EXHIBIT 10.1
[Note: The following agreement and plan of merger is attached to provide you
with information regarding its terms and conditions. It contains mutual
representations and warranties of the parties, which are qualified by
confidential disclosure schedules that the parties exchanged in connection with
the signing of the agreement. These representations and warranties were
exchanged for the purpose of allocating risk among the parties and are not for
the purpose of providing disclosures to investors concerning Art Technology
Group, Inc. or eStara, Inc., and should not be relied upon for that purpose.
Information about Art Technology Group, Inc. can be found in the other public
filings Art Technology Group, Inc. makes with the Securities and Exchange
Commission, which are available without charge at xxx.xxx.xxx.]
EXECUTION VERSION
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
ART TECHNOLOGY GROUP, INC.,
ARLINGTON ACQUISITION CORP.,
STORROW ACQUISITION CORP.,
ESTARA, INC.,
XXXXXX X. XXXXXXXXXXX,
AS STOCKHOLDER REPRESENTATIVE, AND
THE PRINCIPAL STOCKHOLDERS IDENTIFIED ON SCHEDULE I
TABLE OF CONTENTS
ARTICLE 1 The Merger...................................................... 1
1.1 The Merger....................................................... 1
1.2 Effective Time; Closing.......................................... 2
1.3 Effect of the Merger and the Second Step Merger.................. 2
1.4 Articles of Incorporation; Bylaws................................ 2
1.5 Directors and Officers........................................... 3
1.6 Effect on Capital Stock.......................................... 3
1.7 Adjustments to Base Consideration Based on Company Balance
Sheet......................................................... 8
1.8 Adjusted Working Capital; Determination.......................... 8
1.9 Determination of Adjusted Working Capital........................ 9
1.10 Escrow Agreement................................................. 11
1.11 Stockholder Representative....................................... 11
1.12 Delivery of Merger Consideration................................. 14
1.13 No Further Ownership Rights in Company Capital Stock............. 15
1.14 Restricted Stock................................................. 16
1.15 Tax Consequences................................................. 16
1.16 Taking of Necessary Action; Further Action....................... 16
1.17 Dissenters' Rights............................................... 16
1.18 Cross References................................................. 17
1.19 Certain Definitions.............................................. 20
ARTICLE 2 Representations and Warranties of the Company................... 25
2.1 Organization; Subsidiaries....................................... 25
2.2 Company Capitalization........................................... 26
2.3 Obligations With Respect to Capital Stock........................ 27
2.4 Authority; Non-Contravention..................................... 28
2.5 Financial Statements............................................. 29
2.6 No Undisclosed Liabilities....................................... 29
2.7 Absence of Certain Changes or Events............................. 30
2.8 Taxes............................................................ 30
2.9 Title to Properties.............................................. 32
2.10 Intellectual Property............................................ 33
2.11 Compliance with Laws............................................. 38
2.12 Litigation....................................................... 39
2.13 Employee Benefit Plans........................................... 39
2.14 Employment Matters............................................... 41
2.15 Environmental Matters............................................ 42
2.16 Certain Contracts................................................ 42
2.17 Related-Party Matters............................................ 44
2.18 Brokers' and Finders' Fees....................................... 44
2.19 Insurance........................................................ 44
2.20 Customers; Accounts Receivable................................... 45
2.21 Board Approval................................................... 45
-i-
2.22 Minutes and Stock Records........................................ 45
2.23 Accounting System................................................ 46
2.24 Corrupt Practices................................................ 46
2.25 Disclosure....................................................... 46
2.26 Taxes............................................................ 46
ARTICLE 3 Representations and Warranties of Principal Stockholders........ 46
3.1 Organization..................................................... 46
3.2 Authority; Non-Contravention..................................... 47
3.3 Title to Company Stock; Status as Company Stockholder............ 48
3.4 Waiver of Appraisal Rights....................................... 48
3.5 Agreements with the Company...................................... 48
3.6 Brokers' and Finders' Fees....................................... 48
3.7 Accredited Investor Questionnaire................................ 48
ARTICLE 3A Representations and Warranties of Specified Holders............ 48
3A.1 Authority........................................................ 48
3A.2 Title to Company Stock; Status as Company Stockholder............ 49
3A.3 Waiver of Appraisal Rights....................................... 49
3A.4 Brokers' and Finders' Fees....................................... 49
3A.5 Accredited Investor Questionnaire................................ 49
ARTICLE 4 Representations and Warranties of Parent and Merger Subs........ 49
4.1 Organization of Parent and Merger Subs........................... 49
4.2 Parent and Merger Sub Capitalization............................. 50
4.3 Authority; Non-Contravention..................................... 50
4.4 SEC Filings...................................................... 51
4.5 Litigation....................................................... 51
4.6 Brokers' and Finders' Fees....................................... 51
4.7 SEC Documents; Parent Financial Statements....................... 51
4.8 Taxes............................................................ 52
4.9 Non-Affiliate.................................................... 53
ARTICLE 5 Conduct Prior to the Effective Time............................. 53
5.1 Conduct of Business by the Company............................... 53
5.2 Covenant of Parent............................................... 56
ARTICLE 6 Additional Agreements........................................... 56
6.1 Registration for Resale.......................................... 56
6.2 Restrictive Legend; Lock-Up Agreement............................ 58
6.3 Antitrust and Other Filings...................................... 59
6.4 Information Statement; Company Stockholder Meeting............... 59
6.5 Tax Matters...................................................... 60
6.6 Confidentiality.................................................. 62
6.7 Access to Information............................................ 62
-ii-
6.8 No Solicitation.................................................. 62
6.9 Public Disclosure................................................ 63
6.10 Reasonable Efforts; Notification................................. 63
6.11 Third Party Consents............................................. 64
6.12 Rights Agreement; Takeover Statutes.............................. 64
6.13 Certain Employee Benefits........................................ 65
6.14 Transaction Bonuses; Earn-Out Bonus.............................. 65
ARTICLE 7 Survival of Representations; Indemnification.................... 67
7.1 Indemnification by Company Stockholders.......................... 67
7.2 Indemnification by Parent and Merger Subs........................ 67
7.3 Survival of Representations...................................... 68
7.4 Process of Indemnification for Parent Claims and Stockholder
Claims........................................................ 68
ARTICLE 8 Conditions to the Merger........................................ 73
8.1 Conditions to Obligations of Each Party to Effect the Merger..... 73
8.2 Additional Conditions to Obligations of the Company.............. 73
8.3 Additional Conditions to the Obligations of Parent and Merger
Sub 1............................................................ 74
ARTICLE 9 Termination, Amendment and Waiver............................... 75
9.1 Termination...................................................... 75
9.2 Notice of Termination; Effect of Termination..................... 76
9.3 Fees and Expenses................................................ 76
9.4 Amendment........................................................ 77
9.5 Extension; Waiver................................................ 77
ARTICLE 10 General Provisions............................................. 77
10.1 Notices.......................................................... 77
10.2 Interpretation................................................... 78
10.3 Counterparts; Facsimile.......................................... 79
10.4 Entire Agreement; Third Party Beneficiaries...................... 79
10.5 Severability..................................................... 79
10.6 Other Remedies; Specific Performance; Fees....................... 79
10.7 Governing Law.................................................... 80
10.8 Rules of Construction............................................ 80
10.9 Assignment....................................................... 80
10.10 Waiver of Jury Trial............................................. 80
-iii-
AGREEMENT AND PLAN OF MERGER
This AGREEMENT AND PLAN OF MERGER (this "AGREEMENT") is made and entered
into as of September 18, 2006, among Art Technology Group, Inc., a Delaware
corporation ("PARENT"), Arlington Acquisition Corp., a Maryland corporation and
a wholly owned subsidiary of Parent ("MERGER SUB 1"), Storrow Acquisition Corp.,
a Maryland corporation and a wholly owned subsidiary of Parent ("MERGER SUB
2"and, with Merger Sub 1, each a "MERGER SUB"), eStara, Inc., a Maryland
corporation (the "COMPANY"), Xxxxxx X. XxXxxxxxxxx, as the representative of the
Company Stockholders (together with his replacement, the "STOCKHOLDER
REPRESENTATIVE"), and the Company Stockholders listed on Schedule I hereto
holding not less than (i) a majority of the outstanding Common Stock of the
Company and (ii) 60% of the issued and outstanding Series C Preferred Stock of
the Company (the "PRINCIPAL STOCKHOLDERS").
RECITALS
A. The respective Boards of Directors of Parent, Merger Sub 1, Merger Sub 2
and the Company have approved this Agreement, and declared advisable the merger
of Merger Sub 1 with and into the Company (the "MERGER") upon the terms and
subject to the conditions of this Agreement and in accordance with the Maryland
General Corporation Law (the "MGCL"), and the other transactions contemplated by
this Agreement.
B. Immediately after the Effective Time, the Company, as a wholly owned
subsidiary of Parent, will be merged (the "SECOND STEP MERGER") with and into
Merger Sub 2, with Merger Sub 2 as the surviving corporation.
C. For federal income tax purposes, it is intended that the Merger and the
Second Step Merger, considered together, constitute a reorganization under the
provisions of Section 368 of the Internal Revenue Code of 1986, as amended (the
"CODE"), and that each of the Parent and the Company will be a "party to a
reorganization" within the meaning of Section 368 of the Code.
D. Concurrently with the execution of this Agreement, and as a condition
and inducement to Parent's willingness to enter into this Agreement, the
Principal Stockholders are entering into Voting Agreements with Parent in the
form of Exhibit A (the "VOTING AGREEMENTS").
In consideration of the foregoing and the representations, warranties,
covenants and agreements set forth in this Agreement, the parties agree as
follows:
ARTICLE 1
THE MERGER
1.1 THE MERGER. Upon the terms and subject to the conditions of this
Agreement and the applicable provisions of the MGCL, at the Effective Time (as
defined below), Merger Sub 1 shall be merged with and into the Company, the
separate corporate existence of Merger Sub 1 shall cease, and the Company shall
continue as the surviving corporation of the Merger (the "INITIALLY SURVIVING
CORPORATION").
-1-
1.2 EFFECTIVE TIME; CLOSING. (a) Subject to the provisions of this
Agreement, the parties hereto shall cause the Merger to be consummated by filing
articles of merger consistent with this Agreement with the Secretary of State of
the State of Maryland in accordance with the relevant provisions of the MGCL
(the "ARTICLES OF MERGER") (the time of such filing (or such later time as may
be agreed in writing by the Company and Parent and specified in the Articles of
Merger) being the "EFFECTIVE TIME") as soon as practicable on or after the
Closing Date (as defined below).
(b) Immediately following the Effective Time, the Parent shall cause
the Company, as the surviving corporation of the Merger and a wholly owned
subsidiary of the Parent, to be merged with and into Merger Sub 2 in the Second
Step Merger pursuant to an agreement of merger entered into by and among the
Company and Merger Sub 2 (the "SECOND STEP AGREEMENT OF MERGER"), by filing
articles of merger consistent with this Agreement with the Secretary of State of
the State of Maryland in accordance with the relevant provisions of the MGCL
(the "SECOND ARTICLES OF MERGER"). There will be no conditions to the closing of
the Second Step Merger other than the closing of the Merger.
(c) The closing of the Merger and the Second Step Merger (the
"CLOSING") shall take place at the offices of Xxxxx Xxxx LLP, Seaport World
Trade Center West, 000 Xxxxxxx Xxxxxxxxx, Xxxxxx, Xxxxxxxxxxxxx, at a time and
date to be specified by the parties, which shall be no later than the second
business day after the satisfaction or waiver of the conditions set forth in
Article 8 (other than those that by their nature will be satisfied at the
Closing) or at such other time, date and location as the parties hereto agree in
writing (the "CLOSING DATE").
1.3 EFFECT OF THE MERGER AND THE SECOND STEP MERGER.
(a) At the Effective Time, the effect of the Merger shall be as
provided in this Agreement and the applicable provisions of the MGCL. Without
limiting the generality of the foregoing, at the Effective Time, all the
property, rights, privileges, powers and franchises of the Company and Merger
Sub 1 shall vest in the Initially Surviving Corporation, and all debts,
liabilities and duties of the Company and Merger Sub 1 shall become the debts,
liabilities and duties of the Initially Surviving Corporation.
(b) Following the Second Step Merger, the separate existence of the
Company as the Initially Surviving Corporation will cease and Merger Sub 2 will
continue as the surviving corporation of the Second Step Merger (the "SURVIVING
CORPORATION") under the name "eStara, Inc." Upon the consummation of the Second
Step Merger, all property, rights, powers, privileges, and franchises of the
Company and Merger Sub 2 will vest in the Surviving Corporation, and all
liabilities and duties of the Company and Merger Sub 2 will become the
liabilities and duties of the Surviving Corporation.
1.4 ARTICLES OF INCORPORATION; BYLAWS.
(a) The Articles of Merger shall provide that, at the Effective Time,
the Articles of Incorporation of the Initially Surviving Corporation shall be in
the form of the Articles of Incorporation of the Merger Sub 1 as in effect
immediately prior to the Effective
-2-
Time; provided, however, that as of the Effective Time, Article I of the
Articles of Incorporation of the Initially Surviving Corporation shall read:
"The name of the corporation is eStara, Inc."
(b) At the Effective Time, the Bylaws of Merger Sub 1, as in effect
immediately prior to the Effective Time, shall become the Bylaws of the
Initially Surviving Corporation until thereafter amended.
(c) Upon the consummation of the Second Step Merger, the Articles of
Incorporation of Merger Sub 2, as in effect immediately prior to the
consummation of the Second Step Merger, shall be the Articles of Incorporation
of the Surviving Corporation until thereafter amended; provided, however, that
as of the Effective Time, Article I of the Articles of Incorporation of the
Surviving Corporation shall read: "The name of the corporation is eStara, Inc."
(d) Upon the consummation of the Second Step Merger, Bylaws of Merger
Sub 2, as in effect immediately prior to the consummation of the Second Step
Merger, shall be the Bylaws of the Surviving Corporation until thereafter
amended.
1.5 DIRECTORS AND OFFICERS. At the Effective Time, the directors of Merger
Sub 1, serving in such capacity immediately prior to the Effective Time, shall
be the directors of the Initially Surviving Corporation. Upon the consummation
of the Second Step Merger, the directors of Merger Sub 2 shall be the directors
of the Surviving Corporation, until their respective successors are duly elected
or appointed and qualified. At the Effective Time, the officers of Merger Sub 1,
holding office immediately prior to the Effective Time, shall be the officers of
the Initially Surviving Corporation, until their respective successors are duly
elected or appointed and qualified. Upon consummation of the Second Step Merger,
the officers of Merger Sub 2 shall be the officers of the Surviving Corporation,
until their respective successors are duly elected or appointed and qualified.
1.6 EFFECT ON CAPITAL STOCK. Subject to the terms and conditions of this
Agreement, at the Effective Time, by virtue of the Merger and without any action
on the part of Merger Sub 1, the Company or the holders of any of the Company
Capital Stock (as defined below):
(a) CONVERSION OF COMPANY CAPITAL STOCK. Each share of Company Capital
Stock issued and outstanding immediately prior to the Effective Time, other than
any shares of Company Capital Stock to be canceled pursuant to Section 1.6(d)
and any Dissenting Shares (as defined, and to the extent provided in Section
1.17(a)), will be canceled and extinguished and automatically converted into the
right to receive the applicable Per Share Merger Consideration (as defined in
Section 1.6(b) below) upon surrender by the holder thereof of the certificate
representing such share of Company Capital Stock in the manner provided in
Section 1.12, including, with respect to each whole share of Parent Common Stock
to be received, the right to receive one Right (as defined in the Rights
Agreement, dated as of September 26, 2001, between Parent and EquiServe Trust
Company, N.A., as Rights Agent (the "RIGHTS AGREEMENT")). No fraction of a share
of Parent Common Stock will be issued by virtue of the Merger, but in lieu
thereof, a cash payment shall be made pursuant to Section 1.12(c).
(b) For purposes of this Agreement:
-3-
(i) The "MERGER CONSIDERATION" shall consist of the Base
Consideration and the Earn-Out Consideration, each determined, and payable,
as set forth below.
(ii) The "PER SHARE MERGER CONSIDERATION" shall be the amount, if
any, of the Merger Consideration payable (A) with respect to each share of
each respective class or series of Company Capital Stock outstanding
immediately prior to the Effective Time, or (B) to the holder of each
Company Warrant to acquire a share of Common Stock of the Company that is
outstanding immediately prior to the Effective Time, that is assumed by
Parent pursuant to this Agreement, and that is exercised in accordance with
its terms after the Effective Time. The Per Share Merger Consideration
shall be determined in accordance with the Articles of Incorporation of the
Company as in effect as of the Effective Time, and is more fully set forth
on Schedule II attached hereto and incorporated by reference herein.
Between the date hereof and the Effective Time, Schedule II may be updated
by the Company as necessary to reflect (i) the exercise or cancellation of
any Company Option or Company Warrant that is outstanding on the date of
this Agreement, (ii) the payment of cash to Ineligible Stockholders and
Ineligible Recipients, and (iii) any election by Parent to increase the
Base Cash pursuant to Section 1.6(b)(vi); provided, that any such update
shall be consistent with the Articles of Incorporation of the Company and
with the terms of this Agreement, and shall be delivered by the Company to
Parent prior to the Effective Time. The Per Share Merger Consideration, if
any, may vary for each Company Stockholder based upon the class or series,
and dates of issuance, of the Company Capital Stock held by each Company
Stockholder immediately prior to the Effective Time. The calculation of the
Per Share Merger Consideration payable in respect of the Common Stock of
the Company shall be based on total Common Share Equivalents as of the
Effective Time.
(iii) The "BASE CONSIDERATION" shall consist of the Base Parent
Shares and the Base Cash, each as adjusted pursuant to Section 1.7 below.
(iv) An "INELIGIBLE STOCKHOLDER" is any Company Stockholder that
is determined by Parent, in its reasonable judgment, exercised in good
faith, not to be an "accredited investor" as to Parent, within the meaning
of Rule 501(a) under the Securities Act of 1933, as amended (the
"SECURITIES ACT"), or otherwise ineligible to acquire shares of Parent
Common Stock in a private placement pursuant to Rule 506 under the
Securities Act.
(v) The "BASE PARENT SHARES" shall consist of 17,857,000 shares
of Parent Common Stock, provided that the number of Base Parent Shares
shall be (A) reduced by the quotient of the aggregate amount of the
Transaction Bonuses divided by $2.80, (B) reduced by the quotient of the
Base Cash, if any, divided by $2.80, (C) reduced pursuant to the terms of
Subsection 1.6(b)(x) and (D) adjusted pursuant to Section 1.7 hereof.
(vi) The "BASE CASH" shall be the sum of (A) $2,000,000 plus, (B)
such additional aggregate amount in cash as Parent may, in its sole
discretion, elect by written notice to the Company, given not less than two
business days prior to the Closing,
-4-
but in no event more than (I) $3,000,000, or (II) if necessary to avoid
disqualification of the Merger as a reorganization under Section 368(a) of
the Code, such lesser amount as would not result in such disqualification.
(vii) The "COMPANY CAPITAL STOCK" shall consist of all
outstanding capital stock of the Company, including the Company Common
Stock, Company Series A Preferred Stock, Company Series C-1 Preferred
Stock, Company Series C-2 Preferred Stock, Company Series D Preferred
Stock, and Company Series E Preferred Stock (each as defined in Section
2.2(a)).
(viii) The "COMPANY CONVERTIBLE SECURITIES" shall consist of each
outstanding stock option, warrant, or other convertible security to acquire
shares of each respective class or series of Company Capital Stock.
(ix) The "COMPANY STOCKHOLDERS" shall consist of the holders of
outstanding shares of Company Capital Stock and the holders of outstanding
Company Convertible Securities.
(x) Anything to the contrary in the foregoing notwithstanding, in
the event that Parent shall determine, in its reasonable discretion,
exercised in good faith, that any Company Stockholder is an Ineligible
Stockholder, then in lieu of the Base Parent Shares otherwise included in
the Merger Consideration allocated to such Ineligible Stockholder, each
such Ineligible Stockholder shall be entitled to receive, an amount in cash
equal to the sum of (A) the product of (I) the number of shares of Parent
Common Stock such Ineligible Stockholder would have otherwise received,
multiplied by (II) $2.80, plus (B) such amount, if any, as is payable to
such Ineligible Stockholder pursuant to Section 1.6(c) below.
(c) EARN-OUT CONSIDERATION. In addition to the Base Consideration, the
Company Stockholders will be eligible to receive additional merger consideration
in the aggregate amount of up to $3,107,349 (the "EARN-OUT CONSIDERATION"),
provided that the ESTARA REVENUE, as defined below, is equal to or greater than
$25,000,000, as follows:
(i) If the eStara Revenue is equal to or greater than $25,000,000
but less than $30,000,000, the aggregate Earn-Out Consideration shall be
equal to $621,470.
(ii) If the eStara Revenue is equal to or greater than
$30,000,000, the Earn-Out Consideration shall be equal to $3,107,349.
(iii) The aggregate Earn-Out Consideration will be payable on or
before March 14, 2008 (the "EARN-OUT PAYMENT DATE") to the Company
Stockholders based on the applicable Per Share Merger Consideration
attributable to the Earn-Out Consideration, as set forth on Schedule II.
The Earn-Out Consideration may be paid, in the sole discretion of Parent,
in the form of cash or in shares of Parent Common Stock, the valuation of
which is based upon the 20-day volume weighted average price of the Parent
Common Stock for the period ending two days before the Earn-Out Payment
Date, or in a combination thereof; provided that all Company Stockholders
(except Ineligible Stockholders, who may receive all cash), shall receive
cash and Parent Common Stock in
-5-
the same proportion; and, provided, further, that in no event shall Parent
elect to pay the Earn-Out Consideration (x) in shares of Parent Common
Stock if that would require that Parent's stockholders would be or would
have been required to approve this transaction under the applicable rules
of the Nasdaq Stock Market, Inc. or other exchange rules or securities
laws, unless prior to the Earn-Out Payment Date, Parent receives such
stockholder approval in compliance with such applicable rules of the Nasdaq
Stock Market, Inc. or other exchange rules or securities laws, or (y) in
the form of cash, if such payment would result in the Merger not qualifying
as a reorganization under Section 368(a) of the Code.
(iv) For purposes of this subsection:
(A) "ESTARA SERVICES" shall mean the Company's Click to
Call, Click to Chat and Call Tracking service offerings and related
services, and any improvement, enhancement or extension to any such service
that is developed by the Company and made available to customers of the
Company after the date of this Agreement; and
(B) "ESTARA REVENUE" shall mean the consolidated revenue
recognized by Parent, in accordance with United States generally accepted
accounting principles ("GAAP"), consistently applied, consistent with past
practice and in accordance with Parent's revenue recognition policies in
its audited financial statements for the year ended December 31, 2007 (the
"MEASUREMENT PERIOD"), that is attributable to the sale or license of
eStara Services. Notwithstanding the foregoing, (I) any revenues recognized
by Parent from any source during the Measurement Period from the sale or
license of any products or services that are derivative of any eStara
Services will be considered eStara Revenue, and (II) in the event of any
sale or license of any bundled or integrated products or services that
include any eStara Services or products or services that are derivative of
any eStara Services, then the eStara Revenue shall be deemed to include a
proportionate share of the revenue recognized by Parent from the sale or
license of such bundled services, determined by comparing the average
selling price computed for the most recent twelve calendar months, on a
stand-alone basis, for the eStara Services that are included in such
bundled products and services, as set forth on Schedule III attached
hereto, to Parent's published list price on a stand-alone basis for the ATG
products and services that are included in such bundled products and
services. For purposes of this paragraph, a product or service shall be
"derivative" of an eStara Service if, in the absence of this Agreement, it
could not be sold or licensed by Parent without infringing Intellectual
Property Rights (as defined in Section 2.10 below but excluding any
Commercially Available Software) that is owned by or licensed to eStara.
(v) Promptly after filing its Quarterly Report on Form 10-Q for
each of the first three fiscal quarters of Parent in 2007, Parent shall
provide the Stockholder Representative with a report specifying the eStara
Revenue for the year through the end of the such fiscal quarter.
(vi) If, following the Earn-Out Payment Date, the maximum amount
of Earn-Out Consideration provided for hereunder was not achieved and paid,
the
-6-
Stockholder Representative shall have the right, upon reasonable notice to
Parent at the Stockholder Representative's expense, to have an independent
accountant access the books and records of Parent as relevant or necessary
to verify Parent's determination of the eStara Revenue as determined in
accordance with GAAP. As a condition to such access, such independent
accountant shall agree with Parent not to disclose any Confidential
Information of Parent (other than its determination of the eStara Revenue,
and its basis for determining such amount, which may only be disclosed to
the Stockholder Representative and his advisors). If the Stockholder
Representative disagrees with Parent's determination of the Earn-Out
Consideration, the Stockholder Representative will promptly (but in any
event no later than 60 days following the Earn-Out Payment Date) notify
Parent in writing and the parties shall negotiate in good faith to attempt
to resolve any such disagreement within 30 days following such notice. If
the parties fail to resolve their disagreement within this 30-day period,
the disagreement shall be resolved by an Accounting Arbitrator, using the
same procedures as are set forth in Sections 1.9(b)(iii) and 1.9(b)(iv).
(d) CANCELLATION OF COMPANY-OWNED AND PARENT-OWNED STOCK. Each share
of Company Common Stock held by the Company or owned by Merger Sub 1, Parent or
any direct or indirect wholly owned subsidiary of the Company or of Parent
immediately prior to the Effective Time shall be canceled and extinguished
without any conversion thereof.
(e) EFFECT OF MERGER ON STOCK OPTIONS AND WARRANTS.
(i) The Board of Directors of the Company shall take appropriate
action pursuant to each Company Option Plan such that each outstanding
Company Option shall be accelerated so as to be exercisable in full
immediately prior to the Effective Time, and, to the extent not exercised
prior to the Effective Time, shall be terminated.
(ii) As of the Effective Time, (A) each outstanding Company
Warrant shall automatically be converted into a warrant to acquire, upon
the exercise thereof, the aggregate Per Share Merger Consideration that
would have been payable to the holder if such Company Warrant had been
exercised immediately prior to the Effective Time, (B) all references to
the Company in each Company Warrant shall be deemed to refer to Parent,
where appropriate, and (C) Parent shall assume the obligations of the
Company under the Company Warrant.
(f) CAPITAL STOCK OF MERGER SUB 1 AND MERGER SUB 2. Each share of
common stock, par value $0.01 per share, of Merger Sub 1 ("MERGER SUB 1 COMMON
STOCK"), issued and outstanding immediately prior to the Effective Time shall be
converted into one validly issued, fully paid and nonassessable share of common
stock, $0.01 par value per share, of the Initially Surviving Corporation.
Following the Second Step Merger, each certificate evidencing ownership of
shares of Merger Sub 2 common stock shall remain outstanding and evidence
ownership of such shares of capital stock of the Surviving Corporation.
-7-
1.7 ADJUSTMENTS TO BASE CONSIDERATION BASED ON COMPANY BALANCE SHEET. If as
of the Closing Date, the Company's Adjusted Working Capital is greater or less
than $2,500,000, then the amount of the Base Consideration shall be increased or
decreased, as follows.
(a) If the Adjusted Working Capital exceeds $2,500,000, then for
purposes of determining the amount of the Base Consideration payable to any
Company Stockholder the number of Base Parent Shares shall be increased by a
number determined by dividing (i) the positive amount of such excess by (ii)
$2.80.
(b) If the Adjusted Working Capital is less than $2,500,000, then for
purposes of determining the amount of the Base Consideration payable to any
Company Stockholder the number of Base Parent Shares shall be decreased by a
number determined by dividing (i) the absolute value of such deficiency by (ii)
$2.80.
1.8 ADJUSTED WORKING CAPITAL; DETERMINATION. For purposes of Section 1.7,
the following terms shall have the meanings set forth below:
(a) "ADJUSTED WORKING CAPITAL" shall mean an amount equal to the sum
of (i) the current assets of the Company (excluding any deferred income tax
asset), minus (ii) the current liabilities of the Company, including, without
limitation, payment of or an accrual for (A) Transaction Expenses (but excluding
any accrual for the Transaction Bonuses described below), and (B) any and all
Taxes as of the Effective Time, including any applicable sales and
telecommunications Taxes, each determined as of the Closing Date in accordance
with GAAP, in a manner consistent with past practices of the Company; plus or
minus (iii) any other adjustments agreed upon on in writing by Parent and the
Company; provided that in no event shall any Excluded Adjustment be taken into
account for purposes of determining the Adjusted Working Capital.
