EX-2.1 AGREEMENT AND PLAN OF MERGER among BROOKTROUT, INC., CANAL ACQUISITION CORP. and SNOWSHORE NETWORKS, INC.Agreement and Plan of Merger |
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Exhibit 2.1
AGREEMENT AND PLAN OF MERGER
among
BROOKTROUT, INC.,
CANAL ACQUISITION CORP.
and
SNOWSHORE NETWORKS, INC.
Dated as of March 25, 2004
TABLE OF CONTENTS
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THIS AGREEMENT AND PLAN OF MERGER (this “ Agreement ” ) is entered into as of March 25, 2004 among Brooktrout, Inc., a Massachusetts corporation ( “ Brooktrout ” ), Canal Acquisition Corp., a Delaware corporation and indirect wholly owned subsidiary of Brooktrout ( “ Canal ” ), and SnowShore Networks, Inc., a Delaware corporation ( “ SnowShore ” ).
This Agreement contemplates a merger of Canal into SnowShore. In such merger, stockholders of SnowShore will receive cash in exchange for their shares of certain classes of capital stock of SnowShore.
NOW, THEREFORE, in consideration of the representations, warranties and covenants herein contained, the Parties agree as follows.
ARTICLE I. THE MERGER1.1. The Merger . Upon and subject to the terms and conditions of this Agreement, Canal shall merge with and into SnowShore at the Effective Time. From and after the Effective Time, the separate corporate existence of Canal shall cease and SnowShore shall continue as the Surviving Corporation. The Merger shall have the effects set forth in Section 259 of the Delaware General Corporation Law.1.2. The Closing . The Closing shall take place at the offices of Hale and Dorr LLP at 60 State Street, Boston, Massachusetts, commencing at 9 A.M. (or as soon as reasonably practicable thereafter as contemplated by Section 1.5(b)(iv)), Eastern standard time, on the Closing Date.1.3. Actions at the Closing . At the Closing:(a) SnowShore shall deliver to Brooktrout and Canal the various certificates, instruments and documents referred to in Section 5.1;(b) Brooktrout and Canal shall deliver to SnowShore the various certificates, instruments and documents referred to in Section 5.2;(c) the Surviving Corporation shall file the Certificate of Merger with the Secretary of State of the State of Delaware;(d) each Stockholder, other than holders of Dissenting Shares, shall deliver to Brooktrout for cancellation the certificate or certificates representing the SnowShore Shares held by such Stockholder;(e) Brooktrout or the Surviving Corporation shall pay in cash (by check or by wire transfer) to each Stockholder, the portion of the Merger Consideration to which each such Stockholder is entitled pursuant to Section 1.6, except the portion of such Stockholder’s Merger Consideration that is deposited into Escrow pursuant to Section 1.10; and(f) Brooktrout, the Representative and the Escrow Agent shall execute and deliver the Escrow Agreement and Brooktrout or Canal shall deposit the balance of the Merger Consideration not paid pursuant to clause (e) above with the Escrow Agent in accordance with Section 1.10.1.4. Additional Action . The Surviving Corporation may, at any time after the Effective Time, take any action, including executing and delivering any document, in the name and on behalf of either SnowShore or Canal, in order to consummate the transactions contemplated by this Agreement.1.5. Merger Consideration .(a) The “Merger Consideration” to be paid by Brooktrout and the Surviving Corporation in connection with the consummation of the Merger shall be $9,000,000, subject to Section 1.10 and subject to adjustment as follows:(i) Such amount shall be decreased, dollar for dollar, by the amount, if any, by which, at the time of the Closing, the Working Capital is less than $1,900,000.(ii) Such amount shall be increased, dollar for dollar, by the amount, if any, by which, at the time of the Closing, the Working Capital exceeds $2,200,000.(b) For purposes of calculating the amount of the Merger Consideration pursuant to Section 1.5(a), the following procedures shall apply:(i) SnowShore shall prepare and deliver to Brooktrout, by 10 a.m. Eastern standard time on the second Business Day preceding the Closing Date, the following (together, the “Initial Closing Drafts”):(A) the Preliminary Closing Balance Sheet; and
(B) a reconciliation schedule showing the preliminary computation of Working Capital based on amounts reflected in the Preliminary Closing Balance Sheet.
(ii) Brooktrout shall deliver to SnowShore, by no later than 10 a.m. Eastern standard time on the Business Day immediately preceding the Closing Date, either (A) a notice indicating that Brooktrout accepts the Initial Closing Drafts, subject to any adjustments pursuant to paragraphs (iii) through (v) of this Section 1.5(b), or (B) a detailed statement describing Brooktrout’s objections to the Initial Closing Drafts. If Brooktrout timely objects to the Initial Closing Drafts, SnowShore and Brooktrout shall use their Reasonable Best Efforts to resolve such objections prior to the Closing.(iii) By 8:00 a.m. Eastern standard time on the Closing Date, SnowShore shall deliver to Brooktrout the following (collectively, the “Bringdown Closing Drafts”):(A) a draft of the Closing Balance Sheet, certified by the chief executive officer and chief financial officer of SnowShore;
(B) a reconciliation schedule showing the changes from the Preliminary Closing Balance Sheet (as it may have been revised by mutual agreement of the Parties based upon objections timely made by Brooktrout pursuant to Section 1.5(b)(ii)); and
(C) a reconciliation schedule showing the computation of Working Capital based on amounts reflected in such draft of the Closing Balance Sheet.
(iv) Brooktrout shall deliver to SnowShore, as soon as reasonably practicable but in any event by no later than noon on the Closing Date, either (y) a notice indicating that Brooktrout accepts the Bringdown Closing Drafts or (z) a statement, with such detail as time reasonably permits, describing Brooktrout’s objections to the Bringdown Closing Drafts (which may include objections that were made by Brooktrout with respect to the Preliminary Closing2Balance Sheet to the extent such objections were not previously resolved by mutual agreement with SnowShore).(A) If Brooktrout delivers to SnowShore a notice pursuant to the preceding clause (y) or fails to deliver a written objection to the Bringdown Closing Drafts prior to noon on the Closing Date, then the draft of the Closing Balance Sheet included in the Bringdown Closing Drafts shall be deemed to be the Closing Balance Sheet.
