AGREEMENT AND PLAN OF MERGER
BY AND AMONG
YDI WIRELESS, INC.
KFIRE MERGER CORPORATION
KARLNET, INC.
XXXXXXX X. XXXX
AND
XXXXX X. XXXX
DATED AS OF MAY 13, 2004
AGREEMENT AND PLAN OF MERGER
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This AGREEMENT AND PLAN OF MERGER (this "Agreement") is made and entered
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into as of May 13, 2004 among YDI WIRELESS, Inc., a Delaware corporation
("Parent"), KFIRE MERGER CORPORATION, a Delaware corporation and a wholly owned
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subsidiary of Parent ("Merger Sub"), KARLNET, INC., a Delaware corporation (the
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"Company"), and XXXXXXX X. XXXX, and XXXXX X.. XXXX (each, a "Principal" and
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collectively, the "Principals").
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RECITALS
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A. Upon the terms and subject to the conditions of this Agreement and in
accordance with the General Corporation Law of the State of Delaware (the
"DGCL"), Parent and the Company will enter into a business combination
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transaction pursuant to which the Company will merge with and into Merger Sub
(the "Merger").
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B. The Board of Directors of each of the Company, Parent, and Merger Sub
(i) has determined that the Merger is in the best interests of each company and
their respective stockholders and (ii) has approved this Agreement, the Merger,
and the other transactions contemplated by this Agreement. The stockholders of
the Company have approved this Agreement, the Merger, and the other transactions
contemplated by this Agreement.
C. The Company, Parent, and Merger Sub desire to make certain
representations and warranties and other agreements in connection with the
Merger.
D. The parties intend, by executing this Agreement, to adopt a plan of
reorganization within the meaning of Section 368 of the Internal Revenue Code of
1986, as amended (the "Code").
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E. Each Principal is joining in this Agreement to make certain
representations and warranties and other agreements in connection with the
Merger and to receive certain benefits pursuant to this Agreement.
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
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THE MERGER
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1.1 The Merger. At the Effective Time (as defined in Section 1.2) and
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subject to and upon the terms and conditions of this Agreement and the
applicable provisions of the DGCL, the Company shall be merged with and into
Merger Sub, the separate corporate existence of the Company shall cease, and
Merger Sub shall continue as the surviving corporation. Merger Sub as the
surviving corporation after the Merger is hereinafter sometimes referred to as
the
"Surviving Corporation." At the Effective Time, the purpose of the Surviving
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Corporation shall be to conduct and engage in all lawful activities and business
to the maximum extent permitted by the DGCL.
1.2 Effective Time. Subject to the provisions of this Agreement, the
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parties hereto shall cause the Merger to be consummated by filing a Certificate
of Merger (the "Certificate of Merger") with the Secretary of State of the State
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of Delaware in accordance with the relevant provisions of the DGCL (the time of
such filing or such subsequent date or time as the parties shall agree and
specify in the Certificate of Merger being the "Effective Time") as soon as
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practicable on or after the date of this Agreement (the "Closing Date"). The
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closing of the Merger (the "Closing") shall take place at the offices of the
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Parent.
1.3 Effect of the Merger. At the Effective Time, the effect of the Merger
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shall be as provided in this Agreement and the applicable provisions of the
DGCL. Without limiting the generality of the foregoing, and subject thereto, at
the Effective Time, all the property, rights, privileges, powers, and franchises
of the Company and Merger Sub shall vest in the Surviving Corporation, and all
debts, liabilities, and duties of the Company and Merger Sub shall become the
debts, liabilities, and duties of the Surviving Corporation.
1.4 Certificate of Incorporation; By-laws.
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(a) Unless otherwise determined by Parent prior to the Effective Time,
at the Effective Time, the Certificate of Incorporation of Merger Sub, as in
effect immediately prior to the Effective Time, shall be the Certificate of
Incorporation of the Surviving Corporation until thereafter amended as provided
by law and such Certificate of Incorporation; provided, however, that Article I
of the Certificate of Incorporation of the Surviving Corporation shall be
amended to read as follows: "The name of the corporation is KarlNet, Inc."
Unless otherwise determined by Parent prior to the Effective Time, at the
Effective Time, the authorized capital stock of the Surviving Corporation shall
be 3,000 shares of common stock, par value $0.01 per share.
(b) The By-laws of Merger Sub, as in effect immediately prior to the
Effective Time, shall be the By-laws of the Surviving Corporation until
thereafter amended.
1.5 Directors and Officers. The director of Merger Sub shall be the initial
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director of the Surviving Corporation, until his successor is duly elected or
appointed and qualified or additional directors are appointed or elected. The
officers of Merger Sub shall be the initial officers of the Surviving
Corporation, until their respective successors are duly elected or appointed and
qualified.
1.6 Effect on Capital Stock. At the Effective Time, by virtue of the Merger
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and without any action on the part of Merger Sub, the Company, or the holders of
any of the following securities:
(a) Conversion of Company Common Stock. Each share of Common Stock, par
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value $.001 per share, of the Company (the "Company Common Stock") issued and
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outstanding immediately prior to the Effective Time (other than any shares of
Company Common Stock to be canceled pursuant to Section 1.6(b) and Company
Dissenting Shares (as
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defined in Section 1.6(c) below)) will be canceled and extinguished and be
automatically converted into the right to receive (i) a fraction of a share of
Common Stock, par value $.01 per share, of Parent (the "Parent Common Stock")
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equal to the Exchange Ratio (as defined below) subject to Section 1.6(g) below,
(ii) cash in an amount equal to the Cash Merger Amount (as defined below), and
(iii) cash in lieu of fractional shares pursuant to Section 1.6(f) below
(collectively, the "Merger Consideration"), upon surrender of the certificate
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representing such share of Company Common Stock in the manner provided in
Section 1.7(a) (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 1.9). "Exchange Ratio" means the fraction obtained by subtracting the
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Set Aside Shares (as defined below) from 1,000,000 and then dividing that result
by the number of shares of Company Common Stock outstanding immediately prior to
the Effective Time. "Set Aside Shares" means the number of shares of Parent
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Common Stock, mutually determined by Parent and the Company, issued or to be
issued to stockholders, option holders, employees, or other stakeholders of the
Company in transactions related to the transactions contemplated by this
Agreement. "Cash Merger Amount" means the amount obtained by subtracting the Set
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Aside Cash (as defined below) from the Initial Cash Amount (as defined below)
and then dividing that result by the number of shares of Company Common Stock
outstanding immediately prior to the Effective Time. "Set Aside Cash" means the
amount of cash, mutually determined by Parent and the Company, paid or to be
paid by whatever means to stockholders, option holders, employees, or other
stakeholders of the Company in transactions related to the transactions
contemplated by this Agreement. "Initial Cash Amount" means the sum of the Cash
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on Hand Amount (as defined in the next sentence) and the Loan Amount (as defined
in Section 6.10 below). "Cash on Hand Amount" means $1,800,000 as may be reduced
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pursuant to Section 3.5(c) below.
(b) Cancellation of Parent-Owned Stock. Each share of Company Common
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Stock held in the treasury of the Company or owned by Merger Sub, Parent, or any
direct or indirect wholly owned subsidiary of Parent or of the Company
immediately prior to the Effective Time shall be canceled and extinguished
without any conversion thereof.
(c) Dissenting Shares. Notwithstanding anything in this Agreement to
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the contrary, shares of Company Common Stock that have not been voted for
adoption of this Agreement and with respect to which appraisal rights shall have
been properly perfected in accordance with Section 262 of the DGCL (the "Company
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Dissenting Shares") shall not be converted into the right to receive the Merger
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Consideration in accordance with this Agreement, at or after the Effective Time,
unless and until the holder of such Company Dissenting Shares withdraws its
demand for such appraisal in accordance with the DGCL or becomes ineligible for
such appraisal. If a holder of Company Dissenting Shares shall withdraw its
demand for such appraisal in accordance with the DGCL or shall become ineligible
for such appraisal, then, as of the later of the Effective Time or the
occurrence of such event, such holder's Company Dissenting Shares shall cease to
be Company Dissenting Shares and shall be deemed to have converted as of the
Effective Time into the right to receive the Merger Consideration into which its
Company Common Stock would otherwise have converted as of the Effective Time
pursuant to this Agreement. The Company shall give prompt notice to Parent of
any demands received by the Company for appraisal of any shares of capital stock
of the Company, and Parent shall have the right to participate in all
negotiations, proceedings, and settlements with respect to such demands. Before
the Effective Time, the Company shall not, without the prior written consent of
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Parent, which consent shall not be unreasonably withheld, make any payment with
respect to, or settle or offer to settle, any such demands or agree to do any of
the foregoing.
(d) Stock Options. No options to purchase shares of Company Common
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Stock (each, a "Company Stock Option") will be assumed by Parent. The Company,
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after consultation with Parent, shall take all actions necessary to cause the
Company Stock Options to terminate prior to or at the Effective Time.
(e) Capital Stock of Merger Sub. Each share of Common Stock, par value
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$.01 per share, of Merger Sub issued and outstanding immediately prior to the
Effective Time shall be converted into one validly issued, fully paid, and
nonassessable share of Common Stock, par value $.01 per share, of the Surviving
Corporation. Each stock certificate of Merger Sub evidencing ownership of any
such shares shall continue to evidence ownership of such shares of capital stock
of the Surviving Corporation.
(f) Fractional Shares. No fraction of a share of Parent Common Stock
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will be issued by virtue of the Merger, but in lieu thereof each holder of
shares of Company Common Stock who would otherwise be entitled to a fraction of
a share of Parent Common Stock (after aggregating all fractional shares of
Parent Common Stock to be received by such holder) shall receive from Parent,
without interest, an amount of cash (rounded to the nearest whole cent) equal to
the product of (i) such fraction, multiplied by (ii) the daily average of the
highest and lowest sale prices per share of the Parent Common Stock on the OTC
Bulletin Board, averaged over a period of the twenty most recent trading days on
which the Parent Common Stock was traded ending on (and including) the trading
day immediately prior to the Effective Time.
(g) Non-Accredited Investors. The Parent Common Stock to be issued
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pursuant to this Agreement will be issued pursuant to exemptions from applicable
federal and state securities laws without registration under those laws.
Therefore, notwithstanding any other provision of this Agreement to the
contrary, (i) prior to any shares of Parent Common Stock being issued to any
stockholder of the Company, that stockholder must certify to Parent that the
stockholder is an "accredited investor" as defined in Rule 501 promulgated under
the Securities Act of 1933, as amended (the "Securities Act") and make such
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other related certifications and provide such supporting documentation as may be
requested by Parent and (ii) if any stockholder of Parent is unable to so comply
to Parent's satisfaction, such stockholder will receive, in lieu of any shares
of Parent Common Stock, an amount of cash calculated by multiplying the number
of shares of Parent Common Stock such stockholder would have been entitled to
receive pursuant to this Section 1.6 (but for this Section 1.6(g)) by Four
Dollars ($4.00).
1.7 Surrender of Certificates, Issuance of Parent Common Stock, and Payment
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of Cash Merger Amounts.
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(a) Subject to Section 1.9, each holder of record of a certificate or
certificates (the "Certificates") which immediately prior to the Effective Time
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represented outstanding shares of Company Common Stock whose shares are to be
converted into the right to receive shares of Parent Common Stock and cash
pursuant to Section 1.6 shall surrender those certificates to Parent or to such
other agent or agents as may be appointed by Parent for
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cancellation together with such transmittal, ownership, and other documents as
Parent may request.
(b) Upon surrender of a Certificate for cancellation to Parent or to
such other agent or agents as may be appointed by Parent, together with such
other documents, all duly completed, at and after the Effective Time, the holder
of such Certificate shall be entitled to receive in exchange therefore, in
accordance with Sections 1.7(c) and (d) below, a certificate representing the
number of whole shares of Parent Common Stock and cash which such holder has the
right to receive pursuant to Section 1.6, and the Certificate so surrendered
shall forthwith be canceled. Until so surrendered, each outstanding Certificate
that, prior to the Effective Time, represented shares of Company Common Stock
will be deemed from and after the Effective Time, for all corporate purposes
other than the payment of dividends, to evidence the right to receive the number
of full shares of Parent Common Stock and cash into which such shares of Company
Common Stock shall have been so converted in accordance with Section 1.6.
(c) Parent and the Company shall cause to be paid to each holder of
record of a Certificate who surrenders the Certificate to Parent in accordance
with Section 1.7(a) an amount of cash which such holder has the right to receive
pursuant to Section 1.6(a)(ii) above with respect to the shares of Company
Common Stock represented by the surrendered Certificate. This amount shall be
paid immediately prior to the Effective Time by means of a dividend from the
Company to that holder.
(d) Promptly after the Effective Time, Parent shall cause its transfer
agent to issue to each holder of record of a Certificate who surrenders the
Certificate to Parent in accordance with Section 1.7(a) a certificate
representing the number of shares of Parent Common Stock which such holder has
the right to receive pursuant to Section 1.6(a)(i) above with respect to the
shares of Company Common Stock represented by the surrendered Certificate. In
addition, promptly after the Effective Time, Parent shall pay to each holder of
record of a Certificate who surrenders the Certificate to Parent in accordance
with Section 1.7(a) an amount of cash which such holder has the right to receive
pursuant to Section 1.6(a)(iii) above with respect to the shares of Company
Common Stock represented by the surrendered Certificate.
(e) No dividends or other distributions declared or made after the date
of this Agreement with respect to Parent Common Stock with a record date after
the Effective Time will be paid to the holder of any unsurrendered Certificate
with respect to the shares of Parent Common Stock represented thereby until the
holder of record of such Certificate shall surrender such Certificate. Subject
to applicable law, following surrender of any such Certificate, there shall be
paid to the record holder of the certificates representing whole shares of
Parent Common Stock issued in exchange therefor, without interest, at the time
of such surrender, the amount of dividends or other distributions with a record
date after the Effective Time payable with respect to such whole shares of
Parent Common Stock.