(b) "EXCLUDED ADJUSTMENT" shall mean any change in a current asset or
a current liability as compared with its amount at July 31, 2006 that is:
(i) the result of a change in estimate by the Company (whether
effected by way of reversal or omission of a previously accrued liability
or in any other manner) which change in estimate is not made in response to
any of the following occurring after July 31, 2006: (A) a bona fide
transaction entered into by the Company, (B) a payment made or received by
the Company (C) action of an unaffiliated third party or (D) an event or
change of circumstances external to the Company, or
(ii) the result of any transaction or action by the Company that
would constitute a breach of the Company's obligations under Section 5.1
below.
(c) "TRANSACTION EXPENSE" shall mean any expense directly attributable
to the negotiation and consummation of the transactions contemplated by this
Agreement, including, but not limited to, severance payments, bonus payments
(other than the Transaction Bonuses) and retention payments that become due by
reason of the consummation of the Merger, fees and disbursements of DLA Piper US
LLP, counsel to the Company, fees and disbursements of counsel employed by the
Company to defend any claim, suit, action or proceeding commenced or threatened
against the Company that seeks to restrain or enjoin the consummation of the
-8-
transactions contemplated by this Agreement, and of Argy, Xxxxxx & Xxxxxxxx,
P.C., the Company's independent public accountants, and amounts payable to
Pagemill Partners, LLC, the Company's financial advisor, or to the Stockholder
Representative.
(d) "TRANSACTION BONUSES" shall mean bonuses in the aggregate amount
of $5,064,866 awarded by the Company to those employees of the Company in the
amounts set forth on Schedule II, contingent upon the Closing and payable
following the Effective Time as more fully set forth in Section 6.14 below.
1.9 DETERMINATION OF ADJUSTED WORKING CAPITAL.
(a) On or before the third business day preceding the date fixed for
the Closing (as defined in Section 1.2), the Company shall deliver to Parent a
certificate, in reasonable detail reasonably satisfactory to Parent, setting
forth its estimate of the Adjusted Working Capital of the Company as of the
Closing Date determined in accordance with Section 1.8 (the "CLOSING
CERTIFICATE").
(b) On or before the 30th day following the Closing, Parent shall
notify the Stockholder Representative in writing whether it accepts or disputes
the accuracy of the Company's determination of the Adjusted Working Capital as
set forth on the Closing Certificate.
(i) If Parent accepts the Company's determination of the Adjusted
Working Capital, or if it fails within such 30 day period to notify the
Company of any dispute with respect thereto, then the Closing Certificate
shall be deemed final and conclusive and binding upon all parties.
(ii) If Parent disputes the accuracy of the Closing Certificate
and the Company's determination of the Adjusted Working Capital, Parent
shall within the 30-day period referred to above provide written notice to
the Stockholder Representative (the "DISPUTE NOTICE"), setting forth in
reasonable detail those items that Parent disputes, the amounts of any
adjustments that are necessary in its judgment for the computation of the
Adjusted Working Capital to conform to the requirements of this Agreement,
and the basis for its suggested adjustments. During the 30 day period
following delivery of a Dispute Notice, Parent and the Stockholder
Representative will meet and negotiate in good faith with a view to
resolving their disagreements over the disputed items. During such 30 day
period and until the final determination of the Working Capital Adjustment,
if any, the Stockholder Representative will be provided with such access to
the financial books and records of the Business and, subject to access
procedures acceptable to Parent's independent public accounts (the "PARENT
AUDITORS"), the workpapers of the Parent Auditors, as it may reasonably
request to enable it to respond to any Dispute Notice. If the parties
resolve their differences over the disputed items in accordance with the
foregoing procedure, the Working Capital Adjustment shall be the amount
agreed upon by them.
(iii) If the parties fail to resolve their differences over the
disputed items with such 30 day period, then Parent and the Stockholder
Representative shall
-9-
forthwith jointly request that the Accounting Arbitrator make a binding
determination as to the disputed items in accordance with this Agreement.
The "ACCOUNTING ARBITRATOR" shall mean such national or regional firm of
independent accountants as may be agreed upon by Parent and the Stockholder
Representative. Within 10 days following the delivery of a Dispute Notice,
each of Parent and the Stockholder Representative shall propose to the
other in writing at least two such firms acceptable to it to act as
Accounting Arbitrator. Any firm currently engaged as the independent public
accounting firm for a party shall be ineligible to be proposed by such
party serve as an arbitrator without the consent of the other party. If the
parties have not, by the end of the 30-day period referred to above, agreed
upon an Accounting Arbitrator, then the Accounting Arbitrator shall be
selected by one party, drawn by lot, from the list of firms proposed by the
other party.
(iv) The Accounting Arbitrator will under the terms of its
engagement have no more than 75 days from the date of referral and no more
than 15 days from the final submission of information and testimony by the
Parent and the Stockholder Representative within which to render its
written decision with respect to the disputed items, which decision shall
be final and binding upon the parties and enforceable by any court of
competent jurisdiction. The Accounting Arbitrator shall review such
submissions and base its determination solely on such submissions. In
resolving any disputed item, the Accounting Arbitrator may not assign a
value to any item greater than the greatest value for such item claimed by
either party or less than the smallest value for such item claimed by
either party. Parent and the Company Stockholders (by way of the Indemnity
Escrow) shall each bear the costs and expenses of the Accounting Arbitrator
based on the percentage which the portion of the contested adjustment
amount not awarded to each party bears to the amount actually contested by
such party (e.g., if Parent makes an adjustment claim for $1,000,000 and
the Stockholder Representative only contests $500,000 of the amount claimed
by Parent, and if the Accounting Arbitrator resolves the dispute by
awarding Parent $300,000 of the $500,000 contested, then the Accounting
Arbitrator's costs and expenses will be allocated 60% to the Company
Stockholders and 40% to Parent).
(v) If the Adjusted Working Capital, determined as set forth
above, is greater than $2,500,000, then the amount of Base Consideration,
whether in the form of Parent Common Stock or cash, to which each Company
Stockholder is otherwise entitled shall be increased as set forth in
Section 1.7(a) above, and Parent shall promptly, and in any event within
five business days after such determination, (i) deliver to each Company
Stockholder such additional Base Consideration, consisting of cash, or
Parent Common Stock, or both, as would have been deliverable to such
Company Stockholder if the final determination of the Adjusted Working
Capital had been made immediately prior to the Effective Time, and (ii)
direct the Escrow Agent (as defined below) to release to the Company
Stockholders, as their interests may appear, any property then held for
their accounts in the Working Capital Escrow (as defined below).
(vi) If the Adjusted Working Capital, determined as set forth
above, is less than $2,500,000, then the amount of Base Consideration,
whether in the form of Parent Common Stock or cash, to which each Company
Stockholder is otherwise entitled
-10-
shall be reduced as set forth in Section 1.7(b) below, and Parent shall be
entitled to direct that the Escrow Agent deliver to Parent from the Working
Capital Escrow (and, in the event that the Working Capital Escrow is
insufficient, from the Indemnity Escrow, as defined below)), for the
account of each Company Stockholder, that portion of the Base Consideration
delivered to the Escrow Agent for the account of each Company Stockholder
as would not have been payable to such Company Stockholder if the final
determination of the Adjusted Working Capital had been made immediately
prior to the Effective Time. If, after such delivery to Parent, any
property shall remain in the Working Capital Escrow, Parent will promptly
instruct the Escrow Agent to release the balance of such property to the
Company Stockholders, as their interests may appear.
1.10 ESCROW AGREEMENT. At the Closing, Parent will deliver to Computershare
Trust Company, Inc., as escrow agent (the "ESCROW AGENT"), pursuant to an escrow
agreement (the "ESCROW AGREEMENT") in substantially the form attached as Exhibit
B hereto, the following:
(a) shares of Parent Common Stock and, if applicable, cash
constituting ten percent (10%) of the Base Consideration payable to each Company
Stockholder, determined without regard to any adjustment pursuant to Section
1.6(b)(v)(A) or Section 1.7 (collectively, the "INDEMNITY ESCROW"); and
(b) shares of Parent Common Stock and, if applicable, cash
constituting an additional five percent (5%) of the Base Consideration payable
to each Company Stockholder determined without regard to any adjustment pursuant
to Section 1.6(b)(v)(A) or Section 1.7 (collectively, the "WORKING CAPITAL
ESCROW").
The Escrow Agreement will provide, among other things, for the
establishment of subaccounts whereby the Base Consideration delivered to and
disbursed by the Escrow Agent for the account of each Company Stockholder shall
be separately accounted for, and shall further provide that on the first
anniversary of the Closing the Indemnity Escrow (less the amount of any claims
paid and pending claims asserted by Parent in good faith of which the Escrow
Agent has received notice) will be released from the escrow account and
distributed to the Company Stockholders, and that six months after the Closing
Date (or such lesser period as is necessary to finally determine the Adjusted
Working Capital under Section 1.9(b) above) the Working Capital Escrow (less the
amount of any claims paid and pending claims asserted by Parent in good faith of
which the Escrow Agent has received written notice) will be released from the
escrow account and distributed to the Company Stockholders.
1.11 STOCKHOLDER REPRESENTATIVE.
(a) Each Principal Stockholder hereby appoints, and by operation of
the merger each other Company Stockholder shall be deemed to have appointed,
Xxxxxx X. XxXxxxxxxxx (including any replacement for him as designated herein,
the "STOCKHOLDER REPRESENTATIVE") the attorney-in-fact of such person, with full
power and authority, including power of substitution, acting in the name of and
for and on behalf of such person with respect to this Agreement and any of the
other Transaction Documents, including to (i) deliver to Parent at the Closing
the certificates representing the outstanding Company Capital Stock; (ii)
execute and deliver to Parent at the Closing all certificates and documents to
be delivered to Parent by the
-11-
Company Stockholders pursuant to this Agreement and the other Transaction
Documents, including, without limitation, the Escrow Agreement; (iii) incur
expenses on behalf of the Company Stockholders in connection with this
Agreement, the other Transaction Documents and the transactions contemplated
hereby and thereby as the Stockholder Representative may deem appropriate; (iv)
during the time that property remains in escrow pursuant to the Escrow
Agreement, to give and receive all notices required to be given under this
Agreement and the other agreements contemplated hereby to which all of the
Company Stockholders are a party, including the Escrow Agreement; and (v) take
such action on behalf of the Company Stockholders as the Stockholder
Representative may deem appropriate in respect of: (1) waiving any inaccuracies
in the representations or warranties of Parent or either Merger Sub contained in
this Agreement or the other Transaction Documents; (2) amending or waiving any
provision of this Agreement or the other Transaction Documents; (3) taking such
other action as any Company Stockholder is authorized to take under this
Agreement or the other Transaction Documents; (4) receiving all documents or
certificates and making all determinations, on behalf of any Company
Stockholder, required under this Agreement or the other Transaction Documents;
(5) resolving any dispute with Parent over any aspect of this Agreement or the
other Transaction Documents, including the calculation of Adjusted Working
Capital, the Earn-Out Consideration and claims for indemnification hereunder;
(6) all such other matters as the Stockholder Representative may deem necessary
or appropriate to consummate the transactions contemplated by this Agreement or
the other Transaction Documents; (7) taking all such action as may be necessary
after the Closing Date to carry out any of the transactions contemplated by this
Agreement or the other Transaction Documents; and (8) entering into any
agreement to effectuate any of the foregoing which shall have the effect of
binding any Company Stockholder as if such person had personally entered into
such agreement. This appointment and power of attorney shall be deemed as
coupled with an interest and all authority conferred hereby shall be irrevocable
whether by the death or incapacity of any such person or the occurrence of any
other event or events. The Parent shall be entitled to rely upon any
communication or writings given by or to, or executed by, the Stockholder
Representative and all actions, decisions and instructions of the Stockholder
Representative shall be conclusive and binding upon all of the Company
Stockholders. To the extent that the terms of this Agreement or any of the
documents executed in connection herewith require Parent or either Merger Sub to
obtain the consent of any Company Stockholder, such consent may be made or given
by the Stockholder Representative. Notwithstanding the foregoing, notices which
are to be given under this Agreement to the Company Stockholders shall only be
effective if given to each Company Stockholder, in accordance with Section 10.1
hereof.
(b) In the event that the Stockholder Representative dies, becomes
unable to perform his responsibilities hereunder or resigns from such position,
the remaining Company Stockholders shall, by election of the Company
Stockholders (or, if applicable, their respective heirs, legal representatives,
successors and assigns) who held a majority of the shares of Common Share
Equivalents issued and outstanding immediately prior to the Effective Time,
select another representative to fill such vacancy and such substituted
representative shall be deemed to be the Stockholder Representative for all
purposes of this Agreement.
(c) In the performance of his duties hereunder, the Stockholder
Representative shall be entitled to rely upon any document or instrument
reasonably believed by him to be genuine and accurate. The Stockholder
Representative may assume that any person purporting
-12-
to give any notice in accordance with the provisions hereof has been duly
authorized to do so. In the absence of proven gross negligence or willful
misconduct, (i) the Stockholder Representative shall not be liable to the
Company Stockholders with respect to his performance of the functions specified
in this Agreement, and (ii) no Company Stockholder shall commence, prosecute or
maintain any actions or proceedings against the Stockholder Representative with
respect to his performance of the functions specified in this Agreement, except
in cases of gross negligence or willful misconduct. In determining the
occurrence of any fact, event or contingency, the Stockholder Representative may
request from any of the Company Stockholders or any other person such reasonable
additional evidence as the Stockholder Representative in his sole discretion may
deem necessary, and may at any time inquire of and consult with others,
including any of the Company Stockholders, and shall not be liable to any
Company Stockholder for any damages resulting from any delay in acting hereunder
pending receipt and examination of additional evidence requested. The
Stockholder Representative shall be entitled to be indemnified and held harmless
by each Company Stockholder against any damages incurred without gross
negligence or willful misconduct on the part of the Stockholder Representative
and arising out of or in connection with the acceptance or administration of his
duties hereunder with each Company Stockholder being, severally and not jointly,
liable for such Company Stockholder's pro rata share (based on their respective
interests in the Base Consideration), of any such claim for indemnification by
the Stockholder Representative.
(d) By their execution of this Agreement, the Principal Stockholders
agree and by operation of the merger each other Company Stockholder shall be
deemed to have agreed, that:
(i) Parent and each Merger Sub shall be able to rely conclusively
on the instructions and decisions of the Stockholder Representative as to
the determination and payment of the Adjusted Working Capital and the
Earn-Out Consideration and the defense and/or settlement of any Claims for
which the Company Stockholders may be required to indemnify Parent pursuant
to Article 7 hereof, and no party hereunder shall have any cause of action
against Parent or either Merger Sub for any action taken in reliance upon
the instructions or decisions of the Stockholder Representative;
(ii) all actions, decisions and instructions of the Stockholder
Representative shall be conclusive and binding upon all of the Company
Stockholders and no Company Stockholder shall have any cause of action
against the Stockholder Representative for any action taken or not taken,
decision made or instruction given by the Stockholder Representative under
this Agreement, except for fraud or willful breach of this Agreement by the
Stockholder Representative;
(iii) the provisions of this Section 1.11 are independent and
severable, are irrevocable and coupled with an interest and shall be
enforceable notwithstanding any rights or remedies that any Company
Stockholder may have in connection with the transactions contemplated by
this Agreement; and
(iv) the provisions of this Section 1.11 shall be binding upon
the heirs, legal representatives, successors and assigns of each Company
Stockholder, and any references in this Agreement to a Company Stockholder
or the Company Stockholders
-13-
shall mean and include the successors to the Company Stockholder rights
hereunder, whether pursuant to testamentary disposition, the laws of
descent and distribution or otherwise.
(e) Following the Closing and subject to the terms of Section 6.7
hereof, Parent shall provide the Stockholder Representative with reasonable
access to such information about the Company as the Stockholder Representative
may reasonably request for purposes of performing his duties and exercising the
rights of the Company Stockholders hereunder.
(f) Any fees and expenses incurred by the Stockholder Representative
in connection with actions taken pursuant to the terms of this Agreement,
including reasonable, actual expenses incurred or paid to counsel or other third
parties in investigating, negotiating, arbitrating or settling any claim
hereunder will be paid by the Company Stockholders in proportion to their
respective pro rata interest in the Base Consideration and may, on request of
the Stockholder Representative, be paid from amounts deposited in the Working
Capital Escrow or Indemnity Escrow that are released from escrow and
distributable to the Company Stockholders as provided in the Escrow Agreement.
At any time prior to the Indemnity Escrow Termination Date, the Stockholder
Representative may by written notice to the Escrow Agent make a claim for
reimbursement of Transaction Expenses incurred through the date of such notice
as well as an additional amount of up to $250,000 for future Transaction
Expenses to the extent reasonably budgeted in good faith by the Stockholder
Representative for resolution of any disputes between members of the Parent
Group and the Company Stockholders under this Agreement or any Transaction
Document as provided in this Section 1.11. Upon the release of the Working
Capital Escrow or the Indemnity Escrow to the Company Stockholders, the Escrow
Agent shall pay to the Stockholder Representative, out of amounts otherwise
payable to the Company Stockholders from either the Working Capital Escrow or
the Indemnity Escrow, any unpaid Expense Claims (as defined in, and in
accordance with the terms of, the Escrow Agreement). Any amounts held by the
Stockholder Representative for the payment of Transaction Expenses shall be
released to the Company Stockholders on the earlier of (i) such date when the
Stockholder Representative determines in good faith that no additional
Transaction Expenses will be incurred, and (ii) the second anniversary of the
Indemnity Escrow Release Date.
1.12 DELIVERY OF MERGER CONSIDERATION.
(a) At the Closing or as soon as practicable thereafter, each Company
Stockholder shall deliver to Parent (i) all certificates which immediately prior
to the Effective Time represented issued and outstanding shares of Company
Capital Stock (individually, a "CERTIFICATE" and collectively, the
"CERTIFICATES") or an affidavit of lost certificate and an indemnity with
respect to such lost certificate in form and substance reasonably satisfactory
to Parent (the "AFFIDAVIT") and (ii) an executed Letter of Transmittal and
Certificate in the form of Exhibit C hereto (the "TRANSMITTAL CERTIFICATE").
Each Company Stockholder shall be entitled to receive in exchange therefor the
applicable Merger Consideration allocable to such Company Stockholder, including
a certificate or certificates representing the shares of Parent Common Stock
included therein (excluding the Indemnification Escrow and the Working Capital
Escrow). The total amount of Merger Consideration issuable to each Company
Stockholder in exchange for his or its shares shall be listed on Schedule II
hereto, as updated as of the Effective Time by
-14-
the Company and delivered to Parent at the Closing. If any certificate for
shares of Parent Common Stock is to be issued in a name other than that in which
the certificate surrendered in exchange therefor is registered, it will be a
condition of the issuance thereof that Parent be satisfied that (i) such
transfer complies with all applicable state and federal securities laws, and
(ii) the certificate so surrendered is properly endorsed and otherwise in proper
form for transfer.
(b) Until surrendered, each Certificate shall, after the Effective
Time, represent only the right to receive the Merger Consideration into which
the shares of Company Capital Stock formerly represented thereby shall have been
converted pursuant to Section 1.6 hereof. Any dividends or other distribution
declared after the Effective Time with respect to the Parent Common Stock
issuable as part of such Merger Consideration shall be paid to the holder of any
Certificate when the holder thereof surrenders such Certificate or an Affidavit
in lieu thereof. At and after the Effective Time, the holders of any Company
Capital Stock shall cease to have any rights as Company Stockholders, except for
the right to surrender Certificates pursuant to Section 1.12(a). As of the
Closing, the stock transfer books of the Company shall be closed, and after the
Closing there shall be no transfers on such stock transfer books.
(c) FRACTIONAL SHARES. No fraction of a share of Parent Common Stock
will be issued by virtue of the Merger, but in lieu thereof each holder of
shares of Company Common Stock who would otherwise be entitled to a fraction of
a share of Parent Common Stock (after aggregating all fractional shares of
Parent Common Stock to be received by such holder) shall receive from Parent an
amount of cash (rounded to the nearest whole cent) equal to the product of (i)
such fraction, multiplied by (ii) $2.80.
(d) REQUIRED WITHHOLDING. Each of Parent, the Initially Surviving
Corporation and the Surviving Corporation shall be entitled to deduct and
withhold from any consideration payable or otherwise deliverable pursuant to
this Agreement to any holder or former holder of Company Capital Stock such
amounts as may be required to be deducted or withheld therefrom under the Code
or under any provision of state, local or foreign tax law or under any other
applicable Legal Requirement. To the extent such amounts are so deducted or
withheld, such amounts shall be treated for all purposes under this Agreement as
having been paid to the person to whom such amounts would otherwise have been
paid.
(e) NO LIABILITY. Notwithstanding anything to the contrary in this
Section 1.12, neither Parent, the Initially Surviving Corporation, the Surviving
Corporation nor any other party hereto shall be liable to a holder of shares of
Parent Common Stock or Company Common Stock for any amount properly paid to a
public official pursuant to any applicable abandoned property, escheat or
similar law.
1.13 NO FURTHER OWNERSHIP RIGHTS IN COMPANY CAPITAL STOCK. All Merger
Consideration issued in accordance with the terms hereof shall be deemed to have
been issued 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 Initially Surviving Corporation or the Surviving
Corporation of shares of Company Capital Stock that were outstanding immediately
prior to the Effective Time. If, after the Effective Time, Certificates are
presented to the Initially Surviving Corporation or the Surviving Corporation
for any reason, they shall be canceled and exchanged as provided in this Article
1.
-15-
1.14 RESTRICTED STOCK. If any shares of Company Common Stock that are
outstanding immediately prior to the Effective Time are unvested or are subject
to a repurchase option, risk of forfeiture or other condition providing that
such shares ("COMPANY RESTRICTED STOCK") may be forfeited or repurchased by the
Company upon any termination of the shareholders' employment, directorship or
other relationship with the Company (and/or any affiliate of the Company) under
the terms of any restricted stock purchase agreement or other agreement with the
Company that does not by its terms provide that such repurchase option, risk of
forfeiture or other condition fully lapses upon consummation of the Merger, then
(a) the shares of Parent Common Stock issued upon the conversion of such shares
of Company Common Stock in the Merger will, unless otherwise accelerated by
their terms as a result of the Merger, continue to be unvested and subject to
the same repurchase options, risks of forfeiture or other conditions following
the Effective Time, and the certificates representing such shares of Parent
Common Stock may accordingly be marked with appropriate legends noting such
repurchase options, risks of forfeiture or other conditions, and (b) the right
of such holder of Company Restricted Stock to receive consideration in the form
of cash in respect of any shares of Company Common Stock that were unvested at
the Effective Time ("Unvested Cash Consideration") shall continue to be unvested
and subject to the same risks of forfeiture or other conditions following the
Effective Time. Any such Unvested Cash Consideration will be retained by Parent
at the Closing and will be paid by Parent to the former holder of such Company
Restricted Stock upon the vesting of the corresponding installments of Parent
Common Stock that were delivered as merger consideration. The Company shall take
all actions that may be necessary to ensure that, from and after the Effective
Time, Parent is entitled to exercise any such repurchase option or other right
set forth in any such restricted stock purchase agreement or other agreement. A
listing of the holders of Company Restricted Stock, together with the number of
shares and the vesting schedule of Company Restricted Stock held by each, in
each case assuming the Merger has occurred, is set forth in Part 1.14 of the
Company Disclosure Schedule.
1.15 TAX CONSEQUENCES. It is intended by the parties hereto that the Merger
shall constitute a reorganization described in section 368 of the Code. The
parties hereto adopt this Agreement as a "plan of reorganization" within the
meaning of sections 1.368-2(g) and 1.368-3(a) of the United States Income Tax
Regulations (the "TREASURY REGULATIONS").
1.16 TAKING OF NECESSARY ACTION; FURTHER ACTION. If, at any time after the
Effective Time, any further action is reasonably necessary or desirable to carry
out the purposes of this Agreement and to vest the Initially Surviving
Corporation and, thereafter, 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 the Company and each
Merger Sub will take all such lawful and necessary action. Parent shall cause
each Merger Sub to perform all of its obligations relating to this Agreement and
the transactions contemplated hereby.
1.17 DISSENTERS' RIGHTS.
(a) Notwithstanding any provision of this Agreement to the contrary
other than Section 1.17(b), any shares of Company Common Stock held by a holder
who has demanded and perfected appraisal rights for such shares in accordance
with Section 3-203 of the MGCL and who, as of the Effective Time, has not
effectively withdrawn or lost such appraisal or dissenters' rights ("DISSENTING
SHARES"), shall not be converted into or represent a right to
-16-
receive Merger Consideration pursuant to Section 1.6, but instead shall be
converted into the right to receive only such consideration as may be determined
to be due with respect to such Dissenting Shares under the MGCL. 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 shareholder of the
Initially Surviving Corporation or the Surviving Corporation.
(b) Notwithstanding the provisions of Section 1.6(a), if any holder of
shares of Company Common Stock who demands appraisal of such shares under the
MGCL shall effectively withdraw or lose (through failure to perfect or
otherwise) the right to appraisal, then, as of the later of the Effective Time
and the occurrence of such event, such holder's shares shall no longer be
Dissenting Shares and shall automatically be converted into and represent only
the right to receive Merger Consideration as provided in Section 1.6(a) without
interest thereon, upon surrender of the certificate representing such shares
pursuant to Section 1.12.
(c) The Company shall give Parent (i) prompt notice of any written
demands for appraisal of any shares of Company Common Stock, withdrawals of such
demands, and any other instruments served pursuant to the MGCL and received by
the Company which relate to any such demand for appraisal and (ii) the
opportunity to participate in all negotiations and proceedings which take place
prior to the Effective Time with respect to demands for appraisal under the
MGCL. The Company shall not, except with the prior written consent of Parent,
voluntarily make any payment with respect to any demands for appraisal of
Company Common Stock or offer to settle or settle any such demands.
1.18 CROSS REFERENCES.
The following terms defined elsewhere in this Agreement in the Sections set
forth below shall have the respective meanings therein defined:
Term Section
---- --------------------
Accounting Arbitrator Section 1.9(b)(iii)
Adjusted Working Capital Section 1.8
Affidavit Section 1.12(a)
Agreement Preamble
Antitrust Filings Section 6.3(a)
Articles of Merger Section 1.2
Base Cash Section 1.6(b)(vi)
Base Consideration Section 1.6(b)(iii)
Base Parent Shares Section 1.6(b)(v)
Bonus Recipients Section 6.14(a)
Certificates Section 1.12(a)
Claims Section 7.4(g)(i)
Closing Section 1.2(a)
Closing Certificate Section 1.9(a)
Closing Date Section 1.2(a)
Code Recitals
Company Preamble
-17-
Term Section
---- --------------------
Company Balance Sheet Section 2.5(a)
Company Capital Stock Section 1.6(b)(vii)
Company Charter Documents Section 2.1(c)
Company Common Stock Section 2.2(a)
Company Contract Section 2.16
Company Convertible Securities Section 1.6(b)(viii)
Company Copyrights Section 2.10(a)
Company Disclosure Schedule Article 2
Company Financial Statements Section 2.5(a)
Company Marks Section 2.10(a)
Company Patents Section 2.10(a)
Company Permits Section 2.11(b)
Company Restricted Stock Section 1.14
Company Secret Information Section 2.10(a)
Company Series A Preferred Stock Section 2.2(a)
Company Series B-1 Preferred Stock Section 2.2(a)
Company Series C-1 Preferred Stock Section 2.2(a)
Company Series C-2 Preferred Stock Section 2.2(a)
Company Series D Preferred Stock Section 2.2(a)
Company Series E Preferred Stock Section 2.2(a)
Company Stockholders Section 1.6(b)(ix)
Confidentiality Agreement Section 6.6
Damages Section 7.1
Dispute Notice Section 1.9(b)(ii)
Dissenting Shares Section 1.17(a)
Earn-Out Bonus Section 6.14(b)
Earn-Out Consideration Section 1.6(c)
Earn-Out Payment Date Section 1.6(c)(iii)
Effective Time Section 1.2
Escrow Agent Section 1.10
Escrow Agreement Section 1.10
Escrow Value Section 7.4(g)(ii)
eStara Services Section 1.6(c)
eStara Revenue Section 1.6(c)
Excluded Adjustment Section 1.8(b)
Exclusively licensed Section 2.10(a)
GAAP Section 2.5(a)
Holder Section 6.1(a)
Indemnified Party Section 7.4(a)
Indemnifying Party Section 7.4(a)
Indemnity Escrow Section 1.10(a)
Ineligible Stockholder Section 1.6(b)(iv)
Ineligible Recipient Section 6.14(a)
Information Statement Section 6.4
Initially Surviving Corporation Section 1.1
-18-
Term Section
---- --------------------
Intellectual Property Rights Section 2.10(a)
Investor Questionnaire Section 3.7
Key Employee Section 8.3(j)
Leased Real Property Section 2.9(a)
Lock-Up Agreement Section 6.2(a)
Merger Recitals
Merger Consideration Section 1.6(b)(i)
Merger Sub Preamble
Merger Sub 1 Preamble
Merger Sub 2 Preamble
Merger Sub 1 Common Stock Section 1.6(f)
MGCL Recitals
Open Source Materials Section 2.10(n)
Other Filings Section 6.3(a)
Parent Preamble
Parent Charter Documents Section 4.1(b)
Parent Claim Section 7.3(b)
Parent Common Stock Section 4.2(a)
Parent Disclosure Schedule Article 4
Parent Financial Statements Section 4.7
Parent Group Section 7.1
Parent SEC Documents Section 4.7
Per Share Merger Consideration Section 1.6(b)(ii)
Specified Holder Permitted Transferee Section 6.2(a)
Pre-Closing Tax Period Section 6.5(b)(i)
Principal Stockholders Preamble
Program Code Section 2.10(n)
Registrable Securities Section 6.1(a)
Registration Statement Section 6.1(b)
Rights Agreement Section 1.6(a)
SBA Section 10.4
Second Articles of Merger Section 1.2(a)
Second Step Agreement of Merger Section 1.2(a)
Second Step Merger Recitals
Sell Section 6.2(a)
Software Section 2.10(a)
Special Meeting Section 6.4
Specified Holder Article 3A
Stockholder Claim Section 7.3(b)
Stockholder Representative Section 1.11
Stockholders Group Section 7.2
Straddle Period Section 6.5(b)(ii)
Survival Period Section 7.3
Surviving Corporation Section 1.3(b)
Third-Party Claims Section 7.4(d)
-19-
Term Section
---- --------------------
Threshold Section 7.4(g)(i)
Transaction Bonuses Section 1.8(d)
Transaction Expense Section 1.8(c)
Transmittal Certificate Section 1.12(a)
Treasury Regulations Section 1.15
Voting Agreements Recitals
Working Capital Escrow Section 1.10(b)
1.19 CERTAIN DEFINITIONS. As used herein, the following terms shall have
the following meanings:
(a) "ACQUISITION PROPOSAL" shall mean any offer or proposal (other
than an offer or proposal by Parent or either Merger Sub) relating to or
involving: (i) any acquisition or purchase by any Person or "group" (as defined
under Section 13(d) of the Exchange Act and the rules and regulations
thereunder) of beneficial ownership (as defined in Rule 13d-3 under the Exchange
Act) of more than 15% of the total number of outstanding voting securities of
any Target Company; (ii) any tender offer or exchange offer that if consummated
would result in any Person or "group" (as defined under Section 13(d) of the
Exchange Act and the rules and regulations thereunder) having beneficial
ownership (as defined in Rule 13d-3 under the Exchange Act) of more than 15% of
the total number of outstanding voting securities of any Target Company; (iii)
any merger, consolidation, business combination or similar transaction involving
any Target Company pursuant to which the stockholders of the Company or such
Subsidiary immediately preceding such transaction hold less than 85% of the
equity interests in the surviving or resulting entity of such transaction; (iv)
any sale, lease, exchange, transfer, license (other than in the ordinary course
of business), acquisition, or disposition of any material assets of any Target
Company; or (v) any liquidation or dissolution of any Target Company.
