EXHIBIT 2.1
THIS AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
(THE "MERGER AGREEMENT")
CONTAINS CERTAIN REPRESENTATIONS AND WARRANTIES (THE "REPRESENTATIONS") BY
STARSYS RESEARCH CORPORATION ("STARSYS") AND A KEY SHAREHOLDER OF STARSYS
IN
FAVOR OF SPACEDEV, INC. ("SPACEDEV"), AND BY SPACEDEV AND ITS
WHOLLY-OWNED
SUBSIDIARY IN FAVOR OF STARSYS. NO PERSON, OTHER THAN THE PARTIES TO THE
AGREEMENT, ARE ENTITLED TO RELY ON THE
REPRESENTATIONS CONTAINED IN THE MERGER
AGREEMENT. THE MERGER AGREEMENT IS FILED IN ACCORDANCE WITH THE
RULES OF THE
SECURITIES AND EXCHANGE COMMISSION AS A MATERIAL PLAN OF ACQUISITION,
AND IS
INTENDED BY SPACEDEV SOLELY AS A RECORD OF
THE AGREEMENT REACHED BY THE PARTIES
THERETO. THE FILING OF THE MERGER AGREEMENT IS NOT
INTENDED AS A MECHANISM TO
UPDATE, SUPERSEDE OR OTHERWISE MODIFY PRIOR
DISCLOSURES OF INFORMATION AND RISKS
CONCERNING SPACEDEV WHICH SPACEDEV HAS MADE TO ITS SHAREHOLDERS.
INVESTORS AND POTENTIAL INVESTORS SHOULD
ALSO BE AWARE THAT THE REPRESENTATIONS
ARE QUALIFIED BY INFORMATION IN CONFIDENTIAL
DISCLOSURE SCHEDULES THAT STARSYS
HAS DELIVERED TO THE SPACEDEV, AND DISCLOSURE SCHEDULES THAT SPACEDEV HAS
DELIVERED TO STARSYS (THE "DISCLOSURE SCHEDULES"). THE DISCLOSURE
SCHEDULES
CONTAIN INFORMATION THAT MODIFIES, QUALIFIES AND CREATES EXCEPTIONS TO THE
REPRESENTATIONS.
INVESTORS AND POTENTIAL INVESTORS SHOULD ALSO BE AWARE THAT CERTAIN
REPRESENTATIONS MADE IN THE MERGER AGREEMENT ARE
NOT INTENDED TO BE AFFIRMATIVE
REPRESENTATIONS OF FACTS, SITUATIONS OR
CIRCUMSTANCES, BUT ARE INSTEAD DESIGNED
AND INTENDED TO ALLOCATE CERTAIN RISKS BETWEEN SPACEDEV AND
ITS WHOLLY-OWNED
SUBSIDIARY, ON THE ONE HAND, AND STARSYS AND ITS
KEY SHAREHOLDER, ON THE OTHER
HAND. THE USE OF REPRESENTATIONS AND
WARRANTIES TO ALLOCATE RISK IS A STANDARD
DEVICE IN MERGER AGREEMENTS.
ACCORDINGLY, SHAREHOLDERS SHOULD NOT RELY
ON THE REPRESENTATIONS AS AFFIRMATIONS
OR CHARACTERIZATIONS OF INFORMATION CONCERNING SPACEDEV OR STARSYS AS
OF THE
DATE OF THE MERGER AGREEMENT, OR AS OF ANY OTHER DATE.
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_________________________________________________________
Project Spirit
Acquisition of
Starsys Research Corporation
_________________________________________________________
Agreement and Plan of Merger and Reorganization,
by and
among
SpaceDev, Inc.,
Monoceros Acquisition Corp.,
Starsys Research Corporation,
Scott Tibbitts, a Key Shareholder,
And
Scott Tibbitts, as Shareholder Agent
___________________________________
October 24, 2005
___________________________________
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TABLE OF CONTENTS
-----------------
Page
----
ARTICLE I THE MERGER
1
Section 1.1 The Merger
1
Section 1.2 Effective
Time
2
Section 1.3 Closing
2
Section 1.4 Effects
of the Merger
2
Section 1.5 Articles
of Incorporation and Bylaws
2
Section 1.6 Directors
and Officers
2
ARTICLE II MERGER CONSIDERATION; CANCELLATION
OF COMPANY STOCK
2
Section 2.1 Certain
Definitions.
2
Section 2.2 Effect
on Capital Stock
4
Section 2.3 Loan
Repayments.
4
Section 2.4 Shareholder
Consideration
5
Section 2.5 Calculation
of Performance Consideration
6
Section 2.6 Protective
Provisions
8
Section 2.7 Allocation and
Distribution of Shareholder Consideration 8
Section 2.8 Adjustments
to Parent Common Stock
9
Section 2.9 No Fractional Shares
9
Section 2.10 Surrender of
Certificates; Lost, Stolen or Destroyed
Certificates
9
Section 2.11 Stock Options; Stock Bonus Plan
10
Section 2.12 Treasury Stock
10
Section 2.13 Shares of Dissenting Shareholders
10
Section 2.14 Tax Consequences
10
Section 2.15 Accounting
Treatment
11
Section 2.16 Withholding
Rights
11
Section 2.17 Escrow Account.
11
Section 2.18 Expense Fund.
12
Section 2.19 Company Expense Payments.
12
Section 2.20 Closing Working Capital Deficit Adjustment
13
Section 2.21 Transfer Of Contingent Rights.
13
Section 2.22 Taking of Necessary Action; Further Action
14
ARTICLE III REPRESENTATIONS AND WARRANTIES CONCERNING THE COMPANY 14
Section 3.1 Organization
and Qualification.
14
Section 3.2 Subsidiaries.
15
Section 3.3 Capital
Structure.
15
Section 3.4 Approval
of Transactions.
15
Section 3.5 Authority.
16
Section 3.6 No Conflict.
16
Section 3.7 Consents.
17
Section 3.8 Books
and Records.
17
Section 3.9 Company
Financial Statements.
17
Section 3.10 No Undisclosed Liabilities.
18
Section 3.11 No Off-Balance Sheet Arrangements.
18
Section 3.12 No Changes.
18
Section 3.13 Tax Matters.
21
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Section 3.14 Restrictions
on Business Activities.
22
Section 3.15 Title of Properties;
Absence of Liens and Encumbrances;
Condition of
Equipment.
23
Section 3.16 Intellectual
Property.
23
Section 3.17 Agreements,
Contracts and Commitments.
26
Section 3.18 Government
Contracts.
28
Section 3.19 Related Party Transactions.
30
Section 3.20 Compliance
with Law; Governmental Authorization.
30
Section 3.21 Litigation.
30
Section 3.22 Accounts Receivable, Customers and Inventory.
30
Section 3.23 Environmental
Matters.
31
Section 3.24 Brokers' and Finders' Fees.
32
Section 3.25 Employee Benefit Plans and Compensation.
32
Section 3.26 Insurance.
36
Section 3.27 Relations With Governmental Entities.
36
Section 3.28 Warranties.
36
Section 3.29 Complete Copies of Materials.
36
Section 3.30 Customer Relations.
36
Section 3.31 Equity Ownership.
37
Section 3.32 Form S-4 Information.
37
Section 3.33 Expenses of Sale.
37
Section 3.34 Representations
Complete.
37
ARTICLE IV PARENT AND MERGER SUB REPRESENTATIONS AND WARRANTIES
38
Section 4.1 Organization
and Qualification.
38
Section 4.2 Subsidiaries.
38
Section 4.3 Power
and Authority; Enforceability.
38
Section 4.4 No Conflict.
38
Section 4.5 Consents.
39
Section 4.6 Capitalization.
39
Section 4.7 SEC Filings; Financial Statements.
39
Section 4.8 Form
S-4 Information.
40
Section 4.9 No Undisclosed Liabilities.
40
Section 4.10 Valid Issuance.
40
Section 4.11 Merger Sub.
40
Section 4.12 SpaceDev Oklahoma.
41
Section 4.13 Suspension
and Trading.
41
Section 4.14 Government
Contracts.
41
Section 4.15 Agreements,
Contracts and Commitments.
42
Section 4.16 Representations
Complete.
43
ARTICLE V COVENANTS RELATED TO CONDUCT OF BUSINESS
43
Section 5.1 Conduct
of Business of the Company Until Closing. 43
Section 5.2 Reasonable
Efforts and Further Assurances.
45
Section 5.3 Certain
Tax Matters.
46
Section 5.4 Access
to Information.
46
Section 5.5 No Solicitation.
47
Section 5.6 Public
Announcements;
Employee Announcements.
47
Section 5.7 Notification
of Certain Matters.
47
Section 5.8 Pre-Approval
of Certain Transactions.
48
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Section 5.9 Consents
to Merger.
48
Section 5.10 Export Licenses.
49
Section 5.11 Petercsak Release.
49
Section 5.12 Preparation
of Form S-4 and Proxy Statement.
49
Section 5.13 Parent Shareholders Meeting.
50
Section 5.14 Company Shareholders Meeting.
51
Section 5.15 Financial Statements.
51
Section 5.16 Repayment of Certain Loans and Advances.
51
Section 5.17 Private Financing.
51
ARTICLE VI CONDITIONS TO CLOSING
52
Section 6.1 Conditions to
Obligations of Each Party Under This Agreement 52
Section 6.2 Additional
Conditions
to the Obligations of Parent
52
Section 6.3 Additional
Conditions to the Obligations of the Company
55
ARTICLE VII SURVIVAL OF REPRESENTATIONS
AND WARRANTIES; INDEMNIFICATION 56
Section 7.1 Survival
of Representations,
Warranties and Covenants. 56
Section 7.2 Indemnification;
Escrow Account; Expense Fund.
58
Section 7.3 Limitation
on Indemnification.
59
Section 7.4 Indemnification
Procedures.
60
Section 7.5 Shareholder
Agent.
63
Section 7.6 Resolution
of Conflicts.
63
Section 7.7 No Contribution.
64
Section 7.8 Fraud;
Willful Misrepresentation.
64
Section 7.9 Exclusive
Remedies.
64
Section 7.10 Purchase Price Adjustment.
64
ARTICLE VIII POST-CLOSING COVENANTS
64
Section 8.1 Parent
Board of Directors
64
Section 8.2 Separate
Books and Records.
64
Section 8.3 Operation
of Surviving Corporation.
64
Section 8.4 Sale
of Surviving Corporation.
65
Section 8.5 Stock
Options.
65
Section 8.6 Capital
Investments.
65
Section 8.7 Continuity
of Business Enterprise.
66
Section 8.8 Attorney-Client
Privilege.
66
ARTICLE IX EMPLOYEES
66
Section 9.1 Retaining
Employees.
66
Section 9.2 Employee
Benefit Arrangements.
66
Section 9.3 No Benefit to the Company Employees Intended.
66
ARTICLE X TERMINATION
66
Section 10.1 Circumstances
for Termination.
66
Section 10.2 Effect of Termination.
67
ARTICLE XI MISCELLANEOUS
67
Section 11.1 Entire Agreement.
67
Section 11.2 Parties In Interest.
68
Section 11.3 Assignment;
Amendment.
68
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Section 11.4 Notices
68
Section 11.5 Specific Performance.
69
Section 11.6 Submission to
Jurisdiction; No Jury Trial; Service of
Process.
69
Section 11.7 Time.
70
Section 11.8 Counterparts.
70
Section 11.9 Governing Law.
70
Section 11.10 Expenses.
70
Section 11.11 Certain Taxes.
70
Section 11.12 Extensions; Waiver.
70
Section 11.13 Severability.
71
Section 11.14 Incorporation of Exhibits and Disclosure Schedules.
71
Section 11.15 Titles and Headings.
71
Section 11.16 Facsimile Execution.
71
Section 11.17 Construction.
71
Section 11.18 Definitions.
72
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TABLE OF EXHIBITS AND SCHEDULES
-------------------------------
EXHIBIT A-1 Form
of Company Voting Agreement
EXHIBIT A-2 Form
of Parent Voting Agreement
EXHIBIT B
Form of Statement of Merger
EXHIBIT C
Form of Letter of Transmittal
EXHIBIT D-1 Form
of Legal Opinion of Holland & Hart LLP
EXHIBIT D-2 Form of Legal
Opinion of Sheppard, Mullin, Richter &
Hampton, LLP
EXHIBIT E-1 Form
of Officers' Certificate - Company
EXHIBIT E-2 Form
of Key Shareholder's Certificate
EXHIBIT E-3 Form
of Officer's Certificate - Parent
EXHIBIT F
Form of Non-Competition Agreement
EXHIBIT G
Form of Tibbitts Executive Employment Agreement
EXHIBIT H
Form of Standstill and Lock-Up Agreement
EXHIBIT I
Form of Executive Officer Release
EXHIBIT J
Form of Parent Approval of Proposed Transaction
SCHEDULE 2.20(a) Sample Working Capital Deficit Calculation
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INDEX OF DEFINED TERMS
----------------------
<TABLE>
<CAPTION>
<S>
<C>
ACCOUNTING DISPUTE . . . . . . . . . . . .
