Exhibit 10
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Agreement and Plan of Merger
among
PEMSTAR Inc.
Pebble Acquisition Corporation
and
Pacific Consultants LLC
August 10, 2001
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Agreement and Plan of Merger
This Agreement and Plan of Merger (this "Agreement") is made and entered
into as of August 10, 2001 (the "Agreement Date") by and among PEMSTAR Inc., a
Minnesota corporation ("Parent"), Pebble Acquisition Corporation, a California
corporation that is a wholly-owned subsidiary of Parent ("Sub"), Pacific
Consultants LLC, a California limited liability company (the "Company"), and
solely as to Section 2.4, Section 2.5, Article 12 and Exhibit C, Xxxx Xxxxxxxx,
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an individual, and Xxxx Xxxxx, an individual (the "Representative").
Recitals
A. The parties intend that the Company will be merged with and into the
Sub in a forward triangular merger, with the Sub continuing as the surviving
corporation (the "Merger"), all pursuant to the terms and conditions of this
Agreement and applicable law. The parties also intend for the Merger to be
treated as a "purchase" transaction for accounting purposes.
B. The Boards of Directors of Parent and Sub, and the managers of the
Company have determined that the Merger is in the best interests of their
respective companies and stockholders of Parent and Sub and the members of
Company, and have approved the Merger and this Agreement, accordingly, and have
agreed to effect the Merger provided for herein upon the terms and conditions of
this Agreement.
C. Concurrently with the execution and delivery of this Agreement, and as
a condition and inducement to Parent's willingness to enter into this Agreement,
Xxxx Xxxxxxxx and Xxxx Xxxxx are each entering into employment and non-
competition agreements (the "Employment and Non-Competition Agreements") with
Parent, to be effective as of the Effective Time (as defined in Section 1.19).
D. Concurrently with the execution and delivery of this Agreement, each
Company Member (as defined in Section 1.9) listed on the List of Core Company
Members attached hereto as Exhibit A (collectively, the "Core Company Members"
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and each individually a "Core Company Member") will each execute and deliver to
Parent a voting agreement in the form and substance of Exhibit B attached hereto
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(the "Voting Agreement"), under which each such Core Company Member will (i)
provide certain representations and warranties to Parent, (ii) agree to
irrevocably vote all membership interests of the Company owned by such Core
Company Member in favor of the Merger and the transactions contemplated by this
Agreement and deliver an irrevocable proxy, and (iii) agree not to transfer any
membership interests of the Company prior to consummation of the Merger.
E. Upon the Effective Time of the Merger, and subject to the terms and
conditions hereof, (a) the membership interests of the Company that are
outstanding immediately prior to the effectiveness of the Merger will be
converted into the right to receive (i) shares of common stock of Parent, (ii)
cash, and if applicable, (iii) the Earnout Amount (as defined in Section 1.18),
and (b) Company will be merged with and into Sub, in each case, as provided in
this Agreement.
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Now, Therefore, in consideration of the foregoing and the mutual
promises, covenants and conditions contained herein, the parties hereby agree as
follows:
ARTICLE 1
Certain Definitions
As used in this Agreement, the following terms will have the meanings
set forth be low:
1.1 "Cause" shall have the meaning given such term in Section 2.3.2.
1.2 "Closing" shall have the meaning given such term in Section 8.1.
1.3 "Closing Adjustment" shall have the meaning given such term in
Section 2.5(c).
1.4 "Closing Merger Consideration" means Sixteen Million Dollars
($16,000,000) less all Company Transaction Expenses (as defined in Section 13.7)
not paid by the Company prior to the Closing pursuant to Section 12.7.
1.5 "Code" the Internal Revenue Code of 1986, as amended.
1.6 "Company Ancillary Agreements" means, collectively, the Agreement of
Merger, each certificate to be delivered by the Company or an officer or
officers of the Company at the Closing pursuant to Article 10 of this Agreement,
and each other agreement (other than this Agreement) that the Company is to
enter into as a party thereto pursuant to this Agreement.
1.7 "Company Fully Diluted Membership Interest Number" means the
aggregate number of Company Membership Interests, and any other ownership
interest, unit, option, warrant or other security exercisable or exchangeable
for, or convertible into, Company Membership Interests (each, on a fully
exercised and converted to unit basis) that are issued and outstanding
immediately prior to the Effective Time.
1.8 "Company Indebtedness" means (i) all indebtedness, liabilities and
obligations (inclusive of principal and interest), whether or not matured,
contingent or otherwise, liquidated or unliquidated, of the Company and its
subsidiaries, (ii) indebtedness, liabilities and obligations (inclusive of
principal and interest), whether or not matured, contingent or otherwise,
liquidated or unliquidated, of any Person secured by an Encumbrance on any asset
of such the Company, whether or not assumed by the Company, and (iii) all
indebtedness, liabilities and obligations (inclusive of principal and interest),
whether or not matured, contingent or otherwise, liquidated or unliquidated, of
any Person Guaranteed by the Company.
1.9 "Company Members" means the record holders of issued and outstanding
Company Membership Interests immediately prior to the Effective Time.
1.10 "Company Membership Interests" means the membership units of the
Company.
1.11 "Company Membership Interest Amount Per Unit" means the quotient
(calculated to the sixth decimal place) of (a) the Closing Merger Consideration,
divided by (b) the Company Fully Diluted Membership Interest Number.
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1.12 "Company Plan" means the Company's 1998 Equity Purchase Plan, as
amended.
1.13 "Core Company Members" shall have the meaning given such term in
Recital D.
1.14 "Deferred Closing Adjustment Consideration" means each Company
Member's proportionate interest (based on the such Member's Pro Rata Ownership
Percentage) in twenty-six and six-tenths percent (26.6%) of the total amount of
cash, to be received by such Member pursuant to Section 2.1.2(b) (assuming there
is no Closing Adjustment).
1.15 "Deferred Consideration Payment Date" means the date five (5)
business days after the two-year anniversary of the Closing Date.
1.16 "Deferred Indemnity Consideration" shall have the meaning given
such term in Section 2.3.1.
1.17 "Deferred Management Retention Consideration" shall have the
meaning given such term in Section 2.3.2.
1.18 "Earnout Amount" shall have the meaning given such term in
Exhibit C.
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1.19 The "Effective Time" means the date and time on which the Merger
first becomes legally effective under the laws of the State of California as a
result of the filing with the Secretary of State of the State of California of a
Agreement of Merger in a form and substance reasonably acceptable to Parent and
the Company and their respect legal counsel (the "Agreement of Merger"), and any
required related certificates and agreements pursuant to, and in conformity
with, the requirements of Section 1113 and Section 17550, et seq. of the
California Corporations Code, as amended ("California Law"), as applicable.
1.20 "Encumbrance" means, with respect to any asset, any mortgage,
deed of trust, lien, pledge, charge, security interest, title retention device,
collateral assignment, claim, charge, restriction or other encumbrance of any
kind in respect of such asset (including any restriction on the voting of any
security, any restriction on the transfer of any security or other asset, any
restriction on the receipt of any income derived from any asset, any restriction
on the use of any asset and any restriction on the possession, exercise or
transfer of any other attribute of ownership of any asset).
1.21 "Guarantee" by any Person means any obligation, contingent or
otherwise, of such Person directly or indirectly guaranteeing any indebtedness
or liabilities (inclusive of principal and interest) or other obligation of any
other Person.
1.22 "Knowledge," means, with respect to any party hereto, with
respect to any fact, circumstance, event or other matter in question, that any
of the Core Company Members (and, with respect to Section 3.13 hereof, that any
of the persons engaged in development activity for the Company) has actual or
deemed knowledge of such fact, circumstance, event or other matter after
reasonable inquiry of such fact, circumstance, event or other matter. An
individual will be deemed to have knowledge of a particular fact, circumstance,
event or other matter if (i) such fact, circumstance, event or other matter is
reflected in one or more documents, written or electronic, that are or have been
in such individual's possession or that would reasonably be expected to be
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reviewed by an individual who has the duties and responsibilities of such
individual in the customary performance of such duties and responsibilities, or
(ii) such knowledge could be obtained from reasonable inquiry of those persons
employed by the Company or Parent (as the case may be), and their respective
subsidiaries, if any, charged with administrative or operational responsibility
for such matter for such party.
1.23 "Legal Requirements" means any federal, state, local, municipal,
foreign or other law, statute, constitution, resolution, ordinance, code, edict,
decree, rule, regulation, ruling or requirement issued, enacted, adopted,
promulgated, implemented or otherwise put into effect by or under the authority
of any Governmental Authority (as defined in Section 3.3.2 hereof).
1.24 "Material Adverse Change" or "Material Adverse Effect," when used
with reference to any entity or group of related entities, means any event,
change, violation, inaccuracy, circumstance or effect (regardless of whether or
not such events or changes are inconsistent with the representations or
warranties made by such party in this Agreement) that is or is reasonably likely
to be, individually or in the aggregate, materially adverse to the condition
(financial or otherwise), capitalization, properties, assets (including
intangible assets), business, employees, customers, revenues, earnings,
prospects, operations or results of operations of such entity and its
subsidiaries, taken as a whole with its subsidiaries; provided, however, that in
no event shall a change in the price of the publicly traded stock of Parent
constitute, in and of itself, a Material Adverse Change or Material Adverse
Effect in Parent.
1.25 "Membership Interest Cash Conversion Number" means the product
(calculated to the sixth decimal place) of (a) 0.3750, multiplied by (b) the
Company Membership Interest Amount Per Unit.
1.26 "Membership Interest Share Conversion Number" means the quotient
(calculated to the sixth decimal place) of (a) the product of (i) 0.6250,
multiplied by (ii) the Company Membership Interest Amount Per Unit, divided by
(b) the Parent Average Price Per Share.
1.27 "Parent Ancillary Agreements" means, collectively, each
certificate to be delivered by Parent or an officer or officers of Parent at the
Closing pursuant to Article 9 of this Agreement and each agreement (other than
this Agreement) that Parent is to enter into as a party thereto pursuant to this
Agreement.
1.28 "Parent Average Price Per Earnout Share" means the average
closing price of Parent Common Stock on the Nasdaq Stock Market for the ten (10)
consecutive trading days ending with the last trading day prior to five business
days prior to the first Earnout Payment Date for an Earnout Period.
1.29 "Parent Average Price Per Share" means the average closing price
of Parent Common Stock on the Nasdaq Stock Market for the ten (10) consecutive
trading days ending with the last trading day prior to the Closing Date.
1.30 "Parent Common Stock" means the common stock, par value $0.01 per
share, of Parent.
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1.31 "Per Membership Interest Earnout Consideration" means the
quotient of (i) the Earnout Amount, divided by (ii) the Company Fully Diluted
Membership Interest Number.
1.32 "Person" means any individual, corporation (including any not-
for-profit corporation), partnership, limited liability partnership, joint
venture, estate, trust, firm, company (including any limited liability company
or joint stock company), association, organization, entity or Governmental
Authority.
1.33 "Permitted Distribution" means the dividend, distribution or
payment by the Company of cash to the Company Members in respect of profits of
the Company that are taxable to such Members and for which such Members have not
previously received payment from the Company.
1.34 "Pro Rata Ownership Percentage" means each Member's respective
percentage ownership of outstanding Company Membership Interests as of
immediately prior to the Effective Time set forth on Schedule 3.4.1(a) hereof,
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and equal to (i) the total Membership Interests held of record by such Member
immediately prior to the Effective Time, divided by (ii) the Company Fully
Diluted Membership Interest Number.
1.35 "Representation Termination Date" shall have the meaning given
such term in Section 12.1.
1.36 "Sub Ancillary Agreements" means, collectively, each certificate
to be delivered by Sub or an officer or officers of Sub at the Closing pursuant
to Article 9 of this Agreement and each agreement (other than this Agreement)
that Sub is to enter into as a party thereto pursuant to this Agreement.
1.37 "Termination Date" means December 15, 2001.
Other capitalized terms defined elsewhere in this Agreement and not defined in
this Article 1 will have the meanings assigned to such terms in this Agreement.
ARTICLE 2
The Merger
2.1 Conversion of Membership Interests.
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2.1.1 Conversion of Sub Stock. At the Effective Time, each
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share of Sub common stock that is issued and outstanding immediately prior to
the Effective Time will continue after the Effective Time to be an identical
outstanding share of the Surviving Corporation (as defined in Section 2.6).
2.1.2 Conversion of Company Membership Interests. Subject to
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the terms and conditions of this Agreement, at the Effective Time, each Company
Membership Interest held by a Company Member that is issued and outstanding
immediately prior to the Effective Time will, by virtue of the Merger and
without the need for any further action on the part of the holder thereof
(except as expressly provided herein), be converted into and represent the right
to receive (collectively, the "Closing Consideration"):
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(a) the number of shares of Parent Common Stock that is
equal to the Membership Interest Share Conversion Number, subject
to the provisions of Section 2.1.3 (regarding rights of holders of
Dissenting Interests), and Section 2.1.4 (regarding the elimination
of fractional shares of Parent Common Stock);
(b) cash in an amount equal to the Membership Interest Cash
Conversion Number, subject to the provisions of Section 2.1.3
(regarding rights of holders of Dissenting Interests) and Section
2.5 (regarding the Closing Adjustment); and
(c) if there is an Earnout Amount (as defined in Exhibit
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C), the Per Membership Interest Earnout Consideration in accordance
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with Exhibit C, subject to the provisions of Section 2.1.3
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(regarding rights of holders of Dissenting Interests), and Article
12 (regarding indemnification).
Notwithstanding the foregoing provisions of this Section 2.1.2, at the Closing
Parent will withhold from the cash Closing Consideration to be received under
Section 2.1.2(b) at the Closing (i) by each Member the Deferred Closing
Adjustment Consideration for the sole purpose of paying the Closing Adjustment
pursuant to Section 2.5 below; and (ii) by each Member-Debtor (as defined in
Section 3.4.1) listed on the updated Schedule 3.4.1(d) to the Company Disclosure
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Letter, the cash amount set forth opposite the name of each such Member-Debtor
on such Schedule 3.4.1(d) (the "Note Payment"), which shall constitute payment
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in full of amounts due under the promissory note issued by such Member-Debtor
and held by the Company (each, a "Member Note").
2.1.3 Dissenting Interests. Holders of Company Membership Interests
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who have complied with all requirements for perfecting such Member's dissenting
rights, as set forth in Section 17600 et seq. under the California Law, shall
not be converted into the right to receive the consideration under Section
2.1.2, but instead shall be entitled to their rights under the California Law
with respect to such Membership Interests ("Dissenting Interests") pursuant to
Section 8.3 hereof.
2.1.4 Fractional Shares. No fractional shares of Parent Common Stock
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will be issued in connection with the Merger. In lieu thereof, each holder of
Company Membership Interests who would otherwise be entitled to receive a
fraction of a share of Parent Common Stock pursuant to Section 2.1.2, computed
after aggregating all shares of Parent Common Stock to be received by such
holder pursuant to Section 2.1.2, will instead receive from Parent, upon
delivery by such holder of the Letter of Transmittal (as defined in Section
8.2.1 hereof) pursuant to Article 8 hereof, an amount of cash (rounded to the
nearest cent) equal to the product obtained by multiplying (a) the Parent
Average Price Per Share, by (b) the fraction of a share of Parent Common Stock
that such holder would otherwise have been entitled to receive.
2.1.5 Adjustments for Capital Changes. Notwithstanding the
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provisions of Section 2.1, if Parent recapitalizes, either through a subdivision
(or stock split) of any of its outstanding shares of Parent Common Stock into a
greater number of such shares, or a combination (or reverse stock split) of any
of its outstanding shares of Parent Common Stock into a lesser number of such
shares, or reorganizes, reclassifies or otherwise changes its outstanding shares
of Parent Common Stock into the same or a different number of shares of other
classes or series of Parent stock (other
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than through a subdivision or combination of shares provided for in the
preceding clause), or declares a dividend or other distribution on its
outstanding shares payable in shares of Parent Common Stock, in shares or
securities convertible into shares of Parent Common Stock and/or other Parent
equity securities (each, a "Capital Change"), at any time after the Agreement
Date and prior to the Effective Time, then the Parent Average Price Per Share
and the Membership Interest Share Conversion Number, respectively, will be
proportionally and equitably adjusted.
2.2 Company Options and Warrants. Prior to the Merger, the Company will
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cause all outstanding warrants, options and other rights to acquire Company
Membership Interests (the "Warrants") to be exercised in full or terminate
without liability or penalty to the Company.
2.3 Additional Deferred Consideration. In addition to the Closing
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Consideration to be received by each former Company Member in respect to their
outstanding Company Membership Interests pursuant to Section 2.1.2, each Member
will be entitled, subject to the terms of this Agreement (including this Section
2.3), to receive the following additional consideration:
2.3.1 Deferred Indemnity Consideration. On the Deferred
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Consideration Payment Date, Parent will pay to each former Company Member such
Member's Pro Rata Ownership Percentage of cash in an amount equal to the
difference of (a) the sum of (i) Two Million Dollars and No Cents
($2,000,000.00) in cash, plus (ii) Accrued Indemnity Interest (as defined
below), less (b) all amounts unpaid or payable by the Company Members in respect
of Damages (as defined in Section 12.2) under Article 12, and any amounts
necessary to satisfy any unsatisfied or disputed claims for Damages specified in
any Notice of Claim (as defined in Section 12.5) delivered to the Representative
before the Representation Termination Date (the "Deferred Indemnity
Consideration"), subject to the provisions of Section 2.1.3 (regarding rights of
holders of Dissenting Interests) and Article 12 (regarding indemnification).
Notwithstanding the foregoing, in the event that on the Deferred Consideration
Payment Date there are any pending or disputed claims for Damages for which a
Notice of Claim has been timely delivered pursuant to Article 12, then the
Deferred Consideration Payment Date shall be extended until the five (5)
business days after the date on which all such claims or disputes are finally
resolved in accordance with Article 12. If the Deferred Indemnity Consideration
is not a positive number then Parent will not pay the Members any Deferred
Indemnity Consideration. For purposes of this Section 2.3.1, "Accrued Indemnity
Interest" means interest accruing from the Closing Date until the Deferred
Consideration Payment Date at the rate of 3.25% per annum on the amount of
Deferred Indemnity Consideration paid to the Company Members on the Deferred
Consideration Payment Date.
2.3.2 Deferred Management Retention Consideration. In the event
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that Xxxx Xxxxxxxx and Xxxx Xxxxx both remain continuously employed by Parent or
the Surviving Corporation from the Closing Date through and on the two year
anniversary of the Closing Date, then Parent will pay to each former Company
Member on the Deferred Consideration Payment Date such Member's Pro Rata
Ownership Percentage of cash in an amount equal to the difference of (a) the sum
of (i) Two Million Dollars and No Cents ($2,000,000.00) in cash, plus (ii)
Accrued Management Interest (as defined below), less (b) all amounts unpaid or
payable by the Company Members in respect of Damages under Article 12, and any
amounts necessary to satisfy any unsatisfied or disputed claims for Damages
specified in any Notice of Claim delivered to the Representative before the
Representation Termination Date (the "Deferred Management Retention
Consideration"), subject to the provisions of Section 2.1.3 (regarding rights of
holders of
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Dissenting Interests) and Article 12 (regarding indemnification).
Notwithstanding the foregoing sentence, in the event that either Xxxx Xxxxxxxx
or Xxxx Xxxxx fail to remain continuously employed by Parent or the Surviving
Corporation during the period from the Closing Date through and on the two year
anniversary of the Closing Date, then Parent will instead pay to each former
Company Member such Member's Pro Rata Ownership Percentage of cash in an amount
equal to the product of (a) 0.50, multiplied by (b) Deferred Management
Retention Consideration; provided further, that if neither Xxxx Xxxxxxxx nor
Xxxx Xxxxx has remained continuously employed by Parent or the Surviving
Corporation during the period from the Closing Date through and on the two year
anniversary of the Closing Date, then Parent will not pay the Members any
Deferred Management Retention Consideration. If prior to the two year
anniversary of the Closing Date either of Xxxx Xxxxxxxx or Xxxx Xxxxx are
terminated by Parent or the Surviving Corporation without Cause (as defined
below) or shall die or become disabled for a period exceeding ninety (90) days,
then such person shall for purposes of this Section 2.3.2 be deemed to continue
to be employed by Parent or the Surviving Corporation, as the case may be. For
purposes of this Section 2.3.2, "Accrued Management Interest" means interest
accruing from the Closing Date until the Deferred Consideration Payment Date at
the rate of 3.25% per annum on the amount of Deferred Management Retention
Consideration paid to the Company Members on the Deferred Consideration Payment
Date. For purposes of this Section 2.3.2, "Cause" means termination of an
employees employment with Parent or the Surviving Corporation because of (i) any
willful, material violation by the employee of any law or regulation applicable
to the business of Parent or the Surviving Corporation, the employee's
conviction for, or guilty plea to, a felony or a crime (whether or not a felony)
involving moral turpitude, or any willful perpetration by the employee of a
common law fraud or intentional misrepresentation, (ii) the employee's
commission of an act of personal dishonesty which involves personal profit in
connection with Parent or the Surviving Corporation or any other entity having a
business relationship with Parent or the Surviving Corporation, (iii) any
material breach by the employee of any provision of any agreement or
understanding between Parent or the Surviving Corporation and the employee
regarding the terms of the employee's service as an employee to Parent or the
Surviving Corporation, including without limitation, the willful failure or
refusal of the Participant to perform the material duties required of such
employee as an employee, of the Parent or the Surviving Corporation, other than
as a result of having a disability, or a breach of employee's Employment and
Non-Competition Agreement, any applicable invention assignment and
confidentiality agreement or similar agreement between Parent or the Surviving
Corporation and the employee, (iv) employee's disregard of the policies of
Parent or the Surviving Corporation so as to cause loss, damage or injury to the
property, reputation or employees of Parent or the Surviving Corporation, (v)
any other misconduct by the employee which is materially injurious to the
financial condition or business reputation of, or is otherwise materially
injurious to, Parent or the Surviving Corporation, or (vi) employee's
resignation or voluntary termination of employment with Parent or the Surviving
Corporation.
2.4 Payment of the Earnout Amount. The Earnout Amount shall be determined
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as provided in Exhibit C. At such time that any Earnout Amount has been finally
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determined pursuant to the provisions of Exhibit C, Parent shall, on the
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applicable Earnout Payment Date (as defined in Exhibit C), pay to each Company
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Member such member's Per Membership Interest Earnout Consideration in respect of
the Company Membership Interests held by such member immediately prior to the
Effective Time, subject to the provisions of Section 2.1.3 (regarding rights of
holders of Dissenting Interests), Section 2.5 (regarding the Parent Closing
Adjustment) and as provided in Exhibit C, and Article 12 (regarding
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indemnification) (the "Earnout Payments"). In the event that
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the Merger is approved by the Members as provided herein, the Members shall,
without any further act of any Member, be deemed to have consented to and
approved the appointment of the Representative as the attorney-in-fact and agent
for and on behalf of the Members (other than holders of Dissenting Interests),
and the taking by the Representative of any and all actions and the making of
any decisions required or permitted to be taken by them under the Exhibit C in
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connection with the administration or payment by Parent of Earnout Payments.
2.5 Closing Adjustment.
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(a) Estimated Closing Balance Sheet and Net Equity Statement. Three
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days prior to the Closing of the Merger, the Company shall deliver to Parent an
estimated balance sheet of the Company dated as of the Closing Date (the
"Estimated Closing Balance Sheet"), prepared in accordance with United States
generally accepted accounting principles ("GAAP"), consistently applied, and
(ii) a statement setting forth the Net Members' Equity (as defined below) of the
Company as of the Closing Date (the "Net Equity Statement"). For purposes of
this Section 2.5, "Net Members' Equity" means as of the date of determination
the amount determined by subtracting (a) all indebtedness, obligations and
liabilities of the Company, including all Company Indebtedness, all determined
in accordance with GAAP, consistently applied; from (b) the total net book value
of all assets of the Company, less (i) any amounts attributable to goodwill and
intangible items (such as unamortized debt discount and expense, patent, trade
and service marks, trade names, copyrights, licenses, organizational expenses,
and research and development expenses, except for prepaid expenses), (ii) all
appropriate deductions which are either required by or reflected in the Company
Financial Statements (as defined in Section 3.8) (including allowances for
doubtful accounts and bad debt, returns, depreciation and obsolescence), and
(iii) reserves not already deducted from assets. The Estimated Closing Balance
Sheet and the Net Equity Statement, when delivered to Parent, shall be
accompanied by a certificate of the Chief Executive Officer of the Company,
representing and warranting to Parent that the Estimated Closing Balance Sheet
and the Net Equity Statement are each true and complete in all material
respects, have been prepared in accordance with GAAP applied on a basis
consistent with that used for preparation of the Company Financial Statements,
and fairly present the financial position of the Company as of the Estimated
Closing Date (the "Estimated Closing Balance Sheet Certificate"). The
representations in such Estimated Closing Balance Sheet Certificate and the
accompanying Estimated Closing Balance Sheet and the Net Equity Statement shall
be deemed representations of the Company for purposes of Article 12.
