AGREEMENT AND PLAN OF
MERGER
THIS AGREEMENT
AND PLAN OF MERGER (this “ Agreement ”) is
entered into as of this 8th day of September, 2006, by and among
(i) WEBMETHODS, INC., a Delaware corporation (“
Parent ”), (ii) IOWA ACQUISITION CORP., a
California corporation and a wholly-owned subsidiary of Parent
(“ Merger Sub ”), (iii) INFRAVIO, INC., a
California corporation (the “ Company ”),
(iv) with respect only to Articles II, IV, VI, IX and XI,
certain holders of capital stock of the Company listed on
Exhibit A hereto (each individually, a “ Key
Shareholder ” and collectively the “ Key
Shareholders ”) and (v) Mary Coleman in her capacity
as Shareholders’ Representative (as defined herein). Parent,
Merger Sub, the Company, the Key Shareholders and the
Shareholders’ Representative are referred to herein
individually as a “ Party ” and collectively as
the “ Parties .” The capitalized terms used and
not otherwise defined herein have the meanings given to such terms
as set forth in Appendix A hereto.
WHEREAS ,
the respective Boards of Directors of Merger Sub and the Company
deem it advisable and in the best interests of such corporations
and their respective shareholders that Merger Sub be merged with
and into the Company with the Company being the surviving
corporation (the “ Merger ”), upon the terms and
subject to the conditions set forth in this Agreement;
WHEREAS ,
as a condition to the willingness of, and an inducement to, Parent
and Merger Sub to enter into this Agreement, contemporaneously with
the execution and delivery of this Agreement, certain holders of
Company Stock (including, without limitation, the Key
Shareholders), are entering into a voting agreement dated as of the
date hereof in the form attached hereto as Exhibit B
(the “ Voting Agreement ”), providing for
certain actions relating to the transactions contemplated by this
Agreement;
WHEREAS ,
as a condition to the willingness of, and an inducement to, Parent
and Merger Sub to enter into this Agreement, contemporaneously with
the execution and delivery of this Agreement, (i) Srinivas
Balasubramanian and Mukund Balasubramanian (the “
Founders ”) are entering into employment agreements
dated as of the date hereof in the form attached hereto as
Exhibit C (collectively, the “ Employment
Agreements ”) and(ii) each of the Key Employees numbered
3, 4 and 5 on Exhibit R hereto is entering into an
agreement dated as of the date hereof in the form attached hereto
as either Exhibit D-1 or Exhibit D-2 (the
“ Key Employee Agreements ”);
WHEREAS ,
such Boards of Directors have approved the Merger, pursuant to
which each outstanding share of Company Stock will be converted
into the right to receive the applicable portion of the Total
Consideration set forth in Section 1.6;
WHEREAS ,
approval of the principal terms of the Merger requires the
Requisite Vote, and promptly hereafter, the Company is submitting
the principal terms of the Merger to the Shareholders for approval
by written consent of the Shareholders; and
WHEREAS ,
the Company, Parent, Merger Sub and the Key Shareholders desire to
make certain representations, warranties, covenants and agreements
in connection with the Merger and also to prescribe various
conditions to the Merger.
NOW,
THEREFORE , in consideration of the premises and the mutual
promises herein made, and in consideration of the representations,
warranties, and covenants herein contained, the Parties agree as
follows:
1.1 The
Merger . At the Effective Time (as defined in Section 1.2)
and subject to and upon the terms and conditions of this Agreement
and the CGCL, (i) Merger Sub shall merge with and into the
Company, and the separate corporate existence of Merger Sub shall
thereupon cease, (ii) the Company shall be the surviving
corporation in the Merger (sometimes hereinafter referred to as the
“ Surviving Corporation ”) and shall continue to
be governed by the CGCL as a wholly owned subsidiary of Parent, and
(iii) the separate existence of the Company with all of its
assets, property rights, privileges, immunities, powers and
franchises shall continue unaffected by the Merger.
1.2 Effective
Time . As promptly as practicable after the satisfaction or, to
the extent permitted hereunder, waiver of the conditions set forth
in Articles VII and VIII, the Parties hereto shall cause the Merger
to be consummated by (i) executing and filing on the Closing
Date an agreement of merger in the form of Exhibit E
hereto with the Secretary of State of the State of California, in
such form as required by and executed in accordance with the
relevant provisions of the CGCL (the “ Plan of Merger
”), and (ii) making such other filings and taking such
other actions as may be required by Law to make the Merger
effective hereinafter. The Merger shall become effective at such
date and time as the Plan of Merger is accepted for filing by the
Secretary of State of the State of California or at such later date
and time as may be permitted or required by the CGCL and specified
in the Plan of Merger by mutual agreement of Parent, Merger Sub and
the Company (the date and time the Merger becomes effective being
the “ Effective Time ”).
1.3 Effect of
the Merger . At the Effective Time, the effect of the Merger
shall be as provided in this Agreement, in the Plan of Merger and
in the applicable provisions of the CGCL. Without limiting the
generality of the foregoing, and subject thereto, at the Effective
Time the Surviving Corporation shall succeed, without other
transfer, to all the rights and property of each of the Company and
Merger Sub and shall be subject to all of the debts and liabilities
of each of the Company and Merger Sub in the same manner as if the
Surviving Corporation had itself incurred them.
1.4 Articles of
Incorporation; Bylaws . At the Effective Time and without any
further action on the part of the Parties, (i) the Articles of
Incorporation of Merger Sub shall be the Articles of Incorporation
of the Surviving Corporation until thereafter amended as provided
by the CGCL, and (ii) the Bylaws of Merger Sub shall be the
Bylaws of the Surviving Corporation until thereafter amended as
provided by the CGCL.
1.5 Directors
and Officers . The directors of Merger Sub immediately prior to
the Effective Time shall be the initial directors of the Surviving
Corporation, each to hold office in accordance with the Articles of
Incorporation and the Bylaws of the Surviving Corporation
until
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their
respective successors are duly elected or appointed and qualified
or until their earlier death, resignation or removal in accordance
with the Articles of Incorporation and Bylaws of the Surviving
Corporation. The officers of Merger Sub immediately prior to the
Effective Time shall be the initial officers of the Surviving
Corporation.
1.6 Effect of
Merger on Capital Stock .
(a) The
aggregate maximum consideration (the “ Total
Consideration ”) to be paid pursuant to this Agreement by
Parent and Merger Sub shall be $38,000,000, subject to adjustment
as set forth in this Agreement. No adjustment shall be made in the
Total Consideration paid in the Merger as a result of any cash
proceeds received by the Company from the date hereof to the
Closing Date pursuant to the exercise of Company Options or any
other options, warrants or other rights to acquire Company Stock
(it being understood, however, that any such cash proceeds, to the
extent in existence and constituting an asset of the Company at the
Closing, would be taken into account as a cash asset in the
calculation of Estimated Net Assets and Closing Net Assets and
would not be excluded in calculating any adjustment to be made
pursuant to Section 1.9 or Section 1.10). 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 Parent,
Merger Sub, the holder of any shares of Company Stock, or the
holder of any Company Options, Company Warrants or any other
options, warrants or other rights to acquire or receive shares of
Company Stock, the following shall occur, subject to the provisions
of this Article I:
(i) each
share of Common Stock issued and outstanding immediately prior to
the Effective Time (other than any shares of the Common Stock to be
canceled pursuant to the last sentence of this Section 1.6(a)
and any Dissenting Shares as defined in and to the extent provided
in Section 1.14) will be converted automatically into the
right to receive an amount in cash, without interest, equal to the
Common Closing Consideration Per Share plus an amount equal to the
product of (A) the Common Pro Rata Share multiplied by
(B) any proceeds or distributions of the Escrow Deposit (if,
when and to the extent distributed from escrow to the Shareholders
pursuant to the Escrow Agreement);
(ii) each
share of Series A Preferred Stock issued and outstanding
immediately prior to the Effective Time (other than any shares of
the Series A Preferred Stock to be canceled pursuant to the
last sentence of this Section 1.6(a) and any Dissenting Shares
as defined in and to the extent provided in Section 1.14) will
be converted automatically into the right to receive an amount in
cash, without interest, equal to the Series A Closing
Consideration Per Share plus an amount equal to the product of
(A) the Series A Pro Rata Share multiplied by
(B) any proceeds or distributions of the Escrow Deposit (if,
when and to the extent distributed from escrow to the Shareholders
pursuant to the Escrow Agreement);
(iii) each
share of Series B Preferred Stock issued and outstanding
immediately prior to the Effective Time (other than any shares of
the Series B Preferred Stock to be canceled pursuant to the
last sentence of this Section 1.6(a) and any Dissenting Shares
as defined in and to the extent provided in Section 1.14) will
be converted automatically into the right to receive an amount in
cash, without interest, equal to the Series B Closing
Consideration Per Share plus an amount equal to the product of
(A) the Series B Pro Rata Share multiplied by
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(B) any
proceeds or distributions of the Escrow Deposit (if, when and to
the extent distributed from escrow to the Shareholders pursuant to
the Escrow Agreement);
(iv) each
share of Series C Preferred Stock issued and outstanding
immediately prior to the Effective Time (other than any shares of
the Series C Preferred Stock to be canceled pursuant to the
last sentence of this Section 1.6(a) and any Dissenting Shares
as defined in and to the extent provided in Section 1.14) will
be converted automatically into the right to receive an amount in
cash, without interest, equal to the Series C Closing
Consideration Per Share plus an amount equal to the product of
(A) the Series C Pro Rata Share multiplied by
(B) any proceeds or distributions of the Escrow Deposit (if,
when and to the extent distributed from escrow to the Shareholders
pursuant to the Escrow Agreement);
(v) each
share of Series D Preferred Stock issued and outstanding
immediately prior to the Effective Time (other than any shares of
the Series D Preferred Stock to be canceled pursuant to the
last sentence of this Section 1.6(a) and any Dissenting Shares
as defined in and to the extent provided in Section 1.14) will
be converted automatically into the right to receive an amount in
cash, without interest, equal to the Series D Closing
Consideration Per Share plus an amount equal to the product of
(A) the Series D Pro Rata Share multiplied by
(B) any proceeds or distributions of the Escrow Deposit (if,
when and to the extent distributed from escrow to the Shareholders
pursuant to the Escrow Agreement); and
(vi) each
share of Series D-1 Preferred Stock issued and outstanding
immediately prior to the Effective Time (other than any shares of
the Series D-1 Preferred Stock to be canceled pursuant to the
last sentence of this Section 1.6(a) and any Dissenting Shares
as defined in and to the extent provided in Section 1.14) will
be converted automatically into the right to receive an amount in
cash, without interest, equal to the Series D-1 Closing
Consideration Per Share plus an amount equal to the product of
(A) the Series D-1 Pro Rata Share multiplied by
(B) any proceeds or distributions of the Escrow Deposit (if,
when and to the extent distributed from escrow to the Shareholders
pursuant to the Escrow Agreement).
Each share of
Company Stock converted pursuant to this Section 1.6(a) shall
automatically cease to be outstanding and shall be canceled and
retired and shall cease to exist, and each holder of a certificate
representing any such share of Company Stock shall cease to have
any rights with respect thereto, except the right to receive such
holder’s respective portion of the Total Consideration set
forth in this Section 1.6(a) with respect to the shares
represented by such certificate. Each share of Company Stock, if
any, held by the Company as treasury stock immediately prior to the
Effective Time, shall be canceled and extinguished without any
conversion thereof, and no payment or distribution shall be made
with respect thereto.
(b) At
the Effective Time, by virtue of the Merger and without any action
on the part of the Company, Merger Sub, the holder of any shares of
Company Stock or the holder of any shares of Merger Sub Common
Stock, each share of Merger Sub Common Stock issued and outstanding
immediately prior to the Effective Time shall be automatically
converted into one (1) validly issued, fully paid and
nonassessable share of Common Stock, no par value per share, of the
Surviving Corporation, and all of such shares, as converted, shall
thereafter constitute all of the issued and outstanding capital
stock of the Surviving Corporation. Each stock certificate of
Merger Sub evidencing ownership of any shares of Merger Sub
Common
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Stock shall
continue to evidence ownership of such shares of capital stock of
the Surviving Corporation.
1.7 Stock
Options, Warrants and Restricted Stock .