. 7
ACCOUNTING REFEREE . . . . . . . . . . . .
. 7
ACCOUNTS RECEIVABLE. . . . . . . . . . . .
. 72
ACTION . . . . . . . . . . . . . . . . . .
. 73
ACTUAL KNOWLEDGE . . . . . . . . . . . . .
. 73
AFFILIATE. . . . . . . . . . . . . . . . .
. 73
AGREEMENT. . . . . . . . . . . . . . . . .
. 1
AMEND. . . . . . . . . . . . . . . . . . .
. 73
APPLICABLE TIME. . . . . . . . . . . . . .
. 73
APPROVED CONTRACT. . . . . . . . . . . . .
. 53
APPROVED TRANSACTION . . . . . . . . . . .
. 48
BASKET AMOUNT. . . . . . . . . . . . . . .
. 59
BEST EFFORTS . . . . . . . . . . . . . . .
. 73
BREACH . . . . . . . . . . . . . . . . . .
. 73
CAPITAL INVESTMENTS. . . . . . . . . . . .
. 65
CAPITAL LEASE OBLIGATION . . . . . . . . .
. 73
CAPITALIZATION ADJUSTMENT. . . . . . . . .
. 2
CASH EARNOUT . . . . . . . . . . . . . . .
. 2
CBCA . . . . . . . . . . . . . . . . . . .
. 1
CERCLA . . . . . . . . . . . . . . . . . .
. 74
CERTIFICATES . . . . . . . . . . . . . . .
. 9
CLAIM NOTICE . . . . . . . . . . . . . . .
. 57
CLOSING. . . . . . . . . . . . . . . . . .
. 2
CLOSING BALANCE SHEET. . . . . . . . . . .
. 13
CLOSING CONSIDERATION. . . . . . . . . . .
. 74
CLOSING DATE . . . . . . . . . . . . . . .
. 2
CLOSING DEBT . . . . . . . . . . . . . . .
. 74
CODE . . . . . . . . . . . . . . . . . . .
. 74
COMMITMENT . . . . . . . . . . . . . . . .
. 74
COMPANY. . . . . . . . . . . . . . . . . .
. 1
COMPANY AUTHORIZATIONS . . . . . . . . . .
. 30
COMPANY BOARD RESOLUTIONS. . . . . . . . .
. 15
COMPANY COMMON STOCK . . . . . . . . . . .
. 74
COMPANY CONTRACT . . . . . . . . . . . . .
. 74
COMPANY EMPLOYEE PLAN. . . . . . . . . . .
. 74
COMPANY EXPENSE PAYMENTS . . . . . . . . .
. 74
COMPANY INFORMATION. . . . . . . . . . . .
. 74
COMPANY INTELLECTUAL PROPERTY. . . . . . .
. 74
COMPANY LICENSES . . . . . . . . . . . . .
. 74
COMPANY OPTION HOLDERS . . . . . . . . . .
. 10
COMPANY OPTION PLAN. . . . . . . . . . . .
. 15
COMPANY OPTIONS. . . . . . . . . . . . . .
. 15
COMPANY PRODUCTS . . . . . . . . . . . . .
. 75
COMPANY SHAREHOLDERS MEETING . . . . . . .
. 51
COMPANY SOFTWARE . . . . . . . . . . . . .
. 75
COMPANY TRANSACTION EXPENSES . . . . . . .
. 37
COMPANY VOTING AGREEMENTs. . . . . . . . .
. 1
COMPENSATION COMMITTEE . . . . . . . . . .
. 65
COMPETING PARTY. . . . . . . . . . . . . .
. 47
COMPETING TRANSACTION. . . . . . . . . . .
. 47
CONFIDENTIAL INFORMATION . . . . . . . . .
. 75
CONFLICT . . . . . . . . . . . . . . . . .
. 16
CONSENT. . . . . . . . . . . . . . . . . .
. 75
CONSIDERATION RECEIVED . . . . . . . . . .
. 59
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CONTRACT . . . . . . . . . . . . . . . . .
. 75
COPYRIGHTS . . . . . . . . . . . . . . . .
. 75
CURRENT BALANCE SHEET. . . . . . . . . . .
. 75
CURRENT BALANCE SHEET DATE . . . . . . . .
. 75
CUSTOMER INFORMATION . . . . . . . . . . .
. 23
DEBT . . . . . . . . . . . . . . . . . . .
. 75
DEFENDING PARTY. . . . . . . . . . . . . .
. 63
DISCLOSING PARTY . . . . . . . . . . . . .
. 76
DISSENTING SHAREHOLDER . . . . . . . . . .
. 76
DISSENTING SHARES. . . . . . . . . . . . .
. 76
EARNOUT PERIOD . . . . . . . . . . . . . .
. 64
EBITDA . . . . . . . . . . . . . . . . . .
. 3
EBITDA RATIO . . . . . . . . . . . . . . .
. 3
EBITDA TARGET. . . . . . . . . . . . . . .
. 3
EFFECTIVE TIME . . . . . . . . . . . . . .
. 2
EMPLOYEE . . . . . . . . . . . . . . . . .
. 76
EMPLOYEE AGREEMENT . . . . . . . . . . . .
. 76
EMPLOYEE BENEFIT PLAN. . . . . . . . . . .
. 76
EMPLOYEE PENSION PLAN. . . . . . . . . . .
. 76
ENCUMBRANCE. . . . . . . . . . . . . . . .
. 76
ENFORCEABLE. . . . . . . . . . . . . . . .
. 76
ENTITY . . . . . . . . . . . . . . . . . .
. 76
ENVIRONMENT. . . . . . . . . . . . . . . .
. 77
ENVIRONMENTAL LAW. . . . . . . . . . . . .
. 77
ENVIRONMENTAL PROPERTY . . . . . . . . . .
. 77
ENVIRONMENTAL RELEASE. . . . . . . . . . .
. 77
ENVIRONMENTAL, HEALTH AND SAFETY
LIABILITIES 77
EQUIPMENT. . . . . . . . . . . . . . . . .
. 23
EQUITY INTEREST. . . . . . . . . . . . . .
. 77
ERISA. . . . . . . . . . . . . . . . . . .
. 78
ESCROW ACCOUNT . . . . . . . . . . . . . .
. 11
ESCROW AGENT . . . . . . . . . . . . . . .
. 78
ESCROW AGREEMENT . . . . . . . . . . . . .
. 11
ESCROW PERIOD. . . . . . . . . . . . . . .
. 11
ESCROW STOCK . . . . . . . . . . . . . . .
. 11
ESCROW TERMINATION DATE. . . . . . . . . .
. 78
EVENT. . . . . . . . . . . . . . . . . . .
. 78
EXCHANGE ACT . . . . . . . . . . . . . . .
. 78
EXCHANGE AGENT . . . . . . . . . . . . . .
. 9
EXCLUDED SOFTWARE. . . . . . . . . . . . .
. 78
EXECUTIVE EMPLOYMENT AGREEMENT . . . . . .
. 55
EXPENSE FUND . . . . . . . . . . . . . . .
. 12
EXPENSES . . . . . . . . . . . . . . . . .
. 70
FACILITIES . . . . . . . . . . . . . . . .
. 78
FIDUCIARY. . . . . . . . . . . . . . . . .
. 78
FINANCIAL PROJECTIONS. . . . . . . . . . .
. 38
FINANCIALS . . . . . . . . . . . . . . . .
. 78
FOREIGN EXPORT AND IMPORT LAWS . . . . . .
. 78
FORM S-4 . . . . . . . . . . . . . . . . .
. 78
FY 2005. . . . . . . . . . . . . . . . . .
. 78
FY 2006. . . . . . . . . . . . . . . . . .
. 78
FY 2007. . . . . . . . . . . . . . . . . .
. 78
GAAP . . . . . . . . . . . . . . . . . . .
. 78
GOVERNMENT . . . . . . . . . . . . . . . .
. 78
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GOVERNMENT CONTRACT. . . . . . . . . . . .
. 79
GOVERNMENTAL BODY. . . . . . . . . . . . .
. 79
GOVERNMENTAL PERMIT. . . . . . . . . . . .
. 79
GUARANTEE. . . . . . . . . . . . . . . . .
. 79
HAZARDOUS ACTIVITY . . . . . . . . . . . .
. 79
HAZARDOUS MATERIALS. . . . . . . . . . . .
. 79
INDEBTEDNESS . . . . . . . . . . . . . . .
. 79
INDEMNIFIED PARTY. . . . . . . . . . . . .
. 57
INDEMNIFYING PARTY . . . . . . . . . . . .
. 58
INTELLECTUAL PROPERTY RIGHTS . . . . . . .
. 79
INTERCREDITOR AGREEMENT. . . . . . . . . .
. 79
INVENTORIES. . . . . . . . . . . . . . . .
. 31
IRS. . . . . . . . . . . . . . . . . . . .
. 79
JAMS . . . . . . . . . . . . . . . . . . .
. 63
KEY SHAREHOLDERS . . . . . . . . . . . . .
. 1
KNOWLEDGE. . . . . . . . . . . . . . . . .
. 80
LAW. . . . . . . . . . . . . . . . . . . .
. 80
LEASE. . . . . . . . . . . . . . . . . . .
. 80
LETTER OF TRANSMITTAL. . . . . . . . . . .
. 9
LIABILITY. . . . . . . . . . . . . . . . .
. 80
LIABLE . . . . . . . . . . . . . . . . . .
. 80
LICENSE. . . . . . . . . . . . . . . . . .
. 80
LIEN . . . . . . . . . . . . . . . . . . .
. 80
LOSSES . . . . . . . . . . . . . . . . . .
. 80
MARK . . . . . . . . . . . . . . . . . . .
. 80
MASK WORK. . . . . . . . . . . . . . . . .
. 81
MATERIAL . . . . . . . . . . . . . . . . .
. 81
MATERIAL ADVERSE EFFECT. . . . . . . . . .
. 81
MATERIAL COMPANY CONTRACT. . . . . . . . .
. 81
MATERIAL COUNTERPARTY. . . . . . . . . . .
. 48
MATERIAL CUSTOMERS . . . . . . . . . . . .
. 36
MATERIAL EXCLUDED SOFTWARE . . . . . . . .
. 81
MATERIAL INTELLECTUAL PROPERTY RIGHTS. . .
. 81
MATERIAL INTEREST. . . . . . . . . . . . .
. 81
MATERIALS OF ENVIRONMENTAL CONCERN . . . .
. 81
MERGER . . . . . . . . . . . . . . . . . .
. 1
MERGER CONSENT . . . . . . . . . . . . . .
. 48
MERGER CONSIDERATION . . . . . . . . . . .
. 82
MERGER SUB . . . . . . . . . . . . . . . .
. 1
MULTIEMPLOYER PLAN . . . . . . . . . . . .
. 82
NET REVENUES . . . . . . . . . . . . . . .
. 3
NET REVENUES RATIO . . . . . . . . . . . .
. 3
NET REVENUES TARGET. . . . . . . . . . . .
. 3
NON-COMPETITION AGREEMENT. . . . . . . . .
. 55
OCCUPATIONAL SAFETY AND HEALTH LAW . . . .
. 82
OPTION ELIGIBLE EMPLOYEE . . . . . . . . .
. 65
ORDER. . . . . . . . . . . . . . . . . . .
. 82
ORDINARY COURSE OF BUSINESS. . . . . . . .
. 82
ORGANIZATIONAL DOCUMENTS . . . . . . . . .
. 82
OTCBB. . . . . . . . . . . . . . . . . . .
. 82
OTHER IP . . . . . . . . . . . . . . . . .
. 82
OUTSIDE DATE . . . . . . . . . . . . . . .
. 67
OWNED RIGHTS . . . . . . . . . . . . . . .
. 82
PARENT . . . . . . . . . . . . . . . . . .
. 1
PARENT COMMON STOCK. . . . . . . . . . . .
. 82
PARENT DISCLOSURE SCHEDULES. . . . . . . .
. 38
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PARENT FORM 10-Q . . . . . . . . . . . . .
. 39
PARENT INDEMNIFIED PARTY . . . . . . . . .
. 58
PARENT INDEMNIFYING PARTY. . . . . . . . .
. 58
PARENT SHAREHOLDERS MATTERS. . . . . . . .
. 49
PARENT SHAREHOLDERS MEETING. . . . . . . .
. 50
PARENT VOTING AGREEMENTs . . . . . . . . .
. 1
PARTY. . . . . . . . . . . . . . . . . . .
. 1
PATENTS. . . . . . . . . . . . . . . . . .
. 82
PERFORMANCE CONSIDERATION. . . . . . . . .
. 5
PERFORMANCE CONSIDERATION TABLE. . . . . .
. 3
PERFORMANCE DISPUTE NOTICE . . . . . . . .
