Exhibit 2.1
AGREEMENT AND PLAN OF MERGER
by and among
NETWORK APPLIANCE, INC.,
NAGANO SUB, INC.,
and
SPINNAKER NETWORKS, INC.,
Dated as of November 3, 2003
TABLE OF CONTENTS
Page
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ARTICLE 1 DEFINITIONS......................................................................... 2
1.1 DEFINED TERMS............................................................... 2
1.2 INTERPRETATION PROVISIONS................................................... 15
ARTICLE 2 THE MERGER.......................................................................... 16
2.1 THE MERGER.................................................................. 16
2.2 EFFECTIVE TIME.............................................................. 16
2.3 EFFECT OF THE MERGER........................................................ 17
2.4 CERTIFICATE OF INCORPORATION; BYLAWS........................................ 17
2.5 DIRECTORS AND OFFICERS...................................................... 17
2.6 CONVERSION OF SECURITIES.................................................... 17
2.7 SURRENDER OF CERTIFICATES................................................... 18
2.8 NO FURTHER OWNERSHIP RIGHTS IN SHARES OF COMMON STOCK AND PREFERRED STOCK... 19
2.9 LOST, STOLEN OR DESTROYED CERTIFICATES...................................... 20
2.10 ESCROW OF MERGER SHARES..................................................... 20
2.11 DISSENTING SHARES........................................................... 20
2.12 OPTIONS/RESTRICTED STOCK UNITS.............................................. 21
2.13 WARRANTS.................................................................... 22
2.14 TAKING OF NECESSARY ACTION; FURTHER ACTION.................................. 23
2.15 WITHHOLDING................................................................. 23
ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF THE COMPANY....................................... 23
3.1 ORGANIZATION OF THE COMPANY................................................. 24
3.2 CAPITALIZATION OF THE COMPANY............................................... 24
3.3 STOCKHOLDERS' AGREEMENTS, ETC............................................... 25
3.4 AUTHORIZATION............................................................... 25
3.5 OFFICERS AND DIRECTORS...................................................... 26
3.6 BANK ACCOUNTS............................................................... 26
3.7 SUBSIDIARIES................................................................ 26
3.8 REAL PROPERTY............................................................... 26
3.9 PERSONAL PROPERTY........................................................... 27
3.10 ENVIRONMENTAL MATTERS....................................................... 28
3.11 CONTRACTS................................................................... 29
3.12 NO CONFLICT OR VIOLATION; CONSENTS.......................................... 31
3.13 PERMITS..................................................................... 31
3.14 FINANCIAL STATEMENTS; BOOKS AND RECORDS..................................... 31
3.15 ABSENCE OF CERTAIN CHANGES OR EVENTS........................................ 32
3.16 LIABILITIES................................................................. 33
3.17 LITIGATION.................................................................. 34
3.18 LABOR MATTERS............................................................... 34
3.19 EMPLOYEE BENEFIT PLANS...................................................... 35
3.20 TRANSACTIONS WITH RELATED PARTIES........................................... 37
3.21 COMPLIANCE WITH LAW......................................................... 38
3.22 PROPRIETARY RIGHTS.......................................................... 38
3.23 TAX MATTERS................................................................. 40
3.24 REORGANIZATION TREATMENT.................................................... 43
3.25 INSURANCE................................................................... 44
3.26 ACCOUNTS RECEIVABLE......................................................... 44
3.27 CUSTOMERS................................................................... 44
3.28 SUPPLIERS................................................................... 44
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3.29 BROKERS; TRANSACTION COSTS.................................................. 45
3.30 FOREIGN CORRUPT PRACTICES ACT............................................... 45
3.31 STOCKHOLDER VOTE REQUIRED................................................... 45
3.32 INFORMATION SUPPLIED BY THE COMPANY......................................... 45
3.33 ACQUISITION PROPOSALS....................................................... 46
3.34 MATERIAL MISSTATEMENTS OR OMISSIONS......................................... 46
ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF PARENT AND SUB.................................... 46
4.1 ORGANIZATION................................................................ 46
4.2 CAPITALIZATION.............................................................. 46
4.3 VALID ISSUANCE OF MERGER SHARES............................................. 47
4.4 AUTHORIZATION............................................................... 47
4.5 NO CONFLICT OR VIOLATION; CONSENTS.......................................... 47
4.6 REPORTS AND FINANCIAL STATEMENTS............................................ 48
4.7 REORGANIZATION TREATMENT.................................................... 48
ARTICLE 5 ACTIONS BY THE COMPANY, PARENT AND SUB.............................................. 50
5.1 CONDUCT OF BUSINESS......................................................... 50
5.2 ACCESS BY PARENT............................................................ 52
5.3 NOTIFICATION OF CERTAIN MATTERS............................................. 52
5.4 ACQUISITION PROPOSALS....................................................... 52
5.5 COMPANY STOCKHOLDER APPROVAL................................................ 53
5.6 FAIRNESS HEARING; REGISTRATION OF SHARES.................................... 53
5.7 NASDAQ LISTING OF ADDITIONAL SHARES APPLICATION............................. 54
5.8 TAKEOVER STATUTES........................................................... 54
5.9 FURTHER ASSURANCES.......................................................... 54
5.10 EMPLOYEES................................................................... 54
5.11 BRIDGE LOANS................................................................ 55
5.12 [INTENTIONALLY OMITTED]..................................................... 55
5.13 DIRECTORS................................................................... 55
5.14 WARRANTS.................................................................... 56
5.15 NET LIABILITIES; DISPUTES................................................... 56
ARTICLE 6 TAX MATTERS......................................................................... 56
6.1 TAX PERIODS ENDING ON OR BEFORE THE CLOSING DATE............................ 56
6.2 TAX PERIODS BEGINNING BEFORE AND ENDING AFTER THE CLOSING DATE.............. 56
6.3 COOPERATION ON TAX MATTERS.................................................. 57
6.4 CONTEST PROVISIONS.......................................................... 57
6.5 REORGANIZATION MATTERS...................................................... 58
6.6 CERTAIN TAXES............................................................... 58
6.7 FIRPTA CERTIFICATE.......................................................... 58
ARTICLE 7 CONDITIONS TO THE COMPANY'S OBLIGATIONS............................................. 58
7.1 REPRESENTATIONS, WARRANTIES AND COVENANTS................................... 59
7.2 FAIRNESS APPROVAL; EFFECTIVENESS OF REGISTRATION STATEMENT.................. 59
7.3 GOVERNMENTAL CONSENTS....................................................... 59
7.4 NO ACTIONS OR COURT ORDERS.................................................. 59
7.5 STOCKHOLDER APPROVAL........................................................ 59
7.6 LEGAL OPINION............................................................... 59
7.7 LISTING..................................................................... 59
ARTICLE 8 CONDITIONS TO PARENT'S AND SUB'S OBLIGATIONS........................................ 60
8.1 REPRESENTATIONS, WARRANTIES AND COVENANTS................................... 60
8.2 FAIRNESS APPROVAL; EFFECTIVENESS OF REGISTRATION STATEMENT.................. 60
8.3 CONSENTS.................................................................... 60
8.4 NO ACTIONS OR COURT ORDERS.................................................. 60
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8.5 AGREEMENTS.................................................................. 60
8.6 EMPLOYEES................................................................... 60
8.7 STOCKHOLDER APPROVAL........................................................ 60
8.8 LISTING..................................................................... 61
8.9 LEGAL OPINION............................................................... 61
8.10 DISSENTERS RIGHTS........................................................... 61
8.11 ESCROW AGREEMENTS........................................................... 61
8.12 ADDITIONAL EQUITY AWARD GRANTS.............................................. 61
8.13 401(K) PLAN TERMINATION..................................................... 61
8.14 NET LIABILITIES CERTIFICATE................................................. 61
8.15 FINANCIAL INFORMATION....................................................... 61
ARTICLE 9 CLOSING............................................................................. 61
ARTICLE 10 INDEMNIFICATION.................................................................... 62
10.1 SURVIVAL OF REPRESENTATIONS, ETC............................................ 62
10.2 INDEMNIFICATION............................................................. 62
10.3 NO RIGHT OF CONTRIBUTION.................................................... 64
10.4 THRESHOLD; LIMITATIONS ON INDEMNITY......................................... 64
10.5 STOCKHOLDER REPRESENTATIVE; POWER OF ATTORNEY............................... 65
ARTICLE 11 MISCELLANEOUS...................................................................... 66
11.1 TERMINATION................................................................. 66
11.2 ASSIGNMENT.................................................................. 66
11.3 NOTICES..................................................................... 66
11.4 CHOICE OF LAW............................................................... 67
11.5 REPRESENTATION BY COUNSEL................................................... 67
11.6 ENTIRE AGREEMENT; AMENDMENTS AND WAIVERS.................................... 68
11.7 COUNTERPARTS................................................................ 68
11.8 INVALIDITY.................................................................. 68
11.9 EXPENSES.................................................................... 68
11.10 PUBLICITY................................................................... 68
11.11 NO THIRD PARTY BENEFICIARIES................................................ 68
11.12 DISPUTE RESOLUTION.......................................................... 68
11.13 WAIVER OF JURY TRIAL........................................................ 69
11.14 SERVICE OF PROCESS; CONSENT TO JURISDICTION................................. 69
11.15 ATTORNEY FEES............................................................... 70
SCHEDULE 2.5 DIRECTORS AND OFFICERS OF SURVIVING CORPORATION
SCHEDULE 3.1 ORGANIZATION OF THE COMPANY
SCHEDULE 3.2(a) AUTHORIZED CAPITALIZATION
SCHEDULE 3.2(b) OPTIONS
SCHEDULE 3.2(c) WARRANTS
SCHEDULES 3.3 STOCKHOLDERS' AGREEMENTS, ETC.
SCHEDULE 3.5 OFFICERS AND DIRECTORS
SCHEDULE 3.6 BANK ACCOUNTS
SCHEDULE 3.7 SUBSIDIARIES
SCHEDULE 3.8(b) LEASED REAL PROPERTY
SCHEDULE 3.9(b) OWNED PERSONAL PROPERTY
SCHEDULE 3.9(c) LEASED PERSONAL PROPERTY
SCHEDULE 3.10(a) COMPLIANCE
SCHEDULE 3.10(d) ENVIRONMENTAL INDEMNITIES
SCHEDULE 3.10(f) ENVIRONMENTAL REPORTS
SCHEDULE 3.11(a) CONTRACTS
SCHEDULE 3.11(b) ABSENCE OF DEFAULTS
SCHEDULE 3.12 NO CONFLICT OR VIOLATION; CONSENTS (COMPANY)
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SCHEDULE 3.13 PERMITS
SCHEDULE 3.15 ABSENCE OF CERTAIN CHANGES OR EVENTS
SCHEDULE 3.17 LITIGATION
SCHEDULE 3.18(c) SEVERANCE OBLIGATIONS
SCHEDULE 3.19 EMPLOYEE BENEFIT PLANS
SCHEDULE 3.20 TRANSACTIONS WITH RELATED PARTIES
SCHEDULE 3.22(a) INTELLECTUAL PROPERTY; GENERAL
SCHEDULE 3.23(e) TAX ELECTIONS
SCHEDULE 3.25 INSURANCE
SCHEDULE 3.26 ACCOUNTS RECEIVABLE
SCHEDULE 3.26(b) EMPLOYEE LOANS
SCHEDULE 3.27 CUSTOMERS
SCHEDULE 3.28 SUPPLIERS
SCHEDULE 3.29 BROKERS; TRANSACTION COSTS
SCHEDULE 4.5 NO CONFLICT OR VIOLATION; CONSENTS (PARENT)
SCHEDULE 5.1 CONDUCT OF BUSINESS
SCHEDULE 7.3 GOVERNMENTAL CONSENTS
SCHEDULE 8.3 CONSENTS
EXHIBIT A FORM OF VOTING AGREEMENT; LIST OF PARTIES TO VOTING AGREEMENT
EXHIBIT B FORM OF KEY GROUP NON-COMPETITION AGREEMENT
EXHIBIT C FORM OF CORE EMPLOYEE NON-COMPETITION AGREEMENT
EXHIBIT D FORM OF STOCK RESTRICTION AGREEMENT
EXHIBIT E FORM OF INDEMNITY ESCROW AGREEMENT
EXHIBIT F CORE EMPLOYEES
EXHIBIT G KEY GROUP EMPLOYEES
EXHIBIT H CERTIFICATE OF INCORPORATION
EXHIBIT I BYLAWS
EXHIBIT J ADDITIONAL EQUITY AWARDS
EXHIBIT K BRIDGE LOAN AGREEMENT
EXHIBIT L OTHER EMPLOYEES
EXHIBIT M OPINIONS OF XXXXXX & XXXXXXX, LLC, COUNSEL TO PARENT
EXHIBIT N OPINIONS OF GENERAL COUNSEL TO PARENT
EXHIBIT O OPINIONS OF COUNSEL TO THE COMPANY
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AGREEMENT AND PLAN OF MERGER
This AGREEMENT AND PLAN OF MERGER is dated as of November 3, 2003 (the
"Agreement"), by and among Network Appliance, Inc., a Delaware corporation
("Parent"), Nagano Sub, Inc., a Delaware corporation ("Sub"), and Spinnaker
Networks, Inc., a Delaware corporation (the "Company").
RECITALS:
A. The Boards of Directors of Parent, Sub and the Company have
determined that it is advisable and in the best interests of their respective
stockholders for Parent, Sub and the Company to enter into a business
combination upon the terms and subject to the conditions set forth herein.
B. In furtherance of such combination, the Boards of Directors of
Parent, Sub and the Company have each approved the merger of Sub with and into
the Company (the "Merger"), upon the terms and subject to the conditions set
forth herein, in accordance with the applicable provisions of the Delaware
General Corporation Law (the "DGCL").
C. Parent, Sub and the Company intend, by approving resolutions
authorizing this Agreement, to adopt this Agreement as a plan of reorganization
and that the Merger qualify as a reorganization within the meaning of Section
368(a) of the Internal Revenue Code of 1986, as amended (the "Code"), and the
regulations promulgated thereunder.
D. Pursuant to the Merger, each outstanding share of common
stock, par value $0.0001 per share, of the Company (the "Common Stock") shall be
converted solely into the right to receive Parent Stock (as defined herein),
upon the terms and subject to the conditions set forth herein.
E. As an inducement to Parent and Sub to enter into this
Agreement, the stockholders of the Company set forth on Exhibit A hereto have
entered into a Voting Agreement with Parent, in the form attached as Exhibit A
hereto (the "Voting Agreement"), pursuant to which, among other things, such
stockholders have agreed to vote the shares of Common Stock owned by them in
favor of the Merger and adoption of this Agreement and approving the Option Plan
Amendment (as defined herein).
F. As an inducement to Parent and Sub to enter into this
Agreement, certain of the Key Group Employees (defined herein) have entered into
Non-Competition Agreements with Parent, each in substantially the form attached
as Exhibit B hereto (the "Key Group Non-Competition Agreements"), each to be
effective upon the Closing of the Merger.
G. As an inducement to Parent and Sub to enter into this
Agreement, the Core Employees (as defined herein) have entered into
Non-Competition Agreements with Parent, each in substantially the form attached
as Exhibit C hereto (the "Core Employee Non-Competition Agreements"), each to be
effective upon the Closing of the Merger.
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H. As an inducement to Parent and Sub to enter into this
Agreement, the Core Employees have entered into agreements with Parent, each in
substantially the form attached as Exhibit D hereto (the "Stock Restriction
Agreements"), restricting the resale of a portion of the shares issued to them
at the Closing of the Merger, requiring that such shares be deposited in escrow
at the Closing, and requiring that such shares be subject to forfeiture upon the
occurrence of certain events set forth in such agreements, such shares to be
disbursed in accordance with an escrow agreement, in substantially the form
attached as an exhibit to the Stock Restriction Agreements (the "Retention
Escrow Agreement"), to be entered into prior to the Closing of the Merger, by
and among Parent, the Core Employees and the Retention Escrow Agent (as defined
herein).
I. A portion of the shares of Parent Stock otherwise issuable by
Parent in connection with the Merger shall be placed in escrow by Parent at the
Closing for purposes of satisfying indemnification obligations of the
Stockholders to Parent, and shall disbursed in accordance with an escrow
agreement, substantially in the form attached hereto as Exhibit E (the
"Indemnity Escrow Agreement"), to be entered into prior to the Closing of the
Merger, by and among Parent, the Stockholder Representative (as defined herein)
and the Depositary Agent (as defined herein).
AGREEMENT:
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants and agreements herein contained, and intending to be legally bound
hereby, Parent, Sub and the Company hereby agree as follows:
ARTICLE 1
DEFINITIONS
1.1 Defined Terms. As used herein, the terms below shall have the
following meanings:
"401(k) Plan" has the meaning set forth in Section 8.13.
"AAA" has the meaning set forth in Section 11.12.
"Acquisition Proposal" has the meaning set forth in Section
3.33.
"Action" means any action, order, writ, injunction, judgment
or decree outstanding, or claim, suit, litigation, proceeding, arbitration or
mediation.
"Additional Equity Awards" has the meaning set forth in
Section 5.10(c).
"Affiliate" of a Person means any other Person which, directly
or indirectly, controls, is controlled by, or is under common control with, such
Person. The term "control" (including, with correlative meaning, the terms
"controlled by" and "under common control with"), as used with respect to any
Person, means the possession, directly or indirectly, of the power to direct or
cause the direction of the management and policies of such Person, whether
through the ownership of voting securities, by contract or otherwise.
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"Agreement" has the meaning set forth in the Preamble.
"Ancillary Agreements" means, collectively, the Indemnity
Escrow Agreement, the Retention Escrow Agreement, the Non-Competition
Agreements, the Voting Agreements, the Stock Restriction Agreements, the Option
Plan Amendment and the Bridge Loan Agreement and "Ancillary Agreement" means any
one of the other agreements required hereunder.
"Arbitrable Claim" has the meaning set forth in Section 11.12.
"Assets" means the right, title and interest of the Company
and its Subsidiaries in properties, assets and rights of any kind, whether
tangible or intangible, real or personal, including without limitation the
right, title and interest in the following:
(a) all Contracts and Contract Rights;
(b) all Fixtures and Equipment;
(c) all Inventory;
(d) all Books and Records;
(e) all Proprietary Rights;
(f) all Permits;
(g) all return and other rights under or pursuant to all
warranties, representations and guarantees made by suppliers and other third
parties in connection with the Assets or services furnished to the Company or
its Subsidiaries;
(h) all cash, accounts receivable, deposits and prepaid
expenses; and
(i) all goodwill.
"Balance Sheet Date" means December 31, 2002.
"Benefit Arrangement" means any employment, consulting,
severance or other similar contract, arrangement or policy (written or oral) to
the extent the Company currently has or may incur liability for payments or
benefits thereunder and each plan, arrangement, program, agreement or commitment
(written or oral) providing for insurance coverage (including, without
limitation, any self-insured arrangements), workers' compensation, disability
benefits, supplemental unemployment benefits, vacation benefits, retirement
benefits, life, health or accident benefits (including, without limitation, any
"voluntary employees' beneficiary association" as defined in Section 501(c)(9)
of the Code providing for the same or other benefits) or for deferred
compensation, profit-sharing, bonuses, stock options, stock appreciation rights,
compensatory stock purchases or other forms of incentive compensation or
post-retirement insurance, compensation or benefits which (a) is not a Welfare
Plan, Pension Plan or Multiemployer Plan, (b) is entered into, maintained,
contributed to or required to be contributed to, as the case may be, by the
Company or any ERISA Affiliate or under which the Company or
3
any ERISA Affiliate may incur any liability, and (c) covers any employee or
former employee of the Company or any ERISA Affiliate (with respect to their
relationship with such any entity).
"Benefits Date" has the meaning set forth in Section 5.10(a).
"Books and Records" means (a) all product, business and
marketing plans, sales and promotional literature and artwork relating to the
Assets or the Business, (b) all books, records, lists, ledgers, financial data,
files, reports, product and design manuals, plans, drawings, technical manuals
and operating records of every kind relating to the Assets or the Business
(including records and lists of customers, distributors, suppliers and
personnel) and (c) all telephone and fax numbers used in the Business, in each
case whether maintained as hard copy or stored in computer memory and whether
owned by the Company or its Affiliates.
"Bridge Amount" has the meaning set forth in Section 5.11.
"Bridge Loan" has the meaning set forth in Section 5.11.
"Bridge Loan Agreement" has the meaning set forth in Section
5.11.
"BSD" has the meaning set forth in Section 3.22(e).
"Business" means the business and operations of the Company
and its Subsidiaries.
"California Permit" has the meaning set forth in Section 3.32.
"CCC" means California Corporation Code.
"Certificate of Merger" has the meaning set forth in Section
2.2.
"Certificates" has the meaning set forth in Section 2.7(a).
"Claim" has the meaning set forth in Section 10.2(b).
"Claim Expiration Date" has the meaning set forth in Section
10.1.
"Claim Notice" has the meaning set forth in Section 10.2(b).
"Closing" has the meaning set forth in Section 2.1(b).
"Closing Date" means the date of the Closing.
"Closing Average Price" means the average of the per share
closing sale prices of Parent Stock on the NASDAQ National Market as reported in
the Wall Street Journal for the ten consecutive Trading Days ending with the
second to last Trading Day prior to the Closing Date.
"Closing Price" means the per share closing sales price of the
Parent Stock on the NASDAQ National Market as reported in the Wall Street
Journal for the Trading Day immediately prior to the Closing Date.
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"Code" has the meaning set forth in the Recitals.
"Commissioner" has the meaning set forth in Section 5.6.
"Common Stock" has the meaning set forth in the Recitals.
"Company" has the meaning set forth in the Preamble.
"Company Board" has the meaning set forth in Section 2.12(a).
"Company Closing Certificate" has the meaning set forth in
Section 8.1.
"Company Confidentiality Agreement" means that certain Letter
Agreement dated as of September 29, 2003 between Parent and the Company.
"Company Fully Diluted Capitalization" means, as of
immediately prior to the Effective Time, the number of shares of Common Stock
(i) outstanding, assuming the Additional Equity Awards were granted immediately
prior to such time; (ii) issued or issuable upon conversion of all outstanding
shares of Preferred Stock, (iii) issued or issuable upon exercise of all
outstanding Company Warrants, and (iv) issuable upon exercise of all outstanding
Company Options, assuming the Additional Equity Awards were granted immediately
prior to such time.
"Company Material Adverse Effect" or "Company Material Adverse
Change" means a Material Adverse Effect or Material Adverse Change (i) with
respect to the Company and its Subsidiaries, taken as a whole, or (ii) on the
ability of the Company to perform its obligations under or to consummate the
Merger or any of the other transactions contemplated by this Agreement or any of
the Ancillary Agreements.
"Company Options" means options to purchase shares of Common
Stock issued or issuable by the Company pursuant to the Company Stock Option
Plan.
"Company Restricted Stock Units" means restricted stock units
for shares of Common Stock issued or issuable by the Company pursuant to the
Company Stock Option Plan and as part of the Additional Equity Awards pursuant
to Section 5.10.
"Company Stock Option Plan" means the 2000 Stock Plan of the
Company.
"Company Warrants" means warrants to purchase 148,148 shares
of Series A Preferred Stock and 600,583 shares of Series B Preferred Stock.
"Consents" means any and all Permits and any and all notices
to, consents, approvals, clearances, ratifications, permissions, authorizations
or waivers from third parties, including governmental authorities, that are
required for the consummation of the transactions contemplated by this
Agreement.
"Contract Rights" means all rights and obligations under
Contracts.
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"Contracts" means all agreements, contracts, subcontracts,
leases (whether for real or personal property), purchase orders, covenants not
to compete, employment agreements, confidentiality agreements, licenses,
instruments, notes, obligations, options, warranties and commitments binding on
the Company or one of its Subsidiaries or by which any of the Assets are bound,
whether written or oral.
"Core Employee Non-Competition Agreements" has the meaning set
forth in the Recitals.
"Core Employees" means those employees set forth on Exhibit F.
"Court Order" means any judgment, decision, consent decree,
injunction, ruling or order of any foreign, federal, state or local court or
governmental agency, department or authority that is binding on any Person or
its property under applicable law.
"Damage Cap" has the meaning set forth in Section 10.2(c).
"Damage Threshold" has the meaning set forth in Section 10.4.
"Damages" has the meaning set forth in Section 10.2(a).
"Default" means (a) a breach of or default under any Contract,
(b) the occurrence of an event that with the passage of time or the giving of
notice or both would constitute a breach of or default under any Contract or (c)
the occurrence of an event that with or without the passage of time or the
giving of notice or both would give rise to a right of termination or
acceleration under any Contract.
