Agreement and Plan of Merger - Network Engines Inc. and TidalWire Inc.
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
NETWORK ENGINES, INC.,
NINJA ACQUISITION CORP.,
AND
TIDALWIRE INC.
November 11, 2002
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TABLE OF CONTENTS
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ARTICLE I THE MERGER..................................................... 1
1.1 The Merger........................................................... 1
1.2 The Closing.......................................................... 1
1.3 Actions at the Closing............................................... 1
1.4 Additional Action.................................................... 2
1.5 Conversion of Shares................................................. 2
1.6 Exchange of Shares and Cash.......................................... 3
1.7 Fractional Shares.................................................... 4
1.8 Working Capital...................................................... 4
1.9 Options.............................................................. 4
1.10 Escrow............................................................... 5
1.11 Dissenting Shares.................................................... 5
1.12 Withholding.......................................................... 6
1.13 Certificate of Incorporation and By-laws............................. 6
1.14 No Further Rights.................................................... 7
1.15 Closing of Transfer Books............................................ 7
ARTICLE II REPRESENTATIONS AND WARRANTIES OF THE COMPANY.................. 7
2.1 Organization, Qualification and Corporate Power...................... 7
2.2 Capitalization....................................................... 7
2.3 Authorization of Transaction......................................... 8
2.4 Noncontravention..................................................... 9
2.5 Subsidiaries......................................................... 9
2.6 Financial Statements................................................. 9
2.7 Absence of Certain Changes........................................... 9
2.8 Undisclosed Liabilities.............................................. 10
2.9 Tax Matters.......................................................... 10
2.10 Assets............................................................... 12
2.11 Owned Real Property.................................................. 12
2.12 Real Property Leases................................................. 12
2.13 Intellectual Property................................................ 13
2.14 Inventory............................................................ 14
2.15 Contracts............................................................ 14
2.16 Accounts Receivable.................................................. 16
2.17 Powers of Attorney................................................... 16
2.18 Insurance............................................................ 16
2.19 Litigation........................................................... 16
2.20 Warranties........................................................... 16
2.21 Employees............................................................ 16
2.22 Employee Benefits.................................................... 17
2.23 Environmental Matters................................................ 19
2.24 Legal Compliance..................................................... 19
2.25 Customers and Suppliers.............................................. 19
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2.26 Permits.............................................................. 19
2.27 Certain Business Relationships With Affiliates....................... 20
2.28 Brokers' Fees........................................................ 20
2.29 Books and Records.................................................... 20
2.30 Disclosure........................................................... 20
ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE BUYER AND THE TRANSITORY
SUBSIDIARY..................................................... 20
3.1 Organization, Qualification and Corporate Power...................... 20
3.2 Capitalization....................................................... 21
3.3 Authorization of Transaction......................................... 21
3.4 Noncontravention..................................................... 21
3.5 Reports and Financial Statements..................................... 22
3.6 Litigation........................................................... 22
3.7 Interim Operations of the Transitory Subsidiary...................... 22
3.8 Brokers' Fees........................................................ 23
ARTICLE IV COVENANTS...................................................... 23
4.1 Closing Efforts...................................................... 23
4.2 Governmental and Third-Party Notices and Consents.................... 23
4.3 Company Stockholder Approval......................................... 23
4.4 Joint Statement...................................................... 24
4.5 Buyer Stockholder Approval........................................... 24
4.6 Operation of Business................................................ 25
4.7 Access to Information, Suppliers and Customers....................... 27
4.8 Exclusivity.......................................................... 27
4.9 Expenses............................................................. 27
4.10 Listing of Merger Shares............................................. 27
4.11 Line of Credit....................................................... 27
4.12 Spin-Off............................................................. 28
4.13 FIRPTA Tax Certificates.............................................. 28
4.14 Form S-8............................................................. 28
4.15 Continued Charter/By-Law Indemnification............................. 28
4.16 Benefit Arrangements................................................. 29
4.17 Notice of Breaches................................................... 29
ARTICLE V CONDITIONS TO CONSUMMATION OF THE MERGER....................... 29
5.1 Conditions to Each Party's Obligations............................... 29
5.2 Conditions to Obligations of the Buyer and the Transitory Subsidiary. 30
5.3 Conditions to Obligations of the Company............................. 32
ARTICLE VI INDEMNIFICATION................................................ 32
6.1 Indemnification by the Indemnifying Stockholders..................... 32
6.2 Indemnification by the Buyer......................................... 33
6.3 Indemnification Claims............................................... 33
6.4 Survival of Representations and Warranties........................... 37
6.5 Limitations.......................................................... 37
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ARTICLE VII REGISTRATION RIGHTS............................................ 38
7.1 Registration of Shares............................................... 38
7.2 Limitations on Registration Rights................................... 39
7.3 Registration Procedures.............................................. 39
7.4 Requirements of Company Stockholders................................. 40
7.5 Indemnification...................................................... 40
7.6 Assignment of Rights................................................. 41
7.7 Availability of Information.......................................... 41
ARTICLE VIII TERMINATION.................................................... 41
8.1 Termination of Agreement............................................. 41
8.2 Effect of Termination................................................ 42
ARTICLE IX DEFINITIONS.................................................... 42
ARTICLE X MISCELLANEOUS.................................................. 52
10.1 Press Releases and Announcements..................................... 52
10.2 No Third Party Beneficiaries......................................... 52
10.3 Entire Agreement..................................................... 52
10.4 Succession and Assignment............................................ 52
10.5 Counterparts and Facsimile Signature................................. 52
10.6 Headings............................................................. 52
10.7 Notices.............................................................. 52
10.8 Governing Law........................................................ 53
10.9 Amendments and Waivers............................................... 53
10.10 Severability......................................................... 54
10.11 Construction......................................................... 54
Exhibit A-1 - Individual Investment Representation Letter
Exhibit A-2 - Entity Investment Representation Letter
Exhibit B - Escrow Agreement
Exhibit C - Form of Amendment to Separation Agreement
Exhibit D-1 - Form of Amendment to Master Transitional Services Agreement
Exhibit D-2 - Form of Amendment to Sublease
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AGREEMENT AND PLAN OF MERGER
Agreement entered into as of November 11, 2002 by and among Network
Engines, Inc., a Delaware corporation (the "Buyer"), Ninja Acquisition Corp. a
Delaware corporation and a wholly-owned subsidiary of the Buyer (the "Transitory
Subsidiary"), and TidalWire Inc., a Delaware corporation (the "Company").
This Agreement contemplates a merger of the Transitory Subsidiary into the
Company. In such merger, the stockholders of the Company will receive cash or a
combination of cash and common stock of the Buyer in exchange for their capital
stock of the Company. Capitalized terms used herein are defined in Article IX
hereof.
Now, therefore, in consideration of the representations, warranties and
covenants herein contained, the Parties agree as follows.
ARTICLE I
THE MERGER
1.1 The Merger. Upon and subject to the terms and conditions of this
Agreement, the Transitory Subsidiary shall merge with and into the Company at
the Effective Time. From and after the Effective Time, the separate corporate
existence of the Transitory Subsidiary shall cease and the Company shall
continue as the Surviving Corporation. The Merger shall have the effects set
forth in Section 259 of the Delaware General Corporation Law.
1.2 The Closing. The Closing shall take place at the offices of Hale and
Dorr LLP, 60 State Street, Boston, MA 02109 commencing at 9:00 a.m. local time
on the Closing Date.
1.3 Actions at the Closing. At the Closing:
(a) the Company shall deliver to the Buyer and the Transitory
Subsidiary the various certificates, instruments and documents referred to in
Section 5.2;
(b) the Buyer and the Transitory Subsidiary shall deliver to the
Company the various certificates, instruments and documents referred to in
Section 5.3;
(c) the Company shall deliver to the Buyer the Company Schedule;
(d) the Surviving Corporation shall file with the Secretary of State
of the State of Delaware the Certificate of Merger;
(e) the Buyer shall deliver the Cash Consideration to the Exchange
Agent in accordance with Section 1.6;
(f) the Buyer shall deliver a certificate for the Initial Shares to
the Exchange Agent in accordance with Section 1.6; and
(g) the Buyer, the Indemnification Representatives and the Escrow
Agent shall execute and deliver the Escrow Agreement and the Buyer shall deliver
to the Escrow Agent
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a certificate for the Escrow Shares being placed in escrow on the Closing Date
pursuant to Section 1.10.
1.4 Additional Action. The Surviving Corporation may, at any time after
the Effective Time, take any action, including executing and delivering any
document, in the name and on behalf of either the Company or the Transitory
Subsidiary, in order to consummate the Merger.
1.5 Conversion of Shares. At the Effective Time, by virtue of the Merger
and without any action on the part of any Party or the holder of any of the
following securities and subject to adjustment as set forth in Section 1.8:
(a) Each Common Share issued and outstanding immediately prior to the
Effective Time (other than Dissenting Shares) and held of record by a Company
Cash Stockholder immediately prior to the Effective Time shall be converted into
and represent the right to receive an amount in cash equal to $1.6897 (the "Per
Share Consideration") less the Expenses Reduction and less the Working Capital
Reduction.
(b) Each Common Share issued and outstanding immediately prior to the
Effective Time (other than Dissenting Shares) and held of record by a Company
Key Stockholder immediately prior to the Effective Time shall be converted into
and represent the right to receive: (A) an amount in cash equal to (1) the Per
Share Consideration multiplied by 0.70 less (2) the Expenses Reduction and less
(3) the Working Capital Reduction, and (B) such number of shares of Buyer Common
Stock per Common Share as is equal to the result obtained by (1) multiplying the
Per Share Consideration by 0.30 and dividing the result by (2) the Trailing
Average Price. The number of shares of Buyer Common Stock is subject to
equitable adjustment in the event of any stock split, stock dividend, reverse
stock split or similar event affecting the Buyer Common Stock between the date
of this Agreement and the Effective Time.
(c) Company Key Stockholders shall be entitled to receive at the
Closing 33.3% of the shares of Buyer Common Stock into which their Common Shares
were converted pursuant to this Section 1.5 (the "Initial Shares"); the
remaining 66.7% of the shares of Buyer Common Stock into which their Common
Shares were converted pursuant to this Section 1.5, rounded to the nearest whole
number (the "Escrow Shares"), shall be deposited in escrow pursuant to Section
1.10 and shall be held and disposed of in accordance with the terms of the
Escrow Agreement.
(d) Each Common Share held in the Company's treasury immediately prior
to the Effective Time and each Common Share owned beneficially by the Buyer or
the Transitory Subsidiary shall be cancelled and retired without payment of any
consideration therefor.
(e) Each share of common stock, $.01 par value per share, of the
Transitory Subsidiary issued and outstanding immediately prior to the Effective
Time shall be converted into and thereafter evidence one share of common stock,
$.01 par value per share, of the Surviving Corporation.
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1.6 Exchange of Shares and Cash.
(a) Prior to the Effective Time, the Buyer shall appoint the Exchange
Agent to effect the issuance of Initial Shares and/or Cash Consideration in
exchange for Certificates. On the Closing Date, the Buyer shall deliver to the
Exchange Agent, in trust for the benefit of holders of Certificates, (i) a stock
certificate (issued in the name of the Exchange Agent or its nominee)
representing the Initial Shares, as described in Section 1.5, and (ii) the Cash
Consideration. As soon as practicable after the Effective Time, the Buyer shall
cause the Exchange Agent to send a notice and a transmittal form to each holder
of a Certificate advising such holder of the effectiveness of the Merger and the
procedure for surrendering to the Exchange Agent such Certificate in exchange
for the Initial Shares and/or Cash Consideration issuable pursuant to Section
1.5. Each holder of a Certificate, upon proper surrender thereof to the Exchange
Agent in accordance with the instructions in such notice, shall be entitled to
receive in exchange therefor (subject to any taxes required to be withheld) (i)
the Initial Shares issuable pursuant to Section 1.5 plus cash in lieu of any
fractional shares, as provided in Section 1.7 below and/or (ii) the Cash
Consideration issuable pursuant to Section 1.5. Until properly surrendered, each
such Certificate shall be deemed for all purposes to evidence only the right to
receive a certificate for (i) the Initial Shares issuable pursuant to Section
1.5 and/or (ii) the Cash Consideration issuable pursuant to Section 1.5. Holders
of Certificates shall not be entitled to receive certificates for the Initial
Shares or any Cash Consideration to which they would otherwise be entitled until
such Certificates are properly surrendered.
(b) If any Initial Shares are to be issued in the name of a person
other than the person in whose name the Certificate surrendered in exchange
therefor is registered, it shall be a condition to the issuance of such Initial
Shares or Cash Consideration that (i) the Certificate so surrendered shall be
transferable, and shall be properly assigned, endorsed or accompanied by
appropriate stock powers, (ii) such transfer shall otherwise be proper and (iii)
the person requesting such transfer shall pay to the Exchange Agent any transfer
or other taxes payable by reason of the foregoing or establish to the
satisfaction of the Exchange Agent that such taxes have been paid or are not
required to be paid. Notwithstanding the foregoing, neither the Exchange Agent
nor any Party shall be liable to a holder of Common Shares for any Initial
Shares or Cash Consideration issuable to such holder pursuant to Section 1.5
that are properly delivered to a public official pursuant to applicable
abandoned property, escheat or similar laws.
(c) In the event any Certificate shall have been lost, stolen or
destroyed, upon the making of an affidavit of that fact by the person claiming
such Certificate to be lost, stolen or destroyed, the Buyer shall issue in
exchange for such lost, stolen or destroyed Certificate the Cash Consideration
and/or Initial Shares issuable in exchange therefor pursuant to Section 1.5. The
Board of Directors of the Buyer may, in its discretion and as a condition
precedent to the issuance thereof, require the owner of such lost, stolen or
destroyed Certificate to give the Buyer a bond in such sum as it may direct as
indemnity against any claim that may be made against the Buyer with respect to
the Certificate alleged to have been lost, stolen or destroyed.
(d) No dividends or other distributions that are payable to the
holders of record of Buyer Common Stock as of a date on or after the Closing
Date shall be paid to former Company Key Stockholders entitled by reason of the
Merger to receive Initial Shares until such holders surrender their Certificates
for certificates representing the Merger Shares. Upon such
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surrender, the Buyer shall pay or deliver to the persons in whose name the
certificates representing such Initial Shares are issued any dividends or other
distributions that are payable to the holders of record of Buyer Common Stock as
of a date on or after the Closing Date and which were paid or delivered between
the Effective Time and the time of such surrender; provided that no such person
shall be entitled to receive any interest on such dividends or other
distributions.
1.7 Fractional Shares. No certificates or scrip representing fractional
Initial Shares shall be issued to former Company Key Stockholders upon the
surrender for exchange of Certificates, and such former Company Key Stockholders
shall not be entitled to any voting rights, rights to receive any dividends or
distributions or other rights as a stockholder of the Buyer with respect to any
fractional Initial Shares that would have otherwise been issued to such former
Company Key Stockholders. In lieu of any fractional Initial Shares that would
have otherwise been issued, each former Company Key Stockholder that would have
been entitled to receive a fractional Initial Share shall, upon proper surrender
of such person's Certificates, receive a cash payment equal to the Per Share
Consideration, multiplied by the fraction of a share that such Company Key
Stockholder would otherwise be entitled to receive.
1.8 Working Capital.
(a) Within 10 days after the Balance Sheet Date, the Company shall
prepare and deliver to the Buyer the Draft Interim Balance Sheet. The Company
shall prepare the Draft Interim Balance Sheet in accordance with GAAP consistent
with the Company's past practices, which shall set forth the information
necessary to compute Working Capital and the Credit Balance, each as of the
Balance Sheet Date.
(b) The Buyer shall deliver to the Company, within 15 days after the
Balance Sheet Date, either a notice indicating that the Buyer accepts the Draft
Interim Balance Sheet or a detailed statement describing its objections (if any)
to the Draft Interim Balance Sheet. If the Buyer delivers to the Company a
notice accepting the Draft Interim Balance Sheet, or the Buyer does not deliver
a written objection to the Draft Interim Balance Sheet within 15 days after the
Balance Sheet Date, then, effective as of either the date of delivery of such
notice of acceptance or as of the close of business on such 15th day, as the
case may be, the Draft Interim Balance Sheet shall be deemed to be the Final
Interim Balance Sheet. If the Buyer timely objects to the Draft Interim Balance
Sheet, the Buyer and the Company shall use commercially reasonable efforts to
resolve such objections and agree on the Final Interim Balance Sheet.
(c) If the Final Working Capital Difference is less than the Initial
Working Capital Difference, the Per Share Consideration payable to the Company
Stockholders pursuant to Section 1.5 shall be reduced by the Working Capital
Reduction as set forth in Section 1.5.
1.9 Options.
(a) As of the Effective Time, all Options, whether vested or
unvested, and the Option Plan, insofar as it relates to Options outstanding
under such Option Plan as of the Closing, shall be assumed by the Buyer.
Immediately after the Effective Time, each Option outstanding immediately prior
to the Effective Time shall be deemed to constitute an option to
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acquire, on the same terms and conditions as were applicable under such Option
at the Effective Time, such number of shares of Buyer Common Stock as is equal
to (i) the number of Common Shares subject to the unexercised portion of such
Option multiplied by (ii) the Per Share Consideration divided by the Trailing
Average Price (the "Option Exercise Ratio") (with any fraction resulting from
such multiplication to be rounded down to the nearest whole number). The
exercise price per share of each such assumed Option shall be equal to the
exercise price of such Option immediately prior to the Effective Time, divided
by the Option Exercise Ratio (rounded up to the nearest whole cent). The term,
exercisability, vesting schedule, status as an "incentive stock option" under
Section 422 of the Code, if applicable, and all of the other terms of the
Options shall otherwise remain unchanged.
(b) As soon as practicable after the Effective Time, the Buyer or the
Surviving Corporation shall deliver to the holders of Options appropriate
notices setting forth such holders' rights pursuant to such Options, as amended
by this Section 1.9, and the agreements evidencing such Options shall continue
in effect on the same terms and conditions (subject to the amendments provided
for in this Section 1.9 and such notice).
(c) The Buyer shall take all corporate action necessary to reserve
for issuance a sufficient number of shares of Buyer Common Stock for delivery
upon exercise of the Options assumed in accordance with this Section 1.9. Within
30 days after the Effective Time, the Buyer shall file a Registration Statement
on Form S-8 (or any successor form) under the Securities Act with respect to all
shares of Buyer Common Stock subject to such Options that may be registered on a
Form S-8, and shall use its best efforts to maintain the effectiveness of such
Registration Statement for so long as such Options remain outstanding. The Buyer
shall use all commercially reasonable efforts to cause the shares of Buyer
Common Stock subject to such options to be listed on the Nasdaq National Market
or such other market on which the Buyer Common Stock is then listed or traded.
