Exhibit 99.5
AGREEMENT AND PLAN OF MERGER
This Agreement and Plan of Merger is made and entered into as of
January 26, 2006, among AVOCENT Corporation, a Delaware corporation ("Parent"),
CEDAR CALIFORNIA ACQUISITION CORP., a California corporation and an indirect
wholly-owned subsidiary of Parent ("Merger Sub"), CYCLADES CORPORATION, a
California corporation (the "Company"), and ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ and ▇▇▇▇ ▇▇▇▇, as
individuals (the "Principal Shareholders"). Parent, the Company, Merger Sub and
the Principal Shareholders are sometimes referred to herein individually as a
"Party" and collectively as the "Parties." (1) RECITALS
WHEREAS, the respective Boards of Directors of Parent and the Company
have determined that the Merger is in furtherance of and consistent with their
respective long-term business strategies and is in the best interests of their
respective shareholders;
WHEREAS, the Board of Directors of the Company (i) has approved this
Agreement, (ii) has approved the Merger and the other transactions contemplated
by this Agreement and (iii) has determined that it is in the best interests of
the Company to recommend that the shareholders of the Company approve this
Agreement and the Merger; and
WHEREAS, in order to induce Parent and Merger Sub to enter into this
Agreement, concurrently herewith the directors and certain shareholders of the
Company are entering into agreements with Parent dated as of the date hereof
(the "Voting Agreements"), in the form of the attached Exhibit A, pursuant to
which, among other things, each such shareholder has agreed to vote in favor of
this Agreement and the Merger;
NOW, THEREFORE, in consideration of the covenants, promises and
representations set forth herein, and for other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, the Parties agree
as follows:
Article I
THE MERGER
1.1 Definitions.
(a) As used in this Agreement, the following terms have the following
meanings (terms defined in the singular to have a correlative meaning when used
in the plural and vice versa).
"280G Shareholder Approval" shall have the meaning set forth in Section
5.17.
"Accounts Receivable" means all accounts receivable of the Company that
are reflected in the Most Recent Financial Statements or on the accounting
records of the Company as of the Closing Date.
"Acquisition Proposal" means any proposal or offer relating to (a) any
merger or consolidation, or any sale or license of substantial assets, or
similar transactions involving the Company, or (b) sales or issuances by the
Company of any Company Capital Stock (including, without limitation, in an
equity financing or by way of a tender offer or an exchange offer), other than
issuances upon exercise of options outstanding as of the date of this Agreement
or issuances of restricted stock as set forth in Schedule 2.12.
"Affiliate" means any Person under common control with the Company
within the meaning of Section 414(b), (c), (m) or (o) of the Code and the
regulations thereunder.
"Agreement" has the meaning defined in Section 1.3.
"Blue Sky Law" means any securities law of any state.
"Business Day" means any day other than a Saturday or Sunday or a day
on which banks in California are closed.
"California Law" means the California General Corporation Law,
as amended.
"Certificate" means a certificate which immediately prior to the
Effective Time represented outstanding shares of Company Capital Stock.
"Certificate of Merger" has the meaning set forth in Section 1.3.
"Closing" has the meaning defined in Section 1.3.
"Closing Date" has the meaning defined in Section 1.3.
"Closing Date Payment Schedule" has the meaning defined in Section
6.3(c).
"COBRA" means the Consolidated Omnibus Budget Reconciliation Act of
1985, as amended.
"Code" means the Internal Revenue Code of 1986, as amended.
"Common Per Share Cash Amount" means the quotient obtained by dividing
(A) the Merger Consideration, by (B) the difference between (x) the Diluted
Common Share Number, and (y) the number of shares subject to all Vested Company
Stock Options.
"Company Board" means the Board of Directors of the Company.
"Company Business" means all activities conducted by the Company in the
design, development, manufacture, production, testing, marketing, licensing,
distribution, and sale of any product or service (including products and
services under development) of the Company.
"Company Capital Stock" means Company Common Stock.
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"Company Common Stock" means common stock of the Company, par value
$0.001.
"Company Employee Plan" shall refer to any plan, program, policy,
practice, contract, agreement or other arrangement providing for compensation,
severance, termination pay, deferred compensation, performance awards, stock or
stock-related awards, fringe benefits or other employee benefits or remuneration
of any kind, whether written or unwritten, funded or unfunded, including, each
"employee benefit plan", within the meaning of Section 3(3) of ERISA which is or
has been maintained, contributed to, or required to be contributed to, by the
Company or any Affiliate for the benefit of any "Employee" or with respect to
which the Company or any Affiliate has or may have any liability or obligation.
"Company Financials" means (i) the unaudited consolidated balance sheet
and related unaudited consolidated statements of income and cash flows as of and
for the eleven month period ended November 30, 2005 for the Company (the "Most
Recent Financial Statements"); (ii) the unaudited consolidated balance sheets as
of December 31, 2004 and 2003 and related statements of income and cash flows
for the years then ended for the Company; and (iii) the unaudited consolidated
balance sheet of the Company as of December 31, 2005 (the "December 2005 Balance
Sheet").
"Company Intellectual Property Rights" means Intellectual Property
Rights that the Company claims to own or exclusively license.
"Company Optionholders" means the holders of Company Stock Options that
are outstanding as of immediately prior to the Effective Time.
"Company Option Plan" means the Cyclades Corporation 2001 Stock Plan.
"Company Registered Intellectual Property Rights" means Registered
Intellectual Property Rights owned by, filed in the name of, applied for by, or
subject to a valid obligation of assignment to the Company.
"Company Schedules" has the meaning defined in the preamble to Article
II.
"Company Shareholder" means a shareholder of record of the Company
immediately prior to the Effective Time, as determined in accordance with the
stock transfer records of the Company.
"Company Shareholder Vote" has the meaning defined in Section 5.2.
"Company Stock Option" means any stock option to purchase Company
Capital Stock issued pursuant to the Company Option Plan or otherwise, whether
or not Vested, that is outstanding immediately prior to the Effective Time.
"Company Stock Right" means any subscription, option, warrant, equity
security, partnership interest or similar ownership interest, call, right
(including preemptive right), commitment or agreement of any character to which
the Company is a party or by which it is bound obligating the Company to issue,
deliver or sell, or cause to be issued, delivered or sold any shares of capital
stock, partnership interest or similar ownership interest of the Company or
obligating the Company to grant or enter into any of the foregoing arrangements
or agreements.
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"Confidentiality Agreement" has the meaning defined in Section 5.6.
"Conflict" has the meaning defined in Section 2.5.
"Contract" means any written, oral or other agreement, contract,
subcontract, lease, binding understanding, instrument, note, option, warranty,
purchase order, license, sublicense, insurance policy, benefit plan, commitment
or undertaking of any nature, as of the date hereof or as may hereafter be in
effect.
"Current Balance Sheet" means the audited consolidated balance sheet of
the Company as of November 30, 2005.
"Delaware Law" means the Delaware General Corporation Law.
"Diluted Common Share Number" means, as of immediately prior to the
Effective Time, the sum of (A) the number of shares of Company Common Stock
outstanding and (B) the number of shares of Company Common Stock underlying
outstanding Vested Company Stock Options (including any Company Stock Options
which become Vested as a result of the Merger).
"Dissenting Shareholder" means a holder of Dissenting Shares.
"Dissenting Shares" has the meaning defined in Section 1.8(a).
"DOL" means the Department of Labor.
"Effective Time" has the meaning defined in Section 1.3.
"Employee" means any current, former, or retired employee, consultant,
or director of the Company or any Affiliate.
"Employee Agreement" means each management, employment, severance,
consulting, relocation, repatriation, expatriation, visas, work permit or other
agreement, or contract or understanding between the Company any Affiliate and
any Employee.
"Environmental Law" means any applicable federal, state, local or
foreign law (including common law), European Union directive, statute, code,
ordinance, rule, regulation or other requirement relating to the environment,
natural resources or employee health and safety, in each case as amended to
date.
"Environmental Permit" means any environmental approval, permit,
license, clearance or consent.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
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"Equipment" has the meaning defined in Section 2.15(d).
"Escrow Agent" means Synovus Trust Company, N.A., as escrow agent under
the Indemnification and Escrow Agreement, or any alternative successor agent
which (A) shall be designated by Parent and the Company if designated prior to
Closing and (B) shall be designated in accordance with the terms of the
Indemnification and Escrow Agreement if designated after Closing.
"Escrow Amount" has the meaning defined in Section 1.7(b).
"Escrow Termination Date" has the meaning defined in Section 7.1(a).
"Excess Payments" has the meaning defined in Section 1.8(d).
"Exchange Act" means the Securities Exchange Act of 1934, as amended,
and the rules and regulations promulgated thereunder.
"Exchange Agent" has the meaning defined in Section 1.9.
"FMLA" means the Family Medical Leave Act of 1993, as amended.
"FTC" means the United States Federal Trade Commission.
"GAAP" means United States generally accepted accounting principles
consistently applied.
"Governmental Entity" means any:
(a) nation, province, state, county, city, town, village,
district, or other jurisdiction of any nature;
(b) federal, provincial, state, local, municipal, foreign, or
other government;
(c) governmental or quasi-governmental authority of any nature
(including any governmental agency, branch, department, official, or entity and
any court or other tribunal);
(d) multi-national organization or body; or
(e) body exercising, or entitled to exercise, any
administrative, executive, judicial, legislative, police, regulatory, or taxing
authority or power of any nature.
"Hazardous Material" has the meaning defined in Section 2.23.
"Hazardous Materials Activities" has the meaning defined in Section
2.23.
"HSR Act" means the ▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇ Anti-trust Improvements Act of
1976, as amended.
"Information Statement" has the meaning defined in Section 2.29.
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"Intellectual Property" means all intellectual property, regardless of
form, including without limitation: (1) published and unpublished works of
authorship, including without limitation audiovisual works, collective works,
computer programs, compilations, databases, derivative works, literary works,
maskworks, and sound recordings ("Works of Authorship"); (2) inventions and
discoveries, including without limitation articles of manufacture, business
methods, compositions of matter, improvements, machines, methods, and processes
and new uses for any of the preceding items ("Inventions"); (3) words, names,
symbols, devices, designs, and other designations, and combinations of the
preceding items, used to identify or distinguish a business, good, group,
product, or service or to indicate a form of certification, including without
limitation logos, product designs, and product features ("Trademarks"); and (4)
information that is not generally known or readily ascertainable through proper
means, whether tangible or intangible, including without limitation algorithms,
customer lists, ideas, designs, formulas, know-how, methods, processes,
programs, prototypes, systems, and techniques ("Confidential Information").
"Intellectual Property Rights" means all rights in, arising out of, or
associated with Intellectual Property in any federal, state, local or foreign
jurisdiction, including without limitation: (1) rights in, arising out of, or
associated with Works of Authorship, including without limitation rights in
maskworks and databases and rights granted under the Copyright Act
("Copyrights"); (2) rights in, arising out of, or associated with Inventions,
including without limitation rights granted under the Patent Act ("Patent
Rights"); (3) rights in, arising out of, or associated with Trademarks,
including without limitation rights granted under the ▇▇▇▇▇▇ Act ("Trademark
Rights"); (4) rights in, arising out of, or associated with Confidential
Information, including without limitation rights granted under the Uniform Trade
Secrets Act ("Trade Secret Rights"); (5) rights in, arising out of, or
associated with a person's name, voice, signature, photograph, or likeness,
including without limitation rights of personality, privacy, and publicity
("Personality Rights"); (6) rights of attribution and integrity and other moral
rights of an author ("Moral Rights"); and (7) rights in, arising out of, or
associated with domain names ("Domain Name Rights").
"International Employee Plan" means each Company Employee Plan that has
been adopted or maintained by the Company or any Affiliate, whether informally
or formally, or with respect to which the Company or any Affiliate will or may
have any liability, for the benefit of Employees who perform services outside
the United States.
"IRS" means the Internal Revenue Service.
"Knowledge" -- an individual will be deemed to have "knowledge" of a
particular fact or other matter if: (a) such individual is actually aware of
such fact or other matter; or (b) a reasonably prudent individual in such
individual's position could reasonably be expected to discover or otherwise
become aware of such fact or other matter in the course of conducting his or her
duties. Parent will be deemed to have "knowledge" of a particular fact or other
matter if an officer or director of Parent has knowledge (as defined above) of
such fact or other matter. The Company will be deemed to have "knowledge" of a
particular fact or other matter if an officer or director of the Company as set
forth in Schedule 2.1(b) has knowledge (as defined above) of such fact or other
matter.
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"Lease Agreement" means any lease, lease guaranty, sublease, agreement
for the leasing, use or occupancy of, or otherwise granting a right in or
relating to the Leased Real Property, including all amendments, terminations and
modifications thereof.
"Leased Real Property" means real property currently leased by the
Company or otherwise used or occupied by the Company for the operation of the
Company's business.
"Legal Requirement" means any law, statute, constitution, principle of
common law, resolution, ordinance, code, edict, order, judgment, directive,
decree, injunction, rule, regulation, ruling or requirement issued, enacted,
adopted, promulgated, implemented or otherwise put into effect by or under the
authority of any Governmental Entity.
"Lien" means, with respect to any property, any security interest,
mortgage, pledge, lien, claim, charge or other encumbrance in, of, or on such
property or the income therefrom, including, without limitation, the interest of
a vendor or lessor under a conditional sale agreement, capitalized lease
obligation or other title retention agreement, and the filing of any financing
statement or similar instrument under the Uniform Commercial Code or comparable
law of any jurisdiction.
"Listed Contract" has the meaning defined in Section 2.17(b).
"Material Adverse Effect on the Company" means any change, effect or
circumstance that (i) is reasonably likely to be materially adverse to the
business, assets (including intangible assets), liabilities, condition
(financial or otherwise), prospects or results of operations of the Company,
(ii) would reasonably be expected to materially delay or prevent the
consummation of the transactions contemplated hereby, or (iii) would reasonably
be expected to materially impair the ability of Parent to operate the business
of the Company immediately after the Closing, excluding, in each case, any such
change, effect or circumstance resulting solely from (A) changes or conditions
generally affecting the industries or segments in which the Company operates and
not uniquely related to the Company, (B) changes in general economic, market or
political conditions not uniquely related to the Company, (C) the Company's
compliance with its obligations pursuant to this Agreement, or (D) the
execution, announcement or pendency of the Merger, this Agreement or the
transactions contemplated hereby; provided, however, that the Company shall bear
the burden of proof in a proceeding with regard to establishing that the
Material Adverse Effect on the Company resulted solely from the direct effect of
one of the events described in clauses (A) through (D) above.
"Merger" has the meaning defined in Section 1.2.
"Merger Consideration" means $90,000,000, less (i) any outstanding
principal and accrued interest related to notes payable to Company Shareholders
as of the Closing pursuant to Section 6.2(f), (ii) the Option Cash Payment
Amount, (iii) the amounts payable under the Merger Bonus Plan pursuant to
Section 6.2(d), (iv) any Transaction Expenses in excess of $1,000,000 and
payable by Parent pursuant to Section 9.2(b), and (v) any Transaction Expenses
in excess of $2,000,000 and payable by Parent pursuant to Section 9.2(c).
"Merger Sub Common Stock" means each share of Common Stock, $0.001 par
value per share, of Merger Sub.
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"Multiemployer Plan" means any "Pension Plan" (as defined below) which
is a "multiemployer plan", as defined in Section 3(37) of ERISA.
"Net Worth" has the meaning set forth in Section 2.7(e).
"Option Cash Payment Amount" has the meaning set forth in Section 5.4.
"Ordinary Course of Business" means an action taken by a Person only
if: (A) such action is consistent with the past practices of such Person and is
taken in the ordinary course of the normal day-to-day operations of such Person;
(B) such action is not required to be authorized by the board of directors of
such Person (or by any Person or group of Persons exercising similar authority)
and is not required to be specifically authorized by the parent company (if any)
of such Person; and (C) such action is similar in nature and magnitude to
actions customarily taken, without any authorization by the board of directors
(or by any Person or group of Persons exercising similar authority), in the
ordinary course of the normal day-to-day operations of other Persons that are in
substantially similar lines of business as such Person.
"Parent '34 Act Reports" has the meaning defined in Section 3.4.
"Parent Common Stock" means common stock of Parent, $0.001 par value
per share.
"Parent Schedules" has the meaning defined in the preamble to Article
III.
"Parent Stock Option" means a stock option to purchase Parent Common
Stock.
"Pension Plan" shall refer to each Company Employee Plan which is an
"employee pension benefit plan", within the meaning of Section 3(2) of ERISA.
"Person" means any individual, corporation (including any non-profit
corporation), general or limited partnership, limited liability company, joint
venture, estate, trust, association, organization, labor union, or other entity
or Governmental Entity.
"PIIA" means the Company's standard form of proprietary information,
invention assignment and confidentiality agreement.
"Potential 280G Benefits" has the meaning defined in Section 6.3(m).
"Principal Shareholders" means ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ and ▇▇▇▇ ▇▇▇▇.
"Registered Intellectual Property Rights" means all Intellectual
Property Rights that are the subject of an application, certificate, filing,
registration, or other document issued by, filed with, or recorded by, any
state, government, or other public legal authority at any time in any federal,
state, local or foreign jurisdiction, including without limitation all
applications, reissues, divisions, re-examinations, renewals, extensions,
provisional applications, continuations, and continuations-in-part associated
with Patent Rights.