(b) Revised Closing Balance Sheet. On or prior to the thirtieth
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(30/th/) day following receipt by Parent of the Estimated Closing Balance Sheet
and the Net Equity Statement, Parent may provide the Representative with a
certificate, signed by an authorized representative of Parent, stating whether
Parent believes that the calculations of Net Members' Equity set forth in the
Estimated Closing Balance Sheet and the Net Equity Statement correctly reflect
Net Members' Equity of the Company as of the Closing Date, and if the Net
Members' Equity does not in Parent's view correctly reflect Net Members' Equity
of the Company as of the Closing Date, then such certificate of Parent shall
include Parent's revised calculation of Net Members' Equity, together with
calculations in reasonable detail substantiating such revised calculations (the
"Revised Closing Balance Sheet"). In the event that either (i) the calculations
in the Revised Closing Balance Sheet (on the one hand) and the original
Estimated Closing Balance Sheet and the Net Equity Statement (on the other hand)
agree, or (ii) Parent fails to timely provide the Representative with the
Revised
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Closing Balance Sheet within the above thirty (30) day period, then Parent shall
be deemed to have agreed with and will be bound by the calculations of Net
Members' Equity set forth in the Estimated Closing Balance Sheet and the Net
Equity Statement. In the event that the calculations of Net Members' Equity set
forth in the Revised Closing Balance Sheet differ from such calculations in the
Estimated Closing Balance Sheet and the Net Equity Statement, then within thirty
(30) days of the Representative's receipt of the Revised Closing Balance Sheet,
Representative may either:
(i) agree with such revised calculations of Net Members' Equity
set forth in the Revised Closing Balance Sheet by countersigning such
Revised Closing Balance Sheet and delivering a copy thereof to Parent
within such thirty (30) day period, whereupon Parent shall (a) in the event
of Parent Closing Adjustment (as defined below), retain an amount equal to
the total Parent Closing Adjustment based on the calculations set forth in
the Revised Closing Balance Sheet, as follows (1) by retaining an
appropriate amount of the Deferred Closing Adjustment Consideration based
on each Member's Pro Rata Ownership Percentage, and (2) if the Parent
Closing Adjustment exceeds the Deferred Closing Adjustment Consideration,
then within ten (10) days of notice by Parent to the Representative of such
excess, each Member shall pay Parent the appropriate amount of cash in an
aggregate amount equal to such excess in proportion to each such Member's
Pro Rata Ownership Percentage (provided that in the event that a Member
fails to timely make such payment, then Parent will have the right to make
a Claim for Damages pursuant to Article 12 in an amount equal to such
unsatisfied excess); or (b) in the event of a Member Closing Adjustment (as
defined below), make payment to each Member based on the calculations set
forth in the Revised Closing Balance Sheet, by (1) first returning an
appropriate amount of the Deferred Closing Adjustment Consideration to each
Member based on each such Member's Pro Rata Ownership Percentage, and (2)
next making payment in an aggregate amount equal to the Member Closing
Adjustment (consisting of 50% cash and 50% shares of Parent Common Stock),
directly to the Members in accordance with each Member's Pro Rata Ownership
Percentage. If the Representative shall not have responded within the
thirty (30) day period after receipt of the Revised Closing Balance Sheet,
then the Representative and the Company Members shall be deemed to have
agreed with calculations of Net Members' Equity set forth in the Revised
Closing Balance Sheet and the payments and rights set forth in this Section
2.5(b)(i) above, and Parent, the Representative and each Company Member
will be bound by such determination. The Representative agrees to promptly
provide written notice to each Company Member if Parent delivers notice of
an excess Parent Closing Adjustment payment. If in connection with a
Member Closing Adjustment Parent issues shares of Parent Common Stock then
such shares shall be valued at the Parent Average Price Per Share
regardless of the actual market price or fair market value of such shares
on such date of issuance.
(ii) reject such revised calculations of Net Members' Equity set
forth in the Revised Closing Balance Sheet by sending a written notice of
rejection to Parent within such thirty (30) day period setting forth the
basis for the Representative's rejection of some or all of the calculations
in the Revised Closing Balance Sheet, whereupon Parent and the
Representative shall confer in good faith for a period of ten (10) days
after Parent's timely receipt of the notice of rejection in an effort to
reach agreement on the calculations and the Closing Adjustment; provided
that if after such period the parties
-10-
have not reached such an agreement and either party believes that such
dispute cannot be resolved through negotiation, then Parent and the
Representative shall appoint a mutually and reasonably satisfactory
independent certified public accountant (the "Independent Accountant") to
review the computations of both Parent and the Company, and make a final
written determination of Net Members' Equity as of the Closing Date, which
determination shall be conclusive and binding on Parent, the Representative
and the Company Members. The Independent Accountant's engagement pursuant
to this Section 2.5(b)(ii) shall be limited solely to determining the Net
Members' Equity as of the Closing Date (as such terms are defined herein).
If the Closing Adjustment as calculated using the Net Members' Equity
determined by the Independent Accountant differs by 3.5% or more from the
Closing Adjustment as calculated using the Net Members' Equity set forth in
the Revised Closing Balance Sheet, then the fees and costs of the
Independent Accountant shall be borne by Parent. If the Closing Adjustment
as calculated using the Net Members' Equity determined by the Independent
Accountant differs by less than 3.5% from the Closing Adjustment as
calculated using the Net Members' Equity set forth in the Revised Closing
Balance Sheet, then the fees and costs of the Independent Accountant shall
be borne by the Members in proportion to each Member's Pro Rata Ownership
Percentage (the "Independent Accountant Fees"). Any Closing Adjustment
determined to be due under this Section 2.5(b)(ii) either to the benefit of
Parent or the benefit of the Members (as the case may be) shall be
satisfied as provided in Section 2.5(b)(i) above. Parent agrees, promptly
following payment in full of the Parent Closing Adjustment, to return any
remaining Deferred Closing Adjustment Consideration not used to satisfy the
Parent Closing Adjustment to each of the Company Members in proportion to
each Member's Pro Rata Ownership Percentage.
(c) Closing Adjustment. Parent shall be entitled to receive payment
------------------
(either through the retention of Deferred Closing Adjustment Consideration,
payment directly from each Company Member as provided in this Section 2.5 and/or
as a Claim for Damages pursuant to Article 12) to the extent that the difference
of (i) Net Members' Equity as of the Closing Date (as finally determined under
this Section 2.5), and (ii) the aggregate Independent Accountant Fees (if any),
is less than $3,400,000 (the "Parent Closing Adjustment"). Each Company Member
shall be entitled to receive payment (following return to them of the Deferred
Closing Adjustment Consideration) directly from Parent as provided in this
Section 2.5 in proportion to each Member's Pro Rata Ownership Percentage to the
extent that the difference of (i) Net Members' Equity as of the Closing Date (as
finally determined under this Section 2.5), and (ii) the aggregate Independent
Accountant Fees (if any), is greater than $3,400,000 (the "Member Closing
Adjustment"). Parent Closing Adjustment and Member Closing Adjustment are
collectively referred to herein as, the "Closing Adjustment." In the event of a
Parent Closing Adjustment, upon receipt of written notice from Parent or the
Representative of the Parent Closing Adjustment, each Company Member agrees to
promptly pay Parent any Parent Closing Adjustment as finally determined in
accordance with this Agreement remaining after application of the Deferred
Closing Adjustment Consideration, in proportion to each Member's Pro Rata
Ownership Percentage. In the event of a Member Closing Adjustment, Parent shall
promptly pay to each Company Member such Member's Member Closing Adjustment in
proportion to such Member's Pro Rata Ownership Percentage as provided in this
Section 2.5.
-11-
2.6 Effects of the Merger. At and upon the Effective Time of the Merger:
---------------------
(a) the separate existence of Company will cease and Company will
be merged with and into Sub, and Sub will be the surviving corporation of the
Merger (sometimes hereinafter referred to as the "Surviving Corporation")
pursuant to the terms of this Agreement and the Agreement of Merger;
(b) the Articles of Incorporation of Sub will continue unchanged
and be the Articles of Incorporation of the Surviving Corporation immediately
after the Effective Time, except that the Articles of Incorporation of Sub shall
be amended to change the name of the Surviving Corporation to "Pacific
Consultants, a PEMSTAR company, Inc." or such other name acceptable to Parent;
(c) the Bylaws of Sub will continue unchanged and be the Bylaws
of the Surviving Corporation immediately after the Effective Time, except that
such Bylaws shall be amended to provide for a total of seven authorized
directors following the Closing;
(d) each Company Membership Interest that is outstanding
immediately prior to the Effective Time will be converted as provided in this
Article 2;
(e) each share of Sub common stock that is outstanding
immediately prior to the Effective Time will continue to be an identical share
of the Surviving Corporation as provided in Section 2.1.1;
(f) the officers of the Surviving Corporation immediately after
the Effective Time will be Xxxxx Xxxxx, Secretary, Xxxx Xxxxx, Vice President
and General Manager, Xxxxx Xxxxxxxx, President and Vice President Engineering,
Xxxxx Xxxxxxxx, Chief Financial Officer, and Xxxx Xxxxx, Vice President
Engineering;
(g) the members of the Board of Directors of the Surviving
Corporation immediately after the Effective Time will be Xx Xxxxxxx, Chairman of
the Board, Xxxxx Xxxxxxxx, Xxxx Xxxxxx and Xxxxx Xxxxx of Parent, and Xxxx
Xxxxx, Xxxxx Xxxxxxxx and Xxxx Xxxxx of the Company; and
(h) the Merger will, from and after the Effective Time, have all
of the effects provided by applicable law.
The parties understand and acknowledge that under the Code and other
applicable tax Legal Requirements the Merger may be treated as a taxable
transaction to the Company Members, and that neither Parent, the Company nor
Sub shall have any responsibility or liability to any Company Member for any
tax liability resulting from or other tax effects of the Merger and the
transactions contemplated by the Merger.
2.7 Securities Law Issues; Market Stand-Off Restriction. Parent shall
---------------------
issue the shares of Parent Common Stock and the other securities to be issued to
the Company Members in the Merger under to Section 2.1.2 pursuant to an
exemption or exemptions from registration under the Securities Act of 1933, as
amended (the "Securities Act"), by virtue of the exemptions provided by Section
3(a)(10) of the Securities Act and an exemption from qualification under the
California
-12-
Law, by virtue of the exemption provided by Section 25100(o) of the
California Law and/or pursuant to a permit issued under Section 25113 of the
California Law, and other applicable state securities laws. Parent and the
Company shall comply with all applicable provisions of, and rules under, the
Securities Act, the California Law and other applicable state securities laws in
connection with the offering, sale and issuance of shares of Parent Common Stock
and other securities in the Merger. As promptly as practicable after the
Agreement Date, the parties shall prepare (i) an application for permit to be
filed with the California Commissioner of Corporations (the "Commissioner")
concerning the hearing to be held by the Commissioner (the "Hearing") to
consider the terms, conditions and fairness of the transactions contemplated
hereby pursuant to Section 25142 of the California Securities Law of 1968, as
amended (the "Permit Application"), and (ii) a joint information statement (the
"Information Statement") to be provided to the Company Members in connection
with soliciting the approval of this Agreement and the Merger and the other
transactions contemplated thereby by such members, and the issuance of Parent
Common Stock and other securities in the Merger. Each party hereto shall furnish
all information concerning such party and its members as may be reasonably
requested in connection with preparing and distributing the Information
Statement. Each of the parties acknowledges and agrees that the shares of Parent
Common Stock to be issued to Company Members at the Closing pursuant to Section
2.1.2(a) will be subject to Parent's xxxxxxx xxxxxxx policy as in effect at the
Closing and thereafter, and a market stand-off restriction under which such
shares or any interest therein cannot be sold, encumbered or otherwise
transferred by such Members without the prior written consent of Parent until
after September 7, 2001, and thereafter the transfer of such shares will be
subject to the provisions of Rule 145 promulgated under the Securities Act. In
order to enforce the foregoing restriction, Parent shall have the right to place
restrictive legends on the certificates representing the shares held by
affiliates of the Company which are subject to this provision and to impose stop
transfer instructions with respect to the shares.
2.8 Xxxx-Xxxxx-Xxxxxx Filings. Each party will promptly prepare and file,
-------------------------
and will use reasonable efforts to counsel their respective shareholders or
members to file, the applicable notices (if any) required to be filed by it
under the Xxxx-Xxxxx-Xxxxxx Antitrust Improvements Act of 1976, as amended (the
"HSR Act"), and comply promptly with any requests to it from the Federal Trade
Commission or United States Department of Justice for additional information.
2.9 Further Assurances. If, at any time before or after the
------------------
Effective Time, Parent believes or is advised that any further instruments,
deeds, assignments or assurances are reasonably necessary or desirable to
consummate the Merger or to carry out the purposes and intent of this Agreement
at or after the Effective Time, then Parent, the Surviving Corporation and their
respective officers and directors will have the right to execute and deliver all
such proper deeds, assignments, instruments and assurances and do all other
things necessary or desirable to consummate the Merger and to carry out the
purposes and intent of this Agreement.
ARTICLE 3
Representations and Warranties of The Company
The Company represents and warrants to Parent that, except as set forth in
the letter addressed to Parent from the Company and dated as of the Agreement
Date (including all schedules thereto) that has been delivered by the Company
to Parent concurrently with the
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parties' execution of this Agreement (the "Company Disclosure Letter"), each of
the representations, warranties and statements contained in the following
sections of this Article 3 is true and correct as of the Agreement Date and
will be true and correct on and as of the Closing Date (as defined in Section
8.1 hereof). For all purposes of this Agreement, the statements contained in
the Company Disclosure Letter and its schedules shall also be deemed to be
representations and warranties made and given by the Company under Article 3 of
this Agreement.
3.1 Organization and Good Standing. The Company is a limited liability
------------------------------
company duly formed and organized, validly existing and in good standing under
the laws of the State of California and has continuously been in good standing
under the laws of the State of California at all times since its inception. The
Company has the requisite power and authority to own, operate and lease its
properties and to carry on its business as now conducted and as proposed to be
conducted. The Company is qualified to transact business, and is in both limited
liability company and tax good standing, in each jurisdiction where the
character of the properties owned, leased or operated by it or the nature of its
activities make such qualification necessary, except to the extent that any
failure to qualify would not individually or in the aggregate have a Material
Adverse Effect on the Company. The Company has delivered to Parent true and
correct copies of the currently effective Articles of Organization and Operating
Agreement of the Company, each as amended to date. The Company is not in
violation of its Articles of Organization or Operating Agreement.
3.2 Subsidiaries. Other than Kinderlife Instruments, Inc., the Company
------------
does not have any subsidiary or any equity or ownership interest, whether direct
or indirect, in any corporation, partnership, limited liability company, joint
venture or other business entity. The Company is not obligated to make nor is it
bound by any agreement or obligation to make any investment in or capital
contribution in or on behalf of any other entity. All subsidiaries of the
Company have been duly organized, and are validly existing and in good standing
under the law of the state of their organization. Each such subsidiary has the
requisite power and authority to own, operate and lease its properties and to
carry on its business as now conducted and as proposed to be conducted.
3.3 Power, Authorization and Validity.
---------------------------------
3.3.1 Power and Authority. Subject to the approval by the requisite
-------------------
vote of the Company Members (the "Company Member Approval"), the Company has
full legal right, authority and power to enter into, execute, deliver and
perform its obligations under, this Agreement and all Company Ancillary
Agreements and to consummate the Merger and the transactions contemplated
thereto. The Merger and the execution, delivery and performance by the Company
of this Agreement, each of the Company Ancillary Agreements and all other
agreements, and transactions and actions contemplated hereby or thereby, have
been duly and validly approved and authorized by all necessary action under the
Company's Articles of Organization and Operating Agreement and California Law.
The Core Company Members have executed and delivered to Parent Investment
Representation Letters agreeing to vote in favor of the Merger and the
execution, delivery and performance by the Company of this Agreement, each of
the Company Ancillary Agreements and all other agreements, transactions and
actions contemplated hereby or thereby, which votes are sufficient to approve
the this Agreement and all Company Ancillary Agreements and to consummate the
Merger and the transactions contemplated thereto.
-14-
3.3.2 No Consents. Except for (a) the filing of the
-----------
Agreement of Merger with the Secretary of State of California, and (b) for such
consents, approvals, orders, authorizations, registrations, declarations and
filings as may be required under applicable federal and state securities (or
related laws) and the securities or antitrust laws of any foreign country, and
(c) such other consents, approvals, orders, authorizations, registrations,
declarations and filings, if any, that if not made or obtained by Company would
not be material to Company's ability to consummate the Merger or to perform its
obligations under this Agreement and the Company Ancillary Agreements,
respectively, no consent, approval, order or authorization of, or registration,
declaration or filing with, any court, administrative agency, commission or
other governmental authority (each, a "Governmental Authority"), or any other
Person or entity, governmental or otherwise (including any consent, approval,
order, authorization, registration, declaration or filing pursuant to the HSR
Act), is necessary or required to be made or obtained by the Company to enable
the Company to lawfully execute and deliver, enter into, and to perform its
obligations under, this Agreement and each of the Company Ancillary Agreements,
or to consummate the Merger.
3.3.3 Enforceability. This Agreement has been duly executed and
--------------
delivered by the Company. This Agreement and each of the Company Ancillary
Agreements are, or when executed by the Company will be, valid and binding
obligations of the Company, enforceable against the Company in accordance with
their respective terms, subject to the effect of (a) applicable bankruptcy,
insolvency, reorganization, moratorium or other similar laws now or hereafter in
effect relating to rights of creditors generally and (b) rules of law and equity
governing specific performance, injunctive relief and other equitable remedies.
3.4 Capitalization of the Company.
-----------------------------
3.4.1 Outstanding Membership Interests. The ownership
--------------------------------
interests in the Company consist entirely of 1,500,000 authorized Company
Membership Interests, of which (a) 1,044,224 Company Membership Interests are
issued and outstanding and not subject to any right of repurchase or vesting,
and (b) 1,000,000 Company Membership Interests are reserved and authorized for
issuance pursuant to the Company Plan (the "Company Plan Membership Interests"),
of which 453,777 are outstanding. The numbers of issued and outstanding Company
Membership Interests held by each Company Member are set forth in Schedule
--------
3.4.1(a) to the Company Disclosure Letter. Except as expressly set forth in
--------
Schedule 3.4.1(a), no other Company Membership Interests are issued or
-----------------
outstanding. The Company holds no treasury Membership Interests, and Company
Membership Interests are not represented by certificates. There are no
outstanding warrants to purchase Company Membership Interests. Schedule
--------
3.4.1(b) to the Company Disclosure Letter lists for each Person who holds
--------
Company Plan Membership Interests, the name of the holder of each such Company
Plan Membership Interests, the purchase price for each such Company Plan
Membership Interests, the number of Membership Interests or other securities
covered by each such Company Plan Membership Interests, and the vesting schedule
or schedule for which the Company right of repurchase lapse and the extent each
such Company Plan Membership Interests has vested or the right to repurchase has
lapsed as of the Agreement Date. True and complete copies of the standard
agreement under the Company Plan and each agreement for each Company Plan
Membership Interests that does not conform to the standard agreement under the
Company Plan have been delivered by the Company to Parent. The vesting Schedule
or the Schedule for which the right of repurchase lapses (or any other material
terms) of any Company
-15-
Plan Membership Interests or the other terms of such Membership Interests,
except as disclosed in Schedule 3.4.1(c) to the Company Disclosure Letter, will
-----------------
not accelerate or otherwise change as a result of the execution and delivery of
this Agreement or the consummation of the Merger or the transactions
contemplated hereby or the occurrence of any subsequent event (such as the
termination of employment of the option holder following consummation of the
Merger). No Company Plan Membership Interests have been granted or are
outstanding except under and pursuant to the Company Plan. No adjustment to the
exercise price of any Company Plan Membership Interests has occurred. No Company
Member has or will have immediately prior to the Effective Time the right to
receive or to require the Company to pay or distribute to such member any cash
or other assets of the Company in respect of such member's capital account
balance or capital contribution, or any Company profits. Attached to the Company
Disclosure Letter as Schedule 3.4.1(d) is a true and complete list of each
-----------------
Member, who owes the Company the cash amounts set forth across from such Member
name on such Schedule (the "Note Amount"), which Schedule will be updated by the
Company prior to the Effective Time to reflect each Member who owes the Company
certain amounts (each, a "Member-Debtor") and the cash amount owed by such
Member-Debtor as of immediately prior to the Effective Time.
3.4.2 Valid Issuance. As of the Closing Date, there will have been
--------------
no change in the authorized or outstanding Company Membership Interests as
represented in Section 3.4.1. All issued and outstanding Company Membership
Interests have been duly authorized and validly issued, are fully paid and
nonassessable, are not subject to any preemptive right, right of first refusal,
right of first offer or right of rescission, and have been offered, issued, sold
and delivered by the Company in compliance with (a) all registration or
qualification requirements (or applicable exemptions therefrom) of all
applicable securities laws and, to the Knowledge of the Company, other
applicable Legal Requirements and (b) all requirements set forth in applicable
agreements or instruments. All outstanding Company Plan Membership Interests
have been issued and granted in compliance with (a) all applicable securities
laws and, to the Knowledge of the Company, other applicable Legal Requirements
and (b) all requirements set forth in applicable agreements or instruments.
3.4.3 No Other Plan Options, Warrants or Rights. Other than as set
-----------------------------------------
forth in Sections 3.4.1 and 3.4.2 above and as set forth in Schedule 3.4.3 to
--------------
the Company Disclosure Letter, there are no options, warrants, convertible
securities or other securities, calls, commitments, conversion privileges,
preemptive rights, rights of first refusal, rights of first offer or other
rights or agreements outstanding to purchase or otherwise acquire (whether
directly or indirectly) any of the Company's authorized but unissued Membership
Interests, or membership or ownership interests, or any securities of the
Company convertible into or exchangeable for any Company Membership Interests or
obligating the Company to grant, issue, extend, or enter into any such option,
warrant, convertible security or other security, call, commitment, conversion
privilege, preemptive right, right of first refusal, right of first offer or
other right or agreement to obtain any Company Membership Interests, and there
is no liability for dividends accrued but unpaid.
3.4.4 No Voting Arrangements or Registration Rights. Except as
---------------------------------------------
contemplated by this Agreement, there are no voting agreements, voting trusts or
proxies applicable to any of the outstanding Company Membership Interests or any
Company Plan Membership Interests or to the conversion of any Company Membership
Interests in the Merger pursuant to any agreement or obligation to which the
Company is a party or, to the Company's Knowledge, pursuant to any other
-16-
agreement or obligation. The Company is not under any obligation to register
under the Securities Act any of its presently outstanding Membership Interests,
or other membership or ownership interests, or other securities that may be
subsequently issued.
3.5 No Conflict. Neither the execution and delivery of this Agreement
-----------
nor any of the Company Ancillary Agreements by the Company, nor the consummation
of the Merger or any of the other transactions contemplated hereby or thereby,
will conflict with, or (with or without notice or lapse of time, or both) result
in a termination, breach, impairment or violation of, or constitute a default
under: (a) any provision of the Articles of Organization or Operating Agreement
of the Company as currently in effect; (b) any federal, state, local or foreign
judgment, writ, decree, order, statute, rule or regulation applicable to the
Company or any of its material assets or properties; or (c) any instrument,
agreement, contract, undertaking, understanding, letter of intent, memorandum of
understanding or commitment (whether oral or in writing) which is material to
the Company or its financial condition or business and to which the Company is a
party or by which the Company or any of its subsidiaries, or any of its then
respective assets or properties are bound. Neither the Company's entering into
this Agreement nor the consummation of the Merger or the transactions
contemplated thereby will give rise to, or trigger the application of, any
rights of any third party that would come into effect upon the consummation of
the Merger. Except as set forth in Schedule 3.5 to the Company Disclosure
------------
Letter, the consummation of the Merger by the Company will not require the
consent, release, waiver or approval of any third party (including the consent
of any party required to be obtained in order to keep any agreement between such
party and the Company in effect following the Merger or to provide that the
Company is not in breach or violation of any such agreement following the
Merger), other than the Company Member Approval.
3.6 Litigation. Except as set forth in Schedule 3.6 to the Company
---------- ------------
Disclosure Letter, there is no action, suit, arbitration, mediation, proceeding,
claim or investigation pending against the Company (or against any member,
officer, director, manager, employee or agent of the Company in their capacity
as such or relating to their employment, services or relationship with the
Company) or any of its subsidiaries before any court, Governmental Authority,
arbitrator or mediator, nor, to the Company's Knowledge, has any such action,
suit, arbitration, mediation, proceeding, claim or investigation been
threatened. There is no judgment, decree, injunction, rule or order of any
court, Governmental Authority or arbitrator outstanding against the Company or
any of its subsidiaries. To the Company's Knowledge, there is no basis for any
Person to assert a claim against the Company based upon: (a) the Company's
entering into this Agreement or any Company Ancillary Agreement or consummating
the Merger or any of the transactions contemplated by this Agreement or any
Company Ancillary Agreement; or (b) a claim of ownership of, or options,
warrants or other rights to acquire ownership of, any Company Membership
Interests or any rights as a Company Member, including any option, warrant or
preemptive rights or rights to notice or to vote, other than the rights of the
Company Members with respect to the Company Membership Interests shown as being
owned by such Persons on Schedule 3.4.1(a) to the Company Disclosure Letter and
-----------------
the rights of holders of Company Plan Membership Interests shown as being owned
by such Persons on Schedule 3.4.1(b) to the Company Disclosure Letter.
-----------------
3.7 Taxes.
-----
3.7.1 The Company and each of its subsidiaries have timely filed all
federal, state, local and foreign tax and information returns required to be
filed by them, have timely paid all taxes
-17-
required to be paid by them for which payment is due, except to the extent that
an accrual or reserve for such taxes has been reflected in accordance with GAAP
(as defined in Section 3.8 hereof) on the Balance Sheet (as defined in Section
3.8 hereof), have established an adequate accrual or reserve for the payment of
all taxes payable in respect of the periods subsequent to the periods covered by
their most recent applicable tax returns (which accrual or reserve as of the
Balance Sheet Date (as defined in Section 3.8 hereof) is fully reflected on the
Balance Sheet and in any more recent balance sheet of the Company provided by
the Company to Parent on or before the Agreement Date), have made all necessary
estimated tax payments, and have no liability for taxes in excess of the amount
so paid or accruals or reserves so established. All such returns and reports are
true, correct and complete, and the Company has provided Parent with true and
correct copies of such returns and reports. Neither the Company nor any of its
subsidiaries are delinquent in the payment of any tax or in the filing of any
tax returns, nor have any deficiencies for any tax been threatened, claimed,
proposed or assessed against the Company, any of its subsidiaries or any of the
officers, employees or agents of the Company or its subsidiaries in their
capacity as such. Neither the Company nor any of its subsidiaries has received
any notification from the Internal Revenue Service or any other taxing authority
regarding any material issues that: (a) are currently pending before the
Internal Revenue Service or any other taxing authority (including but not
limited to any sales or use tax authority) regarding the Company or its
subsidiaries, or (b) have been raised by the Internal Revenue Service or other
taxing authority and not yet finally resolved. No tax return of the Company or
any of its subsidiaries is under audit by the Internal Revenue Service or any
state or local taxing agency or authority and any such past audits (if any) has
been completed and fully resolved to the satisfaction of the applicable tax
authority conducting such audit and all taxes and any penalties or interest
determined by such audit to be due from the Company or its subsidiaries have
been paid in full to the applicable taxing authorities. No tax liens are
currently in effect against any assets of the Company or its subsidiaries other
than liens that arise by operation of law for taxes not yet due and payable.