(f) If any certificate for shares of Parent Common Stock is to be
issued in a name other than that in which the certificate surrendered in
exchange therefor is registered, it will be a condition of the issuance thereof
that the certificate so surrendered will be properly endorsed and otherwise in
proper form for transfer and that the person requesting such exchange will have
paid to Parent or any agent designated by it any transfer or other taxes
5
required by reason of the issuance of a certificate for shares of Parent Common
Stock in any name other than that of the registered holder of the certificate
surrendered, or established to the satisfaction of Parent or any agent
designated by it that such tax has been paid or is not payable.
(g) Notwithstanding anything to the contrary in this Section 1.7, none
of Parent, Merger Sub, the Surviving Corporation, and any agent or agents
appointed by Parent shall be liable to a holder of shares of Parent Common Stock
or Company Common Stock for any amount properly paid to a public official
pursuant to any applicable abandoned property, escheat or similar law.
1.8 No Further Ownership Rights in Company Common Stock. All shares of
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Parent Common Stock issued and cash paid upon the surrender for exchange of
shares of Company Common Stock in accordance with the terms hereof shall be
deemed to have been issued in full satisfaction of all rights pertaining to such
shares of Company Common Stock, and there shall be no further registration of
transfers on the records of the Surviving Corporation of shares of Company
Common Stock which were outstanding immediately prior to the Effective Time. If,
after the Effective Time, Certificates are presented to the Surviving
Corporation for any reason, they shall be canceled and exchanged as provided in
this Article I.
1.9 Lost, Stolen, or Destroyed Certificates. In the event any certificate
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evidencing shares of Company Common Stock shall have been lost, stolen, or
destroyed, Parent shall, in lieu of requiring surrender of the certificate in
accordance with Section 1.7(a), accept an affidavit by the holder thereof that
the certificate has been lost, stolen, or destroyed; provided, however, that
Parent may, in its discretion and as a condition precedent to the issuance
thereof, require the owner of such lost, stolen, or destroyed certificate to
deliver an indemnity agreement on such terms and/or a bond in such sum as it may
reasonably direct as indemnity against any claim that may be made against
Parent, Merger Sub, the Surviving Corporation, Parent's transfer agent, or any
other agent appointed by Parent with respect to the certificates alleged to have
been lost, stolen, or destroyed.
1.10 Tax Consequences. It is intended by the parties hereto that the Merger
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shall constitute a reorganization within the meaning of Section 368 of the Code.
1.11 Taking of Necessary Actions; Further Action. If, at any time after the
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Effective Time, any other action is necessary or desirable to carry out the
purposes of this Agreement and to vest the Surviving Corporation with full
right, title, and possession to all assets, property, rights, privileges,
powers, and franchises of the Company and Merger Sub, the officers and directors
of the Company, Parent and Merger Sub are fully authorized in the name of their
respective corporations or otherwise to take, and will take, all such lawful and
necessary action, so long as such action is consistent with this Agreement.
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Article II
EARNOUTS
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2.1 Initial Earnout. As additional consideration for the transactions
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contemplated by this Agreement, Parent shall pay to each Principal an amount
calculated in accordance with this Section 2.1:
(a) Within five (5) business days after each Initial Earnout Payment
Date, Parent shall pay to each Principal an amount equal to that Principal's
respective percentage interest of the Initial Earnout Periodic Payment; provided
that:
(i) For each Principal, (A) the representations and warranties of
the Company and each of the Principals contained in this Agreement or any other
agreement contemplated by or entered into pursuant to this Agreement or in
connection with the transactions contemplated by this Agreement were true and
correct in all material respects both when made on the date of this Agreement
and at and as of the Effective Time, except for changes contemplated by this
Agreement and except for those representations and warranties which address
matters only as of a particular date (which shall remain true and correct as of
such date) (B) each of the Company and each of the Principals has performed or
complied in all material respects with all agreements and covenants required by
this Agreement to be performed or complied with by them at or prior to the
Effective Time or required by any other agreement contemplated by or entered
into pursuant to this Agreement or in connection with the transactions
contemplated by this Agreement to be performed or complied with by them at or
prior to the Effective Time, and (C) such Principal has performed or complied in
all material respects with all agreements and covenants required by this
Agreement to be performed or complied with by them at or after the Effective
Time or required by any other agreement contemplated by or entered into pursuant
to this Agreement or in connection with the transactions contemplated by this
Agreement to be performed or complied with by them at or after the Effective
Time (including the noncompetition agreement of such Principal contemplated by
Section 6.12 below), and such Principal shall have delivered a certificate,
dated the appropriate Initial Earnout Payment Date, to Parent to the effect of
clauses (A), (B), and (C) above signed by such Principal; and
(ii) The version 1 of the Company's Xxxxx software product having
the features described in the Company Letter (as defined in Article III below)
shall have been completed and ready for production and shipment to commercial
customers on or before December 15, 2005.
Any amounts not paid by Parent due to failure of any of these
pre-conditions to be satisfied shall be retained by Parent.
(b) "Initial Earnout Payment Date" shall mean each of December 15, 2005
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and May 15, 2006.
(c) "Initial Earnout Periodic Payment" shall mean the sum of One
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Million Dollars ($1,000,000).
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(d) Each Principal's percentage interest of each payment under Section
2.1(a) above shall be the percent shown opposite such Principal's name below:
Name of Principal Percentage Interest
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Xxxxxxx X. Xxxx 50%
Xxxxx X. Xxxx 50%
Total 100%
2.2 Bonus Program Earnout. As additional consideration for the transactions
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contemplated by this Agreement, Parent shall pay to each Principal an amount
calculated in accordance with this Section 2.2:
(a) Parent shall pay to each Principal an amount equal to that
Principal's respective percentage interest of the product of multiplying the
Bonus Program Earnout Amount by the Bonus Program Success Percentage. These
amounts will be paid to the Principals within fifteen (15) days after the Bonus
Program Success Percentage has been determined.
(b) "Bonus Program Earnout Amount" shall mean the sum of Five Hundred
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Thousand Dollars ($500,000.00) as may be reduced as follows: (i) the Bonus
Program Earnout Amount shall be reduced proportionally if the blended gross
margin percent of the products and software included in the calculation of the
Covered Revenue (as defined in Section 2.2(d) below) is less than forty percent
(40%) in accordance with the following formula: amount of reduction = $500,000 *
(1 - (actual blended gross margin percent of the products and software included
in the calculation of the Covered Revenue / 40%)) and (ii) the Bonus Program
Earnout Amount (after any reduction under clause (i) above) shall be reduced by
an amount, if any, equal to the fully-loaded actual cost to the Surviving
Corporation to finish the development of the products and software to be
delivered to the Covered Accounts (as defined in the Company Letter).
(c) "Bonus Program Success Percentage" shall mean (i) zero if the
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Covered Revenue is less than One Million Five Hundred Thousand Dollars
($1,500,000.00), (ii) twenty percent (20%) if the Covered Revenue is equal to or
more than One Million Five Hundred Thousand Dollars ($1,500,000.00) but less
than Three Million Dollars ($3,000,000.00), (iii) forty percent (40%) if the
Covered Revenue is equal to or more than Three Million Dollars ($3,000,000.00)
but less than Four Million Five Hundred Thousand Dollars ($4,500,000.00), (iv)
sixty percent (60%) if the Covered Revenue is equal to or more than Four Million
Five Hundred Thousand Dollars ($4,500,000.00) but less than Six Million Dollars
($6,000,000.00), (v) eighty percent (80%) if the Covered Revenue is equal to or
more than Six Million Dollars ($6,000,000.00) but less than Seven Million Five
Hundred Thousand Dollars ($7,500,000.00), and (vi) one hundred percent (100%) if
the Covered Revenue is equal to or more than Seven Million Five Hundred Thousand
Dollars ($7,500,000.00).
(d) "Covered Revenue" shall mean the amount actually paid to Parent or
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the Surviving Corporation by the Covered Accounts for products and software
shipped to the Covered Accounts during the period commencing on the day after
the date of this Agreement and ending on the second anniversary of the date of
this Agreement, net of all discounts,
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concessions, allowances, product returns, warranty costs, and similar costs. In
order to qualify as Covered Revenue, payments have to be received by Parent or
the Surviving Corporation no later than thirty (30) days after the second
anniversary of the date of this Agreement.
(e) Each Principal's percentage interest of each payment under Section 2.2(a)
above shall be the percent shown opposite such Principal's name below:
Name of Principal Percentage Interest
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Xxxxxxx X. Xxxx 50%
Xxxxx X. Xxxx 50%
Total 100%
2.3 Right of Setoff. In addition to any other rights or remedies that
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Parent may have under this Agreement, any agreement contemplated by this
Agreement, applicable law, or otherwise, Parent shall have the right to withhold
and set off, at any time without demand or notice, against any amount due under
this Article II to any Principal the amount of any claim, loss, liability,
damage, cost, or expense (including, without limitation, attorney's fees and
expenses), whether now existing or hereafter arising, of any nature suffered or
incurred by Parent arising from, in connection with, or relating to any failure,
breach, default, inaccuracy, or lack of performance on the part of the Company
or any Principal of any of its representations, warranties, agreements, or
covenants in this Agreement or any other agreement contemplated by or entered
into pursuant to this Agreement or in connection with the transactions
contemplated by this Agreement. ANY AND ALL RIGHTS TO REQUIRE PARENT TO WITHHOLD
AND SET OFF ANY AMOUNTS DUE HEREUNDER IN ACCORDANCE WITH THE PRINCIPALS'
PERCENTAGE INTERESTS SHOWN ABOVE OR TO EXERCISE ANY OF ITS OTHER RIGHTS OR
REMEDIES PRIOR TO EXERCISING ITS RIGHT OF SETOFF HEREUNDER ARE HEREBY KNOWINGLY,
VOLUNTARILY, AND IRREVOCABLY WAIVED BY THE PRINCIPALS.
Article III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
---------------------------------------------
The Company represents and warrants to Parent and Merger Sub, subject to
the exceptions specifically disclosed in the disclosure letter supplied by the
Company to Parent (the "Company Letter") and dated as of the date hereof, as
follows: --------------
3.1 Organization of the Company. The Company and each of its material
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subsidiaries is a corporation duly organized, validly existing, and in good
standing under the laws of the jurisdiction of its incorporation, has the
corporate power to own, lease, and operate its property and to carry on its
business as now being conducted, and is duly qualified to do business and in
good standing as a foreign corporation in each jurisdiction in which the failure
to be so qualified would have a Material Adverse Effect (as defined below) on
the Company. The Company owns, directly or indirectly through one or more
subsidiaries, 100% of the capital stock of each of its subsidiaries, and does
not directly or indirectly own any equity or similar interest in, or any
interest convertible into or exchangeable or exercisable for any interest in,
any corporation, partnership, joint venture, or other business association or
entity other than the
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securities of any publicly traded entity held for investment only and
constituting less than 5% of the outstanding capital stock of any such entity.
For purposes of this Agreement, the term "subsidiary" of the Company or Parent,
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as the case may be, means any Person (other than a natural person) of which the
Company or Parent, as the case may be, owns, either directly or indirectly, a
majority of the total combined voting power of all classes of equity thereof
having general voting power under ordinary circumstances to elect a majority of
the board of directors or its equivalent. The Company has made available to
counsel for Parent a true and correct copy of the Certificate of Incorporation
and By-laws of the Company and similar governing instruments of its material
subsidiaries, each as amended to date. For purposes of this Agreement, "Material
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Adverse Effect" shall mean a material adverse effect on the business,
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properties, assets (including intangible assets), financial condition, or
results of operations of a Person (as defined below), taken as a whole, but
shall not include any of the foregoing arising out of, related to, or otherwise
by virtue of (a) conditions affecting the economy or the financial markets
generally (except to the extent that such conditions have a disproportionate
adverse effect on such Person compared to other companies similarly situated as
to size, financial strength, and/or other relevant factors), (b) the
announcement of or pendency of any of the transactions contemplated by this
Agreement, (c) events, circumstances, or conditions generally affecting the
industry in which such Person operates (except to the extent that such events,
circumstances, or conditions have a disproportionate adverse effect on such
Person compared to other companies similarly situated as to size, financial
strength, and/or other relevant factors), (d) any change in law or generally
accepted accounting principles, or (e) as to Parent, any change in the market
price or trading volume of the securities of such Person (provided, that if such
change in market price or trading volume is caused by an underlying cause or
effect which would otherwise constitute a Material Adverse Effect, such
underlying cause or effect shall nonetheless continue to constitute and qualify
hereunder as a Material Adverse Effect). For purposes of this Agreement,
"Person" shall mean any natural person, corporation, general partnership,
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limited partnership, limited liability company, proprietorship, or other
business organization.
3.2 Company Capital Structure.
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(a) The authorized capital stock of the Company consists of 25,000,000
shares of Company Common Stock and no shares of preferred stock. As of the date
of this Agreement, 1,000,000 shares of Company Common Stock are issued and
outstanding, and no shares of preferred stock were issued or outstanding. All
such shares have been duly authorized, and all such issued and outstanding
shares have been validly issued, are fully paid and nonassessable, and are free
of any liens or encumbrances other than any liens or encumbrances created by or
imposed upon the holders thereof. Since the date of the Company Balance Sheet
(as defined in Section 3.5 below), there have been no changes in the capital
structure of the Company other than issuances of Company Common Stock upon the
exercise of outstanding options. The Company has provided to Parent a true and
correct list of all holders of shares of Company Common Stock as of the date of
this Agreement, showing the stockholder's name, address, and number of shares
held.
