EXHIBIT 2.1
MICRONETICS, INC
and the
STOCKHOLDERS OF STEALTH MICROWAVE,
INC.
WHO ARE SIGNATORIES HERETO
Dated as of June 10, 2005
STOCK PURCHASE AGREEMENT, dated as
of June 10, 2005 (this “ Agreement ”), by and
among M ICRONETICS
, I NC , a
Delaware corporation (the “ Buyer ”); and the
undersigned Stockholders (the “ Sellers ”) of
S TEALTH M ICROWAVE ,
I NC ., a New Jersey corporation (“
Stealth ”).
Intending to be legally bound, and
in consideration of the mutual representations, warranties,
covenants and agreements contained herein, the Buyer, Stealth and
the Sellers agree as follows:
ARTICLE I
PURCHASE AND SALE
1.1 Purchase and Sale . Upon
the terms and subject to the conditions of this Agreement, each
Seller, severally but not jointly, will sell to the Buyer, and the
Buyer will purchase from each such Seller, at the Closing (as
defined below), that number of shares of capital stock of Stealth
as is set forth opposite such Seller’s name on
E XHIBIT
1.1 , comprising in the aggregate all of the issued
and outstanding shares of the capital stock of Stealth (the “
Shares ”).
1.2 Purchase Price . The
purchase price (the “ Purchase Price ”) for all
of the Shares shall be up to Nine Million Eight Hundred Thousand
Dollars ($9,800,000) comprised of the Closing Cash Payment, and the
Performance Earnouts (as such terms are hereinafter defined),
payable as follows (it being agreed that the Performance Earnouts
are separate and independent contingent payments, specified
percentages of which are payable only upon satisfaction of the
performance criteria set forth in, or as otherwise provided in the
Earnout Agreement referred to in Section 1.2(b) below.
(a) $6,500,000 shall be paid to the
Sellers at Closing in cash, by wire transfer of immediately
available funds (the “ Closing Cash Payment ”);
provided, however, that $400,000 of the Closing Cash Payment shall
be placed in escrow as hereinafter provided.
(b) With respect to the two (2)
fiscal years (each an “ Earnout Period ”) of the
Buyer following the Closing Date (as hereinafter defined), the
Buyer shall pay to the Sellers deferred payments of up to
$1,800,000 for the First Earnout Period (hereinafter defined) and
up to $1,500,000 for the Second Earnout Period (hereinafter
defined) (respectively, the “ Performance Earnouts
”) in cash, by wire transfer of immediately available funds,
subject to and in accordance with the provisions of the Earnout
Agreement that shall be executed and delivered at the Closing in
the form attached hereto as E XHIBIT 1.2( B ) .
(c) All amounts of the Purchase
Price payable to the Sellers or refundable by the Sellers pursuant
to the provisions of Sections 1.6 and 1.7 hereof shall be allocated
among the Sellers pro rata based upon the number of
Shares being sold to the Buyer by each Seller as set forth on
E XHIBIT
1.1 .
1.3 Escrow. At the Closing,
$400,000 of the amount of the Closing Cash Payment, shall be
deposited in escrow by the Buyer (the “ Escrow Funds
”) pursuant to the terms of the Escrow Agreement in
substantially the form annexed hereto as E
XHIBIT 1.3 as
security for the payment of any post-closing claims of the Buyer
which may be asserted pursuant to this Agreement and to which the
Buyer shall become entitled pursuant to the terms of this
Agreement.
1.4 Closing . The closing of
the transactions contemplated by this Agreement (the “
Closing ”) will take place on the date hereof
immediately following the execution and delivery of this Agreement
(the “ Closing Date ”) either at the offices of
Morse, Barnes-Brown & Pendleton, P.C., 1601 Trapelo Road,
Waltham, MA 02451 or via mail unless another date or place (or
method of closing) is agreed to in writing by the Buyer and the
Sellers. At the Closing:
(a) The Buyer will deliver to the
Sellers $6,100,000 by wire transfer of immediately available funds
to an account maintained by the Sellers’ Committee, such
account to be designated by the Sellers’ Committee by written
notice to the Buyer not later than one business day prior to the
Closing Date for distribution to the Sellers pro rata
based upon the number of Shares being sold to the Buyer by each
Seller as set forth in E XHIBIT 1.1 .
(b) The Buyer will deliver $400,000,
by wire transfer of immediately available funds, to the escrow
agent (the “ Escrow Agent ”) specified in the
Escrow Agreement to be held by the Escrow Agent in accordance with
the terms of the Escrow Agreement.
(c) The appropriate parties will
enter into the Escrow Agreement, the Earnout Agreement and the
Employment Agreements (as hereinafter defined) (the “
Ancillary Agreements ”).
(d) The parties will execute and
deliver any other instruments, documents and certificates that are
required to be delivered pursuant to this Agreement or as may be
reasonably requested by any party in order to consummate the
transactions contemplated by this Agreement.
1.5 Closing Balance Sheet .
(a) As promptly as practicable after the Closing Date, the
Sellers’ Committee will cause a balance sheet of Stealth as
at the close of business on the Closing Date together with the
notes thereto (as may be revised by the Sellers’
Committee’s accountants (which may be the accountants engaged
by Stealth prior to the Closing), the “ Preliminary
Closing Balance Sheet ”) to be prepared, will cause such
accountants to review (and revise if necessary) the Preliminary
Closing Balance Sheet and to prepare a report based on such
Preliminary Closing Balance Sheet, as so reviewed, setting forth
its calculation of the net worth (i.e., total assets minus total
liabilities) of Stealth (“ Closing Net Worth ”)
as of the close of business on the Closing Date as shown on the
Preliminary Closing Balance Sheet, excluding the effect of (i) any
act or transaction after the Closing not in the ordinary course of
business of Stealth, and (ii) any application of so-called
“push down” and purchase accounting to the transactions
contemplated hereby. As promptly as practicable, but no later than
sixty (60) days after the Closing Date, the Sellers’
Committee will cause the Preliminary Closing Balance Sheet together
with the report of the Sellers’ Committee’s accountants
as to the Closing Net Worth to be delivered to the Buyer. Subject
to the provisions of clauses (i) and (ii) immediately above, the
Preliminary Closing Balance Sheet will (x) fairly present in all
material respects the financial
2
position of Stealth as at the close of business
on the Closing Date in accordance with generally accepted
accounting principles (“GAAP”) applied on a basis
consistent with those used in the preparation of the Unaudited
Balance Sheet (as defined in Section 2.5 below) as revised pursuant
to Section 1.6 below, (y) include line items substantially
consistent with those in the Unaudited Balance Sheet, and (z) be
prepared in accordance with accounting practices consistent with
those used in the preparation of the Unaudited Balance Sheet;
provided the Preliminary Closing Balance Sheet may include line
items in respect of tax refunds, including in respect of tax
refunds due for periods ending on or before the date of the
Unaudited Balance Sheet, regardless of any omission or
understatement thereof on the Unaudited Balance Sheet. The cost of
the preparation of the Preliminary Closing Balance Sheet shall be
borne equally by the Buyer and the Sellers.