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"Returns" means federal, state, local and foreign tax returns,
estimates, information statements and reports.
"Securities Act" means the Securities Act of 1933, as amended, and the
rules and regulations promulgated thereunder.
"Statement of Expenses" has the meaning defined in Section 9.2.
"Supplemental Statement of Expenses" has the meaning defined in Section
9.2.
"Surviving Corporation" has the meaning defined in Section 1.2.
"Tax" or, collectively, "Taxes" means (a) any and all federal, state,
local and foreign taxes, assessments and other governmental charges, duties,
impositions and liabilities, including taxes based upon or measured by gross
receipts, income, profits, sales, use and occupation, and value added, ad
valorem, transfer, franchise, withholding, payroll, recapture, employment,
excise and property taxes as well as public imposts, fees and social security
charges (including but not limited to health, unemployment and pension
insurance), together with all interest, penalties and additions imposed with
respect to such amounts, (b) any liability for the payment of any amounts of the
type described in clause (a) of this definition as a result of being a member of
an affiliated, consolidated, combined or unitary group for any period, and (c)
any liability for the payment of any amounts of the type described in clauses
(a) or (b) of this definition as a result of any express or implied obligation
to indemnify any other person or as a result of any obligation under any
agreement or arrangement with any other person with respect to such amounts and
including any liability for taxes of a predecessor entity.
"Transaction Expenses" has the meaning set forth in Section 9.2.
"Undisclosed Excess Expense Amount" has the meaning set forth in
Section 9.2.
"Vest" or "Vesting" means with respect to an option, such option
becoming freely exercisable without subsequent risk of forfeiture of shares
exercised, such cash becoming released from the applicable risk of forfeiture or
divestment or repurchase right; and "Vested" refers to the portion of shares
underlying an option which is exercisable.
"Voting Agreement" has the meaning defined in the recitals to this
Agreement.
1.2 The Merger. At the Effective Time (as defined in Section 1.3) and
subject to and upon the terms and conditions of this Agreement and the
applicable provisions of California Law, Merger Sub shall be merged with and
into the Company (the "Merger"), the separate corporate existence of Merger Sub
shall cease and the Company shall continue as the surviving corporation. The
Company as the surviving corporation after the merger is hereinafter sometimes
referred to as the "Surviving Corporation."
1.3 Effective Time; Closing. Subject to the provisions of this
Agreement, the Parties hereto shall cause the Merger to be consummated by filing
an Agreement of Merger and related officers' certificates (or like instrument)
with the Secretary of State of the State of California in accordance with the
relevant provisions of California Law (the "Certificate of Merger") (the time of
such filing (or such later time as may be agreed in writing by the Company and
Parent and specified in the Certificate of Merger) being the "Effective Time")
as soon as practicable on or after the Closing Date (as herein defined). Unless
the context otherwise requires, the term "Agreement" as used herein refers
collectively to this Agreement and Plan of Merger and the Certificate of Merger.
The closing of the Merger (the "Closing") shall take place at the offices of
▇▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇, Professional Corporation, ▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇,
▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇ the date that all of the conditions to
closing are satisfied or waived in accordance with Article VI, or at such other
time, date and location as the Parties hereto agree in writing (the "Closing
Date").
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1.4 Effect of the Merger. At the Effective Time, the effect of the
Merger shall be as provided in this Agreement and the applicable provisions of
California Law. Without limiting the generality of the foregoing, and subject
thereto, at the Effective Time all the property, rights, privileges, powers and
franchises of the Company and Merger Sub shall vest in the Surviving
Corporation, and all debts, liabilities and duties of the Company and Merger Sub
shall become the debts, liabilities and duties of the Surviving Corporation.
1.5 Articles of Incorporation; Bylaws.
(a) At the Effective Time, the articles of incorporation of the
Surviving Corporation shall be amended in its entirety so that they are
identical to the articles of incorporation of Merger Sub in effect immediately
prior to the Effective Time, until thereafter amended as provided by law and
such articles of incorporation of the Surviving Corporation.
(b) At the Effective Time, the bylaws of the Surviving Corporation
shall be amended in their entirety so that they are identical to the bylaws of
Merger Sub in effect immediately prior to the Effective Time, until thereafter
amended.
1.6 Directors and Officers. The initial directors of the Surviving
Corporation shall be the directors of Merger Sub immediately prior to the
Effective Time, until their respective successors are duly elected or appointed
and qualified. The initial officers of the Surviving Corporation shall be the
officers of Merger Sub immediately prior to the Effective Time, until their
respective successors are duly appointed.
1.7 Effect on Capital Stock. Subject to the terms and conditions of
this Agreement, at the Effective Time, by virtue of the Merger and without any
action on the part of Merger Sub, the Company or the holders of the Company
Common Stock, the following shall occur:
(a) Conversion of Company Common Stock. Each share of Company Common
Stock issued and outstanding immediately prior to the Effective Time, other than
any Dissenting Shares and any shares of Company Common Stock to be canceled
pursuant to Section 1.7(c), will be canceled and extinguished and automatically
converted (subject to Section 1.7(f)), and subject further to the conditions set
forth below and throughout this Agreement, including without limitation, the
provisions of the Indemnification and Escrow Agreement attached hereto as
Exhibit B, upon surrender of the certificate representing such share of Company
Common Stock in the manner provided in Section 1.9 (or in the case of a lost,
stolen or destroyed certificate, upon delivery of an affidavit and bond in the
manner provided in Section 1.11), into the right to receive an amount of cash
equal to the Common Per Share Cash Amount, without interest; provided, that,
with respect to shares of Company Common Stock outstanding at the Closing Date,
a portion of the cash into which such shares shall be converted shall be
deposited into escrow pursuant to the provisions of the Indemnification and
Escrow Agreement.
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(b) Establishment of Escrow Fund. On the Closing Date, $15,000,000 (the
"Escrow Amount"), will, without any act of either Principal Shareholder, and in
accordance with the provisions of the Indemnification and Escrow Agreement
attached hereto as Exhibit B, be deposited with the Escrow Agent by Parent to
secure the obligations set forth in Article VII hereof and in the
Indemnification and Escrow Agreement. Such amount is referred to herein as the
"Escrow Fund" and will be governed by the terms of the Indemnification and
Escrow Agreement. Notwithstanding Sections 1.7(a) and 1.7(c), the amount of
Merger Consideration payable to each Principal Shareholder on the Closing Date
will be reduced by fifty (50%) of the Escrow Amount.
(c) Cancellation of Parent-Owned Stock. Each share of Company Common
Stock held by the Company or owned by Merger Sub, Parent or any direct or
indirect wholly-owned subsidiary of the Company or of Parent immediately prior
to the Effective Time shall be canceled and extinguished without any conversion
thereof.
(d) Stock Options. At the Effective Time, all outstanding Company Stock
Options shall be treated in accordance with Section 5.4 hereof.
(e) Capital Stock of Merger Sub. The Merger Sub Common Stock issued and
outstanding immediately prior to the Effective Time shall be converted into one
validly issued, fully paid and nonassessable share of Common Stock, $0.001 par
value per share, of the Surviving Corporation. Each certificate evidencing
ownership of shares of Merger Sub Common Stock shall evidence ownership of such
shares of capital stock of the Surviving Corporation.
(f) Fractional Shares. No fraction of a cent of Merger Consideration
will be issued or paid by virtue of the Merger. Instead, any fraction of a cent
of Merger Consideration that would otherwise be received by a holder of Company
Common Stock pursuant to Section 1.7(a) shall be aggregated and any remaining
fraction of a cent will be rounded down to the nearest whole cent.
1.8 Dissenting Shares.
(a) Notwithstanding any other provision of this Agreement to the
contrary, shares of Company Capital Stock that have not been voted for approval
of the Merger and with respect to which such shareholders become entitled to
exercise dissenters' rights in accordance with Chapter 13 of California Law
("Dissenting Shares"), will not be converted into or represent a right to
receive consideration in connection with the Merger pursuant to Section 1.7, but
will instead be converted into the right to receive such consideration as may be
determined to be due with respect to such Dissenting Shares pursuant to
California Law.
(b) If a Dissenting Shareholder withdraws such holder's demand for such
payment and appraisal or becomes ineligible for such payment and appraisal,
then, as of the Closing or the occurrence of such event of withdrawal or
ineligibility, whichever last occurs, such holder's Dissenting Shares will cease
to be Dissenting Shares and will be converted into the right to receive, and
will be exchangeable for, that portion of the Merger Consideration, without
interest thereon, into which such Dissenting Shares would have been converted
pursuant to Section 1.7(a).
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(c) The Company will give Parent and Merger Sub prompt notice of any
written demands or withdrawals of dissenters' rights with regard to Company
Common Stock, and Parent shall have the right to participate in all negotiations
and proceedings with respect to any demands for dissenters' rights. The Company
agrees that, except with the prior written consent of Parent and Merger Sub, or
as required under California Law, it will not voluntarily make any payment with
respect to, or settle or offer or agree to settle, any such exercise of
dissenters' rights. Each Dissenting Shareholder who, pursuant to Chapter 13 of
California Law, becomes entitled to payment of the fair value of the Dissenting
Shares will receive payment therefor (but only after the value therefor has been
agreed upon or finally determined pursuant to such provisions).
(d) To the extent that Parent or the Surviving Corporation (i) makes
any payment or payments to any Dissenting Shareholder(s) for Dissenting Shares
pursuant to Chapter 13 of California Law in excess of the value such Dissenting
Shareholder(s) would have received in the Merger for such Dissenting Shares or
(ii) incurs any other costs or expenses in respect of any Dissenting Shares
(excluding payment for such shares), such amounts shall constitute "Excess
Payments." Each of Parent and the Company agree that the amount of the Excess
Payments shall constitute Losses and, without regard for the limitations set
forth in the Indemnification and Escrow Agreement, Parent shall be entitled to
recover such amount from the Escrow Fund.
1.9 Surrender of Certificates.
(a) Exchange Agent. Parent shall select a bank or trust company
reasonably acceptable to the Company to act as the exchange agent (the "Exchange
Agent") in the Merger.
(b) Parent to Provide Cash. At Closing, Parent shall make available to
the Exchange Agent for exchange in accordance with this Article I, the cash
payable pursuant to Section 1.7 (subject to the escrow provisions of Section
1.7(b)) in exchange for outstanding shares of Company Capital Stock.
(c) Exchange Procedures. Promptly following the Closing (and in any
event, no later than three (3) Business Days after the Effective Time), Parent
shall cause the Exchange Agent to deliver to each holder of record (as of the
Effective Time) of a Certificate or Certificates, which immediately prior to the
Effective Time represented outstanding shares of Company Common Stock whose
shares were converted into the right to receive Merger Consideration pursuant to
Section 1.7: (i) a letter of transmittal in customary form (which shall specify
that delivery shall be effected, and risk of loss and title to the Certificates
shall pass, only upon delivery of the Certificates to the Exchange Agent and
shall contain such other customary provisions as Parent may reasonably specify)
and (ii) instructions for use in effecting the surrender of the Certificates in
exchange for Merger Consideration. Upon surrender of Certificates for
cancellation to the Exchange Agent or to such other agent or agents as may be
appointed by Parent, together with such letter of transmittal, duly completed
and validly executed in accordance with the instructions thereto, the holders of
such Certificates shall be entitled to receive in exchange therefor (subject in
each case to the escrow provisions of Section 1.7(b)) the amount of cash into
which their shares of Company Common Stock were converted at the Effective Time,
and the Certificates so surrendered shall forthwith be canceled. Until so
surrendered, outstanding Certificates will be deemed from and after the
Effective Time, for all corporate purposes, to evidence only the ownership of
the amount of Merger Consideration into which such shares of Company Common
Stock shall have been so converted.
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(d) Distributions With Respect to Unexchanged Shares. Subject to
applicable law, as soon as practicable, but in any event no later than three (3)
Business Days after surrender of any such Certificates, the Exchange Agent shall
deliver to the record holders thereof, in exchange therefor, without interest,
Merger Consideration paid.
(e) Transfers of Ownership. If Merger Consideration is to be paid in a
name other than that in which the Certificates surrendered in exchange therefor
are registered, it will be a condition of the issuance and payment thereof that
the Certificates so surrendered will be properly endorsed and otherwise in
proper form for transfer and that the Persons requesting such exchange will have
paid to Parent or any agent designated by it any transfer or other Taxes
required by reason of the payment of Merger Consideration in any name other than
that of the registered holder of the Certificates surrendered, or established to
the satisfaction of Parent or any agent designated by it that such Tax has been
paid or is not payable.
(f) Required Withholding. Each of the Exchange Agent, Parent and the
Surviving Corporation shall be entitled to deduct and withhold from any
consideration payable or otherwise deliverable pursuant to this Agreement to any
holder or former holder of Company Common Stock such amounts as may be required
to be deducted or withheld therefrom under the Code or under any provision of
state, local or foreign Tax law or under any other applicable Legal Requirement.
To the extent that such amounts are so deducted or withheld, such amounts shall
be treated for all purposes under this Agreement as having been paid to the
person to whom such amounts would otherwise have been paid.
(g) No Liability. Notwithstanding anything to the contrary in this
Section 1.9, neither the Exchange Agent, Parent, the Surviving Corporation nor
any Party hereto shall be liable to a holder of shares of Company Capital Stock
for any amount properly paid to a public official pursuant to any applicable
abandoned property, escheat or similar law.
1.10 No Further Ownership Rights in Company Capital Stock. All Merger
Consideration paid in accordance with the terms hereof shall be deemed to have
been paid in full satisfaction of all rights pertaining to such shares of
Company Capital Stock, and there shall be no further registration of transfers
on the records of the Surviving Corporation of shares of Company Capital Stock
which were outstanding immediately prior to the Effective Time. If, after the
Effective Time, Certificates are presented to the Surviving Corporation for any
reason, they shall be canceled and exchanged as provided in this Article I.
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1.11 Lost, Stolen or Destroyed Certificates. In the event that any
Certificates shall have been lost, stolen or destroyed, the Exchange Agent shall
issue in exchange for such lost, stolen or destroyed Certificates, upon the
making of an affidavit of that fact by the holder thereof, certificates
representing the Merger Consideration into which the shares of Company Capital
Stock represented by such Certificates were converted pursuant to Section 1.7;
provided, that as a condition precedent to the payment of such cash, the owner
of such lost, stolen or destroyed Certificates must deliver a bond in such sum
as indemnity against any claim that may be made against Parent, the Surviving
Corporation or the Exchange Agent with respect to the Certificates alleged to
have been lost, stolen or destroyed.
1.12 Taking of Necessary Action; Further Action. If, at any time after
the Effective Time, any further action is necessary or desirable to carry out
the purposes of this Agreement and to vest the Surviving Corporation with full
right, title and possession to all assets, property, rights, privileges, powers
and franchises of Company and Merger Sub, the current officers and directors of
the Company and Merger Sub will take all such lawful and necessary action.
1.13 Tax Consequences. Parent makes no representation or warranty to
the Company or to any securityholder of the Company regarding the tax treatment
of the Merger, or any of the tax consequences to the Company or any
securityholder of the Company relating to the Merger, this Agreement, or any of
the other transactions or agreements contemplated hereby. The Company
acknowledges that it and its securityholders are relying solely on their own tax
advisors in connection with the Merger, this Agreement and the other
transactions and agreements contemplated hereby.
1.14 Unclaimed Merger Consideration. Any portion of the Merger
Consideration delivered and made available to the Exchange Agent pursuant to
this Article I and not exchanged for Company Common Stock pursuant to Section
1.9 within six (6) months after the Effective Time above shall be returned by
the Exchange Agent to Parent, which thereafter shall act as Exchange Agent
subject to the rights of holders of unsurrendered Certificates under this
Article I. Thereafter, subject to abandoned property, escheat and other similar
laws, such holders shall be entitled to look to Parent and the Surviving
Corporation only as general creditors thereof with respect to any Merger
Consideration that may be payable upon due surrender of the Certificates held by
them, and if Parent or the Surviving Corporation shall remit any portion of such
Merger Consideration to any state in compliance with such applicable laws, such
holders shall be entitled to look only to such state for payment of such Merger
Consideration and not to Parent or the Surviving Corporation.
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Article II
REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND
PRINCIPAL SHAREHOLDERS
As of the date hereof and as of the Closing Date (except where the
representation or warranty is expressly made as of another date, in which case
such representation or warranty is made only as of such other date), the Company
and each of the Principal Shareholders, severally but not jointly, hereby
represent and warrant to Parent and Merger Sub, subject to such exceptions as
are specifically disclosed in writing in the disclosure letter, dated as of the
date hereof, and certified by a duly authorized officer of the Company (the
"Company Schedules"), which exceptions shall specifically identify the Section,
subsection, paragraph and clause hereof to which such exception relates and
other Sections, subsections, paragraphs and clauses hereof to the extent it is
clearly apparent that such exceptions are applicable to such representations and
warranties, as follows:
2.1 Organization of the Company. The Company is a corporation duly
organized, validly existing and in good standing under the laws of the State of
California. The Company is duly qualified to do business and in good standing as
a foreign corporation in each jurisdiction in which such qualification is
required, except for such failures to be so duly qualified or licensed or in
good standing that would not reasonably be expected to have a Material Adverse
Effect on the Company. Schedule 2.1(a) sets forth each jurisdiction where the
Company is so qualified, licensed or admitted to do business and separately
lists each other jurisdiction in which the Company owns, uses, licenses or
leases its assets and properties, or conducts business or has employees or
engages independent contractors. The Company has full corporate power and
authority to carry on its business as now being conducted and as currently
proposed to be conducted, and to own and use the properties owned and used by
it. Schedule 2.1(b) lists the directors and officers of the Company as of the
date of this Agreement. The Company has delivered to Parent a true and correct
copy of its Articles of Incorporation and Bylaws, each as amended through the
date hereof and as are in full force and effect as of the date hereof.
