AGREEMENT AND PLAN OF MERGER
Exhibit
10.1
EXECUTION
COPY
AGREEMENT
AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (“AGREEMENT”)
is
made and entered into as of September 26, 2006, by and among: ACQUICOR
TECHNOLOGY INC.,
a
Delaware corporation (“Parent”);
JOY
ACQUISITION CORP.,
a
Delaware corporation and a wholly-owned Subsidiary of Parent (“Merger
Sub”);
JAZZ
SEMICONDUCTOR, INC.,
a
Delaware corporation (the “Company”);
and
TC
Group,
L.L.C. as
the
Stockholders’ Representative. Certain other capitalized terms used in this
Agreement are defined in Exhibit
A.
RECITALS
A. Parent,
Merger Sub and the Company intend to effect a merger of Merger Sub into the
Company (the “Merger”)
in
accordance with this Agreement and the Delaware General Corporation Law (the
“DGCL”).
Upon
consummation of the Merger, Merger Sub will cease to exist, and the Company
will
become a wholly-owned Subsidiary of Parent.
B. This
Agreement has been approved and declared advisable by the respective boards
of
directors of Parent, Merger Sub and the Company and such respective boards
of
directors have determined that the Merger is in the best interests of the
stockholders of their respective companies.
C. In
order
to induce Parent to enter into this Agreement and to consummate the Merger,
concurrently with the execution and delivery of this Agreement: (i) the Key
Stockholders are executing a stockholder support agreement in favor of Parent
(the “Stockholder
Support Agreement”);
(ii)
the Key Stockholders are
entering into General Releases in favor of the Company and Parent (the
“General
Releases”),
to be
effective as of the Closing; (iii)
certain stockholders of the Company are executing Noncompetition and
Non-Solicitation Agreements in favor of Parent (the “Noncompetition
Agreements”);
(iv)
Conexant Systems, Inc. is entering into certain lease amendment agreements
with
Parent (the “Lease
Amendment Agreements”);
and
(v) the Company and certain Key Stockholders are entering into an agreement
terminating the agreements set forth on Schedule
6.10(d)
(the
“Termination
Agreement”).
D. In
order
to induce the Company to enter into this Agreement and to consummate the Merger,
concurrently with the execution and delivery of this Agreement, the Company
is
entering into employment agreements with certain key employees of the Company
(the “Employment
Agreements”).
1
AGREEMENT
The
parties to this Agreement agree as follows:
SECTION
1. DESCRIPTION
OF TRANSACTION
1.1 Merger
of Merger Sub into the Company.
Upon the
terms and subject to the conditions set forth in this Agreement, and in
accordance with the DGCL, at the Effective Time (as defined in
Section 1.3), Merger Sub shall be merged with and into the Company, and the
separate existence of Merger Sub shall cease. The Company will continue as
the
surviving corporation in the Merger (the “Surviving
Corporation”).
1.2 Effect
of the Merger.
The
Merger shall have the effects set forth in this Agreement and in the applicable
provisions of the DGCL.
1.3 Closing;
Effective Time.
The
consummation of the Merger and the other Contemplated Transactions (the
“Closing”)
shall
take place at the offices of Cooley Godward Kronish llp,
0000
Xxxxxxx Xxxxxx, Xxxx Xxxx, Xxxxxxxxxx, at 10:00 a.m., California time, on a
date
to be mutually agreed upon by Parent and the Company, which shall be no later
than the fifth business day after the satisfaction or, to the extent permitted
by Legal Requirements, waiver of the last to be satisfied or waived of the
conditions set forth in Sections 6 and 7 (other than those conditions that
by
their nature are to be satisfied at the Closing and the condition set forth
in
Section 6.15, but subject to the satisfaction or waiver of such conditions).
(The date on which the Closing actually takes place is referred to in this
Agreement as the “Closing
Date.”)
Subject to the provisions of this Agreement, a certificate of merger in
substantially the form attached hereto as Exhibit
B (the
“Certificate
of Merger”)
shall
be duly executed by the Company and, concurrently with or as soon as practicable
following the Closing, shall be delivered to the Secretary of State of the
State
of Delaware for filing. The Merger shall become effective at the time of the
filing of such certificate of merger with the Secretary of State of the State
of
Delaware, or such later time as may be agreed upon by each of the parties hereto
and specified in the Certificate of Merger (the time the Merger becomes
effective being the “Effective
Time”).
1.4 Certificate
of Incorporation and Bylaws; Directors and Officers.
(a) The
Certificate of Incorporation of the Surviving Corporation shall be amended
in
its entirety as of the Effective Time to conform to Exhibit
C.
(b) The
Bylaws of the Surviving Corporation shall be amended and restated as of the
Effective Time to conform to the Bylaws of Merger Sub as in effect immediately
prior to the Effective Time.
(c) The
directors and officers of the Surviving Corporation immediately after the
Effective Time shall be the individuals identified on Schedule
1.4.
2
1.5 Conversion
of Shares.
(a) Subject
to Section 1.10,
at the
Effective Time, by virtue of the Merger and without any further action on the
part of Parent, Merger Sub, the Company or any Stockholder (as defined in
Section 1.5(d)):
(i) each
share of Company Capital Stock owned by Parent, Merger Sub, the Company or
any
direct or indirect wholly-owned Subsidiary of Parent, Merger Sub or the Company
immediately prior to the Effective Time, if any, shall be canceled and retired
without payment of any consideration with respect thereto;
(ii) each
share of Company Preferred Stock outstanding immediately prior to the Effective
Time (other than those referred to in Section 1.5(a)(i)
and
Dissenting Shares (as defined in Section 1.11)) shall be converted into the
right to receive:
(A)
an
amount in cash equal to the sum of: (1) the Preference Per Share Amount (as
defined in Section 1.5(b));
plus
(2) the
aggregate amount of accrued and unpaid dividends on such share of Company
Preferred Stock calculated in accordance with the terms of the Company’s
certificate of incorporation in effect on the date of this Agreement;
plus
(3) the
Preferred Residual Per Share Amount (as defined in Section 1.5(b));
minus
(B)
the
product of (1) the Preferred Per Share Percentage (as defined in Section 1.5(b))
multiplied
by
(2) the
Working Capital Adjustment Escrow Contribution Amount (as defined in Section
1.5(b));
minus
(C)
the
product of (1) the Aggregate Proceeds Contribution Fraction with respect to
such
share of Company Preferred Stock multiplied
by
(2) the
Indemnity Escrow Contribution Amount (as defined in Section 1.5(b));
plus
(D)
the
product of (1) the Preferred Per Share Percentage multiplied
by
(2) the
aggregate amount of any cash required to be released from the Working Capital
Adjustment Escrow Fund to the Escrow Participants in accordance with Section
1.7
(as and
when such cash is required to be released); plus
(E)
the
product of (1) the Aggregate Proceeds Contribution Fraction with respect to
such
share of Company Preferred Stock multiplied
by
(2) the
aggregate amount of any cash required to be released from the Indemnity Escrow
Fund to the Escrow Participants in accordance with Section 9.7
(as and
when such cash is required to be released); plus
(F) the
product of (1) the Preferred Per Share Percentage multiplied
by
(2) the
aggregate amount of any cash required to be released from the Stockholders’
Representative Expense Fund to the Escrow Participants in accordance with
Section 10.1(f) (as and when such cash is required to be released); plus
(G)
the
product of (1) the Preferred Per Share Percentage multiplied
by
(2) the
aggregate amount of any payment required to be made by Parent in accordance
with
Section 1.7(d)
(as
and when such payment is required to be made); plus
3
(H)
the
product of (1) the Preferred Per Share Percentage multiplied
by
(2) the
aggregate amount of any payment or other distribution required to be made by
Parent in accordance with Section 1.8 (as and when such payment or other
distribution is required to be made);
and
plus
(I) the
product of (1) the Preferred Per Share Percentage multiplied
by
(2) the
aggregate amount of any payment required to be made from the Company Retention
Bonus Escrow Fund to the Stockholders’ Representative for distribution to Escrow
Participants in accordance with Section 1.5(f) (as and when such payment or
other distribution is required to be made).
(iii) each
share of Company Common Stock outstanding immediately prior to the Effective
Time (other than those referred to in Section 1.5(a)(i)
and
Dissenting Shares) shall be converted into the right to receive:
(A)
an
amount in cash equal to the Common Residual Per Share Amount (as defined in
Section 1.5(b));
minus
(B)
the
product of (1) the Common Per Share Percentage multiplied
by
(2) the
Working Capital Adjustment Escrow Contribution Amount; minus
(C)
the
product of (1) the Aggregate Proceeds Contribution Fraction with respect to
such
share of Company Common Stock multiplied
by
(2) the
Indemnity Escrow Contribution Amount; plus
(D)
the
product of (1) the Common Per Share Percentage multiplied
by
(2) the
aggregate amount of any cash required to be released from the Working Capital
Adjustment Escrow Fund to the Escrow Participants in accordance with Section
1.7
(as and
when such cash is required to be released); plus
(E)
the
product of (1) the Aggregate Proceeds Contribution Fraction with respect to
such
share of Company Common Stock multiplied
by
(2) the
aggregate amount of any cash required to be released from the Indemnity Escrow
Fund to the Escrow Participants in accordance with Section 9.7
(as and
when such cash is required to be released); plus
(F) the
product of (1) the Common Per Share Percentage multiplied
by
(2) the
aggregate amount of any cash required to be released from the Stockholders’
Representative Expense Fund to the Escrow Participants in accordance with
Section 10.1(f) (as and when such cash is required to be released); plus
(G)
the
product of (1) the Common Per Share Percentage multiplied
by
(2) the
aggregate amount of any payment required to be made by Parent in accordance
with
Section 1.7
(as and
when such payment is required to be made); plus
(H)
the
product of (1) the Common Per Share Percentage multiplied
by
(2) the
aggregate amount of any payment or other distribution required to be made by
Parent in accordance with Section 1.8 (as and when such payment or other
distribution is required to be made); and plus
4
(I) the
product of (1) the Common Per Share Percentage multiplied
by
(2) the
aggregate amount of any payment required to be made from the Company Retention
Bonus Escrow Fund to the Stockholders’ Representative for distribution to Escrow
Participants in accordance with Section 1.5(f) (as and when such payment or
other distribution is required to be made);
(iv)
each
share of the common stock, par value $0.001, of Merger Sub outstanding
immediately prior to the Effective Time shall be converted into one share of
common stock of the Surviving Corporation.
(v) Notwithstanding
anything to the contrary contained in this Agreement, at the Effective Time,
by
virtue of the Merger and without any further action on the part of Parent,
Merger Sub, the Company or any Stockholder, the restrictions with respect to,
and any right of repurchase of the Company of, any share of Company Common
Stock
that is issued and outstanding immediately prior to the Effective Time and
subject to forfeiture or a right of repurchase by the Company, shall lapse
and
shall no longer be in effect.
(b) For
purposes of this Agreement:
(i) The
“Aggregate
Closing Transaction Value”
shall
be equal to: (A) $260,000,000; minus
(B)
the
Conexant Termination Payment Amount; minus
(C)
the
Company Retention Bonus Amount; minus
(D)
the
Company Stay Bonus Amount; minus
(E)
the
Stockholders’ Representative Expense Amount;
minus
(F) the
aggregate amount of all Transaction Expenses (including Transaction Expenses
paid prior to the Effective Time and Transaction Expenses that are or will
become payable at or after the Effective Time with respect to services performed
or actions taken at or prior to the Effective Time); minus
(G)
the
amount of any Closing Deficit Amount (as defined in Section 1.7(c)); and
plus
(H) the
amount of any Closing Surplus Amount (as defined in Section
1.7(b)).
(ii) The
“Aggregate
In-the-Money Company Option Exercise Price”
shall
be the aggregate dollar amount payable to the Company as purchase price for
the
exercise in full of all In-the-Money Company Options (whether vested or
unvested) that are outstanding and unexercised immediately prior to the
Effective Time.
(iii) The
“Aggregate
Preference Amount”
shall
be the amount determined by multiplying
the
Preference Per Share Amount by
the
aggregate number of shares of Company Preferred Stock outstanding immediately
prior to the Effective Time.
(iv) The
“Aggregate
Proceeds Contribution Fraction”
means,
with respect to each share of Company Capital Stock held by an Escrow
Participant or each share of Company Common Stock subject to an In-the-Money
Company Option held by an Escrow Participant, in each case that is outstanding
immediately prior to the Effective Time, the fraction having a numerator equal
to the applicable amount specified in Section 1.5(a)(ii)(A),
Section 1.5(a)(iii)(A)
or
Section 1.6(a)(i),
as
the case may be, in respect of such share of Company Capital Stock or such
share
of Company Common Stock subject to such In-the-Money Company Option, and having
a denominator equal to the aggregate total of all amounts specified in Sections
1.5(a)(ii)(A),
1.5(a)(iii)(A)
and
1.6(a)(i)
in
respect of all shares of Company Capital Stock held by the Escrow Participants
and all shares of Company Common Stock subject to In-the-Money Company Options
held by the Escrow Participants, in each case that are outstanding immediately
prior to the Effective Time.
5
(v) The
“Aggregate
Residual Consideration Amount”
shall
be an amount equal to: (A) the Aggregate Closing Transaction Value; minus
(B)
the
Aggregate Preference Amount; and minus
(C) the
aggregate amount of all accrued and unpaid dividends on the shares of Company
Preferred Stock outstanding immediately prior to the Effective Time calculated
in accordance with the terms of the Company’s certificate of incorporation in
effect on the date of this Agreement.
(vi) The
“Common
Per Share Percentage”
shall
be the percentage (calculated to 15 decimal places) corresponding to the
fraction having a numerator equal to 0.14 and having a denominator equal to
the
Fully Diluted Company Share Number.
(vii) The
“Common
Residual Per Share Amount”
shall
be the amount determined by multiplying
(A)
the
Common Per Share Percentage by
(B)
the
sum of the Aggregate Residual Consideration Amount plus
the
Aggregate In-the-Money Company Option Exercise Price.
(viii) The
“Company
Retention Bonus Amount”
shall
(A)
be the maximum aggregate amount payable to participants in the Company Retention
Bonus Plan and the Company Special Retention Bonus Plan at or after the Closing
pursuant to, and in accordance with, the terms of the Company
Retention Bonus Plan and the Company Special Retention Bonus Plan, as
applicable, provided
that
such maximum aggregate amount shall not exceed $5,000,000
and (B)
be specified in the Closing Payment Schedule.
(ix) The
“Company
Stay Bonus Amount”
shall
(A) be the maximum aggregate amount payable to Company employees who are parties
to Company Stay Bonus Agreements pursuant to, and in accordance with, the terms
of such Company Stay Bonus Agreements in connection with the Closing,
provided
that
such maximum aggregate amount shall not exceed
$1,750,000 and (B) be specified in the Closing Payment Schedule.
(x) The
“Conexant
Termination Payment Amount”
means
$16,300,000.
(xi) The
“Fully
Diluted Company Share Number”
shall
be the sum,
without
duplication, of: (A) the aggregate number of shares of Company Common Stock
outstanding immediately prior to the Effective Time (including any such shares
that are subject to a repurchase option and including any such shares subject
to
issuance pursuant to Company Options exercised prior to the Effective Time
or
pursuant to shares of Company Preferred Stock converted prior to the Effective
Time); plus
(B)
the
aggregate number of shares of Company Common Stock purchasable under or
otherwise subject to In-the-Money Company Options (whether vested or unvested)
that are outstanding and unexercised immediately prior to the Effective Time;
plus
(C)
the
aggregate number of shares of Company Common Stock purchasable under or
otherwise subject to warrants and other rights (other than Company Options)
to
acquire shares of Company Common Stock (whether or not immediately exercisable)
outstanding immediately prior to the Effective Time; and plus
(D)
the
aggregate number of shares of Company Common Stock issuable upon the conversion
of any securities of the Company convertible into Company Common Stock (other
than shares of Company Preferred Stock) outstanding immediately prior to the
Effective Time.
6
(xii) The
“Indemnity Escrow
Contribution Amount”
means
$20,000,000.
(xiii) The
“Preference
Per Share Amount”
shall
be, with respect to a share of Company Preferred Stock, the Face Amount (as
defined in the Company’s certificate of incorporation in effect on the date of
this Agreement) of such share in effect at the Effective Time, subject to
adjustment to reflect any stock split, reverse stock split, stock dividend,
recapitalization or other similar transaction effected or declared by the
Company, or with respect to which a record date occurs, with respect to shares
of Company Capital Stock after the execution of this Agreement and prior to
the
Effective Time.
(xiv) The
“Preferred
Per Share Percentage”
shall
be the percentage (calculated to 15 decimal places) corresponding to the
fraction having a numerator equal to 0.86 and having a denominator equal to
the
aggregate number of shares of Company Preferred Stock outstanding immediately
prior to the Effective Time.
(xv) The
“Preferred Residual
Per Share Amount”
shall
be equal to the amount determined by multiplying
(A) the
Preferred Per Share Percentage by
(B)
the
sum of the Aggregate Residual Consideration Amount plus
the
Aggregate In-the-Money Company Option Exercise Price.
(xvi) The
“Stockholders’
Representative Expense Amount”
means
$1,000,000.
(xvii) The
“Working
Capital Adjustment Escrow Contribution Amount”
means
(x) $4,000,000 minus
(y)
the
Deferred Closing Surplus Amount (as defined in Section 1.7(i)).
(c) Immediately
after the Closing but prior to the Effective Time, Parent shall cause to be
delivered to the Escrow Agent by wire transfer of immediately available
funds:
(i) as
a
contribution to the Indemnity Escrow Fund an amount in cash equal to the
Indemnity Escrow Contribution Amount; and
(ii) as
a
contribution to the Working Capital Adjustment Escrow Fund an amount in cash
equal to the Working Capital Adjustment Escrow Contribution Amount.
The
Indemnity Escrow Fund and Working Capital Adjustment Escrow Fund: (A) shall
be
held by the Escrow Agent in accordance with the terms of this Agreement and
the
terms of the Escrow Agreement; and (B) shall be held and released solely for
the
purposes and in accordance with the terms of this Agreement and the Escrow
Agreement.
7
(d) Immediately
after the Closing but prior to the Effective Time, Parent shall fund the
Stockholders’ Representative Expense Fund by causing the Stockholders’
Representative Expense Amount to be delivered to the Stockholders’
Representative by wire transfer of immediately available funds. The
Stockholders’ Representative shall hold the Stockholders’ Representative Expense
Fund in trust for the purpose of reimbursing the Stockholders’ Representative
for Transaction Expenses and other expenses incurred by it on behalf of the
Escrow Participants in accordance with Section 10.1, provided that the
Stockholders’ Representative shall not be obligated to hold the Stockholders’
Representative Expense Fund in a separate account. The payment of the
Stockholders’ Representative Expense Amount by Parent to the Stockholders’
Representative shall completely discharge Parent’s obligations with respect to
such amount, and in no event shall Parent have any responsibility or liability
whatsoever for the manner in which the Stockholders’ Representative administers
the Stockholders’ Representative Expense Fund, or for causing or ensuring that
all or any portion of the Stockholders’ Representative Expense Amount is
ultimately paid or distributed to Escrow Participants.
(e) Immediately
after the Closing but prior to the Effective Time, Parent shall pay (or cause
the Company to pay) the Conexant Termination Payment Amount to Conexant by
wire
transfer of immediately available funds.
(f) Promptly
following the Effective Time, (i) Parent shall pay (or cause the Company to
pay)
such amounts as are required to be paid pursuant to, and in accordance with
the
provisions of, the Company Retention Bonus Plan in connection with the Closing,
(ii) to the extent that any portion of the Company Retention Bonus Amount
payable to participants under the Company Retention Bonus Plan is not paid
to
participants in the Company Retention Bonus Plan in connection with the Closing,
Parent shall fund (or shall cause the Company to fund) such portion of the
Company Retention Bonus Amount not paid in connection with the Closing into
the
Company Retention Bonus Escrow Fund, and (iii) Parent shall fund the portion
of
the Company Retention Bonus Amount payable to participants under the Company
Special Retention Bonus Plan into the Company Retention Bonus Escrow Fund.
Following the Closing, Parent and the Stockholder Representative shall execute
joint written instructions to the Escrow Agent, instructing the Escrow Agent
to
cause the payments required to be made to participants under the Company
Retention Bonus Plan and the Company Special Retention Bonus Plan other than
in
connection with the Closing to be released from the Company Retention Bonus
Escrow Fund and paid to such participants pursuant to, and in accordance with,
the terms of the Company Retention Bonus Plan or the Company Special Retention
Bonus Plan, as applicable. In the event that, following the Closing, one or
more
participants in the Company Retention Bonus Plan or the Company Special
Retention Bonus Plan becomes ineligible to receive a payment otherwise allocable
to such participant under the Company Retention Bonus Plan or the Company
Special Retention Bonus Plan (a “Forfeited
Payment”),
then
promptly following the event that results in such ineligibility, Parent shall
notify the Stockholder Representative and Parent and the Stockholder
Representative shall execute joint written instructions to the Escrow Agent,
instructing the Escrow Agent to disburse the amount of the Forfeited Payment
from the Company Retention Bonus Escrow Fund to the Stockholders’ Representative
for distribution to each Escrow Participant with respect to each share of
Company Capital Stock held by such Escrow Participant or each share of Company
Common Stock subject to an In-the-Money Company Option held by such Escrow
Participant immediately prior to the Effective Time in accordance with Section
1.5(a)(ii)(I), 1.5(a)(iii)(I) or 1.6(a)(ix) as the case may be. The payment
of
any Forfeited Payment from the Company Retention Bonus Escrow Fund to the
Stockholders’ Representative pursuant to the foregoing sentence shall completely
discharge Parent’s obligations with respect to such Forfeited Payment, and in no
event shall Parent have any responsibility or liability whatsoever for causing
or ensuring that all or any portion of such Forfeited Payment is ultimately
paid
or distributed to Escrow Participants.
8
(g) Promptly
following the Effective Time, Parent shall cause the Company to make the
payments required to be made to each Company employee who is party to a Company
Stay Bonus Agreement pursuant to, and in accordance with, the terms of the
Company Stay Bonus Agreements.
(h) The
Company shall deliver to Parent, on the Closing Date, a definitive schedule
(the
“Closing
Payment Schedule”)
setting forth: (A) the total of all Transaction Expenses paid and payable
(including any Transaction Expenses that will become payable by an Acquired
Company after the Effective Time with respect to services performed or actions
taken prior to the Effective Time); (B) the portion of the Company Retention
Bonus Amount payable to each participant in the Company Retention Bonus Plan
in
connection with the Closing and the maximum amount payable to each participant
in the Company Retention Bonus Plan following the Closing; (C) the maximum
amount payable to each participant in the Company Special Retention Bonus Plan
following the Closing; (D) the portion of the Company Stay Bonus Amount payable
to each Company employee who is a party to a Company Stay Bonus Agreement;
(E)
the name and, to the extent available to the Company, the address of each Person
who is a stockholder of the Company immediately prior to the Effective Time
(after giving effect to any exercises of Company Options prior to the Effective
Time) (each, a “Stockholder”);
(F)
the number of shares of Company Capital Stock of each class and series held
by
each Stockholder immediately prior to the Effective Time; (G) the consideration
specified in Section 1.5(a)(ii)(A) or Section 1.5(a)(iii)(A), respectively,
with
respect to the Capital Stock held by each Stockholder immediately prior to
the
Effective Time; (H) the amount to be contributed to the Indemnity Escrow Fund
with respect to the shares of Company Capital Stock held by each Stockholder
pursuant to Section 1.5(c)(i); (I) the amount to be contributed to the Working
Capital Adjustment Escrow Fund with respect to the shares of Company Capital
Stock held by each Stockholder pursuant to Section 1.5(c)(ii); (J) the name
and,
to the extent available to the Company, the address of each holder of, the
exercise price per share of, and the number of shares of Company Common Stock
subject to, each Company Option outstanding immediately prior to the Effective
Time (after giving effect to any exercises of Company Options prior to the
Effective Time) (each, an “Option
Holder”);
(K)
the consideration specified in Section 1.6(a)(i) with respect to the shares
of
Company Common Stock subject to Company Options held by each Option Holder
immediately prior to the Effective Time; (L) the amount, if any, to be
contributed to the Indemnity Escrow Fund with respect to the shares of Company
Common Stock subject to the Company Options held by each Option Holder pursuant
to Section 1.5(c)(i); (M) the amount, if any, to be contributed to the Working
Capital Adjustment Escrow Fund with respect to the shares of Company Common
Stock subject to the Company Options held by each Option Holder pursuant to
Section 1.5(c)(ii); and (N) the aggregate amount of withholding and other Taxes
to be deducted pursuant to applicable Legal Requirements from any consideration
payable to each Stockholder or Option Holder in the Merger, each participant
in
the Company Retention Bonus Plan in connection with the Closing, and each
Company employee who is a party to a Company Stay Bonus Agreement in connection
with the Closing.
9
1.6 Treatment
of Company Options.
(a) The
board
of directors of the Company shall take such actions as are necessary or
reasonably desirable to provide that each In-the-Money Company Option
outstanding and unexercised immediately prior to the Effective Time, whether
or
not immediately exercisable, shall be cancelled, terminated and extinguished
as
of the Effective Time and, subject to Section 1.10,
upon
the cancellation thereof be converted into the right to receive, in respect
of
each share of Company Common Stock then subject to such In-the-Money Company
Option:
(i) an
amount
in cash equal to the Common Residual Per Share Amount minus
the
exercise price per share of Company Common Stock subject to such In-the-Money
Company Option; minus
(ii) the
product of (1) the Common Per Share Percentage multiplied
by
(2) the
Working Capital Adjustment Escrow Contribution Amount; minus
(iii) the
product of (1) the Aggregate Proceeds Contribution Fraction with respect to
such
share of Company Common Stock multiplied
by
(2) the
Indemnity Escrow Contribution Amount; plus
(iv) the
product of (A) the Common Per Share Percentage multiplied
by
(B) the
aggregate amount of any cash required to be released from the Working Capital
Adjustment Escrow Fund to the Escrow Participants in accordance with Section
1.7
(as and
when such cash is required to be released); plus
(v) the
product of (A) the Aggregate Proceeds Contribution Fraction with respect to
such
share of Company Common Stock multiplied
by
(B) the
aggregate amount of any cash required to be released from the Indemnity Escrow
Fund to the Escrow Participants in accordance with Section 9.7
(as and
when such cash is required to be released); plus
(vi) the
product of (1) the Common Per Share Percentage multiplied
by
(2) the
aggregate amount of any cash required to be released from the Stockholders’
Representative Expense Fund to the Escrow Participants in accordance with
Section 10.1(f) (as and when such cash is required to be released); plus
(vii) the
product of (A) the Common Per Share Percentage multiplied
by
(B) the
aggregate amount of any payment required to be made by Parent in accordance
with
Section 1.7
(as and
when such payment is required to be made); plus
(viii) the
product of (A) the Common Per Share Percentage multiplied
by
(B) the
aggregate amount of any payment or other distribution required to be made by
Parent in accordance with Section 1.8 (as and when such payment or other
distribution is required to be made); and plus
10
(ix) the
product of (1) the Common Per Share Percentage multiplied
by
(2) the
aggregate amount of any payment required to be made from the Company Retention
Bonus Escrow Fund to the Stockholders’ Representative for distribution to Escrow
Participants in accordance with Section 1.5(f) (as and when such payment or
other distribution is required to be made).
Each
holder of an In-the-Money Company Option cancelled as provided in this Section
1.6(a)
shall
cease to have any rights with respect thereto, except the right to receive
the
consideration specified in this Section 1.6(a),
without
interest, and such In-the-Money Company Option shall not be assumed by
Parent.
(b) The
board
of directors of the Company shall take such actions as are necessary or
desirable to provide that each Company Option outstanding immediately prior
to
the Effective Time that is not an In-the-Money Company Option, whether or not
immediately exercisable, shall be cancelled, terminated and extinguished as
of
the Effective Time, and such Company Option shall not be assumed by Parent
and
no further consideration shall be payable hereunder with respect
thereto.
1.7 Working
Capital Adjustment.
(a) The
Company shall provide Parent with a preliminary written and reasonably detailed
calculation of the estimated Closing Working Capital Amount (as defined in
Section 1.7(i)) (the “Estimated
Closing Amount”),
together with an estimated unaudited balance sheet of the Company and its
consolidated Subsidiaries as of the Closing Date (the “Estimated
Closing Date Balance Sheet”),
not
more than 10 nor fewer than three business days before the Closing Date, which
Estimated Closing Date Balance Sheet (i) shall be prepared in good faith by
the
Company consistent with the provisions of Section 1.7(f) and (ii) shall be
accompanied by a written certification to Parent, executed (if both of such
positions are filled as of the Closing Date) by the CFO and the Controller
of
the Company, or (if one of such positions is vacant as of the Closing Date)
by
the CFO or the Controller of the Company and another senior executive officer
of
the Company, certifying that the Estimated Closing Date Balance Sheet was so
prepared. Following the delivery of the Estimated Closing Date Balance Sheet
to
Parent, the Company shall provide Parent, its accountants and their
representatives, at the reasonable request of Parent, with reasonable access
during normal business hours to the books, records and relevant work papers
of
the Company as may reasonably be required for the review of the Estimated
Closing Date Balance Sheet and shall provide Parent, its accountants and their
representatives with access to the records and employees of the Company and
its
Subsidiaries (and cause the employees of the Company and its Subsidiaries to
cooperate with Parent, its accountants and their representatives) to the extent
reasonably necessary for Parent to review and evaluate the data and assumptions
used to prepare the Estimated Closing Date Balance Sheet and to resolve disputes
with respect thereto.
(b) If
the
Estimated Closing Amount is greater than the Upper Threshold, an amount equal
to
the lesser of (x) the Gross Closing Surplus Amount (as defined in Section
1.7(i)) or (y) the Surplus Cash Amount (as defined in Section 1.7(i)), shall
be
the “Closing
Surplus Amount”
for
all
purposes under this Agreement, including calculating the Aggregate Closing
Transaction Value and determining whether the aggregate consideration payable
in
connection with the Merger shall be subject to adjustment pursuant to Section
1.7(d).
11
(c) If
the
Estimated Closing Amount is less than the Lower Threshold, an amount equal
to
the lesser of (x) $4,500,000, or (y) an amount equal to the excess of (1) the
Target Amount over (2) the Estimated Closing Amount, shall be the “Closing
Deficit Amount”
for
all
purposes under this Agreement, including calculating the Aggregate Closing
Transaction Value and determining whether the aggregate consideration payable
in
connection with the Merger shall be subject to adjustment pursuant to Section
1.7(d).
(d) Following
the Closing, in addition to any adjustment to the aggregate consideration
payable in connection with the Merger pursuant to Section 1.8, the aggregate
consideration payable in connection with the Merger shall be subject to
adjustment as set forth below in this Section 1.7(d):
(i) If
the
Final Closing Working Capital Amount (as defined in Section 1.7(i)) is greater
than the Upper Threshold (as defined in Section 1.7(i)), and there was neither
a
Closing Deficit Amount nor a Closing Surplus Amount, or there was a Closing
Surplus Amount equal to zero, then Parent shall become obligated to pay to
the
Stockholders’ Representative an amount equal to the sum of (x) the lesser of (A)
$4,500,000 plus $50,000 per day for each day after March 31, 2007 through and
including, the Closing Date, or (B) an amount equal to the excess of (1) the
Final Closing Working Capital Amount over (2) the Target Amount (the lesser
of
such amounts in this clause (x), the “Post-Closing
Positive Variance Amount”)
plus
(y)
the
Deferred Closing Surplus Amount plus
(z)
interest on the Deferred Closing Surplus Amount at a rate of six percent per
annum from the Closing Date to the date on which the Post-Closing Positive
Variance Amount and the Deferred Closing Surplus Amount are paid to the
Stockholders’ Representative, for distribution to each Escrow Participant in the
respective amounts provided in Sections 1.5(a)(ii)(G),
1.5(a)(iii)(G)
and
1.6(a)(vii)
(as
the case may be).
(ii) If
the
Final Closing Working Capital Amount is greater than the Upper Threshold, and
there was a Closing Deficit Amount, then Parent shall become obligated to pay
an
amount equal to the sum of (x) the Post-Closing Positive Variance Amount plus
(y) the Closing Deficit Amount to the Stockholders’ Representative for
distribution to each Escrow Participant in the respective amounts provided
in
Sections 1.5(a)(ii)(G),
1.5(a)(iii)(G)
and
1.6(a)(vii)
(as
the case may be).
(iii) If
the
Final Closing Working Capital Amount is greater than the Upper Threshold, and
there was a Closing Surplus Amount greater than zero, the following shall
occur:
(A)
if the
Post-Closing Positive Variance Amount exceeds the Closing Surplus Amount, then
Parent shall become obligated to pay to the Stockholders’ Representative an
amount equal to the sum of (x) the amount of such excess plus
(y)
interest on the Deferred Closing Surplus Amount (if any) at a rate of six
percent per annum from the Closing Date to the date on which such difference
is
paid to the Stockholders’ Representative, for distribution to each Escrow
Participant in the respective amounts provided in Sections
1.5(a)(ii)(G),
1.5(a)(iii)(G)
and
1.6(a)(vii)
(as
the case may be);
12
(B)
if the
Closing Surplus Amount exceeds the Post-Closing Positive Variance Amount, then
Parent shall become entitled to recover an amount equal to the amount of such
excess (x) first from the Working Capital Adjustment Escrow Fund (to the extent
of the funds therein), and (y) second from the Indemnity Escrow Fund (to the
extent of the remaining funds therein); and
(C)
if the
Closing Surplus Amount is equal to the Post-Closing Positive Variance Amount,
then there shall be no adjustment in either direction to the aggregate
consideration payable in connection with the Merger pursuant to this Section
1.7.
(iv) If
the
Final Closing Working Capital Amount is equal to or greater than the Lower
Threshold and is less than or equal to the Upper Threshold, then the following
shall occur:
(A)
if there
was a Closing Deficit Amount, then Parent shall become obligated to pay an
amount equal to the Closing Deficit Amount to the Stockholders’ Representative
for distribution to each Escrow Participant in the respective amounts provided
in Sections 1.5(a)(ii)(G),
1.5(a)(iii)(G)
and
1.6(a)(vii)
(as
the case may be);
(B)
if there
was a Closing Surplus Amount greater than zero, then Parent shall become
entitled to recover an amount equal to the Closing Surplus Amount (x) first
from
the Working Capital Adjustment Escrow Fund (to the extent of the funds therein),
and (y) second from the Indemnity Escrow Fund (to the extent of the remaining
funds therein; and
(C)
if there
was neither a Closing Deficit Amount nor a Closing Surplus Amount, or there
was
a Closing Surplus Amount equal to zero, then there shall be no adjustment in
either direction to the aggregate consideration payable in connection with
the
Merger pursuant to this Section 1.7(d).
(v) If
the
Final Closing Working Capital Amount is less than the Lower Threshold, and
there
was neither a Closing Deficit Amount nor a Closing Surplus Amount or there
was a
Closing Surplus Amount equal to zero, then Parent shall become entitled to
recover an amount equal to the lesser of (x) $4,500,000, or (y) an amount equal
to the excess of (1) the Target Amount over (2) the Final Closing Working
Capital Amount (the lesser of such amounts, the “Post-Closing
Negative Variance Amount”)
(x)
first from the Working Capital Adjustment Escrow Fund (to the extent of the
funds therein), and (y) second from the Indemnity Escrow Fund (to the extent
of
the remaining funds therein).
(vi) If
the
Final Closing Working Capital Amount is less than the Lower Threshold, and
there
was a Closing Surplus Amount greater than zero, then Parent shall become
entitled to recover an amount equal to the sum of (x) the Post-Closing Negative
Variance Amount plus (y) the Closing Surplus Amount (x) first from the Working
Capital Adjustment Escrow Fund (to the extent of the funds therein), and (y)
second from the Indemnity Escrow Fund (to the extent of the remaining funds
therein).
(vii) If
the
Final Closing Working Capital Amount is less than the Lower Threshold, and
there
was a Closing Deficit Amount, the following shall occur:
13
(A)
if the
Closing Deficit Amount exceeds the Post-Closing Negative Variance Amount, then
Parent shall become obligated to pay an amount equal to the amount of such
excess to the Stockholders’ Representative for distribution to each Escrow
Participant in the respective amounts provided in Sections 1.5(a)(ii)(G),
1.5(a)(iii)(G)
and
1.6(a)(vii)
(as
the case may be);
(B)
if the
Post-Closing Negative Variance Amount exceeds the Closing Deficit Amount, then
Parent shall become entitled to recover an amount equal to the amount of such
excess (x) first from the Working Capital Adjustment Escrow Fund (to the extent
of the funds therein), and (y) second from the Indemnity Escrow Fund (to the
extent of the remaining funds therein); and
(C)
if the
Closing Deficit Amount is equal to the Post-Closing Negative Variance Amount,
then there shall be no adjustment in either direction to the aggregate
consideration payable in connection with the Merger pursuant to this Section
1.7(d).
If
Parent
is obligated to pay any amount to the Stockholders’ Representative pursuant to
any provision of this Section 1.7(d) (such amount, the “Post-Closing
Surplus Amount”),
Parent shall, within five business days after the Final Closing Date Balance
Sheet (as defined in Section 1.7(h)) has been established in accordance with
the
procedures set forth in Section 1.7(h),
(1) pay
the Post-Closing Surplus Amount to the Stockholders’ Representative in
immediately available funds, and such payment, when made, shall be deemed to
have been paid in full satisfaction of the rights of such Escrow Participants
under Sections 1.5(a)(ii)(G),
1.5(a)(iii)(G) and 1.6(a)(vii),
and (2) execute written instructions to the Escrow Agent, instructing the Escrow
Agent to disburse all of the funds in the Working Capital Adjustment Escrow
Fund
to the Escrow Participants, with each Escrow Participant to receive the
respective amounts set forth in Sections 1.5(a)(ii)(D), 1.5(a)(iii)(D) and
1.6(a)(iv), with respect to each share of Company Capital Stock and each share
of Company Common Stock subject to an In-the-Money Company Option held by such
Escrow Participant immediately prior to the Effective Time. If Parent is
entitled to receive any amount from the Working Capital Adjustment Escrow Fund
or Indemnity Escrow Fund pursuant to any provision of this Section 1.7(d) (such
amount, the “Post-Closing
Deficit Amount”),
Parent and the Stockholders’ Representative shall, within five business days
after the Final Closing Date Balance Sheet has been established in accordance
with the procedures set forth in Section 1.7(h),
execute
joint written instructions to the Escrow Agent, instructing the Escrow Agent
to
disburse the Post-Closing Deficit Amount from the Working Capital Adjustment
Escrow Fund and the Indemnity Escrow Fund (in the priority described above)
to
Parent, and immediately thereafter to disburse any amount remaining in the
Working Capital Adjustment Escrow Fund to the Escrow Participants, with each
Escrow Participant to receive the respective amounts set forth in Sections
1.5(a)(ii)(D), 1.5(a)(iii)(D) and 1.6(a)(iv), with respect to each share of
Company Capital Stock and each share of Company Common Stock subject to an
In-the-Money Company Option held by such Escrow Participant immediately prior
to
the Effective Time.
(e) As
soon
as practicable (and in any event within 90 days) after the Closing Date, Parent
shall prepare and deliver to the Stockholders’ Representative an unaudited
balance sheet of the Company and its consolidated Subsidiaries as of the Closing
Date (the “Closing
Date Balance Sheet”)
in
good faith and in accordance with the provisions of Section 1.7(f). The Closing
Date Balance Sheet shall be accompanied by a reasonably detailed calculation
of
the Closing Working Capital Amount, a written statement setting forth deviations
between the Closing Date Balance Sheet and the Estimated Closing Balance Sheet
and a written statement of any Post-Closing Surplus Amount or Post-Closing
Deficit Amount as determined by Parent resulting from the information set forth
in the Closing Date Balance Sheet (the “Parent
Proposed Adjustment”).
Promptly following the delivery of the Closing Date Balance Sheet to the
Stockholders’ Representative, Parent shall provide the Stockholders’
Representative, its accountants and their representatives, at the reasonable
request of the Stockholders’ Representative, with reasonable access during
normal business hours to the books, records and relevant work papers of the
Surviving Corporation as may reasonably be required for the review of the
Closing Date Balance Sheet and shall provide the Stockholders’ Representative,
its accountants and their representatives with access to the records and
employees of the Surviving Corporation and its Subsidiaries (and cause the
employees of the Surviving Corporation and its Subsidiaries to cooperate with
the Stockholders’ Representative, its accountants and their representatives) to
the extent reasonably necessary for the Stockholders’ Representative to review
and evaluate the data and assumptions used to prepare the Closing Date Balance
Sheet and to resolve disputes with respect thereto. All fees, costs and expenses
of the Stockholders’ Representative relating to the review of the Closing Date
Balance Sheet shall be borne by the Escrow Participants and may be paid by
the
Stockholders’ Representative out of the Stockholders’ Representative Expense
Fund to the extent of the funds remaining therein, with the remainder borne
by
the Escrow Participants and if paid by the Stockholders’ Representative,
reimbursable to the Stockholders’ Representative in accordance with Section
10.1. The Stockholders’ Representative shall make available to Parent and its
accountants, at the request of Parent, any relevant work papers of the
Stockholders’ Representative and its accountants generated in connection with
the review of the Closing Date Balance Sheet.
14
(f) The
Closing Date Balance Sheet shall be prepared in accordance with GAAP applied
on
a basis consistent with the basis on which the Unaudited Interim Balance Sheet
(as defined in Section 2.4(a)) was prepared, including the policies, procedures
and practices used in preparing the Unaudited Interim Balance Sheet (to the
extent in accordance with GAAP), except that:
(i) Apportionment
of Taxes.
In
order to apportion appropriately any Taxes relating to any taxable year or
period that includes an Interim Period (as defined in Section 1.7(i)),
the
portion of any such Tax that is allocable to the Interim Period shall
be:
(A) in
the
case of Taxes not described in subparagraph “(B)”, below, deemed equal to the
amount that would be payable if the taxable year or period ended on the Closing
Date (except that, solely for purposes of determining the marginal tax rate
applicable to income or receipts during such period in a jurisdiction in which
such tax rate depends upon the level of income or receipts, annualized income
or
receipts may be taken into account, if appropriate, for an equitable sharing
of
such Taxes); and
(B) in
the
case of any property and ad valorem taxes deemed to be the amount of such Taxes
for the entire period (or, in the case of such Taxes determined on an arrears
basis, the amount of such Taxes for the immediately preceding period) multiplied
by a fraction the numerator of which is the number of calendar days in the
Interim Period and the denominator of which is the number of calendar days
in
the entire relevant Tax period.
15
(ii) Changes
in GAAP.
For all
purposes under this Section 1.7,
“GAAP”
shall
mean GAAP as in effect on the date of the Unaudited Interim Balance Sheet.
Notwithstanding (A) any changes in GAAP after the date thereof, (B) any change
by the Company in its application of GAAP between March 31, 2006 and the date
of
this Agreement, or (C) any change by the Company in its application of GAAP
during the Pre-Closing Period (to the extent permitted by this Agreement),
the
Closing Date Balance Sheet shall be prepared on a basis consistent with the
Unaudited Interim Balance Sheet. Without limiting the generality of the
foregoing, to the extent the Company’s reserve for uncollectible accounts or
unsaleable inventory are calculated based on a percentage of the aggregate
accounts or inventory of a specified age or type, the same percentage (or in
the
case of inventory, the same methodology for determining the percentage) and
type
as was used for the purposes of calculating the amount of such reserves on
the
Unaudited Interim Balance Sheet shall be used to calculate the amount of such
reserves on the Closing Date Balance Sheet, notwithstanding any change in the
manner in which such reserves were calculated after the date of the Unaudited
Interim Balance Sheet.
(iii) Gross
Property, Plant and Equipment.
