AGREEMENT AND PLAN OF MERGER
BY AND AMONG
LECROY CORPORATION,
2006 FRANKLIN CONGRESS CORPORATION,
CATALYST ENTERPRISES, INC.
AND
NADER SALEHOMOUM
AS THE
SHAREHOLDER AND EQUITYHOLDER REPRESENTATIVE
SEPTEMBER 29, 2006
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TABLE OF CONTENTS
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ARTICLE I.
DEFINITIONS...........................................................................................1
1.1.
Defined
Terms................................................................................1
1.2.
Terms Defined
Elsewhere......................................................................6
ARTICLE II. THE
MERGER...........................................................................................7
2.1.
The
Merger...................................................................................7
2.1.
The
Merger...................................................................................7
2.2.
Effective
Time...............................................................................8
2.3.
Closing of the
Merger........................................................................8
2.4.
Effects of the
Merger........................................................................8
2.5.
Articles of Incorporation and
Bylaws.........................................................8
2.6.
Directors....................................................................................8
2.7.
Officers.....................................................................................8
2.8.
Conversion of Shares; Treatment of Company
Options...........................................9
2.9.
Escrow
Amount...............................................................................11
2.10.
Distribution of the Merger
Consideration....................................................11
2.11.
Dissenting
Shares...........................................................................12
2.12.
Withholding
Rights..........................................................................12
2.13.
Equityholder
Representative.................................................................12
2.14.
Transaction
Fees............................................................................14
2.15.
Capitalization
Schedule.....................................................................14
ARTICLE III. CLOSING
DELIVERIES.................................................................................14
3.1.
Deliveries by the Company and the Stockholder at the
Closing................................14
3.2.
Deliveries by Parent and Merger Sub at the
Closing..........................................15
ARTICLE IV.
REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE
SHAREHOLDER..................................15
4.1.
Organization of the
Company.................................................................16
4.2.
Subsidiaries................................................................................16
4.3.
Authorization...............................................................................16
4.4.
Capitalization..............................................................................16
4.5.
Title to Properties and
Assets..............................................................17
4.6.
Absence of Certain
Activities...............................................................18
4.7.
Certain
Actions.............................................................................18
4.8.
Material
Contracts..........................................................................19
4.9.
Compliance with Other
Instruments...........................................................20
4.10.
Financial
Statements........................................................................21
4.11.
Liabilities.................................................................................21
4.12.
Taxes
......................................................................................21
4.13.
Environmental
Matters.......................................................................24
4.14.
Employee
Benefits...........................................................................25
4.15.
Compliance with
Law.........................................................................27
4.16.
Permits.....................................................................................27
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4.17.
Consents and
Approvals......................................................................27
4.18.
Litigation..................................................................................28
4.19.
Labor
Matters...............................................................................28
4.20.
Intellectual Property;
Software.............................................................29
4.21.
Transactions with Certain
Persons...........................................................34
4.22.
Insurance...................................................................................35
4.23.
Accounts Receivable; Major
Suppliers........................................................35
4.24.
Certain Business
Practices..................................................................35
4.25. No
Brokers..................................................................................35
4.26.
Books and
Records...........................................................................36
4.27. Bank
Accounts...............................................................................36
4.28.
Authorization by
Stockholder................................................................36
4.29.
Title to
Shares.............................................................................36
4.30.
Proceedings Regarding
Stockholder...........................................................36
ARTICLE V.
REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER
SUB.............................................37
5.1.
Organization................................................................................37
5.2.
Authorization...............................................................................37
5.3.
Compliance with Other
Instruments...........................................................37
5.4.
Consents and
Approvals......................................................................37
5.5.
Litigation..................................................................................38
5.6.
No
Brokers..................................................................................38
5.7.
SEC
Documents...............................................................................38
5.8.
Investigation by Parent; Company's and Shareholder's
Liability..............................39
ARTICLE VI. COVENANTS OF ALL
PARTIES............................................................................39
6.1.
Conduct of
Business.........................................................................39
6.2.
Stockholder Written
Consent.................................................................41
6.3.
Investigation by
Parent.....................................................................41
6.4.
Regulatory
Matters..........................................................................41
6.5.
Notification of Certain
Matters.............................................................42
6.6.
Public
Announcements........................................................................43
6.7.
Employee
Matters............................................................................43
6.8.
Indemnity Regarding Guaranteed
Obligations..................................................44
6.9.
No Liability Regarding Reconstituted Financial
Statements...................................44
ARTICLE VII. CONDITIONS TO
OBLIGATIONS..........................................................................45
7.1.
Conditions to Each Party's Obligations to Effect the
Merger.................................45
7.2.
Conditions to the Company's Obligations to Effect the
Merger................................45
7.3.
Conditions to the Obligations of Parent and Merger Sub to Effect
the Merger.................46
ARTICLE VIII
TERMINATION........................................................................................47
8.1.
Termination.................................................................................47
8.2.
Effect of
Termination.......................................................................48
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ARTICLE IX.
INDEMNIFICATION.....................................................................................48
9.1.
Survival of
Representations.................................................................48
9.2.
Indemnification.............................................................................49
9.3.
Notice of
Claims............................................................................50
9.4. Third Person
Claims.........................................................................51
9.5.
Limitation on Indemnity; Payments Out of Escrow
Account.....................................51
9.6.
Remedies....................................................................................52
ARTICLE X.
MISCELLANEOUS........................................................................................52
10.1.
Binding Effect;
Assignment..................................................................52
10.2.
Notices.....................................................................................53
10.3.
Choice of
Law...............................................................................54
10.4.
Entire Agreement; Amendments and
Waivers....................................................54
10.5.
Counterparts................................................................................54
10.6.
Severability................................................................................55
10.7.
Headings....................................................................................55
10.8.
Schedules...................................................................................55
10.9. No
Third Party
Beneficiaries................................................................55
10.10. Specific
Performance........................................................................55
10.11. No Strict
Construction......................................................................55
10.12.
Expenses....................................................................................55
10.13.
Submission to Jurisdiction; Waivers; Consent to Service of
Process..........................55
10.14. Recovery
of Attorneys'
Fees.................................................................56
10.15. Waiver of
Jury
Trial........................................................................56
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AGREEMENT AND PLAN OF MERGER
This AGREEMENT AND PLAN OF MERGER (this "AGREEMENT"), dated as
of
September 29, 2006, is entered into by and among LeCroy
Corporation, a Delaware
corporation ("PARENT"), 2006 Franklin Congress Corporation, a
California
corporation and wholly-owned subsidiary of Parent ("MERGER SUB"),
Catalyst
Enterprises, Inc., a California corporation (the "COMPANY"), and
Nader
Salehomoum, acting in his capacity as (i) equityholder
representative in
connection with the transactions contemplated by this Agreement
(the
"EQUITYHOLDER REPRESENTATIVE") and (ii) the sole shareholder of the
Company (the
"SHAREHOLDER").
RECITALS
WHEREAS, the Boards of Directors of the Company, Parent and Merger
Sub
have each (i) determined that the Merger (as defined below) is
fair, advisable
and in the best interests of their respective shareholders and (ii)
approved
this Agreement and the transactions contemplated hereby, including
the Merger,
upon the terms and subject to the conditions set forth in this
Agreement.
WHEREAS, immediately following the execution and delivery of
this
Agreement, the Company will submit this Agreement to the
shareholders of the
Company for approval and adoption of this Agreement and the
consummation of the
transactions contemplated hereby in accordance with Applicable Law
(as
hereinafter defined) and the Company's articles of incorporation
and bylaws.
AGREEMENT
NOW THEREFORE, in consideration of the respective covenants and
promises contained herein and for other good and valuable
consideration, the
receipt and adequacy of which is hereby acknowledged, the parties
hereto agree
as follows:
ARTICLE I.
DEFINITIONS
1.1. Defined Terms. As used herein, the terms below shall have
the
following meanings. Any of such terms, unless the context otherwise
requires,
may be used in the singular or plural, depending upon the
reference.
