Exhibit 10.2
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
QUANTUM CORPORATION,
BENCHMARK STORAGE INNOVATIONS, INC.
AND
XXXXX XXXXXX, AS STOCKHOLDERS' AGENT
September 5, 2002
TABLE OF CONTENTS
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Page
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ARTICLE I THE MERGER ......................................................... 1
Section 1.1 The Merger .................................................. 1
Section 1.2 Closing ..................................................... 2
Section 1.3 Effective Time .............................................. 2
Section 1.4 Effect of the Merger ........................................ 2
Section 1.5 Certificate of Incorporation; Bylaws ........................ 2
Section 1.6 Directors; Officers ......................................... 3
Section 1.7 Effect on Capital Stock ..................................... 3
Section 1.8 Surrender of Certificates ................................... 7
Section 1.9 No Further Ownership Rights in Company Capital Stock ........ 9
Section 1.10 Lost, Stolen or Destroyed Certificates ...................... 9
Section 1.11 Tax Consequences ............................................ 9
Section 1.12 Taking of Necessary Action; Further Action .................. 10
ARTICLE II REPRESENTATIONS AND WARRANTIES OF THE COMPANY ..................... 10
Section 2.1 Organization, Standing and Power ............................ 11
Section 2.2 Capitalization; Title to the Shares ......................... 11
Section 2.3 Authority ................................................... 12
Section 2.4 Financial Statements ........................................ 13
Section 2.5 Absence of Certain Changes .................................. 14
Section 2.6 Absence of Undisclosed Liabilities .......................... 15
Section 2.7 Litigation .................................................. 15
Section 2.8 Restrictions on Business Activities ......................... 15
Section 2.9 Governmental Authorization .................................. 15
Section 2.10 [Intentionally omitted] ..................................... 16
Section 2.11 Title to Property ........................................... 16
Section 2.12 Technology and Intellectual Property ........................ 16
Section 2.13 Environmental Matters ....................................... 21
Section 2.14 Taxes ....................................................... 22
Section 2.15 Employee Benefit Plans ...................................... 23
Section 2.16 [Intentionally omitted] ..................................... 26
Section 2.17 Labor and Employee Matters .................................. 26
Section 2.18 Interested Party Transactions ............................... 27
Section 2.19 Insurance ................................................... 27
Section 2.20 Compliance With Laws ........................................ 27
Section 2.21 Minute Books ................................................ 28
Section 2.22 Complete Copies of Materials ................................ 28
Section 2.23 Stockholder Agreements; Irrevocable Proxies ................. 28
Section 2.24 Vote Required ............................................... 28
Section 2.25 Brokers' and Finders' Fees .................................. 28
Section 2.26 Board Approval .............................................. 28
Section 2.27 Customers and Suppliers ..................................... 29
Section 2.28 Material Contracts .......................................... 29
Section 2.29 No Breach of Material Contracts ............................. 30
Section 2.30 Third Party Consents ........................................ 30
Section 2.31 Material Third Party Consents ............................... 30
Section 2.32 Product Releases ............................................ 30
Section 2.33 [Intentionally omitted] ..................................... 30
Section 2.34 [Intentionally omitted] ..................................... 31
Section 2.35 State Takeover Statutes ..................................... 31
Section 2.36 Accounts Receivable ......................................... 31
Section 2.37 Inventory ................................................... 31
Section 2.38 Warranty Obligations ........................................ 31
Section 2.39 Representations Complete .................................... 32
ARTICLE III REPRESENTATIONS AND WARRANTIES OF PARENT ......................... 32
Section 3.1 Organization, Standing and Power ............................ 32
Section 3.2 Capital Structure ........................................... 33
Section 3.3 Authority ................................................... 33
Section 3.4 SEC Documents; Financial Statements ......................... 34
Section 3.5 Stockholder Approval ........................................ 34
Section 3.6 Approval .................................................... 34
Section 3.7 Absence of Certain Changes .................................. 34
Section 3.8 Brokers' and Finders' Fees .................................. 35
Section 3.9 Representations Complete .................................... 35
ARTICLE IV CONDUCT PRIOR TO THE CLOSING DATE ................................. 35
Section 4.1 Conduct of Business of the Company .......................... 35
Section 4.2 Restriction on Conduct of Business of the Company ........... 36
Section 4.3 Solicitation ................................................ 38
Section 4.4 Stockholder Approval ........................................ 39
Section 4.5 Further Information ......................................... 39
ARTICLE V ADDITIONAL AGREEMENTS .............................................. 39
Section 5.1 Preparation of Permit Application, Hearing Request,
Hearing Notice and Information Statement .................... 39
Section 5.2 Access to Information ....................................... 40
Section 5.3 Confidentiality ............................................. 41
Section 5.4 Public Disclosure ........................................... 41
Section 5.5 Consents; Cooperation ....................................... 42
Section 5.6 Legal Requirements .......................................... 42
Section 5.7 Blue Sky Laws ............................................... 43
Section 5.8 Employee Benefit Plans; Options ............................. 43
Section 5.9 [Intentionally omitted] ..................................... 43
Section 5.10 Listing of Additional Shares ................................ 43
Section 5.11 [Intentionally omitted] ..................................... 44
Section 5.12 Expenses .................................................... 44
Section 5.13 Warrants .................................................... 44
Section 5.14 Reasonable Efforts and Further Assurances ................... 44
Section 5.15 Indemnification ............................................. 44
Section 5.16 Termination of Pension Plan ................................... 45
Section 5.17 Information Supplied .......................................... 45
Section 5.18 Registration Statement ........................................ 45
Section 5.19 FIRPTA Certificate ............................................ 46
Section 5.20 [Intentionally Omitted] ....................................... 46
Section 5.21 Affiliate Agreements .......................................... 46
Section 5.22 Company Technology ............................................ 46
ARTICLE VI CONDITIONS TO THE CLOSING ........................................... 47
Section 6.1 Conditions to Obligations of Each Party to Effect the Merger .. 47
Section 6.2 Additional Conditions to Obligations of the Company ........... 48
Section 6.3 Additional Conditions to the Obligations of Parent ............ 48
Section 6.4 Frustration of Conditions ..................................... 51
ARTICLE VII TERMINATION, AMENDMENT AND WAIVER .................................. 51
Section 7.1 Termination ................................................... 51
Section 7.2 Effect of Termination ......................................... 52
Section 7.3 Expenses and Termination Fees ................................. 52
Section 7.4 Amendment ..................................................... 52
Section 7.5 Extension; Waiver ............................................. 53
Section 7.6 Alternative Acquisition Structure ............................. 53
ARTICLE VIII ESCROW AND INDEMNIFICATION ........................................ 53
Section 8.1 Escrow Fund ................................................... 53
Section 8.2 Indemnification ............................................... 53
Section 8.3 Escrow Period ................................................. 54
Section 8.4 Claims upon Escrow Fund ....................................... 54
Section 8.5 Objections to Claims .......................................... 56
Section 8.6 Resolution of Conflicts; Arbitration .......................... 56
Section 8.7 Stockholders' Agent ........................................... 57
Section 8.8 Actions of the Stockholders' Agent ............................ 57
Section 8.9 Third-Party Claims ............................................ 57
ARTICLE IX GENERAL PROVISIONS .................................................. 58
Section 9.1 Survival ...................................................... 58
Section 9.2 Notices ....................................................... 58
Section 9.3 Interpretation ................................................ 59
Section 9.4 Counterparts .................................................. 59
Section 9.5 Entire Agreement; Nonassignability; Parties in Interest ....... 60
Section 9.6 Severability .................................................. 60
Section 9.7 Governing Law ................................................. 60
Section 9.8 Rules of Construction ......................................... 61
Section 9.9 Specific Performance .......................................... 61
EXHIBITS
Exhibit A - Form of Stockholder Agreement
Exhibit B - Form of Escrow Agreement
Exhibit C - Form of Lock-Up Agreement
Exhibit D - Form of Confidential Information and Invention Assignment
Agreement
Exhibit E - Earnout
Exhibit F - Exchange Ratio
Exhibit G - Cash Consideration Allocation
Exhibit H - Earnout Allocation
Exhibit I - IRS Notice
Exhibit J - Form of Affiliate Agreement
Exhibit K - Form of Company Legal Opinion
SCHEDULES
Schedule 1.8 Preliminary Conversion Schedule
Schedule 2.2(b) Capitalization
Schedule 5.8(a) Option and Rights Holders
Schedule 5.8(b) Company Grants Consideration
Schedule 5.21 Affiliates
Schedule 6.3(g) Employees Required to Remain with the Company
Schedule 6.3(i) Stockholders required to Enter into Lock-Up Agreements
INDEX OF DEFINED TERMS
Additional Shares ...................................................... 5
Affiliate .............................................................. 46
Agreement .............................................................. 1
Alternative Acquisition Structure ...................................... 53
Ancillary Agreements ................................................... 12
Antitrust Laws ......................................................... 42
Associated Rights ...................................................... 3
Balance Sheet Date ..................................................... 14
Cash Consideration ..................................................... 3
Closing ................................................................ 2
Closing Date ........................................................... 2
COBRA .................................................................. 24
Code ................................................................... 1
Commissioner ........................................................... 45
Company ................................................................ 1
Company Authorizations ................................................. 16
Company Board .......................................................... 3
Company Bylaws ......................................................... 36
Company Capital Stock .................................................. 4
Company Certificate .................................................... 6
Company Certificate of Incorporation ................................... 5
Company Common Stock ................................................... 3
Company Common Stock Exchange Ratio ....................................... 4
Company Disclosure Schedule ............................................... 10
Company Employee Plans .................................................... 23
Company Fees and Expenses ................................................. 52
Company Grants ............................................................ 43
Company Intellectual Property ............................................. 16
Company Material Adverse Effect ........................................... 10
Company Options ........................................................... 3
Company Preferred Stock ................................................... 4
Company Stock Option Plan ................................................. 5
Company Stock Plans ....................................................... 5
Company Stock Rights ...................................................... 5
Company Technology ........................................................ 16
Company Warrants .......................................................... 5
Computer Software ......................................................... 16
Confidentiality Agreement ................................................. 41
Copyrights ................................................................ 16
CSL ....................................................................... 13
Damages ................................................................... 54
December 31, 2001 Balance Sheet ........................................... 13
Delaware Law .............................................................. 1
Dissenting Shares ......................................................... 6
Earnout ................................................................... 4
Earnout Shares ............................................................ 4
Effective Time ............................................................ 2
Environmental Claim ....................................................... 22
Environmental Laws ........................................................ 22
ERISA ..................................................................... 23
ERISA Affiliate ........................................................... 23
Escrow Agent .............................................................. 53
Escrow Fund ............................................................... 53
Escrow Period ............................................................. 54
Escrow Shares ............................................................. 8
Exchange Act .............................................................. 29
Exchange Agent ............................................................ 7
Exchange Ratios ........................................................... 5
Fairness Hearing .......................................................... 13
Final Conversion Schedule ................................................. 8
Financial Statements ...................................................... 13
Foreign Plan .............................................................. 25
Governmental Entity ....................................................... 13
Hearing Notice ............................................................ 39
Hearing Request ........................................................... 39
HSR Act ................................................................... 13
Indebtedness .............................................................. 12
Indemnity Threshold ....................................................... 54
Information Statement ..................................................... 39
Intellectual Property ..................................................... 17
Inventor-Developed Intellectual Property ................................. 17
Inventor-Developed Technology ............................................ 17
Inventors ................................................................ 17
IRS ...................................................................... 23
knowledge ................................................................ 10
License Agreements ....................................................... 17
Material Contracts ....................................................... 29
Materials of Environmental Concern ....................................... 22
Merger ................................................................... 1
Merger Consideration ..................................................... 5
Merger Sub ............................................................... 53
Notice Materials ......................................................... 39
Officer's Certificate .................................................... 54
Option and Rights Holders ................................................ 43
Parent ................................................................... 1
Parent Common Stock ...................................................... 3
Parent Disclosure Schedule ............................................... 32
Parent SEC Documents ..................................................... 34
Parent Stock Price ....................................................... 6
Patents .................................................................. 17
Permit Application ....................................................... 45
Plan ..................................................................... 45
Preliminary Conversion Schedule .......................................... 8
SEC ...................................................................... 34
Securities Act ........................................................... 34
Series A1 Preferred Stock ................................................ 4
Series A1 Preferred Stock Exchange Ratio ................................. 4
Series A2 Preferred Stock ................................................ 4
Series A2 Preferred Stock Exchange Ratio ................................. 4
Series B Preferred Stock ................................................. 4
Series B Preferred Stock Exchange Ratio .................................. 4
Series C Preferred Stock ................................................. 4
Series C Preferred Stock Exchange Ratio .................................. 4
Stockholder Agreements ................................................... 1
Stockholders' Agent ...................................................... 1
Superior Proposal ........................................................ 39
Surviving Corporation .................................................... 2
Takeover Proposal ........................................................ 38
Tax Return ............................................................... 23
Tax, Taxes, Taxable ...................................................... 23
Technology ............................................................... 17
Total Consideration ...................................................... 4
Total Parent Shares ...................................................... 3
Trade Secrets ............................................................ 17
Trademarks ............................................................... 17
U.S. GAAP ................................................................ 13
Valuation Date ........................................................... 55
Voting Debt .............................................................. 12
WARN Act ................................................................. 27
Warranty Obligations ..................................................... 31
AGREEMENT AND PLAN OF MERGER
This AGREEMENT AND PLAN OF MERGER (this "Agreement"), dated as of
September 5, 2002, by and among Quantum Corporation, a Delaware corporation
("Parent"), Benchmark Storage Innovations, Inc., a Delaware corporation (the
"Company"), and Xxxxx Xxxxxx, as Stockholders' Agent (the "Stockholders'
Agent").
RECITALS
WHEREAS, the Board of Directors of Parent has approved, and deems it
advisable and in the best interests of its stockholders to consummate, the
merger (the "Merger") of the Company with and into Parent, upon the terms and
subject to the conditions set forth herein; and
WHEREAS, the Board of Directors of the Company, having carefully
considered the long-term prospects and interests of the Company and its
stockholders, has approved the transactions contemplated hereby and has resolved
to recommend to the stockholders of the Company the approval and adoption of
this Agreement and the consummation of the transactions contemplated hereby,
upon the terms and subject to the conditions set forth herein; and
WHEREAS, as a condition and inducement to Parent to enter into this
Agreement and incur the obligations set forth herein, concurrently with the
execution and delivery of this Agreement, Parent and the holders of at least a
majority of the outstanding shares of Company Common Stock and the holders of at
least a majority of the outstanding shares of Company Preferred Stock have
entered into Stockholder Agreements in the form of Exhibit A attached hereto
(the "Stockholder Agreements"), pursuant to which, among other things, such
holders have agreed to vote shares of Company Common Stock and/or Company
Preferred Stock held by them in favor of approval and adoption of this
Agreement; and
WHEREAS, the Boards of Directors of each of Parent and the Company have
approved this Agreement and the transactions contemplated hereby in accordance
with the provisions of the Delaware General Corporation Law ("Delaware Law");
and
WHEREAS, it is intended that the Merger qualify as a reorganization and
this Agreement constitutes a plan of reorganization within the meaning of
section 368(a) of the Internal Revenue Code of 1986, as amended, and the rules
and regulations promulgated thereunder (the "Code").
NOW, THEREFORE, in consideration of the covenants and representations
set forth herein, and for other good and valuable consideration, the parties
hereto agree as follows:
ARTICLE I
THE MERGER
Section 1.1 The Merger
At the Effective Time and subject to and upon the terms and conditions
of this Agreement and the applicable provisions of Delaware Law, the Company
shall be merged with and into Parent, the separate corporate existence of the
Company shall cease and Parent shall continue as the surviving corporation.
Parent, as the surviving corporation after the Merger, is hereinafter sometimes
referred to as the "Surviving Corporation."
Section 1.2 Closing
The closing of the Merger (the "Closing") shall take place at 10:00
a.m., Palo Alto, California time, on a date to be specified by the parties,
which shall be no later than the third business day after satisfaction or waiver
of all of the conditions set forth in Article VI of this Agreement (the "Closing
Date"), at the offices of Skadden, Arps, Slate, Xxxxxxx & Xxxx LLP, 000
Xxxxxxxxxx Xxxxxx, Xxxx Xxxx, Xxxxxxxxxx 00000, unless another time, date or
place is agreed to in writing by the parties hereto.
Section 1.3 Effective Time
Upon the terms and subject to the conditions set forth in Article VI of
this Agreement the parties hereto shall cause the Merger to be consummated by
filing a certificate of merger with the Secretary of State of the State of
Delaware. The parties hereto shall make all other filings, recordings or
publications required by all applicable law in connection with the Merger. The
Merger shall become effective at the time specified in the certificate of
merger, which specified time shall be a time on the Closing Date (the time at
which the Merger becomes effective being the "Effective Time").
Section 1.4 Effect of the Merger
At the Effective Time, the effect of the Merger shall be as provided in
the applicable provisions of Delaware Law. Without limiting the generality of
the foregoing, and subject thereto, at the Effective Time, all the property,
rights, privileges, powers, and franchises of the Company and Parent shall vest
in the Surviving Corporation, and all debts, liabilities, and duties of the
Company and Parent shall become the debts, liabilities, and duties of the
Surviving Corporation.
Section 1.5 Certificate of Incorporation; Bylaws
(a) Immediately after the Effective Time of the Merger, the certificate
of incorporation of the Surviving Corporation shall be the certificate of
incorporation of Parent as in effect immediately prior to the Effective Time,
and such certificate of incorporation shall be the certificate of incorporation
of the Surviving Corporation until thereafter amended as provided by law and
such certificate of incorporation of the Surviving Corporation.
(b) Immediately after the Effective Time of the Merger, the bylaws of
Surviving Corporation shall be the bylaws of Parent as in effect immediately
prior to the Effective Time, and such bylaws shall be the bylaws of the
Surviving Corporation until thereafter amended as provided by law and such
bylaws of the Surviving Corporation.
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Section 1.6 Directors; Officers
(a) The directors of Parent at the Effective Time of the Merger shall
be the directors of the Surviving Corporation until the earlier of their
resignation or removal or until their respective successors are duly elected and
qualified, as the case may be. In furtherance thereof, the Company shall secure,
effective at the Effective Time of the Merger, resignations of all of its
incumbent directors then serving as members of the board of directors of the
Company (the "Company Board").
(b) The officers of Parent at the Effective Time of the Merger shall be
the officers of the Surviving Corporation until the earlier of their resignation
or removal or until their respective successors are duly elected and qualified,
as the case may be.
Section 1.7 Effect on Capital Stock
By virtue of the Merger and without any action on the part of Parent,
the Company or the holders of any of the Company's securities:
(a) Conversion of Company Capital Stock. The number of shares of common
stock, $0.01 par value per share of Parent, together with the associated rights
(the "Associated Rights") to purchase shares of Series B Junior Participating
Preferred Stock, par value $.01 per share, of Parent issued and issuable
pursuant to the Amended and Restated Preferred Shares Rights Agreement between
Parent and Xxxxxx Trust and Savings Bank, as Rights Agent (the "Parent Common
Stock"), to be issued (including Parent Common Stock to be reserved for issuance
upon the exercise, prior to the Effective Time of the Merger, of options
("Company Options") to purchase shares of common stock, $.001 par value per
share, of the Company ("Company Common Stock") in accordance with the provisions
of Section 5.8 hereof (after giving effect to Section 1.7(e))) in exchange for
the acquisition by Parent of the Company Capital Stock and all unexpired and
unexercised options, warrants and other rights (whether issued or unissued,
vested or unvested, earned or unearned, exercisable or unexercisable, or subject
to any contingency or triggering event, or otherwise) to acquire Company Capital
Stock shall be equal to 13,085,646 (the "Total Parent Shares"), reduced by the
number of shares of Parent Common Stock that would otherwise be issuable to the
holders of any Dissenting Shares pursuant to the Exchange Ratios and by the
number of shares calculated pursuant to the proviso set forth in Section
1.7(a)(5). No adjustment shall be made in the number of shares of Parent Common
Stock issued in the Merger, including as a result of (x) any increase or
decrease in the market price of Parent Common Stock prior to the Effective Time
not otherwise required by this Section 1.7(a) or (y) any cash proceeds received
by the Company from the date hereof to the Closing Date pursuant to the exercise
of currently outstanding options, warrants or other rights to acquire Company
Common Stock.
In addition to the Total Parent Shares, Parent will distribute
$11,000,000 in immediately available United States funds (the "Cash
Consideration") to the holders of the Company Capital Stock and all unexpired
and unexercised options, warrants and other rights (whether issued or unissued,
vested or unvested, earned or unearned, exercisable or unexercisable, or subject
to any contingency or triggering event, or otherwise) to acquire Company Capital
Stock (after giving effect to Section 1.7(e)), reduced by the portion of such
Cash Consideration that would otherwise be distributed to the holders of any
Dissenting Shares
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pursuant to the Exchange Ratios and subject to adjustment pursuant to the terms
of Section 7.3(a). The Cash Consideration, together with the Total Parent
Shares, shall be referred to herein as the "Total Consideration".