Gross
Property, Plant and Equipment shall not be decreased or increased from the
amount of Gross Property, Plant and Equipment on the Unaudited Interim Balance
Sheet as a result of any physical audit performed by Parent or the Acquired
Companies after the Closing or otherwise, except as a result of any capital
expenditures made by the Company after March 31, 2006 (including any such
decrease as a result of a determination that property, plant or equipment
reflected in the Company’s books and records or financial statements and not
currently used in the business as currently conducted is no longer used by
or in
the possession of, the Company). In addition, Gross Property, Plant and
Equipment shall not be reduced as a result of the disposal of obsolete equipment
on or after April 1, 2006 in the ordinary course of business.
(g) If
the
Stockholders’ Representative has any objections to the Closing Date Balance
Sheet or the Parent Proposed Adjustment, it shall deliver a statement describing
its objections to Parent (the “Objection
Notice”)
within
45 days after the Stockholders’ Representative’s receipt of the Closing Date
Balance Sheet and the Parent Proposed Adjustment. The Stockholders’
Representative shall include in the Objection Notice a reasonably detailed
calculation of the Post-Closing Surplus Amount or Post-Closing Deficit Amount
as
determined by the Stockholders’ Representative (the “Stockholders’
Representative Proposed Adjustment”),
accompanied by a reasonably detailed description of the bases for any variances
between the Parent Proposed Adjustment and the Stockholders’ Representative
Proposed Adjustment (the “Description
of Variances”).
If
the Stockholders’ Representative fails to deliver an Objection Notice and a
Description of Variances within 45 days after the Stockholders’ Representative’s
receipt of the Closing Date Balance Sheet and the Parent Proposed Adjustment,
then the Stockholders’ Representative shall be deemed for all purposes to have
accepted and agreed to both the Closing Date Balance Sheet and the Parent
Proposed Adjustment. If the Stockholders’ Representative delivers the Objection
Notice and the Description of Variances to Parent within such 45-day period,
and
Parent disagrees with the Stockholders’ Representative’s objection, then Parent
and the Stockholders’ Representative will, during the 30-day period following
the date of the Objection Notice (the “Resolution
Period”),
use
reasonable efforts to resolve any such objection themselves.
16
(h) If
at the
conclusion of the Resolution Period, the parties have not reached an agreement
on the Stockholders’ Representative’s objections set forth in any valid
Objection Notice, then all amounts and issues remaining in dispute may, at
the
election of either party, be submitted by the Stockholders’ Representative or
Parent to Deloitte & Touche or another mutually agreeable nationally
recognized firm of independent auditors that has not performed work for (other
than as a neutral auditor), and is otherwise independent of, each of Parent,
the
Company, the Stockholders’ Representative and any Escrow Participant who owns
greater than a 10% interest in the Working Capital Adjustment Escrow Fund (the
“Neutral
Auditor”).
All
fees and expenses relating to the work, if any, to be performed by the Neutral
Auditor shall be allocated to Parent, on the one hand, and the Escrow
Participants, on the other hand, with amounts owed by the Escrow Participants
to
be withdrawn first from the Working Capital Adjustment Escrow Fund and, to
the
extent the Working Capital Adjustment Escrow Fund is insufficient to cover
such
expenses, then from the Indemnity Escrow Fund, in the same proportion that
the
amount of disputed items so submitted to the Neutral Auditor that is
unsuccessfully disputed by each such party (as finally determined by the Neutral
Auditor) bears to the total amount of such remaining disputed items so
submitted. Except as provided in the preceding sentence, all other costs and
expenses incurred by the parties in connection with resolving any dispute
hereunder before the Neutral Auditor shall be borne by the party incurring
such
cost and expense. The Neutral Auditor shall act as an arbitrator to determine
only those issues still in dispute at the time of the election by either party
to submit the objections to the Neutral Auditor, which shall be limited to
whether the Closing Date Balance Sheet was prepared in accordance with the
standards set forth in Section 1.7(f)
and
whether and to what extent (if any) there should be an adjustment to the
aggregate consideration payable in connection with the Merger in accordance
with
Section 1.7(d). The Neutral Auditor’s determination shall be made within 45 days
after its engagement (which engagement shall be made no later than five business
days after the time of the election by either Parent or the Stockholders’
Representative to submit the objections to the Neutral Auditor), or as soon
thereafter as possible, shall be set forth in a written statement delivered
to
Parent and the Stockholders’ Representative and shall be final, binding,
conclusive and non-appealable for all purposes under this Agreement. The term
“Final
Closing Date Balance Sheet”
shall
mean (A) if the Stockholders’ Representative fails to deliver an Objection
Notice and a Description of Variances within the 45-day period set forth in
Section 1.7(g),
the
Closing Date Balance Sheet as prepared by Parent, and (B) if the Stockholders’
Representative delivers an Objection Notice within the 45-day period set forth
in Section 1.7(g),
the
definitive Closing Date Balance Sheet agreed to by the Stockholders’
Representative and Parent in accordance with Section 1.7(g)
or the
definitive Closing Date Balance Sheet resulting from the determination made
by
the Neutral Auditor in accordance with this Section 1.7(h))
(which
shall reflect those items theretofore agreed to by the Stockholders’
Representative and Parent during the Resolution Period or otherwise in
accordance with Section 1.7(g)).
(i) For
purposes of this Agreement:
(i) “Adjusted
Cash Amount”
shall
mean the cash (excluding Long Term Restricted Cash) and short-term investments
of the Company and its consolidated Subsidiaries as of the Closing Date,
adjusted by adding thereto:
17
(A) the
Company Retention Bonus Amount, to the extent that the payment thereof or the
obligation to make such payment had the effect of reducing Current
Assets;
(B) the
Company Stay Bonus Amount, to the extent that the payment thereof or the
obligation to make such payment had the effect of reducing Current
Assets;
(C) the
Conexant Termination Payment Amount, to the extent that the payment thereof
or
the obligation to make such payment had the effect of reducing Current Assets;
and
(D) the
aggregate amount of Transaction Expenses actually paid by the Company and its
consolidated Subsidiaries on or prior to the Closing Date, to the extent that
the payment thereof or the obligation to make such payment had the effect of
reducing Current Assets.
(ii) “Closing
Working Capital Amount”
means:
(A) the Current Assets; plus
(B) to
the extent not otherwise included in Current Assets, Gross Property, Plant
and
Equipment; less
(C)
Current Liabilities. In the event of any conflict between what would have been
included in the foregoing components of the Closing Working Capital Amount
or
the Closing Date Balance Sheet under GAAP and the definitions set forth in
this
Section 1.7(i),
the
definitions set forth in this Section 1.7(i)
shall
control.
(iii) “Current
Assets”
means
the current assets of the Company and its consolidated Subsidiaries (including
cash (including Long Term Restricted Cash) and short-term investments) as of
the
Closing Date; provided,
however,
that
notwithstanding anything herein to the contrary:
(A) cash
received by the Company and its consolidated Subsidiaries since March 31, 2006
in exchange for the issuance by any of the Acquired Companies of credits for
the
future purchase of semiconductor wafers shall be deducted from Current Assets,
except for any such cash received in exchange for any such credits that are
used
prior to the Closing Date;
(B) cash
or
other proceeds received by the Company and its consolidated Subsidiaries from
the disposal of equipment in accordance with Section 1.7(f)(iii) shall be
deducted from Current Assets;
(C) cash
funded by Parent to the Company in connection with the Closing in respect of
the
Conexant Termination Payment Amount, the Company Retention Bonus Amount, the
Company Stay Bonus Amount, the Stockholders’ Representative Expense Amount or
any other matter shall be excluded from Current Assets;
(D) the
aggregate amount of Transaction Expenses actually paid by the Company and its
consolidated Subsidiaries on or prior to the Closing Date shall, to the extent
such payment had the effect of reducing Current Assets, be added back to Current
Assets; and
18
(E) Current
Assets shall exclude any asset or receivable established in respect of
California sales or use taxes receivable by the Company following the Closing
Date in respect of transactions occurring after March 31, 2005 and on or prior
to the Closing Date.
(iv) “Current
Liabilities”
means
the current liabilities of the Company and its consolidated Subsidiaries as
of
the Closing Date; provided,
however,
that
notwithstanding anything herein to the contrary:
(A) Current
Liabilities shall include the following amounts: (1) all unpaid indebtedness
of
the Company and its consolidated Subsidiaries as of the Closing Date for
borrowed money regardless of when due (other than indebtedness incurred by
the
Company or its consolidated Subsidiaries on the Closing Date in connection
with
the Merger or the other Contemplated Transactions); (2) to the extent the
Transaction Expenses exceed the Transaction Expenses taken into account in
calculating the Aggregate Closing Transaction Value, the amount of such excess
Transaction Expenses; and (3) all unpaid employer Taxes attributable to payment
of employee performance bonuses included in the Closing Quarter Bonus Accrual
(as defined below) or other payments due as of the Closing;
(B) Current
Liabilities shall exclude: (1) all undrawn letters of credit, (2) all credits
issued for cash and outstanding as of the Closing for the future purchase of
semiconductor wafers granted by the Company; and (3) any liability with respect
to the Stock Appreciation Rights outstanding as of the date hereof;
(C) the
“common stock subject to repurchase” current liability accrual shall be deducted
from Current Liabilities;
(D) the
Licensing Fee accruals pursuant to the Standard Cell Library Development &
License Agreement between Synopsys, Inc. and Newport Fab LLC dated May 31,
2006
and the DROM Library Development & License Agreement between Synopsys, Inc.
and Newport Fab LLC dated May 31, 2006 shall be deducted from Current
Liabilities;
(E) no
liability in respect of Transaction Expenses, the Company Retention Bonus
Amount, the Company Stay Bonus Amount and the Conexant Termination Payment
Amount, in each case to the extent taken into account in calculating the
Aggregate Closing Transaction Value shall be taken into account in calculating
Current Liabilities;
(F) the
amount of any accrual with respect to the IBM License Agreement (as defined
in
Section 4.2(a)(vi)) shall be an amount equal to $1,500,000 multiplied by a
fraction the numerator of which is the number of days from and after January
1,
2007 and through and including the Closing Date and the denominator of which
is
365;
(G) Current
Liabilities shall include an accrual (the “Closing
Quarter Bonus Accrual”)
calculated by multiplying the aggregate amount of employee performance bonuses
that are ultimately payable pursuant to the Company’s performance bonus plan (as
in effect as of the date hereof) for the calendar quarter in which the Closing
Date occurs multiplied by a fraction, the numerator of which is the total
earnings before interest, taxes, depreciation and amortization (“EBITDA”)
of the
Company and its consolidated Subsidiaries for the portion of such calendar
quarter prior to the Closing (but excluding the amount of any such bonuses)
and
the denominator of which is the total EBITDA of the Company and its consolidated
Subsidiaries for such calendar quarter (but excluding the amount of any such
bonuses). Notwithstanding anything to the contrary in this Agreement (including
Section 1.7(a)), the Estimated Closing Date Balance Sheet shall reflect the
Company’s good faith estimate of the Closing Quarter Bonus Accrual, calculated
in accordance with the provisions of this clause (G); and
19
(H) Current
Liabilities shall exclude any liability, accrual or reserve established for
the
payment of California sales or use taxes that are payable by the Company
following the Closing Date in respect of transactions occurring after March
31,
2005 and on or prior to the Closing Date.
(v) “Deferred
Closing Surplus Amount”
shall
mean an amount equal to the excess, if any, of (x) the Gross Closing Surplus
Amount over
(y) the
Surplus Cash Amount. If the Gross Closing Surplus Amount is not greater than
the
Surplus Cash Amount, the Deferred Closing Surplus Amount shall be zero. In
addition, notwithstanding the foregoing, if the Estimated Closing Amount is
not
greater than the Upper Threshold, the Deferred Closing Surplus Amount shall
also
be zero.
(vi) “Final
Closing Working Capital Amount”
shall
mean the Closing Working Capital Amount calculated on the basis of the Final
Closing Date Balance Sheet.
(vii) “Gross
Closing Surplus Amount”
shall
mean an amount equal to the lesser of (x) $4,500,000 plus $50,000 per day for
each day after March 31, 2007 through and including, the Closing Date or (y)
an
amount equal to the excess, if any, of (1) the Estimated Closing Amount over
(2)
the Target Amount. If the Estimated Closing Amount is not greater than the
Target Amount, the Gross Closing Surplus Amount shall be zero.
(viii) “Gross
Property, Plant and Equipment” means
the
gross property, plant and equipment of the Company and its consolidated
Subsidiaries as of the Closing Date.
(ix) “Interim
Period”
means,
in the case of a taxable year that begins before the Closing Date and ends
after
the Closing Date, the period from the beginning of such taxable year up to
and
including the Closing Date.
(x) “Long
Term Restricted Cash”
means
the long term restricted cash
of
the
Company
and its consolidated Subsidiaries as of the Closing Date.
(xi) “Lower
Threshold”
means
$193,000,000.
(xii) “Surplus
Cash Amount”
means
an amount equal to the excess, if any, of (1) the Adjusted Cash Amount over
(2)
$20,000,000. If the Adjusted Cash Amount does not exceed $20,000,000, the
Surplus Cash Amount shall be zero.
20
(xiii) “Target
Amount”
means
$195,500,000.
(xiv) “Upper
Threshold”
means
$198,000,000.
1.8 Additional
Purchase Price Adjustment.
(a) The
parties agree that following the Closing, in addition to any adjustment to
the
aggregate consideration payable in connection with the Merger pursuant to
Section 1.7,
the
aggregate consideration payable in connection with the Merger shall be subject
to increase as follows: if: (A) one or more HHNEC Recognition Events (as defined
in Section 1.8(c)(vi)) occurs with respect to Parent, the Surviving Corporation
or any Affiliate of Parent or the Surviving Corporation (collectively, the
“HHNEC
Entities”);
and
(B) the aggregate amount of the HHNEC Proceeds (as defined in Section
1.8(c)(v))
recognized by the HHNEC Entities from all such HHNEC Recognition Events exceeds
$10,000,000, Parent shall become obligated to pay (at the time or times set
forth in Section 1.8(b))
cash in
an amount equal to 50% of the excess of (1) the HHNEC Proceeds over (2)
$10,000,000 (any such payment that Parent becomes so obligated to make, an
“HHNEC
Payment”)
to the
Stockholders’ Representative for distribution to the Escrow Participants as
provided in Sections 1.5(a)(ii)(J),
1.5(a)(iii)(J)
and
1.6(a)(x)
(as
the case may be). Notwithstanding the foregoing: (x) in the case of an HHNEC
Recognition Event described in Section 1.8(c)(vi)(A)
or
Section 1.8(c)(vi)(B) or, to the extent Parent receives Freely-Tradable
Securities (as defined in Section 1.8(c)(iii)) as a result thereof, Section
1.8(c)(vi)(C) or Section 1.8(c)(vi)(D) below, Parent may (at its sole option)
make any HHNEC Payment required to be made hereunder as a result of such event
by distributing Freely-Tradable Securities to the Stockholder Representative
for
distribution to the Escrow Participants, such Freely-Tradable Securities to
be
valued for such purpose based on their Fair Market Value (as defined in Section
1.8(c)(ii) determined (in accordance with Section 1.8(c)(ii)(B)) on the date
that such Freely-Tradable Securities are delivered to the Stockholders’
Representative for distribution to the Escrow Participants; (y) in the case
of
an HHNEC Recognition Event described in Section 1.8(c)(vi)(A)
below,
Parent may (at its sole option) make any HHNEC Payment required to be made
hereunder as a result of such event by distributing the consideration received
by the HHNEC Entity with a Fair Market Value equal to the HHNEC Payments to
be
made in kind to the Stockholder Representative for distribution to the Escrow
Participants or, at the Stockholder Representative’s election, sale thereof and
distribution of the proceeds therefrom to the Escrow Participants; and (z)
in
the case of an event described in Section 1.8(c)(vi)(A)
below,
if the consideration described therein does not become Freely-Tradable
Securities within one year after the date of such event, Parent shall within
10
business days after the expiration of such one-year period make any HHNEC
Payment required to be made hereunder as a result of such event by distributing
the consideration received by the HHNEC Entity with a Fair Market Value equal
to
the HHNEC Payment to be made in kind to the Stockholder Representative for
distribution to the Escrow Participants or, at the Stockholder Representative’s
election, sale thereof and distribution of the proceeds therefrom to the Escrow
Participants. Notwithstanding any of the foregoing, if the aggregate amount
of
HHNEC Proceeds is less than or equal to $10,000,000, Parent shall have no
payment obligation pursuant to this Section 1.8. Any payment of HHNEC Payments
to the Stockholders’ Representative for distribution to the Escrow Participants
pursuant to this Section 1.8 will be deemed to have been paid in full
satisfaction of the rights of such Escrow Participants to receive such HHNEC
Payments under Sections 1.5(a)(ii)(H),
1.5(a)(iii)(H) and 1.6(a)(viii),
respectively.
21
(b) Parent
shall become obligated to make any required HHNEC Payment arising from an HHNEC
Recognition Event to the Escrow Participants as follows:
(i) if
such
HHNEC Recognition Event is the receipt of a cash distribution (other than a
liquidating distribution) by an HHNEC Entity from HHNEC, Parent shall make
any
required HHNEC Payment arising from such HHNEC Recognition Event on the earlier
of (A) the next anniversary of the Closing Date that occurs more than one month
following such HHNEC Recognition Event, or (B) 10 business days following the
date on which the unpaid amount of HHNEC Payments that Parent is obligated
to
pay with respect to all HHNEC Recognition Events described in this clause “(i)”
equals or exceeds $500,000; and
(ii) except
as
provided in clause “(i)” above, Parent shall make any required HHNEC Payment
arising from such HHNEC Recognition Event within 10 business days following
the
date of such HHNEC Recognition Event.
(c) For
purposes of this Agreement:
(i) “Closing
Price”
means
in the case of securities that are of a class that are traded on a national
securities exchange or quoted on a recognized over-the-counter market on any
date, the closing per share sale price (or, if no closing sale price is
reported, the average of the bid and ask prices or, if more than one in either
case, the average of the average bid and average ask prices) on such date as
is
reported in composite transactions for such national securities exchange or
reported for such over-the-counter market.
(ii) “Fair
Market Value”
means:
(A) with
respect to notes or debt, the amount of such notes or debt at face
value;
(B) with
respect to securities that are of a class that are traded on a national
securities exchange or quoted on a recognized over-the-counter market, or any
security that is convertible by its terms into such securities, the Fair Market
Value shall be determined based on the average Closing Price of such securities
for the 20 consecutive Trading Days ending on the Trading Day immediately
preceding the date of such determination, subject to adjustment to reflect
any
stock split, reverse stock split, stock dividend, recapitalization or other
similar transaction effected or declared, or with respect to which a record
date
occurs, during such period; and
(C)
with
respect to all other securities, property or assets, an amount that a willing
buyer would pay a willing seller for such securities (without regard to any
restrictions on transfer imposed thereon and without application of any premium
or discount as a result of control or lack thereof), property or assets, as
reasonably agreed upon by Parent and the Stockholders’ Representative or, if no
agreement can be reached, as determined by an independent
appraiser.
(iii) “Freely-Tradable
Securities”
means
equity interests of HHNEC that are listed for trading or quotation on any
national stock market or quotation system or any international stock market
or
quotation system and for which a reasonably liquid market for trading exists
and, upon acquisition by the Stockholders’ Representative, will not be, subject
to (1) any contractual restrictions on transfer or (2) restrictions on transfer
imposed by applicable Legal Requirements or stock exchange rule.
22
(iv) “HHNEC”
means
Shanghai Hua Hong NEC Electronics Co., Ltd.
(v) “HHNEC
Proceeds”
means:
(A) in
the
case of an HHNEC Recognition Event described in Section 1.8(c)(vi)(A)
below,
the product of the number of Freely-Tradable Securities described therein and
the initial public offering price of common stock of HHNEC in the initial public
offering described therein;
(B) in
the
case of an HHNEC Recognition Event described in Section 1.8(c)(vi)(B)
below,
the Fair Market Value of the Freely-Tradable Securities described therein on
the
date that such shares become Freely-Tradable Securities;
(C) in
the
case of an HHNEC Recognition Event described in Section 1.8(c)(vi)(C)
or
Section 1.8(c)(vi)(D)
below,
the Fair Market Value of proceeds described therein; and
(D) in
the
case of an HHNEC Recognition Event described in Section 1.8(c)(vi)(C)
below,
(x) if the HHNEC Recognition Event is the event described in Section
1.8(c)(vi)(C)(1),
the
Fair Market Value of the Freely-Tradable Securities described therein and (y)
if
the HHNEC Recognition Event is the event described in Section 1.8(c)(vi)(C)(2),
the
Fair Market Value of the consideration described therein.
(vi) “HHNEC
Recognition Event”
means
any of the following:
(A) in
the
case of an initial public offering by HHNEC that closes during the three-year
period following the Closing Date and in which some or all of the shares of
common stock of HHNEC held by HHNEC Entities are Freely-Tradable
Securities immediately
following such closing, the closing of such initial public offering, but only
with respect to such Freely-Tradable Securities (provided that solely for
purposes of determining whether an HHNEC Recognition Event has occurred pursuant
to this subsection (A), to the extent that shares of common stock of HHNEC
held
by an HHNEC Entity that are not otherwise Freely-Tradable Securities would
have
been Freely-Tradable Securities following the closing of an initial public
offering by HHNEC that closes during the three-year period following the Closing
Date, but for the fact that such HHNEC Entity has agreed to restrictions on
transfer that are broader in scope than restrictions on transfer agreed to
by a
majority in interest of the other major equity holders of HHNEC, such shares
shall be deemed to be Freely-Tradable Securities);
(B) in
the
case of an initial public offering by HHNEC that closes during the three-year
period following the Closing Date and in which some or all of the shares of
common stock of HHNEC held by HHNEC Entities are not Freely-Tradable
Securities
immediately following such closing, the date following such closing when any
of
such shares first become Freely-Tradable
Securities
(even if
such date is after the expiration of the three-year period following the Closing
Date), but only with respect to the shares that become Freely-Tradable
Securities
on such
date (provided that solely for purposes of determining whether an HHNEC
Recognition Event has occurred pursuant to this subsection (B), to the extent
that shares of common stock of HHNEC held by an HHNEC Entity that are not
otherwise Freely-Tradable Securities would have been Freely-Tradable Securities
following the closing of an initial public offering by HHNEC that closes during
the three-year period following the Closing Date, but for the fact that such
HHNEC Entity has agreed to restrictions on transfer that are broader in scope
than restrictions on transfer agreed to by a majority in interest of the other
major equity holders of HHNEC, such shares shall be deemed to be Freely-Tradable
Securities);
23
(C) the
receipt of proceeds in the form of cash or Freely-Tradable Securities by an
HHNEC Entity from a sale or other disposition by such HHNEC Entity of equity
securities of HHNEC, whether by way of direct sale of such securities, a merger
involving HHNEC or otherwise that closes during the three-year period following
the Closing Date;
(D) the
receipt of cash or Freely-Tradable Securities by an HHNEC Entity that holds
equity securities of HHNEC as a dividend or distribution to such HHNEC Entity
from HHNEC in respect of such HHNEC Entity’s ownership interest in HHNEC, but
only where the record date for such dividend or distribution occurred during
the
three-year period following the Closing Date; and
(E) in
the
case of either (x) the sale or other disposition by an HHNEC Entity of equity
securities of HHNEC for consideration other than cash or Freely-Tradable
Securities, whether by way of direct sale of such securities, a merger involving
HHNEC or otherwise, or (y) the receipt of consideration other than cash or
Freely-Tradable Securities as a dividend or distribution to such HHNEC Entity
from HHNEC in respect of such HHNEC Entity’s ownership interest in HHNEC, but
only where the record date for such dividend or distribution occurred during
the
three-year period following the Closing Date, the earlier of (1) the date (if
any) on which such consideration becomes Freely-Tradable Securities, or (2)
the
date one year from the date of such event.
(vii) “Market
Disruption Event”
means
the occurrence or existence for more than one two-hour period in the aggregate
on any scheduled Trading Day of any suspension or limitation imposed on trading
of a security or in any options, contracts or future contracts relating to
the
such security, and such suspension or limitation occurs or exists at any time
before three hours prior to the scheduled closing time for regular trading
on
such day.
(viii) “Trading
Day”
means
any day on which (i) there is no Market Disruption Event and (ii) national
securities exchange or over-the-counter market on which the a security is
listed, admitted for trading or quoted, is open for trading. A “Trading Day”
only includes those days that have a scheduled closing time of the then standard
closing time for regular trading on the relevant trading system.
1.9 Closing
of the Company’s Transfer Books.
At
the
Effective Time, holders of certificates representing shares of Company Capital
Stock that were outstanding immediately prior to the Effective Time shall cease
to have any rights as stockholders of the Company, and the stock transfer books
of the Company shall be closed with respect to all shares of such Company
Capital Stock outstanding immediately prior to the Effective Time. No further
transfer of any such outstanding shares of Company Capital Stock shall be made
on such stock transfer books after the Effective Time. If, after the Effective
Time, a valid certificate previously representing any shares of Company Capital
Stock (a “Company
Stock Certificate”)
is
presented to the Payment Agent (as defined in Section 1.10),
the
Surviving Corporation or Parent, such Company Stock Certificate shall be
canceled and shall be exchanged as provided in Section 1.10.
24
1.10 Exchange
of Certificates.
(a) On
or
prior to the Closing Date, Parent shall select a reputable bank or trust company
to act as payment agent in the Merger (the “Payment
Agent”).
Immediately after the Closing but prior to the Effective Time, Parent shall
deposit with the Payment Agent cash sufficient to pay the cash consideration
payable to Escrow Participants and former holders of In-the-Money Company
Options pursuant to Sections 1.5(a)(ii)(A), 1.5(a)(iii)(A) and 1.6(a)(i),
respectively (less the sum of the Working Capital Adjustment Escrow Contribution
Amount and the Indemnity Escrow Contribution Amount). The cash amount so
deposited with the Payment Agent is referred to as the “Payment
Fund.”
The
Payment Agent will invest the funds included in the Payment Fund in the manner
directed by Parent. Any interest or other income resulting from the investment
of such funds shall be the property of, and will be paid promptly to,
Parent.
(b) Upon
deposit by Parent (i) with the Payment Agent of the amounts to be deposited
into
the Payment Fund pursuant to Section 1.10(a), (ii) with the Escrow Agent of
the
Indemnity Escrow Contribution Amount, (iii) with the Escrow Agent of the Working
Capital Adjustment Escrow Contribution Amount and (iv) with the Stockholders’
Representative of the Stockholders’ Representative Expense Amount, Parent shall
be deemed to have satisfied its obligations to make payments in respect of
the
Merger, other than (A) the obligation of Parent to make payments required by
Sections 1.7 and 1.8 and (B) the obligation, if any, of Parent to make payments
in respect of Dissenting Shares pursuant to Section 1.11 following the Effective
Time.
(c) With
respect to the Key Stockholders, within three business days prior to the
Effective Time, and with respect to all other Stockholders, promptly after
the
Effective Time, Parent will deliver or cause the Payment Agent to deliver to
the
holders of Company Stock Certificates: (i) a letter of transmittal (a
“Letter
of Transmittal”)
containing such provisions as Parent and the Payment Agent may reasonably
specify (including a provision confirming that delivery of Company Stock
Certificates shall be effected, and risk of loss and title to Company Stock
Certificates shall pass, only upon delivery of such Company Stock Certificates
to the Payment Agent and a provision providing for the consent of the holder
of
such Company Stock Certificate to the appointment of the Stockholders’
Representative as provided for in this Agreement; (ii) an IRS Form W-9 or Form
W-8BEN; and (iii) instructions for use in effecting the surrender of Company
Stock Certificates.
(d) As
promptly as practicable following surrender of a Company Stock Certificate
to
the Payment Agent for exchange, together with a duly executed Letter of
Transmittal and such other documents as may be reasonably required by Parent
or
the Payment Agent, the holder of such Company Stock Certificate shall be
entitled to receive in exchange therefor the consideration that such holder
has
the right to receive pursuant to and subject to the provisions of this Section
1.5(a)(ii) or Section 1.5(a)(iii), as applicable, and the Company Stock
Certificate so surrendered shall be canceled. To the extent the Payment Agent
receives such documents executed by any such holder, together with the Company
Stock Certificates held by such holder, Parent shall cause the Payment Agent
to
deliver the consideration that such holder has the right to receive pursuant
to
the provisions of Section 1.5(a)(ii) or Section 1.5(a)(iii), as applicable,
on
the day that includes the Effective Time or as soon as practicable thereafter,
by wire transfer of cash in immediately available funds, to a bank account
designated by such holder in such Letter of Transmittal. If any consideration
is
to be paid to a Person other than the Person in whose name the Company Stock
Certificate surrendered is registered, it shall be a condition of such payment
that the Company Stock Certificate so surrendered shall be properly endorsed
(with such signature guarantees as may be required by the letter of transmittal)
or otherwise in proper form for transfer, and that the Person requesting payment
shall: (A) pay to the Payment Agent any transfer or other Taxes required by
reason of such payment to a Person other than the registered holder of the
Company Stock Certificate surrendered; or (B) establish to the satisfaction
of
Parent that such Tax has been paid or is not required to be paid. Until
surrendered as contemplated by this Section 1.10, each Company Stock Certificate
shall be deemed, from and after the Effective Time, to represent only the right
to receive the consideration that the holder thereof has the right to receive
pursuant to the provisions of this Section 1 upon such surrender. If any Company
Stock Certificate shall have been lost, stolen or destroyed, Parent may, in
its
discretion and as a condition precedent to the payment of any consideration
with
respect to the shares of Company Capital Stock previously represented by such
Company Stock Certificate, require the owner of such lost, stolen or destroyed
Company Stock Certificate to provide an appropriate affidavit and to deliver
a
bond (in such sum as Parent or the Payment Agent may reasonably direct) as
indemnity against any claim that may be made against the Payment Agent, Parent,
the Surviving Corporation or any affiliated party with respect to such Company
Stock Certificate. No interest will be paid or will accrue on any consideration
payable upon the surrender of any Company Stock Certificate.
25
(e) Promptly
after the Effective Time, Parent shall cause the Payment Agent to mail to each
holder of an In-the-Money Company Option that is outstanding and unexercised
immediately prior to the Effective Time: (i) a Letter of Transmittal, including
a provision providing for the consent of the holder of such In-the-Money Company
Option to the appointment of the Stockholders’ Representative as provided for in
this Agreement; (ii) an IRS Form W-9 or Form W-8BEN; and (iii) instructions
for
use in effecting the surrender of such In-the-Money Company Option in exchange
for the consideration payable with respect to such In-the-Money Company Option
set forth in Section 1.6. Upon surrender of an In-the-Money Company Option
for
cancellation to the Payment Agent, together with a duly executed Letter of
Transmittal and such other documents as Parent or the Payment Agent may
reasonably request, the holder of such In-the-Money Company Option shall be
entitled to receive in exchange therefore the consideration payable with respect
to such In-the-Money Company Option pursuant to and subject to Section 1.6,
and
such In-the-Money Company Option so surrendered shall forthwith be cancelled.
No
interest will be paid or will accrue on the consideration payable upon the
surrender of any In-the-Money Company Option.
(f) The
aggregate amount of cash that each Person is entitled to receive pursuant to
this Section 1 for the shares of Company Capital Stock and shares of
In-the-Money Company Common Stock subject to In-the-Money Company Options held
by such Person shall be rounded to the nearest cent.
26
(g) Parent
and the Surviving Corporation shall be entitled to deduct and withhold from
any
consideration payable pursuant to this Agreement to any holder or former holder
of Company Capital Stock or In-the-Money Company Options such amounts as are
required to be deducted or withheld therefrom under the Code or under any other
Legal Requirement. To the extent such amounts are so deducted or withheld,
such
amounts shall be treated for all purposes under this Agreement as having been
paid to the Person to whom such amounts would otherwise have been
paid.
(h) Any
portion of the Payment Fund that remains undistributed to former holders of
Company Capital Stock or In-the-Money Company Options as of the date 180 days
after the Closing Date shall be delivered to Parent upon demand, and any holders
of Company Stock Certificates or In-the-Money Company Options who have not
theretofore surrendered their Company Stock Certificates or In-the-Money Company
Options in accordance with this Section 1.10 shall thereafter look only to
Parent for satisfaction of their claims for their portion of the Payment Fund,
without any interest thereon.
(i) Notwithstanding
anything in this Agreement to the contrary, neither Parent nor the Surviving
Corporation shall have any liability to any holder or former holder of Company
Capital Stock or In-the-Money Company Options or any other Person for any
consideration delivered to any public official in good faith pursuant to any
applicable abandoned property law, escheat law or similar Legal Requirement.
Any
amounts remaining unclaimed by former holders of Company Capital Stock or
In-the-Money Company Options three years after the Effective Time (or such
earlier date immediately prior to such time as such amounts would otherwise
escheat to or become property of any Governmental Body) shall, to the extent
permitted by applicable Legal Requirements, become the property of Parent free
and clear of any Encumbrance.
1.11 Dissenting
Shares.
(a) Notwithstanding
anything to the contrary contained in this Agreement, shares of Company Capital
Stock held by a holder who has not voted in favor of or consented to the Merger
and complies with Section 262 and all other provisions of the DGCL concerning
the right of holders of shares of stock to require appraisal of their shares
(“Dissenting
Shares”)
shall
not be converted into or represent the right to receive any consideration in
accordance with Section 1.5,
but
shall be entitled only to such rights as are granted by the DGCL to a holder
of
Dissenting Shares.
(b) If
any
Dissenting Shares shall lose their status as such (through failure to perfect
or
otherwise), then, as of the later of the Effective Time or the date of loss
of
such status, such shares of Company Capital Stock shall automatically be
converted into and shall represent only the right to receive the consideration
that the holder of such shares would have been entitled to receive pursuant
to
Section 1.5(a)(ii) or Section 1.5(a)(iii), as applicable (at the time or times
that such consideration is required to be paid hereunder), in exchange for
such
shares in accordance with Section 1.5(a)(ii) or Section 1.5(a)(iii), as
applicable, without interest thereon, upon surrender of the Company Stock
Certificate representing such shares.
27
(c) The
Company shall give Parent: (i) prompt notice of any written demand for appraisal
received by the Company prior to the Effective Time pursuant to the DGCL, any
withdrawal of any such demand and any other demand, notice or instrument
delivered to the Company prior to the Effective Time pursuant to the DGCL;
and
(ii) the opportunity to participate in all negotiations and proceedings with
respect to any such demand, notice or instrument.
1.12 Further
Action.
If, at
any time after the Effective Time, any further action is reasonably determined
by Parent to be necessary or desirable to carry out the purposes of this
Agreement or to vest the Surviving Corporation or Parent with full right, title
and possession of and to all rights and property of Merger Sub and the Company,
the officers and directors of the Surviving Corporation and Parent shall be
fully authorized (in the name of Merger Sub, in the name of the Company and
otherwise) to take such action.
SECTION
2. REPRESENTATIONS
AND WARRANTIES OF THE COMPANY
The
Company represents and warrants, to and for the benefit of the Indemnitees,
that
each statement set forth in each of the Sections (2.1 through 2.25) included
in
this Section 2 (each such statement being a “representation and warranty” of the
Company) is accurate and complete, except as provided in the part of the
Disclosure Schedule corresponding to the particular Section in this Section
2 in
which such representation and warranty appears (provided that a listing in
one
part of the Disclosure Schedule shall be deemed to be a listing under another
part of the Disclosure Schedule to the extent it is reasonably apparent from
a
reading of such disclosure item that it would also qualify or apply to such
other part).
2.1 Subsidiaries;
Due Organization; Etc.
(a) The
Company has no Subsidiaries, except for the Entities identified in Part
2.1(a)(i) of the Disclosure Schedule; and neither the Company nor any of the
Subsidiaries identified in Part 2.1(a)(i) of the Disclosure Schedule owns,
beneficially or otherwise, any capital stock or other securities of, or any
direct or indirect equity interest of any nature in, any other Entity, other
than the Entities identified in Part 2.1(a)(ii) of the Disclosure Schedule.
None
of the Acquired Companies has agreed or is obligated to make, or is a party
to
any Contract under which it may become obligated to make, any future investment
in or capital contribution to any other Entity. Except as set forth in Part
2.1(a)(iii) of the Disclosure Schedule, none of the Acquired Companies has,
at
any time, been a general partner of, or has been responsible or liable for
any
of the debts or other obligations of, any Entity other than another Acquired
Company.
(b) Each
of
the Acquired Companies is a corporation or limited liability company, as
applicable, duly organized, validly existing and in good standing (with respect
to jurisdictions that recognize such concept) under the laws of the jurisdiction
of its organization (which jurisdiction is set forth in Part 2.1(b) of the
Disclosure Schedule). Each of the Acquired Companies has all necessary power
and
authority: (i) to conduct its business in the manner in which its business
is
currently being conducted; (ii) to own and use its assets in the manner in
which
its assets are currently owned and used; and (iii) to perform its obligations
under all Acquired Company Contracts.
28
(c) None
of
the Acquired Companies is required to be qualified, authorized, registered
or
licensed to do business as a foreign corporation in any jurisdiction other
than
the jurisdictions identified in Part 2.1(c) of the Disclosure Schedule, except
for those U.S. jurisdictions where the failure to be so qualified, authorized,
registered or licensed, individually or in the aggregate, would not have a
Material Adverse Effect. Each Acquired Company is in good standing as foreign
corporations or limited liability companies, as applicable, in each of the
jurisdictions identified with respect to such Acquired Company in Part 2.1(c)
of
the Disclosure Schedule.
(d) Except
as
set forth in Part 2.1(d) of the Disclosure Schedule, none of the Acquired
Companies has conducted any business under or otherwise used, for any purpose
or
in any jurisdiction, any fictitious name, assumed name, trade name or other
name, other than the name “Jazz Semiconductor” and the names set forth in Part
2.1(a)(i) of the Disclosure
Schedule.
2.2 Organizational
Documents; Records.
The
Company has delivered or made available to Parent or its Representatives
accurate and complete copies of: (a) the certificate of incorporation and bylaws
or certificate of formation and limited liability company operating agreement,
as applicable, and other charter and organizational documents of each Acquired
Company, including all amendments thereto (with respect to each Acquired
Company, such Acquired Company’s “Organizational
Documents”);
(b)
the
stock or other equity records of each Acquired Company; and
(c)
except as set forth in Part 2.2 of the Disclosure Schedule,
the
minutes and other records of the meetings at which formal actions were taken
or
any actions taken by written consent without a meeting of the stockholders
or
members, as applicable, of each Acquired Company, the board of directors or
similar governing body of each Acquired Company and all committees of the board
of directors or similar governing body of each Acquired Company, it being
understood and agreed that such minutes and other records may not include all
matters discussed at such meeting or relate to all meetings at which no formal
action was taken. Except as set forth in Part 2.2 of the Disclosure Schedule,
the stock or other equity records of the Acquired Companies are accurate,
up-to-date and complete in all material respects.
2.3 Capitalization,
Etc.
(a) The
authorized capital stock of the Company consists of: (i) 55,000,000 shares
of
Class A Common Stock, of which no shares have been issued and are outstanding
as
of the date of this Agreement; (ii) 200,000,000 shares of Class B Common Stock,
of which 12,357,574 shares have been issued and are outstanding as of the date
of this Agreement; and (iii) 200,000,000 shares of Company Preferred Stock,
of
which 55,000,000 are designated as Series A Preferred Stock, all of which have
been issued and are outstanding as of the date of this Agreement, and 58,071,888
are designated as Series B Preferred Stock, of which 57,981,888 shares have
been
issued and are outstanding as of the date of this Agreement. Part 2.3(a)(i)
of
the Disclosure Schedule identifies, as of the date of this Agreement, each
Stockholder and the number of shares of each class of Company Capital Stock
held
by such Stockholder. All of the outstanding shares of Company Capital Stock
have
been duly authorized and validly issued, and are fully paid and nonassessable.
Except as set forth in Part 2.3(a)(ii) of the Disclosure Schedule: (i) none
of
the outstanding shares of Company Capital Stock is entitled or subject to any
preemptive right or right of participation; (ii) none of the outstanding shares
of Company Capital Stock is subject to any right of first refusal or similar
right in favor of the Company; and (iii) there is no Acquired Company Contract
relating to the voting or registration of, or restricting any Person from
purchasing, selling, pledging or otherwise disposing of (or granting any option
or similar right with respect to), any shares of Company Capital Stock. Part
2.3(a)(iii) of the Disclosure Schedule provides an accurate and complete
description of the terms of each repurchase option which is held by the Company
and to which any of the outstanding shares of Company Capital Stock outstanding
as of the date of this Agreement is subject.
29
(b) As
of the
date of this Agreement, the Company has reserved 17,647,000 shares of Company
Common Stock for issuance under the Company Option Plan, of which 10,618,663
shares of Company Common Stock are subject to issuance pursuant to outstanding
Company Options, 4,544,046 shares of the Company Common Stock have been issued
and not repurchased by the Company pursuant to Company Options, and 2,554,291
shares of Company Common Stock are available for future issuance. Part 2.3(b)(i)
of the Disclosure Schedule accurately sets forth with respect to each Company
Option outstanding as of the date of this Agreement: (i) the name of the
holder, (ii) the exercise price per share of Company Common Stock purchasable
under such Company Option, and (iii) the total number of Company Common
Shares subject to such Company Option. Except as set forth in Part 2.3(b)(ii)
of
the Disclosure Schedule, no Company Option is held by a Person residing or
domiciled outside of the United States. All outstanding Company Options were
granted pursuant to the terms of the Company Option Plan.
(c) As
of the
date of this Agreement, 2,036,846 Stock Appreciation Rights are outstanding,
all
of which are vested. Part 2.3(c)(i) of the Disclosure Schedule accurately sets
forth with respect to each Stock Appreciation Right outstanding as of the date
of this Agreement: (i) the name of the holder, (ii) the reference
price, (iii) the expiration date and (iv) the security and number of
shares underlying such Stock Appreciation Right. Except as set forth in Part
2.3(c)(ii) of the Disclosure Schedule, no Stock Appreciation Right is held
by a
Person residing or domiciled outside of the United States. All outstanding
Stock
Appreciation Rights were granted pursuant to the terms of the Company Stock
Appreciation Rights Plan.
(d) Except
as
set forth in Parts 2.3(b) and (c) of the Disclosure Schedule, there is no:
(i)
outstanding subscription, option, call, warrant or stock appreciation right
or
other right (whether or not currently exercisable) to acquire any shares of
the
capital stock or other securities of any of the Acquired Companies; (ii)
outstanding security, instrument or obligation that is or may become convertible
into or exchangeable for any shares of the capital stock or other securities
of
any of the Acquired Companies; (iii) Contract under which any of the Acquired
Companies is or may become obligated to sell or otherwise issue any shares
of
its capital stock or any other securities; or
(iv)
to the
Knowledge of the Company, condition or circumstance that may give rise to or
provide a basis for the assertion of a claim by any Person to the effect that
such Person is entitled to acquire or receive any Company Capital Stock or
other
securities of the Company.
30
(e) All
outstanding membership interests, shares of capital stock, options, warrants,
stock appreciation rights and other securities or equity interests of the
Acquired Companies have been issued and granted in compliance in all material
respects with all applicable securities laws and other applicable Legal
Requirements.
(f) All
of
the outstanding membership interests or other equity interests of each of the
Company’s Subsidiaries: (i) have been duly authorized and validly issued,
(ii) are nonassessable and free of preemptive rights, with no obligation to
contribute additional capital, and (iii) except as set forth in Part 2.3(f)
of
the Disclosure Schedule, are owned beneficially and of record by the
Company, free and clear of any Encumbrances (other than Permitted
Encumbrances).