1.10 Escrow.
(a) On the Closing Date, the Buyer shall deliver to the Escrow Agent
a certificate (issued in the name of the Escrow Agent or its nominee),
representing the Escrow Shares issuable pursuant to Section 1.5, for the purpose
of securing the indemnification obligations of the Indemnifying Stockholders set
forth in this Agreement. The Escrow Shares shall be held by the Escrow Agent
under the Escrow Agreement pursuant to the terms thereof. The Escrow Shares
shall be held as a trust fund and shall not be subject to any lien, attachment,
trustee process or any other judicial process of any creditor of any party, and
shall be held and disbursed solely for the purposes and in accordance with the
terms of the Escrow Agreement.
(b) The adoption of this Agreement and the approval of the Merger by
the stockholders of the Company shall constitute approval of the Escrow
Agreement and of all of the arrangements relating thereto, including the
placement of the Escrow Shares in escrow.
1.11 Dissenting Shares.
(a) Dissenting Shares shall not be converted into or represent the
right to receive Merger Shares or Cash Consideration, unless the applicable
Company Stockholder shall
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have forfeited his, her or its right to appraisal under the Delaware General
Corporation Law or properly withdrawn, his, her or its demand for appraisal. If
such Company Stockholder has so forfeited or withdrawn his, her or its right to
appraisal of Dissenting Shares, then (i) as of the occurrence of such event,
such holder's Dissenting Shares shall cease to be Dissenting Shares and shall be
converted into and represent the right to receive the Cash Consideration and
Merger Shares, if any, issuable in respect of such Common Shares pursuant to
Section 1.5, and (ii) promptly following the occurrence of such event, the Buyer
shall deliver to the Exchange Agent (A) a certificate representing the Initial
Shares to which such holder is entitled pursuant to Section 1.5, if any, and (B)
cash in the amount of the Cash Consideration to which such holder is entitled
pursuant to Section 1.5 and (C) shall deliver to the Escrow Agent a certificate
representing the Escrow Shares to which such holder is entitled pursuant to
Section 1.5, if any.
(b) The Company shall give the Buyer (i) prompt notice of any written
demands for appraisal of any Common Shares, withdrawals of such demands, and any
other instruments that relate to such demands received by the Company and (ii)
the opportunity to direct all negotiations and proceedings with respect to
demands for appraisal under the Delaware General Corporation Law. The Company
shall not, except with the prior written consent of the Buyer, make any payment
with respect to any demands for appraisal of Common Shares or offer to settle or
settle any such demands.
1.12 Withholding. The Buyer and Transitory Subsidiary shall be entitled to
deduct and withhold or to cause to be deducted and withheld from any person's
Merger consideration and any payment otherwise payable pursuant to the
transactions contemplated by this Agreement to any Company Stockholder such
amounts as the Buyer or Transitory Subsidiary, as the case may be, reasonably
determines that it is required to deduct and withhold with respect to the making
of such payment under the Code or any other applicable provision of law. To the
extent that amounts are so withheld by the Buyer or Transitory Subsidiary, as
the case may be, such withheld amounts shall be treated for all purposes of this
Agreement as having been paid to the Company Stockholder in respect of which
such deduction and withholding was made by the Buyer or Transitory Subsidiary,
as the case may be. Each of the Buyer or Transitory Subsidiary shall have the
right to collect, or to cause to be collected, Internal Revenue Service Forms
W-8BEN or W-9, as applicable (or such other form as may be applicable), and any
similar forms required under any applicable law from the Company Stockholders.
1.13 Certificate of Incorporation and By-laws.
(a) The Certificate of Incorporation of the Surviving Corporation
immediately following the Effective Time shall be the same as the Certificate of
Incorporation of the Transitory Subsidiary immediately prior to the Effective
Time, except that (i) the name of the corporation set forth therein shall be
changed to the name of the Company and (ii) the identity of the incorporator
shall be deleted.
(b) The By-laws of the Surviving Corporation immediately following
the Effective Time shall be the same as the By-laws of the Transitory Subsidiary
immediately prior to the Effective Time, except that the name of the corporation
set forth therein shall be changed to the name of the Company.
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1.14 No Further Rights. From and after the Effective Time, no Common Shares
shall be deemed to be outstanding, and holders of Certificates shall cease to
have any rights with respect thereto, except as provided herein or by law.
1.15 Closing of Transfer Books. At the Effective Time, the stock transfer
books of the Company shall be closed and no transfer of Common Shares shall
thereafter be made. If, after the Effective Time, Certificates are presented to
the Buyer, the Surviving Corporation or the Exchange Agent, they shall be
cancelled and exchanged for Initial Shares in accordance with Section 1.5,
subject to Section 1.10.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to the Buyer that, except as set forth
in the Disclosure Schedule, the statements contained in this Article II are true
and correct as of the date of this Agreement and will be true and correct as of
the Closing as though made as of the Closing, except to the extent such
representations and warranties are specifically made as of a particular date (in
which case such representations and warranties will be true and correct as of
such date). The Disclosure Schedule shall be arranged in sections and
subsections corresponding to the numbered and lettered sections and subsections
contained in this Article II. The disclosures in any section or subsection of
the Disclosure Schedule shall qualify other paragraphs in this Article II to the
extent that it is reasonably clear from a reading of the disclosure that such
disclosure is applicable to such other paragraphs. For purposes of this Article
II, the phrase "to the knowledge of the Company" or any phrase of similar import
shall be deemed to refer to the actual knowledge, and not to any imputed or
constructive knowledge, of Jeffrey A. Brandes, Steven J. Casey, Jeanne Friedman,
William Crowley, John E. Salerno and Greg Augustine.
2.1 Organization, Qualification and Corporate Power. The Company is a
corporation duly organized, validly existing and in corporate and tax good
standing under the laws of the State of Delaware. The Company is duly qualified
to conduct business and is in corporate and tax good standing under the laws of
each jurisdiction listed in Section 2.1 of the Disclosure Schedule, which
jurisdictions constitute the only jurisdictions in which the nature of the
Company's businesses or the ownership or leasing of its properties requires such
qualification, except for those jurisdictions in which the failure to be so
qualified or in good standing, individually or in the aggregate, has not had and
would not reasonably be expected to have a Company Material Adverse Effect. The
Company has all requisite corporate power and authority to carry on the
businesses in which it is engaged and to own and use the properties owned and
used by it. The Company has furnished to the Buyer complete and accurate copies
of its Certificate of Incorporation and by-laws. The Company is not in default
under or in violation of any provision of its Certificate of Incorporation or
by-laws.
2.2 Capitalization.
(a) The authorized capital stock of the Company consists of (i)
18,000,000 Common Shares, of which, as of the date of this Agreement, 7,564,236
shares were issued and outstanding and 506,028 shares were held in the treasury
of the Company and (ii) 2,000,000
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shares of preferred stock, par value $.01 per share, of which, as of the date of
this Agreement, no shares were issued and outstanding.
(b) Section 2.2 of the Disclosure Schedule sets forth a complete and
accurate list, as of the date of the Agreement, of the holders of capital stock
of the Company, showing the number of shares of capital stock, and the class or
series of such shares, held by each stockholder. Section 2.2 of the Disclosure
Schedule also indicates all outstanding Common Shares that constitute restricted
stock or that are otherwise subject to a repurchase or redemption right,
indicating the name of the applicable stockholder, the vesting schedule
(including any acceleration provisions with respect thereto), and the repurchase
price payable by the Company. All of the issued and outstanding shares of
capital stock of the Company have been duly authorized and validly issued and
are fully paid and nonassessable. All of the issued and outstanding shares of
capital stock of the Company have been offered, issued and sold by the Company
in compliance with all applicable federal and state securities laws.
(c) Section 2.2 of the Disclosure Schedule sets forth a complete and
accurate list, as of the date of this Agreement, of: (i) all Company Stock
Plans, indicating for each Company Stock Plan the number of Common Shares issued
to date under such Plan, the number of Common Shares subject to outstanding
options under such Plan and the number of Common Shares reserved for future
issuance under such Plan; and (ii) all holders of outstanding Options,
indicating with respect to each Option the Company Stock Plan under which it was
granted, the number of Common Shares subject to such Option, the exercise price,
the date of grant, and the vesting schedule (including any acceleration
provisions with respect thereto). The Company has provided to the Buyer complete
and accurate copies of all Company Stock Plans and forms of all stock option
agreements evidencing Options. All of the shares of capital stock of the Company
subject to Options will be, upon issuance pursuant to the valid exercise of such
instruments in accordance with the terms thereof, duly authorized, validly
issued, fully paid and nonassessable.
(d) Except as set forth in this Section 2.2 or in Section 2.2 of the
Disclosure Schedule, (i) no subscription, warrant, option, convertible security
or other right (contingent or otherwise) to purchase or acquire any shares of
capital stock of the Company is authorized or outstanding, (ii) the Company has
no obligation (contingent or otherwise) to issue any subscription, warrant,
option, convertible security or other such right, or to issue or distribute to
holders of any shares of its capital stock any evidences of indebtedness or
assets of the Company, (iii) the Company has no obligation (contingent or
otherwise) to purchase, redeem or otherwise acquire any shares of its capital
stock or any interest therein or to pay any dividend or to make any other
distribution in respect thereof, and (iv) there are no outstanding or authorized
stock appreciation, phantom stock or similar rights with respect to the Company.
(e) Except as set forth in Section 2.2 of the Disclosure Schedule,
there is no agreement, written or oral, between the Company and any holder of
its securities, or, to the best of the Company's knowledge, among any holders of
its securities, relating to the sale or transfer (including agreements relating
to rights of first refusal, co-sale rights or "drag-along" rights), registration
under the Securities Act, or voting, of the capital stock of the Company.
2.3 Authorization of Transaction. The Company has all requisite power and
authority to execute and deliver this Agreement and to perform its obligations
hereunder. The execution
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and delivery by the Company of this Agreement and, subject to obtaining the
Requisite Company Stockholder Approval, the consummation by the Company of the
transactions contemplated hereby have been duly and validly authorized by all
necessary corporate action on the part of the Company. The Board of Directors of
the Company, at a meeting duly called and held, by the unanimous vote of all
directors (i) determined that the Merger is fair and in the best interests of
the Company and its stockholders, (ii) adopted this Agreement in accordance with
the provisions of the Delaware General Corporation Law, and (iii) directed that
this Agreement and the Merger be submitted to the stockholders of the Company
for their adoption and approval and resolved to recommend that the stockholders
of the Company vote in favor of the adoption of this Agreement and the approval
of the Merger. This Agreement has been duly and validly executed and delivered
by the Company and constitutes a valid and binding obligation of the Company,
enforceable against the Company in accordance with its terms, except as
enforceability may be limited by bankruptcy, insolvency or similar laws
affecting the enforcement of creditors' rights generally and the availability of
equitable remedies may be limited by equitable principles of general
applicability.
2.4 Noncontravention. Subject to the filing of the Certificate of Merger
as required by the Delaware General Corporation Law, neither the execution and
delivery by the Company of this Agreement, nor the consummation by the Company
of the transactions contemplated hereby, will (a) conflict with or violate any
provision of the Certificate of Incorporation or By-laws of the Company, (b)
require on the part of the Company any notice to or filing with, or any permit,
authorization, consent or approval of, any Governmental Entity, (c) except as
set forth in Section 2.4 of the Disclosure Schedule, conflict with, result in a
breach of, constitute (with or without due notice or lapse of time or both) a
default under, result in the acceleration of obligations under, create in any
party the right to terminate, modify or cancel, or require any notice, consent
or waiver under, any contract or instrument to which the Company is a party or
by which the Company is bound or to which any of its assets is subject, (d)
result in the imposition of any Security Interest upon any assets of the Company
or (e) violate any order, writ, injunction, decree, statute, rule or regulation
applicable to the Company or any of its properties or assets.
2.5 Subsidiaries. Except as set forth in Section 2.5 of the Disclosure
Schedule, the Company does not control, directly or indirectly, or have any
direct or indirect equity participation or similar interest in any corporation,
partnership, limited liability company, joint venture, trust or any other
business association or entity.
2.6 Financial Statements. The Company has provided to the Buyer the
Financial Statements. The Financial Statements have been prepared in accordance
with GAAP applied on a consistent basis throughout the periods covered thereby,
fairly present in all material respects the consolidated financial condition,
results of operations and cash flows of the Company as of the respective dates
thereof and for the periods referred to therein and are consistent with the
books and records of the Company; provided, however, that the Financial
Statements referred to in clause (b) of the definition of such term are subject
to normal recurring year-end adjustments (which will not be material) and do not
include footnotes.
2.7 Absence of Certain Changes. Since the Most Recent Balance Sheet Date,
(a) there has occurred no event or development which, individually or in the
aggregate, has had,
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or could reasonably be expected to have in the future, a Company Material
Adverse Effect and (b) the Company has not taken any of the actions set forth in
paragraphs (a) through (o) of Section 4.6.
2.8 Undisclosed Liabilities. Except as set forth in Section 2.8 of the
Disclosure Schedule, the Company has no liability (whether known or unknown,
whether absolute or contingent, whether liquidated or unliquidated and whether
due or to become due), except for (a) liabilities shown on the Most Recent
Balance Sheet, (b) liabilities which have arisen since the Most Recent Balance
Sheet Date in the Ordinary Course of Business and which are not material in
amount and (c) contractual and other liabilities incurred in the Ordinary Course
of Business which are not required by GAAP to be reflected on a balance sheet
and which are not material in amount.
2.9 Tax Matters.
(a) The Company has filed on a timely basis all Tax Returns
(including Affiliated Group Tax Returns) that it was required to file, and all
such Tax Returns were complete and accurate in all material respects. Except as
set forth in Section 2.9 of the Disclosure Schedule, the Company has not joined
and is not required to join in any Affiliated Group Tax Return in which any
corporation other than the Company was a member with respect to any Affiliated
Period. The Company has paid on a timely basis all Taxes that were due and
payable and each member of an Affiliated Group has paid all Taxes that were due
and payable with respect to all Affiliated Periods. The unpaid Taxes of the
Company for tax periods through the Most Recent Balance Sheet Date do not exceed
the accruals and reserves for Taxes (excluding accruals and reserves for
deferred Taxes established to reflect timing differences between book and Tax
income) set forth on the Most Recent Balance Sheet. The Company has no actual or
potential liability for any Tax obligation of any taxpayer (including any
affiliated group of corporations or other entities that included the Company
during a prior period) other than the Company. All Taxes that the Company is or
was required by law to withhold or collect have been duly withheld or collected
and, to the extent required, have been paid to the proper Governmental Entity.
(b) The Company has delivered to the Buyer complete and accurate
copies of all U.S. federal income Tax Returns, examination reports and
statements of deficiencies assessed against or agreed to by the Company since
April 1, 2001. The Company has delivered or made available to the Buyer complete
and accurate copies of all other Tax Returns of the Company, together with all
related examination reports and statements of deficiency for all periods since
April 1, 2001. The Company has delivered or made available to the Buyer complete
and accurate copies of all other Tax Returns of the Company, together with all
related examination reports and statements of deficiency for all periods
requested in writing by the Buyer and complete and accurate copies of the
portion of all other Tax Returns, examination reports and statements of
deficiency assessed against or agreed to with respect to any member of an
Affiliated Group relating to the activities of the Company for all Affiliated
Periods requested in writing by the Buyer. To the knowledge of the Company, no
examination or audit of any Tax Return of the Company or Affiliated Group Tax
Return by any Governmental Entity is currently in progress or threatened or
contemplated. The Company has not received notice from any jurisdiction that
such jurisdiction believes that the Company was required to file any Tax Return
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that was not filed which was not thereafter filed. The Company has not waived
any statute of limitations with respect to Taxes or agreed to an extension of
time with respect to a Tax assessment or deficiency, which has continuing
effect.
(c) The Company (i) is not a "consenting corporation" within the
meaning of Section 341(f) of the Code, and none of the assets of the Company are
subject to an election under Section 341(f) of the Code; (ii) has not been a
United States real property holding corporation within the meaning of Section
897(c)(2) of the Code during the applicable period specified in Section
897(c)(l)(A)(ii) of the Code; (iii) has not made any payments, is not obligated
to make any payments, and is not a party to any agreement that could obligate it
to make any payments that may be treated as an "excess parachute payment" under
Section 280G of the Code (without regard to Section 280G(b)(4) of the Code) in
connection with the Merger or any transactions contemplated by this Agreement;
(iv) has no actual or potential liability for any Taxes of any person (other
than the Company) under Treasury Regulation Section 1.1502-6 (or any similar
provision of federal, state, local, or foreign law), or as a transferee or
successor, by contract, or otherwise; (v) is not and has never been required to
make a basis reduction pursuant to Treasury Regulation Section 1.1502-20(b) or
Treasury Regulation Section 1.337(d)-2(b); and (vi) is not a party to, bound by,
or obligated under any Tax allocation, Tax sharing or Tax indemnity agreement
other than the Separation Agreement.
(d) None of the assets of the Company: (i) is "tax-exempt use
property" within the meaning of Section 168(h) of the Code; (ii) directly or
indirectly secures any debt the interest on which is tax exempt under Section
103(a) of the Code; or (iii) is property that is required to be treated as being
owned by any other person pursuant to the provisions of former Section 168(f)(8)
of the Code.
(e) There are no adjustments under Section 481 of the Code (or any
similar adjustments under any provision of the Code or corresponding federal,
state, local, provincial or foreign Tax laws) that are required to be taken into
account by the Company in any period ending after the Closing Date by reason of
a change in method of accounting in any taxable period ending on or before the
Closing Date.
(f) The Company has never participated in an international boycott as
defined in Section 999 of the Code.
(g) The Company is not and has never been a party to any transaction
or agreement that is in conflict with the Tax rules on transfer pricing in any
relevant jurisdiction.
(h) None of the Company Stockholders holds any Common Shares that are
non-transferable and subject to a substantial risk of forfeiture within the
meaning of Section 83 of the Code with respect to which the Company has not been
advised that a valid election under Section 83(b) of the Code has not been made,
except for shareholders not subject to taxation in the United States.