In addition to the Total Consideration, Parent will issue up to
1,896,471 additional shares of Parent Common Stock (the "Earnout Shares") on the
dates and according to the terms provided in Exhibit E attached hereto, subject
to deduction for payment of Damages as provided in Article VIII hereof (the
terms of this paragraph and Exhibit E to be referred to herein generally as the
"Earnout"). Notwithstanding anything to the contrary in this Agreement, in no
event shall the Parent issue more than the Total Parent Shares (less that number
of shares calculated pursuant to the proviso set forth in Section 1.7(a)(5))
plus the Cash Consideration plus any shares issuable pursuant to the Earnout in
connection with the transactions contemplated by this Agreement and the
Ancillary Agreements.
For purposes of this Agreement, "Company Capital Stock" means,
collectively, all Company Common Stock; all shares of Series A1 Preferred Stock
of the Company (collectively "Series A1 Preferred Stock"); all shares of Series
A2 Preferred Stock of the Company (collectively "Series A2 Preferred Stock");
all shares of Series B Preferred Stock of the Company (collectively "Series B
Preferred Stock"); all shares of Series C Preferred Stock of the Company
(collectively "Series C Preferred Stock" and, together with the Series A1
Preferred Stock, Series A2 Preferred Stock and Series B Preferred Stock, the
"Company Preferred Stock").
Subject to the terms and conditions of this Agreement, as of the
Effective Time, by virtue of the Merger and without any action on the part of
the holder of any shares of Company Capital Stock:
(1) Each issued and outstanding share of Company Capital Stock
not held by Parent, other than Dissenting Shares, shall be converted into
the right to receive from Parent shares of Parent Common Stock and a
portion of the Cash Consideration. The number of shares of Parent Common
Stock into which each share of Company Preferred Stock and each share of
Company Common Stock shall be converted shall be determined by allocating
the Total Parent Shares (minus the number of shares of Parent Common Stock
that would otherwise be issuable to the holders of any Dissenting Shares)
to the holders of Company Capital Stock other than Parent on a fully
diluted basis (assuming conversion of all outstanding notes convertible to
Company Capital Stock and the exercise of all outstanding Company Warrants,
Company Options and other rights to purchase Company Capital Stock, whether
vested or unvested and regardless of any restrictions on conversion or
exercise) in accordance with the provisions of the Company's Amended and
Restated Certificate of Incorporation as in effect immediately prior to the
Effective Time and thereby deriving an exchange ratio for each share of
Company Common Stock (the "Company Common Stock Exchange Ratio"), an
exchange ratio for each share of Series A1 Preferred Stock (the "Series A1
Preferred Stock Exchange Ratio"), an exchange ratio for each share of
Series A2 Preferred Stock (the "Series A2 Preferred Stock Exchange Ratio"),
an exchange ratio for each share of Series B Preferred Stock (the "Series B
Preferred Stock Exchange Ratio"), and an exchange ratio for each share of
Series C Preferred Stock (the "Series C Preferred Stock Exchange Ratio",
which Series C Preferred Stock Exchange Ratio, together with the Series A1
Preferred Stock Exchange Ratio, the Series A2 Preferred Stock Exchange
4
Ratio, the Series B Preferred Stock Exchange Ratio, and the Company Common
Stock Exchange Ratio, is hereafter referred to as the "Exchange Ratios").
The method for calculating the Exchange Ratios in accordance with the
Company's Amended and Restated Certificate of Incorporation (the "Company
Certificate of Incorporation") is set forth on Exhibit F hereto. The Cash
Consideration shall be distributed to the holders of Company Capital Stock
other than Parent on a fully diluted basis (assuming conversion of all
outstanding notes convertible to Company Capital Stock and the exercise of
all outstanding Company Warrants, Company Options and other rights to
purchase Company Capital Stock, whether vested or unvested and regardless
of any restrictions on conversion or exercise) in accordance with the
provisions of the Company's Amended and Restated Certificate of
Incorporation as in effect immediately prior to the Effective Time. The
method for allocating the Cash Consideration in accordance with the Company
Certificate of Incorporation is set forth on Exhibit G hereto.
(2) The number of shares of Parent Common Stock to be issued at
the Effective Time and the amount of the Cash Consideration to be
distributed at the Effective Time to each holder of Company Common Stock,
Series A1 Preferred Stock, Series A2 Preferred Stock, Series B Preferred
Stock and Series C Preferred Stock other than Parent shall be equal to the
amounts calculated in accordance with Exhibit G hereto. The shares of
Parent Common Stock and amount of cash issued pursuant to this Section
1.7(a) shall be referred to herein as the "Merger Consideration."
(3) At any time additional shares ("Additional Shares") of Parent
Common Stock are to be issued pursuant to the Earnout, such shares shall be
issued and allocated to holders of Company Capital Stock in the manner
provided in Exhibit H hereto.
(4) The Company's Stock Option Plan (the "Company Stock Option
Plan"), which is also referred to herein as the "Company Stock Plans", each
Company Option and each other right related to the equity securities of the
Company granted thereunder (the "Company Stock Rights") in each case
outstanding immediately prior to the Effective Time of the Merger shall
terminate effective as of the Effective Time of the Merger and all rights
under the Company Stock Plans, the Company Options, the Company Stock
Rights and any provision of any other plan, program, agreement or
arrangement providing for the issuance or grant of any other interest in
respect of the Company Capital Stock shall be cancelled effective as of the
Effective Time of the Merger. The Company shall take all action necessary
to effectuate the foregoing, including, but not limited to, providing
adequate notice and obtaining all consents necessary to (a) cancel all
Company Options and Company Stock Rights, and (b) ensure that, at and after
the Effective Time of the Merger, no person shall have any right under the
Company Stock Plans, any agreements thereunder, or any other plan, program,
agreement or arrangement with respect to equity securities of the Company.
(5) The Company will use all reasonable efforts to ensure that
all outstanding warrants to purchase shares of Company Capital Stock
(collectively, the "Company Warrants") are exercised in full, whether
pursuant to a cashless exercise or otherwise, or surrendered and terminated
prior to the Closing without expenditure of funds from the Company such
that no Company Warrant shall remain outstanding
5
following the Closing. Any Company Warrant that nonetheless remains
outstanding at the Effective Time shall become exercisable for Parent
Common Stock and/or cash in accordance with the terms of such Company
Warrant; provided that for each Company Warrant exercisable for Company
Common Stock assumed by Parent, the Total Parent Shares shall be reduced by
$0.20 divided by $4.25 (the "Parent Stock Price") and for each Company
Warrant exercisable for Company Preferred Stock, the Total Parent Shares
shall be reduced by $1.00 divided by the Parent Stock Price.
(b) [Intentionally omitted.]
(c) Adjustments to Exchange Ratios. The Company Common Stock Exchange
Ratio, the Series A1 Preferred Stock Exchange Ratio, the Series A2 Preferred
Stock Exchange Ratio, the Series B Preferred Stock Exchange Ratio, and the
Series C Preferred Stock Exchange Ratio shall be adjusted to reflect fully the
effect of any stock split, reverse split, stock dividend (including any dividend
or distribution of securities convertible into Parent Common Stock or Company
Capital Stock), reorganization, recapitalization or other like change with
respect to Parent Common Stock or Company Capital Stock occurring after the date
hereof and prior to the Effective Time.
(d) Appraisal Rights.
(1) Notwithstanding any provision of this Agreement to the
contrary, any shares of Company Common Stock or Company Preferred Stock
held by a holder who has demanded and perfected appraisal rights for such
shares in accordance with Section 262 of Delaware Law and who, as of the
Effective Time, has not effectively withdrawn or lost such appraisal rights
("Dissenting Shares"), shall not be converted into or represent a right to
receive the Merger Consideration pursuant to Section 1.7(a), but the holder
thereof shall only be entitled to such rights as are granted by Delaware
Law. From and after the Effective Time, a holder of Dissenting Shares shall
not be entitled to exercise any of the voting rights or other rights of a
stockholder of the Surviving Corporation.
(2) Notwithstanding the provisions of Section 1.7(d)(1), if any
holder of shares of Company Common Stock or Company Preferred Stock who
demands appraisal of such holder's shares of Company Common Stock or
Company Preferred Stock under Delaware Law shall effectively withdraw or
lose (through failure to perfect or otherwise) his right to appraisal, then
as of the later of the Effective Time or the occurrence of such event, such
holder's shares of Company Common Stock or Company Preferred Stock shall
automatically be converted into and represent only the right to receive the
Merger Consideration without interest, upon surrender of the certificate or
certificates representing such shares of Company Common Stock or Company
Preferred Stock (each such certificate, a "Company Certificate") pursuant
to Section 1.8.
(3) The Company shall give Parent (i) prompt notice of any
written demands for appraisal or dissenters' rights or payment of the fair
value of any shares of Company Common Stock or Company Preferred Stock,
withdrawals of such demands, and any other instruments served on the
Company pursuant to applicable law and received by the Company, and (ii)
the opportunity to direct all negotiations and
6
proceedings with respect to demands for appraisal under Delaware Law.
Except with the prior written consent of Parent, the Company shall not
voluntarily make any payment with respect to any demands for appraisal
of or dissenters' rights on capital stock of the Company or settle, or
offer to settle, any such demands.
(e) Cancellation of Company Capital Stock and Company Warrants
Owned by Parent. Notwithstanding Section 1.7(a) or anything to the contrary set
forth in this Agreement, at the Effective Time, each share of Company Capital
Stock and each Company Warrant owned by Parent or any direct or indirect wholly
owned subsidiary of Parent or of the Company immediately prior to the Effective
Time shall be cancelled and extinguished without any conversion thereof.
(f) Fractional Shares. No fraction of a share of Parent Common
Stock will be issued in the Merger, but in lieu thereof, the Escrow Fund and
each holder of shares of Company Capital Stock who would otherwise be entitled
to a fractional share of Parent Common Stock (after aggregating all fractional
shares of Parent Common Stock to be received by the Escrow Fund or such holder)
shall be entitled to receive from Parent an amount of cash (rounded to the
nearest whole cent) equal to the product of (i) such fraction, multiplied by
(ii) the Parent Stock Price.
Section 1.8 Surrender of Certificates
(a) Exchange Agent. Computershare Investor Services shall act
as exchange agent (the "Exchange Agent") in the Merger.
(b) Parent to Provide Common Stock and Cash Consideration. As
soon as possible after the Effective Time (and in no event later than three (3)
business days thereafter), Parent shall deliver to the Exchange Agent for
exchange and payment in accordance with this Article I, through such reasonable
procedures as Parent may adopt, the shares of Parent Common Stock and Cash
Consideration issuable or distributable pursuant to Section 1.7(a) in exchange
for shares of Company Common Stock, Company Preferred Stock and Company Warrants
outstanding immediately prior to the Effective Time.
(c) Exchange Procedures. (A) As soon as possible after the
Effective Time (and in no event later than three (3) business days thereafter),
the Surviving Corporation shall cause to be mailed to each holder of record of a
Company Certificate, whose shares were converted into the right to receive the
Merger Consideration (i) a letter of transmittal (which shall specify that
delivery shall be effected, and risk of loss and title to the Company
Certificates shall pass, only upon receipt of the Company Certificates by the
Exchange Agent, and shall be in such form and have such other provisions as
Parent may reasonably specify) and (ii) instructions for use in effecting the
surrender of the Company Certificates in exchange for certificates representing
shares of Parent Common Stock, a portion of the Cash Consideration, and cash in
lieu of fractional shares. Upon surrender of a Company Certificate for
cancellation to the Exchange Agent or to such other agent or agents as may be
appointed by Parent, together with such letter of transmittal, duly completed
and validly executed in accordance with the instructions thereto, the holder of
such Company Certificate shall be entitled to receive in exchange therefor (i) a
certificate representing the number of whole shares of Parent Common Stock which
such holder has the right to receive pursuant to Section 1.7(a) (less the
applicable
7
proportion of the Escrow Shares attributable to such holder), (ii) payment of
the amount of the Cash Consideration which such holder has the right to receive
pursuant to Section 1.7(a), and (iii) payment in lieu of fractional shares which
such holder has the right to receive pursuant to Section 1.7(f), and the Company
Certificate so surrendered shall forthwith be cancelled. No interest shall
accrue or be payable with respect to the Cash Consideration. Until so
surrendered, each outstanding Company Certificate that, prior to the Effective
Time, represented shares of Company Capital Stock will be deemed from and after
the Effective Time, for all corporate purposes, other than the payment of
dividends, to the extent set forth in Section 1.8(e), to evidence (i) the
ownership of the number of full shares of Parent Common Stock into which such
shares of Company Capital Stock shall have been so converted, (ii) the right to
receive a portion of the Cash Consideration in accordance with Section 1.7(a),
and (iii) the right to receive an amount in cash in lieu of the issuance of any
fractional shares in accordance with Section 1.7(f). As soon as practicable
after the Effective Time, and subject to, and in accordance with, the provisions
of Article VIII, Parent shall cause to be distributed to the Escrow Agent a
certificate or certificates representing 1,567,388 shares of Parent Common Stock
(the "Escrow Shares"), which shall be registered in the name of the Escrow Agent
as nominee for the holders of Company Certificates cancelled pursuant to Section
1.7. The Escrow Shares shall be beneficially owned by such holders and shall be
held in escrow and shall be available to compensate Parent for Damages as
provided in Article VIII. Such shares and cash shall be released, subject to and
in accordance with the provisions of Article VIII and the Escrow Agreement.
(d) Conversion Schedule. Attached as Schedule 1.8 is a schedule
(the "Preliminary Conversion Schedule") showing the number of shares of Parent
Common Stock and amount of the Cash Consideration to be issued or distributed to
the holders of Company Common Stock and each series of Company Preferred Stock,
subject to reasonable assumptions as to the expected treatment of Company
Warrants and the other assumptions set forth therein, and other rights to
purchase Company Capital Stock outstanding as of the date hereof and assuming
the treatment of the Company Options as provided in Section 5.8. The Company
shall prepare a final schedule as of the Effective Time (the "Final Conversion
Schedule") showing the number of shares of Parent Common Stock and the amount of
Cash Consideration to be issued or distributed to each individual holder of
Company Common Stock, Company Preferred Stock, Company Options and Company
Warrants (if any) outstanding immediately prior to the Effective Time, and an
officer of the Company shall certify that the Final Conversion Schedule has been
prepared on a basis consistent with the Preliminary Conversion Schedule and
correctly reflects the calculations required to be made pursuant to this
Agreement, and the Company shall deliver the Final Conversion Schedule together
with such certification to Parent at Closing.
(e) Distributions With Respect to Unexchanged Shares. No
dividends or other distributions with respect to Parent Common Stock with a
record date after the Effective Time will be paid to the holder of any
unsurrendered Company Certificate with respect to the shares of Parent Common
Stock represented thereby until the holder of record of such Company Certificate
shall surrender such Company Certificate. Subject to applicable law, following
surrender of any such Company Certificate, there shall be paid to the record
holder of the certificates representing whole shares of Parent Common Stock
issued in exchange therefor, without interest, at the time of such surrender,
the amount of any such dividends or other distributions with a record date after
the Effective Time theretofore payable with respect to such shares of Parent
Common Stock.
8
(f) Transfers of Ownership. If any certificate for shares of
Parent Common Stock is to be issued in, or any amount of the Cash Consideration
is to be distributed to, a name other than that in which the Company Certificate
surrendered in exchange therefor is registered, it will be a condition of the
issuance thereof that the Company Certificate so surrendered will be properly
endorsed and otherwise in proper form for transfer and that the person
requesting such exchange will have paid to Parent or any agent designated by it
any transfer or other taxes required by reason of the issuance of a certificate
for shares of Parent Common Stock in or payment of cash to any name other than
that of the registered holder of the Company Certificate surrendered, or
established to the satisfaction of Parent or any agent designated by it that
such tax has been paid or is not payable.
(g) No Liability. Notwithstanding anything to the contrary in
this Section 1.8, none of the Exchange Agent, the Surviving Corporation or any
party hereto shall be liable to any person for any amount properly paid to a
public official pursuant to any applicable abandoned property, escheat or
similar law.
(h) Dissenting Shares. The provisions of this Section 1.8 shall
also apply to Dissenting Shares that lose their status as such, except that the
obligations of Parent under this Section 1.8 shall commence on the date of loss
of such status and the holder of such shares shall be entitled to receive in
exchange for such shares the Merger Consideration.
Section 1.9 No Further Ownership Rights in Company Capital Stock
All shares of Parent Common Stock and cash issued or distributed
upon the surrender for exchange of Company Certificates in accordance with the
terms hereof (including any cash paid in lieu of fractional shares) shall be
deemed to have been issued (and paid) in full satisfaction of all rights
pertaining to such shares of Company Capital Stock, and there shall be no
further registration of transfers on the records of the Surviving Corporation of
Company Capital Stock which was outstanding immediately prior to the Effective
Time. If, after the Effective Time, Company Certificates are presented to the
Surviving Corporation for any reason, they shall be canceled and exchanged as
provided in this Article I.
Section 1.10 Lost, Stolen or Destroyed Certificates
In the event that any Company Certificates shall have been lost,
stolen or destroyed, the Exchange Agent shall issue and pay in exchange for such
lost, stolen or destroyed Company Certificates, upon the making of an affidavit
of that fact by the holder thereof, such shares of Parent Common Stock, amount
of the Cash Consideration, and payment of cash in lieu of fractional shares as
may be required pursuant to Section 1.7; provided, however, that Parent may, in
its reasonable discretion and as a condition precedent to the issuance thereof,
require the owner of such lost, stolen or destroyed Company Certificates to
deliver a bond in such sum as it may reasonably direct as indemnity against any
claim that may be made against Parent, the Surviving Corporation or the Exchange
Agent with respect to the Company Certificates alleged to have been lost, stolen
or destroyed.
Section 1.11 Tax Consequences
9
It is intended by the parties hereto that the Merger shall
constitute a reorganization within the meaning of section 368(a) of the Code.
The shares of Parent Common Stock to be issued in the Merger are being delivered
solely in exchange for Company Capital Stock, and no portion thereof is to be
allocated for tax purposes to any of the covenants or undertakings of any party
hereto.
Section 1.12 Taking of Necessary Action; Further Action
If, at any time after the Effective Time, any further action is
necessary or desirable to carry out the purposes of this Agreement and to vest
the Surviving Corporation with full right, title and possession to all assets,
property, rights, privileges, powers and franchises of the Company, the officers
and directors of Parent, the Company and the Surviving Corporation are fully
authorized in the name of their respective corporations or otherwise to take,
and will take, all such lawful and necessary action, so long as such action is
not inconsistent with this Agreement.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Any reference to any event, change, condition or effect being
"material" with respect to any entity or group of entities means any event,
change, condition or effect which (i) is material to the condition (financial or
otherwise), properties, assets (including intangible assets), prospects,
liabilities, business, operations or results of operations of such entity or
group of entities, taken as a whole, or (ii) would prevent or materially alter
or delay any of the transactions contemplated by this Agreement or the Ancillary
Agreements. Any reference to a "Company Material Adverse Effect" means any
event, change or effect that (x) is materially adverse to the condition
(financial or otherwise), properties, assets, prospects, liabilities, business,
operations or results of operations of the Company and its subsidiaries, taken
as a whole, or (y) would prevent or materially alter or delay any of the
transactions contemplated by this Agreement except, for each of (x) and (y)
above, to the extent that such event, change, condition or effect results from
changes in general economic conditions, or from changes affecting the industry
generally in which the Company operates.
Any reference to a party's "knowledge" means (i) with respect to
any natural person, the actual knowledge, of such person, or (ii) with respect
to any corporation or entity, the actual knowledge of such party's executive
officers and directors (which consist, in the case of the Company, of the
following titled officers or directors: Xxxxx Xxxxxx, Xxxxx Xxxxxxxxxxxx, Xxxxxx
Xxxxxx, Xxxxxx Xxxxxx, Xxxxxx Xxxxxxxxxx, Xxxxxxx Xxxxxxx, Xxxx Xxxxxx, Xxxxxxxx
Xxxxxx, Xxxxx Xxxxxx, Xxxxxx Xxxxxx, and Xxxxxxx X'Xxxxxx) provided that such
persons shall have made reasonable inquiry of those employees of such party whom
such officers and directors reasonably believe would have actual knowledge of
the matters represented.
Except as disclosed in that section of the document of even date
herewith delivered by the Company to Parent prior to the execution and delivery
of this Agreement (the "Company Disclosure Schedule") corresponding to the
Section of this Agreement to which any
10
of the following representations or warranties pertain, the Company represents
and warrants to Parent as follows:
Section 2.1 Organization, Standing and Power
The Company and each of its subsidiaries is a corporation duly
organized and validly existing and in good standing under the laws of its
jurisdiction of organization. Section 2.1 of the Company Disclosure Schedule
lists each entity that is a subsidiary or affiliated company, and any other
business entity which the Company otherwise directly or indirectly controls.
Each of the Company and its subsidiaries has the requisite power to own its
properties and to carry on its business as now being conducted and as currently
proposed to be conducted and is duly qualified to do business and is in good
standing in each jurisdiction in which the failure to be so qualified and in
good standing would have a Company Material Adverse Effect. The Company has
delivered a true and correct copy of the Certificate of Incorporation and Bylaws
of the Company and each of its subsidiaries, each as amended to date, to Parent.
Neither the Company nor any of its subsidiaries is in violation of any of the
provisions of its Certificate of Incorporation, Bylaws or equivalent charter
documents, if any. Except for the entities identified in Section 2.1 of the
Company Disclosure Schedule, the Company does not directly or indirectly own any
equity or similar interest in, or any interest convertible or exchangeable or
exercisable for, any equity or similar interest in, any corporation,
partnership, joint venture or other business association or entity.
