AGREEMENT AND PLAN OF MERGER

Exhibit 2.1

 

AGREEMENT AND PLAN OF MERGER

 

DATED AS OF NOVEMBER 14, 2005

 

AMONG

 

BAKBONE SOFTWARE, INC.

 

BLACKFOOT ACQUISITION, INC.,

 

CONSTANT DATA, INC. AND

 

THE FOUNDERS

TABLE OF CONTENTS

 

 

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***	CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT (INDICATED BY ASTERISKS) HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT UNDER 17 C.F.R. SECTION 200.80(B)(4), 200.83 AND 230.406.

 

AGREEMENT AND PLAN OF MERGER

 

THIS AGREEMENT AND PLAN OF MERGER , dated as of November 14, 2005 (this “ Agreement ”) among BAKBONE SOFTWARE, INC. , a California corporation (“ Parent ”), BLACKFOOT ACQUISITION, INC. , a Minnesota corporation and a wholly owned subsidiary of Parent (“ Mergerco ”), CONSTANT DATA, INC. , a Minnesota corporation (the “Company”), *** an individual, ***, an individual, and ***, an individual (***, ***, and *** collectively, the “ Founders ”).

 

W I T N E S S E T H:

 

WHEREAS, the Company is a Minnesota corporation having authorized capital that consists solely of (i) 25,000,000 shares of common stock, no par value (the “ Company Common Stock ”), of which, as of the date hereof, 7,571,713 shares are issued and outstanding; and (ii) 50,000,000 shares of undesignated stock, no par value (“ Company Preferred Stock ”), none of which, as of the date hereof, is issued and outstanding;

 

WHEREAS, with respect to options and warrants, the Company, as of the date hereof, has (i) 3,500,000 shares of Company Common Stock available for issuance under the Company’s 2003 Stock Option and Incentive Plan (the “ Stock Option Plan ”), of which, as of the date hereof, options to purchase 1,850,354 shares of Company Common Stock have been issued and are outstanding; and (ii) warrants to purchase 987,510 shares of Company Common Stock have been issued and are outstanding;

 

WHEREAS, the respective Board of Directors of each of the Parent, Mergerco and the Company has approved the merger of Mergerco with and into the Company, which shall be wholly owned by Parent upon the completion of the transactions contemplated herein, pursuant to the terms and subject to the conditions set forth in this Agreement.

 

NOW, THEREFORE, in consideration of the mutual covenants and agreements hereinafter set forth, it is hereby agreed among the parties as follows:

 

1. DEFINITIONS.

 

In this Agreement, the following terms have the meanings specified or referred to in this Section 1 and shall be equally applicable to both the singular and plural forms. Any

 

***	Certain confidential information in this document has been omitted pursuant to a request for Confidential Treatment and filed separately with the Commission.

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agreement referred to below shall mean such agreement as amended, supplemented and modified from time to time to the extent permitted by the applicable provisions thereof and by this Agreement.

 

“ Action ” means any governmental investigation; and any suit or action at law or in equity; any arbitration, audit, assessment, grievance or other proceeding, whether actual, proposed or threatened; or any other claim.

 

“ Affiliate ” means, with respect to any Person, any other Person that (i) directly or indirectly controls, is controlled by or is under common control with such Person (including any executive officer of such Person), or (ii) owns a 10% or greater equity interest in such Person.

 

“ Agreement ” means this Agreement and Plan of Merger.

 

“***” means ***.

 

“*** Consideration ” has the meaning set forth in Section 3.3.2.

 

“*** Consideration Date ” has the meaning set forth in Section 4.3.2.

 

“*** Party ” or “*** Parties ” means *** and/or any *** Affiliate that prior to the Closing (i) entered into license agreements for the Company Products, (ii) were evaluating the Company Products, or (iii) were engaged in substantial discussions with the Company’s sales representatives with respect to the licensed use of Company Products, all as are identified in Schedule 3.2.2 .

 

“*** Transaction ” has the meaning set forth in Section 3.3.2.2.

 

“ Articles of Merger ” has the meaning set forth in Section 4.1.

 

“ Balance Sheet Date ” means October 31, 2005.

 

“ Capped IP Losses ” has the meaning set forth in Section 10.6.3.1.

 

“ Cash Assets ” has the meaning set forth in Section 5.9.5.

 

“ Cash Consideration ” has the meaning set forth in Section 3.3.1.

 

“ CERCLA ” means the Comprehensive Environmental Response, Compensation and Liability Act, as amended from time to time, and the rules and regulations promulgated thereunder.

 

“ Articles of Merger ” has the meaning set forth in Section 4.1.

 

“ Certificates ” has the meaning set forth in Section 3.2.1.

 

“ Claim ” has the meaning set forth in Section 10.1.4.

 

***	Certain confidential information in this document has been omitted pursuant to a request for Confidential Treatment and filed separately with the Commission.

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“ Claim Notice ” has the meaning set forth in Section 10.4.1.

 

“ Closing ” has the meaning set forth in Section 4.1.

 

“ Closing Consideration ” has the meaning set forth in Section 4.3.1.

 

“ Closing Date ” has the meaning set forth in Section 4.1.

 

“ Code ” means the Internal Revenue Code of 1986, as amended from time to time, and the rules and regulations promulgated thereunder.

 

“ Company ” has the meaning specified in the first paragraph of this Agreement.

 

“ Company Agreement ” means all agreements, instruments and documents executed by the Company and any Person, including, but not limited to any of the Securityholders.

 

“ Company Ancillary Agreements ” means all agreements, instruments and documents being or to be executed and delivered by the Company under this Agreement or in connection herewith.

 

“ Company Balance Sheet ” means the balance sheet of the Company as of the Balance Sheet Date included in the Company Financial Statements.

 

“ Company Common Stock ” has the meaning set forth in the recitals to this Agreement.

 

“ Company Financial Statements ” has the meaning set forth in Section 5.5.1.

 

“ Company Interim Financial Statements ” has the meaning set forth in Section 5.5.1.1.

 

“ Company Material Contracts ” has the meaning set forth in Section 5.15.1.9.

 

“ Company Owned Software ” has the meaning set forth in Section 5.12.2.

 

“ Company Preferred Stock ” has the meaning set forth in the recitals to this Agreement.

 

“ Company Products ” means those software products then currently licensed to end-user customers, directly or indirectly, by the Company as of Closing Date.

 

“ Company Property ” means any real or personal property, plant, building, facility, structure, underground storage tank, equipment or unit, or other asset owned, leased or operated by the Company (including any surface water thereon or adjacent thereto and any soil or ground water thereunder), whether currently or at any previous time.

 

***	Certain confidential information in this document has been omitted pursuant to a request for Confidential Treatment and filed separately with the Commission.

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“ Contemplated Transactions ” has the meaning set forth in Section 5.4.2.

 

“ Contested Claim ” has the meaning set forth in Section 10.4.2.2.

 

“ Copyrights ” means registered and material unregistered United States and foreign copyrights and pending applications to register the same.

 

“ Court Order ” means any judgment, order, award or decree of any foreign, federal, state, local or other court or tribunal and any award in any arbitration proceeding.

 

“ Deductible ” has the meaning set forth in Section 10.6.2.

