EXHIBIT 2.1
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
NEOWARE SYSTEMS, INC.,
RABBIT CORPORATION,
MAXSPEED CORPORATION,
AND WITH RESPECT TO SECTION 2.3 AND ARTICLE VIII ONLY,
XXX XXXXX AND XXX NEI,
AND XXX XXXXX, AS SHAREHOLDER REPRESENTATIVE
DATED AS OF OCTOBER 25, 2005
Note: Pursuant to a request submitted to the Securities and Exchange Commission
for confidential treatment, portions of Section 1.6(c)(i) of this Agreement and
Plan of Merger have been omitted. The omitted information is marked with
brackets and asterisks [**]. The omitted information has been filed separately
with the Securities and Exchange Commission.
TABLE OF CONTENTS
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PAGE
ARTICLE I THE MERGER..........................................................2
1.1 The Merger.........................................................2
1.2 Closing Date; Effective Time.......................................2
1.3 Effects of the Merger..............................................2
1.4 Articles of Incorporation; Bylaws..................................2
1.5 Directors and Officers.............................................3
1.6 Merger Consideration...............................................3
1.7 Effect on Company Stock............................................8
1.8 Surrender of Certificates.........................................12
1.9 Company's Transfer Books Closed...................................14
1.10 Lost Certificates.................................................14
1.11 Dissenting Shares.................................................14
ARTICLE II REPRESENTATIONS AND WARRANTIES OF COMPANY AND, WITH RESPECT
TO SECTION 2.3 ONLY, THE PRINCIPAL SHAREHOLDERS.................15
2.1 Organization and Qualification; Subsidiaries......................15
2.2 Articles of Incorporation and Bylaws..............................16
2.3 Capitalization....................................................16
2.4 Authority.........................................................18
2.5 No Conflict; Required Filings and Consents........................18
2.6 Compliance; Permits...............................................19
2.7 Financial Statements; Internal Controls...........................20
2.8 No Undisclosed Liabilities; No Liquidation of WFOEs...............21
2.9 Absence of Certain Changes or Events..............................21
2.10 Absence of Litigation.............................................22
2.11 Employee Benefit Plans............................................22
2.12 Employment and Labor Matters......................................24
2.13 Product Warranties................................................25
2.14 Title to Property; Absence of Liens...............................25
2.15 Taxes.............................................................26
2.16 Environmental Matters.............................................28
2.17 Brokers...........................................................29
2.18 Intellectual Property.............................................29
2.19 Material Contracts................................................34
2.20 Insurance.........................................................36
2.21 Board Approval....................................................36
2.22 Inapplicability of Certain Statutes...............................36
2.23 Grants, Incentives and Subsidies..................................36
2.24 Encryption and Other Restricted Technology........................37
2.25 Off Balance Sheet Liabilities.....................................37
2.26 Foreign Corrupt Practices Act.....................................37
2.27 Accounts Receivable...............................................37
2.28 Inventory.........................................................37
(i)
2.29 Sufficiency of Assets.............................................37
2.30 Representations Complete..........................................38
ARTICLE III REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB..........38
3.1 Organization and Qualification; Subsidiaries......................38
3.2 Certificate of Incorporation and Bylaws...........................38
3.3 Authority.........................................................38
3.4 No Conflict; Required Filings and Consents........................39
3.6 Representations Complete..........................................40
ARTICLE IV COVENANTS OF COMPANY..............................................40
4.1 Conduct of Business...............................................40
ARTICLE V ADDITIONAL AGREEMENTS..............................................43
5.1 Information Statement.............................................43
5.2 Merger Sub Shareholder Meeting....................................44
5.3 Confidentiality; Access to Information............................44
5.4 No Solicitation...................................................45
5.5 Public Disclosure.................................................45
5.6 Reasonable Efforts; Notification..................................45
5.7 Third Party Consents..............................................46
5.8 Closing Cash Balance; Closing Working Capital.....................47
5.9 Distribution of the Holdback Amount...............................47
5.10 Company Shareholder List..........................................47
5.11 Audited Financial Statements......................................47
5.12 Director and Officer Indemnification..............................47
5.13 Registration of Maxspeed Co. (Shanghai) as Sales Corporation......48
5.14 Spin-off of Maxspeed Co. (Beijing)................................48
ARTICLE VI CONDITIONS TO THE MERGER..........................................48
6.1 Conditions to Obligations of Each Party...........................48
6.2 Additional Conditions to Obligations of Company...................49
6.3 Additional Conditions to the Obligations of Parent and
Merger Sub......................................................49
ARTICLE VII TERMINATION, AMENDMENT AND WAIVER................................51
7.1 Termination.......................................................51
7.2 Notice of Termination; Effect of Termination......................52
7.3 Fees and Expenses.................................................52
7.4 Amendment.........................................................53
ARTICLE VIII SURVIVAL OF REPRESENTATIONS AND WARRANTIES; INDEMNIFICATION.....53
8.1 Survival of Representations, Warranties and Covenants.............53
8.2 Indemnification...................................................53
8.3 Procedures for Indemnification....................................54
8.4 Indemnification Exclusive; Limitations on Amount..................56
8.5 Right to Offset...................................................56
(ii)
ARTICLE IX GENERAL PROVISIONS................................................57
9.1 Notices...........................................................57
9.2 Interpretations...................................................58
9.3 Counterparts......................................................58
9.4 Entire Agreement; Parties in Interest.............................59
9.5 Severability......................................................59
9.6 Other Remedies; Specific Performance..............................59
9.7 Governing Law.....................................................59
9.8 Rules of Construction.............................................60
9.9 Assignment........................................................60
9.10 Waiver of Jury Trial..............................................60
9.11 Definitions.......................................................60
(iii)
INDEX OF EXHIBITS
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Exhibit A-1 Persons Subject to Voting Agreements
Exhibit A-2 Form of Voting Agreement
Exhibit B-1 Persons Subject to Noncompetition Agreements
Exhibit B-2 Form of Noncompetition Agreement
Exhibit C-1 Persons Subject to Employment Agreements
Exhibit C-2 Forms of Employment Agreements
Exhibit D Form of Escrow Agreement
Exhibit E Matters to be covered in Opinion of Counsel
(iv)
AGREEMENT AND PLAN OF MERGER
----------------------------
This AGREEMENT AND PLAN OF MERGER is made and entered into as of
October 25, 2005, among NEOWARE SYSTEMS, INC., a Delaware corporation
("Parent"), RABBIT CORPORATION, a California corporation and a wholly-owned
subsidiary of Parent ("Merger Sub"), MAXSPEED CORPORATION, a California
corporation ("Company"), and with respect to Section 2.3 and Article VIII only,
XXX XXXXX and XXX NEI, (collectively the "Principal Shareholders") and Xxx Xxxxx
as Shareholder Representative (the "Shareholder Representative").
RECITALS
--------
A. Upon the terms and subject to the conditions of this Agreement (as
defined in Section 1.2 below) and in accordance with the California General
Corporation Law ("California Law"), Parent, Merger Sub and Company intend to
effect the merger of Merger Sub with and into Company.
B. The Board of Directors of each of Parent and Merger Sub has approved
this Agreement, the Merger (as defined in Section 1.1) and the other
transactions contemplated by this Agreement, and the Board of Directors of
Merger Sub has determined to recommend that the stockholder of Merger Sub vote
to approve this Agreement, the Merger and the other transactions contemplated by
this Agreement.
C. The Board of Directors of Company has unanimously (i) determined
that this Agreement, the Merger and the other transactions contemplated by this
Agreement are fair to, and in the best interests of, Company and its
shareholders; and (ii) approved this Agreement, the Merger and the other
transactions contemplated by this Agreement and (iii) determined to recommend
that the shareholders of Company approve this Agreement, the Merger and the
other transactions contemplated by this Agreement.
D. Concurrently with the execution of this Agreement, and as a
condition and inducement to Parent's willingness to enter into this Agreement,
certain principal shareholders of Company, whose names are listed on Exhibit
A-1, are entering into voting agreements in substantially the form attached
hereto as Exhibit A-2 (the "Voting Agreements").
E. As a material inducement to Parent to consummate the Merger, (i)
certain individuals whose names are listed on Exhibit B-1 shall enter into
non-competition agreements in substantially the form attached hereto as Exhibit
B-2 (the "Noncompetition Agreements") with Parent, each of which shall become
effective as of the Effective Time (as defined herein), and (ii) certain
individuals whose names are listed on Exhibit C-1 shall enter into Employment
Agreements in substantially the form attached hereto as Exhibit C-2 with Parent,
each of which shall become effective as of the Effective Time (as defined
herein) (the "Employment Agreements").
NOW, THEREFORE, in consideration of the covenants, promises and
representations set forth herein, and for other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, the parties agree
as follows:
ARTICLE I
THE MERGER
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1.1 THE MERGER.
In accordance with the provisions of this Agreement and California Law,
at the Effective Time (as defined in Section 1.2), Merger Sub shall be merged
(the "Merger") with and into Company, whereupon the separate existence of Merger
Sub shall cease and Company shall be the surviving corporation (hereinafter
sometimes called the "Surviving Corporation") in the Merger.
1.2 CLOSING DATE; EFFECTIVE TIME.
Subject to the terms and conditions of this Agreement, the closing of
the Merger and the other transactions contemplated by this Agreement (the
"Closing") shall take place at the offices of XxXxxxxxxx Keen & Xxxxxxx, 000
Xxxxx Xxxxxx-Xxxxxxx Xxxx, Xxxxxx, Xxxxxxxxxxxx 00000, at a time and on a date
to be designated by Parent and Company (the time and date upon which the Closing
actually occurs being referred to herein as the "Closing Date"), which shall be
no later than the second business day after the satisfaction or waiver of the
conditions set forth in Article VI hereof (other than those conditions which by
their terms are to be satisfied or waived as of the Closing) or at such other
time, date and location as Parent and Company shall mutually agree. Subject to
the provisions of this Agreement, the parties hereto shall cause the Merger to
be consummated by filing an agreement of merger with the Secretary Of State of
the State of California the time of such filing (or such later time as may be
agreed in writing by Company and Parent and specified in the agreement of
merger) being the "Effective Time") as soon as practicable on or after the
Closing Date.
1.3 EFFECTS OF THE MERGER.
From and after the Effective Time, the Surviving Corporation shall
possess all the rights, privileges, powers and franchises and be subject to all
of the restrictions, disabilities and duties of Company and Merger Sub, all as
set forth in this Agreement and as provided under California Law.
1.4 ARTICLES OF INCORPORATION; BYLAWS.
(a) At the Effective Time, the articles of incorporation of
Merger Sub, as in effect immediately prior to the Effective Time, shall be the
articles of incorporation of the Surviving Corporation until thereafter amended
as provided by law; provided, however, that at the Effective Time, the articles
of incorporation of the Surviving Corporation shall be amended so that the name
of the Surviving Corporation shall be "Neoware - CA."
(b) The bylaws of Merger Sub, as in effect immediately prior
to the Effective Time, shall be, at the Effective Time, the bylaws of the
Surviving Corporation until thereafter amended.
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1.5 DIRECTORS AND OFFICERS.
The initial directors of the Surviving Corporation shall be the
directors of Merger Sub immediately prior to the Effective Time, until their
respective successors are duly elected or appointed and qualified. The initial
officers of the Surviving Corporation shall be the officers of the Merger Sub
immediately prior to the Effective Time.
1.6 MERGER CONSIDERATION.
Subject to Section 1.6(b), the aggregate consideration (the "Merger
Consideration") payable for all the Common Stock, no par value, of Company (the
"Company Common Stock") and the Preferred Stock, no par value, of Company (the
"Company Preferred Stock," and together with the Company Common Stock, the
"Company Stock") issued and outstanding immediately prior to the Effective Time
shall be as follows:
(a) Payment of Initial Merger Consideration. At Closing,
Parent shall pay an aggregate of $24,000,000, less the amount of the adjustments
as provided in Section 1.6(b) (the "Initial Merger Consideration"), which shall
be paid by Parent as follows: (i) pursuant to Section 1.7, Parent shall pay to
the holders of Company Stock an amount equal to the Initial Merger Consideration
minus $4,800,000 (the "Closing Payment"), (ii) $4,800,000 (the "Escrow Amount"),
shall be held and disbursed pursuant to an Escrow Agreement in substantially the
form attached hereto as Exhibit D (the "Escrow Agreement") and (iii) $1,400,000
(the "Holdback Amount") shall be held back by Parent for up to 12 months
commencing on the Closing Date (the "Holdback Period") solely to cover any
severance, contract termination or other costs related to the Transition Plan
set forth on Schedule 1.6(a). The Escrow Amount shall be held by the Escrow
Agent pursuant to the Escrow Agreement. Each of the Company Shareholders (as
defined in Section 2.4) shall be deemed to have contributed its pro rata portion
of the Escrow Amount and the Holdback Amount in accordance with Section 1.7
("Pro Rata Shares"). The Escrow Amount will be subject to set-off for any
indemnification claims arising during the two- year period commencing on the
Closing Date (the "Escrow Period"), subject to the conditions contained herein
and in the Escrow Agreement.
The Escrow Agreement shall terminate at the close of business
on the last day of the Escrow Period, unless there are any unresolved
indemnification or other claims or disputes on such date pursuant to which
Parent may be entitled to all or a portion of the Escrow Amount. In the event of
any such unresolved claims or disputes, the Escrow Agreement will continue in
force, but any portion of the Escrow Amount which exceeds the amount for which a
claim has been made or a dispute exists shall be released to the Paying Agent
for distribution to the Company Shareholders, except as provided in the Escrow
Agreement. The Principal Shareholders' liability for the claims of Parent under
Section 2.3 of this Agreement shall not be limited to the Escrow Amount, and the
liability of the holders of the Company Common Stock shall be limited to the
Escrow Amount plus one-half of the Contingent Consideration, subject to the
conditions set forth in Section 8.5.
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(b) Adjustments to Initial Merger Consideration.
(i) The Initial Merger Consideration shall be
adjusted to reflect appropriately the effect of any stock split, reverse stock
split, stock dividend (including any dividend or distribution of securities
convertible into Company Stock), cash dividends, reorganization,
recapitalization, reclassification, combination, exchange of shares or other
like change with respect to Company Stock occurring on or after the date hereof
and prior to the Effective Time.
(ii) The Initial Merger Consideration shall be
adjusted as follows at the Closing
if it is determined that:
(a) the amount of the cash and cash
equivalents of Company reflected on the Company's Estimated Closing Balance
Sheet (as defined below) ("Estimated Closing Cash Balance") is less than
$9,000,000. The Initial Merger Consideration shall be adjusted downward
dollar-for-dollar in the amount equal to the difference between $9,000,000 and
the Estimated Closing Cash Balance. For purposes of this Agreement, "Estimated
Closing Balance Sheet" shall mean an unaudited balance sheet of Company and its
Subsidiaries as defined in Section 2.1(b)) as of the Closing Date, prepared in
accordance with generally accepted accounting principles consistently applied in
accordance with past practice and the Unaudited Balance Sheet (as defined in
Section 2.7) delivered to Parent three (3) days prior to the Closing Date in
accordance with Section 5.8; and
(b) the amount of the current assets (net of
the Estimated Closing Cash Balance reflected on the Estimated Closing Balance
Sheet) minus current liabilities reflected on the Estimated Closing Balance
Sheet (the "Estimated Closing Working Capital") is less than $3,700,000. The
Initial Merger Consideration shall be adjusted downward dollar-for-dollar in the
amount equal to the difference between $3,700,000 and the Estimated Closing
Working Capital.
For the avoidance of doubt, the parties agree that Company shall be permitted to
pay bonus payments of up to $2,000,000 to the individuals and in the amounts set
forth in Section 1.6(b)(ii)(b) of the Company Schedule prior to the Effective
Time, provided that such payments are reflected on the Estimated Closing Balance
Sheet and that the Initial Merger Consideration is reduced in accordance with
this Section 1.6(b); provided further that to avoid double-counting, such
payments and the accrued liability for such payments shall not affect both the
Estimated Closing Cash Balance and the Estimated Closing Working Capital.
(iii) Within 120 days following the Closing Date,
Parent may, at its election, cause to be prepared and delivered to the
Shareholder Representative a balance sheet of Company and its Subsidiaries as of
the Closing Date (the "Final Closing Balance Sheet") reflecting the final cash
and cash equivalents (the "Final Closing Cash Balance") and the amount of the
current assets (net of the Final Closing Cash Balance) minus current liabilities
(the "Final Working Capital"). If the amount of the Final Closing Cash Balance
of Company reflected on the Final Closing Balance Sheet is less than the lesser
of (A) $9,000,000 and (B) the Estimated Closing Cash Balance, then an amount
equal to such difference (the "Cash Balance Adjustment") shall be paid to Parent
out of the Escrow Amount. If the amount of the Final Working Capital of Company
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reflected on the Final Closing Balance Sheet is less than the lesser of (A)
$3,700,000 and (B) the Estimated Closing Working Capital, then an amount equal
to such difference (the "Working Capital Adjustment") shall be paid to Parent
out of the Escrow Amount. The Final Closing Balance Sheet shall be prepared in
accordance with generally accepted accounting principles consistently applied in
accordance with past practice and the Company's Unaudited Balance Sheet.
(a) If the Shareholder Representative
disputes the Final Closing Cash Balance or the Final Working Capital, it shall
notify Parent in writing within 15 business days after receipt of the Final
Closing Balance Sheet that it disputes the Final Closing Cash Balance and/or the
Final Working Capital; such notice shall specify in reasonable detail the nature
of the dispute.
(b) During the 15 business day period
following the receipt of such notice disputing the Final Closing Cash Balance or
the Final Working Capital, (i) Parent and the Shareholder Representative shall
attempt to resolve such dispute and to determine the appropriateness of the
Final Closing Cash Balance or the Final Working Capital and (ii) Parent shall
provide access to the Shareholder Representative during regular business hours
upon reasonable prior written notice, as reasonably requested by the Shareholder
Representative, to the Surviving Corporation's and, if necessary, Parent's,
books and records relevant to the determination of the Final Closing Cash
Balance or the Final Working Capital.
(c) If, within such 15 business day period,
Parent and the Shareholder Representative shall fail to resolve all of their
disputes, any unresolved disputes shall be referred immediately to an
independent accounting firm that is mutually acceptable to Parent and the
Shareholder Representative (the "Accounting Firm"). The Accounting Firm shall
accept such documentary and oral evidence from the parties as it shall
reasonably determine and, in any event, shall render a final determination in
writing as to the appropriate amount of the Final Closing Cash Balance within
thirty (30) days after referral of any disputes, and both Parent and the
Shareholder Representative shall be bound by the final determination of the
Accounting Firm and shall have no right of objection or appeal thereto. The fees
and expenses of the Accounting Firm in acting pursuant to this subsection (c)
shall be paid one-half by Company from the Escrow Amount and one-half by Parent,
except that if, with respect to any dispute relative to the Final Closing Cash
Balance or the Final Working Capital that in the judgment of the Accounting
Firm, one party has adopted a position or positions with respect to the
calculations of the Final Closing Cash Balance or the Final Working Capital that
is frivolous or clearly without merit, the Accounting Firm may, in its
discretion, assign a greater portion of any such fees and expenses to such
party, up to and including all of such fees and expenses. The Final Closing Cash
Balance and the Final Working Capital, as set forth in the Final Closing Balance
Sheet if agreed to by the Shareholder Representative as presented, or as
determined pursuant to any agreement of the parties or pursuant to the final
determination of the Accounting Firm, shall be used to determine the Cash
Balance Adjustment and/or the Working Capital Adjustment, if any, to be paid to
Parent from the Escrow Amount in accordance with subsection (d) set forth
immediately below, and shall be deemed to be the final and agreed upon Final
Closing Cash Balance and Final Working Capital.
5
(d) If the Final Closing Cash Balance or the
Final Working Capital is adjusted pursuant to the terms of this Section
1.6(iii), (i) Parent and the Shareholder Representative, if the Final Closing
Cash Balance and/or the Final Working Capital is agreed to by the parties, or
(ii) the Accounting Firm, if the Final Closing Cash Balance and/or the Final
Working Capital is determined by the Accounting Firm, shall immediately notify
the Escrow Agent of the Cash Balance Adjustment and/or the Working Capital
Adjustment and instruct the Escrow Agent to distribute to Parent the amount of
the of Escrow Amount equal to the Cash Balance Adjustment and/or the Working
Capital Adjustment, which amount shall be recoverable by Parent in accordance
with the terms of this Section 1.6 and the Escrow Agreement.
(iv) Any adjustments to the Initial Merger
Consideration shall reduce the Series A Merger Consideration (as defined in
Section 1.7(a)), the Series B Merger Consideration (as defined in Section
1.7(a)), the Series C Merger Consideration (as defined in Section 1.7(a)) and
the Common Initial Merger Consideration (as defined in Section 1.7(a)) in
proportion to the Initial Merger Consideration (prior to any adjustments) each
such class or series would have been entitled to receive in the Merger compared
to the total Initial Merger Consideration (prior to any adjustments).