Section 2.2 Capitalization; Title to the Shares
(a) Capitalization. As of the date hereof, the authorized
capital stock of the Company consists of (i) 40,000,000 shares of Company Common
Stock, of which 2,150,031 shares (not including any treasury shares) are issued
and outstanding; and (ii) 30,000,000 shares of Company Preferred Stock, of which
2,666,667 shares have been designated Series A1 Preferred Stock all of which are
issued and outstanding, 8,000,000 shares have been designated Series A2
Preferred Stock all of which are issued and outstanding, 3,032,000 shares have
been designated Series B Preferred Stock all of which are issued and
outstanding, and 15,000,000 shares have been designated Series C Preferred
Stock, of which 10,102,500 are issued and outstanding. As of the date hereof,
(i) 4,128,333 shares of Company Common Stock are reserved for issuance upon the
exercise of options that have been granted and are outstanding pursuant to the
Company Stock Option Plan; (ii) 910,000 shares of Company Common Stock are
reserved for issuance upon the exercise of outstanding Common Stock warrants and
4,158,250 shares of Series C Preferred Stock are reserved for issuance upon the
exercise of outstanding Series C Preferred Stock warrants; and (iii) 2,000,000
shares of Company Common Stock are comitted under certain contracts to issue
Common Stock warrants, subject to certain conditions. All of the outstanding
shares of Company Capital Stock are, and all shares of Company Capital Stock
which may be issued pursuant to the exercise of outstanding Company Options and
Company Warrants will be, when issued in accordance with the respective terms
thereof, duly authorized, validly issued, fully paid and non-assessable. The
rights, preferences and privileges of the Company Preferred Stock are as set
forth in the Company Certificate of Incorporation. Since the date of the filing
of the Company Certificate of Incorporation, there have not occurred any events
that would cause any adjustment or readjustment in the applicable conversion
prices of such Company Preferred Stock. Each share of Company Preferred Stock is
currently convertible into one share of Company Common Stock.
11
Except as set forth above, and in Schedule 2.2(b), as of the date
hereof, (i) there are no shares of Company Capital Stock or any other securities
authorized, issued or outstanding; (ii) there are no existing options, warrants,
calls, preemptive rights, indebtedness having general voting rights or debt
convertible into securities having such rights ("Voting Debt") or subscriptions
or other rights, agreements, arrangements or commitments of any character,
relating to the issued or unissued capital stock of the Company obligating the
Company to issue, transfer or sell or cause to be issued, transferred or sold
any shares of capital stock or Voting Debt of, or other equity interest in, the
Company or securities convertible into or exchangeable for such shares or equity
interests, or obligating the Company to grant, extend or enter into any such
option, warrant, call, subscription or other right, agreement, arrangement or
commitment, (iii) there are no outstanding contractual obligations of the
Company to repurchase, redeem or otherwise acquire any Company Capital Stock, or
other capital stock of the Company or to provide funds to make any investment
(in the form of a loan, capital contribution or otherwise) in any other entity,
and (iv) there are no outstanding rights of the Company to repurchase unvested
shares of Company Capital Stock.
There are no voting trusts or other agreements or understandings
to which the Company is a party with respect to the voting of the capital stock
of the Company.
Following the Effective Time, no holder of Company Options will
have any right to receive shares of common stock of the Surviving Corporation
upon exercise of Company Options.
No Indebtedness of the Company contains any restriction upon (i)
the prepayment of any of such Indebtedness, (ii) the incurrence of Indebtedness
by the Company, or (iii) the ability of the Company to grant any lien on its
properties or assets. For purposes of this Agreement, "Indebtedness" shall mean
(i) all indebtedness for borrowed money or for the deferred purchase price of
property or services (other than current trade liabilities incurred in the
ordinary course of business and payable in accordance with customary practices),
(ii) any other indebtedness that is evidenced by a note, bond, debenture or
similar instrument, (iii) all obligations under financing leases, (iv) all
obligations in respect of acceptances issued or created, (v) all liabilities
secured by any lien on any property and (vi) all guarantee obligations. Section
2.2(a) of the Company Disclosure Schedule sets forth a true, complete and
correct list of all Indebtedness of the Company as of the date of this
Agreement.
(b) Title to the Shares. Schedule 2.2(b) sets forth a true,
complete and correct list of each legal and beneficial owner of Company
securities and the number and class of such securities owned by each such
holder.
Section 2.3 Authority
The Company has the requisite power and authority to enter into
this Agreement and the other agreements set forth in the exhibits hereto
(collectively, the "Ancillary Agreements") to which the Company is a party and
to consummate the transactions contemplated hereby and thereby. The execution
and delivery of this Agreement and the Ancillary Agreements to which the Company
is a party and the consummation of the transactions contemplated hereby and
thereby have been duly authorized by all necessary corporate action on
12
the part of the Company, except for stockholder approval which will be sought
after the date hereof. This Agreement and each Ancillary Agreement to which the
Company is a party have been duly executed and delivered by the Company and
constitute the valid and binding obligations of the Company enforceable against
the Company in accordance with their terms, except to the extent that
enforceability may be limited by the effect, if any, of (i) any applicable
bankruptcy, reorganization, insolvency, moratorium or other laws affecting the
enforcement of creditors' rights generally, (ii) general principles of equity,
regardless of whether such enforceability is considered in a proceeding at law
or in equity, and (iii) the enforceability of provisions requiring
indemnification. The execution and delivery of this Agreement or any Ancillary
Agreement by the Company does not, and the consummation of the transactions
contemplated hereby and thereby will not, conflict with, or result in any
violation of, or default under (with or without notice or lapse of time, or
both), or give rise to a right of termination, cancellation or acceleration of
any obligation or loss of any benefit under (i) any provision of the certificate
of incorporation or bylaws, or other equivalent charter documents, as
applicable, of the Company or any of its subsidiaries, or (ii) any Material
Contract or any material permit, concession, franchise, license, judgment,
order, decree, statute, law, ordinance, rule or regulation applicable to the
Company or any of its properties or assets, except, in the case of clause (ii)
above, as set forth in Section 2.3 of the Company Disclosure Schedule. Except
for (i) applicable requirements of the hearing (the "Fairness Hearing") to be
held pursuant to Section 25142 of the California Corporate Securities Law of
1968, as amended (the "CSL"), (ii) the filing and recordation of the certificate
of merger and the related certificate of incorporation of the Surviving
Corporation in accordance with the requirements of Delaware Law, (iii) such
filings as may be required under the Xxxx-Xxxxx-Xxxxxx Antitrust Improvements
Act of 1976, as amended (the "HSR Act") and any applicable foreign antitrust
law, and (iv) if required pursuant to the provisions of Section 5.18, the filing
of a Registration Statement on Form S-4, no notice to, filing with, and no
permit, authorization, consent or approval of, any arbitrator, court, nation,
government, any state or other political subdivision thereof and any entity
exercising executive, legislative, judicial regulatory or administrative
functions of, or pertaining to, government (a "Governmental Entity"), or any
private third party is necessary for the consummation by the Company of the
transactions contemplated by this Agreement.
Section 2.4 Financial Statements
The Company has previously provided Parent with its audited balance
sheet as of December 31, 2001 (the "December 31, 2001 Balance Sheet") and its
unaudited balance sheet as of June 30, 2002, and the related statements of
results of operations and, with respect to the audited financial statements,
statements of cash flows for the fiscal year and the period then ended,
including, with respect to the audited financial statements, the notes thereto
(the "Financial Statements"). The Financial Statements for the year ended
December 31, 2001 have been audited by Deloitte & Touche LLP, the Company's
independent accountants. The Financial Statements fairly present, in all
respects, in accordance with United States generally accepted accounting
principles ("U.S. GAAP") consistently applied, the financial position of the
Company and its subsidiaries as of such dates and its results of operations and
cash flows for such fiscal periods except, in the case of such unaudited
statements, for normal recurring year end adjustments which adjustments will not
be material, either individually or in the aggregate, and notes.
13
Section 2.5 Absence of Certain Changes
Except as and to the extent set forth in the Financial Statements or in
Section 2.5 of the Company Disclosure Schedule, from December 31, 2001 (the
"Balance Sheet Date") to the date of this Agreement the Company and its
subsidiaries have not:
(a) suffered any Company Material Adverse Effect;
(b) incurred any liabilities or obligations (absolute, accrued,
contingent or otherwise), except non-material items incurred in the ordinary
course of business and consistent with past practice, which do not exceed
$50,000 in the aggregate;
(c) paid, discharged or satisfied any claims, liabilities or
obligations (absolute, accrued, contingent or otherwise) other than the payment,
discharge or satisfaction in the ordinary course of business and consistent with
past practice of liabilities and obligations reflected or reserved against in
the December 31, 2001 Balance Sheet or incurred in the ordinary course of
business and consistent with past practice since the Balance Sheet Date;
(d) permitted or allowed any of their properties or assets (real,
personal or mixed, tangible or intangible) to be subjected to any liens, except
for liens for current taxes not yet due or liens the incurrence of which would
not have a Company Material Adverse Effect;
(e) cancelled any debts or waived any claims or rights of substantial
value;
(f) sold, transferred, or otherwise disposed of any of their material
properties or assets (real, personal or mixed, tangible or intangible), except
in the ordinary course of business, consistent with past practice;
(g) granted any increase in the compensation or benefits payable or to
become payable to any director, officer, employee or consultant of the Company
or its subsidiaries (including any such increase pursuant to any bonus, pension,
profit sharing, incentive compensation or other plan or commitment), except, in
the case of employees other than executive officers of the Company or its
subsidiaries, for such increases in compensation or benefits made in the
ordinary course of business, consistent with past practice;
(h) made any change in severance policy or practices;
(i) entered into any operating lease;
(j) made any capital expenditure or acquired any property, plant and
equipment other than as set forth in Section 2.5(j) of the Company Disclosure
Schedule;
(k) declared, paid or set aside for payment any dividend or other
distribution in respect of their respective capital stock or redeemed, purchased
or otherwise acquired, directly or indirectly, any shares of capital stock or
other securities of the Company or its subsidiaries;
(l) made or changed any material election in respect of Taxes, adopted
or changed any accounting method in respect of Taxes, entered into any closing
agreement, settled
14
or compromised any claim or assessment in respect of Taxes, or consented to any
extension or waiver of the statutory period of limitations applicable to any
claim or assessment in respect of Taxes;
(m) made any change to its accounting methods, principles, policies,
procedures or practices, except as may be required by U.S. GAAP;
(n) paid, loaned or advanced any amount to, or sold, transferred or
leased any material properties or assets (real, personal or mixed, tangible or
intangible) to, or entered into any agreement or arrangement with, any of their
respective officers, directors or stockholders or any affiliate or associate of
any of their officers, directors or stockholders except for directors' fees, and
compensation to officers at rates not inconsistent with the Company's past
practice; or
(o) agreed, whether in writing or otherwise, to take any action
described in this Section 2.5.
Section 2.6 Absence of Undisclosed Liabilities
Except as and to the extent provided in the December 31, 2001 Balance
Sheet, the Company did not have at the Balance Sheet Date any liabilities
(whether contingent or absolute, direct or indirect, known or unknown to the
Company or matured or unmatured or otherwise) that were not fully reflected or
fully reserved against in the December 31, 2001 Balance Sheet or incurred other
than in the ordinary course of business, consistent with past practice.
Section 2.7 Litigation
There is no private or governmental action, suit, proceeding, claim,
arbitration or investigation pending before any agency, court or tribunal,
foreign or domestic, or, to the knowledge of the Company, threatened against the
Company or its subsidiaries, any of their properties or any of their officers or
directors (in their capacities as such). There is no judgment, decree or order
against the Company or any of its subsidiaries or, to the knowledge of the
Company, any of their directors or officers (in their capacities as such), that
could prevent, enjoin, or materially alter or delay any of the transactions
contemplated by this Agreement, or that would reasonably be expected to have a
Company Material Adverse Effect. There is no litigation that the Company or any
of its subsidiaries has pending against other parties.
Section 2.8 Restrictions on Business Activities
There is no agreement, judgment, injunction, order or decree binding
upon the Company or its subsidiaries which has or could reasonably be expected
to have the effect of prohibiting or impairing any current business practice of
the Company or its subsidiaries, any acquisition of property by the Company or
its subsidiaries or the conduct of business by the Company or its subsidiaries
as currently conducted.
Section 2.9 Governmental Authorization
The Company and its subsidiaries have obtained each federal, state,
county, local or foreign governmental consent, license, permit, grant, or other
authorization of a Governmental
15
Entity (i) pursuant to which the Company or any of its subsidiaries currently
operates or holds any interest in any of its properties or (ii) that is required
for the operation of the business of the Company or any of its subsidiaries or
the holding of any such interest ((i) and (ii) are herein collectively called
"Company Authorizations"), and all of such Company Authorizations are in full
force and effect, except where the failure to obtain or have any such Company
Authorizations would not reasonably be expected to have a Company Material
Adverse Effect.
Section 2.10 [Intentionally omitted]
Section 2.11 Title to Property
The Company and each of its subsidiaries has good and marketable title
to all of its properties, interests in properties and assets, real and personal,
reflected in the December 31, 2001 Balance Sheet or acquired after the Balance
Sheet Date (except properties, interests in properties and assets sold or
otherwise disposed of since the Balance Sheet Date in the ordinary course of
business, consistent with past practice), or with respect to leased properties
and assets, valid leasehold interests in, free and clear of all mortgages,
liens, pledges, charges or encumbrances of any kind or character, except (i)
liens for current taxes not yet due and payable, (ii) such imperfections of
title, liens and easements as do not and will not materially detract from or
interfere with the use or value of the properties subject thereto or affected
thereby, or otherwise materially impair business operations involving such
properties, (iii) liens securing debt which are reflected on the December 31,
2001 Balance Sheet, and (iv) any security interests disclosed on Section 2.11 of
the Company Disclosure Schedule. The property and equipment of the Company and
each of its subsidiaries that are used in the operations of business are in good
operating condition and repair, subject to normal wear and tear. All properties
used in the operations of the Company as of the Balance Sheet Date are accounted
for in the December 31, 2001 Balance Sheet to the extent U.S. GAAP requires the
same to be reflected.
Section 2.12 Technology and Intellectual Property
(a) Definitions. The following terms shall have the meanings set forth
below.
"Company Intellectual Property" means all Intellectual Property that the Company
or any of its subsidiaries either owns or has a right to use.
"Company Technology" means all Technology owned by the Company or any of its
subsidiaries or used in the conduct of the business of the Company or any of its
subsidiaries as currently conducted or contemplated to be conducted.
"Computer Software" means all computer programs (whether in source code or
object code form and including, without limitation, any and all software
implementations of algorithms, models and methodologies), and all data bases,
compilations and documentation (including, without limitation, user, operator,
and training manuals) related to the foregoing.
"Copyrights" means all rights in U.S. and foreign copyrights (whether registered
or unregistered), including all rights to apply for, applications to register,
and registrations of any of the foregoing.
16
"Intellectual Property" means all Copyrights, Patents, Trade Secrets, Trademarks
and Internet domain names.
"Inventor-Developed Intellectual Property" has the meaning set forth in Section
2.12(n).
"Inventor-Developed Technology" has the meaning set forth in Section 2.12(n).
"Inventors" means all parties (whether employees, consultants or contractors)
that have been engaged in the creation of Intellectual Property or Technology as
part of their duties for, during their work with or relating to, or otherwise
using any of the equipment, materials or facilities of, the Company or any of
its subsidiaries.
"License Agreements" has the meaning set forth in Section 2.12(e).
"Patents" means all rights in U.S. and foreign patents (including, without
limitation, provisionals, utility patents, divisionals, continuations,
continuations-in-part, renewals, reissues, reexaminations, extensions),
including all rights to apply for, applications for, and any issuances or
registrations of the foregoing.
"Technology" means all processes, formulae, algorithms, data, models, plans,
methodologies, theories, ideas, techniques, discoveries, disclosures,
inventions, Computer Software and any other tangible or intangible form of
technology, information or know-how.
"Trademarks" means all trademarks, service marks, trade names, designs, logos,
slogans, and general intangibles of like nature, together with all goodwill, and
all rights to apply for or register, applications for, and registrations of any
of the foregoing.
"Trade Secrets" means all rights in trade secrets and other proprietary or
confidential information, in any format, whether tangible or intangible. Trade
Secrets also include all rights associated with non-public or unregistered
Patents and Copyrights.
(b) Section 2.12(b) of the Company Disclosure Schedule sets forth a
true and complete list of all Company Intellectual Property (excluding Trade
Secrets and non-material unregistered copyrights), specifying whether the
Company owns or licenses such Company Intellectual Property. With respect to the
Company Intellectual Property owned by the Company or any of its subsidiaries:
(i) Section 2.12(b) of the Company Disclosure Schedule also sets forth a true
and complete list of all (1) patents and patent applications, (2) copyright
registrations and copyright applications, (3) trademark registrations and
trademark applications, (4) Internet domain name registrations and applications
for domain name registrations, and (5) other filings and formal actions made or
taken by the Company or any of its subsidiaries pursuant to federal, state,
local and foreign laws to protect its interests in the Company Intellectual
Property; and (ii) the Company or its subsidiaries is listed in the records of
the appropriate U.S., state or foreign agency as the sole owner of record for
each such patent, copyright, trademark or Internet domain name.
(c) With respect to any patents and patent applications set forth in
Section 2.12(b) of the Company Disclosure Schedule: (i) each has been prosecuted
in material compliance with all
17
applicable rules, policies and procedures of the United States Patent and
Trademark Office or applicable foreign patent agencies; and (ii) neither the
Company, any of its subsidiaries, nor the Inventors are aware of any material
prior art relevant thereto that could render the claims unpatentable, invalid or
unenforceable.
(d) [Intentionally omitted]
(e) Section 2.12(e) of the Company Disclosure Schedule sets forth a
true and complete list of all agreements (including, without limitation, license
agreements, development agreements, distribution agreements, settlement
agreements, consent to use agreements and covenants not to xxx, other than
licenses for personal computer software that is generally available on
nondiscriminatory pricing terms and has an individual acquisition cost of $500
or less per software package) to which the Company or any of its subsidiaries is
a party or otherwise bound, granting or obtaining any right to use or exploit or
practice any rights in any Company Intellectual Property or any Company
Technology or restricting the Company's or any of its subsidiaries' rights to
use any Company Intellectual Property or Company Technology (all of the
foregoing being collectively known as the "License Agreements"). Each License
Agreement is valid and binding on all parties thereto and enforceable in
accordance with its terms, and there exists no event or condition that does or
will result in a violation or breach of, or constitute (with or without due
notice or lapse of time or both) a default by any party under, such License
Agreement. Neither the Company nor any of its subsidiaries has licensed or
sublicensed its rights in any Company Intellectual Property or Company
Technology other than pursuant to the License Agreements. None of the License
Agreements grants any third party exclusive rights, or sublicensing rights, to
or under any Company Intellectual Property or Company Technology.
(f) Except as disclosed in Section 2.12(f) of the Company Disclosure
Schedule, to the knowledge of the Company and each of its subsidiaries, the
Company or its subsidiaries own all right, title and interest in and to, or has
a valid and unrestricted right to exploit, free and clear of all mortgages,
liens, pledges, charges or encumbrances of any kind or character, all
Intellectual Property used in or necessary for the conduct of the business of
the Company and any of its subsidiaries as currently conducted or contemplated
to be conducted, and all Intellectual Property required for use of the Company
Technology. The Company and each of its subsidiaries have secured valid and
binding written assignments from all employees, consultants and other third
parties who contributed to the creation or development of Company Intellectual
Property.
(g) The Company Intellectual Property is subsisting, in full force and
effect, has not been cancelled, expired or abandoned. To the knowledge of the
Company, each of its subsidiaries and the Inventors, the Company Intellectual
Property is valid and enforceable
(h) The Company Technology was developed without infringing any
copyright, or misappropriating any Trade Secret, of any third party. All use and
disclosure of third party Trade Secrets has been pursuant to the terms of a
written agreement between Company or its subsidiaries and the owner of such
Trade Secrets, or is otherwise lawful.
(i) The use of the Company Technology and the conduct of the business
of the Company and each of its subsidiaries (including, without limitation, the
provision of services and the manufacturing, marketing, licensing and sale of
goods), as currently conducted and as
18
contemplated to be conducted, does not and will not infringe any copyright or
misappropriate any Trade Secret of any third party. To the knowledge of the
Company and each of its subsidiaries, the use of the Company Technology and the
conduct of the business of the Company and each of its subsidiaries (including,
without limitation, the provision of services and the manufacturing, marketing,
licensing and sale of goods), as currently conducted and as contemplated to be
conducted, does not and will not infringe any patent of any third party.
(j) Except as set forth in Section 2.12(j) of the Company
Disclosure Schedule, to the knowledge of the Company, each of its subsidiaries
and the Inventors, no third party is misappropriating, infringing, diluting or
violating any Company Intellectual Property. Neither the Company, any of its
subsidiaries, nor the Inventors have brought any claims, suits, arbitrations or
other adversarial proceedings related to the foregoing against any third party.
Neither Company, any of its subsidiaries, nor the Inventors have entered into
any agreement to indemnify any third party against any charge of
misappropriation, infringement, dilution or violation of any Company
Intellectual Property.