"Depositary Agent" means the depositary agent under the
Indemnity Escrow Agreement, which depositary agent shall be designated by Parent
and the Company prior to Closing, or any alternative or successor agent.
"DGCL" has the meaning set forth in the Recitals.
"Dispute Notice" has the meaning set forth in Section 5.15.
"Dissenting Shares" has the meaning set forth in Section
2.11(a).
"Effective Time" has the meaning set forth in Section 2.2.
"Employee Plans" means all Benefit Arrangements, Multiemployer
Plans, Pension Plans and Welfare Plans.
"Employees" means all Persons employed by the Company and its
Subsidiaries on a full or part-time basis, whether on active status or on leaves
of absence.
"Encumbrance" means any claim, lien, pledge, hypothecation,
option to lease or purchase, easement, tax assessment, security interest, deed
of trust, mortgage, right-of-way, encroachment, building or use restriction,
conditional sales agreement, ownership interest, joint
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or co-ownership interest, right of first refusal, right of first negotiation,
preemptive right, encumbrance or other right of third parties (including any
restriction on the voting of any security, any restriction on the transfer of
any security or other asset, any restriction on the use of any asset or any
restriction on the possession, exercise or transfer of any other attribute of
ownership of any asset), whether voluntarily incurred or arising by operation of
law, and includes any agreement to give any of the foregoing in the future, and
any contingent sale or other title retention or exception agreement or lease in
the nature thereof.
"Environmental Claims" means all notices of violation, liens,
claims, demands, suits, CERCLA Section 104(e) (or similar state or federal)
information requests, notices of citizen suit or causes of action for any
damage, including, without limitation, personal injury, property damage
(including, without limitation, any depreciation or diminution of property
values), lost use of property or consequential damages, arising out of
Environmental Conditions or Environmental Laws. By way of example only (and not
by way of limitation), Environmental Claims include (i) violations of or
obligations under any contract related to Environmental Laws or Environmental
Conditions between the Company and any other person, (ii) actual or threatened
damages to natural resources, (iii) claims for nuisance or its statutory
equivalent, (iv) claims for the recovery of response costs, or administrative or
judicial orders directing the performance of investigations, responses or
remedial actions under any Environmental Laws, (v) requirements to implement
"corrective action" pursuant to any order or permit issued pursuant to the
Resource Conservation and Recovery Act, as amended, or similar provisions of
applicable state law, (vi) claims related to Environmental Laws or Environmental
Conditions for restitution, contribution, or indemnity, (vii) fines, penalties
or liens of any kind against property related to Environmental Laws or
Environmental Conditions, (viii) claims related to Environmental Laws or
Environmental Conditions for injunctive relief or other orders or notices of
violation from federal, state or local agencies or courts, and (ix) with regard
to any present or former employees, claims relating to exposure to or injury
from Hazardous Substances.
"Environmental Conditions" means the state of the environment,
including natural resources (e.g., flora and fauna), soil, surface water, ground
water, any present or potential drinking water supply, subsurface strata or
ambient air, relating to or arising out of the use, handling, storage,
treatment, recycling, generation, transportation, release, spilling, leaking,
pumping, pouring, emptying, discharging, injecting, escaping, leaching,
disposal, dumping or threatened release of Hazardous Substances by the Company
or any of its predecessors in interest, or by its respective agents,
representatives, employees or independent contractors when acting in such
capacity on behalf of the Company. With respect to Environmental Claims by third
parties, Environmental Conditions also include the exposure of persons to
Hazardous Substances at the work place or the exposure of persons or property to
Hazardous Substances migrating from or otherwise emanating from or located on
property owned or occupied by the Company.
"Environmental Laws" means all of the following, to the extent
in effect as of the Closing, applicable federal, state, district and local laws,
all rules or regulations promulgated thereunder, and all orders, consent orders,
judgments, notices, permits or demand letters issued, and any conditions
thereunder, promulgated or entered pursuant thereto, relating to pollution or
protection of the environment (including ambient air, surface water, ground
water, land surface, or subsurface strata), including, without limitation, (i)
laws relating to emissions, discharges,
7
releases or threatened releases of pollutants, contaminants, chemicals,
industrial materials, wastes or other substances into the environment and (ii)
laws relating to the identification, generation, manufacture, processing,
distribution, use, treatment, storage, disposal, recovery, transport or other
handling of pollutants, contaminants, chemicals, industrial materials, wastes or
other substances. Environmental Laws shall include, without limitation, the
Comprehensive Environmental Response, Compensation and Liability Act of 1980, as
amended ("CERCLA"), the Toxic Substances Control Act, as amended, the Hazardous
Materials Transportation Act, as amended, the Resource Conservation and Recovery
Act, as amended ("RCRA"), the Clean Water Act, as amended, the Safe Drinking
Water Act, as amended, the Clean Air Act, as amended, the Occupational Safety
and Health Act, as amended, and all analogous laws promulgated or issued by any
state or other Governmental Authority.
"Environmental Reports" means any and all written analyses,
summaries or explanations, in the possession or control of the Company or its
Subsidiaries, prepared for the purpose of analyzing or assessing (a) any
Environmental Conditions in, on or about the properties of the Company, (b) the
Company's compliance with Environmental Laws, or (c) any pending or threatened
litigation against the Company regarding any Environmental Law.
"Equity Consideration" means the number of shares of Parent
Stock equal to the fraction, the numerator of which is $292,500,000 plus the
aggregate exercise price of Company stock options issued as Additional Equity
Awards pursuant to Section 5.10(c) (without regard to the last sentence of
Section 2.12(a)(ii)) and minus the amount by which Net Liabilities as of the
Closing Date exceed $5,000,000, and the denominator of which is the Parent Stock
Price.
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended.
"ERISA Affiliate" means any entity which is (or at any
relevant time was) a member of a "controlled group of corporations" with, under
"common control" with, or a member of an "affiliated service group" with, or
otherwise required to be aggregated with, the Company as set forth in Section
414(b), (c), (m) or (o) of the Code.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended, and the rules and regulations promulgated thereunder.
"Exchange Ratio" means the fraction, the numerator of which is
the Equity Consideration and the denominator of which is the Company Fully
Diluted Capitalization.
"Exclusivity Period" has the meaning set forth in Section 5.4.
"Facilities" means all offices, warehouses, administration
buildings and all real property and related facilities leased by the Company or
its Subsidiaries.
"Fairness Approval" has the meaning set forth in Section 5.6.
"Financial Statements" means the consolidated balance sheets
of the Company (or its predecessor, as the case may be) as of December 31, 2002,
2001 and 2000 and the related consolidated statements of income, changes in
stockholders' equity and cash flows, of the
8
Company for the years ended December 31, 2002, 2001 and 2000, together with the
report of Ernst & Young LLP thereon.
"Fixtures and Equipment" means all of the furniture, fixtures,
furnishings, machinery, computer hardware, and other tangible personal property
owned by the Company or its Subsidiaries, wherever located.
"GAAP" means generally accepted accounting principles as
applied in the United States.
"GPL" has the meaning set forth in Section 3.22(e).
"Hazardous Substances" means all pollutants, contaminants,
chemicals, wastes, and any other carcinogenic, ignitable, corrosive, reactive,
toxic or otherwise hazardous substances or materials (whether solids, liquids or
gases) subject to regulation, control or remediation under Environmental Laws
excluding, however, such substances or materials used in office and janitorial
products by or for the Company in compliance with Environmental Laws. By way of
example only, the term Hazardous Substances includes petroleum, urea
formaldehyde, flammable, explosive and radioactive materials, PCBs, asbestos,
acids, metals, mold, solvents and waste waters.
"HSR Act" means the Xxxx Xxxxx Xxxxxx Antitrust Improvements
Act of 1976, as amended, and the regulations promulgated thereunder.
"Indemnified Parties" has the meaning set forth in Section
10.2(b).
"Indemnifying Parties" has the meaning set forth in Section
10.2(a).
"Indemnity Escrow Agreement" has the meaning set forth in the
Recitals.
"Indemnity Escrow Shares" has the meaning set forth in Section
2.10(a).
"Independent Accountant" has the meaning set forth in Section
5.15.
"Inventory" means all merchandise owned and intended for
resale.
"Key Group Employees" means those employees set forth on
Exhibit G.
"Key Group Non-Competition Agreements" has the meaning set
forth in the Recitals.
"Leased Property" has the meaning set forth in Section 3.8(b).
"Liability" means with respect to any Person any direct or
indirect liability, indebtedness, obligation, commitment, expense, claim,
deficiency, guaranty or endorsement of or by such Person of any type, whether
accrued, absolute, contingent, matured, unmatured, liquidated, unliquidated,
known or unknown.
"Licenses In" has the meaning set forth in Section 3.11(a).
9
"Licenses Out" has the meaning set forth in Section 3.11(a).
"LLC" means Spinnaker Networks, LLC, a Delaware limited
liability company and wholly-owned subsidiary of the Company.
"Material Adverse Effect" or "Material Adverse Change" means,
with respect to any Person, (a) any material adverse effect on or change with
respect to the condition (financial or otherwise), assets, properties, results
of operations, prospects or business, of such Person and its Subsidiaries, taken
as a whole, or (b) any event or condition which, with the passage of time would
reasonably be expected to constitute a "Material Adverse Effect" on or "Material
Adverse Change" (as described in clause (a) of this definition) with respect to
such Person, excluding changes or effects directly resulting from (i) general
economic conditions, including without limitation, changes affecting the network
attached storage solution industry, (ii) actions taken by such Person at the
specific request or with the agreement or consent of Parent (if such Person is
the Company) or the Company (if such Person is Parent), (iii) the announcement
or pendency of the Merger, or (iv) a third party claim based on an alleged
infringement, misappropriation or breach of the rights of others, of which the
Company received notice after the announcement of this Agreement and the Merger.
"Merger" has the meaning set forth in the Recitals.
"Merger Shares" has the meaning set forth in Section
2.6(b)(i).
"Most Recent Financial Statements" means the unaudited
consolidated balance sheets of the Company as of September 30, 2003 and the
related consolidated statements of income, changes in stockholders' equity and
cash flows, of the Company for the nine (9) month period then ended.
"Multiemployer Plan" means any "multiemployer plan," as
defined in Section 4001(a)(3) or 3(37) of ERISA, which (a) the Company or any
ERISA Affiliate has at any time maintained, administered, or contributed to or
has been required to contribute to, or under which the Company or any ERISA
Affiliate may incur any liability and (b) covers any employee or former employee
of the Company or any ERISA Affiliate (with respect to their relationship with
any such entity).
"Net Liabilities" means the difference between all liabilities
of the Company and all current assets of the Company as of the Closing Date. For
purposes of this definition, liabilities and current assets shall be determined
in accordance with GAAP consistently applied with the Financial Statements,
except for the following: (i) any embedded derivative liability related to the
Series B Preferred Stock shall be excluded from the definition; (ii) for
clarity, the liabilities as of the Closing Date will include any Company costs
related to the transaction, including professional fees, accruals, payments
triggered by the transaction or other such costs and expenses; (iii) for
clarity, the liabilities as of the Closing Date will include any Bridge Loans
and related accrued interest then outstanding; and (iv) deferred revenues will
be prepared in a manner consistent with the principles used in calculating
deferred revenues included in the Most Recent Financial Statements and,
consequently, should it be determined that revenues should be deferred as a
result of an inability to demonstrate vendor specific objective evidence for
10
undelivered elements, the method of allocating and recording revenue used in the
Most Recent Financial Statements will be used to determine the allocation.
"Net Liabilities Certificate" has the meaning set forth in
Section 8.14.
"New Option" has the meaning set forth in Section 2.12(a).
"New Restricted Stock Unit" has the meaning set forth in
Section 2.12(b).
"Non-Competition Agreements" means the Key Group
Non-Competition Agreements and the Core Employee Non-Competition Agreements.
"Option Plan Amendment" means an amendment to the Company
Stock Option Plan which (i) increases the number of shares of Common Stock
reserved for issuance under the Company Stock Option Plan in an amount which,
when combined with other shares of Common Stock available under the Company
Stock Option Plan, will be sufficient to make Additional Equity Awards, and (ii)
provides for the issuance of deferred stock and/or restricted stock unit awards
thereunder.
"Parent" has the meaning set forth in the Recitals.
"Parent Board" has the meaning set forth in Section 2.12(a).
"Parent Closing Certificate" has the meaning set forth in
Section 7.1.
"Parent Indemnified Parties" has the meaning set forth in
Section 10.1(a).
"Parent Material Adverse Effect" or "Parent Material Adverse
Change" means a Material Adverse Effect or Material Adverse Change (i) with
respect to Parent and its Subsidiaries, taken as a whole, or (ii) on the ability
of Parent to perform its obligations under or to consummate the Merger or any of
the other transactions contemplated by this Agreement or any of the Ancillary
Agreements.
"Parent Schedules" has the meaning set forth in Article 4.
"Parent Stock" means the common stock, par value $0.001 per
share, of Parent.
"Parent Stock Price" means the Closing Average Price;
provided, that, in the event the Closing Average Price is greater than 115% of
the Signing Average Price, the "Parent Stock Price" shall be equal to 115% of
the Signing Average Price; and provided, further, that, in the event the Closing
Average Price is less than 85% of the Signing Average Price, the "Parent Stock
Price" shall be equal to 85% of the Signing Average Price.
"Pension Plan" means any "employee pension benefit plan" as
defined in Section 3(2) of ERISA (other than a Multiemployer Plan) which (a) the
Company or any ERISA Affiliate has at any time maintained, administered, or
contributed to or has been required to contribute to, or under which the Company
or any ERISA Affiliate may incur any liability (including, without limitation,
any contingent liability) and (b) covers any employee or former
11
employee of the Company or any ERISA Affiliate (with respect to their
relationship with any such entity).
"Permit Application" has the meaning set forth in Section
3.32.
"Permitted Encumbrances" means with respect to the Company (a)
statutory liens of landlords, liens of carriers, warehousepersons, mechanics and
material persons incurred in the ordinary course of business for sums (i) not
yet due and payable, or (ii) being contested in good faith, if, in either such
case, an adequate reserve in accordance with GAAP, shall have been made therefor
in the Most Recent Financial Statements or, if contested subsequent to the Most
Recent Financial Statements, the Company's financial statements, (b) liens
incurred or deposits made in connection with workers' compensation, unemployment
insurance and other similar types of social security programs or to secure the
performance of tenders, statutory obligations, surety and appeal bonds, bids,
leases, government contracts, performance and return of money bonds and similar
obligations, in each case in the ordinary course of business, consistent with
past practice, (c) encumbrances which do not interfere with the ordinary conduct
of business of the Company and do not materially detract from the value of the
underlying asset, (d) liens for Taxes, assessments and governmental charges (i)
not yet due and payable, or (ii) being contested in good faith, if, in either
such case, an adequate reserve, shall have been made therefor in the Most Recent
Financial Statements or, if contested subsequent to the Most Recent Financial
Statements, the Company's financial statements, (e) non-exclusive end-user
licenses entered in the ordinary course of business and (f) restrictions imposed
by Regulations.
"Permits" means all certifications (including those of
standards-setting organizations), licenses, permits, franchises, approvals,
authorizations, notices to, consents or orders of, or filings with, any trade
association, any standards-setting organization, or any governmental authority,
whether foreign, federal, state or local, necessary for the conduct or operation
of the Business or ownership of the Assets.
"Person" means any person or entity, whether an individual,
trustee, corporation, limited liability company, general partnership, limited
partnership, trust, unincorporated organization, business association, firm,
joint venture, governmental agency or authority or any similar entity.
"Post-Closing Tax Period" has the meaning set forth in Section
6.4.
"Preferred Stock" means the Series A Preferred Stock, the
Series B Preferred Stock and the Series B-1 Preferred Stock.
"Proprietary Rights" means all (a) U.S. and foreign patents
and patent applications and disclosures relating thereto (and any patents that
issue as a result of those patent applications), and any renewals, reissues,
reexaminations, extensions, continuations, continuations-in-part, divisions and
substitutions relating to any of the patents and patent applications, as well as
all related foreign patent and patent applications that are counterparts to such
patents and patent applications, (b) U.S. and foreign trademarks, service marks,
trade dress, logos, trade names and corporate names and the goodwill associated
therewith and registrations and applications for registration thereof, (c) U.S.
and foreign copyrights and rights under
12
copyrights, including moral rights, and registrations and applications for
registration thereof, (d) U.S. and foreign mask work rights and registrations
and applications for registration thereof, (e) Trade Secrets, (f) URL and domain
name registrations, (g) inventions (whether or not patentable) and improvements
thereto, (h) all Software, (i) all documentation, designs, drawings, notes,
bills of material and memoranda related to the products and technology of the
Company; and (j) copies and tangible embodiments of the foregoing (in whatever
form or medium).
"Registration Statement" has the meaning set forth in Section
5.6.
"Regulations" means any conventions, directives, laws,
statutes, ordinances, regulations, rules, notice requirements, court decisions,
agency guidelines, and orders of any foreign, federal, state or local government
and any other governmental department or agency, or standards-setting
organization, including without limitation energy, motor vehicle safety, Federal
Communications Commission, public utility, zoning, building and health codes,
Environmental Laws, occupational safety and health and laws respecting
employment practices, employee documentation, terms and conditions of employment
and wages and hours.
"Related Party" means (i) any of the Company's officers,
directors and stockholders holding more than 5% of the outstanding shares of
Common Stock or Preferred Stock, and any officers, directors, partners or
associates (as such term is defined in Rule 12b-2 under the Exchange Act) of
such officers, directors and stockholders, (ii) any Person in which the Company
or any Stockholder or any Affiliate or associate of any such Person has any
direct or indirect pecuniary interest in an amount equal to or in excess of
$60,000, and (iii) any direct or indirect trustee or beneficiary of any Person
described in clauses (i) or (ii) of this definition.
"Representative" of any Person means any officer, director,
principal, attorney, accountant, agent, employee or other representative of such
Person.
"Retention Escrow Agent" means the escrow agent under the
Retention Escrow Agreement, which escrow agent shall be designated by Parent and
the Company prior to Closing, or any alternative or successor agent.
"Retention Escrow Agreement" has the meaning set forth in the
Recitals.
"Retention Escrow Shares" has the meaning set forth in Section
2.10(b).
"Schedules" has the meaning set forth in Article 3.
"SEC" means the Securities and Exchange Commission.
"SEC Reports" has the meaning set forth in Section 4.6.
"Securities Act" means the Securities Act of 1933, as amended,
and the rules and regulations promulgated thereunder.
"Series A Preferred Stock" means the Company's Series A
Preferred Stock, par value $0.0001 per share.
13
"Series B Preferred Stock" means the Company's Series B
Preferred Stock, par value $0.0001 per share.
"Series B-1 Preferred Stock" means the Company's Series B-1
Preferred Stock, par value $0.0001 per share.
"Signing Average Price" means $25.17 per share.
"Software" means computer software, programs and databases in
any form, including Internet web sites, web content and links, source code,
executable code, tools, developers kits, utilities, graphical user interfaces,
menus, images, icons, and forms, and all versions, updates, corrections,
enhancements and modifications thereof, and all related documentation, developer
notes, comments and annotations related thereto.
"Stock Restriction Agreements" has the meaning set forth in
the Recitals.
"Stockholder" means each stockholder of the Company and
"Stockholders" means all stockholders of the Company, in each case as determined
immediately prior to the Effective Time.
"Stockholder Consent" has the meaning set forth in Section
3.31.
"Stockholder Representative" means Xxxxxxx X. Xxxxxx.
"Sub" has the meaning set forth in the Recitals.
"Subsidiary" means, with respect to any Person, (a) any
corporation of which at least 50% of the securities or interests having, by
their terms, ordinary voting power to elect members to the board of directors,
or other persons performing similar functions with respect to such corporation,
is held, directly or indirectly, by such Person, (b) any partnership or limited
liability company of which (i) such Person is a general partner or managing
member or (ii) such Person possesses a 50% or greater interest in the total
capital or total income of such partnership or limited liability company.
"Surviving Corporation" has the meaning set forth in Section
2.1(a).
"Takeover Statute" means a "fair price," "moratorium,"
"control share acquisition" or other similar antitakeover statute or regulation
enacted under state or federal laws in the United States.
"Tax" means any federal, state, local or foreign income, gross
receipts, license, payroll, employment, excise, severance, stamp, occupation,
premium, windfall profits, environmental, customs duties, capital stock,
franchise, profits, withholding, social security, unemployment, disability, real
property, personal property, sales, use, transfer, registration, ad valorem,
value added, alternative or add-on minimum or estimated tax or other tax of any
kind whatsoever, including any interest, penalty, or addition thereto, whether
disputed or not.
14
"Tax and Financial Statement Claim Expiration Date" has the
meaning set forth in Section 10.1.
"Tax Contest" has the meaning set forth in Section 6.4.
"Tax Return" means any report, declaration, return,
information return, claim for refund, or statement relating to Taxes, including
any schedule or attachment thereto, and including any amendments thereof.
"Third Party Claims" has the meaning set forth in Section
10.2(b).
"to the knowledge" or "knowledge" of a party (or similar
phrases) means to the extent of matters which are actually known, after
reasonably inquiry, by such party.
"Trade Secrets" means all trade secrets and confidential
business information (including confidential or non-public ideas, formulas,
compositions, know-how, research and development information, drawings,
specifications, designs, plans, proposals, technical data, financial, marketing
and business data, pricing and cost information, business and marketing plans
marketing mailing and e-mail lists, and customer and supplier mailing and e-mail
lists and information).
"Trading Day" means any day on which the NASDAQ National
Market is open and available for at least five (5) hours for the trading of
securities.
"Transfer Taxes" has the meaning set forth in Section 6.5.
"Transmittal Letter" has the meaning set forth in Section
2.7(a).
"Voting Agreement" has the meaning set forth in the Recitals.
"Welfare Plan" means any "employee welfare benefit plan" as
defined in Section 3(1) of ERISA, which (a) the Company or any ERISA Affiliate
maintains, administers, contributes to or is required to contribute to, or under
which the Company or any ERISA Affiliate may incur any liability and (b) covers
any employee or former employee of the Company or any ERISA Affiliate (with
respect to their relationship with any such entity).
1.2 Interpretation Provisions.
(a) The words "hereof," "herein" and "hereunder" and
words of similar import when used in this Agreement refer to this Agreement as a
whole and not to any particular provision of this Agreement, and article,
section, schedule and exhibit references are to this Agreement unless otherwise
specified. The meaning of defined terms shall be equally applicable to the
singular and plural forms of the defined terms. The terms "include" and
"including" are not limiting and mean "including without limitation."
(b) References to agreements and other documents shall be
deemed to include all subsequent amendments and other modifications thereto.
15
(c) References to statutes shall include all regulations
promulgated thereunder and references to statutes or regulations shall be
construed as including all statutory and regulatory provisions consolidating,
amending or replacing the statute or regulation.
(d) References to "license" or "licenses" shall include
"sublicense" or "sublicenses", as applicable.
(e) The captions and headings of this Agreement are for
convenience of reference only and shall not affect the construction of this
Agreement.
(f) The parties participated jointly in the negotiation
and drafting of this Agreement and the language used in this Agreement shall be
deemed to be the language chosen by the parties to express their mutual intent.
If an ambiguity or question of intent or interpretation arises, then this
Agreement will accordingly be construed as drafted jointly by the parties to
this Agreement, and no presumption or burden of proof will arise favoring or
disfavoring any party to this Agreement by virtue of the authorship of any of
the provisions of this Agreement.
(g) The annexes, schedules and exhibits to this Agreement
are a material part hereof and shall be treated as if fully incorporated into
the body of the Agreement.
ARTICLE 2
THE MERGER
2.1 The Merger.
(a) Merger of Sub into the Company. At the Effective Time
(as defined in Section 2.2 hereof), and upon the terms and subject to the
conditions of this Agreement and the DGCL, Sub shall be merged with and into the
Company, the separate corporate existence of Sub shall cease, and the Company
shall continue as the surviving corporation. The Company, as the surviving
corporation after the Merger, is hereinafter sometimes referred to as the
"Surviving Corporation."
(b) Closing. Unless this Agreement shall have been
terminated pursuant to Section 11.1, and subject to the satisfaction (or to the
extent permitted, the waiver) of the conditions set forth in Articles 7 and 8,
the closing of the transactions contemplated by this Agreement (the "Closing")
shall take place (i) at the offices of Xxxxxx & Xxxxxxx LLP, 000 Xxxxxxxxxxxx
Xxxxx, Xxxxx Xxxx, Xxxxxxxxxx 00000, as promptly as practicable (and in any
event within five (5) business days) after satisfaction (or to the extent
permitted, the waiver) of the conditions set forth in Articles 7 and 8 or (ii)
at such other time, date or place as Parent and the Company may mutually agree.