(b) As of the date of this Agreement, (i) the Company had reserved no
shares of Company Common Stock for issuance upon exercise of stock options, and
(ii) there were options outstanding to purchase no shares of Company Common
Stock. All of the options were issued pursuant to the Company's 2001 Stock
Incentive Plan (the "Company Stock Option
--------------------
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Plan"). All Company Stock Options shall terminate prior to
----
or at the Effective Time without payment, penalty, or other liability to the
Company. All shares of Company Common Stock subject to issuance as aforesaid
have been duly authorized and, upon issuance on the terms and conditions
specified in the instruments pursuant to which they are issuable, would be
validly issued, fully paid, and nonassessable. Since the date of the Company
Balance Sheet, there have been no amendments of any Company stock options. The
Company has provided to Parent a true and correct list of all holders of options
to buy shares of Company Common Stock as of the date of this Agreement, showing
the security holder's name, address, number of options held, exercise price of
the options, and expiration date of the options.
(c) All securities issued by the Company, including stock and options,
both currently outstanding and formerly outstanding, were validly issued in
transactions exempt from the registration requirements of the Securities Act and
in accordance with any applicable state securities laws.
(d) The Company has provided to Parent copies of (i) all proxy
statements relating to the Company's meetings of stockholders (whether annual or
special) held since January 1, 2000, (ii) all information statements relating to
stockholder actions since January 1, 2000, (iii) all other reports, letters,
notices, and other documents provided to the Company's stockholders, option
holders, or warrant holders since January 1, 2000, and (iv) all amendments and
supplements to all such proxy statements, information statements, and other
documents since January 1, 2000. As of their respective dates, the materials
described in clauses (i) through (iv) above (y) were prepared in accordance with
all material requirements of law and regulations applicable to such materials
and (z) did not at the time they were provided to Company security holders
contain any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading.
3.3 Obligations With Respect to Capital Stock.
-----------------------------------------
(a) Except as set forth in Section 3.2, there are no equity securities
of any class of the Company, or any security convertible or exchangeable into or
exercisable for such equity securities, issued, reserved for issuance, or
outstanding. Except for securities the Company owns, directly or indirectly
through one or more subsidiaries, there are no equity securities of any class of
any subsidiary of the Company, or any security convertible or exchangeable into
or exercisable for such equity securities, issued, reserved for issuance, or
outstanding. Except as set forth in Section 3.2, there are no options, warrants,
equity securities, calls, rights, commitments, or agreements of any character to
which the Company or any of its subsidiaries is a party or by which it is bound
obligating the Company or any of its subsidiaries to issue, deliver, or sell, or
cause to be issued, delivered, or sold, additional shares of capital stock of
the Company or any of its subsidiaries or obligating the Company or any of its
subsidiaries to grant, extend, accelerate the vesting of, or enter into any such
option, warrant, equity security, call, right, commitment, or agreement.
(b) There are no registration rights, and there is no voting trust,
proxy, rights agreement, "poison pill" anti-takeover plan or other agreement or
understanding to which the Company or any of its subsidiaries is a party or by
which it or any of its subsidiaries is bound
11
with respect to any security of any class of the Company or with respect to any
security, partnership interest, or similar ownership interest of any class of
any of its subsidiaries. The execution and delivery of this Agreement by the
Company, the performance by the Company of its obligations hereunder, and
consummation by the Company of the transactions contemplated by this Agreement
will not, alone or together with any other event, nor has any event occurred
that would, (i) entitle any Person to any payment under or for any security,
option, warrant, call, right, commitment, or agreement of the Company or (ii)
result in an acceleration of vesting, a change in post-service exercisability
period, or an adjustment to the exercise price or number of shares issuable upon
exercise of any security, option, warrant, call, right, commitment, or agreement
of the Company.
3.4 Authority.
---------
(a) The Company has all requisite corporate power and authority to
enter into this Agreement and to consummate the transactions contemplated
hereby. The execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly authorized by all necessary
corporate action on the part of the Company, including all necessary
authorizations and required votes by the stockholders of the Company. This
Agreement has been duly executed and delivered by the Company and constitutes
the valid and binding obligation of the Company, enforceable against the Company
in accordance with its terms, except as enforceability may be limited by
bankruptcy and other similar laws and general principles of equity. The
execution and delivery of this Agreement by the Company does not, and the
consummation of the transactions contemplated hereby will not, conflict with, or
result in any violation of, or default under (with or without notice or lapse of
time, or both), or give rise to a right of termination, cancellation or
acceleration of any obligation or loss of any benefit under (i) any provision of
the Certificate of Incorporation or By-laws of the Company or similar governing
instruments of any of its subsidiaries or (ii) any material mortgage, indenture,
lease, contract or other agreement, or any material permit, concession,
franchise, license, judgment, order, decree, statute, law, ordinance, rule or
regulation applicable to the Company or its properties or assets.
(b) No consent, approval, order or authorization of, or registration,
declaration or filing with, any court, administrative agency or commission or
other governmental authority or instrumentality ("Governmental Entity"), is
-------------------
required by or with respect to the Company in connection with the execution and
delivery of this Agreement by the Company or the consummation by the Company of
the transactions contemplated hereby, except for (i) the filing of the
Certificate of Merger with the Delaware Secretary of State, (ii) such consents,
approvals, orders, authorizations, registrations, declarations and filings as
may be required under applicable federal and state securities laws and the laws
of any foreign country, and (iii) such other consents, authorizations, filings,
approvals, and registrations which, if not obtained or made, would not have a
Material Adverse Effect on the Company.
12
3.5 SEC Filings; Company Financial Statements.
-----------------------------------------
(a) The Company has never had any securities registered under the
Securities Act. The Company has never been subject to the periodic reporting and
other requirements of the Securities Exchange Act of 1934, as amended (the
"Exchange Act") and regulations promulgated pursuant thereto. The Company has
------------
not ever filed, or been obligated or required to file, any forms, reports, or
other documents with the Securities and Exchange Commission (the "SEC").
---
(b) The Company has furnished Parent with copies of its audited
consolidated financial statements for the fiscal years ended September 30, 2001,
2002, and 2003, and with copies of its unaudited consolidated financial
statements for the fiscal quarter ended March 31, 2004 (collectively, including
in each case any related notes thereto, the "Company Financial Statements").
----------------------------
Each of the Company Financial Statements (i) was prepared in accordance with
United States generally accepted accounting principles ("GAAP") applied on a
----
consistent basis throughout the periods involved (except as may be indicated in
the notes thereto) and (ii) fairly presented the financial position of the
Company at and as of the respective dates thereof and the results of its
operations, cash flows, and changes in stockholders' equity (if presented) for
the periods indicated. The audited balance sheet of the Company as of September
30, 2003 provided by the Company to Parent is hereinafter referred to as the
"Company Balance Sheet."
---------------------
(c) Subject to the second to last sentence of this Section 3.5(c), the
Company's cash on hand, together with its accounts receivable less than 61 days
in arrears, exceeds its accounts payable by at least $1,800,000, each as
measured as of the date of this Agreement. Each account receivable included in
this calculation will be collected in full by the Company or the Surviving
Corporation no later than 61 days after the date of the invoice relating to that
account receivable (and, in any event, no later than 61 days after the date of
this Agreement). For purposes of this calculation, accounts payable include all
obligations of the Company which are due or have been invoiced or for which the
Company has received benefit as of or prior to the Effective Date, including all
compensation earned but not yet paid to employees, consultants, advisors, or
licensors to the Company and the fees and expenses of Xxxx Xxxx Xxxx and
Friedenrich LLP. The Company has no obligations for any licensing fees or any
goods ordered or received by or services rendered to the Company at or before
the Effective Time other than those included in the accounts payable used in the
calculation above. The Company and the Principals acknowledge and agree that the
Cash on Hand Amount shall be reduced $1.00 for each $1.00 that the Company's
cash on hand, together with its accounts receivable less than 61 days in
arrears, is less than $1,800,000 greater than its accounts payable. "Current
-------
Cash Shortfall Amount" means the amount, if any, by which the Company's accounts
---------------------
receivable included in this calculation exceed the Company's accounts payable
included in this calculation.
3.6 Absence of Certain Changes or Events. Except with respect to the
------------------------------------
actions contemplated by this Agreement, since the date of the Company Balance
Sheet, the Company and its subsidiaries have conducted their businesses only in
the ordinary course and in a manner consistent with past practice and, since
such date, there has not been (a) any Material Adverse Effect on the Company or
any development that reasonably would be expected to have a
13
Material Adverse Effect on the Company or (b) any material liability or
obligation (direct or contingent) which did not arise in the ordinary course of
business.
3.7 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 government charges, duties, impositions and liabilities
relating to taxes, including taxes based upon or measured by gross receipts, net
operating losses, 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) Each of the Company and its subsidiaries has timely filed all
federal, state, local and foreign returns, estimates, information statements and
reports ("Returns") relating to Taxes required to be filed by the Company and
each of its subsidiaries, except such Returns which are not material to the
Company. All such Returns were correct and complete in all material respects.
Each of the Company and its subsidiaries has paid all Taxes due and owing by the
Company and its subsidiaries (whether or not shown on any Tax Return). None of
the Company and its subsidiaries currently is the beneficiary of any extension
of time within which to file any Return.
(ii) Except as is not material to the Company, each of the Company
and its subsidiaries will have withheld as of the Effective Time with respect to
its employees all income Taxes, FICA, FUTA, and other Taxes required to be
withheld.
(iii) Except as is not material to the Company, neither the Company
nor any of its subsidiaries has been delinquent in the payment of any Tax nor is
there any Tax deficiency outstanding, proposed or assessed against the Company
or any of its subsidiaries, nor has the Company or any of its subsidiaries
executed any waiver of any statute of limitations on or extending the period for
the assessment or collection of any Tax.
(iv) Except as is not material to the Company, no audit or other
examination of any Return of the Company or any of its subsidiaries is presently
in progress, nor has the Company or any of its subsidiaries been notified of any
request for such an audit or other examination.
(v) Neither the Company nor any of its subsidiaries has any
liability for unpaid Taxes which have not been accrued for or reserved against
on the Company Balance Sheet in accordance with GAAP, whether asserted or
unasserted, contingent or otherwise, which is material to the Company, except
liability for unpaid Taxes which have accrued since the date of the Company
Balance Sheet in the ordinary course of business.
14
(vi) None of the Company's assets is treated as "tax-exempt use
property" within the meaning of Section 168(h) of the Code.
(vii) There is no contract, agreement, plan or arrangement,
including but not limited to the provisions of this Agreement, covering any
employee or former employee of the Company or any of its subsidiaries that,
individually or collectively, could give rise to the payment of any amount for
which a deduction will be disallowed by reason of Sections 280G, 404 or 162(b)
through (o) of the Code.
(viii) Neither the Company nor any of its subsidiaries has filed
any consent agreement under Section 341(f) of the Code or agreed to have Section
341(f)(2) of the Code apply to any disposition of a subsection (f) asset (as
defined in Section 341(f)(4) of the Code) owned by the Company or any of is
subsidiaries.
(ix) The Company is not, and has not been at any time, a "United
States real property holding corporation" within the meaning of Section
897(c)(2) of the Code.
(x) None of the Company and its subsidiaries is a party to any tax
allocation or sharing agreement. None of the Company and its subsidiaries (A)
has been a member of an Affiliated Group (within the meaning of Section 1504(a)
of the Code, or any similar group defined under a similar provision of state,
local, or foreign law) filing a consolidated federal Return (other than a group
the common parent of which was the Company) or (B) has any liability for the
taxes of any person (other than any of the Company and its subsidiaries) under
Treas. Reg. ss.1.1502-6 (or any similar provision of state, local, or foreign
law), as a transferee or successor, by contract, or otherwise.
(xi) The Company has furnished Parent with a list of all federal,
state, local, and foreign Tax Returns filed with respect to the Company and its
subsidiaries for taxable periods ended on or after January 1, 2000, which list
indicates those Tax Returns that have been audited. The Company has delivered to
Parent correct and complete copies of all federal income Tax Returns,
examination reports, and statements of deficiencies assessed against, or agreed
to by the Company and its subsidiaries since January 1, 2000.
(xii) The Company will not be required to include any item of
income in, or exclude any item of deduction from, taxable income for any taxable
period (or portion thereof) ending after the Closing Date as a result of any (A)
change in method of accounting for a taxable period ending on or prior to the
Closing Date; (B) "closing agreement" as described in Code ss. 7121 (or any
corresponding or similar provision of state, local or foreign income Tax law)
executed on or prior to the Closing Date; (C) intercompany transactions or any
excess loss account described in Treasury Regulations under Code ss. 1502 (or
any corresponding or similar provision of state, local or foreign income Tax
law); (D) installment sale or open transaction disposition made on or prior to
the Closing Date; or (E) prepaid amount received on or prior to the Closing
Date.
3.8 Absence of Liens and Encumbrances. Each of Company and its subsidiaries
---------------------------------
has good and valid title to, or, in the case of leased properties and assets,
valid
15
leasehold interests in, all of its material tangible properties and assets,
real, personal and mixed, used in its business, free and clear of any liens or
encumbrances except as reflected in the Company Financial Statements and except
for liens for taxes not yet due and payable and such imperfections of title and
encumbrances, if any, which are not material in character, amount or extent, and
which do not materially detract from the value, or materially interfere with the
present use, of the property subject thereto or affected thereby.
3.9 Intellectual Property.
---------------------
(a) The Company, directly or indirectly, owns, or is licensed or
otherwise possesses legally enforceable rights to use, all patents, trademarks,
trade names, service marks, copyrights, and any applications therefor,
maskworks, net lists, schematics, technology, know-how, computer software
programs or applications (in both source code and object code form), and
tangible or intangible proprietary information or material (excluding Commercial
Software as defined in Paragraph (c) below) that are material to the business of
the Company as currently conducted or as proposed to be conducted by the Company
(the "Company Intellectual Property Rights").
