<PAGE>
EXHIBIT 10.1
[Note: The following agreement and plan of merger is attached to
provide you
with information regarding its terms and conditions. It contains
mutual
representations and warranties of the parties, which are qualified
by
confidential disclosure schedules that the parties exchanged in
connection with
the signing of the agreement. These representations and warranties
were
exchanged for the purpose of allocating risk among the parties and
are not for
the purpose of providing disclosures to investors concerning Art
Technology
Group, Inc. or eStara, Inc., and should not be relied upon for that
purpose.
Information about Art Technology Group, Inc. can be found in the
other public
filings Art Technology Group, Inc. makes with the Securities and
Exchange
Commission, which are available without charge at www.sec.gov.]
<PAGE>
EXECUTION VERSION
AGREEMENT AND
PLAN OF MERGER
BY AND AMONG
ART TECHNOLOGY GROUP, INC.,
ARLINGTON ACQUISITION CORP.,
STORROW ACQUISITION CORP.,
ESTARA, INC.,
BURTON E. MCGILLIVRAY,
AS STOCKHOLDER REPRESENTATIVE, AND
THE PRINCIPAL STOCKHOLDERS IDENTIFIED ON SCHEDULE I
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S>
<C>
ARTICLE 1 The
Merger......................................................
1
1.1 The
Merger.......................................................
1
1.2 Effective Time;
Closing.......................................... 2
1.3 Effect of the Merger and the
Second Step Merger.................. 2
1.4 Articles of Incorporation;
Bylaws................................ 2
1.5 Directors and
Officers........................................... 3
1.6 Effect on Capital
Stock.......................................... 3
1.7 Adjustments to Base
Consideration Based on Company Balance
Sheet.........................................................
8
1.8 Adjusted Working Capital;
Determination.......................... 8
1.9 Determination of Adjusted
Working Capital........................ 9
1.10
Escrow
Agreement.................................................
11
1.11
Stockholder
Representative....................................... 11
1.12
Delivery of Merger
Consideration................................. 14
1.13
No Further Ownership
Rights in Company Capital Stock............. 15
1.14
Restricted
Stock................................................. 16
1.15
Tax
Consequences.................................................
16
1.16
Taking of Necessary
Action; Further Action....................... 16
1.17
Dissenters'
Rights............................................... 16
1.18
Cross
References.................................................
17
1.19
Certain
Definitions..............................................
20
ARTICLE 2 Representations and Warranties of the
Company................... 25
2.1 Organization;
Subsidiaries....................................... 25
2.2 Company
Capitalization...........................................
26
2.3 Obligations With Respect to
Capital Stock........................ 27
2.4 Authority;
Non-Contravention..................................... 28
2.5 Financial
Statements.............................................
29
2.6 No Undisclosed
Liabilities....................................... 29
2.7 Absence of Certain Changes
or Events............................. 30
2.8
Taxes............................................................
30
2.9 Title to
Properties..............................................
32
2.10
Intellectual
Property............................................ 33
2.11
Compliance with
Laws............................................. 38
2.12
Litigation.......................................................
39
2.13
Employee Benefit
Plans........................................... 39
2.14
Employment
Matters............................................... 41
2.15
Environmental
Matters............................................ 42
2.16
Certain
Contracts................................................
42
2.17
Related-Party
Matters............................................ 44
2.18
Brokers' and Finders'
Fees....................................... 44
2.19
Insurance........................................................
44
2.20
Customers; Accounts
Receivable................................... 45
2.21
Board
Approval...................................................
45
</TABLE>
-i-
<PAGE>
<TABLE>
<S>
<C>
2.22
Minutes and Stock
Records........................................ 45
2.23
Accounting
System................................................ 46
2.24
Corrupt
Practices................................................
46
2.25
Disclosure.......................................................
46
2.26
Taxes............................................................
46
ARTICLE 3 Representations and Warranties of Principal
Stockholders........ 46
3.1
Organization.....................................................
46
3.2 Authority;
Non-Contravention..................................... 47
3.3 Title to Company Stock;
Status as Company Stockholder............ 48
3.4 Waiver of Appraisal
Rights....................................... 48
3.5 Agreements with the
Company...................................... 48
3.6 Brokers' and Finders'
Fees....................................... 48
3.7 Accredited Investor
Questionnaire................................ 48
ARTICLE 3A Representations and Warranties of Specified
Holders............ 48
3A.1
Authority........................................................
48
3A.2
Title to Company
Stock; Status as Company Stockholder............ 49
3A.3
Waiver of Appraisal
Rights....................................... 49
3A.4
Brokers' and Finders'
Fees....................................... 49
3A.5
Accredited Investor
Questionnaire................................ 49
ARTICLE 4 Representations and Warranties of Parent and Merger
Subs........ 49
4.1 Organization of Parent and
Merger Subs........................... 49
4.2 Parent and Merger Sub
Capitalization............................. 50
4.3 Authority;
Non-Contravention..................................... 50
4.4 SEC
Filings......................................................
51
4.5
Litigation.......................................................
51
4.6 Brokers' and Finders'
Fees....................................... 51
4.7 SEC Documents; Parent
Financial Statements....................... 51
4.8
Taxes............................................................
52
4.9
Non-Affiliate....................................................
53
ARTICLE 5 Conduct Prior to the Effective
Time............................. 53
5.1 Conduct of Business by the
Company............................... 53
5.2 Covenant of
Parent............................................... 56
ARTICLE 6 Additional
Agreements........................................... 56
6.1 Registration for
Resale.......................................... 56
6.2 Restrictive Legend; Lock-Up
Agreement............................ 58
6.3 Antitrust and Other
Filings...................................... 59
6.4 Information Statement;
Company Stockholder Meeting............... 59
6.5 Tax
Matters......................................................
60
6.6
Confidentiality..................................................
62
6.7 Access to
Information............................................
62
</TABLE>
-ii-
<PAGE>
<TABLE>
<S>
<C>
6.8 No
Solicitation..................................................
62
6.9 Public
Disclosure................................................
63
6.10
Reasonable Efforts;
Notification................................. 63
6.11
Third Party
Consents............................................. 64
6.12
Rights Agreement;
Takeover Statutes.............................. 64
6.13
Certain Employee
Benefits........................................ 65
6.14
Transaction Bonuses;
Earn-Out Bonus.............................. 65
ARTICLE 7 Survival of Representations;
Indemnification.................... 67
7.1 Indemnification by Company
Stockholders.......................... 67
7.2 Indemnification by Parent
and Merger Subs........................ 67
7.3 Survival of
Representations...................................... 68
7.4 Process of Indemnification
for Parent Claims and Stockholder
Claims........................................................
68
ARTICLE 8 Conditions to the
Merger........................................ 73
8.1 Conditions to Obligations of
Each Party to Effect the Merger..... 73
8.2 Additional Conditions to
Obligations of the Company.............. 73
8.3 Additional Conditions to the
Obligations of Parent and Merger
Sub 1............................................................
74
ARTICLE 9 Termination, Amendment and
Waiver............................... 75
9.1
Termination......................................................
75
9.2 Notice of Termination;
Effect of Termination..................... 76
9.3 Fees and
Expenses................................................
76
9.4
Amendment........................................................
77
9.5 Extension;
Waiver................................................ 77
ARTICLE 10 General
Provisions.............................................
77
10.1
Notices..........................................................
77
10.2
Interpretation...................................................
78
10.3
Counterparts;
Facsimile.......................................... 79
10.4
Entire Agreement;
Third Party Beneficiaries...................... 79
10.5
Severability.....................................................
79
10.6
Other Remedies;
Specific Performance; Fees....................... 79
10.7
Governing
Law....................................................
80
10.8
Rules of
Construction............................................
80
10.9
Assignment.......................................................
80
10.10 Waiver of
Jury Trial.............................................
80
</TABLE>
-iii-
<PAGE>
AGREEMENT AND PLAN OF MERGER
This
AGREEMENT AND PLAN OF MERGER (this "AGREEMENT") is made and
entered
into as of September 18, 2006, among Art Technology Group, Inc., a
Delaware
corporation ("PARENT"), Arlington Acquisition Corp., a Maryland
corporation and
a wholly owned subsidiary of Parent ("MERGER SUB 1"), Storrow
Acquisition Corp.,
a Maryland corporation and a wholly owned subsidiary of Parent
("MERGER SUB
2"and, with Merger Sub 1, each a "MERGER SUB"), eStara, Inc., a
Maryland
corporation (the "COMPANY"), Burton E. McGillivray, as the
representative of the
Company Stockholders (together with his replacement, the
"STOCKHOLDER
REPRESENTATIVE"), and the Company Stockholders listed on Schedule I
hereto
holding not less than (i) a majority of the outstanding Common
Stock of the
Company and (ii) 60% of the issued and outstanding Series C
Preferred Stock of
the Company (the "PRINCIPAL STOCKHOLDERS").
RECITALS
A. The respective
Boards of Directors of Parent, Merger Sub 1, Merger Sub 2
and the Company have approved this Agreement, and declared
advisable the merger
of Merger Sub 1 with and into the Company (the "MERGER") upon the
terms and
subject to the conditions of this Agreement and in accordance with
the Maryland
General Corporation Law (the "MGCL"), and the other transactions
contemplated by
this Agreement.
B.
Immediately after the Effective Time, the Company, as a wholly
owned
subsidiary of Parent, will be merged (the "SECOND STEP MERGER")
with and into
Merger Sub 2, with Merger Sub 2 as the surviving corporation.
C.
For federal income tax purposes, it is intended that the Merger and
the
Second Step Merger, considered together, constitute a
reorganization under the
provisions of Section 368 of the Internal Revenue Code of 1986, as
amended (the
"CODE"), and that each of the Parent and the Company will be a
"party to a
reorganization" within the meaning of Section 368 of the Code.
D.
Concurrently with the execution of this Agreement, and as a
condition
and inducement to Parent's willingness to enter into this
Agreement, the
Principal Stockholders are entering into Voting Agreements with
Parent in the
form of Exhibit A (the "VOTING AGREEMENTS").
In
consideration of the foregoing and the representations,
warranties,
covenants and agreements set forth in this Agreement, the parties
agree as
follows:
ARTICLE 1
THE MERGER
1.1
THE MERGER. Upon the terms and subject to the conditions of
this
Agreement and the applicable provisions of the MGCL, at the
Effective Time (as
defined below), Merger Sub 1 shall be merged with and into the
Company, the
separate corporate existence of Merger Sub 1 shall cease, and the
Company shall
continue as the surviving corporation of the Merger (the "INITIALLY
SURVIVING
CORPORATION").
-1-
<PAGE>
1.2
EFFECTIVE TIME; CLOSING. (a) Subject to the provisions of this
Agreement, the parties hereto shall cause the Merger to be
consummated by filing
articles of merger consistent with this Agreement with the
Secretary of State of
the State of Maryland in accordance with the relevant provisions of
the MGCL
(the "ARTICLES OF MERGER") (the time of such filing (or such later
time as may
be agreed in writing by the Company and Parent and specified in the
Articles of
Merger) being the "EFFECTIVE TIME") as soon as practicable on or
after the
Closing Date (as defined below).
(b) Immediately following the Effective Time, the Parent shall
cause
the Company, as the surviving corporation of the Merger and a
wholly owned
subsidiary of the Parent, to be merged with and into Merger Sub 2
in the Second
Step Merger pursuant to an agreement of merger entered into by and
among the
Company and Merger Sub 2 (the "SECOND STEP AGREEMENT OF MERGER"),
by filing
articles of merger consistent with this Agreement with the
Secretary of State of
the State of Maryland in accordance with the relevant provisions of
the MGCL
(the "SECOND ARTICLES OF MERGER"). There will be no conditions to
the closing of
the Second Step Merger other than the closing of the Merger.
(c) The closing of the Merger and the Second Step Merger (the
"CLOSING") shall take place at the offices of Foley Hoag LLP,
Seaport World
Trade Center West, 155 Seaport Boulevard, Boston, Massachusetts, at
a time and
date to be specified by the parties, which shall be no later than
the second
business day after the satisfaction or waiver of the conditions set
forth in
Article 8 (other than those that by their nature will be satisfied
at the
Closing) or at such other time, date and location as the parties
hereto agree in
writing (the "CLOSING DATE").
1.3
EFFECT OF THE MERGER AND THE SECOND STEP MERGER.
(a) At the Effective Time, the effect of the Merger shall be as
provided in this Agreement and the applicable provisions of the
MGCL. Without
limiting the generality of the foregoing, at the Effective Time,
all the
property, rights, privileges, powers and franchises of the Company
and Merger
Sub 1 shall vest in the Initially Surviving Corporation, and all
debts,
liabilities and duties of the Company and Merger Sub 1 shall become
the debts,
liabilities and duties of the Initially Surviving Corporation.