(b) The parties hereto agree that
they will cooperate and assist in the preparation of the
Preliminary Closing Balance Sheet and the calculation of the
Closing Net Worth and in the conduct of the review referred to in
this Section 1.5, including without limitation the making available
to the extent necessary of books, records, work papers and
personnel.
(c) The Buyer may dispute any
amounts relating to the Closing Net Worth reflected on (including
any amounts omitted from) the Preliminary Closing Balance Sheet;
provided , however , that the Buyer shall have
notified the Sellers’ Committee in writing (the “
Dispute Notice ”) of the disputed items within 60
calendar days of the delivery to the Buyer of the Preliminary
Closing Balance Sheet, and shall have set forth, in such written
notice, (i) the amount in dispute for each such item and (ii) the
basis, in reasonable detail, for each such dispute. Whenever used
in this Agreement, the term accounting practices includes
accounting methods and policies.
(d) The Buyer’s accountants
and the Sellers’ Committee’s accountants shall attempt
to reconcile any items timely raised in the Dispute Notice. Any
written resolution by such accountants of any such disputed amounts
shall be final, binding and conclusive on the parties. If any such
written resolution by such accountants does not resolve all such
disputed items raised by the Buyer in the Dispute Notice permitted
to be raised by Section 1.5(c) within 10 calendar days after
receipt by the Seller’s Committee of the Buyer’s
Dispute Notice, the items timely raised in the Dispute Notice by
the Buyer permitted to be raised by Section 1.5(c) that remain in
dispute (the “ Remaining Disputed Items ”) shall
be submitted for resolution to an Independent Accounting Firm.
“ Independent Accounting Firm ” means an
accounting firm mutually appointed by the Sellers’ Committee
and the Buyer, preferably one of national reputation. Prior to its
engagement, the Independent Accounting Firm shall agree to (i)
resolve any Remaining Disputed Items and no others; and (ii) state
in its written report referred to below that, in its good faith
judgment, it has resolved all Remaining Disputed Items in
accordance with the provisions of this Section 1.5. The written
report of the Independent Accounting Firm shall be final, binding
and conclusive on the Buyer and the Sellers. The Independent
Accounting Firm shall have the privileges and immunities of
arbitrators and shall act in the capacity as arbitrators in
connection with the undertakings described above in this Section
1.5(d). The fees and disbursements of the Independent Account Firm
shall be allocated between the Buyer and the Sellers in the
proportion that the amounts submitted to the Independent Account
Firm that are unsuccessfully disputed (as finally determined by the
Independent Account Firm) by each such party bears to the total
disputed items so submitted.
3
(e) The Preliminary Closing Balance
Sheet, subject to any modifications thereto made pursuant to
section 1.5(d) in the event a Dispute Notice is delivered to the
Sellers’ Committee within the 60-day period set forth in
Section 1.5(c) (referred to herein as the “ Closing
Balance Sheet ”), shall be deemed final for the purposes
of this Section 1.5 upon the earliest of (i) the failure of the
Buyer to notify the Sellers’ Committee of a dispute pursuant
to Section 1.5(c) within 60 calendar days of delivery of the
Preliminary Closing Balance Sheet to the Buyer, (ii) the delivery
to the Sellers’ Committee and the Buyer of the written
resolution by Sellers’ Committee’s accountants and the
Buyer’s accountants of all disputes raised pursuant to
Section 1.5(c) by the Buyer or the written resolution thereof by
the Buyer and the Sellers’ Committee and (iii) the delivery
to the Sellers’ Committee and the Buyer of the written
resolution by the Independent Accounting Firm of all Remaining
Disputed Items.
1.6 Adjustment of Purchase
Price . The Purchase Price as negotiated by the parties hereto
is based upon the net worth of Stealth as reflected on the
Unaudited Balance Sheet, as such net worth shall be redetermined
based on such revisions to the Unaudited Balance Sheet as shall be
made by the Sellers’ Committee’s accountant and the
Buyer’s accountant in order for such revised balance sheet to
be restated in accordance with GAAP (the “ Base Net
Worth ”). If the Closing Net Worth exceeds the Base Net
Worth, the amount of the Purchase Price shall be increased by the
amount of such excess. In such event, within ten (10) days after
the date upon which the Closing Balance Sheet shall be deemed final
in accordance with the provision of Section 1.5(e), the Buyer shall
pay to the Sellers’ Committee for the benefit of the Sellers
the amount of the increase of the Purchase Price by wire transfer
or by bank cashier’s check in immediately available funds,
and the Sellers’ Committee shall promptly pay over such
amount to the Sellers in accordance with the provisions of Section
1.2(c) hereof. If the Closing Net Worth is less than the Base Net
Worth, the amount of the Purchase Price shall be reduced by an
amount equal to the excess of the Base Net Worth over the Closing
Net Worth. In such event, within ten (10) days after the date upon
which the Closing Balance Sheet shall be deemed final in accordance
with the provision of Section 1.5(e), each of the Sellers shall pay
over to the Buyer such Seller’s share of the amount of the
reduction of the Purchase Price by wire transfer or by bank
cashier’s check of immediately available funds in accordance
with the provisions of Section 1.2(c) hereof.
