EXHIBIT 2.1
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
ADVANCED PHOTONIX, INC.,
MICHIGAN ACQUISITION SUB, LLC,
PICOTRONIX, INC.,
▇▇▇▇▇ ▇▇▇▇▇▇, &
▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇
Dated as of March 8, 2005
Article 1 CERTAIN DEFINITIONS....................................................................................1
Article 2 THE MERGER.............................................................................................4
2.1 The Merger.....................................................................................4
2.2 Consent of Stockholders........................................................................4
2.3 Effective Time; Closing........................................................................4
2.4 Effect of the Merger...........................................................................5
2.5 Articles of Organization; Operating Agreement..................................................5
2.6 Merger Consideration...........................................................................5
2.7 Withholding Taxes..............................................................................6
2.8 Stockholder Loans..............................................................................6
2.9 Shares Subject to Repurchase...................................................................6
2.10 No Assumption of Company Options...............................................................6
2.11 Subsequent Parties.............................................................................6
Article 3 REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE STOCKHOLDERS.....................................7
3.1 Organization of the Company....................................................................7
3.2 Company Capital Structure......................................................................7
3.3 Subsidiaries...................................................................................8
3.4 Authority......................................................................................8
3.5 No Conflict....................................................................................9
3.6 Consents.......................................................................................9
3.7 Company Financial Statements..................................................................10
3.8 No Undisclosed Liabilities....................................................................10
3.9 No Changes....................................................................................10
3.10 Tax Matters...................................................................................12
3.11 Restrictions on Business Activities...........................................................13
3.12 Title to Properties; Absence of Liens and Encumbrances; Condition of Equipment;
Customer Information..........................................................................14
3.13 Intellectual Property.........................................................................15
3.14 Agreements, Contracts and Commitments.........................................................19
3.15 Interested Party Transactions.................................................................19
3.16 Governmental Authorizations...................................................................20
3.17 Litigation....................................................................................20
3.18 Accounts Receivable...........................................................................20
3.19 Minute Books..................................................................................20
3.20 Environmental Matters.........................................................................20
3.21 Brokers and Finders; Fees.....................................................................22
3.22 Employee Benefit Plans and Compensation.......................................................22
3.23 Insurance.....................................................................................26
3.24 Foreign Corrupt Practices Act.................................................................27
3.25 Complete Copies...............................................................................27
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Article 4 ADDITIONAL REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDERS.........................................27
4.1 Ownership of Company Capital Stock............................................................27
4.2 Absence of Claims by the Stockholders.........................................................27
4.3 No Conflict...................................................................................27
4.4 Authority.....................................................................................27
4.5 Securities Law Matters........................................................................28
Article 5 REPRESENTATIONS AND WARRANTIES OF API.................................................................29
5.1 Organization, Standing and Power..............................................................29
5.2 Authority.....................................................................................29
5.3 No Conflict...................................................................................30
5.4 Consents......................................................................................30
5.5 Litigation....................................................................................30
5.6 Securities Compliance.........................................................................30
5.7 Brokers or Finders............................................................................30
5.8 API Stock.....................................................................................31
5.9 Entity Classification.........................................................................31
Article 6 COMPANY CONDUCT PRIOR TO THE CLOSING DATE.............................................................31
6.1 Conduct of Business of the Company............................................................31
6.2 No Solicitation...............................................................................33
6.3 Disclosure of Solicitation....................................................................34
6.4 Injunctive Relief.............................................................................34
6.5 Procedures for Requesting API Consent.........................................................34
Article 7 ADDITIONAL AGREEMENTS.................................................................................35
7.1 Termination of Options .......................................................................35
7.2 Due Diligence.................................................................................35
7.3 Confidentiality...............................................................................35
7.4 Expenses......................................................................................36
7.5 Public Disclosure.............................................................................36
7.6 Consents......................................................................................36
7.7 FIRPTA Compliance.............................................................................36
7.8 Reasonable Efforts............................................................................36
7.9 Notification of Certain Matters...............................................................37
7.10 Additional Documents and Further Assurances...................................................37
7.11 Closing Date Balance Sheet....................................................................37
7.12 Statement of Expenses.........................................................................37
7.13 Proprietary Information and Inventions Assignment Agreement...................................37
7.14 Release of Liens..............................................................................37
7.15 Stockholder Information.......................................................................37
7.16 DP1 Debt......................................................................................38
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Article 8 CONDITIONS TO THE CLOSING.............................................................................38
8.1 Conditions to Obligations of API, the Sub, the Company and the Stockholders...................38
8.2 Conditions to the Obligations of API and the Sub..............................................38
8.3 Conditions to Obligations of the Company and Stockholders.....................................41
Article 9 INDEMNITY.............................................................................................42
9.1 Survival of Representations and Warranties....................................................42
9.2 Stockholders Indemnification..................................................................42
9.3 API Indemnification...........................................................................43
9.4 Deductibles...................................................................................43
9.5 Claims for Indemnification; Objections to Claims..............................................44
9.6 Claims Among the Parties......................................................................44
9.7 Third-Party Claims............................................................................46
9.8 Stockholder Representative....................................................................47
9.9 Maximum Payments; Remedy; Method of Payment...................................................48
9.10 API's Right of Offset.........................................................................48
Article 10 TERMINATION, AMENDMENT AND WAIVER....................................................................49
10.1 Termination...................................................................................49
10.2 Effect of Termination.........................................................................50
10.3 Amendment.....................................................................................50
10.4 Extension; Waive..............................................................................50
Article 11 GENERAL PROVISIONS...................................................................................51
11.1 Notices.......................................................................................51
11.2 Interpretation................................................................................52
11.3 Counterparts..................................................................................52
11.4 Entire Agreement; Assignment..................................................................52
11.5 Severability..................................................................................52
11.6 Other Remedies................................................................................52
11.7 Governing Law.................................................................................52
11.8 Rules of Construction.........................................................................52
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EXHIBITS
Exhibit A Certificates of Merger
Exhibit B Form of API Promissory Note
Exhibit C Form of Security Agreement
Exhibit D Form of Note for API Loan
Exhibit D-1 Form of Security Agreement
Exhibit E Form of Intercreditor Agreement
Exhibit F Form of ▇▇▇▇▇▇ Employment Agreement
Exhibit G Form of ▇▇▇▇▇▇▇▇▇▇ Employment Agreement
SCHEDULES
Schedule 2.1 List of Stockholders and Company Common Stock Held
Schedule 6.1 Conduct of Business Exceptions
Schedule 8.2.3 Liens to be Released
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THIS AGREEMENT AND PLAN OF MERGER (this "Agreement") is made and entered
into as of March 8th, 2005 by and among ADVANCED PHOTONIX, INC., a Delaware
corporation ("API"), Michigan Acquisition Sub, LLC, a Delaware limited liability
company and a wholly-owned subsidiary of API (the "Sub"), PICOTRONIX, INC., a
Michigan corporation, doing business as Picometrix, Inc. (the "Company"), ▇▇▇▇▇
▇▇▇▇▇▇ ("▇▇▇▇▇▇"), ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇ ("▇▇▇▇▇▇▇▇▇▇" and together with ▇▇▇▇▇▇, the
"Stockholders").
The Boards of Directors of each of API and the Company and the sole member
of Sub have determined that it is in the best interests of each company and its
respective stockholders and owners that API acquire the Company through the
statutory merger of the Company with and into the Sub (the "Merger") and, in
furtherance thereof, have approved the Merger.
The Board of Directors of the Company unanimously approved the Merger and
has recommended that the Stockholders approve the Merger as required by Section
703a of the Michigan Business Corporation Act, as amended (the "MBCA").
Pursuant to the Merger, among other things, all of the issued and
outstanding Company Capital Stock shall be converted into the right to receive
the Merger Consideration (as the terms Company Capital Stock and Merger
Consideration are hereinafter defined).
The Stockholders own all of the issued and outstanding capital stock of the
Company, and by their signatures below, hereby approve the Merger.
API, the Company and the Stockholders intend for the Merger to qualify as a
reorganization under Section 368(a)(1)(A) of the Code.
NOW, THEREFORE, in consideration of the mutual agreements, covenants and
other promises set forth herein, the mutual benefits to be gained by the
performance thereof, and for other good and valuable consideration, the receipt
and sufficiency of which are hereby acknowledged and accepted, the parties
hereby agree as follows:
Article 1
CERTAIN DEFINITIONS
Capitalized terms used herein and not otherwise defined shall have the
following meanings:
1.1 "Bloomberg" means Bloomberg Financial Markets.
1.2 "Closing Date" means that term as it is defined in Section 2.3 hereof.
1.3 "Market Price" means $1.66, being the price of API's Class A Common
Stock as of the close of business on the business day immediately preceding the
date hereof.
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1.4 "Code" means the Internal Revenue Code of 1986, as amended.
1.5 "Coherent Debt" means the indebtedness in the original principal amount
of $6 million issued by the Company to Coherent, Inc. (a) as evidenced by (i)
that certain Loan Agreement, dated as of August 28, 2002, and (ii) that certain
Promissory Note (the "Original Note") made by the Company in favor of Coherent,
Inc. in the original principal amount of $6 million, and (b) secured pursuant to
that certain Security Agreement, dated as of August 28, 2002, all as
subsequently assigned by Coherent, Inc. to DP1, LLC ("DP1") pursuant to that
certain Assignment and Assumption Agreement, dated as of September 30, 2004,
among the Company, Coherent, Inc. and DP1 which assignment resulted in the
Original Note being replaced by that certain Amended and Restated Promissory
Note dated as of September 30,2004, in the initial aggregate principal amount of
$4,000,000 made by the Company in favor of DP1 (the "DP1Debt").
1.6 "Company Capital Stock" means, collectively, the Company's Class A,
non-voting Common Shares and the Company's Class B, voting Common Shares.
1.7 "Company Options" means all options to acquire the Company's Class A
Common Stock issued and outstanding under the Plan.
1.8 "Company Unvested Common Stock" means any shares of Company Common
Stock that are subject to unvested Company Options or are subject to a
repurchase option in favor of the Company, risk of forfeiture or other condition
under any applicable stock restriction agreement or other agreement with the
Company.
1.9 "Estimated Third Party Expenses" means the amount of Third Party
Expenses (as defined in Section 7.4 hereof) paid or payable by the Company,
estimated by the Company in good faith and based on reasonable assumptions as of
the Closing Date or other relevant date.
1.10 "GAAP" means accounting principles generally accepted in the United
States consistently applied.
1.11 "Knowledge" or "Known" means, with respect to the Company or the
Stockholders, the actual knowledge of the Stockholders.
1.12 "Lien" means any lien, pledge, charge, claim, mortgage, security
interest or other encumbrance of any sort.
1.13 "Material Adverse Effect" means any change, event or effect that is
materially adverse to the business, assets (whether tangible or intangible),
condition (financial or otherwise), prospects or results of operations of the
Company and its subsidiaries, taken as a whole, other than any such change,
event or effect that results or arises from: (a) changes or conditions affecting
the industry in which the Company markets its products and services generally,
except to the extent such changes or conditions disproportionately affect the
Company and its subsidiaries, taken as a whole; or (b) changes in general
economic, regulatory or political conditions, except to the extent such changes
or conditions disproportionately affect the Company and its subsidiaries, taken
as a whole.
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1.14 "Ordinary Course of Business" means an action taken by a Person only
if:
1.14.1 such action is consistent with the past practices of such
Person and is taken in the ordinary course of the normal day-to-day
operations of such Person;
1.14.2 such action is not required to be authorized by the board of
directors of such Person (or by any Person or group of Persons exercising
similar authority); and
1.14.3 such action is similar in nature and magnitude to actions
customarily taken, without any authorization by the board of directors (or
by any Person or group of Persons exercising similar authority), in the
ordinary course of the normal day-to-day operations of other Persons that
are in the same line of business as such Person.
1.15 "Person" means any individual, corporation (including any non-profit
corporation), general or limited partnership, limited liability company, joint
venture, estate, trust, association, organization, labor union or other entity.
1.16 "Plan" means the Picometrix, Inc. 2000 Incentive Stock Option Plan, as
amended.
1.17 "Prime Rate" means as of a particular date, the prime rate of interest
as published on that date in The Wall Street Journal (Eastern Edition), and
generally defined therein as "the base rate on corporate loans posted by at
least 75% of the nation's 30 largest banks." If The Wall Street Journal is not
published on a date for which the Prime Rate must be determined, the Prime Rate
shall be the prime rate published in The Wall Street Journal on the
nearest-preceding date on which The Wall Street Journal was published.
1.18 "Pro Rata Portion" means, with respect to each Stockholder (or each
share of Company Capital Stock), an amount equal to the quotient obtained by
dividing (a) a number of shares of Company Capital Stock owned by such
Stockholder as at the Closing Date (or such share of Company Capital Stock), by
(b) the aggregate number of shares of Company Capital Stock issued and
outstanding immediately prior to the Closing Date.
1.19 "Related Agreements" means and includes any of the Agreements and
promissory notes attached hereto as an Exhibit or any other agreement that the
parties may enter in to in connection with the consummation of the transactions
contemplated hereby.
1.20 "Stockholder" means any holder of any Company Capital Stock.
1.21 "Stockholder Representative" means the representative of the
Stockholders for certain purposes under this Agreement, who shall be a
Stockholder and shall initially be ▇▇▇▇▇▇.
1.22 "Taxes" means (a) any and all federal, state, local and foreign taxes,
assessments and other governmental charges, duties, impositions and liabilities,
including taxes based upon or measured by gross receipts, income, profits,
sales, use and occupation, and value added, ad valorem, transfer, franchise,
withholding, payroll, recapture, employment, excise and property taxes as well
as public imposts, fees and social security charges (including, without
limitation, health, unemployment and pension insurance), together with all
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interest, penalties and additions imposed with respect to such amounts, (a) any
liability for the payment of any amounts of the type described in Section
3.10.11 hereof as a result of being a member of an affiliated, consolidated,
combined or unitary group for any period, and (b) any liability for the payment
of any amounts of the type described in the forgoing clauses (a) or (b) as a
result of any express or implied obligation to indemnify any other Person or as
a result of any obligation under any agreement or arrangement with any other
Person with respect to such amounts and including any liability for taxes of a
predecessor entity.
Article 2
THE MERGER
2.1 The Merger. At the Effective Time (as defined in Section 2.3 hereof)
and subject to and upon the terms and conditions of this Agreement and the
provisions of Chapter 7 of the MBCA and Subchapter IX of the Delaware General
Corporation Law, as amended the "DGCL"), the Company shall be merged with and
into the Sub, the separate corporate existence of the Company, shall cease, the
Sub shall succeed to all rights, assets, liabilities, properties, privileges,
powers, franchises and obligations of the Company in accordance with the MBCA
and the DGCL, and the Sub shall continue as the surviving entity and as a
wholly-owned subsidiary of API. The Sub, as surviving entity after the Merger,
is sometimes referred to hereinafter as the "Surviving Entity."
2.2 Consent of Stockholders. The Stockholders own all of the issued and
outstanding capital stock of the Company, and by execution of this Agreement, do
hereby consent to the Merger and approve this Agreement for purposes of Section
703a of the MBCA and do further hereby waive the dissenters' rights without a
meeting for purposes of Section 764(2) of the MBCA.
2.3 Effective Time; Closing. Unless this Agreement is earlier terminated
pursuant to Section 10.1 hereof, the closing of the Merger (the "Closing") will
take place as promptly as practicable after the execution and delivery hereof by
the parties hereto and satisfaction or waiver of the conditions set forth in
Article 8 hereof (other than those conditions which, by their terms, are to be
satisfied or waived at Closing), at 10:00 a.m., local time, at the offices of
API, unless another time or place is mutually agreed upon in writing by parties
hereto. The date upon which the Closing actually occurs shall be referred to
herein as the "Closing Date." On the Closing Date, the parties hereto shall
cause the Merger to be consummated by filing Certificates of Merger in
substantially the forms attached hereto as Exhibit A (the "Certificates of
Merger"), with the Michigan Department of Labor and Economic Growth (the
"Department") and with the Secretary of State of the State of Delaware (the
"Secretary"), in accordance with the applicable provisions of Michigan and
Delaware law (the time that the latter of such filings has been endorsed by both
the Department or the Secretary, as applicable, shall be referred to herein as
the "Effective Time").
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2.4 Effect of the Merger. At the Effective Time, the effect of the Merger
shall be as provided in the applicable provisions of Michigan and Delaware law.
Without limiting the generality of the foregoing, and subject thereto, at the
Effective Time, except as otherwise agreed to pursuant to the terms of this
Agreement, all of the property, rights, privileges, powers and franchises of the
Company and Sub shall vest in the Surviving Entity, and all debts, liabilities
and duties of the Company and Sub shall become the debts, liabilities and duties
of the Surviving Entity.
2.5 Articles of Organization; Operating Agreement.
2.5.1 Unless otherwise determined by API prior to the Effective Time,
the articles of organization of the Surviving Entity shall be the articles
of organization of the Sub as in effect as in effect immediately prior to
the Effective Time and until thereafter amended in accordance with Michigan
Law and as provided in such articles of incorporation; provided, however,
that the articles of organization of the Sub shall be amended as at the
Effective Time to change the name of the Surviving Entity to Picometrix,
LLC.
2.5.2 Unless otherwise determined by API prior to the Effective Time,
the operating agreement of the Surviving Entity shall be the operating
agreement of the Sub as in effect immediately prior to the Effective Time
and until thereafter amended as provided therein and in accordance with
Delaware Law; provided, however, that the operating agreement of the Sub
shall be amended as at the Effective Time to reflect the change of the name
of the Surviving Entity to Picometrix, LLC.