(b) Following the Second Step Merger, the separate existence of
the
Company as the Initially Surviving Corporation will cease and
Merger Sub 2 will
continue as the surviving corporation of the Second Step Merger
(the "SURVIVING
CORPORATION") under the name "eStara, Inc." Upon the consummation
of the Second
Step Merger, all property, rights, powers, privileges, and
franchises of the
Company and Merger Sub 2 will vest in the Surviving Corporation,
and all
liabilities and duties of the Company and Merger Sub 2 will become
the
liabilities and duties of the Surviving Corporation.
1.4
ARTICLES OF INCORPORATION; BYLAWS.
(a) The Articles of Merger shall provide that, at the Effective
Time,
the Articles of Incorporation of the Initially Surviving
Corporation shall be in
the form of the Articles of Incorporation of the Merger Sub 1 as in
effect
immediately prior to the Effective
-2-
<PAGE>
Time; provided, however, that as of the Effective Time, Article I
of the
Articles of Incorporation of the Initially Surviving Corporation
shall read:
"The name of the corporation is eStara, Inc."
(b) At the Effective Time, the Bylaws of Merger Sub 1, as in
effect
immediately prior to the Effective Time, shall become the Bylaws of
the
Initially Surviving Corporation until thereafter amended.
(c) Upon the consummation of the Second Step Merger, the Articles
of
Incorporation of Merger Sub 2, as in effect immediately prior to
the
consummation of the Second Step Merger, shall be the Articles of
Incorporation
of the Surviving Corporation until thereafter amended; provided,
however, that
as of the Effective Time, Article I of the Articles of
Incorporation of the
Surviving Corporation shall read: "The name of the corporation is
eStara, Inc."
(d) Upon the consummation of the Second Step Merger, Bylaws of
Merger
Sub 2, as in effect immediately prior to the consummation of the
Second Step
Merger, shall be the Bylaws of the Surviving Corporation until
thereafter
amended.
1.5
DIRECTORS AND OFFICERS. At the Effective Time, the directors of
Merger
Sub 1, serving in such capacity immediately prior to the Effective
Time, shall
be the directors of the Initially Surviving Corporation. Upon the
consummation
of the Second Step Merger, the directors of Merger Sub 2 shall be
the directors
of the Surviving Corporation, until their respective successors are
duly elected
or appointed and qualified. At the Effective Time, the officers of
Merger Sub 1,
holding office immediately prior to the Effective Time, shall be
the officers of
the Initially Surviving Corporation, until their respective
successors are duly
elected or appointed and qualified. Upon consummation of the Second
Step Merger,
the officers of Merger Sub 2 shall be the officers of the Surviving
Corporation,
until their respective successors are duly elected or appointed and
qualified.
1.6
EFFECT ON CAPITAL STOCK. Subject to the terms and conditions of
this
Agreement, at the Effective Time, by virtue of the Merger and
without any action
on the part of Merger Sub 1, the Company or the holders of any of
the Company
Capital Stock (as defined below):
(a) CONVERSION OF COMPANY CAPITAL STOCK. Each share of Company
Capital
Stock issued and outstanding immediately prior to the Effective
Time, other than
any shares of Company Capital Stock to be canceled pursuant to
Section 1.6(d)
and any Dissenting Shares (as defined, and to the extent provided
in Section
1.17(a)), will be canceled and extinguished and automatically
converted into the
right to receive the applicable Per Share Merger Consideration (as
defined in
Section 1.6(b) below) upon surrender by the holder thereof of the
certificate
representing such share of Company Capital Stock in the manner
provided in
Section 1.12, including, with respect to each whole share of Parent
Common Stock
to be received, the right to receive one Right (as defined in the
Rights
Agreement, dated as of September 26, 2001, between Parent and
EquiServe Trust
Company, N.A., as Rights Agent (the "RIGHTS AGREEMENT")). No
fraction of a share
of Parent Common Stock will be issued by virtue of the Merger, but
in lieu
thereof, a cash payment shall be made pursuant to Section
1.12(c).
(b) For purposes of this Agreement:
-3-
<PAGE>
(i) The "MERGER CONSIDERATION" shall consist of the Base
Consideration and the Earn-Out Consideration, each determined, and
payable,
as
set forth below.
(ii) The "PER SHARE MERGER CONSIDERATION" shall be the amount,
if
any,
of the Merger Consideration payable (A) with respect to each share
of
each
respective class or series of Company Capital Stock outstanding
immediately prior to the Effective Time, or (B) to the holder of
each
Company Warrant to acquire a share of Common Stock of the Company
that is
outstanding immediately prior to the Effective Time, that is
assumed by
Parent pursuant to this Agreement, and that is exercised in
accordance with
its
terms after the Effective Time. The Per Share Merger
Consideration
shall be determined in accordance with the Articles of
Incorporation of the
Company as in effect as of the Effective Time, and is more fully
set forth
on
Schedule II attached hereto and incorporated by reference
herein.
Between the date hereof and the Effective Time, Schedule II may be
updated
by
the Company as necessary to reflect (i) the exercise or
cancellation of
any
Company Option or Company Warrant that is outstanding on the date
of
this
Agreement, (ii) the payment of cash to Ineligible Stockholders
and
Ineligible Recipients, and (iii) any election by Parent to increase
the
Base
Cash pursuant to Section 1.6(b)(vi); provided, that any such
update
shall be consistent with the Articles of Incorporation of the
Company and
with
the terms of this Agreement, and shall be delivered by the Company
to
Parent prior to the Effective Time. The Per Share Merger
Consideration, if
any,
may vary for each Company Stockholder based upon the class or
series,
and
dates of issuance, of the Company Capital Stock held by each
Company
Stockholder immediately prior to the Effective Time. The
calculation of the
Per
Share Merger Consideration payable in respect of the Common Stock
of
the
Company shall be based on total Common Share Equivalents as of
the
Effective Time.
(iii) The "BASE CONSIDERATION" shall consist of the Base Parent
Shares and the Base Cash, each as adjusted pursuant to Section 1.7
below.
(iv) An "INELIGIBLE STOCKHOLDER" is any Company Stockholder
that
is
determined by Parent, in its reasonable judgment, exercised in
good
faith, not to be an "accredited investor" as to Parent, within the
meaning
of
Rule 501(a) under the Securities Act of 1933, as amended (the
"SECURITIES ACT"), or otherwise ineligible to acquire shares of
Parent
Common Stock in a private
placement pursuant to Rule 506 under the
Securities Act.
(v) The "BASE PARENT SHARES" shall consist of 17,857,000 shares
of
Parent Common Stock, provided that the number of Base Parent
Shares
shall be (A) reduced by the quotient of the aggregate amount of
the
Transaction Bonuses divided by $2.80, (B) reduced by the quotient
of the
Base
Cash, if any, divided by $2.80, (C) reduced pursuant to the terms
of
Subsection 1.6(b)(x) and (D) adjusted pursuant to Section 1.7
hereof.
(vi) The "BASE CASH" shall be the sum of (A) $2,000,000 plus,
(B)
such
additional aggregate amount in cash as Parent may, in its sole
discretion, elect by written notice to the Company, given not less
than two
business days prior to the Closing,
-4-
<PAGE>
but
in no event more than (I) $3,000,000, or (II) if necessary to
avoid
disqualification of the Merger as a reorganization under Section
368(a) of
the
Code, such lesser amount as would not result in such
disqualification.
(vii) The "COMPANY CAPITAL STOCK" shall consist of all
outstanding capital stock of the Company, including the Company
Common
Stock, Company Series A Preferred Stock, Company Series C-1
Preferred
Stock, Company Series C-2 Preferred Stock, Company Series D
Preferred
Stock, and Company Series E Preferred Stock (each as defined in
Section
2.2(a)).
(viii) The "COMPANY CONVERTIBLE SECURITIES" shall consist of
each
outstanding stock option, warrant, or other convertible security to
acquire
shares of each respective class or series of Company Capital
Stock.
(ix) The "COMPANY STOCKHOLDERS" shall consist of the holders of
outstanding shares of Company Capital Stock and the holders of
outstanding
Company Convertible Securities.
(x) Anything to the contrary in the foregoing notwithstanding,
in
the
event that Parent shall determine, in its reasonable
discretion,
exercised in good faith, that any Company Stockholder is an
Ineligible
Stockholder, then in lieu of the Base Parent Shares otherwise
included in
the
Merger Consideration allocated to such Ineligible Stockholder,
each
such
Ineligible Stockholder shall be entitled to receive, an amount in
cash
equal to the sum of (A) the product of (I) the number of shares of
Parent
Common Stock such Ineligible Stockholder would have otherwise
received,
multiplied by (II) $2.80, plus (B) such amount, if any, as is
payable to
such
Ineligible Stockholder pursuant to Section 1.6(c) below.
(c) EARN-OUT CONSIDERATION. In addition to the Base Consideration,
the
Company Stockholders will be eligible to receive additional merger
consideration
in the aggregate amount of up to $3,107,349 (the "EARN-OUT
CONSIDERATION"),
provided that the ESTARA REVENUE, as defined below, is equal to or
greater than
$25,000,000, as follows:
(i) If the eStara Revenue is equal to or greater than
$25,000,000
but
less than $30,000,000, the aggregate Earn-Out Consideration shall
be
equal to $621,470.
(ii) If the eStara Revenue is equal to or greater than
$30,000,000, the Earn-Out Consideration shall be equal to
$3,107,349.
(iii) The aggregate Earn-Out Consideration will be payable on
or
before March 14, 2008 (the "EARN-OUT PAYMENT DATE") to the
Company
Stockholders based on the applicable Per Share Merger
Consideration
attributable to the Earn-Out Consideration, as set forth on
Schedule II.
The
Earn-Out Consideration may be paid, in the sole discretion of
Parent,
in
the form of cash or in shares of Parent Common Stock, the valuation
of
which is based upon the 20-day volume weighted average price of the
Parent
Common Stock for the period ending two days before the Earn-Out
Payment
Date, or in a combination thereof; provided that all Company
Stockholders
(except Ineligible Stockholders, who may receive all cash), shall
receive
cash
and Parent Common Stock in
-5-
<PAGE>
the
same proportion; and, provided, further, that in no event shall
Parent
elect to pay the Earn-Out Consideration (x) in shares of Parent
Common
Stock if that would require that Parent's stockholders would be or
would
have
been required to approve this transaction under the applicable
rules
of
the Nasdaq Stock Market, Inc. or other exchange rules or
securities
laws, unless prior to the Earn-Out Payment Date, Parent receives
such
stockholder approval in compliance with such applicable rules of
the Nasdaq
Stock Market, Inc. or other exchange rules or securities laws, or
(y) in
the
form of cash, if such payment would result in the Merger not
qualifying
as a
reorganization under Section 368(a) of the Code.
(iv) For purposes of this subsection:
(A) "ESTARA SERVICES" shall mean the Company's Click to
Call, Click to Chat and Call Tracking service offerings and
related
services, and any improvement, enhancement or extension to any such
service
that
is developed by the Company and made available to customers of
the
Company after the date
of this Agreement; and
(B) "ESTARA REVENUE" shall mean the consolidated revenue
recognized by Parent, in accordance with United States generally
accepted
accounting principles ("GAAP"), consistently applied, consistent
with past
practice and in accordance with Parent's revenue recognition
policies in
its
audited financial statements for the year ended December 31, 2007
(the
"MEASUREMENT PERIOD"), that is attributable to the sale or license
of
eStara Services. Notwithstanding the foregoing, (I) any revenues
recognized
by
Parent from any source during the Measurement Period from the sale
or
license of any products or services that are derivative of any
eStara
Services will be considered eStara Revenue, and (II) in the event
of any
sale
or license of any bundled or integrated products or services
that
include any eStara Services or products or services that are
derivative of
any
eStara Services, then the eStara Revenue shall be deemed to include
a
proportionate share of the revenue recognized by Parent from the
sale or
license of such bundled services, determined by comparing the
average
selling price computed for the most recent twelve calendar months,
on a
stand-alone basis, for the eStara Services that are included in
such
bundled products and services, as set forth on Schedule III
attached
hereto, to Parent's published list price on a stand-alone basis for
the ATG
products and services that are included in such bundled products
and
services. For purposes of this paragraph, a product or service
shall be
"derivative" of an eStara Service if, in the absence of this
Agreement, it
could not be sold or licensed by Parent without infringing
Intellectual
Property Rights (as defined in Section 2.10 below but excluding
any
Commercially Available Software) that is owned by or licensed to
eStara.