. 6
PERFORMANCE PERIODS. . . . . . . . . . . .
. 3
PERSON . . . . . . . . . . . . . . . . . .
. 82
POST SIGNING RETURNS . . . . . . . . . . .
. 46
PRINCIPAL MARKET . . . . . . . . . . . . .
. 3
PRIVATE FINANCING. . . . . . . . . . . . .
. 82
PROHIBITED TRANSACTION . . . . . . . . . .
. 82
PROPERTY . . . . . . . . . . . . . . . . .
. 83
PROPOSED TRANSACTION . . . . . . . . . . .
. 48
PROPRIETARY INFORMATION. . . . . . . . . .
. 83
PRORATION PERCENTAGE . . . . . . . . . . .
. 3
PROSECUTING PARTY. . . . . . . . . . . . .
. 63
PROXY STATEMENT. . . . . . . . . . . . . .
. 83
RECEIVING PARTY. . . . . . . . . . . . . .
. 83
REGISTERED INTELLECTUAL PROPERTY RIGHTS. .
. 83
REJECTED CONTRACT. . . . . . . . . . . . .
. 53
RELATED AGREEMENT. . . . . . . . . . . . .
. 83
RELATED PARTY. . . . . . . . . . . . . . .
. 83
REMEDIAL ACTION. . . . . . . . . . . . . .
. 83
REPRESENTATIVE . . . . . . . . . . . . . .
. 84
RESTRICTED TERRITORY . . . . . . . . . . .
. 84
SEC. . . . . . . . . . . . . . . . . . . .
. 84
SECURITIES . . . . . . . . . . . . . . . .
. 84
SECURITIES ACT . . . . . . . . . . . . . .
. 84
SECURITY INTEREST. . . . . . . . . . . . .
. 84
SHARE AUTHORIZATION. . . . . . . . . . . .
. 49
SHAREHOLDER. . . . . . . . . . . . . . . .
. 85
SHAREHOLDER AGENT. . . . . . . . . . . . .
. 1
SHAREHOLDER CLOSING CONSIDERATION. . . . .
. 84
SHAREHOLDER CONSIDERATION. . . . . . . . .
. 84
SHAREHOLDER INDEMNIFIED PARTY. . . . . . .
. 58
SHAREHOLDER LOAN . . . . . . . . . . . . .
. 84
SHAREHOLDER PERFORMANCE CONSIDERATION. . .
. 5
SHAREHOLDER TABLE. . . . . . . . . . . . .
. 17
SOFTWARE . . . . . . . . . . . . . . . . .
. 85
SPACEDEV . . . . . . . . . . . . . . . . .
. 1
SPACEDEV LOAN. . . . . . . . . . . . . . .
. 85
STANDSTILL AND LOCK-UP AGREEMENT . . . . .
. 55
STARSYS. . . . . . . . . . . . . . . . . .
. 1
STARSYS FINANCIAL STATEMENTS . . . . . . .
. 6
STOCK BONUS PLAN . . . . . . . . . . . . .
. 85
STOCK EARNOUT. . . . . . . . . . . . . . .
. 3
SUBSIDIARY . . . . . . . . . . . . . . . .
. 85
TANGIBLE PERSONAL PROPERTY . . . . . . . .
. 85
TAX. . . . . . . . . . . . . . . . . . . .
. 85
TAX RETURN . . . . . . . . . . . . . . . .
. 86
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09EY-117690
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TECHNOLOGY . . . . . . . . . . . . . . . .
. 86
THIRD-PARTY LICENSE. . . . . . . . . . . .
. 86
THREAT OF RELEASE. . . . . . . . . . . . .
. 86
TRADE SECRET . . . . . . . . . . . . . . .
. 86
TRADEMARK. . . . . . . . . . . . . . . . .
. 86
TRADING DAY. . . . . . . . . . . . . . . .
. 3
TRANSACTION. . . . . . . . . . . . . . . .
. 87
TRANSACTION DOCUMENT . . . . . . . . . . .
. 87
TRANSACTION EXPENSE PAYMENT SCHEDULE . . .
. 12
TRANSFER . . . . . . . . . . . . . . . . .
. 86
TREASURY REGULATION. . . . . . . . . . . .
. 87
TRIGGER CONDITIONS . . . . . . . . . . . .
. 4
TWENTY DAY VWAP. . . . . . . . . . . . . .
. 4
U.S. EXPORT AND IMPORT LAWS. . . . . . . .
. 87
UPDATED DISCLOSURE SCHEDULES . . . . . . .
. 87
UPDATED PARENT DISCLOSURE SCHEDULES. . . .
. 87
VECTRA . . . . . . . . . . . . . . . . . .
. 87
VECTRA LOAN. . . . . . . . . . . . . . . .
. 87
VWAP . . . . . . . . . . . . . . . . . . .
. 4
</TABLE>
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Agreement and Plan of Merger
09EY-117690
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AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
This AGREEMENT AND PLAN OF MERGER AND REORGANIZATION (together with all
Schedules and Exhibits hereto, this
"AGREEMENT") is made and entered into as of
October 24, 2005, by and among (i) SpaceDev, Inc., a Colorado
corporation
(together with its successors and permitted assigns,
"PARENT" or "SPACEDEV"),
(ii) Monoceros Acquisition Corp., a Colorado corporation and a
wholly-owned
subsidiary of Parent (together with its successors and permitted assigns,
"MERGER SUB"), (iii) Starsys Research Corporation, a Colorado corporation
(together with its successors, the
"COMPANY" or "STARSYS"), (iv) Scott Tibbitts,
an individual resident of the State of Colorado,
and any other key shareholder
of the Company identified on the
signature pages hereof (collectively, the "KEY
SHAREHOLDERS"), and (v) Scott Tibbitts, as agent for the
shareholders of the
Company (including the Key Shareholders) (together
with its successors in such
capacity, the "SHAREHOLDER AGENT"). Parent, Merger Sub, the Company, the
Shareholder Agent and the Key Shareholders are individually
referred to as a
"PARTY" and collectively as the "PARTIES". Capitalized terms shall have
the
respective meanings ascribed thereto in Section 11.18 or elsewhere in this
Agreement.
R E C I T A L S
---------------
A. This
Agreement contemplates a merger of the Company with and into
Merger
Sub (the "MERGER"), with Merger Sub being the surviving
corporation. In such
Merger, one hundred percent (100%) of the issued and outstanding shares
of
capital stock of the Company will be converted into
the right to receive cash
and shares of Common Stock of Parent
(as set forth in Article II), on the terms
and subject to the conditions set forth in this Agreement.
B. The Parties desire to make certain
representations and warranties and
other agreements in connection with the Merger as
set forth in this Agreement.
C. Concurrently with the execution and delivery of this Agreement, as
material inducements of the several Parties to enter into
this Agreement, (i)
each Key Shareholder is executing and delivering to Parent a (1) Voting
Agreement, substantially in the form attached hereto as Exhibit A-1 (the
"COMPANY VOTING AGREEMENTS"), (2) a Proxy relating
to shares of Company Common
Stock, substantially in the form attached to the
Company Voting Agreement, and
(3) a Proxy relating to shares of Parent
Common Stock, substantially in the form
attached to the Company Voting Agreement, and (ii) each director of
Parent
holding not less than 1% of the outstanding shares of
Parent Common Stock is
executing and delivering to the Company a
(x) Voting Agreement, substantially in
the form attached hereto as Exhibit A-2 (the "PARENT
VOTING AGREEMENTS"), and
(y) a Proxy, substantially in the form
attached to the Parent Voting Agreement.
A G
R E E M E N T
-----------------
NOW,
THEREFORE,
in consideration of
the foregoing premises and the mutual
promises herein made, and in consideration of the
representations, warranties,
and covenants contained herein, the Parties, intending to be legally
bound,
hereby agree as follows:
ARTICLE I
THE MERGER
Section
1.1 The Merger. At the Effective
Time, subject to and upon the
terms and conditions of this Agreement and in accordance
with the applicable
provisions of the Colorado Business Corporation Act
(the "CBCA"), the Company
shall be merged with and into Merger Sub, the
separate corporate existence of
the Company shall cease, and Merger Sub shall continue as the surviving
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Agreement and Plan of Merger
09EY-117690
PAGE
corporation
and as a wholly-owned Subsidiary of
Parent (together with its
successors, the "SURVIVING CORPORATION").
Section
1.2 Effective Time. Subject to the provisions of this
Agreement,
the Company, Parent and Merger Sub shall cause
the Merger to be consummated by
filing a Statement of Merger in substantially the form attached hereto as
Exhibit B (the "STATEMENT OF MERGER"), in accordance with the relevant
provisions of the CBCA, as soon as practicable after the
Closing Date, such
filing to be made no later than three business days
after the Closing). The
Merger shall become effective upon the filing of the
Statement of Merger with
the Secretary of State of the State of Colorado (the "EFFECTIVE TIME").
Section
1.3 Closing.
The closing of the
Merger (the "CLOSING") shall take
place at the offices of Sheppard, Mullin, Richter &
Hampton LLP, 12544 High
Bluff Drive, Suite 300, San Diego, California,
92130-3051, commencing at 10:00
a.m. local time on December 12, 2005, or such
other later date which shall not
be more than two (2) business days after the date on which the
last of the
conditions in Article VI has been satisfied or waived or at
such other time,
date and place as Parent and Company may mutually determine (the
"CLOSING
DATE"), and in no event later than the Outside Date specified in
Section
10.1(d)(2).
Section
1.4 Effects of the Merger.
The Merger shall have
the effects set
forth in this Agreement, the Statement of
Merger and the applicable provisions
of the CBCA. Without limiting the generality of
the foregoing, subject to any
provisions hereof expressly disclaiming the assumption of any
Liabilities, at
the Effective Time, all of the properties, rights, privileges
and powers of
Merger Sub and the Company shall vest in the Surviving
Corporation, and all
Liabilities of Merger Sub and the Company shall become
the Liabilities of the
Surviving Corporation.
Section
1.5 Articles of Incorporation and Bylaws. The Articles of
Incorporation and Bylaws of Merger Sub immediately
prior to the Effective Time
shall be the Articles of Incorporation and
Bylaws of the Surviving Corporation
after the Effective Time (except that the name of the Surviving
Corporation
shall be "Starsys Research Corporation") until thereafter amended.
Section
1.6 Directors and
Officers. Unless
otherwise determined by Parent
prior to the Effective Time, Merger Sub's directors and
officers immediately
prior to the Effective Time shall be the Surviving Corporation's
initial
directors and officers and shall hold office
in accordance with the Articles of
Incorporation and Bylaws of the Surviving
Corporation until their successors are
duly elected or appointed and qualified or until their earlier death,
resignation or removal.
ARTICLE II
MERGER CONSIDERATION;
CANCELLATION OF COMPANY STOCK
Section 2.1
Certain Definitions. The following terms, whenever used in this
Article II, shall have the meanings
ascribed to them below or in the referenced
Sections of this Article II:
"CAPITALIZATION
ADJUSTMENT"
means an adjustment
based on any stock split,
reverse stock split, combination, consolidation
or reclassification of, or any
stock dividend on, the Parent Common Stock, the
recapitalization of Parent, or
any like change.
"CASH
EARNOUT" means, with
respect to any Performance Period, an amount of
cash calculated as set forth in the "Cash Earnout" column
in the Performance
Consideration Table for such Performance Period.
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09EY-117690
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"EBITDA"
means, subject to Section 2.6, consolidated net income
before
interest income, interest expense, income Taxes,
depreciation and amortization
of the Surviving Corporation.
"EBITDA RATIO"
means, with respect to any Performance Period, the lesser of
(a) 1.0, and (b) the quotient of (x) EBITDA of the
Surviving Corporation for
such Performance Period, divided by (y) the EBITDA
Target for such Performance
Period.
"EBITDA
TARGET" means, with respect to any
Performance Period, the amount
listed in the "EBITDA Target" column in
the Performance Consideration Table for
such Performance Period.
"NET REVENUES"
means, with respect to any Performance Period and subject to
Section 2.6, gross sales revenues of the Surviving Corporation in such
Performance Period, after adjustment for normal and
customary trade, quantity
and cash discounts and sales returns and allowances, consistent with
past
practices of the Company or approved by the
Shareholder Agent (such approval not
to be unreasonably withheld or conditioned), including (A) those
granted on
account of price adjustments, billing errors,
rejected goods, returns, rebates
or similar payments, (B)
administrative and other fees and reim-burse-ments and
similar payments to wholesalers and other
distributors, buying groups and other
institutions, (C) allowances, rebates and fees paid to distributors, and
(D)
chargebacks.
"NET
REVENUES RATIO" means, with respect to any Performance
Period, the
lesser of (a) 1.0, and (b) the quotient of (x) Net
Revenues of the Surviving
Corporation for such Performance Period,
divided by (y) the Net Revenues Target
for such Performance Period.
"NET
REVENUES TARGET" means, with respect to any
Performance Period, the
amount listed in the "Net Revenues Target" column in the Performance
Consideration Table for such Performance Period.