(a) The
Company shall take all actions necessary to provide that at the
Effective Time (i) each Director Option that is outstanding,
unexercised and unexpired immediately prior to the Effective Time,
whether vested or unvested, and as to which the holder thereof
executes a Director Option Termination Agreement shall be
accelerated in full, cancelled and converted into and represent the
right to receive the Option Spread Amount in accordance with the
Director Option Termination Agreement, (ii) each Vested
Non-Employee Option that is outstanding, vested, unexercised and
unexpired immediately prior to the Effective Time, and as to which
the holder thereof executes an Option Termination Agreement shall
be cancelled and converted into and represent the right to receive
the Option Spread Amount with respect to the vested portion of such
Company Option and the unvested portion of such Company Option, if
any, shall be cancelled without any payment to the holders, in
accordance with the Option Termination Agreement, and
(iii) all options to purchase Company Stock that are not
Assumed Options shall be terminated and cancelled by the Company
and shall be of no further force or effect. The amount of cash each
holder of Director Options or Vested Non-Employee Options that are
outstanding, unexercised and unexpired immediately prior to the
Effective Time (collectively, “ Cashed-Out Options
”) is entitled to receive for the Cashed-Out Options held by
such holder shall be rounded to the nearest cent and computed after
aggregating cash amounts for all Cashed-Out Options held by such
holder. Any amount paid pursuant to this Section 1.7(a) in
respect of Cashed-Out Options shall be subject to any applicable
Taxes required to be withheld with respect to such
payment.
(b) At
the Effective Time, the 2000 Stock Plan shall be assumed by Parent;
provided that prior to Closing, the Company shall make such
amendments and modifications to the 2000 Stock Plan as Parent shall
reasonably request. Each Assumed Option shall be assumed by Parent
in a manner consistent with Code Sections 409A and 424(a) and
the Treasury regulations thereunder (including proposed
regulations). Each such Assumed Option so assumed by Parent shall
continue to have, and be subject to, the same terms and conditions
as set forth in the 2000 Stock Plan, as the same may be amended
(and any related Contract), pursuant to which such Assumed Option
was granted and issued, in each case, as in effect immediately
prior to the Effective Time, except that (x) each such Assumed
Option shall become exercisable in accordance with its terms for
that number of shares of Parent Common Stock equal to the product
obtained by multiplying (A) the number of shares of Common
Stock that were issuable upon the exercise in full of such Assumed
Option immediately prior to the Effective Time by (B) the
Assumed Company Option Exchange Ratio, rounded down to the nearest
whole number of shares of Parent Common Stock, (y) the per
share exercise price for the Parent Common Stock issuable upon
exercise of each such Assumed Option assumed shall be equal to the
quotient obtained by dividing (A) the exercise price per share
of Common Stock at which such Assumed Option was exercisable
immediately prior to the Effective Time by (B) the Assumed
Company Option Exchange Ratio, rounded up to the nearest whole
cent, and (z) if a holder of an Assumed Option executes and
delivers to Parent and the Company an option amendment agreement in
the form attached hereto as Exhibit F (an “
Option Amendment Agreement ”), such Assumed Option
shall vest and be immediately exercisable (subject to the
provisions of the Option Amendment
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Agreement).
Following the assumption of the Assumed Options, all references to
the Company in any such Assumed Options and the 2000 Stock Plan
shall be deemed to refer to Parent.
(c) Parent
shall pay or cause the Company to pay (at the same time as any
payment of any proceeds or distributions of the Escrow Deposit, if
and when distributed from escrow to the Shareholders in accordance
with the Escrow Agreement) to each Company Employee holding an
Assumed Option immediately prior to the Effective Time (whether or
not such Company Employee has executed and delivered an Option
Amendment Agreement) an amount in cash per Assumed Option Share
equal to: (i) the quotient obtained by dividing (x) the
Aggregate Option Holdback Amount (less amounts set-off against such
Aggregate Option Holdback Amount pursuant to Section 9.4(c)
hereof) by (y) the number of Assumed Option Shares, less
(ii) applicable Taxes required to be withheld with respect to
the payment of such amount. Notwithstanding the foregoing, all
amounts distributable pursuant to this Section 1.7(c) shall be
paid no later than five years after the Closing Date in accordance
with Proposed Regulation 1.409A-3(g)(5)(iv). Parent shall be
entitled, pursuant to Section 9.4(c) hereof, to set off
indemnity claims against the Aggregate Option Holdback Amount from
time to time.
(d) With
respect to Director Option Termination Agreements, Option
Termination Agreements and Option Amendment Agreements, the Company
shall mail such agreements to the applicable holders of Company
Options no later than three business days following the date of
this Agreement, and shall use reasonable efforts to have such
agreements executed by such holders and delivered to the Company at
least one day prior to the Closing Date.
(e) The
Company shall use reasonable efforts to provide that each holder of
Company Warrants shall have executed and delivered to Parent a
Warrant Termination Agreement prior to the Effective
Time.
(f) The
Company shall take all actions to provide that each holder of
Restricted Shares, if any, shall have duly executed and delivered
to Parent a Restricted Stock Amendment Agreement prior to the
Effective Time. Subject to the Restricted Stock Amendment
Agreements, the portion of the Merger Consideration issued in
exchange for any such Restricted Shares will be unvested and
subject to the same repurchase option, substantial risk of
forfeiture or other similar condition to which the Restricted
Shares are subject. The Company shall use reasonable efforts 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.
Subject to the last sentence of this Section 1.7(f), after the
Effective Time, Parent shall pay the Merger Consideration to which
such Restricted Shares are entitled in accordance with the vesting
schedule applicable to the Restricted Shares, subject to applicable
withholdings for Taxes. Notwithstanding the foregoing, the amount
of cash contributed to the Escrow Deposit on behalf of any
Shareholder holding Restricted Shares pursuant to Section 1.8
shall be contributed from that portion that is vested or otherwise
unrestricted and free from a repurchase option, risk of forfeiture
or other condition under any applicable restricted stock purchase
agreement or other agreement with the Company. To the extent that
the vested or unrestricted cash payable to any Shareholder pursuant
to this Agreement is less than the amount to be contributed to the
Escrow Deposit on behalf of such Shareholder pursuant to this
Agreement, the restricted cash amounts contributed to the Escrow
Deposit on
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behalf of such
Shareholder shall vest or otherwise become free from a repurchase
option, risk of forfeiture or other condition under any applicable
restricted stock purchase agreement or other agreement with the
Company in priority to other cash amounts otherwise receivable by
such Shareholder pursuant to this Agreement and no payment shall be
made to such Shareholder unless and until all of the cash amounts
contributed to the Escrow Deposit on behalf of such Shareholder has
vested and is otherwise free from a repurchase option, risk of
forfeiture or other condition under any applicable restricted stock
purchase agreement or other agreement with the Company.
1.8 Escrow
. On the Closing Date, the Shareholders’ Representative,
Parent, Merger Sub and Branch Banking and Trust Company of
Virginia, a Virginia banking corporation (the “ Escrow
Agent ”), shall enter into an Escrow Agreement in
substantially the form attached hereto as Exhibit G
(the “ Escrow Agreement ”). In order to secure
(i) the payment of the Post-Closing Adjustment, if any,
pursuant to Section 1.10 hereof and (ii) the satisfaction
of claims pursuant to Article IX of this Agreement, Parent is
hereby directed by the Shareholder Representative to deposit with
the Escrow Agent at the Closing an amount in cash equal to the
Escrow Deposit and Parent shall make such deposit as so
directed.
1.9 Adjustments
to Total Consideration .
(a) At
least five (5) days prior to the Closing, the Company and
Parent shall jointly prepare and finalize (i) the Estimated
Closing Balance Sheet and (ii) the Statement of Estimated
Closing Liabilities.
(b) The
Total Consideration shall be adjusted, as indicated below, by the
following amounts, if any, shown on the Estimated Closing Balance
Sheet or Statement of Estimated Closing Liabilities, as applicable:
(i) the Total Consideration shall be reduced dollar for dollar
by the amount of any Indebtedness (other than Bridge Notes as to
which the Company has timely received a Conversion Notice);
(ii) the Total Consideration shall be reduced dollar for
dollar by the amount of any Non-Ordinary Course Liabilities (other
than Paid Transaction Expenses the payment of which has been given
effect on the Estimated Closing Balance Sheet); and (iii) the
Total Consideration shall be reduced dollar for dollar by the
amount of the Estimated Net Assets Deficit, if any, or increased
dollar for dollar by the amount of the Estimated Net Assets
Surplus, if any. The adjustments set forth in this
Section 1.9(b) shall be referred to herein collectively as the
“ Estimated Closing Adjustment .” The Estimated
Closing Adjustment shall be determined without regard to the
limitations set forth in Section 9.4 hereof.
(c) No
later than five (5) days prior to the Closing Date, the
Company shall provide to Parent a draft statement setting forth the
following information as of immediately prior to the Effective
Time: (i) the names and addresses of record of each holder
(each a “ Holder ”) of Company Stock, Company
Options, Company Warrants, Bridge Notes or rights to receive
payments pursuant to the Carve-Out Plans, (ii) the type and
number of shares of Company Stock held by each such Holder,
(iii) the number of Company Options held by each such Holder,
(iv) the number and type of Company Warrants held by each such
Holder, and (v) each such Holder’s allocation of Total
Consideration (setting forth each security or right pursuant to
which such allocation is made and the amount allocated with respect
to each such security or right together with all tax withholdings
required to be made in connection with the
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payment of such
allocated amount), Escrow Deposit, Aggregate Option Holdback Amount
and Aggregate Bonus Holdback Amount. The Company shall use all
reasonable efforts to cause the Company Options and the Company
Warrants not to be exercised after the draft of the Statement of
Closing Consideration is prepared and delivered pursuant to the
immediately preceding sentence. No later than two (2) business
days prior to the Closing, the Parties shall agree upon a flow of
funds memorandum which shall set forth all payments required to be
made by or on behalf of all Parties at the Closing on an aggregate
basis and not to each individual shareholder (which shall include,
without limitation, provision for the payment of any Indebtedness
and any Non-Ordinary Course Liabilities (other than any Paid
Transaction Expenses the payment of which has been given effect on
the Estimated Closing Balance Sheet)), including for each such
payment an identification of the payor, the payee, the amount and
the wire transfer information. The draft statement referred to in
the first sentence of this Section 1.9(c) shall be finalized
by the Company and Parent no later than 5:00 p.m. Eastern Time on
the day before the Closing Date (such final statement, the “
Statement of Closing Consideration ”).
(d) Promptly
upon the Closing, the Company (or Parent on the Company’s
behalf and at the Company’s direction) shall repay all
Indebtedness (other than Bridge Notes as to which the Company has
timely received a Conversion Notice) and all Non-Ordinary Course
Liabilities (other than any Paid Transaction Expenses the payment
of which has been given effect on the Estimated Closing Balance
Sheet) from the Total Consideration. Without limiting the
generality of the foregoing, at the Closing, the Company shall pay
(or shall direct Parent to pay on the Company’s behalf) all
amounts due and owing pursuant to the Carve-Out Plans and any award
agreements thereunder to the participants in such Carve-Out Plans,
and in connection therewith shall withhold (or direct Parent to
withhold on the Company’s behalf) from such payments
(i) all amounts required under applicable Law and the Benefit
Plans to be withheld and shall pay (or direct Parent to pay on the
Company’s behalf) to the appropriate Tax authority (and to
any applicable Benefit Plan) all such amounts as required by such
Law or Benefit Plan to be so paid, and (ii) in the case of the
Management Bonus Plan, an amount equal to the Aggregate Bonus
Holdback Amount, pro rata from each Management Bonus Plan
participant in proportion to the aggregate Management Bonus Plan
payments to which such participant is entitled under the Management
Bonus Plan. Parent shall be entitled to rely exclusively on the
amounts set forth on the Statement of Closing Consideration for the
amounts of any payments to be made or withheld. Parent shall be
entitled, pursuant to Section 9.4(c) hereof, to set off
shareholder indemnity claims against the Aggregate Bonus Holdback
Amount from time to time. Parent shall pay (or cause to be paid)
and at the same time as any payment of and proceeds or
distributions of the Escrow Deposit, if and when distributed from
escrow to the Shareholders in accordance with the Escrow Agreement
to each Company Employee as of the Closing participating in the
Management Bonus Plan an amount in cash equal to such Company
Employee’s pro rata share of such Aggregate Bonus Holdback
Amount (less in all cases applicable Taxes required to be withheld
with respect to the payment of such amount).