(B) If Brooktrout delivers a notice pursuant the preceding clause (z) and the Parties agree upon a mutually satisfactory resolution of the objections raised therein, the draft of the Closing Balance Sheet included in the Bringdown Closing Drafts shall be modified accordingly and thereafter shall be deemed to be the Closing Balance Sheet.
(C) If Brooktrout delivers a notice pursuant the preceding clause (z) and the Parties are unable to agree upon a mutually satisfactory resolution of the objections raised therein, the draft of the Closing Balance Sheet included in the Bringdown Closing Drafts shall be deemed to be the Closing Balance Sheet and Brooktrout shall have the right to elect not to proceed with the Merger.
1.6. Conversion of Shares . At the Effective Time, by virtue of the Merger and without any action on the part of any Party or the holder of any of the following securities:(a) Each Common Share issued and outstanding immediately prior to the Effective Time (other than Dissenting Shares) shall be cancelled and retired without payment of any consideration therefor.(b) Each Series A Share issued and outstanding immediately prior to the Effective Time (other than Dissenting Shares and Series A Shares held in SnowShore ’ s treasury) shall be converted into and represent the right to receive approximately .000002647% of the Merger Consideration per Series A Share, without any interest thereon (subject to the provisions of Section 1.10). Each Series B Share issued and outstanding immediately prior to the Effective Time (other than Dissenting Shares and Series B Shares held in SnowShore ’ s treasury) shall be converted into and represent the right to receive approximately .000003706% of the Merger Consideration per Series B Share, without any interest thereon (subject to the provisions of Section 1.10). The aggregate percentage of the Merger Consideration payable to each of the Preferred Stockholders shall be as set forth on Schedule I hereto, and the Representative shall have authority, on behalf of the Preferred Stockholders, to resolve any issues of rounding in computing the Merger Consideration payable to any Preferred Stockholder.(c) Each SnowShore Share held in SnowShore ’ s treasury immediately prior to the Effective Time shall be cancelled and retired without payment of any consideration therefor.(d) Each share of common stock, $.001 par value per share, of Canal issued and outstanding immediately prior to the Effective Time shall be converted into and thereafter evidence one share of common stock, $.001 par value per share, of the Surviving Corporation.1.7. Dissenting Shares .(a) Dissenting Shares shall not be converted into or represent the right to receive the Merger Consideration unless the Stockholder holding such Dissenting Shares shall have forfeited his, her or its right to appraisal under the Delaware General Corporation Law or properly withdrawn his, her or3its demand for appraisal. If such Stockholder has so forfeited or withdrawn his, her or its right to appraisal of Dissenting Shares, then:(i) as of the occurrence of such event, such holder ’ s Dissenting Shares shall cease to be Dissenting Shares and shall be converted into and represent the right to receive the Merger Consideration payable in respect of such SnowShore Shares pursuant to Section 1.6; and(ii) promptly following the occurrence of such event, Brooktrout or the Surviving Corporation shall deliver to such Stockholder a payment representing the portion of the Merger Consideration to which such Stockholder is entitled pursuant to Section 1.6 (before deducting any amount that would have been subject to deposit pursuant to Section 1.10 as provided in Section 1.6), except that Brooktrout or the Surviving Corporation shall deliver to the Escrow Agent a portion of such payment equal to (A) $1,000,000 divided by (B) the aggregate amount of Merger Consideration delivered to Stockholders as of the time of the Closing.(b) SnowShore shall give Brooktrout (i) prompt notice of any written demands for appraisal of any SnowShore Shares, withdrawals of such demands, and any other instruments that relate to such demands received by SnowShore and (ii) the opportunity to direct all negotiations and proceedings with respect to demands for appraisal under the Delaware General Corporation Law. SnowShore shall not, except with the prior written consent of Brooktrout, make any payment with respect to any demands for appraisal of SnowShore Shares or offer to settle or settle any such demands.1.8. Options .(a) Pursuant to Section 8.4 of the SnowShore Stock Plan, within two Business Days after the date hereof, SnowShore shall provide written notice to each Participant (as defined in the SnowShore Stock Plan) that the vesting of each outstanding Option has been accelerated in full and that each such Option must be exercised prior to the Closing or will terminate as of immediately before the Closing with respect to any portions thereof that are then unexercised.(b) SnowShore shall terminate the SnowShore Stock Plan as of no later than the time of the Closing.1.9. Warrants . SnowShore has provided to Brooktrout accurate and complete copies of agreements pursuant to which each of the holders of outstanding Warrants has agreed that such Warrants shall terminate immediately prior to the Closing.1.10. Escrow .(a) On the Closing Date, Brooktrout shall deposit with the Escrow Agent $1,000,000 of the Merger Consideration for the purpose of securing the indemnification obligations of the Preferred Stockholders set forth in this Agreement. The Escrow Agent shall hold the Escrow Fund under the Escrow Agreement pursuant to the terms thereof. The Escrow Fund shall be held as a trust fund and shall not be subject to any lien, attachment, trustee process or any other judicial process of any creditor of any party, and shall be held and disbursed solely for the purposes and in accordance with the terms of the Escrow Agreement. The amount of such deposit shall not be decreased with respect to any Dissenting Shares.4(b) The adoption of this Agreement and the approval of the Merger by the stockholders of SnowShore shall constitute approval of the Escrow Agreement and of all of the arrangements relating thereto, including the placement of the Escrow Fund in escrow and the appointment of the Representative.1.11. Certificate of Incorporation and By-laws .(a) The Certificate of Incorporation of the Surviving Corporation immediately following the Effective Time shall be the same as the Certificate of Incorporation of Canal immediately prior to the Effective Time, except that (i) the name of the corporation set forth therein shall be changed to “SnowShore Networks, Inc.” and (ii) the identity of the incorporator shall be deleted.