2.6 Merger Consideration. At the Effective Time, by virtue of the Merger
and without any action on the part of Sub, the Company or the Stockholders, each
outstanding share of Company Capital Stock, upon the terms and subject to
conditions set forth in this Section 2.6 and throughout this Agreement, will be
cancelled and extinguished and be converted automatically into the right to
receive, upon surrender of the certificate representing such shares of Company
Capital Stock the following described consideration (the "Merger
Consideration"):
2.6.1 each Stockholder's Pro Rata Portion of $3,500,000 (the "Cash
Payment"), to be paid by wire transfer of immediately available funds to
such account or accounts as such as may be designated to API in writing by
the Stockholders not less than one (1) business day prior to the Closing.
2.6.2 one or more certificates for each Stockholder's Pro Rata Portion
of 2,575,000 shares of API's Class A Common Stock (the "Stock
Consideration").
2.6.3 A promissory note in the form attached hereto as Exhibit B in an
original principal amount for each Stockholder equal to such Stockholder's
Pro Rata Portion of $2,900,500 (each an "API Promissory Note" and,
collectively, the "API Promissory Notes").
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2.7 Withholding Taxes. API, on behalf of the Surviving Entity, shall be
entitled to deduct and withhold from the Cash Payment due to each Stockholder
(or if the Stockholder's Pro Rata Portion of the Cash Payment is insufficient
for such purpose, any other consideration payable to such Stockholder hereunder)
such amounts as may be required to be deducted or withheld therefrom by the
Surviving Entity under any provision of federal, state, local or foreign tax law
or under any other applicable legal requirement; provided, however, prior to
Closing, API shall give the Company notice of its determination that such
deductions and withholdings are required. To the extent such amounts are so
deducted or withheld, such amounts shall be treated for all purposes under this
Agreement as having been paid to the Person to whom such amounts would otherwise
have been paid; provided, however, that if any such amounts are not paid over to
the appropriate governmental entity within ninety (90) days following the
Closing Date, API shall immediately thereafter pay such amounts over to the
Stockholder from whom they were withheld.
2.8 Stockholder Loans. In the event that either Stockholder has outstanding
loans from the Company as of the Closing Date, the amount of the Cash Payment
(or if the Stockholder's Pro Rata Portion of the Cash Payment is insufficient
for such purpose, any other consideration) payable hereunder to such Stockholder
shall be reduced by an amount equal to the outstanding principal of, and accrued
interest on, such any such loan as of the Closing Date. Such loans shall be
deemed satisfied as to the amount by which the consideration is reduced pursuant
to this Section.
2.9 Shares Subject to Repurchase. If any shares of Company Capital Stock
issued and outstanding immediately prior to the Closing Date are subject to a
repurchase option, risk of forfeiture or other condition under any applicable
stock restriction agreement or other agreement with the Company, then the
Company shall repurchase such shares of Company Capital Stock and cause the same
to be cancelled not later than the close of business as at the day prior to the
Closing.. On or before the Closing, the Company shall cause each holder of
Company Capital Stock to have waived and amended all rights regarding
acceleration or lapsing of repurchase rights upon a change of control,
termination without cause or constructive termination, to the extent such
provisions exist.
2.10 No Assumption of Company Options. API shall not assume any outstanding
Company Options (whether vested or unvested), including any outstanding Company
Options issued under the Plan. Prior to the Closing, the Company shall take all
actions necessary to effect the termination, effective no later than the
Closing, of all Company Options (whether vested or unvested) outstanding under
the Plan, including, without limitation, the giving of any notice required under
any agreements relating to the stock options.
2.11 Subsequent Parties. The Company and the Shareholders shall use their
commercially reasonable best efforts to cause any Person acquiring capital stock
of the Company between the date hereof and the Closing to become a party to this
Agreement (and a Stockholder hereunder) by executing and delivering a copy of
this Agreement, whereupon Schedule 2.1 shall be amended to include the share
ownership and other data relevant to such Person.
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Article 3
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
AND THE STOCKHOLDERS
Except as set forth on that section of the "Disclosure Schedule"
corresponding to the relevant subsection of this Article 3 delivered by the
Company to API as of the date hereof, the Company and the Stockholders hereby
represent and warrant to API as of the date of this Agreement, and as of the
date of the Closing, as hereinafter set forth in this Article 3. The section
numbers in the Disclosure Schedule correspond to the Section numbers in this
Article 3; provided, however, that any information disclosed in the Disclosure
Schedule under any such Section shall be deemed to be disclosed and incorporated
in any other Section of this Agreement and the Disclosure Schedule where such
disclosure would be appropriate and reasonably apparent without further inquiry
or investigation and without reference to any imputed or actual knowledge of
API, except as expressly set forth herein and/or in the Disclosure Schedule. The
disclosure of any particular fact or time in the Disclosure Schedule shall not
be deemed any admission as to whether the fact or item disclosed is "material"
or would constitute a Material Adverse Effect.
3.1 Organization of the Company. The Company is a corporation duly
organized and validly existing in good standing under the laws of the State of
Michigan. The Company has the corporate power to own its properties and to carry
on its business as currently conducted and as currently contemplated to be
conducted. The Company is duly qualified or licensed to do business and in good
standing as a foreign corporation in each jurisdiction in which it is required
to be so qualified or licensed except where the failure to be so qualified or
licensed could not reasonably be expected to have a Material Adverse Effect. The
Company has delivered to API a true and correct copy of its articles of
incorporation and bylaws, each as amended to date and in full force and effect
on the date hereof (collectively, the "Charter Documents"). Section 3.1 of the
Disclosure Schedule lists the directors and officers of the Company as of the
date hereof. The operations now being conducted by the Company are not now and
have never been conducted by the Company under any other name; provided,
however, that the Company operates under the assumed name of "Picometrix, Inc."
Section 3.1 of the Disclosure Schedule also lists every state or foreign
jurisdiction in which the Company has employees or facilities or otherwise
carries on business.
3.2 Company Capital Structure.
3.2.1 As of the date hereof, the authorized capital stock of the
Company consists of 2,520,000 shares of Class A Common Stock, none of which
are issued and outstanding, and 15,480,000 shares of Class B Common Stock,
all of which are issued and outstanding. The Company Capital Stock is held
by the Persons with the domicile addresses and in the amounts set forth in
Schedule 2.1. All outstanding shares of Company Capital Stock are duly
authorized, validly issued, fully paid and non-assessable and not subject
to preemptive rights created by statute, the Charter Documents, or any
agreement to which the Company is a party or by which it is bound, and have
been issued in compliance with federal and state securities laws, except
where the failure to have complied with such laws could not reasonably be
expected to have a Material Adverse Effect. There are no declared or
accrued but unpaid dividends with respect to any shares of Company Capital
Stock. As of the date hereof, there are fewer than 35 shareholders of
record of Company Capital Stock and, to the Knowledge of the Company, there
are fewer than 35 beneficial owners of the Company Capital Stock.
7
3.2.2 Except for the Plan, the Company has never adopted, entered
into, sponsored or maintained any stock option plan or any other plan or
agreement (whether written or oral, formal or informal) providing for
equity compensation to any Person. The Company has reserved 2,520,000
shares of Class A Common Stock for issuance to employees and directors of,
and consultants to, the Company upon the issuance of stock or the exercise
of options or other grants under the Plan. The Company has granted options
to purchase 1,238,000 shares of Class A Common Stock under the Plan.
Section 3.2.2 of the Disclosure Schedule sets forth for each outstanding
Company Option or other grant made under the Plan, the name of the grantee,
the domicile address of such grantee, the number of shares of Class A
Common Stock issuable upon the exercise of such Company Option or other
grant, the exercise price of such Company Option or other material terms
thereof, the vesting schedule for such Company option or grant, including
the extent vested to date, and whether such option is a non-statutory
option or intended to qualify as an incentive stock option as defined in
Section 422 of the Code.
3.2.3 Except for the Company Options and as provided in the Plan and
except as set forth in Section 3.2.3 of the Disclosure Schedule with
respect to the conversion rights of the Michigan Economic Development
Corporation in respect of certain indebtedness issued to such entity by the
Company, there are no options, warrants, calls, rights, convertible
securities, commitments or agreements of any character, written or oral, to
which the Company is a party or by which it is bound obligating the Company
to issue, deliver, sell, repurchase or redeem, or cause to be issued,
delivered, sold, repurchased or redeemed, any shares of the capital stock
of the Company or obligating the Company to grant, extend, accelerate the
vesting of, change the price of, otherwise amend or enter into any such
option, warrant, call, right, commitment or agreement. There are no
outstanding or authorized stock appreciation, phantom stock, profit
participation or other similar rights with respect to the Company. There
are no voting trusts, proxies, or other agreements or understandings with
respect to the voting stock of the Company to which the Company or any
Stockholder is a party or of which the Company or any Stockholder has
Knowledge.
3.2.4 Section 3.2.4 of the Disclosure Schedule sets forth the
outstanding principal, accrued interest and applicable rate of interest of
all outstanding loans from any Stockholder to the Company.
3.3 Subsidiaries. The Company does not have any subsidiaries.
3.4 Authority. The Company has all requisite power and authority and each
Stockholder has capacity to enter into this Agreement and any Related Agreements
to which such Stockholder is a party, and to consummate the transactions
contemplated hereby and thereby. The execution and delivery of this Agreement
and any Related Agreements to which the Company or either of the Stockholders is
a party and the consummation of the transactions contemplated hereby and thereby
have been duly authorized by all necessary corporate action on the part of the
Company and no further action is required on the part of the Company or the
Stockholders to authorize the Agreement and any Related Agreements to which the
Company or either of the Stockholders is a party or to consummate the
transactions contemplated hereby and thereby. The Board of Directors of the
Company has unanimously approved this Agreement. This Agreement and each of the
Related Agreements to which the Company and/or either of the Stockholders is a
party have been duly executed and delivered by the Company and each of the
Stockholders, as the case may be, and assuming the due authorization, execution
and delivery by the other parties hereto and thereto, constitute the valid and
binding obligations of the Company and each of the Stockholders, enforceable
against each such party in accordance with their respective terms, except as
such enforceability may be subject to the laws of general application relating
to bankruptcy, insolvency, and the relief of debtors and rules of law governing
specific performance, injunctive relief, or other equitable remedies.
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3.5 No Conflict. Except as set forth in Section 3.5 of the Disclosure
Schedule (including, without limitation, the United States Government contracts
discussed in such Section that will be novated upon consummation of the
transactions contemplated hereby), the execution and delivery by the Company of
this Agreement and the consummation of the transactions contemplated hereby,
will not conflict with or result in any violation of or default under (with or
without notice or lapse of time, or both) or give rise to a right of
termination, cancellation, modification or acceleration of any obligation or
loss of any benefit (each, a "Conflict") under (a) any provision of the Charter
Documents, (b) any mortgage, indenture, lease, contract, covenant or other
agreement, instrument or commitment, permit, concession, franchise or license
(each a "Contract" and collectively the "Contracts") to which the Company or any
of the Company's properties or assets (whether tangible or intangible) are
subject, or (c) any judgment, order, decree, statute, law, ordinance, rule or
regulation applicable to, the Company or any or any of the Company's properties
(whether tangible or intangible) or assets. To the Knowledge of the Company, it
has not breached, violated or defaulted under, or received notice that it has
breached, violated or defaulted under, any of the terms or conditions of any
Contract, nor is the Company or either Stockholder aware of the occurrence of
any such default or of any event that would constitute such a breach, violation
or default with the lapse of time, giving of notice or both.
3.6 Consents.
3.6.1 Except as set forth in Section 3.6 of the Disclosure Schedule
and excepting all Contracts between the Company and the United States
Government or its instrumentalities set forth in Section 3.5 of the
Disclosure Schedule that will be novated upon or after consummation of the
transactions contemplated hereby, to the Knowledge of the Company, no party
obligated to the Company pursuant to any Contract is in default thereunder.
Section 3.6 of the Disclosure Schedule sets forth all necessary consents,
waivers and approvals of parties to any Contracts to which the Company is a
party or any of its properties or assets (whether tangible or intangible)
are subject (collectively, the "Third Party Consents") as are required
thereunder in connection with the transactions contemplated hereby, or for
any such Contract to remain in full force and effect without limitation,
modification or alteration after the Closing Date so as to preserve all
rights of, and benefits to, the Company under such Contracts from and after
the Closing Date. Following the Closing Date, assuming all Third Party
Consents shall have been obtained, the Company will be permitted to
exercise all of its rights under the Contracts without the payment of any
additional amounts or consideration other than ongoing fees, royalties or
payments which the Company would otherwise be required to pay pursuant to
the terms of such Contracts had the transactions contemplated by this
Agreement not occurred.
3.6.2 No consent, notice, waiver, approval, order or authorization of,
or registration, declaration or filing with any court, administrative
agency or commission or other federal, state, county, local or other
foreign governmental authority, instrumentality, agency or commission
(each, a "Governmental Entity") is required by, or with respect to, the
Company or the Stockholders in connection with the execution and delivery
of this Agreement and any Related Agreement to which the Company or a
Stockholder is a party or the consummation of the transactions contemplated
hereby and thereby, except for such consents, notices, waivers, approvals,
orders, authorizations, registrations, declarations and filings as may be
required under applicable securities laws, or as provided in Section 3.6 of
the Disclosure Schedule with respect to certain contracts with the United
States Government or its instrumentalities.
9
3.7 Company Financial Statements. Section 3.7 of the Disclosure Schedule
sets forth the Company's (a) audited financial statements for the twelve (12)
months ended December 31, 2003 (the "Year-End Financials"), and (b) an unaudited
consolidated balance sheet (the "Interim Balance Sheet") as of December 31, 2004
(the "Interim Balance Sheet Date"), and the related unaudited statement of
income, cash flow and stockholders' equity for the twelve months then ended
(collectively, the "Interim Financials"; together with the Year-End Financials,
the "Financials"). The Financials have been prepared in accordance with GAAP
consistently applied on a consistent basis throughout the periods indicated and
consistent with each other (except that the unaudited Interim Financials are
subject to normal year-end adjustments that are not material in amount or
significance in any individual case or in the aggregate and do not contain
footnotes and other presentation items that may be required by GAAP). The
Financials present fairly the Company's financial condition, operating results
and cash flows as of the dates and during the periods indicated therein, subject
in the case of the Interim Financials to normal year-end adjustments, which are
not material in amount or significance in the aggregate.
3.8 No Undisclosed Liabilities. Except as otherwise disclosed in Section
3.8 of the Disclosure Schedule, the Company has no liability, indebtedness,
obligation, expense, claim, deficiency, guaranty or endorsement of any type,
whether accrued, absolute, contingent, matured, unmatured or other (whether or
not required to be reflected in financial statements in accordance with GAAP),
which individually or in the aggregate (a) is not reflected in the Interim
Balance Sheet, or (b) has not arisen in the Ordinary Course of Business since
the Interim Balance Sheet Date.
3.9 No Changes. Since the Interim Balance Sheet Date and except as set
forth in Section 3.9 of the Disclosure Schedule and other than in the Ordinary
Course of Business, there has not been, occurred or arisen any:
3.9.1 amendments or changes to the Charter Documents;
3.9.2 capital expenditure or commitment by the Company exceeding
$100,000 individually or $250,000 in the aggregate;
3.9.3 payment, discharge or satisfaction, in any amount in excess of
$100,000 in any one case, or $250,000 in the aggregate, of any claim,
liability or obligation (absolute, accrued, asserted or unasserted,
contingent or otherwise), other than payment, discharge or satisfaction in
the Ordinary Course of Business of liabilities;
3.9.4 destruction of, damage to, or loss of any material assets
(whether tangible or intangible), material business or material customer of
the Company (whether or not covered by insurance);
3.9.5 change in accounting methods or practices (including any change
in depreciation or amortization policies or rates) by the Company other
than as required by GAAP;
3.9.6 change in any material election in respect of Taxes, adoption or
change in any accounting method in respect of Taxes, agreement or
settlement of any claim or assessment in respect of Taxes, or extension or
waiver of the limitation period applicable to any claim or assessment in
respect of Taxes;
3.9.7 revaluation by the Company of any of its assets (whether
tangible or intangible);
10
3.9.8 declaration, setting aside or payment of a dividend or other
distribution (whether in cash, stock or property) in respect of any Company
Common Stock, or any split, combination or reclassification in respect of
any shares of Company Common Stock, or any issuance or authorization of any
issuance of any other securities in respect of, in lieu of or in
substitution for shares of Company Common Stock, or any direct or indirect
repurchase, redemption, or other acquisition by the Company of any shares
of Company Common Stock (or options, warrants or other rights convertible
into, exercisable or exchangeable therefor), except in accordance with the
agreements evidencing Company Options;
3.9.9 except merit increases and bonus payments made in the Ordinary
Course of Business or as required under existing employment agreements,
increase in the salary or other compensation payable or to become payable
by the Company to any of its officers, directors, employees or advisors, or
the declaration, payment or commitment or obligation of any kind for the
payment (whether in cash or equity) by the Company of a severance payment,
termination payment, bonus or other additional salary or compensation to
any such Person;
3.9.10 agreement, contract, covenant, instrument, lease, license or
commitment to which the Company is a party or by which it or any of its
assets (whether tangible or intangible) are bound that is in excess of
$100,000 in any one case, or any termination, extension, amendment or
modification of the terms of any agreement, contract, covenant, instrument,
lease, license or commitment to which the Company is a party or by which it
or any of its assets are bound that is in excess of $100,000 in any one
case;
3.9.11 sale, lease, license or other disposition of any of the assets
(whether tangible or intangible) or properties of the Company, including,
without limitation, the sale of any accounts receivable of the Company, or
any creation of any security interest in such assets or properties other
than the sale, lease, license, or other disposition of inventory in the
Ordinary Course of Business;
3.9.12 loan by the Company to any Person, incurring by the Company of
any indebtedness, guaranteeing by the Company of any indebtedness, issuance
or sale of any debt securities of the Company or guaranteeing of any debt
securities of others, except for advances to employees for travel and
business expenses in the Ordinary Course of Business;
3.9.13 waiver or release of any right or claim of the Company having a
value in excess of $100,000, including any write-off or other compromise of
any account receivable of the Company;
3.9.14 commencement or settlement of any lawsuit by or against the
Company; or
3.9.15 agreement by the Company, or any officer or employees on behalf
of the Company, to do any of the things described in the preceding
subsections of this Section, other than negotiations with API and its
representatives regarding the transactions contemplated by this Agreement
and the Related Agreements.