There is not in effect any waiver by the Company or any of its subsidiaries of
any statute of limitations with respect to any taxes nor has the Company or any
of its subsidiaries agreed to any extension of time for filing any tax return
that has not been filed; and neither the Company nor any of its subsidiaries has
consented to extend to a date later than the date hereof the period in which any
tax may be assessed or collected by any taxing authority. None of the Company's
subsidiaries is a "personal holding company" within the meaning of the Code.
None of the Company's subsidiaries has filed any election under Section 341(f)
of the Code. The Company and its subsidiaries have withheld all taxes, including
but not limited to federal and state income taxes, FICA, Medicare, FUTA and
other taxes, required to be withheld, and paid such withheld amounts to the
appropriate tax authority within the time prescribed by law. Since their
respective inceptions, none of the Company's subsidiaries has been a "United
States real property holding corporation," as defined in Section 897(c)(2) of
the Code, and in Section 1.897-2(b) of the Treasury Regulations issued
thereunder (the "Regulations"), and such subsidiaries have filed with the
Internal Revenue Service all statements, if any, with its United States income
tax returns which are required under Section 1.897-2(h) of the Regulations. The
Company has properly been treated as a partnership under the Code (and all
similar provisions of state and local law) for all of its taxable years from the
date of its organization and will continue to be treated as a partnership up to
the time of Closing, and has not made any election to be treated as a
corporation or association under the Code (and all similar provisions of state
and local law).
3.7.2 For the purposes of this Section, the terms "tax" and "taxes"
include all federal, state, local and foreign income, alternative or add-on
minimum income, gains, franchise,
-18-
excise, property, property transfer, sales, use, employment, license, payroll,
ad valorem, documentary, stamp, withholding, occupation, recording, value added
or transfer taxes, governmental charges, fees, customs duties, levies or
assessments (whether payable directly or by withholding), and, with respect to
any such taxes, any estimated tax, interest, fines and penalties or additions to
tax and interest on such fines, penalties and additions to tax.
3.8 Company Financial Statements. The Company has delivered to Parent as
----------------------------
an attachment to Schedule 3.8 to the Company Disclosure Letter audited
------------
consolidated balance sheets of the Company dated December 31, 2000 and December
31, 1999, and an unaudited consolidated balance sheet of the Company dated June
30, 2001, and the Company's audited consolidated statements of income and
expense, statements of cash flows and statements of members' equity for the
years ended December 31, 2000 and December 31, 1999, respectively, and unaudited
consolidated statements of income and expense, statements of cash flows and
statements of members' equity for the six-month period ended June 30, 2001 (all
such financial statements of the Company and any notes thereto are hereinafter
collectively referred to as the "Company Financial Statements"). The Company
Financial Statements: (a) are derived from and are in accordance with the books
and records of the Company, (b) fairly present the financial condition of the
Company at the dates therein indicated and the results of operations for the
periods therein specified, and (c) have been prepared in accordance with United
States generally accepted accounting principles ("GAAP") applied on a basis
consistent with prior periods except for any absence of notes to any of the
unaudited Company Financial Statements. The Company has no debt, liability or
obligation of any nature, whether accrued, absolute, contingent or otherwise,
and whether due or to become due, except for those (a) shown on the Company's
unaudited balance sheet as of June 30, 2001 included in the Company Financial
Statements (the "Balance Sheet"), and (b) that may have been incurred after June
30, 2001 (the "Balance Sheet Date") in the ordinary course of the Company's
business consistent with its past practices and that are not material in amount,
either individually or collectively, and are not required to be set forth in the
Balance Sheet under GAAP. All reserves established by the Company that are set
forth in or reflected in the Balance Sheet are adequate. At the Balance Sheet
Date, there were no material loss contingencies (as such term is used in
Statement of Financial Accounting Standards No. 5 ("Statement No. 5") issued by
the Financial Accounting Standards Board in March 1975) that are not adequately
provided for in the Balance Sheet as required by Statement No. 5. The Financial
Statements comply in all material respects with the American Institute of
Certified Public Accountants' Statement of Position 97-2.
3.9 Title to Properties. The Company has good and marketable title to all
-------------------
of its assets and properties (including those shown on the Balance Sheet), free
and clear of all Encumbrances, other than liens for current taxes that are not
yet due and payable and except for liens that in the aggregate do not secure
more than $5,000 in liabilities. All machinery, vehicles, equipment and other
tangible personal property owned or leased by the Company or used in its
business are in good condition and repair, normal wear and tear excepted, and
all leases of real or personal property to which the Company is a party are
fully effective and afford the Company peaceful and undisturbed leasehold
possession of the real or personal property that is the subject of the lease. To
the Company's Knowledge, the Company is not in violation of any zoning,
building, safety or environmental ordinance, regulation or requirement or other
law or regulation applicable to the operation of its owned or leased properties,
nor has the Company received any notice of violation of law with which it has
not complied. The Company does not own any real property. Schedule 3.9 to
------------
-19-
the Company Disclosure Letter sets forth a complete and accurate list and a
brief description of all personal property owned or leased by the Company with
an individual value of $500 or greater.
3.10 Absence of Certain Changes. Except as set forth on Schedule 3.10 to
-------------------------- -------------
the Company Disclosure Letter, since June 30, 2001, the Company has operated its
business in the ordinary course consistent with its past practices, and since
such date there has not been with respect to the Company any:
(a) Material Adverse Change in the Company or any of its
subsidiaries;
(b) amendment or change in the Articles of Organization or
Operating Agreement;
(c) incurrence, creation or assumption by the Company of (i) any
Encumbrance on any of the assets or properties of the Company, (ii) any
obligation or liability or any indebtedness for borrowed money, or (iii) any
contingent liability as a guarantor or surety with respect to the indebtedness
or obligations of another Person;
(d) grant or issuance of any units, membership interests,
options, warrants or other rights to acquire from the Company, directly or
indirectly, except as described in Sections 3.4.1 and 3.4.2 hereof, or any
offer, issuance, sale or creation by the Company of any debt or equity
securities of the Company, including warrants, obligations, subscriptions,
rights, options, convertible securities, or other commitments to issue or
purchase membership interests, ownership interests or any other of its
securities that are potentially exchangeable for, or convertible into,
Membership Interests;
(e) any acceleration or release of any vesting condition or right
to repurchase Company Membership Interests upon the member's termination of
employment or services with the Company or pursuant to any right of first
refusal;
(f) payment or discharge by the Company of any Encumbrance on any
asset or property of the Company, or the payment or discharge of any liability
of the Company, in each case that was not either shown on the Balance Sheet or
incurred in the ordinary course of the Company's business after December 31,
2000 in an amount not in excess of $10,000 for any single liability;
(g) purchase, license, sale, assignment or other disposition or
transfer, or any agreement or other arrangement for the purchase, license, sale,
assignment or other disposition or transfer, of any of the assets (including
intangible assets), properties or goodwill of the Company other than a non-
exclusive license of any products or services of the Company made in the
ordinary course of the Company's business consistent with its past practices;
(h) damage, destruction or loss of any material property or
material asset, whether or not covered by insurance;
(i) declaration, setting aside or payment of any dividend on, or
the making of any other distribution in respect of, the Company Membership
Interests, or any split, combination or recapitalization of the Company
Membership Interests or any direct or indirect redemption,
-20-
purchase or other acquisition of any Company Membership Interests or other
ownership interests or any change in any rights, preferences, privileges or
restrictions of any Membership Interests or other ownership interests in the
Company;
(j) change or increase in any compensation, including severance
compensation, payable or to become payable to any of the managers, members,
officers, directors, employees, consultants or agents of the Company, or in any
bonus or pension, insurance or other benefit payment or arrangement (including
without limitation awards of Company Membership Interests, grants of Company
Plan Membership Interests, or other membership or ownership interest
appreciation rights) made to or with any of such managers, members, officers,
employees, consultants or agents except in connection with normal employee,
salary or performance reviews or as contemplated in this Agreement;
(k) change with respect to the executives, management,
supervisory or other key personnel of the Company;
(l) obligation or liability incurred by the Company to any of its
officers, directors, managers or members, except for normal and customary
compensation and expense allowances payable to officers, managers or members in
the ordinary course of the Company's business consistent with its past
practices;
(m) making by the Company of any loan, advance or capital
contribution to, or any investment in, any officer, director, manager or member
of the Company or any firm or business enterprise in which any such Person had a
direct or indirect material interest at the time of such loan, advance, capital
contribution or investment;
(n) entering into, amendment of, relinquishment, waiver,
forbearance, termination or non-renewal by the Company of any contract, lease,
transaction, commitment or other right or obligation other than in the ordinary
course of its business consistent with its past practices in an amount which is
not material; or any written or oral indication or assertion by the other party
thereto of any problems with the Company's services or performance under such
contract, lease, transaction, commitment or other right or obligation or its
desire to so amend, relinquish, waive, terminate or not renew any such contract,
lease, transaction, commitment or other right or obligation;
(o) material change in the manner in which the Company extends
discounts, credits or warranties to customers or otherwise deals with its
customers or any material change in the Company's relationship with any of its
customers, vendors or suppliers;
(p) entering into by the Company of any transaction, contract or
agreement that by its terms requires or contemplates a current and/or future
financial commitment, expense (inclusive of overhead expense) or obligation on
the part of the Company that involves in excess of $20,000 or that is not
entered into in the ordinary course of the Company's business, or the conduct of
any business or operations other than in the ordinary course of the Company's
business consistent with its past practices;
-21-
(q) any license, transfer or grant of a right under any Company
IP Rights (as defined in Section 3.13 below), other than those licensed,
transferred or granted in the ordinary course of the Company's business
consistent with its past practices; or
(r) any agreement or arrangement made by the Company to take any
action that, if taken prior to the Agreement Date, would have made any
representation or warranty of the Company set forth in Article 3 of this
Agreement untrue or incorrect as of the date when made.
3.11 Contracts and Commitments/Licenses and Permits. Schedule 3.11(a)
---------------------------------------------- ----------------
through (l) to the Company Disclosure Letter sets forth a list of each of the
---
following written or oral contracts, agreements, leases, licenses, permits,
assignments, mortgages, transactions, obligations, commitments or other
instruments to which the Company or any of its subsidiaries is a party or to
which the Company or its subsidiaries or any of their respective assets or
properties are bound:
(a) any contract or agreement providing for payments (whether
fixed, contingent or otherwise) by or to the Company or its subsidiaries in an
aggregate amount of $20,000 or more which (i) was entered into within two years
of the date hereof, or (ii) which is material to the Company, its business or
its financial condition;
(b) any reseller, VAR (value added reseller), sales
representative or similar agreement under which any third party is authorized to
sell, sublicense, lease, distribute, market or take orders for, any product,
service or technology of the Company or its subsidiaries, or any contract
providing for the sale or license of any Company product or technology or the
provision of any Company service (other than contracts or licenses with Company
customers entered into in the ordinary course of the Company's business,
consistent with past practices;
(c) any contract providing for the development of any software,
content (including without limitation textual content and visual, photographic
or graphics content), technology or Intellectual Property (as defined in Section
3.13.1) for (or for the benefit or use of) the Company or its subsidiaries, or
providing for the purchase or license of any software, content (including
without limitation textual content and visual or graphics content), technology
or Intellectual Property to (or for the benefit or use of) the Company or its
subsidiaries, which software, content, technology or Intellectual Property is in
any manner used or incorporated (or is contemplated by the Company to be used or
incorporated) in connection with any aspect or element of any product, service
or technology of the Company or its subsidiaries (other than perpetual, non-
exclusive, object code licenses of software generally available to the public at
a per copy license fee of less than $500 per copy) to the extent necessary for
the conduct of the business of the Company and its subsidiaries as presently
conducted or contemplated or previously contemplated;
(d) any joint venture or partnership contract or other agreement
that has involved, or is reasonably expected to involve, a sharing of profits,
expenses or losses with any other party;
(e) any contract or commitment for or relating to the employment
of any officer, manager, employee or consultant of the Company or its
subsidiaries or any other type of contract or understanding with any officer,
manager, employee or consultant of the Company or its
-22-
subsidiaries that is not immediately terminable by the Company or its
subsidiaries without cost or other liability;
(f) any indenture, mortgage, trust deed, promissory note, loan
agreement, security agreement, guarantee or other agreement or commitment for
the borrowing of money, for a line of credit or for a leasing transaction;
(g) any lease or other agreement under which the Company or any
of its subsidiaries is lessee of or holds or operates any items of tangible
personal property or real property owned by any third party;
(h) any agreement that restricts the Company or any of its
subsidiaries from engaging in any aspect of its business; from participating or
competing in any line of business or market; from freely setting prices for the
Company's products, services or technologies (including but not limited to most
favored customer pricing provisions); from engaging in any business in any
market or geographic area; or from soliciting potential employees, consultants,
contractors or other suppliers or customers;
(i) any Company IP Rights Agreement (as defined in Section
3.13.2);
(j) any agreement relating to the sale, issuance, grant,
exercise, award, purchase, vesting, repurchase or redemption of any Company
Membership or other ownership interests or securities of, the Company or its
subsidiaries or any options, warrants or other rights to purchase or otherwise
acquire any such Company Membership or other ownership interests or securities
of the Company or its subsidiaries, or options, warrants or other rights
therefor, except for those agreements conforming to the Company's standard form
of unit purchase agreement under the Company Plan;
(k) any contract with or commitment to any labor union; and
(l) any Governmental Permit or agreement or contract or
subcontract with any governmental body, department or agency (as defined in
Section 3.14.3).
A true and complete copy of each agreement or document required by these
subsections (a) through (l) of this Section to be listed on Schedule 3.11 to
-------------
the Company Disclosure Letter (such agreements and documents being hereinafter
collectively referred to as the "Company Material Agreements") and a copy of
each Governmental Permit required by subsection (l) of this Section to be
listed on Schedule 3.11 to the Company Disclosure Letter has been delivered to
-------------
Parent's legal counsel.
3.12 No Default; No Restrictions.
---------------------------
(a) Neither the Company nor any subsidiary of the Company is, nor
to the Company's Knowledge is any other party, in material breach or default
under any Company Material Agreement. Except as set forth in Schedule 3.12 to
-------------
the Company Disclosure Letter, neither the Company nor any subsidiary of the
Company has received any notice or other communication regarding any actual or
possible violation or breach of, or default under, any Company Material
Agreement. Neither the Company nor any of its subsidiaries has any material
-23-
liability for renegotiation of government contracts or subcontracts, if any.
Except as set forth in Schedule 3.12 to the Company Disclosure Letter, no
-------------
consent, notice or approval of any third party is required to ensure that,
following the Effective Time, any Company Material Agreement will continue to be
in full force and effect without any breach or violation thereof caused by
virtue of the Merger or by any other transaction called for by this Agreement or
any Company Ancillary Agreement. Except as set forth in Schedule 3.12 to the
-------------
Company Disclosure Letter, no event has occurred, and no circumstance or
condition exists, that (with or without notice or lapse of time) will, or to the
Company's Knowledge, would reasonably be expected to, (i) result in a violation
or breach of any of the provisions of any Company Material Agreement, or (ii) to
the Company's Knowledge, give any third party (A) the right to declare a default
or exercise any remedy under any Company Material Agreement, (B) the right to a
rebate, chargeback, penalty or change in delivery schedule under any Company
Material Agreement, (C) the right to accelerate the maturity or performance of
any obligation of the Company under any Company Material Agreement, or (D) the
right to cancel, waive, terminate or modify any Company Material Agreement. The
Company has not received any written, or, to the Company's Knowledge, oral
notice or other communication regarding any actual or possible violation or
breach of, or default under, any Company Material Agreement.
(b) Except as listed in Schedule 3.12 to the Company Disclosure
-------------
Letter, the Company is not a party to, and no asset or property of the Company
is bound or affected by, any judgment, injunction, order, decree, contract,
covenant or agreement (noncompete or otherwise) that restricts or prohibits, or
purports to restrict or prohibit, the Company (or any of its subsidiaries) or,
following the Effective Time, the Surviving Corporation or Parent, from freely
engaging in any business now conducted or contemplated by the Company or from
competing anywhere in the world (including any contracts, covenants or
agreements restricting the geographic area in which Company may sell, license,
market, distribute or support any products or technology or provide services; or
restricting the markets, customers or industries that the Company may address in
operating its business; or restricting the prices which the Company may charge
for its products or technology or services), or includes any grants by the
Company of exclusive rights or licenses.
3.13 Intellectual Property.
---------------------
3.13.1 The Company (a) owns and has independently developed, or (b)
has the valid right or license to use, possess, develop, sell, license, copy,
distribute, market, advertise and/or dispose of all Intellectual Property (as
defined below) used in the conduct of the Company Business (as defined below)
(such Intellectual Property being hereinafter collectively referred to as the
"Company IP Rights"). Such Company IP Rights are sufficient for such conduct of
the Company Business. As used herein, the term "Company Business" means the
business of the Company and its subsidiaries as presently conducted and as
presently proposed to be conducted. As used herein, the term "Intellectual
Property" means, collectively, all worldwide industrial and intellectual
property rights, including patents, patent applications, patent rights,
trademarks, trademark registrations and applications therefor, trade dress
rights, trade names, service marks, service xxxx registrations and applications
therefor, Internet domain names, Internet and World Wide Web URLs or addresses,
copyrights, copyright registrations and applications therefor, mask work rights,
mask work registrations and applications therefor, franchises, licenses,
inventions, trade secrets, know-how, customer lists, supplier lists, proprietary
processes and formulae, software source code and object code, algorithms, net
lists, architectures, structures, screen displays, photographs, images, layouts,
inventions, development tools, designs, blueprints, specifications, technical
drawings (or
-24-
similar information in electronic format) and all documentation and media
constituting, describing or relating to the foregoing, including manuals,
programmers' notes, memoranda and records. As used in this Section 3.13,
"Company-Owned IP Rights" means Company IP Rights that are owned or exclusively
licensed to the Company; and "Company-Licensed IP Rights" means Company IP
Rights that are not Company-Owned IP Rights.
3.13.2 Neither the execution, delivery and performance of this
Agreement, the Agreement of Merger, or the consummation of the Merger and the
other transactions contemplated by this Agreement and/or by Company Ancillary
Agreements will, in accordance with their terms: (a) constitute a material
breach of or default under any instrument, contract, license or other agreement
governing any Company IP Right (collectively, the "Company IP Rights
Agreements"); (b) cause the forfeiture or termination of, or give rise to a
right of forfeiture or termination of, any Company IP Right; or (c) materially
impair the right of the Company or the Surviving Corporation to use, possess,
sell or license any Company IP Right or portion thereof. There are no royalties,
honoraria, fees or other payments payable by the Company to any third person
(other than salaries payable to employees and independent contractors not
contingent on or related to use of their work product) as a result of the
ownership, use, possession, license-in, sale, marketing, advertising or
disposition of any Company IP Rights by the Company to the extent necessary for
the conduct of the Company Business and none will become payable as a result of
the consummation of the transactions contemplated by this Agreement.
3.13.3 Neither the use, development, manufacture, marketing, license,
sale, furnishing or intended use of any product or service currently licensed,
utilized, sold, provided or furnished by the Company or currently under
development by the Company or proposed to be licensed, utilized, sold, provided
or furnished by the Company violates any license or agreement between the
Company and any third party or infringes or misappropriates any Intellectual
Property right of any other party; and there is no pending or, to the Company's
Knowledge, threatened claim or litigation contesting the validity, ownership or
right of the Company to exercise any Company IP Right, nor to the Knowledge of
the Company, is there any legitimate basis for any such claim, nor has the
Company received any notice asserting that any Company IP Right or the proposed
use, sale, license or disposition thereof conflicts or will conflict with the
rights of any other party, nor, to the Knowledge of the Company, is there any
legitimate basis for any such assertion.
3.13.4 To the Company's Knowledge, no current or former employee,
consultant or independent contractor of the Company: (a) is in material
violation of any term or covenant of any employment contract, patent disclosure
agreement, invention assignment agreement, non-disclosure agreement,
noncompetition agreement or any other contract or agreement with any other party
by virtue of such employee's, consultant's, or independent contractor's being
employed by, or performing services for, the Company or using trade secrets or
proprietary information of others without permission; or (b) has developed any
technology, software or other copyrightable, patentable, or otherwise
proprietary work for the Company that is subject to any agreement under which
such employee, consultant or independent contractor has assigned or otherwise
granted to any third party any rights (including Intellectual Property) in or to
such technology, software or other copyrightable, patentable or otherwise
proprietary work. To the Company's Knowledge, the employment of any employee of
the Company or the use by the Company of the services of any consultant or
independent contractor does not subject the Company to any liability to any
third party for improperly soliciting such employee or consultant, or
independent contractor to work for the
-25-
Company, whether such liability is based on contractual or other legal
obligations to such third party.
3.13.5 To the actual knowledge of the Company (including the Core
Company Members and each person engaged in development activity for the
Company), the Company has taken all necessary and appropriate steps to protect,
preserve and maintain the secrecy and confidentiality of the Company IP Rights
and to preserve and maintain all the Company's interests and proprietary rights
in the Company IP Rights. All officers, managers, members, employees and
consultants of the Company having access to proprietary information of the
Company, its customers or business partners and inventions owned by the Company,
have executed and delivered to the Company an agreement regarding the protection
of such proprietary information and the assignment of the Company's inventions
to the Company (in the case of proprietary information of the Company's customer
and business partners, to the extent required by such customers and business
partners); and copies of all such agreements have been delivered to Parent's
counsel. To the Company's Knowledge, the Company has secured written assignments
from all of the Company's consultants, contractors and employees who were
involved in, or who contributed to, the creation or development of any Company-
Owned IP Rights, of the rights to such contributions that may be owned by such
Persons or that the Company does not already own by operation of law. No current
or former employee, officer, director, manager, member, consultant or
independent contractor of the Company has any right, license, claim or interest
whatsoever in or with respect to any Company IP Rights.
3.13.6 Schedule 3.13.6 to the Company Disclosure Letter contains a
---------------
true and complete list of (i) all worldwide registrations made by or on behalf
of the Company of any patents, copyrights, mask works, trademarks, service
marks, Internet domain names or Internet or World Wide Web URLs or addresses
with any governmental or quasi-governmental authority, including Internet domain
name registries; and (ii) all applications, registrations, filings and other
formal written governmental actions made or taken pursuant to federal, state and
foreign laws by the Company to secure, perfect or protect its interest in
Company IP Rights, including all patent applications, copyright applications,
and applications for registration of trademarks and service marks. All
registered patents, trademarks, service marks, Internet domain names, Internet
or World Wide Web URLs or addresses, and copyrights held by the Company are
valid, enforceable and subsisting and the Company is the record owner thereof.
3.13.7 To the Company's Knowledge, the Company owns all right, title
and interest in and to all Company-Owned IP Rights free and clear of all
Encumbrances and licenses (other than licenses and rights listed in Schedule
--------
3.13.8). To the Company's Knowledge, the Company's right, license and interest
------
in and to all Company-Licensed IP Rights are free and clear of all Encumbrances
and licenses (other than licenses and rights listed in Schedule 3.13.8).
---------------
3.13.8 Schedule 3.13.8 to the Company Disclosure Letter contains a
---------------
true and complete list of (i) all licenses, sublicenses and other agreements as
to which the Company is a party and pursuant to which any Person or entity is
authorized to use any Company IP Rights, and (ii) all licenses, sublicenses and
other agreements as to which the Company is a party and pursuant to which the
Company is authorized to use any third party Intellectual Property.
-26-
3.13.9 Neither the Company, nor any other party acting on its behalf,
has disclosed or delivered to any party, or permitted the disclosure or delivery
to any escrow agent or other party of, any Company Source Code (as defined
below). No event has occurred, and no circumstance or condition exists, that
(with or without notice or lapse of time) will, or would reasonably be expected
to, result in the disclosure or delivery by the Company or any other party
acting on the Company's behalf to any party of any Company Source Code (as
defined below). Schedule 3.13.9 of the Company Disclosure Letter identifies each
---------------
contract, agreement and instrument (whether written or oral) pursuant to which
the Company has deposited, or is or may be required to deposit, with an escrow
holder or any other party, any Company Source Code and further describes whether
the execution of this Agreement or the consummation of the Merger or any of the
other transactions contemplated by this Agreement, in and of itself, would
reasonably be expected to result in the release from escrow of any Company
Source Code. As used in this Section 3.13.9, "Company Source Code" means,
collectively, any software source code, or any material portion or aspect of the
software source code, or any material proprietary information or algorithm
contained in or relating to any software source code, of any Company-Owned IP
Rights or any other product or service marketed or currently proposed to be
marketed by the Company.
3.13.10 To the actual knowledge of the Company (including the Core
Company Members and each person engaged in development activity for the
Company), there is no unauthorized use, disclosure, infringement or
misappropriation of any Company IP Rights by any third party, including any
employee or former employee or consultant or independent contractor of the
Company. The Company has not agreed to indemnify any Person for any infringement
of any Intellectual Property of any third party by any product or service that
has been sold, licensed to third parties, leased to third parties, supplied,
marketed, distributed, or provided by the Company.
3.13.11 All Intellectual Property developed by the Company and
licensed by the Company to customers and all services provided by or through the
Company to customers on or prior to the Closing Date conform in all material
respects (to the extent required in contracts with such customers) to applicable
contractual commitments, express and implied warranties, product specifications
and product documentation and to any representations provided to customers and
the Company has no material liability (and, to the Company's Knowledge, there is
no legitimate basis for any present or future action, suit, proceeding, hearing,
investigation, charge, complaint, claim or demand against the Company giving
rise to any material liability relating to the foregoing contracts) for
replacement, repair or reperformance thereof or other damages in connection
therewith in excess of any reserves therefor reflected on the Balance Sheet.