ARTICLE II
REPRESENTATIONS AND WARRANTIES RELATING TO
STEALTH
Except as set forth in the
disclosure schedule of Stealth dated as of the date hereof and
delivered herewith to the Buyer (the “ Stealth Disclosure
Schedule ”) which identifies the section and subsection
to which each disclosure therein relates (provided, however, that
Stealth will be deemed to have adequately disclosed with respect to
any section or subsection any matters that are clearly described
elsewhere in such document if the applicability of such disclosure
to such non-referenced sections or subsections is clearly apparent
to the Buyer), and whether or not the Stealth Disclosure Schedule
is referred to in a specific section or subsection, the
Principal
4
Stockholders (hereinafter defined) jointly and
severally represent and warrant to the Buyer as follows:
2.1 Organization, Standing and
Power; Subsidiaries . (a) Stealth is a corporation duly
organized, validly existing and in good standing under the laws of
New Jersey, has all requisite corporate power and authority to own,
lease and operate its properties and to carry on its businesses as
now being conducted and as it is proposed to be conducted, and is
duly qualified and in good standing to do business in each
jurisdiction in which a failure to so qualify, individually or in
the aggregate, would have a material adverse effect on the Business
Condition (as hereinafter defined) of Stealth (“ Material
Adverse Effect ”).
As used in this Agreement, “
Business Condition ” with respect to any Person (as
defined below) means the business, financial condition, results of
operations or assets (as defined below) (without giving effect to
the consequences of the transactions contemplated by this
Agreement, and other than changes in general economic conditions)
of such Person or Persons including its Subsidiaries taken as a
whole. In this Agreement, a “ Subsidiary ” of
any Person means a corporation, partnership, limited liability
company, joint venture or other entity of which such Person
directly or indirectly owns or controls a majority of the equity
interests or voting securities or other interests that are
sufficient to elect a majority of the Board of Directors or other
managers of such corporation, partnership, limited liability
company, joint venture or other entity. References to Stealth in
this Agreement shall be deemed to include all Subsidiaries of
Stealth, if any, unless the context specifically requires
otherwise. In this Agreement, “ Person ” means
any natural person, corporation, partnership, limited liability
company, joint venture or other entity.
(b) Stealth has delivered to the
Buyer complete and correct copies of the articles or certificate of
incorporation, bylaws and/or other primary charter and
organizational documents (“ Charter Documents ”)
of Stealth, in each case, as amended to the date hereof. The minute
books and stock records of Stealth, complete and correct copies of
which have been delivered to the Buyer, contain correct and
complete records (to the extent maintained by Stealth) of all
material proceedings and actions taken at all meetings of, or
effected by written consent of, the stockholders of Stealth and its
Board of Directors, and all original issuances and subsequent
transfers, repurchases and cancellations of Stealth’s capital
stock. Section 2.1 of the Stealth Disclosure Schedule contains a
complete and correct list of the officers and directors of
Stealth.
(c) Stealth has never owned, nor
does it currently own, directly or indirectly, any capital stock or
other equity securities of any corporation or have direct or
indirect equity or ownership interest in any partnership, limited
liability company, joint venture or other entity.
2.2 [Reserved]
2.3 Compliance with Laws and
Other Instruments; Non-Contravention . Stealth holds, and at
all times has held, all licenses, permits and authorizations from
all Governmental Entities (as defined below) necessary for the
lawful conduct of its business pursuant to all applicable statutes,
laws, ordinances, rules and regulations of all such Governmental
Entities having jurisdiction over it or any part of its operations,
excepting, however, when such failure to hold
5
would not reasonably be expected to have a
Material Adverse Effect. There are no material violations or
claimed violations known by the Principal Stockholders of any such
license, permit or authorization or any such statute, law,
ordinance, rule or regulation. Assuming the receipt of all Consents
(as defined below), neither the execution, delivery or performance
of this Agreement and all applicable Ancillary Agreements by
Stealth and/or the Sellers, nor the consummation of the
transactions described herein, does or will, after the giving of
notice, or the lapse of time, or otherwise (a) conflict with the
Charter Documents of Stealth, (b) conflict with, result in a breach
of, or constitute a default under any federal, foreign, state or
local court or administrative order or process, statute, law,
ordinance, rule or regulation, or any contract, agreement or
commitment to which Stealth is a party, or under which Stealth is
obligated, or by which Stealth or any of the rights, properties or
assets of Stealth are subject or bound, (c) result in the creation
of any Lien upon, or otherwise adversely affect, any of the rights,
properties or assets of Stealth, (d) terminate, amend or modify, or
give any party the right to terminate, amend, modify, abandon or
refuse to perform or comply with, any contract, agreement or
commitment to which Stealth is a party, or under which Stealth is
obligated, or by which Stealth or any of the rights, properties or
assets of Stealth are subject or bound, or (e) accelerate, postpone
or modify, or give any party the right to accelerate, postpone or
modify, the time within which, or the terms and conditions under
which, any liabilities, duties or obligations are to be satisfied
or performed, or any rights or benefits are to be received, under
any contract, agreement or commitment to which Stealth is a party,
or under which Stealth may be obligated, or by which Stealth or any
of the rights, properties or assets of Stealth are subject or
bound; except, in the cases of clauses (b) through (e), as would
not have a Material Adverse Effect. Section 2.3 of the Stealth
Disclosure Schedule sets forth each Major Contract (as hereinafter
defined) requiring a notice or consent (by its terms or as a result
of any conflict or other contravention required to be disclosed in
the Stealth Disclosure Schedule pursuant to the preceding
provisions of this Section 2.3) as a result of the execution,
delivery or performance of this Agreement and all other agreements
contemplated hereby by Stealth and/or the Sellers or the
consummation of the transactions described herein (each such notice
or consent, a “ Consent ”). No consent,
approval, order, or authorization of or registration, declaration,
or filing with or exemption (also a “ Consent ”)
by, any court, administrative agency or commission or other
governmental authority or instrumentality, whether domestic or
foreign (each a “ Governmental Entity ”) is
required by or with respect to Stealth in connection with the
execution, delivery or performance of this Agreement and all
applicable Ancillary Agreements by the Sellers or the consummation
of the transactions described herein.