2.2 Effective Time. As promptly as practicable, on or after the
Closing, after the satisfaction (or to the extent permitted, the waiver) of the
conditions set forth in Articles 7 and 8, and provided that this Agreement has
not been terminated pursuant to Section 11.1, the parties hereto shall cause the
Merger to be consummated by executing and filing a certificate of merger as
contemplated by the DGCL (the "Certificate of Merger"), with the Secretary of
State of
16
Delaware as provided in Section 251 of the DGCL. The time of filing the
Certificate of Merger with the Secretary of State of Delaware being referred to
herein as the "Effective Time."
2.3 Effect of the Merger. At the Effective Time, the effect of the
Merger shall be as provided in this Agreement and the applicable provisions of
the DGCL.
2.4 Certificate of Incorporation; Bylaws.
(a) Certificate of Incorporation. At the Effective Time,
the Certificate of Incorporation of the Company as in effect immediately prior
to the Effective Time, as amended as set forth in Exhibit H hereto, shall be the
Certificate of Incorporation of the Surviving Corporation, until duly amended in
accordance with applicable law.
(b) Bylaws. At the Effective Time, the Bylaws of the
Company as in effect immediately prior to the Effective Time, as amended as set
forth in Exhibit I hereto, shall be the Bylaws of the Surviving Corporation
until thereafter duly amended in accordance with applicable law, the Certificate
of Incorporation of the Surviving Corporation and such Bylaws.
2.5 Directors and Officers. The directors of Sub immediately prior
to the Effective Time shall be the initial directors of the Surviving
Corporation, each to hold office in accordance with the Certificate of
Incorporation and Bylaws of the Surviving Corporation, and the initial officers
of the Surviving Corporation shall be the individuals set forth on Schedule 2.5,
in each case until their respective successors are duly elected or appointed and
qualified in the manner provided in the Certificate of Incorporation and Bylaws
of the Surviving Corporation and in accordance with applicable law. The Company
shall cause each or any director of the Company to tender his or her resignation
prior to the Effective Time, with each such resignation to be effective as of
the Effective Time.
2.6 Conversion of Securities.
(a) Immediately prior to the Effective Time, pursuant to
Sections 3(b) and 3(c) of the Company's Certificate of Incorporation, as in
effect immediately prior to the amendment thereto contemplated by Section
2.4(a), each share of Preferred Stock shall automatically be converted into the
number of shares of Common Stock determined in accordance with Section 3 of such
Certificate of Incorporation.
(b) At the Effective Time, by virtue of the Merger and
without any further action on the part of Parent, Sub, the Company or any
Stockholder:
(i) Common Stock. Subject to Section 2.6(b)(v),
each share of Common Stock issued and outstanding immediately following the
conversion contemplated by Section 2.6(a) but prior to the Effective Time (other
than shares to be cancelled pursuant to Section 2.6(b)(iii) and Dissenting
Shares (as provided in Section 2.11)) shall be converted into the right to
receive, and become exchangeable for such number of shares of Parent Stock as
equals the Exchange Ratio. The shares of Parent Stock issued in connection with
the Merger as a result of the conversions provided for in this Section 2.6(b)(i)
are sometimes referred to herein as the "Merger Shares."
17
(ii) Sub Stock. Each share of common stock, par
value $.01 per share, of Sub issued and outstanding immediately prior to the
Effective Time shall, by virtue of the Merger and without any action on the part
of the holder thereof, automatically be converted into and thereafter represent
one (1) validly issued, fully paid and nonassessable common share, par value
$.01 per share, of the Surviving Corporation, so that thereafter Parent will be
the sole and exclusive owner of the capital stock of the Surviving Corporation.
(iii) Cancellation. Each share of Common Stock and
Preferred Stock held in the treasury of the Company or by any Subsidiary of the
Company immediately prior to the Effective Time shall, by virtue of the Merger
and without any action on the part of the holder thereof, automatically cease to
be outstanding, be canceled and retired without payment of any consideration
therefor and cease to exist.
(iv) Fractional Shares. No certificates or scrip
representing fractional shares of Parent Stock shall be issued in connection
with the Merger, but in lieu thereof each Stockholder who would otherwise be
entitled to receive a fraction of a Merger Share shall receive from Parent an
amount of cash equal to the product of (i) the fraction of a share of a Merger
Share to which such holder would otherwise be entitled multiplied by (ii) the
Closing Price. The fractional share determination shall be made individually for
each Stockholder after giving effect to the delivery of the Indemnity Escrow
Shares (as defined below), to the Depositary Agent, and the Retention Escrow
Shares (as defined below), to the Retention Escrow Agent, it being recognized
that, as provided in Section 2.10, only whole shares may be delivered to the
Depositary Agent and Retention Escrow Agent.
(v) Adjustments to Exchange Ratio. The Exchange
Ratio shall be appropriately adjusted to reflect fully the effect of any stock
split, reverse split, stock combination, stock dividend, reorganization,
reclassification, recapitalization or other like change with respect to Parent
Stock, Preferred Stock or Common Stock after the date hereof and prior to the
Effective Time.
(vi) Restrictions on Common Stock or Preferred
Stock. If any shares of Common Stock or Preferred Stock outstanding immediately
prior to the Effective Time are unvested or are subject to a repurchase option,
risk of forfeiture or other condition under any applicable restricted stock
purchase agreement or other agreement with the Company, then the shares of
Parent Stock issued in exchange for such shares will also be unvested and
subject to the same repurchase option, risk of forfeiture or other condition,
and the certificates representing such shares of Parent Stock may accordingly be
marked with appropriate legends. The Company shall take all action that may be
necessary to ensure that, from and after the Effective Time, Parent is entitled
to exercise any such repurchase option or other right set forth in any such
restricted stock purchase agreement or other agreement.
2.7 Surrender of Certificates.
(a) Distribution of Transmittal Letter. As soon as
practicable after the Effective Time (but in no event later than five (5)
business days after the Effective Time), Parent shall cause to be mailed to each
record holder of certificates or certificates evidencing Common Stock or
Preferred Stock (the "Certificates") a letter of transmittal in customary form
(which
18
shall specify that delivery shall be effected, and risk of loss and title to the
Certificates shall pass, only upon delivery of the Certificates to Parent or its
designated representative and shall be in such form and have such other
provisions as Parent shall reasonably specify) (the "Transmittal Letter") and
instructions for such holder's use in effecting the surrender of the Certificate
and the exercise of the rights of such holder to obtain its Merger Shares.
(b) Delivery of Certificates. Upon surrender to Parent or
its designated representative of any Certificates for cancellation, together
with a duly executed and completed Transmittal Letter, the holder of such
Certificate shall be entitled to receive in exchange therefor a certificate
representing the number of whole shares of Parent Stock to which such holder is
entitled pursuant to Section 2.6, less such holder's pro rata portion of Merger
Shares to be deposited with the Depositary Agent or with the Retention Escrow
Agent pursuant to Section 2.10 hereof, plus cash in lieu of fractional shares
pursuant to Section 2.6(c). Such certificate representing shares of Parent Stock
shall be delivered to the stockholder as promptly as practicable after such
surrender, but in no event later than ten (10) business days after such
surrender.
(c) Cancellation of Common Stock and Preferred Stock.
Upon surrender of each Certificate and delivery by Parent of the Merger Shares
to be delivered in exchange therefor, such Certificate shall forthwith be
canceled. Until so surrendered, each Certificate (other than Certificates
representing Dissenting Shares) shall be deemed for all corporate purposes to
evidence only the right to receive upon such surrender the aggregate number of
Merger Shares into which the Common Stock or Preferred Stock represented thereby
shall have been converted in accordance with the terms and upon the conditions
of this Agreement (including the requirement that a portion of such Merger
Shares be deposited with the Depositary Agent or with the Retention Escrow Agent
pursuant to Section 2.10), plus cash in lieu of fractional shares pursuant to
Section 2.6(c).
(d) Distributions With Respect to Unexchanged Shares of
Common Stock and Preferred Stock. No dividends or other distributions with
respect to Parent Stock declared or made after the Effective Time and with a
record date after the Effective Time will be paid to the holder of any
unsurrendered Certificate with respect to the shares of Parent Stock represented
thereby until the holder of record of such Certificate shall surrender such
Certificate. Subject to applicable law, promptly following surrender of any such
Certificate, there shall be paid to the record holder of the certificates
representing whole shares of Parent Stock issued in exchange therefor, without
interest, at the time of such surrender, the amount of dividends or other
distributions with a record date after the Effective Time, if any, theretofore
payable with respect to such whole shares of Parent Stock.
2.8 No Further Ownership Rights in Shares of Common Stock and
Preferred Stock. The shares of Parent Stock delivered upon the surrender for
exchange of Common Stock or Preferred Stock in accordance with the terms hereof
shall be deemed to have been issued in full satisfaction of all rights
pertaining to such shares of Common Stock or Preferred Stock, and there shall be
no further registration of transfers of Common Stock or Preferred Stock which
were outstanding immediately prior to the Effective Time on the records of the
Surviving Corporation. If, after the Effective Time, the Certificates are
presented to the Surviving Corporation for any reason, they shall be canceled
and exchanged as provided in this Article 2.
19
2.9 Lost, Stolen or Destroyed Certificates. In the event any
Certificates shall have been lost, stolen or destroyed, Parent shall issue in
exchange for such lost, stolen or destroyed Certificates, upon the making of an
affidavit of that fact by the holder thereof, such shares of Parent Stock as may
be required pursuant to Section 2.6; provided, however, that Parent may, in its
sole discretion and as a condition precedent to the issuance thereof, require
the owner of such lost, stolen or destroyed Certificates to deliver an indemnity
or bond in such sum as it may reasonably direct as indemnity against any claim
that may be made against Parent with respect to the Certificates alleged to have
been lost, stolen or destroyed.
2.10 Escrow of Merger Shares.
(a) Indemnity Escrow Shares. Notwithstanding the other
provisions of this Article 2, Parent shall deliver to the Depositary Agent that
number of shares of Parent Stock equal to (i) the number of Merger Shares
multiplied by (ii) 0.10, and rounded to a whole number of shares on a
holder-by-holder basis (such shares of Parent Stock delivered to the Depositary
Agent, the "Indemnity Escrow Shares"). The portion of the Indemnity Escrow
Shares contributed on behalf of each Stockholder shall be in proportion to the
aggregate number of shares of Parent Stock which such holder would otherwise be
entitled under Section 2.6. The Indemnity Escrow Shares shall be withheld from
the Parent Stock otherwise deliverable to the Stockholders. The Indemnity Escrow
Shares shall be deposited with the Depositary Agent and disbursed in accordance
with the Indemnity Escrow Agreement.
(b) Retention Escrow Shares. Notwithstanding the other
provisions of this Article 2, pursuant to the terms of the Restricted Stock
Agreements, Parent shall deliver to the Retention Escrow Agent that number of
shares of Parent Stock equal to (i) the aggregate number of shares of Parent
Stock to which the Core Employees would otherwise be entitled pursuant to
Section 2.6 multiplied by (ii) 0.20, and rounded to a whole number of shares on
a holder-by-holder basis (such shares of Parent Stock delivered to the Retention
Escrow Agent, the "Retention Escrow Shares"). The portion of the Retention
Escrow Shares contributed on behalf of each Core Employee shall be in proportion
to the aggregate number of shares of Parent Stock which such Core Employee would
otherwise be entitled under Section 2.6. Pursuant to the terms of the Restricted
Stock Agreements, the Retention Escrow Shares shall be withheld from the Parent
Stock otherwise deliverable to the Core Employees. The Retention Escrow Shares
shall be deposited with the Retention Escrow Agent and disbursed in accordance
with the Retention Escrow Agreement.
2.11 Dissenting Shares
(a) Notwithstanding any provision of this Agreement to
the contrary, any shares of Common Stock or Preferred Stock held by a holder who
has demanded and perfected dissenters' rights for such shares in accordance with
the DGCL and who, as of the Effective Time, has not effectively withdrawn or
lost such dissenters' rights ("Dissenting Shares") shall not be converted into
or represent a right to receive Parent Stock pursuant to Section 2.6, but the
holder thereof shall only be entitled to such rights as are granted by the DGCL.
(b) Notwithstanding the provisions of subsection (a)
above, if any holder of shares of Common Stock or Preferred Stock who demands
dissenters' rights for such shares
20
under the DGCL shall effectively withdraw or lose (through failure to perfect or
otherwise) the right to dissenters' rights, then, as of the later of (i) the
Effective Time or (ii) the occurrence of such event, such holder's shares shall
automatically be converted into and represent only the right to receive Parent
Stock as provided in Section 2.6, without interest thereon, upon surrender of
the certificate representing such shares.
(c) The Company shall give Parent (i) prompt notice of
its receipt of any written demands for dissenters' rights for any shares of
Common Stock or Preferred Stock, withdrawals of such demands, and any other
instruments relating to the Merger served pursuant to the DGCL and received by
the Company and (ii) the opportunity to participate in all negotiations and
proceedings with respect to demands for dissenters' rights under the DGCL. The
Company shall not, except with the prior written consent of Parent or as may be
required under applicable law, voluntarily make any payment with respect to any
demands for dissenters' rights for Common Stock or Preferred Stock or offer to
settle or settle any such demands.
2.12 Options/Restricted Stock Units.
(a) Prior to the Effective Time, the Board of Directors
of the Company (the "Company Board") (or, if appropriate, any committee thereof)
and the Board of Directors of Parent (the "Parent Board") (or, if appropriate,
any committee thereof) shall adopt appropriate resolutions and take all other
actions necessary to provide that effective at the Effective Time, each Company
Option, whether vested or unvested, shall be assumed by Parent and shall
continue in effect on the same terms and conditions as in effect immediately
prior to the Effective Time (subject to the adjustments in this Section 2.12)
and each such Company Option shall be converted automatically into an option (a
"New Option") to purchase the number of shares of Parent Stock, determined as
provided below, at the exercise price, determined as provided below:
(i) The number of shares of Parent Stock to be
subject to the New Option shall be equal to the product of (x) the
number of shares of Common Stock remaining subject (as of immediately
prior to the Effective Time) to the Company Option multiplied by (y)
the Exchange Ratio, provided that the number of shares of Parent Stock
resulting therefrom shall be rounded downward to the nearest whole
share of Parent Stock.
(ii) The exercise price per share of Parent Stock
under the New Option shall be equal to (x) the exercise price per share of the
Common Stock under the Company Option, divided by (y) the Exchange Ratio,
provided that such exercise price shall be rounded upward to the nearest whole
cent. Notwithstanding the foregoing, in no event will the exercise price per
share be greater than the Closing Price, provided that any reduction in such
exercise price as a result of the application of this sentence shall be
disregarded for purposes of calculating "Equity Consideration."
The adjustment provided herein with respect to any Company Option which is an
"incentive stock option" (as defined in Section 422 of the Code) shall be, and
is intended to be, effected in a manner which is consistent with Section 424(a)
of the Code. Except as provided in this Section 2.12, after the Effective Time,
each New Option shall be exercisable upon the same terms and
21
conditions as were applicable to the related Company Option immediately prior to
the Effective Time (except that with regard to such New Option, any references
to the Company shall be deemed, as appropriate, to mean Parent). Parent shall
take all action necessary, on or prior to the Effective Time, to authorize and
reserve a number of shares of Parent Stock sufficient for issuance upon the
exercise of New Options as contemplated by this Section 2.12.
(b) Prior to the Effective Time, the Company Board (or,
if appropriate, any committee thereof) and the Parent Board (or, if appropriate,
any committee thereof) shall adopt appropriate resolutions and take all other
actions necessary to provide that effective at the Effective Time, each Company
Restricted Stock Unit, whether vested or unvested, shall be assumed by Parent
and shall continue in effect on the same terms and conditions as in effect
immediately prior to the Effective Time (subject to the adjustments in this
Section 2.12) and each such Company Restricted Stock Unit shall be converted
automatically into a restricted stock unit (a "New Restricted Stock Unit") for
that number of shares of Parent Stock equal to the number of shares of Common
Stock subject (as of immediately prior to the Effective Time) to the Company
Restricted Stock Unit multiplied by the Exchange Ratio; provided, that the
number of shares of Parent Stock resulting therefrom shall be rounded downward
to the nearest whole share of Parent Stock. Except as provided in this Section
2.12, after the Effective Time, each New Restricted Stock Unit shall be
exercisable upon the same terms and conditions as were applicable to the related
Company Restricted Stock Unit immediately prior to the Effective Time (except
that with regard to such New Restricted Stock Unit, any references to the
Company shall be deemed, as appropriate, to mean Parent). Parent shall take all
action necessary, on or prior to the Effective Time, to authorize and reserve a
number of shares of Parent Stock sufficient for issuance pursuant to the New
Restricted Stock Units as contemplated by this Section 2.12.
(c) Parent shall file promptly (but in no event later
than ten (10) business days) after the Effective Time, a registration statement
on Form S-8 (or any successor or other appropriate form) registering a number of
shares of Parent Stock to be issued in connection with the exercise of the New
Options and under the New Restricted Stock Units as determined in this Section
2.12 and shall maintain the effectiveness of such registration statement (and
maintain the current status of the prospectus or prospectuses contained therein)
for so long as such options remain outstanding.
(d) As soon as practicable (but in no event later than
ten (10) business days) after the Effective Time, Parent shall deliver to the
holders of New Options and New Restricted Stock Units appropriate notices
setting forth (i) such holders' rights pursuant to the Company Stock Option Plan
and (ii) that the agreements evidencing such options shall continue on the same
terms and conditions (subject to the adjustments required by this Section 2.12
after giving effect to the Merger).
2.13 Warrants. At the Effective Time, all rights with respect to
Preferred Stock under Company Warrants that are then outstanding shall be
converted into and become rights with respect to Parent Stock, and Parent shall
assume each Company Warrant in accordance with the terms (as in effect on the
date hereof) of such Company Warrants. From and after the Effective Time, (a)
each Company Warrant assumed by Parent may be exercised solely for shares of
Parent Common Stock, (b), the number of shares of Parent Stock subject to each
Company Warrant shall be equal to (i) the number of shares of Common Stock into
which the Preferred
22
Stock subject to each Company Warrant immediately prior to the Effective Time
would have been converted, had such Preferred Stock been converted to Common
Stock immediately prior to the Effective Time, multiplied by (ii) the Exchange
Ratio, rounding down to the nearest whole share of Parent Stock, (c) the per
share exercise price under each such Company Warrant shall be adjusted by
dividing (i) the per share exercise price under each such Company Warrant,
assuming the Preferred Stock subject to each Company Warrant immediately prior
to the Effective Time had been converted to Common Stock immediately prior to
the Effective Time, by (ii) the Exchange Ratio, and rounding up to the nearest
cent, and (d) any restriction on exercise of any Company Warrant shall continue
in full force and effect and the term, exercisability, schedule and other
provisions of such Company Warrant shall otherwise remain unchanged; provided,
however, that such Company Warrant shall, in accordance with its terms, be
subject to further adjustment as appropriate to reflect any stock split, stock
dividend, recapitalization or other similar transaction subsequent to the
Effective Time. The Company shall take all action that may be necessary (under
the Company Warrants or otherwise) to effectuate the provisions of this Section
2.13 and to ensure that, from and after the Effective Time, holders of Company
Warrants have no rights with respect thereto other than those specifically
provided herein.
2.14 Taking of Necessary Action; Further Action. Each of Parent,
Sub, and the Company will take all such reasonable lawful action as may be
necessary or appropriate in order to effect the Merger in accordance with this
Agreement as promptly as practicable. If, at any time after the Effective Time,
any such further action is necessary or desirable to carry out the purposes of
this Agreement and to vest Parent with full right, title and possession to all
the property, rights, privileges, power and franchises of the Company, the
officers and directors of Sub, Parent and the Company immediately prior to the
Effective Time are fully authorized in the name of their respective corporations
or otherwise to take, and will take, all such lawful and necessary action.
2.15 Withholding. Parent shall be entitled to deduct and withhold
from the consideration otherwise payable pursuant to this Agreement to any
Stockholder such amounts as Parent is required to deduct and withhold under the
Code, or any Tax law, with respect to the making of such payment. To the extent
that amounts are so withheld by Parent, such withheld amounts shall be treated
for all purposes of this Agreement as having been paid to the Stockholders in
respect of whom such deduction and withholding was made by Parent.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
As an inducement of Parent to enter into this Agreement, the Company
hereby makes, as of the date hereof and as of the Closing Date, the following
representations and warranties to Parent, except as otherwise set forth in
written disclosure schedules (the "Schedules") delivered to Parent on the date
hereof, a copy of which is attached hereto. The Schedules are numbered to
correspond to the various sections of this Article 3 setting forth certain
exceptions to the representations and warranties contained in this Article 3 and
certain other information called for by this Agreement. Unless specified herein,
disclosure made in any particular Schedule shall be deemed made in any other
Schedule or Schedules to which the relevance of such disclosure is readily
apparent from the text of such disclosure. For purposes of this Article 3, the
term
23
"Company" shall mean the Company and, as applicable, any or all of the
Subsidiaries of the Company.
3.1 Organization of the Company. The Company is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware, with all requisite corporate power and authority to conduct the
Business as it is currently being conducted and to own or lease, as applicable,
the Assets owned or leased by it. The Company is duly qualified to do business
as a foreign corporation and is in good standing in each jurisdiction in which
such qualification is necessary under applicable law as a result of the conduct
of the Business or the ownership of its properties and where the failure to be
so qualified would, individually or in the aggregate, have a Company Material
Adverse Effect. Each jurisdiction in which the Company is qualified to do
business as a foreign corporation is set forth on Schedule 3.1. The Company has
delivered to Parent accurate and complete copies of the certificate of
incorporation, bylaws and other charter and organizational documents of the
Company, including all amendments thereto. The Company is not in violation of
any of the provisions of its certificate of incorporation or bylaws or
equivalent governing instruments.
3.2 Capitalization of the Company.
(a) Authorized Capitalization. As of the date of this
Agreement, the authorized capitalization of the Company consists of 150,000,000
shares of Common Stock, par value $0.0001 per share and 99,091,319 shares of
Preferred Stock, par value $0.0001 per share, of which 14,658,929 are designated
Series A Preferred Stock, 42,216,195 shares are designated Series B Preferred
Stock, and 42,216,195 shares are designated Series B-1 Preferred Stock. As of
the date of this Agreement, 22,733,521 shares of Common Stock are issued and
outstanding, 14,544,643 shares of Series A Preferred Stock are issued and
outstanding, and 41,615,612 shares of Series B Preferred Stock are issued and
outstanding and no shares of Series B-1 Preferred Stock are outstanding. No
additional shares of capital stock of the Company will be issued after the date
hereof except for shares issued in connection with the exercise of Company
Options and the Company Warrants or the conversion of Preferred Stock
outstanding on the date hereof. 18,854,158 shares of Common Stock will be issued
upon conversion of the outstanding Series A Preferred Stock, and 41,615,612
shares of Common Stock will be issued upon conversion of the outstanding Series
B Preferred Stock. The Company has no other capital stock authorized, issued or
outstanding. Schedule 3.2(a) sets forth the name of each holder of shares of
Common Stock and Preferred Stock, as well as the number of shares of Common
Stock and Preferred Stock held by each such holder.
(b) Options. As of the date of this Agreement, 5,200,335
shares of Common Stock are reserved for issuance upon the exercise of
outstanding Company Options. Schedule 3.2(b) sets forth the name of each holder
of Company Options, as well as the number of the Company Options held by each
such holder, the number of shares of Common Stock for which each such Company
Option is exercisable, the vesting schedule for each such Company Option becomes
exercisable and the price per share of Common Stock for which each such Company
Option is exercisable (without taking into account whether or not such Company
Option is in fact exercisable on the date hereof). The Company has delivered to
Parent accurate and complete copies of (i) its standard forms of stock option
agreement, (ii) any Company
24
Option containing terms which diverge from the Company's standard forms of stock
option agreement, and (iii) the Company Stock Option Plan, including all
amendments thereto.
(c) Warrants. As of the date of this Agreement, 114,286
shares of Series A Preferred Stock and 600,583 shares of Series B Preferred
Stock are reserved for issuance upon exercise of the Company Warrants. As of the
date of this Agreement, 748,731 shares of Common Stock are reserved for issuance
upon conversion of the shares of Series A Preferred Stock and Series B Preferred
Stock issued upon the exercise of such Company Warrants. Schedule 3.2(c) sets
forth the name of each holder of Company Warrants, as well as the number and
type of shares of Series A Preferred Stock or Series B Preferred Stock for which
such holder's Company Warrants are exercisable.