"AFFILIATE" means, with respect to any Person, any other
Person which directly or indirectly controls, is controlled by or
is under
common control with such Person.
"ANCILLARY AGREEMENTS" means the Employment Agreements, the
Non-Competition Agreement, and the Escrow Agreement.
"APPLICABLE LAW(S)" means, with respect to any Person, any
federal, state, local or other statute, law, ordinance, rule,
regulation, order,
writ, injunction, judgment, award, decree or other requirement of
any
Governmental Authority existing as of the date of this Agreement or
as of the
Closing Date applicable to such Person or any of such Person's
property, assets,
officers, directors, employees, consultants or agents.
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"BUSINESS" means the business of the Company, as conducted as
of the date of this Agreement, including without limitation the
design and
manufacture of advanced test solutions & data analysis tools
for high
performance I/O buses.
"BUSINESS DAY" means a day other than a Saturday, Sunday or
other day on which commercial banks in New York, New York are
authorized or
required by law to close.
"CLOSING COMMON STOCK NUMBER" means the number of shares of
Common Stock issued and outstanding immediately prior to the
Effective Time.
"CODE" means the Internal Revenue Code of 1986, as amended,
and the rules and regulations promulgated thereunder.
"COMPANY OPTION PLAN" means the Catalyst Enterprises, Inc.
2005 Stock Option Plan.
"COMPANY OPTIONS" means options to purchase Common Stock
pursuant to the terms of the Company Option Plan.
"COMPANY OPTION SCHEDULE" means Schedule 4.4(d) of the Company
Disclosure Schedule.
"COMPANY OPTION SHARES" means, with respect to any Company
Option, the shares of Common Stock into which such Company Option
(whether or
not vested) is exercisable.
"COURT ORDER" means any judgment, decision, consent decree,
injunction, ruling or order of any federal, state or local court or
Governmental
Authority that is binding on any Person or its property under
Applicable Law.
"DEFAULT" means (a) any actual breach or default, (b) the
occurrence of an event that with the passage of time or the giving
of notice or
both would constitute a breach or default or (c) the occurrence of
an event
that, with or without the passage of time or the giving of notice
or both, would
give rise to a right of termination, renegotiation or
acceleration.
"EMPLOYMENT AGREEMENTS" means those certain Employment
Agreements entered into as of the date hereof, effective as of the
Effective
Time, by and between the Company and each of Nader Salehomoum and
James Yasueda,
substantially in the forms attached hereto as EXHIBITS A1 AND
A2.
"ENCUMBRANCE" means any claim, lien, pledge, option, charge,
easement, security interest, deed of trust, mortgage, conditional
sales
agreement, encumbrance or other right of third parties, whether
voluntarily
incurred or arising by operation of law, and includes, without
limitation, any
agreement to give any of the foregoing in the future, and any
contingent sale or
other title retention agreement or lease in the nature thereof.
2
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"FINANCIAL STATEMENTS" means (a) the unaudited, modified
cash-basis balance sheet of the Company dated as of June 30, 2006,
(b) the
unaudited, modified cash-basis balance sheet of the Company dated
as of December
31, 2005.
"GAAP" means generally accepted United States accounting
principles consistently applied over all relevant periods.
"GOVERNMENTAL AUTHORITY" means any court, administrative
agency, regulatory body, commission or other governmental authority
or
instrumentality of the United States or any other country or any
state, county,
municipality or other governmental division of any country.
"INITIAL MERGER CONSIDERATION" means the amount of
$30,150,000.
"INITIAL PER COMMON EQUIVALENT MERGER CONSIDERATION" means the
amount equal to (i) (x) the Initial Merger Consideration, plus (y)
the aggregate
exercise price with respect to all Vested-In-The-Money Company
Options that have
been exercised or where the option holder has elected to receive
cash pursuant
to Section 2.8(b)(ii), divided by (ii) the Closing Common Stock
Number plus the
number of Vested In-The-Money Company Options that the optionee has
elected to
receive cash pursuant to Section 2.8(b)(ii).
"KNOWLEDGE" of the Company means the knowledge of the officers
and directors of the Company which they would reasonably be
expected to have
after making all necessary or appropriate inquiries of the Persons
identified on
Schedule I and after making reasonable investigation of the
surrounding
circumstances, regardless of whether or not such inquiries and
investigation
have been made.
"LIABILITIES" means any direct or indirect liability,
indebtedness, obligation, commitment, expense, claim, deficiency,
guaranty or
endorsement of or by any Person of any type, known or unknown, and
whether
accrued, absolute, contingent, matured, unmatured or other,
including, without
limitation, "off-balance sheet" Liabilities.
"MATERIAL ADVERSE EFFECT" will be deemed to occur if any event
(whether specific to the applicable party or generally applicable
to multiple
parties), violation, inaccuracy, circumstance or other matter has,
or would
reasonably be expected to have or give rise to, a material adverse
effect on or
material adverse change to (a) the financial condition, business,
results of
operations, assets, Liabilities or capitalization of the party
making the
representations and warranties, or (b) the ability of such party to
consummate
the transactions contemplated by this Agreement or to perform any
of its
obligations under this Agreement; provided, however, in no event
shall any of
the following events occurring on or after the date of this
Agreement, alone or
in combination, be deemed to constitute, nor shall any of the
following be taken
into account in determining whether there has been or will be, a
Material
Adverse Effect on any entity: (A) any event resulting from
compliance with the
terms and conditions of this Agreement, the Ancillary Agreements or
the
transactions contemplated hereby or thereby, or (B) any event that
results from
changes affecting any of the industries in which such entity
operates generally
or the United States or worldwide economy generally (which changes
in each case
do not disproportionately affect such entity in any material
respect).
3
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"MERGER CONSIDERATION" means the amount of $33,500,000,
payable (i) $30,000,000, in cash plus (ii) $3,500,000 in the form
of the
Promissory Note.
"MOST RECENT BALANCE SHEET" means the unaudited, modified
cash-basis balance sheet of the Company dated as of August 28,
2006.
"NON-COMPETITION AGREEMENT" means the Non-Competition
Agreement entered into as of the date hereof, effective as of the
Effective
Time, by and between the Company and Nader Salehomoum,
substantially in the form
attached hereto as EXHIBIT B.
"ORDINARY COURSE OF BUSINESS" or "ORDINARY COURSE" or any
similar phrase means the ordinary course of the Business,
consistent with the
past practice of the Company.
"PARENT COMMON STOCK" means the common stock, $.01 par value,
of Parent.
"PARTICIPATING RIGHTS HOLDERS" means those Persons (other than
the holders of Company Dissenting Shares) who, immediately prior to
the
Effective Time, were holders of Common Stock or Vested In-The-Money
Company
Options, and whose interests therein, as the result of the Merger,
are converted
into rights to receive a pro rata portion of the Merger
Consideration. For
purposes of this Agreement, "Participating Rights Holder" shall
include a
Participating Rights Holder's "immediate family" as that term is
defined in 17
C.F.R. 240.16a-1(e), by will or by the laws of descent and
distribution, or by
instrument to an inter vivos or testamentary trust in which the
Common Stock or
Vested In-The-Money Company Options are to be passed to
beneficiaries upon the
death of the trustor (settler), or, by gift, to such immediate
family; provided,
that such Common Stock or Vested In-The-Money Company Options in
the hands of
each such transferee shall remain subject to this Agreement.
"PER COMMON EQUIVALENT MERGER CONSIDERATION" means the amount
equal to (i) (x) the amount of the Merger Consideration, plus (y)
the aggregate
exercise price with respect to all Vested-In-The-Money Company
Options that have
been exercised or where the option holder has elected to receive
cash pursuant
to Section 2.8(b)(ii), divided by (ii) the Closing Common Stock
Number plus the
number of Vested In-The-Money Company Options that the optionee has
elected to
receive cash pursuant to Section 2.8(b)(ii).
"PERMITS" means all licenses, permits, franchises, approvals,
authorizations, consents or orders of, or filings with, any
Governmental
Authority, whether foreign, federal, state or local, or any other
Person,
necessary for the past or present conduct of, or relating to the
operation of
the Business.