(b) The By-laws of the Surviving Corporation immediately following the Effective Time shall be the same as the By-laws of Canal immediately prior to the Effective Time, except that the name of the corporation set forth therein shall be changed to “SnowShore Networks, Inc.”1.12. No Further Rights . From and after the Effective Time, no SnowShore Shares shall be deemed to be outstanding, and holders of certificates formerly representing SnowShore Shares shall cease to have any rights with respect thereto except as provided herein or by law.1.13. Closing of Transfer Books . At the Effective Time, the stock transfer books of SnowShore shall be closed and no transfer of SnowShore Shares shall thereafter be made. If, after the Effective Time, certificates formerly representing SnowShore Shares are presented to Brooktrout or the Surviving Corporation, they shall be cancelled and exchanged for the Merger Consideration in accordance with Section 1.6, subject to Section 1.10 and to applicable law in the case of Dissenting Shares.1.14. Representative . The Representative shall, by virtue of the Merger and the resolutions adopted by the Preferred Stockholders, be irrevocably appointed attorney-in-fact and authorized and empowered to act, for and on behalf of any or all of the Preferred Stockholders (with full power of substitution in the premises) in connection with:(a) the determination of the amount of Merger Consideration pursuant to Section 1.5, including to take all such actions as are authorized in such Section, and to act with respect to such other matters as are reasonably necessary for the consummation of the transactions contemplated thereby; and(b) the indemnity provisions of Article VI as they relate to the Preferred Stockholders generally, the Escrow Agreement, the notice provisions of this Agreement and such other matters as are reasonably necessary for the consummation of the transactions contemplated hereby, including to act as the representative of the Preferred Stockholders to review and authorize all setoffs, claims and other payments authorized or directed by the Escrow Agreement and dispute or question the accuracy thereof, to compromise on their behalf with Brooktrout and the Surviving Corporation any claims asserted thereunder and to authorize payments to be made with respect thereto, and to take such further actions as are authorized in this Agreement.The Representative shall not be liable to any Preferred Stockholder, Brooktrout, the Surviving Corporation or any other person with respect to any action taken or omitted to be taken by the Representative under or in connection with this Agreement unless such action or omission results from or arises out of fraud, gross negligence, willful misconduct or bad faith on the part of the Representative. The Preferred Stockholders shall severally indemnify the Representative and hold the Representative harmless against any loss, liability or expense incurred without fraud, gross negligence, willful
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misconduct or bad faith on the part of the Representative and arising out of or in connection with the acceptance or administration of the duties of the Representative hereunder, including the reasonable fees and expenses of any legal counsel retained by the Representative. Each of Brooktrout, Canal and the Surviving Corporation, and each of their respective Affiliates, shall be entitled to rely on such appointment and to treat the Representative as the duly appointed attorney-in-fact of each Preferred Stockholder. Each Preferred Stockholder who votes in favor of the Merger pursuant to the terms hereof, by such vote, without any further action, and each Preferred Stockholder who receives any portion of the Merger Consideration in connection with the Merger, by acceptance thereof and without any further action, confirms such appointment and authority and acknowledges any agrees that such appointment is irrevocable and coupled with an interest, it being understood that the willingness of Brooktrout and Canal to enter into this Agreement is based, in part, on the appointment of a representative to act on behalf of the Preferred Stockholders as provided in this Section 1.14.
ARTICLE II. REPRESENTATIONS AND WARRANT IES OF SNOWSHORESnowShore represents and warrants to Brooktrout that, except as set forth in the Disclosure Schedule, the statements contained in this Article II are true and correct as of the date of this Agreement and will be true and correct as of the Closing as though made as of the Closing, except to the extent such representations and warranties are specifically made as of a particular date (in which case such representations and warranties will be true and correct as of such date). The Disclosure Schedule shall be arranged in sections and subsections corresponding to the numbered and lettered sections and subsections contained in this Article II. The disclosures in any section or subsection of the Disclosure Schedule shall qualify other sections and subsections in this Article II only to the extent it is clear from a reading of the disclosure that such disclosure is applicable to such other sections and subsections. For purposes of this Article II, the phrase “ to the knowledge of SnowShore ” or any phrase of similar import shall be deemed to refer to the actual knowledge of the executive officers of SnowShore, as well as any other knowledge that such executive officers would have possessed had they made reasonable inquiry of appropriate employees, financial advisors, attorneys and accountants of SnowShore with respect to the matter in question.
SnowShore may, from time to time after the date hereof but not later than two Business Days before the Closing Date, prepare and deliver to Brooktrout an updated version of the Disclosure Schedule. In the event the Closing does not occur, the initial Disclosure Schedule shall constitute the Disclosure Schedule to be used in determining any inaccuracy in, or breach of, any representations or warranties of SnowShore. In the event the Closing occurs, the final version of the Disclosure Schedule as of the Closing Date shall supersede the initial Disclosure Schedule and shall constitute the definitive Disclosure Schedule for all purposes of this Agreement; provided that any information contained in the final version of the Disclosure Schedule that was not disclosed in the initial version of the Disclosure Schedule and that arose prior to the date of this Agreement shall not be deemed to be included in the definitive Disclosure Schedule for purposes of Article VI.
