EXHIBIT 2.1
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AGREEMENT AND PLAN OF MERGER
AMONG
COVAD COMMUNICATIONS GROUP, INC.,
COVAD COMMUNICATIONS INVESTMENT CORP.,
GOBEAM, INC.
AND
XXXXXXX XXXXXXX, AS REPRESENTATIVE
MARCH 2, 2004
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AGREEMENT AND PLAN OF MERGER
This AGREEMENT AND PLAN OF MERGER (this "AGREEMENT") is made and
entered into as of March 2, 2004 (the "AGREEMENT DATE") by and among Covad
Communications Group, Inc., a Delaware corporation ("ACQUIROR"), Covad
Communications Investment Corp., a Delaware corporation and a wholly owned
subsidiary of Acquiror ("MERGER SUB"), GoBeam, Inc., a Delaware corporation (the
"COMPANY"), and Xxxxxxx Xxxxxxx, as Representative, solely with respect to
ARTICLE 12 hereof and such other provisions hereof which specifically refer to
such Representative (the "REPRESENTATIVE").
RECITALS
A. The parties intend that, subject to the terms and conditions
hereinafter set forth, Merger Sub shall merge with and into the Company (the
"MERGER"), with the Company to be the surviving corporation of the Merger (the
"SURVIVING CORPORATION"), on the terms and subject to the conditions of this
Agreement and pursuant to a Certificate of Merger substantially in the form
attached hereto as Exhibit A (the "CERTIFICATE OF MERGER") and the applicable
provisions of the laws of the State of Delaware.
B. The Boards of Directors of Acquiror, Merger Sub and the
Company have determined that the Merger is in the best interests of their
respective companies and stockholders and have approved and declared advisable
this Agreement and the Merger.
C. Concurrently with the execution and delivery of this
Agreement, and as a condition and inducement to Acquiror's willingness to enter
into this Agreement, Acquiror, the Company and certain of the holders of the
Company's Series A Stock (as defined below) are entering into an interim funding
agreement dated as of the Agreement Date (the "INTERIM FUNDING AGREEMENT")
pursuant to which such holders have agreed to continue to fund the Company in
the ordinary course and consistent with past practices through the issuance of
secured promissory notes, convertible into shares of Company Series A Stock
immediately prior to the Effective Time.
D. Concurrently with the execution and delivery of this
Agreement, and as a condition and inducement to Acquiror's willingness to enter
into this Agreement, each Company Stockholder (as defined in ARTICLE 1) listed
on Exhibit B-1 is executing and delivering to Acquiror a Voting Agreement
substantially in the form attached hereto as Exhibit B-2 (the "VOTING
AGREEMENT").
E. Concurrently with the execution and delivery of this
Agreement, and as a condition and inducement to Acquiror's willingness to enter
into this Agreement, each of the employees of the Company listed on Exhibit C-1
is executing and delivering to Acquiror an Employment Offer Letter substantially
in the form attached hereto as Exhibit C-2 (the "EMPLOYMENT OFFER LETTER"),
which letter shall become effective only upon the Effective Time (as defined in
ARTICLE 1).
F. Concurrently with the execution and delivery of this
Agreement, and as a condition and inducement to Acquiror's willingness to enter
into this Agreement, each of the
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individuals listed on Exhibit D-1 is executing and delivering to Acquiror a
Non-Solicitation Agreement substantially in the form attached hereto as Exhibit
D-2 (the "NON-SOLICITATION AGREEMENT"), which agreement shall become effective
only upon the Effective Time.
G. Acquiror, Merger Sub and the Company desire to make certain
representations, warranties, covenants and agreements in connection with the
Merger and to prescribe various conditions to the Merger.
NOW, THEREFORE, in consideration of the foregoing and the mutual
promises, covenants and conditions contained herein, the parties hereby agree as
follows:
ARTICLE 1
CERTAIN DEFINITIONS
As used in this Agreement, the following terms shall have the meanings
set forth below. Unless indicated otherwise, all mathematical calculations
contemplated hereby shall be made to the fifth decimal place.
"ACQUIROR ANCILLARY AGREEMENTS" means, collectively, each
certificate to be delivered on behalf of Acquiror by an officer or officers of
Acquiror at the Closing pursuant to ARTICLE 8 and each agreement or document
(other than this Agreement) that Acquiror is to enter into as a party thereto
pursuant to this Agreement.
"ACQUIROR COMMON STOCK" means the Common Stock, par value
$0.001 per share, of Acquiror.
"ACQUIROR STOCK PRICE" shall mean the average of the closing
prices for one share of Acquiror Common Stock as quoted on the Over the Counter
Bulletin Board for the ten consecutive trading days ending on (and including)
the trading day that is three trading days prior to the Closing Date as reported
on xxx.xxxxxx.xxx; provided, however, that if such calculation would yield an
Acquiror Stock Price that is less than $2.50, then the Acquiror Stock Price
shall be deemed to be equal to (i) $2.50, minus (ii) one-half of the difference
between $2.50 and the Acquiror Stock Price that would otherwise result from such
calculation; and provided, further, that in no event shall the Acquiror Stock
Price be lower than $2.375.
"AFFILIATE" shall have the meaning set forth in Rule 145
promulgated under the Securities Act.
"ALTERNATIVE TRANSACTION" means: (A) any acquisition or
purchase of Company Capital Stock from the Company by any person or "group" (as
defined under Section 13(d) of the Exchange Act and the rules and regulations
thereunder) representing more than a 50% voting interest in any class or series
of Company Capital Stock or any tender offer or exchange offer that if
consummated would result in any person or "group" (as defined under Section
13(d) of the Exchange Act and the rules and regulations thereunder) beneficially
owning Company Capital Stock representing 50% or more of the voting interest in
any class or series of Company Capital Stock or any merger, consolidation,
business combination or similar transaction involving the Company pursuant to
which the Company Stockholders immediately preceding such transaction hold less
than 80% of the equity interests in any class or series of capital stock of the
surviving
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or resulting entity of such transaction; (B) any sale, lease, exchange,
transfer, license, acquisition or disposition of a substantial portion of the
assets of the Company; (C) any sale, lease, exchange, transfer, license or
disposition to a third party of the Company Business; or (D) any initial public
offering of capital stock or other securities of the Company pursuant to a
registration statement filed under the Securities Act.
"APPLICABLE LAW" means, collectively, all foreign, federal,
state, local or municipal laws, statutes, ordinances, regulations, and rules,
and all orders, writs, injunctions, awards, judgments and decrees applicable to
the assets, properties and business (and any regulations promulgated thereunder)
of the applicable company or entity.
"ASSUMED BONUS PAYMENTS" means the accrued liability of the
Company in connection with the Company's obligation to pay (i) to certain
Company employees identified on Schedule 3.16(d) the bonuses calculated in the
manner set forth on Schedule 3.16(d), pursuant to the Company Sale Participation
Program, and (ii) to Xxxxxx Xxxxxxxxx pursuant to the Xxxxxxxxx Agreement, the
claims for payment of which will be exchanged for shares of Acquiror Common
Stock as set forth in Section 6.9. Any bonus payments pursuant to the Company
Sale Participation Program or the Xxxxxxxxx Agreement in excess of the dollar
amounts set forth on the Spreadsheet shall constitute "Damages" for purposes of
ARTICLE 12 without regard to the Basket (as defined in Section 12.3(b)).
"BALANCE SHEET DATE" means December 31, 2003, the date of the
Company Balance Sheet.
"BANKER MERGER EXPENSES" means all Merger Expenses for
financial advisors and investment bankers.
"CALIFORNIA LAW" means the General Corporation Law of the
State of California.
"CERTIFICATE OF AMENDMENT" means the certificate of amendment
to the Company's Certificate of Incorporation in the form attached hereto as
Exhibit E.
"CLOSING" means the closing of the transactions to consummate
the Merger.
"CLOSING DATE" means 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 ARTICLE 8 and ARTICLE 9,
or at such other time, date and location as the parties hereto agree in writing.
Unless otherwise agreed by Acquiror and the Company, the Closing shall not occur
prior to May 1, 2004.
"CLOSING MERGER EXPENSE CERTIFICATE" means a certificate
executed by the President or Chief Executive Officer of the Company, dated as of
the Closing Date, certifying the amount of unpaid Merger Expenses (including an
itemized list of each Merger Expense and the Person to whom such expense was or
is owed). The Closing Merger Expense Certificate shall include a representation
of the Company, certified by the President or Chief Executive Officer of the
Company, that such certificate includes all of the unpaid Merger Expenses
payable at or following the Closing Date, it being the expressed intent of the
Company and Acquiror that there be no Indemnifiable Merger Expenses.
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"CODE" means the Internal Revenue Code of 1986, as amended.
"COMMON CONVERSION NUMBER" shall mean the quotient obtained by
dividing (A) the Total Remaining Consideration by (B) the product of (1) the
Fully-Diluted Company Common Stock and (2) the Acquiror Stock Price.
"COMPANY ANCILLARY AGREEMENTS" means, collectively, each
certificate to be delivered on behalf of the Company by an officer or officers
of the Company at the Closing pursuant to ARTICLE 10 and each agreement or
document (other than this Agreement) that the Company is to enter into as a
party thereto pursuant to this Agreement.
"COMPANY BALANCE SHEET" means the Company's unaudited balance
sheet as of December 31, 2003 included in the Company Financial Statements.
"COMPANY BUSINESS" means the business of the Company and its
Subsidiaries as presently conducted.
"COMPANY CAPITAL STOCK" means the capital stock of the
Company.
"COMPANY COMMON STOCK" means the Common Stock, par value
$0.0001 per share, of the Company.
"COMPANY FINANCIAL STATEMENTS" means (A) the Company's audited
consolidated balance sheet dated December 31, 2002; (B) the Company's unaudited
consolidated balance sheet dated December 31, 2003; (C) the Company's audited
consolidated statement of operations, statement of cash flows and statement of
stockholders' equity for the year ended December 31, 2002; (D) the Company's
unaudited consolidated statement of operations, statement of cash flows and
statement of stockholders' equity for the year ended December 31, 2003; and (E)
any notes to the foregoing financial statements.
"COMPANY MATERIAL CONTRACT" means any Contract in effect on
the date of this Agreement and required to be listed on the Company Disclosure
Letter pursuant to Section 3.11 or Section 3.13.
"COMPANY OPTION PLAN" means the 2000 Employee and Consultant
Equity Incentive Plan of the Company, as amended.
"COMPANY OPTIONHOLDERS" means the holders of Company Options.
"COMPANY OPTIONS" means options to purchase shares of Company
Capital Stock.
"COMPANY PREFERRED STOCK" means the Company Series A Stock.
"COMPANY SALE PARTICIPATION PROGRAM" means the Company's
Amended and Restated 2004 Sale Participation Program, as may be amended from
time to time.
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"COMPANY SECURITYHOLDERS" means the Company Stockholders,
Company Optionholders and Company Warrantholders, collectively.
"COMPANY SERIES A STOCK" means the Series A Preferred Stock,
par value $0.0001 per share, of the Company.
"COMPANY STOCKHOLDERS" means the holders of shares of Company
Capital Stock.
"COMPANY SUBSIDIARY" means a corporation or other business
entity in which the Company owns, directly or indirectly, at least a 50%
interest or that is otherwise, directly or indirectly, controlled by such
entity.
"COMPANY WARRANTHOLDERS" means the holders of Company
Warrants.
"COMPANY WARRANTS" means warrants to purchase shares of
Company Capital Stock.
"CONTRACT" means any written or oral legally binding contract,
agreement, instrument, arrangement, commitment or undertaking (including leases,
licenses, mortgages, notes, guarantees, sublicenses, subcontracts and purchase
orders).
"DELAWARE LAW" means the General Corporation Law of the State
of Delaware.
"DISSENTERS DEADLINE DATE" means the first date at or after
the Effective Time on which no holder of Company Capital Stock as of immediately
prior to the Effective Time has an opportunity to perfect dissenters' rights or
appraisal rights in accordance with Delaware Law or California Law in connection
with the Merger in respect of any shares of Company Capital Stock.
"DISSENTING SHARES" means any shares of Company Capital Stock
that are issued and outstanding immediately prior to the Effective Time and in
respect of which dissenters' rights or appraisal rights shall have been
perfected prior to the Dissenters Deadline Date in accordance with Delaware Law
or California Law in connection with the Merger.
"DOCUMENTATION" means, collectively, programmers' notes or
logs, source code annotations, user guides, manuals, instructions, software
architecture designs, layouts, any know-how, and any other designs, plans,
drawings, documentation, materials, supplier lists, software source code and
object code, net lists, photographs, development tools, blueprints, media,
memoranda and records that are primarily related to or otherwise necessary for
the use and exploitation of any products or any products in development of the
Company or its Subsidiaries, whether in tangible or electronic form, whether
owned by the Company or its Subsidiaries or held by the Company or its
Subsidiaries under any licenses or sublicenses (or similar grants of rights).
"EFFECTIVE TIME" means the time of the filing of the
Certificate of Merger (or such later time as may be mutually agreed in writing
by the Company and Acquiror and specified in the Certificate of Merger).
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"ENCUMBRANCE" means, with respect to any asset, any mortgage,
deed of trust, lien, pledge, charge, security interest, title retention device,
collateral assignment, adverse claim, restriction or other encumbrance of any
kind in respect of such asset (including any restriction on the voting of any
security, any restriction on the transfer of any security or other asset, any
restriction on the receipt of any income derived from any asset, any restriction
on the use of any asset and any restriction on the possession, exercise or
transfer of any other attribute of ownership of any asset). An inability to sell
a security without registering such security for sale under the Securities Act
or other federal securities laws shall not represent an Encumbrance.
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended.
"ERISA AFFILIATE" means any entity which is a member of: (A) a
"controlled group of corporations," as defined in Section 414(b) of the Code;
(B) a group of entities under "common control," as defined in Section 414(c) of
the Code; or (C) an "affiliated service group," as defined in Section 414(m) of
the Code, or treasury regulations promulgated under Section 414(o) of the Code,
any of which includes the Company.
"ESCROW EXPENSE SHARES" shall mean the number of shares of
Acquiror Common Stock equal to the quotient obtained by dividing (A) the
aggregate sum of the Merger Expenses as set forth on the Closing Merger Expense
Certificate by (B) the Acquiror Stock Price.
"ESCROW SHARES" shall mean the number of shares of Acquiror
Common Stock equal to 11.33% of the number of shares of Acquiror Common Stock
into which the shares of Company Capital Stock outstanding immediately prior to
the Effective Time are converted pursuant to the Merger as provided in Sections
2.1(b)(i) and 2.1(b)(ii) and which are issuable in exchange for outstanding
claims pursuant to the Assumed Bonus Payments, in accordance with Section 6.9
hereof; provided, however, that in the event that Acquiror elects to pay all
outstanding claims pursuant to the Assumed Bonus Payments in cash, then "Escrow
Shares" shall mean that number of shares of Acquiror Common Stock equal to
11.93% of the number of shares of Acquiror Common Stock into which the shares of
Company Capital Stock outstanding immediately prior to the Effective Time are
converted pursuant to the Merger as provided in Sections 2.1(b)(i) and
2.1(b)(ii).
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
"EXPIRATION DATE" means that day which is the 425th day
following the Closing Date.
"FULLY-DILUTED COMPANY COMMON STOCK" means the sum, without
duplication, of (A) the aggregate number of shares of Company Common Stock that
are issued and outstanding immediately prior to the Effective Time, (B) the
aggregate number of shares of Company Common Stock issuable upon the conversion
of shares of Company Series A Stock issued and outstanding immediately prior to
the Effective Time, (C) the aggregate number of shares of Company Common Stock
issuable upon the exercise of Company Options and Company Warrants or other
direct or indirect rights to acquire shares of Company Common
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Stock that are issued and outstanding immediately prior to the Effective Time
(whether or not then vested or exercisable), and (D) the aggregate number of
shares of Company Common Stock issuable upon the conversion of shares of Company
Preferred Stock issuable upon the conversion of convertible promissory notes or
other direct or indirect rights to acquire shares of Company Preferred Stock
that are issued and outstanding immediately prior to the Effective Time (whether
or not then vested or exercisable).
"FULLY-DILUTED COMPANY SERIES A STOCK" means the sum, without
duplication, of (A) the aggregate number of shares of Company Series A Stock
that are issued and outstanding immediately prior to the Effective Time and (B)
the aggregate number of shares of Company Series A Stock issuable upon the
conversion of convertible promissory notes or other direct or indirect rights to
acquire shares of Company Series A Stock that are issued and outstanding
immediately prior to the Effective Time (whether or not then vested or
exercisable).
"GAAP" means United States generally accepted accounting
principles applied on a consistent basis.
"GOVERNMENTAL AUTHORITY" means any court or tribunal,
governmental or regulatory body, administrative agency, commission or other
governmental authority.
"INTELLECTUAL PROPERTY" means, collectively, all worldwide
industrial and intellectual property rights, including patents, patent
applications, patent rights, trademarks, trademark registrations and
applications therefor, trade dress rights, trade names, service marks, service
xxxx registrations and applications therefor, Internet domain names, Internet
and World Wide Web URLs or addresses, copyrights, copyright registrations and
applications therefor, mask work rights, mask work registrations and
applications therefor, franchises, licenses, inventions, trade secrets,
know-how, customer lists, supplier lists, proprietary processes and formulae,
technology, software source code and object code, algorithms, net lists,
architectures, structures, screen displays, photographs, images, layouts,
development tools, designs, blueprints, specifications, technical drawings (or
similar information in electronic format) and all documentation and media
constituting, describing or relating to the foregoing, including manuals,
programmers' notes, memoranda and records.
"KNOWLEDGE" means the knowledge of a particular fact,
circumstance, event or other matter in question of the executive officers and
directors of an entity (and with respect to Section 3.13, any current employees
of the Company who have direct responsibility for technology development
activity for the Company) (collectively, the "ENTITY REPRESENTATIVES"). Any such
Entity Representative will be deemed to have knowledge of a particular fact,
circumstance, event or other matter if such fact, circumstance, event or other
matter would reasonably be expected to be known by an individual who has the
duties and responsibilities of such Entity Representative or, in the case of an
executive officer of an entity, if knowledge of such fact or circumstance could
be obtained by inquiry of the employees of such entity directly reporting to
such executive officer.
"LIABILITIES" means debts, liabilities and obligations,
whether accrued or fixed, absolute or contingent, matured or unmatured,
determined or determinable, known or unknown,
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including those arising under any law, action or governmental order and those
arising under any Contract.
"MATERIAL ADVERSE CHANGE" and "MATERIAL ADVERSE EFFECT" when
used in connection with an entity means any change, event, circumstance,
condition or effect that is or is reasonably likely to be, individually or in
the aggregate, materially adverse in relation to the condition (financial or
otherwise), capitalization, properties, products assets (including intangible
assets), Intellectual Property, liabilities, business, employees, management,
operations or results of operations of such entity and its subsidiaries, taken
as a whole, except to the extent that any such change, event, condition or
effect directly results from: (A) changes in general economic conditions; (B)
changes affecting the industry generally in which such entity operates; (C) the
direct effect of the public announcement or pendency of the transactions
contemplated hereby on the employees, customers or suppliers of such entity; or
(D) the direct effect of actions by the Company or a Company Subsidiary taken at
the direction or request of Acquiror pursuant to this Agreement.
"MERGER EXPENSES" means all out-of-pocket costs and expenses
incurred by the Company directly related to the Merger and this Agreement and
the transactions contemplated hereby, (including any fees and expenses of legal
counsel, financial advisors, investment bankers and accountants and including,
without limitation, any Banker Merger Expenses). Any unpaid Merger Expenses that
have not been set forth on the Closing Merger Expense Certificate are
collectively referred to as "INDEMNIFIABLE MERGER EXPENSES" and shall constitute
"Damages" for purposes of ARTICLE 12 without regard to the Basket (as defined in
Section 12.3(b)).
"MERGER SUB ANCILLARY AGREEMENTS" means, collectively, each
certificate to be delivered on behalf of Merger Sub by an officer or officers of
Merger Sub at the Closing pursuant to ARTICLE 8 and each agreement or document
(other than this Agreement) that Merger Sub is to enter into as a party thereto
pursuant to this Agreement.
"MERGER SUB COMMON STOCK" means the Common Stock, par value
$0.001 per share, of Merger Sub.
"PERMITTED ENCUMBRANCES" means: (A) statutory liens for taxes
that are not yet due and payable; (B) statutory liens to secure obligations to
landlords, lessors or renters under leases or rental agreements; (C) deposits or
pledges made in connection with, or to secure payment of, workers' compensation,
unemployment insurance or similar programs mandated by Applicable Law; (D)
statutory liens in favor of carriers, warehousemen, mechanics and materialmen,
to secure claims for labor, materials or supplies and other like liens; and (E)
any minor imperfection of title or similar liens, charges or encumbrances which
individually or in the aggregate with other such liens, charges and encumbrances
does not impair the value of the property subject to such lien, charge or
encumbrance or the use of such property in the conduct of the Business.
"PERSON" means any individual, corporation, company, limited
liability company, partnership, limited liability partnership, trust, estate,
proprietorship, joint venture, association, organization, entity or Governmental
Authority.
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"PERSONNEL AWARDS" means that number of restricted shares of
Acquiror Common Stock equal to the quotient obtained by dividing $1,500,000 by
the Acquiror Stock Price, which restricted shares shall be issued by Acquiror as
provided in Section 6.8 hereof to certain employees of the Company to be
identified and in an amount per person to be determined by Acquiror in its sole
discretion prior to the Closing.
"SEC" means the Securities and Exchange Commission.
"SECURITIES ACT" means the Securities Act of 1933, as amended.
"SERIES A CONVERSION NUMBER" means the sum of (A) the quotient
obtained by dividing the Total Preference Consideration by the product of (1)
the Fully-Diluted Company Series A Stock and (2) the Acquiror Stock Price, plus
(B) the Common Conversion Number.
"SPREADSHEET" means a spreadsheet in form reasonably
acceptable to Acquiror, which spreadsheet shall be dated as of the Closing Date
and shall set forth, as of the Closing Date and immediately prior to the
Effective Time, the following factual information relating to holders of Company
Capital Stock, Company Options and Company Warrants and persons entitled to
receive shares of Acquiror Common Stock pursuant to Section 6.9 hereof in
exchange for outstanding claims pursuant to the Assumed Bonus Payments: (A) the
names of all the Company Stockholders, Company Optionholders and Company
Warrantholders and persons entitled to receive shares of Acquiror Common Stock
pursuant to Section 6.9 hereof in exchange for outstanding claims pursuant to
the Assumed Bonus Payments, and their respective last known addresses and (where
available) taxpayer identification numbers; (B) the number and kind of shares of
Company Capital Stock held by, or subject to the Company Options or Company
Warrants held by, such Persons and, in the case of outstanding shares, the
respective certificate numbers; (C) the exercise price per share in effect for
each Company Option and Company Warrant; (D) the vesting arrangements with
respect to Company Options and Unvested Company Shares; (E) the number of Vested
Company Options; (F) the calculation of the Fully-Diluted Company Common Stock,
Fully-Diluted Company Series A Stock, Common Conversion Number, Series A
Conversion Number, Total Merger Consideration, Total Preference Consideration
and Total Remaining Merger Consideration; (G) the number of shares of Acquiror
Common Stock issuable to each Company Stockholder in exchange for the Company
Capital Stock held by such Persons and the number of shares of Acquiror Common
Stock issuable upon a complete exercise of the Company Options held by each
Company Option Holder; (H) the Pro Rata Share (as defined in Section 2.3 and
expressed both as a percentage and as a number of shares) of Acquiror Common
Stock of each Company Stockholder or each person entitled to receive shares of
Acquiror Common Stock in exchange for Assumed Bonus Payments pursuant to Section
6.9 hereof, as the case may be, in the Escrow Shares; and (I) the Expense Shares
Pro Rata Share (as defined in Section 2.3 and expressed both as a percentage and
as a number of shares) of Acquiror Common Stock of each Company Stockholder in
the Escrow Expense Shares.
"XXXXXXXXX AGREEMENT" means that certain Independent
Consultant Agreement dated as of September 1, 2003 between the Company and
Xxxxxx Xxxxxxxxx, as extended and amended, which provides for a bonus payment in
connection with the sale of the Company.
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"TAX" (and, with correlative meaning, "TAXES") means (A) any
net income, alternative or add-on minimum tax, gross income, gross receipts,
sales, use, ad valorem, transfer, franchise, profits, license, withholding,
payroll, employment, excise, severance, stamp, occupation, premium, property,
environmental or windfall profit tax, custom duty or other tax, governmental fee
or other like assessment or charge of any kind whatsoever, together with any
interest or any penalty, addition to tax or additional amount imposed by any
governmental entity responsible for the imposition of any such tax (domestic or
foreign), (B) any liability for the payment of any amounts of the type described
in clause (A) of this sentence as a result of being a member of an affiliated,
consolidated, combined, unitary or aggregate group for any taxable period, and
(C) any liability for the payment of any amounts of the type described in clause
(A) or (B) of this sentence as a result of being a transferee of or successor to
any Person or as a result of any express or implied obligation to indemnify any
other Person.
"TOTAL CONSIDERATION" means (A) $46,500,000, plus the
aggregate exercise price of all Company Options and Company Warrants as of the
Closing Date, minus (B) any amount of Assumed Bonus Payments. Notwithstanding
any other provision hereof, in no event shall the aggregate number of shares of
Acquiror Common Stock issued by Acquiror, or issuable pursuant to Company
Options and Company Warrants, to the holders of Company Capital Stock, Company
Options and Company Warrants have a value, based on a per share value equal to
the Acquiror Stock Price, that exceeds the Total Consideration.
"TOTAL PREFERENCE CONSIDERATION" means the product obtained by
multiplying (A) the Fully-Diluted Company Series A Stock by (B) $0.43086;
provided, that if the Total Preference Consideration would otherwise exceed the
Total Consideration, then the Total Preference Consideration shall equal the
Total Consideration.
"TOTAL REMAINING CONSIDERATION" means (A) the Total
Consideration less (B) the Total Preference Consideration.
"UNVESTED COMPANY OPTIONS" means any Company Options that are
unvested or subject to a repurchase option, vesting schedule or any other
condition providing that such Company Option or the shares subject thereto may
be forfeited to or repurchased by the Company upon any termination of the
relevant relationship (including employment or directorship) of the Company with
the holder (or prior holder thereof) under the terms of any Contract with the
Company (including any stock option agreement or stock option exercise
agreement).
"UNVESTED COMPANY SHARES" means any shares of Company Capital
Stock that are unvested or subject to a repurchase option, vesting schedule or
any other condition providing that such shares may be forfeited to or
repurchased by the Company upon any termination of the relevant relationship
(including employment or directorship) of the Company with the holder (or prior
holder thereof) under the terms of any Contract with the Company (including any
restricted stock purchase agreement, stock option agreement or stock option
exercise agreement).
"VESTED COMPANY OPTIONS" means Company Options that are not
Unvested Company Options.
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Other capitalized terms defined elsewhere in this Agreement and not
defined in this ARTICLE 1 shall have the meanings assigned to such terms in this
Agreement.
ARTICLE 2
THE MERGER
2.1 Conversion of Shares.
(a) Conversion of Merger Sub Common Stock. At the
Effective Time, each share of Merger Sub Common Stock that is issued and
outstanding immediately prior to the Effective Time shall be converted into one
validly issued, fully paid and nonassessable share of Common Stock, par value
$0.001 per share, of the Surviving Corporation, and the shares of the Surviving
Corporation into which the shares of Merger Sub Common Stock are so converted
shall be the only shares of Company Common Stock that are issued and outstanding
immediately after the Effective Time.
(b) Conversion of Company Capital Stock, Company Options
and Company Warrants.
(i) Company Common Stock. Subject to the terms
and conditions of this Agreement, at the Effective Time, each share of Company
Common Stock that is issued and outstanding immediately prior to the Effective
Time shall, by virtue of the Merger and without the need for any further action
on the part of the holder thereof (except as expressly provided herein), be
converted into and represent the right to receive a number of shares of Acquiror
Common Stock equal to the Common Conversion Number. The number of shares of
Acquiror Common Stock each Company Stockholder is entitled to receive for the
shares of Company Common Stock held by such Company Stockholder shall be rounded
up or down to the nearest whole share and computed after aggregating all shares
of Company Common Stock held by such Company Stockholder. The preceding
provisions of this Section 2.1(b)(i) are subject to the provisions of Section
2.1(d) (regarding rights of holders of Dissenting Shares), Section 2.1(g)
(regarding the continuation of vesting and repurchase rights) and Section 2.3
(regarding the withholding of Escrow Shares and Escrow Expense Shares).
(ii) Company Series A Stock. Subject to the terms
and conditions of this Agreement, at the Effective Time, each share of Company
Series A Stock that is issued and outstanding immediately prior to the Effective
Time shall, by virtue of the Merger and without the need for any further action
on the part of the holder thereof (except as expressly provided herein), be
converted into and represent the right to receive a number of shares of Acquiror
Common Stock equal to the Series A Conversion Number. The number of shares of
Acquiror Common Stock each Company Stockholder is entitled to receive for the
shares of Company Series A Stock held by such Company Stockholder shall be
rounded up or down to the nearest whole share and computed after aggregating all
shares of Company Series A Stock held by such Company Stockholder. The preceding
provisions of this Section 2.1(b)(ii) are subject to the provisions of Section
2.1(d) (regarding rights of holders of Dissenting Shares) and Section 2.3
(regarding the withholding of Escrow Shares and Escrow Expense Shares).
-11-
(iii) Company Options. Subject to the terms and
conditions of this Agreement, at the Effective Time, each Company Option that is
issued and outstanding immediately prior to the Effective Time shall, by virtue
of the Merger and without the need for any further action on the part of the
holder thereof (except as expressly provided herein), be assumed by Acquiror in
accordance with the terms and provisions of the Company Option Plan and Section
6.6(a) hereof. Each Company Option that immediately prior to the Effective Time
was not fully vested shall be subject to the same vesting arrangements that were
applicable to such Company Option immediately prior to or at the Effective Time.
The preceding provisions of this Section 2.1(b)(iii) are subject to the
provisions of Section 2.1(g) (regarding the continuation of vesting and
repurchase rights).
(iv) Company Warrants. Subject to the terms and
conditions of this Agreement, at the Effective Time, each Company Warrant that
is issued and outstanding immediately prior to the Effective Time shall, by
virtue of the Merger and without the need for any further action on the part of
the holder thereof (except as expressly provided herein), be assumed by Acquiror
in accordance with the terms and provisions of such Company Warrant and Section
6.6(b) hereof. The preceding provisions of this Section 2.1(b)(iv) are subject
to the provisions of Section 2.1(g) (regarding the continuation of vesting and
repurchase rights).
(c) Withholding Rights. The Surviving Corporation shall
be entitled to deduct and withhold from the number of shares of Acquiror Common
Stock issuable under this Agreement to any holder of any shares of Company
Common Stock or Company Series A Stock, any Company Options or any Company
Warrants, such amounts as the Surviving Corporation is required to deduct and
withhold with respect to any such deliveries and payments under the Code or any
provision of state, local, provincial or foreign tax law. To the extent that
amounts are so withheld, such withheld amounts shall be treated for all purposes
of this Agreement as having been delivered and paid to such holders in respect
of which such deduction and withholding was made.