 

“ Dissenting Shares ” has the meaning set forth in Section 3.4.1.

 

“ Dispute ” has the meaning set forth in Section 11.15.

 

“ DOL ” means the United States Department of Labor.

 

“ Effective Time ” has the meaning set forth in Section 4.1.

 

“ Employment Agreements ” means those certain Employment Agreements to be dated the Effective Date between Parent, and each of the Founders, respectively, substantially in the form attached as Exhibit A .

 

“ Encumbrance ” means any security interest, pledge, mortgage, lien (including a mechanics’ lien), encumbrance, lease, conditional sales agreement, option, covenant, easement, restriction, charge, claim or other defect in title of any nature on any property or asset or property interest, whether voluntarily incurred or arising by operation of law or otherwise; and includes any agreement or commitment to grant, make or enter into any of the foregoing, the filing of any financing statement under the Uniform Commercial Code or any agreement to file any such financing statement or to record any lien in the real property records maintained by a Governmental Body.

 

“ ERISA ” means the Employee Retirement Income Security Act of 1974, as amended from time to time, including the rules and regulations promulgated thereunder.

 

“ ERISA Affiliate ” means (i) any corporation which at any time on or before the Effective Time is or was a member of the same controlled group of corporations (within the meaning of Section 414(b) of the Code) as the Company; (ii) any partnership, trade or business (whether or not incorporated) which at any time on or before the Effective Time is or was under common control (within meaning of Section 414(c) of the Code) with the Company; and (iii) any entity which at any time on or before the Effective Time is or was a member of the same affiliated service group (within the meaning of Section 414(m) of the Code) as either the Company, any corporation described in clause (i) of this definition or any partnership, trade or business described in clause (ii) of this definition.

 

***	Certain confidential information in this document has been omitted pursuant to a request for Confidential Treatment and filed separately with the Commission.

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“ Escrow Agent ” means a third party financial institution agreed to by the Company and Parent that will serve as escrow agent in connection with the Indemnity Escrow Fund in accordance with the terms and conditions of the “ Escrow Agreement ” substantially in the form attached as Exhibit B .

 

“ Exchange Act ” means the Securities Exchange Act of 1934, as amended.

 

“ Excluded Claim ” has the meaning set forth in Section 10.6.2.

 

“ Expenses ” means any and all expenses incurred in connection with investigating, defending or asserting any Action indemnified against hereunder (including, but not limited to, court filing fees, court costs, arbitration fees or costs, witness fees and reasonable fees and disbursements of legal counsel, investigators, expert witnesses, consultants, accountants and other professionals).

 

“ Final Award ” has the meaning set forth in Section 11.15.3.

 

“ GAAP ” has the meaning set forth in Section 5.5.2.

 

“ General Public License ” has the meaning set forth in Section 5.12.7.

 

“ Governmental Body ” means any foreign, federal, state, local or other governmental authority or regulatory body.

 

“ Governmental Consents and Filings ” has the meaning set forth in Section 5.4.2.2.

 

“ Governmental Permits ” has the meaning set forth in Section 5.11.1.

 

“ Incurred Losses ” has the meaning set forth in Section 10.4.2.3.

 

“ Indemnified Person ,” “ Indemnitee Representative ,” “ Indemnitor ” and “ Indemnitor Representative ” each has the meaning set forth in Section 10.4.1.

 

“ Indemnity Escrow Fund ” has the meaning set forth in Section 10.2.2.

 

“ INS ” means the Immigration and Naturalization Service.

 

“ Intellectual Property ” has the meaning set forth in Section 5.12.4.

 

“ IRS ” means the Internal Revenue Service.

 

“ Knowledge ” means, with reference to a party hereto, only the actual knowledge of any of the Founders of the Company, after reasonable inquiry of such party’s employees, agents and consultants and information set forth in documents in the possession of such party.

 

***	Certain confidential information in this document has been omitted pursuant to a request for Confidential Treatment and filed separately with the Commission.

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“ Knowledge Qualification ” means a qualification to any representation or warranty made by a party expressed as “to the knowledge” of such party, that such party “has not received any notice that” or similar language intended to limit the scope of such representation and warranty.

 

“ Leased Real Property ” has the meaning set forth in Section 5.9.3.

 

“ Letter of Transmittal ” has the meaning set forth in Section 3.2.1.

 

“ Loss ” or “ Losses ” means any and all losses (including, but not limited to Taxes relating to taxable periods, or portions thereof, ending on or prior to the Closing Date), costs, obligations, liabilities, diminution in value, settlement payments, awards, judgments, damage to the environment, natural resources or public health, fines, penalties, damages, expenses, deficiencies or other charges, whether foreseeable or unforeseeable and including interest at the Reference Rate on such Losses.

 

“ Material Adverse Change ” means any event, change or effect, that has had or would reasonably be expected to have a material adverse effect (individually or in the aggregate) on: (i) the business, financial condition or operations of the Company, or (ii) the ability of a party to consummate the transactions contemplated by this Agreement; provided, however, that none of the following shall be deemed, individually or in the aggregate, to constitute, or will be a factor in determining whether there exists, a Material Adverse Change: (A) conditions, events or circumstances generally adversely affecting the United States or global economies, the United States or global financial markets, or the industry in which the Company operates in general and not specifically relating to the Company, (B) the effects of the announcement or pendency of this Agreement, related ancillary agreements or the transactions contemplated thereby, (C) compliance with the terms of, or the taking of any action required or contemplated by, this Agreement or related ancillary agreements, (D) changes in United States or Canadian generally accepted accounting principles after the date hereof, or (E) any declaration of war or national emergency after the date hereof.

 

“ Maximum Dispute Amount ” has the meaning set forth in Section 11.14.

 

“ MBCA ” means the Minnesota Business Corporation Act, as amended.

 

“ Merger ” has the meaning set forth in Section 2.1.

 

“ Merger Filing ” has the meaning set forth in Section 4.2

 

“ Mergerco ” has the meaning specified in the first paragraph of this Agreement.

 

“ Mergerco Ancillary Agreements ” means all agreements, instruments and documents being or to be executed and delivered by Mergerco under this Agreement or in connection herewith.

 

“ Merger Consideration ” has the meaning set forth in Section 3.3.

 

***	Certain confidential information in this document has been omitted pursuant to a request for Confidential Treatment and filed separately with the Commission.

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“ Merger Consideration Per Share ” has the meaning set forth in Section 3.1.5.

 

“ Non-Competition Agreements ” means those certain Non-Competition Agreements to be dated the Effective Date between Parent and each of the Founders, each substantially in the form attached as Exhibit D .

 

“ Non-Prevailing Party ” has the meaning set forth in Section 11.15.1.

 

“ Options ” means all outstanding options, rights (including conversion or preemptive rights) or agreements (other than Warrants) for the purchase or acquisition from the Company of any shares of its capital stock or any securities convertible into or ultimately exercisable for any shares of the Company’s capital stock.

 

“ Outstanding Common Stock ” has the meaning set forth in Section 3.1.1.

 

“ Outstanding Securities ” has the meaning set forth in Section 3.1.2.

 

“ Parent ” has the meaning specified in the first paragraph of this Agreement.