2.1. Organization, Qualification and Corporat e Power . SnowShore is a corporation duly organized, validly existing and in corporate and tax good standing under the laws of the State of Delaware. SnowShore is duly qualified to conduct business and is in corporate and tax good standing under the laws of each jurisdiction listed in Section 2.1 of the Disclosure Schedule, which jurisdictions constitute the only jurisdictions in which the nature of SnowShore ’ s businesses or the ownership or leasing of its properties requires such qualification, except for those jurisdictions in which the failure to be so qualified or in good standing, individually or in the aggregate, has not had and would not reasonably be expected to have a SnowShore MAE. SnowShore has all requisite corporate power and authority to carry on the businesses in which it is currently engaged and to own and use the properties owned and used by it. SnowShore has made available to Brooktrout complete and accurate copies of its Certificate of6Incorporation and By-laws, each as amended to date. SnowShore is not in default under or in violation of any provision of its Certificate of Incorporation or By-laws.2.2. Capitalization .(a) The authorized capital stock of SnowShore consists of (i) 47,000,000 Common Shares, of which, as of the date of this Agreement, 6,060,770 shares were issued and outstanding and 1,386,835 shares were held in the treasury of SnowShore, and (ii) 29,970,949 Preferred Shares, of which (A) 10,208,452 shares have been designated as Series A Shares, of which, as of the date of this Agreement, 10,178,452 were issued and outstanding and (B) 19,762,497 shares have been designated as Series B Shares, of which, as of the date of this Agreement, 19,714,283 were issued and outstanding.(b) Section 2.2 of the Disclosure Schedule sets forth a complete and accurate list, as of the date of the Agreement, of the holders of capital stock of SnowShore, showing the number of shares of capital stock, and the class or series of such shares, held by each stockholder and (for shares other than Common Stock) the number of Common Shares (if any) into which such shares are convertible. All of the issued and outstanding shares of capital stock of SnowShore have been duly authorized and validly issued and are fully paid and nonassessable. All of the issued and outstanding shares of capital stock of SnowShore have been offered, issued and sold by SnowShore in compliance with all applicable federal and state securities laws.(c) SnowShore has no stock option plans or other stock or equity-related plans other than the SnowShore Stock Plan. Section 2.2 of the Disclosure Schedule sets forth a complete and accurate list, as of the date of this Agreement of: (i) the number of Common Shares issued to date under the SnowShore Stock Plan, the number of Common Shares subject to outstanding options under the SnowShore Stock Plan, and the number of Common Shares reserved for future issuance under the SnowShore Stock Plan; (ii) all holders of outstanding Options, the number of Common Shares subject to such Option, the exercise price, the date of grant, and the vesting schedule (including any acceleration provisions with respect thereto); and (iii) all holders of outstanding Warrants, indicating with respect to each Warrant the agreement or other document under which it was granted, the number of shares of capital stock, and the class or series of such shares, subject to such Warrant, the exercise price, the date of issuance and the expiration date thereof. SnowShore has provided to Brooktrout complete and accurate copies of the SnowShore Stock Plan, forms of all stock option agreements evidencing Options and all Warrants.(d) As of the date of this Agreement, (i) no subscription, warrant, option, convertible security or other right (contingent or otherwise) to purchase or acquire any shares of capital stock of SnowShore is authorized or outstanding, (ii) SnowShore has no obligation (contingent or otherwise) to issue any subscription, warrant, option, convertible security or other such right, or to issue or distribute to holders of any shares of its capital stock any evidences of indebtedness or assets of SnowShore, (iii) SnowShore has no obligation (contingent or otherwise) to purchase, redeem or otherwise acquire any shares of its capital stock or any interest therein or to pay any dividend or to make any other distribution in respect thereof, and (iv) there are no outstanding or authorized stock appreciation, phantom stock or similar rights with respect to SnowShore.(e) There is no agreement, written or oral, between SnowShore and any holder of its securities, or, to the best of SnowShore ’ s knowledge, among any holders of its securities, relating to the sale or transfer (including agreements relating to rights of first refusal, co-sale rights or “ drag-along ” rights), registration under the Securities Act, or voting, of the capital stock of SnowShore.7(f) Schedule I to this Agreement accurately reflects, as of the date hereof, the holders of the Series A Shares and Series B Shares and the number of Series A Shares and Series B Shares held by each such holder.2.3. Authorization of Transaction . SnowShore has all requisite power and authority to execute and deliver this Agreement and to perform its obligations hereunder. The execution and delivery by SnowShore of this Agreement and the consummation by SnowShore of the transactions contemplated hereby have been duly and validly authorized by all necessary corporate action on the part of SnowShore. Without limiting the generality of the foregoing:(a) the Board of Directors of SnowShore, at a meeting duly called and held, by the unanimous vote of all directors (i) determined that the Merger is fair and in the best interests of SnowShore and its stockholders, (ii) adopted this Agreement in accordance with the provisions of the Delaware General Corporation Law, (iii) directed that this Agreement and the Merger be submitted to the stockholders of SnowShore for their adoption and (iv) approved the actions to be taken by SnowShore pursuant to Sections 1.8 and 1.9; and(b) the requisite number of stockholders of SnowShore subsequently have voted in favor of the adoption of this Agreement and the approval of the Merger, including the appointment and authorization of the Representative as contemplated herein.This Agreement has been duly and validly executed and delivered by SnowShore and constitutes a valid and binding obligation of SnowShore, enforceable against SnowShore in accordance with its terms, except to the extent that such enforcement may be subject to applicable bankruptcy, reorganization, insolvency, fraudulent conveyance or other laws affecting creditors’ rights generally and to the application of general equitable principles.
