(g) any agreement under which the Company is restricted from
entering into any line of business, introducing any products, undertaking any
activities, or competing with any other person or entity in any line of
business, in any geographic area, during any period of time, or in any segment
of the market.
2.11 No Default. The Company has not breached in any material
respect, or received in writing any claim or threat that it has breached in any
material respect, any of the
14
terms or conditions of any (i) agreement, contract or commitment that was or is
material to the business of the Company or (ii) any agreement under which the
Company licenses from a third party any Company Intellectual Property Rights
included in the Company's products in such a manner as would permit any other
party to cancel or terminate the same or would permit any other party to seek
material damages from the Company thereunder. Each of the agreements, contracts
and commitments referred to in clauses (i) and (ii) above that has not expired
or been terminated in accordance with its terms is in full force and effect and,
except as otherwise disclosed, is not subject to any material default thereunder
of which the Company is aware by any party obligated to the Company pursuant
thereto.
2.12 Governmental Authorization. The Company holds all permits,
licenses, variances, exemptions, orders and approvals of all Governmental
Entities which are material to the operation of the Company's business as
currently conducted (the "Company Permits"). The Company is in material
compliance with the terms of the Company Permits. The business of the Company is
not being conducted in violation of any law, ordinance or regulation of any
Governmental Entity, except for violations or possible violations which
individually or in the aggregate would not have a Material Adverse Effect on the
Company. As of the date of this Agreement, no investigation or review by any
Governmental Entity with respect to the Company is pending or, to the knowledge
of the Company, threatened, nor to the knowledge of the Company, has any
Governmental Entity indicated an intention to conduct the same, other than, in
each case, those the outcome of which would not have a Material Adverse Effect
on the Company.
2.13 Litigation. There is no action, suit, proceeding, claim,
arbitration or investigation pending, or as to which the Company has received
any notice of assertion nor, to the Company's knowledge, is there a reasonable
basis to expect such notice of assertion against the Company or any of its
subsidiaries which it is reasonable to expect that, if determined adversely to
the Company, would have a Material Adverse Effect on the Company.
2.14 Environmental Matters. Neither the Company nor any of its
subsidiaries has been or is currently in material violation of any applicable
statute, law or regulation relating to the environment or occupational health
and safety ("Environmental and Occupational Laws"). The Company has all permits
and other governmental authorizations currently required by all applicable
statutes, laws or regulations relating to the environment or occupational health
and safety necessary for the conduct of its business. Neither the Company nor
any of its subsidiaries has received any communication from a Governmental
Entity, or any written communication from any Person other than a Governmental
Entity, that alleges that it is not in full compliance with Environmental or
Occupational Laws, except for matters alleging items which would not have a
Material Adverse Effect on the Company. There is no claim of a violation of
Environmental and Occupational Laws pending or, to the knowledge of the Company,
threatened against the Company, except for matters alleging items which would
not have a Material Adverse Effect on the Company.
2.15 Brokers' and Finders' Fees. Except for fees payable to Perseus
Group pursuant to the engagement letter between the Company and Perseus, a copy
of which has been provided to Parent, the Company has not incurred, nor will it
incur, directly or indirectly, any
15
liability for brokerage or finders' fees or agents' commissions or any similar
charges in connection with this Agreement, the Merger, or any transaction
contemplated hereby.
2.16 Labor Matters. There are no pending or, to the Company's
knowledge, threatened material claims against the Company under any workers'
compensation plan or policy or for long-term disability. The Company has
complied in all material respects with all applicable provisions of the
Consolidated Omnibus Budget Reconciliation Act of 1985 ("COBRA") and has no
material obligations with respect to any former employees or qualifying
beneficiaries thereunder.
2.17 Employee Benefit Plans.
(a) The Company has made available to Parent (i) accurate and
complete copies of all Benefit Plan documents and all other material documents
relating thereto, including (if applicable) all summary plan descriptions,
summary annual reports and insurance contracts, (ii) accurate and complete
detailed summaries of all unwritten Benefit Plans, (iii) accurate and complete
copies of the most recent financial statements and actuarial reports with
respect to all Benefit Plans for which financial statements or actuarial reports
are required or have been prepared, and (iv) accurate and complete copies of all
annual reports for all Benefit Plans (for which annual reports are required)
prepared within the last three years. "Benefit Plans" means all employee benefit
plans within the meaning of Section 3(3) of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"), and any related or separate
contracts, plans, trusts, programs, policies, agreements, practices, or other
arrangements, in each case whether formal or informal, that provide benefits of
economic value to any present or former employee of the Company (or, in the case
of Section 3.17, Parent) or present or former beneficiary, dependent or assignee
of any such employee or former employee.
(b) All Benefit Plans of the Company conform (and at all times
have conformed) in all material respects to, and are being administered and
operated (and have at all time been administered and operated) in material
compliance with, the requirements of ERISA, the Code and all other applicable
laws or governmental regulations. All returns, reports and disclosure statements
required to be made under ERISA and the Code with respect to all Benefit Plans
have been timely filed or delivered. There have not been any "prohibited
transactions," as such term is defined in Section 4975 of the Code or Section
406 of ERISA involving any of the Benefit Plans, that could subject the Company
to any material penalty or tax imposed under the Code or ERISA.
(c) Each Benefit plan intended to be qualified under Section
401(a) of the Code and each trust intended to qualify under Section 501(a) of
the Code has either (i) applied for, prior to the expiration of the requisite
remedial amendment period under applicable Treasury Regulations or IRS
pronouncements, but has not yet received a response; (ii) obtained a favorable
determination, notification, advisory and/or opinion letter, as applicable, on
which the employer is entitled to rely, as to its qualified status from the IRS
since January 1, 2000; or (iii) still has a remaining period of time to apply
for such a determination letter from the IRS and to make any amendments
necessary to obtain a favorable determination and nothing has occurred since the
date of the most recent determination that could reasonably be expected to cause
any such Benefit Plan or trust to fail to qualify under Section 401(a) or 501(a)
of the Code.
16
(d) The Company does not sponsor, nor has it ever sponsored, a
defined benefit plan subject to Title IV of ERISA, nor has it ever had any
obligation to contribute to any multiemployer plan (as defined in Section 3(37)
of ERISA). The Company does not have any material liability with respect to any
employee benefit plan (as defined in Section 3(3) of ERISA) other than with
respect to the Benefit Plans. For purposes of this Section 2.17, the term "the
Company" shall include any corporation that is a member of any controlled group
of corporations (as defined in Section 414(b) of the Code) that includes the
Company, any trade or business (whether or not incorporated) that is under
common control (as defined in Section 414(c) of the Code) with the Company, any
organization (whether or not incorporated) that is a member of an affiliated
service group (as defined in Section 414(m) of the Code) that includes the
Company and any other entity required to be aggregated with the Company pursuant
to the regulations issued under Section 414(o) of the Code.
(e) There are no pending or, to the knowledge of the Company,
threatened claims by or on behalf of any Benefit Plans, or by or on behalf of
any individual participants or beneficiaries of any Benefit Plans, alleging any
breach of fiduciary duty on the part of the Company or any of its officers,
directors or employees under ERISA or any other applicable regulations, or
claiming benefit payments (other than those made in the ordinary operation of
such plans), nor is there, to the knowledge of the Company, any basis for such
claim, except in any such case as reasonably would not be expected to have a
Material Adverse Effect on the Company. The Benefit Plans are not the subject of
any pending (or to the knowledge of the Company, any threatened) investigation
or audit by the Internal Revenue Service, the Department of Labor or the Pension
Benefit Guaranty Corporation ("PBGC").
(f) The Company has timely made all required contributions
under the Benefit Plans.
(g) With respect to any Benefit Plan that is an employee
welfare benefit plan (within the meaning of Section 3(1) of ERISA) (a "Welfare
Plan"), (i) each Welfare Plan for which contributions are claimed by the Company
as deductions under any provision of the Code is in material compliance with all
applicable requirements pertaining to such deduction, (ii) with respect to any
welfare benefit fund (within the meaning of Section 419 of the Code) related to
a Welfare Plan, there is no disqualified benefit (within the meaning of Section
4976(b) of the Code) that would result in the imposition of a tax under Section
4976(a) of the Code, (iii) any Benefit Plan that is a group health plan (within
the meaning of Section 4980B(g)(2) of the Code) complies, and in each and every
case has complied, with all of the applicable material requirements of Section
4980B of the Code, ERISA, Title XXII of the Public Health Service Act and the
Social Security Act, and (iv) all Welfare Plans may be amended or terminated at
any time on or after the Closing Date. No Benefit Plan provides any health, life
or other welfare coverage to employees of the Company beyond termination of
their employment with the Company by reason or retirement or otherwise, other
than coverage as may be required under Section 4980B of the Code or Part 6 of
ERISA, or under the continuation of coverage provisions of the laws of any state
or locality.
2.18 Compliance With Laws. Each of the Company and its subsidiaries
has complied in all material respects with, is not in material violation of, and
has not received any notices of violation with respect to, any federal, state or
local statute, law or regulation with
17
respect to the conduct of its business, or the ownership or operation of its
business, except in any such case as reasonably would not be expected to have a
Material Adverse Effect on the Company.
2.19 Information Statement, Permit Application, and Hearing Notice.
The written information supplied by the Company for inclusion in the Permit
Application shall not, at the time the Permit Application is filed with the
California Commissioner, contain any untrue statement of a material fact or omit
to state any material fact required to be stated therein or necessary in order
to make the statements therein, in light of the circumstances under which they
are made, not misleading. Subject to the accuracy of Parent's representations
and warranties in Section 3.19 below, each of the Hearing Notice to be sent to
securityholders of the Company in connection with the Hearing (as defined in
Section 5.1) and the Information Statement to be sent to the stockholders of the
Company in connection with the meeting of the Company's stockholders to consider
the Merger (the "Company Stockholders' Meeting") shall not, on the date it is
filed with the California Commissioner, on the date it is first mailed to the
Company's stockholders, at the time of the Company Stockholders' Meeting, or at
the Effective Time (in each case as supplemented or amended through such time),
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they are made, not false or
misleading; or omit to state any material fact necessary to correct any
statement in any earlier communication with respect to the solicitation of
proxies for the Company Stockholders' Meeting which has become false or
misleading. If at any time prior to the Effective Time any information relating
to the Company or any of its affiliates, officers, or directors shall be
discovered by the Company which is required to be set forth in an amendment or
supplement to the Permit Application, the Information Statement, and/or the
Hearing Notice, the Company shall promptly inform Parent. Notwithstanding the
foregoing, the Company makes no representation or warranty with respect to any
information supplied by Parent or Merger Sub which is contained in the Permit
Application, the Information Statement, and/or the Hearing Notice.
2.20 Board Approval. On or prior to the date of this Agreement, the
Board of Directors of the Company, by resolutions duly adopted by unanimous
approval of those voting at a meeting duly called and held and not subsequently
rescinded or modified in any way, has duly (a) determined that this Agreement
and the Merger are fair and in the best interests of the Company and its
stockholders, (b) approved this Agreement and the Merger and determined that the
execution, delivery and performance of this Agreement is desirable, and (c)
recommended that the stockholders of the Company approve and adopt this
Agreement and directed that this Agreement and the transactions contemplated
hereby be submitted for consideration by the Company's stockholders at the
Company Stockholders' Meeting.
2.21 Fairness Opinion. The Company has received a written opinion
from Perseus Group dated on or about the date hereof, that the Exchange Ratio is
fair to the Company's stockholders from a financial point of view and has
delivered to Parent a copy of such opinion.
2.22 Antitakeover Laws Not Applicable. No "fair price," "business
combination," "moratorium," "control share acquisition" or other form of
antitakeover statute or
18
regulation (a "Takeover Statute"), including Chapter 23B.19 of the Washington
Corporate Law, is or will be applicable (as to the Company) to the execution,
delivery, or performance of this Agreement or the consummation of the Merger or
the other transactions contemplated by this Agreement.
2.23 Full Disclosure. Neither this Agreement nor any written
statement, report, or other document furnished by the Company pursuant to this
Agreement or in connection with the transactions contemplated hereby with
respect to the Company, taken as a whole, contains any untrue statement of a
material fact or omits to state a material fact necessary in order to make the
statements contained herein or therein, in light of the circumstances under
which they are made, not false or misleading.
2.24 FIRPTA. The Company Common Stock is not a "U.S. Real Property
Interest" as defined in Treasury Regulation Section 1.897-2(h)(2).
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB
Parent and Merger Sub represent and warrant to the Company, subject to the
exceptions specifically disclosed in the disclosure letter supplied by Parent to
the Company (the "Parent Letter") and dated as of the date hereof, as follows:
3.1 Organization of Parent and Merger Sub. Each of Parent, its
material subsidiaries, and Merger Sub is a corporation duly organized, validly
existing, and in good standing under the laws of the jurisdiction of its
incorporation, has the corporate power to own, lease, and operate its property
and to carry on its business as now being conducted, and is duly qualified to do
business and in good standing as a foreign corporation in each jurisdiction in
which the failure to be so qualified would have a Material Adverse Effect on
Parent. Except as set forth in the Parent SEC Reports (as defined below in
Section 3.5) filed with the SEC prior to the date of this Agreement, Parent
owns, directly or indirectly through one or more subsidiaries, 100% of the
capital stock of each of its subsidiaries and does not directly or indirectly
own any equity or similar interest in, or any interest convertible into or
exchangeable or exercisable for any interest in, any corporation, partnership,
joint venture, or other business association or entity other than the securities
of any publicly-traded entity held for investment only and constituting less
than 5% of the outstanding capital stock of any such entity. Parent has made
available to counsel for the Company a true and correct copy of the Certificate
of Incorporation and By-laws of Parent and the Articles of Incorporation and
By-laws of Merger Sub, and similar governing instruments of its material
subsidiaries, each as amended to date.