 

“ Parent Ancillary Agreements ” means all agreements, instruments and documents being or to be executed and delivered by Parent under this Agreement or in connection herewith.

 

“ Parent Group Member ” means Parent, successors and assigns, Affiliates, parents, and each of such entities’ board of directors, officers, employees, shareholders, attorneys, financial representatives, and agents of each of such Persons.

 

“ Patents ” means all United States, foreign, and international patents; all United States, foreign, and international patent applications; all amendments, continuations, continuations-in-part, requests for continuing examination, and divisions of or relating to any such patent or application; all reissues and reexamination certificates of or relating to any such patent or application; all invention disclosures and draft patent applications; all inventions (whether or not patentable and whether completed or in progress); any improvements to any of the foregoing; and all rights and remedies arising from any of the foregoing, including, as an example only and without limitation, any rights to accrued or future royalties.

 

“ Paying Agent ” means a third party financial institution that will serve as the paying agent in connection with the distribution of the Merger Consideration in conjunction with the surrender and exchange of the Outstanding Securities following the Effective Time.

 

“ Percentage ” has the meaning set forth in Section 10.6.4.

 

“ Permitted Encumbrances ” means (i) liens for taxes and other governmental charges and assessments which are not yet due and payable, (ii) liens of landlords and liens of carriers, warehousemen, mechanics and materialmen and other like liens arising in the ordinary course of business for sums not yet due and payable, and (iii) other liens or imperfections on

 

***	Certain confidential information in this document has been omitted pursuant to a request for Confidential Treatment and filed separately with the Commission.

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property which are not material in amount, do not interfere with, and are not violated by the consummation of the transactions contemplated by, this Agreement and do not materially detract from the value or marketability of, or materially impair the existing use of, the property affected by such lien or imperfection.

 

“ Person ” means any individual, corporation, partnership, joint venture, association, company, trust, estate, unincorporated organization or other entity, or any Governmental Body.

 

“ Prevailing Party ” has the meaning set forth in Section 11.15.1.

 

“ RCRA ” means the Resource Conservation and Recovery Act, as amended from time to time, and the rules and regulations promulgated thereunder.

 

“ Reference Rate ” means the “prime” or “base” rate of interest announced from time to time by Bank of America, plus 2% per annum.

 

“ Release Date ” has the meaning set forth in Section 10.1.4.

 

“ Representation and Covenant Breaches ” has the meaning set forth in Section 10.6.3.

 

“ Requirements of Laws ” means any foreign, federal, state and local laws, statutes, regulations, rules, codes or ordinances enacted, adopted, issued or promulgated by any Governmental Body (including those pertaining to electrical, building, zoning, environmental and occupational safety and health requirements).

 

“ Securities Act ” means the Securities Act of 1933, as amended.

 

“ Securityholder ” and “ Securityholders ” have the meaning set forth in Section 3.2.1.

 

“ Securityholders’ Representative ” means ***, or *** should *** elect not to continue to act as the Securityholder’s Representative, acting from and after the Effective Time on behalf of the Securityholders in accordance with Section 10.8.

 

“ Securityholder Group Member ” means the Securityholders and their respective successors and assigns, and the Affiliates, parents, subsidiaries, members, partners, shareholders, directors, officers, employees and agents of each of such Persons.

 

“ Settled Claim ” has the meaning set forth in Section 10.4.2.4.

 

“ Shareholders ” means those Persons who, immediately prior to the Effective Time, are the record holders of shares of Company Common Stock and which Persons are identified on Exhibit E hereto.

 

***	Certain confidential information in this document has been omitted pursuant to a request for Confidential Treatment and filed separately with the Commission.

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“ Stock Certificate ” shall mean a certificate for shares of the capital stock of the Company.

 

“ Stock Option Plan ” means the Company’s 2003 Stock Option and Incentive Plan.

 

“ Subsidiary ” shall mean any corporation, partnership, limited liability company, joint venture or other entity in which the Company (a) owns, directly or indirectly, 50% or more of the outstanding voting securities or equity interests or (b) is a general partner.

 

“ Surviving Corporation ” has the meaning set forth in Section 2.1.

 

“ Tax ” and “ Taxes ” shall mean: (i) any federal, state, local or foreign net income, gross income, gross receipts, windfall profit, severance, property, production, sales, use, license, excise, franchise, employment, payroll, withholding, alternative or add-on minimum, ad valorem, value-added, transfer, stamp, or environmental tax, or any other tax, custom, duty, governmental fee or other like assessment or charge of any kind whatsoever, together with any interest or penalty, addition to tax or additional amount imposed by any governmental authority; and (ii) any liability of the Company or any Subsidiary for the payment of amounts with respect to payments of a type described in clause (i) as a result of being a member of an affiliated, consolidated, combined or unitary group, or as a result of any obligation of the Company or any Subsidiary under any Tax Sharing Arrangement or Tax indemnity arrangement.

 

“ Tax Return ” shall mean any return, report or similar statement required to be filed with respect to any Tax (including any attached schedules), including, without limitation, any information return, claim for refund, amended return or declaration of estimated Tax.

 

“ Tax Sharing Arrangement ” shall mean any written or unwritten agreement or arrangement for the allocation or payment of Tax liabilities or payment for Tax benefits with respect to a consolidated, combined or unitary Tax Return which Tax Return includes the Company or any Subsidiary.

 

“ Third Party Claim ” has the meaning set forth in Section 10.4.1.

 

“ Third Party Software ” has the meaning set forth in Section 5.12.2.

 

“ Trademarks ” means United States, state and foreign trademarks, service marks, logos and trade names, whether registered or unregistered, and pending applications to register the foregoing.

 

“ Trade Secrets ” means confidential ideas, trade secrets, know-how, concepts, methods, processes, formulae, reports, data, customer lists, mailing lists, business plans, or other proprietary information.

 

“ Transaction Expenses ” has the meaning set forth in Section 11.1.

 

***	Certain confidential information in this document has been omitted pursuant to a request for Confidential Treatment and filed separately with the Commission.

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“ Uncontested Claim ” has the meaning set forth in Section 10.4.2.1.

 

“ Warrants ” means all outstanding warrants issued by the Company for the purchase or acquisition from the Company of any shares of its capital stock or any security convertible into or ultimately exercisable for any shares of the Company’s capital stock and all agreements, if any, pursuant to which such warrants are issuable.

 

2. THE MERGER.

 

2.1 The Merger; the Surviving Corporation . On the terms and subject to the conditions set forth herein, and in accordance with the provisions of the MBCA, at the Effective Time, Mergerco shall be merged with and into the Company (the “ Merger ”). Upon the effectiveness of the Merger, the separate existence of Mergerco shall cease except to the extent provided by law in the case of a corporation after its merger into another corporation, and the Company shall be the surviving corporation wholly owned by Parent (the “Surviving Corporation”) and shall continue its existence under the laws of the State of Minnesota.