(v) For purposes of this Agreement and the Escrow
Agreement, and the transactions contemplated hereby and thereby, each of the
Company Shareholders hereby appoints the Shareholder Representative to act as
its representative, subject to the provisions of Section 1.6(vi) below. If the
Shareholder Representative dies or resigns or otherwise terminates or declines
to accept his authority hereunder, his successor shall be Xx. Xxxxxxx Xxxxx. The
Shareholder Representative is authorized to take any action deemed by him
appropriate or reasonably necessary to carry out the provisions of, and
authorized to act on behalf of, the holders of Company Stock for all purposes
related to this Agreement and the Escrow Agreement, including having full and
exclusive authority to (i) give and receive notices and communications, (ii)
authorize payments to Parent from the Escrow Account in satisfaction of claims
by Parent, (iii) object to such payments, (iv) approve or object to the payment
of the Contingent Consideration (as defined below), (v) agree to, negotiate,
enter into settlements and compromises of, and comply with and appeal orders of
courts and awards of arbitrators with respect to such claims, and (vi) take all
other actions that are necessary or appropriate in the judgment of the
Shareholder Representative for the accomplishment of the foregoing. All
decisions, consents, instructions and actions of the Shareholder Representative
shall constitute a decision, consent, instruction or action of the Shareholders
and be binding and conclusive upon the Company Shareholders and Company and may
be relied upon by Parent, Surviving Corporation and the Escrow Agent as being
the decision, consent, instruction or action of the Company Shareholders.
(vi) The Shareholder Representative shall not be
liable to any of the former holders of Company Stock, Surviving Corporation or
Parent or any other party for any error of judgment, act done or omitted by him
in good faith, or mistake of fact or law unless caused by his own gross
negligence or willful misconduct. In taking any action or refraining from taking
any action whatsoever the Shareholder Representative shall be protected in
relying upon any notice, paper or other document reasonably believed by him to
be genuine, or upon any evidence reasonably deemed by him to be sufficient. The
Shareholder Representative may consult with counsel in connection with his
duties and shall be fully protected in any act taken, suffered or permitted by
him in good faith in accordance with the advice of counsel. The Shareholder
Representative shall not be responsible for determining or verifying the
authority of any person acting or purporting to act on behalf of any party to
this Agreement or the Escrow Agreement.
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(c) Payment of Contingent Merger Consideration.
As additional consideration for the Merger, and
subject to the conditions and set forth in this Section 1.6(c), Section 1.13
(Dissenting Shares) and Article VIII, Parent shall make the following payments
(collectively the "Contingent Consideration") to the Paying Agent for
distribution of the Per Share Contingent Consideration (as defined in Section
1.7(a)) to the holders of the Company Common Stock:
(i) an amount equal to [**] times the amount of
consolidated revenues of Parent in excess of the sum of (A) $[**] and (B) $[**]
multiplied by the number of Business Days (as defined below) in the period
commencing on the Closing Date and ending on December 31, 2005, for the period
commencing on the Closing Date and ending on December 31, 2006, excluding any
revenues from products or services acquired by Parent or any of its Affiliates
subsequent to the Closing in any mergers, acquisitions or other transactions
(the "Post-Closing Acquisition Revenues," provided that the Contingent
Consideration shall not exceed $4,000,000 (the "Earnout Revenues"). In the event
that the Closing does not occur on or before December 31, 2005, Parent and
Company agree to amend this Section 1.6(c)(i) to appropriately adjust the
calculation of the Contingent Consideration. The term "Business Day" shall mean
any day other than a Saturday, Sunday or public holiday under the laws of the
State of Delaware.
(ii) The amount of the Earnout Revenues of Parent
under this Section 1.6(c) shall be calculated pursuant to U.S. GAAP applied
consistently with Parent's past practice, as the case may be, provided, however,
that all the Earnout Revenues of Parent shall be subject to adjustment for
credits or debits related to product returns, price adjustments and non-payment
of invoices, and shall not include any Post-Closing Acquisition Revenues. The
Earnout Revenues relating to the period from the Closing Date through December
31, 2005 shall be adjusted based on invoices, and the foregoing credits and
adjustments, recorded by Parent consistent with Parent's past practice. In the
event that Parent becomes aware of an adjustment to the Earnout Revenues after
the end of the Earnout Period and prior to the payment of the Contingent
Consideration, that it has determined will be reflected in accordance with GAAP
in its consolidated financial statements for the quarter ending March 31, 2007,
the Earnout Revenues shall be adjusted to reflect such adjustment. No
adjustments shall be made after the payment of the Contingent Consideration. The
Earnout Revenues shall be calculated based on the consolidated revenues of
Parent for the quarters ending December 31, 2005, March 31, 2006 and June 30,
2006 as set forth in Parent's Annual Report on Form 10-K for the year ended June
30, 2006 ("2006 Annual Report") and the consolidated revenues of Parent as set
forth in the Quarterly Reports on Form 10-Q for the quarters ended September 30,
2006 and December 31, 2006 (collectively, the "Quarterly Reports") filed with
the Securities and Exchange Commission. In the event that Parent shall not have
filed its 2006 Annual Report and its Quarterly Reports on or before February 15,
2007, the Earnout Revenues shall be calculated based on its audited financial
statements for the fiscal year ending June 30, 2006 and its unaudited financial
statements prepared in accordance with U.S. GAAP consistently applied with past
practice for the fiscal quarters ending September 30, 2006 and December 31,
2006, which Parent shall deliver to the Shareholder Representative on or before
February 14, 2007.
------------------------------
[**] Pursuant to a request submitted to the Securities and Exchange Commission
for confidential treatment, this portion of Section 1.6(c)(i) of this Agreement
has been omitted. The omitted information has been filed separately with the
Securities and Exchange Commission.
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(iii) On or before February 19, 2007, Parent shall
deliver to the Shareholder Representative a calculation of the Earnout Revenues
and of the Contingent Consideration, if any.
(iv) Contingent Consideration, if any, payable under
Section 1.6(c) shall be paid to the Paying Agent within the earlier of (i)
thirty (30) days after the filing of Parent's Quarterly Report on Form 10-Q for
the quarter ending December 31, 2006 and (ii) March 11, 2007.
(v) The Shareholder Representative shall have the
right, at its sole expense, to audit Parent's records related and limited to the
performance under Section 1.6(c) as is necessary to verify the amount of
Contingent Merger Consideration payable, upon at least ten days prior notice, in
a manner not disruptive of Parent's business during normal business hours.
(vi) Parent shall provide the Shareholder
Representative promptly with copies of any information and make members of
management of Parent available during normal business hours and upon reasonable
notice to answer questions requested by the Shareholder Representative which is
reasonably necessary to confirm or verify the Earnout Revenues or any other
information or matters addressed in this Section 1.6(c) which are related to the
calculation of the Contingent Merger Consideration.
(vii) In the event that Parent and the Shareholder
Representative are unable to agree on the determination of any matter under this
Section 1.6(c), either Parent or the Shareholder Representative may deliver to
the other notice in writing setting forth the disputed items and a proposed
resolution of such disputed items (a "Dispute Notice"). The Shareholder
Representative and Parent shall endeavor in good faith to resolve any disputed
items within thirty (30) days of the receipt of a Dispute Notice. If the
Shareholder Representative and Parent are unable to resolve all disputed items
within such thirty (30) day period, they shall appoint within ten (10) days
following the expiration of such thirty (30) day period an independent
accounting firm that is mutually acceptable to Parent and the Shareholder
Representative (the "Accounting Arbitrator") to resolve the items remaining in
dispute (the "Disputed Items"). The Accounting Arbitrator shall use all
reasonable efforts to provide an opinion as regards all Disputed Items within
thirty (30) days following its appointment and the determination of the
Accounting Arbitrator in respect of the correctness of each of the Disputed
Items shall be conclusive and binding on the Shareholder Representative, the
holders of Company Common Stock and Parent absent manifest error. The scope of
the Accounting Arbitrator's review shall be limited to only the Disputed Items.
All fees and expenses of any Accounting Arbitrator selected in accordance with
this Section 1.6(c) shall be borne equally by Parent and the Shareholder
Representative.
8
1.7 EFFECT ON COMPANY STOCK.
At the Effective Time, subject to the terms and conditions of this
Agreement, including, without limitation, the escrow and indemnification
provisions set forth in this Article I and Article VIII, the following events
shall occur by virtue of the Merger and without any action on the part of Merger
Sub, Company or any of the Company Shareholders.
(a) Definitions.
(i) "Common Initial Merger Consideration" means
$3,000,000, subject to adjustment as provided in Section 1.6(b).
(ii) "Per Share Common Closing Payment" means the Per
Share Common Initial Merger Consideration minus the sum of (a) the Per Share
Common Escrow Amount and (b) the Per Share Common Holdback Amount.
(iii) "Per Share Common Escrow Amount" means the
quotient obtained by dividing (a) $600,000 by (b) the number of shares of
Company Common Stock issued and outstanding at the Effective Time.
(iv) "Per Share Common Holdback Amount" means the
quotient obtained by dividing (a) $174,900 by (b) the number of shares of
Company Common Stock issued and outstanding at the Effective Time.
(v) "Per Share Common Initial Merger Consideration"
means the quotient obtained by dividing (a) the Common Initial Merger
Consideration by (b) the number of shares of Company Common Stock issued and
outstanding at the Effective Time.
(vi) "Per Share Contingent Consideration" means the
quotient obtained by dividing (a) the Contingent Consideration by (b) the number
of shares of Company Common Stock issued and outstanding at the Effective Time.
(vii) "Per Share Series A Closing Payment" means the
Per Share Series A Merger Consideration minus the sum of (a) the Per Share
Series A Escrow Amount and (b) the Per Share Series A Holdback Amount.
(viii) "Per Share Series A Escrow Amount" means the
quotient obtained by dividing (a) $160,152 by (b) the number of shares of Series
A Preferred Stock issued and outstanding at the Effective Time.
(ix) "Per Share Series A Holdback Amount" means the
quotient obtained by dividing (a) $46,684 by (b) the number of shares of Series
A Preferred Stock issued and outstanding at the Effective Time.
(x) "Per Share Series A Merger Consideration" means
the quotient obtained by dividing (a) the Series A Merger Consideration by (b)
the number of shares of Series A Preferred Stock issued and outstanding at the
Effective Time.
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(xi) "Per Share Series B Closing Payment" means the
Per Share Series B Merger Consideration minus the sum of (a) the Per Share
Series B Escrow Amount and (b) the Per Share Series B Holdback Amount.
(xii) "Per Share Series B Escrow Amount" means the
quotient obtained by dividing (a) $1,841,360 by (b) the number of shares of
Series B Preferred Stock issued and outstanding at the Effective Time.
(xiii) "Per Share Series B Holdback Amount" means the
quotient obtained by dividing (a) $536,757 by (b) the number of shares of Series
B Preferred Stock issued and outstanding at the Effective Time.
(xiv) "Per Share Series B Merger Consideration" means
the quotient obtained by dividing (a) the Series B Merger Consideration by (b)
the number of shares of Series B Preferred Stock issued and outstanding at the
Effective Time.
(xv) "Per Share Series C Closing Payment" means the
Per Share Series C Merger Consideration minus the sum of (a) the Per Share
Series C Escrow Amount and (b) the Per Share Series C Holdback Amount.
(xvi) "Per Share Series C Escrow Amount" means the
quotient obtained by dividing (a) $2,198,488 by (b) the number of shares of
Series C Preferred Stock issued and outstanding at the Effective Time.
(xvii) "Per Share Series C Holdback Amount" means the
quotient obtained by dividing (a) $640,859 by (b) the number of shares of Series
C Preferred Stock issued and outstanding at the Effective Time.
(xviii) "Per Share Series C Merger Consideration"
means the quotient obtained by dividing (a) the Series C Merger Consideration by
(b) the number of shares of Series C Preferred Stock issued and outstanding at
the Effective Time.
(xix) "Series A Merger Consideration" means $800,758,
subject to adjustment as provided in Section 1.6(b).
(xx) "Series B Merger Consideration" means
$9,206,802, subject to adjustment as provided in Section 1.6(b).
(xxi) "Series C Merger Consideration" means
$10,992,440, subject to adjustment as provided in Section 1.6(b).
(b) Conversion of Company Series A Preferred Stock. Each share
of Series A Preferred Stock, no par value, of Company (the "Series A Preferred
Stock") issued and outstanding immediately prior to the Effective Time, other
than any Series A Preferred Stock to be canceled pursuant to Section 1.7(e) and
Dissenting Shares, will be canceled and extinguished and automatically converted
into and represent solely the right to receive the Per Share Series A Merger
Consideration minus the Per Share Series A Escrow Amount, which Parent will
deliver to the Escrow Agent pursuant to Section 1.8, and minus the Per Share
10
Series A Holdback Amount, which will be held back by Parent in accordance with
Section 1.6(a) and the Transition Plan, with the Per Share Series A Closing
Payment payable without interest to the holder of such Series A Preferred Stock
upon surrender of the certificate representing such Series A Preferred Stock in
the manner provided in Section 1.8 (or in the case of a lost, stolen or
destroyed certificate, upon delivery of an affidavit (and bond, if required) in
the manner provided in Section 1.10).
(c) Conversion of Company Series B Preferred Stock. Each share
of Series B Preferred Stock, no par value, of Company (the "Series B Preferred
Stock") issued and outstanding immediately prior to the Effective Time, other
than any Series B Preferred Stock to be canceled pursuant to Section 1.7(e) and
Dissenting Shares, will be canceled and extinguished and automatically converted
into and represent solely the right to receive the Per Share Series B Merger
Consideration minus the Per Share Series B Escrow Amount, which Parent will
deliver to the Escrow Agent pursuant to Section 1.8, and minus the Per Share
Series B Holdback Amount, which will be held back by Parent in accordance with
Section 1.6(a) and the Transition Plan, with the Per Share Series B Closing
Payment payable without interest to the holder of such Series B Preferred Stock
upon surrender of the certificate representing such Series B Preferred Stock in
the manner provided in Section 1.8 (or in the case of a lost, stolen or
destroyed certificate, upon delivery of an affidavit (and bond, if required) in
the manner provided in Section 1.10).
(d) Conversion of Company Series C Preferred Stock. Each share
of Series A Preferred Stock, no par value, of Company (the "Series C Preferred
Stock") issued and outstanding immediately prior to the Effective Time, other
than any Series C Preferred Stock to be canceled pursuant to Section 1.7(e) and
Dissenting Shares, will be canceled and extinguished and automatically converted
into and represent solely the right to receive the Per Share Series C Merger
Consideration minus the Per Share Series A Escrow Amount, which Parent will
deliver to the Escrow Agent pursuant to Section 1.8, and minus the Per Share
Series C Holdback Amount, which will be held back by Parent in accordance with
Section 1.6(a) and the Transition Plan, with the Per Share Series C Closing
Payment payable without interest to the holder of such Series C Preferred Stock
upon surrender of the certificate representing such Series C Preferred Stock in
the manner provided in Section 1.8 (or in the case of a lost, stolen or
destroyed certificate, upon delivery of an affidavit (and bond, if required) in
the manner provided in Section 1.10).
(e) Conversion of Company Common Stock. Each share of Company
Common Stock, issued and outstanding immediately prior to the Effective Time,
other than any Company Common Stock to be canceled pursuant to Section 1.7(e)
and Dissenting Shares, will be canceled and extinguished and automatically
converted into and represent solely the right to receive the Per Share Common
Initial Merger Consideration minus the Per Share Common Escrow Amount, which
Parent will deliver to the Escrow Agent pursuant to Section 1.8, and minus the
Per Share Common Holdback Amount, which will be held back by Parent in
accordance with Section 1.6(a) and the Transition Plan, with the Per Share
Common Closing Payment payable without interest to the holder of such Company
Common Stock upon surrender of the certificate representing such Company Common
Stock in the manner provided in Section 1.8 (or in the case of a lost, stolen or
destroyed certificate, upon delivery of an affidavit (and bond, if required) in
the manner provided in Section 1.10), plus the Per Share Contingent
Consideration, if any, payable in accordance with Section 1.7.
11
(f) Adjustment to Initial Merger Consideration. In the event
of a Cash Balance Adjustment and/or a Working Capital Adjustment to the Initial
Merger Consideration, the Series A Merger Consideration, the Series B Merger
Consideration, the Series C Merger Consideration and the Common Merger
Consideration shall each be adjusted based on the proportion that the Initial
Merger Consideration to be paid to each such series or class bears to the total
Initial Merger Consideration, prior to adjustment.
(g) Cancellation of Treasury Stock and Parent-Owned Stock.
Each share of Company Stock that is held by Company as treasury stock or any
direct or indirect wholly-owned Subsidiary of Company or by Parent or any of its
Subsidiaries immediately prior to the Effective Time shall at the Effective Time
remain outstanding, shall not be converted under Section 1.7 into the right to
receive the Per Share Merger Consideration with respect thereto.
(h) Merger Sub Common Stock. Each share of common stock of
Merger Sub outstanding immediately prior to the Effective Time shall be
converted into and become one share of common stock of the Surviving Corporation
with the same rights, powers and privileges as the shares so converted and shall
constitute the only outstanding shares of capital stock of the Surviving
Corporation.
(i) Company Options. At the Effective Time, each outstanding
Company Option, to the extent not exercised, shall be cancelled and extinguished
and shall not be assumed by Parent. Company shall deliver to the Company option
holders (i) proper notice in accordance with the of the terms of the applicable
option plan of Company informing such holders of the limited time during which
option holders may exercise their options and that such options will terminate
at the Effective Time and (ii) a form of exercise notice for use in effecting
such exercise.
1.8 SURRENDER OF CERTIFICATES.
(a) Paying Agent. Parent shall select an institution
reasonably acceptable to Company to act as the paying agent (the "Paying Agent")
in the Merger to receive the funds to which holders of Company Stock shall
become entitled pursuant to Sections 1.6.
(b) Parent to Provide Initial Merger Consideration. Promptly
after the Effective Time, Parent shall make available for exchange in accordance
with this Article I, (i) cash to the Paying Agent for payment of the Series A
Closing Payment, the Series B Closing Payment, the Series C Closing Payment and
the Common Closing Payment pursuant to Section 1.7 in exchange for issued and
outstanding shares of Company Stock, and (ii) cash in the amount of the Escrow
Amount to the Escrow Agent (as defined in Section 1.8(c)). The Escrow Amount
will be delivered to the Escrow Agent under the Escrow Agreement (the "Escrow
Agent") and held and distributed in accordance with the terms of the Escrow
Agreement. The Escrow Amount will be used to partially secure the Company
Shareholders' indemnification obligations set forth in Article VIII and as
partial satisfaction of claims of Parent as set forth in Article VIII. Any
recovery by Parent against the Escrow Amount shall be made in accordance with
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the Pro Rata Share of the Company Shareholders' contribution to the Escrow
Amount. To the extent that there is any Escrow Amount remaining in the Escrow
Account after payment of all claims and expenses and which has not been reserved
for claims under this Agreement and the Escrow Agreement at the end of the
Escrow Period, such Escrow Amount will be released to the Company Shareholders
in accordance with their Pro Rata Share of their contribution to the Escrow
Amount. The Holdback Amount shall be held and distributed by Parent in
accordance with the terms and conditions of the Transition Plan.
(c) Exchange Procedures. As soon as reasonably practicable
after the Effective Time, but in any event no later than ten (10) business days
after the Effective Date, the Paying Agent shall mail to each holder of record
of Certificates for Company Stock (the "Certificates"): (i) a letter of
transmittal (which shall specify that delivery shall be effected, and risk of
loss and title to the Certificates shall pass, only upon delivery of the
Certificates to the Paying Agent and shall be in such form and have such other
provisions as Parent and Company may reasonably specify) and (ii) instructions
for use in effecting the surrender of the Certificates in exchange for a cash
payment of the proper Merger Consideration when and if it becomes payable under
this Agreement. Upon surrender of a Certificate for cancellation to the Paying
Agent, together with such letter of transmittal, duly executed, the holder of
such Certificate shall be entitled to receive in exchange therefor by check or
wire transfer, as the case may be, an amount equal to the proper Merger
Consideration when and if it becomes payable under this Agreement, and the
Certificate so surrendered shall forthwith be canceled. No interest shall be
paid or accrued on any Merger Consideration upon the surrender of any
Certificates. In the event of a transfer of ownership of Company Stock which is
not registered in the transfer records of the Company, payment of the proper
Merger Consideration when and if it becomes payable under this Agreement may be
paid to a transferee if the Certificate representing such Company Stock, as
applicable, is presented to the Paying Agent, accompanied by all documents that
the Paying Agent may require to evidence and effect such transfer and by
evidence that any applicable stock transfer or other taxes required as a result
of such payment to a Person other than the registered holder of such shares have
been paid. Until surrendered and exchanged as contemplated by this Section 1.8,
each Certificate shall be deemed at any time after the Effective Time to
represent only the right to receive upon such surrender an amount equal to the
proper Merger Consideration when and if it becomes payable under this Agreement.
