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EXHIBIT 4.6
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AGREEMENT AND PLAN OF MERGER
DATED AS OF AUGUST 14, 2000
AMONG
NORTEL NETWORKS CORPORATION,
NNC RUSSIAN ACQUISITION CORPORATION
AND
SONOMA SYSTEMS
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TABLE OF CONTENTS
Page
ARTICLE 1 DEFINED TERMS................................................................ 2
ARTICLE 2 THE MERGER...................................................................15
Section 2.1. The Merger....................................................15
Section 2.2. Closing of the Merger.........................................15
Section 2.3. Actions at the Closing........................................15
Section 2.4. Additional Action.............................................15
Section 2.5. Conversion of Securities......................................16
Section 2.6. Options.......................................................19
Section 2.7. Restricted Shares.............................................21
Section 2.8. Escrow........................................................21
Section 2.9. Exchange of Certificates......................................22
Section 2.10. Directors.....................................................24
Section 2.11. Officers......................................................24
Section 2.12. Certificate of Incorporation and Bylaws.......................25
Section 2.13. Dissenters' Rights............................................25
Section 2.14. Appointment of Representative.................................25
Section 2.15. Tax Consequences of the Merger................................26
ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF THE COMPANY................................26
Section 3.1. Organization and Qualification; Subsidiaries; Investments.....26
Section 3.2. Capitalization of the Company.................................27
Section 3.3. Authority Relative to this Agreement; Recommendation..........28
Section 3.4. Financial Statements..........................................28
Section 3.5. Information Supplied..........................................29
Section 3.6. Consents and Approvals; No Violations.........................29
Section 3.7. No Default....................................................30
Section 3.8. No Undisclosed Liabilities; Absence of Changes................30
Section 3.9. Litigation....................................................30
Section 3.10. Assets........................................................31
Section 3.11. Contracts.....................................................31
Section 3.12. Compliance with Applicable Law................................32
Section 3.13. Employee Benefits.............................................32
Section 3.14. Labor and Employment Matters..................................34
Section 3.15. Environmental Laws and Regulations............................35
Section 3.16. Taxes.........................................................36
Section 3.17. Intellectual Property.........................................37
Section 3.18. Insurance.....................................................47
Section 3.19. Certain Business Practices....................................47
Section 3.20. Books and Records.............................................47
Section 3.21. Suppliers and Customers.......................................48
Section 3.22. [Reserved]....................................................48
Section 3.23. Tax Treatment.................................................48
Section 3.24. Representations and Disclosure Complete.......................48
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TABLE OF CONTENTS
ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF PARENT......................................48
Section 4.1. Organization...................................................48
Section 4.2. Capitalization of Parent and its Subsidiaries..................49
Section 4.3. Authority Relative to this Agreement...........................49
Section 4.4. SEC Reports; Financial Statements..............................49
Section 4.5. Information Supplied...........................................50
Section 4.6. Consents and Approvals; No Violations..........................50
Section 4.7. Tax Treatment..................................................51
Section 4.8. No Prior Activities............................................51
Section 4.9. Absence of Changes or Events...................................51
ARTICLE 5 COVENANTS.....................................................................51
Section 5.1. Conduct of Business of the Company.............................51
Section 5.2. Qualification of Shares Issuable in the Merger.................54
Section 5.3. No Solicitation or Negotiation.................................55
Section 5.4. Meeting of Stockholders........................................56
Section 5.5. Stock Exchange Listings........................................56
Section 5.6. Access to Information..........................................56
Section 5.7. Certain Filings; Reasonable Efforts............................57
Section 5.8. Public Announcements...........................................58
Section 5.9. Notification of Certain Matters................................58
Section 5.10. Affiliates; Tax-Free Reorganization; Restructuring.............58
Section 5.11. Additions to and Modification of Company Disclosure Schedule...59
Section 5.12. Access to Company Employees....................................60
Section 5.13. Company Compensation and Benefit Plans.........................60
Section 5.14. Non-Competition and Non-Solicitation Agreements................60
Section 5.15. Voting Agreement...............................................60
Section 5.16 Recomputation..................................................60
Section 5.17. Termination of Certain Agreements..............................61
Section 5.18. Exercise of Warrants...........................................61
Section 5.19 Indemnification Agreements.....................................61
Section 5.20. Employee Benefit Plans and Benefit Arrangements................61
Section 5.21 Amendment of Terms of Series A Preferred Shares................61
ARTICLE 6 CONDITIONS TO CONSUMMATION OF THE MERGER......................................61
Section 6.1. Conditions to Each Party's Obligations to Effect the Merger....61
Section 6.2. Conditions to the Obligations of the Company...................62
Section 6.3. Conditions to the Obligations of Parent and Acquisition........63
Section 6.4. Proceedings and Documents......................................64
ARTICLE 7 TERMINATION; AMENDMENT; WAIVER................................................65
Section 7.1. Termination....................................................65
Section 7.2. Effect of Termination..........................................66
Section 7.3. Fees and Expenses..............................................66
Section 7.4. Amendment......................................................66
Section 7.5. Extension; Waiver..............................................66
ARTICLE 8 INDEMNIFICATION...............................................................67
Section 8.1. Indemnification by the Stockholders............................67
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TABLE OF CONTENTS
ARTICLE 9 MISCELLANEOUS.................................................................67
Section 9.1. Survival of Representations and Warranties.....................67
Section 9.2. Entire Agreement; Assignment...................................67
Section 9.3. Validity.......................................................67
Section 9.4. Notices........................................................68
Section 9.5. Governing Law and Venue; Waiver of Jury Trial..................69
Section 9.6. Descriptive Headings...........................................70
Section 9.7. Parties in Interest............................................70
Section 9.8. Participation in Drafting......................................70
Section 9.9. Specific Performance...........................................70
Section 9.10. Incorporation of Exhibits and Schedules........................70
Section 9.11. Counterparts...................................................71
Section 9.12. Exception with Respect to Certain Knowledge and
Materiality Qualifiers.........................................71
Section 9.13. Dollar Amounts.................................................71
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TABLE OF EXHIBITS
Exhibit A.............Form of Irrevocable Proxy, Waiver and Voting Agreement
Exhibit B-1...........Form of Agreement of Merger (California)
Exhibit B-2...........Form of Certificate of Merger (Delaware)
Exhibit C.............Form of Escrow and Indemnification Agreement
Exhibit D.............Form of Affiliate Letter
Exhibit E.............Form of Key Employee Agreement
Exhibit F.............Form of Employee Stockholder Agreement
Exhibit G.............Matters to be Covered by Opinion of Legal Counsel to Parent and Acquisition
Exhibit H.............Matters to be Covered by Opinion of Legal Counsel to the Company
Exhibit I.............Earnout Payments
Exhibit J.............Supplemental Employee Agreement
Exhibit K.............Supplemental Employee Non-Solicitation Agreement
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TABLE OF CONTENTS
TO
COMPANY DISCLOSURE SCHEDULE
[THE COMPANY AGREES TO FURNISH SUPPLEMENTALLY TO THE SECURITIES AND EXCHANGE
COMMISSION COPIES OF ANY OF THE FOLLOWING OMITTED SCHEDULES UPON REQUEST OF THE
COMMISSION]
Section 3.1........................................Organization and Qualification; Subsidiaries; Investments
Section 3.2........................................Capitalization
Section 3.4........................................Financial Statements
Section 3.6........................................Consents and Approvals; No Violations
Section 3.7........................................No Default
Section 3.8........................................No Undisclosed Liabilities; Absence of Changes
Section 3.9........................................Litigation
Section 3.10.......................................Assets
Section 3.11.......................................Contracts
Section 3.12.......................................Compliance with Applicable Law
Section 3.13.......................................Employee Benefits
Section 3.14.......................................Labor and Employment Matters
Section 3.15.......................................Environmental Matters
Section 3.16.......................................Taxes
Section 3.17.......................................Intellectual Property
Section 3.20.......................................Books and Records
Section 5.1........................................Conduct of Business of the Company
Section 5.7........................................Certain Filings; Reasonable Efforts
Section 5.10.......................................Affiliates; Tax Free Reorganization
Section 5.14.......................................Non-Competition and Non-Solicitation
Section 5.17.......................................Termination of Agreements
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AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (this "AGREEMENT"), dated as of
August 14, 2000, is among Sonoma Systems, a California corporation (the
"COMPANY"), NNC Russian Acquisition Corporation, a Delaware corporation and a
wholly owned subsidiary of Parent ("ACQUISITION"), and Nortel Networks
Corporation, a Canadian corporation ("PARENT"). Capitalized terms not otherwise
defined herein have the meanings ascribed to such terms in Article 1 of this
Agreement.
WHEREAS, the Boards of Directors of the Company, Parent and
Acquisition have each (i) determined that the Merger is advisable, fair and in
the best interests of their respective stockholders and (ii) approved the Merger
upon the terms and subject to the conditions set forth in this Agreement;
WHEREAS, it is a condition to Parent's and Acquisition's
obligations under this Agreement that certain officers and employees of the
Company enter into non-competition agreements, effective upon the consummation
of the Merger, as an inducement to Parent to enter into this Agreement;
WHEREAS, it is a condition to Parent's and Acquisition's
obligations under this Agreement that the Stockholders, Optionholders and
Warrantholders of the Company agree to the creation of the Escrow Fund and to
the execution and delivery of the Escrow Agreement on their behalf by the
Representative (as such terms are defined herein);
WHEREAS, certain Stockholders of the Company have agreed to vote
their shares in favor of the adoption of this Agreement and the approval of the
transactions contemplated hereby pursuant to the Irrevocable Proxy, Waiver and
Voting Agreement attached as Exhibit A;
WHEREAS, for U.S. Federal income tax purposes it is intended that
the Merger qualify as a reorganization under the provisions of Section 368(a) of
the Internal Revenue Code of 1986, as amended (the "CODE");
WHEREAS, for purposes of the Ontario Securities Act and the rules
and regulations thereunder, it is intended that the securities issued in
connection with the Merger qualify for the exemption provided in Section 2.8 of
Ontario Securities Commission Rule 45-501;
NOW, THEREFORE, in consideration of the foregoing premises and
the representations, warranties, covenants and agreements herein contained, and
intending to be legally bound hereby, the Company and Parent hereby agree as
follows:
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ARTICLE 1
DEFINED TERMS
(a) For the purposes of this Agreement, the following terms shall have
the following meanings:
"AFFILIATE" means (except as otherwise provided in Section 5.15)
a person that, directly or indirectly, through one or more intermediaries
controls, is controlled by, or is under common control with, the first-mentioned
person. Control means the possession, direct or indirect, of the power to direct
or cause the direction of the management and policies of a person, whether
through the ownership of voting securities, by contract or otherwise.
"AGREEMENT OF MERGER" means the agreement of merger and
accompanying certificates prepared and executed in accordance with the relevant
provisions of the CCC substantially in the form attached as Exhibit B-1.
"APPLICABLE LAW" means, with respect to any person, any domestic
or foreign, federal, state or local statute, law, ordinance, rule, regulation,
order, writ, injunction, judgment, decree or other requirement of any
Governmental Entity existing as of the date hereof or as of the Effective Time
applicable to such person or any of its respective properties, assets, officers,
directors, employees, consultants or agents.
"AVERAGE STOCK PRICE AT THE DISTRIBUTION DATE" shall mean the
average of the closing (4:00 p.m., eastern time) sale prices of Parent Common
Stock on the New York Stock Exchange Composite Tape for each of the twenty (20)
trading days immediately preceding the second trading day prior to the
applicable Distribution Date, as reported by Bloomberg.
"AVERAGE STOCK PRICE AT SIGNING" means $78.13125, which is the
average of the closing (4:00 p.m., eastern time) sale prices of Parent Common
Stock on the New York Stock Exchange Composite Tape, for each of the 20 trading
days ending on the second trading day immediately preceding the date of this
Agreement, as reported by Bloomberg.