(d) Dissenting Shares. As more fully set forth in Section
8.3, holders of shares of Company Capital Stock who have complied with all
requirements for perfecting appraisal rights, as set forth in Section 262 of
Delaware Law and/or dissenters' rights under Section 1300 of California Law, and
who have not withdrawn or lost such appraisal or dissenters' rights under
Delaware Law or California Law, shall be entitled to such rights under Delaware
Law and/or California Law with respect to such shares.
(e) Cancellation of Company-Owned Stock. Notwithstanding
Section 2.1(b), each share of Company Capital Stock held by the Company or any
of its Subsidiaries immediately prior to the Effective Time shall be cancelled
and extinguished without any conversion thereof.
(f) Adjustments. In the event of any stock split, reverse
stock split, stock dividend (including any dividend or distribution of
securities convertible into capital stock), reorganization, reclassification,
combination, recapitalization or other like change with respect to the Company
Capital Stock or Acquiror Common Stock occurring after the date hereof and prior
to the Effective Time, all references in this Agreement to specified numbers of
shares of any class or series affected thereby, and all calculations provided
for that are based upon numbers of
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shares of any class or series (or trading prices therefor) affected thereby,
shall be equitably adjusted to the extent necessary to provide the parties the
same economic effect as contemplated by this Agreement prior to such stock
split, reverse stock split, stock dividend, reorganization, reclassification,
combination, recapitalization or other like change.
(g) Continuation of Vesting and Repurchase Rights. If
there are any Unvested Company Shares or Unvested Company Options issued and
outstanding immediately prior to the Effective Time, then the repurchase option,
vesting schedule or other condition applicable to such Unvested Company Shares
and Unvested Company Options shall be assigned to Acquiror and the shares
issuable upon conversion of such Unvested Company Shares and Unvested Company
Options in the Merger (the "UNVESTED SHARES") shall be subject to the same
restrictions and vesting arrangements that were applicable to such Unvested
Shares immediately prior to or at the Effective Time. The Company shall take all
actions that may be necessary to ensure that, from and after the Effective Time,
Acquiror (or its assignee) is entitled to exercise any such repurchase option,
vesting schedule or other condition, such that upon termination of service, any
Unvested Shares shall be forfeited to, or subject to repurchase by, the
Surviving Corporation or Acquiror without compensation to such holder (other
than payment of the original purchase price of any Unvested Company Shares in
respect of which Unvested Shares have been issued or the original purchase price
paid for Unvested Shares, as the case may be).
2.2 Other Rights Not Assumed. Acquiror is not assuming, and shall
not assume, any obligations or Liabilities under (a) the Company Option Plan,
(b) any promissory note convertible or exchangeable for shares of Company
Capital Stock, or (c) any other direct or indirect rights to acquire shares of
Company Capital Stock (other than the assumption of Company Warrants and Company
Options as set forth herein). On the Closing Date, the Company Plan, any such
promissory notes and any such other direct or indirect rights to acquire shares
of Company Capital Stock shall be terminated without further obligation or
Liability of the Company, Acquiror or the Surviving Corporation (other than as
contemplated by Section 2.1(b) or Section 6.6).
2.3 Escrow.
(a) Escrow Shares. At the Effective Time, Acquiror shall
withhold the Escrow Shares from the shares of Acquiror Common Stock issuable
pursuant to Section 2.1(b)(i) and Section 2.1(b)(ii) to the Company Stockholders
as of immediately prior to the Effective Time (other than holders solely of
shares of Company Capital Stock which constitute and remain Dissenting Shares)
and the shares of Acquiror Common Stock issuable in accordance with Section 6.9
hereof for Assumed Bonus Payments to the individuals having the right to receive
Assumed Bonus Payments ("EFFECTIVE TIME HOLDERS"), on a pro rata basis (based
upon the number of shares of Acquiror Common Stock each such holder or
individual, as the case may be, is entitled to receive pursuant to Section
2.1(b)(i) and Section 2.1(b)(ii) with respect to its shares of Company Capital
Stock (other than Dissenting Shares) or, as the case may be, pursuant to Section
6.9 hereof with respect to its Assumed Bonus Payments, relative to the number of
shares of Acquiror Common Stock that all such holders or individuals, as the
case may be, are entitled to receive pursuant to Section 2.1(b)(i) and Section
2.1(b)(ii) with respect to their shares of Company Capital Stock (other than
Dissenting Shares)), or as the case may be, pursuant to Section 6.9 hereof with
respect to its Assumed Bonus Payments ("PRO RATA SHARE").
-13-
(b) Escrow Expense Shares. At the Effective Time,
Acquiror shall withhold the Escrow Expense Shares from the shares of Acquiror
Common Stock issuable pursuant to Section 2.1(b)(i) and Section 2.1(b)(ii) to
the Company Stockholders as of immediately prior to the Effective Time (other
than holders solely of shares of Company Capital Stock which constitute and
remain Dissenting Shares) ("EXPENSE SHARES EFFECTIVE TIME HOLDERS"), on a pro
rata basis (based upon the number of shares of Acquiror Common Stock each such
holder is entitled to receive pursuant to Section 2.1(b)(i) and Section
2.1(b)(ii) with respect to its shares of Company Capital Stock (other than
Dissenting Shares), relative to the number of shares of Acquiror Common Stock
that all such holders are entitled to receive pursuant to Section 2.1(b)(i) and
Section 2.1(b)(ii) with respect to their shares of Company Capital Stock (other
than Dissenting Shares)) ("EXPENSE SHARES PRO RATA SHARE").
(c) Escrow Agreement. Prior to the Closing, Acquiror, the
Representative and an escrow agent reasonably acceptable to Acquiror and the
Representative (the "ESCROW AGENT") shall enter into an escrow agreement
substantially in the form attached hereto as Exhibit F (the "ESCROW AGREEMENT").
Within ten business days after the Closing Date, Acquiror shall cause the Escrow
Shares and within three business days after the Closing Date, Acquiror shall
cause the Escrow Expense Shares to be deposited with the Escrow Agent. The
payment of any Escrow Shares in satisfaction of any indemnification obligations
under ARTICLE 12 and the use of Escrow Expense Shares to satisfy Merger Expenses
shall be made, with respect to each Effective Time Holder and Expense Share
Effective Time Holder, first with shares from such Effective Time Holder's or
Expense Share Effective Time Holder's Pro Rata Share that are not then unvested
and then, if such shares of such Effective Time Holder or Expense Share
Effective Time Holder are insufficient to satisfy such indemnification
obligation and only to the extent of such insufficiency, shall such payment be
made with such Effective Time Holder's or Expense Share Effective Time Holder's
Unvested Shares. Acquiror shall hold the Escrow Shares as the sole and exclusive
remedy (except as otherwise provided in ARTICLE 12) for the Effective Time
Holders' indemnification obligations for Damages under ARTICLE 12. Any Escrow
Expense Shares remaining after satisfaction of all Merger Expenses (other than
Indemnifiable Merger Expenses) shall be added to the Escrow Fund and deemed to
be Escrow Shares. If, after liquidation of all Escrow Expense Shares, the
proceeds from the sale of all Escrow Expense Shares are insufficient to satisfy
all Merger Expenses (other than Indemnifiable Merger Expenses), Acquiror shall
promptly pay any such remaining Merger Expenses.
2.4 Effects of the Merger. At and upon the Effective Time:
(a) the separate existence of Merger Sub shall cease and
Merger Sub shall be merged with and into the Company, and the Company shall be
the surviving corporation of the Merger pursuant to the terms of this Agreement
and the Certificate of Merger;
(b) the Certificate of Incorporation of the Surviving
Corporation shall be amended in its entirety to read as set forth in the
Certificate of Merger;
(c) the Bylaws of Merger Sub shall continue unchanged and
be the Bylaws of the Surviving Corporation;
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(d) the officers of Merger Sub immediately prior to the
Effective Time shall be appointed as the officers of the Surviving Corporation
immediately after the Effective Time until their respective successors are duly
appointed;
(e) the members of the Board of Directors of Merger Sub
immediately prior to the Effective Time shall be appointed as the members of the
Board of Directors of the Surviving Corporation immediately after the Effective
Time until their respective successors are duly elected or appointed and
qualified; and
(f) the Merger shall, from and after the Effective Time,
have all of the effects provided by Delaware Law.
2.5 Tax Consequences and Withholding.
(a) It is intended by the parties hereto that the Merger
shall constitute a "reorganization" within the meaning of Section 368(a) of the
Code. By executing this Agreement, the parties intend to adopt a "plan of
reorganization" within the meaning of Section 354(a) of the Code. However,
except as expressly set forth herein or in the exhibits hereto, Acquiror makes
no representations or warranties to the Company or to the Company securityholder
regarding the tax treatment of the Merger, whether the Merger will qualify as a
"reorganization" under the Code, or any of the tax consequences to the Company
or any the Company securityholder of this Agreement, the Merger or any of the
other transactions or agreements contemplated hereby. The Company acknowledges
that the Company and its securityholders are relying solely on their own tax
advisors in connection with this Agreement, the Merger and the other
transactions and agreements contemplated hereby.
(b) Acquiror or Acquiror's agent shall be entitled to
deduct and withhold from the Total Consideration or other payment otherwise
payable pursuant to this Agreement to any Company Stockholder, Company
Optionholder or Company Warrantholder, the amounts required to be deducted and
withheld under the Code, or any provision of state, local or foreign tax law,
with respect to the making of such payment. To the extent that amounts are so
withheld, such withheld amounts shall be treated for all purposes of this
Agreement as having been paid to the Company Stockholder, Company Optionholder
or Company Warrantholder in respect of whom such deduction and withholding was
made.
(c) The parties agree not to take any position on any tax
return inconsistent with the qualification of the Merger as a reorganization
under the Code, or to knowingly do any act or thing that would cause the Merger
not to qualify as a reorganization under the Code.
2.6 Further Assurances. If, at any time before or after the
Effective Time, any of the parties hereto reasonably believes or is advised that
any further instruments, deeds, assignments or assurances are reasonably
necessary to consummate the Merger or to carry out the purposes and intent of
this Agreement at or after the Effective Time, then the Company, Acquiror, the
Surviving Corporation and their respective officers and directors shall execute
and deliver all such proper deeds, assignments, instruments and assurances and
do all other things reasonably necessary to consummate the Merger and to carry
out the purposes and intent of this Agreement.
-15-
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Subject to the exceptions set forth in a numbered or lettered section
of the disclosure letter of the Company addressed to Acquiror, dated as of the
Agreement Date and delivered to Acquiror concurrently with the parties'
execution of this Agreement (the "COMPANY DISCLOSURE LETTER") referencing a
representation or warranty herein (each of which exceptions, in order to be
effective, shall clearly indicate the section and, if applicable, the subsection
of this ARTICLE 3 to which it relates (unless and to the extent the relevance to
other representations and warranties is reasonably apparent from the face of the
disclosed exception), and each of which exceptions shall also be deemed to be
representations and warranties made by the Company under this ARTICLE 3),
provided, however, that the fact that any disclosure in the Company Disclosure
Letter is not required to be disclosed in order to render the applicable
representation or warranty to which it relates true, or that the absence of such
disclosure in the Company Disclosure Letter would not constitute a breach of
such representation or warranty, shall not be deemed or construed to expand the
scope of any representation or warranty hereunder or to establish a standard of
disclosure in respect of any representation or warranty), the Company represents
and warrants to Acquiror as of the date hereof as follows:
3.1 Organization and Good Standing. The Company is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Delaware. The Company has the corporate power and corporate authority
to own, operate and lease its properties and to carry on the Company Business.
The Company is duly qualified or licensed to do business, and is in good
standing, in each jurisdiction where the character of the properties owned,
leased or operated by it or the nature of its activities makes such
qualification or licensing necessary, except where the failure to so qualify
would not reasonably be expected to have a Material Adverse Effect on the
Company; without limiting the foregoing, the Company is so qualified or licensed
in each jurisdiction listed on Schedule 3.1 of the Company Disclosure Letter.
The Company has delivered or made available to Acquiror's legal counsel true and
complete copies of the currently effective Certificate of Incorporation and
Bylaws of the Company, each as amended to date. The Company is not in violation
of its Certificate of Incorporation or Bylaws, each as amended to date.
3.2 Subsidiaries. Schedule 3.2 of the Company Disclosure Letter
sets forth a true, correct and complete list of each Company Subsidiary. Each
Company Subsidiary is a corporation duly organized, validly existing and in good
standing under the laws of its jurisdiction of organization. Each Company
Subsidiary has the corporate power and authority to own, operate and lease its
properties and to carry on its business as presently conducted. Each Company
Subsidiary is duly qualified or licensed to do business, and is in good
standing, in each jurisdiction where the character of the properties owned,
leased or operated by it or the nature of its activities makes such
qualification or licensing necessary, except where the failure to so qualify
would not reasonably be expected to have a Material Adverse Effect on the
Company; without limiting the foregoing, each respective Company Subsidiary is
so qualified or licensed in each jurisdiction listed on Schedule 3.2 of the
Company Disclosure Letter. The Company has delivered or made available to
Acquiror's legal counsel true and complete copies of the currently effective
Certificate of Incorporation and Bylaws (or other comparable charter documents)
of each Company Subsidiary, each as amended to date. Each Company Subsidiary is
not in
-16-
violation of its Certificate of Incorporation or Bylaws (or other comparable
charter documents), each as amended to date. The Company is the owner of all of
the issued and outstanding shares of capital stock of each Company Subsidiary
and all such shares are duly authorized, validly issued, fully paid and
nonassessable. All of the issued and outstanding shares of capital stock of each
Company Subsidiary are owned by the Company free and clear of all Encumbrances
(other than Permitted Encumbrances) and are not subject to any preemptive right
or right of first refusal created by statute, the Certificate of Incorporation
and Bylaws (or other comparable charter documents), as applicable, of such
Company Subsidiary or any agreement to which such Company Subsidiary is a party
or by which it is bound. There are no stock appreciation rights, options,
warrants, calls, rights, commitments, conversion privileges or preemptive or
other rights or agreements outstanding to purchase or otherwise acquire any
shares of capital stock of a Company Subsidiary or any securities or debt
convertible into or exchangeable for capital stock of a Company Subsidiary or
obligating the Company or any Company Subsidiary to grant, extend or enter into
any such option, warrant, call, right, commitment, conversion privilege or
preemptive or other right or agreement. Other than the Subsidiaries set forth in
Schedule 3.2, the Company does not have any Company Subsidiary or any equity or
ownership interest (or any interest convertible or exchangeable or exercisable
for, any equity or ownership interest), whether direct or indirect, in any
Person. The Company is not obligated to make nor is it bound by any agreement or
obligation to make any investment in or capital contribution in or on behalf of
any other Person.
3.3 Power, Authorization and Validity.
(a) Power and Authority. Subject to approval of the
Merger, the Certificate of Amendment and the adoption of this Agreement by (i)
holders of a majority of the outstanding shares of Company Common Stock and
Company Preferred Stock (voting together as a single voting class on an
as-converted to Company Common Stock basis), (ii) holders of at least fifty-five
percent (55%) of the outstanding shares of Company Series A Stock (voting as a
separate voting class), and (iii) holders of a majority of the outstanding
shares of Company Common Stock (voting as a separate voting class) (the "COMPANY
STOCKHOLDER APPROVAL"), the Company has all requisite corporate power and
corporate authority to enter into, execute, deliver and perform its obligations
under this Agreement and each of the Company Ancillary Agreements and to
consummate the Merger. The Merger, the Certificate of Amendment and the
execution, delivery and performance by the Company of this Agreement, each of
the Company Ancillary Agreements and all other agreements, transactions and
actions contemplated hereby or thereby, have been duly and validly approved and
authorized by the Company's Board of Directors. The Company has executed with
the Company Stockholders listed on Exhibit B-1 and delivered to Acquiror the
Voting Agreement under which such Company Stockholders have agreed to vote their
shares of Company Stock in favor of the Merger, the Certificate of Amendment and
the execution, delivery and performance by the Company of this Agreement, which
votes are sufficient to obtain the Company Stockholder Approval.
(b) No Consents. No consent, approval, order or
authorization of, or registration, declaration or filing with, any Governmental
Authority, or any other Person, governmental or otherwise, is necessary or
required to be made or obtained by the Company to enable the Company to lawfully
execute and deliver, enter into, and perform its obligations under this
Agreement and each of the Company Ancillary Agreements or to consummate the
Merger
-17-
(including the consent of any Person required to be obtained in order to keep
any Contract between such Person and the Company in effect following the Merger
or to provide that the Company is not in breach or violation of any such
Contract following the Merger), except for (i) the filing of the Certificate of
Merger and the Certificate of Amendment with the Delaware Secretary of State,
(ii) the filing of the Permit Application (as such term is defined in Section
7.1(a) with the California Commissioner (as such term is defined in Section
7.1(a)), and (iii) the Company Stockholder Approval.
(c) Enforceability. This Agreement has been duly executed
and delivered by the Company. This Agreement and each of the Company Ancillary
Agreements are, or when executed by the Company shall be, valid and binding
obligations of the Company, enforceable against the Company in accordance with
their respective terms, subject to the effect of (i) applicable bankruptcy,
insolvency, reorganization, moratorium or other similar laws now or hereafter in
effect relating to rights of creditors generally and (ii) rules of law and
equity governing specific performance, injunctive relief and other equitable
remedies.
3.4 Capitalization of the Company.
(a) Authorized and Outstanding Capital Stock of the
Company. The authorized capital stock of the Company consists solely of
117,000,000 shares of Company Common Stock and 96,000,000 shares of Company
Series A Stock. A total of 7,488,242 shares of Company Common Stock and
81,976,966 shares of Company Series A Stock are issued and outstanding as of the
Agreement Date. Each share of Company Preferred Stock is convertible (or shall
be upon the filing of the Certificate of Amendment) into one share of Company
Common Stock. The numbers and kind of issued and outstanding shares of Company
Capital Stock held by each Company Stockholder as of the Agreement Date are set
forth on Schedule 3.4(a) of the Company Disclosure Letter, and no shares of
Company Capital Stock are issued or outstanding as of the Agreement Date that
are not set forth on Schedule 3.4(a) of the Company Disclosure Letter, and no
such shares shall be issued or outstanding as of the Closing Date that are not
set forth on Schedule 3.4(a) of the Company Disclosure Letter except for shares
of Company Capital Stock issued pursuant to the exercise of outstanding Company
Options listed on Schedule 3.4(b)-1 of the Company Disclosure Letter or Company
Warrants listed on Schedule 3.4(b)-2 of the Company Disclosure Letter, the
conversion of convertible promissory notes or pursuant to the conversion of
outstanding shares of Company Preferred Stock. The Company holds no treasury
shares. All issued and outstanding shares of Company Stock have been duly
authorized and validly issued, are fully paid and nonassessable, were not issued
in violation of and, except under the agreements to be terminated pursuant to
Section 10.11 hereof, are not subject to any right of rescission, right of first
refusal or preemptive right, and have been offered, issued, sold and delivered
by the Company in compliance with all requirements of Applicable Law and all
requirements set forth in applicable Contracts. There is no Liability for
dividends accrued and unpaid by the Company.
(b) Options, Warrants and Rights. The Company has
reserved an aggregate of 14,457,480 shares of Company Common Stock for issuance
pursuant to the Company Option Plan (including shares subject to outstanding
Company Options). A total of 11,552,744 shares of Company Common Stock are
subject to outstanding Company Options as of the Agreement Date and as of the
Closing Date, except for Company Options outstanding as of the Agreement Date
-18-
that are exercised in accordance with their terms prior to the Closing Date.
Schedule 3.4(b)-1 of the Company Disclosure Letter sets forth, as of March 1,
2004, for each Company Option, (i) the name of the holder of such Company
Option, (ii) the exercise price per share of such Company Option, (iii) the
number of shares covered by such Company Option, (iv) the vesting schedule for
such Company Option, (v) the extent such Company Option is vested as of the
Agreement Date, (vi) whether such Company Option is an incentive stock option or
non-statutory stock option under the Code, (vii) whether the exercisability of
such Company Option shall be accelerated in any manner by any of the
transactions contemplated by this Agreement or upon any other event or condition
and the extent of acceleration, if any, and (viii) whether such Company Option
was granted under the Company Option Plan. The terms of the Company Option Plan
permit the assumption by Acquiror of Company Options for options exercisable for
shares of Acquiror Common Stock as provided in this Agreement, without the
consent or approval of the holders of such Company Options, the Company
Stockholders or otherwise and without acceleration of the exercise schedule or
vesting provisions in effect for such Company Options except for such
acceleration as is set forth on Schedule 3.4(b)-1. Schedule 3.4(b)-2 of the
Company Disclosure Letter sets forth, for each Company Warrant, (i) the name of
the holder of such Company Warrant, (ii) the exercise price per share of such
Company Warrant, (iii) the number and kind of shares covered by such Company
Warrant, (iv) the vesting schedule for such Company Warrant, (v) the extent such
Company Warrant is vested as of the Agreement Date, (vi) whether such Company
Warrant was issued in connection with the performance of services, and (vii)
whether the exercisability of such Company Warrant shall be accelerated in any
manner by any of the transactions contemplated by this Agreement or upon any
other event or condition and the extent of acceleration, if any. Schedule
3.4(b)-3 of the Company Disclosure Letter sets forth all holders of Unvested
Company Shares, and for each such Company Stockholder, as of March 1, 2004, (i)
the number of Unvested Company Shares held, (ii) the terms of the Company's
rights to repurchase such Unvested Company Shares, (iii) the schedule on which
such rights lapse and (iv) whether such repurchase rights lapse in full or in
part as a result of any of the transactions contemplated by this Agreement or
any Company Ancillary Agreement or upon any other event or condition. True and
correct copies of the Company Option Plan, the standard agreements under the
Company Option Plan, each agreement for each Company Option that does not
conform to the standard agreement under the Company Option Plan and each Company
Warrant have been delivered or made available by the Company to Acquiror's legal
counsel. All Company Options and Company Warrants have been issued and granted
in compliance with Applicable Law and all requirements set forth in applicable
Contracts.
(c) No Other Rights. Except for Company Options and
Company Warrants and the conversion rights of the Company Preferred Stock and
the conversion rights of outstanding convertible preferred promissory notes,
there are no stock appreciation rights, options, warrants, calls, rights,
commitments, conversion privileges or preemptive or other rights or Contracts
outstanding to purchase or otherwise acquire any shares of Company Capital Stock
or any securities or debt convertible into or exchangeable for Company Capital
Stock or obligating the Company to grant, extend or enter into any such option,
warrant, call, right, commitment, conversion privilege or preemptive or other
right or Contract. There are no voting agreements (other than the Voting
Agreements), registration rights, rights of first refusal, preemptive rights,
co-sale rights or other restrictions applicable to any outstanding securities of
the Company.
-19-
3.5 No Conflict. Neither the execution and delivery of this
Agreement or any of the Company Ancillary Agreements by the Company, nor the
consummation of the Merger or any other transaction contemplated hereby or
thereby, shall conflict with, result in a termination, breach, impairment or
violation of (with or without notice or lapse of time, or both), or constitute a
default, or require the consent, release, waiver or approval of any third party,
under: (a) any provision of the Certificate of Incorporation or Bylaws (or other
comparable charter documents) of the Company or any Company Subsidiary, each as
currently in effect and, in the case of the Company, after the filing of the
Certificate of Amendment; (b) any Applicable Law applicable to the Company, any
Company Subsidiary or any of their respective assets or properties; (c) any
Company Material Contract; or (d) any privacy policy of the Company or any
Company Subsidiary. Neither the Company's entering into this Agreement nor the
consummation of the Merger shall change the obligation or right of the Company
or any Company Subsidiary as they exist at the Closing and without giving effect
to any action taken by Acquiror after the Closing to make payments to or receive
payments from any customer or supplier of the Company or any Company Subsidiary
or change the right of the Company or any Company Subsidiary to use any Company
IP Rights.
3.6 Litigation.
(a) There is no action, suit, arbitration, mediation,
proceeding, claim or investigation pending against the Company or any Company
Subsidiary (or against any officer, director, employee or agent of the Company
or any Company Subsidiary in their capacity as such or relating to their
employment, services or relationship with the Company or such Company
Subsidiary) before any Governmental Authority, arbitrator or mediator, nor, to
the knowledge of the Company and each Company Subsidiary, has any such action,
suit, arbitration, mediation, proceeding, claim or investigation been
threatened. There is no judgment, decree, injunction, rule or order of any
Governmental Authority, arbitrator or mediator outstanding against the Company
or any Company Subsidiary. To the Company's knowledge, there is no basis for any
person to assert a claim against the Company based upon the Company's entering
into this Agreement or any Company Ancillary Agreement or consummating the
Merger or any of the transactions contemplated by this Agreement or any Company
Ancillary Agreement. Other than simple claims for the collection of monies owed
to it for the sale of its products and services in the ordinary course of
business, neither the Company nor any Company Subsidiary has any action, suit,
arbitration, mediation, proceeding, claim or investigation pending against any
Governmental Authority or other Person.
(b) To the knowledge of the Company, there is no current
basis for any indemnity claim under Section 6.5(a).
3.7 Taxes. The Company and each Company Subsidiary (and any
consolidated, combined, unitary or aggregate group for tax purposes of which the
Company or any Company Subsidiary is or has been a member), (a) has properly
completed and timely filed all foreign, federal, state, local and municipal tax
and information returns (the "RETURNS") required to be filed by it, (b) has
timely paid all taxes required to be paid by it for which payment was due, (c)
has established an adequate accrual or reserve in accordance with GAAP for the
payment of all taxes payable in respect of the periods or portions thereof prior
to the Balance Sheet Date (which accrual or reserve as of the Balance Sheet Date
is fully reflected on the Company Balance
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Sheet), (d) has made (or will make on a timely basis) all estimated tax payments
required to be made, and (e) has no Liability for taxes in excess of the amount
so paid or accruals or reserves so established except for taxes subsequent to
the Balance Sheet Date incurred in the ordinary course of business. All such
Returns are true, correct and complete, and the Company has provided Acquiror
with true and correct copies of such Returns. Neither the Company nor any
Company Subsidiary is delinquent in the payment of any tax or in the filing of
any Returns, and no deficiencies for any tax have been threatened, claimed,
proposed or assessed against the Company of any Company Subsidiary or any of
their respective officers, employees or agents of the Company in their capacity
as such. Neither the Company nor any Company Subsidiary has received any
notification from the Internal Revenue Service or any other taxing authority
regarding any material issues that (a) are currently pending before the Internal
Revenue Service or any other taxing agency or authority (including any sales or
use taxing authority) regarding the Company, or (b) have been raised by the
Internal Revenue Service or other taxing agency or authority and not yet finally
resolved. No Return of the Company or any Company Subsidiary is under audit by
the Internal Revenue Service or any other taxing agency or authority and any
such past audits (if any) have been completed and fully resolved to the
satisfaction of the applicable taxing agency or authority conducting such audit
and all taxes determined by such audit to be due from the Company or any Company
Subsidiary have been paid in full to the applicable taxing agencies or
authorities or adequate reserves therefore have been established and are
reflected in the Balance Sheet. No tax liens are currently in effect against any
of the assets of the Company or any Company Subsidiary other than liens that
arise by operation of law for taxes not yet due and payable. There is not in
effect any waiver by the Company or any Company Subsidiary of any statute of
limitations with respect to any taxes nor has the Company or any Company
Subsidiary agreed to any extension of time for filing any Return that has not
been filed. Neither the Company nor any Company Subsidiary has consented to
extend to a date later than the Agreement Date the period in which any tax may
be assessed or collected by any taxing agency or authority. The Company and each
Company Subsidiary have complied (and until the Closing Date will comply) with
all Applicable Law relating to the payment and withholding of taxes (including
withholding of taxes pursuant to Sections 1441, 1442, 1445 and 1446 of the Code
or similar provisions under any foreign law), have, within the time and in the
manner prescribed by law, withheld from employee wages and paid over to the
proper taxing agencies and authorities all amounts required to be so withheld
and paid over under all Applicable Law (including Federal Insurance Contribution
Act, Medicare, Federal Unemployment Tax Act and relevant state income and
employment tax withholding laws), including federal and state income taxes, and
have timely filed all withholding tax Returns. Neither the Company nor any
Company Subsidiary is a party to or bound by any tax sharing, tax indemnity, or
tax allocation agreement nor does the Company or any Company Subsidiary have any
liability or potential liability to another party under any such agreement.
Neither the Company nor any Company Subsidiary has filed any disclosures under
Section 6662 of the Code or comparable provisions of state, local or foreign law
to prevent the imposition of penalties with respect to any tax reporting
position taken on any Return. Neither the Company nor any Company Subsidiary has
consummated, has participated in, or is currently participating in any
transaction which was or is a "tax shelter" transaction as defined in Sections
6662, 6011, 6012 or 6111 of the Code or the Treasury Regulations promulgated
thereunder. Neither the Company nor any Company Subsidiary has ever been a
member of a consolidated, combined, unitary or aggregate group of which the
Company was not the ultimate parent corporation. Neither the Company nor any
Company
-21-
Subsidiary has any liability for the taxes of any Person (other than the Company
or any Company Subsidiary) under Section 1.1502-6 of the Treasury Regulations
(or any similar provision of state, local or foreign law) as a transferee or
successor, by contract or otherwise. Neither the Company, any Company
Subsidiary, nor any "dual resident corporation" (within the meaning of Section
1503(d) of the Code) in which either the Company or any Company Subsidiary is
considered to hold an interest, has incurred a dual consolidated loss within the
meaning of Section 1503 of the Code. Each of the Company and each Company
Subsidiary has in its possession official foreign government receipts for any
taxes paid by it to any foreign tax agencies and authorities. Other than
adjustments caused by events occurring or elections made after the Effective
Time, neither the Company nor any Company Subsidiary has been or will be
required to include any material adjustment in taxable income for any tax period
(or portion thereof) ending after the Closing Date pursuant to Section 481 or
263A of the Code or any comparable provision under state or foreign tax laws as
a result of transactions, events or accounting methods employed prior to the
Merger. Neither the Company nor any Company Subsidiary has filed any election
under Section 341(f) of the Code. Neither the Company nor any Company Subsidiary
is a "personal holding company" within the meaning of the Code. Neither the
Company nor any Company Subsidiary has ever been a "United States real property
holding corporation" within the meaning of Section 897 of the Code, and the
Company and each Company Subsidiary has filed with the Internal Revenue Service
all statements, if any, which are required under Section 1.897-2(h) of the
Treasury Regulations. Neither the Company nor any Company Subsidiary has
constituted either a "distributing corporation" or a "controlled corporation" in
a distribution of stock qualifying for tax-free treatment under Section 355 of
the Code (a) in the two years prior to the Agreement Date or (b) in a
distribution that could otherwise constitute part of a "plan" or "series of
related transactions" (within the meaning of Section 355(e) of the Code) in
conjunction with the Merger.