 

2.2 Effects of the Merger . The Merger shall have the effects set forth in Section 302A.641 of the MBCA.

 

2.3 Articles of Incorporation, Bylaws, Directors and Founders . The Articles of Incorporation and the Bylaws of the Company as in effect immediately prior to the Effective Time shall continue in full force and effect as the Articles of Incorporation and the Bylaws of the Surviving Corporation. At the Effective Time, the directors and officers of the Company immediately prior to the Effective Time shall resign or be removed from office and, concurrently therewith, the initial directors and officers of the Surviving Corporation, until their respective successors are duly elected and qualified, shall be:

 

***	Sole Director, CEO and President

 

***	CFO and Secretary

 

3. CONVERSION OF SECURITIES; MERGER CONSIDERATION.

 

3.1 Conversion of Outstanding Securities.

 

3.1.1 At the Effective Time, each share of Company Common Stock issued and outstanding immediately prior to the Effective Time (other than any Dissenting Shares) (collectively, the “ Outstanding Common Stock ”), shall, by virtue of the Merger and without any action on the part of the holder thereof, be canceled and extinguished and converted into the right to receive an amount in cash equal to the Merger Consideration Per Share.

 

3.1.2 At the Effective Time, the vested Options and Warrants issued and outstanding immediately prior to the Effective Time (together with the Outstanding Common Stock, the “ Outstanding Securities ”), shall, by virtue of the Merger and without any action on the part of the holders thereof, be cancelled and extinguished and each holder shall be entitled to receive an amount equal to (i) the product of (A) the total number of shares of Company

 

***	Certain confidential information in this document has been omitted pursuant to a request for Confidential Treatment and filed separately with the Commission.

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Common Stock covered by such holder’s Options or Warrants and (B) the Merger Consideration Per Share, less (ii) the aggregate exercise price applicable to such Options or Warrants.

 

3.1.3 At the Effective Time, all unvested Options and Warrants, if any, shall be deemed null and void, and of no further effect.

 

3.1.4 Holders of Dissenting Shares shall only be entitled to receive from Parent an amount per Dissenting Share determined pursuant to Section 3.4.

 

3.1.5 The “ Merger Consideration Per Share ” shall be equal to:

 

i)

(CC + AEP + ***) / OS

 

ii)

Where:

 

a.

CC = the Cash Consideration, less Merger Consideration Adjustment

 

b.

AEP = the aggregate exercise price for the vested Options and Warrants

 

c.

*** = the *** Consideration

 

d.

OS = the sum of the total number of shares of Outstanding Common Stock and the total number of shares of Company Common Stock subject to issuance under the vested Options and Warrants.

 

3.2 Surrender and Exchange of Outstanding Securities.

 

3.2.1 Immediately following the Effective Time, the Company shall deliver to each holder of Outstanding Securities (each a “ Securityholder ” and, collectively, the “ Securityholders ”) at the address for such Securityholder in the records of the Company, a letter of transmittal, which shall include (i) a notice that delivery shall be effected, and risk of loss and title to the Certificates shall pass, only upon proper delivery of the Certificates to the Paying Agent, (ii) an acknowledgment of, and consent to, the indemnification provisions contained in Section 10 hereof, (iii) an acknowledgment of those certain representations and warranties given by the respective Securityholder contained in Section 5.23 hereof, (iv) an acknowledgment of Section 11, (v) a consent to the appointment of the Securityholders’ Representative to represent such Securityholder with respect thereto, and (vi) such other materials and instructions as the Company and Parent deem appropriate for use in effecting the surrender of the Certificates and exchange of the underlying securities for payment of the Merger Consideration (the “ Letter of Transmittal ”). “ Certificates ” shall mean any Stock Certificate, Option agreement or Warrant agreement representing the Outstanding Securities being surrendered and exchanged pursuant to this Section 3.2.

 

***	Certain confidential information in this document has been omitted pursuant to a request for Confidential Treatment and filed separately with the Commission.

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3.2.2 On the Closing Date, Parent shall make available (i) to the Paying Agent the Cash Consideration portion of the Merger Consideration (excluding (a) the amount to be deposited into the Indemnity Escrow Fund in accordance with Section 10.2.2 and the amount of the initial payments due to each of the Founders, respectively, for their applicable Cash Consideration portion of the Merger Consideration, consistent with this Section 3, which amounts shall be paid to the Founders by Parent pursuant to wire transfer at the Closing) for the Paying Agent to remit payments to the Securityholders in accordance with Section 3.1, and (ii) to the Escrow Agent the amount to be deposited into the Indemnity Escrow Fund in accordance with Section 10.2.2. Thereafter, Parent shall make available to the Paying Agent the *** Consideration amounts when due and payable to the Securityholders pursuant to Section 4.3.2 for remittance to the Securityholders in accordance with Section 3. Upon remittance of the applicable and proper Merger Consideration amounts to the Paying Agent and the Escrow Agent, respectively, Parent and the Surviving Corporation, including the respective directors, officers, employees, shareholders and other agents, are relieved of and released from any and all corresponding Merger Consideration payment obligations pursuant to this Agreement. The Securityholders agree that neither Parent nor the Surviving Corporation is or will be responsible for the errors or omissions of the Paying Agent and the Escrow Agent. The Securityholders agree to be solely responsible for all engagement-related fees, costs and expenses due the Paying Agent under the Paying Agent Agreement. It is understood and agreed that, except for the initial payments made to the Paying Agent as stated in Section 3.3.1.1.6, the Paying Agent is authorized to first deduct from any and all amounts due and payable to the Securityholders, to the extent of each Securityholder’s Percentage, such fees, costs and expenses of the Paying Agent in accordance with the Paying Agent Agreement.

 

3.2.3 Upon the receipt by the Paying Agent of each Certificate, free and clear of all Liens, together with a Letter of Transmittal, duly completed and validly executed in accordance with the instructions thereto, and other appropriate materials and instructions for use in effecting the exchange of Outstanding Securities for payment of the Merger Consideration, the Paying Agent shall pay to the holder of such Certificate the applicable Cash Consideration portion of the Merger Consideration, consistent with Section 3. In furtherance, and not in limitation, of the foregoing, with respect to any Certificate and duly completed and properly executed Letter of Transmittal received on or after the Closing Date, the Paying Agent shall pay the applicable Cash Consideration portion of the Merger Consideration by check within five (5) business days after receipt of such Certificate and Letter of Transmittal. Furthermore, provided that the Paying Agent is in receipt of all of the required documentation stated in this Section 3.2.3 from the holder of such Certificate, the Paying Agent shall pay to such holder the applicable *** Consideration portion of the Merger Consideration by check in accordance with the payment terms stated in Section 4.3.2. Notwithstanding any of the foregoing, as with respect to that portion of the Cash Consideration portion of the Merger Consideration that is first deposited into the Indemnity Escrow Fund (“ Escrowed Amount ”), such Escrowed Amount (less any and all amounts paid to Parent, as stated in Section 10) will not be paid to any holder of such Certificate until such time as such funds are permitted to be released by the Escrow Agent in accordance with the Escrow Agreement.

 

***	Certain confidential information in this document has been omitted pursuant to a request for Confidential Treatment and filed separately with the Commission.

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3.2.4 Immediately after the Effective Time, the stock transfer books of the Company shall be closed and there shall not be any further registration of transfers of shares of Company Common Stock thereafter on the records of the Company. From and after the Effective Time, the holders of Certificates shall cease to have any rights with respect to such Outstanding Securities except as provided in this Agreement or by Law.