"BENEFICIALLY OWN" or "BENEFICIAL OWNERSHIP" or similar terms
with respect to any securities shall mean a person's having ownership, control
or power to direct the voting with respect to, or otherwise legally act with
respect to, such securities as contemplated hereby, including pursuant to an
agreement, arrangement or understanding, whether or not in writing. Securities
Beneficially Owned by a person shall include securities Beneficially Owned by
all other persons with whom the person would constitute a "group" as within the
meaning of Section 13(d)(3) of the Exchange Act.
"BENEFIT ARRANGEMENT" means any benefit or compensation
arrangement that is not an Employee Benefit Plan, including, (i) each
arrangement providing for insurance coverage or worker's compensation benefits,
(ii) each incentive bonus, deferred bonus or retention bonus arrangement, (iii)
each equity compensation plan, (iv) each deferred compensation plan and (v) each
compensation or perquisite policy and practice maintained by
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the Company or any ERISA Affiliate of the Company covering employees, former
employees, directors and former directors of the Company and the beneficiaries
of any of them.
"BENEFIT PLAN" means an Employee Benefit Plan or Benefit
Arrangement.
"BLOOMBERG" means Bloomberg Professional Services provided by
Bloomberg L.P.
"BUSINESS DAY" means any day other than a day on which the New
York Stock Exchange is closed.
"CAPITAL STOCK" means common stock, preferred stock, partnership
interests, limited liability company interests or other ownership interests
entitling the holder thereof to vote with respect to matters involving the
issuer thereof.
"CCC" means the California Corporations Code.
"CERTIFICATE OF MERGER" means a certificate of merger prepared
and executed in accordance with the relevant provisions of the DGCL
substantially in the form attached as Exhibit B-2.
"CLOSING" shall mean the consummation of the Merger and related
transactions at the Effective Time.
"CLOSING CONVERSION RATIOS" means the Series A Preferred Share
Closing Conversion Ratio, the Series B Preferred Share Closing Conversion Ratio,
the Series C Preferred Share Closing Conversion Ratio, the Series D Preferred
Share Closing Conversion Ratio, the Series E Preferred Share Closing Conversion
Ratio and the Common Stock Closing Conversion Ratio.
"CLOSING DATE" shall mean the date of the Effective Time.
"CLOSING DOLLAR AMOUNT" means $490,000,000 plus an amount, if
any, equal to (A) the sum of the outstanding Reserved Options at Closing
multiplied by the Common Stock Closing Conversion Ratio, multiplied by (B) the
Average Stock Price at Signing.
"CLOSING MERGER CONSIDERATION" means the number of shares of
Parent Common Stock equal to the quotient of the Closing Dollar Amount divided
by the Average Stock Price at Signing.
"COMMON SHARES" means all shares of the Common Stock issued and
outstanding immediately prior to the Effective Time, including shares of Common
Stock issuable upon exercise of Options, Warrants and Nortel Warrants
outstanding on the Closing Date whether or not vested.
"COMMON SHARES SUBJECT TO OPTIONS" means the Common Stock subject
to Options that are assumed by Parent pursuant to Section 2.6(a).
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"COMMON SHARES SUBJECT TO WARRANTS" means the Common Stock
subject to Warrants that are assumed by Parent pursuant to Section 2.5(e) or the
Parent Common Stock into which the Series E Preferred Shares subject to Warrants
would have been converted at the Closing if exercised at the Closing.
"COMMON STOCK" means the shares of common stock, par value $0.01
per share, of the Company.
"COMMON STOCK CLOSING CONVERSION RATIO" means the number
generated by the following formula, rounded to the nearest fourth decimal place:
B }
{[Closing Dollar Amount - (A)]x - }
C }
Common Stock Closing Conversion Ratio = ------------------------------------
D x B
Where: A = the sum of the Series A Liquidation Payment,
Series B Liquidation Payment, Series C Liquidation
Payment, Series D Liquidation Payment, and Series E
Liquidation Payment
B = number of Common Shares
C = number of Fully Diluted Shares
D = Average Stock Price at Signing
"COMPANY BOARD" means the Board of Directors of the Company.
"COMPANY PLANS" means the 1996 Stock Option Plan of the Company,
as amended, and the 1999 Stock Option Plan of the Company, as amended.
"CONTINGENT CONVERSION RATIO" shall mean the quotient of (a)
Contingent Merger Consideration divided by (b) the aggregate number of Fully
Diluted Shares less any Common Shares subject to Reserved Options immediately
prior to the Effective Time. For purposes of the calculation of the number of
Preferred Shares and Common Shares outstanding, Nortel Networks shall be deemed
to have exercised, immediately prior to the Effective Time, the Nortel Warrants
covering an aggregate of 2,383,861 shares of capital stock of the Company,
notwithstanding the fact that the Nortel Warrants will not be exercised, but
will remain outstanding at the Effective Time.
"CONTINGENT MERGER CONSIDERATION" shall mean, as to any Earnout
Payment, the number of shares of Parent Common Stock equal to the quotient of
the applicable Earnout Payment Amount divided by the Average Stock Price at
Signing, provided, however, that (a) if the Average Stock Price at the
applicable Distribution Date is more than 120% of the Average Stock Price at
Signing then "Contingent Merger Consideration" shall mean the number of shares
of Parent Common Stock equal to the quotient of (i) 120% of the applicable
Earnout Payment Amount divided by (ii) the Average Stock Price at such
Distribution Date and (b) if the Average Stock Price at the applicable
Distribution Date is less than 80% of the Average Stock Price at Signing then
"Contingent Merger Consideration" shall mean the number of
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shares of Parent Common Stock equal to the quotient of (y) 80% of the applicable
Earnout Payment Amount divided by (z) the Average Stock Price at such
Distribution Date.
"COPYRIGHTS" has the meaning set forth in subsection (iii) of the
definition of Intellectual Property Rights.
"DGCL" means the Delaware General Corporation Law.
"DISTRIBUTION DATE" shall mean the date or dates, if any, which
are ten (10) business days after the reasonable determination by Parent that
each of the respective Milestones are satisfied.
"EARNOUT PAYMENT AMOUNT" shall mean an aggregate of sixty million
dollars ($60,000,000) divided into two payments of up to thirty million dollars
($30,000,000) each, payable in the amounts and upon timely satisfaction of the
Milestones set forth in Exhibit I hereto.
"EFFECTIVE TIME" means the later of (i) the time at which the
Company files the Certificate of Merger with the Secretary of State of the State
of Delaware pursuant to Section 252 of the DGCL or (ii) the time at which the
Company and Acquisition shall file the Agreement of Merger with the California
Secretary of State pursuant to Section 1103 of the CCC.
"EMPLOYEE BENEFIT PLAN" means any employee benefit plan, as
defined in Section 3(3) of ERISA, that is sponsored or contributed to by the
Company or any ERISA Affiliate of the Company covering employees or former
employees of the Company.
"ENVIRONMENTAL LAWS" means any applicable federal, state, local
or foreign law, statute, treaty, ordinance, rule, regulation, policy, permit,
consent, approval, license, judgment, order, decree or injunction relating to:
(i) Releases (as defined in 42 U.S.C. sec. 9601(22)) or threatened Releases of
Hazardous Material into the environment; (ii) the generation, treatment,
storage, disposal, use, handling, manufacturing, transportation or shipment of
Hazardous Material; (iii) the health or safety of employees in the workplace;
(iv) protecting or restoring natural resources; or (v) the environment.
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended.
"ERISA AFFILIATE" means any company which is treated as a single
employer under Sections 414(b), (c), (m) or (o) of the Code and Section 4001 of
ERISA.
"ESCROW AGENT" means U.S. Bank Trust National Association, or any
other escrow agent mutually acceptable to Parent and the Company.
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"ESCROW AGREEMENT" means the Escrow and Indemnification
Agreement, dated the Closing Date, in substantially the form attached as Exhibit
C, among the Escrow Agent, Parent, Acquisition, the Representative, the
Stockholders and the Optionholders.
"ESCROW FUND" has the meaning ascribed to such term in Section
2.3 of the Escrow Agreement.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
"EXCHANGE AGENT" means Montreal Trust Company of Canada.
"FULLY DILUTED SHARES" means the aggregate number of Common
Shares, shares of Common Stock issuable upon conversion of the Preferred Shares
immediately prior to the Effective Time, Common Shares Subject to Options and
Common Shares Subject to Warrants. For purposes of the calculation of the number
of Preferred Shares and Common Shares outstanding (i) Nortel Networks shall be
deemed to have exercised, immediately prior to the Effective Time, the Nortel
Warrants covering an aggregate of 2,383,861 shares (reflecting a net exercise)
of capital stock of the Company, notwithstanding the fact that the Nortel
Warrants will not be exercised, but will remain outstanding following the
Effective Time and (ii) all Warrants shall be deemed to have been exercised on a
net exercise basis as of the Effective Time.
"HSR ACT" means the ▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇ Antitrust Improvements Act
of 1976, as amended.
"HAZARDOUS MATERIAL" means: (i) hazardous substances (as defined
in 42 U.S.C. sec. 9601(14)), including "hazardous waste" as defined in 42 U.S.C.
sec. 6903; (ii) petroleum, including crude oil and any fractions thereof; (iii)
natural gas, synthetic gas and any mixtures thereof; (iv) asbestos and asbestos
containing materials; (v) PCBs or materials containing PCBs; (vi) any material
regulated as a medical waste; (vii) lead containing paint; (viii) radioactive
materials; and (ix) "Hazardous Substance" or "Hazardous Material" as those terms
are defined in any indemnification provision in any contract, lease, or
agreement to which the Company is a party.
"INCLUDE" or "INCLUDING" means "include, without limitation" or
"including, without limitation," as the case may be, and the language following
"include" or "including" shall not be deemed to set forth an exhaustive list.
"INTELLECTUAL PROPERTY ASSETS" means all Intellectual Property
Rights owned or licensed by the Company or its subsidiaries or used or exercised
in or necessary to the conduct of the business of the Company and its
subsidiaries.
"INTELLECTUAL PROPERTY RIGHTS" means all intellectual property
rights arising from or associated with the following, whether protected, created
or arising under the laws of the United States or any other jurisdiction:
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(i) trade names, registered and unregistered trademarks and
service marks, Internet domain names, and trade dress rights, and all
applications (including intent to use applications) to register any of the
foregoing (collectively, "MARKS");
(ii) patents or models, industrial designs and all applications
and applications to register any of the foregoing, including any and all
continuation, divisional, continuation-in-part, reexamination and reissue patent
applications, and any patents issuing therefrom (collectively, "PATENTS");
(iii) copyrights and all registrations and applications therefor
(collectively, "COPYRIGHTS");
(iv) know-how, inventions, discoveries, improvements, concepts,
ideas, methods, processes, designs, plans, schematics, drawings, formulae,
technical data, specifications, research and development information, data bases
and other proprietary or confidential information, including customer lists,
technology and product roadmaps, business and marketing plans and information,
financial information (collectively, "TRADE SECRETS"); and
(v) mask work rights, moral rights, publicity rights and any
other proprietary, intellectual or industrial property or similar intangible
rights of any kind or nature that do not comprise or are not protected by Marks,
Patents, Copyrights or Trade Secrets (collectively, "OTHER IP").
"KNOWLEDGE" or "KNOWN" means, with respect to any fact,
circumstance, event or other matter in question, the knowledge of such fact,
circumstance, event or other matter of any executive officer of the Company (as
listed in the Company's Registration Statement on Form S-1 on file with the SEC)
or executive officer (as listed in the Parent SEC Reports) of Parent, after due
inquiry. Any such officer will be deemed to have knowledge of a particular fact,
circumstance, event or other matter if (i) such individual has actual knowledge
of such fact, circumstance, event or other matter or (ii) such fact,
circumstance, event or other matter can be ascertained in one or more documents
(including e-mails sent to such individual) in, or that have been in, such
individual's files or possession.