(d) No Further Rights in Company Stock. The Merger
Consideration paid upon the surrender of Certificates for exchange of Company
Stock in accordance with the terms hereof shall be deemed to have been paid in
full satisfaction of all rights pertaining to such Company Stock. After the
Effective Time, there shall be no further registration of transfers on the stock
transfer books of the Surviving Corporation of the Company Stock that were
outstanding immediately prior to the Effective Time. If, after the Effective
Time, Certificates are presented to the Paying Agent or the Surviving
Corporation for any reason, they shall be canceled and exchanged as provided in
this Article 1, except as otherwise provided by Applicable Law.
(e) Required Withholding. Each of the Paying Agent, Parent 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 Stock such amounts as may be required (as
advised by tax counsel for Parent) to be deducted or withheld therefrom under
13
the Internal Revenue Code of 1986, as amended (the "Code") or under any
provision of state, local or other 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.
(f) No Liability. Notwithstanding anything to the contrary in
this Section 1.8, neither the Paying Agent, Parent, the Surviving Corporation,
the Escrow Agent nor any party hereto shall be liable to a holder of Company
Stock for any amount properly paid to a public official pursuant to any
applicable abandoned property, escheat or similar law.
1.9 COMPANY'S TRANSFER BOOKS CLOSED.
At the Effective Time: (i) the share transfer books of Company shall be
deemed closed, and no transfer of any Company Stock or any Certificates in
respect thereof shall thereafter be made or consummated; and (ii) all holders of
Company Stock that was outstanding immediately prior to the Effective Time shall
cease to have any rights as holders of Company Stock, other than the right to
receive the Merger Consideration. No further transfer of any such Company Stock
shall be made on such share transfer books after the Effective Time.
1.10 LOST CERTIFICATES.
If any Certificates shall have been lost, stolen or destroyed, upon the
making of an affidavit of that fact by the holder thereof, and, if required by
Parent, the entry by such owner of such lost, stolen or destroyed certificate
into an indemnification agreement in form satisfactory to Parent, or the posting
of a bond in such sum as Parent may reasonably direct as indemnity against any
claim that may be made against Parent, the Surviving Corporation or the Paying
Agent, the Paying Agent shall pay such amounts which the Company Stock
represented by such Certificates were converted pursuant to Section 1.7.
1.11 DISSENTING SHARES.
(a) Notwithstanding any other provisions of this Agreement to
the contrary, any shares of Company Common Stock or Company Preferred Stock held
by a holder who has exercised and perfected appraisal rights for such shares in
accordance with Chapter 13 of California Law and who has not effectively
withdrawn or lost such appraisal rights ("Dissenting Shares") shall not be
converted into or represent a right to receive the Merger Consideration for the
Company Stock set forth in Section 1.6 hereof, (and subject to the provisions of
Section 8.2 hereof), but the holder thereof shall only be entitled to such
rights as are provided by California Law.
(b) Notwithstanding the provisions of Section 1.11(a) hereof,
if any holder of Dissenting Shares shall effectively withdraw or lose (through
failure to perfect or otherwise) such holder's appraisal rights under California
Law, then, as of the later of the Effective Time and the occurrence of such
event, such holder's shares shall automatically be converted into and represent
only the right to receive the Merger Consideration for Company Stock, set forth
in Section 1.6 and Section 1.7 hereof, without interest thereon, and subject to
the provisions of Section 8.2 hereof, upon surrender of the certificates
representing such shares.
14
(c) Company shall give Parent (i) prompt notice of any written
demand for appraisal received by Company pursuant to the applicable provisions
of California Law, and (ii) the opportunity to participate in all negotiations
and proceedings with respect to such demands. After Closing, the Shareholder
Representative shall control the negotiations and proceedings with respect to
such demands. Prior to Closing, Company shall not, and after Closing the
Shareholder Representative shall not, except with the prior written consent of
Parent, which consent shall not unreasonably be withheld, voluntarily make any
payment with respect to any such demands or offer to settle or settle any such
demands. Notwithstanding the foregoing, to the extent that Parent or Company (i)
makes any payment or payments in respect of any Dissenting Shares in excess of
the consideration that otherwise would have been payable in respect of such
shares in accordance with this Agreement or (ii) incurs any other reasonable
costs or expenses in respect of any Dissenting Shares (excluding payments for
such shares) (together "Excess Dissenting Share Payments"), Parent shall be
entitled to recover under the terms of Article VIII hereof the amount of such
Excess Dissenting Share Payments.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF COMPANY AND, WITH RESPECT TO
SECTION 2.3 ONLY, THE PRINCIPAL SHAREHOLDERS
As of the date hereof and as of the Closing Date, Company and, with
respect to Section 2.3 only, the Principal Shareholders hereby severally and not
jointly represent and warrant to Parent and Merger Sub, subject to such
exceptions as are specifically disclosed in writing in the disclosure schedule
supplied by Company and, with respect to Section 2.3 only, the Principal
Shareholders to Parent dated as of the date hereof and as of the Effective Time
as though made at the Effective Time and certified by a duly authorized officer
of Company (the "Company Schedule"), as follows:
2.1 ORGANIZATION AND QUALIFICATION; SUBSIDIARIES.
(a) Each of Company and its Subsidiaries (as defined below) is
a corporation or legal entity duly organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation and has the
requisite corporate, partnership or similar power and authority to own, lease
and operate its assets and properties and to carry on its business as it is now
being conducted, except where the failure to do so would not, individually, or
in the aggregate, have a Material Adverse Effect (as defined in Section 9.2) on
Company. Each of Company and its Subsidiaries is in possession of all
franchises, grants, authorizations, licenses, permits, easements, consents,
certificates, approvals and orders ("Approvals") necessary to own, lease and
operate the properties it purports to own, operate or lease and to carry on its
business as it is now being conducted, except where the failure to have such
Approvals would not, individually or in the aggregate, have a Material Adverse
Effect on Company.
(b) Except as set forth in Section 2.1(b) of the Company
Schedule, Company does not own any shares of capital stock or any interest in,
or control, directly or indirectly, any other corporation, limited liability
company, partnership, association, joint venture or other business entity.
Schedule 2.1(b) lists each corporation, limited liability company, partnership,
association, joint venture or other business entity of which the Company owns,
15
directly or indirectly, more than 50% of the stock or other equity interest
entitled to vote on the election of the members of the board of directors or
similar governing body (each, a "Subsidiary"), including, but not limited to,
its two wholly foreign-owed enterprises ("WFOEs") established in the People's
Republic of China ("PRC"). Neither Company nor any of its Subsidiaries has
agreed nor is obligated to make nor is bound by any written, oral or other
agreement, contract, subcontract, lease, binding understanding, instrument,
note, option, warranty, purchase order, license, sublicense, insurance policy,
benefit plan, commitment or undertaking of any nature, as of the date hereof or
as may hereafter be in effect under which it may become obligated to make, any
future investment in or capital contribution to any other entity.
(c) Company and each of its Subsidiaries is qualified to do
business as a foreign corporation, and is in good standing, under the laws of
all jurisdictions where the nature of their business requires such qualification
and where the failure to so qualify, individually, or in the aggregate, would
have a Material Adverse Effect on the Company.
2.2 ARTICLES OF INCORPORATION AND BYLAWS.
Company has previously furnished to Parent a complete and correct copy
of its articles of incorporation and its bylaws each as amended to date
(together, the "Company Charter Documents") and the equivalent organizational
documents of each of Company's Subsidiaries. Such Company Charter Documents and
equivalent organizational documents of each of its Subsidiaries are in full
force and effect. Company is not in violation of any of the provisions of the
Company Charter Documents, and no Subsidiary of Company is in violation of its
equivalent organizational documents.
2.3 CAPITALIZATION.
(a) The authorized capital stock of Company consists of
30,000,000 shares of Company Common Stock, 2,250,000 shares of Series A
Preferred Stock, 8,947,383 shares of Series B Preferred Stock and 1,600,000
shares of Series C Preferred Stock. At the close of business on the date of this
Agreement: (i) 7,878,003 shares of Company Common Stock were issued and
outstanding, all of which are duly authorized, validly issued, fully paid and
nonassessable and not subject to pre-emptive rights; (ii) no shares of Company
Common Stock were held in treasury by Company or by Subsidiaries of Company; and
(iii) 746,109 shares of Company Common Stock were reserved for issuance upon the
exercise of outstanding options to purchase Company Common Stock ("Company
Options") under Company's employee stock option plans (the "Company Option
Plans"). As of the date hereof, 12,782,343 shares of Company Preferred Stock
were issued and outstanding, of which 2,250,000 shares were Series A Preferred
Stock, 8,947,383 were Series B Preferred Stock and 1,600,000 shares were Series
C Preferred Stock. Section 2.3(a) of the Company Schedule sets forth the names
and addresses appearing on the records of Company of each holder of Company
Stock and the number of shares of Company Common Stock, Series A Preferred
Stock, Series B Preferred Stock and Series C Preferred Stock owned by each such
holder and the date of issuance, and the following information with respect to
each Company Option outstanding as of the date of this Agreement: (i) the name
and address of the optionee; (ii) the particular plan or agreement pursuant to
which such Company Option was granted; (iii) the grant dates; (iv) the
termination dates; (v) the exercise price of such option; (vi) the vesting
schedule; and (vii) the number of shares of Company Stock subject to such
16
Company Option. Company has made available to Parent accurate and complete
copies of all stock option plans, as well as of all other agreements, pursuant
to which the Company has granted such Company Options that are currently
outstanding and the form of all option agreements evidencing such Company
Options. Other than as described herein and in Section 2.3 of the Company
Schedule, as of the date of this Agreement, Company had no other securities
authorized, reserved for issuance, issued or outstanding. Except as set forth in
Section 2.3 of the Company Schedule, or as provided in this Agreement, there are
no commitments or agreements of any character to which the Company is bound
obligating the Company to accelerate the vesting of any Company Option as a
result of the Merger. All outstanding shares of Company Common Stock and Company
Preferred Stock, all outstanding Company Options, and all outstanding shares of
capital stock of each Subsidiary of Company have been issued and granted in
compliance with (i) all applicable securities laws and other applicable Legal
Requirements (as defined below) and (ii) all requirements set forth in
applicable contracts. For the purposes of this Agreement, "Legal Requirements"
means any federal, state, local, municipal, foreign or other law, statute,
constitution, principle of common law, resolution, ordinance, code, edict,
decree, rule, regulation, ruling or requirement issues, enacted, adopted,
promulgated, implemented or otherwise put into effect by or under the authority
of any Governmental Entity (as defined below in Section 2.5(b)).(b) Except as
set forth in Section 2.3(a) or Section 2.3(b) of the Company Schedule, as of the
date of this Agreement, there are no equity securities, partnership interests or
similar ownership interests of any class of equity security of any Subsidiary of
Company, or any security exchangeable or convertible into or exercisable for
such equity securities, partnership interests or similar ownership interests,
issued, reserved for issuance or outstanding. Except as set forth in Section
2.3(b) of the Company Schedule or as set forth in Section 2.3(a) hereof, there
are no subscriptions, options, warrants, equity securities, partnership
interests or similar ownership interests, calls, rights (including preemptive
rights), commitments or agreements of any character to which Company or any of
its Subsidiaries is a party or by which it is bound obligating Company or any of
its Subsidiaries to issue, deliver or sell, or cause to be issued, delivered or
sold, or repurchase, redeem or otherwise acquire, or cause the repurchase,
redemption or acquisition of, any shares of capital stock, partnership interests
or similar ownership interests of Company or any of its Subsidiaries or
obligating Company or any of its Subsidiaries to grant, extend, accelerate the
vesting of or enter into any such subscription, option, warrant, equity
security, call, right, commitment or agreement. As of the date of this
Agreement, except as contemplated by this Agreement, there are no registration
rights and there is no voting trust, proxy, rights plan, antitakeover plan or
other agreement or understanding to which Company or any of its Subsidiaries is
a party or by which they are bound with respect to any equity security of any
class of Company or with respect to any equity security, partnership interest or
similar ownership interest of any class of any of its Subsidiaries.
(b) Shares of Company Stock are not listed in any foreign or
domestic stock exchange or quotation system.
(c) The shareholders of each of the WFOEs have acted in
accordance with their obligations under the articles of association of the WFOE
and have made their capital contributions in full in accordance with such
articles of association and PRC laws.
17
(d) There is no circumstance or event peculiar to either of
the WFOEs which would have a Material Adverse Effect on the WFOE's ability to
repay its shareholder loans, to convert its income and revenue denominated in
RMB into foreign currency to meet its foreign exchange requirements and for the
purposes of remitting dividends or any other form of distributions payable to
its foreign investors outside the PRC.
2.4 AUTHORITY.
Company has all necessary corporate power and authority to execute and
deliver this Agreement and to perform its obligations hereunder and, subject to
obtaining the approval of the holders of the Company Stock (the "Company
Shareholders") to this Agreement, the Merger and the other transactions
contemplated by this Agreement, to consummate the transactions contemplated
hereby and thereby. The execution and delivery of this Agreement by Company and
the consummation by Company of the transactions contemplated hereby have been
duly and validly authorized by all necessary corporate action on the part of
Company and no other corporate proceedings on the part of Company are necessary
to authorize this Agreement to consummate the transactions so contemplated
(other than the approval of this Agreement, the Merger and the other
transactions contemplated by this Agreement by the Company Shareholders. The
only votes of the holders of the Company Stock required in connection with the
consummation of the Merger are (i) the affirmative vote of at least a majority
of the outstanding shares of the Series A Preferred Stock, (ii) the affirmative
vote of at least a majority of the outstanding shares of the Series B Preferred
Stock, (iii) the affirmative vote of at least a majority of the outstanding
shares of the Series C Preferred Stock, (iv) the affirmative vote of at least a
majority of the outstanding shares of the Company Common Stock and (v) the
affirmative vote of at least a majority of the outstanding shares of the Company
Preferred Stock. The principal shareholders whose names are set forth on Exhibit
A-2 hereto have duly executed and, concurrently with the execution of this
Agreement, delivered to Parent copies of their Voting Agreements. This Agreement
has been duly and validly executed and delivered by Company and, assuming the
due authorization, execution and delivery by Parent and Merger Sub, constitutes
a legal and binding obligation of Company, enforceable against Company in
accordance with its terms, except as enforceability may be limited by bankruptcy
and other similar laws and general principles of equity.
2.5 NO CONFLICT; REQUIRED FILINGS AND CONSENTS.
(a) The execution and delivery of this Agreement by Company do
not, and the performance of this Agreement by Company shall not, (i) conflict
with or violate the Company Charter Documents or the equivalent organizational
documents of any of Company's Subsidiaries, (ii) subject to obtaining the
approval of the holders of the Company Stock as set forth in Section 2.4 and
compliance with the requirements set forth in Section 2.5(b) below, conflict
with or violate any law, rule, regulation, order, judgment or decree applicable
to Company or any of its Subsidiaries or by which its or any of their respective
properties 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 materially impair Company's or any of its Subsidiaries'
rights or alter the rights or obligations of any third Person under, or give to
others any rights of termination, amendment, acceleration or cancellation of, or
result in the creation of a Lien on any of the properties or assets of Company
or any of its Subsidiaries pursuant to, any agreement, contract, subcontract,
18
lease, binding understanding, instrument, note, option, warranty, purchase
order, license, sublicense, insurance policy, benefit plan, commitment or
undertaking of any nature to which Company or any of its Subsidiaries is a party
or by which Company or any of its Subsidiaries or its or any of their respective
properties are bound or affected, except to the extent such conflict, violation,
breach, default, impairment or other effect would not, in the case of clauses
(ii) or (iii), individually or in the aggregate, (A) reasonably be expected to
have a Material Adverse Effect on Company or (B) prevent or materially delay
consummation of the Merger or otherwise prevent the parties from performing
their obligations under this Agreement.
(d) The execution and delivery of this Agreement by Company do
not, and the performance of this Agreement by Company shall not, require any
consent, approval, authorization or permit of, or filing with or notification
to, any court, administrative agency, commission, governmental or regulatory
authority or body, domestic or foreign (a) "Governmental Entity") with respect
to Company, its Subsidiaries and the holders of Company Stock other than (a) the
filing of the agreement of merger with the Secretary of State of the State of
California and appropriate documents with the authorities of other states in
which Company is qualified to do business and (b) any actions or filings the
absence of which would not be reasonably expected to be, individually or in the
aggregate, material to Company or to materially impair the ability of Company to
consummate the transactions contemplated by the Agreement.
2.6 COMPLIANCE; PERMITS.
(a) Neither Company nor any of its Subsidiaries is in conflict
with, or in default or violation of, (i) any law, rule, regulation, order,
judgment or decree applicable to Company or any of its Subsidiaries or by which
its or any of their respective properties is bound or affected, or (ii) any
note, bond, mortgage, indenture, contract, agreement, lease, license, permit,
franchise or other instrument or obligation to which Company or any of its
Subsidiaries is a party or by which Company or any of its Subsidiaries or its or
any of their respective properties is bound or affected, except for any
conflicts, defaults or violations that (individually or in the aggregate) would
not be reasonably expected to have a Material Adverse Effect on Company. No
investigation or review by any Governmental Entity is pending or, to the
Knowledge of Company, threatened against Company or its Subsidiaries, nor has
any Governmental Entity indicated to Company an intention to conduct the same,
other than, in each such case, those the outcome of which could not,
individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect on Company.
(b) Company and its Subsidiaries hold all franchises, grants,
permits, licenses, variances, easements, consents, certificates, exemptions,
orders and approvals and other authorizations from governmental authorities
which are (i) material to the operation of the business of Company and its
Subsidiaries taken as a whole or (ii) necessary to own, lease and operate the
properties Company and its Subsidiaries purport to own, operate or lease, except
in the case of (ii) where the failure to have such Company Permits would not,
individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect on Company (collectively, the "Company Permits"). Company and its
Subsidiaries have been and are in compliance in all material respects with the
terms of the Company Permits and any conditions placed thereon.
19
(c) Each of the WFOEs has sought all necessary approvals from
all relevant and appropriate national, provincial, municipal or local government
or regulatory authorities, necessary to (i) carry on its business and to engage
in the design and development of such software and related products and
technologies as determined by the WFOE from time to time and (ii) carry on its
business on the premises occupied by the WFOE. All necessary approvals obtained
by each of the WFOEs have been duly, validly and properly issued or granted and
are valid and continuing, and neither of the WFOEs is in breach of any of the
terms and conditions of any such approvals, and there is no reason why any of
them should be suspended, cancelled or revoked; each of the WFOEs has complied
with all formalities and procedures required under the applicable laws for
carrying on its business.
(d) Neither of the WFOEs or any of its legal representatives,
directors, officers, employees or agents (during the course of their duties and
for whose act the WFOE or any of them may be vicariously liable) has committed
or omitted to do any act or thing the commission or omission of which is in
contravention of any PRC laws giving rise to any fine, penalty, default,
proceedings or liability on its part which would adversely affect the business
or conditions (financial or otherwise) of the WFOE.
(e) Each of the WFOEs has borrowed and extended all of their
loans in full compliance with all applicable PRC laws, including the
requirements issued by the State Administration of Foreign Exchange and its
relevant local branches.
2.7 FINANCIAL STATEMENTS; INTERNAL CONTROLS.
(a) Section 2.7 of the Company Schedule contains true and
complete copies of (i) the consolidated audited balance sheets of Company at
December 31, 2003 and 2004, and the related audited income statement for the
years then ended (the "Audited Financial Statements"), and (ii) the unaudited
balance sheet of Company at September 30, 2005, (the "Unaudited Balance Sheet")
and the related income statement for the nine months then ended, including,
except for the nine-month period, the notes thereto (the financial statements
described in clause (i) and (ii) above are collectively referred to as the
"Financial Statements").
(b) Each set of the Financial Statements (including, in each
case, any related notes thereto) was prepared in accordance with generally
accepted accounting principles ("GAAP") applied on a consistent basis throughout
the periods involved (except as may be indicated in the notes thereto) and each
fairly presents in all material respects the consolidated financial position of
Company and its Subsidiaries at the respective dates thereof and the
consolidated results of its operations for the periods indicated, except that
the unaudited financial statements were or are subject to normal adjustments
which were not or are not expected to be material in amount and fairly
represents in all material respects Company's revenue recognition policies.
(c) Company has furnished to Parent monthly unaudited
consolidated balance sheets and income statements for each of the months for the
eight months ended August 31, 2005, and such monthly financial statements have
been prepared in accordance with GAAP applied on a consistent basis throughout
the periods involved and fairly present in all material respects the financial
position of Company as of August 31, 2005 and for the eight-month period then
ended, except for the omission of notes, accruals and adjustments.
20
(d) Company maintains a system of internal accounting controls
sufficient to provide reasonable assurances regarding the reliability of
financial reporting and the preparation of financial statements in accordance
with GAAP. Except as set forth in Section 2.7(d) of the Company Schedule,
Company (i) maintains disclosure controls and procedures to ensure that material
information relating to Company and its Subsidiaries is made known to the
management of Company by others within those entities and (ii) has no
significant deficiencies or material weaknesses in the design or operation of
internal controls over financial reporting which are reasonably likely to
adversely affect Company's ability to record, process, summarize and report
financial information. Company has disclosed to Company's Board of Directors (i)
any such significant deficiencies or material weaknesses and (ii) any fraud,
whether or not material, that involves management or other employees who have a
role in Company's internal controls.