3.13.12 No government funding; facilities of a university, college,
other educational institution or research center; or funding from third parties
(other than funds received in consideration for Company Membership Interests)
was used in the development of the Company IP Rights. No current or former
employee, consultant or independent contractor of the Company, who was involved
in, or who contributed to, the creation or development of any Company IP Rights,
has performed services for the government, university, college, or other
educational institution or research center during a period of time during which
such employee, consultant or independent contractor was also performing services
for the Company.
-27-
3.14 Compliance with Laws.
--------------------
3.14.1 The Company and each of its subsidiaries have materially
complied, and are now and at the Closing Date will be in material compliance
with, all applicable federal, state or local laws, ordinances, regulations, and
rules, and all orders, writs, injunctions, awards, judgments, and decrees, and
to the Company's Knowledge, all foreign laws, ordinances, regulations, statutes
and rules, applicable to it or to its assets, properties and business (and any
regulations promulgated thereunder) (collectively, "Applicable Law"). The
Company and its subsidiaries hold all valid licenses and other governmental
permits that are necessary and/or legally required to be held by them to conduct
their respective businesses as presently conducted.
3.14.2 All materials, products and services distributed or marketed
by the Company and its subsidiaries have at all times made all material
disclosures to users or customers required by Applicable Law and none of such
disclosures made or contained in any such materials have been inaccurate,
misleading or deceptive in any material respect.
3.14.3 The Company and each of its subsidiaries hold all material
permits, licenses and approvals from, and have made all material filings with,
government (and quasi-governmental) agencies and authorities, that are necessary
for the Company and its subsidiaries to conduct their respective present
businesses without any violation of Applicable Law ("Governmental Permits") and
all such Governmental Permits are in full force and effect. Neither the Company
nor any of its subsidiaries has received any notice or other communication from
any Governmental Authority regarding (a) any actual or possible violation of law
or any Governmental Permit or any failure to comply with any term or requirement
of any Governmental Permit, or (b) any actual or possible revocation,
withdrawal, suspension, cancellation, termination or modification of any
Governmental Permit.
3.14.4 Neither the Company nor any of its subsidiaries nor any
director, member, manager, officer, agent or employee of the Company or any of
its subsidiaries has, for or on behalf of the Company or any of its
subsidiaries, (a) used any funds for unlawful contributions, gifts,
entertainment or other unlawful expenses relating to political activity, (b)
made any unlawful payment to foreign or domestic government officials or
employees or to foreign or domestic political parties or campaigns or violated
any provision of the Foreign Corrupt Practices Act of 1977, as amended, or (c)
made any other payment in violation of Applicable Law.
3.15 Certain Transactions and Agreements. Except as set forth in Schedule
-----------------------------------
3.15 to the Company Disclosure Letter, none of the officers, directors and
managers of the Company and, to the Company's Knowledge, none of the employees
or Members of the Company, nor any member of their immediate families, has any
direct ownership interest in any firm or corporation that competes with, or does
business with, or has any contractual arrangement with, the Company (except with
respect to any interest in less than one percent of the stock of any corporation
whose stock is publicly traded). To the Company's Knowledge, none of the
officers, directors, managers, employees or Members of the Company, nor any
member of their immediate families, has any indirect ownership interest in any
firm or corporation that competes with, or does business with, or has any
contractual arrangement with, the Company (except with respect to any interest
in less than one percent of the stock of any corporation whose stock is publicly
traded). None of said officers, directors, managers, employees or Members or any
member of their immediate families, is a party
-28-
to, or otherwise directly or indirectly interested in, any contract or informal
arrangement with the Company, except for normal compensation for services as an
officer, director, Member or employee thereof that have been disclosed to
Parent. None of said officers, directors, managers, employees, Members or family
members has any interest in any property, real or personal, tangible or
intangible (including but not limited to any Company IP Rights or any other
Intellectual Property) that is used in, or that pertains to, the business of the
Company, except for the rights of a Member under Applicable Law. Other than
amounts owed by the Member-Debtors under the Member Notes listed on Schedule
--------
3.4.1(d), the Company is not owed any amounts from any employee or Member.
--------
3.16 Employees, ERISA and Other Compliance.
-------------------------------------
3.16.1 The Company and its subsidiaries are in compliance in all
material respects with all applicable laws, agreements and contracts relating to
employment, employment practices, immigration, wages, hours, and terms and
conditions of employment, including, but not limited to, employee compensation
matters, and have correctly classified employees as exempt employees and non-
exempt employees under the Fair Labor Standards Act. A list of all employees,
officers, managers and consultants of the Company and their current title and/or
job description and compensation is set forth on Schedule 3.16.1 to the Company
---------------
Disclosure Letter. The Company does not have any employment contracts or
consulting agreements currently in effect that are not terminable at will (other
than agreements with the sole purpose of providing for the confidentiality of
proprietary information or assignment of inventions).
3.16.2 To the Company's Knowledge, the Company (a) is not now, nor
has ever been, subject to a union organizing effort, (b) is not subject to any
collective bargaining agreement with respect to any of its employees, (c) is not
subject to any other contract, written or oral, with any trade or labor union,
employees' association or similar organization, and (d) has no current labor
disputes. The Company has good labor relations, and has no Knowledge of any
facts indicating that the consummation of the Merger or any of the other
transactions contemplated hereby will have a material adverse effect on such
labor relations, and has no Knowledge that any of its key employees intends to
leave their employ. All of the employees of the Company and its subsidiaries are
legally permitted to be employed by the Company in the United States of America
in their current job capacities.
3.16.3 The Company has not incurred any liability under, and has
complied in all respects with, the Worker Adjustment Retraining Notification Act
(the "WARN Act") and no fact or event exists that could give rise to liability
under the WARN Act. Schedule 3.16.3 to the Company Disclosure Letter contains a
---------------
list of all employees who are currently on a leave of absence (whether paid or
unpaid), the reasons therefor, the expected return date, and whether
reemployment of such employee is guaranteed by contract or statute, and a list
of all employees who have requested a leave of absence to commence at any time
after the date of this Agreement, the reason therefor, the expected length of
such leave, and whether reemployment of such employee is guaranteed by contract
or statute.
3.16.4 (a) Schedule 3.16.4 to the Company Disclosure Letter lists
---------------
each employment, severance or other similar contract, arrangement or policy,
each "employee benefit plan" as defined in Section 3(3) of ERISA and each plan
or arrangement (written or oral) providing for insurance coverage (including any
self-insured arrangements), workers' benefits, vacation benefits, severance
-29-
benefits, disability benefits, death benefits, hospitalization benefits,
retirement benefits, deferred compensation, profit-sharing, bonuses, options to
purchase membership interests, or the right to receive membership interests,
membership interest appreciation or other forms of incentive compensation or
post-retirement insurance, compensation or benefits for employees, consultants,
directors or Members that is entered into, maintained or contributed to by the
Company and covers any employee or former employee of the Company or any of its
subsidiaries. Such contracts, plans and arrangements as are described in this
Section 3.16.4 are hereinafter collectively referred to as "Company Benefit
--------------
Arrangements." To the Company's Knowledge, neither the Company nor any of its
subsidiaries has a pension plan, which constitutes, or has since the enactment
of the Employee Retirement Income Security Act of 1974, as amended ("ERISA")
constituted, a "multiemployer plan" as defined in Section 3(37) of ERISA. No
pension plan of the Company is subject to Title IV of ERISA.
(b) Each Company Benefit Arrangement has been maintained in
compliance in all material respects with its terms and with the requirements
prescribed by any and all statutes, orders, rules and regulations that are
applicable to such Company Benefit Arrangement and, unless otherwise indicated
in Schedule 3.16.4 to the Company Disclosure Letter, each such Company Benefit
---------------
Arrangement that is an "employee pension benefit plan" as defined in Section
3(2) of ERISA that is intended to qualify under Section 401(a) of the Code has
received a favorable determination letter that such plan satisfied the
requirements of the Tax Reform Act of 1986 and the GUST amendments (a copy of
which letter(s) have been delivered to Parent and its legal counsel) or
sufficient time remains to obtain such determination letter without adversely
affecting the tax qualification of such Company Benefit Arrangement. No Company
Benefit Arrangement will be subject to any surrender fees or service fees upon
termination other than the normal and reasonable administrative fees associated
with the termination of benefit plans.
(c) The Company has delivered to Parent or its legal counsel a
complete and correct copy and description of each Company Benefit Arrangement.
(d) The Company and each of its subsidiaries have timely filed
and delivered to Parent and its legal counsel the most recent annual report
(Form 5500) for each Company Benefit Arrangement that is an "employee benefit
plan" as defined under ERISA.
(e) To the Company's Knowledge, neither the Company nor any of
its subsidiaries has ever been a participant in any "prohibited transaction,"
within the meaning of Section 406 of ERISA with respect to any employee pension
benefit plan (as defined in Section 3(2) of ERISA) that the Company or any of
its subsidiaries sponsor as employers or in which the Company or any of its
subsidiaries participates as an employer, which was not otherwise exempt
pursuant to Section 408 of ERISA (including any individual exemption granted
under Section 408(a) of ERISA), or that could result in an excise tax under the
Code.
(f) To the Company's Knowledge, all contributions due from the
Company or any of its subsidiaries with respect to any of Company Benefit
Arrangements have been made or have been accrued on the Company's financial
statements (including without limitation the Company Financial Statements), and
no further contributions will be due or will have accrued thereunder as of the
Closing Date.
-30-
(g) To the Company's Knowledge, all individuals who, pursuant to
the terms of any Company Benefit Arrangement, are entitled to participate in any
such Company Benefit Arrangement, are currently participating in such Company
Benefit Arrangement or have been offered an opportunity to do so and have
declined in writing.
(h) To the Company's Knowledge, neither the Company nor any of its
subsidiaries has any liability to any employee or to any organization or any
other entity as a result of the termination of any employee leasing
arrangement.
3.16.5 There has been no amendment to, written interpretation or
announcement (whether or not written) by the Company or its subsidiaries
relating to, or change in employee participation or coverage under, any Company
Benefit Arrangement that would increase materially the expense of maintaining
such Company Benefit Arrangement above the level of the expense incurred in
respect thereof during the calendar year 2000.
3.16.6 To the Company's Knowledge, the group health plans (as defined
in Section 4980B(g) of the Code) that benefit employees of the Company and its
subsidiaries are in compliance, in all material respects, with the continuation
coverage requirements of Section 4980B of the Code as such requirements affect
the Company and its employees. As of the Closing Date, there will be no material
outstanding, uncorrected violations under the Consolidation Omnibus Budget
Reconciliation Act of 1985, as amended ("COBRA"), Sections 601 through 608 of
ERISA, the Americans with Disabilities Act of 1990, as amended, or the Family
Medical Leave Act of 1993, as amended, and the regulations thereunder with
respect to any of Company Benefit Arrangements, covered employees, or qualified
beneficiaries that could result in a Material Adverse Effect on the Company, or
in a Material Adverse Effect on Parent after the Effective Time.
3.16.7 Unless otherwise indicated in Schedule 3.16.7 to the Company
---------------
Disclosure Letter, no benefit payable or that may become payable by the Company
pursuant to any Company Benefit Arrangement or as a result of or arising under
this Agreement or the Agreement of Merger will constitute an "excess parachute
payment" (as defined in Section 280G(b)(1) of the Code) that is subject to the
imposition of an excise tax under Section 4999 of the Code or which that not be
deductible by reason of Section 280G of the Code. Unless otherwise indicated in
Schedule 3.16.7 to the Company Disclosure Letter and except for the acceleration
---------------
of vesting applicable to Membership Interests issued pursuant to the Company
Plan, neither the Company nor any subsidiary is a party to any: (a) agreement
with any manager, officer or other employee thereof (i) the benefits of which
are contingent, or the terms of which are materially altered, upon the
occurrence of a transaction involving the Company in the nature of the Merger or
any of the other transactions contemplated by this Agreement or any Company
Ancillary Agreement, (ii) providing any term of employment or compensation
guarantee, or (iii) providing severance benefits or other benefits after the
termination of employment of such employee regardless of the reason for such
termination of employment; or (b) agreement or plan, including, without
limitation, any ownership or membership interest purchase plan, any of the
benefits of which will be increased, the vesting of benefits of which will be
accelerated or the repurchase rights of which will lapse, by the occurrence of
the Merger or any of the other transactions contemplated by this Agreement or
any Company Ancillary 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 or any Company Ancillary Agreement.
-31-
3.17 Corporate Documents. The Company has made available to Parent and its
-------------------
legal counsel for examination all documents and information listed in the
Company Disclosure Letter or in any schedule thereto or in any other exhibit or
schedule called for by this Agreement that have been requested by Parent or its
legal counsel, including the following: (a) copies of Company's Articles of
Organization and Operating Agreement as currently in effect; (b) the Company's
minute book containing all records of all proceedings, consents, actions, and
meetings of Company Members and managers of the Company and any committees
thereof; (c) the Company Membership Interest ledger, and Company Plan Membership
Interest ledger and journal reflecting all membership or ownership interest
issuances and transfers; (d) all permits, orders, and consents issued by, and
filings by the Company with, any regulatory agency with respect to the Company,
or any securities of the Company, and all applications for such permits, orders,
and consents; and (e) all the Company Material Agreements.
3.18 No Brokers. Except as set forth on Schedule 3.18 to the Company
---------- -------------
Disclosure Letter, neither the Company nor any affiliate or manager or Member of
the Company is obligated for the payment of any fees or expenses of any
investment banker, broker, finder or similar party in connection with the
origin, negotiation or execution of this Agreement or in connection with the
Merger or any other transaction contemplated by this Agreement. Parent will not
incur any liability, either directly or indirectly, to any such investment
banker, broker, finder or similar party as a result of, this Agreement, the
Merger or any act or omission of the Company, any of its employees, officers,
directors, managers, Members, agents or affiliates.
3.19 Books and Records.
-----------------
3.19.1 The books, records and accounts of the Company and each of its
subsidiaries (a) are in all material respects true, complete and correct, (b)
have been maintained in accordance with good business practices on a basis
consistent with prior years, (c) are stated in reasonable detail and accurately
and fairly reflect the transactions and dispositions of the assets of the
Company and its subsidiaries, as applicable, and (d) accurately and fairly
reflect the basis for the Company Financial Statements.
3.19.2 The Company and each of its subsidiaries have devised and
maintain a system of internal accounting controls sufficient to provide
reasonable assurances that: (a) transactions are executed in accordance with
management's general or specific authorization; (b) transactions are recorded as
necessary (i) to permit preparation of financial statements in conformity with
generally accepted accounting principles or any other criteria applicable to
such statements, and (ii) to maintain accountability for assets; and (c) the
amount recorded for assets on the books and records of the Company is compared
with the existing assets at reasonable intervals and appropriate action is taken
with respect to any differences.
3.20 Insurance. Since their respective organizations, the Company and
---------
each of its subsidiaries have maintained, and now maintains, policies of
insurance and bonds of the type and in amounts reasonably and customarily
carried by Persons conducting businesses or owning assets similar in type and
size to those of the Company and its subsidiaries, including without limitation
all legally required workers' compensation insurance and errors and omissions,
casualty, fire and general liability insurance. There is no material claim
pending under any of such policies or bonds as to which coverage has been
questioned, denied or disputed by the underwriters of such policies
-32-
or bonds. All premiums due and payable under all such policies and bonds have
been timely paid and the Company and its subsidiaries are otherwise in material
compliance with the terms of such policies and bonds. The Company has no
Knowledge of any threatened termination of, or material premium increase with
respect to, any of such policies. All policies of insurance now held by the
Company and its subsidiaries are set forth in Schedule 3.20 to the Company
-------------
Disclosure Letter, together with the name of the insurer under each policy, the
type of policy, the policy coverage amount and any applicable deductible.
3.21 Environmental Matters.
---------------------
3.21.1 The Company and each of its subsidiaries are in compliance
with all applicable Environmental Laws (as defined below), which compliance
includes the possession by the Company of all permits and other governmental
authorizations required under applicable Environmental Laws, and compliance with
the terms and conditions thereof. To the Knowledge of the Company, neither the
Company nor any of its subsidiaries has received any notice or other
communication (in writing or otherwise), whether from a governmental body,
citizens groups, employee or otherwise, that alleges that the Company or such
subsidiary is not in compliance with any Environmental Law, and there are no
circumstances that may prevent or interfere with the compliance by the Company
and each of its subsidiaries with any current Environmental Law in the future.
To the Company's Knowledge, no current or prior owner of any property leased or
possessed by the Company or any of its subsidiaries has received any notice or
other communication (in writing or otherwise), whether from a government body,
citizens group, employee or otherwise, that alleges that such current or prior
owner or the Company is not in compliance with any Environmental Law. All
governmental authorizations currently held by the Company and its subsidiaries
pursuant to any Environmental Law (if any) are identified in Schedule 3.21 of
-------------
the Company Disclosure Letter.
3.21.2 For purposes of this Section 3.21: (a) "Environmental Law"
means any federal, state or local statute, law regulation or other legal
requirement relating to pollution or protection of human health or the
environment (including ambient air, surface water, ground water, land surface or
subsurface strata), including any law or regulation relating to emissions,
discharges, releases or threatened releases of Materials of Environmental
Concern, or otherwise relating to the manufacture, processing, distribution,
use, treatment, storage, disposal, transport or handling of Materials of
Environmental Concern; and (b) "Material of Environmental Concern" include
chemicals, pollutants, contaminants, wastes, toxic substances, petroleum and
petroleum products and any other substance that is currently regulated by an
Environmental Law or that is otherwise a danger to health, reproduction or the
environment.
3.22 Accounts Receivable. The accounts receivable shown on the Balance
-------------------
Sheet arose in the ordinary course of business and have been collected or are
reasonably expected to be collectible in the book amounts thereof, less an
amount not in excess of the allowance for doubtful accounts and returns provided
for in the Balance Sheet. The accounts receivable of the Company arising after
the date of the Balance Sheet and before the date of this Agreement arose in the
ordinary course of business and have been collected or will be collectible in
the book amounts thereof, less allowances for doubtful accounts and returns
determined in accordance with the past practices of the Company. None of such
accounts receivable is subject to any valid and material claim of offset or
recoupment or counterclaim, and the Company has no Knowledge of any facts that
would give
-33-
rise to any such claim. No material amount of such accounts receivable is
contingent upon the performance by the Company of any obligation, and no
agreement for deduction or discount has been made with respect to any such
accounts receivable.
3.23 Bank Accounts. Schedule 3.23 of the Company Disclosure Letter sets
------------- -------------
forth the names and locations of all banks and other financial institutions at
which the Company maintains accounts of any nature, lock boxes and/or safe
deposit boxes, the type of accounts, lock boxes and/or safe deposit boxes
maintained at each such institution and the names of all Persons authorized to
draw thereon or make withdrawals therefrom.
3.24 Loans and Credit Facilities. Except as listed in Schedule 3.24 to the
--------------------------- -------------
Company Disclosure Letter, the Company has not entered into, or otherwise
arranged for, any loans, operating lines of credit or other credit facilities or
has outstanding any bonds, debentures, mortgages, notes or other similar
indebtedness, and the Company is not obligated to create or issue any bonds,
debentures, mortgages, notes or other similar indebtedness, except for loans and
indebtedness incurred in the ordinary course and in amounts which are not
material to the Company. Schedule 3.24 to the Company Disclosure Letter contains
-------------
an accurate and complete summary of all loans, operating lines of credit or
other credit facilities, bonds, debentures, mortgages, notes or other similar
evidence of indebtedness of the Company. The only security interests granted or
created by the Company in connection with the foregoing indebtedness are those
described in Schedule 3.23 to the Company Disclosure Letter.
-------------
3.25 Customer Contracts. Schedule 3.25 to the Company Disclosure
------------------ -------------
Letter contains a complete and accurate listing of all contracts, agreements,
arrangements, commitments, understandings or other dealings (whether written or
otherwise and except for quotations delivered by the Company to its customers,
the acceptance of which would not reasonably be expected to result in a Material
Adverse Effect on the Company) with each of the Company's customers, vendors and
suppliers (collectively called the "Customer Contracts") with sales or purchases
per annum of $10,000 or more. Except as set out in Schedule 3.25 to the Company
-------------
Disclosure Letter, the Company has no rebate or discount programs or commission
arrangements with any of its customers, vendors or suppliers.
3.26 Requisite Actions. The managers of the Company (a) have unanimously
-----------------
determined that the Merger is in the best interests of the Company Members and
is on terms that are fair to such Company Members, and has recommended the
Merger to the Company Members, and (b) will submit the Merger, this Agreement,
each of the Company Ancillary Agreements and all other agreements, transactions
and actions contemplated hereby and thereby, to the extent that member approval
is required thereof under Applicable Law and the Company's Articles of
Organization and Operating Agreement, to the vote and approval of the holders of
the Company Membership Interests. The managers of the Company are and,
immediately prior to the Effective Time, will be: Xxxx Xxxxx, Xxxx Xxxxxxxx,
Xxxxx Xxxxxxx and Xxxxx X. Xxxxxxxx. The officers of the Company are and,
immediately prior to the Effective Time, will be Xxxx Xxxxxxx, President, Xxxx
Xxxxx, Chief Executive Officer, Xxxxx Xxxxxxxx, Chief Financial Officer, Xxxx
Xxxxxx, Vice President Mechanical, Xxxxxxx Xxxx, Chief Operating Officer, Xxxxxx
Xxxxxx, Vice President Business Development, and Xxxxxxxx Xxxxxxxxx, Vice
President Radio Frequency. The Core Company Members are, and will immediately
prior to the Effective Time be, all of the "affiliates" (as such term is defined
in Rule 144(a)(1) of the Securities Act) of the Company.
-34-
3.27 No Existing Discussions. Neither the Company nor any director,
-----------------------
member, manager, officer, or to the Knowledge of the Company, any employee or
agent of the Company is engaged, directly or indirectly, in any discussions or
negotiations with any third party relating to any Alternative Transaction (as
defined in Section 5.7).
3.28 HSR Act.
-------
(a) The Company is not a "$10 million person" as defined under
the rules and regulations of the HSR Act, and the Company is not "engaged in
manufacturing" for purposes of the HSR Act.
(b) There is no Person, or group of Persons under Common Control,
who Control(s) the Company. For the purposes of this Section, the term "Control"
or "Controlling" means either: (a) holding beneficial ownership, whether direct
or indirect through fiduciaries, agents, controlled entities or other means, of
fifty percent (50%) or more of the outstanding voting securities of an issuer;
or (b) in the case of an entity that has no outstanding voting securities,
having the right to fifty percent (50%) or more of the profits of the entity, or
having the right in the event of dissolution to fifty percent (50%) or more of
the assets of the entity; or (c) having the contractual power presently to
designate fifty percent (50%) or more of the directors of a corporation, or in
the case of unincorporated entities, of individuals exercising similar
functions. For the purposes of this Section, "Common Control" means sharing an
Ultimate Parent. For the purposes of this Section, "Ultimate Parent" means a
Person who is not Controlled by any other entity.
3.29 Disclosure. Neither this Agreement, its exhibits and schedules and
----------
the Company Disclosure Letter, nor any Company Ancillary Agreements delivered by
the Company to Parent under this Agreement, taken together, contains any untrue
statement of a material fact or omits to state any material fact necessary in
order to make the statements contained herein and therein, in light of the
circumstances under which such statements were made, not misleading.
3.30 Hearing Notice and Information Statement. The information relating to
----------------------------------------
the Company included in (i) the notice sent to the shareholders of the Company
pursuant to, and meeting the requirements of Article 2 of Subchapter 1 of the
California Administrative Code, Title 10, Chapter 3, Subchapter 2, as amended
(the "Hearing Notice"), concerning the Hearing to be held by the Commissioner,
(ii) the Permit Application, and (iii) the Information Statement to be sent to
the Company Members of the Company in connection with the transactions
contemplated this Agreement shall not, at the time the Hearing Notice is mailed
to Company Members, at the time the Information Statement is mailed to such
Members of the Company and at all times subsequent hereto (through and including
the Effective Date), contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which they were
made, not misleading. If at any time prior to the Effective Time any event or
information should be discovered by the Company which should be set forth in an
amendment to the Hearing Notice, the Permit Application or the Information
Statement, the Company shall promptly inform Parent. Notwithstanding the
foregoing, the Company makes no representation, warranty or covenant with
respect to any information supplied by Parent which is contained in any of the
foregoing documents.
-35-
ARTICLE 4
Representations and Warranties of Parent and Sub
Parent and Sub hereby represent and warrant to the Company that, except
as set forth in the letter addressed to the Company from Parent and dated as
of the Agreement Date that has been delivered by Parent to the Company
concurrently herewith (the "Parent Disclosure Letter"), each of the following
representations, warranties and statements contained in the following Sections
of this Article 4 are true and correct as of the Agreement Date and will be
true and correct on and as of the Closing Date. For all purposes of this
Agreement, the statements contained in the Parent Disclosure Letter and its
schedules shall also be deemed to be representations and warranties made and
given by Parent and Sub under Article 4 of this Agreement.
4.1 Organization and Good Standing. Parent is a corporation duly
------------------------------
organized, validly existing and in good standing under the laws of the State of
Minnesota, and has the corporate power and authority to own, operate and lease
its properties and to carry on its business as now conducted and as proposed to
be conducted. Sub is a corporation duly organized, validly existing and in good
standing under the laws of the State of California, and has the corporate power
and authority to own, operate and lease its properties and to carry on its
business. Parent owns all of the issued and outstanding capital stock of Sub.
Parent has made available to the Company accurate and complete copies of the
Articles of Incorporation and Bylaws of Parent and the Articles of Incorporation
and Bylaws of Sub, as currently in full force and effect. Neither Parent nor
Sub is in violation of its Articles of Incorporation or Bylaws, as applicable.