2.4. Noncontravention . Subject to the filing of the Certificate of Merger as required by the Delaware General Corporation Law, neither the execution and delivery by SnowShore of this Agreement, nor the consummation by SnowShore of the transactions contemplated hereby, will (a) conflict with or violate any provision of the Certificate of Incorporation or By-laws of SnowShore, or the Articles of Organization or By-laws of the Subsidiary, (b) require on the part of SnowShore or the Subsidiary any notice to or filing with, or any permit, authorization, consent or approval of, any Governmental Entity, (c) conflict with, result in a breach of, constitute (with or without due notice or lapse of time or both) a default under, result in the acceleration of obligations under, create in any party the right to terminate, modify or cancel, or require any notice, consent or waiver under, any contract or instrument to which SnowShore or the Subsidiary is a party or by which SnowShore or the Subsidiary is bound or to which any of their respective assets is subject, (d) result in the imposition of any Security Interest upon any assets of SnowShore or the Subsidiary or (e) violate any order, writ, injunction, decree, statute, rule or regulation known and applicable to SnowShore, the Subsidiary or any of their respective properties or assets.2.5. Subsidiaries .(a) SnowShore does not hold stock or other ownership interests in any corporation, partnership, trust, limited liability company or other non-corporate business enterprise other than the Subsidiary.(b) The Subsidiary is a corporation duly organized, validly existing and in corporate and tax good standing under the laws of the jurisdiction of its incorporation. The Subsidiary is duly qualified to conduct business and is in corporate and tax good standing under the laws of each8jurisdiction in which the nature of its businesses or the ownership or leasing of its properties requires such qualification. The Subsidiary has all requisite power and authority to carry on the businesses in which it is currently engaged and to own and use the properties owned and used by it. SnowShore has delivered to Brooktrout complete and accurate copies of the Articles of Organization and By-Laws of the Subsidiary. The Subsidiary is not in default under or in violation of any provision of its Articles of Organization or By-Laws. All of the issued and outstanding shares of capital stock of the Subsidiary are duly authorized, validly issued, fully paid, nonassessable and free of preemptive rights. All of the shares of the Subsidiary are held of record by SnowShore free and clear of any restrictions on transfer (other than restrictions under the Securities Act and state securities laws), claims, Security Interests, options, warrants, rights, contracts, calls, commitments, equities and demands. There are no outstanding or authorized options, warrants, rights, agreements or commitments to which SnowShore or the Subsidiary is a party or that are binding on either of them providing for the issuance, disposition or acquisition of any capital stock of the Subsidiary. There are no outstanding stock appreciation, phantom stock or similar rights with respect to the Subsidiary. There are no voting trusts, proxies or other agreements or understandings with respect to the voting of any capital stock of the Subsidiary.2.6. Financial Statements . SnowShore has provided to Brooktrout the Financial Statements. The Financial Statements have been prepared in accordance with GAAP applied on a consistent basis throughout the periods covered thereby, fairly present the consolidated financial condition, results of operations and cash flows of SnowShore and the Subsidiary as of the respective dates thereof and for the periods referred to therein and are consistent with the books and records of SnowShore and the Subsidiary, provided, however, that the Financial Statements referred to in clause (c) of the definition of such term are subject to normal recurring year-end adjustments (which are not expected to be material) and do not include footnotes. The Financial Statements referred to in clause (a) of the definition of such term have been audited by, and are the subject of an unqualified audit opinion of, Ernst & Young LLP.2.7. Absence of Certain Changes . Since December 31, 2003, (a) there has occurred no event or development that, individually or in the aggregate, has had, or could reasonably be expected to have in the future, a SnowShore MAE, and (b) neither SnowShore nor the Subsidiary has taken any action that would constitute a violation of paragraphs (a) through (m) of Section 4.3.2.8. Undisclosed Liabilities . Neither SnowShore nor the Subsidiary has any liability in excess of $5,000 (whether known or unknown, whether absolute or contingent, whether liquidated or unliquidated and whether due or to become due), except for (a) liabilities shown on the Most Recent Balance Sheet, (b) liabilities that have arisen since February 29, 2004 in the Ordinary Course of Business and (c) contractual and other liabilities incurred in the Ordinary Course of Business that are not required by GAAP to be reflected on a balance sheet.2.9. Tax Matters .(a) Each of SnowShore and the Subsidiary has filed on a timely basis all Tax Returns that it was required to file, and all such Tax Returns were complete and accurate in all material respects. Neither SnowShore nor the Subsidiary is or has ever been a member of a group of corporations with which it has filed (or been required to file) consolidated, combined or unitary Tax Returns, other than a group of which only SnowShore and the Subsidiary are or were members. Each of SnowShore and the Subsidiary has paid on a timely basis all material Taxes that were due and payable. The unpaid Taxes of SnowShore and the Subsidiary for tax periods through February 29, 2004 do not exceed the accruals and reserves for Taxes (excluding accruals and reserves for deferred Taxes established to reflect timing differences between book and Tax income) set forth on the Most Recent Balance Sheet. Neither SnowShore nor the Subsidiary has any actual or potential liability9for any Tax obligation of any taxpayer (including any affiliated group of corporations or other entities that included SnowShore or the Subsidiary during a prior period) other than SnowShore and the Subsidiary. All Taxes that SnowShore or the Subsidiary is or was required by law to withhold or collect have been duly withheld or collected and, to the extent required, have been paid to the proper Taxing Authority.(b) SnowShore has made available to Brooktrout complete and accurate copies of all federal income Tax Returns of SnowShore and the Subsidiary since inception and all examination reports and statements of deficiencies assessed against or agreed to by SnowShore or the Subsidiary. The federal income Tax Returns of the Company and the Subsidiary have been audited by the Internal Revenue Service or are closed by the applicable statute of limitations for all taxable years through the taxable year specified in Section 2.9(b) of the Disclosure Schedule. No examination or audit of any Tax Return of SnowShore or the Subsidiary by any Taxing Authority is currently in progress or, to the knowledge of SnowShore, threatened or contemplated. Neither SnowShore nor the Subsidiary has been informed by any jurisdiction that the jurisdiction believes that SnowShore or Subsidiary was required to file any Tax Return that was not filed. Neither SnowShore nor the Subsidiary has waived any statute of limitations with respect to Taxes or agreed to an extension of time with respect to a Tax assessment or deficiency.