"PERMITTED ENCUMBRANCES" means (a) liens, taxes, assessments
and other governmental charges not yet due and payable, (b)
statutory,
mechanics', laborers' and materialmen liens arising in the Ordinary
Course of
Business for sums not yet due, (c) statutory and contractual
landlord liens
under leases pursuant to which the Company is a lessee and not in
default, (d)
with regard to real property, any and all matters of record in the
jurisdiction
where the real property is located including, without limitation,
restrictions,
reservations, covenants, conditions, oil and gas leases, mineral
severances and
liens and (e) with regard to real property, any easements,
rights-of-way,
building or use restrictions, prescriptive rights, encroachments,
protrusions,
rights and party walls, and liens for taxes, assessments, and other
governmental
charges not yet due.
4
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"PERSON" means any person or entity, whether an individual,
trustee, corporation, partnership, limited partnership, limited
liability
company, trust, unincorporated organization, business association,
firm, joint
venture or Governmental Authority.
"PROMISSORY NOTE" means the Promissory Note in the principal
amount of $3,500,000 issued by Parent on the Closing Date and
payable to the
Shareholder, substantially in the form attached hereto as EXHIBIT
C.
"REGULATIONS" means any laws, statutes, ordinances,
regulations, rules, notice requirements, court decisions, agency
guidelines,
principles of law and orders of any foreign, federal, state or
local government
and any other Governmental Authority, and including, without
limitation, those
relating to import/export, foreign controls and foreign trade,
anti-boycott
laws, environmental laws, energy, public utility, health codes,
occupational
safety and health regulations and laws respecting employment
practices, employee
documentation, terms and conditions of employment and wages and
hours.
"REPRESENTATIVE" means, with respect to any Person, any
officer, director, principal, attorney, agent, employee or other
representative
of such Person.
"SHARES" mean, collectively, the shares of Common Stock.
"SUBSEQUENT ESCROW MERGER CONSIDERATION" means the initial
Escrow Amount pursuant to Section 2.9, as such amount may be
reduced or
increased pursuant to Sections 9.2 and 9.4.
"SUBSEQUENT ESCROW PER COMMON EQUIVALENT MERGER CONSIDERATION"
means the amount equal to (x) the amount of the Subsequent Escrow
Merger
Consideration divided by (y) the Closing Common Stock Number plus
the number of
Vested In-The-Money Company Options that the optionee has elected
to receive
cash pursuant to Section 2.8(b)(ii).
"SUBSIDIARY" means (a) any corporation in an unbroken chain of
corporations beginning with the Company if each of the corporations
other than
the last corporation in the unbroken chain then owns stock
possessing 50% or
more of the total combined voting power of all classes of stock in
one of the
other corporations in such chain, (b) any partnership in which the
Company is a
general partner or (c) any limited liability company, partnership
or other
entity in which the Company possesses a 50% or greater interest in
the total
capital or total income of such limited liability company,
partnership or other
entity.
"TRADING PRICE" means the weighted average closing price of a
share of Parent Common Stock on the Nasdaq National Market on the
ten (10)
trading days ending two (2) days before the date of this Agreement,
as reported
in The Wall Street Journal.
"TRANSACTION FEES" means fees and expenses of the Company and
the Shareholder incident to this Agreement and the transactions
contemplated
hereby, including but not limited to legal and accounting fees,
investment
banking fees, fees and points to any lender, consulting fees and
related
disbursements in connection with any of the foregoing.
5
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"VESTED COMPANY OPTIONS" means Company Options that are
immediately exercisable for shares of Common Stock, including those
Company
Options that by their terms accelerate and become immediately
exercisable as a
result of the Merger.
"VESTED IN-THE-MONEY COMPANY OPTIONS" means Vested Company
Options with a per share exercise price that is less than the Per
Common
Equivalent Merger Consideration.
1.2. Terms Defined Elsewhere. The following is a list of
additional
terms used in this Agreement and a reference to the Section hereof
in which such
term is defined:
TERM
SECTION
Agreement
Preamble
Agreement of Merger
Section 2.2
Benefit Plan(s)
Section 4.14(a)
Cancelled Option
Section 2.8(b)(iii)
Capitalization Schedule
Section 2.15
CERCLA
Section 4.13
CGCL
Section 2.1
Claim Notice
Section 9.3(a)
Closing
Section 2.3
Closing Date
Section
2.3
Common Stock
Section 2.8(a)
Company
Preamble
Company Disclosure Schedule
Article IV
Company Dissenting Shares
Section 2.11
Company Marks
Section 4.20(b)
Company Patents
Section 4.20(c)
Company Registered Copyrights
Section 4.20(d)
Company Registered IP
Section 4.20(g)
Company Software
Section 4.20(l)
Conversion Ratio
Section 2.8(b)(iii)
Copyrights
Section 4.20(a)
Covered Parties
Section 9.2(b)
Damages
Section 9.2(a)
Domain Names
Section 4.20(a)
Dispute Notice
Section 9.3(b)
Effective Time
Section 2.2
Employee Loans
Section 4.8(a)
Environmental Laws
Section 4.13
Equityholder Representative
Preamble
ERISA
Section 4.14(a)
ERISA Affiliate
Section 4.14(a)
Escrow Account
Section 2.9
6
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Escrow Agent
Section 2.9
Escrow Agreement
Section 2.9
Escrow Amount
Section 2.9
Exchange Act
Section 5.7
Exclusive Company IP
Section 4.20(f)
Filed SEC Document
Section 5.7
Hazardous Materials
Section 4.13
Inbound License Agreements
Section 4.20(i)
Indemnifying Parties
Section 9.3(a)
Intellectual Property
Section 4.20(a)
IRS
Section 4.14(d)
Majority Holders
Section 2.13(a)
Marks
Section 4.20(a)
Material Contracts
Section 4.8(a)
Merger
Section 2.1
Merger Sub
Preamble
Parent
Preamble
Parent Covered Parties
Section 9.2(a)
Patents
Section 4.20(a)
Proceeding
Section 4.18
Real Property
Section 4.5(c)
Replacement Option
Section 2.8(b)(iii)
SEC
Section 2.8(e)
SEC Documents
Section 5.7
Securities Act
Section 2.8(e)
Seller Covered Parties
Section 9.2(b)
Software
Section 4.20(l)
Shareholder
Preamble
Shareholder Approval
Section 6.2
Subchapter S Election
Section 4.12(s)
Surviving Corporation
Section 2.1
Tax(es)
Section 4.12(a)(i)
Threshold Amount
Section 9.5(a)
Tax Return
Section 4.12(a)(ii)
Trade Secrets
Section 4.20(a)
Transaction Fee Schedule
Section 2.14
ARTICLE II.
THE MERGER
2.1. The Merger. At the Effective Time (as defined below) and upon
the
terms and subject to the conditions of this Agreement and in
accordance with the
California General Corporation Law (the "CGCL"), Merger Sub shall
be merged into
the Company (the "MERGER"). Following the Merger, the Company shall
continue as
the surviving corporation (the "SURVIVING CORPORATION") and the
separate
corporate existence of Merger Sub shall cease.
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<PAGE>
2.2. Effective Time. Subject to the terms and conditions set forth
in
this Agreement, on the Closing Date (as defined below), immediately
after Parent
has delivered the Initial Merger Consideration to the Participating
Rights
Holders, an agreement of merger, together with an officers
certificate, in
proper form and mutually acceptable to the parties (the "AGREEMENT
OF MERGER")
shall be duly executed and acknowledged by the Company and the
Merger Sub and
thereafter delivered to the Secretary of State of the State of
California for
filing pursuant to the CGCL. The Merger shall become effective upon
the later to
occur of (A) such time as a properly executed copy of the Agreement
of Merger is
duly accepted for filing with the California Secretary of State in
accordance
with the CGCL; or (B) such later time as Parent and the Company may
agree upon
and as set forth in the Agreement of Merger (the time the Merger
becomes
effective being referred to herein as the "EFFECTIVE TIME").