(b) "AFFILIATE" of a specified Person shall mean each other Person who
controls, is controlled by, or is under common control with the specified
Person.
(c) "COBRA" shall mean the Consolidated Omnibus Budget Reconciliation
Act of 1985, as amended.
(d) "COMMERCIALLY AVAILABLE SOFTWARE" shall mean any commercially
available third-party "off-the-shelf" software licensed to the Company on a
non-exclusive basis.
(e) "COMMON SHARE EQUIVALENT" shall mean each share of Company Common
Stock (i) outstanding immediately prior to the Effective Time or (ii) into or
for which each share of Company Capital Stock or Company Convertible Securities
is convertible or exercisable as of the Effective Time.
(f) "COMPANY AGREEMENTS" shall mean (i) the Second Amended and
Restated Stockholders Agreement dated as July 27, 2001, as amended by the
Amendment No. 1 to Second Amended and Restated Stockholders Agreement dated as
of February 28, 2006, and (ii) the Second Amended and Restated Registration
Rights Agreement dated as of July 27, 2001, as
-20-
amended by the First Amendment to Second Amended and Restated Registration
Rights Agreement dated as of October 10, 2001.
(g) "COMPANY EMPLOYEE PLAN" shall mean any program, policy, practice,
trust, Contract or other plan providing for compensation, severance, termination
pay, performance awards, stock or stock-related awards, fringe benefits or other
benefits or remuneration of any kind, whether written or unwritten, funded or
unfunded, which is or has been maintained, contributed to, or required to be
contributed to, by any Target Company for the benefit of any Employee or any
relative or dependent of any Employee, including (i) each "employee benefit
plan" within the meaning of Section 3(3) of ERISA, (ii) any stock, stock option,
stock appreciation right, stock purchase, bonus, deferred compensation, pension,
profit-sharing, commission, retirement, severance, retention, change of control,
or similar plan or Contract, and (iii) any provision in any staff handbook or
written employment policies for any Target Company.
(h) "COMPANY MATERIAL ADVERSE EFFECT" means any change, event,
circumstance or effect (whether or not such change, event, circumstance or
effect constitutes a breach of a representation, warranty or covenant regarding
the Company in this Agreement) that is, or is reasonably likely to be,
materially adverse to the business, assets (including intangible assets),
capitalization, financial condition, operations or results of operations of the
Target Companies, taken as a whole, exclusive of any effect arising from or
related to: (i) any general condition affecting the industry in which the
Company is engaged and that do not affect the Company disproportionately, as
compared to other companies in such industry; (ii) the announcement or pendency
of this Agreement or any of the transactions contemplated hereby, or the
disclosure of the identity of Parent as the acquiror of the Company; (iii) any
action taken by Company Stockholders or the Company at Parent's or either Merger
Sub's request or pursuant to a requirement in the Transaction Documents; (iv)
acts of war or terrorism; (v) general economic, political and financial market
changes that do not affect the Company disproportionately; or (vi) any action
(or failure to take any action) by Parent or either Merger Sub, except as
required or contemplated by this Agreement.
(i) "COMPANY OPTION" shall mean each outstanding unexercised option to
purchase Company Stock, whether or not vested or fully exercisable, granted
under any Company Option Plan.
(j) "COMPANY OPTION PLAN(S)" shall mean the Company's 2002 Equity
Incentive Plan.
(k) "COMPANY WARRANT" shall mean each of those certain warrants to
purchase Common Stock of the Company originally issued (i) on or about October
6, 2000 to Acon Venture Partners, L.P. and (ii) on or about July 24, 2002 to
persons that currently are the holders of the Company's Series E Preferred
Stock.
(l) "CONFIDENTIAL INFORMATION" shall mean any information concerning
the business and affairs of Parent and its Subsidiaries or the Target Companies,
as the case may be, that is not already generally available to the public, other
than (i) information which becomes generally available to the public other than
as a result of a disclosure in violation of this
-21-
Agreement, and (ii) information which becomes available to the applicable Party
on a non-confidential basis from a Person who is not known or reasonably
suspected (in each case after reasonable inquiry) by such Party to be bound not
to disclose the information. All information concerning the business and affairs
of Parent and its Subsidiaries and the Target Companies (including the
information contained in the Company Disclosure Schedule) shall be presumed to
be Confidential Information, and the applicable Party who receives such
Confidential Information shall have the burden of proving that any such
information is not Confidential Information.
(m) "CONTRACT" shall mean any contract, agreement, instrument,
license, lease, mortgage, note, bond, debenture, indenture, guarantee, permit,
franchise, concession, plan, option, warranty, purchase order, insurance policy,
obligation, covenant, undertaking, arrangement or other legally binding
commitment or of any nature, whether written or oral.
(n) "EMPLOYEE" shall mean any current, former or retired employee,
officer, director of the Company or any ERISA Affiliate.
(o) "EMPLOYEE AGREEMENT" shall mean each management, employment,
retention, severance, change-of-control, consulting, indemnification,
relocation, repatriation, expatriation, visa, work permit or similar Contract
between the Company or any ERISA Affiliate and any Employee or consultant,
including any offer letter.
(p) "ENCUMBRANCES" shall mean any lien, pledge, hypothecation, charge,
mortgage, security interest, encumbrance, restrictive covenant, claim,
infringement, interference, option, right of first refusal, preemptive right,
community property interest or restriction of any nature (including any
restriction on the voting of any security, any restriction on the transfer of
any security or other asset, any restriction on the receipt of any income
derived from any asset, any restriction on the use of any asset and any
restriction on the possession, exercise or transfer of any other attribute of
ownership of any asset) and, in the case of leasehold real property, rent and
service charges.
(q) "ENVIRONMENTAL CLAIM" shall mean any written notice alleging
potential liability (including potential liability for investigatory costs,
cleanup costs, response or remediation costs, natural resources damages,
property damages, personal injuries, fines or penalties) arising out of, based
on or resulting from (a) the presence, or release of any Environmental Material
at any location, whether or not owned by that party or any of its Affiliates or
(b) circumstances forming the basis of any violation, or alleged violation, of
any Environmental Law and which could reasonably be expected to have a Company
Material Adverse Effect.
(r) "ENVIRONMENTAL LAWS" shall mean any and all statutes, regulations
and ordinances relating to the protection of public health, safety or the
environment.
(s) "ENVIRONMENTAL MATERIAL" shall mean PCBs, asbestos, petroleum and
its by-products, any substance that has been designated by any Governmental
Entity or by applicable law to be radioactive, toxic, hazardous or otherwise a
danger to public health or the
-22-
environment, and all other substances or constituents that are regulated by, or
form the basis of liability under, any Environmental Law.
(t) "ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended.
(u) "ERISA AFFILIATE" shall mean any other Person under common control
with the Company within the meaning of Sections 414(b), (c), (m) or (o) of the
Code and the regulations issued thereunder.
(v) "EXCHANGE ACT" shall mean the Securities Exchange Act of 1934, as
amended.
(w) "FAMILY MEMBER" shall mean any spouse, parent, grandparent, child,
grandchild or sibling or any other person sharing the same household.
(x) "FMLA" shall mean the Family Medical Leave Act of 1993, as
amended.
(y) "GOVERNMENTAL ENTITY" shall mean any court or any administrative,
regulatory or governmental body, agency, commission, panel, authority,
organization or instrumentality, whether domestic, foreign or international.
(z) "IRS" shall mean the Internal Revenue Service.
(aa) "KNOWLEDGE" with respect to the Company and a particular fact or
matter, shall mean: (i) the actual awareness of such fact or matter by any
officer or director of the Company or any of the following employees of the
Company: Xxxx Xxxxxxxx, Xxxxxx Xxxxxxxx, and Xxxxxxxx Stock, (ii) the awareness
that any such officer, director or employee would be expected to obtain in the
course of conducting a reasonably comprehensive investigation of matters within
the scope of such person's responsibilities concerning the existence of such
fact or matter, and (iii) any information contained in the Company's books and
records that any such officer, director or employee would be expected to obtain
in the course of such person's recent review of such books and records, and
"KNOWN" shall have the corresponding meaning.
(bb) "LEGAL REQUIREMENT" shall mean any federal, state, local,
municipal, provincial, foreign, international or other law, statute,
constitution, treaty, principle of common law, resolution, ordinance, code,
edict, decree, rule, regulation, ruling or requirement issued, enacted, adopted,
promulgated, implemented or otherwise put into effect by or under the authority
of any Governmental Entity.
(cc) "MULTIEMPLOYER PLAN" shall mean any Pension Plan (as defined
below) which is a "multiemployer plan," as defined in Section 3(37) of ERISA.
(dd) "PARENT MATERIAL ADVERSE EFFECT" means any change, event,
circumstance or effect (whether or not such change, event, circumstance or
effect constitutes a breach of a representation, warranty or covenant regarding
Parent in this Agreement) that is or is reasonably likely to be materially
adverse to the business, assets (including intangible assets), capitalization,
financial condition, operations, results of operations or prospects of Parent;
provided, however,
-23-
that fluctuations in the trading price of the Parent Common Stock, in and of
themselves, shall not constitute a Parent Material Adverse Effect, and exclusive
of any effect arising from or related to: (i) any general condition affecting
the industry in which Parent is engaged and that do not affect Parent
disproportionately; (ii) the announcement or pendency of this Agreement or any
of the transactions contemplated hereby; (iii) any action taken by Parent or
either Merger Sub at the Company's request or pursuant to a requirement in the
Transaction Documents; (iv) acts of war or terrorism; (v) general economic,
political and financial market changes that do not affect Parent
disproportionately, or (v) any action or omission by the Company.
(ee) "PENSION PLAN" shall mean each Company Employee Plan which is an
"employee pension benefit plan," within the meaning of Section 3(2) of ERISA.
(ff) "PERMITTED TRANSFER" shall mean a transfer as a gift, partnership
distribution or other non-sale related transfer without consideration by a
Holder to a Permitted Transferee.
(gg) "PERMITTED TRANSFEREE" shall mean (i) with respect to a
partnership, its partners or former partners in accordance with their
partnership interests, (b) with respect to a corporation, its stockholders in
accordance with their interest in the corporation, (c) with respect to a limited
liability company, its members or former members in accordance with their
interest in the limited liability company, and (d) with respect to an individual
party, any Family Member of such party.
(hh) "PERSON" shall mean any individual, corporation (including any
non-profit corporation), general partnership, limited partnership, limited
liability partnership, joint venture, estate, trust, company (including any
limited liability company or joint stock company), firm or other enterprise,
association, organization, entity or Governmental Entity.
(ii) "REQUIRED STOCKHOLDER VOTE" shall mean (i) the affirmative vote,
at a meeting of the stockholders of the Company duly called in accordance with
Company Charter Documents and Sections 2-502 and 2-104(b) of the MGCL, of the
holders of a majority of the votes entitled to be cast by the holders of the
outstanding shares of Company Capital Stock (voting together as a single class
on an as-converted to Company Common Stock basis); and (ii) the affirmative vote
or consent, as the case may be, of the holders of at least 60% of the Series C
Preferred Stock, voting as a separate class.
(jj) "SUBSIDIARY" of a specified entity shall mean any corporation,
partnership, limited liability company, joint stock company, joint venture or
other legal entity of which the specified entity (either alone or through or
together with any other Subsidiary) owns, directly or indirectly, 50% or more of
the stock or other equity, partnership or other ownership interests the holders
of which are generally entitled to vote for the election of the Board of
Directors or other governing body of such corporation or other legal entity.
(kk) "TARGET COMPANY" shall mean any of the Company and its
Subsidiaries.
(ll) "TAX" or "TAXES" shall mean any federal, state, local, municipal,
provincial, foreign or international income, gross receipts, license, payroll,
telecommunications, employment, excise, severance, stamp, stamp duty, stamp duty
land tax, occupation, premium,
-24-
windfall profits, environmental (including taxes under Code Section 59A),
customs duties, capital stock, franchise, profits, withholding, social security
(or similar), unemployment, disability, real property, personal property, sales,
use, transfer, registration, value-added, alternative or add-on minimum,
estimated, or other tax of any kind whatsoever, including any interest, penalty,
or addition thereto, whether disputed or not and including any obligations to
indemnify or otherwise assume or succeed to the Tax liability of any other
Person.
(mm) "TAX RETURN" shall mean any return (including any land
transaction return), declaration, report, claim for refund, notice, accounting
computations, assessment, election or information return or statement relating
to Taxes, including any schedule or attachment thereto, and including any
amendment thereof.
(nn) "TRANSACTION DOCUMENTS" shall mean this Agreement, the Second
Step Agreement of Merger, the Voting Agreements, the Escrow Agreement and each
of the other agreements and instruments to be executed and delivered by any
party in connection with the consummation of the transactions contemplated
hereby.
ARTICLE 2
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
As of the date of this Agreement and as of the Closing Date, the Company
represents and warrants to Parent and each Merger Sub as set forth in this
Article 2, subject to any exceptions expressly stated in the disclosure schedule
delivered by the Company to Parent dated as of the date hereof and certified on
behalf of the Company by a duly authorized officer of the Company (the "COMPANY
DISCLOSURE SCHEDULE"). Exceptions on the Company Disclosure Schedule shall
specifically identify the representation to which they relate; provided,
however, that any matter disclosed pursuant to one section or subsection of the
Company Disclosure Schedule is deemed disclosed for such other sections or
subsections of the Company Disclosure Schedule as, and only to the extent that,
it is readily apparent that such matter relates to such other section or
subsection of the Company Disclosure Schedule and the level of particularity and
manner of disclosure of the matter expressly disclosed in one section or
subsection of the Company Disclosure Schedule would make a reasonable person
aware that such disclosure is relevant to such other sections or subsections.
2.1 ORGANIZATION; SUBSIDIARIES.
(a) Each Target Company (i) is a corporation duly organized, validly
existing and in good standing under the laws of the jurisdiction in which it is
organized; (ii) has the requisite corporate or other power and authority to own,
lease and operate its assets and properties and to carry on its business as now
being conducted; and (iii) is duly qualified or licensed to do business in each
jurisdiction where the character of the properties owned, leased or operated by
it or the nature of its activities makes such qualification or licensing
necessary, except where the failure to be so qualified or licensed would not
have a Company Material Adverse Effect. Part 2.1(a) of the Company Disclosure
Schedule lists each Subsidiary of the Company and each jurisdiction where any
Target Company is qualified or licensed to do business. Part 2.1(a) of the
Company Disclosure Schedule indicates the jurisdiction of organization of each
entity listed therein, the capitalization of each such entity (other than the
-25-
Company), and the ownership of all securities of such entity, including the
direct or indirect equity interest of each Target Company therein (all of which
are held free and clear of all Encumbrances).
(b) Other than the Subsidiaries identified in Part 2.1(a) of the
Company Disclosure Schedule, no Target Company owns any capital stock of, or any
equity interest of any nature in, any Person. No Target Company has agreed or is
obligated to make, or is bound by any written or oral Contract as in effect as
of the date hereof or as may hereinafter be in effect under which it may become
obligated to make any future investment in or capital contribution to any other
Person. No Target Company has at any time been a general partner of any general
partnership, limited partnership or other Person.
(c) The Company has delivered or made available to Parent true and
correct copies of the Articles of Incorporation and Bylaws of the Company and
similar governing instruments of each of its Subsidiaries, each as amended to
date (collectively, the "COMPANY CHARTER DOCUMENTS"), and each such instrument
is in full force and effect. No Target Company is in violation of any of the
provisions of the Company Charter Documents. The Company has delivered or made
available to Parent all proposed or considered amendments to the Company Charter
Documents that the Company intends to adopt on or prior to the Closing Date.
(d) Part 2.1(d) of the Company Disclosure Schedule lists all of the
current directors and officers (or equivalent) of each Target Company.
2.2 COMPANY CAPITALIZATION.
(a) The authorized capital stock of the Company consists solely of (i)
80,000,000 shares of Common Stock, par value $0.01 per share (the "COMPANY
COMMON STOCK"), of which 23,485,901 shares are issued and outstanding on the
date of this Agreement and (ii) 30,000,000 shares of Company Preferred Stock, of
which (a) 213,440 are designated Series A Convertible Preferred Stock, par value
$0.01 per share (the "COMPANY SERIES A PREFERRED STOCK"), all of which are
issued and outstanding on the date of this Agreement, (b) 1,409,595 are
designated Series B-1 Convertible Preferred Stock, par value $0.01 per share
(the "COMPANY SERIES B-1 PREFERRED STOCK"), none of which are issued and
outstanding on the date of this Agreement, (c) 1,373,191 are designated Series
C-1 Convertible Preferred Stock, par value $0.01 per share (the "COMPANY SERIES
C-1 PREFERRED STOCK"), all of which are issued and outstanding on the date of
this Agreement, (d) 2,023,097 are designated Series C-2 Convertible Preferred
Stock, par value $0.01 per share (the "COMPANY SERIES C-2 PREFERRED STOCK"), of
which 2,023,091 are issued and outstanding on the date of this Agreement, (e)
1,956,565 are designated Series D Convertible Preferred Stock, par value $0.01
per share (the "COMPANY SERIES D PREFERRED STOCK"), all of which are issued and
outstanding on the date of this Agreement, and (f) 7,000,000 are designated
Series E Convertible Preferred Stock, par value $0.01 per share (the "COMPANY
SERIES E PREFERRED STOCK"), of which 6,890,586 are issued and outstanding on the
date of this Agreement. Except as aforesaid, there are no other authorized,
issued or outstanding shares of capital stock of the Company. The outstanding
shares of Company Capital Stock and Common Share Equivalents are held of record
by the Persons named in Part 2.2(a) of the Company Disclosure Schedule in the
amounts set forth opposite their respective names. All outstanding shares of
Company Stock are duly authorized, validly issued,
-26-
fully paid and nonassessable and are not subject to preemptive rights created by
statute, the Certificate of Incorporation or Bylaws of the Company or, except as
provided in the Company Agreements (each of which will expire or be terminated
in accordance with its terms at or before the Effective Time), any Contract to
which any Target Company is a party or by which it is bound. There are no shares
of Company Stock held in treasury by the Company.
(b) The Company Option Plans are the only equity plans of any Target
Company. Part 2.2(b) of the Company Disclosure Schedule sets forth the following
information with respect to each Company Option and Company Warrant outstanding
on the date of this Agreement: (i) the name of the optionee or holder; (ii) the
number and type of shares of Company Stock subject to such Company Option or
Company Warrant; (iii) the exercise price of such Company Option or Company
Warrant; (iv) the date on which such Company Option was granted or assumed; (v)
the date on which such Company Option expires, (vi) if applicable, the Company
Option Plan pursuant to which such Company Option was granted, and (vii) whether
the exercisability of such Company Option will be accelerated in any way by the
transactions contemplated by this Agreement, and indicates the extent of any
such acceleration. The Company has made available to Parent accurate and
complete copies of each Company Option Plan, each Company Warrant and each form
of Contract evidencing any Company Options. Except as set forth in Part 2.2(b)
of the Company Disclosure Schedule, there are no Contracts or arrangements of
any character to which any Target Company is bound obligating any Target Company
to accelerate the vesting of any Company Option as a result of any of the
transactions contemplated hereby. All Company Options may be terminated by the
Company as provided in Section 1.6(e)(i).
(c) All securities of each Target Company have been issued and granted
in compliance in all material respects with (i) all applicable securities laws
and other applicable Legal Requirements and (ii) all requirements set forth in
applicable Contracts.
(d) Schedule II accurately sets forth as of the date of this
Agreement, and any updated Schedule II delivered by the Company to Parent at the
Closing will accurately set forth as of the Effective Time, the allocation of
the Merger Consideration and the Escrow Fund to each Company Stockholder
pursuant to the Articles of Incorporation of the Company and this Agreement.
2.3 OBLIGATIONS WITH RESPECT TO CAPITAL STOCK. Except as set forth in Parts
2.2(b) and 2.3 of the Company Disclosure Schedule, there are no equity
securities, partnership interests or other ownership interests of any class, or
any securities exchangeable or convertible into or exercisable for any of the
foregoing, issued, reserved for issuance or outstanding with respect to the
Company or, except as set forth in Part 2.1(a) of the Company Disclosure
Schedule, with respect to any other Target Company. Except as set forth in Part
2.2(b) or Part 2.3 of the Company Disclosure Schedule, there are no
subscriptions, options, warrants, equity securities, convertible debt,
partnership interests or other ownership interests, calls, rights (including
preemptive rights) or Contracts of any character to which any Target Company is
a party or by which it is bound obligating any Target Company to issue, deliver
or sell, or repurchase, redeem or otherwise acquire, any equity securities,
partnership interests or other ownership interests of any Target Company or
obligating any Target Company to grant, extend, accelerate the vesting of or
enter into any such subscription, option, warrant, equity security, call, right
or Contract.
-27-
Except as provided in the Company Agreements, there are no registration rights,
and there is no voting trust, proxy, rights agreement, "poison pill"
anti-takeover plan or other Contract to which any Target Company is a party or
by which it is bound with respect to any equity security of any class of the
Company or any equity security, partnership interest or other ownership interest
of any class of any other Target Company.
2.4 AUTHORITY; NON-CONTRAVENTION.
(a) The Company has all requisite corporate power and authority to
enter into this Agreement and the Escrow Agreement and to consummate the
transactions contemplated hereby and thereby. The execution and delivery by the
Company of this Agreement and the Escrow Agreement and the consummation by the
Company of the transactions contemplated hereby and thereby have been duly
authorized by all necessary corporate action on the part of the Company, subject
only to obtaining the Required Stockholder Vote for the adoption and approval of
this Agreement and the Merger, and the filing of the Articles of Merger pursuant
to the MGCL. The Required Stockholder Vote is sufficient for the Company's
stockholders to approve and adopt this Agreement and approve the Merger, and no
other approval of any holder of any securities of the Company is required in
connection with the consummation of the transactions contemplated hereby. This
Agreement has been duly executed and delivered by the Company and, assuming the
due authorization, execution and delivery of this Agreement by Parent, each
Merger Sub, the Company Stockholders and the Company Stockholder Representative,
constitutes the valid and binding obligation of the Company, enforceable against
the Company in accordance with its terms, except as enforceability may be
limited by bankruptcy and other similar laws affecting the rights of creditors
generally and general principles of equity. Assuming the due authorization,
execution and delivery of the Escrow Agreement by Parent, each Merger Sub, the
Escrow Agent and the Company Stockholder Representative, the Escrow Agreement,
when executed and delivered by the Company, will constitute the valid and
binding obligation of the Company, enforceable against the Company in accordance
with its terms, except as enforceability may be limited by bankruptcy and other
similar laws affecting the rights of creditors generally and general principles
of equity.
(b) The execution and delivery by the Company of this Agreement and
the Escrow Agreement do not, and the performance by the Company of this
Agreement and the Escrow Agreement will not, (i) conflict with or violate the
Company Charter Documents, (ii) subject to compliance with the requirements set
forth in Section 2.4(c), conflict with or violate any Legal Requirement
applicable to any Target Company or by which any Target Company or any of its
material properties or assets is bound or affected, or (iii) result in any
material breach of or constitute a material default (or an event that with
notice or lapse of time or both would become a material default) under, or
materially impair a Target Company's rights or alter the rights or obligations
of any third party under, or give to others any rights of termination,
amendment, acceleration or cancellation of, or result in the creation of an
Encumbrance on any of the properties or assets of any Target Company pursuant
to, any material Contract to which any Target Company is a party or by which any
Target Company or its properties or assets are bound or affected. No consent,
waiver or approval of any Person, nor any notice to any Person, is required to
be obtained or made under any Contract to which any Target Company is a party or
by which any Target Company or any of its properties or assets is bound or
affected in connection with the execution and delivery by the Company of this
Agreement or the
-28-
performance of this Agreement by the Company, except for such consents, waivers,
approvals and notices as have duly been obtained (under the Company Agreements
or otherwise), or the lack of which, individually or in the aggregate, would not
be material to the Company.
(c) No consent, approval, order or authorization of, or registration,
declaration or filing with any Governmental Entity or other Person, is required
to be obtained or made by the Company in connection with the execution and
delivery of this Agreement or the consummation of the transactions contemplated
hereby, except for the filing of the Articles of Merger with the Secretary of
State of the State of Maryland and appropriate documents with the relevant
authorities of other states in which the Company is qualified or licensed to do
business.
2.5 FINANCIAL STATEMENTS.
(a) Part 2.5 of the Company Disclosure Schedule includes complete and
correct copies of (i) the unaudited consolidated balance sheets and statements
of income, stockholders' equity and cash flows of the Company as of July 31,
2006 and for the seven months ended July 31, 2006 and (ii) the audited
consolidated balance sheets and statements of income, stockholders' equity and
cash flows of the Company as of December 31, 2003, 2004 and 2005 and for the
fiscal years ended December 31, 2003, 2004 and 2005. Collectively, the financial
statements referred to in the immediately preceding sentence are sometimes
referred to herein as the "COMPANY FINANCIAL STATEMENTS," and the unaudited
consolidated balance sheet of the Company as of July 31, 2006 is sometimes
referred to herein as the "COMPANY BALANCE SHEET." Each of the Company Financial
Statements (1) was prepared in accordance with GAAP, applied on a consistent
basis throughout the periods involved, and (2) fairly presented the consolidated
financial position of the Target Companies as at the respective dates thereof
and the consolidated results of the Target Companies' operations and cash flows
for the periods indicated, except that the unaudited Company Financial
Statements referred to in clause (i) above may not contain all the footnotes
required by GAAP, and were or are subject to normal and recurring year-end
adjustments that the Company does not reasonably expect to be material,
individually or in the aggregate.
(b) The Company has not been notified by any accountant that such
accountant is of the view that any of the Company Financial Statements should be
restated or that the Company should modify its accounting for any period.
2.6 NO UNDISCLOSED LIABILITIES. No Target Company has any material
liabilities (absolute, accrued, contingent or otherwise), except for (a)
liabilities and obligations shown on the Company Balance Sheet, (b) liabilities
and obligations incurred since the date of the Company Balance Sheet in the
ordinary course of business consistent with past practice, and (c) liabilities
and obligations disclosed in this Agreement or the Company Disclosure Schedule.