11
3.10 Tax Matters. Except as set forth in Section 3.10 of the Disclosure
Schedule:
3.10.1 As of the Closing Date, the Company will have (a) prepared and
timely (excepting permitted extensions that are timely filed) filed
all required federal, state, local and foreign returns, estimates, information
statements and reports (collectively, the "Returns") relating to any and all
Taxes concerning or attributable to the Company or its operations and such
returns will, to the Knowledge of the Company, be true and correct and completed
in accordance with applicable law, and (b) timely paid all Taxes it is required
to pay as evidenced by the Returns.
3.10.2 As of the Closing Date, the Company will have withheld with
respect to its employees (and timely paid over to the appropriate taxing
authority) all federal, state and foreign income taxes and social security
charges and similar fees, Federal Insurance Contribution Act, Federal
Unemployment Tax Act and other Taxes required to be withheld (and so paid).
3.10.3 To its Knowledge, the Company is not delinquent in the payment
of any Tax. The Company has not received any notice not is it otherwise
aware that there is any Tax deficiency outstanding, assessed or proposed
against the Company. The Company has not executed any waiver of any statute
of limitations on, or extending the period for, the assessment or
collection of any Tax.
3.10.4 Excepting an ongoing audit being conducted by the State of
Michigan in respect of Michigan sales and use, withholding and Single
Business Tax for the calendar years 1999 through 2003, no audit or other
examination of any Return of the Company is presently in progress, nor has
the Company been notified of any request for such an audit or other
examination.
3.10.5 To its Knowledge, the Company does not have any liabilities for
unpaid federal, state, local or foreign Taxes which have not been accrued
or reserved on the Interim Balance Sheet, whether asserted or unasserted,
contingent or otherwise. The Company has not incurred any liability for
Taxes since the date of the Interim Balance Sheet other than in the
Ordinary Course of Business.
3.10.6 The Company has made available to API or its legal counsel,
copies of all foreign, federal, state and local income, payroll and
unemployment Returns and all state and local property and sales and use
Returns for the Company that have been filed for three full fiscal years
preceding the date hereof.
3.10.7 There are no Liens on the assets of the Company relating to or
attributable to Taxes other than Liens for Taxes not yet due and payable.
12
3.10.8 The Company has no Knowledge of any basis for the assertion of
any claim relating or attributable to Taxes that, if adversely determined,
would result in any Lien on the assets of the Company.
3.10.9 None of the Company's assets is treated as "tax-exempt use
property," within the meaning of Section 168(h) of the Code.
3.10.10 The Company has not filed any consent agreement under Section
341(t) of the Code or agreed to have Section 341(t)(4) of the Code apply to
any disposition of a subsection (t) asset (as defined in Section 341(t)(4)
of the Code) owned by the Company.
3.10.11 The Company has (a) never been a member of an affiliated group
(within the meaning of Code ss.1504(a)) filing a consolidated federal
income Tax Return, (b) never been a party to any Tax sharing,
indemnification or allocation agreement, (c) no liability for the Taxes of
any Person (other than Company or any of its subsidiaries) under Treasury
Regulation ss.1.1502-6 (or any similar provision of state, local or foreign
law), as a transferee or successor, by contract or agreement, or otherwise
and (d) never been a party to any joint venture, partnership or other
arrangement that could be treated as a partnership for Tax purposes.
3.10.12 The Company has not been, at any time, a "United States Real
Property Holding Corporation" within the meaning of Section 897(c)(2) of
the Code.
3.10.13 No adjustment relating to any Return filed by the Company has
been proposed formally or, to the Knowledge of the Company or any
Stockholder, informally by any tax authority to the Company or any
representative thereof.
3.10.14 There is no contract, agreement, plan or arrangement to which
the Company is a party, including, without limitation, the provisions of
this Agreement, covering any employee or former employee of the Company,
which, individually or collectively, could give rise to the payment of any
amount that would not be deductible pursuant to Sections 2800, 404 or
162(m) of the Code.
3.11 Restrictions on Business Activities. Except as set forth in Section
3.11 of the Disclosure Schedule, there is no agreement (non-competition or
otherwise), commitment, judgment, injunction, order or decree to which the
Company is a party or otherwise binding upon the Company which has or may
reasonably be expected to have the effect of prohibiting or impairing any
business practice of the Company, any acquisition of property (tangible or
intangible) by the Company, the conduct of business by the Company, or otherwise
limiting the freedom of the Company to engage in any line of business or to
compete with any Person. Without limiting the generality of the foregoing and
except as set forth in Section 3.11 of the Disclosure Schedule, the Company has
not entered into any agreement under which the Company is restricted from
selling, licensing, manufacturing or otherwise distributing any of its
technology or products or from providing services to customers or potential
customers or any class of customers, in any geographic area, during any period
of time, or in any segment of the market.
13
3.12 Title to Properties; Absence of Liens and Encumbrances; Condition of
Equipment; Customer Information.
3.12.1 The Company does not own any real property, nor has the Company
ever owned any real property. The only leased real property of the Company
is its company headquarters located at ▇▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇▇
▇▇▇▇▇-▇▇▇▇ (the "Leased Real Property"). The Company has provided API true,
correct and complete copies of the lease and all amendments thereto related
to the Leased Real Property (the "Lease"). The Lease is in full force and
effect and the landlord is not in default thereunder. The Company has not
received: any notice of a default, alleged failure to perform, or any
offset or counterclaim with respect to the Lease that has not been fully
remedied and withdrawn. Subject to the consent of the landlord, the Closing
will not affect the enforceability of the Lease or the continued use and
possession of the Leased Real Property for the conduct of the Company's
business as presently conducted. The Company currently occupies all of the
Leased Real Property for the operation of its business. There are no other
parties occupying, or with a right to occupy, the Leased Real Property.
3.12.2 To the Knowledge of the Company, the Leased Real Property is in
good operating condition and repair, free from structural, physical and
mechanical defects, is maintained in a manner consistent with the Lease,
and is structurally sufficient and otherwise suitable for the conduct of
the Company's business as presently conducted therein. To the Knowledge of
the Company, neither the operation of the Company on the Leased Real
Property nor the improvements thereon, violate in any material respect any
material applicable building code, zoning requirement or statute relating
to such Leased Real Property or operations thereon, and any such
non-violation is not dependent on any conditional use permit issued by the
City of Ann Arbor, Michigan.
3.12.3 The Company has not assigned, transferred, conveyed, mortgaged,
deeded in trust or encumbered any interest in the Leased Real Property.
3.12.4 The Company has not received any notice from any insurance
company of any defects or inadequacies in any Leased Real Property or any
part thereof that could materially and adversely affect the insurability of
such property or the premiums for the insurance thereof, nor has any notice
been given by any insurer of any such property requesting the performance
of any repairs, alterations or other work that has not been completed.
3.12.5 There are no outstanding written or oral contracts made by the
Company for any alterations or improvements on or to the Leased Real
Property that have not been fully paid, and the Company shall cause to be
discharged all mechanics' and materialmen's liens arising from any labor or
materials provided to, for, or at the request of the Company and furnished
to or for the Lease Real Property prior to the Closing.
3.12.6 The Company has good and valid title to, or, in the case of
leased properties and assets, valid leasehold interests in, all of its
tangible properties and assets, real, personal and mixed, including,
without limitation, the Leased Real Property, used or held for use in its
business, free and clear of any Liens, except (a) as reflected in the
Interim Balance Sheet, (b) Liens for Taxes not yet due and payable, and (c)
such imperfections of title and encumbrances, if any, which do not detract
from the value or interfere with the present use of the property subject
thereto or affected thereby.
14
3.12.7 All items of equipment material to the operation of the Company
owned or leased by the Company are (a) adequate for the conduct of the
business of the Company as currently conducted, and (b) in good operating
condition, regularly and properly maintained, subject to normal wear and
tear.
3.12.8 The Company has sole and exclusive ownership, free and clear of
any Liens, of all of its customer lists, customer contact information,
customer correspondence and customer licensing and purchasing histories
relating to its current and former customers (the "Customer Information").
No Person other than the Company possesses any claims or rights with
respect to use of the Customer Information.
3.13 Intellectual Property.
3.13.1 For purposes of this Section, the following capitalized terms
shall have the following respective meanings:
(a) "Company Intellectual Property" means any and all
Intellectual Property and Intellectual Property Rights that are owned
by or exclusively licensed to the Company.
(b) "Intellectual Property" means proprietary (i) works of
authorship including, without limitation, computer programs, source
code, and executable code, whether embodied in software, firmware or
otherwise, architecture, documentation, designs, files, records, and
data, (ii) inventions (whether or not patentable), discoveries,
improvements, and technology, (iii) proprietary and confidential
information, trade secrets and know how, (iv) databases, data
compilations and collections and technical data, (v) logos, trade
names, trade dress, trademarks and service marks, (vi) registered
domain names, web addresses and sites, (vii) tools, methods and
processes, (viii) proprietary devices, prototypes, schematics,
breadboards, netlists, maskworks, test methodologies, verilog files,
emulation and simulation reports, test vectors and hardware
development tools, and (ix) any and all instances of the foregoing in
any form and embodied in any media.
(c) "Intellectual Property Rights" means common law and statutory
rights associated with (i) patents and patent applications, (ii)
copyrights, copyright registrations and copyright applications,
"moral" rights and mask work rights, (iii) the protection of trade and
industrial secrets and confidential information, (iv) other
proprietary rights relating to intangible intellectual property, (v)
trademarks, trade names and service marks, and (vi) divisions,
continuations, renewals, reissuances and extensions of the foregoing
(as applicable).
(d) "Registered Intellectual Property" means Company Intellectual
Property that has been registered, filed, certified or otherwise
perfected or recorded with or by any state, government or other public
legal authority under authority of applicable statute or regulation.
15
3.13.2 Section 3.13.2 of the Disclosure Schedule (a) lists all Company
Intellectual Property, and (b) lists any pending applications, proceedings
or actions before any court, tribunal (including the United States Patent
and Trademark Office (the "PTO") or equivalent authority anywhere in the
world) related to any of the Company Registered Intellectual Property. The
Company Intellectual Property constitutes all Intellectual Property
necessary to conduct its business as presently being conducted.
3.13.3 The Company has paid necessary registration, maintenance and
renewal fees in connection with the Registered Intellectual Property. The
Company has filed all necessary documents and certificates in connection
with the Registered Intellectual Property with the relevant patent,
copyright, trademark or other authorities in the United States or such
foreign jurisdictions as the Company has elected to register the Registered
Intellectual Property, as the case may be, for the purposes of maintaining
the Registered Intellectual Property. Except as set forth in Section 3.13.3
of the Disclosure Schedule, there are no actions that must be taken by the
Company within sixty (60) days of the date hereof, including the payment of
any registration, maintenance or renewal fees or the filing of any
documents, applications or certificates for the purposes of maintaining,
perfecting or preserving or renewing any Registered Intellectual Property.
3.13.4 For each product, technology or service of the Company that
constitutes or includes Company Intellectual Property owned by the Company
that the Company has determined to make Registered Intellectual Property,
the Company has taken commercially reasonable measures to make such
elements of such Company Intellectual Property Registered Intellectual
Property.
3.13.5 In each case in which the Company has acquired ownership of any
Intellectual Property from any Person, the Company has obtained a valid and
enforceable assignment sufficient to irrevocably transfer all rights in
such Intellectual Property to the Company. Where appropriate, the Company
has recorded each such assignment with the relevant governmental
authorities, including the PTO, the U.S. Copyright Office or their
respective equivalents in any relevant foreign jurisdiction, as the case
may be.
3.13.6 Except as set forth in Section 3.13.6 of the Disclosure
Schedule and subject to any required consents set forth in Section 3.6 of
the Disclosure Schedule, all Company Intellectual Property will be fully
transferable, alienable or licensable by API without restriction and
without payment of any kind to any third party.
3.13.7 Except as set forth in Section 3.13.7 of the Disclosure
Schedule, each item of Company Intellectual Property is free and clear of
any Liens.
3.13.8 Except as set forth in Section 3.13.8 of the Disclosure
Schedule with respect to jointly owned Intellectual Property or other
Intellectual Property to which the Company does not have exclusive
Intellectual Property Rights, to the extent that any Company Intellectual
Property has been developed or created independently or jointly by any
Person other than the Company for which the Company has, directly or
indirectly, provided consideration for such development or creation, the
Company has a written agreement with such Person with respect thereto, and
the Company thereby has obtained ownership of, and is the exclusive owner
of, all such Intellectual Property therein and associated Intellectual
Property Rights by operation of law or by valid assignment, and has
required the waiver of all non-assignable rights, including without
limitation, all author or moral rights.
16
3.13.9 Except as set forth in Section 3.13.9 of the Disclosure
Schedule, the Company has not (a) transferred ownership of, or granted any
exclusive license of or exclusive right to use, or authorized the retention
of any exclusive rights to use or joint ownership of, any Intellectual
Property Rights or, except in the Ordinary Course of Business of sales of
the Company's products, any Company Intellectual Property, to any other
Person, or (b) permitted Company's rights in such Company Intellectual
Property to lapse or to enter into the public domain.
3.13.10 Except as set forth in Section 3.13.8 of the Disclosure
Schedule with respect to jointly owned Intellectual Property or other
Intellectual Property to which the Company does not have exclusive
Intellectual Property Rights, all Intellectual Property (other than
off-the-shelf, readily available, non-customized software or hardware) used
in or necessary to the conduct of the Company's business as presently
conducted or currently contemplated to be conducted by the Company was
created solely by either (a) employees of the Company acting within the
scope of their employment who have validly and irrevocably assigned all of
their rights, including all Intellectual Property Rights therein, to the
Company, or (b) by third parties who have validly and irrevocably assigned
all of their rights, including all Intellectual Property Rights therein, to
the Company, and no third party owns or has any rights to any of the
Company Intellectual Property.
3.13.11 Other than (a) "shrink-wrap" and similar widely available
binary code and commercial end-user licenses and public or open technology,
and (b) other non-exclusive licenses of the Company's products to end-users
entered into in the Ordinary Course of Business, Section 3.13.11 of the
Disclosure Schedule lists all contracts, licenses and agreements by which
the Company has secured third-party Intellectual Property and Intellectual
Property Rights. Except as set forth in Section 3.13.11 of the Disclosure
Schedule, no third party that has licensed Intellectual Property or
Intellectual Property Rights to the Company has ownership rights or license
rights to improvements made by the Company in such licensed Intellectual
Property.
3.13.12 Other than (a) "shrink-wrap" and similar widely available
binary code and commercial end-user licenses and public or open technology,
and (b) other non-exclusive licenses of the Company's products to end-users
entered into in the Ordinary Course of Business, Section 3.13.12 of the
Disclosure Schedule lists all contracts, licenses and agreements between
the Company and any other Person wherein or whereby the Company has agreed
to, or assumed, any obligation or duty to warrant, indemnify, reimburse,
hold harmless, guaranty or otherwise assume or incur any obligation or
liability or provide a right of rescission with respect to the infringement
or misappropriation by such other Person of the Intellectual Property
Rights of such Person.
3.13.13 There are no contracts, licenses or agreements between the
Company and any other Person with respect to Company Intellectual Property
or other Intellectual Property used in and/or necessary to the conduct of
the business of the Company as it is currently conducted under which there
is any dispute regarding the scope of such agreement, or performance under
such agreement including with respect to any payments to be made or
received by the Company thereunder.
3.13.14 To the Knowledge of the Company, the operation of the business
of the Company as it is currently conducted, or is currently contemplated
to be conducted, by the Company, including, without limitation, the design,
development, use, import, branding, advertising, promotion, marketing,
manufacture and sale of any product, technology or service (including
products, technology or services currently under development) of the
Company does not infringe or misappropriate, and will not infringe or
misappropriate, any Intellectual Property Rights of any Person, violate any
right of any Person (including any right to privacy or publicity), and the
Company has not received notice from any Person claiming that such
operation or any act, any product, technology or service (including
products, technology or services currently under development) or
Intellectual Property of the Company infringes or misappropriates any
Intellectual Property Rights of any Person or constitutes unfair
competition or trade practices under the laws of any jurisdiction, nor does
the Company have Knowledge of any basis therefor.
17
3.13.15 Except as set forth in Section 3.13.15 of the Disclosure
Schedule, neither this Agreement nor the transactions contemplated by this
Agreement, will result in (a) the Company granting to any third party any
right to or with respect to any Company Intellectual Property, (b) the
Company being bound by, or subject to, any non-compete or other material
restriction on the operation or scope of its business, or (c) the Company
being obligated to pay any royalties or other material amounts to either
third party in excess of those payable by the Company as of the date
hereof.
3.13.16 Except as set forth in Section 3.13.16 of the Disclosure
Schedule, to the Knowledge of the Company, no Person is infringing or
misappropriating any Company Intellectual Property.
3.13.17 The Company has taken all commercially reasonable steps to
protect the Company's rights in its own confidential information and trade
secrets or confidential information of any third party provided by any
other Person to the Company under an obligation of confidentiality. Without
limiting the foregoing, the Company has, and enforces to the extent
practicable, a policy requiring each employee, consultant, and contractor
to execute proprietary information, confidentiality and assignment
agreements pursuant to a standard form, and all such current and former
employees, consultants and contractors of the Company have executed such an
agreement in substantially the Company's standard form.
3.13.18 No Company Intellectual Property is subject to any proceeding
or outstanding decree, order, judgment or settlement agreement or
stipulation that restricts in any manner the use, transfer or licensing
thereof by the Company or may affect the validity, use or enforceability of
such Company Intellectual Property.