3.8 Company Financial Statements. Schedule 3.8 of the Company
Disclosure Letter includes the Company Financial Statements. The Company
Financial Statements: (a) are derived from and are in accordance with the books
and records of the Company; (b) fairly present the consolidated financial
condition of the Company and its Subsidiaries at the dates therein indicated and
the consolidated results of operations and cash flows of the Company and its
Subsidiaries for the periods therein specified (subject, in the case of
unaudited interim period financial statements, to normal recurring year-end
audit adjustments, none of which individually or in the aggregate will be
material in amount); and (c) have been prepared in accordance with GAAP applied
on a basis consistent with prior periods (except that the unaudited financial
statements do not have notes thereto). The Company and its Subsidiaries have no
Liability, except for those (a) shown on the Company Balance Sheet and (b) that
were incurred after the Balance Sheet Date in the ordinary course of the
Company's business consistent with its past practices, that (i) are not in
excess of $50,000, either individually or collectively, and (ii) would not be
reasonably likely to have a Material Adverse Effect on the Company. All reserves
established by the Company that are set forth in or reflected in the Company
Balance Sheet have been established in accordance with GAAP.
3.9 Title to Properties. The Company and each Company Subsidiary
has good and marketable title to all of their respective assets and properties
(including those shown on the Company Balance Sheet but excluding Company-Owned
IP Rights, which are addressed in Section 3.13(g)), free and clear of all
Encumbrances, other than Permitted Encumbrances. Such
-22-
assets are sufficient for the continued operation of the Company Business. All
properties used in the operations of the Company Business are reflected on the
Company Balance Sheet to the extent required under GAAP to be so reflected. All
machinery, vehicles, equipment and other tangible personal property owned or
leased by the Company or any Company Subsidiary or used in the Company Business
are in good condition and repair, normal wear and tear excepted. All leases of
real or personal property to which the Company or any Company Subsidiary is a
party are fully effective and afford the Company or such Company Subsidiary a
valid leasehold possession of the real or personal property that is the subject
of the lease. Neither the Company nor any Company Subsidiary owns any real
property. Schedule 3.9 of the Company Disclosure Letter sets forth a complete
and accurate list and a brief description of all personal property owned by the
Company and its Subsidiaries with a book value of $10,000 or greater.
3.10 Absence of Certain Changes. Since the Balance Sheet Date, the
Company and each Company Subsidiary has operated its business in the ordinary
course consistent with its past practices, and since such date there has not
been with respect to the Company or any Company Subsidiary any:
(a) Material Adverse Change or any change, event,
circumstance, condition or effect that would reasonably be expected to result in
a Material Adverse Change;
(b) amendment or change in its Certificate of
Incorporation or Bylaws (or other comparable charter documents), except that the
Certificate of Amendment will be filed to amend the Certificate of Incorporation
prior to Closing;
(c) incurrence, creation or assumption of (i) any
Encumbrance on any of its assets or properties (other than Permitted
Encumbrances), (ii) any Liability for borrowed money other than pursuant to
Interim Funding Arrangements, or (iii) any Liability as a guarantor or surety
with respect to the obligations of others;
(d) acceleration or release of any vesting condition to
the right to exercise any option, warrant or other right to purchase or
otherwise acquire any shares of its capital stock, or any acceleration or
release of any right to repurchase shares of its capital stock upon the
stockholder's termination of employment or services with it or pursuant to any
right of first refusal;
(e) payment or discharge of any Encumbrance on any of its
assets or properties, or payment or discharge of any of its Liabilities, in each
case that was not either shown on the Company Balance Sheet or incurred in the
ordinary course of its business consistent with its past practices after the
Balance Sheet Date in an amount not in excess of $15,000 for any single
Liability to a particular creditor;
(f) purchase, license, sale, grant, assignment or other
disposition or transfer, or any agreement or other arrangement for the purchase,
license, sale, assignment or other disposition or transfer, of any of its assets
(including Company IP Rights (as defined in Section 3.13(a)) and other
intangible assets), properties or goodwill other than the sale or non-exclusive
license of its products or services to its customers in the ordinary course of
its business consistent with its past practices;
-23-
(g) damage, destruction or loss of any material property
or material asset, whether or not covered by insurance;
(h) declaration, setting aside or payment of any dividend
on, or the making of any other distribution in respect of, its capital stock, or
any split, combination or recapitalization of its capital stock or any direct or
indirect redemption, purchase or other acquisition of any of its capital stock
or any change in any rights, preferences, privileges or restrictions of any of
its outstanding securities (other than repurchases of stock in accordance with
the Company Option Plan or applicable Contracts in connection with the
termination of service of employees or other service providers);
(i) other than with respect to the Company Sale
Participation Program or the Xxxxxxxxx Agreement, each as amended through the
date of this Agreement, change or increase in the compensation payable or to
become payable to any of its officers, directors, employees or agents, or in any
bonus, pension, severance, retention, insurance or other benefit payment or
arrangement (including stock awards, stock option grants, stock appreciation
rights or stock option grants) made to or with any of such officers, directors,
employees or agents (other than increases in the base salaries of employees who
are not officers in an amount that does not exceed 5% of such base salaries);
(j) change with respect to its management, supervisory or
other key personnel, any termination of employment of a material number of
employees, or any labor dispute or claim of unfair labor practices;
(k) other than with respect to the Company Sale
Participation Program, the Xxxxxxxxx Agreement and the Interim Funding
Arrangements, Liability incurred by it to any of its officers, directors or
stockholders, except for normal and customary compensation and expense
allowances payable to officers in the ordinary course of its business consistent
with its past practices;
(l) making by it of any loan, advance or capital
contribution to, or any investment in, any of its officers, directors or
stockholders or any firm or business enterprise in which any such person had a
direct or indirect material interest at the time of such loan, advance, capital
contribution or investment;
(m) entering into, amendment of, relinquishment,
termination or nonrenewal by it of any Company Material Contract (or any other
right or obligation) other than in the ordinary course of its business
consistent with its past practices, any default by it under such Contract (or
other right or obligation), or any written or, to the Company's knowledge, oral
indication or assertion by the other party thereto of any material problems with
its services or performance under such Company Material Contract (or other right
or obligation) or such other party's desire to so amend, relinquish, terminate
or not renew any such Company Material Contract (or other right or obligation);
(n) material change in the manner in which it extends
discounts, credits or warranties to customers or otherwise deals with its
customers;
-24-
(o) other than Interim Funding Arrangements, entering
into by it of any Contract that by its terms requires or contemplates a current
and/or future financial commitment, expense (inclusive of overhead expense) or
obligation on its part that involves in excess of $25,000 or that is not entered
into in the ordinary course of its business consistent with its past practices,
or the conduct of any business or operations other than in the ordinary course
of its business consistent with its past practices;
(p) except for the Letter Agreement between Acquiror and
the Company dated February 2, 2004 relating to the transactions contemplated by
this Agreement, making or entering into any Contract with respect to any
acquisition, sale or transfer of any material asset of the Company or any
Company Subsidiary;
(q) except as required by GAAP, any change in accounting
methods or practices (including any change in depreciation or amortization
policies or rates or revenue recognition policies) or any revaluation of any of
its assets;
(r) any deferral of the payment of any accounts payable
other than in the ordinary course of business, consistent with past practices,
or in an amount in excess of $15,000, or any discount, accommodation or other
concession made other than in the ordinary course of business, consistent with
past practices, in order to accelerate or induce the collection of any
receivable; or
(s) announcement of, any negotiation by or any entry into
any Contract to do any of the things described in the preceding clauses (a)
through (r) (other than negotiations and agreements with Acquiror and its
representatives regarding the transactions contemplated by this Agreement).
3.11 Contracts, Agreements, Arrangements, Commitments and
Undertakings. Schedules 3.11(a)-(p) of the Company Disclosure Letter set forth a
list of each of the following Contracts to which the Company or any Company
Subsidiary is a party or to which the Company or any Company Subsidiary or any
of their respective assets or properties is bound, in each case, as of the
Agreement Date:
(a) any Contract, other than a customer or end user
Contract, providing for payments (whether fixed, contingent or otherwise) by or
to it in an aggregate amount of $25,000 or more;
(b) any dealer, distributor, OEM (original equipment
manufacturer), VAR (value added reseller), sales representative or similar
Contract under which any third party is authorized to sell, sublicense, lease,
distribute, market or take orders for any of its products, services or
technology;
(c) any Contract providing for the development of any
software, content (including textual content and visual, photographic or
graphics content), technology or intellectual property for (or for the benefit
or use of) it, or providing for the purchase by or license to (or for the
benefit or use of) it of any software, content (including textual content and
visual, photographic or graphics content), technology or intellectual property,
which software, content, technology or intellectual property is in any manner
used or incorporated (or is
-25-
contemplated by it to be used or incorporated) in connection with any aspect or
element of any product, service or technology of it (other than shrinkwrap and
other software licenses generally available to the public at a per copy license
fee of less than $1,000 per copy);
(d) any customer or end user Contract providing for
payments by or to it in an amount of $50,000 or more in 2003 or that could
reasonably be expected to result in or require payments by or to it in an amount
of $50,000 or more in 2004 or that has terms and conditions that differ
materially from the standard forms of customer or end user agreements previously
provided to or made available to Acquiror;
(e) any joint venture or partnership Contract;
(f) any Contract for or relating to the employment by it
of any director, officer, employee or consultant or any other type of Contract
with any of its officers, employees or consultants that is not immediately
terminable by it without cost or other Liability, including any contract
requiring it to make a payment to any director, officer, employee or consultant
on account of the Merger, any transaction contemplated by this Agreement or any
Contract that is entered into in connection with this Agreement;
(g) any indenture, mortgage, trust deed, promissory note,
loan agreement, security agreement, guarantee or other Contract for or with
respect to the borrowing of money, a line of credit, any currency exchange,
commodities or other hedging arrangement, or a leasing transaction of a type
required to be capitalized in accordance with GAAP;
(h) any Contract that restricts it from (1) engaging in
any aspect of its business, (2) participating or competing in any line of
business, market or geographic area, (3) freely setting prices for its products,
services or technologies (including most favored customer pricing provisions),
or (4) soliciting potential employees, consultants, contractors or other
suppliers or customers;
(i) any Contract that grants any exclusive rights, rights
of refusal, rights of first negotiation or similar rights to any Person;
(j) any Contract relating to the sale, issuance, grant,
exercise, award, purchase, repurchase or redemption of any shares of its capital
stock or other securities or any options, warrants or other rights to purchase
or otherwise acquire any such shares of capital stock, other securities or
options, warrants or other rights therefor, except for those Contracts in
substantially the form of the standard agreement evidencing incentive stock
options or non-statutory stock options under the Company Option Plan, the
Company Warrants and the Contracts to be terminated pursuant to Section 10.11
hereof;
(k) any Contract with any labor union or any collective
bargaining agreement or similar Contract with its employees;
(l) any Contract of guarantee, support, indemnification,
assumption or endorsement of, or any similar commitment with respect to, the
obligations, liabilities (whether accrued, absolute, contingent or otherwise) or
indebtedness of any other Person;
-26-
(m) any Contract in which its officers, directors,
employees or stockholders or any member of their immediate families is directly
or indirectly interested (whether as a party or otherwise);
(n) any Contract pursuant to which it has acquired a
business or entity, or substantially all of the assets of a business or entity,
whether by way of merger, consolidation, purchase of stock, purchase of assets,
license or otherwise;
(o) Any private line networking Contract; any Contract
relating to data backhaul; and any Contract relating to connectivity to public
switched telephone networks; or
(p) any other Contract that is material to it or its
business, operations, financial condition, properties or assets.
A true and complete copy of each agreement or document, including any
amendments thereto, required by these subsections (a)-(p) of this Section 3.11
to be listed on Schedule 3.11 of the Company Disclosure Letter has been
delivered or made available to Acquiror. All Company Material Contracts are in
written form.
3.12 No Default; No Restrictions.
(a) Each of the Company Material Contracts is in full
force and effect. There exists no default or event of default or event,
occurrence, condition or act, with respect to the Company or any Company
Subsidiary or to the knowledge of the Company or any Company Subsidiary, with
respect to any other contracting party, which, with the giving of notice, the
lapse of time or the happening of any other event or conditions, would
reasonably be expected to (i) become a default or event of default under any
Company Material Contract or (ii) give any third party (1) the right to declare
a default or exercise any remedy under any Company Material Contract, (2) the
right to a rebate, chargeback, refund, credit, penalty or change in delivery
schedule under any Company Material Contract, (3) the right to accelerate the
maturity or performance of any obligation of the Company or any of its
Subsidiaries under any Company Material Contract, or (4) the right to cancel,
terminate or modify any Company Material Contract. The Company has not received
any written, or, to the Company's knowledge, oral notice or other communication
regarding any actual or possible violation or breach of or default under, or
intention to cancel or modify, any Company Material Contract. Neither the
Company nor any of its Subsidiaries has any Liability for renegotiation of
government contracts or subcontracts.
(b) Except as listed in Schedule 3.11(h) of the Company
Disclosure Letter, neither the Company nor any Company Subsidiary is a party to,
and no asset or property of the Company or any Company Subsidiary is bound or
affected by, any judgment, injunction, order or decree, that restricts or
prohibits the Company or any Company Subsidiary or, following the Effective
Time, the Surviving Corporation or Acquiror, from freely engaging in the Company
Business or from competing anywhere in the world (including any judgments,
injunctions, orders or decrees, restricting the geographic area in which the
Company or any Company Subsidiary may sell, license, market, distribute or
support any products or technology or provide services or restricting the
markets, customers or industries that the Company or any Company Subsidiary
-27-
may address in operating the Company Business or restricting the prices which
the Company or any Company Subsidiary may charge for its products, technology or
services (including most favored customer pricing provisions)), or includes any
grants by the Company or any Company Subsidiary of exclusive rights or licenses,
rights of refusal, rights of first negotiation or similar rights.
3.13 Intellectual Property.
(a) The Company and each Company Subsidiary owns or has
the valid right or license to all Intellectual Property used in any Company
Product or Service (as defined in Section 3.13(c)) or otherwise used in the
conduct of the Company Business (such Intellectual Property being hereinafter
collectively referred to as the "COMPANY IP RIGHTS"). Such Company IP Rights are
sufficient for the conduct of the Company Business. As used in this Agreement,
"COMPANY-OWNED IP RIGHTS" means Company IP Rights that are owned by the Company
or any Company Subsidiary; and "COMPANY-LICENSED IP RIGHTS" means Company IP
Rights that are licensed to the Company or any Company Subsidiary by a third
party.
(b) Neither the execution, delivery and performance of
this Agreement or the Company Ancillary Agreements nor the consummation of the
Merger and the other transactions contemplated by this Agreement and/or by the
Company Ancillary Agreements shall, in accordance with their terms: (i)
constitute a material breach of or default under any instrument, license or
other Contract governing any Company IP Right (collectively, the "COMPANY IP
RIGHTS AGREEMENTS"); (ii) cause the forfeiture or termination of, or give rise
to a right of forfeiture or termination of, any Company IP Right; or (iii)
materially impair the right of the Company or the Surviving Corporation or any
Company Subsidiary to use, make, market, license, sell, copy, distribute, or
dispose of any Company IP Right or portion thereof. Except as set forth in
Schedule 3.13(b) of the Company Disclosure Letter, there are no royalties,
honoraria, fees or other payments payable by the Company or any Company
Subsidiary to any third person (other than salaries payable to employees and
independent contractors not contingent on or related to use of their work
product) as a result of the ownership, use, manufacture, marketing, license-in,
sale, copying, distribution, or disposition of any Company IP Rights by the
Company or any Company Subsidiary, and none shall become payable as a result of
the consummation of the transactions contemplated by this Agreement.
(c) Schedule 3.13(c) of the Company Disclosure Letter
sets forth a list (by name and version number) of each of the products and
services currently produced, manufactured, marketed, licensed, sold, furnished
or distributed by the Company and its Subsidiaries and each product and service
currently under development by the Company or any Company Subsidiary (each a
"COMPANY PRODUCT OR SERVICE"). Neither the operation of the Company Business nor
the use, development, manufacture, marketing, license, sale, distribution or
furnishing of any Company Product or Service currently used, developed, made,
marketed, licensed, sold, distributed, or furnished by the Company or any
Company Subsidiary (i) violates any license or other Contract between the
Company or such Company Subsidiary and any third party, or (ii) infringes or
misappropriates or will infringe or misappropriate, if used in effectively the
same manner as currently used by the Company, any Intellectual Property right of
any other party. Neither the use, development, manufacture, marketing, license,
sale distribution or furnishing of any Company Product or Service currently
under development by Company or any
-28-
Company Subsidiary, (i) violates any Contract between Company or such Company
Subsidiary and any third party, or (ii) infringes or misappropriates, or will
infringe or misappropriate, if used in effectively the same manner as currently
used by the Company, any Intellectual Property rights of any other party. There
is no pending, or to the knowledge of the Company or any Company Subsidiary,
threatened, claim or litigation contesting the validity, ownership or right of
the Company or any Company Subsidiary to use, develop, make, market, license,
sell, distribute or furnish any Company IP Right or Company Product or Service,
nor to the knowledge of the Company or any Company Subsidiary is there any
legitimate basis for any such claim, nor has the Company or any Company
Subsidiary received any written notice asserting that any Company IP Right or
the use, development, manufacture, marketing, licensing, sale, distribution,
furnishing or disposition thereof conflicts with or infringes the rights of any
other party, nor to the knowledge of the Company or any Company Subsidiary is
there any legitimate basis for any such assertion. Neither the Company nor any
Company Subsidiary has received any written notice from any third party
notifying the Company or Company Subsidiary of, or requesting that the Company
or any Company Subsidiary enter into a license under, any third party patents.
None of the Company-Owned IP Rights or Company Products or Services of the
Company or any of its Subsidiaries is subject to any proceeding or outstanding
order or stipulation (i) restricting in any manner the use, development,
manufacture, marketing, licensing, sale, distribution, furnishing or disposition
by the Company or any of its Subsidiaries of any Company-Owned IP Rights, any
Company Product or Service, or which may affect the validity, use or
enforceability of any such Company-Owned IP Rights or Company Product or
Service, or (ii) restricting the conduct of the Company Business in order to
accommodate Intellectual Property rights of a third party.
(d) To the Company's knowledge, no current or former
employee, consultant or independent contractor of the Company: (i) is in
material violation of any term or covenant of any employment contract, patent
disclosure agreement, invention assignment agreement, nondisclosure agreement,
noncompetition agreement or any other Contract with any other party by virtue of
such employee's, consultant's or independent contractor's being employed by, or
performing services for, the Company or any Company Subsidiary or using trade
secrets or proprietary information of others without permission; or (ii) has
developed any technology, software or other copyrightable, patentable or
otherwise proprietary work for the Company or any Company Subsidiary that is
subject to any Contract under which such employee, consultant or independent
contractor has assigned or otherwise granted to any third party any rights
(including Intellectual Property) in or to such technology, software or other
copyrightable, patentable or otherwise proprietary work. To the Company's
knowledge, neither the employment of any employee of the Company or any Company
Subsidiary, nor the use by the Company or any Company Subsidiary of the services
of any consultant or independent contractor subjects the Company or such Company
Subsidiary to any Liability to any third party (including for improperly
soliciting such employee, consultant or independent contractor to work for the
Company or such Company Subsidiary).
(e) The Company and each Company Subsidiary has taken
commercially reasonable steps to protect, preserve and maintain the secrecy and
confidentiality of the Company IP Rights and to preserve and maintain all the
Company's and its Subsidiaries' interests, proprietary rights and trade secrets
in the Company IP Rights. All current and former officers, employees,
consultants and independent contractors of the Company and any Company
-29-
Subsidiary having access to proprietary information of the Company or such
Company Subsidiary, its customers or business partners and inventions owned by
the Company or such Company Subsidiary have executed and delivered to the
Company or such Company Subsidiary an agreement regarding the protection of such
proprietary information and the assignment of inventions to the Company or such
Company Subsidiary (in the case of proprietary information of the Company's or
such Company Subsidiary's customers and business partners, to the extent
required by such customers and business partners); and copies of all such
agreements have been delivered to Acquiror's legal counsel. The Company has
secured valid written assignments from all of the Company's and its
Subsidiaries' current and former consultants, independent contractors and
employees who were involved in, or who contributed to, the creation or
development of any Company-Owned IP Rights, of the rights to such contributions
that may be owned by such persons or that the Company does not already own by
operation of law. No current or former employee, officer, director, consultant
or independent contractor of the Company or any Company Subsidiary has any
right, license, claim or interest whatsoever in or with respect to any
Company-Owned IP Rights.
(f) Schedule 3.13(f) of the Company Disclosure Letter
contains a true and complete list of (i) all worldwide registrations made by or
on behalf of the Company or any Company Subsidiary of any patents, copyrights,
mask works, trademarks, service marks, Internet domain names or Internet or
World Wide Web URLs or addresses with any Governmental Authority or
quasi-governmental authority, including Internet domain name registries, (ii)
all applications, registrations, filings and other formal written governmental
actions made or taken pursuant to Applicable Law by the Company or any Company
Subsidiary to secure, perfect or protect its interest in the Company-Owned IP
Rights, including all patent applications, copyright applications, mask work
applications and applications for registration of trademarks and service marks,
and where applicable the jurisdiction in which each of the items of the
Company-Owned IP Rights has been applied for, filed, issued or registered, and
(iii) all inter parties proceedings or actions before any court or tribunal
(including the United States Patent and Trademark Office) or equivalent
authority anywhere else in the world) related to any of the Company-Owned IP
Rights. All registered patents, trademarks, service marks, Internet domain
names, Internet or World Wide Web URLs or addresses, copyrights and mask work
rights that are Company-Owned IP Rights are valid and subsisting, and the
Company or such Company Subsidiary is the record owner thereof. The Company and
its Subsidiaries are the exclusive owner of all trademarks and, to the knowledge
of the Company, trade names used in connection with the operation or conduct of
the Company Business, including the sale, licensing, distribution or provision
of any Company Products or Services by the Company or any of its Subsidiaries.
The Company owns exclusively, and has good title to, all copyrighted works that
are included or incorporated into Company Products or Services or which the
Company or any of its Subsidiaries otherwise purports to own.
(g) The Company and its Subsidiaries own all right, title
and interest in and to all Company-Owned IP Rights free and clear of all
Encumbrances (other than Permitted Encumbrances) and licenses (other than
licenses and rights listed in Schedule 3.13(h)-1 of the Company Disclosure
Letter and licenses granted by it under standard customer agreements, the forms
of which are included in Schedule 3.11 of the Company Disclosure Letter).
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(h) All licenses, sublicenses and other Contracts as to
which the Company or any Company Subsidiary is a party and pursuant to which any
Person is authorized to use any Company-Owned IP Rights which are not listed on
Schedule 3.13(h)-1 of the Company Disclosure Letter are in the form of standard
customer agreements, the forms of which are included in Schedule 3.11 of the
Company Disclosure Letter. None of the licenses or other Contracts listed in
Schedule 3.13(h)-1 of the Company Disclosure Letter grants any third party
exclusive rights to or under any Company-Owned IP Rights or grants any third
party the right to sublicense any of such Company-Owned IP Rights. Neither the
Company nor any of its Subsidiaries has transferred ownership of any
Intellectual Property that is or was owned by the Company or any of its
Subsidiaries, to any third party, or knowingly permitted the Company's and its
Subsidiaries' rights in such Intellectual Property to lapse or enter the public
domain (other than through the expiration of registered Intellectual Property at
the end of its statutory term).
(i) Neither the Company nor any Company Subsidiary nor
any other party authorized to act on its behalf has disclosed or delivered to
any party, or permitted the disclosure or delivery to any escrow agent or other
party of, any Company Source Code (as defined below). To the knowledge of the
Company or any Company Subsidiary, no event has occurred, and no circumstance or
condition exists, that (with or without notice or lapse of time, or both) shall,
or would reasonably be expected to, result in the disclosure or delivery by the
Company or any Company Subsidiary or any other party authorized to act on its
behalf to any party of any Company Source Code. Schedule 3.13(i) of the Company
Disclosure Letter identifies each Contract pursuant to which the Company or any
Company Subsidiary has deposited, or is or may be required to deposit, with an
escrow agent or other party, any Company Source Code and further describes
whether the execution of this Agreement or the consummation of the Merger or any
of the other transactions contemplated by this Agreement, in and of itself,
would reasonably be expected to result in the release from escrow of any Company
Source Code. As used in this Section 3.13(i), "COMPANY SOURCE CODE" means,
collectively, any human readable software source code, or any material portion
or aspect of the software source code, or any material proprietary information
or algorithm contained in or relating to any software source code, that
constitutes Company-Owned IP Rights or any other Company Product or Service
marketed or currently proposed to be marketed by the Company or any Company
Subsidiary.
(j) To the knowledge of the Company or any Company
Subsidiary, there is no unauthorized use, disclosure, infringement or
misappropriation of any Company IP Rights by any third party, including any
employee or former employee of the Company or any Company Subsidiary.
(k) All software developed by the Company or any Company
Subsidiary and licensed by the Company or any Company Subsidiary to customers
and all Company Products or Services provided by or through the Company or any
Company Subsidiary to customers on or prior to the Closing Date conform in all
material respects (to the extent required in Contracts with such customers) to
applicable contractual commitments, express and implied warranties, product
specifications and product Documentation and to any representations provided to
customers, and neither the Company nor any Company Subsidiary has any material
Liability (and, to the knowledge of the Company or any Company Subsidiary, there
is no legitimate basis for any present or future action, suit, proceeding,
hearing, investigation, charge, complaint, claim or demand against the Company
or any Company Subsidiary giving rise to any material Liability
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relating to the foregoing Contracts) for replacement or repair thereof or other
damages in connection therewith in excess of any reserves therefor reflected on
the Company Balance Sheet. Except as set forth on Schedule 3.13(k) of the
Company Disclosure Letter, the Company has made available to Acquiror all
Documentation relating to the testing of the Company Products or Services and
plans and specifications for Company Products or Services currently under
development by the Company. The Company has a policy and procedure for tracking
material bugs, errors and defects of which it becomes aware in any Company
Products or Services, and maintains a database covering the foregoing. For all
software used by the Company and its Subsidiaries in providing Company Products
or Services, or in developing or making available any of the Company Products or
Services, the Company and its Subsidiaries have implemented any and all material
security patches or upgrades that to the knowledge of the Company are generally
available for that software.
(l) No government funding, facilities of a university,
college, other educational institution or research center, or funding from third
parties (other than funds received in consideration for Company Capital Stock or
pursuant to instruments of indebtedness for borrowed money) was used in the
development of the Company Products or Services, computer software programs or
applications owned by the Company or any Company Subsidiary. To the knowledge of
the Company, no current or former employee, consultant or independent contractor
of the Company or any Company Subsidiary who was involved in, or who contributed
to, the creation or development of any Company-Owned IP Rights has performed
services for the government, for a university, college or other educational
institution or for a research center during a period of time during which such
employee, consultant or independent contractor was also performing services for
the Company or any Company Subsidiary.
(m) No software covered by any Company-Owned IP Right or
forming part of any Company Product or Service has been distributed in whole or
in part or used, or is being used in conjunction with any Public Software,
provided that, with respect to any third party software forming part of any
Company Product or Service, this representation is made to the Company's
knowledge. As used in this Section 3.13(m), "PUBLIC SOFTWARE" means any software
that (i) contains, or is derived in any manner (in whole or in part) from, any
software that is distributed as free software, open source software (e.g.,
Linux) or (ii) requires as a condition of its use, modification or distribution
that it be disclosed or distributed in source code form or made available at no
charge. Public Software includes without limitation software licensed under the
GNU's General Public License (GPL) or Lesser/Library GPL, the Mozilla Public
License, the Netscape Public License, the Sun Community Source License, the Sun
Industry Standards License, the BSD License, and the Apache License.
3.14 Compliance with Laws.
(a) The Company and each Company Subsidiary has
materially complied, and is in material compliance, with all Applicable Law.
(b) All materials, products and services distributed or
marketed by the Company and each Company Subsidiary have at all times made all
material disclosures to users or customers required by Applicable Law, and none
of such disclosures made or contained in any such materials have been
inaccurate, misleading or deceptive in any material respect.
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(c) The Company and each Company Subsidiary holds all
material permits, licenses and approvals from, and has made all material filings
with, government (and quasi-governmental) agencies and authorities, that are
necessary and/or legally required to be held by it to conduct the Company
Business without any violation of Applicable Law ("GOVERNMENTAL PERMITS"), and
all such Governmental Permits are valid and in full force and effect. Neither
the Company nor any Company Subsidiary has received any notice or other
communication from any Governmental Authority regarding (i) any actual or
possible violation of law or any Governmental Permit or any failure to comply
with any term or requirement of any Governmental Permit or (ii) any actual or
possible revocation, withdrawal, suspension, cancellation, termination or
modification of any Governmental Permit.
(d) Neither the Company nor any Company Subsidiary nor
any director, officer, agent or employee of the Company or any Company
Subsidiary has, for or on behalf of the Company or any Company Subsidiary, (i)
used any funds for unlawful contributions, gifts, entertainment or other
unlawful expenses relating to political activity, (ii) made any unlawful payment
to foreign or domestic government officials or employees or to foreign or
domestic political parties or campaigns or violated any provision of the Foreign
Corrupt Practices Act of 1977, as amended, or (iii) made any other payment in
violation of Applicable Law.
3.15 Certain Transactions and Agreements. To the knowledge of the
Company, none of the officers and directors of the Company or any Company
Subsidiary, and no stockholder of the Company owning more than 1% of any class
of Company Capital Stock, nor any immediate family member of an officer or
director of the Company, has a direct ownership interest of more than 5% of the
equity ownership of any firm or corporation that competes with, or does business
with, or has any contractual arrangement with, the Company or any Company
Subsidiary. None of said officers, directors, stockholders or of immediate
family members, is a party to, or otherwise directly or indirectly interested in
any Company Material Contract except as set forth in Section 3.11 of the Company
Disclosure Letter.
3.16 Employees, ERISA and Other Compliance.
(a) The Company and each Company Subsidiary is in
compliance in all material respects with all Applicable Law and Contracts
relating to employment, employment practices, immigration, wages, hours, and
terms and conditions of employment, including employee compensation matters, and
has correctly classified employees as exempt employees and nonexempt employees
under the Fair Labor Standards Act. A complete list of all employees, officers
and consultants of the Company and its Subsidiaries and their current title
and/or job description and compensation (base compensation and bonuses) is set
forth on Schedule 3.16(a) of the Company Disclosure Letter. To the knowledge of
the Company, all employees of the Company or any of its Subsidiaries are legally
permitted to be employed by the Company or such Company Subsidiary in the
jurisdiction in which such employee is employed in their current job capacities
for the maximum period allowed under Applicable Law. All independent contractors
providing services to the Company or any of its Subsidiaries have been properly
classified as independent contractors for purposes of federal and applicable
state tax laws, laws applicable to employee benefits and other Applicable Law.
The Company does not have any employment or consulting Contracts currently in
effect that are not terminable at will
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(other than agreements with the sole purpose of providing for the
confidentiality of proprietary information or assignment of inventions).
(b) Neither the Company nor any Company Subsidiary (i) to
the knowledge of the Company or any Company Subsidiary, is now, or has ever
been, subject to a union organizing effort, (ii) is subject to any collective
bargaining agreement with respect to any of its employees, (iii) is subject to
any other Contract with any trade or labor union, employees' association or
similar organization, and (iv) has any current labor disputes. The Company and
its Subsidiaries each has good labor relations, and has no knowledge of any
facts indicating that the consummation of the Merger or any of the other
transactions contemplated hereby shall have a material adverse effect on such
labor relations, and has no knowledge that any of its key employees intends to
leave their employ.