(d) No Other Capital Stock, Options, Warrants. As of the
date of this Agreement, except for the Company Options and Company Warrants
referred to above, there are no outstanding options, warrants, convertible
securities or rights of any kind to purchase or otherwise acquire any shares of
capital stock or other securities of the Company. Except for the aggregate of
5,200,335 shares of Common Stock reserved for issuance upon exercise of the
Company Options, 114,286 shares of Series A Preferred Stock reserved for
issuance upon exercise of the Company Warrants, 600,583 shares of Series B
Preferred Stock reserved for issuance upon exercise of the Company Warrants,
748,731 shares of Common Stock reserved for issuance upon conversion, following
exercise, of the Company Warrants and 60,469,770 shares of Common Stock reserved
for issuance upon conversion of the Preferred Stock, no shares of capital stock
of the Company are reserved for issuance.
(e) Valid Issuances. All outstanding shares of Common
Stock and Preferred Stock are, and any shares of Common Stock issued upon
exercise of any Company Option or Company Warrant will be, validly issued, fully
paid and non-assessable and not subject to any preemptive rights created by
statute, the Company's Certificate of Incorporation or Bylaws, or any Contract,
and have been or will be issued in compliance with all federal and state
corporate and securities laws. The Company Options and Company Warrants have
been issued in compliance with all federal and state corporate and securities
laws. The Company's Certificate of Incorporation does not provide for any
preemptive rights. The Company is not a party to or bound by any, and to the
Company's knowledge, there are no, contracts containing preemptive rights or
agreements, arrangements or understandings to issue preemptive rights with
respect to the issuance or sale of capital stock of the Company.
3.3 Stockholders' Agreements, etc. Except as set forth on Schedule
3.3, the Company is not a party to or bound by any, and, to the knowledge of the
Company, there are no, stockholder agreements, voting trusts, proxies or other
arrangements, agreements or understandings, which affect, restrict or relate to
voting, giving of written consents, dividend rights or transferability of shares
with respect to the capital stock of the Company.
3.4 Authorization. The Company has all necessary corporate power
and authority to enter into this Agreement and the Ancillary Agreements to which
the Company is a party and has taken all corporate or other action, other than
Stockholder Consent, necessary to consummate the transactions contemplated
hereby and thereby and to perform its obligations hereunder and thereunder. The
Stockholder Consent is the only consent or approval required to be obtained
25
from the stockholders of the Company. This Agreement has been duly executed and
delivered by the Company, and this Agreement is, and upon execution and delivery
each of the Ancillary Agreements to which the Company is a party will be, a
valid and binding obligation of the Company, enforceable against the Company in
accordance with its terms, except that enforceability may be limited by the
effect of (a) bankruptcy, insolvency, reorganization, moratorium or other
similar laws relating to or affecting the rights of creditors or (b) general
principles of equity (regardless of whether enforceability is considered in a
proceeding at law or in equity).
3.5 Officers and Directors. Schedule 3.5 contains as of the date
hereof a true, correct and complete list of all the officers and directors of
the Company.
3.6 Bank Accounts. Schedule 3.6 contains a list of all of the
Company's bank accounts, safe deposit boxes and persons authorized to draw
thereon or have access thereto.
3.7 Subsidiaries.
(a) Authorized Capitalization. LLC is the only Subsidiary
of the Company. LLC is wholly-owned by the Company, free and clear of all
Encumbrances, other than Permitted Encumbrances. There are no bonds, debentures,
notes or other indebtedness of LLC having the right to vote (or convertible
into, or exchangeable for, securities having the right to vote) on any matters
on which the owner of the interests in LLC may vote.
(b) No Other Equity Interests, Options, Warrants. There
are no securities, options, warrants, calls, rights, commitments, agreements,
arrangements or undertakings of any kind to which the Company or LLC is a party
or by which any of them is bound obligating the Company or LLC to issue, deliver
or sell, or cause to be issued, delivered or sold, additional ownership
interests or other voting securities of its Subsidiary or obligating the Company
or LLC to issue, grant, extend or enter into any such security, option, warrant,
call, right, commitment, agreement, arrangement or undertaking. There are no
outstanding contractual obligations of the Company to repurchase, redeem or
otherwise acquire any interests of LLC.
(c) Holders Agreements. There are no voting trusts,
proxies or other arrangements, agreements or understandings which affect,
restrict or relate to voting, giving of written consents, dividend rights, or
transferability of any ownership interests, or any other equity or voting
security or interest of LLC. Except for the Company's interest in LLC or as set
forth in Schedule 3.7, neither the Company nor LLC owns directly or indirectly
any interest or investment in the form of debt or equity in, and neither the
Company nor LLC is subject to any obligation or requirement to provide for or to
make any investment in, any Person (other than financially insignificant
holdings of publicly reporting companies held in order to obtain filings).
3.8 Real Property.
(a) Owned Real Property. The Company does not own any
real property.
(b) Leased Real Property. Schedule 3.8(b) sets forth all
leases pursuant to which Facilities are currently leased by the Company (as
lessee), true and correct copies of which have been delivered to Parent. Such
leases constitute all leases, subleases or other
26
occupancy agreements pursuant to which the Company occupies or uses Facilities.
Except as set forth on Schedule 3.8(b), the Company has good and valid leasehold
title to, and enjoys peaceful and undisturbed possession of, all leased property
described in such leases (the "Leased Property"), free and clear of any and all
Encumbrances other than any Permitted Encumbrances. With respect to each such
parcel of Leased Property (i) there are no pending or, to the knowledge of the
Company, threatened condemnation proceedings relating to, or any pending or, to
the knowledge of the Company, threatened Actions relating to, the Company's
leasehold interests in such Leased Property or any portion thereof, and (ii) the
Company has not received notice of any pending or threatened special assessment
relating to such Leased Property or otherwise has any knowledge of any pending
or threatened special assessment relating thereto. With respect to each lease
listed on Schedule 3.8(b), (i) there has been no material default under any such
lease by the Company or, to the knowledge of the Company, by any other party,
(ii) the execution, delivery and performance of this Agreement and the Ancillary
Agreements and the consummation of the transactions contemplated hereby and
thereby will not cause a material default under any such lease, (iii) no action
has been taken by the Company, and no event has occurred which, with notice or
lapse of time or both, would permit termination, modification or acceleration by
a party thereto without the consent of the Company under any such lease, (iv) no
party has repudiated in writing to the Company any term thereof or threatened in
writing to the Company to terminate, cancel or not renew any such lease, and
(vi) the Company has not assigned, transferred, conveyed, mortgaged or
encumbered any interest therein or in any leased property subject thereto (or
any portion thereof).
3.9 Personal Property.
(a) General. The Company owns or leases all personal
property (other than Proprietary Rights, as they are addressed in Section 3.22
below) necessary for the conduct of the Business as presently conducted, and
such personal property (taken as a whole) are in such operating condition and
repair (subject to normal wear and tear) as is necessary for the conduct of the
Business as presently conducted.
(b) Owned Personal Property. Except as set forth on
Schedule 3.9(b), the Company has good and valid title to all such personal
property (other than Proprietary Rights, as they are addressed in Section 3.23
below) owned by it, free and clear of any and all Encumbrances other than
Permitted Encumbrances. With respect to each such item of personal property (i)
there are no leases, subleases, licenses, options, rights, concessions or other
agreements, written or oral, granting to any party or parties the right of use
of any portion of such item of personal property, (ii) there are no outstanding
options or rights of first refusal in favor of any other party to purchase any
such item of personal property or any portion thereof or interest therein and
(iii) there are no parties (other than the Company) who are in possession of or
who are using any such item of personal property.
(c) Leased Personal Property. The Company has good and
valid leasehold interests to all Fixtures and Equipment leased by it from third
parties. Schedule 3.9(c) sets forth all leases for personal property (other than
Proprietary Rights, as they are addressed in Section 3.22 below) involving
annual payments in excess of $50,000, true and correct copies of which have been
delivered or made available to Parent. With respect to each lease listed on
Schedule 3.9(c), (i) there has been no material default under such lease by the
Company or, to the
27
knowledge of the Company, by any other party, (ii) the execution, delivery and
performance of this Agreement and the Ancillary Agreements and the consummation
of the transactions contemplated hereby and thereby will not cause (with or
without notice and with or without the passage of time) a default under any such
lease, (iii) no action has been taken by the Company and no event has occurred
which, with notice or lapse of time or both, would modify or permit the
termination or acceleration by a party thereto without the consent of the
Company under any such lease, (iv) no party has repudiated in writing any term
thereof or threatened in writing to terminate, cancel or not renew any such
lease, and (v) the Company has not assigned, transferred, conveyed, mortgaged or
encumbered any interest therein or in any leased property subject thereto (or
any portion thereof).
3.10 Environmental Matters.
(a) Compliance. The Company is in compliance in all
material respects with all Environmental Laws, including, without limitation,
all Permits required thereunder to conduct the Business as currently being
conducted or proposed to be conducted. All such Permits are listed on Schedule
3.10(a). The Company has not received any notice, and is not aware of any such
notice, actual or threatened, to the effect that, (i) it is not in compliance
with, or is in violation of, any such Environmental Laws or Permits required
thereunder or (ii) any currently existing circumstances are reasonably likely to
result in a failure of the Company to comply with, or result in a violation by
the Company of, any such Environmental Laws or Permits required thereunder. To
the knowledge of the Company, the Company at all times since its inception in
December 1999 has been in compliance in all material respects with all
Environmental Laws.
(b) Environmental Claims. There are no existing or, to
the knowledge of the Company, potential Environmental Claims against the
Company. The Company has not received any notification or otherwise has any
knowledge, of any allegation of any actual, or potential liability for, or any
investigation regarding, any disposal, release or threatened release at any
location of any Hazardous Substance generated or transported by the Company.
(c) Hazardous Substances. No Hazardous Substances are
currently located on the Facilities that would give rise to any corrective
action by or remedial obligation of the Company under Environmental Laws. There
have been no releases of any Hazardous Substances by the Company, its agents or
contractors (i.e., any past or present releasing, spilling, leaking, pumping,
pouring, emitting, emptying, discharging, injecting, escaping, leaching,
disposing, or dumping) on, upon or into the Facilities other than those
authorized by Environmental Laws including, without limitation, the Permits
required thereunder.
(d) Environmental Indemnities. Except as set forth on
Schedule 3.10(d), the Company is not a party, whether as a direct signatory or
as successor, assign or third-party beneficiary, or otherwise bound, to any
lease or other Contract (excluding insurance policies disclosed on the
Schedules) under which the Company is obligated by or entitled to the benefits
of, directly or indirectly, any representation, warranty, indemnification,
covenant, restriction or other undertaking concerning Environmental Conditions.
28
(e) No Releases. The Company has not released any other
Person from any claim under any Environmental Law or waived any rights
concerning any actual or existing Environmental Condition.
(f) Conditions. Except as would not be reasonably likely
to result in a loss to the Company in excess of $100,000, individually or in the
aggregate, there are no conditions at any of the Facilities which could
reasonably be expected to give rise to any Environmental Claim against the
Company or result in any liability against the Company under any Environmental
Law, and there are no conditions at any off-site facility which could reasonably
be expected to give rise to any Environmental Claim against the Company or
result in any liability against the Company under any Environmental Law.
(g) Environmental Reports. Complete copies of the
Environmental Reports, as well as all other written environmental reports,
audits or assessments, which have been conducted, either by the Company or any
Person engaged by the Company for such purpose, at any facility owned or
formerly owned by the Company have been made available to Parent and a list of
all such reports, audits and assessments is set forth on Schedule 3.10(f).
3.11 Contracts.
(a) Disclosure. Schedule 3.11(a) sets forth a complete
and accurate list of all written Contracts of the following categories:
(i) Contracts not made in the ordinary course of
business involving future expenditures or liabilities, actual or potential, in
excess of $10,000 per individual Contract or $50,000 in the aggregate for all
such Contracts, after the date hereof or otherwise material to the Business or
the Assets;
(ii) (x) where the Company is granted by another
Person any Proprietary Rights ("Licenses In") and which requires royalties,
maintenance fees, or other payments to a third party in excess of $25,000 per
year individually (excluding "shrink-wrap" or similar licenses for generally
available, commercial, off-the-shelf software), (y) where the Company purchases
components for inclusion into its products or by which it has its products
manufactured or assembled other than those purchased solely on a purchase order
basis and (z) Contracts pursuant to which the Company grants another Person
Proprietary Rights ("Licenses Out") that either (A) are not entered into in the
ordinary course of business, or (B) are with one of the Company's top 10
customers, measured by revenue for the twelve month period ended September 30,
2003;
(iii) Confidentiality, non-disclosure, or
non-solicitation agreements (whether the Company is the beneficiary or the
obligated party thereunder);
(iv) Contracts or commitments involving future
expenditures or Liabilities, actual or potential, in excess of $50,000 after the
date hereof or otherwise material to the Business or the Assets;
(v) Contracts or commitments relating to
commission arrangements with others that are material to the Business;
29
(vi) Employment contracts, consulting contracts,
contracts with independent contractors, severance agreements, "stay-bonus"
agreements and similar arrangements under which the Company has or may have
ongoing liability, including Contracts (A) to employ or terminate executive
officers or other personnel and other contracts with present or former officers
or directors of the Company or (B) that will result in the payment by, or the
creation of any Liability of the Company, the Stockholders or Parent to pay any
severance, termination, "golden parachute," or other similar payments to any
present or former personnel or contractors following termination of employment
or engagement or otherwise as a result of the consummation of the transactions
contemplated by this Agreement;
(vii) Indemnification agreements;
(viii) Promissory notes, loans, agreements,
indentures, evidences of indebtedness, letters of credit, guarantees, or other
instruments relating to an obligation to pay money, whether the Company shall be
the borrower, lender or guarantor thereunder (excluding credit provided by the
Company in the ordinary course of business to purchasers of its products and
obligations to pay vendors in the ordinary course of business and consistent
with past practice);
(ix) Contracts containing covenants limiting the
freedom of the Company, or any officer, director, Employee or Affiliate of the
Company, to engage in any line of business anywhere in the world;
(x) Any Contract with the federal, state or
local government or any agency or department thereof or with any educational
institution or part thereof;
(xi) Any Contract or other arrangement with a
Related Party; and
(xii) Any other Contract under which the
consequences of a default or termination would reasonably be expected to have a
Material Adverse Effect on the Company, individually or in the aggregate.
Complete and accurate copies of all of the Contracts required to be
listed on Schedule 3.11(a), including all amendments and supplements thereto
("Material Contracts"), have been made available to Parent. The Company is not a
party to any material oral Contract.
(b) Absence of Defaults. All of the Contracts required to
be set forth on Schedule 3.11(a) are valid, binding and enforceable in
accordance with their terms. The Company has complied in all material respects
with the provisions thereof, is not in material Default thereunder and has not
received notice of any claim of Default. To the knowledge of the Company, all
other parties to such Contracts have complied in all material respects with the
provisions thereof and no such party is in material Default thereunder. No event
has occurred, and no circumstance or condition exists that (with or without
notice or lapse of time) will or could reasonably be expected to (i) result in a
violation or breach of any material provision of any Contract set forth on
Schedule 3.11(a), or (ii) give any person the right to declare a default or
exercise any remedy under any Contract set forth on Schedule 3.11(a), or (iii)
give any Person the right to accelerate the maturity or performance of any
Contract set forth on Schedule 3.11(a).
30
As of the date hereof, no Person is renegotiating any amount paid or payable by
or to the Company under any Contract set forth on Schedule 3.11(a).
3.12 No Conflict or Violation; Consents. Except as set forth on
Schedule 3.12 or, with respect to subsections (b) and (d), as would not have a
Material Adverse Effect on the Company, none of the execution, delivery or
performance of this Agreement or any Ancillary Agreement, the consummation of
the transactions contemplated hereby or thereby, nor compliance by the Company
with any of the provisions hereof or thereof, will (a) violate or conflict with
any provision of the governing documents of the Company, (b) violate, conflict
with, or result in a breach of or constitute a default (with or without notice
or the passage of time) under, or result in the termination of, modification of,
or accelerate the performance required by, or result in a right to terminate,
accelerate or cancel under, or require a notice under, any Contract, mortgage
for borrowed money, instrument of indebtedness, security interest or other
arrangement to which the Company is a party or by which the Company is bound or
to which any of its respective Proprietary Rights or other assets are subject,
(c) violate any applicable Regulation or Court Order or (d) result in any
Encumbrance on any Assets or the Business. Except as set forth on Schedule 3.12,
no notices to, declaration, filing or registration with, approvals or Consents
of, or assignments by, any Persons (including any governmental or administrative
authorities) are necessary to be made or obtained in connection with the
execution, delivery or performance of this Agreement or any Ancillary Agreement
by the Company or the consummation of the transactions contemplated hereby or
thereby.
3.13 Permits. Schedule 3.13 sets forth a complete list of all
material Permits, all of which are as of the date hereof, and will be as of the
Closing Date, in full force and effect. The Company has at all times had all
material Permits required under any applicable Regulation in its operation of
the Business or in its ownership of the Assets, and owns or possesses such
Permits free and clear of all Encumbrances, other than Permitted Encumbrances.
The Company is not in default, nor, to the knowledge of the Company, has the
Company received any notice of any claim of default, with respect to any such
Permit. Except as otherwise governed by law, all such Permits are renewable by
their terms or in the ordinary course of business without the need to comply
with any special qualification procedures or to pay any amounts other than
routine filing fees and, except as set forth on Schedule 3.13, will not be
adversely affected by the completion of the transactions contemplated by this
Agreement or the Ancillary Agreements.
3.14 Financial Statements; Books and Records.
(a) General. Except as set forth on Schedule 3.14(a), the
Financial Statements and Most Recent Financial Statements are complete, are in
accordance with the Company's Books and Records and fairly present in all
material respects the financial condition, results of operations and cash flows
of the Company as of the dates and for the periods indicated thereby, in
accordance with GAAP consistently applied throughout the periods covered thereby
(except as otherwise expressly indicated in the notes to the Financial
Statements and, in the case of the Most Recent Financial Statements, for (i) the
lack of footnotes and (ii) period end audit adjustments that are not material.
(b) Internal Controls. The Company maintains a system of
internal accounting controls sufficient to provide reasonable assurance that (i)
transactions are executed
31
with management's authorizations, (ii) transactions are recorded as necessary to
permit preparation of financial statements in accordance with GAAP and to
maintain accountability for assets, (iii) access to assets is permitted only in
accordance with management's authorization and (iv) the recorded accountability
for assets is compared with existing assets at reasonable intervals and
appropriate action is taken with respect to any differences.
(c) Books and Records. The Books and Records, taken as a
whole, fairly reflect in all material respects the activities of the Company and
the Business.
(d) All Accounts Recorded. The Company has not engaged in
any transaction, maintained any bank account or used any corporate funds except
for transactions, bank accounts or funds which have been and are reflected in
the normally maintained Books and Records.
(e) Corporate Records. The stock records and minute books
of the Company that have been made available to Parent fully reflect all minutes
of meetings, resolutions and other material actions and proceedings of its
stockholders, trustees and board of directors and all committees thereof, all
issuances, transfers and redemptions of capital stock of which the Company are
aware and contain true, correct and complete copies of its respective
Certificate of Incorporation and Bylaws and all amendments thereto through the
date hereof.
3.15 Absence of Certain Changes or Events. Except as set forth on
Schedule 3.15, since the Balance Sheet Date, there has not been any:
(a) failure to operate the Business in the ordinary
course so as to use all commercially reasonable efforts to preserve the Business
intact and to preserve the continued services of the Company's employees and the
goodwill of suppliers, customers and others having business relations with the
Company or its Representatives;
(b) resignation or termination of any key employee or
independent contractor, officer or manager, or any increase in the rate of
compensation payable or to become payable to any officer or manager or
Representative of the Company (other than general, regularly-scheduled reviews),
including the making of any loan to, or the payment, grant or accrual of any
bonus, incentive compensation, service award or other similar benefit to, any
such Person, or the addition to, modification of, or contribution to any
Employee Plan (as defined below);
(c) any payment, loan or advance, or guaranty of any
amount to or in respect of, or the sale, transfer, license or lease of any
properties or the Assets to, or entering into of any Contract with, any Related
Party except regular compensation to Employees;
(d) sale, assignment, license, transfer or Encumbrance,
other than Permitted Encumbrances, of any of the Assets, tangible or intangible,
singly or in the aggregate, other than sales of products and services in the
ordinary course of business and consistent with past practice;
(e) new Material Contracts, or extensions, modifications,
terminations or renewals thereof, except for Material Contracts entered into,
modified or terminated in the ordinary course of business and consistent with
past practice;
32
(f) disposition (by way of sale, license or otherwise) or
lapsing of any Proprietary Rights of the Company, in whole or in part, or any
disclosure of any Trade Secret, to any Person not an Employee or independent
contractor who has signed a non-disclosure agreement;
(g) material change in accounting methods or practices by
the Company or revaluation by the Company of any of the Assets, including
writing off or establishing reserves with respect to inventory, notes or
accounts receivable (other than for which adequate reserves have been previously
established);
(h) damage, destruction or loss (whether or not covered
by insurance) materially adversely affecting the Assets or the Business of the
Company;
(i) declaration, setting aside or payment of any dividend
or distribution in respect of any capital stock of the Company or any
redemption, purchase or other acquisition of any equity securities of the
Company (other than repurchases of Common Stock at cost from employees,
directors, consultants or contractors in connection with the termination of
services under existing repurchase rights or those repurchase rights granted in
accordance with standard form employment agreements entered into following the
date hereof in accordance with this Agreement);
(j) failure to pay any material obligation of the Company
when due;
(k) cancellation of any indebtedness or waiver of any
rights of substantial value to the Company, except in the ordinary course of
business and consistent with past practice;
(l) indebtedness incurred by the Company for borrowed
money or any commitment to borrow money entered into by the Company, or any
loans made or agreed to be made by the Company;
(m) acquisition of any equity interest in any other
Person;
(n) adoption, modification or termination of any Employee
Plan; or
(o) agreement by the Company directly or indirectly to do
any of the foregoing.
3.16 Liabilities. Except as set forth on Schedule 3.16, the Company
has no Liabilities or obligations (absolute, accrued, contingent or otherwise)
except (i) Liabilities which are reflected and properly reserved against in the
Most Recent Financial Statements, (ii) Liabilities incurred in the ordinary
course of business and consistent with past practice since the Balance Sheet
Date and (iii) Liabilities arising under Contracts (other than obligations which
are required to be reflected on a balance sheet prepared in accordance with
GAAP). None of the Liabilities described in this Section 3.16 relates to any
breach of Contract, breach of warranty, tort, infringement, misappropriation or
violation of law or arose out of any Action.
33
3.17 Litigation. There is no Action, pending or, to the knowledge
of the Company, threatened, which if adversely determined against the Company,
its directors or officers, or any other Person could reasonably be expected to
result in a loss to the Company, individually or in the aggregate, in excess of
$100,000. There are presently no outstanding judgments, decrees or orders of any
court or any governmental or administrative agency against or affecting the
Company, the Business or any of the Assets. There have been no Actions since
December 31, 1999 to which the Company has been a party or which relate to any
of the Assets or the Company's officers or directors as such, or any such
Actions which were settled prior to the institution of formal proceedings, other
than Actions brought by the Company for collection of monies owed in the
ordinary course of business.
3.18 Labor Matters.
(a) General. The Company is not a party to any labor
agreement with respect to its Employees with any labor organization, group or
association and has not experienced any attempt by organized labor or its
representatives to make the Company conform to demands of organized labor
relating to its Employees or to enter into a binding agreement with organized
labor that would cover the Employees of the Company. There is no unfair labor
practice charge or complaint against the Company pending before the National
Labor Relations Board or any other governmental agency arising out of the
Company's activities, and the Company has no knowledge of any facts or
information which would give rise thereto; to the Company's knowledge there is
no labor strike or labor disturbance pending or threatened against the Company
nor is any grievance currently being asserted against it; and the Company has
not experienced a work stoppage. There are no material controversies pending or,
to the knowledge of the Company or any Stockholder, threatened between the
Company and its Employees, and neither the Company nor any Stockholder is aware
of any facts which could reasonably result in any such controversy.
(b) Compliance. The Company is in material compliance
with all applicable Regulations respecting employment practices, terms and
conditions of employment, wages and hours, equal employment opportunity, and the
payment of social security and similar taxes and is not engaged in any unfair
labor practice. To the Company's knowledge, the Company is not liable for any
claims for past due wages or any penalties for failure to comply with any of the
foregoing.
(c) Severance Obligations. Except as set forth on
Schedule 3.18(c), the Company has not entered into any severance, "stay-bonus"
or similar arrangement in respect of any present or former Employee or
independent contractor that will result in any obligation (absolute or
contingent) of Parent or the Company to make any payment to any present or
former Employee or independent contractor following termination of employment or
independent contractor engagement or upon consummation of the transactions
contemplated by this Agreement (whether or not employment is continued for any
specified period after the Effective Time). Except as set forth on Schedule
3.18(c), neither the execution and delivery of this Agreement or any Ancillary
Agreement nor the consummation of the transactions contemplated hereby or
thereby will result in the acceleration or vesting of any other rights of any
Person to benefits under any Employee Plans.