------------------------------------
(b) The Company is not in violation of any license, sublicense, or
agreement related directly to the Company Intellectual Property Rights except
such violations as do not materially impair the Company's rights under such
license, sublicense, or agreement. The execution and delivery of this Agreement
by the Company, and the consummation of the transactions contemplated hereby,
will neither cause the Company to be in violation or default under any such
license, sublicense, or agreement, nor entitle any other party to any such
license, sublicense, or agreement to terminate or modify such license,
sublicense, or agreement except such violations or defaults as do not materially
impair the Company's rights under such license, sublicense, or agreement. No
material claims with respect to the Company Intellectual Property Rights have
been asserted or, to the knowledge of the Company, are threatened by any Person
nor, to the knowledge of the Company, are there any valid grounds for any bona
fide material claims (i) to the effect that the manufacture, sale, licensing, or
use of any of the products of the Company or any of its subsidiaries as now
manufactured, sold, licensed, or used or proposed for manufacture, sale,
licensing, or use by the Company infringes on any copyright, patent, trade xxxx,
service xxxx, or trade secret, (ii) against the use by the Company or any of its
subsidiaries of any trademarks, service marks, trade names, trade secrets,
copyrights, patents, technology, know-how, or computer software programs and
applications used in the Company's business as currently conducted or as
proposed to be conducted, or (iii) challenging the ownership by the Company,
validity, or effectiveness of any of the Company Intellectual Property Rights.
All material registered trademarks, service marks, and copyrights held by the
Company are valid and subsisting. To the knowledge of the Company, there is no
material unauthorized use, infringement, or misappropriation of any of the
Company Intellectual Property Rights by any third party, including any employee
or former employee of the Company. No Company Intellectual Property Right owned
by the Company or product of the Company or any of its subsidiaries, or, to the
knowledge of the Company, Company Intellectual Property Right licensed by the
Company or its subsidiaries is subject to any outstanding decree, order,
judgment, or stipulation restricting in any manner the licensing thereof by the
Company or any of its subsidiaries.
16
(c) Without limiting the generality of the foregoing: (i) the Company
has paid and both Xxxxxxx X. Xxxx and The Ohio State University have received
all royalties due pursuant to that Software License Agreement, dated March 1,
1993, as amended and restated pursuant to the Restated and Amended License
Agreement of even date herewith (the "Original Software License"), between the
Company and Xx. Xxxx and that Copyright Agreement, dated January 19, 1993 (the
"Original Copyright Agreement"), between Xx. Xxxx and The Ohio State University,
(ii) since March 2000, the Company has not sold or licensed as a standalone
product, incorporated into any other product of the Company, or used in any
other fashion any software for which the Company would have an obligation to pay
a royalty under the Original Software License or the Original Copyright
Agreement, (iii) none of the sale or license by the Company of any software
currently sold or licensed by the Company, the incorporation of any software
currently incorporated into any other product of the Company, or the use in any
other fashion by the Company of any software in its business infringes upon or
violates any rights that either Xx. Xxxx or The Ohio State University may have
in, to, or under the software that is the subject of the Original Copyright
Agreement, and (iv) provided that the Company conducts its business as presently
conducted and proposed to be conducted, the Company has and will have no
obligation to pay any royalties to either Xx. Xxxx or The Ohio State University
under the Original Software License or the Original Copyright Agreement.
(d) "Commercial Software" means packaged commercially available
software programs generally available to the public through retail dealers in
computer software which have been licensed to the Company (or, in the case of
Section 4.9, to Parent) pursuant to end-user licenses and which are used in the
Company's business (or in Parent's business in the case of Section 4.9) but are
in no way a component of or incorporated in or specifically required to develop
or support any of the Company's (or of Parent's in the case of Section 4.9)
products and related trademarks, technology and know-how.
3.10 Agreements, Contracts and Commitments. Neither the Company nor any of
-------------------------------------
its subsidiaries has, nor is it a party to nor is it bound by:
(a) any collective bargaining agreements;
(b) any bonus, deferred compensation, incentive compensation, pension,
profit-sharing or retirement plans, or any other employee benefit plans or
arrangements;
(c) any employment or consulting agreement, contract or commitment with
any officer or director-level employee, not terminable by the Company on thirty
days' notice without liability, except to the extent general principles of
wrongful termination law may limit the Company's ability to terminate employees
at will;
(d) any agreement or plan, including, without limitation, any stock
option plan, stock appreciation right plan or stock purchase plan, any of the
benefits of which will be increased, or the vesting of benefits of which will be
accelerated, by the occurrence of any of the transactions contemplated by this
Agreement or the value of any of the benefits of which will be calculated on the
basis of any of the transactions contemplated by this Agreement;
17
(e) any agreement, contract or commitment (excluding real and personal
property leases) which involves payment by the Company of $20,000 or more
(excluding amounts which are already owing by the Company or such subsidiary at
the date of the Company Balance Sheet) and is not cancelable without penalty
within thirty (30) days;
(f) any agreement under which the Company or its subsidiaries is
restricted from selling, licensing, or otherwise distributing any of its
products to any class of customers, in any geographic area, during any period of
time, or in any segment of the market; or
(g) any agreement under which the Company is restricted from entering
into any line of business, introducing any products, undertaking any activities,
or competing with any other person or entity in any line of business, in any
geographic area, during any period of time, or in any segment of the market.
3.11 No Default. Neither the Company nor any of its subsidiaries has
----------
breached in any material respect, or received in writing any claim or threat
that it has breached in any material respect, any of the terms or conditions of
any (i) agreement, contract or commitment that was or is material to the Company
or (ii) any agreement under which the Company or any of its subsidiaries
licenses from a third party any Company Intellectual Property Rights included in
the Company's products in such a manner as would permit any other party to
cancel or terminate the same or would permit any other party to seek material
damages from the Company thereunder. Each of the agreements, contracts and
commitments referred to in clauses (i) and (ii) above that has not expired or
been terminated in accordance with its terms is in full force and effect and,
except as otherwise disclosed, is not subject to any material default thereunder
of which the Company is aware by any party obligated to the Company pursuant
thereto.
3.12 Governmental Authorization. The Company holds all permits, licenses,
--------------------------
variances, exemptions, orders and approvals of all Governmental Entities which
are material to the operation of the Company's business as currently conducted
(the "Company Permits"). The Company is in material compliance with the terms of
the Company Permits. The business of the Company is not being conducted in
violation of any law, ordinance or regulation of any Governmental Entity, except
for violations or possible violations which individually or in the aggregate
would not have a Material Adverse Effect on the Company. As of the date of this
Agreement, no investigation or review by any Governmental Entity with respect to
the Company is pending or, to the knowledge of the Company, threatened, nor to
the knowledge of the Company, has any Governmental Entity indicated an intention
to conduct the same, other than, in each case, those the outcome of which would
not have a Material Adverse Effect on the Company.
3.13 Litigation. There is no action, suit, proceeding, claim, arbitration
----------
or investigation pending, or as to which the Company or any of its subsidiaries
has received any notice of assertion nor, to the Company's knowledge, is there a
reasonable basis to expect such notice of assertion against the Company or any
of its subsidiaries which, if determined adversely to the Company or any of its
subsidiaries, could have a Material Adverse Effect on the Company.
3.14 Environmental Matters. Neither the Company nor any of its subsidiaries
---------------------
has been or is currently in material violation of any applicable statute, law or
regulation relating
18
to the environment or occupational health and safety
("Environmental and Occupational Laws"). Each of the Company and its
-----------------------------------
subsidiaries has all permits and other governmental authorizations currently
required by all applicable statutes, laws or regulations relating to the
environment or occupational health and safety necessary for the conduct of its
business. Neither the Company nor any of its subsidiaries has received any
communication from a Governmental Entity, or any written communication from any
Person other than a Governmental Entity, that alleges that it is not in full
compliance with Environmental or Occupational Laws, except for matters alleging
items which would not have a Material Adverse Effect on the Company. There is no
claim of a violation of Environmental and Occupational Laws pending or, to the
knowledge of the Company, threatened against the Company or any of its
subsidiaries, except for matters alleging items which would not have a Material
Adverse Effect on the Company. 3.15 Brokers' and Finders' Fees. The Company has
not incurred, nor will it incur, directly or indirectly, any liability for
brokerage or finders' fees or agents' commissions or any similar charges in
connection with this Agreement, the Merger, or any transaction contemplated
hereby.
3.16 Labor Matters. There are no pending or, to the Company's knowledge,
-------------
threatened material claims against the Company or any of its subsidiaries under
any workers' compensation plan or policy or for long-term disability. Each of
the Company and its United States subsidiaries has complied in all material
respects with all applicable provisions of the Consolidated Omnibus Budget
Reconciliation Act of 1985 ("COBRA") and has no material obligations with
respect to any former employees or qualifying beneficiaries thereunder.
3.17 Employee Benefit Plans.
----------------------
(a) The Company has made available to Parent (i) accurate and complete
copies of all Benefit Plan documents and all other material documents relating
thereto, including (if applicable) all summary plan descriptions, summary annual
reports and insurance contracts, (ii) accurate and complete detailed summaries
of all unwritten Benefit Plans, (iii) accurate and complete copies of the most
recent financial statements and actuarial reports with respect to all Benefit
Plans for which financial statements or actuarial reports are required or have
been prepared, and (iv) accurate and complete copies of all annual reports for
all Benefit Plans (for which annual reports are required) prepared within the
last three years. "Benefit Plans" means all employee benefit plans within the
-------------
meaning of Section 3(3) of the Employee Retirement Income Security Act of 1974,
as amended ("ERISA"), and any related or separate contracts, plans, trusts,
-----
programs, policies, arrangements, practices, customs and understandings, in each
case whether formal or informal, that provide benefits of economic value to any
present or former employee of the Company (or, in the case of Section 4.17,
Parent) or present or former beneficiary, dependent or assignee of any such
employee or former employee.
(b) All Benefit Plans of the Company conform (and at all times have
conformed) in all material respects to, and are being administered and operated
(and have at all time been administered and operated) in material compliance
with, the requirements of ERISA, the Code and all other applicable laws or
governmental regulations. All returns, reports and disclosure statements
required to be made under ERISA and the Code with respect to all Benefit Plans
have been timely filed or delivered. There have not been any "prohibited
transactions," as
19
such term is defined in Section 4975 of the Code or Section 406 of ERISA
involving any of the Benefit Plans, that could subject the Company to any
material penalty or tax imposed under the Code or ERISA.
(c) Any Benefit Plan that is intended to be qualified under Section
401(a) of the Code and exempt from tax under Section 501(a) of the Code has been
established under a standardized prototype plan for which an Internal Revenue
Service opinion letter has been obtained by the plan sponsor and is valid as to
the Company as an adopting employer or has been determined by the Internal
Revenue Service to be so qualified or an application for such determination is
pending. Any such opinion letter or determination that has been obtained remains
in effect and has not been revoked, and with respect to any application that is
pending, the Company has no reason to suspect that such application for
determination will be denied. Nothing has occurred since the date of any such
establishment or determination that is reasonably likely to affect adversely
such qualification or exemption, or result in the imposition of excise taxes or
income taxes on unrelated business income under the Code or ERISA with respect
to any Benefit Plan.
(d) The Company does not sponsor, nor has it ever sponsored, a defined
benefit plan subject to Title IV of ERISA, nor has it ever had any obligation to
contribute to any multiemployer plan (as defined in Section 3(37) of ERISA). The
Company does not have any material liability with respect to any employee
benefit plan (as defined in Section 3(3) of ERISA) other than with respect to
the Benefit Plans. For purposes of this Section 3.17, the term "the Company"
shall include any corporation that is a member of any controlled group of
corporations (as defined in Section 414(b) of the Code) that includes the
Company, any trade or business (whether or not incorporated) that is under
common control (as defined in Section 414(c) of the Code) with the Company, any
organization (whether or not incorporated) that is a member of an affiliated
service group (as defined in Section 414(m) of the Code) that includes the
Company and any other entity required to be aggregated with the Company pursuant
to the regulations issued under Section 414(o) of the Code.
(e) There are no pending or, to the knowledge of the Company,
threatened claims by or on behalf of any Benefit Plans, or by or on behalf of
any individual participants or beneficiaries of any Benefit Plans, alleging any
breach of fiduciary duty on the part of the Company or any of its officers,
directors or employees under ERISA or any other applicable regulations, or
claiming benefit payments (other than those made in the ordinary operation of
such plans), nor is there, to the knowledge of the Company, any basis for such
claim, except in any such case as reasonably would not be expected to have a
Material Adverse Effect on the Company. The Benefit Plans are not the subject of
any pending (or to the knowledge of the Company, any threatened) investigation
or audit by the Internal Revenue Service, the Department of Labor or the Pension
Benefit Guaranty Corporation ("PBGC").
----
(f) The Company has timely made all required contributions under the
Benefit Plans including the payment of any premiums payable to the PBGC and
other insurance premiums.
(g) With respect to any Benefit Plan that is an employee welfare
benefit plan (within the meaning of Section 3(1) of ERISA) (a "Welfare Plan"),
(i) each Welfare ------------
20
Plan for which contributions are claimed by the Company as deductions under any
provision of the Code is in material compliance with all applicable requirements
pertaining to such deduction, (ii) with respect to any welfare benefit fund
(within the meaning of Section 419 of the Code) related to a Welfare Plan, there
is no disqualified benefit (within the meaning of Section 4976(b) of the Code)
that would result in the imposition of a tax under Section 4976(a) of the Code,
(iii) any Benefit Plan that is a group health plan (within the meaning of
Section 4980B(g)(2) of the Code) complies, and in each and every case has
complied, with all of the applicable material requirements of Section 4980B of
the Code, ERISA, Title XXII of the Public Health Service Act and the Social
Security Act, and (iv) all Welfare Plans may be amended or terminated at any
time on or after the Closing Date. No Benefit Plan provides any health, life or
other welfare coverage to employees of the Company beyond termination of their
employment with the Company by reason or retirement or otherwise, other than
coverage as may be required under Section 4980B of the Code or Part 6 of ERISA,
or under the continuation of coverage provisions of the laws of any state or
locality.