(c) Neither SnowShore nor the Subsidiary: (i) is a “ consenting corporation ” within the meaning of Section 341(f) of the Code, and none of the assets of SnowShore or the Subsidiary are subject to an election under Section 341(f) of the Code; (ii) has been a United States real property holding corporation within the meaning of Section 897(c)(2) of the Code during the applicable period specified in Section 897(c)(l)(A)(ii) of the Code; (iii) has made any payments, is obligated to make any payments, or is a party to any agreement that could obligate it to make any payments that may be treated as an “ excess parachute payment ” under Section 280G of the Code; (iv) has any actual or potential liability for any Taxes of any person (other than SnowShore and the Subsidiary) under Treasury Regulation Section 1.1502-6 (or any similar provision of federal, state, local, or foreign law), or as a transferee or successor, by contract, or otherwise; or (v) is or has been required to make a basis reduction pursuant to Treasury Regulation Section 1.1502-20(b) or Treasury Regulation Section 1.337(d)-2(b).(d) None of the assets of SnowShore or the Subsidiary: (i) is “ tax-exempt use property ” within the meaning of Section 168(h) of the Code; or (ii) directly or indirectly secures any debt the interest on which is tax exempt under Section 103(a) of the Code.(e) Neither SnowShore nor the Subsidiary has (i) undergone a change in its method of accounting resulting in any current adjustment to its taxable income pursuant to Section 481 of the Code that is required to be taken into account by SnowShore or the Subsidiary in any period ending after the Closing Date or (ii) participated in any “reportable transaction” as defined in Treasury Regulation Section 1.6011-4, any transaction that was required to be registered as a “tax shelter” pursuant to Section 6111 of the Code, or any transaction subject to comparable provisions of state law; provided, however, that the representations and warranties made in subsection (ii) herein are being made as of the Closing only.2.10. Assets .(a) SnowShore or the applicable Subsidiary is the true and lawful owner, and has good title to, all of the assets (tangible or intangible) purported to be owned by SnowShore or the Subsidiary, free and clear of all Security Interests other than liens for taxes and assessments not yet due. Each of SnowShore and the Subsidiary owns or leases all tangible assets sufficient for the conduct of its businesses as presently conducted and as presently proposed to be conducted. Each such tangible10asset is free from material defects, has been maintained in accordance with normal industry practice, is in good operating condition and repair (subject to normal wear and tear) and is suitable for the purposes for which it presently is used.(b) Each item of equipment, motor vehicle and other asset that SnowShore or the Subsidiary has possession of pursuant to a lease agreement or other contractual arrangement is in such condition that, upon its return to its lessor or owner under the applicable lease or contract, the obligations of SnowShore or the Subsidiary to such lessor or owner will have been discharged in full.(c) All inventory of SnowShore and the Subsidiary, whether or not reflected on the Most Recent Balance Sheet, is available to SnowShore and consists of a quality and quantity usable and saleable in the Ordinary Course of Business, except for obsolete items and items of below-standard quality, all of which have been written-off or written-down to net realizable value on the Most Recent Balance Sheet. All inventories not written-off, including evaluation inventories, have been priced at the lower of cost or market in accordance with GAAP and are saleable. The quantities of each type of inventory of SnowShore and the Subsidiary are saleable within 120 days. All evaluation inventories reflected in the Most Recent Balance Sheet are reflected at the lower of cost or market in accordance with GAAP and are saleable.2.11. Owned Real Property . Neither SnowShore nor the Subsidiary owns any real property.2.12. Real Property Leases . Section 2.12 of the Disclosure Schedule lists all Leases and lists the term of such Lease, any extension and expansion options, and the rent payable thereunder. SnowShore has delivered to Brooktrout complete and accurate copies of each Lease. The Lease with respect to 285 Billerica Road, Chelmsford, Massachusetts, as amended as of the date hereof and the Closing Date (the “Chelmsford Lease”), terminates as of March 31, 2004. With respect to each Lease:(a) such Lease is legal, valid, binding, enforceable and in full force and effect;(b) such Lease will continue to be legal, valid, binding, enforceable and in full force and effect immediately following the Closing in accordance with the terms thereof as in effect immediately prior to the Closing;(c) neither SnowShore nor the Subsidiary nor, to the knowledge of SnowShore, any other party, is in breach or violation of, or default under, any such Lease, and no event has occurred, is pending or, to the knowledge of SnowShore, is threatened, that, after the giving of notice, with lapse of time, or otherwise, would constitute a breach or default by SnowShore or the Subsidiary or, to the knowledge of SnowShore, any other party under such Lease;(d) there are no disputes, oral agreements or forbearance programs in effect as to such Lease;(e) neither SnowShore nor the Subsidiary has assigned, transferred, conveyed, mortgaged, deeded in trust or encumbered any interest in the leasehold or subleasehold;(f) to the knowledge of SnowShore, all facilities leased or subleased thereunder are supplied with utilities and other services adequate for the operation of said facilities; and(g) SnowShore is not aware of any Security Interest, easement, covenant or other restriction applicable to the real property subject to such lease that would reasonably be expected to11materially impair the current uses or the occupancy by SnowShore or the Subsidiary of the property subject thereto.2.13. Intellectual Property .(a) Section 2.13(a) of the Disclosure Schedule lists (i) each patent, patent application, copyright registration or application therefor, mask work registration or application therefor, and trademark, service mark and domain name registration or application therefor of SnowShore or the Subsidiary and (ii) each Customer Deliverable of SnowShore or the Subsidiary.(b) Each of SnowShore and the Subsidiary owns or has the right to use all Intellectual Property necessary (i) to use, manufacture, have manufactured, market and distribute the Customer Deliverables and (ii) to operate the Internal Systems. Each item of SnowShore Intellectual Property will be owned or available for use by the Surviving Corporation or the Subsidiary immediately following the Closing on substantially identical terms and conditions as it was immediately prior to the Closing. SnowShore or the Subsidiary has taken all reasonable measures to protect the proprietary nature of each item of SnowShore Intellectual Property, and to maintain in confidence all trade secrets and confidential information, that it owns or uses. No other person or entity has any rights to any of the SnowShore Intellectual Property owned by SnowShore or the Subsidiary (except pursuant to agreements or licenses specified in Section 2.13(d) of the Disclosure Schedule), and, to the knowledge of SnowShore, no other person or entity is infringing, violating or misappropriating any of the SnowShore Intellectual Property.