2.4 Capitalization . (a)
Section 2.4 of the Stealth Disclosure Schedule sets forth (i) the
designation of each class of capital stock of Stealth, (ii) the
number of authorized shares of each class of capital stock of
Stealth and (iii) the number of outstanding shares of each class of
capital stock of Stealth, the holders of record thereof and the
addresses of such record holders. Section 2.4 of the Stealth
Disclosure Schedule also sets forth any options, warrants, calls,
conversion rights, commitments, agreements, contracts,
understandings, restrictions, arrangements or rights of any
character (each, a “ Stealth Option”) to which
Stealth is a party or by which Stealth may be bound obligating
Stealth to issue, deliver or sell, or cause to be issued, delivered
or sold, additional shares of the capital stock of Stealth, or
obligating Stealth to grant, extend, or enter into any such option,
warrant, call, conversion right, conversion payment, commitment,
agreement, contract, understanding, restriction, arrangement or
right. Except as so set forth, Stealth has no other phantom stock
or other equity interests.
6
(b) All outstanding shares of
Stealth capital stock are, and any shares of Stealth capital stock
issued upon exercise of any outstanding Stealth Options will be,
validly issued, fully paid, nonassessable and not subject to any
preemptive rights (other than those which have been duly waived),
or to any agreement to which Stealth is a party or by which Stealth
may be bound. Stealth does not have outstanding any bonds,
debentures, notes or other indebtedness the holders of which (i)
have the right to vote (or convertible or exercisable into
securities having the right to vote) with holders of shares of
Stealth capital stock on any matter (“ Stealth Voting
Debt ”) or (ii) are or will become entitled to receive
any payment as a result of the execution of this Agreement or the
completion of the transactions contemplated hereby. There are no
outstanding obligations of Stealth to repurchase, redeem or
otherwise acquire any equity securities.
2.5 Financial Statements;
Business Information . (a) Stealth has delivered to the Buyer
an unaudited balance sheet (the “ Unaudited Balance
Sheet ”) as of November 4, 2004 (the “ Unaudited
Balance Sheet Date ”). The Unaudited Balance Sheet: (i)
presents fairly, in all material respects, the financial position
of Stealth as of the date indicated; (ii) are consolidated, if
necessary, and (iii) have been prepared in accordance with
generally accepted accounting principles consistently applied
(subject to the absence of footnote disclosure and to year-end
adjustments, which will not be material either individually or in
the aggregate and except as described in the Section 2.5 of the
Stealth Disclosure Schedule). Since the Unaudited Balance Sheet
Date, Stealth has incurred no liabilities, claims or obligations of
any nature, whether accrued, absolute, contingent, anticipated or
otherwise (“Liabilities”) that would be required by
GAAP to be set forth in a balance sheet of the Business, other than
Liabilities (i) incurred in the ordinary course of business, (ii)
incurred by Stealth in connection with the preparation and
execution of this Agreement and the consummation of the
transactions contemplated herein, and (iii) that would not
reasonably be expected to have, individually or in the aggregate, a
Material Adverse Effect.
(b) All of the accounts, notes and
other receivables which are reflected in the Unaudited Balance
Sheet were acquired in the ordinary course of business; and all of
the accounts, notes and other receivables which are reflected
therein have been collected in full, or are good and collectible,
in the ordinary course of business; and all of the accounts, notes
and receivables that have been acquired by Stealth since the
Unaudited Balance Sheet Date were acquired in the ordinary course
of business and have been collected in full, or are good and
collectible in the ordinary course of business in each case subject
to a ten percent (10%) allowance for uncollectible trade
receivables. No accounts, notes or other receivables are contingent
upon the performance by Stealth of any obligation or contract. No
Person has any Lien on any of such receivables and no agreement for
deduction or discount has been made with respect thereto, and there
is no outstanding dispute or asserted right of set-off with respect
thereto.
7
2.6 Technology and Intellectual
Property Rights .
(a) For the purposes of this
Agreement, “ Stealth Intellectual Property ”
consists of the following intellectual property:
(i) (A) all patents, patent
applications and patent disclosures, together with all reissuances,
continuations, continuations-in-part, divisions, revisions,
extensions and re-examinations thereof, (B) all trademarks, service
marks, trade dress, logos, trade names, domain names and corporate
names, together with all translations, adaptations, derivations and
combinations thereof and including all goodwill associated
therewith, and all applications, registrations and renewals in
connection therewith, (C) all copyrights and copyrightable works
and all applications, registrations and renewals in connection
therewith and all moral rights relating thereto, (D) all mask works
and all applications, registrations and renewals in connection
therewith, (E) all trade secrets and confidential business
information (including inventions, know-how, formulas,
compositions, manufacturing and production process and techniques,
methods, schematics, technology, technical data, designs, drawings,
flowcharts, block diagrams, specifications, customer and supplier
lists, pricing and cost information and business and marketing
plans and proposals), and (F) all software and firmware (including
data, databases and related documentation);
(ii) all documents, records and
files relating to design, end user documentation, manufacturing,
quality control, sales, marketing or customer support for, and
tangible embodiments of, all intellectual property described
herein;
(iii) all other tangible or
intangible proprietary information and materials; and
(iv) all licenses, agreements and
other rights in any third party product or any third party
intellectual property described in (i) through (iii)
above;
that are owned or held by or on behalf of
Stealth or that are being used, or are currently under development
for use, in the business of Stealth as is currently or is currently
planned to be conducted; provided, however, that Stealth
Intellectual Property will not include any commercially available
third party software or related intellectual property.
(b) Section 2.6 of the Stealth
Disclosure Schedule lists: (i) all registered patents, copyright
registrations, mask works, trademarks, service marks, trade dress,
and any renewals, applications and registrations for any of the
foregoing, that are included in Stealth Intellectual Property and
owned by or on behalf of Stealth; (ii) all computer hardware
products and tools, computer software products and tools and
services that are currently sold, published, offered, or under
development by Stealth; and (iii) all licenses, sublicenses and
other agreements to which Stealth is a party and pursuant to which
Stealth or any other person is authorized to use any Stealth
Intellectual Property or exercise any other right with regard
thereto. The disclosures described in (iii) hereof include the
identities of the parties to the relevant agreements, a description
of the nature ( e.g. , “ License Agreement
”) and the date thereof.
(c) Each item of Stealth
Intellectual Property is either: (i) owned solely by Stealth free
and clear of any security interests, pledges, mortgage, liens,
charges, restrictions, claims, encumbrances or assessments of any
nature whatsoever (“ Liens ”); or (ii)
rightfully used and authorized for use by Stealth and its
successors pursuant to a valid and existing license. All Stealth
Intellectual Property that consists of license or other rights to
third party intellectual
8
property is separately set forth in Section 2.6
of the Stealth Disclosure Schedule. Stealth has all rights in
Stealth Intellectual Property necessary to carry out
Stealth’s current and former activities.