(v) Promptly after filing its Quarterly Report on Form 10-Q for
each
of the first three fiscal quarters of Parent in 2007, Parent
shall
provide the Stockholder Representative with a report specifying the
eStara
Revenue for the year through the end of the such fiscal
quarter.
(vi)
If, following the Earn-Out Payment Date, the maximum amount
of
Earn-Out Consideration provided for hereunder was not achieved and
paid,
the
-6-
<PAGE>
Stockholder Representative shall have the right, upon reasonable
notice to
Parent at the Stockholder Representative's expense, to have an
independent
accountant access the books and records of Parent as relevant or
necessary
to
verify Parent's determination of the eStara Revenue as determined
in
accordance with GAAP. As a condition to such access, such
independent
accountant shall agree with Parent not to disclose any
Confidential
Information of Parent (other than its determination of the eStara
Revenue,
and
its basis for determining such amount, which may only be disclosed
to
the
Stockholder Representative and his advisors). If the
Stockholder
Representative disagrees with Parent's determination of the
Earn-Out
Consideration, the Stockholder Representative will promptly (but in
any
event no later than 60 days following the Earn-Out Payment Date)
notify
Parent in writing and the parties shall negotiate in good faith to
attempt
to
resolve any such disagreement within 30 days following such notice.
If
the
parties fail to resolve their disagreement within this 30-day
period,
the
disagreement shall be resolved by an Accounting Arbitrator, using
the
same
procedures as are set forth in Sections 1.9(b)(iii) and
1.9(b)(iv).
(d) CANCELLATION OF COMPANY-OWNED AND PARENT-OWNED STOCK. Each
share
of Company Common Stock held by the Company or owned by Merger Sub
1, Parent or
any direct or indirect wholly owned subsidiary of the Company or of
Parent
immediately prior to the Effective Time shall be canceled and
extinguished
without any conversion thereof.
(e) EFFECT OF MERGER ON STOCK OPTIONS AND WARRANTS.
(i) The Board of Directors of the Company shall take
appropriate
action pursuant to each Company Option Plan such that each
outstanding
Company Option shall be accelerated so as to be exercisable in
full
immediately prior to the Effective Time, and, to the extent not
exercised
prior to the Effective Time, shall be terminated.
(ii) As of the Effective Time, (A) each outstanding Company
Warrant shall automatically be converted into a warrant to acquire,
upon
the
exercise thereof, the aggregate Per Share Merger Consideration
that
would have been payable to the holder if such Company Warrant had
been
exercised immediately prior to the Effective Time, (B) all
references to
the
Company in each Company Warrant shall be deemed to refer to
Parent,
where appropriate, and (C) Parent shall assume the obligations of
the
Company under the Company Warrant.
(f) CAPITAL STOCK OF MERGER SUB 1 AND MERGER SUB 2. Each share
of
common stock, par value $0.01 per share, of Merger Sub 1 ("MERGER
SUB 1 COMMON
STOCK"), issued and outstanding immediately prior to the Effective
Time shall be
converted into one validly issued, fully paid and nonassessable
share of common
stock, $0.01 par value per share, of the Initially Surviving
Corporation.
Following the Second Step Merger, each certificate evidencing
ownership of
shares of Merger Sub 2 common stock shall remain outstanding and
evidence
ownership of such shares of capital stock of the Surviving
Corporation.
-7-
<PAGE>
1.7
ADJUSTMENTS TO BASE CONSIDERATION BASED ON COMPANY BALANCE SHEET.
If as
of the Closing Date, the Company's Adjusted Working Capital is
greater or less
than $2,500,000, then the amount of the Base Consideration shall be
increased or
decreased, as follows.
(a) If the Adjusted Working Capital exceeds $2,500,000, then
for
purposes of determining the amount of the Base Consideration
payable to any
Company Stockholder the number of Base Parent Shares shall be
increased by a
number determined by dividing (i) the positive amount of such
excess by (ii)
$2.80.
(b) If the Adjusted Working Capital is less than $2,500,000, then
for
purposes of determining the amount of the Base Consideration
payable to any
Company Stockholder the number of Base Parent Shares shall be
decreased by a
number determined by dividing (i) the absolute value of such
deficiency by (ii)
$2.80.
1.8
ADJUSTED WORKING CAPITAL; DETERMINATION. For purposes of Section
1.7,
the following terms shall have the meanings set forth below:
(a) "ADJUSTED WORKING CAPITAL" shall mean an amount equal to the
sum
of (i) the current assets of the Company (excluding any deferred
income tax
asset), minus (ii) the current liabilities of the Company,
including, without
limitation, payment of or an accrual for (A) Transaction Expenses
(but excluding
any accrual for the Transaction Bonuses described below), and (B)
any and all
Taxes as of the Effective Time, including any applicable sales
and
telecommunications Taxes, each determined as of the Closing Date in
accordance
with GAAP, in a manner consistent with past practices of the
Company; plus or
minus (iii) any other adjustments agreed upon on in writing by
Parent and the
Company; provided that in no event shall any Excluded Adjustment be
taken into
account for purposes of determining the Adjusted Working
Capital.
(b) "EXCLUDED ADJUSTMENT" shall mean any change in a current asset
or
a current liability as compared with its amount at July 31, 2006
that is:
(i) the result of a change in estimate by the Company (whether
effected by way of reversal or omission of a previously accrued
liability
or
in any other manner) which change in estimate is not made in
response to
any
of the following occurring after July 31, 2006: (A) a bona fide
transaction entered into by the Company, (B) a payment made or
received by
the
Company (C) action of an unaffiliated third party or (D) an event
or
change of circumstances external to the Company, or
(ii) the result of any transaction or action by the Company
that
would constitute a breach of the Company's obligations under
Section 5.1
below.
(c) "TRANSACTION EXPENSE" shall mean any expense directly
attributable
to the negotiation and consummation of the transactions
contemplated by this
Agreement, including, but not limited to, severance payments, bonus
payments
(other than the Transaction Bonuses) and retention payments that
become due by
reason of the consummation of the Merger, fees and disbursements of
DLA Piper US
LLP, counsel to the Company, fees and disbursements of counsel
employed by the
Company to defend any claim, suit, action or proceeding commenced
or threatened
against the Company that seeks to restrain or enjoin the
consummation of the
-8-
<PAGE>
transactions contemplated by this Agreement, and of Argy, Wiltse
& Robinson,
P.C., the Company's independent public accountants, and amounts
payable to
Pagemill Partners, LLC, the Company's financial advisor, or to the
Stockholder
Representative.
(d) "TRANSACTION BONUSES" shall mean bonuses in the aggregate
amount
of $5,064,866 awarded by the Company to those employees of the
Company in the
amounts set forth on Schedule II, contingent upon the Closing and
payable
following the Effective Time as more fully set forth in Section
6.14 below.
1.9
DETERMINATION OF ADJUSTED WORKING CAPITAL.
(a) On or before the third business day preceding the date fixed
for
the Closing (as defined in Section 1.2), the Company shall deliver
to Parent a
certificate, in reasonable detail reasonably satisfactory to
Parent, setting
forth its estimate of the Adjusted Working Capital of the Company
as of the
Closing Date determined in accordance with Section 1.8 (the
"CLOSING
CERTIFICATE").
(b) On or before the 30th day following the Closing, Parent
shall
notify the Stockholder Representative in writing whether it accepts
or disputes
the accuracy of the Company's determination of the Adjusted Working
Capital as
set forth on the Closing Certificate.
(i) If Parent accepts the Company's determination of the
Adjusted
Working Capital, or if it fails within such 30 day period to notify
the
Company of any dispute with respect thereto, then the Closing
Certificate
shall be deemed final and conclusive and binding upon all
parties.
(ii) If Parent disputes the accuracy of the Closing Certificate
and
the Company's determination of the Adjusted Working Capital,
Parent
shall within the 30-day period referred to above provide written
notice to
the
Stockholder Representative (the "DISPUTE NOTICE"), setting forth
in
reasonable detail those items that Parent disputes, the amounts of
any
adjustments that are necessary in its judgment for the computation
of the
Adjusted Working Capital to conform to the requirements of this
Agreement,
and
the basis for its suggested adjustments. During the 30 day
period
following delivery of a Dispute Notice, Parent and the
Stockholder
Representative will meet and negotiate in good faith with a view
to
resolving their disagreements over the disputed items. During such
30 day
period and until the final determination of the Working Capital
Adjustment,
if
any, the Stockholder Representative will be provided with such
access to
the
financial books and records of the Business and, subject to
access
procedures acceptable to Parent's independent public accounts (the
"PARENT
AUDITORS"), the workpapers of the Parent Auditors, as it may
reasonably
request to enable it to respond to any Dispute Notice. If the
parties
resolve their differences over the disputed items in accordance
with the
foregoing procedure, the Working Capital Adjustment shall be the
amount
agreed upon by them.
(iii) If the parties fail to resolve their differences over the
disputed items with such 30 day period, then Parent and the
Stockholder
Representative shall
-9-
<PAGE>
forthwith jointly request that the Accounting Arbitrator make a
binding
determination as to the disputed items in accordance with this
Agreement.
The
"ACCOUNTING ARBITRATOR" shall mean such national or regional firm
of
independent accountants as may be agreed upon by Parent and the
Stockholder
Representative. Within 10 days following the delivery of a Dispute
Notice,
each
of Parent and the Stockholder Representative shall propose to
the
other in writing at least two such firms acceptable to it to act
as
Accounting Arbitrator. Any firm currently engaged as the
independent public
accounting firm for a party shall be ineligible to be proposed by
such
party serve as an arbitrator without the consent of the other
party. If the
parties have not, by the end of the 30-day period referred to
above, agreed
upon
an Accounting Arbitrator, then the Accounting Arbitrator shall
be
selected by one party, drawn by lot, from the list of firms
proposed by the
other party.
(iv) The Accounting Arbitrator will under the terms of its
engagement have no more than 75 days from the date of referral and
no more
than
15 days from the final submission of information and testimony by
the
Parent and the Stockholder Representative within which to render
its
written decision with respect to the disputed items, which decision
shall
be
final and binding upon the parties and enforceable by any court
of
competent jurisdiction. The Accounting Arbitrator shall review
such
submissions and base its determination solely on such submissions.
In
resolving any disputed item, the Accounting Arbitrator may not
assign a
value to any item greater than the greatest value for such item
claimed by
either party or less than the smallest value for such item claimed
by
either party. Parent and the Company Stockholders (by way of the
Indemnity
Escrow) shall each bear the costs and expenses of the Accounting
Arbitrator
based on the percentage which the portion of the contested
adjustment
amount not awarded to each party bears to the amount actually
contested by
such
party (e.g., if Parent makes an adjustment claim for $1,000,000
and
the
Stockholder Representative only contests $500,000 of the amount
claimed
by
Parent, and if the Accounting Arbitrator resolves the dispute
by
awarding Parent $300,000 of the $500,000 contested, then the
Accounting
Arbitrator's costs and expenses will be allocated 60% to the
Company
Stockholders and 40% to Parent).
(v) If the Adjusted Working Capital, determined as set forth
above, is greater than $2,500,000, then the amount of Base
Consideration,
whether in the form of Parent Common Stock or cash, to which each
Company
Stockholder is otherwise entitled shall be increased as set forth
in
Section 1.7(a) above, and Parent shall promptly, and in any event
within
five
business days after such determination, (i) deliver to each
Company
Stockholder such additional Base Consideration, consisting of cash,
or
Parent Common Stock, or both, as would have been deliverable to
such
Company Stockholder if the final determination of the Adjusted
Working
Capital had been made immediately prior to the Effective Time, and
(ii)
direct the Escrow Agent (as defined below) to release to the
Company
Stockholders, as their interests may appear, any property then held
for
their accounts in the
Working Capital Escrow (as defined below).
(vi) If the Adjusted Working Capital, determined as set forth
above, is less than $2,500,000, then the amount of Base
Consideration,
whether in the form of Parent Common Stock or cash, to which each
Company
Stockholder is otherwise entitled
-10-
<PAGE>
shall be reduced as set forth in Section 1.7(b) below, and Parent
shall be
entitled to direct that the Escrow Agent deliver to Parent from the
Working
Capital Escrow (and, in the event that the Working Capital Escrow
is
insufficient, from the Indemnity Escrow, as defined below)), for
the
account of each Company Stockholder, that portion of the Base
Consideration
delivered to the Escrow Agent for the account of each Company
Stockholder
as
would not have been payable to such Company Stockholder if the
final
determination of the Adjusted Working Capital had been made
immediately
prior to the Effective Time. If, after such delivery to Parent,
any
property shall remain in the Working Capital Escrow, Parent will
promptly
instruct the Escrow Agent to release the balance of such property
to the
Company Stockholders, as their interests may appear.