(c) To the knowledge of SnowShore, none of the Customer Deliverables, or the marketing, distribution, provision or use for purposes expressed by SnowShore to its customers and Brooktrout as the intended use thereof, infringes or violates, or constitutes a misappropriation of, any Intellectual Property rights of any person or entity. To the knowledge of SnowShore, none of the Internal Systems, or the use thereof, infringes or violates, or constitutes a misappropriation of, any Intellectual Property rights of any person or entity. Section 2.13(c) of the Disclosure Schedule lists any complaint, claim or notice, or written threat thereof, received by SnowShore or the Subsidiary alleging any such infringement, violation or misappropriation; and SnowShore has provided to Brooktrout complete and accurate copies of all written documentation in the possession of SnowShore or the Subsidiary relating to any such complaint, claim, notice or threat. SnowShore has provided to Brooktrout complete and accurate copies of all written documentation in SnowShore ’ s possession relating to claims or disputes known to SnowShore concerning any SnowShore Intellectual Property.(d) Section 2.13(d) of the Disclosure Schedule identifies each license or other agreement pursuant to which SnowShore or the Subsidiary has licensed, distributed or otherwise granted any rights to any third party with respect to, any SnowShore Intellectual Property. Neither SnowShore nor the Subsidiary has agreed to indemnify any person or entity against any infringement, violation or misappropriation of any Intellectual Property rights with respect to any Customer Deliverables.(e) Section 2.13(e) of the Disclosure Schedule identifies each item of SnowShore Intellectual Property that is owned by a party other than SnowShore or the Subsidiary, and the license or agreement pursuant to which SnowShore or the Subsidiary uses it (excluding off-the-shelf software programs licensed by SnowShore pursuant to “ shrink wrap ” licenses).(f) Neither SnowShore nor the Subsidiary has disclosed the source code for the Software or other confidential information constituting, embodied in or pertaining to the Software to any person or entity, and SnowShore has taken reasonable measures to prevent disclosure of such source code.12(g) All of the copyrightable materials (including Software) incorporated in or bundled with the Customer Deliverables have been created by employees of SnowShore or the Subsidiary within the scope of their employment by SnowShore or the Subsidiary or by independent contractors of SnowShore or the Subsidiary who have executed agreements expressly assigning all right, title and interest in such copyrightable materials to SnowShore or the Subsidiary. No portion of such copyrightable materials was jointly developed with any third party.(h) The Customer Deliverables are free from material defects and programming errors and conform in all material respects to the written documentation and specifications therefor.2.14. Contracts .(a) Section 2.14 of the Disclosure Schedule lists the following agreements (written or oral) to which SnowShore or the Subsidiary is a party as of the date of this Agreement:(i) any agreement (or group of related agreements) for the lease of personal property from or to third parties providing for lease payments in excess of $10,000 per annum or having a remaining term longer than six months;(ii) any agreement (or group of related agreements) for the purchase of products or for the receipt of services (A) that calls for performance over a period of more than one year, (B) that involves more than the sum of $10,000, or (C) in which SnowShore or the Subsidiary has agreed to purchase a minimum quantity of goods or services or to purchase goods or services exclusively from a certain party;(iii) any agreement (or group of related agreements) for the sale of products or for the furnishing of services (A) that calls for performance over a period extending beyond three months after the Closing Date, (B) that involves more than the sum of $10,000, or (C) in which SnowShore or the Subsidiary has granted manufacturing rights, “most favored nation” or “most favored customer” pricing provisions, or marketing or distribution rights relating to any products or territory or has agreed to sell a minimum quantity of goods or services or to sell goods or services exclusively to a certain party;(iv) any outstanding credits associated with earlier sales or licensings of SnowShore’s Riptide product;(v) any agreement concerning the establishment or operation of a partnership, joint venture or limited liability company;(vi) any agreement (or group of related agreements) under which it has created, incurred, assumed or guaranteed (or may create, incur, assume or guarantee) indebtedness (including capitalized lease obligations) involving more than $10,000 or under which it has imposed (or may impose) a Security Interest on any of its assets, tangible or intangible;(vii) any agreement for the disposition of any significant portion of the assets or business of SnowShore or the Subsidiary (other than sales of products in the Ordinary Course of Business) or any agreement for the acquisition of the assets or business of any other entity (other than purchases of inventory or components in the Ordinary Course of Business);13(viii) any agreement concerning confidentiality or noncompetition;(ix) any employment or consulting agreement, other than a consulting agreement to be entered into at or prior to the Closing by Brooktrout and SnowShore with Joel A. Hughes and a transition services agreement to be entered into at or prior to the Closing by Brooktrout and SnowShore with Martha Groves;(x) any agreement involving any current or former officer, director or stockholder of SnowShore or an Affiliate thereof;(xi) any agreement under which the consequences of a default or termination would reasonably be expected to have a SnowShore MAE;(xii) any agreement that contains any provisions requiring SnowShore or the Subsidiary to indemnify any other party (excluding indemnities contained in agreements for the purchase, sale or license of products entered into in the Ordinary Course of Business); and(xiii) any other agreement (or group of related agreements) either involving more than $10,000 or not entered into in the Ordinary Course of Business.