(k) Except as set forth in Section 2.12(k) of the Company
Disclosure Schedule, there is no pending or threatened claim, suit, arbitration
or other adversarial proceeding before any court, agency, arbitral tribunal, or
registration authority in any jurisdiction: (i) involving the Company
Intellectual Property or Company Technology; (ii) alleging that the use of the
Company Technology or that the activities or the conduct of the business of the
Company or any of its subsidiaries does or will infringe any Intellectual
Property of any third party; or (iii) challenging the ownership, use, validity,
enforceability or registrability of any Company Intellectual Property. Neither
the Company nor any of its subsidiaries have sought nor received any opinions of
counsel related to any of the foregoing.
(l) Except as set forth in Section 2.12(l) of the Company
Disclosure Schedule, there are no settlements, forebearances to xxx, consents,
judgments, or orders or similar obligations, other than the License Agreements,
that do or may: (i) restrict the Company's or any of its subsidiaries' rights to
use any Company Intellectual Property or Company Technology; (ii) restrict the
use of the Company Technology or the conduct of the business of the Company or
any of its subsidiaries in order to accommodate a third party's Intellectual
Property rights; or (iii) permit third parties to use any Company Intellectual
Property or Company Technology.
(m) [Intentionally omitted]
(n) Except as set forth in Section 2.12(n) of the Company
Disclosure Schedule, all right, title and interest in and to all material
Intellectual Property developed by the Inventors related to the past, actual or
potential business of the Company and each of its subsidiaries (the
"Inventor-Developed Intellectual Property") and all material Technology
developed by the Inventors related to the past, actual or potential business of
the Company and each of its subsidiaries (the "Inventor-Developed Technology")
have been transferred to the Company or its subsidiaries by the Inventors, and
such Inventor-Developed Intellectual Property and Inventor-Developed Technology
are now, respectively, part of the Company Intellectual Property and Company
Technology.
(o) Except as set forth on Section 2.12(e) of the Company
Disclosure Schedule, no third party, including but not limited to any former
employer of the Inventors, has any claim to
19
any right, title or interest in and to either the Inventor-Developed
Intellectual Property or the Inventor-Developed Technology.
(p) The Inventors independently developed the Inventor-Developed
Technology without infringing any copyright or misappropriating any Trade Secret
of any third party. No former employer of any Inventor has a reasonable basis
for bringing any claim, suit or action for patent infringement, copyright
infringement, trade secret misappropriation, or under a theory of inevitable
disclosure.
(q) The Inventors have not made any filings for or otherwise
taken any steps to secure or acquire any Intellectual Property right, related to
any Inventor-Developed Intellectual Property or Inventor-Developed Technology,
that has not already been transferred to the Company or its subsidiaries.
(r) The Inventors have executed valid and binding written
nondisclosure agreements and invention and intellectual property assignment
agreements, consistent with this Section 2.12, with the Company or its
subsidiaries effective as of the date each Inventor became an employee of or
otherwise associated with the Company or any of its subsidiaries.
(s) All employees of Company or its subsidiaries, and all other
parties having access to the Trade Secrets of the Company or any of its
subsidiaries, have executed written nondisclosure agreements, consistent with
this Section 2.12.
(t) No Trade Secret of the Company or any of its subsidiaries has
been disclosed or authorized to be disclosed to any third party other than
pursuant to a written nondisclosure agreement consistent with this Section 2.12,
and no party to any such nondisclosure agreement is in breach or default
thereof. Without limiting the generality of foregoing, the Company and each of
its subsidiaries has taken reasonable measures, consistent with customary
industry practice, to protect and preserve its Trade Secrets.
(u) No current or former Inventor, partner, director, officer or
employee of the Company or any of its subsidiaries (or any of their respective
predecessors in interest) will, after giving effect to the transactions
contemplated by this Agreement, own or retain any rights in or to or under any
of the Company Intellectual Property or Company Technology.
(v) The execution of, the delivery of, the consummation of the
transactions contemplated by, and the performance of the Company's obligations
under this Agreement and the Ancillary Agreements will not result in any loss or
impairment of the Company's or any of its subsidiaries' rights to own or use any
of the Company Intellectual Property or the Company Technology, or of any
agreement to which the Company or any of its subsidiaries is a party.
Without limiting any other remedy available to Parent, to the
extent necessary to perfect title in any of the Company Intellectual Property,
or otherwise effect any provision of or remedy any breach of this Section 2.12,
the Company (on behalf of itself and each of its subsidiaries) hereby agrees to,
and will use all reasonable efforts to cause the Inventors to, perform any act
and execute any document as may be requested by Parent.
20
Section 2.13 Environmental Matters
(a) The Company and its subsidiaries are in full compliance with
all Environmental Laws, which compliance includes, but is not limited to, the
possession by the Company or its subsidiaries of all material permits and other
governmental authorizations required under applicable Environmental Laws, and
compliance in all respects with the terms and conditions thereof. The Company
and its subsidiaries have not received any communication, whether from a
governmental authority, citizens group, employee or otherwise, that alleges that
the Company or any of its subsidiaries is not in full compliance, and, to the
knowledge of the Company, there are no material circumstances that may prevent
or interfere with such compliance in the future. All of the permits the Company
and its subsidiaries have pursuant to Environmental Laws are listed on Section
2.13 (a) of the Company Disclosure Schedule.
(b) There are no Environmental Claims pending, alleged or, to the
knowledge of the Company, threatened against the Company, any of its
subsidiaries, or, to the knowledge of the Company, against any person or entity
whose liability for any Environmental Claim the Company or any of its
subsidiaries have retained or assumed either contractually or by operation of
law.
(c) There are no past or present actions, activities,
circumstances, conditions, events or incidents, including, without limitation,
the release, emission, discharge, presence or disposal of any Material of
Environmental Concern by or attributable to the Company or any of its
subsidiaries, that would reasonably be expected to form the basis of any
Environmental Claim against the Company, any of its subsidiaries, or, to the
knowledge of the Company, against any person or entity whose liability for any
Environmental Claim the Company or any of its subsidiaries have retained or
assumed either contractually or by operation of law.
(d) Without in any way limiting the generality of the foregoing,
(i) all on-site and off-site locations where the Company or any of its
subsidiaries have stored Materials of Environmental Concern are identified in
Section 2.13(d)(i) of the Company Disclosure Schedule, (ii) any underground
storage tanks, and the capacity and contents of such tanks, if known to the
Company, located on property owned or leased by the Company or any of is
subsidiaries are identified in Section 2.13(d)(ii) of the Company Disclosure
Schedule, (iii) except as set forth in Section 2.13(d)(iii) of the Company
Disclosure Schedule, to the Company's knowledge there is no asbestos contained
in or forming part of any building, building component, structure or office
space owned or leased by the Company or any of its subsidiaries, and (iv) to the
Company's knowledge no polychlorinated biphenyls (PCB's) or PCB-containing items
are used or stored at any property owned, leased or operated by the Company or
any of its subsidiaries.
(e) The Company has provided to Parent all assessments, reports,
data, results of investigations or audits, and other information that is in the
possession of the Company or any of its subsidiaries regarding environmental
matters pertaining to or the environmental condition of the business of the
Company and its subsidiaries, or the compliance (or noncompliance) by the
Company or any of its subsidiaries with any Environmental Laws.
For purposes of this Agreement:
21
(1) "Environmental Claim" means any material claim, action,
cause of action, investigation or notice (written or oral) by any
person or entity alleging potential liability (including, without
limitation, potential liability for investigatory costs, cleanup costs,
governmental response costs, natural resources damages, property
damages, personal injuries, or penalties) arising out of, based on or
resulting from (a) the presence, or release into the environment, of
any Material of Environmental Concern at any location, whether or not
owned or operated by the Company or its subsidiaries or (b)
circumstances forming the basis of any violation, or alleged violation,
of any Environmental Law.
(2) "Environmental Laws" means all Federal, state, local and
foreign laws and regulations relating to pollution or protection of
human health or the environment (including, without limitation, ambient
air, surface water, ground water, land surface or subsurface strata),
including, without limitation, laws and regulations relating to
emissions, discharges, releases or threatened releases of Materials of
Environmental Concern, or otherwise relating to the manufacture,
processing, distribution, use, treatment, storage, disposal, transport
or handling of Materials of Environmental Concern.
(3) "Materials of Environmental Concern" means chemicals,
pollutants, contaminants, wastes, toxic substances, hazardous
substances, petroleum and petroleum products, but excluding materials
commonly employed or wastes commonly generated in office operations
and/or janitorial operations to the extent that such materials are in
an amount typically generated in such office operations and/or
janitorial operations.
Section 2.14 Taxes
(a) The Company and its subsidiaries have (i) properly completed
and timely filed all Tax Returns required to be filed by them on or before the
Closing Date and all such Tax Returns are true, complete and correct and (ii)
paid, or where payment is not yet due, have provided adequate accruals in
accordance with U.S. GAAP in the Financial Statements for all Taxes due with
respect to any period ending on or before the Closing Date. The Company and each
of its subsidiaries have no material liability for unpaid Taxes accruing after
the date of the latest Financial Statements. There is (i) no material claim for
Taxes that is a lien against the property of the Company or any of its
subsidiaries or that is being asserted against the Company or any of its
subsidiaries other than liens for Taxes not yet due and payable and for which
there are adequate accruals in accordance with U.S. GAAP, (ii) no audit of any
Tax Return of the Company or any of its subsidiaries being conducted by a Tax
Authority, and (iii) no extension or waiver of the statute of limitations on the
assessment of any Taxes or power of attorney granted by the Company or any of
its subsidiaries and currently in effect. Neither the Company nor any of its
subsidiaries has filed nor will file any consent to have the provisions of
section 341(f)(2) of the Code (or comparable provisions of any foreign or state
Tax laws) apply to the Company or any of its subsidiaries. Neither the Company
nor any of its subsidiaries is a party to any Tax sharing, Tax allocation, Tax
indemnification or similar agreement nor does the Company or any of its
subsidiaries have any liability or potential liability to another party under
any such agreement. The Company has never been a member of a consolidated,
combined or unitary group of which the Company was not the ultimate parent
corporation. The Company has never
22
been a "United States real property holding corporation" within the meaning of
Section 897 of the Code. The Company and its subsidiaries have not had any
income or gain reportable for a period ending after the Closing Date but
attributable to a transaction occurring in, or a change in tax accounting method
made for, a taxable period ending on or prior to the Closing Date which resulted
in a deferred reporting of income or gain, for Tax purposes, from such
transaction or from such change in tax accounting method. No issues have been
raised in writing by any Tax Authority in connection with any Tax Returns of the
Company or its subsidiaries. All deficiencies asserted or assessments made as a
result of any examination by a Taxing Authority have been paid in full.
(b) For purposes of this Agreement, the following terms have the
following meanings: "Tax" (and, with correlative meaning, "Taxes" and "Taxable")
means any United States federal, state, local and foreign taxes, and other
assessments of a similar nature (whether imposed directly or through
withholding), including any interest, additions to tax, or penalties applicable
thereto. As used herein, "Tax Return" means any United States federal, state,
local and foreign tax returns, declarations, statements, reports, schedules,
forms and information returns and any amendment thereto.
Section 2.15 Employee Benefit Plans
(a) Section 2.15 of the Company Disclosure Schedule lists, with
respect to the Company and any trade or business (whether or not incorporated)
which is treated as a single employer with the Company (an "ERISA Affiliate")
within the meaning of Section 414(b), (c), (m) or (o) of the Code or Section
4001(b) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA"), and any leased employee as defined in Section 414(n) of the Code, (i)
all employee benefit plans (as defined in Section 3(3) of ERISA), (ii) each loan
to any employee, officer, director or consultant and any stock option, stock
purchase, phantom stock, stock appreciation right, supplemental retirement,
severance, termination, change in control, sabbatical, medical, dental, vision
care, disability, employee relocation, cafeteria benefit (Code Section 125) or
dependent care (Code Section 129), life insurance or accident insurance plans,
programs or arrangements, (iii) all bonus, pension, profit sharing, savings,
deferred compensation or incentive plans, programs or arrangements, (iv) other
fringe or employee benefit plans, programs or arrangements, and (v) any current
or former employment, executive compensation, change in control, termination,
severance or consulting agreements, written or otherwise, for the benefit of, or
relating to, any present or former employee, consultant or director of the
Company (together, the "Company Employee Plans").
(b) The Company has furnished or made available to Parent a copy
of each of the Company Employee Plans and related material plan documents
(including trust documents, insurance policies or contracts, employee booklets,
summary plan descriptions, summaries of material modifications and other
authorizing documents, and any material employee or governmental communications
relating thereto) and has, with respect to each Company Employee Plan that is
subject to ERISA reporting requirements, provided copies of the Form 5500
reports required to be filed for the last three (3) plan years. Any Company
Employee Plan intended to be qualified under Section 401(a) of the Code has
either obtained from the Internal Revenue Service (the "IRS") a favorable
determination letter as to its qualified status under the Code, including all
amendments to the Code effected by applicable law, or has applied to the IRS for
such a determination letter (or has available sufficient time to make such
23
application) prior to the expiration of the requisite period under applicable
Treasury Regulations or IRS pronouncements in which to apply for such
determination letter and to make any amendments necessary to obtain a favorable
determination or has been established under a standardized prototype plan for
which an IRS opinion letter has been obtained by the plan sponsor and is valid
as to the adopting employer. The Company has also furnished or made available to
Parent the most recent IRS determination, notification, advisory, or opinion
letter issued with respect to each such Company Employee Plan, and, to the
Company's knowledge, nothing has occurred since the issuance of each such letter
that could reasonably be expected to cause the loss of the tax-qualified status
of any Company Employee Plan subject to Section 401(a) of the Code.
(c) None of the Company Employee Plans promises or provides
retiree medical or other retiree welfare benefits to any person, except as
required by applicable law. There has been no "prohibited transaction," as such
term is defined in Section 406 of ERISA and Section 4975 of the Code, with
respect to any Company Employee Plan. Each Company Employee Plan has been
administered in accordance with its terms and in material compliance with the
requirements prescribed by any and all statutes, rules and regulations
(including ERISA and the Code), and the Company and each of its ERISA Affiliates
have performed all obligations required to be performed by them under, are not
in any respect in default under or violation of, and have no knowledge of any
default or violation by any other party to, any of the Company Employee Plans.
Neither the Company nor any of its ERISA Affiliates is subject to any liability
or penalty under Sections 4976 through 4980 of the Code or Title I of ERISA with
respect to any of the Company Employee Plans. All contributions required to be
made by the Company or any of its ERISA Affiliates to any Company Employee Plan
have been made on or before their due dates and a reasonable amount has been
accrued for contributions to each Company Employee Plan for the current plan
years. With respect to each Company Employee Plan, no "reportable event" within
the meaning of Section 4043 of ERISA (excluding any such event for which the
thirty (30) day notice requirement has been waived under the regulations to
Section 4043 of ERISA) nor any event described in Section 4062, 4063 or 4041 of
ERISA has occurred. Each Company Employee Plan can be amended, terminated or
otherwise discontinued after the Closing Date in accordance with its terms,
without material liability to Parent (other than ordinary administrative
expenses typically incurred in a termination event). With respect to each
Company Employee Plan subject to ERISA as either an employee pension plan within
the meaning of Section 3(2) of ERISA or an employee welfare benefit plan within
the meaning of Section 3(1) of ERISA, the Company has prepared in good faith and
timely filed all requisite governmental reports (which, to the Company's
knowledge, were true and correct as of the date filed) and has properly and
timely filed and distributed or posted all notices and reports to employees
required to be filed, distributed or posted with respect to each such Company
Employee Plan. No suit, administrative proceeding, action or other litigation
has been brought, or to the knowledge of the Company is threatened, against or
with respect to any such Company Employee Plan, including any audit or inquiry
by the IRS or United States Department of Labor other than requests for payments
in the ordinary course or requests for qualified domestic relations orders.
(d) With respect to each Company Employee Plan, the Company has
complied, with (i) the applicable health care continuation and notice provisions
of the Consolidated Omnibus Budget Reconciliation Act of 1985 ("COBRA") and the
regulations (including proposed regulations) thereunder, (ii) the applicable
requirements of the Family
24
Medical and Leave Act of 1993 and the regulations thereunder and (iii) the
applicable requirements of the Health Insurance Portability and Accountability
Act of 1996 and the regulations (including proposed regulations) thereunder.
(e) Neither the execution and delivery of this Agreement or the
Ancillary Agreements nor the transactions contemplated hereby or thereby will
(i) entitle any current or former employee, director, consultant or other
service provider of the Company to any payment or benefits (including, without
limitation, severance, unemployment compensation, change in control, golden
parachute, bonus or otherwise), except as expressly provided in this Agreement,
(ii) materially increase any benefits otherwise payable by the Company or (iii)
except as disclosed in Section 2.15 of the Company Disclosure Schedule,
accelerate the time of payment, vesting or exercisability of Company Options or
any benefit (other than as required under Section 411(d)(3) of the Code), or
increase the amount of compensation due any such employee, director or service
provider.
(f) There has been no amendment to, written interpretation or
announcement (whether or not written) by the Company or any ERISA Affiliates
relating to, or change in participation or coverage under, any Company Employee
Plan that would materially increase the expense of maintaining such Company
Employee Plan above the level of expense incurred with respect to that Plan for
the most recent fiscal year included in the Financial Statements.
(g) Neither the Company, nor any ERISA Affiliate of the Company
maintains, sponsors, participates in, contributes to, or is required to
contribute to, nor have any of the foregoing ever maintained, established,
sponsored, participated in, or contributed to, or been required to contribute
to, any pension plan (within the meaning of Section 3(2) of ERISA) that is
subject to Part 3 of Subtitle B of Title I of ERISA, Title IV of ERISA, or
Section 412 of the Code.
(h) Neither the Company nor any of its ERISA Affiliates is a party
to, or has made any contribution to or otherwise incurred any obligation to
contribute to, any "multi-employer plan" as defined in Section 3(37) or
4001(a)(3) of ERISA. The Company is not obligated to make any "parachute
payments" as such term is defined in Section 280G of the Code, and is not a
party to any agreement that may result in any parachute payments, in either
case, that but for Section 280G of the Code would be deductible. The Company is
not obligated to make reimbursement or gross-up payments to any person in
respect to "excess parachute payments" as such term is defined in Section 280G
of the Code.
(i) With respect to each Company Employee Plan that is subject to the
laws or applicable customs or rules of relevant jurisdictions other than the
United States (each, a "Foreign Plan"), except as set forth in Section 2.15 of
the Company Disclosure Schedule: (i) each Foreign Plan is in compliance in all
material respects with the applicable provisions of the laws and regulations
regarding employee benefits, mandatory contributions and retirement plans of
each jurisdiction in which each such Foreign Plan is maintained, to the extent
those laws are applicable to such Foreign Plan; (ii) each Foreign Plan has, to
the knowledge of the Company and any Company subsidiary, been administered at
all times and in all material respects in accordance with its terms; (iii) to
the knowledge of the Company and any Company subsidiary, there are no pending
investigations by any governmental body involving any Foreign Plan, and no
pending claims (except for claims for benefits payable in the normal operation
of the Foreign
25
Plans), suits or proceedings against any Foreign Plan or asserting any rights or
claims to benefits under any Foreign Plan; (iv) each Foreign Plan required to be
registered has been registered and has been maintained in good standing with
applicable regulatory authorities; and (v) the transactions contemplated by this
Agreement will not, by themselves or in conjunction with any other agreements,
create or otherwise result in any material liability, accelerated payment or any
enhanced benefits with respect to any Foreign Plan.
Section 2.16 [Intentionally omitted]
Section 2.17 Labor and Employee Matters
(a) Each of the Company and its subsidiaries is in compliance in all
material respects with all currently applicable laws and regulations respecting
employment, discrimination in employment, terms and conditions of employment,
wages, hours and occupational safety and health and employment practices, and is
not engaged in any unfair labor practice, as defined in the National Labor
Relations Act or other applicable law. Each of the Company and its subsidiaries
has in all material respects withheld all amounts required by law or by
agreement to be withheld from the wages, salaries, and other payments to
employees; and is not liable for any material arrears of wages or any taxes or
any penalty for failure to comply with any of the foregoing. Neither the Company
nor any of its subsidiaries is liable for any material payment to any trust or
other fund or to any governmental or administrative authority, with respect to
unemployment compensation benefits, social security or other benefits or
obligations for employees (other than routine payments to be made in the
ordinary course of business and consistent with past practice). There are no
pending claims against the Company or any of its subsidiaries under any workers
compensation plan or policy or for long term disability. There are no
controversies pending or, to the knowledge of the Company, threatened, between
the Company and its subsidiaries, on the one hand, and any of its employees, on
the other hand, which controversies have or could reasonably be expected to
result in an action, suit, proceeding, claim, arbitration or investigation
before any agency, court or tribunal, foreign or domestic. To the Company's
knowledge, no federal, state, local or foreign agency responsible for the
enforcement of labor or employment laws intends to conduct an investigation with
respect to the Company or any of its subsidiaries, and no such investigation is
in progress. Neither the Company nor any of its subsidiaries is a party to any
collective bargaining agreement or similar agreement with any labor
organization, or work rules or practices agreed to with any labor organization
or employee association applicable to employees of the Company or any of its
subsidiaries. None of the Company or its subsidiaries' employees are represented
by any labor organization, nor does the Company know of any activities or
proceedings of any labor union to organize any such employees. No employees of
the Company or any of its subsidiaries are in violation of any term of any
employment contract, invention assignment agreement, patent disclosure
agreement, non-competition agreement, non-solicitation agreement, or any
restrictive covenant to a former employer relating to the right of any such
employee to be employed by the Company or any of its subsidiaries because of the
nature of the business conducted by the Company or to the use of trade secrets
or proprietary information of others. No key employees or officers of the
Company or any of its subsidiaries have given notice to the Company, nor is the
Company otherwise aware, that any such key employee or officer intends to
terminate his or her employment with the Company or any of its subsidiaries.