No Target Company has or will have as of or following the Closing any obligation
or liability for earn-outs or other contingent payments payable to former owners
of assets, stock or other interests acquired by any Target Company or otherwise
arising out of previous transactions by any Target Company. Except as set forth
in Part 2.6 of the Company Disclosure Schedule, the Target Companies do not have
any material off-balance sheet arrangements as defined in Item 303(a)(4)(ii) of
Regulation S-K of the SEC.
-29-
2.7 ABSENCE OF CERTAIN CHANGES OR EVENTS.
(a) Since the date of the Company Balance Sheet, there has not been:
(i) any Company Material Adverse Effect, (ii) any declaration, setting aside or
payment of any dividend on, or other distribution (whether in cash, stock or
property) in respect of, any of any Target Company's capital stock, or any
purchase, redemption or other acquisition by any Target Company of any Target
Company's capital stock or any other securities of any Target Company or any
grant or issuance of any options, warrants, calls or rights to acquire any such
shares or other securities, (iii) any split, combination or reclassification of
any Target Company's capital stock, (iv) any granting by any Target Company of
any increase in compensation or fringe benefits to any directors, officers,
employees or consultants of any Target Company, or any payment by any Target
Company of any bonus to any directors, officers, employees or consultants of any
Target Company, (v) any acquisition, sale or transfer of any material asset by
any Target Company other than software licenses granted by the Company to
customers in the ordinary course of business and consistent with past practice,
(vi) any change by any Target Company in its accounting methods, principles or
practices, except as required by concurrent changes in GAAP, (vii) any material
revaluation by any Target Company of any of its assets, including writing off
notes or accounts receivable, (viii) any granting by any Target Company of any
increase in severance or termination pay, (ix) any cancellation or termination
of any development, licensing, distribution, sales, services or other similar
Contract with respect to any Intellectual Property Rights (as defined in Section
2.10), except by the Company in the ordinary course of business consistent with
past practice, (x) any cancellation, compromise, waiver or release of any right
or claim (or series of rights or claims) involving more than $20,000, (xi) any
material damage, destruction or loss (whether or not covered by insurance) to
any property or assets material to the conduct of the business of any Target
Company; (xii) any creation of any Encumbrance on any of the property or assets
of any Target Company, (xiii) any capital expenditure in excess of $10,000,
(xiv) any creation of any indebtedness for borrowed money in excess of $10,000,
(xv) any entering into, amendment, modification, cancellation or termination of
any material Contract other than in the ordinary course of business consistent
with past practice or (xvi) entering into any Contract to do any of the
foregoing.
2.8 TAXES.
(a) Each Target Company has filed all Tax Returns that it was required
to file under applicable Legal Requirements and has complied with all Legal
Requirements in respect of all Taxes. All such Tax Returns were correct and
complete in all material respects and were prepared in substantial compliance
with all applicable Legal Requirements. All Taxes due and owing by any Target
Company (whether or not shown on any Tax Return) have been paid. No Target
Company is currently the beneficiary of any extension of time within which to
file any Tax Return. No claim has ever been made by a Governmental Entity in a
jurisdiction where a Target Company does not file Tax Returns that such Target
Company is or may be subject to taxation by that jurisdiction. There are no
liens for Taxes (other than Taxes not yet due and payable) upon any of the
assets of any Target Company.
(b) Each Target Company has withheld and paid all Taxes required to
have been withheld and paid in connection with any amounts paid or owing to any
employee, independent contractor, creditor, stockholder, or other third party.
-30-
(c) No foreign, federal, state, or local tax audits or administrative
or judicial Tax proceedings are pending or, to the Company's Knowledge, being
conducted with respect to any Target Company. No Target Company has received
from any foreign, federal, state, or local Governmental Entity (including
jurisdictions where such Target Company has not filed Tax Returns) any (i)
written notice indicating an intent to open an audit or other review, (ii)
request for information related to Tax matters, or (iii) notice of deficiency or
proposed adjustment for any amount of Tax proposed, asserted, or assessed by any
Taxing authority against any Target Company. Part 2.8(c) of the Company
Disclosure Schedule lists all foreign, federal, state and local income Tax
Returns filed with respect to any Target Company for taxable periods ended on or
after December 31, 1999, indicates those Tax Returns that have been audited, and
indicates those Tax Returns that currently are the subject of an audit. The
Company has delivered to Parent correct and complete copies of all such Tax
Returns and all examination reports, and statements of deficiencies assessed
against or agreed to by any Target Company since December 31, 1999.
(d) No Target Company has waived any statute of limitations in respect
of Taxes or agreed to any extension of time with respect to a Tax assessment or
deficiency.
(e) Part 2.8(e) of the Company Disclosure Schedule sets forth the
Company's good faith estimate of the aggregate amount that will be deemed to be
an "excess parachute payment" within the meaning of Code Section 280G (and any
corresponding provision of state, local or foreign Tax law) if all amounts
payable hereunder are actually paid. Unless the Company Stockholders approve
such payments in accordance with Code Section 280G, such amount will not be
fully deductible as a result of Code Section 162(m) (and any corresponding
provision of state, local or foreign Tax law).
(f) No Target Company has been a United States real property holding
corporation within the meaning of Code Section 897(c)(2) during the applicable
period specified in Code Section 897(c)(1)(A)(ii). Each Target Company has
disclosed on its federal income Tax Returns all positions taken therein that
could give rise to a substantial understatement of federal income Tax within the
meaning of Code Section 6662. No Target Company is a party to or bound by any
Tax allocation or sharing Contract. No Target Company (A) has been a member of
an affiliated group filing a consolidated federal income Tax Return (other than
a group the common parent of which was the Company) or (B) has any liability for
the Taxes of any Person (other than any Target Company) under Reg. Section
1.1502-6 (or any similar provision of state, local or foreign law), as a
transferee or successor, by contract, or otherwise.
(g) To the Company's knowledge, Part 2.8(g) of the Company Disclosure
Schedule sets forth the following information with respect to each Target
Company (or, in the case of clause (B) below, with respect to each of the
Company's Subsidiaries) as of the most recent practicable date (but not earlier
than December 31, 2005) (as well as on an estimated pro forma basis as of the
Closing giving effect to the consummation of the transactions contemplated
hereby): (A) the basis of the Target Company in its assets; (B) the basis of the
Company in the stock of each Subsidiary (or the amount of any excess loss
account); (C) the amount of any net operating loss, net capital loss, unused
investment or other credit, unused foreign tax, or excess charitable
contribution allocable to each Target Company; and (D) the amount of any
deferred gain or loss allocable to each Target Company arising out of any
intercompany transaction.
-31-
(h) The unpaid Taxes of the Target Companies (A) did not, as of the
date of the Company Balance Sheet, exceed the reserve for Tax liability
(excluding any reserve for deferred Taxes established to reflect timing
differences between book and Tax income) set forth on the face of the Company
Balance Sheet (rather than in any notes thereto) and (B) do not exceed that
reserve as adjusted for the passage of time through the Closing Date in
accordance with the past custom and practice of the Target Companies in filing
their Tax Returns. Since the date of the Company Balance Sheet, no Target
Company has incurred any liability for Taxes arising from extraordinary gains or
losses, as that term is used in GAAP, outside the ordinary course of business
consistent with past custom and practice.
(i) No Target Company will be required to include any item of income
in, or exclude any item of deduction from, taxable income for any taxable period
(or portion thereof) ending after the Closing Date as a result of any:
(i) change in method of accounting for a taxable period ending on
or prior to the Closing Date;
(ii) "closing agreement" as described in Code Section 7121 (or
any corresponding or similar provision of state, local or foreign income
Tax law) executed on or prior to the Closing Date;
(iii) intercompany transaction or excess loss account described
in Treasury Regulations under Code Section 1502 (or any corresponding or
similar provision of state, local or foreign income Tax law);
(iv) installment sale or open transaction disposition made on or
prior to the Closing Date; or
(v) prepaid amount received on or prior to the Closing Date.
(j) No Target Company has distributed stock of another Person, or has
had its stock distributed by another Person, in a transaction that was purported
or intended to be governed in whole or in part by Code Section 355 or Code
Section 361.
(k) No Target Company has engaged in any transaction that constitutes
a listed reportable or substantially similar transaction as described under
Section 6011 of the Code and Treasury regulations promulgated thereunder.
2.9 TITLE TO PROPERTIES.
(a) No Target Company holds any interest in real property, other than
the leaseholds described in Part 2.9 of the Company Disclosure Schedule (such
property being the "LEASED REAL PROPERTY"). Part 2.9 of the Company Disclosure
Schedule lists all real property leases (including underleases, serviced office
Contracts and any licenses, consents and approvals required from the landlords
and any superior landlords with respect to any such lease) to which any Target
Company is a party and each amendment thereto. All such current leases are in
full force and effect, are valid and effective in accordance with their
respective terms, and there is not, under any of such leases, any existing
default or event of default (or event which with notice
-32-
or lapse of time, or both, would constitute a default) that would give rise to a
claim against any Target Company in excess of $10,000. Such leases permit the
current occupation and use of such real property by the Target Companies. The
Leased Real Property comprises all the real property occupied or otherwise used
by the Target Companies.
(b) Each Target Company has good and marketable title to, or, in the
case of leased properties and assets, valid leasehold interests in, all of its
material tangible properties and assets, real, personal and mixed, used or held
for use in its business, free and clear of any Encumbrances except for liens for
Taxes not yet due and payable and such Encumbrances, if any, which are not,
individually or in the aggregate, material in character, amount or extent. The
Leased Real Property is free of any tenancy, sub-tenancy, license or other
Contract entitling a person other than the Target Companies to occupy the whole
or any part. There are no outstanding actions, disputes, claims or demands
between any Target Company and any third party affecting the Leased Real
Property or any neighboring property or any boundary walls and fences, or with
respect to any easement, right or means of access to the Leased Real Property.
To the Knowledge of the Company, there is no resolution, proposal, scheme or
order, whether or not formally adopted, that would materially interfere with the
use or occupation of, or access to, the Leased Real Property by the Target
Companies.
(c) All of the tangible properties and assets of the Target Companies
are in adequate operating condition to conduct the operations of the Target
Companies in substantially the same manner as currently conducted.
(d) Except as set forth in the leases set forth in Part 2.9 of the
Company Disclosure Schedule, no Target Company has any material liability,
actual or contingent, arising directly or indirectly out of any Contract,
underlease, tenancy, conveyance, transfer or any other deed or document relating
to real property or to any estate or interest in real property entered into by
any Target Company including any actual or contingent liability arising directly
or indirectly out of (i) any estate or interest held by any Target Company as
original lessee or underlessee; (ii) any guarantee given by any Target Company
in relation to a lease or underlease; or (iii) any other covenant made by any
Target Company in favor of any lessor or head lessor.
2.10 INTELLECTUAL PROPERTY.
(a) For purposes of this Agreement, "INTELLECTUAL PROPERTY RIGHTS"
shall mean all intellectual property rights anywhere in the world held or used
(whether or not owned) by any Target Company in the conduct of its business,
including: (i) all trademarks, service marks, trade names, Internet domain
names, trade dress, and the goodwill associated therewith, and all registrations
or applications for registration thereof (collectively, the "COMPANY MARKS");
(ii) all patents, patent applications and continuations, industrial design
registrations and applications therefor (collectively, the "COMPANY PATENTS");
(iii) all copyrights, database rights and moral rights in both published works
and unpublished works, including all such rights in software, user and training
manuals, marketing and promotional materials, websites, internal reports,
business plans and any other expressions, mask works, firmware and videos,
whether registered or unregistered, and all registrations or applications for
registration thereof (collectively, the "COMPANY COPYRIGHTS"); and (iv) trade
secret and confidential information, including such rights in inventions
(whether or not reduced to practice), know-how, customer
-33-
lists, technical information, proprietary information, technologies, processes,
formulae, software, data, plans, drawings and blue prints, whether tangible or
intangible and whether stored, compiled, or memorialized physically,
electronically, photographically or otherwise (collectively, the "COMPANY SECRET
INFORMATION"). For purposes of this Section 2.10, "SOFTWARE" shall mean any and
all: (w) computer programs and applications, including any and all software
implementations of algorithms, models and methodologies, whether in source code
or object code, (x) databases and compilations, including any and all data and
collections of data, whether machine readable or otherwise, (y) descriptions,
flow-charts, library functions, algorithms, architecture, structure, display
screens and development tools, and other information, work product or tools used
to design, plan, organize or develop any of the foregoing and (z) all
documentation, including user manuals and training materials, relating to any of
the foregoing. For purposes of this Section 2.10, "EXCLUSIVELY LICENSED" shall
mean licensed or entitled to use pursuant to a Contract that imposes any
restriction (whether by territory, field, market, period of time or other
criterion) on the licensor's right to use, or grant licenses to third parties
with respect to, any Intellectual Property Right in connection with the
Contract.
(b) Part 2.10(b) of the Company Disclosure Schedule contains a true,
complete and correct list of all the software that any Target Company licenses
or has licensed or otherwise makes or has made available to customers, including
all modules, components, add-ons and other options, and separately identifies
(i) each item of third-party software that constitutes or has constituted an
element of any of the foregoing and (ii) each license or other Contract with
respect to each such item of third-party software. Part 2.10(b) of the Company
Disclosure Schedule contains a true, complete and correct list of all other
third-party software used by any Target Company (other than Commercially
Available Software) and indicates each license or other Contract with respect to
such third-party software (other than Commercially Available Software).
(c) The Company or another Target Company: (i) owns all right, title
and interest in and to the Intellectual Property Rights, free and clear of all
Encumbrances (other than licenses to customers of any Target Company required to
be disclosed (or specifically exempted from disclosure) pursuant to Section
2.16(e) and distribution and reseller Contracts required to be disclosed (or
specifically exempted from disclosure) pursuant to Section 2.16(f)), or (ii) is
licensed to use, or otherwise possesses legally valid and enforceable rights to
use, the Intellectual Property Rights that it does not so own; provided that, in
the case of Intellectual Property Rights consisting of patents and patent
applications, such representation is made to the Company's Knowledge. With
respect to (i) each registered Company Xxxx, (ii) each material unregistered
Company Xxxx, (iii) each Company Patent and (iv) each registered Company
Copyright, Part 2.10(c) of the Company Disclosure Schedule sets forth (A) a
complete and correct list of each of the foregoing which is owned by the Company
or another Target Company (which list identifies the owner thereof), (B) a
complete and correct list of each of the foregoing which is exclusively licensed
to the Company or another Target Company (which list identifies the applicable
license or other Contract and the licensee or entitlement holder), and (C) a
complete and correct list of each of the foregoing which is material to any
product, service or operation of the Company and which the Company or another
Target Company is licensed or otherwise entitled to use (which list identifies
the applicable license or other Contract and the licensee or entitlement
holder). The Target Companies have made all necessary filings, recordations and
payments to maintain their interests in the Intellectual Property Rights owned
or licensed (but only to the extent that
-34-
such filing, recordation or payment obligations are imposed by the license or
other Contract therefor) by any Target Company, except where the omission to
make such a filing or recordation (but not payment) can be cured without undue
effort or expense, except to the extent that the Company has made a business
judgment prior to the date of this Agreement not to continue to register or
maintain (or prosecute applications for) patents, registered copyrights,
registered trademarks or registered service marks which are not currently used
by any Target Company. None of the products, services or technology developed,
used, sold, offered for sale or licensed or proposed for development, use, sale,
offer for sale or license by any Target Company infringes, violates, passes off
on or otherwise misuses or has infringed, violated, passed off on or otherwise
misused any intellectual property rights of any Person; provided, in the case of
intellectual property rights of any third person consisting of patents and
patent applications, such representation is made to the Company's Knowledge.
Except as set forth in Part 2.10(c) of the Company Disclosure Schedule, the
Company has received no written notice of any claim that any of the products,
services or technology developed, used, sold, offered for sale or licensed or
proposed for development, use, sale, offer for sale or license by any Target
Company infringes, violates, passes off on or otherwise misuses or has
infringed, violated, passed off on or otherwise misused any intellectual
property rights of any third party. Except as set forth in Parts 2.10(c) or
2.10(n) of the Company Disclosure Schedule, no Target Company requires or has
required any additional intellectual property rights of any third party in order
to develop, use, sell, offer for sale or license its products or services or in
relation to the processes employed by the Target Companies in connection with
the operation of their respective businesses, other than commercially available
intellectual property rights that are not material in amount or expense.
(d) All the issued Company Patents owned by or exclusively licensed to
any Target Company are subsisting and, to the Company's Knowledge, are valid. To
the Company's Knowledge, (i) all the material issued Company Patents not owned
by or exclusively licensed to any Target Company are valid and subsisting, (ii)
if and when the Company Patents owned by any Target Company that have not been
issued are so issued, such Company Patents will be valid and subsisting, (iii)
none of the issued Company Patents owned by or exclusively licensed to any
Target Company is being or has been infringed, (iv) none of the material issued
Company Patents not owned by or exclusively licensed to any Target Company is
being or has been infringed, (v) none of the Company Patents owned by or
exclusively licensed to any Target Company that have not been issued would have
been infringed had they been issued, and (vi) neither the validity nor the
enforceability of any of the foregoing has been challenged by any Person.
(e) All the Company Marks owned by or exclusively licensed to any
Target Company are subsisting and, to the Company's Knowledge, are valid. To the
Company's Knowledge, (i) all of the material Company Marks not owned by or
exclusively licensed to any Target Company are valid and subsisting, (ii) none
of the Company Marks owned by or exclusively licensed to any Target Company is
being or has been infringed, violated, passed off on or otherwise misused or
diluted, (iii) none of the material Company Marks not owned by or exclusively
licensed to any Target Company is being or has been infringed, violated, passed
off on or otherwise misused or diluted, (iv) none of the Company Marks is being
or has been opposed or challenged, and (v) no proceeding has been commenced or
threatened or is
-35-
reasonably anticipated that would seek to prevent the use by any Target Company
of any such Company Xxxx.
(f) To the Company's Knowledge, all the Company Copyrights, whether or
not registered, owned by or exclusively licensed to any Target Company are valid
and, once registered, enforceable. To the Company's Knowledge, (i) all the
material Company Copyrights, whether or not registered, not owned by or
exclusively licensed to any Target Company, are valid and, once registered,
enforceable, (ii) none of the Company Copyrights owned by or exclusively
licensed to any Target Company is being or has been infringed, and the validity
of such Company Copyrights is not being and has not been challenged or
threatened in any way, (iii) none of the material Company Copyrights not owned
by or exclusively licensed to any Target Company is being or has been infringed,
and the validity of such Company Copyrights is not being and has not been
challenged or threatened in any way, and (iv) no proceeding has been commenced
or threatened or is reasonably anticipated that would seek to prevent the use by
any Target Company of any such Company Copyright. No Person has any moral rights
in any of the Intellectual Property Rights owned by any Target Company.
(g) The Target Companies have taken commercially reasonable measures
to protect the secrecy, confidentiality and value of the Company Secret
Information, consistent with prevailing practices in the software industry
sector in which the Target Companies operate. To the Company's Knowledge, no
Company Secret Information has been used, divulged or appropriated for the
benefit of any Person (other than any Target Company) or otherwise
misappropriated.
(h) No Intellectual Property Right is subject to any outstanding
order, proceeding (other than pending proceedings pertaining to uncontested
applications for patent, trademark or copyright registration) or stipulation
that restricts in any manner the licensing thereof by any Target Company;
provided that, in the case of Intellectual Property Rights licensed to the
Company, such representation is made to the Company's Knowledge.
(i) To the Company's Knowledge, none of the present or former
employees or consultants engaged in the development of Intellectual Property
Rights (including software) or in performing sales and marketing functions on
behalf of any Target Company is or was obligated under any Contract with any
third party which conflicts or did conflict with such employee's or consultant's
rights to develop Intellectual Property Rights (including software) or engage in
such sales and marketing functions on behalf of any Target Company.
(j) Except as set forth in Part 2.10(j) of the Company Disclosure
Schedule, all present and former contractors, agents and consultants of each
Target Company who are or were involved in the creation of any of the
Intellectual Property Rights on behalf of a Target Company, and all present and
former employees of each Target Company, have executed an assignment of
inventions agreement to vest in the Company or its Subsidiary, as appropriate,
exclusive ownership of the Intellectual Property Rights so created by them, and
such assignment includes a complete, perpetual and irrevocable waiver of moral
rights by all authors of any applicable Company Copyrights, to the extent
allowed by applicable law. All present and former contractors, agents and
consultants of each Target Company who have or have had access to Company Secret
Information, and all present and former employees of any Target Company,
-36-
have executed nondisclosure agreements to protect the confidentiality of Company
Secret Information.
(k) Without limiting the generality of the foregoing, all the software
that any Target Company licenses or licensed or otherwise makes or made
available to customers was: (i) developed by employees of a Target Company
within the scope of their employment and subject to their obligation to assign
inventions and patents therein; or (ii) developed by independent contractors or
consultants who assigned all of their right, title and interest in and to that
software to the Company; or (iii) otherwise acquired or licensed by the Company
from a third party by a Contract that is disclosed in Part 2.10(c) of the
Company Disclosure Schedule or under an Open Source license listed in Part
2.10(n) of the Company Disclosure Schedule, and in each case under clauses (i)
and (ii) complete, perpetual and irrevocable waivers of moral rights were
obtained from all authors of such software, to the extent allowed by applicable
law.
(l) No funding or grant provided to any Target Company by any third
party has affected or will affect, in any manner, the Intellectual Property
Rights, and no such third party has any right, title or interest in the
Intellectual Property Rights.
(m) All material Contracts relating to the Intellectual Property
Rights to which a Target Company is a party are in full force and effect, except
such as have expired naturally at the end of their terms and are not material to
the Company. The consummation of the transactions contemplated by this Agreement
will neither violate nor result in the breach, modification, cancellation,
termination, or suspension of any such Contract. Each Target Company is in
material compliance with, and has not materially breached any term of any of
such Contracts, and, to the Company's Knowledge, all other parties to such
Contracts are in compliance in all material respects with, and have not
materially breached any term of, such Contracts. Following the Closing Date, the
Surviving Corporation and its Subsidiaries will be permitted to exercise all of
the rights of the Target Companies under such Contracts to the same extent the
Target Companies would have been able to had the transactions contemplated by
this Agreement not occurred and without the payment of any additional amounts or
consideration other than ongoing fees, royalties or payments which the Target
Companies would otherwise have been required to pay.
(n) Part 2.10(n) of the Company Disclosure Schedule lists all Open
Source Materials (as defined below) used by any Target Company in any way, and
describes the manner in which such Open Source Materials have been or are
currently used. Such description includes whether (and, if so, how) the Open
Source Materials were embedded, linked (including dynamic linking), modified
and/or distributed by any Target Company and whether and the extent to which
each of the Open Source Materials was used to develop, distribute or design any
Target Company products to link with (including dynamic linking at runtime) or
access in any way (whether by calls, execution branching, interprocess control
or other technique of any kind whatsoever) any Open Source Materials. Except as
set forth in Part 2.10(n) of the Company Disclosure Schedule, the Target
Companies have not (i) incorporated Open Source Materials into, or combined Open
Source Materials with, any Intellectual Property Rights or any Target Company
products, (ii) distributed Open Source Materials in conjunction with any
Intellectual Property Rights or any Target Company products or (iii) used Open
Source Materials that create, or purport to create, obligations for any Target
Company with respect to Intellectual Property
-37-
Rights or any Target Company products or grant, or purport to grant, to any
third party, any rights or immunities under Intellectual Property Rights
(including using any Open Source Materials that require, as a condition of use,
modification and/or distribution of such Open Source Materials that other
software incorporated into, derived from or distributed with such Open Source
Materials be (A) made available or distributed in source code form; (B) licensed
for the purpose of making derivative works; (C) licensed under terms that allow
reverse engineering, reverse assembly or disassembly of any kind; or (D)
redistributable at no charge). No Intellectual Property Right or Company product
is subject to the terms of license of any such Open Source Materials. Except as
set forth in Part 2.10(n) of the Company Disclosure Schedule, no Target Company
has used Program Code (as defined below) that includes the Linux kernel version
2.4 or any later version. "OPEN SOURCE MATERIALS" means any software, library,
utility, tool or other computer or program code (collectively, "PROGRAM CODE")
that is licensed or distributed as "free software", "freeware", "open source
software" or under any terms or conditions that impose any requirement that any
software using, linked with, incorporating, distributed with, based on, derived
from or accessing Program Code: (i) be made available or distributed in source
code form; (ii) be licensed for the purpose of making derivative works; (iii) be
licensed under terms that allow reverse engineering, reverse assembly or
disassembly of any kind; or (iv) be redistributable at no charge. Open Source
Materials shall include any Program Code licensed or distributed under any of
the following licenses or distribution models or similar licenses or
distribution models: the GNU General Public License (GPL), GNU Lesser General
Public License or GNU Library General Public License (LGPL), Mozilla Public
License (MPL), BSD licenses, the Artistic License, the Netscape Public License,
the Sun Community Source License, (SCSL), the Sun Industry Standards License
(SISL) and the Apache License.
(o) Part 2.10(o) of the Company Disclosure Schedule lists each item of
Commercially Available Software used by the Company for which the aggregate fees
have exceeded, or are reasonably expected to exceed, $2,500 per year or $10,000
for a perpetual license (regardless of the number of sites, users, seats,
installed CPUs or other measurement criteria).
2.11 COMPLIANCE WITH LAWS.
(a) Since January 1, 2000, no Target Company has been in conflict
with, or in default or violation of (i) any material Legal Requirement
applicable to such Target Company or by which such Target Company or any of its
properties or assets was or is bound or affected, or (ii) any material Contract
to which such Target Company was or is a party or by which such Target Company
or any of its properties or assets was or is bound or affected. No investigation
or review by any Governmental Entity is pending or, to the Company's Knowledge,
has been threatened or is reasonably anticipated against any Target Company,
nor, to the Company's Knowledge, has any Governmental Entity indicated an
intention to conduct an investigation of any Target Company. There is no
Contract, judgment, injunction, order or decree binding upon any Target Company
which has or could reasonably be expected to have the effect of prohibiting or
materially impairing any business practice of any Target Company, any
acquisition of material property by any Target Company or the conduct of
business by any Target Company as currently conducted.
-38-
(b) The Target Companies hold all permits, licenses, variances,
exemptions, orders and approvals from Governmental Entities that are material to
or required for the operation of the business of the Target Companies as
currently conducted (collectively, the "COMPANY PERMITS"). The Target Companies
are in compliance, in all material respects, with the terms of the Company
Permits.
2.12 LITIGATION. Except as disclosed in Part 2.12 of the Company Disclosure
Schedule, there are no claims, suits, actions or proceedings pending or, to the
Company's Knowledge, threatened against, relating to or affecting any Target
Company, before any Governmental Entity or any arbitrator. No Governmental
Entity has at any time challenged or questioned in a writing delivered to any
Target Company the legal right of any Target Company to design, offer or sell
any of its products or services in the present manner or style thereof or
otherwise to conduct its business as currently conducted or that otherwise has
had or is reasonably likely to have a Company Material Adverse Effect. To the
Company's Knowledge, no event has occurred, and no claim, dispute or other
condition or circumstance exists, that will, or that would reasonably be
expected to, cause or provide a bona fide basis for a director or executive
officer of any Target Company to seek indemnification from any Target Company.
2.13 EMPLOYEE BENEFIT PLANS.
(a) Part 2.13(a) of the Company Disclosure Schedule contains an
accurate and complete list of each Company Employee Plan and each Employee
Agreement, including a list of each document comprising or embodying any
material part thereof or relating thereto, and each staff handbook or written
employment policies for each Target Company. Except as disclosed in Part 2.13(a)
of the Company Disclosure Schedule, no Target Company is paying compensation or
other payment to any former Employee (or relative or dependent) or former
consultant.
(b) The Company has made available to Parent accurate and complete
copies of the plan documents and summary plan descriptions, the most recent
determination letter received from the IRS, the most recent annual report (Form
5500, with all applicable attachments), and all related trust, insurance and
other funding Contracts that implement each Company Employee Plan (to the extent
applicable), and all documents embodying each Employee Agreement.
