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AGREEMENT AND PLAN OF MERGER

Agreement and Plan of Merger

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Title: AGREEMENT AND PLAN OF MERGER
Governing Law: New York     Date: 10/18/2006
Industry: Software and Programming     Law Firm: Latham & Watkins LLP ; Bingham McCutchen LLP    

AGREEMENT AND PLAN OF MERGER, Parties: shadow iv  inc , ai metrix  inc
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AGREEMENT AND PLAN OF MERGER

 

BY AND AMONG

 

SYS,

 

SHADOW IV, INC.,

 

AI METRIX, INC.,

 

 

THE MAJORITY STOCKHOLDERS,

SOLELY FOR PURPOSES OF SECTIONS 4.32, 5.2(c) AND 5.3(d)

AND ARTICLES VII, IX AND X

 

AND

 

VICTOR E. PARKER,

AS THE STOCKHOLDER REPRESENTATIVE

 

 

Dated as of October 17, 2006

 


TABLE OF CONTENTS

 

ARTICLE I THE MERGER

1.1 The Merger

1.2   Effective Time

1.3   Effects of the Merger

1.4   Certificate of Incorporation and Bylaws

1.5   Directors and Officers of the Surviving Corporation

 

ARTICLE II CONVERSION OF SECURITIES

2.1   Merger Consideration; Conversion of Capital Stock; Deposit to Escrow

2.2   Conversion of Merger Sub Stock

2.3   Fractional Shares

2.4   Exchange of Certificates.

2.5   Earnout/Clawback.

2.6   Escrow Account.

 

ARTICLE III REPRESENTATIONS AND WARRANTIES OF SYS AND MERGER SUB

3.1   Organization and Standing

3.2   Corporate Power and Authority

3.3   Conflicts; Consents and Approvals

3.4   Actions

3.5   Financial Ability

3.6   Capitalization of SYS.

3.7   Brokerage and Finders’ Fees

3.8   Board Recommendation; Required Vote

3.9   SYS SEC Documents

3.10   Undisclosed Liabilities

3.11   No Other Warranties

 

ARTICLE IV REPRESENTATIONS AND WARRANTIES OF AI METRIX

4.1   Organization and Standing

4.2   Subsidiaries

4.3   Corporate Power and Authority

4.4   Capitalization of Ai Metrix.

4.5   Conflicts; Consents and Approvals

4.6   Brokerage and Finders’ Fees

4.7   Books and Records; Financial Statements.

4.8   Compliance with Law

4.9   Actions

4.10   No Material Adverse Change

4.11   Taxes.

4.12   Intellectual Property.

4.13   Title to Assets and Properties

4.14   Employee Benefit Plans.

4.15   Contracts.

4.16   Labor Matters.

4.17   Undisclosed Liabilities

4.18   Operation of Ai Metrix’s Business.

4.19   Permits

4.20   Real Property.

4.21   Environmental Matters

4.22   Accounts Receivable

4.23   Insurance

4.24   Product or Service Warranty

4.25   Data Protection Matters.

4.26   Foreign Corrupt Practices Act.

4.27   Government Contracts

4.28   Relations with Governments

4.29   No Existing Discussions

4.30   Review of SYS SEC Documents

4.31   Interested Party Transactions

 

ARTICLE V COVENANTS OF THE PARTIES

5.1   Mutual Covenants

5.2   Covenants of SYS.

5.3   Covenants of Ai Metrix and the Ai Metrix Stockholders

 

ARTICLE VI CONDITIONS

6.1   Conditions to the Obligations of Each Party

6.2   Conditions to Obligations of Ai Metrix and the Majority Stockholders

6.3   Conditions to Obligations of SYS and Merger Sub

 

ARTICLE VII STOCKHOLDER REPRESENTATIVE

7.1   Election and Replacement

7.2   Authority.

7.3   No Liability of SYS

 

ARTICLE VIII TERMINATION AND AMENDMENT

8.1   Termination

8.2   Effect of Termination

 

ARTICLE IX GENERAL SURVIVAL; INDEMNIFICATION

9.1   Survival of Representations and Warranties

9.2   Indemnification

9.3   No Right of Indemnification or Contribution

9.4   Payments

9.5   Computation of Damages; Mitigation

9.6   Exclusive Remedy

9.7   Consequential Damages

 

ARTICLE X MISCELLANEOUS

     10.1   Notices

10.2   Interpretation.

10.3   Counterparts

10.4   Entire Agreement

10.5   Third-Party Beneficiaries

10.6   Governing Law; Venue.

10.7   Specific Performance

10.8   Assignment

10.9   Expenses and Transfer Taxes

10.10   Severability

10.11   Amendment

 

EXHIBITS

Exhibit A   Form of Voting Agreement

Exhibit B   Form of Investment Representation Certificate

Exhibit C   Form of Escrow Agreement

Exhibit D   Form of Carrai Employment Agreement

Exhibit E   Form of Opinion of Counsel to Ai Metrix

 

SCHEDULES

Schedule 1   Merger Consideration Allocation per Ai Metrix Stockholder

Schedule 2   Ai Metrix Employees Signing Non-Compete Agreements

Schedule 3   Ai Metrix Stockholder Addresses; Wire Transfer Instructions

Schedule 4   Unaccredited Ai Metrix Stockholders

Attached   Ai Metrix Disclosure Schedule

Attached   SYS Disclosure Schedule


 

AGREEMENT AND PLAN OF MERGER

 

This Agreement and Plan of Merger (this “ Agreement ”) is made and entered into as of October 17, 2006, by and among SYS, a California corporation (“ SYS ”); Shadow IV, Inc., a Delaware corporation and a wholly-owned subsidiary of SYS (“ Merger Sub ”); Ai Metrix, Inc., a Delaware corporation (“ Ai Metrix ”); the following stockholders of Ai Metrix (collectively, the “ Majority Stockholders , ” and each individually, a “ Majority Stockholder ”): General Atlantic Partners 74, L.P., GAP Coinvestment Partners II, L.P., GAPCO GmbH & Co. KG, GapStar, LLC, Spectrum Equity Investors II, L.P., SEA 1998 II, L.P., Spectrum Equity Investors III, L.P., SEI III Entrepreneurs’ Fund, L.P., Spectrum III Investment Managers’ Fund, L.P., and Phil Carrai, solely for purposes of Sections 4.32, 5.2(c) and 5.3(d) and Articles VII , IX and X; and Victor E. Parker, as the Stockholder Representative (the “ Stockholder Representative ”).

 

 

RECITALS

 

WHEREAS, the respective Boards of Directors of SYS, Merger Sub and Ai Metrix have determined that the merger of Merger Sub with and into Ai Metrix, in the manner contemplated herein (the “ Merger ”), is desirable and in the best interests of their respective stockholders and, by resolutions duly adopted, have approved and adopted this Agreement;

 

WHEREAS, SYS, Merger Sub, Ai Metrix and the Majority Stockholders desire to make certain representations, warranties, covenants and agreements in connection with the Merger and also to prescribe various conditions to the Merger; and

 

WHEREAS, certain stockholders of SYS have executed and delivered to Ai Metrix a voting agreement (the “ Voting Agreement ”), in substantially the form attached as Exhibit A hereto (with such stockholders listed on Schedule A to the Voting Agreement), as an inducement to Ai Metrix to enter into this Agreement.

 

NOW, THEREFORE, in consideration of these premises and their promises hereinafter set forth, the parties hereto agree as follows:

 

ARTICLE I

THE MERGER

 

1.1    The Merger. Upon the terms and subject to the conditions set forth in this Agreement, and in accordance with the Delaware General Corporation Law (the “ DGCL ”), Merger Sub shall be merged with and into Ai Metrix at the Effective Time (as defined below). As a result of the Merger, the separate corporate existence of Merger Sub shall cease and Ai Metrix shall continue its existence under the laws of the State of Delaware as a wholly-owned subsidiary of SYS. Ai Metrix, in its capacity as the corporation surviving the Merger, is hereinafter sometimes referred to as the “ Surviving Corporation .”

 

1.2    Effective Time . As promptly as practicable on the Closing Date (as defined below), the parties shall cause the Merger to be consummated by filing with the Secretary of State of the State of Delaware (the “ Delaware Secretary of State ”) a certificate of merger (the “ Certificate of Merger ”) in such form as is required by and executed in accordance with the DGCL. The Merger shall become effective (the “ Effective Time ”) when the Certificate of Merger has been filed with the Delaware Secretary of State or at such later time as shall be agreed upon by SYS and Ai Metrix and specified in the Certificate of Merger. Prior to the filing referred to in this Section 1.2 , a closing (the “ Closing ”) shall be held at the offices of SYS’s legal counsel, Latham & Watkins LLP, 12636 High Bluff Drive, Suite 400, San Diego, California 92130, or such other place as the parties may agree upon, as soon as practicable (but in any event within ten (10) business days) following the date upon which all conditions set forth in Article VI that are capable of being satisfied prior to the Closing have been satisfied or waived, or at such other date as SYS and Ai Metrix may agree; provided that the conditions set forth in Article VI have been satisfied or waived at or prior to such date. The date on which the Closing takes place is referred to herein as the “ Closing Date .” For all purposes, the Closing shall be effective as of 11:59 p.m. on the Closing Date.