(c) The Company has no pension plan which constitutes, or
has since the enactment of ERISA, constituted, a "multiemployer plan" as defined
in Section 3(37) of ERISA or a "multiple employer plan" as defined in Section
413(c) of the Code. No pension plan of the Company is subject to Title IV of
ERISA.
(d) Schedule 3.16(d) of the Company Disclosure Letter
lists each employment, consulting, severance or other similar Contract, each
"employee benefit plan" as defined in Section 3(3) of ERISA and each plan or
arrangement (written or oral) providing for insurance coverage (including any
self-insured arrangements that are clearly identified as such), workers'
benefits, vacation benefits, severance benefits, disability benefits, death
benefits, hospitalization benefits, retirement benefits, deferred compensation,
profit-sharing, bonuses, stock options, stock purchase, phantom stock, stock
appreciation or other forms of incentive compensation or post-retirement
insurance, compensation or benefits for employees, consultants or directors that
is entered into, maintained or contributed to by the Company, any Company
Subsidiary or any ERISA Affiliate and covers any employee or former employee of
the Company or any Company Subsidiary. Such Contracts, plans and arrangements as
are described in this Section 3.16(d) are hereinafter collectively referred to
as "COMPANY BENEFIT ARRANGEMENTS." Schedule 3.16(d) of the Company Disclosure
Letter includes a true, complete and correct list identifying (i) each
individual who is entitled to a bonus payment pursuant to the Company Sale
Participation Program, (ii) the methodology for calculating the dollar amount
payable to each such individual and (iii) the methodology for calculating the
dollar amount payable to Xxxxxx Xxxxxxxxx pursuant to the Xxxxxxxxx Agreement.
Other than as disclosed on Schedule 3.16(d), there is no Liability to any Person
pursuant to the Company Sale Participation Program.
(e) Each Company Benefit Arrangement has been maintained
in compliance in all material respects with its terms and with the requirements
prescribed by any and all Applicable Law that is applicable to such Company
Benefit Arrangement. Each such Company Benefit Arrangement that is an "employee
pension benefit plan" as defined in Section 3(2) of ERISA that is intended to
qualify under Section 401(a) of the Code is so qualified. Unless otherwise
indicated in Schedule 3.16(d) of the Company Disclosure Letter, with respect to
each such Company Benefit Arrangement that is an "employee pension benefit plan"
as defined in Section 3(2) of ERISA that is intended to qualify under Section
401(a) of the Code, the Company (1) has received a favorable opinion, advisory,
notification and/or determination letter,
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as applicable, that such plan satisfied the requirements of the Uruguay Round
Agreements Act, the Uniformed Services Employment and Reemployment Rights Act of
1994, the Small Business Job Protection Act of 1996 and the Taxpayer Relief Act
of 1997 (collectively referred to as "GUST"), the Tax Reform Act of 1986, the
Internal Revenue Service ("IRS") Restructuring and Reform Act of 1998 and the
Community Renewal Tax Relief Act of 2000 (a copy of which letter(s) have been
delivered to Acquiror and its counsel), and nothing has occurred since the
issuance of such opinion, advisory, notification and/or determination letter, as
applicable, which would reasonably be expected to cause the loss of the
tax-qualified status of such Company Benefit Arrangement, (2) the Company has
applied timely to the IRS for such letter, (3) the Company has a remaining
period of time to apply for such letter, or (4) if reliance is permitted under
IRS Announcement 2001-77, the Company relies on the favorable opinion letter or
advisory letter of the master and prototype or volume submitter plan sponsor of
such Company Benefit Arrangement. No Company Benefit Arrangement shall be
subject to any surrender fees or services fees upon termination other than the
normal and reasonable administrative fees associated with the termination of
benefit plans.
(f) The Company has timely filed and delivered or made
available to Acquiror and its legal counsel the three most recent annual reports
(Form 5500) and all schedules attached thereto for each Company Benefit
Arrangement that is subject to ERISA and Code reporting requirements, and all
material communications with participants, the IRS, the U.S. Department of Labor
("DOL"), or any other Governmental Authority, administrators, trustees,
beneficiaries and alternate payees relating to any Company Benefit Arrangement.
(g) The Company has timely filed and delivered or made
available to Acquiror and its legal counsel the three most recent annual reports
(Form 5500) for each Company Benefit Arrangement that is subject to ERISA and
Code reporting requirements.
(h) No suit, administrative proceeding, action or other
litigation has been brought, or to the knowledge of the Company or any Company
Subsidiary, is threatened in writing against or with respect to any Company
Benefit Arrangement (other than claims for benefits under such Company Benefit
Arrangement which are routine and uncontested), including any audit or inquiry
by the IRS or the DOL. Neither the Company nor any Company Subsidiary has ever
been a participant in any "prohibited transaction" within the meaning of Section
406 of ERISA or Section 4975 of the Code with respect to any employee pension
benefit plan (as defined in Section 3(2) of ERISA) that the Company or such
Company Subsidiary sponsors as employer or in which the Company or such Company
Subsidiary participates as an employer which was not otherwise exempt pursuant
to Section 408 of ERISA (including any individual exemption granted under
Section 408(a) of ERISA) or that would be reasonably likely to result in an
excise tax under the Code or the assessment of a civil penalty under Section
502(i) or ERISA.
(i) All contributions due from the Company with respect
to any of the Company Benefit Arrangements have been made or have been accrued
on the Company's financial statements (including the Company Financial
Statements), and no further contributions shall be due or shall have accrued
thereunder as of the Closing Date (other than contributions accrued in the
ordinary course of business, consistent with past practices, after the Balance
Sheet Date as a result of the operations of the Company and its Subsidiaries
after the Balance Sheet
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Date). All contributions due from the Company with respect to any Company
Benefit Arrangement qualified under Section 401(a) of the Code and containing a
Code Section 401(k) cash or deferred arrangement have been timely made. All
claims as of the Closing Date made under any self-insured Company Benefit
Arrangement that is an "employee welfare benefit plan" as defined in Section
3(1) of ERISA have been paid or, if not paid, will be paid by the Company.
(j) All individuals who, pursuant to the terms of any
Company Benefit Arrangement, are entitled to participate in any Company Benefit
Arrangement, are currently participating in such Company Benefit Arrangement or
have been offered an opportunity to do so and have declined in writing.
(k) The Company shall not have any material Liability to
any employee or to any organization or any other entity as a result of the
termination of any employee leasing arrangement.
(l) There has been no amendment to, written
interpretation or announcement (whether or not written) by the Company relating
to, or change in employee participation or coverage under, any Company Benefit
Arrangement that would increase materially the expense of maintaining such
Company Benefit Arrangement above the level of the expense incurred in respect
thereof during the calendar year 2003 (other than increased insurance premiums),
except any such amendments that are required under Applicable Law.
(m) Each Company Benefit Arrangement, to the extent
applicable, is in compliance, in all material respects, with the continuation
coverage requirements of Section 4980B of the Code, Sections 601 through 608 of
ERISA, the Americans with Disabilities Act of 1990, as amended, and the
regulations thereunder, the Health Insurance Portability and Accountability Act
of 1996, as amended, the Women's Health and Cancer Rights Act of 1998, and the
Family Medical Leave Act of 1993, as amended, and the regulations thereunder, as
such requirements affect the Company and its employees. There are no
outstanding, uncorrected violations under the Consolidation Omnibus Budget
Reconciliation Act of 1985, as amended, ("COBRA"), with respect to any of the
Company Benefit Arrangements, covered employees or qualified beneficiaries that
would be reasonably likely to result in a Material Adverse Effect on the
Company, any Company Subsidiary or Acquiror.
(n) No benefit payable or that may become payable by the
Company or any Company Subsidiary pursuant to any Company Benefit Arrangement or
as a result of, in connection with or arising under this Agreement or the
Certificate of Merger shall constitute a "parachute payment" (as defined in
Section 280G(b)(2) of the Code) that is subject to the imposition of an excise
tax under Section 4999 of the Code or that would not be deductible by reason of
Section 280G of the Code. Unless otherwise indicated in Schedule 3.16(n) of the
Company Disclosure Letter, neither the Company or any Company Subsidiary is a
party to any: (i) Contract with any executive officer or other key employee
thereof (A) the benefits of which are contingent, or the terms of which are
materially altered, upon the occurrence of a transaction involving the Company
in the nature of the Merger or any of the other transactions contemplated by
this Agreement or any Company Ancillary Agreement, (B) providing any term of
employment or compensation guarantee, or (C) providing severance benefits or
other benefits after the termination of employment of such employee regardless
of the reason for such
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termination of employment other than as required by COBRA (or similar state
laws), vacation pay cash-outs or other arrangements governed by ERISA; or (ii)
Contract or plan, including any stock option plan, stock appreciation rights
plan or stock purchase plan, any of the benefits of which shall be increased, or
the vesting of benefits of which shall be accelerated, by the occurrence of the
Merger or any of the other transactions contemplated by this Agreement, or any
event subsequent to the Merger such as the termination of employment of any
person, or the value of any of the benefits of which shall be calculated on the
basis of any of the transactions contemplated by this Agreement. Neither the
Company nor any of its Subsidiaries has any obligation to pay any material
amount or provide any material benefit to any former employee or officer, other
than obligations (i) for which the Company has established a reserve for such
amount on the Company Balance Sheet and (ii) pursuant to Contracts entered into
after the Balance Sheet Date and disclosed on Schedule 3.16(n) of the Company
Disclosure Letter.
(o) To the Company's and each Company Subsidiary's
knowledge, no employee or consultant of the Company or any Company Subsidiary is
in material violation of (i) any term of any employment or consulting Contract
or (ii) any term of any other Contract or any restrictive covenant relating to
the right of any such employee or consultant to be employed by the Company or
such Company Subsidiary or to use trade secrets or proprietary information of
others. To the Company's and each Company Subsidiary's knowledge, the employment
of any employee or consultant by the Company or any Company Subsidiary does not
subject it to any Liability to any third party.
(p) Neither the Company nor any Company Subsidiary has
established any compensation and benefit plan that is maintained or is required
to be maintained or contributed to by the law or applicable custom or rule of
the relevant jurisdiction, outside of the United States.
(q) In the past two years, there has been no "mass
layoff," "employment loss," or "plant closing" as defined by the Workers
Adjustment and Retraining Notification Act (the "WARN ACT") in respect of the
Company.
3.17 Corporate Documents. The Company has delivered or made
available to Acquiror's legal counsel for examination all documents listed in
the Company Disclosure Letter (including any Schedule thereto) or in any other
exhibit or schedule called for by this Agreement, including the following: (a)
copies of the Certificate of Incorporation and Bylaws (or other comparable
charter documents), each as currently in effect, of the Company and each Company
Subsidiary; (b) the minute books containing all records of all proceedings,
consents, actions and meetings of the Board of Directors and any committees
thereof and stockholders of the Company and each Company Subsidiary; (c) the
stock ledger, option ledger and warrant ledger and journal reflecting all stock
issuances and transfers and all grants of options and warrants relating to the
Company; and (d) all permits, orders and consents issued by, and filings by the
Company with, any regulatory agency with respect to the Company, or any
securities of the Company, and all applications for such permits, orders and
consents.
3.18 Merger Expenses. Neither the Company nor any affiliate of the
Company is obligated for the payment of any fees or expenses of any investment
banker, broker, finder or similar party in connection with the origin,
negotiation or execution of this Agreement or in
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connection with the Merger or any other transaction contemplated by this
Agreement, except for fees payable to Credit Suisse First Boston LLC in the
amount set forth on Section 3.18 of the Company Disclosure Letter. The legal and
accounting advisors, and any other persons, to whom the Company currently
expects to owe fees and expenses that will constitute Merger Expenses are set
forth on Schedule 3.18, and other than the Merger Expenses owed to Credit Suisse
First Boston as provided in the preceding sentence or Merger Expenses that will
be due to the entities set forth on Schedule 3.18, there are no Merger Expenses.
3.19 Books and Records.
(a) The books, records and accounts of the Company and
its Subsidiaries (i) are in all material respects true, complete and correct,
(ii) have been maintained in accordance with good business practices on a basis
consistent with prior years, and (iii) accurately and fairly reflect the basis
for the Company Financial Statements.
(b) The Company has devised and maintains a system of
internal accounting controls sufficient to provide reasonable assurances that:
(i) transactions are executed in accordance with management's general or
specific authorization; (ii) transactions are recorded as necessary (1) to
permit preparation of financial statements in conformity with GAAP or any other
criteria applicable to such statements and (2) to maintain accountability for
assets; and (iii) the amount recorded for assets on the Company's books and
records is compared with the existing assets at reasonable intervals and
appropriate action is taken with respect to any differences.
3.20 Insurance. The Company and its Subsidiaries maintain the
policies of insurance and bonds set forth in Schedule 3.20 of the Company
Disclosure Letter, including all legally required workers' compensation and
other insurance. Schedule 3.20 sets forth the name of the insurer under each
such policy and bond, the type of policy or bond, and the coverage amount and
any applicable deductible. There is no material claim pending under any of such
policies or bonds as to which coverage has been questioned, denied or disputed
by the underwriters of such policies or bonds. All premiums due and payable
under all such policies and bonds have been timely paid, and the Company and
each Company Subsidiary is otherwise in compliance with the terms of such
policies and bonds. All such policies and bonds remain in full force and effect,
and neither the Company nor any Company Subsidiary has any knowledge of any
threatened termination of, or material premium increase with respect to, any of
such policies or bonds. Each of the Company and each Company Subsidiary has
delivered or made available to Acquiror correct and complete copies of all such
policies of insurance and bonds issued at the request or for the benefit of the
Company or any Company Subsidiary.
3.21 Environmental Matters.
(a) The Company, each Company Subsidiary and their
respective predecessors and affiliates are in material compliance with all
Environmental Laws (as defined below), which compliance includes the possession
by the Company or such Company Subsidiary of all permits and other governmental
authorizations required under Environmental Laws and compliance with the terms
and conditions thereof. Neither the Company nor any Company Subsidiary has
received any written notice or other written communication, whether from a
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Governmental Authority, citizens groups, employee or otherwise, that alleges
that the Company is not in compliance with any Environmental Law, and to the
knowledge of the Company and each Company Subsidiary, there are no circumstances
that may prevent or interfere with the compliance by the Company and each
Company Subsidiary with any current Environmental Law in the future. To the
knowledge of the Company and each Company Subsidiary, no current or prior owner
of any property leased or possessed by the Company or such Company Subsidiary
has received any written notice or other written communication, whether from a
Governmental Authority, citizens group, employee or otherwise, that alleges that
such current or prior owner or the Company or such Company Subsidiary is not in
compliance with any Environmental Law. All Governmental Permits held by the
Company or any Company Subsidiary pursuant to any Environmental Law (if any) are
identified in Schedule 3.21 of the Company Disclosure Letter.
(b) For purposes of this Section 3.21: (i) "ENVIRONMENTAL
LAW" means any federal, state or local statute, law, regulation or other legal
requirement relating to pollution or protection of human health or the
environment (including ambient air, surface water, ground water, land surface or
subsurface strata), including any law or regulation relating to emissions,
discharges, releases or threatened releases of Materials of Environmental
Concern or otherwise relating to the manufacture, processing, distribution, use,
treatment, storage, disposal, transport or handling of Materials of
Environmental Concern; and (ii) "MATERIALS OF ENVIRONMENTAL CONCERN" include
chemicals, pollutants, contaminants, wastes, toxic substances, petroleum and
petroleum products and any other substance that is currently regulated by an
Environmental Law or that is otherwise a danger to health, reproduction or the
environment.
3.22 No Existing Discussions. Neither the Company nor any Company
Subsidiary nor, to the knowledge of the Company, any director, officer,
stockholder, employee or agent (or any investment banker, broker, finder or
similar party) of the Company or any Company Subsidiary is engaged, directly or
indirectly, in any discussions or negotiations with any third party relating to
any Alternative Transaction.
3.23 Customers and Suppliers.
(a) Neither the Company nor any Company Subsidiary has
any outstanding material disputes concerning its products and/or services with
any customer or distributor who was one of the 20 largest sources of revenues
for the Company and its Subsidiaries, based on amounts paid or payable in the
year ended December 31, 2003 (each, a "SIGNIFICANT CUSTOMER"), and neither the
Company nor any Company Subsidiary has any knowledge of any material
dissatisfaction on the part of any Significant Customer. Each Significant
Customer is listed on Schedule 3.23(a) of the Company Disclosure Letter. Since
January 1, 2003, neither the Company nor any of its Subsidiaries has received
any written or, to the Company's knowledge, oral notice from any Significant
Customer that such customer shall not continue as a customer of the Company or
that such customer intends to terminate or materially modify existing Contracts
with the Company (or the Surviving Corporation or Acquiror). The Company has not
had any of its products returned by a Significant Customer thereof except for
normal warranty returns consistent with past history and those returns that
would not result in a reversal of any material amount of revenue by the Company.
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(b) Neither the Company nor any Company Subsidiary has
any outstanding material dispute concerning products and/or services provided by
any supplier who, in the year ended December 31, 2003 was one of the 10 largest
suppliers of products and/or services to the Company, based on amounts paid or
payable (each, a "SIGNIFICANT SUPPLIER"), and neither the Company nor any
Company Subsidiary has any knowledge of any material dissatisfaction on the part
of any Significant Supplier. Each Significant Supplier is listed on Schedule
3.23(b) of the Company Disclosure Letter. Since January 1, 2003, neither the
Company nor any of its Subsidiaries has received any written notice from any
Significant Supplier that such supplier shall not continue as a supplier to the
Company or that such supplier intends to terminate or materially modify existing
Contracts with the Company (or the Surviving Corporation or Acquiror). The
Company and its Subsidiaries have access, on commercially reasonable terms, to
all products and services reasonably necessary to carry on the Company
Businesses, and neither the Company nor any of its Subsidiaries has any
knowledge of any reason why it will not continue to have such access on
commercially reasonable terms.
3.24 Privacy. The Company and each Company Subsidiary has provided
adequate notice of its privacy practices in its privacy policy or policies,
which policy or policies (and the periods such policy or policies have been in
effect) are set forth in Schedule 3.24 of the Company Disclosure Letter. The
Company's and its Subsidiaries' privacy policies are and have been available on
the Company Websites (as defined below) at all times during the periods
indicated on Schedule 3.24 of the Company Disclosure Letter. The Company's and
its Subsidiaries' privacy practices conform, and at all times have conformed, in
all material respects to their respective privacy policies. The Company and each
Company Subsidiary has complied with all Applicable Law relating to (a) the
privacy of users of the Company Products or Services and all Internet websites
owned, maintained or operated by the Company and its Subsidiaries (collectively,
the "COMPANY WEBSITES"), and (b) the collection, storage and transfer of any
personally identifiable information collected by the Company and its
Subsidiaries or by third parties having authorized access to the Company's and
its Subsidiaries' records. The Company's and its Subsidiaries' privacy policies
conform, and at all times have conformed, to all of the Company's and its
Subsidiaries' contractual commitments to their customers and the viewers of the
Company Websites. Each of the Company Websites and all materials distributed or
marketed by the Company and its Subsidiaries have at all times made all
disclosures to users or customers required by Applicable Law, and none of such
disclosures made or contained in any Company Website or in any such materials
have been inaccurate, misleading or deceptive or in violation of any Applicable
Law. No claims have been asserted or, to the knowledge of the Company or any of
its Subsidiaries, are threatened against the Company or any of its Subsidiaries
by any person or entity alleging a violation of such person's or entity's
privacy, personal or confidentiality rights under the privacy policies of the
Company or its Subsidiaries. With respect to all personal and user information
described in this Section 3.24, the Company and its Subsidiaries have at all
times taken all steps reasonably necessary (including, without limitation,
implementing and monitoring compliance with adequate measures with respect to
technical and physical security) to ensure that the information is protected
against loss and against unauthorized access, use, modification, disclosure or
other misuse. To the knowledge of the Company or any of its Subsidiaries, there
has been no unauthorized access to or other misuse of that information.
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3.25 Accounts Receivable. Schedule 3.25 of the Company Disclosure
Letter sets forth an accurate and complete aging of the Company's and its
Subsidiaries' accounts receivable as of January 31, 2004 in the aggregate and by
customer, and indicates the amounts of allowances for doubtful accounts and
warranty returns. Schedule 3.25 of the Company Disclosure Letter sets forth such
amounts of accounts receivable as of January 31, 2004 of the Company which are
subject to asserted warranty claims by customers and reasonably detailed
information regarding asserted warranty claims made within the last year,
including the type and amounts of such claims.
3.26 Inventory. The inventories shown on the Company Balance Sheet
(net of any reserve on the Company Balance Sheet) or thereafter acquired by the
Company or any Company Subsidiary, consisted of items of a quantity and quality
usable or salable in the ordinary course of business. Since the Balance Sheet
Date, the Company and each Company Subsidiary has continued to replenish
inventories in a normal and customary manner consistent with past practices.
Neither the Company nor any Company Subsidiary has received written or oral
notice that it will experience in the foreseeable future any difficulty in
obtaining, in the desired quantity and quality and at a reasonable price and
upon reasonable terms and conditions, the raw materials, supplies or component
products required for the manufacture, assembly or production of its products.
3.27 Affiliates. Schedule 3.27 of the Company Disclosure Letter
sets forth a true, correct and complete list of the names and addresses of each
Person who the Company has reasonably and in good faith determined is an
Affiliate of the Company as of the date hereof.
3.28 Disclosure. This Agreement (including its exhibits and
schedules and the Company Disclosure Letter) does not contain any untrue
statement of a material fact or omit to state any material fact necessary in
order to make the statements contained herein and therein, in light of the
circumstances under which such statements were made, not misleading.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF ACQUIROR AND MERGER SUB
Subject to the exceptions set forth in a numbered or lettered section
of the disclosure letter of the Acquiror addressed to the Company, dated as of
the Agreement Date and delivered to the Company concurrently with the parties'
execution of this Agreement (the "ACQUIROR DISCLOSURE LETTER" (if any))
referencing a representation or warranty herein (each of which exceptions, in
order to be effective, shall clearly indicate the section and, if applicable,
the subsection of this ARTICLE 4 to which it relates (unless and to the extent
the relevance to other representations and warranties is reasonably apparent
from the face of the disclosed exception), and each of which exceptions shall
also be deemed to be representations and warranties made by Acquiror and Merger
Sub under this ARTICLE 4), provided, however, that the fact that any disclosure
in the Company Disclosure Letter is not required to be disclosed in order to
render the applicable representation or warranty to which it relates true, or
that the absence of such disclosure in the Company Disclosure Letter would not
constitute a breach of such representation or warranty, shall not be deemed or
construed to expand the scope of any representation or warranty hereunder or to
establish a standard of disclosure in respect of any representation or
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warranty, Acquiror and Merger Sub represent and warrant to the Company as of the
date hereof as follows:
4.1 Organization and Good Standing. Acquiror is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware and has the corporate power and authority to own, operate and lease its
properties and to carry on its business as now conducted and as presently
proposed to be conducted. Merger Sub is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware. Each of
Acquiror and Merger Sub is duly qualified or licensed to do business, and is in
good standing, in each jurisdiction where the character of the properties owned,
leased or operated by it or the nature of its activities makes such
qualification or licensing necessary, except where the failure to be so
qualified or licensed would not individually or in the aggregate be material to
Acquiror's or Merger Sub's ability to consummate the Merger or to perform their
respective obligations under this Agreement, the Acquiror Ancillary Agreements
and the Merger Sub Ancillary Agreements. Acquiror has made available to the
Company true and complete copies of the currently effective Certificate of
Incorporation and Bylaws of Acquiror and Merger Sub, each as amended to date.
Neither Acquiror nor Merger Sub is in violation of its Certificate of
Incorporation or Bylaws, each as amended to date.
4.2 Capital Structure. The authorized capital stock of Acquiror
consists of 200,000,000 shares of Common Stock, par value $0.001 per share, and
5,000,000 shares of Preferred Stock, par value $0.001 per share. All shares of
Acquiror Common Stock to be issued in connection with the Merger shall have been
duly authorized and validly issued, and shall be fully paid and nonassessable,
free of Encumbrances created by the Acquiror.
4.3 Power, Authorization and Validity.
(a) Power and Authority. Acquiror has all requisite
corporate power and authority to enter into, execute, deliver and perform its
obligations under this Agreement and each of the Acquiror Ancillary Agreements
and to consummate the Merger. The execution, delivery and performance by
Acquiror of this Agreement, each of the Acquiror Ancillary Agreements and all
other agreements, transactions and actions contemplated hereby or thereby have
been duly and validly approved and authorized by all necessary corporate action
on the part of Acquiror. Merger Sub has all requisite corporate power and
authority to enter into, execute, deliver and perform its obligations under this
Agreement and each of the Merger Sub Ancillary Agreements and to consummate the
Merger. The execution, delivery and performance by Merger Sub of this Agreement,
each of the Merger Sub Ancillary Agreements and all other agreements,
transactions and actions contemplated hereby or thereby have been duly and
validly approved and authorized by all necessary corporate action on the part of
Merger Sub.
(b) No Consents. No consent, approval, order or
authorization of, or registration, declaration or filing with, any Governmental
Authority, or any other Person, governmental or otherwise, is necessary or
required to be made or obtained by Acquiror or Merger Sub to enable Acquiror and
Merger Sub to lawfully execute and deliver, enter into, and perform its
obligations under this Agreement, each of the Acquiror Ancillary Agreements and
each of the Merger Sub Ancillary Agreements or to consummate the Merger, except
for: (i) the filing of the Permit Application with the California Commissioner
pursuant to Section 7.1(a);
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(ii) if required pursuant to Section 7.1(f), the filing with the SEC of the
Registration Statement; (iii) such consents, approvals, orders, authorizations,
registrations, declarations and filings as may be required under applicable
state securities laws and the securities laws of any foreign country; (iv) the
filing of a registration statement on Form S-8 with the SEC after the Closing
Date covering the shares of Acquiror Common Stock issuable pursuant to
outstanding options under the Company Stock Plan assumed by Acquiror; and (v)
such other consents, approvals, orders, authorizations, registrations,
declarations and filings, if any, that if not made or obtained by Acquiror or
Merger Sub would not be material to Acquiror's or Merger Sub's ability to
consummate the Merger or to perform their respective obligations under this
Agreement, the Acquiror Ancillary Agreements and the Merger Sub Ancillary
Agreements.
(c) Enforceability. This Agreement has been duly executed
and delivered by Acquiror and Merger Sub. This Agreement and each of the
Acquiror Ancillary Agreements are, or when executed by Acquiror shall be, valid
and binding obligations of Acquiror, enforceable against Acquiror in accordance
with their respective terms, subject to the effect of (i) applicable bankruptcy,
insolvency, reorganization, moratorium or other similar laws now or hereafter in
effect relating to rights of creditors generally and (ii) rules of law and
equity governing specific performance, injunctive relief and other equitable
remedies. This Agreement and each of the Merger Sub Ancillary Agreements are, or
when executed by Merger Sub shall be, valid and binding obligations of Merger
Sub, enforceable against Merger Sub in accordance with their respective terms,
subject to the effect of (i) applicable bankruptcy, insolvency, reorganization,
moratorium or other similar laws now or hereafter in effect relating to rights
of creditors generally and (ii) rules of law and equity governing specific
performance, injunctive relief and other equitable remedies.
4.4 No Conflict. Neither the execution and delivery of this
Agreement, any of the Acquiror Ancillary Agreements or any of the Merger Sub
Ancillary Agreements by Acquiror or Merger Sub, nor the consummation of the
Merger or any other transaction contemplated hereby or thereby, shall conflict
with, or (with or without notice or lapse of time, or both) result in a
termination, breach, impairment or violation of, or constitute a default under:
(a) any provision of the Certificate of Incorporation or Certificate of
Incorporation, as applicable, or Bylaws of Acquiror or Merger Sub, each as
currently in effect; (b) any Applicable Law applicable to Acquiror, Merger Sub
or any of their respective material assets or properties; or (c) any Contract to
which Acquiror or Merger Sub is a party or by which Acquiror or Merger Sub or
any of their respective material assets or properties are bound, except in the
cases of clauses (b) and (c) where such conflict, termination, breach,
impairment, violation or default would not be material to Acquiror's or Merger
Sub's ability to consummate the Merger or to perform their respective
obligations under this Agreement, the Acquiror Ancillary Agreements and the
Merger Sub Ancillary Agreements.
4.5 SEC Documents; Financial Statements. Acquiror has previously
furnished or made available (through XXXXX or otherwise) to the Company complete
and accurate copies, as amended or supplemented, of each report, statement and
other filing filed with the SEC by Acquiror since December 31, 2003
(collectively, the "ACQUIROR SEC DOCUMENTS"). The Acquiror SEC Documents
constitute all of the documents required to be filed by Acquiror under Section
13 of the Exchange Act or under the Securities Act since December 31, 2003. Each
of the Acquiror SEC Documents were duly and timely filed and complied in all
material respects
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with the requirements of the Exchange Act or the Securities Act and the rules
and regulations promulgated thereunder, as applicable, and none of the Acquiror
SEC Documents as of their respective filing dates contained any untrue statement
of a material fact or omitted to state a material fact required to be stated
therein or necessary to make the statements made therein, in light of the
circumstances under which they were made, not misleading, except to the extent
corrected by an Acquiror SEC Document filed subsequently (but prior to the date
hereof). Except as set forth in any Acquiror SEC Document, the financial
statements of Acquiror, including the notes thereto, included in the most recent
annual report on Form 10-K and each subsequent quarterly report on Form 10-Q, in
each case as amended, if applicable, included in the Acquiror SEC Documents (the
"ACQUIROR FINANCIAL STATEMENTS") (i) complied as to form in all material
respects with applicable accounting requirements and with the published rules
and regulations of the SEC with respect thereto as of their respective dates,
(ii) have been prepared in accordance with GAAP applied on a consistent basis
throughout the periods indicated (except as may otherwise be indicated in the
notes thereto or, in the case of unaudited statements, as permitted by Form
10-Q, Form 8-K or any successor form under the Exchange Act), and (iii) present
fairly in all material respects the consolidated financial condition and results
of operations and cash flows of Acquiror as of the dates, and for the periods,
indicated therein (subject, in the case of interim period financial statements,
to normal recurring year-end audit adjustments). Each Acquiror SEC Document was,
to the extent required by the regulations of the SEC, accompanied by the
certifications required to be filed or submitted by Acquiror's Chief Executive
Officer and Chief Financial Officer pursuant to the Xxxxxxxx-Xxxxx Act of 2002
(the "XXXXXXXX-XXXXX ACT"). The Acquiror has devised and maintains a system of
internal accounting controls sufficient to provide reasonable assurances that:
(i) transactions are executed in accordance with management's general or
specific authorization; (ii) transactions are recorded as necessary (1) to
permit preparation of financial statements in conformity with GAAP or any other
criteria applicable to such statements and (2) to maintain accountability for
assets; and (iii) the amount recorded for assets on the Acquiror's books and
records is compared with the existing assets at reasonable intervals and
appropriate action is taken with respect to any differences. All of the reports
required to be filed by Acquiror under Section 13 of the Exchange Act since
February 28, 2003 have been filed.