3.13.19 Except as required by law with respect to ownership of
Intellectual Property created, developed or reduced to practice using
funding from any Governmental Entity and as set forth in Section 3.13.2 of
the Disclosure Schedule, no government funding, facilities or resources of
a university, college, other educational institution or research center or
funding from third parties was used in the development of the Company
Intellectual Property, and no Governmental Entity, university, college,
other educational institution or research center has any claim or right in
or to the Company Intellectual Property.
18
3.14 Agreements, Contracts and Commitments. Except as set forth in Section
3.14 of the Disclosure Schedule, the Company is not a party to, nor is it bound
by:
3.14.1 any fidelity or surety bond or completion bond;
3.14.2 any lease of Personal property having a value in excess of
$100,000 individually or $250,000 in the aggregate;
3.14.3 any agreements, contracts or commitments relating to capital
expenditures and involving future payment in excess of $100,000
individually or $250,000 in the aggregate;
3.14.4 any agreements, contracts or commitments relating to the
disposition or acquisition of assets or the acquisition of any interest in
any business enterprise outside the Ordinary Course of Business;
3.14.5 except (a) as set forth in Section 3.2.3 of the Disclosure
Schedule, and (b) the Coherent Debt, any mortgages, indentures, guarantees,
loans or credit agreements, security agreements or other agreements or
instruments relating to the borrowing of money or extension of credit;
3.14.6 any purchase orders or contracts for the purchase of materials
involving in excess of $100,000 individually or $250,000 in the aggregate
for any one customer;
3.14.7 any construction contracts;
3.14.8 any dealer, distribution, joint marketing or development
agreement;
3.14.9 any sales representative, original equipment manufacturer,
manufacturing, value added, remarketer, reseller, or independent software
vendor, or other agreement for use or distribution of the Company's
products, technology or services; or
3.14.10 any other agreement, contract or commitment that involves
$100,000 individually or $250,000 in the aggregate or more and is not
cancelable without penalty within thirty (30) days.
3.15 Interested Party Transactions. No officer, director or Stockholder of
the Company (nor any member of the immediate family of any of such Persons, or
any trust, partnership or corporation in which any of such Persons has or has
had an interest), has or has had, directly or indirectly, (a) an interest in any
entity which furnishes or sells, services, products, technology or Intellectual
Property to the Company, or (b) any interest in any entity that purchases from
or sells or furnishes to the Company, any goods or services, or (c) a beneficial
interest in any Contract to which the Company is a party; provided, however,
that ownership of no more than one percent (1%) of the outstanding voting stock
of a publicly traded corporation shall not be deemed to be an "interest in any
entity" for purposes of this Section. To the Knowledge of the Company, there are
no agreements, contracts or commitments with regard to contribution or
indemnification between or among any of the Stockholders.
19
3.16 Governmental Authorizations. Each consent, license, permit, grant or
other authorization (a) pursuant to which the Company currently operates or
holds any interest in any of its properties, or (b) to the Knowledge of the
Company, that is required for the operation of the Company's business as
currently conducted has been issued or granted to the Company, as the case may
be and is in full force and effect.
3.17 Litigation. Except as set forth in Section 3.17 of the Disclosure
Schedule, there is no action, suit, claim or proceeding of any nature pending,
or to the Knowledge of the Company, threatened, against the Company, its
properties (tangible or intangible) or any of its officers or directors, nor to
the Knowledge of the Company is there any reasonable basis for any such action,
suit, claim or proceeding. There is no investigation or other proceeding pending
or, to the Knowledge of the Company, threatened, against the Company, any of its
properties (tangible or intangible) or any of its officers or directors by or
before any Governmental Entity. No Governmental Entity has notified the Company
that the conduct of its operations as presently conducted or as presently
contemplated to be conducted is or may be in violation of applicable law.
3.18 Accounts Receivable. The Company has made available to API a list of
all accounts receivable of the Company as of the Interim Balance Sheet Date,
together with an aging schedule indicating a range of days elapsed since
invoice. Except as set forth in Section 3.18 of the Disclosure Schedule, all of
the Company's accounts receivable arose in the Ordinary Course of Business, are
carried at values determined in accordance with GAAP consistently applied, and
are collectible except to the extent of reasonable reserves therefor set forth
in the Interim Balance Sheet or, for receivables arising subsequent to Interim
Balance Sheet Date, as reflected on the books and records of the Company (which
are prepared in accordance with GAAP consistently applied). Except as set forth
in Section 3.18 of the Disclosure Schedule, no Person has any Lien on any of the
Company's accounts receivable and no request or, except as may be reflected on
the Company's books and records, agreement for deduction or discount has been
made with respect to any of the Company's accounts receivable.
3.19 Minute Books. The minutes of the Company made available to counsel for
API are the only minutes of the Company and contain reasonably accurate
summaries of all duly called and properly held meetings or actions by written
consent of the Board of Directors (or committees thereof) of the Company and all
stockholder actions by written consent since the time of incorporation of the
Company, as the case may be.
3.20 Environmental Matters.
3.20.1 For purposes of this Section, the following capitalized terms
shall have the following respective meanings:
(a) "Business Facility" means any property including the land,
the improvements thereon, the groundwater thereunder and the
persistent surface water thereon, that is or at any time has been
owned, operated, occupied, controlled or leased by the Company in
connection with the operation of its business.
(b) "Company's Retained Environmental Liabilities" means any
liability, obligation, judgment, penalty, fine, cost or expense, of
any kind or nature, or the duty to indemnify, defend or reimburse any
Person with respect to the items set forth on Section 3.20.1 of the
Disclosure Schedule.
20
(c) "Disposal Site" means a landfill, disposal agent, waste
hauler or recycler of Hazardous Materials or any real property other
than a Business Facility receiving Hazardous Materials used or
generated by a Business Facility.
(d) "Environmental Laws" are all applicable laws, rules,
regulations, orders, treaties, statutes, and codes promulgated by any
Governmental Entity that prohibit, regulate or control any Hazardous
Material or any Hazardous Material Activity, including, without
limitation, the Comprehensive Environmental Response, Compensation,
and Liability Act of 1980, the Resource Recovery and Conservation Act
of 1976, the Federal Water Pollution Control Act, the Clean Air Act,
the Hazardous Materials Transportation Act, the Clean Water Act, the
Occupational Safety and Health Act, and all comparable laws, rules,
regulations, ordinances, orders, treaties, statutes, and codes of
other Governmental Entities, the regulations promulgated pursuant to
any of the foregoing, and all amendments and modifications of any of
the foregoing.
(e) "Environmental Permit" means any approval, permit, license,
clearance or consent required to be obtained from any private Person
or any Governmental Entity with respect to a Hazardous Materials
Activity conducted by the Company.
(f) "Hazardous Material" means any material, chemical or
substance that is prohibited or regulated by any Environmental Law or
that has been designated by any Governmental Entity to be radioactive,
toxic, hazardous or otherwise a danger to health, reproduction or the
environment.
(g) "Hazardous Materials Activity" means the transportation,
transfer, recycling, storage, use, treatment, manufacture, removal,
remediation, release, exposure of others to, sale, or distribution of
any Hazardous Material or any product or waste containing a Hazardous
Material.
3.20.2 Except in compliance with Environmental Laws, to the Knowledge
of the Company, no Hazardous Materials are present on the Leased Real
Property.
3.20.3 To the Company's Knowledge, there are no underground storage
tanks, asbestos which is friable or likely to become friable, or PCBs
present on any Leased Real Property or as a consequence of the acts of the
Company or its agents.
3.20.4 The Company has received no notification from any Governmental
Entity that the Company has or is conducting any Hazardous Material
Activities in violation of any applicable Environmental Laws. To the
Company's Knowledge, the Hazardous Materials Activities of the Company
prior to the Closing have not resulted in the exposure of any Person to a
Hazardous Material in a manner which has caused or could reasonably be
expected to cause an adverse health effect to any such Person.
21
3.20.5 Section 3.20.5 of the Disclosure Schedule lists all
Environmental Permits currently held by the Company and, to the Knowledge
of the Company, the listed Environmental Permits are all of the
Environmental Permits necessary for the continued conduct of any Hazardous
Material Activity of the Company relating to its business as such
activities are currently being conducted. All such Environmental Permits
are valid and in full force and effect. The Company has complied in all
material respects with all covenants and conditions of all such
Environmental Permits. To the Company's Knowledge, no circumstances exist
which could cause any Environmental Permit to be revoked, modified, or
rendered non-renewable upon payment of the permit fee, if any.
3.20.6 Except as set forth in Section 3.20.6 of the Disclosure
Schedule, no action, proceeding, revocation proceeding, amendment
procedure, writ, injunction or claim is pending, or to Knowledge of the
Company, threatened, concerning or relating to any Environmental Permit or
any Hazardous Materials Activity of the Company relating to its business,
or any Business Facility.
3.20.7 The Company has transferred or released Hazardous Materials
only to those Disposal Sites set forth in Section 3.20.7 of the Disclosure
Schedule, and no action, proceeding, liability or claim is pending or, to
the Knowledge of the Company, threatened against any Disposal Site or
against the Company with respect to any transfer or release of Hazardous
Materials transferred to any such Disposal Site by the Company.
3.20.8 The Company has made available for inspection by API and its
agents, representatives and employees all records in the Company's
possession concerning the Hazardous Materials Activities of the Company
relating to its business and all environmental audits, environmental
assessments, and environmental investigations of any Business Facility
conducted at the request of, or otherwise in the possession of, the
Company.
3.21 Brokers and Finders; Fees. The Company has not incurred nor will it
incur, directly or indirectly, any liability for brokerage or finders' fees or
agents' commissions, fees related to investment banking or similar advisory
services or any similar charges in connection with the Agreement or any
transaction contemplated hereby.
3.22 Employee Benefit Plans and Compensation.
3.22.1 For purposes of this Section, the following capitalized terms
shall have the following respective meanings:
(a) "Company Employee Plan" means any plan, program, policy,
practice, contract, agreement or other arrangement providing for
compensation, severance, termination pay, deferred compensation,
performance awards, stock or stock-related awards, fringe benefits or
other employee benefits or remuneration of any kind, whether written,
unwritten or otherwise, funded or unfunded, including without
limitation, each "employee benefit plan," within the meaning of
Section 3(3) of ERISA which is or has been maintained, contributed to,
or required to be contributed to, by the Company for the benefit of
any Employee, or with respect to which the Company has or may have any
liability or obligation.
22
(b) "COBRA" means the Consolidated Omnibus Budget Reconciliation
Act of 1985, as amended.
(c) "DOL" means the United States Department of Labor.
(d) "Employee" means any current or former employee, consultant
or director of the Company.
(e) "Employee Agreement" means each management, employment,
severance, consulting, relocation, repatriation, expatriation, visas,
work permit or other agreement or contract (including, without
limitation, any offer letter or any agreement providing for
acceleration of Company Options, or any other agreement providing for
compensation or benefits) between the Company and any Employee.
(f) "ERISA" means the Employee Retirement Income Security Act of
1974, as amended.
(g) "FMLA" means the Family Medical Leave Act of 1993, as
amended.
(h) "HIPAA" means the Health Insurance Portability and
Accountability Act of 1996, as amended.
(i) Intentionally Omitted.
(j) "IRS" means the United States Internal Revenue Service.
(k) "Multiemployer Plan" means any Pension Plan (as defined
below) that is a multiemployer plan, as defined in Section 3(37) of
ERISA.
(l) "PBGC" means the United States Pension Benefit Guaranty
Corporation.
(m) "Pension Plan" means each Company Employee Plan that is an
"employee pension benefit plan," within the meaning of Section 3(2) of
ERISA.
3.22.2 Section 3.22.2 of the Disclosure Schedule contains an accurate
and complete list of each Company Employee Plan, each Employee Agreement
under each Company Employee Plan and each Employee Agreement. The Company
has not made any plan or commitment to establish any new Company Employee
Plan or Employee Agreement, to modify any Company Employee Plan or Employee
Agreement (except to the extent required by law or to conform any such
Company Employee Plan or Employee Agreement to the requirements of any
applicable law, in each case as previously disclosed to API in writing, or
as required by this Agreement), or to enter into any Company Employee Plan
or Employee Agreement. Section 3.22.2 of the Disclosure Schedule sets forth
a table setting forth the name and salary of each employee of the Company.
23
3.22.3 The Company has provided to API (a) correct and complete copies
of all documents embodying each Company Employee Plan and each Employee
Agreement including, without limitation, all amendments thereto and all
related trust documents, (b) the three (3) most recent annual reports (Form
Series 5500 and all schedules and financial statements attached thereto),
if any, required under ERISA or the Code in connection with each Company
Employee Plan, (c) if the Company Employee Plan is funded, the most recent
annual and periodic accounting of Company Employee Plan assets, (d) the
most recent summary plan description together with the summary(ies) of
material modifications thereto, if any, required under ERISA with respect
to each Company Employee Plan, (e) all material written agreements and
contracts relating to each Company Employee Plan, including, without
limitation, administrative service agreements and group insurance
contracts, (f) all communications material to any Employee or Employees
made since January 1, 2004 relating to any Company Employee Plan and any
proposed Company Employee Plans, in each case, relating to any amendments,
terminations, establishments, increases or decreases in benefits,
acceleration of payments or vesting schedules or other events which would
result in any liability to the Company, (g) all correspondence to or from
any governmental agency relating to any Company Employee Plan, (h) all
COBRA forms and related notices, (i) all policies pertaining to fiduciary
liability insurance covering the fiduciaries for each Company Employee
Plan, (j) all discrimination tests for each Company Employee Plan for the
three (3) most recent plan years, (k) all registration statements, annual
reports (Form 11-K and all attachments thereto) and prospectuses prepared
in connection with each Company Employee Plan, and (l) the most recent IRS
determination or opinion letter issued with respect to each Company
Employee Plan.
3.22.4 To its Knowledge, the Company has performed all obligations
required to be performed by it under, is not in default or violation of,
and the Company has no Knowledge of any default or violation by any other
party to, any Company Employee Plan, and, to the Company's Knowledge, each
Company Employee Plan has been established and maintained in accordance
with its terms and in material compliance with all applicable laws,
statutes, orders, rules and regulations, including without limitation ERISA
or the Code. Any Company Employee Plan intended to be qualified under
Section 401(a) of the Code has relied upon an opinion letter issued to its
sponsor Hartford Insurance Company as to its qualified status under the
Code. To the Company's Knowledge, no "prohibited transaction," within the
meaning of Section 4975 of the Code or Sections 406 and 407 of ERISA, not
otherwise exempt under Section 408 of ERISA, has occurred with respect to
any Company Employee Plan. There are no actions, suits or claims pending
or, to the Knowledge of the Company, threatened (other than routine claims
for benefits) against any Company Employee Plan or against the assets of
any Company Employee Plan. Subject to compliance with applicable law, each
Company Employee Plan can be amended, terminated or otherwise discontinued
after the Closing Date in accordance with its terms, without liability to
the Company (other than ordinary administration expenses). There are no
audits, inquiries or proceedings pending or to the Knowledge of the
Company, threatened by the IRS, DOL, or any other Governmental Entity with
respect to any Company Employee Plan. The Company is not subject to any
penalty or tax with respect to any Company Employee Plan under Section
502(i) of ERISA or Sections 4975 through 4980 of the Code. The Company has
made all contributions and other payments required by and due under the
terms of each Company Employee Plan.
24
3.22.5 The Company has not maintained, established, sponsored,
participated in, or contributed to, any Pension Plans subject to Title IV
of ERISA.
3.22.6 At no time has the Company contributed to or been obligated to
contribute to any Multiemployer Plan. The Company has never maintained,
established, sponsored, participated in or contributed to any multiple
employer plan or to any plan described in Section 413 of the Code.
3.22.7 Except as set forth in Section 3.22.7 of the Disclosure
Schedule, no Company Employee Plan or Employment Arrangement provides, or
reflects or represents any liability to provide, retiree life insurance,
retiree health or other retiree employee welfare benefits to any Person for
any reason, except as may be required by COBRA or other applicable statute,
and the Company has never represented, promised or contracted (whether in
oral or written form) to any Employee (either individually or to Employees
as a group) or any other Person that such Employee(s) or other Person would
be provided with retiree life insurance, retiree health or other retiree
employee welfare benefits, except to the extent required by statute.
3.22.8 To its Knowledge, the Company has complied with COBRA, FMLA,
HIPAA, the Women's Health and Cancer Rights Act of 1998, the Newborns' and
Mothers' Health Protection Act of 1996, and any similar provisions of state
law applicable to its Employees. To its Knowledge, the Company has no
unsatisfied obligations to any Employees or qualified beneficiaries
pursuant to COBRA, HIPAA or any state law governing health care coverage or
extension.
3.22.9 The execution of this Agreement and the consummation of the
transactions contemplated hereby will not (either alone or upon the
occurrence of any additional or subsequent events) constitute an event
under any Company Employee Plan, Employee Agreement, trust or loan that
will or may result in any payment (whether of severance pay or otherwise),
acceleration, forgiveness of indebtedness, vesting, distribution, increase
in benefits or obligation to fund benefits or be deemed a "parachute
payment" under Section 280G of the Code with respect to any Employee.
3.22.10 To its Knowledge, the Company is in compliance with all
applicable federal, state and local laws, rules and regulations respecting
employment, employment practices, terms and conditions of employment,
employee safety arid wages and hours. To its Knowledge, the Company is not
liable for (a) any arrears of wages, severance pay or any penalty for
failure to comply with any of the foregoing, and (b) any payment to any
trust or other fund governed by or maintained by or on behalf of any
governmental authority, with respect to unemployment compensation benefits,
social security or other benefits or obligations for Employees (other than
routine payments to be made in the Ordinary Course of Business). There are
no actions, suits, claims or administrative matters pending or, to the
Knowledge of the Company, threatened against the Company relating to any
Employee, Employee Agreement or Company Employee Plan. There are no pending
or, to the Knowledge of the Company, threatened claims or actions against
the Company or any Company trustee under any worker's compensation policy.