 

1.3    Effects of the Merger. At and after the Effective Time, the separate existence of Merger Sub will cease, and Ai Metrix, as the Surviving Corporation and successor, shall succeed to all of the rights and property of Merger Sub and Ai Metrix, and shall be subject to all the debts and liabilities of Merger Sub and Ai Metrix except as otherwise expressly provided in reference to this Agreement.

 

1.4    Certificate of Incorporation and Bylaws . (a) Subject to Section 5.2(d) , the Certificate of Incorporation of the Surviving Corporation shall be amended in its entirety to contain the provisions set forth in the Certificate of Incorporation of Merger Sub, as in effect immediately prior to the Effective Time (the “ Merger Sub Certificate ”), and (b) the Bylaws of Merger Sub, as in effect immediately prior to the Effective Time (the “ Merger Sub Bylaws ”), shall be the Bylaws of the Surviving Corporation; in each case, until amended in accordance with the DGCL.

 

1.5    Directors and Officers of the Surviving Corporation. On the Closing Date, Ai Metrix shall deliver to SYS evidence satisfactory to SYS of the resignations of the directors and officers of Ai Metrix and any subsidiary of Ai Metrix, with such resignations to be effective immediately after the Effective Time. SYS shall cause the election of new directors and officers, as determined by SYS, for Ai Metrix and any subsidiary to be effective as of the resignation of the former directors and officers of Ai Metrix and any subsidiary.

 

ARTICLE II

CONVERSION OF SECURITIES

 

2.1    Merger Consideration; Conversion of Capital Stock; Deposit to Escrow. 

 

(a)    At the Effective Time, by virtue of the Merger and without any action on the part of SYS, Merger Sub or Ai Metrix or their respective stockholders, each share of Ai Metrix Capital Stock (as defined below) issued and outstanding immediately prior to the Effective Time shall in accordance with Section 2.1(a) be converted into, and shall represent the right to receive, that portion of 3,075,705 shares of SYS Common Stock (as defined below) to which such share is entitled, as specified in Section 2.1(a) below (such aggregate number of shares, the “ Merger Consideration ”), such number of shares equaling 19.9% of the issued and outstanding shares of SYS Common Stock. Pursuant to Section 2.4(f) , all outstanding options, warrants and other securities (other than Ai Metrix Preferred Stock) convertible into Ai Metrix Capital Stock shall be exercised or cancelled prior to the Closing Date, so that as of the Effective Time no person shall have any options, warrants or other rights to buy, or convert into, any securities of the Surviving Corporation. The Merger Consideration shall be allocated and distributed as set forth on Schedule 1 , which has been determined in accordance with the following (and after conversion of all options and warrants in accordance with Section 2.4(f) below):

 

(i)    Each issued share of Ai Metrix Common Stock shall, at the Effective Time, be converted into 0.18979119 shares of SYS Common Stock; and

 

(ii)    Each issued share of Ai Metrix Series C Preferred Stock shall, at the Effective Time, be converted into 0.18979119 shares of SYS Common Stock.

 

Ai Metrix shall deliver to SYS at the Closing an updated Schedule 1 , revised to set forth the amount of cash to be received by each Other Stockholder following the Effective Time, and the amount of cash constituting the Escrow Consideration that is allocated to each such Other Stockholder.

 

(b)    As soon as practicable after the Effective Time, but no later than the close of business on the third business day immediately following the Closing Date (the “ Payment Deadline ”), the following shall be delivered directly by SYS from the Merger Consideration to the Escrow Agent, for deposit into the Escrow Account, as set forth in Section 2.6 , in lieu of being delivered to the stockholders of Ai Metrix (the “ Ai Metrix Stockholders ”):

 

(i)    the sum of (A) the number of shares of SYS Common Stock equal to the difference between (x) 307,571 minus (y) the Indemnity Equivalent (as hereinafter defined), plus (B) the amount of cash equal to the product of 0.10 multiplied by the amount of cash paid to the Other Stockholders pursuant Section 2.4(h) (such sum, the “ Indemnity Escrow ”); and

 

(ii)    the sum of (A) the number of shares of SYS Common Stock equal to the difference between (x) 550,000 minus (y) the Clawback Equivalent (as hereinafter defined), plus (B) the amount of cash equal to the product of 0.17882079 multiplied by the amount of cash paid to the Other Stockholders pursuant Section 2.4(h) (such sum, the “ Clawback Escrow ” and together with the Indemnity Escrow, the “ Escrow Consideration ”).

 

(c)    The allocation of the Indemnity Escrow and the allocation of the Clawback Escrow among the Ai Metrix Stockholders shall be as set forth on Schedule 1 .

 

(d)    Indemnity Equivalent ” means the number of shares of SYS Common Stock (rounded to the nearest whole number) equal to the product of (i) 0.10 multiplied by (ii) a fraction, the numerator of which is the amount of cash paid to the Other Stockholders pursuant Section 2.4(h) and the denominator of which is the SYS Average Price per share (as defined below).

 

(e)    Clawback Equivalent ” means the number of shares of SYS Common Stock (rounded to the nearest whole number) equal to the product of (i) 0.17882079 multiplied by (ii) a fraction, the numerator of which is the amount of cash paid to the Other Stockholders pursuant Section 2.4(h) and the denominator of which is the SYS Average Price per share.

 

2.2    Conversion of Merger Sub Stock. Each share of capital stock of Merger Sub outstanding at the Effective Time shall be converted into and become one validly issued, fully paid and non-assessable share of common stock of the Surviving Corporation.

 

2.3    Fractional Shares .

 

(a)    No certificates for fractional shares of SYS Common Stock shall be issued as a result of the conversion provided for in Section 2.1 , and such fractional share interests will not entitle the owner thereof to vote or have any rights of a holder of shares of SYS Common Stock.

 

(b)    In lieu of any such fractional shares of SYS Common Stock, the holder of a certificate or certificates (the “ Certificates ”) that immediately prior to the Effective Time represented outstanding shares of Ai Metrix Capital Stock whose shares were converted into the right to receive the Merger Consideration pursuant to Section 2.1(a) , upon presentation of such fractional interest represented by an appropriate Certificate for Ai Metrix Capital Stock to SYS pursuant to Section 2.4 , shall be entitled to receive a cash payment therefor, in an amount equal to the value of such fractional interest, with a share of SYS Common Stock being valued for this purpose at the value of the average closing price of SYS Common Stock on the American Stock Exchange over the ten (10) consecutive trading days immediately preceding October 16, 2006 (the “ SYS Average Price ”). Such payment with respect to fractional shares is intended to avoid the expense and inconvenience of issuing fractional shares and to provide a mechanical rounding off of, and is not a separately bargained for, consideration. If more than one Certificate shall be surrendered for the account of the same holder, the number of shares of Ai Metrix Capital Stock for which Certificates have been surrendered shall be appropriately adjusted to provide to the Ai Metrix Stockholders the same economic effect as contemplated by this Agreement. The fractional share interests of each Ai Metrix Stockholder will be aggregated, and no Ai Metrix Stockholder will receive cash in an amount greater than the value of one full share of SYS Common Stock for such fractional share interest.

 

2.4    Exchange of Certificates.

 

(a)    Exchange Procedures .

 

(i)    At the Closing, each (A) Majority Stockholder and (B) other Ai Metrix Stockholder (but excluding the individuals listed on Schedule 4 hereto, which individuals have represented to Ai Metrix that they are not accredited investors) that is the record owner of shares of Ai Metrix Capital Stock that are equal to or convertible into more than 5,000 shares of Ai Metrix Common Stock in the aggregate, shall deliver (all of such Majority Stockholders and Ai Metrix Stockholders being collectively referred to herein as the “ Closing Stockholders ”): (x) the Certificate or Certificates representing such Closing Stockholder’s shares of Ai Metrix Capital Stock (or affidavits of lost certificates in lieu thereof), duly endorsed in blank or accompanied by stock powers duly executed in blank (or, in the event of Closing Stockholders who exercised options immediately prior to the Closing Date and have not received a Certificate representing such Closing Stockholder’s Ai Metrix Capital Stock by the Closing, an executed acknowledgement that such Closing Stockholder has exercised such Closing Stockholder’s options and paid the consideration therefor, and has not received a Certificate representing its Ai Metrix Capital Stock) (collectively, the “ Required Deliveries ”), (y) duly executed stock powers with respect to that Closing Stockholder’s shares of SYS Common Stock which are to be deposited with the Escrow Agent, and (z) a duly executed Investment Representation Certificate substantially in the form of Exhibit B hereto (the “ Investment Representation Certificate ”), and in exchange for such delivery shall receive, as soon as practicable after the Effective Time, but no later than the Payment Deadline, (A) subject to Section 2.4(h) , the Merger Consideration to which such Closing Stockholder is entitled as set forth on Schedule 1 , payable by delivery of a stock certificate naming such Closing Stockholder as the holder thereof, and (B) payment by check or wire transfer of funds in U.S. dollars representing the amount of cash in lieu of fractional shares, if any, which such holder has the right to receive pursuant to the provisions of this Article II .