(i) There is no limitation on the utilization by the Company of its
net operating losses, built-in losses, Tax credits, or similar items under
Sections 382, 383, or 384 of the Code or comparable provisions of state,
provincial or foreign law (other than any such
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limitation arising as a result of the consummation of the transactions
contemplated by this Agreement or the consummation of the Merger).
(j) The Company has not distributed to its shareholders or security
holders stock or securities of a corporation in a transaction to which Section
355 of the Code applies.
(k) The Company has not breached any representation, warranty or
covenant made in the Separation and Distribution Agreement among PSI Holding
Group, Inc., Akibia, Inc. and the Company entered into as of April 4, 2001 (the
"Separation Agreement").
(l) The Company has not undertaken, or agreed to undertake, any
transaction, including the transactions contemplated by this Agreement, that
could constitute part of a "plan" or "series of related transactions" (within
the meaning of Section 355(e) of the Code) with the transactions undertaken
pursuant to the Separation Agreement.
(m) The Company is not a passive foreign investment company within
the meaning of Sections 1291-1297 of the Code.
(n) The Company has not incurred (or been allocated) an "overall
foreign loss" as defined in Section 904(f)(2) of the Code that has not been
previously recaptured in full as provided in Sections 904(f)(1) and/or 904(f)(3)
of the Code.
2.10 Assets. Except as set forth in Section 2.10 of the Disclosure
Schedule, the Company is the true and lawful owner of all of the assets
(tangible or intangible) purported to be owned by the Company, free and clear of
all Security Interests. The Company owns or leases all tangible assets
sufficient for the conduct of its businesses as presently conducted. Each such
tangible asset is in good operating condition and repair (subject to normal wear
and tear) and is suitable for the purposes for which it presently is used.
2.11 Owned Real Property. The Company does not own, and has never owned,
any real property.
2.12 Real Property Leases. Section 2.12 of the Disclosure Schedule lists
all Leases and lists the term of such Lease, any extension and expansion
options, and the rent payable thereunder. The Company has delivered to the Buyer
complete and accurate copies of the Leases. With respect to each Lease listed in
Section 2.12 of the Disclosure Schedule:
(a) such Lease is legal, valid, binding, enforceable and in full
force and effect;
(b) such Lease will continue to be legal, valid, binding, enforceable
and in full force and effect immediately following the Closing in accordance
with the terms thereof as in effect immediately prior to the Closing;
(c) neither the Company nor, to the knowledge of the Company, any
other party, is in breach or violation of, or default under, any such Lease, and
no event has occurred, is pending or, to the knowledge of the Company, is
threatened, which, after the giving of notice, with lapse of time, or otherwise,
would constitute a breach or default by the Company or, to the knowledge of the
Company, any other party under such Lease;
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(d) there are no disputes, oral agreements or forbearance programs in
effect as to such Lease;
(e) the Company has not assigned, transferred, conveyed, mortgaged,
deeded in trust or encumbered any interest in the leasehold or subleasehold;
(f) to the knowledge of the Company, all facilities leased or
subleased thereunder are supplied with utilities and other services adequate for
the operation of said facilities; and
(g) the Company is not aware of any Security Interest, easement,
covenant or other restriction applicable to the real property subject to such
lease which would reasonably be expected to materially impair the current uses
or the occupancy by the Company of the property subject thereto.
2.13 Intellectual Property.
(a) Section 2.13(a) of the Disclosure Schedule sets forth (i) a list
of each patent, patent application, copyright registration or application
therefor, mask work registration or application therefor, and trademark, service
mark and domain name registration or application therefor of the Company and
(ii) a true and materially complete listing of each Customer Deliverable of the
Company.
(b) The Company owns or has sufficient right to use all Intellectual
Property necessary (i) to use, manufacture, have manufactured, market and
distribute the Customer Deliverables and (ii) to operate the Internal Systems.
Each item of Company Intellectual Property will be owned or available for use by
the Buyer immediately following the Closing on substantially identical terms and
conditions as it was immediately prior to the Closing. The Company has taken
commercially reasonable measures to protect the proprietary nature of each item
of Company Intellectual Property, and to maintain in confidence all trade
secrets and confidential information, that it owns or uses. No other person or
entity has any rights to any of the Company Intellectual Property owned by the
Company (except pursuant to agreements or licenses specified in Section 2.13(d)
or 2.13(f) of the Disclosure Schedule), and, to the knowledge of the Company, no
other person or entity is infringing, violating or misappropriating any of the
Company Intellectual Property.
(c) To the knowledge of the Company, none of the Customer
Deliverables, or the marketing, distribution, provision or use thereof,
infringes or violates, or constitutes a misappropriation of, any Intellectual
Property rights of any person or entity. None of the Internal Systems, or the
use thereof, infringes or violates, or constitutes a misappropriation of, any
Intellectual Property rights of any person or entity. Section 2.13(c) of the
Disclosure Schedule lists any complaint, claim or notice, received by the
Company alleging any such infringement, violation or misappropriation; and the
Company has provided to the Buyer complete and accurate copies of all written
documentation in the possession of the Company relating to any such complaint,
claim or notice. The Company has provided to the Buyer complete and accurate
copies of all written documentation in the Company's possession relating to
claims or disputes known to the Company concerning any Company Intellectual
Property.
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(d) Section 2.13(d) of the Disclosure Schedule sets forth a true and
complete listing of each license or other agreement pursuant to which the
Company has licensed, distributed or otherwise granted any rights to any third
party with respect to, any Company Intellectual Property. Except as described in
Section 2.13(d) of the Disclosure Schedule, the Company has not entered into any
written agreements providing for the indemnification of any person or entity
against any infringement, violation or misappropriation of any Intellectual
Property rights with respect to any Customer Deliverables.
(e) Section 2.13(e) of the Disclosure Schedule sets forth a true and
complete listing of each item of Company Intellectual Property that is owned by
a party other than the Company, and the license or agreement pursuant to which
the Company uses it as of the date of this Agreement (excluding off-the-shelf
software programs licensed by the Company pursuant to "shrink wrap" licenses).
(f) The Company has not disclosed the source code for the Software or
other confidential information constituting, embodied in or pertaining to the
Software to any person or entity, except pursuant to the agreements listed in
Section 2.13(f) of the Disclosure Schedule, and the Company has taken reasonable
measure to prevent disclosure of such source code.
(g) To the knowledge of the Company, the Customer Deliverables
conform in all material respects to the written documentation and specifications
therefor and the Internal Systems are free from significant defects or
programming errors and conform in all material respects to the written
documentation and specifications therefor.
2.14 Inventory. All inventory of the Company, whether or not reflected on
the Most Recent Balance Sheet, consists of a quality and quantity usable and
saleable in the Ordinary Course of Business, except for obsolete items, items of
below-standard quality and excess inventory, all of which have been written-off,
written-down to net realizable value or reserved for, in each case in accordance
with GAAP consistent with the Company's past practices. All inventories not
written-off have been priced at the lower of cost or net realizable value on a
first-in, first-out basis.
2.15 Contracts.
(a) Section 2.15 of the Disclosure Schedule lists the following
agreements (written or oral) to which the Company is a party as of the date of
this Agreement:
(i) any agreement (or group of related agreements) for the
lease of personal property from or to third parties
providing for lease payments in excess of $15,000 per
annum or having a remaining term longer than 12 months;
(ii) any agreement (or group of related agreements) for the
purchase or sale of products or for the furnishing or
receipt of services (A) which calls for performance over
a period of more than one year, (B) which involves more
than the sum of $15,000, or (C) in which the Company has
granted manufacturing rights, "most favored nation" pricing
provisions or marketing or distribution rights
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relating to any products or territory or has agreed to
purchase a minimum quantity of goods or services or has
agreed to purchase goods or services exclusively from a
certain party;
(iii) any agreement concerning the establishment or operation
of a partnership, joint venture or limited liability
company;
(iv) any agreement (or group of related agreements) under which
it has created, incurred, assumed or guaranteed (or may
create, incur, assume or guarantee) indebtedness
(including capitalized lease obligations) involving more
than $15,000 or under which it has imposed (or may impose)
a Security Interest on any of its assets, tangible or
intangible;
(v) any agreement for the disposition of any significant
portion of the assets or business of the Company (other
than sales of products in the Ordinary Course of Business)
or any agreement for the acquisition of the assets or
business of any other entity (other than purchases of
inventory or components in the Ordinary Course of
Business);
(vi) any agreement concerning confidentiality or
noncompetition;
(vii) any employment or consulting agreement;
(viii) any agreement involving any current or former officer,
director or stockholder of the Company or an Affiliate
thereof;
(ix) any agreement which contains any provisions requiring the
Company to indemnify any other party (excluding
indemnities contained in agreements for the purchase, sale
or license of products entered into in the Ordinary Course
of Business); and
(x) any other agreement (or group of related agreements)
either involving more than $15,000 or not entered into in
the Ordinary Course of Business.
(b) The Company has delivered to the Buyer a complete and accurate
copy of each agreement listed in Section 2.13 or Section 2.15 of the Disclosure
Schedule. With respect to each agreement so listed: (i) the agreement is legal,
valid, binding and enforceable and in full force and effect; (ii) the agreement
will continue to be legal, valid, binding and enforceable and in full force and
effect immediately following the Closing in accordance with the terms thereof as
in effect immediately prior to the Closing; and (iii) neither the Company nor,
to the knowledge of the Company, any other party, is in breach or violation of,
or default under, any such agreement, and, to the knowledge of the Company, no
event has occurred, is pending or, is threatened, which, after the giving of
notice, with lapse of time, or otherwise, would constitute a breach or default
by the Company or any other party under such agreement.
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2.16 Accounts Receivable. All accounts receivable of the Company reflected
on the Most Recent Balance Sheet (other than those paid since such date) are
valid receivables subject to no setoffs or counterclaims and are current and
collectible (within 90 days after the date on which it first became due and
payable), net of the applicable reserve for bad debts on the Most Recent Balance
Sheet. A complete and accurate list of the accounts receivable reflected on the
Most Recent Balance Sheet, showing the aging thereof, is included in Section
2.16 of the Disclosure Schedule. All accounts receivable of the Company that
have arisen since the Most Recent Balance Sheet Date are valid receivables
subject to no setoffs or counterclaims and are collectible (within 90 days after
the date on which it first became due and payable), net of a reserve for bad
debts in an amount proportionate to the reserve shown on the Most Recent Balance
Sheet.
2.17 Powers of Attorney. Except as set forth in Section 2.17 of the
Disclosure Schedule, there are no outstanding powers of attorney executed on
behalf of the Company.
2.18 Insurance. Section 2.18 of the Disclosure Schedule lists each
insurance policy (including fire, theft, casualty, comprehensive general
liability, workers compensation, business interruption, environmental, product
liability and automobile insurance policies and bond and surety arrangements) to
which the Company is a party, all of which are in full force and effect. There
is no material claim pending under any such policy as to which coverage has been
questioned, denied or disputed by the underwriter of such policy. All premiums
due and payable under all such policies have been paid and the Company is
otherwise in compliance in all material respects with the terms of such
policies.
2.19 Litigation. As of the date of this Agreement, there is no Legal
Proceeding which is pending or has been threatened in writing against the
Company. There are no judgments, orders or decrees outstanding against the
Company.
2.20 Warranties. No product or service manufactured, sold, leased, licensed
or delivered by the Company is subject to any guaranty, warranty, right of
return, right of credit or other indemnity other than (i) the applicable
standard terms and conditions of sale or lease of the Company, which are set
forth in Section 2.20 of the Disclosure Schedule and (ii) manufacturers'
warranties for which the Company has no liability. Section 2.20 of the
Disclosure Schedule sets forth the aggregate expenses incurred by the Company in
fulfilling their obligations under their guaranty, warranty, right of return and
indemnity provisions during each of the fiscal years and the interim period
covered by the Financial Statements.
2.21 Employees.
(a) Section 2.21 of the Disclosure Schedule contains a list of all
employees of the Company, along with the position and the annual rate of
compensation of each such person as of the date of this Agreement. Each current
or past employee of the Company has entered into an Employee Nondisclosure and
Inventions Assignment Agreement with the Company, a copy or form of which has
previously been delivered to the Buyer. Section 2.21 of the Disclosure Schedule
contains a list of all employees of the Company who are a party to a
non-competition agreement with the Company; copies of such agreements have
previously been delivered to the Buyer. All of the agreements referenced in the
two preceding sentences will, unless modified or
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terminated in connection with the agreements to be entered into concurrently
with execution of this Agreement as referenced in Section 5.2(h), continue to be
in full force and effect immediately following the Closing in accordance with
the terms thereof as in effect immediately prior to the Closing. Section 2.21 of
the Disclosure Schedule contains a list of all employees of the Company who are
not citizens of the United States.
(b) The Company is not a party to or bound by any collective
bargaining agreement, nor has any of them experienced any strikes, grievances,
claims of unfair labor practices or other collective bargaining disputes. The
Company has no knowledge of any organizational effort made, either currently or
within the past two years, by or on behalf of any labor union with respect to
employees of the Company.
2.22 Employee Benefits.
(a) Section 2.22(a) of the Disclosure Schedule contains a complete
and accurate list of all Company Plans. Complete and accurate copies of (i) all
Company Plans which have been reduced to writing, (ii) written summaries of all
unwritten Company Plans, (iii) all related trust agreements, insurance contracts
and summary plan descriptions, and (iv) all annual reports filed on IRS Form
5500, 5500C or 5500R and (for all funded plans) all plan financial statements
for the last five plan years for each Company Plan, have been delivered to the
Buyer.
(b) Each Company Plan has been administered in all material respects
in accordance with its terms and each of the Company and the ERISA Affiliates
has in all material respects met its obligations with respect to each Company
Plan and has made all required contributions thereto. The Company, each ERISA
Affiliate and each Company Plan are in compliance in all material respects with
the currently applicable provisions of ERISA and the Code and the regulations
thereunder (including Section 4980B of the Code, Subtitle K, Chapter 100 of the
Code and Sections 601 through 608 and Section 701 et seq. of ERISA). All filings
and reports as to each Company Plan required to have been submitted to the
Internal Revenue Service or to the United States Department of Labor have been
duly submitted. No Company Plan has assets that include securities issued by the
Company or any ERISA Affiliate.
(c) There are no Legal Proceedings (except claims for benefits
payable in the normal operation of the Company Plans and proceedings with
respect to qualified domestic relations orders) against or involving any Company
Plan or asserting any rights or claims to benefits under any Company Plan that
could give rise to any material liability.
(d) All the Company Plans that are intended to be qualified under
Section 401(a) of the Code have received determination letters from the Internal
Revenue Service to the effect that such Company Plans are qualified and the
plans and the trusts related thereto are exempt from federal income taxes under
Sections 401(a) and 501(a), respectively, of the Code, no such determination
letter has been revoked and revocation has not been threatened, and no such
Company Plan has been amended since the date of its most recent determination
letter or application therefor in any respect, and no act or omission has
occurred, that would adversely affect its qualification or materially increase
its cost. Each Company Plan which is required to satisfy Section 401(k)(3) or
Section 401(m)(2) of the Code has been tested for compliance with,
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and satisfies the requirements of Section 401(k)(3) and Section 401(m)(2) of the
Code for each plan year ending prior to the Closing Date.
(e) Neither the Company nor any ERISA Affiliate has ever maintained
an Employee Benefit Plan subject to Section 412 of the Code or Title IV of
ERISA.
(f) At no time has the Company or any ERISA Affiliate been obligated
to contribute to any "multiemployer plan" (as defined in Section 4001(a)(3) of
ERISA).
(g) There are no unfunded obligations under any Company Plan
providing benefits after termination of employment to any employee of the
Company (or to any beneficiary of any such employee), including but not limited
to retiree health coverage and deferred compensation, but excluding continuation
of health coverage required to be continued under Section 4980B of the Code or
other applicable law and insurance conversion privileges under state law. The
assets of each Company Plan which is funded are reported at their fair market
value on the books and records of such Company Plan.
(h) No act or omission has occurred and no condition exists with
respect to any Company Plan that would subject the Company or any ERISA
Affiliate to (i) any material fine, penalty, tax or liability of any kind
imposed under ERISA or the Code or (ii) any contractual indemnification or
contribution obligation protecting any fiduciary, insurer or service provider
with respect to any Company Plan.
(i) No Company Plan is funded by, associated with or related to a
"voluntary employee's beneficiary association" within the meaning of Section
501(c)(9) of the Code.
(j) Each Company Plan is amendable and terminable unilaterally by the
Company at any time without liability or expense to the Company or such Company
Plan as a result thereof (other than for benefits accrued through the date of
termination or amendment and reasonable administrative expenses related thereto)
and no Company Plan, plan documentation or agreement, summary plan description
or other written communication distributed generally to employees by its terms
prohibits the Company from amending or terminating any such Company Plan.
(k) Section 2.22(k) of the Disclosure Schedule discloses each: (i)
agreement with any stockholder, director, executive officer or other key
employee of the Company (A) the benefits of which are contingent, or the terms
of which are altered, upon the occurrence of a transaction involving the Company
of the nature of any of the transactions contemplated by this Agreement, (B)
providing any term of employment or compensation guarantee or (C) providing
severance benefits or other benefits after the termination of employment of such
director, executive officer or key employee; (ii) agreement, plan or arrangement
under which any person may receive payments from the Company that may be subject
to the tax imposed by Section 4999 of the Code or included in the determination
of such person's "parachute payment" under Section 280G of the Code; and (iii)
agreement or plan binding the Company, including any stock option plan, stock
appreciation right plan, restricted stock plan, stock purchase plan, severance
benefit plan or Company Plan, any of the benefits of which will be increased, or
the vesting of the benefits of which will be accelerated, by the occurrence of
any of the transactions
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contemplated by this Agreement or the value of any of the benefits of which will
be calculated on the basis of any of the transactions contemplated by this
Agreement.
2.23 Environmental Matters.
(a) The Company has complied with all applicable Environmental Laws.
There is no pending or, to the knowledge of the Company, threatened civil or
criminal litigation, written notice of violation, formal administrative
proceeding, or investigation, inquiry or information request by any Governmental
Entity, relating to any Environmental Law involving the Company.
(b) The Company has no liabilities or obligations arising from the
release of any Materials of Environmental Concern into the environment.
(c) The Company is not a party to or bound by any court order,
administrative order, consent order or other agreement between the Company and
any Governmental Entity entered into in connection with any legal obligation or
liability arising under any Environmental Law.
(d) The Company is not aware of any material environmental liability
of any solid or hazardous waste transporter or treatment, storage or disposal
facility that has been used by the Company.