"PERFORMANCE
CONSIDERATION
TABLE" means the table set forth
immediately
succeeding Section 2.4(c).
"PERFORMANCE
PERIODS" means each of FY 2005, FY 2006 and FY 2007.
"PRINCIPAL
MARKET" means the Nasdaq National Market, the Nasdaq
Capital
Market, the OTCBB, the American Stock Exchange
or the New York Stock Exchange,
whichever is at the time the principal
trading exchange, market or inter-dealer
or automated quotation system for the Parent
Common Stock and, for purposes of
calculating VWAP, for which Bloomberg Financial, L.P.
publishes the necessary
reports.
"PRORATION
PERCENTAGE"
means, with respect to any Performance Period,
a
percentage equal to:
[ 60% (EBITDA
Ratio for such Performance Period - 0.8) x 5 ] +
[ 40% (Net
Revenues Ratio for such Performance Period - 0.8 ) x 5 ] .
"STOCK
EARNOUT" means, with
respect to any Performance Period, a number of
shares of Parent Common Stock calculated as set forth in
the "Stock Earnout"
column in the Performance Consideration Table for such Performance Period.
"TRADING
DAY" means any day
other than a Saturday or a Sunday on which the
Principal Market is open for trading in equity securities.
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Agreement and Plan of Merger
09EY-117690
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"TRIGGER
CONDITIONS"
means, with respect to any
Performance Period, each of the following conditions: (i)
the Net Revenues of
the Surviving Corporation for such Performance Period is equal
to or greater
than 80% of the Net Revenues Target for such
Performance Period, and (ii) the
EBITDA of the Surviving Corporation for such
Performance Period is equal to or
greater than 80% of the EBITDA Target for such Performance Period.
"TWENTY
DAY VWAPTWENTY DAY VWAP" means, with respect to any date of
determination, the arithmetic mean of the VWAP for
the twenty (20) consecutive
Trading Days ending on such date or, if
such date is not a Trading Day, the next
preceding Trading Day.
"VWAP"
means, with respect to
any Trading Day, the volume weighted average
price of the Parent Common Stock on such Trading Day
(equal to the aggregate
sales price of all trades of Parent
Common Stock during such Trading Day on the
Principal Market divided by the total number of shares of
Common Stock traded
during such Trading Day on the Principal Market), as reported by
Bloomberg
Financial, L.P. using the AQR function.
Section
2.2 Effect on Capital
Stock. At the Effective Time, because of the
Merger and without any further action on the
part of Parent, Merger Sub or the
Company:
(a) Common Stock of Merger Sub. Each share of the
common stock of Merger
Sub issued and outstanding immediately
prior to the Effective Time shall remain
a validly issued, fully paid, and
non-assessable share of common stock of Merger
Sub.
(b) Common Stock of the Company. At the
Effective Time and subject to the
Dissenting Shareholders' rights set forth in Section 2.13, each share
of the
Company Common Stock, issued and
outstanding immediately prior to the Effective
Time shall automatically be canceled and
retired and shall cease to exist, and
the holder of a stock certificate that,
immediately prior to the Effective Time,
represented outstanding shares of Company Common Stock
shall cease to have any
rights with respect thereto, except the
right to receive, upon the surrender of
such certificates (or delivery of the affidavit and
bond, if any, specified in
Section 2.10(e)) and upon the terms and subject to
the conditions set forth in
this Article II and elsewhere in this
Agreement, the Shareholder Consideration
to be distributed to holders of Company
Common Stock as provided in this Article
II and elsewhere in this Agreement
(including the deposit of a portion of such
Shareholder Consideration into the Escrow Account and the Expense Fund, as
provided in Section 2.17 and Section 2.18, respectively).
(c) Stock Transfer Books. After the Effective Time, the
Company's stock
transfer books shall be closed and there shall be no further Transfers
of
Company Common Stock. If, at or after the Effective Time, certificates
represented outstanding shares of Company Common Stock are presented to
the
Surviving Corporation, they shall be canceled and
exchanged in accordance with
this Agreement.
Section
2.3 Loan Repayments. At Closing, Parent shall (i) pay off the
remaining principal and interest of the Vectra Loans
and any other amounts due
and owing to Vectra, (ii) cancel and terminate the
SpaceDev Loan and related
Secured Promissory Note; provided that any representations, warranties or
agreements therein which by their terms
survive the termination of the SpaceDev
Loan or such Secured Promissory Note, as the case may
be, shall survive such
cancellation and termination, and (iii) pay off
each Shareholder Loan in full;
provided that Parent shall have no
obligation to pay more than $4,600,000 in the
aggregate to pay off in full all of the Vectra Loans and
Shareholder Loans,
including all Liabilities in respect thereof; and, provided,
further, that if
Parent shall not have paid off the Vectra Loans
at Closing as required, Parent
shall tender Vectra a guaranty of the Vectra Loans, in form and
substance
reasonably satisfactory to Vectra, in exchange for Vectra
releasing the Scott
Tibbitts guaranty.
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Agreement and Plan of Merger
09EY-117690
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Section
2.4 Shareholder Consideration. In consideration for 100% of
the
issued and outstanding Company Common
Stock, Parent shall, subject to the terms
and conditions of this Article II and
elsewhere in this Agreement, including the
Dissenting Shareholders proviso and retention rights of Section 2.7, the
withholding provisions of Section 2.16, if
applicable, the escrow provisions of
Section 2.17, the expense fund provisions
of Section 2.18 and the retention and
set-off rights provided with respect to Key
Shareholders in Article VII, pay and
distribute the following Shareholder Consideration:
(a) $1,500,000 (subject to reduction pursuant to Section
2.20) in cash,
less the aggregate amount of funds payable
to the Shareholder Agent at Closing
for the payment of Company Transaction
Expenses in accordance with Section 2.19;
to be delivered at Closing by wire transfer of
immediately available funds to
the Exchange Agent;
(b) a number of shares of Parent
Common Stock equal to the quotient of (x)
$7,500,000 (subject to reduction pursuant to Section
2.20), divided by (y) the
greater of (1) $1.40 (subject to Capitalization
Adjustments, if any), and (2)
the lesser of (A) $1.90 (subject to
Capitalization Adjustments, if any), and (B)
the Twenty Day VWAP as of the Trading
Day next preceding the Closing Date; less
the number of shares deliverable to the Shareholder
Agent at Closing for the
satisfaction of Company Transaction
Expenses in accordance with Section 2.19, to
be delivered at Closing by delivery of
appropriate share certificates evidencing
such number of shares to the Exchange Agent; and
(c) subject to the Surviving
Corporation satisfying each Trigger Condition
for a Performance Period (it being understood and agreed
that, except to the
extent set forth in Section 2.5(d), no
performance consideration shall be earned
or paid in respect of such Performance
Period if any of the Trigger Conditions
is not fully satisfied), performance consideration in respect of such
Performance Period, as provided in Section 2.5,
consisting of Cash Earnout and
Stock Earnout (the "Performance Consideration"), less the number of shares
deliverable to the Shareholder Agent in respect
of such Performance Period for
the satisfaction of Company Transaction
Expenses in accordance with Section 2.19
(the Performance Consideration, as so reduced, the "Shareholder
Performance
Consideration"); to be delivered within ten (10) days after Parent and the
Shareholder Agent agree on the calculation thereof, or if no agreement is
reached, after the conclusion of any dispute resolution pursuant to
Section
2.5(c), by wire transfer of Cash Earnout (if any), and by delivery of
appropriate share certificates evidencing the Stock Earnout (if any), to
the
Exchange Agent.
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Agreement and Plan of Merger
09EY-117690
PAGE
PERFORMANCE CONSIDERATION TABLE
-------------------------------
<TABLE>
<CAPTION>
<S>
<C>
<C>
<C>
<C>
PERFORMANCE PERIOD NET REVENUES
TARGET
EBITDA TARGET
CASH EARNOUT
STOCK EARNOUT
FY 2005
$21,500,000
$250,000
$350,000 x
The number
of shares of Parent Common Stock
Proration equal to
$3,000,000 multiplied by the Proration
Percentage
Percentage and divided by the greater of (a)
Twenty Day VWAP as of the Trading Day immediately
preceding the date of
the audit opinion for the
Starsys Financial
Statements
for FY 2005, and
(b) $2.00 per share (subject to Capitalization
Adjustments, if
any).
FY 2006
$22,500,000
$2,000,000 $350,000 x
The number of shares of Parent Common Stock
Proration
equal to $7,500,000 multiplied by the Proration
Percentage
Percentage and divided by the greater of (a) Twenty
Day VWAP as of the
Trading Day
immediately
preceding the date of
the audit opinion for the
Starsys Financial
Statements
for FY 2006, and
(b) $2.50 per share (subject to Capitalization
Adjustments, if
any).
FY 2007
$24,000,000
$2,500,000
$350,000 x The
number of shares of Parent Common Stock
equal
Proration to $7,500,000
multiplied by the Proration Percentage
Percentage and
divided by the greater of (a) Twenty Day VWAP as
of the Trading
Day immediately preceding the
date of the audit opinion for the Starsys Financial
Statements for FY
2007, and (b) $3.00 per share
(subject to Capitalization Adjustments, if any).
</TABLE>
Section
2.5 Calculation of
Performance Consideration. The determination of
Performance Consideration (if any) for any
Performance Period, shall be subject
to the following provisions:
(a) Following the end of each Performance Period, Parent shall have
separate audited financial statements for the Surviving Corporation (or a
successor Person or business unit contemplated by Section 8.2) prepared in
accordance with GAAP, subject to the guidelines set
forth in Section 2.6 (the
"Starsys Financial Statements"). Upon receipt of the Starsys Financial
Statements, Parent shall promptly calculate the Performance
Consideration (if
any) for such Performance Period and
shall promptly (and in no event later than
the date Parent files its annual report on Form 10-KSB or Form 10-K (or
successor form thereto) with the SEC covering the end of such Performance
Period) deliver the Starsys Financial Statements and such
calculation to the
Shareholder Agent.
(b) If within thirty (30) days following
receipt of the Starsys Financial
Statements and the Performance Calculation,
the Shareholder Agent has not given
Parent a written notice setting forth in reasonable detail its
objection to
Parent's calculation of the Performance Consideration
and the reasons therefor
(the "Performance Dispute Notice"), then the
Shareholder Agent shall be deemed
to agree thereto and such calculation shall be binding
and conclusive on the
Parties and all Shareholders. The Shareholder
Agent may waive this thirty (30)
day period by providing Parent with written notice of its agreement with
Parent's calculation of the Performance Consideration, whereupon such
calculation shall be binding and conclusive
on the Parties and all Shareholders.
(c) If the Shareholder Agent delivers to Parent a Performance
Dispute
Notice within the thirty (30) day period
specified in Section 2.5(b), Parent and
Shareholder Agent shall use their
respective commercially reasonable efforts for
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Agreement and Plan of Merger
09EY-117690
PAGE
a period of ten (10) days after Parent's receipt of the
Performance Dispute
Notice (or such longer period as Parent and
Shareholder Agents shall mutually
agree) to resolve any disputes raised by Shareholder
Agent. If at the end of
such period the Shareholder Agent and
Parent fail to agree on the calculation of
the Performance Consideration:
(1) if the dispute relates solely to the
calculation of EBITDA, the
Net Revenues, Cash Earnout, the Stock
Earnout or other accounting matters,
and not to any other matters (an "Accounting
Dispute"), the Shareholder
Agent
shall promptly engage an independent accounting
firm to review the
disputed
calculations
and to propose what such firm
determines to be the
correct
calculations, based on
the terms and provisions of this Agreement,
to Parent and the Shareholder Agent. If the
Shareholder Agent and Parent
still
fail to agree on the calculation of the
Performance Consideration,
Parent
and the Shareholder
Agent shall negotiate in good faith to select a
reputable
independent auditing firm, other than Parent's independent
public
accounting
firm, the Company's
accounting firm prior to the Closing or the
independent
accounting
firm engaged by the
Shareholder Agent as aforesaid
(the
"ACCOUNTING
REFEREE");
provided that if Parent and the
Shareholder
Agent
are unable to agree on
an Accounting Referee, the Accounting Referee
shall
be selected by the Audit Committee of the Board of
Directors of
Parent
(subject to the aforesaid qualifications and
disqualifications).
Parent
and the Shareholder Agent shall engage the Accounting Referee
promptly
to review the remaining disputed calculations
and to deliver a
report
containing what the
Accounting Referee determines to be the correct
calculations,
based on the terms and provisions of this Agreement,
to
Parent
and the Shareholder Agent. The fees and costs of the
Accounting
Referee
shall be borne by (i) Parent, if the Accounting Referee's
calculations
increase the aggregate value of the Cash Earnout and the Stock
Earnout
by more than 5%; and (ii) the Shareholder Agent,
otherwise; or
(2) if the dispute is not solely an Accounting Dispute, the
calculation
of the Performance
Consideration shall be submitted to dispute
resolution
under Section 7.6 (as if the dispute had arisen
under Section
7.4(b)(1)
and Parent were the
Indemnified Party) (it being agreed that the
arbitrator
in any arbitration shall consider applying the procedures
applicable
to Accounting Disputes to resolve any disputed accounting
matters
brought before such arbitrator).