 

(ii)    Promptly after the Closing, the Surviving Corporation shall send to all Ai Metrix Stockholders who were not Closing Stockholders (such stockholders, the “ Other Stockholders ”) a notice informing such Other Stockholders of the consummation of the Merger, instructing such Other Stockholders to deliver the Required Deliveries to the Surviving Corporation within the twenty (20) day period following the date of such notice (the “ Delivery Period ”), and notifying such Other Stockholders that in the event that the Required Deliveries are not received by the Surviving Corporation during such time period, then all rights of such Ai Metrix Stockholder to the Merger Consideration will be forfeited. In exchange for such delivery of the Required Deliveries by the Other Stockholders, such Other Stockholder shall receive, as soon as practicable after the end of the Delivery Period, payment by check or wire transfer of funds in U.S. dollars representing (A) the Merger Consideration to which such Other Stockholder is entitled pursuant to Section 2.4(h) , as set forth on Schedule 1 , and (B)  the amount of cash in lieu of fractional shares, if any, which such holder has the right to receive pursuant to the provisions of this Article II .

 

(iii)    No interest will be paid or accrued on the cash in lieu of fractional shares, if any, and unpaid dividends and distributions, if any, payable to holders of shares of Ai Metrix Capital Stock. In the event of a transfer of ownership of shares of Ai Metrix Capital Stock that is not registered on the transfer records of Ai Metrix, a certificate representing the proper number of shares of SYS Common Stock, if any, together with a check for the cash to be paid in lieu of fractional shares, if any, unpaid dividends and distributions, if any, and cash in lieu of SYS Common Stock pursuant to Section 2.4(h) , if any, may be issued to such transferee if the Certificate representing such shares of Ai Metrix Capital Stock held by such transferee is presented to SYS, accompanied by all documents required to evidence and effect such transfer and to evidence that any applicable stock transfer taxes have been paid. Until surrendered as contemplated by this Section 2.4 , each Certificate shall be deemed at any time after the Effective Time to represent only the right to receive the appropriate amount of Merger Consideration upon surrender.   If any Certificate shall have been lost, stolen or destroyed, upon the making of an affidavit of that fact by the person claiming such Certificate to be lost, stolen or destroyed and, if required by SYS, the posting by such person of a bond in such reasonable amount as SYS may direct as indemnity against any claim that may be made against it with respect to such Certificate, SYS will deliver in exchange for such lost, stolen or destroyed Certificate, the Merger Consideration, payable at Closing, with respect to the shares of Ai Metrix Capital Stock that were represented by such Certificate, as provided in this Article II .

 

(b)    Distributions with Respect to Unexchanged Shares. Notwithstanding any other provisions of this Agreement, no dividends or other distributions declared or made after the Effective Time with respect to shares of SYS Common Stock having a record date after the Effective Time shall be paid to the holder of any unsurrendered Certificate, and no cash payment in lieu of fractional shares shall be paid to any such holder, until the holder shall surrender such Certificate (or affidavit) as provided in this Section 2.4(a) . Subject to the effect of all applicable constitutions, laws, statutes, treaties, orders, rules, regulations, ordinances, notices, approvals, policies or guidelines promulgated, or judgments, decisions, decrees, or orders of any Governmental Authority (as defined below) (collectively, “ Applicable Laws ”), following surrender of any such Certificate, there shall be paid to the holder of the Merger Consideration issued in exchange therefor, without interest, (i) at the time of such surrender, the amount of dividends or other distributions with a record date after the Effective Time theretofore payable with respect to such whole shares of SYS Common Stock and not paid, less the amount of any withholding taxes that may be required thereon, and (ii) at the appropriate payment date subsequent to surrender, the amount of dividends or other distributions with a record date after the Effective Time but prior to surrender and a payment date subsequent to surrender payable with respect to such whole shares of SYS Common Stock, less the amount of any withholding taxes which may be required thereon.

 

(c)    No Further Ownership Rights in Ai Metrix Capital Stock. All Merger Consideration issued and/or paid and any cash payments in lieu of fractional shares upon surrender of Certificates (or affidavits) in accordance with the terms hereof shall be deemed to have been issued and/or paid in full satisfaction of all rights pertaining to such shares of Ai Metrix Capital Stock represented thereby, and, as of the Closing, the stock transfer books of Ai Metrix shall be closed and there shall be no further registration of transfers on the stock transfer books of Ai Metrix of shares of Ai Metrix Capital Stock outstanding immediately prior to the Effective Time. If, after the Effective Time, Certificates are presented to the Surviving Corporation for any reason, they shall be cancelled and exchanged as provided in this Section 2.4 .

 

(d)    No Liability. Neither SYS nor the Surviving Corporation shall be liable to any person in respect of any Merger Consideration (or any dividends or distributions with respect thereto) delivered to a public official pursuant to any applicable abandoned property, escheat or similar law. If any Certificates shall not have been surrendered (A) prior to seven (7) years after the Effective Time or (B) immediately prior to such earlier date on which any Merger Consideration (or any dividends or distributions with respect thereto) would otherwise escheat to or become the property of any Governmental Authority, then, at such time, any such Merger Consideration (or any dividends or distributions with respect thereto) shall, to the extent permitted by Applicable Law, become the property of SYS, free and clear of all claims or interest of any person previously entitled thereto. For purposes of this Agreement, “ Governmental Authority ” means any (i) nation, region, state, county, city, town, village, district or other jurisdiction, (ii) federal, state, local, municipal, foreign or other government, (iii) federal, state, local municipal, foreign or multi-national court, arbitral tribunal, administrative agency or commission, (iv) other governmental, quasi-governmental, public, or regulatory body, agency, instrumentality or authority of any nature, (v) multi-national organization, (vi) body exercising, or entitled to exercise, any administrative, executive, judicial, legislative, policy, regulatory or taxing authority or power of any nature or (vii) official of any of the foregoing.

 

(e)    Withholding. Upon any exercise of options prior to the Closing Date in accordance with Section 2.4(f) , Ai Metrix agrees that, to the extent it is required to do so under the U.S. Internal Revenue Code of 1986, as amended (the “ Code ”), or any provision of state, local or foreign tax law, it will deduct and withhold such amounts as it is required to deduct and withhold with respect to such exercise. Each of the Surviving Corporation and SYS shall be entitled to deduct and withhold from any cash otherwise payable pursuant to this Agreement to any holder of shares of Ai Metrix Capital Stock such amounts as it is required to deduct and withhold with respect to the making of such payment under the Code, or any provision of state, local or foreign tax law. Notwithstanding the foregoing, no withholding shall be required to the extent that any holder of Ai Metrix Capital Stock delivers to SYS or the Surviving Corporation a validly executed Form W-8 and/or Form W-9 as requested by either SYS or the Surviving Corporation with respect to such payment prior to or at the time that any such payment is made. To the extent that amounts are so withheld by the Surviving Corporation or SYS, as the case may be, such withheld amounts shall be treated for all purposes of this Agreement as having been paid to the holder of the shares of Ai Metrix Capital Stock in respect of which such deduction and withholding was made by the Surviving Corporation or SYS, as the case may be.

 

(f)    Options, Warrants and Other Convertible Securities . Prior to the Closing Date, the Board of Directors of Ai Metrix shall take all actions necessary and appropriate to cause each outstanding option or warrant to acquire, and each issued note or other security (other than Ai Metrix Preferred Stock) convertible into, Ai Metrix Common Stock, whether or not exercisable, vested or converted, to have been exercised or cancelled so that as of the Effective Time no person shall have any options, warrants, or other rights to buy, or convert into, any securities of the Surviving Corporation. In connection with any such exercise, the holders of such options and warrants may elect whether to convert by (i) paying Ai Metrix in cash for the exercise price of all such options, or (ii) a cash-free exercise such that, in lieu of paying the exercise price or other consideration required to be paid by such holder to exercise the options or warrants, such holders will not make any cash payment, but will receive that number of shares of Ai Metrix Common Stock to which it is entitled upon exercise, less the number of shares whose value equals the aggregate consideration or exercise price that such holder would have been required to pay in order to exercise or convert such options or warrants. Shares of Ai Metrix Common Stock will be valued for purposes of this conversion at the SYS Average Price.

 

(g)    Restrictive Legend. Each certificate evidencing shares of SYS Common Stock issued pursuant to this Agreement shall bear the following legend in conspicuous type:

 

THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR REGISTERED OR QUALIFIED UNDER ANY STATE SECURITIES LAWS. THE SHARES MAY NOT BE SOLD OR OTHERWISE TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR QUALIFICATION WITHOUT AN OPINION OF COUNSEL SATISFACTORY TO THE CORPORATION THAT SUCH REGISTRATION OR QUALIFICATION IS NOT REQUIRED.

 

(h)    Cash in Lieu of Securities . Notwithstanding anything to the contrary contained herein, in lieu of Merger Consideration and Earnout Consideration, if any, consisting of SYS Common Stock, SYS shall pay each Other Stockholder that delivers the Required Deliveries to the Surviving Corporation within the Delivery Period an equivalent amount of cash; it being agreed that (i) such shares of SYS Common Stock will be valued for this purpose: (A) with respect to Merger Consideration, at the SYS Average Price per share and (B) with respect to Earnout Consideration, at the SYS Average Earnout Price, and (ii) a portion of such cash shall be paid into the Escrow Account as provided in Section 2.1(b) in lieu of the SYS Common Stock that would have been delivered to the Escrow Account if such Ai Metrix Stockholder had received Merger Consideration in the form of SYS Common Stock.