Except as otherwise provided in the employment agreements of the
Stockholders, the services provided by each of the Company's Employees is
terminable at the will of the Company.
25
3.22.11 No work stoppage or labor strike against the Company is
pending, or to the Knowledge of the Company, threatened, or reasonably
anticipated. The Company knows of no activities or proceedings of any labor
union to organize any Employees. There are no actions, suits, claims, labor
disputes or grievances pending or, to the Knowledge of the Company,
threatened relating to any labor matters involving any Employee, including,
without limitation, charges of unfair labor practices. To its Knowledge,
the Company has not engaged in any unfair labor practices within the
meaning of the National Labor Relations Act. The Company is not presently,
nor has it been in the past, a party to, or bound by, any collective
bargaining agreement or union contract with respect to Employees and no
collective bargaining agreement is currently being negotiated by the
Company.
3.22.12 To the Knowledge of the Company, no stockholder, director,
officer, Employee or consultant of the Company is obligated under any
contract or agreement, subject to any judgment, decree or order of any
court or administrative agency that would interfere with such Person's
efforts to promote the interests of the Company or that would interfere
with the Company's business. Neither the execution nor delivery of this
Agreement, nor the carrying on of the Company's business as presently
conducted or proposed to be conducted nor any activity of such officers,
directors, Employees or consultants in connection with the carrying on of
the Company's business as presently conducted or currently proposed to be
conducted will, to the Knowledge of the Company, conflict with or result in
a breach of the terms, conditions, or provisions of, or constitute a
default under, any contract or agreement under which any of such officers,
directors, Employees, or consultants is now bound and of which the Company
has Knowledge.
3.23 Insurance. Section 3.23 of the Disclosure Schedule lists all insurance
policies and fidelity bonds covering the assets, business, equipment,
properties, operations, employees, officers and directors of the Company or any
Affiliate. There is no claim by the Company pending under any of such policies
or bonds as to which coverage has been questioned, denied or disputed. In
addition, there is no pending claim of which its total value (inclusive of
defense expenses) would reasonably be expected to exceed the policy limits. All
premiums due and payable under all such policies and bonds have been paid, (or
if installment payments are due, will be paid when, if applicable, prior to the
Closing Date) and, to its Knowledge, the Company is otherwise in material
compliance with the terms of such policies and bonds. The Company has never
maintained, established, sponsored, participated in or contributed to any
self-insurance plan.
26
3.24 Foreign Corrupt Practices Act. To its Knowledge, the Company
(including any of its officers or directors) has not taken any action which
would cause it to be in violation of the Foreign Corrupt Practices Act of 1977,
as amended, or any rules or regulations thereunder.
3.25 Complete Copies. The Company has delivered or made available to API
true and complete copies of each document (or summaries of the same) listed on
the Disclosure Schedule.
Article 4
ADDITIONAL REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDERS
Each of the Stockholders hereby severally but not jointly represents and
warrants to API, subject to such exceptions as are specifically disclosed in the
Disclosure Schedule and dated as of the date hereof, as follows:
4.1 Ownership of Company Capital Stock. Each Stockholder is the sole record
and beneficial owner of the Company Capital Stock designated as being owned by
such Stockholder on Schedule 2.1 hereof. Such Company Capital Stock is not
subject to any Liens or to any rights of first refusal of any kind, and such
Stockholder has not granted any rights to purchase such Company Capital Stock to
any other Person. Each Stockholder has the sole right to transfer such Company
Capital Stock to API. Such Company Capital Stock constitutes all of the Company
Capital Stock owned, beneficially or of record, by such Stockholder, and such
Stockholder has no options, warrants or other rights to acquire Company Capital
Stock. Upon the Closing Date, in exchange for the consideration paid pursuant to
the terms of this Agreement, API will receive good title to such Company Capital
Stock, subject to no Liens retained, granted or permitted by such Stockholder or
the Company.
4.2 Absence of Claims by the Stockholders. No Stockholder has any claim
against the Company whether present or future, contingent or unconditional,
fixed or variable under any contract or on any other basis whatsoever, whether
in equity or at law.
4.3 No Conflict. The execution and delivery by each Stockholder of this
Agreement and any Related Agreement to which it is a party and the consummation
of the transactions contemplated hereby and thereby will not, conflict with (a)
any material mortgage, indenture, lease, contract or other agreement or
instrument, permit, concession, franchise or license to which such Stockholder
or any of its properties or assets is subject, or (b) any judgment, order,
decree, statute, law, ordinance, rule or regulation applicable to such
Stockholder or his properties or assets.
4.4 Authority. All action on the part of the Stockholder necessary for the
authorization, execution and delivery of this Agreement and for the performance
of all obligations of the Stockholder hereunder has been taken. This Agreement
has been, duly executed and delivered by the Stockholder and constitutes the
valid and binding obligation of the Stockholder, enforceable against the
Stockholder in accordance with its terms, except as such enforceability may be
limited by principles of public policy and subject to the laws of general
application relating to bankruptcy, insolvency and the relief of debtors and
rules of law governing specific performance, injunctive relief or other
equitable remedies.
27
4.5 Securities Law Matters. In connection with the delivery of the API
Stock to each of the Stockholders and the issuance of the API Promissory Notes
(collectively, the "Notes") as contemplated by Section 2.6 hereof, each
Stockholder severally but not jointly hereby represents and warrants to API and
to each officer, director and agent of the Company that:
4.5.1 The Stockholder has received and reviewed this Agreement, and
certain financial and other information concerning the Company delivered to
the Stockholder together with this Agreement (including API's Annual Report
on Form 10-K for the fiscal year ended, March 28, 2004, its Current Report
on Form 10-Q for the fiscal Quarter ended September 26, 2004, and its
Registration Statement on Form S-3 filed with the Securities and Exchange
Commission on November 9, 2004 (the "S-3")). The Stockholder acknowledges
that such information concerning the Company includes "forward looking"
statements that involve a number of risks and uncertainties, including the
risks and uncertainties described in the S-3.
4.5.2 The Stockholder is aware that API does not intend to register
the offer or sale of the API Stock or the API Promissory Notes under the
Securities Act of 1933, as amended or under any similar law of any other
jurisdiction (collectively, the "Securities Acts"), that such offer and
sale are intended to be exempt from registration under the Securities Acts,
and that the Securities Acts may prohibit or severely limit the
Stockholder's ability to sell, assign, transfer or otherwise dispose of the
API Stock or the API Promissory Notes. The Stockholder is also aware that
the API Promissory Notes and the certificates representing the API Stock
will bear appropriate legends restricting their transfer pursuant to
applicable laws and this Agreement.
4.5.3 The Stockholder is acquiring the API Stock for the Stockholder's
own account, for investment purposes only and not with a view to the resale
or distribution thereof.
4.5.4 The Stockholder is an "accredited investor" (as such term is
defined in Regulation D under the Securities Act of 1933, as amended). The
Stockholder acknowledges that except as otherwise expressly provided
herein, the Company has made no representation or warranty to the
Stockholder with respect to the income or other tax consequences to the
Stockholder under the laws of any jurisdiction with respect to the
transactions contemplated by this Agreement.
4.5.5 To the full satisfaction of the Stockholder, the Stockholder has
been given the opportunity to obtain information and documents relating to
API and to ask questions of and receive answers from representatives of API
concerning API and the Stockholder's acquisition of the API Stock.
28
4.5.6 Neither the Stockholder nor any of its affiliates has
participated in or is aware of any activity that would be deemed a "general
solicitation" under the provisions of Regulation D as promulgated under the
Securities Act of 1933, as amended.
4.5.7 The Stockholder is able at this time, and in the foreseeable
future, to bear the economic risk of a total loss of the Stockholder's
investment in the API Stock.
4.5.8 The Stockholder understands that, unless the Stockholder
notifies the Company in writing to the contrary at or before the Closing,
all the Stockholder's representations and warranties contained in this
Agreement will be deemed to have been reaffirmed and confirmed as of the
Closing, taking into account all information received by the Stockholder.
Article 5
REPRESENTATIONS AND WARRANTIES OF API
API hereby represents and warrants to the Stockholders as follows:
5.1 Organization, Standing and Power. API is a corporation and Sub is a
limited liability company duly organized or formed, as the case may be, validly
existing and in good standing under the laws of the State of Delaware. API and
Sub have the corporate or limited liability power, as the case may be, to own
their respective properties and to carry on their respective businesses as now
being conducted and as currently contemplated to be conducted and are duly
qualified or licensed to do business and are in good standing in each
jurisdiction in which the failure to be so qualified or licensed would have a
material adverse effect on the business, assets (including intangible assets),
condition (financial or otherwise) or results of operations of API or Sub.
5.2 Authority. API and the Sub each have all requisite corporate or limited
liability company, as applicable, power and authority to enter into this
Agreement and any Related Agreements to which it is a party and to consummate
the transactions contemplated hereby and thereby. The execution and delivery of
this Agreement and any Related Agreements to which each is a party and the
consummation of the transactions contemplated hereby and thereby have been duly
authorized by all necessary corporate or limited liability company action on the
part of API and the Sub, as applicable, and no further action is required on the
part of either API or the Sub to authorize the Agreement and any Related
Agreements to which each is a party and the consummation of the transactions
contemplated hereby and thereby. The Board of Directors of API has unanimously
approved this Agreement for and on behalf of API and in API's capacity as the
sole member of the Sub. This Agreement and any Related Agreements to which API
and the Sub are party have been duly executed and delivered by API and/or the
Sub and constitute the valid and binding obligations of API and/or the Sub, as
applicable, enforceable against API and the Sub, as applicable, in accordance
with their terms, except as such enforceability may be limited by principles of
public policy and subject to the laws of general application relating to
bankruptcy, insolvency and the relief of debtors and rules of law governing
specific performance, injunctive relief or other equitable remedies.
29
5.3 No Conflict. The execution and delivery by API and the Sub of this
Agreement and any Related Agreements to which either of them is a party, and the
consummation of the transactions contemplated hereby and thereby, will not
result in a Conflict under (a) any provision of the articles of incorporation,
certificate of formation, operating agreement, bylaws or other charter documents
of API or the Sub, as applicable, (b) any Contract to which either API or the
Sub or any of their respective properties or assets (whether tangible or
intangible) is subject, or (c) any judgment, order, decree, statute, law,
ordinance, rule or regulation applicable to API, the Sub or any of their
respective properties (whether tangible or intangible) or assets. API and the
Sub have obtained, or will obtain prior to the Closing Date, all necessary
consents, waivers and approvals of parties to any Contract to which API, the Sub
or any of their respective properties or assets (whether tangible or intangible)
is subject as are required thereunder in connection with the transactions
contemplated hereby.
5.4 Consents. No consent, notice, waiver, approval, order or authorization
of, or registration, declaration or filing with, any Governmental Entity or any
third party, including a party to any agreement with API or the Sub (so as not
to trigger any Conflict) is required by, or with respect to, API or the Sub in
connection with the execution and delivery of this Agreement and any Related
Agreements to which API and/or the Sub is a party or the consummation of the
transactions contemplated hereby and thereby, except for (a) such consents,
notices, waivers, approvals, orders, authorizations, registrations, declarations
and filings as may be required under applicable securities laws, including,
without limitation, the Securities Act of 1933, as amended, and the Securities
Exchange Act of 1934, as amended, and (b) the approval of the API Stock for
listing on the American Stock Exchange.
5.5 Litigation. There is no investigation, litigation, or other proceeding
pending or, to the Knowledge of API or the Sub, threatened, against API, the Sub
or any of their respective assets or properties that challenges or may have the
effect of preventing, delaying, making illegal or otherwise interfering with the
transactions contemplated by this Agreement.. No Governmental Entity has
notified the either API or the Sub that the conduct of its operations as
presently conducted or as presently contemplated to be conducted is or may be in
violation of applicable law.
5.6 Securities Compliance. API has complied in all material respects with
(a) , the Securities Act of 1933, as amended, and the Securities Exchange Act of
1934, as amended, including the rules and regulations promulgated thereunder,
and (b) the listing requirements of the American Stock Exchange. In particular,
API has complied in all material respects with the requirements of the
provisions of such statutes and rules enacted and adopted as party of the
▇▇▇▇▇▇▇▇-▇▇▇▇▇ Act of 2002, as amended. API has received no notification of any
violation of any of such laws or rules from the United States Securities
Exchange Commission or any other Governmental Entity.
5.7 Brokers or Finders. Excepting a fee payable to ▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇ for
which API is entirely liable, neither API nor the Sub has incurred any
obligation or liability, contingent or otherwise, for brokerage or finders' fees
or agents' commissions or other similar payments in the connection with the
transactions contemplated by this Agreement.
30
5.8 API Stock. The shares of the API Stock shall, when issued in accordance
with Section 2.6.2 hereof, be validly issued, fully-paid and non-assessable.
5.9 Entity Classification. No Form 8832 (Entity Classification Election)
has been or will be filed with the Internal Revenue Service on behalf of Sub, it
being API's intention that Sub will be treated as an entity disregarded from API
for U.S. Federal tax purposes under Treasury Regulation Section 301.7701-3.
Article 6
COMPANY CONDUCT PRIOR TO THE CLOSING DATE
6.1 Conduct of Business of the Company. During the period from the date of
this Agreement and continuing until the earlier of the termination of this
Agreement or the Closing Date, except as API may otherwise consent in writing
(such consent not to be unreasonably withheld) or delayed, the Company agrees to
conduct, and the Stockholders agree to cause the Company to conduct, the
business of Company in a manner consistent with it Ordinary Course of Business
and to use its commercially reasonable efforts to keep available the services of
the Company's present officers' and key employees and preserve the Company's
relationships with customers, suppliers, distributors, licensors, licensees and
others having business relationships with it, all with the goal of preserving
unimpaired the Company's ongoing business as presently conducted. except to the
extent that API shall otherwise consent in writing (which consent shall not be
unreasonably withheld or delayed). The Company shall promptly notify API of any
event or occurrence or emergency not in the Ordinary Course of Business of the
Company. Except in the Ordinary Course of Business or to the extent that API
shall otherwise consent in writing (which consent shall not be unreasonably
withheld or delayed) and except as expressly set forth in Schedule 6.1 or as
otherwise set forth in the Disclosure Schedule with respect to any currently
contemplated action by the Company, the Company shall not, without the prior
written consent of API, from and after the date of this Agreement:
6.1.1 make any expenditures or enter into any commitment or
transaction exceeding $100,000 individually or $250,000 in the aggregate or
any commitment or transaction of the type described in Section 3.9 hereof
(including any commitment or transaction by means of an amendment to any
existing contract to which the Company is a party);
6.1.2 (a) sell, license or transfer to any Person any rights to any
Company Intellectual Property or enter into any agreement with respect to
any Company Intellectual Property with any Person with respect to any
Intellectual Property of any Person, (b) buy or license any Intellectual
Property or enter into any agreement with respect to the Intellectual
Property of any Person, (c) enter into any agreement with respect to the
development of any Intellectual Property with a third party, or (d) change
pricing or royalties charged by the Company to its customers or licensees,
or the pricing or royalties set or charged by Persons who have licensed
Intellectual Property to the Company;
6.1.3 commence or settle any litigation, except that the Company may
defend any litigation or administrative proceeding commenced against the
Company and may settle any litigation for a settlement consisting solely of
the payment of monies in an amount of not less than $100,000;
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6.1.4 declare, set aside, or pay any dividends on or make any other
distributions (whether in cash, stock or property) in respect of any
Company Common Stock, or split, combine or reclassify any Company Common
Stock or issue or authorize the issuance of any other securities in respect
of, in lieu of or in substitution for shares of Company Common Stock, or
repurchase, redeem or otherwise acquire, directly or indirectly, any shares
of Company Common Stock (or options, warrants or other rights exercisable
therefor) except in accordance with the agreements evidencing Company
Options and as required by this Agreement;
6.1.5 issue, grant, deliver or sell or authorize or propose the
issuance, grant, delivery or sale of, or purchase or propose the purchase
of, any shares of capital stock of the Company or any securities
convertible into, or subscriptions, rights, warrants or options to acquire,
or other agreements or commitments of any character obligating it to issue
or purchase any such capital stock or other convertible securities, except
for the issuance or acceleration of vesting of Company Options or the
issuance of Company Common Stock pursuant to the exercise of outstanding
Company Options;
6.1.6 amend the Charter Documents;
6.1.7 acquire or agree to acquire by merging or consolidating with, or
by purchasing any assets or equity securities of, or by any other manner,
any Person, or otherwise acquire or agree to acquire any assets which are
material, individually or in the aggregate, to the Company's business;
6.1.8 sell, lease, license or otherwise dispose of any material
elements of its properties or assets other than assets that have no
additional useful life or have become obsolete, including without
limitation the sale of any accounts receivable of the Company;
6.1.9 incur any indebtedness or guarantee any indebtedness or issue or
sell any debt securities or guarantee any debt securities of others;
6.1.10 grant any loans to others or purchase debt securities of others
or amend the terms of any outstanding loan agreement, excepting the API
Loan and any amendment to the documentation evidencing or securing the
Coherent Debt in connection with the transactions contemplated hereby;
6.1.11 grant any severance or termination pay (in cash or otherwise)
to any Employee, including any officer, except payments made pursuant to
standard written agreements outstanding on the date hereof and disclosed in
the Disclosure Schedule;
6.1.12 excepting actions required under this Agreement with respect to
the Plan and Company Options issued thereunder, adopt or amend any Company
Employee Plan, enter into any employment contract, pay or agree to pay any
bonus or special remuneration to any director or Employee, or increase or
modify the salaries, wage rates or other compensation (including, without
limitation, any equity-based compensation) of its Employees, except for
payments made pursuant to standard written agreements outstanding on the
date hereof and disclosed in the Disclosure Schedule;
32
6.1.13 revalue any of its assets (whether tangible or intangible),
including without limitation writing down the value of inventory or writing
off notes or accounts receivable;
6.1.14 pay, discharge or satisfy, in an amount in excess of $50,000 in
anyone case, or $100,000 in the aggregate, any claim, liability or
obligation (absolute, accrued, asserted or un asserted, contingent or
otherwise), other than liabilities reflected or reserved against in the
Interim Balance Sheet;
6.1.15 make or change any material election in respect of Taxes, adopt
or change any accounting method in respect of Taxes, enter into any closing
agreement, settle any claim or assessment in respect of Taxes; or consent
to any extension or waiver of the limitation period applicable to any claim
or assessment in respect of Taxes;
6.1.16 enter into any strategic alliance or joint marketing
arrangement or agreement;
6.1.17 enter into any agreement to purchase or sell any interest in
real property, grant any security interest in any real property, enter into
any lease, sublease, license or other occupancy agreement with respect to
any real property or alter, amend, modify or terminate any of the terms of
the Lease Agreement; or
6.1.18 take, or agree in writing or otherwise to take, any of the
actions described in the foregoing subsections of this Section 6.1, or any
other action that would (a) prevent the Company or any of the Stockholders
from performing, or cause the Company or any of the Stockholders not to
perform, their respective obligations hereunder, or (b) cause or result in
any of its respective representations and warranties contained herein being
untrue or incorrect in any material respect.