1.10
Post-Closing Adjustment .
(a) Within
ninety (90) days following the Closing Date, Parent shall
furnish the Shareholders’ Representative with the Closing
Balance Sheet and the Statement of Closing Liabilities.
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(b) The
Shareholders’ Representative shall have a period of ten
(10) days after receipt of the Closing Balance Sheet to notify
Parent of its election to accept or reject the Closing Balance
Sheet. In the case of a rejection, such notice must contain the
reasons for such rejection in reasonable detail and must set forth
the amount of the requested adjustment. In the event no notice is
received by Parent during such ten (10) day period, the
Closing Balance Sheet and any required adjustments resulting
therefrom shall be deemed accepted by the Shareholders’
Representative and the Key Shareholders and final and binding on
the Parties hereto. In the event that the Shareholders’
Representative shall timely reject the Closing Balance Sheet,
Parent and the Shareholders’ Representative shall promptly
(and in any event within thirty (30) days following the date
upon which the Shareholders’ Representative shall reject the
Closing Balance Sheet), attempt to make a joint determination of
the Closing Adjustments and such determination and any required
adjustments resulting therefrom shall be final and binding on the
Parties hereto.
(c) In
the event the Shareholders’ Representative and Parent shall
be unable to agree upon a joint determination of Closing
Adjustments within one hundred seventy (170) days from the
Closing Date, then within one hundred eighty (180) days from
the Closing Date, Parent and the Shareholders’ Representative
shall submit the dispute to the Accounting Firm. Parent and the
Shareholders’ Representative shall request that the
Accounting Firm render its determination prior to the expiration of
two hundred forty (240) days from the Closing Date and such
determination and any required adjustments resulting therefrom
shall be final and binding on all the Parties hereto. The fees and
expenses of the Accounting Firm shall be allocated to be paid by
Parent and/or the Key Shareholders, respectively, based upon the
percentage which the portion of the total amount contested and not
awarded to such party bears to the total amount contested, as
determined by the Accounting Firm.
(d) If
the Closing Net Assets as finally determined in accordance with the
provisions of this Section 1.10 is less than the Estimated Net
Assets, then Parent and Stockholders’ Representative shall so
notify the Escrow Agent and subject to Section 9.4(c),
(i) the aggregate amount of such deficit less the amount of
the Holdback Claim Amount for such deficit shall be paid to Parent
by the Escrow Agent from the Escrow Deposit, as an adjustment to
the Total Consideration, by wire transfer in immediately available
funds within seven (7) days after such determination and (ii)
Parent shall be entitled to set off and recover from the Aggregate
Option Holdback Amount and the Aggregate Bonus Holdback Amount, on
a pro rata basis, an amount equal to the Holdback Claim Amount for
such deficit, and the Aggregate Option Holdback Amount and the
Aggregate Bonus Holdback Amount shall be reduced on a pro rata
basis by the amount so set off and recovered. If the Closing Net
Assets as finally determined in accordance with the provisions of
this Section 1.10 exceeds the Estimated Net Assets, then
Parent and the Stockholders’ Representative shall so notify
the Escrow Agent and (i) the aggregate amount of such surplus
shall be paid by Parent to the Escrow Agent to be added to the
Escrow Deposit as an adjustment to the Total Consideration by wire
transfer in immediately available funds within seven (7) days
after such determination and (ii) the Aggregate Option
Holdback Amount shall be increased on a pro rata basis with the
amount of the increase in the Escrow Deposit pursuant to clause
(i) of this sentence.
(e) If
the Indebtedness and/or the Non-Ordinary Course Liabilities (other
than Paid Transaction Expenses the payment of which has been given
effect on the Closing Balance Sheet) determined pursuant to this
Section 1.10 exceed the Indebtedness and/or the
Non-
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Ordinary Course
Liabilities (other than Paid Transaction Expenses the payment of
which has been given effect on the Estimated Closing Balance
Sheet), respectively, set forth on the Estimated Closing Balance
Sheet, such excess shall be paid to Parent by the Escrow Agent from
the Escrow Deposit, as an adjustment to the Total Consideration, by
wire transfer in immediately available funds within seven
(7) days after such determination. If the Indebtedness and/or
the Non-Ordinary Course Liabilities (other than Paid Transaction
Expenses the payment of which has been given effect on the Closing
Balance Sheet) determined pursuant to this Section 1.10 are
less than the Indebtedness and/or the Non-Ordinary Course
Liabilities (other than Paid Transaction Expenses the payment of
which has been given effect on the Estimated Closing Balance
Sheet), respectively, set forth on the Estimated Closing Balance
Sheet, such deficit shall be paid by Parent to the Escrow Agent to
be added to the Escrow Deposit as an adjustment to the Total
Consideration by wire transfer in immediately available funds
within seven (7) days after such determination. The
adjustments described in Sections 1.10(d) and (e) shall
be referred to collectively as the “ Post-Closing
Adjustment .”
1.11 Surrender
of Certificates .
(a)
Distribution of Transmittal Letter . Prior to the Closing
Date, Parent shall make available to the Company, and, as soon as
practicable following the Effective Time (and, in any event, within
five (5) days thereafter), Parent shall cause to be mailed to
each record holder of certificates evidencing shares of Company
Stock to be exchanged pursuant to Section 1.6 (the “
Certificates ”) a letter of transmittal in the form
attached hereto as Exhibit H (the “ Letter of
Transmittal ”) and instructions for such holder’s
use in effecting the surrender of the Certificates and the exercise
of the rights of such holder to obtain the portion of the Total
Consideration payable to such holder pursuant to
Section 1.6.
(b)
Delivery of Total Consideration . Upon surrender to Parent
or its designated representative of any Certificates for
cancellation, together with a Letter of Transmittal, duly completed
and validly executed in accordance with the instructions thereto,
together with such other executed documents as may be required
pursuant to the instructions set forth in the Letter of
Transmittal, the holder of such Certificate shall be entitled to
receive, in exchange therefor the portion of the Total
Consideration to which such holder is entitled pursuant to
Section 1.6 of this Agreement. Parent shall transmit the
applicable portion of the Total Consideration to which such holder
is entitled (subject to the portion escrowed pursuant to
Section 1.6 and 1.8) in accordance with the terms of
Section 1.6 hereof within three (3) days after receipt of
all such holder’s Certificates for cancellation and a Letter
of Transmittal, duly completed and validly executed in accordance
with the instructions thereto, together with such other executed
documents as may be required pursuant to the instructions set forth
therein. No interest shall be paid or accrued on any portion of the
Total Consideration payable pursuant to Section 1.6. Until so
surrendered, each Certificate shall, after the Effective Time,
represent for all purposes only the right to receive the applicable
portion of the Total Consideration payable pursuant to
Section 1.6 in respect of the shares of Company Stock
represented by such Certificate. Any holder of Company Stock who
has not complied with this Article I shall be entitled to look
only to Parent (subject to abandoned property, escheat or other
similar Laws) only as a general creditor thereof with respect to
the applicable portion of the Total Consideration payable in
respect of such shares of Company Stock pursuant to
Section 1.6, without any interest thereon.
10
(c)
No Liability . Notwithstanding anything to the contrary in
this Agreement, none of Parent, Merger Sub or the Surviving
Corporation shall be liable to a holder of a Certificate for any
applicable Total Consideration or any other amount due that was
properly delivered to a public official pursuant to any applicable
abandoned property, escheat or similar Law.
(d)
Withholding of Tax . Parent will be entitled (but not
obligated) to deduct and withhold from the consideration otherwise
payable pursuant to this Agreement to any holder of Company Stock
such amounts as Parent (or any Affiliate thereof) shall determine
in good faith that they are required to deduct and withhold with
respect to the making of such payment under any provision of Law
relating to Taxes. To the extent that amounts are so withheld by
Parent, such withheld amounts will be treated for all purposes of
this Agreement as having been paid to the holder of the Company
Stock in respect of whom such deduction and withholding were made
by Parent.
(e)
Lost, Stolen or Destroyed Certificates . In the event any
Certificates shall have been lost, stolen or destroyed, Parent
shall issue in exchange for such lost, stolen or destroyed
Certificates, upon the making of an affidavit of that fact by the
holder thereof, the applicable Total Consideration; provided
, however , that Parent may, in its discretion and as a
condition precedent to the issuance thereof, require the holder of
such lost, stolen or destroyed Certificates to deliver a bond in
such sum as Parent may reasonably direct as indemnity against any
claim that may be made against Parent with respect to the
Certificates alleged to have been lost, stolen or
destroyed.
1.12 Further
Ownership Rights in Company Stock . The applicable Total
Consideration issued upon the surrender for exchange of Company
Stock in accordance with the terms of this Article I shall be
deemed to have been issued in full satisfaction of all rights
pertaining to such Company Stock. At the Effective Time, the stock
transfer books of the Company shall be closed, and thereafter there
shall be no further registration or transfers of shares of Company
Stock on the records of the Surviving Corporation.
1.13 Further
Action . If at any time after the Effective Time the Surviving
Corporation shall consider or be advised that any deeds, bills of
sale, assignments or assurances or any other acts or things are
necessary, desirable or proper (i) to vest, perfect or
confirm, of record or otherwise, in the Surviving Corporation its
right, title or interest in, to or under any of the rights,
privileges, powers, franchises, properties or assets of either the
Company or Merger Sub, or (ii) otherwise to carry out the
purposes of this Agreement, the Surviving Corporation and its
proper officers and directors or their designees shall be
authorized to execute and deliver, in the name and on behalf of
either the Company or Merger Sub, all such deeds, bills of sale,
assignments and assurances and do, in the name and on behalf of the
Company or Merger Sub, all such other acts and things necessary,
desirable or proper to vest, perfect or confirm its rights, title
or interest in, to or under any of the rights, privileges, powers,
franchises, properties or assets of the Company or Merger Sub, as
applicable, and otherwise to carry out the purposes of this
Agreement.
1.14 Dissenting
Shares . Any holder of shares of Company Stock issued and
outstanding immediately prior to the Effective Time with respect to
which dissenters’ rights, if
11
any, are
available by reason of the Merger pursuant to Chapter 13 of
the CGCL who has not voted in favor of the Merger or consented
thereto in writing and who complies with Chapter 13 of the
CGCL (“ Dissenting Shares ”) shall not be
entitled to receive any portion of the Total Consideration pursuant
to this Article I, unless such holder fails to perfect,
effectively withdraws or loses its dissenters’ rights under
the CGCL. Such holder shall be entitled to receive only such rights
as are granted under Chapter 13 of the CGCL. If any such
holder fails to perfect, effectively withdraws or loses such
dissenters’ rights under the CGCL, such Dissenting Shares
shall thereupon be deemed to have been converted as of the
Effective Time into the right to receive the Total Consideration to
which such shares of Company Stock are entitled pursuant to this
Article I, without interest. The Company shall give Parent
prompt notice of any demands for appraisal pursuant to
Chapter 13 of the CGCL received by the Company, withdrawals of
any such demands and any other documents or instruments received by
the Company in connection therewith. Parent shall have the right to
participate in and direct all negotiations and proceedings with
respect to any such demands. The Company shall not, except with the
prior written consent of Parent, make any payment with respect to,
or settle or offer to settle, any such demands, or agree to do any
of the foregoing. Any payments made with respect to Dissenting
Shares shall be made solely by the Surviving Corporation, and no
funds or other property have been or shall be provided by Parent,
Merger Sub or any of Parent’s Affiliates for such
payment.
2.1 Time and
Place of the Closing . The Closing shall take place at the
offices of Morrison & Foerster LLP, 1650 Tysons Boulevard,
Suite 300, McLean, Virginia, as soon as practicable following
the satisfaction or waiver of the conditions set forth in Articles
VII and VIII hereof and in any event within three (3) business
days thereafter, or on such other date as Parent, Merger Sub and
the Company may mutually determine.
2.2
Deliveries . At the time of the Closing, (i) the
Company, the Shareholders’ Representative and each of the Key
Shareholders will deliver to Parent the various certificates,
instruments, and documents referred to in Section 7.8 below,
and (ii) Parent and the Merger Sub will deliver to the
Shareholders’ Representative and the Key Shareholders the
certificates, instruments and documents referred to in
Section 8.4 below.
2.3
Shareholders’ Representative .