2.24 Legal Compliance. The Company is currently conducting, and has at all
times since April 1, 2001 conducted, its business in material compliance with
each applicable law (including rules and regulations thereunder) of any federal,
state, local or foreign government, or any Governmental Entity. The Company has
not received any written notice or communication from any Governmental Entity
alleging noncompliance with any applicable law, rule or regulation.
2.25 Customers and Suppliers. Section 2.25 of the Disclosure Schedule sets
forth a list of (a) each customer that accounted for more than 5% of the
consolidated revenues of the Company during the last full fiscal year or the
interim period through the Most Recent Balance Sheet Date and the amount of
revenues accounted for by such customer during each such period and (b) each
supplier that is the sole supplier of any significant product or service to the
Company. No such customer or supplier has indicated within the past year that it
will stop, or decrease the rate of, buying products or supplying products, as
applicable, to the Company. No unfilled customer order or commitment obligating
the Company to process, manufacture or deliver products or perform services is
currently expected to result in a material loss to the Company upon completion
of performance. No purchase order or commitment of the Company is outside the
Ordinary Course of Business, nor are prices provided therein in excess of
current market prices for the products or services to be provided thereunder.
2.26 Permits. Section 2.26 of the Disclosure Schedule sets forth a list of
all Permits issued to or held by the Company. Such listed Permits are the only
Permits that are required for the Company to conduct its business as presently
conducted or as proposed to be conducted, except for those the absence of which,
individually or in the aggregate, have not had and would not reasonably be
expected to have a Company Material Adverse Effect. Each such Permit is in
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full force and effect and the Company is in compliance with the terms of each
such Permit. Each such Permit will continue in full force and effect immediately
following the Closing.
2.27 Certain Business Relationships With Affiliates. No Affiliate of the
Company (a) owns any property or right, tangible or intangible, which is used in
the business of the Company, (b) has any outstanding claim or cause of action
against the Company, or (c) owes any money to, or is owed any money by, the
Company other than compensation and expense reimbursements as an employee of the
Company in the Ordinary Course of Business. Section 2.27 of the Disclosure
Schedule describes any transactions or business or family relationships between
the Company and any Affiliate thereof which occurred or have existed since the
beginning of the time period covered by the Financial Statements.
2.28 Brokers' Fees. The Company has no liability or obligation to pay any
fees or commissions to any broker, finder or agent with respect to the
transactions contemplated by this Agreement, except for any fees and expenses
owed to Covington Associates (which fees and expenses will be paid by the Buyer
at the Closing), subject to the provisions of Section 4.9 hereof.
2.29 Books and Records. The minute books and other similar records of the
Company contain complete and accurate records of all actions taken at any
meetings of the Company's stockholders, Board of Directors or any committee
thereof and of all written consents executed in lieu of the holding of any such
meeting. The books and records of the Company have been maintained in accordance
with good business and bookkeeping practices. Section 2.29 of the Disclosure
Schedule contains a list of all bank accounts and safe deposit boxes of the
Company and the names of persons having signature authority with respect thereto
or access thereto.
2.30 Disclosure. No representation or warranty by the Company contained in
this Agreement, and no statement contained in the Disclosure Schedule or any
other document, certificate or other instrument delivered or to be delivered by
or on behalf of the Company pursuant to this Agreement, contains or will contain
any untrue statement of a material fact or omits or will omit to state any
material fact necessary, when read together in light of the circumstances under
which it was or will be made, in order to make the statements herein or therein
not misleading.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE BUYER
AND THE TRANSITORY SUBSIDIARY
Each of the Buyer and the Transitory Subsidiary represents and warrants
to the Company that the statements contained in this Article III are true and
correct as of the date of this Agreement and will be true and correct as of the
Closing as though made as of the Closing, except to the extent such
representations and warranties are specifically made as of a particular date (in
which case such representations and warranties will be true and correct as of
such date):
3.1 Organization, Qualification and Corporate Power. Each of the Buyer and
the Transitory Subsidiary is a corporation duly organized, validly existing and
in good standing under the laws of the state of its incorporation. The Buyer is
duly qualified to conduct business
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and is in corporate and tax good standing under the laws of each jurisdiction in
which the nature of its businesses or the ownership or leasing of its properties
requires such qualification, except where the failure to be so qualified or in
good standing would not have a Buyer Material Adverse Effect. The Buyer has all
requisite corporate power and authority to carry on the businesses in which it
is engaged and to own and use the properties owned and used by it. The Buyer has
made available to the Company complete and accurate copies of its Certificate of
Incorporation and By-laws.
3.2 Capitalization. The authorized capital stock of the Buyer consists of
(a) 100,000,000 shares of Buyer Common Stock, of which 30,627,114 shares were
issued and outstanding as of October 31, 2002, and (b) 5,000,000 shares of
Preferred Stock, $.01 par value per share, of which no shares are issued or
outstanding. The rights and privileges of each class of the Buyer's capital
stock are set forth in the Buyer's Certificate of Incorporation. All of the
issued and outstanding shares of Buyer Common Stock have been duly authorized
and validly issued and are fully paid and nonassessable. All of the Merger
Shares will be, when issued on the terms and conditions of this Agreement, duly
authorized, validly issued, fully paid and nonassessable and not subject to or
issued in violation of any purchase option, call option, right of first refusal,
preemptive right, subscription right or any similar right under any provision of
the Buyer's Certificate of Incorporation or By-laws or any agreement to which
the Buyer is a party or is otherwise bound.
3.3 Authorization of Transaction. Each of the Buyer and the Transitory
Subsidiary has all requisite power and authority to execute and deliver this
Agreement and (in the case of the Buyer) the Escrow Agreement and to perform its
obligations hereunder and thereunder. The execution and delivery by the Buyer
and the Transitory Subsidiary of this Agreement and (in the case of the Buyer)
the Escrow Agreement and, subject to the Requisite Buyer Stockholder Approval,
the consummation by the Buyer and the Transitory Subsidiary of the transactions
contemplated hereby and thereby have been duly and validly authorized by all
necessary corporate action on the part of the Buyer and Transitory Subsidiary,
respectively. The Board of Directors of the Buyer, at a meeting duly called and
held, (i) determined that the Merger is fair and in the best interests of the
Company and its stockholders, (ii) directed that the issuance of the Merger
Shares be submitted to the stockholders of the Buyer for their approval and
resolved to recommend that the stockholders of the Buyer vote in favor of the
issuance of the Merger Shares, and (iii) adopted this Agreement in accordance
with the provisions of the Delaware General Corporation Law. This Agreement has
been duly and validly executed and delivered by the Buyer and the Transitory
Subsidiary and constitutes a valid and binding obligation of the Buyer and the
Transitory Subsidiary, enforceable against them in accordance with its terms.
3.4 Noncontravention. Subject to compliance with the applicable
requirements of the Securities Act and any applicable state securities laws, the
Exchange Act and the filing of the Certificate of Merger as required by the
Delaware General Corporation Law, neither the execution and delivery by the
Buyer or the Transitory Subsidiary of this Agreement or (in the case of the
Buyer) the Escrow Agreement, nor the consummation by the Buyer or the Transitory
Subsidiary of the transactions contemplated hereby or thereby, will (a) conflict
with or violate any provision of the charter or By-laws of the Buyer or the
Transitory Subsidiary, (b) require on the part of the Buyer or the Transitory
Subsidiary any filing with, or permit, authorization, consent or approval of,
any Governmental Entity, except for the filing of the Joint Statement
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with the SEC in accordance with the Exchange Act, (c) conflict with, result in
breach of, constitute (with or without due notice or lapse of time or both) a
default under, result in the acceleration of obligations under, create in any
party any right to terminate, modify or cancel, or require any notice, consent
or waiver under, any contract or instrument to which the Buyer or the Transitory
Subsidiary is a party or by which either is bound or to which any of their
assets are subject, except for (i) any conflict, breach, default, acceleration,
termination, modification or cancellation which would not adversely affect the
consummation of the transactions contemplated hereby or (ii) any notice, consent
or waiver the absence of which would not adversely affect the consummation of
the transactions contemplated hereby, or (d) violate any order, writ,
injunction, decree, statute, rule or regulation applicable to the Buyer or the
Transitory Subsidiary or any of their properties or assets.
3.5 Reports and Financial Statements. The Buyer has filed with the SEC all
Buyer Reports required to be filed with the SEC, and has made available to the
Company complete and accurate copies, as amended or supplemented, of the Buyer
Reports in the form filed with the SEC. The Buyer Reports constitute all of the
documents required to be filed by the Buyer with the SEC from October 1, 2001
through the date of this Agreement. As of their respective filing dates, the
Buyer Reports (i) complied in all material respects with the requirements of the
Securities Act or the Exchange Act, as the case may be, and the rules and
regulations of the SEC thereunder applicable to such Buyer Reports and (ii) the
Buyer Reports did at the time they were filed (or if amended or superceded by a
filing prior to the date of this Agreement, on the date of such filing) not
contain any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading. Each of the consolidated financial statements of the Buyer
(including the notes thereto), included in the Buyer Reports (i) complied as to
form in all material respects with applicable accounting requirements and the
published rules and regulations of the SEC with respect thereto, (ii) were
prepared in accordance with GAAP applied on a consistent basis throughout the
periods covered thereby (except as may be indicated therein or in the notes
thereto, and in the case of quarterly financial statements, as permitted by Form
10-Q under the Exchange Act), and (iii) fairly present the consolidated
financial condition, results of operations and cash flows of the Buyer as of the
respective dates thereof and for the periods referred to therein. There has been
no material change in the Buyer's accounting policies since October 1, 2001,
except as described in the notes to the financial statements of the Buyer.
3.6 Litigation. Except as disclosed in the Buyer Reports, as of the date of
this Agreement, there is no Legal Proceeding which is pending or, to the Buyer's
knowledge, threatened against the Buyer or any subsidiary of the Buyer which, if
determined adversely to the Buyer or any subsidiary, could have, individually or
in the aggregate, a Buyer Material Adverse Effect or which in any manner
challenges or seeks to prevent, enjoin, alter or delay the transactions
contemplated by this Agreement.
3.7 Interim Operations of the Transitory Subsidiary. The Transitory
Subsidiary was formed solely for the purpose of engaging in the transactions
contemplated by this Agreement and has engaged in no business activities other
than as contemplated by this Agreement.
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3.8 Brokers' Fees. Except with respect to the fees and expenses of Needham
& Company, neither the Buyer nor the Transitory Subsidiary has any liability or
obligation to pay any fees or commissions to any broker, finder or agent with
respect to the transactions contemplated by this Agreement.
ARTICLE IV
COVENANTS
4.1 Closing Efforts. Each of the Parties shall use its Reasonable Best
Efforts to take all actions and to do all things necessary, proper or advisable
to consummate the transactions contemplated by this Agreement, including using
its Reasonable Best Efforts to ensure that (i) its representations and
warranties remain true and correct in all material respects through the Closing
Date and (ii) the conditions to the obligations of the other Parties to
consummate the Merger are satisfied.
4.2 Governmental and Third-Party Notices and Consents.
(a) Each Party shall use its Reasonable Best Efforts to obtain, at its
expense, all waivers, permits, consents, approvals or other authorizations from
Governmental Entities, and to effect all registrations, filings and notices with
or to Governmental Entities, as may be required for such Party to consummate the
transactions contemplated by this Agreement and to otherwise comply with all
applicable laws and regulations in connection with the consummation of the
transactions contemplated by this Agreement.
(b) The Company shall use its Reasonable Best Efforts to obtain, at
its expense, all such waivers, consents or approvals from third parties, and to
give all such notices to third parties, as are required to be listed in the
Disclosure Schedule.
4.3 Company Stockholder Approval.
(a) The Company shall use its Reasonable Best Efforts to obtain, as
promptly as practicable, the Requisite Company Stockholder Approval, either at a
special meeting of stockholders or pursuant to a written stockholder consent,
all in accordance with the applicable requirements of the Delaware General
Corporation Law. In connection with such special meeting of stockholders or
written stockholder consent, the Company shall provide to its stockholders the
Joint Statement. The Company agrees not to distribute the Joint Statement to its
Stockholders until the Buyer has mailed the Joint Statement to the Buyer's
Stockholders.
(b) Each of the Company Key Stockholders agrees (i) to vote all Common
Shares that are beneficially owned by him, her or it in favor of the adoption of
this Agreement and the approval of the Merger, (ii) not to vote any Common
Shares in favor of any other acquisition (whether by way of merger,
consolidation, share exchange, stock purchase or asset purchase) of all or a
majority of the outstanding capital stock or assets of the Company, (iii)
otherwise to use his, her or its Reasonable Best Efforts (but without any
obligation to incur any personal expense, subject to Section 4.9 hereof) to
obtain the Requisite Company Stockholder Approval (iv) not to tender, sell or
otherwise transfer such Company Key Stockholder's Common Shares to any third
party unless such third party transferee agrees to assume such Company
Stockholder's obligations under this Agreement, and (v) that such
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Company Key Stockholder hereby appoints the Buyer and the President of the
Buyer, in his capacity as an officer of the Buyer, such Company Key
Stockholder's proxy and attorney-in-fact (with full power of substitution) to
vote or act by written consent with respect to such Company Key Stockholder's
Common Shares in accordance with this Section 4.3(e).
4.4 Joint Statement.
(a) As promptly as practicable after the execution of this Agreement,
the Buyer, in cooperation with the Company, shall prepare and file with the SEC
the Joint Statement. Each of the Buyer and the Company shall respond to any
comments of the SEC and the Buyer and the Company shall cause the Joint
Statement to be mailed to their respective stockholders at the earliest
practicable time after the Joint Statement is filed with the SEC, subject to
compliance with the Exchange Act, including without limitation Rule 14a-6
thereunder. Each of the Buyer and the Company shall notify the other promptly
upon the receipt of any comments from the SEC or its staff or any other
government officials and of any request by the SEC or its staff or any other
government officials for amendments or supplements to the Joint Statement or for
additional information and shall supply the other with copies of all
correspondence between such party or any of its representatives, on the one
hand, and the SEC, or its staff or any other government officials, on the other
hand, with respect to the Joint Statement or the Merger. Each of the Buyer and
the Company shall use its best efforts to cause all documents that it is
responsible for filing with the SEC or other regulatory authorities under this
Section 4.4 to comply in all material respects with all applicable requirements
of law and the rules and regulations promulgated thereunder. Whenever any event
occurs which is required to be set forth in an amendment or supplement to the
Joint Statement, the Buyer or the Company, as the case may be, shall promptly
inform the other of such occurrence and cooperate in filing with the SEC or its
staff or any other government officials, and/or mailing to stockholders of the
Company and the Buyer, such amendment or supplement.
(b) The Company, acting through its Board of Directors, shall include
in the Joint Statement the unanimous recommendation of its Board of Directors
that the stockholders of the Company vote in favor of the adoption of this
Agreement and the approval of the Merger.
(c) Each of the Company and the Buyer shall ensure that the Joint
Statement does not contain any untrue statement of a material fact or omit to
state a material fact necessary in order to make the statements made relating to
such party, in light of the circumstances under which they were made, not
misleading (provided that such party shall not be responsible for the accuracy
or completeness of any information concerning the other party furnished by the
other party for inclusion in the Joint Statement).
(d) The Buyer and the Company shall cooperate to promptly make all
necessary filings with respect to the Merger under the Securities Act, the
Exchange Act, applicable state blue sky laws and the rules and regulations
thereunder.
4.5 Buyer Stockholder Approval. The Buyer, acting through the Board of
Directors of the Buyer, shall include in the Joint Statement the recommendation
of its Board of Directors that the stockholders of the Buyer vote in favor of
the issuance of the Merger Shares, and shall take all actions in accordance with
applicable law, its Certificate of Incorporation and By-laws
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and the rules of the NASDAQ National Market to promptly and duly call, give
notice of, convene and hold as promptly as practicable after the Joint Statement
is mailed to the stockholders of the Buyer, the Buyer Stockholders Meeting for
the purpose of considering and voting upon the issuance of the Merger Shares.
The Buyer shall take all action that is both reasonable and lawful to solicit
from its stockholders proxies in favor of the issuance of the Merger Shares and
shall take all other action necessary or advisable to secure the vote or consent
of the stockholders of the Buyer required by the rules of the NASDAQ National
Market to obtain such approvals. Notwithstanding anything to the contrary
contained in this Agreement, the Buyer, after consultation with the Company, may
adjourn or postpone the Buyer Stockholders Meeting to the extent necessary to
ensure that any required supplement or amendment to the Joint Statement is
provided to the Buyer's stockholders or, if as of the time for which the Buyer
Stockholders Meeting is originally scheduled (as set forth in the Joint
Statement) there are insufficient shares of Buyer Common Stock represented
(either in person or by proxy) to constitute a quorum necessary to conduct the
business of the Buyer Stockholders Meeting.