"LIEN" means, with respect to any asset (including any security),
any mortgage, lien, pledge, charge, security interest or encumbrance of any kind
in respect of such asset; provided, however, that the term "Lien" shall not
include: (i) statutory liens for Taxes that are not yet due and payable or are
being contested in good faith by appropriate proceedings and are disclosed in
Section 3.16 of the Company Disclosure Schedule or that are otherwise not
material; (ii) statutory or common law liens to secure obligations to landlords,
lessors or renters under leases or rental agreements confined to the premises
rented; (iii) deposits or pledges made in connection with, or to secure payment
of, workers' compensation, unemployment insurance, old age pension or other
social security programs mandated under Applicable Laws; (iv) statutory or
common law liens in favor of carriers, warehousemen, mechanics and materialmen,
to secure claims for labor, materials or supplies and other like
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liens; and (v) restrictions on transfer of securities imposed by applicable
state and federal securities laws.
"MATERIAL ADVERSE EFFECT" means any circumstance, change in or
effect that is, or is reasonably likely in the future to be, materially adverse
to the operations, financial condition, earnings or results of operations, or
the business (financial or otherwise) or prospects, of the applicable entity;
provided, however, that clauses (i), (ii) and (iii) shall not be deemed, either
alone or in combination, to constitute a Material Adverse Effect on the Parent
and clause (ii) shall not be deemed to constitute a Material Adverse Effect on
the Company: (i) a change in the market price or trading volume of the Parent
Common Stock, (ii) conditions affecting the communications equipment industry as
a whole or the U.S. economy as a whole, (iii) a failure by Parent to meet any
published securities analyst estimates of revenue or earnings for any period for
which earnings are released on or after the date of this Agreement and prior to
the Effective Date; provided, however, that this paragraph shall not exclude any
underlying change, effect, occurrence, state of facts or developments which
resulted in such failure to meet such estimates.
"MILESTONES" means the requirements for payment of the Contingent
Merger Consideration as set forth on Exhibit I.
"NEW OPTIONS" means options to purchase up to [[220,000]] shares
of Common Stock that may be issued by the Company in accordance with Section
5.1(b) hereof to persons who are not employed by the Company on the date hereof
but are employed by the Company prior to the Effective Time, which have an
exercise price equal to the fair market value of the Common Stock at the date of
grant and which vest over a four-year period from the date of grant, with no
provision for accelerated vesting.
"NON-DISCLOSURE AGREEMENT" means the Nortel Networks
Non-Disclosure Agreement, effective as of July 19, 2000, entered into between
the Company and Parent.
"NORTEL NETWORKS" means Nortel Networks Inc., a Delaware
corporation and an indirect subsidiary of Parent.
"NORTEL WARRANTS" means the warrants to purchase up to 6,000,000
shares of Common Stock held by Nortel Networks.
"OPTIONHOLDER" means each holder of an Option assumed by Parent
in accordance with Section 2.6(a).
"OPTIONS" means the options to purchase shares of Common Stock
under the Company Plans granted to employees or directors of, or consultants or
advisors to, the Company pursuant to the terms of the Company Plans that are
outstanding immediately prior to the Effective Time (not including any option
that terminates as a result of the Merger), including the New Options and the
Reserved Options.
"PARENT" has the meaning set forth in the preamble to this
Agreement.
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"PARENT COMMON STOCK" means common shares of Parent.
"PARENT OPTIONS" means options to purchase Parent Common Stock on
and after the Closing Date as a result of the assumption and substitution more
particularly described in Section 2.6.
"PERSON" means an individual, corporation, partnership, limited
liability company, association, trust, unincorporated organization or other
legal entity including any Governmental Entity.
"PREFERRED SHARES" means the Series A Preferred Shares, the
Series B Preferred Shares, the Series C Preferred Shares, Series D Preferred
Shares and the Series E Preferred Shares issued and outstanding prior to the
Effective Time, collectively.
"REPRESENTATIVE" means, collectively, ▇▇▇▇▇▇▇ ▇. ▇▇▇▇ and ▇▇▇▇▇▇
▇▇▇▇▇▇.
"RESERVED OPTIONS" means options to purchase up to [[1,500,000]]
shares of Common Stock that may be issued by the Company to employees with the
prior consent of Parent, between the date hereof and the Effective Time, which
have an exercise price equal to the fair market value of the Common Stock at the
date of grant and which vest over a period from the date of grant approved by
Parent, with no provision for accelerated vesting.
"RESTRICTED PARENT SHARES" means the shares of Parent Common
Stock that are subject to repurchase by Parent.
"RESTRICTED SHARES" means the shares of Common Stock of the
Company that are subject to repurchase by the Company.
"SECURITIES ACT" means the Securities Act of 1933, as amended.
"SERIES A LIQUIDATION PAYMENT" means $1,000,000, plus unpaid
cumulative dividends.
"SERIES A PREFERRED SHARE CLOSING CONVERSION RATIO" means the
Series A Liquidation Payment divided by the product of (a) the Average Price at
Signing multiplied by (b) 2,363,636 (the number of Series A Preferred Shares
outstanding).
"SERIES A PREFERRED SHARES" means the shares of Series A
Preferred Stock, $0.01 par value per share, of the Company.
"SERIES B LIQUIDATION PAYMENT" means $1,064,341.24.
"SERIES B PREFERRED SHARES" means the shares of Series B
Convertible Preferred Stock, $0.01 par value per share, of the Company.
"SERIES B PREFERRED SHARE CLOSING CONVERSION RATIO" means the
number generated by the following formula, rounded to the nearest fourth decimal
place:
9
16
C
{[Closing Dollar Amount - (A)]x -}+ B
D
Series B Preferred Share Closing Conversion Ratio = ------------------------------------
E x F
Where: A = the sum of the Series A Liquidation Payment,
Series B Liquidation Payment, Series C Liquidation
Payment, Series D Liquidation Payment, and Series E
Liquidation Payment
B = Series B Liquidation Payment
C = number of Common Shares into which the
Series B Preferred Shares outstanding at the
Effective Time would be converted if converted
at such time
D = number of Fully Diluted Shares
E = Average Stock Price at Signing
F = the number of Series B Preferred Shares outstanding
"SERIES C LIQUIDATION PAYMENT" means $11,208,362.14.
"SERIES C PREFERRED SHARES" means the shares of Series C
Convertible Preferred Stock, $0.01 par value per share, of the Company.
"SERIES C PREFERRED SHARE CLOSING CONVERSION RATIO" means the
number generated by the following formula, rounded to the nearest fourth decimal
place:
C
{[Closing Dollar Amount - (A)]x - } + B
D
Series C Preferred Share Closing Conversion Ratio = ------------------------------------
E x F
Where: A = the sum of the Series A Liquidation Payment,
Series B Liquidation Payment, Series C Liquidation
Payment, Series D Liquidation Payment, and Series E
Liquidation Payment
B = Series C Liquidation Payment
C = number of Common Shares into which the
Series C Preferred Shares outstanding at the
Effective Time would be converted if converted
at such time
D = number of Fully Diluted Shares
E = Average Stock Price at Signing
F = the number of Series C Preferred Shares
outstanding
"SERIES D LIQUIDATION PAYMENT" means $13,699,999.95.
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"SERIES D PREFERRED SHARES" means the shares of Series D
Convertible Preferred Stock, $0.01 par value per share, of the Company.
"SERIES D PREFERRED SHARE CLOSING CONVERSION RATIO" means the
number generated by the following formula, rounded to the nearest fourth decimal
place:
C
{[Closing Dollar Amount - (A)]x - } + B
D
Series D Preferred Share Closing Conversion Ratio = ------------------------------------
E x F
Where: A = the sum of the Series A Liquidation Payment,
Series B Liquidation Payment, Series C Liquidation
Payment, Series D Liquidation Payment, and Series E
Liquidation Payment
B = Series D Liquidation Payment
C = number of Common Shares into which the
Series D Preferred Shares outstanding at the
Effective Time would be converted if converted
at such time
D = number of Fully Diluted Shares
E = Average Stock Price at Signing
F = the number of Series D Preferred Shares
outstanding
"SERIES E LIQUIDATION PAYMENT" means the product obtained by
multiplying (A) $3.64 by (B) the sum of (1) 4,402,442 and (2) the number of
Series E Shares issued upon exercise of the Warrant held by Silicon Valley Bank.
"SERIES E PREFERRED SHARES" means the shares of Series E
Convertible Preferred Stock, $0.01 par value per share, of the Company.
"SERIES E PREFERRED SHARE CLOSING CONVERSION RATIO" means the
number generated by the following formula, rounded to the nearest fourth decimal
place:
C
{[Closing Dollar Amount - (A)]x - } + B
D
Series E Preferred Share Closing Conversion Ratio = ------------------------------------
E x F
Where: A = the sum of the Series A Liquidation Payment,
Series B Liquidation Payment, Series C Liquidation
Payment, Series D Liquidation Payment, and Series E
Liquidation Payment
B = Series E Liquidation Payment
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C = number of Common Shares into which the
Series E Preferred Shares outstanding at the
Effective Time would be converted if converted
at such time
D = number of Fully Diluted Shares
E = Average Stock Price at Signing
F = the number of Series E Preferred Shares outstanding
"SOFTWARE" means any and all (i) computer programs, including any
and all software and firmware implementations of algorithms, models and
methodologies, whether in source code or object code, (ii) databases and
compilations, including any and all data and collections of data, whether
machine readable or otherwise, (iii) descriptions, flow-charts and other work
product used to design, plan, organize and develop any of the foregoing and (iv)
all documentation, including user manuals and training software, relating to any
of the foregoing, in each case developed, used or licensed by the Company, or
necessary for the conduct of the Company's business, specifically excluding
those items prepared for customers in the operation of the Company's business
for which the customer contractually has vested title and for which the Company
has not received a license to use the same.
"STOCKHOLDER" means each holder of record of the Company's Common
Shares or Preferred Shares immediately prior to the Effective Time. The holder
of Series A Preferred Shares is not a Stockholder within the meaning of this
definition.
"STOCK PLANS" means all stock option plans and other stock or
equity-related plans of the Company, including the Company Plans.
"SUBSIDIARY" or "SUBSIDIARIES" of the Company, Parent,
Acquisition, the Surviving Corporation or any other person means any
corporation, partnership, limited liability company, association, trust,
unincorporated association or other legal entity of which the Company, Parent,
the Surviving Corporation or any such other person, as the case may be (either
alone or through or together with any other subsidiary), owns, directly or
indirectly, 50% or more of the Capital Stock the holders of which are generally
entitled to vote for the election of the board of directors or other governing
body of such corporation or other legal entity.
"TAX" or "TAXES" means (i) all federal, state, local, foreign and
other net income, gross income, gross receipts, sales, use, ad valorem,
transfer, franchise, profits, license, lease, service, service use, withholding,
payroll, employment, excise, severance, stamp, occupation, premium, property,
windfall profits, customs duties or other taxes, fees, assessments or charges of
any kind, together with any interest and any penalties, additions to tax or
additional amounts with respect thereto; (ii) any liability for payment of
amounts described in clause (i) whether as a result of transferee liability, of
being a member of an affiliated, consolidated, combined or unitary group for any
period, or otherwise through operation of law; and (iii) any liability for the
payment of amounts described in clause (i) or
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(ii) as a result of any tax sharing, tax indemnity or tax allocation agreement
or any other express or implied agreement to indemnify any other person.
"TAX RETURN" means any return, declaration, report, statement,
information statement and other document filed or required to be filed with
respect to Taxes.