(d) Stealth is not, nor as a result
of the execution or delivery of this Agreement and all other
agreements contemplated hereby, or performance of Stealth’s
obligations hereunder or the consummation of the transactions
contemplated hereby, will Stealth be, in violation of any license,
sublicense or other agreement relating to any Stealth Intellectual
Property to which Stealth is a party or otherwise bound. Stealth is
not obligated to provide any consideration (whether financial or
otherwise) to any third party, nor is any third party otherwise
entitled to any consideration, with respect to any exercise of
rights by Stealth in Stealth Intellectual Property.
(e) To the Principal
Stockholders’ knowledge, the use, reproduction, modification,
distribution, licensing, sublicensing, sale, or any other exercise
of rights in any product, work, technology, service or process as
used, provided, or offered at any time, or as proposed for use,
reproduction, modification, distribution, licensing, sublicensing,
sale, or any other exercise of rights, by Stealth does not infringe
any copyright, patent, trade secret, trademark, service mark, trade
name, firm name, domain name, logo, trade dress, mask work, moral
right, other intellectual property right, right of privacy, or
right in personal data of any Person. No claims (i) challenging the
validity, effectiveness, or ownership by Stealth of any Stealth
Intellectual Property, or (ii) to the effect that the use,
reproduction, modification, manufacturing, distribution, licensing,
sublicensing, sale, or any other exercise of rights in any product,
work, technology, service, or process as used, provided or offered
at any time, or as proposed for use, reproduction, modification,
distribution, licensing, sublicensing, sale, or any other exercise
of rights, by Stealth infringes or will infringe on any
intellectual property or other proprietary or personal right of any
Person have been asserted to Stealth or, to the knowledge of the
Principal Stockholders, are threatened by any Person nor are there
any valid grounds for any bona fide claim of any such kind. There
are no legal or governmental proceedings, including interference,
re-examination, reissue, opposition, nullity, or cancellation
proceedings pending that relate to any Stealth Intellectual
Property, other than review of pending patent applications, and
Stealth is not aware of any information indicating that such
proceedings are threatened or contemplated by any Governmental
Entity or any other Person. All granted or issued patents and mask
works and all registered trademarks and copyright registrations
owned by Stealth are valid, enforceable and subsisting. To the
knowledge of the Principal Stockholders, there is no unauthorized
use, infringement, or misappropriation of any Stealth Intellectual
Property by any third party, employee or former
employee.
(f) Section 2.6 of the Stealth
Disclosure Schedule separately lists all parties (other than
employees) who have created any portion of, or otherwise have any
rights in or to, Stealth Intellectual Property. Stealth has secured
from all parties (including employees) who have created any portion
of, or otherwise have any rights in or to, Stealth Intellectual
Property valid and enforceable written assignments to Stealth of
any such work, invention, improvement or other rights and has
provided true and complete copies of such assignments to the
Buyer.
(g) During the three-year period
prior to the date of this Agreement, Stealth has obtained written
agreements from all employees and from third parties with whom
Stealth, to
9
the knowledge of the Principal Stockholders, has
shared confidential proprietary information (i) of Stealth or (ii)
received from others that Stealth is obligated to treat as
confidential and to obtain the written agreement of employees and
others to keep confidential, which agreements require such
employees and third parties to keep such information confidential
in accordance with the terms thereof. Stealth has made available
copies of such written agreements, under which an obligation of
confidentiality remains in effect, as executed, to the
Buyer.
(h) The transactions contemplated by
this Agreement shall not alter, impair or otherwise affect any
rights of Stealth in any Stealth Intellectual Property.
2.7 Absence of Certain Changes
and Events . Since the date of the Unaudited Balance Sheet
Date, there has not been, except as reflected in Section 2.7 of the
Stealth Disclosure Schedule:
(a) Any transaction involving more
than $50,000 entered into by Stealth other than in the ordinary
course of business; any change (or any development or combination
of developments of which Stealth has knowledge which is reasonably
likely to result in such a change) in Stealth’s Business
Condition, other than changes in the ordinary course of business
which in the aggregate have not had and are not expected to have a
Material Adverse Effect; or, without limiting the foregoing, any
loss of or damage to any of the properties of Stealth due to fire
or other casualty or other physical loss, whether or not insured,
amounting to more than $25,000 in the aggregate;
(b) Any declaration, setting aside
or payment of any dividend or other distribution with respect to
any shares of capital stock of Stealth, or any repurchase,
redemption, retirement or other acquisition by Stealth of any
outstanding shares of capital stock, any Stealth Option, or other
securities of, or other equity or ownership interests in,
Stealth;
(c) Any discharge or satisfaction of
any Lien or payment or satisfaction of any obligation or liability
(whether absolute, accrued, contingent or otherwise and whether due
or to become due) other than current liabilities shown on the
Unaudited Balance Sheet and current liabilities incurred since the
Unaudited Balance Sheet Date in the ordinary course of business and
consistent with past practice (“ ordinary course of
business ”);
(d) Any change in the Charter
Documents of Stealth or any amendment of any term of any
outstanding security of Stealth;
(e) Any incurrence, assumption or
guarantee by Stealth of any indebtedness for borrowed money other
than in the ordinary course of business and in an aggregate amount
exceeding $25,000;
(f) Any creation or assumption by
Stealth of any Lien on any asset, except for any Permitted Liens
(as hereinafter defined);
(g) Any making of any loan, advance
or capital contributions to, or investment in, any
Person;
10
(h) Any sale, lease, pledge,
transfer or other disposition of any material capital
asset;
(i) Any material transaction or
commitment made, or any material contract or agreement entered
into, by Stealth relating to its assets or business (including the
acquisition or disposition of any assets) or any relinquishment by
Stealth of any material contract or other material right, except in
each case in the ordinary course of Stealth’s
business;
(j) Any (A) grant of any severance
or termination pay to any director, officer or employee of Stealth,
(B) entering into of any employment, severance, management,
consulting, deferred compensation or other similar agreement (or
any amendment to any such existing agreement) with any director,
officer or employee of Stealth, (C) change in benefits payable
under existing severance or termination pay policies or employment,
severance, management, consulting or other similar agreements, (D)
change in compensation, bonus or other benefits payable to
directors, officers or employees of Stealth or (E) change in the
payment or accrual policy with respect to any of the
foregoing;
(k) Any labor dispute or any
activity or proceeding by a labor union or representative thereof
to organize any employees of Stealth, any lockouts, strikes,
slowdowns, work stoppages or threats thereof by or with respect to
any employees of Stealth or any employee terminations or layoffs
out of the ordinary course of business;
(l) Any notes or accounts receivable
or portions thereof written off by Stealth as uncollectible in an
aggregate amount exceeding $25,000;
(m) Any issuance or sale of any
stock, bonds, phantom stock interest or other securities of which
Stealth is the issuer, or the grant, issuance or change of any
stock options, warrants, or other rights to purchase securities of
Stealth or phantom stock interest in Stealth;
(n) Any cancellation of any debts or
claims or waiver of any rights of substantial value in an aggregate
amount exceeding $25,000;
(o) Any sale, assignment or transfer
of any Stealth Intellectual Property, including licenses
therefor;
(p) Any capital expenditures, or
commitment to make any capital expenditures, for additions to
property, plant or equipment in an aggregate amount exceeding
$25,000;
(q) Payment of any amounts to, or
liability incurred to or in respect of, or sale of any properties
or assets (real, personal or mixed, tangible or intangible) to, or
any transaction or any agreement or arrangement with, any
corporation or business in which Stealth or any of its corporate
officers or directors, or any “affiliate” or
“associate” (as such terms are defined in the rules and
regulations promulgated under the Securities Act of 1933, as
amended (the “ Securities Act ”) of any such
Person, has any direct or indirect ownership interests;
or
(r) Any agreement, undertaking or
commitment to do any of the foregoing.