4.6 Operation of Business. Except as contemplated by this Agreement, during
the period from the date of this Agreement to the Closing, the Company shall
conduct its operations in the Ordinary Course of Business and in compliance with
all applicable laws and regulations and, to the extent consistent therewith, use
its Reasonable Best Efforts to preserve intact its current business
organization, keep its physical assets in good working condition, keep available
the services of its current officers and employees and preserve its
relationships with customers, suppliers and others having business dealings with
it to the end that its goodwill and ongoing business shall not be impaired in
any material respect. Without limiting the generality of the foregoing, prior to
the Closing, the Company shall not, without the written consent of the Buyer:
(a) issue or sell any stock or other securities of the Company or any
options, warrants or rights to acquire any such stock or other securities
(except pursuant to the conversion or exercise of Preferred Shares or Options
outstanding on the date hereof), or amend any of the terms of (including the
vesting of) any Options or restricted stock agreements, or repurchase or redeem
any stock or other securities of the Company (except from former employees,
directors or consultants in accordance with agreements providing for the
repurchase of shares at their original issuance price in connection with any
termination of employment with or services to the Company);
(b) split, combine or reclassify any shares of its capital stock; or
declare, set aside or pay any dividend or other distribution (whether in cash,
stock or property or any combination thereof) in respect of its capital stock;
(c) assume, guarantee, endorse or otherwise become liable or
responsible (whether directly, contingently or otherwise) for the obligations of
any other person or entity; or make any loans, advances or capital contributions
to, or investments in, any other person or entity;
(d) enter into, adopt or amend any Employee Benefit Plan or any
employment or severance agreement or arrangement of the type described in
Section 2.22(k) or (except for normal increases in the Ordinary Course of
Business for employees who are not Affiliates) increase in any manner the
compensation or fringe benefits of, or materially modify the
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employment terms of, its directors, officers or employees, generally or
individually, or pay any bonus or other benefit to its directors, officers or
employees (except for existing payment obligations listed in Section 2.22 of the
Disclosure Schedule) or hire any new officers or (except in the Ordinary Course
of Business) any new employees;
(e) acquire, sell, lease, license or dispose of any assets or property
(including any shares or other equity interests in or securities of any
corporation, partnership, association or other business organization or division
thereof), other than purchases and sales of assets in the Ordinary Course of
Business;
(f) incur or assume any indebtedness, other than trade indebtedness in
the Ordinary Course of Business and indebtedness under the Company's existing
bank credit facility up to an aggregate principal amount outstanding not in
excess of (i) $3,750,000 if the Closing occurs on or before December 31, 2002 or
(ii) $4,250,000 if the Closing occurs after December 31, 2002, nor mortgage or
pledge any of its property or assets or subject any such property or assets to
any Security Interest other than purchase money Security Interests granted under
the Company's existing bank credit facility;
(g) discharge or satisfy any Security Interest or pay any obligation
or liability other than in the Ordinary Course of Business;
(h) amend its charter, by-laws or other organizational documents;
(i) change its accounting methods, principles or practices, except
insofar as may be required by a generally applicable change in GAAP, or make any
new elections, or changes to any current elections, with respect to Taxes;
(j) except as set forth in Section 4.6 of the Disclosure Schedule,
enter into, amend, terminate, take or omit to take any action that would
constitute a violation of or default under, or waive any rights under, any
contract or agreement of a nature required to be listed in Section 2.12, Section
2.13 or Section 2.15 of the Disclosure Schedule;
(k) make or commit to make any capital expenditure in excess of
$20,000 per item or $50,000 in the aggregate;
(l) institute or settle any Legal Proceeding;
(m) take any action or fail to take any action permitted by this
Agreement with the knowledge that such action or failure to take action would
result in (i) any of the representations and warranties of the Company set forth
in this Agreement becoming untrue or (ii) any of the conditions to the Merger
set forth in Article V not being satisfied;
(n) make any cash disbursements or compensation adjustments for any
employees or other third parties outside the Ordinary Course of Business; or
(o) agree in writing or otherwise to take any of the foregoing
actions.
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4.7 Access to Information, Suppliers and Customers. The Company shall
permit representatives of the Buyer to have full access (at reasonable times and
subject to reasonable advance notice, and in a manner so as not to interfere
with the normal business operations of the Company) to all premises, properties,
financial, tax and accounting records (including the work papers of the
Company's independent accountants), contracts, other records and documents, and
personnel, of or pertaining to the Company and shall, at the request of Buyer,
introduce Buyer to the Company's principal suppliers and customers to facilitate
discussions regarding the conduct of the Company's business after the Closing.
4.8 Exclusivity.
(a) The Company shall not, and the Company shall require each of its
officers, directors, employees, representatives and agents not to, directly or
indirectly, (i) initiate, solicit, encourage or otherwise facilitate any
inquiry, proposal, offer or discussion with any party (other than the Buyer)
concerning any merger, reorganization, consolidation, recapitalization, business
combination, liquidation, dissolution, share exchange, sale of stock, sale of
material assets or similar business transaction involving the Company or any
division of the Company, (ii) furnish any non-public information concerning the
business, properties or assets of the Company or any division of the Company to
any party (other than the Buyer) except as may be required in the Ordinary
Course of Business and not in connection with any such transaction or (iii)
engage in discussions or negotiations with any party (other than the Buyer)
concerning any such transaction.
(b) The Company shall immediately notify any party with which
discussions or negotiations of the nature described in paragraph (a) above were
pending that the Company is terminating such discussions or negotiations. If the
Company receives any inquiry, proposal or offer of the nature described in
paragraph (a) above, the Company shall, within one business day after such
receipt, notify the Buyer of such inquiry, proposal or offer, including the
identity of the other party and the terms of such inquiry, proposal or offer.
4.9 Expenses. Except as set forth in Article VI, Section 8.1(d) and the
Escrow Agreement, each of the Parties shall bear its own investment banking,
legal, accounting, tax and consulting fees and expenses incurred in connection
with this Agreement and the transactions contemplated hereby (in the case of
such expenses incurred by the Company, the "Section 4.9 Expenses"); provided,
however, that if the Merger is consummated, Buyer will pay at the Closing the
Section 4.9 Expenses; provided that, to the extent that such Section 4.9
Expenses exceed $650,000 (such excess amount, the "Excess Expenses"), the Per
Share Consideration paid to each Company Stockholder shall be reduced by the
amount of the Expenses Reduction.
4.10 Listing of Merger Shares. The Buyer shall, if and to the extent
required by the rules of The Nasdaq Stock Market or such other market on which
the Buyer Common Stock is then listed or traded, if applicable, file with The
Nasdaq Stock Market a Notification Form for Listing Additional Shares or its
equivalent with respect to the shares of Buyer Common Stock issuable in
connection with the Merger.
4.11 Line of Credit. The Company shall not cause or permit the Credit
Balance to exceed (i) $3,750,000 if the Closing occurs on or before December 31,
2002 or (ii) $4,250,000 if
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the Closing occurs after December 31, 2002, and shall not amend the existing
line of credit with Citizens Bank nor establish any new line of credit, without
the written consent of Buyer.
4.12 Spin-Off. The Company shall:
(a) not distribute to the shareholders or security holders of the
Company stock or securities of a corporation in a transaction to which Section
355 of the Code applies;
(b) not incur any liability under the Separation Agreement, or breach
any representation, warranty or covenant made in the Separation Agreement;
(c) not undertake, or agree to undertake, any transaction that could
constitute part of a "plan" or "series of related transactions" (within the
meaning of Section 355(e) of the Code) with the transactions undertaken pursuant
to the Separation Agreement, it being understood and agreed by the Parties that
the consummation of the transactions contemplated by this Agreement and the
Merger do not contravene or in any way constitute a breach of this Section 4.12;
and
(d) use commercially reasonable efforts to cause the transactions
contemplated by this Agreement to satisfy a safe harbor described in Treasury
Regulation Section 1.355-7T(d).
4.13 FIRPTA Tax Certificates. If requested by the Buyer, (i) on or before
the Closing Date the Company will deliver to the Buyer and to the Internal
Revenue Service notices that the Common Shares are not a "U.S. real property
interest" in accordance with the Treasury Regulations under Sections 897 and
1445 of the Code, or (ii) on or before the Closing Date the Company Stockholders
will deliver to the Buyer certifications that they are not foreign persons in
accordance with the Treasury Regulations under Section 1445 of the Code. If the
Buyer does not receive either the notices or certifications described above on
or before the Closing Date, the Buyer shall be permitted to withhold from the
Merger consideration any required withholding tax under Section 1445 of the
Code.
4.14 Form S-8. Buyer shall file a Registration Statement on Form S-8 with
the SEC covering the shares of Buyer Common Stock issuable with respect to
assumed Options in accordance with the provisions of Section 1.9 hereof.
4.15 Continued Charter/By-Law Indemnification.
(a) For a period of six (6) years after the Effective Time, Buyer will
not, and will cause the Surviving Corporation not to, amend, repeal or otherwise
modify any provisions with respect to indemnification and exculpation set forth
in the Company's Certificate of Incorporation and By-laws as in effect on the
date of this Agreement in any manner that would adversely affect the rights
thereunder of any individual entitled to indemnification thereby (the "Section
4.15 Indemnified Parties").
(b) For a period of twelve months after the current expiration date of
the Company's directors' and officers' liability insurance policy, the Buyer
shall cause the Surviving Corporation to maintain (to the extent available in
the market) in effect such directors' and
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officers' liability insurance policy covering those persons who are currently
covered by such directors' and officers' liability insurance policy (a complete
and accurate copy of which has been delivered to the Buyer prior to the date of
this Agreement) with coverage in amount and scope at least as favorable to such
persons as the Company's existing coverage; provided, that in no event shall the
Buyer or the Surviving Corporation be required to expend in excess of $11,250.
(c) This Section 4.15 shall survive consummation of the Merger at the
Effective Time, is intended to be for the benefit of, and enforceable by, the
Company, Buyer, the Surviving Corporation and each Section 4.15 Indemnified
Party and such Section 4.15 Indemnified Party's heirs and representatives, and
shall be binding on all successors and assigns of Buyer and the Surviving
Corporation.
4.16 Benefit Arrangements. Buyer covenants and agrees that to the extent
permitted by applicable law and to the extent the existing benefit plans and
arrangements provided by the Company to its employees are terminated on or after
the Effective Time, such employees shall be entitled to benefits which are
available or subsequently become available to Buyer's employees and on a basis
which is on parity with Buyer's similarly situated employees. For purposes of
satisfying the terms and conditions of such plans, Buyer shall give full credit
for eligibility, vesting or benefit level for each participant's period of
service at the Company prior to the Effective Time.
4.17 Notice of Breaches. From the date of this Agreement until the
Effective Time, the Company shall promptly deliver to the Buyer supplemental
information concerning events or circumstances occurring subsequent to the date
hereof which would render any representation, warranty or statement in this
Agreement or the Disclosure Schedule inaccurate or incomplete in any respect at
any time after the date of this Agreement until the Closing Date. No such
supplemental information shall be deemed to cure any misrepresentation or breach
of warranty or constitute an amendment of any representation, warranty or
statement in this Agreement or the Disclosure Schedule; provided that if such
supplemental information relates to an event or circumstance occurring
subsequent to the date hereof in the Ordinary Course of Business (without breach
of Section 4.6) and if the Buyer would have the right to terminate this
Agreement pursuant to Section 8.1(b) as a result of the information so disclosed
and it does not exercise such right prior to the Effective Time, then such
supplemental information shall constitute an amendment of the representation,
warranty or statement to which it relates for purposes of Article VI of this
Agreement.
ARTICLE V
CONDITIONS TO CONSUMMATION OF THE MERGER
5.1 Conditions to Each Party's Obligations. The respective obligations of
each Party to consummate the Merger are subject to the satisfaction at or prior
to the Closing of the following conditions:
(a) this Agreement and the Merger shall have received the Requisite
Company Stockholder Approval and the Requisite Buyer Stockholder Approval;
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(b) the consent and waiver of EMC Corporation with respect to the
Merger pursuant to all existing arrangements of the Company with EMC Corporation
shall be in full force and effect subsequent to the Closing; and
(c) 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.
5.2 Conditions to Obligations of the Buyer and the Transitory Subsidiary.
The obligation of each of the Buyer and the Transitory Subsidiary to consummate
the Merger is subject to the satisfaction (or waiver by the Buyer) of the
following additional conditions:
(a) the Company shall have (and shall have provided copies thereof to
the Buyer) all of the waivers, permits, consents, approvals or other
authorizations, and effected all of the registrations, filings and notices,
referred to in Section 4.2 which are required on the part of the Company, except
for any which if not obtained or effected would not have a Company Material
Adverse Effect or a material adverse effect on the ability of the Parties to
consummate the transactions contemplated by this Agreement;
(b) the representations and warranties of the Company set forth in the
first sentence of Section 2.1 and in Section 2.3 and any representations and
warranties of the Company set forth in this Agreement that are qualified as to
materiality shall be true and correct in all respects, and all other
representations and warranties of the Company set forth in this Agreement shall
be true and correct in all material respects, in each case as of the date of
this Agreement and as of the Closing as though made as of the Closing, except to
the extent such representations and warranties are specifically made as of a
particular date (in which case such representations and warranties shall be true
and correct as of such date;
(c) the Company shall have performed or complied with in all material
respects its agreements and covenants required to be performed or complied with
under this Agreement as of or prior to the Closing;
(d) no Legal Proceeding shall be pending or threatened wherein an
unfavorable judgment, order, decree, stipulation or injunction would (i) prevent
consummation of the transactions contemplated by this Agreement, (ii) cause the
transactions contemplated by this Agreement to be rescinded following
consummation or (iii) have, individually or in the aggregate, a Company Material
Adverse Effect, and no such judgment, order, decree, stipulation or injunction
shall be in effect;
(e) the Company shall have delivered to the Buyer and the Transitory
Subsidiary the Company Certificate;
(f) each of the Company Key Stockholders shall have executed and
delivered to the Buyer an Investment Representation Letter in the form attached
hereto as Exhibit A-1 or Exhibit A-2, as applicable, and the Buyer shall have no
reason to believe that the statements set forth therein are not true and shall
be reasonably satisfied that the issuance and sale of the Merger Shares is
exempt from the registration requirements of the Securities Act;
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(g) the Buyer shall have received copies of the resignations,
effective as of the Closing, of each director and officer of the Company (other
than any such resignations which the Buyer designates, by written notice to the
Company, as unnecessary);
(h) the Buyer shall have received (i) executed copies of an employment
agreement satisfactory to the Buyer from each of the Key Employees, providing
for customary inventions, non-disclosure, and non-solicitation terms and
effective upon the Closing, and (ii) executed copies of the Buyer's standard
form of Inventions, Non-disclosure, Non-competition and Non-Solicitation
Agreement from all other employees of the Company;
(i) all obligations, indebtedness and associated interest owed to the
Company by Mr. Jeffrey Brandes as of the Closing shall have been paid in full
and satisfied in all respects;
(j) since the Most Recent Balance Sheet Date, the Company shall not
have incurred a reduction in Net Worth such that the Net Worth of the Company is
less than $2.1 million;
(k) the Company shall have delivered to Buyer a schedule of expenses
incurred as contemplated by Section 4.9 at least two (2) business days prior to
Closing;
(l) holders of at least ninety-seven percent (97%) of the Common
Shares (i) shall have consented to the Merger and this Agreement in writing and
in a manner consistent with the Delaware General Corporation Law and (ii) shall
not have withdrawn that consent pursuant to the Delaware General Corporation
Law;
(m) any stockholder agreements, voting agreements, investor rights
agreements, right of first refusal agreements, or other similar agreements,
among all or a portion of the Company Stockholders shall have been terminated by
each of the parties thereto;
(n) the Buyer and the Company shall have agreed on the Final Interim
Balance Sheet and any resulting Working Capital Reduction pursuant to Section
1.8 hereof;
(o) the Company, Akibia, Inc. and PSI Holding Group, Inc. shall have
executed an amendment to the Separation Agreement in substantially the form
attached hereto as Exhibit C;
(p) the Company and Akibia, Inc. shall have signed an amendment to
Master Transitional Services Agreement between the Company and Akibia, Inc. in
substantially the form attached hereto as Exhibit D-1 and an amendment to
Sublease Agreement between the Company and Akibia, Inc. in substantially the
form attached hereto as Exhibit D-2; and
(q) the Buyer shall have received such other certificates and
instruments (including certificates of good standing of the Company in their
jurisdiction of organization and the various foreign jurisdictions in which they
are qualified, certified charter documents, certificates as to the incumbency of
officers and the adoption of authorizing resolutions) as it shall reasonably
request in connection with the Closing.
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5.3 Conditions to Obligations of the Company. The obligation of the
Company to consummate the Merger is subject to the satisfaction of the following
additional conditions:
(a) the Buyer shall have filed with the NASDAQ National Market, or
such other market on which the Buyer Common Stock is then listed or traded, a
Notification for the Listing of Additional Shares or its equivalent;
(b) the Buyer shall have effected all of the registrations, filings
and notices referred to in Section 4.2 which are required on the part of the
Buyer, except for any which if not obtained or effected would not have a Buyer
Material Adverse Effect or a material adverse effect on the ability of the
Parties to consummate the transactions contemplated by this Agreement;
(c) the representations and warranties of the Buyer and the Transitory
Subsidiary set forth in the first sentence of Section 3.1 and in Section 3.3 and
any representations and warranties of the Buyer and the Transitory Subsidiary
set forth in this Agreement that are qualified as to materiality shall be true
and correct in all respects, and all other representations and warranties of the
Buyer and the Transitory Subsidiary set forth in this Agreement shall be true
and correct in all material respects, in each case as of the date of this
Agreement and as of the Closing as though made as of the Closing, except to the
extent such representations and warranties are specifically made as of a
particular date (in which case such representations and warranties shall be true
and correct as of such date);
(d) each of the Buyer and the Transitory Subsidiary shall have
performed or complied with in all material respects its agreements and covenants
required to be performed or complied with under this Agreement as of or prior to
the Closing;
(e) no Legal Proceeding shall be pending or threatened wherein an
unfavorable judgment, order, decree, stipulation or injunction would (i) prevent
consummation of the transactions contemplated by this Agreement or (ii) cause
the transactions contemplated by this Agreement to be rescinded following
consummation, and no such judgment, order, decree, stipulation or injunction
shall be in effect;
(f) the Buyer shall have delivered to the Company the Buyer
Certificate; and
(g) the Company shall have received such other certificates and
instruments (including certificates of good standing of the Buyer and the
Transitory Subsidiary in their jurisdiction of organization, certified charter
documents, certificates as to the incumbency of officers and the adoption of
authorizing resolutions) as it shall reasonably request in connection with the
Closing.
ARTICLE VI
INDEMNIFICATION
6.1 Indemnification by the Indemnifying Stockholders. The Indemnifying
Stockholders shall, subject to the provisions of this Article VI, severally and
not jointly, in proportion to their interest in the Escrow Shares held under the
Escrow Agreement, indemnify the Buyer in respect of, and hold it harmless
against, any and all Damages incurred or suffered
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by the Surviving Corporation or the Buyer or any Affiliate thereof resulting
from, relating to or constituting:
(a) any breach, as of the date of this Agreement or as of the Closing
Date, of any representation or warranty of the Company contained in this
Agreement or any other agreement or instrument furnished by the Company to the
Buyer pursuant to this Agreement; or
(b) any failure to perform any covenant or agreement of the Company
contained in this Agreement or any agreement or instrument furnished by the
Company to the Buyer pursuant to this Agreement.
6.2 Indemnification by the Buyer. The Buyer shall indemnify the
Indemnifying Stockholders in respect of, and hold them harmless against, any and
all Damages incurred or suffered by the Indemnifying Stockholders resulting
from, relating to or constituting:
(a) any breach, as of the date of this Agreement or as of the Closing
Date, of any representation or warranty of the Buyer or the Transitory
Subsidiary contained in this Agreement or any other agreement or instrument
furnished by the Buyer or the Transitory Subsidiary to the Company pursuant to
this Agreement; or
(b) any failure to perform any covenant or agreement of the Buyer or
the Transitory Subsidiary contained in this Agreement or any agreement or
instrument furnished by the Buyer or the Transitory Subsidiary to the Company
pursuant to this Agreement.