6.2 No Solicitation. Until the earlier of (a) the Closing Date, or (b) the
date of termination of this Agreement pursuant to the provisions of Section 10.1
hereof, neither the Company nor the Stockholders shall (nor shall the Company
permit, any of its officers, directors, employees, stockholders, agents,
representatives or affiliates to), directly or indirectly, take any of the
following actions with any party other than API and its designees:
6.2.1 solicit, encourage, seek, entertain, support, assist, initiate
or participate in any inquiry, negotiations or discussions, or enter into
any agreement, with respect to any offer or proposal to acquire all or any
material part of the Company's business, properties, Intellectual Property
or assets, or any amount of the Company Capital Stock (whether or not
outstanding), whether by merger, purchase of assets, tender offer, license
or otherwise, or effect any such transaction;
6.2.2 disclose any information not customarily disclosed to any Person
concerning the Company's business, technologies or properties, or afford to
any Person access to its properties, technologies, books or records, not
customarily afforded such access, (c) assist or cooperate with any Person
to make any proposal to purchase all or any part of the Company Capital
Stock or assets of the Company, or (d) enter into any agreement with any
Person providing for the acquisition of the Company, whether by merger,
purchase of assets, license, tender offer or otherwise.
33
6.3 Disclosure of Solicitation. In the event that the Company, any
Stockholder shall receive, prior to the Closing Date or the termination of this
Agreement in accordance with Section 10.1 hereof, any offer, proposal, or
request, directly or indirectly, of the type referenced in this Section, or any
request for disclosure or access as contemplated by Section 6.2.2 hereof, the
Company or such Stockholder, as applicable, shall immediately (a) suspend any
discussions with such offeror or party with regard to such offers, proposals, or
requests, and (b) notify API thereof, including information as to the identity
of the Person making any such offer or proposal and the specific terms of such
offer or proposal, as the case may be, and such other information related
thereto as API may reasonably request.
6.4 Injunctive Relief. The parties hereto agree that irreparable damage
would occur in the event that the provisions of Section 6.2 and 6.3 hereof were
not performed in accordance with their specific terms or were otherwise
breached. It is accordingly agreed by the parties hereto that API shall be
entitled to seek an immediate injunction or injunctions, without the necessity
of proving the inadequacy of money damages as a remedy and without the necessity
of posting any bond or other security, to prevent breaches of the provisions of
such Sections and to enforce specifically the terms and provisions hereof in any
court of the United States or any state having jurisdiction, this being in
addition to any other remedy to which API may be entitled at law or in equity.
6.5 Procedures for Requesting API Consent. If the Company desires to take
an action which would be prohibited pursuant to Section 6.1 hereof without the
written consent of API, prior to taking such action the Company may request such
written consent by sending an e-mail or facsimile to:
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇, Chief Executive Officer
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
E-mail address: ▇▇▇▇▇▇@▇▇▇▇▇▇▇▇▇▇▇▇▇▇▇▇.▇▇▇
34
Article 7
ADDITIONAL AGREEMENTS
7.1 Termination of Options. The Company shall submit to API for reasonable
review and approval any materials to be submitted to any person holding options
to purchase Company Capital Stock in connection with the termination thereof
(collectively, the "Soliciting Materials"). The Company shall (a) promptly
submit for approval by its Stockholders by the requisite vote any payments of
cash or stock contemplated by this Agreement that may constitute "parachute
payments" pursuant to Section 280G of the Code, such that all such payments
resulting from the transactions contemplated hereby shall not be deemed to be
"parachute payments" pursuant to Section 280G of the Code or shall be exempt
from such treatment under such Section 280G, or (b) deliver to API evidence
reasonably satisfactory to API that a Stockholder vote was held in conformance
with Section 280G and the regulations thereunder, or that such requisite
Stockholder approval has not been obtained with respect to any payment of cash
or stock that may be deemed to constitute a "parachute payment" within the
meaning of Section 280G of the Code and, as a consequence, that such "parachute
payment" shall not be made or provided.
7.2 Due Diligence. The Company shall afford API and its accountants,
counsel and other representatives, reasonable access for due diligence purposes
during the period from the date hereof and prior to the Closing Date to the
following (except as may be limited by contracts with Governmental Entities
which require security clearances that API does not have, in which case a list
of such contracts and, to the extent not prohibited thereunder, a summary of the
subject matter of each such contract will be provided in writing by the Company
to API promptly after the date hereof, and except as may be limited by contracts
which contain a confidentiality clause prohibiting such disclosure, in which
case a list of such contracts and, to the extent not prohibited thereunder, a
summary of the subject matter of each such contract will be provided in writing
by the Company to API promptly after the date hereof and the Company and API
agree to use commercially reasonable efforts to allow API to review such
contracts):
7.2.1 all of the Company's properties, books, contracts, commitments
and records, excluding the Company's source code;
7.2.2 all other information concerning the business, properties and
Personnel (subject to restrictions imposed by applicable law and to loss of
the status of any Intellectual Property Rights as a trade secret under
applicable law) of the Company as API may reasonably request;
7.2.3 The Company agrees to make available at the Company's
headquarters to API and its accountants, counsel and other representatives
copies of internal financial statements (including all Returns and
supporting documentation) promptly upon request. No information or
knowledge obtained in any investigation pursuant to this Section 7.2, or
otherwise shall affect or be deemed to modify any representation or
warranty contained herein or the conditions to the obligations of the
parties to consummate the transactions contemplated hereby in accordance
with the terms and provisions hereof.
7.3 Confidentiality. Each of the parties hereto hereby agrees that the
information obtained in any investigation pursuant to Section 7.2 hereof, or
pursuant to the negotiation and execution of this Agreement or the effectuation
of the transactions contemplated hereby, shall be governed by the terms of that
certain non-disclosure letter agreement dated as of February 11, 2004 (the
"Confidential Disclosure Agreement") between the Company and API.
35
7.4 Expenses. Whether or not the purchase of the Company Capital Stock from
each Stockholder is consummated, all fees and expenses incurred in connection
with such purchase including, without limitation, all legal, accounting,
financial advisory, consulting and all other fees and expenses of third parties
incurred by a party in connection with the negotiation and effectuation of the
terms and conditions of this Agreement and the transactions contemplated hereby
("Third Party Expenses"), shall be the obligation of the respective party
incurring such fees and expenses. The Company shall not incur Third Party
Expenses after the Closing Date without the consent of API which consent shall
not be unreasonably withheld or delayed. Promptly following the Closing, the
Stockholders shall reimburse the Company for all Third Party Expenses incurred
by the Company in excess of $120,000.
7.5 Public Disclosure. No party to this Agreement shall issue any statement
or communication to any third party (other than their respective agents)
regarding the subject matter of this Agreement or the transactions contemplated
hereby, including, if applicable, the termination of this Agreement and the
reasons therefor, without the consent of the other party, except that this
restriction shall be subject to API's obligation to comply with applicable
securities laws and the rules of the American Stock Exchange.
7.6 Consents. The Company shall use commercially reasonable efforts to
obtain all necessary consents, waivers and approvals of any parties to any
Contract (including with respect to the Lease Agreement) as are required
thereunder in connection with the transactions contemplated by this Agreement to
remain in full force and effect after the Closing, so as to preserve all rights
of, and benefits to, the Company under each such Contract from and after the
Closing Date. All such required consents, waivers and approvals are identified
in Section 3.6 of the Disclosure Schedule.
7.7 FIRPTA Compliance. On the Closing Date, each Stockholder shall deliver
to API a properly executed statement (a "FIRPTA Compliance Certificate") in a
form reasonably acceptable to API for purposes of satisfying API's obligations
under Treasury Regulation Section 1.1445-2(c)(3).
7.8 Reasonable Efforts. Subject to the terms and conditions provided in
this Agreement, each of the parties hereto shall use commercially reasonable
efforts to take promptly, or cause to be taken, all actions, and to do promptly,
or cause to be done, all things necessary, proper or advisable under applicable
laws and regulations to consummate and make effective the transactions
contemplated hereby, to obtain all necessary waivers, consents and approvals and
to effect all necessary registrations and filings and to remove any injunctions
or other impediments or delays, legal or otherwise, in order to consummate and
make effective the transactions contemplated by this Agreement for the purpose
of securing to the parties hereto the benefits contemplated by this Agreement,
including, without limitation, (a) commercially reasonable and prompt efforts to
satisfy and assist in satisfying all conditions to Closing set forth in Article
8 hereof, and (b) assistance and information from the Company, the Stockholders,
the Other Stockholders, management of the Company and any other agent or
representative of the Company in the preparation of the Year-End Financials and
Interim Financials and the preparation and execution of any client
representation letter or other similar letters with respect to an audit of the
Year-End Financials; provided, however, that API shall not be required to agree
to any divestiture by API or the Company or any of API's subsidiaries or
affiliates, of shares of capital stock or of any business, assets or property of
API or its subsidiaries or affiliates, or of the Company, or the imposition of
any material limitation on the ability of any of them to conduct their
businesses or to own or exercise control of such assets, properties and stock.
36
7.9 Notification of Certain Matters. During the period prior to the Closing
Date, each party shall give prompt notice to each other party hereto of (a) the
occurrence or non-occurrence of any event, the occurrence or non-occurrence of
which is likely to cause any representation or warranty of such party contained
in this Agreement to be untrue or inaccurate at or prior to the Closing Date,
and (b) any failure of such party to comply with or satisfy any covenant,
condition or agreement to be complied with or satisfied by it hereunder,
provided, however, that the delivery of any notice pursuant to this Section
shall not constitute an acknowledgment or admission of a breach of this
Agreement nor limit or otherwise affect any remedies available to the party
receiving such notice; provided, however, that no party shall have any liability
to the other party hereunder with respect to matters disclosed in any such
notice if (i) the party who received the same thereafter elects to proceed with
the Closing of the transactions contemplated hereby, or (ii) except as otherwise
expressly provided in Section 10.2 hereof, the other party elects not to proceed
with the Closing of the transactions contemplated hereby..
7.10 Additional Documents and Further Assurances. Each party hereto, at the
request of another party hereto, shall execute and deliver such other
instruments and do and perform such other acts and things as may be necessary or
desirable for effecting consummating the transactions contemplated hereby.
7.11 Closing Date Balance Sheet. The Company shall prepare and deliver the
Closing Date Balance Sheet to API on the day prior to the Closing Date.
7.12 Statement of Expenses. On the Closing, Date, the Company shall provide
API with a statement of Estimated Third Party Expenses incurred by the Company
as of the Closing Date (the "Statement of Expenses").
7.13 Proprietary Information and Inventions Assignment Agreement. The
Company shall cause each employee and contractor of the Company to enter into
and execute its standard proprietary information and inventions assignment
agreement.
7.14 Release of Liens. The Company shall use commercially reasonable
efforts to file, or shall have filed, all agreements, instruments, certificates
and other documents, in form and substance reasonably satisfactory to API, that
are necessary or appropriate to effect the release of all Liens set forth in
Schedule 8.2.3 to this Agreement.
7.15 Stockholder Information. Not less than three (3) days prior to the
Closing Date, the Company shall deliver a spreadsheet (the "Spreadsheet")
certified as complete and correct by the Chief Executive Officer and Chief
Financial Officer of the Company as of the Closing, that and which shall
separately list, as of the Closing, (a) all Stockholders and their respective
addresses, (b) the number of shares of Company Capital Stock held by the
Stockholders such Persons (including whether such shares are Class A Common
Stock, Class B Common Stock), (c) the amount of the Cash Payment to which each
Stockholder is entitled pursuant to Section 2.6.1 hereof, (d) the number of
shares of the API Stock to which each Stockholder is entitled pursuant to
Section 2.6.2 hereof, and (e) the original principal amount of each API
Promissory Note to which each Stockholder is entitled pursuant to Section 2.6.3,
hereof.
37
7.16 DP1 Debt. On the date hereof, the Company shall give notice to DP1 of
the prepayment in full of the DP1 Debt and API shall loan to the Company (the
"API Loan") the amount of $4,050,000, plus all interest accrued and unpaid
through the date following the date hereof on the DP1 Debt, against delivery to
API of (i) the Company's secured promissory note in the initial aggregate
principal amount equal to the amount of the API Loan and in the form attached
hereto as Exhibit D, and (ii) the Company's security agreement in the form
attached hereto as Exhibit D-1 (the "API Security Agreement"). API shall pay the
proceeds of the API Loan directly to DP1 in accordance with instructions
provided by the Company. The Company represents that the proceeds of the API
Loan shall be sufficient to pay in full all principal, interest and other
amounts payable in respect of the Coherent Debt and the DP1 Debt. At the
Closing, API shall terminate the API Security Agreement and release any and all
security interests it may hold in assets of the Company pursuant thereto.
Article 8
CONDITIONS TO THE CLOSING
8.1 Conditions to Obligations of API, the Sub, the Company and the
Stockholders. The respective obligations of API, the Sub, the Company and the
Stockholders to consummate the transactions contemplated hereby shall be subject
to the satisfaction, at or prior to the Closing Date, of the following
conditions:
8.1.1 No Governmental Entity shall have enacted, issued, promulgated,
enforced or entered any statute, rule, regulation, executive order, decree,
injunction or other order (whether temporary, preliminary or permanent)
which is in effect and which has the effect of making the transactions
contemplated hereby illegal or otherwise prohibiting consummation thereof.
8.1.2 No temporary restraining order, preliminary or permanent
injunction or other order issued by any court of competent jurisdiction or
other legal restraint or prohibition preventing the consummation of the
transactions contemplated hereunder shall be in effect, nor shall any
proceeding brought by an administrative agency or commission or other
governmental authority or instrumentality, domestic or foreign, seeking any
of the foregoing be threatened or pending.
8.2 Conditions to the Obligations of API and the Sub. The obligations of
API and the Sub to consummate and effect this Agreement and the transactions
contemplated hereby shall be subject to the satisfaction at or prior to the
Closing Date of each of the following conditions, any of which may be waived, in
writing, exclusively by API:
8.2.1 Representations, Warranties and Covenants. The representations
and warranties of the Company and the Stockholders in this Agreement (other
than the representations and warranties of the Company and the Stockholders
as of a specified date, which shall be true and correct as of such date)
shall have been true and correct on the date they were made and shall be
true and correct in all material respects on and as of the Closing Date as
though such representations and warranties were made on and as of such
time, and the Company and the Stockholders shall have performed and
complied in all material respects with all covenants and obligations under
this Agreement required to be performed and complied with by such parties
as of the Closing.
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8.2.2 Third Party Consents. The Company shall have delivered to API
all necessary consents, waivers and approvals of parties to any Contract as
are required thereunder in connection with the transactions contemplated
hereby, or for any such Contract to remain in full force and effect without
limitation, modification or alteration after the Closing Date.
8.2.3 Release of Liens. API shall have received from the Company a
duly and validly executed copy of all agreements, instruments, certificates
and other documents, in form and substance reasonably satisfactory to API,
that are necessary or appropriate to evidence the release of all Liens set
forth in Schedule 8.2.3 to this Agreement.
8.2.4 Employment Agreements. ▇▇▇▇▇▇ and ▇▇▇▇▇▇▇▇▇▇ shall have executed
and delivered to API Employment Agreements in the forms respectively
attached hereto as Exhibits F and G.
8.2.5 API Loan. The Company shall have used all of the proceeds of the
API Loan to payoff the Coherent Debt.
8.2.6 No Material Adverse Effect. There shall not have occurred any
event of any character that has had or is reasonably likely to have a
Material Adverse Effect since the date of this Agreement.
8.2.7 Certificate of the Company. API shall have received a
certificate, executed by the Chief Executive Officer and Secretary of the
Company to the effect that, as of the Closing:
(a) all representations and warranties made by the Company and in
this Agreement (other than the representations and warranties of the
Company as of a specified date, which were true and connect as of such
date) were true and connect on the date they were made and are true
and connect in all material respects on and as of the Closing Date as
though such representations and warranties were made on and as of such
time;
(b) all covenants and obligations under this Agreement to be
performed by the Company or the Stockholders on or before the Closing
have been so performed in all material respects; and
(c) the Charter Documents have not been amended since the date of
this Agreement; and
(d) the resolutions unanimously adopted by the Board of Directors
of the Company approving this Agreement and the transactions
contemplated hereby have not been amended or revoked.