3.2 Capital Structure.
(a) The authorized capital stock of Parent consists of
100,000,000 shares of Parent Common Stock and 4,500,000 shares of Preferred
Stock, $.01 par value. As of April 8, 2004, 14,263,488 shares of Parent Common
Stock were issued and outstanding and no shares of preferred stock of Parent
were issued or outstanding. The authorized capital stock of Merger Sub consists
of 3,000 shares of Common Stock, $.01 par value, 100 shares of which, as
19
of the date hereof, are issued and outstanding and are held by Parent. All such
shares have been duly authorized, and all such issued and outstanding shares
have been validly issued, are fully paid and nonassessable, and are free of any
liens or encumbrances other than any liens or encumbrances created by or imposed
upon the holders thereof. Since December 31, 2003, there have been no changes in
the capital structure of Parent other than issuances of Parent Common Stock upon
the exercise of outstanding options and warrants.
(b) As of April 8, 2004, (i) Parent had reserved 389,626
shares of Parent Common Stock for issuance upon exercise of warrants and
1,309,750 shares of Parent Common Stock for issuance upon exercise of stock
options, (ii) there were warrants outstanding to purchase 389,626 shares of
Parent Common Stock, and (iii) there were options outstanding to purchase
866,246 shares of Parent Common Stock. All of the outstanding options were
issued pursuant to Parent's 1986 Stock Plan, 1987 Stock Plan, 1996 Stock Plan,
1997 Stock Plan, 1999 Stock Plan, 2001 Nonqualified Stock Option Plan, or 2002
Stock Incentive Plan (collectively, the "Parent Stock Option Plan"). All shares
of Parent Common Stock subject to issuance as aforesaid have been duly
authorized and, upon issuance on the terms and conditions specified in the
instruments pursuant to which they are issuable, will be validly issued, fully
paid, and nonassessable. Since December 31, 2003, there have been no amendments
of any Parent stock options or warrants.
(c) The shares of Parent Common Stock to be issued pursuant to
the Merger will, upon issuance, be duly authorized, validly issued, fully paid,
and non-assessable.
3.3 Obligations With Respect to Capital Stock.
(a) Except as set forth in Section 3.2, there are no equity
securities of any class of Parent, or any security convertible or exchangeable
into or exercisable for such equity securities, issued, reserved for issuance,
or outstanding. Except for securities Parent owns, directly or indirectly
through one or more subsidiaries, there are no equity securities of any class of
any subsidiary of Parent, or any security convertible or exchangeable into or
exercisable for such equity securities, issued, reserved for issuance, or
outstanding. Except as set forth in Section 3.2, there are no options, warrants,
equity securities, calls, rights, commitments, or agreements of any character to
which Parent or any of its subsidiaries is a party or by which it is bound
obligating Parent or any of its subsidiaries to issue, deliver, or sell, or
cause to be issued, delivered, or sold, additional shares of capital stock of
Parent or any of its subsidiaries or obligating Parent or any of its
subsidiaries to grant, extend, accelerate the vesting of or enter into any such
option, warrant, equity security, call, right, commitment, or agreement.
(b) Except as contemplated by this Agreement, there are no
registration rights, and there is no voting trust, proxy, rights agreement,
"poison pill" anti-takeover plan, or other agreement or understanding to which
Parent or any of its subsidiaries is a party or by which it or any of its
subsidiaries is bound with respect to any security of any class of Parent or
with respect to any security, partnership interest, or similar ownership
interest of any class of any of its subsidiaries. The execution and delivery of
this Agreement by Parent and Merger Sub, the performance by Parent and Merger
Sub of their obligations hereunder, and consummation by Parent and Merger Sub of
the transactions contemplated by this Agreement will not, alone or together with
any other event, nor has any event occurred that would, (i) entitle
20
any Person to any payment under or for any security, option, warrant, call,
right, commitment, or agreement of Parent or Merger Sub or (ii) result in an
acceleration of vesting, a change in post-service exercisability period, or an
adjustment to the exercise price or number of shares issuable upon exercise of
any security, option, warrant, call, right, commitment, or agreement of Parent
or Merger Sub.
3.4 Authority.
(a) Parent and Merger Sub have all requisite corporate power
and authority to enter into this Agreement and to consummate the transactions
contemplated hereby. The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby have been duly authorized
by all necessary corporate action on the part of Parent and Merger Sub. This
Agreement has been duly executed and delivered by Parent and Merger Sub and
constitutes the valid and binding obligations of Parent and Merger Sub,
enforceable against Parent and Merger Sub in accordance with its terms, except
as enforceability may be limited by bankruptcy and other similar laws and
general principles of equity. The execution and delivery of this Agreement by
Parent and Merger Sub does not, and the consummation of the transactions
contemplated hereby by Parent and Merger Sub will not, conflict with, or result
in any violation of, or default under (with or without notice or lapse of time,
or both), or give rise to a right of termination, cancellation, or acceleration
of any obligation or loss of any benefit under (i) any provision of the
Certificate of Incorporation or By-laws of Parent, the Articles of Incorporation
or By-laws of Merger Sub, or similar governing instruments of any of its
subsidiaries or (ii) any material mortgage, indenture, lease, contract, or other
agreement, or any material permit, concession, franchise, license, judgment,
order, decree, statute, law, ordinance, rule, or regulation applicable to Parent
or its properties or assets.
(b) No consent, approval, order, or authorization of, or
registration, declaration, or filing with, any Governmental Entity is required
by or with respect to Parent and Merger Sub in connection with the execution and
delivery of this Agreement by Parent and Merger Sub or the consummation by
Parent and Merger Sub of the transactions contemplated hereby, except for (i)
the filing of the Articles of Merger with the Washington Secretary of State,
(ii) the filing of the Permit Application, the Hearing Notice, and the
Information Statements with the California Commissioner, (iii) the filing of a
Form 8-K with the SEC, (iv) filings and other items that may be required in
connection with the HSR Act, (v) such other consents, approvals, orders,
authorizations, registrations, declarations and filings as may be required under
applicable federal and state securities laws and the laws of any foreign
country, and (vi) such other consents, authorizations, filings, approvals, and
registrations which, if not obtained or made, would not have a Material Adverse
Effect on Parent.
3.5 SEC Filings, Parent Financial Statements.
(a) Parent has filed all forms, reports, and documents
required to be filed with the SEC since January 1, 2000 and has made available
to the Company, in the form filed with the SEC, (i) its Annual Reports on Form
10-K for the fiscal years ended December 31, 2000, 2001, 2002, and 2003, (ii)
all proxy statements relating to Parent's meetings of stockholders (whether
annual or special) held since January 1, 2000, (iii) all information statements
relating to stockholder actions since January 1, 2000, (iv) all other reports or
21
registration statements filed by Parent with the SEC since January 1, 2000, and
(v) all amendments and supplements to all such reports, proxy statements,
information statements, and registration statements filed by Parent with the
SEC; and Parent will make available to the Company in the form filed with the
SEC, as soon as practicable, its Quarterly Report on Form 10-Q for the period
ended March 31, 2004. All such required forms, reports and documents (including
those enumerated in clauses (i) through (vi) of the preceding sentence and
Parent's March 31, 2004 Form 10-Q, when filed) are referred to herein as the
"Parent SEC Reports." With respect to Parent's Form 10-K for the period ending
December 31, 2003 and Forms 10-Q for the periods ending June 30, 2003 and
September 30, 2003, the term "Parent SEC Reports" shall refer to those three
forms each as amended by Amendment No. 1 thereto as filed with the SEC on March
25, 2004. As of their respective dates, the Parent SEC Reports (i) were prepared
in accordance with the requirements of the Securities Act or the Exchange Act,
as the case may be, and the rules and regulations of the SEC thereunder
applicable to such Parent SEC Reports and (ii) did not at the time they were
filed (or if amended or superseded by a filing prior to the date of this
Agreement, then on the date of such filing) contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading. None of Parent's
subsidiaries is required to file any forms, reports or other documents with the
SEC.
(b) Each of the consolidated financial statements (including,
in each case, any related notes thereto) contained in the Parent SEC Reports
(the "Parent Financial Statements"), including any Parent SEC Reports filed
after the date hereof until the Closing, (x) complied or will comply as to form
in all material respects with the published rules and regulations of the SEC
with respect thereto, (y) was or will be prepared in accordance with GAAP
applied on a consistent basis throughout the periods involved (except as may be
indicated in the notes thereto), and (z) fairly presented or will fairly present
the consolidated financial position of Parent and its subsidiaries as at the
respective dates thereof and the consolidated results of its operations, cash
flows, and changes in stockholders' equity (if presented) for the periods
indicated, except that the unaudited interim financial statements were or are
subject to normal and recurring year-end adjustments which were not or are not
expected to be material in amount. The audited balance sheet of Parent as of
December 31, 2003 contained in the Parent SEC Reports is hereinafter referred to
as the "Parent Balance Sheet."
(c) Parent has heretofore furnished to the Company a complete
and correct copy of any amendments or modifications, which have not yet been
filed with the SEC but which are required to be filed, to agreements, documents,
or other instruments which previously had been filed by Parent with the SEC
pursuant to the Securities Act or the Exchange Act.
3.6 Absence of Certain Changes or Events. Except as with respect to
the actions contemplated by this Agreement or disclosed in the Parent SEC
Reports filed with the SEC prior to the date of this Agreement, since the date
of the Parent Balance Sheet, Parent and its subsidiaries have conducted their
businesses only in the ordinary course and in a manner consistent with past
practice and, since such date, there has not been (a) any Material Adverse
Effect on Parent or any development that reasonably would be expected to have a
Material
22
Adverse Effect on Parent, (b) any material liability (direct or contingent)
which did not arise in the ordinary course of business, or (c) any other action
or event that would have required the consent of the Company pursuant to Section
4.2 had such action or event occurred after the date of this Agreement.
3.7 Taxes.
(a) Each of Parent and its subsidiaries has timely filed all
Returns relating to Taxes required to be filed by Parent and each of its
subsidiaries, except such Returns which are not material to Parent. All such
Returns were correct and complete in all material respects. Each of Parent and
its subsidiaries has paid all Taxes due and owing by Parent and its subsidiaries
(whether or not shown on any Tax Return). None of Parent and its subsidiaries
currently is the beneficiary of any extension of time within which to file any
Return.
(b) Except as is not material to Parent, each of Parent and
its subsidiaries will have withheld as of the Effective Time with respect to its
employees all income Taxes, FICA, FUTA, and other Taxes required to be withheld.
(c) Except as is not material to Parent, neither Parent nor
any of its subsidiaries has been delinquent in the payment of any Tax nor is
there any Tax deficiency outstanding, proposed, or assessed against Parent or
any of its subsidiaries, nor has Parent or any of its subsidiaries executed any
waiver of any statute of limitations on or extending the period for the
assessment or collection of any Tax.
(d) Except as is not material to Parent, no audit or other
examination of any Return of Parent or any of its subsidiaries is presently in
progress, nor has Parent or any of its subsidiaries been notified of any request
for such an audit or other examination.
(e) Neither Parent nor any of its subsidiaries has any
liability for unpaid Taxes which have not been accrued for or reserved against
on the Parent Balance Sheet in accordance with GAAP, whether asserted or
unasserted, contingent or otherwise, which is material to Parent, except
liability for unpaid Taxes which have accrued since the date of the Parent
Balance Sheet in the ordinary course of business.
(f) None of Parent's assets is treated as "tax-exempt use
property" within the meaning of Section 168(h) of the Code.
(g) There is no contract, agreement, plan, or arrangement,
including but not limited to the provisions of this Agreement, covering any
employee or former employee of Parent or any of its subsidiaries that,
individually or collectively, could give rise to the payment of any amount for
which a deduction will be disallowed by reason of Sections 280G, 404 or 162(b)
through (o) of the Code.
(h) Neither Parent nor any of its subsidiaries has filed any
consent agreement under Section 341(f) of the Code or agreed to have Section
341(f)(2) of the Code apply to any disposition of a subsection (f) asset (as
defined in Section 341(f)(4) of the Code) owned by Parent or any of its
subsidiaries.
23
(i) Parent is not, and has not been at any time, a "United
States real property holding corporation" within the meaning of Section
897(c)(2) of the Code.
(j) None of the Parent and its subsidiaries is a party to any
tax allocation or sharing agreement. None of the Parent and its subsidiaries (A)
has been a member of an Affiliated Group (within the meaning of Section 1504(a)
of the Code, or any similar group defined under a similar provision of state,
local, or foreign law) filing a consolidated federal Return (other than a group
the common parent of which was the Parent) or (B) has any liability for the
taxes of any person (other than any of the Parent and its subsidiaries) under
Treas. Reg. ss.1.1502-6 (or any similar provision of state, local, or foreign
law), as a transferee or successor, by contract, or otherwise.
(k) Parent has furnished the Company with a list of all
federal, state, local, and foreign Tax Returns filed with respect to Parent and
its subsidiaries for taxable periods ended on or after January 1, 2000, which
list indicates those Tax Returns that have been audited. Parent has delivered to
the Company correct and complete copies of all federal income Tax Returns,
examination reports, and statements of deficiencies assessed against, or agreed
to by Parent and its subsidiaries since January 1, 2000.