11
As used in this Agreement, the term
“ Permitted Liens ” means (i) Liens for taxes,
assessments and governmental charges or levies not yet due and
payable; (ii) Liens imposed by law, such as materialmen’s,
mechanic’s carrier’s workmen’s and
repairmen’s liens and other similar liens arising in the
ordinary course of business securing obligations relating only to
the Companies that (A) are not overdue for a period of more than 90
days and (B) do not exceed $50,000 for any one matter or $100,000
in the aggregate at any time; (iii) with respect to Real Property,
imperfections of title, liens, security interests and other
encumbrances the existence of which, individually and in the
aggregate, do not interfere with the current use of the property
encumbered thereby, and (A) were not incurred in connection with
any indebtedness, (B) do not render title to the Real Property
encumbered thereby unmarketable and (C) do not, individually or in
the aggregate, materially adversely affect the value or use of such
Real Property for its current purposes or planned purposes within
the next nine (9) months; and (iv) pledges or deposits to secure
obligations under workers’ compensation laws or similar
legislation or to secure public or statutory obligations provided
that Permitted Liens exclude any of the foregoing as to which any
enforcement, collection, execution, levy or foreclosure proceeding
has been commenced unless Stealth has posted a bond in respect
thereof, and the amount, issuer and other terms of such bond is
reasonably satisfactory to the Buyer.
2.8 Taxes . (a) The term
“ Taxes ” as used herein means all federal,
state, local and foreign pre-tax income, alternative or add-on
minimum, estimated, gross income, gross receipts, sales, use, ad
valorem, value added, transfer, franchise, capital profits, lease,
service, license, withholding, payroll, employment, excise,
severance, stamp, occupation, premium, property, environmental or
windfall profit taxes, customs duties and other taxes, governmental
fees and other like assessments and charges of any kind whatsoever
(including Tax liabilities incurred or borne as a transferee or
successor, or by contract or otherwise), together with all
interest, penalties, additions to tax and additional amounts with
respect thereto, and the term “ Tax ” means any
one of the foregoing Taxes. The term “ Tax Returns
” as used herein means all returns, declarations, reports,
claims for refund, information statements and other documents
relating to Taxes, including all schedules and attachments thereto,
and including all amendments thereof, and the term “ Tax
Return ” means any one of the foregoing Tax Returns.
“ Tax Authority ” means any governmental
authority responsible for the imposition of any Tax.
(b) Stealth has timely filed all Tax
Returns required to be filed (determined without regard to
extensions). Stealth has paid all Taxes owed (whether or not shown,
or required to be shown, on Tax Returns). Stealth has withheld and
paid all Taxes required to have been withheld and paid in
connection with amounts paid or owing to any employee, independent
contractor, creditor, stockholder, or other third party. All Tax
Returns filed by Stealth were complete and correct in all respects,
and such Tax Returns correctly reflected the facts regarding the
income, business, assets, operations, activities, status and other
matters of Stealth and any other information required to be shown
thereon. None of the Tax Returns filed by Stealth contains a
disclosure statement under former Section 6661 of the Internal
Revenue Code of 1986, as amended or recodified (the
“Code”) or Section 6662 of the Code (or any similar
provision of state, local or foreign Tax law). There are no liens
for Taxes upon any of Stealth’s assets, other than Liens for
ad valorem Taxes not yet due and payable.
(c) None of the Tax Returns filed by
Stealth or Taxes payable by Stealth have been the subject of an
audit, action, suit, proceeding, claim, examination, deficiency
or
12
assessment by any Governmental Entity, and no
such audit, action, suit, proceeding, claim, examination,
deficiency or assessment is currently pending or, to the knowledge
of the Principal Stockholders, threatened.
(d) Stealth is not currently the
beneficiary of any extension of time within which to file any Tax
Return, and Stealth has not waived any statute of limitation with
respect to any Tax or agreed to any extension of time with respect
to a Tax assessment or deficiency.
(e) Stealth is not a party to any
agreement, contract, arrangement or plan that has resulted or would
result, separately or in the aggregate, in the payment of (i) any
“excess parachute payments” within the meaning of
Section 280G of the Code (without regard to the exceptions set
forth in Sections 280G(b)(4) and 280G(b)(5) of the Code) or (ii)
any amount for which a deduction would be disallowed or deferred
under Section 162 or Section 404 of the Code. None of the shares of
outstanding capital stock of Stealth are subject to a
“substantial risk of forfeiture” within the meaning of
Section 83 of the Code.