4.2 Power, Authorization and Validity.
---------------------------------
4.2.1 Power and Authority. Parent has all requisite corporate power
-------------------
and authority to enter into, execute, deliver and perform its obligations under,
this Agreement and all the Parent Ancillary Agreements and to consummate the
Merger. The Merger and the execution, delivery and performance of this Agreement
and each of the Parent Ancillary Agreements by Parent have been duly and validly
approved and authorized by Parent's Board of Directors in compliance with
Applicable Law and Parent's Articles of Incorporation and Bylaws. Neither the
Merger nor the execution, delivery and performance of this Agreement and each of
the Parent Ancillary Agreements by Parent requires the approval of Parent's
stockholders. Sub has all requisite corporate power, capacity and authority to
execute, deliver and perform its obligations under, this Agreement and all the
Sub Ancillary Agreements and to consummate the Merger. The execution, delivery
and performance of this Agreement and each of the Sub Ancillary Agreements by
Sub have been duly and validly approved and authorized by Sub's Board of
Directors and its sole stockholder in compliance with Applicable Law and Sub's
Articles of Incorporation and Bylaws.
4.2.2 No Consents. No consent, approval, order or authorization of,
-----------
or registration, declaration or filing with, any court, administrative agency,
commission or other Governmental Authority, or any other Person or entity,
governmental or otherwise (including any consent, approval, order,
authorization, registration, declaration or filing pursuant to the HSR Act is
necessary or required to be made or obtained by Parent or Sub to enable Parent
and Sub to enter into, and to perform their respective obligations under, this
Agreement, the Parent Ancillary Agreements or the Sub Ancillary Agreements,
respectively, and for Parent and Sub to consummate
-36-
the Merger, except for: (a) the filing of the Agreement of Merger with the
Secretary of State of California, as required under the California Law; (b) the
filing by Parent with the Securities and Exchange Commission ("SEC") or any
state securities law authorities of any notices or filings required in
connection with the exemptions from the registration or qualification
requirements of the Securities Act and/or applicable state securities laws that
Parent relies on in issuing shares of Parent Common Stock pursuant to this
Agreement; (c) the filing by Parent of such reports and information with the
Securities and Exchange Commission (the "SEC") under the Securities Exchange Act
of 1934, as amended ("Exchange Act") and the rules and regulations promulgated
by the SEC thereunder, as may be required in connection with this Agreement, the
Merger and the other transactions contemplated by this Agreement; (d) such other
filings, if any, as may be required in order for Parent to comply with
applicable federal and state securities laws; and (e) such other consents,
approvals, orders, authorizations, registrations, declarations and filings, if
any, that if not made or obtained by Parent or Sub would not be material to
Parent's or Sub's ability to consummate the Merger or to perform their
respective obligations under this Agreement, the Parent Ancillary Agreements and
the Sub Ancillary Agreements, respectively.
4.2.3 Enforceability. This Agreement and the Parent Ancillary
--------------
Agreements are, or when executed by Parent will be, valid and binding
obligations of Parent, enforceable against Parent in accordance with their
respective terms, subject to the effect of (a) applicable bankruptcy and other
similar laws affecting the rights of creditors generally and (b) rules of law
and equity governing specific performance, injunctive relief and other equitable
remedies. This Agreement and the Sub Ancillary Agreements are, or when executed
by Sub will be, valid and binding obligations of Sub, enforceable against Sub in
accordance with their respective terms, subject to the effect of (a) applicable
bankruptcy and other similar laws affecting the rights of creditors generally
and (b) rules of law and equity governing specific performance, injunctive
relief and other equitable remedies.
4.3 Parent and Sub Capital Structure.
--------------------------------
(a) The authorized capital stock of Parent consists of (i)
150,000,000 shares of common stock, par value $0.01 per share, of which there
were 35,378,144 shares issued and outstanding as of July 31, 2001, and (ii)
5,000,000 shares of preferred stock, par value $0.01 per share, of which none
were outstanding as of July 31, 2001. All outstanding shares of Parent Common
Stock are duly authorized, validly issued, fully paid and nonassessable
(b) The authorized capital stock of Sub consists of 1,000 shares of
common stock, no par value per share, all of which, as of the date hereof, are
issued and outstanding and are held by Parent. All of the outstanding shares of
Sub's common stock have been duly authorized and validly issued, and are fully
paid and nonassessable. Sub was formed for the purpose of consummating the
Merger and has no material assets or liabilities except as necessary for such
purpose.
(c) The Parent Common Stock to be issued in the Merger, when issued
in accordance with the provisions of this Agreement, will be validly issued,
fully paid and nonassessable, and will be issued in compliance with all material
applicable federal and state securities laws.
-37-
4.4 No Conflict. Neither the execution and delivery of this Agreement nor
-----------
any of the Parent Ancillary Agreements or Sub Ancillary Agreements by Parent or
Sub, as applicable, nor the consummation of the Merger or any of the other
transactions contemplated hereby or thereby, will conflict with, or (with or
without notice or lapse of time, or both) result in a termination, breach,
impairment or violation of or constitute a default under: (a) any provision of
the Articles of Incorporation or Bylaws of Parent or Certificate of
Incorporation or Bylaws of Sub, respectively, as currently in effect; or (b) any
federal, state, local or foreign judgment, writ, decree, order, statute, rule or
regulation applicable to Parent or Sub or any of their respective material
assets or properties.
4.5 SEC Filings. Parent has filed all forms, reports and documents
-----------
required to be filed by Parent with the SEC since the effective date of the
registration statement for Parent's initial public offering. All such required
forms, reports and documents (including those that Parent may file subsequent to
the date hereof) are referred to herein as the "Parent SEC Reports." 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, 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, except to
the extent corrected by a subsequently filed Parent SEC Report.
4.6 Absence of Certain Changes. Except as set forth in the Parent SEC
--------------------------
Reports, since July 31, 2001, Parent has conducted its business in the ordinary
course consistent with past practices and there has not occurred: (a) any
change, event or condition (whether or not covered by insurance) that has
resulted in a Material Adverse Effect on Parent; (b) any change in accounting
methods or practices (including any change in depreciation or amortization
policies or rates) by Parent or any revaluation by Parent of any of its assets;
or (c) any declaration, setting aside, or payment of a dividend or other
distribution with respect to the shares of Parent, or any direct or indirect
redemption, purchase or other acquisition by Parent of any of its shares of
capital stock.
4.7 No Brokers. Neither Parent nor Sub nor any affiliate of Parent or Sub
----------
is obligated for the payment of any fees or expenses of any investment banker,
broker, finder or similar party in connection with the origin, negotiation or
execution of this Agreement or in connection with the Merger or any other
transaction contemplated by this Agreement. The Company will not incur any
liability, either directly or indirectly, to any such investment banker, broker,
finder or similar party as a result of, this Agreement, the Merger or any act or
omission of Parent or Sub or any of their respective employees, officers,
directors, managers, members, agents or affiliates.
ARTICLE 5
Pre-Closing Covenants of The Company
During the time period from the Agreement Date until the earlier to occur
of (a) the Effective Time or (b) the termination of this Agreement in accordance
with the provisions of Article 11, the Company covenants and agrees with Parent
as follows:
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5.1 Advice of Changes. The Company will promptly advise Parent in writing
-----------------
of any (a) event occurring subsequent to the Agreement Date that would render
any representation or warranty of the Company contained in Article 3 of this
Agreement, if made on or as of the date of such event or the Closing Date,
untrue or inaccurate and (b) Material Adverse Change in the Company.
5.2 Maintenance of Business. The Company will carry on and preserve its
-----------------------
business and its relationships with customers, advertisers, suppliers, employees
and others with whom the Company has contractual relations in substantially the
same manner as it has prior to the Agreement Date consistent with past practices
and in compliance in all material respects with all applicable laws and
regulations, pay its debts and taxes when due subject to good faith disputes
over such debts or taxes, pay or perform other material obligations when due. If
the Company becomes aware of a material deterioration in the relationship with
any key customer, key advertiser, key supplier or key employee, it will promptly
bring such information to the attention of Parent in writing and, if requested
by Parent, will exert reasonable commercial efforts to promptly restore the
relationship.
5.3 Conduct of Business. The Company will continue to conduct its
-------------------
business and maintain its business relationships in the ordinary and usual
course and the Company will not, without the prior written consent of Parent:
(a) incur any indebtedness for borrowed money or guarantee or
insure any such indebtedness of another Person other than in the ordinary course
of business consistent with past practices which would not reasonably be expect
to result in a Material Adverse Effect on the Company;
(b) lend any money, other than reasonable and normal advances to
employees for bona fide expenses that are not material and are incurred in the
ordinary course of the Company's business consistent with the Company's past
practices;
(c) enter into any material transaction or agreement or take any
other action not in the ordinary course of the Company's business consistent
with the Company's past practices;
(d) grant any Encumbrance on any of its assets;
(e) sell, transfer or dispose of any of its assets except in the
ordinary course of the Company's business consistent with the Company's past
practices (except for the Permitted Distribution);
(f) enter into any material lease or contract for the purchase or
sale of any property, whether real or personal, tangible or intangible;
(g) pay any bonus, increased salary or special remuneration to
any manager, officer, member, director, employee or consultant (except pursuant
to arrangements disclosed in writing to Parent prior to the Agreement Date or
disclosed in writing subsequent to the Agreement Date and approved in writing by
Parent), hire any employee or consultant, or amend or enter into any employment
or consulting agreement with any such Person, or change its personnel policies;
-39-
(h) grant any severance or termination pay to any officer,
manager or employee except pursuant to written agreements in effect, or policies
existing, on the date hereof and as previously disclosed in writing to Parent or
adopt any new severance plan;
(i) change any of its accounting methods;
(j) declare, set aside or pay any cash, membership interest,
ownership interest, unit interest or other dividend or other distribution in
respect of its Membership Interests (other than the Permitted Distribution), or
redeem, repurchase or otherwise acquire any of its Membership Interests or other
ownership interest or securities (except for the repurchase of any unvested
Company Membership Interests issued under the Company Plan from employees,
directors, consultants or contractors of the Company in connection with the
termination of their services with the Company at the original purchase price of
membership units in accordance with the Company Plan), or pay or distribute any
cash or property to any member, owner or security holder of the Company or make
any other cash payment to any member, owner or security holder of the Company;
(k) amend or terminate any contract, agreement or license
to which the Company is a party;
(l) waive or release any material right or claim;
(m) issue, sell, create or authorize any membership interests or
other ownership interests or securities, or issue, grant or create any warrants,
obligations, subscriptions, rights, options, convertible securities, or other
commitments to issue or purchase membership interests, ownership interests or
any other of its securities that are potentially exchangeable for, or
convertible into, Membership Interests;
(n) subdivide or split or combine or reverse split the Membership
Interests or enter into any recapitalization affecting the number of outstanding
Membership Interests or affecting any other of its securities or ownership
interests;
(o) merge, consolidate or reorganize with, or acquire, or enter
into any other business combination with, any corporation, partnership, limited
liability company or any other entity (other than Parent or Sub) or enter into
any negotiations, discussions or agreement for such purpose;
(p) amend its Articles of Organization or Operating Agreement;
(q) license any of its technology or Intellectual Property, or
acquire any Intellectual Property (or any license thereto) from any third party;
(r) materially change any insurance coverage;
(s) agree to any audit assessment by any tax authority or file
any federal or state income or franchise tax return unless copies of such
returns have first been delivered to Parent for its review at a reasonable time
prior to filing, or make or change any tax election or treatment,
-40-
compromise or otherwise settle or adjust any assertion or claim of a deficiency
in taxes (or interest thereon or penalties related thereto), extend the statute
of limitations with any tax authority;
(t) modify or change the exercise or conversion rights, rights to
repurchase or purchase prices of any Membership Interests, ownership interests
or other Company securities, or accelerate or otherwise modify (i) the right to
exercise any option, warrant or other right to purchase any Membership
Interests, units, ownership interests or other securities of the Company or (ii)
the vesting or release of any Membership Interests, units, ownership interests
or other securities of the Company from any repurchase options or rights of
refusal held by the Company or any other party or any other restrictions;
(u) incur or commit to incur any capital expenditures which
individually exceed $10,000;
(v) initiate any litigation or arbitration proceedings; or
(w) agree to do any of the things described in the preceding
clauses 5.3(a) through 5.3(v), or any action which would reasonably be expected
to make any of the representations and warranties of the Company in this
Agreement untrue or inaccurate in any material respect on the date made or as of
the Effective Time.
Parent agrees to respond in writing to the Company's written request to
undertake any of the activities set forth in this Section 5.3 promptly, but in
any event within five (5) business days of receipt of such request.
5.4 Regulatory Approvals. The Company will promptly execute and file, or
--------------------
join in the execution and filing, of any application, notification or any other
document that may be necessary in order to obtain the authorization, approval or
consent of any Governmental Authority, whether federal, state, local or foreign,
which may be reasonably required, or which Parent may reasonably request, in
connection with the consummation of the Merger or any other transactions
contemplated by this Agreement or any Company Ancillary Agreement. The Company
will use diligent efforts to obtain, and to cooperate with Parent to promptly
obtain, all such authorizations, approvals and consents.
5.5 Necessary Consents. The Company will use diligent efforts to
------------------
promptly obtain such written consents and authorizations of third parties, give
notices to third parties (including with respect to the Company Material
Agreements set forth in Schedule 3.12 of the Company Disclosure Letter) and take
-------------
such other actions as may be necessary or appropriate in order to effect the
consummation of the Merger and the other transactions contemplated by this
Agreement, to enable Parent to carry on the Company's business immediately after
the Effective Time and to keep in effect and avoid the breach, violation of,
termination of, or adverse change to or the impairment of any rights or benefits
under, any agreement or contract to which the Company is a party or is bound or
by which any of its assets are bound, including, but not limited to that certain
(i) Agreement between Land Warrior V1.0 Consortium and the United States of
America dated as of July __, 2001 (the "Land Warrior Agreement"), and (ii)
Articles for Collaboration For Land Warrior V1.0 Consortium by and among the
Company, Parent and certain other third parties (the "Consortium Agreement").
-41-
5.6 Litigation. The Company will notify Parent in writing promptly after
----------
learning of any claim, action, suit, arbitration, mediation, proceeding or
investigation by or before any court, arbitrator or arbitration panel, board or
governmental agency, initiated by or against it, or to the Knowledge of the
Company, threatened against the Company or any of its officers, directors,
managers, employees, members or owners in their capacity as such.
5.7 No Other Negotiations. The Company will not, and the Company
---------------------
will not authorize, encourage or permit any manager, officer, director,
employee, managing member, owner, affiliate or agent of the Company or any
attorney, investment banker or other Person on the Company's or their behalf to,
directly or indirectly: (i) solicit, initiate, encourage or induce the making,
submission or announcement of, any offer or proposal from any party concerning
any Alternative Transaction (as defined below) or take any other action that
could reasonably be expected to lead to an Alternative Transaction or a proposal
therefor; (ii) consider any inquiry, offer or proposal received from any party
concerning any Alternative Transaction (other than to respond to such inquiry,
offer or proposal by indicating that the Company is not interested in any
Alternative Transaction); (iii) furnish any information regarding the Company to
any Person or entity in connection with or in response to any inquiry, offer or
proposal for or regarding any Alternative Transaction (other than to respond to
such inquiry, offer or proposal by indicating that the Company is not interested
in any Alternative Transaction); (iv) participate in any discussions or
negotiations with any Person or entity with respect to any Alternative
Transaction (other than to respond to such inquiry, offer or proposal by
indicating that the Company is not interested in any Alternative Transaction);
(v) otherwise cooperate with, facilitate or encourage any effort or attempt by
any Person or entity (other than Parent) to effect any Alternative Transaction;
or (vi) execute, enter into or become bound by any letter of intent, agreement,
commitment or understanding between the Company and any third party that is
related to, provides for or concerns any Alternative Transaction. The Company
will promptly notify Parent orally and in writing of any inquiries or proposals
received by the Company, managers, directors, officers, members, owners,
employees or agents regarding any Alternative Transaction and will identify the
party making the inquiry or proposal and the nature and terms of any inquiry or
proposal. Any violation of the restrictions set forth in this Section by any
manager, officer, director, managing member or employee of the Company or any
attorney, investment banker or other director or representative of the Company
shall be deemed a breach of this Section 5.7 by the Company. As used herein,
the term "Alternative Transaction" means any commitment, agreement or
transaction involving or providing for (a) the possible disposition of all or
any substantial portion of the Company's business, assets (including intangible
assets) or membership interests, whether by way of merger, consolidation, sale
of assets, sale of membership or ownership interests or equity, membership or
ownership interest or equity exchange, tender offer and/or any other form of
business combination, or (b) any initial public offering of securities of the
Company pursuant to a registration statement filed under the Securities Act.
5.8 Access to Information. The Company will allow Parent and its agents
---------------------
access at reasonable times to the files, books, records, technology, contracts,
personnel and offices of the Company, including, without limitation, any and all
information relating to the Company's taxes, commitments, contracts, leases,
licenses, financial condition and real, personal and intangible property,
subject to the terms of the agreement between Parent and the Company dated as of
December 1, 2000 (the "Confidentiality Agreement"). The Company will cause its
accountants to cooperate with Parent and Parent's agents (provided that, prior
to any disclosure to such agents,
-42-
such agents are bound by the terms of a confidentiality agreement with
substantially similar restrictions as included in the Confidentiality Agreement
to restrict the use and disclosure of the Company's confidential information) in
making available all financial information reasonably requested by Parent,
including without limitation the right to examine all working papers pertaining
to all financial statements prepared or audited by such accountants.
5.9 Satisfaction of Conditions Precedent. The Company will use its
------------------------------------
diligent efforts to satisfy or cause to be satisfied all the conditions
precedent set forth in Article 10, and the Company will use its diligent efforts
to cause the Merger and the other transactions contemplated by this Agreement to
be consummated in accordance with this Agreement.
5.10 Company Benefit Arrangements. Upon the request of Parent, the Company
----------------------------
will terminate any Company Benefit Arrangement and any leased employee
arrangement or professional employee organization immediately prior to the
Effective Time. As soon as practicable after the execution of this Agreement,
Company and Parent shall confer and work together in good faith to agree upon
mutually acceptable employee benefit and compensation arrangements.
5.11 Approval of Company Members.
---------------------------
(a) On the earliest practicable date following the issuance of
the Permit (as defined in Section 7.1 below) by the Commissioner, and in
accordance with applicable law, the Company shall submit this Agreement, the
Merger and the transactions contemplated thereby to its Members for approval and
adoption in accordance with its Articles of Organization and Operating Agreement
and applicable law. The Company will use its best efforts to obtain the adoption
and approval of this Agreement, the Merger and the transactions contemplated
thereby by either (i) convening a special meeting of the Company Members to be
held as promptly as practicable following the issuance of the Permit (the
"Company Members' Meeting"), or (ii) the written consent of the holders of the
Company Membership Interests, and to enable the Closing to occur as promptly as
practicable following the issuance of the Permit. The Company will use all
reasonable efforts to solicit from the Company Members proxies in favor of the
adoption and approval of this Agreement and the approval of the Merger, and will
take all other action necessary to secure the vote or consent of the Company
Members required by the rules of the California Law to obtain such approvals.
Notwithstanding anything to the contrary contained in this Agreement, the
Company may adjourn or postpone the Company Members' Meeting to the extent
necessary to ensure that there are sufficient Company Membership Interests
represented (either in person or by proxy) to constitute a quorum necessary to
conduct the business of the Company Members' Meeting. The Company shall ensure
that the Company Members' Meeting is called, noticed, convened, held and
conducted, and that all proxies solicited by the Company in connection with the
Company Members' Meeting are solicited, in compliance with the California Law,
its Articles of Organization and Operating Agreement and all other applicable
legal requirements. The Company's obligation to call, give notice of, convene
and hold the Company Members' Meeting shall not be limited to or otherwise
affected by the commencement, disclosure, announcement or submission to the
Company of any Alternative Transaction, or by any withdrawal, amendment or
modification of the recommendation of the managers of the Company with respect
to this Agreement or the Merger.
(b) The managers of the Company shall recommend that the
Company's Members vote in favor of and adopt and approve this Agreement and
approve the Merger at the
-43-
Company Members' Meeting. The managers of the Company shall not withdraw, amend
or modify, or propose or resolve to withdraw, amend or modify in a manner
adverse to Parent, the recommendation of the managers of the Company that the
Company Members vote in favor of and adopt and approve this Agreement and the
Merger.
(c) The Company shall take all actions required to have this
Agreement and any Accelerated Awards (as defined below) approved by such
percentage of Company's outstanding Membership Interests as is required by the
terms of Section 280G(b)(5)(B) of the Code to avoid the treatment of any payment
or benefit under any contract, agreement or other arrangement, including those
entered into in connection with this Agreement, the Merger and the transactions
contemplated hereby (each, an "Accelerated Award"), as a parachute payment which
will cause Parent to lose a deduction pursuant to Section 280G of the Code, and
to cause such Member approval to have been obtained in a manner which satisfies
all applicable requirements of Section 280G(b)(5)(B) of the Code and the
proposed Treasury Regulations thereunder, including (without limitation) Q-7 of
Section 1.280G-1 of such proposed regulations.
5.12 Termination of Member Rights. The Company will use reasonable
----------------------------
diligent effort to terminate or have waived prior to the Closing all
registration rights, rights of refusal, rights to any liquidation preference,
preemptive rights or redemption rights of any Company Member.
5.13 Delivery of Estimated Closing Balance Sheet, Net Equity Statement
-----------------------------------------------------------------
and Estimated Closing Balance Sheet Certificate. The Company will prepare and
-----------------------------------------------
deliver to Parent, three days prior to the Closing, the Estimated Closing
Balance Sheet, the Net Equity Statement and the Estimated Closing Balance Sheet
Certificate.
5.14 Company Transaction Expenses. The Company will pay all Company
----------------------------
Transaction Expenses in full prior to the Closing.
5.15 Pending Company Disputes. The Company will use its best efforts to
------------------------
fully settle, resolve and/or compromise prior to the Closing, to the reasonable
satisfaction of Parent, the alleged claims of (i) Summit Analyzers, Inc.
contained in that certain complaint filed in the Superior Court of California
County of Santa Xxxxx (No. CV790876), (ii) Geneva Corporate Finance, Inc.
contained in that certain complaint sent to the Company to be filed in the
Superior Court of California County of Santa Xxxxx, and (iii) Xybernaught
Corporation pursuant to a letter dated May 16, 2001 (collectively, the "Pending
Company Disputes"). In the event that any of the Pending Company Disputes are
not resolved prior to the Closing, then Parent shall be entitled to bring a
Claim pursuant to Article 12 for any Damages (including litigation or settlement
expenses) incurred by Parent or the Surviving Corporation (less any insurance
proceeds actually received by Parent and/or the Surviving Corporation) relating
to or arising from such Pending Company Disputes, which Claim for Damages shall
not be subject to or otherwise effect the last sentence of Section 12.3.
-44-
ARTICLE 6
Parent Covenants
During the time period from the Agreement Date until the earlier to occur
of (a) the Effective Time or (b) the termination of this Agreement in
accordance with Article 11, Parent covenants and agrees as follows:
6.1 Advice of Changes. Parent will promptly advise the Company in
-----------------
writing of any (a) event that would render any representation or warranty of
Parent or Sub contained in this Agreement or the Parent Disclosure Letter, if
made on or as of the date of such event or the Closing Date, to be untrue or
inaccurate, (b) any breach of any covenant or obligation of Parent or Sub
pursuant to this Agreement, any Parent Ancillary Agreement or any Sub Ancillary
Agreement, and (c) Material Adverse Change in Parent.
6.2 Regulatory Approvals. Parent will execute and file, or join in
--------------------
the execution and filing, of any application, notification or other document
that may be necessary in order to obtain the authorization, approval or consent
of any governmental body, federal, state, local or foreign, which may be
reasonably required, in connection with the consummation of the Merger and the
other transactions contemplated by this Agreement and the Parent Ancillary
Agreements and Sub Ancillary Agreements in accordance with the terms of this
Agreement. Parent will use diligent efforts to obtain all such authorizations,
approvals and consents. Notwithstanding anything in this Agreement to the
contrary, neither Parent nor any of its affiliates shall be under any obligation
to make proposals, execute or carry out agreements or submit to orders providing
for the sale or other disposition or holding separate (through the establishment
of a trust or otherwise) of any assets or categories of assets of Parent, or any
of its affiliates or the Company, or the holding separate of Company Membership
Interests or imposing or seeking to impose any limitation on the ability of
Parent or any of its subsidiaries or affiliates to conduct their business or own
such assets or to acquire, hold or exercise full rights of ownership of Company
Membership Interests.
6.3 Satisfaction of Conditions Precedent. Parent will use its diligent
------------------------------------
efforts to satisfy or cause to be satisfied all of the conditions precedent that
are set forth in Article 9, and Parent will use its diligent efforts to cause
the transactions contemplated by this Agreement to be consummated in accordance
with the terms of this Agreement.
6.4 Blue Sky Laws. Parent shall take such steps as may be necessary
-------------
to comply with the securities and Blue Sky laws of all jurisdictions that are
applicable in connection with the Merger; provided, however, that Parent shall
not be required to qualify to do business or execute a general consent to
service of process in any jurisdiction.
6.5 Nasdaq Listing. Parent agrees to authorize for listing on the
--------------
Nasdaq Stock Market the shares of Parent Common Stock issuable, and those
required to be reserved for issuance, in connection with the Merger, upon
official notice of issuance.