2.8 NO UNDISCLOSED LIABILITIES; NO LIQUIDATION OF WFOES.
(a) Except as disclosed in Section 2.8 of the Company
Schedule, there are no liabilities of Company or any Subsidiary of Company of
any kind whatsoever, whether accrued, contingent, absolute, determined,
determinable or otherwise, other than (i) liabilities disclosed or provided for
in the Company Unaudited Balance Sheet or in the notes thereto; (ii) liabilities
which are, individually or in the aggregate, not material to the business,
results of operations or financial condition of Company and its Subsidiaries
taken as a whole; (iii) liabilities incurred since September 30, 2005 which are
not in excess of $10,000 individually or $50,000 in the aggregate, or which were
not incurred in the ordinary course of business, and none of which is material
to the business, results of operations or financial condition of Company and its
Subsidiaries, taken as a whole, or (iv) liabilities permitted to be incurred
under this Agreement in accordance with Section 4.1.
(b) Neither of the WFOEs has taken any steps to enter into
liquidation. No legal, legislative or administrative proceedings or other steps
or actions have been commenced or threatened (i) to wind up, dissolve, or
eliminate either of the WFOEs or (ii) to withdraw, remove or cancel its business
license.
2.9 ABSENCE OF CERTAIN CHANGES OR EVENTS.
Except as disclosed in Section 2.9 of the Company Schedule,
since December 31, 2004 to the date hereof there has not been: (i) any Material
Adverse Effect on Company; (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 Company's or any of its Subsidiaries' capital stock, or any
purchase, redemption or other acquisition by Company of any of Company's capital
stock or any other securities of Company or its Subsidiaries or any options,
warrants, calls or rights to acquire any such shares or other securities except
for repurchases from employees following their termination pursuant to the terms
of their pre-existing stock option or purchase agreements; (iii) any split,
combination or reclassification of any of Company's or any of its Subsidiaries'
capital stock; (iv) any granting by Company or any of its Subsidiaries of any
21
increase in compensation or fringe benefits, or any payment by Company or any of
its Subsidiaries of any bonus, or any granting by Company or any of its
Subsidiaries of any increase in severance or termination pay or any entry by
Company or any of its Subsidiaries into any currently effective employment,
severance, termination or indemnification agreement or any agreement the
benefits of which are contingent or the terms of which are materially altered
upon the occurrence of a transaction involving Company of the nature
contemplated hereby; (v) entry by Company or any of its Subsidiaries into any
licensing or other agreement with regard to the acquisition or disposition of
any Intellectual Property (as defined in Section 2.18) other than licenses in
the ordinary course of business consistent with past; (vi) any change by Company
in its accounting methods, principles or practices, except as required by
concurrent changes in GAAP; (vii) any revaluation by Company of any of its
assets, including, without limitation, writing down the value of capitalized
inventory or writing off notes or accounts receivable or any sale of assets of
Company other than in the ordinary course of business; (viii) any revaluation by
Company of any of its assets, including, without limitation, writing down the
value of capitalized inventory or writing off notes or accounts receivable; (ix)
any Tax (as defined in Section 2.15) election or accounting method change
inconsistent with past practice, agreement to pay, settlement or compromise of
any Tax liability or extension or waiver of any limitation period with respect
to Taxes, or request or negotiation for or receipt of any Tax rulings; or any
amendment to the Company Charter Documents.
2.10 ABSENCE OF LITIGATION.
Except as disclosed in Section 2.10 of the Company Schedule,
there are no claims, actions, suits or proceedings pending or, to the Knowledge
of Company, threatened (or, to the Knowledge of Company, any governmental or
regulatory investigation pending or threatened) against Company or any of its
Subsidiaries or any properties or rights of Company or any of its Subsidiaries,
before any Governmental Entity.
2.11 EMPLOYEE BENEFIT PLANS.
(a) All employee compensation, incentive, fringe or benefit
plans, programs, policies, commitments or other arrangements (whether or not set
forth in a written document and including, without limitation, all "employee
benefit plans" within the meaning of Section 3(3) of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA")) covering any active, former
employee, director or consultant of Company, any Subsidiary of Company or any
trade or business (whether or not incorporated) which is a member of a
controlled group or which is under common control with Company within the
meaning of Section 414 of the Code (an "Affiliate"), or with respect to which
Company has liability (the "Plans"), and all management, employment, severance,
consulting, relocation, repatriation, expatriation, visa, work permit,
International Employee Plans (as defined below) or other contract between
Company or any Affiliate and any Employee (the "Employment Contracts") are
listed in Section 2.11(a) of the Company Schedule. Company has provided to
Parent: (i) correct and complete copies of all documents embodying each Plan and
Employment Agreement, including (without limitation) all amendments thereto, all
related trust documents, and all material written agreements and contracts
relating to each such Plan or Employment Agreement; (ii) the three (3) most
recent annual reports (Form Series 5500 and all schedules and financial
statements attached thereto), if any, required under ERISA or the Code in
connection with each Plan and the three (3) most recent annual actuarial
valuations, if any, prepared for each Company Employment Agreement and/or any
22
International Employee Plan; (iii) the most recent summary plan description
together with the summary(ies) of modifications thereto, if any, required under
ERISA with respect to each Plan; (iv) all Internal Revenue Service ("IRS") or
United States Department of Labor ("DOL") determination, opinion, notification
and advisory letters; (v) all material correspondence to or from any
governmental agency relating to any Plan; (vi) all COBRA forms and related
notices; (vii) all discrimination tests for each Plan for the most recent three
(3) plan years; (viii) the most recent annual actuarial valuations, if any,
prepared for each Plan; (ix) if the Plan is funded, the most recent annual and
periodic accounting of Plan assets; (x) all material written agreements and
contracts relating to each Plan, including, but not limited to, administrative
service agreements, group annuity contracts and group insurance contracts; (xi)
all material communications to employees or former employees regarding in each
case, relating to any amendments, terminations, establishments, increases or
decreases in benefits, acceleration of payments or vesting schedules or other
events which would result in any liability under any Plan or proposed Plan;
(xii) all policies pertaining to fiduciary liability insurance covering the
fiduciaries for each Plan; and (xiii) any pamphlet, booklet or other employee
manual distributed to employees of Company which discuss Company's Plans.
(b) Except as set forth on Section 2.11(b) of the Company
Schedule, Company has performed in all material respects all obligations
required to be performed by it under, is not in default or violation of, and has
no Knowledge of any default or violation by any other party to each Plan and
Employment Agreement. Each Plan and Employment Agreement has been established,
maintained and administered in all material respects in compliance with its
terms and with the requirements prescribed by any and all Legal Requirements,
including, but not limited to ERISA and the Code, which are applicable to such
Plans and Employment Agreements. No suit, action or other litigation (excluding
claims for benefits incurred in the ordinary course of Plan or Employment
Agreement activities) has been brought, or to the Knowledge of Company is
threatened, against or with respect to any such Plan or Employment Agreement.
There are no audits, inquiries or proceedings pending or, to the Knowledge of
Company, threatened by the IRS or DOL with respect to any Plans. All
contributions, reserves or premium payments required to be made or accrued as of
the date hereof to the Plans have been timely made or accrued. Any Plan intended
to be qualified under Section 401(a) of the Code and each trust intended to
qualify under Section 501(a) of the Code: (i) has either obtained a favorable
determination, notification, advisory and/or opinion letter, as applicable, as
to its qualified status from the IRS or still has a remaining period of time
under applicable Treasury Regulations or IRS pronouncements in which to apply
for such letter and to make any amendments necessary to obtain a favorable
determination; and (ii) incorporates or has been amended to incorporate all
provisions required to comply with the Tax Reform Act of 1986 and subsequent
legislation to the extent such amendment or incorporation is required as of the
Closing Date. Company does not have any plan or commitment to establish any new
Plan or Employment Agreement, to modify any Plan or Employment Agreement (except
to the extent required by law or to conform any such Plan or Employment
Agreement to the requirements of any applicable law, in each case as previously
disclosed to Parent in writing, or as required by this Agreement), or to enter
into any new Plan or Employment Agreement. Each Plan and Employment Agreement
can be amended, terminated or otherwise discontinued after the Effective Time in
accordance with its terms, without liability to Parent, Company or any of its
Affiliates (other than ordinary administration expenses and expenses for
benefits accrued but not yet paid).
23
(c) Neither Company, any of its Subsidiaries, nor any of their
Affiliates has at any time ever maintained, established, sponsored, participated
in, or contributed to any plan subject to Title IV of ERISA or Section 412 of
the Code and at no time has Company or any of its Subsidiaries contributed to or
been requested to contribute to any "multiemployer plan," as such term is
defined in ERISA or to any plan described in Section 413(c) of the Code. Neither
Company, any of its Subsidiaries, nor any officer or director of Company or any
of its Subsidiaries is subject to any liability or penalty under Section 4975
through 4980B of the Code or Title I of ERISA. No "prohibited transaction,"
within the meaning of Section 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 Plan which could subject Company or its Subsidiaries to liabilities.
(d) Except as otherwise provided in this Agreement or as
disclosed on Section 2.11(d) of the Company Schedule, neither the execution and
delivery of this Agreement nor the consummation of the transactions contemplated
hereby will (i) result in any payment (including severance, unemployment
compensation, golden parachute, bonus or otherwise) becoming due to any
shareholder, director or employee of Company or any of its Subsidiaries under
any Plan or otherwise, (ii) materially increase any benefits otherwise payable
under any Plan, (iii) result in the acceleration of the time of payment or
forgiveness of indebtedness, distribution, increase in, obligation to fund or
vesting of any such benefits; (iv) result in any payment or benefit being
characterized as a "parachute payment" within the meaning of Section 280G(b)(2)
of the Code.
(e) Each International Employee Plan (as defined below) has
been established, maintained and administered in compliance with its terms and
conditions and with the requirements prescribed by any and all Legal
Requirements that are applicable to such International Employee Plan.
Furthermore, no International Employee Plan has unfunded liabilities that, as of
the Effective Time, will not be offset by insurance or fully accrued. Except as
required by law, no condition exists that would prevent the Company or Parent
from terminating or amending any International Employee Plan at any time for any
reason. For purposes of this Section "International Employee Plan" shall mean
each Plan that has been adopted or maintained by the Company or any of its
Subsidiaries, whether informally or formally, for the benefit of current or
former employees of the Company or any of its Subsidiaries outside the United
States.
2.12 EMPLOYMENT AND LABOR MATTERS.
(a) Except as set forth in Section 2.12(a) of the Company
Schedule, Company: (i) is in material compliance in all respects with all
applicable foreign, federal, state and local laws, rules and regulations
respecting employment, employment practices, terms and conditions of employment
and wages and hours, in each case, with respect to Employees; (ii) is not liable
for any arrears of wages, including but not limited to overtime pay, or
penalties with respect thereto; and (iii) is not liable for any payment to any
trust or other fund governed by or maintained by or on behalf of any
Governmental Entity, with respect to unemployment compensation benefits, social
security 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). Except as set forth in Section 2.12(a) of the Company Schedule, as of
the date hereof, there are no pending, threatened or reasonably anticipated
claims or actions against Company under any worker's compensation policy or
24
long-term disability policy. Except as set forth in Section 2.12(a) of the
Company Schedule, each current Employee who resides in the United States of
America is an "at-will" employee whose employment can be terminated by the
Company at any time, with or without cause.
(b) Neither Company, any of its Subsidiaries, nor any of their
Affiliates has, prior to the Effective Time, violated any of the health
continuation requirements of the Consolidated Omnibus Budget Reconciliation Act
of 1985, as amended ("COBRA"), the requirements of the Family Medical Leave Act
of 1993, as amended, the requirements of the Women's Health and Cancer Rights
Act, as amended, the requirements of the Newborns' and Mothers' Health
Protection Act of 1996, as amended, or any similar provisions of foreign or
state law applicable to employees of Company or any of its Subsidiaries. None of
the Plans or Employment Agreements promises or provides retiree medical or other
retiree welfare benefits to any Person except as required by applicable law, and
neither Company nor any of its Subsidiaries has represented, promised or
contracted (whether in oral or written form) to provide such retiree benefits to
any employee, former employee, director, consultant or other Person, except to
the extent required by statute.
(c) No work stoppage or labor strike against Company is
pending, threatened or reasonably anticipated. Company does not Know of any
activities or proceedings of any labor union to organize any Employees. Except
as set forth in Section 2.12(c) of the Company Schedule, there are no actions,
suits, claims, labor disputes or grievances pending, or, to the Knowledge of
Company, threatened or anticipated relating to any labor, safety or
discrimination matters involving any Employee, including, without limitation,
charges of unfair labor practices or discrimination complaints, which, if
adversely determined, would, individually or in the aggregate, result in any
material liability to Company. Neither Company nor any of its Subsidiaries has
engaged in any unfair labor practices within the meaning of the National Labor
Relations Act. Except as set forth in Section 2.12(c) of Company Schedule,
Company is not presently, nor has it been in the past, a party to, or bound by,
any collective bargaining agreement or union contract with respect to Employees
and no collective bargaining agreement is being negotiated by Company.
(d) Each of the WFOEs has fully made all social insurance and
welfare contributions in accordance with the requirements of the national,
provincial, municipal and local authorities. Each of the WFOEs is in full
compliance with all wage and hour requirements and all other aspects of the
labor and employment laws of the national, provincial, municipal and local
authorities.
2.13 PRODUCT WARRANTIES.
Except as set forth in Section 2.13 of the Company Schedule, there are
no warranties express or implied, written or oral, with respect to any of
Company's products or services sold by Company or any of its Subsidiaries and
there are no pending or threatened claims with respect to any such warranty, and
Company has no liability with respect to any such warranty, whether known or
unknown, absolute, accrued, contingent or otherwise and whether due or to become
due.
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2.14 TITLE TO PROPERTY; ABSENCE OF LIENS.
(a) Neither Company nor any of its Subsidiaries owns any real
property. Company and each of its Subsidiaries have good and valid title to, or
in the case of leased properties and assets, valid leasehold interests in, all
of their properties and assets, free and clear of all liens, pledges,
hypothecations, charges, mortgages, security interests, encumbrances, claims,
infringements, interferences, options, right of first refusals, preemptive
rights, community property interests or restrictions of any nature, any
restriction on the transfer of any security or other asset, any restriction on
the possession, exercise or transfer of any other attribute of ownership of any
asset) ("Liens"), other than Liens for Taxes not yet due and payable, and such
Liens or other imperfections of title, if any, as do not materially detract from
the value of or materially interfere with the present use of the property
affected thereby; and all leases pursuant to which Company or any of its
Subsidiaries lease from other Persons material real or personal property are in
good standing, 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 of Company or any of its Subsidiaries or, to Company's Knowledge, any
other party (or any event which with notice or lapse of time, or both, would
constitute a default and in respect of which Company or Subsidiary has not taken
adequate steps to prevent such default from occurring). Section 2.14(a) of the
Company Schedule sets forth a list of all real property currently leased by
Company. All the plants and structures equipment of Company and its
Subsidiaries, except such as may be under construction, are in good operating
condition and repair, in all material respects.
(b) Section 2.14(b) of the Company Schedule lists all items of
equipment (the "Equipment") owned or leased by Company with a book value in
excess of $5,000, and all such Equipment is, in all material respects adequate
for the conduct of the business of Company as currently conducted.
2.15 TAXES.
(a) Definition of Taxes. For the purposes of this Agreement,
"Tax" or "Taxes" refers to any and all federal, state, local and foreign taxes,
assessments and other governmental charges, duties, impositions and liabilities
relating to taxes, including taxes based upon or measured by gross receipts,
income, profits, sales, use and occupation, and value added, ad valorem,
transfer, franchise, withholding, payroll, recapture, employment, excise and
property taxes, together with all interest, penalties and additions imposed with
respect to such amounts and any obligations under any agreements or arrangements
with any other Person with respect to such amounts and including any liability
for taxes of a predecessor entity.
(b) Tax Returns and Audits.
(i) Company and each of its Subsidiaries have timely
filed all federal (United States), state, local and foreign returns, estimates,
declarations, information statements and reports ("Returns") relating to Taxes
required to be filed though the Closing Date by Company and each of its
Subsidiaries with any Tax authority of any domestic (federal, state or local) or
foreign jurisdiction, and such Returns are correct and complete in all material
respects and have been completed in accordance with applicable Legal
Requirements. Company and each of its Subsidiaries have paid or caused to be
paid all Taxes shown to be due on such Returns, within the time required for
payment.
26
(ii) Company and each of its Subsidiaries (A) has
paid or accrued all Taxes it is required to pay or accrue and (B) has withheld
with respect to its employees, directors, shareholders, independent contractors,
suppliers, creditors or other third parties all Taxes required to be withheld,
except such Taxes which are not material to Company, and has paid such withheld
amounts to the proper governmental authorities.
(iii) Neither Company nor any of its Subsidiaries has
received a notice of delinquency in the payment of any Tax nor is there any Tax
deficiency outstanding, proposed or assessed against Company or any of its
Subsidiaries, nor has Company or any of its Subsidiaries executed any unexpired
waiver of any statute of limitations on, or otherwise extended the period for
the assessment or collection of, any Tax.
(iv) To Company's Knowledge, no audit or other
examination of any Return of Company
or any of its Subsidiaries by any Tax authority is presently in progress, nor
has Company or any of its Subsidiaries been notified of any request for such an
audit or other examination, nor is any Tax authority asserting, or to Company's
Knowledge, threatening to assert, against Company or any of its Subsidiaries,
any claim for Taxes.
(v) No adjustment relating to any Returns filed by
Company or any of its Subsidiaries has been proposed in writing, formally or
informally, by any Tax authority to Company or any of its Subsidiaries or any
representative thereof.
(vi) Neither Company nor any of its Subsidiaries has
any liability for any unpaid Taxes which has not been accrued for or reserved on
the Company Unaudited Balance Sheet in accordance with GAAP, whether asserted or
unasserted, contingent or otherwise, other than any liability for Taxes not yet
due and payable that may have accrued since December 31, 2004 in connection with
the operation of the business of Company and its Subsidiaries in the ordinary
course.
(vii) There is no contract, agreement, plan or
arrangement to which Company or any of its Subsidiaries is a party as of the
date of this Agreement, including but not limited to the provisions of this
Agreement, covering any employee or former employee of Company or any of its
Subsidiaries that, individually or collectively, would reasonably be expected to
give rise to the payment of any amount that would not be deductible pursuant to
Sections 280G, 404 or 162(m) of the Code. There is no contract, agreement, plan
or arrangement to which Company or any of its Subsidiaries is a party or by
which it is bound to compensate any individual for excise taxes paid pursuant to
Section 4999 of the Code.
(viii) Neither Company nor any of its Subsidiaries is
party to or has any obligation under any tax-sharing, tax indemnity or tax
allocation agreement or arrangement.
(ix) None of Company's or its Subsidiaries' assets
are tax-exempt use property within the meaning of Section 168(h) of the Code.
27
(x) There are no Liens on the assets of Company or
any of its Subsidiaries relating to or attributable to Taxes, except for Liens
for Taxes not yet due and payable.
(xi) The losses accumulated by Company and its
Subsidiaries as of the Closing Date are not subject to any limitations under
Section 382 of the Code as of the Closing Date, other than any limitations that
may be imposed as a result of the Merger.
(xii) Neither Company nor any of its Subsidiaries has
ever been a member of an affiliated group of corporations filing a consolidated
federal income Tax Return nor does Company or any of its Subsidiaries have any
liability for Taxes of any Person under Treasury Regulations 1.11502-6 (or any
similar provision of foreign, state or local law) by contract or otherwise.
(xiii) Each of the WFOEs has been granted such
preferential tax policies and for such duration as set forth in Section
2.15(b)(xiii) of the Company Schedule. No events or omissions have occurred
whereby the preferential tax policies granted to either of the WFOEs have been
or are likely to be materially and adversely affected. Each of the WFOEs has
fully paid all taxes accruing and due through the end of calendar year 2004.
2.16 ENVIRONMENTAL MATTERS.
(a) Hazardous Material. Except as would not, individually or
in the aggregate, reasonably be expected to have a Material Adverse Effect on
Company or any of its Subsidiaries, no underground storage tanks and no amount
of any substance that has been or is prohibited by or regulated by any
applicable Legal Requirement or that has been or is designated by any
Governmental Entity or by applicable Legal Requirement to be radioactive, toxic,
hazardous or otherwise a danger to health, reproduction or the environment (a
"Hazardous Material") are present, as a result of the actions of Company or any
of its Subsidiaries or any affiliate of Company, or, to Company's Knowledge, as
a result of any actions of any third Person or otherwise, in, on or under any
property, including the land and the improvements, ground water and surface
water thereof, that Company or any of its Subsidiaries has at any time owned,
operated, occupied or leased. No reasonable likelihood exists that any Hazardous
Materials will come to be present in, on or under any of the properties owned,
operated, occupied or leased at any time by Company or its Subsidiaries in each
case so as to give rise to any liability or clean-up obligation to Company or
any of its Subsidiaries under any Legal Requirement except for such liability or
clean-up obligation as would not be reasonably expected, individually or in the
aggregate, to have a Material Adverse Effect on Company.