2.3. Closing of the Merger. The closing of the transactions
contemplated hereby (the "CLOSING") will take place at the offices
of Fish &
Richardson P.C. at 225 Franklin Street, Boston, Massachusetts
02110. Subject to
the satisfaction (or waiver by the party or parties entitled to
waive the same)
of the conditions to Closing set forth in Article VII, the Closing
shall occur
on October 2, 2006, or such later date as the parties may agree
(the "CLOSING
DATE"). The parties hereto shall use their commercially reasonable
efforts to
cause the Closing Date to occur as promptly as practicable.
2.4. Effects of the Merger. From and after the Effective Time,
the
Surviving Corporation shall possess all the property, rights,
privileges,
immunities, powers and franchises and be subject to all of the
debts,
Liabilities, obligations, restrictions, disabilities and duties of
the Company
and Merger Sub, all as provided under the CGCL.
2.5. Articles of Incorporation and Bylaws. At the Effective Time,
the
articles of incorporation of the Company shall be the articles of
incorporation
of the Surviving Corporation until amended in accordance with
Applicable Law.
The bylaws of the Company shall be the bylaws of the Surviving
Corporation until
amended in accordance with Applicable Law.
2.6. Directors. The directors of Merger Sub at the Effective Time
shall
be the initial directors of the Surviving Corporation, each to hold
office in
accordance with the articles of incorporation and bylaws of the
Surviving
Corporation until such director's successor is duly elected or
appointed and
qualified.
2.7. Officers. The officers of Merger Sub at the Effective Time
shall
be the initial officers of the Surviving Corporation, each to hold
office in
accordance with the articles of incorporation and bylaws of the
Surviving
Corporation until such officer's successor is duly elected or
appointed and
qualified.
2.8 Conversion
of Shares; Treatment of Company Options.
(a) At the Effective Time, each share of common stock, no par
value, of the Company (the "COMMON STOCK"), issued and outstanding
immediately
prior to the Effective Time shall, except as otherwise provided (i)
in Section
2.11 as to Company Dissenting Shares and (ii) in Section 2.8(d), by
virtue of
the Merger and without any action on the part of Parent, Merger
Sub, the Company
or the holder thereof, be canceled and extinguished and be
converted
automatically into and become the right to receive that portion of
the Merger
Consideration specified in Section 2.8(b).
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(b) (i) Common Stock. Each share of Common Stock issued and
outstanding immediately prior to the Effective Time (other than any
Company
Dissenting Shares and any shares of Common Stock held directly or
indirectly by
the Company, Parent or Merger Sub) will be converted at the
Effective Time into
the right to receive (A) at the Effective Time, an amount equal to
the Initial
Per Common Equivalent Merger Consideration, and (B) subsequent to
the Effective
Time and in accordance with the Escrow Agreement, an amount equal
to the
Subsequent Escrow Per Common Equivalent Merger Consideration.
(ii) Vested In-The-Money Company Options. Subject to
the last sentence of this Section 2.8(b)(ii),
each Vested In-The-Money Company Option shall be cancelled and
converted into
the right to receive (1) at the Effective Time, an amount in cash
equal to the
Initial Per Common Equivalent Merger Consideration multiplied by
the number of
Company Option Shares underlying such Vested-In-The-Money Company
Option, minus
the aggregate exercise price with respect to such
Vested-In-The-Money Company
Option, and (2) subsequent to the Effective Time and in accordance
with Section
2.9 and the Escrow Agreement, an amount equal to the Subsequent
Escrow Per
Common Equivalent Merger Consideration multiplied by number of
Company Option
Shares underlying such Vested-In-The-Money Company Option. The
amounts payable
to optionees pursuant to this Section 2.8(b)(ii) shall be reduced
by such
amounts as are required to be deducted and withheld under the Code
and
applicable state laws. Notwithstanding anything to the contrary
contained in
this Agreement, each holder of a Vested In-The-Money Company Option
may elect,
by notice to the Company and Parent prior to the Closing Date, that
in lieu of
the payment pursuant to this Section 2.8(b)(ii), he wishes all or a
portion of
such Vested In-The-Money Company Option to be treated in the same
manner as in
Section 2.8(b)(iii), except that any Replacement Option (as defined
below)
issued in exchange therefor shall be immediately exercisable.
(iii) Other Company Options. Each Company Option
that is not a Vested-In-The-Money Company Option or
that is a Vested In-The-Money Company Option but which the holder
has elected to
be treated in the same manner as in this Section 2.8(b)(iii) shall
be assumed
and converted at the Effective Time into the right to receive an
option for
shares of Parent Common Stock, subject to and in accordance with
the terms of
the Company Option Plan (each such assumed option referred to
herein as a
"CANCELLED OPTION" and each replacement option referred to herein
as a
"REPLACEMENT OPTION"), subject to the following terms and
conditions: (x) the
number of shares of Parent Common Stock which shall be subject to
such
Replacement Option shall be (A) the number of shares subject to the
Cancelled
Option, multiplied by (B) the quotient (the "CONVERSION RATIO")
obtained by
dividing the Initial Per Common Equivalent Merger Consideration by
the Trading
Price, with any fraction of a share of Parent Common Stock rounded
down to the
nearest whole share; (y) the exercise price, per share, of the
Replacement
Option shall be equal to (A) the per share exercise price of the
Cancelled
Option, divided by (B) the Conversion Ratio, with any fraction of a
cent rounded
up to the nearest whole cent; and (z) except as required to reflect
the
adjustments made pursuant to (x) and (y) above, the Replacement
Option shall
otherwise retain the same terms (i.e., with respect to vesting
schedule and
acceleration provisions) as the Cancelled Option. At the Effective
Time, the
Company Option Plan shall be assumed by Parent. The number of
shares of Parent
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Common Stock available for issuance under the Company Option Plan
shall be the
number of shares of Company Common Stock that remain available for
issuance
under the Company Option Plan immediately prior to the Effective
Time multiplied
by the Conversion Ratio. All Company Common Stock numbers that
appear in the
Company Option Plan shall be multiplied by the Conversion Ratio.
Following the
assumption of the Company Option Plan, all references to the
Company in the
Company Stock Option Plan shall be deemed to refer to Parent. As
soon as
practicable after the Closing Date, Parent will issue to each
person who,
immediately prior to the Closing Date was a holder of a Cancelled
Option a
written document evidencing the foregoing Replacement Option.
Parent shall take
or shall have taken all corporate action necessary to reserve for
issuance a
sufficient number of shares of Parent Common Stock for delivery
upon exercise of
Replacement Options pursuant to the terms set forth in this Section
2.8. It is
the intention of the parties that, insofar as consistent with the
foregoing
procedures, the Replacement Options shall qualify as an incentive
stock option
as defined in Section 422 of the Code, to the extent the Cancelled
Option was
intended to so qualify immediately prior to the Effective Time.
(iv) Restricted Stock to holders of Replacement
Options. To the extent that a recipient of one or more
Replacement Options remains employed by Parent or any of its
Subsidiaries,
including the Surviving Corporation, on the first anniversary of
the Closing
Date, then each such recipient shall receive a number of restricted
shares of
Parent Common Stock equal to the value of the Subsequent Escrow Per
Common
Equivalent Merger Consideration multiplied by the number of Company
Option
Shares underlying the Cancelled Options that were held by such
recipient
immediately prior to the Closing. Such restricted shares of Parent
Common Stock
will continue to be subject to the same vesting schedule as the
Replacement
Options to which it relates. In order to determine the value of the
restricted
shares of Parent Common Stock being granted, Parent shall use the
weighted
average closing price of a share of Parent Common Stock on the
Nasdaq National
Market on the ten (10) trading days ending two (2) days before the
first
anniversary of the Closing Date, as reported in The Wall Street
Journals
(c) At the Effective Time, each of the 100 outstanding shares
of the common stock, $0.01 par value, of Merger Sub shall be
converted into one
share of common stock, $0.01 par value, of the Surviving
Corporation.