(d) Notwithstanding anything to the contrary in this Section
2.5, in the
event that in any Performance Period Parent materially breaches any of
the
covenants applicable to it in Section 8.2,
Section 8.4 or Section 8.5 (it being
agreed that any reduction in the number of
shares of Parent Common Stock to be
reserved or granted pursuant to Section 8.5
shall be deemed to be material), or
breaches any of the covenants applicable to
it Section 8.6 (any of the foregoing
breaches, an "Earn-Out Breach"), and such breach shall not have been
cured
within 30 days of written notice thereof by
the Shareholder Agent, specifying in
reasonable detail the nature thereof, the Performance
Consideration for such
Performance Period shall be the full amount available to the
Shareholders in
respect of such Performance Period (that is, all Trigger Conditions
will be
deemed satisfied and the Proration
Percentage will be deemed to be 1.0, but the
payment date therefor and the denominator
used in the Performance Consideration
Table to calculate the Stock Earnout shall not be
affected thereby; provided
that in the event of a material breach
of Section 8.4, (i) the payment date for
all remaining Performance Periods shall be
accelerated to the date 90 days after
the closing of the applicable sale, and (ii) the denominator used in the
Performance Consideration Table to
calculate the Stock Earnout shall be based on
the date of the closing, except that the
minimum per-share price for calculating
the Stock Earnout for each remaining
Performance Period shall be the respective
minimum per-share price applicable to such
Performance Period, as set forth in
the Performance Consideration Table). The remedy set forth in this Section
2.5(d) (i) shall not be available with
respect to any particular Earn-Out Breach
if the Shareholder Agent brings a claim
pursuant to Section 7.4(b)(2) for such
Earn-Out Breach, and (ii) if obtained,
shall be the sole and exclusive remedies
of the Parties, the Shareholder Agent and the
Shareholders (including the Key
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Shareholders) with respect to any claim relating to any Earn-Out
Breaches,
including any previous or subsequent
Earn-Out Breaches (it being understood and
agreed that Parent shall be entitled to recover,
including by set-off against
amounts otherwise to be paid under this Section
2.5(d), any amounts previously
paid on account of any prior Earn-Out Breaches).
(e) The amount of the Performance Consideration (if any) determined
pursuant to this Section 2.5 shall be
binding and conclusive on the Parties and
all Shareholders.
Section 2.6
Protective Provisions. The Parties hereto agree that, following
the Closing and until the end of the final
Performance Period, the determination
of Net Revenues and EBITDA shall be computed in
accordance with the following
guidelines:
(a) there shall be no charge to EBITDA for any transactional
costs of
Parent in completing this Merger, other than expenses incurred by
Parent in
respect of the review by Parent's independent public
accounting firm of the
Company's interim financial statements for FY 2005;
(b) Parent corporate, management, compliance and other general
administrative overhead shall be allocated to the Surviving
Corporation in a
reasonable and equitable manner;
(c) Parent's compensation to Scott Tibbitts consistent with his
compensation level at the date of this
Agreement shall be considered an expense
of the Surviving Corporation;
(d) any services provided by Parent to the Surviving Corporation and
vice-versa will be at burdened cost incurred for
such services, if applicable;
(e) no effect will be given for any change
in accounting methods for the Company
and the Surviving Corporation from those utilized as of the date of this
Agreement;
(f)
indemnification amounts recovered by the Surviving Corporation
pursuant
to Article VII shall not be considered income of the
Surviving Corporation;
(g) no effect will be given for any writedown or
writeoff of goodwill of
the Surviving Corporation;
(h) for the purpose of calculating the Net Revenues and EBITDA of
the
Surviving Corporation, the allocation of costs and revenues
on cooperative or
joint contracts involving the joint sale
of products or services of both Parent
and the Surviving Corporation will be
negotiated in advance in good faith as if
the agreements were arm's-length; and
(i) a portion of Parent's audit fees will be
allocated to the Surviving
Corporation for the expenses of auditing the
Surviving Corporation's financial
statements, which amount shall equal for each
Performance Period the arithmetic
mean of the aggregate accounting and auditing fees paid by the Company in
respect of the two fiscal years immediately preceding the Closing.
Section
2.7 Allocation and Distribution of Shareholder Consideration.
Subject to Section 2.12, Section 2.16, Section 2.17,
Section 2.18, and other
provisions of this Article II, the
Shareholder Consideration shall be allocated
among all pre-Closing shareholders of the Company pro rata according to
the
respective number of shares of Company Common Stock held by each such
shareholder immediately prior to the Effective
Time. Parent (and, to the extent
applicable, the Shareholder Agent) shall deliver
the Shareholder Consideration
to the Exchange Agent for distribution to such shareholders, provided
that
Parent may (i) retain any consideration in respect of any Dissenting
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Shareholders for distribution pursuant to Section 2.13 or for paying any
settlement, award or judgment of any Actions relating to such
shareholder's
Dissenting Shares, and (ii) retain or refrain
from issuing, as the case may be,
any consideration forfeited or assigned to Parent
pursuant to the terms of any
Non-Competition Agreements.
Section
2.8 Adjustments to Parent Common Stock. The number of
shares of
Parent Common Stock issuable hereunder and held
in escrow (pursuant to Section
2.17 and the Escrow Agreement) shall be
appropriately adjusted to fully reflect
the effect of any Capitalization Adjustment after the date hereof.
Section
2.9 No Fractional Shares. No fractional shares of
Parent Common
Stock shall be issued in the Merger and in lieu thereof
any fractional share
shall be rounded up to the nearest whole share of Parent Common Stock.
Section
2.10 Surrender of Certificates; Lost, Stolen or Destroyed
Certificates.
(a) Exchange Agent. Continental Stock Transfer
& Trust Co. (or such other
Person as Parent may appoint as transfer agent for
the Parent Common Stock or
exchange agent for purposes hereof from time to time) shall serve as the
exchange agent (the "EXCHANGE AGENT") for the Merger.
(b) Exchange Procedures. As promptly as practicable after the
Effective
Time, to the extent any holder of record
of any certificates which, immediately
prior to the Effective Time, represented
outstanding shares of Company Common
Stock (the "CERTIFICATES"), has not already delivered a letter
of transmittal
substantially in the form attached as Exhibit C (a "LETTER
OF TRANSMITTAL"),
which provides, inter alia, for a release of all claims
from such shareholder
qua shareholder against the Company, Merger Sub and Parent, at the
Closing,
Parent shall cause the Exchange Agent to mail to each
holder of record of any
Certificates whose Company Common Stock was
converted into the right to receive
shares of Parent Common Stock pursuant to this Article II, a Letter of
Transmittal. Upon surrender of a Certificate to
the Exchange Agent for exchange
(or the delivery of the affidavit and bond, if any, specified in Section
2.10(e)), together with a duly executed Letter of
Transmittal and such other
documents as may be reasonably required by the Exchange Agent,
the Exchange
Agent shall (i) deliver to the holder of such Certificate a certificate
representing the number of shares of Parent Common Stock
that such holder has
the right to receive as Shareholder Closing Consideration pursuant to
this
Article II, and (ii) deliver to the Escrow
Agent under the Escrow Agreement on
behalf of such holder a certificate in the
name of the Escrow Agent with respect
to the portion of the Escrow Shares that such holder has placed in
escrow
pursuant to this Article II.
(c)
Distributions With Respect to Unexchanged Shares. No dividends or
other
distributions declared or made after the Effective Time
with respect to Parent
Common Stock with a record date after the Effective Time but prior to
the
surrender of a Certificate (or the delivery of
the affidavit and bond, if any,
specified in Section 2.10(e)) will be paid
to the holder of such Certificate in
respect of the shares of Parent Common Stock exchangeable therefor.
(d) Transfers of Ownership. If any
certificate for shares of Parent Common
Stock is to be issued in a name other than that in which the
Certificates
surrendered in exchange therefor is registered, it will be
a condition of the
issuance thereof that the Certificates so
surrendered will be properly endorsed
and otherwise in proper form for transfer and that
the Person requesting such
exchange will have paid to Parent or any
agent designated by it any transfer or
other taxes required by reason of the issuance of a
certificate for shares of
Parent Common Stock in any name other
than that of the registered holder of the
Certificates surrendered, or established to the satisfaction of
Parent or any
agent designated by it that such tax has been paid or is not payable.
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(e) Lost Stock Certificates. If any Certificate shall have been
lost,
stolen, or destroyed, Parent shall deliver the applicable portion of the
Shareholder Consideration exchangeable therefor only upon
(i) the making of an
affidavit of that fact by the holder thereof claiming
such Certificate to be
lost, stolen, or destroyed, including the form of affidavit included in
the
Letter of Transmittal, and (ii) if Parent reasonably
requires, the posting by
such holder of a bond in such reasonable amount as Parent may direct as
indemnity against any claim that may be made against it with
respect to such
Certificate.
Section
2.11 Stock Options;
Stock Bonus Plan. The Company shall notify all
holders of options to purchase Company Common Stock
issued under the Company
Option Plan and all other Commitments to acquire Company Common Stock
(the
"COMPANY OPTION HOLDERS") of the need to
exercise such options or Commitments on
or prior to the Closing Date and that such options and Commitments will
terminate as of the Effective Time in
accordance with the Company Option Plan.
All such options and Commitments that are
not exercised prior to the Effective
Time shall be cancelled, retired and
extinguished and shall terminate and expire
as of the Effective Time and the Company shall take
all actions necessary to
timely effectuate such termination. The
Company shall terminate its Stock Bonus
Plan and distribute the assets thereof prior to the Effective
Time. Neither
Parent nor the Surviving Corporation shall assume, become
responsible for or
otherwise assume any obligations with respect to, any outstanding options,
warrants or other Commitments to purchase
or otherwise acquire capital stock of
the Company or the Stock Bonus Plan,
and no consideration shall be delivered or
deliverable in respect thereof. The Company shall
cause Company Option Holders
who exercise their options or Commitments
prior to the Closing Date to execute a
Letter of Transmittal together with an addendum thereto
prior to the Closing,
which addendum shall ratify, affirm and
approve each of the actions taken by the
shareholders of the Company at the Company Shareholders Meeting.
Section
2.12 Treasury Stock. All shares of capital stock of the
Company
held on the treasury of the Company immediately prior to
the Effective Time
shall be cancelled, retired and
extinguished without any conversion thereof, and
no consideration shall be delivered or deliverable in exchange therefor.
Section 2.13
Shares of Dissenting Shareholders. Notwithstanding anything in
this Agreement to the contrary, as and if
applicable, Dissenting Shares that are
issued and outstanding immediately prior to the Effective Time shall not
be
converted into or be exchangeable for the right to receive the
Shareholder
Consideration unless and until the corresponding
Dissenting Shareholders shall
have failed to perfect or shall have effectively withdrawn or lost their
dissenter's rights under the CBCA or other applicable
Law, and until such time
Parent shall retain the Shareholder
Consideration otherwise payable in respect
of such Dissenting Shares. If any Dissenting
Shareholder shall have failed to
perfect or shall have effectively withdrawn
or lost such right, the applicable
Dissenting Shares shall thereupon be treated as though
such shares of Company
Common Stock had been converted into and become
exchangeable for the right to
receive, as of the Effective Time, the appropriate share of the
Shareholder
Consideration as provided in Section 2.7 from the Shareholder
Consideration
retained by Parent. The Company shall give Parent: (a) prompt
notice of any
notice of dissenters' rights with respect
to any shares of Company Common Stock
or attempted withdrawals of such notices and any other instruments served
pursuant to the CBCA or other applicable Law and received by the Company
relating to the Dissenting Shareholders' dissenters' rights, and (b) the
opportunity to direct, in its reasonable
business judgment, all negotiations and
proceedings with respect to exercise of such dissenters'
rights. Neither the
Company nor the Surviving Corporation shall, except with the prior written
consent of Parent, voluntarily make any payment with
respect to, or settle or
offer to settle, any such exercise of dissenters' rights.
Section
2.14 Tax Consequences.
For federal income tax purposes, the Merger
is intended to constitute a
reorganization within the meaning of Section 368 of
the Code.
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Section
2.15 Accounting Treatment. For
accounting purposes, the Merger is
intended to be treated as a "purchase."
Section
2.16 Withholding
Rights. Each of the Surviving Corporation, Parent
and the Exchange Agent shall be entitled to deduct and withhold from the
Shareholder Consideration otherwise payable pursuant to this Agreement to a
Shareholder such amounts as it is required to
deduct and withhold with respect
to the making of such payment under the Code and the rules and
regulations
promulgated thereunder, or any provision of a Tax Law. To the extent that
amounts are withheld from the Shareholder Consideration as
provided in this
Article II, such withheld amounts shall be treated for all purposes
of this
Agreement as having been paid to the Shareholder in respect to which
such
deduction and withholding was made.