3.18 Compliance With Laws. Each of the Company and its subsidiaries has
--------------------
complied in all material respects with, is not in material violation of, and has
not received any notices of violation with respect to, any federal, state or
local statute, law or regulation with respect to the conduct of its business, or
the ownership or operation of its business, except in any such case as
reasonably would not be expected to have a Material Adverse Effect on the
Company.
3.19 Board Approval. On or prior to the date of this Agreement, the Board
--------------
of Directors of the Company, by resolutions duly adopted by unanimous approval
of those voting at a meeting duly called and held and not subsequently rescinded
or modified in any way, has duly (a) determined that this Agreement and the
Merger are fair and in the best interests of the Company and its stockholders,
(b) approved this Agreement and the Merger and determined that the execution,
delivery and performance of this Agreement is desirable, and (c) recommended
that the stockholders of the Company approve and adopt this Agreement and
directed that this Agreement and the transactions contemplated hereby be
submitted for consideration by the Company's stockholders at the Company
Stockholders' Meeting.
3.20 Stockholder Approval. On or prior to the date of this Agreement, the
--------------------
stockholders of the Company, by resolutions duly adopted at a meeting duly
called and held or by unanimous approval of all holders of all issued and
outstanding shares of Company Common Stock and not subsequently rescinded or
modified in any way, have duly approved and adopted this Agreement, the Merger,
and the other transactions contemplated by this Agreement.
3.21 Antitakeover Laws Not Applicable. No "fair price," "business
--------------------------------
ombination," "moratorium," "control share acquisition" or other form of
antitakeover statute or regulation (a "Takeover Statute") is or will be
----------------
applicable (as to the Company) to the execution, delivery, or performance of
this Agreement or the consummation of the Merger or the other transactions
contemplated by this Agreement.
3.22 Full Disclosure. Neither this Agreement nor any written statement,
---------------
report, or other document furnished by the Company pursuant to this Agreement or
in connection with the transactions contemplated hereby with respect to the
Company contains any untrue statement
21
of a material fact or omits to state a material fact necessary in order to make
the statements contained herein or therein, in light of the circumstances under
which they are made, not false or misleading.
3.23 FIRPTA. The Company Common Stock is not a "U.S. Real Property
------
Interest" as defined in Treasury Regulation Section 1.897-2(h)(2).
Article IV
REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB
-------------------------------------------------------
Parent and Merger Sub represent and warrant to the Company, subject to the
exceptions specifically disclosed in the disclosure letter supplied by Parent to
the Company (the "Parent Letter") and dated as of the date hereof, as follows:
-------------
4.1 Organization of Parent and Merger Sub. Each of Parent, its material
-------------------------------------
subsidiaries, and Merger Sub is a corporation duly organized, validly existing,
and in good standing under the laws of the jurisdiction of its incorporation,
has the corporate power to own, lease, and operate its property and to carry on
its business as now being conducted and as proposed to be conducted, and is duly
qualified to do business and in good standing as a foreign corporation in each
jurisdiction in which the failure to be so qualified would have a Material
Adverse Effect on Parent. Except as set forth in the Parent SEC Reports (as
defined below in Section 4.5) filed with the SEC prior to the date of this
Agreement, Parent owns, directly or indirectly through one or more subsidiaries,
100% of the capital stock of each of its subsidiaries and does not directly or
indirectly own any equity or similar interest in, or any interest convertible
into or exchangeable or exercisable for any interest in, any corporation,
partnership, joint venture, or other business association or entity other than
the securities of any publicly-traded entity held for investment only and
constituting less than 5% of the outstanding capital stock of any such entity.
Parent has made available to counsel for the Company a true and correct copy of
the Certificate of Incorporation and By-laws of Parent and Merger Sub, and
similar governing instruments of its material subsidiaries, each as amended to
date.
4.2 Capital Structure.
-----------------
(a) The authorized capital stock of Parent consists of 100,000,000
shares of Parent Common Stock and 4,500,000 shares of Preferred Stock, $.01 par
value. As of the date of this Agreement, 14,278,402 shares of Parent Common
Stock were issued and outstanding and no shares of preferred stock of Parent
were issued or outstanding. The authorized capital stock of Merger Sub consists
of 3,000 shares of Common Stock, $.01 par value, 100 shares of which, as of the
date hereof, are issued and outstanding and are held by Parent. All such shares
have been duly authorized, and all such issued and outstanding shares have been
validly issued, are fully paid and nonassessable, and are free of any liens or
encumbrances other than any liens or encumbrances created by or imposed upon the
holders thereof. Since the date of the Parent Balance Sheet (as defined in
Section 4.5 below), there have been no changes in the capital structure of
Parent other than issuances of Parent Common Stock upon the exercise of
outstanding options and warrants.
22
(b) As of the date of this Agreement, (i) Parent had reserved 389,626
shares of Parent Common Stock for issuance upon exercise of warrants and
1,294,836 shares of Parent Common Stock for issuance upon exercise of stock
options, (ii) there were warrants outstanding to purchase 389,626 shares of
Parent Common Stock, and (iii) there were options outstanding to purchase
823,214 shares of Parent Common Stock. All of the outstanding options were
issued pursuant to Parent's 1986 Stock Plan, 1987 Stock Plan, 1996 Stock Plan,
1997 Stock Plan, 1999 Stock Plan, 2001 Nonqualified Stock Option Plan, or 2002
Stock Incentive Plan (collectively, the "Parent Stock Option Plan"). All shares
------------------------
of Parent Common Stock subject to issuance as aforesaid have been duly
authorized and, upon issuance on the terms and conditions specified in the
instruments pursuant to which they are issuable, will be validly issued, fully
paid, and nonassessable. Since the date of the Parent Balance Sheet, there have
been no amendments of any Parent stock options or warrants.
(c) The shares of Parent Common Stock to be issued pursuant to the
Merger will, upon issuance, be duly authorized, validly issued, fully paid, and
non-assessable.
4.3 Obligations With Respect to Capital Stock.
-----------------------------------------
(a) Except as set forth in Section 4.2, there are no equity securities
of any class of Parent, or any security convertible or exchangeable into or
exercisable for such equity securities, issued, reserved for issuance, or
outstanding. Except for securities Parent owns, directly or indirectly through
one or more subsidiaries, there are no equity securities of any class of any
subsidiary of Parent, or any security convertible or exchangeable into or
exercisable for such equity securities, issued, reserved for issuance, or
outstanding. Except as set forth in Section 4.2, there are no options, warrants,
equity securities, calls, rights, commitments, or agreements of any character to
which Parent or any of its subsidiaries is a party or by which it is bound
obligating Parent or any of its subsidiaries to issue, deliver, or sell, or
cause to be issued, delivered, or sold, additional shares of capital stock of
Parent or any of its subsidiaries or obligating Parent or any of its
subsidiaries to grant, extend, accelerate the vesting of or enter into any such
option, warrant, equity security, call, right, commitment, or agreement.
(b) Except as contemplated by this Agreement, there are no registration
rights, and there is no voting trust, proxy, rights agreement, "poison pill"
anti-takeover plan, or other agreement or understanding to which Parent or any
of its subsidiaries is a party or by which it or any of its subsidiaries is
bound with respect to any security of any class of Parent or with respect to any
security, partnership interest, or similar ownership interest of any class of
any of its subsidiaries. The execution and delivery of this Agreement by Parent
and Merger Sub, the performance by Parent and Merger Sub of their obligations
hereunder, and consummation by Parent and Merger Sub of the transactions
contemplated by this Agreement will not, alone or together with any other event,
nor has any event occurred that would, (i) entitle any Person to any payment
under or for any security, option, warrant, call, right, commitment, or
agreement of Parent or Merger Sub or (ii) result in an acceleration of vesting,
a change in post-service exercisability period, or an adjustment to the exercise
price or number of shares issuable upon exercise of any security, option,
warrant, call, right, commitment, or agreement of Parent or Merger Sub.
23
4.4 Authority.
---------
(a) Parent and Merger Sub have all requisite corporate power and
authority to enter into this Agreement and to consummate the transactions
contemplated hereby. The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby have been duly authorized
by all necessary corporate action on the part of Parent and Merger Sub. This
Agreement has been duly executed and delivered by Parent and Merger Sub and
constitutes the valid and binding obligations 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. The execution and delivery of this Agreement by
Parent and Merger Sub does not, and the consummation of the transactions
contemplated hereby by Parent and Merger Sub will not, conflict with, or result
in any violation of, or default under (with or without notice or lapse of time,
or both), or give rise to a right of termination, cancellation, or acceleration
of any obligation or loss of any benefit under (i) any provision of the
Certificate of Incorporation or By-laws of Parent, the Certificate of
Incorporation or By-laws of Merger Sub, or similar governing instruments of any
of its subsidiaries or (ii) any material mortgage, indenture, lease, contract,
or other agreement, or any material permit, concession, franchise, license,
judgment, order, decree, statute, law, ordinance, rule, or regulation applicable
to Parent or its properties or assets.
(b) No consent, approval, order, or authorization of, or registration,
declaration, or filing with, any Governmental Entity is required by or with
respect to Parent and Merger Sub in connection with the execution and delivery
of this Agreement by Parent and Merger Sub or the consummation by Parent and
Merger Sub of the transactions contemplated hereby, except for (i) the filing of
the Certificate of Merger with the Delaware Secretary of State, (ii) the filing
of a Form 8-K with the SEC, (iii) such consents, approvals, orders,
authorizations, registrations, declarations and filings as may be required under
applicable federal and state securities laws and the laws of any foreign
country, and (vi) such other consents, authorizations, filings, approvals, and
registrations which, if not obtained or made, would not have a Material Adverse
Effect on Parent.
4.5 SEC Filings, Parent Financial Statements.
----------------------------------------
(a) Parent has filed all forms, reports, and documents required to be
filed with the SEC and has made available to the Company, in the form filed with
the SEC, (i) its Annual Reports on Form 10-K for the fiscal years ended December
31, 2001, 2002, and 2003, (ii) all proxy statements relating to Parent's
meetings of stockholders (whether annual or special) held since January 1, 2001,
(iii) all information statements relating to stockholder actions since January
1, 2001, (iv) all other reports or registration statements filed by Parent with
the SEC since January 1, 2001, and (v) all amendments and supplements to all
such reports, proxy statements, information statements, and registration
statements filed by Parent with the SEC. All such required forms, reports and
documents (including those enumerated in clauses (i) through (v) of the
preceding sentence) are referred to herein as the "Parent SEC Reports." With
------------------
respect to Parent's Form 10-K for the period ending December 31, 2003 and Forms
10-Q for the periods ending June 30, 2003 and September 30, 2003, the term
"Parent SEC Reports" shall refer to those three forms each as amended by
Amendment No. 1 thereto as filed with the SEC on March
24
25, 2004. As of their respective dates, the Parent SEC Reports (i) were prepared
in accordance with the requirements of the Securities Act or the Exchange Act,
as the case may be, and the rules and regulations of the SEC thereunder
applicable to such Parent SEC Reports and (ii) did not at the time they were
filed (or if amended or superseded by a filing prior to the date of this
Agreement, then on the date of such filing) contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading. None of Parent's
subsidiaries is required to file any forms, reports or other documents with the
SEC.
(b) Each of the consolidated financial statements (including, in each
case, any related notes thereto) contained in the Parent SEC Reports (the
"Parent Financial Statements"), including any Parent SEC Reports filed after the
date hereof until the Closing, (x) complied or will comply as to form in all
material respects with the published rules and regulations of the SEC with
respect thereto, (y) was or will be prepared in accordance with GAAP applied on
a consistent basis throughout the periods involved (except as may be indicated
in the notes thereto), and (z) fairly presented or will fairly present the
consolidated financial position of Parent and its subsidiaries as at the
respective dates thereof and the consolidated results of its operations, cash
flows, and changes in stockholders' equity (if presented) for the periods
indicated, except that the unaudited interim financial statements were or are
subject to normal and recurring year-end adjustments which were not or are not
expected to be material in amount. The audited balance sheet of Parent as of
December 31, 2003 contained in the Parent SEC Reports is hereinafter referred to
as the "Parent Balance Sheet."
(c) Parent has heretofore furnished to the Company a complete and
correct copy of any amendments or modifications, which have not yet been filed
with the SEC but which are required to be filed, to agreements, documents, or
other instruments which previously had been filed by Parent with the SEC
pursuant to the Securities Act or the Exchange Act.
4.6 Absence of Certain Changes or Events. Except with respect to the
------------------------------------
actions contemplated by this Agreement or disclosed in the Parent SEC Reports
filed with the SEC prior to the date of this Agreement, since the date of the
Parent Balance Sheet, Parent and its subsidiaries have conducted their
businesses only in the ordinary course and in a manner consistent with past
practice and, since such date, there has not been (a) any Material Adverse
Effect on Parent or any development that reasonably would be expected to have a
Material Adverse Effect on Parent or (b) any material liability (direct or
contingent) which did not arise in the ordinary course of business or (c) any
other action that required consent or approval of the Parent's stockholders
under applicable law.