4.6 Litigation. There is not issued, enacted or adopted, or
threatened in writing by any Governmental Authority, any order, decree,
temporary, preliminary or permanent injunction, legislative enactment, statute,
regulation, action or proceeding, or any judgment or ruling by any Governmental
Authority that prohibits or renders illegal or imposes limitations on the Merger
or any other material transaction contemplated by this Agreement. To the
knowledge of Acquiror, no litigation or proceeding is threatened or pending for
the purpose or with the probable effect of enjoining or preventing the
consummation of the Merger or any of the other material transactions
contemplated by this Agreement.
4.7 Compliance with Law. The Acquiror and each of its Subsidiaries
has materially complied, and is in material compliance with, all Applicable Law.
4.8 Tax Matters
(a) The Merger is being undertaken by Acquiror for
business reasons and not for the purpose of tax avoidance.
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(b) Merger Sub is a wholly owned subsidiary of Acquiror
that, prior to the Effective Time, has not conducted and will not conduct any
business activity or other operation of any kind and, except for the issuance of
its stock to Acquiror, does not own any assets and does not have any
liabilities.
(c) Acquiror has no plan or intention to cause the
Company to issue additional shares of stock after the Merger or take any other
action that would result in Acquiror losing Control of the Company.
(d) Acquiror has no current plan or intention to (i)
liquidate the Company; (ii) merge the Company with or into another corporation
(other than pursuant to a merger of the Company with or into Acquiror, or a
wholly-owned LLC of Acquiror); (iii) sell, distribute or otherwise dispose of
Company stock; or (iv) cause the Company to sell or otherwise dispose of, any of
Company's assets (or any assets acquired from Merger Sub) except for
dispositions made in the ordinary course of business or transfers described in
Section 368(a)(2)(C) of the Code or payment of expenses incurred by the Company
pursuant to the Merger (including payments made to dissenting Company
shareholders).
(e) Acquirer intends that the Company will continue the
historic business of the Company following the Merger.
(f) Neither Acquiror nor any current or former subsidiary
of Acquiror owns, or has owned during the past five (5) years, directly or
indirectly, any shares of the Company stock, or the right to acquire or vote any
such shares (except such rights as are granted in the Agreement).
(g) Neither Acquiror (or any agent of Acquiror) nor any
"related person" with respect to Acquiror within the meaning of Section
1.368-1(e)(3) of the Treasury Regulations has purchased or has a current plan or
intention to purchase any Acquiror stock issued in the Merger.
(h) Each of Acquiror and Merger Sub shall, and following
the Merger Acquiror shall cause the Company to prepare any and all tax returns
and reports in a manner consistent with the qualification of the Merger as a
reorganization within the meaning of Section 368(a).
4.9 Disclosure. This Agreement (including its exhibits and
schedules and the Acquiror Disclosure Letter) does not contain any untrue
statement of a material fact or omit to state any material fact necessary in
order to make the statements contained herein and therein, in light of the
circumstances under which such statements were made, not misleading.
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ARTICLE 5
COMPANY COVENANTS
During the time period from the Agreement Date until the earlier to
occur of (a) the Effective Time or (b) the termination of this Agreement in
accordance with the provisions of ARTICLE 11, the Company covenants and agrees
with Acquiror as follows:
5.1 Advice of Changes. The Company shall promptly advise Acquiror
in writing of (a) any event occurring subsequent to the Agreement Date that
would render any representation or warranty of the Company contained in ARTICLE
3 untrue or inaccurate such that the condition set forth in Section 10.1 would
not be satisfied, (b) any breach of any covenant or obligation of the Company
pursuant to this Agreement or any Company Ancillary Agreement such that the
condition set forth in Section 10.2 would not be satisfied, (c) any Material
Adverse Change in the Company, or (d) any change, event, circumstance, condition
or effect that would reasonably be expected to result in a Material Adverse
Effect on the Company or cause any of the conditions set forth in ARTICLE 10 not
to be satisfied; provided, however, that the delivery of any notice pursuant to
this Section 5.1 shall not be deemed to amend or supplement the Company
Disclosure Letter.
5.2 Maintenance of Business.
(a) The Company shall, and shall cause each Company
Subsidiary to, use its commercially reasonable efforts to carry on and preserve
the Company Business and its business relationships with customers, advertisers,
suppliers, employees and others with whom the Company or any Company Subsidiary
has contractual relations. If the Company becomes aware of any deterioration in
the relationship with any customer, key advertiser, key supplier or employee, it
shall promptly bring such information to Acquiror's attention in writing and, if
requested by Acquiror, shall exert commercially reasonable efforts to promptly
restore the relationship.
(b) The Company shall, and shall cause each Company
Subsidiary to, (i) pay all of its debts and taxes when due, subject to good
faith disputes over such debts or taxes and (ii) pay or perform its other
Liabilities when due.
(c) The Company shall, and shall cause each Company
Subsidiary to, use its commercially reasonable efforts to assure that each of
its Contracts (other than with Acquiror) entered into after the Agreement Date
will not require the procurement of any consent, waiver or novation or provide
for any material change in the obligations of any party in connection with, or
terminate as a result of the consummation of, the Merger.
5.3 Conduct of Business. The Company shall, and shall cause each
Company Subsidiary to, continue to conduct the Company Business in the ordinary
and usual course consistent with its past practices, and the Company shall not,
and shall not permit any Company Subsidiary to, without Acquiror's prior written
consent:
(a) other than in connection with the Interim Funding
Arrangements, incur any indebtedness for borrowed money or guarantee any such
indebtedness of another Person or issue or sell any debt securities or guarantee
any debt securities of another Person;
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(b) (i) lend any money, other than reasonable and normal
advances to employees for bona fide expenses that are incurred in the ordinary
course of business consistent with its past practices (provided that no proceeds
of any such advances are used directly or indirectly to purchase shares of
Company Capital Stock (other than the right of company Optionholders to pay for
the exercise price of Company Options through the issuance of a promissory note
payable to the Company, in accordance with the Company Option Plan)), (ii) make
any investments in or capital contributions to, any Person, (iii) forgive or
discharge in whole or in part any outstanding loans or advances, or (iv) prepay
any indebtedness;
(c) enter into any Company Material Contract, violate,
terminate, amend or otherwise modify or waive any of the material terms of any
Company Material Contract, or enter into any material transaction or take any
other action, in each case not in the ordinary course of business consistent
with its past practices;
(d) other than in connection with any transaction
permitted under Section 5.3(a) hereof, place or allow the creation of any
Encumbrance (other than a Permitted Encumbrance) on any of its assets or
properties;
(e) sell, lease, license, transfer or dispose of any
assets material to the Company Business (except for sales or licenses of
products in the ordinary course of business consistent with its past practices);
(f) enter into any Company Material Contract, other than
any customer or end user Contract on the standard forms, involving in excess of
$25,000 for the purchase, sale or lease of any property, whether real or
personal, tangible or intangible;
(g) (i) pay any bonus, increased salary, severance or
special remuneration to any officer, director, employee or consultant (except
pursuant to the Company Sale Participation Program, Assumed Payments or
Contracts disclosed in writing to Acquiror prior to the Agreement Date and
listed on Schedule 5.3 of the Company Disclosure Letter), (ii) amend or enter
into any employment or consulting Contract with any such person, or (iii) other
than with respect to the Company Sale Participation Program and the Assumed
Payments, adopt or amend any employee or compensation benefit plan, including
any stock purchase, stock issuance or stock option plan (other than changes to
the Company Option Plan to clarify the treatment of Company Options hereunder),
or amend any compensation, benefit, entitlement, grant or award provided or made
under any such plan (except in each case as required under ERISA or as necessary
to maintain the qualified status of such plan under the Code);
(h) change any of its accounting methods unless required
by GAAP;
(i) declare, set aside or pay any cash or stock dividend
or other distribution (whether in cash, stock or property) in respect of its
capital stock, or redeem, repurchase or otherwise acquire any of its capital
stock or other securities (except for (i) the repurchase of stock from its
employees, directors, consultants or contractors in connection with the
termination of their services at the original purchase price of such stock, or
(ii) the repurchase of stock using proceeds from the exercise of Company Options
or Company Warrants after the Agreement
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Date, or pay or distribute any cash or property to any of its stockholders or
securityholders or make any other cash payment to any of its stockholders or
securityholders;
(j) terminate, waive or release any material right or
claim;
(k) other than in connection with the Interim Funding
Arrangements, issue, sell, create or authorize any shares of its capital stock
of any class or series or any other of its securities, or issue, grant or create
any warrants, obligations, subscriptions, options, convertible securities, or
other commitments to issue shares of its capital stock or any securities that
are potentially exchangeable for, or convertible into, shares of its capital
stock, other than: (i) the issuance of shares of Company Common Stock pursuant
to the exercise of Company Options or Company Warrants outstanding on the
Agreement Date; (ii) the issuance of promissory notes pursuant to the Interim
Funding Agreement after the Agreement Date and prior to the Closing Date that
are convertible for shares of Company Capital Stock; or (iii) the issuance of
shares of Company Series A Stock (or Company Common Stock issuable upon the
conversion of such Series A Stock) as a result of the conversion of any
promissory notes issued by the Company pursuant to the Interim Funding Agreement
that convert by their terms into shares of Company Capital Stock immediately
prior to the Closing.
(l) subdivide, split, combine or reverse split the
outstanding shares of its capital stock of any class or series or enter into any
recapitalization affecting the number of outstanding shares of its capital stock
of any class or series or affecting any other of its securities;
(m) merge, consolidate or reorganize with, acquire, or
enter into any other business combination with any corporation, partnership,
limited liability company or any other entity (other than Acquiror or Merger
Sub), acquire a substantial portion of the assets of any such entity, or enter
into any negotiations, discussions or agreement for such purpose;
(n) amend its Certificate of Incorporation or Bylaws or
other comparable charter documents, other than as provided in Section 5.16 with
respect to the Certificate of Amendment;
(o) license any of its technology or Intellectual
Property (except for licenses under its standard customer agreement made in the
ordinary course of business consistent with its past practices, provided that
under no circumstances shall the Company enter into any software escrow or
similar agreement or arrangement), or acquire any Intellectual Property (or any
license thereto) from any third party (other than shrink wrap and other licenses
of software generally available to the public at a per copy license fee of less
than $1,000 per copy);
(p) materially change any insurance coverage;
(q) (i) agree to any audit assessment by any taxing
authority, (ii) file any Return or amendment to any Return unless copies of such
Return or amendment have first been delivered to Acquiror for its review at a
reasonable time prior to filing, (iii) except as required by applicable law,
make or change any material election in respect of taxes or adopt or change any
material accounting method in respect of taxes, or (iv) enter into any closing
agreement, settle
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any claim or assessment in respect of taxes, or consent to any extension or
waiver of the limitation period applicable to any claim or assessment in respect
of taxes;
(r) other than as provided in Section 5.16 with respect
to the Certificate of Amendment, modify or change the exercise or conversion
rights or exercise or purchase prices of any of its capital stock, any of its
stock options, warrants or other securities, or accelerate or otherwise modify
(i) the right to exercise any option, warrant or other right to purchase any of
its capital stock or other securities or (ii) the vesting or release of any
shares of its capital stock or other securities from any repurchase options or
rights of refusal held by it or any other party or any other restrictions;
(s) (i) initiate any litigation, action, suit,
proceeding, claim or arbitration (other than for the routine collection of
bills) or (ii) settle or agree to settle any litigation, action, suit,
proceeding, claim or arbitration (except where the settlement amount does not
exceed $10,000 and does not involve injunctive or other equitable relief);
(t) (i) pay, discharge or satisfy, in an amount in excess
of $10,000 in any one case or $25,000 in the aggregate, any Liability arising
otherwise than in the ordinary course of business, other than (1) the payment,
discharge or satisfaction of Liabilities reflected or reserved against in the
Company Balance Sheet and (2) the payment, discharge or satisfaction of Merger
Expenses, or (ii) make any capital expenditures, capital additions or capital
improvements except in the ordinary course of business consistent with its past
practices or as set forth on Schedule 5.3(t) to the Company Disclosure Letter;
(u) materially change the manner in which it extends
warranties, discounts or credits to customers; or
(v) (i) agree to do any of the things described in the
preceding clauses (a)-(u), (ii) take or agree to take any action which would
reasonably be expected to make any of the Company's representations or
warranties contained in this Agreement materially untrue or incorrect, or (iii)
take or agree to take any action which would reasonably be expected to prevent
the Company from performing or cause the Company not to perform one or more
covenants required hereunder to be performed by the Company.
For purposes of this Section 5.3, "Company Material Contract" includes any
Contract arising subsequent to the date of this Agreement that would have been
required to be listed on the Company Disclosure Letter pursuant to Section 3.11
or Section 3.13 had such Contract been in effect on the date of this Agreement.
5.4 Regulatory Approvals. The Company shall, and shall cause each
Company Subsidiary to, promptly execute and file, or join in the execution and
filing of, any application, notification or other document that may be necessary
in order to obtain the authorization, approval or consent of any Governmental
Authority, whether federal, state, local or foreign, which may be required in
connection with the consummation of the Merger and the other transactions
contemplated by this Agreement or any Company Ancillary Agreement. The Company
shall use commercially reasonable efforts to obtain, and to cooperate with
Acquiror to promptly obtain, all such authorizations, approvals and consents and
shall pay any associated
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filing fees payable by the Company with respect to such authorizations,
approvals and consents. The Company shall promptly inform Acquiror of any
material communication between the Company and any Governmental Authority
regarding any of the transactions contemplated hereby. If the Company or any
affiliate of the Company receives any formal or informal request for
supplemental information or documentary material from any Governmental Authority
with respect to the transactions contemplated hereby, then the Company shall
make, or cause to be made, as soon as reasonably practicable, a response in
compliance with such request. The Company shall direct, in its sole discretion,
the making of such response, but shall consider in good faith the views of the
Acquiror.
5.5 Necessary Consents. The Company shall use its commercially
reasonable efforts to obtain prior to Closing such written consents and
authorizations of third parties, give notices to third parties and take such
other actions as may be necessary or appropriate in order to effect the
consummation of the Merger and the other transactions contemplated by this
Agreement, to enable the Surviving Corporation (or Acquiror) to carry on the
Company Business immediately after the Effective Time and to keep in effect and
avoid the breach, violation of, termination of, or adverse change to, any
Company Material Contract which are listed on Schedule 5.5 of the Company
Disclosure Letter.
5.6 Litigation. The Company shall notify Acquiror in writing
promptly after learning of any material claim, action, suit, arbitration,
mediation, proceeding or investigation by or before any court, arbitrator or
arbitration panel, board or governmental agency, initiated by or against it, or
known by the Company or any Company Subsidiary to be threatened against the
Company or any Company Subsidiary or any of their respective officers,
directors, employees or stockholders in their capacity as such (other than
claims for benefits under Company Benefit Arrangement which are routine and
uncontested).
5.7 No Other Negotiations.
(a) The Company shall not, and shall not authorize,
encourage or permit any Company Subsidiary or any of their respective officers,
directors, employees, stockholders, affiliates, agents, advisors (including any
attorneys, financial advisors, investment bankers or accountants) or other
representatives (collectively, "COMPANY REPRESENTATIVES") to, directly or
indirectly: (a) solicit, initiate, or knowingly encourage, facilitate or induce
the making, submission or announcement of any inquiry, offer or proposal from
any Person (other than Acquiror) concerning any Alternative Transaction; (b)
furnish any nonpublic information regarding the Company or its Subsidiaries to
any Person (other than Acquiror and its agents and advisors) in connection with
or in response to any inquiry, offer or proposal for or regarding any
Alternative Transaction (other than to respond to such inquiry, offer or
proposal by indicating that the Company is subject to this Section 5.7); (c)
enter into, participate in, maintain or continue any discussions or negotiations
with any Person (other than Acquiror and its agents and advisors) with respect
to any Alternative Transaction (other than to respond to such inquiry, offer or
proposal by indicating that the Company is subject to this Section 5.7); (d)
otherwise cooperate with, facilitate or encourage any effort or attempt by any
Person (other than Acquiror and its agents and advisors) to effect any
Alternative Transaction; or (e) execute, enter into or become bound by any
letter of intent, memorandum of understanding, other Contract or understanding
between the Company and any Person (other than Acquiror) that is related to,
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provides for or concerns any Alternative Transaction. If any Company
Representative, whether in his or her capacity as such or in any other capacity,
takes any action that the Company is obligated pursuant to this Section 5.7(a)
to cause such Company Representative not to take, then the Company shall be
deemed for all purposes of this Agreement to have breached this Section 5.7(a).
(b) The Company shall notify Acquiror within 24 hours
after receipt by the Company and/or any Company Subsidiary (or, to the Company's
knowledge, by any of the Company Representatives) of any inquiry, offer or
proposal that constitutes an Alternative Transaction, or any other notice that
any Person is considering making an Alternative Transaction, or any request for
nonpublic information relating to the Company or any Company Subsidiary or for
access to any of the properties, books or records of the Company or any Company
Subsidiary by any Person or Persons other than Acquiror (which notice shall
identify the Person or Persons making, or considering making, such inquiry,
offer or proposal) in connection with a potential Alternative Transaction and
shall keep Acquiror fully informed of the status and details of any such
inquiry, offer or proposal and any correspondence or communications related
thereto and shall provide to Acquiror a correct and complete copy of such
inquiry, offer or proposal and any amendments, correspondence and communications
related thereto, if it is in writing, or a written summary of the material terms
thereof, if it is not in writing. The Company shall provide Acquiror with 48
hours prior notice (or such lesser prior notice as is provided to the members of
the Board of Directors of the Company) of any meeting of the Board of Directors
of the Company at which the Board of Directors of the Company is reasonably
expected to consider any Alternative Transaction. The Company shall immediately
cease and cause to be terminated any and all existing activities, discussions
and negotiations with any Persons conducted heretofore with respect to an
Alternative Transaction.
5.8 Access to Information. The Company shall allow Acquiror and
its agents and advisors access at reasonable times to the files, books, records,
technology, Contracts, personnel and offices of the Company and its
Subsidiaries, including any and all information relating to the Company's and
its Subsidiaries' taxes, Contracts, Liabilities, financial condition and real,
personal and intangible property, subject to the terms of the Mutual
Non-Disclosure Agreement between the Company and Acquiror dated December 12,
2003 (the "MUTUAL NDA") and except as otherwise set forth on Schedule 5.8 to the
Company Disclosure Letter. The Company shall cause its and its Subsidiaries'
accountants to cooperate with Acquiror and Acquiror's agents and advisors
(provided that, prior to any disclosure to such agents or advisors, such agents
or advisors have entered into a confidentiality agreement with substantially
similar restrictions as included in the Mutual NDA to restrict the use and
disclosure of the Company's and its Subsidiaries' confidential information) in
making available all financial information reasonably requested by Acquiror and
its agents and advisors, including the right to examine all working papers
pertaining to all financial statements prepared or audited by such accountants.
5.9 Satisfaction of Conditions Precedent. The Company shall use
commercially reasonable efforts to satisfy or cause to be satisfied all the
conditions precedent set forth in ARTICLE 10, and the Company shall use
commercially reasonable efforts to cause the Merger and the other transactions
contemplated by this Agreement to be consummated in accordance with the terms of
this Agreement.
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5.10 Company Benefit Arrangements. The Company's Board of Directors
shall adopt resolutions authorizing the termination of the 401(k) Plan no later
than the day before the Closing Date and the Company shall execute an amendment
to the 401(k) Plan that is sufficient to assure compliance with all applicable
requirements of the Code and regulations thereunder so that the tax-qualified
status of the 401(k) Plan shall be maintained at the time of its termination.
All participants and former participants in such 401(k) Plan (and in any other
Company Benefit Arrangement that is an "employee pension benefit plan" as
defined in Section 3(2) of ERISA) shall become fully vested in their account
balances under the 401(k) Plan (and any other employee pension benefit plan) to
the extent required by law.
5.11 Approval of the Company Stockholders.
(a) The Company shall take all action necessary in
accordance with this Agreement, Delaware Law, California Law and the Certificate
of Incorporation and Bylaws of the Company to call, notice, convene, hold and
conduct a meeting of the Company Stockholders (the "COMPANY STOCKHOLDERS
MEETING") or to secure the written consent of the Company Stockholders (the
"COMPANY STOCKHOLDERS CONSENT") for the purpose of voting upon approval of the
Merger, the Certificate of Amendment and adoption of this Agreement. The Company
shall hold the Company Stockholders Meeting or solicit the Company Stockholders
Consent, as the case may be, as soon as practicable and in no event later than
30 days following the date the California Commissioner issues the Permit (or, in
the event that the filing of a Registration Statement is required pursuant to
Section 7.1(f) hereof, following the date the Registration Statement is declared
effective by the SEC). If the Company will call a Company Stockholders Meeting,
the Company shall consult with Acquiror regarding the date of the Company
Stockholders Meeting and shall not postpone or adjourn (other than for the
absence of a quorum and postponements and adjournments not to exceed five
business days in the aggregate necessary for the sole purpose of obtaining
additional votes in order to obtain the requisite vote of the Company
Stockholders necessary to approve the Merger and adopt this Agreement) the
Company Stockholders Meeting without the prior written consent of Acquiror. If
the Company will call a Company Stockholders Meeting, the Company shall use its
reasonable best efforts to solicit from the Company Stockholders proxies to be
voted on the approval of the Merger and adoption of this Agreement. The
Company's obligation to call, give notice of, convene, hold and conduct the
Company Stockholders Meeting in accordance with this Section 5.11(a) shall not
be limited to or otherwise affected by the commencement, disclosure,
announcement or submission to the Company of any Alternative Transaction. The
Company shall exercise reasonable best efforts to take all other action
necessary to secure the vote or consent of the Company Stockholders required to
effect each of the transactions contemplated by this Agreement.
(b) The Company's Board of Directors shall unanimously
recommend that the Company Stockholders vote in favor of the approval of the
Merger and adoption of this Agreement at the Company Stockholders Meeting.
Neither the Company's Board of Directors nor any committee thereof shall
withdraw, amend or modify, or propose or resolve to withdraw, amend or modify,
in a manner adverse to Acquiror, the unanimous recommendation of the Company's
Board of Directors that the Company Stockholders vote in favor of and approve
the Merger and adopt this Agreement.
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(c) The Company shall obtain and deliver to Acquiror,
prior to the mailing or delivery to the Company Stockholders of the Information
Statement, a Parachute Payment Waiver substantially in the form attached hereto
as Exhibit G ("PARACHUTE PAYMENT WAIVER") from each Person who the Company and
Acquiror reasonably agree is, with respect to the Company, any Company
Subsidiary and/or any ERISA Affiliate, a "disqualified individual" (within the
meaning of Section 280G of the Code and the regulations promulgated thereunder),
as determined immediately prior to the initiation of the requisite stockholder
approval procedure under Section 5.11(d), and who the Company and Acquiror
reasonably agree might otherwise receive, have received, or have the right or
entitlement to receive a parachute payment under Section 280G of the Code (such
Persons being set forth on Schedule 5.11(c) of the Company Disclosure Letter).
(d) The Company shall include in the Information
Statement a proposal to be voted on by the Company Stockholders as is required
by the terms of Section 280G(b)(5)(B) of the Code (the "280G PROPOSAL") so as to
render the parachute payment provisions of Section 280G of the Code inapplicable
to any and all payments and/or benefits provided pursuant to Contracts or
arrangements that, in the absence of the executed Parachute Payment Waivers by
the affected Persons under Section 5.11(c), might otherwise result, separately
or in the aggregate, in the payment of any amount and/or the provision of any
benefit that would not be deductible by reason of Section 280G of the Code, with
such stockholder approval to be obtained in a manner which satisfies all
applicable requirements of such Section 280G(b)(5)(B) of the Code and the
proposed Treasury Regulations thereunder, including Q-7 of Section 1.280G-1 of
such proposed Treasury Regulations.
5.12 Notices to Company Securityholders and Employees.
(a) The Company shall timely provide to holders of
Company Capital Stock, Company Options and Company Warrants all advance notices
required to be given to such holders in connection with this Agreement, the
Certificate of Amendment, the Merger and the transactions contemplated by this
Agreement under the Company Option Plan, the Company Warrants or other
applicable Contracts and under Applicable Law.
(b) The Company shall give all notices and other
information required to be given by the Company to the employees of the Company
or any Company Subsidiary, any collective bargaining unit representing any group
of employees of the Company or any Company Subsidiary, and any applicable
Governmental Authority under the WARN Act, the National Labor Relations Act, as
amended, the Code, COBRA and other Applicable Law in connection with the
transactions contemplated by this Agreement or other applicable Contracts.
5.13 Closing Merger Expense Certificate. At least two business days
prior to the Closing Date, the Company shall deliver a draft of the Closing
Merger Expense Certificate to Acquiror.
5.14 Claims Under the Sale Participation Program and the Xxxxxxxxx
Agreement. The Company shall take all actions necessary to provide that no
additional bonus awards under the Company Sale Participation Program shall
accrue to participants in the Company Sale Participation Program and the
Xxxxxxxxx Agreement after the Agreement Date. The Company
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shall take all actions necessary to ensure that each of the participants in the
Sale Participation Program and the Xxxxxxxxx Agreement, as the case may be,
shall enter into, prior to the Closing Date, arrangements whereby such
participants agree to exchange any and all claims for payment under the Company
Sale Participation Program or the Xxxxxxxxx Agreement, as the case may be, for
shares of Acquiror Common Stock having a value, based on a per share value equal
to the Acquiror Stock Price, equal to the amount of such claim as included in
the Assumed Bonus Payments, subject to the terms and conditions hereof,
including, without limitation, Section 2.3(a) hereof (regarding the withholding
of Escrow Shares). At least two business days prior to the Closing Date, the
Company shall deliver a draft of the Closing Assumed Bonus Certificate to
Acquiror.
5.15 Warrants; Other Securities. The Company shall use its
commercially reasonable efforts to ensure that all outstanding Company Warrants
shall have been exercised for shares of Company Capital Stock prior to the
Effective Time. The Company shall take all actions necessary to ensure that,
except for Company Options to be assumed by Acquiror at the Effective Time
pursuant to Section 2.1(b)(iii) and unexercised Company Warrants, there shall be
no outstanding securities, commitments or agreements of the Company immediately
prior to the Effective Time that purport to obligate the Company to issue any
shares of the Company Capital Stock and/or Company Options under any
circumstances.
5.16 Certificate of Amendment. Following its receipt of the Company
Stockholder Consent, and prior to Closing, the Company shall amend its
Certificate of Incorporation by filing the Certificate of Amendment.
ARTICLE 6
ACQUIROR COVENANTS
During the time period from the Agreement Date until the earlier to
occur of (a) the Effective Time or (b) the termination of this Agreement in
accordance with the provisions of ARTICLE 10, Acquiror covenants and agrees with
the Company as follows:
6.1 Advice of Changes. Acquiror shall promptly advise the Company
in writing of (a) any event occurring subsequent to the Agreement Date that
would render any representation or warranty of Acquiror or Merger Sub contained
in ARTICLE 4 untrue or inaccurate such that the condition set forth in Section
9.1 would not be satisfied, (b) any breach of any covenant or obligation of
Acquiror or Merger Sub pursuant to this Agreement, any Acquiror Ancillary
Agreement or any Merger Sub Ancillary Agreement such that the condition set
forth in Section 9.2 would not be satisfied, (c) any Material Adverse Change in
Acquiror, or (d) any change, event, circumstance, condition or effect that would
reasonably be expected to result in a Material Adverse Effect on Acquiror or
cause any of the conditions set forth in ARTICLE 9 not to be satisfied;
provided, however, that the delivery of any notice pursuant to this Section 6.1
shall not be deemed to amend or supplement the Acquiror Disclosure Letter.
Acquiror shall keep the Company reasonably apprised and informed regarding any
Acquiror financing activity in connection with which any Effective Time Holder
may be requested to deliver any underwriter lock-up or other similar agreements,
none of which shall extend beyond April 30, 2004.
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6.2 Regulatory Approvals. Acquiror shall promptly execute and
file, or join in the execution and filing of, any application, notification or
other document that may be necessary in order to obtain the authorization,
approval or consent of any Governmental Authority, whether foreign, federal,
state, local or municipal, which may be required in connection with the
consummation of the Merger and the other transactions contemplated by this
Agreement, any Acquiror Ancillary Agreement or any Merger Sub Ancillary
Agreement. Acquiror shall use commercially reasonable efforts to obtain all such
authorizations, approvals and consents and shall pay any associated filing fees
payable by Acquiror with respect to such authorizations, approvals and consents.
Acquiror shall promptly inform the Company of any material communication between
Acquiror and any Governmental Authority regarding any of the transactions
contemplated hereby. If Acquiror or any affiliate of Acquiror receives any
formal or informal request for supplemental information or documentary material
from any Governmental Authority with respect to the transactions contemplated
hereby, then Acquiror shall make, or cause to be made, as soon as reasonably
practicable, a response in compliance with such request. Acquiror shall direct,
in its sole discretion, the making of such response, but shall consider in good
faith the views of the Company. Notwithstanding anything in this Agreement to
the contrary, if any administrative or judicial action or proceeding is
instituted (or threatened in writing to be instituted) challenging any
transaction contemplated by this Agreement as violative of any Applicable Law,
it is expressly understood and agreed that neither Acquiror nor any of its
Subsidiaries or affiliates shall be under any obligation to: (a) litigate or
contest any administrative or judicial action or proceeding or any decree,
judgment, injunction or other order, whether temporary, preliminary or
permanent; or (b) make proposals, execute or carry out agreements or submit to
orders providing for (i) the sale or other disposition or holding separate
(through the establishment of a trust or otherwise) of any assets or categories
of assets of Acquiror, any of its Subsidiaries or affiliates or the Company or
any of its Subsidiaries, or the holding separate of the shares of Company Common
Stock or (ii) the imposition of any limitation on the ability of Acquiror or any
of its Subsidiaries or affiliates to freely conduct their business or own such
assets or to acquire, hold or exercise full rights of ownership of the shares of
Company Capital Stock.
6.3 Satisfaction of Conditions Precedent. Acquiror shall use its
commercially reasonable efforts to satisfy or cause to be satisfied all of the
conditions precedent that are set forth in ARTICLE 9, and Acquiror shall use its
commercially reasonable efforts to cause the Merger and the other transactions
contemplated by this Agreement to be consummated in accordance with the terms of
this Agreement as soon as reasonably practical.