2.2 Company Capital Structure.
(a) The authorized capital stock of the Company consists of one hundred
million (100,000,000) shares of Company Common Stock, seventy two million five
hundred seventy three thousand nine hundred twenty five (72,573,925) shares of
which are issued and outstanding. The Company Capital Stock is held of record as
of the date of this Agreement by the persons, with the addresses of record and
in the amounts set forth on Schedule 2.2(a). All outstanding shares of Company
Capital Stock have been duly authorized, are validly issued, fully paid and
non-assessable and were not issued in violation of, and are not subject to nor
issued in violation of any preemptive rights created by statute, the Articles of
Incorporation or Bylaws of the Company or, except as set forth on Schedule
2.2(a), any agreement to which the Company is a party or by which it is bound.
All of the outstanding shares of Company Capital Stock (including options and
other rights to acquire shares of Company Capital Stock) have been offered,
issued and sold by the Company in compliance with applicable federal and state
securities laws. There are no undeclared or accrued but unpaid dividends with
respect to any shares of Company Capital Stock.
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(b) The Company has reserved twelve million (12,000,000) shares of
Company Common Stock for issuance to employees and consultants pursuant to the
Company Option Plan, of which, as of the date of this Agreement, six million
five hundred thirty three thousand three hundred seventy six (6,533,376) shares
are subject to outstanding, unexercised Company Stock Options and four million
eight hundred ninety two thousand six hundred ninety nine (4,892,699) shares
remain available for future grant. Immediately prior to Closing, the Company
intends to issue four million eight hundred ninety two thousand six hundred
ninety nine (4,892,699) shares of Common Stock, subject to certain restrictions,
as set forth on Schedule 2.2(b). Schedule 2.2(b) sets forth for each outstanding
Company Stock Option the name of the holder of such option, the domicile address
of such holder, the number of shares of Company Common Stock subject to such
option, the exercise price of such option and the vesting schedule for such
option, including the extent to which such option is vested to date. Except as
described in Schedule 2.2(b), there are no options, warrants, calls, rights,
commitments or agreements of any character, written or oral, to which the
Company is a party or by which it is bound obligating the Company to issue,
deliver, sell, repurchase or redeem, or cause to be issued, delivered, sold,
repurchased or redeemed, any shares of the capital stock of the Company. There
are no outstanding or authorized stock appreciation, phantom stock, profit
participation or other similar rights with respect to the Company. Except as set
forth on Schedule 2.2(b) and as contemplated hereby, there are no voting trusts,
proxies, or other understandings with respect to the voting stock of the
Company. Except as described in Schedule 2.2(b), there are no options, warrants,
calls, rights, commitments or agreements of any character, written or oral, to
which the Company is a party or by which it is bound obligating the Company to
grant, extend, accelerate the vesting of, change the price of, otherwise amend
or enter into any such option, warrant, call, right, commitment or agreement.
The holders of Company Stock Options have been or will be given, or shall have
properly waived, any required notice prior to the Merger and all such rights
will be terminated at or prior to the Effective Time. As a result of the Merger,
Parent will be the sole record and beneficial owner of all Company Capital Stock
and all rights to acquire or receive Company Capital Stock, whether or not such
shares of Company Capital Stock are outstanding.
2.3 Subsidiaries. The Company does not have any Subsidiaries or
affiliated companies and does not otherwise own any shares of capital stock or
any interest in, or control, directly or indirectly, any other corporation,
partnership, association, joint venture or other business entity. As used in
this Agreement, "Subsidiary" means any Person or Persons in which the Company or
Parent, as the context requires, directly or indirectly through Subsidiaries or
otherwise, beneficially own at least fifty percent (50%) of either the equity
interest in, or the voting control of, such Person.
2.4 Authority. Subject only to the requisite approval of the Merger and
this Agreement by the shareholders of the Company, the Company has all requisite
corporate power and authority to enter into this Agreement, and to consummate
the Merger and the other transactions contemplated hereby and thereby. The
execution and delivery of this Agreement, and the consummation of the Merger and
the other transactions contemplated hereby, have been duly authorized by all
necessary corporate action on the part of the Company, and no further action is
required on the part of the Company to authorize the Agreement and the Merger
and the other transactions contemplated hereby, subject only to the adoption of
this Agreement and the approval of the Merger by the shareholders of the
Company. This Agreement and the Merger have been unanimously approved by the
Board of Directors of the Company. This Agreement has been duly executed and
delivered by the Company and the Principal Shareholders, and assuming the due
authorization, execution and delivery by the other Parties hereto, constitutes
the valid and binding obligation of the Company and the Principal Shareholders,
enforceable against them in accordance with its terms, except as such
enforceability may be subject to the laws of general application relating to
bankruptcy, insolvency, and the relief of debtors and rules of law governing
specific performance, injunctive relief, or other equitable remedies.
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2.5 No Conflict. Subject only to the requisite approval of the Merger
and this Agreement by the shareholders of the Company, the execution and
delivery by the Company of this Agreement, the performance by the Company of its
obligations under this Agreement and the consummation of the transactions
contemplated hereby, will not (i) conflict with any provision of the Articles of
Incorporation, Bylaws or charter documents of the Company, (ii) result in any
violation or breach of or default under (with or without notice or lapse of
time, or both) any Contract to which the Company or any of its properties or
assets (whether tangible or intangible) is subject, (iii) give rise to a right
of termination, cancellation, modification or acceleration of any obligation or
loss of any benefit under any Contract, or (iv) result in any violation of any
judgment, order, decree, statute, law, ordinance, rule or regulation applicable
to the Company or any of its properties (whether tangible or intangible) or
assets (any such event described in (i), (ii), (iii), or (iv), a "Conflict").
The Company is in compliance with, and has not breached, violated or defaulted
under, or received notice that it has breached, violated or defaulted under, any
of the terms or conditions of any Contract, and the Company is not aware of any
event that would constitute such a breach, violation or default with the lapse
of time, giving of notice or both. The Company has obtained, or will obtain
prior to the Effective Time, all necessary consents, waivers and approvals of
parties to any Contract as are required thereunder in connection with the
Merger, or for any such Contract to remain in full force and effect without
limitation, modification or alteration after the Effective Time. Following the
Effective Time, the Surviving Corporation will be permitted to exercise all of
its rights under the Contracts without the payment of any additional amounts or
consideration other than ongoing fees, royalties or payments which the Company
would otherwise be required to pay pursuant to the terms of such Contracts had
the transactions contemplated by this Agreement not occurred.
2.6 Consents; Shareholder Approval.
(a) No consent, notice, waiver, approval, order or authorization of, or
registration, declaration or filing with any Governmental Entity or any third
party, including a party to any agreement with the Company (so as not to trigger
any Conflict), is required by, or with respect to, the Company in connection
with the execution and delivery of this Agreement or the consummation of the
transactions contemplated hereby, except for (i) the filing of the Certificate
of Merger and related officer's certificates with the Secretary of State of the
State of California, and (ii) such other consents, waivers, authorizations,
filings, approvals and registrations which are set forth on Schedule 2.6.
(b) The only vote required of the shareholders of the Company to duly
adopt this Agreement and duly approve the Merger is the affirmative vote of a
majority of the outstanding shares of Company Capital Stock. The holders of
Company Capital Stock, listed on Schedule 5.9, executing the Voting Agreements
in the form attached as Exhibit A hereto concurrently with the execution hereof
are the record holders of shares of Company Capital Stock sufficient to duly
adopt this Agreement and duly approve the Merger.
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2.7 Financial Statements.
(a) Schedule 2.7 sets forth the Company Financials. The Company
Financials have been prepared in accordance with GAAP applied on a consistent
basis as of the dates and for the periods covered thereby, except that the
Company Financials do not contain footnotes.
(b) The Company Financials fairly present the financial position of the
Company as of the respective dates thereof and the results of operations and
cash flows of the Company for the periods covered thereby.
(c) Schedule 2.7(c) lists, and the Company has delivered to Parent
accurate and complete copies of the documentation creating or governing, all
securitization transactions and "off-balance sheet arrangements" (as defined in
Item 303(a)(4)(ii) of Regulation S-K of the SEC) effected by the Company since
January 1, 2003.
(d) The Company maintains accurate books and records reflecting its
assets and liabilities and maintains proper and adequate internal accounting
controls which provide assurance that: (i) transactions are executed in
accordance with management's authorization; (ii) transactions are recorded as
necessary to permit preparation of the consolidated financial statements of the
Company in accordance with GAAP and to maintain accountability for the Company's
consolidated assets; (iii) access to the assets of the Company is permitted only
in accordance with management's authorization; (iv) the reporting of the assets
of the Company is compared with existing assets at regular intervals and
appropriate action is taken with respect to any differences; and (v) accounts,
notes and other receivables are recorded accurately, and proper and adequate
procedures are implemented to effect the collection thereof on a current and
timely basis. Since January 1, 2003 there has been (i) no material weakness in
the Company's internal control over financial reporting (whether or not
remediated) and (ii) no change in the Company's internal control over financial
reporting that has materially affected, or is reasonably likely to materially
affect, the Company's internal control over financial reporting.
(e) The Company's Net Worth as of December 31, 2005 is not less than
$8,000,000, as determined in accordance with United States generally accepted
accounting principles. For purposes of this Section 2.7(e), "Net Worth" means
total assets less total liabilities, both as set forth on the Company's
consolidated balance sheet as of a certain date.
2.8 Books and Records. The books of account, stock record books, and
other records of the Company, all of which have been made available to Parent,
are complete and correct and have been maintained in accordance with sound
business practices and the requirements of Section 13(b)(2) of the Exchange Act
(regardless of whether or not the Company is subject to that Section).
-18-
2.9 No Undisclosed Liabilities. The Company has no liability,
indebtedness, obligation, expense, claim, deficiency, guaranty or endorsement of
any type, whether accrued, absolute, contingent, matured, unmatured, or other,
other than those that, (a) have been reflected in the Current Balance Sheet, or
(b) have arisen in the ordinary course of business consistent with past
practices since the date of the Current Balance Sheet and that are not,
individually or in the aggregate, material to the Company.
2.10 Accounts Receivable. The Accounts Receivable represent or will
represent valid obligations arising from sales actually made or services
actually performed in the Ordinary Course of Business. Unless paid prior to the
Closing Date, the Accounts Receivable are or will be as of the Closing Date
current and collectible net of the respective reserves shown in the Most Recent
Financial Statements or on the accounting records of the Company as of the
Closing Date (which reserves are adequate and calculated consistent with past
practice and, in the case of the reserves as of the Closing Date, will not
represent a greater percentage of the Accounts Receivable as of the Closing Date
than the reserves reflected in the Current Balance Sheet represented of the
Accounts Receivable reflected therein and will not represent a material adverse
change in the composition of such Accounts Receivable in terms of aging).
Subject to such reserves, each of the Accounts Receivable either has been or
will be collected in full, without any set-off, within one hundred and twenty
days after the day on which it first becomes due and payable. There is no
contest, claim, or right of set-off, other than returns in the Ordinary Course
of Business, under any contract with any obligor of an Accounts Receivable
relating to the amount or validity of such Accounts Receivable. Schedule 2.10
contains a complete and accurate list of all Accounts Receivable as of the date
of the Current Balance Sheet, which list sets forth the aging of such Accounts
Receivable.
2.11 Inventory. All inventory of the Company, whether or not reflected
in the Most Recent Financial Statements or the Current Balance Sheet, consists
of a quality and quantity usable and salable in the Ordinary Course of Business,
except for obsolete items and items of below-standard quality, all of which have
been written off or written down in accordance with GAAP applied on a consistent
basis to net realizable value in the Most Recent Financial Statements or the
Current Balance Sheet or on the accounting records of the Company as of the
Closing Date, as the case may be. All inventories not written off have been
priced at the lower of cost or market on a first in, first out basis in
accordance with GAAP applied on a consistent basis. The quantities of each item
of inventory (whether raw materials, work-in-process, or finished goods) are not
excessive, but are reasonable in the present circumstances of the Company.
2.12 No Changes. Since the date of the Current Balance Sheet, there has
not been, occurred or arisen any:
(a) commitment or transaction by the Company except in the ordinary
course of business as conducted on that date and consistent with past practices;
(b) amendment or change to the Articles of Incorporation, Bylaws or
other organizational documents, as the case may be, of the Company;
(c) change in the Company's authorized capital structure;
-19-
(d) capital expenditures, lease commitments or capital commitments by
the Company, either individually exceeding $50,000 or in the aggregate exceeding
$100,000;
(e) payment, discharge or satisfaction by the Company, in any amount in
excess of $50,000 in any one case or $100,000 in the aggregate, of any claim,
liability or obligation (absolute, accrued, asserted or unasserted, contingent
or otherwise), other than payment, discharge or satisfaction in the ordinary
course of business of liabilities reflected or reserved against in the Current
Balance Sheet;
(f) destruction of, damage to or loss of any assets (whether tangible
or intangible) (whether or not covered by insurance), any business or any
customer of the Company in excess of $100,000 in the aggregate;
(g) claim of wrongful discharge or other unlawful labor practice or
action asserted against the Company;
(h) revaluation by the Company of any of their respective assets
(whether tangible or intangible);
(i) event or condition that has had a Material Adverse Effect on the
Company;
(j) change in accounting methods or practices (including any change in
depreciation or amortization policies or rates) by the Company, including, but
not limited to, any change made in accordance with GAAP;
(k) change in any election with respect to Taxes, adoption or change in
any accounting method in respect of Taxes, agreement or settlement of any claim
or assessment in respect of Taxes, extension or waiver of the limitation period
applicable to any claim or assessment in respect of Taxes, filing of a Tax
Return or amendment or change of any Tax Return;
(l) declaration, setting aside or payment of a dividend or other
distribution with respect to the Company Capital Stock, or any split,
combination or reclassification in respect of any Company Capital Stock, or any
issuance or authorization of any issuance of any other securities in respect of,
in lieu of or in substitution for Company Capital Stock, or any direct or
indirect redemption, repurchase or other acquisition by the Company of any of
Company Capital Stock (or options, warrants or other rights convertible into,
exercisable or exchangeable therefor), except in accordance with the Company
Option Plan;
(m) increase in the salary or other compensation payable or to become
payable by the Company to any of its officers, directors, employees or advisors
or the declaration, payment or commitment or obligation of any kind for the
payment, by the Company, of a severance payment, termination payment, change in
control payment, bonus or other additional salary or compensation to any such
Person except as otherwise contemplated by this Agreement;
(n) termination, extension, amendment or modification of the terms of
any agreement, contract, covenant, instrument, lease, license or commitment to
which the Company is a party or by which it or any of its assets is bound other
than in the ordinary course of business consistent with past practices;
-20-
(o) sale, lease, license or other disposition of any of the assets
(tangible or intangible) or properties of the Company other than in the ordinary
course of business consistent with past practices;
(p) loan by the Company to or capital investment in any Person,
incurring by the Company of any indebtedness for borrowed money, guaranteeing by
the Company of any indebtedness for borrowed money, issuance or sale of any debt
securities of the Company or guaranteeing of any debt securities of others;
(q) waiver or release of any right or claim of the Company, including
any write-off or other compromise of any account receivable of the Company;
(r) commencement or settlement of any lawsuit by the Company, or
commencement, settlement, notice or threat of any lawsuit or proceeding or other
investigation against the Company or its affairs, or any reasonable basis for
any of the foregoing;
(s) notice of any claim or potential claim of ownership by a third
party of the Company Intellectual Property or of infringement by the Company of
any third party's Intellectual Property Rights or Intellectual Property;
(t) issuance or sale, or contract or agreement to issue or sell, by the
Company of any of shares of Company Capital Stock or securities exchangeable,
convertible or exercisable therefor, or of any other of its securities, except
for, in the case of the Company, issuances of Company Capital Stock upon the
exercise of Company Stock Options outstanding as of the date of the Current
Balance Sheet;
(u) (i) transfer or license to or from any Person any Intellectual
Property Rights (including any Company Intellectual Property) or entry into or
amendment of any agreement with any Person regarding any Intellectual Property
Rights (including any Company Intellectual Property), (ii) agreement with
respect to the development of any Intellectual Property with a third party or
amendment of any such agreement, or (iii) change in pricing or royalties set or
charged by the Company to its customers or licensees or in pricing or royalties
set or charged by persons who have licensed Intellectual Property or
Intellectual Property Rights to the Company;
(v) agreement or modification to any agreement pursuant to which any
other party was granted marketing, distribution, development or similar rights
of any type or scope with respect to any products or services of the Company or
Company Intellectual Property;
(w) failure to pay or otherwise satisfy its monetary obligations as
they become due, except such as are being contested in good faith; or
(x) agreement by the Company or any officer or employee on behalf of
the Company to do any of the things described in the preceding clauses (a)
through (w).