4.7 Taxes.
-----
(a) Each of Parent and its subsidiaries has timely filed all Returns
relating to Taxes required to be filed by Parent and each of its subsidiaries,
except such Returns which are not material to Parent. All such Returns were
correct and complete in all material respects. Each of Parent and its
subsidiaries has paid all Taxes due and owing by Parent and its
25
subsidiaries (whether or not shown on any Tax Return). None of Parent and its
subsidiaries currently is the beneficiary of any extension of time within which
to file any Return.
(b) Except as is not material to Parent, each of Parent and its
subsidiaries will have withheld as of the Effective Time with respect to its
employees all income Taxes, FICA, FUTA, and other Taxes required to be withheld.
(c) Except as is not material to Parent, neither Parent nor any of its
subsidiaries has been delinquent in the payment of any Tax nor is there any Tax
deficiency outstanding, proposed, or assessed against Parent or any of its
subsidiaries, nor has Parent or any of its subsidiaries executed any waiver of
any statute of limitations on or extending the period for the assessment or
collection of any Tax.
(d) Except as is not material to Parent, no audit or other examination
of any Return of Parent or any of its subsidiaries is presently in progress, nor
has Parent or any of its subsidiaries been notified of any request for such an
audit or other examination.
(e) Neither Parent nor any of its subsidiaries has any liability for
unpaid Taxes which have not been accrued for or reserved against on the Parent
Balance Sheet in accordance with GAAP, whether asserted or unasserted,
contingent or otherwise, which is material to Parent, except liability for
unpaid Taxes which have accrued since the date of the Parent Balance Sheet in
the ordinary course of business.
(f) None of Parent's assets is treated as "tax-exempt use property"
within the meaning of Section 168(h) of the Code.
(g) There is no contract, agreement, plan, or arrangement, including
but not limited to the provisions of this Agreement, covering any employee or
former employee of Parent or any of its subsidiaries that, individually or
collectively, could give rise to the payment of any amount for which a deduction
will be disallowed by reason of Sections 280G, 404 or 162(b) through (o) of the
Code.
(h) Neither Parent nor any of its subsidiaries has filed any consent
agreement under Section 341(f) of the Code or agreed to have Section 341(f)(2)
of the Code apply to any disposition of a subsection (f) asset (as defined in
Section 341(f)(4) of the Code) owned by Parent or any of its subsidiaries.
(i) Parent is not, and has not been at any time, a "United States real
property holding corporation" within the meaning of Section 897(c)(2) of the
Code.
(j) None of the Parent and its subsidiaries is a party to any tax
allocation or sharing agreement. None of the Parent and its subsidiaries (A) has
been a member of an Affiliated Group (within the meaning of Section 1504(a) of
the Code, or any similar group defined under a similar provision of state,
local, or foreign law) filing a consolidated federal Return (other than a group
the common parent of which was the Parent) or (B) has any liability for the
taxes of any person (other than any of the Parent and its subsidiaries) under
Treas. Reg. ss.1.1502-6 (or any similar provision of state, local, or foreign
law), as a transferee or successor, by contract, or otherwise.
26
(k) Parent has furnished the Company with a list of all federal, state,
local, and foreign Tax Returns filed with respect to Parent and its subsidiaries
for taxable periods ended on or after January 1, 2000, which list indicates
those Tax Returns that have been audited. Parent has delivered to the Company
correct and complete copies of all federal income Tax Returns, examination
reports, and statements of deficiencies assessed against, or agreed to by Parent
and its subsidiaries since January 1, 2000.
(l) To Parent's knowledge, neither Parent nor any of its subsidiaries
will be required to include any item of income in, or exclude any item of
deduction from, taxable income for any taxable period (or portion thereof)
ending after the Closing Date as a result of any (A) change in method of
accounting for a taxable period ending on or prior to the Closing Date; (B)
"closing agreement" as described in Code ss. 7121 (or any corresponding or
similar provision of state, local or foreign income Tax law) executed on or
prior to the Closing Date; (C) intercompany transactions or any excess loss
account described in Treasury Regulations under Code ss. 1502 (or any
corresponding or similar provision of state, local or foreign income Tax law);
(D) installment sale or open transaction disposition made on or prior to the
Closing Date; or (E) prepaid amount received on or prior to the Closing Date.
4.8 Absence of Liens and Encumbrances. Each of Parent and its subsidiaries
---------------------------------
has good and valid title to, or, in the case of leased properties and assets,
valid leasehold interests in, all of its material tangible properties and
assets, real, personal, and mixed, used in its business, free and clear of any
liens or encumbrances except as reflected in the Parent Financial Statements and
except for liens for taxes not yet due and payable and such imperfections of
title and encumbrances, if any, which are not material in character, amount, or
extent and which do not materially detract from the value, or materially
interfere with the present use, of the property subject thereto or affected
thereby.
4.9 Intellectual Property.
---------------------
(a) Parent, directly or indirectly, owns, or is licensed or otherwise
possesses legally enforceable rights to use, all patents, trademarks, trade
names, service marks, copyrights, and any applications therefor, maskworks, net
lists, schematics, technology, know-how, computer software programs or
applications (in both source code and object code form), and tangible or
intangible proprietary information or material (excluding Commercial Software)
that are material to the business of Parent as currently conducted or as
proposed to be conducted by Parent (the "Parent Intellectual Property Rights").
-----------------------------------
(b) Parent is not in violation of any license, sublicense, or agreement
related directly to the Parent Intellectual Property Rights except such
violations as do not materially impair Parent's rights under such license,
sublicense, or agreement. The execution and delivery of this Agreement by
Parent, and the consummation of the transactions contemplated hereby, will
neither cause Parent to be in violation or default under any such license,
sublicense or agreement, nor entitle any other party to any such license,
sublicense or agreement to terminate or modify such license, sublicense or
agreement except such violations or defaults as do not materially impair
Parent's rights under such license, sublicense or agreement. No material claims
with respect to the Parent Intellectual Property Rights have been asserted or,
to the knowledge of Parent, are threatened by any Person, nor, to the knowledge
of Parent, are
27
there any valid grounds for any bona fide material claims (i) to the effect that
the manufacture, sale, licensing or use of any of the products of Parent or any
of its subsidiaries as now manufactured, sold, licensed, or used or proposed for
manufacture, sale, licensing, or use by Parent infringes on any copyright,
patent, trade xxxx, service xxxx, or trade secret, (ii) against the use by
Parent or any of its subsidiaries of any trademarks, service marks, trade names,
trade secrets, copyrights, patents, technology, know-how, or computer software
programs and applications used in Parent's business as currently conducted or as
proposed to be conducted, or (iii) challenging the ownership by Parent,
validity, or effectiveness of any of the Parent Intellectual Property Rights.
All material registered trademarks, service marks, and copyrights held by Parent
are valid and subsisting. To the knowledge of Parent, there is no material
unauthorized use, infringement or misappropriation of any of the Parent
Intellectual Property Rights by any third party, including any employee or
former employee of Parent. No Parent Intellectual Property Right owned by Parent
or product of Parent or any of its subsidiaries, or, to the knowledge of Parent,
Parent Intellectual Property Right licensed by Parent or its subsidiaries is
subject to any outstanding decree, order, judgment, or stipulation restricting
in any manner the licensing thereof by Parent or any of its subsidiaries.
4.10 Agreements, Contracts and Commitments. Except as disclosed in the
-------------------------------------
Parent SEC Reports filed with the SEC prior to the date of this Agreement,
neither Parent nor any of its subsidiaries has, nor is it a party to nor is it
bound by:
(a) any collective bargaining agreements;
(b) any bonus, deferred compensation, incentive compensation, pension,
profit-sharing or retirement plans, or any other employee benefit plans or
arrangements;
(c) any employment or consulting agreement, contract or commitment with
any officer or director-level employee, not terminable by Parent on thirty days
notice without liability, except to the extent general principles of wrongful
termination law may limit Parent's ability to terminate employees at will;
(d) any agreement or plan, including, without limitation, any stock
option plan, stock appreciation right plan or stock purchase plan, any of the
benefits of which will be increased, or the vesting of benefits of which will be
accelerated, by the occurrence of any of the transactions contemplated by this
Agreement or the value of any of the benefits of which will be calculated on the
basis of any of the transactions contemplated by this Agreement;
(e) any agreement, contract or commitment (excluding real and personal
property leases) which involves payment by Parent of $250,000 or more (excluding
amounts which are already owing by Parent or such subsidiary at the date of the
Parent Balance Sheet) and is not cancelable without penalty within thirty (30)
days;
(f) any agreement under which Parent or its subsidiaries is restricted
from selling, licensing, or otherwise distributing any of its products to any
class of customers, in any geographic area, during any period of time, or in any
segment of the market; or
(g) any agreement under which Parent or Merger Sub is restricted from
entering into any line of business, introducing any products, undertaking any
activities, or
28
competing with any other person or entity in any line of business, in any
geographic area, during any period of time, or in any segment of the market.
4.11 No Default. Neither Parent nor any of its subsidiaries has breached in
----------
any material respect, or received in writing any claim or threat that it has
breached in any material respect, any of the terms or conditions of any (i)
agreement, contract or commitment that was or is required to be filed as an
exhibit to the Parent SEC Reports or (ii) any agreement under which Parent or
any of its subsidiaries licenses from a third party any Parent Intellectual
Property Rights included in Parent's products in such a manner as would permit
any other party to cancel or terminate the same or would permit any other party
to seek material damages from Parent thereunder. Each of the agreements,
contracts and commitments referred to in clauses (i) and (ii) above that has not
expired or been terminated in accordance with its terms is in full force and
effect and, except as otherwise disclosed, is not subject to any material
default thereunder of which Parent is aware by any party obligated to Parent
pursuant thereto.
4.12 Governmental Authorization. Parent holds all permits, licenses,
--------------------------
variances, exemptions, orders and approvals of all Governmental Entities which
are material to the operation of Parent's business as currently conducted (the
"Parent Permits"). Parent is in material compliance with the terms of the Parent
Permits. The business of Parent is not being conducted in violation of any law,
ordinance or regulation of any Governmental Entity, except for violations or
possible violations which individually or in the aggregate would not have a
Material Adverse Effect on Parent. As of the date of this Agreement, no
investigation or review by any Governmental Entity with respect to Parent is
pending or, to the knowledge of Parent, threatened, nor to the knowledge of
Parent, has any Governmental Entity indicated an intention to conduct the same,
other than, in each case, those the outcome of which would not have a Material
Adverse Effect on Parent.
4.13 Litigation. Except as disclosed in the Parent SEC Reports filed with
----------
the SEC prior to the date of this Agreement, there is no action, suit,
proceeding, claim, arbitration or investigation pending, or as to which Parent
or any of its subsidiaries has received any notice of assertion nor, to Parent's
knowledge, is there a reasonable basis to expect such notice of assertion
against Parent or any of its subsidiaries which it is reasonable to expect that,
if determined adversely to Parent or any of its subsidiaries, would have a
Material Adverse Effect on Parent.
4.14 Environmental Matters. Neither Parent nor any of is subsidiaries has
---------------------
been or is currently in material violation of any applicable Environmental and
Occupational Laws. Each of Parent and its subsidiaries has all permits and other
governmental authorizations currently required by all applicable statutes, laws
or regulations relating to the environment or occupational health and safety
necessary for the conduct of its business. Neither Parent nor any of its
subsidiaries has received any communication from a Governmental Entity, or any
written communication from any Person other than a Governmental Entity, that
alleges that it is not in full compliance with Environmental or Occupational
Laws, except for matters alleging items which would not have a Material Adverse
Effect on Parent. There is no claim of a violation of Environmental and
Occupational Laws pending or, to the knowledge of Parent, threatened against
Parent, except for matters alleging items which would not have a Material
Adverse Effect on Parent.
29
4.15 Broker's and Finders' Fees. Parent has not incurred, and will not
--------------------------
incur, directly or indirectly, any liability for brokerage or finders' fees or
agents' commissions or any similar charges in connection with this Agreement,
the Merger or any transaction contemplated hereby.
4.16 Labor Matters. There are no pending or, to Parent's knowledge,
-------------
threatened material claims against Parent or any of its subsidiaries under any
workers' compensation plan or policy or for long-term disability. Parent and
each of its United States subsidiaries has complied in all material respects
with all applicable provisions of COBRA and has no material obligations with
respect to any former employees or qualifying beneficiaries thereunder.
4.17 Employee Benefit Plans.
----------------------
(a) Parent has made available to the Company (i) accurate and complete
copies of all Benefit Plan documents and all other material documents relating
thereto, including (if applicable) all summary plan descriptions, summary annual
reports and insurance contracts, (ii) accurate and complete detailed summaries
of all unwritten Benefit Plans, (iii) accurate and complete copies of the most
recent financial statements and actuarial reports with respect to all Benefit
Plans for which financial statements or actuarial reports are required or have
been prepared and (iv) accurate and complete copies of all annual reports for
all Benefit Plans (for which annual reports are required) prepared within the
last three years.
(b) All Benefit Plans of Parent conform (and at all times have
conformed) in all material respects to, and are being administered and operated
(and have at all time been administered and operated) in material compliance
with, the requirements of ERISA, the Code and all other applicable laws or
governmental regulations. All returns, reports and disclosure statements
required to be made under ERISA and the Code with respect to all Benefit Plans
have been timely filed or delivered. There have not been any "prohibited
transactions," as such term is defined in Section 4975 of the Code or Section
406 of ERISA involving any of the Benefit Plans, that could subject Parent to
any material penalty or tax imposed under the Code or ERISA.
(c) Any Benefit Plan that is intended to be qualified under Section
401(a) of the Code and exempt from tax under Section 501(a) of the Code has been
established under a standardized prototype plan for which an Internal Revenue
Service opinion letter has been obtained by the plan sponsor and is valid as to
Parent as an adopting employer or has been determined by the Internal Revenue
Service to be so qualified or an application for such determination is pending.