ARTICLE 7
Additional Covenants of the Parties
-45-
7.1 Fairness Hearing and Permit. As promptly as practicable after the
---------------------------
Agreement Date, the Company and Parent shall prepare, and Parent shall file with
the Commissioner, the Permit Application and a request for the Hearing to be
held by the Commissioner to consider the terms, conditions and fairness of the
transactions contemplated by this Agreement pursuant to Section 25142 of the
California Securities Law of 1968, as amended. As soon as the Commissioner
issues a permit for the issuance of the shares of Parent Common Stock and the
other securities of Parent pursuant to the Merger (the "Permit"), the Company
shall mail the Hearing Notice and the Information Statement to all Members of
the Company entitled to receive such notice under California Law. The Company
and Parent will notify each other promptly of the receipt of any comments from
the Commissioner or its staff and of any request by the Commissioner or its
staff or any other government officials for amendments or supplements to any of
the documents filed therewith or any other filing or for additional information
and will supply each other with copies of all correspondence between such party
of any of its representatives, on the one hand, and the Commissioner, or its
staff or any other government officials, on the other hand, with respect to the
filing. Whenever any event occurs that is required to be set forth in an
amendment or supplement to the Information Statement or any other filing, the
Company shall promptly inform Parent of such occurrence and cooperate in filing
with the Commissioner or its staff or any other government officials, and/or
mailing to Members of the Company, such amendment or supplement. The parties
shall use their respective commercially reasonable efforts to have the Permit
issued under the California Law as promptly as practicable after the filing of
the Permit Application and shall fully cooperate with each other in good faith
to assist in such efforts.
7.2 Preparation of Information Statement. As soon as practicable
------------------------------------
after the execution of this Agreement, the Company shall prepare, with the
cooperation of Parent, an Information Statement for the Members of the Company
to approve this Agreement, the Agreement of Merger and the transactions
contemplated hereby and thereby. The Information Statement shall constitute a
disclosure document for the offer and issuance of the shares of Parent Common
Stock and other securities of Parent to be received by the holders of Company
Membership Interests in the Merger. Parent and the Company shall each use its
best efforts to cause the Information Statement to comply with applicable
federal and state securities laws requirements. Each of Parent and the Company
agrees to provide promptly to the other such information concerning its business
and financial statements and affairs as, in the reasonable judgment of Parent or
its counsel, may be required or appropriate for inclusion in the Information
Statement, or in any amendments or supplements thereto, and to cause its counsel
and auditors to cooperate with the other's counsel and auditors in the
preparation of the Information Statement. The Company will promptly advise
Parent, and Parent will promptly advise the Company, in writing if at any time
prior to the Effective Time either the Company or Parent shall obtain knowledge
of any facts that might make it necessary or appropriate to amend or supplement
the Information Statement in order to make the statements contained or
incorporated by reference therein not misleading or to comply with applicable
law. Subject to the provisions of Section 7.1, the Information Statement shall
contain the recommendation of the managers of the Company that the Company
Members approve the Merger and this Agreement, and the conclusion of the
managers that the terms and conditions of the Merger are fair and reasonable to
the Members of the Company. Anything to the contrary contained herein
notwithstanding, the Company shall not include in the Information Statement any
information with respect to Parent or its affiliates or associates, the form and
content of which information shall not have been approved by Parent prior to
such inclusion.
-46-
7.3 Employment Offers and Benefit Arrangements.
------------------------------------------
(a) Parent may in its sole discretion make (or cause one of its
affiliates to make) offers of employment (which employment will commence post-
Closing) to any or all employees of the Company. Employment of any Company
employees by Parent, an affiliate of Parent or the Surviving Corporation
following the Closing shall be subject to Parent's established policies
generally applicable to new employees. The Company will use its best
commercial efforts to cooperate with Parent to ensure that the Company
employees listed on Schedule 7.3 hereto enter into mutually acceptable
------------
employment arrangements pursuant to general terms of employment set forth on
such Schedule 7.3 and the employment offer letter in substantially the form
------------
attached hereto as Exhibit D (the "Employment Offer Letter"), and a
---------
confidentiality and invention assignment agreement acceptable to Parent, with
Parent or the Surviving Corporation effective as of the Effective Time
("Continuing Company Employees"). As soon as practicable after the Agreement
Date, Parent and the Company will confer in good faith as to which Continuing
Company Employees should enter into reasonable non-competition agreements with
Parent following the Closing in a form and substance acceptable to Parent and
the Company.
(b) Notification of Employee Problems. The Company will promptly
---------------------------------
notify Parent if the Company has knowledge or becomes aware that any employee
of the Company or of any of its subsidiaries intends to leave its employ or
the Company or such subsidiaries' employment relationship with such employee
becomes impaired or jeopardized.
7.4 Kinderlife Instruments, Inc. Ownership. Immediately prior to the
--------------------------------------
Closing, the Company will own 47.5% of the outstanding capital stock and other
equity of Kinderlife Instruments, Inc., free and clear from any Encumbrance.
7.5 Member-Debtor Letters. The Company will execute and deliver to
---------------------
Parent prior to the Closing, and will use its best commercial efforts to ensure
that each Member-Debtor listed on the updated Schedule 3.4.1(d) to the Company
-----------------
Disclosure Letter executes and delivers to Parent prior to the Closing, a
letter, in a form and substance reasonably acceptable to Parent (the "Member-
Debtor Letter"), under which each such Member-Debtor agrees to the application
of Closing Consideration to effect the Note Payment with respect to such
Member's Member Note pursuant to Section 2.1.2 hereof. The Company will deliver
to Parent Schedule 3.4.1(d) to the Company Disclosure Letter updated to reflect
-----------------
each Member-Debtor and the amounts owed by such Member-Debtors under the Member
Notes as of immediately prior to the Effective Time.
ARTICLE 8
Closing Matters
8.1 The Closing. Subject to termination of this Agreement as provided in
-----------
Article 11 below, the closing of the transactions to consummate the Merger (the
"Closing") will take place at the offices of Fenwick & West LLP, 000 Xxxxxxx
Xxxxxx, Xxxxx 0000, Xxx Xxxxxxxxx, Xxxxxxxxxx at 10:00 a.m., Pacific Time on the
second business day after all of the conditions to Closing set forth in Sections
8 and 9 hereof have been satisfied and/or waived in accordance with this
Agreement, or on such other day or time as Parent and the Company may mutually
agree upon (the "Closing Date"); provided that the Closing will not take place
prior to September 8, 2001 without the prior
-47-
written consent of the Company. Concurrently with the Closing, the Agreement of
Merger and Surviving Entity Agreement will be filed with the California
Secretary of State.
8.2 Exchange.
--------
8.2.1 At the Effective Time, outstanding Company Membership Interests
(other than Dissenting Interests for which dissenters rights have been or will
be perfected in accordance with the California Law), will, by virtue of the
Merger and without further action, cease to exist, and all such membership
interests and units will be converted into the right to receive from Parent (i)
the number of shares of Parent Common Stock to which such holder is entitled
pursuant to Section 2.1.2(a), (ii) the amount of cash to which such holder is
entitled pursuant to Section 2.1.2(b) (less, with respect to any amount due a
Member-Debtor, the Note Payment), (iii) Earnout Amount in accordance with
Section 2.4 and Exhibit C, and (iv) Deferred Indemnity Consideration and
---------
Deferred Management Retention Consideration pursuant to Section 2.3, all subject
to the provisions of Section 2.1.4 (regarding the elimination of fractional
shares of Parent Common Stock), Section 2.5 (regarding the Closing Adjustment)
and Article 12 (regarding indemnification). Parent shall make available to its
transfer agent or other authorized agent (the "Exchange Agent") certificates
representing Parent Common Stock to be issued and cash to be paid at the Closing
in exchange for outstanding Company Membership Interests (which certificate will
contain a restrictive legend indicating that the shares represented thereby are
subject to the market stand-off restriction described in Section 2.7; provided
that any cash or shares of Parent Common Stock constituting Deferred Closing
Adjustment Consideration shall be retained by Parent pending final determination
of the Closing Adjustment in accordance with Section 2.5. Subject the foregoing,
as soon as practicable after the Effective Time (and in any event no later than
ten (10) business days after the Effective Time), the Surviving Corporation
shall cause to be mailed to each holder of record immediately prior to the
Effective Time of outstanding Company Membership Interests, and which Company
Membership Interests were converted into the right to receive the consideration
set forth in Section 2.1.2, a letter of transmittal in such form and with such
other provisions as Parent may reasonably specify (the "Letter of Transmittal"),
and (b) instructions for use in effecting the issuance and payment of the
consideration at the Closing, and any cash in lieu of fractional shares. Upon
delivery by the former Company Member of a validly executed and duly completed
Letter of Transmittal (in accordance with the instructions thereto) to the
Exchange Agent or to such other agent or agents as may be appointed by Parent,
(a) Parent or its transfer agent will as of the Closing (subject to Parent's
prior receipt of the Letters of Transmittal from each Member) (i) issue to such
former Company Member certificates for the number of shares of Parent Common
Stock to which such member is entitled pursuant to Section 2.1.2(a) and (ii) pay
such former Company Member cash to which such member is entitled pursuant to
Section 2.1.2(b) (less, with respect to any amount due a Member-Debtor, the Note
Payment), all subject to the provisions of Section 2.1.4 (regarding the
elimination of fractional shares of Parent Common Stock) and Section 2.5
(regarding the Closing Adjustment). At the Closing, Parent will cancel each of
the Member Notes paid in accordance with Section 2.1.2.
8.2.2 No dividends or distributions payable to holders of record of
Parent Common Stock after the Effective Time will be paid to any member in
respect of Company Membership Interests unless and until such member delivers a
validly executed and duly completed Letter of Transmittal to the Exchange Agent
as provided above. Subject to the effect, if any, of applicable escheat and
other laws, following delivery of the Letter of Transmittal as provided herein,
there will
-48-
be delivered to the person entitled thereto, without interest, the amount of any
dividends and distributions theretofore paid with respect to Parent Common Stock
so withheld as of any date subsequent to the Effective Time and prior to such
date of delivery.
8.2.3 After the Effective Time there will be no further registration
of transfers on the books and records of the Company or its transfer agent of
any Company Membership Interests that were outstanding immediately prior to the
Effective Time. If, after the Effective Time, a Letter of Transmittal is
delivered as provided herein for any reason, the former Company Member will
receive the consideration as provided herein.
8.3 Dissenting Interests Rights. Holders of Dissenting Interests of
---------------------------
Company Membership Interests who have complied with all requirements for
perfecting members' dissenting rights, as set forth in Section 17600 et seq.
under the California Law (a "Dissenting Member"), shall be entitled to their
rights under California Law with respect to such membership interests. If
holders of Company Membership Interests are entitled to dissenting members'
rights pursuant to the California Law in connection with the Merger, any
Dissenting Interests held by Company Members who exercise and perfect such
dissenting rights shall not be converted into a right to receive the
consideration set forth in Section 2.1.2 or Section 2.3 hereof, but shall
instead be converted into the right to receive such consideration as may be
determined to be due with respect to such Dissenting Interests pursuant to the
California Law. The Company shall give Parent prompt notice (and in no event
more than two business days) of any notice of exercise of a Member's dissenting
rights, and Parent shall have the right to control all negotiations and
proceedings with respect to such exercise of dissenting rights. The Company
agrees that, except with the prior written consent of Parent, it will not
voluntarily make any payment with respect to, or settle or offer to settle, any
such exercise of dissenting rights. In the event that any Company Member fails
to perfect his dissenting rights or otherwise loses his status as a holder of
Dissenting Interests, Parent shall, as of the later of the Effective Time or ten
(10) business days from the occurrence of such event, issue and deliver, upon
surrender by such Member of the Letter of Transmittal, the shares of Parent
Common Stock and any cash payment in lieu of fractional shares, and pay such
member any cash, in each case without interest thereon, to which such Dissenting
Member would have been entitled to under Section 2.1.2 of this Agreement (less
any Parent Closing Adjustment under Section 2.5 and subject to Section 2.1.4),
and such Member shall be have the right to receive the Earnout Amount in
accordance with Section 2.4 and Exhibit C, and the Deferred Indemnity
---------
Consideration and the Deferred Management Retention Consideration pursuant to
Section 2.3 (subject to Article 12 regarding indemnification).
8.4 No Liability. Neither the Exchange Agent, Parent, the Company, nor
------------
Sub (as the case may be) will be liable to any holder of Company Membership
Interests with respect to any cash or other consideration paid to a public
official or Governmental Authority pursuant to any applicable abandon property,
escheat or similar law.
ARTICLE 9
Conditions to Obligations of The Company
The Company's obligations hereunder are subject to the fulfillment or
satisfaction, on and as of the Closing, of each of the following conditions
(any one or more of which may be waived by the Company, but only in a writing
signed by the Company):
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9.1 Accuracy of Representations and Warranties. The representations
------------------------------------------
and warranties of Parent and Sub set forth in Article 4 (a) that are qualified
as to materiality will be true and correct and (b) that are not qualified as to
materiality shall be true and correct in all material respects, in each case on
and as of the Closing with the same force and effect as if they had been made on
the Closing Date (except for any such representations or warranties that, by
their terms, speak only as of a specific date or dates, in which case such
representations and warranties that are qualified as to materiality shall be
true and correct, and such representations and warranties that are not qualified
as to materiality shall be true and correct in all material respects, on and as
of such specified date or dates), and at the Closing the Company will have
received a certificate to such effect executed by an officer of Parent.
9.2 Covenants. Parent will have performed and complied in all
---------
material respects with all of its covenants contained in Article 6 and Article 7
on or before the Closing (to the extent that such covenants require performance
by Parent on or before the Closing), and at the Closing the Company will have
received a certificate to such effect signed by an officer of Parent.
9.3 No Material Adverse Change. There will not have been any
--------------------------
Material Adverse Change in Parent, whether or not resulting from a breach in any
representation, warranty or covenant in this Agreement, and at the Closing the
Company will have received a certificate to such effect signed by an officer of
Parent.
9.4 Xxxx-Xxxxx-Xxxxxx Compliance. All applicable waiting periods
----------------------------
under the HSR Act shall have expired or early termination shall have been
granted by both the Federal Trade Commission and the United States Department of
Justice.
9.5 Compliance with Law; No Legal Restraints; No Litigation. There
-------------------------------------------------------
will not be issued, enacted or adopted, or threatened in writing by any
Governmental Authority, any order, decree, temporary, preliminary or permanent
injunction, legislative enactment, statute, regulation, action or proceeding, or
any judgment or ruling by any Governmental Authority that prohibits or renders
illegal or imposes limitations on the Merger or any other material transaction
contemplated by this Agreement or any Parent Ancillary Agreements or any Sub
Ancillary Agreements. No litigation or proceeding will be threatened or pending
for the purpose or with the probable effect of enjoining or preventing the
consummation of the Merger or any of the other material transactions
contemplated by this Agreement or that could be reasonably expected to have a
Material Adverse Effect on Parent.
9.6 Government Consents. There will have been obtained at or prior
-------------------
to the Closing Date such permits or authorizations, and there will have been
taken all such other actions by any regulatory authority having jurisdiction
over the parties and the actions herein proposed to be taken, as may be required
to lawfully consummate the Merger, including but not limited to requirements
under applicable federal and state securities laws.
9.7 Employment Matters. Each of the Employment and Non-Competition
------------------
Agreements will be in full force and effect.
9.8 Company Member Approvals. This Agreement, the Merger and the
------------------------
Company Ancillary Agreements will have been duly and validly approved and
adopted, as required by
-50-
Applicable Law and the Company's Articles of Organization and Operating
Agreement, by the valid and affirmative vote of at least majority of the
outstanding Membership Interests of the Company.
9.9 Opinion of Parent's Counsel. The Company will have received from
---------------------------
Fenwick & West LLP, counsel to Parent, an opinion in a form and substance
reasonably acceptable to the Company and its counsel.
9.10 Permit. The Commissioner shall have issued the Permit with
------
respect to the Merger.
9.11 Listing of shares of Parent Common Stock. The filing with the
----------------------------------------
Nasdaq National Market of a Notification Form for Listing of Additional Shares
with respect to the shares of Parent Common Stock issuable upon conversion of
the Company Membership Interests in the Merger, shall have been made.
ARTICLE 10
Conditions to Obligations of Parent
The obligations of Parent hereunder are subject to the fulfillment or
satisfaction on, and as of the Closing, of each of the following conditions
(any one or more of which may be waived by Parent, but only in a writing
signed by Parent):
10.1 Accuracy of Representations and Warranties. The representations
------------------------------------------
and warranties of the Company set forth in Article 3 (a) that are qualified as
to materiality will be true and correct and (b) that are not qualified as to
materiality shall be true and correct in all material respects, in each case on
and as of the Closing with the same force and effect as if they had been made at
the Closing Date (except for any such representations or warranties that, by
their terms, speak only as of a specific date or dates, in which case such
representations and warranties that are qualified as to materiality shall be
true and correct, and such representations and warranties that are not qualified
as to materiality shall be true and correct in all material respects, on and as
of such specified date or dates), and at the Closing Parent will have received a
certificate to such effect executed by the Company's Chief Executive Officer.
The representations and warranties of each Company Member set forth in such
Company Member's Investment Representation Letter or Member Representation
Letter shall be true and correct in all material respects.
10.2 Covenants. The Company will have performed and complied in all
---------
material respects with all of its covenants contained in Article 5 and Article 7
at or before the Closing (to the extent that such covenants require performance
by the Company at or before the Closing), and at the Closing Parent will have
received a certificate to such effect signed by the Company's Chief Executive
Officer.
10.3 No Material Adverse Change. There will not have been any
--------------------------
Material Adverse Change in the Company, whether or not resulting from a breach
in any representation, warranty or covenant in this Agreement, and at the
Closing Parent will have received a certificate to such effect signed by the
Company's Chief Executive Officer.
-51-
10.4 Xxxx-Xxxxx-Xxxxxx Compliance. All applicable waiting periods
----------------------------
under the HSR Act shall have expired or early termination shall have been
granted by both the Federal Trade Commission and the United States Department of
Justice.
10.5 Compliance with Law; No Legal Restraints; No Litigation. There
-------------------------------------------------------
will not be issued, enacted or adopted, or threatened in writing by any
Governmental Authority, any order, decree, temporary, preliminary or permanent
injunction, legislative enactment, statute, regulation, action, proceeding, or
any judgment or ruling by any Governmental Authority that prohibits or renders
illegal or imposes limitations on: (a) the Merger or any other material
transaction contemplated by this Agreement or any Company Ancillary Agreement;
or (b) Parent's right (or the right of any Parent subsidiary) to own, retain,
use or operate any of its products, services, properties or assets (including
equity, properties or assets of the Company), or employ any of Company's
employees or service providers on or after consummation of the Merger or seeking
a disposition or divestiture of any such properties or assets. No litigation or
proceeding will be threatened or pending for the purpose or with the probable
effect of enjoining or preventing the consummation of any of the transactions
contemplated by this Agreement, or that could be reasonably expected to have a
Material Adverse Effect on the Company or Parent.
10.6 Government Consents. There will have been obtained at or prior
-------------------
to the Closing Date such permits or authorizations, and there will have been
taken all such other actions by any governmental or regulatory authority having
jurisdiction over the parties and the actions herein proposed to be taken, as
may be required to consummate the Merger, including but not limited to
requirements under applicable federal and state securities laws.
10.7 Opinion of Company's Counsel. Parent will have received from
----------------------------
Tufts Xxxxxxxxxx & Xxxxxx, LLP, counsel to the Company, an opinion in a form and
substance reasonably acceptable to Parent and its counsel.
10.8 Consents. Parent will have received duly executed copies of all
--------
third-party consents, approvals, assignments, notices, waivers, authorizations
or other certificates (including those set forth in Schedule 3.12 to the Company
-------------
Disclosure Letter) contemplated by this Agreement, the Company Disclosure Letter
or deemed reasonably necessary to provide for the continuation in full force and
effect of any and all material contracts, agreements and leases of the Company
after the Merger and the preservation of the Company's IP Rights and other
assets and properties after the Merger and for Parent to consummate the Merger
and the other transactions contemplated by this Agreement, the Parent Ancillary
Agreements and the Company Ancillary Agreements, in each case, in form and
substance satisfactory to Parent.
10.9 Company Member Approvals. This Agreement, the Merger and the
------------------------
Company Ancillary Agreements will have been duly and validly approved and
adopted, as required by Applicable Law and the Company's Articles of
Organization and Operating Agreement, by the valid and affirmative vote of at
least ninety-five (95)% of the outstanding Membership Interests of the Company.
10.10 Satisfactory Form of Legal and Accounting Matters. The form,
-------------------------------------------------
scope and substance of all legal and accounting matters contemplated hereby and
all closing documents and other papers delivered hereunder shall be reasonably
acceptable to Parent and its counsel.
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10.11 Estimated Closing Balance Sheet, Net Equity Statement and
---------------------------------------------------------
Estimated Closing Balance Sheet Certificate. Parent shall have received from
-------------------------------------------
the Company the Estimated Closing Balance Sheet and the Net Equity Statement,
and the Estimated Closing Balance Sheet Certificate executed by Company's Chief
Executive Officer.
10.12 Voting Agreement; Permit. Parent will have received executed
------------------------
counterparts of the Voting Agreement, each of which will be in full force and
effect. The Commissioner shall have issued the Permit with respect to the
Merger.
10.13 Employment Matters. (a) Each of the Employment and Non-
------------------
Competition Agreements will be in full force and effect; and (b) at least
eighty-five percent (85%) of the Continuing Company Employees identified in
Schedule 7.3 to the Company Disclosure Letter shall accepted employment with
------------
Parent or the Surviving Company, to continue as employees of Parent or the
Surviving Company after the Effective Time, conditioned on the Closing of the
Merger.
10.14 Financing. Parent shall, to its satisfaction, have secured
---------
adequate financing to perform all of its obligations in the Merger, under this
Agreement and the transactions contemplated hereby and thereby.
10.15 Updated Schedule 3.4.1(d). Parent shall have received from the
-------------------------
Company Schedule 3.4.1(d) updated to reflect each Member-Debtors and the amounts
-----------------
owed by such Member-Debtor under the Member Notes as of immediately prior to the
Effective Time.
10.16 Approval of U.S. Government. All notices, consents and approvals
---------------------------
required to and from the Department or Defense or other body, agency or
instrument of the United States required under the terms of the Land Warrior
Agreement and the Consortium Agreement in connection with the Merger shall have
been timely given or obtained to the satisfaction of Parent.
10.17 No Acceleration of Equity Rights. Except for Membership
--------------------------------
Interests issued pursuant to the Company Plan, no other membership or ownership
interest or security shall have had vesting or lapsing right of repurchase
applicable thereto accelerated as a result of the Merger or the transactions
contemplated by this Agreement. All registration rights, rights of refusal,
rights to any liquidation preference, preemptive rights or redemption rights of
any Company Member shall have been terminated or waived as of the Closing.
10.18 Listing of Shares of Parent Common Stock. The filing with the
----------------------------------------
Nasdaq National Market of a Notification Form for Listing of Additional Shares
with respect to the shares of Parent Common Stock issuable upon conversion of
the Company Membership Interests in the Merger, shall have been made.
10.19 Exercise of Warrants. All outstanding Warrants shall have been
--------------------
exercised or terminated as provided in Section 2.2.
10.20 Company Transaction Expenses. The Company shall have paid in
----------------------------
full all Company Transaction Expenses.
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ARTICLE 11
Termination of Agreement
11.1 Termination by Mutual Consent. This Agreement may be terminated
-----------------------------
at any time prior to the Effective Time by the mutual written consent of Parent
and the Company.
11.2 Unilateral Termination.
----------------------
11.2.1 Either Parent or the Company, by giving written notice to
the other, may terminate this Agreement if a court of competent jurisdiction or
other Governmental Authority shall have issued a nonappealable final order,
decree or ruling or taken any other action, in each case having the effect of
permanently restraining, enjoining or otherwise prohibiting the Merger.
11.2.2 Either Parent or the Company, by giving written notice to
the other, may terminate this Agreement if the Merger shall not have been
consummated by midnight Pacific Time on the Termination Date; provided, however,
that the right to terminate this Agreement pursuant to this Section 11.2.2 shall
not be available to any party whose failure to perform in any material respect
any of its obligations or covenants under this Agreement results in the failure
of any condition set forth in Article 9 or Article 10, or if the failure of such
condition results from facts or circumstances that constitute a material breach
of a representation or warranty or covenant made under this Agreement by such
party.
11.2.3 Either Parent or the Company may terminate this Agreement
at any time prior to the Effective Time if the other has committed (or, in the
case of a termination by the Company, Sub has committed) a material breach of
(a) any of its representations and warranties under Article 3 or Article 4 of
this Agreement, as applicable; or (b) any of its covenants under Article 5,
Article 6 or Article 7 of this Agreement, as applicable, and has not cured such
material breach within ten days after the party seeking to terminate this
Agreement has given the other party written notice of the material breach and
its intention to terminate this Agreement pursuant to this Section 11.2.3.
11.3 No Liability for Termination. Termination of this Agreement by a
----------------------------
party (the "Terminating Party") in accordance with the provisions of this
Article 11 will not give rise to any obligation or liability on the part of the
Terminating Party on account of such termination; provided, however, that
nothing herein shall relieve a party from liability for a willful breach of this
Agreement. The provisions of Article 11 and Article 13 shall survive any
termination of this Agreement.
ARTICLE 12
Survival of Representations, Indemnification
and Remedies
12.1 Survival of Representations. All representations, warranties and
---------------------------
covenants of the Company and Parent, respectively, contained in this Agreement
will remain operative and in full force and effect, regardless of any
investigation made by or on behalf of any of the parties to this Agreement,
until that date which is the earlier of (a) the termination of this Agreement in
accordance with its terms or (b) the two year anniversary of the Effective Time;
provided, however, that the representations, warranties and covenants of the
Company contained in Sections 3.4
-54-
(Capitalization), 3.7 (Taxes), 3.13 (Intellectual Property), 3.16 (Employees)
and Section 2.5 (Estimated Closing Balance Sheet, the Net Equity Statement and
the Estimated Closing Balance Sheet Certificate), and the representations and
warranties of the Core Company Members contained in their Voting Agreement will
remain operative and in full force and effect, regardless of any investigation
made by or on behalf of any of the parties to this Agreement, until the
expiration of the applicable statute of limitations for the claim which seeks
recovery of such Damages (the expiration of such applicable representation,
warranty or covenant, the "Representation Termination Date").