(d) At the Effective Time, each share of Common Stock held in
the treasury of the Company or owned by the Company, Parent or
Merger Sub
immediately prior to the Effective Time shall, by virtue of the
Merger and
without any action on the part of Parent Merger Sub, the Company or
the holder
thereof, be canceled and extinguished and no payment shall be made
with respect
thereto.
(e) Parent agrees to use commercially reasonable efforts to
file with the Securities and Exchange Commission (the "SEC"),
within thirty (30)
business days after the Effective Time, a registration statement on
Form S-8 or
other appropriate form under the Securities Act of 1933, as amended
(together
with the rules and regulations thereunder, the "SECURITIES ACT"),
to register
Parent Common Stock issuable upon exercise of the Replacement
Options and to use
its commercially reasonable efforts to cause such registration
statement to
remain effective until the exercise or expiration of the
Replacement Options.
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<PAGE>
2.9. Escrow Amount. At the Closing, Parent shall deliver (i)
$3,350,000
(as such amount may be increased or decreased from time to time in
accordance
with the terms of this Agreement and the Escrow Agreement, the
"ESCROW AMOUNT")
to an escrow account (the "ESCROW ACCOUNT") to be established by
Parent and the
Equityholder Representative with The Bank of New York (the "ESCROW
AGENT") to be
held by the Escrow Agent, pursuant to the terms of an escrow
agreement in the
form attached as EXHIBIT D to this Agreement (the "ESCROW
AGREEMENT"), to serve
as a source of payment and remedy for any claim for Damages for
which any Parent
Covered Party is entitled to recovery pursuant to Article IX and to
provide for
the payment of the Subsequent Escrow Merger Consideration. Any fees
and expenses
of the Escrow Agent shall be paid by Parent. During the period in
which the
Escrow Amount is retained in the Escrow Account, all interest or
other income
earned from the investment of the Escrow Amount shall be retained
in the Escrow
Account as additional Escrow Amount.
2.10. Distribution of the Merger Consideration.
(a) At the Closing, Parent shall deliver to each Participating
Rights Holder the portion of the Initial Merger Consideration to
which such
Participating Rights Holder is entitled pursuant to Section
2.8.
(b) (i) Each holder of Shares that have been converted into a
right to receive a portion of the Merger Consideration, upon
surrender to Parent
of a certificate or certificates formerly representing such Shares,
together
with a properly completed letter of transmittal covering such
Shares in the form
attached hereto as EXHIBIT E, will be entitled to receive from
Parent payment of
the Initial Merger Consideration to which such holder of Shares is
entitled in
respect of the number of Shares represented by such certificate or
certificates,
as the case may be. Each certificate that is surrendered pursuant
to this
Section 2.10(b) shall forthwith be canceled. Until so surrendered
and except as
otherwise set forth in Section 2.11, each such certificate shall,
after the
Effective Time, represent for all purposes, only the right to
receive the
applicable portion of the Merger Consideration. No interest will be
paid or will
accrue on such portion of the Merger Consideration.
(ii) Each holder of Vested In-The-Money Company
Options that have been converted into a right to
receive a portion of the Merger Consideration, upon delivery to
Parent of a
properly completed optionholder consent in the form attached hereto
as EXHIBIT
F, shall be entitled to receive from the Parent such portion of the
Initial
Merger Consideration to which such holder of a Vested In-The-Money
Company
Option is entitled pursuant to and in accordance with the terms of
this
Agreement.
(c) After the Effective Time, there shall be no further
registration of transfers of Shares. If, after the Effective Time,
certificates
formerly representing Shares are presented to the Surviving
Corporation, they
shall be canceled and exchanged for the portion of the Merger
Consideration
provided for, and in accordance with the procedures set forth, in
this Article
II.
(d) In the event that any certificate evidencing Shares shall
have been lost, stolen or destroyed, Parent shall pay in exchange
therefor, upon
making of an affidavit of that fact by the holder thereof, a
portion of the
Initial Merger Consideration due in respect of such Shares that is
payable
pursuant to this Agreement; provided, however, that Parent may, in
its
discretion and as a condition precedent to the issuance thereof,
require the
delivery of a suitable bond or indemnity agreement by the owner of
such lost,
stolen or destroyed certificate.
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<PAGE>
(e) None of Parent, the Company nor the Surviving Corporation
shall be liable to any holder of Shares for any portion of the
Merger
Consideration delivered to a Governmental Authority pursuant to any
applicable
abandoned property escheat or similar law.
2.11. Dissenting Shares. Any holder of Shares issued and
outstanding
immediately prior to the Effective Time with respect to which
appraisal and/or
dissenter's rights, if any, are available by reason of the Merger
pursuant to
Section 1300 and 1301 of the CGCL ("COMPANY DISSENTING SHARES")
shall not be
entitled to receive any portion of the Merger Consideration
pursuant to Section
2.8, unless such holder fails to perfect, effectively withdraws or
loses its
appraisal rights and/or rights to dissent from the Merger under the
CGCL. Such
holder shall be entitled to receive only such rights as are granted
under
Section 1300 of the CGCL. If any such holder fails to perfect,
effectively
withdraws or loses such appraisal and/or dissenter's rights under
the CGCL, such
Company Dissenting Shares shall thereupon be deemed to have been
converted as of
the Effective Time into the right to receive that portion of the
Merger
Consideration due pursuant to the provisions of Section 2.8. Any
payments made
with respect to Company Dissenting Shares shall be made solely by
the Surviving
Corporation, and no funds or other property have been or shall be
provided by
Parent, Holding, Merger Sub or any of Parent's Affiliates for such
payment.
2.12. Withholding Rights. Parent shall be entitled to deduct
and
withhold from the Merger Consideration otherwise payable pursuant
to this
Agreement such amounts as it is required to deduct and withhold
with respect to
the making of such payment under the Code, or any provision of
United States
federal, state or local, or any foreign, tax law. To the extent
that amounts are
so withheld or paid over to or deposited with the relevant
Governmental
Authority by Parent, such amounts shall be treated for all purposes
of this
Agreement as having been paid to the applicable holders of Shares
in respect of
which Parent made such deduction and withholding.
2.13. Equityholder Representative.
(a) Appointment of Equityholder Representative. In connection
with the approval of the Merger by the shareholders of the Company
and action
taken by the holders of Company Options prior to the date hereof,
each of the
Participating Rights Holders (other than any holder of Dissenting
Shares) shall
be deemed to have constituted and appointed, effective from and
after the date
of such approval of the Merger, Nader Salehomoum as the agent
and
attorney-in-fact of such Participating Rights Holders to act as the
Equityholder
Representative under this Agreement in accordance with the terms of
this Section
2.13. In the event of the resignation, removal, death or incapacity
of the
Equityholder Representative, a successor shall thereafter be
appointed by an
instrument in writing signed by such successor and by the holders
of a majority
of the shares of Common Stock (determined on a fully-diluted,
as-converted,
as-exercised basis) held by the Participating Rights Holders (other
than the
Company Dissenting Shares) immediately prior to the Effective Time
(the
"MAJORITY HOLDERS"), and such appointment shall become effective as
to any such
successor when a copy of such instrument shall have been delivered
to Parent.
The Equityholder Representative may be removed by action of the
Majority Holders
at any time and for any reason.
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<PAGE>
(b) Authority. The Equityholder Representative has been duly
authorized by the Participating Rights Holders, in each case, for
or on behalf
of such Participating Rights Holders, to:
(i) take all actions required by, and exercise all
rights granted to, the Equityholder Representative
in this Agreement and the Escrow Agreement;
(ii) receive all notices or other documents given or
to be given to the Participating Rights Holders by
Parent pursuant to this Agreement and the Escrow Agreement;
(iii) receive and accept service of legal process in
connection with any claim or other proceeding against the
Participating Rights
Holders or the Company arising under this Agreement and the Escrow
Agreement;
(iv) undertake, compromise, defend and settle any
such suit or proceeding on behalf of the Participating Rights
Holders as a group
arising under this Agreement and the Escrow Agreement;
(v) execute and deliver all agreements, certificates
and documents required or deemed appropriate by the Equityholder
Representative
in connection with any of the transactions contemplated by this
Agreement and
the Escrow Agreement;
(vi) engage special counsel, accountants and other
advisors and incur such other expenses in connection
with any of the transactions contemplated by this Agreement;
and
(vii) take such other action as such Equityholder
Representative may deem appropriate, including,
without limitation:
(A) agreeing to any modification or
amendment of this Agreement and the Escrow Agreement and executing
and
delivering an agreement of such modification or amendment; and
(B) all such other matters as the
Equityholder Representative may deem necessary or appropriate to
carry out the
intents and purposes of this Agreement and the Escrow
Agreement.