(l) To Parent's knowledge, neither Parent nor any of its
subsidiaries will be required to include any item of income in, or exclude any
item of deduction from, taxable income for any taxable period (or portion
thereof) ending after the Closing Date as a result of any (A) change in method
of accounting for a taxable period ending on or prior to the Closing Date; (B)
"closing agreement" as described in Code ss. 7121 (or any corresponding or
similar provision of state, local or foreign income Tax law) executed on or
prior to the Closing Date; (C) intercompany transactions or any excess loss
account described in Treasury Regulations under Code ss. 1502 (or any
corresponding or similar provision of state, local or foreign income Tax law);
(D) installment sale or open transaction disposition made on or prior to the
Closing Date; or (E) prepaid amount received on or prior to the Closing Date.
3.8 Absence of Liens and Encumbrances. Each of Parent and its
subsidiaries has good and valid title to, or, in the case of leased properties
and assets, valid leasehold interests in, all of its material tangible
properties and assets, real, personal, and mixed, used in its business, free and
clear of any liens or encumbrances except as reflected in the Parent Financial
Statements and except for liens for taxes not yet due and payable and such
imperfections of title and encumbrances, if any, which are not material in
character, amount, or extent and which do not materially detract from the value,
or materially interfere with the present use, of the property subject thereto or
affected thereby.
3.9 Intellectual Property.
(a) Parent, directly or indirectly, owns, or is licensed or
otherwise possesses legally enforceable rights to use, all patents, trademarks,
trade names, service marks, copyrights, and any applications therefor,
maskworks, net lists, schematics, technology, know-how, computer software
programs or applications (in both source code and object code form), and
tangible or intangible proprietary information or material (excluding Commercial
24
Software) that are material to the business of Parent as currently conducted or
as proposed to be conducted by Parent (the "Parent Intellectual Property
Rights").
(b) Parent is not in violation of any license, sublicense, or
agreement related directly to the Parent Intellectual Property Rights except
such violations as do not materially impair Parent's rights under such license,
sublicense, or agreement. The execution and delivery of this Agreement by
Parent, and the consummation of the transactions contemplated hereby, will
neither cause Parent to be in violation or default under any such license,
sublicense or agreement, nor entitle any other party to any such license,
sublicense or agreement to terminate or modify such license, sublicense or
agreement except such violations or defaults as do not materially impair
Parent's rights under such license, sublicense or agreement. No material claims
with respect to the Parent Intellectual Property Rights have been asserted or,
to the knowledge of Parent, are threatened by any Person, nor, to the knowledge
of Parent, are there any valid grounds for any bona fide material claims (i) to
the effect that the manufacture, sale, licensing or use of any of the products
of Parent or any of its subsidiaries as now manufactured, sold, licensed, or
used or proposed for manufacture, sale, licensing, or use by Parent infringes on
any copyright, patent, trade xxxx, service xxxx, or trade secret, (ii) against
the use by Parent or any of its subsidiaries of any trademarks, service marks,
trade names, trade secrets, copyrights, patents, technology, know-how, or
computer software programs and applications used in Parent's business as
currently conducted or as proposed to be conducted, or (iii) challenging the
ownership by Parent, validity, or effectiveness of any of the Parent
Intellectual Property Rights. All material registered trademarks, service marks,
and copyrights held by Parent are valid and subsisting. To the knowledge of
Parent, there is no material unauthorized use, infringement or misappropriation
of any of the Parent Intellectual Property Rights by any third party, including
any employee or former employee of Parent. No Parent Intellectual Property Right
owned by Parent or product of Parent or any of its subsidiaries, or, to the
knowledge of Parent, Parent Intellectual Property Right licensed by Parent or
its subsidiaries is subject to any outstanding decree, order, judgment, or
stipulation restricting in any manner the licensing thereof by Parent or any of
its subsidiaries.
3.10 Agreements, Contracts and Commitments. Except as set forth in
the Parent SEC Reports filed with the SEC prior to the date of this Agreement,
neither Parent nor any of its subsidiaries has, nor is it a party to nor is it
bound by:
(a) any collective bargaining agreements;
(b) any bonus, deferred compensation, incentive compensation,
pension, profit-sharing or retirement plans, or any other employee benefit plans
or arrangements;
(c) any employment or consulting agreement, contract or
commitment with any officer or director-level employee, not terminable by Parent
on thirty days notice without liability, except to the extent general principles
of wrongful termination law may limit Parent's ability to terminate employees at
will;
(d) any agreement or plan, including, without limitation, any
stock option plan, stock appreciation right plan or stock purchase plan, any of
the benefits of which will be increased, or the vesting of benefits of which
will be accelerated, by the occurrence of
25
any of the transactions contemplated by this Agreement or the value of any of
the benefits of which will be calculated on the basis of any of the transactions
contemplated by this Agreement;
(e) any agreement, contract or commitment (excluding real and
personal property leases) which involves payment by Parent of $100,000 or more
(excluding amounts which are already owing by Parent or such subsidiary at the
date of the Parent Balance Sheet) and is not cancelable without penalty within
thirty (30) days;
(f) any agreement under which Parent or its subsidiaries is
restricted from selling, licensing, or otherwise distributing any of its
products to any class of customers, in any geographic area, during any period of
time, or in any segment of the market; or
(g) any agreement under which Parent or Merger Sub is
restricted from entering into any line of business, introducing any products,
undertaking any activities, or competing with any other person or entity in any
line of business, in any geographic area, during any period of time, or in any
segment of the market.
3.11 No Default. Neither Parent nor any of its subsidiaries has
breached in any material respect, or received in writing any claim or threat
that it has breached in any material respect, any of the terms or conditions of
any (i) agreement, contract or commitment that was or is required to be filed as
an exhibit to the Parent SEC Reports or (ii) any agreement under which Parent or
any of its subsidiaries licenses from a third party any Parent Intellectual
Property Rights included in Parent's products in such a manner as would permit
any other party to cancel or terminate the same or would permit any other party
to seek material damages from Parent thereunder. Each of the agreements,
contracts and commitments referred to in clauses (i) and (ii) above that has not
expired or been terminated in accordance with its terms is in full force and
effect and, except as otherwise disclosed, is not subject to any material
default thereunder of which Parent is aware by any party obligated to Parent
pursuant thereto.
3.12 Governmental Authorization. Parent holds all permits, licenses,
variances, exemptions, orders and approvals of all Governmental Entities which
are material to the operation of Parent's business as currently conducted (the
"Parent Permits"). Parent is in material compliance with the terms of the Parent
Permits. Except as set forth in the Parent SEC Reports filed with the SEC prior
to the date of this Agreement, the business of Parent is not being conducted in
violation of any law, ordinance or regulation of any Governmental Entity, except
for violations or possible violations which individually or in the aggregate
would not have a Material Adverse Effect on Parent. As of the date of this
Agreement, no investigation or review by any Governmental Entity with respect to
Parent is pending or, to the knowledge of Parent, threatened, nor to the
knowledge of Parent, has any Governmental Entity indicated an intention to
conduct the same, other than, in each case, those the outcome of which would not
have a Material Adverse Effect on Parent.
3.13 Litigation. Except as set forth in the Parent SEC Reports filed
with the SEC prior to the date of this Agreement, there is no action, suit,
proceeding, claim, arbitration or investigation pending, or as to which Parent
or any of its subsidiaries has received any notice of assertion nor, to Parent's
knowledge, is there a reasonable basis to expect such notice of assertion
against Parent or any of its subsidiaries which it is reasonable to expect that,
if
26
determined adversely to Parent or any of its subsidiaries, would have a Material
Adverse Effect on Parent.
3.14 Environmental Matters. Neither Parent nor any of is
subsidiaries has been or is currently in material violation of any applicable
Environmental and Occupational Laws. Each of Parent and its subsidiaries has all
permits and other governmental authorizations currently required by all
applicable statutes, laws or regulations relating to the environment or
occupational health and safety necessary for the conduct of its business.
Neither Parent nor any of its subsidiaries has received any communication from a
Governmental Entity, or any written communication from any Person other than a
Governmental Entity, that alleges that it is not in full compliance with
Environmental or Occupational Laws, except for matters alleging items which
would not have a Material Adverse Effect on Parent. There is no claim of a
violation of Environmental and Occupational Laws pending or, to the knowledge of
Parent, threatened against Parent, except for matters alleging items which would
not have a Material Adverse Effect on Parent.
3.15 Broker's and Finders' Fees. Parent has not incurred, and will
not incur, directly or indirectly, any liability for brokerage or finders' fees
or agents' commissions or any similar charges in connection with this Agreement,
the Merger or any transaction contemplated hereby.
3.16 Labor Matters. There are no pending or, to Parent's knowledge,
threatened material claims against Parent or any of its subsidiaries under any
workers' compensation plan or policy or for long-term disability. Parent and
each of its United States subsidiaries has complied in all material respects
with all applicable provisions of COBRA and has no material obligations with
respect to any former employees or qualifying beneficiaries thereunder.
3.17 Employee Benefit Plans.
(a) Parent has made available to the Company (i) accurate and
complete copies of all Benefit Plan documents and all other material documents
relating thereto, including (if applicable) all summary plan descriptions,
summary annual reports and insurance contracts, (ii) accurate and complete
detailed summaries of all unwritten Benefit Plans, (iii) accurate and complete
copies of the most recent financial statements and actuarial reports with
respect to all Benefit Plans for which financial statements or actuarial reports
are required or have been prepared and (iv) accurate and complete copies of all
annual reports for all Benefit Plans (for which annual reports are required)
prepared within the last three years.
(b) All Benefit Plans of Parent conform (and at all times have
conformed) in all material respects to, and are being administered and operated
(and have at all time been administered and operated) in material compliance
with, the requirements of ERISA, the Code and all other applicable laws or
governmental regulations. All returns, reports and disclosure statements
required to be made under ERISA and the Code with respect to all Benefit Plans
have been timely filed or delivered. There have not been any "prohibited
transactions," as such term is defined in Section 4975 of the Code or Section
406 of ERISA involving any of the
27
Benefit Plans, that could subject Parent to any material penalty or tax imposed
under the Code or ERISA.
(c) Each Benefit plan intended to be qualified under Section
401(a) of the Code and each trust intended to qualify under Section 501(a) of
the Code has either (i) applied for, prior to the expiration of the requisite
remedial amendment period under applicable Treasury Regulations or IRS
pronouncements, but has not yet received a response; (ii) obtained a favorable
determination, notification, advisory and/or opinion letter, as applicable, on
which the employer is entitled to rely, as to its qualified status from the IRS
since January 1, 2000; or (iii) still has a remaining period of time to apply
for such a determination letter from the IRS and to make any amendments
necessary to obtain a favorable determination and nothing has occurred since the
date of the most recent determination that could reasonably be expected to cause
any such Benefit Plan or trust to fail to qualify under Section 401(a) or 501(a)
of the Code.
(d) Parent does not sponsor, nor has it ever sponsored, a
defined benefit plan subject to Title IV of ERISA, nor has it ever had any
obligation to contribute to any multiemployer plan (as defined in Section 3(37)
of ERISA). Parent does not have any material liability with respect to any
employee benefit plan (as defined in Section 3(3) of ERISA) other than with
respect to the Benefit Plans. For purposes of this Section 3.17, the term
"Parent" shall include any corporation that is a member of any controlled group
of corporations (as defined in Section 414(b) of the Code) that includes Parent,
any trade or business (whether or not incorporated) that is under common control
(as defined in Section 414(c) of the Code) with Parent, any organization
(whether or not incorporated) that is a member of an affiliated service group
(as defined in Section 414(m) of the Code) that includes Parent and any other
entity required to be aggregated with Parent pursuant to the regulations issued
under Section 414(o) of the Code.
(e) There are no pending or, to the knowledge of Parent,
threatened claims by or on behalf of any Benefit Plans, or by or on behalf of
any individual participants or beneficiaries of any Benefit Plans, alleging any
breach of fiduciary duty on the part of Parent or any of its officers, directors
or employees under ERISA or any other applicable regulations, or claiming
benefit payments (other than those made in the ordinary operation of such
plans), nor is there, to the knowledge of Parent, any basis for such claim,
except in any such case as reasonably would not be expected to have a Material
Adverse Effect on Parent. The Benefit Plans are not the subject of any pending
(or to the knowledge of Parent, any threatened) investigation or audit by the
Internal Revenue Service, the Department of Labor or the PBGC.
(f) Parent has timely made all required contributions under
the Benefit Plans.
(g) With respect to any Benefit Plan that is a Welfare Plan,
(i) each Welfare Plan for which contributions are claimed by Parent as
deductions under any provision of the Code is in material compliance with all
applicable requirements pertaining to such deduction, (ii) with respect to any
welfare benefit fund (within the meaning of Section 419 of the Code) related to
a Welfare Plan, there is no disqualified benefit (within the meaning of Section
4976(b) of the Code) that would result in the imposition of a tax under Section
4976(a) of the Code, (iii) any Benefit Plan that is a group health plan (within
the meaning of
28
Section 4980B(g)(2) of the Code) complies, and in each and every case has
complied, with all of the applicable material requirements of Section 4980B of
the Code, ERISA, Title XXII of the Public Health Service Act and the Social
Security Act, and (iv) all Welfare Plans may be amended or terminated at any
time on or after the Closing Date. No Benefit Plan provides any health, life or
other welfare coverage to employees of Parent beyond termination of their
employment with Parent by reason or retirement or otherwise, other than coverage
as may be required under Section 4980B of the Code or Part 6 of ERISA, or under
the continuation of coverage provisions of the laws of any state or locality.