26
(b) Since the Company's formation (i) the Company and its
subsidiaries have not effectuated a "plant closing" (as defined in the WARN Act)
affecting any site of employment or one or more facilities or operating units
within any site of employment or facility of the Company or its subsidiaries,
(ii) there has not occurred a "mass layoff" (as defined in the Worker Adjustment
and Retraining Notification Act (the "WARN Act")) affecting any site of
employment or facility of the Company or its subsidiaries, (iii) the Company and
its subsidiaries have not been affected by any transaction or engaged in layoffs
or employment terminations sufficient in number to trigger application of any
similar state, local or foreign law or regulation similar to the WARN Act and
(iv) none the Company or its subsidiaries' employees has suffered an "employment
loss" (as defined in the WARN Act) during the six (6) month period prior to the
date of this Agreement.
Section 2.18 Interested Party Transactions
No director, officer, employee, consultant, stockholder, agent or
affiliate of the Company or its subsidiaries (i) has had any interest in any
assets, property or rights (whether real or personal, tangible or intangible),
used by the Company or any such subsidiaries in the conduct of its business, or
(ii) has engaged in any transaction with or is party to any agreement with the
Company or any of its subsidiaries. Section 2.18 of the Company Disclosure
Schedule lists the amounts payable to each officer or employee of the Company or
any of its subsidiaries pursuant to any agreement with any such officer or
employee to make payments conditioned upon the execution of this Agreement or
the Ancillary Agreements or the consummation of the transactions contemplated
hereby or thereby.
Section 2.19 Insurance
The Company and each of its subsidiaries has policies of insurance and
bonds of the type and in amounts customarily carried by persons conducting
businesses or owning assets similar to those of the Company and each of its
subsidiaries. Section 2.19 of the Company Disclosure Schedule contains a
complete list of the policies and contracts of insurance maintained by the
Company and each of its subsidiaries. There is no material claim pending under
any of such policies or bonds as to which coverage has been questioned, denied
or disputed by the underwriters of such policies or bonds. All premiums due and
payable to date under all such policies and bonds have been paid and the Company
and each of its subsidiaries is otherwise in compliance in all material respects
with the terms of such policies and bonds. The Company has no knowledge of any
threatened termination of, or material premium increase with respect to, any of
such policies.
Section 2.20 Compliance With Laws
Each of the Company and its subsidiaries has complied with, is not in
violation of, and has not received any notices of violation with respect to, any
federal, state, local or foreign statute, law or regulation with respect to the
conduct of its business, or the ownership or operation of its business, except
for such violations or failures to comply as could not be reasonably expected to
have a Company Material Adverse Effect.
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Section 2.21 Minute Books
The minute books of the Company and its subsidiaries made available to
Parent contain a complete and accurate summary in all material respects of all
meetings of directors and stockholders or actions by written consent since the
time of incorporation of the Company and its subsidiaries through the date of
this Agreement, and reflect all transactions referred to in such minutes
accurately in all material respects.
Section 2.22 Complete Copies of Materials
The Company has delivered or made available true and complete copies
of (a) all material permits, orders, and consents issued by any regulatory
agency with respect to the Company, or any securities of the Company, and all
applications for such permits, orders, and consents, (b) all Material Contracts,
(c) agreements relating to Intellectual Property and (d) the stock transfer
books of the Company setting forth all transfers of any capital stock, in each
case, as currently in effect.
Section 2.23 Stockholder Agreements; Irrevocable Proxies
Holders of more than (i) a majority of the outstanding shares of
Company Common Stock and (ii) a majority of the outstanding shares of Company
Preferred Stock, have agreed in writing to vote for approval of the Merger
pursuant to irrevocable proxies attached as exhibits to the Stockholder
Agreements.
Section 2.24 Vote Required
The affirmative vote of the (x) holders of a majority of the
outstanding shares of Company Common Stock and Company Preferred Stock (voting
together as a class) and (y) a majority of the outstanding shares of the Company
Preferred Stock (voting as a separate class) are the only votes of the holders
of any of the Company's capital stock necessary to approve this Agreement and
the Ancillary Agreements and the transactions contemplated hereby and thereby.
Section 2.25 Brokers' and Finders' Fees
Except as disclosed in Section 2.25 of the Company Disclosure
Schedule, the Company has not incurred, nor will it incur, directly or
indirectly, any liability for brokerage or finders' fees or agents' commissions
or investment bankers' fees or any similar charges in connection with this
Agreement or any transaction contemplated hereby.
Section 2.26 Board Approval
The Company Board has (i) approved this Agreement, the Ancillary
Agreements and the Merger, (ii) determined that the transactions contemplated
herein and therein are advisable and in the best interests of the stockholders
of the Company and on terms that are fair to such stockholders and (iii)
recommended that the stockholders of the Company approve the Merger.
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Section 2.27 Customers and Suppliers
No customer which individually accounted for more than one percent
(1%) of the Company's gross revenues during the twelve (12) month period
preceding the date hereof, and no supplier of the Company or its subsidiaries,
has canceled or otherwise terminated, or made any written threat to the Company
or its subsidiaries to cancel or otherwise terminate its relationship with the
Company or its subsidiaries, or has decreased materially its services or
supplies to the Company or its subsidiaries in the case of any such supplier, or
its usage of the services or products of the Company or its subsidiaries in the
case of such customer, and to the Company's knowledge, no such supplier or
customer intends to cancel or otherwise terminate its relationship with the
Company or its subsidiaries or to decrease materially its services or supplies
to the Company or its subsidiaries or its usage of the services or products of
the Company or its subsidiaries, as the case may be. Neither the Company nor any
of its subsidiaries has breached, so as to provide a benefit to the Company and
any such subsidiary that was not intended by the parties, any agreement with, or
engaged in any fraudulent conduct with respect to, any customer or supplier of
the Company or any of its subsidiaries.
Section 2.28 Material Contracts
Except for the contracts and agreements described in Section 2.28 of
the Company Disclosure Schedule (collectively, the "Material Contracts"),
neither the Company nor any of its subsidiaries is a party to or bound by any
material contract, including without limitation:
(a) any distributor, sales, advertising, agency or manufacturer's
representative contract;
(b) any continuing contract for the purchase of materials, supplies,
equipment or services involving in the case of any such contract more than
$50,000 over the life of the contract;
(c) any contract that expires or may be renewed at the option of any
person other than the Company so as to expire more than one (1) year after the
date of this Agreement;
(d) any trust indenture, mortgage, promissory note, loan agreement or
other contract for the borrowing of money, any currency exchange, commodities or
other hedging arrangement or any leasing transaction of the type required to be
capitalized in accordance with U.S. GAAP;
(e) any contract for capital expenditures other than as set forth in
Section 2.28(e) of the Company Disclosure Schedule;
(f) any contract limiting the freedom of the Company or any of its
subsidiaries to engage in any line of business or to compete with any other
"person" as that term is defined in the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), or, other than those entered into in the ordinary
course of business, consistent with past practice, any confidentiality, secrecy
or non-disclosure contract;
29
(g) any material contract pursuant to which the Company or any of its
subsidiaries is a lessor of any machinery, equipment, motor vehicles, office
furniture, fixtures or other personal property;
(h) any contract with any affiliate of the Company or any of its
subsidiaries; or
(i) any agreement of guarantee, support, indemnification, assumption
or endorsement of, or any similar commitment with respect to, the obligations,
liabilities (whether accrued, absolute, contingent or otherwise) or indebtedness
of any other person.
Section 2.29 No Breach of Material Contracts
All Material Contracts are in written form. Each of the Company and
its subsidiaries has in all material respects performed the obligations required
to be performed by it and is entitled to all benefits under, and to its
knowledge, is not alleged to be in default in respect of, any Material Contract.
Each of the Material Contracts is in full force and effect, and there exists no
default or event of default or event, occurrence, condition or act, with respect
to the Company or any of its subsidiaries or, to the knowledge of the Company,
with respect to the other contracting party, which, with the giving of notice,
the lapse of time or the happening of any other event or conditions, would
reasonably be expected to become a default or event of default under the terms
of any Material Contract. True, correct and complete copies of all Material
Contracts have been delivered to Parent.
Section 2.30 Third Party Consents
Section 2.30 of the Company Disclosure Schedule lists all contracts
that require a novation or consent to assignment, as the case may be, prior to
the Closing Date, so that Parent shall be made a party in place of the Company
(or any of its subsidiaries) or an assignee.
Section 2.31 Material Third Party Consents
Section 2.31 of the Company Disclosure Schedule includes every
contract which, if no novation occurs to make Parent a party thereto or if no
consent to assignment is obtained, would have a material adverse effect on
Parent's ability to operate the business of the Company and its subsidiaries in
the same manner as the business was operated by the Company and its subsidiaries
prior to the Closing Date.
Section 2.32 Product Releases
The Company has provided Parent a schedule of proposed product
releases, which schedule is attached as Section 2.32 of the Company Disclosure
Schedule. The Company has a good faith reasonable belief that it can achieve the
release of products on the schedule described in Section 2.32 of the Company
Disclosure Schedule and is not currently aware of any change in its
circumstances or other fact that has occurred that would cause it to believe
that it will be unable to meet such release schedule.
Section 2.33 [Intentionally omitted]
30
Section 2.34 [Intentionally omitted]
Section 2.35 State Takeover Statutes
Section 203 of Delaware Law is inapplicable to the Merger and the
other transactions contemplated by this Agreement or the Ancillary Agreements.
No "fair price," "control share acquisition" or other similar statute of any
state applies to or purports to apply to the Merger or the other transactions
contemplated by this Agreement or the Ancillary Agreements.
Section 2.36 Accounts Receivable
The accounts and notes receivable of the Company and its subsidiaries
reflected on the Financial Statements, and all accounts and notes receivable
arising subsequent to the date of such Financial Statements, (a) arose from bona
fide sales transactions in the ordinary course of business, consistent with past
practice, and are payable on ordinary trade terms, (b) are legal, valid and
binding obligations of the respective debtors enforceable in accordance with
their respective terms, except as enforceability may be limited by the effect,
if any, of (i) any applicable bankruptcy, reorganization, insolvency, moratorium
or other laws affecting the enforcement of creditors' rights generally, (ii)
general principles of equity, regardless of whether such enforceability is
considered in a proceeding at law or in equity, and (iii) the enforceability of
provisions requiring indemnification, (c) are not subject to any valid set-off
or counterclaim in an amount that would be material and (d) do not represent
obligations for goods sold on consignment, on approval or on a sale-or-return
basis or subject to any other repurchase or return arrangement.
Section 2.37 Inventory
All inventory of the Company and its subsidiaries reflected on the
December 31, 2001 Balance Sheet consisted, and all such inventory acquired since
December 31, 2001 consists, of a quality and quantity usable and salable in the
ordinary course of business. Except as disclosed in the notes to the Financial
Statements or in Section 2.37 of the Company Disclosure Schedule, all items
included in the inventory of the Company and its subsidiaries are the property
of the Company or its subsidiaries free and clear of any lien or other
encumbrance of any kind, have not been pledged as collateral, are not held by
the Company or its subsidiaries on consignment from others and conform in all
material respects to all standards applicable to such inventory for its use or
sale imposed by any Governmental Entity.
Section 2.38 Warranty Obligations
(a) Section 2.38 of the Company Disclosure Schedule sets forth (i) a
list of all forms of written warranties, guarantees and written warranty
policies of the Company and its subsidiaries in respect of any of the Company or
its subsidiaries' products and services, which are currently in effect (the
"Warranty Obligations"), and the duration of each such Warranty Obligation, (ii)
each of the Warranty Obligations which is subject to any dispute or, to the
knowledge of the Company, threatened dispute, and (iii) the experience of the
Company and its subsidiaries with respect to warranties, guarantees and warranty
policies of or relating to the
31
Company and its subsidiaries' products and services. True and correct copies of
the Warranty Obligations have been delivered to Parent prior to the execution of
this Agreement.
(b) (i) There have not been any material deviations from the Warranty
Obligations, and no salesperson, employee or agent of the Company or its
subsidiaries is authorized to undertake any obligation to any customer or other
person in excess of such Warranty Obligations and (ii) the Financial Statements
reflect adequate reserves for Warranty Obligations (provided that any failure to
satisfy the terms of this representation which is fully compensated pursuant to
the terms of the Earnout as provided in Exhibit E shall not constitute a
violation of this Section 2.38(b)). All products manufactured, designed,
licensed, leased, rented or sold by the Company or its subsidiaries (A) are and
were free of material defects in construction and design and (B) satisfy any and
all contract or other specifications related thereto to the extent stated in
writing in such contracts or specifications, in each case, in all material
respects.
Section 2.39 Representations Complete
None of the representations or warranties made by the Company herein
or in any Schedule hereto, including the Company Disclosure Schedule, or
certificate furnished by the Company pursuant to this Agreement, when all such
documents are read together in their entirety, contains or will contain at the
Closing Date any untrue statement of a material fact, or omits or will omit at
the Closing Date to state any material fact necessary in order to make the
statements contained herein or therein, in the light of the circumstances under
which made, not misleading. There is no fact specifically relating to the
Company and known to the Company that has not been disclosed to Parent in this
Agreement or in the Company Disclosure Schedule that is reasonably likely to
have a Company Material Adverse Effect.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF PARENT
Except as disclosed in a document of even date herewith and delivered
by Parent to the Company prior to the execution and delivery of this Agreement
and referring to the representations and warranties in this Agreement (the
"Parent Disclosure Schedule"), Parent represents and warrants to the Company as
follows:
Section 3.1 Organization, Standing and Power
Parent is a corporation duly organized, validly existing and in good
standing under the laws of its jurisdiction of organization. Parent has the
corporate power to own its properties and to carry on its business as now being
conducted and as proposed to be conducted and is duly qualified to do business
and is in good standing in each jurisdiction in which the failure to be so
qualified and in good standing would have a material adverse effect on the
business or operations of Parent. Parent is not in violation of any of the
provisions of its Certificate of Incorporation or Bylaws or equivalent charter
documents.
32
Section 3.2 Capital Structure
As of March 31, 2002, the authorized capital stock of Parent consists
of 1,000,000,000 shares of Parent Common Stock together with the Associated
Rights and 20,000,000 shares of Preferred Stock, $0.01 par value per share, of
which there were issued and outstanding as of the close of business on August 1,
2002, 157,611,649 shares of Parent Common Stock and no shares of Preferred
Stock. As of June 30, 2002, (i) 12,700,000 shares of Parent Common Stock are
reserved for issuance upon the exercise of options that have been granted and
are outstanding, and (ii) no shares of Parent Common Stock are reserved for
issuance upon the exercise of outstanding warrants. The shares of Parent Common
Stock to be issued pursuant to the Merger, when so issued, will be duly
authorized, validly issued, fully paid and non-assessable.
Section 3.3 Authority
Parent has all requisite corporate power and authority to enter into
this Agreement and the Ancillary Agreements and to consummate the transactions
contemplated hereby and thereby. The execution and delivery of this Agreement
and the Ancillary Agreements and the consummation of the transactions
contemplated hereby and thereby have been duly authorized by all necessary
corporate action on the part of Parent. This Agreement and each Ancillary
Agreement has been duly executed and delivered by Parent and constitutes the
valid and binding obligation of Parent, enforceable against Parent in accordance
with its terms except to the extent that enforceability may be limited by
applicable bankruptcy, reorganization, insolvency, moratorium or other laws
affecting the enforcement of creditors' rights generally and by general
principles of equity, regardless of whether such enforceability is considered in
a proceeding at law or in equity. The execution and delivery of this Agreement
and the Ancillary Agreements do not, and the consummation of the transactions
contemplated hereby and thereby will not, conflict with, or result in any
violation of, or default under (with or without notice or lapse of time, or
both), or give rise to a right of termination, cancellation or acceleration of
any obligation or loss of a benefit under (i) any provision of the certificate
or articles of incorporation or bylaws of Parent or (ii) any material mortgage,
indenture, lease, contract or other agreement or instrument, permit, concession,
franchise, license, judgment, order or decree applicable to Parent or the
properties or assets of Parent. Except for (i) the requirements of the Fairness
Hearing, (ii) the filing of a certificate of merger, in accordance with the
requirements of Delaware Law, (iii) such filings as may be required under the
HSR Act and any applicable foreign antitrust law and (iv) if required pursuant
to the provisions of Section 5.18, the filing of a Registration Statement on
Form S-4, neither the execution, delivery or performance of this Agreement by
Parent, the consummation by Parent of the transactions contemplated hereby, nor
compliance by Parent with any of the provisions hereof will (i) require any
notice to, filing with, or permit, authorization, consent or approval of, any
Governmental Entity or any private third party, (ii) conflict with or result in
any breach of any provision of the certificate of incorporation or bylaws of
Parent, (iii) result in a violation or breach of, or constitute (with or without
due notice or lapse of time or both) a default (or give rise to any right of
termination, cancellation or acceleration or result in the creation of any lien)
under, any of the terms, conditions or provisions of any note, bond, mortgage,
indenture, license, contract, agreement or other instrument or obligation to
which Parent is a party or by which it or any of its properties or assets may be
bound or (iv) violate any order, writ, injunction, decree, statute, treaty, rule
or regulation applicable to Parent or any of its properties or assets except, in
the case of clauses (i), (iii) and (iv), where the failure to obtain
33
such permits, authorizations, consents or approvals or to make such filings, or
where such violations, breaches or defaults would not, individually or in the
aggregate, materially impair the ability of Parent to consummate the
transactions contemplated by this Agreement.
Section 3.4 SEC Documents; Financial Statements
Parent has timely filed and made available to the Company each
required statement, report, registration statement (with the prospectus in the
form filed pursuant to Rule 424(b) of the Securities Act of 1933, as amended
(the "Securities Act")), definitive proxy statement, and other filings filed
with the Securities and Exchange Commission (the "SEC") by Parent since December
31, 2000, and prior to the Effective Time, Parent will have furnished the
Company with true and complete copies of any additional documents filed with the
SEC by Parent prior to the Effective Time (collectively, the "Parent SEC
Documents"). In addition, Parent has made available to the Company all exhibits
to the Parent SEC Documents filed prior to the date hereof, and will promptly
make available to the Company all exhibits to any additional Parent SEC
Documents filed prior to the Effective Time. No Parent SEC Document (including
the financial statements and related notes and schedules included therein)
contained, or will contain, as of the date of their respective filings with the
SEC, any untrue statement of a material fact, or omits or will omit to state any
material fact necessary in order to make the statements contained therein, in
the light of the circumstances under which made, not misleading.
Section 3.5 Stockholder Approval
Approval of the stockholders of Parent is not required for this
Agreement, the Ancillary Agreements or the Merger.
Section 3.6 Approval
The Board of Directors of Parent has approved this Agreement and the
Ancillary Agreements to which Parent is a party and the transactions
contemplated hereby and thereby.
Section 3.7 Absence of Certain Changes
Since the date of Parent's annual report on Form 10-K for the fiscal
year ended March 31, 2002, through the date hereof, there has not been a
material adverse effect on the business or operations of Parent. Without
limiting the foregoing, during such period, except as disclosed in Parent SEC
Documents filed by Parent or as contemplated by this Agreement, there has not
been:
(a) any declaration, setting aside or payment of any dividend or
other distribution with respect to any shares of capital stock of Parent of any
outstanding shares of capital stock or other equity securities of, or other
ownership interests in, Parent;
(b) any amendment of any provision of the certificate of
incorporation or bylaws of, or of any material term of any outstanding security
issued by, Parent; or
(c) any authorization of, or commitment or agreement to take any of,
the foregoing actions except as otherwise permitted by this Agreement.
34
Section 3.8 Brokers' and Finders' Fees
Parent has not incurred, not will it incur, directly or indirectly,
any liability for brokerage or finders' fees or agents' commissions or
investment bankers' fees or any similar charges in connection with this
Agreement or the transactions contemplated hereby.
Section 3.9 Representations Complete
None of the representations or warranties made by Parent herein or in
any Schedule hereto, including the Parent Disclosure Schedule, or certificate
furnished by Parent pursuant to this Agreement, when all such documents are read
together in their entirety, contains or will contain at the Closing Date any
untrue statement of a material fact, or omits or will omit at the Closing Date
to state any material fact necessary in order to make the statements contained
herein or therein, in the light of the circumstances under which made, not
misleading. There is no fact specifically relating to Parent and known to Parent
that has not been disclosed publicly or to the Company in this Agreement or in
the Parent Disclosure Schedule that is reasonably likely to have a material
adverse effect on Parent.