(g) Except
as
set forth in Part 2.3(g) of the Disclosure Schedule, none of the Acquired
Companies has ever repurchased, redeemed or otherwise reacquired any shares
of
Company Capital Stock or other securities of any Acquired Company, other than
(i) the forfeiture of Company Options by Acquired Company Employees in
connection with the termination of an Acquired Company Employee’s employment
with an Acquired Company or (ii) the repurchase of unvested Company Common
Stock
issued pursuant to early exercise of a Company Option in connection with the
termination of an Acquired Company Employee’s employment with an Acquired
Company. All securities so reacquired by the Company or any other Acquired
Company were reacquired in compliance with (i) all applicable Legal
Requirements, and (ii) all requirements set forth in applicable restricted
stock
purchase agreements and other applicable Contracts.
(h) Notwithstanding
anything to the contrary set forth in this Section 2.3, Parent acknowledges
and
agrees that no inaccuracy in any of the statements set forth in this Section
2.3
shall constitute an inaccuracy or breach of the representations or warranties
set forth in this Section 2.3 as of the date of this Agreement to the extent
that such inaccuracy arises solely out of the exercise of a Company Stock Option
or Stock Appreciation Right or the conversion of Company Preferred Stock into
Company Common Stock during the five-day period ending on the date of this
Agreement.
2.4 Financial
Statements; Financial Controls.
(a) The
Company has delivered to Parent or its Representatives the following financial
statements and notes (collectively, the “Company
Financial Statements”):
(i)
the audited consolidated balance sheets of the Company and its consolidated
Subsidiaries as of December 26, 2003, December 31, 2004 and December 30, 2005,
and the related audited consolidated statements of income, statements of
stockholders’ equity and statements of cash flows of the Company and its
consolidated Subsidiaries for the years then ended, together with the notes
thereto and the reports and opinions of Ernst & Young LLP relating thereto;
and (ii) the unaudited consolidated balance sheet of the Company and its
consolidated Subsidiaries as of March 31, 2006 (the “Unaudited
Interim Balance Sheet”),
and
the related unaudited consolidated statement of income, statement of
stockholders’ equity and statement of cash flows of the Company and its
consolidated Subsidiaries for the three months then ended, together with the
notes thereto.
31
(b) The
Company Financial Statements present fairly in all material respects the
financial position of the Company and its consolidated Subsidiaries as of the
respective dates thereof and the results of operations and cash flows of the
Company and its consolidated Subsidiaries for the periods covered thereby.
The
Company Financial Statements have been prepared in accordance with GAAP
consistently applied throughout the periods covered (except as otherwise stated
in the applicable footnotes or report of Ernst & Young and except that the
financial statements referred to in Section 2.4(a)(ii) are subject to normal
and
recurring year-end audit adjustments, which will not individually or in the
aggregate, be material in magnitude and such financial statements will lack
footnotes and other presentation items).
(c) The
financial statements to be delivered pursuant to Section 4.1(c)(ii) and that
are
included in the definitive Proxy Statement or any preliminary draft thereof
that
is filed with the SEC will present fairly in all material respects the financial
position of the Company and its consolidated Subsidiaries as of the respective
dates thereof and the results of operations and cash flows of the Company and
its consolidated Subsidiaries for the periods covered thereby, and will be
prepared in accordance with GAAP consistently applied throughout the periods
covered (except that, in the case of unaudited financial statements, such
financial statements are subject to normal and recurring year-end audit
adjustments, which will not individually or in the aggregate, be material in
magnitude and, in the case of unaudited financial statements, such financial
statements will lack footnotes and other presentation items).
(d) None
of
the Acquired Companies has ever effected or maintained any “off-balance sheet
arrangement” (as defined in Item 303(c) of Regulation S-K of the
SEC).
(e) Each
of
the Acquired Companies maintains adequate internal accounting controls that
are
reasonably designed to ensure that: (i) transactions are executed with
management's general or specific authorization; (ii) transactions are recorded
as necessary to permit preparation of the consolidated financial statements
of
the Company and its consolidated Subsidiaries and to maintain accountability
for
the assets of the Acquired Companies; (iii) access to the assets of the Acquired
Companies is permitted only in accordance with management's general or specific
authorization; and (iv) accounts, notes and other receivables are recorded
accurately and appropriate action is taken with respect to any
differences.
2.5 Absence
of Changes.
Except
as set forth in Part 2.5 of the Disclosure Schedule, from March 31, 2006 to
the
date of this Agreement:
(a) there
has
not been any Material Adverse Effect;
(b) there
has
not been any material loss, damage or destruction to, or any material
interruption in the use of, any of the fixed assets of any of the Acquired
Companies (whether or not covered by insurance);
(c) the
Company has not declared, accrued, set aside or paid any dividend or made any
other distribution in respect of any shares of Company Capital Stock, and has
not repurchased, redeemed or otherwise reacquired any shares of Company Capital
Stock or other securities, except upon the exercise of a repurchase right in
favor of the Company arising under a Company Stock Option that was previously
exercised;
32
(d) there
has
been no amendment to any of the Acquired Companies’ Organizational Documents,
and no Acquired Company has effected or been a party to (other than as a
stockholder) any recapitalization, reclassification of shares, stock split,
reverse stock split or similar transaction;
(e) none
of
the Acquired Companies has acquired any equity interest or voting interest
in
any Entity (other than a Subsidiary disclosed in Part 2.1(a)(1) of the
Disclosure Schedule);
(f) none
of
the Acquired Companies has made any capital expenditure which, when added to
all
other capital expenditures made on behalf of the Acquired Companies since April
1, 2006, exceeds an aggregate of $6.7 million through June 30, 2006, and $26.8
million through September 29, 2006;
(g) none
of
the Acquired Companies has (i) acquired any asset for a purchase price exceeding
$250,000 or assets for an aggregate purchase price exceeding $1,000,000 (other
than the acquisition of raw materials or supplies in the ordinary course of
business consistent with past practice and the acquisition of capital assets
subject to subclause (h) above), (ii) sold or otherwise disposed of any asset
(other than the sale of finished goods inventory in the ordinary course of
business, scrapped inventory and the disposal of obsolete equipment consistent
with past practice), or (iii) entered into a license or lease for any asset
involving the payment by an Acquired Company of, or the receipt by an Acquired
Company of, payments greater than $100,000 in any twelve month period or
$250,000 over the term of the license or lease (other than the Lease Agreements
disclosed in Part 2.8(b) of the Disclosure Schedule);
(h) none
of
the Acquired Companies has written off as uncollectible, or established any
extraordinary reserve with respect to, any account receivable or other
indebtedness in an amount that is individually greater than $50,000 or in the
aggregate greater than $250,000;
(i) except
as
set forth in Part 2.5(i) of the Disclosure Schedule, none of the Acquired
Companies has made any pledge of any of its assets or otherwise permitted any
of
its assets to become subject to any Encumbrance, except for Permitted
Encumbrances;
(j) none
of
the Acquired Companies has (i) lent money to any Person (other than advances
made to employees, directors or agents for business expenses and loans made
to
employees to acquire Company Common Stock upon exercise of Company Options,
each
in the ordinary course of business and consistent with past practice), or (ii)
incurred or guaranteed any indebtedness for borrowed money involving more than
$500,000 in the aggregate, that has not been repaid, except for borrowings
and/or issuances of letters of credit under the Loan and Security Agreement
with
Wachovia Capital Finance Corporation (Western);
(k) none
of
the Acquired Companies has (i) established or adopted any Acquired Company
Employee Plan or Acquired Company Pension Plan, (ii) paid any bonus or made
any
profit sharing or similar payment to, or increased the amount of the wages,
salary, commissions, fringe benefits or other compensation or remuneration
payable to, any of its directors, officers or employees (other than payments
or
increases required pursuant to the Labor Agreement, any Acquired Company
Employee Benefit Plan or any Acquired Company Employment Agreement as in effect
on the date hereof and salary increases and bonus payments for non-executive
employees in the ordinary course of business consistent with past practice
both
in terms of timing and amount), or (iii) hired any new officer or any new
employee whose annual base compensation is greater than $100,000;
33
(l) none
of
the Acquired Companies has changed any of its methods of accounting or
accounting practices in any material respect, except as required by
GAAP;
(m) none
of
the Acquired Companies has made any material Tax election;
(n) none
of
the Acquired Companies has commenced or settled any Legal Proceeding
(i) involving damages for greater than $250,000, (ii) involving the
payment of more than $250,000, or (iii) seeking specific performance or
injunctive relief; and
(o) the
Company has not agreed or committed to take any of the actions referred to
in
clauses “(c)” through “(n)” above.
2.6 Assets. Except
as
set forth on Part 2.6 of the Disclosure Schedule, the Acquired Companies own
and
have good, valid and marketable title to, or in the case of assets purported
to
be leased by the Acquired Companies, lease and have valid leasehold interests
in, all material assets necessary for the conduct of the business of the
Acquired Companies as it is currently conducted. Without limiting the generality
of the foregoing, except as set forth on Part 2.6 of the Disclosure Schedule
or
permitted by Section 4.2(b)(x), the Acquired Companies own (i) all of the assets
listed in Section II of that certain valuation report and appraisal, having
an
effective date as of March 1, 2006 and performed for the Company by Emerald
Technology Valuations LLC (the “Valuation Report”) and (ii) all assets of a type
that would have been included in the Valuation Report if it had an effective
date as of the date hereof that were acquired by any Acquired Companies after
the effective date of the Valuation Report. Except as set forth in Part
2.6 of the Disclosure Schedule, all of the material assets owned or leased
by an
Acquired Company are owned or leased by such Acquired Company free and clear
of
any Encumbrances, except for Permitted Encumbrances.
2.7 Bank
Accounts; Receivables; Customers and Suppliers.
(a) Part
2.7(a) of the Disclosure Schedule sets forth, as of the date of this Agreement,
the name of the bank or financial institution and the number of each account
maintained at such bank or financial institution of each bank or similar account
maintained by or for the benefit of the Acquired Companies.
(b) Part
2.7(b) of the Disclosure Schedule provides a list and aging of all accounts
and
notes receivable of the Acquired Companies as of August 31, 2006. All such
existing accounts receivable of the Acquired Companies (including those accounts
receivable reflected on the Unaudited Interim Balance Sheet that have not yet
been collected and those accounts receivable that have arisen since
March 31, 2006 and have not yet been collected) (i) represent valid
obligations of customers of the Acquired Companies arising from bona fide
transactions entered into in the ordinary course of business and (ii) are
current and, to the Knowledge of the Company, will be collected in full, without
any counterclaim or set off (net of an allowance for doubtful accounts of $1.2
million).
34
(c) Part
2.7(c) of the Disclosure Schedule provides a list as of the date of this
Agreement of all outstanding loans and advances made by any of the Acquired
Companies to any Key Stockholder, employee, director, consultant or independent
contractor, other than advances made to employees, directors, consultants or
independent contractors for business expenses in the ordinary course of business
consistent with past practice.
(d) Part
2.7(d) of the Disclosure Schedule accurately identifies, and provides an
accurate and complete breakdown of the revenues received from, each customer
or
other Person that accounted for (i) more than $750,000 of the consolidated
gross revenues of the Acquired Companies in 2005, or (ii) more than
$375,000 of the consolidated gross revenues of the Acquired Companies for the
six months ended June 30, 2006. Part 2.7(d) of the Disclosure Schedule contains
a list of forecasts received from the customers identified in Part 2.7(d) of
the
Disclosure Schedule as of the date of this Agreement. To the extent provided
to
the Acquired Companies by such customers, the Company has provided to Parent
or
its Representatives a copy of the current purchasing forecast of each such
customer.
(e) Part
2.7(e) of the Disclosure Schedule accurately identifies, and provides an
accurate and complete breakdown of amounts paid to, each supplier that received
(i) more than $250,000 from the Acquired Companies in 2005, or (ii) more than
$125,000 from the Acquired Companies during the six months ended June 30, 2006
and lists the amounts paid by the Acquired Companies to each such supplier
during such period. As of the date of this Agreement, none of the Acquired
Companies has received any written notice from any such supplier indicating
that
any such supplier identified on Part 2.7(d) of the Disclosure Schedule plans
to
cease dealing with any of the Acquired Companies or may otherwise materially
reduce the volume of business transacted by such supplier with any of the
Acquired Companies below historical levels.
2.8 Equipment;
Leasehold.
(a) All
material items of equipment and other tangible assets owned by or leased to
the
Acquired Companies are, taken as a whole, adequate for the uses to which they
are being put, are in good condition and repair (ordinary wear and tear
excepted).
(b) No
Acquired Company owns any real property or any interest in real property, except
for the leaseholds created under the Lease Agreements identified in Part 2.8
of
the Disclosure Schedule and the fixtures appurtenant thereto.
(c) No
Lease
Agreement has been assigned or is subject to any sublease, and no Person (other
than an Acquired Company) is in possession of any portion of the Leased
Properties other than the Acquired Companies to the extent subject to the Lease
Agreements. All improvements constructed by any Acquired Company within the
Leased Properties were constructed in compliance in all material respects with
all building codes, zoning ordinances and all other applicable Legal
Requirements.
35
(d) As
of the
date of this Agreement, none of the Acquired Companies has received written
notice of any condemnation or eminent domain proceeding pending or threatened
against the Leased Properties or any part thereof.
(e) There
is
no Legal Proceeding pending or, to the Knowledge of the Company, threatened
against any Acquired Companies concerning the Leased Properties which would
reasonably be expected to have a material adverse effect on the ability of
the
Acquired Companies to operate their businesses as currently conducted. As of
the
date of this Agreement, none of the Acquired Companies has received any written
notice from any Governmental Body that any condition on or improvements located
on any of the Leased Properties are in violation of any applicable building
codes, zoning or land use laws, or other law, order, ordinance, rule or
regulation affecting the property.
2.9 Intellectual
Property.
(a) Part
2.9(a) of the Disclosure Schedule accurately identifies:
(i) in
Part
2.9(a)(i) of the Disclosure Schedule: (A) each item of Registered IP in which
any of the Acquired
Companies
has an
ownership interest of any nature (whether exclusively or jointly with another
Person); (B) the jurisdiction in which such item of Registered IP has been
registered or filed and the applicable registration or serial number; and (C)
any other Person that, to the Knowledge of the Company, has an ownership
interest in such item of Registered IP and the nature of such ownership
interest;
(ii) in
Part
2.9(a)(ii) of the Disclosure Schedule: (A) all Intellectual Property Rights
or
Intellectual Property licensed to each of the Acquired
Companies
(other
than any non-customized software (including shrink-wrap, off-the-shelf or
commercially available software) that: (1) is so licensed solely in executable
or object code form pursuant to a nonexclusive, internal use software license,
(2) is used by the Acquired Companies solely for administrative, financial,
or
other non-operational purposes; and (3) is generally available on standard
terms
for less than $10,000 per month or less than $120,000 per year); and (B) the
corresponding Acquired Company Contract or Acquired Company Contracts pursuant
to which such Intellectual Property Rights or Intellectual Property is licensed
to such Acquired
Company;
(iii) in
Part
2.9(a)(iii) of the Disclosure Schedule, each Acquired Company Contract pursuant
to which any Person other than an Acquired Company has received or been granted
a license or other right (other than an ownership interest) in or to any of
the
Acquired Company IP, including process licenses, covenants-not-to-xxx,
cross-licenses and development licenses, but not including any design kit
licenses provided by the Acquired Companies to customers in the ordinary course
of business, in the Acquired Companies’ standard form thereof (an accurate copy
of which has been provided to Parent); provided, however, that with respect
to
any of the aforementioned Acquired Company Contracts entered into prior to
March
12, 2002, the foregoing disclosure is made only as to the Knowledge of the
Company; and
(iv) in
Part
2.9(a)(iv) of the Disclosure Schedule, each Acquired Company Contract pursuant
to which any Intellectual Property was developed by an Acquired Company or
by a
third party, where the terms of such Acquired Company Contract expressly
contemplate (A) the development of any Acquired Company IP by such third party,
where the Acquired Company exclusively owns the Acquired Company IP (excluding
employee proprietary inventions and assignment agreements and any agreements
pursuant to which a individual consultant or independent contractor performed
services on a full-time basis on behalf of such Acquired Company while onsite
at
the Acquired Company’s facilities); (B) the development of any Intellectual
Property by the Acquired Company on behalf of such third party, where the third
party exclusively or jointly owns the resulting Intellectual Property; or (C)
the collaborative development of Intellectual Property by the Acquired Company
and such third party, such as (1) development to allow such third party to
offer
their design IP commercially, (2) customer support process or design
modifications or (3) education research development, other than those agreements
already disclosed in response to (a) or (b) above.
36
(b) Except
for any licenses and rights granted in the Acquired Company Contracts expressly
identified in Part 2.9(a)(iii) of the Disclosure Schedule and except for any
Permitted Encumbrances, none of the Acquired Companies is bound by, and no
Acquired Company IP is subject to, any Acquired Company Contract containing
any
covenant or other provision that in any material way limits or restricts the
ability of any of the Acquired Companies to use, exploit, assert, or enforce
any
Acquired Company IP material to the operation of the business as currently
conducted anywhere in the world, provided that with respect to Acquired Company
Contracts entered into by a third party and to which an Acquired Company is
not
a party but is otherwise bound, the representation made in this Section 2.9(b)
is only provided to the Knowledge of the Company.
(c) Except
as
set forth in Part 2.9(c) of the Disclosure Schedule, the Acquired Companies
exclusively own all right, title and interest to and in the Acquired Company
IP
(other than (A) Intellectual Property Rights or Intellectual Property identified
in Part 2.9(a)(ii) and Part 2.9(c)(vii) of the Disclosure Schedule as being
licensed to the Acquired Companies, and (B) Registered IP identified in Part
2.9(a)(i) of the Disclosure Schedule as being subject to the ownership interest
of another Person) free and clear of any Encumbrances (other than licenses
granted pursuant to the Acquired Company Contracts listed in Part 2.9(a)(iii)
of
the Disclosure Schedule and Permitted Encumbrances). Without limiting the
generality of the foregoing, except as set forth in Part 2.9(c) of the
Disclosure Schedule:
(i) since
March 12, 2002, each Person who is or was an employee, consultant or independent
contractor of any of the Acquired Companies and who is or was involved in the
creation or development of any Acquired Company IP, or who is or was named
as an
inventor on any patent application filed or owned by any Acquired Company,
has
signed one or more valid and enforceable agreements containing an irrevocable
assignment of that Person’s Intellectual Property Rights to the Acquired Company
for which such Person is or was an employee, consultant or independent
contractor, and confidentiality provisions protecting the Acquired Company
IP;
(ii) no
Acquired Company Employee has any claim, right (whether or not currently
exercisable) or interest to or in any Acquired Company IP;
(iii) to
the
Knowledge of the Company, no employee, consultant, or independent contractor
who
has performed services onsite at the Acquired Companies’ facilities for any of
the Acquired Companies is in breach of any Contract with any former employer
or
other Person concerning Intellectual Property Rights or confidentiality, where
the cause or nature of the breach arises out of the performance of any services
related to the development of any Acquired Company IP by such employee,
consultant, or independent contractor on behalf of any Acquired
Company;
37
(iv) since
March 12, 2002, no funding, facilities or personnel of any Governmental Body
or
any university or other educational institution were used to develop or create,
in whole or in part, any Acquired Company IP;
(v) each
of
the Acquired
Companies
has
taken reasonable steps to maintain the confidentiality of and otherwise protect
and enforce its rights in all proprietary information held or purported to
be
held by any of the Acquired
Companies
as a
trade secret of an Acquired Company;
(vi) since
two
(2) years prior to the date of this Agreement, none of the Acquired Companies
has assigned or otherwise transferred ownership of, or agreed to assign or
otherwise transfer ownership of, any Intellectual Property Right that is
material to the business of the Acquired Companies to any other Person other
than an Acquired Company; and
(vii) except
for any Process Technology expressly identified as being licensed from third
parties in Part 2.9(c)(vii) of the Disclosure Schedule, the Acquired Companies
exclusively own all right, title, and interest in and to all Process Technology
used in the conduct of the business of the Acquired Companies as currently
conducted.
(d) All
Intellectual Property Rights sufficient to conduct the business of the Acquired
Companies as currently conducted are either (A) owned by the Acquired Companies
or (B) licensed to the Acquired Companies pursuant to the Acquired Company
Contracts listed in Part 2.9(a)(ii) of the Disclosure Schedule. The parties
acknowledge and agree that the foregoing statement does not constitute a
representation or warranty as to, and is not intended to apply to, any
potential, actual or suspected infringement, misappropriation or violation
of
any Intellectual Property Right of any other Person by any of the Acquired
Companies.
(e) Except
as
set forth in Part 2.9(e) of the Disclosure Schedule, (A) all Acquired Company
IP
that is material Registered IP is valid, subsisting and enforceable in all
material respects (except that no representation or warranty is made as to
the
validity or enforceability of any pending application for Registered IP); and
(B) all Acquired Company IP that consists of a material copyright (whether
registered or unregistered) is valid, subsisting, and enforceable in all
material respects. Without limiting the generality of the
foregoing:
(i) no
registered trademark owned by any Acquired Company, and no other trademark
currently being used by any Acquired Company in connection with the sale or
marketing of its products or services (collectively, “Acquired
Company Trademarks”),
conflicts with any registered trademark (and, solely in the case of the “JAZZ
SEMICONDUCTOR” xxxx, with any registered or unregistered trademark) owned, used
or applied for by any other Person in any jurisdiction where any Acquired
Company currently markets or promotes (directly or through any Person who is
not
currently an Acquired Company Employee), through the use of the Acquired Company
Trademarks, any of the Acquired Companies’ products or services, where as a
result of such conflict and without any resolution thereof, the Acquired
Companies would not be able to use such Acquired Company Trademarks in such
jurisdiction;
38
(ii) except
for any Registered IP, including any applications therefor, which an Acquired
Company has elected to abandon or discontinue prior to the date of this
Agreement, each item of material Acquired Company IP that is Registered IP
is in
compliance with all Legal Requirements, and all filings, payments and other
actions required to be made or taken to maintain each item of material Acquired
Company IP that is Registered IP in full force and effect have been made by
the
applicable deadline;
(iii) the
Company has made available to Parent complete and accurate copies of all
applications, material correspondence and other material documents related
to
each such item of Registered IP referenced in subsection (e)(ii) above;
and
(iv) no
interference, opposition, reissue, reexamination or other Legal Proceeding
of
any nature is pending or, to the Knowledge of the Company, threatened, in which
the scope, validity or enforceability of any Acquired Company IP is being,
has
been or would reasonably be expected to be contested or challenged.
(f) Except
as
set forth on Part 2.9(f) of the Disclosure Schedule, to the Knowledge of the
Company, neither the execution, delivery or performance of this Agreement or
any
of the Ancillary Agreements nor the consummation of any of the Contemplated
Transactions will, with or without notice or the lapse of time, result in or
give any other Person the right or option to cause: (i) a loss of, or
Encumbrance on, any Acquired Company IP; (ii) the release, disclosure or
delivery of any Acquired Company IP by any escrow agent or to any other Person;
or (iii) the grant, assignment or transfer to any other Person of any license
or
other material right or interest, such as an ownership interest or
covenant-not-to-xxx, under, in or to any of the Acquired Company
IP.
(g) To
the
Knowledge of the Company, (i) since March 12, 2002 no Person has infringed,
misappropriated, or otherwise violated, and (ii) no Person is currently
infringing, misappropriating or otherwise violating, any Acquired Company IP.
(h) Except
as
set forth in Part 2.9(h) of the Disclosure Schedule, (A) since March 12, 2002,
none of the Acquired Companies, and none of the Acquired Company IP, has
infringed (directly, contributorily, by inducement or otherwise),
misappropriated or otherwise violated any Intellectual Property Right (excluding
patent rights) of any other Person; and (B) to the Knowledge of the Company,
none of the Acquired
Companies, and none of the Acquired Company IP,
has
infringed (directly, contributorily, by inducement or otherwise),
misappropriated or otherwise violated any Intellectual Property Right (including
patent rights) of any other Person. Without limiting the generality of the
foregoing, except as set forth in Part 2.9(h) of the Disclosure
Schedule:
(i) no
infringement, misappropriation or similar claim or Legal Proceeding is pending
or, to the Knowledge of the Company, threatened against any of the Acquired
Companies with respect to Intellectual Property or Intellectual Property Rights
used or exploited by the Acquired Companies,
and, to
the Knowledge of the Company, no infringement, misappropriation or similar
claim
or Legal Proceeding relating to the Intellectual Property or Intellectual
Property Rights used or exploited by the Acquired Companies is pending or
threatened against any licensee, customer, vendor or supplier of an Acquired
Company who may be entitled to be indemnified, defended, held harmless or
reimbursed by any of the Acquired Companies with respect to such claim or Legal
Proceeding;
39
(ii) since
March 12, 2002 none of the Acquired Companies has received any written notice
relating to any actual, alleged or suspected infringement, misappropriation
or
violation of any Intellectual Property Right of another Person by any of the
Acquired Companies or any of the Acquired Companies’ employees, consultants, or
independent contractors who have performed services onsite at the Acquired
Companies’ facilities for any of the Acquired Companies, where the cause or
nature of the alleged infringement, misappropriation, or violation arises out
of
the performance of any services performed by such employee, consultant, or
independent contractor on behalf of any Acquired Company;
(iii) none
of
the Acquired Companies is bound by any Acquired Company Contract to indemnify,
hold harmless or reimburse any other Person with respect to, or has assumed,
pursuant to any Acquired Company Contract, any existing or potential liability
of another Person for, any intellectual property infringement, misappropriation
or similar claim (other than any obligation entered into by an Acquired Company
in the ordinary course of business that (A) requires such Acquired Company
to
indemnify a wafer fabrication customer against third-party claims alleging
that
the Acquired Company Process Technology infringes a third-party Intellectual
Property Right, and (B) is limited to an aggregate liability that does not
exceed the total consideration paid or payable by such customer to such Acquired
Company, and other than pursuant to any express indemnification provisions
in
Acquired Company Contracts identified in Part 2.9 of the Disclosure Schedule);
and
(iv) to
the
Knowledge of the Company, no claim or Legal Proceeding involving any
Intellectual Property or Intellectual Property Right identified in Part
2.9(a)(ii) of the Disclosure Schedule as being licensed to any of the
Acquired
Companies
(A) has
been threatened against any of the Acquired Companies in writing and such
writing has been received by an Acquired Company; or (B) is pending against
any
Person, except for any such claim or Legal Proceeding that, if adversely
determined, would not materially and adversely affect the use or exploitation
of
such Intellectual Property or Intellectual Property Right by any of the
Acquired
Companies.
(i) Except
as
described in Part 2.9(i) of the Disclosure Schedule, no source code for any
Acquired Company Software has been delivered, licensed or made available to
any
escrow agent or other third party, and none of the Acquired Companies has any
duty or obligation (whether present, contingent or otherwise) to deliver,
license or make available the source code for any Acquired Company Software
to
any escrow agent or other third party. No event has occurred, and no
circumstance or condition exists, that (with or without notice or lapse of
time)
will, or would reasonably be expected to, result in the delivery or disclosure
of any source code for any Acquired Company Software (by any escrow agent or
other third party or by any Acquired Company) to any other Person who is not,
as
of the date of this Agreement, an employee, consultant or independent contractor
of one of the Acquired Companies (except for obligations to deliver or disclose
source code for any Acquired Company Software to third parties pursuant to
Acquired Company Contracts entered into in the ordinary course of business,
where such obligations are not contingent upon the occurrence of any event
or
circumstance).
40
(j)
The
Company has paid in full, on or before the due date, all amounts owed pursuant
to the cross-license agreements listed in Part 2.9(a)(ii) and 2.9(a)(iii) of
the
Disclosure Schedule, other than payments that are not yet due.
Notwithstanding
subsections (a) through (j) above, at any time during the Pre-Closing Period
(as
defined in Section 4.1(a)), an Acquired Company may enter into an Acquired
Company Contract that would have been required to be disclosed in Part
2.9(a)(ii), Part 2.9(a)(iii) or Part 2.9(a)(iv) of the Disclosure Schedule
in
compliance with Section 4.2(b)(x); provided that the Company shall deliver
an
update to Part 2.9(a)(ii), Part 2.9(a)(iii) or Part 2.9(a)(iv) of the Disclosure
Schedule (as applicable) to Parent on a monthly basis and further provided
that
the Company shall provide to Parent or its Representatives accurate and complete
copies of all such Acquired Company Contracts, including all amendments thereto,
within twenty business days of the execution of such Acquired Company Contract.
For the avoidance of doubt, the entering into of any Acquired Company Contract
in compliance with Section 4.2(b)(x) and in compliance with the preceding
sentence shall not be deemed to be a breach by the Company of this Section
2.9.
2.10 Contracts.
(a) Part
2.10(a) of the Disclosure Schedule identifies each of the following Acquired
Company Contracts that is in effect or has material remaining obligations
(including indemnity obligations and obligations for prior breaches) to be
performed, as of the date of this Agreement:
(i) each
Acquired Company Employee Agreement and any other Acquired Company Contract
(A)
relating to the employment of, or the performance of services by, any employee,
consultant or independent contractor providing for a base annual compensation
for any such Person greater than $100,000 other than Acquired Company Employment
Agreements that may be terminated at will by the Acquired Company party thereto
without payment of severance or other similar obligations (other than in
accordance with the Acquired Company’s general severance policy), (B) pursuant
to which any of the Acquired Companies is or may become obligated to make any
severance, termination or similar payment to any current or former employee
or
director, or (C) pursuant to which any of the Acquired Companies is or may
become obligated to make any bonus or similar payment (whether in the form
of
cash, stock or other securities, excluding payments constituting base salary
and
sales commissions) in excess of $75,000 to any current or former employee or
director;
(ii) each
Acquired Company Contract that provides for indemnification of any officer,
director, employee or agent;
(iii) each
Acquired Company Contract that expressly imposes, or expressly purports to
impose, any restriction on the right or ability of any Acquired Company (A)
to
compete with, or solicit any customer of, any other Person, (B) to acquire
any
product or other asset or any services from any other Person, (C) to develop,
sell, supply, distribute, offer, support or service any product or any
technology or other asset to or for any other Person (other than Contracts
that
obligate the Acquired Companies to use a customer’s Intellectual Property or
Intellectual Property Rights for the sole benefit of such customer), or (D)
to
perform services for any other Person (other than Contracts that prohibit the
Acquired Companies from using a customer’s Intellectual Property or Intellectual
Property Rights to manufacture products for a Person other than such
customer);
41
(iv) each
Acquired Company Contract (other than Contracts evidencing Company Options
or
Stock Appreciation Rights) (A) relating to the acquisition, issuance, voting,
registration, sale or transfer of any securities, (B) providing any Person
with
any preemptive right, right of participation, right of maintenance or similar
right with respect to any securities, or (C) providing any of the Acquired
Companies with any right of first refusal with respect to, or right to
repurchase or redeem, any securities;
(v) each
Acquired Company Contract relating to the creation of any Encumbrance (other
than Permitted Encumbrances) with respect to any asset of any of the Acquired
Companies;
(vi) any
Acquired Company Contract relating to the acquisition, development, sale or
disposition of any business unit or product line of any of the Acquired
Companies;
(vii) any
Acquired Company Contract creating a manufacturing supply arrangement pursuant
to which an Acquired Company may require a third party to manufacture completed
semiconductor wafers or pursuant to which an Acquired Company is required to
purchase completed semiconductor wafers from a third-party;
(viii) any
Acquired Company Contract (other than purchase orders issued in the ordinary
course of business) with sole-source or single-source suppliers of products
or
services where procuring a replacement supplier would reasonably be expected
to
result in a material increase in costs;
(ix) each
Acquired Company Contract relating to any currency or interest rate
hedging;
(x) any
Acquired Company Contract creating, amending or otherwise evidencing any joint
venture (that is identified as a joint venture in such Contract) or any
partnership or otherwise providing for the sharing of revenues, profits, losses,
costs or liabilities (other than the payment of liabilities of a third party
by
an Acquired Company pursuant to warranty or indemnity obligations of such
Acquired Company entered into in the ordinary course of business consistent
with
past practice);
(xi) each
Lease Agreement involving aggregate annual payments in excess of
$100,000;
(xii) each
Acquired Company Contract (A) containing “standstill” or similar provisions
relating to transactions involving the acquisition, disposition or other
transfer of assets or securities of an Entity, or (B) imposing any right of
first negotiation, right of first refusal or similar right on an Acquired
Company;
(xiii) each
Acquired Company Contract relating to the purchase or sale of any product or
other asset by or to, or the performance of any services by or for, any Related
Party (as defined in Section 2.18) other than purchase or sales of products
on
arms length terms in the ordinary course of business;
42
(xiv) each
Acquired Company Contract under which an Acquired Company has supplier invoices
posted or customer revenue accrued of $350,000 in 2005 or $200,000 in the six
months ended June 30, 2006, or that provides by its terms for the future payment
or receipt in any twelve month period of, cash or other consideration in an
amount or having a value in excess of $350,000 in the aggregate;
(xv) each
Acquired Company Contract creating or involving any agency relationship,
distribution arrangement or franchise relationship; and
(xvi) any
other
Acquired Company Contract, if a breach of such Acquired Company Contract or
the
termination of such Contract would reasonably be expected to have or result
in a
Material Adverse Effect.
(Contracts
in the respective categories described in clauses (i) through (xvi) above,
as
well as Contracts identified or required to be identified in Part 2.9(a)(ii),
Part 2.9(a)(iii) or Part 2.9(a)(iv) of the Disclosure Schedule, are referred
to
in this Agreement as “Material
Contracts”).
(b) The
Company has made available to Parent or its Representatives accurate and
complete copies of all Material Contracts identified in Part 2.9(a)(ii), Part
2.9(a)(iii), Part 2.9(a)(iv) or Part 2.10(a) of the Disclosure Schedule,
including all amendments thereto. Each Material Contract is valid, has not
been
terminated as of the date of this Agreement and, except as permitted under
Section 4.2(b)(ix) will not be terminated during the Pre-Closing Period, and
is
enforceable against the Acquired Company that is a party thereto and, to the
Knowledge of the Company, the other parties thereto, in accordance with its
terms, subject to (i) laws of general application relating to bankruptcy,
insolvency, reorganization, moratorium and the enforcement of creditors’ rights
generally, and (ii) rules of law governing specific performance, injunctive
relief and other equitable remedies.
(c) Except
as
set forth in Part 2.10(c) of the Disclosure Schedule: (i) none of the
Acquired Companies has materially violated or breached, or committed any
material default under, any Material Contract, and, to the Knowledge of the
Company, no other party to a Material Contract has materially violated or
breached, or committed any material default under, any Material Contract; (ii)
to the Knowledge of the Company, no event has occurred, and no circumstance
or
condition exists, that (with or without notice or lapse of time) will, or would
reasonably be expected to, (A) result in a material violation or material
breach of any of the provisions of any Material Contract, (B) give
any party to a Material Contract the right to accelerate the maturity or
performance of any Material Contract, or (C) give any party to a material
contract the right to cancel, terminate or materially modify any Material
Contract; (iii) none of the Acquired Companies has received any written notice
regarding any unresolved issue that would constitute a material violation or
material breach of, or default under, any Material Contract; and (iv) none
of
the Acquired Companies has knowingly waived any of its material rights under
any
Material Contract except in the ordinary course of business.
43
(d) Except
as
set forth in Part 2.10(d) of the Disclosure Schedule:
(i) none
of
the Acquired Companies has received any determination of noncompliance, entered
into any consent order or undertaken any internal investigation relating
directly or indirectly to any Government Contract or Government
Bid;
(ii) the
Acquired Companies have complied with all applicable Legal Requirements with
respect to all Government Contracts and Government Bids;
(iii) the
Acquired Companies have not, in obtaining or performing any Government Contract,
violated, to the extent applicable, (A) the Truth in Negotiations Act of 1962,
as amended, (B) the Service Contract Act of 1963, as amended, (C) the Contract
Disputes Act of 1978, as amended, (D) the Office of Federal Procurement Policy
Act, as amended, (E) the Federal Acquisition Regulations (the “FAR”)
or any
applicable agency supplement thereto, (F) the Cost Accounting Standards, (G)
the
Defense Industrial Security Manual (DOD5220.22-M), (H) the Defense Industrial
Security Regulation (DOD5220.22-R) or any related security regulations or (I)
any other applicable procurement law or regulation or other Legal
Requirement;
(iv) all
facts
set forth in or acknowledged by any of the Acquired Companies in any
certification, representation or disclosure statement submitted by any of the
Acquired Companies with respect to any Government Contract or Government Bid
were current, accurate and complete as of the date indicated in such submission
or as of such other date as required by the Government Contract and Government
Bid;
(v) none
of
the Acquired Companies, and, to the Knowledge of the Company, no current
Acquired Company Employee, has been debarred or suspended from doing business
with any Governmental Body, and, to the Knowledge of the Company, no
circumstances exist that would warrant the institution of debarment or
suspension proceedings against one or more of the Acquired Companies or any
current Acquired Company Employee;
(vi) no
negative determination of responsibility has been issued against and provided
to
any of the Acquired Companies in connection with any Government Contract or
Government Bid;
(vii) there
is
not and has not been any (A) administrative, civil, criminal or other
investigation, audit, Legal Proceeding, or indictment involving any of the
Acquired Companies arising under or relating to the award or performance of
any
Government Contract, (B) outstanding material claim against any of the
Acquired Companies by, or dispute involving any of the Acquired Companies with,
any prime contractor, subcontractor, vendor or other Person arising under or
relating to the award or performance of any Government Contract, (C) fact
Known by the Company upon which any such claim would reasonably be expected
to
be based or which may give rise to any such dispute, or (D) final decision
of any Governmental Body against any of the Acquired Companies;
44
(viii) no
payment has been made by any Acquired Company or by any Person acting on the
behalf of any Acquired Company to any Person (other than to any bona fide
employee or agent (as defined in subpart 3.4 of the FAR) of such Acquired
Company) which is or was contingent upon the award of any Government Contract
or
which would otherwise be in violation of any applicable procurement law or
regulation or any other Legal Requirement;
(ix) none
of
the Acquired Companies has made any disclosure since March 12, 2002 to any
Governmental Body with respect to any Government Contract or Government Bid
pursuant to any voluntary disclosure agreement; and
(x) in
each
case in which any of the Acquired Companies has delivered or otherwise provided
any technical data, computer software or other Intellectual Property to any
Governmental Body in connection with any Government Contract, such Acquired
Company has provided such technical data, computer software and other
Intellectual Property solely as a “commercial item” pursuant to the Acquired
Companies’ commercial terms and conditions.
Notwithstanding
subsections (a) through (d) above, at any time during the Pre-Closing Period,
an
Acquired Company may enter into a Material Contract in compliance with Section
4.2(b)(ix); provided that the Company shall deliver an update to Part 2.10(a)
of
the Disclosure Schedule to Parent on a monthly basis and further provided that
the Company shall provide to Parent or its Representatives accurate and complete
copies of all such Material Contracts, including all amendments thereto, within
twenty business days of the execution of such Material Contract. For the
avoidance of doubt, the entering into of any Material Contract in compliance
with Section 4.2(b)(ix) and in compliance with the preceding sentence shall
not
be deemed to be a breach by the Company of this Section 2.10.
2.11 Liabilities.
None of
the Acquired Companies has any accrued, contingent or other liabilities of
any
nature, either matured or unmatured (of the type that would be required to
be
reflected on a consolidated balance sheet of the Company and its Subsidiaries
prepared as of the date hereof or as of the Closing Date in accordance with
GAAP), except for: (a) liabilities identified as such in the “liabilities”
column of the Unaudited Interim Balance Sheet; (b) liabilities that have been
incurred by the Acquired Companies since June 30, 2006 in the ordinary course
of
business and consistent with past practices; (c) liabilities that will be
accrued as current liabilities on the Closing Date Balance Sheet; (d)
liabilities arising as a result of the Contemplated Transactions; (e)
liabilities described in Part 2.11 of the Disclosure Schedule; and (f)
liabilities to the extent such liabilities were incurred with Parent’s consent
or arise out of actions or events permitted by Section 4.2(b) (in either case
other than any action or event taken or occurring in a manner (or the
consequences of the taking or occurrence of such action in such manner) that
would constitute a breach of any provision of this Agreement other than Section
4.2).
2.12 Compliance
with Legal Requirements; Governmental Authorizations.
(a) Except
as
set forth in Part 2.12 of the Disclosure Schedule, each of the Acquired
Companies is, and has at all times since March 12, 2002 been, in compliance
in
all material respects with all applicable Legal Requirements. Except as set
forth in Part 2.12(a) of the Disclosure Schedule, since March 12, 2002, none
of
the Acquired Companies has (i) received any written notice from any Governmental
Body or other Person regarding any actual or possible violation of, or failure
to comply with any material provision of, any Legal Requirement or (ii) filed
or
otherwise provided any written notice to any Governmental Body or other Person
regarding any actual or possible material violation of, or failure to comply
with any material provision of, any Legal Requirement.
45
(b) Part
2.12(b) of the Disclosure Schedule identifies each Governmental Authorization
material to the operation of the business of the Acquired Companies as currently
conducted that is held by any of the Acquired Companies, and the Company has
made available to Parent accurate and complete copies of all such Governmental
Authorizations. The Governmental Authorizations identified in Part 2.12(b)
of
the Disclosure Schedule are valid and in full force and effect, and collectively
constitute all Governmental Authorizations necessary to enable the Acquired
Companies to conduct their respective businesses in all material respects in
the
manner in which such businesses are currently being conducted. Each Acquired
Company is, and at all times since March 12, 2002 has been, in substantial
compliance with the terms and requirements of the Governmental Authorizations
identified in Part 2.12(b) of the Disclosure Schedule. Since January 1, 2003,
none of the Acquired Companies has received any written notice from any
Governmental Body regarding (a) any actual or possible violation of or failure
to comply with any term or requirement of any Governmental Authorization, or
(b)
any actual or possible revocation, withdrawal, suspension, cancellation,
termination or modification of any Governmental Authorization. To the Knowledge
of the Company, no Governmental Body is, as of the date of this Agreement,
challenging the right of any of the Acquired Companies to design, manufacture,
license, offer or sell any of its products or services.
(c) Except
as
set forth in Part 2.12(c) of the Disclosure Schedule, each of the Acquired
Companies is, and has at all times since March 12, 2002 been, in compliance
in
all material respects with applicable provisions of United States export and
import control laws and regulations related to the export or transfer of
commodities, software and technology, including the Export Administration
Regulations (15 C.F.R. §§ 730-774); the International Traffic in Arms
Regulations (22 C.F.R. §§ 120-130); the Foreign Assets Control Regulations
(31 C.F.R. §§ 500-598); and the Customs Regulations (19 C.F.R. §§
1-357).
2.13 Certain
Business Practices.
Except
as set forth in Part 2.13 of the Disclosure Schedule, none of the Acquired
Companies, and (to the Knowledge of the Company) no director, officer, agent
or
employee of any of the Acquired Companies, has (i) used any funds for unlawful
contributions, gifts, entertainment or other unlawful expenses relating to
political activity, (ii) made any unlawful payment to foreign or domestic
government officials or employees or to foreign or domestic political parties
or
campaigns or violated any provision of the Foreign Corrupt Practices Act of
1977, as amended, or (iii) taken any action that would constitute a violation
of
the Foreign Corrupt Practices Act of 1977, as amended, if the Company were
publicly held.
2.14 Tax
Matters.
(a) Except
as
set forth in Part 2.14(a) of the Disclosure Schedule, each of the Tax Returns
required to be filed by or on behalf of the respective Acquired Companies with
any Governmental Body with respect to any taxable period ending on or before
the
Closing Date (the “Acquired
Company Returns”)
(i) has been or will be filed on or before the applicable due date
(including any extensions of such due date), and (ii) was, or will be when
filed, complete and accurate and prepared in all material respects in compliance
with all applicable Legal Requirements. All amounts shown on the Acquired
Company Returns to be due on or before the Closing Date have been or will be
paid on or before the Closing Date. The Company has made available to Parent
accurate and complete copies of all Acquired Company Returns relating to income
taxes and all other material Acquired Company Returns.