 

2.5    Earnout/Clawback.

 

(a)    EBITDA Calculations . “ EBITDA Period ” shall mean the period commencing on the Closing Date and ending on December 31, 2007. No later than forty-five (45) days following the end of the EBITDA Period, SYS shall in good faith calculate, prepare and deliver to the Stockholder Representative a statement showing the earnings before interest, taxes, depreciation and amortization, calculated in accordance with U.S. generally accepted accounting principles (“ GAAP ”) applied on a consistent basis during the periods involved,   generated by the Surviving Corporation during the EBITDA Period (“ EBITDA ”), and showing in reasonable detail the Earnout Consideration or Clawback Consideration, as applicable, calculated in accordance with Section 2.5(b) . The statement of calculations referred to in this Section 2.5(a) shall be referred to herein as the “ EBITDA Calculations .” Any products of Ai Metrix sold during the EBITDA Period in conjunction with products or services of other segments of SYS’s business shall be taken into account in calculating EBITDA based on the proportional value of such products or services. For the avoidance of doubt, for the purpose of determining the EBITDA Calculations only, (i) 90% of all deferred maintenance revenue booked by Ai Metrix prior to the Closing that, but for the consummation of the Merger and the application of purchase price accounting with respect thereto, would otherwise have been recognized as revenue during the EBITDA Period, shall be taken into account in   calculating EBITDA, (ii)   10% of all deferred maintenance revenue booked by Ai Metrix during the last three months of the EBITDA Period that have not, as of the end of the EBITDA Period, been recognized as revenue shall constitute revenue for purposes of calculating EBITDA to the extent that such bookings are reasonably likely to be recognized during the 12-month period following the later of (A) the date of booking such revenue and (B) the end of the EBITDA Period, and (iii)   software license bookings received during the 45-day period following the EBITDA Period that are invoiced and that can be recognized as revenue during that 45-day period shall constitute revenue for purposes of calculating EBITDA to the extent that such bookings are reasonably likely to be collected upon the terms on which such bookings were made. All Transaction Expenses (as defined in Section 5.3(e) below) shall be excluded from the calculation of EBITDA, regardless of when incurred.

 

(b)    Earnout/Clawback Consideration. If the Surviving Corporation generates EBITDA in excess of US$2,500,000, SYS shall issue to the Ai Metrix Stockholders (subject to Sections 2.4(h) and 2.5(c) ) one additional share of SYS Common Stock for each dollar of EBITDA over US$2,500,000, up to a maximum of 1,950,000 shares of SYS Common Stock; provided that, if for any reason, SYS is no longer a public company at the time that such SYS Common Stock is to be issued due to a merger, consolidation or other acquisition by another company, then, instead of receiving SYS Common Stock as Earnout Consideration, the Ai Metrix Stockholders shall receive shares or equity of such successor entity of equivalent value (the “ Earnout Consideration ”). The Earnout Consideration, if any, shall be allocated among the Ai Metrix Stockholders in accordance with the percentages set forth on Schedule 1 . If the Surviving Corporation generates EBITDA of less than US$1,500,000 (the “ Clawback Threshold ”), the Escrow Agent (i) shall return to SYS from the Clawback Escrow a combination of shares of SYS Common Stock and cash in an amount equal to one share of SYS Common Stock for each dollar of EBITDA less than the Clawback Threshold, up to a maximum of the total amount of the Clawback Escrow (the “ Clawback Consideration ”) and (ii) the shares and cash remaining in the Clawback Escrow after returning the Clawback Consideration to SYS shall remain in the Escrow Account until released in accordance with the Escrow Agreement. In the event that the Clawback Threshold is not achieved solely due to the fact that the Surviving Corporation is unable to recognize 100% of the deferred maintenance revenues on Ai Metrix’s books as of the Closing Date due to the requirements of GAAP purchase price accounting, then, for the sole purpose of determining whether the Clawback Threshold has been achieved, then such deferred maintenance revenues shall be deemed to constitute revenue (for this purpose only) to the extent not so recognized under Section 2.5(a) . The cash in the Clawback Escrow shall be deemed to equal the number of shares of SYS Common Stock equal to a fraction, the numerator of which is the amount of such cash and the denominator is the average closing price of SYS Common Stock on the principal national securities exchange or principal national securities quotation system on which the SYS Common Stock is then listed over the ten (10) consecutive trading days immediately preceding the date of disbursement of any such cash in the Clawback Escrow in accordance with this Agreement and the Escrow Agreement. The Clawback Consideration, if any, shall be obtained from the Escrow Account pro rata between SYS Common Stock and cash and allocated among the Ai Metrix Stockholders (subject to Section 2.4(h) ) as set forth on Schedule 1 . If the Surviving Corporation generates EBITDA between US$1,500,000 to US$2,500,000, then neither Earnout Consideration nor Clawback Consideration shall be payable hereunder, and the shares of SYS Common Stock and cash constituting the Clawback Escrow shall remain in the Escrow Account until released in accordance with the Escrow Agreement.

 

(c)    Acceptance of Earnout Calculations . If the Stockholder Representative does not dispute the EBITDA Calculations, it shall promptly, within thirty (30) days after receipt of such calculations, notify SYS in writing thereof. The date on which the Stockholder Representative so notifies SYS, or the date on which the EBITDA Calculations are otherwise agreed between SYS and the Stockholder Representative or otherwise resolved pursuant to Section 2.5(d) , is referred to herein as the “ EBITDA Determination Date .” If any Earnout Consideration is required to be paid, SYS shall convene the SYS Stockholders Meeting in accordance with Section 5.2(b) to seek the SYS Stockholder Approval (as defined below) in accordance with the terms of the Voting Agreement. If SYS obtains the SYS Stockholder Approval at the SYS Stockholders Meeting, SYS shall (subject to Section 2.4(h) ) promptly, within ten (10) business days after the SYS Stockholders Meeting, issue to each Ai Metrix Stockholder his, her or its applicable percentage of the Earnout Consideration. If, for any reason, SYS does not obtain the SYS Stockholder Approval within one hundred eighty (180) days after the EBITDA Determination Date, it shall promptly, within ten (10) business days after the earlier of the last day of such 180-day period and the date of the SYS Stockholders Meeting at which the SYS Stockholder Approval is not obtained, pay the Ai Metrix Stockholders an equivalent amount of cash, where every one share of SYS Common Stock that constitutes Earnout Consideration shall represent an amount in cash equal to the average closing price of SYS Common Stock on the principal national securities exchange or principal national securities quotation system on which the SYS Common Stock is then listed over the ten (10) consecutive trading days immediately preceding the date of payment of such cash (the “ SYS Average Earnout Price ”). If any Clawback Consideration is required to be paid, SYS shall be entitled to obtain the requisite shares of SYS Common Stock and cash from the Escrow Account and the Stockholder Representative shall promptly take all actions and execute and deliver all documents reasonably necessary to facilitate the return of such shares of SYS Common Stock and cash from the Clawback Escrow.

 

(d)    Dispute Resolution . If the Stockholder Representative disagrees with the EBITDA Calculations, it shall notify SYS of such disagreement in writing, setting forth in reasonable detail the particulars of such disagreement, within thirty (30) days after his receipt of the EBITDA Calculations. If any such notice of disagreement is timely provided, SYS and the Stockholder Representative shall use commercially reasonable efforts for a period of thirty (30) days to resolve any disagreement. If SYS and the Stockholder Representative have been unable to resolve the disagreement by the end of such period, Ernst & Young (the “ Arbitrator ”), shall be retained to make a determination on the matter in dispute. The determination of the Arbitrator shall be final, binding and conclusive on the parties and the appropriate payment shall be made by the parties based upon the final determination of the Arbitrator. The fees and expenses of the Arbitrator shall be borne equally by SYS, on the one hand, and the Stockholder Representative, on behalf of the Ai Metrix Stockholders, on the other hand. Each party shall pay its own costs and expenses (including attorneys’ fees) incurred in connection with any such disagreement. The date on which the EBITDA Calculations are finally determined in accordance with this Section 2.5(d) shall be deemed to be acceptance by the Stockholder Representative for purposes of Section 2.5(c) .