Any such opinion letter or determination that has been obtained remains in
effect and has not been revoked, and with respect to any application that is
pending, Parent has no reason to suspect that such application for determination
will be denied. Nothing has occurred since the date of any such establishment or
determination that is reasonably likely to affect adversely such qualification
or exemption, or result in the imposition of excise taxes or income taxes on
unrelated business income under the Code or ERISA with respect to any Benefit
Plan.
30
(d) Parent does not sponsor, nor has it ever sponsored, a defined
benefit plan subject to Title IV of ERISA, nor has it ever had any obligation to
contribute to any multiemployer plan (as defined in Section 3(37) of ERISA).
Parent does not have any material liability with respect to any employee benefit
plan (as defined in Section 3(3) of ERISA) other than with respect to the
Benefit Plans. For purposes of this Section 4.17, the term "Parent" shall
include any corporation that is a member of any controlled group of corporations
(as defined in Section 414(b) of the Code) that includes Parent, any trade or
business (whether or not incorporated) that is under common control (as defined
in Section 414(c) of the Code) with Parent, any organization (whether or not
incorporated) that is a member of an affiliated service group (as defined in
Section 414(m) of the Code) that includes Parent and any other entity required
to be aggregated with Parent pursuant to the regulations issued under Section
414(o) of the Code.
(e) There are no pending or, to the knowledge of Parent, threatened
claims by or on behalf of any Benefit Plans, or by or on behalf of any
individual participants or beneficiaries of any Benefit Plans, alleging any
breach of fiduciary duty on the part of Parent or any of its officers, directors
or employees under ERISA or any other applicable regulations, or claiming
benefit payments (other than those made in the ordinary operation of such
plans), nor is there, to the knowledge of Parent, any basis for such claim,
except in any such case as reasonably would not be expected to have a Material
Adverse Effect on Parent. The Benefit Plans are not the subject of any pending
(or to the knowledge of Parent, any threatened) investigation or audit by the
Internal Revenue Service, the Department of Labor or the PBGC.
(f) Parent has timely made all required contributions under the Benefit
Plans including the payment of any premiums payable to the PBGC and other
insurance premiums.
(g) With respect to any Benefit Plan that is a Welfare Plan, (i) each
Welfare Plan for which contributions are claimed by Parent as deductions under
any provision of the Code is in material compliance with all applicable
requirements pertaining to such deduction, (ii) with respect to any welfare
benefit fund (within the meaning of Section 419 of the Code) related to a
Welfare Plan, there is no disqualified benefit (within the meaning of Section
4976(b) of the Code) that would result in the imposition of a tax under Section
4976(a) of the Code, (iii) any Benefit Plan that is a group health plan (within
the meaning of Section 4980B(g)(2) of the Code) complies, and in each and every
case has complied, with all of the applicable material requirements of Section
4980B of the Code, ERISA, Title XXII of the Public Health Service Act and the
Social Security Act, and (iv) all Welfare Plans may be amended or terminated at
any time on or after the Closing Date. No Benefit Plan provides any health, life
or other welfare coverage to employees of Parent beyond termination of their
employment with Parent by reason or retirement or otherwise, other than coverage
as may be required under Section 4980B of the Code or Part 6 of ERISA, or under
the continuation of coverage provisions of the laws of any state or locality.
4.18 Compliance With Laws. Each of Parent and its subsidiaries has complied
--------------------
in all material respects with, is not in material violation of, and has not
received any notices of violation with respect to, any federal, state or local
statute, law or regulation with respect to the
31
conduct of its business, or the ownership or operation of its business, except
in any such case as reasonably would not be expected to have a Material Adverse
Effect on Parent.
4.19 Board Approval. On or prior to the date of this Agreement, the
--------------
Board of Directors of Parent, by resolutions duly adopted by unanimous vote of
those voting at a meeting duly called and held and not subsequently rescinded or
modified in any way, has duly (a) determined that this Agreement, the Merger and
the issuance of Parent Common Stock pursuant to this Agreement are in the best
interests of Parent and its stockholders and (b) approved this Agreement and the
Merger and determined that the execution, delivery and performance of this
Agreement is advisable.
4.20 Antitakeover Laws Not Applicable. No Takeover Statute is or will be
--------------------------------
applicable (as to Parent) to the execution, delivery, or performance of this
Agreement or the consummation of the Merger or the other transactions
contemplated by this Agreement.
4.21 Full Disclosure. Neither this Agreement nor any written statement,
---------------
report or other document furnished by Parent pursuant to this Agreement or in
connection with the transactions contemplated hereby with respect to Parent
contains any untrue statement of a material fact or omits to state a material
fact necessary in order to make the statements contained herein or therein, in
light of the circumstances under which they are made, not false or misleading.
Article V
REPRESENTATIONS AND WARRANTIES OF THE PRINCIPALS
------------------------------------------------
The Principals represent and warrant to Parent and Merger SSub, subject to
any exceptions specifically disclosed in the Company Letter, as follows:
5.1 Ownership of Company Common Stock. Each of the Principals who is shown
---------------------------------
to own any shares of Company Common Stock in the list of Company stockholders
delivered to Parent pursuant to Section 3.2(a) (each, a "Stockholder Principal")
is the sole beneficial owner of those shares of Company Common Stock. Each
Stockholder Principal has full power to vote or direct the voting of such
shares. As of the date of this Agreement, such shares are, and at all times
until the Effective Time will be, free and clear of any voting agreements or
restrictions, rights of first refusal, co-sale rights, security interests,
liens, pledges, claims, options, charges, other encumbrances, or any other
interests of any third party. Each Stockholder Principal has duly voted such
shares in favor of this Agreement, the Merger, and the other transactions
contemplated by this Agreement.
5.2 Authority.
---------
(a) Each of the Principals has all requisite power, authority, and
capacity to enter into this Agreement and to consummate the transactions
contemplated hereby. This Agreement has been duly executed and delivered by each
of the Principals and constitutes the valid and binding obligation of each of
the Principals, enforceable against each of the Principals in accordance with
its terms, except as enforceability may be limited by bankruptcy
32
and other similar laws and general principles of equity. The execution and
delivery of this Agreement by each of the Principals does not, and the
consummation of the transactions contemplated hereby will not, conflict with, or
result in any violation of, or default under (with or without notice or lapse of
time, or both), or give rise to a right of termination, cancellation or
acceleration of any obligation or loss of any benefit under any material
mortgage, indenture, lease, contract or other agreement, or any material permit,
concession, franchise, license, judgment, order, decree, statute, law,
ordinance, rule or regulation applicable to any of the Principals or any of
their properties or assets.
(b) No consent, approval, order or authorization of, or registration,
declaration or filing with, any Governmental Entity is required by or with
respect to any of the Principals in connection with the execution and delivery
of this Agreement by the Principals or the consummation by the Principals of the
transactions contemplated hereby, except for (i) the filing of the Certificate
of Merger with the Delaware Secretary of State, (ii) such consents, approvals,
orders, authorizations, registrations, declarations and filings as may be
required under applicable federal and state securities laws and the laws of any
foreign country, and (iii) such other consents, authorizations, filings,
approvals, and registrations which, if not obtained or made, would not have a
Material Adverse Effect on the Company or the Parent.
5.3 Accredited Investor; Restricted Stock.
-------------------------------------
(a) Each of Xxxxxxx X. Xxxx and Xxxxx X. Xxxx is an "accredited
investor" as defined in Rule 501 promulgated under the Securities Act. Each
Stockholder Principal has such knowledge and experience in financial and
business matters in general and investments in particular so that such
Stockholder Principal is able to evaluate the merits and risks of an investment
in the securities issuable by Parent and to protect its own interests in
connection with such investment. Each Stockholder Principal is purchasing such
securities for investment and not for the distribution of such securities. In
addition, each Stockholder Principal has received such information as it
considers necessary or appropriate for deciding whether to make an investment in
the securities issuable by Parent. Each Stockholder Principal acknowledges that
Parent has afforded such Stockholder Principal a reasonable opportunity to ask
questions and receive answers from Parent and its management regarding the
business and affairs of Parent.
(b) Each Stockholder Principal acknowledges and understands that (i)
the shares of Parent Common Stock to be issued pursuant to this Agreement will
be issued in a private transaction pursuant to a specific exemption under the
provisions of applicable federal and state securities laws, which depends upon
the representations and warranties being made by each Stockholder Principal in
this Agreement, (ii) such shares have not been registered under the Securities
Act or any applicable state securities laws, (iii) such shares will be subject
to substantial limitations on sale or other transfer, (iv) no market may exist
for the resale of such shares, (v) no Principal has any right to require
registration of any of such shares under any applicable federal or state
securities laws, (vi) an appropriate restrictive legend will be placed on the
certificates representing such shares issued to it referring to or stating
explicitly the restrictions on transfer, (vii) Parent's transfer agent will be
instructed not to transfer any of such shares without compliance with all
applicable legal and other restrictions on transfer, and (viii) it is aware of
any and all restrictions imposed by Parent on the further sale, distribution, or
transfer
33
of such shares, including, but not limited to, any restrictive legends appearing
on the certificate, required holding periods, and stop transfer orders.
5.4 Independent Investigation. Each Principal has made its own
-------------------------
investigation concerning the advisability of entering into this Agreement and
related transactions and agreements. Each Principal has consulted with and
obtained advice from its individual legal, tax, financial, and other advisors to
the extent such Principal has desired. no Principal is relying on any
representations, warranties, agreements, advice, or other STATEMENTS, WRITTEN OR
ORAL, (Other than as specifically set forth in this Agreement) from OR MADE BY
OR ON BEHALF OF Parent, Merger Sub, or either of their directors, officers,
employees, or agents.
5.5 Full Disclosure. Neither this Agreement nor any written statement,
---------------
report, or other document furnished by any of the Principals pursuant to this
Agreement or in connection with the transactions contemplated hereby with
respect to any of the Principals contains any untrue statement of a material
fact or omits to state a material fact necessary in order to make the statements
contained herein or therein, in light of the circumstances under which they are
made, not false or misleading.
Article VI
ADDITIONAL AGREEMENTS
---------------------
6.1 Confidentiality. The parties acknowledge that Parent and the Company
---------------
have previously executed a Confidentiality Agreement (the "Confidentiality
Agreement"), which Confidentiality Agreement shall continue in full force and
effect in accordance with its terms.
6.2 Expenses. Except as set forth in this Section 6.2, if the Merger is not
--------
consummated, all fees and expenses incurred in connection with this Agreement
and the transactions contemplated hereby shall be paid by the party incurring
such expense. If the Merger is consummated, all fees and expenses, including
attorneys, accountants and financial advisor's fees, incurred by or for the
benefit of the Company or its stockholders, shall be paid by the Surviving
Corporation.
6.3 Public Disclosure.
-----------------
(a) Parent and the Company shall consult with each other before issuing
any press release or otherwise making any public statement with respect to the
Merger or this Agreement and shall 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 The Nasdaq
Stock Market, Inc., so long as Parent has provided the Company and the
Principals with notice of such requirement and makes reasonable efforts to get
confidential treatment if so requested by the Company or the Principals and in
any event in accordance with the terms of the Confidentiality Agreement.
34
(b) The Company and the Principals agree that the information supplied
by the Company for inclusion in any press release (including any information
relating to the Company or the Principals that is approved by the Company) that
is jointly issued or approved by Parent and the Company shall not, on the date
such press release is issued, contain any untrue statement of a material fact or
omit to state any material fact necessary in order to make the statements
therein, in light of the circumstances under which they are made, not false or
misleading, or omit to state any material fact necessary to correct any
statement in any earlier press release which has become false or misleading. If
at any time prior to the Effective Time the Company shall determine that any
information in any issued press release was or may have become false or
misleading, the Company shall promptly inform Parent. Notwithstanding the
foregoing, the Company makes no representation or warranty with respect to any
information relating to Parent or Merger Sub which is contained in any of the
foregoing documents.
(c) Parent agrees that the information supplied by Parent for inclusion
in any press release (including any information relating to Parent and Merger
Sub that is approved by Parent) that is jointly issued or approved by Parent and
the Company shall not, on the date such press release is issued, contain any
untrue statement of a material fact or omit to state any material fact necessary
in order to make the statements therein, in light of the circumstances under
which they are made, not false or misleading, or omit to state any material fact
necessary to correct any statement in any earlier press release which has become
false or misleading. If at any time prior to the Effective Time Parent shall
determine that any information in any issued press release was or may have
become false or misleading, Parent shall promptly inform the Company.
Notwithstanding the foregoing, Parent and Merger Sub make no representation or
warranty with respect to any information relating to the Company which is
contained in any of the foregoing documents.
6.4 Legal Requirements. Each of Parent, Merger Sub, the Company, and the
------------------
Principals will use all reasonable best efforts to comply promptly with all
legal requirements which may be imposed on them with respect to the consummation
of the transactions contemplated by this Agreement (including preparing and
furnishing all information required in connection with approvals of or filings
with any Governmental Entity and prompt resolution of any litigation prompted
hereby) and will promptly cooperate with and furnish information to any party
hereto necessary in connection with any such requirements imposed upon any of
them or their respective subsidiaries in connection with the consummation of the
transactions contemplated by this Agreement, and will use all reasonable best
efforts to obtain (and will cooperate with the other parties hereto in
obtaining) any consent, approval, order, or authorization of, or any
registration, declaration, or filing with, any Governmental Entity or other
public or private third party required to be obtained or made in connection with
the Merger or taking of any action contemplated by this Agreement.
6.5 Blue Sky Laws. Parent shall use its reasonable best efforts to comply
-------------
with the securities and blue sky laws of all United States jurisdictions which
are applicable to the issuance of Parent Common Stock pursuant hereto. Parent
shall pay all fees and expenses, including filing fees and Parent's attorneys'
fees and expenses, incurred by Parent in connection with such compliance. The
Company and the Principals shall use their reasonable best efforts to assist
Parent as may be necessary to comply with the securities and blue sky laws of
all United
35
States jurisdictions which are applicable in connection with the issuance of
Parent Common Stock pursuant hereto.