(f) Stealth is not a party to or
member of any joint venture, partnership, limited liability company
or other arrangement or contract which could be treated as a
partnership for federal income tax purposes. Stealth has never
filed a consent pursuant to Section 341(f) of the Code, relating to
collapsible corporations, and Section 341(f)(2) of the Code does
not apply to any of Stealth’s assets. Stealth is not, and has
not been, a U.S. real property holding company (as defined in
Section 897(c)(2) of the Code) during the applicable period
specified in Section 897(c)(1)(A)(ii) of the Code. Stealth does not
own an interest in real property in any jurisdiction in which a Tax
is imposed, or the value of the interest reassessed, on the
transfer of an interest in real property and which treats the
transfer of an interest in an entity that owns an interest in real
property as a transfer of the interest in real property. Stealth
has never been either a “controlled corporation” or a
“distributing corporation” (within the meaning of
Section 355(a)(1)(A) of the Code) with respect to a transaction
that was described in, or intended to qualify as a tax-free
transaction pursuant to Section 355 of the Code. Stealth does not
have net operating losses or other tax attributes presently subject
to limitation under Sections 382, 383 or 384 of the Code, or the
federal consolidated return regulations (other than limitations
imposed as a result of the transactions contemplated by this
Agreement). Stealth has not made or agreed to make any adjustment
under Section 481(a) of the Code (or any corresponding provision of
state, local or foreign Tax law) by reason of a change in
accounting method or otherwise, and will not be required to make
such an adjustment as a result of the transactions contemplated by
this Agreement. Since January 1, 2000, Stealth has not had in
effect (i) an election under Section 1362 of the Code to be treated
as an S corporation for federal income tax purposes or (ii) a
similar election under any comparable provision of any state, local
or foreign Tax law. Stealth does not own, directly or indirectly,
any interests in an entity that has been or would be treated as a
“passive foreign investment company” within the meaning
of Section 1297 of the Code or as a “controlled foreign
corporation” within the meaning of Section 957 of the
Code.
(g) Stealth is not a party to any
Tax sharing agreement or similar arrangement (including, but not
limited to, an indemnification agreement or arrangement). Stealth
has never been a member of a group filing a consolidated federal
income Tax Return or a combined, consolidated, unitary or other
affiliated group Tax Return for state, local or foreign Tax
purposes (other than a group the common parent of which is
Stealth), and Stealth does not have any
13
liability for the Taxes of any Person (other
than Stealth itself) under Treasury Regulation Section 1.1502-6 (or
any corresponding provision of state, local or foreign Tax law), or
as a transferee or successor, or by contract, or
otherwise.
(h) The unpaid Taxes of Stealth did
not, as of the date of the Unaudited Balance Sheet exceed the
reserve for actual Taxes (as opposed to any reserve for deferred
Taxes established to reflect timing differences between book and
Tax income) as shown on the Unaudited Balance Sheet, and will not
exceed such reserve as adjusted for the passage of time through the
Closing Date in accordance with the reasonable past custom and
practice of Stealth in filing Tax Returns. Stealth does not expect
to incur any liability for Taxes from the date of the Unaudited
Balance Sheet through the Closing Date other than in the ordinary
course of business and consistent with reasonable past
practice.
(i) Section 2.8 of the Stealth
Disclosure Schedule contains a list of all jurisdictions (whether
foreign or domestic) to which any Tax is properly payable by
Stealth. No claim has ever been made by a Tax Authority in a
jurisdiction where Stealth does not file Tax Returns that Stealth
is or may be subject to Tax in that jurisdiction. Stealth does not
have and never had a permanent establishment or other taxable
presence in any foreign country, as determined pursuant to
applicable foreign law and any applicable Tax treaty or convention
between the United States and such foreign country.
(j) Stealth has delivered to the
Buyer correct and complete copies of all U.S. federal income tax
returns, examination reports, and statements of deficiencies
assessed against or agreed to by Stealth since December 31,
2000.
2.9 Leases in Effect . Each
personal property lease and subleases as to which Stealth is a
party that requires annual payments by Stealth in excess of $25,000
and any amendments or modifications thereof are listed in Section
2.9 of the Stealth Disclosure Schedule (each a “ Lease
” and collectively, the “ Leases ”), are
valid, in full force and effect and enforceable, and there are no
existing defaults on the part of Stealth, and Stealth has not
received or given notice of default or claimed default with respect
to any Lease, nor is there any event that with notice or lapse of
time, or both, would constitute a default on the part of Stealth
thereunder.
2.10 Owned Personal Property;
Real Estate . (a) Stealth has good and marketable title, free
and clear of all title defects and Liens (including, without
limitation, leases, chattel mortgages, conditional sale contracts,
purchase money security interests, collateral security arrangements
and other title or interest-retaining agreements, but excepting
Liens disclosed in the Financial Statements, Liens for ad valorem
Taxes not yet due and payable (and for which adequate accruals or
reserves have been established), or Liens which do not materially
detract from the value of the property as now used, or materially
interfere with any present or intended use of Stealth’s
personal property, or are otherwise Permitted Liens) to all
inventory, receivables, furniture, machinery, equipment and other
personal property, tangible or otherwise, reflected on the
Unaudited Balance Sheet or used in Stealth’s business, except
for acquisitions and dispositions since the Unaudited Balance Sheet
Date in the ordinary course of business. Section 2.10 of the
Stealth Disclosure Schedule lists (i) all computer equipment and
(ii) all other personal property, in each case having a depreciated
book value of $25,000 or more, which are used by Stealth in the
conduct of its business. The assets owned or leased by Stealth, or
which it otherwise has the right to use, constitute all of the
assets held for use or used in connection with its business and are
generally adequate to conduct its business as currently
conducted.
14
(b) Section 2.10 of the Stealth
Disclosure Schedule contains a schedule setting forth and
describing all real property which is leased by Stealth, or in
which Stealth has any other right, title or interest. Stealth does
not own any real property. True and complete copies of each such
lease have been provided to the Buyer, and such leases constitute
the entire agreement relating to Stealth’s use and occupancy
of the leased premises. The leases are presently in full force and
effect without further amendment or modification. Stealth is not in
default in the performance of obligations under any lease, and
Stealth does not know of any state of facts which with the giving
of notice or the passage of time, or both, would constitute a
default by Stealth or any other party thereunder.