 

(e)    Conduct of Business During EBITDA Period . SYS acknowledges and agrees that the ability of the Surviving Corporation to meet EBITDA objectives and the ability of the parties to calculate fairly and measure the performance of the Surviving Corporation relative to EBITDA objectives will depend to a significant degree upon maintaining the business of Ai Metrix (the “ Business ”) as a whole and as a discrete operating unit. SYS and the Surviving Corporation (and any acquirer of or successor to SYS or the Surviving Corporation pursuant to a merger, consolidation or other acquisition by another company) shall, after the Closing Date (i) act in good faith at all times during the EBITDA Period, (ii) not fail to take any action that would be required by reasonable, skillful, prudent and diligent business persons engaged in the independent operation of a business similar to the Business, and (iii) not take any action that would be prejudicial or discriminatory to the Business, the Surviving Corporation or the interests of the Ai Metrix Stockholders in receiving the Earnout Consideration. Without limiting the foregoing, during the EBITDA Period after the Closing Date:

 

(i)    SYS shall act in good faith and, acting as a reasonable, skillful, prudent and diligent person engaged in the independent operation of a business similar to the Business, use commercially reasonable efforts to enable the Surviving Corporation to achieve the targets contemplated by this Agreement, including providing the Surviving Corporation with sufficient liquidity and working capital funds as required in SYS’s reasonable business judgment for the operation of the Business;

 

(ii)    SYS shall provide the Surviving Corporation’s management team reasonable authority to participate in the management and operation of the Business throughout the EBITDA Period, including reasonable authority to direct business strategy, pricing, sales and marketing during the EBITDA Period in a manner consistent with the current plans of the Business;

 

(iii)    SYS shall use reasonable efforts to retain the services of the officers and key employees of the Business and to maintain relationships with customers, suppliers, lessees, licensees and other relevant third parties, to the extent reasonably required for the operation of the Business;

 

(iv)    SYS shall cause or permit the Surviving Corporation to engage in the Business and such other and further business lines as the Surviving Corporation’s management team may from time to time determine, subject in the case of additional business lines to SYS’s prior approval (not to be unreasonably withheld or delayed);

 

(v)    Except as required or appropriate in SYS’s reasonable business judgment, SYS shall not sell, abandon, lease, assign, transfer, license or otherwise dispose of any of the assets of the Business, or amend, modify or provide for the early termination of any material agreement or license to which the Surviving Corporation is a party, if any of the foregoing would reasonably be expected to have a material adverse effect on the Business, the financial condition of the Surviving Corporation, its assets or properties, or the likelihood of the Ai Metrix Stockholders receiving the maximum Earnout Consideration otherwise attainable in the circumstances then prevailing;

 

(vi)    Neither the Surviving Corporation nor the Business shall be wound up, dissolved, or merged, amalgamated, or otherwise reorganized in such a manner that either the Surviving Corporation or the Business is no longer readily identifiable as a discrete business entity;

 

(vii)    Separate books and records will be maintained related to the Surviving Corporation and the Business sufficient to allow independent verification of the results of operations of the Surviving Corporation throughout the EBITDA Period, including for purposes of calculating EBITDA; and

 

(viii)    For purposes of the EBITDA Calculations, SYS shall allocate to the Surviving Corporation or the Business corporate overhead charges not to exceed the same ratio that general and administrative charges incurred by Ai Metrix during the first nine (9) months of fiscal year 2006 had to net revenue recorded by Ai Metrix during such period.

 

2.6    Escrow Account.

 

(a)    Escrow Agreement . On or prior to the Closing Date, SYS and the Stockholder Representative shall establish an escrow account (the “ Escrow Account ”) at Union Bank of California, N.A., by the execution and delivery of an Escrow Agreement substantially in the form attached as Exhibit C hereto (the “ Escrow Agreement ”). The Escrow Account shall contain the shares of SYS Common Stock and cash representing the Indemnity Escrow and the shares of SYS Common Stock and cash representing the Clawback Escrow.

 

(b)    Deposit of Escrow Consideration . As soon as practicable after the Effective Time, but no later than the Payment Deadline, SYS shall deliver the Escrow Consideration to the Escrow Agent (as defined in the Escrow Agreement), for immediate deposit into the Escrow Account.

 

(c)    Disbursement of Escrow Consideration . (i) The Clawback Consideration deposited in the Escrow Account shall be available, in accordance with this Agreement and the Escrow Agreement, to provide recourse for SYS for any Clawback Consideration and for any breach of the representations, warranties, covenants and agreements of Ai Metrix in the manner provided in Article IX hereof, and (ii) the Indemnity Escrow deposited in the Escrow Account shall be available, in accordance with this Agreement and the Escrow Agreement, to provide recourse for SYS for any breach of the representations, warranties, covenants and agreements of Ai Metrix in the manner provided in Article IX hereof, and shall be paid to the Ai Metrix Stockholders or returned to SYS only in accordance with and subject to the terms and conditions set forth herein and in the Escrow Agreement.

 

ARTICLE III

REPRESENTATIONS AND WARRANTIES OF SYS AND MERGER SUB

 

In order to induce Ai Metrix and the Majority Stockholders to enter into this Agreement, SYS and Merger Sub, jointly and severally, hereby represent and warrant to Ai Metrix and the Ai Metrix Stockholders that the statements contained in this Article III are true, correct and complete, except as otherwise expressly set forth in this Article III as of the date hereof and as of the Closing Date unless another date is expressly stated below.

 

3.1    Organization and Standing.

 

(a)    Each of SYS, Merger Sub and each other subsidiary of SYS is a corporation duly organized, validly existing and, where applicable, in good standing under the laws of its state of incorporation with corporate power and authority to own, lease, use and operate its properties and to conduct its business as and where now owned, leased, used, operated and conducted.

 

(b)    Each of SYS, Merger Sub and each other subsidiary of SYS is duly qualified to do business and in good standing in each jurisdiction in which the nature of the business conducted by it or the property it owns, leases or operates, requires it to so qualify, except where the failure to be so qualified or in good standing in such jurisdiction would not have a Material Adverse Effect (as defined below) on SYS and its subsidiaries, taken as a whole. SYS is not in default in the performance, observance or fulfillment of any provision of the SYS Articles of Incorporation, as amended (the “ SYS Articles ”), or the SYS Amended and Restated Bylaws, as amended, as in effect on the date hereof (the “ SYS Bylaws ”), and Merger Sub and each other subsidiary of SYS is not in default in the performance, observance or fulfillment of any provisions of its Certificate of Incorporation or Bylaws. SYS has heretofore furnished to the Ai Metrix Stockholders complete and correct copies of the SYS Articles and the SYS Bylaws, the Merger Sub Certificate and Merger Sub Bylaws and the governing documents of each other subsidiary of SYS.

 

3.2    Corporate Power and Authority. Each of SYS and Merger Sub has all requisite corporate power and authority to enter into and deliver this Agreement, to perform its obligations hereunder and to consummate the transactions contemplated by this Agreement. The execution and delivery of this Agreement and the consummation of the transactions contemplated hereby by SYS and Merger Sub have been duly authorized by all necessary corporate action on the part of each of SYS and Merger Sub, other than as provided in Section 3.8 . This Agreement has been duly executed and delivered by each of SYS and Merger Sub and constitutes the legal, valid and binding obligation of each of SYS and Merger Sub enforceable against each of them in accordance with its terms, except to the extent that such enforceability may be subject to applicable bankruptcy, insolvency, reorganization, moratorium and similar laws affecting the enforcement of creditors’ rights generally or by general equitable principles.

 

3.3    Conflicts; Consents and Approvals. Neither the execution and delivery of this Agreement by SYS and Merger Sub nor the consummation of the transactions contemplated hereby will:

 

(a)    conflict with, or result in a breach of any provision of, the SYS Articles or the SYS Bylaws, the Merger Sub Certificate or the Merger Sub Bylaws or the governing documents of any other subsidiary of SYS;

 

(b)    except as set forth in Section 3.3(b) of the SYS Disclosure Schedule, materially violate, or conflict with, or result in a material breach of any provision of, or constitute a material default (or an event that, with the giving of notice, the passage of time or otherwise, would constitute a default) under, or entitle any party (with the giving of notice, the passage of time or otherwise) to terminate, accelerate, modify or call a material default under, or result in the creation of any material Encumbrance (as defined below) upon any of the properties or assets of SYS or any of its subsidiaries under, any of the terms, conditions or provisions of any material note, bond, mortgage, indenture, deed of trust, license, contract, undertaking, agreement, lease or other instrument or obligation to which SYS or any of its subsidiaries is a party (for purposes of this Agreement, “ Encumbrance ” means any charge, claim, mortgage, servitude, easement, right of way, equitable interest, lease or other possessory interest, conditional sale or other title retention arrangement, lien, pledge, security interest, preference, priority, right of first refusal or similar restriction);

 

(c)    materially violate any (i) order, writ, injunction, decree, statute, ruling, assessment, or arbitration or award of any Governmental Authority or (ii) Applicable Laws relating to SYS or any of its subsidiaries or their respective properties or assets; or

 

(d)    require any action or consent or approval of, or review by, or registration or filing by SYS or any of its affiliates with, any third party or any Governmental Authority, other than (i) registrations or other actions required under federal and state securities laws or the rules and regulations of the national securities exchange or national securities quotation system on which the SYS Common Stock is then listed, and (ii) the filing of the Certificate of Merger with the Delaware Secretary of State. Based on the representations and warranties made by Ai Metrix hereunder and assuming that each Closing Stockholder executes and delivers to SYS prior to the Closing an Investment Representation Certificate in the form attached hereto as Exhibit B , no registration of the SYS Common Stock to be issued as Merger Consideration hereunder is required under federal or state securities laws.

 

3.4    Actions. Except as set forth in Section 3.4 of the SYS Disclosure Schedule, there are no material Actions pending or, to the knowledge of SYS, threatened against SYS or Merger Sub, including any Action which questions the validity of this Agreement or the Merger or any action taken or to be taken pursuant hereto or pursuant to the Merger, or relating to its method of doing business or its relationship with past or existing users or purchasers of any goods or services, and there is no outstanding order, writ, injunction or decree of any Governmental Authority against SYS or Merger Sub. For purposes of this Agreement, “ Action ” means any action, arbitration, audit, examination, suit, proceeding, hearing or litigation, whether formal or informal, and whether public or private, commenced, brought, conducted or heard by or before any court or Governmental Authority.