(c) Each of the Company and its ERISA Affiliates has performed in all
material respects all obligations required to be performed by it under, is not
in default or violation of, and the Company has no Knowledge of any default or
violation by any other party to, each Company Employee Plan or Employee
Agreement, and each Company Employee Plan has been maintained, funded and
administered in all material respects in accordance with its terms and in
compliance in form and in operation with all applicable Legal Requirements
(including ERISA and the Code), including the maintenance of reasonably accurate
records. Each Company Employee Plan that is intended to meet the requirements of
a "qualified plan" under Section 401(a) of the Code has received a written
determination, advisory or opinion letter from the IRS that such Company
Employee Plan is so qualified, and nothing has occurred since the date of such
determination or letter that could reasonably be expected to adversely affect
the qualified status of such plan; (iii) no "prohibited transaction," within the
meaning of Section
-39-
4975 of the Code or Sections 406 and 407 of ERISA, and not otherwise exempt
under Section 408 of ERISA, has occurred with respect to any Company Employee
Plan. There are no actions, suits, claims, proceedings or investigations
pending, or, to the Company's Knowledge, threatened or reasonably anticipated
(other than routine claims for benefits) against any Company Employee Plan and,
to the Knowledge of the Company, there are no facts or circumstances which may
give rise to any such action, suit, claim, proceeding or investigation. Each
Company Employee Plan can be amended, terminated or otherwise discontinued
either before or after the Effective Time in accordance with its terms, without
liability to Parent, the Surviving Corporation, the Company or any of their
ERISA Affiliates (other than ordinary administration expenses typically incurred
in a termination event and payment of benefits pursuant to such Company Employee
Plan). Except as set forth in Part 2.13(c) of the Company Disclosure Schedule,
all contributions due from the Company or any ERISA Affiliate with respect to
any of the Company Employee Plans have been made as required under ERISA or have
been accrued on the Company Balance Sheet and no further contributions will be
due or will have accrued thereunder as of the Closing Date.
(d) Neither any Target Company nor any ERISA Affiliate contributes to,
has any obligation to contribute to, or has any liability under or with respect
to any Pension Plan which is subject to Title IV of ERISA or Section 412 of the
Code.
(e) Neither any Target Company nor any ERISA Affiliate contributes to,
has any obligation to contribute to, or has any liability (including withdrawal
liability as defined in ERISA Section 4201) under or with respect to any
Multiemployer Plan.
(f) No Company Employee Plan or Employee Agreement provides, or has
any liability to provide, retiree life insurance, retiree health or other
retiree employee welfare benefits to any Person for any reason, except as may be
required by COBRA, Part 6 of Title I of ERISA or other applicable statute.
(g) Neither the Company nor any ERISA Affiliate has in any material
respect violated any of the health care continuation requirements of COBRA, the
requirements of FMLA or any similar provisions of law applicable to any
Employees.
(h) The execution of this Agreement and the consummation of the
transactions contemplated hereby will not (either alone or upon the occurrence
of any additional or subsequent events) constitute an event under any Company
Employee Plan, Employee Agreement, trust or loan that will or may result in any
payment (whether of severance pay or otherwise), acceleration, forgiveness of
indebtedness, loss of rights, vesting, distribution, increase in benefits or
obligation to fund benefits with respect to any Employee.
(i) Each Company Employee Plan required to be listed in Part 2.13(a)
of the Company Disclosure Schedule that is a "nonqualified deferred compensation
plan" (as defined in Section 409A(d)(1) of the Code) and was in existence prior
to October 3, 2004, has not been "materially modified" (within the meaning of
Section 885(d)(2)(B) of the American Jobs Creation Act of 2004 and any
applicable guidance issued thereunder) since October 3, 2004, in a manner which
would cause amounts deferred in taxable years beginning before January 1, 2005,
under such plan to be subject to Section 409A of the Code. Each Company Employee
Plan
-40-
required to be listed in Part 2.13(a) of the Company Disclosure Schedule that is
a "nonqualified deferred compensation plan" (as defined in Section 409A(d)(1) of
the Internal Revenue Code) and which has not been terminated has been operated
since January 1, 2005 in good faith compliance with the provisions of Section
409A of the Code, Notice 2005-1 and the proposed regulations issued under
Section 409A.
2.14 EMPLOYMENT MATTERS.
(a) Each Target Company: (i) is in compliance in all material respects
with all applicable Legal Requirements respecting employment, employment
practices, immigration, terms and conditions of employment and wages and hours;
(ii) has withheld all amounts required by any Legal Requirement or by Contract
to be withheld from the wages, salaries and other payments to Employees; (iii)
has properly classified independent contractors for purposes of all applicable
Legal Requirements; (iv) is not liable for any arrears of wages or any Taxes
(other than wages (and Taxes thereon) which have accrued in the ordinary course
of business but which are not yet payable) or any penalty for failure to comply
with any of the foregoing; and (v) is not liable for any payment to any trust or
other fund or to any Governmental Entity, with respect to unemployment
compensation benefits, social security, withholdings or remittances applicable
to employee wages, or other benefits or obligations for Employees (other than
routine payments to be made in the normal course of business and consistent with
past practice). There are no pending, or, to the Company's Knowledge, threatened
actions, suits, claims or proceedings against any Target Company under any
workers' compensation policy or long-term disability policy. To the Company's
Knowledge, no Employee or consultant of any Target Company has violated any
employment, consulting, non-disclosure, non-competition, non-solicitation or
other Contract by which such Employee is bound (nor any Legal Requirement
relating to unfair competition, trade secrets or proprietary information) as a
result of providing services to any Target Company or disclosing or using any
information in connection with such services. There are no controversies pending
or, to the Company's Knowledge, threatened between any Target Company and any
Employee that would be reasonably likely to be material to any Target Company.
Except as set forth on Part 2.14(a) of the Company Disclosure Schedule, no
Target Company has any Employee Agreement currently in effect that is not
terminable at will by a Target Company without any payment pursuant thereto or
in connection therewith (other than agreements for the sole purpose of providing
for the confidentiality of proprietary information or assignment of inventions).
No Target Company will have any liability to any Employee or to any other Person
as a result of the termination of any employee leasing Contract.
(b) No work stoppage, labor strike, slowdown, lockout or other labor
dispute against any Target Company is pending or, to the Company's Knowledge,
threatened. No Employee of any Target Company is represented by any union or
other labor organization. The Company has no Knowledge of any activities or
proceedings of any labor union to organize any Employees. There are no actions,
suits, claims, labor disputes or grievances pending, or, to the Company's
Knowledge, threatened relating to any labor, safety or discrimination matters
involving any Employee, including charges of unfair labor practices or
discrimination complaints. No Target Company has engaged in any unfair labor
practices within the meaning of the National Labor Relations Act. No Target
Company is or has been a party to, or bound by, any collective bargaining or
union Contract with respect to Employees, and no collective bargaining or union
Contract is being negotiated by any Target Company.
-41-
(c) No Target Company has taken any action that could constitute a
mass layoff, group termination, mass termination, or plant closing which may
trigger notice requirements or liability under any Legal Requirement, including
collective dismissal laws.
2.15 ENVIRONMENTAL MATTERS.
(a) Each Target Company is in compliance in all material respects with
all applicable Environmental Laws. No Target Company has received any written
communication that alleges that any Target Company is not in compliance with
applicable Environmental Laws. To the Knowledge of the Company, there are no
circumstances that may prevent or interfere with compliance by any Target
Company with all applicable Environmental Laws. All Company Permits and other
governmental authorizations currently held by any Target Company pursuant to any
Environmental Law are in full force and effect, the Target Companies are in
compliance in all material respects with all of the terms of such Company
Permits and authorizations, and no other Company Permits or authorizations are
required by any Target Company for the conduct of their respective businesses.
The management, handling, storage, transportation, treatment and disposal by the
Target Companies of all Environmental Materials have been in compliance in all
material respects with all applicable Environmental Laws.
(b) There is no Environmental Claim pending or, to the Company's
Knowledge, threatened or reasonably anticipated against or involving any Target
Company or, to the Company's Knowledge, against any Person whose liability for
any Environmental Claim any Target Company has or may have retained or assumed
either contractually or by operation of law, nor, to the Company's Knowledge, is
there any circumstance that might form the basis for any Environmental Claim.
2.16 CERTAIN CONTRACTS. Except as otherwise set forth in the applicable
lettered subsection of Part 2.16 of the Company Disclosure Schedule, no Target
Company is a party to or is bound by any:
(a) Contract any of the benefits of which will be increased, or the
vesting of benefits of which will be accelerated, by the occurrence of any of
the transactions contemplated by this Agreement or the value of any of the
benefits of which will be calculated on the basis of any of the transactions
contemplated by this Agreement;
(b) Contract of indemnification (other than licenses to customers of
any Target Company required to be disclosed (or specifically exempted from
disclosure) pursuant to Section 2.16(e)), any guaranty by a Target Company or
any instrument evidencing indebtedness by way of direct loan, sale of debt
securities, purchase money obligation, conditional sale, or otherwise;
(c) Contract containing covenants purporting to limit or which
effectively limit any Target Company's freedom to compete in any line of
business or in any geographic area or which would so limit Parent, the Company
or the Surviving Corporation or any of their respective Subsidiaries after the
Effective Time or granting any exclusive distribution or other exclusive rights;
-42-
(d) Contract relating to the disposition or acquisition by any Target
Company of assets not in the ordinary course of business, including by means of
any merger, consolidation or the like;
(e) Contract with any customer with continuing obligations, including,
without limitation, any requirements to provide professional services or to do
customization or provide platform transfer rights, involving more than $20,000
in any twelve-month period in any individual case;
(f) development, licensing, distribution, resale or other Contract
with regard to the development, acquisition, licensing, distribution or resale
of any Intellectual Property Rights, other than (i) licenses to customers of any
Target Company required to be disclosed (or specifically exempted from
disclosure) pursuant to Section 2.16(e), (ii) Contracts required to be disclosed
pursuant to Section 2.10, and (iii) Contracts under which a Target Company
licenses Commercially Available Software from a third party;
(g) Contract to forgive any indebtedness in excess of $10,000 of any
Person to any Target Company;
(h) loan Contract, promissory note or other evidence of indebtedness
for borrowed money;
(i) Contract (other than Contracts disclosed pursuant to Section 2.10)
pursuant to which any Target Company (A) uses any intellectual property of any
third party that is material to the operation of its business (other than
Commercially Available Software), (B) incorporates any third-party intellectual
property in any of its products; or (C) has granted to any third party an
exclusive license of any Intellectual Property Rights owned by any Target
Company or any license of source code (including customary source code escrow
Contracts entered into in the ordinary course of business);
(j) Contract (other than Contracts disclosed pursuant to Section 2.10)
which may obligate any Target Company to make aggregate payments in excess of
$25,000 to any third party during the period from the date of this Agreement to
December 31, 2008;
(k) Contract (other than Contracts disclosed pursuant to Section 2.10)
pursuant to which any Target Company (A) reasonably expects to receive aggregate
payments in excess of $50,000 during the period from the date of this Agreement
to December 31, 2007 or (B) reasonably expects to recognize revenue in such
aggregate amount during such period;
(l) Contract currently in force providing for capital expenditures by
any Target Company in excess of $10,000;
(m) power of attorney or agency Contract;
(n) other Contract that cannot be terminated by the Target Company
party thereto within 30 days without any liability or obligation in excess of
$20,000;
-43-
(o) other Contract entered into outside the ordinary course of
business or at other than arm's length; or
(p) other Contract currently in effect that is material to any Target
Company's business as presently conducted or proposed to be conducted.
Each Contract that is required to be disclosed in the Company Disclosure
Schedule pursuant to this Section 2.16 or otherwise shall be referred to herein
as a "COMPANY CONTRACT." Each Company Contract is valid and in full force and
effect in accordance with its terms. No Target Company, nor to the Company's
Knowledge, any other party thereto, is in breach, violation or default under,
and no Target Company has received written notice alleging that it has breached,
violated or defaulted under, any of the terms or conditions of any Company
Contract in such a manner as would permit any other party thereto to cancel or
terminate any such Company Contract, or would permit any other party to seek
material damages or other remedies for any or all such alleged breaches,
violations, or defaults.
2.17 RELATED-PARTY MATTERS. No stockholder, director, officer or employee
of any Target Company (nor, to the Knowledge of the Company, any Person
affiliated or associated with any of the foregoing or in which any of the
foregoing has any interest, nor any Family Member of any of the foregoing) (i)
has any interest, direct or indirect, in (A) any customer, supplier or
competitor of any Target Company, (B) any other Person with whom any Target
Company has a material business relationship (other than any interest arising
solely from the ownership of less than 1% of the publicly traded securities of
any Person), or (C) any Intellectual Property Rights or any other assets or
property, real or personal, tangible or intangible, used in or pertaining to the
business of the Target Companies (other than any interest arising solely through
the ownership of any Company Stock) or (ii) is or was a party to or has or had
any interest, direct or indirect, in any Contract or other transaction with any
Target Company (other than (W) compensation paid to any employee who is not a
director or officer of any Target Company, (X) benefits available generally on
the same terms to all employees of the Target Companies, (Y) grants of options
disclosed in Part 2.2(b) of the Company Disclosure Schedule, and (Z)
reimbursement for reasonable expenses incurred on behalf of any Target Company).
2.18 BROKERS' AND FINDERS' FEES. Other than as set forth in Part 2.18 of
the Company Disclosure Schedule, there are no Transaction Expenses and no Target
Company has incurred, nor will any of them incur, directly or indirectly, any
liability for brokerage or finders' fees or agents' commissions or any similar
charges in connection with this Agreement or any transaction contemplated
hereby.
2.19 INSURANCE. Part 2.19 of the Company Disclosure Schedule sets forth a
description of each insurance policy or bond which provides coverage for any
Target Company. Each Target Company has provided notice to its insurers in
accordance with the applicable insurance policies or bonds of all potential
claims of which such Target Company has Knowledge, and there is no material
claim pending under any of such policies or bonds as to which coverage has been
questioned, denied or disputed by the underwriters of such policies or bonds.
All premiums due and payable under all such policies have been paid, and each
Target Company is otherwise in compliance in all material respects with the
terms of such policies and bonds. To the Knowledge of the Company, there has
been no threatened or reasonably
-44-
anticipated termination of, or material premium increase with respect to, any of
such policies. No Target Company has incurred any material uninsured loss or
casualty, nor does the Company have Knowledge of any circumstance or occurrence
that could result in a material uninsured loss or casualty for any Target
Company. No Target Company has made any knowing or intentional misrepresentation
of, or knowingly or intentionally omitted to disclose, any material fact to any
of its insurers that might justify denial by such insurer of any coverage under
any such policy or bond.
2.20 CUSTOMERS; ACCOUNTS RECEIVABLE.
(a) Part 2.20 of the Company Disclosure Schedule lists each customer
of each Target Company from which the Company derived revenue since January 1,
2003. No current customer has indicated to any Target Company that it will or
may stop buying, discontinue services, or materially decrease the rate of buying
services or products of any Target Company in comparison with that contained in
its current agreement with the Company.
(b) The receivables shown on the Company Balance Sheet arose in the
ordinary course of business, consistent with past practice, and have been
collected or are collectible in the book amounts thereof, less the allowance for
doubtful accounts provided for on the Company Balance Sheet. The Company's
allowances for doubtful accounts and warranty returns are reasonable and have
been prepared in accordance with GAAP consistently applied and in accordance
with the Company's past practices. The Target Companies' receivables arising
after the date of the Company Balance Sheet and prior to the Closing Date arose
in the ordinary course of business. To the Company's Knowledge, none of the
Target Companies' receivables is subject to any material claim of setoff,
recoupment or counterclaim, and it has no Knowledge of any specific facts or
circumstances (whether asserted or unasserted) that could give rise to any such
claim. No receivables are contingent upon the performance by any Target Company
of any obligation or other Contract other than normal warranty repair and
replacement. No Person has any Encumbrance on any of such receivables, and no
Contract for deduction or discount has been made with respect to any of such
receivables.
2.21 BOARD APPROVAL. The Board of Directors of the Company has unanimously
approved this Agreement and declared the advisability of this Agreement and the
Merger and recommended that the stockholders of the Company approve and adopt
this Agreement and approve the Merger. Relying in part upon the representation
of Parent in Section 4.9, Section 3-602 of the MGCL applicable to a "business
combination" (as defined therein) will not apply to the execution, delivery or
performance of this Agreement or the consummation of the Merger or the other
transactions contemplated by this Agreement.
2.22 MINUTES AND STOCK RECORDS. The minute books of each Target Company
contain records that are accurate in all material respects of all meetings and
consents in lieu of meetings of its Board of Directors (or equivalent) and any
committees thereof (whether permanent or temporary), and of its stockholders (or
equivalent) since inception, and such records accurately reflect all
transactions referred to in such minutes and consents. The stock books (or
equivalent) of each Target Company accurately reflect the ownership of the
capital stock (or equivalent) of such Target Company. The Company has made
available to Parent true,
-45-
correct and complete copies of the minutes, consents and stock books (and
equivalents) of each Target Company.
2.23 ACCOUNTING SYSTEM. The books of account of the Company are adequate to
enable the Company to prepare its Financial Statements in accordance with GAAP.
The books and records of the Company accurately reflect, in all material
respects, its income, expenses, assets and liabilities and the Company maintains
internal accounting controls which provide reasonable assurance that
transactions are recorded as necessary to permit preparation of financial
statements in accordance with GAAP.
2.24 CORRUPT PRACTICES. No Target Company has taken any action which would
cause it to be in violation of the Foreign Corrupt Practices Act of 1977, as
amended, or any rules and regulations thereunder. No Target Company has paid any
commission or made any payment whether to secure business or otherwise to any
Person which in the hands of such Person would in accordance with the relevant
Legal Requirement be regarded as illegal or improper. No director, officer,
employee, agent or other Person acting on behalf of any Target Company has been
a party to the use of any assets of any Target Company for unlawful
contributions, gifts, entertainment or other unlawful expenses relating to any
activity, including any political activity, or to the establishment or
maintenance of any unlawful or unrecorded fund of monies or other assets, or to
the making of any false or fictitious entries in the books or records of any
Target Company, or to the making of any unlawful payment.
2.25 DISCLOSURE. No representation or warranty of the Company or of any
Principal Stockholder in this Agreement, as modified by the Company Disclosure
Schedule, or in any other Transaction Document contains any untrue statement of
a material fact, or omits or omits to state any material fact required to be
stated in order to make the statements contained herein or therein not
misleading in light of the circumstances under which they were made. There is no
fact Known to the Company and not disclosed to Parent in writing that is
reasonably likely to give rise to a Company Material Adverse Effect or to have
the effect of preventing, materially delaying, making illegal or otherwise
interfering with the Merger and the other transactions contemplated by this
Agreement.
2.26 TAXES. The Company has not taken or agreed to take any action that
could reasonably be expected to prevent the Merger from constituting a
"reorganization" under section 368(a) of the Code, and is not aware of any
agreement, plan or other circumstance that could reasonably be expected to
prevent the Merger from so qualifying.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF PRINCIPAL STOCKHOLDERS
Each Principal Stockholder, other than each Specified Holder (as defined in
Article 3A), severally and not jointly, represents and warrants to Parent and
each Merger Sub as set forth in this Article 3.
3.1 ORGANIZATION. The Principal Stockholder (if not a natural person) is
duly organized, validly existing and in good standing under the laws of the
jurisdiction in which it is organized.
-46-
3.2 AUTHORITY; NON-CONTRAVENTION.
(a) The Principal Stockholder has all requisite power and authority
(including all requisite power and authority as a corporation or other entity)
to enter into this Agreement and the Escrow Agreement and to consummate the
transactions contemplated hereby and thereby. If the Principal Stockholder is
not a natural person, the execution and delivery of this Agreement and the
Escrow Agreement and the consummation of the transactions contemplated hereby
and thereby have been duly authorized by all necessary action on the part of the
Principal Stockholder (including authorization by the board of directors or
other managing body and by the stockholders or other securityholders of the
Principal Stockholder). This Agreement has been duly executed and delivered by
the Principal Stockholder and, assuming the due authorization, execution and
delivery of this Agreement by Parent, each Merger Sub, the Company, the
Stockholder Representative and the other Principal Stockholders, constitutes the
valid and binding obligation of the Principal Stockholder, enforceable against
the Principal Stockholder in accordance with its terms, except as enforceability
may be limited by bankruptcy and other similar laws affecting the rights of
creditors generally and general principles of equity. Assuming the due
authorization, execution and delivery of the Escrow Agreement by Parent, each
Merger Sub, the Stockholder Representative and the Escrow Agent, the Escrow
Agreement, when executed and delivered by the Stockholder Representative on
behalf of the Principal Stockholder, will constitute the valid and binding
obligation of the Principal Stockholder, enforceable against the Principal
Stockholder in accordance with its terms, except as enforceability may be
limited by bankruptcy and other similar laws affecting the rights of creditors
generally and general principles of equity.
(b) The execution and delivery of this Agreement and the Escrow
Agreement by or on behalf of the Principal Stockholder does not, and the
performance of this Agreement and the Escrow Agreement by or on behalf of the
Principal Stockholder will not, (i) if the Principal Stockholder is not a
natural person, conflict with or violate the certificate of incorporation,
by-laws or other organizational documents of the Principal Stockholder, (ii)
conflict with or violate any Legal Requirement applicable to the Principal
Stockholder or by which the Principal Stockholder or any of its properties or
assets is bound or affected, or (iii) result in any breach of or constitute a
default (or an event that with notice or lapse of time or both would become a
default) under, or result in the creation of an Encumbrance on any of the
securities of any Target Company pursuant to, any Contract to which the
Principal Stockholder is a party or by which the Principal Stockholder or any of
its properties or assets is bound or affected. No consent, waiver or approval of
any Person, nor any notice to any Person, is required to be obtained or made
under any Contract to which the Principal Stockholder is a party or by which the
Principal Stockholder or any of its properties or assets is bound or affected in
connection with the execution and delivery by or on behalf of the Principal
Stockholder of this Agreement or the Escrow Agreement or the performance of this
Agreement or the Escrow Agreement by or on behalf of the Principal Stockholder.
(c) No consent, approval, order or authorization of, or registration,
declaration or filing with any Governmental Entity or other Person, is required
to be obtained or made by the Principal Stockholder in connection with the
execution and delivery by or on behalf of the Principal Stockholder of this
Agreement or the Escrow Agreement or the performance of this Agreement or the
Escrow Agreement by or on behalf of the Principal Stockholder.
-47-
3.3 TITLE TO COMPANY STOCK; STATUS AS COMPANY STOCKHOLDER. The Principal
Stockholder holds of record and owns the number of shares of Company Stock set
forth next to the name of the Principal Stockholder on Part 2.2(a) of the
Company Disclosure Schedule, free and clear of any Encumbrances. The Principal
Stockholder agrees to be bound be all provisions of this Agreement and to be
subject to all obligations imposed on the Principal Stockholder as a Company
Stockholder hereunder.
3.4 WAIVER OF APPRAISAL RIGHTS. The Principal Stockholder acknowledges that
he, she or it (a) has received a copy of Sections 3-201 through 3-213 of the
MGCL, and (b) will not exercise any right pursuant to Sections 3-201 through
3-213 of the MGCL (or otherwise) to dissent from the Merger or to demand an
appraisal of the fair value of the shares of Company Capital Stock held by the
Principal Stockholder.
3.5 AGREEMENTS WITH THE COMPANY. Except to the extent the Company
Disclosure Schedule specifically names the Principal Stockholder as a party
thereto, neither the Principal Stockholder nor any of its properties or assets
is a party or otherwise subject to any Contract to which any Target Company is a
party or by which any Target Company or any of its properties or assets is bound
or affected.
3.6 BROKERS' AND FINDERS' FEES. The Principal Stockholder has not incurred,
nor will it incur, directly or indirectly, any liability for brokerage or
finders' fees or agents' commissions or any similar charges in connection with
this Agreement or any transaction contemplated hereby.
3.7 ACCREDITED INVESTOR QUESTIONNAIRE. The Principal Stockholder has, on or
prior to the date hereof, completed and returned to the Company an executed
Investor Questionnaire in the Form of Exhibit D hereto ("INVESTOR
QUESTIONNAIRE"), and the information provided in such Investor Questionnaire is
true and correct in all respects.
ARTICLE 3A
REPRESENTATIONS AND WARRANTIES OF SPECIFIED HOLDERS
Trinity SBIC, L.P. (the "SPECIFIED HOLDER"), severally and not jointly,
represents and warrants to Parent and each Merger Sub as set forth in this
Article 3A.
3A.1 AUTHORITY. The execution and delivery of this Agreement and the Escrow
Agreement and the consummation of the transactions contemplated hereby and
thereby have been duly authorized by all necessary action on the part of the
Specified Holder (including, if required, authorization by the board of
directors or other managing body and by the stockholders or other
securityholders of the Specified Holder). This Agreement has been duly executed
and delivered by the Specified Holder and, assuming the due authorization,
execution and delivery of this Agreement by Parent, each Merger Sub, the
Company, the Stockholder Representative and the other Principal Stockholders,
constitutes the valid and binding obligation of the Specified Holder,
enforceable against the Specified Holder in accordance with its terms, except as
enforceability may be limited by bankruptcy and other similar laws affecting the
rights of creditors generally and general principles of equity. Assuming the due
authorization, execution and delivery of the Escrow Agreement by Parent, each
Merger Sub, the Stockholder
-48-
Representative and the Escrow Agent, the Escrow Agreement, when executed and
delivered by the Stockholder Representative on behalf of the Specified Holder,
will constitute the valid and binding obligation of the Specified Holder,
enforceable against the Specified Holder in accordance with its terms, except as
enforceability may be limited by bankruptcy and other similar laws affecting the
rights of creditors generally and general principles of equity.
3A.2 TITLE TO COMPANY STOCK; STATUS AS COMPANY STOCKHOLDER. The Specified
Holder holds of record and owns the number of shares of Company Stock set forth
next to the name of the Specified Holder on Part 2.2(a) of the Company
Disclosure Schedule, free and clear of any Encumbrances. The Specified Holder
agrees to be bound be all provisions of this Agreement and to be subject to all
obligations imposed on the Specified Holder as a Company Stockholder hereunder.
3A.3 WAIVER OF APPRAISAL RIGHTS. The Specified Holder acknowledges that he,
she or it (a) has received a copy of Sections 3-201 through 3-213 of the MGCL,
and (b) will not exercise any right pursuant to Sections 3-201 through 3-213 of
the MGCL (or otherwise) to dissent from the Merger or to demand an appraisal of
the fair value of the shares of Company Capital Stock held by the Specified
Holder.
3A.4 BROKERS' AND FINDERS' FEES. The Specified Holder has not incurred, nor
will it incur, directly or indirectly, any liability for brokerage or finders'
fees or agents' commissions or any similar charges in connection with this
Agreement or any transaction contemplated hereby.
3A.5 ACCREDITED INVESTOR QUESTIONNAIRE. The Specified Holder has, on or
prior to the date hereof, completed and returned to the Company an executed
Investor Questionnaire, and the information provided in such Investor
Questionnaire is true and correct in all respects.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUBS
As of the date of this Agreement and as of the Closing Date, Parent and
each Merger Sub, jointly and severally, represent and warrant to the Company and
the Company Stockholders as set forth in this Article 4, subject to any
exceptions expressly stated in the disclosure schedule delivered by Parent to
the Company dated as of the date hereof and certified by a duly authorized
officer of Parent (the "PARENT DISCLOSURE SCHEDULE"). Exceptions on the Parent
Disclosure Schedule shall specifically identify the representation to which they
relate; provided, however, that any matter disclosed pursuant to one section or
subsection of the Parent Disclosure Schedule is deemed disclosed for such other
sections or subsections of the Parent Disclosure Schedule as, and only to the
extent that, it is reasonably apparent that such matter relates to such other
section or subsection of the Parent Disclosure Schedule and the level of
particularity and manner of disclosure of the matter expressly disclosed in one
section or subsection of the Parent Disclosure Schedule would make a reasonable
person aware that such disclosure is relevant to such other sections or
subsections.
4.1 ORGANIZATION OF PARENT AND MERGER SUBS.
(a) Each of Parent and each Merger Sub (i) is a corporation duly
organized, validly existing and in good standing under the laws of the
jurisdiction in which it is organized;
-49-
(ii) has the corporate or other power and authority to own, lease and operate
its assets and property and to carry on its business as now being conducted; and
(iii) except as would not be material to Parent, is duly qualified or licensed
to do business in each jurisdiction where the character of the properties owned,
leased or operated by it or the nature of its activities makes such
qualification or licensing necessary.
(b) Parent has delivered or made available to Company a true and
correct copy of the Certificate of Incorporation and Bylaws of Parent and each
Merger Sub, each as amended to date (collectively, the "PARENT CHARTER
DOCUMENTS"), and each such instrument is in full force and effect. Neither
Parent nor either Merger Sub is in violation of any of the provisions of the
Parent Charter Documents. Parent has delivered or made available to Company all
proposed or considered amendments to the Parent Charter Documents.
4.2 PARENT AND MERGER SUB CAPITALIZATION.
(a) The authorized capital stock of Parent consists of 200,000,000
shares of common stock, par value $0.01 per share (the "PARENT COMMON STOCK"),
of which there were 111,920,390 shares issued and outstanding as of the close of
business on August 31, 2006 and 10,000,000 shares of preferred stock, par value
$0.01 per share, of which no shares are issued or outstanding. All outstanding
shares of Parent Common Stock are duly authorized, validly issued, fully paid
and nonassessable.