 

3.2.5 After the Effective Time, no dividends, interest or other distributions shall be paid with respect to the Outstanding Securities. At all times after the Effective Time and until surrendered as contemplated by this Section 3.2, (i) each Certificate shall be deemed to represent only the right to receive upon such surrender the applicable portion of the Merger Consideration, (ii) the Shareholders shall have no other rights as Shareholders of the Company or the Surviving Corporation with respect to the Outstanding Common Stock, and (iii) the holders of vested Options and Warrants shall have no other rights under their Options and Warrants.

 

3.2.6 Parent shall not be liable to any former holder of Outstanding Securities for any amount of Merger Consideration delivered to a public official pursuant to applicable abandoned property, escheat or similar Law.

 

3.2.7 If any Certificate shall have been lost, stolen or destroyed, upon the making of an affidavit of that fact, in form and substance reasonably acceptable to the Paying Agent and Parent, by the Person claiming such Certificate to be lost, stolen or destroyed, and complying with such other conditions as the Paying Agent or Parent may reasonably impose (including the execution of an indemnification undertaking in favor of Parent with respect to the Certificate alleged to be lost, stolen or destroyed), the Paying Agent will deliver to such Person, in accordance with this Section, the portion of the Merger Consideration to which the Person is entitled with respect to the Outstanding Securities represented by such Certificate.

 

3.3 Merger Consideration . The “ Merger Consideration ” to be paid to the Securityholders in exchange for all of the Outstanding Securities shall, in the aggregate, be equal to the Cash Consideration, as defined herein, plus the *** Consideration, subject to Section 3.4.

 

3.3.1 Cash Consideration. The “ Cash Consideration ” equals Five Million and 00/100 Dollars ($5,000,000.00) less any Merger Consideration Adjustments, as provided herein.

 

3.3.1.1 Merger Consideration Adjustments. The Cash Consideration payable to the Securityholders shall be reduced by an amount, if any, equal to the sum of:

 

3.3.1.1.1 [Reserved].

 

3.3.1.1.2 ***, which equals the amount reserved on the Company’s Closing Date Balance Sheet for deferred or unperformed warranty, support and other services revenues related to the licensing of the Company Products prior to the Closing in excess of Fifty Thousand and 00/100 Dollars ($50,000); plus

 

3.3.1.1.3 that portion of the Indemnity Escrow Fund paid to the Escrow Agent pursuant to Section 10; plus

 

***	Certain confidential information in this document has been omitted pursuant to a request for Confidential Treatment and filed separately with the Commission.

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3.3.1.1.4 the outstanding amounts due and owing as of the Closing Date to ***, as identified on Schedule 3.3.1.1.4 , which shall be payable at Closing out of the Merger Consideration by wire transfer to such entities; plus

 

3.3.1.1.5 the outstanding amounts advanced by Parent to the Company prior to the Closing Date as identified on Schedule 3.3.1.1.5 ; plus

 

3.3.1.1.6 the fees initially due and owing to the Paying Agent for its service under the terms of the Paying Agent Agreement, which shall be payable at Closing out of the Merger Consideration by wire transfer to the Paying Agent.

 

3.3.2 *** Consideration . The “*** Consideration ” will be computed and the Securityholders will be entitled to their Percentage share in the following percentages of the revenues (net of and excluding (i) any warranty and support revenues apportioned per GAAP, (ii) any and all commissions due any of the Company’s, the Surviving Corporation and the Parent’s sales representatives, but not to exceed *** Dollars ($***), in the aggregate, and (iii) third party software royalty payments derived from any and all *** Transactions, as defined herein below, that are entered into by or on behalf of the Company and any of the respective *** Parties identified in Schedule 3.2.2 during the below-stated period, as follows:

 

3.3.2.1 Entitled Percentages.

 

(a)

Before the Closing - 100%;

 

(b)

Closing plus 90 days - 75%;

 

(c)

91 to 365 days - 50%;

 

(d)

366 to 546 days - 25%; and

 

(e)

Thereafter - 0%.

 

3.3.2.2 *** Transaction . An “*** Transaction ” is any license grant for any of the Company Products that was entered into by an *** Party prior to the Closing or during the first eighteen (18) months after the Closing; provided, however, that an *** Transaction shall not include any Company Product license grant transaction that is initiated by Parent, Parent’s affiliates and its and Parent’s affiliates’ sales representatives or sales channels partners as evidenced by registration of the sales opportunity with the Securityholders’ Representative, and such initiation was not first recommended by any *** Party does not qualify as an *** Transaction.

 

3.3.2.3 Disclaimer . Parent makes no representations or warranties regarding any minimum achievement by Parent or the Surviving Corporation in closing any *** Transactions. Each Securityholder acknowledges and agrees that neither Parent nor the Surviving Corporation is (i) obligated to pay any minimum *** Consideration pursuant to this

 

***	Certain confidential information in this document has been omitted pursuant to a request for Confidential Treatment and filed separately with the Commission.

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Agreement, or (ii) required to exercise any minimum level of effort in order to attempt to close any *** Transactions.

 

3.4 Dissenting Shares .

 

3.4.1 For purposes of this Agreement, the term “ Dissenting Shares ” means any shares of Company Common Stock issued and outstanding immediately prior to the Effective Time with respect to which dissenters’ rights apply under Section 302A.471 of the MBCA and held by a holder who (i) has not voted in favor of the Merger or consented thereto in writing, (ii) has submitted a written notice of intent to demand the fair value for such shares in accordance with Section 302A.473 of the MBCA and (iii) has not withdrawn such notice.

 

3.4.2 Notwithstanding any provision of this Agreement to the contrary, holders of Dissenting Shares shall be entitled to receive payment of the fair value of such Dissenting Shares in accordance with the provisions of Sections 302A.471 and 302A.473 of the MBCA unless and until such holders fail to perfect or effectively withdraw or otherwise lose their rights to receive the fair value of the Dissenting Shares under the MBCA. If, after the Effective Time, any such holder fails to perfect or effectively withdraws or otherwise loses such right, such Dissenting Shares shall thereupon be treated as if they had been cancelled and extinguished and the holder thereof will be entitled to receive only their respective portion of the Merger Consideration in accordance with this Agreement.

 

3.4.3 Notwithstanding anything to the contrary contained in this Section 3.3, if (i) the Merger is rescinded or abandoned or (ii) the holders of the Company Common Stock revoke the authority to effect the Merger, then the right of any holder of Company Common Stock to be paid the fair value of such holder’s Dissenting Shares pursuant to Section 302A.471 of the MBCA shall cease.

 

3.4.4 The Company shall give Parent prompt notice of any notice of intent to demand the fair value for shares pursuant to Section 302A.473 of the MBCA received by the Company and any withdrawals of such notices. The Company shall not, except with the prior written consent of Parent, make any payment with respect to such notices of intent to demand or offer to settle or settle any such demands.

 

3.5 Options and Warrants . Prior to the Effective Time, the Company shall take or cause to be taken any and all actions necessary to (i) terminate the Stock Option Plan and unvested options, and to (ii) to give the holders of any and all Company Options or Warrants the appropriate notices required therein as to the intended transaction hereunder and the ability to take such exercise or election actions. The parties agree that all Losses incurred by any Parent Group Member in connection with or arising from any failure by the Company to provide for such termination, expiration or exercise prior to or upon the Effective Time, or from any Claims by any Option holders arising out of such action, shall be Losses included in the indemnity obligations of the Securityholders as set forth in Section 10.2.5.