3.18 Compliance With Laws. Each of Parent and its subsidiaries has
complied in all material respects with, is not in material violation of, and has
not received any notices of violation with respect to, any federal, state or
local statute, law or regulation with respect to the conduct of its business, or
the ownership or operation of its business, except in any such case as
reasonably would not be expected to have a Material Adverse Effect on Parent.
3.19 Information Statement, Permit Application, and Hearing Notice.
Subject to the accuracy of the Company's representations and warranties in
Section 2.19 above, the Permit Application shall not, at the time the Permit
Application is filed with the California Commissioner, contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary in order to make the statements therein not
misleading. The written information supplied by Parent for inclusion in each of
the Hearing Notice and the Information Statement shall not, on the date it is
filed with the California Commissioner, on the date it is first mailed to the
Company's stockholders, at the time of the Company Stockholders' Meeting, or at
the Effective Time (in each case as supplemented or amended through such time),
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they are made, not false or
misleading; or omit to state any material fact necessary to correct any
statement in any earlier communication with respect to the solicitation of
proxies for the Company Stockholders' Meeting which has become false or
misleading. If at any time prior to the Effective Time any information relating
to Parent or any of its affiliates, officers, or directors shall be discovered
by Parent which is required to be set forth in an amendment or supplement to the
Permit Application, the Information Statement, and/or the Hearing Notice, Parent
shall promptly inform the Company. Notwithstanding the foregoing, Parent makes
no representation or warranty with respect to any information supplied by the
Company which is contained in the Permit Application, the Information Statement,
and/or the Hearing Notice.
3.20 Board Approval. On or prior to the date of this Agreement, the
Board of Directors of Parent, by resolutions duly adopted by unanimous vote of
those voting at a meeting duly called and held and not subsequently rescinded or
modified in any way, has duly (a) determined that this Agreement, the Merger and
the issuance of Parent Common Stock pursuant to this Agreement are in the best
interests of Parent and its stockholders and (b) approved this Agreement and the
Merger and determined that the execution, delivery and performance of this
Agreement is advisable.
3.21 Antitakeover Laws Not Applicable. No Takeover Statute is or
will be applicable (as to Parent) to the execution, delivery, or performance of
this Agreement or the consummation of the Merger or the other transactions
contemplated by this Agreement.
29
3.22 Full Disclosure. Neither this Agreement nor any written
statement, report or other document furnished by Parent pursuant to this
Agreement or in connection with the transactions contemplated hereby with
respect to Parent, taken as a whole, contains any untrue statement of a material
fact or omits to state a material fact necessary in order to make the statements
contained herein or therein, in light of the circumstances under which they are
made, not false or misleading.
3.23 Xxxxxxxx-Xxxxx Act. Parent has complied with the provisions of
the Xxxxxxxx-Xxxxx Act of 2002 (the "Xxxxxxxx-Xxxxx Act") applicable to it. To
the knowledge of the Parent, no attorney representing Parent, whether or not
employed by Parent, has reported evidence of a material violation of securities
laws, breach of fiduciary duty or similar violation by Parent or any of its
officers, directors, employees or agents to the Board of Directors of Parent or
any committee thereof or to any director or officer of Parent or any of its
subsidiaries. To the knowledge of Parent, no employee of Parent has provided or
is providing information to any law enforcement agency regarding the commission
or possible commission of any crime or the violation or possible violation of
any applicable law.
3.24 Nasdaq Qualification. Parent has applied to have the Parent
Common Stock listed on the Nasdaq SmallCap Market. Parent has provided to the
Company a copy of the letter to Parent from The Nasdaq Stock Market, dated March
9, 2004, concerning this application.
ARTICLE IV
CONDUCT PRIOR TO THE EFFECTIVE TIME
4.1 Conduct of Business of the Company. During the period from the
date of this Agreement and continuing until the earlier of the termination of
this Agreement pursuant to its terms and the Effective Time, the Company shall
carry on its business in a manner consistent with the short-term cost reduction
plan previously approved by the Company's Board of Directors (the "Cost
Reduction Plan") and included in the Company Letter. To the extent consistent
with the Cost Reduction Plan and except as expressly contemplated or permitted
by this Agreement or to the extent that Parent shall otherwise consent in
writing (which consent shall not unreasonably be withheld), the Company agrees
to carry on its business in the usual, regular and ordinary course, in
substantially the same manner as heretofore conducted and in compliance in all
material respects with all applicable laws and regulations, to pay its debts and
Taxes when due subject to good faith disputes over such debts or Taxes, to pay
or perform other material obligations when due, and to use all reasonable
efforts to preserve intact the Company's present business organizations, and
preserve its relationships with customers, suppliers, distributors, licensors,
licensees, and others having business dealings with the Company. The Company
shall promptly notify Parent of any event or occurrence not consistent with the
foregoing. The Company will not enter into or amend any agreement or take any
action which reasonably would be expected to have a Material Adverse Effect on
the Company. Except as expressly contemplated by this Agreement or in compliance
with Section 5.4(a) or the Cost Reduction Plan, the Company shall not, prior to
the Effective Time or earlier termination of this
30
Agreement pursuant to its terms, without the prior written consent of Parent,
which shall not be unreasonably withheld:
(a) Waive any stock repurchase rights, accelerate, amend, or
change the period of exercisability of options or repurchase of restricted
stock, or reprice options granted under the employee stock plans of the Company
or authorize cash payments in exchange for any options granted under any of such
plans, or by inaction suffer any of the foregoing to occur when unilateral
action by the Company (other than action involving termination of such options)
could have prevented it, all unless otherwise expressly required pursuant to the
terms of the Company Stock Option Plans, or take any such action (or by inaction
suffer such to occur when unilateral action by the Company could have prevented
it) with regard to any warrant or other right to acquire capital stock of the
Company; provided, however, that the Company shall, for the current employees of
the Company as of the date of this Agreement, accelerate the vesting of that
portion of unvested Company Stock Options (as defined in Section 5.11 below)
held by those employees that would have accelerated at the Effective Time
pursuant to the terms of those Company Stock Options if those Company Stock
Options were outstanding at the Effective Time such that the accelerated portion
of those Company Stock Options shall be exercisable by the holders thereof prior
to the Effective Time;
(b) Enter into partnership arrangements, joint development
agreements, or strategic alliances;
(c) Grant or pay any severance or termination pay to any
employee;
(d) Transfer or license to any person or entity or otherwise
extend, amend, or modify any rights to the Company's Intellectual Property
Rights or enter into grants of future patent rights, other than non-exclusive
licenses in connection with the sale of goods or services entered into in the
ordinary course of business consistent with past practices;
(e) Commence any litigation other than (i) for the routine
collection of bills, (ii) for software piracy, or (iii) in such cases where the
Company in good faith determines that failure to commence suit would result in
the material impairment of a valuable aspect of the Company's business, provided
that the Company consults with Parent prior to the filing of such a suit;
(f) Declare, set aside or pay any dividends on or make any
other distributions (whether in cash, securities or property) in respect of any
of its capital stock, or split, combine, or reclassify any of its capital stock
or issue or authorize the issuance of any other securities in respect of, in
lieu of, or in substitution for shares of capital stock of the Company;
(g) Purchase, redeem, or otherwise acquire, directly or
indirectly, any shares of its capital stock or its subsidiaries' capital stock
except from former employees, directors, and consultants in accordance with
agreements existing as of the date hereof previously disclosed in writing to
Parent requiring the repurchase of shares in connection with any termination of
service to the Company;
31
(h) Issue, deliver, sell, or pledge or authorize or propose
the issuance, delivery, sale, or pledge of any shares of its capital stock of
any class or securities convertible or exchangeable into or exercisable for, or
subscriptions, rights, warrants, or options to acquire, or enter into other
agreements or commitments of any character obligating it to issue, any such
shares or other securities, other than the issuance of shares of Company Common
Stock pursuant to the exercise of Company stock options or warrants outstanding
as of the date of this Agreement;
(i) Cause, permit, or propose any amendments to the Company's
Articles of Incorporation or By-laws or other charter documents or similar
governing instruments of any of its subsidiaries;
(j) Acquire or agree to acquire, by merging or consolidating
with, by purchasing any equity interest in or a material portion of the assets
of or by any other manner, any business or any corporation, partnership,
association, or other business organization or division thereof, or otherwise
acquire or agree to acquire any assets with an aggregate value of $50,000 or
more;
(k) Sell, lease, license, encumber, or otherwise dispose of
any of the Company's properties or assets which exceed a value of $10,000 (in
any one case) or $500,000 (in the aggregate), as measured in each case by
original purchase price;
(l) Incur any indebtedness for borrowed money (other than
ordinary course trade payables) or guarantee any such indebtedness or issue or
sell any debt securities or warrants, calls, or other rights to acquire debt
securities of the Company or guarantee any debt securities of others or enter
into any "keep well" or other agreement to maintain any financial statement
condition or enter into any arrangement having the economic effect of the
foregoing;
(m) Adopt or amend any employee benefit or stock purchase or
option plan (except in a manner consistent with Section 5.11), or enter into any
employment contract or collective bargaining agreement (other than employment
relationships with temporary employees who are terminable "at will" which do
not, in the aggregate, increase the compensation expense of the Company beyond
that contemplated in the Cost Reduction Plan), pay any special bonus or special
remuneration to any director or employee (except as permitted in the Cost
Reduction Plan), or increase the salaries or wage rates or fringe benefits
(including rights to severance or indemnification) of its directors, officers,
employees, or consultants, or change in any material respect any management
policies or procedures;
(n) Revalue any of the Company's assets, including writing
down the value of inventory or writing off notes or accounts receivable other
than in the ordinary course of business consistent with past practice or, except
as required by GAAP, make any change in accounting methods, principles, or
practices;
(o) Pay, discharge, or satisfy in an amount in excess of
$10,000 (in any one case) or $250,000 (in the aggregate) any claim, liability,
or obligation (absolute, accrued, asserted, or unasserted, contingent or
otherwise), other than a payment, discharge, or
32
satisfaction (other than in connection with any real estate lease) in the
ordinary course of business;
(p) Make or change any material election in respect of Taxes,
adopt or change any accounting method in respect of Taxes, file any material
Return or any amendment to a material Return (except as otherwise provided in
this Section 4.1), enter into any closing agreement, settle any claim or
assessment in respect of Taxes (except settlements effected solely through
payment of less than $10,000 in the aggregate), or consent to any extension or
waiver of the limitation period applicable to any claim or assessment in respect
of Taxes;
(q) Make any capital expenditures in excess of $100,000 in the
aggregate;
(r) Modify, amend, or terminate any material contract or
agreement to which the Company or any of its subsidiaries is a party or enter
into any contract or agreement which provides for the Company to incur or pay
any amounts in excess of $25,000 over the life of such contract or agreement,
except for modifications or amendments that are necessary to facilitate the
transactions contemplated by this Agreement;
(s) Settle any litigation which involves the payment by the
Company of $10,000 or more or waive, release, or assign any material rights or
claims thereunder;
(t) Take any action that would be reasonably likely to
interfere with the treatment of the Merger as a "reorganization" within the
meaning of Section 368 of the Code;
(u) Enter into, modify, amend, or cancel any development
services, licensing, distribution, sales, sales representation, or other similar
agreement or obligation with respect to any material Company Intellectual
Property Rights;
(v) Engage in any action with the intent directly or
indirectly to impact adversely any of the transactions contemplated by this
Agreement, including with respect to any "poison pill" or similar plan,
agreement, or arrangement or any Takeover Statute;
(w) Take any action that would (i) entitle any Person to any
payment under any security, option, warrant, call, right, commitment, or other
agreement of the Company (except as permitted under this Section 4.1) or (ii)
result in an adjustment to the exercise price or number of shares issuable upon
exercise of any security, option, warrant, call, right, commitment, or agreement
of the Company; or by inaction suffer any of the foregoing to occur when
unilateral action by the Company (other than action involving termination of any
options) could have prevented it; or
(x) Take, or agree in writing or otherwise to take, any of the
actions described in Sections 4.l(a) through (w) above or any action which would
cause or would be reasonably likely to cause any of the conditions to the Merger
set forth in Sections 6.1 or 6.3 not to be satisfied.