34
3.19 Employee Benefit Plans.
(a) Schedule 3.19 contains a complete list of Employee
Plans which cover or have covered employees of the Company. True and complete
copies of each of the following documents have been delivered by the Company to
Parent: (i) each Employee Plan (and, if applicable, related trust agreements,
annuity contracts or other funding instruments) which covers or has covered
employees of the Company (with respect to their relationship with the Company)
and all amendments thereto, all current summary plan descriptions, the most
recent summary of material modifications (as defined in ERISA) and all written
interpretations and descriptions thereof which the Company generally distributes
to participants therein and a complete description of any Employee Plan which is
not in writing, (ii) the most recent determination letter issued by the Internal
Revenue Service and any opinion letter issued by the Department of Labor with
respect to each Pension Plan and each voluntary employees' beneficiary
association as defined under Section 501(c)(9) of the Code (other than a
Multiemployer Plan) which covers or has covered employees of the Company (with
respect to their relationship with the Company), (iii) for the three (3) most
recent plan years, Annual Reports on Form 5500 Series required to be filed with
any governmental agency for each Pension Plan or Welfare Plan which covers or
has covered employees of the Company (with respect to their relationship with
the Company) and (iv) a description of complete age, salary, service and related
data as of the last day of the last play year for employees and former employees
of the Company, and (v) a description setting forth the amount of any liability
of the Company as of the Closing Date for payments more than thirty (30)
calendar days past due with respect to any Welfare Plan.
(b) Pension Plans.
(i) No Employee Plan is or was at any time
subject to Title IV or Part 3 of Title I of ERISA or Section 412 of the Code and
neither the Company nor any ERISA Affiliate is subject to any liability under
Title IV or Part 3 of Title I of ERISA.
(ii) Each Pension Plan and each related trust
agreement, annuity contract or other funding instrument which covers or has
covered employees or former employees of the Company (with respect to their
relationship with the Company) which has been operated as a qualified plan (1)
has received a favorable determination letter from the Internal Revenue Service
stating that such Pension Plan and each related trust is qualified and
tax-exempt under the provisions of Code Sections 401(a) (or 403(a), as
appropriate) and 501(a) or has a remaining period of time under applicable
Treasury Regulations or IRS pronouncements in which to receive such a
determination and (2) to the knowledge of the Company has been so qualified
during the period from its adoption to date.
(iii) Each Pension Plan and each related trust
agreement, annuity contract or other funding instrument which covers or has
covered employees or former employees of the Company (with respect to their
relationship with the Company) currently complies in all material respects and
has been maintained in compliance in all material respects with its terms and,
both as to form and in operation, with the requirements prescribed by any and
all statutes, orders, rules and regulations which are applicable to such plans,
including, without limitation, ERISA and the Code.
35
(c) Multiemployer Plans. Neither the Company nor any
ERISA Affiliate has any liability with respect to a Multiemployer Plan, and no
liability will arise or be imposed on the Company or any ERISA Affiliate under,
or with respect to, any Multiemployer Plan.
(d) Welfare Plans.
(i) Each Welfare Plan which covers or has
covered employees or former employees of the Company (with respect to their
relationship with the Company) currently complies in all material respects and
has been maintained in compliance in all material respects with its terms and,
both as to form and operation, with the requirements prescribed by any and all
statutes, orders, rules and regulations which are applicable to such Welfare
Plan, including, without limitation, ERISA and the Code.
(ii) Except as required by Section 4980B of the
Code or Part 6 of Title 1, Subtitle B of ERISA, none of the Company, any ERISA
Affiliate or any Welfare Plan has any present or future obligation to make any
payment to, or with respect to any present or former employee of the Company or
any ERISA Affiliate pursuant to, any retiree medical benefit plan, or other
retiree Welfare Plan, and no condition exists which would prevent the Company or
an ERISA Affiliate from amending or terminating any such benefit plan or such
Welfare Plan as permitted by applicable law.
(iii) Each Welfare Plan which covers or has
covered employees or former employees of the Company (with respect to their
relationship with the Company) and which is a "group health plan," as defined in
Section 607(1) of ERISA, presently complies in all material respects with and
has been operated in compliance in all material respects with provisions of Part
6 of Title I, Subtitle B of ERISA and Sections 162(k) and 4980B of the Code at
all times.
(iv) Neither the Company nor any ERISA Affiliate
has, at any time, maintained, contributed to or had any obligation to maintain
or contribute to any Welfare Plan that is a "multiemployer plan," as defined in
Section 3(37) of ERISA.
(e) Benefit Arrangements. Each Benefit Arrangement which
covers or has covered employees or former employees of the Company (with respect
to their relationship to the Company) presently complies and has been maintained
in compliance in all material respects with its terms and with the requirements
prescribed by any and all statutes, orders, rules and regulations which are
applicable to such Benefit Arrangement, including, without limitation, the Code.
Except as provided by law or in any employment agreement set forth on Schedule
3.19, the employment of all persons presently employed or retained by the
Company is terminable at will.
(f) Unrelated Business Taxable Income; Unpaid
Contributions. No Employee Plan (or trust or other funding vehicle pursuant
thereto) has incurred any material liability under Code Section 511.
(g) Fiduciary Duties and Prohibited Transactions. To the
Company's knowledge, neither the Company nor any plan fiduciary of any Welfare
Plan or Pension Plan which covers or has covered employees or former employees
of the Company or any ERISA
36
affiliate has engaged in, or has any liability in respect of, any transaction in
violation of Sections 404 or 406 of ERISA or any "prohibited transaction," as
defined in Section 4975(c)(1) of the Code, for which no exemption exists under
Section 408 of ERISA or Section 4975(c)(2) or (d) of the Code (or any
administrative class exemption issued thereunder), or has otherwise violated the
provisions of Part 4 of Title I, Subtitle B of ERISA so as to create any
liability of the Company or any of its Subsidiaries or any Employee Plan. The
Company has not participated in a violation of Part 4 of Title I, Subtitle B of
ERISA by any plan fiduciary of any Welfare Plan or Pension Plan, and the Company
and its Subsidiaries have not been assessed any civil penalty under Section
502(l) of ERISA.
(h) Litigation. There is no action, order, writ,
injunction, judgment or decree outstanding or claim (other than routine claims
for benefits), suit, litigation, proceeding, arbitration proceeding,
governmental audit or investigation relating to or seeking benefits under any
Employee Plan that is pending or, to the knowledge of the Company, reasonably
anticipated or threatened against the Company, any ERISA Affiliate or any
Employee Plan.
(i) No Amendments. Except as provided herein, neither the
Company nor any ERISA Affiliate has announced to employees, former employees,
consultants or directors an intention to create, or otherwise created, a legally
binding commitment to adopt any additional Employee Plan which is intended to
cover employees or former employees of the Company (with respect to their
relationship with the Company) or to amend or modify any existing Employee Plan
which covers or has covered employees or former employees of the Company or any
of its Subsidiaries (with respect to their relationship with the Company or any
of its Subsidiaries).
(j) Unpaid Contributions. Neither the Company nor any
ERISA Affiliate has any material liability for unpaid contributions under
Section 515 of ERISA with respect to any Pension Plan, Multiemployer Plan or
Welfare Plan.
(k) No Acceleration or Creation of Rights. Except as set
forth on Schedule 3.19(c), neither the execution and delivery of this Agreement
or the Ancillary Agreements by the Company nor the consummation of the
transactions contemplated hereby or the related transactions will result in the
acceleration or creation of any rights of any person to benefits under any
Employee Plan (including, without limitation, the acceleration of the vesting or
exercisability of any stock options, the acceleration of the vesting of any
restricted stock, the acceleration of the accrual or vesting of any benefits
under any Pension Plan or the acceleration or creation of any rights under any
severance, parachute or change in control agreement). Other than the Additional
Equity Awards and the shares of Parent Stock subject to forfeiture under the
Stock Restriction Agreement, as of the Effective Time, none of the Core
Employees shall hold any equity securities or rights to acquire equity
securities that are unvested or unexercisable or subject to forfeiture or
repurchase rights, as applicable.
3.20 Transactions with Related Parties. No Related Party has (a)
borrowed or loaned money or other property to the Company which has not been
repaid or returned, (b) any contractual relationship or other claims, express or
implied, of any kind whatsoever against the Company or (c) any interest in any
property used by the Company.
37
3.21 Compliance with Law. The Company has conducted the Business in
compliance with all applicable Regulations and Court Orders, except as would not
reasonably be expected to cause a Company Material Adverse Effect. The Company
has not received any notice to the effect that, or has otherwise been advised
that, the Company is not in compliance in any material respect with any such
Regulations or Court Orders, and the Company has no knowledge of any existing
circumstances likely to result in any material violation of any of the
foregoing.
3.22 Proprietary Rights.
(a) General. Schedule 3.22(a) sets forth with respect to
Proprietary Rights of the Company: (i) for each patent and patent application,
the patent number or application serial number for each jurisdiction in which
such patent or patent application was filed or issued as well as the date of any
such filing or issuance; (ii) for each registered trademark, trade name or
service xxxx, the application serial number or registration number (if any), and
any unregistered trademark, trade name or service xxxx, (iii) for any URL or
domain name, the registration date, any renewal date and name of registry; (iv)
for each registered copyrighted work, the number and date of registration, (v) a
list of all Software incorporated in, provided with or otherwise necessary to
use, support and maintain, the Company's products, including all Software that
the Company provides or makes available to its customers, (vi) the identity of
all third parties to whom the Company has provided or disclosed Software source
code, including escrow agents, and (vii) for each mask work (if any), whether or
not registered, the date of first commercial exploitation and if registered, the
registration number and date of registration, for each among country, province
and state. True and correct copies of all applications filed and registration
for Proprietary Rights (including all pending applications, application related
documents) owned or controlled by or on behalf of the Company have been provided
or made available to Parent. Schedule 3.22(a) also sets forth all third party
components, whether hardware, firmware or Software, that are incorporated in or
provided by the Company with Company's products, or any customized manufacturing
tooling that is otherwise necessary for the manufacture of the Company's
products.
(b) Adequacy. The Proprietary Rights owned solely by the
Company or licensed by the Company pursuant to Licenses In listed on Schedule
3.11(a), together with the Licenses In that, pursuant to the parenthetical in
Section 3.11(a)(ii), are not required to be so listed, as well as any other
third party components purchased by the Company and incorporated in the
Company's products, constitute all Proprietary Rights necessary for the conduct
of the Business as presently conducted, including the design, manufacture,
license and sale of all products currently under development or in production,
and all such Proprietary Rights are free and clear of Encumbrances.
(c) Royalties and Licenses. Except pursuant to Licenses
In, which are set forth in Schedule 3.11 or are permitted to be excluded from
such Schedule by the parenthetical in Section 3.11(a)(ii), the Company has no
obligation to compensate or account to any Person for the use of any of the
Company's Proprietary Rights.
(d) Ownership. The Company owns all right, title and
interest in, or has a valid and enforceable right to use the Company's
Proprietary Rights, and such Proprietary Rights will not cease to be valid and
enforceable rights of the Company by reason of the execution,
38
delivery and performance of this Agreement or the Ancillary Agreements or the
consummation of the transactions contemplated hereby or thereby. Without
limiting the foregoing, the technology that the Company owns or purports to own
was: (i) developed by employees of the Company within the scope of their
employment; (ii) developed by independent contractors who have assigned their
rights to the Company pursuant to enforceable written agreements; or (iii)
otherwise acquired by the Company from a third party who assigned all
Proprietary Rights in the technology to the Company.
(e) Absence of Claims. The Company has not received any
written notice alleging, or otherwise has no knowledge of (A) the invalidity
with respect to, any of the patents or trademarks of the Company or (B) any
alleged infringement, misappropriation or breach of any rights of others as a
result of the use, manufacture, development, exploitation, distribution, license
or support of the Software, products or technology of the Company. Neither the
Company's past or present operation of its business, including without
limitation any development, commercialization, manufacture, use, exploitation,
offer for sale, distribution, sale, license, or support of its Software,
products or technology, infringe upon or misappropriate the intellectual
property rights of any other Person anywhere in the world. In addition, no
Proprietary Rights that the Company has licensed from any other Person,
including without limitation pursuant to In-Licenses, to the knowledge of the
Company infringes any intellectual property rights of any other Person anywhere
in the world. Company has not received any written notice of any claims against
itself or its licensors claiming infringement or misappropriation of
intellectual property rights as a result of the technology licensed by the
Company from third parties. No Person (i) has notified the Company in writing
that it is claiming any ownership of or right to use any Proprietary Rights
which the Company purports to own or (ii) to the knowledge of the Company, is
infringing upon or misappropriating any such Proprietary Rights in any way.
Except as set forth on Schedule 3.11(f), none of the software is, in whole or in
part, subject to the provisions of any open source or quasi-open source license
agreement, including without limitation, any of the following: (i) GNU's General
Public License ("GPL") or Lesser/Library GPL, (ii) The Artistic License (e.g.,
PERL), (iii) the Mozilla Public License, (iv) the Netscape Public License, (v)
the Berkeley software design ("BSD") license including Free BSD or BSD-style
license, (vi) the Sun Community Source License, (vii) an Open Source Foundation
License (e.g., CDE and Motif UNIX user interfaces), (viii) the Apache Server
license, or (ix) any other agreement obligating the Company to make source code
available to third parties or publish source code. The Company has no agreements
with, and is not subject to the requirements of any, standards bodies or other
entities that would obligate the Company to grant licenses to its Proprietary
Rights.
(f) Protection of Proprietary Rights. All of the pending
applications for the Company's owned Proprietary Rights have been duly filed,
prosecution for such applications has been reasonably attended to and all
maintenance and related fees have been paid. The Company has taken reasonable
steps necessary or appropriate (including, entering into appropriate
confidentiality and nondisclosure agreements with officers, directors,
subcontractors, Employees, licensees and customers in connection with the Assets
or the Business) to safeguard and maintain the secrecy and confidentiality of
Trade Secrets that are material to the Business. To the knowledge of the
Company, (i) there has been no misappropriation of any Trade Secrets or other
material confidential Proprietary Rights used in connection with the Business by
any person; (ii) no employee, independent contractor or agent of the Company has
misappropriated any Trade
39
Secrets of any other person in the course of performance as an employee,
independent contractor or agent of the Business; and (iii) no employee,
independent contractor or agent of the Company is in default or breach of any
term of any employment agreement, nondisclosure agreement, assignment of
invention agreement or similar agreement or contract relating in any way to the
protection, ownership, development, use or transfer of the Proprietary Rights.
(g) Harmful Code. The Company has not intentionally
incorporated any disabling device or mechanism in the Software and, to the
knowledge of the Company, the Software is free of all viruses, worms, trojan
horses and other material known contaminants and does not contain any bugs,
errors, or problems that would substantially disrupt its operation or have a
substantial adverse impact on the operation of the Software.
(h) Export Control. The Company has obtained all
approvals necessary for exporting the Company's products, including Software,
outside the United States in accordance with all applicable United States export
control regulations, and importing the products and Software into any country in
which the products and Software are now sold or licensed for use, and all such
export and import approvals in the United States and throughout the world are
valid, current, outstanding and in full force and effect.
3.23 Tax Matters.
(a) Filing of Tax Returns. The Company has timely filed
with the appropriate taxing authorities all Tax Returns required to be filed
through the date hereof. All such Tax Returns are complete and accurate in all
material respects. All Taxes shown due and payable on such Tax Returns have been
paid. The Company is not currently the beneficiary of any extension of time
within which to file any Tax Return. No claim has ever been made by an authority
in a jurisdiction where the Company does not file Tax Returns that it is or may
be subject to taxation by that jurisdiction.
(b) Payment of Taxes. The unpaid Taxes of the Company (i)
did not, as of the dates of the Financial Statements, exceed the reserve for Tax
Liability (excluding any reserve for deferred Taxes established to reflect
timing differences between book and Tax income) set forth on the face of the
balance sheets (rather than in any notes thereto) contained in the Financial
Statements, and (ii) will not exceed that reserve as adjusted for operations and
transactions through the Closing Date in accordance with the past custom and
practice of the Company in filing its Tax Returns. Since the date of the Most
Recent Financial Statements, the Company has not incurred any Liability for
Taxes outside the ordinary course of business or otherwise inconsistent with
past custom and practice.
(c) Audits, Investigations or Claims. No deficiencies for
Taxes the Company have been claimed, proposed or assessed by any taxing or other
governmental authority. There are no pending or, to the knowledge of the
Company, threatened audits, assessments or other actions for or relating to any
Liability in respect of Taxes of the Company, and there are no matters under
discussion with any governmental authorities, or known to the Company with
respect to Taxes that are likely to result in an additional Liability for Taxes
with respect to the Company. The Company has delivered or made available to
Parent complete and accurate copies of federal, state and local Tax Returns of
the Company and its predecessors for the years
40
ended December 31, 1999, 2000, 2001 and 2002, and complete and accurate copies
of all examination reports and statements of deficiencies assessed against or
agreed to by the Company or any predecessors since December 31, 1999. Neither
the Company nor any predecessor has waived any statute of limitations in respect
of Taxes or agreed to any extension of time with respect to a Tax assessment or
deficiency, nor has any request been made in writing for any such extension or
waiver. No power of attorney (other than powers of attorney authorizing
employees of the Company to act on behalf of the Company) with respect to any
Taxes has been executed or filed with any Tax authority.
(d) Liens. There are no Encumbrances for Taxes other than
Permitted Encumbrances on any assets of the Company.
(e) Tax Elections. All material elections with respect to
Taxes affecting the Company as of the date hereof, to the extent such elections
are not shown on or in the Tax Returns that have been delivered or made
available to Parent, are set forth on Schedule 3.23(e). The Company (i) has not
consented at any time under former Section 341(f)(1) of the Code to have the
provisions of former Section 341(f)(2) of the Code apply to any disposition of
the assets of the Company; (ii) has agreed, or is required, to make any
adjustment under Section 481(a) of the Code by reason of a change in accounting
method or otherwise; (iii) has made an election, or is required, to treat any of
its assets as owned by another Person pursuant to the provisions of former
Section 168(f) of the Code or as tax-exempt bond financed property or tax-exempt
use property within the meaning of Section 168 of the Code; (iv) has acquired or
owns any assets that directly or indirectly secure any debt the interest on
which is tax exempt under Section 103(a) of the Code; (v) has made or will make
a consent dividend election under Section 565 of the Code; (vi) has elected at
any time to be treated as an S corporation within the meaning of Sections 1361
or 1362 of the Code; or (vii) made any of the foregoing elections or is required
to apply any of the foregoing rules under any comparable state or local Tax
provision.
(f) Tax Sharing Agreements. There are no Tax-sharing
agreements or similar arrangements (including indemnity arrangements) with
respect to or involving the Company, and, after the Closing Date, the Company
shall not be bound by any such Tax-sharing agreements or similar arrangements or
have any Liability thereunder for amounts due in respect of periods prior to the
Closing Date.
(g) Other Entity Liability. The Company has never been a
member of an affiliated group filing a consolidated federal income Tax Return
(other than a group the common parent of which is the Company). The Company has
no Liability for the Taxes of any Person (other than Taxes of the Company) (i)
under Treasury Regulation Section 1.1502-6 (or any similar provision of state,
local, or foreign law), (ii) as a transferee or successor, (iii) by contract, or
(iv) otherwise.
(h) No Withholding. The Company has withheld and paid all
Taxes required to have been withheld and paid in connection with amounts paid or
owing to any employee, independent contractor, creditor, stockholder or other
third party. The transaction contemplated herein is not subject to the tax
withholding provisions of Section 3406 of the Code, or of Subchapter A of
Chapter 3 of the Code or of any other provision of law.
41
(i) USRPHC. The Company has never been a United State
real property holding corporation within the meaning of Section 897(c)(2) of the
Code during the applicable period specified in section 897(c)(1)(A)(ii) of the
Code.
(j) Partnerships, Single Member LLCs, CFCs, PHCs and
PFICs. The Company (i) is not a partner for Tax purposes with respect to any
joint venture, partnership, or other arrangement or contract which is treated as
a partnership for Tax purposes, (ii) does not own a single member limited
liability company which is treated as a disregarded entity other than LLC, (iii)
is not a stockholder of a "controlled foreign corporation" as defined in Section
957 of the Code (or any similar provision of state, local or foreign law), (iv)
is not a "personal holding company" as defined in Section 542 of the Code (or
any similar provision of state, local or foreign law), and (v) is not a "passive
foreign investment company" within the meaning of Section 1297 of the Code.
(k) Permanent Establishment. The Company does not have
and has not had a permanent establishment in any foreign country, as defined in
any applicable Tax treaty or convention between the United States of America and
such foreign country.
(l) Disallowance of Interest Deductions. None of the
outstanding indebtedness of the Company constitutes indebtedness with respect to
which any interest deductions may be disallowed under Sections 163(i) or 163(l)
or 279 of the Code or under any other provision of applicable law.
(m) International Boycotts. The Company has never
participated in and is not participating in an international boycott within the
meaning of Code Section 999.
(n) Tax Shelters. The Company has not entered into any
transaction identified as a "listed transaction" for purposes of Treasury
Regulations Sections 1.6011-4(b)(2) or 301.6111-2(b)(2). If the Company has
entered into any transaction such that, if the treatment claimed by it were to
be disallowed, the transaction would constitute a substantial understatement of
federal income tax within the meaning of Code Section 6662, then it believes
that it has either (x) substantial authority for the tax treatment of such
transaction or (y) disclosed on its Tax Return the relevant facts affecting the
tax treatment of such transaction.
(o) Spin-Offs. The Company has not distributed the stock
of any corporation in a transaction satisfying the requirements of Section 355
of the Code since April 16, 1997, and the stock of the Company has not been
distributed in a transaction satisfying the requirements of Section 355 of the
Code since April 16, 1997.
(p) LLC Tax Treatment. At all times since its formation,
the Company's Subsidiary has been an entity with a single owner that is
disregarded as separate from its owner for federal tax purposes, and up to and
including the Closing Date, the Company's Subsidiary will be an entity with a
single owner that is disregarded as separate from its owner for federal tax
purposes. No Form 8832 has ever been filed with respect to the Company's
Subsidiary as other than a disregarded entity and, as of the Closing Date, no
such election shall have been made.
(q) Deductibility of Payments. To the Company's
knowledge, there is no contract, agreement, plan or arrangement covering any
employee or former employee of the
42
Company (with respect to such employee's relationship with the Company) that,
individually or collectively, requires the payment by the Company of any amount
(i) that is not deductible under Section 162(a)(1) or 404 of the Code or (ii)
that is an "excess parachute payment" pursuant to Section 280G of the Code.
3.24 Reorganization Treatment.
(a) Assets. At the Effective Time, the Company will hold
at least 90 percent of the fair market value of its net assets and at least 70
percent of the fair market value of its gross assets held immediately prior to
the Effective Time. For purposes of this representation, amounts paid by the
Company to dissenting Stockholders, amounts paid by the Company to Stockholders
who receive cash or other property, amounts used by the Company to pay Merger
expenses, amounts paid by the Company to redeem stock, securities, warrants or
options of the Company as part of any overall plan of which the Merger is part,
and amounts distributed by the Company to Stockholders (except for any regular,
normal dividends) as part of an overall plan of which the Merger is a part, in
each case will be treated as constituting assets of the Company immediately
prior to the Effective Time.
(b) Business. The Company currently conducts a business.
Such business is the Company's "historic business" within the meaning of
Treasury Regulations Section 1.368-1(d), and no assets of the Company have been
sold, transferred, or otherwise disposed of that would prevent Parent from
continuing the "historic business" of the Company or from using a "significant
portion" of the Company's "historic business assets" in a business following the
Merger, as such terms are used in Treasury Regulations Section 1.368-1(d).
(c) Investment Company. The Company is not an investment
company, as defined in Sections 368(a)(2)(F)(iii) and (iv) of the Code.
(d) Title 11. The Company is not under the jurisdiction
of a court in a Title 11 or similar case within the meaning of Section
368(a)(3)(A) of the Code.
(e) Redemptions and Distributions. Neither the Company
nor any person related to the Company within the meaning of Treasury Regulations
Sections 1.368-1(e)(3), (e)(4) and (e)(5) has purchased, redeemed or otherwise
acquired, or made any distributions with respect to, any of the Company's stock
prior to or in contemplation of the Merger, or otherwise as part of a plan of
which the Merger is a part.