46
(b) Each
Acquired Company has withheld and paid all Taxes required to have been withheld
and paid in connection with any amounts paid or owing to any employee,
independent contractor, creditor, stockholder, or other third
party.
(c) The
Company Financial Statements fully accrue all actual and contingent liabilities
for Taxes with respect to all periods through the dates thereof in accordance
with GAAP. Each Acquired Company will establish, in the ordinary course of
business and consistent with its past practices, reserves adequate for the
payment of all Taxes for the period from June 30, 2006 through the Closing
Date.
(d) No
Acquired Company Return for a taxable period the statue of limitations with
respect to which remains open has been examined or audited by any Governmental
Body. Except as set forth in Part 2.14(d) of the Disclosure Schedule, no
extension or waiver of the limitation period applicable to any of the Acquired
Company Returns has been granted (by the Company or any other Person) that
remains in effect, and no such extension or waiver that remains in effect has
been requested from any Acquired Company.
(e) Except
as
set forth in Part 2.14(e) of the Disclosure Schedule, no claim or Legal
Proceeding is pending or, to the Knowledge of the Company, has been threatened
against or with respect to any Acquired Company in respect of any Tax. There
are
no unsatisfied liabilities for Taxes (including liabilities for interest,
additions to tax and penalties thereon and related expenses) with respect to
any
notice of deficiency or similar document received by any Acquired Company with
respect to any Tax (other than liabilities for Taxes asserted under any such
notice of deficiency or similar document which are being contested in good
faith
by the Acquired Companies and with respect to which adequate reserves for
payment have been established on the Unaudited Interim Balance Sheet). None
of
the Acquired Companies has been, and none of the Acquired Companies will be,
required to include any adjustment in taxable income for any tax period (or
portion thereof) after the Closing pursuant to Section 481 of the Code (or
any comparable provision of any Tax law, rule or regulation) as a result of
transactions or events occurring, or accounting methods employed, prior to
the
Closing. None of the Acquired Companies has made any distribution of stock
of
any controlled corporation, as that term is defined in Section 355(a)(1) of
the
Code or had its stock distributed by another Person, in a transaction that
was
purported or intended to be governed in whole or in part by Sections 355 and
361
of the Code. None of the Acquired Companies (i) has been a member of an
affiliated group within the meaning of Section 1504 of the Code, other than
an
affiliated group of which the Company was the common parent, or (ii) filed
or
been included in a combined, consolidated or unitary income Tax Return, other
than any such Tax Return filed by the Company. None of the Acquired Companies
has any liability for the Taxes of any Person under Section 1.1502-6 of the
Treasury Regulations under the Code (or any similar Legal Requirement) as a
transferee or successor, by Contract or otherwise.
47
(f) Each
of
the Acquired Companies has overtly disclosed in its Acquired Company Returns
any
Tax reporting position taken in any Acquired Company Return which could result
in the imposition of penalties under Section 6662 of the Code or any comparable
Legal Requirement.
(g) None
of
the Acquired Companies has consummated or participated in, or is currently
participating in, any transaction that was or is a “listed transaction” or to
the Knowledge of the Company, a “reportable transaction” within the meaning of
Treasury Regulations Section 1.6011-4(b) or similar transaction under any
corresponding or similar Legal Requirement.
(h) The
Company has provided Parent with all material documentation relating to any
temporary exemption from Tax, Tax rate reduction, Tax credit, Tax incentive
or
other special concession for the computation of Tax made available by any
Governmental Body to any Acquired Company.
(i) Except
as
set forth in Part 2.14(i) of the Disclosure Schedule, none of the Acquired
Companies holds stock or any other equity interest in any legal entity which
is
treated as a partnership for federal, state, local or foreign income Tax
purposes.
(j) None
of
the Acquired Companies is a party to or bound by any tax indemnity agreement,
tax sharing agreement, tax allocation agreement or similar Contract (other
than
(x) any such customary agreements with customers, vendors, lessors or the like
entered into in the ordinary course of business consistent with past practices
and (y) agreements that address property Taxes payable with respect to
properties leased to the Acquired Companies).
(k) None
of
the Acquired Companies has filed a consent under section 341(f) of the Code
concerning collapsible corporations. Except as set forth in Part 2.14(k) of
the
Disclosure Schedule, none of the Acquired Companies is a party to any Contract
or has adopted any plan that, in connection with the Contemplated Transactions,
would reasonably be expected to result, separately or in the aggregate, in
the
payment of (i) any “excess parachute payment” within the meaning of section
280G of the Code (or any corresponding provisions of state, local or foreign
Tax
law) and (ii) any amount that will note be fully deductible as a result of
section 162(m) of the Code (or any corresponding provisions of state, local
or
foreign Tax law). None of the Acquired Companies has been a United States 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.
(l) None
of
the Acquired Companies will be required to include any item of income in, or
exclude any item of deduction from, taxable income for any taxable period (or
portion there) ending after the Closing Date as a result of any: (A) “closing
agreement” as described in section 7121 of the Code (or any corresponding or
similar provision of state, local or foreign income Tax law) executed on or
prior to the Closing Date; or (B) installment sale or open transaction
disposition made on or prior to the Closing Date.
48
2.15 Employee
and Labor Matters; Benefit Plans.
(a) The
Company has provided Parent with a report which accurately sets forth in all
material respects, as of September 18, 2006, with respect to each employee
of
the Acquired Companies as of such date (including any such employee who is
on a
leave of absence):
(i) the
name
of such employee;
(ii) such
employee’s title; and
(iii) such
employee’s annualized base salary.
(b) Part
2.15(b) of the Disclosure Schedule accurately identifies each former employee
of
any of the Acquired
Companies
who is
receiving or is currently scheduled to receive any severance benefits (whether
from any of the Acquired
Companies
or
otherwise) relating to such former employee’s employment with any of the
Acquired
Companies.
(c) Except
as
set forth in Part 2.15(c) of the Disclosure Schedule, the employment of each
of
the Acquired Companies’ employees is terminable by the applicable Acquired
Company at will, without payment of severance or other termination benefits.
The
Company has made available to Parent accurate and complete copies of all current
employee manuals and handbooks relating to the employment of current employees
of each of the Acquired
Companies.
(d) As
of the
date of this Agreement, to the actual knowledge of the Chief Executive
Officer and Vice President, Human Resources of the Company, no employee at
the
level of director or above of any of the Acquired
Companies: (i) has disclosed an intention to
terminate his or her employment with any Acquired Company to any individual
(other than himself or herself) included in the definition of “Knowledge of the
Company” in this Agreement; or (ii) is, to the Knowledge of the Company, a party
to or is bound by any confidentiality agreement, noncompetition agreement or
other Contract (with any Person) that may have a material adverse effect on:
(A)
the performance by such employee of any of his duties or responsibilities as
an
employee of such Acquired
Company;
or (B)
the business or operations of any Acquired
Company.
(e) Except
as
would not reasonably be expected to result in material liability to the Acquired
Companies: (i) no current or former independent contractors of any of the
Acquired Companies would reasonably be deemed to be a misclassified employee;
(ii) no independent contractor (A) has provided services to any of the Acquired
Companies for a period of six consecutive months or longer or (B) would
reasonably be deemed eligible to participate in any Company Employee Plan;
and
(iii) no Acquired Company has ever had any temporary or leased employees that
were not treated and accounted for in all respects as employees of such Acquired
Company (including coverage under each Acquired Company Employee
Plan).
(f) Except
as
set forth in Part 2.15(f) of the Disclosure Schedule, none of the Acquired
Companies
is a
party to or bound by any employment agreement and no employment agreement is
being negotiated by any Acquired Company or Acquired Company
Affiliate.
49
(g) Except
as
set forth in Part 2.15(g) of the Disclosure Schedule, none of the Acquired
Companies is a party to any collective bargaining agreement or other Contract
with a labor organization, trade or labor union, employees’ association or
similar organization representing any of its employees (collectively,
“Labor
Agreements”),
nor
is any such Labor Agreement presently being negotiated, nor is there any current
duty on the part of any Acquired Company to bargain with any labor organization
or representative, and there are no labor organizations representing or, to
the
Knowledge of the Company, purporting to represent or seeking to represent any
employees of any of the Acquired Companies. The Company has provided to Parent
or its Representatives complete and accurate copies of (i) each Labor
Agreement and all amendments, addenda or supplements thereto; (ii) all
material correspondence and all charges, complaints, notices or orders received
by any Acquired Company from the National Labor Relations Board or any labor
organization during the period from the date four (4) years prior to the date
hereof; and (iii) all arbitration opinions interpreting and enforcing any
Labor Agreement to which any Acquired Company is a party, or by which any
Acquired Company is bound. None of the Acquired
Companies
during
the past two (2) years had a National Labor Relations Board unfair labor
practice charge, or representation petition, filed against it. None of the
Acquired Companies has had any strike, slowdown, work stoppage, boycott,
picketing, lockout, job action, union labor dispute in the past two (2) years
(other than routine contract negotiations) or, to the Knowledge of the Company,
threat of any of the foregoing. To the Knowledge of the Company, no event has
occurred, and no condition or circumstance exists, that might directly or
indirectly give rise to or provide a basis for the commencement of any such
strike, slowdown, work stoppage, boycott, picketing, lockout, job action, labor
dispute, union organizing activity (of unrepresented employees), question
concerning representation, or any similar activity or dispute. Except as would
not reasonably be expected to result in material liability to the Acquired
Companies, to the Knowledge of the Company, there is no Legal Proceeding, claim
(other than routine claims for benefits), labor dispute, collective
bargaining,
or
grievance pending, or to the Knowledge of the Company, threatened or reasonably
anticipated, either
by
or against any Acquired Company, relating
to any employment contract, collective bargaining obligation or agreement,
wages
and hours, leave of absence, plant closing notification, employment statute
or
regulation, privacy right, labor dispute, workers’ compensation policy,
retaliation, immigration or discrimination matter involving any Acquired Company
Employee.
(h) Part
2.15(h) of the Disclosure Schedule contains an accurate and complete list as
of
the date hereof of each Acquired Company Employee Plan and each Acquired Company
Employee Agreement. The Company Option Plan and the Company Stock Appreciation
Rights Plan were duly adopted by the board of directors of the Company. None
of
the Acquired Companies intends or has agreed or committed to (i) establish
or
enter into any new Acquired Company Employee Plan or Acquired Company Employee
Agreement, or (ii) modify any Acquired Company Employee Plan or Acquired Company
Employee Agreement (except to conform any such Acquired Company Employee Plan
or
Acquired Company Employee Agreement to the requirements of any applicable Legal
Requirements, in each case as previously disclosed to Parent in writing or
as
contemplated by this Agreement).
(i) Other
than the Company Stock Appreciation Rights Plan and the Stock Appreciation
Rights, the Company has adopted no other stock appreciation plan and has granted
no other stock appreciation rights, and no other stock appreciation rights
are
outstanding.
50
(j) Except
as
set forth on Part 2.15(j) of the Disclosure Letter, since December 31, 2005,
there has not been any material change in any actuarial or other assumption
used
to calculate funding obligations with respect to any Acquired Company Employee
Plan, or any material change in the manner in which contributions to any
Acquired Company Employee Plan are made or the basis on which contributions
are
to be determined.
(k) The
Company has made available to Parent or its Representatives accurate and
complete copies of: (i) all plan documents setting forth the terms of each
Acquired Company Employee Plan and each Acquired Company Employee Agreement,
including all material amendments thereto and all related trust documents;
(ii)
the three most recent annual reports (Form Series 5500 and all schedules and
financial statements attached thereto), if any, required in connection with
each
Acquired Company Employee Plan; (iii) for each Acquired Company Employee Plan
that is subject to the minimum funding standards of Section 302 of ERISA, the
most recent annual and periodic accounting of Acquired Company Employee Plan
assets; (iv) the most recent summary plan description together with the
summaries of material modifications thereto, if any, required with respect
to
each Acquired Company Employee Plan; (v) all material written Contracts relating
to each Acquired Company Employee Plan, including administrative service
agreements and group insurance contracts; (vi) all material written materials
provided to any Acquired Company Employee relating to any Acquired Company
Employee Plan and any proposed Acquired Company Employee Plan, in each case,
relating to any amendments, terminations, establishments, increases or decreases
in benefits, acceleration of payments or vesting schedules or other events
that
would result in any material liability to any of the Acquired Companies or
any
Acquired Company Affiliate except for such written materials incorporated into
the applicable plan documents; (vi) all correspondence to or from any
Governmental Body relating to any Acquired Company Employee Plan, except for
the
correspondence that does not reflect or relate to any actual or potential
material liability of the Acquired Companies; (vii) all discrimination tests
required under the Code for each Acquired Company Employee Plan intended to
be
qualified under Section 401(a) of the Code for the three most recent plan years;
(viii) a sample COBRA form and related notices (ix) all insurance policies
in
the possession of any of the Acquired Companies or any Acquired Company
Affiliate pertaining to fiduciary liability insurance covering the fiduciaries
for each Acquired Company Employee Plan; and (x) the most recent IRS
determination or opinion letter issued with respect to each Acquired Company
Employee Plan intended to be qualified under Section 401(a) of the
Code.
(l) Each
of
the Acquired Companies and Acquired Company Affiliates has performed, in all
material respects, all obligations required to be performed by it under each
Acquired Company Employee Plan, and, to the Knowledge of the Company, there
has
been no material default or violation by any other party of the terms of any
Acquired Company Employee Plan. Except as set forth in Part 2.15(l) of the
Disclosure Schedule, each Acquired Company Employee Plan has been established
and maintained in all material respects in accordance with its terms and in
material compliance with all applicable Legal Requirements, including ERISA,
the
Code, and all applicable collective bargaining agreements. Any Acquired Company
Employee Plan intended to be qualified under Section 401(a) of the Code (and
any
related trust intended to be exempt from tax under Section 501(a) of the Code)
(i) has received a favorable determination or opinion letter from the IRS that
it is so qualified (and its related trust so exempt); (ii) has filed an
application for a determination or opinion letter with the IRS within 12 months
prior to the date of this Agreement and is awaiting a response to such
application or (iii) if such plan is not permitted to apply for a determination
letter, is being operated, in all material respects, in accordance with
applicable Legal Requirements. No fact or event has occurred since the date
of
any determination or opinion letter from the IRS that is reasonably likely
to
materially and adversely affect the qualified status of any such Acquired
Company Employee Plan or the exempt status of any such trust. Except as would
not reasonably be expected to result in material liability to the Acquired
Companies, no “prohibited transaction,” within the meaning of Section 4975 of
the Code or Sections 406 and 407 of ERISA, that is not otherwise exempt under
Section 408 of ERISA or Section 4975 of the Code, has occurred with respect
to
any Acquired Company Employee Plan. Except as would not reasonably be expected
to result in material liability to the Acquired Companies, there are no claims
or Legal Proceedings pending, or, to the Knowledge of the Company, threatened
or
reasonably anticipated (other than routine claims for benefits), against any
Acquired Company Employee Plan or against the assets of any Acquired Company
Employee Plan. Each Acquired Company Employee Plan (other than any Acquired
Company Employee Plan to be terminated prior to the Closing in accordance with
this Agreement) may be amended, terminated or otherwise discontinued after
the
Closing in accordance with its terms, without material liability to Parent,
any
of the Acquired Companies or any Acquired Company Affiliate (other than ordinary
administration expenses and accrued benefits), subject to applicable Legal
Requirements. There are no audits, inquiries or Legal Proceedings pending or,
to
the Knowledge of the Company, threatened by the IRS, the DOL, or any other
Governmental Body with respect to any Acquired Company Employee Plan. No
Acquired Company, and no Acquired Company Affiliate, has in the last three
years
incurred any material penalty or tax with respect to any Acquired Company
Employee Plan under Section 502(i) of ERISA, under Sections 4975 through 4980
of
the Code or under any other applicable Legal Requirement. Each of the Acquired
Companies has timely made all contributions and other payments required by
and
due under the terms of each Acquired Company Employee Plan and all applicable
collective bargaining agreements, except for such failures as would not
reasonably be expected to result in material liability to the Acquired
Companies.
51
(m) Except
as
set forth in Part 2.15(m) of the Disclosure Schedule, no Acquired Company,
and
no Acquired Company Affiliate, has ever maintained, established, sponsored,
participated in, or contributed to any: (i) Acquired Company Pension Plan
subject to Title IV of ERISA; (ii) “multiemployer plan” within the meaning of
Section (3)(37) of ERISA or (iii) Acquired Company Pension Plan in which stock
of any of the Acquired Companies or any Acquired Company Affiliate is or was
held as a plan asset. The fair market value of the assets of each funded Foreign
Plan, the liability of each insurer for any Foreign Plan funded through
insurance, or the book reserve established for any Foreign Plan, together with
any accrued contributions, is sufficient to procure or provide in full for
the
accrued benefit obligations with respect to all current and former participants
in such Foreign Plan according to the actuarial assumptions and valuations
most
recently used to determine employer contributions to and obligations under
such
Foreign Plan, and no Contemplated Transaction shall cause any such assets or
insurance obligations to be less than such benefit obligations, except as would
not reasonably be expected to result in material liability to the Acquired
Companies.
(n) Except
as
set forth in Part 2.15(n) of the Disclosure Schedule, no Acquired Company,
and
no Acquired Company Affiliate, has incurred any penalties, excise taxes or
interest under Title IV of ERISA and no condition exists that presents a risk
now or in the future to any Acquired Company or any Acquired Company Affiliate
of incurring any such liability (other than liability for benefits or premiums
to the Pension Benefit Guaranty Corporation arising in the ordinary course)
in
each case as would reasonably be expected to result in, or has resulted in,
any
material liability to the Acquired Companies. No Acquired Company Pension Plan
has an “accumulated funding deficiency” (within the meaning of Section 301 of
ERISA or Section 412 of the Code) whether or not waived. Except as set forth
in
Part 2.15(n) of the Disclosure Schedule, with respect to each Acquired Company
Pension Plan that is a defined benefit plan (as defined in Section 3(35) of
ERISA), the assets of such plan equal or exceed the “benefit liabilities” (as
defined in Section 4001(a)(16) of ERISA) and valued on the basis of the
continuation, and not the termination, of such Acquired Company Pension Plan.
In
the past three years, no “reportable event” within the meaning of Section
4043(c)(1), (4), (5), (6) or (13) of ERISA has occurred with respect to any
Acquired Company Pension Plan that is a defined benefit plan (as defined in
Section 3(35) of ERISA). With respect to any Acquired Company Pension Plan
that
is a “multiemployer plan” within the meaning of Section 3(37) of ERISA, the
total potential withdrawal liability, within the meaning of Section 4201 of
ERISA, if the Acquired Company or Acquired Company Affiliates were to withdraw
from one or more of such Acquired Company Pension Plans would not be expected
to
have an adverse effect on, or result in a material liability to, any Acquired
Company.
52
(o) Except
as
set forth in Part 2.15(o) of the Disclosure Schedule, no Acquired Company
Employee Plan provides (except at no cost to the Acquired Companies), retiree
life insurance, retiree health benefits or other retiree employee welfare
benefits to any Person for any reason, except as may be required by COBRA or
other applicable Legal Requirements. Other than commitments made that involve
no
future costs to any of the Acquired Companies or any Acquired Company Affiliate,
no Acquired Company, and no Acquired Company Affiliate, has to the Knowledge
of
the Company ever promised or contracted (whether in oral or written form) to
any
Acquired Company Employee (either individually or to Acquired Company Employees
as a group) or any other Person that any such Acquired Company Employee or
other
Person would be provided with retiree life insurance, retiree health benefits
or
other retiree employee welfare benefits, except to the extent required by
applicable Legal Requirements.
(p) Except
as
set forth in Part 2.15(p) of the Disclosure Schedule, and except as expressly
required or provided by this Agreement, neither the execution or delivery of
this Agreement nor the consummation of any of the Contemplated Transactions
will
(either alone or upon the occurrence of any additional or subsequent events)
constitute an event under any Acquired Company Employee Plan, Acquired Company
Employee Agreement, trust or loan that will or may result (either alone or
in
connection with any other circumstance or event) in any payment (whether of
severance pay or otherwise), acceleration of any right, obligation or benefit,
forgiveness of indebtedness, vesting, distribution, increase in benefits or
obligation to fund benefits with respect to any Acquired Company
Employee.
(q) Except
as
set forth in Part 2.15(q) of the Disclosure Schedule each of the Acquired
Companies (i) is, and at all times has been, in material compliance with all
applicable Legal Requirements and with any order, ruling, decree, judgment
or
arbitration award of any arbitrator or any court or other Governmental Body
respecting employment, employment practices, terms and conditions of employment,
wages, employee benefits, hours or other labor-related matters, including Legal
Requirements relating to discrimination, wages and hours, labor relations,
leave
of absence requirements, occupational health and safety, privacy, harassment,
retaliation, immigration, wrongful discharge or violation of the personal rights
of Acquired Company Employees; (ii) has withheld and reported in all material
respects all amounts required by any Legal Requirement or Acquired Company
Contract to be withheld and reported with respect to wages, salaries and other
payments to any Acquired Company Employee; (iii) has no material liability
for
any arrears of wages or any Taxes or any penalty for failure to comply with
any
of the foregoing; and (iv) has no material liability for any payment to any
trust or other fund governed by or maintained by or on behalf of any
Governmental Body with respect to unemployment compensation benefits, social
security or other benefits or obligations for any Acquired Company Employee
(other than routine payments to be made in the normal course of business and
consistent with past practice). Since June 30, 2005, none of the Acquired
Companies has effectuated a “mass layoff,” “plant closing,” partial “plant
closing,” “relocation” or “termination” (each as defined in the Worker
Adjustment and Retraining Notification Act (the “WARN
Act”)
or any
similar Legal Requirement) affecting any site of employment or one or more
facilities or operating units within any site of employment or facility of
any
of the Acquired Companies.
53
(r) Each
Acquired Company Employee Plan, Acquired Company Employment Agreement, or other
contract, plan, program, agreement, or arrangement that is a “nonqualified
deferred compensation plan” (within the meaning of Section 409A(d)(1) of the
Code) has been operated in good faith compliance with Section 409A of the Code
and the applicable provisions of IRS Notice 2005-1, proposed Treasury Regulation
§§ 1.409A-1 through 1.409A-6, and any subsequent guidance relating thereto; and
no additional tax under Section 409A(a)(1)(B) of the Code has been or is
reasonably expected to be incurred by a participant in any such Acquired Company
Employee Plan, Acquired Company Employment Agreement, or other contract, plan,
program, agreement, or arrangement.
(s) To
the
Knowledge of the Company, there are no facts indicating that the consummation
of
any of the Contemplated Transactions will have a material adverse effect on
the
labor relations of any of the Acquired Companies.
(t) Part
2.15(t) of the Disclosure Schedule accurately identifies as of the date hereof
the number of employees of any of the Acquired Companies who are not fully
available to perform work because of long-term disability or other long-term
leave.
2.16 Environmental
Matters. Notwithstanding
the breadth or potential application of any other representation or warranty
of
the Company set forth in this Agreement, this Section 2.16 together with Section
2.5(a) and Section 2.12(b) contain the Company’s sole and exclusive
representations and warranties regarding environmental, health and safety
matters. Except as set forth in Part 2.16 of the Disclosure
Schedule:
(a) Since
March 12, 2002, each Acquired Company has been and presently is in compliance
with all applicable Environmental Laws in all material respects, which
compliance includes the possession by each of the Acquired Companies of all
Governmental Authorizations materially necessary under applicable Environmental
Laws, and each of the Acquired Companies is in compliance with the terms
thereof. None of the Acquired Companies has received any written notice since
March 12, 2002 from any Governmental Body or other Person that any of the
Acquired Companies is not in material compliance with any Environmental Law
or
any such Governmental Authorization.
54
(b) There
are
no pending or, to the Knowledge of the Company, threatened material claims
of
any kind against any of the Acquired Companies resulting from any applicable
Environmental, Health, and Safety Liabilities or arising under or pursuant
to
any Environmental Law, with respect to or affecting any of the Facilities or
any
other properties or assets based on events occurring or facts and circumstances
arising after March 12, 2002.
(c) There
are
no material Environmental, Health, and Safety Liabilities, arising out of
actions taken by any of the Acquired Companies since March 12, 2002 with respect
to the Facilities or with respect to any other properties or assets in which
any
of the Acquired Companies, has or had an interest.
(d) All
hazardous materials stored, used, transported, disposed of and handled by any
of
the Acquired Companies have been stored, used, transported, disposed of and
handled in material compliance with all Environmental Laws.
(e) Since
March 12, 2002, there has been no material Release or material Threat of Release
of any hazardous materials at or from the Facilities or at any other locations
where any hazardous materials were generated, manufactured, refined,
transferred, stored, produced, imported, used, processed from or disposed of
by
the Acquired Companies and, in each case, for which the Acquired Companies
have
or may have any material Environmental Health and Safety Liability.
(f) The
Company has made available to the Parent true and complete copies and results
of
any Phase I or Phase II environmental site assessments in the Company’s
possession with respect to the facilities.
2.17 Insurance.
Part
2.17 of the Disclosure Schedule identifies each insurance policy currently
maintained by, at the expense of or for the benefit of any of the Acquired
Companies and identifies any claims over $50,000 (including any workers’
compensation claims) made thereunder as of August 31, 2006 and the Company
has
delivered to Parent or its Representatives accurate and complete copies of
the
insurance policies identified in Part 2.17 of the Disclosure Schedule. Each
of
the insurance policies identified in Part 2.17 of the Disclosure Schedule is
in
full force and effect or has been replaced with a policy that provides
equivalent coverage in all material respects. Since March 12, 2002, none of
the
Acquired Companies has received any written notice regarding any (a)
cancellation or invalidation of any insurance policy identified or required
to
be identified in Part 2.17 of the Disclosure Schedule, (b) refusal of any
coverage or rejection of any claim under any such insurance policy (other than
standard reservation of rights letters), or (c) material increase in the amount
of the premiums currently payable with respect to any such insurance
policy.
2.18 Related
Party Transactions.
Except
as set forth in Part 2.18 of the Disclosure Schedule: (a) no Related Party
has, and no Related Party has at any time since January 1, 2005 had, any
direct or indirect interest in any material asset used in or otherwise relating
to the business of any of the Acquired Companies (other than as a result of
its
ownership interest in Company Capital Stock); (b) no Related Party is, or has
at
any time since January 1, 2005 been, indebted to any of the Acquired
Companies for any amount in excess of $50,000; and (c) since January 1,
2005, no Related Party has entered into, or has had any direct or indirect
financial interest in, any Material Contract, transaction or business dealing
involving any of the Acquired Companies (other than as a result of its ownership
interest in Company Capital Stock). For purposes of this Section 2.18, each
of
the following shall be deemed to be a “Related
Party”:
(i)
each of the Key Stockholders; (ii) each individual who is, or who was since
March 12, 2002 at the time of the entry into the transaction or the creation
of
the interest in question an officer or director of the Company; (iii) each
member of the immediate family of each of the Persons referred to in clause
“(ii)” above; (iv) each Person that is, or that was at any time since March 12,
2002 at the time of the entry into the transaction or the creation of the
interest in question an affiliate of any Key Stockholder (other than any
portfolio company or limited partner of such Key Stockholder); and (v) any
trust
or other Entity (other than the Company) in which, to the Knowledge of the
Company, any one of the Persons referred to in clauses “(i)”, “(ii),” “(iii)”
and “(iv)” above holds (or in which more than one of such Persons collectively
hold), beneficially or otherwise, at least ten percent (10%) of the voting,
proprietary or equity interest.
55
2.19 Legal
Proceedings; Orders.
(a) Except
as
set forth in Part 2.19 of the Disclosure Schedule, as of the date of this
Agreement (x) there is no pending Legal Proceeding, and (y), to the Knowledge
of
the Company, no Person has since January 1, 2005 threatened to commence any
Legal Proceeding that, in either case: (i) involves any of the Acquired
Companies or any of the assets owned or used by any of the Acquired Companies;
or (ii) challenges, or that may have the effect of preventing, delaying, making
illegal or otherwise interfering with, the Merger or any of the other
Contemplated Transactions. Except as set forth in Part 2.19 of the
Disclosure Schedule, to the Knowledge of the Company as of the date of this
Agreement there is no claim or dispute that would reasonably be expected to
give
rise to the commencement of any Legal Proceeding with an amount in dispute
in
excess of $250,000. No claim, dispute or Legal Proceeding disclosed in Part
2.19
of the Disclosure Schedule would, if determined adversely to the Acquired
Company party thereto, reasonably be expected to have or result in a Material
Adverse Effect.
(b) There
is
no Order to which any of the Acquired Companies, or any of the assets owned
or
used by any of the Acquired Companies, is subject. To the Knowledge of the
Company, none of the Key Stockholders is subject to any Order that relates
to
the business of any Acquired Company or to any of the assets owned or used
by
any Acquired Company. To the Knowledge of the Company, no officer or key
employee of any of the Acquired Companies is subject to any Order that prohibits
such officer or employee from engaging in or continuing any conduct, activity
or
practice relating to the business of any of the Acquired Companies as currently
conducted or currently proposed to be conducted.
2.20 Authority;
Binding Nature of Agreement. The
Company has the right, power and authority to enter into and to perform its
obligations under this Agreement; and the execution, delivery and performance
by
the Company of this Agreement have been duly authorized by all necessary action
on the part of the Company and its board of directors. The board of directors
of
the Company (at a meeting duly called and held) has (a) determined that the
Certificate Amendment (as defined in Section 5.15) and the Merger are advisable
and fair and in the best interests of the Company and its stockholders, (b)
authorized and approved the execution, delivery and performance of this
Agreement by the Company and unanimously approved the Merger, (c) authorized
and
approved the Certificate Amendment, and (d) recommended the adoption of this
Agreement and the approval of the Certificate Amendment by the holders of
Company Capital Stock and directed that this Agreement, the Merger and the
Certificate Amendment be submitted for consideration by the Company’s
stockholders. This Agreement has been duly executed and delivered by the Company
and, assuming the due authorization, execution and delivery by the other parties
hereto, constitutes the legal, valid and binding obligation of the Company,
enforceable against the Company in accordance with its terms, subject to (i)
laws of general application relating to bankruptcy, insolvency, fraudulent
conveyance, reorganization, moratorium and the enforcement of creditors’ rights
generally and (ii) rules of law governing specific performance, injunctive
relief and other equitable remedies.
56
2.21 Non-Contravention;
Consents.
Except
as set forth in Part 2.21 of the Disclosure Schedule, neither (1) the execution,
delivery or performance of this Agreement or any of the Ancillary Agreements,
nor (2) the consummation of the Merger or any of the other Contemplated
Transactions will directly or indirectly (with or without notice or lapse of
time):
(a) assuming
the Required Amended Stockholder Votes and Required Merger Stockholder Votes
are
obtained and the filing of the Merger certificate in accordance with the DGCL,
contravene, conflict with or result in a violation of (i) any of the
provisions of the Organizational Documents of any of the Acquired Companies,
or
(ii) any resolution adopted by the stockholders or members, as applicable,
the board of directors or similar governing body, as applicable, or any
committee thereof, of any of the Acquired Companies;
(b) contravene,
conflict with or result in a violation of, or give any Governmental Body or
other Person the right to challenge the Merger or any of the other Contemplated
Transactions or to exercise any remedy or obtain any relief under, any Legal
Requirement or any Order to which any of the Acquired Companies, or any material
asset owned or leased by any of the Acquired Companies, is subject, except
(i)
under the HSR Act and other applicable Antitrust Laws (as defined in Section
5.1), and (ii) for conflicts or violations which would not, individually or
in
the aggregate, reasonably be expected to have or result in a material adverse
effect on the Company’s ability to consummate the Merger;
(c) contravene,
conflict with or result in a violation of any of the terms or requirements
of,
or give any Governmental Body the right to revoke, withdraw, suspend, cancel,
terminate or modify, any Governmental Authorization that is held by any of
the
Acquired Companies or that otherwise relates to the business of any of the
Acquired Companies or to any material assets owned or leased by any of the
Acquired Companies;
(d) contravene,
conflict with or result in a violation in any material respect or breach of,
or
result in a default in any material respect under, any provision of any Material
Contract, or give any Person the right to (i) declare a default or exercise
any remedy under any Material Contract, (ii) a rebate, chargeback, penalty
or
change in delivery schedule under any Material Contract, (iii) accelerate
the maturity or performance in any material respect of any obligation under
any
Material Contract, or (iv) cancel, terminate or modify any material term of
any Material Contract;
57
(e) result
in
the imposition or creation of any Encumbrance upon or with respect to any asset
owned or used by any of the Acquired Companies (except for Permitted
Encumbrances); or
(f) result
in
the transfer of any material asset of any of the Acquired Companies to any
Person.
Except
as
may be required by the DGCL, the HSR Act or applicable federal and state
securities laws and as set forth in Part 2.21 of the Disclosure Schedule,
none of the Acquired Companies was, is or will be required to make any filing
with or give any notice to, or to obtain any Consent from, any Person in
connection with (x) the execution, delivery or performance of this Agreement
or
any of the Ancillary Agreements executed, delivered or entered into in
connection with the Contemplated Transactions, or (y) the consummation of the
Merger or any of the other Contemplated Transactions.
2.22 Vote
Required.
(a) The
affirmative votes of the holders of (i) a majority of the shares of Company
Capital Stock outstanding, voting together on an as-if converted to common
stock
basis and adjusted pursuant to the Company’s Organizational Documents as a
single class, (ii) a majority of the shares of Company Preferred Stock
outstanding, voting as a class, and (iii) a majority of the shares of Company
Common Stock outstanding, voting as a class (the votes referred to in clauses
“(i),” “(ii)” and “(iii)” of this sentence being referred to collectively as the
“Required
Amendment Stockholder Votes”)
are
the only votes of the holders of any class or series of the Company’s capital
stock necessary to approve the Certificate Amendment.
(b) The
affirmative votes of the holders of (i) a majority of the voting power of the
Company Common Stock and Company Preferred Stock outstanding, voting together
as
a single class on an as-if converted to Company Common Stock basis (and taking
account of the adjusted voting power provided in the Company’s certificate of
incorporation (the “Required
Merger Stockholder Votes”)
are
the only votes of the holders of any class or series of the Company’s capital
stock necessary to adopt this Agreement and approve the Merger and the other
Contemplated Transactions (other than the Certificate Amendment).
(c) The
Key
Stockholders collectively own of record a sufficient number of shares of Company
Capital Stock to obtain the Required Merger Stockholder Votes.
2.23 Financial
Advisor.
Except
as disclosed in Part 2.23 of the Disclosure Schedule, no broker, finder or
investment banker is entitled to any brokerage, finder’s or other fee or
commission in connection with the Merger or any of the other Contemplated
Transactions based upon arrangements made by or on behalf of any of the Acquired
Companies.
2.24 Transaction
Expenses.
Part
2.24 of the Disclosure Schedule provides a reasonable, good faith estimate
as of
the date hereof of all Transaction Expenses incurred on or prior to the date
of
this Agreement, and all Transaction Expenses that are or will become payable
with respect to services performed on or prior to the date of this
Agreement.
58
2.25 Proxy
Information.
The
information supplied by or on behalf of the Company for inclusion in the Proxy
Statement related to the Acquired Companies will not, as of the date of the
Proxy Statement, the time the Proxy Statement is mailed to the stockholders
of
Parent or as of the date of the Parent Stockholders’ Meeting (as defined in
Section 5.4) (or any adjournment or postponement thereof), inaccurately state
a
material fact.
SECTION
3.
REPRESENTATIONS
AND WARRANTIES OF PARENT AND MERGER SUB
Parent
and Merger Sub represent and warrant to the Company as follows:
3.1 Authority;
Binding Nature of Agreement.
Parent
and Merger Sub have the corporate power and authority to enter into and to
perform their obligations under this Agreement; and the execution, delivery
and
performance by Parent and Merger Sub of this Agreement have been duly authorized
by all necessary action on the part of Parent and Merger Sub and their
respective boards of directors. This Agreement has been duly executed and
delivered and, assuming the due authorization, execution and delivery by the
other parties hereto, constitutes the legal, valid and binding obligation of
Parent and Merger Sub, enforceable against them in accordance with its terms,
subject to (i) laws of general application relating to bankruptcy, insolvency,
reorganization, moratorium and the enforcement of creditors’ rights generally,
and (ii) rules of law governing specific performance, injunctive relief and
other equitable remedies.
Prior to
the Effective Time, Parent, as the sole stockholder of Merger Sub, will vote
the
shares of Merger Sub stock in favor of the approval of this Agreement, as and
to
the extent required by applicable Legal Requirements, including the
DGCL.
3.2 Valid
Existence.
Each of
Parent and Merger Sub is a corporation duly incorporated, validly existing
and
in good standing under the laws of the jurisdiction of its incorporation. Merger
Sub was formed solely for the purpose of engaging in the Contemplated
Transactions, has engaged in no other business activities and has conducted
its
operations only as contemplated by this Agreement. As of the date hereof, all
of
the outstanding capital stock of Merger Sub is owned beneficially and of record
by Parent, free and clear of all encumbrances (other than those created by
this
Agreement and the Contemplated Transactions hereby).
3.3 Non-Contravention;
Consents.
Neither
(1) the execution, delivery or performance of this Agreement or any of the
Ancillary Agreements, nor (2) the consummation of the Merger or any of the
other
Contemplated Transactions, will directly or indirectly (with or without notice
or lapse of time):
(a) assuming
the Required Parent Merger Stockholder Vote is obtained and the filing of the
Merger certificate in accordance with the DGCL, contravene, conflict with or
result in a violation of (i) any of the provisions of the articles of
incorporation or bylaws of Parent, or (ii) any resolution adopted by the
stockholders, the board of directors or any committee of the board of directors
of Parent since Parent’s inception; or
(b) contravene,
conflict with or result in a violation of, or give any Governmental Body or
other Person the right to challenge the Merger or any of the other Contemplated
Transactions or to exercise any remedy or obtain any relief under, any Legal
Requirement or any Order to which Parent, or any of the material assets owned
or
used by Parent, is subject, except (i) under the HSR Act and other applicable
Antitrust Laws (as defined in Section 5.1), and (ii) for conflicts or violations
which would not, individually or in the aggregate, reasonably be expected to
have or result in a material adverse effect on Parent’s ability to consummate
the Merger.
59
Except
(a) as may be required by the DGCL or by the HSR Act and other applicable
Antitrust Laws; (b) for the Required Parent Merger Stockholder Vote, and (c)
for
filings (i) required under the Exchange Act and the rules and regulations
promulgated thereunder, (ii) required by the American Stock Exchange with
respect to the Merger and the Contemplated Transactions, and (iii) as otherwise
may be required in order for Parent to comply with applicable federal and state
securities laws, Parent was not, is not and will not be required to make any
filing with or give any notice to, or to obtain any Consent from, any Person
prior to the Effective Time in connection with (A) the execution, delivery
or
performance of this Agreement or any of the Contemplated Transactions, and
(B)
the consummation of the Merger or any of the Contemplated Transactions, except
where the failure to make or obtain any such filing, notice or Consent would
not
reasonably be expected to materially impair or delay the ability of Parent
to
consummate the Merger.
3.4 Vote
Required.
The
Required Parent Merger Stockholder Vote is the only vote of the holders of
any
class or series of the Company’s capital stock necessary to approve Merger and
the other Contemplated Transactions.
3.5 Financial
Advisor.
No
broker, finder or investment banker is entitled to any brokerage, finder’s or
other fee or commission from any of the Key Stockholders in connection with
the
Merger or any of the other Contemplated Transactions based upon arrangements
made by or on behalf of Parent or Merger Sub.
3.6 Financing
Letters.
Parent
has provided to the Company a true, correct and complete copy of the commitment
letter, dated as of September 26, 2006 (together with the related fee letter,
the “Wachovia
Financing Commitment”)
from
Wachovia Capital Finance Corporation (Western) (together with its affiliates,
“Wachovia”),
which
evidences Wachovia’s commitments to structure, arrange and syndicate a senior
secured revolving loan facility in an amount up to $65 million on the terms
and
subject to the conditions set forth therein.
SECTION
4. CERTAIN
COVENANTS OF THE COMPANY
4.1 Access
and Investigation.
(a) During
the period from the date of this Agreement through the earlier of the Effective
Time or the valid termination of this Agreement in accordance with Section
8
(the “Pre-Closing
Period”),
the
Company shall, and shall cause each of the Acquired Companies to: (a) provide
Parent and Parent’s Representatives with reasonable access during normal
business hours, in such a manner as to not interfere unreasonably with the
operations of the Acquired Companies, to the senior management, personnel and
assets of the Acquired Companies and to all existing books, records, Tax
Returns, work papers, Acquired Company Contracts and other documents and
information relating to the Acquired Companies; and (b) provide Parent and
Parent’s Representatives (at Parent’s sole cost and expense) with copies of such
existing books, records, Tax Returns, work papers, Acquired Company Contracts
and other documents and information relating to the Acquired Companies, and
with
such additional financial, operating and other data and information regarding
the Acquired Companies, as Parent may reasonably request; provided,
however,
access
to any work papers prepared by the Acquired Companies’ independent auditor may
be subject to the execution by Parent of a customary “hold harmless” letter
reasonably satisfactory to such independent auditors.
60
(b) Without
limiting the generality of the previous sentence, during the Pre-Closing Period,
the Company shall, and shall cause the Representatives of each of the Acquired
Companies to, permit Parent's senior officers to meet with the Controller of
the
Company and other officers of the Acquired Companies responsible for the
Company’s financial statements, the internal controls of the Acquired Companies
and the disclosure controls and procedures of the Acquired Companies to discuss
such matters as Parent may reasonably deem necessary or appropriate for Parent
to satisfy its obligations under the Xxxxxxxx-Xxxxx Act of 2002 and the rules
and regulations relating thereto.
(c) During
the Pre-Closing Period:
(i) within
25
days after the end of each calendar month during the Pre-Closing Period that
is
not the last month of a fiscal quarter, the Company shall deliver to Parent
(A)
a consolidated balance sheet of the Company and its consolidated Subsidiaries
as
of the last day of such calendar month, and (B) consolidated statements of
income and to the extent reasonably requested by Parent (on behalf of lenders
to, and/or equity investors in, Parent) cash flows for such calendar month;
and
(ii) within
45
days after the end of each fiscal quarter during the Pre-Closing Period, the
Company shall deliver to Parent (A) a consolidated balance sheet of the Company
and its consolidated Subsidiaries as of the last day of such fiscal quarter,
and
(B) consolidated statements of income, stockholders’ equity and cash flows for
such fiscal quarter.
(d) During
the Pre-Closing Period, the Company shall cooperate with, and provide reasonable
assistance to, Parent and Parent’s Representatives in the preparation of
projections including forecasted consolidated and consolidating balance sheets
and statements of income and cash flows for the Acquired Companies, together
with explanations of the assumptions on which such forecasts are based as
reasonably requested by Parent for the purpose of providing such information
to
potential lenders to, and/or equity investors in, Parent or the Surviving
Corporation. Notwithstanding the foregoing, but without limiting any
representation or warranty of the Company expressly set forth in this Agreement,
Parent acknowledges and agrees that the Company makes no representations with
respect to such projections, that there can be no guarantee of the future
operating results of the Company, and in no event shall any Parent Indemnitee
have any claim for indemnification hereunder as a result of such projections
or
the failure to achieve the projected operating results set forth therein.
(e) The
Company shall promptly notify Parent in the event that any error is identified
in the financial statements of the Company or other information included in
the
definitive Proxy Statement mailed to Parent’s stockholders which would require
Parent to mail a supplement or amendment to the Proxy Statement to Parent’s
stockholders. The Company shall bear or pay prior to the Closing all costs
associated with any additional mailings referenced in the preceding sentence
required as a result of such error.