(b) Hazardous Materials Activities. Except as would not,
individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect on Company or any of its Subsidiaries, (i) neither Company nor
any of its Subsidiaries has released, disposed of, discharged or emitted any
Hazardous Material into the soil or groundwater or surface water at any
properties owned, operated, occupied or leased at any time by Company or any of
its Subsidiaries or transported, stored, used, manufactured, disposed of,
released or exposed its employees or others to Hazardous Materials in violation
of any Legal Requirement in effect on or before the Closing Date, and (ii)
neither Company nor any of its Subsidiaries has disposed of, transported, sold,
28
used, released, exposed its employees or others to or manufactured any product
containing a Hazardous Material (collectively "Hazardous Materials Activities")
in violation of any Legal Requirement promulgated by any Governmental Entity in
effect prior to or as of the date hereof to prohibit, regulate or control
Hazardous Materials or any Hazardous Material Activity.
(c) Permits. Company and its Subsidiaries currently hold all
environmental approvals, permits, licenses, clearances and consents (the
"Company Environmental Permits") necessary for the conduct of Company's and its
Subsidiaries' Hazardous Material Activities and other businesses of Company and
its Subsidiaries as such activities and businesses are currently being
conducted. Company and its Subsidiaries have been and are in compliance in all
material respects with the terms of the Company Environmental Permits and any
conditions placed thereon.
(d) Environmental Liabilities. No action, proceeding,
revocation proceeding, amendment procedure, writ or injunction is pending, and
to Company's Knowledge, no action, proceeding, revocation proceeding, amendment
procedure, writ or injunction has been threatened by any Governmental Entity
against Company or any of its Subsidiaries concerning any Company Environmental
Permit, Hazardous Material or any Hazardous Materials Activity of Company or any
of its Subsidiaries. Company does not Know of any fact or circumstance which
could involve Company or any of its Subsidiaries in any environmental litigation
or impose upon Company any environmental liability as would be reasonably
expected, individually or in the aggregate, to have a Material Adverse Effect on
Company.
2.17 BROKERS.
Company has not incurred, nor will it incur, directly or indirectly,
any liability for brokerage or finders fees or agent's commissions or any
similar charges in connection with this Agreement or any transaction
contemplated hereby.
2.18 INTELLECTUAL PROPERTY.
(a) As used herein, the term "Intellectual Property" means all
intellectual property rights arising from or associated with the following,
whether protected, created or arising under the laws of the United States or any
other jurisdiction: (i) trade names, trademarks and service marks (registered
and unregistered), domain names and other Internet addresses or identifiers,
trade dress and similar rights and applications (including intent to use
applications) to register any of the foregoing and registrations therefor
(collectively, "Marks"); (ii) patents and patent applications, including
continuation, divisional, continuation-in-part, reexamination and reissue patent
applications and any patents issuing therefrom, and rights in respect of utility
models or industrial designs (collectively, "Patents"); (iii) copyrights and
registrations and applications therefor (collectively, "Copyrights"); (iv)
non-public know-how, inventions, discoveries, improvements, concepts, ideas,
methods, processes, designs, plans, schematics, drawings, formulae, technical
data, specifications, research and development information, technology and
product roadmaps, data bases and other proprietary or confidential information,
including customer lists, but excluding any Copyrights or Patents that may cover
or protect any of the foregoing (collectively, "Trade Secrets"); and (v) moral
rights, publicity rights and any other proprietary, intellectual or industrial
29
property rights of any kind or nature that do not comprise or are not protected
by Marks, Patents, Copyrights or Trade Secrets. As used herein, the term
"Company Intellectual Property" means all Intellectual Property owned (in whole
or in part) or licensed by Company or any Subsidiary and used in or related to
the business as currently conducted and as reasonably anticipated to be
conducted in the future by Company or any Subsidiary.
(b) Section 2.18(b) of the Company Schedule sets forth an
accurate and complete list, as of the date hereof, of all Marks, Patents and
Copyrights owned (in whole or in part) or licensed by Company or any Subsidiary
and used in or related to the business as currently conducted and as reasonably
anticipated to be conducted in the future by Company or any Subsidiary.
(c) Each of Company and its Subsidiaries has taken
commercially reasonable steps, consistent with applicable industry standards, to
protect its rights in the Company Intellectual Property and maintain the
confidentiality of all of the Company Trade Secrets. Without limiting the
foregoing, Company has and enforces a policy requiring each of the employees
(other than non-technical employees who have not contributed in any way to the
development or creation of any Company Intellectual Property), consultants and
contractors of the Company or any Subsidiary to enter into proprietary
information, confidentiality and assignment agreements substantially in the
Company's standard forms and all current and former employees (other than
non-technical employees who have not contributed in any way to the development
or creation of any Company Intellectual Property), consultants and contractors
of Company or any Subsidiary have executed such an agreement. Except as set
forth in Section 2.18(c) of the Company Schedule, neither Company nor any
Subsidiary has disclosed, nor is Company or any Subsidiary under any contractual
or other obligation to disclose, to another person any of its Trade Secrets,
except pursuant to an enforceable confidentiality agreement or undertaking, and,
to Company's Knowledge, no person has breached any such agreement or
undertaking.
(d) Except as set forth in Section 2.18(d) of the Company
Schedule, (i) Company owns exclusively all right, title and interest in and to
all of the Company Intellectual Property, free and clear of any and all Liens or
other adverse ownership claims (other than licenses granted by Company or a
Subsidiary to another person in the ordinary course of business listed in
Section 2.18(d) of the Company Schedule), (ii) all Company Intellectual Property
is fully transferable, assignable or licensable, as applicable, without
condition or restriction and without payment of any kind to any third party, and
(iii) neither Company nor any Subsidiary has received any notice or claim
challenging Company's or any Subsidiary's ownership of the Company Intellectual
Property or suggesting that any other person has any claim of legal or
beneficial ownership with respect thereto, nor, to Company's Knowledge, is there
a reasonable basis for any claim that Company or any Subsidiary does not so own
or license any of such Company Intellectual Property.
(e) The Company Intellectual Property is valid, enforceable
and subsisting. Neither Company nor any Subsidiary has received any notice or
claim challenging or questioning the validity or enforceability of any of the
Company Intellectual Property or indicating an intention on the part of any
person to bring a claim that any of the Company Intellectual Property is invalid
30
or unenforceable or has been misused, and, with respect to the Patents contained
within the Company Intellectual Property, Company has disclosed material prior
art, of which Company had Knowledge, in the prosecution of its Patents in
accordance with its obligations under applicable law.
(f) Except as set forth in Section 2.18(f) of the Company
Schedule: (i) neither Company nor any Subsidiary has taken any action or failed
to take any action (including the manner in which it has conducted its business,
or used or enforced, or failed to use or enforce, any of the Company
Intellectual Property) that would result in the abandonment, cancellation,
forfeiture, relinquishment, invalidation or unenforceability of any of the
Company Intellectual Property; and (ii) all Company Intellectual Property has
been registered or obtained in accordance with all applicable legal requirements
(including, in the case of the Company's Marks, the timely post-registration
filing of affidavits of use and incontestability and renewal applications).
Company has timely paid all filing, examination, issuance, post registration and
maintenance fees, annuities and the like associated with or required with
respect to any of the Company Intellectual Property.
(g) Section 2.18(g) of the Company Schedule sets forth a
complete and accurate list of all agreements currently in effect granting to
Company or any Subsidiary any right under or with respect to any Intellectual
Property, other than standard desktop software applications used generally in
Company's or any Subsidiary's operations. Section 2.18(g) of the Company
Schedule sets forth a complete and accurate list of all license agreements
currently in effect under which Company or any Subsidiary licenses or grants any
rights under any Intellectual Property to another person, excluding
non-exclusive internal use licenses granted by Company or any Subsidiary to end
user customers that have purchased or licensed products.
(h) Except as set forth in Section 2.18(h) of the Company
Schedule, the Company Intellectual Property constitutes all the Intellectual
Property rights necessary for the conduct of Company's and its Subsidiaries'
businesses as they are currently conducted.
(i) Except as set forth in Section 2.18(i) of the Company
Schedule, none of the products, processes, services or other technology or
materials, or any Intellectual Property developed, used, leased, licensed, sold,
imported or otherwise distributed or disposed of, or otherwise commercially
exploited by or for Company or any Subsidiary, nor any other activities or
operations of the Company or any Subsidiary, infringes upon, misappropriates,
violates, dilutes or constitutes the unauthorized use of any Intellectual
Property of any third party, and, except as set forth in Section 2.18(i) of the
Company Schedule, neither Company nor any Subsidiary has received any notice or
claim asserting or suggesting that any such infringement, misappropriation,
violation, dilution or unauthorized use is or may be occurring or has or may
have occurred, nor, to Company's Knowledge, is there any reasonable basis
therefor. No Company Intellectual Property is subject to any outstanding order,
judgment, decree or stipulation restricting the use thereof by Company or any
Subsidiary or, in the case of any Company Intellectual Property licensed to
others, restricting the sale, transfer, assignment or licensing thereof by
Company or Subsidiary to any person. No product, technology, service or
publication of Company or any Subsidiary violates any law or regulation.
31
(j) To Company's Knowledge, no employee or independent
contractor of Company or any Subsidiary is obligated under any agreement or
subject to any judgment, decree or order of any court or administrative agency,
or any other restriction that would or may materially interfere with such
employee or contractor carrying out his or her duties for Company or that would
materially conflict with Company's business as presently conducted and proposed
to be conducted.
(k) Section 2.18(k) of the Company Schedule contains a list of
all improvements made by Company and any Subsidiary with respect to any licensed
Intellectual Property. No person who has licensed any Intellectual Property to
Company or any Subsidiary has ownership, beneficial, license or other rights to
improvements made by Company with respect to such Intellectual Property. Company
is entitled to freely use and exploit (and Parent and the Surviving Corporation
will be entitled to freely use and exploit) any and all such improvements.
(l) Except as set forth in Section 2.18(l) of the Company
Schedule, there are no contracts, licenses or agreements between Company or any
Subsidiary, on the one hand, and any third party, on the other hand, wherein or
whereby Company or any Subsidiary has assumed or agreed to assume any obligation
or duty or to warrant, indemnify, reimburse, hold harmless, guaranty or
otherwise assume or incur any obligation or liability of such third party with
respect to any Company Intellectual Property or other Intellectual Property.
(m) To Company's Knowledge, no third party is infringing,
misappropriating, diluting or violating any Company Intellectual Property and no
such claims have been threatened, asserted or brought against any third party by
Company or any Subsidiary.
(n) Company has obtained all export licenses, permits or
approvals necessary or appropriate for the marketing, license and distribution
of the "Company Products" (as such term is defined in Section 2.18(n) of the
Company Schedule) outside the United States.
(o) No government funding, facilities of any university,
college, other educational institution or research center or funding from third
parties was used in the development of any Company Intellectual Property. No
current or former employee, consultant or independent contractor of Company who
was involved in, or who contributed to, the creation or development of any
Company Intellectual Property, performed services for the government or any
university, college, other educational institution or research center or third
party during a period of time during which such employee, consultant or
independent contractor also was performing services for Company.
(p) None of the Company Products is, in whole or in part,
subject to the provision of any agreement obligating Company or any Subsidiary
to make source code publicly available to third parties.
(q) Except as set forth in Section 2.18(q) of the Company
Schedule, each Company Product conforms in all material respects to the
specifications, documentation, press releases or other information provided to
customers or potential customers of Company on which such customers or potential
customers relied or would reasonably be expected to rely upon when licensing or
32
otherwise acquiring such Company Products. The Company Products are in
compliance with all applicable laws. Company has taken all actions necessary to
document all Company Products and their operation such that the materials
comprising the Company Products, including any source code and documentation,
have been written in a clear manner in accordance with industry standards so
that they may be understood, modified and maintained in an efficient manner by
reasonably competent programmers.
(r) Except as set forth in Section 2.18(r) of the Company
Schedule, no open source, public source or freeware software or any modification
or derivative thereof, including any version of any software licensed pursuant
to any GNU's not Unix (GNU) general public license or limited general public
license, is used in, incorporated into, integrated or bundled with the
Intellectual Property. To the extent third party software is marketed or
distributed to customers of Company together with the Intellectual Property or
incorporated into any Company Products, the third party rights have been
identified in Section 2.18(r) of the Company Schedule, all necessary licenses
have been obtained and complied with, no royalties or payments are due now or in
the future and there are no obligations to provide access to any third party to,
or permit any third party to copy, modify or distribute, any Intellectual
Property. Section 2.18(r) of the Company Schedule also sets forth all software
(other than commercial off-the-shelf software) used (but not owned) by Company
in the conduct of its business.
(s) Neither the Company nor any Subsidiary has violated, is in
violation of, nor will this Agreement, the observance and performance of the
terms hereof or thereof or the consummation of the transactions contemplated
hereby or thereby cause any violation of, any terms or provisions of any
agreement under which Company or any Subsidiary has or had an obligation to
develop, supply or distribute software to or for any third party, excluding
end-user licenses for object code executed in the ordinary course of business,
nor is or would Company or any Subsidiary under any circumstances, be under any
obligation to deliver source code or any confidential or proprietary information
to any third party.
(t) To the extent that any Company Intellectual Property has
been developed or created independently or jointly by a third party for Company
or any of its Subsidiaries or is incorporated into any of the Company Products,
Company has a written agreement with such third party with respect thereto and
Company thereby has obtained ownership of, and is the exclusive owner of, all
such Company Intellectual Property by operation of law or by valid assignment.
(u) All Company Intellectual Property will be fully
transferable, alienable or licensable by Surviving Corporation and/or Parent
without restriction and without payment of any kind to any third party.
(v) Except for inbound "shrink-wrap" and generally available
commercial binary code end-user or enterprise licenses and except for technology
in the public domain and as set forth in Section 2.18(o) of the Company
Schedule, all Intellectual Property used in and necessary to the conduct of
Company's business as presently conducted (including, without limitation, the
design, development, use, import, branding, advertising, promotion, marketing,
manufacture, distribution and sale of Company Products and any products,
technology or services currently under development by Company or any of its
Subsidiaries) was created solely by: (i) employees of Company or one or more of
33
its Subsidiaries acting within the scope of their employment; (ii) third parties
who have validly and irrevocably assigned all of their rights to Company or one
or more of its Subsidiaries; or (iii) third parties who have granted to Company
or one or more of its Subsidiaries a perpetual license in writing (sufficient
for the conduct of Company's business as presently conducted and currently
contemplated to be conducted by Company) to all such third party's rights in
such Intellectual Property, and no third party owns or has any rights to any of
Company Intellectual Property (other than non-exclusive license rights therein
in connection with licensing Company Products in the ordinary course of Company
business consistent with past practice).
(w) Each of the WFOEs has conducted its business in full
compliance with all PRC laws relating to (i) intellectual property, (ii) import
and export of technologies and software, and (iii) "encryption products" (as
defined and interpreted by the PRC State Encryption Management Commission).
2.19 MATERIAL CONTRACTS.
(a) Section 2.19(a) of the Company Schedule sets forth a
complete and accurate list, as of the date hereof, of all written or oral
contracts (including, with respect to each oral contract, a description of its
material terms), agreements, notes, bonds, indentures, mortgages, guarantees,
options, leases, licenses, sales and purchase orders, warranties, commitments
and other instruments of any kind (each, a "Contract"), to which Company or any
Subsidiary is a party or by which Company or any Subsidiary, or any of their
respective assets and properties, is otherwise bound, as follows (each of the
following, a "Material Contract" and, collectively, the "Material Contracts"):
(i) each Contract of Company or any Subsidiary that
has a value of more than $20,000;
(ii) each Contract that contains non-competition
restrictions, including any restrictions relating to the conduct of Company's or
a Subsidiary's business or the sale of Company's or any Subsidiary's products or
any geographic restrictions, in any case that would prohibit or restrict the
Surviving Corporation or any of its affiliates from conducting the business of
Company or any Subsidiary as presently conducted;
(iii) any Contract that will be subject to default,
termination, repricing or renegotiation, in each case where the amounts involved
under such Contract or repricing exceed $20,000, because of the transactions
contemplated hereby;
(iv) each Contract of Company or any Subsidiary
relating to, and evidences of,
indebtedness for borrowed money, any mortgage, security agreement or the
deferred purchase price of property (whether incurred, assumed, guaranteed or
secured by any asset;
(v) any sales representative agreement, original
equipment manufacturer agreement, value added agreement, remarketer agreement,
reseller agreement or independent software vendor agreement, or other agreement
for distribution of Company's or its Subsidiaries' products, technology or
services which provides exclusive rights, provides for payments in excess of
$20,000 in the aggregate, or is not terminable by Company upon 30 days' notice
or less;
34
(vi) any dealer, distributor, joint marketing or
development Contract currently in force under which Company or any of its
subsidiaries have obligations to individually or jointly market any product,
technology or service and which may not be canceled without penalty or
obligation upon notice of thirty (30) days or less, or any Contract pursuant to
which Company or any of its Subsidiaries have obligations to jointly develop any
intellectual property that will not be owned, in whole or in part, by Company or
any of its Subsidiaries and which may not be canceled without penalty or
obligation upon notice of thirty (30) days or less;
(vii) each partnership, joint venture, joint
marketing or other similar Contract or arrangement to which Company or any
Subsidiary is a party or by which it is otherwise bound;
(viii) each Contract granting to Company or any
Subsidiary any material right under or with respect to any Company Intellectual
Property;
(ix) any settlement agreement entered into within
five (5) years prior to the date of this Agreement which requires payments in
cash or property in amounts of $20,000 or more, specific performance and/or
injunctive relief;
(x) each Contract under which Company or any
Subsidiary grants any material right under or with respect to any Company
Intellectual Property to another person; and
(xi) each Contract that requires Company or any
Subsidiary to grant "most favored customer" pricing to any other person.
(b) Each Material Contract is (i) a legal, valid and binding
obligation of Company or a Subsidiary and, to Company's Knowledge, each other
person who is a party thereto and (ii) enforceable against Company or such
Subsidiary and, to Company's Knowledge, each such other person in accordance
with its terms, subject to any applicable bankruptcy, insolvency (including all
applicable laws relating to fraudulent transfers), reorganization, moratorium or
similar laws now or hereafter in effect relating to creditors' rights generally
or to general principles of equity (regardless of whether enforcement is
considered in a proceeding in equity or at law). Neither Company or any
Subsidiary nor, to Company's Knowledge, any other party thereto, is in material
default under any Material Contract. Neither Company nor any Subsidiary knows
of, or has received notice of, the existence of any event or condition which
constitutes, or, after notice or lapse of time or both, will constitute, a
material default or event of default or other material breach on the part of
Company or any of its Subsidiaries under any such Material Contract.
(c) Except as set forth in Section 2.19(c) of the Company
Schedule, and other than the Material Contracts, neither Company nor any
Subsidiary has entered into, is a party to or is otherwise bound by, as of the
date hereof:
(i) any fidelity or surety bond or completion bond;
35
(ii) any Contract pursuant to which Company or any
Subsidiary has agreed to provide liquidated damages in excess of $50,000 for
failure to meet performance or quality milestones;
(iii) any Contract pursuant to which Company or any
Subsidiary has agreed to provide indemnification or guaranty to a third party;
(iv) any Contract relating to the disposition or
acquisition of assets, property or any interest in any business enterprise
outside the ordinary course of Company's or any Subsidiary's business; or
2.20 INSURANCE.
Company maintains the insurance policies and fidelity bonds covering
the assets, business, equipment, properties, operations, employees, officers and
directors of Company and its Subsidiaries listed in Section 2.20 of the Company
Schedule (the "Insurance Policies") true and correct copies of which have been
made available to Parent. There is no material claim by Company or any of its
Subsidiaries pending under any of the material Insurance Policies as to which
coverage has been questioned, denied or disputed by the underwriters of such
policies or bonds.
2.21 BOARD APPROVAL.
The Board of Directors of Company has, as of the date of this
Agreement, duly (i) approved this Agreement, the Merger and the transactions
contemplated hereby, (ii) determined that this Agreement, the Merger and the
other transactions contemplated by this Agreement are fair to, and in the best
interests of, Company and the Company Shareholders and (iii) determined to
recommend that the Company Shareholders approve this Agreement, the Merger, and
the other transactions contemplated by this Agreement.
2.22 INAPPLICABILITY OF CERTAIN STATUTES.
Company is not subject to any business combination, control share
acquisition, fair price or similar statute that applies to the Merger or any
other transaction contemplated by this Agreement.