(f) Intercorporate Indebtedness. At the Effective Time,
there will be no intercorporate indebtedness (including the Bridge Loan)
existing between Parent or the Sub, on one hand, and the Company, on the other
hand, that was issued or acquired at a discount or will be settled at a discount
at the Effective Time, or to the knowledge of the Company, will thereafter be
settled at a discount.
(g) Dividends. At the Effective Time, there will be no
accrued but unpaid dividends on the Common Stock or on the Preferred Stock.
(h) Control. In the Merger, stock of the Company
representing "control" of the Company (within the meaning of Section 368(c) of
the Code) will be exchanged solely for
43
"voting stock" of Parent (within the meaning of Sections 368(a)(1)(B) and
(2)(E)). For purposes of the preceding sentence, any Common Stock to be
exchanged for cash or other property originating with Parent is treated as
constituting outstanding Common Stock at the Effective Time.
3.25 Insurance. Schedule 3.25 contains a complete and accurate list
of all policies or binders of insurance (showing as to each policy or binder the
carrier, policy number, coverage limits, expiration dates, annual premiums, a
general description of the type of coverage provided and any pending claims
thereunder) of which the Company is the owner, insured or beneficiary. All of
such policies are sufficient for compliance in all material respects with all
Regulations and all of the Contracts. The Company is not in default under any of
such policies or binders, and has not failed to give any notice or to present
any material claim under any such policy or binder in a due and timely fashion.
There are no facts known to the Company upon which an insurer might be justified
in reducing or denying coverage or increasing premiums on existing policies or
binders. There are no outstanding unpaid claims under any such policies or
binders. Such policies and binders are in full force and effect on the date
hereof and shall be kept in full force and effect by the Company through the
Closing Date.
3.26 Accounts Receivable.
(a) Except as set forth on Schedule 3.26, the accounts
and notes receivable reflected in the Most Recent Financial Statements, and all
accounts or notes receivable arising since the date of the Most Recent Financial
Statements, (i) represent bona fide claims against debtors for sales, services
performed or other charges arising on or before the date of recording thereof,
and (ii) are current and, the Company reasonably believes will be collected in
full when due, without any counterclaim or set off, and are not subject to any
dispute or threat of non-payment (net of the allowance for doubtful accounts set
forth on the Most Recent Financial Statements). All the goods delivered and
services performed which gave rise to said accounts were delivered or performed
in accordance in all material respects with the applicable orders, Contracts or
customer requirements.
(b) Schedule 3.26(b) contains an accurate and complete
list as of October 27, 2003 of all loans and advances made by the Company to any
Employee, other than routine travel or relocation advances made to employees in
the ordinary course of business, which loans and advances do not materially
differ from the loans and advances as of the date of this Agreement.
3.27 Customers. To the Company's knowledge, since the Balance Sheet
Date, there has been no actual or threatened termination of any material
customer account or group of accounts or actual or threatened material reduction
in purchases or royalties payable by any such customer or occurrence of any
event that is likely to result in any such termination or reduction, except as a
direct result of the announcement of the transactions contemplated hereby.
3.28 Suppliers. Schedule 3.28 sets forth a complete and accurate
list of the names and addresses of the ten (10) suppliers with the greatest
dollar volume of sales to the Company since January 1, 2003, showing the
approximate total purchases in dollars by the Company from each such supplier
during such period. Since the Balance Sheet Date, there has been no Company
Material Adverse Change in the business relationship of the Company with any
supplier named
44
on Schedule 3.28. The Company has not received any written communication from
any supplier named on Schedule 3.28 of any intention to return, terminate or
materially reduce services or supplies to the Company.
3.29 Brokers; Transaction Costs. Except as set forth on Schedule
3.29, the Company has not entered into any contract, agreement, arrangement or
understanding with any Person which will result in the obligation of Parent or
the Company to pay any finder's fee, brokerage commission or similar payment in
connection with the transactions contemplated hereby.
3.30 Foreign Corrupt Practices Act. Neither the Company nor any
predecessor, nor to the knowledge of the Company, any agent, employee or other
Person associated with or acting on behalf of the Company or any predecessor
has, directly or indirectly, used any corporate funds for unlawful
contributions, gifts, entertainment or other unlawful expenses relating to
political activity, made any unlawful payment to foreign or domestic government
officials or employees or to foreign or domestic political parties or campaigns
from corporate funds, violated any provision of the Foreign Corrupt Practices
Act of 1977, as amended, or made any bribe, rebate, payoff, influence payment,
kickback or other similar unlawful payment.
3.31 Stockholder Vote Required. The only votes of any class or
series of the Company's capital stock necessary to adopt or approve this
Agreement, the Merger, the Option Plan Amendment and the other transactions
contemplated hereby are: (a) the affirmative vote of a majority of the shares of
Common Stock, (b) the affirmative vote of 66 2/3% of the shares Series A
Preferred Stock, and (c) the affirmative vote of 76% of the shares of Series B
Preferred Stock and Series B-1 Preferred Stock, voting as a single class
(collectively, the "Stockholder Consent").
3.32 Information Supplied by the Company.
(a) The information supplied by the Company for inclusion
in the application (the "Permit Application") for issuance of a permit pursuant
to Section 25121 of the California Code (the "California Permit") for the
qualification of the shares of Parent Stock to be issued in connection with the
Merger shall not either at the time the Fairness Hearing is held or the time the
qualification of such securities is effective under Section 25122 of the
California Code 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. Notwithstanding the foregoing, the Company makes no
representation, warranty or covenant with respect to any information supplied by
Parent which is contained in the Permit Application or the Information
Statement.
(b) If the parties prepare and file the Registration
Statement, the information supplied by the Company for inclusion in the
Registration Statement shall not at the time the Registration Statement or any
amendments thereto is filed with the SEC or at the time the Registration
Statement is declared effective by the SEC 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 in which such statements are made, not misleading. Notwithstanding
the foregoing, the Company makes no representation, warranty
45
or covenant with respect to any information supplied by Parent or Merger Sub
which is contained in the Registration Statement.
3.33 Acquisition Proposals. Since October 18, 2003, neither the
Company nor any of its officers, directors, members, partners, employees,
advisors, agents, financing sources (and their respective advisors), or other
representatives or affiliates has (i) solicited, initiated, entertained,
encouraged, discussed, accepted or considered any inquiries, offers or proposals
from any person (other than Parent) which constituted, or could reasonably have
been expected to lead to, any merger or other business combination involving, or
any sale, transfer, liquidation, acquisition, licensing or other disposition of,
all or any portion of the Company or its assets (other than sales in the
ordinary course of business) (an "Acquisition Proposal"), or (ii) negotiated
with any Person or entered into any agreement, letter of intent or other
document relating to or contemplating, or any agreement in principle with
respect to, any Acquisition Proposal.
3.34 Material Misstatements or Omissions. To the knowledge of the
Company, no representations or warranties by the Company in this Agreement or
any Ancillary Agreement to which it is a party or in the schedules or exhibit
hereto or thereto contains any untrue statement of a material fact, or omits to
state any material fact necessary to make the statements or facts contained
therein not misleading.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF PARENT AND SUB
As an inducement of the Company to enter into this Agreement, except as
otherwise set forth in written disclosure schedules (the "Parent Schedules")
delivered to the Company on the date hereof, a copy of which is attached hereto,
Parent represents and warrants to the Company as follows, which representations
and warranties are, as of the date hereof, and will be, as of the Closing Date,
true and correct. The Parent Schedules are numbered to correspond to the various
sections of this Article 4 setting forth certain exceptions to the
representations and warranties contained in this Article 4 and certain other
information called for by this Agreement. Unless otherwise specified, disclosure
made in any particular Parent Schedule shall be deemed made in any other Parent
Schedule or Schedules to which the relevance of such disclosure is readily
apparent from the text of such disclosure.
4.1 Organization. Parent is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware. Parent
has full corporate power and authority to conduct its business as it is
presently being conducted. Parent is duly qualified to do business as a foreign
corporation and is in good standing in each jurisdiction in which such
qualification is necessary under applicable law as a result of the conduct of
its business or the ownership of its properties and where the failure to be so
qualified would, individually or in the aggregate, have a Parent Material
Adverse Effect. Sub is a corporation duly organized, validly existing and in
good standing under the laws of the state of Delaware. Sub has not engaged in
any business (other than in connection with this Agreement and the transactions
contemplated hereby) since the date of its incorporation.
4.2 Capitalization.
46
(a) Parent has authorized under its Certificate of
Incorporation 885,000,000 shares of Parent Stock and 5,000,000 shares of
preferred stock, par value $0.001 per share of which, as of October 30, 2003,
345,056,188 shares of Parent Stock and no shares of preferred stock were issued
and outstanding. Parent has no other stock authorized, issued or outstanding.
(b) Except for Parent Options, there are no outstanding
options, warrants, convertible securities or rights of any kind to purchase or
otherwise acquire any shares of capital stock or other securities of Parent.
(c) All outstanding shares of Parent Stock issued or to
be issued upon exercise of any of the Parent Options will be validly issued,
fully paid and non-assessable and not subject to any preemptive rights created
by statute, Parent's Certificate of Incorporation or Bylaws or any Contract.
4.3 Valid Issuance of Merger Shares. The Merger Shares to be
issued pursuant to the terms of this Agreement have been duly authorized and,
when issued in accordance with the terms hereof, will be validly issued, fully
paid and nonassessable.
4.4 Authorization. Each of Parent and Sub has all necessary
corporate power and authority to enter into this Agreement and the Ancillary
Agreements to which it is a party and has taken all corporate action necessary
to consummate the transactions contemplated hereby and thereby and to perform
its respective obligations hereunder and thereunder, including approval of the
Parent's Board of Directors. Approval of Parent's stockholders is not required
for Parent to enter into this Agreement and the Ancillary Agreements to which it
is a party and to perform its obligations hereunder and thereunder. This
Agreement has been duly executed and delivered by each Parent and Sub, and this
Agreement is, and upon execution and delivery each of the Ancillary Agreements
to which each of Parent and Sub is a party will be, a valid and binding
obligation of each of Parent and Sub enforceable against each of Parent and Sub
in accordance with its terms, except that enforceability may be limited by the
effect of (a) bankruptcy, insolvency, reorganization, moratorium or other
similar laws relating to or affecting the rights of creditors or (b) general
principles of equity (regardless of whether enforceability is considered in a
proceeding at law or in equity).
4.5 No Conflict or Violation; Consents. Except as set forth on
Schedule 4.5, none of the execution, delivery or performance of this Agreement
or any Ancillary Agreement, the consummation of the transactions contemplated
hereby or thereby, nor compliance by Parent or Sub with any of the provisions
hereof or thereof, will (a) violate or conflict with any provision of Parent's
or Sub's governing documents to the extent applicable, (b) violate, conflict
with, or result in a breach of or constitute a default (with or without notice
of passage of time) under, or result in the termination of, or accelerate the
performance required by, or result in a right to terminate, accelerate, modify
or cancel under, or require a notice under, or result in the creation of any
Encumbrance upon any of its assets under, any contract, lease, sublease,
license, sublicense, franchise, permit, indenture, agreement or mortgage for
borrowed money, instrument of indebtedness, security interest or other
arrangement to which Parent or Sub is a party or by which Parent or Sub is bound
or to which any of their respective assets are subject, (c) violate any
Regulation or Court Order applicable to Parent or Sub or (d) impose any
Encumbrance on any assets of Parent or Sub. Except as set forth on Schedule 4.5,
no notices to, declaration, filing
47
or registration with, approvals or Consents of, or assignments by, any Persons
(including any federal, state or local governmental or administrative
authorities) are necessary to be made or obtained by Parent or Sub in connection
with the execution, delivery or performance of this Agreement or any Ancillary
Agreement or the consummation of the transactions contemplated hereby or
thereby.
4.6 Reports and Financial Statements. Parent has timely filed all
reports required to be filed with the SEC pursuant to the Exchange Act or the
Securities Act, and has previously provided or made available to the Company
true and complete copies of all reports filed by Parent with the SEC since
January 1, 2002 (the "SEC Reports"). Such SEC Reports, as of their respective
dates, complied in all material respects with the applicable requirements of the
Securities Act and the Exchange Act, as the case may be, and none of such SEC
Reports, as of its date, 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 therein, in light of the circumstances under which they were
made, not misleading. The financial statements of Parent, including the notes
thereto, included in the SEC Reports have been prepared in accordance with GAAP
consistently applied (except as otherwise stated in the footnotes to the
financial statements) and fairly present in all material respects the
consolidated financial condition of Parent as at the dates thereof and
consolidated results of operations and cash flows for the periods then ended.
4.7 Reorganization Treatment.
(a) Intention Regarding the Company. Parent has no plan
or intention: (i) to liquidate the Company; (ii) to merge the Company into
another corporation; (iii) to sell or otherwise dispose of any shares of stock
of the Company pursuant to the Agreement, except for transfers and successive
transfers described in Treasury Regulation Section 1.368-2(k) or transfers and
successive transfers to one or more corporations controlled in each transfer by
the transferor corporation (within the meaning of Section 368(c) of the Code);
or (iv) to cause the Company to sell or otherwise dispose of any of its assets,
except for (w) dispositions made in the ordinary course of business, (x)
transfers and successive transfers described in Treasury Regulation Section
1.368-2(k) or transfers and successive transfers to one or more corporations
controlled in each transfer by the transferor corporation (within the meaning of
Section 368(c) of the Code), (y) dispositions after which the Company would
continue to hold the amount of assets set forth in Section 3.24(a) following the
Merger (assuming the correctness of the representation set forth in Section
3.24(a)), or (z) transfers to partnerships that satisfy the provisions of
Treasury Regulation Section 1.368-1(d)(4)(iii)(B).
(b) Intention Regarding Parent Stock. Except with respect
to open-market purchases of Parent's stock pursuant to a general stock
repurchase program of Parent that has not been created or modified in connection
with the Merger, neither Parent nor any Person related to Parent within the
meaning of Treas. Reg. Sections 1.368-1(e)(3), (e)(4) and (e)(5) has any plan or
intention to repurchase, redeem or otherwise acquire any of the stock of Parent
issued to the Stockholders pursuant to this Agreement following the Merger.
Other than pursuant to this Agreement, neither Parent nor any Person related to
Parent within the meaning of Treas. Reg. Sections 1.368-1(e)(3), (e)(4) and
(e)(5) has acquired any Common Stock or Preferred Stock in contemplation of the
Merger, or otherwise as part of a plan of which the Merger is a part.
48
(c) Control. Prior to the Merger, Parent will be in
control of Sub, and following the Merger, Parent will be in control of the
Company, within the meaning of Section 368(c) of the Code. Parent has no plan or
intention to cause the Company, after the Effective Time, to issue additional
shares of stock that would result in Parent losing control of the Company within
the meaning of Section 368(c) of the Code.
(d) Business. Assuming the correctness of the
representation set forth in 3.24(b), then following the Merger, Parent, or a
member of its qualified group of corporations (as defined by Treasury Regulation
Section 1.368-1(d)(4)(ii)), will continue the historic business of the Company
(or, alternatively, if the Company has more than one line of business, will
continue at least one significant line of the Company's historic business) or
use a significant portion of the Company's historic business assets in a
business, in a manner consistent with Treasury Regulation Section 1.368-1(d)
(provided, however, that in the event that Section 3.24(b) is or has been
breached, this Section 4.6(d) shall not be considered to be or have been
breached).
(e) Investment Company. Neither Parent nor Sub is an
"investment company" as defined in Sections 368(a)(2)(F)(iii) and (iv) of the
Code.
(f) Assets. Assuming the correctness of the
representation set forth in Section 3.24(a), then following the Merger, the
Company will hold at least 90 percent of the fair market value of the Company's
net assets and at least 70 percent of the fair market value of the Company's
gross assets and at least 90 percent of the fair market value of Sub's net
assets and at least 70 percent of the fair market value of Sub's gross assets
held immediately prior to the Effective Time. For purposes of this
representation, amounts paid by the Company to dissenting Stockholders, amounts
paid by the Company to Stockholders who receive cash or other property, amounts
used by the Company to pay Merger expenses, amounts paid by the Company to
redeem stock, securities, warrants or options of the Company as part of any
overall plan of which the Merger is part, and amounts distributed by the Company
to Stockholders (except for any regular, normal dividends) as part of an overall
plan of which the Merger is a part, in each case will be treated as constituting
assets of the Company immediately prior to the Effective Time (provided,
however, that in the event that Section 3.24(a) is or has been breached, this
Section 4.6(g) shall not be considered to be or have been breached).
(g) Intercorporate Indebtedness. At the Effective Time,
there will be no intercorporate indebtedness (including the Bridge Loan)
existing between Parent or the Sub, on one hand, and the Company, on the other
hand, that was issued or acquired at a discount, or will be settled at a
discount at the Effective Time or to the knowledge of Parent will thereafter be
settled at a discount.
(h) Control. In the Merger, stock of the Company
representing "control" of the Company (within the meaning of Section 368(c) of
the Code) will be exchanged solely for "voting stock" of Parent (within the
meaning of Sections 368(a)(1)(B) and (2)(E)). For purposes of the preceding
sentence, any Common Stock to be exchanged for cash or other property
originating with Parent is treated as constituting outstanding Common Stock at
the Effective Time.
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ARTICLE 5
ACTIONS BY THE COMPANY, PARENT AND SUB
The Company, Parent and Sub, each as indicated below, covenant as
follows for the period from the date hereof through the Closing Date or
following the Closing Date:
5.1 Conduct of Business. From the date hereof through the Closing,
the Company shall, except as set forth on Schedule 5.1, as otherwise expressly
contemplated by this Agreement, or as consented to by Parent in writing, (i)
operate the Business (A) solely in the ordinary course of business and in
accordance with past practice and will maintain its books, records and accounts
in accordance with GAAP (to the extent applicable), consistent with past
practices, and (B) in compliance in all material respects with all applicable
Regulations and requirements of the Contracts set forth on Schedule 3.11, (ii)
use its commercially reasonable efforts to maintain the Company's current
financial condition, including working capital; (iii) use its commercially
reasonable efforts to maintain the Business, retain the Employees so that such
Employees will remain available to the Surviving Corporation on and after the
Closing Date, maintain existing relationships with material suppliers and
customers and others having business dealings with the Company and otherwise to
preserve the goodwill of the Business so that such relationships and goodwill
will be preserved on and after the Closing Date; and (iv) use its commercially
reasonable efforts to maintain all current filings and registrations of
applicable Proprietary Rights, including without limitation, payment of any
applicable fees that may become due and payable prior to Closing. Without
limiting the generality of the foregoing, the Company shall not, except as set
forth on Schedule 5.1, as specifically contemplated by this Agreement or as
consented to by Parent in writing, which consent shall not be unreasonably
withheld or delayed:
(a) incur any indebtedness for borrowed money, or assume,
guarantee, endorse (other than endorsements for deposit or collection in the
ordinary course of business), or otherwise become responsible for obligations of
any other Person in excess of $50,000 in the aggregate (other than the Bridge
Loan or, if Parent fails to make the Bridge Loan in violation of the Bridge Loan
Agreement, other bridge loan financing in an amount up to $5,000,000 on
commercially reasonable terms);
(b) issue (except pursuant to Company Options outstanding
on the date of this Agreement and disclosed on Schedule 3.2(b), Company Warrants
outstanding on the date of this Agreement and disclosed on Schedule 3.2(c) or
the conversion of Preferred Stock outstanding on the date of this Agreement) or
commit to issue (except pursuant to new hire stock option grants in accordance
with the Company's past practices) any shares of its capital stock or any other
securities or any securities convertible into shares of its capital stock or any
other securities, including, without limitation, any options to acquire capital
stock (other than the grant of Company Options to newly hired non-officer
employees, consistent with past practices);
(c) declare, pay or incur any obligation to pay any
dividend on its capital stock or declare, make or incur any obligation to make
any distribution or redemption with respect to capital stock, except for the
repurchase of Common Stock at cost from employees, directors, consultants or
contractors in connection with the termination of services pursuant to existing
repurchase rights or those repurchase rights granted in accordance with standard
form
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employment agreements entered into following the date hereof in accordance with
this Agreement;
(d) make any change to the Company's Certificate of
Incorporation or Bylaws;
(e) mortgage, pledge or otherwise encumber any Assets
(other than Permitted Encumbrances) or sell, transfer, license or otherwise
dispose of any Assets except for the sale of inventory to customers in the
ordinary course of business and consistent with past practice;
(f) cancel, release or assign (i) any indebtedness owed
to it or (ii) any claims or rights held by it other than in the ordinary course,
consistent with past practice;
(g) make any investment or commitment of a capital nature
either by purchase of stock or securities, contributions to capital, business or
product line acquisitions, property transfer or otherwise, or by the purchase of
any property or assets of any other Person in excess of $50,000 in the
aggregate;
(h) (A) terminate any Material Contract, (B) make any
change in or waive or exercise any right under any Material Contract, or (C)
enter into or renew any Contract that would have been a Material Contract if
entered into prior to the date hereof; provided, however, that this subsection
(C) shall not apply to sales Contracts to the extent prohibited by applicable
law;
(i) (A) enter into or modify any employment Contract
(other than standard form Contracts entered into in the ordinary course of
business for the commencement of employment of new hires), (B) change the
status, title or responsibilities of any officer of the Company, or promote any
Employee (who is not an officer as of the date of this Agreement) to an officer
position; (C) pay any compensation to or for any Employee, officer or director
other than in the ordinary course of business or pursuant to existing employment
arrangements, (D) pay or agree to pay any bonus, incentive compensation, service
award, severance, "stay bonus" or other like benefit other than in the ordinary
course of business or pursuant to existing employment arrangements, (iv) enter
into or modify any other Employee Plan, or (E) modify the Company Stock Option
Plan other than as contemplated herein;
(j) enter into or modify any Contract or other
arrangement with a Related Party;
(k) make any material change in any method of accounting
or accounting practice other than as required by GAAP, law or regulatory
authority;
(l) make or change any election in respect of Taxes,
adopt or change any material accounting method in respect of Taxes, enter into
any tax allocation agreement, tax sharing agreement, tax indemnity agreement or
closing agreement, settle or compromise any claim, notice, audit report 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;
(m) commence any Action or other legal proceeding;
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(n) do any other act which would cause any representation
or warranty of the Company in this Agreement to be or become untrue in any
material respect;
(o) take any action which would result in a breach of
this Agreement by the Company, or which could reasonably be expected to result
in a breach by any Person of any Ancillary Agreement; or
(p) directly or indirectly take, agree to take or
otherwise permit to occur any of the actions described in Sections 5.1(a)
through 5.1(o).
5.2 Access by Parent. Subject to the Confidentiality Agreement and
in compliance with all Regulations relating to the exchange of confidential
information, from the date hereof through the Closing Date, the Company shall,
and shall cause the Company's officers, Employees and Representatives to, afford
the Representatives of the Parent and those of its lenders reasonable access
upon reasonable notice and at all reasonable times to its Business for the
purpose of inspecting the same, and to its officers, Employees and
Representatives, properties, Books and Records, Contracts and other Assets, and
shall furnish Parent and its Representatives and those of its lenders, upon
reasonable notice and in a timely manner, all financial, operating and other
data and information as Parent or its affiliates, through their respective
Representatives, may reasonably request. Notwithstanding the foregoing, Parent's
access to the Company's employee personnel files, shall be limited to that
information reasonably necessary to effectuate the Merger.
5.3 Notification of Certain Matters. The Company shall give prompt
notice to Parent of (i) the occurrence, or failure to occur, of any event which
occurrence or failure would reasonably be expected to cause any representation
or warranty of the Company contained in this Agreement to be untrue or
inaccurate in any material respect and (ii) any material failure of the Company
to comply with or satisfy any covenant, condition or agreement to be complied
with or satisfied by it hereunder; provided, however, that such disclosure shall
not be deemed to cure any breach of a representation, warranty, covenant or
agreement or to satisfy any condition. The Company shall promptly notify Parent
of any Default, the threat or commencement of any Action, or any development
that occurs before the Closing that could reasonably be expected to result in a
Company Material Adverse Effect.
5.4 Acquisition Proposals. From the date hereof until termination
of this Agreement pursuant to its terms (the "Exclusivity Period"), none of the
Company or any of its officers, directors, members, partners, employees,
advisors, agents, financing sources (and their respective advisors) and other
representatives and affiliates, will directly or indirectly, (i) solicit,
initiate, entertain, encourage, discuss, accept or consider any inquiries,
offers or proposals from any person (other than Acquirer) which constitute, or
could reasonably be expected to lead to, any Acquisition Proposal, (ii) furnish
any information regarding the Company to any Person in connection with or in
response to an Acquisition Proposal, (iii) negotiate or engage in any
discussions with any Person with respect to any Acquisition Proposal, (iv)
approve, endorse or recommend any Acquisition Proposal, or (v) enter into any
agreement, letter of intent or other document relating to or contemplating, or
any agreement in principle with respect to, any Acquisition Proposal. If any
indication of interest, letter of intent, agreement in principle, offer or
proposal or request for information either in writing or verbally with respect
to an Acquisition
52
Proposal is received by the Company or any of its officers, directors, members,
partners, employees, advisors, agents, financing sources (and their respective
advisors) and other representatives and affiliates during the Exclusivity
Period, the Company shall notify Parent immediately (orally and in writing) of
such receipt, and shall indicate in reasonable detail the identity of the
offeror and the terms and conditions of any such indication of interest, letter
of intent, agreement, offer, proposal or request. Notwithstanding the foregoing,
the Company may enter into discussions with OEM's, resellers and/or merchants
regarding a potential commercial relationship.