6.3 Indemnification Claims.
(a) An Indemnified Party seeking to assert rights to indemnification
under this Article VI shall give written notification to the Indemnifying Party
of the commencement of any Third Party Action. Such notification shall be given
within 20 days after receipt by the Indemnified Party of written notice of such
Third Party Action, and shall describe in reasonable detail (to the extent known
by the Indemnified Party) the facts constituting the basis for such Third Party
Action and the amount of the claimed damages; provided, however, that no delay
or failure on the part of the Indemnified Party in so notifying the Indemnifying
Party shall relieve the Indemnifying Party of any liability or obligation
hereunder except to the extent of any damage or liability caused by or arising
out of such failure. Within 20 days after delivery of such notification, the
Indemnifying Party may, upon written notice thereof to the Indemnified Party,
assume control of the defense of such Third Party Action with counsel reasonably
satisfactory to the Indemnified Party; provided that (i) the Indemnifying Party
may only assume control of such defense if the ad damnum is less than or equal
to the amount of Damages for which the Indemnifying Party is liable under this
Article VI and (ii) the Indemnifying Party may not assume control of the defense
of Third Party Action involving criminal liability or in which equitable relief
is sought against the Indemnified Party. If the Indemnifying Party does not, or
is not permitted under the terms hereof to, so assume control of the defense of
a Third Party Action, the Indemnified Party shall control such defense. The
Non-controlling Party may participate in such defense at its own expense. The
Controlling Party shall keep the Non-controlling Party advised of the status of
such Third Party Action and the defense thereof and shall consider in good faith
recommendations made by the Non-controlling Party with respect
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thereto. The Non-controlling Party shall furnish the Controlling Party with such
information as it may have with respect to such Third Party Action (including
copies of any summons, complaint or other pleading which may have been served on
such party and any written claim, demand, invoice, billing or other document
evidencing or asserting the same) and shall otherwise cooperate with and assist
the Controlling Party in the defense of such Third Party Action. The
Indemnifying Party shall not agree to any settlement of, or the entry of any
judgment arising from, any Third Party Action without the prior written consent
of the Indemnified Party, which shall not be unreasonably withheld, conditioned
or delayed; provided that the consent of the Indemnified Party shall not be
required if the Indemnifying Party agrees in writing to pay any amounts payable
pursuant to such settlement or judgment and such settlement or judgment includes
a complete release of the Indemnified Party from further liability and has no
other adverse effect on the Indemnified Party. The Indemnified Party shall not
agree to any settlement of, or the entry of any judgment arising from, any such
Third Party Action without the prior written consent of the Indemnifying Party,
which shall not be unreasonably withheld, conditioned or delayed.
(b) In order to seek indemnification under this Article VI, an
Indemnified Party shall deliver a Claim Notice to the Indemnifying Party. If the
Indemnified Party is the Buyer and is seeking to enforce such claim pursuant to
the Escrow Agreement, the Buyer shall deliver a copy of the Claim Notice to the
Escrow Agent.
(c) Within 20 days after delivery of a Claim Notice, the Indemnifying
Party shall deliver to the Indemnified Party a Response, in which the
Indemnifying Party shall elect one of the following: (i) agree that the
Indemnified Party is entitled to receive all of the Claimed Amount (in which
case the Response shall be accompanied by a payment by the Indemnifying Party to
the Indemnified Party of the Claimed Amount, by check or by wire transfer;
provided that if the Indemnified Party is the Buyer and is seeking to enforce
such claim pursuant to the Escrow Agreement, the Indemnifying Party and the
Indemnified Party shall deliver to the Escrow Agent, within three days following
the delivery of the Response, a written notice executed by both parties
instructing the Escrow Agent to distribute to the Buyer such number of Escrow
Shares as have an aggregate Value equal to the Claimed Amount), or (ii) agree
that the Indemnified Party is entitled to receive the Agreed Amount (in which
case the Response shall be accompanied by a payment by the Indemnifying Party to
the Indemnified Party of the Agreed Amount, by check or by wire transfer;
provided that if the Indemnified Party is the Buyer and is seeking to enforce
such claim pursuant to the Escrow Agreement, the Indemnifying Party and the
Indemnified Party shall deliver to the Escrow Agent, within three days following
the delivery of the Response, a written notice executed by both parties
instructing the Escrow Agent to distribute to the Buyer such number of Escrow
Shares as have an aggregate Value equal to the Agreed Amount) or (iii) dispute
that the Indemnified Party is entitled to receive any of the Claimed Amount. For
purposes of this Article VI, the "Value" of any Escrow Shares delivered in
satisfaction of an indemnity claim shall be the average of the last reported
sale prices per share of the Buyer Common Stock on the Nasdaq National Market
over the five consecutive trading days ending two trading days before the Escrow
Agent receives a written notice executed by Buyer and the Indemnification
Representatives instructing the Escrow Agent to distribute to the Buyer such
Escrow Shares as provided above (subject to equitable adjustment in the event of
any stock split, stock dividend, reverse stock split or similar event affecting
the Buyer Common Stock since the beginning of such five-day period), multiplied
by the number of such Escrow Shares.
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(d) During the 30-day period following the delivery of a Response
that reflects a Dispute, the Indemnifying Party and the Indemnified Party shall
use good faith efforts to resolve the Dispute. If the Dispute is not resolved
within such 30-day period, the Indemnifying Party and the Indemnified Party
shall discuss in good faith the submission of the Dispute to binding
arbitration, and if the Indemnifying Party and the Indemnified Party agree in
writing to submit the Dispute to such arbitration, then the provisions of
Section 6.3(e) shall become effective with respect to such Dispute. The
provisions of this Section 6.3(d) shall not obligate the Indemnifying Party and
the Indemnified Party to submit to arbitration or any other alternative dispute
resolution procedure with respect to any Dispute, and in the absence of an
agreement by the Indemnifying Party and the Indemnified Party to arbitrate a
Dispute, such Dispute shall be resolved in a state or federal court sitting in
Boston, Massachusetts. If the Indemnified Party is the Buyer and is seeking to
enforce the claim that is the subject of the Dispute pursuant to the Escrow
Agreement, the Indemnifying Party and the Indemnified Party shall deliver to the
Escrow Agent, promptly following the resolution of the Dispute (whether by
mutual agreement, arbitration, judicial decision or otherwise), a written notice
executed by both parties instructing the Escrow Agent as to what (if any)
portion of the Escrow Shares shall be distributed to the Buyer and/or the
Indemnifying Stockholders (which notice shall be consistent with the terms of
the resolution of the Dispute).
(e) If, as set forth in Section 6.3(d), the Indemnified Party and the
Indemnifying Party agree to submit any Dispute to binding arbitration, the
arbitration shall be conducted by a single arbitrator (the "Arbitrator") in
accordance with the Commercial Rules in effect from time to time and the
following provisions:
(i) In the event of any conflict between the Commercial Rules in
effect from time to time and the provisions of this
Agreement, the provisions of this Agreement shall prevail
and be controlling.
(ii) The parties shall commence the arbitration by jointly filing
a written submission with the Boston, Massachusetts office
of the AAA in accordance with Commercial Rule 5 (or any
successor provision).
(iii) No depositions or other discovery shall be conducted in
connection with the arbitration.
(iv) Not later than 30 days after the conclusion of the
arbitration hearing, the Arbitrator shall prepare and
distribute to the parties a writing setting forth the
arbitral award and the Arbitrator's reasons therefor. Any
award rendered by the Arbitrator shall be final, conclusive
and binding upon the parties, and judgment thereon may be
entered and enforced in any court of competent jurisdiction,
provided that the Arbitrator shall have no power or
authority to grant injunctive relief, specific performance
or other equitable relief.
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(v) The Arbitrator shall have no power or authority, under the
Commercial Rules or otherwise, to (x) modify or disregard any
provision of this Agreement, including the provisions of this
Section 6.3(e), or (y) address or resolve any issue not submitted
by the parties.
(vi) In connection with any arbitration proceeding pursuant to this
Agreement, each party shall bear its own costs and expenses,
except that the fees and costs of the AAA and the Arbitrator, the
costs and expenses of obtaining the facility where the
arbitration hearing is held, and such other costs and expenses as
the Arbitrator may determine to be directly related to the
conduct of the arbitration and appropriately borne jointly by the
parties (which shall not include any party's attorneys' fees or
costs, witness fees (if any), costs of investigation and similar
expenses) shall be shared equally by the Indemnified Party and
the Indemnifying Party.
(f) For purposes of this Section 6.3 and the second and third sentences of
Section 6.4, (i) if the Indemnifying Stockholders comprise the Indemnifying
Party, any references to the Indemnifying Party (except provisions relating to
an obligation to make any payments) shall be deemed to refer to the
Indemnification Representatives, and (ii) if the Indemnifying Stockholders
comprise the Indemnified Party, any references to the Indemnified Party (except
provisions relating to an obligation to make or a right to receive any payments)
shall be deemed to refer to the Indemnification Representatives. The
Indemnification Representatives, acting jointly and not separately, shall have
full power and authority on behalf of each Indemnifying Stockholder to take any
and all actions on behalf of, execute any and all instruments on behalf of, and
execute or waive any and all rights of, the Indemnifying Stockholders under this
Article VI. The Indemnification Representatives shall have no liability to any
Indemnifying Stockholder for any action taken or omitted on behalf of the
Indemnifying Stockholders pursuant to this Article VI. The Indemnifying
Stockholders shall indemnify, defend and hold harmless the Indemnification
Representatives and each of their respective partners, stockholders, Affiliates,
directors, officers, fiduciaries, employees, agents and each of the partners,
stockholders, Affiliates, directors, officers, fiduciaries, employees, agents of
each of the foregoing (each a "Section 6.3 Indemnified Party") from and against
Damages, incurred or suffered by any of them as a result of, or arising out of,
or relating to any and all actions taken or omitted to be taken by the
Indemnification Representatives under this Agreement or in connection with the
incurrence, payment, discharge or settlement of any Damages, except for any such
Damages that arise on account of such Section 6.3 Indemnified Party's gross
negligence or willful misconduct as determined by a court of competent
jurisdiction in a final adjudication. The Indemnification Representatives shall
not be liable to any Indemnifying Stockholder in respect of such arrangements or
actions or omissions in connection therewith, except to the extent that such
acts or omissions constitute gross negligence or willful misconduct.
Notwithstanding anything to the contrary in this Agreement, all actions required
or permitted to be taken by the Indemnification Representatives in connection
with the matters described in this Section 6.3 or otherwise, in order for such
actions to be effective shall be taken jointly and shall require the prior
written consent of each of the Indemnification Representatives.
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6.4 Survival of Representations and Warranties. All representations and
warranties that are covered by the indemnification agreements in Section 6.1(a)
and Section 6.2(a) shall (a) survive the Closing and (b) shall expire on the
earlier of (A) the one year anniversary of the Closing Date and (B) completion
of the Buyer's financial audit for the fiscal year ending September 30, 2003 and
delivery to the Buyer of the opinion for such audit from the Buyer's independent
third party accountants. If an Indemnified Party delivers to an Indemnifying
Party, before expiration of a representation or warranty, either a Claim Notice
based upon a breach of such representation or warranty, or an Expected Claim
Notice based upon a breach of such representation or warranty, then the
applicable representation or warranty shall survive until, but only for purposes
of, the resolution of the matter covered by such notice. If the legal proceeding
or written claim with respect to which an Expected Claim Notice has been given
is definitively withdrawn or resolved in favor of the Indemnified Party, the
Indemnified Party shall promptly so notify the Indemnifying Party; and if the
Indemnified Party has delivered a copy of the Expected Claim Notice to the
Escrow Agent and Escrow Shares have been retained in escrow after the
Termination Date (as defined in the Escrow Agreement) with respect to such
Expected Claim Notice, the Indemnifying Party and the Indemnified Party shall
promptly deliver to the Escrow Agent a written notice executed by both parties
instructing the Escrow Agent to distribute such retained Escrow Shares to the
Indemnifying Stockholders in accordance with the terms of the Escrow Agreement.
Except as provided in Section 6.5(f), the rights to indemnification set forth in
this Article VI shall not be affected by any investigation conducted by or on
behalf of an Indemnified Party or any knowledge acquired (or capable of being
acquired) by an Indemnified Party, whether before or after the date of this
Agreement or the Closing Date, with respect to the inaccuracy or noncompliance
with any representation, warranty, covenant or obligation which is the subject
of indemnification hereunder.
6.5 Limitations.
(a) Notwithstanding anything to the contrary herein, (i) the aggregate
liability of the Indemnifying Stockholders for Damages under this Article VI
shall not exceed the value of the Escrow Shares held by or on behalf of the
Escrow Agent pursuant to the Escrow Agreement, and (ii) the Indemnifying
Stockholders shall be liable for only that portion of the aggregate Damages
under this Article VI for which they would otherwise be liable which exceeds
$125,000; provided that the limitation set forth in clause (ii) of this sentence
shall not apply to a claim pursuant to Section 6.1(a) relating to a breach of
the representations and warranties set forth in Sections 2.1, 2.2, 2.3 or 2.9 or
to a breach of the covenants set forth in Section 4.9 or 4.12. For purposes
solely of this Article VI, all representations and warranties of the Company in
Article II (other than Sections 2.7 and 2.30) shall be construed as if the term
"material" and any reference to "Company Material Adverse Effect" (and
variations thereof) were omitted from such representations and warranties.
(b) Notwithstanding anything to the contrary herein, (i) the aggregate
liability of the Buyer for Damages under this Article VI shall not exceed the
value of the Escrow Shares held by or on behalf of the Escrow Agent pursuant to
the Escrow Agreement immediately after the Effective Time, and (ii) the Buyer
shall be liable for only that portion of the aggregate Damages under this
Article VI for which it would otherwise be liable which exceeds $125,000;
provided that the limitation set forth in clause (ii) of this sentence shall not
apply to a claim pursuant to Section 6.2(a) relating to a breach of the
representations and warranties set forth in
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Sections 3.1, 3.2 or 3.3. For purposes solely of this Article VI, all
representations and warranties of the Buyer and the Transitory Subsidiary in
Article III shall be construed as if the term "material" and any reference to
"Buyer Material Adverse Effect" (and variations thereof) were omitted from such
representations and warranties.
(c) The Escrow Agreement is intended to secure the indemnification
obligations of the Indemnifying Stockholders under this Agreement and, except as
provided in Section 6.5(d) below, shall be the exclusive remedy of the Buyer to
collect any Damages for which it is entitled to indemnification under this
Article VI.
(d) Except with respect to claims based on fraud, after the Closing,
the rights of the Indemnified Parties under this Article VI and the Escrow
Agreement shall be the exclusive remedy of the Indemnified Parties with respect
to claims resulting from or relating to any misrepresentation, breach of
warranty or failure to perform any covenant or agreement contained in this
Agreement.
(e) No Indemnifying Stockholder shall have any right of contribution
against the Company or the Surviving Corporation with respect to any breach by
the Company of any of its representations, warranties, covenants or agreements.
(f) The Indemnifying Stockholders shall not be obligated to indemnify
or hold harmless Buyer or the Transitory Subsidiary with respect to any Damages
arising from or related to any breach of the Company's representations and
warranties disclosed to Buyer in accordance with the provisions of Section 4.17
hereof that constitute an amendment of a representation, warranty or statement
in this Agreement or the Disclosure Schedule as set forth in Section 4.17.
(g) The Indemnifying Stockholders shall have no obligation to
indemnify Buyer or the Transitory Subsidiary for consequential, special or
incidental damages or for lost profits, except that the Indemnifying
Stockholders shall be liable for such damages of those types as are awarded to a
third party pursuant to a claim brought by such third party against the Buyer,
the Surviving Corporation or any Affiliate thereof.
(h) Buyer and the Indemnifying Stockholders shall treat any payment
under this Article VI for all Tax purposes as an adjustment of the Merger
consideration.
ARTICLE VII
REGISTRATION RIGHTS
7.1 Registration of Shares. The Buyer shall file with the SEC the
Stockholder Registration Statement and shall use its best efforts to cause the
Stockholder Registration Statement to be declared effective by the SEC within
twelve (12) months following the Closing. The Buyer shall cause the Stockholder
Registration Statement to remain effective until the date one year after the
effective date thereof or such earlier time as all of the Merger Shares covered
by the Stockholder Registration Statement have been sold pursuant thereto.
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7.2 Limitations on Registration Rights.
(a) The Buyer may, by written notice to the Company Stockholders, (i)
delay the filing or effectiveness of the Stockholder Registration Statement or
(ii) suspend the Stockholder Registration Statement after effectiveness and
require that the Company Stockholders immediately cease sales of shares pursuant
to the Stockholder Registration Statement, in the event that (A) the Buyer files
a registration statement (other than a registration statement on Form S-8 or its
successor form) with the SEC for a public offering of its securities or (B) the
Buyer is engaged in any activity or transaction or preparations or negotiations
for any activity or transaction that the Buyer desires to keep confidential for
business reasons, if the Buyer determines in good faith that the public
disclosure requirements imposed on the Buyer under the Securities Act in
connection with the Stockholder Registration Statement would require disclosure
of such activity, transaction, preparations or negotiations; provided that (1)
no single period of delay or suspension under this Section 7.2 shall be greater
than 90 days and (2) the one year period set forth in Section 7.1 shall be
extended for the same period of time as any delays or suspensions by the Buyer
of the Stockholder Registration Statement pursuant to this Section 7.2.
(b) If the Buyer delays or suspends the Stockholder Registration
Statement or requires the Company Stockholders to cease sales of shares pursuant
to paragraph (a) above, the Buyer shall, as promptly as practicable following
the termination of the circumstance which entitled the Buyer to do so, take such
actions as may be necessary to file or reinstate the effectiveness of the
Stockholder Registration Statement and/or give written notice to all Company
Stockholders authorizing them to resume sales pursuant to the Stockholder
Registration Statement. If as a result thereof the prospectus included in the
Stockholder Registration Statement has been amended to comply with the
requirements of the Securities Act, the Buyer shall enclose such revised
prospectus with the notice to Company Stockholders given pursuant to this
paragraph (b), and the Company Stockholders shall make no offers or sales of
shares pursuant to the Stockholder Registration Statement other than by means of
such revised prospectus.