33
4.2 Conduct of Business of Parent. During the period from the date
of this Agreement and continuing until the earlier of the termination of this
Agreement pursuant to its terms and the Effective Time, Parent (which for the
purposes of this Section 4.2 shall include Parent and each of its subsidiaries)
agrees, except as expressly contemplated or permitted by this Agreement or to
the extent that the Company shall otherwise consent in writing (which consent
shall not unreasonably be withheld), to carry on its business in the usual,
regular, and ordinary course, in substantially the same manner as heretofore
conducted and in compliance in all material respects with all applicable laws
and regulations, to pay its debts and Taxes when due subject to good faith
disputes over such debts or Taxes, to pay or perform other material obligations
when due, and to use all reasonable efforts consistent with past practices and
policies to preserve intact Parent's present business organizations, keep
available the services of its present officers and employees, and preserve its
relationships with customers, suppliers, distributors, licensors, licensees, and
others having business dealings with Parent, to the end that Parent's goodwill
and ongoing businesses shall not be impaired in any material respect at the
Effective Time. Parent shall promptly notify the Company of any event or
occurrence not in the ordinary course of business of Parent, and will not enter
into or amend any agreement or take any action which reasonably would be
expected to have a Material Adverse Effect on Parent. Except as expressly
contemplated by this Agreement or in compliance with Section 5.4(b), Parent
shall not prior to the Effective Time or earlier termination of this Agreement
pursuant to its terms, without the prior written consent of the Company, which
shall not be unreasonably withheld:
(a) Waive any stock repurchase rights, accelerate, amend, or
change the period of exercisability of options or repurchase of restricted
stock, or reprice options granted under the employee stock plans of Parent or
authorize cash payments in exchange for any options granted under any of such
plans, or by inaction suffer any of the foregoing to occur when unilateral
action by Parent (other than action involving termination of such options) could
have prevented it, all unless otherwise expressly required pursuant to the terms
of the Parent Stock Option Plan, or take any such action (or by inaction suffer
such to occur when unilateral action by Parent could have prevented it) with
regard to any warrant or other right to acquire capital stock of Parent;
(b) Enter into partnership arrangements, joint development
agreements, or strategic alliances except in connection with any acquisition or
similar transaction that is not prohibited by Section 4.2(j);
(c) Grant any severance or termination pay to any employee,
except (i) payments made in connection with the termination of employees in
amounts consistent with Parent's policies and past practices or pursuant to
written agreements outstanding, or policies existing, on the date hereof and as
previously disclosed in writing to the Company or (ii) in connection with any
acquisition or similar transaction that is not prohibited by Section 4.2(j);
(d) Transfer or license to any person or entity or otherwise
extend, amend, or modify any rights to Parent's Intellectual Property Rights or
enter into grants of future patent rights, other than non-exclusive licenses in
connection with the sale of goods or services entered into in the ordinary
course of business consistent with past practices;
34
(e) Commence any litigation other than (i) for the routine
collection of bills, (ii) for software piracy, or (iii) in such cases where
Parent in good faith determines that failure to commence suit would result in
the material impairment of a valuable aspect of Parent's business, provided that
Parent consults with the Company prior to the filing of such a suit;
(f) Declare, set aside, or pay any dividends on or make any
other distributions (whether in cash, securities, or property) in respect of any
of its capital stock, or split, combine, or reclassify any of its capital stock
or issue or authorize the issuance of any other securities in respect of, in
lieu of, or in substitution for shares of capital stock of Parent;
(g) Purchase, redeem, or otherwise acquire, directly or
indirectly, any shares of its capital stock or its subsidiaries' capital stock
except from former employees, directors, and consultants in accordance with
agreements existing as of the date hereof previously disclosed in writing to the
Company requiring the repurchase of shares in connection with any termination of
service to Parent;
(h) Issue, deliver, sell, or pledge or authorize or propose
the issuance, delivery, sale, or pledge of any shares of its capital stock of
any class or securities convertible or exchangeable into or exercisable for, or
subscriptions, rights, warrants, or options to acquire, or enter into other
agreements or commitments of any character obligating it to issue any such
shares or other securities, other than the issuance of (i) shares of Parent
Common Stock pursuant to the exercise or conversion of Parent stock options or
warrants outstanding as of the date of this Agreement, (ii) options to purchase
shares of Parent Common Stock granted pursuant to the Parent Stock Option Plan,
(iii) shares of Parent Common Stock issuable upon the exercise of the options
referred to in clause (ii), and (iv) shares of Parent Common Stock and other
securities of Parent issued or assumed in connection with any acquisition or
similar transaction that is not prohibited by Section 4.2(j);
(i) Cause, permit, or propose any amendments to Parent's
Certificate of Incorporation or By-laws;
(j) Acquire or agree to acquire, by merging or consolidating
with, by purchasing any equity interest in or a material portion of the assets
of or by any other manner, any business or any corporation, partnership,
association, or other business organization or division thereof, or otherwise
acquire or agree to acquire any assets which are material, individually or in
the aggregate, to the business of Parent, or enter into any joint ventures,
strategic partnerships, or alliances or purchase any distributors, except for
transactions currently under discussion that have previously been disclosed to
the Company in writing or transactions involving aggregate consideration of less
than $10.0 million;
(k) Sell, lease, license, encumber, or otherwise dispose of
any of Parent's properties or assets which are material, individually or in the
aggregate, to the business of Parent other than assets of Parent currently held
for sale;
(l) Incur any indebtedness for borrowed money (other than
ordinary course trade payables or pursuant to existing credit facilities in the
ordinary course of business) or guarantee any such indebtedness or issue or sell
any debt securities or warrants, calls, or other
35
rights to acquire debt securities of Parent or guarantee any debt securities of
others or enter into any "keep well" or other agreement to maintain any
financial statement condition or enter into any arrangement having the economic
effect of the foregoing;
(m) Adopt or amend any employee benefit or stock purchase or
option plan, or enter into any employment contract or collective bargaining
agreement (other than offer letters and letter agreements entered into in the
ordinary course of business consistent with past practices with employees who
are terminable "at will"), pay any special bonus or special remuneration to any
director or employee in excess of the amount accrued on the Parent Balance Sheet
(and except as permitted in Section 4.2(c)), or increase the salaries or wage
rates or fringe benefits (including rights to severance or indemnification) of
its directors, officers, employees, or consultants other than in the ordinary
course of business consistent with past practice, or change in any material
respect any management policies or procedures, in each case except in connection
with any acquisition or similar transaction that is not prohibited by Section
4.2(j);
(n) Revalue any of Parent's assets, including writing down the
value of inventory or writing off notes or accounts receivable other than in the
ordinary course of business consistent with past practice or, except as required
by GAAP, make any change in accounting methods, principles, or practices;
(o) Pay, discharge, or satisfy in an amount in excess of
$10,000 (in any one case) or $250,000 (in the aggregate) any claim, liability,
or obligation (absolute, accrued, asserted, or unasserted, contingent or
otherwise), other than a payment, discharge, or satisfaction in the ordinary
course of business or as accrued on the Company Balance Sheet;
(p) Make or change any material election in respect of Taxes,
adopt or change any accounting method in respect of Taxes, file any material
Return or any amendment to a material Return (except as otherwise provided in
this Section 4.2), enter into any closing agreement, settle any claim or
assessment in respect of Taxes (except settlements effected solely through
payment of immaterial sums of money), or consent to any extension or waiver of
the limitation period applicable to any claim or assessment in respect of Taxes;
(q) Make any capital expenditures in excess of $100,000 in the
aggregate;
(r) Modify, amend, or terminate any material contract or
agreement to which Parent or any of its subsidiaries is a party or enter into
any contract or agreement which provides for Parent to incur or pay any amounts
in excess of $25,000 over the life of such contract or agreement except in the
ordinary course of business or in connection with any acquisition or similar
transaction that is not prohibited by Section 4.2(j) and except for
modifications or amendments that are necessary to facilitate the transactions
contemplated by this Agreement;
(s) Settle any material litigation or waive, release, or
assign any material rights or claims thereunder;
36
(t) Take any action that would be reasonably likely to
interfere with the treatment of the Merger as a "reorganization" within the
meaning of Section 368 of the Code;
(u) Enter into, modify, amend, or cancel any development
services, licensing, distribution, sales, sales representation, or other similar
agreement or obligation with respect to any material Parent Intellectual
Property Rights other than such agreements entered into in the ordinary course
of business consistent with past practices;
(v) Engage in any action with the intent directly or
indirectly to impact adversely any of the transactions contemplated by this
Agreement, including with respect to any "poison pill" or similar plan,
agreement, or arrangement or any Takeover Statute;
(w) Take any action that would (i) entitle any Person to any
payment under any security, option, warrant, call, right, commitment, or other
agreement relating to any equity securities of Parent or Merger Sub (except as
permitted under this Section 4.2 or in the ordinary course of business) or (ii)
result in an adjustment to the exercise price or number of shares issuable upon
exercise of any security, option, warrant, call, right, commitment, or agreement
of Parent or Merger Sub; or by inaction suffer any of the foregoing to occur
when unilateral action by Parent (other than action involving termination of any
options) could have prevented it, in each case except in connection with any
acquisition or similar transaction that is not prohibited by Section 4.2(j); or
(x) Take, or agree in writing or otherwise to take, any of the
actions described in Sections 4.2(a) through (w) above or any action which would
cause or would be reasonably likely to cause any of the conditions to the Merger
set forth in Sections 6.1 or 6.2 not to be satisfied.
ARTICLE V
ADDITIONAL AGREEMENTS
5.1 Information Statement, Fairness Hearing, and Permit.
(a) As soon as practicable after the execution of this
Agreement, Parent, with the full cooperation of Company, shall prepare the
application for permit (the "Permit Application") in connection with the Hearing
(as defined below) and the notice to be sent to the holders of Company
securities pursuant to, and meeting the requirements of, Article 2 of Subchapter
1 of the California Administrative Code, Title 10, Chapter 3, Subchapter 2, as
amended (the "Hearing Notice"), concerning the hearing (the "Hearing") to be
held by the California Commissioner (as defined below) to consider the terms and
conditions of this Agreement and the Merger and the fairness of such terms and
conditions pursuant to Section 25142 of the California Corporate Securities Law
of 1968, as amended, and the rules promulgated thereunder ("California
Securities Law"). The Company and Parent shall jointly prepare an information
statement relating to this Agreement and the transactions contemplated hereby
(the "Information Statement") such that its completion complies with the
required timeliness of the filing of such Information Statement (as a
supplemental amendment to the Permit Application) under the applicable rules and
policies of the California Department of
37
Corporations (the "Department") and the California Securities Law. Each of the
Company and Parent shall use its reasonable best efforts to cause the Permit
Application, the Hearing Notice, and the Information Statement to comply with
all requirements of applicable federal and state securities laws. Each of Parent
and the Company shall afford the other party a reasonable opportunity to review
and comment upon the Permit Application, the Hearing Notice, and the Information
Statement, and any amendments or supplements thereto, prior to its filing with
the California Commissioner or mailing to holders of Company Common Stock.
(b) Each of the Company and Parent shall provide promptly to
the other such information concerning its business and financial statements and
affairs as, in the reasonable judgment of the providing party or its counsel,
may be required or appropriate for inclusion in the Permit Application, the
Hearing Notice, or the Information Statement, or in any amendments or
supplements thereto, and to cause its counsel and auditors to cooperate with the
other's counsel and auditors in the preparation of the Permit Application, the
Hearing Notice, and the Information Statement. The Information Statement shall
constitute a disclosure document for the offer and issuance of the shares of
Parent Common Stock and cash to be received by the holders of Company Common
Stock in the Merger and a proxy statement for solicitation of stockholder
approval of the Merger. Promptly after Parent or the Company shall notify the
other party of the discovery of information required to be disclosed to the
other party pursuant to Section 2.19 or Section 3.19, as the case may be, the
parties shall cooperate in determining whether the information is required to be
set forth in an amendment or supplement to the Permit Application, the Hearing
Notice, or the Information Statement, as the case may be, and, if so, in
preparing appropriate amendments or supplements to the Permit Application, the
Hearing Notice, or the Information Statement, as the case may be, disseminating
such amendment or supplement to the stockholders of the Company, and/or filing
such amendment or supplement with the California Commissioner of Corporations
(the "California Commissioner") or its staff and/or any other appropriate
government officials.
(c) The Information Statement shall include the recommendation
of the Board of Directors of the Company in favor of adoption of this Agreement
and approval of the Merger and the Agreement and the conclusion of the Board of
Directors of the Company that the terms and conditions of the Merger are fair to
and in the best interests of the stockholders of the Company. Notwithstanding
anything contained herein to the contrary, the Company shall not include in the
Information Statement any information with respect to Parent or its affiliates
or associates, the form and content of which information shall not have been
approved by Parent prior to such inclusion; provided, however, that Parent shall
not withhold approval of any information required to be included by federal or
state law or the California Commissioner.
(d) Parent, with the full cooperation of Company, shall use
its reasonable best efforts (i) to cause to be filed with the California
Commissioner, as soon as practicable following the execution of this Agreement,
the Permit Application and the Hearing Notice and (ii) to obtain, as soon as
practicable following the execution of this Agreement, the permit approving the
fairness of this Agreement and the Merger pursuant to Section 25121 of
California Securities Law such that the issuance of the Parent Common Stock in
connection with the Merger shall be exempt pursuant to Section 3(a)(10) of the
Securities Act from the registration requirements of Section 5 of the Securities
Act (the "Permit").
38
Parent shall use reasonable best efforts to schedule, with the full cooperation
of the Company, the Hearing that is first offered by the Department.
(e) As soon as permitted by the California Commissioner, the
Company shall deliver by personal delivery, reputable overnight courier, or
regular mail (as the parties may agree) the Hearing Notice to all holders of
Company securities entitled to receive such notice under California Securities
Law. The Company and Parent shall notify each other promptly of the receipt of
any comments from the California Commissioner or its staff and of any request by
the California Commissioner or its staff or any other government officials for
amendments or supplements to any of the documents filed therewith or any other
filing or for additional information and shall supply each other with copies of
all correspondence between such party or any of its representatives, on the one
hand, and the California Commissioner, or its staff or any other government
officials, on the other hand, with respect to the filing. If the California
Commissioner issues the Permit, then as soon as practicable thereafter the
Company shall deliver by personal delivery or reputable overnight courier the
Information Statement to all holders of Company securities. Except for the
delivery of the Information Statement in accordance with the terms hereof, the
Company shall not, and shall cause each subsidiary not to, solicit, or authorize
or permit any of the Company's or any subsidiary's officers, directors,
employees, stockholders, agents, and other representatives to solicit, directly
or indirectly, the vote of any holder of Company Common Stock in connection with
the Merger in violation of any applicable federal or state securities laws.