 

3.5    Financial Ability. At the Effective Time, SYS will have a sufficient number of shares of SYS Common Stock and sufficient cash funds to pay the Merger Consideration, any cash in lieu of fractional shares and all related fees and expenses of SYS.

 

3.6    Capitalization of SYS.

 

(a)    The authorized capital stock of SYS consists of 48,000,000 common shares (the “ SYS Common Stock ”), 250,000 preferred shares (the “ SYS Preferred Stock ”), and 2,000,000 preference shares (the “ SYS Preference Stock ”). At October 16, 2006, (i) 15,455,805 shares of SYS Common Stock were issued and outstanding, (ii) 6,249,582 shares of SYS Common Stock were reserved for issuance upon the exercise or conversion of options, warrants or convertible securities granted or issuable by SYS, including pursuant to SYS’s stock option and stock purchase plans, (iii) no shares of SYS Preferred Stock were issued and outstanding, and (iv) no shares of SYS Preference Stock were issued and outstanding. The SYS Common Stock, the SYS Preferred Stock, and the SYS Preference Stock are referred to herein collectively as the “ SYS Capital Stock .” Each outstanding share of SYS Capital Stock is duly authorized and validly issued, fully paid and nonassessable and has not been issued in violation of any preemptive or similar rights. The issuance and sale of all of the shares of SYS Capital Stock described in this Section 3.6 have been in compliance in all material respects with applicable federal and state securities laws.

 

(b)    At October 16, 2006, other than as set forth in clause (a)(ii) above or as set forth in Section 3.6(b) of the SYS Disclosure Schedule, there are no outstanding subscriptions, options, warrants, puts, calls, agreements, understandings, claims or other commitments or rights of any type relating to the issuance, sale, repurchase or transfer by SYS of any securities of SYS, nor are there outstanding any securities which are convertible into or exchangeable for any shares of SYS Capital Stock, and SYS has no obligation of any kind to issue any additional securities or to pay for or repurchase any securities of SYS or any predecessor.

 

(c)    The shares of SYS Common Stock to be issued at the Effective Time have been duly authorized and will, at the Effective Time, be fully paid and nonassessable and issued in reliance on exceptions from the registration and qualification requirements of federal and state securities laws. The Escrow Consideration has been duly authorized and will, if issued pursuant to this Agreement, be fully paid and nonassessable and issued in reliance on exceptions from the registration and qualification requirements of federal and state securities laws.

 

(d)    The transactions contemplated by this Agreement, including without limitation, the issuance of SYS Common Stock and the ownership of the SYS Common Stock by the Ai Metrix Stockholders, will not create any obligation by SYS to sell or otherwise issue any shares of SYS Common Stock or any other securities, or otherwise cause the application of, any control share acquisition, shareholder approval requirement (other than the SYS Stockholder Approval), poison pill (including any distribution under a rights agreement) or other similar anti-takeover provision under the SYS Articles or the laws of the state of its incorporation or other Applicable Law.

 

3.7    Brokerage and Finders’ Fees. Other than USBX Advisory Services, LLC, whose fees will be paid by SYS, neither SYS nor any stockholder, director, officer or employee thereof has incurred or will incur on behalf of SYS or any of its affiliates, any brokerage, finders’ or similar fee in connection with the transactions contemplated by this Agreement.

 

3.8    Board Recommendation; Required Vote. The Board of Directors of SYS, at a meeting duly called and held, has by the requisite vote of those directors present and constituting a quorum of the directors then in office (a) determined that this Agreement and the transactions contemplated hereby, including the Merger, are fair to and in the best interests of SYS and its stockholders, and (b) resolved to recommend that the stockholders of SYS vote for approval of the issuance of SYS Common Stock in payment of the Earnout Consideration, if such payment is required under Section 2.5 and if such approval is required by the rules and regulations of the national securities exchange or national securities quotation system on which the SYS Common Stock is then listed. The affirmative vote of a majority of the total votes cast by the holders of SYS Common Stock, excluding any such holders who received SYS Common Stock in connection with the transactions contemplated by this Agreement, in favor of the issuance of SYS Common Stock as Earnout Consideration, if any, is the only vote of the SYS stockholders necessary to approve the issuance of the Earnout Consideration (the “ SYS Stockholder Approval ”). No vote or approval of the holders of SYS Capital Stock is necessary for SYS to issue the Merger Consideration.

 

3.9    SYS SEC Documents.  

 

(a)    Except as set forth in Section 3.9(a) of the SYS Disclosure Schedule, SYS has timely filed with the U.S. Securities and Exchange Commission (the “ Commission ”) all forms, reports, schedules, statements and other documents (including exhibits and other information incorporated therein) required to be filed by it since July 1, 2004 under the Securities Act of 1933, as amended (the “ Securities Act ”), or the Securities Exchange Act of 1934, as amended (the “ Exchange Act ”) (such documents, as supplemented and amended since the time of filing, collectively, the “ SYS SEC Documents ”). No subsidiary of SYS is required to file any form, report, registration statement, prospectus or other document with the Commission.

 

(b)    The SYS SEC Documents, including any financial statements or schedules included in the SYS SEC Documents, at the time filed (and, in the case of registration statements and proxy statements, on the dates of effectiveness and the dates of mailing, respectively and, in the case of any SYS SEC Document amended or superseded by a filing prior to the date of this Agreement, then on the date of such amending or superseding filing): (i) did not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading and (ii) complied in all material respects with the applicable requirements of the Exchange Act and the Securities Act, as the case may be.

 

(c)    The financial statements of SYS (including the related notes) included in the SYS SEC Documents at the time filed (and, in the case of registration statements and proxy statements, on the dates of effectiveness and the dates of mailing, respectively, and, in the case of any SYS SEC Document amended or superseded by a filing prior to the date of this Agreement, then on the date of such amending or superseding filing) complied in all material respects with applicable accounting requirements and with the published rules and regulations of the Commission with respect thereto, were prepared in accordance with GAAP applied on a consistent basis during the periods involved (except as may be indicated in the notes thereto or, in the case of unaudited statements, as permitted by Form 10-Q or Form 10-QSB of the Commission), and fairly present (subject, in the case of unaudited statements, to normal, recurring audit adjustments not material in amount) in all material respects the consolidated financial position of SYS and its consolidated subsidiaries as at the dates thereof and the consolidated results of their operations and cash flows for the periods then ended.

 

3.10    Undisclosed Liabilities . As of the date of this Agreement, neither SYS nor Merger Sub has any liabilities or obligations of any nature (whether accrued, absolute, contingent or otherwise) that, individually or in the aggregate, could reasonably be expected to have a Material Adverse Effect on SYS and its subsidiaries, taken as a whole, other than (a) liabilities disclosed on SYS’s consolidated financial statements or in the notes thereto, (b) liabilities contemplated by this Agreement and/or set forth in the SYS Disclosure Schedule, and (c) liabilities incurred or accrued after the date hereof in the ordinary course of business consistent with past practice.

 

3.11    No Other Warranties . There are no representations or warranties made by the Ai Metrix Stockholders and no representations or warranties made by Ai Metrix, other than the representations and warranties set forth in Article IV and in the other documents and instruments delivered by Ai Metrix on the date hereof or at the Closing. SYS and Merger Sub are not relying upon any representations or warranties, other than the representations and warranties set forth in Article IV of this Agreement and in the other documents and instruments delivered by Ai Metrix on the date hereof or at the Closing.

 

ARTICLE IV

REPRESENTATIONS AND WARRANTIES OF AI METRIX

 

In order to induce SYS to enter into this Agreement, Ai Metrix hereby represents and warrants to SYS and Merger Sub that the statements contained in this Article IV are true, correct and complete, except as otherwise expressly set forth in this Article IV , as of the date hereof and as of the Closing Date unless another date is expressly stated below or in the Ai Metrix Disclosure Schedule.

 

4.1    Organization and Standing.

 

(a)    Ai Metrix is a corporation duly organized and validly existing under the laws of the State of Delaware with full corporate power and authority to own, lease, use and operate its properties and to conduct its business as and where now owned, leased, used, operated and conducted.

 

(b)    Ai Metrix is duly qualified or licensed to do business and is in good standing in each jurisdiction in which the nature of the business conducted by it or the property it owns, leases, uses, or operates requires it to so qualify, except where the failure to be so qualified or in good standing in such jurisdiction would not have a Material Adverse Effect on Ai Metrix. Ai Metrix is not in default in the performance, observance or fulfillment of any provision of its Certificate of Incorporation (the “ Ai Metrix Certificate ”) or its Bylaws (the “ Ai Metrix Bylaws ”), as in effect on the date hereof. Ai Metrix has previously furnished to SYS complete and correct copies of the Ai Metrix Certificate and the Ai Metrix Bylaws, each as in effect on the date hereof. Listed in Section 4.1 of the Ai Metrix Disclosure Schedule is each jurisdiction in which Ai Metrix is qualified or licensed to do business and whether Ai Metrix is in good standing in each applicable jurisdiction as of the date of this Agreement.