2.23 GRANTS, INCENTIVES AND SUBSIDIES.
Section 2.23 of the Company Schedule provides a complete list, as of
the date hereof, of all pending and outstanding grants, incentives, exemptions
and subsidies (collectively, "Grants") from any foreign governmental or
administrative agency, granted to Company. Company has made available to Parent,
prior to the date hereof, correct copies of all documents evidencing Grants
submitted by Company and of all letters of approval, certificates of completion,
and supplements and amendments thereto, granted to Company, and all material
correspondence related thereto. Section 2.23 of the Company Schedule lists, as
of the date hereof: (a) all material undertakings of Company given in connection
with the Grants; (b) the aggregate amount of each Grant; (c) the aggregate
outstanding obligations of Company under each Grant with respect to royalties;
and (d) the composition of such obligations or amount by the product or product
36
family to which it relates. Company is in compliance, in all material respects,
with the terms and conditions of all Grants and, except as disclosed in Section
2.23 of the Company Schedule, has duly fulfilled, in all material respects, all
the undertakings required thereby. Company is not aware of any event or other
set of circumstances which would reasonably be expected to lead to the
revocation or material modification of any of the Grants.
2.24 ENCRYPTION AND OTHER RESTRICTED TECHNOLOGY.
Company's business as currently conducted does not involve the use or
development of, or engagement in, encryption technology, or other technology
whose development, commercialization or export is restricted under applicable
laws or regulations.
2.25 OFF BALANCE SHEET LIABILITIES.
Except for transactions, arrangements and other relationships otherwise
specifically identified in the Financial Statements, Section 2.25 of the Company
Schedule sets forth a true, complete and correct list, as of the date hereof, of
all transactions, arrangements and other relationships between and/or among
Company, any of its affiliates and any special purpose or limited purpose entity
beneficially owned by or formed at the direction of Company or any of its
affiliates.
2.26 FOREIGN CORRUPT PRACTICES ACT.
Neither Company, nor to the Knowledge of Company, any Subsidiary,
agent, employee or other person associated with or acting on behalf of Company
has, directly or indirectly, used any corporate funds for unlawful
contributions, gifts, entertainment or other unlawful expenses relating to
political activity, made any unlawful payment to foreign or domestic government
officials or employees or to foreign or domestic political parties or campaigns
from corporate funds, violated any provision of the Foreign Corrupt Practices
Act of 1977, as amended, or made any bribe, rebate, payoff, influence payment,
kickback or other similar unlawful payment.
2.27 ACCOUNTS RECEIVABLE.
All trade accounts receivable of Company are reflected properly on its
books and records, are valid receivables and, to the Knowledge of Company, are
collectible in accordance with their terms at their recorded amounts, subject
only to the reserve for bad debts set forth in the Estimated Closing Balance
Sheet, or on the Final Closing Balance Sheet, if prepared and delivered in
accordance with Section 1.6(b)(iii).
2.28 INVENTORY.
As of the Closing Date, Company's inventory and inventory to be
purchased under open purchase commitments, as of the Closing Date, will be
saleable in the ordinary course of business, subject to reserves for obsolete
inventory set forth on the Estimated Closing Balance Sheet, or on the Final
Closing Balance Sheet, if prepared and delivered in accordance with Section
1.6(b)(iii).
37
2.29 SUFFICIENCY OF ASSETS.
Company owns, or has a valid and sufficient leasehold interest in or
license for, all assets (including intellectual property) materially necessary
for the conduct of its business as presently conducted.
2.30 REPRESENTATIONS COMPLETE.
The representations and warranties made by Company herein and in the
Company Schedule and exhibits hereto do not contain any untrue statement of a
material fact, or omit to state any material fact necessary in order to make the
statements contained herein or therein, in the light of the circumstances under
which they were made, not misleading.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB
Parent and Merger Sub jointly and severally represent and warrant to
Company, subject to such exceptions as are specifically disclosed in writing in
the disclosure schedule and referencing a specific representation supplied by
Parent to Company dated as of the date hereof and certified by a duly authorized
officer of Parent (the "Parent Schedule"), as follows:
3.1 ORGANIZATION AND QUALIFICATION; SUBSIDIARIES.
Each of Parent and its Subsidiaries is a corporation or legal entity
duly organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation and has the requisite corporate, partnership
or similar power and authority to own, lease and operate its assets and
properties and to carry on its business as it is now being conducted, except
where the failure to do so would not, individually or in the aggregate, have a
Material Adverse Effect on Parent. Each of Parent and each of its Subsidiaries
is in possession of all Approvals necessary to own, lease and operate the
properties it purports to own, operate or lease and to carry on its business as
it is now being conducted, except where the failure to have such Approvals would
not, individually or in the aggregate, have a Material Adverse Effect on Parent.
Each of Parent and each of its Subsidiaries is qualified to do business as a
foreign corporation, and is in good standing under the laws of all jurisdictions
where the nature of their business requires such qualification and where the
failure to so qualify, individually or in the aggregate, would have a Material
Adverse Effect on Parent.
3.2 CERTIFICATE OF INCORPORATION AND BYLAWS.
Parent has previously furnished to Company a complete and correct copy
of the Certificate of Incorporation and Bylaws of Parent (the "Parent Charter
Documents"), each as amended to date. Such Parent Charter is in full force and
effect. Parent is not in violation of any of the provisions of the Parent
Charter Documents.
3.3 AUTHORITY.
Each of Parent and Merger Sub has all necessary corporate power and
authority to execute and deliver this Agreement, and to perform its obligations
hereunder and thereunder and to consummate the transactions contemplated hereby.
The execution and delivery of this Agreement by Parent and Merger Sub and the
38
consummation by Parent and Merger Sub of the transactions contemplated hereby
have been duly and validly authorized by all necessary corporate action on the
part of Parent and Merger Sub, and no other corporate proceedings on the part of
Parent or Merger Sub are necessary to authorize this Agreement, or to consummate
the transactions so contemplated (other than the approval of this Agreement, the
Merger and the other transactions contemplated by this Agreement by the
shareholder of Merger Sub). This Agreement has been duly and validly executed
and delivered by Parent and Merger Sub and, assuming the due authorization,
execution and delivery by Company, constitutes a legal and binding obligation of
Parent and Merger Sub, enforceable against Parent and Merger Sub in accordance
with its terms, except as enforceability may be limited by bankruptcy and other
similar laws and general principles of equity.
3.4 NO CONFLICT; REQUIRED FILINGS AND CONSENTS.
(a) The execution and delivery of this Agreement by Parent and
Merger Sub by Parent do not, and the performance of this Agreement by Parent and
Merger Sub shall not, (i) conflict with or violate the Certificate of
Incorporation, Bylaws or equivalent organizational documents of Parent or any of
its Subsidiaries, (ii) subject to compliance with the requirements set forth in
Section 3.4(b) below, conflict with or violate any law, rule, regulation, order,
judgment or decree applicable to Parent or any of its Subsidiaries or by which
it or their respective properties are 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 impair Parent's or any such
subsidiary's rights or alter the rights or obligations of any third Person
under, or give to others any rights of termination, amendment, acceleration or
cancellation of, or result in the creation of a Lien any of the properties or
assets of Parent or any of its Subsidiaries pursuant to, any material Contract
to which Parent or any of its Subsidiaries is a party or by which Parent or any
of its Subsidiaries or its or any of their respective properties are bound or
affected, except to the extent such conflict, violation, breach, default,
impairment or other effect would not in the case of clauses (ii) or (iii)
individually or in the aggregate, (A) reasonably be expected to have a Material
Adverse Effect on Parent or (B) prevent or materially delay consummation of the
Merger or otherwise prevent the parties from performing their obligations under
this Agreement.
(b) The execution and delivery of this Agreement by Parent and
Merger Sub do not, and the performance of this Agreement by Parent and Merger
Sub shall not, require any consent, approval, authorization or permit of, or
filing with or notification to, any Governmental Entity, except for (a) the
filing of the agreement of merger with the Secretary of State of the State of
California and (b) any actions or filings the absence of which would not be
reasonably expected to be, individually or in the aggregate, material to Parent
or to materially impair the ability of Parent to consummate the transactions
contemplated by the Agreement.
3.5 SEC REPORTS; FINANCIAL STATEMENTS.
(a) Parent has timely filed all required forms, reports and
documents with the Securities and Exchange Commission ("SEC") from July 1, 2003
to the date of this Agreement ("Parent SEC Reports"), and each of such Parent
SEC Reports complied at the time of filing in all material respects with all
applicable requirements of the Securities Act of 1933, as amended (the
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"Securities Act") or the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), as applicable, in each case as in effect on the dates such
forms, reports and documents were filed. None of the Parent SEC Reports,
including any financial statements or schedules included or incorporated by
reference therein, contained when filed any untrue statement of a material fact
or omitted to state a material fact required to be stated or incorporated by
reference therein or necessary in order to make the statements therein in light
of the circumstances under which they were made not misleading, except to the
extent superseded by a Parent SEC Report filed subsequently and prior to the
date hereof. The Parent's financial statements included in the Parent SEC
Reports as of their respective dates comply as to form in all material respects
with applicable accounting requirements and have been prepared in accordance
with GAAP (except in the case of unaudited financial statements) applied on a
consistent basis during the periods involved, except where noted therein, and
fairly present in all material respects the consolidated financial condition of
Parent and its Subsidiaries at their respective dates and the consolidated
results of their operations and cash flows for the periods covered thereby, in
each case in conformity with GAAP (subject, in each case, to normal year-end
adjustments).
(b) Since July 30, 2005, there has not occurred any Material
Adverse Effect on Parent or its Subsidiaries that would require public
disclosure and which has not been publicly disclosed.
3.6 REPRESENTATIONS COMPLETE.
The representations and warranties made by Parent herein and in the
Parent Schedule and exhibits hereto do not contain any untrue statement of a
material fact, or omit to state any material fact necessary in order to make the
statements contained herein or therein, in the light of the circumstances under
which they were made, not misleading.
ARTICLE IV
COVENANTS OF COMPANY
4.1 CONDUCT OF BUSINESS.
Except (i) as contemplated or permitted by this Agreement, (ii) as
disclosed in Section 4.1 of the Company Schedule or (iii) to the extent that
Parent shall otherwise consent in writing, during the period from the date
hereof to the earlier of the Effective Time and the termination of this
Agreement in accordance with its terms, Company will and will cause each of its
Subsidiaries to conduct its operations in the ordinary course of business
consistent with past practice and, to the extent consistent therewith, and with
no less diligence and effort than would be applied in the absence of this
Agreement, seek to preserve intact its current business organizations, keep
available the service of its current officers and employees and preserve its
relationships with customers and suppliers with the intention that its goodwill
and ongoing businesses shall be unimpaired at the Effective Time. Without
limiting the generality of the foregoing, except (i) as contemplated or
permitted by this Agreement, (ii) as disclosed in Section 4.1 of the Company
Schedule or (iii) to the extent that Parent shall otherwise consent in writing,
during the period from the date hereof to the earlier of the Effective Time and
the termination of this Agreement in accordance with its terms, neither Company
nor any of its Subsidiaries will:
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(a) Waive any stock repurchase rights, accelerate, amend or
change the period of exercisability of options or restricted stock, or re-price
options granted under any employee, consultant, director or other stock plans or
authorize cash payments in exchange for any options granted under any of such
plans;
(b) Except as set forth in Section 1.6(b)(ii)(b) of the
Company Schedule, grant any severance or termination pay to any officer or
employee, except pursuant to written agreements outstanding, or policies
existing, on the date hereof and identified in Section 4.1(b) of the Company
Schedule, or adopt any new severance plan, or amend or modify or alter in any
manner any severance plan, agreement or arrangement existing on the date hereof;
(c) Transfer or license to any Person or entity or otherwise
extend, amend or modify any rights to the Company Intellectual Property, or
enter into or commit to enter into grants to transfer or license to any Person
future patent rights, other than non-exclusive licenses granted to end-users in
the ordinary course of business consistent with past practices, provided that in
no event shall Company license on an exclusive basis or sell any Company
Intellectual Property or commit to future discounts or provisions, nor grant any
site license or limit its right to engage in any line of business or compete
with any Person;
(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 share capital or split, combine or reclassify any shares or
capital stock or issue or authorize the issuance of any other securities in
respect of, in lieu of or in substitution for any shares or capital stock;
(e) Purchase, redeem or otherwise acquire, directly or
indirectly, any shares of capital stock of Company or its Subsidiaries or any
options, warrants, calls or rights to acquire any such shares, except
repurchases of unvested shares at cost in connection with the termination of the
employment relationship with any employee pursuant to stock option or purchase
agreements in effect on the date hereof;
(f) Issue, deliver, sell, authorize, grant, pledge or
otherwise encumber or propose any of the foregoing with respect to, 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 Contracts of any character obligating it to issue any such shares or
convertible securities;
(g) Cause, permit or propose any amendments to the Company
Charter Documents (or similar governing instruments of any of its Subsidiaries);
(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 all or substantially all of the assets of any of the foregoing
or enter into any joint ventures, strategic partnerships or alliances or form or
agree to form any Subsidiaries;
(i) Sell, lease, license, encumber or otherwise dispose of any
properties or assets or any interest therein except sales of inventory in the
ordinary course of business consistent with past practice, or grant or otherwise
create or consent to the creation of any Lien affecting any owned or leased real
property or any part thereof;
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(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
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;
(k) Except as set forth in Section 1.6(b)(ii)(b) of the
Company Schedule, adopt or amend any employment agreement or employee benefit
plan, policy or arrangement, any employee stock purchase or employee stock
option plan, or enter into any employment Contract or collective bargaining
agreement, pay any special bonus or special remuneration to any director or
employee, or increase the salaries or wage rates or fringe benefits (including
rights to severance or indemnification) as compared to such salaries, wages or
rights on the date of this Agreement, of its directors, officers, employees or
consultants, except as may be required by law or by any existing employee
benefit plan, policy, arrangement, program or Contract disclosed in Section 2.11
of the Company Schedule;
(l) (i) pay, discharge, settle or satisfy any claims,
liabilities or obligations (absolute, accrued, asserted or unasserted,
contingent or otherwise), or litigation (whether or not commenced prior to the
date of this Agreement) other than the payment, discharge, settlement or
satisfaction, in the ordinary course of business consistent with past practice,
or (ii) waive the benefits of, agree to modify in any manner, terminate, release
any Person from or knowingly fail to enforce any confidentiality or similar
agreement to which Company or any of its Subsidiaries is a party or of which
Company or any of its Subsidiaries is a beneficiary;
(m) Make any individual or series of related payments outside
of the ordinary course of business in excess of $10,000 in the aggregate;
(n) Modify, amend or terminate any Material Contract to which
Company or any Subsidiary thereof is a party or waive, delay the exercise of,
release or assign any rights or claims thereunder;
(o) Enter into, renew or materially modify any Contracts
relating to the distribution, sale, license or marketing by third parties of
Company's products or products licensed by Company;
(p) Except as required by GAAP, revalue any of its assets or
make any change in accounting methods, principles or practices;
(q) Incur or enter into any Contract or series of related
Contracts requiring Company or any of its Subsidiaries to pay in excess of
$10,000 over the term of such Contract or series of Contracts;
(r) Hire employees other than as provided in Section 4.1(r) of
the Company Schedule;
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(s) Make any tax election that, individually or in the
aggregate, is reasonably likely to adversely affect in any material respect the
tax liability or tax attributes of Company or any of its Subsidiaries or is
inconsistent with past practice, consent to any extension or waiver of any
limitation period with respect to Taxes, request, negotiate or agree to any tax
ruling, or settle or compromise any income tax liability; or
(t) Agree in writing or otherwise to take any of the actions
described in Section 4.1 (a) through (s) above.
ARTICLE V
ADDITIONAL AGREEMENTS
5.1 INFORMATION STATEMENT.
(a) As soon as practicable after the execution of this
Agreement, Company shall prepare an information statement for the Company
Shareholders to approve this Agreement and the Agreement of Merger (the
"Information Statement"). The Information Statement to be submitted to Company's
Shareholders in connection with the solicitation of their approval of the Merger
and this Agreement shall be subject to review and reasonable approval by Parent
and shall include information regarding the Company, the terms of the Merger and
this Agreement, and the recommendation of the Board of Directors of Company in
favor of the Merger and this Agreement. Anything to the contrary contained
herein notwithstanding, Company shall not include in the Information Statement
any information with respect to Parent or its affiliates or associates, the form
and content of which shall not have been approved by Parent prior to such
inclusion, provided that Parent and Merger Sub shall be deemed to have approved
of such form and content if it does not respond to the Company within five (5)
days of its submission to Parent. Parent and Merger Sub agree to cooperate and
provide appropriate, publicly available information upon request by Company or
its counsel and to respond to requests for Parent's consent to the inclusion of
such information with respect to Parent, Merger Sub or their affiliates or
associates within five (5) days after any such request. If, at any time after
the delivery of the Information Statement to the Company Shareholders but prior
to the Effective Time, Company becomes aware that the Information Statement
contains any untrue statement of a material fact or omits to state any material
fact necessary in order to make the statements made therein, in light of the
circumstances under which made, not misleading, Company shall as promptly as
practicable deliver to the Company Shareholders a supplement to the Information
Statement that causes the Information Statement, as so supplemented, not to
contain any untrue statement of a material fact or omit to state any material
fact necessary in order to make the statements made therein, in light of the
circumstances under which made, not misleading.
(b) Company shall promptly submit this Agreement (including
the Exhibits hereto) and the Merger to the Company Shareholders for approval and
adoption as provided by California Law and the articles of incorporation and
bylaws of Company and other applicable agreements. Such submission, and any
proxy or consent in connection therewith, shall (i) specify that adoption of
this Agreement shall constitute approval by the Shareholders of the escrow,
holdback and indemnification obligations of the Company Shareholders set forth
in the Escrow Agreement, Article I and Article VIII hereof and the withholding
of the Escrow Amount and the Holdback Amount, (ii) include an approval by the
43
Company Shareholders of the appointment of Xxx Xxxxx as Shareholder
Representative, under and as defined in this Agreement, (iii) include an
approval by the Company Shareholders of entering into the Escrow Agreement, and
(iv) include an approval by the Company Shareholders of amendment to the
Company's articles of incorporation which provides, among other things, for the
amendment of the notice period required for mergers and to the effect that the
transactions contemplated by this Agreement and the Merger shall not constitute
a deemed liquidation of Company under the Company's articles of incorporation.
If Company will have a shareholder meeting to approve this Agreement and the
Merger, Company shall consult with Parent regarding the date of the Company
Shareholders' meeting to approve this Agreement and the Merger (the "Company
Shareholders' Meeting") and shall not postpone or adjourn (other than for
absence of a quorum) the Company Shareholders' Meeting without the consent of
Parent. The preceding sentence shall not be construed to prohibit Company from
obtaining shareholder approval of this Agreement and the Merger by an action of
written consent of the Company Shareholders pursuant to Section 603 of
California Law. Company shall use its best efforts to obtain the consent of the
Company Shareholders holding at least ninety percent (90%) of the Company Stock
and as required under the Company's articles of incorporation and bylaws and
under California law to approve the Merger and this Agreement.
(c) From the date of this Agreement until the Company
Shareholders shall have approved this Agreement, the Merger and the other
transactions contemplated by this Agreement, (i) the Board of Directors of
Company shall recommend that the Company Shareholders vote in favor of and
approve this Agreement, the Merger and the other transactions contemplated by
this Agreement; and (ii) neither the Board of Directors of Company nor any
committee thereof shall withhold, withdraw, amend, modify, change or propose or
resolve to withhold, withdraw, amend, modify or change, in each case in a manner
adverse to Parent, the recommendation of the Board of Directors of Company that
the Company Shareholders approve this Agreement, the Merger and the other
transactions contemplated by this Agreement.
5.2 MERGER SUB SHAREHOLDER MEETING.
No later than the Closing Date, Merger Sub shall hold its shareholder's
meeting, and Parent (as the sole shareholder of Merger Sub) shall approve this
Agreement, the Merger and the other transactions contemplated by this Agreement
at such shareholder's meeting.
5.3 CONFIDENTIALITY; ACCESS TO INFORMATION.
(a) The parties acknowledge that Company and Parent have
previously executed a Confidentiality Agreement, dated as of May 6, 2005 (the
"Confidentiality Agreement"), which will continue in full force and effect in
accordance with its terms.
(b) Access to Information. Notwithstanding the Confidentiality
Agreement, each party will afford the other party and its accountants, counsel
and other representatives reasonable access during normal business hours, upon
reasonable notice, to the properties, books, records and personnel of the other
party and its accountants 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 of such
party, as the other party may reasonably request. No information or Knowledge
44
obtained by Parent or Company in any investigation pursuant to this Section 5.3
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. All such information and knowledge shall be held confidential by the
recipient under the terms of the Confidentiality Agreement.