(a) Each
Shareholder, by virtue of the adoption of this Agreement and
approval of the Merger by the holders of Company Stock (regardless
of whether or not all Shareholders vote in favor of or consent to
the adoption of this Agreement and the approval of the Merger and
the transactions contemplated hereby, and regardless of whether at
a meeting or in an action by written consent in lieu thereof),
designates Mary Coleman (the “ Shareholders’
Representative ”) as his, her or its representative for
purposes of this Agreement. The holders of Company Stock and their
respective successors shall be bound by any and all actions taken
by the Shareholders’ Representative on their behalf under or
otherwise relating to this Agreement and the other documents
contemplated hereby and the transactions contemplated hereunder and
thereunder as if such actions were expressly ratified and confirmed
by each of them in writing.
12
In the event
any Shareholders’ Representative is unable or unwilling to
serve or shall resign, a successor Shareholders’
Representative shall be selected by the holders of a majority of
the shares of Common Stock and Preferred Stock outstanding
immediately prior to the Closing (taken together on an as-converted
basis). A Shareholders’ Representative may not resign, except
upon 30 days prior written notice to Parent and Merger Sub. In the
event of a notice of proposed resignation, or any death, disability
or other replacement of a Shareholders’ Representative, a
successor shall be appointed effective immediately thereafter and
Parent and Merger Sub shall be notified promptly of such
appointment by the successor Shareholders’ Representative. No
resignation, nor any other replacement, of any Shareholders’
Representative is effective against Parent or Merger Sub until
selection of a successor and prior written notice to Parent and
Merger Sub of such selection has been provided and consent of
Parent has been obtained (such consent not to be unreasonably
withheld or delayed). Such consent shall be deemed to have been
given if the proposed successor is any of G. Venkatesh, Joseph
Tzeng, Srinivas Balasubramanian or Ido Sarig. Each successor
Shareholders’ Representative shall have all the power,
rights, authority and privileges hereby conferred upon the original
Shareholders’ Representative.
(b) Parent
and Merger Sub shall be entitled to rely upon any actions,
communication or writings taken, given or executed by the
Shareholders’ Representative on behalf of the holders of
Company Stock. All communications or writings to be sent to the
holders of Company Stock pursuant to this Agreement may be
addressed to the Shareholders’ Representative and any
communication or writing so sent shall be deemed notice to all of
the holders of Company Stock hereunder. The adoption and approval
of this Agreement by the holders of the Company Stock shall
constitute the consent and agreement of each of the holders of
Company Stock that the Shareholders’ Representative is
authorized to accept deliveries, including any notice, on behalf of
each holder of Company Stock pursuant hereto.
(c) The
Shareholders’ Representative is hereby appointed and
constituted the true and lawful attorney-in-fact of each holder of
Company Stock, with full power of substitution in such
holder’s name and on such holder’s behalf to act
according to the terms of this Agreement and the other documents
contemplated hereby in the absolute discretion of the
Shareholders’ Representative; and in general to do all things
and to perform all acts including, without limitation, executing
and delivering all agreements, certificates, receipts,
instructions, notices and other instruments contemplated by or
deemed advisable in connection with this Agreement and the other
documents contemplated hereby, including without limitation
Article IX hereof. This power of attorney and all authority
hereby conferred is granted subject to the interest of the other
holders of Company Stock hereunder and in consideration of the
mutual covenants and agreements made herein, and shall be
irrevocable and shall not be terminated by any act of any Key
Shareholder, by operation of law, whether by such holder’s
death or disability or by any other event.
(d) The
Shareholders’ Representative hereby acknowledges and agrees
to serve as the Shareholders’ Representative in accordance
with the applicable terms hereof and to be bound by such
terms.
13
ARTICLE III
REPRESENTATIONS AND WARRANTIES RELATING TO THE
COMPANY
As a material
inducement to Parent and Merger Sub to enter into this Agreement
and to consummate the transactions contemplated hereby, the Company
represents and warrants to Parent and to Merger Sub as follows (it
being understood that each representation and warranty set forth in
this Article III is subject to: (a) the exceptions and
disclosures set forth in the Schedule to the Disclosure Schedule
corresponding to the particular subsection or paragraph, as
applicable, of the section in which such representation or warranty
appears, (b) any exceptions or disclosures set forth in any
other subsection or paragraph which are expressly cross-referenced
in such Schedule to the Disclosure Schedule, and (c) any other
exception or disclosure set forth in any other Schedule to the
Disclosure Schedule where it is reasonably apparent on the face of
such exception or disclosure, without reference to any external
document or information, that such exception or disclosure is
intended to qualify such representation and warranty):
3.1
Organization, Corporate Power and Records .
(a) The
Company is a corporation duly organized, validly existing and in
good standing under the laws of the State of California and the
Company is qualified to do business and in good standing in each
jurisdiction where the character or location of its assets or its
properties owned, leased or operated by it, or the nature of its
activities makes such qualification necessary, other than where the
failure to so qualify would not have a Material Adverse Effect on
the Company and its Subsidiaries, taken as a whole. The Indian
Subsidiary is a private limited company duly organized, validly
existing and in good standing under the laws of the Republic of
India and the Indian Subsidiary is qualified to do business and in
good standing in India and each other jurisdiction where the
character or location of its assets or its properties owned, leased
or operated by it, or the nature of its activities makes such
qualification necessary. Each other Subsidiary of the Company is
duly organized, validly existing and in good standing under the
laws of the jurisdiction of its organization and each such
Subsidiary is qualified to do business and in good standing in each
jurisdiction where the character or location of its assets or its
properties owned, leased or operated by it, or the nature of its
activities makes such qualification necessary. All such
jurisdictions in which the Company or any of its Subsidiaries are
qualified are set forth on Schedule 3.1 to the
Disclosure Schedule. Each of the Company and its Subsidiaries have
the requisite corporate power and authority and all licenses,
permits and authorizations necessary to own and operate its
properties, to conduct its business as now conducted, and to
perform its obligations under Contracts to which it is a party or
by which it is bound. No meeting has been convened or resolution
proposed, or petition presented, and no order has been made under
applicable Law, for the liquidation dissolution or winding-up of
the Company or any of its Subsidiaries.
(b) The
books of account and other records of the Company and its
Subsidiaries are accurate, up to date and complete in all material
respects, and have been maintained in accordance with prudent
business practices and all applicable Laws. The Company has
provided Parent with accurate and complete copies of the stock
records and minute books of the Company and its Subsidiaries and
such records reflect that every transaction of the Company and its
Subsidiaries that was required to be approved by the
Company’s board of directors or stockholders has been duly
approved or ratified by the Company’s board of
directors
14
or
stockholders, as applicable. The minute books of the Company and
its Subsidiaries contain a summary that is accurate and complete of
all meetings of directors or shareholders or actions by written
consent since the time of incorporation of the Company or its
Subsidiaries, as applicable. Neither the Company nor any of its
Subsidiaries has taken any corporate action without the approval or
ratification of the board of directors or shareholders where such
action required the approval of the board of directors or
shareholders under the CGCL or other applicable Law. The Indian
Subsidiary has maintained all statutory registers and has made all
the statutory filings with the Registrar of Companies, Chennai in
accordance with the Indian Companies Act, 1956. The stock ledger or
stock records of the Company and its Subsidiaries accurately
reflect all transactions involving the capital stock of the Company
and its Subsidiaries. The Company is not in default under or in
violation of any provision of its Articles of Incorporation or
Bylaws or any resolution adopted by the Company’s
shareholders or board of directors. The Indian Subsidiary is not in
default under or in violation of any provision of its Articles and
Memorandum of Association or bylaws or other organizational
documents of the Indian Subsidiary, or any agreement, debt
instrument or material statute, regulation, judgment, decree or
other legal requirement applicable to the Indian Subsidiary or any
resolution adopted by the Indian Subsidiary’s shareholders or
board of directors. None of the Subsidiaries of the Company (other
than the Indian Subsidiary) is in default under or in violation of
any provision of its organizational documents or bylaws or any
resolution adopted by its shareholders or board of directors.
Neither the Company nor any of its Subsidiaries has conducted any
business under or otherwise used, for any purpose or in any
jurisdiction, any fictitious name, assumed name, trade name or
other name, other than the names set forth on
Schedule 3.1 to the Disclosure Schedule.
3.2 Authority
for Agreement . Subject to obtaining the requisite shareholder
approval of this Agreement and the principal terms of the Merger by
the Requisite Vote, the Company and has the requisite corporate
power, authority and legal right to enter into and perform its
obligations under this Agreement and the Transaction Agreements to
which the Company is or will be a party (the “Company
Transaction Agreements”) and to consummate the transactions
contemplated hereby and thereby. The board of directors of the
Company has (i) unanimously approved the Merger, this
Agreement and the Company Transaction Agreements and the
transactions contemplated hereby and thereby and authorized the
execution, delivery and performance of this Agreement and the
Company Transaction Agreements and the consummation by the Company
of the transactions contemplated hereby and thereby,
(ii) resolved to recommend approval by the Shareholders of
this Agreement and the principal terms of the Merger and
(iii) not withdrawn or modified such approval or resolution to
recommend. No other corporate proceedings on the part of the
Company or any of its Subsidiaries or, immediately following the
execution and delivery of this Agreement, any Shareholder of the
Company are, or will be, necessary to approve and authorize the
execution, delivery and performance of this Agreement and the other
documents contemplated hereby and the consummation by the Company
of the transactions contemplated hereby and thereby. This Agreement
and the Company Transaction Agreements have been or will be duly
executed and delivered by the Company and are or will be legal,
valid and binding obligations of the Company, enforceable against
it in accordance with their respective terms, except as
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting the
enforcement of creditors’ rights in general. The Requisite
Votes are the only votes of Shareholders of the Company necessary
to approve this Agreement and the principal terms of the
Merger.
15
3.3 No
Violation to Result . Except as set forth on
Schedule 3.3 to the Disclosure Schedule, the execution,
delivery and performance by the Company of this Agreement and the
Company Transaction Agreements and the consummation by the Company
of the transactions contemplated hereby and thereby and the
fulfillment by the Company of the terms hereof and thereof, do not
and will not, directly or indirectly (with or without notice or
lapse of time): (i) violate, breach, conflict with, constitute a
default under, accelerate or permit the acceleration of the
performance required by (x) any of the terms of the Articles
of Incorporation or Bylaws of the Company or any of its
Subsidiaries or any resolution adopted by the board of directors or
Shareholders of the Company or any of its Subsidiaries, or
(y) any Contract or Encumbrance to which the Company or any of
its Subsidiaries is a party or by which the Company or any of its
Subsidiaries is bound, or (z) any law, judgment, decree,
order, rule, regulation, permit, license or other legal requirement
of any Government Authority applicable to the Company or any of its
Subsidiaries; (ii) give any Person the right to declare a
default, exercise any remedy or accelerate the performance or
maturity under any such Contract or cancel, terminate or modify any
such Contract; (iii) give any Government Authority or other
Person a reasonable basis to challenge any of the transactions
contemplated by this Agreement; (iv) give any Government
Authority the right to revoke, withdraw, suspend, cancel, terminate
or modify, any permit or license that is held by the Company or
that otherwise relates to the Company’s business or to any of
the assets owned or used by the Company or any of its Subsidiaries;
or (v) result in the creation or imposition of any
Encumbrance, possibility of Encumbrance, or restriction in favor of
any Person upon the Company Stock or any Encumbrance upon any of
the material properties or assets of the Company or any of its
Subsidiaries. Except for the filing of the Plan of Merger with the
California Secretary of State, and other than as set forth on
Schedule 3.3 to the Disclosure Schedule, no notice to,
filing with, or consent of, any Person is necessary in connection
with, and no “change of control” provision is triggered
by, the approval, adoption, execution, delivery or performance by
the Company of this Agreement and the other documents contemplated
hereby or the consummation by the Company of the transactions
contemplated hereby or thereby. The Company has given all notices,
made all filings and obtained all consents set forth on
Schedule 3.3 or will have done so prior to the
Closing.