"THIRD PARTY" means any Person (which includes a "person" as such
term is defined in Section 13(d)(3) of the Exchange Act) other than Parent,
Acquisition or any Affiliate thereof.
"THIRD PARTY ACQUISITION" means the occurrence of any of the
following events: (i) the acquisition of the Company by merger or otherwise by a
Third Party; (ii) the acquisition by a Third Party of 5% or more of the assets
of the Company, other than the sale of its products in the ordinary course of
business consistent with past practices; (iii) the acquisition by a Third Party
of Beneficial Ownership of 5% or more of the outstanding Preferred Shares or
Common Shares; (iv) the adoption by the Company of a plan of liquidation or the
declaration or payment of an extraordinary dividend; (v) the repurchase by the
Company of any outstanding Preferred Shares or Common Shares, except from
employees pursuant to agreements permitting the Company to do so; or (vi) the
acquisition (or any group of acquisitions) by the Company by merger, purchase of
stock or assets, joint venture or otherwise of a direct or indirect ownership
interest or investment in any business (or businesses) whose annual revenues,
net income or assets is equal or greater than 10% of the annual revenues, net
income or assets of the Company.
"WARRANTHOLDER" means each holder of a Warrant assumed by Parent
in accordance with Section 2.5(e).
"WARRANTS" means (i) the warrants to purchase an aggregate of
21,978 shares of Series E Preferred Shares granted to Silicon Valley Bank; (ii)
the warrants to purchase an aggregate of 156,984 shares of Common Stock held by
TransAmerica Business Credit Corporation and Priority Capital Resources and
(iii) warrants to purchase an aggregate of 200,000 shares of Common Stock held
by S-Link Corp.
(b) In addition, definitions for the following terms can be found in the
sections and on the pages indicated below:
CROSS REFERENCE
TERM IN AGREEMENT
---- ------------
Acquisition...........................................Preamble
Adjustment Event......................................Section 2.5(h)
Agreement.............................................Preamble
Balance Sheet Date....................................Section 3.4(a)
California Commissioner...............................Section 5.2(a)
Closing...............................................Section 2.2
Closing Date..........................................Section 2.2
Code..................................................Preamble
Company...............................................Preamble
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20
Company Disclosure Schedule...........................Article 3
Company Identified Other IP...........................Section 3.17(a)(vi)
Company Invention Disclosures.........................Section 3.17(a)(iv)
Company IP............................................Section 3.17(b)(i)
Company Marks.........................................Section 3.17(a)(i)
Company Patents.......................................Section 3.17(a)(ii)
Company Permits.......................................Section 3.12
Company Products......................................Section 3.17(i)
Company Registered Copyrights.........................Section 3.17(a)(iii)
Company Securities....................................Section 3.2(c)
Company Software......................................Section 3.17(c)
Company Trade Secrets.................................Section 3.17(a)(iv)
Contaminant...........................................Section 3.17(m)
Contracts.............................................Section 3.11
Copyrights............................................Article 1(a)
COTS Software.........................................Section 3.17(c)
DGCL..................................................Section 2.1
Disabling Code........................................Section 3.17(m)
Dissenting Shares.....................................Section 2.13
Dissenting Stockholder................................Section 2.13
Employee Stockholder Agreement........................Section 5.14
employees.............................................Section 3.14(c)
Employment Agreements.................................Section 3.13(a)
Escrow Fund...........................................Section 2.8(d)
Escrow Option Shares..................................Section 2.8(b)
Escrow Shares.........................................Section 2.8(a)
Escrow Warrant Shares.................................Section 2.8(c)
Exchange Fund.........................................Section 2.9(a)
Exploitation Agreements...............................Section 3.17(g
Fairness Hearing......................................Section 5.2(a)
Financial Statements..................................Section 3.4(a)
Foreign Plans.........................................Section 3.13(d)
independent contractors...............................Section 3.14(c)
Information Statement.................................Section 5.2(a)
Insurance Policies....................................Section 3.18
Key Employee..........................................Section 5.14
Key Employee Agreement................................Section 5.14
Licensed Intellectual Property Rights.................Section 3.17(f)(i)
Licensed Software.....................................Section 3.17(c)
Licensed Software Agreements..........................Section 3.17(f)
Licensed Technology Agreements........................Section 3.17(f)
Marks.................................................Article 1(a)
Material Systems......................................Section 3.17(l)(i)
Meeting...............................................Section 5.4(a)
Merger................................................Section 2.1
Most Recent Balance Sheet.............................Section 3.4(a)
New Certificates......................................Section 2.5(f)
Old Certificates......................................Section 2.5(f)
Other Company Technology..............................Section 3.17(g)
Other IP..............................................Article 1(a)
Other Licensed Technology.............................Section 3.17(f)
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Owned IP..............................................Section 3.17(b)(i)
Owned Software........................................Section 3.17(c)
Parent................................................Preamble
Parent SEC Reports....................................Section 4.4
Patents...............................................Article 1(a)
Registration Statement................................Section 5.2(b)
Repurchased Shares....................................Section 2.7(c)
Series 1 Preferred Stock..............................Section 2.5(e)
Series A Amendment....................................Section 5.21
Supplemental Employee Agreement.......................Section 5.14
Supplemental Employee Non-Solicitation Agreement......Section 5.14
Surviving Corporation.................................Section 2.1
Trade Secrets.........................................Article 1(a)
Year 2000 Compliant...................................Section 3.17(l)(i)
ARTICLE 2
THE MERGER
Section 2.1. The Merger. At the Effective Time and upon the terms
and subject to the conditions of this Agreement and in accordance with the DGCL
and the CCC, Acquisition shall be merged with and into the Company (the
"MERGER"). Following the Merger, the Company shall continue as the surviving
corporation (the "SURVIVING CORPORATION") and the separate corporate existence
of Acquisition shall cease.
Section 2.2. Closing of the Merger. The closing of the Merger
(the "CLOSING") will take place at 9:00 a.m. Eastern Standard Time on the second
business day after satisfaction (or waiver) of the conditions set forth in
Article 6 (the "CLOSING DATE"), at the offices of ▇▇▇▇▇▇, ▇▇▇▇ & ▇▇▇▇▇▇▇▇ LLP,
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇, unless another time, date
or place is agreed to by the parties hereto.
Section 2.3. Actions at the Closing. At the Closing: (i) the
Company shall deliver to Parent and Acquisition the various certificates,
instruments and documents referred to in Section 6.3; (ii) Parent and
Acquisition shall deliver to the Company the various certificates, instruments
and documents referred to in Section 6.2; (iii) the Company and Acquisition
shall file the Certificate of Merger with the Secretary of State of the State of
Delaware pursuant to Section 252 of the DGCL, and the Company and Acquisition
shall file the Agreement of Merger with the California Secretary of State
pursuant to Section 1103 of the CCC; (iv) Parent, the Representative, all the
Stockholders (other than any Stockholders which have perfected dissenters'
rights under Chapter 13 of the CCC) and all Optionholders shall execute and
deliver the Escrow Agreement or otherwise become bound thereby to the reasonable
satisfaction of Parent; and (vi) Parent shall deposit certificates representing
the appropriate number of shares of Parent Common Stock with the Escrow Agent in
accordance with Section 2.8.
Section 2.4. Additional Action. The Surviving Corporation may, at
any time after the Effective Time, take any action, including executing and
delivering any document, in
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the name and on behalf of either the Company or Acquisition, in order to
consummate the transactions contemplated by this Agreement.
Section 2.5. Conversion of Securities.
(a) At the Effective Time, by virtue of the Merger and without
any action on the part of any person or the holder of any Preferred Share or
Common Share: (i) each Series A Preferred Share issued and outstanding
immediately prior to the Effective Time shall be converted into and represent
the right to receive the number of fully paid and nonassessable shares of Parent
Common Stock equal to the Series A Preferred Share Closing Conversion Ratio;
(ii) each Series B Preferred Share issued and outstanding immediately prior to
the Effective Time shall be converted into and represent the right to receive
the number of fully paid and nonassessable shares of Parent Common Stock equal
to the Series B Preferred Share Closing Conversion Ratio; (iii) each Series C
Preferred Share issued and outstanding immediately prior to the Effective Time
shall be converted into and represent the right to receive the number of fully
paid and nonassessable shares of Parent Common Stock equal to the Series C
Preferred Share Closing Conversion Ratio; (iv) each Series D Preferred Share
issued and outstanding immediately prior to the Effective Time shall be
converted into and represent the right to receive the number of fully paid and
nonassessable shares of Parent Common Stock equal to the Series D Preferred
Share Closing Conversion Ratio; (v) each Series E Preferred Share issued and
outstanding immediately prior to the Effective Time shall be converted into and
represent the right to receive the number of fully paid and nonassessable shares
of Parent Common Stock equal to the Series E Preferred Share Closing Conversion
Ratio and (vi) each Common Share issued and outstanding immediately prior to the
Effective Time shall be converted into and represent the right to receive the
number of fully paid and nonassessable shares of Parent Common Stock equal to
the Common Stock Closing Conversion Ratio.
(b) At the applicable Distribution Date, by virtue of the
Merger and without any action on the part of any person or the holder of any
Preferred Share, Common Share or Option assumed by Parent pursuant to Section
2.6(a) or Warrant assumed by Parent, but subject to the provisions of Section
2.6 with respect to Options, Section 2.7 with respect to Restricted Shares and
Section 2.5(e) with respect to Warrants, if Contingent Merger Consideration is
earned based on the achievement of a Milestone with respect to such Distribution
Date:
(i) each holder of a Preferred Share (except for Series A
Preferred Shares) issued and outstanding immediately prior to the
Effective Time shall be entitled to receive a number of fully paid and
nonassessable shares of Parent Common Stock equal to the Contingent
Conversion Ratio applicable to such Preferred Share for the applicable
Earnout Payment;
(ii) each holder of a Common Share issued and outstanding
immediately prior to the Effective Time shall be entitled to receive the
number of fully paid and nonassessable shares of Parent Common Stock
equal to the Contingent
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Conversion Ratio applicable to the Common Shares for the applicable
Earnout Payment;
(iii) each holder of an Option assumed by Parent, upon
payment of the applicable Option exercise price in accordance with the
terms of such Option, will be entitled to receive the number of fully
paid and nonassessable shares of Parent Common Stock equal to the
Contingent Conversion Ratio applicable to the Common Shares issued
pursuant to the exercise of such Option for the applicable Earnout
Payment; and
(iv) each holder of a Warrant assumed by Parent, upon
payment of the applicable Warrant exercise price in accordance with the
terms of such Warrant, will be entitled to receive the number of fully
paid and nonassessable shares of Parent Common Stock equal to the
Contingent Conversion Ratio applicable to the Common Shares issued
pursuant to the exercise of such Warrant for the applicable Earnout
Payment.
(c) Any disagreement that arises as to whether a Milestone has
been achieved shall be settled in accordance with the provisions set forth in
Exhibit I.
(d) Each Preferred Share or Common Share, if any, held in the
Company's treasury immediately prior to the Effective Time shall not be deemed
to be outstanding and automatically shall be canceled and retired at the
Effective Time without payment of any consideration therefor.
(e) The Warrants that are not exercised on or before the
Effective Time shall be assumed by Parent and will represent the right to
acquire an aggregate number of shares of Parent Common Stock (rounded down to
the greatest number of whole shares of Parent Common Stock) that is equal to the
product of (i) the number of Common Shares subject to such Warrant immediately
prior to the Effective Time multiplied by (ii) the applicable Closing Conversion
Ratio. In addition, upon exercise of a Warrant the holder shall, for no
additional consideration, be entitled to receive the Contingent Merger
Consideration applicable to the shares issuable upon exercise of such Warrant.