ARTICLE IV
CONDUCT PRIOR TO THE CLOSING DATE
Section 4.1 Conduct of Business of the Company
During the period from the date of this Agreement and continuing until
the earlier of the termination of this Agreement or the Effective Time, the
Company shall (except to the extent expressly contemplated by this Agreement or
as consented to in writing by Parent), carry on its and its subsidiaries'
business in the usual, regular and ordinary course in substantially the same
manner as heretofore conducted and as proposed to be conducted. The Company
agrees to pay and cause each of its subsidiaries to pay debts and Taxes when due
subject to good faith disputes over such debts or Taxes, to pay or perform other
obligations when due subject to good faith disputes over whether payment or
performance is owing, and to use all reasonable efforts consistent with past
practice and policies to preserve its and its subsidiaries' present business
organizations, keep available the services of its and its subsidiaries' present
officers and key employees and preserve its and its subsidiaries' relationships
with customers, suppliers, distributors, licensors, licensees, and others having
business dealings with it, to the end that its and its subsidiaries' goodwill
and ongoing businesses shall not be substantially impaired at the Effective
Time. The Company shall promptly notify Parent of any event or occurrence not in
the ordinary course of its or its subsidiaries' respective business or
consistent with past practice, and of any event which could have a Company
Material Adverse Effect.
35
Section 4.2 Restriction on Conduct of Business of the Company
During the period from the date of this Agreement and continuing until
the earlier of the termination of this Agreement or the Effective Time, except
as set forth in Section 4.2 of the Company Disclosure Schedule, the Company
shall not do or cause any of the following, without the prior written consent of
Parent:
(a) Charter Documents. Cause any amendments to the Company
Certificate of Incorporation or the bylaws of the Company (the "Company Bylaws")
or form any subsidiaries;
(b) Dividends; Changes in Capital Stock. Declare or pay any dividends
on or make any other distributions (whether in cash, stock or property) in
respect of any of its capital stock, or split, combine or reclassify any of its
capital stock or issue or authorize the issuance of any other securities in
respect of, in lieu of or in substitution for shares of its capital stock, or
repurchase or otherwise acquire, directly or indirectly, any shares of its
capital stock except from former employees, directors and consultants in
accordance with agreements providing for the repurchase of shares in connection
with any termination of service to it or its subsidiaries;
(c) Stock Option Plans, Etc. Except as otherwise permitted or
contemplated in this Agreement, accelerate, amend or change the period of
exercisability or vesting of options or other rights granted under its stock
plans or authorize cash payments in exchange for any options or other rights
granted under any of such plans;
(d) Material Contracts. Enter into any material contract or
commitment, or violate, amend or otherwise modify or waive any of the terms of
any of its Material Contracts (it being the understanding of the parties that
supply contracts entered into by the Company in the ordinary course of business
which (i) have a term no greater than six (6) months in duration and (ii)
require the payment of no more than $50,000 by any party to such contracts,
shall not be deemed material for purposes of this paragraph);
(e) Issuance of Securities. Issue, deliver or sell or authorize or
propose the issuance, delivery or sale of, or purchase or propose the purchase
of, any shares of its capital stock or securities convertible into, or
subscriptions, rights, warrants or options to acquire, or other agreements or
commitments of any character obligating it to issue any such shares or other
convertible securities, other than the issuance of shares of Company Common
Stock or Company Preferred Stock pursuant to the exercise of stock options,
warrants or other rights therefor outstanding as of the date of this Agreement;
(f) Intellectual Property. Transfer to any person or entity any
rights to its Intellectual Property;
(g) Exclusive Rights. Enter into or amend any agreements pursuant to
which any other party is granted exclusive marketing or other exclusive rights
of any type or scope with respect to any of the Company's products or
technology;
36
(h) Dispositions. Sell, lease, license or otherwise dispose of or
encumber any of its properties or assets which are material, individually or in
the aggregate, to its and its subsidiaries' business, taken as a whole;
(i) Indebtedness. Incur any indebtedness for borrowed money,
guarantee any such indebtedness, issue or sell any debt securities or guarantee
any debt securities of others;
(j) Leases. Enter into any operating lease;
(k) Payment of Obligations. Pay, discharge or satisfy any claim,
liability or obligation (absolute, accrued, asserted or unasserted, contingent
or otherwise) other than the payment, discharge or satisfaction of liabilities
reflected or reserved against in the Financial Statements;
(l) Capital Expenditures. Make any capital expenditures, capital
additions or capital improvements in excess of $10,000 individually or in excess
of $25,000 in the aggregate.
(m) Insurance. Materially reduce the amount of any insurance coverage
provided by existing insurance policies;
(n) Termination or Waiver. Terminate or waive any right of
substantial value;
(o) Employee Benefit Plans; New Hires; Pay Increases. Adopt or amend
any employee benefit or stock purchase or option plan, hire any new employee,
pay any special bonus or special remuneration to any employee or director or
increase the salaries or wage rates of its employees;
(p) Severance Arrangements. Grant any severance or termination pay
(i) to any director or officer or (ii) to any other employee except payments
made pursuant to standard written agreements outstanding on the date hereof and
heretofore furnished to Parent;
(q) Initiating Lawsuits. Commence legal action other than (i) for the
routine collection of bills, (ii) in such cases where the Company in good faith
determines that failure to commence suit would result in the material impairment
of a valuable aspect of its business, provided that it consults with Parent
prior to the commencement of such a suit, or (iii) for a breach of this
Agreement;
(r) Acquisitions. Acquire or agree to acquire by merging or
consolidating with, or by purchasing a substantial portion of the assets of, or
by any other manner, any business or any corporation, partnership, association
or other business organization or division thereof, or otherwise acquire or
agree to acquire any assets, in each such case which are material, individually
or in the aggregate, to the Company's and its subsidiaries' business, taken as a
whole;
(s) Taxes. Make or change any material election in respect of Taxes,
adopt or change any accounting method in respect of Taxes, file any material Tax
Return other than those for which extensions have been received as set forth in
the Company Disclosure Schedule or any amendment to a material Tax Return, enter
into any closing agreement, settle or compromise any
37
claim or assessment in respect of Taxes, or consent to any extension or waiver
of the statutory period of limitations applicable to any claim or assessment in
respect of Taxes;
(t) Accounting Policies and Procedures. Make any change to its
accounting methods, principles, policies, procedures or practices, except as may
be required by U.S. GAAP;
(u) Revaluation. Revalue any of its assets, including writing down
the value of inventory or writing off notes or accounts receivable;
(v) Other. Agree in writing or otherwise to take any of the actions
described in Sections 4.2(a) through (u) above.
Section 4.3 Solicitation
Until the earlier of the Effective Time or the termination of this
Agreement, the Company and the officers, directors, employees or other agents of
the Company will not, directly or indirectly, take any action to solicit,
initiate or encourage any Takeover Proposal. Upon execution of this Agreement,
the Company will immediately cease any existing activities, discussions or
negotiations with any parties conducted heretofore with respect to any of the
foregoing. The Company will promptly notify Parent after receipt of any Takeover
Proposal or any notice that any person is considering making a Takeover Proposal
or any request for information relating to the Company or for access to the
properties, books or records of the Company by any person that has advised the
Company that it may be considering making, or that has made, a Takeover Proposal
and will keep Parent timely informed of the status and details of any such
Takeover Proposal notice, request or any correspondence or communications
related thereto and shall provide Parent with a true and complete copy of such
Takeover Proposal notice or request or correspondence or communications related
thereto, if it is in writing, or a written summary thereof, if it is not in
writing. The Company will promptly provide to Parent any information concerning
the Company provided to any other party making or considering making a Takeover
Proposal, which information was not previously provided to Parent. Neither the
Company Board nor any committee thereof shall (i) withdraw or modify, or propose
to withdraw or modify, in a manner adverse to Parent, the approval or
recommendation by the Company Board or any such committee of this Agreement or
the Merger, (ii) approve or recommend or propose to approve or recommend, any
Takeover Proposal, or (iii) enter into any agreement with respect to any
Takeover Proposal; provided, however, that nothing contained in this Agreement
shall prohibit the Company Board from (A) furnishing information to, or engaging
in discussions or negotiations with any person or entity in response to an
unsolicited bona fide written Takeover Proposal; or (B) recommending such an
unsolicited bona fide written Takeover Proposal to the stockholders of the
Company, if (i) the Company Board concludes in good faith that such Takeover
Proposal would constitute a Superior Proposal, and (ii) the Company Board
determines in good faith that the failure to take such action would result in a
breach by the Company Board of its fiduciary duties to the Company stockholders,
and (iii) prior to furnishing such information to such person or entity, the
Company provides written notice to Parent that the Company is furnishing
information to, or entering into discussions or negotiations with, such person
or entity.
For purposes of this Agreement, "Takeover Proposal" means any offer or
proposal for, or any indication of interest in, a merger or other business
combination involving the Company or the acquisition of twenty percent (20%) or
more of the outstanding shares of capital
38
stock of the Company, or twenty percent (20%) or more of the assets of, the
Company, other than the transactions contemplated by this Agreement.
For purposes of this Agreement, "Superior Proposal" means (i) a bona
fide Takeover Proposal made by a third party that the Company Board determines
in its good faith judgment to be more favorable to the Company stockholders than
the Merger and for which financing, to the extent required, is then committed or
which, in the good faith judgment of the Company Board is reasonably capable of
being obtained by such third party.
Section 4.4 Stockholder Approval
The Company shall take all action necessary, in accordance with
Delaware Law and the Company Certificate of Incorporation and the Company
Bylaws, to cause its stockholders to consider and act upon this Agreement and
the Merger as soon as practicable and notwithstanding any subsequent withdrawal
of the Company Board's recommendation in accordance with Section 4.3.
Section 4.5 Further Information
As soon as such information becomes available, and in any event not
later than thirty (30) days after the end of each fiscal month, the Company
shall provide to Parent an unaudited balance sheet as of the end of such month
and the related statements of results of operations and statements of cash flows
for such period together with a list of the ages and amounts of all accounts and
notes due and uncollected as of the end of such month.
ARTICLE V
ADDITIONAL AGREEMENTS
Section 5.1 Preparation of Permit Application, Hearing Request,
Hearing Notice and Information Statement
As promptly as practicable after the date hereof, Parent shall
prepare, with the reasonable cooperation of the Company, and file with the
Commissioner the documents required by the CSL including, but not limited to,
any required Permit Application, request for a hearing ("Hearing Request") or
notice of a hearing ("Hearing Notice") pursuant to Sections 25121 and 25142 of
the CSL (collectively, the "Notice Materials"), in connection with the Merger
and the issuance of Parent Common Stock, in order to perfect the exemption from
registration provided by Section 3(a)(10) of the Securities Act. Each of Parent
and the Company shall use all reasonable efforts to have the Permit Application,
Hearing Request, and Hearing Notice declared effective under the CSL as promptly
as practicable after such filing. In addition, the Company will prepare, with
the cooperation of Parent, and the Company will distribute, an information
statement or proxy statement (the "Information Statement") along with the Notice
Materials, as may be required by California Law, at the earliest practicable
date to submit this Agreement, the Merger, and the transactions contemplated
hereby, to the Company stockholders. Each of the Parent and the Company will
promptly provide all information relating to their respective business and
operations necessary for inclusion in the Notice Materials to satisfy all
39
requirements of applicable state and federal securities laws. Each of Parent and
the Company shall be solely responsible for any statement, information, or
omission, in the Notice Materials relating to it or its affiliates based upon
the written information furnished by it or its representatives.
As soon as practicable after the execution of this Agreement, the
Company shall prepare, with the cooperation of Parent, the Information Statement
for the stockholders of the Company to approve the Merger and the transactions
contemplated by this Agreement. The Information Statement shall constitute a
disclosure document for the offer and issuance of the shares of Parent Common
Stock to be received by the holders of Company Capital Stock in the Merger.
Parent and the Company shall each use all reasonable efforts to cause the
Information Statement to comply with applicable federal and state securities
laws requirements. Each of Parent and the Company agrees to provide promptly to
the other such information concerning its business and financial statements and
affairs as, in the reasonable judgment of the providing party or its counsel,
may be required or appropriate for inclusion in the Information Statement, or in
any amendments or supplements thereto, and to cause its counsel and auditors to
cooperate with the other's counsel and auditors in the preparation of the
Information Statement. The Company will promptly advise Parent, and Parent will
promptly advise the Company, in writing if at any time prior to the Effective
Time either the Company or Parent shall obtain knowledge of any facts that might
make it necessary or appropriate to amend or supplement the Information
Statement in order to make the statements contained or incorporated by reference
therein not misleading or to comply with applicable law. The Information
Statement shall include the recommendation of the Company Board in favor of this
Agreement and the Merger and the conclusion of the Board of Directors that the
terms and conditions of the Merger are fair and reasonable to the stockholders
of the Company. Anything to the contrary contained herein notwithstanding, the
Company shall not include in the Information Statement any information with
respect to Parent or its affiliates or associates, the form and content of which
information shall not have been approved by Parent prior to such inclusion.
Section 5.2 Access to Information
(a) The Company shall afford Parent and its accountants, counsel and
other representatives, reasonable access during normal business hours during the
period prior to the Effective Time to (i) all of the Company's properties,
books, contracts, commitments and records, and (ii) all other information
concerning the business, properties and personnel of the Company as Parent may
reasonably request. The Company agrees to provide to Parent and its accountants,
counsel and other representatives copies of internal financial statements
promptly upon request. Parent will, at its own expense, furnish the Company
during such period with such information as the Company may reasonably request
for use in determining if the conditions of Article VI have been satisfied and
for use in any necessary filings to be made by the Company with appropriate
Governmental Entities.
(b) Subject to compliance with applicable law, from the date hereof
until the Effective Time, each of Parent and the Company shall confer on a
regular and frequent basis with one or more representatives of the other party
to report operational matters of materiality and the general status of ongoing
operations.
40
(c) No information or knowledge obtained in any investigation
pursuant to this Section 5.2 shall affect or be deemed to modify any
representation or warranty contained herein or the conditions to the obligations
of the parties to consummate the transactions contemplated hereby unless such
information or knowledge was embodied in writing in this Agreement, the Company
Disclosure Schedule, the Parent Disclosure Schedule, or other Exhibit to this
Agreement, each as delivered prior to the execution of this Agreement.
(d) To the extent not previously provided to Parent, the Company
shall provide the following information to Parent within two (2) weeks after
entering into this Agreement: (i) a complete list of the types of Tax Returns
being filed by the Company and each of its subsidiaries in each taxing
jurisdiction, (ii) the year of the commencement of the filing of each such type
of Tax Return, (iii) all closed years with respect to each such type of Tax
Return filed in each jurisdiction, (iv) all material Tax elections filed in each
jurisdiction by the Company and each of its subsidiaries, (v) the tax basis of
the assets of the Company and each of its subsidiaries, (vi) the stock basis of
the Company in each of its subsidiaries and any excess loss account with respect
to any of its subsidiaries, (vii) any deferred intercompany gain with respect to
transactions to which the Company or any of its subsidiaries has been a party,
(viii) the accumulated earnings and profits and any loss carryovers of the
Company and each of its subsidiaries, and (ix) receipts for any Taxes paid to
foreign Tax authorities. The Company shall provide Parent and its accountants,
counsel and other representatives reasonable access, during normal business
hours during the period prior to the Effective Time, to all of the Company's and
its subsidiaries' Tax Returns and other records and workpapers relating to
Taxes.
Section 5.3 Confidentiality
The parties hereto acknowledge that Parent and the Company have
previously executed a mutual non-disclosure agreement dated January 30, 2002, as
amended (the "Confidentiality Agreement"), which Confidentiality Agreement shall
continue in full force and effect in accordance with its terms. In addition, the
parties hereto agree that the terms and conditions of the transactions
contemplated hereby, and information exchanged in connection with the execution
hereof and the consummation of the transactions contemplated hereby, shall be
subject to the Confidentiality Agreement.
Section 5.4 Public Disclosure
Upon execution of this Agreement, the Parent and the Company shall
issue a joint press release announcing such execution. Unless otherwise
permitted by this Agreement, Parent and the Company shall consult with each
other before issuing any press release or otherwise making any public statement
or making any other public (or non-confidential) disclosure (whether or not in
response to an inquiry) regarding the terms of this Agreement or the Ancillary
Agreements and the transactions contemplated hereby and thereby, and neither
shall issue any such press release or make any such statement or disclosure
without the prior approval of the other (which approval shall not be
unreasonably withheld), except as may be required by law or by obligations
pursuant to any listing agreement with any national securities exchange or with
the National Association of Securities Dealers.
41
Section 5.5 Consents; Cooperation
(a) Each of Parent and the Company shall promptly apply for or
otherwise seek, and use all reasonable efforts to obtain, all consents and
approvals required to be obtained by it for the consummation of the transactions
contemplated hereby, including those required under the HSR Act and any
applicable foreign antitrust laws. The Company shall use all reasonable efforts
to obtain all necessary consents, waivers and approvals under any of its
material contracts for the assignment thereof or otherwise. The parties hereto
will consult and cooperate with one another, and consider in good faith the
views of one another, in connection with any analyses, appearances,
presentations, memoranda, briefs, arguments, opinions and proposals made or
submitted by or on behalf of any party hereto in connection with proceedings
under or relating to the HSR Act or any other applicable antitrust or fair trade
law.
(b) Each of Parent and the Company shall use all reasonable efforts to
resolve such objections, if any, as may be asserted by any Governmental Entity
with respect to the transactions contemplated by this Agreement under the HSR
Act, the Xxxxxxx Act, as amended, the Xxxxxxx Act, as amended, the Federal Trade
Commission Act, as amended, and any other United States federal, state or
foreign statutes, rules, regulations, orders or decrees that are designed to
prohibit, restrict or regulate actions having the purpose or effect of
monopolization or restraint of trade (collectively, "Antitrust Laws").
Notwithstanding the provisions of the immediately preceding sentence, it is
expressly understood and agreed that neither Parent nor the Company shall have
any obligation to litigate or contest any administrative or judicial action or
proceeding or any decree, judgment, injunction or other order, whether
temporary, preliminary or permanent. Each of Parent and the Company shall use
all reasonable efforts to take such action as may be required to cause the
expiration of the notice periods under the HSR Act or other Antitrust Laws with
respect to such transactions as promptly as possible after the execution of this
Agreement.
(c) Notwithstanding anything to the contrary in this Agreement,
nothing contained in this Agreement shall be deemed to require Parent or the
Company or any subsidiary or affiliate thereof to agree to any divestiture by
itself or any of its affiliates of shares of capital stock or of any business,
product line, assets or property, or the imposition of any limitation on the
ability of any of them to conduct their businesses or to own or exercise
unfettered control of such product line, assets, properties and stock. The
Company shall not take or agree to take any action identified in the immediately
preceding sentence without the prior written consent of Parent.
Section 5.6 Legal Requirements
Each of Parent and the Company will, and will cause their respective
subsidiaries to, take all reasonable actions necessary to comply in all material
respects promptly with all legal requirements which may be imposed on them with
respect to the consummation of the transactions contemplated by this Agreement
and will take all reasonable actions necessary to obtain (and will cooperate
with the other parties hereto in obtaining) any consent, approval, order or
authorization of, or any registration, declaration or filing with, any
Governmental Entity or other person, required to be obtained or made by them in
connection with the taking of any action contemplated by this Agreement.
42
Section 5.7 Blue Sky Laws
Parent shall take such steps as may be necessary to comply with the
securities and blue sky laws of all jurisdictions which are applicable to the
issuance of the Parent Common Stock in connection with the Merger. The Company
shall use all reasonable efforts to assist Parent as may be necessary to comply
with the securities and blue sky laws of all jurisdictions which are applicable
in connection with the issuance of Parent Common Stock in connection with the
Merger.
Section 5.8 Employee Benefit Plans; Options
(a) Schedule 5.8(a) sets forth a true and complete list as of the date
hereof of all holders (the "Option and Rights Holders") of all outstanding
Company Stock Options and Company Stock Rights granted under the Company Stock
Plans, and all other outstanding rights to purchase or receive Company Common
Stock (collectively, the "Company Grants"), the number of shares subject to each
such option or right, the grant dates, the exercise and purchase prices, to the
extent applicable, the exercise and vesting schedules and the terms of such
options or rights. On the Closing Date, the Company shall deliver to Parent an
updated Schedule 5.8 current as of such date.
(b) The aggregate consideration that will be paid to (or on behalf of)
the Option and Rights Holders in consideration of, and subject to, the
cancellation of all rights under the Company Grants pursuant to Section
1.7(a)(4) of this Agreement, shall be in the range of approximately $1,880,000
to $2,020,000, $200,000 of which shall be paid by the Company immediately prior
to the Closing, and the remaining approximately $1,680,000 to $1,820,000 shall
be paid, as soon as practicable following Closing, in the same form as the Total
Consideration. Schedule 5.8(b) sets forth the formula and method for computing
the consideration paid with respect to the Company Grants, the maximum amount to
be paid with respect to each Company Grant listed thereon, the terms, conditions
and requirements that must be satisfied for the Option and Rights Holders to be
entitled to this consideration, and the timing and form of payment to the Option
and Rights Holders.
(c) The Company and Parent agree that each of the Company Stock Plans,
agreements and other documents evidencing the Company Grants shall be amended,
to the extent necessary, to reflect the transactions contemplated by this
Agreement, and the Company and Parent shall adopt such resolutions and take all
such other actions, including without limitation, applying to the California
Department of Corporations for a permit to issue securities as set forth in
Schedule 5.8(b), as may be required to permit the transactions contemplated by
this Section 5.8.
Section 5.9 [Intentionally omitted]
Section 5.10 Listing of Additional Shares
Prior to the Effective Time, if required, Parent shall use all
reasonable efforts to cause the shares of Parent Common Stock issuable to the
stockholders of the Company pursuant to Section 1.7 to be authorized for listing
on the New York Stock Exchange (or such other stock
43
exchange or trading system on which the shares are then primarily trading),
subject to notice of issuance.