(c) Reimbursement of Expenses. The Equityholder Representative
shall receive no compensation for services as the Equityholder
Representative,
but shall receive reimbursement from, and be indemnified by, the
Participating
Rights Holders, pro rata, for any and all expenses, charges and
Liabilities,
including, but not limited to, reasonable attorneys' fees, incurred
by the
Equityholder Representative in the performance or discharge of his
duties
pursuant to this Section 2.13. Unless the Participating Rights
Holders pay all
such expenses, charges and Liabilities upon demand by the
Equityholder
Representative, the Equityholder Representative shall have no
obligation to
incur such expenses, charges or Liabilities, or to continue to
perform any
duties hereunder. Parent and the Company shall have no obligation
to reimburse
the Equityholder Representative for any such expenses.
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<PAGE>
2.14. Transaction Fees. Parent and/or Merger Sub shall be
obligated to pay all Transaction Fees of the Company and the
Shareholder. On the
day prior to the Closing Date, the Company shall provide to Parent
an itemized
and complete schedule of the Transaction Fees of the Company and
the
Shareholder, including estimated Transaction Fees through the
Closing Date and
Transaction Fees for post-closing matters (the "TRANSACTION FEE
SCHEDULE"). At
Closing, Parent shall pay any and all unpaid Transaction Fees as of
the Closing,
and which are set forth on such Transaction Fee Schedule. In no
event will
Parent, Merger Sub or the Surviving Corporation be responsible for
payment of
Transaction Fees of the Company or the Shareholders in excess of
the amounts set
forth on the Transaction Fee Schedule. Notwithstanding the
foregoing, the
Shareholder may cause the Company to pay prior to the Closing out
of Company
cash, all or any portion of such Transaction Fees.
2.15. Capitalization Schedule. On the date hereof the Company
has delivered to Parent a true and correct schedule setting forth
the name of
each holder of Common Stock and Company Options and the number of
each such
securities owned by each such person as of the date hereof on a pro
forma basis
after giving effect to Company Options that will be exercised
immediately prior
to the Effective Time (the "CAPITALIZATION SCHEDULE"). The Company
shall deliver
to Parent an updated Capitalization Schedule by the close of
business on the
Business Day prior to the Closing Date (and thereafter as necessary
prior to the
Closing), which shall be true and correct, and such updated
Capitalization
Schedule shall be used for purposes of calculating the distribution
of the
Merger Consideration for purposes of this Article II.
ARTICLE III.
CLOSING DELIVERIES
3.1. Deliveries by the Company and the Shareholder at the Closing.
At
the Closing, the Company and the Shareholder, as the case may be,
shall deliver,
or cause to be delivered:
(a) the written opinion of Pillsbury Winthrop Shaw Pittman
LLP, counsel for the Company and the Shareholder, dated as of the
Closing Date,
substantially in the form attached hereto as EXHIBIT G;
(b) certified organizational documents and certificates of
good standing (i) issued by the Secretary of State of the State of
California
for the Company, and (ii) issued by the states in which the Company
is qualified
to do business as a foreign corporation, in each case not dated not
more than
five business days prior to the Closing;
(c)
a certificate, dated as of the Closing Date and signed by
the Company's President or Vice President, as to the fulfillment of
the
conditions set forth in Section 7.3;
(d) a certificate executed by the Secretary of the Company,
dated as of the Closing Date, certifying resolutions adopted by the
Company's
board of directors and shareholders relating to the transactions
contemplated by
this Agreement and the Ancillary Agreements;
14
<PAGE>
(e) copies of all third party and governmental consents,
approvals and filings required in connection with the consummation
of the
transactions hereunder and set forth on Schedule 4.17; and
(f) such other documents and items as Parent may reasonably
require.
3.2. Deliveries by Parent and Merger Sub at the Closing. At the
Closing, Parent and Merger Sub shall deliver, or cause to be
delivered:
(a) the written opinion of Fish & Richardson P.C., counsel
for
Parent and Merger Sub, dated as of the Closing Date, substantially
in the form
attached hereto as EXHIBIT H;
(b) the Initial Merger Consideration and the initial Escrow
Amount to be distributed pursuant to Section 2.8;
(c) a certificate, dated as of the Closing Date and signed by
an officer of Parent, as to the fulfillment of the conditions set
forth in
Section 7.2; and
(d) such other documents and items as the Company or the
Shareholder may reasonably require.
ARTICLE IV.
REPRESENTATIONS AND WARRANTIES OF
THE COMPANY AND THE SHAREHOLDER
As a material inducement to Parent and Merger Sub to enter into
this
Agreement, except as disclosed in the disclosure schedules
delivered to Parent
and Merger Sub by the Company concurrently herewith (the "COMPANY
DISCLOSURE
SCHEDULE") and except as provided herein, (a) the Company and the
Shareholder
(except with respect to Sections 4.28, 4.29 and 4.30) jointly and
severally
hereby make the following representations and warranties to Parent
and Merger
Sub, and (b) with respect to Sections 4.28, 4.29 and 4.30 only, the
Shareholder
hereby makes severally only the representations and warranties
contained therein
to Parent and Merger Sub, in each case as of the date hereof and as
of the
Effective Time. Notwithstanding any other provision of this
Agreement or the
Company Disclosure Schedule, the information and disclosures
contained in each
section of the Company Disclosure Schedule shall be deemed to be
disclosed and
incorporated by reference in each of the other sections of the
Company
Disclosure Schedule as though fully set forth in such other
sections (whether or
not specific cross-references are made) if and to the extent that
sufficient
facts are disclosed so that the relationship of such information
and disclosures
to such other information and disclosures is readily apparent on
its face.
4.1. Organization of the Company. The Company is duly organized
and
validly existing under the laws of the state of California with
full corporate
power and corporate authority to conduct the Business as it is
presently being
conducted, to own or lease, as applicable, its assets and
properties, and to
perform all its obligations under its Material Contracts (as
defined below). The
Company is duly qualified to do business as a foreign corporation
and is in good
standing in each jurisdiction where the character of its properties
owned or
15
<PAGE>
leased or the nature of its activities make such qualification
necessary, except
where the failure to be so qualified or in good standing would not
have a
Material Adverse Effect on the Company. Copies of the articles of
incorporation
and bylaws of the Company, and all amendments thereto, have
heretofore been
delivered to Parent and are accurate and complete as of the date
hereof.
4.2. Subsidiaries. The Company does not own or control, directly
or
indirectly, any interest in any other corporation, partnership,
trust, joint
venture, association, or other entity.
4.3. Authorization. The Company has all requisite power and
authority,
and has taken all action necessary, to execute, deliver and perform
this
Agreement and the Ancillary Agreements to which it is a party, to
consummate the
transactions contemplated hereby and thereby and to perform its
obligations
hereunder and thereunder. The execution and delivery of this
Agreement and the
Ancillary Agreements to which it is a party by the Company and the
consummation
by the Company of the transactions contemplated hereby and thereby
have been
duly approved by the board of directors of the Company. Other than
the approval
of the shareholders of the Company in accordance with the CGCL and
this
Agreement, no other proceeding on the part of the Company or the
shareholders of
the Company is necessary to authorize this Agreement and the
Ancillary
Agreements and the transactions contemplated hereby and thereby.