(f) If the California Commissioner notifies Parent or Company
of the California Commissioner's determination not to hold or grant the Hearing,
not to permit the mailing of the Notice of Hearing and/or not to issue the
Permit, then Parent and Company will use their reasonable best efforts to
resolve any issues raised in the California Commissioner's determination such
that a Permit may be issued in connection with the Hearing; provided, however,
that Parent shall not be obligated to increase the amount of Merger
Consideration
5.2 Meeting of Stockholders. Promptly after the date hereof, the
Company shall take all action necessary in accordance with the Washington
Corporate Law and its Articles of Incorporation and By-laws to schedule and
convene the Company Stockholders' Meeting to be held as promptly as practicable
after the Permit is issued for the purpose of voting upon this Agreement and the
Merger. The Company shall consult with Parent concerning the timing and other
details relating to the Company Stockholders' Meeting.
5.3 Access to Information, Confidentiality.
(a) Each party shall afford the other party and its
accountants, counsel, and other representatives reasonable access during normal
business hours during the period prior to the Effective Time to all information
concerning its business, including the status of product development efforts,
properties, and personnel of such party, as the other party may reasonably
request. No information or knowledge obtained in any investigation pursuant to
this Section 5.3 shall affect or be deemed to modify any representation or
warranty contained herein or the conditions to the obligations of the parties to
consummate the Merger.
39
(b) The parties acknowledge that Parent and the Company have
previously executed a Confidentiality Agreement dated January 21, 2004 (the
"Confidentiality Agreement"), which Confidentiality Agreement shall continue in
full force and effect in accordance with its terms.
5.4 No Solicitation.
(a) (i) From and after the date of this Agreement until the
earlier of the Effective Time or the termination of this Agreement, the Company
will not, and will cause its directors, officers, employees, representatives,
investment bankers, agents, and affiliates not to, directly or indirectly, (i)
solicit or encourage submission of any inquiries, proposals, or offers by any
person, entity, or group (other than Parent, Merger Sub, and their affiliates,
agents, and representatives) or (ii) participate in any discussions or
negotiations with, or disclose any information concerning the Company or any of
its subsidiaries to, or afford any access to the properties, books, or records
of the Company or any of its subsidiaries to, or otherwise assist, facilitate,
or encourage, or enter into any agreement or understanding with, any person,
entity, or group (other than Parent, Merger Sub, and their affiliates, agents,
and representatives), in connection with any Acquisition Proposal with respect
to the Company. For the purposes of Section 5.4(a) of this Agreement, an
"Acquisition Proposal" shall mean any inquiry, proposal or offer relating to the
possible acquisition of the Company, whether by way of merger, purchase of at
least 50% of the capital stock of the Company, purchase of all, substantially
all, or any material portion of the assets of the Company, or otherwise. In
addition, subject to the other provisions of this Section 5.4, from and after
the date of this Agreement until the earlier of the Effective Time or the
termination of this Agreement, the Company and its subsidiaries will not, and
will cause their respective directors, officers, employees, representatives,
investment bankers, agents, and affiliates not to, directly or indirectly, make
or authorize any statement, recommendation, or solicitation in support of any
Acquisition Proposal with respect to the Company made by any person, entity, or
group (other than Parent, Merger Sub, and their affiliates). The Company will
immediately cease any and all existing activities, discussions, or negotiations
with any parties conducted heretofore with respect to any of the foregoing.
(ii) Notwithstanding the provisions of paragraph (i)
above, prior to the approval of this Agreement and the Merger by the
stockholders of the Company at the Company Stockholders' Meeting or otherwise,
the Company may, to the extent the Board of Directors of the Company determines,
in good faith, after consultation with outside legal counsel, that it is
reasonably necessary in order for the Board to comply with its fiduciary duties
under applicable law, participate in discussions or negotiations with and,
subject to the requirements of paragraph (iii) below, furnish information to any
person, entity, or group after such person, entity, or group shall have
delivered to the Company in writing, a Superior Proposal. For the purposes of
Sections 5.4(a) and 7.1(f) of this Agreement, a "Superior Proposal" means an
unsolicited bona fide Acquisition Proposal which the Board of Directors of the
Company in its good faith reasonable judgment determines, after consultation
with its independent financial advisors, could reasonably be expected to result
in a transaction that is more favorable to the stockholders of the Company from
a financial point of view than the Merger and for which financing, to the extent
required, is then committed or which, in the good faith reasonable judgment of
the Board of Directors (after consultation with independent
40
financial advisors), is reasonably capable of being obtained by such person,
entity, or group and which is reasonably likely to be consummated.
(iii) The Company may furnish information to a person,
entity, or group that has made a Superior Proposal only if the Company (a) first
notifies Parent of the information proposed to be disclosed, (b) first complies
with the provisions of paragraph (v), below, and (c) provides such information
pursuant to a confidentiality agreement at least as restrictive as the
Confidentiality Agreement.
(iv) If the Company receives a Superior Proposal,
nothing contained in this Agreement shall prevent the Board of Directors of the
Company from approving such Superior Proposal or recommending, and communicating
such recommendation and the details of, such Superior Proposal to the Company's
stockholders, if the Board determines in good faith, after consultation with
outside legal counsel, that such action is reasonably necessary in order to
comply with its fiduciary duties under applicable law; in such case, the Board
may amend or withdraw its recommendation of the Merger, and may vote any proxies
in a manner consistent with the Board's recommendation of the Superior Proposal
(provided that all proxies marked for or otherwise in favor of the Merger and/or
the other transactions contemplated by this Agreement will be so voted). Subject
to Parent's rights of termination set forth in Section 7.1(b)(ii) and 7.1(f),
nothing shall relieve the Company from complying with all other terms of this
Agreement, including, without limitation, taking all actions necessary to
convene the Company Stockholders' Meeting pursuant to Section 5.2 above.
(v) The Company will (i) notify Parent immediately if
any inquiry or proposal is made or any information or access is requested in
connection with an Acquisition Proposal or potential Acquisition Proposal and
(ii) immediately communicate to Parent the terms and conditions of any such
Acquisition Proposal or potential Acquisition Proposal or inquiry and the
identity of the offeror or potential offeror. In addition to the foregoing, the
Company shall provide Parent with at least forty-eight (48) hours prior written
notice (or such lesser prior written notice as provided to the members of the
Company's Board of Directors but in no event less than eight (8) hours) of any
meeting of the Company's Board of Directors at which the Company's Board of
Directors is reasonably expected to consider an Acquisition Proposal and provide
Parent with at least two (2) business days prior written notice (or such lesser
prior notice as provided to the members of the Company's Board of Directors but
in no event less than eight (8) hours) of a meeting at which the Company's Board
of Directors is reasonably expected to recommend a Superior Proposal to its
stockholders provided, that such time provisions may be shortened (but in no
event to less than three (3) hours) by the Company's Board of Directors if,
after consultation with outside legal counsel, the Company's Board of Directors
determines in good faith that such shorter notice is deemed reasonably necessary
in order for the Board to comply with its fiduciary duties under applicable law.
(vi) Nothing contained in this Section 5.4 shall prevent
the Company or its Board of Directors from complying with the provisions of
Rules 14e-2 and 14d-9 promulgated under the Exchange Act.
(b) From and after the date of this Agreement until the
earlier of the Effective Time or the termination of this Agreement, Parent and
its subsidiaries will not, directly
41
or indirectly, enter into any written agreement (other than as to transactions
permitted in Section 4.2 above) with any person, entity, or group which would
result in additional disclosure that would delay the Hearing beyond the schedule
contemplated in Section 5.1 above.
5.5 Expenses.
(a) Except as set forth in this Section 5.5, if the Merger is
not consummated, all fees and expenses incurred in connection with this
Agreement and the transactions contemplated hereby shall be paid by the party
incurring such expenses. If the Merger is consummated, all fees and expenses,
including attorneys, accountants and financial advisor's fees, incurred by or
for the benefit of the Company or its stockholders shall be paid by the
Surviving Corporation. Notwithstanding the foregoing, if Parent determines that
a filing is required in connection with the HSR Act, each of Parent and the
Company shall be responsible for half of that fee.
(b) If this Agreement is terminated by Parent pursuant to
Section 7.1(b)(ii) or Section 7.1(f), the Company shall immediately upon such
termination pay to Parent a termination fee of $2,750,000 by wire transfer of
immediately available funds to an account designated by Parent.
(c) If this Agreement is terminated by the Company pursuant to
Section 7.1(c)(ii), Parent shall immediately upon such termination pay to the
Company a termination fee of $1,800,000 by wire transfer of immediately
available funds to an account designated by the Company.
5.6 Public Disclosure
(a) Parent and the Company shall consult with each other
before issuing any press release or otherwise making any public statement with
respect to the Merger or this Agreement and shall not issue any such press
release or make any such public statement prior to such consultation, except as
may be required by law or any listing agreement with a national securities
exchange or The Nasdaq Stock Market, Inc. and in any event in accordance with
the terms of the Confidentiality Agreement.
(b) The Company agrees that the information supplied by the
Company for inclusion in any press release (including any information relating
to the Company that is approved by the Company) that is jointly issued or
approved by Parent and the Company shall not, on the date such press release is
issued, contain any untrue statement of a material fact or omit to state any
material fact necessary in order to make the statements therein, in light of the
circumstances under which they are made, not false or misleading, or omit to
state any material fact necessary to correct any statement in any earlier joint
press release which has become false or misleading. If at any time prior to the
Effective Time the Company shall determine that any information in any issued
press release was or may have become false or misleading, the Company shall
promptly inform Parent. Notwithstanding the foregoing, the Company makes no
representation or warranty with respect to any information relating to Parent or
Merger Sub which is contained in any of the foregoing documents.
42
(c) Parent agrees that the information supplied by Parent for
inclusion in any press release (including any information relating to Parent and
Merger Sub that is approved by Parent) that is jointly issued or approved by
Parent and the Company shall not, on the date such press release is issued,
contain any untrue statement of a material fact or omit to state any material
fact necessary in order to make the statements therein, in light of the
circumstances under which they are made, not false or misleading, or omit to
state any material fact necessary to correct any statement in any earlier press
release which has become false or misleading. If at any time prior to the
Effective Time Parent shall determine that any information in any issued press
release was or may have become false or misleading, Parent shall promptly inform
the Company. Notwithstanding the foregoing, Parent and Merger Sub make no
representation or warranty with respect to any information relating to the
Company which is contained in any of the foregoing documents.
5.7 [Intentionally deleted]
5.8 Legal Requirements. Each of Parent, Merger Sub, and the Company
will use reasonable best efforts to comply promptly with all legal requirements
which may be imposed on them with respect to the consummation of the
transactions contemplated by this Agreement (including preparing and furnishing
all information required in connection with approvals of or filings with any
Governmental Entity, including those in connection with the HSR Act (if deemed
applicable by Parent), and prompt resolution of any litigation prompted hereby)
and will promptly cooperate with and furnish information to any party hereto
necessary in connection with any such requirements imposed upon any of them or
their respective subsidiaries in connection with the consummation of the
transactions contemplated by this Agreement, and will use reasonable best
efforts to obtain (and will cooperate with the other parties hereto in
obtaining) any consent, approval, order, or authorization of, or any
registration, declaration, or filing with, any Governmental Entity or other
public or private third party required to be obtained or made in connection with
the Merger or taking of any action contemplated by this Agreement.
5.9 Blue Sky Laws. Parent shall use its reasonable best efforts to
comply with the securities and blue sky laws of all United States jurisdictions
which are applicable to the issuance of Parent Common Stock pursuant hereto.
Parent shall pay all fees and expenses, including filing fees and Parent's
attorneys' fees and expenses, incurred by Parent in connection with such
compliance. The Company shall use its reasonable best efforts to assist Parent
as may be necessary to comply with the securities and blue sky laws of all
United States jurisdictions which are applicable in connection with the issuance
of Parent Common Stock pursuant hereto.
5.10 Reasonable Best Efforts and Further Assurances. Each of the
parties to this Agreement shall use its reasonable best efforts to effectuate
the transactions contemplated hereby and to fulfill and cause to be fulfilled
the conditions to closing under this Agreement (including prompt resolution of
any litigation prompted hereby). Each party hereto, at the reasonable request of
another party hereto, shall execute and deliver such other instruments and do
and perform such other acts and things as may be necessary or desirable for
effecting completely the consummation of the transactions contemplated hereby.
43
5.11 Stock Options and Warrants.
(a) The Company shall provide a notice to each holder of an
outstanding option to purchase shares of Company Common Stock (each, a "Company
Stock Option"), including any option outstanding under the Company's 2003
Nonqualified Stock Option Plan, 2000 Nonqualified Stock Option Plan, 1999
Nonqualified Stock Option Plan, 1999 Incentive Stock Option Plan, and Stock
Compensation Plan, in each case as amended and/or restated to date
(collectively, the "Company Stock Option Plans"), promptly after execution of
this Agreement and at least sixty (60) days prior to the Effective Time, stating
that the Company has entered into this Agreement and that the Company is
requiring the holder of the Company Stock Options to exercise all of the
unexercised portion of the Company Stock Options prior to the Effective Time or
suffer the forfeiture of the unexercised portion of the Company Stock Options
and take such additional actions, reasonably requested by Parent, to cause the
Company Stock Options to terminate as of the Effective Time. For holders of
Company Stock Options affected by the accelerated vesting contemplated in
Section 4.1(a) above, the notice shall include notice of that accelerated
vesting.