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Notwithstanding the foregoing, this Section 2.12 shall not limit in any
way the obligations of the Company to make payments in accordance with Section
9.2 hereof.
2.13 Tax and Other Returns and Reports.
(a) Tax Returns and Audits.
(i) The Company has prepared and timely filed or caused to be
prepared and filed all required Returns relating to any and all Taxes concerning
or attributable to the Company or its operations and such Returns are or will be
true and correct and have been or will be completed in accordance with
applicable law.
(ii) The Company has paid all Taxes it is required to pay and
has withheld or paid with respect to its employees (and timely paid over to the
appropriate Taxing authority) all federal, state and foreign income taxes and
social security charges and similar fees, Federal Insurance Contribution Act,
Federal Unemployment Tax Act and other Taxes required to be withheld or paid.
(iii) The Company has not been delinquent in the payment of
any Tax, nor is there any Tax deficiency outstanding, assessed or proposed
against the Company, nor has the Company executed any waiver of any statute of
limitations on or extending the period for the assessment or collection of any
Tax.
(iv) No audit or other examination of any Return of the
Company is presently in progress, nor has the Company been notified of any
request for such an audit or other examination. No claim has ever been made by
an authority in a jurisdiction where the Company does not file Returns that the
Company is or may be subject to taxation by that jurisdiction.
(v) The Company has no liabilities for unpaid Taxes which have
not been accrued or reserved against on the Current Balance Sheet, whether
asserted or unasserted, contingent or otherwise, and has not incurred any
liability for Taxes since the date of the Current Balance Sheet other than in
the ordinary course of business.
(vi) The Company has made available to Parent or its legal
counsel copies of all Returns for the Company filed for all periods since its
inception.
(vii) There are (and immediately following the Effective Time
there will be) no Liens on the assets of the Company relating to or attributable
to Taxes other than Liens for Taxes not yet due and payable.
(viii) The Company has no Knowledge of any basis for the
assertion of any claim relating or attributable to Taxes which, if adversely
determined, would result in any Lien for Taxes on the assets of the Company.
(ix) None of the Company's assets is treated as "tax-exempt
use property," within the meaning of Section 168(h) of the Code.
-22-
(x) The Company has (a) never been a member of an affiliated
group (within the meaning of Code ss.1504(a)) filing a consolidated federal
income Tax Return (other than a group the common parent of which was the
Company), (b) never been a party to any Tax sharing, indemnification or
allocation agreement, nor does the Company owe any amount under any such
agreement, (c) no liability for the Taxes of any person (other than Company)
under Treasury Regulation ss.1.1502-6 (or any similar provision of state, local
or foreign law, and including any arrangement for group relief within a
jurisdiction or similar arrangement), as a transferee or successor, by contract
or agreement, or otherwise and (d) never been a party to any joint venture,
partnership or other arrangement that could be treated as a partnership for Tax
purposes.
(xi) The Company is not, and has not been at any time, a
"United States Real Property Holding Corporation" within the meaning of Section
897(c)(2) of the Code.
(xii) No adjustment relating to any Return filed by the
Company has been proposed formally or informally by any Taxing authority to the
Company or any representative thereof.
(xiii) The Company has not constituted either a "distributing
corporation" or a "controlled corporation" in a distribution of stock intended
to qualify for tax-free treatment under Section 355 of the Code.
(xiv) The Company has not engaged in a "reportable
transaction," as set forth in Treas. Reg. ss.1.6011-4(b), or any transaction
that is the same as or substantially similar to one of the types of transactions
that the Internal Revenue Service has determined to be a tax avoidance
transaction and identified by notice, regulation or other form of published
guidance as a listed transaction as set forth in Treas. Reg. ss.1.6011-4(b)(2).
(xv) The Company is in full compliance with all terms and
conditions of any Tax exemption, Tax holiday or other Tax reduction agreement or
order of a territorial or non-U.S. government and the consummation of the
transactions contemplated by this Agreement will not have any adverse effect on
the continued validity and effectiveness of any such Tax exemption, Tax holiday
or other Tax reduction agreement or order.
(xvi) The Company is and has at all times been resident for
Tax purposes in its country of incorporation or formation and is not and has not
at any time been treated as resident in any other jurisdiction for any Tax
purpose (including any double taxation arrangement). The Company is not subject
to Tax in any jurisdiction other than its place of incorporation or formation by
virtue of having a permanent establishment or other place of business or by
virtue of having a source of income in that jurisdiction, except for income
earned from services for which any income tax is satisfied through withholding.
The Company is not liable for any tax as the agent of any other person or
business and does not constitute a permanent establishment or other place of
business of any other person, business or enterprise for any Tax purpose.
(b) Executive Compensation Tax. There is no contract, agreement, plan
or arrangement to which the Company is a party, including the provisions of this
Agreement, covering any employee or service provider or former employee or
service provider of the Company, which, individually or collectively, could give
rise to the payment of any amount that would not be deductible pursuant to
Sections 280G or 404 of the Code. The Company does not: (1) have more than 100
shareholders; (2) have as a shareholder any person who is not either an
individual, an estate, or a trust described in Code Section 1361(c)(2); and (3)
have more than one class of stock within the meaning of Code Section
1361(b)(1)(D). The Company is not a financial institution, an insurance company,
a corporation to which an election applies under Code Section 936 or a DISC or
former DISC, as described in Code Section 1361(b)(2).
-23-
2.14 Restrictions on Business Activities. There is no agreement
(noncompete or otherwise), commitment, judgment, injunction, order or decree to
which the Company is a party or otherwise binding upon the Company which has or
reasonably could be expected to have the effect of prohibiting or impairing any
business practice of the Company, any acquisition of property (tangible or
intangible) by the Company, the conduct of business by the Company or otherwise
limiting the freedom of the Company to engage in any line of business or to
compete with any Person. Without limiting the foregoing, the Company has not
entered into any agreement under which the Company is restricted from selling,
licensing or otherwise distributing any of its technology (including any Company
Intellectual Property) or products, or from providing services to, customers or
potential customers, or any class of customers, in any geographic area, during
any period of time or in any segment of the market.
2.15 Title to Properties; Absence of Liens and Encumbrances; Condition
of Equipment.
(a) Except as set forth on Schedule 5.15, the Company does not own any
real property, nor has the Company ever owned any real property. Schedule 2.15
sets forth a list of all Leased Real Property, the name of the lessor, the date
of the lease and each amendment thereto and, with respect to any current lease,
the aggregate annual rental payable under any such lease.
(b) The Company has provided Parent true, correct and complete copies
of all Lease Agreements, and there are no other Lease Agreements for real
property affecting the real property or to which the Company is bound other than
those identified in Schedule 2.15. All Lease Agreements are in full force and
effect, are valid and enforceable in accordance with their respective terms and
there is not any existing default or event of default by the Company, no rentals
are past due, and no circumstance exists, which, with notice, the passage of
time, or both, could constitute a default by the Company under any such Lease
Agreement. The Company has not received any notice of a default, alleged failure
to perform, or any offset or counterclaim with respect to any such Lease
Agreement, which has not been fully remedied and withdrawn. The Closing will not
affect the enforceability against any person of any such Lease Agreement or the
rights of the Company or the Surviving Corporation to the continued use and
possession of the real property for the conduct of business as presently
conducted.
(c) The Company has good and valid title to, or, in the case of leased
properties and assets, valid leasehold interests in, all of its tangible
properties and assets, real, personal and mixed, used or held for use in its
business, free and clear of any Liens, except (i) as reflected in the Current
Balance Sheet, (ii) Liens for Taxes not yet due and payable, and (iii) such
imperfections of title and encumbrances, if any, which do not detract from the
value or interfere with the present use of the property subject thereto or
affected thereby.
-24-
(d) Schedule 2.15(d) lists all items of equipment (the "Equipment")
owned or leased by the Company, and such Equipment taken as a whole is (i)
adequate for the conduct of the business of the Company as currently conducted
and as currently contemplated to be conducted, and (ii) in good operating
condition, regularly and properly maintained, subject to normal wear and tear.
2.16 Intellectual Property.
(a) Ownership. The Company owns or is the exclusive licensee of the
Company Intellectual Property Rights. The Company has no Knowledge of any third
parties that claim to own or exclusively license any Company Intellectual
Property Rights.
(b) Employee Invention Assignment and Confidentiality Agreements. The
Company has provided Parent with the Company's PIIA. The Company has a policy
requiring each employee to execute a PIIA and all current and former employees
of the Company have executed a PIIA.
(c) Validity and Enforceability. The Company Intellectual Property
Rights are valid and enforceable. The Company has no Knowledge of any facts or
circumstances that could affect the validity or enforceability of any Company
Intellectual Property Rights.
(d) Restrictions. The Company may exercise, transfer, or license the
Company Intellectual Property Rights owned by the Company without restriction or
payment to a third party.
(e) Obligations. The Company is not obligated to transfer or license
any Company Intellectual Property Rights, or any Intellectual Property Rights
later obtained by the Company, to a third party.
(f) Confidential Information. The Company takes reasonable steps to
maintain the secrecy of Confidential Information from which the Company derives
independent economic value, actual or potential, from the Confidential
Information not being generally known.
(g) Company Registered Intellectual Property Rights. Schedule 2.16(g)
(i) lists all Company Registered Intellectual Property Rights; (ii) identifies
all third parties that share rights to the Company Registered Intellectual
Property Rights with the Company, including without limitation joint owners and
co-applicants; and (iii) lists all actions that must be taken by the Company
within 120 days of the Closing Date to maintain the validity or enforceability
of the Company Registered Intellectual Property Rights.
(h) Licenses to Company Intellectual Property Rights. Schedule 2.16(h)
lists all (i) exclusive licenses and rights to the Company Intellectual Property
Rights granted by the Company; and (ii) material, non-exclusive licenses and
rights to the Company Intellectual Property Rights granted by the Company. The
Company has no Knowledge of any breach of the agreements relating to the grant
of these licenses and rights.
(i) Licensed Intellectual Property Rights. Schedule 2.16(i) lists all
Registered Intellectual Property Rights that the Company licenses from third
parties for use in the conduct of the Company Business. The Company has no
Knowledge of any breach of the agreements relating to the grant of these
licenses and rights.
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(j) Sufficiency to Conduct Business. The Company has sufficient rights
to all Intellectual Property and Intellectual Property Rights used in or
necessary for the conduct of the Company Business as it currently is conducted
and as it is currently planned or contemplated to be conducted by the Company.
(k) Infringement by Company. The conduct of the Company Business does
not, and will not when conducted by the Parent in substantially the same manner
following the Closing, infringe, misappropriate, or otherwise violate the
Intellectual Property Rights of a third party. The Company has not received
notice of a claim that the conduct of the Company Business infringes,
misappropriates, or otherwise violates the Intellectual Property Rights of a
third party.
(l) Infringement of Company Intellectual Property Rights. The Company
has no Knowledge of any infringement or misappropriation of the Company
Intellectual Property Rights.
(m) Effect on Parent. Neither this Agreement nor the completion of the
transactions contemplated by this Agreement will, by virtue of the Contracts
entered into by the Company, result in any of the following to the extent that
the following would not have occurred in the absence of this Agreement or the
completion of the transactions contemplated by this Agreement: (i) Parent
granting to any third party any right to any Intellectual Property Rights owned
by or licensed to Parent; (ii) Parent becoming bound by or made subject to any
non-compete or other restriction on the operation or scope of its businesses; or
(iii) Parent being obligated to pay any royalties or other amounts to any third
party in excess of those payable by Parent prior to the Closing.
2.17 Agreements, Contracts and Commitments.
(a) Except as set forth on Schedule 2.17(a), the Company is not a party
to, nor is it bound by:
(i) any agreement under which the consequences of a default or
termination would reasonably be expected to have a Material Adverse Effect on
the Company;
(ii) any agreement between the Company and any shareholder of
the Company (other than in their capacity as such);
(iii) any agreement containing a "most favored nation" pricing
clause granted by the Company;
(iv) any agreement granting an exclusive license to any
Company Intellectual Property or creating exclusive distribution rights;
(v) any agreement of indemnification or guaranty other than
agreements entered into in the ordinary course of business in connection with
the sale of goods or services;
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(vi) any employment, consulting or sales agreement, contract
or commitment with an individual employee, consultant or salesperson, or with a
firm or other organization;
(vii) any agreement or plan, including, without limitation,
any stock option plan, stock appreciation rights plan or stock purchase plan,
any of the benefits of which will be increased, or the vesting of benefits of
which will be accelerated, by the occurrence of any of the transactions
contemplated by this Agreement (either alone or upon the occurrence of any
additional or subsequent events) 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;
(viii) any fidelity or surety bond or completion bond;
(ix) any lease of personal property having a value in excess
of $50,000 individually or $100,000 in the aggregate;
(x) any agreement, contract or commitment relating to capital
expenditures and involving future payments in excess of $50,000 individually or
$100,000 in the aggregate;
(xi) any agreement, contract or commitment relating to the
disposition or acquisition of assets or any interest in any business enterprise
outside the ordinary course of the Company's business consistent with past
practices;
(xii) any mortgages, indentures, guarantees, loans or credit
agreements, security agreements or other agreements or instruments relating to
the borrowing of money or extension of credit;
(xiii) any purchase order or contract for the purchase of
materials involving in excess of $50,000 individually or $100,000 in the
aggregate;
(xiv) any dealer, distribution, joint marketing, joint venture
or development agreement, strategic alliance, or any other agreement (noncompete
or otherwise) that reasonably could be expected to have the effect of
prohibiting or impairing any business practice of the Company, any acquisition
of property by the Company, the conduct of business by the Company, or the
manufacture, sale, licensing or distribution by the Company of any product,
service, Intellectual Property or Intellectual Property Right in any manner, or
otherwise limiting the freedom of the Company to engage in any line of business
or compete with any Person;
(xv) any sales representative, original equipment
manufacturer, value added, remarketer, reseller, or independent software vendor
agreement, or other agreement for use or distribution of the Company's products,
technology or services; or
(xvi) any other agreement, contract or commitment that
involves $50,000 individually or $100,000 in the aggregate or more and is not
cancelable by the Company without penalty within thirty (30) days.
-27-
(b) The Company has delivered to Parent a correct and complete copy of
each written agreement (as amended through the date of this Agreement) listed in
Schedule 2.17(a). The Company has not breached, violated or defaulted under, nor
received notice that it has breached, violated or defaulted under, nor has any
event occurred that would constitute a breach, violation or default with the
lapse of time, the giving of notice, or both, under any of the terms or
conditions of any agreement, contract or commitment required to be set forth in
Schedule 2.17(a) or Schedule 2.16 (any such agreement, contract or commitment, a
"Listed Contract"). Each Listed Contract is in full force and effect and is not
subject to any default thereunder by any party obligated to the Company pursuant
thereto.
2.18 Interested Party Transactions. No officer, director or shareholder
of the Company (nor any affiliate of any of the foregoing), has, directly or
indirectly, (i) an economic interest in any entity which furnished or sold or
furnishes or sells, services, products or technology that the Company furnishes
or sells, or proposes to furnish or sell, (ii) an economic interest in any
entity that purchases from or sells or furnishes to, the Company, any goods or
services or (iii) a beneficial interest in any contract set forth in Schedule
2.17(a); provided, however, that in the case of a publicly traded corporation,
ownership of no more than one percent (1%) of the outstanding voting stock of
such corporation, or, in the case of an entity which is not a publicly traded
corporation, ownership of no more than ten percent (10%) of the outstanding
voting stock of such other entity shall not be deemed an "economic interest in
any entity" for purposes of this Section 2.18. There are no agreements,
contracts, or commitments with regard to contribution or indemnification between
the Company and any shareholder of the Company or among any of the shareholders
of the Company.
2.19 Compliance with Laws. The Company is in compliance with, and has
not received any notices of violation with respect to, any Legal Requirement
which is operative as of the date of this Agreement, and no action, suit,
proceeding, hearing, investigation, charge, complaint, claim, demand, notice or
inquiry has been filed or commenced against the Company by any Governmental
Entity alleging any failure to so comply. The Company has all licenses, permits,
approvals, registrations, qualifications, certificates and other governmental
authorizations that are necessary or appropriate for the operations of the
Company as they are currently conducted and currently proposed to be conducted.
2.20 Litigation; Proceedings. There is no action, suit, claim or
proceeding of any nature pending or threatened against the Company, any of its
assets or properties (tangible or intangible) or any of its officers or
directors, in their respective capacities as such, nor is there any reasonable
basis therefor. There is no investigation or other proceeding pending or
threatened against the Company or any of its assets or properties (tangible or
intangible) or against any of its officers or directors by or before any
Governmental Entity, nor is there any reasonable basis therefor. Schedule 2.20
sets forth, with respect to any pending or threatened action, suit, proceeding
(including any proceeding relating to Company Registered Intellectual Property
Rights) or investigation, the forum, the parties thereto, the subject matter
thereof and the amount of damages claimed or other remedy requested. No
Governmental Entity has challenged or questioned in a writing delivered to the
Company or otherwise brought to the attention of the Company the legal right of
the Company to conduct its operations as presently conducted or as presently
contemplated to be conducted.