39
8.2.8 Certificate of the Stockholders. API shall have received a
certificate, validly executed by each Stockholder, to the effect that, as
of the Closing all representations and warranties made by the Stockholders
in this Agreement (other than the representations and warranties of the
Stockholders as of a specified date, which were true and connect as of such
date) were true and correct on the date they were made and are true and
correct in all material respects on and as of the Closing Date as though
such representations and warranties were made on and as of such time.
8.2.9 Certificate of Good Standing. API shall have received a
certificate of good standing for the Company from the Michigan Department
of Labor and Economic Growth that is dated within a reasonable period prior
to Closing.
8.2.10 Amex Approval. The shares of the API Stock shall have been duly
approved for listing on the American Stock Exchange.
8.2.11 FIRPTA Certificate. API shall have received a copy of
the FIRPTA Compliance Certificate for each Stockholder.
8.2.12 Closing Date Balance Sheet. API shall have received the Closing
Date Balance Sheet.
8.2.13 Statement of Expenses. API shall have received from the Company
the Statement of Expenses.
8.2.14 Proprietary Information and Inventions Assignment Agreement.
The Company shall have provided evidence satisfactory to API that each
employee and contractor has entered into and executed a standard
proprietary information and inventions assignment agreement with the
Company effective as of such employee's or contractor's first date of
employment or service.
8.2.15 Termination of Options. All holders of Company Options
outstanding as of the Closing Date shall have agreed to the termination or
cancellation of the same as of the Closing Date, and the Company shall have
delivered to API written evidence of such, termination or cancellation.
8.2.16 Spreadsheet. The Company shall have delivered the Spreadsheet
to API.
8.2.17 Certificates of Merger. The Company shall have executed and
delivered the Certificates of Merger.
8.2.18 MEDC Loan. Either (i) the "MEDC Loan Agreement" shall have been
amended to eliminate any right on the part of MEDC to convert the amounts
owed thereunder into an equity interest in the Company, or (ii) all amounts
owing under the "MEDC Loan" shall have been paid in full. As used in this
Section 8.2.18, the term MEDC Loan Agreement means that certain Convertible
Loan Agreement between the Company and the Michigan Economic Development
Corporation ("MEDC") dated September 15, 2004, and the term MEDC Loan means
all amounts advanced to the Company under the terms of the MEDC Loan
Agreement.
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8.3 Conditions to Obligations of the Company and Stockholders. The
obligations of the Company and the Stockholders to consummate and effect this
Agreement and the transactions contemplated hereby shall be subject to the
satisfaction at or prior to the Closing Date of each of the following
conditions, any of which may be waived, in writing, exclusively by the Company
and the Stockholder Representative:
8.3.1 Representations, Warranties and Covenants. The representations
and warranties of API in this Agreement (other than the representations and
warranties of API as of a specified date, which shall be true and correct
as of such date) shall have been true and correct when made and shall be
true and correct in all material respects on and as of the Closing Date as
though such representations and warranties were made on and as of such
time, and API shall have performed and complied in all material respects
with all covenants and obligations under this Agreement required to be
performed and complied with by it as of the Closing Date.
8.3.2 Certificate of API. Company shall have received a certificate
executed on behalf of API by its Chief Executive Officer for and on its
behalf to the effect that, as of the Closing:
(a) all representations and warranties made by API in this
Agreement (other than the representations and warranties of API as of
a specified date, which true and correct as of such date) were true
and correct on the date they were made and are true and correct in all
material respects on and as of the Closing Date as though such
representations and warranties were made on and as of such time; and
(b) all covenants and obligations under this Agreement to be
performed by API on or before the Closing have been so performed in
all material respects.
8.3.3 Employment Agreements. The Company shall have executed and
delivered to ▇▇▇▇▇▇ and ▇▇▇▇▇▇▇▇▇▇ their respective Employment Agreements
in the forms attached hereto as Exhibits F and G.
8.3.4 API Security Agreement. API shall have discharged the security
interest created by the API Security Agreement and made all filings
necessary to terminate the same and shall have caused the amount the API
Loan then outstanding to be contributed to the capital of Sub and to
discharge the API Promissory Note and ▇▇▇▇ the same "cancelled.".
8.3.5 Payment of Cash Payment and Issuance of API Promissory Notes.
API shall have (a) paid each Stockholder that portion of the Cash Payment
to which each is entitled, (b) issued to each Stockholder a duly endorsed
certificate for that number of shares of API Stock to which each is
entitled, and (c) issued and delivered the API Promissory Notes to each
Stockholder in the original principal amount to which each is entitled, all
as shown on the Spreadsheet.
8.3.6 Security and Intercreditor Agreements. API shall have executed
and delivered the Security Agreement in the form attached hereto as Exhibit
C and made all filings necessary to perfect the security interest granted
thereby, and API and the Stockholders shall have executed and delivered the
Intercreditor Agreement in the form attached hereto as Exhibit E.
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8.3.7 Certificate of Secretary of API. The Stockholder Representative
shall have received certificates, validly executed by the Secretary of API,
certifying as to the valid adoption of resolutions of the Boards of
Directors of API approving this Agreement and the consummation of the
transactions contemplated hereby and that none of such resolutions have
been modified or revoked.
8.3.8 Certificate of Good Standing. The Company shall have received a
long-form certificate of good standing from the Secretary of State of the
State of Delaware for API that is dated within a reasonable period prior to
Closing.
8.3.9 Certificates of Merger. The Sub shall have executed and
delivered the Certificates of Merger.
Article 9
INDEMNITY
9.1 Survival of Representations and Warranties. The representations and
warranties of the Company and the Stockholders contained in this Agreement, or
in any certificate or other instruments delivered pursuant to this Agreement,
shall survive for a period of eighteen (18) months following the Closing Date;
provided, however, that the representations and warranties contained in Section
3.10 (Tax Matters) shall survive until the expiration of the applicable statute
of limitations, the representations and warranties contained in Section 3.2
(Company Capital Structure) shall survive indefinitely, and that any breaches of
the representations and warranties arising due to fraud shall survive the
Closing Date until the expiration of the applicable statute of limitations. The
representations and warranties of API contained in this Agreement, or in any
certificate or other instrument delivered pursuant to this Agreement, shall
survive for a period of eighteen (18) months following the Closing Date;
provided, however, that any breaches of the representations and warranties of
API arising due to fraud shall survive the Closing Date until the expiration of
the applicable statute of limitations. The expiration of such eighteen (18)
month or longer period, as applicable, shall be hereinafter referred to with the
respect to the party giving the representation and warranty in question as the
"Survival Date."
9.2. Stockholders Indemnification. The Stockholders, severally and not
jointly, agree to indemnify and hold API and its officers, directors and
affiliates (the "API Indemnified Parties"), harmless, to the extent of their
respective Pro Rata Portion of the Merger Consideration, against all claims,
losses, liabilities, damages, deficiencies, costs and expenses, including
reasonable attorneys' fees, costs and expenses in connection with any action or
proceeding or in connection with any investigation (hereinafter individually a
"Loss" and collectively "Losses") actually incurred or sustained by the API
Indemnified Parties, or any of them, directly or indirectly, as a result of (a)
any breach or inaccuracy of a representation or warranty of the Company or the
Stockholders contained in this Agreement or in any certificate or other
instruments delivered by them pursuant to this Agreement, (b) any failure by the
Company or the Stockholders to perform or comply with any covenant applicable to
any of them contained in this Agreement, or (c) any claim by any Person for
brokerage or finder's fees or commissions or similar payments based upon any
agreement or understanding alleged to have been made by such Person with the
Company or any Stockholder in connection with the transactions contemplated by
this Agreement. The Stockholders shall not have any right of contribution from
the Company or API with respect to any Loss claimed by an API Indemnified Party
against any Stockholder.
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9.3. API Indemnification. API agrees to indemnify and hold the Stockholders
(the "Stockholder Indemnified Parties"; together with the API Indemnified
Parties, the "Indemnified Parties" and each, without distinction, an
"Indemnified Party"), harmless against all Losses incurred or sustained by the
Stockholder Indemnified Parties, or any of them, directly or indirectly, as a
result of (a) any material breach or inaccuracy of a representation or warranty
of API contained in this Agreement or in any certificate or other instruments
delivered by API pursuant to this Agreement, (b) any material failure by API to
perform or comply with any covenant applicable to API contained in this
Agreement, or (c) any claim by any Person for brokerage or finder's fees or
commissions or similar payments based upon any agreement or understanding
alleged to have been made by such Person with API in connection with the
transactions contemplated by this Agreement.
9.4 Deductibles.
9.4.1 PI Deductible. Notwithstanding any provision of this Agreement
to the contrary, except as set forth in the second sentence of this Section
9.4.1, the API Indemnified Parties may not recover any Losses under Section
9.2 hereof unless and until one or more API Claim Notices (as defined
below) identifying such Losses under Section 9.2 have resulted in Losses in
excess of $100,000 in the aggregate (the "API Deductible"), in which case
API shall be entitled to recover all Losses so identified only to the
extent that such Losses in the aggregate are in excess of the Deductible
Amount. Notwithstanding the foregoing, API shall be entitled to recover
for, and the Deductible Amount shall not apply as a threshold to, any and
all claims or payments made with respect to Losses resulting from any
inaccuracy, breach or misrepresentation contained in the representations
and warranties contained in Sections 2.2 or 4.1 hereof. For purposes
hereof, "API Claim Notice" means a certificate signed by any officer of API
and delivered to the Stockholder Representative (1) stating that API has
paid, sustained, incurred, or properly accrued, or reasonably anticipates
that it will have to pay, sustain, incur, or accrue Losses which are
indemnifiable pursuant to Section 9.2 hereof, and (2) specifying in
reasonable detail the individual items of Losses included in the amount so
stated, the date each such item was paid, sustained, incurred, or properly
accrued, or the basis for such anticipated liability, and the nature of the
misrepresentation, breach of warranty or covenant to which such item is
related.
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9.4.2 Stockholder Deductible. Notwithstanding any provision of this
Agreement to the contrary, except as set forth in the second sentence of
this Section 9.4.2, each of the Stockholder Indemnified Parties, taken
individually may not recover any Losses under Section 9.2 hereof unless and
until one or more Stockholder Claim Notices (as defined below) have
resulted in Losses in excess of $35,000 in the aggregate for each
Stockholder (for each Stockholder, the "Stockholder Deductible"), in which
case each such Stockholder shall be entitled to recover all Losses so
identified only to the extent that such Losses in the aggregate are in
excess of the Stockholder Deductible Amount. For purposes hereof,
"Stockholder Claim Notice" means a notice delivered by the Stockholder
Representative to API (1) stating that one or more Stockholders have paid,
sustained, incurred, or properly accrued, or reasonably anticipate that
they will have to pay, sustain, incur, or accrue Losses which are
indemnifiable pursuant to Section 9.3 hereof, and (2) specifying in
reasonable detail the individual items of Losses included in the amount so
stated, the date each such item was paid, sustained, incurred, or properly
accrued, or the basis for such anticipated liability, and the nature of the
misrepresentation, breach of warranty or covenant to which such item is
related.
9.5 Claims for Indemnification; Objections to Claims.
9.5.1 An API Claim Notice or a Stockholder Claim Notice (each, without
distinction, a "Claim Notice") shall be valid only if received on or prior
to the date fifteen (15) days after the applicable Survival Date with
respect to facts and circumstances existing prior to the Survival Date. If
the party(ies) with a potential obligation in respect of the matter
described in such Claim Notice (the "Indemnifying Parties" and each,
without distinction, an "Indemnifying Party") do(es) not object in writing
within the thirty (30) day period following delivery of such Claim Notice,
such failure to so object shall be an irrevocable acknowledgment by the
Indemnifying Party(ies) that the Indemnified Party(ies) is(are) entitled to
the full amount of the claim for Losses set forth in such Claim Notice. The
Indemnifying Party(ies) may object to any claim set forth in a Claim Notice
by giving notice of such objection (each, a "Claim Objection Notice")
within thirty (30) day period following receipt of the related Claim
Notice. The Claim Objection Notice shall set forth the basis for such
objection in reasonable detail.
9.6 Claims Among the Parties.
9.6.1 In the event that an Indemnifying Party delivers a Claim
Objection Notice, the Indemnified Party(ies) and the Indemnifying
Party(ies) shall attempt in good faith to resolve the claim set forth in
the one or more Claim Notices triggering such Claim Objection Notice. If
the Indemnified Party(ies) and the Indemnifying Party(ies) shall reach such
a resolution, they shall memorialize such resolution in a written agreement
and execute the same.
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9.6.2 If the Indemnified Party(ies) and the Indemnifying Party(ies)
are unable to reach such a resolution within thirty (30) days after
delivery of such Claim Objection Notice, either the Indemnified Party(ies)
or the Indemnifying Party(ies) may demand arbitration of the matter unless
the amount of the Loss is at issue in pending litigation with a third
party, in which event arbitration shall not be commenced until the amount
of the third party claim in conclusively determined or the Indemnified
Party(ies) and the Indemnifying Party(ies) agree to arbitration before such
determination. In either such event, the dispute between the Indemnified
Party(ies) and the Indemnifying Party(ies) shall be settled by arbitration
conducted by one arbitrator mutually acceptable to the Indemnified
Party(ies) and the Indemnifying Party(ies). In the event that, within
thirty (30) days after submission of any dispute to arbitration, the
Indemnified Party(ies) and the Indemnifying Party(ies) are unable to agree
on one arbitrator, then, within fifteen (15) days after the end of such
thirty (30) day period, the Indemnified Party(ies) on the one hand and the
Indemnifying Party(ies) on the other hand shall select one arbitrator from
the American Arbitration Association roster of commercial neutrals for the
Southfield, Michigan (or any successor) office of the American Arbitration
Association. The two arbitrators so selected shall select a third
arbitrator within ten (10) days and all three (3) persons so selected shall
constitute the arbitration panel that shall resolve such dispute by a vote
of two of the three of them. If either the Indemnified Party(ies) or the
Indemnifying Party(ies) fail(s) to so select an arbitrator during such
fifteen (15) day period, then the one arbitrator selection by either side
of the dispute shall conduct the arbitration. If neither side of the
dispute selects an arbitrator within such fifteen (15) day period, the
dispute shall instead be settled by litigation between the parties thereto
in the Federal Circuit Court for the Eastern District of Michigan and if
such court does not have jurisdiction over such dispute, by the Circuit
Court for Washtenaw County, Michigan.
9.6.3 The arbitration of any dispute arising out a Claim Notice shall
be held in Ann Arbor, Michigan under the complex litigation rules then in
effect for the American Arbitration Association. The arbitrator(s) shall
determine how all expenses relating to the arbitration shall be paid,
including without limitation, the respective expenses (including legal fees
and expenses) of each party, the fees of each arbitrator, and the
administrative fee the American Arbitration Association. The decision of
the arbitrator or a majority of the three arbitrators, as the case may be,
as to the validity and amount of any claim any Claim Notice shall set forth
the award, if any, be final, binding, and conclusive upon the parties to
this Agreement but only if set forth in a reasoned opinion setting forth
findings of fact and conclusions of law supported by applicable precedent.
Subject to delivery of such opinion to all parties to the subject dispute,
judgment upon any award rendered by the arbitrator(s) may be entered in any
court having jurisdiction and sitting in the State of Michigan.
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9.7 Third-Party Claims.
9.7.1 In the event that API or any Stockholder shall become subject to
a proceeding initiated by a Person not a party to this Agreement which may
result in a Loss to any Indemnified Party (each a "Third Party
Proceeding"), the Indemnified Party shall promptly give notice of such
Third Party Proceeding to the applicable Indemnifying Parties, which notice
shall set forth the basis for the basis of the claim made in such Third
Party Proceeding in reasonable detail (including, if applicable, the
Section of this Agreement to which such claim relates) and, if such claim
is limited in amount, the amount of such limit.
9.7.2 If any Third Party Proceeding is brought against an Indemnified
Party and it gives notice to the Indemnifying Party(ies) of the
commencement of such Third Party Proceeding, the Indemnifying Party(ies)
will, unless the claim involves Taxes, be entitled to participate in such
Third Party and, to the extent that it wishes (unless (a) the Indemnifying
Party(ies) is(are) also a party to such Third Party Proceeding and the
Indemnified Party determines in good faith that joint representation would
be inappropriate, or (b) the Indemnifying Party(ies) fail(s) to provide
reasonable assurance to the Indemnified Party(ies) of its (their) financial
capacity to defend such Third Party Proceeding and provide indemnification
with respect to such Third Party Proceeding), to assume the defense of such
Third Party Proceeding with counsel reasonably satisfactory to the
Indemnified Party(ies) and, after notice from the Indemnifying Party(ies)
to the Indemnified Party(ies) of its(their) election to assume the defense
of such Third Party Proceeding, the Indemnifying Party(ies) will not, as
long as it(they) diligently conduct(s) such defense, be liable to the
Indemnified Party(ies) under this Section for any fees of other counsel or
any other expenses with respect to the defense of such Third Party
Proceeding, in each case subsequently incurred by the Indemnified
Party(ies) in connection with the defense of such Third Party Proceeding,
other than reasonable costs of investigation. If the Indemnifying
Party(ies) assume(s) the defense of a Third Party Proceeding: (i) it will
be conclusively established for purposes of this Agreement that the claims
made in that Third Party Proceeding are within the scope of and subject to
indemnification; (ii) no compromise or settlement of such claims may be
effected by the Indemnifying Party(ies) without the Indemnified
Party's(ies') consent unless (A) there is no finding or admission of any
violation of law or any violation of the rights of any Person and no effect
on any other claims that may be made against the Indemnified Party(ies),
and (B) the sole relief provided is monetary damages that are paid in full
by the Indemnifying Party(ies); and (iii) the Indemnified Party(ies) will
have no liability with respect to any compromise or settlement of such
claims effected without its(their) consent. If notice is given to an
Indemnifying Party(ies) of the commencement of any Third Party Proceeding
and the Indemnifying Party(ies) do(es) not, within ten (10) days after the
Indemnified Party's(ies') notice is given, give notice to the Indemnified
Party(ies) of its(their) election to assume the defense of such Third Party
Proceeding, the Indemnifying Party(ies) will be bound by any determination
made in such Third Party Proceeding or any compromise or settlement
effected by the Indemnified Party(ies).