(c) To the knowledge of the
Principal Stockholders, the improvements located on the real
property described in Section 2.10 of the Stealth Disclosure
Schedule are not the subject of any official complaint or notice of
violation of any applicable zoning ordinance or building code and
there is no use or occupancy restriction, except as set forth on
Section 2.10(c) of the Stealth Disclosure Schedule, or
condemnation proceeding pending or threatened against
Stealth.
2.11 Litigation and Other
Proceedings . To the knowledge of the Principal Stockholders,
there is no action, suit, claim, investigation or proceeding (or
any basis therefor known to Stealth) pending against Stealth, or
involving Stealth as plaintiff, or to the knowledge of the
Principal Stockholders, affecting Stealth or any of its assets or
properties or the transactions contemplated hereby, before any
court or arbitrator or any Governmental Entity. Stealth is not
subject to any order, writ, judgment, decree, or injunction that
has a Material Adverse Effect.
2.12 Major Contracts .
Stealth is not a party to or subject to any of the following
contracts or agreements (“ Major Contracts
”):
(a) Any union contract, or any
employment contract or arrangement (other than
“at-will” employment arrangements) providing for future
compensation, written or oral, with any officer, consultant,
director, or employee;
(b) Any plan or contract or
arrangement, written or oral, providing for bonuses, pensions,
deferred compensation, retirement payments, profit-sharing or the
like;
(c) Any joint venture contract or
arrangement or any other agreement which has involved or is
expected to involve a sharing of profits;
(d) Any OEM agreement, reseller or
distribution agreement, sales agency agreement, volume purchase
agreement, corporate end user sales or service agreement,
reproduction or replication agreement or manufacturing agreement in
which the amount involved exceeds annually, or is expected to
exceed in the aggregate over the life of the contract, $50,000 or
pursuant to which Stealth has granted or received manufacturing
rights, most favored nation pricing provisions, or exclusive
marketing, production, publishing or distribution rights related to
any product, group of products or territory;
15
(e) Any lease for real property, and
any lease for personal property in which the amount of payments
which Stealth is required to make on an annual basis exceeds
$50,000;
(f) Any material agreement, license,
franchise, permit, indenture, or authorization which has not been
terminated or performed in its entirety and not renewed which may
be, by its terms, terminated, impaired, or adversely affected by
reason of the execution of this Agreement and all other agreements
contemplated hereby, the consummation of the transactions
contemplated hereby, or the consummation of the transactions
contemplated hereby or thereby;
(g) Except for trade indebtedness
incurred in the ordinary course of business, any instrument
evidencing or related in any way to indebtedness incurred in the
acquisition of companies or other entities or indebtedness for
borrowed money by way of direct loan, sale of debt securities,
purchase money obligation, conditional sale, guarantee, or
otherwise which individually is in the amount of $10,000 or
more;
(h) Any license agreement, either as
licensor or licensee (excluding nonexclusive hardware and software
licenses granted to distributors or end-users and commercially
available in-licensed software applications);
(i) Any contract or agreement
containing covenants purporting to limit Stealth’s freedom to
compete in any line of business in any geographic area;
or
(j) Any contract or agreement, not
elsewhere specifically disclosed pursuant to this Agreement,
involving the payment or receipt by Stealth of more than $25,000 in
the aggregate, or that is otherwise material to Stealth, except for
purchase and sale orders entered into in the ordinary course of
business.
Since the Unaudited Balance Sheet Date, Stealth
has not amended, modified or terminated the terms of the Major
Contracts referred to in this Section 2.12 unless such amendment,
modification or termination was in the ordinary course of business
and Stealth has provided the Buyer with written notification of
such.
2.13 No Defaults . Stealth is
not, nor has Stealth received notice that it would be with the
passage of time, in default or violation of any term, condition, or
provision of (i) the Charter Documents; (ii) any judgment, decree,
or order naming Stealth as a party, or, to the knowledge of the
Principal Stockholders, otherwise applicable to Stealth or (iii)
any loan or credit agreement, note, bond, mortgage, indenture,
contract, agreement, lease, license, or other instrument to which
Stealth is now a party or by which it or any of its properties or
assets may be bound, except for defaults and violations which,
individually or in the aggregate, would not have a Material Adverse
Effect
2.14 Employees . (a) Section
2.14(a) of the Stealth Disclosure Schedule accurately sets forth,
with respect to each employee of Stealth (i) the name of such
employee and the date as of which such employee was originally
hired by Stealth, and whether the employee is on an active or
inactive status; (ii) such employee’s title; (iii) if such
employee is not an employee “at will”; (iv) such
employee’s current annualized salary or wage rate and the
amounts of compensation in Stealth’s last fiscal year paid or
accrued for such employee for base salary, vacation and/or
paid
16
time off accrual amounts, bonus and/or
commissions, and any other compensation forms; (v) each current
benefit plan in which such employee participates or is eligible to
participate; (vi) any governmental authorization that is held by
such employee and that is used in connection with Stealth’s
business; and (vii) whether the employee has executed
Stealth’s standard confidentiality, inventions and
non-competition agreement.
(b) Section 2.14(b) of the Stealth
Disclosure Schedule accurately sets forth a list of individuals who
are currently performing services for Stealth and are classified as
“consultants” or “independent contractors,”
the respective compensation of each such “consultant”
or “independent contractor” and whether Stealth is
party to a consulting or independent contractor agreement with the
individual, all of which are set forth in Section 2.14(b) of the
Stealth Disclosure Schedule. Any persons engaged by Stealth as
independent contractors, rather than employees, have been properly
classified as such and have been engaged in accordance with all
applicable foreign, federal, state and/or local laws.
(c) There is no former Stealth
employee to whom Stealth is obligated to provide or who is
receiving or is scheduled to receive (or whose spouse or other
dependent is receiving or is scheduled to receive) any benefits
(whether from Stealth or otherwise) relating to such former
employee’s employment with Stealth, except as may be required
by Section 4908B of the Code or, if applicable, state
law.
(d) The employment of each of the
Stealth’s employees is terminable by Stealth at-will. All
agreements that provide that a Stealth employee is not employed
at-will are identified in Section 2.14(d) of the Stealth Disclosure
Schedule.
(e) Stealth has delivered to the
Buyer accurate and complete copies of all employee manuals and
handbooks, employment policy statements, employment agreements, and
other materials relating to the employment of the current Stealth
employees.
(f) Since the Unaudited Balance
Sheet Date, no senior management employee or technical employee of
Stealth has given Stealt