This Agreement
has been duly executed and delivered by the Company and is, and,
upon execution
and delivery of the Ancillary Agreements, this Agreement and the
Ancillary
Agreements to which the Company is party will be, the legal, valid
and binding
obligations of the Company, enforceable against the Company in
accordance with
their respective terms except as enforcement may be limited by
applicable
bankruptcy, insolvency, reorganization, moratorium and other laws
affecting
creditors' rights generally and except insofar as the availability
of equitable
remedies may be limited by Applicable Law.
4.4. Capitalization.
(a) Schedule 4.4(a) sets forth the name of each Person holding
any equity securities of the Company or securities convertible into
or
exchangeable for equity securities of the Company. The authorized
capital stock
of the Company consists of 30,000,000 shares of Common Stock. There
are issued
and outstanding 10,000,000 shares of Common Stock. All of the
issued and
outstanding shares of capital stock of the Company are duly
authorized, validly
issued, fully paid and non-assessable. No claim has been made or
threatened to
the Company asserting that any Person other than a Person listed on
Schedule
4.4(a) is the holder or beneficial owner of, or has the right to
acquire
beneficial ownership of, any stock of, or any other voting, equity
or ownership
interest in the Company. Except as set forth on Schedule 4.4(a),
there are no
accrued and unpaid dividends on any of the Shares.
(b) Except as set forth on Schedule 4.4(b), there are no (i)
options, warrants, agreements, convertible or exchangeable
securities or other
commitments pursuant to which the Company is or may become
obligated to issue,
sell, transfer, purchase, return or redeem shares or other
securities of the
Company, (ii) securities of the Company reserved for issuance for
any purpose,
(iii) agreements pursuant to which registration rights in the
shares of the
Company have been granted, (iv) to the Knowledge of the Company,
shareholders
agreements, whether written or oral, among any current or former
shareholders of
the Company or (v) statutory or contractual preemptive rights or
rights of first
refusal with respect to the Shares.
16
<PAGE>
(c) The Company has not violated any applicable federal or
state securities laws in connection with the offer, sale or
issuance of any of
its capital stock.
(d) Schedule 4.4(d) sets forth a true and complete list as of
the date hereof of all holders of outstanding Company Options, the
exercise
price per share, the vesting schedule of each such Company Option,
whether such
Company Option is a nonqualified stock option or incentive stock
option, whether
the optionee is an employee of the Company on the date of this
Agreement and any
restrictions on exercise or sale of such Company Option or
underlying shares
(other than any restrictions contained in the agreements listed on
Schedule
4.4(b)).
4.5. Title to Properties and Assets.
(a) The Company owns no real property. Except as set forth on
Schedule 4.5(a), (i) in the case of leased properties or properties
held under
license, the Company has a good and valid leasehold or license
interest in, all
of such properties and (ii) the Company holds title to each
material property
and asset which it purports to own, free and clear of any
Encumbrances other
than Permitted Encumbrances. The representations in this Section
4.5 do not
apply to the Intellectual Property rights as to which only the
representations
in Section 4.20 shall apply.
(b) All of the material tangible assets of the Company are in
all material respects in reasonably serviceable operating condition
and repair
and are adequate for the conduct of the Business in substantially
the same
manner as it has heretofore been conducted since December 31,
2005.
(c) Schedule 4.5(c) sets forth a true and complete list of all
real property leased by the Company (collectively, the "REAL
PROPERTY"),
including the location of such Real Property. Except as set forth
on Schedule
4.5(c), the Company has a valid leasehold interest in the Real
Property, free
and clear of all Encumbrances, except Permitted Encumbrances.
4.6. Absence of Certain Activities. Except as set forth on
Schedule
4.6, since December 31, 2005, there has not been:
(a) any damage, destruction or loss, whether or not covered by
insurance, materially and adversely affecting the assets,
properties, financial
condition, operating results of the Company, or the Business.
(b) any waiver by the Company of a valuable right or of a
material debt owed to it;
(c) any
satisfaction or discharge of Encumbrance or payment of
any obligation by the Company, except such a satisfaction,
discharge or payment
made in the Ordinary Course of Business that is not material to the
assets,
properties, financial condition or operating results of the Company
or the
Business;
17
<PAGE>
(d) any change or amendment to a Material Contract (as defined
below), except for changes or amendments which are expressly
provided for or
disclosed in this Agreement; or
(e) any creation or assumption by the Company of any
Encumbrance on any of its material assets, other than Permitted
Encumbrances.
4.7. Certain Actions. Since December 31, 2005, there has not been
any
change, effect, event, occurrence, state of facts or development
known to the
Company that, individually or in the aggregate, has had or could
reasonably be
expected to have a Material Adverse Effect on the Company. Without
limiting the
generality of the foregoing, except as disclosed in Schedule 4.7 or
except as
contemplated hereby, since December 31, 2005:
(a) the Company has conducted the Business in the Ordinary
Course of Business and consistent with past practice;
(b) except as set forth in Schedule 4.7(b), there has not been
any declaration, setting aside or payment of any dividend or other
distribution
with respect to any of the shares of the Company, or any
repurchase, redemption
or other acquisition by the Company of any outstanding shares or
other equity
securities of, or other equity securities or ownership interests
in, the
Company;
(c) there has not been any amendment of any provision of the
articles of incorporation, bylaws or other organizational document
of the
Company, or of any material term of any outstanding security issued
by the
Company;
(d) there has not been any incurrence, assumption or guarantee
by the Company of any indebtedness for borrowed money, other than
borrowings
under existing short-term credit facilities;
(e) there has not been any change in any method of accounting
or accounting practice by the Company, except for any such change
set forth on
Schedule 4.7(e);
(f) the Company has not (i) granted any severance or
termination pay to any director, officer or employee of the
Company, (ii)
entered into any employment, deferred compensation or other similar
agreement
with (or any amendment to any such existing agreement) any
director, officer or
employee of the Company, (iii) increased the benefits payable under
any existing
severance or termination pay policies or employment agreements, or
(iv)
increased the compensation, bonus or other benefits payable to
directors,
officers or employees of the Company, in each case other than in
the Ordinary
Course of Business;
(g) there has been no issuance of equity securities of the
Company, other than pursuant to Company Options outstanding as of
December 31,
2005;
(h) there has not been any acquisition or disposition of
assets material to the Company or any acquisition or disposition of
capital
stock of any third party or any merger or consolidation with any
third party, by
the Company;
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(i) the Company has not entered into any joint venture,
partnership or similar agreement with any Person;
(j) the Company has not made any loans or advances to any
Person;
(k) the Company has not redeemed, repurchased or otherwise
acquired for any consideration any outstanding shares of capital
stock, or other
membership or ownership interests in, or other equity securities of
the Company
or, or any securities which are convertible into or exchangeable or
exercisable
therefor;
(l) the Company has not made or changed any material election
in respect of Taxes, entered into any closing agreement, settled
any material
claim or assessment in respect of Taxes, or consented to any
extension or waiver
of the limitation period applicable to any material claim or
assessment in
respect of Taxes; and
(m) the Company has not authorized or committed or agreed to
take any of the actions described in subsections (a) through (l) of
this Section
4.7, except as otherwise permitted by this Agreement.
4.8. Material Contracts.
(a) All agreements, contracts, leases, licenses, instruments,
commitments (oral or written), indebtedness (including, without
limitation, all
evidences of indebtedness owed to the Company by any officer,
director or
employee of the Company (collectively the "EMPLOYEE LOANS")),
Liabilities and
other obligations to which the Company is a party or by which the
Company is
bound that (i) are material to the conduct and operations of the
Business and
its properties, (ii) involve the Shareholder or any of the
officers,
consultants, directors or employees of the Company, (iii) require
the Company to
provide in-kind consideration, (iv) are not in the Ordinary Course
of Business,
(v) involve real property, (vi) involve a joint venture,
partnership, or limited
liability company relationship, (vii) are listed on Schedule 4.21,
(viii)
restrict the ability of the Company to engage in any business in
any manner or
in any geographic area, (ix) govern or relate to indebtedness, (x)
contain an
indemnity obligation of the Company, (xi) are material customer or
supplier
agreements of the Company (including any oral or written
commitments for product
upgrades) or (xii) obligate the Company to develop any product or
technology
(collectively, the "MATERIAL CONTRACTS") are listed in Schedule
4.8(a) and have
been provided to Parent and its counsel. For purposes of this
Section 4.8,
"material" shall mean either (x) having an aggregate value, cost or
amount in
excess of $25,000, or (y) not terminable upon thirty days' or fewer
notice
without penalty or additional Liabilities.