Acquiror also covenants and agrees with the Company as follows:
6.4 Employee Benefit Matters. As promptly as reasonably
practicable after the Effective Time, Acquirer shall enroll those persons who
were employees of the Company or its Subsidiaries immediately prior to the
Effective Time and who remain employees of the Surviving Corporation or its
Subsidiaries or become employees of Acquiror following the Effective Time
("CONTINUING EMPLOYEES") in Acquiror's employee benefit plans for which
similarly situated employees of Acquiror and its Subsidiaries are eligible (the
"ACQUIROR PLANS"), including its severance plan, medical plan, dental plan, life
insurance plan and disability plan, to the extent permitted by the terms of the
applicable Acquiror Plans on substantially similar terms applicable to employees
of Acquiror who are similarly situated based on levels of
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responsibility. Without limiting the generality of the foregoing, Acquiror will
provide severance benefits in accordance with its standard policies to each
Continuing Employee and to each employee of the Company or any Company
Subsidiary immediately prior to the Effective Time who is terminated at or
within six (6) months of the Effective Time, other than on a "for cause" basis,
provided that no such severance payments shall be required to any person
entitled to receive Assumed Bonus Payments. Each Continuing Employee shall be
given credit, for purposes of any service requirements for participation or
vesting, for his or her period of service with Company or a Company Subsidiary
prior to the Closing Date. Notwithstanding anything in this Section 6.4 to the
contrary, this Section 6.4 shall not operate to duplicate any benefit provided
to any Continuing Employee or to fund any such benefit.
6.5 Indemnification of Company Directors and Officers.
(a) If the Merger is consummated, then until the sixth
anniversary of the Effective Time, Acquiror will cause the Surviving Corporation
to fulfill and honor in all respects the obligations of the Company to its
directors and officers and to its former directors and officers and current
stockholders who are parties to indemnification agreements with the Company as
of immediately prior to the Effective Time (the "COMPANY INDEMNIFIED PARTIES")
pursuant to any indemnification provisions under the Company's Certificate of
Incorporation or Bylaws or any indemnification agreement between the Company and
such directors, officers or stockholders, as in effect on the Agreement Date
(the "COMPANY INDEMNIFICATION PROVISIONS"), with respect to claims arising out
of acts or omissions occurring at or prior to the Effective Time which are
asserted after the Effective Time. In connection therewith Acquiror will cause
the Surviving Corporation to advance expenses to the Company Indemnified Parties
as incurred to the fullest extent provided for under the Company Indemnification
Provisions, provided the person to whom expenses are advanced provides an
undertaking to repay such advances if it is ultimately determined that such
person is not entitled to indemnification. Any claims for indemnification made
under this Section 6.5(a) on or prior to the sixth anniversary of the Effective
Time shall survive such anniversary until the final resolution thereof. However,
the foregoing covenants under this Section 6.5(a) shall not apply to (i) any
claim or matter that relates to a willful or intentional breach of a
representation, warranty or covenant made by the Company in connection with this
Agreement or the transactions contemplated hereby or made by a Company
Stockholder in connection with the Voting Agreement or (ii) any claim based on a
claim for indemnification made by an Acquiror Indemnified Person pursuant to
ARTICLE 12. In the event of breach of the representation set forth in Section
3.6(b), this Section 6.5(a) shall be terminated with respect to any claim not
disclosed in Schedule 3.6(b).
(b) This Section 6.5 shall survive the consummation of
the Merger, is intended to benefit each Company Indemnified Party, shall be
binding on all successors and assigns of the Surviving Corporation and Acquiror,
and shall be enforceable by the Company Indemnified Parties.
6.6 Assumption of Company Options and Company Warrants.
(a) At the Effective Time, each Company Option under the
Company Stock Plan that is unexpired, unexercised and outstanding immediately
prior to the Effective Time, whether vested or unvested, shall, on the terms and
subject to the conditions set forth in this
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Agreement be assumed by Acquiror. Each such option so assumed by Acquiror under
this Agreement shall continue to have, and be subject to, the same terms and
conditions (including, if applicable, the terms and conditions set forth in the
Company Stock Plan and the applicable stock option agreement) as are in effect
immediately prior to the Effective Time, except that (i) such option shall be
exercisable for that number of whole shares of Acquiror Common Stock equal to
the product (rounded down to the next whole number of shares of Acquiror Common
Stock) of the number of shares of the Company Common Stock that were issuable
upon exercise of such option immediately prior to the Effective Time and the
Common Conversion Number, and (ii) the per share exercise price for the shares
of Acquiror Common Stock issuable upon exercise of such assumed option shall be
equal to the quotient (rounded up to the next whole cent) obtained by dividing
the exercise price per share of the Company Common Stock at which such option
was exercisable immediately prior to the Effective Time by the Common Conversion
Number. Consistent with the terms of the Company Stock Plan and the documents
governing the outstanding options under such Plan, the Merger shall not
terminate any of the outstanding options under the Company Stock Plan. It is the
intention of the parties that the options so assumed by Acquiror hereunder
qualify, to the maximum extent permissible, following the Effective Time as
"incentive stock options" as defined in Section 422 of the Code to the extent
such options qualified as incentive stock options prior to the Effective Time.
Within 10 business days after the Closing Date, Acquiror shall issue to each
Person who immediately prior to the Effective Time was a holder of an
outstanding option under the Company Stock Plan a document evidencing the
foregoing assumption of such option by Acquiror on the terms set forth herein.
(b) At the Effective Time, each Company Warrant that is
unexpired, unexercised and outstanding immediately prior to the Effective Time,
whether vested or unvested, shall, on the terms and subject to the conditions
set forth in this Agreement, be assumed by Acquiror. Each such Company Warrant
so assumed by Acquiror under this Agreement shall continue to have, and be
subject to, the same terms and conditions (including, if applicable, the terms
and conditions set forth in such Company Warrant) as are in effect immediately
prior to the Effective Time, except that (i) such Company Warrant shall be
exercisable for that number of whole shares of Acquiror Common Stock equal to
the product (rounded down to the next whole number of shares of Acquiror Common
Stock) of the number of shares of the Company Common Stock that were issuable
upon exercise of such Company Warrant immediately prior to the Effective Time
and the Common Conversion Number, and (ii) the per share exercise price for the
shares of Acquiror Common Stock issuable upon exercise of such assumed Company
Warrant shall be equal to the quotient (rounded up to the next whole cent)
obtained by dividing the exercise price per share of the Company Common Stock at
which such Company Warrant was exercisable immediately prior to the Effective
Time by the Common Conversion Number. Within 10 business days after the Closing
Date, Acquiror shall issue to each Person who immediately prior to the Effective
Time was a holder of an outstanding Company Warrant a document evidencing the
foregoing assumption of such Company Warrant by Acquiror.
6.7 Form S-8. Acquiror shall file with the SEC a registration
statement on Form S-8 covering the shares of Acquiror Common Stock issuable
pursuant to outstanding options under the Company Stock Plan for which a Form
S-8 registration statement is available and that are listed on Schedule 3.4(b)-1
of the Company Disclosure Letter within 30 days after the Closing.
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6.8 Personnel Awards. Acquiror shall cause the Personnel Awards to
be issued within 30 business days after the Closing Date. Each Personnel Award
shall be subject to Acquiror's customary terms and conditions and will be
subject to a right of repurchase by Acquiror conditioned on employment with
Acquiror, which right of repurchase shall vest in favor of each such individual
commencing with the Closing Date.
6.9 Assumed Bonus Payments. Within 10 days of the Closing,
Acquiror shall issue to each of the individuals identified on Schedule 3.16(d)
that number of shares of Acquiror Common Stock having a value, based on a per
share value equal to the Acquiror Stock Price, equal to the amount of bonus that
the Company is obligated to pay to each individual in respect of the Assumed
Bonus Payments as set forth on Schedule 3.16(d), subject to the terms and
conditions of Section 2.3(a) hereof (regarding the withholding of Escrow Shares)
in exchange for the respective individual's release of the right to receive such
bonus, provided, however, that Acquiror shall have no obligation to issue any
shares of Acquiror Common Stock pursuant to this Section 6.9 unless each such
individual shall have entered into an arrangement agreeing so to accept such
shares in exchange for the amount of such bonus. In no event will Acquiror be
obligated to pay any amount of Assumed Bonus Payments in cash.
6.10 SEC Filings. Acquiror will continue to file all of the reports
required to be filed by Acquiror under Section 13 of the Exchange Act until the
earlier to occur of: (i) such time as each person deemed to be an affiliate of
the Company shall have sold such person's shares of Acquiror Common Stock issued
pursuant to the Merger and (ii) the date on which each affiliate is permitted to
sell such shares under Rule 144(k).
ARTICLE 7
ADDITIONAL AGREEMENTS
7.1 Information Statement; Fairness Hearing and Permit; Blue Sky
Laws.
(a) As soon as reasonably practicable after the execution
of this Agreement, (i) Acquiror shall prepare, with the cooperation of the
Company, the application for permit (the "PERMIT APPLICATION") in connection
with the Hearing (as defined below) and the notice sent to the holders of the
Company Capital Stock 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") held by the California Commissioner 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"), and (ii) the Company shall prepare, with the cooperation of
Acquiror, an information statement relating to this Agreement and the
transactions contemplated hereby (the "INFORMATION STATEMENT"). Each of the
Company and Acquiror 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 the
Company and Acquiror 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
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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 Acquiror Common
Stock to be received by the holders of the Company Capital Stock, Company
Options and/or Company Warrants in the Merger and shares of Acquiror Common
Stock to be delivered in exchange for outstanding claims pursuant to the Assumed
Bonus Payments, and shall constitute a proxy statement for solicitation of
Stockholder approval of the Merger and matters related to the Merger. Whenever
any event occurs that is required to be set forth in an amendment or supplement
to the Information Statement, the Company and Acquiror shall cooperate in
delivering any such amendment or supplement to all the holders of the Company
Capital Stock, Company Warrants and/or Company Options and/or filing any such
amendment or supplement with the California Commissioner of Corporations (the
"CALIFORNIA COMMISSIONER") or its staff and/or any other government officials.
The Information Statement shall include the unqualified recommendation of the
Board of Directors of the Company in favor of adoption of this Agreement and
approval of the Merger and the Agreement of Merger and the conclusion of the
Board of Directors of the Company that the terms and conditions of the Merger
and this Agreement are fair, just, reasonable, equitable, advisable and in the
best interests of the Company and its securityholders. Anything to the contrary
contained herein notwithstanding, the Company shall not include in the
Information Statement any information with respect to Acquiror or its affiliates
or associates, the form and content of which information shall not have been
approved by Acquiror prior to such inclusion; provided, however, that Acquiror
shall not withhold approval of any information required to be included by
federal or state law or the California Commissioner.
(b) Each of Acquiror and the Company shall use its
reasonable best efforts (i) to cause to be filed with the California
Commissioner, as soon as reasonably 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 Acquiror Common
Stock in connection with the Merger and shares of Acquiror Common Stock to be
delivered in exchange for outstanding claims pursuant to the Assumed Bonus
Payments 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").
The Company and Acquiror 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 provide 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.
(c) As soon as permitted by the California Commissioner,
the Company shall deliver by personal delivery or reputable overnight courier
the Hearing Notice to all holders of Company Capital Stock and Company Options
entitled to receive such notice under California Securities Law and the
individuals entitled to receive Assumed Bonus Payments. 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
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holders of Company Capital Stock, Company Warrants, Company Options and other
rights exercisable or convertible into shares of Company Capital Stock and to
the individuals entitled to receive Assumed Bonus Payments. Except for the
delivery of the Voting Agreements and the Information Statement in accordance
with the terms hereof, the Company shall not, and shall cause each Company
Subsidiary and each the Company Representative not to, directly or indirectly,
solicit the vote of any holder of the Company Capital Stock, Company Warrants
and/or Company Options in connection with the Merger in violation of any
applicable federal or state securities laws.
(d) Each of the Company and Acquiror shall use its
reasonable best efforts to cause the information relating to the Company and
Acquiror included in the Hearing Notice, the Permit Application and the
Information Statement to not, at the time the Hearing Notice is delivered to
holders of the Company Capital Stock, Company Options and Company Warrants and
to the individuals entitled to receive Assumed Bonus Payments, at the time the
Information Statement is so delivered and at all times subsequent thereto
(through and including the Effective 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 were made, not misleading. The Company shall
promptly advise Acquiror, and Acquiror shall promptly advise the Company, in
writing if at any time prior to the Effective Time either the Company or
Acquiror shall obtain knowledge of any facts that might make it necessary or
appropriate to amend or supplement the Hearing Notice, the Permit Application,
and/or the Information Statement, in order to make the statements contained or
incorporated by reference therein not misleading or to comply with applicable
law. The Company and Acquiror shall cooperate in delivering any such amendment
or supplement to all the holders of the Company Capital Stock, Company Warrants
and/or Company Options and/or filing any such amendment or supplement with the
California Commissioner or its staff and/or any other government officials.
(e) Acquiror shall take such steps as may be necessary to
comply with the securities and blue sky laws of all jurisdictions which are
applicable to the issuance of the Acquiror Common Stock in connection with the
Merger and shares of Acquiror Common Stock to be delivered in exchange for
outstanding claims pursuant to the Assumed Bonus Payments. The Company shall use
its reasonable best efforts to assist Acquiror as may be necessary to comply
with the securities and blue sky laws of all jurisdictions which are applicable
in connection with the issuance of Acquiror Common Stock in connection with the
Merger.
(f) In the event that the California Commissioner or its
staff denies the request for the Hearing, or the Hearing does not result in the
issuance of a Permit by the California Commissioner, Acquiror shall, as promptly
as practicable after Acquiror receives notice from the California Commissioner
that a Permit will not be issued or that the request for the Hearing has been
denied, prepare and file with the SEC a registration statement on Form S-4 (or
any successor form) with respect to the shares of Acquiror Common Stock to be
issued in the Merger (the "REGISTRATION STATEMENT"). Acquiror will use its
commercially reasonable efforts to have the Registration Statement declared
effective under the Securities Act as promptly as practicable after filing with
the SEC. As promptly as practicable after Acquiror receives notice from the
California Commissioner that a Permit will not be issued as a result of the
Hearing, the Company and Acquiror will prepare and file any other filings
required to be filed by it under the
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Exchange Act, the Securities Act, or any other federal, foreign or blue sky or
related laws relating to the Merger and the transactions contemplated by this
Agreement (each an "OTHER FILING"). Acquiror shall notify the Company promptly
upon the receipt of any comments from the SEC or its staff or any other
government officials and of any request by the SEC or its staff or any other
government officials for amendments or supplements to the Registration Statement
or any Other Filing related to the transactions contemplated by this Agreement
or for additional information, and will supply the Company with copies of all
correspondence between Acquiror or any of its representatives, on the one hand,
and the SEC or its staff or any other government officials, on the other hand,
with respect to the Registration Statement, the Merger or such Other Filing.
Whenever any event occurs that is required to be set forth in an amendment or
supplement to the Registration Statement or any Other Filing, Acquiror will
promptly notify the Company of such occurrence and cooperate in filing with the
SEC or its staff or any other government officials, and/or mailing to
Stockholders of the Company, such amendment or supplement. In the alternative,
Acquiror and the Company may mutually agree to provide for the issuance of
Acquiror Common Stock issued in the Merger in a private placement pursuant to an
exemption from registration under Section 4(2) of the Securities Act and/or
Regulation D promulgated under the Securities Act, and to file a Registration
Statement on Form S-3 to register the resale of such shares; provided, however,
that Acquiror shall not elect or be required to issue such shares pursuant to
such a private placement exemption unless Acquiror shall determine in its good
faith judgment that the issuance of Acquiror Common Stock pursuant to or in
connection with the Merger can be completed in compliance with Section 4(2) of
the Securities Act and/or Regulation D promulgated under the Securities Act.
ARTICLE 8
CLOSING MATTERS
8.1 The Closing. Subject to termination of this Agreement as
provided in ARTICLE 10, the Closing shall take place at the offices of Fenwick &
West LLP, Silicon Valley Center, 000 Xxxxxxxxxx Xxxxxx, Xxxxxxxx Xxxx,
Xxxxxxxxxx, on the Closing Date. Concurrently with the Closing or at such later
date and time as may be mutually agreed in writing by the Company and Acquiror,
the Certificate of Merger shall be filed with the Delaware Secretary of State in
accordance with Delaware Law.
8.2 Exchange.
(a) Exchange Agent. Acquiror's transfer agent, Mellon
Investor Services, shall act as exchange agent (the "EXCHANGE AGENT") in the
Merger.
(b) Acquiror to Provide Common Stock. Within 3 business
days after the Closing Date, Acquiror shall make available to the Exchange Agent
for exchange in accordance with this Section 8.2, through such reasonable
procedures as Acquiror may adopt, the shares of Acquiror Common Stock issuable
pursuant to Section 2.1(b)(i) and (ii) (provided, however, that delivery of any
shares that are subject to vesting and/or repurchase rights or other
restrictions shall be in book entry form until such vesting and/or repurchase
rights or other restrictions have lapsed) less the number of Escrow Shares and
Escrow Expense Shares.
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(c) Exchange Procedures.
(i) Attached hereto as Exhibit I is (A) a form
of letter of transmittal (the "LETTER OF TRANSMITTAL") and (B) instructions for
use of the Letter of Transmittal in effecting the surrender of certificates
which immediately prior to the Effective Time represented issued and outstanding
shares of the Company Capital Stock that were converted into the right to
receive shares of Acquiror Common Stock pursuant to Section 2.1(b)(i) (such
certificates, the "CERTIFICATES") in exchange for certificates (or book entries
in the case of shares that are subject to vesting and/or repurchase rights or
other restrictions) representing such shares of Acquiror Common Stock. The
Company shall mail or otherwise deliver the Letter of Transmittal (and the
related instructions) and any other documentation required thereby to every
holder of record of a Certificate and shall use its reasonable best efforts to
collect from such holders such Certificates, together with such properly
completed and duly executed Letters of Transmittal and any other documentation
required thereby, prior to the Closing Date.
(ii) Upon surrender to the Exchange Agent of a
Certificate (or delivery of an affidavit of lost certificate and an indemnity in
form and substance reasonably satisfactory to Acquiror and the Exchange Agent)
together with a properly completed and duly executed Letter of Transmittal, any
required Form W-9 or Form W-8, and any other documentation required thereby, the
holder of record of such Certificate shall be entitled to receive a certificate
(or a book entry in the case of shares that are subject to vesting and/or
repurchase rights or other restrictions) representing the number of whole shares
of Acquiror Common Stock (less the number of shares of Acquiror Common Stock to
be deposited into the Escrow Fund (as defined in the Escrow Agreement) on such
holder's behalf pursuant to Section 2.3 hereof) that such holder has the right
to receive pursuant to Section 2.1(b) in respect of such Certificate.
(iii) Within 10 business days after the Closing
Date, Acquiror shall cause to be deposited with the Escrow Agent one or more
certificates representing the Escrow Shares and within three business days after
the Closing Date, Acquiror shall cause to be deposited with the Escrow Agent one
or more certificates representing the Escrow Expense Shares. The certificate or
certificates representing the Escrow Shares and the Escrow Expense Shares shall
be registered in the name of (or the name of a nominee of) the Escrow Agent, as
escrow agent under the Escrow Agreement.
(iv) Distributions With Respect to Unexchanged
Shares. No dividends or other distributions with respect to Acquiror Common
Stock with a record date after the Effective Time shall be paid to the holder of
any unsurrendered Certificate as of such record date with respect to the shares
of Acquiror Common Stock issuable to such holder in exchange for such
Certificate until the applicable delivery requirements with respect to such
Certificate as set forth in this Section 8.2(c)(iv) shall have been satisfied.
Subject to applicable law and the satisfaction of the applicable delivery
requirements with respect to such Certificate set forth in this Section
8.2(c)(iv), there shall be paid to the record holder of the whole shares of
Acquiror Common Stock issued in exchange for such Certificate, without interest,
(i) as soon as reasonably practicable after the satisfaction of such delivery
requirements, the amount of any dividends or other distributions with a record
date after the Effective Time theretofore payable with respect to such shares of
Acquiror Common Stock and (ii) at the appropriate payment date, the amount of
any dividends or other distributions with a record date after the Effective Time
and
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a payment date subsequent to the date of such surrender payable with respect to
such shares of Acquiror Common Stock.
(v) Transfers of Ownership. If any certificate
for shares of Acquiror Common Stock is to be issued in a name other than that in
which the Certificate surrendered in exchange therefor is registered, it shall
be a condition of the issuance thereof that the Certificate so surrendered shall
be properly endorsed and otherwise in proper form for transfer and that the
person requesting such exchange shall have paid to Acquiror or any agent
designated by it any transfer or other taxes required by reason of the issuance
of a certificate for shares of Acquiror Common Stock in any name other than that
of the registered holder of the Certificate surrendered, or established to the
satisfaction of Acquiror or any agent designated by it that such tax has been
paid or is not payable.
(vi) No Liability. Notwithstanding anything to
the contrary in this Section 8.2, none of the Exchange Agent, the Surviving
Corporation or any party hereto shall be liable to any person for any amount
properly paid to a public official pursuant to any applicable abandoned
property, escheat or similar law.
(vii) Unclaimed Shares. Any portion of funds
(including any interest earned thereon) or certificates for shares of Acquiror
Common Stock held by the Exchange Agent which have not been delivered to any
holders of Certificates pursuant to this ARTICLE 8 within one year after the
Effective Time shall promptly be paid or delivered, as appropriate, to Acquiror,
and thereafter each holder of a Certificate who has not theretofore complied
with the exchange procedures set forth in and contemplated by Section 8.2(c)
shall look only to the Surviving Corporation (subject to abandoned property,
escheat and similar laws) for its claim for shares of Acquiror Common Stock and,
only as a general unsecured creditor thereof, and any dividends or distributions
(with a record date after the Effective Time) with respect to Acquiror Common
Stock to which it is entitled. Notwithstanding anything to the contrary
contained herein, if any Certificate has not been surrendered prior to the fifth
anniversary of the Effective Time (or immediately prior to such earlier date on
which the merger consideration contemplated by Section 2.1(b) in respect of such
Certificate would otherwise escheat to or become the property of any
Governmental Entity, any amounts payable in respect of such Certificate shall,
to the extent permitted by applicable law, become the property of Acquiror, free
and clear of all claims or interests of any Person previously entitled thereto.
(viii) No Further Ownership Rights in the Company
Capital Stock. All shares of Acquiror Common Stock issued or issuable following
the surrender for exchange of shares of the Company Capital Stock in accordance
with the terms hereof shall be so issued or issuable in full satisfaction of all
rights pertaining to such shares of the Company Capital Stock, and there shall
be no further registration of transfers on the records of the Surviving
Corporation of shares of the Company Capital Stock which were issued and
outstanding immediately prior to the Effective Time. If, after the Effective
Time, any Certificate is presented to the Surviving Corporation for any reason,
such Certificate shall be canceled and exchanged as provided in this ARTICLE 8.
(ix) Lost, Stolen or Destroyed Certificates. In
the event any Certificate shall have been lost, stolen or destroyed, the
Exchange Agent shall issue in exchange for
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Certificate, following the making of an affidavit of that fact by the record
holder thereof, such shares of Acquiror Common Stock as may be required pursuant
to Section 2.1(b) in respect of such Certificate; provided, however, that
Acquiror or the Exchange Agent may, in its discretion and as a condition
precedent to the issuance thereof, require the record holder of such Certificate
to deliver a bond in such sum as Acquiror or the Exchange Agent may reasonably
direct as indemnity against any claim that may be made against Acquiror, the
Surviving Corporation, the Exchange Agent and/or any of their respective
representatives or agents with respect to such Certificate.
8.3 Dissenting Shares. If, in connection with the Merger, holders
of Company Capital Stock shall have demanded and perfected appraisal rights
pursuant to Section 262 of Delaware Law or dissenters' rights pursuant to
Section 1300 of California Law, none of such Dissenting Shares shall be
converted into a right to receive shares of Acquiror Common Stock as provided in
Section 2.1(b), but shall be converted into the right to receive such
consideration as may be determined to be due with respect to such Dissenting
Shares pursuant to Delaware Law or California Law. Each holder of Dissenting
Shares who, pursuant to the provisions of Delaware Law or California Law,
becomes entitled to payment of the fair value of such shares shall receive
payment therefor in accordance with Delaware Law or California Law, as the case
may be (but only after the value therefor shall have been agreed upon or finally
determined pursuant to Delaware Law or California Law, as the case may be). In
the event that any Company Stockholder fails to make an effective demand for
payment or fails to perfect its appraisal rights or dissenters' rights as to its
shares of Company Capital Stock or any Dissenting Shares shall otherwise lose
their status as Dissenting Shares, then any such shares shall immediately be
converted into the right to receive the consideration issuable pursuant to
ARTICLE 2 in respect of such shares as if such shares never been Dissenting
Shares, and Acquiror shall issue and deliver to the holder thereof, at (or as
promptly as reasonably practicable after) the applicable time or times specified
in Section 8.2, following the satisfaction of the applicable conditions set
forth in Section 8.2, the shares of Acquiror Common Stock, to which such Company
Stockholder would have been entitled under Section 2.1(b) with respect to such
shares, subject to the provisions of Section 2.1(g) (regarding the continuation
of vesting and repurchase rights) and Section 2.3 (regarding the withholding of
the Escrow Shares and the Escrow Expense Shares). The Company shall give
Acquiror prompt notice (and in no event more than two business days) of any
demand received by the Company for appraisal of Company Capital Stock or notice
of exercise of a Company Stockholder's dissenters' rights in accordance with
Delaware Law or California Law. The Company agrees that, except with Acquiror's
prior written consent, it shall not voluntarily make any payment or offer to
make any payment with respect to, or settle or offer to settle, any such demand
for appraisal or exercise of dissenters' rights.
ARTICLE 9
CONDITIONS TO OBLIGATIONS OF THE COMPANY
The Company's obligations to consummate the Merger and take the other
actions required to be taken by the Company at the Closing are subject to the
fulfillment or satisfaction as of the Closing, of each of the following
conditions (it being understood that (a) any one or more of the following
conditions may be waived by the Company in a writing signed on behalf
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of the Company and (b) by proceeding with the Closing, the Company shall be
deemed to have waived any of such conditions that remain unfulfilled or
unsatisfied):
9.1 Accuracy of Representations and Warranties. The
representations and warranties of Acquiror and Merger Sub set forth in ARTICLE 4
(a) that are qualified as to materiality shall be true and correct and (b) that
are not qualified as to materiality shall be true and correct in all material
respects, in each case on and as of the Closing with the same force and effect
as if they had been made on the Closing Date rather than the date of this
Agreement (except for any such representations or warranties that by their terms
speak only as of a specific date or dates, in which case such representations
and warranties that are qualified as to materiality shall be true and correct,
and such representations and warranties that are not qualified as to materiality
shall be true and correct in all material respects, on and as of such specified
date or dates provided, however, that for the purposes of determining whether
there has been a breach of Section 4.5 the parenthetical at the end of the third
complete sentence of Section 4.5 shall be deemed to read "but prior to the date
that is 13 trading days prior to the Closing"), and at the Closing the Company
shall have received a certificate to such effect executed by an officer of
Acquiror.
9.2 Covenants. Acquiror shall have performed and complied in all
material respects with all of its covenants contained in ARTICLE 6 and ARTICLE 7
on or before the Closing (to the extent that such covenants require performance
by Acquiror on or before the Closing), and at the Closing the Company shall have
received a certificate to such effect executed by an officer of Acquiror.
9.3 No Material Adverse Change. There shall not have been any
Material Adverse Change in Acquiror, whether or not resulting from a breach in
any representation, warranty or covenant in this Agreement, and at the Closing
Company shall have received a certificate to such effect executed by an
Executive Officer of Acquiror; provided that for the sake of this Section 9.3,
no Material Adverse Change in Acquiror shall be deemed to have occurred if an
event or circumstance that would otherwise represent a Material Adverse Change
in Acquiror shall have occurred and (i) the occurrence of such event or
circumstance shall have been publicly disclosed and (ii) the Acquiror Stock
Price that would be in effect if the Closing were to occur notwithstanding the
occurrence of such event or circumstance is not less than $1.25, and provided,
further, that solely for purposes of this Section 9.3, "Acquiror Stock Price"
shall mean the average of the closing prices for one share of Acquiror Common
Stock as quoted on the Over the Counter Bulletin Board for the 13 consecutive
trading days ending on (and including) the trading day that is immediately prior
to the Closing Date; and provided, further, that if such event or circumstance
shall have been publicly disclosed on a date that would otherwise be one of the
13 trading days used as the basis for calculating the Acquiror Stock Price
pursuant to this Section 9.3, then solely for purposes of this sentence,
calculation of Acquiror Stock Price shall be made without regard to the closing
price for Acquiror Common Stock on any trading day preceding such public
disclosure (including the day of such disclosure if such disclosure was not made
prior to or during regular trading hours on such day). For the purpose of the
preceding sentence, an event or circumstance shall be publicly disclosed by
Acquiror if disclosed in a Form 8-K, 10-K or 10-Q, including an amendment to any
of the foregoing, filed by Acquiror with the SEC, or in a press release
disseminated by Acquiror in accordance with its customary practices for
disseminating press releases, subsequent to the date of this Agreement or if
such event or circumstance has been disclosed by means of broadly disseminated
press release or similar
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announcement by a government agency or third party including, in the case of a
third party that files reports with the SEC, by a Form 8-K, 10-K or 10-Q,
including an amendment to any of the foregoing, filed by such party with the
SEC.
9.4 Compliance with Law; No Legal Restraints; No Litigation. There
shall not be issued, enacted or adopted, any order, decree, temporary,
preliminary or permanent injunction, legislative enactment, statute, regulation,
action or proceeding, or any judgment or ruling by any Governmental Authority
that prohibits or renders illegal the Merger. No litigation or proceeding shall
be pending for the purpose or with the probable effect of enjoining or
preventing the consummation of the Merger.
9.5 Government Consents. There shall have been obtained at or
prior to the Closing Date such permits or authorizations, and there shall have
been taken all such other actions by any Governmental Authority or other
regulatory authority having jurisdiction over the parties and the actions herein
proposed to be taken, as may be required to lawfully consummate the Merger.
9.6 Escrow Agreement. The Escrow Agreement shall have been
executed and delivered by Acquiror, the Escrow Agent and the Representative.
9.7 Company Stockholder Approvals. The Merger, the Certificate of
Amendment and this Agreement shall have been duly and validly approved and
adopted, as required by Delaware Law, California Law and the Company's
Certificate of Incorporation and Bylaws, each as in effect on the date of such
approval and adoption, by the requisite vote of the Company Stockholders.
9.8 Issuance of Permit; Registration Statement. The Permit shall
have been issued by the California Commissioner and no stop order suspending the
effectiveness of the Permit or any part thereof shall have been issued and no
proceeding for that purpose, no similar proceeding in respect of the Permit
shall have been initiated or threatened by the Department of Corporations of the
State of California, and all requests for additional information on the part of
the Department of Corporations of the State of California shall have been
complied with to the reasonable satisfaction of the parties hereto or the
Registration Statement shall have been declared effective under the Securities
Act and shall not be the subject of any stop order or proceedings seeking a stop
order.
9.9 Listing. The shares of Acquiror Common Stock issuable in the
Merger and such other shares of Acquiror Common Stock reserved for issuance in
connection with the Merger and the transactions contemplated hereby shall be
immediately eligible for trading upon the Over the Counter Bulletin Board.
9.10 Opinion of Acquiror's Legal Counsel. Acquiror shall have
received from Fenwick & West, legal counsel to the Acquiror, an opinion opining
to the matters set forth in Exhibit I-1.