1.10
ESCROW AGREEMENT. At the Closing, Parent will deliver to
Computershare
Trust Company, Inc., as escrow agent (the "ESCROW AGENT"), pursuant
to an escrow
agreement (the "ESCROW AGREEMENT") in substantially the form
attached as Exhibit
B hereto, the following:
(a) shares of Parent Common Stock and, if applicable, cash
constituting ten percent (10%) of the Base Consideration payable to
each Company
Stockholder, determined without regard to any adjustment pursuant
to Section
1.6(b)(v)(A) or Section 1.7 (collectively, the "INDEMNITY ESCROW");
and
(b) shares of Parent Common Stock and, if applicable, cash
constituting an additional five percent (5%) of the Base
Consideration payable
to each Company Stockholder determined without regard to any
adjustment pursuant
to Section 1.6(b)(v)(A) or Section 1.7 (collectively, the "WORKING
CAPITAL
ESCROW").
The
Escrow Agreement will provide, among other things, for the
establishment of subaccounts whereby the Base Consideration
delivered to and
disbursed by the Escrow Agent for the account of each Company
Stockholder shall
be separately accounted for, and shall further provide that on the
first
anniversary of the Closing the Indemnity Escrow (less the amount of
any claims
paid and pending claims asserted by Parent in good faith of which
the Escrow
Agent has received notice) will be released from the escrow account
and
distributed to the Company Stockholders, and that six months after
the Closing
Date (or such lesser period as is necessary to finally determine
the Adjusted
Working Capital under Section 1.9(b) above) the Working Capital
Escrow (less the
amount of any claims paid and pending claims asserted by Parent in
good faith of
which the Escrow Agent has received written notice) will be
released from the
escrow account and distributed to the Company Stockholders.
1.11
STOCKHOLDER REPRESENTATIVE.
(a) Each Principal Stockholder hereby appoints, and by operation
of
the merger each other Company Stockholder shall be deemed to have
appointed,
Burton E. McGillivray (including any replacement for him as
designated herein,
the "STOCKHOLDER REPRESENTATIVE") the attorney-in-fact of such
person, with full
power and authority, including power of substitution, acting in the
name of and
for and on behalf of such person with respect to this Agreement and
any of the
other Transaction Documents, including to (i) deliver to Parent at
the Closing
the certificates representing the outstanding Company Capital
Stock; (ii)
execute and deliver to Parent at the Closing all certificates and
documents to
be delivered to Parent by the
-11-
<PAGE>
Company Stockholders pursuant to this Agreement and the other
Transaction
Documents, including, without limitation, the Escrow Agreement;
(iii) incur
expenses on behalf of the Company Stockholders in connection with
this
Agreement, the other Transaction Documents and the transactions
contemplated
hereby and thereby as the Stockholder Representative may deem
appropriate; (iv)
during the time that property remains in escrow pursuant to the
Escrow
Agreement, to give and receive all notices required to be given
under this
Agreement and the other agreements contemplated hereby to which all
of the
Company Stockholders are a party, including the Escrow Agreement;
and (v) take
such action on behalf of the Company Stockholders as the
Stockholder
Representative may deem appropriate in respect of: (1) waiving any
inaccuracies
in the representations or warranties of Parent or either Merger Sub
contained in
this Agreement or the other Transaction Documents; (2) amending or
waiving any
provision of this Agreement or the other Transaction Documents; (3)
taking such
other action as any Company Stockholder is authorized to take under
this
Agreement or the other Transaction Documents; (4) receiving all
documents or
certificates and making all determinations, on behalf of any
Company
Stockholder, required under this Agreement or the other Transaction
Documents;
(5) resolving any dispute with Parent over any aspect of this
Agreement or the
other Transaction Documents, including the calculation of Adjusted
Working
Capital, the Earn-Out Consideration and claims for indemnification
hereunder;
(6) all such other matters as the Stockholder Representative may
deem necessary
or appropriate to consummate the transactions contemplated by this
Agreement or
the other Transaction Documents; (7) taking all such action as may
be necessary
after the Closing Date to carry out any of the transactions
contemplated by this
Agreement or the other Transaction Documents; and (8) entering into
any
agreement to effectuate any of the foregoing which shall have the
effect of
binding any Company Stockholder as if such person had personally
entered into
such agreement. This appointment and power of attorney shall be
deemed as
coupled with an interest and all authority conferred hereby shall
be irrevocable
whether by the death or incapacity of any such person or the
occurrence of any
other event or events. The Parent shall be entitled to rely upon
any
communication or writings given by or to, or executed by, the
Stockholder
Representative and all actions, decisions and instructions of the
Stockholder
Representative shall be conclusive and binding upon all of the
Company
Stockholders. To the extent that the terms of this Agreement or any
of the
documents executed in connection herewith require Parent or either
Merger Sub to
obtain the consent of any Company Stockholder, such consent may be
made or given
by the Stockholder Representative. Notwithstanding the foregoing,
notices which
are to be given under this Agreement to the Company Stockholders
shall only be
effective if given to each Company Stockholder, in accordance with
Section 10.1
hereof.
(b) In the event that the Stockholder Representative dies,
becomes
unable to perform his responsibilities hereunder or resigns from
such position,
the remaining Company Stockholders shall, by election of the
Company
Stockholders (or, if applicable, their respective heirs, legal
representatives,
successors and assigns) who held a majority of the shares of Common
Share
Equivalents issued and outstanding immediately prior to the
Effective Time,
select another representative to fill such vacancy and such
substituted
representative shall be deemed to be the Stockholder Representative
for all
purposes of this Agreement.
(c) In the performance of his duties hereunder, the Stockholder
Representative shall be entitled to rely upon any document or
instrument
reasonably believed by him to be genuine and accurate. The
Stockholder
Representative may assume that any person purporting
-12-
<PAGE>
to give any notice in accordance with the provisions hereof has
been duly
authorized to do so. In the absence of proven gross negligence or
willful
misconduct, (i) the Stockholder Representative shall not be liable
to the
Company Stockholders with respect to his performance of the
functions specified
in this Agreement, and (ii) no Company Stockholder shall commence,
prosecute or
maintain any actions or proceedings against the Stockholder
Representative with
respect to his performance of the functions specified in this
Agreement, except
in cases of gross negligence or willful misconduct. In determining
the
occurrence of any fact, event or contingency, the Stockholder
Representative may
request from any of the Company Stockholders or any other person
such reasonable
additional evidence as the Stockholder Representative in his sole
discretion may
deem necessary, and may at any time inquire of and consult with
others,
including any of the Company Stockholders, and shall not be liable
to any
Company Stockholder for any damages resulting from any delay in
acting hereunder
pending receipt and examination of additional evidence requested.
The
Stockholder Representative shall be entitled to be indemnified and
held harmless
by each Company Stockholder against any damages incurred without
gross
negligence or willful misconduct on the part of the Stockholder
Representative
and arising out of or in connection with the acceptance or
administration of his
duties hereunder with each Company Stockholder being, severally and
not jointly,
liable for such Company Stockholder's pro rata share (based on
their respective
interests in the Base Consideration), of any such claim for
indemnification by
the Stockholder Representative.
(d) By their execution of this Agreement, the Principal
Stockholders
agree and by operation of the merger each other Company Stockholder
shall be
deemed to have agreed, that:
(i) Parent and each Merger Sub shall be able to rely
conclusively
on
the instructions and decisions of the Stockholder Representative as
to
the
determination and payment of the Adjusted Working Capital and
the
Earn-Out Consideration and the defense and/or settlement of any
Claims for
which the Company Stockholders may be required to indemnify Parent
pursuant
to
Article 7 hereof, and no party hereunder shall have any cause of
action
against Parent or either Merger Sub for any action taken in
reliance upon
the
instructions or decisions of the Stockholder Representative;
(ii) all actions, decisions and instructions of the Stockholder
Representative shall be conclusive and binding upon all of the
Company
Stockholders and no Company Stockholder shall have any cause of
action
against the Stockholder Representative for any action taken or not
taken,
decision made or instruction given by the Stockholder
Representative under
this
Agreement, except for fraud or willful breach of this Agreement by
the
Stockholder Representative;
(iii) the provisions of this Section 1.11 are independent and
severable, are irrevocable and coupled with an interest and shall
be
enforceable notwithstanding any rights or remedies that any
Company
Stockholder may have in connection with the transactions
contemplated by
this
Agreement; and
(iv) the provisions of this Section 1.11 shall be binding upon
the
heirs, legal representatives, successors and assigns of each
Company
Stockholder, and any references in this Agreement to a Company
Stockholder
or
the Company Stockholders
-13-
<PAGE>
shall mean and include the successors to the Company Stockholder
rights
hereunder, whether pursuant to testamentary disposition, the laws
of
descent and distribution or otherwise.
(e) Following the Closing and subject to the terms of Section
6.7
hereof, Parent shall provide the Stockholder Representative with
reasonable
access to such information about the Company as the Stockholder
Representative
may reasonably request for purposes of performing his duties and
exercising the
rights of the Company Stockholders hereunder.
(f) Any fees and expenses incurred by the Stockholder
Representative
in connection with actions taken pursuant to the terms of this
Agreement,
including reasonable, actual expenses incurred or paid to counsel
or other third
parties in investigating, negotiating, arbitrating or settling any
claim
hereunder will be paid by the Company Stockholders in proportion to
their
respective pro rata interest in the Base Consideration and may, on
request of
the Stockholder Representative, be paid from amounts deposited in
the Working
Capital Escrow or Indemnity Escrow that are released from escrow
and
distributable to the Company Stockholders as provided in the Escrow
Agreement.
At any time prior to the Indemnity Escrow Termination Date, the
Stockholder
Representative may by written notice to the Escrow Agent make a
claim for
reimbursement of Transaction Expenses incurred through the date of
such notice
as well as an additional amount of up to $250,000 for future
Transaction
Expenses to the extent reasonably budgeted in good faith by the
Stockholder
Representative for resolution of any disputes between members of
the Parent
Group and the Company Stockholders under this Agreement or any
Transaction
Document as provided in this Section 1.11. Upon the release of the
Working
Capital Escrow or the Indemnity Escrow to the Company Stockholders,
the Escrow
Agent shall pay to the Stockholder Representative, out of amounts
otherwise
payable to the Company Stockholders from either the Working Capital
Escrow or
the Indemnity Escrow, any unpaid Expense Claims (as defined in, and
in
accordance with the terms of, the Escrow Agreement). Any amounts
held by the
Stockholder Representative for the payment of Transaction Expenses
shall be
released to the Company Stockholders on the earlier of (i) such
date when the
Stockholder Representative determines in good faith that no
additional
Transaction Expenses will be incurred, and (ii) the second
anniversary of the
Indemnity Escrow Release Date.
1.12
DELIVERY OF MERGER CONSIDERATION.
(a) At the Closing or as soon as practicable thereafter, each
Company
Stockholder shall deliver to Parent (i) all certificates which
immediately prior
to the Effective Time represented issued and outstanding shares of
Company
Capital Stock (individually, a "CERTIFICATE" and collectively,
the
"CERTIFICATES") or an affidavit of lost certificate and an
indemnity with
respect to such lost certificate in form and substance reasonably
satisfactory
to Parent (the "AFFIDAVIT") and (ii) an executed Letter of
Transmittal and
Certificate in the form of Exhibit C hereto (the "TRANSMITTAL
CERTIFICATE").
Each Company Stockholder shall be entitled to receive in exchange
therefor the
applicable Merger Consideration allocable to such Company
Stockholder, including
a certificate or certificates representing the shares of Parent
Common Stock
included therein (excluding the Indemnification Escrow and the
Working Capital
Escrow). The total amount of Merger Consideration issuable to each
Company
Stockholder in exchange for his or its shares shall be listed on
Schedule II
hereto, as updated as of the Effective Time by
-14-
<PAGE>
the Company and delivered to Parent at the Closing. If any
certificate for
shares of Parent Common Stock is to be issued in a name other than
that in which
the certificate surrendered in exchange therefor is registered, it
will be a
condition of the issuance thereof that Parent be satisfied that (i)
such
transfer complies with all applicable state and federal securities
laws, and
(ii) the certificate so surrendered is properly endorsed and
otherwise in proper
form for transfer.