(a) The
authorized capital stock of the Company consists of
(i) 70,000,000 shares of Common Stock, of which 3,289,987
shares have been issued and are outstanding as of the date hereof,
(ii) 1,155,000 shares of Series A Preferred Stock, of which
1,155,000 shares have been issued and are outstanding as of the
date hereof, (iii) 7,000,000 shares of Series B Preferred
Stock, of which 5,631,579 shares have been issued and are
outstanding as of the date hereof, (iv) 32,077,923 shares of
Series C Preferred Stock, of which 20,402,735 shares have been
issued and are outstanding as of the date hereof
(v) 14,900,000 shares of Series D Preferred Stock, of
which 9,708,738 shares have been issued and are outstanding as of
the date hereof and (vi) 3,200,000 shares of Series D-1
Preferred Stock, of which no shares have been issued or are
outstanding as of date hereof. There are no shares of the
Company’s capital stock held in the Company’s treasury.
Schedule 3.4(a)(i) to the Disclosure Schedule sets forth the
names of the Shareholders, the addresses of record of the
Shareholders and the number of shares of Company Stock owned of
record and beneficially by each of such Shareholders.
16
(b) All
of the issued and outstanding shares of capital stock of the
Company and its Subsidiaries have been duly authorized and validly
issued, and are fully paid and non-assessable. Except as set forth
on Schedule 3.4(b) to the Disclosure Schedule, no
restrictions on transfer, repurchase option, preemptive rights or
rights of first refusal exist with respect to any shares of capital
stock of the Company or any of its Subsidiaries, and no such rights
arise by virtue of or in connection with the transactions
contemplated hereby; and, to the extent permitted by Law, the
Shareholders have waived any and all such rights.
(c) Except
as set forth on Schedule 3.4(c) to the Disclosure
Schedule, there is no: (i) outstanding subscription, option,
call, warrant or right (whether or not currently exercisable) to
acquire or sell or issue, or otherwise relating to, any shares of
the capital stock or other securities of the Company or any of its
Subsidiaries; (ii) outstanding security, instrument or
obligation that is or may become convertible into or exchangeable
for any shares of the capital stock or other securities of the
Company or any of its Subsidiaries (including, without limitation,
the Bridge Notes or other convertible debt); (iii) Contract
under which the Company or any of its Subsidiaries are or may
become obligated to sell or otherwise issue any shares of their
capital stock or any other securities or (iv) condition or
circumstance that may give rise to or provide a basis for the
assertion of a claim by any Person to the effect that such Person
is entitled to acquire or receive any shares of capital stock or
other securities of the Company or any of its Subsidiaries. There
are no outstanding stock appreciation, phantom stock, profit
participation or other similar rights with respect to the Company
or any of its Subsidiaries.
(d) Except
as set forth in this Agreement in Section 6.13 or on
Schedule 3.4(d) and except for the Voting Agreement,
there are no proxies, voting rights, shareholders agreements or
other agreements or understandings with respect to the voting or
transfer of the capital stock of the Company or any of its
Subsidiaries. All shares of Company Stock, all Company Options,
Company Warrants, Bridge Notes and all other securities of the
Company have been issued in compliance with (i) all applicable
federal and state securities laws and other applicable legal
requirements, and (ii) any pre-emptive rights, rights of first
refusal or other requirements set forth in applicable Contracts.
Any shares of capital stock or other securities repurchased,
redeemed or otherwise reacquired by the Company or any of its
Subsidiaries were validly reacquired in compliance with (A) the
applicable provisions of the CGCL and all other applicable Laws,
and (B) any requirements set forth in applicable Contracts.
Neither Company nor or any of its Subsidiaries is obligated to
redeem or otherwise acquire any of its outstanding shares of
capital stock.
(e)
Schedule 3.4(e) to the Disclosure Schedule sets forth a
list of the Company’s Subsidiaries. For each of the
Company’s Subsidiaries, Schedule 3.4(e) to the
Disclosure Schedule sets forth: (i) the authorized capital
stock, (ii) the number of shares of each class of capital
stock that have been issued and are outstanding, (iii) the
number of shares of capital stock held in such Subsidiary’s
treasury; (iv) the names of the shareholders of such
Subsidiary (including, if different, the names of the record and
beneficial owners of the Subsidiary’s capital stock); and
(v) the addresses of record of such shareholders and the
number of shares of each class of capital stock of such Subsidiary
owned of record and beneficially by each such shareholder. Except
as set forth on Schedule 3.4(e) to the Disclosure
Schedule, all of the Company’s Subsidiaries are wholly owned
by the Company. Except as set forth on Schedule 3.4(e)
, neither the Company nor or any of its Subsidiaries has any
(i) direct or indirect debt,
17
equity or other
investment or interest in any Person or any joint venture or
(ii) strategic alliance or teaming agreements with any Person
(either pursuant to a written Contract or a Contract in the process
of being negotiated). Neither the Company nor or any of its
Subsidiaries has any commitments to contribute to the capital of,
make loans to or share losses of, any Person (either pursuant to a
written Contract or a Contract in the process of being
negotiated).
(f) The
Statement of Closing Consideration delivered pursuant to
Section 1.9(c) will be true, accurate and complete in all
respects when delivered and as of the Closing. The allocation of
Total Consideration to Shareholders set forth on the Statement of
Closing Consideration will be (when delivered and as of the
Closing) in accordance with Article I of this Agreement and
the Articles of Incorporation as amended by the Charter Amendment.
The provisions of Article I hereof regarding the allocation
and payment of Total Consideration to the Shareholders are in
accordance with the Articles of Incorporation as amended by the
Charter Amendment.
3.5 Financial
Statements .
(a)
Schedule 3.5(a) includes true, complete and correct
copies of (i) the Year-End Financials and (ii) the
Interim Financials. Each of the Financial Statements (including in
all cases the notes thereto, if any) is accurate and complete, is
consistent with the Company’s and its Subsidiaries’
books and records (which, in turn, are accurate and complete),
presents fairly the Company’s and its Subsidiaries’
financial condition and results of operations as of the times and
for the periods referred to therein, and has been prepared in
accordance with GAAP. During the periods covered by the Financial
Statements and since the Balance Sheet Date, there has been no
material change in the Company’s accounting policies. Except
as disclosed therein or in Schedule 3.5(a) hereto,
there are no material, special or non-recurring items of income or
expense during the periods covered by the Financial Statements and
the balance sheets included in the Financial Statements do not
reflect any write-up or revaluation increasing the book value of
any assets. There have been no transactions involving the business
of the Company and its Subsidiaries which properly should have been
set forth in the Financial Statements and which have not been
accurately so set forth. Schedule 3.5(a) sets forth a
list of any off-balance sheet financing arrangements of the Company
and its Subsidiaries and any non-operating assets, prepaid items
and deposits. Since December 31, 2001, the Company’s
accounting firm has not informed the Company that it has any
material questions, challenges or disagreements regarding or
pertaining to the Company’s accounting policies or practices.
The Company has made available to Parent copies of each management
letter or other letter delivered to the Company or any of its
Subsidiaries by its accounting firm in connection with the
Financial Statements or relating to any review by such accounting
firm of the internal controls of the Company or any of its
Subsidiaries.
(b)
Schedule 3.5(b) to the Disclosure Schedule provides an
accurate and complete breakdown and aging of all accounts
receivable, notes receivable and other receivables of the Company
and its Subsidiaries as of the Balance Sheet Date. Except as set
forth in Schedule 3.5(b) , all existing accounts receivable
of the Company and its Subsidiaries (including those accounts
receivable reflected on the Balance Sheet that have not yet been
collected and those accounts receivable that have arisen since the
Balance Sheet Date and have not yet been collected)
(i) represent valid obligations of customers of the Company
and its Subsidiaries
18
arising from
bona fide transactions entered into in the ordinary course of
business, and (ii) are current and not subject to any counterclaim
or set off. The accounts receivable that will be set forth on the
Closing Date Balance Sheet (i) will represent valid
obligations of customers of the Company and its Subsidiaries
arising from bona fide transactions entered into in the ordinary
course of business, and (ii) will be current and will be
collected in full, without any counterclaim or set off, when due
(and in no event later than ninety (90) days after the Closing
Date). Except as disclosed on Schedule 3.5(b) , no
Person has any Encumbrance on such receivables or any part thereof,
and no agreement for deduction, free goods, discount or other
deferred price or quantity adjustment shall have been made with
respect to any such receivables.
(c) The
accounts, books and records of the Company have recorded therein
the results of operations and the assets and liabilities of the
Company and each of its Subsidiaries, required to be reflected
under GAAP. The Company uses reasonable efforts, consistent with
industry practice for a private venture-backed software company of
comparable size, to operate such that: (i) the financial
records and financial statements are complete and accurate in all
respects; (ii) transactions are executed with management’s
authorization; (iii) transactions are recorded as necessary to
permit preparation of the financial statements of the Company and
its Subsidiaries and to maintain accountability for the
Company’s assets; (iv) access to the Company’s
assets is permitted only in accordance with management’s
authorization; (v) the reporting of the Company’s assets
is compared with existing assets at regular internals and
appropriate action is taken with respect to any differences;
(vi) accounts, notes and other receivables and inventory are
recorded accurately, and proper and adequate procedures are
implemented to effect the collection thereof on a current and
timely basis; and (vii) material information regarding the
Company and its financial condition is accumulated and communicated
to the Company’s management, including its principal
executive and financial officers. There is no fraud, whether or not
material, that involves management or, to the knowledge of the
Company, other employees who have a significant role in the
Company’s internal controls.
3.6
Liabilities . There are no Liabilities of the Company or its
Subsidiaries, other than (i) liabilities reflected on the
Balance Sheet and not previously paid or discharged; (ii) accounts
payable incurred after the Balance Sheet Date arising in the
ordinary course of business and consistent with past practice (none
of which in any case results from, arises out of, relates to, is in
the nature of or was caused by any breach of contract, breach of
warranty, tort, infringement or violation of law);
(iii) ordinary course performance obligations under Contracts
(other than as may arise or have arisen from the breach of or
noncompliance with any such Contracts); (iv) the Liabilities
set forth in Schedule 3.6 to the Disclosure Schedule and (v)
liabilities which do not exceed $10,000 in the aggregate. Neither
the Company nor any of its Subsidiaries is a guarantor for any
Liabilities of any other Person other than endorsements for
collection in the ordinary course of business.
Schedule 3.6 to the Disclosure Schedule provides an
accurate and complete breakdown and, in the case of accounts
payable, aging as of the Balance Sheet Date of (i) all
accounts payable of the Company and its Subsidiaries, (ii) all
notes payable of the Company and its Subsidiaries and all
Indebtedness, and (iii) all Non-Ordinary Course
Liabilities.
3.7 Adverse
Changes . Except as set forth on Schedule 3.7 to
the Disclosure Schedule, since December 31, 2005, the Company
and its Subsidiaries have operated their businesses in the ordinary
course and consistent with past practice and neither the Company
nor
19
any of its
Subsidiaries has: (i) suffered a Material Adverse Effect ;
(ii) suffered any theft, damage, destruction, or casualty loss
in excess of $10,000, or suffered any interruption in the use of
the Company’s or its Subsidiaries’ assets or business
(whether or not covered by insurance) or suffered any destruction
of its books and records; (iii) declared, set aside or paid
any dividend (whether in cash, stock or property) with respect to
any capital stock of the Company or its Subsidiaries or repurchased
or redeemed any capital stock of the Company or its Subsidiaries;
(iv) granted any current or former director, officer, employee or
consultant of the Company or its Subsidiaries any bonus opportunity
or increase in compensation or benefits; (v) disclosed any
confidential information of the Company or its Subsidiaries (other
than pursuant to agreements requiring the recipient to maintain the
confidentiality of, and preserving all rights of the Company and
its Subsidiaries in, such confidential information or its officers,
directors, employees or consultants who have executed and are bound
by such agreements); (vi) made any capital expenditures that
aggregate in excess of $10,000; (vii) taken any action,
omitted any action or entered into any agreement or understanding
which, if taken, omitted or entered into during the period from the
date of this Agreement until the Closing Date, would constitute a
breach or violation of Section 6.2 hereof; or
(viii) committed or agreed to any of the foregoing set forth
in (i) through (vii) above.
3.8 Employee
Benefit Plans .
(a)
Schedule 3.8(a) lists each plan Benefit
Plan.
(b) Each
Pension Plan which is intended to qualify under Section 401(a) of
the Code so qualifies (i) with respect to the form of its plan
documents and (ii) in operation and each related trust is
exempt from taxation under Code Section 501(a). Each Benefit
Plan (and each related trust, insurance contract or fund) has been
maintained, funded and administered in accordance with its
governing instruments and all applicable Laws, including but not
limited to, ERISA and the Code. No Pension Plan has ever held
Common Stock or other Company securities. No Pension Plan has ever
been merged with or accepted Code Section 414(l) transfers from
another Employee Pension Benefit Plan.