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ARTICLE 10
CONDITIONS TO OBLIGATIONS OF ACQUIROR AND MERGER SUB
Acquiror's and Merger Sub's obligations to consummate the Merger and
take the other actions required to be taken by them at the Closing are subject
to the fulfillment or satisfaction, as of the Closing, of each of the following
conditions (it being understood that (a) any one or more of the following
conditions may be waived by Acquiror and Merger Sub in a writing signed by
Acquiror and (b) by proceeding with the Closing, Acquiror and Merger Sub shall
be deemed to have waived any of such conditions that remains unfulfilled or
unsatisfied, provided, any such waiver shall not affect in any way the rights of
Acquiror Indemnified Person to seek indemnification or the obligations of
Effective Time Holders to provide indemnification pursuant to the terms of
ARTICLE 12 hereof):
10.1 Accuracy of Representations and Warranties. The
representations and warranties of the Company set forth in ARTICLE 3 (a) that
are qualified as to materiality shall be true and correct and (b) that are not
qualified as to materiality shall be true and correct in all material respects,
in each case on and as of the Closing with the same force and effect as if they
had been made on the Closing Date rather than the date of this Agreement (except
for any such representations or warranties that by their terms speak only as of
a specific date or dates, in which case such representations and warranties that
are qualified as to materiality shall be true and correct, and such
representations and warranties that are not qualified as to materiality shall be
true and correct in all material respects, on and as of such specified date or
dates), and at the Closing Acquiror shall have received a certificate to such
effect executed by the Company's President or Chief Executive Officer.
10.2 Covenants. The Company shall have performed and complied in
all material respects with all of its covenants contained in ARTICLE 5 and
ARTICLE 7 at or before the Closing (to the extent that such covenants require
performance by the Company at or before the Closing), and at the Closing
Acquiror shall have received a certificate to such effect executed by the
Company's President or Chief Executive Officer.
10.3 No Material Adverse Change. There shall not have been any
Material Adverse Change in the Company, whether or not resulting from a breach
in any representation, warranty or covenant in this Agreement, and at the
Closing Acquiror shall have received a certificate to such effect executed by
the Company's President or Chief Executive Officer.
10.4 Compliance with Law; No Legal Restraints; No Litigation. There
shall not be issued, enacted or adopted, any order, decree, temporary,
preliminary or permanent injunction, legislative enactment, statute, regulation,
action, proceeding, or any judgment or ruling by any Governmental Authority that
(a) prohibits or renders illegal or imposes limitations on the Merger; or (b)
prohibits or renders illegal Acquiror's right to conduct the Company Business on
or after consummation of the Merger. No litigation or proceeding shall be
pending for the purpose or with the probable effect of enjoining or preventing
the consummation of the Merger.
10.5 Government Consents; Permit. There shall have been obtained at
or prior to the Closing Date such permits or authorizations, and there shall
have been taken all such other actions by any Governmental Authority or other
regulatory authority having jurisdiction over the
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parties and the actions herein proposed to be taken, as may be required to
consummate the Merger. The Permit shall have been issued by the California
Commissioner and no stop order suspending the effectiveness of the Permit or any
part thereof shall have been issued and no proceeding for that purpose, no
similar proceeding in respect of the Permit shall have been initiated or
threatened by the Department of Corporations of the State of California, and all
requests for additional information on the part of the Department of
Corporations of the State of California shall have been complied with to the
reasonable satisfaction of the parties hereto.
10.6 Opinion of Company's Legal Counsel. Acquiror shall have
received from Xxxxxx Xxxxxx White & XxXxxxxxx LLP, legal counsel to the Company,
an opinion opining to the matters set forth in Exhibit J.
10.7 Consents. Acquiror shall have received duly executed copies of
all third party consents, approvals, assignments, notices, waivers,
authorizations or other certificates set forth in Schedule 5.5 of the Company
Disclosure Letter.
10.8 Company Stockholder Approvals. The Merger, the Certificate of
Amendment and this Agreement shall have been duly and validly approved and
adopted, as required by Delaware Law, California Law and the Company's
Certificate of Incorporation and Bylaws, each as in effect on the date of such
approval and adoption, by the requisite vote of the Company Stockholders.
10.9 Voting and Employment Matters. The Voting Agreement of each of
the persons identified on Exhibit B-1 shall continue to be in full force and
effect. The Employment Offer Letters of each of the persons identified on
Exhibit C-1 shall continue to be in full force and effect.
10.10 Conversion of Promissory Notes; Termination of Other Rights.
All outstanding convertible promissory notes and any other direct or indirect
rights to acquire shares of Company Capital Stock (other than Company Options
and Company Warrants) shall have been exercised and converted into shares of
Company Capital Stock and shall have been terminated without further obligation
or Liability of the Company, Acquiror or the Surviving Corporation (other than
to issue the shares of Acquiror Common Stock in respect of the shares of Company
Capital Stock into which such notes were converted as contemplated by Section
2.1(b)).
10.11 Termination, Modification or Satisfaction of Company
Stockholder Documents and Rights. Each of the agreements identified on Schedule
10.11 shall have been terminated, effective as of the Closing, in accordance
with their respective terms, and the parties to the agreements identified on
Schedule 10.11 shall have waived all of their respective rights thereunder,
effective as of, and contingent upon, the Closing.
10.12 Resignations of Directors and Officers. The persons holding
the positions of a director or officer of the Company and each Company
Subsidiary, in office immediately prior to the Effective Time, shall have
resigned from such positions in writing effective as of the Effective Time.
10.13 Company Sale Participation Program. The individuals entitled
to receive bonus payments under the Company Sale Participation Program and the
Xxxxxxxxx Agreement shall
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have entered into binding arrangements with the Company in a form reasonably
satisfactory to Acquiror to accept Acquiror Common Stock in exchange for the
right to receive such payments, as provided in Section 6.9.
10.14 Closing Merger Expense Certificate. Acquiror shall have
received the Closing Merger Expense Certificate from the Company, provided,
however, that such receipt shall not be deemed to be an agreement by Acquiror
that the Closing Merger Expense Certificate is accurate and shall not diminish
Acquiror's remedies hereunder to be indemnified for Indemnifiable Merger
Expenses.
10.15 Spreadsheet. Acquiror shall have received the Spreadsheet from
the Company; provided, however, that such receipt shall not be deemed to be an
agreement by Acquiror that the Spreadsheet is accurate and shall not diminish
Acquiror's remedies hereunder if the Spreadsheet is not accurate.
10.16 Lockup Agreements. If the Closing Date occurs prior to April
30, 2004, each Company Stockholder entitled to receive shares of Acquiror Common
Stock in connection with the Merger shall have executed and delivered to
Acquiror a Lockup Letter Agreement in substantially the form attached hereto as
Exhibit K.
10.17 Section 280G Approval. The 280G Proposal shall have been
subject to a vote by the Company Stockholders as required by Section 5.11(d),
and, as required by Section 5.11(c), each "disqualified individual" set forth on
Schedule 5.11(c) of the Company Disclosure Letter shall have agreed pursuant to
the terms of the Parachute Payment Waiver, to, and shall, forfeit any payments
that would be non-deductible if the stockholder approval described in Section
5.11(d) is not obtained.
10.18 Company Good Standing Certificates. Acquiror shall have
received a certificate from the Delaware Secretary of State and each other State
in which the Company or any Company Subsidiary is qualified to do business as a
foreign corporation certifying that the Company or such Company Subsidiary is in
good standing and that all applicable taxes and fees of the Company or such
Company Subsidiary through and including the Closing Date have been paid.
10.19 Termination of Company Benefit Arrangements. The Company shall
have delivered (a) a true, correct and complete copy of resolutions adopted by
the Board of Directors of the Company, certified by the Secretary of the
Company, authorizing the termination of the Company's 401(k) Plan, and (b) an
amendment to the 401(k) Plan, executed by the Company, that is sufficient to
assure compliance with all applicable requirements of the Code and regulations
thereunder so that the tax-qualified status of the 401(k) Plan shall be
maintained at the time of its termination.
10.20 Escrow Agreement. The Escrow Agreement shall have been
executed and delivered by the Escrow Agent and the Representative.
10.21 Termination of Interim Funding Agreement. The Interim Funding
Agreement and all agreements entered into in connection with the Interim Funding
Agreement (including,
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without limitation, any promissory notes or security agreements) shall have been
terminated and shall no longer be of any force or effect.
10.22 FIRPTA. Acquiror, as agent for the stockholders of the
Company, shall have received a properly executed Foreign Investment and Real
Property Tax Act of 1980 Notification Letter, in form and substance reasonably
satisfactory to Acquiror, which states that shares of Company Capital Stock do
not constitute "United States real property interests" under Section 897(c) of
the Code, for purposes of satisfying Acquiror's obligations under Treasury
Regulation Section 1.1445-2(c)(3).
ARTICLE 11
TERMINATION OF AGREEMENT
11.1 Termination by Mutual Consent. This Agreement may be
terminated at any time prior to the Effective Time by the mutual written consent
of Acquiror and the Company.
11.2 Unilateral Termination.
(a) Either Acquiror or the Company, by giving written
notice to the other, may terminate this Agreement if a court of competent
jurisdiction or other Governmental Authority shall have issued a nonappealable
final order, decree or ruling or taken any other action, in each case having the
effect of permanently restraining, enjoining or otherwise prohibiting the Merger
or any other material transaction contemplated by this Agreement.
(b) Either Acquiror or the Company, by giving written
notice to the other, may terminate this Agreement if the Merger shall not have
been consummated by midnight Pacific Time on the later of: (i) May 31, 2004 or
(ii) the date that is one hundred twenty (120) days after the date that the
parties determine that the filing of a Registration Statement pursuant to
Section 7.1(f) is required; provided, however, that the right to terminate this
Agreement pursuant to this Section 11.2(b) shall not be available to any party
whose breach of a representation or warranty or covenant made under this
Agreement by such party results in the failure of any condition set forth in
ARTICLE 9 or ARTICLE 10 to be fulfilled or satisfied on or before such date.
(c) Either Acquiror or the Company may terminate this
Agreement at any time prior to the Effective Time if (a) the other has committed
a breach of (i) any of its representations and warranties under ARTICLE 3 or
ARTICLE 4, as applicable, or (ii) any of its covenants under ARTICLE 5 or
ARTICLE 6, as applicable, and has not cured such breach within ten business days
after the party seeking to terminate this Agreement has given the other party
written notice of such breach and its intention to terminate this Agreement
pursuant to this Section 11.2(c) (provided, however, that no such cure period
shall be available or applicable to any such breach which by its nature cannot
be cured) and (b) if not cured on or prior to the Closing Date, such breach
would result in the failure of any of the conditions set forth in ARTICLE 10 or
ARTICLE 9, as applicable, to be fulfilled or satisfied; provided, however, that
the right to terminate this Agreement under this Section 11.2(c) shall not be
available to a party if the party is at that time in material breach of this
Agreement.
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(d) Either Acquiror or the Company, by giving written
notice to the other, may terminate this Agreement if any required approval of
the Company Stockholders approving the Merger and adopting this Agreement and
the Certificate of Amendment shall not have been obtained by reason of the
failure to obtain the required vote upon a vote held at a duly noticed and held
meeting of stockholders (or at any adjournment thereof) or by written consent
within 20 business days following the issuance of the Permit or the
effectiveness of the Registration Statement; provided, however, that the right
to terminate this Agreement under this Section 11.2(d) shall not be available to
the Company where the failure to obtain stockholder approval shall have been
caused by the action or failure to act of the Company and such action or failure
to act constitutes a breach by the Company of this Agreement.
(e) Acquiror, by giving written notice to the Company,
may terminate this Agreement if (i) the Company's Board of Directors shall have
for any reason recommended, endorsed, accepted or agreed to an Alternative
Transaction or shall have resolved to do any of the foregoing, (ii) the Company
shall have materially breached Section 5.7 (No Other Negotiations), or (iii) if
an inquiry, offer or proposal for an Alternative Transaction shall have been
made and the Company's Board of Directors of the Company in connection therewith
does not within five business days of Acquiror's request to do so, reconfirm its
approval and recommendation of this Agreement and the transactions contemplated
hereby and reject such Alternative Transaction.
11.3 Effect of Termination. In the event of termination of this
Agreement as provided in Section 11.2, this Agreement shall forthwith become
void and there shall be no liability or obligation on the part of Acquiror,
Merger Sub or the Company or their respective officers, directors, stockholders
or affiliates; provided, however, that (i) the provisions of this Section 11.3
(Effect of Termination) and ARTICLE 13 (Miscellaneous) shall remain in full
force and effect and survive any termination of this Agreement and (ii) nothing
herein shall relieve any party hereto from liability in connection with any
material breach of any of such party's representations, warranties or covenants
contained herein.
ARTICLE 12
SURVIVAL OF REPRESENTATIONS, INDEMNIFICATION
AND REMEDIES; CONTINUING COVENANTS
12.1 Survival. If the Merger is consummated, the representations
and warranties of the parties contained in this Agreement, the parties'
respective Disclosure Letters and the certificates of Acquiror and the Company
delivered pursuant to Sections 9.1, 9.2 and 9.3 and Sections 10.1, 10.2 and
10.3, respectively, shall survive the Effective Time and remain in full force
and effect, regardless of any investigation or disclosure made by or on behalf
of any of the parties to this Agreement, until the Expiration Date; provided,
however, that the representations and warranties of the Company contained in
Section 3.4 (Capitalization) will remain operative and in full force and effect,
regardless of any investigation or disclosure made by or on behalf of any of the
parties to this Agreement, until the expiration of the applicable statute of
limitations for claims against the Effective Time Holders (as defined in Section
2.3) which seek recovery of Damages arising out of a failure of such
representations or warranties; provided, however, that no right to
indemnification pursuant to ARTICLE 12 in respect of any claim based upon any
failure of a representation or warranty that is set forth in a Notice of Claim
delivered prior to the applicable
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expiration date of such representation or warranty shall be affected by the
expiration of such representation or warranty; and provided, further, that such
expiration shall not affect the rights of any Acquiror Indemnified Person or
Effective Time Holder under ARTICLE 12 or otherwise to seek recovery of Damages
arising out of any fraud, willful breach or intentional misrepresentation by the
Company or any Company Subsidiary on the one hand, or Acquiror, on the other,
until the expiration of the applicable statute of limitations. If the Merger is
consummated, all covenants of the parties (including the covenants set forth in
ARTICLE 5 and ARTICLE 6) shall expire and be of no further force or effect as of
the Effective Time, except to the extent such covenants provide that they are to
be performed after the Effective Time; provided, however, that no right to
indemnification pursuant to ARTICLE 12 in respect of any claim based upon any
breach of a covenant shall be affected by the expiration of such covenant.
12.2 Agreement to Indemnify.
(a) Each Effective Time Holder shall severally (based on
each such holder's Pro Rata Share), and not jointly, indemnify and hold harmless
Acquiror and its officers, directors, agents, representatives, stockholders and
employees, and each person, if any, who controls or may control Acquiror within
the meaning of the Securities Act or the Exchange Act (each hereinafter referred
to individually as an "ACQUIROR INDEMNIFIED PERSON" and collectively as
"ACQUIROR INDEMNIFIED PERSONS") from and against any and all losses, reductions
in value, costs, damages, Liabilities and expenses (including reasonable
attorneys' fees, other professionals' and experts' fees, costs of investigation
and court costs, other than such expenses incurred in seeking indemnification
hereunder, which are addressed in Section 13.8), calculated net of actual
recoveries under existing insurance policies (net of any applicable collection
costs and reserves, deductibles, premium adjustments and retrospectively rated
premiums) (hereinafter collectively referred to as "DAMAGES"), arising from
assessments, taxes, claims, demands, assertions of liability, or actual or
threatened actions, suits or proceedings (whether civil, criminal,
administrative or investigative) directly or indirectly arising out of,
resulting from or in connection with: (i) any failure of any representation or
warranty made by the Company in this Agreement or the Company Disclosure Letter,
to be true and correct as of the date of this Agreement and as of the Closing
Date (as though such representation or warranty were made as of the Closing Date
rather than the date of this Agreement, except in the case of any individual
representation and warranty which by its terms speaks only as of a specific date
or dates); (ii) any failure of any certification, representation or warranty
made by the Company pursuant to Section 10.1, 10.2 or 10.3 to be true and
correct as of the date such certificate is delivered to Acquiror; (iii) any
breach of or default in connection with any of the covenants or agreements made
by the Company in this Agreement; (iv) any inaccuracies in the Spreadsheet; or
(v) any Indemnifiable Merger Expenses.
(b) Acquiror shall indemnify and hold harmless each
Effective Time Holder from and against any and all Damages, arising from
assessments, taxes, claims, demands, assertions of liability, or actual or
threatened actions, suits or proceedings (whether civil, criminal,
administrative or investigative) directly or indirectly arising out of,
resulting from or in connection with: (i) any failure of any representation or
warranty made by Acquiror or Merger Sub in this Agreement or the Acquiror
Disclosure Letter to be true and correct as of the date of this Agreement and as
of the Closing Date (as though such representation or warranty were made as of
the Closing Date rather than the date of this Agreement, except in the case of
any individual
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representation and warranty which by its terms speaks only as of a specific date
or dates; provided, however, that for the purposes of determining whether there
has been a breach of Section 4.5 the parenthetical at the end of the third
complete sentence of Section 4.5 shall be deemed to read "but prior to the date
that is 13 trading days prior to the Closing"); (ii) any failure of any
certification, representation or warranty made by Acquiror or Merger Sub
pursuant to Sections 9.1, 9.2 or 9.3 to be true and correct as of the date such
certificate is delivered to the Company; and (iii) any breach of or default in
connection with any of the covenants or agreements made by Acquiror or Merger
Sub in this Agreement, the Acquiror Disclosure Letter or any exhibit or schedule
to this Agreement.
12.3 Limitations.
(a) If the Merger is consummated, recovery from the
Escrow Shares shall be the sole and exclusive remedy under this Agreement for
the matters listed in the foregoing clauses (i)-(v) of Section 12.2(a), except
in the case of (i) fraud, willful breach or intentional misrepresentation by the
Company, (ii) any failure of any of the representations and warranties contained
in Section 3.4 (Capitalization) to be true and correct as aforesaid, or (iii)
any inaccuracies in the Spreadsheet. In the case of (i) fraud, willful breach or
intentional misrepresentation by the Company or any Company Subsidiary, (ii) any
failure of any of the representations and warranties contained in Section 3.4
(Capitalization) to be true and correct as aforesaid, or (iii) any inaccuracies
in the Spreadsheet, after Acquiror has exhausted or made claims upon all amounts
of Escrow Shares (after taking into account all other claims for indemnification
from the Escrow Shares made by Acquiror), each Effective Time Holder shall be
liable for such holder's Pro Rata Share of the amount of any Damages resulting
therefrom; provided, however, that such liability shall be limited to such
holder's Pro Rata Share of the Total Consideration.
(b) Notwithstanding anything contained herein to the
contrary, no Acquiror Indemnified Person may receive any Escrow Shares in
respect of any claim for indemnification that is made pursuant to clauses (i),
(ii), or (iv) of Section 12.2(a) and does not involve fraud, willful breach or
intentional misrepresentation by the Company or any Company Subsidiary unless
and until Damages in an aggregate amount greater than $200,000 (the "BASKET")
have been incurred, paid or properly accrued, in which case the Acquiror
Indemnified Persons may make claims for indemnification for all Damages,
including the amount of the Basket. In determining the amount of any Damages in
respect of the failure of any representation or warranty to be true and correct
as of any particular date, any materiality standard contained in such
representation or warranty shall be disregarded. Claims for indemnification made
pursuant to clauses (iii) or (v) of Section 12.2(a) or involving fraud, willful
breach or intentional misrepresentation by the Company shall not reduce the
amount of the Basket applicable to subsequent claims for indemnification
pursuant to clauses (i), (ii) or (iv) of Section 12.2(a).
(c) If the Merger is consummated, no Effective Time
Holder may receive any consideration from Acquiror in respect of any claim for
indemnification that is made pursuant to Section 12.2(b)(i) or (ii) and does not
involve fraud, willful breach or intentional misrepresentation by Acquiror or
Merger Sub unless and until Damages in an aggregate amount greater than the
Basket have been incurred, paid or properly accrued by all Effective Time
Holders, in which case the Effective Time Holders may make claims for all
Damages, including
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the amount of the Basket. Further, except in the case of fraud, willful breach
or intentional misrepresentation by Acquiror or Merger Sub, the aggregate amount
of Damages for which Acquiror shall be liable to all Effective Time Holders
shall not exceed a dollar amount equal to 11.93% of the value of the Acquiror
Common Stock (based on per share value equal to the Acquiror Stock Price) into
which the shares of Company Capital Stock outstanding immediately prior to the
Effective Time are converted pursuant to the Merger as provided in Section
2.1(b)(i) and (ii). If the Merger is consummated, recovery from Acquiror under
Section 12.2(b) as limited by this Section 12.3(c) shall be the sole and
exclusive remedy under this Agreement for the matters listed in Section 12.2(b)
except in the case of fraud, willful breach or intentional misrepresentation by
Acquiror or Merger Sub. In determining the amount of any Damages in respect of
the failure of any representation or warranty to be true and correct as of any
particular date, any materiality standard contained in such representation or
warranty shall be disregarded. Claims for indemnification made pursuant to
clauses (iii) of Section 12.2(b) or involving fraud, willful breach or
intentional misrepresentation by Acquiror or Merger Sub shall not reduce the
amount of the Basket applicable to subsequent claims for indemnification
pursuant to clauses (i) or (ii) of Section 12.2(b).
12.4 Appointment of Representative.
(a) By voting in favor of the Merger or participating in
the conversion of Company Common Stock or, as the case may be, by receiving
shares of Acquiror Common Stock pursuant to Section 6.9 hereof in exchange for
outstanding claims pursuant to the Assumed Bonus Payments, each Effective Time
Holder approves the designation of and designates the Representative as the
representative of the Effective Time Holders and as the attorney-in-fact and
agent for and on behalf of each Effective Time Holder with respect to claims for
indemnification under this ARTICLE 12 and the taking by the Representative of
any and all actions and the making of any decisions required or permitted to be
taken by the Representative under this Agreement, including the exercise of the
power to: (a) give and receive notices and communications to or from Acquiror
(on behalf of itself of any other Acquiror Indemnified Person) and/or the Escrow
Agent relating to this Agreement, the Escrow Agreement or any of the
transactions and other matters contemplated hereby or thereby (except to the
extent that this Agreement or the Escrow Agreement expressly contemplates that
any such notice or communication shall be given or received by such holders
individually); (b) authorize the release or delivery to Acquiror of the Escrow
Shares in satisfaction of indemnification claims by Acquiror or any other
Acquiror Indemnified Person pursuant to this ARTICLE 12 (including by not
objecting to such claims); (c) agree to, object to, negotiate, resolve, enter
into settlements and compromises of, demand litigation of, and comply with
orders of courts with respect to, (i) indemnification claims by Acquiror or any
other Acquiror Indemnified Person pursuant to this ARTICLE 12 or (ii) any
dispute between any Acquiror Indemnified Person and any such holder, in each
case relating to this Agreement or the Escrow Agreement; and (d) take all
actions necessary or appropriate in the judgment of the Representative for the
accomplishment of the foregoing. Any claim for indemnification under Section
12.2(b) by an Effective Time Holder must be made on behalf of such Effective
Time Holder by the Representative. The Representative shall have authority and
power to act on behalf of each Effective Time Holder with respect to the
disposition, settlement or other handling of all claims under this ARTICLE 12
and all rights or obligations arising under this ARTICLE 12. The Effective Time
Holders shall be bound by all actions taken and documents executed by the
Representative in connection with
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this ARTICLE 12, and Acquiror and other Acquiror Indemnified Persons shall be
entitled to rely on any action or decision of the Representative. The individual
serving as the Representative may be replaced from time to time by the holders
of a majority in interest of the Escrow Shares then on deposit with the Escrow
Agent upon not less than ten days prior written notice to Acquiror. No bond
shall be required of the Representative, and the Representative shall receive no
compensation for his services. Notices or communications to or from the
Representative shall constitute notice to or from each of the Effective Time
Holders.
(b) In performing the functions specified in this
Agreement, the Representative shall not be liable to any Effective Time Holder
in the absence of gross negligence or willful misconduct on the part of the
Representative. Each Effective Time Holder shall severally (based on each such
holder's Pro Rata Share), and not jointly, indemnify and hold harmless the
Representative from and against any loss, liability or expense incurred without
gross negligence or willful misconduct on the part of the Representative and
arising out of or in connection with the acceptance or administration of his
duties hereunder, including any out-of-pocket costs and expenses and legal fees
and other legal costs reasonably incurred by the Representative. If not paid
directly to the Representative by the Effective Time Holders, such losses,
liabilities or expenses may be recovered by the Representative from Escrow
Shares otherwise distributable to the Effective Time Holders (and not
distributed or distributable to any Acquiror Indemnified Person or subject to a
pending indemnification claim of any Acquiror Indemnified Person) following the
Expiration Date pursuant to the terms hereof and of the Escrow Agreement, at the
time of distribution, and such recovery will be made from the Effective Time
Holders according to their respective Pro Rata Shares.
12.5 Notice of Claim.
(a) As used herein, the term "CLAIM" means a claim for
indemnification of Acquiror or any other Acquiror Indemnified Person or of an
Effective Time Holder for Damages under this ARTICLE 12.
(b) Acquiror may give notice of a Claim under this
Agreement, whether for its own Damages or for Damages incurred by any other
Acquiror Indemnified Person, and Acquiror shall give written notice of a Claim
executed by an officer of Acquiror (a "NOTICE OF CLAIM") to the Representative
(with a copy to the Escrow Agent if the Claim involves recovery against the
Escrow Shares) promptly after Acquiror becomes aware of the existence of any
potential claim by an Acquiror Indemnified Person for indemnification from the
Effective Time Holders under this ARTICLE 12, arising from or relating to:
(i) Any matter specified in Section 12.2(a); or
(ii) the assertion, whether orally or in writing,
against Acquiror or any other Acquiror Indemnified Person of a claim, demand,
suit, action, arbitration, investigation, inquiry or proceeding brought by a
third party against Acquiror or such other Acquiror Indemnified Person (in each
such case, a "THIRD-PARTY CLAIM") that is based on, arises out of or relates to
any matter specified in Section 12.2(a).
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The period during which claims may be initiated (the "CLAIMS PERIOD")
for indemnification from the Escrow Shares shall commence at the Effective Time
and terminate on the Expiration Date. The Claims Period for indemnification from
and against Damages arising out of, resulting from or in connection with (i)
fraud, willful breach or intentional misrepresentation by the Company or any
Company Subsidiary, (ii) any failure of any of the representations and
warranties contained in Section 3.4 (Capitalization) to be true and correct as
aforesaid, or (iii) any inaccuracies in the Spreadsheet shall commence at the
Effective Time and terminate upon the expiration of the applicable statute of
limitations. Notwithstanding anything contained herein to the contrary, any
Claims for Damages specified in any Notice of Claim delivered to the
Representative prior to expiration of the applicable Claims Period with respect
to facts and circumstances existing prior to expiration of the applicable Claims
Period shall remain outstanding until such Claims for Damages have been resolved
or satisfied, notwithstanding the expiration of such Claims Period. Until the
expiration of the applicable Claims Period, no delay on the part of Acquiror in
giving the Representative a Notice of Claim shall relieve the Representative or
any Effective Time Holder from any of its obligations under this ARTICLE 12
unless (and then only to the extent that) the Representative or the Effective
Time Holders are materially prejudiced thereby.
(c) The Representative may give notice of a Claim under
this Agreement, whether for its own Damages or for Damages incurred by any other
Effective Time Holder, and Representative shall give written notice of a Claim
(a "NOTICE OF CLAIM") to the Acquiror promptly after Representative becomes
aware of the existence of any potential claim by an Effective Time Holder for
indemnification from the Acquiror under this Section 12.5, arising from or
relating to any matter specified in Section 12.2(b). The Claims Period for
indemnification from and against Damages arising out of, resulting from or in
connection with the matters specified in Section 12.2(b) shall commence at the
Effective Time and terminate on the Expiration Date. The Claims Period for
indemnification from and against Damages arising out of, resulting from or in
connection with fraud, willful breach or intentional misrepresentation by
Acquiror shall commence at the Effective Time and terminate upon the expiration
of the applicable statute of limitations. Notwithstanding anything contained
herein to the contrary, any Claims for Damages specified in any Notice of Claim
delivered to the Acquiror prior to the Expiration Date with respect to facts and
circumstances existing prior to the Expiration Date shall remain outstanding
until such Claims for Damages have been resolved or satisfied, notwithstanding
the occurrence of the Expiration Date. Until the Expiration Date, no delay on
the part of the Representative in giving the Acquiror a Notice of Claim shall
relieve Acquiror from any of its obligations under this Section 12.5 unless (and
then only to the extent that) the Acquiror is materially prejudiced thereby.
12.6 Defense of Third-Party Claims.
(a) Acquiror shall determine and conduct the defense or
settlement of any Third-Party Claim, and the costs and expenses incurred by
Acquiror in connection with such defense or settlement (including reasonable
attorneys' fees, other professionals' and experts' fees and court or arbitration
costs) shall be included in the Damages for which Acquiror may seek
indemnification pursuant to a Claim made by any Acquiror Indemnified Person
hereunder.
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(b) The Representative shall have the right to receive
copies of all pleadings, notices and communications with respect to the
Third-Party Claim to the extent that receipt of such documents by the
Representative does not affect any privilege relating to the Acquiror
Indemnified Person and may participate in, but not to determine or conduct, any
defense of the Third-Party Claim or settlement negotiations with respect to the
Third-Party Claim.
(c) No settlement of any such Third-Party Claim with any
third party claimant shall be determinative of the existence of or amount of
Damages relating to such matter, except with the consent of the Representative,
which consent shall not be unreasonably withheld, conditioned or delayed and
which shall be deemed to have been given unless the Representative shall have
objected within 22 days after a written request for such consent by Acquiror.
12.7 Contents of Notice of Claim.
(a) Each Notice of Claim by Acquiror given pursuant to
Section 12.5 shall contain the following information:
(i) that Acquiror or another Acquiror
Indemnified Person has directly or indirectly incurred, paid or properly accrued
(in accordance with GAAP) or, in good faith, believes it shall have to directly
or indirectly incur, pay or accrue (in accordance with GAAP), Damages in an
aggregate stated amount arising from such Claim (which amount may be the amount
of damages claimed by a third party in an action brought against any Acquiror
Indemnified Person based on alleged facts, which if true, would give rise to
liability for Damages to such Acquiror Indemnified Person under this ARTICLE
12); and
(ii) a brief description, in reasonable detail
(to the extent reasonably available to Acquiror), of the facts, circumstances or
events giving rise to the alleged Damages based on Acquiror's good faith belief
thereof, including the identity and address of any third-party claimant (to the
extent reasonably available to Acquiror) and copies of any formal demand or
complaint, the amount of Damages, the date each such item was incurred, paid or
properly accrued, or the basis for such anticipated liability, and the specific
nature of the breach to which such item is related.
(b) Each Notice of Claim by the Representative given
pursuant to Section 12.5 shall contain the following information:
(i) that the Representative or another Effective
Time Holder has directly or indirectly incurred, paid or properly accrued (in
accordance with GAAP) or, in good faith, believes it shall have to directly or
indirectly incur, pay or accrue (in accordance with GAAP), Damages in an
aggregate stated amount arising from such Claim; and
(ii) a brief description, in reasonable detail
(to the extent reasonably available to the Representative), of the facts,
circumstances or events giving rise to the alleged Damages based on the
Representative's good faith belief thereof, the amount of Damages, the date each
such item was incurred, paid or properly accrued, or the basis for such
anticipated liability, and the specific nature of the breach to which such item
is related.