(b) Until surrendered, each Certificate shall, after the
Effective
Time, represent only the right to receive the Merger Consideration
into which
the shares of Company Capital Stock formerly represented thereby
shall have been
converted pursuant to Section 1.6 hereof. Any dividends or other
distribution
declared after the Effective Time with respect to the Parent Common
Stock
issuable as part of such Merger Consideration shall be paid to the
holder of any
Certificate when the holder thereof surrenders such Certificate or
an Affidavit
in lieu thereof. At and after the Effective Time, the holders of
any Company
Capital Stock shall cease to have any rights as Company
Stockholders, except for
the right to surrender Certificates pursuant to Section 1.12(a). As
of the
Closing, the stock transfer books of the Company shall be closed,
and after the
Closing there shall be no transfers on such stock transfer
books.
(c) FRACTIONAL SHARES. No fraction of a share of Parent Common
Stock
will be issued by virtue of the Merger, but in lieu thereof each
holder of
shares of Company Common Stock who would otherwise be entitled to a
fraction of
a share of Parent Common Stock (after aggregating all fractional
shares of
Parent Common Stock to be received by such holder) shall receive
from Parent an
amount of cash (rounded to the nearest whole cent) equal to the
product of (i)
such fraction, multiplied by (ii) $2.80.
(d) REQUIRED WITHHOLDING. Each of Parent, the Initially
Surviving
Corporation and the Surviving Corporation shall be entitled to
deduct and
withhold from any consideration payable or otherwise deliverable
pursuant to
this Agreement to any holder or former holder of Company Capital
Stock such
amounts as may be required to be deducted or withheld therefrom
under the Code
or under any provision of state, local or foreign tax law or under
any other
applicable Legal Requirement. To the extent such amounts are so
deducted or
withheld, such amounts shall be treated for all purposes under this
Agreement as
having been paid to the person to whom such amounts would otherwise
have been
paid.
(e) NO LIABILITY. Notwithstanding anything to the contrary in
this
Section 1.12, neither Parent, the Initially Surviving Corporation,
the Surviving
Corporation nor any other party hereto shall be liable to a holder
of shares of
Parent Common Stock or Company Common Stock for any amount properly
paid to a
public official pursuant to any applicable abandoned property,
escheat or
similar law.
1.13
NO FURTHER OWNERSHIP RIGHTS IN COMPANY CAPITAL STOCK. All
Merger
Consideration issued in accordance with the terms hereof shall be
deemed to have
been issued in full satisfaction of all rights pertaining to such
shares of
Company Capital Stock, and there shall be no further registration
of transfers
on the records of the Initially Surviving Corporation or the
Surviving
Corporation of shares of Company Capital Stock that were
outstanding immediately
prior to the Effective Time. If, after the Effective Time,
Certificates are
presented to the Initially Surviving Corporation or the Surviving
Corporation
for any reason, they shall be canceled and exchanged as provided in
this Article
1.
-15-
<PAGE>
1.14
RESTRICTED STOCK. If any shares of Company Common Stock that
are
outstanding immediately prior to the Effective Time are unvested or
are subject
to a repurchase option, risk of forfeiture or other condition
providing that
such shares ("COMPANY RESTRICTED STOCK") may be forfeited or
repurchased by the
Company upon any termination of the shareholders' employment,
directorship or
other relationship with the Company (and/or any affiliate of the
Company) under
the terms of any restricted stock purchase agreement or other
agreement with the
Company that does not by its terms provide that such repurchase
option, risk of
forfeiture or other condition fully lapses upon consummation of the
Merger, then
(a) the shares of Parent Common Stock issued upon the conversion of
such shares
of Company Common Stock in the Merger will, unless otherwise
accelerated by
their terms as a result of the Merger, continue to be unvested and
subject to
the same repurchase options, risks of forfeiture or other
conditions following
the Effective Time, and the certificates representing such shares
of Parent
Common Stock may accordingly be marked with appropriate legends
noting such
repurchase options, risks of forfeiture or other conditions, and
(b) the right
of such holder of Company Restricted Stock to receive consideration
in the form
of cash in respect of any shares of Company Common Stock that were
unvested at
the Effective Time ("Unvested Cash Consideration") shall continue
to be unvested
and subject to the same risks of forfeiture or other conditions
following the
Effective Time. Any such Unvested Cash Consideration will be
retained by Parent
at the Closing and will be paid by Parent to the former holder of
such Company
Restricted Stock upon the vesting of the corresponding installments
of Parent
Common Stock that were delivered as merger consideration. The
Company shall take
all actions that may be necessary to ensure that, from and after
the Effective
Time, Parent is entitled to exercise any such repurchase option or
other right
set forth in any such restricted stock purchase agreement or other
agreement. A
listing of the holders of Company Restricted Stock, together with
the number of
shares and the vesting schedule of Company Restricted Stock held by
each, in
each case assuming the Merger has occurred, is set forth in Part
1.14 of the
Company Disclosure Schedule.
1.15
TAX CONSEQUENCES. It is intended by the parties hereto that the
Merger
shall constitute a reorganization described in section 368 of the
Code. The
parties hereto adopt this Agreement as a "plan of reorganization"
within the
meaning of sections 1.368-2(g) and 1.368-3(a) of the United States
Income Tax
Regulations (the "TREASURY REGULATIONS").
1.16
TAKING OF NECESSARY ACTION; FURTHER ACTION. If, at any time after
the
Effective Time, any further action is reasonably necessary or
desirable to carry
out the purposes of this Agreement and to vest the Initially
Surviving
Corporation and, thereafter, the Surviving Corporation, with full
right, title
and possession to all assets, property, rights, privileges, powers
and
franchises of the Company, the officers and directors of the
Company and each
Merger Sub will take all such lawful and necessary action. Parent
shall cause
each Merger Sub to perform all of its obligations relating to this
Agreement and
the transactions contemplated hereby.
1.17
DISSENTERS' RIGHTS.
(a) Notwithstanding any provision of this Agreement to the
contrary
other than Section 1.17(b), any shares of Company Common Stock held
by a holder
who has demanded and perfected appraisal rights for such shares in
accordance
with Section 3-203 of the MGCL and who, as of the Effective Time,
has not
effectively withdrawn or lost such appraisal or dissenters' rights
("DISSENTING
SHARES"), shall not be converted into or represent a right to
-16-
<PAGE>
receive Merger Consideration pursuant to Section 1.6, but instead
shall be
converted into the right to receive only such consideration as may
be determined
to be due with respect to such Dissenting Shares under the MGCL.
From and after
the Effective Time, a holder of Dissenting Shares shall not be
entitled to
exercise any of the voting rights or other rights of a shareholder
of the
Initially Surviving Corporation or the Surviving Corporation.
(b) Notwithstanding the provisions of Section 1.6(a), if any holder
of
shares of Company Common Stock who demands appraisal of such shares
under the
MGCL shall effectively withdraw or lose (through failure to perfect
or
otherwise) the right to appraisal, then, as of the later of the
Effective Time
and the occurrence of such event, such holder's shares shall no
longer be
Dissenting Shares and shall automatically be converted into and
represent only
the right to receive Merger Consideration as provided in Section
1.6(a) without
interest thereon, upon surrender of the certificate representing
such shares
pursuant to Section 1.12.
(c) The Company shall give Parent (i) prompt notice of any
written
demands for appraisal of any shares of Company Common Stock,
withdrawals of such
demands, and any other instruments served pursuant to the MGCL and
received by
the Company which relate to any such demand for appraisal and (ii)
the
opportunity to participate in all negotiations and proceedings
which take place
prior to the Effective Time with respect to demands for appraisal
under the
MGCL. The Company shall not, except with the prior written consent
of Parent,
voluntarily make any payment with respect to any demands for
appraisal of
Company Common Stock or offer to settle or settle any such
demands.
1.18
CROSS REFERENCES.
The
following terms defined elsewhere in this Agreement in the Sections
set
forth below shall have the respective meanings therein defined:
<TABLE>
<CAPTION>
Term
Section
----
--------------------
<S>
<C>
Accounting Arbitrator
Section 1.9(b)(iii)
Adjusted Working Capital
Section 1.8
Affidavit
Section 1.12(a)
Agreement
Preamble
Antitrust Filings
Section 6.3(a)
Articles of Merger
Section 1.2
Base Cash
Section 1.6(b)(vi)
Base Consideration
Section 1.6(b)(iii)
Base Parent Shares
Section 1.6(b)(v)
Bonus Recipients
Section 6.14(a)
Certificates
Section 1.12(a)
Claims
Section 7.4(g)(i)
Closing
Section 1.2(a)
Closing Certificate
Section 1.9(a)
Closing Date
Section 1.2(a)
Code
Recitals
Company
Preamble
</TABLE>
-17-
<PAGE>
<TABLE>
<CAPTION>
Term
Section
----
--------------------
<S>
<C>
Company Balance Sheet
Section 2.5(a)
Company Capital Stock
Section 1.6(b)(vii)
Company Charter Documents
Section 2.1(c)
Company Common Stock
Section 2.2(a)
Company Contract
Section 2.16
Company Convertible Securities
Section 1.6(b)(viii)
Company Copyrights
Section 2.10(a)
Company Disclosure Schedule
Article 2
Company Financial Statements
Section 2.5(a)
Company Marks
Section 2.10(a)
Company Patents
Section 2.10(a)
Company Permits
Section 2.11(b)
Company Restricted Stock
Section 1.14
Company Secret Information
Section
2.10(a)
Company Series A Preferred Stock
Section 2.2(a)
Company Series B-1 Preferred Stock Section
2.2(a)
Company Series C-1 Preferred Stock Section
2.2(a)
Company Series C-2 Preferred Stock Section
2.2(a)
Company Series D Preferred Stock
Section 2.2(a)
Company Series E Preferred Stock
Section 2.2(a)
Company Stockholders
Section 1.6(b)(ix)
Confidentiality Agreement
Section 6.6
Damages
Section 7.1
Dispute Notice
Section 1.9(b)(ii)
Dissenting Shares
Section 1.17(a)
Earn-Out Bonus
Section 6.14(b)
Earn-Out Consideration
Section 1.6(c)
Earn-Out Payment Date
Section 1.6(c)(iii)
Effective Time
Section 1.2
Escrow Agent
Section 1.10
Escrow Agreement
Section 1.10
Escrow Value
Section 7.4(g)(ii)
eStara Services
Section 1.6(c)
eStara Revenue
Section 1.6(c)
Excluded Adjustment
Section 1.8(b)
Exclusively licensed
Section 2.10(a)
GAAP
Section 2.5(a)
Holder
Section 6.1(a)
Indemnified Party
Section 7.4(a)
Indemnifying Party
Section 7.4(a)
Indemnity Escrow
Section 1.10(a)
Ineligible Stockholder
Section 1.6(b)(iv)
Ineligible Recipient
Section 6.14(a)
Information Statement
Section 6.4
Initially Surviving Corporation
Section 1.1
</TABLE>
-18-
<PAGE>
<TABLE>
<CAPTION>
Term
Section
----
--------------------
<S>
<C>
Intellectual Property Rights
Section 2.10(a)
Investor Questionnaire
Section 3.7
Key Employee
Section 8.3(j)
Leased Real Property
Section 2.9(a)
Lock-Up Agreement
Section 6.2(a)
Merger
Recitals
Merger Consideration
Section 1.6(b)(i)
Merger Sub
Preamble
Merger Sub 1
Preamble
Merger Sub 2
Preamble
Merger Sub 1 Common Stock
Section 1.6(f)
MGCL
Recitals
Open Source Materials
Section 2.10(n)
Other Filings
Section 6.3(a)
Parent
Preamble
Parent Charter Documents
Section 4.1(b)
Parent Claim
Section 7.3(b)
Parent Common Stock
Section 4.2(a)
Parent Disclosure Schedule
Article 4
Parent Financial Statements
Section 4.7
Parent Group
Section 7.1
Parent SEC Documents
Section 4.7
Per Share Merger Consideration
Section 1.6(b)(ii)
Specified Holder Permitted Transferee Section 6.2(a)
Pre-Closing Tax Period
Section 6.5(b)(i)
Principal Stockholders
Preamble
Program Code
Section 2.10(n)
Registrable Securities
Section 6.1(a)
Registration Statement
Section 6.1(b)
Rights Agreement
Section 1.6(a)
SBA
Section 10.4
Second Articles of Merger
Section 1.2(a)
Second Step Agreement of Merger
Section 1.2(a)
Second Step Merger
Recitals
Sell
Section 6.2(a)
Software
Section 2.10(a)
Special Meeting
Section 6.4
Specified Holder
Article 3A
Stockholder Claim
Section 7.3(b)
Stockholder Representative
Section 1.11
Stockholders Group
Section 7.2
Straddle Period
Section 6.5(b)(ii)
Survival Period
Section 7.3
Surviving Corporation
Section 1.3(b)
Third-Party Claims
Section 7.4(d)
</TABLE>
-19-
<PAGE>
<TABLE>
<CAPTION>
Term
Section
----
--------------------
<S>
<C>
Threshold
Section 7.4(g)(i)
Transaction Bonuses
Section 1.8(d)
Transaction Expense
Section 1.8(c)
Transmittal Certificate
Section 1.12(a)
Treasury Regulations
Section 1.15
Voting Agreements
Recitals
Working Capital Escrow
Section 1.10(b)
</TABLE>
1.19
CERTAIN DEFINITIONS. As used herein, the following terms shall
have
the following meanings:
(a) "ACQUISITION PROPOSAL" shall mean any offer or proposal
(other
than an offer or proposal by Parent or either Merger Sub) relating
to or
involving: (i) any acquisition or purchase by any Person or "group"
(as defined
under Section 13(d) of the Exchange Act and the rules and
regulations
thereunder) of beneficial ownership (as defined in Rule 13d-3 under
the Exchange
Act) of more than 15% of the total number of outstanding voting
securities of
any Target Company; (ii) any tender offer or exchange offer that if
consummated
would result in any Person or "group" (as defined under Section
13(d) of the
Exchange Act and the rules and regulations thereunder) having
beneficial
ownership (as defined in Rule 13d-3 under the Exchange Act) of more
than 15% of
the total number of outstanding voting securities of any Target
Company; (iii)
any merger, consolidation, business combination or similar
transaction involving
any Target Company pursuant to which the stockholders of the
Company or such
Subsidiary immediately preceding such transaction hold less than
85% of the
equity interests in the surviving or resulting entity of such
transaction; (iv)
any sale, lease, exchange, transfer, license (other than in the
ordinary course
of business), acquisition, or disposition of any material assets of
any Target
Company; or (v) any liquidation or dissolution of any Target
Company.