61
(f) During
the Pre-Closing Period, the Company shall provide to Parent any new or revised
forecasts given to an Acquired Company by any of the customers identified in
Part 2.7(d) of the Disclosure Schedule that would have been required to be
included in Part 2.7(d) of the Disclosure Schedule if such forecasts had been
the last forecasts received from each such customer prior to the date hereof.
Such new or revised forecasts shall be delivered to Parent on a monthly basis
or
to the extent not previously required to be provided, no fewer than two (2)
business days prior to the Closing Date. The Company shall make the employees
of
the Acquired Companies available to Parent upon reasonable notice and during
normal business hours in connection with inquiries relating to such
forecasts.
4.2 Operation
of the Company’s Business.
During
the Pre-Closing Period:
(a) the
Company shall ensure that it and each of the other Acquired
Companies:
(i) conducts
its business and operations in the ordinary course, in substantially the same
manner as such business and operations have been conducted prior to the date
of
this Agreement;
(ii) conducts
its business and operations consistent with the Company’s 2006 balance sheet and
cash flow projections as of June 20, 2006 delivered by the Company to Parent
prior to the date hereof (the “2006
Street Case”)
and
the Company’s income statement forecasts for 2006, 2007 and 2008 delivered by
the Company to Parent prior to the date hereof (the “Three
Year Projections”);
provided, however, that failure by the Company to meet the 2006 Street Case
and
Three Year Projections shall not, in and of itself, be conclusive evidence
that
the Company conducted its business and operations in a manner inconsistent
with
such projections and forecasts;
(iii) uses
reasonable efforts to, as a whole, preserve intact its current business
organization, keep available the services of its current officers and employees
and maintain its relations and good will with suppliers, customers, landlords,
creditors, employees, labor organizations, Governmental Bodies, and other
Persons having business relationships with the Acquired Companies;
(iv) keeps
in
full force all insurance policies identified in Part 2.17 of the Disclosure
Schedule (except for replacement of insurance policies providing substantially
similar levels of coverage);
(v) promptly
notifies Parent of (A) any notice or other written communication from any Person
alleging that the Consent of such Person is or may be required in connection
with any of the Contemplated Transactions, or (B) any Legal Proceeding
commenced, or, to the Knowledge of the Company, overtly threatened in writing
against any of the Acquired Companies; and
62
(vi) (A)
pays
(in a timely manner) any amounts due and owing to International Business
Machines Corporation (“IBM”)
under
the License Agreement dated July 1, 2004, by and between the Company and
IBM (the “IBM
License Agreement”)
and
(B) shall not exercise the option, under the IBM License Agreement, to designate
a third “have-made sublicensee” without Parent’s prior written consent, not to
be unreasonably withheld;
(b) the
Company shall not, and shall not permit any of the other Acquired Companies
to,
except as consented to by Parent (which consent may not except in the cases
of
clauses (i) through (iii), (v) through (viii), (xi) and (xii) below and clause
(xv) below (to the extent clause (xv) relates to any matter set forth in any
of
clauses (i) through (iii), (v) through (viii), (xi) or (xii) below) be
unreasonably withheld, conditioned or delayed) or as set forth in Part 4.2(b)
of
the Disclosure Schedule:
(i) declare,
accrue, set aside or pay any dividend or make any other distribution in respect
of any shares of capital stock, and shall not repurchase, redeem or otherwise
reacquire any shares of capital stock or other securities (except upon the
exercise of a repurchase right in favor of the Company arising under a Company
Stock Option that was previously exercised or as provided in the Conexant Supply
Termination Agreement Amendment);
(ii) sell,
issue or authorize the issuance of (i) any capital stock or other security,
(ii)
any option or right to acquire any capital stock or other security, or (iii)
any
instrument convertible into or exchangeable for any capital stock or other
security (except that the Company shall be permitted (x) to grant stock options
to employees in accordance with its past practices, (y) to issue Company Common
Stock to employees upon the exercise of outstanding Company Options, and (z)
issue Company Common Stock upon conversion of Company Preferred
Stock);
(iii) amend
or
waive any of its rights under, or permit the acceleration of vesting under,
(A)
any provision of the Company Stock Appreciation Rights Plan, or (B) any
provision of any agreement evidencing any outstanding Stock Appreciation
Rights;
(iv) (A)
establish, adopt or materially amend any Acquired Company Employee Benefit
Plan,
Acquired Company Employment Agreement or Acquired Company Pension Plan (except
that the Company will enter into the Employment Agreements and except as
required to comply with applicable Legal Requirements and with prior notice
to
Parent), (B) pay any bonus or make any profit sharing payment, cash incentive
payment or similar payment to, or increase the amount of the wages, salary,
commissions, fringe benefits or other compensation or remuneration payable
to,
any of its directors, officers or employees (other than payments or increases
required pursuant to the Labor Agreement, any Acquired Company Employee Benefit
Plan or any Acquired Company Employment Agreement as in effect on the date
hereof and salary increases and bonuses for non-executive employees in the
ordinary course of business consistent with past practice), (C) hire any new
officer or any new employee whose annual base compensation is greater than
$100,000, or (D) terminate any existing officers or employees at the level
of
director or above of any of the Acquired Companies;
63
(v) decrease
quarterly contributions to the Acquired Company Pension Plan below (A) $260,000
per quarter for the quarter ended September 30, 2006 and December 31, 2006
and
(B) thereafter actuarially determined amounts;
(vi) amend
its
Organizational Documents, or effect or become a party to (other than as a
stockholder) any Acquisition Transaction, recapitalization, reclassification
of
shares, stock split, reverse stock split or similar transaction;
(vii) form
any
Subsidiary or acquire any equity interest or other interest in any other
Entity;
(viii)
make any
capital expenditure, except for capital expenditures that, when added to all
other capital expenditures made by or on behalf of the Acquired Companies since
July 1, 2006, do not exceed, in the aggregate: (A) $20.2 million through
September 29, 2006, (B) $30.2 million through March 31, 2007; provided, however,
that Parent shall not unreasonably withhold its consent to any proposal by
the
Company to increase the amount of permitted capital expenditures for the period
from December 31, 2006 through March 31, 2007 by an amount not in excess of
$1.75 million or (C) $33.45 million through May 31, 2007, provided, however
that
Parent shall not unreasonably withhold its consent to any proposal by the
Company to increase the permitted amount of capital expenditures for the period
from March 31, 2007 to May 31, 2007 by an amount not in excess of $1.75
million;
(ix) enter
into any Contract that is or would constitute a Material Contract, or amend,
renew or prematurely terminate, or (except in the ordinary course of business)
knowingly waive any material right or remedy under, any Material Contract
(except for: (r) any amendment to the Alliance Program Attachment to Customer
Agreement MA4747, dated June 3, 2002, between the Company and Mentor Graphics
Corporation, the sole effect of which is to expand the definition of “AP
Products” under such agreement to include additional products and to establish
corresponding pricing for such additional products, but which does not otherwise
alter the terms and conditions of the agreement; (s) any amendment (including
amendments implementing new “Product Quotations”) to the Fixed-Term License
Agreement FTLA-02JAZZ0816, dated August 16, 2002, between Newport Fab, LLC
and
Cadence Design Systems, the sole effect of which is to expand the definition
of
“Licensed Programs” under such agreement to include additional products and to
establish corresponding pricing for such additional products, but which does
not
otherwise alter the terms and conditions of the agreement; (t) any
amendment (including amendments to the relevant Statement of Work attachments)
to the Standard Cell Library Development & License Agreement dated May 31,
2006, between the Company and Synopsys, Inc. or the Drom Library Development
& License Agreement dated May 31, 2006, between the Company and Synopsys,
Inc., to expand the definition of “Licensed Libraries” under such agreements to
include additional products and to establish corresponding pricing for such
additional products, but which does not otherwise alter the terms and conditions
of the agreement
(u) any
purchase order accepted by an Acquired Company from a customer; (v) any
agreement with a customer that is consistent in all material respects with
the
terms and conditions of the Company’s standard form of wafer purchase agreement
(rev. 0704) (other than modifications negotiated at arms’ length with a customer
that are not material to the operation of the Acquired Companies’ business),
which contains no obligations of the Company to reserve any fabrication capacity
for such customer except to the extent that the Company has accepted a binding
purchase order from such customer and contains no obligations of exclusivity
binding upon the Company; (w) any agreement with a supplier for the purchase
of
equipment, raw materials, services or supplies; (x) any Employment Agreements
not prohibited by subsection (iv) above; (y) any Contract for capital
expenditures permitted by subsection (viii) above; and (z) any Contract for
licenses permitted by subsection (xi) below; provided,
however,
that
each of (r) through (z) above shall be in the ordinary course of business of
the
Company);
64
(x)
(i)
acquire any asset for a purchase price exceeding $250,000 or assets for an
aggregate purchase price exceeding $1 million (other than the acquisition of
raw
materials or supplies in the ordinary course of business consistent with past
practice and licenses of the type required to be disclosed on Part 2.9 of the
Disclosure Schedule and the acquisition of capital assets subject to subclause
(viii) above); (ii) sell or otherwise dispose of any asset other than the sale
of finished goods inventory in the ordinary course of business consistent with
past practice, scrapped inventory and the disposal of obsolete equipment
consistent with past practice; (iii) enter into a license or lease for any
asset
involving the payment by an Acquired Company of, or the receipt by an Acquired
Company of payments, greater than $100,000 in any twelve month period or
$250,000 over the term of the lease or license; or (iv) knowingly waive or
relinquish any material rights outside of the ordinary course of
business;
(xi) lend
money to any Person (except that the Acquired Companies may make advances to
employees, officers, directors or independent contractors for business expenses
and the Company may allow employees to acquire Company Common Stock in exchange
for promissory notes upon exercise of Company Options, in each case in the
ordinary course of business consistent with past practice), or incur or
guarantee any indebtedness for borrowed money (except for (1) the issuance
of
letters of credit in the ordinary course of business, (2) borrowings under
the
Loan and Security Agreement with Wachovia Capital Finance Corporation (Western)
or (3) borrowings from any Key Stockholders (not to exceed $15 million in the
aggregate) that are repaid at or prior to the Closing);
(xii) change
any of its methods of accounting or accounting practices in any material
respect, except as required by GAAP;
(xiii) make
any
material Tax election;
(xiv) commence
any Legal Proceeding seeking amounts in excess of $100,000 or seeking any
non-monetary relief or settle any material Legal Proceeding except for
settlements involving solely monetary consideration; or
(xv) agree
or
commit to take any of the actions described in this
clause (b).
4.3 Notification;
Updates to Disclosure Schedule.
(a) During
the Pre-Closing Period, each party shall promptly notify the other party in
writing of: (i) the discovery by the first party of any event, condition, fact
or circumstance that occurred or existed on or prior to the date of this
Agreement and that caused or constitutes a material inaccuracy in or breach
of
any representation or warranty of the first party contained in this Agreement;
(ii) any event, condition, fact or circumstance that occurs, arises or exists
after the date of this Agreement and that would cause or constitute a material
inaccuracy in or breach of any representation or warranty of the first party
contained in this Agreement if (A) such representation or warranty had been
made as of the time of the occurrence, existence or discovery of such event,
condition, fact or circumstance, or (B) such event, condition, fact or
circumstance had occurred, arisen or existed on or prior to the date of this
Agreement; and (iii) any material breach of any covenant or obligation of the
first party. In addition, during the Pre-Closing Period, each of the Company
and
Parent shall promptly notify the other in writing of any event, condition,
fact
or circumstance that would make the timely satisfaction of any of the conditions
set forth in Section 6 or Section 7 impossible or unlikely or that has
had or would reasonably be expected to have or result in a Material Adverse
Effect.
65
(b) If
any
event, condition, fact or circumstance that is required to be disclosed pursuant
to Section 4.3(a)
requires
any change in the Disclosure Schedule, or if any such event, condition, fact
or
circumstance would require such a change assuming the Disclosure Schedule were
dated as of the date of the occurrence, existence or discovery of such event,
condition, fact or circumstance, then the Company may deliver to Parent an
update to the Disclosure Schedule specifying such change. No such update
other
than any update to Part 2.9 or Part 2.10 of the Disclosure Schedule permitted
hereby shall
be
deemed to supplement or amend the Disclosure Schedule for the purposes of:
(i) determining the accuracy of any of the representations and warranties
in this Agreement or in any certificate or other Acquired Company Contract
referred to in this Agreement; (ii) determining whether any condition set
forth in Section 6 has been satisfied;
or
(iii) determining compliance with any covenant set forth in this Agreement;
provided,
however,
that
any
update to Part 2.9 or Part 2.10 of the Disclosure Schedule permitted
hereby
for the
purpose of adding to Part 2.9 or Part 2.10 of the Disclosure Schedule a list
of
any Material Contracts or licenses of Intellectual Property entered into after
the execution of this Agreement of the type described in Section 4.2(b)(ix)
or
4.2(b)(x) shall be deemed to supplement the Disclosure Schedule, but solely
for
the purposes of determining whether the representations and warranties of the
Company set forth in this Agreement are inaccurate or have been breached as
of
the Closing Date (as if such representations and warranties had been made on
and
as of the Closing Date) as a result of the matters described in this
proviso.
4.4 No
Negotiation. During
the Pre-Closing Period, (i) neither the Company nor any of the other Acquired
Companies shall, (ii) the Company shall ensure that no officer,
director, employee or partner of the Company or any other Acquired Company
shall, and
(iii)
the Company shall use commercially reasonable efforts to ensure that no other
Representative of the Company or any other Acquired Company shall, directly
or
indirectly: (a) solicit, knowingly facilitate or knowingly encourage the
initiation of any inquiry, proposal or offer from any Person (other than Parent
or its Representatives acting on behalf of Parent) relating to a possible
Acquisition Transaction; (b) participate in any discussions or negotiations
or
enter into any agreement with, or provide any non-public information to, any
Person (other than Parent or its Representatives acting on behalf of Parent)
relating to or in connection with a possible Acquisition Transaction; or (c)
consider, entertain or accept any proposal or offer from any Person (other
than
Parent or its Representatives acting on behalf of Parent) relating to a possible
Acquisition Transaction; provided,
however,
that
nothing contained in this Section 4.4 shall prohibit the Company from having
discussions with any potential joint venture partner or otherwise considering
any strategic acquisition so long as (x) the potential joint venture or
acquisition transaction does not contemplate the sale or issuance of any
securities of any Acquired Company (unless otherwise disclosed to Parent prior
to the date hereof) and would be intended primarily to address the needs of
the
Acquired Companies to find alternative sources of production of wafers for
customers of the Acquired Companies during periods where the Acquired Companies
lack the manufacturing capacity to fulfill their customers’ orders or forecasted
orders for wafers, and (y) the Company does not enter into any letter of intent
or other binding agreement with respect to any of the foregoing without the
prior written consent of Parent, not to be unreasonably withheld. The
Company shall promptly (and in any event within 48 hours of receipt thereof)
notify Parent in writing of any inquiry, proposal or offer relating to a
possible Acquisition Transaction (including
the identity of the Person making or submitting such inquiry, proposal or offer,
and the terms thereof) that
is
received by the Company, any other Acquired Company, any officer, director,
employee or partner of the Company or any other Acquired Company or
(to
the Knowledge of the Company) any other Representative of any Acquired Company
during
the Pre-Closing Period (in
each
case excluding any such notification and information regarding any inquiry,
request or proposal made on or prior to the date hereof, provided that no
additional actions or communication regarding such prior proposals occur after
the date hereof).
66
4.5 Termination
of Public Offering.
The
Company shall, and shall cause its Representatives to, immediately cease any
and
all activities in connection with the Company’s initial public offering. As
promptly as practicable (and in no event more than two business days) following
the date of this Agreement, the Company shall withdraw its Registration
Statement on Form S-1 filed with the SEC prior to the date of this Agreement
and
all amendments thereto.
SECTION
5. ADDITIONAL
COVENANTS OF THE PARTIES
5.1 Regulatory
Approvals.
Each
party shall use commercially reasonable efforts to file, as soon as practicable
after the date of this Agreement, all notices, reports and other documents
required to be filed by such party with any Governmental Body or the American
Stock Exchange with respect to the Merger and the other Contemplated
Transactions, and to submit promptly any additional information requested by
any
such Governmental Body or the American Stock Exchange. Without limiting the
generality of the foregoing, the Company and Parent shall, promptly after the
date of this Agreement, prepare and file the notifications required under the
HSR Act and any applicable foreign antitrust Legal Requirements or regulations
(collectively, the “Antitrust
Laws”)
in
connection with the Merger. Subject to Section 5.8(b),
the
Company and Parent shall: (a) respond as promptly as practicable to: (i) any
inquiries or requests received from the Federal Trade Commission or the
Department of Justice for additional information or documentation; and (ii)
any
inquiries or requests received from any state attorney general, foreign
antitrust authority or other Governmental Body in connection with antitrust
or
related matters; (b) use commercially reasonable efforts to take
all
other actions necessary to cause the expiration or termination of the applicable
waiting periods under the Antitrust Laws as soon as practicable; and
(c)
use
commercially reasonable efforts to resolve any objections which may be asserted
by any Governmental Body with respect to the Merger under the Antitrust Laws.
Subject to Section 5.8(b),
in the
event any Legal Proceeding is threatened or instituted by any Governmental
Body
challenging the Merger as violative
of Antitrust Laws, each of Parent and the Company shall use commercially
reasonable efforts to avoid the institution of, or to resist or resolve, such
Legal Proceeding. At
the
request of Parent, the Company shall agree to divest, sell, dispose of, hold
separate or otherwise take or commit to take any action relating to the
business, product lines or assets of any Acquired Company, provided that any
such action is: (A) determined by Parent in good faith to facilitate compliance
with any Legal Requirement or any request by any Governmental Body; and (B)
conditioned upon the consummation of the Merger.
67
5.2 Written
Consents; Information Statement.
Immediately
following the execution of this Agreement, the Company shall ensure that each
Key Stockholder executes and delivers to the Company a written consent approving
the Merger, adopting this Agreement and approving the Certificate Amendment
(a
“Written
Consent”).
As
soon as reasonably practicable (but in any event within five business days)
following the date on which the Proxy Statement is mailed to Parent’s
stockholders, the Company shall (a) complete the preparation of an information
statement accurately describing this Agreement, the Merger, the other
Contemplated Transactions and the provisions of Section 262 of the DGCL (the
“Information
Statement”),
and
(b) deliver the Information Statement to those of its stockholders who did
not
execute Written Consents for the purpose of informing them of the approval
of
the Merger, the adoption of this Agreement and the approval of the Certificate
Amendment. The Information Statement shall include, subject to the fiduciary
duties of the board of directors of the Company, a statement to the effect
that
the board of directors of the Company recommends that the Company’s stockholders
that have not been deemed to have executed Written Consents approving the
Merger, adopt this Agreement and approve the Certificate Amendment.
5.3 Proxy
Statement.
As
promptly as reasonably practicable after Parent’s receipt from the Company of
all of the information regarding the Acquired Companies that Parent may
reasonably request in good faith in connection with the preparation thereof,
Parent shall prepare and cause the Proxy Statement to be filed with the
SEC. Parent
shall use commercially reasonable efforts to cause the Proxy Statement to comply
with the rules and regulations promulgated by the SEC, to respond promptly
to
any comments of the SEC or its staff. Parent shall cause the Proxy Statement
to
be mailed to Parent’s stockholders as promptly as reasonably practicable after
the SEC notifies Parent that it has no further comments on the preliminary
Proxy
Statement. The Company shall promptly furnish to Parent all information
concerning the Acquired Companies as may be required or reasonably requested
in
connection with any action contemplated by this Section 5.3.
If any
event relating to any of the Acquired Companies occurs, or if the Company
becomes aware of any information, that should be disclosed in an amendment
or
supplement to the Proxy Statement, then the Company shall promptly inform Parent
thereof and shall cooperate with Parent in filing such amendment or supplement
with the SEC.
5.4 Parent
Stockholders’ Meeting.
(a) Parent
shall take all action necessary to call, give notice of and
hold
a meeting of Parent’s stockholders to approve the Merger (the “Parent
Stockholders’ Meeting”).
The
Parent Stockholders’ Meeting will be held as promptly as reasonably practicable
after the date on which the Proxy Statement is mailed to the stockholders of
Parent, consistent with applicable Legal Requirements.
68
(b) Subject
to Section 5.4(c):
(i) the
Proxy Statement shall include a statement to the effect that the board of
directors of Parent recommends that Parent’s stockholders vote to approve the
Merger (the recommendation of Parent’s board of directors that Parent’s
stockholders vote to approve the Merger being referred to as the “Parent
Board Recommendation”);
and
(ii) the Parent Board Recommendation shall not be withdrawn or adversely
modified, and no resolution by the board of directors of Parent or any committee
thereof to withdraw or adversely modify the Parent Board Recommendation shall
be
adopted or proposed. Parent shall use reasonable best efforts to obtain the
Required Parent Merger Stockholder Vote.
(c) Notwithstanding
anything to the contrary contained in Section 5.4(b),
at any
time prior to the approval of the Merger by the Required Parent Merger
Stockholder Vote, the Parent Board Recommendation may be withdrawn or adversely
modified, but only if the fairness opinion or the valuation opinion obtained
by
Parent in connection with the Contemplated Transactions is rescinded, withdrawn
or adversely modified.
None of
Parent, its officers or its directors shall instruct or request any Person
delivering a fairness opinion or valuation opinion to Parent’s board of
directors in connection with the Contemplated Transactions to rescind or
withdraw such fairness opinion or valuation opinion; provided,
however, that
nothing contained in this Section 5.4(c)
or
elsewhere in this Agreement shall restrict Parent or its board of directors
from
requesting that Parent’s financial advisors reaffirm, bring down or update any
fairness opinion or valuation opinion given in connection with the Contemplated
Transactions after Parent’s board of directors shall have consulted with outside
legal counsel with respect to the advisability of such a request. In such event
Parent shall promptly notify the Company that it has made such request, and
Parent shall provide a copy of any such updated valuation or fairness opinion
immediately upon receipt thereof. Notwithstanding anything to the contrary
contained in this Agreement, nothing shall in any way limit the right of Parent
and its board of directors to comply with its obligations under the Exchange
Act
or other applicable Legal Requirements; provided,
however,
that the
foregoing shall not be construed as granting to Parent any right to terminate
this Agreement other than in accordance with the terms of Section 8.
5.5 Standstill.
During
the Pre-Closing Period, Parent shall: (a) cease all ongoing discussions and
negotiations concerning any Business Combination (as such term is defined in
Parent’s Amended and Restated Certificate of Incorporation in effect as of the
date of this Agreement); (b) cease all ongoing substantive negotiations
concerning any Tack-On Transaction (as defined below); and (c) terminate any
letter of intent or term sheet contemplating any Tack-On Transaction or Business
Combination that is in effect as of the date of this Agreement. During the
Pre-Closing Period, Parent shall not and shall not permit its Representatives
to: (i) enter into any letter of intent, term sheet or definitive acquisition
or
merger agreement with any Person contemplating a possible Business Combination
or Tack-On Transaction; (ii) engage in any discussions or negotiations
concerning any letter of intent, term sheet or definitive acquisition or merger
agreement contemplating a Business Combination or Tack-On Transaction; or (iii)
engage in any substantive due diligence review of non-public information of
any
Person in contemplation of a Business Combination or Tack-On Transaction.
Notwithstanding any of the foregoing provisions of this Section 5.5, during
the
Pre-Closing Period, Parent may do any one or more of the following: (w) engage
in discussions or negotiations and enter into any letter of intent or term
sheet
with any Person contemplating any Eligible Tack-On Transaction if such action
would not require that the Proxy Statement be amended or supplemented to
describe such Eligible Tack-On Transaction, (x) upon the Company’s prior written
consent, not to be unreasonably withheld, conditioned or delayed, engage in
discussions or negotiations and enter into any letter of intent or term sheet
with any Person contemplating any Eligible Tack-On Transaction if such action
would require that the Proxy Statement be amended or supplemented to describe
such Eligible Tack-On Transaction, (y) upon the Company’s prior written consent,
which may be withheld or conditioned in the Company’s sole discretion, engage in
discussions or negotiations and enter into any letter of intent or term sheet
with any Person contemplating any Tack-On Transaction that is not an Eligible
Tack-On Transaction, and (z) upon the Company’s prior written consent, which may
be withheld or conditioned in the Company’s sole discretion, enter into any
definitive acquisition or merger agreement with any Person contemplating any
Tack-On Transaction. For purposes of this Agreement, (A) a “Tack-On
Transaction”
shall
mean a proposed acquisition by Parent or any Affiliate of Parent of a business
or businesses (other than those of the Acquired Companies) that does not
constitute a Business Combination, and (B) an “Eligible
Tack-On Transaction”
shall
mean a Tack-On Transaction determined in good faith by Parent to be
complementary to the businesses of the Acquired Companies and having a purchase
price, including the assumption or acquisition of debt, of $50,000,000 or
less.
69
5.6 280G
Payments. As
promptly as practicable after the execution of this Agreement, the Company
shall
submit to the stockholders of the Company (in a manner satisfactory to Parent)
for approval by such number of stockholders of the Company as is required by
the
terms of Section 280G(b)(5)(B) of the Code a written consent in favor of a
single proposal to render the parachute payment provisions of Section 280G
of
the Code and the Treasury Regulations thereunder (collectively, “Section
280G”)
inapplicable to any and all payments and/or benefits provided pursuant to
Acquired Company Employee Plans, Acquired Company Employee Agreements or other
Acquired Company Contracts (including payments pursuant to the Severance
Agreements or any employee bonus plan adopted in connection with the
Contemplated Transactions) that might result, separately or in the aggregate,
in
the payment of any amount and/or the provision of any benefit that would not
be
deductible by reason of Section 280G or that would be subject to an excise
tax
under Section 4999 of the Code (together, the “Section
280G Payments”).
Any
such stockholder approval shall be obtained in a manner which satisfies all
applicable requirements of Section 280G(b)(5)(B) of the Code and the Treasury
Regulations thereunder, including Q-7 of Section 1.280G-1 of such Treasury
Regulations. The Company agrees that: (i) in the absence of such stockholder
approval, no Section 280G Payments shall be made; and (ii) promptly after
execution of this Agreement, the Company shall deliver to Parent waivers duly
executed by each Person who might receive any Section 280G Payment. The form
and
substance of all stockholder approval documents contemplated by this Section
5.6, including the waivers, shall be subject to the review and approval of
Parent.
5.7 Public
Announcements. Except
as
required by applicable Legal Requirements and in the case of Parent, except
for
any filings required to be made with the SEC or other actions that Parent in
good xxxxx xxxxx to be necessary or appropriate in connection with seeking
to
obtain the Required Parent Merger Stockholder Vote (including in connection
with
the Proxy Statement), during the Pre-Closing Period, Parent and the Company
shall not (and the Company shall not permit any of the Acquired Companies or
any
Representative of any of the Acquired Companies to) issue any press release
or
make any public statement regarding this Agreement, the Merger or any of the
other Contemplated Transactions without the prior written consent of the other
party; provided, however, that nothing in this Section 5.7 shall preclude (i)
the Company from complying with its obligation under Section 228 of the DGCL
to
notify those of its stockholders who did not execute Written Consents of the
adoption of this Agreement by the Written Consents executed by the Key
Stockholders, (ii) the board of directors of the Company from exercising its
fiduciary duties in communications with stockholders of the Company or (iii)
the
board of directors of Parent from exercising its fiduciary duties in
communications with stockholders of Parent.
70
5.8 Additional
Agreements.
(a) Subject
to Section 5.8(b),
Parent,
Merger Sub and the Company shall use commercially reasonable efforts to take,
or
cause to be taken, all actions necessary to consummate the Merger and make
effective the other Contemplated Transactions. Without limiting the generality
of the foregoing, but subject to Section 5.8(b),
each
party to this Agreement (i) shall make all filings (if any) and give all notices
(if any) required to be made and given by such party in connection with the
Merger and the other Contemplated Transactions, and (ii) shall use commercially
reasonable efforts to obtain each Consent (if any) required to be obtained
(pursuant to any applicable Legal Requirement or Acquired Company Contract,
or
otherwise) by such party in connection with the Merger or any of the other
Contemplated Transactions. The Company shall promptly deliver to Parent a copy
of each such filing made, each such notice given and each such Consent obtained
by the Company during the Pre-Closing Period.
(b) Notwithstanding
anything to the contrary contained in this Agreement, Parent shall not have
any
obligation under this Agreement or otherwise: (i) to dispose of or transfer
any
assets, or to commit to cause any of the Acquired Companies to dispose of or
transfer any assets; (ii) to discontinue offering any product or service, or
to
commit to cause any of the Acquired Companies to discontinue offering any
product or service; (iii) to license or otherwise make available to any Person,
any technology, software or other Intellectual Property or Intellectual Property
Right, or to commit to cause any of the Acquired Companies to license or
otherwise make available to any Person any technology, software or other
Intellectual Property or Intellectual Property Right; (iv) to hold separate
any
assets or operations (either before or after the Closing Date), or to commit
to
cause any of the Acquired Companies to hold separate any assets or operations;
or (v) to make any commitment (to any Governmental Body or otherwise) regarding
its future operations or the future operations of any of the Acquired
Companies.
5.9 Financing.
(a) Parent
shall use commercially reasonable efforts to arrange and consummate the
transactions contemplated by the Wachovia Commitment Letter and such additional
debt and/or equity financing transactions (collectively, the “Financing
Transactions”
and
the
Wachovia Commitment Letter together with any commitment letter or any similar
agreement with respect to the Financing Transactions, the “Financing
Commitments”)
such
that, at the Closing, Parent would have sufficient funds available to pay all
amounts payable at or promptly following the Closing by Parent, Merger Sub
or
the Surviving Corporation pursuant to Sections 1.5, 1.6 and 1.7 and all of
the
related fees and expenses payable by Parent or Merger Sub in connection with
the
Merger and other Contemplated Transactions. Without limiting the generality
of
the foregoing, Parent shall use its commercially reasonable efforts: (i) to
the
extent within its control, to satisfy all conditions precedent in any Financing
Commitments then in effect and in any definitive agreements relating to the
Financing Transactions, (ii) to negotiate in good faith definitive agreements
respecting the Financing Transactions, and (iii) if any material portion of
the
financing to be provided at the Closing contemplated by the Wachovia Financing
Letter has become unavailable, regardless of the reason therefor, to obtain
alternative financing from the same or other sources subject to substantially
similar conditions precedent to funding to those set forth in the Wachovia
Commitment Letter. Parent shall give the Company prompt notice of any
termination, revocation or amendment of the Wachovia Commitment Letter or any
other Financing Commitments and provide the Company with copies of any written
correspondence with respect thereto, shall provide copies of any documentation
(including drafts thereof) with respect to any Financing Commitments or any
definitive documentation with respect to the Financing Transactions, as and
when
requested by the Company, and shall otherwise keep the Company reasonably
informed as to the status of its efforts to arrange the Financing Transactions.
Parent shall not permit any material amendment or modification to be made to
the
conditions precedent to funding or any other material provision set forth in
the
Wachovia Financing Commitment (or any other Financing Commitment entered into
after the date hereof that replaces the Wachovia Financing Commitment) that
could reasonably result in a material reduction in the amount of financing
available at the Closing thereunder without the prior written consent of the
Company (such consent not to be unreasonably withheld).
71
(b) In
the
event that (x) Wachovia or one or more other third parties provides at least
$35
million of debt or equity financing to Parent at the Closing (other than amounts
funded from the Trust Account) and (y) the proceeds at Closing from the
Financing Transactions, together with the proceeds available to the Company
from
the Trust Account (as defined in Section 5.18) is less than the aggregate amount
payable at, or immediately following, the Closing by Parent, Merger Sub or
the
Surviving Corporation pursuant to Sections 1.5, 1.6 and 1.7 (after using all
cash (as determined in accordance with GAAP consistent with past practices
and
excluding restricted cash) on the Company’s balance sheet immediately prior to
the Closing in excess of $20,000,000 to pay such amounts and borrowing the
maximum amount permitted to be borrowed under the terms of any Financing
Transaction being entered into at the Closing) (such shortfall, if any, the
“Funding
Shortfall”)
and
such Funding Shortfall does not exceed $80 million in the aggregate, then an
amount equal to the Funding Shortfall (the “Stockholder
Loan Amount”)
that
would have otherwise been payable to the Escrow Participants in cash pursuant
to
Sections 1.5, 1.6 and 1.7 shall instead be paid by Parent by the delivery of
one
or more promissory notes (the “Stockholder
Loans”)
having
an aggregate initial principal amount equal to the Stockholder Loan Amount,
which promissory notes shall be payable to the Escrow Participants pro rata
in
accordance with the amount of cash proceeds that would otherwise be payable
to
them at the Closing in respect of the shares of Company Capital Stock and shares
of Company Common Stock subject to In-The-Money Company Options pursuant to
Section 1.5(a)(ii)(A), Section 1.5(a)(iii)(A) and Section 1.6(a)(i) (calculated
using the Estimated Closing Amount). In the event that any Stockholder Loan
is
made in connection with the Closing, Parent shall not enter into any other
Financing Transaction at the Closing or, so long as any Stockholder Loan remains
outstanding, incur any indebtedness that does not permit any Stockholder Loan
to
be refinanced by Parent and its Subsidiaries with the proceeds of any equity
financing or any debt financing on terms that, in the aggregate, are not worse
for the Parent and its other lenders than the terms of the Stockholder Loan
being refinanced.
72
(c) In
the
event that the aggregate amount of Stockholder Loans at Closing is equal to
or
less than $40 million, the Stockholder Loans shall be “Stockholder Mezzanine
Loans” having the terms set forth in clause (ii) below. In the event that the
aggregate amount of the Stockholder Loans at Closing are greater than $40
million, $30 million of such Stockholder Loans shall be “Stockholder Mezzanine
Loans” having the terms set forth in clause (ii) below and the remaining amount
of such Stockholder Loans (not to exceed $50 million) shall be “Stockholder Term
B Loans” having the terms set forth in clause (i) below.
(i) Any
portion of the Stockholder Loans that are a “Stockholder Term B Loan” (the
“Stockholder
Term B Loan”)
shall
(1) have an initial adjustable interest rate equal to LIBOR plus 950 basis
points, payable quarterly in cash, which interest rate shall be increased by
200
basis points per annum beginning on the six month anniversary of the Closing
Date and an additional 200 basis points per annum each three months thereafter,
(2) be subject to a 1.5% origination fee payable in cash at the Closing,
one-half of which shall be refunded to Parent with respect to any portion of
the
Stockholder Term B Loan principal amount that is refinanced or otherwise repaid
within six months of the Closing Date, (3) be secured by a second lien on all
of
the assets of Parent and its Subsidiaries and shall be subordinate to the debt
financing contemplated by the Wachovia Commitment Letter or any other first
lien
debt financing, not to exceed $75 million initial principal amount in the
aggregate (together with any replacements and refinancings thereof in an
aggregate principal amount that does not exceed $75 million, the “First
Lien Loan”)
and
pari passu or senior to all other indebtedness of Parent and its Subsidiaries,
(4) have a maturity of three and a half years following the Closing Date, and
(5) shall otherwise be on terms and conditions customary for commercial “Second
Lien” Term B loans and in no event shall contain terms, covenants and conditions
less favorable to the Escrow Participants in any material respect than the
terms, covenants and conditions obtained by a third party in connection with
any
other Term B loan entered into by Parent or its Subsidiaries with such a third
party as part of the Financing Transactions.
(ii) Any
portion of the Stockholder Loans that are a “Stockholder Mezzanine Loan” (the
“Stockholder
Mezzanine Loan”)
shall
(1) have an initial interest rate equal to twenty percent per annum, one half
of
which shall be payable quarterly in cash and one half of which shall be payable
quarterly in kind, which interest rate shall be increased by 100 basis points
per annum beginning on the twelve month anniversary of the Closing Date and
by
an additional 100 basis points per annum each three months thereafter, one
half
of which shall be payable quarterly in cash and one half of which shall be
payable quarterly in kind, (2) be secured by a third lien on all of the assets
of Parent and its Subsidiaries and shall be subordinate to the First Lien Loan
(not to exceed $75 million initial principal amount in the aggregate) and any
second lien debt financing consummated by Parent in connection with the Closing
(and any replacements or refinancings thereof in an aggregate principal amount,
together with the First Lien Loans, not to exceed $115 million), (3) have a
maturity of three and a half years following the Closing Date, and (4) otherwise
be on terms and conditions customary for commercial “mezzanine” bridge loans and
in no event shall contain terms, covenants and conditions less favorable to
the
Escrow Participants in any material respect than the terms, covenants and
conditions obtained by a third party in connection with any mezzanine or other
loans subordinated to any second lien financing entered into by Parent or its
Subsidiaries with such a third party as part of the Financing Transactions.
73
(iii) In
addition, to the terms and conditions specified above, the Stockholder Loans
shall provide that (in the case of clauses (w), (x) and (z) to the extent
permitted by the terms of the First Lien Loan): (w) 100% of the proceeds of
any
debt or equity financing consummated by Parent or its Subsidiaries following
the
Closing shall be used to prepay first the Stockholder Term B Loan and, when
such
loan has been repaid in full, thereafter the Stockholder Mezzanine Loan, (other
than financing used to refinance or replace the First Lien Loan in an aggregate
principal amount that does not exceed $75 million), (x) 100% of the proceeds
of
any sale of assets of Parent or its Subsidiaries (other than the sale of
inventory or the licensing of Intellectual Property in the ordinary course
of
business or the sale of equipment in the ordinary course of business so long
as
the proceeds of the sale of such equipment are used to purchase additional
equipment within 90 days thereof) following the Closing shall be used to prepay
first the Stockholder Term B Loan and, when such loan has been paid in full,
thereafter the Stockholder Mezzanine Loan, (y) no dividends, distributions,
redemptions or other payments shall be made to the equity holders of Parent
in
respect of the equity securities of Parent held by such holders so long as
any
Stockholder Loan remains outstanding, and (z) 100% of excess cash flow from
the
operation of Parent and its Subsidiaries (to be defined in the definitive
agreements with respect to the Stockholder Loans in a manner consistent with
general market practice) shall be used to prepay first the Stockholder Term
B
Loan and, when such loan has been paid in full, thereafter the Stockholder
Mezzanine Loan; provided for purposes of this clause (z) the maximum
availability to Parent or its Subsidiaries under any revolving credit facility
plus the aggregate amount of cash and cash equivalents as determined in
accordance with GAAP on a consolidated basis is at least $35 million after
giving effect to such repayment.
(d) If
requested by the Company at any time after the earlier of January 10, 2007
or
the date of the filing of the definitive Proxy Statement by Parent in the event
Parent has not negotiated definitive agreements with respect to Financing
Transactions as a result of which it reasonably expects to receive at least
$115
million in proceeds at the Closing, or by Parent at any time, Parent and the
Stockholder Representative shall negotiate definitive agreements with respect
to
the Stockholder Loans and Parent shall reimburse the Stockholder Representative
for any out-of-pocket expenses (including reasonable out-of-pocket legal fees
in
connection therewith) incurred by the Stockholder Representative in negotiating
such agreements. If Parent and the Stockholder Representative are unable to
agree on any terms or conditions of the Stockholder Loans not specified above,
Parent and the Stockholder Representative shall jointly retain (at Parent’s sole
cost and expense) a mutually acceptable nationally recognized law firm with
experience representing lenders in loans of the types included in the
Stockholder Loan, which shall resolve any dispute regarding such terms and
conditions by determining the prevailing market practice then in effect with
respect to loans of such type (it being understood that, except as noted in
Section 5.9(c), such loans are not being made on terms customary for seller
financing and are instead intended to be made on market terms typical for loans
of such type made by commercial lenders).
(e) If
the
Stockholder Loan is made, then notwithstanding anything to the contrary in
this
Agreement, the Indemnity Escrow Contribution Amount shall be equal to the excess
(if any) of (i) $20,000,000 over
(ii)
the
Stockholder Loan Amount. In the event that, and at such time as, any Parent
Indemnitee would otherwise have become entitled to receive a distribution out
of
the Indemnity Escrow Fund in accordance with Section 9.7 (a “Distribution
Entitlement”),
the
indemnity obligation of the Escrow Participants, and such Parent Indemnitee’s
entitlement to such distribution, shall be satisfied first by reducing the
principal amount of the Stockholder Term B Loan dollar-for-dollar by the amount
of such Distribution Entitlement, up to the lesser of (x) the principal amount
of the Stockholder Term B Loan then remaining outstanding or (y) the amount
of
such Distribution Entitlement, and any remaining portion of such Distribution
Entitlement shall be satisfied by reducing the principal amount of the
Stockholder Mezzanine Loan dollar-for-dollar by the remaining amount of such
Distribution Entitlement, up to the lesser of (1) the principal amount of the
Stockholder Mezzanine Loan then remaining outstanding or (2) the remaining
amount of such Distribution Entitlement. To the extent that at any time a
proposed repayment by Parent of all or any portion of the principal amount
of a
Stockholder Loan (other than by reason of a Distribution Entitlement) would
have
the effect of reducing the aggregate principal amount outstanding of all
Stockholder Loans remaining below an amount equal to the excess (if any) of
(A)
$20 million over
(B) the
aggregate amount of all of all prior reductions in the principal amount of
Stockholder Loans as a result of Distribution Entitlements, the amount of such
repayment shall not be paid by Parent to the payees of the Stockholder Loan,
but
instead shall be deposited in the Indemnity Escrow Fund; provided,
however,
that
the principal amount of the Stockholder Loan shall for all purposes be deemed
to
have been reduced by the amount of such deposit.
74
(f) The
Company shall use commercially reasonable efforts (at Parent’s sole cost and
expense with respect to any out-of-pocket expenses requested to be incurred
by
Parent in connection therewith) to assist Parent in connection with transactions
undertaken by Parent to finance the transactions contemplated by this Agreement.
Notwithstanding the foregoing, in no event shall any of the Acquired Companies
be required to enter into any agreement or incur any liability or obligation
with respect to such financing transactions prior to the Closing.
5.10 Post
Closing Option Pool. Promptly
following the Closing, Parent shall establish a pool of options to acquire
4,698,692 shares of Parent’s common stock, a portion of which shall be subject
to issuance to members of management and other selected employees of the
Acquired Companies, as determined by the Parent in its sole discretion.
5.11 FIRPTA
Matters.
At the
Closing: (a) the Company shall deliver to Parent a statement (in such form
as
may be reasonably requested by counsel to Parent) conforming to the requirements
of Section 1.897 - 2(h)(1)(i) of the United States Treasury Regulations; and
(b)
the Company shall deliver to the IRS the notification required under Xxxxxxx
0.000 - 0(x)(0) xx xxx Xxxxxx Xxxxxx Treasury Regulations.
5.12 Termination
of the Company Option Plan.
Unless
otherwise requested by Parent prior to the Closing, the Company shall take
all
actions reasonably necessary to terminate the Company Option Plan prior to
the
Closing.
5.13 Resignation
of Officers and Directors.
The
Company shall use commercially reasonable efforts to obtain and deliver to
Parent at or prior to the Closing the resignation of (a) each director of each
of the Acquired Companies, and (b) each officer of each of the Acquired
Companies identified on Schedule
5.13.
75
5.14 Indemnification
of Officers and Directors.
(a) Parent
and Merger Sub agree that all rights to indemnification for acts or omissions
occurring prior to the Effective Time existing as of the date of this Agreement
in favor of each current and former officer and director of the Acquired
Companies (the “D&O
Indemnified Persons”)
as
provided in the certificate of incorporation and bylaws or other organization
documents of the Acquired Companies (as in effect on the date of this Agreement)
or the indemnification agreements identified in Part 2.10(a)(ii)
of the
Disclosure Schedule (as in effect on the date of this Agreement) shall survive
the Merger and shall continue in full force and effect in accordance with their
terms for at least six years following the Effective Time (or, in the case
of a
claim for indemnification asserted against an Acquired Company by a D&O
Indemnified Person during such six year period, for such longer period until
such claim is finally resolved), and Parent shall cause the Surviving
Corporation to fulfill and honor such obligations to the maximum extent
permitted by applicable Legal Requirements.