 

***	Certain confidential information in this document has been omitted pursuant to a request for Confidential Treatment and filed separately with the Commission.

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3.6 Mergerco Common Stock . Each share of common stock of Mergerco issued and outstanding immediately prior to the Effective Time shall be converted into one share of common stock of the Surviving Corporation at the Effective Time.

 

4. CONSUMMATION OF THE MERGER .

 

4.1 Closing Date . On the Closing Date, the Company, Parent and Mergerco shall cause to be filed with the Secretary of State of the State of Minnesota properly executed articles of merger consistent with the terms of this Agreement and the MBCA and in form and substance reasonably satisfactory to the parties hereto (the “ Articles of Merger ”), and shall take all other steps and make all deliveries as provided herein or as may be reasonably necessary to complete the Contemplated Transactions (the “ Closing ”). The Articles of Merger shall state that the effective time of the Merger (the “ Effective Time ”) shall be upon the filing of the Articles of Merger with the Secretary of State of the State of Minnesota, and the Merger shall be effective at that time. The date on which the Articles of Merger are so filed (the “ Closing Date ”) shall be a date occurring three (3) days after all of the conditions set forth in Sections 8 and 9 are satisfied or waived or such other date as may be agreed to by the Company, Parent and Mergerco; provided that the Closing Date shall be no later than December 31, 2005 unless the Company, Parent and Mergerco shall otherwise agree.

 

4.2 The Merger Filing . The “ Merger Filing ” shall mean the filing of the Articles of Merger with the Secretary of State of the State of Minnesota. To facilitate the Merger Filing, the parties shall execute and acknowledge the Articles of Merger and any other required documents in accordance with the laws of the State of Minnesota prior to the Closing Date and the Company shall deliver the executed Articles of Merger and other required documents to counsel for Parent. Such counsel shall file the Articles of Merger on the Closing Date immediately upon receipt of telephonic authorization from representatives of Parent and the Company. On the Closing Date, representatives of the parties shall meet at the offices of Alschuler Grossman Stein & Kahan LLP at 1620 26th Street, Santa Monica, California, unless otherwise agreed to by the parties, for the purpose of delivering the documents described in Sections 4.4 through 4.6, and subject to the satisfaction or waiver of each of the conditions set forth in Sections 8 and 9, causing the Merger Filing to occur.

 

4.3 Payment of the Merger Consideration .

 

The Merger Consideration will be due and payable as follows:

 

4.3.1 Cash Consideration Payment . The Cash Consideration shall be paid as follows: (i) *** Dollars ($***) at the Closing (the “ Closing Consideration ”) pursuant to Section 3.2, and (ii) the balance pursuant to the terms and conditions of the Escrow Agreement.

 

***	Certain confidential information in this document has been omitted pursuant to a request for Confidential Treatment and filed separately with the Commission.

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4.3.2 *** Consideration Payment . The *** Consideration will be paid on the sooner of the fifteenth (15th) day or last day of any calendar month (the “*** Consideration Date ”), provided that:

 

4.3.2.1 The *** Consideration with respect to individual payments in amounts less than *** Dollars ($***) that are due and payable by the licensee with respect to the *** Transactions will be paid no later than the date that is thirty (30) days after the date each such respective payment is due from the licensee;

 

4.3.2.2 The *** Consideration with respect to individual payments in amounts of *** Dollars ($***) or more, but less than *** Dollars ($***) that are due and payable by the licensee with respect to the *** Transactions will be paid no later than the date that is ninety (90) days after the date each such respective payment is due from the licensee;

 

4.3.2.3 The *** Consideration with respect to individual payments in amounts of *** Dollars ($***) or more that are due and payable by the licensee with respect to the *** Transactions will be paid no later than (i) the last day of the calendar month in which each such respective payment is received, if the payment is received on or before the fifteenth day of that calendar month, or (ii) the fifteenth day of the calendar month after the payment is received, if the payment is received after the fifteenth day of any calendar month; and

 

4.3.2.4 Parent will use commercially reasonable efforts to obtain payments with respect to *** Transactions when due and payable as provided in the applicable agreements.

 

4.4 Parent’s Deliveries . Subject to fulfillment or waiver of the conditions set forth in Section 8, concurrently with the Merger Filing, Parent shall deliver, if and to the extent not previously delivered, all of the following to the Company:

 

4.4.1 a certificate of the Secretary or an Assistant Secretary of Parent, dated the Closing Date, in form and substance reasonably satisfactory to the Company, to the effect that (i) the resolutions of the Board of Directors of Parent authorizing the execution, delivery and performance of this Agreement and the transactions contemplated herein by Parent, as attached thereto, are in full force and effect and have not been superseded, amended or modified as of the Closing Date; and (ii) the incumbency and signatures of the officers of Parent executing this Agreement and any Parent Ancillary Agreement are as set forth on the certificate;

 

4.4.2 an opinion of counsel to Parent, dated the Closing Date, in a form to be attached hereto as Exhibit G ;

 

4.4.3 the certificate contemplated by Section 9.1, duly executed by the President or any Vice President of Parent;

 

4.4.4 the Employment Agreements and the Non-Competition Agreements duly executed by Parent; and

 

4.4.5 the Paying Agent Agreement duly executed by the President or any Vice President of Parent;

 

4.4.6 the Escrow Agreement duly executed by the President or any Vice President of Parent; and

 

***	Certain confidential information in this document has been omitted pursuant to a request for Confidential Treatment and filed separately with the Commission.

17

4.4.7 the making of the Cash Consideration available to the Paying Agent.

 

4.5 Mergerco’s Deliveries . Subject to the fulfillment or waiver of the conditions set forth in Section 8, concurrently with the Merger Filing, Mergerco shall deliver, if and to the extent not previously delivered, all of the following to the Company:

 

4.5.1 a copy of the Articles of Incorporation of Mergerco, certified as of a recent date by the Secretary of State of the State of Minnesota;

 

4.5.2 certificates of corporate good standing of Mergerco, issued as of a recent date by the Secretary of State of the State of Minnesota;

 

4.5.3 a certificate of the Secretary or an Assistant Secretary of Mergerco, dated the Closing Date, in form and substance reasonably satisfactory to the Company to the effect that (i) the Articles of Incorporation of Mergerco have not been amended or modified since the date of certification of the Secretary of State of the State of Minnesota referred to in Section 4.5.1; (ii) the resolutions of the Board of Directors of Mergerco authorizing the execution, delivery and performance of this Agreement and the transactions contemplated herein by Mergerco, as attached thereto, are in full force and effect and have not been superseded, amended or modified as of the Closing Date; and (iii) the incumbency and signatures of the officers of Mergerco executing this Agreement and any Parent Ancillary Agreement are as set forth on the certificate;

 

4.5.4 an opinion of counsel to Mergerco, dated the Closing Date, in a form to be attached hereto as Exhibit H ; and

 

4.5.5 the certificate contemplated by Section 9.1, duly executed by the President or any Vice President of Mergerco.