12.2 Agreement to Indemnify.
----------------------
(a) Each Company Member will severally, and not jointly, in
proportion to each Company Member's Pro Rata Ownership Percentage, indemnify and
hold harmless, Parent and the Surviving Corporation and their respective
officers, directors, agents, representatives, stockholders and employees, and
each Person, if any, who controls or may control Parent or the Surviving
Corporation within the meaning of the Securities Act or the Exchange Act (each
hereinafter referred to individually as a "Parent Indemnified Person" and
collectively as "Parent Indemnified Persons") from and against any and all
claims, demands, suits, actions, causes of actions, losses, costs, damages,
liabilities and expenses including reasonable attorneys' fees, other
professionals' and experts' reasonable fees and court or mediation or
arbitration costs (reduced by any tax benefit actually claimed Parent calculated
after taking into account recovery under this Agreement) (hereinafter
collectively referred to as "Damages") directly or indirectly incurred,
resulting from or arising out of any inaccuracy, misrepresentation, breach of,
or default in, any of the representations, warranties or covenants given or made
by the Company in this Agreement or in the Company Disclosure Letter or in any
agreement or certificate delivered by or on behalf of the Company or an officer
of the Company pursuant hereto; and
(b) Each Company Member will individually and severally
indemnify and hold harmless the Parent Indemnified Persons from and against any
and all Damages directly or indirectly incurred in connection with, resulting
from or and arising out of (i) any inaccuracy, misrepresentation, breach of, or
default in, any of the representations, warranties or covenants given or made by
a Company Member in such Company Member's Voting Agreement; and (ii) any excess
Parent Closing Adjustment of such Member not satisfied by Parent's retention of
Deferred Closing Adjustment Consideration pursuant to Section 2.5.
12.3 Limitation. Except for liability based on a claim of fraud,
----------
intentional misrepresentation (including fraudulent concealment) or willful
misconduct, or with respect to claims made pursuant to Section 12.2(b)
("Excluded Claims"), following the Closing (i) no Company Member shall have any
liability to Parent or any Parent Indemnified Person under this Agreement except
to the extent such amounts payable to such Company Member as Deferred Indemnity
Consideration, Deferred Management Retention Consideration under Section 2.3
and/or Earnout Amounts under Section 2.4 and Exhibit C, and (ii) the remedies
---------
provided in this Article 12 shall be the sole and exclusive remedy of a Parent
and the other Parent Indemnified Persons against any Company Member under this
Agreement. The indemnification provided for in Section 12.2 shall not apply
unless, and shall apply only to the extent that, the aggregate Damages for which
one or more Indemnified Persons seeks indemnification exceeds $50,000 (the
"Basket"); provided if the total amount of claims for Damages exceeds the
Basket, then the Parent Indemnified Persons shall
-55-
be entitled to be indemnified against the full amount of such Damages above
$25,000 and not merely the portion of such Damages exceeding the Basket.
12.4 Appointment of Representative. By voting in favor of the Merger,
-----------------------------
each of the Company Members approves the designation of and designates Xxxx
Xxxxxxxx of the Company Members and as the attorney-in-fact and agent for and on
behalf of each Company Members (provided that if Xxxx Xxxxxxxx is unable or
unwilling to serve as the Representative, then each of the Company Members
approves the designation of and designates Xxxx Xxxxx as the alternate
Representative and as the attorney-in-fact and agent for and on behalf of each
Company Members) with respect to (i) claims for indemnification under Article
12, (ii) claims or disputes regarding the payment or retention of Deferred
Indemnity Consideration or Deferred Management Retention Consideration under
Section 2.3, (iii) claims or disputes in connection with the Closing Adjustment
or the payment of Deferred Closing Adjustment Consideration under Section 2.5,
and (iv) any disputes concerning the administration or payment of the Earnout
Amount pursuant to Section 2.4 and Exhibit C, and the taking by the
---------
Representative of any and all actions and the making of any decisions required
or permitted to be taken by the Representative under this Agreement, including,
without limitation, the exercise of the power to: (a) authorize the release or
delivery to Parent of shares of Parent Common Stock, cash and any other assets
as Deferred Closing Adjustment Consideration pursuant to Section 2.5, Deferred
Indemnity Consideration or Deferred Management Retention Consideration under
Section 2.3 and Article 12 hereof in satisfaction of indemnity claims by Parent
or any other Parent Indemnified Person (as defined herein) pursuant to Article
12; (b) agree to, negotiate, mediate, enter into settlements and compromises of,
demand mediation or arbitration of, and comply with orders of courts and awards
of mediators or arbitrators with respect to, such claims or in connection with
disputes involving the Closing Adjustment (including, Deferred Closing
Adjustment Consideration), payment or retention of Deferred Indemnity
Consideration or Deferred Management Retention Consideration under Section 2.3,
or Earnout Payments; (c) mediate, arbitrate, resolve, settle or compromise any
claim for indemnity made pursuant to Article 12, any claims or disputes arising
in connection with the Closing Adjustment (including, Deferred Closing
Adjustment Consideration), payment or retention of Deferred Indemnity
Consideration or Deferred Management Retention Consideration under Section 2.3,
or the Earnout Payments and Exhibit C; and (d) take all actions necessary in the
---------
judgment of the Representative for the accomplishment of the foregoing. The
Representative will have the authority and power to act on behalf of each
Company Member with respect to the disposition, settlement or other handling of
all claims under Article 12 hereof, with respect to the Closing Adjustment
(including, Deferred Closing Adjustment Consideration), Deferred Indemnity
Consideration or Deferred Management Retention Consideration under Section 2.3,
and Exhibit C regarding Earnout Payments, and all rights or obligations arising
---------
under Article 12. The Company Members will be bound by all actions taken and
documents executed by the Representative in connection with Article 12, the
Closing Adjustment (including, Deferred Closing Adjustment Consideration), the
Deferred Indemnity Consideration or the Deferred Management Retention
Consideration under Section 2.3 or the Earnout Payments, and Parent will be
entitled to rely on any action or decision of the Representative. In performing
the functions specified in this Agreement, the Representative will not be
personally liable as the Representative to any Company Member or to Parent or
Sub in the absence of gross negligence or willful misconduct on the part of the
Representative. The Company Members shall severally indemnify the Representative
and hold him harmless against any loss, liability or expense incurred without
gross negligence or willful misconduct on the part of the Representative and
arising out of or in connection with the acceptance or administration of his
-56-
duties hereunder. Any out-of-pocket costs and expenses reasonably incurred by
the Representative in connection with actions taken by the Representative
pursuant to the terms of Article 12 (including without limitation the hiring of
legal counsel and the incurring of legal fees and costs) will be paid by the
Company Members to the Representative in proportion to each Member's Pro Rata
Ownership Percentage, which Company Members shall be entitled to reimbursement
by Parent if Parent is determined to be a Non-Prevailing Party pursuant to
Section 12.8(c)(ii)(1) below. The Representative hereby accepts his appointment
pursuant to this Section 12.4. Xxxx Xxxxx and Xxxx Xxxxxxxx each agree to give
Parent and each Member written notice in the event that Xxxx Xxxxxxxx unable or
unwilling to serve as the Representative.
12.5 Notice of Claim. As used herein, the term "Claim" means a claim
---------------
for indemnification of Parent or any other Parent Indemnified Person for Damages
under Article 12. Parent may give notice of a Claim under this Agreement,
whether for its own Damages or for Damages incurred by any other Parent
Indemnified Person, and Parent will give written notice of a Claim executed by
an officer of Parent (a "Notice of Claim") to the Representative promptly after
Parent becomes aware of the existence of any potential claim by an Parent
Indemnified Person for indemnity from the Company Member under Article 12, but
in any event before the Representation Termination Date, arising from or
relating to:
(a) (i) any inaccuracy, misrepresentation, breach of, or default
in, any of the representations, warranties or covenants given or made by
the Company in this Agreement or in the Company Disclosure Letter or in any
agreement or certificate delivered by the Company or an officer of the
Company pursuant hereto, (ii) any inaccuracy, misrepresentation, breach of,
or default in, any of the representations, warranties or covenants given or
made by a Company Member in such Company Member's Voting Agreement, and
(iii) any Parent Closing Adjustment of a member not satisfied by Parent's
retention of Deferred Closing Adjustment Consideration pursuant to Section
2.5.
(b) the assertion, whether orally or in writing, against Parent
or against any other Parent Indemnified Person of a claim, demand, suit,
action, arbitration, investigation, inquiry or proceeding brought by a
third party against such Indemnified Person that is based upon, or includes
assertions that would, if true, constitute (in each such case, a "Third-
Party Claim"): (i) any inaccuracy, misrepresentation, breach of, or default
in, any of the representations, warranties or covenants given or made by
the Company in this Agreement or in the Company Disclosure Letter or in any
agreement or certificate delivered by or on behalf of the Company or an
officer of the Company pursuant hereto (if such inaccuracy,
misrepresentation, breach or default existed at the Closing Date), (ii) any
inaccuracy, misrepresentation, breach of, or default in, any of the
representations, warranties or covenants given or made by a Company Member
in such Company Member's Voting Agreement, or (iii) any Parent Closing
Adjustment of a member not satisfied by Parent's retention of Deferred
Closing Adjustment Consideration pursuant to Section 2.5. Until the
Representation Termination Date, no delay on the part of Parent in giving
the Representative a Notice of Claim will relieve the Representative or any
Company Member from any of its obligations under Article 12 unless (and
then only to the extent) that the Representative or the Company Members are
materially prejudiced thereby.
12.6 Satisfaction of Claims.
----------------------
-57-
(a) The Company and Parent agree that any Claim for
indemnification under Section 12.2(a) will at, Parent's sole discretion, be
satisfied by either (i) reducing dollar for dollar the Deferred Indemnity
Consideration and/or the Deferred Management Retention Consideration
payable under Section 2.3, and/or (ii) setting-off any Earnout Amounts
payable under Section 2.4 and Exhibit C. The Company and Parent agree that
---------
any Claim for indemnification under Section 12.2(b) will, at Parent's sole
discretion, be satisfied by either (i) reducing dollar for dollar the
Deferred Indemnity Consideration and/or the Deferred Management Retention
Consideration payable under Section 2.3, and/or (ii) setting-off any
Earnout Amounts payable under Section 2.4 and Exhibit C; provided, that if
---------
such Claim cannot be fully satisfied by reducing dollar for dollar the
Deferred Indemnity Consideration and/or the Deferred Management Retention
Consideration payable under Section 2.3, and/or setting-off any Earnout
Amounts payable under Section 2.4, then Parent may seek to satisfy such
Claim through the payment of cash or other property or assets to Parent by
such Member. To the extent that Parent elects to satisfy any Claim for
indemnification under this Article 12 by setting-off payment of Earnout
Amounts payable under Section 2.4 and Exhibit C consisting of shares of
---------
Parent Common Stock, then such shares shall be valued for such purpose at
the Parent Average Price Per Earnout Share, regardless of whether the
actual market price or value of Parent Common Stock is higher or lower, and
in such event Parent shall not have the right to recover any deficiency and
the Company Members will not have the right to recover any excess. In the
event of a Capital Change after the end of the applicable Earnout Period,
the Parent Average Price Per Earnout Share will, for purposes of this
Section 12.6, be proportionally and equitably adjusted.
(b) Claims for indemnification by a party under this Article
12 must be made in writing prior to the expiration of the applicable
Representation Termination Date; provided that if a Notice of Claim is
asserted in writing before the expiration of the Representation Termination
Date, then (notwithstanding the subsequent expiration of the Representation
Termination Date, or the passing of the Deferred Consideration Payment Date
or the Earnout Payment Date) the obligation of the Company Members to
indemnify the Parent and the Parent Indemnitees with respect to such Claim
shall continue until such Claim is finally resolved and satisfied in full
in accordance with this Agreement.
12.7 Defense of Third-Party Claims.
-----------------------------
(a) Parent shall defend any Third-Party Claim, and the
costs and expenses incurred by Parent in connection with such defense (including
but not limited to reasonable attorneys' fees, other professionals' and experts'
fees and court or mediation or arbitration costs) shall be included in the
Damages for which Parent may seek indemnity pursuant to a Claim made by any
Parent Indemnified Person hereunder.
(b) Parent shall in a reasonably prompt fashion provide
the Representative with copies of all pleadings, notices and communications with
respect to the Third-Party Claim to the extent that receipt of such documents by
the Representative does not affect any privilege relating to the Parent
Indemnified Person, and may participate in settlement negotiations with respect
to the Third-Party Claim. No Parent Indemnified Person shall enter into any
settlement of a Third-Party Claim without the prior written consent of the
Representative (which consent shall not be unreasonably withheld), provided,
that if the Representative shall have consented in writing to
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any such settlement, then the Representative shall have no power or authority to
object to any Claim by any Parent Indemnified Person for indemnity under Section
12.2 hereof for the amount of such settlement; and the former Company Members
will remain responsible to indemnify the Parent Indemnified Persons for all
Damages they may incur arising out of, resulting from or caused by the Third-
Party Claim to the fullest extent provided in Article 12 hereof.
12.8 Contents of Notice of Claim. Each Notice of Claim by Parent
---------------------------
given pursuant to Section 12.5 will contain the following information:
(a) that Parent has incurred, paid or properly accrued (in
accordance with GAAP) or, in good faith, believes it will have to incur, pay
or accrue (in accordance with GAAP), Damages in an aggregate stated amount
arising from such Claim (which amount may be the amount of damages claimed by
a third party in an action brought against any Parent Indemnified Person
based on alleged facts, which if true, would give rise to liability for
Damages to such Parent Indemnified Person under Article 12); and
(b) a brief description, in reasonable detail (to the extent
reasonably available to Parent), of the facts, circumstances or events giving
rise to the alleged Damages based on Parent's good faith belief thereof,
including, without limitation, the identity and address of any third-party
claimant (to the extent reasonably available to Parent) and copies of any
formal demand or complaint, the amount of Damages, the date each such item
was incurred, paid or properly accrued, or the basis for such anticipated
liability, and the specific nature of the breach to which such item is
related.
12.9 Resolution of Notice of Claim. Each Notice of Claim given by
-----------------------------
Parent will be resolved as follows:
(a) Uncontested Claims. In the event that, within ten (10)
------------------
business days after a Notice of Claim is received by the Representative, the
Representative does not contest such Notice of Claim in writing to Parent as
provided in Section 12.9(b) (an "Uncontested Claim"), the Representative will be
conclusively deemed to have consented, on behalf of all Company Members, to the
recovery by the Parent Indemnified Person of the full amount of Damages
specified in the Notice of Claim in accordance with this Article 12, including
the reduction in amounts payable as Deferred Indemnity Consideration and/or
Deferred Management Retention Consideration under Section 2.3, and/or set-off of
any Earnout Amounts payable under Section 2.4 and Exhibit C, in accordance with
---------
Section 12.3(a) and, without further notice, to have stipulated to the entry of
a final judgment for damages against the Company Members for such amount in any
court having jurisdiction over the matter where venue is proper.
(b) Contested Claims. In the event that the Representative
----------------
gives Parent written notice contesting all or any portion of a Notice of Claim
(a "Contested Claim") within the ten (10) business day period specified in
Section 12.9(a), then: (i) such Contested Claim will be resolved by either (A) a
written settlement agreement executed by Parent and the Representative or (B) in
the absence of such a written settlement agreement, by either mediation or
binding arbitration between Parent and the Representative in accordance with the
terms and provisions of this Section 12.9(b). Parent will have the sole right to
elect to pursue mediation and/or arbitration with respect to a Contested Claim.
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(i) Mediation of Contested Claims. In the event of a
-----------------------------
Contested Claim which is not resolved by a written settlement agreement within
thirty (30) days of Parent's receipt of written notice of a Contested Claim (or
such additional number of days agreed to by Parent and the Representative), then
Parent may elect to utilize a non-binding resolution procedure whereby each
Parent and the Representative (on behalf of the Members) presents its case at a
hearing held in Santa Xxxxx County before a panel consisting of an executive
officer of Parent and the Representative and a mutually acceptable neutral
advisor, who shall be selected from the CPR Institute for Dispute Resolution's
Panels of Distinguished Neutrals. If so elected, the Parent, on the one hand,
and the Members (in proportion to their Pro Rata Ownership Percentage), on the
other hand, shall bear their respective costs incurred in connection with this
procedure, including the fees and expenses of the neutral advisor. Prior to the
hearing, Parent and the Representative and the neutral advisor shall use their
best efforts to agree on a set of ground rules for the hearing. At the
conclusion of the hearing, the executive officers of Parent and the
Representative shall meet and attempt to resolve the matter. If the matter
cannot be resolved at such meeting, the neutral advisor may be called upon to
render his or her opinion as to how the matter would be resolved had the matter
been on trial in a court of law. After the opinion is received, such parties
shall meet again and try to resolve the matter. If the matter cannot be resolved
at such meeting, any party may give the other party notice of its intention to
arbitrate pursuant to Section 12.9(b)(ii) below. All negotiations pursuant to
this Section 12.9(b)(i) are confidential and shall be treated as compromise and
settlement negotiations for purposes of applicable rules of evidence.
(ii) Arbitration of Contested Claims. Each of Parent, the
-------------------------------
Company and the Company Members agree that any Contested Claim to be arbitrated
hereunder will be submitted to mandatory, final and binding arbitration before
J.A.M.S./ENDISPUTE or its successor ("J.A.M.S."), pursuant to the United States
Arbitration Act, 9 U.S.C., Section 1 et seq. and that any such arbitration will
be conducted in Santa Xxxxx County, California. Either Parent or the
Representative may commence the arbitration process called for by this Agreement
by filing a written demand for arbitration with J.A.M.S. and giving a copy of
such demand to each of the other parties to this Agreement. The arbitration will
be conducted in accordance with the provisions of J.A.M.S' Streamlined
Arbitration Rules and Procedures in effect at the time of filing of the demand
for arbitration, subject to the provisions of Section 12.9(b)(ii) of this
Agreement. The parties will cooperate with J.A.M.S. and with each other in
promptly selecting an arbitrator from J.A.M.S.' panel of neutrals, and in
scheduling the arbitration proceedings in order to fulfill the provisions,
purposes and intent of this Agreement. The parties covenant that they will
participate in the arbitration in good faith, and that they will share in its
costs in accordance with subparagraph (1) below. The provisions of this Section
12.9(b)(ii) may be enforced by any court of competent jurisdiction, and the
party seeking enforcement will be entitled to an award of all costs, fees and
expenses, including attorneys' fees, to be paid by the party against whom
enforcement is ordered. Subject to the provisions of subparagraph (6) below,
judgment upon the award rendered by the arbitrator may be entered in any court
having competent jurisdiction.
(1) Payment of Costs. Parent on the one hand, and
----------------
the Company Members (through the Representative), on the other hand, will bear
the expense of deposits and advances required by the arbitrator in equal
proportions, but either party may advance such amounts, subject to recovery as
an addition or offset to any award. The arbitrator shall determine the party who
is the Prevailing Party and the party who is the Non-Prevailing Party. The Non-
Prevailing Party shall pay all reasonable costs, fees and expenses related to
the arbitration,
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including reasonable fees and expenses of attorneys, accountants and other
professionals incurred by the Prevailing Party, the fees of each arbitrator and
the administrative fee of the arbitration proceedings.
(2) Burden of Proof. Except as may be otherwise
---------------
expressly provided herein, for any Contested Claim submitted to arbitration, the
burden of proof will be as it would be if the claim were litigated in a judicial
proceeding governed by California law exclusively.
(3) Award. Upon the conclusion of any arbitration
-----
proceedings hereunder, the arbitrator will render findings of fact and
conclusions of law and a final written arbitration award setting forth the basis
and reasons for any decision reached (the "Final Award") and will deliver such
documents to the Representative and Parent, together with a signed copy of the
Final Award. Subject to the provisions of subparagraph (vii) below, the Final
Award will constitute a conclusive determination of all issues in question,
binding upon the Company Members, the Representative and Parent, and will
include an affirmative statement to such effect.
(4) Timing. The Representative, Parent and the
------
arbitrator will conclude each arbitration pursuant to this Section 12.9(b)(ii)
as promptly as possible for the Contested Claim being arbitrated.
(5) Terms of Arbitration. The arbitrator chosen in
--------------------
accordance with these provisions will not have the power to alter, amend or
otherwise affect the terms of these arbitration provisions or the provisions of
this Agreement.
(6) Treatment of Damages. Upon issuance and delivery
--------------------
of the Final Award as provided in subparagraph (3) above, Parent will
immediately be entitled to recover the amount of any Damages determined and
awarded to Parent under such Final Award.
(iii) Exclusive Remedy. Following the Effective Time,
----------------
except as specifically otherwise provided in this Agreement, mediation and
arbitration conducted in accordance with this Agreement will be the sole and
exclusive remedy of the parties for any Claim made pursuant to Article 12.
12.10 Payment of Deferred Indemnity Consideration, Deferred Management
----------------------------------------------------------------
Retention Consideration and Earnout Amounts. Promptly following the Deferred
-------------------------------------------
Consideration Payment Date, Parent shall deliver to the Company Members all of
the Deferred Indemnity Consideration and the Deferred Management Retention
Consideration payable under Section 2.3 in excess of any amounts previously used
to satisfy or necessary to satisfy any unsatisfied or disputed claims for
Damages specified in any Notice of Claim delivered to the Representative before
the Representation Termination Date. On the applicable Earnout Payment Date
Parent shall deliver to the Company Members all of the Earnout Amounts payable
on such date in excess of any amounts previously used to satisfy or necessary to
satisfy any unsatisfied or disputed claims for Damages specified in any Notice
of Claim delivered to the Representative before the Representation Termination
Date. As soon as all such claims have been resolved, Parent shall deliver to
the Company Members all remaining the Deferred Indemnity Consideration, Deferred
Management Retention and Earnout Amounts, as the case may be, not required to
satisfy such claims.
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ARTICLE 13
Miscellaneous
13.1 Governing Law. The internal laws of the State of California,
-------------
irrespective of its choice of law principles, will govern the validity of this
Agreement, the construction of its terms, and the interpretation and enforcement
of the rights and duties of the parties hereto.
13.2 Assignment; Binding Upon Successors and Assigns. Neither party
-----------------------------------------------
hereto may assign any of its rights or obligations hereunder without the prior
written consent of the other party hereto. This Agreement will be binding upon
and inure to the benefit of the parties hereto and their respective successors
and permitted assigns. Any assignment in violation of this provision shall be
void.
13.3 Severability. If any provision of this Agreement, or the
------------
application thereof, will for any reason and to any extent be invalid or
unenforceable, then the remainder of this Agreement 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 the void or unenforceable provision.
13.4 Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which will be an original as regards any party whose
signature appears thereon and all of which together will constitute one and the
same instrument. This Agreement will become binding when one or more
counterparts hereof, individually or taken together, will bear the signatures of
all parties reflected hereon as signatories.
13.5 Other Remedies. Except as otherwise provided herein, any and all
--------------
remedies herein expressly conferred upon a party hereunder will be deemed
cumulative with and not exclusive of any other remedy conferred hereby or by law
on such party, and the exercise of any one remedy will not preclude the exercise
of any other. Parent and the Company agree that after the Closing, the
indemnification, and mediation and arbitration provisions set forth in Article
12 shall be each such Person's sole and exclusive remedy with respect to any
inaccuracy, misrepresentation, breach of, or default in, any of the
representations, warranties, covenants or agreements of any such party in this
Agreement; provided, however, that the foregoing shall not limit the parties'
respective rights to seek specific performance or other injunctive relief. The
parties hereto agree that irreparable damage would occur in the event that any
of the provisions of this Agreement were not performed in accordance with their
specific terms or were otherwise breached. It is accordingly agreed that the
parties shall be entitled to seek an injunction or injunctions to prevent
breaches of this Agreement and to enforce specifically the terms and provisions
hereof in any court of the United States or any state having jurisdiction.
13.6 Amendment and Waivers. Any term or provision of this Agreement
---------------------
may be amended, and the observance of any term of this Agreement may be waived
(either generally or in a particular instance and either retroactively or
prospectively) only by a writing signed by the party to be bound thereby. The
waiver by a party of any breach hereof or default in the performance hereof will
not be deemed to constitute a waiver of any other default or any succeeding
breach or default.
-62-
This Agreement may be amended by the parties hereto as provided in this Section
at any time before or after approval of this Agreement by the Company Members,
but, after such approval, no amendment will be made which by applicable law
requires the further approval of the Company Members without obtaining such
further approval. At any time prior to the Effective Time, each of Company and
Parent may, to the extent legally allowed, (i) extend the time for the
performance of any of the obligations or other acts of the other; (ii) waive any
inaccuracies in the representations and warranties made to it contained herein
or in any document delivered pursuant hereto; and (iii) waive compliance with
any of the agreements or conditions for its benefit contained herein. No such
waiver or extension will be effective unless signed in writing by the party
against whom such waiver or extension is asserted. The failure of any party to
enforce any of the provisions hereof will not be construed to be a waiver of the
right of such party thereafter to enforce such provisions.
13.7 Expenses. Each party will bear its respective legal, auditors',
--------
investment bankers' and financial advisors' fees and other expenses incurred
with respect to this Agreement, the Merger and the transactions contemplated
hereby, including any filing or notice fees required under the HSR Act
("Transaction Expenses"), except that the Company shall pay all such Transaction
Expenses of the Company and the Company Members ("Company Transaction Expenses")
prior to the Closing (the failure of which shall result in the reduction in the
Closing Merger Consideration specified in Section 1.4 hereof or a claim for
Damages under Article 12).
13.8 Attorneys' Fees. Should suit be brought to enforce or interpret
---------------
any part of this Agreement, the prevailing party will be entitled to recover, as
an element of the costs of suit and not as damages, reasonable attorneys' fees
to be fixed by the court (including without limitation, costs, expenses and fees
on any appeal). The prevailing party will be entitled to recover its costs of
suit, regardless of whether such suit proceeds to final judgment.
13.9 Notices. All notices and other communications required or
-------
permitted under this Agreement will be in writing and will be either hand
delivered in person, sent by facsimile, sent by certified or registered first
class mail, postage pre-paid, or sent by nationally recognized express courier
service. Such notices and other communications will be effective upon receipt if
hand delivered or sent by facsimile, five days after mailing if sent by mail,
and one day after dispatch if sent by express courier, to the following
addresses, or such other addresses as any party may notify the other parties in
accordance with this Section:
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If to Parent:
PEMSTAR Inc.