(b) Each Material Contract is in full force and effect, paid
currently, and has not been materially impaired by any acts or
omissions of the
Company. Except for those Material Contracts denoted with an
asterisk (*) as set
forth on Schedule 4.8, no Material Contract requires the consent of
any other
contracting party to prevent a breach of, a default under, or a
termination,
change in the terms or conditions or modification of, any Material
Contract as a
result of the consummation of the transactions contemplated
hereunder. All of
the Material Contracts are valid, binding and enforceable against
the Company in
accordance with their terms except as enforcement may be limited by
applicable
bankruptcy, insolvency, reorganization, moratorium and other laws
affecting
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enforcement of creditors' rights generally and except insofar as
the
availability of equitable remedies may be limited by Applicable
Law. The Company
has fulfilled, or taken all action reasonably necessary to enable
it to fulfill
when due, all of its material obligations under each of such
Material Contracts.
The Company is not in Default under any Material Contract. To the
Knowledge of
the Company, no other party is in material Default under such
Material Contracts
and, to the Knowledge of the Company, no event has occurred and no
condition or
state of facts exists which, with the passage of time or the giving
of notice or
both, would constitute such a Default and no written notice of any
claim of
Default has been given to the Company. The Company is not aware of
any intent by
any party to any Material Contract to terminate or amend the terms
thereof or to
refuse to renew any such Material Contract upon expiration of its
term. The
Company is not currently paying liquidated damages in lieu of
performance under
any Material Contract and the Company has no notice of any such or
similar
payments being due in the future.
(c) Those Material Contracts denoted with two asterisks (**)
as set forth on Schedule 4.8(c) are the only Material Contracts,
whether for the
license of goods or services to the Company or otherwise, which
require a
recurring payment by the Company and/or renewal of the Material
Contract at a
predetermined time, and Schedule 4.8 includes for those Material
Contracts the
other party thereto, the starting and ending date of the current
term, the
requirements for renewal of the agreement, any payments that are
probable of
being due upon such renewal, and any notices or rights of
cancellation of the
agreement upon a change in control of the Company.
4.9. Compliance with Other Instruments. The Company is not in
any
violation, breach or Default of (a) any term of its articles of
incorporation,
bylaws or similar organizational documents, (b) in any material
respect, any
term or provision of any mortgage, indenture, contract, agreement
or instrument
to which the Company is a party or by which it may be bound or (c)
subject to
the last sentence of this Section 4.9, any provision of any foreign
or domestic
state or federal judgment, decree, order, statute, rule or
regulation applicable
to or binding upon the Company. The execution, delivery and
performance of and
compliance with this Agreement and the Ancillary Agreements and the
consummation
of the transactions contemplated hereby and thereby will not (a)
result in any
such violation, breach or Default, or (b) be (i) in conflict with
or constitute,
with or without the passage of time or the giving of notice or
both, either a
Default under the articles of incorporation, bylaws or similar
organizational
documents of the Company, or (ii) any Default, termination or
acceleration of
any Material Contract or, subject to the last sentence of this
Section 4.9, a
material violation of any statutes, laws, Regulations or Court
Orders, or an
event which results in the creation of any Encumbrance (other than
a Permitted
Encumbrance) upon any of the properties or assets of the Company.
The
representations in this Section 4.9 that are subject to this last
sentence do
not apply to the Intellectual Property rights as to which only
the
representations in Section 4.20 shall apply.
4.10. Financial Statements; Bank Statement.
(a) The Company heretofore has delivered to Parent true and
correct
copies of the Financial Statements, which were prepared on a
modified cash-basis
and do not reflect certain items which would appear on an
accrual-based
financial statement or on a financial statement prepared in
accordance with
GAAP. The Financial statements were prepared (i) in accordance with
the books
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and records of the Company in the Ordinary Course of Business and
consistent
with the Company's past practices with respect to the preparation
of its
financial statements and (ii) in accordance with the Company's
standard internal
accounting practices applicable to the preparation of its financial
statements.
(b) The Company heretofore has delivered to Parent a true and
correct
copy of the Company's bank statement, dated on or after the date of
the Most
Recent Balance Sheet.
4.11. Liabilities. Subject to the provisions of Section 6.9
hereof,
except as disclosed in the Financial Statements as of and for the
period ended
December 31, 2005, the Company has not incurred any Liabilities of
any nature,
except (i) Liabilities which (A) are accrued or reserved against in
such
Financial Statements or (B) were incurred after December 31, 2005
in the
Ordinary Course of Business and are not material, or (ii)
Liabilities that have
been discharged or paid in full prior to the date hereof, or (iii)
Liabilities
which are disclosed in Schedule 4.11.
4.12. Taxes.
(a) Definitions. For purposes of this Agreement:
(i) the term "TAX" (including with correlative
meaning, the terms "TAXES" and "TAXABLE") means (A) all
taxes, duties, or similar governmental charges, levies, imposts,
withholdings or
charges (including, without limitation, net income, gross income,
gross
estimated, receipts, sales, use, ad valorem, transfer, franchise,
profits,
license, lease, service, service use, withholding, payroll,
employment, excise,
severance, stamp, occupation, premium, property, windfall profits,
customs,
duties or other taxes, duties, charges, levies, imposts
withholdings or charges
of any kind whatsoever) whenever and by whatever authority imposed,
and whether
of the United States or elsewhere, whether or not any such taxes,
duties,
charges, levies, imposts or withholdings are directly or primarily
chargeable
against or to the Company, together with in any such case any
interest, fines,
penalties, surcharges and charges incidental or relating to the
imposing of any
of such Taxes and any additions to tax or additional amounts with
respect
thereto, (B) any liability for payment of amounts described in
clause (A)
whether as a result of transferee liability, of being a member of
an affiliated,
consolidated, combined or unitary group for any period, or
otherwise through
operation of law, and (C) any liability for the payment of amounts
described in
clauses (A) or (B) as a result of any tax sharing, tax indemnity or
tax
allocation agreement or any other express or implied agreement to
indemnify any
other person; and
(ii)
the term "TAX RETURN" means any return,
declaration, report, statement, information statement and
other document required to be filed with respect to Taxes.
(b) The Company has accurately prepared and timely filed all
Tax Returns it is required to have filed, taking timely requested
extensions
into account. Such Tax Returns were, when filed, accurate, complete
and correct
and did not contain a disclosure statement under Section 6662 of
the Code (or
any predecessor provision or comparable provision of state, local
or foreign
law).
(c) The Company has timely paid or will cause to be timely
paid all Taxes which are payable by the Company prior to the
Closing Date that
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have become due or payable or that will become due or payable prior
to the
Closing Date The Company has duly collected or withheld, and has
duly remitted
or deposited in accordance with law, all amounts that are required
to be
collected or withheld by it.
(d) Except as set forth on Schedule 4.12(d):
(i) no written claim has been made by any taxing
authority in any jurisdiction where the Company does
not file Tax Returns that it is or may be subject to Tax by that
jurisdiction;
(ii) no extensions or waivers of statutes of
limitations with respect to the Tax Returns have been
given by or requested from the Company;
(iii) no power of attorney has been granted by the
Company with respect to any matter relating to Taxes;
and
(iv) no written claim for assessment or collection of
Taxes is presently being asserted against the
Company, and there is no presently pending audit examination,
refund claim,
litigation, proceeding, proposed adjustment or matter in
controversy with
respect to any Taxes of or with respect to the Company, and the
Company has no
Knowledge that any such action or proceeding is being
contemplated.
(e) Schedule
4.12(e) sets forth:
(i) those taxab