Section 5.11 [Intentionally omitted]
Section 5.12 Expenses
Except as otherwise provided in Section 7.3 and elsewhere in this
Agreement, whether or not the transactions contemplated hereunder are
consummated, all costs and expenses incurred in connection with this Agreement
and the Ancillary Agreements, and the transactions contemplated hereby and
thereby shall be paid by the party incurring such expense.
Section 5.13 Warrants
The Company will use all reasonable efforts to ensure that all the
Company Warrants are exercised in full, whether pursuant to a cashless exercise
or otherwise, or surrendered and terminated prior to the Closing without
expenditure of funds from the Company such that no Company Warrant shall remain
outstanding following the Closing.
Section 5.14 Reasonable Efforts and Further Assurances
Prior to the Closing, upon the terms and subject to the conditions of
this Agreement, Parent and the Company agree to use all reasonable efforts to
take, or cause to be taken, all actions, and to do, or cause to be done, all
things necessary, proper or advisable (subject to any applicable laws) to
consummate and make effective the Merger as promptly as practicable including,
but not limited to (i) the prompt preparation by Parent, with cooperation from
the Company, and filing with the Commissioner of a Permit Application, the
preparation and filing of all other forms, registrations and notices required to
be filed to consummate the Merger and the taking of such actions as are
necessary to obtain any requisite approvals, consents, orders, exemptions or
waivers by any third party or Governmental Entity, and (ii) the satisfaction of
the other parties' conditions to Closing.
Section 5.15 Indemnification
The provisions of this Section 5.15 are intended to be for the benefit
of, and will be enforceable by, each director and officer of the Company
entitled to indemnification from the Company. Parent will not permit the Company
to merge or consolidate with any other entity, dissolve, or otherwise cease its
corporate existence unless Parent makes adequate provisions for the assumption
of the obligations imposed by this Section 5.15. Any amendment, repeal, or
modification of the provisions with respect to indemnification that are set
forth in the Company Certificate of Incorporation and the Company Bylaws shall
not in any manner affect adversely the rights thereunder of individuals who at,
or at any time prior to, the Effective Time, were directors or officers of the
Company. From and after the Effective Time, Parent will, for a period of six (6)
years after the Closing, cause the Company to fulfill and honor in all respects
the obligations of the Company pursuant to any indemnification agreements
between the Company and its directors and officers and any indemnification
provisions under the Company Certificate of Incorporation or Company Bylaws as
in effect immediately prior to the Effective Time.
44
Section 5.16 Termination of Pension Plan
If required by Parent in writing, the Company shall, effective as of
at least one (1) day prior to the Closing Date, have terminated the Company
401(k) Plan (the "Plan") and no further contributions shall be made to the Plan.
The Company shall provide to Parent (i) executed resolutions by the Company
Board authorizing the termination and (ii) an executed amendment to the Plan,
which in the Parent's reasonable judgment is sufficient to assure compliance
with all applicable requirements of the Code and regulations thereunder.
Section 5.17 Information Supplied
(a) The Company hereby represents and warrants that none of the
information supplied in writing by the Company for inclusion or incorporation by
reference in (i) the application for a permit to issue securities to be filed
with the Commissioner of Corporations of the State of California (the
"Commissioner") pursuant to Section 25121 of the CSL, in connection with the
issuance of shares of Parent Common Stock pursuant to the transactions
contemplated hereby, including the disclosure documents relating thereto (the
"Permit Application") will, at the time the Permit Application is filed with the
Commissioner and at the time the Fairness Hearing is held, contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein not misleading and
(ii) the Information Statement provided to Company stockholders in connection
with obtaining stockholder approval of the Merger will, at the time it is mailed
to the stockholders and at all times during which stockholder consents are
solicited in connection with the Merger, contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary in order to make the statements therein, in light of the
circumstances under which they are made, not misleading. The Permit Application
will comply in all material respects with the provisions of the CSL, and the
rules and regulations thereunder, except that no representation is made by the
Company with respect to statements made therein based on information supplied by
Parent for inclusion or incorporation by reference therein.
(b) Parent hereby represents and warrant that none of the information
supplied in writing by Parent for inclusion or incorporation by reference in (i)
the Permit Application will, at the time the Permit Application is filed with
the Commissioner and at the time the Fairness Hearing is held, contain any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary to make the statements therein not misleading
and (ii) the Information Statement will, at the time it is mailed to the Company
stockholders and at all times that stockholder consents are being solicited in
connection with the Merger, contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they are made, not misleading, except that no representation is made by Parent
with respect to statements made therein based on information supplied by the
Company for inclusion or incorporation by reference in the Permit Application or
the Information Statement.
Section 5.18 Registration Statement
If, following the Fairness Hearing, a permit is not issued pursuant to
the Permit Application and if required by applicable securities laws for the
issuance of Parent Common
45
Stock to holders of Company Capital Stock in the Merger in accordance with the
terms and provisions of this Agreement, Parent and the Company shall cooperate
either, at Parent's option, promptly, without any unnecessary or unreasonable
delay, (i) to register the issuance of shares of Parent Common Stock by means of
the preparation and filing with the SEC of a Registration Statement on Form S-4
or any other appropriate form to effect registration of such issuance and use
all reasonable efforts to have such Registration Statement declared effective as
soon as practicable after such filing or (ii) to qualify the issuance of Parent
Common Stock under any available exemption from registration legally available
for such issuance and then promptly, without any unnecessary or unreasonable
delay, to register such shares for resale on any available registration
statement, it being the obligation of Parent to utilize the form of registration
statement that would reasonably be expected to result in the most rapid
effectiveness of such registration.
Section 5.19 FIRPTA Certificate
The Company shall, prior to the Closing Date, provide Parent with a
properly executed FIRPTA Certificate, in form and substance reasonably
acceptable to Parent, which states that shares of capital stock of the Company
do not constitute "United States real property interests" under section 897(c)
of the Code, for purposes of satisfying Parent's obligations under Treasury
Regulation section 1.1445-2(c)(3). In addition, simultaneously with delivery of
such Notification Letter, the Company shall have provided to Parent, as agent
for the Company, a form of notice to the IRS in accordance with the requirements
of Treasury Regulation section 1.897-2(h)(2) and substantially in the form of
Exhibit I attached hereto along with written authorization for Parent to deliver
such notice form to the IRS on behalf of the Company upon the Closing of the
Merger.
Section 5.20 [Intentionally Omitted]
Section 5.21 Affiliate Agreements
Schedule 5.21 sets forth those persons who, in the Company's
reasonable judgment, are "affiliates" of the Company within the meaning of Rule
145 promulgated under the Securities Act (each such person an "Affiliate"). The
Company shall provide Parent such information and documents as Parent shall
reasonably request for purposes of reviewing such list. The Company has
delivered or shall cause to be delivered to Parent, prior to the Effective Time,
from each of its respective Affiliates, an executed Affiliate Agreement in the
form attached hereto as Exhibit J. Parent shall be entitled to place appropriate
legends on the certificates evidencing any Parent Common Stock to be received by
Affiliates of the Company pursuant to the terms of this Agreement, and to issue
appropriate stop transfer instructions to the transfer agent for Parent Common
Stock, consistent with the terms of such Affiliate Agreements.
Section 5.22 Company Technology
The Company shall, prior to the Closing Date, deliver to Parent a true
and complete list of all material Company Technology, specifying whether (and if
so, which of) the Company or any of its subsidiaries owns or licenses such
material Company Technology from a third party.
46
ARTICLE VI
CONDITIONS TO THE CLOSING
Section 6.1 Conditions to Obligations of Each Party to Effect the
Merger
The respective obligations of each party to this Agreement to
consummate and effect the Merger and the transactions contemplated hereby shall
be subject to the satisfaction at or prior to the Effective Time of each of the
following conditions, any of which may be waived, in writing, by agreement of
all the parties hereto:
(a) Stockholder Approval. This Agreement and the Merger shall have
been approved and adopted by the requisite vote of the stockholders of the
Company under Delaware Law.
(b) No Injunctions or Restraints; Illegality. No temporary restraining
order, preliminary or permanent injunction or other order issued by any court of
competent jurisdiction or other legal or regulatory restraint or prohibition
preventing the consummation of the Merger shall be in effect, nor shall any
action or proceeding brought by an administrative agency or commission or other
Governmental Entity or instrumentality, domestic or foreign, seeking any of the
foregoing be pending; nor shall there be any action taken, or any statute, rule,
regulation or order enacted, entered or enforced, which makes the consummation
of the Merger illegal. Except as otherwise provided in Section 5.5 hereof, in
the event an injunction or other order shall have been issued, each party agrees
to use all reasonable efforts to have such injunction or other order lifted.
(c) Governmental Approval. Parent, the Company and their respective
subsidiaries shall have timely obtained from each Governmental Entity all
approvals, waivers and consents, if any, necessary for consummation of, or in
connection with, the several transactions contemplated hereby, and the
applicable waiting period (and any extension thereof) applicable to the Merger
under the HSR Act shall have expired or been terminated.
(d) Escrow Agreement. Parent, the Company, Escrow Agent, and the
Stockholders' Agent shall have entered into an Escrow Agreement substantially in
the form attached hereto as Exhibit B.
(e) Permit to Issue Securities; Registration Statement. Either (i) the
Commissioner shall have issued the permit pursuant to the Permit Application and
the qualification thereunder shall not be the subject of any stop order or
proceedings seeking a stop order and if not so issued or if issued and subject
to a stop order then, in the alternative either (i) Parent's Registration
Statement on Form S-4 shall have been declared effective by the SEC and the
issuance of Parent Common Stock in the Merger shall not be the subject of any
stop order or proceedings seeking a stop order or (ii) the issuance of Parent
Common Stock pursuant to the Merger shall, in the opinion of Parent, be exempt
from registration (and Parent affirms its obligations to register such shares
pursuant to Section 5.18).
47
(f) Price of Parent Common Stock. The closing price of Parent Common
Stock on the New York Stock Exchange shall not be below $1.75 per share.
Section 6.2 Additional Conditions to Obligations of the Company
The obligations to consummate and effect the Merger and the
transactions contemplated hereby shall be subject to the satisfaction at or
prior to the Effective Time of each of the following conditions, any of which
may be waived, in writing, by the Company:
(a) Representations, Warranties and Covenants. Except as otherwise
qualified by information disclosed in the Parent Disclosure Schedule, (i) the
representations and warranties of Parent in this Agreement shall be true and
correct in all material respects (except for such representations and warranties
that are qualified by their terms by a reference to materiality or material
adverse effect which representations and warranties as so qualified shall be
true in all respects) on and as of the Effective Time as though such
representations and warranties were made on and as of such time (except for such
representations and warranties which speak as of a particular time which
representations and warranties need be true and correct only as of such time)
and (ii) Parent shall have performed and complied in all material respects with
all covenants, obligations and conditions of this Agreement required to be
performed and complied with by them as of the Effective Time.
(b) Certificate of Parent. The Company shall have received from Parent
an officer's certificate certifying to the fulfillment of the conditions
specified in Section 6.2(a).
(c) Listing of Additional Shares. The shares of Parent Common Stock
issuable to the stockholders of the Company pursuant to Section 1.7 shall have
been authorized for listing on the New York Stock Exchange, subject to notice of
issuance.
Section 6.3 Additional Conditions to the Obligations of Parent
The obligations of Parent to consummate and effect the Merger and the
transactions contemplated hereby shall be subject to the satisfaction at or
prior to the Effective Time of each of the following conditions, any of which
may be waived, in writing, by Parent:
(a) Representations, Warranties and Covenants. Except as otherwise
qualified by information disclosed in the Company Disclosure Schedule, (i) the
representations and warranties of the Company in this Agreement shall be true
and correct in all material respects (except for such representations and
warranties that are qualified by their terms by a reference to materiality or
Company Material Adverse Effect which representations and warranties as so
qualified shall be true in all respects) on and as of the Closing Date as though
such representations and warranties were made on and as of such date (except for
such representations and warranties which speak as of a particular time which
representations and warranties need be true and correct only as of such time)
and (ii) the Company shall in all material respects have performed and complied
with all covenants, obligations and conditions of this Agreement required to be
performed and complied with by it as of the Effective Time.
(b) Certificates of the Company. Parent shall have received (i) a
certificate of the Company executed by an officer certifying fulfillment of the
conditions set forth in
48
Sections 6.3(a), 6.3(e) 6.3(f), 6.3(l), 6.3(m) and 6.3(n), and including the
certification described in Section 1.8(d) of this Agreement and the information
required by Section 1(a) of Exhibit F attached hereto, and (ii) a certificate
signed by the Chief Executive Officer and Chief Financial Officer of the Company
certifying to the best of their knowledge that the Financial Statements do not
contain an untrue statement of a material fact as of the end of the period
covered by such Financial Statements and that no Financial Statement omitted to
state a material fact necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading as of the end of the
period covered by such Financial Statement.
(c) Third Party Consents.
(1) Parent shall have been furnished with evidence reasonably
satisfactory of the consent or approval of those persons whose consent or
approval shall be required in connection with the transactions contemplated
hereby under the contracts of the Company set forth on Section 2.30 of the
Company Disclosure Schedule.
(2) Parent shall have been furnished with evidence reasonably
satisfactory of the consent or approval of all of those persons whose
consent or approval shall be required in connection with the transactions
contemplated hereby under the contracts of the Company set forth on Section
2.31 of the Company Disclosure Schedule.
(d) Legal Opinion. Parent shall have received a legal opinion from the
Company's legal counsel, in substantially the form of Exhibit K.
(e) No Material Adverse Changes. There shall not have occurred any
material adverse change in the condition (financial or otherwise), properties
and assets (including intangible assets), liabilities, business, prospects,
operations or results of operations of the Company, taken as a whole.
(f) Resignation of Directors. The directors of the Company in office
immediately prior to the Effective Time shall have resigned as directors of the
Company effective as of the Effective Time, and Parent shall have received
letters of resignation from such persons.
(g) Employment Condition. No fewer than 75% of the employees of the
Company set forth on Schedule 6.3(g) shall remain employed by the Company as of
the Effective Time.
(h) Escrow Agreement. The Escrow Agent, Parent and the Stockholders'
Agent shall have entered into an Escrow Agreement substantially in form and
substance as set forth in Exhibit B with such changes as the Escrow Agent may
reasonably request.
(i) Lock-Up Agreements. The stockholders of the Company identified on
Schedule 6.3(i) and any other stockholder of the Company holding more than one
percent (1%) of the outstanding shares of Company Common Stock as of immediately
prior to the Closing (including any shares outstanding as the result of the
cancellation or acceleration of Company Options) shall have entered into the
Lock-Up Agreements in form and substance as set forth in Exhibit C.
49
(j) Invention Assignment Agreements. Each of the Company's employees
shall have entered into Parent's "Employee Proprietary Information and Invention
Agreement" in form and substance as set forth in Exhibit D attached hereto.
(k) Dissenting Shares. Holders of Company Common Stock and Company
Preferred Stock representing ninety-five percent (95%) of the aggregate number
of issued and outstanding shares of Company Common Stock on a fully-diluted,
as-converted basis shall have executed a written consent to approval and
adoption of the Merger Agreement and approval of the Merger or waived their
appraisal rights under Delaware Law.
(l) Warrants. All outstanding warrants, including Company Warrants,
shall have been exercised or terminated, provided that Parent may, in its sole
discretion, notify the Company of its decision to assume any outstanding
warrants and rely upon the adjustment to the Total Parent Shares provided in
Section 1.7(a)(5) hereof.
(m) Submission of Expenses. Parent shall have received a detailed
statement of Company Fees and Expenses, the accuracy of which shall be certified
by an executive officer of the Company, together with all backup documentation
in connection therewith.
(n) Termination of Plan. If so required by Parent in writing pursuant
to Section 5.16, the Company shall have terminated the Plan and Parent shall
have received (i) executed resolutions by the Company Board authorizing the
termination of the Plan and (ii) an executed amendment to the Plan sufficient to
assure compliance with all applicable requirements of the Code and regulations
thereunder so that the tax-qualified status of the Plan shall have been
maintained at the time of termination.
(o) FIRPTA Certificate. The Company shall have provided Parent with
the properly executed FIRPTA Certificate in form and substance reasonably
acceptable to Parent. In addition, the Company shall have provided to Parent, as
agent for the Company, a form of notice to the IRS in accordance with the
requirements of Treasury Regulation Section 1.897-2(h)(2) and substantially in
the form of Exhibit I attached hereto along with written authorization for
Parent to deliver such notice form to the IRS on behalf of the Company upon the
Closing. If the Company fails to deliver the FIRPTA Certificate, Parent may (but
shall not be required to) waive this condition and withhold appropriate amounts
as required under applicable law.
(p) Affiliate Agreements. Each of the Affiliates of the Company set
forth on Schedule 5.21 or persons who otherwise are "affiliates" of the Company
within the meaning of Rule 145 promulgated under the Securities Act shall have
entered into Affiliate Agreements in form and substance as set forth in Exhibit
J hereto.
(q) Company Technology. The Company shall have delivered to Parent a
true and complete list of all material Company Technology, specifying whether
(and if so, which of) the Company or any of its subsidiaries owns or licenses
such material Company Technology from a third party.
(r) Tax Opinion. If Parent elects to consummate the Merger pursuant to
the Alternative Acquisition Structure described in Section 7.6, Parent shall
have received an opinion
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of its counsel substantially to the effect that on the basis of facts,
representations, and assumptions set forth in such opinion which are consistent
with the state of facts existing as of the Effective Time, for Federal income
tax purposes, the Merger will constitute a "reorganization" within the meaning
of section 368(a) of the Code. In preparing such tax opinion, counsel may rely
on reasonable assumptions and may also rely on (and to the extent reasonably
required, the parties shall make) reasonable representations related thereto.
Section 6.4 Frustration of Conditions
Neither Parent nor the Company may rely on the failure of any
condition set forth in this Article VI to be satisfied if such failure was
caused by such party's failure to comply with or perform any of its covenants or
obligations set forth in this Agreement.
ARTICLE VII
TERMINATION, AMENDMENT AND WAIVER
Section 7.1 Termination
At any time prior to the Effective Time, whether before or after
approval of the matters presented in connection with the Merger to the
stockholders of the Company, this Agreement may be terminated:
(a) by mutual consent of Parent and the Company;
(b) by either Parent or the Company, if the Closing shall not have
occurred on or before January 3, 2003 (and the right to terminate this Agreement
under this Section 7.1(b) may not be restricted or waived except pursuant to a
written instrument making specific reference to this Section 7.1(b)); provided,
that the right to terminate this Agreement under this Section 7.1(b) shall not
be available to any party whose action or failure to act has been the cause or
resulted in the failure of the Merger to occur on or before such date and such
action or failure to act constitutes a breach of this Agreement;
(c) by Parent, if the Company shall breach any representation,
warranty, obligation or agreement hereunder and such breach shall not have been
cured within ten (10) business days of receipt by the Company of written notice
of such breach;
(d) by Parent, if (i) the Company Board shall have withdrawn or
modified its recommendation of this Agreement in a manner adverse to Parent;
(ii) the Company Board shall approve or recommend any Superior Proposal; (iii)
the Company shall enter into any letter of intent (binding or otherwise),
arrangement or agreement pursuant to which the Company accepts any Superior
Proposal; or (iv) the Company or the Company Board shall have resolved to do any
of the foregoing;
(e) by the Company, if Parent shall breach any representation,
warranty, obligation or agreement hereunder and such breach shall not have been
cured within ten (10) business days following receipt by Parent of written
notice of such breach; and
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(f) by Parent or the Company if (i) any permanent injunction or other
order of a court or other competent authority preventing the consummation of the
Merger shall have become final and nonappealable or (ii) if any required
approval of the stockholders of the Company shall not have been obtained.
Section 7.2 Effect of Termination
In the event of termination of this Agreement as provided in Section
7.1, this Agreement shall forthwith become void, and except as provided in
Section 7.3, there shall be no liability or obligation on the part of Parent or
the Company or their respective officers, directors, stockholders or affiliates,
except to the extent that such termination results from material breach by a
party hereto of any of its representations, warranties or covenants set forth in
this Agreement; provided that the provisions of Section 5.3 (Confidentiality),
Section 7.3 (Expenses and Termination Fees), this Section 7.2 and Article IX
shall remain in full force and effect and survive any termination of this
Agreement.
Section 7.3 Expenses and Termination Fees
(a) Subject to Sections 5.12 and 7.3(b), whether or not the Merger is
consummated, all costs and expenses incurred in connection with this Agreement
and the transactions contemplated hereby (including, without limitation, the
fees and expenses of its advisers, accountants and legal counsel) shall be paid
by the party incurring such expense, except that in the event the Merger is
consummated and the amount of any legal, accounting, broker's, investment banker
and any other fees and expenses incurred by the Company in connection with the
execution of this Agreement and the Ancillary Agreements and the consummation of
the Merger and other transactions contemplated hereby and thereby (such amount
referred to as "Company Fees and Expenses") exceeds $600,000, the Cash
Consideration shall be reduced as follows:
(1) If the amount of Company Fees and Expenses exceeds
$900,000, the Cash Consideration shall be reduced by subtracting from the
Cash Consideration the sum of $150,000 plus the amount by which Company
Fees and Expenses exceed $900,000; and
(2) If the amount of Company Fees and Expenses exceeds
$600,000 but is less than or equal to $900,000, the Cash Consideration
shall be reduced by subtracting from the Cash Consideration one half of the
amount by which Company Fees and Expenses exceed $600,000.