-28-
2.21 Insurance. The Company has delivered or made available to Parent
copies of each insurance policy (including policies providing property,
casualty, liability, and workers' compensation coverage and bond and surety
arrangements) with respect to which the Company or any of its affiliates is a
party, a named insured, or otherwise the beneficiary of coverage. With respect
to the insurance policies and fidelity bonds covering the assets, business,
equipment, properties, operations, employees, officers and directors of the
Company or any of its affiliates, there is no claim by the Company or any of its
affiliates pending under any of such policies or bonds as to which coverage has
been questioned, denied or disputed by the underwriters of such policies or
bonds. All premiums due and payable under all such policies and bonds have been
paid and the Company and its affiliates are otherwise in compliance with the
terms of such policies and bonds (or other policies and bonds providing
substantially similar insurance coverage). The Company has no Knowledge of any
threatened termination of, or material premium increase with respect to, any of
such policies.
2.22 Minute Books. The minute books of the Company made available to
counsel for Parent contain a reasonably accurate summary of each meeting of
directors (or committees thereof) or shareholders of the Company and actions by
written consent of the directors or shareholders of the Company between the time
of incorporation of the Company and the date hereof.
2.23 Environmental Matters.
(a) Hazardous Material. The Company has not: (i) operated any
underground storage tanks at any property that the Company has at any time
owned, operated, occupied or leased, or (ii) released any amount of any
substance that has been designated by any Governmental Entity or by applicable
federal, state or local law to be radioactive, toxic, hazardous or otherwise a
danger to health or the environment, including, without limitation, PCBs,
asbestos, petroleum, and urea-formaldehyde and all substances listed as
hazardous substances pursuant to the Comprehensive Environmental Response,
Compensation, and Liability Act of 1980, as amended, or defined as a hazardous
waste pursuant to the United States Resource Conservation and Recovery Act of
1976, as amended, and the regulations promulgated pursuant to said laws (a
"Hazardous Material"), but excluding office and janitorial supplies properly and
safely maintained, in an amount requiring investigation or remediation under any
Environmental Laws. Except in compliance with Environmental Laws and in a manner
that could not reasonably be expected to result in liability to the Company, no
Hazardous Materials are present in, on or under any property, including the land
and the improvements, ground water and surface water thereof, that the Company
has at any time owned, operated, occupied or leased.
(b) Hazardous Materials Activities. The Company has not transported,
stored, used, manufactured, disposed of, released or exposed its employees or
others to Hazardous Materials in violation of any law, nor has the Company
disposed of, transported, sold, or manufactured any product containing a
Hazardous Material (any or all of the foregoing being collectively referred to
herein as "Hazardous Materials Activities") in violation of any rule,
regulation, treaty or statute promulgated by any Governmental Entity to
prohibit, regulate or control Hazardous Materials or any Hazardous Material
Activity.
-29-
(c) Permits. The Company currently holds all Environmental Permits
necessary for the conduct of the Company's Hazardous Material Activities as such
activities are currently being conducted and as currently contemplated to be
conducted.
(d) Environmental Liabilities. No action, proceeding, revocation
proceeding, amendment procedure, writ, injunction or claim is pending or
concerning any Environmental Permit, Hazardous Material or any Hazardous
Materials Activity of the Company. The Company has no Knowledge of any fact or
circumstance that could involve the Company in any environmental litigation or
impose upon the Company any environmental liability.
2.24 Brokers' and Finders' Fees. Except as set forth on Schedule 2.24,
the Company has not incurred, nor will it incur, directly or indirectly, any
liability for brokerage or finders' fees or agents' commissions or any similar
charges in connection with this Agreement or any transaction contemplated
hereby, except for fees payable pursuant to the engagement letter with ▇▇▇▇▇▇▇▇▇
Broadview, a division of ▇▇▇▇▇▇▇▇▇ & Company, Inc., as described in more detail
on Schedule 2.24.
2.25 Employee Matters and Benefit Plans.
(a) Schedule 2.25(a) contains an accurate and complete list of each
Company Employee Plan (including each International Employee Plan), and each
Employee Agreement. The Company does not have any plan or commitment to
establish any new Company Employee Plan (including any International Employee
Plan), or Employee Agreement, to modify any Company Employee Plan or Employee
Agreement (except to the extent required by law or to conform any such Company
Employee Plan or Employee Agreement to the requirements of any applicable law,
in each case as previously disclosed to Parent in writing, or as required by
this Agreement), or to adopt or enter into any Company Employee Plan (including
any International Employee Plan), or Employee Agreement.
(b) Documents. The Company has provided to Parent correct and complete
copies of: (i) all documents embodying or relating to each Company Employee Plan
(including each International Employee Plan), and each Employee Agreement
including all amendments thereto and all related trust documents, administrative
service agreements, group annuity contracts, group insurance contracts, and
policies pertaining to fiduciary liability insurance covering the fiduciaries
for each Plan; (ii) the most recent annual actuarial valuations, if any,
prepared for each Company Employee Plan; (iii) the three (3) most recent annual
reports (Form Series 5500 and all schedules and financial statements attached),
if any, required under ERISA or the Code in connection with each Company
Employee Plan or related trust; (iv) if the Company Employee Plan is funded, the
most recent annual and periodic accounting of Company Employee Plan assets; (v)
the most recent summary plan description together with the summaries of material
modifications thereto, if any, required under ERISA with respect to each Company
Employee Plan; (vi) all IRS determination opinion, notification and advisory
letters, all applications and correspondence to or from the IRS or the DOL with
respect to any such application or letter; (vii) all communications material to
any Employee or Employees relating to any Company Employee Plan and any proposed
Company Employee Plans, in each case, relating to any amendments, terminations,
establishments, increases or decreases in benefits, acceleration of payments or
vesting schedules or other events which would result in any liability to the
Company; (viii) all correspondence to or from any governmental agency relating
to any Company Employee Plan; (ix) all COBRA forms and related notices (or such
forms and notices as required under comparable law); (x) the three (3) most
recent plan years discrimination tests for each Company Employee Plan; and (xi)
all registration statements, annual reports and prospectuses prepared in
connection with each Company Employee Plan.
-30-
(c) Employee Plan Compliance. Except as set forth on Schedule 2.25(c),
(i) the Company and its Affiliates have performed in all material respects all
obligations required to be performed by it under, is not in default or violation
of, and has no Knowledge of any default or violation by any other party to each
Company Employee Plan, and each Company Employee Plan has been established and
maintained in all material respects in accordance with its terms and in
compliance with all applicable laws, statutes, orders, rules and regulations,
including but not limited to ERISA or the Code; (ii) each Company Employee Plan
intended to qualify under Section 401(a) of the Code and each trust intended to
qualify under Section 501(a) of the Code (x) has received a favorable
determination, opinion, notification or advisory letter from the IRS with
respect to each such Company Employee Plan as to its qualified status under the
Code, including all amendments to the Code effected by the Tax Reform Act of
1986 and subsequent legislation, (y) incorporates or has been amended to
incorporate all provisions required to comply with the Tax Reform Act of 1986
and subsequent legislation, and (z) has experienced no event, condition or
circumstance that has already affected or is likely to adversely affect such
Plan's qualified status; (iii) no "prohibited transaction," within the meaning
of Section 4975 of the Code or Sections 406 and 407 of ERISA and not otherwise
exempt under Section 408 of ERISA, has occurred with respect to any Company
Employee Plan; (iv) there are no actions, suits or claims pending or threatened,
or, to the Knowledge of the Company, anticipated (other than routine claims for
benefits) against any Company Employee Plan or against the assets of any Company
Employee Plan; and (v) each Company Employee Plan can be amended, terminated or
otherwise discontinued after the Effective Time in accordance with its terms,
without liability to Parent, the Company, or any Affiliate (other than ordinary
administration expenses typically incurred in a termination event); (vi) there
are no audits, inquiries or proceedings pending or threatened by the IRS or DOL
with respect to any Company Employee Plan; and (vii) neither the Company nor any
Affiliate is subject to any penalty or tax with respect to any Company Employee
Plan under Section 502(i) of ERISA or Sections 4975 through 4980 of the Code.
The Company and each Affiliate has timely made all contributions and other
payments required by and due under the terms of each Company Employee Plan.
(d) Pension Plans. Neither the Company nor any Affiliate now, nor has
ever, maintained, established, sponsored, participated in, or contributed to,
any Pension Plan which is subject to Part 3 of Subtitle B of Title I of ERISA,
Title IV of ERISA or Section 412 of the Code.
(e) Multiemployer and Multiple Employer Plans. At no time has either
the Company or any Affiliate contributed to or been obligated to contribute to
any Multiemployer Plan. Neither the Company nor any Affiliate has at any time
ever maintained, established, sponsored, participated in, or contributed to any
multiple employer plan, to any plan described in Section 413 of the Code or to
any "funded welfare plan" within the meaning of Section 419 of the Code. No
Company Employee Plan provides health benefits that are not fully insured
through an insurance contract.
-31-
(f) No Post-Employment Obligations. Except as set forth in Schedule
2.25(f), no Company Employee Plan provides, or reflects or represents any
liability to provide, life insurance, medical or other employee benefits to any
Employee upon his or her retirement or termination of employment for any reason,
except as may be required by statute, and neither the Company nor any Affiliate
has ever represented, promised or contracted (whether in oral or written form)
to any Employee (either individually or to Employees as a group) or any other
Person that such Employee(s) or other Person would be provided with life
insurance, medical or other employee welfare benefits upon their retirement or
termination of employment, except to the extent required by statute.
(g) Health Care Compliance. Neither the Company nor any Affiliate has,
prior to the Effective Time, violated any of the health care continuation
requirements of COBRA, the requirements of FMLA, the requirements of the Health
Insurance Portability and Accountability Act of 1996, the requirements of the
Women's Health and Cancer Rights Act of 1998, the requirements of the Newborns'
and Mothers' Health Protection Act of 1996, or any amendment to each such act,
or any similar provisions of state law applicable to its Employees.
(h) Past Acquisitions. Neither the Company nor any Affiliate is
currently obligated to provide an Employee with any compensation or benefits
pursuant to an agreement (e.g., an acquisition agreement) with a former employer
of such Employee.
(i) Effect of Transaction.
(i) The execution of this Agreement and the consummation of
the transactions contemplated hereby will not (either alone or upon the
occurrence of any additional or subsequent events) constitute an event under any
Company Employee Plan, Employee Agreement, trust or loan that will or may result
in any payment (whether of severance pay or otherwise), acceleration,
forgiveness of indebtedness, vesting, distribution, increase in benefits or
obligation to fund benefits with respect to any Employee.
(ii) No payment or benefit which will or may be made by the
Company or its Affiliates with respect to any Employee or any "disqualified
individual" (as defined in Code Section 280G and the regulations thereunder)
will be characterized as a "parachute payment", within the meaning of Section
280G(b)(2) of the Code.
(j) Employment Matters. The Company (i) is in material compliance with
all applicable foreign, federal, state and local laws, rules and regulations
respecting employment, employment practices, terms and conditions of employment
and wages and hours, in each case, with respect to Employees; (ii) has, in all
material respects, withheld and reported all amounts required by law or by
agreement to be withheld and reported with respect to wages, salaries and other
payments to Employees; (iii) is not liable for any arrears of wages or any taxes
or any penalty for failure to comply with any of the foregoing; and (iv) is not
liable for any payment to any trust or other fund or to any governmental or
administrative authority, with respect to unemployment compensation benefits,
social security or other benefits or obligations for Employees (other than
routine payments to be made in the normal course of business and consistent with
past practice). There are no pending, threatened or, to the Knowledge of the
Company, reasonably anticipated claims or actions against the Company under any
worker's compensation policy or long-term disability policy. Neither the Company
nor any Affiliate has direct or indirect liability with respect to any
misclassification of any person as an independent contractor other rather than
as an employee, or with respect to any employee leased from another employer.
-32-
(k) Labor. No work stoppage or labor strike against the Company is
pending, threatened or reasonably anticipated. The Company does not know of any
activities or proceedings of any labor union to organize any Employees. There
are no actions, suits, claims, labor disputes or grievances pending, or
threatened or reasonably anticipated relating to any labor, safety or
discrimination matters involving any Employee, including, without limitation,
charges of unfair labor practices or discrimination complaints, which, if
adversely determined, would, individually or in the aggregate, result in
liability to the Company. The Company has never engaged in any unfair labor
practices within the meaning of the National Labor Relations Act. The Company is
not presently, nor has it been in the past, a party to, or bound by, any
collective bargaining agreement or union contract with respect to Employees and
no collective bargaining agreement is being negotiated by the Company. Neither
the Company nor any of its Subsidiaries has incurred any liability or obligation
under the Worker Adjustment and Retraining Notification Act or any similar state
or local law which remains unsatisfied.
(l) International Employee Plan. Each International Employee Plan has
been established, maintained and administered in compliance with its terms and
conditions and with the requirements prescribed by any and all statutory or
regulatory laws that are applicable to such International Employee Plan.
Furthermore, no International Employee Plan has unfunded liabilities, that as of
the Effective Time, will not be offset by insurance or fully accrued. Except as
required by law, no condition exists that would prevent the Company or Parent
from terminating or amending any International Employee Plan at any time for any
reason without liability to the Company or its Affiliates (other than ordinary
administration expenses or routine claims for benefits).
(m) Section 409A. Each "nonqualified deferred compensation plan" (as
defined in Section 409A(d)(1) of the Code) has been operated since January 1,
2005 in good faith compliance with Section 409A of the Code, IRS Notice 2005-l,
and all proposed regulations under Section 409A of the Code. No nonqualified
deferred compensation plan has been materially modified (within the meaning of
IRS Notice 2005-1) at any time after October 3, 2004.
2.26 Customers. Schedule 2.26 lists all Contracts with customers,
distributors and agents involving payments in excess of $50,000 during any
calendar year from and after January 1, 2003 until the date of this Agreement,
relating to the products manufactured and services performed by or for the
Company. No fact exists which would cause, or would be reasonably likely to
cause, the termination of an ongoing relationship with any customer,
representative or agent of the Company.
2.27 Transaction Expenses. Schedule 2.27 provides an accurate and
complete detailed list of all Transaction Expenses incurred by or on behalf of
the Company on or prior to the date of this Agreement, and all Transaction
Expenses that will become payable with respect to services performed for the
Company on or prior to the date of this Agreement.
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2.28 Representations Complete. None of the representations or
warranties made by the Company in this Agreement, and none of the statements
made in any exhibit, schedule or certificate furnished by the Company pursuant
to this Agreement contains, or will contain at the Effective Time, any untrue
statement of a material fact, or omits or will omit at the Effective Time to
state any material fact necessary in order to make the statements contained
herein or therein, in the light of the circumstances under which made, not
misleading.
2.29 Information Statement. The information included in the information
statement and form of written consent for the Company Shareholders to approve
this Agreement and the Merger (such information statement, together with any
amendments thereof or supplements thereto, in each case in the form or forms
mailed or delivered to the Company Shareholders, the "Information Statement")
shall not, at the time the Information Statement is mailed to the Company
Shareholders and at all times subsequent thereto (through and including the
Closing Date), contain any untrue statement of a material fact or omit to state
a material fact necessary in order to make the statements made, in the light of
the circumstances under which they were made, not misleading. Notwithstanding
the foregoing, the Company makes no representation or warranty with respect to
any information relating to Parent which is contained in the Information
Statement.
Article III
REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB
As of the date hereof and as of the Closing Date (except where the
representation or warranty is expressly made as of another date, in which case
such representation or warranty is made only as of such other date), Parent and
Merger Sub hereby represent and warrant to the Company, subject to such
exceptions as are specifically disclosed in writing in the disclosure letter,
dated as of the date hereof, and certified by a duly authorized officer of
Parent (the "Parent Schedules"), which exceptions shall specifically identify a
Section, subsection, paragraph or clause of a single Section or subsection
hereof, as applicable, to which such exception relates and other Sections,
subsections, paragraphs and clauses hereof to the extent it is clearly apparent
that such exceptions are applicable to such representations and warranties, as
follows:
3.1 Organization of Parent and Merger Sub. Parent is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware, and Merger Sub is a corporation duly organized, validly existing and
in good standing under the laws of the State of California. Parent has full
corporate power and authority to carry on its business as now being conducted
and as currently proposed to be conducted, and to own and use the properties
owned and used by it. Since the date of its incorporation, Merger Sub has not
conducted any business except as otherwise contemplated by this Agreement.
3.2 Capital Structure. The authorized capital stock of Parent consists
of 200,000,000 shares of common stock, par value $0.001 per share and 5,000,000
shares of preferred stock, par value $0.001 per share. As of the date hereof,
the authorized capital stock of Merger Sub consists of 1,000 shares of common
stock, par value $0.001 per share.