(b) The authorized capital stock of each Merger Sub consists of 1,000
shares of common stock, all of which, as of the date hereof, are issued and
outstanding and are held by Parent. All of the outstanding shares of each Merger
Sub's common stock have been duly authorized and validly issued, and are fully
paid and nonassessable. Each Merger Sub was formed for the purpose of
consummating the Merger and has no material assets or liabilities except as
necessary for such purpose.
(c) The Parent Common Stock to be issued in the Merger, when issued in
accordance with the provisions of this Agreement, will be validly issued, fully
paid and nonassessable.
4.3 AUTHORITY; NON-CONTRAVENTION.
(a) Parent and each Merger Sub have all requisite corporate power and
authority to enter into this Agreement and to consummate the transactions
contemplated hereby. The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby have been duly authorized
by all necessary corporate action on the part of Parent and each Merger Sub,
subject only to the filing of the Articles of Merger and the Second Articles of
Merger pursuant to the MGCL. This Agreement has been duly executed and delivered
by Parent and each Merger Sub and, assuming the due authorization, execution and
delivery by the Company, constitutes the valid and binding obligations of Parent
and each Merger Sub, enforceable against Parent and such Merger Sub in
accordance with its terms, except as enforceability may be limited by bankruptcy
and other similar laws affecting the rights of creditors generally and general
principles of equity.
-50-
(b) The execution and delivery of this Agreement by Parent and each
Merger Sub does not, and the performance of this Agreement by Parent and each
Merger Sub will not (i) conflict with or violate the Parent Charter Documents or
(ii) subject to compliance with the requirements set forth in Section 4.3(c)
below, conflict with or violate any material law, rule, regulation, order,
judgment or decree applicable to Parent or either Merger Sub or by which any of
their respective material properties is bound or affected.
(c) No consent, approval, order or authorization of, or registration,
declaration or filing with any Governmental Entity or other person is required
to be obtained or made by Parent or either Merger Sub in connection with the
execution and delivery of this Agreement or the consummation of the Merger,
except for (i) the filing of the Articles of Merger and the Second Articles of
Merger with the Secretary of State of the State of Maryland, (ii) such consents,
approvals, orders, authorizations, registrations, declarations and filings as
may be required under applicable federal, foreign and state securities (or
related) laws and the securities or antitrust laws of any foreign country, and
(iii) such other consents, authorizations, filings, approvals and registrations
which if not obtained or made would not be material to Parent or the Surviving
Corporation or have a material adverse effect on the ability of the parties
hereto to consummate the Merger or the Second Step Merger.
4.4 SEC FILINGS. Since January 1, 2003, Parent has filed all forms, reports
and documents required to be filed by Parent with the SEC, and has made
available to the Company such forms, reports and documents in the form filed
with the SEC (if and to the extent such forms, reports and documents are not
available on XXXXX). None of Parent's subsidiaries is required to file any
forms, reports or other documents with the SEC. As of the date hereof, Parent is
eligible to use Form S-3 to register the resale of its securities.
4.5 LITIGATION. Except as set forth on Part 4.5 of the Parent Disclosure
Schedule, there are no claims, suits, actions or proceedings pending or, to the
knowledge of Parent, threatened against, relating to or affecting Parent or any
of its subsidiaries, before any Governmental Entity or any arbitrator that seeks
to restrain or enjoin the consummation of the transactions contemplated by this
Agreement or which could reasonably be expected, either singularly or in the
aggregate with all such claims, actions or proceedings, to be material to Parent
or have a material adverse effect on the ability of the parties hereto to
consummate the Merger.
4.6 BROKERS' AND FINDERS' FEES. Except for fees payable to Xxxxxxx Xxxxx &
Associates, Parent has not incurred, nor will it incur, directly or indirectly,
any liability for brokerage or finders' fees or agents' commissions or any
similar charges in connection with this Agreement or any transaction
contemplated hereby.
4.7 SEC DOCUMENTS; PARENT FINANCIAL STATEMENTS. Parent has made available
to the Company, or the Electronic Data Gathering, Analysis and Retrieval (XXXXX)
database of the SEC contains in a publicly available format, each statement,
report, registration statement (with the prospectus in the form filed pursuant
to Rule 424(b) of the Securities Act), definitive proxy statement and other
filing filed with the SEC by Parent since January 1, 2004 (collectively, the
"PARENT SEC DOCUMENTS"). In addition, Parent has made available to the Company
all exhibits (subject to redaction) to the Parent SEC Documents filed prior to
the Agreement Date
-51-
that have been requested by the Company and, upon the Company's request, will
promptly make available to the Company all exhibits (subject to redaction) to
any additional Parent SEC Documents filed prior to the Effective Time. As of
their respective filing dates (or if amended or supplemented by a filing, then
on the date of such subsequent filing), the Parent SEC Documents complied in all
material respects with the requirements of the Exchange Act and the Securities
Act, and none of the Parent SEC Documents contained any untrue statement of a
material fact or omitted to state a material fact required to be stated therein
or necessary to make the statements made therein, in light of the circumstances
under which they were made, not misleading, except to the extent corrected by a
subsequently filed Parent SEC Document. The financial statements of Parent,
including the related notes thereto, included in the Parent SEC Documents (the
"PARENT FINANCIAL STATEMENTS") complied as to form in all material respects with
the published rules and regulations of the SEC with respect thereto as of their
respective dates and were prepared in accordance with GAAP applied on a basis
consistent throughout the periods indicated (except as may be indicated in the
notes thereto or, in the case of unaudited statements, as permitted by the SEC
on Form 10 Q, 8-K or any successor form under the Exchange Act). The Parent
Financial Statements fairly present in all material respects the consolidated
financial condition and operating results of Parent at the dates and during the
periods indicated therein (except that unaudited statements may not contain
footnotes and were or are subject to normal and recurring year end adjustments).
Parent has no material off-balance sheet arrangements as defined in Item
303(a)(4)(ii) of Regulation S-K of the SEC.
4.8 TAXES.
(a) Neither Parent nor any of its Affiliates has taken or agreed to
take any action that could reasonably be expected to prevent the Merger from
constituting a "reorganization" under section 368(a) of the Code. Parent is not
aware of any agreement, plan or other circumstance that could reasonably be
expected to prevent the Merger from so qualifying.
(b) Parent does not have a plan or intention to reacquire, and to
Parent's knowledge, no person related to Parent within the meaning of Treasury
Regulation section 1.368-1(e)(3) has a plan or intention to acquire, any Parent
stock issued in the Merger other than pursuant to a share repurchase program
described in Revenue Ruling 99 - 58.
(c) Parent has no plan or intention to liquidate the Surviving
Corporation or to cause the Surviving Corporation to merge into another
corporation.
(d) Parent has no plan or intention to cause the Surviving Corporation
to sell, transfer or otherwise dispose of any of the Surviving Corporation's
assets, except for dispositions made in the ordinary course of business and
transfers described in section 368(a)(2)(C) of the Code and the Treasury
Regulations issued thereunder.
(e) Following the Merger, Parent will cause the Surviving Corporation
to continue the Company's historic business or use a significant portion of the
Company's historic business assets in a business within the meaning of section
1.368-1(d) of the Treasury Regulations, assuming that the assets of, and the
business conducted by, the Company on the Closing Date constitute the Company's
historic business assets and historic business, respectively.
-52-
(f) Following the Merger, Parent has no plan or intention to cause the
Surviving Corporation to issue additional shares that will result in Parent
losing control of the Surviving Corporation within the meaning of section 368(c)
of the Code.
4.9 NON-AFFILIATE. At no time prior to the execution and delivery of this
Agreement and the Voting Agreements has Parent or either Merger Sub been a
person that directly, or indirectly through one or more intermediaries,
controls, or is controlled by, or is under common control with, the Company.
ARTICLE 5
CONDUCT PRIOR TO THE EFFECTIVE TIME
5.1 CONDUCT OF BUSINESS BY THE COMPANY. During the period from the date of
this Agreement and continuing until the earlier of the termination of this
Agreement pursuant to its terms or the Effective Time, the Company and each of
its subsidiaries shall, except to the extent that Parent shall otherwise consent
in writing, carry on its business in the usual, regular and ordinary course, in
substantially the same manner as heretofore conducted and in compliance in all
material respects with all applicable laws and regulations, pay its debts and
Taxes in the ordinary course of business, consistent with past practice, subject
to good faith disputes over such debts or Taxes, pay or perform other material
obligations in the ordinary course of business consistent with past practice,
and use its commercially reasonable efforts, consistent with past practice to
(i) preserve intact its present business organization, (ii) keep available the
services of its present officers and employees, (iii) collect its accounts
receivable and any other amounts payable to it when due and otherwise enforce
any obligations owed to it by others substantially in accordance with their
terms, and (iv) preserve its relationships with customers, suppliers, licensors,
licensees, and others with which it has business dealings. In addition, the
Company will promptly notify Parent of any material event involving its business
or operations.
In addition, except as permitted by the terms of this Agreement, without
the prior written consent of Parent, during the period from the date of this
Agreement and continuing until the earlier of the termination of this Agreement
pursuant to its terms or the Effective Time, the Company shall not do any of the
following and shall not permit its subsidiaries to do any of the following:
(a) Waive any stock repurchase rights, accelerate, amend or change the
period of exercisability of options or repurchase of restricted stock, or
reprice options granted to any employee, consultant, director or authorize cash
payments in exchange for any options or take any such action with regard to any
warrant or other right to acquire the Company's capital stock;
(b) Grant any severance or termination pay to any officer or employee
except pursuant to written agreements in effect, or policies existing, on the
date hereof and as previously disclosed in writing to Parent, or adopt any new
severance plan;
(c) Transfer or license to any person or entity or otherwise extend,
amend or modify in any material respect any rights to the Company Intellectual
Property, other than non-exclusive licenses in the ordinary course of business
and consistent with past practice;
-53-
(d) Declare, set aside or pay any dividends on or make any other
distributions (whether in cash, stock, equity securities or property) in respect
of any capital stock or split, combine or reclassify any capital stock or issue
or authorize the issuance of any other securities in respect of, in lieu of or
in substitution for any capital stock;
(e) Purchase, redeem or otherwise acquire, directly or indirectly, any
shares of capital stock of the Company or its subsidiaries, except repurchases
of unvested shares at cost in connection with the termination of the employment
relationship with any employee pursuant to option agreements or purchase
agreements in effect on the date hereof;
(f) Issue, deliver, sell, authorize, pledge or otherwise encumber any
shares of capital stock or any securities convertible into shares of capital
stock, or subscriptions, rights, warrants or options to acquire any shares of
capital stock or any securities convertible into shares of capital stock, or
enter into other agreements or commitments of any character obligating it to
issue any such shares or convertible securities, other than the issuance,
delivery and/or sale of shares of Company Common Stock pursuant to the exercise
of currently outstanding Company Convertible Securities.
(g) Cause, permit or propose any amendments to the Company Charter
Documents or to the charter documents of any subsidiary;
(h) Acquire or agree to acquire by merging or consolidating with, or
by purchasing any equity interest in or a portion of the assets of, or by any
other manner, any business or any corporation, partnership, association or other
business organization or division thereof; or otherwise acquire or agree to
acquire any assets which are material, individually or in the aggregate, to the
business of the Company or enter into any material joint ventures, strategic
relationships or alliances or make any material loan or advance to, or
investment in, any person, except for loans or capital contributions to a
subsidiary or advances of routine business or travel expenses to employees,
officers or directors in the ordinary course of business, consistent with past
practice;
(i) Sell, lease, license, encumber or otherwise dispose of any
properties or assets which are material, individually or in the aggregate, to
the business of the Company;
(j) Incur any indebtedness for borrowed money or guarantee any such
indebtedness of another person, issue or sell any debt securities or options,
warrants, calls or other rights to acquire any debt securities of the Company,
enter into any "keep well" or other agreement to maintain any financial
statement condition or enter into any arrangement having the economic effect of
any of the foregoing other than (i) in connection with the financing of ordinary
course trade payables consistent with past practice or (ii) pursuant to existing
credit facilities in the ordinary course of business;
(k) Adopt or amend any employee benefit plan or employee stock
purchase or employee stock option plan, or enter into any employment contract or
collective bargaining agreement (other than offer letters and letter agreements
entered into in the ordinary course of business consistent with past practice
with employees who are terminable "at will"), pay any special bonus or special
remuneration to any director or employee, or increase the salaries or
-54-
wage rates or fringe benefits (including rights to severance or indemnification)
of its directors, officers, employees or consultants other than in the ordinary
course of business, consistent with past practice, or change in any material
respect any management policies or procedures; provided that, notwithstanding
the foregoing, the Company may agree to pay, and may accrue, the Transaction
Bonuses;
(l) Make any capital expenditures outside of the ordinary course of
business in excess of $10,000 in the aggregate;
(m) Modify, amend or terminate any material Company Contract or waive,
release or assign any material rights or claims thereunder; provided, that (i)
the renewal in the ordinary course of business of any software maintenance
agreement that is in force on the date of this Agreement, which renewal is on
terms substantially as favorable to the Company as those of the agreement
currently in force, shall not be deemed to constitute a modification or
amendment prohibited by this clause (m) and (ii) the consent of Parent to any
such modification, amendment or termination shall not unreasonably be withheld
or delayed;
(n) Enter into any development services, licensing, distribution,
sales, sales representation or other similar agreement or obligation with
respect to any material Intellectual Property or enter into any contract of a
character required to be disclosed by Section 2.16 other than such agreements
entered into in the ordinary course of business consistent with past practices,
including pricing and contract terms;
(o) Materially revalue any of its assets or, except as required by
GAAP, make any change in accounting methods, principles or practices;
(p) Discharge, settle or satisfy any disputed claim, litigation,
arbitration, disputed liability or other controversy (absolute, accrued,
asserted or unasserted, contingent or otherwise), including any liability for
Taxes, other than the discharge or satisfaction in the ordinary course of
business consistent with past practice, or in accordance with their terms, of
liabilities reflected or reserved against in the Company Balance Sheet in the
ordinary course of business consistent with past practice, or waive any material
benefits of, or agree to modify in any material respect, any confidentiality,
standstill or similar agreements to which the Company or any of its subsidiaries
is a party; provided, however, that the discharge or settlement of any disputed
claim, liability or other controversy in the amount of less than $10,000 shall
not be deemed to be prohibited by the foregoing;
(q) Take any action that would be reasonably likely to interfere with
the treatment of the Merger as a "reorganization" within the meaning of Section
368 of the Code;
(r) Engage in any action with the intent to directly or indirectly
adversely affect any of the transactions contemplated by this Agreement,
including with respect to any "poison pill" or similar plan, agreement or
arrangement, or any anti-takeover, control share acquisition, fair price,
moratorium or other similar statute; or
(s) Agree in writing or otherwise to take any of the actions described
in Section 5.1(a) through 5.1(r) above.
-55-
5.2 COVENANT OF PARENT. During the period from the date of this Agreement
and continuing until the earlier of the termination of this Agreement or the
Effective Time, Parent agrees (except as expressly contemplated by this
Agreement or with Company's prior written consent) that Parent will promptly
apply for or otherwise seek, and use its commercially reasonable efforts to
obtain, all consents and approvals, and make all filings, required for the
consummation of the Merger.
ARTICLE 6
ADDITIONAL AGREEMENTS
6.1 REGISTRATION FOR RESALE.
(a) For purposes of this Agreement, the term "REGISTRABLE SECURITIES"
shall mean (i) the shares of Parent Common Stock acquired by the Company
Stockholders or the recipient of any Transaction Bonus hereunder (each a
"HOLDER"), (ii) any shares of Parent Common Stock issued or issuable by Parent
in respect of the shares of Parent Common Stock acquired by the Holders
hereunder, whether by means of a stock split, stock dividend or otherwise, and
(iii) any other securities issued or issuable by Parent in respect of the shares
of Parent Common Stock referred to in clauses (i) and (ii) above, whether by
means of a merger, consolidation, recapitalization, reorganization or similar
event, but only if at the time of registration Parent shall have listed such
other securities for trading on a national securities exchange. Any of the
foregoing securities will cease to be Registrable Securities if and when they
(i) have been registered by Parent under the Securities Act and either (A)
disposed of pursuant to such registration statement, or (B) such registration
continues to be effective at the time of inquiry, (ii) have been sold,
transferred, distributed or otherwise disposed of by a Holder (other than a
Permitted Transfer or upon death by will or in accordance with the laws of
descent and distribution), or (iii) on the date on which all of such Holder's
Registrable Securities may be sold within a 90-day period pursuant to Rule 144
under the Securities Act.
(b) Parent hereby agrees to prepare and file with the SEC, as soon as
practicable but in any event not later than 20 days following the Closing, a
registration statement (the "REGISTRATION STATEMENT") on Form S-3 (or any
successor form), in compliance with the Securities Act, with respect to the
resale of the Registrable Securities, provided that at the time of the filing of
the Registration Statement Parent shall be eligible to use Form S-3 (or any
successor short-form registration statement available for such resale that
permits incorporation by reference at least to the same extent as such form)
with respect to the disposition of the Registrable Securities. Parent shall use
any other applicable and available form to register the Registrable Securities
as soon as reasonably practicable and otherwise in accordance with the terms
hereof in the event that it is not eligible to use Form S-3 as provided above.
(c) Parent shall (i) use commercially reasonable efforts to cause the
Registration Statement to become effective, and (ii) maintain the effectiveness
of the Registration Statement until the close of business on the second
anniversary of the Closing Date; provided, however, that Parent's obligations
under this Section 6.1 shall be suspended during any period (A) when Parent
shall in good faith conclude in its sole discretion, after consultation with its
legal counsel, that it is advisable to suspend use of any prospectus as a result
of pending corporate developments, the disclosure requirements of the securities
laws or other events
-56-
deemed material by Parent or (B) when the filing or effectiveness of the
Registration Statement could, in the opinion of Parent, after consultation with
its financial advisors, impair Parent's ability to pursue a financing,
acquisition or other transaction; and provided further, that no period during
which the use of any prospectus shall be suspended pursuant to clause (A) or
clause (B) above shall continue for more than 120 days. Parent shall prepare and
file with the SEC such amendments and supplements to the Registration Statement
and the prospectus used in connection therewith as may be necessary in its
opinion to comply with its obligations under this Section 6.1.
(d) If Parent's obligations under this Section 6.1 are suspended for
any reason, Parent shall promptly provide the Stockholder Representative with
written or oral notice of both the commencement and termination of the period of
suspension. After receipt of such notice, each Holder hereby agrees that he or
it shall not offer, sell, pledge, hypothecate, transfer, distribute or otherwise
dispose of, in reliance on the Registration Statement, any of such Holder's
Registrable Securities during any period in which Parent's obligations under
this Section 6.1 are suspended. In addition, each Holder hereby acknowledges
that, in order to ensure compliance with xxxxxxx xxxxxxx and other securities
laws, Parent from time to time imposes restrictions on the trading of its
securities by its directors, officers, employees and others, and each Holder
hereby agrees to comply with those restrictions as long as they apply to such
Holder.
(e) It shall be a condition to Parent's obligations under this Section
6.1 that each Holder (i) shall have promptly taken all such actions as Parent
shall reasonably request in connection with the Registration Statement and (ii)
shall have provided promptly (and in any event within seven business days) such
information and other materials as Parent or its counsel shall request in
connection with the Registration Statement. Each Holder hereby represents,
warrants and agrees that all such information provided by such Holder or on his
behalf shall be true, complete and correct. Each Holder shall comply with the
Securities Act and any other Legal Requirements applicable to any disposition of
any Registrable Securities pursuant to the Registration Statement.
(f) Parent shall pay all expenses incurred by it in complying with its
obligations under this Section 6.1, including registration and filing fees,
listing fees, printing expenses, messenger and delivery expenses, fees and
expenses of Parent's counsel, fees and expenses of Parent's accountants, and
Parent's internal expenses. Each Holder shall pay all expenses incurred by such
Holder in connection with the disposition of his or its Registrable Securities,
including any broker's fees or commissions, selling expenses, messenger and
delivery expenses, and fees and expenses of any counsel retained by such Holder.
(g) Parent's obligations under this Section 6.1 shall terminate, with
respect to each Holder, on the date on which all of such Holder's Registrable
Securities may be sold within a 90-day period pursuant to Rule 144 under the
Securities Act. Each Holder's rights under this Section 6.1 are personal to such
Holder and non-transferable except in a Permitted Transfer or by will or in
accordance with the laws of descent and distribution; provided that a Holder's
rights under this Section 6.1 may only be transferred in a Permitted Transfer
if: (a) Parent is given written notice by the Holder at the time of such
Permitted Transfer stating the name and address of the Permitted Transferee and
identifying the Registrable Securities with respect to which the rights under
this Section 6.1 are being assigned, (b) such Permitted Transferee executes and
-57-
delivers such agreements as Parent may reasonably require in order to confirm
that such Permitted Transferee agrees to be bound by this Agreement, and (c)
notwithstanding anything to the contrary contained in this Agreement, Parent
shall not be obligated to file any post-effective amendments or prospectus
supplements to the Registration Statement for the purposes of updating the
selling stockholders listed in the Registration Statement to include the
Permitted Transferee.
6.2 RESTRICTIVE LEGEND; LOCK-UP AGREEMENT.
(a) Unless Parent has otherwise agreed or consented in writing, in
addition to any restrictions imposed by applicable law or other agreements, no
Holder shall sell, transfer, hedge, pledge, hypothecate, assign or otherwise
convey any interest in (collectively, "SELL") any shares of Parent Common Stock
received as part of the Base Merger Consideration or the Transaction Bonuses
other than shares included in the Working Capital Escrow or Indemnity Escrow and
other than in a Permitted Transfer (provided that the Permitted Transferee in
such Permitted Transfer shall have agreed in writing to undertake the
obligations of the Holder under this Agreement and to be bound by the escrow and
indemnification provisions hereof, the following restrictions on transfer and
all other provisions set forth herein that relate to such Parent Common Stock),
for a period of three (3) months following the Closing Date, at which point such
restrictions shall lapse as to one-twelfth (1/12) of such shares of Parent
Common Stock; and such restrictions shall lapse as to an additional one-twelfth
(1/12) of such shares of Parent Common Stock on each subsequent monthly
anniversary of the Closing Date such that this restriction lapse completely on
the 14 month anniversary of this Agreement (the "LOCK-UP AGREEMENT"). The
certificates representing any shares of Parent Common Stock subject to this
Lock-Up Agreement shall bear, in addition to any other legends provided for in
this Section 6.2, , a legend in substantially the following form:
"The shares represented by this certificate are subject to restrictions on
transfer pursuant to that certain Agreement and Plan of Merger dated as of
September 18, 2006. by and among the Corporation, eStara, Inc., Arlington
Acquisition Corp., Storrow Acquisition Corp., and the Stockholder
Representative and Principal Stockholders named therein, a copy of which is
available from the Corporation upon request."
Notwithstanding any provision of Sections 6.1 or 6.2 to the contrary, the
Specified Holder, or the United States Small Business Administration, acting as
a Receiver for the Specified Holder, may sell Parent Common Stock received as
Merger Consideration (or the equity interests of the Specified Holder) to any
person that purchases for value all or substantially all the assets or equity
interests of the Specified Holder (a "SPECIFIED HOLDER PERMITTED TRANSFEREE");
provided that such Specified Holder Permitted Transferee shall have agreed in
writing to undertake the obligations of the Specified Holder under this
Agreement and to be bound by the escrow and indemnification provisions hereof,
the foregoing restrictions on transfer and all other provisions set forth herein
that relate to such Parent Common Stock.
(b) The certificates representing any shares of Parent Common Stock
issued pursuant to this Agreement shall bear, in addition to any other legends
required under applicable state securities or "blue sky" laws, a legend in
substantially the following form:
-58-
"These securities have not been registered under the Securities Act of
1933, as amended (the 'Securities Act'), or under any applicable state
securities or 'blue sky' laws. These securities may not be sold, offered,
pledged, hypothecated or otherwise transferred except (i) pursuant to
registration under the Securities Act or pursuant to an available exemption
from registration, or (ii) with written permission of the issuer of these
securities. The issuer of these securities may require an opinion of
counsel reasonably satisfactory to the issuer, in form and substance
reasonably satisfactory to the issuer, to the effect that any sale or
transfer of these securities will be in compliance with the Securities Act
and any applicable state securities or 'blue sky' laws."
(c) In order to prevent any transfer of such shares of Parent Common
Stock from taking place in violation of applicable Legal Requirement or the
terms of this Agreement, Parent may cause a stop transfer order to be placed
with its transfer agent with respect to any such shares of Parent Common Stock.
Parent will not be required to transfer on its books any shares of Parent Common
Stock that have been sold or transferred in violation of any provision of
applicable Legal Requirement or the terms of this Agreement.
6.3 ANTITRUST AND OTHER FILINGS.
(a) As promptly as practicable after the execution of this Agreement,
each of the Company and Parent will prepare and file any pre-merger notification
forms required by the merger notification or control laws and regulations of any
applicable jurisdiction, as agreed to by the parties (the "ANTITRUST FILINGS")
and (ii) any other filings required to be filed by it under the Exchange Act,
the Securities Act or any other federal, state or foreign laws relating to the
Merger and the transactions contemplated by this Agreement (the "OTHER
Filings"). The Company and Parent each shall promptly supply the other with any
information which may be required in order to effectuate any filings pursuant to
this Section 6.3.
(b) Each of the Company and Parent will notify the other promptly upon
the receipt of any comments from any government officials in connection with any
filing made pursuant hereto and of any request by any government officials for
amendments or supplements to any Antitrust Filings or Other Filings or for
additional information and will supply the other with copies of all
correspondence between such party or any of its representatives, on the one
hand, and the government officials, on the other hand, with respect to the
Merger or any Antitrust Filing or Other Filing. Each of the Company and Parent
will cause all documents that it is responsible for filing with regulatory
authorities under this Section 6.3 to comply in all material respects with all
applicable requirements of law and the rules and regulations promulgated
thereunder. Whenever any event occurs which is required to be set forth in an
amendment or supplement to any Antitrust Filing or Other Filing, the Company or
Parent, as the case may be, will promptly inform the other of such occurrence
and cooperate in filing with the government officials such amendment or
supplement.
6.4 INFORMATION STATEMENT; COMPANY STOCKHOLDER MEETING. Promptly after the
execution of this Agreement, but in any event no later than September 19, 2006,
the Company shall mail to the Company Stockholders an information statement (the
"INFORMATION STATEMENT") for use by the Company in connection with its
solicitation of the approval of the holders of
-59-
outstanding Company Capital Stock of the Merger, this Agreement and the
transactions contemplated by this Agreement at a special meeting of the Company
Stockholders to be duly called and convened under Maryland Law (the "SPECIAL
MEETING"). The Information Statement shall be in form and substance reasonably
acceptable to each of Parent and the Company. The Information Statement shall
include (i) proper notice under Maryland Law that the holders of outstanding
Company Capital Stock are or may be entitled to assert dissenters' or appraisal
rights under such law, (ii) a copy of this Agreement, and (iii) a copy of any
other documents and all information required to be disclosed to Company
Stockholders under Maryland Law to approve the Merger, this Agreement and the
transactions contemplated by this Agreement. Each of Parent and the Company
shall provide promptly to the other such information concerning its business and
affairs as any other shall reasonably request for inclusion in such Information
Statement. The Company will promptly advise Parent, and Parent will promptly
advise the Company, if at any time prior to the Effective Time either the
Company or Parent, as applicable, 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. Promptly after the
dissemination of the Notice of Stockholders Special Meeting and Information
Statement and in accordance with Maryland Law, the Company shall duly hold the
Special Meeting in accordance with Maryland Law necessary to obtain the
necessary approval and adoption of the Merger, this Agreement and the
transactions contemplated by this Agreement.
6.5 TAX MATTERS.
(a) PRIOR TO THE CLOSING. Without the prior written consent of Parent
(which consent shall not be unreasonably withheld), the Company shall not make
or change any election, change an annual accounting period, adopt or change any
accounting method, file any amended Tax Return, enter into any closing
agreement, settle any Tax claim or assessment, surrender any right to claim a
refund of Taxes, consent to any extension or waiver of the limitation period
applicable to any Tax claim or assessment, or take any other similar action
relating to the filing of any Tax Return or the payment of any Tax.