(c) All
contributions, premiums or other payments due under the terms of
each Benefit Plan or required by applicable Law have been made
within the time due. All unpaid amounts attributable to any such
Benefit Plan for any period prior to the Closing Date will be
accrued on the Company’s consolidated books and records in
accordance with GAAP and, except to the extent of such accruals,
the Company has no Liability arising out of or in connection with
the form or operation of the Benefit Plans or benefits accrued
thereunder on or prior to the Closing Date except for routine
payments made in the normal course of business and consistent with
past practice.
(d) There
has been no Prohibited Transaction with respect to any Benefit Plan
which could result in Liability to the Company, its ERISA
Affiliates, any of their respective employees. There has been no
breach of fiduciary duty (including violations under Part 4 of
Title I of ERISA) with respect to any Benefit Plan which could
result in Liability to the Company, its ERISA Affiliates or any of
their respective employees. No action, suit, proceeding, hearing or
investigation relating to any Benefit Plan (other than routine
claims for benefits) is pending or, to the knowledge of the
Company, has been threatened, and the Company
20
does not have
knowledge of any fact that could form the basis for such action,
suit, proceeding, hearing or investigation. No matters are
currently pending with respect to any Benefit Plan under the
Employee Plans Compliance Resolution System maintained by the IRS
or any similar program maintained by any other Government
Authority. None of the directors, officers or employees (with
responsibility for employee benefit matters) of the Company or any
ERISA Affiliate have any knowledge of any basis for any such
action, suit, proceeding, hearing or investigation.
(e) Neither
the Company, nor any ERISA Affiliate has ever sponsored,
maintained, contributed to, had any obligation to contribute to, or
had any other Liability under or with respect to any Employee
Pension Benefit Plan covered by Title IV of ERISA, Section 302
of ERISA or Section 412 of the Code. Neither the Company nor
any ERISA Affiliate has ever had any Liability under or with
respect to any “multiemployer plan” as defined in ERISA
Section 3(37) or any “multiple employer welfare
arrangement” as defined in Section 3(40)(A) of
ERISA.
(f) Neither
the Company, nor any ERISA Affiliate has ever sponsored,
maintained, administered, contributed to, had any obligation to
contribute to, or had any other Liability under or with respect to
any Employee Welfare Benefit Plan which provides health, life or
other coverage for former directors, officers or employees (or any
spouse or former spouse or other dependent thereof), other than
benefits required by COBRA. Benefits under each Welfare Plan, with
the exception of any flexible spending arrangements subject to
Sections 125 and 105 of the Code, are provided exclusively
through insurance contracts or policies issued by an insurance
company, health maintenance organization, or similar organization
unrelated to the Company or any ERISA Affiliate, the premiums for
which are paid directly by the Company or any ERISA Affiliate from
its general assets or partly from its general assets and partly
from contributions by its employees. No insurance policy or
contract relating to any such Welfare Plan requires or permits
retroactive increase in premiums or payments due
thereunder.
(g) Neither
the Company, nor any ERISA Affiliate has ever maintained a
“voluntary employees beneficiary association” within
the meaning of Section 501(c)(9) of the Code or any other
“welfare benefit fund” as defined in Section 419(e) of
the Code.
(h) All
reports and information relating to each Benefit Plan required to
be filed with a Government Authority have been timely filed and are
accurate; all reports and information relating to each such Benefit
Plan required to be disclosed or provided to participants or their
beneficiaries have been timely disclosed or provided, and there are
no restrictions on the right of the Company or any ERISA Affiliate
to terminate or decrease (prospectively) the level of benefits
under any Benefit Plan after the Closing Date without Liability to
any participant or beneficiary thereunder.
(i) There
has been made available to Parent, with respect to each applicable
Benefit Plan, the following: (i) a copy of the annual report
(if required under ERISA) with respect to each such Benefit Plan
for the last three (3) years (including all schedules and
attachments); (ii) a copy of the summary plan description,
together with each summary of material modification required under
ERISA with respect to such Benefit Plan; (iii) a true and
complete copy of each written Benefit Plan and, with respect to
Pension Plans, each written plan
21
document and
all amendments thereto which have been adopted since the inception
of such plan; (iv) the current IRS determination or opinion
letter; (v) for all trust agreements, insurance contracts, and
similar instruments with respect to each funded or insured Benefit
Plan; (vi) copies of all nondiscrimination and top-heavy
testing reports for the last three (3) plan years with respect
to each Benefit Plan that is subject to nondiscrimination and/or
top-heavy testing; and (vii) any investment management
agreements, administrative services contracts or similar agreements
relating to the ongoing administration and investment of any
Benefit Plan.
(j) Each
ERISA Affiliate is identified on Schedule 3.8(j)
.
(k) Each
Benefit Plan sponsored by the Company is terminable at the
discretion of such entity with no more than thirty (30) days
advance notice and without cost to such entity. No Employee Pension
Benefit Plan, including the assets of such plan, is subject to any
charge, market value adjustment, deferred rules charge or other fee
that is payable by reason of the termination of such plan or
investment. The Company may, without cost, withdraw their
employees, directors, officers and consultants from any Benefit
Plan which is not sponsored by such entity. No Benefit Plan has any
provision which could increase or accelerate benefits or any
provision which could increase Liability to the Company or Parent
as a result of the transactions contemplated hereby, alone or
together with any other event. No Benefit Plan imposes withdrawal
charges, redemption fees, contingent deferred sales charges or
similar expenses triggered by termination of the plan or cessation
of participation or withdrawal of employees thereunder. No officer,
director, agent or employee of the Company or any ERISA Affiliate
has made any oral or written representation which is inconsistent
with the terms of any Benefit Plan which may be binding on such
plan, the Company or any ERISA Affiliate.
(l) Each
Benefit Plan, employment agreement, or other contract, plan,
program, agreement, or arrangement that is a “nonqualified
deferred compensation plan” (within the meaning of Section
409(A)(d)(1) of the Code) has been operated in good faith
compliance with Section 409A of the Code and the applicable
provisions of IRS Notice 2005-1, Proposed Treasury Regulation
§§ 1.409A-1 through 1.409A-6, and any subsequent guidance
relating thereto; and no additional tax under Section 409A(a)(1)(B)
of the Code has been or is reasonably expected to be incurred by a
participant in any such Benefit Plan, employment agreement, or
other contract, plan, program, agreement, or arrangement. Neither
the Company nor any ERISA Affiliate is a party to, or otherwise
obligated under, any contract, agreement, plan or arrangement that
provides for the gross-up of taxes imposed by
Section 409A(a)(1)(B) of the Code.
(m) The
execution and delivery by the Company of this Agreement and the
consummation of the transactions contemplated thereby, will not
conflict with or result in any violation of or default under (with
or without notice or lapse of time, or both), or give rise to a
right of termination, cancellation, modification or acceleration of
any obligation or loss of any benefit under any Benefit Plan, trust
or loan that will or may result in any payment (whether of
severance pay or otherwise), acceleration, forgiveness of
indebtedness, vesting, distribution, increase in benefits or
obligation to fund benefits with respect to any
employee.
22
(a)
Schedule 3.9(a)(i) to the Disclosure Schedule contains
a complete and accurate list of all Company Employees as of the
date hereof, their respective titles as of the date hereof, the
2005 compensation paid or payable to each such Company Employee,
the date and amount of each such Company Employee’s most
recent salary increase, the date of employment of each such
employee and the accrued vacation time and sick leave or other paid
time off of each such Company Employee. Except as set forth on
Schedule 3.9(a)(ii) to the Disclosure Schedule,
(i) the terms of employment or engagement of all directors,
officers, Company Employees, agents, consultants and professional
advisers of the Company and its Subsidiaries are such that their
employment or engagement may be terminated at will with notice
given at any time and without Liability for payment of compensation
or damages resulting from such termination (other than compensation
owed for services performed prior to the date of such termination),
(ii) there are no severance payments which are or would
reasonably be expected to become payable by the Company or its
Subsidiaries to any such person under the terms of any Contract or
any applicable Law, (iii) there are no other Contracts between
the Company or its Subsidiaries and any such person, (iv) as
of the date hereof, except as set forth on
Schedule 3.9(a)(iii) to the Disclosure Schedule and
except for employees Parent has notified the Company that it does
not intend to retain, to the knowledge of the Company, no executive
officer or material number of management level or senior technical
employees of the Company or its Subsidiaries has informed the
Company of any plans to terminate his, her or their employment or
relationship with the Company or its Subsidiaries and (v) to
the knowledge of the Company, there are no agreements between any
Company Employee and any other Person which would restrict such
Person’s ability to perform services for the Company or its
Subsidiaries or the right of any of them to compete with any Person
or the right of any of them to sell to or purchase from any other
Person.
(b) Neither
Company nor any of its Subsidiaries is, or has ever been, bound by
or subject to (and none of its assets or properties are bound by or
subject to) any arrangement with any labor union or other
collective bargaining representative. No employee of the Company or
its Subsidiaries is or has ever been represented by any labor union
or covered by any collective bargaining agreement while employed by
the Company or its Subsidiaries and no campaign to establish such
representation is in progress. With respect to the Company and its
Subsidiaries, there is no pending or, to the knowledge of the
Company, threatened (i) strike, slowdown, picketing, work
stoppage or employee grievance process, (ii) material charge,
grievance proceeding or other claim against or affecting the
Company or its Subsidiaries relating to the alleged violation of
any law pertaining to labor relations or employment matters,
including any charge or complaint filed by an employee or union
with the National Labor Relations Board, the Equal Employment
Opportunity Commission or any comparable Government Authority,
(iii) union organizational activity or other labor or
employment dispute against or affecting the Company or its
Subsidiaries, or (iv) application for certification of a collective
bargaining agent.
(c) Except
as set forth on Schedule 3.9(c) to the Disclosure
Schedule, the Company and its Subsidiaries is and has been in
compliance in all material respects with all applicable Laws
respecting employment and employment practices, terms and
conditions of employment, and wages and hours, including, without
limitation, any such laws regarding employment documentation, equal
employment opportunities, fair employment practices,
plant
23
closings and
mass layoffs, sexual harassment, discrimination based on sex, race,
disability, health status, pregnancy, religion, national origin,
age or other tortious conduct, workers’ compensation, family
and medical leave, the Immigration Reform and Control Act, and
occupational safety and health requirements, and neither the
Company nor any of its Subsidiaries has engaged in any unfair labor
practice. Neither the Company nor any of its Subsidiaries is or has
been liable for the payment of any compensation, damages, taxes,
fines, penalties or other amounts, however designated, for failure
to comply with any of the foregoing. All Persons classified by the
Company or its Subsidiaries as independent contractors do satisfy
and have satisfied the requirements of applicable Law to be so
classified. No individual who has performed services for or on
behalf of the Company or its Subsidiaries and who has been treated
by the Company or its Subsidiaries as an independent contractor, is
classifiable as a “leased employee” within the meaning
of Section 414(n)(2) of the Code with respect to the Company or its
Subsidiaries.
(d) To
the knowledge of the Company, no third party has claimed that any
person employed by the Company or its Subsidiaries has
(i) violated any of the terms or conditions of his employment,
non-competition, non-solicitation or non-disclosure agreement with
such third party, (ii) disclosed or utilized any trade secret
or proprietary information or documentation of such third party
(other than in compliance with applicable Law and any Contract to
which such person is party or is bound), or (iii) interfered
in the employment relationship between such third party and any of
its present or former employees (other than in compliance with
applicable Law and any Contract to which such person is party or is
bound). To the knowledge of the Company, no person employed by the
Company or its Subsidiaries has employed any trade secret or any
confidential information or documentation proprietary to any former
employer or violated any confidential relationship which such
person had with any third party, in connection with the
development, manufacture or sale of any Product or proposed Product
or the development or sale of any service or proposed service of
the Company or its Subsidiaries.
(e)
Schedule 3.9(e) to the Disclosure Schedule lists all
the Company Employees who are on leave as of the date of this
Agreement relating to work-related injuries and/or receiving
disability benefits under any Benefit Plan.
(a) The
Company and its Subsidiaries have filed (or has had filed on its
behalf) on a timely basis all Tax Returns it is required to have
filed. Neither the Company nor any of its Subsidiaries has
requested or obtained any extension of time within which to file
any Tax Return, which Tax Return has not since been
filed.