(b) "AFFILIATE" of a specified Person shall mean each other Person
who
controls, is controlled by, or is under common control with the
specified
Person.
(c) "COBRA" shall mean the Consolidated Omnibus Budget
Reconciliation
Act of 1985, as amended.
(d) "COMMERCIALLY AVAILABLE SOFTWARE" shall mean any
commercially
available third-party "off-the-shelf" software licensed to the
Company on a
non-exclusive basis.
(e) "COMMON SHARE EQUIVALENT" shall mean each share of Company
Common
Stock (i) outstanding immediately prior to the Effective Time or
(ii) into or
for which each share of Company Capital Stock or Company
Convertible Securities
is convertible or exercisable as of the Effective Time.
(f) "COMPANY AGREEMENTS" shall mean (i) the Second Amended and
Restated Stockholders Agreement dated as July 27, 2001, as amended
by the
Amendment No. 1 to Second Amended and Restated Stockholders
Agreement dated as
of February 28, 2006, and (ii) the Second Amended and Restated
Registration
Rights Agreement dated as of July 27, 2001, as
-20-
<PAGE>
amended by the First Amendment to Second Amended and Restated
Registration
Rights Agreement dated as of October 10, 2001.
(g) "COMPANY EMPLOYEE PLAN" shall mean any program, policy,
practice,
trust, Contract or other plan providing for compensation,
severance, termination
pay, performance awards, stock or stock-related awards, fringe
benefits or other
benefits or remuneration of any kind, whether written or unwritten,
funded or
unfunded, which is or has been maintained, contributed to, or
required to be
contributed to, by any Target Company for the benefit of any
Employee or any
relative or dependent of any Employee, including (i) each "employee
benefit
plan" within the meaning of Section 3(3) of ERISA, (ii) any stock,
stock option,
stock appreciation right, stock purchase, bonus, deferred
compensation, pension,
profit-sharing, commission, retirement, severance, retention,
change of control,
or similar plan or Contract, and (iii) any provision in any staff
handbook or
written employment policies for any Target Company.
(h)
"COMPANY MATERIAL ADVERSE EFFECT" means any change, event,
circumstance or effect (whether or not such change, event,
circumstance or
effect constitutes a breach of a representation, warranty or
covenant regarding
the Company in this Agreement) that is, or is reasonably likely to
be,
materially adverse to the business, assets (including intangible
assets),
capitalization, financial condition, operations or results of
operations of the
Target Companies, taken as a whole, exclusive of any effect arising
from or
related to: (i) any general condition affecting the industry in
which the
Company is engaged and that do not affect the Company
disproportionately, as
compared to other companies in such industry; (ii) the announcement
or pendency
of this Agreement or any of the transactions contemplated hereby,
or the
disclosure of the identity of Parent as the acquiror of the
Company; (iii) any
action taken by Company Stockholders or the Company at Parent's or
either Merger
Sub's request or pursuant to a requirement in the Transaction
Documents; (iv)
acts of war or terrorism; (v) general economic, political and
financial market
changes that do not affect the Company disproportionately; or (vi)
any action
(or failure to take any action) by Parent or either Merger Sub,
except as
required or contemplated by this Agreement.
(i) "COMPANY OPTION" shall mean each outstanding unexercised option
to
purchase Company Stock, whether or not vested or fully exercisable,
granted
under any Company Option Plan.
(j)
"COMPANY OPTION PLAN(S)" shall mean the Company's 2002 Equity
Incentive Plan.
(k) "COMPANY WARRANT" shall mean each of those certain warrants
to
purchase Common Stock of the Company originally issued (i) on or
about October
6, 2000 to Acon Venture Partners, L.P. and (ii) on or about July
24, 2002 to
persons that currently are the holders of the Company's Series E
Preferred
Stock.
(l) "CONFIDENTIAL INFORMATION" shall mean any information
concerning
the business and affairs of Parent and its Subsidiaries or the
Target Companies,
as the case may be, that is not already generally available to the
public, other
than (i) information which becomes generally available to the
public other than
as a result of a disclosure in violation of this
-21-
<PAGE>
Agreement, and (ii) information which becomes available to the
applicable Party
on a non-confidential basis from a Person who is not known or
reasonably
suspected (in each case after reasonable inquiry) by such Party to
be bound not
to disclose the information. All information concerning the
business and affairs
of Parent and its Subsidiaries and the Target Companies (including
the
information contained in the Company Disclosure Schedule) shall be
presumed to
be Confidential Information, and the applicable Party who receives
such
Confidential Information shall have the burden of proving that any
such
information is not Confidential Information.
(m) "CONTRACT" shall mean any contract, agreement, instrument,
license, lease, mortgage, note, bond, debenture, indenture,
guarantee, permit,
franchise, concession, plan, option, warranty, purchase order,
insurance policy,
obligation, covenant, undertaking, arrangement or other legally
binding
commitment or of any nature, whether written or oral.
(n) "EMPLOYEE" shall mean any current, former or retired
employee,
officer, director of the Company or any ERISA Affiliate.
(o) "EMPLOYEE AGREEMENT" shall mean each management,
employment,
retention, severance, change-of-control, consulting,
indemnification,
relocation, repatriation, expatriation, visa, work permit or
similar Contract
between the Company or any ERISA Affiliate and any Employee or
consultant,
including any offer letter.
(p) "ENCUMBRANCES" shall mean any lien, pledge, hypothecation,
charge,
mortgage, security interest, encumbrance, restrictive covenant,
claim,
infringement, interference, option, right of first refusal,
preemptive right,
community property interest or restriction of any nature (including
any
restriction on the voting of any security, any restriction on the
transfer of
any security or other asset, any restriction on the receipt of any
income
derived from any asset, any restriction on the use of any asset and
any
restriction on the possession, exercise or transfer of any other
attribute of
ownership of any asset) and, in the case of leasehold real
property, rent and
service charges.
(q) "ENVIRONMENTAL CLAIM" shall mean any written notice
alleging
potential liability (including potential liability for
investigatory costs,
cleanup costs, response or remediation costs, natural resources
damages,
property damages, personal injuries, fines or penalties) arising
out of, based
on or resulting from (a) the presence, or release of any
Environmental Material
at any location, whether or not owned by that party or any of its
Affiliates or
(b) circumstances forming the basis of any violation, or alleged
violation, of
any Environmental Law and which could reasonably be expected to
have a Company
Material Adverse Effect.
(r) "ENVIRONMENTAL LAWS" shall mean any and all statutes,
regulations
and ordinances relating to the protection of public health, safety
or the
environment.
(s) "ENVIRONMENTAL MATERIAL" shall mean PCBs, asbestos, petroleum
and
its by-products, any substance that has been designated by any
Governmental
Entity or by applicable law to be radioactive, toxic, hazardous or
otherwise a
danger to public health or the
-22-
<PAGE>
environment, and all other substances or constituents that are
regulated by, or
form the basis of liability under, any Environmental Law.
(t) "ERISA" shall mean the Employee Retirement Income Security Act
of
1974, as amended.
(u) "ERISA AFFILIATE" shall mean any other Person under common
control
with the Company within the meaning of Sections 414(b), (c), (m) or
(o) of the
Code and the regulations issued thereunder.
(v) "EXCHANGE ACT" shall mean the Securities Exchange Act of 1934,
as
amended.
(w) "FAMILY MEMBER" shall mean any spouse, parent, grandparent,
child,
grandchild or sibling or any other person sharing the same
household.
(x) "FMLA" shall mean the Family Medical Leave Act of 1993, as
amended.
(y) "GOVERNMENTAL ENTITY" shall mean any court or any
administrative,
regulatory or governmental body, agency, commission, panel,
authority,
organization or instrumentality, whether domestic, foreign or
international.
(z) "IRS" shall mean the Internal Revenue Service.
(aa) "KNOWLEDGE" with respect to the Company and a particular fact
or
matter, shall mean: (i) the actual awareness of such fact or matter
by any
officer or director of the Company or any of the following
employees of the
Company: John Federman, Joseph Siegrist, and Laurence Stock, (ii)
the awareness
that any such officer, director or employee would be expected to
obtain in the
course of conducting a reasonably comprehensive investigation of
matters within
the scope of such person's responsibilities concerning the
existence of such
fact or matter, and (iii) any information contained in the
Company's books and
records that any such officer, director or employee would be
expected to obtain
in the course of such person's recent review of such books and
records, and
"KNOWN" shall have the corresponding meaning.
(bb) "LEGAL REQUIREMENT" shall mean any federal, state, local,
municipal, provincial, foreign, international or other law,
statute,
constitution, treaty, principle of common law, resolution,
ordinance, code,
edict, decree, rule, regulation, ruling or requirement issued,
enacted, adopted,
promulgated, implemented or otherwise put into effect by or under
the authority
of any Governmental Entity.
(cc) "MULTIEMPLOYER PLAN" shall mean any Pension Plan (as
defined
below) which is a "multiemployer plan," as defined in Section 3(37)
of ERISA.
(dd) "PARENT MATERIAL ADVERSE EFFECT" means any change, event,
circumstance or effect (whether or not such change, event,
circumstance or
effect constitutes a breach of a representation, warranty or
covenant regarding
Parent in this Agreement) that is or is reasonably likely to be
materially
adverse to the business, assets (including intangible assets),
capitalization,
financial condition, operations, results of operations or prospects
of Parent;
provided, however,
-23-
<PAGE>
that fluctuations in the trading price of the Parent Common Stock,
in and of
themselves, shall not constitute a Parent Material Adverse Effect,
and exclusive
of any effect arising from or related to: (i) any general condition
affecting
the industry in which Parent is engaged and that do not affect
Parent
disproportionately; (ii) the announcement or pendency of this
Agreement or any
of the transactions contemplated hereby; (iii) any action taken by
Parent or
either Merger Sub at the Company's request or pursuant to a
requirement in the
Transaction Documents; (iv) acts of war or terrorism; (v) general
economic,
political and financial market changes that do not affect
Parent
disproportionately, or (v) any action or omission by the
Company.
(ee) "PENSION PLAN" shall mean each Company Employee Plan which is
an
"employee pension benefit plan," within the meaning of Section 3(2)
of ERISA.
(ff) "PERMITTED TRANSFER" shall mean a transfer as a gift,
partnership
distribution or other non-sale related transfer without
consideration by a
Holder to a Permitted Transferee.
(gg) "PERMITTED TRANSFEREE" shall mean (i) with respect to a
partnership, its partners or former partners in accordance with
their
partnership interests, (b) with respect to a corporation, its
stockholders in
accordance with their interest in the corporation, (c) with respect
to a limited
liability company, its members or former members in accordance with
their
interest in the limited liability company, and (d) with respect to
an individual
party, any Family Member of such party.