(b) For
a
period of six years after the Effective Time, Parent shall maintain or cause
the
Surviving Corporation to maintain in effect, for events that shall have occurred
prior to the Effective Time, the existing level and scope of directors’ and
officers’ liability, employee practices liability insurance and fiduciary
insurance covering those D&O Indemnified Persons who are currently covered
by the Company’s existing directors’ and officers’ liability, employee practices
liability insurance and fiduciary insurance policy (collectively, the
“Existing
D&O Policies”),
if
directors’ and officers’ liability insurance coverage is commercially available;
provided,
however,
that:
(i) the Surviving Corporation may substitute for the Existing D&O Policies a
policy or policies of comparable coverage; and (ii) in no event shall the
Surviving Corporation be required to expend in any one year for the Existing
D&O Policies (or for any substitute policies) in the aggregate, in excess of
150% of current premium (such amount being referred to as the “Maximum
Premium”);
and
provided, further,
that if
the annual premiums payable for the Existing D&O Policies (or any substitute
policies) exceed the Maximum Premium, Parent or the Surviving Corporation shall
be entitled to reduce the amount of coverage of the Existing D&O Policies
(or any substitute policies) to the amount of coverage that can be obtained
for
a premium equal to the Maximum Premium. The provisions of this Section
5.14(b)
shall be
deemed to have been satisfied if a prepaid policy has been obtained prior to
the
Effective Time for purposes of this Section 5.14(b),
which
policy provides such D&O Indemnified Persons with coverage comparable to the
coverage provided by the Existing D&O Policies for an aggregate period of
six years following the Effective Time (and the Company shall, at the request
of
Parent, obtain such a prepaid policy prior to the Effective Time, provided
that
the cost thereof shall be borne by Parent).
(c) The
provisions of this Section 5.14
shall
survive the Closing and are intended to be for the benefit of, and enforceable
by, each of the D&O Indemnified Persons and his or her heirs and personal
representatives.
5.15 Amendment
to Certificate of Incorporation.
The
Company shall: (a) cause to be adopted an amendment to the Company’s certificate
of incorporation in the form of Exhibit
D
(the
“Certificate
Amendment”);
and
(b) file the Certificate Amendment with the Secretary of State of the State
of
Delaware and cause the Certificate Amendment to take effect prior to the Closing
Date.
76
5.16 Termination
and Amendment of Certain Agreements.
(a) Prior
to
the Closing, the Company shall have caused the Contracts identified on
Schedule
5.16(a)
to have
been terminated effective on or prior to the Effective Time.
(b) Prior
to
the Closing, the Company shall have caused the Contracts identified on
Schedule
5.16(b)
to have
been amended as set forth on Schedule
5.16(b) effective
on or prior to the Effective Time.
5.17 Board
of Directors; Management.
(a) Parent
shall use commercially reasonable efforts to cause the board of directors of
Parent to consist, at or promptly following the Effective Time, of the
individuals identified on Schedule
5.17(a).
(b) Parent
shall use commercially reasonable efforts to cause each individual identified
on
Schedule
5.17(b)
to hold,
at or promptly following the Effective Time, the management position set forth
opposite such individual’s name on Schedule
5.17(b).
5.18 Parent
Trust Account. Notwithstanding
anything to the contrary herein, the Company has read a copy of Parent’s
prospectus dated March 15, 2006 and filed with the Securities and Exchange
Commission (the “Prospectus”).
The
Company understands that Parent is a blank check company formed for the purpose
of consummating a “business combination” (as described in the Prospectus), must
complete such business combination within 18 months (or 24 months if a letter
of
intent, agreement in principle or definitive agreement has been executed within
18 months) (the “Transaction
Deadline Date”),
has
established a trust account at Xxxxxx Brothers, maintained by Continental Stock
Transfer & Trust Company acting as trustee, initially in an amount of
$164,308,004 after the exercise of the underwriters’ over-allotment option for
the benefit of its public stockholders (the “Trust
Account”),
and
does not have access to the funds in such Trust Account except under the
circumstances set forth in the Prospectus. On behalf of itself and each other
Acquired Company, Acquired Company Affiliate and Company Indemnitee (and
affiliates thereof) (collectively, the “Company
Claimants”),
the
Company: (a) agrees that neither it nor any Company Claimant has any right,
title, interest or claim of any kind in or to (i) any assets in the Trust
Account, (ii) assets of Parent to the extent such right, title, interest or
claim would impair the amounts in the Trust Account or (iii) assets distributed
from the Trust Account to the public stockholders (each such right, title,
interest or claim a “Claim”);
(b)
unless and until Parent completes another Business Combination (as defined
in
Parent’s certificate of incorporation as of the date of this Agreement), hereby
waives any Claim that it or any Company Claimant may have in the future as
a
result of, or arising out of, this Agreement or the Ancillary Agreements; and
(c) agrees that neither it nor any other Company Claimant will seek recourse
against the Trust Account or the public stockholders of Parent (in their
capacity as stockholders of Parent or as recipients of liquidating distributions
from Parent) for any reason whatsoever. Further, the Company acknowledges that
it has read Section 1542 of the Civil Code of the State of California, which
states in full:
77
“A
general release does not extend to claims which the creditor does not know
or
suspect to exist in his or her favor at the time of executing the release,
which
if known by him or her must have materially affected his or her settlement
with
the debtor.”
The
Company, on behalf of itself and the Company Claimants, hereby waives any right
that the Company or the Company Claimants have or may have under Section 1542
(or any similar provision of the laws of any other jurisdiction) to the full
extent that the Company may lawfully waive such rights pertaining to this waiver
of Claims and generally affirms that Company is releasing, on behalf of itself
and the Company Claimants, all known and unknown Claims.
Without
limiting the foregoing, the Company hereby acknowledges and agrees that the
Trust Account is not a party to this Agreement and shall have no liability
pursuant hereto. Notwithstanding the forgoing, no provision contained herein
shall limit the Company or the Company Indemnitees’ right to make a claim
against such monies to the extent such monies are released from the Trust
Account to Parent upon the consummation of the Merger.
5.19 Maintenance
of Benefits. Parent
will extend to each Acquired
Company Employee
an offer
of employment that, if accepted, would contemplate that such Acquired Company
Employee would commence employment with Parent or continue employment with
the
Surviving Corporation effective as of the Closing Date and would provide, for
one year following the Closing Date, such Acquired
Company Employee
with
compensation, benefits and terms of employment that in the aggregate are
substantially comparable to the compensation, benefits and terms of employment
provided by the Company to such Acquired
Company Employee
as of
the date of this Agreement. Subject to the foregoing, nothing in this Agreement
shall be deemed to prevent or restrict in any way the right of Parent to
terminate, reassign, promote, or demote any of the Acquired Company Employees
after the Closing Date or to change adversely or favorably the title, powers,
duties, responsibilities, functions, locations, compensation, benefits, or
terms
or conditions of employment of such employees.
5.20 Conexant
Supply Termination Agreement Amendment. At
or
prior to the Closing, the Company shall consummate the transactions contemplated
by that certain Wafer Supply Termination Agreement Amendment between the Company
and Conexant (the “Conexant
Supply Termination Agreement Amendment”)
and
immediately after the Closing but prior to the Effective Time, Parent shall
fund
the payment of the Conexant Termination Payment Amount and cause the Company
to
pay to Conexant the Conexant Termination Payment Amount in accordance with
the
terms of the Conexant Supply Termination Agreement Amendment. To the extent
such
transactions are consummated at or prior to the Closing, the 7,583,501
shares of Company Class B Common Stock held of record by Conexant as of the
date
hereof shall
be
deemed not to be outstanding immediately prior to the Effective Time for all
purposes hereunder and the holder thereof shall not be entitled to any portion
of the consideration payable pursuant to this Agreement to the holders of
Company Common Stock.
78
SECTION
6. CONDITIONS
PRECEDENT TO OBLIGATIONS OF PARENT AND MERGER
SUB
The
obligations of Parent and Merger Sub to effect the Merger and otherwise
consummate the Contemplated
Transactions are
subject to the satisfaction (or waiver by Parent), at or prior to the Closing,
of each of the following conditions:
6.1 Accuracy
of Representations. Each
of
the representations and warranties set forth in Section 2 and each of the other
representations and warranties of the Company set forth in this Agreement:
(a)
shall have been accurate in all respects as of the date of this Agreement;
and
(b) shall be accurate in all respects as of the Closing Date as if made on
the
Closing Date (except that any representation and warranty that is made
exclusively as of, and that refers specifically to, a specified date need only
have been accurate in all respects as of such specified date), except in the
case of both clauses (a) and (b) (individually and together), for inaccuracies
that would not, individually or in the aggregate, reasonably be expected to
result in or otherwise involve Damages in excess of $20,000,000; provided,
however, that
in
determining the accuracy of such representations and warranties for purposes
of
this Section 6.1:
(i) all
“Material Adverse Effect” and other materiality qualifications limiting the
scope of such representations and warranties shall be disregarded; and (ii)
any
update
of
or modification to the Disclosure Schedule made or purported to have been made
on or after the date of this Agreement shall
be
disregarded, provided that any
update to Part 2.9 or Part 2.10 of the Disclosure Schedule permitted
hereby
for the
purpose of adding to Part 2.9 or Part 2.10 of the Disclosure Schedule a list
of
any Material Contracts or licenses of Intellectual Property entered into after
the execution of this Agreement of the type described in Section 4.2(b)(ix)
and
Section 4.2(b)(x) shall be deemed to update the Disclosure Schedule, but solely
for the purposes of determining whether the representations and warranties
of
the Company set forth in this Agreement are inaccurate or have been breached
as
of the Closing Date (as if such representations and warranties had been made
on
and as of the Closing Date).
6.2 Performance
of Covenants.
Each of
the covenants and obligations that the Company is required to comply with or
to
perform at or prior to the Closing shall have been complied with and performed
in all material respects.
6.3 Company
Stockholder Approval.
The
Certificate Amendment shall have been duly approved by the Required Amendment
Stockholder Votes and the Merger shall have been duly approved and this
Agreement shall have been duly adopted by the Required Company Merger
Stockholder Votes.
6.4 Parent
Stockholder Approval.
The
Merger shall have been duly approved by the Required Parent Merger Stockholder
Vote.
6.5 No
Section 280G Payments.
Neither
any payment made, nor any options granted, to any Person in connection with
or
in contemplation of the Merger or any of the other Contemplated Transactions
shall constitute a Section 280G Payment.
6.6 Amendment
to Certificate of Incorporation.
The
Company shall have provided Parent with evidence satisfactory to Parent that
the
Company has filed the Certificate Amendment with
the
Secretary of State of the State of Delaware and
that
the Certificate Amendment was in effect prior to
the
Closing.
79
6.7 Dissenting
Shares.
No more
than 2% of the aggregate number of shares of Company Capital Stock outstanding
as of the Closing Date shall be Dissenting Shares
or shall
have the right under the DGCL to become Dissenting Shares.
6.8 Antitrust
Matters
(a) The
waiting period applicable to the consummation of the Merger under the HSR Act
shall have expired or been terminated, and there shall not be in effect any
voluntary agreement between Parent or the Company and the Federal Trade
Commission or the Department of Justice pursuant to which Parent or the Company
has agreed not to consummate the Merger for a period of time.
(b) Any
similar waiting period under any other Antitrust Law applicable to the
Contemplated Transactions shall have expired or been terminated.
(c) Any
Consent required under any Antitrust Law applicable to the Contemplated
Transactions shall have been obtained and shall be in full force and
effect.
6.9 No
Material Adverse Effect. Since
the
date of this Agreement, there shall not have occurred any Material Adverse
Effect.
6.10 Agreements
and Documents.
Parent
shall have received the following agreements and documents, each of which shall
be in full force and effect:
(a) the
Escrow Agreement, executed by the Stockholders’
Representative
and the
Escrow Agent;
(b) the
Noncompetition Agreements as
signed
as of the date of this Agreement, and effective as of the Closing
Date;
(c) the
Lease
Amendment Agreements as
signed
as of the date of this Agreement, and effective as of the Closing
Date;
(d) the
Termination Agreement, which shall evidence the termination the Contracts
identified on Schedule
5.16(a)
in
accordance with Section 5.16(a),
as
signed
as of the date of this Agreement, and effective as of the Closing
Date;
(e) the
Conexant
Supply Termination Agreement Amendment, as signed as of the date of this
Agreement, and effective as of the Closing Date;
(f) the
General Releases, executed by each of the Key Stockholders, as signed as of
the
date of this Agreement, and effective as of the Closing Date;
(g) a
certificate, executed on behalf of the Company by an officer of the Company,
certifying that the Closing Payment Schedule is accurate and
complete;
80
(h) the
statement referred to in Section 5.11(a),
executed on behalf of the Company;
(i) a
legal
opinion of Xxxxxx & Xxxxxxx LLP, counsel to the Company, dated as of the
Closing Date and addressed to Parent and the Company, addressing the matters
set
forth in Schedule
6.10(i)
and
containing no exceptions, assumptions or qualifications that are not customarily
included in legal opinions relating to transactions similar to the
Merger;
and
(j) a
certificate, executed on behalf of the Company by an officer of the Company,
containing the representation and warranty of the Company that the conditions
set forth in Sections 6.1,
6.2,
6.3,
6.5,
6.7,
6.9,
6.13
and 6.15 have been duly satisfied (the “Company
Closing Certificate”).
6.11 FIRPTA
Compliance.
The
Company shall have filed with the IRS the notification referred to in Section
5.11(b).
6.12 No
Restraints.
No
temporary restraining order, preliminary or permanent injunction or other Order
preventing the consummation of the Merger shall have been issued by any court
of
competent jurisdiction and remain in effect, and there shall not be any Legal
Requirement enacted or deemed applicable to the Merger that makes consummation
of the Merger illegal.
6.13 No
Governmental Legal Proceedings. Neither
any Governmental Body nor the American Stock Exchange shall have commenced
or be
a party to, or shall, to the Knowledge of the Company, have threatened in
writing to commence or to become a party to, any Legal Proceeding: (a) seeking
a
material amount of damages in connection with the Merger; (b) seeking to
prohibit or limit the exercise by Parent of any material right pertaining to
its
ownership of stock of Merger Sub or the Surviving Corporation; (c) challenging,
or that may have the effect of preventing, making illegal or otherwise
materially interfering with, the consummation of the Merger; (d)
seeking to compel any of the Acquired Companies, Parent or any Subsidiary of
Parent to dispose of or hold separate any material assets as a result of the
Merger; or (e) seeking to impose any criminal sanctions or criminal liability
on
any of the Acquired Companies in connection with the Merger.
6.14 Financing. Parent
and Merger Sub shall have received (or be receiving contemporaneously with
the
Closing) financing in an amount equal to $35,000,000 (including any undrawn
amounts thereunder) on the terms and conditions set forth in the Wachovia
Commitment Letter.
6.15 Termination
of Company Option Plan.
If
required pursuant to Section 5.12,
the
Company shall have provided Parent with evidence satisfactory to Parent that
the
board of directors of the Company has adopted resolutions regarding the
termination of the Company Option Plan prior to the Closing.
81
SECTION
7. CONDITIONS
PRECEDENT TO OBLIGATION OF THE
COMPANY
The
obligation of the Company to effect the Merger and otherwise consummate the
Contemplated
Transactions is
subject to the satisfaction (or waiver by the Company), at or prior to the
Closing, of the following conditions:
7.1 Accuracy
of Representations.
Each of
the representations and warranties made by Parent and Merger Sub in this
Agreement shall have been accurate in all respects as of the date of this
Agreement, and shall be accurate in all respects as of the Closing Date as
if
made on the Closing Date; provided,
however, that
the
condition set forth in this Section 7.1
shall be
deemed to have been satisfied notwithstanding the existence of inaccuracies
in
such representations and warranties if the circumstances rendering such
representations and warranties inaccurate have not had and would not reasonably
be expected to have or result in a material adverse effect on Parent’s ability
to consummate the Merger.
7.2 Performance
of Covenants.
All of
the covenants and obligations that Parent and Merger Sub are required to comply
with or to perform at or prior to the Closing shall have been complied with
and
performed in all material respects.
7.3 Agreements
and Documents.
The
Stockholders’ Representative shall have received the following agreements and
documents, each of which shall be in full force and effect:
(a) the
Escrow Agreement, executed by Parent
and the
Escrow Agent;
(b) the
Employment Agreements, as executed by Parent as of the date of this Agreement
and effective
as of the Closing Date; and
(c) a
certificate executed on behalf of Parent by an officer of Parent containing
the
representation and warranty of Parent that the conditions set forth in Sections
7.1,
7.2
and
7.6
have
been duly satisfied (the “Parent
Closing Certificate”).
7.4 No
Restraints.
No
temporary restraining order, preliminary or permanent injunction or other Order
preventing the consummation of the Merger shall have been issued against the
Company by any court of competent jurisdiction and remain in effect, and there
shall not be any Legal Requirement enacted or deemed applicable to the Company
and the Merger that makes consummation of the Merger by the Company
illegal.
7.5 Company
Stockholder Approval.
The
Merger shall have been duly approved and this Agreement shall have been duly
adopted by the Required Company Merger Stockholder Votes.
7.6 Parent
Stockholder Approval.
The
Merger shall have been duly approved by the Required Parent Merger Stockholder
Vote.
7.7 Antitrust
Matters.
(a) The
waiting period applicable to the consummation of the Merger under the HSR Act
shall have expired or been terminated, and there shall not be in effect any
voluntary agreement between Parent or the Company and the Federal Trade
Commission or the Department of Justice pursuant to which Parent or the Company
has agreed not to consummate the Merger for a period of time.
82
(b) Any
similar waiting period under any other Antitrust Law applicable to the
Contemplated Transactions shall have expired or been terminated.
(c) Any
Consent required under any Antitrust Law applicable to the Contemplated
Transactions shall have been obtained and shall be in full force and
effect.
SECTION
8. TERMINATION
8.1 Termination
Events.
This
Agreement may be terminated prior to the Closing:
(a) by
the
mutual consent of Parent and the Company;
(b) by
either
Parent or the Company if (i) the SEC has notified Parent that it has no further
comments to the Proxy Statement on or before February 14, 2007 and the Closing
has not occurred on or prior to Xxxxx 00, 0000, (xx) the SEC has notified Parent
that it has no further comments on the Proxy Statement after February 14, 2007
but on or before March 15, 2007 and the Closing has not occurred on or before
April 30, 2007 or (iii) the SEC has notified Parent that it has no further
comments on the Proxy Statement after March 15, 2007 and the Closing has not
occurred on or before May 31, 2007, unless, in each case (x) the non-terminating
party’s failure to close prior to the applicable date resulted from any failure
on the part of such terminating party to comply with in all material respects,
or perform in all material respects, any covenant or obligation of such
terminating party set forth in this Agreement, and (y) the non-terminating
party
provided written notice of such failure to the terminating party as soon as
practicable after it had knowledge thereof;
(c) by
either
Parent or the Company if: (i) the Parent Stockholders’ Meeting (including any
adjournments and postponements thereof) shall have been held and completed
and
Parent’s stockholders shall have taken a final vote on the proposal to approve
the Merger, and (ii) the Merger shall not have been approved at the Parent
Stockholders’ Meeting (and shall not have been approved at any adjournment or
postponement thereof) by the Required Parent Merger Stockholder Vote;
provided,
however,
that a
party shall not be permitted to terminate this Agreement pursuant to this
Section 8.1(c)
if the
failure to have the Merger approved by the Required Parent Merger Stockholder
Vote is attributable to a failure on the part of the party seeking to terminate
this Agreement to perform in any material respects any covenant or obligation
in
this Agreement required to be performed by such party at or prior to the
Effective Time;
(d) by
the
Company, if, prior to the Merger having been approved at the Parent
Stockholders’ Meeting (or at any adjournment or postponement thereof) by the
Required Parent Merger Stockholder Vote, (i) Parent receives a written
communication from the banking firm providing the fairness opinion or valuation
opinion obtained by Parent in connection with the Contemplated Transactions
rescinding, withdrawing or adversely modifying such fairness opinion or
valuation opinion, or (ii) Parent’s board of directors withdraws the Parent
Board Recommendation or adversely modifies the Parent Board Recommendation;
83
(e) by
Parent
if: (i) any representation or warranty of the Company contained in this
Agreement shall be inaccurate or shall have been breached as of the date of
this
Agreement, or shall have become inaccurate or
shall
be breached as of a date subsequent to the date of this Agreement (as if made
on
such subsequent date), such that the condition set forth in Section 6.1
would
not be satisfied (it being understood that,
for
purposes of determining the accuracy of such representations and warranties
as
of the date of this Agreement or as of any subsequent date: (A) all
“Material Adverse Effect” and other materiality qualifications limiting the
scope of such representations and warranties shall be disregarded; and (B)
any
update of or modification to the Disclosure Schedule made or purported to have
been made on or after the date of this Agreement shall be disregarded,
provided
that any
update to Part 2.9 or Part 2.10 of the Disclosure Schedule permitted
hereby
for the
purpose of adding to Part 2.9 or Part 2.10 of the Disclosure Schedule a list
of
any Material Contracts or licenses for Intellectual Property entered into after
the execution of this Agreement of the type described in Section 4.2(b)(ix)
and
Section 4.2(b)(x) shall be deemed to update the Disclosure Schedule,
but
solely for the purposes of determining whether the representations and
warranties of the Company set forth in this Agreement are inaccurate or have
been breached as of the Closing Date (as if such representations and warranties
had been made on and as of the Closing Date);
or (ii)
any of the covenants or obligations of the Company contained in this Agreement
shall have been breached in any material respect; provided,
however,
that if
an inaccuracy in or breach of any representation or warranty of the Company
as
of a date subsequent to the date of this Agreement or a breach of a covenant
or
obligation by the Company is curable by the Company through the use of
commercially reasonable efforts during the 30-day period after Parent notifies
the Company in writing of the existence of such inaccuracy or breach (the
“Company
Cure Period”),
then
Parent
may
not
terminate this Agreement under this Section 8.1(e)
as a
result of such inaccuracy or breach prior to the expiration of the Company
Cure
Period, provided the Company, during the Company Cure Period, continues to
exercise commercially reasonable efforts to cure such inaccuracy or
breach;
(f) by
the
Company if: (i) any representation or warranty of Parent contained in this
Agreement shall be inaccurate or shall have been breached as of the date of
this
Agreement, or shall have become inaccurate or shall be breached as of a date
subsequent to the date of this Agreement (as if made on such subsequent date),
such that the condition set forth in Section 7.1
would
not be satisfied; or (ii) if any of Parent’s or Merger Sub’s covenants or
obligations contained in this Agreement shall have been breached in any material
respect, including Parent’s and Merger Sub’s obligation to effect the Merger
upon the satisfaction of the conditions set forth in Section 6; provided,
however,
that if
an inaccuracy in or breach of any representation or warranty of Parent as of
a
date subsequent to the date of this Agreement or a breach of a covenant or
obligation by Parent is curable by Parent through the use of commercially
reasonable efforts during the 30-day period after the Company notifies Parent
in
writing of the existence of such inaccuracy or breach (the “Parent
Cure Period”),
then
the Company may not terminate this Agreement under this Section 8.1(f)
as a
result of such inaccuracy or breach prior to the expiration of the Parent Cure
Period, provided Parent, during the Parent Cure Period, continues to exercise
commercially reasonable efforts to cure such inaccuracy or breach;
84
(g) by
Parent
if: (i) there shall have occurred any Material Adverse Effect; or (ii) any
event
shall have occurred or circumstance shall exist that, in combination with any
other events or circumstances, would reasonably be expected to have or result
in
a Material Adverse Effect; provided,
however, that
if
such Material
Adverse Effect is
curable by the Company through the use of commercially reasonable efforts during
the 30-day period after Parent notifies the Company in writing of the existence
thereof (the “MAE
Cure Period”),
then
Parent
may
not
terminate this Agreement under this Section 8.1(g)
as a
result of such Material Adverse Effect prior to the expiration of the MAE Cure
Period, provided the Company, during the MAE Cure Period, continues to exercise
commercially reasonable efforts to cure such
Material Adverse Effect;
(h) by
either
Parent or the Company if a court of competent jurisdiction or other Governmental
Body shall have issued a final and nonappealable Order, or shall have taken
any
other action, having the effect of permanently restraining, enjoining or
otherwise prohibiting the Merger;
(i) by
the
Company during the 15-day period commencing on the date 21 days after the date
on which the Wachovia Financing Commitment is terminated, revoked or amended
such that the aggregate amount of financing contemplated by the Wachovia
Financing Commitment to be loaned to Parent or the Company at the Closing
decreases below $40 million, if on or prior to the date of such termination,
Parent shall have failed to obtain one or more replacement Financing Commitments
resulting in the aggregate amount of financing contemplated by all outstanding
Financing Commitments (other than any Stockholder Loans to be lent to Parent
or
the Company at Closing) being at least $40 million; provided,
however,
that
the Company shall not be permitted to terminate this Agreement pursuant to
this
Section 8.1(i) if the failure of Parent to obtain any replacement Financing
Commitment is caused by or otherwise results from, principally or in significant
part, any one or more of the following factors: (A) any inaccuracy or breach
of
any of the representations or warranties set forth in Section 2.4; or (B) any
failure of the Company to perform in any material respects any covenant or
obligation in this Agreement required to be performed by the Company prior
to
the Effective Time;
(j) by
the
Company if the preliminary Proxy Statement shall not have been filed with the
SEC in a form that substantially complies with Regulation 14A promulgated under
the Exchange Act on or before the date that is 20 business days after the date
of this Agreement; provided,
however,
in no
event shall the Company have the right or power to terminate this Agreement
pursuant to this Section 8.1(j) if the failure of Parent to meet the foregoing
deadline is caused by or otherwise results from, principally or in significant
part, any one or more of the following factors: (A) any failure of the Company
to perform in any material respects any covenant or obligation in this Agreement
required to be performed by the Company prior to the Effective Time; (B) any
failure of any of the Company’s financial statements included or required to be
included in the preliminary Proxy Statement to be prepared in accordance with
GAAP and fairly present in all material respects the financial position, results
of operations or cash flows in any material respect as of the date of such
financial statements and for the periods presented therein; or (C) any actions,
omissions or delays on the part of the auditors for either Parent or the
Company; or
85
(k) by
Parent
if the Required Company Merger Stockholder Votes are not obtained within three
business days after the date of this Agreement.
8.2 Termination
Procedures.
If a
party wishes to terminate this Agreement pursuant to Section 8.1,
then
such party shall deliver to the other parties to this Agreement a written notice
stating that such party is terminating this Agreement and setting forth a brief
description of the basis on which such party is terminating this
Agreement.
8.3 Effect
of Termination. If
this
Agreement is terminated pursuant to Section 8.1,
all
further obligations of the parties under this Agreement shall terminate and
no
party shall have any further liability hereunder; provided,
however,
that:
(a)
neither
the Company nor Parent shall be relieved of any obligation or liability arising
from any intentional breach by such party of any covenant or obligation of
such
party set forth in this Agreement occurring after the execution of this
Agreement;
and
(b)
the
parties shall, in all events, remain bound by and continue to be subject to
the
provisions set forth in Sections 5.7
and
10.
SECTION
9. INDEMNIFICATION,
ETC.
9.1 Survival
of Representations, Etc.
(a) The
representations, warranties, covenants and obligations of the Company (including
the representations and warranties set forth in Section 2 and the
representations and warranties set forth in the Company Closing Certificate)
shall survive the Closing. All representations, warranties, covenants and
obligations of the Company (including the representations and warranties set
forth in Section 2 and the representations and warranties set forth in the
Company Closing Certificate) shall expire on the Designated Date, and any
liability with respect to such representations and warranties shall thereupon
cease; provided,
however,
that if,
at any time on or prior to the Designated Date, any Parent Indemnitee (acting
in
good faith) delivers to the Stockholders’ Representative a Notice of
Indemnification Claim (as defined in Section 9.7(a))
alleging the existence of an inaccuracy in or a breach of any of such
representations, warranties, covenants or obligations and asserting a claim
for
recovery under Section 9.2(a)
based on
such alleged inaccuracy or breach, then the claim asserted in such Notice of
Indemnification Claim shall survive until such time as such claim is fully
and
finally resolved. All representations, warranties, covenants and obligations
of
Parent and Merger Sub (including the representations and warranties set forth
in
Section 3 and in the Parent Closing Certificate) shall terminate and expire
as
of the Designated Date, and any liability of Parent or Merger Sub with respect
to such representations and warranties shall thereupon cease; provided,
however,
that if,
at any time on or prior to the Designated Date, any Company Indemnitee (acting
in good faith) delivers to Parent a Notice of Indemnification Claim alleging
the
existence of an inaccuracy in or a breach of any of such representations,
warranties, covenants or obligations and asserting a claim for recovery under
Section 9.2(b)
based on
such alleged inaccuracy or breach, then the claim asserted in such Notice of
Indemnification Claim shall survive until such time as such claim is fully
and
finally resolved; provided,
further,
the
covenants set forth in Section 5.14 shall survive the Closing in accordance
with
their terms.
(b) The
representations, warranties, covenants and obligations of an Indemnitor, and
the
rights and remedies that may be exercised by the Indemnitees, shall not be
limited or otherwise affected by or as a result of any information furnished
to,
or any investigation made by or knowledge of, any of the Indemnitees or any
of
their Representatives (it being understood that the representations and
warranties of the Company are qualified by the disclosures set forth in the
applicable parts or subparts of the Disclosure Schedule to the extent set forth
therein or in any other part or subpart of
the
Disclosure Schedule to the extent it is reasonably apparent from a reading
of
such disclosure item that it would also qualify or apply to such other
part).
86
(c) Notwithstanding
anything to the contrary contained in Section 9.1(a), the limitations set forth
in Section 9.1(a) shall not apply in the case of claims based upon
fraud.
9.2 Indemnification.
(a) From
and
after the Effective Time, the Parent Indemnitees shall be entitled to be held
harmless and indemnified solely (except in the event of fraud) from the
Indemnity Escrow Fund from and against, and shall be entitled to be compensated
and reimbursed solely (except in the event of fraud) from the Indemnity Escrow
Fund for, any Damages that are directly or indirectly suffered or incurred
by
any of the Parent Indemnitees or
to
which any of the Parent Indemnitees may otherwise become directly or indirectly
subject (regardless
of whether or not such Damages relate to any third party claim), and that arise
from or as a result of, or are directly or indirectly connected
with:
(i) any
inaccuracy in or breach of any representation or warranty of the Company as
of
the date of this Agreement: (A) giving effect to any “Material Adverse Effect”
or other materiality qualification limiting the scope of such representation
or
warranty for purposes of determining whether such representation or warranty
is
inaccurate or has been breached, but without giving effect to any “Material
Adverse Effect” or other materiality qualification limiting the scope of such
representation or warranty for purposes of calculating any Damages; and (B)
without giving effect to any update
of
or modification to the Disclosure Schedule made or purported to have been made
on or after the date of this Agreement;
(ii) any
inaccuracy in or breach of any representation or warranty of the Company as
of
the Closing Date as if such representation and warranty had been made on and
as
of the Closing Date: (A) giving effect to any “Material Adverse Effect” or other
materiality qualification limiting the scope of such representation or warranty
for purposes of determining whether such representation or warranty is
inaccurate or has been breached, but without giving effect to any “Material
Adverse Effect” or other materiality qualification limiting the scope of such
representation or warranty for purposes of calculating any Damages; and (B)
without giving effect to any update
of
or modification to the Disclosure Schedule made or purported to have been made
on or after the date of this Agreement, provided that any
update to Part 2.9 or Part 2.10 of the Disclosure Schedule permitted
hereby
for the
purpose of adding to Part 2.9 and Part 2.10 of the Disclosure Schedule a list
of
any Material Contracts or licenses of Intellectual Property entered into after
the execution of this Agreement of the type described in Section 4.2(b)(ix)
and
Section 4.2(b)(x) shall be deemed to update the Disclosure Schedule, but solely
for the purposes of determining whether the representations and warranties
of
the Company set forth in this Agreement are inaccurate or have been breached
as
of the Closing Date (as if such representations and warranties had been made
on
and as of the Closing Date);
87
(iii) any
breach of any covenant or obligation of the Company in this Agreement, other
than the covenant in Section 4.2(a)(ii);
(iv) any
inaccuracy in the Closing Payment Schedule;
(v) any
liability of any Acquired Company for unpaid Taxes for any tax period (or
portion thereof) ending on or before the Closing Date (a “Pre-Closing
Tax Period”)
(except to the extent such unpaid Taxes were included in the calculation of
the
Closing Working Capital Amount;
(vi) the
Post-Closing Deficit Amount exceeding the amount remaining in the Working
Capital Adjustment Escrow Fund;
(vii) the
exercise by any Stockholder of such Stockholder’s appraisal rights under the
DGCL to the extent any Damages as a result thereof (including any payment
required to be made to such Stockholder) exceed the amount such Stockholder
would otherwise be paid under Section 1.5
if such
Stockholder had not exercised such Stockholder’s appraisal rights under the
DGCL; and
(viii) the
matters disclosed in Part 9.2(a)(viii) of the Disclosure Schedule.
Notwithstanding
clause “(i)” or clause “(ii)” above (to the extent they relate to breaches of
any representations or warranties in Section 2.14) or clause “(v)” above, the
Parent Indemnitees shall not be indemnified pursuant to such clauses for any
Damages for Taxes that are directly or indirectly suffered or incurred by any
of
the Parent Indemnitees or to which any of the Parent Indemnitees may otherwise
become directly or indirectly subject and that arise from or as a result of
or
are directly or indirectly connected with: (A) the acquisition of Company stock
pursuant to this Agreement being treated as a sale of assets pursuant to any
express or deemed election by Parent under Section 338 of the Code or comparable
provisions under foreign or other Tax law; (B) any transaction that is
undertaken on the Closing Date at the direction of Parent or any of its
Affiliates or after the Closing Date outside the ordinary course of business;
(C) any transaction of the Acquired Companies occurring after the Closing;
and
(D) any Tax election or Tax reporting position with a Governmental Body with
respect to Taxes by a Parent Indemnitee following the Effective Time that
results in an increased Tax liability or reduction in any Tax asset of the
Acquired Companies in respect of any Pre-Closing Tax Period (or portion of
any
Straddle Period ending on the Closing Date), unless such Tax election or Tax
reporting position was required by a Governmental Body as a result of an audit
or was clearly required by applicable Legal Requirements. Notwithstanding
clause “(i)” or clause “(ii)” above (to the extent they relate to breaches of
any representations or warranties in Section 2.14) or clause “(v)” above,
Damages arising out of the Company’s obligation to pay California sales or use
Taxes for any transaction that occurred after March 31, 2005 and that remain
unpaid at the Closing Date shall be deemed to be, and shall in all events be
limited to, 70% of such unpaid amounts.
(b) From
and
after the Effective Time, Parent shall indemnify and hold harmless the Company
Indemnitees from and against, and shall compensate and reimburse the Company
Indemnitees for, any Damages that are directly or indirectly suffered or
incurred by any of the Company Indemnitees (regardless of whether or not such
Damages relate to any third party claim), and that arise from or as a result
of,
or are directly or indirectly connected with:
88
(i) any
inaccuracy in or breach of any representation or warranty of Parent as of the
date of this Agreement, giving effect to any materiality qualification limiting
the scope of such representation or warranty for purposes of determining whether
such representation or warranty is inaccurate or has been breached, but without
giving effect to any materiality qualification limiting the scope of such
representation or warranty for purposes of calculating any Damages;
(ii) any
inaccuracy in or breach of any representation or warranty of Parent as of the
Closing Date as if such representation and warranty had been made on and as
of
the Closing Date, giving effect to any materiality qualification limiting the
scope of such representation or warranty for purposes of determining whether
such representation or warranty is inaccurate or has been breached, but without
giving effect to any materiality qualification limiting the scope of such
representation or warranty for purposes of calculating any Damages; or
(iii) any
breach of any covenant or obligation of Parent in this Agreement.
(c) The
parties acknowledge and agree that, if the Surviving Corporation suffers, incurs
or otherwise becomes subject to any Damages as a result of or in connection
with
any inaccuracy in or breach of any representation, warranty, covenant or
obligation, then (without limiting any of the rights of the Surviving
Corporation as a Parent Indemnitee) Parent shall also be deemed, by virtue
of
its ownership of the stock of the Surviving Corporation, to have incurred
Damages as a result of and in connection with such inaccuracy or breach (it
being understood that any Damages suffered or incurred by the Surviving
Corporation shall be recoverable without duplication under this Section 9 by
either Parent or the Surviving Corporation).
9.3 Certain
Limitations.
(a) Except
in
the event of fraud and any intentional breach of any covenant of the Company,
the Parent Indemnitees shall not be entitled to recover any Damages pursuant
to
Section 9.2(a)(i), Section 9.2(a)(ii) or Section 9.2(a)(iii)
until
such time as the total amount of all Damages that have been directly or
indirectly suffered or incurred by any one or more of the Parent Indemnitees,
or
to which any one or more of the Parent Indemnitees has or have otherwise become
subject, and that would otherwise be indemnifiable pursuant to such Sections
but
for the application of this Section 9.3(a),
exceeds
$1,700,000 in the aggregate. At such time as the cumulative amount of such
Damages exceeds $1,700,000 in the aggregate, the Parent Indemnitees shall be
entitled to recover the entire amount of such Damages, including the initial
$1,700,000.
(b) Except
in
the event of fraud, any intentional breach of any covenant of Parent and any
breach by Parent of any obligation to pay any amounts required to be paid
pursuant to Sections 1.5,
1.6,
1.7
and 1.8,
the Company Indemnitees shall not be entitled to recover any Damages pursuant
to
Section 9.2(b)(i) or Section 9.2(b)(ii) for any inaccuracy in or breach of
any
representation, warranty, covenant or obligation of Parent until such time
as
the total amount of all Damages that have been directly or indirectly suffered
or incurred by any one or more of the Company Indemnitees, or to which any
one
or more of the Company Indemnitees has or have otherwise become subject, and
that would otherwise be indemnifiable pursuant to such Sections but for the
application of this Section 9.3(b),
exceeds
$1,700,000 in the aggregate. At such time as the cumulative amount of such
Damages exceeds $1,700,000 in the aggregate, the Company Indemnitees shall
be
entitled to recover the entire amount of such Damages, including the initial
$1,700,000.
89
(c) Notwithstanding
any other provision contained herein, except in the event of fraud, recourse
by
the Parent Indemnitees to the Indemnity Escrow Fund and the indemnification
provisions contained in this Section 9 shall be the Parent Indemnitees’ sole and
exclusive remedy after the Effective Time for monetary Damages for any
inaccuracy in or breach of any representation, warranty, covenant or obligation
of the Company set forth in this Agreement; provided,
however, that
nothing contained in this Section 9.3(c)
or
elsewhere in this Agreement shall limit the rights of any Parent Indemnitee
to
seek or obtain injunctive relief or any other non-monetary equitable remedy
to
which such Parent Indemnitee is otherwise entitled.
(d) Except
in
the event of fraud or for the breach by Parent of any obligation to pay any
amounts required to be paid pursuant to Sections 1.5,
1.6,
1.7
and 1.8,
the maximum aggregate amount payable by Parent to the Company Indemnitees
pursuant to this Section 9 shall in no event exceed $20,000,000.
(e) Except
in
the event of fraud or for the breach by Parent of any obligation to pay any
amounts required to be paid pursuant to Sections 1.5,
1.6,
1.7
and 1.8,
the indemnification provisions contained in this Section 9 shall be the Company
Indemnitees’ sole and exclusive remedy after the Effective Time for monetary
damages for any inaccuracy in or breach of any representation, warranty,
covenant or obligation of Parent set forth in this Agreement; provided,
however, that
nothing contained in this Section 9.3(e)
or
elsewhere in this Agreement shall limit the rights of any Company Indemnitee to
seek or obtain injunctive relief or any other non-monetary equitable remedy
to
which such Company Indemnitee is otherwise entitled.
(f) If
(i) an
Indemnitor obtains a bona fide, good faith, written offer from a third-party
claimant to settle in all respects a Legal Proceeding being defended by such
Indemnitor pursuant to Section 9.5(a) in exchange solely for a cash payment
specified in such written offer, all of which would be paid or otherwise borne
by the Indemnitor (the “Specified
Settlement Amount”)
and a
release of claims against such third party (a “Release
of Claims”),
and
such settlement offer is subject to no requirements, obligations or limitations
on the part of the Indemnitee or imposed on the Indemnitee or its business
other
than the obligation to provide a Release of Claims, (ii) such Indemnitor
requests in writing the written consent of the Indemnitee to such settlement
in
accordance with Section 9.5(a)(E), and (iii) the Indemnitee refuses in writing
to consent to such settlement or otherwise fails to consent to such settlement
within 15 business days after its receipt of such written request, thereafter
the maximum liability of the Indemnitor for the matters arising out of such
Legal Proceeding shall be, subject to the other provisions of this Section
9.3,
the Specified Settlement Amount. Without limiting the foregoing, in any case
where an Indemnitor is defending a Legal Proceeding in accordance with Section
9.5, such Indemnitor shall be required to promptly inform the Indemnitee in
writing of any definitive offer from a third-party claimant to settle in any
respect such Legal Proceeding.
90
(g) In
the
event that the Company notifies Parent in writing at least five business days
prior to the date of the Parent Stockholders’ Meeting of any material error
identified in the financial statements of the Company or other information
provided by the Company, in either case that are included in the preliminary
Proxy Statement or in the definitive Proxy Statement mailed to Parent’s
stockholders, and Parent nevertheless determines that it is not necessary to
or
otherwise refuses or fails to modify such preliminary Proxy Statement or, in
the
case that the definitive Proxy Statement that has been mailed to the
stockholders of Parent, to mail a supplement or amendment to Parent’s
stockholders, Parent shall have no recourse to the Indemnity Escrow Fund or
otherwise for any Damages resulting from any Legal Proceeding brought by or
on
behalf of Parent’s stockholders to the extent such Legal Proceeding is based
upon the error identified by the Company.
(h) In
no
event shall any Parent Indemnitee be entitled to be indemnified for a breach
of
the representation set forth in Section 2.25 or for the representation set
forth
in Section 2.4(c) (or in any certificate delivered at Closing, but only to
the
extent that it relates to such Sections) or the covenant set forth in Section
4.1(e), except to the extent that Parent’s Damages arise out of one or more
Legal Proceedings brought by a stockholder or stockholders of Parent on the
basis of such actual or alleged breach of representations set forth in Section
2.4(c) or Section 2.25.
(i) In
the
event Damages are directly or indirectly suffered or incurred by any of the
Parent Indemnitees or to which any of the Parent Indemnitees may otherwise
become directly or indirectly subject (regardless of whether or not such Damages
relate to any third party claim), to the extent such Damages arise from or
as a
result of, or are directly or indirectly connected with an Acquired Company’s
failure, prior to the Closing, to have complied with provisions in (1) Acquired
Company Contracts with customers of the Acquired Companies specifying wafer
yield, delivery date and capacity guarantee requirements or (2) Acquired Company
Contracts with suppliers of the Acquired Companies specifying payment due date
requirements, then:
(i) if
such
Damages are less than $25,000 with respect to any event or occurrence or series
of related events or occurrences relating to the same customer or supplier,
such
Damages shall be deemed to be zero for all purposes under this
Agreement;
(ii) if
such
Damages are greater than $25,000 but less than $275,000 with respect to any
event or occurrence or series of related events or occurrences relating to
the
same customer or supplier, the amount of such Damages shall for all purposes
of
this Agreement be deemed to be 45% of the amount of such Damages;
and
(iii) if
such
Damages are greater than $275,000 with respect to any event or occurrence or
series of related events or occurrences relating to the same customer or
supplier, the amount of such Damages shall for all purposes of this Agreement
be
deemed to be an amount equal to (x) $123,750 plus (y) 70% of the amount of
such
Damages in excess of $275,000.