0000 Xxxxxxxxxx Xxxxx
Xxxxxxxxx, XX 00000
Attention: Xxxxx X. Xxxxx, Vice President, General Counsel and
Corporate Secretary
Fax Number: (000) 000-0000
with copies to:
Fenwick & West LLP
Xxx Xxxx Xxxx Xxxxxx
Xxxx Xxxx, XX 00000
Attention: Xxxxxx XxXxxxxx, Esq.
Xxxxxx Xxxxx, Esq.
Fax Number: (000) 000-0000
If to the Company:
Pacific Consultants LLC
0000 Xxxxx Xxxxxx
Xxxxxxxx Xxxx, XX 00000
Attention: Xxxx Xxxxx, Chief Executive Officer
Fax Number: (000) 000-0000
with a copy to:
Tufts Xxxxxxxxxx & Xxxxxx, LLP
000 Xxxxxxxxxx Xxxxxx, Xxxxx 0000
Xxx Xxxxxxxxx, XX 00000
Attention: Xxxxxx R, Tufts, Esq.
Fax Number: 000-000-0000
If to the Representative:
Xxxx Xxxxxxxx
Xxxx Xxxxx
c/o Pacific Consultants LLC
0000 Xxxxx Xxxxxx
Xxxxxxxx Xxxx, XX 00000
Attention: Representative
Fax Number: (000) 000-0000
or to such other address as a party may have furnished to the other parties in
writing pursuant to this Section 13.9.
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13.10 Interpretation; Rules of Construction. When a reference is made
-------------------------------------
in this Agreement to Exhibits, such reference shall be to an Exhibit to this
Agreement unless otherwise indicated. When a reference is made in this
Agreement to Sections, such reference shall be to a Section of this Agreement
unless otherwise indicated. When a reference is made in this Agreement to an
Article, such reference shall be to an Article of this Agreement. The words
"include," "includes" and "including" when used herein shall be deemed in each
case to be followed by the words "without limitation." The table of contents and
headings contained in this Agreement are for reference purposes only and shall
not affect in any way the meaning or interpretation of this Agreement. When
reference is made herein to "the business of" an entity, such reference shall be
deemed to include the business of all direct and indirect subsidiaries of such
entity. Reference to the subsidiaries of an entity shall be deemed to include
all direct and indirect subsidiaries of such entity. The parties hereto agree
that they have been represented by counsel during the negotiation and execution
of this Agreement and, therefore, waive the application of any law, regulation,
holding or rule of construction providing that ambiguities in an agreement or
other document will be construed against the party drafting such agreement or
document.
13.11 No Joint Venture. Nothing contained in this Agreement will be
----------------
deemed or construed as creating a joint venture or partnership between any of
the parties hereto. No party is by virtue of this Agreement authorized as an
agent, employee or legal representative of any other party. No party will have
the power to control the activities and operations of any other and their status
is, and at all times will continue to be, that of independent contractors with
respect to each other. No party will have any power or authority to bind or
commit any other party. No party will hold itself out as having any authority or
relationship in contravention of this Section.
13.12 Further Assurances. Each party agrees to cooperate fully with
------------------
the other parties and to execute such further instruments, documents and
agreements and to give such further written assurances as may be reasonably
requested by any other party to evidence and reflect the transactions described
herein and contemplated hereby and to carry into effect the intents and purposes
of this Agreement.
13.13 Third Party Beneficiary Rights. No provisions of this Agreement
------------------------------
are intended, nor will be interpreted, to provide or create any third party
beneficiary rights or any other rights of any kind in any client, customer,
affiliate, member, shareholder, partner or any party hereto or any other Person
or entity unless specifically provided otherwise herein and, except as so
provided, all provisions hereof will be personal solely between the parties to
this Agreement.
13.14 Public Announcement. Upon execution of this Agreement, Parent
-------------------
and the Company will issue a press release approved by both parties announcing
the Merger. Thereafter, Parent may issue such press releases, and make such
other disclosures regarding the Merger, as it determines are required under
applicable securities laws or regulatory rules. Prior to the publication of such
initial and mutually agreed press release, neither party will make any public
announcement relating to this Agreement or the transactions contemplated hereby
(except as may be required by law) and the Company will use its reasonable
efforts to prevent any trading in Parent Common Stock by its officers,
directors, members, employees, consultants and agents. Neither Parent nor the
Company will make any disclosures regarding this Agreement or the Merger that
would jeopardize Parent's ability to timely and lawfully issue the shares of
Parent Common Stock and other securities in the Merger pursuant to the
exemptions described in Section 2.7.
-65-
13.15 Disclosure Letters. The Company Disclosure Letter and the Parent
------------------
Disclosure Letter each shall be arranged in separate parts corresponding to the
numbered and lettered sections contained in Articles 3, 4 and 5, and the
information disclosed in any numbered or lettered part shall be deemed to relate
to and to qualify only the particular provision set forth in the corresponding
numbered or lettered section in Articles 3, 4 and/or 5, as applicable, and any
other provision to which the relevance of such information is readily apparent
from the text of such disclosure and shall not be deemed to relate to or to
qualify any other provision.
13.16 Confidentiality. The Company and Parent each confirm that they
---------------
have entered into the Confidentiality Agreement and that they are each bound by,
and will abide by, the provisions of such Confidentiality Agreement, provided
that Parent shall not be bound by such Confidentiality Agreement after the
Closing. If this Agreement is terminated, the Confidentiality Agreement shall
remain in full force and effect and all copies of documents containing
confidential information of a disclosing party will be returned by the receiving
party to the disclosing party or be destroyed, as provided in the
Confidentiality Agreement.
13.17 Entire Agreement. This Agreement and the exhibits hereto
----------------
constitute the entire understanding and agreement of the parties hereto with
respect to the subject matter hereof and supersede all prior and contemporaneous
agreements or understandings, inducements or conditions, express or implied,
written or oral, between the parties with respect hereto other than the
Confidentiality Agreement. The express terms hereof control and supersede any
course of performance or usage of the trade inconsistent with any of the terms
hereof.
-66-
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
PEMSTAR Inc. Pacific Consultants LLC
By: /s/ Xxxxx X. Xxxxxxxx By: /s/ Xxxx Xxxxx
---------------------------------- ----------------------------------
Name: Xxxxx X. Xxxxxxxx Name: Xxxx Xxxxx
--------------------------------
Title: Executive Vice President, Title: C.E.O.
-------------------------------
Business Development
Pebble Acquisition Corporation Representative
By: /s/ Xxxxx X. Xxxxxxxx By: /s/ Xxxx Xxxxxxxx
---------------------------------- ----------------------------------
Name: Xxxxx X. Xxxxxxxx Name: Xxxx Xxxxxxxx
Title: President and Chief Financial
Officer
By: /s/ Xxxx Xxxxx
----------------------------------
Name: Xxxx Xxxxx
[Signature Page to Agreement and Plan of Merger]
-67-
List of Exhibits
Exhibit A List of Core Company Members
Exhibit B Form of Voting Agreement
Exhibit C Earnout Amount
Exhibit D Form of Employment Offer Letter
-68-
Exhibit A
List of Core Company Members
Name and Address of Company Member: Number of Company
Membership Interests Held:
Xxxx Xxxxxxxx 175,000
Xxxxxxx X. Xxxxx 150,000
Xxxxx X. Xxxxxxxx 87,500
Xxxxx Xxxxxxx 87,500
Xxxxx Xxxx 47,852
Xxxx Xxxxx 47,852
Xxxx Xxxxxx 25,600
Xxxxx Xxxxxxxx 23,926
Xxxxxx Xxxxxx 20,000
Xxxxxxxx Xxxxxxxxx 11,000
Totals: 700,156
EXHIBIT C
Earnout Amount
1. General. Parent, Sub, the Company and the Representative have entered into
-------
that certain Agreement and Plan of Merger dated as of August 10, 2001 (the
"Merger Agreement"), providing for the merger of the Company with and into Sub
(the "Merger"), with Sub to be the surviving corporation in the Merger. The
capitalized terms used in this Exhibit C and not otherwise defined herein will
---------
have the meanings given to them in the Merger Agreement.
2. Earnout Payments; Procedures.
----------------------------
(a) Parent shall, as provided in Section 2.4 of the Merger Agreement,
following the end of each Earnout Period (as defined below) pay to each Member
in respect of each Company Membership Interest held by such Member immediately
prior to the Closing as set forth on Schedule 3.4.1(a) of the Company Disclosure
-----------------
Schedule, the Per Membership Interest Earnout Consideration, subject to the
provisions of Section 2.1.3 of the Merger Agreement (regarding rights of holders
of Dissenting Interests), and Article 12 of the Merger Agreement (regarding
indemnification). Parent will use reasonable diligent efforts to pay the Earnout
Amount (as defined below) applicable to each Earnout Period to the former
Company Members within sixty (60) days (and will in any case pay such Earnout
Amount within ninety (90) days) of the end of such Earnout Period as provided in
Sections 2(b) and (c) below; provided that in the event of any dispute regarding
all or any portion of the Earnout Amount that is not resolved within such 60-day
or 90-day period (as the case may be), the Earnout Amount shall be paid as soon
as practicable following the resolution of such dispute and the undisputed
portion of the Earnout Amount shall be paid within such period (the "Earnout
Payment Date"), subject to any rights of Parent to withhold such payments in
respect of claims for indemnification under Article 12 of the Merger Agreement.
The rights of a Member to receive the Per Membership Interest Earnout
Consideration pursuant to this Exhibit C are not transferable or assignable,
---------
other than by will or by the laws of descent and distribution, and the terms and
conditions of this Exhibit C shall be binding on all executors, administrators
---------
and successors of each Member.
(b) Parent will make payment of (i) 50% of the Per Membership Interest
Earnout Consideration in form of cash, and (ii) 50% of the Per Membership
Interest Earnout Consideration in form of shares of Parent Common Stock;
provided, Parent shall have the right to pay cash instead of issuing such shares
of Parent Common Stock (under (ii) above) upon delivery to the Representative of
written notice of Parent's election to pay cash no later than five business days
prior to the first Earnout Payment Date for an Earnout Period. The value of each
share of Parent Common Stock for the purpose of paying the Per Membership
Interest Earnout Consideration in the form of shares of Parent Common Stock and
as provided in Section 5 hereof shall be deemed to equal the Parent Average
Price Per Earnout Share, regardless of actual fair market value of such shares
as of the time that such shares are issued to the Members. In the event of a
Capital Change after the Effective Time, the Parent Average Price Per Earnout
Share will be proportionally and equitably adjusted. Each Member agrees to
execute such agreements and documents as Parent may reasonably request to enable
it to issue such shares in compliance with federal and applicable state
securities laws. No certificates representing fractional shares of Parent Common
Stock shall be issued as payment of the Per Membership Interest Earnout
Consideration. In lieu of any such fractional shares, each Company Member who
otherwise
70
would be entitled to receive a fractional share of Parent Common Stock (after
aggregating all shares of Parent Common Stock to be received by such member)
shall be entitled to receive from Parent a cash payment equal to such fraction
multiplied by the Parent Average Price Per Earnout Share. Payment of any Per
Membership Interest Earnout Consideration in the form of cash shall be made by
Parent to each Member by wire transfer to each Member's bank account in
accordance with the wire transfer instructions previously received Parent from
such Member or check payable to such Member based on the instructions from such
Member in its Letter of Transmittal. The parties agree that for tax purposes a
portion of each Earnout Amount paid to the Members hereunder, equal to the
interest which would accrue on such amount from the Closing Date until the
applicable Earnout Payment Date at the applicable federal rate, will be treated
as interest.
(c) Parent shall deliver to the Representative no later than forty-five
(45) days following the end of each Earnout Period, a certificate signed by an
officer of Parent containing its calculation of the Earnout Amount for such
period and a summary of all computations performed by Parent in arriving at the
Earnout Amount for such Earnout Period (the "Earnout Certificate"). The Parent's
computation of any Earnout Amount and any other matters set forth in the Earnout
Certificate shall be conclusive and binding upon the Representative and the
Members, unless, within ten (10) days following the receipt by the
Representative of the Earnout Certificate, the Representative timely provides
Parent with written notice that it disagrees with Parent's computation of the
Earnout Amount, accompanied by a schedule setting forth the computations of the
Representative with respect to its calculation of the Earnout Amount and a copy
of any financial information used in making such computations (the "Earnout
Dispute Notice"). Upon timely receipt of the Earnout Dispute Notice, for a
period of twenty (20) days Parent and the Representative shall attempt through
negotiation to resolve and settle any disagreement regarding the Earnout Amount;
provided that if after such period an agreement has not been reached and either
party notifies the other in writing that such dispute cannot be resolved through
negotiation, then Parent and the Representative shall promptly appoint a
mutually and reasonably satisfactory independent certified public accountant
(the "Resolution Accountant") to review the computations of both Parent and the
Representative, and make a final written determination as to the Earnout Amount,
which determination shall be conclusive and binding on Parent, the
Representative and the Members. Both parties agree to cooperate with each other
and the Resolution Accountant with respect to the determination of the Earnout
Amount, including providing any non-privileged data and information relevant to
such determination. The Resolution Accountant's engagement pursuant to this
Section 2(c) shall be limited solely to the disputed issues set forth in the
Earnout Dispute Notice. If any Earnout Amount as calculated by the Resolution
Accountant differs by 3.5% or more from the Earnout Amount as calculated by
Parent, then the fees and costs of the Resolution Accountant shall be borne by
Parent. If any Earnout Amount as calculated by Resolution Accountant differs by
less than 3.5% from such Earnout Amount as calculated by Parent, then the fees
and costs of the Resolution Accountant shall be borne by the Members in
proportion to each Member's Pro Rata Ownership Percentage, and Parent shall have
the right to set-off such expenses and costs against any Earnout Amount payable
to the Members hereunder.
3. Definitions.
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(a) "Company Earnings" shall mean the actual earnings of the business
of the Company as existing immediately prior to the Closing Date and as operated
by the Surviving Corporation after the Closing Date for the applicable Earnout
Period which earnings are recognized by the Surviving Corporation (in accordance
with GAAP as consistently applied by Parent). For purposes of this Exhibit C
---------
only, Company Earnings shall be determined, to the extent such items are
included in the earnings of the Surviving Corporation, to exclude the effect of
the following items: (i) the gain or loss from any sale, exchange or other
disposition of assets, other than sales of assets in the ordinary course of
business consistent with past practice; (ii) the gain or loss from the exchange
of securities or any increase or reduction in the carrying cost of such
securities; (iii) any extraordinary gain or loss, as defined by GAAP; (iv) any
gain, loss, income or expense resulting from a change in the Surviving
Corporation's accounting methods, principles or practices or a change in GAAP or
any GAAP election or treatment; (v) all cash or non-cash costs, fees or expenses
arising from or related to the merger transaction contemplated by the Agreement
including without limitation, legal fees, accounting costs in excess of normal
audit fees, consultant expenses, goodwill amortization and transaction bonuses;
(vi) the accounting charges and expenses resulting from the issuance or grant of
any stock, stock options or other equity of Parent to employees of the Surviving
Corporation and any amendment or acceleration of such equity, or (vii) any other
expenses that Parent and the Representative mutually agree should not be
included in the calculation; provided, that earnings shall be calculated before
deducting income taxes and bonuses to employees of the Surviving Corporation
paid for the applicable Earnout Period in accordance with GAAP and consistent
with the Surviving Corporation Operational Budget (as defined below in Section
6).
(b) "Earnout Amount" means the contingent amounts for each Earnout
Period calculated as follows:
(i) For the First Earnout Period (as defined below), the
Earnout Amount shall equal the product of (a) the Earnout Factor (as
defined below), multiplied by (b) the difference of (i) Company Earnings
for the First Earnout Period, less (ii) any Excess Bonuses (as defined
below) for the First Earnout Period.
(ii) For the Second Earnout Period (as defined below), the
Earnout Amount shall equal the product of (a) the Earnout Factor,
multiplied by (b) the difference of (i) Company Earnings for the Second
Earnout Period, less (ii) any Excess Bonuses for the Second Earnout Period.
Notwithstanding anything to the contrary in this Exhibit C or the Merger
---------
Agreement, in the event that at any time the aggregate cumulative Earnout Amount
(including any Deemed Earnout Amounts (as defined below)) paid and payable
exceeds $24,000,000, then for all Earnout Amounts above such $24,000,000
threshold, the Members shall only be entitled to receive, and Parent shall only
be obligated to pay the Members hereunder, 50% of such excess Earnout Amount;
provided, that in no event will the aggregate Earnout Amount (including any
Deemed Earnout Amounts) paid for both Earnout Periods exceed the Maximum Earnout
Amount (as defined below).
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(c) "Earnout Factor" shall equal one, provided that if the Earnout
Amount shall be less than $2,000,000 (assuming for purposes of such calculation
that the Earnout Factor is one) for any Earnout Period, then the Earnout Factor
for such Earnout Period shall equal zero.
(d) "Earnout Period(s)" shall mean the First Earnout Period and the
Second Earnout Period, collectively, or in the singular any of such periods.
(e) "First Earnout Period" shall mean the period from the Closing
Date through and up to the date of the one-year anniversary of the Closing Date.
(f) "Second Earnout Period" shall mean the period from the day after
the end of the First Earnout Period through and up to the date of the two-year
anniversary of the Closing Date.
(g) "Excess Bonuses" means the aggregate amount of bonuses paid or
payable to employees of the Surviving Corporation during the applicable Earnout
Period which exceed the lower of (i) 30% of the Earnout Amount for such Earnout
Period (assuming for purposes of such calculation that there is no Excess
Bonus), or (ii) 20% of the aggregate salaries and wages for the employees of the
Surviving Corporation during such Earnout Period.
4. Termination of Parent's Earnout Payment Obligations. Notwithstanding
---------------------------------------------------
any other provision herein or the Merger Agreement, Parent's obligation to make
the payments required hereunder shall terminate at the earlier of (a) the date
on which the Members shall have been paid Earnout Amounts which total in the
aggregate $40,000,000 (the "Maximum Earnout Amount"), which for the purposes of
this Section 4 shall be deemed to include any amounts that the Members would
have received but for Parent's exercise of its right of set-off under Section 5
below in respect of claims for indemnification under Article 12 of the Merger
Agreement ("Deemed Earnout Amounts"), provided that with respect to any Earnout
Amount which would cause the aggregate Earnout Amount to exceed the Maximum
Earnout Amount, such Earnout Amount shall be reduced such that the aggregate of
all Earnout Amounts (including Deemed Earnout Amounts) shall not exceed the
Maximum Earnout Amount for the purpose of calculating any Earnout Amount; or (b)
payment by Parent of the Earnout Amount related to the Second Earnout Period.
5. Indemnification Set-Offs. At any time until the termination of the
------------------------
Parent's payment obligations pursuant to Section 4 above, if Parent believes it
is entitled to an indemnifiable Claim pursuant to Article 12 of the Merger
Agreement and such Claim is disputed by the Representative, Parent may, at
Parent's sole discretion, set-off any payment of any Earnout Amount by an amount
up to the amount of the Claim by withholding the amount of such set-off pending
resolution of such claim in accordance with Article 12 of the Merger Agreement.
Parent shall also be entitled to set-off fees and expenses pursuant to Section
2(a) above. Parent shall have the right to retain any Earnout Amounts payable
hereunder in satisfaction of Claims under Article 12 of the Merger Agreement and
Section 2(a) above, consisting of either cash and/or Parent Common Stock in its
sole discretion. For purposes of satisfying Claims under Article 12 of the
Merger Agreement, Parent Common Stock shall be valued and subject to adjustment
as provided in Section 2(b) above.
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6. Parent Covenants Regarding Surviving Corporation's Operations. Parent
-------------------------------------------------------------
hereby agrees that, during the time period beginning on the Closing Date and
ending on the end of the Second Earnout Period (the "Transition Period"), Parent
shall, consistent with its past practice with respect to operating its other
acquired operating subsidiaries:
(i) Allow the Surviving Corporation, as determined by the Surviving
Corporation's executive management (subject to the direction of the Surviving
Corporation's Board of Directors), to manage and control the day-to-day
operations of the Surviving Corporation's business (including but not limited
to, all aspects of the Surviving Corporation's products, services, and
supporting technology) and to incur expenses in connection therewith; provided
that the Surviving Corporation will operate and incur expenses as provided for
in the Surviving Corporation's operational budget dated August 10, 2001
(previously provided to and approved by Parent and the Company) and being
hereinafter referred to as the "Surviving Corporation Operational Budget");
provided, further, that any expenditures in an amount exceeding $50,000 will
require the prior written approval of Parent. Within five (5) business days
following the end of each calendar month during the Transition Period, the
Surviving Corporation will provide Parent with financial statements, consisting
of an income statement of the Surviving Corporation for the applicable full or
partial monthly period and a balance sheet of the Surviving Corporation as of
the end of each such month in a form acceptable to Parent and prepared in
accordance with GAAP (without consolidating the results of the Surviving
Corporation and Parent and without notes).
(ii) Provide the Surviving Corporation with sufficient funds to pay
all costs and expenses set forth in the Surviving Corporation Operational
Budget, subject to Parent's prior approval, during the Transition Period. It the
expectation of the parties that the Surviving Corporation's business will be
able to generate sufficient cash to fund its operations during the Transition
Period and to pay all costs and expenses provided for in the Surviving
Corporation Operational Budget; provided that if during the Transition Period
the Surviving Corporation requires additional cash to fund its operations it may
request that Parent advance it such amounts as a loan (the "Advance") by
delivering written notice to Parent executed by the Chief Financial Officer of
the Surviving Corporation (the "Loan Notice") stating: (a) the requested amount
of the Advance, (b) the payments or other requirements to be funded with the
Advance, including a detailed list of such payments and/or requirements
indicating vendor, amount payable and payment terms (the "Advance Payments"),
(c) that as of the date of the Loan Notice the Surviving Corporation is in
compliance with the Surviving Corporation Operational Budget, (d) that the
funding of the proposed Advance and the Advance Payments (if made) are
consistent with and will not violate the Surviving Corporation Operational
Budget, and (e) that the Surviving Corporation has no cash or cash equivalents
on hand (as determined in accordance with GAAP) as of the date of the Loan
Notice and the Advance Payments cannot be funded with cash from operations.
Within one (1) day of receipt of the Loan Notice, Parent will make the Advance
by paying requested amount of the Advance to the Surviving Corporation and/or
making the Advance Payments directly to the appropriate vendors; provided, that
in no event will Parent have any obligation to make an Advance or otherwise loan
the Surviving Corporation any amount if (w) the Surviving Corporation is not in
compliance with the Surviving Corporation Operational Budget, (x) the funding of
the proposed Advance and/or the Advance Payments are not consistent with or will
violate the Surviving Corporation Operational Budget, (y) the Surviving
Corporation has more than $2.0 million in cash or cash equivalents on hand (as
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determined in accordance with GAAP) as of the date of the Loan Notice or the
Advance Payments can otherwise be funded with cash from the Surviving
Corporation's operations, or (z) Parent determines in good faith that, in light
of its existing and short term commitments, it does not have sufficient cash or
cash equivalents on hand (as determined in accordance with GAAP) as of the date
of the Loan Notice to be able to fully fund the proposed Advance. Each Advance
made by Parent will bear interest at the Prime Rate plus 0.5% per annum from the
date made and contain other terms and conditions customary for business loans
between third parties; provided, that to the extent that the Surviving
Corporation has cash and cash equivalents on-hand (as determined in accordance
with GAAP) totaling over $2.0 million it shall use such amounts to promptly
repay Parent outstanding Advances and any related interest and costs. The
parties agree that that all interest and transaction costs related to each
Advance will be deducted from Company Earnings. Notwithstanding anything to the
contrary in this Exhibit C, in no event will Parent be required to make any
---------
proposed Advance (i) if such Advance has a principal amount greater than $3.0
million, or (ii) if the aggregate principal amount of all then outstanding
Advances is greater than $5.0 million.
For purposes of this Section 6, "Prime Rate" means, for any day, the rate of
interest per annum quoted by the Wall Street Journal on that date as the prime
rate in effect; each change in the Prime Rate shall be effective from and
including the date such change is quoted by the Wall Street Journal as being
effective.
(iii) Cooperate with the Surviving Corporation, regarding the
recruitment, hiring, employment, management, compensation, retention and
termination of employees and contractors of the Surviving Corporation during the
Transition Period ("Management Matters"), provided Parent will retain the
ultimate discretion with respect to any Management Matters. The Executive
=============
Officers of Surviving Corporation immediately following the Closing shall be
============================================================================
Xxxxx Xxxxx, Secretary, Xxxx Xxxxx, Vice President and General Manager, Xxxxx
=============================================================================
Herscher, President and Vice President Engineering, Xxxx Xxxxx, Vice President
==============================================================================
Engineering, and Xxxxx Xxxxxxxx, Chief Financial Officer. Xxxxx Xxxxxxx shall
==============================================================================
report directly to Xx Xxxxxxx, Chairman, CEO and President of Parent. The
==========================================================================
members of the Board of Directors of the Surviving Corporation immediately
==========================================================================
following the Closing shall be Xx Xxxxxxx, Chairmen of the Board, Xxxxx Xxxxxxxx
================================================================================
, Xxxx Xxxxxx, and Xxxxx Xxxxx of Parent, and Xxxx Xxxxx, Xxxxx Xxxxxxxx and
============================================================================
Xxxx Xxxxx of the Company.
==========================
(iv) Not dissolve or liquidate the Surviving Corporation, nor sell
or cause the Surviving Corporation to sell, transfer or otherwise dispose of any
of the Surviving Corporation's assets other than in the ordinary course of the
Surviving Corporation's business, nor merge or consolidate the Surviving
Corporation with another entity or sell, distribute or otherwise dispose of the
capital stock of the Surviving Corporation.
(v) Not relocate the Surviving Corporation's primary physical
offices or operations to a locale more than 50 miles from Mountain View,
California.
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