7.3 Registration Procedures.
(a) In connection with the filing by the Buyer of the Stockholder
Registration Statement, the Buyer shall furnish to each Company Stockholder a
copy of the prospectus, including a preliminary prospectus, in conformity with
the requirements of the Securities Act.
(b) The Buyer shall use its best efforts to register or qualify the
Merger Shares covered by the Stockholder Registration Statement under the
securities laws of each state of the United States; provided, however, that the
Buyer shall not be required in connection with this paragraph (b) to qualify as
a foreign corporation or execute a general consent to service of process in any
jurisdiction.
(c) If the Buyer has delivered preliminary or final prospectuses to
the Company Stockholders and after having done so the prospectus is amended or
supplemented to comply with the requirements of the Securities Act, the Buyer
shall promptly notify the Company Stockholders and, if requested by the Buyer,
the Company Stockholders shall
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immediately cease making offers or sales of shares under the Stockholder
Registration Statement and return all prospectuses to the Buyer. The Buyer shall
promptly provide the Company Stockholders with revised or supplemented
prospectuses and, following receipt of the revised or supplemented prospectuses,
the Company Stockholders shall be free to resume making offers and sales under
the Stockholder Registration Statement.
(d) The Buyer shall pay the expenses incurred by it in complying with
its obligations under this Article VII, including all registration and filing
fees, exchange listing fees, fees and expenses of counsel for the Buyer, and
fees and expenses of accountants for the Buyer, but excluding (i) any brokerage
fees, selling commissions or underwriting discounts incurred by the Company
Stockholders in connection with sales under the Stockholder Registration
Statement and (ii) the fees and expenses of any counsel retained by Company
Stockholders.
7.4 Requirements of Company Stockholders. The Buyer shall not be required
to include any Merger Shares in the Stockholder Registration Statement unless:
(a) the Company Stockholder owning such shares furnishes to the Buyer
in writing such information regarding such Company Stockholder and the proposed
sale of Merger Shares by such Company Stockholder as the Buyer may reasonably
request in writing in connection with the Stockholder Registration Statement or
as shall be required in connection therewith by the SEC or any state securities
law authorities;
(b) such Company Stockholder shall have provided to the Buyer its
written agreement:
(i) to indemnify the Buyer and each of its directors and
officers against, and hold the Buyer and each of its
directors and officers harmless from, any losses, claims,
damages, expenses or liabilities (including reasonable
attorneys fees) to which the Buyer or such directors and
officers may become subject by reason of any statement or
omission in the Stockholder Registration Statement made in
reliance upon, or in conformity with, a written statement by
such Company Stockholder furnished pursuant to this Section
7.4, provided that the indemnification obligations of each
Company Stockholder hereunder shall be limited to an amount
equal to the net proceeds to such Company Stockholder of the
Merger Shares sold in connection with such registration; and
(ii) to report to the Buyer sales made pursuant to the
Stockholder Registration Statement.
7.5 Indemnification. The Buyer agrees to indemnify and hold harmless each
Company Stockholder whose shares are included in the Stockholder Registration
Statement and each other person, if any, who controls such Company Stockholder
within the meaning of the Securities Act or the Exchange Act against any losses,
claims, damages, expenses or liabilities to which such Company Stockholder may
become subject by reason of any untrue statement of a material fact contained in
the Stockholder Registration Statement or any omission to state therein
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a fact required to be stated therein or necessary to make the statements therein
not misleading, except insofar as such losses, claims, damages, expenses or
liabilities arise out of or are based upon information furnished to the Buyer by
or on behalf of a Company Stockholder for use in the Stockholder Registration
Statement. The Buyer shall have the right to assume the defense and settlement
of any claim or suit for which the Buyer may be responsible for indemnification
under this Section 7.5.
7.6 Assignment of Rights. A Company Stockholder may not assign any of its
rights under this Article VII except in connection with the transfer of some or
all of his, her or its Merger Shares to a child or spouse, or trust for their
benefit or, in the case of a partnership, limited liability company or
corporation, to its partners, members or stockholders, respectively, pursuant to
a pro rata distribution of its Merger Shares, provided each such transferee
agrees in a written instrument delivered to the Buyer to be bound by the
provisions of this Article VII.
7.7 Availability of Information. With a view to making available to
Company Stockholders the benefits of Rule 144 promulgated under the Securities
Act and any other rule or regulation of the SEC that may at any time permit a
Company Stockholder to sell securities of the Buyer to the public without
registration or pursuant to a registration on Form S-3, the Buyer agrees to:
(a) make and keep current public information about the Buyer
available, as those terms are understood and defined in SEC Rule 144;
(b) use its best efforts to file with the Commission in a timely
manner all reports and other documents required of the Buyer under the
Securities Act and the Exchange Act; and
(c) furnish to any Company Stockholder upon request (i) a written
statement by the Buyer as to its compliance with the reporting requirements of
SEC Rule 144 and of the Securities Act and the Exchange Act, (ii) a copy of the
most recent annual or quarterly report of the Buyer, and (iii) such other
reports and documents of the Buyer as such Company Stockholder may reasonably
request to avail itself of any similar rule or regulation of the SEC allowing it
to sell any such securities without registration.
ARTICLE VIII
TERMINATION
8.1 Termination of Agreement. The Parties may terminate this Agreement
prior to the Closing (whether before or after the Requisite Company Stockholder
Approval or Requisite Buyer Stockholder Approval), as provided below:
(a) the Parties may terminate this Agreement by mutual written
consent;
(b) the Buyer may terminate this Agreement by giving written notice to
the Company in the event the Company is in breach of any representation,
warranty or covenant contained in this Agreement, and such breach, individually
or in combination with any other such breach, (i) would cause the conditions set
forth in clauses (c) or (d) of Section 5.2 not to be
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satisfied and (ii) is not cured within 20 days following delivery by the Buyer
to the Company of written notice of such breach;
(c) the Company may terminate this Agreement by giving written notice
to the Buyer in the event the Buyer or the Transitory Subsidiary is in breach of
any representation, warranty or covenant contained in this Agreement, and such
breach, individually or in combination with any other such breach, (i) would
cause the conditions set forth in clauses (c) or (d) of Section 5.3 not to be
satisfied and (ii) is not cured within 20 days following delivery by the Company
to the Buyer of written notice of such breach;
(d) any Party may terminate this Agreement by giving written notice to
the other Party, at any time after the stockholders of the Company have voted on
whether to approve this Agreement and the Merger or the stockholders of the
Buyer have voted on whether to approve the issuance of the Merger Shares, in the
event this Agreement and the Merger failed to receive the Requisite Company
Stockholder Approval or the issuance of the Merger Shares failed to receive the
Requisite Buyer Stockholder Approval, as applicable; provided that, if either
Party terminates this Agreement pursuant to this clause (d) because the issuance
of the Merger Shares failed to receive the Requisite Buyer Stockholder Approval,
the Buyer shall reimburse the Company for its Section 4.9 Expenses up to a
maximum of $300,000;
(e) the Buyer may terminate this Agreement by giving written notice to
the Company if the Closing shall not have occurred on or before February 14,
2003 by reason of the failure of any condition precedent under Section 5.1 or
5.2 (unless the failure results primarily from a breach by the Buyer or the
Transitory Subsidiary of any representation, warranty or covenant contained in
this Agreement); or
(f) the Company may terminate this Agreement by giving written notice
to the Buyer and the Transitory Subsidiary if the Closing shall not have
occurred on or before February 14, 2003 by reason of the failure of any
condition precedent under Section 5.1 or 5.3 (unless the failure results
primarily from a breach by the Company of any representation, warranty or
covenant contained in this Agreement).
8.2 Effect of Termination. If any Party terminates this Agreement pursuant
to Section 8.1, all obligations of the Parties hereunder shall terminate without
any liability of any Party to any other Party, except as expressly provided in
Section 8.1(d), provided nothing herein shall relieve any Party from liability
for any willful breach of any of their respective representations, warranties
and covenants set forth in this Agreement.
ARTICLE IX
DEFINITIONS
For purposes of this Agreement, each of the following terms shall have the
meaning set forth below.
"AAA" shall mean the American Arbitration Association.
"Accountant" shall mean an independent third party accountant to be engaged
pursuant to Section 1.8.
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"Affiliate" shall mean any affiliate, as defined in Rule 12b-2 under the
Securities Exchange Act of 1934.
"Affiliated Group" shall mean a group of corporations with which the
Company has filed (or was required to file) consolidated, combined, unitary or
similar Tax Returns.
"Affiliated Group Tax Return" shall mean any Tax Return in which the
Company has filed (or was required to file) consolidated, combined, unitary or
similar Tax Returns.
"Affiliated Period" shall mean any taxable period for which an Affiliated
Group Tax Return was or is required to have been or be filed.
"Agreed Amount" shall mean part, but not all, of the Claimed Amount.
"Arbitrator" shall have the meaning set forth in Section 6.3(e).
"Balance Sheet Date" shall mean November 30, 2002, except, if the Closing
Date occurs after January 9, 2003, the Balance Sheet Date shall mean December
31, 2002.
"Buyer" shall have the meaning set forth in the first paragraph of this
Agreement.
"Buyer Certificate" shall mean a certificate to the effect that each of the
conditions specified in clauses (a) through (e) (insofar as clause (e) relates
to Legal Proceedings involving the Buyer or the Transitory Subsidiary) of
Section 5.3 is satisfied in all respects.
"Buyer Common Stock" shall mean the shares of common stock, $0.01 par value
per share, of the Buyer.
"Buyer Material Adverse Effect" shall mean any material adverse change,
event, circumstance or development with respect to, or material adverse effect
on, the business, assets, liabilities, capitalization, prospects, condition
(financial or other), or results of operations of the Buyer. For the avoidance
of doubt, the parties agree that (i) the terms "material", "materially" or
"materiality" as used in this Agreement with an initial lower case "m" shall
have their respective customary and ordinary meanings, without regard to the
meaning ascribed to Buyer Material Adverse Effect and (ii) the receipt and
potential implications of any letter indicating that the Buyer may be delisted
due to the price per share of the Buyer Common Stock shall not constitute a
"Buyer Material Adverse Effect."
"Buyer Reports" shall mean (a) all forms, reports and documents required to
be filed by the Buyer with the SEC since October 1, 2001 and (b) all such
required forms, reports and documents that the Buyer may file with the SEC
subsequent to the date of this Agreement until the Closing.
"Buyer Stockholder Meeting" shall mean a meeting of the stockholders of the
Buyer to approve the issuance of the Merger Shares.
"Cash Consideration" shall mean the cash which the Company Stockholders are
entitled to receive pursuant to Sections 1.5.
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"CERCLA" shall mean the federal Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended.
"Certificate of Merger" shall mean the certificate of merger or other
appropriate documents prepared and executed in accordance with Section 251(c) of
the Delaware General Corporation Law.
"Certificates" shall mean stock certificates that, immediately prior to
the Effective Time, represented Common Shares converted into Merger Shares
pursuant to Section 1.5 (including any Common Shares referred to in the last
sentence of Section 1.11(a)).
"Claim Notice" shall mean written notification which contains (i) a
description of the Damages incurred or reasonably expected to be incurred by the
Indemnified Party and the Claimed Amount of such Damages, to the extent then
known, (ii) a statement that the Indemnified Party is entitled to
indemnification under Article VI for such Damages and a reasonable explanation
of the basis therefor, and (iii) a demand for payment in the amount of such
Damages.
"Claimed Amount" shall mean the amount of any Damages incurred or
reasonably expected to be incurred by the Indemnified Party.
"Closing" shall mean the closing of the transactions contemplated by
this Agreement.
"Closing Date" shall mean the date two business days after the
satisfaction or waiver of all of the conditions to the obligations of the
Parties to consummate the transactions contemplated hereby (excluding the
delivery at the Closing of any of the documents set forth in Article V), or such
other date as may be mutually agreeable to the Parties.
"Code" shall mean the Internal Revenue Code of 1986, as amended.
"Commercial Rules" shall mean the Commercial Arbitration Rules of the
AAA.
"Common Shares" shall mean the shares of common stock, $.01 par value
per share, of the Company.
"Company" shall have the meaning set forth in the first paragraph of
this Agreement.
"Company Cash Stockholders" means all Company Stockholders other than
the Company Key Stockholders.
"Company Certificate" shall mean a certificate to the effect that each
of the conditions specified in clause (a) of Section 5.1 and clauses (a) through
(e) (insofar as clause (e) relates to Legal Proceedings involving the Company)
of Section 5.2 is satisfied in all respects.
"Company Intellectual Property" shall mean the Intellectual Property
owned by or licensed to the Company and covering, incorporated in, underlying or
used in connection with the Customer Deliverables or the Internal Systems.
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"Company Key Stockholders" means Ascent Venture Partners, II, L.P.,
Ascent Venture Partners, L.P., CCV II Associates, L.P., Commonwealth Capital
Ventures II, L.P. and HarbourVest Partners V-Direct Fund, L.P., Mr. Jeffrey
Brandes, Mr. Thomas Tucker, Mr. Thomas Willson and Mr. Karl Laubscher.
"Company Material Adverse Effect" shall mean any material adverse change,
event, circumstance or development with respect to, or material adverse effect
on, the business, assets, liabilities, capitalization, prospects, condition
(financial or other), or results of operations of the Company, taken as a whole.
For the avoidance of doubt, the parties agree that the terms "material",
"materially" or "materiality" as used in this Agreement with an initial lower
case "m" shall have their respective customary and ordinary meanings, without
regard to the meaning ascribed to Company Material Adverse Effect.
"Company Plan" shall mean any Employee Benefit Plan maintained, or
contributed to, by the Company or any ERISA Affiliate.
"Company Schedule" shall mean a schedule developed by the Company and
agreed by the Buyer that sets forth, as of the Effective Time: (i) for each
holder of Common Shares, the number of Common Shares held, the aggregate number
of shares of Buyer Common Stock, if any, the number of Initial Shares, and the
amount of Cash Consideration payable to such holder, the Expenses Reduction and
Working Capital Reduction applicable to such holder and the amount of cash
payable to such holder for any fractional shares and (ii) for each holder of
Options, the number of Common Shares issuable upon exercise thereof immediately
prior to the Effective Time, the number of shares of Buyer Common Stock issuable
upon exercise thereof following their assumption by Buyer and the pr share
exercise price thereof upon such assumption
"Company Stock Plan" shall mean any stock option plan or other stock or
equity-related plan of the Company.
"Company Stockholders" shall mean the stockholders of record of the
Company immediately prior to the Effective Time.
"Controlling Party" shall mean the party controlling the defense of any
Third Party Action.
"Credit Balance" shall mean the outstanding balance of principal and
interest under the Secured Revolving Credit Loan Agreement by and between the
Company and Citizens Bank of Rhode Island dated August 14, 2001.
"Customer Deliverables" shall mean (a) the products that the Company
(i) currently manufactures, markets, sells or licenses, or (ii) has
manufactured, marketed, sold or licensed within the previous two years, or (iii)
currently plans to manufacture, market, sell or license in the future and (b)
the services that the Company (i) currently provides, or (ii) has provided
within the previous two years, or (iii) currently plans to provide in the
future.
"Damages" shall mean any and all debts, obligations and other
liabilities (whether absolute, accrued, contingent, fixed or otherwise, or
whether known or unknown, or due or to
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become due or otherwise), taxes, diminution in value, monetary damages, fines,
fees, penalties, interest obligations, deficiencies, losses and expenses
(including amounts paid in settlement, interest, court costs, costs of
investigators, fees and expenses of attorneys, accountants, financial advisors
and other experts, and other expenses of litigation), other than those costs and
expenses of arbitration of a Dispute which are to be shared equally by the
Indemnified Party and the Indemnifying Party as set forth in Section 6.3(e)(vi);
provided however that such amount shall be reduced by any resulting insurance
proceeds actually received.
"Disclosure Schedule" shall mean the disclosure schedule provided by
the Company to the Buyer on the date hereof and accepted in writing by the
Buyer.
"Dispute" shall mean the dispute resulting if the Indemnifying Party
in a Response disputes its liability for all or part of the Claimed Amount.
"Dissenting Shares" shall mean Common Shares held as of the Effective
Time by a Company Stockholder who has not voted such Common Shares in favor of
the adoption of this Agreement and with respect to which appraisal shall have
been duly demanded and perfected in accordance with Section 262 of the Delaware
General Corporation Law and not effectively withdrawn or forfeited prior to the
Effective Time.
"Draft Interim Balance Sheet" shall mean the draft balance sheet of the
Company as of the Balance Sheet Date proposed by the Company and prepared in
accordance with GAAP consistently applied in accordance with the Company's past
practices.
"Effective Time" shall mean the time at which the Surviving Corporation
files the Certificate of Merger with the Secretary of State of the State of
Delaware.
"Employee Benefit Plan" shall mean any "employee pension benefit plan"
(as defined in Section 3(2) of ERISA), any "employee welfare benefit plan" (as
defined in Section 3(1) of ERISA), and any other written or oral plan, agreement
or arrangement involving direct or indirect compensation, including insurance
coverage, severance benefits, disability benefits, deferred compensation,
bonuses, stock options, stock purchase, phantom stock, stock appreciation or
other forms of incentive compensation or post-retirement compensation.
"Environmental Law" shall mean any federal, state or local law,
statute, rule, order, directive, judgment, Permit or regulation or the common
law relating to the environment, occupational health and safety, or exposure of
persons or property to Materials of Environmental Concern, including any
statute, regulation, administrative decision or order pertaining to: (i) the
presence of or the treatment, storage, disposal, generation, transportation,
handling, distribution, manufacture, processing, use, import, export, labeling,
recycling, registration, investigation or remediation of Materials of
Environmental Concern or documentation related to the foregoing; (ii) air, water
and noise pollution; (iii) groundwater and soil contamination; (iv) the release,
threatened release, or accidental release into the environment, the workplace or
other areas of Materials of Environmental Concern, including emissions,
discharges, injections, spills, escapes or dumping of Materials of Environmental
Concern; (v) transfer of interests in or control of real property which may be
contaminated; (vi) community or worker right-to-know disclosures with respect to
Materials of Environmental Concern; (vii) the protection of wild life, marine
life and
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wetlands, and endangered and threatened species; (viii) storage tanks, vessels,
containers, abandoned or discarded barrels and other closed receptacles; and
(ix) health and safety of employees and other persons. As used above, the term
"release" shall have the meaning set forth in CERCLA.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974,
as amended.