The per share exercise price of shares of Parent Common Stock issuable upon
exercise of such Warrants shall be equal to the quotient determined by dividing
the exercise price per Common Share at which such Warrants was exercisable
immediately prior to the Effective Time by the applicable Closing Conversion
Ratio, rounded up to the nearest whole cent. Parent is not assuming the Nortel
Warrants, and the Nortel Warrants will remain outstanding after the Effective
Date. Parent shall not be obligated to register shares of Parent Common Stock
issuable upon exercise of any Assumed Warrants. Certificates representing the
portion of Closing Merger Consideration attributable to Warrants shall not be
delivered to the respective holders, but shall be held by or on behalf of Parent
until such time as a Warrant is exercised and, subject to Section 2.8(c),
delivered to the holder promptly, provided that Parent shall use commercially
reasonable efforts to deliver such certificates within 10 business days of
exercise of such Warrants. If any Warrant expires unexercised, the holder of
such Warrant will not be entitled to receive any portion of either of
17
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the Closing Merger Consideration or Contingent Merger Consideration payable with
respect to such unexercised Warrant, and the portion of the Closing Merger
Consideration and Contingent Merger Consideration related to such unexercised
Warrant will be forfeited and the Closing Merger Consideration and Contingent
Merger Consideration will be reduced by the amount of such forfeiture.
(f) Each Stockholder shall be entitled to receive, at such
time as the Stockholder delivers the certificate(s) representing his, her or its
Preferred Shares or Common Shares ("OLD CERTIFICATES"), certificates
representing the shares of Parent Common Stock issuable to the Stockholder in
the Merger pursuant to Section 2.5(a) ("NEW CERTIFICATES"), less the Escrow
Shares deposited in escrow pursuant to Section 2.8 with respect to his, her or
its Preferred Shares or Common Shares.
(e) At the Effective Time, each share of common stock of
Acquisition outstanding immediately prior to the Effective Time shall be
converted into one newly issued, fully-paid and non-assessable share of Series 1
Preferred Stock of the Surviving Corporation (the "SERIES 1 PREFERRED STOCK")
pursuant to a certificate of designations proposed by Parent and approved by the
Company, such approval not to be unreasonably withheld or delayed.
(f) At the Effective Time, and at each applicable Distribution
Date in consideration of the issuance by Parent of the Parent Common Stock to
the holders of Preferred Shares and Common Shares in accordance with Section
2.5(a), the Surviving Corporation shall issue to Parent a number of shares of
newly issued, fully-paid and non-assessable Common Shares of the Surviving
Corporation, which number shall be equal to the number of Preferred Shares and
Common Shares outstanding immediately prior to the Effective Time and any shares
of Parent Common Stock issuable upon payment of the Contingent Merger
Consideration, respectively.
(g) Parent and the Company acknowledge that the price of the
Parent Common Stock may fluctuate significantly. The potential risk of increases
or decreases in the price of Parent Common Stock has been taken into account in
connection with the negotiation of the Closing Conversion Ratios and the
Contingent Conversion Ratio.
(h) If, between the date of this Agreement and the Effective
Time, the outstanding shares of Parent Common Stock shall have been changed into
or exchanged for a different number of shares or kind of shares and/or other
securities of Parent or another corporation or entity by reason of any
reclassification, split-up, stock dividend or stock combination or any
arrangement, amalgamation or similar statutory procedure (an "ADJUSTMENT
EVENT"), then the Closing Conversion Ratios and the Contingent Conversion Ratios
shall be appropriately adjusted so that each holder of Old Certificates shall be
entitled to receive at the Effective Time, in lieu of the Closing Merger
Consideration provided for in Section 2.5 hereof, such number and kind of shares
and/or other securities as such holder would have received if the record date
and payment date for such Adjustment Event had been immediately after the
Effective Time. If an Adjustment Event occurs between the Effective
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25
Time and an applicable Distribution Date, the Contingent Merger Consideration
shall be appropriately adjusted.
Section 2.6. Options.
(a) At the Effective Time, Parent will assume each outstanding
Option and will substitute, for the right to acquire Common Shares, the right to
acquire, on the same terms and conditions (including vesting requirements,
adjusted for any stock dividend, subdivision, reclassification,
recapitalization, split, combination, exchange of shares, plan of arrangement or
similar transaction following the Effective Time) as were applicable under such
Option immediately prior to the Effective Time, an aggregate number of shares of
Parent Common Stock (rounded down to the greatest number of whole shares of
Parent Common Stock) that is equal to the product of (i) the number of Common
Shares subject to such Option immediately prior to the Effective Time multiplied
by (ii) the Common Stock Closing Conversion Ratio. In addition, upon exercise of
an Option the holder shall, for no additional consideration, be entitled to
receive the Contingent Merger Consideration applicable to the shares issuable
upon exercise of such Options. The per share exercise price of shares of Parent
Common Stock issuable upon exercise of such Options shall be equal to the
quotient determined by dividing the exercise price per Common Share at which
such Option was exercisable immediately prior to the Effective Time by the
Common Stock Closing Conversion Ratio, rounded up to the nearest whole cent.
(b) Certificates representing the portion of Closing Merger
Consideration attributable to Options shall not be delivered to the respective
holders, but shall be held by or on behalf of Parent until such time as an
Option is exercised and, subject to Section 2.8(b), delivered to the holder
promptly, provided that Parent shall use commercially reasonable efforts to
deliver such certificates within 10 business days of exercise of such Options.
If any Option expires unexercised, the holder of such Option will not be
entitled to receive any portion of the Closing Merger Consideration payable with
respect to such unexercised Option, and the portion of the Closing Merger
Consideration related to such unexercised Option will be forfeited and the
Closing Merger Consideration will be reduced by the amount of such forfeiture.
In the event that a holder of an Option ceases to be employed by the Surviving
Corporation or an Affiliate prior to the vesting of his or her Options, the
portion of the Closing Merger Consideration related to such terminated Options
will be forfeited and the Closing Merger Consideration will be reduced by the
amount of such forfeiture.
(c) Parent shall give each holder of an Option written notice
that an applicable Distribution Date shall occur at least five business days
prior to the date of each occurrence. In the event that a holder of an Option
has not exercised that Option prior to an applicable Distribution Date,
certificates representing the portion of the Earnout Payment payable on such
applicable Distribution Date and attributable to such unexercised Option shall
not be delivered to the respective holder, but shall be held by or on behalf of
Parent until such time as the Option is exercised and then distributed promptly,
provided that Parent shall use commercially reasonable efforts to distribute
such amount within 10 business days thereafter. If any Option expires
unexercised, the holder of such Option will not be entitled to receive any
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portion of the Earnout Payment payable with respect to such unexercised Option,
and the portion of any Earnout Payment related to such unexercised Option will
be forfeited and the Earnout Payment(s) will be reduced by the amount of such
forfeiture. In the event that a holder of an Option ceases to be employed by the
Surviving Corporation or an Affiliate prior to the vesting of his or her
Options, the portion of any Earnout Payment related to such terminated Options
will be forfeited and the Earnout Payment(s) will be reduced by the amount of
such forfeiture.
(d) Within 20 business days following the Closing Date, Parent
shall cause to be delivered to each holder of an Option that has been assumed by
Parent pursuant to Section 2.6(a) a notice (i) stating that such Option shall
constitute an option to purchase Parent Common Stock, (ii) stating that such
Option has been assumed by Parent and shall continue in effect subject to all of
the terms and conditions applicable thereto immediately prior to the Effective
Time, (iii) setting forth the number of shares of Parent Common Stock initially
covered by such Option and the per share option exercise price for such shares
of Parent Common Stock and (iv) stating that if the holder of an Option ceases
to be employed by the Surviving Corporation or an Affiliate prior to the vesting
of his or her Options, the portion of the Closing Merger Consideration and
Earnout Payments related to such terminated unexercised Options will be
forfeited. From and after the Effective Time, Parent and the Surviving
Corporation shall comply with the terms (including with respect to acceleration
of vesting) of the Company Plans pursuant to which the Options were granted;
provided that the board of directors of Parent or an authorized committee
thereof shall succeed to the authorities and responsibilities of the Company
Board or any committee thereof under the Company Plans, and may take all
necessary and appropriate action (including amending the Company Plans and
making adjustments as provided thereunder) to effect the assumption and
conversion of the Options by Parent. The adjustments provided herein with
respect to any Options that are "incentive stock options" (as defined in Section
422 of the Code) shall be effected in a manner consistent with Section 424(a) of
the Code.
(e) On or prior to the Closing Date, the Company shall take in
consultation with Parent all necessary or appropriate action (including amending
the Company Plans or making adjustments as permitted thereby) to effectuate the
assumption and conversion of the Options by Parent and the assignment to Parent
of the authorities and responsibilities of the Company Board or any committee
thereof under the Company Plans.
(f) Parent shall cause to be taken all corporate action
necessary to reserve for issuance a sufficient number of shares of Parent Common
Stock for delivery upon exercise of Options in accordance with this Section 2.6,
which shares shall be approved for listing on the New York Stock Exchange in
accordance with Section 5.5 and will be registered under the Securities Act
following the Closing in accordance with the provisions of Section 5.2.
(g) Except as provided herein, the Company shall terminate all
Stock Plans as of the Effective Time, if so requested by Parent.
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Section 2.7. Restricted Shares.
(a) At the Effective Time, each Restricted Share will be
exchanged for New Certificates representing Restricted Parent Shares that are
subject to repurchase for cancellation by Parent and which have not been
deposited in the Escrow Fund (as defined in Section 2.8). Such New Certificates
shall be held by Parent until such shares are no longer subject to repurchase.
When such Restricted Parent Shares are no longer subject to repurchase for
cancellation by Parent, the certificates representing such shares shall be
delivered to the Stockholder entitled thereto promptly, provided that Parent
shall use commercially reasonable efforts to deliver such certificates within 10
business days thereafter. If a Stockholder deposits Restricted Parent Shares in
the Escrow Fund together with other shares of Parent Common Stock that are not
Restricted Parent Shares, the shares deposited that are not Restricted Parent
Shares shall be used to satisfy claims, if any, before Restricted Parent Shares
are so used.
(b) Notwithstanding anything to the contrary in this
Agreement, all Contingent Merger Consideration earned with respect to Parent
Restricted Shares on an applicable payment date shall be (i) held by Parent in
escrow for the benefit of the holders of Parent Restricted Shares; (ii) subject
to forfeiture upon repurchase of the applicable Parent Restricted Shares for
cancellation pursuant to the applicable Company restricted stock purchase or
stock option agreement; and (iii) delivered to the applicable Stockholder within
fifteen (15) days following the end of the applicable quarter in which the
applicable Parent Restricted Shares are no longer subject to such repurchase
rights.
(c) If Parent exercises its right to repurchase any or all of
the Restricted Parent Shares pursuant to the terms of the relevant agreement(s)
relating thereto (such repurchased shares, the "REPURCHASED SHARES"), the
portions of the Closing Merger Consideration and the Contingent Merger
Consideration related to such Repurchased Shares will be forfeited and the
Closing Merger Consideration and the Contingent Merger Consideration will be
reduced by the respective amounts of such forfeitures.
Section 2.8. Escrow.
(a) On the Closing Date, Parent will deposit in escrow with
the Escrow Agent certificates representing fifteen percent (15%) of the shares
of Parent Common Stock (the "ESCROW SHARES") issued in the Merger as Closing
Merger Consideration to holders of Series B Preferred Shares, Series C Preferred
Shares, Series D Preferred Shares, Series E Preferred Shares and Common Shares
on a pro rata basis for each Stockholder based on the number of shares of Parent
Common Stock each such holder receives in the Merger. The Escrow Fund shall be
held by the Escrow Agent under the Escrow Agreement pursuant to the terms
thereof and shall be available for the purpose of securing the indemnification
obligations of the Stockholders set forth in Article 8 and the Escrow Agreement.