5.4 NO SOLICITATION.
From and after the date of this Agreement until the Effective Time or
termination of this Agreement pursuant to Article VII, Company shall not, nor
shall it authorize or permit its Subsidiaries, and their respective officers,
directors, employees, representatives, or agents to, directly or indirectly, for
or on its behalf (i) initiate, solicit or encourage any inquiries or proposals
that constitute, or could reasonably be expected to lead to, a proposal or offer
for a merger, consolidation, or business combination of Company or any of its
Subsidiaries, or the sale of a portion or all of the assets of Company and its
Subsidiaries, taken as a whole, or the sale of shares of Company Stock or any of
its Subsidiaries, including, without limitation, by way of a tender offer or
exchange offer by any Person (any of the foregoing inquiries or proposals being
referred to as an "Acquisition Proposal"), (ii) engage in negotiations or
discussions concerning, or provide to any Person any Confidential Information or
data relating to Company or any of its Subsidiaries for the purposes of, or
otherwise cooperate with or assist or participate in, facilitate or encourage,
any inquiries or the making of any Acquisition Proposal, or (iii) enter into any
letter of intent, memorandum of understanding, agreement in principle, merger
agreement, acquisition agreement, option agreement, joint venture agreement,
partnership agreement or other similar contract, agreement or commitment
contemplating or otherwise relating to any transaction or series of transactions
("Acquisition Transaction") involving an Acquisition Proposal.
5.5 PUBLIC DISCLOSURE.
Parent and 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 or this Agreement 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 or Nasdaq, in which case reasonable efforts to
consult with the other party will be made prior to such release or statement.
The parties shall agree to the text of the joint press release announcing the
signing of this Agreement.
5.6 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 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 reasonable efforts to accomplish the following: (i)
the taking of all reasonable acts necessary to cause the conditions precedent
set forth in Article VI to be satisfied, (ii) the obtaining of all necessary
actions or nonactions, waivers, consents, approvals, orders and authorizations
45
from Governmental Entities and the making of all necessary registrations,
declarations and filings (including registrations, declarations and filings with
Governmental Entities, if any) and the taking of all reasonable steps as may be
necessary to avoid any suit, claim, action, investigation or proceeding by any
Governmental Entity, (iii) the obtaining of all consents, approvals or waivers
from third parties required as a result of the transactions contemplated in this
Agreement, (iv) the defending of 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) the execution or delivery of any
additional instruments reasonably necessary to consummate the transactions
contemplated by, and to fully carry out the purposes of, this Agreement. In
connection with and without limiting the foregoing, Company and its Board of
Directors shall, if any state takeover statute or similar statute or regulation
is or becomes applicable to the Merger, this Agreement or any of the
transactions contemplated by this Agreement, use all reasonable efforts to
ensure that the Merger and the other transactions contemplated by this Agreement
may be consummated as promptly as practicable on the terms contemplated by this
Agreement and otherwise to minimize the effect of such statute or regulation on
the Merger, this Agreement and the transactions contemplated hereby.
Notwithstanding anything herein to the contrary, nothing in this Agreement shall
be deemed to require Parent or Company or any Subsidiary or affiliate thereof to
agree to any divestiture by itself or any of its affiliates of shares of capital
stock or of any business, assets or property, or the imposition of any material
limitation on the ability of any of them to conduct their business or to own or
exercise control of such assets, properties and stock.
(b) Company shall give prompt notice to Parent upon becoming
aware that any representation or warranty made by it contained in this Agreement
has become untrue or inaccurate, or of any failure of 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, in each case, such that
the conditions set forth in Section 6.3(a) or 6.3(b) would not be satisfied;
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) Parent shall give prompt notice to Company upon becoming
aware that any representation or warranty made by it or Merger Sub contained in
this Agreement has become untrue or inaccurate, or of any failure of Parent or
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, in each case, such that the conditions set forth in Section 6.2(a) or
6.2(b) would not be satisfied; 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.
5.7 THIRD PARTY CONSENTS.
As soon as practicable following the date hereof, Company and Parent
will each use its commercially reasonable efforts to obtain any consents,
waivers and approvals under any of its or its Subsidiaries' respective
agreements, contracts, licenses or leases listed in Section 2.18 or 2.19 of the
46
Company Schedule necessary to preserve all rights of, and benefits to, Parent or
the Surviving Corporation from and after the Effective Time.
5.8 CLOSING CASH BALANCE; CLOSING WORKING CAPITAL.
Three business days prior to the Closing Date, Company shall deliver to
Parent the Estimated Closing Balance Sheet, together with a certificate executed
by its Chief Financial Officer, stating a good faith estimate, based on
reasonable assumptions, of the Company's Final Closing Cash Balance and Final
Working Capital that will be reflected on the Final Closing Balance Sheet as of
the Closing Date prepared in accordance with GAAP applied on a basis consistent
with past practice and the Company's Unaudited Balance Sheet.
5.9 DISTRIBUTION OF THE HOLDBACK AMOUNT.
Upon the termination of the Holdback Period and the payment of all
costs related to the Transition Plan, Parent or the Surviving Corporation shall
deliver to the Paying Agent for distribution to the Company Shareholders the
remaining portion, if any, of the Holdback Amount not required to satisfy such
payments. The Paying Agent shall make deliveries of the Holdback Amount to the
Company Shareholders in proportion to their original contributions to the
Holdback Amount as determined in accordance with Section 1.7.
5.10 COMPANY SHAREHOLDER LIST.
Company shall deliver to Parent and the Paying Agent a list of the
Company Shareholders (the "Company Shareholder List") substantially in the form
attached hereto as Section 5.10 to the Company Schedule, which Company
Shareholder List shall be certified as complete and correct in all material
respects on behalf of Company by the Chief Executive Officer and Chief Financial
Officer of Company as of the Closing and which shall include, among other
things, as of the Closing, all Company Shareholders (including holders of
Company Options that have exercised immediately prior to the Closing Date) and
their respective addresses, wiring instructions, if any, the number of shares of
Company Stock (including whether such shares are Company Common Stock, Series A
Preferred Stock, Series B Preferred Stock or Series C Preferred Stock) held by
such persons, the per share portion of the Initial Merger Consideration to be
paid to each such Company Shareholder determined in accordance with Section
1.7(b and such other information relevant thereto or which the Paying Agent may
reasonably request. Company shall deliver the Company Shareholder List no less
than (3) three business days prior to the Closing Date, or such later time as
Parent may agree in writing.
5.11 AUDITED FINANCIAL STATEMENTS.
Company shall have financial statements of Company satisfying the
requirements of Rule 3.05 of Regulation S-X prepared by its independent
registered public accountants and shall provide such financial statements to
Parent on or before 60 days after the Closing Date.
5.12 DIRECTOR AND OFFICER INDEMNIFICATION.
Prior to the Effective Time, Company shall purchase at its
expense and for the benefit of the Surviving Corporation and Parent a policy for
an Extended Reporting Period (as defined, except with respect to the additional
47
period referred to in Item 9 of the Declarations, in the directors and officers
insurance policy issued by Executive Risk Indemnity Inc. effective January 27,
2005 (the "Policy") for a period of three years following the Effective Time)
(the "Tail Policy") in respect of all acts or omissions occurring prior to the
Effective Time covering each of Company's officers and directors covered by the
Policy as of the date hereof, on terms and with scope of coverage comparable to
the Policy and with coverage in the amount of $5,000,000. The cost of the Tail
Policy shall be borne by Company and shall be reflected on the Estimated Closing
Balance Sheet and shall be taken into account in calculating any adjustment to
the Initial Merger Consideration under Section 1.6(b); provided that to avoid
double-counting, the cost of such Tail Policy shall not affect both the
Estimated Closing Cash Balance and the Estimated Closing Working Capital.
5.13 REGISTRATION OF MAXSPEED CO. (SHANGHAI) AS SALES CORPORATION.
Company shall use its commercially reasonable efforts to cause its
wholly-owned Subsidiary, Maxspeed Co. (Shanghai), to be registered on or before
January 1, 2006 as a company qualified to engage in selling activities in China.
5.14 SPIN-OFF OF MAXSPEED CO. (BEIJING)
Company shall use its commercially reasonable efforts to spin-off
Maxpeed Co. (Beijing) from Company concurrently with the Closing, with 19.9% to
be owned by Parent or a Subsidiary of Parent and the balance to be owned by Xxx
Xxxxx. All other terms of the spin-off shall be included in a shareholders
agreement to be entered into concurrently with the Closing.
ARTICLE VI
CONDITIONS TO THE MERGER
6.1 CONDITIONS TO OBLIGATIONS OF EACH PARTY.
The respective obligations of each party to this Agreement to
consummate the Merger shall be subject to the satisfaction at or prior to the
Closing Date of the following conditions:
(a) Shareholder Approval. This Agreement, the Merger and the
other transactions contemplated by this Agreement shall have been duly approved
and adopted by the Company Shareholders as required under Company's articles of
incorporation and bylaws, and California Law, and such approval shall not have
been revoked or otherwise withdrawn.
(b) No Order. No Governmental Entity shall have enacted,
issued, promulgated, enforced or entered any statute, rule, regulation,
executive order, decree, injunction, interpretation, 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. Any notification, waiting period, or approval requirements of
anti-competition laws of applicable foreign jurisdictions as reasonably
determined by the parties to apply shall have been satisfied.
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(c) Escrow Agreement.Parent, Company, the Shareholder
Representative and the Escrow Agent shall have entered into the Escrow
Agreement.
6.2 ADDITIONAL CONDITIONS TO OBLIGATIONS OF COMPANY.
The obligation of 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
Company:
(a) Representations and Warranties. The representations and
warranties of Parent and Merger Sub set forth in this Agreement, disregarding
(i) all qualifications and exceptions contained therein relating to materiality
or Material Adverse Effect or any similar standard or qualification and (ii) any
update of or modification to the Parent Schedule made or purported to have been
made after the date of this Agreement, shall be true and correct at and as of
the Effective Time as if made at and as of such date (other than representations
and warranties made as of a specified date, which shall be true and correct as
of such specified date), except where the failure of such representations and
warranties to be true and correct would not, individually or in the aggregate,
have a Material Adverse Effect on Parent. Parent and Merger Sub shall have
performed and complied with all covenants and obligations under this Agreement
required to be performed and complied with by such parties as of the Closing.
Company shall have received a certificate with respect to the foregoing signed
on behalf of Parent by an authorized officer of Parent.
(b) Agreements and Covenants. Parent and 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 Company shall have received a certificate to such
effect signed on behalf of Parent by an authorized officer of Parent.
6.3 ADDITIONAL CONDITIONS TO THE OBLIGATIONS OF PARENT AND MERGER
SUB.
The obligations of Parent and Merger Sub 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. The representations and
warranties of Company and, with respect to Section 2.3 only, the Principal
Shareholders set forth in this Agreement, disregarding (i) all qualifications
and exceptions contained therein relating to materiality or Material Adverse
Effect or any similar standard or qualification and (ii) any update of or
modification to the Company Schedule made or purported to have been made after
the date of this Agreement, shall be true and correct at and as of the Effective
Time as if made at and as of such date (other than representations and
warranties made as of a specified date, which shall be true and correct as of
such specified date), except where the failure of such representations and
warranties to be true and correct would not, individually or in the aggregate,
have a Material Adverse Effect on Company; provided, however, such Material
Adverse Effect qualifier shall be inapplicable with respect to representations
and warranties contained in Section 2.3. Company shall have performed and
complied with all covenants and obligations under this Agreement required to be
49
performed and complied with by such parties as of the Closing. Parent shall have
received a certificate with respect to the foregoing signed on behalf of Company
by each of the Chief Executive Officer and the Chief Financial Officer of
Company.
(b) Agreements and Covenants. Company and the Company
Shareholders 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 Company by the Chief Executive
Officer and the Chief Financial Officer of Company.
(c) Material Adverse Effect. No Material Adverse Effect with
respect to Company and its Subsidiaries shall have occurred since the date of
this Agreement.
(d) Director and Officer Resignations. All directors and
officers of Company shall have resigned effective as of the Closing Date.
(e) Corporate Authority. Each officer of Company shall have
surrendered his authority over all Company finances, including without
limitation, all Company bank accounts, and evidence of the foregoing (in form
and substance satisfactory to Parent) shall have been delivered to Parent.
Company also shall have delivered to Parent such documents as are necessary or
advisable (in form and substance satisfactory to Parent) to transfer authority
over Company's finances, including without limitation, all Company bank
accounts, to Parent.
(f) Noncompetition Agreements. The Persons set forth on
Exhibit B-1 hereto shall have entered into Noncompetition Agreements
substantially in the form attached hereto as Exhibit B-2, and such agreements
shall be in full force and effect.
(g) Consents. Company shall have obtained all consents,
waivers and approvals required in connection with the consummation of the
transactions contemplated hereby in connection with the agreements, contracts,
licenses or leases set forth in Section 6.3(g) of the Company Schedule.
(h) Employment Agreements. The employees listed on Exhibit C-1
shall have accepted employment and shall have entered into the Employment
Agreements, substantially in the form attached as Exhibit C-2, and all such
agreements shall be in full force and effect, and none such person has notified
the Company, formally or informally, of an intention to leave the Company's
employ before or after the Merger.
(i) Opinion of Counsel. Parent shall have received a written
opinion of counsel for Company dated as of the Closing Date in form and
substance reasonably satisfactory to Parent covering the matters set forth in
Exhibit E hereto.
(j) Shareholder Approval. This Agreement, the Merger and the
other transactions contemplated hereby have been approved (i) by the Company
Shareholders holding at least ninety percent (90%) of the Company Stock and (ii)
as required under the Company's articles of incorporation and bylaws and
California Law, and Company shall have delivered to Parent duly executed written
consents of the holders of such Company Stock approving this Agreement, the
Merger and the other transactions contemplated hereby.
50
(k) Certificate of Secretary of Company. Parent shall have
received from the Secretary of Company a certificate as to the approval of this
Agreement, the Merger and the other transactions contemplated hereby by the
Company Shareholders as required by this Agreement, the Company's Articles of
Incorporation and California Law and by the Company's Board of Directors.
(l) Certificate of Good Standing. Parent shall have received a
certificate of good standing from the Secretary of State of the State of
California.
(m) Company Shareholder List. Company shall have delivered to
Parent the Company Shareholder List.
(n) Tail Policy. Company shall have obtained the Tail Policy,
as described in Section 5.13(a).
(o) Spin-Off of Maxspeed Co. (Beijing). Company shall have
completed the spin-off of Maxspeed Co. (Beijing), with 19.9% to be owned by
Parent or a Subsidiary and the balance to be owned by Xxx Xxxxx.
ARTICLE VII
TERMINATION, AMENDMENT AND WAIVER
7.1 TERMINATION.
This Agreement may be terminated at any time prior to the Effective
Time, whether before or after the requisite approval of the Company
Shareholders:
(a) by mutual written consent duly authorized by the Boards of
Directors of Parent and Company;
(b) by either Company or Parent if the Merger shall not have
been consummated by December 31, 2005 for any reason; provided, however, that
the right to terminate this Agreement under this Section 7.1(b) shall not be
available to any party whose breach of this Agreement results in the failure of
the Merger to be consummated on or before such date;
(c) by either 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;
(d) by either Company or Parent if the required approval of
the Company Shareholders of the Merger required pursuant to Section 6.2(k) of
this Agreement shall not have been obtained at the Company Shareholders' Meeting
or at any adjournment thereof; provided, however, that the right to terminate
this Agreement under this Section 7.1(d) shall not be available to any party
whose breach results in the failure to obtain such shareholder approval;
51
(e) by 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 6.2(a) or Section 6.2(b)
would not be satisfied as of the time of such breach or as of the time such
representation or warranty shall have become untrue, provided that if such
inaccuracy in Parent's representations and warranties or breach by Parent is
curable by Parent through the exercise of its commercially reasonable efforts,
then Company may not terminate this Agreement under this Section 7.1(e) for
fifteen (15) days after delivery of written notice from Company to Parent of
such breach, provided Parent continues to exercise commercially reasonable
efforts to cure such breach (it being understood that Company may not terminate
this Agreement pursuant to this paragraph (e) if it shall have materially
breached this Agreement or if such breach or inaccuracy by Parent is cured
during such fifteen (15) day period);
(f) by Parent, upon a breach of any representation, warranty,
covenant or agreement on the part of Company and, with respect to Section 2.3
only, the Principal Shareholders set forth in this Agreement, or if any
representation or warranty of Company and, with respect to Section 2.3 only, the
Principal Shareholders shall have become untrue, in either case such that the
conditions set forth in Section 6.3(a) or Section 6.3(b) would not be satisfied
as of the time of such breach or as of the time such representation or warranty
shall have become untrue, provided, that if such inaccuracy in Company's and,
with respect to Section 2.3 only, the Principal Shareholders' representations
and warranties or breach by Company and, with respect to Section 2.3 only, the
Principal Shareholders is curable by Company through the exercise of its
commercially reasonable efforts, then Parent may not terminate this Agreement
under this Section 7.1(f) for fifteen (15) days after delivery of written notice
from Parent to Company of such breach, provided Company and, with respect to
Section 2.3 only, the Principal Shareholders continue to exercise commercially
reasonable efforts to cure such breach (it being understood that Parent may not
terminate this Agreement pursuant to this paragraph (f) if it shall have
materially breached this Agreement or if such breach or inaccuracy by Company
and, with respect to Section 2.3 only, the Principal Shareholders is cured
during such fifteen (15) day period); and
(g) by Parent, if there has been a Material Adverse Effect on
Company that has not been cured within thirty (30) days of written notice of
same.
7.2 NOTICE OF TERMINATION; EFFECT OF TERMINATION.
In the event of the termination of this Agreement as provided in
Section 7.1, this Agreement shall be of no further force or effect, except (i)
as set forth in Section 5.3, this Section 7.2, Section 7.3 and Article IX
(General Provisions), each of which shall survive the termination of this
Agreement, and (ii) nothing herein shall relieve any party from liability for
any 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.
52
7.3 FEES AND EXPENSES.
Except as set forth in this Section 7.3, all legal, accounting,
consulting and other fees and expenses incurred in connection with this
Agreement and the transactions contemplated hereby shall be paid by the party
incurring such expenses (the "Third Party Expenses") whether or not the Merger
is consummated, provided, however, that Company's Third Party expenses shall not
exceed $100,000, with any such excess Third Party Expenses of Company paid by
the Company Shareholders at Closing.
7.4 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 and Company.
ARTICLE VIII
SURVIVAL OF REPRESENTATIONS AND WARRANTIES; INDEMNIFICATION
8.1 SURVIVAL OF REPRESENTATIONS, WARRANTIES AND COVENANTS.
Notwithstanding any investigation conducted at any time with
regard thereto by or on behalf of Parent, the representations and warranties of
Company and, with respect to Section 2.3 only, the Principal Shareholders,
contained in this Agreement or in any certificate or other instrument delivered
pursuant to this Agreement shall survive the Closing and the consummation of the
transactions contemplated hereby (and any examination or investigation by or on
behalf of any party hereto) and shall terminate on the second anniversary of the
Closing Date; provided, however, that the representations and warranties
contained in Section 2.3, and the related claims for indemnification, shall
survive indefinitely. The representations and warranties of Parent and Merger
Sub contained in this Agreement or in any certificate or other instrument
delivered pursuant to this Agreement shall terminate at the Closing, except with
respect to Section 3.3, which shall survive until the earlier of (a) the first
anniversary of the Closing Date and (b) the termination of the Earnout Period.
The agreements and covenants contained in this Agreement shall survive the
Closing Date indefinitely or in accordance with their terms, if any.
8.2 INDEMNIFICATION.
(a) The Company Shareholders covenant and agree to severally
and not jointly defend, indemnify and hold harmless Parent and its officers,
directors and affiliates (the "Parent Indemnified Parties") from and against all
claims, losses, liabilities, damages, costs and expenses (collectively,
"Damages") arising out of or resulting from: (i) any inaccuracy in or breach of
any representation or warranty made by Company and, with respect to Section 2.3
only, the Principal Shareholders in this Agreement or in any certificate or
instrument delivered pursuant to this Agreement, disregarding for purposes of
this Article VIII all qualifications and exceptions contained therein relating
to materiality or Material Adverse Effect or any similar standard or
qualification; (ii) the failure of Company or the Company Shareholders to
perform or observe fully any covenant, agreement or provision to be performed or
observed by Company pursuant to this Agreement; (iii) the amount that the Final
Closing Cash Balance is less than the lesser of (A) $9,000,000 and (B) the
Estimated Closing Cash Balance; (iv) the amount that the Final Working Capital
53
of Company is less than the lesser of (A) $3,700,000 and (B) the Estimated
Closing Working Capital; (v) the amount that the Company's Third Party Expenses
not reflected on the Estimated Closing Balance Sheet or the Final Closing
Balance Sheet, which were not paid by the Company Shareholders, exceed $100,000;
(vi) the amount of any Excess Dissenting Share Payments; (vii) the amount of any
Damages incurred by Company, the Surviving Corporation or any of the Parent
Indemnified Parties from Claims arising out of or pertaining to any acts or
omissions of Company's officers and/or directors existing or occurring at or
prior to the Effective Time, whether asserted or claimed prior to, at or after
the Effective Time, to the extent that such Claims are not covered by, or exceed
the coverage or are deductible amounts, under, the Tail Policy; and (viii) the
amount of any Damages incurred by Company, the Surviving Corporation or any of
the Parent Indemnified Parties from Claims relating to the matters set forth in
Section 2.10 of the Company Schedule. The Company Shareholders shall not have
any right to exercise or assert any right of contribution, right of indemnity of
other right or remedy against Parent or any of its Subsidiaries or the Surviving
Corporation in connection with any indemnification obligations under Article
VIII.