91
(j) The
amount of “Damages” for which any Indemnitee is entitled to indemnification
hereunder shall be reduced by (i) with respect to Parent Indemnitees an amount
(the
“Net
Alternative Recovery Amount”)
equal
to,
(x) any portion of such Damages which such Parent Indemnitee has actually
recovered against an insurance policy, net
of
any increase in premiums resulting from any such insurance claim and all other
out-of-pocket costs and expenses relating to the recovery of such amounts to
the
extent not reimbursed by insurance,
(y) any
portion of such Damages which such Parent Indemnitee has actually recovered
as a
result of any indemnity claim by such Parent Indemnitee against Conexant or
any
licensor or transferor of Intellectual Property to the Company or (z) any
portion of such Damages which such Parent Indemnitee has actually recovered
from
any supplier to the Company (any party referred to in clauses (x), (y) or (z)
shall collectively be referred to as, “Specified
Third Parties”),
in
each case with respect to the same facts and circumstances that give rise to
the
breach of representation and warranty, breach of covenant or other indemnifiable
matter hereunder that has resulted in such Damages,
(ii)
the
amount of any specific reserve or other specific accrual on the Final Closing
Date Balance Sheet (whenever established) that was specifically established
to
cover a particular item of Damages, up to the lesser of the amount of such
Damages or the amount of such specific reserve or other accrual, but only to
the
extent that the establishment of such reserve or other accrual reduced the
Final
Closing Working Capital Amount, (iii) the amount of any general reserve or
other
general accrual on the Final Closing Date Balance Sheet established after the
date of this Agreement, up to the lesser of the amount of Damages incurred
by
such Indemnitee with respect to the matter for which such reserve or accrual
was
established or the amount of such reserve or other accrual, but only to the
extent that the establishment of such reserve or other accrual reduced the
Final
Closing Working Capital Amount; and (iv) the amount of any general reserve
for
uncollectible accounts receivable, up to the lesser of the amount of Damages
from any inaccuracy in or breach of the representations and warranties in the
last sentence of Section 2.7(b) or the amount of such general reserve. No
particular dollar of any reserve or other accrual shall be utilized more than
once to offset a dollar of Damages. With respect to clause (i) above, the
applicable Parent Indemnitee(s) shall (contemporaneously with the pursuit by
such Indemnitee(s) of indemnification claims hereunder), use commercially
reasonable efforts to pursue claims against such insurance policies or Specified
Third Parties, to the extent (x) such claims, if successful, would result in
an
offset pursuant to the terms of this Agreement against Damages that are
otherwise indemnifiable hereunder, and (y) such claims are valid and reasonably
recoverable based on a written insurance policy of which an Acquired Company
is
the beneficiary or the express terms of a written indemnity agreement between
the Acquired Company and such Specified Third Party, a breach of contract by
such Specified Third Party or as a result of the failure of any supplier to
deliver any product that meets the specifications required by the Acquired
Companies’ processes. In no event shall the existence or pendency of any
possible claim by an Indemnitee against any such insurance policy or Specified
Third Party preclude any Indemnitee from delivering a Notice of Indemnification
Claim with respect to any Damages that are directly or indirectly suffered
or
incurred by such Indemnitee or to which any of the Parent Indemnitees may
otherwise become directly or indirectly subject (regardless of whether or not
such Damages relate to any third party claim), and that arise from or as a
result of, or are directly or indirectly connected with, any matter described
in
Section 9.2(a) or Section 9.2(b), as applicable. In the event that, with respect
to clause (i) above, (1) an Indemnitee is required to use commercially
reasonable efforts to pursue a claim against an insurance policy or Specified
Third Party, but (2) such Indemnitee has not recovered the Net Alternative
Recovery Amount with respect to such claim prior to the time that such
Indemnitee receives any payment out of the Indemnity Escrow Fund with respect
to
the particular breach of representation and warranty, breach of covenant or
other indemnifiable matter hereunder to which such Net Alternative Recovery
Amount would relate, such Indemnitee shall be obligated to continue to pursue
such insurance claim or claim against such Specified Third Party for an
additional period (A) of up to 120 days following the date of such Indemnitee’s
receipt of such payment out of the Escrow Fund in the case of a Specified Third
Party that is a supplier and (B) that is commercially reasonable under the
circumstances in the case of any other Specified Third Party (any such
additional period, the “Subsequent
Pursuit Period”).
If,
at any time on or prior to the Designated Date, such Indemnitee receives any
Net
Alternative Recovery Amount with respect to such insurance claim or claim
against such Specified Third Party, such Indemnitee shall pay any portion of
such Net Alternative Recovery Amount that would have reduced the amount of
Damages recoverable by such Indemnitee from the Indemnity Escrow Fund back
to
the Indemnity Escrow Fund. If, at any time after the Designated Date, such
Indemnitee receives any Net Alternative Recovery Amount with respect to such
insurance claim or claim against such Specified Third Party, such Indemnitee
shall pay any portion of such Net Alternative Recovery Amount that would have
reduced the amount of Damages recoverable by such Indemnitee from the Indemnity
Escrow Fund (x) to the extent of the excess (if any) of (1) the aggregate amount
of the Claimed Amounts and Contested Amounts, as the case may be, associated
with all remaining Unresolved Escrow Claims as of such date, over (2) the
Aggregate Escrow Balance (as defined in Section 9.7(i)) as of such date, back
to
the Indemnity Escrow Fund, and (y) otherwise to the Stockholders’ Representative
for distribution to the Escrow Participants. The payment of any such amount
by
Parent to the Stockholders’ Representative shall completely discharge Parent’s
obligations with respect to such amount, and in no event shall Parent have
any
responsibility or liability whatsoever for causing or ensuring that all or
any
portion of such amount is ultimately paid or distributed to Escrow
Participants.
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9.4 No
Contribution.
Each
Stockholder waives, and acknowledges and agrees that such stockholder shall
not
have and shall not exercise or assert (or attempt to exercise or assert), any
right of contribution, right of indemnity or other right or remedy against
Parent or against the Surviving Corporation or any of the other Acquired
Companies in connection with any indemnification obligation or any other
liability to which such stockholder may become subject under or in connection
with this Agreement.
9.5 Defense
of Third Party Claims.
(a) In
the
event of the commencement by any Person of any Legal Proceeding (whether against
a Parent Indemnitee, a Company Indemnitee or against any other Person) with
respect to which any Indemnitee would reasonably be entitled to be held
harmless, indemnified, compensated or reimbursed pursuant to this
Section 9, or the receipt by Parent of any written threat of such a Legal
Proceeding: (i) the Indemnitee shall notify the Indemnitor promptly after the
Indemnitee receives written notice of such actual or threatened Legal Proceeding
(it being understood that any failure by the Indemnitee to so promptly notify
the Indemnitor shall have no effect on the Indemnitee’s ability to recover
Damages pursuant to this Section 9, except to the extent that the defense of
such Legal Proceeding is materially prejudiced thereby); and (ii) if such Legal
Proceeding does not involve any claims for any injunction, specific performance
or any other non-monetary remedy or relief, the Indemnitor shall have the right,
at its election, at any time prior to the end of the 90-day period commencing
with the commencement of discovery proceedings in such Legal Proceeding, by
delivering a written notice to the Indemnitee of such election, to proceed
with
the defense of such Legal Proceeding on its own with counsel reasonably
acceptable to the Indemnitee. If the Indemnitor so proceeds with the defense
of
any such Legal Proceeding: (A) the Indemnitor shall be deemed to have
conclusively agreed that all Damages suffered by the Indemnitee as a result
of
or in connection with the claim are recoverable from the Indemnitor under
Section 9, subject to the provisions of Section 9.3; (B) all reasonable
out-of-pocket expenses relating to the defense of such Legal Proceeding shall
be
borne and paid exclusively by the Indemnitor (or in the case the Indemnitor
is
the Stockholders’ Representative, exclusively from the Indemnity Escrow Fund);
(C) the Indemnitee shall use commercially reasonable efforts to make available
to the Indemnitor reasonable access to properties, documents, materials and
employees (subject to the execution of reasonable confidentiality agreements
that permit such confidential information to be used in the legal proceedings)
to the extent that the Indemnitor determines in good faith that such access
is
necessary to the defense of such Legal Proceeding; (D) the Indemnitee (which
in
the case the Indemnitor is Parent shall refer solely for this purpose to the
Stockholders’ Representative) may, at its own cost and expense, participate in
the investigation, trial and defense of such Legal Proceeding; and (E) the
Indemnitor shall have the right to settle, adjust or compromise such Legal
Proceeding with the prior written consent of the Indemnitee (which
consent shall not be unreasonably withheld, conditioned or delayed).
In
addition, the Indemnitor shall not have the right to assume the control of
the
defense of any such Legal Proceeding if
at the
time the Indemnitor assumes control the amount claimed in such Legal Proceeding,
in the aggregate with the amount claimed in other third party claims and direct
claims against the Indemnitor (or in the case the Indemnitor is the
Stockholders’ Representative, the Indemnity Escrow Fund) asserted as of such
time against the Indemnitor (or in the case the Indemnitor is the Stockholders’
Representative, the Indemnity Escrow Fund) under this Section 9, would exceed
the limitation of the Indemnitor’s liability set forth in Section 9.3(c) or
Section 9.3(d), as applicable.
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(b) If,
with
respect to any Legal Proceeding described in Section 9.5(a), the Indemnitor
is not
permitted to proceed with the defense of such Legal Proceeding or is required
to
cease its control of such Legal Proceeding, or does not elect (or has not yet
informed the Indemnitee in writing that it is electing) to proceed with the
defense of any such Legal Proceeding, the Indemnitee
may proceed
with the defense of such Legal Proceeding with counsel reasonably acceptable
to
the
Indemnitor. If the Indemnitee so proceeds with the defense of any such Legal
Proceeding: (i) if it is ultimately agreed or otherwise determined that the
Indemnitee is entitled to indemnification for Damages resulting from such Legal
Proceeding pursuant to this Section 9, all reasonable out-of-pocket expenses
relating to the defense of such Legal Proceeding shall, subject to Section
9.3,
be
borne and paid exclusively by the Indemnitor (or in the case the Indemnitor
is
the Stockholders’ Representative, exclusively from the Indemnity Escrow Fund);
(ii) the Indemnitor shall use commercially reasonable efforts to make available
to the Indemnitee any documents and materials that the Indemnitee determines
in
good faith may be necessary to the defense of such Legal Proceeding; (iii)
the
Indemnitor may, at its own cost and expense, participate in the investigation,
trial and defense of such Legal Proceeding; and (iv) the Indemnitee shall have
the right to settle, adjust or compromise such Legal Proceeding;
provided, however,
that if
the Indemnitee settles, adjusts or compromises any such Legal Proceeding without
the consent of the Indemnitor, the Indemnitee shall bear the burden of proof
to
establish the Damages arising as result of such Legal Proceeding for which
the
Indemnitee is entitled to be held harmless, indemnified, compensated or
reimbursed pursuant to this Section 9, and Damages paid in connection with
settlement, adjustment or compromise of such Legal Proceeding shall not
establish any presumption regarding the amount of such Damages
or any
liability of the Indemnitor with respect thereto.
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(c) In
the
event any Person that is or was a customer or supplier of the Company asserts
any claim, or any other Person asserts a claim arising out of or related to
the
Intellectual Property used in the business of the Company, that (i) either
on
its face involves Damages of greater than $500,000 or with respect to which
Parent at any time determines in good faith or to the Knowledge of Parent such
claim is reasonably likely to result in Damages of greater than $500,000 and
(ii) with respect to which a Parent Indemnitee would reasonably be entitled
to
be indemnified pursuant to this Section 9: (A) Parent shall notify the
Stockholders’ Representative promptly after the date Parent Indemnitee receives
notice of such claim (or if such claim does not on its face involve Damages
of
greater than $500,000, after the date on which Parent determines in good faith
or any individual included in the definition of “Knowledge of the Company” (or
such person’s replacement) obtains actual knowledge that such claim is
reasonably likely to result in Damages of greater than $500,000) (it being
understood that any failure by Parent to so promptly notify the Indemnitor
shall
have no effect on the Parent Indemnitee’s ability to recover Damages pursuant to
this Section 9, except to the extent that the resolution or defense of such
claim is prejudiced thereby); and (B) the Stockholders’ Representative shall be
entitled to participate in all substantive discussions and meetings regarding
such claim, including meetings with such third party and shall be provided
a
copy of all correspondence relating to such claim. At least five business days
prior to any resolution, settlement or compromise of such claim that would
result in a Parent Indemnitee being entitled to indemnification pursuant to
this
Section 9, Parent shall inform the Stockholders’ Representative of the terms of
such resolution, settlement or compromise and shall consider the Stockholders’
Representative’s views regarding the advisability of resolving, settling or
compromising such claim on the terms proposed. Thereafter, Parent shall be
entitled to resolve, settle or compromise such claim on the terms presented
to
the Stockholders’ Representative (or such additional terms as have been proposed
by the Stockholders’ Representative), without the consent of the Stockholders’
Representative, provided,
however,
that if
a Parent Indemnitee settles, adjusts or compromises any such claim without
the
consent of the Stockholders’ Representative, the Parent Indemnitee shall bear
the burden of proof to establish the Damages arising as result of such claim
for
which the Indemnitee is entitled to be held harmless, indemnified, compensated
or reimbursed pursuant to this Section 9, and Damages paid in connection
with resolution, settlement or compromise of such claim shall not establish
any
presumption regarding the amount of such Damages or any liability of the
Indemnitor with respect thereto.
9.6 Exercise
of Remedies by Parent Indemnitees Other Than Parent.
No
Parent Indemnitee (other than Parent or any successor thereto or assign thereof)
shall be permitted to assert any indemnification claim or exercise any other
remedy under this Agreement unless Parent (or any successor thereto or assign
thereof) shall have consented to the assertion of such indemnification claim
or
the exercise of such other remedy.
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9.7 Indemnification
Claims; Escrow Arrangements.
(a) If
any
Indemnitee has incurred or suffered or claims to have incurred or suffered,
or
believes that it may incur or suffer, Damages for which it is or may be entitled
to be held harmless, indemnified, compensated or reimbursed under this Section
9, such Indemnitee may deliver a notice to the Indemnitor (any
such
notice being referred to as a
“Notice
of Indemnification Claim,”
and
the claim for indemnification, compensation and reimbursement described in
such
Notice of Indemnification Claim being referred to as an “indemnification
claim”),
which
shall: (i) state that such Indemnitee believes that that there is or has been
an
inaccuracy in or breach of a representation, warranty, covenant or obligation
contained in this Agreement or that such Indemnitee is otherwise entitled to
be
held harmless, indemnified, compensated or reimbursed under this Section 9;
(ii) contain a brief description of the circumstances supporting such
Indemnitee’s belief that there is or has been such an inaccuracy or breach or
that such Indemnitee may otherwise be entitled to be held harmless, indemnified,
compensated or reimbursed; and (iii) contain a good faith, non-binding,
preliminary estimate of the aggregate dollar amount of actual and potential
Damages that have arisen and may arise as a result of the inaccuracy, breach
or
other matter referred to in such notice (the aggregate amount of such estimate,
as it may be modified by such Indemnitee in good faith from time to time, being
referred to as the “Claimed
Amount”).
(b) During
the 30-day period (the “Dispute
Period”)
commencing upon (i) the delivery by an Indemnitee to the Indemnitor of a Notice
of Indemnification Claim or (ii) if such Notice of Indemnification Claim relates
to a third party claim or Legal Proceeding, the final resolution or settlement
of such claim or Legal Proceeding, the Indemnitor
shall
deliver to the Indemnitee a written response (the “Response
Notice”)
in
which the Indemnitor:
(i) agrees that the full Claimed Amount is owed to the Indemnitee; (ii)
agrees that part (but not all) of the Claimed Amount (the “Agreed
Amount”)
is
owed to the Indemnitee; or (iii) asserts that no part of the Claimed Amount
is owed to the Indemnitee. Any part of the Claimed Amount that is not agreed
by
the Indemnitor to be owed to the Indemnitee pursuant to the Response Notice
(or
the entire Claimed Amount, if the Indemnitor asserts in the Response Notice
that
no part of the Claimed Amount is owed to the Indemnitee) shall be referred
to as
the “Contested
Amount”
(it
being understood that the Contested Amount shall be modified from time to time
to reflect any good faith modifications by the Indemnitee to the Claimed
Amount). If a Response Notice is not received by the Indemnitee prior to the
expiration of the Dispute Period, then the Indemnitor
shall
be
conclusively and irrevocably deemed to have agreed that the full Claimed Amount
is owed to the Indemnitee. During the Dispute Period, the Indemnitee and its
Affiliates shall cooperate with the Indemnitor to permit it to investigate
such
claim, including by providing the Indemnitor and its representatives reasonable
access to the books, records, properties and employees of Indemnitor to the
extent reasonably related to the investigation of such claim.
(c) If
the
Indemnitor
delivers
a Response Notice to the Indemnitee agreeing that the full Claimed Amount is
owed to the Indemnitee, or if the Indemnitor
does
not
deliver a Response Notice to the Indemnitee during the Dispute Period, then,
within three days following the earlier of the delivery of such Response Notice
to the Indemnitee or the expiration of the Dispute Period:
96
(i) if
the
Indemnitee is a Parent Indemnitee, Parent and the Stockholders’ Representative
shall jointly execute and deliver to the Escrow Agent a written notice
instructing the Escrow Agent to release the full Claimed Amount to the Parent
Indemnitee from the Indemnity Escrow Fund; and
(ii) if
the
Indemnitee is a Company Indemnitee, Parent shall pay to the Company Indemnitee,
in cash, an amount equal to the full Claimed Amount.
(d) If
the
Indemnitor
delivers
a Response Notice to the Indemnitee during the Dispute Period agreeing that
less
than the full Claimed Amount is owed to the Indemnitee, then, within three
days
following the delivery of such Response Notice to the Indemnitee:
(i) if
the
Indemnitee is a Parent Indemnitee, Parent and the Stockholders’ Representative
shall jointly execute and deliver to the Escrow Agent a written notice
instructing the Escrow Agent to release the Agreed Amount to the Parent
Indemnitee from the Indemnity Escrow Fund; and
(ii) if
the
Indemnitee is a Company Indemnitee, Parent
shall pay
to
the Company Indemnitee, in cash, an amount equal to the Agreed
Amount.
(e) If
the
Indemnitor
delivers
a Response Notice to the Indemnitee during the Dispute Period indicating that
there is a Contested Amount, the Indemnitor
and
the
Indemnitee shall attempt in good faith to resolve the dispute related to the
Contested Amount. If the Indemnitee and the Indemnitor
resolve
such dispute in writing, then their resolution of such dispute shall be binding
on the Indemnitor,
the Escrow Participants and
the
Indemnitee and a settlement agreement stipulating the amount owed to the
Indemnitee (the “Stipulated
Amount”)
shall
be signed by the Indemnitee and the Indemnitor.
Within three days after the execution of such settlement agreement:
(i) if
the
Indemnitee is a Parent Indemnitee, then Parent and the Stockholders’
Representative shall jointly execute and deliver to the Escrow Agent a written
notice instructing the Escrow Agent to release the Stipulated Amount to the
Parent Indemnitee from the Indemnity Escrow Fund; and
(ii) if
the
Indemnitee is a Company Indemnitee, Parent
shall
pay
to the Company Indemnitee, in cash, an amount equal to the
Stipulated Amount.
(f) If
the
Indemnitor
and
the
Indemnitee are unable to resolve the dispute relating to any Contested Amount
during the 30-day period commencing upon the delivery of the Response Notice
to
the Indemnitee, then either the Indemnitee or the Indemnitor
may
submit the contested portion of the indemnification claim to binding arbitration
in the State of California in accordance with the JAMS Comprehensive Arbitration
Rules and Procedures then in effect. Arbitration will be conducted by one
arbitrator, mutually selected by the Indemnitee and the Indemnitor;
provided,
however,
that
if
the
Indemnitee and the Indemnitor
fail
to
mutually select an arbitrator within 15 business days after the contested
portion of the indemnification claim is submitted to arbitration, then the
arbitrator shall be selected by JAMS in accordance with its Comprehensive
Arbitration Rules and Procedures then in effect. The parties agree to use
commercially reasonable efforts to cause the arbitration hearing to be conducted
within 75 days after the appointment of the arbitrator, and to use commercially
reasonable efforts to cause the decision of the arbitrator to be furnished
within 15 days after the conclusion of the arbitration hearing. The arbitrator’s
authority shall be confined to: (i) whether the Indemnitee is entitled to
recover the Contested Amount (or a portion thereof), and the portion of the
Contested Amount the Indemnitee is entitled to recover; and (ii) whether either
party to the arbitration shall be required to bear and pay all or a portion
of
the other party’s attorneys’ fees and other expenses relating to the
arbitration. The final decision of the arbitrator shall include the dollar
amount of the award to the Indemnitee, if any (the “Award
Amount”),
and
shall be furnished in writing to the Indemnitor,
the
Indemnitee and, if the Indemnitee is a Parent Indemnitee, the Escrow Agent,
shall constitute a conclusive determination of the issues in question, binding
upon the Indemnitor,
the former holders of Company Capital Stock and In-the-Money Company Options
and
the
Indemnitee. Within three days following the receipt of the final award of the
arbitrator setting forth the Award Amount:
97
(i) if
the
Indemnitee is a Parent Indemnitee, Parent and the Stockholders’ Representative
shall jointly execute and deliver to the Escrow Agent a written notice
instructing the Escrow Agent to release the Award Amount to the Parent
Indemnitee from the Indemnity Escrow Fund; and
(ii) if
the
Indemnitee is a Company Indemnitee, Parent
shall pay
to
the Company Indemnitee, in cash, an amount equal to the
Award
Amount.
(g) Within
five business days after the date that Parent receives the Company’s audited
consolidated financial statements for the fiscal year ended December 31, 2006,
together with the final audit report thereto signed by the Company’s outside
auditor (the “Initial
Release Date”),
Parent shall notify the Stockholders’ Representative in writing of such receipt.
If the sum of the aggregate amount of all distributions made from the Indemnity
Escrow Fund to any Parent Indemnitee on or prior to the Initial Release Date
plus
the
aggregate amount of all Claimed Amounts or Contested Amounts, as the case may
be, associated with all indemnification claims made by Parent Indemnitees that
have not been finally resolved and paid on or prior to the Initial Release
Date
(each such indemnification claim being referred to as an “Unresolved
Claim”)
is
less than $7,000,000 (the amount of such shortfall being referred to as the
“Aggregate
Initial Distribution Amount”),
then
within five business days after receipt of such written notice, Parent and
the
Stockholders’ Representative shall execute joint written instructions to the
Escrow Agent, directing the Escrow Agent to release from the Indemnity Escrow
Fund to each Escrow Participant, with respect to each share of Company Capital
Stock held by such Escrow Participant immediately prior to the Effective Time
and each share of Company Common Stock subject to an In-the-Money Company Option
held by such Escrow Participant immediately prior to the Effective Time, an
amount in cash determined by multiplying
the
Aggregate Proceeds Contribution Fraction with respect to such share of Company
Capital Stock or such share of Company Common Stock subject to such In-the-Money
Company Option by
the
Aggregate Initial Distribution Amount.
(h) Following
the Initial Release Date, upon the final resolution of any indemnification
claim
that was an Unresolved Claim on the Initial Release Date, if the final amount
for which the Parent Indemnitee is entitled to indemnification with respect
to
such Unresolved Claim is less than the amount of such Unresolved Claim used
for
purposes of determining the Aggregate Initial Distribution Amount, Parent and
the Stockholders’ Representative shall issue joint written instructions to the
Escrow Agent, directing the Escrow Agent to distribute to the Escrow
Participants, in the respective proportions set forth in Section 9.7(g), any
portion of such amount that would have been distributed to the Escrow
Participants as part of such Aggregate Initial Distribution Amount if such
Unresolved Claim had been resolved, and any Damages with respect thereto had
been distributed from the Indemnity Escrow Fund to any Parent Indemnitee, prior
to the Initial Distribution Date, taking into account other indemnification
claims that were Unresolved Claims on the Initial Release Date and continue
to
be outstanding on the date of such final resolution. In no event shall the
aggregate amount of the Aggregate Initial Distribution Amount and any additional
amounts distributed pursuant to this clause (h) exceed $7,000,000.
98
(i) If
the
aggregate amount of cash remaining in the Indemnity Escrow Fund (the
“Aggregate
Escrow Balance”)
as of
the Designated Date exceeds the aggregate dollar amount, as of the Designated
Date, of the Claimed Amounts and Contested Amounts associated with all
indemnification claims made by Parent Indemnitees that have not been finally
resolved and paid prior to the Designated Date in accordance with this Section
9.7
(each,
an “Unresolved
Escrow Claim”)
(the
amount of such excess being referred to as the “Aggregate
Second Distribution Amount”),
then
within five business days after the Designated Date, Parent and the
Stockholders’ Representative shall deliver joint written instructions to the
Escrow Agent directing the Escrow Agent to release from the Indemnity Escrow
Fund to each Escrow Participant, with respect to each share of Company Capital
Stock held by such Escrow Participant immediately prior to the Effective Time
and each share of Company Common Stock subject to an In-the-Money Company Option
held by such Escrow Participant immediately prior to the Effective Time, an
amount in cash determined by multiplying
the
Aggregate Proceeds Contribution Fraction with respect to such share of Company
Capital Stock or such share of Company Common Stock subject to such In-the-Money
Company Option by
the
Aggregate Second Distribution Amount.
(j) Following
the Designated
Date,
if an
Unresolved Escrow Claim is finally resolved, Parent
and the Stockholders’ Representative shall jointly execute and deliver to the
Escrow Agent,
within
three days after the final resolution of such Unresolved Escrow Claim and the
payment to the Parent Indemnitee of all amounts payable to the Parent
Indemnitee
from the Indemnity
Escrow
Fund with respect thereto, a written notice instructing the Escrow Agent to
release from the Indemnity
Escrow
Fund to
each
Escrow Participant, with respect to each share of Company Capital Stock held
by
such Escrow Participant immediately prior to the Effective Time and each share
of Company Common Stock subject to an In-the-Money Company Option held by such
Escrow Participant immediately prior to the Effective Time, an amount in cash
determined by multiplying
the
Aggregate Proceeds Contribution Fraction with respect to such share of Company
Capital Stock or such share of Company Common Stock subject to such In-the-Money
Company Option by
the
amount (if any) by which the Aggregate Escrow Balance as of such date exceeds
the aggregate amount of the Claimed Amounts and Contested Amounts, as the case
may be, associated with all remaining Unresolved Escrow Claims.
(k) All
cash
released to Escrow Participants pursuant to this Section 9.7
will be
deemed to have been released in full satisfaction of the rights of such Escrow
Participants under Sections 1.5(a)(ii)(E), 1.5(a)(iii)(E) and 1.6(a)(v), as
the
case may be.
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(l) The
parties agree that any cash released from the Working Capital Adjustment Escrow
Fund and/or the Indemnity Escrow Fund to any Parent Indemnitee pursuant to
Section 1.7
or this
Section 9 shall, to the extent permitted pursuant to applicable Legal
Requirements, be treated as a reduction in the Aggregate Closing Transaction
Value for federal income tax purposes.
9.8 Tax
Matters.
(a) The
parties
shall reasonably cooperate, and shall cause their respective affiliates and
their respective directors, officers, employees, agents, auditors and
representatives reasonably to cooperate, in preparing and filing all Tax Returns
and in resolving all disputes and audits with respect to all taxable periods
or
relating to Taxes, including maintaining and making available to each other
all
records necessary in connection with Taxes of the Acquired
Companies.
(b) Parent
and the Acquired Companies shall prepare or cause to be prepared all Tax Returns
for all Pre-Closing Tax Periods not yet filed or due to be filed as of the
Closing Date (giving effect to extensions). Except to the extent otherwise
required by law, such Tax Returns shall be prepared on a basis consistent with
the past practices of such entities. Parent and the Acquired Companies shall
prepare all Tax Returns of the Acquired Companies for all Tax periods that
begin
after the Closing Date (a “Post-Closing
Tax Period”)
and
all Tax Returns of the Acquired Companies for all Tax periods that begin on
or
before the Closing Date and end after the Closing Date (a “Straddle
Period”).
With
respect to any Tax Return for a Straddle Period, Parent and the Acquired
Companies shall apportion Taxes to the Interim Period in accordance with Section
1.7(f)(ii) hereof. Parent and the Acquired Companies shall provide the
Stockholders’ Representative with drafts of all Tax Returns prepared by Parent
or the Acquired Companies at least 15 business days prior to the filing date
thereof, but only to the extent such Tax Returns are for a Pre-Closing Tax
Period or a Straddle Period or would constitute an amendment to Tax Returns
previously filed by the Stockholders’ Representative or the Acquired Companies
for a Pre-Closing Tax Period. The Stockholders’ Representative shall have the
right to review and comment on the Tax Returns for any Pre-Closing Tax Period
and the portion of the Straddle Period ending on the Closing Date. In the event
the Parent rejects any such comments by the Stockholders’ Representative on any
such Tax Return, and Parent and the Stockholders’ Representative cannot within a
reasonable period of time resolve such disagreement, such Tax Return shall
be
filed as proposed by the Stockholders’ Representative (to the extent its
comments relate to any Pre-Closing Tax Period or the portion of the Straddle
Period ending on the Closing Date), and the parties shall submit to binding
arbitration in the State of California in accordance with the JAMS Comprehensive
Arbitration Rules and Procedures then in effect the issue of whether the
position embodied in the change to the Tax Return requested by the Stockholders’
Representative and rejected by Parent is more consistent with applicable Tax
law
than the position of the Parent sought to be changed. For the avoidance of
doubt, the authority of the Arbitrator shall be limited to the determination
of
whether the position embodied in the change to the Tax Return requested by
the
Stockholders’ Representative and rejected by Parent is more consistent with
applicable Tax law than the position of the Parent sought to be changed.
Arbitration will be conducted by one arbitrator, mutually selected by the
Stockholders’ Representative and the Parent;
provided,
however,
that
if
they fail
to
mutually select an arbitrator within 15 business days after the contested
portion of the indemnification claim is submitted to arbitration, then the
arbitrator shall be selected by JAMS in accordance with its Comprehensive
Arbitration Rules and Procedures then in effect. The parties agree to use
commercially reasonable efforts to cause the arbitration hearing to be conducted
within 75 days after the appointment of the arbitrator, and to use commercially
reasonable efforts to cause the decision of the arbitrator to be furnished
within 15 days after the conclusion of the arbitration hearing. The final
decision of the arbitrator shall constitute a conclusive determination of the
issues in question, binding upon the Stockholders Representative and Parent
and
its Affiliates. If the final decision of the Arbitrator is in favor of Parent,
Parent may at its election cause to be filed an amended Tax Return that embodies
the position of Parent. Parent shall also cause the Surviving Corporation to
make available to the Stockholders’ Representative and its accountants any
relevant work papers of the Surviving Corporation and its accountants generated
in connection with the preparation of Tax Returns for any Pre-Closing Tax Period
and or Straddle Period and shall provide the Stockholders’ Representative and
its accountants with access to the records and employees of the Surviving
Corporation and its Subsidiaries (and make appropriate personnel available
during reasonable business hours) to the extent reasonably necessary to for
the
Stockholders’ Representative to review and evaluate such Tax
Returns.
100
(c) Parent
and the Acquired Companies may amend any Tax Return filed with respect to any
Pre-Closing Tax Period, provided that no Parent Indemnitee shall be entitled
to
indemnification hereunder arising out of or in connection with the filing of
any
such amended Tax Return unless the filing of such amendment is required by
a
Governmental Body as a result of an audit or is clearly required by applicable
Legal Requirements.
(d) Any
Taxes
of the Acquired Companies that (i) are paid by the Acquired Companies on or
before the Closing Date, (ii) were accrued as a liability of the Acquired
Companies in the computation of the Closing Working Capital Amount or (iii)
are
paid from the Indemnity Escrow Fund to the Parent Indemnitees under Section
9.2(a) hereof and are either later refunded to an Acquired Company or credited
against a Tax liability of an Acquired Company or any of the Acquired Companies’
Affiliates shall, together with any interest paid by the Governmental Body
with
respect to such refund or credit, promptly be paid over to the Stockholders’
Representative for distribution to the Escrow Participants pro rata in
accordance with their respective Aggregate Proceeds Contribution Fractions;
provided,
however,
that in
the case of clause (iii) above, Parent shall pay an amount equal to the
aggregate amount of such refund, credit and/or interest (x) to the extent of
the
excess (if any) of (1) the aggregate amount of the Claimed Amounts and Contested
Amounts, as the case may be, associated with all remaining Unresolved Escrow
Claims as of such date, over (2) the Aggregate Escrow Balance as of such date,
back to the Indemnity Escrow Fund, and (y) otherwise to the Stockholders’
Representative for distribution to the Escrow Participants pro rata in
accordance with their respective Aggregate Proceeds Contribution Fractions.
The
payment of any such amount by Parent to the Stockholders’ Representative shall
completely discharge Parent’s obligations with respect to such amount, and in no
event shall Parent have any responsibility or liability whatsoever for causing
or ensuring that all or any portion of such amount is ultimately paid or
distributed to Escrow Participants.
(e) Parent
or
the Acquired Companies shall promptly notify the Stockholders’ Representative in
writing upon receipt by any Acquired Company of a written notice of any pending
or threatened Tax audits or assessments for which a Parent Indemnitee may have
a
right to indemnification under Section 9.2 hereof (“Tax
Contest Claims”).
Parent and the Stockholders’ Representative shall cooperate with each other in
the conduct of any Tax Contest Claim. The Stockholders’ Representative shall
have the right to control the conduct of any Tax Contest Claim with respect
to
which Parent Indemnitees would be entitled to indemnity under Section 9.2
hereof; provided that (i) the Stockholders’ Representative shall keep Parent
informed regarding the progress and substantive aspects of any Tax Contest
Claim, including providing Parent with all written materials relating to such
Tax proceeding received from the relevant Governmental Body, (ii) Parent shall
be entitled to participate in any Tax Contest Claim at its own expense,
including having an opportunity to comment on any written materials prepared
in
connection with any Tax Contest Claim and to attend any conferences relating
to
any Tax Contest Claim and (iii) the Stockholders’ Representative shall not
compromise or settle any such Tax Contest Claim without obtaining Parent’s prior
written consent, which consent shall not be unreasonably withheld, conditioned
or delayed. If the Stockholders’ Representative requests in writing the consent
of the Parent to a proposed settlement of a Tax Contest Claim embodied in a
written settlement offer from the applicable Governmental Body (a “Proposed
Settlement”) and Parent withholds or conditions its consent, or delays its
consent for more than 15 business days, in each case to such Proposed
Settlement, thereafter the Stockholders’ Representative shall no longer be
obligated to continue to defend or prosecute its position with respect to the
issues in such Tax Contest Claim that are covered by the Proposed Settlement,
and the maximum liability for indemnity that may be claimed and recovered by
the
Parent Indemnitees in respect of any claim for indemnity arising from or as
a
result of, or are directly or indirectly connected with the issues in such
Tax
Contest Claim as are proposed to be settled in the Proposed Settlement, shall
be
limited to the amount required to be paid under the Proposed
Settlement.
101
(f)
Notwithstanding the foregoing, if the amount of Taxes at risk from an adverse
determination of the items in dispute in the Tax Contest Claim with respect
to
the Pre-Closing Period is less than the amount of Taxes at risk from an adverse
determination of such items with respect to any Post-Closing Period, then Parent
shall have the right to control the conduct of the Tax Contest Claim, provided
that (i) Parent shall keep the Stockholders’ Representative informed regarding
the progress and substantive aspects of such Tax Contest Claim, including
providing the Stockholders’ Representative with all written materials relating
to such Tax proceeding received from the relevant Governmental Body, (ii) the
Stockholders’ Representative shall be entitled to participate in such Tax
Contest Claim at its own expense or the expense of the Escrow Participants,
including having an opportunity to comment on any written materials prepared
in
connection with such Tax Contest Claim and to attend any conferences relating
to
such Tax Contest Claim and (iii) Parent shall not compromise or settle any
Tax
Contest Claim without obtaining the Stockholders’ Representative’s consent,
which consent shall not be unreasonably withheld, conditioned or
delayed.
(g) In
addition, the Stockholder Representative shall not have the right to assume
the
control of any Tax Contest Claim if,
at the
time the Stockholder Representative assumes control the amount claimed at issue
in such Tax Contest Claim, in the aggregate with the amount claimed in other
third party claims and direct claims against the Indemnity Escrow Fund under
this Section 9, would exceed the limitation of liability set forth in Section
9.3(c).
(h) The
Acquired Companies may make (or cause to be made) an election under Section
172(b)(3) of the Code (or any analogous or similar rules in any relevant tax
jurisdiction, to the extent permitted by law) to relinquish the entire carryback
period with respect to any net operating loss attributable to the Acquired
Companies in any Post-Closing Tax Period that could be carried back to a
Pre-Closing Tax Period.
102
(i) In
the
event any provision of this Section 9.8 conflicts with another provision in
this
Section 9, this Section 9.8 shall control.
SECTION
10. MISCELLANEOUS
PROVISIONS
10.1 Stockholders’
Representative.
(a) The
Escrow Participants (by virtue of the approval of the Merger and the adoption
of
this Agreement) hereby irrevocably nominate, constitute and appoint TC Group,
L.L.C. as the agent and true and lawful attorney-in-fact of the Escrow
Participants (the “Stockholders’
Representative”),
with
full power of substitution, to act in the name, place and stead of the Escrow
Participants for purposes of executing any documents and taking any actions
that
the Stockholders’ Representative may, in its sole discretion, determine to be
necessary, desirable or appropriate in all matters relating to or arising out
of
this Agreement, including in connection with any adjustment to the consideration
payable in connection with the Contemplated Transactions pursuant to Sections
1.7
and 1.8
or any claim for indemnification, compensation or reimbursement under Section
9
or under the Escrow Agreement. In that regard, the Stockholders’ Representative
shall take any and all actions which it believes are necessary or appropriate
under this Agreement for and on behalf of the Stockholders, as fully as if
the
Stockholders were acting on their own behalf, including executing this Agreement
as Stockholders’ Representative and overseeing the Stockholders’ Representative
Expense Fund, giving and receiving notices, instructions and communications
permitted or required under this Agreement, interpreting this Agreement,
authorizing payments to be made with respect hereto or thereto, obtaining
reimbursement as provided for herein of all out-of-pocket fees and expenses
and
other obligations of or incurred by the Stockholders’ Representative in
connection with this Agreement, objecting to deliveries, agreeing to,
negotiating and entering into settlements and compromises of, demanding
arbitration or other legal proceedings and complying with orders of courts
and
awards of arbitrators, with respect to such claims, engaging counsel or
accountants or other representatives in connection with the foregoing matters,
and taking all actions necessary or appropriate in the judgment of the
Stockholders’ Representative for the accomplishment of the foregoing. TC Group,
L.L.C. hereby accepts its appointment as the Stockholders’
Representative.
(b) The
Escrow Participants (by virtue of their adoption of this Agreement) grant to
the
Stockholders’ Representative full authority to execute, deliver, acknowledge,
certify and file on behalf of the Escrow Participants (in the name of any or
all
of the Escrow Participants or otherwise) any and all documents that the
Stockholders’ Representative may, in its sole discretion, determine to be
necessary, desirable or appropriate, in such forms and containing such
provisions as the Stockholders’ Representative may, in its sole discretion,
determine to be appropriate, in performing its duties as contemplated by Section
10.1(a).
Notwithstanding anything to the contrary contained in this Agreement or in
any
other Contract executed in connection with the Contemplated Transactions, Parent
shall be entitled to deal exclusively with the Stockholders’ Representative on
all matters relating to Sections 1.7
and 1.8
and each Parent Indemnitee shall be entitled to deal exclusively with the
Stockholders’ Representative on all matters relating to Section 9 and the Escrow
Agreement, and Parent and each other Parent Indemnitee shall be entitled to
rely
conclusively (without further evidence of any kind whatsoever) on any document
executed or purported to be executed on behalf of any Escrow Participant by
the
Stockholders’ Representative or any individual acting on behalf of the
Stockholders’ Representative, and on any other action taken or purported to be
taken on behalf of any Escrow Participant by the Stockholders’ Representative or
any individual acting on behalf of the Stockholders’ Representative, as fully
binding upon such Escrow Participant. The provisions of this Section 10.1 shall
be binding upon each Escrow Participant and the executors, heirs, legal
representatives and successors of each Escrow Participant, and any references
in
this Agreement to an Escrow Participant or the Escrow Participants shall mean
and include the successors to the Escrow Participants’ rights hereunder, whether
pursuant to testamentary disposition, the laws of descent and distribution
or
otherwise.
103
(c) The
power
of attorney granted in Section 10.1(a):
(i) is
coupled with an interest and is irrevocable; (ii) may be delegated by the
Stockholders’ Representative; and (iii) shall survive the dissolution, death or
incapacity of each Escrow Participant.
(d) In
dealing with this Agreement and in exercising or failing to exercise all or
any
of the powers conferred upon the Stockholders’ Representative under this
Agreement, (i) the Stockholders’ Representative shall not assume any, and shall
incur no, responsibility to any Escrow Participant by reason of any error in
judgment or other act or failure to act in connection with this Agreement,
except for any act or failure to act which represents willful misconduct or
bad
faith, and (ii) the Stockholders’ Representative shall be entitled to rely on
the advice of counsel, public accountants or other independent experts
experienced in the matter at issue, and any error in judgment or other act
or
failure to act on the part of the Stockholders’ Representative pursuant to such
advice shall not subject the Stockholders’ Representative to liability to any
Escrow Participant. The Escrow Participants shall jointly and severally
indemnify the Stockholders’ Representative and its respective partners,
directors, officers, employees, agents and controlling persons and hold each
of
them harmless against and from any loss, liability or expense (including
attorneys fees reasonably incurred or suffered as a result of the performance
of
its duties under this Agreement) incurred without willful misconduct or bad
faith on its part and arising out of or in connection with the acceptance or
administration of its duties hereunder.
The
costs of such indemnification (including the costs and expenses of enforcing
this right of indemnification) shall be paid from the Stockholders’
Representative Expense Fund, then from proceeds otherwise subject to release
from the Indemnity Escrow Fund to Escrow Participants to the extent the
Stockholders’ Representative has submitted an Excess Expense Certificate (as
defined in Section 10.1(g)) in accordance with Section 10.1(g) below, and
thereafter shall be the responsibility of the Escrow Participants.
(e) Upon
30
days’ prior written notice to Parent, the Stockholders’ Representative shall
have the right to resign in its sole discretion for any reason. If the
Stockholders’ Representative shall resign or otherwise become unable to fulfill
its responsibilities under this Section 10.1
or cease
to function in its capacity as Stockholders’ Representative for any reason
whatsoever, then Escrow Participants collectively holding greater than a 50%
interest in the cash held in the Indemnity Escrow Fund shall, within 30 days
thereof, appoint a successor and, promptly thereafter, shall notify Parent
and
the Escrow Agent of the identity of such successor. In any event, the
Stockholders’ Representative shall continue to have all rights to
indemnification provided in Section 10.1(d).
Any
such successor shall become the “Stockholders’ Representative” for purposes of
this Agreement, including Sections 1.7,
1.8 and
9 and this Section 10.1.
If for
any reason there is no Stockholders’ Representative at any time, all references
herein to the Stockholders’ Representative shall be deemed to refer to the
Escrow Participants.