9.7.3 Notwithstanding the foregoing, if an Indemnified Party
determines in good faith that there is a reasonable probability that a
Third Party Proceeding may adversely affect it or its affiliates other than
as a result of monetary damages for which it would be entitled to
indemnification under this Agreement, such Indemnified Party may, by notice
to the Indemnifying Party(ies), assume the exclusive right to defend,
compromise, or settle such Third Party Proceeding, but the Indemnifying
Party(ies) will not be bound by any determination of a Third Party
Proceeding so defended or any compromise or settlement effected without its
consent (which may not be unreasonably withheld).
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9.7.4 The parties hereto hereby consent to the non-exclusive
jurisdiction of any court in which a Third Party Proceeding is brought
against any Indemnified Person for purposes of any claim that an
Indemnified Person may have under this Agreement with respect to such Third
Party Proceeding or the matters alleged therein, and agree that process may
be served on the Indemnifying Party(ies) with respect to such a claim
anywhere in the world.
9.8 Stockholder Representative.
9.8.1 Each of the Stockholders hereby appoints the Stockholder
Representative as such Stockholder's agent and attorney-in-fact, coupled
with an interest, to act for and on behalf of all of the Stockholders, in
the sole and absolute discretion of the Stockholder Representative, to (a)
give and receive notices and communications on behalf of the Stockholders
(including, without limitation, Claim Notices, and Claim Objection Notices,
to collect and pay funds, to agree to, assert, negotiate, enter into
settlements and compromises of, and demand arbitration, commence and defend
litigation and comply with orders of courts and awards of arbitrators with
respect to any claim of indemnification under this Article 9, and to take
all other actions that are either (i) necessary or appropriate in the sole
and absolute discretion of the Stockholder Representative for the
accomplishment of the foregoing, or (ii) specifically contemplated or
mandated by the terms of this Article 9, and (b) to grant any extension,
consent or waiver contemplated by Sections 8.3, 10.3 and 10.4 hereof, and
for no other purpose whatsoever. By execution of this Agreement, the
Stockholder Representative hereby accepts such appointment.
9.8.2 Upon not less than thirty (30) days notice to the Stockholder
Representative and API, the Stockholders may remove the Stockholder
Representative for any or no reason upon the affirmative vote of
Stockholders collectively representing at least fifty percent (50%) in Pro
Rata Portion of the Stockholders, subject to appointment of a replacement
Stockholders Representative by the same percentage in interest of the
Stockholders. The Stockholder Representative shall receive no compensation
for his services as such and the Stockholder Representative shall not be
required to post a bond. The Stockholder Representative shall use
commercially reasonable efforts to provide the Stockholders with (a) Claim
Notices and Claim Objection Notices from API, if any, and (b) any waivers
or grants given or made by the Stockholder Representative under Section 8.3
and 10.4 hereof, and to keep the Stockholders informed in reasonable detail
regarding any claim or proceedings under this Article.
9.8.3 The Stockholder Representative shall not be liable for any act
or omission in his capacity as such while acting in good faith and in the
exercise of reasonable judgment. Excepting gross negligence or willful
misconduct, the Stockholders shall indemnify the Stockholder Representative
and hold the Stockholder Representative harmless against any loss,
liability or expense incurred by the Stockholder Representative arising out
of or in connection with the acceptance or administration of the duties of
Stockholder Representative, including the reasonable fees and expenses of
any legal counsel, investment bankers, accountants, representatives and
other professional advisors retained by the Stockholder Representative. The
Stockholder Representative shall be deemed to have acted reasonably and
prudently if he acts in accordance with advice by legal counsel retained by
the Stockholder Representative in his capacity as such.
9.8.4 A decision, act, consent or instruction of the Stockholder
Representative shall constitute a decision of the Stockholders and shall be
final, binding and conclusive upon the Stockholders and API may rely upon
any such decision, act, consent or instruction of the Stockholder
Representative as being the decision, act, consent or instruction of the
Stockholders for all purposes under this Article 9 and Sections 8.3 and
10.4 hereof. API is hereby relieved from any liability to any Person for
any acts done by them in accordance with such decision, act, consent or
instruction of the Stockholder Representative.
9.8.5 In the event that the Stockholder Representative incurs any
expenses in performance of his duties hereunder or in acting on behalf of
the Stockholders, the Stockholders agree to promptly reimburse the
Stockholder Representative upon receipt of an invoice therefor delivered by
the Stockholder Representative in proportion to their respective Pro Rata
Portions of the amount of such invoice.
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9.9. Maximum Payments; Remedy; Method of Payment.
9.9.1 Except as set forth in Section 9.9.3 hereof, the maximum amount
that the API Indemnified Parties may in the aggregate recover from any
given Stockholder shall be limited to thirty percent (30%) of such
Stockholder's Pro Rata Portion of the Aggregate Merger Consideration and
shall be recoverable solely out of (i) the amounts from time to time
payable under the terms of the API Promissory Note issued to such
Stockholder, and (ii) such Stockholder's Pro Rata Portion of the Security
Shares (as such term is defined below). .
9.9.2 Except as set forth in Section 9.9.3 hereof, the maximum amount
that the Stockholder Indemnified Parties may in the aggregate recover from
API shall be equal to fifty percent (50%) of the Aggregate Merger
Consideration.
9.9.3 The foregoing subsections of this Section shall not limit the
liability of any Indemnifying Party for any Loss arising out of any fraud,
willful misrepresentation or any knowing and intentional breach of a
representation, warranty or covenant on the part of such Indemnifying Party
or the Company.
9.9.4 Exclusive Remedy. FROM AND AFTER THE CLOSING DATE, THE RIGHTS,
OBLIGATIONS AND LIMITATIONS SET FORTH IN THIS ARTICLE 9 SHALL BE THE SOLE
AND EXCLUSIVE REMEDY AND RECOURSE FOR ANY BREACH OF THIS AGREEMENT, THE
INCURRENCE OF ANY LOSS, OR ANY OTHER CLAIM BY ANY PARTY UNDER OR WITH
RESPECT TO THIS AGREEMENT OR ANY OF THE TRANSACTIONS CONTEMPLATED HEREBY
AND NO PARTY SHALL HAVE ANY OTHER ENTITLEMENT, REMEDY OR RECOURSE, WHETHER
IN CONTRACT, TORT OR OTHERWISE, AGAINST ANY OTHER PARTY UNDER OR WITH
RESPECT TO THIS AGREEMENT, ALL OF SUCH ENTITLEMENTS, REMEDIES AND RECOURSE
BEING HEREBY EXPRESSLY WAIVED BY ALL PARTIES TO THE FULLEST EXTENT
PERMITTED BY APPLICABLE LAW. IN ADDITION, THE LIMITATIONS SET FORTH IN
SECTION 9.9 SHALL BE THE MAXIMUM AMOUNT OF THE APPROPRIATE INDEMNIFYING
PARTY'S INDEMNIFICATION OBLIGATIONS HEREUNDER SHALL BE THE SOLE SOURCE OF
REIMBURSEMENT FOR ANY LOSSES INCURRED BY THE APPLICABLE INDEMNIFYING PARTY.
NO INDEMNIFIED PARTY SHALL BE ENTITLED TO A RESCISSION OF THIS AGREEMENT OR
TO ANY FURTHER INDEMNIFICATION RIGHTS OR CLAIMS OF ANY NATURE WHATSOEVER,
ALL OF WHICH EACH INDEMNIFIED PARTY HEREBY WAIVES TO THE FULLEST EXTENT
PERMITTED BY APPLICABLE LAW.
9.10 API's Right of Offset. In the event that API shall be entitled to
indemnification under this Article 9, then, API shall first offset the amounts
to which it is so entitled against payments of interests and principal due under
the terms of the API Promissory Note in the inverse order of maturity of such
payments. To the extent that the then remaining balance of payments due under
the API Promissory Note are insufficient to cover API's Losses in full, the
excess thereof shall be recovered by API out of each Stockholder's Pro Rata
Portion of 275,000 shares (the "Security Shares") of the API Stock; provided,
that, for purposes of this Section 9.10, the value of the API Stock shall be the
Market Price notwithstanding the time at which the amount of the offset is
calculated. The Stockholders agree not to sell or otherwise transfer any
interest in (i) any of the Security Shares for 18 months following the date of
the Closing and (ii) thereafter, so many of the Security Shares as shall have an
aggregate market value equal to any Losses as to which API has asserted a claim
under this Article 9 until such time as such claim has been finally resolved.
The Stockholders acknowledge that API may place a legend on and "stop order"
against certificates representing the Security Shares to give effect to the
foregoing provisions. API's right of offset as set forth herein shall be
effective from and after the date as to which it delivers a Claim Notice to the
Stockholder Representative in compliance with the terms of Section 8.3 hereof
with respect to all Losses identified therein. Any amounts so offset by API as
to which it is subsequently determined API is not entitled to indemnification
shall be promptly paid to the Stockholder Representative together with interest
thereon at the Prime Rate plus 1.0% from the date so offset to the date paid to
the Stockholders' Representative. In no event shall the exercise of API's rights
of offset hereunder be deemed a default under the API Promissory Note.
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Article 10
TERMINATION, AMENDMENT AND WAIVER
10.1 Termination. Except as provided in Section 10.2 hereof, this Agreement
may be terminated and the transactions contemplated hereby abandoned at any time
prior to the Closing:
10.1.1 by unanimous agreement of the Stockholders and API;
10.1.2 by API or both of the Stockholders if the Closing Date shall
not have occurred by the date forty-five (45) days after the date hereof;
provided, however, that the right to terminate this Agreement under this
Section 10.1.2 shall not be available to any party whose action or failure
to act has been a principal cause of or resulted in the failure of the
Closing to occur on or before such date and such action or failure to act
constitutes a material breach of this Agreement, unless and until such
breach has been cured to the reasonable satisfaction of the non-breaching
party(ies);
10.1.3 by API or both of the Stockholders if (a) there shall be a
final non-appealable order of a federal or state court enjoining
consummation of the transactions contemplated hereby, or (b) there shall be
any statute, rule, regulation or order enacted, promulgated or issued or
deemed applicable to such transactions that would make illegal the
consummation thereof;
10.1.4 by API if there shall be any action taken, or any statute,
rule, regulation or order enacted, promulgated or issued or deemed
applicable to the transactions contemplated hereby by any Governmental
Entity, which would (a) prohibit API's ownership or operation of any
portion of the business of the Company, or (b) compel API or the Company to
dispose of or hold separate any material portion of the business or assets
of the Company or API as a result of the transactions contemplated hereby;
10.1.5 by API if neither API nor the Sub is in material breach of
their respective obligations under this Agreement and there has been a
material breach of any representation or warranty (in each case, determined
as of the date of this Agreement and not taking into account any change in
circumstances thereafter) or any covenant or agreement of the Company or
the Stockholders contained in this Agreement such that the conditions set
forth in Section 8.2.1 could not be satisfied and such breach has not been
cured to the reasonable satisfaction of both of the Stockholders within
thirty (30) days after written notice thereof to the Company and the
Stockholders; provided, however, that no cure period shall be required for
a breach which by its nature cannot be cured;
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10.1.6 by API if it is not in material breach of its obligations under
this Agreement and the Company has made a disclosure under Section 7.9
hereof that represents a material change in any information theretofore
disclosed in the Disclosure Schedule;
10.1.7 by both of the Stockholders if none of the Company or the
Stockholders is in material breach of their respective obligations under
this Agreement and there has been a material breach of any representation
or warranty (in each case determined as of the date of this Agreement and
not taking into account any change in circumstances thereafter), or any
covenant or agreement of API or the Sub contained in this Agreement such
that the conditions set forth in Section 8.3.1 could not be satisfied and
such breach has not been cured within thirty (30) days after written notice
thereof to API; provided, however, that no cure period shall be required
for a breach which by its nature cannot be cured.
10.2 Effect of Termination. In the event of termination of this Agreement
as provided in Section 10.1 hereof, this Agreement shall forthwith become void
and there shall be no liability or obligation on the part of API, the Company,
the Stockholders or their respective officers, directors or stockholders;
provided, however, that (A) in the event that API terminates this Agreement
pursuant to the provisions of Section 10.1.5 hereof, (i) the Company shall
immediately pay to API the "Liquidated Damage Amount", and (B) in the event that
the Stockholders terminate this Agreement pursuant to the provisions of Section
10.1.7 hereof, API shall immediately pay to the Company the Liquidated Damage
Amount; and provided, further, that the provisions of Sections 7.3, 7.4 and 7.5
hereof, this Section and Article 11 hereof shall survive any such termination.
As used in this Section 10.2, the term Liquidated Damage Amount means the sum of
$200,000.
10.3 Amendment. The parties hereto may amend this Agreement at any time by
execution of an instrument in writing signed by API and the Stockholder
Representative.
10.4 Extension; Waiver. At any time prior to the Closing, API, the Company,
and the Stockholder Representative acting on behalf of the other Stockholders,
may, to the extent legally allowed (a) extend the time for the performance of
any of the obligations of any party to the party(ies) granting such extension,
(b) waive any inaccuracies in the representations and warranties made to such
party contained herein or in any document delivered pursuant hereto, and (c)
waive compliance with any of the covenants, agreements or conditions for the
benefit of such party contained herein, provided the same is set forth in a
written instrument signed by the granted party. For purposes of this Section,
the Stockholders (including the Stockholders) agree that any extension or waiver
signed by the Stockholder Representative shall be binding upon and effective
against all Stockholders whether or not they have signed such extension or
waiver.
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Article 11
GENERAL PROVISIONS
11.1 Notices. All notices and other communications hereunder shall be in
writing and shall be deemed given if delivered personally or by commercial
messenger or courier service, or mailed by registered or certified mail (return
receipt requested) or sent via facsimile. (with acknowledgment of complete
transmission and followed by written confirmation by one or more of the
foregoing methods) to the parties at the following addresses (or at such other
address for a party as shall be specified by like notice); provided, however,
that notices sent by mail will not be deemed given until received:
11.1.1 if to API, to:
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Attention: Chief Executive Officer
Telephone No.: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇
with a copy to:
▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇▇, LLP
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Attention: ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇, Esq.
Telephone No.: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇
11.1.2 if to the Company, either Stockholder or the Stockholder
Representative, to:
Picometrix, Inc.
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Attention: Chief Executive Officer
Telephone No.: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇
with a copy to:
Miller, Canfield, Paddock and Stone, PLC
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Attention: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇, Esq.
Telephone No.: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇
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11.2 Interpretation. The words "include," "includes" and "including" when
used herein shall be deemed in each case to be followed by the words "without
limitation." The table of contents and headings contained in this Agreement are
for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
11.3 Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each of
the parties and delivered to the other party, it being understood that all
parties need not sign the same counterpart.
11.4 Entire Agreement; Assignment. This Agreement, the Exhibits hereto, the
Disclosure Schedule, the Confidential Disclosure Agreement and the Related
Agreements (a) constitute the entire agreement among the parties with respect to
the subject matter hereof and supersede all prior agreements and understandings
both written and oral, among the parties with respect to the subject matter
hereof, (b) are not intended to confer upon any Person not a party hereto any
rights or remedies hereunder, and (c) may not be assigned by operation of law or
otherwise, except that API may assign its rights and delegate its obligations
hereunder to its affiliates as long as API remains ultimately liable for all of
API's obligations hereunder, and except that each Stockholder's rights hereunder
may be assigned to (i) by will or the laws of descent and distribution, or (ii)
pursuant to any trust established by such Stockholder for estate planning
purposes.
11.5 Severability. In the event that any provision of this Agreement or the
application thereof, becomes or is declared by a court of competent jurisdiction
to be illegal, void or unenforceable, the remainder of this Agreement will
continue in full force and effect and the application of such provision to other
Persons or circumstances will be interpreted so as reasonably to effect the
intent of the parties hereto. The parties further agree to replace such void or
unenforceable provision of this Agreement with a valid and enforceable provision
that will achieve, to the extent possible, the economic, business and other
purposes of such void or unenforceable provision.
11.6 Other Remedies. Except as otherwise provided or limited herein, any
and all remedies herein expressly conferred upon a party will be deemed
cumulative with and not exclusive of any other remedy conferred hereby, or by
law or equity upon such party, and the exercise by a party of anyone remedy will
not preclude the exercise of any other remedy.
11.7 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Michigan, regardless of the laws that
might otherwise govern under applicable principles of conflicts of laws thereof.
The parties hereto (a) irrevocably consent to the exclusive jurisdiction and
venue of the Federal District Court for the Eastern District of Michigan or, if
such court does not have jurisdiction, the Circuit Court for the County of
Washtenaw, Michigan, (b) agree that process may be served upon them anywhere in
the world, and (c) waive and covenants not to assert or plead any objection
which they might otherwise have to such jurisdiction, venue and such process.
11.8 Rules of Construction. The parties hereto agree that they have been
represented by counsel during the negotiation and execution of this Agreement
and, therefor, waive the application of any law, regulation, holding or rule of
construction providing that ambiguities in an agreement or other document will
be construed against the party drafting such agreement or document.
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API the Company and the Stockholders have caused this Agreement to be
executed as of the date first written above.
ADVANCED PHOTONIX, INC.
By: /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇
_________________________________
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇
Its Chief Executive Officer
MICHIGAN ACQUISITION SUB, LLC
By: Advanced Photonix, Inc.,
as sole member
By: /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇
_________________________________
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇,
Its Chief Executive Officer
PICOTRONIX, INC.
By: /s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇
________________________________
▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Its Chief Executive Officer
STOCKHOLDERS:
/s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇
________________________________
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/s/ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇
________________________________
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SIGNATURE PAGE TO STOCK PURCHASE AGREEMENT
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