(b) SnowShore has made available to Brooktrout a complete and accurate copy of each agreement listed in Section 2.13 or Section 2.14 of the Disclosure Schedule. With respect to each agreement so listed: (i) the agreement is legal, valid, binding and enforceable and in full force and effect; (ii) the agreement will continue to be legal, valid, binding and enforceable and in full force and effect immediately following the Closing in accordance with the material terms thereof as in effect immediately prior to the Closing; and (iii) neither SnowShore nor the Subsidiary nor, to the knowledge of SnowShore, any other party, is in breach or violation of, or default under, any such agreement, and no event has occurred, is pending or, to the knowledge of SnowShore, is threatened, that, after the giving of notice, with lapse of time, or otherwise, would constitute a material breach or default by SnowShore or the Subsidiary of any material provision or, to the knowledge of SnowShore, any other party under such agreement, including any pricing provision.2.15. Accounts Receivable . All accounts receivable of SnowShore and the Subsidiary reflected on the Most Recent Balance Sheet (other than those paid since such date) are valid receivables subject to no setoffs or counterclaims known to SnowShore and are current and collectible, net of the applicable reserve for bad debts and returns on the Most Recent Balance Sheet. A complete and accurate list of the accounts receivable reflected on the Most Recent Balance Sheet, showing the aging thereof, is included in Section 2.15 of the Disclosure Schedule. All accounts receivable of SnowShore and the Subsidiary that have arisen since February 29, 2004 are valid receivables subject to no setoffs or counterclaims known to SnowShore and are collectible, net of a reserve for bad debts and returns in an amount proportionate to the reserve shown on the Most Recent Balance Sheet.2.16. Powers of Attorney . There are no outstanding powers of attorney executed on behalf of SnowShore or the Subsidiary.2.17. Insurance . Section 2.17 of the Disclosure Schedule lists each insurance policy (including fire, theft, casualty, comprehensive general liability, workers compensation, business interruption, environmental, product liability and automobile insurance policies and bond and surety arrangements) to which SnowShore or the Subsidiary is a party, all of which are in full force and effect. Such insurance policies are of the type and in amounts customarily carried by organizations conducting businesses or owning assets similar to those of SnowShore and the Subsidiary. There is no material claim pending14under any such policy as to which coverage has been questioned, denied or disputed by the underwriter of such policy. All premiums due and payable under all such policies have been paid, neither SnowShore nor the Subsidiary may be liable for retroactive premiums or similar payments, and SnowShore and the Subsidiary are otherwise in compliance in all material respects with the terms of such policies. SnowShore has no knowledge of any threatened termination of, or premium increase with respect to, any such policy. Each such policy will continue to be enforceable and in full force and effect immediately following the Closing in accordance with the terms thereof as in effect immediately prior to the Closing.2.18. Litigation . There is no Legal Proceeding that is pending or has been threatened in writing against SnowShore or the Subsidiary. There are no judgments, orders or decrees outstanding against SnowShore or the Subsidiary.2.19. Warranties . No product or service manufactured, sold, leased, licensed or delivered by SnowShore or the Subsidiary is subject to any guaranty, warranty, right of return, right of credit or other indemnity other than (i) the applicable standard terms and conditions of sale or license of SnowShore or the Subsidiary, which are set forth in Section 2.19 of the Disclosure Schedule, and (ii) manufacturers ’ warranties for which neither SnowShore nor the Subsidiary has any liability. The Closing Balance Sheet shall include, in accordance with GAAP, a reserve account with respect to SnowShore’s potential obligations under guaranty, warranty, right of return and indemnity provisions.2.20. Employees .(a) Section 2.20 of the Disclosure Schedule contains a list of all employees of SnowShore and the Subsidiary, along with the position, citizenship and annual rate of compensation of each such person. Each current or past employee of SnowShore or the Subsidiary has entered into SnowShore’s standard form of Employee Non-Competition, Non-Disclosure and Developments Agreement, a copy of which has previously been made available to Brooktrout. Section 2.20 of the Disclosure Schedule identifies those employees of SnowShore and the Subsidiary who are a party to a non-competition agreement with SnowShore or the Subsidiary, other than SnowShore’s standard form of Employee Non-Competition, Non-Disclosure and Developments Agreement; copies of such agreements have previously been made available to Brooktrout. All of the agreements referenced in the two preceding sentences will continue to be legal, valid, binding and enforceable and in full force and effect immediately following the Closing in accordance with the material terms thereof as in effect immediately prior to the Closing. To the knowledge of SnowShore, no key employee or group of employees has any plans to terminate employment with SnowShore or the Subsidiary.(b) Neither SnowShore nor the Subsidiary is a party to or bound by any collective bargaining agreement, nor has any of them experienced any strikes, grievances, claims of unfair labor practices or other collective bargaining disputes. SnowShore has no knowledge of any organizational effort made or threatened, either currently or within the past two years, by or on behalf of any labor union with respect to employees of SnowShore or the Subsidiary.2.21. Employee Benefits .(a) Section 2.21(a) of the Disclosure Schedule contains a complete and accurate list of all SnowShore Plans. Complete and accurate copies of (i) all SnowShore Plans that have been reduced to writing, (ii) written summaries of all unwritten SnowShore Plans, (iii) all related trust agreements, insurance contracts and summary plan descriptions, and (iv) all annual reports filed on IRS Form 5500, 5500C or 5500R and (for all funded plans) all plan financial statements for the years ended December 31, 2000, 2001 and 2002 for each SnowShore Plan, have been delivered to Brooktrout.15(b) Each SnowShore Plan has been administered in all material respects in accordance with its terms and each of SnowShore, the Subsidiary and the ERISA Affiliates has in all material respects met its obligations with respect to each SnowShore Plan and has made all required contributions thereto. SnowShore, the Subsidiary, each ERISA Affiliate and each SnowShore Plan are in compliance in all material respects with the currently applicable provisions of ERISA and the Code and the regulations thereunder (including Section 4980 B of the Code, Subtitle K, Chapter 100 of the Code and Sections 601 through 608 and Section 701 et seq. of ERISA). All filings and reports as to each SnowShore Plan required to have been submitted to the Internal Revenue Service or to the United States Department of Labor have been duly submitted. No SnowShore Plan has assets that include securities issued by SnowShore or any ERISA Affiliate.(c) There are no Legal Proceedings (except claims for benefits payable in the normal operation of SnowShore Plans and proceedings with respect to qualified domestic relations orders) against or involvi | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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