(b) All
such Tax Returns are correct and complete in all respects. All
Taxes required to have been paid by the Company and its
Subsidiaries (whether or not shown on any Tax Return) have been
paid on a timely basis. Neither the Company nor any of its
Subsidiaries has any Liabilities for Taxes not yet required to have
been paid, other than Liabilities for Taxes reflected on the
Balance Sheet, or incurred in the ordinary course of business since
the date of the Balance Sheet. There are no Encumbrances on any of
the assets of the Company or any of its Subsidiaries that arose in
connection with any failure (or alleged failure) timely to pay any
Tax.
24
(c) The
Company and its Subsidiaries have complied in all respects with all
applicable Laws relating to withholding Taxes and information
reporting, and has, within the time and manner prescribed by law,
withheld from employee wages and other payments and paid over to
the proper Government Authority all amounts required to have been
so withheld and paid.
(d) No
claim has ever been communicated to the Company by a Government
Authority in a jurisdiction where the Company and its Subsidiaries
do not file Tax Returns that any of them are or may be subject to
taxation by that jurisdiction. Neither the Company nor any of its
Subsidiaries has commenced activities in any jurisdiction which
would reasonably be expected to require the Company or any of its
Subsidiaries to make an initial filing of any Tax Return with
respect to Taxes imposed by a Government Authority that it had not
previously been required to file in the immediately preceding
taxable period.
(e) Except
as set forth on Schedule 3.10(e) , neither the Company
nor any of its Subsidiaries has a “permanent
establishment” in any foreign country as such term is defined
in any applicable Tax treaty or convention between the United
States and such foreign country and has not otherwise taken steps
or conducted business operations that have exposed, or will expose
it to the taxing jurisdiction of a foreign country.
(f) There
are no existing circumstances which would reasonably be expected to
result in the assertion of any claim for Taxes against the Company
or any of its Subsidiaries by any Government Authority with respect
to any period for which Tax Returns are required to have been filed
or Tax is required to have been paid. There is no audit or other
proceeding presently pending or threatened in writing (or to the
Company’s knowledge, otherwise) with regard to any Tax
Liability or Tax Return of the Company or any of its Subsidiaries
or any Shareholder relating to the Company or its Subsidiaries. No
issue has been raised by any Government Authority with respect to
Taxes of the Company or its Subsidiaries in any prior examination
which, by application of the same or similar principles, would
reasonably be expected to result in a proposed deficiency for any
other taxable period of the Company or its Subsidiaries.
(g) Neither
the Company nor any of its Subsidiaries nor any person on behalf of
the Company or its Subsidiaries has waived any statute of
limitations or agreed to any extension of time that has continuing
effect with respect to assessment or collection of any Tax for
which the Company or any of its Subsidiaries may be held liable.
There is not currently in effect any power of attorney authorizing
any Person to act on behalf of the Company or any of its
Subsidiaries, or receive information relating to the Company or its
Subsidiaries, with respect to any Tax matter.
(h) Within
the meaning of Section 280G of the Code, neither the Company
nor any of its Subsidiaries has made any payments, is obligated to
make any payments, and is a party to any contract, agreement, plan
or arrangement requiring the Company or its Subsidiaries to make
payments to any person that would be a parachute payment as a
result of any event connected with the acquisition by Parent or any
other transaction contemplated by this Agreement, and neither the
Company nor any of its Subsidiaries is a party to any contract or
agreement that will have continuing effect after the Closing Date
that under certain circumstances could require any payment (or be
deemed to give rise to any payment) that would
25
be a parachute
payment. Neither the Company nor any of its Subsidiaries nor any
ERISA Affiliate is a party to, or otherwise obligated under, any
contract, agreement, plan or arrangement that provides for the
gross-up of taxes imposed by Section 4999 of the
Code.
(i) Neither
the Company nor any of its Subsidiaries has made or agreed to make,
and is not required to make, any change in method of accounting
previously used by it in any Tax Return filed by the Company or any
of its Subsidiaries which change in method would require the
Company or any of its Subsidiaries to make an adjustment to its
income pursuant to Section 481(a) of the Code (or any similar
provision) on any Tax Return for any taxable period for which the
Company or any of its Subsidiaries has not yet filed a Tax Return;
and neither is there any application pending with any Government
Authority requesting permission for the Company or any of its
Subsidiaries to make any change in any accounting method, nor has
the Company or any of its Subsidiaries received any notice that a
Government Authority proposes to require a change in method of
accounting used in any Tax Return which has been filed by the
Company or any of its Subsidiaries.
(j) Neither
the Company nor any of its Subsidiaries has taken any action not in
accordance with past practice that would have the effect of
deferring a measure of Tax from a period (or portion thereof)
ending on or before the Closing Date to a period (or portion
thereof) beginning after the Closing Date. Neither the Company nor
any of its Subsidiaries has deferred income or Tax Liability
arising out of any transaction, except to the extent adequately
reserved for on its Balance Sheet, including without limitation,
any (i) intercompany transaction (as defined in Treasury
Regulation Section 1.1502-13), (ii) the disposal of
any property in a transaction accounted for under the installment
method pursuant to Section 453 of the Code, (iii) use of
the long-term contract method of accounting or (iv) receipt of
any prepaid amount on or before the Closing Date. Neither the
Company nor any of its Subsidiaries has filed any consent or
entered into any agreement under Section 341(f) of the Code with
respect to any of its assets.
(k) Neither
the Company nor any of its Subsidiaries has been a United States
real property holding corporation within the meaning of
Section 897(c)(2) of the Code at any time during the preceding
five (5) years. Neither the Company nor any of its
Subsidiaries is a party to any safe harbor lease within the meaning
of Section 168(f)(8) of the Internal Revenue Code of 1954, as
in effect prior to amendment by the Tax Equity and Fiscal
Responsibility Act of 1982. No property owned by the Company is (i)
“tax-exempt use property” within the meaning of
Section 168(h)(1) of the Code or (ii) “tax-exempt bond
financed property” within the meaning of Section 168(g) of
the Code. Neither the Company nor any of its Subsidiaries has
constituted either a “distributing corporation” or a
“controlled corporation” within the meaning of
Section 355(a)(1)(A) of the Code in a distribution qualifying
(or intended to qualify) under Section 355 of the Code (or so
much of Section 356 as relates to Section 355). Neither
the Company nor any of its Subsidiaries has ever owned (directly or
indirectly) an interest in a passive foreign investment company
within the meaning of Section 1297 of the Code. Neither the
Company nor any of its Subsidiaries is, or at any time has been,
subject to (i) the dual consolidated loss provisions of the
Section 1503(d) of the Code, (ii) the overall foreign loss
provisions of Section 904(f) of the Code or (iii) the
recharacterization provisions of Section 952(c)(2) of the
Code.
26
(l) Neither
the Company nor any of its Subsidiaries has, in the past ten
(10) years, (i) acquired assets from another Person (or was
treated or required to be treated for Tax purposes as acquiring
assets of a Person by reason of change in Tax status of such
Person) in a transaction in which the federal income Tax basis for
the acquired assets is required to have been determined, in whole
or in part, by reference to the Tax basis of the acquired assets in
the hands of such transferring Person, (ii) acquired the
assets of any Person in a transaction or been a party to a
reorganization or other transaction to which Section 381 of
the Code applied, or (iii) become a successor to any Person by
reason of any acquisition of a substantial part of the assets of
such Person, whether by contract or by operation of Law pursuant to
a merger or consolidation or similar transaction.
(m) Neither
the Company nor any of its Subsidiaries is or has been a party to
any Tax allocation, Tax sharing or similar agreement or arrangement
(other than any such agreement created by the execution of this
Agreement). Neither the Company nor any of its Subsidiaries
(i) is or has been a member of an “affiliated
group” (within the meaning of Section 1504(a) of the Code) or
similar group of entities with which the Company or any of its
Subsidiaries joined, or was or may be required to join, for any
taxable period in making a consolidated federal income Tax Return
or other Tax Return in which Tax Liability was or would be computed
on a consolidated, combined, unitary or similar basis, and
(ii) has or has had a relationship to any other Person which
would cause it to be liable for Taxes owed by any other Person,
including, without limitation, Tax payable by reason of Contract,
assumption, transferee liability, operation of Law, Treasury
Regulation Section 1.1502-6(a) (or any predecessor or
successor thereof or any analogous or similar provision under
Law).
(n) Neither
the Company nor any of its Subsidiaries (i) is a party to any
joint venture, partnership or other agreement or arrangement which
is treated as a partnership for federal income Tax purposes,
(ii) owns any interest in an entity that either is treated as
an entity disregarded as separate from its owner for federal Tax
purposes, or is an entity as to which an election pursuant to
Treasury Regulations Section 301.7701-3 has been
made.
(o) Neither
the Company nor any of its Subsidiaries has been a beneficiary or
has otherwise participated in any “reportable
transaction” within the meaning of Treasury
Regulation Section 1.6011-4(b)(1) that was, is, or to the
knowledge of the Company will ever be required to be disclosed
under Treasury Regulation Section 1.6011-4. No Tax Return
filed by or on behalf of the Company or any of its Subsidiaries
(i) has contained a disclosure statement under
Section 6662 of the Code (or any similar provision of Law), or
(ii) been filed by or on behalf of the Company or any of its
Subsidiaries with respect to which the Company was advised by its
return preparer to consider making disclosure with respect to
Section 6662 of the Code, which disclosure was not
made.
(p) There
is currently no limitation on the use of Tax attributes of the
Company or any of its Subsidiaries under Sections 269, 382,
383, 384 or 1502 of the Code (and similar provisions of state,
local or foreign Tax Law).
(q)
Schedule 3.10(q) identifies all Tax Returns that the
Company or any of its Subsidiaries has filed and the taxable period
covered by each such Tax Return, and identifies those Tax Returns
or periods that have been audited or are currently the subject of
an audit by a
27
Government
Authority. The Company and its Subsidiaries has made available to
the Parent complete and accurate copies of all of the following
materials: (i) all income Tax Returns filed by the Company and
its Subsidiaries that relate to taxable periods ending after
December 31, 2001, (ii) all examination reports relating
to Taxes of the Company and its Subsidiaries issued since
January 1, 2002 as a result of audits, examinations or
asserted failures to file Tax Returns or pay Taxes, (iii) all
statements of Taxes assessed since January 1, 2002 against or
agreed to by the Company that were not shown on Tax Returns filed
by the Company or any of its Subsidiaries before such assessment,
(iv) all written rulings from, and written agreements with,
any Government Authority relating to Taxes of the Company or any of
its Subsidiaries that were either received since January 1,
2002 or would have continuing effect for any Tax Return that has
not yet been filed by the Company or any of its Subsidiaries,
(v) all elections relating to Taxes of the Company or any of
its Subsidiaries which would have continuing effect for any taxable
period ending after the Closing Date that have been filed by or on
behalf of the Company or any of its Subsidiaries with any
Government Authority (other than elections which are included in or
apparent from Tax Returns referred to in clause (i) above),
and (vi) to the extent requested in writing by Parent, any
other document relating to Taxes or Tax Returns of the Company or
any of its Subsidiaries or the Shareholders relating to the Company
or any of its Subsidiaries.
(a) Neither
the Company nor any of its Subsidiaries owns or has ever owned any
real property. Schedule 3.11(a) to the Disclosure
Schedule sets forth an accurate and complete list of all real
property leased by the Company and its Subsidiaries or to which the
Company or its Subsidiaries may have any leasehold rights
(collectively, the “ Facilities ”). Accurate and
complete copies of all leases of real property listed on
Schedule 3.11(a) to the Disclosure Schedule have been
delivered to Parent. Except as otherwise disclosed on
Schedule 3.11(a) to the Disclosure Schedule, no person,
firm or corporation, other than the owner of such real property and
the Company or its Subsidiaries, has any rights under any Contract
(including any easement or right of way) to occupy or use the
Facilities or any part thereof. All leases set forth on
Schedule 3.11(a) to the Disclosure Schedule are in full
force and effect and constitute valid and binding agreements of the
Company (or one or more of its Subsidiaries) and, to the knowledge
of the Company, the other party or parties thereto in accordance
with their respective terms, except as enforceability may be
limited by applicable bankruptcy, insolvency, reorganization,
moratorium or other similar laws affecting the enforcement of
creditors’ rights in general.