(hh) "PERSON" shall mean any individual, corporation (including
any
non-profit corporation), general partnership, limited partnership,
limited
liability partnership, joint venture, estate, trust, company
(including any
limited liability company or joint stock company), firm or other
enterprise,
association, organization, entity or Governmental Entity.
(ii) "REQUIRED STOCKHOLDER VOTE" shall mean (i) the affirmative
vote,
at a meeting of the stockholders of the Company duly called in
accordance with
Company Charter Documents and Sections 2-502 and 2-104(b) of the
MGCL, of the
holders of a majority of the votes entitled to be cast by the
holders of the
outstanding shares of Company Capital Stock (voting together as a
single class
on an as-converted to Company Common Stock basis); and (ii) the
affirmative vote
or consent, as the case may be, of the holders of at least 60% of
the Series C
Preferred Stock, voting as a separate class.
(jj) "SUBSIDIARY" of a specified entity shall mean any
corporation,
partnership, limited liability company, joint stock company, joint
venture or
other legal entity of which the specified entity (either alone or
through or
together with any other Subsidiary) owns, directly or indirectly,
50% or more of
the stock or other equity, partnership or other ownership interests
the holders
of which are generally entitled to vote for the election of the
Board of
Directors or other governing body of such corporation or other
legal entity.
(kk) "TARGET COMPANY" shall mean any of the Company and its
Subsidiaries.
(ll) "TAX" or "TAXES" shall mean any federal, state, local,
municipal,
provincial, foreign or international income, gross receipts,
license, payroll,
telecommunications, employment, excise, severance, stamp, stamp
duty, stamp duty
land tax, occupation, premium,
-24-
<PAGE>
windfall profits, environmental (including taxes under Code Section
59A),
customs duties, capital stock, franchise, profits, withholding,
social security
(or similar), unemployment, disability, real property, personal
property, sales,
use, transfer, registration, value-added, alternative or add-on
minimum,
estimated, or other tax of any kind whatsoever, including any
interest, penalty,
or addition thereto, whether disputed or not and including any
obligations to
indemnify or otherwise assume or succeed to the Tax liability of
any other
Person.
(mm) "TAX RETURN" shall mean any return (including any land
transaction return), declaration, report, claim for refund, notice,
accounting
computations, assessment, election or information return or
statement relating
to Taxes, including any schedule or attachment thereto, and
including any
amendment thereof.
(nn)
"TRANSACTION DOCUMENTS" shall mean this Agreement, the Second
Step Agreement of Merger, the Voting Agreements, the Escrow
Agreement and each
of the other agreements and instruments to be executed and
delivered by any
party in connection with the consummation of the transactions
contemplated
hereby.
ARTICLE 2
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
As
of the date of this Agreement and as of the Closing Date, the
Company
represents and warrants to Parent and each Merger Sub as set forth
in this
Article 2, subject to any exceptions expressly stated in the
disclosure schedule
delivered by the Company to Parent dated as of the date hereof and
certified on
behalf of the Company by a duly authorized officer of the Company
(the "COMPANY
DISCLOSURE SCHEDULE"). Exceptions on the Company Disclosure
Schedule shall
specifically identify the representation to which they relate;
provided,
however, that any matter disclosed pursuant to one section or
subsection of the
Company Disclosure Schedule is deemed disclosed for such other
sections or
subsections of the Company Disclosure Schedule as, and only to the
extent that,
it is readily apparent that such matter relates to such other
section or
subsection of the Company Disclosure Schedule and the level of
particularity and
manner of disclosure of the matter expressly disclosed in one
section or
subsection of the Company Disclosure Schedule would make a
reasonable person
aware that such disclosure is relevant to such other sections or
subsections.
2.1
ORGANIZATION; SUBSIDIARIES.
(a) Each Target Company (i) is a corporation duly organized,
validly
existing and in good standing under the laws of the jurisdiction in
which it is
organized; (ii) has the requisite corporate or other power and
authority to own,
lease and operate its assets and properties and to carry on its
business as now
being conducted; and (iii) is duly qualified or licensed to do
business in each
jurisdiction where the character of the properties owned, leased or
operated by
it or the nature of its activities makes such qualification or
licensing
necessary, except where the failure to be so qualified or licensed
would not
have a Company Material Adverse Effect. Part 2.1(a) of the Company
Disclosure
Schedule lists each Subsidiary of the Company and each jurisdiction
where any
Target Company is qualified or licensed to do business. Part 2.1(a)
of the
Company Disclosure Schedule indicates the jurisdiction of
organization of each
entity listed therein, the capitalization of each such entity
(other than the
-25-
<PAGE>
Company), and the ownership of all securities of such entity,
including the
direct or indirect equity interest of each Target Company therein
(all of which
are held free and clear of all Encumbrances).
(b) Other than the Subsidiaries identified in Part 2.1(a) of
the
Company Disclosure Schedule, no Target Company owns any capital
stock of, or any
equity interest of any nature in, any Person. No Target Company has
agreed or is
obligated to make, or is bound by any written or oral Contract as
in effect as
of the date hereof or as may hereinafter be in effect under which
it may become
obligated to make any future investment in or capital contribution
to any other
Person. No Target Company has at any time been a general partner of
any general
partnership, limited partnership or other Person.
(c) The Company has delivered or made available to Parent true
and
correct copies of the Articles of Incorporation and Bylaws of the
Company and
similar governing instruments of each of its Subsidiaries, each as
amended to
date (collectively, the "COMPANY CHARTER DOCUMENTS"), and each such
instrument
is in full force and effect. No Target Company is in violation of
any of the
provisions of the Company Charter Documents. The Company has
delivered or made
available to Parent all proposed or considered amendments to the
Company Charter
Documents that the Company intends to adopt on or prior to the
Closing Date.
(d) Part 2.1(d) of the Company Disclosure Schedule lists all of
the
current directors and officers (or equivalent) of each Target
Company.
2.2
COMPANY CAPITALIZATION.
(a) The authorized capital stock of the Company consists solely of
(i)
80,000,000 shares of Common Stock, par value $0.01 per share (the
"COMPANY
COMMON STOCK"), of which 23,485,901 shares are issued and
outstanding on the
date of this Agreement and (ii) 30,000,000 shares of Company
Preferred Stock, of
which (a) 213,440 are designated Series A Convertible Preferred
Stock, par value
$0.01 per share (the "COMPANY SERIES A PREFERRED STOCK"), all of
which are
issued and outstanding on the date of this Agreement, (b) 1,409,595
are
designated Series B-1 Convertible Preferred Stock, par value $0.01
per share
(the "COMPANY SERIES B-1 PREFERRED STOCK"), none of which are
issued and
outstanding on the date of this Agreement, (c) 1,373,191 are
designated Series
C-1 Convertible Preferred Stock, par value $0.01 per share (the
"COMPANY SERIES
C-1 PREFERRED STOCK"), all of which are issued and outstanding on
the date of
this Agreement, (d) 2,023,097 are designated Series C-2 Convertible
Preferred
Stock, par value $0.01 per share (the "COMPANY SERIES C-2 PREFERRED
STOCK"), of
which 2,023,091 are issued and outstanding on the date of this
Agreement, (e)
1,956,565 are designated Series D Convertible Preferred Stock, par
value $0.01
per share (the "COMPANY SERIES D PREFERRED STOCK"), all of which
are issued and
outstanding on the date of this Agreement, and (f) 7,000,000 are
designated
Series E Convertible Preferred Stock, par value $0.01 per share
(the "COMPANY
SERIES E PREFERRED STOCK"), of which 6,890,586 are issued and
outstanding on the
date of this Agreement. Except as aforesaid, there are no other
authorized,
issued or outstanding shares of capital stock of the Company. The
outstanding
shares of Company Capital Stock and Common Share Equivalents are
held of record
by the Persons named in Part 2.2(a) of the Company Disclosure
Schedule in the
amounts set forth opposite their respective names. All outstanding
shares of
Company Stock are duly authorized, validly issued,
-26-
<PAGE>
fully paid and nonassessable and are not subject to preemptive
rights created by
statute, the Certificate of Incorporation or Bylaws of the Company
or, except as
provided in the Company Agreements (each of which will expire or be
terminated
in accordance with its terms at or before the Effective Time), any
Contract to
which any Target Company is a party or by which it is bound. There
are no shares
of Company Stock held in treasury by the Company.
(b) The Company Option Plans are the only equity plans of any
Target
Company. Part 2.2(b) of the Company Disclosure Schedule sets forth
the following
information with respect to each Company Option and Company Warrant
outstanding
on the date of this Agreement: (i) the name of the optionee or
holder; (ii) the
number and type of shares of Company Stock subject to such Company
Option or
Company Warrant; (iii) the exercise price of such Company Option or
Company
Warrant; (iv) the date on which such Company Option was granted or
assumed; (v)
the date on which such Company Option expires, (vi) if applicable,
the Company
Option Plan pursuant to which such Company Option was granted, and
(vii) whether
the exercisability of such Company Option will be accelerated in
any way by the
transactions contemplated by this Agreement, and indicates the
extent of any
such acceleration. The Company has made available to Parent
accurate and
complete copies of each Company Option Plan, each Company Warrant
and each form
of Contract evidencing any Company Options. Except as set forth in
Part 2.2(b)
of the Company Disclosure Schedule, there are no Contracts or
arrangements of
any character to which any Target Company is bound obligating any
Target Company
to accelerate the vesting of any Company Option as a result of any
of the
transactions contemplated hereby. All Company Options may be
terminated by the
Company as provided in Section 1.6(e)(i).
(c) All securities of each Target Company have been issued and
granted
in compliance in all material respects with (i) all applicable
securities laws
and other applicable Legal Requirements and (ii) all requirements
set forth in
applicable Contracts.
(d) Schedule II accurately sets forth as of the date of this
Agreement, and any updated Schedule II delivered by the Company to
Parent at the
Closing will accurately set forth as of the Effective Time, the
allocation of
the Merger Consideration and the Escrow Fund to each Company
Stockholder
pursuant to the Articles of Incorporation of the Company and this
Agreement.
2.3
OBLIGATIONS WITH RESPECT TO CAPITAL STOCK. Except as set forth in
Parts
2.2(b) and 2.3 of the Company Disclosure Schedule, there are no
equity
securities, partnership interests or other ownership interests of
any class, or
any securities exchangeable or convertible into or exercisable for
any of the
foregoing, issued, reserved for issuance or outstanding with
respect to the
Company or, except as set forth in Part 2.1(a) of the Company
Disclosure
Schedule, with respect to any other Target Company. Except as set
forth in Part
2.2(b) or Part 2.3 of the Company Disclosure Schedule, there are
no
subscriptions, options, warrants, equity securities, convertible
debt,
partnership interests or other ownership interests, calls, rights
(including
preemptive rights) or Contracts of any character to which any
Target Company is
a party or by which it is bound obligating any Target Company to
issue, deliver
or sell, or repurchase, redeem or otherwise acquire, any equity
securities,
partnership interests or other ownership interests of any Target
Company or
obligating any Target Company to grant, extend, accelerate the
vesting of or
enter into any such subscription, option, warrant, equity security,
call, right
or Contract.
-27-
<PAGE>
Except as provided in the Company Agreements, there are no
registration rights,
and there is no voting trust, proxy, rights agreement, "poison
pill"
anti-takeover plan or other Contract to which any Target Company is
a party or
by which it is bound with respect to any equity security of any
class of the
Company or any equity security, partnership interest or other
ownership interest
of any class of any other Target Company.
2.4
AUTHORITY; NON-CONTRAVENTION.
(a) The Company has all requisite corporate power and authority
to
enter into this Agreement and the Escrow Agreement and to
consummate the
transactions contemplated hereby and thereby. The execution and
delivery by the
Company of this Agreement and the Escrow Agreement and the
consummation by the
Company of the transactions contemplated hereby and thereby have
been duly
authorized by all necessary corporate action on the part of the
Company, subject
only to obtaining the Required Stockholder Vote for the adoption
and approval of
this Agreement and the Merger, and the filing of the Articles of
Merger pursuant
to the MGCL. The Required Stockholder Vote is sufficient for the
Company's
stockholders to approve and adopt this Agreement and approve the
Merger, and no
other approval of any holder of any securities of the Company is
required in
connection with the consummation of the transactions contemplated
hereby. This
Agreement has been duly executed and delivered by the Company and,
assuming the
due authorization, execution and delivery of this Agreement by
Parent, each
Merger Sub, the Company Stockholders and the Company Stockholder
Representative,
constitutes the valid and binding obligation of the Company,
enforceable against
the Company in accordance with its terms, except as enforceability
may be
limited by bankruptcy and other similar laws affecting the rights
of creditors
generally and general principles of equity. Assuming the due
authorization,
execution and delivery of the Escrow Agreement by Parent, each
Merger Sub, the
Escrow Agent and the Company Stockholder Representative, the Escrow
Agreement,
when executed and delivered by the Company, will constitute the
valid and
binding obligation of the Company, enforceable against the Company
in accordance
with its terms, except as enforceability may be limited by
bankruptcy and other
similar laws affecting the rights of creditors generally and
general principles
of equity.