 

4.2    Subsidiaries. Ai Metrix does not own, directly or indirectly, any equity or other ownership interest in any corporation, partnership, joint venture or other entity or enterprise. Ai Metrix is not subject to any obligation or requirement to provide funds to or make any investment (in the form of a loan, capital contribution or otherwise) in any person.

 

4.3    Corporate Power and Authority. Ai Metrix has all requisite corporate power and authority to enter into and deliver this Agreement, to perform its obligations hereunder and to consummate the transactions contemplated by this Agreement. The execution and delivery of this Agreement and the consummation of the transactions contemplated hereby by Ai Metrix have been duly authorized by all necessary corporate action on the part of Ai Metrix, including all requisite approvals of its Board of Directors and the holders of the Ai Metrix Capital Stock. This Agreement has been duly executed and delivered by Ai Metrix and constitutes the legal, valid and binding obligation of Ai Metrix, enforceable against Ai Metrix in accordance with its terms, except to the extent that such enforceability may be subject to applicable bankruptcy, insolvency, reorganization, moratorium and similar laws affecting the enforcement of creditors’ rights generally or by general equitable principles.

 

4.4    Capitalization of Ai Metrix.

 

(a)    The authorized capital stock of Ai Metrix consists of 17,353,900 common shares (the “ Ai Metrix Common Stock ”) and 16,213,403 preferred shares (the “ Ai Metrix Preferred Stock ”). At the date of this Agreement, (i) 2,022,328 shares of Ai Metrix Common Stock are issued and outstanding and (ii) 14,183,403 shares of Ai Metrix Preferred Stock designated Series C Preferred Stock are issued and outstanding. The Ai Metrix Common Stock and the Ai Metrix Preferred Stock are referred to herein collectively as the “ Ai Metrix Capital Stock . ” Each outstanding share of Ai Metrix Capital Stock is duly authorized and validly issued, fully paid and nonassessable, and has not been issued in violation of any preemptive or similar rights. The issuance and sale of all of the shares of Ai Metrix Capital Stock described in this Section 4.4 have been in compliance in all material respects with applicable federal and state securities laws.

 

(b)    As of the date hereof, other than as set forth in clause (a)(ii) above or as set forth in Section 4.4(b) of the Ai Metrix Disclosure Schedule, there are no outstanding subscriptions, options, warrants, puts, calls, agreements, understandings, claims or other commitments or rights of any type relating to the issuance, sale, repurchase or transfer by Ai Metrix of any securities of Ai Metrix, nor are there outstanding any securities which are convertible into or exchangeable for any shares of Ai Metrix Capital Stock, and Ai Metrix has no obligation of any kind to issue any additional securities or to pay for or repurchase any securities of Ai Metrix or any predecessor. Set forth in Section 4.4 of the Ai Metrix Disclosure Schedule is an accurate and complete list of the names of all holders of Ai Metrix Capital Stock, and the number and class of shares held by each such Ai Metrix Stockholder. Set forth in Section 4.4 of the Ai Metrix Disclosure Schedule is an accurate and complete list of the names of all holders of options, warrants or convertible instruments to purchase Ai Metrix Capital Stock, the number of shares issuable to each such holder upon exercise of such option or warrant, and the exercise price and vesting schedule with respect thereto.

 

(c)    Ai Metrix has not agreed to register any securities of Ai Metrix under the Securities Act or under any applicable securities law or granted registration rights to any person or entity (other than agreements with respect to registration rights that are no longer in effect as of the date of this Agreement); complete and correct copies of all such agreements have previously been provided to SYS.

 

4.5    Conflicts; Consents and Approvals. Except as set forth on Section 4.5 of the Ai Metrix Disclosure Schedule, neither the execution and delivery of this Agreement by Ai Metrix, nor the consummation of the transactions contemplated hereby, will:

 

(a)    conflict with, or result in a breach of any provision of, the Ai Metrix Certificate or the Ai Metrix Bylaws;

 

(b)    materially violate or conflict with, or result in a material breach of any provision of, or constitute a material default (or an event that, with the giving of notice, the passage of time or otherwise, would constitute a default) under, or entitle any party (with the giving of notice, the passage of time or otherwise) to terminate, accelerate, modify or call a default under, or result in the creation of any material Encumbrance upon any of the properties or assets of Ai Metrix under, any of the terms, conditions or provisions of any note, bond, mortgage, indenture, deed of trust, license, contract, undertaking, agreement, lease or other instrument or obligation to which Ai Metrix is a party, including without limitation, any Contract (as defined below);

 

(c)    materially violate any (i) order, writ, injunction, decree, ruling, assessment, arbitration, or award of any Governmental Authority or arbitrator or (ii) Applicable Laws relating to Ai Metrix or any of its properties or assets; or

 

(d)    require any action or consent or approval of, or review by, or registration or filing by Ai Metrix or any of its affiliates with, any third party or any Governmental Authority, other than (i) registrations or other actions required under federal and state securities laws and (ii) the filing of the Certificate of Merger with the Delaware Secretary of State.

 

4.6    Brokerage and Finders’ Fees. Other than C.E. Unterberg, Towbin, whose fees will be paid by Ai Metrix prior to the Closing Date, neither Ai Metrix nor any stockholder, director, officer or employee thereof has incurred or will incur on behalf of Ai Metrix any brokerage, finders’ or similar fee in connection with the transactions contemplated by this Agreement.

 

4.7    Books and Records; Financial Statements.

 

(a)    From its date of incorporation, the minute books, stock books and stock ledgers of Ai Metrix (the “ Books of Account ”) have been maintained, in all material respects, in accordance with Applicable Law. The signatures of Ai Metrix personnel appearing on all documents contained in such Books of Account are the true signatures of the persons purporting to have signed the same, and complete and correct copies in all material respects of such Books of Account have been provided to SYS.

 

(b)    Attached to Section 4.7(b) of the Ai Metrix Disclosure Schedule, as previously delivered to SYS, are complete and correct copies of (i) the audited balance sheets of Ai Metrix as of December 31, 2004 and December 31, 2005, the related statements of income for the three (3) years then ended, and the related sources and uses of cash for the 12-month periods then ended, and (ii) the unaudited balance sheet of Ai Metrix as of September 30, 2006, and the related statements of income and sources and uses of cash for the nine (9)-month period then ended and (collectively, the “ Ai Metrix Financial Statements ”). The Ai Metrix Financial Statements (including the related notes) were prepared in accordance with GAAP applied on a consistent basis during the periods involved (except as may be indicated in the notes thereto) and fairly present (subject, in the case of unaudited statements, to normal, recurring audit adjustments not material in amount and to the absence of footnotes) in all material respects the consolidated financial position of Ai Metrix and its consolidated subsidiaries as at the dates thereof and the consolidated results of their operations and cash flows for the periods then ended.

 

(c)    Attached to Section 4.7(c) of the Ai Metrix Disclosure Schedule is a pro forma estimated unaudited balance sheet of Ai Metrix as of the Closing Date (the “ Closing Date Balance Sheet ”). Except as otherwise disclosed on Section 4.7(c) of the Ai Metrix Disclosure Schedule, the Closing Date Balance Sheet was prepared by Ai Metrix in good faith in accordance with GAAP applied on a consistent basis and, to the best of Ai Metrix’s knowledge, fairly presents in all material respects the consolidated financial position of Ai Metrix and its consolidated subsidiaries as of the Closing Date. The Closing Date Balance Sheet sets forth Ai Metrix’s good faith estimate of Ai Metrix’s costs and expenses incurred in connection with the transactions contemplated hereby.

 

4.8    Compliance with Law. Except with respect to Applicable Laws discussed elsewhere in this Article IV including, without limitation, those relating to Taxes (as set forth in Section 4.11 ), employee benefit plans (as set forth in Section 4.14 ), labor matters (as set forth in Section 4.16 ), Permits (as set forth in Section 4.19 ), Environmental Laws (as set forth in Section 4.21 ), product warranties (as set forth in Section 4.24 ), Data Protection Laws (as set forth in Section 4.25 ) and the Foreign Corrupt Practices Act (as set forth in Section 4.26 ), Ai Metrix is in compliance, in all material respects, and at all times since January 1, 2004 has been in compliance, in all material respects, with all Applicable Laws relating to Ai Metrix or its businesses or properties. Ai Metrix has received no written notice of any pending investigation or review by any Governmental Authority with respect to Ai Metrix, and to the knowledge of Ai Metrix, no such investigation or review is threatened, nor has any Governmental Authority indicated an intention to conduct the same.

 

4.9    Actions. Except as set forth in   Section 4.9 of the Ai Metrix Disclosure Schedule, there are no material Actions pending or, to the knowledge of Ai Metrix, threatened against Ai Metrix, including any Action which questions the validity of this Agreement or the Merger or any action taken or to be taken pursuant hereto or pursuant to the Merger, or relating to its method of doing business or its relationship with users or purchasers of any goods or services, and there is no outstanding order, writ, injunction or decree of any Governmental Authority against Ai Metrix.

 

4.10    No Material Adverse Change. Since June 30, 2006, there has been no Material Adverse Effect (as defined in Section 10.2(b) ) on Ai Metrix.