(b) Fifteen percent (15%) of the shares of Parent Common Stock
(excluding shares of Parent Common Stock issued as Contingent Merger
Consideration) issuable upon the exercise of Options which have been assumed by
Parent shall be withheld from the holder thereof each time an Option is
exercised and delivered into the Escrow Fund (the "ESCROW
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OPTION SHARES"). No withholding of Escrow Option Shares shall be made following
termination of the Escrow Period (as defined in the Escrow Agreement), except to
the extent necessary to provide for a pro rata participation of the Optionholder
in any claims pending or previously paid in accordance with the Escrow
Agreement. All of the Escrow Option Shares shall be deemed to have been
deposited in the Escrow Fund on the Closing Date and, when and if issued upon
the exercise of Options, such Escrow Option Shares shall be available to satisfy
indemnification claims paid or which become payable under the Escrow Agreement
regardless of when such Options are exercised.
(c) Fifteen percent (15%) of the shares of Parent Common Stock
(excluding shares of Parent Common Stock issued as Contingent Merger
Consideration) issuable upon the exercise of Warrants which have been assumed by
Parent shall be withheld from the holder thereof each time a Warrant is
exercised and delivered into the Escrow Fund (the "ESCROW WARRANT SHARES"). No
withholding of Escrow Warrant Shares shall be made following termination of the
Escrow Period (as defined in the Escrow Agreement), except to the extent
necessary to provide for a pro rata participation of the Warrantholder in any
claims pending or previously paid in accordance with the Escrow Agreement. All
of the Escrow Warrant Shares shall be deemed to have been deposited in the
Escrow Fund on the Closing Date and, when and if issued upon the exercise of
Warrants, such Escrow Warrant Shares shall be available to satisfy
indemnification claims paid or which become payable under the Escrow Agreement
regardless of when such Warrants are exercised.
(d) The shares of Parent Common Stock deposited with the
Escrow Agent pursuant to Section 2.8(a), (b) and (c) are collectively referred
to as the "ESCROW FUND."
Section 2.9. Exchange of Certificates. The procedures for
exchanging Old Certificates for New Certificates and cash pursuant to the Merger
are as follows:
(a) At or prior to the Effective Time, Parent shall deposit or
shall cause to be deposited with the Exchange Agent, for the benefit of the
holders of Old Certificates, for exchange in accordance with this Article 2, New
Certificates and an estimated amount of cash pursuant to Section 2.9(g) (such
cash and New Certificates (without any interest on any such cash) are referred
to as the "EXCHANGE FUND").
(b) As promptly as practicable after the Closing Date, but in
any case no later than 15 days thereafter, Parent shall send or cause the
Exchange Agent to send or cause to be sent to each former holder of record of
Preferred Shares or Common Shares immediately prior to the Effective Time
transmittal materials for use in exchanging such Stockholder's Old Certificates
for the consideration set forth in this Article 2; provided that the obligations
of Parent and the Exchange Agent to distribute transmittal materials to any such
holder are subject to the Company having provided to Parent, prior to Closing,
with an accurate name and address for such Stockholder. Parent, with consent of
the Company, may satisfy this requirement by delivery to the Surviving
Corporation of such transmittal materials. Parent shall cause the New
Certificates representing Parent Common Stock into which each Stockholder's
Preferred Shares and Common Shares are converted at the Effective Time, or
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any check in respect of fractional share interests or dividend distributions
which such person shall be entitled to receive pursuant to this Article 2, to be
delivered to such Stockholder, promptly upon delivery to the Exchange Agent of
Old Certificates representing such Preferred Shares and Common Shares (or
pursuant to Section 2.9(e), a surety bond or other indemnity reasonably
satisfactory to Parent and the Exchange Agent, if any such certificates are
lost, stolen or destroyed) owned by such Stockholder and properly completed
transmittal materials in respect thereof.
(c) From and after the Effective Time, each Stockholder shall
have the right to surrender such holder's Old Certificate(s) to Parent and
receive in exchange therefor a New Certificate representing the number of whole
shares of Parent Common Stock (other than the Escrow Shares) into which the
Preferred Shares and Common Shares evidenced by each of the Old Certificates so
surrendered shall have been converted pursuant to the provisions of Section 2.5
and cash in lieu of fractional share interests or dividend distributions which
such person shall be entitled to receive pursuant to this Article 2. The
surrender of Old Certificates shall be accompanied by duly completed and
executed documentation in such form as may be reasonably requested by Parent.
Until surrendered, each outstanding Old Certificate shall be deemed for all
corporate purposes to evidence ownership of the number of whole shares of Parent
Common Stock into which the Preferred Shares and Common Shares have been
converted and cash in lieu of fractional share interests or dividend
distributions which such person shall be entitled to receive pursuant to this
Article 2. From and after the Effective Time, the Stockholders shall cease to
have any rights in respect of such Preferred Shares and Common Shares, and their
rights as stockholders shall be solely in respect of the Parent Common Stock
into which such Preferred Shares and Common Shares have been converted. From and
after the Effective Time, there shall be no further registration of transfers on
the records of the Company of Series A Preferred Shares, Series B Preferred
Shares, Series C Preferred Shares, Series D Preferred Shares, Series E Preferred
Shares and Common Shares outstanding immediately prior to the Effective Time.
(d) If any shares of Parent Common Stock are to be issued in
the name of a person other than the person in whose name the Old Certificate(s)
surrendered in exchange therefor is registered, it shall be a condition to the
issuance of such shares that (i) the Old Certificate(s) so surrendered shall be
transferable and shall be properly assigned, endorsed or accompanied by
appropriate stock powers, (ii) such transfer shall otherwise be proper and (iii)
the person requesting such transfer shall pay Parent any transfer or other taxes
payable by reason of the foregoing or establish to the satisfaction of Parent
that such taxes have been paid or are not required to be paid. Notwithstanding
the foregoing, neither Parent nor the Company shall be liable to a Stockholder
for shares of Parent Common Stock that are delivered to a public official
pursuant to applicable abandoned property, escheat or similar laws.
(e) In the event any Old Certificate shall have been lost,
stolen or destroyed, upon the making of an affidavit of that fact by the person
claiming such Old Certificate to be lost, stolen or destroyed, Parent shall
deliver in exchange for such lost, stolen or destroyed Old Certificate the
shares of Parent Common Stock issuable in exchange therefor pursuant to the
provisions of Section 2.5 (and cash in lieu of fractional share interests or
dividend distributions
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which such person shall be entitled to receive pursuant to this Article 2).
Parent may, in its reasonable discretion and as a condition precedent to the
issuance thereof, require the owner of such lost, stolen or destroyed Old
Certificate to provide to Parent a surety bond or an indemnity agreement against
any claim that may be made against Parent with respect to the Old Certificate
alleged to have been lost, stolen or destroyed.
(f) No dividends or other distributions declared or made after
the Effective Time with respect to Parent Common Stock with a record date after
the Effective Time shall be paid to the holder of any unsurrendered Old
Certificate with respect to the shares of Parent Common Stock represented
thereby, and no cash payment in lieu of fractional shares shall be paid to any
such holder pursuant to Section 2.9(g), until the holder of record of such Old
Certificate shall surrender such Old Certificate (or the delivery of a surety
bond or an indemnity agreement, as provided in Section 2.9(e)). Following
surrender of any such Old Certificate (or the delivery of a surety bond or an
indemnity agreement, as provided in Section 2.9(e)), there shall be paid to the
record holder of New Certificates issued in exchange therefor, without interest,
(i) at the time of such surrender, the amount of any cash payable in lieu of a
fractional share of Parent Common Stock to which such holder is entitled
pursuant to Section 2.9(g) and the amount of dividends or other distributions
with a record date after the Effective Time previously paid with respect to such
whole shares of Parent Common Stock represented by the New Certificates and (ii)
at the appropriate payment date, the amount of dividends or other distributions
with a record date after the Effective Time but prior to surrender and a payment
date subsequent to surrender payable with respect to such whole shares of Parent
Common Stock represented by the New Certificates.
(g) No certificate or scrip representing fractional shares of
Parent Common Stock shall be issued upon the surrender for exchange of Old
Certificates, and such fractional share interests will not entitle the owner
thereof to vote or to any rights of a stockholder of Parent. Notwithstanding any
other provision of this Agreement or this Section 2.9, each holder of Preferred
Shares and Common Shares exchanged pursuant to the Merger who would otherwise
have been entitled to receive a fraction of a share of Parent Common Stock
(after taking into account all Old Certificates delivered by such holder) shall
receive, in lieu thereof, cash (without interest) in an amount equal to such
fractional part of a share of Parent Common Stock multiplied by the Average
Stock Price at Signing (or the Average Stock Price at the Distribution Date in
connection with the receipt of the Contingent Merger Consideration.)
Section 2.10. Directors. The directors of Acquisition at the
Effective Time shall be the initial directors of the Surviving Corporation, each
to hold office in accordance with the Articles of Incorporation and bylaws of
the Surviving Corporation until such director's successor is duly elected or
appointed and qualified.
Section 2.11. Officers. The officers of Acquisition at the
Effective Time shall be the initial officers of the Surviving Corporation, each
to hold office in accordance with the Articles of Incorporation and bylaws of
the Surviving Corporation until such officer's successor is duly elected or
appointed and qualified.
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Section 2.12. Articles of Incorporation and Bylaws. The Articles
of Incorporation of the Surviving Corporation shall be in the form attached to
the Certificate of Merger until amended in accordance with Applicable Law. The
Bylaws of the Surviving Corporation shall be amended and restated at the
Effective Time to read the same as the Bylaws of Acquisition until amended in
accordance with Applicable Law.
Section 2.13. Dissenters' Rights. Common Shares and Preferred
Shares that have not been voted for approval of this Agreement and the Merger
(or which have not consented to each of them) and with respect to which a demand
for payment and appraisal have been properly made in accordance with Chapter 13
of the CCC ("DISSENTING SHARES") will not be converted into the right to receive
the merger consideration otherwise payable with respect to such Common Shares or
Preferred Shares at or after the Effective Time, but instead will be converted
into the right to receive such consideration as may be determined to be due with
respect to such Dissenting Shares pursuant to the laws of the State of
California. If a holder of Dissenting Shares (a "DISSENTING STOCKHOLDER")
withdraws his or her demand for such payment and appraisal or becomes ineligible
for such payment and appraisal, then, as of the Effective Time or the occurrence
of such event of withdrawal or ineligibility, whichever last occurs, such
holder's Dissenting Shares will cease to be Dissenting Shares and will be
converted into the right to receive, and will be exchangeable for, the merger
consideration in accordance with this Agreement. The Company will give Parent
and Acquisition prompt notice of any demand received by the Company from a
holder of Dissenting Shares for appraisal of Common Shares or Preferred Shares,
and Parent shall have the right to participate in all negotiations and
proceedings with respect to such demand. The Company agrees that, except with
the prior written consent of Parent, or as required under the CCC, it will not
voluntarily make any payment with respect to, or settle or offer or agree to
settle, any such demand for appraisal. Each Dissenting Stockholder who, pursuant
to the provisions of Chapter 13 of the CCC, becomes entitled to payment of the
value of the Dissenting Shares will receive payment therefor but only after the
value therefor has been agreed upon or finally determined pursuant to such
provisions. Any portion of the merger consideration that would otherwise have
been payable with respect to Dissenting Shares if such Common Shares or
Preferred Shares were not Dissenting Shares will be retained by Parent.
Section 2.14. Appointment of Representative.