(b) Parent covenants and agrees to defend, indemnify and hold
harmless the Company Shareholders from and against all Damages arising out of or
resulting from any inaccuracy in or breach of the representations contained in
Section 3.3 in this Agreement. Under no circumstances shall Parent's liability
for claims for indemnification under this Agreement exceed a total of
$4,800,000. Parent shall not be liable for claims made under this Article VIII
until the aggregate amount of all Damages incurred by the Company Shareholders
shall exceed $75,000, in which event the indemnification obligations of Parent
shall apply to the amount of all claims made under this Article VIII. The
foregoing indemnification provision shall be the sole and exclusive remedy after
the Closing Date for money damages available to the Company Shareholders for
breach of the representations contained in Section 3.3.
(c) On the fifteenth day after the first anniversary of the
Closing Date hereof (the "First Release date"), one-half of the Escrow Amount
less (A) any amounts used to fund Damages of the Parent Indemnified Parties
prior to the First Release Date and (B) such amount as, in the reasonable
judgment of Parent, is required to satisfy any unsatisfied pending Claims
(including estimated Damages arising from such Claims if the amount of such
Damages has not been determined) as of the First Release Date shall be
distributed to the Company Shareholders by the Escrow Agent, provided, however,
that no portion of the escrow fund shall be distributed to the Company
Shareholders until the termination of the Escrow Period if amounts used to fund
Net Damages (as defined below) have been paid or, with respect to pending
Claims, are, in the reasonable judgment of Parent, required to satisfy any
unsatisfied pending Claims (including estimated Net Damages arising from such
Claims if the amount of such Net Damages has not been determined) in an amount
in excess of $200,000. For purposes of this Section 8.2(c), the term "Net
Damages" shall mean Damages less the amount, if any, paid from the Escrow Amount
for (i) any deficiencies in the amount of the required Final Closing Cash
Balance or the Estimated Closing Cash Balance; (ii) any deficiencies in the
amount of the required Final Working Capital or the Estimated Closing Working
Capital; and (iii) the amount, if any, by which the Company's Third Party
Expenses not reflected on the Estimated Closing Balance Sheet or the Final
Closing Balance Sheet, which were not paid by the Company Shareholders, exceed
$100,000.
54
8.3 PROCEDURES FOR INDEMNIFICATION.
(a) If any of the Parent Indemnified Parties seek
indemnification under this Article VIII, Parent shall give notice ("Claim
Notice") to the Shareholder Representative of the basis of the claim (the
"Claim") (i) within a reasonable time after discovery of the facts and (ii) in
any event, within the time periods set forth in Section 8.1, provided that the
failure to give such notice shall not relieve the Company Shareholders of any
liability hereunder except to the extent that the Company Shareholders are
materially adversely prejudiced by such failure. The Shareholder Representative
shall give notice to Parent within fifteen (15) business days after receipt of
the notice requested by this Section 8.3 advising whether he (i) acknowledges
the Company Shareholders' obligation to indemnify the Parent Indemnified Parties
or (ii) disputes the obligation to indemnify the Parent Indemnified Parties. If
the Shareholder Representative acknowledges the Company Shareholders'
indemnification obligation with respect to the Claim, and such Claim is based
upon an asserted liability or obligation to a person or entity that is not a
party to this Agreement (a "Third Party Claim"), Parent shall control and
conduct the defense of any such Third Party Claim, including settlement. The
Shareholder Representative shall be entitled (on behalf of the Company
Shareholders), at its expense, to participate in, but not to determine or
conduct the defense of any such Claim. Notwithstanding anything to the contrary
set forth herein, except with the consent of the Shareholder Representative
(which consent shall not be unreasonably withheld or delayed), no settlement of
any such Third-Party Claim shall alone be determinative of the amount of Damages
for which the Parent Indemnified Parties are entitled to indemnification with
respect to such Claim. If such Claim is not a Third Party Claim, Parent shall be
entitled to immediate satisfaction of such Claim. If the Shareholder
Representative does not notify Parent within fifteen (15) business days
following receipt of notice of a Claim that is not a Third Party Claim that the
Company Shareholders disputes such Claim, such Claim shall be deemed a liability
of the Company Shareholders and the Company Shareholders shall pay the amount of
the Claim on demand by Parent, or in the case of any notice in which the amount
of the Claim is estimated, on such later date when the amount of the Claim is
finally determined. If the Shareholder Representative disputes the Claim in a
timely manner as set forth herein, the Shareholder Representative and Parent
shall proceed in good faith to negotiate a resolution of the dispute, or, if
necessary, to final judgment or order of a court of competent jurisdiction
determining the amount of the Damages or by any other means elected by Parent.
(b) If the Company Shareholders seek indemnification under
this Article VIII, it shall give a Claim Notice to Parent of the basis of the
Claim (i) within a reasonable time after discovery of the facts and (ii) in any
event, within the time periods set forth in Section 8.1, provided that the
failure to give such notice shall not relieve Parent of any liability hereunder
except to the extent that Parent is materially adversely prejudiced by such
failure. Parent shall give notice to the Shareholder Representative within
fifteen (15) business days after receipt of the notice requested by this Section
8.3 advising whether it (i) acknowledges Parent's obligation to indemnify the
Company Shareholders or (ii) disputes the obligation to indemnify the Company's
Shareholders. If Parent acknowledges Parent's indemnification obligation with
respect to the Claim, such Claim shall be deemed a liability of Parent and
Parent shall pay the amount of the Claim on demand by the Shareholder
Representative, or in the case of any notice in which the amount of the Claim is
estimated, on such later date when the amount of the Claim is finally
determined. If Parent disputes the Claim in a timely manner as set forth herein,
Parent and the Shareholder Representative shall proceed in good faith to
negotiate a resolution of the dispute, or, if necessary, to final judgment or
order of a court of competent jurisdiction determining the amount of the Damages
or by any other means elected by Parent.
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8.4 INDEMNIFICATION EXCLUSIVE; LIMITATIONS ON AMOUNT.
(a) Except as provided herein, the foregoing indemnification
provisions shall be the sole and exclusive remedy after the Closing Date for
money damages available to Parent for breach of any representations, warranties
or covenants contained herein, but shall not limit any other remedy to which
Parent may be entitled. Nothing in this Agreement shall be construed as limiting
in any way the remedies that may be available to Parent in the event of fraud
relating to the representations, warranties or covenants made by Company or the
Principal Shareholders in this Agreement. The maximum amount that Parent shall
be entitled to recover for Damages (except in the event of fraud) shall be up to
an amount equal to the Escrow Amount (the "Cap"), and shall be recoverable
solely from the Escrow Account. Notwithstanding the preceding sentence, the Cap
and the limitation on recovering solely from the Escrow Amount shall not apply
to (i) Damages recoverable from the Principal Shareholders in the event of any
inaccuracy in or breach of the representations and warranties made by Company
and the Principal Shareholders in Section 2.3, and (ii) Parent's right to offset
Damages against one-half of the Contingent Consideration, subject to the
conditions contained in Section 8.5, which shall be in addition to the amount
recoverable from the Escrow Account.
(b) The Company Shareholders shall not be liable for claims
made under this Article VIII until the aggregate amount of the Damages incurred
by Parent shall exceed $75,000, in which event the indemnification obligations
of the Company Shareholders shall apply to the amount of all claims made under
this Article VIII, provided, however, that any amount recoverable by Parent with
respect to (i) the amount that the Final Closing Cash Balance is less than the
lesser of (A) $9,000,000 and (B) the Estimated Closing Cash Balance; (ii) the
amount that the Final Working Capital of Company is less than the lesser of (A)
$3,700,000 and (B) the Estimated Closing Working Capital; (iii) the amount that
the Company's Third Party Expenses not reflected on the Estimated Closing
Balance Sheet or the Final Closing Balance Sheet, which were not paid by the
Company Shareholders, exceed $100,000; (iv) the amount of any Excess Dissenting
Share Payments shall not be subject to the $75,000 threshold; (v) the amount of
any Damages incurred by Company, the Surviving Corporation or any of the Parent
Indemnified Parties arising out of or pertaining to any acts or omissions of
Company's officers and/or directors existing or occurring at or prior to the
Effective Time, whether asserted or claimed prior to, at or after the Effective
Time, to the extent that such Claims are not covered by, or exceed the coverage
or are deductible amounts, under, the Tail Policy; and (vi) the amount of any
Damages incurred by Company, the Surviving Corporation or any of the Parent
Indemnified Parties from claims relating to the matters set forth in Section
2.10 of the Company Schedule.
8.5 RIGHT TO OFFSET.
With respect to any and all claims for which Parent is
entitled to indemnification under this Agreement, Parent may offset any Damages
for which a Claim by Parent has been properly made pursuant to this Article
VIII, against one-half of any unpaid amounts payable to the holders of the
Company Common Stock as Contingent Consideration, provided, however, that
Damages may only be offset against the Contingent Consideration if Damages for
56
Claims paid or pending (based on estimated Damages arising from such Claims if
the exact amount has not been determined) are in excess of the Escrow Amount, in
which event Parent shall withhold payment of one-half of the Contingent
Consideration until all such pending Claims have been paid or resolved by
agreement of the parties or by a final non-appealable order or judgment of a
court of competent jurisdiction.
ARTICLE IX
GENERAL PROVISIONS
9.1 NOTICES.
All notices and other communications hereunder shall be in writing and
shall be deemed given if delivered personally or by commercial delivery service,
or 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):
if to Parent or Merger Sub, to:
Neoware Systems, Inc.
Attention: Xxxxx X. Xxxxxxx, Chief Financial Officer
Telephone No.: 000-000-0000
Facsimile No.: 000-000-0000
with a copy to:
XxXxxxxxxx Keen & Xxxxxxx
Radnor Court, Suite 160
000 X. Xxxxxx-Xxxxxxx Xxxx
Xxxxxx, XX 00000
Attention: Xxxxx X. Xxxxxxxx, Esquire
Telephone No.: 000-000-0000
Facsimile No: 610-341-1099
if to Company, to:
Maxspeed Corporation
0000 Xxxxxx Xxx
Xxxx Xxxx, XX 00000
Attention: Xxx Xxxxx
Telephone No.:
Facsimile No.:
57
with a copy to:
Xxxxxx Xxxxxx LLP
000 Xxxxxxxxxxx Xxxx
Xxxxx Xxxx, XX 00000
Attention: Xxxxxxx X. Peers, Esquire
Telephone No.: 000-000-0000
Facsimile No.: 000-000-0000
9.2 INTERPRETATIONS.
(a) 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 for reference purposes
only 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
(b) For purposes of this Agreement, the terms "Knowledge" and
"Know" of a party with respect to any matter in question means (i) the actual
knowledge of any of the following persons: Xxx Xxxxx and Xxx Xxxxxx and each of
their successors or (ii) the knowledge that any of such persons would be
reasonably expected to have after making inquiry of those persons employed by
such party who would reasonably be expected to have knowledge of the fact or
other matter in question.
(c) For purposes of this Agreement, the term "Material Adverse
Effect" when used in connection with an entity means any change, event,
violation, inaccuracy, circumstance or effect that individually or in the
aggregate is or is reasonably likely to be materially adverse to the business,
assets, prospects (including intangible assets), financial condition or results
of operations of such entity and its Subsidiaries taken as a whole
(d) For purposes of this Agreement, the term "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
(e) For purposes of this Agreement, the term "Foreign" and
"Domestic" shall be deemed a reference to a country outside the United States
and the United States, respectively.
9.3 COUNTERPARTS.
This Agreement may be executed by facsimile in one or more
counterparts, each of which shall be deemed to be an original but all of which
shall constitute one and the same agreement
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9.4 ENTIRE AGREEMENT; PARTIES IN INTEREST.
This Agreement (and the documents and instruments and other agreements
among the parties hereto as contemplated by or referred to herein, including the
Company Schedule and the Exhibits hereto) and the Confidentiality Agreement
constitute the entire agreement between the parties hereto with respect to the
subject matter hereof and supersede all other prior agreements and
understandings both written and oral between the parties with respect to the
subject matter hereof and thereof. This Agreement shall be binding upon and
inure solely to the benefit of each party hereto and its successors and
permitted assigns and, except as expressly provided herein, nothing in this
Agreement is intended to or shall confer upon any other person any rights,
benefits or remedies of any nature whatsoever under or by reason of this
Agreement
9.5 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
9.6 OTHER REMEDIES; SPECIFIC PERFORMANCE
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.
9.7 GOVERNING LAW.
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; provided,
however, that (a) any matter involving the internal corporate affairs of Company
or any party hereto shall be governed by the provisions of the jurisdictions of
its incorporation and (b) the form and content of the Merger and the
consequences of the filing thereof shall be governed by California Law. Each of
the parties hereto irrevocably consents to the exclusive jurisdiction and venue
of any court within the State of Delaware, in connection with any matter based
upon or arising out of this Agreement or the matters contemplated herein, agrees
that process may be served upon them in any manner authorized by the laws of the
State of Delaware for such persons and waives and covenants not to assert or
plead any objection which they might otherwise have to such jurisdiction, venue
and such process.
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9.8 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.
9.9 ASSIGNMENT.
No party may assign either this Agreement or any of its rights,
interests, or obligations hereunder without the prior written approval of the
other parties. 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.
9.10 WAIVER OF JURY TRIAL.
EACH OF PARENT, COMPANY AND MERGER SUB HEREBY IRREVOCABLY WAIVES ALL
RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM (WHETHER BASED
ON CONTRACT, TORT OR OTHERWISE) ARISING OUT OF OR RELATING TO THIS AGREEMENT OR
THE ACTIONS OF PARENT, COMPANY OR MERGER SUB IN THE NEGOTIATION, ADMINISTRATION,
PERFORMANCE AND ENFORCEMENT HEREOF.
9.11 DEFINITIONS
Capitalized terms used herein shall have the respective meanings
ascribed to such terms in the Section indicated below.
2006 Annual Report Section 1.6(c)
Accounting Arbitrator Section 1.6(c)
Accounting Firm Section 1.6(b)(iii)(c)
Acquisition Proposal Section 5.4(a)
Acquisition Transaction Section 5.4(a)
Affiliate Section 2.11(a)
Approvals Section 2.1(a)
Audited Financial Statements Section 2.7(a)
Business Day Section 1.6(c)(i)
California Law Section Recitals
Cap Section 8.4(a)
Cash Balance Adjustment Section 1.6(b)(iii)
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Certificates Section 1.8(c)
Claim Section 8.3
Claim Notice Section 8.3
Closing Section 1.2
Closing Date Section 1.2
Closing Payment Section 1.6(a)
COBRA Section 2.12(b)
Code Section 1.8(e)
Common Initial Merger Consideration Section 1.7(a)
Company Preamble
Company Charter Documents Section 2.2
Company Common Stock Section 1.6
Company Environmental Permits Section 2.16(c)
Company Intellectual Property Section 2.18(a)
Company Option Plans Section 2.3(a)
Company Options Section 2.3(a)
Company Permits Section 2.6(b)
Company Preferred Stock Section 1.6
Company Products Section 2.18(a)
Company Schedule Section 2
Company Shareholder List Section 5.10
Company Shareholders Section 2.4
Company Shareholders' Meeting Section 5.1(a)
Company Stock Section 1.6
Confidentiality Agreement Section 5.3(a)
Contingent Consideration Section 1.6(c)
Contract Section 2.19(a)
Copyrights Section 2.18(a)
Damages Section 8.2
Director Indemnification Agreements Section 5.13
Dispute Notice Section1.6(c)
Disputed Items Section 1.6(c)
Dissenting Shares Section 1.11
DOL Section 2.11(a)
Domestic Section 9.2(e)
Earnout Period Section 1.6(c)
Earnout Revenues Section 1.6(c)
Effective Time Section 1.2
Employment Agreements Recital D
Employment Contracts Section 2.11(a)
Equipment Section 2.14(b)
ERISA Section 2.11(a)
Escrow Agent Section 1.8(a)
Escrow Agreement Section 1.6(a)
Escrow Amount Section 1.6(a)
Escrow Period Section 1.6(a)
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Estimated Closing Balance Sheet Section 1.6(b)(ii)(a)
Estimated Closing Cash Balance Section 1.6(b)(ii)(a)
Estimated Closing Working Capital Section 1.6(b)(ii)(b)
Excess Dissenting Share Payments Section 1.11
Exchange Act Section 3.6(a)
Final Closing Balance Sheet Section 1.6(b)(iii)
Final Closing Cash Balance Section 1.6(b)(iii)
Final Working Capital Section 1.6(b)(iii)
Financial Statements Section 2.7(a)
Foreign Section 9.2(c)
GAAP Section 2.7(b)
Governmental Entity Section 2.5(b)
Grants Section 2.23
Hazardous Material Section 2.16(a)
Hazardous Material Activities Section 2.16(b)
Holdback Amount Section 1.6(a)
Holdback Period Section 1.6(a)
Information Statement Section 5.1(a)
Initial Merger Consideration Section 1.6(a)
Insurance Policies Section 2.20
Intellectual Property Section 2.18(a)
International Employee Plan Section 2.11(e)
IRS Section 2.11(a)
Know Section 9.2(b)
Knowledge Section 9.2(b)
Legal Requirements Section 2.3(a)
Liens Section 2.14(a)
Marks Section 2.18(a)
Material Adverse Effect Section 9.2(c)
Material Contract(s) Section 2.19(a)
Merger Section 1.1
Merger Consideration Section 1.6
Merger Sub Preamble
Noncompetition Agreements Recitals D
Parent Preamble
Parent Charter Documents Section 3.2
Parent Indemnified Parties Section 8.2
Parent Schedule Section 3
Parent SEC Reports Section 3.6(a)
Patents Section 2.18(a)
Paying Agent Section 1.8(a)
Per Share Common Closing Payment Section 1.7(a)
Per Share Common Initial Consideration Section 1.7(a)
Per Share Common Escrow Amount Section 1.7(a)
Per Share Common Holdback Amount Section 1.7(a)
Per Share Contingent Consideration Section 1.7(a)
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Per Share Series A Closing Payment Section 1.7(a)
Per Share Series A Escrow Amount Section 1.7(a)
Per Share Series A Holdback Amount Section 1.7(a)
Per Share Series A Merger Consideration Section 1.7(a)
Per Share Series B Closing Payment Section 1.7(a)
Per Share Series B Escrow Amount Section 1.7(a)
Per Share Series B Holdback Amount Section 1.7(a)
Per Share Series B Merger Consideration Section 1.7(a)
Per Share Series C Closing Payment Section 1.7(a)
Per Share Series C Escrow Amount Section 1.7(a)
Per Share Series C Holdback Amount Section 1.7(a)
Per Share Series C Merger Consideration Section 1.7(a)
Person Section 9.2(d)
Plans Section 2.11(a)
Policy Section 5.12
Post-Closing Acquisition Revenues Section 1.6(c)(i)
PRC Section 2.1(b)
Principal Shareholders Preamble
Returns Section 2.15(b)(i)
SEC Section 3.6(a)
Securities Act Section 3.6(a)
September 2006 Quarterly Report Section 1.6(c)
Series A Merger Consideration Section 1.7(a)
Series A Preferred Stock Section 1.7(a)
Series B Merger Consideration Section 1.7(a)
Series B Preferred Stock Section 1.7(a)
Series C Merger Consideration Section 1.7(a)
Series C Preferred Stock Section 1.7(a)
Shareholder Representative Preamble
Subsidiary Section 2.1(b)
Surviving Corporation Section 1.1
Tail Policy Section 5.13(a)
Tax Section 2.15(a)
Taxes Section 2.15(a)
Third Party Claim Section 8.3
Third Party Expenses Section 7.3
Trade Secrets Section 2.18(a)
Unaudited Balance Sheet Section 1.6(d)
Voting Agreements Recital D
WFOEs Section 2.1(b)
Working Capital Adjustment Section 1.6(b)(iii)
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their duly authorized respective officers as of the date first
written above.
NEOWARE SYSTEMS, INC.
By: /s/ Xxxxx X. Xxxxxxx
---------------------------------------
Xxxxx X. Xxxxxxx
Chief Financial Officer
RABBIT CORPORATION
By: /s/ Xxxxxxxx X. Xxxxxx
---------------------------------------
Xxxxxxxx X. Xxxxxx
Secretary
MAXSPEED CORPORATION
By: /s/ Xxx Xxxxx
---------------------------------------
Xxx Xxxxx
President and Chief Executive Officer
PRINCIPAL SHAREHOLDERS, with
respect to Section 2.3 and Article VIII only.
/s/ Xxx Xxxxx
--------------------------------------------
Xxx Xxxxx
/s/ Chu Nei
--------------------------------------------
Chu Nei
64