Section
2.17 Escrow Account.
(a) At the Closing, Parent shall
deliver to the Escrow Agent, on behalf of
the Shareholders, stock certificates
evidencing a number of shares equal to 50%
of the number of shares of Parent Common
Stock issuable at Closing pursuant to
Section 2.4(b) (without taking into account any shares deliverable to the
Shareholder Agent at Closing for the satisfaction of Company Transaction
Expenses in accordance with Section 2.19). If
any Performance Consideration is
payable for FY 2005, Parent shall deliver to
the Escrow Agent on behalf of the
Shareholders stock certificates evidencing a number of shares
equal to 50% of
the number of shares of Parent Common Stock issuable as
Stock Earnout for FY
2005 (without taking into account any shares deliverable to the
Shareholder
Agent at Closing for the satisfaction of Company Transaction Expenses in
accordance with Section 2.19).
(b) Subject to the obligation to fund
the Expense Fund pursuant to Section
2.18, Parent shall cause the Escrow Agent
to deposit any shares of Parent Common
Stock delivered to the Escrow Agent from time to time pursuant to
Section
2.17(a) ("ESCROW STOCK") into an escrow account with the Escrow Agent
(the
"ESCROW ACCOUNT") for the purpose of securing the
indemnification obligations
set forth in Article VII, which Escrow
Account shall be subject to the terms and
provisions of Section 7.2 and the Escrow Agreement. The Escrow Agent
shall
maintain the Escrow Account for such purpose until ten
days after the date of
the audit opinion for the Starsys
Financial Statements for FY 2006 (the "ESCROW
PERIOD"); provided, however, that in the
event any Indemnified Parties have made
any claims under Article VII prior to the end
of the Escrow Period, the Escrow
Period and the release of any Escrow Stock shall be tolled,
and a number of
shares having an aggregate value up to the maximum aggregate amount
of such
claims shall remain in the Escrow Account
as security and not be released to the
Shareholders, until all such claims shall have been
fully and finally resolved
and settled.
(c) Releases of Escrow Stock from the Escrow
Account shall be subject to
the terms and conditions of an Escrow Agreement (the
"ESCROW AGREEMENT") and
Section 2.9. In the event that this Agreement is
adopted by the Shareholders,
then all Shareholders shall, without
further act of any Shareholder, be deemed
to have consented to and approved (i) the terms and
conditions of the Escrow
Agreement, (ii) the use of the Escrow
Account as collateral to secure the rights
of the Indemnified Parties under
Article VII in the manner set forth herein and
in the Escrow Agreement, and (iii) the
appointment of the Shareholder Agent as
the representative under the Escrow Agreement of the Shareholders
receiving
shares of Parent Common Stock under this
Agreement and as the attorney-in-fact
and agent for and on behalf of each such Person (other than holders of
Dissenting Shares).
(d) The terms and provisions of the Escrow
Agreement shall be in the form
reasonably agreed by Parent, the Company and the Escrow Agent prior to
the
filing of the Form S-4, consistent with the terms and
provisions hereof, and
shall provide, among other standard and customary terms
for agreements of its
type and nature, that (i) shares of Parent Common Stock claimed by
Parent
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pursuant to Article VII shall be valued at the per-share value
calculated
pursuant to Section 2.4(b) or Section
2.4(c), as applicable, (ii) claims against
shares of Parent Common Stock held in the Escrow Account shall
be satisfied
against shares in the order delivered to
the Escrow Account, and (ii) no shares
of Parent Common Stock held in the Escrow Account or Expense Fund may be
released or otherwise Transferred prior to
the date 270 days after the Closing,
except for shares of Parent Common Stock
claimed by Parent pursuant to Article
VII.
Section
2.18 Expense Fund.
(a) Funding. At the Closing, Parent shall
deliver to the Escrow Agent, on
behalf of the Shareholders, out of the shares of Parent Common Stock
to be
delivered to the Escrow Agent at the Closing pursuant to Section
2.17(a), a
number of shares of Parent Common Stock
having a value equal to $100,000, with
such shares being valued at their VWAP
as of the Trading Day next preceding the
Closing Date, for deposit into a separate escrow
account with the Escrow Agent
(the "EXPENSE FUND"), to be held pursuant
to the Escrow Agreement free and clear
of any lien or other claim of any creditor of any of the Parties.
(b) Use of Fund. The Escrow Agent shall
maintain the Expense Fund solely
for the purposes of paying the out-of-pocket fees and expenses, including
independent accounting firm fees and
attorneys' fees, reasonably incurred by the
Shareholder Agent in connection with performing and exercising its duties,
rights and responsibilities hereunder on
behalf of the Shareholders. The Expense
Fund may be released, in whole or in
part, solely upon written authority of the
Shareholder Agent. The Shareholder Agent may withdraw funds from the
Expense
Fund only upon certification that such funds shall be used strictly in
accordance with the terms and provisions of this Section
2.18 and the Escrow
Agreement. The Expense Fund shall be deemed to have been withheld
from each
Shareholder in proportion to amounts allocable to Shareholders pursuant to
Section 2.7.
(c) Closing. The Shareholder Agent shall close and
liquidate the Expense
Fund, and cause any remaining shares in the Expense Fund to be
deposited or
transferred to the Escrow Account for
distribution in accordance with the terms
thereof, upon the latest to occur of (i) the final determination of the
Performance Consideration (if any) for the final Performance
Period, (ii) the
Escrow Termination Date, and (iii) the
final determination of any pending claim
for indemnification under Article VII.
(d) Illiquidity. The Shareholder Agent expressly acknowledges that
the
shares of Parent Common Stock delivered to
the Expense Fund will be illiquid for
a substantial period of time after the
Closing and that Parent has no obligation
whatsoever, express or implied, to provide liquidity,
or to waive any transfer
restrictions otherwise applicable to such shares.
Section
2.19 Company
Expense Payments.
(a) Prior to the Closing, the Company shall
deliver to Parent an itemized
schedule of Company Transaction Expenses to be paid at Closing or
out of the
Performance Consideration (if any), which
shall include all Company Transaction
Expenses as of the Closing Date and be reasonably
satisfactory to Parent (the
"TRANSACTION EXPENSE PAYMENT SCHEDULE"), indicating for each cost or
expense
itemized therein (A) the payee thereof, (B) the amount
thereof, if any, to be
paid in cash, (C) and the amount thereof, if any, to be
paid with shares of
Parent Common Stock, such amount to be specified either
as a number of shares
or, in the case of Performance Consideration, a
specified percentage of the
Stock Earnout (if any); provided that (i) the aggregate amount of
Company
Transaction Expenses to be paid (1) in cash
at Closing may not exceed the amount
of cash available for distribution
under Section 2.4(a) (after giving effect to
any reduction pursuant to Section 2.20),
(2) in cash and shares of Parent Common
Stock (using the per-share value calculated pursuant to Section 2.4(b)) at
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Closing may not exceed $2,000,000, (3) in
shares of Parent Common Stock out of
Performance Consideration shall not exceed
1% of the Stock Earnout (if any), and
(4) in cash and shares of Parent Common Stock (using the per-share
value
calculated pursuant to Section 2.4(c)) out of
Performance Consideration may not
exceed $250,000, and (ii) each payee
receiving more than an aggregate of 50,000
shares of Parent Common Stock in connection with the Closing and
the first
Performance Period shall have duly executed
and delivered to Parent a Standstill
and Lock-Up Agreement; provided that with respect to any
such payee receiving
less than 50,000 shares of Parent Common
Stock in connection with the Closing,
such Standstill and Lock-Up Agreement shall apply
only to the number of shares
of Parent Common Stock received by such payee in connection with the
first
Performance Period.
(b) At the Closing, if the Transaction
Expense Payment Schedule satisfies
the provisos of Section 2.19(a), Parent shall
deliver to the Shareholder Agent
(A) an amount of cash, to be delivered by
wire transfer of same day funds to a
deposit account at a United States commercial bank
notified by the Shareholder
Agent in writing prior to the Closing,
equal to the aggregate sum of cash costs
and expenses listed in the Transaction
Expense Payment Schedule, and (B) a stock
certificate evidencing for each payee listed as obtaining shares in the
Transaction Expense Payment Schedule the applicable
number of shares of Parent
Common Stock. The Shareholder Agent shall apply such funds solely to the
satisfaction of the Company Transaction
Expenses as provided in the Transaction
Expense Payment Schedule and, upon paying all such amounts,
shall deliver any
remaining or returned funds and stock
certificates to the Exchange Agent, to be
allocated and distributed as provided in Section 2.7.
Section
2.20 Closing Working Capital Deficit Adjustment.
(a) For purposes of this Section 2.20, the
following terms shall have the
meanings ascribed to them below:
(1) "PRO FORMA WORKING CAPITAL" means, as of the date two
business
days
prior to the Closing Date, as reflected
in a balance sheet delivered
by the Company to Parent the business day before the
Closing Date (the
"CLOSING
BALANCE SHEET"), an amount equal to: (i) the amount of the
Company's
current assets; minus (ii) the amount of (A) the Company's
current
liabilities
(excluding
the Company
Transaction Expenses included
therein); minus
(B) the lesser of (x) the Closing Debt, and (y) $5,800,000;
plus
(C) $2,680,000.
(2) "WORKING CAPITAL
DEFICIT" means an amount equal to:
[ 0 - Pro Forma Working Capital - $1,000,000 ].
For the avoidance of doubt, if the Pro
Forma Working Capital is less than
-$1,000,000,
the Working Capital Deficit will be a positive number. An
example of the
calculation of the Working Capital Deficit is illustrated in
Schedule
2.20(a).
(b) If the Working
Capital Deficit at Closing is a positive value, then
(i) the cash to be paid pursuant to Section 2.4(a) shall be reduced
by
the product of
(x) the Working Capital Deficit, times (y) the fraction 1/6,
and (b) the $7,500,000 value set forth in Section 2.4(b)(x) shall be
reduced
by the product of (A) the Working Capital Deficit
times (B) the
fraction
5/6.
Section 2.21
Transfer Of Contingent Rights.
(a) No Transfer. The Shareholder Consideration and the
interests in the
Escrow Account, and the provisions of this Article
II and the Escrow Agreement
related thereto, are intended solely for the benefit of the Persons who
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immediately prior to the Effective Time
were holders of shares of Company Common
Stock. Without limiting the generality of Section
11.3(a), except as expressly
provided in Section 2.21(b), no Person may sell,
assign or otherwise Transfer
(whether in connection with any sale,
assignment or other Transfer of any shares
of Parent Common Stock or otherwise) to any
other Person (i) any interest in any
Shareholder Consideration or in the Escrow Account or the
Expense Fund, or in
any portion of either of them, or (ii)
any right to participate, in whole or in
part, in any Shareholder Consideration
or to obtain any proceeds or shares from
the Escrow Account pursuant to Section 2.17 or the Escrow
Agreement; and any
attempt to do so shall be null and void ab
initio and of no force or effect. In
no event shall the right to receive
contingent shares or cash be evidenced by a
negotiable instrument or certificated security, or be readily marketable.
(b) Exceptions. Notwithstanding Section 2.21(a) and Section 11.3(a),
an
interest in Shareholder Consideration may be assigned or Transferred: (i)
involuntarily pursuant to bequest, the laws
of intestate succession or the order
of a court in connection with a settlement of property rights
incident to
divorce, and (ii) voluntarily to a Key
Shareholder in a transaction exempt from
the registration and prospectus
delivery requirements of the Securities Act and
the registration or qualification
requirements of applicable state securities or
"blue sky" laws, and otherwise in strict
accordance with all applicable Law (it
being understood that Parent may require an opinion of counsel in form
and
substance satisfactory to Parent to the effect that such
transaction does not
require such registration or qualification).
Section
2.22 Taking of Necessary Action; Further
Action. If, at any time
after the Effective Time, any such further
action is necessary or desirable to
carry out the purposes of this Agreement and
to vest the Surviving Corporation
with full right, title, and possession to all Contracts, Property,
rights,
privileges and powers of the Company and
Merger Sub, the officers and directors
of the Company, Parent and Merger Sub
are fully authorized in the name of their
respective corporations or otherwise to take, and the
Company and Parent shall
cause them to take, all such lawful and necessary action.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
CONCERNING THE COMPANY
The Company and, with respect to Section 3.3, Section
3.5, Section 3.6,
Section 3.31, Section 3.32, Section 3.33
and Section 3.34, the Key Shareholders
each jointly and severally represents and
warrants to Parent that the statements
contained in this Article III are true, correct
and complete as of the date of
this Agreement and as of the Closing
Date, except as set forth, with respect to
any specific Section or subsection in this Article III, in
the corresponding
section or subsection of the schedules the Company has
delivered to Parent on
the date hereof and as of the Closing Date (the "DISCLOSURE
SCHEDULES").