(b) Promptly after execution of this Agreement, the Company
will give such notice of the Merger as is required under the outstanding
warrants to purchase shares of Company Voting Stock (the "Company Warrants").
Prior to the Effective Time, the Company shall take all actions reasonably
requested by Parent to cause the Company Warrants to be adjusted at the
Effective Time to provide for the issuance upon exercise of an appropriate
number of shares of Parent Common Stock (instead of the issuance of Company
Common Stock) and to provide for an appropriate adjustment of the warrant
exercise price of such Company Warrants.
5.12 Certain Benefit Plans.
(a) Parent shall take such reasonable actions as are necessary
to allow eligible employees of the Company to participate in the benefit
programs of Parent, or alternative benefit programs substantially comparable in
the aggregate to those applicable to employees of Parent, as soon as practicable
after the Effective Time in accordance with the terms of such programs. Parent
shall assume all of the Company's liability under Section 4980B of the Code and
Part 6 of Title I of ERISA with respect to COBRA participants (other than any
liability of the Company to pay, or reimburse any such participants for, COBRA
premiums) in accordance with applicable law.
(b) Parent shall cause each such benefit program in which
employees of Parent and its subsidiaries (including employees of the Surviving
Corporation) are eligible to participate to take into account for purposes of
eligibility and vesting thereunder the service of such employees with the
Company and its subsidiaries to the same extent as such service was credited for
such purpose by the Company; provided, that in no circumstances shall the
crediting of such service create duplicative benefits.
44
(c) If active employees of the Company become eligible to
participate in a medical, dental, or vision plan of Parent, Parent shall cause
each such plan to (i) waive any preexisting condition limitations to the extent
such conditions are covered unconditionally for such person under the applicable
medical, dental, or vision plans of the Company, (ii) honor under such plans any
deductible, co-payment, and out-of-pocket expenses incurred by the employees and
their beneficiaries during the portion of the calendar year prior to such
participation, and (iii) waive any waiting period limitation or evidence of
insurability requirement which would otherwise be applicable to such employee on
or after the Effective Time to the extent such employee had satisfied any
similar limitation or requirement under an analogous Company benefit program
prior to the Effective Time. If employees of the Company on the date of this
Agreement who are terminated prior to the Effective Time become eligible to
participate in a medical, dental, or vision plan of Parent, Parent shall use its
best efforts to cause each such plan to waive or honor the items described in
clauses (i), (ii) and (iii) above to the extent permitted by such plans and only
to the extent that the cost of such actions for the former employee would not be
higher than the cost of such actions if the employee were still employed by the
Surviving Corporation after the Effective Time.
(d) At Parent's request, the Company will terminate its
tax-qualified 401(k) Plan (the "Company's 401(k) Plan") prior to, and contingent
upon, the Effective Time. If the Company is required to terminate the Company's
401(k) Plan, the Parent's tax-qualified 401(k) plan (the "Parent's 401(k)
Plan"), will accept rollovers or direct rollovers of "eligible rollover
distributions" within the meaning of Section 402(c) of the Code made with
respect to current employees of the Company who will continue as employees of
the Surviving Corporation after the Effective Time from the Company's 401(k)
Plan. The Company has furnished to Parent a copy of the most recent IRS
determination or opinion letter with respect to Company's 401(k) Plan, and
nothing has occurred which could reasonably be expected to cause the loss of the
tax-qualified status of the Company's 401(k) Plan. In the case of any Company
employee, the Parent's 401(k) Plan will take into account, for eligibility and
vesting purposes, such employee's pre-Closing service creditable to such
employee for purposes of Company's 401(k) Plan.
5.13 Tax-Free Reorganization. Parent and the Company shall each use
all reasonable efforts to cause the Merger to be treated as a reorganization
within the meaning of Section 368 of the Code. Without limiting the generality
of the foregoing, Parent will cause the Surviving Corporation to continue at
least one significant historic business line of the Company, or use at least a
significant portion of the Company's business assets in a business, in each case
within the meaning of Treasury Regulation Section 1.368-1(d).
5.14 Board Representation. The Board of Directors of Parent shall
take appropriate actions (the effectiveness of which are subject only to the
consummation of the Merger) to effectuate the following:
(a) to cause the number of directors comprising the full Board
of Directors of Parent to be seven persons,
(b) to appoint Xxxxxx X. Xxxxx, Xxxx Xxxxxxxxx, and Xxxx
Xxxxxxxx to the Board of Directors of Parent (the three appointees, the "Company
Nominees"), and
45
(c) to nominate the Company Nominees for election as directors
as part of Parent's recommended slate of directors at the first annual meeting
of stockholders of Parent following the Effective Time.
5.15 No Solicitation of Employees. Each party agrees that for a
period of 12 months following termination, if any, of this Agreement pursuant to
the provisions of Article VII hereof, neither party shall solicit, induce, or
recruit any of the other party's employees to leave its employment. This Section
5.15 shall not prohibit the advertisement in any publication of general
circulation of positions available at such party.
5.16 Takeover Statutes. If any Takeover Statute is or may become
applicable to the Merger or the other transactions contemplated by this
Agreement, each of Parent and the Company and their respective Boards of
Directors shall grant such approvals and take such lawful actions as are
necessary to ensure that such transactions may be consummated as promptly as
practicable on the terms contemplated by this Agreement and otherwise act to
eliminate or minimize the effects of such statute and any regulations
promulgated thereunder on such transactions.
5.17 Indemnification.
(a) After the Effective Time, to the extent permitted by law
Parent and the Surviving Corporation shall indemnify and hold harmless each
person who has at any time prior to the Effective Time been an officer,
director, or employee of the Company or other person entitled to be indemnified
by the Company pursuant to its Articles of Incorporation or By-laws as they are
currently in effect on the date hereof or any indemnification agreement which is
in effect on the date hereof between the Company and such person to the same
extent as provided in such Articles of Incorporation, By-laws, or
indemnification agreement. In connection with such indemnification, (x) any
counsel retained by the indemnified parties for any period after the Effective
Time shall be reasonably satisfactory to Parent and the Surviving Corporation,
(y) after the Effective Time, the Surviving Corporation and Parent shall to the
extent permitted by law pay the reasonable fees and expenses of such counsel
promptly after statements therefor are received, and (z) the Surviving
Corporation and Parent will cooperate in the defense of any such matter;
provided, that neither the Surviving Corporation nor Parent shall be liable for
any settlement effected without its prior written consent, which consent will
not unreasonably be withheld. Neither the Surviving Corporation nor Parent shall
be liable for the fees and expenses of more than one law firm for all the
indemnified parties, with respect to any single action unless there is, or is
reasonably likely to be, under applicable standards of professional conduct, a
conflict on any significant issue between the positions of any two or more
indemnified parties. In addition to the foregoing, Parent acknowledges that, in
connection with consummation of the Merger, the Company may obtain prior to
Closing a policy of directors' and officers' liability insurance in an amount up
to $15,000,000 with a tail period of four (4) years from the Effective Time from
an insurance company reasonably acceptable to both the Company and Parent.
Neither Parent nor the Surviving Corporation will take any action to amend,
repeal or modify such policy in any manner at any time.
(b) This Section 5.17 shall survive the consummation of the
Merger, is intended to benefit the indemnified parties, shall be binding on all
successors and assigns of
46
Parent and the Surviving Corporation, and shall be enforceable by the
indemnified parties. Nothing in this Section 5.17 shall be deemed to limit,
amend or modify any rights or protections available to the indemnified parties
under the Company's Articles of Incorporation or Bylaws as they are in effect on
the date hereof or any indemnification agreements in effect on the date hereof,
or the Indemnification Trust dated January __, 2003 (the "Indemnification
Trust").
5.18 MMW Components Bonus Pool. Parent will cause the Surviving
Corporation to continue the Company's revenue-based bonus pool for the Company's
MMW Components business based on 2004 sales (combining Company and Surviving
Corporation sales) throughout the 2004 fiscal year and to pay bonuses based on
such bonus pool in accordance with the provisions of the bonus pool.
5.19 Nasdaq Qualification. Promptly (but in no event later than
sixty (60) days) following the Effective Time, Parent will use its best efforts
to have the Parent Common Stock listed for trading on the Nasdaq National Market
or the Nasdaq SmallCap Market.
5.20 Indemnification Trust. The Company will use reasonable best
efforts to terminate the Indemnification Trust, or to cause the Indemnification
Trust to be terminated, prior to the Closing Date. If the Company is unable to
cause the Indemnification Trust to be terminated after using its reasonable best
efforts, the Company will use its reasonable best efforts to replace or
substitute the Indemnification Trust, or to cause the Indemnification Trust to
be replaced or substituted, prior to the Closing Date; provided, however, that
no replacement or substitution of the Indemnification Trust shall be effected
without Parent's prior written consent (which will not be unreasonably
withheld). The parties agree that the failure of the Company to terminate,
replace or substitute the Indemnification Trust prior to the Closing Date shall
not be a breach of this Section 5.20 or this Agreement so long as the Company
used its reasonable best efforts to terminate, replace or substitute the
Indemnification Trust prior to the Closing Date.
5.21 Standstill.
(a) Each party agrees that, except as expressly contemplated
in this Agreement, until the earlier of (Y) the Effective Time or (Z) the
termination of this Agreement, neither party shall, directly or indirectly
through any affiliate, agent, representative or otherwise, without the prior
written consent of the other party:
(i) acquire, sell, offer to acquire or sell, or agree to
acquire or sell, directly or indirectly, by purchase, sale, tender or exchange
offer, merger, business combination, or otherwise, any voting securities or
direct or indirect rights to acquire any voting securities of the other party;
(ii) obtain for itself or its agents any proxies to vote
any voting securities of the other party;
(iii) make any public announcement with respect to, or
submit an unsolicited proposal for or offer of (with or without condition), any
extraordinary transaction involving the other party or its securities or assets;
47
(iv) form, join or in any way participate in a "group"
as defined in Section 13(d)(3) of the Exchange Act in connection with any of the
foregoing; or
(v) take any action which could reasonably be expected
to place the other party under a legal obligation to make a public announcement
regarding a possible transaction prohibited by the foregoing clauses (i) through
(iv).
(b) Each party will promptly advise the other party of any
inquiry or proposal made to it with respect to any of the matters prohibited in
Section 5.21(a).
ARTICLE VI
CONDITIONS TO THE MERGER
6.1 Conditions to Obligations of Each Party to Effect the Merger.
The respective obligations of each party to this Agreement to effect the Merger
shall be subject to the satisfaction at or prior to the Effective Time of the
following conditions:
(a) Stockholder Approval. This Agreement and the Merger shall
have been approved and adopted by the requisite vote of the stockholders of the
Company under applicable law.
(b) Exempt Stock Issuance. The Parent Common Stock to be
issued to the Company's stockholders pursuant to this Agreement will be issued
pursuant to exemptions from the registration requirements of the Securities Act
and any applicable state securities or "blue sky" laws.
(c) No Injunctions or Restraints; Illegality. No temporary
restraining order, preliminary or permanent injunction, or other order issued by
any court of competent jurisdiction or other legal or regulatory restraint or
prohibition preventing the consummation of the Merger shall be in effect.
(d) Approvals. Other than the filing provided for under
Section 1.2, all orders, consents, waivers, exemptions, approvals, or
authorizations of, or declarations, filings, or registrations with, or giving of
notice to, any Person or Governmental Entity required of Parent, the Company, or
any of their subsidiaries to consummate this Agreement, the Merger, the issuance
of Parent Common Stock contemplated by this Agreement, or any other transaction
contemplated hereby, the failure of which to be obtained or made (i) is
reasonably expected to have a Material Adverse Effect on Parent or the Company
or (ii) will result in a material violation of any law, shall have been obtained
or made, all in form and substance reasonably satisfactory to Parent and the
Company. If applicable, the waiting period (and any extension thereof)
applicable to the consummation of the Merger under the HSR Act shall have
expired or been terminated.
6.2 Additional Conditions to Obligations of the Company. The
obligations of the Company to consummate and effect the Merger and the other
transactions contemplated
48
hereby shall be subject to the satisfaction at or prior to the Effective Time of
each of the following conditions, any of which may be waived, in writing,
exclusively by the Company:
(a) Representations and Warranties. The representations and
warranties of Parent and Merger Sub contained in this Agreement shall be true
and correct in all material respects both when made and at and as of the
Effective Time, except for changes contemplated by this Agreement and except for
those representations and warranties which address matters only as of a
particular date (which shall remain true and correct as of such date), with the
same force and effect as if made on and as of the Effective Time.
(b) Agreements and Covenants. 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 them at or prior
to the Effective Time.
(c) Bringdown. The Company shall have received a certificate,
dated the Closing Date, to the effect of Sections 6.2(a), 6.2(b), and 6.2(d)
signed by the Chief Executive Officer and Chief Financial Officer of Parent in
their capacities as officers of Parent and not in their individual capacities.
(d) No Material Adverse Effect on Parent. There shall not have
been any Material Adverse Effect on Parent, and there shall not have been any
development that reasonably would be expected to have a Material Adverse Effect
on Parent.
(e) Resignation of Parent Directors. Prior to the Effective
Time, three of the members of the Board of Directors of Parent shall have
submitted written resignations, effective as of the Effective Time, to Parent in
accordance with Section 5.14, and a copy of such resignations shall have been
delivered to the Company and the three individuals named in Section 5.14 shall
have been conditionally appointed to the Board of Directors of Parent.