(a) Pursuant to the Escrow Agreement, ▇▇▇▇▇▇▇ ▇. ▇▇▇▇ and
▇▇▇▇▇▇ ▇▇▇▇▇▇, collectively, will be irrevocably appointed by each of the
Stockholders and Optionholders as his, her or its attorney-in-fact to contest,
settle, compromise or otherwise dispose of any claim made by Parent or the
Surviving Corporation in accordance with the Escrow Agreement. Such power of
attorney shall be coupled with an interest, thereby confirming such appointment
as irrevocable.
(b) Pursuant to the terms of Exhibit I to this Agreement, each
Stockholder shall have irrevocably appointed ▇▇▇▇▇▇▇ ▇. ▇▇▇▇ and ▇▇▇▇▇▇ ▇▇▇▇▇▇
as his or her attorney-in-fact to determine whether any Milestone has been
achieved and to contest, settle, compromise or otherwise dispose of any dispute
with Parent or the Surviving Corporation in
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accordance with the terms of Exhibit B. Such power of attorney shall be coupled
with an interest, thereby confirming such appointment as irrevocable.
Section 2.15. Tax Consequences of the Merger. The Merger is
intended to qualify as a tax-free reorganization under Section 368 of the Code.
Each of the parties hereto agrees to cooperate in order to qualify the
transaction as a tax-free reorganization, and to report the Merger for federal
and state income tax purposes in a manner consistent with such characterization,
including the filing of the statement required by Treasury Regulations Section
1.367(a)-3(c)(6) and the provisions of Treasury Regulation Section 1.368-3.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to Parent, subject to
the exceptions set forth in the Disclosure Schedule (the "COMPANY DISCLOSURE
SCHEDULE") delivered by the Company to Parent in accordance with Section 5.11,
that the statements contained in this Article 3 are true and correct. Any
qualification of a representation or warranty must be specifically identified as
a qualification or exception. The qualifications or exceptions shall be deemed
to qualify only specifically identified Sections, Subsections or clauses of a
single Section or Subsection hereof, as applicable, to which such qualification
or exception relates. If a qualification or exception is intended to qualify
more than one Section or Subsection, it shall be appropriately cross-referenced
as an exception in such Section or Subsection.
Section 3.1. Organization and Qualification; Subsidiaries;
Investments.
(a) The Company and each of its subsidiaries is duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation or organization and has all requisite
corporate power and authority to own, lease and operate its properties and to
carry on its businesses as now being conducted. The Company has heretofore
delivered to Parent accurate and complete copies of the Articles of
Incorporation and bylaws (or similar governing documents), of the Company and
each of its subsidiaries, as currently in full force and effect. Except for the
wholly-owned subsidiaries set forth in Schedule 3.1(a) of the Company Disclosure
Schedule, the Company has no subsidiaries or any other equity interest in any
person or any agreements to acquire the same. There are no (i) securities of any
subsidiary convertible into or exchangeable or exercisable for shares of capital
stock or other securities of such subsidiary, (ii) options, warrants, phantom
stock, preemptive or other rights to acquire from any subsidiary, and no
obligation of any subsidiary to issue any capital stock, voting securities or
securities convertible or exchangeable into voting securities of such
subsidiary, and (iii) no equity equivalent interests in the ownership or
earnings of any subsidiary or other similar rights.
(b) Except as set forth in Section 3.1(b) of the Company
Disclosure Schedule, the Company and each of its subsidiaries is duly qualified
or licensed and in good standing to do business in each jurisdiction in which
the property owned, leased or operated by
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it or the nature of the business conducted by it makes such qualification or
licensing necessary, except in such jurisdictions where the failure to be so
duly qualified or licensed and in good standing would not, individually or in
the aggregate, have a Material Adverse Effect on the Company.
Section 3.2. Capitalization of the Company.
(a) The authorized Capital Stock of the Company consists of:
60,000,000 shares of Common Stock, 2,363,636 Series A Preferred Shares;
1,691,123 Series B Preferred Shares, 17,808,877 Series C Preferred Shares;
6,199,095 Series D Preferred Shares, and 7,500,000 Series E Preferred Shares. As
of the date hereof, 3,136,444 shares of Common Stock, 2,363,636 Series A
Preferred Shares; 1,691,123 Series B Preferred Shares, convertible into
1,691,123 shares of Common Stock; 17,808,874 Series C Preferred Shares,
convertible into 17,808,874 shares of Common Stock; 6,199,095 Series D Preferred
Shares, convertible into 6,199,095 shares of Common Stock; and 4,402,442 Series
E Preferred Shares, convertible into 4,402,442 shares of Common Stock, are
issued and outstanding. No shares of the Company's Capital Stock are held in the
treasury of the Company.
(b) Section 3.2 of the Company Disclosure Schedule sets forth,
as of the date hereof, a complete and accurate list of: (i) all Stockholders,
indicating the number of Common Shares and Preferred Shares held by each
Stockholder and the vesting schedule for any shares subject to repurchase by the
Company; (ii) all holders of Options, including the number of Common Shares
subject to each Option, the exercise price, the vesting schedule and any other
material terms thereof; (iii) all holders of Warrants to purchase Capital Stock
of the Company and (iv) all Stock Plans. All of the issued and outstanding
Common Shares and Preferred Shares are, and all Common Shares that may be issued
upon exercise of Options and Warrants will be, duly authorized, validly issued,
fully paid, nonassessable and, except as disclosed in Section 3.2 of the Company
Disclosure Schedule, free of all preemptive rights.
(c) Except as set forth above or disclosed on Section 3.2 of
the Company Disclosure Schedule, as of the date hereof there are outstanding:
(i) no shares of Capital Stock or other voting securities of the Company; (ii)
no securities of the Company convertible into or exchangeable or exercisable for
shares of Capital Stock or other securities of the Company; (iii) no options,
warrants, phantom stock, preemptive or other rights to acquire from the Company,
and no obligations of the Company to issue any Capital Stock, voting securities
or securities convertible into or exchangeable or exercisable for Capital Stock
or other securities of the Company; and (iv) no equity equivalent interests in
the ownership or earnings of the Company or other similar rights (collectively
"COMPANY SECURITIES"). Except as set forth in Section 3.2 of the Company
Disclosure Schedule, there are no (x) outstanding rights or obligations of the
Company to repurchase, redeem or otherwise acquire any Company Securities or (y)
stockholder agreements, voting trusts or other agreements or understandings to
which the Company is a party or by which it is bound relating to the voting or
registration of any shares of Capital Stock of the Company. All of the issued
and outstanding Common Shares and Preferred Shares were issued in compliance
with applicable federal and state securities laws.
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Section 3.3. Authority Relative to this Agreement;
Recommendation.
(a) The Company has all necessary corporate power and
authority to execute and deliver this Agreement, to perform its obligations
under this Agreement and to consummate the transactions contemplated hereby. The
execution and delivery of this Agreement, and the consummation of the
transactions contemplated hereby, have been duly and validly authorized by the
Company Board. No other corporate proceedings on the part of the Company are
necessary to authorize this Agreement, or to consummate the transactions
contemplated hereby, except (i) the approval of this Agreement by the holders of
(A) a majority of the outstanding Preferred Shares, (B) a majority of the
outstanding Common Shares, (C) two-thirds (2/3) of the Series C Preferred
Shares, Series D Preferred Shares and Series E Preferred Shares, voting together
as a single class, and (ii) the filing of the Certificate of Merger with the
Secretary of State of the State of Delaware and the Agreement of Merger with the
Secretary of State of California. This Agreement has been duly and validly
executed and delivered by the Company and constitutes the valid, legal and
binding agreement of the Company, enforceable against the Company in accordance
with its terms, subject to any applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws now or hereafter in effect relating
to creditors' rights generally or to general principles of equity.
(b) Without limiting the generality of the foregoing, the
Company Board has unanimously (i) approved this Agreement, the Merger and the
other transactions contemplated hereby, (ii) resolved to recommend approval and
adoption of this Agreement, the Merger and the other transactions contemplated
hereby by the Company's Stockholders and (iii) has not withdrawn or modified
such approval or resolution to recommend.
Section 3.4. Financial Statements.
(a) Section 3.4 of the Company Disclosure Schedule sets forth
(i) an audited consolidated balance sheet of the Company dated December 31,
1999, an audited consolidated income statement and statement of changes in cash
flows of the Company for its fiscal year ended December 31, 1999 accompanied by
the auditors report thereon Statements, (ii) an unaudited consolidated balance
sheet (the "MOST RECENT BALANCE SHEET") of the Company at June 30, 2000 (the
"BALANCE SHEET DATE") and (iii) an unaudited consolidated income statement of
the Company for the period ended June 30, 2000 (all such financial statements
being collectively referred to herein as the "FINANCIAL STATEMENTS").
(b) The Financial Statements (i) are in accordance with the
books and records of the Company, (ii) present fairly the consolidated financial
condition of the Company and its subsidiaries at the date or dates therein
indicated and the results of operations for the period or periods therein
specified and (iii) have been prepared in accordance with generally accepted
accounting principles applied on a consistent basis, except, as to the unaudited
financial statements , for the omission of notes thereto and normal year-end
audit adjustments, which will not be material, individually or in the aggregate.
The respective balance sheets of the Financial Statements disclose all of the
Company's consolidated material debts, liabilities and obligations of any
nature, whether due or to become due, as of their respective dates
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(including absolute liabilities, accrued liabilities and contingent liabilities)
to the extent such debts, liabilities and obligations are required to be
disclosed in accordance with generally accepted accounting principles.
Section 3.5. Information Supplied. None of the information
supplied or to be supplied by the Company for inclusion or incorporation by
reference in (i) either the Information Statement (as defined in Section 5.2(a))
or the Registration Statement (as defined in Section 5.2(b)) will result in the
Information Statement, at the time it is sent to Stockholders, or the
Registration Statement, at the time it becomes effective under the Securities
Act, containing any untrue statement of a material fact or omitting to state any
material fact required to be stated therein or necessary to make the statements
therein not misleading, or (ii) any proxy or information statement relating to
the meeting of the Company's Stockholders to be held in connection with the
Merger, or action by written consent in lieu of such meeting, will result in
such document, at the date mailed to Stockholders and at the time of the meeting
of Stockholders to be held in connection with the Merger, or action by written
consent in lieu of such meeting, containing any untrue statement of a material
fact or omitting to state any material fact required to be stated therein or
necessary in order to make the statements therein, in light of the circumstances
under which they are made, not misleading. The Company makes no representation,
warranty or covenant with respect to any information supplied or required to be
supplied by Parent or Acquisition that is contained in or omitted from any of
the foregoing documents.
Section 3.6. Consents and Approvals; No Violations. Except for
filings, permits, authorizations, consents and approvals, if any, as may be
required under applicable requirements of the Securities Act, the Exchange Act,
state securities or blue sky laws (including the Fairness Hearing), and the HSR
Act, any filings under similar merger notification laws or regulations of
foreign Governmental Entities and the filing and recordation of the Certificate
of Merger as required by the Secretary of State of the State of Delaware and the
filing of the Agreement of Merger with the California Secretary of State, no
other filing with or notice to and no permit, authorization, consent or approval
of any Governmental Entity is necessary for the execution and delivery by the
Company of this Agreement or the consummation by the Company of the transactions
contemplated hereby. Neither the execution, delivery and performance of this
Agreement by the Company nor the consummation by the Company of the transactions
contemplated hereby will: (i) conflict with or result in any breach of any
provision of the Articles of Incorporation or bylaws (or similar governing
documents) of the Company; (ii) except as set forth in Section 3.6 of the
Company Disclosure Schedule, result in a violation or breach of or constitute
(with or without due notice or lapse of time or both) a default (or give rise to
any right of termination, amendment, cancellation or acceleration or Lien) under
any of the terms, conditions or provisions of any material note, bond, mortgage,
indenture, lease, license, contract, agreement or other instrument or obligation
to which the Company or any of its subsidiaries is a party or by which the
Company or any of its subsidiaries or any of their respective properties or
assets are bound; or (iii) except as set forth in Section 3.6 of the Company
Disclosure Schedule, violate any order, writ, injunction, decree, material law,
statute, rule or regulation applicable to the Company or its subsidiaries or any
of their respective properties or assets.