(b) The execution and delivery by the Company of this Agreement
and
the Escrow Agreement do not, and the performance by the Company of
this
Agreement and the Escrow Agreement will not, (i) conflict with or
violate the
Company Charter Documents, (ii) subject to compliance with the
requirements set
forth in Section 2.4(c), conflict with or violate any Legal
Requirement
applicable to any Target Company or by which any Target Company or
any of its
material properties or assets is bound or affected, or (iii) result
in any
material breach of or constitute a material default (or an event
that with
notice or lapse of time or both would become a material default)
under, or
materially impair a Target Company's rights or alter the rights or
obligations
of any third party under, or give to others any rights of
termination,
amendment, acceleration or cancellation of, or result in the
creation of an
Encumbrance on any of the properties or assets of any Target
Company pursuant
to, any material Contract to which any Target Company is a party or
by which any
Target Company or its properties or assets are bound or affected.
No consent,
waiver or approval of any Person, nor any notice to any Person, is
required to
be obtained or made under any Contract to which any Target Company
is a party or
by which any Target Company or any of its properties or assets is
bound or
affected in connection with the execution and delivery by the
Company of this
Agreement or the
-28-
<PAGE>
performance of this Agreement by the Company, except for such
consents, waivers,
approvals and notices as have duly been obtained (under the Company
Agreements
or otherwise), or the lack of which, individually or in the
aggregate, would not
be material to the Company.
(c) No consent, approval, order or authorization of, or
registration,
declaration or filing with any Governmental Entity or other Person,
is required
to be obtained or made by the Company in connection with the
execution and
delivery of this Agreement or the consummation of the transactions
contemplated
hereby, except for the filing of the Articles of Merger with the
Secretary of
State of the State of Maryland and appropriate documents with the
relevant
authorities of other states in which the Company is qualified or
licensed to do
business.
2.5
FINANCIAL STATEMENTS.
(a) Part 2.5 of the Company Disclosure Schedule includes complete
and
correct copies of (i) the unaudited consolidated balance sheets and
statements
of income, stockholders' equity and cash flows of the Company as of
July 31,
2006 and for the seven months ended July 31, 2006 and (ii) the
audited
consolidated balance sheets and statements of income, stockholders'
equity and
cash flows of the Company as of December 31, 2003, 2004 and 2005
and for the
fiscal years ended December 31, 2003, 2004 and 2005. Collectively,
the financial
statements referred to in the immediately preceding sentence are
sometimes
referred to herein as the "COMPANY FINANCIAL STATEMENTS," and the
unaudited
consolidated balance sheet of the Company as of July 31, 2006 is
sometimes
referred to herein as the "COMPANY BALANCE SHEET." Each of the
Company Financial
Statements (1) was prepared in accordance with GAAP, applied on a
consistent
basis throughout the periods involved, and (2) fairly presented the
consolidated
financial position of the Target Companies as at the respective
dates thereof
and the consolidated results of the Target Companies' operations
and cash flows
for the periods indicated, except that the unaudited Company
Financial
Statements referred to in clause (i) above may not contain all the
footnotes
required by GAAP, and were or are subject to normal and recurring
year-end
adjustments that the Company does not reasonably expect to be
material,
individually or in the aggregate.
(b) The Company has not been notified by any accountant that
such
accountant is of the view that any of the Company Financial
Statements should be
restated or that the Company should modify its accounting for any
period.
2.6
NO UNDISCLOSED LIABILITIES. No Target Company has any material
liabilities (absolute, accrued, contingent or otherwise), except
for (a)
liabilities and obligations shown on the Company Balance Sheet, (b)
liabilities
and obligations incurred since the date of the Company Balance
Sheet in the
ordinary course of business consistent with past practice, and (c)
liabilities
and obligations disclosed in this Agreement or the Company
Disclosure Schedule.
No Target Company has or will have as of or following the Closing
any obligation
or liability for earn-outs or other contingent payments payable to
former owners
of assets, stock or other interests acquired by any Target Company
or otherwise
arising out of previous transactions by any Target Company. Except
as set forth
in Part 2.6 of the Company Disclosure Schedule, the Target
Companies do not have
any material off-balance sheet arrangements as defined in Item
303(a)(4)(ii) of
Regulation S-K of the SEC.
-29-
<PAGE>
2.7
ABSENCE OF CERTAIN CHANGES OR EVENTS.
(a) Since the date of the Company Balance Sheet, there has not
been:
(i) any Company Material Adverse Effect, (ii) any declaration,
setting aside or
payment of any dividend on, or other distribution (whether in cash,
stock or
property) in respect of, any of any Target Company's capital stock,
or any
purchase, redemption or other acquisition by any Target Company of
any Target
Company's capital stock or any other securities of any Target
Company or any
grant or issuance of any options, warrants, calls or rights to
acquire any such
shares or other securities, (iii) any split, combination or
reclassification of
any Target Company's capital stock, (iv) any granting by any Target
Company of
any increase in compensation or fringe benefits to any directors,
officers,
employees or consultants of any Target Company, or any payment by
any Target
Company of any bonus to any directors, officers, employees or
consultants of any
Target Company, (v) any acquisition, sale or transfer of any
material asset by
any Target Company other than software licenses granted by the
Company to
customers in the ordinary course of business and consistent with
past practice,
(vi) any change by any Target Company in its accounting methods,
principles or
practices, except as required by concurrent changes in GAAP, (vii)
any material
revaluation by any Target Company of any of its assets, including
writing off
notes or accounts receivable, (viii) any granting by any Target
Company of any
increase in severance or termination pay, (ix) any cancellation or
termination
of any development, licensing, distribution, sales, services or
other similar
Contract with respect to any Intellectual Property Rights (as
defined in Section
2.10), except by the Company in the ordinary course of business
consistent with
past practice, (x) any cancellation, compromise, waiver or release
of any right
or claim (or series of rights or claims) involving more than
$20,000, (xi) any
material damage, destruction or loss (whether or not covered by
insurance) to
any property or assets material to the conduct of the business of
any Target
Company; (xii) any creation of any Encumbrance on any of the
property or assets
of any Target Company, (xiii) any capital expenditure in excess of
$10,000,
(xiv) any creation of any indebtedness for borrowed money in excess
of $10,000,
(xv) any entering into, amendment, modification, cancellation or
termination of
any material Contract other than in the ordinary course of business
consistent
with past practice or (xvi) entering into any Contract to do any of
the
foregoing.
2.8
TAXES.
(a) Each Target Company has filed all Tax Returns that it was
required
to file under applicable Legal Requirements and has complied with
all Legal
Requirements in respect of all Taxes. All such Tax Returns were
correct and
complete in all material respects and were prepared in substantial
compliance
with all applicable Legal Requirements. All Taxes due and owing by
any Target
Company (whether or not shown on any Tax Return) have been paid. No
Target
Company is currently the beneficiary of any extension of time
within which to
file any Tax Return. No claim has ever been made by a Governmental
Entity in a
jurisdiction where a Target Company does not file Tax Returns that
such Target
Company is or may be subject to taxation by that jurisdiction.
There are no
liens for Taxes (other than Taxes not yet due and payable) upon any
of the
assets of any Target Company.
(b) Each Target Company has withheld and paid all Taxes required
to
have been withheld and paid in connection with any amounts paid or
owing to any
employee, independent contractor, creditor, stockholder, or other
third party.
-30-
<PAGE>
(c) No foreign, federal, state, or local tax audits or
administrative
or judicial Tax proceedings are pending or, to the Company's
Knowledge, being
conducted with respect to any Target Company. No Target Company has
received
from any foreign, federal, state, or local Governmental Entity
(including
jurisdictions where such Target Company has not filed Tax Returns)
any (i)
written notice indicating an intent to open an audit or other
review, (ii)
request for information related to Tax matters, or (iii) notice of
deficiency or
proposed adjustment for any amount of Tax proposed, asserted, or
assessed by any
Taxing authority against any Target Company. Part 2.8(c) of the
Company
Disclosure Schedule lists all foreign, federal, state and local
income Tax
Returns filed with respect to any Target Company for taxable
periods ended on or
after December 31, 1999, indicates those Tax Returns that have been
audited, and
indicates those Tax Returns that currently are the subject of an
audit. The
Company has delivered to Parent correct and complete copies of all
such Tax
Returns and all examination reports, and statements of deficiencies
assessed
against or agreed to by any Target Company since December 31,
1999.
(d) No Target Company has waived any statute of limitations in
respect
of Taxes or agreed to any extension of time with respect to a Tax
assessment or
deficiency.
(e) Part 2.8(e) of the Company Disclosure Schedule sets forth
the
Company's good faith estimate of the aggregate amount that will be
deemed to be
an "excess parachute payment" within the meaning of Code Section
280G (and any
corresponding provision of state, local or foreign Tax law) if all
amounts
payable hereunder are actually paid. Unless the Company
Stockholders approve
such payments in accordance with Code Section 280G, such amount
will not be
fully deductible as a result of Code Section 162(m) (and any
corresponding
provision of state, local or foreign Tax law).
(f) No Target Company has been a United States real property
holding
corporation within the meaning of Code Section 897(c)(2) during the
applicable
period specified in Code Section 897(c)(1)(A)(ii). Each Target
Company has
disclosed on its federal income Tax Returns all positions taken
therein that
could give rise to a substantial understatement of federal income
Tax within the
meaning of Code Section 6662. No Target Company is a party to or
bound by any
Tax allocation or sharing Contract. No Target Company (A) has been
a member of
an affiliated group filing a consolidated federal income Tax Return
(other than
a group the common parent of which was the Company) or (B) has any
liability for
the Taxes of any Person (other than any Target Company) under Reg.
Section
1.1502-6 (or any similar provision of state, local or foreign law),
as a
transferee or successor, by contract, or otherwise.
(g) To the Company's knowledge, Part 2.8(g) of the Company
Disclosure
Schedule sets forth the following information with respect to each
Target
Company (or, in the case of clause (B) below, with respect to each
of the
Company's Subsidiaries) as of the most recent practicable date (but
not earlier
than December 31, 2005) (as well as on an estimated pro forma basis
as of the
Closing giving effect to the consummation of the transactions
contemplated
hereby): (A) the basis of the Target Company in its assets; (B) the
basis of the
Company in the stock of each Subsidiary (or the amount of any
excess loss
account); (C) the amount of any net operating loss, net capital
loss, unused
investment or other credit, unused foreign tax, or excess
charitable
contribution allocable to each Target Company; and (D) the amount
of any
deferred gain or loss allocable to each Target Company arising out
of any
intercompany transaction.
-31-
<PAGE>
(h) The unpaid Taxes of the Target Companies (A) did not, as of
the
date of the Company Balance Sheet, exceed the reserve for Tax
liability
(excluding any reserve for deferred Taxes established to reflect
timing
differences between book and Tax income) set forth on the face of
the Company
Balance Sheet (rather than in any notes thereto) and (B) do not
exceed that
reserve as adjusted for the passage of time through the Closing
Date in
accordance with the past custom and practice of the Target
Companies in filing
their Tax Returns. Since the date of the Company Balance Sheet, no
Target
Company has incurred any liability for Taxes arising from
extraordinary gains or
losses, as that term is used in GAAP, outside the ordinary course
of business
consistent with past custom and practice.
(i) No Target Company will be required to include any item of
income
in, or exclude any item of deduction from, taxable income for any
taxable period
(or portion thereof) ending after the Closing Date as a result of
any:
(i) change in method of accounting for a taxable period ending
on
or
prior to the Closing Date;
(ii) "closing agreement" as described in Code Section 7121 (or
any
corresponding or similar provision of state, local or foreign
income
Tax
law) executed on or prior to the Closing Date;
(iii) intercompany transaction or excess loss account described
in
Treasury Regulations under Code Section 1502 (or any corresponding
or
similar provision of state, local or foreign income Tax law);
(i