6.3 Additional Conditions to the Obligations of Parent and Merger
Sub. The obligations of Parent and Merger Sub to consummate and effect the
Merger and the other transactions contemplated hereby shall be subject to the
satisfaction at or prior to the Effective Time of each of the following
conditions, any of which may be waived, in writing, exclusively by Parent:
(a) Representations and Warranties. The representations and
warranties of the Company contained in this Agreement shall be true and correct
in all material respects both when made and at and as of the Effective Time,
except for changes contemplated by this Agreement and except for those
representations and warranties which address matters only as of a particular
date (which shall remain true and correct as of such date), with the same force
and effect as if made on and as of the Effective Time.
(b) Agreements and Covenants. The Company 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 it on or prior to the
Effective Time.
49
(c) Bringdown. Parent and Merger Sub shall have received a
certificate, dated the Closing Date, to the effect of Sections 6.3(a), 6.3(b),
and 6.3(d), signed by the Chief Executive Officer and Chief Financial Officer of
the Company in their capacities as officers of the Company and not in their
individual capacities.
(d) No Material Adverse Effect on the Company. There shall not
have been any Material Adverse Effect on the Company, and there shall not have
been any development that reasonably would be expected to have a Material
Adverse Effect on the Company.
(e) Dissenters' Rights. Following the Company Stockholders'
Meeting, no more than fifteen percent (15%) of the Company's outstanding shares
shall be legally eligible to exercise dissenters' rights under the Washington
Corporate Law.
(f) Resignation of Company Directors and Officers. Parent
shall have received the resignations of such directors and officers of the
Company as Parent may request with such resignations effective at such dates and
times as Parent may request.
(g) Audited Financials. Parent shall have received a copy of
the Company's consolidated financial statements for the fiscal year ended
December 31, 2003, audited by KPMG, LLP, and (i) the audit opinion shall be
unqualified and (ii) the audited financial statements shall not be materially
different from the Company's unaudited consolidated financial statements for the
fiscal year ended December 31, 2003 previously provided to Parent.
ARTICLE VII
TERMINATION, AMENDMENT AND WAIVER
7.1 Termination. This Agreement may be terminated and the Merger
abandoned at any time prior to the Effective Time:
(a) by mutual written consent of the Company and Parent;
(b) by Parent if:
(i) there has been a material breach of any
representation, warranty, covenant, or agreement contained in this Agreement on
the part of the Company and such breach has not been cured within thirty days
after written notice to the Company (provided, that Parent is not in material
breach of the terms of this Agreement; and provided further, that no cure period
shall be required for a breach which by its nature cannot be cured) such that
the conditions set forth in Section 6.3(a) or Section 6.3(b), as the case may
be, will not be satisfied, or
(ii) the Board of Directors of the Company amends,
withholds, or withdraws its recommendation of the Merger (provided that Parent
is not in material breach of the terms of this Agreement);
50
(c) by the Company if:
(i) there has been a material breach of any
representation, warranty, covenant, or agreement contained in this Agreement on
the part of Parent and such breach has not been cured within thirty days after
written notice to Parent (provided, that the Company is not in material breach
of the terms of this Agreement; and provided further, that no cure period shall
be required for a breach which by its nature cannot be cured) such that the
conditions set forth in Section 6.2(a) or Section 6.2(b), as the case may be,
will not be satisfied; or
(ii) the Company breaches Section 5.4(b).
(d) by any party hereto if (i) there shall be a final,
non-appealable order of a federal or state court in effect preventing
consummation of the Merger; (ii) there shall be any final action taken, or any
statute, rule, regulation, or order enacted, promulgated, or issued or deemed
applicable to the Merger by any Governmental Entity which would make
consummation of the Merger illegal or which would prohibit Parent's ownership or
operation of all or a material portion of the business of the Company or compel
Parent to dispose of or hold separate all or a material portion of the business
or assets of the Company or Parent as a result of the Merger; or (iii) if the
Company's stockholders do not approve the Merger and this Agreement at the
Company Stockholders' Meeting (provided that the Company may not terminate in
these circumstances if it is in material breach of the terms of this Agreement);
(e) by any party hereto if the Merger shall not have been
consummated by August 30, 2004; provided, that the right to terminate this
Agreement under this Section 7.1(e) shall not be available to any party whose
willful failure to fulfill any material obligation under this Agreement has been
the cause of, or resulted in, the failure of the Effective Time to occur on or
before such date; or
(f) by Parent if the Board of Directors of the Company accepts
or approves a Superior Proposal or recommends a Superior Proposal to the
stockholders of the Company (provided that the terminating party is not in
material breach of the terms of this Agreement).
Where action is taken to terminate this Agreement pursuant to this Section
7.1, it shall be sufficient for such action to be authorized by the Board of
Directors of the party taking such action.
7.2 Effect of Termination. In the event of termination of this
Agreement as provided in Section 7.1, this Agreement shall forthwith become void
and there shall be no liability or obligation hereunder on the part of Parent,
Merger Sub, the Company, or their respective officers, directors, stockholders,
or affiliates, except to the extent that such termination results from the
breach by a party hereto of any of its representations, warranties, covenants,
or agreements set forth in this Agreement, and provided that the provisions of
Sections 5.3(b), 5.5, 5.6, and 5.15 of this Agreement shall remain in full force
and effect and survive any termination of this Agreement.
51
7.3 Notice of Termination. Any termination of this Agreement under
Section 7.1 above will be effective immediately upon the delivery of written
notice by the terminating party to the other parties hereto (subject to the
expiration of any applicable cure period).
7.4 Amendment. This Agreement may be amended by the parties hereto
at any time, but only by execution of an instrument in writing signed on behalf
of each of the parties hereto, provided, that, after the Effective Time, this
Agreement may be amended with the consent of each of the parties hereto and the
consent of at least 66-2/3% of the directors of the Company as of the date of
this Agreement.
7.5 Extension; Waiver. At any time prior to the Effective Time any
party hereto may, to the extent legally allowed, (i) extend the time for the
performance of any of the obligations or other acts of the other parties hereto,
(ii) waive any inaccuracies in the representations and warranties made to such
party contained herein or in any document delivered pursuant hereto, and (iii)
waive compliance with any of the agreements, covenants, or conditions for the
benefit of such party contained herein. Any agreement on the part of a party
hereto to any such extension or waiver shall be valid only if set forth in an
instrument in writing signed on behalf of such party.
ARTICLE VIII
GENERAL PROVISIONS
8.1 Non-Survival of Representations and Warranties. The
representations and warranties of the Company, Parent, and Merger Sub contained
in this Agreement shall terminate at the Effective Time, and only the covenants
that by their terms survive the Effective Time shall survive the Effective Time.
8.2 Notices. All notices and other communications hereunder shall be
in writing and shall be deemed given if delivered personally or by commercial
delivery service or mailed by registered or certified mail (return receipt
requested) or sent via telecopy (receipt confirmed) to the parties at the
following addresses or telecopy numbers (or at such other address or telecopy
numbers for a party as the party shall specify by like notice). If so mailed,
they shall be deemed given upon the earlier of actual receipt or three business
days after mailing.
(a) if to Parent or Merger Sub, to:
0000 Xxx Xxxxxxx
Xxxxx Xxxxxx, XX 00000
Attention: Xxxxxx X. Xxxxxxxxxx
Facsimile No.: (000) 000-0000
52
with a copy to:
Xxxxx X. Xxxxxxx
00 Xxxxxxxxxx Xxxxx Xxxx
Xxxxx Xxxxxxxxx, XX 00000
Facsimile No.: (000) 000-0000
(b) if to the Company, to:
00000 XX 00xx Xxxxxx
Xxxxxxx, XX 00000
Attention: Xxxxxx X. Xxxxx
Facsimile No.: (000) 000-0000
with a copy to:
000 Xxxxx Xxxxxx, Xxxxx 0000
Xxxxxxx, XX 00000
Attention: Xxxx X. Steel
Facsimile No.: (000) 000-0000
8.3 Interpretation. The words "include," "includes" and "including"
when used herein shall be deemed in each case to be followed by the words
"without limitation." Any table of contents and 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. When reference is made herein to
"the business of" an entity, such reference shall be deemed to include the
business of all direct and indirect subsidiaries of such entity. Reference to
the subsidiaries of an entity shall be deemed to include all direct and indirect
subsidiaries of such entity.
8.4 Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each of
the parties and delivered to the other parties, it being understood that all
parties need not sign the same counterpart. A facsimile or copy of a signature
is valid as an original.
8.5 Entire Agreement; Third-Party Beneficiaries. This Agreement and
the documents and instruments and other agreements among the parties hereto as
contemplated by or referred to herein, including the Company Letter and the
Parent Letter, (a) constitute the entire agreement among the parties with
respect to the subject matter hereof and supersede all prior and contemporaneous
agreements and understandings, both written and oral, among the parties with
respect to the subject matter hereof, it being understood that the
Confidentiality Agreement shall continue in full force and effect until the
Closing and shall survive any termination of this Agreement, and (b) are not
intended to, and do not, confer upon any other person any rights or remedies
hereunder except as specifically set forth in Section 5.17.
8.6 Severability. If any provision of this Agreement or the
application thereof becomes or is declared by a court of competent jurisdiction
to be illegal, void, or unenforceable,
53
the remainder of this Agreement will continue in full force and effect and the
application of such provision to other persons or circumstances will be
interpreted so as reasonably to effect the intent of the parties hereto. The
parties further agree to replace such void or unenforceable provision of this
Agreement with a valid and enforceable provision that will achieve, to the
extent possible, the economic, business, and other purposes of such void or
unenforceable provision; and, if they do not act to replace the provision, the
Agreement will be interpreted as if they had replaced it with such a provision.
8.7 Other Remedies. Except as otherwise provided herein, any and all
remedies herein expressly conferred upon a party will be deemed cumulative with
and not exclusive of any other remedy conferred hereby or by law or equity upon
such party, and the exercise by a party of any one remedy will not preclude the
exercise of any other remedy.
8.8 Governing Law and Choice of Forum.
(a) This Agreement shall be governed by and construed in
accordance with the laws of the State of Washington, regardless of the laws that
might otherwise govern under applicable principles of conflicts of law thereof.
(b) Any dispute or controversy arising out of or relating to
this Agreement, any document or instrument delivered pursuant to or in
connection herewith, or any breach of this Agreement or any such document or
instrument shall be resolved exclusively (as to court proceedings initiated by
the Company, including any counterclaims or crossclaims later brought by Parent
or Merger Sub) in the state or federal courts whose local geographic
jurisdiction includes Falls Church, Virginia, or exclusively (as to court
proceedings initiated by Parent or Merger Sub, including any counterclaims or
crossclaims later brought by the Company) in the state or federal courts whose
local geographic jurisdiction includes Redmond, Washington. Each of the parties
hereto irrevocably consents to the exclusive jurisdiction of any such state or
federal court in connection with any matter based upon or arising out of this
Agreement or the matters contemplated herein, agrees that process may be served
upon them in any manner authorized by the laws of the State of Washington or the
Commonwealth of Virginia, as the case may be, for such persons, and waives and
covenants not to assert or plead any objection which they might otherwise have
to such forum, such jurisdiction, and such process.
8.9 Rules of Construction. The parties hereto agree that they have
been represented by counsel during the negotiation and execution of this
Agreement and, therefore, waive the application of any law, regulation, holding,
or rule of construction providing that ambiguities in an agreement or other
document will be construed against the party drafting such agreement or
document.
8.10 Assignment. No party may assign either this Agreement or any of
its rights, interests, or obligations hereunder without the prior written
approval of the other parties.
8.11 Certain Definitions. For purposes of this Agreement, the term:
54
(a) "business day" means any day on which the principal
offices of the SEC in Washington D.C. are open to accept filings, or, in the
case of determining a date when any payment is due, any day (other than a
Saturday or a Sunday) on which banks are not required or authorized to close in
Washington;
(b) "knowledge" means with respect to any fact, circumstance,
event, or other matter in question, that such fact, circumstance, event, or
other matter was actually known by or upon reasonable inquiry or investigation
would have been actually known by (i) an individual, if used in reference to an
individual, (ii) Xxxxxx X. Xxxxxxxxxx, Xxxxxxx X. Xxxxx, Xxxxx X. Xxxxxxx and
Xxxxxxx X. Xxxxxx, if used in reference to Parent or Merger Sub, or (iii) Xxxxxx
X. Xxxxx, Xxxx Xxxxxx, Xxxx Xxxxxxxx, Xxxxx Xxxxxx, Xxxx Xxxxxxx, Xxxxxxxx
Xxxxx, Xxxx Xxxxxxxx, Xxx Xxxxx, Xxxx Xxxxxxxx, and Xxxx Xxxxxxx, if used in
reference to the Company.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
55
IN WITNESS WHEREOF, Parent, Merger Sub, and the Company have caused this
Agreement to be signed by their respective duly authorized officers, all as of
the date first written above.
[Seal] YDI WIRELESS, INC.
By: /s/ Xxxxxx X. Xxxxxxxxxx
---------------------------------------
Name: Xxxxxx X. Xxxxxxxxxx
-------------------------------------
Chief Executive Officer
[Seal] TERABEAM CORPORATION
By: /s/ Xxxxxx X. Xxxxx
---------------------------------------
Name: Xxxxxx X. Xxxxx
-------------------------------------
President and Chief Executive Officer
[Seal] T-XXX ACQUISITION CORPORATION
By: /s/ Xxxxxx X. Xxxxxxxxxx
---------------------------------------
Name: Xxxxxx X. Xxxxxxxxxx
-------------------------------------
President and Chief Executive Officer