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3.3 Authority. Each of Parent and Merger Sub has all requisite
corporate power and authority to enter into this Agreement, and to consummate
the Merger and the other transactions contemplated hereby. The execution and
delivery of this Agreement, and the consummation of the Merger and the other
transactions contemplated hereby, have been duly authorized by all necessary
corporate action on the part of Parent and Merger Sub, and no further action is
required on the part of Parent or Merger Sub to authorize the Agreement and the
Merger and the other transactions contemplated hereby. This Agreement and the
Merger have been approved by the Board of Directors of each of Parent and Merger
Sub. This Agreement has been duly executed and delivered by Parent and Merger
Sub, and assuming the due authorization, execution and delivery by the other
Parties hereto, constitutes the valid and binding obligation of Parent and
Merger Sub, enforceable against each of them in accordance with its terms,
except as such enforceability may be subject to the laws of general application
relating to bankruptcy, insolvency, and the relief of debtors and rules of law
governing specific performance, injunctive relief, or other equitable remedies.
3.4 '34 Act Reports.
(a) Parent's reports filed with the Securities and Exchange Commission
under the Exchange Act since December 31, 2004 (the "Parent ?34 Act Reports")
(i) are all the reports required to be filed by Parent during such period, (ii)
have been prepared in accordance with the requirements of the Exchange Act and
filed on a timely basis, and (iii) did not at the time they were filed (and if
amended or superseded by a filing prior to the date of this Agreement then on
the date of such filing) contain any untrue statement of a material fact or omit
to state a material fact necessary in order to make the statements made, in the
light of the circumstances under which they were made, not misleading.
3.5 No Conflict; Consents. The execution and delivery by Parent and
Merger Sub of this Agreement, the performance by Parent and Merger Sub of their
respective obligations under this Agreement and the consummation of the
transactions contemplated hereby, will not result in a Conflict with (i) any
provision of the certificate or articles of incorporation or bylaws of Parent or
Merger Sub, or (ii) any judgment, order, decree, statute, law, ordinance, rule
or regulation applicable to either Parent or Merger Sub or any of its properties
(whether tangible or intangible) or assets, in each case except where the
Conflict would not materially and adversely affect the ability of Parent to
consummate the Merger. No consent, notice, waiver, approval, order or
authorization of, or registration, declaration or filing with any Governmental
Entity, is required by, or with respect to, Parent or Merger Sub in connection
with the execution and delivery of this Agreement or the consummation of the
transactions contemplated hereby, except for (i) the filing of the Certificate
of Merger and related officer's certificates with the Secretary of State of the
State of California, (ii) the filing of a current report on Form 8-K as
described in Section 5.7 herein, (iii) the regulatory filings and notifications
described in Section 5.8 herein, (iv) such other consents, waivers,
authorizations, filings, approvals and registrations as have already been
obtained, and (v) any of the above-listed items which if not performed or
obtained would not materially and adversely affect the ability of Parent to
consummate the Merger.
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Article IV
CONDUCT PRIOR TO CLOSING; NONSOLICITATION
4.1 Conduct of Business of the Company. During the period from the date
of this Agreement and continuing until the earlier of the termination of this
Agreement pursuant to its terms or the Effective Time, the Company and each
Principal Shareholder agrees to cause the Company to the extent the same is
within such Principal Shareholder's control (except to the extent that Parent
shall otherwise consent in writing) to carry on the Company's business in the
Ordinary Course of Business, to pay its debts and Taxes when due, to pay or
perform other obligations when due, and, to the extent consistent with such
business, to use commercially reasonable efforts consistent with past practice
and policies to preserve intact its present business organization, keep
available the services of its present officers and key employees and preserve
its relationships with customers, suppliers, distributors, licensors, licensees
and others having business dealings with it, all with the goal of preserving
unimpaired its goodwill and ongoing businesses at the Effective Time. The
Company shall promptly notify Parent of any Material Adverse Effect on the
Company.
4.2 Negative Covenant. Except as otherwise expressly permitted by this
Agreement, between the date hereof and the Closing Date, the Company will not,
without the prior written consent of Parent, take any affirmative action, or
fail to take any action, as a result of which any of the changes or events
listed in Section 2.12 is likely to occur.
4.3 No Solicitation. From and after the date of this Agreement until
the earlier to occur of the Effective Time or termination of this Agreement
pursuant to its terms, the Company and each Principal Shareholder will not, and
the Company will cause its directors, officers, employees, representatives,
investment bankers, agents and affiliates not to, directly or indirectly, (a)
solicit, encourage, facilitate or induce submission of any Acquisition Proposal
by any person, entity or group (other than Parent and its affiliates, agents,
and representatives) or (b) participate in any discussions or negotiations with,
or disclose any information concerning the Company to, or afford access to the
properties, books, or records of the Company, or otherwise assist or facilitate,
or enter into any agreement or understanding with, any person, entity or group
(other than Parent and its affiliates, agents, and representatives) in
connection with, or that would reasonably be expected to facilitate, any
Acquisition Proposal with respect to the Company. The Company will immediately
cease, and cause its directors, officers, employees, representatives, investment
bankers, agents and affiliates to cease, any and all existing activities,
discussions or negotiations with any parties conducted heretofore with respect
to any Acquisition Proposal. The Company will within one Business Day of receipt
(a) notify Parent if, on or after the date of this Agreement, it receives any
proposal or inquiry or request for information in connection with an Acquisition
Proposal or potential Acquisition Proposal and (b) notify Parent of the
significant terms and conditions of any such Acquisition Proposal including the
identity of the party making an Acquisition Proposal. In addition, from and
after the date of this Agreement, until the earlier to occur of the Effective
Time or termination of this Agreement pursuant to its terms, the Company and
each Principal Shareholder will not, and the Company will cause its directors,
officers, employees, representatives, investment bankers, agents and affiliates
not to, directly or indirectly, make or authorize any public statement,
recommendation or solicitation in support of any Acquisition Proposal made by
any person, entity or group (other than Parent). The Parties hereto agree that
irreparable damage would occur in the event that the provisions of this Section
4.3 were not performed in accordance with their specific terms or were otherwise
breached. It is accordingly agreed by the Parties hereto that Parent shall be
entitled to an immediate injunction or injunctions, without the necessity of
proving the inadequacy of money damages as a remedy and without the necessity of
posting any bond or other security, to prevent breaches of the provisions of
this Section 4.3 and to enforce specifically the terms and provisions hereof in
any court of the United States or any state having jurisdiction, this being in
addition to any other remedy to which Parent may be entitled at law or in
equity. Without limiting the foregoing, it is understood that any violation of
the restrictions set forth above by the Company or any director, officer,
employee, representative, investment banker, agent or affiliate thereof shall be
deemed to be a breach of this Agreement by Company.
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Article V
ADDITIONAL AGREEMENTS
5.1 Voting Agreements. Concurrently with the execution of this
Agreement, the Company will cause the persons and entities listed on Schedule
5.1 of the Company Schedules to execute a Voting Agreement in the form attached
hereto as Exhibit A, agreeing, among other things, to vote in favor of the
Merger and against any competing proposals.
5.2 Shareholder Approval. As promptly as practicable after the
execution of this Agreement and at such time as Parent may request, the Company
shall use commercially reasonable efforts, in accordance with California Law and
the Company's charter documents, to obtain the approval of the Company's
shareholders of the principal terms of this Agreement and the Merger (the
"Company Shareholder Vote"). The Company shall solicit shareholder approval in
compliance with California Law, the Company's charter documents and all other
applicable Legal Requirements. The Company agrees to use commercially reasonable
efforts and to take all action necessary or advisable to secure the necessary
votes required by California Law to effect the Merger. Parent, promptly upon
request by the Company, shall make a representative available to shareholders to
answer any questions Company shareholders may have regarding the Parent's
business, management and financial affairs.
5.3 Information Statement. As soon as practicable after the execution
of this Agreement and, in any event, within ten (10) Business Days after such
date, the Company shall prepare, with the cooperation of Parent, the Information
Statement and form of proxy for the Company Shareholders to approve this
Agreement and the Merger. Parent and the Company shall each use its commercially
reasonable efforts to cause the Information Statement to comply in all material
respects with applicable federal and state securities laws requirements. Each of
Parent and the Company agrees to provide promptly to the other such information
concerning its business and financial statements and affairs as, in the
reasonable judgment of the providing Party or its counsel, may be required or
appropriate for inclusion in the Information Statement, or in any amendments or
supplements thereto, and to cause its counsel and auditors to cooperate with the
other's counsel and auditors in the preparation of the Information Statement.
The Company will promptly advise Parent and Parent will promptly advise the
Company in writing if at any time prior to the Effective Time either the Company
or Parent shall obtain knowledge of any facts that might make it necessary or
appropriate to amend or supplement the Information Statement in order to make
the statements contained or incorporated by reference therein not misleading or
for compliance with applicable law. The Company makes no representation,
warranty or covenant with respect to any information supplied by Parent or
Merger Sub that is contained in any of the foregoing documents. The Information
Statement shall contain the unanimous recommendation of the Company Board that
the Shareholders approve this Agreement and the Merger and the conclusion of the
Company Board that the terms and conditions of the Merger are fair and
reasonable to the Company Shareholders. 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 in writing by Parent prior to such inclusion.
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5.4 Stock Options. All Company Stock Options shall accelerate and
immediately become vested in full as of the date that is three (3) days prior to
the Effective Time. Each outstanding Company Stock Option that is not exercised
at or prior to the Effective Time will by virtue of the Merger and at the
Effective Time, and without further action on the part of any holder thereof, be
converted into the right to receive, as consideration for cancellation of such
Company Stock Option, an amount (the "Option Cash Payment Amount") equal to the
product of (i) the number of shares of Company Capital Stock receivable upon a
"cashless" exercise of such Company Stock Option, assuming such cashless
exercise occurred by surrendering that number shares required to exercise such
Company Stock option if the Merger Consideration were payable on the basis of
the Diluted Common Share Number without any reduction for the Option Cash
Payment Amount, and (ii) the number equal to the quotient of (a) the Merger
Consideration (before subtraction of the Option Cash Payment Amount) and (b) the
Diluted Common Share Number less the number of shares of Company Capital Stock
that would be surrendered in a cashless exercise, as described above, provided,
however, that the Company and Parent shall be entitled to deduct and withhold
from such payment made to the Company Optionholder any federal and state income
and employment-related taxes as required, in Parent's good faith judgment, by
applicable law. The aggregate amount payable to a Company Optionholder shall be
paid by Parent in accordance with Section 6.3(c). All Company Stock Options, to
the extent not exercised prior to the Effective Time, shall terminate and be
canceled as of the Effective Time and thereafter shall be of no further force or
effect. The Company shall, prior to the Effective Time, take all action and give
all notices necessary to effect the treatment of Company Stock Options
contemplated by this Section 5.4.
5.5 Access to Information. The Company shall afford Parent and its
accountants, legal counsel and other representatives reasonable access to, and
permit them to make such inspections as they may reasonably require of, during
normal business hours during the period prior to the Effective Time (a) all of
the properties, books, Contracts, employee commitments and records of the
Company and (b) all other information concerning the business, properties, and
personnel of the Company as Parent may reasonably request. The Company will
authorize Parent and its accountants, legal counsel and other representatives to
review the work papers of the Company's independent accountants, if available
and subject to the consent of such independent accountants. The Company agrees
to provide Parent and its accountants, legal counsel and other representatives
copies of financial statements regularly prepared in the ordinary course of
business promptly upon request. In addition, during the period prior to the
Effective Time, the Company shall furnish promptly to Parent all information
concerning its business, properties and personnel as the other may reasonably
request. No information or knowledge obtained in any investigation pursuant to
this Section 5.5 shall affect or be deemed to modify any representation or
warranty contained herein or the conditions to the obligations of the Parties to
consummate the Merger.
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5.6 Confidentiality. The Parties acknowledge that the Company and
Parent have previously executed a bilateral non-disclosure agreement dated
August 23, 2005 (the "Confidentiality Agreement"), which Confidentiality
Agreement will continue in full force and effect in accordance with its terms.
5.7 Public Disclosure. Other than the issuance of a press release and
the filing of a current report on Form 8-K by Parent announcing the signing of
this Agreement, unless otherwise required by law or in order to comply with
Sections 5.2 or 5.3 hereof (including, without limitation, securities laws or,
as to Parent, by the rules and regulations of the Nasdaq National Market), prior
to the Effective Time, no disclosure (whether or not in response to an inquiry)
of the subject matter of this Agreement shall be made by any Party hereto (other
than disclosures to Company shareholders pursuant to Section 5.3) unless
approved by Parent and the Company prior to release, provided that such approval
shall not be unreasonably withheld. If any such press release or public
announcement is so required, the Party making such disclosure shall consult with
the other Party prior to making such disclosure, and the Parties shall use
commercially reasonable efforts, acting in good faith, to agree upon a text for
such disclosure that is satisfactory to both Parties.
5.8 Regulatory Filings; Commercially Reasonable Efforts. As soon as may
be commercially reasonable, Parent and the Company each shall file with the FTC
and the Antitrust Division of the DOJ Notification and Report Forms relating to
the transactions contemplated herein as required by the HSR Act, as well as
comparable pre-merger notification forms required by the merger notification or
control laws and regulations of any applicable jurisdiction, as agreed to by the
Parties. Parent and the Company each shall promptly (a) supply the other with
any information which may be required in order to effectuate such filings and
(b) supply any additional information which reasonably may be required by the
FTC, the DOJ or the competition or merger control authorities of any other
jurisdiction and which the Parties may reasonably deem appropriate.
5.9 Consents. The Company shall promptly apply for or otherwise seek
and use commercially reasonable efforts to obtain all consents and approvals
required to be obtained by it for the consummation of the Merger, including all
consents, waivers or approvals under any of the Contracts in order to preserve
the benefits thereunder for the Surviving Corporation. All of such consents and
approvals are set forth in Schedule 5.9.
5.10 FIRPTA Compliance. On the Closing Date, the Company shall deliver
to Parent a properly executed statement in a form reasonably acceptable to
Parent for purposes of satisfying Parent's obligations under Treasury Regulation
Section 1.1445-2(c)(3).
5.11 Legal Conditions to the Merger. Each of Parent, Merger Sub and the
Company will take commercially reasonable actions necessary to comply promptly
with all legal requirements which may be imposed on such Party with respect to
the Merger and will promptly cooperate with and furnish information to any other
Party hereto in connection with any such requirements imposed upon such other
Party in connection with the Merger. Each Party will take all commercially
reasonable actions to obtain (and will cooperate with the other Parties in
obtaining) any consent, authorization, order or approval of or any registration,
declaration or filing with, or an exemption by, any Governmental Entity required
to be obtained or made by such Party or its subsidiaries in connection with the
Merger or the taking of any action contemplated thereby or by this Agreement;
provided, however, that Parent shall not be required to agree to any divestiture
by Parent or the Company or any of Parent's subsidiaries or affiliates of shares
of capital stock or of any business, assets or property of Parent or its
subsidiaries or affiliates or of the Company or its affiliates or the imposition
of any material limitation on the ability of any of them to conduct their
businesses or to own or exercise control of such assets, properties and stock.
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5.12 Commercially Reasonable Efforts; Additional Documents and Further
Assurances. Each of the Parties agrees to use commercially reasonable efforts to
take, or cause to be taken, all actions, and to do, or cause to be done, and to
assist and cooperate with the other Parties in doing, all things necessary,
proper or advisable to consummate and make effective, in the most expeditious
manner practicable, the Merger and the other transactions contemplated by this
Agreement, including using commercially reasonable efforts to accomplish the
following: (a) the taking of all acts necessary to cause the conditions
precedent set forth in Article VI to be satisfied, (b) the obtaining of all
necessary consents, approvals or waivers from third parties, (c) the defending
of any suits, claims, actions, investigations or proceedings, whether judicial
or administrative, challenging this Agreement or the consummation of the
transactions contemplated hereby, including seeking to have any stay or
temporary restraining order entered by any court or other Governmental Entity
vacated or reversed and (d) the execution or delivery of any additional
instruments necessary to consummate the transactions contemplated by, and to
fully carry out the purposes of, this Agreement.
5.13 Notification of Certain Matters.
(a) The Company shall give prompt notice to Parent of (i) the
occurrence or non-occurrence of any event which is likely to cause any
representation or warranty of the Company contained in this Agreement to be
untrue or inaccurate in any material respect at or prior to the Effective Time
except as contemplated by this Agreement (including the Company Schedules) and
(ii) any failure of the Company to comply with or satisfy in any material
respect any covenant, condition or agreement to be complied with or satisfied by
it hereunder; provided, however, that the delivery of any notice pursuant to
this Section 5.13 shall not limit or otherwise affect any remedies available to
the Party receiving such notice or affect the representations, warranties,
covenants or agreements of the Parties or conditions to the obligation of the
Parties under this Agreement.
(b) The Parent shall give prompt notice to the Company, of (i) the
occurrence or non-occurrence of any event which is likely to cause any
representation or warranty of the Parent or Merger Sub, as the case may be,
contained in this Agreement to be untrue or inaccurate in any material respect
at or prior to the Effective Time except as contemplated by this Agreement and
(ii) any failure of the Parent or Merger Sub, as the case may be, to comply with
or satisfy in any material respect any covenant, condition or agreement to be
complied with or satisfied by it hereunder; provided, however, that the delivery
of any notice pursuant to this Section 5.13 shall not limit or otherwise affect
any remedies available to the Party receiving such notice or affect the
representations, warranties, covenants or agreements of the Parties or
conditions to the obligation of the Parties under this Agreement.