104
(f) All
expenses incurred by the Stockholders’ Representative in connection with the
performance of its duties as Stockholders’ Representative shall be borne and
paid exclusively by the Escrow Participants. The Stockholders’ Representative
shall be entitled to withdraw amounts held in the Stockholders’ Representative
Expense Fund in reimbursement for out-of-pocket fees and expenses (including
legal, accounting and other advisors’ fees and expenses, if applicable) incurred
by the Stockholders’ Representative in connection with this Agreement and the
transaction contemplated hereby. The Stockholders’ Representative shall be
entitled to hold the Stockholders’ Representative Expense Fund until the date
that is 90 days after such time as all amounts remaining in the Indemnity Escrow
Fund have been distributed pursuant to Section 9.7. Upon any release of funds
by
the Stockholders’ Representative from the Stockholders’ Representative Expense
Fund, (other than to cover expenses of the Stockholders’ Representative as set
forth above), the Stockholders’ Representative shall release to each Escrow
Participant, with respect to each share of Company Capital Stock held by such
Escrow Participant immediately prior to the Effective Time and each share of
Company Common Stock subject to an In-the-Money Company Option held by such
Escrow Participant immediately prior to the Effective Time, an amount in cash
determined by multiplying
the
Aggregate Proceeds Contribution Fraction with respect to such share of Company
Capital Stock or such share of Company Common Stock subject to such In-the-Money
Company Option by
the
amount of funds to be released from the Stockholders’ Representative Expense
Fund.
(g) In
the
event that the Stockholders’ Representative shall expend amounts in excess of
the Stockholders’ Representative Expense Fund in accordance with the terms and
conditions of this Section 10.1, the Stockholders’ Representative shall be
entitled deliver to Parent written notice certifying the amount of such expenses
in excess of the Stockholders’ Representative Expense Fund payable by the
Stockholders (an “Excess
Expenses Certificate”).
Following receipt by Parent of an Excess Expenses Certificate, prior to the
distribution of any funds to Escrow Participants from the Indemnity Escrow
Fund,
Parent shall reimburse the amount certified in the Excess Expenses Certificate
to the Stockholders’ Representative (up to the amount of funds otherwise to be
distributed from the Indemnity Escrow Fund) and shall deduct a corresponding
amount from such amount otherwise to be distributed. Parent shall be entitled
to
rely on the amount set forth in any Excess Expenses Certificate without
investigation or liability whatsoever, and the payment of any amount to the
Stockholders’ Representative in accordance with this Section 10.1(g) shall
completely discharge Parent’s obligations with respect to such
amount.
(h) Any
action taken by the Stockholders’ Representative pursuant to the authority
granted in this Section 10.1 shall be effective and absolutely binding on
each Escrow Participant notwithstanding any contrary action of, or direction
from, any Escrow Participant.
105
10.2 Further
Assurances.
Each
party hereto shall execute and cause to be delivered to each other party hereto
such instruments and other documents, and shall take such other actions, as
such
other party may reasonably request (prior to, at or after the Closing) for
the
purpose of carrying out or evidencing any of the Contemplated
Transactions.
10.3 Fees
and Expenses.
Except
as otherwise provided in this Agreement, each party to this Agreement shall
bear
and pay all fees, costs and expenses (including legal fees, accounting fees
and
investment banking fees) that have been incurred or that are incurred by or
on
behalf of such party in connection with the Contemplated
Transactions.
10.4 Notices.
Any
notice or other communication required or permitted to be delivered to any
party
under this Agreement shall be in writing and shall be deemed properly delivered,
given and received when delivered (by hand, by registered mail, by courier
or
express delivery service or by facsimile) to the address or facsimile telephone
number set forth beneath the name of such party below (or to such other address
or facsimile telephone number as such party shall have specified in a written
notice given to the other parties hereto):
if
to Parent:
0000
Xxxxx Xxxxxx, Xxxxx 000
Xxxxxx,
XX 00000
Attention:
General Counsel
Facsimile:
(000) 000-0000
with
a
copy to:
Xxxxxx
Godward Kronish LLP
000
Xxxxxxxxxx Xxxxxx
Xxx
Xxxxxxxxx, XX 00000
Attention:
Xxxx-Xxxxxxx a Marca
Facsimile:
(000) 000-0000
if
to the Company:
Jazz
Semiconductor, Inc.
0000
Xxxxxxxx Xx.
Xxxxxxx
Xxxxx, XX 00000
Attention:
General Counsel
Facsimile:
(000) 000-0000
with
a
copy to:
Xxxxxx
& Xxxxxxx LLP
000
Xxxxxxxx Xxxxxx, XX
Xxxxx
0000
Xxxxxxxxxx,
XX 00000-0000
Attention:
Xxxxx Xxxxxxx
Xxxx X. Xxxxxx
Facsimile:
(000) 000-0000
and
the
Stockholders’ Representative.
106
if
to the Stockholders’ Representative:
T.C.
Group, L.L.C.
000
Xxxxx
Xxxxx Xx.
00xx
Xxxxx
Xxxxxxxxx,
XX 00000
Attention:
Xxxx X. Xxxxxx
Facsimile:
000-000-0000
with
a
copy to:
Xxxxxx
& Xxxxxxx LLP
000
Xxxxxxxx Xxxxxx, XX
Xxxxx
0000
Xxxxxxxxxx,
XX 00000-0000
Attention:
Xxxxx Xxxxxxx
Xxxx X. Xxxxxx
Facsimile:
(000) 000-0000
10.5 Time
of the Essence.
Time is
of the essence of this Agreement.
10.6 Headings.
The
headings contained in this Agreement are for convenience of reference only,
shall not be deemed to be a part of this Agreement and shall not be referred
to
in connection with the construction or interpretation of this
Agreement.
10.7 Counterparts
and Exchanges by Facsimile Transmission.
This
Agreement may be executed in several counterparts, each of which shall
constitute an original and all of which, when taken together, shall constitute
one agreement. The
exchange of a fully executed Agreement (in counterparts or otherwise) by
facsimile transmission or other electronic transmission shall be sufficient
to
bind the parties to the terms and conditions of this Agreement.
10.8 Governing
Law.
(a) This
Agreement shall be construed in accordance with, and governed in all respects
by, the internal laws of the State of Delaware (without giving effect to
principles of conflicts of laws).
(b) Except
as
otherwise provided in Sections 1.7
and
9.7
or in
the Escrow Agreement, any action, suit or proceeding relating to this Agreement
or the enforcement of any provision of this Agreement may be brought or
otherwise commenced only in any state or federal court located in the State
of
California. Each party to this Agreement: (i) irrevocably and unconditionally
consents and submits to the exclusive jurisdiction and venue of the state and
federal courts located in the State of California; (ii) agrees that each state
and federal court located in the State of California shall be deemed to be
a
convenient forum; (iii) agrees not to assert (by way of motion, as a defense
or
otherwise), in any such action, suit or proceeding commenced in any state or
federal court located in the State of California, any claim that such party
is
not subject personally to the jurisdiction of such court, that such action,
suit
or proceeding has been brought in an inconvenient forum, that the venue of
such
proceeding is improper or that this Agreement or the subject matter of this
Agreement may not be enforced in or by such court; and (iv) waives such party’s
right to trial by jury.
107
10.9 Successors
and Assigns.
This
Agreement shall be binding upon: the Company and its successors and assigns
(if
any); Parent and its successors and assigns (if any); Merger Sub and its
successors and assigns (if any); and the Stockholders’ Representative and its
successors and assigns (if any). This Agreement shall inure to the benefit
of:
the Company; Parent; Merger Sub; the other Indemnitees;
the
Stockholders’ Representative; and the respective successors and assigns (if any)
of the foregoing. Except as otherwise provided in this Agreement, neither the
Company nor any Company Indemnitee shall, without the prior written consent
of
Parent, assign or delegate any or all of its or his rights or obligations under
this Agreement (including indemnification rights and obligations under
Section 9), in whole or in part, to any other Person, and any attempted
assignment or delegation without such prior written consent shall be void and
of
no force or effect.
10.10 Remedies
Cumulative; Specific Performance.
The
rights and remedies of the parties hereto shall be cumulative (and not
alternative). The parties to this Agreement agree that, in the event of any
breach or threatened breach by any party to this Agreement of any covenant,
obligation or other provision set forth in this Agreement for the benefit of
any
other party to this Agreement, such other party shall be entitled (in addition
to any other remedy that may be available to it) to (a) a decree or order
of specific performance or mandamus to enforce the observance and performance
of
such covenant, obligation or other provision, and (b) an injunction
restraining such breach or threatened breach.
The
parties agree that neither Parent nor any other Indemnitee shall be required
to
provide any bond or other security in connection with any such decree, order
or
injunction or in connection with any related Legal Proceeding.
10.11 Waiver.
(a) No
failure on the part of any Person to exercise any power, right, privilege or
remedy under this Agreement, and no delay on the part of any Person in
exercising any power, right, privilege or remedy under this Agreement, shall
operate as a waiver of such power, right, privilege or remedy; and no single
or
partial exercise of any such power, right, privilege or remedy shall preclude
any other or further exercise thereof or of any other power, right, privilege
or
remedy.
(b) No
Person
shall be deemed to have waived any claim arising out of this Agreement, or
any
power, right, privilege or remedy under this Agreement, unless the waiver of
such claim, power, right, privilege or remedy is expressly set forth in a
written instrument duly executed and delivered on behalf of such Person; and
any
such waiver shall not be applicable or have any effect except in the specific
instance in which it is given.
108
10.12 Amendments.
This
Agreement may not be amended, modified, altered or supplemented other than
by
means of a written instrument duly executed and delivered on behalf of all
of
the parties hereto; provided,
however, that
(a)
any such amendment, modification, alteration or supplement adopted or entered
into prior to the Effective Time must be duly authorized by the respective
boards of directors of each of the Company and Merger Sub, and (b) unless any
required approval of the stockholders of the Company is obtained, no amendment,
modification, alteration or supplement shall (i) alter or change the amount
or
kind of consideration to be received in exchange for or on conversion of all
or
any shares of any class of Company Capital Stock or any shares of Merger Sub,
(ii) alter or change any term of the certificate of incorporation of the
Surviving Corporation to be effected by the Merger, or (iii) alter or change
any
of the terms and conditions of this Agreement if such alteration or change
would
adversely affect the holders of shares of any class of Company Capital Stock
or
the holder of shares of Merger Sub.
10.13 Severability.
Any term
or provision of this Agreement that is invalid or unenforceable in any situation
in any jurisdiction shall not affect the validity or enforceability of the
remaining terms and provisions hereof or the validity or enforceability of
the
offending term or provision in any other situation or in any other jurisdiction.
If the final judgment of a court of competent jurisdiction declares that any
term or provision hereof is invalid or unenforceable, the parties hereto agree
that the court making such determination shall have the power to limit the
term
or provision, to delete specific words or phrases or to replace any invalid
or
unenforceable term or provision with a term or provision that is valid and
enforceable and that comes closest to expressing the intention of the invalid
or
unenforceable term or provision, and this Agreement shall be enforceable as
so
modified. In the event such court does not exercise the power granted to it
in
the prior sentence, the parties hereto agree to replace such invalid or
unenforceable term or provision with a valid and enforceable term or provision
that will achieve, to the extent possible, the economic, business and other
purposes of such invalid or unenforceable term or provision.
10.14 Parties
in Interest.
Except
to the extent expressly set forth in Sections 5.14
and 9,
none of the provisions of this Agreement is intended to provide any rights
or
remedies to any Person other than the parties hereto and their respective
successors and assigns (if any).
10.15 Entire
Agreement.
This
Agreement and the other agreements referred to herein set forth the entire
understanding of the parties hereto relating to the subject matter hereof and
thereof and supersede all prior agreements and understandings among or between
any of the parties relating to the subject matter hereof and
thereof.
10.16 Construction.
(a) For
purposes of this Agreement, whenever the context requires: the singular number
shall include the plural, and vice versa; the masculine gender shall include
the
feminine and neuter genders; the feminine gender shall include the masculine
and
neuter genders; and the neuter gender shall include the masculine and feminine
genders.
109
(b) The
parties hereto agree that any rule of construction to the effect that
ambiguities are to be resolved against the drafting party shall not be applied
in the construction or interpretation of this Agreement.
(c) As
used
in this Agreement and in Exhibit
A and
the
Schedules to this Agreement, the words “include” and “including,” and variations
thereof, shall not be deemed to be terms of limitation, but rather shall be
deemed to be followed by the words “without limitation.”
(d) For
purposes of this Agreement, e-mail and other forms of electronic communications
shall be deemed to be written communications. An e-mail or other electronic
communication shall be deemed to have been provided to and received by an
Acquired Company if an officer or other employee of such Acquired Company who
has or had any authority or responsibility relating to the subject matter of
such communication shall have received such communication or a copy thereof
(whether directly from the sender or otherwise).
(e) Except
as
otherwise indicated, (i) all references in this Agreement to “Sections,”
“Exhibits” and “Schedules” are intended to refer to Sections of this Agreement
and Exhibits and Schedules to this Agreement, and (ii) all references in this
Agreement to dollar amounts are intended to refer to U.S. dollars.
[Remainder
of page intentionally left blank]
110
IN
WITNESS WHEREOF,
the
parties hereto have caused this Agreement to be executed and delivered as
of the
date first set forth above.
|
a
Delaware corporation
|
||
| |
|
|
| By: | /s/ Xxxxxxx X. Xxxxxx | |
|
Name:
|
Xxxxxxx X. Xxxxxx |
|
|
Title:
|
Chairman and CEO |
|
|
JOY
ACQUISITION CORP.,
a
Delaware corporation
|
||
| |
|
|
| By: | /s/ Xxxxxxx X. Xxxxxx | |
|
Name:
|
Xxxxxxx X. Xxxxxx |
|
|
Title:
|
Chairman and CEO |
|
|
JAZZ
SEMICONDUCTOR, INC.,
a
Delaware corporation
|
||
| |
|
|
| By: | /s/ Xxx Xx | |
|
Name:
|
Xxx Xx |
|
|
Title:
|
CEO |
|
|
|
|
|
|
TC
GROUP, L.L.C.,
as
the Stockholders’ Representative
|
||
| |
|
|
| By: | TCG Holdings, L.L.C.,
its
Managing Member
|
|
| By: | /s/ Xxxxxxxx X. Xxxxx XX | |
|
Name:
|
Xxxxxxxx X. Xxxxx XX |
|
|
Title:
|
Managing Director |
|
|
|
|
|
1
EXHIBIT
A
CERTAIN
DEFINITIONS
For
purposes of the Agreement (including this Exhibit A
and the
Disclosure Schedule):
Acquired
Company Affiliate.
“Acquired Company Affiliate” shall mean any Person under common control with an
Acquired Company within the meaning of Sections 414(b), 414(c), 414(m) and
414(o) of the Code, and the regulations thereunder.
Acquired
Company Contract. “Acquired
Company Contract” shall mean any Contract (a) to which an Acquired Company is a
party; (b) by which an Acquired Company or any of its assets is or may become
bound or under which an Acquired Company has, or may become subject to, any
obligation; or (c) under which an Acquired Company has any right.
Acquired
Company Employee. “Acquired
Company Employee” shall mean any current or former employee, consultant,
independent contractor or director of an Acquired Company or an Acquired
Company
Affiliate.
Acquired
Company Employee Agreement. “Acquired
Company Employee Agreement” shall mean any management, employment, severance,
change in control, transaction bonus, consulting, relocation, repatriation
or
expatriation agreement or other Acquired Company Contract between an Acquired
Company and any Acquired Company Employee, other than any such Contract that
is
terminable “at will” and that does not obligate an Acquired Company to make any
payment or provide any benefit in connection with the termination of such
Contract, other than as already required by law.
Acquired
Company Employee Plan. “Acquired
Company Employee Plan” shall mean any plan, program, policy, practice or
Contract providing for compensation, severance, termination pay, deferred
compensation, performance awards, stock or stock-related awards, fringe benefits
or other benefits or remuneration of any kind, whether written or unwritten,
and
whether funded or unfunded, including each “employee benefit plan,” within the
meaning of Section 3(3) of ERISA (whether or not ERISA is applicable to such
plan), that is or has been maintained, contributed to or required to be
contributed to by an Acquired Company for the benefit of any Acquired Company
Employee, and with respect to which an Acquired Company has or may have any
liability or obligation; provided,
however, than
an
Acquired Company Employee Agreement shall not be considered an “Acquired Company
Employee Plan.”
Acquired
Company IP.
“Acquired
Company IP” shall mean (a) all Acquired Company Software; (b) all Acquired
Company Process Technology; and (c) all other Intellectual Property Rights
and
Intellectual Property that is related to the business of the Acquired Companies
and in which an
Acquired Company has
(or
purports to have) an ownership interest.
Acquired
Company Pension Plan. “Acquired
Company Pension Plan” shall mean any (a) Acquired Company Employee Plan that is
an “employee pension benefit plan,” within the meaning of Section 3(2) of ERISA,
or (b) other occupational pension plan, including any final salary or money
purchase plan.
1
Acquired
Company Process Technology. “Acquired
Company Process Technology” shall mean any Intellectual Property and
Intellectual Property Rights that both (a) are owned (or purported to be
owned)
by an Acquired Company or under development by an Acquired Company (the results
of which development will be owned exclusively by an Acquired Company); and
(b)
relate to Process Technology.
Acquired
Company Software.
“Acquired
Company Software”
shall mean (a) software components of design kits owned or purported to be
owned by any Acquired Company and used in connection with Acquired Company
Process Technology and (b) any software (including software development
tools and firmware and other software embedded in hardware devices, and all
updates, upgrades, releases, enhancements and bug fixes) owned or currently
being developed by or on behalf of any
Acquired Company (the results of which development will be owned exclusively
by
an Acquired Company),
including all modules and components of such software and all prior versions
and
releases of such software.
Acquired
Companies. “Acquired
Companies” shall mean (i) the Company and (ii) each Subsidiary of the Company.
Acquisition
Transaction. “Acquisition
Transaction” shall mean any merger, combination, acquisition, disposition or
other transaction involving any
Acquired Company or any securities or assets of an Acquired Company that
would
reasonably be expected to result in: (i) a person, entity or group acquiring
1%
or more of any class of the capital stock of an Acquired Company; (ii) any
sale,
license, disposition or acquisition of all or a substantial portion of the
business or assets of any Acquired Company; or (iii) the issuance or disposition
of 1% or more of any class of capital stock of an Acquired Company.
Agreement.
“Agreement”
shall mean the Agreement and Plan of Merger to which this Exhibit
A
is
attached (including the Disclosure Schedule), as it may be amended from time
to
time.
Ancillary
Agreements. “Ancillary
Agreements” shall mean the Stockholder Support Agreement, the General Releases,
the Noncompetition Agreements, the Lease Amendment Agreements and the
Termination Agreement.
Class
A Common Stock.
“Class
A Common Stock” shall mean the Class A Common Stock, par value $0.001 per share,
of the Company.
Class
B Common Stock.
“Class
B Common Stock” shall mean the Class B Common Stock, par value $0.001 per share,
of the Company.
COBRA. “COBRA”
shall
mean the Consolidated Omnibus Budget Reconciliation Act of 1985, as
amended.
Code.
“Code”
shall mean the
Internal Revenue Code of 1986, as amended.
Company
Capital Stock. “Company
Capital Stock” shall mean the Company Common Stock and the Company Preferred
Stock.
2
Company
Common Stock. “Company
Common Stock” shall mean the
Class
A Common Stock and the Class B Common Stock.
Company
Indemnitees. “Company
Indemnitees” shall mean the Stockholders and
their
respective successors and assigns.
Company
Option. “Company
Option” shall mean an
option
to acquire shares of Company Common Stock from the Company, whether vested
or
unvested.
Company
Option Plan. “Company
Option Plan” shall mean the
Company’s 2002 Amended and Restated Equity Incentive Plan.
Company
Preferred Stock. “Company
Preferred Stock” shall mean the Series A Preferred Stock and the Series B
Preferred Stock.
Company
Retention Bonus Escrow Fund. “Company
Retention Bonus Escrow Fund” shall mean the escrow fund established pursuant to
the Escrow Agreement for purposes of securing the Company’s obligation to make
payments following the Closing under the Company Retention Bonus
Plan.
Company
Retention Bonus Plan. “Company
Retention Bonus Plan” shall mean the Jazz Semiconductor, Inc. Retention Bonus
Plan in the form attached hereto as Exhibit F.
Company
Special Retention Bonus Plan. “Company
Special Retention Bonus Plan” shall mean the Jazz Semiconductor, Inc. Special
Retention Bonus Plan in the form attached hereto as Exhibit G.
Company
Stay Bonus Agreement.
“Company Stay Bonus Agreement” shall mean each agreement between the Company and
a key employee of the Company set forth in Part 2.15(h) of the Disclosure
Schedule and identified therein as a Company Stay Bonus Agreement.
Company
Stock Appreciation Rights Plan. “Company
Stock Appreciation Rights Plan” shall mean the
Company’s Stock
Appreciation Rights
Plan
adopted and effective March 12, 2002 and amended by Amendment No. 1 thereto
effective November 5, 2004.
Conexant.
“Conexant”
shall mean Conexant Systems, Inc., a Delaware corporation.
Consent.
“Consent”
shall mean any approval, consent, ratification, permission, waiver or
authorization (including any Governmental Authorization).
Contemplated
Transactions. “Contemplated
Transactions” shall mean the transactions and other matters contemplated by the
Agreement, including the Merger, the adoption of the Certificate Amendment,
the
solicitation and obtaining of Written Consents and the solicitation and
obtaining of the Required Parent Merger Stockholder Vote.
Contract.
“Contract”
shall mean any written, oral or other agreement, contract, subcontract, lease,
understanding, instrument, note, certificate, warranty, proxy, insurance
policy,
benefit plan or legally binding commitment, arrangement or undertaking of
any
nature.
3
Damages.
“Damages”
shall include any loss, damage (including consequential and indirect damages),
injury, liability, claim, demand, settlement, judgment, award, fine, penalty,
Tax, fee (including reasonable attorneys’ fees), charge, out-of-pocket cost
(including reasonable costs of investigation) or expense of any
nature.
Notwithstanding anything herein to the contrary, (i) in no event shall
“Damages” include any punitive or special damages (except to the extent that a
third party is entitled to receive punitive or special damages against a
Parent
Indemnitee), (ii) in no event shall “Damages” include any Damages resulting
solely from the voluntary initiation by Parent or the Surviving Corporation
or
their Affiliates, following the Closing, of any investigation of environmental
conditions at the Facilities that involves physically invasive testing
procedures such as soil and groundwater sampling (except to the extent that
Parent or the Surviving Corporation (a) was required to do so by a Legal
Requirement, (b) was requested to do so by any Governmental Body, (c) conducted
such testing for purposes of assessing air quality or (d) had a good faith
belief, based in whole or in significant part on the discovery of facts
ascertained following the date of this Agreement, including any change of
Legal
Requirements or standards, information from adjoining property owners or
other
third parties or investigations or reviews of Governmental Bodies, that such
investigation was necessary or appropriate, in which event Parent shall promptly
notify the Stockholders’ Representative and permit the Stockholders’
Representative or its Representative a reasonable opportunity to (x) inspect
such condition prior to testing, (y) meet with the environmental consultant
retained to conduct such testing prior to such testing and (z) observe such
testing), (iii) in no event shall “Damages” be calculated based upon any
multiple of lost earnings or other similar methodology used to value the
equity
of the Acquired Companies based on the financial performance or results of
operations of the Acquired Companies, provided that nothing in this Agreement
shall prevent an Indemnitee from seeking to recover or recovering Damages
pursuant to Section 9 based on the net present value of the effect on the
future
cash flows of the Surviving Corporation or any of the Acquired Companies
of any
matters with respect to which any indemnification is otherwise available
pursuant to Section 9; and (iv) in no event shall Damages include the reduction
of any Tax attribute or Tax asset as a result of it being applied against
Taxes
for any Pre-Closing Tax Period (or portion thereof) the Tax Return with respect
to which is not yet due to be filed (giving effect to any extensions) as
of the
date hereof.
Designated
Date. “Designated
Date” shall mean the date that is 18 months after the Closing Date.
Disclosure
Schedule. “Disclosure
Schedule” shall mean the schedule (dated as of the date of the Agreement)
delivered to Parent on behalf of the Company.
DOL.
“DOL”
shall mean the United States Department of Labor.
El
Capitan Facility. “El
Capitan Facility” shall mean that certain property leased by the Company
pursuant to El Capitan Lease Agreement between the Company and Conexant dated
March 12, 2002.
Encumbrance.
“Encumbrance”
shall mean any lien, pledge, hypothecation, charge, mortgage, security interest,
encumbrance, claim, option, right of first refusal, preemptive right, community
property interest or restriction of any nature (including any restriction
on the
voting of any security, any restriction on the transfer of any security or
other
asset, any restriction on the receipt of any income derived from any asset,
any
restriction on the use of any asset and any restriction on the possession,
exercise or transfer of any other attribute of ownership of any
asset).
4
Entity.
“Entity”
shall mean any corporation (including any non-profit corporation), general
partnership, limited partnership, limited liability partnership, joint venture,
estate, trust, company (including any limited liability company or joint
stock
company), branch office, firm or other enterprise, association, organization
or
entity.
Environment.
“Environment”
shall mean any soil, land surface or subsurface strata, surface waters
(including navigable waters, ocean waters, streams, ponds, drainage basins,
and
wetlands), groundwaters, drinking water supply, stream sediments, ambient
air
(including indoor air), plant and animal life, and any other environmental
medium or natural resource.
Environmental,
Health, and Safety Liabilities. “Environmental,
Health, and Safety Liabilities” shall mean any cost, damages, expense,
liability, obligation, or other responsibility arising from or under
Environmental Law or Occupational Safety and Health Law.
Environmental
Law. “Environmental
Law” shall mean any Legal Requirement relating to the protection of human health
and safety, natural resources or the environment, including related to
pollution, contamination, cleanup, preservation, protection, and reclamation
of
the Environment; and (ii) any Release or Threatened Release of any hazardous
materials, including investigation, monitoring, clean up, removal, treatment,
or
any other action to address such Release or Threatened Release.
ERISA.
“ERISA”
shall mean the Employee Retirement Income Security Act of 1974, as
amended.
Escrow
Agent. “Escrow
Agent” shall mean Citibank, N.A. or U.S Bank National Association or another
escrow agent reasonably acceptable to Parent and Stockholders’
Representative.
Escrow
Agreement. “Escrow
Agreement” shall mean the escrow agreement to
be
entered into among Parent, the Stockholders’ Representative and the Escrow Agent
on the Closing Date, substantially in the form of Exhibit
E
to the
Agreement.
Escrow
Participant. “Escrow
Participant” shall mean each Non-Dissenting Stockholder and each holder of an
In-the-Money Company Option that is unexercised and outstanding immediately
prior to the Effective Time.
Exchange
Act. “Exchange
Act” shall mean the Securities Exchange Act of 1934, as amended.
Facilities.
“Facilities”
shall mean any real property or interest in real property that is being used
or
has been used by the Company and all buildings, structures or other improvements
thereon.
5
Foreign
Plan. “Foreign
Plan” shall mean:
(a)
any Acquired Company Employee Plan or Acquired Company Employee Agreement
mandated by a Governmental Body outside the United States; (b) any Acquired
Company Employee Plan that is subject to any of the Legal Requirements of
any
jurisdiction outside the United States; and (c) any Acquired Company Employee
Plan that covers or has covered any Acquired Company Employee while such
employee is or was performing services outside of the United States; provided,
however, that a “Foreign Plan” shall not include an Acquired Company Employee
Plan sponsored by any Governmental Body.
GAAP.
“GAAP”
shall mean generally accepted accounting principles in the United
States.
Governmental
Authorization. “Governmental
Authorization” shall mean any: (a) permit, license, certificate, franchise,
permission, clearance, registration, qualification or authorization issued,
granted, given or otherwise made available by or under the authority of any
Governmental Body or pursuant to any Legal Requirement; or (b) right under
any
Acquired Company Contract with any Governmental Body.
Governmental
Body. “Governmental
Body” shall mean any:
(a) nation,
state, commonwealth, province, territory, county, municipality, district
or
other jurisdiction of any nature;
(b) federal,
state, local, municipal, foreign or other government; or (c) governmental
or quasi-governmental authority of any nature (including any governmental
division, department, agency, commission, instrumentality, official,
organization, unit, body or Entity, and any court or other
tribunal).
Government
Bid. “Government
Bid” shall mean any quotation, bid or proposal submitted to any Governmental
Body or any proposed prime contractor or higher-tier subcontractor of any
Governmental Body.
Government
Contract. “Government
Contract” shall mean any prime contract, subcontract, letter contract, purchase
order or delivery order executed or submitted to or on behalf of any
Governmental Body or any prime contractor or higher-tier subcontractor, or
under
which any Governmental Body or any such prime contractor or subcontractor
otherwise has or may acquire any right or interest.
HSR
Act.
“HSR
Act” shall mean the Xxxx-Xxxxx-Xxxxxx Antitrust Improvements Act of 1976, as
amended.
Indemnitor.
“Indemnitor”
shall mean: (a) in the case of an indemnification claim made by a Parent
Indemnitee, the Stockholders’ Representative; and (b) in the case of an
indemnification claim made by a Company Indemnitee, Parent.
Indemnitees.
“Indemnitees”
shall mean the Parent Indemnitees and the Company Indemnitees.
Indemnity
Escrow Fund. “Indemnity
Escrow Fund” shall mean the escrow fund established pursuant to the Escrow
Agreement primarily for purposes of securing Parent’s indemnification rights
pursuant to Section 9 of the Agreement.
6
Intellectual
Property. “Intellectual
Property” shall mean algorithms, APIs, apparatus, databases, data collections,
development tools, diagrams, formulae, inventions (whether or not patentable),
know-how, logos, marks (including brand names, product names, logos and
slogans), mask works, methods, network configurations and architectures,
processes, proprietary information, protocols, schematics, semiconductor
devices, specifications, software, software code (in any form, including
source
code and executable or object code), subroutines, techniques, user interfaces,
URLs, web sites, works of authorship and other forms of technology (whether
or
not embodied in any tangible form and including all tangible embodiments
of the
foregoing, such as instruction manuals, laboratory notebooks, prototypes,
samples, studies and summaries).
Intellectual
Property Rights.
“Intellectual Property Rights” shall mean all past, present, and future rights
of the following types, which may exist or be created under the laws of any
jurisdiction in the world: (a) rights associated with works of authorship,
including exclusive exploitation rights, copyrights, moral rights and mask
works; (b) trademark and trade name rights and similar rights; (c) trade
secret rights; (d) patent and industrial property rights; (e) other proprietary
rights in Intellectual Property; and (f) rights in or relating to registrations,
renewals, extensions, combinations, divisions and reissues of, and applications
for, any of the rights referred to in clauses “(a)” through “(f)”
above.
In-the-Money
Company Option. “In-the-Money
Company Option” shall mean a Company Option having a per share exercise price
equal to or greater than the Common Residual Per Share Amount (it being
understood that whether a Company Option is an In-the-Money Company Option
shall
be determined on an iterative basis by initially calculating the Common Residual
Per Share Amount without taking account of outstanding Company Options,
recalculating the Common Residual Per Share Amount taking into account the
outstanding Company Options with a per share exercise price that is less
than
the initially calculated Common Residual Per Share Amount and then repeating
this process until no additional Company Options become In-the-Money Company
Options as a result of such calculation).
IRS.
“IRS”
shall mean the United States Internal Revenue Service.
Key
Stockholders. “Key
Stockholders” shall mean Carlyle Partners III, LP, Carlyle High Yield Partners,
LP, CP III Coinvestment, LP, Conexant and RF Micro Devices, Inc.
Knowledge
of the Company.
“Knowledge of the Company” shall mean the actual knowledge of any of the
following individuals: Xxx Xx; Xxxxx Xxxxxx; Xxxxxx Tank; Xxxxxxx Xxxxxx;
Xxxxxxxx Xxx; Xxxxx Xxxxxxxxx; Xxx Xxxxx; Xxxxx Xxxxx; Xxxx XxXxxxx; Xxxx
Xxxxxxxx; and Xxxxxx Xxxx.
Knowledge
of Parent.
“Knowledge of Parent” shall mean, following the Effective Time, the actual
knowledge of any of the following individuals as long as they remain employed
by
Parent or its Subsidiaries or their respective successors: Xxxx Xxxxxxx,
Xxxxx
Xxxxxx, Xxx Xx; Xxxxx Xxxxxx; Xxxxxx Tank; and Xxxxxxx Xxxxxx.
7
Lease
Agreement. “Lease
Agreement” shall mean any real property lease, sublease, license, occupancy
agreement or other contractual obligation that grants the right of use or
occupancy of any of the real property leased to any of the Acquired
Companies.
Legal
Proceeding. “Legal
Proceeding” shall mean any action, suit, litigation, arbitration, proceeding
(including any civil, criminal, administrative, investigative or appellate
proceeding), hearing, inquiry, audit, examination or investigation commenced,
brought, conducted or heard by or before, or otherwise involving, any court
or
other Governmental Body or any arbitrator or arbitration panel.
Leased
Properties. “Leased
Properties” shall mean any real property subject to a leasehold interest of the
Acquired Companies.
Legal
Requirement. “Legal
Requirement” shall mean any federal, state, local, municipal, foreign or other
ordinance, regulation, law, statute, constitution or principal of common
law,
and any enforceable judicial interpretation thereof, including any resolution,
code, edict, decree, rule, order, award, ruling or requirement issued, enacted,
adopted, promulgated, implemented or otherwise put into effect by or under
the
authority of any Governmental Body.
Material
Adverse Effect. “Material
Adverse Effect” shall mean any change, event, effect, claim, circumstance or
matter that (considered together with all other changes, effects, claims,
circumstances or matters) has materially and adversely affected, or would
reasonably be expected to materially and adversely affect: (a) the business,
financial condition, properties, assets, liabilities or results of operations
of
the Company and its Subsidiaries taken as a whole; or (b) Parent’s right to own,
or to receive dividends or other distributions with respect to, the stock
of the
Surviving Corporation; provided,
however,
that
none of the following, in and of itself, either individually or in the
aggregate, shall be deemed to constitute a Material Adverse Effect: (i) any
change or event attributable to conditions generally affecting the semiconductor
wafer fabrication or semiconductor design industries in which the Company
participates, provided that such change or event does not have a materially
disproportionate impact on the Company and its Subsidiaries, taken as a whole;
(ii) any change or event attributable to conditions generally affecting the
general economy as a whole, provided that such change or event does not have
a
materially disproportionate impact on the Company and its Subsidiaries, taken
as
a whole; (iii) the failure of the Company to meet projections of earnings,
revenues or other financial measures; (iv) the announcement of the Agreement
and
the pendency of the Contemplated Transactions, including any impact thereof
on
relationships, contractual or otherwise, with customers, suppliers,
distributors, consultants or employees; or (v) the taking by the Company
of any
action required to be taken by the Company by the Agreement (other than actions
contemplated by Section 4.2).
Non-Dissenting
Stockholder. “Non-Dissenting
Stockholder” shall mean each Stockholder that does not perfect his or its
appraisal rights under the DGCL and is otherwise entitled to receive the
applicable consideration for such Stockholders shares of Company Capital
Stock
pursuant to Section 1.5
of the
Agreement.
8
Occupational
Safety and Health Law. “Occupational
Safety and Health Law” shall mean any Legal Requirement designed to provide safe
and healthful working conditions and to reduce occupational safety and health
hazards.
Order.
“Order”
shall mean any order,
writ, injunction, judgment or decree.
Parent
Indemnitees. “Parent
Indemnitees”
shall mean the following Persons:
(a) Parent;
(b) Parent’s
current and future Subsidiaries (including the Surviving
Corporation);
(c) the
respective directors, officers, employees and other agents of the Persons
referred to in clauses “(a)” and “(b)” above; and
(d) the
respective successors and assigns of the Persons referred to in clauses “(a)”,
“(b)” and “(c)” above; provided,
however,
that
the Stockholders shall not be deemed to be Parent
Indemnitees.
Permitted
Encumbrance. “Permitted
Encumbrance” means (i) mechanics, materialmen’s and warehousemen liens and
similar Encumbrances with respect to any amounts not yet due and payable
or
which are being contested in good faith through appropriate proceedings,
(ii)
Encumbrances for Taxes, assessments or similar charges not yet due and payable
or which are being contested in good faith through appropriate proceedings
and
for which adequate reserves have been made to the extent required by GAAP,
(iii)
Encumbrances to secure the payment of workers’ compensation, employment
insurance or other social security obligations of the Acquired Companies
in the
ordinary course of business, (iv) Encumbrances on goods in transit incurred
pursuant to documentary letters of credit, (v) Encumbrances securing rental
payments under capital lease agreements, (vi) Encumbrances arising in favor
of
the United States Government as a result of progress payment clauses contained
in any Government Contract, (vii) easements, covenants, rights of way,
restrictions, encroachments and other minor defects or irregularities in
title,
in each case that do not and will not interfere in any material respect with
the
uses of the real property to which they apply, and (viii) Encumbrances created
by the Loan and Security Agreement with Wachovia Capital Finance Corporation
(Western), (ix) restrictions on transfer imposed by securities laws or other
Legal Requirements and (x) other Encumbrances arising in the ordinary course
of
business and that do not (in any case or in the aggregate) materially detract
from the value of the assets subject thereto or materially impair the use
of
such assets by the Acquired Companies, other than Intellectual Property licenses
or covenants-not-to-xxx granted in, to, or under any Acquired Company IP.
Person.
“Person”
shall mean any individual, Entity or Governmental Body.
Process
Technology. “Process
Technology” shall mean (i) process steps used in the fabrication of wafers,
including process technologies for digital CMOS, standard analog CMOS, advanced
analog CMOS, RF CMOS, high-voltage CMOS, bipolar CMOS, silicon-germanium
bipolar
CMOS, and bipolar CMOS double-diffused metal oxide semiconductor; or (ii)
any
improvement to, or new design of, manufacturing tools used to fabricate wafers;
or (iii) any layout optimization carried out to enhance yield and performance
by
design-for-manufacturing rules, optical proximity correction, and other
techniques.
Proxy
Statement. “Proxy
Statement” shall mean the proxy statement to be sent to Parent’s stockholders in
connection with the Parent Stockholders’ Meeting.
9
Registered
IP. “Registered
IP” shall mean all Intellectual Property Rights that are registered, filed or
issued under the authority of, with or by any Governmental Body, including
all
patents, registered copyrights, registered mask works and registered trademarks
and all applications for any of the foregoing.
Release.
“Release”
shall mean any spilling, leaking, emitting, discharging, depositing, escaping,
leaching, dumping, or other releasing into the Environment, whether intentional
or unintentional.
Required
Parent Merger Stockholder Vote. “Required
Parent Merger Stockholder Vote” shall mean (i) an affirmative vote by a majority
of the shares of Parent’s common stock issued in connection with Parent’s
initial public offering consummated on March 17, 2006 (such common stock,
“Parent
IPO Shares”)
voted
at a duly convened meeting to approve the Merger, and (ii) holders of less
than
20% in interest of the Parent IPO Shares both vote against the Merger and
demand
that Parent convert such shares into cash.
Representatives.
“Representatives”
shall mean officers, directors, employees, partners, agents, attorneys,
accountants, advisors and representatives.
SEC.
“SEC”
shall mean the United States Securities and Exchange Commission.
Securities
Act. “Securities
Act” shall mean the Securities Act of 1933, as amended.
Series
A Preferred Stock.
“Series
A Preferred Stock” shall mean the Series A Preferred Stock, par value $0.001 per
share, of the Company.
Series
B Preferred Stock.
“Series
B Preferred Stock” shall mean the Series B Preferred Stock, par value $0.001 per
share, of the Company.
Stock
Appreciation Rights.
“Stock
Appreciation Rights”
shall
mean the
rights issued under the Company Stock Appreciation Rights Plan.
Stockholders’
Representative Expense Fund. “Stockholders’
Representative Expense Fund” shall mean the escrow fund established pursuant to
the Escrow Agreement for purposes of funding the activities of the Stockholders’
Representative hereunder.
Subsidiary.
An
Entity shall be deemed to be a “Subsidiary” of another Person if such Person
directly or indirectly owns or purports to own, beneficially or of record:
(a)
an amount of voting securities of other interests in such Entity that is
sufficient to enable such Person to elect at least a majority of the members
of
such Entity’s board of directors or other governing body; or (b) at least 50% of
the outstanding equity or financial interests of such Entity.
Tax.
“Tax”
shall mean any federal, state, local, foreign or other tax (including any
income
tax, franchise tax, capital gains tax, gross receipts tax, value-added tax,
surtax, excise tax, ad valorem tax, transfer tax, stamp tax, sales tax, use
tax,
property tax, business tax, withholding tax or payroll tax), levy, assessment,
tariff, duty (including any customs duty), deficiency or fee, and any related
charge or amount (including any fine, penalty or interest), imposed, assessed
or
collected by or under the authority of any Governmental Body.
10
Tax
Return. “Tax
Return” shall mean any return (including any information return), report,
statement, declaration, estimate, schedule, notice, notification, form,
election, certificate or other document or information, and any amendment
to any
of the foregoing, filed with or submitted to, or required to be filed with
or
submitted to, any Governmental Body in connection with the determination,
assessment, collection or payment of any Tax or in connection with the
administration, implementation or enforcement of or compliance with any Legal
Requirement relating to any Tax.
Threat
of Release. “Threat
of Release” shall mean a substantial likelihood of a Release that may require
action in order to prevent or mitigate damage to the Environment that may
result
from such Release.
Transaction
Expense. “Transaction
Expense” shall mean any out-of-pocket fee, cost, expense, payment, expenditure
or liability paid or payable by any Acquired Company (including legal fees
and
expenses, accounting fees and expenses and financial advisory fees and expenses,
but excluding employee salaries and amounts paid to independent contractors
hired by an Acquired Company to perform services similar to those regularly
performed by employees of the Acquired Companies) whether incurred prior
to the
date of the Agreement, during the Pre-Closing Period or at or after the
Effective Time, that relates to: (a) the participation in or response to
the
investigation, review and inquiry conducted by Parent and its Representatives
with respect to the business of the Acquired Companies (and the furnishing
of
information to Parent and its Representatives in connection with such
investigation and review); (b) the negotiation, preparation, drafting, review,
execution, delivery or performance of the Agreement (including the Disclosure
Schedule) or any certificate, opinion, Contract or other instrument or document
delivered or to be delivered in connection with any of the Contemplated
Transactions; (c) the preparation and submission of any filing or notice,
including the Proxy Statement, required to be made or given in connection
with
any of the Contemplated Transactions, or the obtaining of any Consent required
to be obtained in connection with any of the Contemplated Transactions; (d)
the
consummation of the Merger or any of the other Contemplated Transactions;
or (e)
the possible initial public offering of securities of the Company, including
the
preparation, drafting and filing of the Company’s Registration Statement on Form
S-1 and any amendments thereto; provided,
however,
that:
(i) any out-of-pocket fees and expenses (other than the fees and expenses
of
counsel) incurred by the Company or its stockholders solely in connection
with
Parent’s preparation of the Proxy Statement shall not constitute Transaction
Expenses; (ii) if an opinion of the Company’s outside counsel is requested by
Parent solely for purposes of preparing the Proxy Statement, the fees and
expenses of counsel incurred to prepare such opinion would not constitute
a
Transaction Expense; and (iii) in no event will amounts paid to an Acquired
Company’s independent accountant in connection with the audit of its annual
financial statements or review of its quarterly financial statements, in
each
case that has taken place in the ordinary course of business consistent with
past practice, constitute Transaction Expenses. Without limiting the generality
of the foregoing, “Transaction Expenses” shall include any fees that are payable
or may become payable by any Acquired Company in connection with the
Contemplated Transactions for services that were performed at or prior to
the
Effective Time, even if the invoice for such fees is not issued until after
the
Effective Time.
Working
Capital Adjustment Escrow Fund. “Working
Capital Adjustment Escrow Fund” shall mean the escrow fund established pursuant
to the Escrow Agreement for purposes of the purchase price adjustment, if
any,
to be determined pursuant to Section 0
of the
Agreement.
11