6.6 Reasonable Best Efforts and Further Assurances. Each of the parties to
----------------------------------------------
this Agreement shall use its reasonable best efforts to effectuate the
transactions contemplated hereby and to fulfill and cause to be fulfilled the
conditions to closing under this Agreement (including prompt resolution of any
litigation prompted hereby). Each party hereto, at the reasonable request of
another party hereto, shall execute and deliver such other instruments and do
and perform such other acts and things as may be necessary or desirable for
effecting completely the consummation of the transactions contemplated hereby.
6.7 Certain Benefit Plans.
---------------------
(a) Parent shall take such reasonable actions as are necessary to allow
eligible employees of the Company to participate in the benefit programs of
Parent, or alternative benefit programs substantially comparable in the
aggregate to those applicable to employees of Parent, as soon as practicable
after the Effective Time in accordance with the terms of such programs. Parent
shall assume all of the Company's liability under Section 4980B of the Code and
Part 6 of Title I of ERISA with respect to COBRA participants (other than any
liability of the Company to pay, or reimburse any such participants for, COBRA
premiums) in accordance with applicable law.
(b) Parent shall cause each such benefit program in which employees of
Parent and its subsidiaries are eligible to participate to take into account for
purposes of eligibility and vesting thereunder the service of such employees
with the Company and its subsidiaries to the same extent as such service was
credited for such purpose by the Company; provided, that in no circumstances
shall the crediting of such service create duplicative benefits.
(c) If active employees of the Company or any of its subsidiaries
become eligible to participate in a medical, dental, or vision plan of Parent,
Parent shall cause each such plan to (i) waive any preexisting condition
limitations to the extent such conditions are covered unconditionally for such
person under the applicable medical, dental, or vision plans of the Company,
(ii) honor under such plans any deductible, co-payment, and out-of-pocket
expenses incurred by the employees and their beneficiaries during the portion of
the calendar year prior to such participation, and (iii) waive any waiting
period limitation or evidence of insurability requirement which would otherwise
be applicable to such employee on or after the Effective Time to the extent such
employee had satisfied any similar limitation or requirement under an analogous
Company benefit program prior to the Effective Time.
(d) At Parent's request, the Company will terminate its tax-qualified
401(k) Plan (the "Company's 401(k) Plan") prior to, and contingent upon, the
---------------------
Effective Time. If the Company is required to terminate the Company's 401(k)
Plan, Parent will, with the approval of the plan administrator of the Parent's
tax-qualified 401(k) plan (the "Parent's 401(k) Plan"), cause Parent's 401(k)
--------------------
Plan to accept rollovers or direct rollovers of "eligible rollover
distributions" within the meaning of Section 402(c) of the Code made with
respect to current employees of the Company who will continue as employees of
the Surviving Corporation after the Effective Time from the Company's 401(k)
Plan. Parent will use its good faith best
36
reasonable efforts to obtain such approval from the plan administrator of
Parent's 401(k) Plan. In the case of any Company employee, the Parent's 401(k)
Plan will take into account, for eligibility and vesting purposes, such
employee's pre-Closing service creditable to such employee for purposes of
Company's 401(k) Plan.
6.8 Tax-Free Reorganization. Parent, the Company, and the Principals shall
-----------------------
each use all reasonable efforts to cause the Merger to be treated as a
reorganization within the meaning of Section 368 of the Code. Without limiting
the generality of the foregoing, Parent will cause the Surviving Corporation to
continue at least one significant historic business line of the Company, or use
at least a significant portion of the Company's business assets in a business,
in each case within the meaning of Treasury Regulation Section 1.368-1(d).
6.9 Takeover Statutes. If any Takeover Statute is or may become applicable
-----------------
to the Merger or the other transactions contemplated by this Agreement, each of
Parent and the Company and their respective Boards of Directors and the
Principals shall grant such approvals and take such lawful actions as are
necessary to ensure that such transactions may be consummated as promptly as
practicable on the terms contemplated by this Agreement and otherwise act to
eliminate or minimize the effects of such statute and any regulations
promulgated thereunder on such transactions.
6.10 Secured Loan. Contemporaneously with the execution of this Agreement,
------------
Parent is loaning the Company the sum (the "Loan Amount") of One Million Two
Hundred Thousand Dollars ($1,200,000.00) plus the Current Cash Shortfall Amount,
if any, in a secured lending relationship to provide the Company with a portion
of the funds necessary for the Company to make the dividend payments
contemplated by Section 1.7(c) above. Termination of this Agreement prior to the
Effective Time will not affect any obligations of the Company relating to that
loan.
6.11 Bonus Letters. Contemporaneously with the execution of this Agreement,
-------------
Parent is giving certain employees of the Company bonus letters entitling those
employees to bonuses in the aggregate amount of Five Hundred Thousand Dollars
($500,000.00) if those employees remain employees through the second anniversary
of the date of this Agreement or are terminated by Parent without cause prior to
that second anniversary.
6.12 Noncompetition Agreements. Contemporaneously with the execution of
-------------------------
this Agreement, each of the Principals and Xxxxxxx Xxxxxx, Xxxxx Xxxxxxx, and
Xxxxxxx Xxxxxx is entering into a noncompetition agreement in favor of Parent to
be effective commencing at the Effective Time.
6.13 Software License Agreement. Contemporaneously with the execution of
--------------------------
this Agreement, Xxxxxxx X. Xxxx is entering into an agreement with the Company
to (a) amend and restate that Software License Agreement, dated March 1, 1993,
between the Company and Xx. Xxxx and (b) assign and transfer to the Company all
of Xx. Xxxx'x rights, title, and interest in, to, and under any software
developed by the Company and all translations, changes, improvements,
enhancements, and other modifications thereto and derivations therefrom.
37
6.14 Resignations. Contemporaneously with the execution of this Agreement,
------------
each of the officers and directors of the Company is resigning each of his or
her positions as an officer or director of the Company (without terminating his
or her employment) to be effective at the Effective Time.
Article VII
GENERAL PROVISIONS
7.1 Survival of Representations, Warranties, and Covenants; Limitation of
---------------------------------------------------------------------
Liability.
---------
(a) The representations, warranties, and covenants of the Company and
the Principals contained in this Agreement shall survive the Closing for a
period of three years. The representations and warranties of Parent and Merger
Sub contained in this Agreement shall terminate at the Effective Time, and only
the covenants of Parent and Merger Sub that by their terms survive the Effective
Time shall survive the Effective Time.
(b) The aggregate liability of the Principals for any failure, breach,
default, inaccuracy, or lack of performance on the part of the Company or any
Principal of any of its representations, warranties, agreements, or covenants in
this Agreement (except for any liability arising from any willful or intentional
acts or omissions) shall not exceed (i) for any liability identified to a
Principal by Parent during the period from the date of this Agreement until the
second anniversary of the date of this Agreement, the total of (A) Four Million
Three Hundred Thousand Dollars ($4,300,000) and (B) the 1,000,000 shares of
Parent Common Stock issuable to the Principals pursuant to Section 1.6 above and
(ii) for any liability identified to a Principal by Parent during the period
from the second anniversary of the date of this Agreement until the third
anniversary of the date of this Agreement, the total of (A) Two Million Dollars
($2,000,000) and (B) the 1,000,000 shares of Parent Common Stock issuable to the
Principals pursuant to Section 1.6 above minus (C) any amounts paid pursuant to
Section 7.1(b)(i) above. If the shares of Parent Common Stock are still held by
a Principal at the time such Principal becomes obligated to Parent, the shares
will be surrendered to Parent to satisfy obligations of the Principal using a
value of $4.00 per share. If the shares of Parent Common Stock have been sold by
the Principal, such shares will still be valued at $4.00 per share for purposes
of calculating the number of shares necessary to cover the obligations but the
actual funds paid to Parent shall be the gross sale price of those shares.
7.2 Notices. All notices and other communications hereunder shall be in
-------
writing and shall be deemed given if delivered personally or by commercial
delivery service or mailed by registered or certified mail (return receipt
requested) or sent via telecopy (receipt confirmed) to the parties at the
following addresses or telecopy numbers (or at such other address or telecopy
numbers for a party as the party shall specify by like notice). If so mailed,
they shall be deemed given upon the earlier of actual receipt or three business
days after mailing.
38
(a) if to Parent or Merger Sub, to:
0000 Xxx Xxxxxxx
Xxxxx Xxxxxx, XX 00000
Attention: Xxxxxx X. Xxxxxxxxxx
Facsimile No.: (000) 000-0000
with a copy to:
Xxxxx X. Xxxxxxx
00 Xxxxxxxxxx Xxxxx Xxxx
Xxxxx Xxxxxxxxx, XX 00000
Facsimile No.: (000) 000-0000
(b) if to the Company, to:
000 Xxxxx Xxxxx X, Xxxxx 000
Xxxxxx, XX 00000
Attention: Xxxxxxx X. Xxxx
Facsimile No.: (000) 000-0000
with a copy to:
Xxxx Xxxx Xxxx & Freidenrich LLP
0000 Xxxxxxxxxxxxx Xxxxxx, XX
Xxxxx 000
Xxxxxxxxxx, XX 00000
Facsimilie No. 000-000-0000
Attn: Xxxx Xxxxx
7.3 Interpretation. The words "include," "includes" and "including" when
--------------
used herein shall be deemed in each case to be followed by the words "without
limitation." Any table of contents and the 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.
7.4 Counterparts. This Agreement may be executed in one or more
------------
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each of
the parties and delivered to the other parties, it being understood that all
parties need not sign the same counterpart. A facsimile or copy of a signature
is valid as an original.
7.5 Entire Agreement. This Agreement and the documents and instruments and
----------------
other agreements among the parties hereto as contemplated by or referred to
herein, including the Company Letter and the Parent Letter, (a) constitute the
entire agreement among
39
the parties with respect to the subject matter hereof and supersede all prior
and contemporaneous agreements and understandings, both written and oral, among
the parties with respect to the subject matter hereof, it being understood that
the Confidentiality Agreement shall continue in full force and effect until the
Effective Time and shall survive any termination of this Agreement, and (b) are
not intended to confer upon any other person any rights or remedies hereunder.
7.6 Severability. If 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; and, if they do not act to
replace the provision, the Agreement will be interpreted as if they had replaced
it with such a provision.
7.7 Other Remedies. Except as otherwise provided herein, any and all
--------------
remedies herein expressly conferred upon a party (including in Section 2.3
above) 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.
7.8 Governing Law and Choice of Forum.
---------------------------------
(a) 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.
(b) Any dispute or controversy arising out of or relating to this
Agreement, any document or instrument delivered pursuant to or in connection
herewith, or any breach of this Agreement or any such document or instrument
shall be resolved exclusively (as to court proceedings initiated by the Company
or any Principal, including any counterclaims or crossclaims later brought by
Parent or Merger Sub) in the state or federal courts whose local geographic
jurisdiction includes Falls Church, Virginia, or exclusively (as to court
proceedings initiated by Parent or Merger Sub, including any counterclaims or
crossclaims later brought by the Company or a Principal) in the state or federal
courts whose local geographic jurisdiction includes Dublin, Ohio. Each of the
parties hereto irrevocably consents to the exclusive jurisdiction of any such
state or federal court 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 Ohio or
the Commonwealth of Virginia, as the case may be, for such persons, and waives
and covenants not to assert or plead any objection which they might otherwise
have to such forum, such jurisdiction, and such process.
7.9 Rules of Construction. The parties hereto agree that they have been
---------------------
represented by counsel during the negotiation and execution of this Agreement
and, therefore,
40
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.
7.10 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.
7.11 Amendment. No provision of this Agreement may be amended or modified
---------
unless such amendment or modification is in writing and signed by the party
against whom enforcement is sought.
7.12 Certain Definitions. For purposes of this Agreement, the term:
-------------------
(a) "business day" means any day on which the principal offices of the
SEC in Washington D.C. are open to accept filings, or, in the case of
determining a date when any payment is due, any day (other than a Saturday or a
Sunday) on which banks are not required or authorized to close in Delaware;
(b) "knowledge" means with respect to any fact, circumstance, event, or
other matter in question, that such fact, circumstance, event, or other matter
was actually known by or upon reasonable inquiry or investigation would have
been actually known by (i) an individual, if used in reference to an individual,
(ii) Xxxxxx X. Xxxxxxxxxx, Xxxxxxx X. Xxxxx, Xxxxxxx X. Xxxxxx, and Xxxxx X.
Xxxxxxx if used in reference to Parent or Merger Sub, or (iii) each Principal,
if used in reference to the Company.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
41
Execution Copy
IN WITNESS WHEREOF, Parent, Merger Sub, and the Company have caused this
Agreement to be signed by their respective duly authorized officers, and each
Principal has signed this Agreement, all as of the date first written above.
[Seal] YDI WIRELESS, INC.
By: /s/ Xxxxxx X. Xxxxxxxxxx
-------------------------
Name: Xxxxxx X. Xxxxxxxxxx
-------------------------
Chief Executive Officer
[Seal] KARLNET, INC.
By: /s/ Xxxxxxx X. Xxxx
-------------------------
Name: Xxxxxxx X. Xxxx
-------------------------
President
[Seal] KFIRE MERGER CORPORATION
By: /s/ Xxxxxx X. Xxxxxxxxxx
-------------------------
Name: Xxxxxx X. Xxxxxxxxxx
-------------------------
Chief Executive Officer
/s/ Xxxxxxx X. Xxxx
-------------------
Xxxxxxx X. Xxxx
/s/ Xxxxx X. Xxxx
-----------------
Xxxxx X. Xxxx
42