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5.14 Financial Statements. Prior to Closing, the Company shall
reasonably cooperate with and assist Parent and its independent auditors in the
preparation of financial statements of the Company sufficient for the
requirements of the U.S. Securities and Exchange Commission to enable Parent to
timely comply with its reporting obligations under the U.S. federal securities
laws following the Effective Time, including, but not limited to, providing
certifications regarding the Company's financial statements as Parent may
reasonably request to support certifications required by Rule 13a-14 and Rule
15d-14 of the Exchange Act regarding Parent's consolidated financial statements.
5.15 Post Closing Covenants; General.
(a) Further Assurances. In case at any time after the Effective Time
any further action is necessary to carry out the purposes of this Agreement,
each of the Parties will take such further action (including the execution and
delivery of such further instruments and documents) as any other Party
reasonably may request, all at the sole cost and expense of the requesting Party
(unless the requesting Party is entitled to indemnification therefor under
Article VII below).
(b) Litigation Support. In the event and for so long as any Party
actively is contesting or defending against any action, suit, proceeding,
hearing, investigation, charge, complaint, claim, or demand in connection with
(i) any transaction contemplated under this Agreement or (ii) any fact,
situation, circumstance, status, condition, activity, practice, plan,
occurrence, event, incident, action, failure to act, or transaction (A) on or
prior to the Effective Time involving the Company or (B) arising out of Parent's
operation of the business of the Surviving Corporation following the Effective
Time in the manner in which it is presently conducted and planned to be
conducted, each of the other Parties will cooperate with the Party and its
counsel in the contest or defense, make available their personnel, and provide
such testimony and access to their books and records as shall be reasonably
necessary in connection with the contest or defense, all at the sole cost and
expense of the contesting or defending Party (unless the contesting or defending
Party is entitled to indemnification therefor under Article VII below).
5.16 Automobiles. The Surviving Corporation shall assume the Company's
obligation to purchase automobiles for certain employees listed on Schedule 5.16
who have worked with the Company for 10 years as of December 31, 2006; provided
that such obligation shall be consistent with past practices and in accordance
with the restrictions and limitations set forth in the Company's Automobile
Policy in the form provided to Parent; and provided further that Parent may
modify the Company's Automobile Policy as it deems necessary or appropriate to
comply with applicable law or to avoid the imposition of additional tax pursuant
to Section 409A of the Code.
5.17 280G Shareholder Approval. Prior to the Effective Time the Company
shall deliver to Parent evidence reasonably satisfactory to Parent that (i)
requisite shareholder approval pursuant to Section 280G of the Code was sought
in conformance with Section 280G and the regulations promulgated thereunder and
obtained with respect to any payments and/or benefits that were subject to the
shareholder vote such that all Potential 280G Benefits resulting from the
transactions contemplated hereby shall not be deemed to be "parachute payments"
pursuant to Section 280G of the Code and the regulations thereunder or shall be
exempt from such treatment under such Section 280G and the regulations
thereunder (the "280G Shareholder Approval"), or (ii) that the 280G Shareholder
Approval was not obtained and as a consequence, that such payments and/or
benefits shall not be made or provided to the extent they would cause any
amounts to constitute Section 280G Payments, pursuant to the waivers of those
payments and/or benefits, which were executed by the affected individuals prior
to the shareholder vote, or (iii) that such payments or benefits are not
parachute payments because the Company would qualify as a "small business
corporation" without regard to an election as described in Treasury Regulations
Section 1.280G-1, Q&A 6. To the extent (iii) in the preceding sentence does not
apply, the Company shall promptly submit to the shareholders of the Company for
approval (in a manner satisfactory to Parent), by such number of shareholders of
the Company as is required by the terms of Section 280G(b)(5)(B) of the Code,
any payments and/or benefits that may separately or in the aggregate, constitute
Potential 280G Benefits (which determination shall be made by the Company and
shall be subject to review and approval by Parent), such that such payments and
benefits shall not be deemed to be Potential 280G Benefits.
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5.18 Merger Bonus Plan. Parent and Surviving Corporation shall pay to
the Company any and all amounts due under the Merger Bonus Plan not to exceed
$4,500,560 and otherwise as set forth on Schedule 5.18 to be delivered by the
Company not less than three (3) Business Days prior to Closing.
5.19 Parent Retention Bonus Plan. Parent will, within ten (10) Business
Days after the date hereof, deliver to the those employees of the Company set
forth on Schedule 5.19 hereto notification of Parent's intent after closing to
make retention bonus awards, which may consist (in Parent's sole discretion) of
part cash and part equity, with all such awards vesting as set forth on Schedule
5.19, to such employees in the amounts set forth on such Schedule. Within ten
(10) Business Days after the Effective Time, Parent will deliver to each
employee named on Schedule 5.19 a letter summarizing the terms of the retention
bonus payments that may be made to such employee and the conditions on which
such payments may be made.
5.20 Resignation of Principal Shareholders. The Principal Shareholders
shall submit their resignations from all of their positions with the Company,
including their positions as officer and director in every foreign subsidiary of
the Company, effective upon Closing or as soon thereafter as is possible under
applicable law. Parent agrees to complete all corporate actions and proceedings
and government filings necessary to effect these resignations and to notify all
applicable Government Entities, and shall provide evidence of these corporate
actions and proceedings and government filings to the Principal Shareholders, as
soon as practicable under local law after the Closing.
5.21 Audited Financial Statements. Parent and the Company shall, in
good faith, use their best efforts to cause PricewaterhouseCoopers LLP to
complete its audit of the consolidated balance sheet of the Company as of
November 30, 2005. Notwithstanding the foregoing, in the event that the
completion of such audit is not feasible, then Parent and the Company shall, in
good faith, use their best efforts to cause PricewaterhouseCoopers LLP to
complete its audit of the consolidated balance sheet of the Company as of
January 31, 2006.
5.22 Company Shareholder Notes. Parent and Surviving Corporation shall
pay to the Company Shareholders the outstanding principal and accrued interest
related to notes payable as set forth on Schedule 2.17(a)(xii).
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5.23 Brazilian Loan. Immediately following the Closing, Parent and
Surviving Corporation shall pay to the National Bank of Economic and Social
Development ("BNDES") all outstanding principal and accrued interest, not to
exceed $1,700,000, under the Contract of Financing Through Credit Facility No.
02.2.029.5.1, by and between BNDES and Cyclades Brasil S/A.
Article VI
CONDITIONS TO CLOSING
6.1 Conditions to Obligations of Each Party to Effect the Merger. The
respective obligations of each Party to this Agreement to effect the Merger
shall be subject to the satisfaction at or prior to the Closing of the following
conditions, any of which may be waived, in writing, by agreement of all of the
Parties:
(a) No Injunctions or Restraints; Illegality. No temporary restraining
order, preliminary or permanent injunction or other order issued by any court of
competent jurisdiction or other legal or regulatory restraint or prohibition
preventing the consummation of the Merger shall be in effect.
(b) No Order; HSR Act. No Governmental Entity shall have enacted,
issued, promulgated, enforced or entered any statute, rule, regulation,
executive order, decree, injunction or other order (whether temporary,
preliminary or permanent) which is in effect and which has the effect of making
the Merger illegal or otherwise prohibiting consummation of the Merger. All
waiting periods, if any, under the HSR Act, and any waiting period under any
required pre-merger notification of other jurisdictions, as agreed by the
Parties, relating to the transactions contemplated hereby will have expired or
terminated early.
(c) Shareholder Approval. The principal terms of this Agreement, the
Merger and the transactions contemplated hereby shall have been approved and
adopted by the Company Shareholders by the requisite vote under applicable law
and the Company's Articles of Incorporation.
6.2 Additional Conditions to Obligations of the Company. The
obligations of the Company to consummate the Merger and the transactions
contemplated by this Agreement shall be subject to the satisfaction at or prior
to the Closing of each of the following conditions, any of which may be waived,
in writing, exclusively by the Company:
(a) Representations and Warranties. The representations and warranties
of Parent and Merger Sub contained in this Agreement shall be true and correct
in all material respects as of the date hereof and as of the Closing Date
(except those representations and warranties that address matters only as of a
particular date, which shall be true and correct only as of such date). The
Company shall have received a certificate signed on behalf of the Company by
duly authorized officer of Parent and Merger Sub to the effect set forth in this
Section 6.2.
(b) Agreements and Covenants. Parent and Merger Sub shall have
performed or complied in all material respects with each of the covenants,
obligations and conditions of this Agreement required to be performed or
complied with by them on or prior to the Closing Date, and the Company shall
have received a certificate to such effect signed by a duly authorized officer
of Parent and Merger Sub.
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(c) Secretary's Certificate. Each of Parent and Merger Sub shall have
delivered to the Company a copy of (i) the text of the resolutions adopted by
the Board of Directors of Parent and Merger Sub authorizing the execution,
delivery and performance of this Agreement and the Certificate of Merger and the
consummation of all of the transactions contemplated by this Agreement and the
Certificate of Merger and (ii) the certificate or articles of incorporation and
bylaws of Parent and Merger Sub, along with certificates executed on behalf of
each of Parent and Merger Sub by such entity's corporate secretary certifying to
the Company that such copies are true, correct and complete copies of such
resolutions, certificate or articles of incorporation and bylaws, respectively,
and that such resolutions, certificate or articles of incorporation and bylaws
were duly adopted and have not been amended or rescinded.
(d) Merger Bonus Plan. Parent and the Surviving Corporation shall be
obligated to pay to the Company at Closing any and all amounts due under the
Merger Bonus Plan not to exceed $4,500,560, as set forth in Schedule 5.18 to be
delivered by the Company at least three (3) Business Days prior to the Closing,
with payments pursuant to the Merger Bonus Plan to be paid by the Company
through the Company's payroll service provider(s).
(e) Transaction Expenses. At Closing, Parent shall pay Transaction
Expenses, in accordance with Section 9.2, as set forth on the Statement of
Expenses provided to Parent by the Company three days prior to the Closing.
Three days after the Closing, Parent shall pay any remaining Transaction
Expenses, in accordance with Section 9.2, as set forth on the Supplemental
Statement of Expenses provided to Parent by the Company at the Closing.
(f) Company Shareholder Notes. Parent and the Surviving Corporation
shall be obligated to pay to the Company Shareholders at Closing the outstanding
principal and accrued interest related to notes payable as set forth in Schedule
2.17(a)(xii).
6.3 Additional Conditions to the Obligations of Parent and Merger Sub.
The obligations of Parent and Merger Sub to consummate the Merger and the
transactions contemplated by this Agreement shall be subject to the satisfaction
at or prior to the Closing of each of the following conditions, any of which may
be waived, in writing, exclusively by Parent:
(a) Representations and Warranties. The representations and warranties
of the Company and the Principal Shareholders contained in this Agreement shall
be true and correct in all material respects (except those representations and
warranties contained in Sections 2.1, 2.2, 2.4, 2.7, 2.12(i), 2.17(a)(i),
2.25(c), 2.25(j) and 2.28, which shall be true and correct in all respects) as
of the date hereof and as of the Closing Date (except those representations and
warranties that address matters only as of a particular date, which shall be
true and correct only as of such date). Parent shall have received a certificate
signed on behalf of the Company by the Chief Executive Officer of the Company
and a certificate signed by each of the Principal Shareholders, each to the
effect set forth in this Section 6.3.
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(b) Agreements and Covenants. The Company and the Principal
Shareholders shall have performed or complied in all material respects with each
of the agreements and covenants required by this Agreement to be performed or
complied with by it on or prior to the Closing Date and Parent shall have
received a certificate to such effect signed by a duly authorized officer of the
Company and the Principal Shareholders.
(c) Closing Date Payment Schedule. Parent and the Company shall each
have reviewed and approved and the Company shall have executed and delivered a
schedule (the "Closing Date Payment Schedule") reflecting, as of the Effective
Time (i) for each holder of Company Capital Stock, the number of shares of
Company Capital Stock held of record, the amount of Merger Consideration payable
to each such holder promptly after the Effective Time (in accordance with
Section 1.7) and payable into the Escrow Fund (as defined and further described
in Section 1.7), the stock certificate numbers held by each such person and such
person's federal tax identification number to the extent such number is known,
and individual wire transfer instructions or the mailing address to which
payment should be sent and (ii) for each holder of Company Stock Options, the
number of shares of Company Capital Stock issuable upon exercise of Company
Stock Options held by such Company Optionholder, Option Cash Payment Amount
payable to each such holder promptly after the Effective Time (in accordance
with Section 5.4), such person's federal tax identification number to the extent
such number is known, and individual wire transfer instructions or the mailing
address to which payment should be sent.
(d) Third Party Consents. Parent shall have been furnished with
evidence satisfactory to it that the Company has obtained the consents,
approvals and waivers set forth on Schedule 6.3(d).
(e) Legal Opinion. Parent shall have received a legal opinion from DLA
▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇ US LLP, legal counsel to the Company, in the form
attached hereto as Exhibit C.
(f) Legal Opinion. Parent shall have received a legal opinion from
▇▇▇▇▇▇▇▇▇▇ Law Group, LLP, legal counsel to the Company, in the form attached
hereto as Exhibit D.
(g) No Material Adverse Change. Since the date hereof, there shall not
have occurred any Material Adverse Effect on the Company.
(h) Dissenters' Rights. The Company shall have delivered notice in
strict adherence with the applicable provisions of California Law and holders of
not more than 3% of the outstanding shares of Company Capital Stock shall have
exercised, nor shall they have any rights or continued right to exercise,
dissenters' rights under California Law with respect to the transactions
contemplated by this Agreement.
(i) Secretary's Certificate. The Company shall have delivered to Parent
a copy of (i) the text of the resolutions adopted by the Company's Board
authorizing the execution, delivery and performance of this Agreement and the
Certificate of Merger and the consummation of all of the transactions
contemplated by this Agreement and the Certificate of Merger, (ii) the text of
the resolutions adopted by the Company Shareholders approving the principal
terms of this Agreement, the Merger and the transactions contemplated hereby,
and (iii) the Company's charter documents, along with a certificate executed on
behalf of the Company by its corporate secretary certifying to Parent that such
copies are true, correct and complete copies of such resolutions, Articles of
Incorporation and Bylaws, respectively, and the such resolutions and Company
charter documents were duly adopted and have not been amended or rescinded.
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(j) Key Employee Arrangements. ▇▇▇▇▇▇ ▇▇▇▇▇ shall have agreed to be an
employee of Parent after the Closing and shall be an employee of the Company
immediately prior to the Effective Time, and shall have entered into an
"at-will" employment arrangement with Parent and/or an affiliate of Parent
pursuant to his execution of Parent's form of employment agreement in the form
attached hereto as Exhibit E, which shall include, among other provisions,
noncompetition provisions relating to such individual's employment with Parent
and/or its affiliate.
(k) Noncompetition Agreements. Each of ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ and ▇▇▇▇ ▇▇▇▇
shall have executed Parent's form of Noncompetition Agreement in the form
attached hereto as Exhibit F, in connection with the Merger.
(l) Transition Agreements. Each of ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ and ▇▇▇▇ ▇▇▇▇ shall
have executed a consulting and transition agreement in the form attached hereto
as Exhibit G.
(m) 280G Shareholder Approval. The Company shall deliver to Parent
evidence reasonably satisfactory to Parent either that, with respect to any
payments of cash or sales and purchases of stock or vesting of Company Stock
Rights or other benefits contemplated by this Agreement that may be deemed to
constitute "parachute payments" pursuant to Section 280G of the Code ("Potential
280G Benefits"), (i) the Company's Shareholders have approved by the requisite
vote such that all such Potential 280G Benefits resulting from the transactions
contemplated hereby shall not be deemed to be "parachute payments" pursuant to
Section 280G of the Code and the regulations thereunder or shall be exempt from
such treatment under such Section 280G and the regulations thereunder, (ii) that
such requisite shareholder approval has been sought but has not been obtained
with respect to a Potential 280G Benefit and, as a consequence and pursuant to
the terms of the agreement providing for such Potential 280G Benefit, such
Potential 280G Benefit shall not be made or provided pursuant to the waivers of
those Potential 280G Benefits which were executed by the affected individuals
prior to the Company Shareholder vote, or (iii) that such payments or benefits
are not parachute payments because the Company is a "small business corporation"
qualifying for exemption under Code Section 280G(b)(5)(A)(i) and the regulations
thereunder.
(n) Termination of Company Employee Plans. Unless otherwise requested
by Parent or as provided for in this Agreement, Parent shall have received from
the Company evidence that any and all group severance, separation or salary
continuation plans, programs or arrangements and any and all plans intended to
include a Code Section 401(k) arrangement have been terminated pursuant to
resolutions of the Company's Board of Directors (the form and substance of which
shall have been subject to review and approval of Parent), effective as of the
day immediately preceding the Closing Date, and Parent shall have received from
the Company evidence of the Company taking any all further actions as provided
for in this Agreement.
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(o) FIRPTA Statement. The Company shall deliver to Parent a properly
executed statement in a form reasonably acceptable to Parent for purposes of
satisfying Parent's obligations under Treasury Regulation Section
1.1445-2(c)(3).