(b) FOLLOWING THE CLOSING. The following provisions shall govern the
allocation of responsibility as between Parent and the Company Stockholders for
certain tax matters following the Closing Date:
(i) TAX INDEMNIFICATION. In accordance with the indemnification
provisions of Article 7 and subject to any limitations contained therein,
the Company Stockholders shall jointly and severally indemnify the Company,
Parent and each Parent affiliate and hold them harmless from and against
without duplication, any loss, claim, liability, expense, or other damage
attributable to the following Taxes, net of any reserves set forth on the
Company Balance Sheet: (i) all Taxes (or the non-payment thereof) of the
Company for all taxable periods ending on or before the Closing Date and
the portion through the end of the Closing Date for any taxable period that
includes (but does not end on) the Closing Date ("PRE-CLOSING TAX PERIOD"),
(ii) all Taxes of any member of an affiliated, consolidated, combined or
unitary group of which the Company (or any predecessor of the Company) is
or was a member on or prior to the Closing Date, including pursuant to
Treasury Regulation Section 1.1502-6 or any analogous or similar state,
-60-
local, or foreign law or regulation, and (iii) any and all Taxes of any
person (other than the Company) imposed on the Company as a transferee or
successor, by contract or pursuant to any law, rule, or regulation, which
Taxes relate to an event or transaction occurring before the Closing;
provided, however, that the Company Stockholders shall not be liable for
and shall not indemnify against any Taxes under clauses (i), (ii) or (iii)
relating to any Taxes that result from any election under Section 338 of
the Code or any similar provisions of domestic or foreign law in connection
with the transactions contemplated by this Agreement.
(ii) STRADDLE PERIOD. In the case of any taxable period that
includes (but does not end on) the Closing Date (a "STRADDLE PERIOD"), the
amount of any Taxes based on or measured by income or receipts of the
Company for the Pre-Closing Tax Period shall be determined based on an
interim closing of the books as of the close of business on the Closing
Date (and for such purpose, the taxable period of any partnership or other
pass-through entity in which the Company holds a beneficial interest shall
be deemed to terminate at such time) and the amount of other Taxes of the
Company for a Straddle Period that relates to the Pre-Closing Tax Period
shall be deemed to be the amount of such Tax for the entire taxable period
multiplied by a fraction the numerator of which is the number of days in
the taxable period ending on the Closing Date and the denominator of which
is the number of days in such Straddle Period.
(iii) RESPONSIBILITY FOR FILING TAX RETURNS. Parent shall prepare
or cause to be prepared and file or cause to be filed in a timely manner
all Tax Returns for the Company that are filed after the Closing Date.
Parent shall permit the Stockholder Representative to review and comment on
each such Tax Return for a Pre-Closing Tax Period, and shall make such
changes to the Tax Returns as the Stockholder's Representative reasonably
requests and that are not otherwise contrary to applicable law.
(iv) COOPERATION ON TAX MATTERS.
(1) Parent, the Company, the Surviving Corporation and the
Company Stockholders shall cooperate fully, as and to the extent
reasonably requested by the other Party, in connection with the filing
of Tax Returns pursuant to this Section 6.5 and any audit, litigation
or other proceeding with respect to Taxes. Such cooperation shall
include the retention and (upon the other Party's request) the
provision of records and information that are reasonably relevant to
any such audit, litigation or other proceeding and making employees
available on a mutually convenient basis to provide additional
information and explanation of any material provided hereunder. The
Company, the Surviving Corporation and the Company Stockholders agree
(A) to retain all books and records with respect to Tax matters
pertinent to the Company relating to any taxable period beginning
before the Closing Date until the expiration of the statute of
limitations (and, to the extent notified by Parent and the Company
Stockholders, any extensions thereof) of the respective taxable
periods, and to abide by all record retention agreements entered into
with any taxing authority, and (B) to give the other Party reasonable
written notice prior to transferring, destroying or discarding any
such books and records and, if the other Party so requests, Parent or
the Company
-61-
Stockholders, as the case may be, shall allow the other Party to take
possession of such books and records.
(2) Parent and the Company Stockholders further agree, upon
request, to use their commercially reasonable efforts to obtain any
certificate or other document from any governmental authority or any
other Person as may be necessary to mitigate, reduce or eliminate any
Tax that could be imposed (including, but not limited to, with respect
to the transactions contemplated hereby).
(3) Parent and the Company Stockholders further agree, upon
request, to provide the other Party with all information that either
Party may be required to report pursuant to Code Sections 6043 or
6043A, or Treasury Regulations promulgated thereunder.
(v) TAX-SHARING AGREEMENTS. All tax-sharing agreements or similar
agreements with respect to or involving the Company shall be terminated as
of the Closing Date and, after the Closing Date, the Company shall not be
bound thereby or have any liability thereunder.
6.6 CONFIDENTIALITY. The parties acknowledge that the Company and Parent
have previously executed that certain Mutual Non-Disclosure Agreement, dated as
of May 15, 2006 (the "CONFIDENTIALITY AGREEMENT"), which Confidentiality
Agreement will continue in full force and effect in accordance with its terms.
6.7 ACCESS TO INFORMATION. Parent, on the one hand, and the Company, on the
other, will afford the other party and the other party's accountants, counsel
and other representatives reasonable access to its properties, books, records
and personnel during the period prior to the Effective Time to obtain all
information concerning the business, including the status of product development
efforts, properties, results of operations and personnel, as the other party may
reasonably request. No information or knowledge obtained by a party in any
investigation pursuant to this Section 6.7 will affect or be deemed to modify
any representation or warranty contained herein or the conditions to the
obligations of the parties to consummate the Merger.
6.8 NO SOLICITATION.
(a) From and after the date of this Agreement until the Effective Time
or termination of this Agreement pursuant to its terms, the Company will not and
will cause each Target Company not to, and the Company Stockholders will not,
nor will they authorize or permit any of their respective officers, directors,
Affiliates, or employees or any investment banker, attorney or other consultant,
advisor, representative or agent retained by any of them to, directly or
indirectly, (i) solicit, initiate, encourage or induce the making, submission or
announcement of any Acquisition Proposal, (ii) participate in any discussions or
negotiations regarding, or furnish to any Person any nonpublic information with
respect to, or take any other action to facilitate any inquiries or the making
of any proposal that constitutes, or may reasonably be expected to lead to, any
Acquisition Proposal, (iii) engage in discussions with any Person with respect
to any Acquisition Proposal, (iv) approve, endorse or recommend any
-62-
Acquisition Proposal or (v) enter into any letter of intent or similar document
or any Contract contemplating or otherwise relating to any Acquisition Proposal.
The Company will and will cause each Target Company to, and the Company
Stockholders will, immediately cease any and all existing activities,
discussions or negotiations with any Persons conducted heretofore with respect
to any Acquisition Proposal. Without limiting the foregoing, it is understood
that any violation of the restrictions set forth in the preceding two sentences
by any Target Company, or by any officer, director, Affiliate or employee of any
Target Company or any of the Company Stockholders or any investment banker,
attorney or other consultant, advisor, representative or agent of any Target
Company or any of the Company Stockholders shall be deemed to be a breach of
this Section 6.8 by the Company.
(b) In addition to the obligations of the Company and the Company
Stockholders set forth in Section 6.8(a), each of the Company and the Company
Stockholders as promptly as practicable, and in any event within 24 hours of its
receipt, shall advise Parent orally and in writing of an Acquisition Proposal or
any request for nonpublic information or other inquiry which the Company or such
Company Stockholder believes or should reasonably believe could lead to an
Acquisition Proposal, the material terms and conditions of such Acquisition
Proposal, request or inquiry, and the identity of the Person or group making any
such Acquisition Proposal, request or inquiry. The Company and the Company
Stockholders will keep Parent informed as promptly as practicable in all
material respects of the status and details (including material amendments or
proposed amendments) of any such Acquisition Proposal, request or inquiry.
6.9 PUBLIC DISCLOSURE. Parent and the Company will consult with each other,
and to the extent practicable, agree, before issuing any press release or
otherwise making any public statement with respect to the Merger, this Agreement
or an Acquisition Proposal and will not issue any such press release or make any
such public statement prior to such consultation, except as may be required by
law or any listing agreement with a national securities exchange.
6.10 REASONABLE EFFORTS; NOTIFICATION.
(a) Upon the terms and subject to the conditions set forth in this
Agreement, each of the parties agrees to use all commercially reasonable efforts
to take, or cause to be taken, all actions, and to do, or cause to be done, and
to assist and cooperate with the other parties in doing, all things necessary,
proper or advisable to consummate and make effective, in the most expeditious
manner practicable, the Merger and the other transactions contemplated by this
Agreement, including using all commercially reasonable efforts to accomplish the
following: (i) causing the conditions precedent set forth in Article 8 to be
satisfied, (ii) obtaining all necessary actions or nonactions, waivers,
consents, approvals, orders and authorizations from Governmental Entities and
making of all necessary registrations, declarations and filings (including
registrations, declarations and filings with Governmental Entities) and taking
all steps that may be necessary to avoid any suit, claim, action, investigation
or proceeding by any Governmental Entity, (iii) obtaining all necessary
consents, approvals or waivers from third parties, (iv) defending any suits,
claims, actions, investigations or proceedings, whether judicial or
administrative, challenging this Agreement or the consummation of the
transactions contemplated hereby, including seeking to have any stay or
temporary restraining order entered by any court or other Governmental Entity
vacated or reversed and (v) executing and delivering
-63-
any additional instruments necessary to consummate the transactions contemplated
by, and to fully carry out the purposes of, this Agreement. Notwithstanding
anything in this Agreement to the contrary, neither Parent nor any of its
affiliates shall be under any obligation to make proposals, execute or carry out
agreements or submit to orders providing for the sale or other disposition or
holding separate (through the establishment of a trust or otherwise) of any
assets or categories of assets of Parent or any of its affiliates or the Company
or any of its subsidiaries or the holding separate of the shares of Company
Common Stock (or shares of stock of the Surviving Corporation) or imposing or
seeking to impose any limitation on the ability of Parent or any of its
subsidiaries or affiliates to conduct their business or own such assets or to
acquire, hold or exercise full rights of ownership of the shares of Company
Common Stock (or shares of stock of the Surviving Corporation).
(b) Each of the Company and Parent will give prompt notice to the
other of (i) any notice or other communication from any person alleging that the
consent of such person is or may be required in connection with the Merger, (ii)
any notice or other communication from any Governmental Entity in connection
with the Merger, (iii) any litigation relating to, involving or otherwise
affecting the Company, Parent or their respective subsidiaries that relates to
the consummation of the Merger. The Company shall give prompt notice to Parent
of any representation or warranty made by it contained in this Agreement
becoming untrue or inaccurate, or any failure of the Company to comply with or
satisfy in any material respect any covenant, condition or agreement to be
complied with or satisfied by it under this Agreement; provided, however, that
no such notification shall affect the representations, warranties, covenants or
agreements of the parties or the conditions to the obligations of the parties
under this Agreement. Parent shall give prompt notice to the Company of any
representation or warranty made by it or either Merger Sub contained in this
Agreement becoming untrue or inaccurate, or any failure of Parent or either
Merger Sub to comply with or satisfy in any material respect any covenant,
condition or agreement to be complied with or satisfied by it under this
Agreement; provided, however, that no such notification shall affect the
representations, warranties, covenants or agreements of the parties or the
conditions to the obligations of the parties under this Agreement.
(c) The Company shall give prompt notice to Parent of receipt by the
Company of any demand for appraisal rights pursuant to 3-203 of the MGCL.
(d) The Company shall promptly deliver to each Company Stockholder the
Investor Questionnaire and shall use commercially reasonable efforts to cause
each Company Stockholder to complete and return an executed copy of the Investor
Questionnaire prior to the Closing.
6.11 THIRD PARTY CONSENTS. As soon as practicable following the date
hereof, Parent and the Company will each use all commercially reasonable efforts
to obtain any consents, waivers and approvals under any of its or its
subsidiaries' respective agreements, contracts, licenses or leases required to
be obtained in connection with the consummation of the transactions contemplated
hereby.
6.12 RIGHTS AGREEMENT; TAKEOVER STATUTES. The Board of Directors of Parent
shall take such action necessary in order to render the Rights inapplicable to
the Merger, and the other
-64-
transactions contemplated by this Agreement. If any anti-takeover, control share
acquisition, fair price, moratorium or other similar statute is or may become
applicable to the Merger or the other transactions contemplated by this
Agreement, each of Parent and Company and their respective Boards of Directors
shall grant such approvals and take such lawful actions as are necessary to
ensure that such transactions may be consummated as promptly as practicable on
the terms contemplated by this Agreement and otherwise act to eliminate or
minimize the effects of such statute and any regulations promulgated thereunder
on such transactions.
6.13 CERTAIN EMPLOYEE BENEFITS. As soon as practicable after the execution
of this Agreement, the Company and Parent shall confer and work together in good
faith to agree upon mutually acceptable employee benefit and compensation
arrangements (and terminate the Company Employee Plans immediately prior to the
Effective Time if appropriate). In addition, the Company agrees that it and its
subsidiaries shall terminate its and their 401(k) plans and, at the request of
Parent, any other Employee Plans, severance, separation, retention and salary
continuation plans, programs or arrangements, in each case prior to the
Effective Time. Each individual who is employed by the Company immediately prior
to the Effective Time shall remain an employee of the Company following the
Effective Time, provided, however that nothing in this Section 6.13 shall be
construed to limit the ability of the applicable employer to terminate the
employment of any such employee following the Effective Time in accordance with
applicable Legal Requirements. To the extent the applicable plan permits, or can
be amended to permit, Parent shall recognize each such employee's service with,
or recognized by, the Company prior to the Closing Date as service with Parent
or its subsidiary, as applicable, in connection with any pension plan, 401(k)
savings plan and welfare benefit plan (including vacations and holidays)
maintained by Parent or such subsidiary that is made available by Parent , in
its sole discretion, to such employee following the Closing Date and in which
such employee elects to participate for purposes of any waiting period, vesting,
eligibility and benefit entitlements (but excluding benefit accruals other than
vacation) and shall cause all applicable welfare benefit plans to waive any
preexisting condition limitation, exclusion or waiting period for such employees
and their dependents, to the same extent such limitations, exclusions or waiting
periods were satisfied, covered or waived under similar Company Benefit Plans.
Parent shall credit such employees with any amounts paid prior to the Closing
Date under any Company Benefit Plan with respect to satisfaction of any
applicable deductible amounts and co-payment minimums under any Parent plans
established as of the Closing Date which provide similar benefits.
6.14 TRANSACTION BONUSES; EARN-OUT BONUS.
(a) TRANSACTION BONUSES. On or before the fifth business day following
the Closing, the Company shall pay, and Parent agrees to cause the Company to
pay, to each person identified on Part 6.14 of the Company Disclosure Schedule
(the "BONUS RECIPIENTS") the Transaction Bonuses specified on such Schedule, net
of appropriate deductions for federal and state withholding taxes, in the
aggregate amount, before deduction for taxes, of $5,064,866. Each such
Transaction Bonus shall consist of fifty percent cash and fifty percent, in the
sole discretion of Parent, in the form of cash or in shares of Parent Common
Stock, which shares shall be valued at $2.80 per share; provided, that in the
event that Parent, in its reasonable judgment, exercised in good faith,
determines that any Bonus Recipient is not an "accredited investor" as to Parent
within the meaning of Rule 501(a) under the Securities Act, or is otherwise
ineligible to
-65-
acquire shares of Parent Common Stock in a private placement pursuant to Rule
506 under the Securities Act (an "INELIGIBLE RECIPIENT"), the Transaction Bonus
payable to such Ineligible Recipient shall be paid entirely in the form of cash;
and further provided that the recipient of any such Parent Common Stock shall,
as a condition to receiving such shares of Parent Common Stock, agree in writing
to be bound by the terms of Sections 6.1 and 6.2 hereof.
(b) EARN-OUT BONUS. On the Earn-Out Payment Date, the Company shall
pay, and Parent agrees to cause the Company to pay, to the Bonus Recipients
identified on Part 6.14 of the Company Disclosure Schedule an aggregate amount
(the "EARN-OUT BONUS") of up to $2,892,651, as follows:
(i) If the eStara Revenue is equal to or greater than $25,000,000
but less than $30,000,000, the aggregate Earn-Out Bonus shall be equal to
$1,378,530; and
(ii) If the eStara Revenue is equal to or greater than
$30,000,000, the aggregate Earn-Out Bonus shall be equal to $2,892,651.
Each Bonus Recipient shall be entitled to receive that percentage of the
aggregate Earn-Out Bonus as is set forth opposite his or her name on Part 6.14
of the Company Disclosure Schedule, net of appropriate deductions for federal
and state withholding taxes. The Earn-Out Bonus may be paid, in the sole
discretion of Parent, in the form of cash or in shares of Parent Common Stock,
the valuation of which is based upon the 20-day volume weighted average price of
the Parent Common Stock for the period ending two days before the Earn-Out
Payment Date, or in a combination thereof. All recipients (other than Ineligible
Recipients) shall receive cash and Parent Common Stock in the same proportion;
provided, that the Earn-Out Bonus payable to any Ineligible Recipient shall be
paid entirely in the form of cash; and provided, further, that in no event shall
Parent elect to pay the Earn-Out Bonus (x) in shares of Parent Common Stock if
that would require that Parent's stockholders would be or would have been
required to approve this transaction under the applicable rules of the Nasdaq
Stock Market, Inc. or other exchange rules or securities laws, unless prior to
the Earn-Out Payment Date, Parent receives such stockholder approval in
compliance with such applicable rules of the Nasdaq Stock Market, Inc. or other
exchange rules or securities laws, or (y) in the form of cash, if such payment
would result in the Merger not qualifying as a reorganization under Section
368(a) of the Code.
(c) REQUIRED WITHHOLDING; 280G PAYMENTS. Each of Parent, the Initially
Surviving Corporation and the Surviving Corporation shall be entitled to deduct
and withhold from any consideration payable or otherwise deliverable to any
person pursuant to the Transaction Bonuses or the Earn-Out Bonus such amounts as
may be required to be deducted or withheld therefrom under the Code or under any
provision of state, local or foreign tax law or under any other applicable Legal
Requirement. To the extent such amounts are so deducted or withheld, such
amounts shall be treated for all purposes under this Agreement as having been
paid to the person to whom such amounts would otherwise have been paid. Parent
shall first make any such withholding from the cash amount, if any, of any
Transaction Bonus or Earn-Out Bonus, and, to the extent that the cash portion,
if any, of such bonus is insufficient to satisfy the withholding obligation,
such person shall remit (as a condition to receiving such Transaction Bonus or
Earn-Out Bonus), cash in the amount of such remaining withholding obligation.
Notwithstanding anything in this Agreement to the contrary, if the right of any
person identified
-66-
on Part 6.14 of the Company Disclosure Schedule to receive a payment on account
of a Transaction Bonus or Earn-Out Bonus is submitted to a vote of the
stockholders of the Company for approval under Section 280G of the Code, and the
payment to such person of such Transaction Bonus or Earn-Out Bonus is not
approved by the stockholders and is forfeited as a result thereof, the property
that otherwise would have been payable to such person shall be distributed to
the Company Stockholders on a pro rata basis based on the Common Share
Equivalents outstanding immediately prior to the Effective Time.
ARTICLE 7
SURVIVAL OF REPRESENTATIONS; INDEMNIFICATION
7.1 INDEMNIFICATION BY COMPANY STOCKHOLDERS. Subject to the terms and
conditions of this Article 7, each Company Stockholder hereby agrees (without
any right of contribution from the Company or the Surviving Corporation or any
right of indemnification against the Company or the Surviving Corporation) to
indemnify, defend and hold harmless Parent and each of its Subsidiaries and each
of their respective directors, officers, agents and Affiliates (collectively,
the "PARENT GROUP") from and against any loss, liability, damage, cost or
expense (including costs and reasonable attorneys' fees and disbursements, but
excluding any consequential, special or punitive damages, except when asserted
by a third party in a Third Party Claim) (collectively, "DAMAGES") suffered,
incurred or paid by any member of the Parent Group which arise out of or result
from any or all of the following:
(a) Any breach or inaccuracy of any representation or warranty made by
the Company in this Agreement or by the Company or any Company Stockholder in
any other Transaction Document;
(b) Any failure to perform or comply with any covenant, agreement or
obligation of the Company or any Company Stockholder contained in this Agreement
or the Company or any Company Stockholder in any other Transaction Document;
(c) Any indemnification provided for pursuant to Section 6.5 hereto;
(d) Any downward adjustment to the Base Merger Consideration based on
the Adjusted Working Capital provided for in Sections 1.7 through 1.9 hereto;
and
(e) Any claim identified or described in Part 7.1(e) of the Company
Disclosure Schedule.
For purposes of this Section 7.1, and notwithstanding anything to the
contrary contained herein, the covenants and representations and warranties of
each of the Company Stockholders in the Transmittal Certificates and in this
Agreement are several obligations and the particular Company Stockholder making
those representations, warranties, or covenants will be solely responsible for
Damages that Parent or either Merger Sub may suffer as a result of any breach
thereof by such Company Stockholder, and not for the breach thereof by any other
Company Stockholder.
7.2 INDEMNIFICATION BY PARENT AND MERGER SUBS. Parent and each Merger Sub,
jointly and severally, shall indemnify and hold harmless the Company
Stockholders, the
-67-
Stockholders Representative and each of such Company Stockholders' and
Stockholders Representative's respective heirs, executors, administrators,
attorneys, agents and representatives (collectively, "STOCKHOLDERS GROUP") from
and against any and all Damages suffered, incurred or paid by any member of the
Stockholders Group which arise out of or result from any or all of the
following:
(a) Any breach or inaccuracy of any representation or warranty
made by Parent or either Merger Sub in this Agreement or in any agreement,
schedule, certificate or other document referred to in this Agreement; and
(b) Any failure to perform or comply with any covenant, agreement
or obligation of Parent or either Merger Sub contained in this Agreement or any
agreement, certificate, document or other instrument referred to in this
Agreement.
7.3 SURVIVAL OF REPRESENTATIONS. All representations and warranties made by
any party in this Agreement or any certificate or other writing delivered
pursuant hereto shall survive the Closing for a period of one (1) year after the
Closing Date ("SURVIVAL PERIOD") and shall not be deemed waived by any
investigation at any time made by or on behalf of any other party, subject to
the following provisions regarding the Survival Period:
(a) claims for fraud and any claim relating to title to the Company
Capital Stock or any breach of the representations contained in Sections 2.2,
2.3, 2.4 and 2.8 and any indemnification provided for by Sections 7.1(c) and
7.1(e) shall survive until the end of the applicable statute of limitations
period under applicable law.
(b) (i) if, at any time prior to the expiration of the Survival
Period, or other expiration date, if applicable, any member of the Parent Group
(acting in good faith) delivers to the Stockholders Representative a written
notice alleging any inaccuracy or misrepresentation in, or breach of, any such
representation or warranty made by the Company or the Company Stockholders, and
asserting a claim ("PARENT CLAIM") for recovery under this Article 7 based on
such alleged inaccuracy or other breach, then the claim asserted in such notice
shall survive the applicable expiration date until such time as such claim is
fully and finally resolved, and (ii) if, at any time prior to the expiration of
the Survival Period, or other expiration date, if applicable, any member of the
Stockholders Group (acting in good faith) delivers to Parent a written notice
alleging any inaccuracy or misrepresentation in, or breach of, any such
representation or warranty made by Parent or either Merger Sub, and asserting a
claim ("STOCKHOLDER CLAIM") for recovery under this Article 7 based on such
alleged inaccuracy or other breach, then the claim asserted in such notice shall
survive the applicable expiration date until such time as such claim is fully
and finally resolved.
7.4 PROCESS OF INDEMNIFICATION FOR PARENT CLAIMS AND STOCKHOLDER CLAIMS.
(a) CLAIMS FOR INDEMNIFICATION. Whenever any claim shall arise for
indemnification under this Agreement, the party entitled to indemnification (the
"INDEMNIFIED PARTY") shall promptly notify the party obligated to provide
indemnification (the "INDEMNIFYING PARTY") of the claim and, when known, the
facts constituting the basis for such claim; provided, however, that the failure
to so notify the Indemnifying Party shall not relieve the Indemnifying
-68-
Party of its obligation hereunder to the extent such failure does not materially
prejudice the Indemnifying Party. In the event of any claim for indemnification
hereunder resulting from or in connection with any claim or legal proceeds by a
third party, the notice to the Indemnifying Party shall specify, if known, the
amount or an estimate of the amount of the liability arising therefrom.
(b) RECOVERY BY PARENT. If the Stockholders Representative does not
dispute the basis or amount of any Parent Claim within 30 days of receiving
written notice thereof, Parent shall have the right promptly to recover
indemnity as and to the extent provided herein. If the Stockholders
Representative disagrees with the basis of the Parent Claim or the amount of
Damages caused thereby, then within 30 days of receiving written notice thereof,
the Stockholders Representative shall give notice to Parent of such disagreement
and, in that case, Parent shall have no right to recover indemnity hereunder
until such time, if at all, as (a) a court of competent jurisdiction issues a
final, non-appealable order specifying the amount of Parent's recovery, in which
case Parent shall have the right promptly to recover the amount so specified
(subject to the limitations contained in Section 7.3 and Section 7.4(g) hereof)
or (b) Parent and the Stockholders Representative agree in writing to the amount
of Parent's recovery, in which case Parent shall have the right promptly to
recover the amount so agreed.
(c) RECOVERY BY STOCKHOLDERS. If the Parent does not dispute the basis
or amount of any Stockholder Claim within 30 days of receiving written notice
thereof, Stockholders shall have the right promptly to recover indemnity as and
to the extent provided herein. If Parent disagrees with the basis of the
Stockholder Claim or the amount of Damages caused thereby, then within 30 days
of receiving written notice thereof, Parent shall give notice to the
Stockholders Representative of such disagreement and, in that case, Stockholders
shall have no right to recover indemnity hereunder until such time, if at all,
as (a) a court of competent jurisdiction issues a final, non-appealable order
specifying the amount of Stockholders' recovery, in which case Stockholders
shall have the right promptly to recover the amount so specified (subject to the
limitations contained in Section 7.3 and Section 7.4(g) hereof) or (b) Parent
and the Stockholders Representative agree in writing to the amount of
Stockholders' recovery, in which case Stockholders shall have the right promptly
to recover the amount so agreed.
(d) THIRD-PARTY CLAIMS. Parent agrees to notify the Stockholders
Representative of any Claims asserted by third parties that, in the opinion of
Parent, are reasonably likely to give rise to indemnification of any member of
the Parent Group hereunder ("THIRD-PARTY CLAIMS"). In the event of any Third
Party Claim, the Indemnifying Party shall be entitled: (a) to participate in
such action and (b) to elect, by written notice delivered to the Indemnified
Party within 30 days after the Indemnifying Party's receipt of notice of the
Third Party Claim, to defend, compromise or settle such action, with counsel
reasonably satisfactory to the Indemnified Party. The Indemnified Party shall
cooperate with respect to any such participation, defense, settlement or
compromise. The Indemnified Party shall have the right to employ its own counsel
in any such case, but the fees and expenses of the Indemnified Party's counsel
shall be at the sole expense of the Indemnified Party unless: (i) the
Indemnifying Party shall have authorized in writing employment of such counsel
at the expense of the Indemnifying Party; (ii) the Indemnifying Party shall not
have employed counsel reasonably satisfactory to the Indemnified Party to defend
such action within 30 days after the Indemnifying Party received notice of the
Asserted Liability; (iii) the Indemnified Party shall have reasonably concluded,
-69-
based upon advice of counsel, that there are defenses available to the
Indemnified Party that are different from or additional to those available to
the Indemnifying Party (in which case the Indemnifying Party shall not have the
right to direct the defense of such action on behalf of the Indemnified Party
with respect to such different defenses); or (iv) representation of such
Indemnified Party by the counsel retained by the Indemnifying Party would be
inappropriate due to actual or potential differing interests between such
Indemnified Party and any other party represented by such counsel in such
proceeding, in any of which events the fees and expenses of one additional
counsel shall be borne by the Indemnifying Party. The Indemnifying Party shall
not settle or compromise any action or consent to the entry of a judgment that:
(a) does not provide for the claimant to give an unconditional release to the
Indemnified Party in respect of the Third Party Claim; (b) involves relief other
than monetary damages; (c) places restrictions or conditions on the operation of
the business of the Indemnified Party or any of its Affiliates; or (d) involves
any finding or admission of liability or of any violation of applicable law. The
Indemnifying Party shall not be liable for any settlement of any claim or action
effected without its written consent; provided that such consent is not
unreasonably withheld. After payment of any claim by the Indemnifying Party, the
Indemnified Party, if requested by the Indemnifying Party, shall assign to the
Indemnifying Party all rights the Indemnified Party may have against any
applicable account debtor or other responsible Person in respect of such claim.
If the Indemnifying Party chooses to defend any Third Party Claim, the
Indemnified Party shall make available to the Indemnifying Party any books,
records or other documents within its control that are necessary or appropriate
for such defense. Any expenses of any Indemnified Party for which
indemnification is available hereunder shall be paid upon written demand
therefor. Notwithstanding the foregoing, if an Indemnified Party determines in
good faith that there is a reasonable probability that an action by a third
party may adversely affect it or its Affiliates other than solely as a result of
monetary damages for which it would be entitled to indemnification under this
Agreement, the Indemnified Party may, by notice to the Indemnifying Party,
assume the exclusive right to defend, compromise, or settle such action, and the
Indemnifying Party will indemnify the Indemnified Party for the costs associated
therewith. The Indemnifying Party will not be bound by any settlement of such an
action effected without its consent (which will not be unreasonably withheld).