 

4.11    Taxes.

 

(a)  

With regard to Taxes:

 

(i)    Ai Metrix has filed all Tax Returns (as defined below) (including, but not limited to, those filed on a consolidated, combined or unitary basis) required to have been filed by Ai Metrix prior to the date hereof;

 

(ii)    All such Tax Returns referred to in clause (a)(i) above were true and correct in all material respects and Ai Metrix has paid or, prior to the Effective Time, will pay within the time and manner prescribed by Applicable Law, all Taxes, interest and penalties required to be paid in respect of the periods covered by such Tax Returns due to any federal, state, foreign, local or other Tax authority;

 

(iii)    Ai Metrix has and will have no liability for Taxes due or accruing on or prior to the Closing Date that is in excess of the amount reserved on the Ai Metrix Financial Statements therefor;

 

(iv)    Ai Metrix has not requested or filed any document having the effect of causing any extension of time within which to file any returns in respect of any fiscal year which have not since been filed;

 

(v)    Ai Metrix has not received written notice of any currently due and payable deficiency for any Tax from any Tax authority;

 

(vi)    Ai Metrix has not received written notice that it is the subject of any currently ongoing Tax audit;

 

(vii)    As of the date of this Agreement, Ai Metrix has not received written notice from any Tax authority of any pending requests for waivers of the time to assess any Tax, other than those made in the ordinary course and for which payment has been made;

 

(viii)    Ai Metrix has not waived any statute of limitations in respect of Taxes or agreed to any extension of time with respect to a Tax assessment or deficiency;

 

(ix)    There are no recorded Encumbrances with respect to Taxes upon any of the properties or assets, real or personal, tangible or intangible of Ai Metrix (other than liens for Taxes not yet due and/or delinquent);

 

(x)    No written claim has ever been received by Ai Metrix from a Governmental Authority in a jurisdiction where Ai Metrix files Tax Returns that Ai Metrix is or may be subject to taxation by that jurisdiction;

 

(xi)    Neither Ai Metrix nor any predecessor is or was on or prior to the Closing Date a member of any affiliated, consolidated, combined or unitary tax group; and

 

(xii)    Ai Metrix has retained and will retain through the Closing Date all relevant books and records with respect to Tax matters pertinent to Ai Metrix relating to any taxable period beginning before the Closing Date until the expiration of the statute of limitations of the respective taxable periods, and has abided by all record retention agreements entered into with any taxing authority.

 

(b)    Ai Metrix is not obligated by any Contract or other arrangement to indemnify any other person with respect to Taxes. Ai Metrix is not now, and during the past six (6) years has not been, a party to or bound by any agreement or arrangement (whether or not written and including, without limitation, any arrangement required or permitted by law) binding Ai Metrix that (i) requires Ai Metrix to make any Tax payment to or for the account of any other person, (ii) affords any other person the benefit of any net operating loss, net capital loss, investment Tax credit, foreign Tax credit, charitable deduction or any other credit or Tax attribute which could reduce Taxes (including, without limitation, deductions and credits related to alternative minimum Taxes) of Ai Metrix, or (iii) requires or permits the transfer or assignment of income, revenues, receipts or gains to Ai Metrix, from any other person.

 

(c)    Ai Metrix has withheld and paid over all Taxes required to have been withheld and paid over in connection with amounts paid or owing to any employee, independent contractor, creditor, stockholder or other third party.

 

(d)    Ai Metrix has not agreed to make, or has received any written notice from the Internal Revenue Service proposing that Ai Metrix make, any adjustments pursuant to Sections 263A or 481(a) of the Code or any similar provision of state, local or foreign law by reason of a change in accounting method initiated by Ai Metrix, and Ai Metrix has no application pending with any Governmental Authority requesting permission for any changes in accounting methods that relate to the business or operations of Ai Metrix.

 

(e)    Ai Metrix has not requested any private letter ruling of the Internal Revenue Service or comparable ruling of other Governmental Authorities.

 

(f)    The Tax Returns of Ai Metrix for the years ended December 31, 2004 and December 31, 2005, complete and correct copies of which have been provided to SYS prior to the date hereof, list all deductions giving rise to any current-year Tax loss set forth on the applicable Tax Returns and the amount of each such Tax loss in each jurisdiction.

 

(g)    Except for the group for which Ai Metrix is presently a member, if any, Ai Metrix has never been a member of an affiliated group of corporations, within the meaning of Section 1504 of the Code, other than as a common parent corporation, within the meaning of Section 1504 of the Code (or any similar provision of state or local law), except where Ai Metrix was the common parent corporation of such affiliated group.

 

(h)    Ai Metrix has no liability for the Taxes of any person other than any of Ai Metrix under Regulation Section 1.1502-6 (or any similar provision of state, local or foreign law), as a transferee or successor, by contract or otherwise.

 

(i)    All elections with respect to the Tax Returns are reflected in the Tax Returns.

 

(j)    Ai Metrix is not and has not been a United States real property holding corporation (as defined in section 897(c)(2) of the Code) during the applicable period specified in section 897(c)(1)(A)(ii) of the Code.

 

(k)    Ai Metrix is not and has not been a party to any joint venture, partnership, or other agreement that would be treated as a partnership for U.S. federal income tax purposes.

 

(l)    Ai Metrix has not participated in an international boycott as defined in Section 999 of the Code (or any similar provision of state, local or foreign law).

 

(m)    Ai Metrix is not a party to any agreement, contract, arrangement or plan that has resulted or would result, separately or in the aggregate, in the payment of any “excess parachute payment” within the meaning of Code Section 280G (or any corresponding provision of state, local or foreign law).

 

(n)    Ai Metrix is not a party to or bound by any tax allocation or sharing agreement.

 

(o)    Ai Metrix will not be required to include any item of income in, or exclude any item of deduction from, taxable income for any taxable period (or portion thereof) ending after the Closing Date as a result of any:

 

(i)    Closing Agreement ” as described in Code Section 7121 (or any corresponding or similar provision of state, local or foreign law) executed on or prior to the Closing Date;

 

(ii)    Intercompany transactions or any excess loss account described in Treasury Regulations under Code Section 1502 (or any corresponding or similar provision of state, local or foreign law);

 

(iii)    Installment sale or open transaction disposition made on or prior to the Closing Date; or

 

(iv)    Prepaid amount received on or prior to the Closing Date.

 

(p)    Ai Metrix has not distributed stock of another corporation, or has had its stock distributed by another corporation, in a transaction that was purported or intended to be governed in whole or in part by Code Section 355.

 

(q)    As used in this Agreement, “ Tax Returns ” means all federal, state, local and foreign Tax returns, declarations, schedules, information returns, reports and forms, and any amendments to any of the foregoing relating to Taxes, required to be filed with any Governmental Authority responsible for the imposition or collection of Taxes.

 

(r)    As used in this Agreement, “ Tax ” or “ Taxes ” means any federal, state, county, local or foreign taxes, charges, fees, levies or other assessments, including all net income, gross income, premium, sales and use, ad valorem, transfer, gains, profit, windfall profits, excise, franchise, real and personal property, gross receipts, capital stock, production, business and occupation, employment, disability, payroll, license, estimated, customs duties, severance or withholding taxes, other taxes or similar charges of any kind imposed by a Governmental Authority and includes any interest and penalties (civil or criminal) on or additions to any such taxes or in respect of a failure to comply with any requirement relating to any Tax Return and any expenses incurred in connection with the determination, settlement or litigation of any tax liability.

 

4.12    Intellectual Property.

 

(a)    Set forth in Section 4.12 of the Ai Metrix Disclosure Schedule is an accurate and complete list of (i) all foreign and domestic patents, patent applications, invention disclosures, trademarks, service marks, trade names, internet domain names (and any registrations or applications for registration for any of the foregoing trademarks, service marks, trade names and internet domain names) and all copyright applications and registrations and all other material Intellectual Property rights owned or used by Ai Metrix, and (ii) other than as set forth in Section 4.15 of the Ai Metrix Disclosure Schedule, all non-customer agreements to which Ai Metrix is a party which concern any of its Intellectual Property.

 

(b)    With regard to Intellectual Property:

 

(i)    Ai Metrix owns, free and clear of any Encumbrances, or has sufficient rights to, the Intellectual Property;

 

(ii)    No written claim of invalidity or ownership with respect to the Intellectual Property has been received by Ai Metrix from any third party and no Intellectual Property is the subject of any pending or, to the knowledge of Ai Metrix, threatened Action;

 

(iii)    No person or entity has asserted that, with respect to any Intellectual Property, Ai Metrix or any licensee of Ai Metrix is infringing or has infringed any domestic or foreign patent, trademark, service mark, trade name, or copyright or design right, or has misappropriated or improperly used or disclosed any trade secret, confidential information or know-how;

 

(iv)    All fees, annuities, royalties, honoraria and other payments which are due from Ai Metrix on or before the date of this Agreement for any of the Intellectual Property or under any agreement related to the Intellectual Property have been paid or reserved for on the Ai Metrix Financial Statements;

 

(v)    Except as limited by the terms of any license relating thereto, the making, using, selling, manufacturing, marketing, licensing, reproduction, distribution, disposal, modification, display, transmission or publishing of any process, machine, manufacture, composition of matter, or material related to any part of the Intellectual Property, does not infringe in any mate


 
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