(p) Financial Statement Certifications. The Company shall deliver to
Parent certifications executed by each of the Chief Executive Officer, President
and Chief Financial Officer of the Company addressing (i) the accuracy of
information presented in the Company Financials and (ii) the Company's internal
control over financial reporting, in the form attached as Exhibit I.
(q) Brazilian Affiliate. The Company shall have completed the
acquisition of its Brazilian affiliate, Cyclades Brasil S.A., a company
organized under the laws of Brazil.
(r) Statement of Expenses. The Company shall have delivered to Parent
the certified Statement of Expenses, and the Supplemental Statement of Expenses,
if any, including such invoices as the Parent may reasonably request, in
accordance with Section 9.2.
(s) Audited Financial Statements. The Company shall have delivered to
Parent the audited consolidated balance sheet of the Company as of November 30,
2005, including the unqualified audit report of PricewaterhouseCoopers LLP;
provided, that Parent shall, in good faith, use its best efforts to cause
PricewaterhouseCoopers LLP to deliver such audit report in a timely manner.
Notwithstanding the foregoing, in the event that Parent and the Company mutually
agree, in good faith, that the completion of such audit is not feasible, then
the Company shall have delivered to Parent the audited consolidated balance
sheet of the Company as of January 31, 2006, including the unqualified audit
report of PricewaterhouseCoopers LLP.
(t) Company Net Worth. The Company shall have delivered to Parent the
December 2005 Balance Sheet, certified by each of the Chief Executive Officer,
President and Chief Financial Officer, which reflects a Net Worth of no less
than $8,000,000.
Article VII
SURVIVAL OF REPRESENTATIONS AND WARRANTIES; ESCROW
7.1 Survival of Representations, Warranties and Covenants.
(a) The representations, warranties and covenants (other than covenants
expressly to be performed after the Closing) of the Company and the Principal
Shareholders contained in this Agreement, or in any certificate, schedule or
other instrument delivered pursuant to this Agreement, shall survive the Closing
and shall terminate at 11:59 p.m. Pacific time on the date that is twenty-one
(21) months following the date of this Agreement (the "Escrow Termination
Date"); provided, however, that the representations and warranties shall not
terminate with respect to any claims specified in any Officer's Certificate (as
defined in the Indemnification and Escrow Agreement) delivered to the Principal
Shareholders prior to the Escrow Termination Date until such claims are finally
resolved pursuant to the terms of the Indemnification and Escrow Agreement.
Notwithstanding the foregoing, in the case of any fraudulent breach of a
representation or warranty or intentional breach of a covenant, the
representations and/or warranties and/or covenants that are the subject of such
fraud or intentional misconduct shall not terminate until 11:59 p.m. Pacific
time on the day of expiration of the applicable statute of limitations.
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(b) The representations and warranties of Parent and Merger Sub
contained in this Agreement, or in any certificate, schedule or other instrument
delivered pursuant to this Agreement, shall terminate at the Effective Time.
Article VIII
TERMINATION, AMENDMENT AND WAIVER
8.1 Termination. Except as provided in Section 8.2 below, this
Agreement may be terminated and the Merger abandoned at any time prior to the
Closing Date:
(a) by mutual written consent executed and delivered by each Party
hereto and duly authorized by the Board of Directors of the Company and Parent;
(b) by either Parent or the Company if: (i) the Closing Date has not
occurred by June 30, 2006 as a result of a condition to Closing not having been
satisfied prior to such date or otherwise (provided that the right to terminate
this Agreement pursuant to this Section 8.1(b) shall not be available to any
Party whose willful failure to fulfill any obligation hereunder has been the
cause of, or resulted in, the failure of the Closing Date to occur on or before
such date and such action or failure constitutes a breach of this Agreement);
(ii) there shall be a final nonappealable order of a federal or state court in
effect preventing consummation of the Merger; or (iii) there shall be any
statute, rule, regulation or order enacted, promulgated or issued or deemed
applicable to the Merger by any Governmental Entity that would make consummation
of the Merger illegal;
(c) by Parent if there shall be any action taken, or any statute, rule,
regulation or order enacted, promulgated or issued or deemed applicable to the
Merger, by any Governmental Entity, which would: (i) prohibit Parent's or the
Company's ownership or operation of any portion of the business of the Company
or (ii) compel Parent or the Company to dispose of or hold separate, as a result
of the Merger, any portion of the business or assets of the Company or Parent;
(d) by Parent if it is not in material breach of its obligations
pursuant to this Agreement and there has been a breach of any representation,
warranty, covenant or agreement contained in this Agreement on the part of the
Company or the Principal Shareholders and as a result of such breach the
conditions set forth in Section 6.3(a) or 6.3(b), as the case may be, would not
then be satisfied; provided, however, that if such breach is reasonably likely
to be curable by the Company or the Principal Shareholders within 20 days
through the exercise of commercially reasonable efforts, then for so long as the
Company or the Principal Shareholders (as applicable) continues to exercise such
commercially reasonable efforts Parent may not terminate this Agreement pursuant
to this Section 8.1(d) unless such breach is not cured within 20 days (but no
cure period shall be required for a breach which by its nature cannot be cured);
(e) by the Company if neither it nor any Principal Shareholder is in
material breach of any of its or their respective obligations pursuant to this
Agreement and there has been a breach of any representation, warranty, covenant
or agreement contained in this Agreement on the part of Parent or Merger Sub and
as a result of such breach the conditions set forth in Section 6.2(a) or 6.2(b),
as the case may be, would not then be satisfied; provided, however, that if such
breach is reasonably likely to be curable by Parent or Merger Sub within 20 days
through the exercise of commercially reasonable efforts, then for so long as
Parent or Merger Sub continues to exercise such commercially reasonable efforts
the Company may not terminate this Agreement pursuant to this Section 8.1(e)
unless such breach is not cured within 20 days (but no cure period shall be
required for a breach which by its nature cannot be cured).
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Where action is taken to terminate this Agreement pursuant to Section
8.1, it shall be sufficient for such action to be authorized by the Board of
Directors of the Party taking such action.
8.2 Effect of Termination. Except as set forth in Section 8.1, any
termination of this Agreement pursuant to Section 8.1 above will be effective
immediately upon the delivery of written notice of the terminating Party to the
other Parties hereto. In the event of the termination of this Agreement as
provided in Section 8.1, this Agreement shall be of no further force or effect,
except (a) as set forth in this Section 8.2 and Article IX (general provisions,
including expenses), each of which shall survive the termination of this
Agreement, and (b) nothing herein shall relieve any Party from liability for any
breach of this Agreement. No termination of this Agreement shall affect the
obligations of the Parties contained in the Confidentiality Agreement, all of
which obligations shall survive termination of this Agreement.
8.3 Amendment. Except as is otherwise required by applicable law, prior
to the Closing, this Agreement may be amended by the Parties hereto at any time
by execution of an instrument in writing signed by Parent and the Company;
provided, however, that after the approval of the Merger Agreement by the
Company Shareholders, no amendment may be made which reduces the Merger
Consideration or which effects any changes which would materially adversely
affect the Company Shareholders without the further approval of the shareholders
of the Company. Except as is otherwise required by applicable law, after the
Closing, this Agreement may be amended by the Parties hereto at any time by
execution of an instrument in writing executed by the Principal Shareholders in
the case of the Company.
8.4 Extension; Waiver. At any time prior to the Effective Time, Parent
and Merger Sub, on the one hand, and the Company, on the other, may, to the
extent legally allowed, (a) extend the time for the performance of any of the
obligations of the other Party hereto, (b) waive any inaccuracies in the
representations and warranties made to such Party contained herein or in any
document delivered pursuant hereto and (c) waive compliance with any of the
agreements or conditions for the benefit of such Party contained herein. Any
agreement on the part of a Party hereto to any such extension or waiver shall be
valid only if set forth in an instrument in writing signed on behalf of such
Party. Except as is otherwise required by applicable law, after the Closing, any
provision of this Agreement may extended or waived by the Parties hereto at any
time by execution of an instrument in writing executed by the Principal
Shareholders in the case of the Company.
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Article IX
GENERAL PROVISIONS
9.1 Notices. All notices and other communications hereunder shall be in
writing and shall be deemed given (i) upon delivery, if delivered personally or
by commercial delivery service, (ii) three Business Days after being mailed by
registered or certified mail (return receipt requested), or (iii) upon receipt
of acknowledgement of complete transmission, if sent via facsimile, to the
Parties at the following addresses or facsimile numbers (or at such other
address or facsimile numbers for a Party as shall be specified by like notice);
provided, however, that in the event that a notice or communication is delivered
pursuant to (ii) or (iii), notice of such delivery shall be sent via electronic
mail, with confirmation of delivery, to the Parties at the following e-mail
addresses:
(a) if to Parent or Merger Sub, to:
AVOCENT CORPORATION
▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇ ▇. ▇▇▇▇▇▇
Telephone No.: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇
with a copy to:
AVOCENT CORPORATION ▇▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇ ▇▇ Professional Corporation
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Telephone No.: (▇▇▇) ▇▇▇-▇▇▇▇ Attention: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇
Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇ ▇▇▇▇ ▇. Markham
▇▇▇.▇▇▇▇▇▇▇▇@▇▇▇▇▇▇▇.▇▇▇ Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇
Email: ▇▇▇▇▇▇▇▇▇▇▇@▇▇▇▇.▇▇▇
▇▇▇▇▇▇▇▇@▇▇▇▇.▇▇▇
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(b) if to the Company or the Principal Shareholders, to:
CYCLADES CORPORATION with a copy to:
▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇ ▇▇ ▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
Attention: ▇▇▇ ▇▇▇▇▇▇▇▇ East ▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Facsimile No.: (▇▇▇)▇▇▇-▇▇▇▇ Attention: ▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇
Email: ▇▇▇.▇▇▇▇▇▇▇▇@▇▇▇▇▇▇▇.▇▇▇ Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇
Email: ▇▇▇▇▇.▇▇▇▇▇▇▇@▇▇▇▇▇▇▇▇.▇▇▇
▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇▇ ▇▇
▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Telephone: ▇▇▇-▇▇▇-▇▇▇▇
Facsimile: ▇▇▇-▇▇▇-▇▇▇▇
E-mail: ▇▇▇▇▇▇-▇▇▇▇▇▇▇▇▇@▇▇▇▇▇.▇▇▇
and
▇▇▇▇ ▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇.
▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Telephone: ▇▇▇-▇▇▇-▇▇▇▇
Facsimile: ▇▇▇-▇▇▇-▇▇▇▇
E-mail: ▇▇▇▇.▇▇▇▇@▇▇▇▇▇▇▇▇▇▇▇▇▇▇.▇▇▇
9.2 Expenses. Whether or not the Merger is consummated, all fees and
expenses incurred in connection with the Merger including, without limitation,
all legal, accounting, financial advisory, brokers', consulting and all other
fees and expenses of third parties ("Transaction Expenses") incurred by a Party
in connection with the negotiation and effectuation of the terms and conditions
of this Agreement and the transactions contemplated hereby, shall be the
obligation of the respective Party incurring such fees and expenses; provided,
however, that, in the event that the Merger is consummated, at Closing (a)
Parent shall pay up to an aggregate of $1,000,000 of the Transaction Expenses
listed on the Statement of Expenses or the Supplemental Statement of Expenses,
(b) the Company shall pay any Transaction Expenses in excess of $1,000,000,
provided, however, that in the event the Company does not have sufficient cash
on hand at Closing to pay such Transaction Expenses, Parent shall pay such
Transaction Expenses and the Merger Consideration shall be reduced
dollar-for-dollar, and (c) to the extent the Transaction Expenses listed on the
Statement of Expenses or Supplemental Statement of Expenses exceed $2,000,000 in
the aggregate, Parent shall pay the Transaction Expenses in excess of $2,000,000
and the Merger Consideration shall be reduced dollar-for-dollar. As used herein,
(i) "Statement of Expenses" means a written statement of Transaction Expenses
incurred by the Company in connection with the Merger which shall be certified
by the Chief Executive Officer of the Company and delivered to Parent three (3)
Business Days prior to the Closing Date, and shall include such invoices as the
Parent may reasonably request, and (ii) "Supplemental Statement of Expenses"
means a written statement of all Transaction Expenses incurred by the Company in
connection with the Merger which were not included on the Statement of Expenses,
including an estimate of any such expenses yet to be incurred or invoiced, which
shall be certified by the Chief Executive Officer of the Company and delivered
to Parent on the Closing Date, and shall include such invoices as the Parent may
reasonably request. Any Transaction Expenses incurred by the Company in
connection with the Merger and not reflected in full on either the Statement of
Expenses or the Supplemental Statement of Expenses (collectively the
"Undisclosed Excess Expense Amount") shall be paid to Parent from the Escrow
Fund, without regard to the Basket Amount as defined in the Indemnification and
Escrow Agreement.
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9.3 Interpretation; Definitions. When a reference is made in this
Agreement to Exhibits, such reference shall be to an Exhibit to this Agreement
unless otherwise indicated. When a reference is made in this Agreement to
Sections, such reference shall be to a Section of this Agreement. Unless
otherwise indicated the words "include," "includes" and "including" when used
herein shall be deemed in each case to be followed by the words "without
limitation." The table of contents and headings contained in this Agreement are
for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement. When reference is made herein to "the business
of" an entity, such reference shall be deemed to include the business of all
direct and indirect subsidiaries of such entity. Reference to the subsidiaries
of an entity shall be deemed to include all direct and indirect subsidiaries of
such entity.
9.4 Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each of
the Parties and delivered to the other Party, it being understood that all
Parties need not sign the same counterpart.
9.5 Entire Agreement; Third Party Beneficiaries. This Agreement and the
documents and instruments and other agreements among the Parties hereto as
contemplated by or referred to herein, including the Company Schedules and the
Parent Schedules (a) constitute the entire agreement among the Parties with
respect to the subject matter hereof and supersede all prior agreements and
understandings, both written and oral, among the Parties with respect to the
subject matter hereof, it being understood that the Confidentiality Agreement
shall continue in full force and effect until the Closing and shall survive any
termination of this Agreement; and (b) are not intended to confer upon any other
person any rights or remedies hereunder.
9.6 Severability. In the event that any provision of this Agreement, or
the application thereof, becomes or is declared by a court of competent
jurisdiction to be illegal, void or unenforceable, the remainder of this
Agreement will continue in full force and effect and the application of such
provision to other persons or circumstances will be interpreted so as reasonably
to effect the intent of the Parties hereto. The Parties further agree to replace
such void or unenforceable provision of this Agreement with a valid and
enforceable provision that will achieve, to the extent possible, the economic,
business and other purposes of such void or unenforceable provision.
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9.7 Other Remedies; Specific Performance. Except as otherwise provided
herein, any and all remedies herein expressly conferred upon a Party will be
deemed cumulative with and not exclusive of any other remedy conferred hereby,
or by law or equity upon such Party, and the exercise by a Party of any one
remedy will not preclude the exercise of any other remedy. The Parties hereto
agree that irreparable damage would occur in the event that 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 by the
Parties hereto that Parent shall be entitled to an immediate injunction or
injunctions, without the necessity of proving the inadequacy of money damages as
a remedy and without the necessity of posting any bond or other security, to
prevent breaches of the provisions of this Agreement and to enforce specifically
the terms and provisions hereof in any court of the United States or any state
having jurisdiction, this being in addition to any other remedy to which Parent
may be entitled at law or in equity.
9.8 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware, regardless of the laws that
might otherwise govern under applicable principles of conflicts of law thereof.
Each of the Parties hereto irrevocably consents to the exclusive jurisdiction
and venue of any court within Santa ▇▇▇▇▇ County in connection with any matter
based upon or arising out of this Agreement or the matters contemplated herein,
agrees that process may be served upon them in any manner authorized by the laws
of the State of California for such Persons and waives and covenants not to
assert or plead any objection that they might otherwise have to such
jurisdiction, venue and process.
9.9 Rules of Construction. Each Party hereto agrees that he or it has
been represented by counsel during the negotiation and execution of this
Agreement and, therefore, waive the application of any law, regulation, holding
or rule of construction providing that ambiguities in an agreement or other
document will be construed against the Party drafting such agreement or
document.
9.10 Assignment. No Party may assign either this Agreement or any of
its rights, interests, or obligations hereunder without the prior written
approval of the other Parties. Subject to the preceding sentence, this Agreement
shall be binding upon and shall inure to the benefit of the Parties hereto and
their respective successors and permitted assigns.
*****
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IN WITNESS WHEREOF, the Parties hereto have caused this Agreement and
Plan of Merger to be executed by their duly authorized respective officers as of
the date first written above.
AVOCENT CORPORATION
By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
-------------------------------
Name: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
-----------------------------
Title: EVP
---------------------------
MERGER SUB
By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
-------------------------------
Name: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
-----------------------------
Title: VP
---------------------------
CYCLADES CORPORATION
By: /s/ ▇▇▇▇ ▇▇▇▇
-------------------------------
Name: ▇▇▇▇ ▇▇▇▇
----------------------------
Title: President
---------------------------
PRINCIPAL SHAREHOLDERS
/s/ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
----------------------------------
▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
/s/ ▇▇▇▇ ▇▇▇▇
----------------------------------
▇▇▇▇ ▇▇▇▇
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