(e) MANNER OF INDEMNIFICATION. All indemnification payments hereunder
shall be effected by payment of Merger Consideration in the amount of the
indemnification liability (in a combination of Parent Common Stock and, if
applicable, cash, in proportion to the number of shares of Parent Common Stock
and cash issued as Merger Consideration pursuant to this Agreement and based on
the value of $2.80 per share in the case of Parent Common Stock, subject to
appropriate adjustment for stock splits, stock dividends, recapitalizations, and
other similar events).
(f) RECOVERY OF PARENT CLAIMS. Subject to the limitations of Section
7.4(g), if Parent shall be finally determined to be entitled to indemnification
hereunder; Parent shall first seek recovery from the Company Stockholders for
the amount of the related Parent Claim, as determined hereunder, by (x)
recovering from the Company Stockholders shares of Parent Common Stock, and, if
applicable, cash, in accordance with the provisions of Section 7.4(e), such
amounts to be surrendered first out of the Indemnification Escrow (or in the
case of Section 7.1(d), first the Working Capital Escrow, and then if that is
insufficient the Indemnification Escrow), allocated among the Company
Stockholders on a pro rata basis based on the portion of
-70-
such Indemnification Escrow (and/or Working Capital Escrow) allocated to each of
them as set forth in Schedule II and, if the Indemnification Escrow is not
sufficient to recover payment for the required amount then from other Parent
Stock Consideration, and, if applicable, cash, previously received by the
Principal Stockholders with each Principal Stockholder contributing such
Principal Stockholder's pro rata portion of such Parent Stock Consideration,
and, if applicable, cash, as set forth on Schedule I, and (y) by setting off the
related amount against any Parent obligations to indemnify the Stockholder
Group; and thereafter, in the absence of any outstanding Merger Consideration
(as a result of any prior sale or other disposition by a Principal Stockholder
of the shares of Parent Common Stock constituting the Merger Consideration, it
being understood that the maximum liability of any Company Stockholder under
this Agreement shall be limited to the actual Merger Consideration received by
such Company Stockholder pursuant to the terms of Subsection 7.4(g)) shall be
entitled to recover payment directly from the Principal Stockholders on a
several basis (and in immediately available funds); it being further understood
that the indemnification provided by any Principal Stockholder in respect of the
representations in the Transmittal Certificates and Article 3 and its covenants
in this Agreement, and the indemnification provided by the Specified Holder in
respect of the representations in its Transmittal Certificate and Article 3A,
are several and not joint, such that any indemnity in respect of a breach by
such Principal Stockholder or Specified Holder, as the case may be, may be
recovered only from the escrow property held by the Escrow Agent for the account
of the Principal Stockholder or Specified Holder whose representation was
breached or, to the extent otherwise permitted hereby, from such Principal
Stockholder or Specified Holder.
(g) THRESHOLD AND LIMITATIONS.
(i) No Parent Group member shall be entitled to receive any
indemnification payment with respect to any claim for indemnification under
this Article 7 ("CLAIMS") until the aggregate Damages for which the Parent
Group would otherwise be entitled to receive indemnification exceeds
$350,000 ("THRESHOLD"). Once such aggregate Loss exceeds the Threshold, the
Parent Group, shall be entitled to indemnification for the aggregate amount
of all Damages, regardless of the Threshold. Notwithstanding the foregoing,
Parent shall be entitled to indemnification for all Damages based upon a
claim of fraud or any breach of the representations contained in Sections
2.2, 2.3, 2.4, 2.8, 3.3 and 3A.2, and any indemnification provided for by
Sections 7.1(c), 7.1(d) and 7.1(e) without regard to the Threshold.
(ii) Except as provided below for Damages based upon a claim of
fraud or any breach of the representations contained in Sections 2.2, 2.3,
2.4, 2.8, 3.3 or 3A.2, and any indemnification provided for by Sections
7.1(c), 7.1(d) and 7.1(e), (A) the aggregate liability of all Company
Stockholders under this Article 7 (other than pursuant to Section 7.1(d)),
shall be limited to the value of the Indemnification Escrow, for which
purpose, any shares of Parent Common Stock deposited in escrow shall be
valued at $2.80 per share, as subject to adjustment for stock splits, stock
dividends and the like (the "ESCROW VALUE"), (B) the aggregate liability of
Parent and the Merger Subs under this Article 7, shall be limited to the
amount of the Escrow Value, and (C) the liability of any Company
Stockholder shall be limited to the amount of the Escrow Value originally
deposited in escrow for his or its account. With respect to any Claim based
on a claim of fraud, any breach of the representations contained in
Sections 2.2, 2.3, 2.4, 2.8, 3.3 or
-71-
3A.2, and any indemnification provided for by Sections 7.1(c), the
liability of each Company Stockholder shall be up to the amount of the
Merger Consideration actually received by such Company Stockholder; with
respect to any Claim based on the indemnification provided for by Section
7.1(d), the aggregate liability of the Company Stockholders shall be
limited to the value of the Indemnification Escrow plus the Working Capital
Escrow; and with respect to any Claim based on the indemnification provided
for by Section 7.1(e) the aggregate liability of the Company Stockholders
shall be limited to the value of the Indemnification Escrow plus $250,000;
provided, that the indemnification provided by any Principal Stockholder in
respect of the representations in the Transmittal Certificates and Article
3 and its covenants in this Agreement, and the indemnification provided by
the Specified Holder in respect of the representations in its Transmittal
Certificate and Article 3A, are several and not joint, such that no
Principal Stockholder or Specified Holder shall be liable in indemnity for
the breach of any such representation other than those made by such
Principal Stockholder or the Specified Holder, as the case may be.
(iii) An indemnifying party shall not be obligated to defend and
hold harmless an indemnified party or otherwise be liable to such party
with respect to any claims made by indemnifying party after the expiration
of the applicable time period as set forth in, and subject to, Section 7.3.
(iv) In determining the amount of Damages for which any Parent
Group member is entitled assert a claim for indemnification, the amount of
any such Damages shall be determined after deducting therefrom the amount
of any insurance proceeds actually received by Parent or the Company in
respect of such matter (which recoveries Parent agrees to use and to cause
the Company to use commercially reasonable efforts to obtain). If an
indemnification payment is received by a member of the Parent Group
hereunder, and such person or the Company later receives insurance proceeds
in respect of the related Damages, Parent shall return to the Company
Stockholders within 10 days of the receipt of such insurance proceeds (and
in the same proportion of cash and Parent Stock deposited in the Indemnity
Escrow), Base Consideration previously distributed to Parent from the
Indemnity Escrow equal in value (for which purpose any shares of Parent
Common Stock deposited in escrow shall be valued at $2.80 per share, as
subject to adjustment for stock splits, stock dividends and the like) to
the lesser of (A) the actual amount of insurance proceeds and (B) the
actual amount of the indemnification payment previously paid by the Company
Stockholders with respect to such Damages. If an Indemnifying Party (as
defined below) makes any indemnification payment hereunder, such
Indemnifying Party shall be subrogated, to the extent of such payment, to
all rights and remedies of the Indemnified Party (as defined below) to any
third party in connection with the Damages to which such payment relates.
(h) REMEDIES. The indemnification provisions of this Article 7 are the
sole and exclusive remedy of any party to this Agreement for a breach of any
representation, warranty or covenant contained in, or any obligation arising
under, this Agreement, as modified by the Disclosure Schedule, other than a suit
for specific performance or as otherwise expressly provided in Sections 1.6(c)
or 1.9.
-72-
ARTICLE 8
CONDITIONS TO THE MERGER
8.1 CONDITIONS TO OBLIGATIONS OF EACH PARTY TO EFFECT THE MERGER. The
respective obligations of each party to this Agreement to effect the Merger
shall be subject to the satisfaction at or prior to the Closing Date of the
following conditions:
(a) STOCKHOLDER APPROVALS. The Company shall have been obtained the
Required Stockholder vote.
(b) NO ORDER. No Governmental Entity shall have enacted, issued,
promulgated, enforced or entered any statute, rule, regulation, executive order,
decree, injunction or other order (whether temporary, preliminary or permanent)
which is in effect and which has the effect of making the Merger illegal or
otherwise prohibiting consummation of the Merger.
(c) NO RESTRAINTS. There shall not be instituted or pending any action
or proceeding by any Governmental Entity (i) seeking to restrain, prohibit or
otherwise interfere with the ownership or operation by Parent or any of its
subsidiaries of all or any portion of the business of the Company or any of its
subsidiaries or of Parent or any of its subsidiaries or to compel Parent or any
of its subsidiaries to dispose of or hold separate all or any portion of the
business or assets of the Company or any of its subsidiaries or of Parent or any
of its subsidiaries, (ii) seeking to impose or confirm limitations on the
ability of Parent or any of its subsidiaries effectively to exercise full rights
of ownership of the shares of Company Common Stock (or shares of stock of the
Surviving Corporation) including the right to vote any such shares on any
matters properly presented to shareholders or (iii) seeking to require
divestiture by Parent or any of its subsidiaries of any such shares.
(d) ANTITRUST FILINGS. If applicable, all waiting periods (and any
extensions thereof) applicable to any Antitrust Filings relating to the
transactions contemplated hereby shall have expired or been terminated.
8.2 ADDITIONAL CONDITIONS TO OBLIGATIONS OF THE COMPANY. The obligation of
the Company to consummate and effect the Merger shall be subject to the
satisfaction at or prior to the Closing Date of each of the following
conditions, any of which may be waived, in writing, exclusively by the Company:
(a) REPRESENTATIONS AND WARRANTIES. Each representation and warranty
of Parent and the Merger Subs contained in this Agreement (i) shall have been
true and correct as of the date of this Agreement and (ii) shall be true and
correct on and as of the Closing Date with the same force and effect as if made
on the Closing Date except, in each case, or in the aggregate, as does not
constitute a Parent Material Adverse Effect as of the Closing Date or a material
adverse effect on the ability of the parties to consummate the transactions
contemplated by this Agreement.
(b) AGREEMENTS AND COVENANTS. Parent and each Merger Sub shall have
performed or complied in all material respects with all agreements and covenants
required by this Agreement to be performed or complied with by them on or prior
to the Closing Date, and
-73-
the Company shall have received a certificate to such effect signed on behalf of
Parent by an authorized officer of Parent.
(c) LEGAL OPINION. The Company shall have received an opinion from
Xxxxx Xxxx LLP, counsel to Parent, in substantially the form attached as Exhibit
E.
(d) MATERIAL ADVERSE EFFECT. No Parent Material Adverse Effect shall
have occurred since the date of this Agreement and be continuing.
(e) ESCROW AGREEMENT. Parent and the Escrow Agent shall have executed
and delivered the Escrow Agreement.
8.3 ADDITIONAL CONDITIONS TO THE OBLIGATIONS OF PARENT AND MERGER SUB 1.
The obligations of Parent and Merger Sub 1 to consummate and effect the Merger
shall be subject to the satisfaction at or prior to the Closing Date of each of
the following conditions, any of which may be waived, in writing, exclusively by
Parent:
(a) REPRESENTATIONS AND WARRANTIES. Each representation and warranty
of the Company contained in this Agreement (i) shall have been true and correct
as of the date of this Agreement and (ii) shall be true and correct on and as of
the Closing Date with the same force and effect as if made on and as of the
Closing Date except in each case, or in the aggregate, as does not constitute a
Company Material Adverse Effect as of the Closing Date; or a material adverse
effect on the ability of the parties to consummate the transactions contemplated
by this Agreement. Parent shall have received a certificate with respect to the
foregoing signed on behalf of the Company by the Chief Executive Officer of the
Company.
(b) AGREEMENTS AND COVENANTS. The Company shall have performed or
complied in all material respects with all agreements and covenants required by
this Agreement to be performed or complied with by it at or prior to the Closing
Date, and Parent shall have received a certificate to such effect signed on
behalf of the Company by the Chief Executive Officer of the Company.
(c) LEGAL OPINION. Parent shall have received and opinion from DLA
Piper US LLP, counsel to the Company, in substantially the form attached as
Exhibit F.
(d) MATERIAL ADVERSE EFFECT. No Company Material Adverse Effect shall
have occurred since the date of this Agreement and be continuing.
(e) CONSENTS. (i) All required approvals or consents of any
Governmental Entity or other person in connection with the Merger, including,
without limitation, that of each person and entity identified on Part 8.3(e) of
the Parent Disclosure Schedule, and the consummation of the other transactions
contemplated hereby shall have been obtained (and all relevant statutory,
regulatory or other governmental waiting periods, shall have expired) and (ii)
all such approvals and consents which have been obtained shall be on terms that
are not reasonably likely, directly or indirectly, to result in a Parent
Material Adverse Effect or Company Material Adverse Effect, considered as
separate entities.
-74-
(f) DISSENTERS' RIGHTS. As of the Closing Date, the aggregate number
of Dissenting Shares shall not exceed five percent (5%) of the number of issued
and outstanding shares of Company Capital Stock (on an as converted to common
stock basis).
(g) ESCROW AGREEMENT. The Stockholder Representative and the Escrow
Agent shall have executed and delivered the Escrow Agreement.
(h) CONSIDERATION DUE TO INELIGIBLE STOCKHOLDERS. The portion of the
Merger Consideration that the Ineligible Stockholders shall be entitled to
receive, in aggregate, as determined in accordance with Section 1.6(b)(xi),
shall not exceed $3,000,000.
(i) TAX CERTIFICATE. The Target Company shall have delivered to Parent
a certificate that meets the requirements of Sections 1.1445-2(c)(3) and
1.897-2(h) of the Treasury Regulations, certifying that the Company is not and
has not been a United States real property holding corporation (as defined in
Section 897(c)(2) of the Code) during the applicable period specified in Section
897(c)(1)(A)(ii) of the Code.
(j) EMPLOYMENT AGREEMENTS. Each of the employees of the Company who
executed, contemporaneously with the execution and delivery of this Agreement,
an offer letter from Parent setting forth the terms of his continued employment
by the Company following the Closing (each a "KEY EMPLOYEE") shall remain
employed by the Company and no such Key Employee shall have notified Parent or
the Company of his or her intention to terminate such employment.
(k) SCHEDULE II. The Company shall have delivered to Parent an updated
Schedule II as of the Effective Time, subject to Parent's reasonable
satisfaction.
ARTICLE 9
TERMINATION, AMENDMENT AND WAIVER
9.1 TERMINATION. This Agreement may be terminated at any time prior to the
Effective Time, whether before or after the Required Stockholder Vote for the
adoption and approval of this Agreement and the Merger has been obtained:
(a) by mutual written consent duly authorized by the Boards of
Directors of Parent and the Company;
(b) by either the Company or Parent if the Merger shall not have been
consummated by November 30, 2006 for any reason; provided, however, that the
right to terminate this Agreement under this Section 9.1(b) shall not be
available to any party whose action or failure to act has been a principal cause
of 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 either the Company or Parent if a Governmental Entity shall
have issued an order, decree or ruling or taken any other action, in any case
having the effect of permanently restraining, enjoining or otherwise prohibiting
the Merger, which order, decree, ruling or other action is final and
nonappealable;
-75-
(d) by the Company, upon a breach of any representation, warranty,
covenant or agreement on the part of Parent set forth in this Agreement, or if
any representation or warranty of Parent shall have become untrue, in either
case such that the conditions set forth in Section 8.2(a) or Section 8.2(b)
would not be satisfied, provided that if such inaccuracy in Parent's
representations and warranties or breach by Parent is curable by Parent, then
the Company may not terminate this Agreement under this Section 9.1(d) for 30
days after delivery of written notice from the Company to Parent of such breach
and intent to terminate, provided Parent continues to exercise commercially
reasonable efforts to cure such breach (it being understood that the Company may
not terminate this Agreement pursuant to this paragraph (d) if such breach by
Parent is cured during such 30-day period, or if the Company shall have
materially breached this Agreement); or
(e) by Parent, upon a breach of any representation, warranty, covenant
or agreement on the part of the Company set forth in this Agreement, or if any
representation or warranty of the Company shall have become untrue, in either
case such that the conditions set forth in Section 8.3(a) or Section 8.3(b)
would not be satisfied, provided that if such inaccuracy in the Company's
representations and warranties or breach by the Company is curable by the
Company, then Parent may not terminate this Agreement under this Section 9.1(e)
for 30 days after delivery of written notice from Parent to the Company of such
breach, and intent to terminate, provided the Company continues to exercise
commercially reasonable efforts to cure such breach (it being understood that
Parent may not terminate this Agreement pursuant to this paragraph (e) if such
breach by the Company is cured during such 30-day period, or if Parent shall
have materially breached this Agreement).
9.2 NOTICE OF TERMINATION; EFFECT OF TERMINATION. Any proper termination of
this Agreement under Section 9.1 will be effective immediately upon the delivery
of written notice of the terminating party to the other parties hereto. In the
event of the termination of this Agreement as provided in Section 9.1, this
Agreement shall be of no further force or effect, and all further obligations of
the parties shall terminate without further liability of any such party, except
(i) as set forth in this Section 9.2, Section 9.3 and Article 10, each of which
shall survive the termination of this Agreement, and (ii) nothing herein shall
relieve any party from liability for any willful breach of this Agreement. No
termination of this Agreement shall affect the obligations of the parties
contained in the Confidentiality Agreement, all of which obligations shall
survive termination of this Agreement in accordance with their terms.
9.3 FEES AND EXPENSES.
(a) Except as set forth in Section 6.1 and in this Section 9.3, all
fees and expenses incurred in connection with this Agreement and the
transactions contemplated hereby shall be paid by the party incurring such
expenses whether or not the Merger is consummated; provided, however, that
Parent and Company shall share equally the applicable filing fees associated
with the Antitrust Filings, if any.
(b) In the event that this Agreement is terminated by the Company or
Parent, as applicable, pursuant to Sections 9.1(d) or 9.1(e), respectively, then
the terminating party shall be entitled to reimbursement from the breaching
party of its reasonable fees and expenses in connection with the negotiation and
execution of this Agreement and the transactions
-76-
contemplated hereby (including, without limitation, Parent's due diligence
investigation of the Company).
(c) Each of Parent and the Company acknowledges that the agreements
contained in this Section 9.3 are an integral part of the transactions
contemplated by this Agreement, and that, without these agreements, neither
Parent nor the Company would enter into this Agreement. Accordingly, if Parent
or the Company fails to pay in a timely manner amounts due pursuant to Section
9.3(b), and, in order to obtain such payment, Parent or the Company makes a
claim for such amounts that results in a judgment against the other for the
amounts described in Section 9.3(b), the judgment debtor shall pay to judgment
creditor its reasonable costs and expenses (including reasonable attorneys' fees
and expenses as provided in Section 10.6(b)) in connection with such suit,
together with interest on the amounts described in Section 9.3(b) (at the prime
rate of Bank of America, N.A. in effect on the date such payment was required to
be made) from such date until the payment of such amount (together with such
accrued interest). Payment of the fees described in Section 9.3(b) shall not be
in lieu of damages incurred in the event of breach of this Agreement.
9.4 AMENDMENT. Subject to applicable law, this Agreement may be amended by
the parties hereto at any time by execution of an instrument in writing signed
on behalf of each of Parent, the Company and the Stockholder Representative.
9.5 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. Delay in exercising any right under this
Agreement shall not constitute a waiver of such right.
ARTICLE 10
GENERAL PROVISIONS
10.1 NOTICES. All notices and other communications hereunder shall be in
writing and shall be deemed given upon delivery either personally or by
commercial delivery service, or sent via facsimile (receipt confirmed) to the
parties at the following addresses or facsimile numbers (or at such other
address or facsimile numbers for a party as shall be specified by like notice):
(a) if to Parent or either Merger Sub, to:
Art Technology Group, Inc.
Xxx Xxxx Xxxxxx
Xxxxxxxxx, XX 00000
Facsimile: (000) 000-0000
Attention: Chief Executive Officer
with a copy to:
-00-
Xxxxx Xxxx LLP
Seaport World Trade Center West
000 Xxxxxxx Xxxxxxxxx
Xxxxxx, Xxxxxxxxxxxxx 00000
Facsimile: (000) 000-0000
Attention: Xxxx X. Xxxxxxxxx, Xx. and
Xxxxxx X. Xxxxx, Xx.
(b) if to Company, to:
eStara, Inc.
0000 Xxxxxxx Xxxxxxx Xxxxx
Xxxxx 000
Xxxxxx, XX 00000
Facsimile: (000) 000-0000
Attention: Chief Executive Officer
with a copy to:
DLA Piper US LLP
0000 Xxxxxxxxxx Xxxxxx, XX
Xxxxxxxxxx, XX, 00000-0000
Facsimile: (000) 000-0000
Attention: Xxxxxxx X. Xxxxxxx
(c) if to the Stockholder Representative:
Xxxxxx X. XxXxxxxxxxx
Cloquet Capital Partners
Xxx Xxxxxxxxxx Xxxxx
Xxxxx 000
Xxxxxxxxxx, XX 00000
Facsimile: (000) 000-0000
with a copy to DLA Piper US LLP at its address set forth above.
10.2 INTERPRETATION. When a reference is made in this Agreement to
Exhibits, such reference shall be to an Exhibit to this Agreement unless
otherwise indicated. When a reference is made in this Agreement to Sections,
such reference shall be to a Section of 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 table of contents and headings contained in this Agreement are only for
reference purposes and shall not affect in any way the meaning or interpretation
of this Agreement. When reference is made herein to "the business of" an entity,
such reference shall be deemed to include the business of all direct and
indirect subsidiaries of such entity. Reference to the subsidiaries of an entity
shall be deemed to include all direct and indirect subsidiaries of such entity.
Reference to an agreement
-78-
herein is to such agreement as amended in accordance with its terms up to the
date hereof. Reference to a statute herein is to such statute, as amended.
10.3 COUNTERPARTS; FACSIMILE. This Agreement may be executed in
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each of
the parties and delivered to the other party, it being understood that all
parties need not sign the same counterpart. For purposes of this Agreement, a
document (or signature page thereto) signed and transmitted by facsimile
machine, telecopier or electronic mail is to be treated as an original document.
The signature of any party thereon, for purposes hereof, is to be considered as
an original signature, and the document transmitted is to be considered to have
the same binding effect as an original signature on an original document. At the
request of any party, any facsimile, telecopy or scanned document is to be
re-executed in original form by the parties who executed the facsimile, telecopy
or scanned document. No party may raise the use of a facsimile machine,
telecopier or electronic mail or the fact that any signature was transmitted
through the use of a facsimile, telecopier or electronic mail as a defense to
the enforcement of this Agreement or any amendment or other document executed in
compliance with this Agreement.
10.4 ENTIRE AGREEMENT; THIRD PARTY BENEFICIARIES. This Agreement, its
Exhibits and the documents and instruments and other agreements among the
parties hereto as contemplated by or referred to herein, 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, it being understood that
the Confidentiality Agreement shall continue in full force and effect until the
Closing and shall survive any termination of this Agreement; and (b) are not
intended to confer upon any other person any rights or remedies hereunder.
Without limiting the generality of the foregoing, the parties hereto acknowledge
that no party hereto makes, and each hereby disclaims, any representations or
warranties, express or implied, by such party other than as expressly set forth
herein or in any other Transaction Documents. Notwithstanding any provision to
the contrary contained in this Agreement, it is agreed and understood that
neither the Small Business Administration ("SBA") nor any employee, agent or
consultant of the SBA shall have any obligation or liability with respect to any
and all matters relating to or arising out of this Agreement.
10.5 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.
10.6 OTHER REMEDIES; SPECIFIC PERFORMANCE; FEES.
-79-
(a) Except as otherwise provided herein, any and all remedies herein
expressly conferred upon a party will be deemed cumulative with and not
exclusive of any other remedy conferred hereby, or by law or equity upon such
party, and the exercise by a party of any one remedy will not preclude the
exercise of any other remedy. The parties hereto agree that irreparable damage
would occur in the event that any of the provisions of this Agreement were not
performed in accordance with their specific terms or were otherwise breached. It
is accordingly agreed that the parties shall be entitled to seek an injunction
or injunctions to prevent breaches of this Agreement and to enforce specifically
the terms and provisions hereof in any court of the United States or any state
having jurisdiction, this being in addition to any other remedy to which they
are entitled at law or in equity.
(b) If any action, suit or other proceeding (whether at law, in equity
or otherwise) is instituted concerning or arising out of this Agreement or any
transaction contemplated hereunder, the prevailing party shall recover, in
addition to any other remedy granted to such party therein, all such party's
costs and attorneys fees incurred in connection with the prosecution or defense
of such action, suit or other proceeding.
10.7 GOVERNING LAW. The Merger shall be governed by and construed in
accordance with the laws of the State of Maryland. Other than the Merger, this
Agreement shall be governed by and construed in accordance with the laws of the
State of Delaware, regardless of the laws that might otherwise govern under
applicable principles of conflicts of law thereof.
10.8 RULES OF CONSTRUCTION. The parties hereto agree that they have been
represented by counsel during the negotiation and execution of this Agreement
and, therefore, waive the application of any law, regulation, holding or rule of
construction providing that ambiguities in an agreement or other document will
be construed against the party drafting such agreement or document.
10.9 ASSIGNMENT. No party may assign either this Agreement or any of its
rights, interests, or obligations hereunder without the prior written consent of
the other parties hereto. Subject to the preceding sentence, this Agreement
shall be binding upon and shall inure to the benefit of the parties hereto and
their respective successors and permitted assigns. Any purported assignment in
violation of this Section 10.9 shall be void.
10.10 WAIVER OF JURY TRIAL. EACH OF PARENT, THE COMPANY AND EACH MERGER SUB
HEREBY IRREVOCABLY WAIVES ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, SUIT,
PROCEEDING OR COUNTERCLAIM (WHETHER BASED ON CONTRACT, TORT OR OTHERWISE)
ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE ACTIONS OF PARENT, THE
COMPANY OR EITHER MERGER SUB IN THE NEGOTIATION, ADMINISTRATION, PERFORMANCE AND
ENFORCEMENT HEREOF.
* * * * *
-80-
IN WITNESS WHEREOF, the parties have caused this Agreement and Plan of
Merger to be executed by their duly authorized respective officers as of the
date first written above.
ART TECHNOLOGY GROUP, INC.
/s/ Xxxxxx X. Xxxxx
----------------------------------------
By: Xxxxxx X. Xxxxx
Title: President and Chief Executive
Officer
ARLINGTON ACQUISITION CORP.
/s/ Xxxxxx X. Xxxxx
----------------------------------------
By: Xxxxxx X. Xxxxx
Title: President and Chief Executive
Officer
STORROW ACQUISITION CORP.
/s/ Xxxxxx X. Xxxxx
----------------------------------------
By: Xxxxxx X. Xxxxx
Title: President and Chief Executive
Officer
ESTARA, INC.
/s/ Xxxx Xxxxxxxx
----------------------------------------
By: Xxxx Xxxxxxxx
Title: Chief Executive Officer
STOCKHOLDER REPRESENTATIVE
/s/ Xxxxxx XxXxxxxxxxx
----------------------------------------
Xxxxxx XxXxxxxxxxx
[Signature Page to Agreement and Plan of Merger]
PRINCIPAL STOCKHOLDERS
TRINITY SBIC, L.P.
By: THE UNITED STATES SMALL BUSINESS
ADMINISTRATION, as Receiver
By: /s/ Xxxxxx X. Xxxxxx
------------------------------------
Name: Xxxxxx X. Xxxxxx
Title: Director, Office of SBIC Liq
[Signature Page to Agreement and Plan of Merger]
PRINCIPAL STOCKHOLDERS
CLOQUET CAPITAL PARTNERS, LLC
By: /s/ Xxxxxx X. XxXxxxxxxxx
------------------------------------
Name: Xxxxxx X. XxXxxxxxxxx
Title: President
[Signature Page to Agreement and Plan of Merger]
PRINCIPAL STOCKHOLDERS
XXXXXXX COMMUNITIES, LP
By: Xxxxxxx Communities, Inc.
Its: General Partner
By: /s/ Xxxxxx X. Xxxxxxx
------------------------------------
Name: Xxxxxx X. Xxxxxxx
Title: President
[Signature Page to Agreement and Plan of Merger]
PRINCIPAL STOCKHOLDERS
/s/ Xxxxxx X. Xxxxxxx
----------------------------------------
Xxxxxx X. Xxxxxxx
[Signature Page to Agreement and Plan of Merger]
PRINCIPAL STOCKHOLDERS
/s/ Xxxx Xxxxxxxx
----------------------------------------
Xxxx Xxxxxxxx
[Signature Page to Agreement and Plan of Merger]
LIST OF EXHIBITS
Exhibit A Form of Voting Agreement
Exhibit B Escrow Agreement
Exhibit C Transmittal Certificate
Exhibit D Investor Questionnaire
Exhibit E Parent Legal Opinion
Exhibit F Company Legal Opinion