 

4.6 The Company’s Deliveries . Subject to fulfillment or waiver of the conditions set forth in Section 9, concurrently with the Merger Filing the Company shall deliver (or cause to be delivered), if and to the extent not previously delivered, all of the following to Parent:

 

4.6.1 a copy of the Articles of Incorporation of the Company, certified as of a recent date by the Secretary of State of the State of Minnesota;

 

4.6.2 a certificate of good standing of the Company issued as of a recent date by the Minnesota Secretary of State;

 

4.6.3 a certificate of the Secretary or an Assistant Secretary of the Company, dated the Closing Date, in form and substance reasonably satisfactory to Parent, to the effect that (i) the Articles of Incorporation of the Company have not been amended or modified since the date of certification of the Secretary of State of the State of Minnesota referred to in Section 4.6.1; (ii) the Bylaws, as attached thereto, have not been amended or modified as of the Closing Date; (iii) the resolutions of the Board of Directors of the Company authorizing the execution and performance of this Agreement and the transactions contemplated herein and the resolutions of the Company’s shareholders adopting this Agreement, as attached thereto, are in full force and

 

***	Certain confidential information in this document has been omitted pursuant to a request for Confidential Treatment and filed separately with the Commission.

18

effect and have not been superseded, amended or modified as of the Closing Date; and (iv) the incumbency and signatures of the officers of the Company executing this Agreement and any Company Ancillary Agreement are as set forth on the certificate;

 

4.6.4 an opinion of counsel to the Company, dated the Closing Date, in a form to be attached hereto as Exhibit I ;

 

4.6.5 all consents, waivers or approvals, if any, obtained by the Company with respect to the consummation of the Contemplated Transactions (as defined in Section 5.4.2 below);

 

4.6.6 the certificate contemplated by Section 8.1, duly executed by the CEO or President of the Company;

 

4.6.7 the Employment Agreements, duly executed by ***;

 

4.6.8 the Non-Competition Agreements, duly executed by ***;

 

4.6.9 the Voting Agreements and Irrevocable Proxies executed by ***;

 

4.6.10 the Paying Agent Agreement duly executed by an executive officer of the Company;

 

4.6.11 the Escrow Agreement duly executed by an executive officer of the Company; and

 

4.6.12 such other documents as reasonably requested by the Parent.

 

5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY, FOUNDERS AND SECURITYHOLDERS .

 

As an inducement to Parent and Mergerco to enter into this Agreement and to consummate the transactions contemplated hereby, (i) the Company (with respect to Sections 5.1 through 5.21), (ii) each of the Founders, severally and not jointly (with respect to Section 5.22), and (iii) each of the Securityholders, severally and not jointly (with respect to Section 5.23), represent and warrant to Parent and Mergerco that, as of the date hereof (or such other dates as shall be expressly specified) and except as set forth in the Company Disclosure Schedule attached to this Agreement (which Company Disclosure Schedule shall be deemed to be representations and warranties to Parent and Mergerco by the Company under this Section 5), the statements in the following paragraphs of this Section 5 are all true and correct:

 

5.1 Organization . The Company is a corporation duly organized, validly existing and in good standing under the laws of the State of Minnesota. The Company is duly qualified to transact business as a foreign corporation and is in good standing in each of the jurisdictions listed in Schedule 5.1 , which jurisdictions are the only ones in which the ownership or leasing of its assets or the conduct of its business requires such qualification and in which jurisdictions the

 

***	Certain confidential information in this document has been omitted pursuant to a request for Confidential Treatment and filed separately with the Commission.

19

failure to so qualify would have a Material Adverse Change on the Company. No other jurisdiction has demanded, requested or otherwise indicated that the Company is required so to qualify on account of the ownership or leasing of its assets or the conduct of its business. The Company has full power and authority to own or lease and to operate and use its assets and to carry on its business as now conducted. True and complete copies of the Company’s Articles of Incorporation and all amendments thereto and of the Bylaws of the Company, as amended to date, have been delivered to Parent.

 

5.2 Capitalization . The authorized capital stock of the Company consists of (i) 25,000,000 shares of Company Common Stock and (ii) 50,000,000 shares of Company Preferred Stock, no par value. As of the date hereof, 7,571,713 shares of Company Common Stock are issued and outstanding. All of the outstanding shares of Company Common Stock are duly authorized, validly issued, fully paid and non-assessable.

 

5.2.1 As of the date hereof, the Company has reserved 3,500,000 shares of Company Common Stock for issuance under the Stock Option Plan, under which Options to purchase 1,850,354 shares of Company Common Stock are issued and outstanding. Schedule 5.2.1 sets forth a true and complete list of the outstanding Options and includes with respect to each Option listed (i) the name of the Option holder, (ii) the number of shares of Company Common Stock subject to such Option, (iii) the exercise price per share for such Option, (iv) the grant date of such Option, (v) the vesting schedule and vesting acceleration provisions, if any, applicable to such Option, and (vi) whether such Option is an incentive stock option or a nonqualified stock option. All such options shall be terminated, expire or be exercised prior to the Effective Time, as provided in Section 3.5.

 

5.2.2 As of the date hereof, the Company has issued Warrants to purchase 987,510 shares of Company Common Stock. Schedule 5.2.2 sets forth a true and complete list of the outstanding Warrants and includes with respect to each Warrant listed (i) the name of the Warrant holder, (ii) the number of shares of company Common Stock subject to such Warrant, and (iii) the exercise price per share for such Warrant. All such warrants shall be terminated, expire or be exercised prior to the Effective Time, as provided in Section 3.5.

 

5.2.3 Except as set forth in this Section 5.2, there are no outstanding Options or Warrants. Except as set forth in this Section 5.2, and except for rights of first refusal held by the Company to purchase shares of its stock issued under the Stock Option Plan and rights of first refusal held by the Company and certain Shareholders under certain subscription and investment representation agreements as set forth in Schedule 5.2.3 , no shares of the Company’s outstanding capital stock, or stock issuable upon exercise or exchange of any outstanding Options, Warrants or rights, or other stock issuable by the Company, are subject to any preemptive rights, rights of first refusal or other rights to purchase such stock (whether in favor of the Company or any other person), pursuant to any agreement or commitment of the Company.

 

5.2.4 Each of the Shareholders is the beneficial and record owner, free and clear of all restrictions, options, rights to acquire, proxies, voting trusts or other Encumbrances, of the

 

***	Certain confidential information in this document has been omitted pursuant to a request for Confidential Treatment and filed separately with the Commission.

20

shares of the Company’s Common Stock set forth next to such Shareholder’s name on Exhibit E .

 

5.3 Subsidiaries and Investments . The Company does not, directly or indirectly, (i) own, of record or beneficially, any outstanding voting securities or other equity interests in any corporation, partnership, joint venture or other entity or (ii) control any corporation, partnership, joint venture or other entity.