5.5 Company Stockholder Approval. The Company agrees that it will
use its reasonable best efforts to obtain the Stockholder Consent.
5.6 Fairness Hearing; Registration of Shares. Parent, Sub and the
Company shall each take all steps reasonably necessary, utilize all commercially
reasonable efforts and cooperate with one another to obtain as promptly as
practicable the approval of the Commissioner of the California Department of
Corporations (the "Commissioner") of the fairness (the "Fairness Approval") of
the terms and conditions of the issuance of the Parent Stock as contemplated by
this Agreement after a hearing held pursuant to Section 25142 of the CCC and the
rules of the Commissioner thereunder. The Company shall promptly notify Parent
if the Company becomes aware that one of its stockholders intends to dissent or
object to the Merger and the transactions contemplated hereby at such hearing.
If for any reason whatsoever the Commissioner does not render a Fairness
Approval of the terms and conditions of the Merger and the issuance of the
Parent Stock as contemplated by this Agreement (or if Parent determines in its
reasonable judgment not to pursue such a hearing; provided that Parent shall
consult with the Company prior to making such determination), the parties hereto
agree to take all steps reasonably necessary, utilize all commercially
reasonable efforts and cooperate with one another to have the issuance of the
shares of Parent Stock to be issued in the Merger registered with the SEC on
Form S-4 or a successor registration form (the "Registration Statement") by
filing with the SEC as promptly as practicable after the decision to utilize the
Registration Statement is made, the Registration Statement with respect to the
Parent Stock to be issued in connection with the Merger, which shall be in form
and substance satisfactory to Parent (but with advance copies provided to the
Company for its review and comment, which such comments shall be promptly
conveyed by the Company). Each of Parent and the Company will use all
commercially reasonable efforts to respond to any comments of the SEC. Each of
Parent and the Company will notify the other promptly of the receipt of any
comments from the SEC and of any request by the SEC for amendments or
supplements to the Registration Statement or additional information, and will
supply the other party with copies of all correspondence between such party or
any of its representatives and the SEC with respect to the Registration
Statement. As promptly as practicable after comments are received from the SEC,
Parent shall file with the SEC an amendment to the Registration Statement and
Parent and the Company shall use all commercially reasonable efforts to cause
the Registration Statement to become effective as soon thereafter as
practicable. Whenever any event occurs that is required to be set forth in an
amendment or supplement to the Registration Statement, Parent or the Company, as
the case may be, shall promptly inform the other party of such occurrence and
cooperate in filing with the SEC and/or mailing to stockholders of the Company,
such amendment or supplement.
53
5.7 NASDAQ Listing of Additional Shares Application. Parent shall
use its commercially reasonable efforts to cause the Merger Shares to be
authorized for listing on the NASDAQ National Market, subject to official notice
of issuance.
5.8 Takeover Statutes. If any Takeover Statute is or may become
applicable to the transactions contemplated hereby, the Board of Directors of
the Company will grant such approvals and take such actions as are necessary so
that the transactions contemplated hereby may be consummated as promptly as
practicable on the terms contemplated hereby and otherwise act to eliminate the
effects of any Takeover Statute on any of the transactions contemplated hereby.
5.9 Further Assurances. Upon the terms and subject to the
conditions contained herein, the parties agree, in each case both before and
after the Closing, (i) to use all commercially reasonable efforts to take, or
cause to be taken, all actions and to do, or cause to be done, all things
reasonably necessary, proper or advisable to consummate and make effective the
transactions contemplated by this Agreement and the Ancillary Agreements, (ii)
to use their respective commercially reasonable efforts to cause the Merger to
qualify, and will not take any actions which to their knowledge could reasonably
be expected to prevent the Merger from qualifying, as a reorganization under the
provisions of Section 368(a) of the Code, (iii) to execute any documents,
instruments or conveyances of any kind which may be reasonably necessary or
advisable to carry out any of the transactions contemplated hereunder and
thereunder and (iv) to cooperate, to the extent practicable, with each other in
connection with the foregoing. Without limiting the foregoing, the parties agree
to use their respective commercially reasonable efforts (A) to promptly seek to
obtain any Consents that the parties consider to be reasonably necessary
(including, without limitation, the making of all filings required to be made
under the HSR Act and/or with any U.S. or foreign governmental authority with
respect to this Agreement and the transactions contemplated hereby), (B) to give
all notices to, and make all registrations and filings with third parties,
including submissions of information requested by U.S. and foreign governmental
authorities that the parties' agree are reasonably necessary and (C) to fulfill
all other conditions to this Agreement. Notwithstanding the foregoing, (y) no
amendment or modification shall be made to any Contract to obtain any required
Consent without the prior written consent of Parent and (z) no party hereto or
any of their respective Affiliates shall be required to sell, transfer, divest
or otherwise dispose of any of its respective business, assets or properties in
connection with this Agreement or any of the transactions contemplated hereby.
Each party shall deliver customary closing certificates and representations for
the purpose of facilitating delivery of the opinions of counsel contemplated by
this Agreement.
5.10 Employees.
(a) As soon as practicable after the Effective Time (the
"Benefits Date"), Parent shall provide, or cause to be provided, compensation
(including salary and bonus) vacation and leave, employee benefit plans,
programs and arrangements to employees of the Company that are substantially the
same as those made generally available to similarly situated employees of the
Parent.
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Additionally, Parent shall arrange for each participant in the Company
Benefit Arrangements (the "Company Participants") (including without limitation
all dependents) who becomes a Parent employee (or an employee of any Parent
Subsidiary or Affiliate) to the extent permitted by law and applicable tax
qualification requirements, and subject to any applicable break in service or
similar rule, to receive credit for all purposes including, without limitation,
eligibility to participate, matching contributions, and vesting under Parent
employee benefit plans for years of service with the Company (and its
subsidiaries and predecessors) prior to the Closing Date. If applicable, Parent
shall cause any and all pre-existing condition (or actively at work or similar)
limitations, eligibility waiting periods and evidence of insurability
requirements under any Parent employee benefit plan to be waived with and in
respect to such Company Participants and their eligible dependents and shall
provide them with credit for any co-payments, deductibles, and offsets (or
similar payments) made during the plan year including the Closing Date for the
purposes of satisfying any applicable deductible, out-of-pocket or similar
requirements under any Parent employee benefit plan in which they are eligible
to participate after the Closing Date.
(b) Parent agrees that, from and after the Closing Date,
the Company employees who become employees of Parent or any of its subsidiaries
may participate in the employee stock purchase plan sponsored by Parent (the
"Parent ESPP"), subject to the terms and conditions of the Parent ESPP, and that
service with the Company shall be treated as service with Parent or its
subsidiaries for determining eligibility of the Company's employees under the
Parent ESPP.
(c) Prior to the Effective Time, the Company shall grant
to Company employees stock options and/or restricted stock units (at the minimum
consideration required by applicable law) for that number of shares of Common
Stock as determined pursuant to Exhibit J (such options and restricted stock
units, the "Additional Equity Awards"). The Company employees to whom Additional
Equity Awards are to be granted and the number of shares of Common Stock subject
to, and the terms of, each Additional Equity Award shall be determined by
Parent, in consultation with the Company.
5.11 Bridge Loans. At any time and from time to time prior to
Closing, in the event the Company Board reasonably determines that the Company
requires additional funds for general corporate purposes through the Closing
Date, Parent shall loan such funds to the Company (the "Bridge Loan"), on the
terms and conditions set forth in the bridge loan agreement (including the
Security Agreement attached as Exhibit B thereto) attached as Exhibit K hereto
(the "Bridge Loan Agreement"). As a condition to such Bridge Loan, the Company
shall (a) execute and deliver the Bridge Loan Agreement and all documents
contemplated thereby, and (b) obtain all consents and approvals necessary for
the Company to enter into the Bridge Loan Agreement, including without
limitation, those consents required under the Company's Certificate of
Incorporation and the Second Amended and Restated Investors' Rights Agreement,
dated as of April 25, 2002, by and among the Company and certain investors party
thereto. The aggregate amount of any such loans outstanding at any time shall be
referred to herein as the "Bridge Amount".
5.12 [INTENTIONALLY OMITTED]
5.13 Directors. The Company shall use its reasonable best efforts
to cause the directors of the Company to resign, effective as of the Effective
Time.
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5.14 Warrants. The Company shall use its reasonable best efforts to
cause all Company Warrants to be exercised prior to Closing.
5.15 Net Liabilities; Disputes. If Parent delivers written notice
to the Stockholder Representative within thirty (30) days after the Closing
Date, stating that Parent objects to the Company's determination of Net
Liabilities as specified in the Net Liabilities Certificate (the "Dispute
Notice") and specifying in reasonable detail the basis for such objection, the
Stockholder Representative and Parent shall attempt to resolve and finally
determine the amount of Net Liabilities within fifteen (15) days of the date on
which such Dispute Notice was delivered. If the Stockholder Representative and
Parent are unable to agree upon the amount of Net Liabilities within fifteen
(15) days after delivery of the Dispute Notice, a nationally recognized
independent accounting firm (the "Independent Accountant") shall be retained and
review the Net Liabilities Certificate and make a determination as to the amount
of Net Liabilities. Such determination shall be binding upon the Stockholder
Representative, on behalf of the Stockholders, and Parent, and Parent shall be
entitled to indemnification therefor pursuant to the provisions of Article 10 of
this Agreement.
ARTICLE 6
TAX MATTERS
6.1 Tax Periods Ending on or before the Closing Date. Parent shall
prepare or cause to be prepared and file or cause to be filed all Tax Returns
for the Company and the Subsidiaries of the Company for all periods ending on or
prior to the Closing Date which are filed after the Closing Date. Parent shall
permit the Stockholder Representative to review and comment on each such Tax
Return described in the preceding sentence prior to filing and shall make such
revisions to such Tax Returns as are reasonably requested by the Stockholder
Representative. The Stockholders shall reimburse Parent for Taxes with respect
to such periods within fifteen (15) days after the date on which Taxes are paid
with respect to such periods, except to the extent that such Taxes are reflected
in the reserve for Tax liability (rather than any reserve for deferred Taxes
established to reflect timing differences between book and Tax income) shown on
the face of the balance sheet in the most recent Financial Statement (rather
than in any notes thereto), as such reserve is adjusted for the passage of time
through the Closing Date in accordance with the past custom and practice of the
Company and the Subsidiaries of the Company in filing their Tax Returns;
provided, that Parent shall seek such reimbursement first from the Indemnity
Escrow Shares.
6.2 Tax Periods Beginning Before and Ending After the Closing
Date. Parent shall prepare or cause to be prepared and file or cause to be filed
any Tax Returns of the Company and the Subsidiaries of the Company for Tax
periods which begin before the Closing Date and end after the Closing Date. The
Stockholders shall pay to Parent within fifteen (15) days after the date on
which Taxes are paid with respect to such periods an amount equal to the portion
of such Taxes which relates to the portion of such Taxable period ending on the
Closing Date, except to the extent that such Taxes are reflected in the reserve
for Tax liability (rather than any reserve for deferred Taxes established to
reflect timing differences between book and Tax income) shown on the face of the
balance sheet in the most recent Financial Statement (rather than in any notes
thereto), as such reserve is adjusted for the passage of time through the
Closing Date in
56
accordance with the past custom and practice of the Company and the Subsidiaries
of the Company in filing their Tax Returns; provided, that Parent shall seek
such reimbursement first from the Indemnity Escrow Shares. For purposes of the
preceding sentence, Taxes shall be allocated in the manner set forth in the last
sentence of Section 10.2(a)(ii).
6.3 Cooperation on Tax Matters. Parent, the Company, the
Subsidiaries of the Company, the Stockholder Representative, the Stockholders
shall cooperate fully, as and to the extent reasonably requested by the other
party, in connection with the filing of Tax Returns pursuant to this Agreement
and any audit, litigation or other proceeding with respect to Taxes. Such
cooperation shall include the retention and (upon the other party's request) the
provision of records and information which are reasonably relevant to any such
audit, litigation or other proceeding and making employees available on a
mutually convenient basis to provide additional information and explanation of
any material provided hereunder. Parent, the Company, the Subsidiaries of the
Company, the Stockholder Representative, the Stockholders agree (A) to retain
all books and records with respect to Tax matters pertinent to each of the
Company and the Subsidiaries of the Company relating to any Taxable period
beginning before the Closing Date until the expiration of the statute of
limitations (and, to the extent notified by Parent, any extensions thereof) of
the respective Taxable periods, and to abide by all record retention agreements
entered into with any Taxing authority, (B) to deliver or make available to
Parent, within sixty (60) days after the Closing Date, copies of all such books
and records, and (C) to give the other party reasonable written notice prior to
transferring, destroying or discarding any such books and records and, if the
other party so requests, Parent, the Company, the Subsidiaries of the Company,
the Stockholder Representative, the Stockholders, as the case may be, shall
allow the other party to take possession of such books and records at such other
party's expense. Parent and the Stockholder Representative further agree, upon
request, to use their best efforts to obtain any certificate or other document
from any governmental authority or any other Person as may be necessary to
mitigate, reduce or eliminate any Tax that could be imposed (including, but not
limited to, with respect to the transactions contemplated hereby).
6.4 Contest Provisions. If, subsequent to the Closing, any of
Parent, the Company or the Subsidiaries of the Company receives notice of a Tax
Contest with respect to any Tax Return for a Tax period or portion thereof
ending on or before the Closing Date, then within fifteen (15) days after
receipt of such notice, the Parent shall notify the Stockholder Representative
of such notice. The Stockholder Representative shall have the right to control
the conduct and resolution of such Tax Contest, provided, however, that if any
of the issues raised in such Tax Contest could have an impact on Taxes of the
Company for a Tax period or portion thereof beginning on or after the Closing
Date (a "Post-Closing Tax Period"), then the Stockholder Representative shall
afford Parent the opportunity to control jointly the conduct and resolution of
the portion of such Tax Contest which could have an impact on Taxes of the
Company in any Post-Closing Tax Period. If the Stockholder Representative shall
have the right to control the conduct and resolution of such Tax Contest but
elect in writing not to do so, then Parent shall have the right to control the
conduct and resolution of such Tax Contest, provided that Parent shall keep the
Stockholder Representative informed of all developments on a timely basis and
Parent shall not resolve such Tax Contest in a manner that could reasonably be
expected to have an adverse impact on the Indemnifying Parties' indemnification
obligations under this Agreement without Stockholder Representative written
consent, which shall not be unreasonably withheld. Each
57
party shall bear its own costs for participating in such Tax Contest. "Tax
Contest" means any audit, other administrative proceeding or inquiry or judicial
proceeding involving Taxes.
6.5 Reorganization Matters.
(a) The parties intend the Merger to qualify as a
reorganization under Section 368(a) of the Code. However, neither Parent nor the
Company makes any representation or warranty to the other or to any Stockholder
regarding the tax treatment of the Merger or whether the Merger will qualify as
a "reorganization" under the Code. Each of the Company, the Stockholders and
Parent acknowledges that it is relying on its own advisors in connection with
the Tax treatment of the Merger and the other transactions contemplated by this
Agreement. The Company, the Stockholders and Parent each agree to use their
respective best efforts to cause the Merger to qualify, and will not take any
actions which to their knowledge could reasonably be expected to prevent the
Merger from qualifying, as a "reorganization" under Section 368(a) of the Code.
(b) This Agreement is intended to constitute, and the
parties hereto hereby adopt this Agreement as, a "plan of reorganization" within
the meaning Treasury Regulation Sections 1.368-2(g) and 1.368-3(a). Each of
Parent and the Company shall report the Merger as a reorganization within the
meaning of Section 368 of the Code, unless otherwise required pursuant to a
"determination" within the meaning of Section 1313(a) of the Code.
6.6 Certain Taxes. All transfer, documentary, sales, use, stamp,
registration and other substantially similar Taxes and fees (including any
penalties and interest) incurred in connection with this Agreement
(collectively, "Transfer Taxes") shall be paid by the Stockholders when due, and
the Stockholders will, at their own expense, file all necessary Tax Returns and
other documentation with respect to all such Transfer Taxes and, if required by
applicable law, Parent will, and will cause its affiliates to, join in the
execution of any such Tax Returns and other documentation. The Stockholders
shall (i) provide Parent with evidence satisfactory to Parent that such Transfer
Taxes have been paid by the Stockholders and (ii) use their best efforts to
provide Parent at Closing with a clearance certificate or similar document(s)
which may be required by any state taxing authority to relieve Parent of any
obligation to withhold any portion of the payments to the Stockholders pursuant
to this Agreement.
6.7 FIRPTA Certificate. On or prior to the Closing Date, the
Company shall have delivered to Parent a form of notice to the Internal Revenue
Service in accordance with the requirements of Treasury Regulation Section
1.897-2(h)(2) and in form and substance reasonably acceptable to Parent along
with written authorization for Parent to deliver such notice form to the
Internal Revenue Service on behalf of the Company upon the Closing of the
Merger.
ARTICLE 7
CONDITIONS TO THE COMPANY'S OBLIGATIONS
The obligations of the Company to effect the Merger and complete the
related transactions contemplated by this Agreement are subject, in the
discretion of the Company, to the satisfaction, on or prior to the Closing Date,
of each of the following conditions:
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7.1 Representations, Warranties and Covenants. All representations
and warranties of Parent and Sub contained in this Agreement shall be true and
correct, at and as of the Closing Date as if such representations and warranties
were made at and as of the Closing Date (except for representation and
warranties made as of a certain date, which shall be true and correct as of such
date), except for any failures to be true and correct that would not reasonably
be expected, individually or in the aggregate, to have a Parent Material Adverse
Effect, and Parent and Sub shall have performed in all material respects all
agreements and covenants required hereby to be performed by it prior to or at
the Closing Date. There shall be delivered to the Company a certificate of
Parent and Sub signed by their President and Chief Financial Officer to the
foregoing effect ("Parent Closing Certificate").
7.2 Fairness Approval; Effectiveness of Registration Statement.
The Fairness Approval shall have been obtained, or, if the Fairness Approval has
not been obtained, then the Registration Statement shall have been declared
effective by the SEC under the Securities Act, and no stop order (or similar
action) suspending the effectiveness of the Registration Statement shall have
been issued by the SEC, as applicable.
7.3 Governmental Consents. The applicable waiting period,
including any extension thereof, under the HSR Act shall have expired or been
terminated. All other Consents, approvals and waivers from governmental
authorities necessary to permit consummation of the Merger, set forth on
Schedule 7.3, shall have been obtained and all approvals required under any
Regulations to permit Parent and Sub set forth on Schedule 8.3, to carry out the
transactions contemplated by this Agreement shall have been obtained.
7.4 No Actions or Court Orders. No Action by any governmental
authority shall have been instituted which questions the validity or legality of
the transactions contemplated hereby, and neither the Company nor Parent shall
have received notice of any such Action by any governmental authority. There
shall not be any Court Order that makes the acquisition of the Common Stock
contemplated hereby illegal or otherwise prohibited.
7.5 Stockholder Approval. The Company shall have obtained the
Stockholder Consent.
7.6 Legal Opinion. The Company shall have received opinions of
Xxxxxx & Xxxxxxx, LLP, counsel to Parent, and the General Counsel of Parent,
each dated as of the Closing, in substantially the forms attached hereto as
Exhibits M and N, respectively.
7.7 Listing. The Parent Stock to be issued in the Merger has been
authorized for listing on the NASDAQ National Market, subject to official notice
of issuance.
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ARTICLE 8
CONDITIONS TO PARENT'S AND SUB'S OBLIGATIONS
The obligations of Parent and Sub to effect the Merger and complete the
related transactions contemplated by this Agreement are subject, in the
discretion of Parent, to the satisfaction, on or prior to the Closing Date, of
each of the following conditions:
8.1 Representations, Warranties and Covenants. All representations
and warranties of the Company contained in this Agreement shall be true and
correct, which shall be true and correct in all respects, at and as of the
Closing Date as if such representations and warranties were made at and as of
the Closing Date (except for representations and warranties made as of a certain
date, which shall be true and correct as of such date), except for any failures
to be true and correct that would not reasonably be expected, individually or in
the aggregate, to have a Company Material Adverse Effect, and the Company shall
have performed in all material respects all agreements and covenants required
hereby to be performed prior to or at the Closing Date. There shall be delivered
to Parent a certificate of the Company signed by its Chief Executive Officer and
its President (the "Company Closing Certificate").
8.2 Fairness Approval; Effectiveness of Registration Statement.
The Fairness Approval shall have been obtained, or, if the Fairness Approval has
not been obtained, then the Registration Statement shall have been declared
effective by the SEC under the Securities Act, and no stop order (or similar
action) suspending the effectiveness of the Registration Statement shall have
been issued by the SEC, as applicable.
8.3 Consents. The applicable waiting period, including any
extension thereof, under the HSR Act shall have expired or been terminated. All
other Consents, approvals and waivers from governmental authorities and other
third parties necessary to permit consummation of the Merger set forth on
Schedule 8.3, shall have been obtained and all approvals required under any
Regulations to permit the Company set forth on Schedule 7.3, to carry out the
transactions contemplated by this Agreement shall have been obtained and copies
shall have been provided to Parent.
8.4 No Actions or Court Orders. No Action by any governmental
authority shall have been instituted which questions the validity or legality of
the transactions contemplated hereby, and neither the Company or Parent shall
have received notice of any such Action by any governmental authority. There
shall not be any Court Order that makes the acquisition of the Common Stock
contemplated hereby illegal or otherwise prohibited.
8.5 Agreements. The Voting Agreement, the Non-Competition
Agreements, the Stock Restriction Agreements, and the Option Plan Amendment
shall be in full force and effect.
8.6 Employees. All of the Core Employees, no less than 75% of the
Key Group Employees, and no less than 75% of those Employees listed on Exhibit L
shall be employed by the Company on the Closing Date.
8.7 Stockholder Approval. The Company shall have obtained the
Stockholder Consent.
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8.8 Listing. The Parent Stock to be issued in the Merger have been
authorized for listing on the NASDAQ National Market, subject to official notice
of issuance.
8.9 Legal Opinion. Parent shall have received an opinion of Xxxxxx
Xxxxxxx Xxxxxxxx & Xxxxxx, counsel to the Company, dated as of the Closing, in
substantially the form set forth on Exhibit O.
8.10 Dissenters Rights. Stockholders of not more than 10% of the
total outstanding Common Stock and Preferred Stock (on an as converted basis),
combined, shall have demanded dissenters' rights pursuant to the DGCL.
8.11 Escrow Agreements. The Indemnity Escrow Agreement and
Retention Escrow Agreement shall be in full force and effect.
8.12 Additional Equity Award Grants. The Company shall have granted
the Additional Equity Awards pursuant to Section 5.10(c).
8.13 401(k) Plan Termination. Unless Parent and the Company agree
otherwise in writing, the Board of Directors of the Company shall adopt
resolutions terminating, effective at least two (2) days prior to the Closing
Date, any Employee Plan which is intended to meet the requirements of Section
401(k) of the Code (each such Employee Plan, a "401(k) Plan"). At the Closing,
the Company shall provide Parent (i) executed resolutions of the Board of
Directors of the Company authorizing such termination and (ii) an executed
amendment to each such 401(k) Plan intended to assure compliance with all
applicable requirements of the Code and regulations thereunder.
8.14 Net Liabilities Certificate. No later than one day prior to
the Closing Date, Parent shall have received a certificate of the Company signed
by its Chief Executive Officer and its President as to the amount of the Net
Liabilities of the Company as of the Closing Date (the "Net Liabilities
Certificate"). Such Net Liabilities Certificate shall constitute a
representation and warranty made by the Company under Section 3.14.
8.15 Financial Information. The Company shall have delivered to
Parent (i) an audited consolidated balance sheet of the Company and the related
consolidated statement of income, stockholders equity and cash flows for the
9-month period ended September 30, 2003, together with the report of Xxxxxx &
Xxxxx LLP thereon, and (ii) a SAS 100 review by Ernst & Young LLP of the
Company's consolidated financial statements for any quarterly period subsequent
to September 30, 2003 and prior to Closing; provided, that Closing occurs at
least fifteen (15) business days after the end of such period.