Section
3.1 Organization and Qualification. The Company: (i) is a
corporation duly organized, validly
existing and in good standing under the laws
of the State of Colorado; (ii) has the full
corporate power and authority to own
or use its properties and assets, to carry on its business as currently
conducted and as currently contemplated to be
conducted, and to perform all of
its obligations under this Agreement and
the Related Agreements to which it is a
party or by which it is bound; (iii) is
qualified or licensed to do business in
all jurisdictions in which the failure to do so would
have a Material Adverse
Effect. The Company has delivered to Parent and its legal
counsel a true and
correct copy of its Articles of Incorporation and Bylaws, including all
corrections, amendments and other modifications thereto, each of
which is in
full force and effect. The Company is not in
violation of any provision of its
Articles of Incorporation or Bylaws. Section 3.1 of the
Disclosure Schedules
lists by name and title the directors and officers of the Company.
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Section
3.2 Subsidiaries. The Company presently does not have any
Subsidiaries or own or control, directly or
indirectly, any Equity Interest in
any other Entity.
Section
3.3 Capital Structure.
(a) The authorized
capital stock of the Company consists of twenty-five
million (25,000,000) shares of Company Common Stock, of which 520,448
shares are issued and outstanding. Except as
provided in Section 3.3(a) of the
Disclosure Schedules, all outstanding shares have been duly authorized and
validly issued, are fully paid and non-assessable.
(b) The Company has reserved 160,000 shares of Company
Common Stock for
issuance under the Company's 1998 Stock Incentive Plan (the "COMPANY
OPTION
PLAN"), of which options to purchase
103,385 shares of Company Common Stock are
outstanding as of the date of this Agreement and of
which no options will be
outstanding as of the Closing Date. All
options to purchase capital stock of the
Company that have been granted under the
Company Option Plan or otherwise since
the Company's inception (collectively, the
"COMPANY OPTIONS") are set forth in
Section 3.3(b) of the Disclosure Schedules,
including (i) the name of the Person
granted such Company Option, (ii) the
total number and class of shares of stock
that are or were subject to such
Company Option, and (iii) the vesting schedule
of such Company Option. The Company Options shall be exercised
or otherwise
terminated prior to Closing.
(c) All outstanding shares of Company Common Stock and all
outstanding
Company Options have been offered, issued, sold
and granted in compliance with
(i) all applicable securities and "blue
sky" Laws and other applicable Laws, and
(ii) all terms set forth in applicable
Contracts and Commitments. Section 3.3(c)
of the Disclosure Schedules provides an
accurate and complete description of the
terms of each repurchase option which is held by
the Company and to which any
shares of capital stock of the Company is subject.
(d) The Company has not issued any Equity Interests or
Securities other
than the Company Common Stock, the Company Options and notes
evidencing the
Vectra Loans, the Shareholder Loans and the
SpaceDev Loan. Except as set forth
in Section 3.3(d) of the Disclosure Schedules, there is no (i)
outstanding
Commitment (whether or not currently exercisable) to acquire any Equity
Interests or other Securities of the
Company, (ii) outstanding financial asset,
instrument or obligation that is or may
become convertible into or exchangeable
for any Equity Interests or other Securities of the Company,
(iii) Contract
under which the Company is or may become obligated
to sell or otherwise issue
any Equity Interests or any other Securities
of the Company, or (iv) condition
or circumstance that may give rise to or provide a reasonable
basis for the
assertion of a claim, whether contingent or
vested and whether or not subject to
conditions, by any Person to the effect that
such Person is entitled to acquire
or receive any Equity Interests or other Securities of the Company.
Section
3.4 Approval of Transactions.
(a) The only notices or Consents required to execute and deliver
this
Agreement and the Related Agreements or to
consummate the Transactions are (i)
approval by a majority of the Company's board of directors, at a
duly held
meeting at which quorum is present, and (ii) approval by the holders of
a
majority of the shares of outstanding Company Common Stock, at a duly
held
meeting at which a quorum is present.
(b) The Company's Board of Directors, by resolutions duly
adopted (the
"COMPANY BOARD RESOLUTIONS"), has duly: (i)
determined that this Agreement and
the Merger are advisable and are fair to and in the best interests of
the
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Company and all Shareholders, (ii) approved this Agreement, the Related
Agreements to which the Company is a party or by
which it is bound, the Merger
and the other Transactions, (iii) recommended
that all of the Shareholders of
the Company adopt this Agreement and approve the Merger and the other
Transactions, and (iv) directed that this Agreement, the
Merger and the other
Transactions be submitted for consideration by the
Company's shareholders at a
meeting or by written consent of all of the
shareholders of the Company to occur
on or about, or prior to, the date of the Parent
Shareholders Meeting. The
Company Board Resolutions are in full force
and effect. No action has been taken
or is pending for the purpose of revoking,
rescinding, annulling, repealing,
correcting, changing, amending or otherwise modifying the Company Board
Resolutions or any of them.
Section 3.5
Authority. Each of the Company and the Key Shareholders has all
requisite right, power and authority, or all necessary
legal capacity, as the
case may be, to execute, deliver, enter
into and perform its obligations under
this Agreement and any Related Agreement to
which it is a party or signatory and
to consummate the Merger and the
other Transactions. The execution and delivery
of this Agreement, any Related Agreement to which the Company or such Key
Shareholder is a party or signatory and the
consummation of the Merger will be
duly authorized at Closing at a duly held meeting at
which quorum is present.
Subject to obtaining the Shareholders'
approval set forth in Section 3.4(a), no
further action is required on the part of the Company or its
shareholders to
authorize this Agreement, any Related Agreement to which it is a party or
signatory or the Merger. This Agreement has
been duly executed and delivered by
the Company and the Key Shareholders, and assuming the due
authorization,
execution and delivery by the other parties
hereto and thereto, constitute its
valid and binding obligations, enforceable against them according to their
respective terms.
Section
3.6 No Conflict. Except as set forth in Section 3.6 of the
Disclosure Schedules, the execution and delivery by the Company and the
Key
Shareholders of this Agreement and any Related
Agreement to which it is a party
or signatory, and the consummation of the Merger, will not directly or
indirectly:
(a) conflict with or result in any Breach of or default under
(with or
without the giving of notice or the lapse of time, or
both) or give rise to a
right of termination, cancellation, modification or acceleration of any
obligation or loss of any benefit under (any
such Event, a "CONFLICT") (i) any
provision of the Organizational Documents of
the Company, or any resolutions of
the board of directors or the Company Shareholders, each as in effect
and
Amended to date, (ii) any Contract to which the Company, or any of
the Key
Shareholders is a party, or to which it is subject
or by which any of them is
bound, or any license under which any of
them is a licensee, or (iii) any Law or
Order applicable to the Company, the Key Shareholders, or the Company's
Property;
(b) give any Person the power, right or
authority to challenge any of the
Transactions or to exercise any remedy or obtain any relief
under any Law or
Order to which the Company or any Key Shareholders may be subject;
(c) contravene, conflict with or
result in a violation or Breach of any of
the terms or requirements of, or give any
Governmental Body the right to revoke,
withdraw, suspend, cancel, terminate or
modify, any Governmental Permit held by
the Company or that otherwise relates
to the Properties or to the businesses of
the Company;
(d) cause Parent to become subject to,
or to become liable for the payment
of, any Taxes owed by or on behalf of the Company or
any properties, assets,
shareholder, officer or employee of the Company;
(e) result in the imposition or creation of any
Encumbrance upon or with
respect to any Property of the Company;
or
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09EY-117690
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(f) result in any shareholder of the Company
having the right to exercise
dissenters', appraisal or other similar rights pursuant to any Contract,
Organizational Document of the Company or, except for
dissenters' rights under
the CBCA, applicable Law.
Section
3.7 Consents. Except
as set forth in Section 3.7 of the Disclosure
Schedules, no Order or Consent of, or
registration, declaration or filing with,
any Governmental Body or any third party (including any
party to any Contract
with, or licensor of, the Company), is required by or with respect to
the
Company and the Key Shareholders in connection
with the execution, delivery or
performance of this Agreement, any of the Related
Agreements to which it is a
party or signatory, or the consummation of the Transactions, so as not to
trigger any Conflict (including the Breach
of any Company Contract), except for
(i) such Orders and Consents as may be
required under applicable securities or
"blue sky" Laws, (ii) the filing of the
Statement of Merger with the Secretary
of State of the State of Colorado,
(iii) the approval of this Agreement and the
Merger by the shareholders of the Company, (iv) the Consents
required under
Section 3.4(a), and (v) any Consents of
parties to Company Contracts (including
Company Licenses) summarized in reasonable detail in Section 3.7 of the
Disclosure Schedules, indicating for each such Company Contract if it is a
Material Company Contract and, if so, the name of each counterparty
to such
Material Company Contract whose Consent is required.
Section
3.8 Books and Records.
(a) Financial Records. The books of account and other
financial records,
all of which have been made available
to Parent, (i) are accurate, complete and
correct in all Material respects, (ii) have
been maintained in accordance with
sound business practices, (iii) fairly and accurately reflect the income,
expenses, assets and liabilities of the
Company, and (iv) represent actual, bona
fide transactions.
(b) Minute Books. Except as set forth in
Section 3.8(b) of the Disclosure
Schedules, the minute books of the Company, all of which have been made
available to Parent, contain accurate, complete and correct records of all
meetings held of, and corporate action taken by,
the shareholders and board of
directors, and all committees of the
shareholders and board of directors, of the
Company, including each action by written consent, since
the inception of the
Company, no Material corporate action of such
shareholders, board of directors
or committees has been taken, for which minutes have not been
prepared and
provided to Parent, or which are not contained in such minute books.
(c) Stock Records. The stock record books, records and ledgers of
the
Company, all of which have been made available to Parent,
contain accurate,
complete and correct records of all
issuances and transfers of Equity Interests
in the Company.
(d) Shareholder Table. Section 3.8(d) of the Disclosure Schedules
sets
forth a shareholder table (as updated in
accordance with the terms hereof, the
"SHAREHOLDER TABLE") containing a true and complete accounting of each
shareholder of record of the Company and
all outstanding shares of capital stock
of the Company, and contains for each
such shareholder (i) the full name(s) of
such shareholder, (ii) the number of certificates
evidencing shares of Company
Common Stock held of record by such shareholder, specifying for each
such
certificate its certificate number and the number of shares of
Company Common
Stock evidenced thereby, and (iii) the full
mailing address for such shareholder
set forth in the Company's stock transfer books and records.
Section
3.9 Company Financial Statements. Section 3.9 of the
Disclosure
Schedules sets forth (i) the Company's
audited balance sheets as of December 31,
2004 and 2003, and the related audited
statements of income and cash flows for
the Company's fiscal years ended December 31, 2004 and 2003, and (ii) the
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Company's (x) unaudited balance sheet as of (A) on the
date of this Agreement
only (this sub-clause (A) having no force or effect as of
the Closing Date),
June 30, 2005, or (B) as of the Closing
Date only (this sub-clause (B) having no
force or effect as of the date of this Agreement),
the last day of a calendar
month ended not more than 45 prior to the Closing Date; and
(y) the related
unaudited statements of income and cash
flows for the partial-year period ended
on the Current Balance Sheet Date, including in each case
the notes thereto,
except that no statement of cash flows is
included for the partial-year period
ended June 30, 2005. The Financials are correct in all
Material respects and
have been prepared in accordance with
GAAP, consistently applied throughout the
periods indicated and with each other, except as
disclosed in the notes to the
Financials, subject in the case of interim statements to normal year-end
adjustments. The Financials fairly and accurately present the financial
condition, operating results, changes in
shareholders' equity and cash flows of
the Company as of the respective dates and during the respective periods
indicated therein. The Company maintains and will
continue through the Closing
Date to maintain a standard system of
accounting established and administered in
accordance with GAAP.
Section
3.10 No Undisclosed Liabilities.
(a) Except as provided in Section
3.10(a) of the Disclosure Schedules, the
Company has no Liabilities, Debt, Capital Lease Obligation, Guarantees,
obligations, expenses, claims, deficiencies, or endorsements of any type,
whether or not known, accrued, absolute, contingent, matured, secured,
conditional, liquidated, vested, due or required to be reflected in
financial
statements in accordance with GAAP, except for those which (i) have been
adequately reserved against or otherwise
reflected in the Current Balance Sheet,
(ii) have arisen in the Ordinary Course of Business consistent with past
practices since December 31, 2004, and which
are not Material, and (iii) are an
Expense under Section 11.10, which will be paid at or prior to Closing.
(b) Section 3.10(b) of the Disclosure Schedules contains
a complete and
accurate list of all trade accounts payable
(other than a trade account payable
(i) to any shareholder or any Related
Person of the Company or any Shareholder
for or with respect to the Expenses of the
Company or the Shareholder Agent, and
(ii) adequately accounted for in the Company's financial
statements delivered
from time to time to Parent prior to
the date hereof) that remains unpaid as of
the Closing Date, specifying for each
such trade account (A) its aging, and (B)
any amounts due as interest, penalties or similar charge thereon.