(b)
Schedule 3.11(b) to the Disclosure Schedule sets forth
an accurate list of all owned and leased personal property included
on the Balance Sheet and all other personal property owned or
leased by the Company and its Subsidiaries (i) as of the
Balance Sheet Date, or (ii) acquired since the Balance Sheet Date,
in the case of (i) and (ii) valued in excess of $5,000,
including an indication as to which assets are currently owned, or
were formerly owned, by any current or former stockholders or
Affiliates of the Company or its Subsidiaries. Accurate and
complete copies of all leases of personal property and equipment
listed on Schedule 3.11(b) have been delivered to
Parent. All of the personal property listed on
Schedule 3.11(b) is in good working order and
condition, ordinary wear and tear excepted. All personal property
used by the Company or its Subsidiaries is either owned by the
Company or its Subsidiaries or leased under
28
an agreement
listed on Schedule 3.11(b) . All leases set forth on
Schedule 3.11(b) are in full force and effect and constitute
valid and binding agreements of the Company or one or more of its
Subsidiaries, as applicable, and the other party or parties thereto
in accordance with their respective terms, except as enforceability
may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting the
enforcement of creditors’ rights in general.
(c) The
Company and its Subsidiaries has good and marketable title to the
Company’s and its Subsidiaries’ respective assets, free
and clear of any and all Encumbrances and defects in title, other
than (i) liens for taxes not yet due or payable,
(ii) Encumbrances that do not materially detract from the
value of the assets subject thereto, and (iii) Encumbrances
set forth on Schedule 3.11(c) to the Disclosure Schedule. The
Company’s and its Subsidiaries’ respective assets,
taken together, are adequate and sufficient for the operation of
the Company’s business as currently conducted and the Company
reasonably believes that such assets, taken together, will be
adequate and sufficient for operating its business immediately
after the Closing, except for any inadequacy or insufficiency
directly resulting from Parent’s actions or inactions or
directly resulting from any contracts of Parent or actions of
Governmental Authorities applicable to Parent, in each case after
the Closing.
(a)
Schedule 3.12 to the Disclosure Schedule sets forth an
accurate and complete list of each Material Contract. To the
Company’s knowledge, no Material Contract has been breached
or cancelled, and no material provision of any other Contract has
been breached by the other party, and the Company has no knowledge
of any anticipated breach by any other party to any Material
Contract or breach of a material provision by any other party to
any other Contract (with or without notice or lapse of time). The
Company and its Subsidiaries have performed all the obligations
required to be performed by them in connection with the Material
Contracts and have performed in all material respects the
obligations required to be performed by them under the other
Contracts, and are not in default under or in breach of any
Material Contract (or default under or breach of any material
provision of any other Contract), and no event has occurred which
with the passage of time or the giving of notice or both would
(i) result in a default or breach under a Material Contract,
or default or breach under any material provision of any other
Contract; (ii) give any Person the right to declare a default or
exercise any remedy under any Material Contract (or default or
remedy under any material provision of any other Contract),
(iii) give any Person the right to accelerate the maturity or
performance of any Material Contract, or (iv) give any Person
the right to cancel, terminate or materially modify any Material
Contract. Neither the Company nor any of its Subsidiaries has
waived any of its material rights under any Contract. Neither the
Company nor any of its Subsidiaries has a present expectation or
intention of not fully performing any obligation pursuant to any
Material Contract or any material obligation pursuant to any other
Contract. Each Contract is legal, valid, binding, enforceable
against the Company or its applicable Subsidiary and in full force
and effect, except as enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or other similar
laws affecting the enforcement of creditors’ rights in
general, and shall continue as such immediately following the
consummation of the transactions contemplated hereby, except as a
direct result of Parent’s actions or inactions or
directly
29
resulting from
any contracts of Parent or actions of Government Authorities
against Parent, in each case after the Closing.
(b) The
Company has made available to Parent an accurate and complete copy
of all written Contracts which are required to be disclosed on
Schedule 3.12 to the Disclosure Schedule, in each case
together with all amendments, waivers, side letters, verbal
understandings, acknowledged courses of dealing, or any other
changes or modifications thereto (all of which are disclosed on
Schedule 3.12 to the Disclosure Schedule ).
Schedule 3.12 to the Disclosure Schedule contains an
accurate and complete description of all material terms of all oral
Material Contracts. No Person is currently renegotiating any amount
paid or payable to the Company under any Contract or any other term
or provision of any Contract. Schedule 3.12 to the
Disclosure Schedule identifies and provides an accurate and
complete description of each proposed Contract as to which any bid,
offer, written proposal, term sheet or similar document has been
submitted or received by the Company or any of its
Subsidiaries.
3.13
Litigation . Schedule 3.13 to the Disclosure
Schedule describes all of the Proceedings that have been commenced
by or against the Company or its Subsidiaries and the status
thereof. Except as set forth on Schedule 3.13 to the
Disclosure Schedule, there is no Proceeding pending or, to the
knowledge of the Company, threatened against the Company or its
Subsidiaries or their respective assets before any court, agency,
authority or arbitration tribunal. To the knowledge of the Company,
there are no facts that would likely result in any such litigation,
suit, proceeding, action, claim or investigation. None of the
Company, its Subsidiaries, or any of their respective officers or
other employees is subject to or in default with respect to any
order, writ, injunction or decree of any Government Authority or
arbitration tribunal.
3.14 Compliance
with Laws . The Company and each of its Subsidiaries have
complied at all times in all material respects and are currently in
compliance in all material respects with all Laws, regulations,
rules, orders, permits, judgments, decrees and other requirements
and policies imposed by any Government Authority. Neither the
Company, nor any of its Subsidiaries, nor any Key Shareholder, nor
any of the employees, directors, principals, or agents of the
Company or any of its Subsidiaries or any Key Shareholder, in each
case acting, or purporting to act, directly or indirectly, on
behalf of or for the benefit of the Company or any of its
Subsidiaries, have committed (or taken any action to promote or
conceal) any violation of the Foreign Corrupt Practices Act, 15
U.S.C. sections 78dd-1, -2, or any equivalent foreign Law. The
Company and its Subsidiaries have all licenses, permits, approvals,
qualifications or the like, from any Government or Government
Authority necessary for the conduct of its business as conducted,
all such items are in full force and effect and the Company and its
Subsidiaries are and have at all times been in compliance in all
material respects with the terms thereof. Schedule 3.14
to the Disclosure Schedule sets forth all material licenses and
permits held by the Company and its Subsidiaries which terminate or
become renewable at any time prior to the first anniversary of the
date of this Agreement. There are no facts or circumstances in
existence which are reasonably likely to prevent the Company or any
of its Subsidiaries from renewing each such license and permit.
Neither the Company nor any of its Subsidiaries has received any
notice or citation for any actual or potential noncompliance with
any of the foregoing in this Section 3.14, and there exists no
condition, situation or circumstance, nor has there existed such a
condition, situation or circumstance, which, after notice or lapse
of time, or both, would
30
constitute
noncompliance with or give rise to future Liability with regard to
any of the foregoing in this Section 3.14.
3.15 Government
Contracts .
(a)
Schedule 3.15(a) lists all Government Contracts and
Government Bids, including the name and number of the Government
Contract and the applicable solicitation name and number for the
Government Bid; the name of the other contracting party; the name
of the Government Authority that is the customer (if different from
the contracting party); for task orders and delivery orders, the
name and number of the Government Contract (including any blanket
purchase agreement) under which the order was issued or the
Government Bid was submitted; the date the Government Contract was
awarded; and the scheduled end date of the Government Contract.
Except as set forth on Schedule 3.15(a) , the Company
has not submitted any outstanding Government Bid that remains
outstanding. The Company has made available to Parent correct and
complete copies of all Government Contracts and outstanding
Government Bids.
(b) With
respect to each Government Contract or Government Bid, (i) the
Company has complied with all material terms and conditions of such
Government Contract, including all provisions incorporated by
reference or by operation of law therein, (ii) the Company has
complied in all material respects with all requirements of all Laws
pertaining to such Government Contract, (iii) all material
representations and certifications executed by the Company
pertaining to such Government Contract or Government Bid were
complete and correct as of their effective date and the Company has
complied with all material representations and certifications,
(iv) the Company has not submitted any inaccurate, untruthful
or misleading cost or pricing data, certification, bid, proposal,
report, invoice, claim, or other information to a Government
Authority, prime contractor, subcontractor, vendor or any other
Person relating to any Government Contract or Government Bid,
(v) neither a Government Authority nor any prime contractor,
subcontractor, or any other Person has notified the Company, either
in writing or orally, that the Company has breached or violated any
law, certification, representation, clause, provision or
requirement pertaining to such Government Contract or Government
Bid, (vi) no cancellation, termination for convenience,
termination for default, suspension, stop work order, cure notice,
or show cause notice is currently in effect nor is any such action
being proposed or threatened, pertaining to such Government
Contract, (vii) no cost claimed or proposed by the Company
pertaining to any Government Contract or Government Bid is the
subject of any audit or investigation nor, to the knowledge of the
Company, has any such audit or investigation been threatened,
(viii) the Company has no knowledge that any option with
respect to such Government Contract will not be exercised or that
any Government Contract will be terminated, cancelled, or will
otherwise come to an end prior to the end of its stated term
(including all option periods), (ix) there are no pending
recommendations by any Government auditor that any cost claimed by
the Company is unallowable, and (x) all amounts previously
charged to or presently carried as chargeable to any
cost-reimbursable Government Contract are allowable pursuant to 48
C.F.R. Part 31. The Company is not in receipt or possession of
any competitor or Government Authority’s proprietary or
procurement sensitive information under circumstances where there
is reason to believe that such receipt or possession is unlawful or
unauthorized. The Company has not misused or disclosed any
classified information or any records subject to the Privacy Act (5
U.S.C. § 552a).
31
(c) There
exist (i) no outstanding claims against the Company, either by
any Government Authority or by any prime contractor, subcontractor,
vendor or other Person, arising under or relating to any Government
Contract or Government Bid, (ii) no delivery or performance
problems with respect to any Government Contract, (iii) no
claims or disputes between the Company and any Government Authority
or between the Company and any prime contractor, subcontractor,
vendor, or other Person, in each case arising under or relating to
any Government Contract or Government Bid, (iv) no
circumstances in which the Company or any other party to a
Government Contract has terminated, cancelled or waived any
material term or condition of any Government Contract, and (v) no
projected cost overruns on any of the Government
Contracts.
(d) All
technical data, computer software and computer software
documentation (as those terms are defined under the Federal
Acquisition Regulation and its supplemental regulations) developed,
delivered, or used under or in connection with the Government
Contracts have been properly and sufficiently marked and protected
so that no more than the minimum rights or licenses required under
applicable regulations and Government Contract terms, if any, have
been provided. All disclosures, elections, and notices required by
applicable regulations and contract terms to protect ownership of
inventions developed, conceived or first actually reduced to
practice under Government Contracts have been made and
provided.
3.16
Environmental and Safety Matters . The Company and its
Subsidiaries has conducted its business at all times in compliance
in all material respects with all applicable Environmental Laws.
None of the properties currently or, to the knowledge of the
Company, formerly owned or operated by the Company or its
Subsidiaries contain any Hazardous Substance in amounts exceeding
the levels permitted by applicable Environmental Laws. Neither the
Company nor any of its Subsidiaries has received any notices,
demand letters or requests for information from any Government
Authority or other Person, which has not heretofore been resolved
with such Government Authority or other Person, indicating that the
Company or its Subsidiaries may be in violation of, or liable
under, any Environmental Law. There are no civil, criminal or
administrative Proceedings pending or, to the knowledge of the
Company, threatened against the Company or its Subsidiaries
relating to any violation, or alleged violation, of any
Environmental Law. No reports have been filed, or are required to
be filed, by the Company or its Subsidiaries concerning the Release
of any Hazardous Substance or the threatened or actual violation of
any Environmental Law which have not heretofore been resolved. No
Hazardous Substance has been disposed of, Released or transported
in violation of any applicable Environmental Law from any
properties owned by the Company or its Subsidiaries. No remediation
or investigation of Hazardous Substances is occurring at any
property owned or operated, or formerly owned or operated, by the
Company or its Subsidiaries. The Company, its Subsidiaries and any
of their respective properties are not subject to any liabilities
or expenditures (fixed or contingent) relating to any suit,
settlement, court order, administrative order, regulatory
requireme
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