ARTICLE 9
CLOSING
On the Closing Date at the location of the Closing the Company and
Parent shall execute and deliver all documents and agreements the receipt of
which are conditions to the obligations of the other to consummate the Merger.
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ARTICLE 10
INDEMNIFICATION
10.1 Survival of Representations, etc. All statements contained in
any schedule or in any certificate or instrument of conveyance delivered by or
on behalf of the parties pursuant to this Agreement shall be deemed to be
representations and warranties by such party hereunder. The representations and
warranties contained herein shall survive the Closing Date, and claims based
upon or arising out of such representations and warranties, as well as any
claims based upon or arising out of any covenants and agreements herein or made
hereunder, may be asserted at, any time before the 18 month anniversary of the
Closing Date for all representations and warranties (the "Claim Expiration
Date"); provided, however, that the representations and warranties contained in
Sections 3.14 and 3.23 shall survive until, and Claims based upon or arising out
of such representations and warranties, and claims pursuant to Section
10.2(a)(ii) hereof, may be asserted at any time prior to, the fourth anniversary
of the Closing Date (the "Tax and Financial Statement Claim Expiration Date").
No investigation made by any of the parties hereto (whether prior to, on or
after the Closing Date) shall in any way limit the representations and
warranties of the parties. The termination of the representations and warranties
provided herein shall not affect the rights of a party in respect of any claim
made by such party in a writing received by the other party prior to the
expiration of the applicable survival period provided pursuant to a Claim Notice
in accordance with the terms of this Article 10 herein.
10.2 Indemnification. (a) (i) General. Subject in all cases to the
limits of Section 10.2(c) and Section 10.4, subsequent to the Closing, the
Stockholders (other than holders of Dissenting Shares) at the Effective Time
(the "Indemnifying Parties") shall indemnify Parent, its Affiliates, and each of
their respective, officers, directors, employees, stockholders and agents
("Parent Indemnified Parties") against, and hold each of the Parent Indemnified
Parties harmless from, any damage, claim, loss, cost, Tax, Liability or expense,
including without limitation, judgments, settlements, interest, penalties,
reasonable attorneys' fees and expenses of investigation, response action,
removal action or remedial action (collectively "Damages") incurred by any such
Parent Indemnified Party, that are incident to, arise out of, in connection
with, or related to, the breach of any warranty, representation, covenant or
agreement of the Company or any schedule hereto or in any certificate or
instrument of conveyance delivered by or on behalf of the Company pursuant to
this Agreement or in connection with the transactions contemplated hereby. The
Indemnifying Parties shall not be required to make any indemnification payment
pursuant to this Section 10.2(a)(i) unless a Claim is initiated prior to the Tax
and Financial Statement Claim Expiration Date (for claims for breaches of
representations and warranties contained in Sections 3.14 and 3.23 hereof) or
the Claim Expiration Date (for all other claims).
(ii) The Indemnifying Parties shall indemnify,
save and hold the Parent Indemnified Parties harmless from and against any and
all Damages incurred in connection with, arising out of, resulting from or
incident to (i) any Taxes of any of the Company and the Subsidiaries of the
Company with respect to any Tax year or portion thereof ending on or before the
Closing Date (or for any Tax year beginning before and ending after the Closing
Date, to the extent allocable (as determined in the following sentence) to the
portion of such period beginning before and ending on the Closing Date), except
to the extent that such Taxes are reflected in the reserve for Tax Liability
(rather than any reserve for deferred Taxes established to reflect timing
differences between book and Tax income) shown on the face of the balance sheets
(rather than
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in any notes thereto) contained in the most recent Financial Statements, as such
reserve is adjusted for the passage of time through the Closing Date in
accordance with past custom and practice of the Company and its Subsidiaries in
filing their Tax Returns, and (ii) the unpaid Taxes of any Person (other than
any of the Company and its Subsidiaries) under Treasury Regulations Section
1.1502-6 (or any similar provision of state, local or foreign law), as a
transferee or successor, by contract, or otherwise. For purposes of the
preceding sentence, in the case of any Taxes that are imposed on a periodic
basis and are payable for a Tax period that includes (but does not end on) the
Closing Date, the portion of such Tax that relates to the portion of such Tax
period ending on the Closing Date shall (i) in the case of any Taxes other than
Taxes based upon or related to income or receipts, be deemed to be the amount of
such Tax for the entire Tax period multiplied by a fraction the numerator of
which is the number of days in the Tax period ending on the Closing Date and the
denominator of which is the number of days in the entire Tax period, and (ii) in
the case of any Tax based upon or related to income or receipts, be deemed equal
to the amount which would by payable if the relevant Tax period ended on the
Closing Date.
The term "Damages" as used in this Section 10.2 is not limited to
matters asserted by third parties against Parent Indemnified Parties, but
includes Damages incurred or sustained by such Persons in the absence of third
party claims.
(b) Procedure for Claims.
If a claim for indemnification pursuant to Section 10.2 (a
"Claim") is to be made by a Parent Indemnified Party entitled to indemnification
hereunder, the Parent Indemnified Party claiming such indemnification (the
"Indemnified Party") shall give written notice (a "Claim Notice") to the
Stockholder Representative promptly after the Indemnified Party becomes aware of
any fact, condition or event which the Company reasonably anticipates may give
rise to Damages for which indemnification may be sought under this Section 10.2,
and such Claim Notice shall specify in reasonable detail the individual items of
Damages, the basis for the anticipated liability and the nature of the breach of
representation, warranty, covenant or agreement giving rise to such Damages. The
failure of any Indemnified Party to give timely notice hereunder shall not
affect rights to indemnification hereunder, except and only to the extent that,
the Indemnifying Party is damaged or prejudiced in any material respect by such
failure, and then only to the extent thereof. In the case of a Claim brought
pursuant to Section 10.2(a)(i) involving the assertion of a claim by a third
party (whether pursuant to a lawsuit, other legal action or otherwise, but not
including any Tax Contest, a "Third-Party Claim"), if the Indemnifying Party
shall acknowledge in writing to the Indemnified Party that the Indemnifying
Party shall be obligated to indemnify the Indemnified Party under the terms of
its indemnity hereunder in connection with such Third-Party Claim, then (A) the
Stockholder Representative shall be entitled and, if it so elects, shall be
obligated at its own cost, risk and expense, (1) to take control of the defense
and investigation of such Third-Party Claim and (2) to pursue the defense
thereof in good faith by appropriate actions or proceedings promptly taken or
instituted and diligently pursued, including, without limitation, to employ and
engage attorneys of its own choice reasonably acceptable to the Indemnified
Party to handle and defend the same, and (B) the Stockholder Representative
shall be entitled (but not obligated), if it so elects, to compromise or settle
such claim, which compromise or settlement shall be made only with the written
consent of the Indemnified Party, such consent not to be unreasonably withheld.
In the event the
63
Stockholder Representative elects to assume control of the defense and
investigation of such lawsuit or other legal action in accordance with this
Section 10.2(b), the Indemnified Party may, at its own cost and expense,
participate in the investigation, trial and defense of such Third-Party Claim;
provided that, if the named persons to a lawsuit or other legal action include
both the Indemnifying Party and the Indemnified Party and the Indemnified Party
has been advised in writing by counsel that there may be one or more legal
defenses available to such Indemnified Party that are different from or
additional to those available to the Indemnifying Party, the Indemnified Party
shall be entitled, at the Indemnified Party's cost, risk and expense (if such
Claim represents Damages for which indemnification is due), to retain one firm
of separate counsel of its own choosing. If the Stockholder Representative fails
to assume the defense of such Third-Party Claim in accordance with this Section
10.2(b) within fifteen (15) calendar days after receipt of the Claim Notice, the
Indemnified Party against which such Third-Party Claim has been asserted shall
(upon delivering notice to such effect to the Stockholder Representative) have
the right to undertake, at the Indemnifying Party's cost, risk and expense (if
such Claim represents Damages for which indemnification is due), the defense,
compromise and settlement of such Third-Party Claim on behalf of and for the
account of the Indemnifying Party; provided that such Third-Party Claim shall
not be compromised or settled without the written consent of the Stockholder
Representative, which consent shall not be unreasonably withheld. In the event
the Stockholder Representative assumes the defense of the claim, the Stockholder
Representative shall keep the Indemnified Party reasonably informed of the
progress of any such defense, compromise or settlement, and in the event the
Indemnified Party assumes the defense of the claim, the Indemnified Party shall
keep the Stockholder Representative reasonably informed of the progress of any
such defense, compromise or settlement. The Indemnifying Party shall be liable
for any settlement of any Third-Party Claim effected pursuant to and in
accordance with this Section 10.2(b) and for any final judgment (subject to any
right of appeal).
(c) Indemnity Escrow Shares Sole Recourse.
With respect to each claim for indemnity under this Section 10.2, the
liability of each Indemnifying Party shall be limited to his pro rata portion of
the claim amount, in proportion to the proportionate ownership of the Common
Stock and Preferred Stock immediately prior the Effective Date. In no event
shall any Indemnifying Party's obligation to provide indemnification exceed the
amount of such Indemnifying Party's interest in the Indemnity Escrow Shares (the
"Damage Cap"); provided, however, that the Damage Cap shall not apply in the
case of a claim related to a breach of the representations and warranties
contained in Sections 3.14 or 3.23 or a claim pursuant to Section 10.2(a)(ii).
For purposes of determining the number of shares of Parent Stock to be delivered
to a Parent Indemnified Party out of the escrow account, the Indemnity Escrow
Shares shall be valued at the Closing Price.
10.3 No Right of Contribution. After the Closing, the Indemnifying
Parties shall have no right of contribution against the Surviving Corporation
for any breach of any representation, warranty, covenant or agreement of the
Company.
10.4 Threshold; Limitations on Indemnity.
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With respect to Claims made pursuant to Section 10.2(a)(i), the Parent
Indemnified Parties shall not be entitled to recover for any Damages from the
Indemnity Escrow Shares until such time as the Damages claimed by the Parent
Indemnified Parties pursuant to such Sections in the aggregate exceed an amount
equal to one percent (1%) of the aggregate value of the Indemnity Escrow Shares,
valued at the Closing Price (the "Damage Threshold"), at which time the Parent
Indemnified Parties shall be entitled to be indemnified against and compensated
and reimbursed for all such Damages, including the initial one percent (1%)
thereof. Notwithstanding the foregoing, the Damage Threshold shall not apply in
the case of a claim related to a breach of the representations and warranties
set forth in Sections 3.14 or 3.23 or in the case of a claim made pursuant to
Section 10.2(a)(ii).
10.5 Stockholder Representative; Power of Attorney.
(a) Stockholder Representative. In the event that the
Merger is approved by the Stockholders, effective upon such vote, and without
further act of any Stockholder, the Stockholder Representative shall for each
Stockholder (other than stockholders, if any, as shall have perfected their
dissenters' rights under the DGCL) enter into the Indemnity Escrow Agreement,
and take all actions required or permitted under the Indemnity Escrow Agreement
or this Agreement with respect to the interests and rights of the Stockholders
with respect to the indemnity under this Article 10. Such agency may be changed
by the Stockholders from time to time upon not less than thirty (30) days prior
written notice to Parent; provided, however, that the Stockholder Representative
may not be removed unless holders of a majority of the Indemnity Escrow Shares
agree to such removal and to the identity of the substituted Stockholder
Representative. Any vacancy in the position of Stockholder Representative may be
filled by approval of the holders of a majority of the Indemnity Escrow Shares.
No bond shall be required of the Stockholder Representative, and the Stockholder
Representative shall not receive compensation for his services. Notices or
communications to or from the Stockholder Representative shall constitute notice
to or from each of the Stockholders.
(b) Exculpation. The Stockholder Representative shall not
be liable for any act done or omitted hereunder as Stockholder Representative
while acting in good faith and in the exercise of reasonable judgment, and any
act done or omitted pursuant to the advice of counsel shall be conclusive
evidence of such good faith. The Stockholders (other than stockholders, if any,
as shall have perfected their dissenters' rights under the DGCL) shall jointly
and severally indemnify the Stockholder Representative and hold him harmless
against any loss, liability or expense incurred without gross negligence or bad
faith on the part of the Stockholder Representative and arising out of or in
connection with the acceptance or administration of his duties hereunder, which
may be paid from the Indemnity Escrow Shares, if any, after all claims by the
Parent Indemnified Parties have been satisfied.
(c) Actions of the Stockholder Representative. A
decision, act, consent or instruction of the Stockholder Representative shall
constitute a decision for all of the Stockholders for whom a portion of the
Indemnity Escrow Shares otherwise issuable to them are deposited with the
Depositary Agent pursuant to the Indemnity Escrow Agreement, and shall be final,
binding and conclusive upon each of such Stockholders, and the Depositary Agent
and Parent may rely exclusively upon any such decision, act, consent or
instruction of the Stockholder Representative as being the decision, act,
consent or instruction of every such
65
Stockholder. The Depositary Agent and Parent are hereby relieved from any
liability to any person for any acts done by them in accordance with such
decision, act, consent or instruction of the Stockholder Representative.
ARTICLE 11
MISCELLANEOUS
11.1 Termination.
(a) This Agreement may be terminated at any time prior to
the Effective Time:
(i) By the written agreement of Parent and the
Company;
(ii) By Parent or the Company if the Closing
shall not have occurred on or before February 28, 2004 or if the satisfaction of
any condition set forth in Article 7 or Article 8 on or before such date is or
becomes impossible, other than due to a breach of this Agreement by the party
seeking to terminate; unless Parent has not received the Fairness Approval or if
the parties have not received the requisite governmental Consents (set forth in
Sections 7.3 and 8.3 herein), in which case such date shall be extended to April
30, 2004;
(iii) By Parent or the Company if there shall be a
final nonappealable order of a federal or state court in effect preventing
consummation of the Merger.
(b) In the event of termination of this Agreement:
(i) The provisions of this Article XI and the
Confidentiality Agreement shall continue in full force and effect; and
(ii) Except as expressly provided in subsection
(c) of this Section 11.1 or elsewhere in this Agreement, no party hereto shall
have any liability to any other party to this Agreement, except for any willful
breach of, or knowing misrepresentation made in, this Agreement occurring prior
to the formal termination of this Agreement.
11.2 Assignment. Neither this Agreement nor any of the rights or
obligations hereunder may be assigned by the Company without the prior written
consent of Parent, or by Parent or Sub without the prior written consent of the
Company.
11.3 Notices. Unless otherwise provided herein, any notice,
request, instruction or other document to be given hereunder by any party to the
other shall be in writing and delivered in person or by courier, sent by
facsimile transmission, sent via overnight delivery service or mailed by
registered or certified mail (such notice to be effective upon receipt), as
follows:
If prior to the Closing, to the Company:
Spinnaker Networks, Inc.
000 Xxxxx Xxxxx
Xxxxxxxxxx, Xxxxxxxxxxxx 00000
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Attn: Xxxxxx X. Xxxxxxxxx, Xx.
Facsimile: (000) 000-0000
With a copy to:
Xxxxxx Xxxxxxx Xxxxxxxx & Xxxxxx
000 Xxxx Xxxx Xxxx
Xxxx Xxxx, Xxxxxxxxxx 00000-0000
Attn: Xxxxx X. Xxxxxx, Esq.
Xxxxxxx X. Xxxxxx, Xx., Esq.
Facsimile: (000) 000-0000
If to Parent or Sub or, if after the Closing, to the Surviving
Corporation:
Network Appliance, Inc.
000 X. Xxxx Xxxxx
Xxxxxxxxx, Xxxxxxxxxx 00000
Attn: General Counsel
Facsimile:
With a copy to:
Xxxxxx & Xxxxxxx LLP
000 Xxxxxxxxxxxx Xxxxx
Xxxxx Xxxx, Xxxxxxxxxx 00000
Attn: Xxxxxxx Xxxxxx, Esq.
Facsimile: (000) 000-0000
or to such other place and with such other copies as any party may designate as
to itself by written notice to the others.
11.4 Choice of Law. This Agreement shall be construed, interpreted
and the rights of the parties determined in accordance with the laws of the
State of California, without giving effect to any choice of law provision or
rule that would cause the application of the laws of any jurisdiction other than
the State of California.
11.5 Representation By Counsel. Each party hereto represents and
agrees with each other that it has been represented by or had the opportunity to
be represented by, independent counsel of its own choosing, and that it has had
the full right and opportunity to consult with its respective attorney(s), that
to the extent, if any, that it desired, it availed itself of this right and
opportunity, that it or its authorized officers (as the case may be) have
carefully read and fully understand this Agreement in its entirety and have had
it fully explained to them by such party's respective counsel, that each is
fully aware of the contents thereof and its meaning, intent and legal effect,
and that it or its authorized officer (as the case may be) is competent to
execute this Agreement and has executed this Agreement free from coercion,
duress or undue influence.
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11.6 Entire Agreement; Amendments and Waivers. This Agreement,
together with the Ancillary Agreements and all exhibits and schedules hereto,
and the Confidentiality Agreement, constitute the entire agreement among the
parties pertaining to the subject matter hereof and supersede all prior
agreements, understandings, negotiations and discussions, whether oral or
written, of the parties. No supplement, modification or waiver of this Agreement
shall be binding unless executed in writing by the party to be bound thereby. No
waiver of any of the provisions of this Agreement shall be deemed or shall
constitute a waiver of any other provision hereof (whether or not similar), nor
shall such waiver constitute a continuing waiver unless otherwise expressly
provided.
11.7 Counterparts. This Agreement may be executed in one or more
counterparts and may be delivered by facsimile transmission, each of which shall
be deemed an original, but all of which together shall constitute one and the
same instrument.
11.8 Invalidity. In the event that any one or more of the
provisions contained in this Agreement or in any other instrument referred to
herein, shall, for any reason, be held to be invalid, illegal or unenforceable
in any respect, such invalidity, illegality or unenforceability shall not affect
any other provision of this Agreement or any other such instrument.
11.9 Expenses. Each party will pay for its own legal, accounting
and other costs and expenses incurred with respect to the negotiation and
execution of this Agreement, except that upon the consummation of the Merger,
Parent shall assume the Company's legal, accounting, financial advisory and
other professional costs and expenses incurred with respect to the negotiation,
execution and consummation of this Agreement.
11.10 Publicity. Neither party shall issue any press release or make
any public statement regarding the transactions contemplated hereby without the
prior approval of the other parties, and the parties hereto shall issue a
mutually acceptable press release as soon as practicable after the date hereof
and after the Closing Date. Notwithstanding the foregoing, Parent shall be
permitted to make any public statement without obtaining the consent of the
Company if (i) the disclosure is required by law or the requirements of NASDAQ
National Market and (ii) Parent has first used its reasonable efforts to consult
with (but not to obtain the consent of) the Company about the form and substance
of such disclosure.
11.11 No Third Party Beneficiaries. This Agreement shall be binding
upon and inure solely to the benefit of each party hereto, and nothing in this
Agreement, express or implied, is intended to or shall confer upon any other
Person any right, benefit or remedy of any nature whatsoever under or by reason
of this Agreement, including, without limitation, by way of subrogation, except
as specifically set forth in Article 10 hereof.
11.12 Dispute Resolution. The parties hereby agree that, in order to
obtain prompt and expeditious resolution of any disputes under this Agreement,
each claim, dispute or controversy of whatever nature, arising out of, in
connection with, or in relation to the interpretation, performance or breach of
this Agreement or the transactions contemplated hereby, including without
limitation any claim based on contract, tort or statute, or the arbitrability of
any claim hereunder (an "Arbitrable Claim"), shall be settled by final and
binding arbitration conducted in San Francisco, California. All such Arbitrable
Claims shall be settled by three (3) arbitrators in
68
accordance with the Commercial Arbitration Rules then in effect of the American
Arbitration Association ("AAA"). Such arbitrators shall be provided through AAA
by mutual agreement of the parties; provided, that, absent such agreement, the
arbitrators shall be appointed by AAA. In either event, such arbitrators may not
have any preexisting, direct or indirect relationship with any party to the
dispute. EACH PARTY HERETO EXPRESSLY CONSENTS TO, AND WAIVES ANY FUTURE
OBJECTION TO, SUCH FORUM AND ARBITRATION RULES. Judgment upon any award may be
entered by any state or federal court having jurisdiction thereof. Except as
required by law (including, without limitation, the rules and regulations of the
SEC and the NASDAQ National Market if applicable), neither party nor the
arbitrators shall disclose the existence, content, or results of any arbitration
hereunder without the prior written consent of all parties. Adherence to this
dispute resolution process shall not limit the right of the parties hereto to
obtain any provisional remedy, including injunctive or similar relief, from any
court of competent jurisdiction as may be necessary to protect their respective
rights and interests pending arbitration. NOTWITHSTANDING THE FOREGOING
SENTENCE, THIS DISPUTE RESOLUTION PROCEDURE IS INTENDED TO BE THE EXCLUSIVE
METHOD OF RESOLVING ANY ARBITRABLE CLAIMS ARISING OUT OF OR RELATING TO THIS
AGREEMENT. The arbitration procedures shall follow the substantive law of the
State of California, including the provisions of statutory law dealing with
arbitration, as it may exist at the time of the demand for arbitration, insofar
as said provisions are not in conflict with this Agreement and specifically
excepting therefrom sections of any such statute dealing with discovery and
sections requiring notice of the hearing date by registered or certified mail.
The arbitrators shall determine the prevailing party and shall include in their
award that party's reasonable attorneys' fees and costs.
11.13 Waiver of Jury Trial. Consistent with the intention of Section
11.12, each signatory to this Agreement hereby waives its respective right to a
jury trial of any permitted claim or cause of action arising out of this
Agreement, any of the transactions contemplated hereby, or any dealings between
any of the signatories hereto relating to the subject matter of this Agreement
or any of the transactions contemplated hereby. The scope of this waiver is
intended to be all encompassing of any and all disputes that may be filed in any
court and that relate to the subject matter of this agreement or any of the
transactions contemplated hereby, including, without limitation, contract
claims, tort claims, and all other common law and statutory claims. This waiver
is irrevocable, meaning that it may not be modified either orally or in writing,
and this waiver shall apply to any subsequent amendments, supplements or other
modifications to this agreement, any of the transactions contemplated hereby or
to any other document or agreement relating to the transactions contemplated
hereby.
11.14 Service of Process; Consent to Jurisdiction.
(a) SERVICE OF PROCESS. EACH OF THE PARTIES HERETO
IRREVOCABLY CONSENTS TO THE SERVICE OF ANY PROCESS, PLEADING, NOTICES OR OTHER
PAPERS BY THE MAILING OF COPIES THEREOF BY REGISTERED, CERTIFIED OR FIRST CLASS
MAIL, POSTAGE PREPAID, TO SUCH PARTY AT SUCH PARTY'S ADDRESS SET FORTH HEREIN,
OR BY ANY OTHER METHOD PROVIDED OR PERMITTED UNDER CALIFORNIA LAW.
(b) CONSENT AND JURISDICTION. EACH PARTY HERETO
IRREVOCABLY AND UNCONDITIONALLY (I) AGREES THAT ANY SUIT, ACTION OR OTHER LEGAL
PROCEEDING ARISING OUT OF THIS AGREEMENT MAY BE
00
XXXXXXX XX XXX XXXXXX XXXXXX DISTRICT COURT FOR THE CENTRAL DISTRICT OF
CALIFORNIA OR, IF SUCH COURT DOES NOT HAVE JURISDICTION OR WILL NOT ACCEPT
JURISDICTION, IN ANY COURT OF GENERAL JURISDICTION IN THE COUNTY OF SANTA CLARA,
CALIFORNIA; (II) CONSENTS TO THE JURISDICTION OF ANY SUCH COURT IN ANY SUCH
SUIT, ACTION OR PROCEEDING; AND (III) WAIVES ANY OBJECTION WHICH SUCH PARTY MAY
HAVE TO THE LAYING OF VENUE OF ANY SUCH SUIT, ACTION OR PROCEEDING IN ANY SUCH
COURT.
11.15 Attorney Fees. If any party to this Agreement brings an action
to enforce its rights under this Agreement in accordance with the provisions
hereof, the prevailing party shall be entitled to recover its actual
out-of-pocket costs and expenses, including without limitation reasonable
attorneys' fees reasonably incurred in connection with such action, including
any appeal of such action.
* * * * * *
70
IN WITNESS WHEREOF, each party hereto has executed this Agreement or
caused this Agreement to be duly executed on its behalf by its officer thereunto
duly authorized, as of the day and year first above written.
NETWORK APPLIANCE, INC.
a Delaware corporation
By: ____________________________
Name:
Title:
NAGANO SUB, INC.
a Delaware corporation
By: ____________________________
Name:
Title:
SPINNAKER NETWORKS, INC.
a Delaware corporation
By: ____________________________
Name:
Title:
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