Section
3.11 No Off-Balance Sheet Arrangements. Except as set forth
in
Section 3.11 of the Disclosure Schedules,
the Company is not a party to, and has
no commitment to become a party to, any joint venture, off-balance
sheet
partnership or any similar Contract (including any Contract relating
to any
transaction or relationship between or among the
Company, on the one hand, and
any unconsolidated affiliate,
including any structured finance, special purpose
or limited purpose Entity, on the other hand, or any "off-balance sheet
arrangements" (as defined in Item 303(a) of
Regulation S-K of the SEC)), where
the result, purpose or effect of such Contract is to
avoid disclosure of any
material transaction involving, or material liabilities
of, the Company in the
Company's financial statements.
Section
3.12 No Changes. Except as set forth on Section 3.12 of the
Disclosure Schedules, since (A) December 31, 2004 (with
respect to subsections
(a) through (y) below) and (B) the Current
Balance Sheet Date (with respect to
subsections (z) and (aa) below), there has not
been, occurred or arisen any of
the following with respect to the Company:
(a) any transaction not in the Ordinary Course of Business;
(b) any Amendment to any Organizational
Document of the Company or to the
rights, powers, privileges, designations or preferences of any
Company Stock;
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(c) any capital expenditure or capital expenditure commitment
exceeding
$5,000 individually or $10,000 in the aggregate;
(d) payment, discharge or satisfaction of any claim or
Liability, other
than payment, discharge or satisfaction in the Ordinary
Course of Business of
claims or Liabilities reflected or adequately reserved
against in the Current
Balance Sheet;
(e) destruction of, damage to or loss of any Property or business;
(f) loss of, or notice or other clear
and overt indication of an intention
to discontinue or change the terms of
its relationship with the Company by, any
supplier, manufacturer, management-level employee,
officer, senior engineer or
consultant, in each case whether or not covered by insurance;
(g) labor trouble or claim of wrongful discharge or
other unlawful labor
practice or action; (h) change in
accounting methods or practices (including any
change in depreciation or amortization
policies or rates) other than as required
by GAAP;
(i) change in any election in respect of
Taxes, adoption or change in any
accounting method in respect of Taxes, agreement or
settlement of any claim or
assessment in respect of Taxes, or extension
or waiver of the limitation period
applicable to any claim or assessment in respect of Taxes;
(j) revaluation by the Company of any of its Properties or assets;
(k) declaration, setting aside or payment of a dividend or other
distribution (whether in cash, stock or
property) in respect of any outstanding
share of capital stock or other Equity
Interests of the Company, or any split,
combination or reclassification in respect of
any share of capital stock of the
Company, or any issuance or authorization of any issuance of any other
Securities of the Company in respect of, in lieu
of or in substitution for any
share of capital stock or other Equity
Interests of the Company, or any direct
or indirect repurchase or redemption of any
Equity Interests or other Securities
of the Company (or Commitments therefor);
(l) payment
(other than in the Ordinary Course of Business) of, or increase
in, the salary, bonuses or other compensation
(cash, equity or otherwise), or
material increase in fringe benefits, payable or to become payable to any
shareholder, director, officer, employee or consultant of the Company
(other
than payments to outside counsel in connection with this Agreement and
the
Transactions), or Related Person of the Company,
or the declaration, payment or
commitment or obligation of any kind for the payment of a
severance payment,
termination payment, bonus, substantial fringe benefit or
other additional or
supplemental salary, bonus, substantial fringe benefit or other
compensation
(cash, equity or otherwise) to any such Person;
(m) adoption, establishment or Amendment of any Company Employee Plan,
except as necessary to comply with applicable Law;
(n) entry into
any Contract to which the Company is a party or signatory or
by or to which it or any of its
Properties is bound or subject, except for the
Shareholder Loans, the SpaceDev Loan and the Vectra
Loans, or any termination,
Amendment or receipt of notice of
termination or non-renewal in respect of, any
such Contract;
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(o) Transfer, Lease or Encumbrance of any of its
material assets or other
Properties, other than (i) sales of Inventories in the Ordinary Course of
Business and the security interests in
favor of Vectra in respect of the Vectra
Loans and Parent in respect of the SpaceDev
Loan, and (ii) with respect to any
Intellectual Property Rights (which are addressed in Section 3.12(u));
(p) a loan or advance to any Person, the
incurrence, issuance or sale of
any Debt of the Company (except for
the Shareholder Loans, the Vectra Loans and
the SpaceDev Loan) or the making of any Guarantee in respect of any
other
Person, except for advances to employees
for travel and business expenses in the
Ordinary Course of Business consistent with past practices;
(q) waiver or release of any right or claim, including
any write-off or
other compromise of any Account
Receivable in any amount; (r) the commencement,
settlement, notice or overt threat of any Action against the Company
or its
business, Properties or affairs;
(s) written notice to the Company, or any of its
Representatives, of any
claim or potential claim of ownership by
any Person of any Company Intellectual
Property or of any interference with, misappropriation, violation or
infringement by the Company of any other
Person's Intellectual Property Rights;
(t) issuance, grant or sale, or make or enter into a
Contract to issue,
grant or sell, of any Equity Interests or other
Securities of the Company, or
any Commitments to purchase or acquire any of the foregoing;
(u) (i) Transferring, Encumbering or
licensing, or making or entering into
any other Contract or license regarding, any Company
Intellectual Property,
other than in the Ordinary Course of Business, (ii)
purchasing, licensing or
otherwise making or entering into any Contract with respect to any
Material
Intellectual Property Rights owned or controlled or licensed by any other
Person, other than in the Ordinary Course
of Business, (iii) making or entering
into any Contract with respect to the
development of any Intellectual Property
Rights, other than in the Ordinary Course of Business, or
(iv) changing the
pricing, fees, royalties or other
compensation set or charged by the Company to
its customers or licensees or the pricing,
fees, royalties or other compensation
set or charged by Persons who have
licensed or granted rights to the Company to
use Intellectual Property Rights;
(v) entry into a Contract, or
Amendment of any Contract, other than in the
Ordinary Course of Business, pursuant to which any other party was
granted
marketing, distribution, development or
similar rights of any type or scope with
respect to any Technology or any Company Products
(including proposed Company
Products and Company Products under development);
(w) hiring or terminating any officer,
director or senior employee of the
Company or terminating any management-level or senior employee or engineer
employed by the Company for a total period
(whether or not continuous) in excess
of 3 years;
(x) any known material defect or design
issue with the Company's existing
products in development, production or
installed with the Company's customers;
(y) agreement or other Contract by the Company or
any officer, director,
manager or employee thereof on behalf of the Company to do any
of the things
described in Section 3.12(a) through (y) (other than
negotiations with Parent
and its Representatives regarding the Transactions);
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(z) any Events having a Material Adverse Effect;
or (aa) any Contract by
the Company or any officer, director, manager
or employee thereof on behalf of
the Company that is likely to result in a Material Adverse Effect.
Section
3.13 Tax Matters.
(a) Tax Returns and Audits. Except as described in Section
3.13 of the
Disclosure Schedules:
(1) The Company has prepared and timely filed all
required federal,
state,
local and foreign Tax Returns and Tax estimates concerning or
attributable
to itself or its
operations, except where the failure to file
such Tax Returns
and Tax estimates will not have a Material Adverse Effect,
and such Tax Returns and estimates are true and correct
in all material
respects
and have been completed in accordance with applicable Law.
(2) The Company (A) has timely paid all Taxes it
is required to pay
and withheld and properly remitted with respect to its employees (and
timely paid over
to the appropriate Taxing authority) all federal and state
income taxes, Federal Insurance
Contribution Act, Federal Unemployment Tax
Act and other Taxes of any kind or
nature required to be withheld, and (B)
has accrued on the Current Balance Sheet all Taxes
attributable to the
periods
preceding the Current
Balance Sheet and will not have incurred any
liability for
Taxes for the period commencing after the date of the Current
Balance
Sheet and ending
immediately prior to the Closing Date, other than
in the Ordinary Course of Business.
(3) The Company has not been delinquent in the payment of any
material
Tax, nor is
there any Tax deficiency or adjustment outstanding, assessed or
proposed
against the Company, and the Company has
not executed any waiver
of any statute
of limitations on or extending the period for the assessment
or collection of any Tax.
(4) No audit or other
examination of any Tax Return of the Company is
presently in
progress, nor has the Company been notified of any request for
such
an audit or other examination.
(5) The Company has made available to Parent, its
legal counsel and
its accountants, copies of all Tax Returns filed by the
Company for all
periods
since its inception.
(6) There are (and immediately following the
Closing Date there will
be) no Encumbrances on the assets of the
Company relating or attributable
to Taxes other than Encumbrances for Taxes not yet due and payable.
(7) The Company has no Actual Knowledge of any basis for the
assertion
of any claim for
Taxes, which, if adversely determined, would result in any
Encumbrance
on the assets of the Company.
(8) The Company has (a) never been a member of an
affiliated group
(within
the meaning of Code
Section 1504(a)) filing a consolidated federal
income
tax return (other than a group the common
parent of which was the
Company),
(b) never been a party to any Tax sharing,
indemnification or
allocation
Contract, and never owed any amount under any such Contract,
(c)
no liability for
the Taxes of any Person under Treas. Reg. Section 1.1502-6
(or any similar provision of state,
local or foreign law), as a transferee
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or successor, by Contract, or
otherwise, and (d) never been a party to any
joint
venture, partnership or other agreement that could be
treated as a
partnership
for Tax purposes.
(9) The Company has not constituted either a "distributing
corporation" or a "controlled corporation" in a distribution of stock
intended
to qualify for tax-free treatment
under Section 355 of the Code.
(10) The Company has
not engaged in a transaction that is the same or
substantially
similar to one of the types of transactions that the Internal
Revenue
Service has determined to be a tax avoidance transaction and
identified
by notice, regulation,
or other form of published guidance as a
listed
transaction,
as set forth in Treas. Reg. Section
1.6011-4(b)(2).
(11) The Company has not disposed of any property in a
transaction
being accounted
for under the installment method pursuant to Section 453 of
the Code.
(12) The Company (i) has not agreed nor is required to make any
adjustment
pursuant to Section 481 of the Code by reason of a
change in
accounting
methods or otherwise, (ii) has no Actual Knowledge that
any
taxing authority
has proposed any such adjustment or change, which proposal
is currently pending, and (iii) does not have
an application pending with
any taxing authority requesting permission for any change in
accounting
methods
that relate to its business and operations.
(13) No power of attorney has been granted by the Company with
respect
to any matter relating to Taxes, which power of
attorney is currently in
force.
(14) The Company has no direct or indirect beneficial ownership
interest
in (i) a "passive foreign investment
company", (ii) a "foreign
sales
corporation",
or (iii) a person other than a United
States person,
each
within the meaning of the Code.
(15) The Company does not own "corporate acquisition
indebtedness"
within
the meaning of Section 279 of the Code.
(16) No property of the Company is "tax-exempt use
property" within
the meaning of Section 168 of the Code.
(b) Executive
Compensation Tax. The Company is not a party to any Contract,
including the provisions of this Agreement, covering any employee
or former
employee of the Company, which,
individually or collectively, could give rise to
the payment of any amount that would not be
deductible pursuant to Sections 280G
or 404 of the Code.
Section 3.14
Restrictions on Business Activities. Except as is described in
Section 3.14 of the Disclosure Schedules, there is no Contract
(non-compete
agreement or otherwise) or Order to which
the Company is a party or by which it
is bound, which has or may reasonably be expected to have the effect of
prohibiting or impairing any business
practice, any acquisition of Property, the
conduct of business or otherwise limiting the
freedom of the Company to engage
in any line of business or to compete with any Person.
Without limiting the
generality of the foregoing, except as is described in Section 3.14 of
the
Disclosure Schedules, the Company has not
entered into any Contract under which
it is restricted from selling, licensing or
otherwise distributing any of its
Material Intellectual Property Rights, Technology or Company Products, or
providing services, to customers or potential customers or any class of
customers, in any geographic area, during any
period of time or in any segment
of the market.
W02-SD:6AFP1\51393538
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Agreement and Plan of Merger
09EY-117690
PAGE
Section
3.15 Title of Properties; Absence of Liens and Encumbrances;
Condition of Equipment.
(a) The Company does not own any real property, and has
never owned any
real property. Section 3.15(a) of the
Disclosure Schedules sets forth a list of
all real property currently leased by the
Company, the name of the lessor, the
correct street address, the date and term of the lease, the
aggregate annual
rental payable under such lease and a
description of any other material terms of
the lease and each Amendment thereto.
All such current leases are in full force
and effect, are valid and effective in
accordance with their respective terms,
and there is no,