 

5.4 Authority .

 

5.4.1 As of the Effective Time, (i) the Company has all requisite power and authority to execute, deliver and perform this Agreement and all of the Company Ancillary Agreements, (ii) the execution, delivery and performance of this Agreement and the Company Ancillary Agreements by the Company have been duly authorized and approved by the Company’s board of directors and shareholders, and no other corporate proceedings on the part of the Company are necessary to authorize this Agreement, the Company Ancillary Agreements or the transactions contemplated hereby and thereby, and (iii) this Agreement and each of the Company Ancillary Agreements has been duly authorized, executed and delivered by the Company and is the legal, valid and binding obligation of the Company, enforceable against the Company in accordance with its terms, except in each case as may be limited by bankruptcy, insolvency, reorganization, moratorium and other similar laws and equitable principles relating to or limiting creditor rights generally and general principles of equity.

 

5.4.2 Neither the execution and delivery of this Agreement or any of the Company Ancillary Agreements, nor the consummation of any of the transactions contemplated hereby or thereby (the “ Contemplated Transactions ”), nor compliance with or fulfillment of the terms, conditions and provisions hereof or thereof will:

 

5.4.2.1 conflict with, result in a breach of the terms, conditions or provisions of, or constitute a default, an event of default or an event creating rights of acceleration, termination or cancellation or a loss of rights under, or result in the creation or imposition of any Encumbrance upon any of the Company’s assets, under (i) the Articles of Incorporation or Bylaws of the Company, each as amended to date, (ii) any Company Agreement, or (iii) any other material note, instrument, agreement, mortgage, lease, license, franchise, permit or other authorization, right, restriction or obligation to which the Company is a party or any of the assets of the Company is subject or by which the Company is bound, (iii) any Court Order to which the Company is a party or any of the assets of the Company is subject or by which the Company is bound, or (iv) any Requirements of Laws affecting the Company or its assets; or

 

5.4.2.2 other than the Merger Filing, require a consent, approval, order or authorization of, or registration, qualification, designation, declaration or filing with, any Governmental Body on the part of the Company (the “ Governmental Consents and Filings ”).

 

***	Certain confidential information in this document has been omitted pursuant to a request for Confidential Treatment and filed separately with the Commission.

21

5.5 Financial Statements . The Company has previously delivered to Parent the following financial statements prepared by the Company (the “ Company Financial Statements ”):

 

5.5.1.1 the unaudited balance sheet of the Company as of the Balance Sheet Date and the related unaudited statement of income for the ten-month period then ended (the “ Company Interim Financial Statements ”), attached as Schedule 5.5.1.1 ;

 

5.5.1.2 the unaudited balance sheet of the Company as of December 31, 2004 and the related unaudited statement of income for the year then ended, attached as Schedule 5.5.1.2 ; and

 

5.5.1.3 the unaudited balance sheet of the Company as of December 31, 2003 and the related unaudited statement of income for the year then ended, attached as Schedule 5.5.1.3 .

 

5.5.2 The Company Financial Statements (i) are in accordance with the books and records of the Company, (ii) fairly present, in all material respects, the financial condition of the Company as of the respective dates indicated and the results of operations of the Company for the respective periods indicated and (iii) have been prepared in accordance with United States generally accepted accounting principles consistently applied (“ GAAP ”), except as indicated therein and except for the absence of complete footnote disclosure and normal year-end audit adjustments, which would not individually or in the aggregate be material.

 

5.6 Operations Since Balance Sheet Date . Since the Balance Sheet Date, there has been:

 

5.6.1.1 no Material Adverse Change, and to the Company’s knowledge, no fact or condition exists or is contemplated or threatened which might reasonably be expected to cause such a Material Adverse Change in the future; and

 

5.6.1.2 no damage, destruction, loss or claim, whether or not covered by insurance, or condemnation or other taking materially adversely affecting any of the Company’s assets or its business.

 

5.6.2 Since the Balance Sheet Date, the Company has conducted its business only in the ordinary course and in conformity with past practice. Without limiting the generality of the foregoing, since the Balance Sheet Date, the Company has not:

 

5.6.2.1 sold, leased (as lessor), transferred or otherwise disposed of (including any transfers from the Company to any of its Affiliates), or mortgaged or pledged, or imposed or suffered to be imposed any Encumbrance on, any of the assets reflected on the Company Balance Sheet or any assets acquired by the Company after the Balance Sheet Date, except for inventory and amounts of personal property sold or otherwise disposed of in the ordinary course of business consistent with past practice and except for Permitted Encumbrances;

 

***	Certain confidential information in this document has been omitted pursuant to a request for Confidential Treatment and filed separately with the Commission.

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5.6.2.2 cancelled any debts owed to or claims held by the Company (including the settlement of any claims or litigation) other than in the ordinary course of business consistent with past practice;

 

5.6.2.3 created, incurred or assumed, or agreed to create, incur or assume, any indebtedness for borrowed money in respect of the Company or entered into, as lessee, any capitalized lease obligations (as defined in Statement of Financial Accounting Standards No. 13);

 

5.6.2.4 accelerated or delayed collection of notes or accounts receivable in advance of or beyond their regular due dates or the dates when the same would have been collected in the ordinary course of business consistent with past practice;

 

5.6.2.5 delayed or accelerated payment of any account payable or other liability beyond or in advance of its due date or the date when such liability would have been paid in the ordinary course of business consistent with past practice;

 

5.6.2.6 made an issuance of any shares of its capital stock or any debt security or securities, rights, options or warrants convertible into or exercisable or exchangeable for any shares of its capital stock or debt security (other than shares of Company Common Stock issued upon exercise of Options and Warrants);

 

5.6.2.7 allowed the levels of raw materials, supplies, work-in-process or other materials included in the inventory of the Company to vary in any material respect from the levels customarily maintained;

 

5.6.2.8 made, or agreed to make, any payment of cash or distribution of assets to any Shareholder or any of the Company’s Affiliates;

 

5.6.2.9 instituted any increase in any compensation payable to any employee of the Company or in any profit-sharing, bonus, incentive, deferred compensation, insurance, pension, retirement, medical, hospital, disability, welfare or other benefits made available to any employee of the Company; or

 

5.6.2.10 made any change in the accounting principles and practices used by the Company from those applied in the preparation of the Company Balance Sheet and the related statements of income and cash flow for the period then ended.

 

5.7 No Undisclosed Liabilities . The Company is not subject to any liability (including, without limitation, unasserted claims, whether known or unknown), whether absolute, contingent, accrued or otherwise, which is not shown or which is in excess of amounts shown or reserved for in the Company Balance Sheet, other than liabilities (i) of the same general nature as those set forth in the Company Balance Sheet and any notes thereto and which were incurred after the Balance Sheet Date incurred in the ordinary course of business consistent with past practice or (ii) of the type which would not be required to be set forth on the Company Balance Sheet under GAAP.

 

***	Certain confidential information in this document has been omitted pursuant to a request for Confidential Treatment and filed separately with the Commission.

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5.8 Taxes . The Company has filed all Tax Returns which are required to be filed, and all such Tax Returns are complete and accurate in all material respects and disclose all material Taxes required to be paid. All material Taxes owed by the Company (whether or not shown on any Tax Return) have been paid when due. None of the Company’s Tax Returns have been audited by the relevant taxing authority. There is no action, suit, investigation, audit, claim or assessment pending or, to the knowledge of the Company, proposed or threatened with respect to any Taxes of the Company. Neither the Company nor any of its Affiliates has received from any foreign, federal, state or local taxing