In the event of a reduction of the Cash Consideration pursuant to
Section 7.3(a), the allocation of the Merger Consideration pursuant to Article I
hereof and all related schedules and calculations required thereunder shall be
appropriately adjusted to reflect such reduction.
(b) In the event that this Agreement shall be terminated pursuant to
Section 7.1(d), then the Company shall promptly pay to Parent an amount equal to
$5,000,000.
Section 7.4 Amendment
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The parties hereto may cause this Agreement to be amended at any time
by execution of an instrument in writing signed on behalf of each of the parties
hereto; provided, that an amendment made subsequent to adoption of this
Agreement by the stockholders of the Company shall not (i) alter or change the
amount or kind of consideration to be received on conversion of the Company
Capital Stock, (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 the Agreement if such alteration or
change would materially adversely affect the holders of Company Capital Stock.
Section 7.5 Extension; Waiver
At any time prior to the Effective Time any party hereto may, to the
extent legally allowed, (i) extend the time for the performance of any of the
obligations or other acts of the other parties hereto, (ii) waive any
inaccuracies in the representations and warranties made to such party contained
herein or in any document delivered pursuant hereto and (iii) waive compliance
with any of the agreements or conditions for the benefit of such party contained
herein. Any agreement on the part of a party hereto to any such extension or
waiver shall be valid only if set forth in an instrument in writing signed on
behalf of such party.
Section 7.6 Alternative Acquisition Structure
At the election of Parent, the parties hereby agree to (i) restructure
the Merger as a forward subsidiary merger whereby the Company shall merge into
and with a first tier, wholly owned subsidiary of Parent ("Merger Sub") with
Merger Sub surviving (the "Alternative Acquisition Structure") and (ii) if
Parent elects to consummate the Merger pursuant to the Alternative Acquisition
Structure, make all reasonable or necessary amendments to this Agreement in
connection therewith.
ARTICLE VIII
ESCROW AND INDEMNIFICATION
Section 8.1 Escrow Fund
Within five (5) business days after the Effective Time, the Escrow
Shares shall be registered in the name of, and be deposited with, an institution
selected by Parent with the reasonable consent of the Company as escrow agent
(the "Escrow Agent"), such deposit (together with interest and other income
thereon) to constitute the escrow fund (the "Escrow Fund") and to be governed by
the terms set forth herein and in the Escrow Agreement attached hereto as
Exhibit B. The Escrow Fund shall consist of 1,567,388 shares of Parent Common
Stock and, in addition to shares of Parent Common Stock that may otherwise be
issued pursuant to the Earnout, shall be available to compensate Parent pursuant
to the indemnification obligations of the Company for Damages.
Section 8.2 Indemnification
53
(a) Subject to the limitations set forth in this Article VIII, the
stockholders of the Company will indemnify and hold harmless Parent and its
officers, directors, agents and employees, and each person, if any, who controls
or may control Parent within the meaning of the Securities Act from and against
any and all losses, costs, damages, liabilities, Tax and expenses arising from
claims, demands, actions, causes of action, including, without limitation,
reasonable legal fees, (collectively, "Damages") arising out of any
misrepresentation or breach of, or default in connection with, any of the
representations, warranties, covenants and agreements given or made by the
Company in this Agreement, the Company Disclosure Schedule or any exhibit or
schedule to this Agreement. The Escrow Fund allocated shall be the security for
this indemnity obligation subject to the limitations in this Agreement.
(b) Parent and the Company each acknowledge that such Damages, if any,
would relate to unresolved contingencies existing at the Effective Time, which
if resolved at the Effective Time would have led to a reduction in the total
number of shares of Parent Common Stock that Parent would have agreed to issue
in connection with the Merger.
(c) Parent may not receive any shares of Parent Common Stock from the
Escrow Fund unless and until one or more Officer's Certificates identifying
Damages the aggregate amount of which exceeds $350,000 (the "Indemnity
Threshold") have been delivered to the Escrow Agent as provided in Section 8.4
and such amount is determined pursuant to this Article VIII to be payable, in
which case, Parent shall receive shares of Parent Common Stock for cancellation
equal in value to the full amount of Damages. In determining the amount of any
Damage attributable to a breach, any materiality standard contained in a
representation, warranty or covenant of the Company shall be disregarded. In the
event the aggregate amount of Damages exceeds the amount in the Escrow Fund,
Parent may deduct the amount of such excess from any amounts payable under the
Earnout (calculated as of the date of payment in accordance with Section
8.4(c)).
(d) Following the Effective Time, Parent's sole remedy for breach of
the representations and warranties contained in this Agreement shall be limited
to amounts in the Escrow Fund or issuable pursuant to the Earnout.
Section 8.3 Escrow Period
The escrow period (the "Escrow Period") shall terminate at 11:59 p.m.
Pacific Standard Time on the one (1) year anniversary of the Closing Date;
provided, however, that such portion of the Escrow Fund, which has been set
aside pursuant to Section 8.4(a)(2) to satisfy any unsatisfied claims specified
in any Officer's Certificate theretofore delivered to the Escrow Agent prior to
termination of the Escrow Period with respect to facts and circumstances
existing prior to expiration of the Escrow Period, shall remain in the Escrow
Fund until such claims have been resolved.
Section 8.4 Claims upon Escrow Fund
(a) Upon receipt by the Escrow Agent on or before the last day of the
Escrow Period of a certificate signed by any officer of Parent (an "Officer's
Certificate"):
54
(1) stating that Damages exist in an aggregate amount greater
than the Indemnity Threshold for claims against the Escrow Fund; and
(2) specifying in reasonable detail the individual items
included in the amount of Damages in such claim, the date each such item
was paid, properly accrued or arose and the nature of the
misrepresentation, breach of warranty or claim to which such item is
related, the Escrow Agent shall set aside such Parent Common Stock or other
assets held in the Escrow Fund, as applicable, having a value as of the
date of such Officer's Certificate (the "Valuation Date") (calculated in
accordance with Section 8.4(c)) equal to such Damages.
(b) Upon the earliest of: (i) receipt of written authorization from
the Stockholders' Agent or from the Stockholders' Agent jointly with Parent to
make such delivery, (ii) receipt of written notice of a final decision in
arbitration of the claim, or (iii) in the event the claim set forth in the
Officer's Certificate is uncontested by the Stockholders' Agent as of the close
of business on the next business day following the forty-fifth (45th) day
following receipt by the Escrow Agent of the Officer's Certificate; on the next
business day the Escrow Agent shall deliver Parent Common Stock or other assets
from the Escrow Fund to Parent having a value, as of the Valuation Date
determined by the Officer's Certificate relating to a particular claim, equal to
the amount of Damages to be paid (calculated in accordance with Section 8.4(c)).
(c) For the purpose of compensating Parent for its Damages pursuant
to this Agreement, the Parent Common Stock in the Escrow Fund shall be valued
based on the average of the closing price of Parent Common Stock on the New York
Stock Exchange for the ten (10) trading days ending on the trading day
immediately preceding the Valuation Date; provided, that if the Parent Common
Stock is no longer listed on the New York Stock Exchange, then such other
principal U.S. national securities exchange (as defined in the Exchange Act) on
which Parent Common Stock, or other applicable common stock, is then traded
shall be used, or if such Parent Common Stock, or other applicable common stock,
is not then listed or admitted to trading on any national securities exchange
but is designated as a national market system security or a Nasdaq SmallCap
Market Security by the National Association of Securities Dealers, Inc., then
such market system shall be used, or if such Parent Common Stock, or such other
applicable common stock, is not listed or quoted on any of the foregoing, then
the OTC Bulletin Board shall be used, or, failing that, by mutual agreement
between Parent and the Stockholders' Agent.
55
Section 8.5 Objections to Claims
At the time of delivery of any Officer's Certificate to the Escrow
Agent, a duplicate copy of such Officer's Certificate shall be delivered to the
Stockholders' Agent and for a period of forty-five (45) days after such delivery
to the Escrow Agent of such Officer's Certificate, the Escrow Agent shall make
no delivery of Parent Common Stock pursuant to Section 8.4 unless the Escrow
Agent shall have received written authorization from the Stockholders' Agent to
make such delivery. After the expiration of such forty-five (45) day period, the
Escrow Agent shall make delivery of Parent Common Stock then in the Escrow Fund
in accordance with Section 8.4, provided that no such payment or delivery may be
made if the Stockholders' Agent shall object in a written statement to the claim
made in the Officer's Certificate, and such statement shall have been delivered
to the Escrow Agent and to Parent prior to the expiration of such forty-five
(45) day period.
Section 8.6 Resolution of Conflicts; Arbitration
(a) In case the Stockholders' Agent shall so object in writing to
any claim or claims by Parent made in any Officer's Certificate, Parent shall
have forty-five (45) days after receipt by the Escrow Agent of an objection by
the Stockholders' Agent to respond in a written statement to the objection of
the Stockholders' Agent. If after such forty-five (45) day period there remains
a dispute as to any claims, the Stockholders' Agent and Parent shall attempt in
good faith for sixty (60) days to agree upon the rights of the respective
parties with respect to each of such claims. If the Stockholders' Agent and
Parent should so agree, a memorandum setting forth such agreement shall be
prepared and signed by both parties and shall be furnished to the Escrow Agent.
The Escrow Agent shall be entitled to rely on any such memorandum and shall
distribute the Parent Common Stock from the Escrow Fund in accordance with the
terms thereof.
(b) If no such agreement can be reached after good faith
negotiation, either Parent or the Stockholders' Agent may, by written notice to
the other, demand arbitration of the matter unless the amount of the damage or
loss is at issue in pending litigation with a third party, in which event
arbitration shall not be commenced until such amount is ascertained or both
parties agree to arbitration; and in either such event the matter shall be
settled by arbitration conducted by three arbitrators. Within fifteen (15) days
after such written notice is sent, Parent and the Stockholders' Agent shall each
select one arbitrator, and the two arbitrators so selected shall select a third
arbitrator. The decision of the arbitrators as to the validity and amount of any
claim in such Officer's Certificate shall be binding and conclusive upon the
parties to this Agreement, and notwithstanding anything in this Section 8.6, the
Escrow Agent shall be entitled to act in accordance with such decision and make
or withhold payments out of the Escrow Fund in accordance therewith.
(c) Judgment upon any award rendered by the arbitrators may be
entered in any court having jurisdiction. Any such arbitration shall be held in
Boulder or Denver, Colorado under the commercial rules then in effect of the
American Arbitration Association. Parent, on the one hand, and the Company
stockholders, on the other hand, shall each bear its/their own expenses
(including, attorneys' fees and expenses) incurred in connection with any such
arbitration. In the event the arbitrator or arbitrators find in favor of Parent
as to the claim in dispute, all fees, costs, and the reasonable expenses of
legal counsel incurred by Parent will be charged against the Escrow
56
Fund in addition to the amount of the disputed claim; in the event the
arbitrator or arbitrators find in favor of the Company stockholders as to the
claim in dispute, all fees, costs, and the reasonable expenses of legal counsel
incurred by the Company stockholders will be paid by Parent (all such
determinations to be made by the arbitrator or arbitrators). The fees and
expenses of each arbitrator and the administrative fee of the American
Arbitration Association shall be allocated by the arbitrator or arbitrators, as
the case may be, as they may determine to be just and equitable (or, if not so
allocated, shall be borne equally by Parent, on the one hand, and the Company
stockholders, on the other hand).
Section 8.7 Stockholders' Agent
(a) Xxxxx Xxxxxx shall be constituted and appointed as the
Stockholders' Agent for and on behalf of the stockholders of the Company to give
and receive notices and communications, to authorize delivery to Parent of the
Parent Common Stock from the Escrow Fund in satisfaction of claims by Parent, to
object to such deliveries, to agree to, negotiate, enter into settlements and
compromises of, and demand arbitration and comply with orders of courts and
awards of arbitrators with respect to such claims, and to take all actions
necessary or appropriate in the judgment of the Stockholders' Agent for the
accomplishment of the foregoing. Such agency may be changed by the holders of a
majority in interest of the Escrow Fund from time to time upon not less than ten
(10) days' prior written notice to all of the Company stockholders and to
Parent. No bond shall be required of the Stockholders' Agent, and the
Stockholders' Agent shall receive no compensation for his services. Notices or
communications to or from the Stockholders' Agent shall constitute notice to or
from each of the Company stockholders.
(b) The Stockholders' Agent shall not be liable for any act done or
omitted hereunder as Stockholders' Agent while acting in good faith, and any act
done or omitted pursuant to the advice of counsel shall be conclusive evidence
of such good faith. The Company stockholders shall severally indemnify the
Stockholders' Agent and hold him harmless against any loss, liability or expense
incurred without gross negligence or bad faith on the part of the Stockholders'
Agent and arising out of or in connection with the acceptance or administration
of his duties hereunder.
(c) The Stockholders' Agent will serve without compensation.
Section 8.8 Actions of the Stockholders' Agent
A decision, act, consent or instruction of the Stockholders' Agent
shall constitute a decision of all of the Company stockholders and shall be
final, binding and conclusive upon each and every Company stockholder, and the
Escrow Agent and Parent may rely upon any decision, act, consent or instruction
of the Stockholders' Agent as being the decision, act, consent or instruction of
each and every Company stockholder. The Escrow Agent and Parent are hereby
relieved from any liability to any person for any acts done by them in
accordance with such decision, act, consent or instruction of the Stockholders'
Agent.
Section 8.9 Third-Party Claims
57
In the event that Parent becomes aware of a third-party claim which
Parent believes may result in a demand against the Escrow Fund, Parent shall
promptly notify the Stockholders' Agent of such claim, and the Stockholders'
Agent and the Company stockholders shall be entitled, at their expense, to
participate in any defense of such claim. Parent shall not have the right to
settle and effect the settlement of any such claim without the consent of the
Stockholders' Agent, which consent shall not be unreasonably withheld. In the
event that the Stockholders' Agent has consented to any such settlement, the
Stockholders' Agent shall have no power or authority to object under Section 8.5
or any other provision of this Article VIII to any claim by Parent against the
Escrow Fund for indemnity in the amount of such settlement.
ARTICLE IX
GENERAL PROVISIONS
Section 9.1 Survival
The representations and warranties of the Company contained herein
shall survive until the end of the Escrow Period, except that the
representations and warranties contained in Sections 2.2 (Capitalization; Title
to the Shares), 2.3 (Authority), 2.14 (Taxes), 2.15 (Employee Benefit Plans) and
2.24 (Vote Required) shall survive until thirty (30) days after the expiration
of the applicable statutes of limitations. The agreements set forth in this
Agreement shall terminate at the Effective Time except to the extent certain
agreements set forth herein by their terms call for action after the Effective
Time.
Section 9.2 Notices
All notices and other communications hereunder shall be in writing and
shall be deemed given if delivered personally or by commercial delivery service,
or mailed by registered or certified mail (return receipt requested) to the
parties at the following address (or at such other address for a party as shall
be specified by like notice):
(a) if to Parent, to:
Quantum Corporation
000 Xxxxxxxx Xxxxx
Xxxxxxxx, XX 00000
Attention: General Counsel
Facsimile No.: (000) 000-0000
with a copy (not notice) to:
Skadden, Arps, Slate, Xxxxxxx & Xxxx LLP
000 Xxxxxxxxxx Xxxxxx
Xxxx Xxxx, XX 00000
Attention: Xxxxxx X. Xxxx
Facsimile No.: (000) 000-0000
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(b) if to the Company, to:
Benchmark Storage Innovations, Inc.
0000 Xxxxxxxx Xxxxxx
Xxxxxxx, XX 00000
Attention: Xxxxx Xxxxxxxxxxxx, President
Facsimile No.: (000) 000-0000
with a copy (not notice) to:
Ireland, Xxxxxxxxx, Xxxxx & Xxxxxx, P.C.
0000 Xxxxxxxx, 00/xx/ Xxxxx
Xxxxxx, XX 00000
Attention: Xxxx X. Xxxxx
Facsimile No.: (000) 000-0000
(c) if to the Stockholders' Agent, to:
Xxxxx Xxxxxx
Xxxxxx Ventures Management
000 Xxxx Xxxxxx Xxxxxx, Xxxxx 000
Xxxxxxxxxx, XX 00000
Facsimile No.: (000) 000-0000
with a copy (not notice) to:
Xxxx Xxxxxx, Esq.
Xxxxxx Ventures Management
000 Xxxx Xxxxxx Xxxxxx, Xxxxx 000
Xxxxxxxxxx, XX 00000
Facsimile No.: (000) 000-0000
Section 9.3 Interpretation
When a reference is made in this Agreement to Exhibits, such reference
shall be to an Exhibit to this Agreement unless otherwise indicated. The words
"include," "includes" and "including" when used herein shall be deemed in each
case to be followed by the words "without limitation." The phrase "made
available" in this Agreement shall mean that the information referred to has
been made available if requested by the party to whom such information is to be
made available. The phrases "the date of this Agreement", "the date hereof", and
terms of similar import, unless the context otherwise requires, shall be deemed
to refer to September 5, 2002. The table of contents and headings contained in
this Agreement are for reference purposes only and shall not affect in any way
the meaning or interpretation of this Agreement.
Section 9.4 Counterparts
This Agreement may be executed in two or more counterparts, all of
which shall be considered one and the same agreement and shall become effective
when one or more
59
counterparts have been signed by each of the parties and delivered to the other
parties, it being understood that all parties need not sign the same
counterpart.
Section 9.5 Entire Agreement; Nonassignability; Parties in Interest
This Agreement, the Ancillary Agreements and the documents and
instruments and other agreements specifically referred to herein or therein or
delivered pursuant hereto, including the Exhibits, the Schedules, including the
Company Disclosure Schedule and the Parent Disclosure Schedule (a) constitute
the entire agreement among the parties with respect to the subject matter hereof
and supersede all prior agreements and understandings, both written and oral,
among the parties with respect to the subject matter hereof, except for the
Confidentiality Agreement, which shall continue in full force and effect, and
shall survive any termination of this Agreement or the Closing, in accordance
with its terms, (b) except as specifically stated in a particular section of the
transaction documents referred to above, are not intended to confer upon any
other person any rights or remedies hereunder, (c) except by operation of the
Merger, shall not be assigned by operation of law or otherwise except as
otherwise specifically provided, and (d) shall be binding upon and inure to the
benefit of the parties hereto and their respective successors and permitted
assigns.
Section 9.6 Severability
In the event that any provision of this Agreement, or the application
thereof, becomes or is declared by a court of competent jurisdiction to be
illegal, void or unenforceable, the remainder of this Agreement will continue in
full force and effect and the application of such provision to other persons or
circumstances will be interpreted so as reasonably to effect the intent of the
parties hereto. The parties further agree to replace such void or unenforceable
provision of this Agreement with a valid and enforceable provision that will
achieve, to the extent possible, the economic, business and other purposes of
such void or unenforceable provision.
Section 9.7 Governing Law
THIS AGREEMENT IS MADE UNDER, AND SHALL BE CONSTRUED AND ENFORCED IN
ACCORDANCE WITH, THE LAWS OF CALIFORNIA APPLICABLE TO AGREEMENTS MADE AND TO BE
PERFORMED SOLELY THEREIN, WITHOUT GIVING EFFECT TO PRINCIPLES OF CONFLICTS OF
LAW, EXCEPT TO THE EXTENT THAT THE DELAWARE GENERAL CORPORATION LAW IS
MANDATORILY APPLICABLE HERETO. In any action between or among any of the
parties, whether arising out of this Agreement or otherwise, (a) each of the
parties irrevocably and unconditionally consents and submits to the exclusive
jurisdiction and venue of the state and federal courts located in California;
(b) if any such action is commenced in a state court, then, subject to
applicable law, no party shall object to the removal of such action to any
federal court located in the Northern District of California; (c) each of the
parties irrevocably waives the right to trial by jury; and (d) each of the
parties irrevocably consents to service of process by first class certified
mail, return receipt requested, postage prepaid, to the address at which such
party is to receive notice in accordance with Section 9.2 hereof.
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Section 9.8 Rules of Construction
The parties hereto agree that they have been represented by counsel
during the negotiation, preparation and execution of this Agreement and,
therefore, waive the application of any law, regulation, holding or rule of
construction providing that ambiguities in an agreement or other document will
be construed against the party drafting such agreement or document.
Section 9.9 Specific Performance
The parties hereto agree that if any of the provisions of this
Agreement were not performed in accordance with their specific terms or were
otherwise breached, irreparable damage would occur, no adequate remedy at law
would exist and damages would be difficult to determine, and that the parties
shall be entitled to specific performance of the terms hereof, in addition to
any other remedy at law or equity.
[Signature page follows]
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IN WITNESS WHEREOF, the Company, Parent, and the Stockholders' Agent
have caused this Agreement to be executed and delivered by their respective
officers thereunto duly authorized, all as of the date first written above.
QUANTUM CORPORATION
By: /s/ Xxxx Xxxxxxxx
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Name: Xxxx Xxxxxxxx
Title: Chief Executive Officer
BENCHMARK STORAGE INNOVATIONS, INC.
By: /s/ Xxxxxx Xxxxxxxxxx
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Name: Xxxxxx Xxxxxxxxxx
Title: EVP Finance & Admin, CFO
/s/ Xxxxx X. Xxxxxx
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As Stockholders' Agent
Name: Xxxxx X. Xxxxxx