"ERISA Affiliate" shall mean any entity which is, or at any applicable
time was, a member of (1) a controlled group of corporations (as defined in
Section 414(b) of the Code), (2) a group of trades or businesses under common
control (as defined in Section 414(c) of the Code), or (3) an affiliated service
group (as defined under Section 414(m) of the Code or the regulations under
Section 414(o) of the Code), any of which includes or included the Company.
"Escrow Agreement" shall mean an escrow agreement in substantially the
form attached hereto as Exhibit B.
"Escrow Agent" shall mean United States Trust Company, of Boston.
"Escrow Shares" shall have the meaning set forth in Section 1.5(c).
"Excess Expenses" shall have the meaning set forth in Section 4.9 hereof.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
"Exchange Agent" shall mean EquiServe Trust Company.
"Expected Claim Notice" shall mean a notice that, as a result of a legal
proceeding instituted by or written claim made by a third party, an Indemnified
Party reasonably expects to incur Damages for which it is entitled to
indemnification under Article VI.
"Expenses Reduction" shall mean the Excess Expenses divided by the total
number of Common Shares outstanding as of the Effective Time.
"Final Interim Balance Sheet" shall mean the final closing balance sheet
of the Company as of the Balance Sheet Date, prepared in accordance with GAAP
consistently applied in accordance with the Company's past practices, determined
pursuant to the process set forth in Section 1.8 hereof.
"Final Working Capital Difference" shall mean the difference between
Working Capital and the Credit Balance as computed according to the Final
Interim Balance Sheet.
"Financial Statements" shall mean:
(a) the audited consolidated balance sheets and statements of
income, changes in stockholders' equity and cash flows of the Company as of the
end of and for the last fiscal year, and
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(b) the Most Recent Balance Sheet and the unaudited consolidated
statements of income, changes in stockholders' equity and cash flows for the six
months ended as of the Most Recent Balance Sheet Date.
"GAAP" shall mean United States generally accepted accounting
principles.
"Governmental Entity" shall mean any court, arbitrational tribunal,
administrative agency or commission or other governmental or regulatory
authority or agency.
"Indemnification Representatives" shall mean Jeffrey A. Brandes and
Thomas D. Willson and their duly appointed successors, acting together.
"Indemnified Party" shall mean a party entitled, or seeking to assert
rights, to indemnification under Article VI.
"Indemnifying Party" shall mean the party from whom indemnification is
sought by the Indemnified Party.
"Indemnifying Stockholders" shall mean the Company Key Stockholders
receiving Merger Shares pursuant to Section 1.5.
"Initial Shares" shall have the meaning set forth in Section 1.5(c).
"Initial Working Capital Difference" shall mean $1,941,145.
"Intellectual Property" shall mean all:
(a) patents, patent applications, patent disclosures and all
related continuation, continuation-in-part, divisional, reissue, reexamination,
utility model, certificate of invention and design patents, patent applications,
registrations and applications for registrations;
(b) trademarks, service marks, trade dress, Internet domain
names, logos, trade names and corporate names and registrations and applications
for registration thereof;
(c) copyrights and registrations and applications for registration
thereof;
(d) mask works and registrations and applications for registration
thereof;
(e) computer software, data and documentation;
(f) inventions, trade secrets and confidential business
information, whether patentable or nonpatentable and whether or not reduced to
practice, know-how, manufacturing and product processes and techniques, research
and development information, copyrightable works, financial, marketing and
business data, pricing and cost information, business and marketing plans and
customer and supplier lists and information;
(g) other proprietary rights relating to any of the foregoing
(including remedies against infringements thereof and rights of protection of
interest therein under the laws of all jurisdictions); and
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(h) copies and tangible embodiments thereof.
"Internal Systems" shall mean the internal systems owned or licensed by the
Company that are used in its business or operations, including computer hardware
systems, software applications and embedded systems.
"Joint Statement" shall mean the combined proxy statement of the Buyer and
information statement of the Company, meeting the requirements of the Delaware
General Corporation Law, the Securities Act and the Exchange Act and containing,
without limitation, the information and statements set forth in Sections 4.4 and
4.5 hereof.
"Key Employees" shall mean Jeffrey A. Brandes, Jeanne Friedman, William
Crowley, and Greg Augustine.
"Lease" shall mean any lease or sublease pursuant to which the Company
leases or subleases from another party any real property.
"Legal Proceeding" shall mean any action, suit, proceeding, claim,
arbitration or investigation before any Governmental Entity or before any
arbitrator.
"Materials of Environmental Concern" shall mean any: pollutants,
contaminants or hazardous substances (as such terms are defined under CERCLA),
pesticides (as such term is defined under the Federal Insecticide, Fungicide and
Rodenticide Act), solid wastes and hazardous wastes (as such terms are defined
under the Resource Conservation and Recovery Act), chemicals, other hazardous,
radioactive or toxic materials, oil, petroleum and petroleum products (and
fractions thereof), or any other material (or article containing such material)
listed or subject to regulation under any law, statute, rule, regulation, order,
Permit, or directive due to its potential, directly or indirectly, to harm the
environment or the health of humans or other living beings.
"Merger" shall mean the merger of the Transitory Subsidiary with and into
the Company in accordance with the terms of this Agreement.
"Merger Shares" shall mean the Initial Shares and the Escrow Shares
together.
"Most Recent Balance Sheet" shall mean the unaudited consolidated balance
sheet of the Company as of the Most Recent Balance Sheet Date.
"Most Recent Balance Sheet Date" shall mean September 30, 2002.
"Net Worth" shall mean total assets less total liabilities in accordance
with GAAP consistently applied in accordance with the Company's past practices
(excluding any costs, expenses and other charges directly attributable to the
Merger and the transactions contemplated hereby).
"Non-controlling Party" shall mean the party not controlling the defense of
any Third Party Action.
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"Option" shall mean each option to purchase or acquire Common Shares,
whether issued by the Company pursuant to the Option Plan or otherwise.
"Option Exercise Ratio" shall have the meaning set forth in Section 1.9.
"Option Plan" shall mean the Company's 2001 Omnibus Stock Plan.
"Ordinary Course of Business" shall mean the ordinary course of business
consistent with past custom and practice (including with respect to frequency
and amount).
"Parties" shall mean the Buyer, the Transitory Subsidiary and the Company.
"Per Share Consideration" shall have the meaning set forth in Section
1.5(a).
"Permits" shall mean all permits, licenses, registrations, certificates,
orders, approvals, franchises, variances and similar rights issued by or
obtained from any Governmental Entity (including those issued or required under
Environmental Laws and those relating to the occupancy or use of owned or leased
real property).
"Reasonable Best Efforts" shall mean best efforts, to the extent
commercially reasonable.
"Requisite Buyer Stockholder Approval" shall mean the approval of the
issuance of the Merger Shares by the votes represented by the outstanding Buyer
Common Stock entitled to vote thereon required to approve the issuance of the
Merger Shares under Delaware law and the rules of the NASDAQ National Market.
"Requisite Company Stockholder Approval" shall mean the adoption of this
Agreement and the approval of the Merger by the votes represented by the
outstanding Common Shares entitled to vote on this Agreement and the Merger
required to approve the Merger under Delaware law.
"Response" shall mean a written response containing the information
provided for in Section 6.3(c).
"SEC" shall mean the Securities and Exchange Commission.
"Section 4.9 Expenses" shall have the meaning set forth in Section 4.9
"Securities Act" shall mean the Securities Act of 1933, as amended.
"Security Interest" shall mean any mortgage, pledge, Tax lien, security
interest, encumbrance, charge or other lien (whether arising by contract or by
operation of law), other than (i) mechanic's, materialmen's, and similar liens,
(ii) liens arising under worker's compensation, unemployment insurance, social
security, retirement, and similar legislation and (iii) liens on goods in
transit incurred pursuant to documentary letters of credit, in each case arising
in the Ordinary Course of Business of the Company and not material to the
Company.
"Separation Agreement" shall have the meaning set forth in Section 2.9(m).
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"Software" shall mean any of the software owned by the Company.
"Spin-Off" means the spin-off of the Company from Akibia, Inc. and PSI
Holding Group, Inc. effective as of April 4, 2001.
"Stockholder Registration Statement" shall mean a registration
statement on Form S-3 covering the resale to the public by the Company
Stockholders of the Merger Shares.
"Surviving Corporation" shall mean the Company, as the surviving
corporation in the Merger.
"Taxes" shall mean all taxes, charges, fees, levies or other similar
assessments or liabilities, including income, gross receipts, ad valorem,
premium, value-added, excise, real property, personal property, sales, use,
transfer, withholding, employment, unemployment, insurance, social security,
business license, business organization, environmental, workers compensation,
payroll, profits, license, lease, service, service use, severance, stamp,
occupation, windfall profits, customs, duties, franchise and other taxes imposed
by the United States of America or any state, local or foreign government, or
any agency thereof, or other political subdivision of the United States or any
such government, and any interest, fines, penalties, assessments or additions to
tax resulting from, attributable to or incurred in connection with any tax or
any contest or dispute thereof.
"Tax Returns" shall mean all reports, returns, declarations,
statements or other information required to be supplied to a taxing authority in
connection with Taxes and any amendment thereof.
"Third Party Action" shall mean any suit or proceeding by a person or
entity other than a Party for which indemnification may be sought by a Party
under Article VI.
"Trailing Average Price" shall mean $1.03.
"Transitory Subsidiary" shall have the meaning set forth in the first
paragraph of this Agreement.
"Value" of Escrow Shares shall have the meaning set forth in Section
6.3(c).
"Working Capital" shall mean current assets less current liabilities
in accordance with GAAP consistently applied in accordance with the Company's
past practices (excluding the Credit Balance and any costs, expenses and other
charges directly attributable to the Merger and the transactions contemplated
hereby).
"Working Capital Adjustment Amount" shall mean the Initial Working
Capital Difference less the Final Working Capital Difference.
"Working Capital Reduction" shall mean the Working Capital Adjustment
Amount divided by the total number of Common Shares outstanding as of the
Effective Time, except that the "Working Capital Reduction" shall mean zero (0)
if the Final Working Capital Difference is greater or equal to the Initial
Working Capital Difference.
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ARTICLE X
MISCELLANEOUS
10.1 Press Releases and Announcements. No Party shall issue any press
release or public announcement relating to the subject matter of this Agreement
without the prior written approval of the other Parties; provided, however, that
any Party may make any public disclosure it believes in good faith is required
by applicable law, regulation or stock market rule (in which case the disclosing
Party shall use reasonable efforts to advise the other Parties and provide them
with a copy of the proposed disclosure prior to making the disclosure).
10.2 No Third Party Beneficiaries. This Agreement shall not confer any
rights or remedies upon any person other than the Parties and their respective
successors and permitted assigns; provided, however, that (a) the provisions in
Article I concerning issuance of the Merger consideration are intended to
benefit the Company Stockholders; (b) the provisions of Section 4.15 concerning
the continuation of indemnification provisions are intended to benefit the
Section 4.15 Indemnified Parties set forth therein; (c) the provisions of
Article VI concerning indemnification are intended to benefit the Indemnifying
Stockholders; and (d) the provisions of Article VII concerning registration
rights are intended to benefit the Indemnifying Stockholders.
10.3 Entire Agreement. This Agreement (including the documents referred to
herein) constitutes the entire agreement among the Parties and supersedes any
prior understandings, agreements or representations by or among the Parties,
written or oral, with respect to the subject matter hereof; provided that the
Reciprocal Nondisclosure Agreement dated May 2, 2002 between the Buyer and the
Company and the Confidentiality Agreement dated May 31, 2002 between the Buyer
and the Company shall remain in effect in accordance with their terms.
10.4 Succession and Assignment. This Agreement shall be binding upon and
inure to the benefit of the Parties named herein and their respective successors
and permitted assigns. 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; provided that the Transitory Subsidiary may assign its
rights, interests and obligations hereunder to an Affiliate of the Buyer.
10.5 Counterparts and Facsimile Signature. This Agreement may be executed
in two or more counterparts, each of which shall be deemed an original but all
of which together shall constitute one and the same instrument. This Agreement
may be executed by facsimile signature.
10.6 Headings. The section headings contained in this Agreement are
inserted for convenience only and shall not affect in any way the meaning or
interpretation of this Agreement.
10.7 Notices. All notices, requests, demands, claims, and other
communications hereunder shall be in writing. Any notice, request, demand, claim
or other communication hereunder shall be deemed duly delivered four business
days after it is sent by registered or certified mail, return receipt requested,
postage prepaid, or one business day after it is sent for next business day
delivery via a reputable nationwide overnight courier service, in each case to
the intended recipient as set forth below:
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If to the Company: Copy to (which shall not constitute notice):
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<S> <C> <C> <C>
TidalWire Inc. Harry A. Hanson, III, Esq.
4 Technology Drive Choate Hall & Stewart
Westborough, MA 01581-1756 Exchange Place
Attention: Jeffrey A. Brandes 53 State Street
Tel. (508) 621-4900 Boston, MA 02109
Fax. (508) 621-5207 Tel. (617) 248-5000
Fax. (617) 248-4000
If to the Buyer or the Transitory Subsidiary: Copy to (which shall not constitute notice):
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Network Engines, Inc. Philip P. Rossetti, Esq.
25 Dan Road Hale and Dorr LLP
Canton, MA 02021-2817 60 State Street
Attention: John H. Curtis Boston, MA 02109
Tel. (781) 332-1000 Tel. (617) 526-6000
Fax. (781) 770-2000 Fax. (617) 526-5000
</TABLE>
Any Party may give any notice, request, demand, claim or other communication
hereunder using any other means (including personal delivery, expedited courier,
messenger service, telecopy, telex, ordinary mail or electronic mail), but no
such notice, request, demand, claim or other communication shall be deemed to
have been duly given unless and until it actually is received by the party for
whom it is intended. Any Party may change the address to which notices,
requests, demands, claims, and other communications hereunder are to be
delivered by giving the other Parties notice in the manner herein set forth.
10.8 Governing Law. This Agreement (including the validity and
applicability of the arbitration provisions of this Agreement, the conduct of
any arbitration of a Dispute, the enforcement of any arbitral award made
hereunder and any other questions of arbitration law or procedure arising
hereunder) shall be governed by and construed in accordance with the internal
laws of the State of Delaware without giving effect to any choice or conflict of
law provision or rule (whether of the State of Delaware or any other
jurisdiction) that would cause the application of laws of any jurisdictions
other than those of the State of Delaware.
10.9 Amendments and Waivers. The Parties may mutually amend any provision
of this Agreement at any time prior to the Closing; provided, however, that any
amendment effected subsequent to the Requisite Company Stockholder Approval and
Requisite Buyer Stockholder Approval shall be subject to any restrictions
contained in the Delaware General Corporation Law and the rules of the NASDAQ
National Market, as applicable. No amendment of any provision of this Agreement
shall be valid unless the same shall be in writing and signed by all of the
Parties. No waiver of any right or remedy hereunder shall be valid unless the
same shall be in writing and signed by the Party giving such waiver. No waiver
by any Party with respect to any
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default, misrepresentation or breach of warranty or covenant hereunder shall be
deemed to extend to any prior or subsequent default, misrepresentation or breach
of warranty or covenant hereunder or affect in any way any rights arising by
virtue of any prior or subsequent such occurrence.
10.10 Severability. Any term or provision of this Agreement that is
invalid or unenforceable in any situation in any jurisdiction shall not affect
the validity or enforceability of the remaining terms and provisions hereof or
the validity or enforceability of the offending term or provision in any other
situation or in any other jurisdiction. If the final judgment of a court of
competent jurisdiction declares that any term or provision hereof is invalid or
unenforceable, the Parties agree that the court making the determination of
invalidity or unenforceability shall have the power to limit the term or
provision, to delete specific words or phrases, or to replace any invalid or
unenforceable term or provision with a term or provision that is valid and
enforceable and that comes closest to expressing the intention of the invalid or
unenforceable term or provision, and this Agreement shall be enforceable as so
modified.
10.11 Construction.
(a) The language used in this Agreement shall be deemed to be
the language chosen by the Parties to express their mutual intent, and no rule
of strict construction shall be applied against any Party.
(b) Any reference to any federal, state, local or foreign
statute or law shall be deemed also to refer to all rules and regulations
promulgated thereunder, unless the context requires otherwise.
(c) Any reference herein to "including" shall be interpreted
as "including without limitation".
(d) Any reference to any Article, Section or paragraph shall
be deemed to refer to an Article, Section or paragraph of this Agreement, unless
the context clearly indicates otherwise.
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IN WITNESS WHEREOF, the Parties have executed this Agreement and Plan of Merger
as of the date first above written.
NETWORK ENGINES, INC.
By: /s/ JOHN H. CURTIS
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Title: President and Chief Executive Officer
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NINJA ACQUISITION CORP.
By: /s/ JOHN H. CURTIS
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Title: President
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TIDALWIRE INC.
By: /s/ JEFFREY BRANDES
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Title: Chief Executive Officer
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The following stockholders of the Company hereby execute this Agreement for the
limited purpose of agreeing to and becoming bound by the provisions of Sections
1.8 and 4.3(e) and Article VI.
HARBOURVEST PARTNERS, V-DIRECT FUND, L.P.
By: HVP V-Direct Associates L.L.C.
Its General Partner
By: HarbourVest Partners, LLC
Its Managing Member
By: /s/ ROBERT M. WADWORTH
-----------------------------------------
Name: Robert M. Wadsworth
Title: Managing Director
ASCENT VENTURE PARTNERS, II, L.P.
By: Ascent Ventures SBIC Corp.
Its General Partner
By: Ascent Venture Management II, L.P.
Its General Partner
By: /s/ C. W. DICK
-----------------------------------------
Name: C. W. Dick
Title: Managing Director
ASCENT VENTURE PARTNERS, L.P.
By: Ascent Ventures SBIC Corp.
Its General Partner
By: /s/ C. W. DICK
-----------------------------------------
Name: C. W. Dick
Title: Managing Director
CCV II ASSOCIATES, L.P.
By: /s/ R. STEPHEN MCCORMACK
-----------------------------------------
Name: R. Stephen McCormack
Title: General Partner
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COMMONWEALTH CAPITAL VENTURES II, L.P.
By: /s/ R. STEPHEN MCCORMACK
-----------------------------------------
Name: R. Stephen McCormack
Title: General Partner
/s/ JEFFREY BRANDES
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JEFFREY BRANDES
/s/ THOMAS WILLSON
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THOMAS WILLSON
/s/ THOMAS TUCKER
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THOMAS TUCKER
/s/ KARL LAUBSCHER
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KARL LAUBSCHER
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