12.8 Resolution of Notice of Claim.
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(a) Each Notice of Claim given by Acquiror shall be
resolved as follows:
(i) Uncontested Claims. If, within 30 days after
a Notice of Claim is received by the Representative, the Representative does not
contest such Notice of Claim in writing to Acquiror as provided in Section
12.8(a)(ii), the Representative shall be conclusively deemed to have consented,
on behalf of all Effective Time Holders, to the recovery by the Acquiror
Indemnified Person of the full amount of Damages (subject to the limits
contained in this ARTICLE 12) specified in the Notice of Claim in accordance
with this ARTICLE 12, including the forfeiture of Escrow Shares, and, without
further notice, to have stipulated to the entry of a final judgment for damages
against the Effective Time Holders for such amount in any court having
jurisdiction over the matter where venue is proper.
(ii) Contested Claims. If the Representative
gives Acquiror written notice contesting all or any portion of a Notice of Claim
(a "CONTESTED CLAIM") (with a copy to the Escrow Agent) within the 30 day period
specified in Section 12.8(i)(i), then such Contested Claim shall be resolved by
either (i) a written settlement agreement executed by Acquiror and the
Representative (a copy of which shall be furnished to the Escrow Agent) or (ii)
in the absence of such a written settlement agreement within 30 days following
receipt by Acquiror of the written notice from the Representative, by binding
litigation between Acquiror and the Representative in accordance with the terms
and provisions of Section 12.8(c).
(b) Each Notice of Claim given by the Representative
shall be resolved as follows:
(i) Uncontested Claims. If, within 30 days after
a Notice of Claim is received by Acquiror, Acquiror does not contest such Notice
of Claim in writing to Representative as provided in Section 12.8(b)(ii), the
Acquiror shall be conclusively deemed to have consented to the recovery by the
Effective Time Holders of the full amount of Damages (subject to the limits
contained in this ARTICLE 12) specified in the Notice of Claim in accordance
with this Section 12.8, and, without further notice, to have stipulated to the
entry of a final judgment for damages against the Acquiror for such amount in
any court having jurisdiction over the matter where venue is proper.
(ii) Contested Claims. If the Acquiror gives the
Representative written notice of a Contested Claim within the 30 day period
specified in Section 12.8(b)(i), then such Contested Claim shall be resolved by
either (i) a written settlement agreement executed by Acquiror and the
Representative or (ii) in the absence of such a written settlement agreement
within 30 days following receipt by the Representative of the written notice
from the Acquiror, by binding litigation between Representative and Acquiror in
accordance with the terms and provisions of Section 12.8(c).
(c) Litigation of Contested Claims. Either Acquiror or
the Representative may bring suit in the courts of the State of California and
the Federal courts of the United States of America located within the County of
Santa Xxxxx in the State of California to resolve a Contested Claim. Regardless
of which party brings suit to resolve a matter, the party seeking
indemnification shall bear the burden of proof by a preponderance of the
evidence that it is entitled to indemnification pursuant to this ARTICLE 12. The
decision of the trial court as to the
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validity and amount of any claim in such Notice of Claim shall be nonappealable,
binding and conclusive upon the parties to this Agreement and the Effective Time
Holders, as applicable, and the Escrow Agent shall be entitled to act in
accordance with such decision and make or withhold payments out of the Escrow
Shares in accordance therewith. Judgment upon any award rendered by the trial
court may be entered in any court having jurisdiction. For purposes of this
Section 12.8(c), in any suit hereunder in which any claim or the amount thereof
stated in a Notice of Claim is at issue, the party seeking indemnification shall
be deemed to be the non-prevailing party unless the trial court awards such
party more than one-half of the amount in dispute; otherwise, the party from
whom indemnification is sought shall be deemed to be the non-prevailing party.
The non-prevailing party to a suit shall pay its own expenses and the expenses,
including attorneys' fees and costs, reasonably incurred by the other party to
the suit.
12.9 Release of Remaining Escrow Shares. Within five business days
following the Expiration Date, Acquiror shall instruct the Escrow Agent to
deliver to the Effective Time Holders all of the remaining Escrow Shares (if
any) in excess of any amount of Escrow Shares that is necessary to satisfy all
unresolved, unsatisfied or disputed claims for Damages specified in any Notice
of Claim delivered to the Representative before the expiration of the Claims
Period. If any Claims are unresolved, unsatisfied or disputed as of the
expiration of the Claims Period, then the Escrow Agent shall retain possession
and custody of that amount of Escrow Shares (based upon a per share price equal
to the Acquiror Stock Price) that equals the total maximum amount of Damages
then being claimed by Acquiror Indemnified Persons in all such unresolved,
unsatisfied or disputed Claims, and as soon as all such Claims have been
resolved, the Escrow Agent shall deliver to the Effective Time Holders all
remaining Escrow Shares (if any) not required to satisfy such Claims. If within
10 days following the Closing the Representative has not presented to Acquiror
reasonably satisfactory evidence that all Merger Expenses have been paid in
full, the Escrow Agent shall sell the Escrow Expense Shares and use the proceeds
of such sale to pay Merger Expenses.
12.10 Tax Consequences of Indemnification Payments. All payments (if
any) made to an Acquiror Indemnified Person pursuant to any indemnification
obligations under this ARTICLE 12 will be treated as adjustments to the purchase
price for tax purposes and such agreed treatment will govern for purposes of
this Agreement, unless otherwise required by law.
ARTICLE 13
MISCELLANEOUS
13.1 Governing Law. The internal laws of the State of California,
irrespective of its conflicts of law principles, shall govern the validity of
this Agreement, the construction of its terms, and the interpretation and
enforcement of the rights and duties of the parties hereto; provided, however,
that issues involving the consummation and effects of the Merger shall be
governed by the laws of the State of Delaware. The parties hereto hereby
irrevocably submit to the exclusive jurisdiction of the courts of the State of
California and the Federal courts of the United States of America located within
the County of Santa Xxxxx in the State of California solely in respect of the
interpretation and enforcement of the provisions of this Agreement and of the
documents referred to in this Agreement, and in respect of the transactions
contemplated hereby and thereby (including resolution of disputes under Section
12.8(c)), and hereby waive, and agree not to assert, as a defense in any action,
suit or proceeding for the interpretation or
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enforcement hereof or thereof, that it is not subject thereto or that such
action, suit or proceeding may not be brought or is not maintainable in said
courts or that the venue thereof may not be appropriate or that this Agreement
or any such document may not be enforced in or by such courts, and the parties
hereto irrevocably agree that all claims with respect to such action or
proceeding shall be heard and determined in such a California State or Federal
court. The parties hereby consent to and grant any such court jurisdiction over
the person of such parties and over the subject matter of such dispute and agree
that mailing of process or other papers in connection with any such action or
proceeding in the manner provided in Section 13.9 or in such other manner as may
be permitted by Applicable Law, shall be valid and sufficient service thereof.
With respect to any particular action, suit or proceeding, venue shall lie
solely in Santa Xxxxx County, California.
13.2 Assignment; Binding Upon Successors and Assigns. This
Agreement shall inure to the benefit of the successors and assigns of Acquiror,
including any successor to, or assignee of, all or substantially all of the
business and assets of Acquiror. Except as set forth in the preceding sentence,
no party hereto may assign any of its rights or obligations hereunder without
the prior written consent of the other parties hereto. This Agreement shall be
binding upon and inure to the benefit of the parties hereto and their respective
successors and permitted assigns. Any assignment in violation of this provision
shall be void.
13.3 Severability. If any provision of this Agreement, or the
application thereof, shall for any reason and to any extent be invalid or
unenforceable, then the remainder of this Agreement and the application of such
provision to other persons or circumstances shall 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 shall achieve, to the extent possible, the
economic, business and other purposes of the void or unenforceable provision.
13.4 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be an original as regards any party whose
signature appears thereon and all of which together shall constitute one and the
same instrument. This Agreement shall become binding when one or more
counterparts hereof, individually or taken together, shall bear the signatures
of all parties reflected hereon as signatories.
13.5 Other Remedies. Except as otherwise expressly provided herein,
any and all remedies herein expressly conferred upon a party hereunder shall be
deemed cumulative with and not exclusive of any other remedy conferred hereby or
by law on such party, and the exercise of any one remedy shall not preclude the
exercise of any other. The parties hereto agree that irreparable damage would
occur in the event that any of the provisions of this Agreement were not
performed in accordance with their specific terms or were otherwise breached. It
is accordingly agreed that the parties shall be entitled to seek an injunction
or injunctions to prevent breaches of this Agreement and to enforce specifically
the terms and provisions hereof in any court of the United States or any State
having jurisdiction.
13.6 Amendments and Waivers. Any term or provision of this
Agreement may be amended, and the observance of any term of this Agreement may
be waived (either generally or in a particular instance and either retroactively
or prospectively), only by a writing signed by the
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party to be bound thereby. The waiver by a party of any breach hereof or default
in the performance hereof shall not be deemed to constitute a waiver of any
other default or any succeeding breach or default. This Agreement may be amended
by the parties hereto as provided in this Section 13.6 at any time before or
after adoption of this Agreement by the Company Stockholders, but, after such
adoption, no amendment shall be made which by Applicable Law requires the
further approval of the Company Stockholders without obtaining such further
approval. At any time prior to the Effective Time, each of Company and Acquiror,
by action taken by its Board of Directors, may, to the extent legally allowed,
(a) extend the time for the performance of any of the obligations or other acts
of the other, (b) waive any inaccuracies in the representations and warranties
made to it contained herein or in any document delivered pursuant hereto, and
(c) waive compliance with any of the agreements or conditions for its benefit
contained herein. No such waiver or extension shall be effective unless signed
in writing by the party against whom such waiver or extension is asserted. The
failure of any party to enforce any of the provisions hereof shall not be
construed to be a waiver of the right of such party thereafter to enforce such
provisions.
13.7 Expenses. Except as expressly provided otherwise herein,
whether or not the Merger is successfully consummated, each party shall bear its
respective legal, auditors', investment bankers' and financial advisors' fees
and other expenses incurred with respect to this Agreement, the Merger and the
transactions contemplated hereby, it being the intention of the parties that if
the Merger is consummated, the Merger Expenses be regarded for purposes of this
Section 13.7 as expenses of the Company Stockholders and not of the Company.
13.8 Attorneys' Fees. Should suit be brought to enforce or
interpret any part of this Agreement, the prevailing party shall be entitled to
recover, as an element of the costs of suit and not as damages, reasonable
attorneys' fees to be fixed by the court (including costs, expenses and fees on
any appeal). The prevailing party shall be entitled to recover its costs of
suit, regardless of whether such suit proceeds to final judgment.
13.9 Notices. All notices and other communications required or
permitted under this Agreement shall be in writing and shall be either hand
delivered in person, sent by facsimile, sent by certified or registered
first-class mail, postage pre-paid, or sent by nationally recognized express
courier service. Such notices and other communications shall be effective upon
receipt if hand delivered or sent by facsimile, three business days after
mailing if sent by mail, and one business day after dispatch if sent by express
courier, to the following addresses, or such other addresses as any party may
notify the other parties in accordance with this Section 13.9:
If to Acquiror or Merger Sub:
Covad Communications Group, Inc.
000 Xxx Xxxxxx
Xxx Xxxx, XX 00000-0000
Attention: Xxxxxxxx X. Xxxxxxxx
Facsimile No.: (000) 000-0000
Telephone No.: (000) 000-0000
with a copy to:
-00-
Xxxxxxx & Xxxx XXX
Xxxxxxx Xxxxxx Xxxxxx
000 Xxxxxxxxxx Xxxxxx
Xxxxxxxx Xxxx, XX 00000
Attention: Xxxxxx X. Xxxxxxx, Esq.
Facsimile No.: (000) 000-0000
Telephone No.: (000) 000-0000
If to the Company:
GoBeam, Inc.
0000 Xxxxxxx Xxxx, Xxxxx 000
Xxxxxxxxxx, XX 00000
Attention: President
Facsimile No.: (000) 000-0000
Telephone No.: (000) 000-0000
with a copy to:
Xxxxxx Xxxxxx White and XxXxxxxxx LLP
0000 Xx Xxxxx Xxxxxxx Xxxxx, 0xx Xxxxx
Xxx Xxxxx, XX 00000
Attention: Xxxxx X. Xxxxxxx, Esq.
Facsimile No.: (000) 000-0000
Telephone No.: (000) 000-0000
If to the Representative:
Xxxxxxx Xxxxxxx
c/o Sprout Group
0000 Xxxx Xxxx Xxxx
Xxxxxxxx 0, Xxxxx 000
Xxxxx Xxxx, XX 00000
Facsimile No.: (000) 000-0000
Telephone No.: (000) 000-0000
with a copy to:
Xxxxx Xxxxxxx
c/o Francisco Partners
0000 Xxxx Xxxx Xxxx, Xxxxx 000
Xxxxx Xxxx, XX 00000
Facsimile No.: (000) 000-0000
Telephone No.: (000) 000-0000
13.10 Interpretation; Rules of Construction. When a reference is
made in this Agreement to Exhibits, Sections or Articles, such reference shall
be to an Exhibit to, Section of or Article of this Agreement, respectively,
unless otherwise indicated. The words "include",
-82-
"includes" and "including" when used herein shall be deemed in each case to be
followed by the words "without limitation". 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. The parties hereto agree that they
have been represented by legal 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 shall be construed against the party drafting such agreement or
document. For purposes of delivering the closing certificates required by
Sections 10.1, 10.2 and 10.3, the Company may provide to Acquiror a schedule of
any changes to the Company Disclosure Letter that the Company believes are
required to make the bring-down representations contained in such certificates
true as of the date of delivery thereof. For the purpose of delivering the
closing certificates required by Sections 9.1, 9.2 and 9.3, Acquiror may provide
to the Company a schedule of any changes to the Acquiror Disclosure Letter that
Acquiror believes are required to make the bring-down representations contained
in such certificates true as of the date of delivery thereof. The proposed
delivery of such a schedule by the Company or Acquiror shall not be deemed to
amend the Company Disclosure Letter or the Acquiror Disclosure Letter, as the
case may be, including without limitation, shall not limit the right of the
other party to indemnification under ARTICLE 12 hereof, or any right of the
other party not to consummate the Merger in accordance with Section ARTICLE 9 or
ARTICLE 10, as applicable, with respect to any matters disclosed in such a
schedule.
13.11 Third Party Beneficiary Rights. No provisions of this
Agreement are intended, nor shall be interpreted, to provide or create any third
party beneficiary rights or any other rights of any kind in any client,
customer, employee, affiliate, stockholder, partner or any party hereto or any
other Person unless specifically provided otherwise herein and, except as so
provided, all provisions hereof shall be personal solely between the parties to
this Agreement; except that Section 6.5 is intended to benefit the Company
Indemnified Parties and ARTICLE 12 is intended to benefit the Acquiror
Indemnified Persons.
13.12 Public Announcement. Upon execution of this Agreement,
Acquiror and the Company shall issue a press release approved by both parties
announcing the Merger. Thereafter, Acquiror may issue such press releases, and
make such other disclosures regarding the Merger, as it determines are required
under applicable securities laws or regulatory rules. Prior to the publication
of such initial and mutually agreed press release, neither party shall make any
public announcement relating to this Agreement or the transactions contemplated
hereby (except as may be required by law) and the Company shall inform its
officers, directors, employees, stockholders and agents who are aware of the
transactions contemplated hereby of prohibitions against trading in shares of
Acquiror Common Stock imposed by federal and state securities laws.
13.13 Confidentiality. The Company and Acquiror each confirm that
they have entered into the Mutual NDA and that they are each bound by, and shall
abide by, the provisions of such Mutual NDA; provided, however, that Acquiror
shall not be bound by such Mutual NDA after the Closing. If this Agreement is
terminated, the Mutual NDA shall remain in full force and effect, and all copies
of documents containing confidential information of a disclosing party shall be
returned by the receiving party to the disclosing party or be destroyed, as
provided in the Mutual NDA.
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13.14 Entire Agreement. This Agreement, the exhibits and schedules
hereto, the Company Ancillary Agreements, the Acquiror Ancillary Agreements and
the Merger Sub Ancillary Agreements constitute the entire understanding and
agreement of the parties hereto with respect to the subject matter hereof and
supersede all prior and contemporaneous agreements or understandings,
inducements or conditions, express or implied, written or oral, between the
parties with respect hereto other than the Mutual NDA. The express terms hereof
control and supersede any course of performance or usage of the trade
inconsistent with any of the terms hereof.
13.15 U.S. Federal Income Tax Non-Confidentiality. Notwithstanding
anything provided herein, and any express or implied claims of exclusivity or
proprietary rights, all parties to this Agreement hereby agree and acknowledge
that each of them (and each of their employees, representatives or other agents)
is authorized to disclose to any and all persons, beginning immediately upon
commencement of their discussions and without limitation of any kind, the U.S.
federal or state income tax treatment and tax structure of the transactions
contemplated by this Agreement, and all materials of any kind (including
opinions or other tax analyses) that are provided by either party to the other
relating to such U.S. federal income tax treatment and tax structure, except to
the extent that such disclosure is subject to restrictions reasonably necessary
to comply with applicable securities laws.
13.16 Waiver of Jury Trial. EACH OF ACQUIROR, MERGER SUB, THE
COMPANY AND THE REPRESENTATIVE HEREBY IRREVOCABLY WAIVES ALL RIGHT TO TRIAL BY
JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM (WHETHER BASED ON CONTRACT, TORT
OR OTHERWISE) ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE ACTIONS OF
ACQUIROR, MERGER SUB, THE COMPANY AND THE REPRESENTATIVE IN THE NEGOTIATION,
ADMINISTRATION, PERFORMANCE AND ENFORCEMENT HEREOF.
[SIGNATURE PAGE NEXT]
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
COVAD COMMUNICATIONS GROUP, INC. GOBEAM, INC.
By: /s/ Xxxxxxx X. Xxxxxxx By: /s/ Xxxxxxx Xxxxxx
---------------------------------------- --------------------------
Name: Xxxxxxx X. Xxxxxxx Name: Xxxxxxx Xxxxxx
Title: President & Chief Executive Officer Title: President and CEO
COVAD COMMUNICATIONS INVESTMENT CORP. REPRESENTATIVE
By: /s/ Xxxxxxx X. Xxxxxxx By: /s/ Xxxxxxx Xxxxxxx
---------------------------------------- --------------------------
Name: Xxxxxxx X. Xxxxxxx Name: Xxxxxxx Xxxxxxx
Title: President
[SIGNATURE PAGE TO AGREEMENT AND PLAN OF MERGER]
LIST OF EXHIBITS
Exhibit A Form of Certificate of Merger
Exhibit B-1 List of Signatories to Voting Agreement
Exhibit B-2 Form of Voting Agreement
Exhibit C-1 List of Signatories to Employment Offer Letter
Exhibit C-2 Form of Employment Offer Letter
Exhibit D-1 List of Signatories to Non-Solicitation Agreement
Exhibit D-2 Form of Non-Solicitation Agreement
Exhibit E Certificate of Amendment
Exhibit F Form of Escrow Agreement
Exhibit G Form of Parachute Payment Waiver
Exhibit H Letter of Transmittal
Exhibit I Matters to be Covered in the Opinion of Fenwick & West LLP
Exhibit J Matters to be Covered in the Opinion of Xxxxxx Xxxxxx White &
XxXxxxxxx LLP
Exhibit K Form of Lockup Letter Agreement
Exhibit A
Form of Certificate of Merger
Exhibit B-1
List of Signatories to Voting Agreement
1. Xxxxxx Xxxxxxxxx
2. Xxxxxxx Xxxxx
3. Xxxxx Xxxxxxx
4. Enterprise Partners V
5. CMEA Ventures II, LP
6. CMEA Ventures Information Technology II
7. CMEA Ventures Information Technology II, Civil Law Partnership
8. LMS Capital (Bermuda) Ltd.
9. DLJ Capital Corp.
10. DLJ ESC II, LP
11. Sprout Capital VIII
12. Sprout Venture Capital LP
13. Sprout Capital IX LP
14. Sprout Entrepreneurs Fund
Exhibit B-2
Form of Voting Agreement
Exhibit C-1
List of Signatories to Employment Offer Letter
1. Xxxxxxx X. Xxxxxx
2. Xxxxxxx X. Xxxxxx
3. Xxxxx Xxxxxxx
Exhibit C-2
Form of Employment Offer Letter
Exhibit D-1
List of Signatories to Non-Solicitation Agreement
Founders
1. Xxxxxx Xxxxxxxxx
2. Xxxx Xxxxx
Other Company Employees
1. Xxxxx X. Xxxxxx
2. Xxxxx Xxxxx
Exhibit D-2
Form of Non-Solicitation Agreement
Exhibit E
Certificate of Amendment
Exhibit F
Form of Escrow Agreement
Exhibit G
Form of Parachute Payment Waiver
Exhibit H
Letter of Transmittal
Exhibit I
Matters to be Covered in the Opinion of Fenwick & West LLP
Exhibit J
Matters to be Covered in the Opinion of Xxxxxx Xxxxxx White & XxXxxxxxx LLP
Exhibit K
Form of Lockup Letter Agreement
Schedule 5.5
Necessary Consents
1. Lease Agreement dated October 23, 2000, as amended, between Xxxxx Road
Project #2 and the Company.
2. Sublease dated February 27, 2003 between ADC Telecommunications, Inc.
and the Company and the Office Lease Agreement dated June 30, 2000
between Chawin Property, Inc. and ADC Telecommunications Sales, Inc.
3. Early Adopter License Agreement between the Company and Sylantro
Systems Corporation dated December 15, 2000, as amended pursuant to
First Amendment to Early Adopter License Agreement dated March 22,
2002, Second Amendment to Early Adopter License Agreement dated March
3, 2003, Third Amendment to Early Adopter License Agreement dated
September 30, 2003, and Fourth Amendment to Early Adopter License
Agreement, dated December 15, 2003.
Schedule 10.11
1. The Security Agreement dated November 26, 2003 among the Company and
certain of the Company's Series A stockholders, as listed on Exhibit A
thereto.
2. Amended and Restated Investors' Rights Agreement among the Company,
Xxxxxx Xxxxxxxxx, Xxxxxxx Xxxxx and the Holders listed on Schedule A
thereto dated May 7, 2001, as amended pursuant to First Amendment to
Amended and Restated Investors' Rights Agreement among the Company,
Xxxxxx Xxxxxxxxx, Xxxxxxx Xxxxx, the Majority Holders (as defined
therein) and the Additional Investors (as defined therein) dated July
13, 2001; Second Amendment to Amended and Restated Investors' Rights
Agreement among the Company and the Majority Holders (as defined
therein) dated January 23, 2002; and Third Amendment to Amended and
Restated Investors' Rights Agreement among the Company and the Majority
Holders (as defined therein) dated May 29, 2002.
TABLE OF CONTENTS
PAGE
ARTICLE 1 CERTAIN DEFINITIONS........................................................................... 2
ARTICLE 2 The merger.................................................................................... 11
2.1 Conversion of Shares.......................................................................... 11
2.2 Other Rights Not Assumed...................................................................... 13
2.3 Escrow........................................................................................ 13
2.4 Effects of the Merger......................................................................... 14
2.5 Tax Consequences and Withholding.............................................................. 14
2.6 Further Assurances............................................................................ 15
ARTICLE 3 Representations and Warranties of the Company................................................. 15
3.1 Organization and Good Standing................................................................ 15
3.2 Subsidiaries.................................................................................. 16
3.3 Power, Authorization and Validity............................................................. 17
3.4 Capitalization of the Company................................................................. 17
3.5 No Conflict................................................................................... 19
3.6 Litigation.................................................................................... 20
3.7 Taxes......................................................................................... 20
3.8 Company Financial Statements.................................................................. 22
3.9 Title to Properties........................................................................... 22
3.10 Absence of Certain Changes.................................................................... 23
3.11 Contracts, Agreements, Arrangements, Commitments and Undertakings............................. 25
3.12 No Default; No Restrictions................................................................... 27
3.13 Intellectual Property......................................................................... 28
3.14 Compliance with Laws.......................................................................... 32
3.15 Certain Transactions and Agreements........................................................... 33
3.16 Employees, ERISA and Other Compliance......................................................... 33
3.17 Corporate Documents........................................................................... 37
3.18 Merger Expenses............................................................................... 37
3.19 Books and Records............................................................................. 38
3.20 Insurance..................................................................................... 38
3.21 Environmental Matters......................................................................... 38
3.22 No Existing Discussions....................................................................... 39
3.23 Customers and Suppliers....................................................................... 39
3.24 Privacy....................................................................................... 40
3.25 Accounts Receivable........................................................................... 40
3.26 Inventory..................................................................................... 41
3.27 Affiliates.................................................................................... 41
3.28 Disclosure.................................................................................... 41
ARTICLE 4 Representations and Warranties of Acquiror and Merger Sub..................................... 42
4.1 Organization and Good Standing................................................................ 42
4.2 Capital Structure............................................................................. 42
4.3 Power, Authorization and Validity............................................................. 42
4.4 No Conflict................................................................................... 43
4.5 SEC Documents; Financial Statements........................................................... 44
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TABLE OF CONTENTS
(continued)
PAGE
4.6 Litigation.................................................................................... 45
4.7 Compliance with Law........................................................................... 45
ARTICLE 5 Company Covenants............................................................................. 45
5.1 Advice of Changes............................................................................. 45
5.2 Maintenance of Business....................................................................... 45
5.3 Conduct of Business........................................................................... 46
5.4 Regulatory Approvals.......................................................................... 48
5.5 Necessary Consents............................................................................ 49
5.6 Litigation.................................................................................... 49
5.7 No Other Negotiations......................................................................... 49
5.8 Access to Information......................................................................... 50
5.9 Satisfaction of Conditions Precedent.......................................................... 50
5.10 Company Benefit Arrangements.................................................................. 51
5.11 Approval of the Company Stockholders.......................................................... 51
5.12 Notices to Company Securityholders and Employees.............................................. 52
5.13 Closing Merger Expense Certificate............................................................ 52
5.14 Amendment and Termination of Company Sale Participation Program............................... 53
5.15 Warrants; Other Securities.................................................................... 53
5.16 Certificate of Amendment...................................................................... 53
ARTICLE 6 Acquiror Covenants............................................................................ 53
6.1 Advice of Changes............................................................................. 53
6.2 Regulatory Approvals.......................................................................... 53
6.3 Satisfaction of Conditions Precedent.......................................................... 54
6.4 Employee Benefit Matters...................................................................... 54
6.5 Indemnification of Company Directors and Officers............................................. 55
6.6 Assumption of Options......................................................................... 55
6.7 Form S-8...................................................................................... 56
6.8 Personnel Awards.............................................................................. 57
6.9 Assumed Bonus Payments........................................................................ 57
ARTICLE 7 Additional Agreements......................................................................... 57
7.1 Information Statement; Fairness Hearing and Permit; Blue Sky Laws............................. 57
ARTICLE 8 Closing Matters............................................................................... 60
8.1 The Closing................................................................................... 60
8.2 Exchange...................................................................................... 60
8.3 Dissenting Shares............................................................................. 63
ARTICLE 9 Conditions to Obligations of The Company...................................................... 64
9.1 Accuracy of Representations and Warranties.................................................... 64
9.2 Covenants..................................................................................... 64
9.3 Compliance with Law; No Legal Restraints; No Litigation....................................... 64
9.4 Government Consents........................................................................... 64
9.5 Escrow Agreement.............................................................................. 64
9.6 Company Stockholder Approvals................................................................. 64
9.7 Issuance of Permit; Registration Statement.................................................... 65
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TABLE OF CONTENTS
(continued)
PAGE
9.8 Listing....................................................................................... 65
9.9 Opinion of Acquiror's Legal Counsel........................................................... 65
ARTICLE 10 Conditions to Obligations of Acquiror and Merger Sub.......................................... 65
10.1 Accuracy of Representations and Warranties.................................................... 65
10.2 Covenants..................................................................................... 66
10.3 No Material Adverse Change.................................................................... 66
10.4 Compliance with Law; No Legal Restraints; No Litigation....................................... 66
10.5 Government Consents; Permit................................................................... 66
10.6 Opinion of Company's Legal Counsel............................................................ 66
10.7 Consents...................................................................................... 66
10.8 Company Stockholder Approvals................................................................. 67
10.9 Voting and Employment Matters................................................................. 67
10.10 Conversion of Promissory Notes; Termination of Other Rights................................... 67
10.11 Termination, Modification or Satisfaction of Company Stockholder Documents and Rights......... 67
10.12 Resignations of Directors and Officers........................................................ 67
10.13 Company Sale Participation Program............................................................ 67
10.14 Closing Merger Expense Certificate............................................................ 68
10.15 Spreadsheet................................................................................... 68
10.16 Lockup Agreements............................................................................. 68
10.17 Section 280G Approval......................................................................... 68
10.18 Company Good Standing Certificates............................................................ 68
10.19 Termination of Company Benefit Arrangements................................................... 68
10.20 Escrow Agreement.............................................................................. 69
10.21 Termination of Interim Funding Agreement...................................................... 69
10.22 FIRPTA........................................................................................ 69
ARTICLE 11 Termination of Agreement...................................................................... 69
11.1 Termination by Mutual Consent................................................................. 69
11.2 Unilateral Termination........................................................................ 69
11.3 Effect of Termination......................................................................... 70
ARTICLE 12 Survival of Representations, Indemnification and Remedies; Continuing Covenants............... 70
12.1 Survival...................................................................................... 70
12.2 Agreement to Indemnify........................................................................ 71
12.3 Limitations................................................................................... 72
12.4 Appointment of Representative................................................................. 72
12.5 Notice of Claim............................................................................... 73
12.6 Defense of Third-Party Claims................................................................. 74
12.7 Contents of Notice of Claim................................................................... 75
12.8 Resolution of Notice of Claim................................................................. 75
12.9 Release of Remaining Escrow Shares............................................................ 76
12.10 Tax Consequences of Indemnification Payments.................................................. 76
ARTICLE 13 Miscellaneous................................................................................. 76
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TABLE OF CONTENTS
(continued)
PAGE
13.1 Governing Law................................................................................. 76
13.2 Assignment; Binding Upon Successors and Assigns............................................... 77
13.3 Severability.................................................................................. 77
13.4 Counterparts.................................................................................. 77
13.5 Other Remedies................................................................................ 77
13.6 Amendments and Waivers........................................................................ 78
13.7 Expenses...................................................................................... 78
13.8 Attorneys' Fees............................................................................... 78
13.9 Notices....................................................................................... 78
13.10 Interpretation; Rules of Construction......................................................... 80
13.11 Third Party Beneficiary Rights................................................................ 80
13.12 Public Announcement........................................................................... 80
13.13 Confidentiality............................................................................... 80
13.14 Entire Agreement.............................................................................. 81
13.15 U.S. Federal Income Tax Non-Confidentiality................................................... 81
13.16 Waiver of Jury Trial.......................................................................... 81
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