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Section 3.7. No Default. Except as set forth in Section 3.7 of
the Company Disclosure Schedule, neither the Company nor any of its subsidiaries
is in breach, default or violation (and no event has occurred that with notice
or the lapse of time or both would constitute a breach, default or violation) of
any term, condition or provision of (i) its Articles of Incorporation or bylaws
(or similar governing documents), (ii) any material note, bond, mortgage,
indenture, lease, license, contract, agreement or other instrument or obligation
to which the Company or any of its subsidiaries is now a party or by which it or
any of their respective properties or assets are bound or (iii) any order, writ,
injunction, decree, material law, statute, rule or regulation applicable to the
Company or any of its subsidiaries or any of their respective properties or
assets.
Section 3.8. No Undisclosed Liabilities; Absence of Changes.
(a) The Company has no material liabilities, except for:
(i) liabilities shown on the Most Recent Balance Sheet;
(ii) liabilities which have arisen since the Balance Sheet
Date in the ordinary course of business and which are similar in nature
and amount to the liabilities which arose during the comparable period
of time in the immediately preceding fiscal period, other than (x)
accrued wages, (y) increased compensation expense as a result of a
greater number of employees in the current period and individual
compensation increases to employees who are not officers, each of which
is consistent with past practice and, except as set forth on Section 3.8
of the Company Disclosure Schedule, none of which is greater than 10%
and (z) increased trade payables as a result of an increase in business
operations and Company growth in the current period; provided, that such
increase is not due to extending the payment dates for payables;
(iii) contractual liabilities incurred in the ordinary
course of business which are not required by United States generally
accepted accounting principles to be reflected on a balance sheet; and
(iv) liabilities for costs and fees related to the Merger.
(b) Since the Balance Sheet Date, (i) there has not been any
change in the assets, business, financial condition, results of operations or
prospects of the Company which has had or would be reasonably likely to have a
Material Adverse Effect and (ii) except as set forth in Section 3.8 of the
Company Disclosure Schedule, the Company has not taken any of the actions set
forth in Section 5.1(a) through (r).
Section 3.9. Litigation. Section 3.9 of the Company Disclosure
Schedule identifies and contains a brief description of:
(i) any unsatisfied judgment, order, decree, stipulation
or injunction against the Company;
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(ii) any claim, complaint, action, suit, proceeding,
hearing or investigation of or in any Governmental Entity or before any
arbitrator to which the Company is a party or, to the Knowledge of the
Company, as a result of which its property or assets are reasonably
likely to be bound;
(iii) any claims relating to U.S. Patent No. 5,875,234;
and
(iv) any such claim, complaint, action, suit, proceeding,
hearing or investigation to which, to the Knowledge of the Company, the
Company is threatened to be made a party and that could reasonably be
expected to have a Material Adverse Effect.
To the Knowledge of the Company, there is no reasonable basis for any
claim, complaint, action, suit, proceeding, hearing or investigation against the
Company which has not been listed on Section 3.9 of the Company Disclosure
Schedule.
Section 3.10. Assets. The Company and its subsidiaries own or
lease all tangible assets necessary for the conduct of their businesses as
currently conducted. Such tangible assets are free from material defects and in
good operating condition and repair (subject to normal wear and tear). Except as
set forth on Section 3.10 of the Company Disclosure Schedule, no asset owned by
the Company or any subsidiary (tangible or intangible) is subject to any Lien.
Each tangible asset owned or leased by the Company or any subsidiary is in the
possession or under the control of the Company, such subsidiary or a current
employee of the Company or such subsidiary. The Company owns no real property.
Section 3.11. Contracts. Section 3.11 of the Company Disclosure
Schedule lists each contract, agreement or commitment (written or oral) to which
the Company or any subsidiary is a party that is material to the Company or its
business, including: (i) any contract, agreement or commitment providing for the
payment by the Company or any subsidiary of an amount in excess of $50,000 or
which the Company or such subsidiary cannot terminate on less than 30 days'
notice (other than licenses for the Company's Intellectual Property Assets
identified in Section 3.17 of the Company Disclosure Schedule); (ii) any
contract, agreement or commitment concerning confidentiality or non-competition;
(iii) any contract, agreement or commitment with any stockholder or employee of
the Company or any subsidiary; (iv) any contract, agreement or commitment with
any distributors or resellers of the Company's and its subsidiaries' products;
(v) any lease or sublease of real property; and (vi) any contract, agreement or
commitment pursuant to which the Company or any subsidiary has granted any
exclusive marketing or other rights to any third party (collectively, together
with the agreements and licenses listed in Section 3.17 of the Company
Disclosure Schedule, "CONTRACTS"). The Company has previously delivered to
Parent a complete and accurate copy of each Contract. Each Contract is a valid
and binding agreement between the Company or a subsidiary and, to the Knowledge
of the Company, the other party or parties thereto, and will continue to be so
immediately following the Effective Time. Except as set forth on Section 3.11 of
the Company Disclosure Schedule, no defaults or breaches exist under the
Contracts with respect to the Company or its subsidiaries and, to the Knowledge
of the
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Company, with respect to the other parties thereto, and no change in terms will
result from, any of the Contracts and none will arise as a result of the Merger
with respect to the Company or its subsidiaries or, to the Knowledge of the
Company, with respect to the other party or parties thereto.
Section 3.12. Compliance with Applicable Law. Except as set forth
in Section 3.12 of the Company Disclosure Schedule, the Company and its
subsidiaries hold all permits, licenses, variances, exemptions, orders and
approvals of all Governmental Entities necessary for the conduct of their
businesses except where the failure to hold such permits, licenses, variances,
exemptions, orders and approvals of all Governmental Entities necessary for the
conduct of their businesses would not have a Material Adverse Effect on the
Company (the "COMPANY PERMITS"). Except as set forth in Section 3.12 of the
Company Disclosure Schedule, to the Knowledge of the Company, the Company and
its subsidiaries are in material compliance with the terms of the Company
Permits. Except as set forth in Section 3.12 of the Company Disclosure Schedule,
the businesses of the Company and its subsidiaries have been and are being
conducted in material compliance with all Applicable Laws. Except as set forth
in Section 3.12 of the Company Disclosure Schedule, no investigation or review
by any Governmental Entity with respect to the Company or its subsidiaries is
pending. To the Knowledge of the Company, no Governmental Entity has indicated
an intention to conduct any such investigation or review.
Section 3.13. Employee Benefits.
(a) Section 3.13 (a) of the Company Disclosure Schedule contains
a true and complete list of all employment, severance pay, continuation pay,
termination pay, retention pay, loan, or indemnification agreements or other
similar agreements of any nature whatsoever (collectively, "EMPLOYMENT
AGREEMENTS") between the Company or any ERISA Affiliate, on the one hand, and
any current or former officers, directors, employees, consultants, contractors
or agents of the Company or any ERISA Affiliate, on the other hand, that are
currently in effect or that will become effective at any time after the date of
this Agreement. Except as set forth on Section 3.13(a) of the Company Disclosure
Schedule, there are no Employment Agreements or any other similar agreements to
which the Company or any ERISA Affiliate is a party or by which it is bound
which, as a result of the transactions contemplated by this Agreement (i) will
require any payment by the Company, Parent or Acquisition, or any consent or
waiver from any officer, director, employee, consultant, contractor or agent of
the Company or (ii) will result in any change in the nature of any rights of any
officer, director, employee, consultant, contractor or agent of the Company
under any such Employment Agreement or other similar agreement.
(b) Section 3.13(b) of the Company Disclosure Schedule sets
forth all Benefit Plans of the Company. The Company has delivered true and
correct copies of all governing instruments and related agreements pertaining to
such Benefit Plans to the Parent, including, in the case of any Benefit Plan not
set forth in writing, a written description thereof.
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(c) Neither the Company nor any ERISA Affiliate sponsors or
has ever sponsored, maintained, contributed to or incurred an obligation to
contribute to any pension benefit plan subject to Title IV of ERISA or a
"multiemployer" or "multiple employer plan" as such terms are defined under the
Code and ERISA. Each Benefit Plan intended to be "qualified" within the meaning
of Section 401(a) of the Code is so qualified, and the trusts maintained
thereunder are exempt from taxation under Section 501(a) of the Code. Neither
the Company nor any ERISA Affiliate sponsors or has ever sponsored, maintained
or contributed to, or incurred an obligation to contribute to a trust intended
to satisfy the requirements of Section 501(c)(9) of the Code. No Benefit Plan
provides for medical, surgical, hospitalization, death or similar benefits for
employees or former employees for periods extending beyond retirement or other
termination of service, other than coverage mandated by applicable law. Other
than routine claims for benefits, except as disclosed in Section 3.13(c) of the
Company Disclosure Schedule, there is no claim pending, or to the Company's
Knowledge, threatened, involving any Benefit Plan by any person against such
Benefit Plan or the Company or any ERISA Affiliate. Except as disclosed in
Section 3.13(c) of the Company Disclosure Schedule, there is no pending, or to
the Company's Knowledge, threatened, proceeding involving any Benefit Plan
before the Internal Revenue Service, the Department of Labor or any other
Governmental Entity. Except as disclosed in Section 3.13(c) of the Company
Disclosure Schedule, the Company, any ERISA Affiliate and all Benefit Plan
fiduciaries have complied with the terms of each Benefit Plan and with the
provisions of all laws and regulations applicable to such Benefit Plan. The
Company and any ERISA Affiliate has made full and timely payment of all amounts
required to be contributed under the terms of each Benefit Plan and applicable
law or otherwise required to be paid, and shall continue to do so through the
Closing. The Company has no material liability or obligation under any such
Benefit Plan, except as reflected on the Most Recent Balance Sheet or as
described in Section 3.13(c) of the Company Disclosure Schedule.
(d) Each Benefit Plan contributed to or required to be
maintained by the law or applicable custom or rule of the relevant jurisdiction
outside of the United States (the "FOREIGN PLANS"), is listed in Section 3.13(d)
of the Company Disclosure Schedule. As regards each such Foreign Plan:
(i) Each of the Foreign Plans is in compliance with the
provisions of the laws of each jurisdiction in which each such Foreign Plan is
maintained, to the extent those laws are applicable to the Foreign Plans, except
where the failure to comply would not have a Material Adverse Effect on the
Company and its subsidiaries;
(ii) All contributions to, and payments from, the Foreign
Plans which may have been required to be made in accordance with the terms of
any such Foreign Plan, and, when applicable, the law of the jurisdiction in
which such Foreign Plan is maintained, have been timely made or shall be made by
the Closing Date, except where the failure to do so would not have a Material
Adverse Effect on the Company and its subsidiaries. All such contributions to
the Foreign Plans, and all payments under the Foreign Plans, for any period
ending before the Closing Date that are not yet, but will be, required to be
made, are reflected
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as an accrued liability on the Balance Sheet, or disclosed in Section 3.13(d) of
the Company Disclosure Schedule;
(iii) All reports, returns and similar documents, if any,
with respect to any Foreign Plan required to be filed with any governmental body
or distributed to any Foreign Plan participant have been duly and timely filed
or distributed or will be filed or distributed by the Closing Date, and all of
the Foreign Plans have obtained from the governmental body having jurisdiction
with respect to such plans any required determinations, if any, that such
Foreign Plans are in compliance with the laws of the relevant jurisdiction if
such determinations are required in order to give effect to the Foreign Plan;
(iv) Each of the Foreign Plans has been administered at
all times in accordance with its terms in all material respects. To the
Knowledge of Company, there are no pending investigations by any governmental
body involving the Foreign Plans, and no pending claims (except for claims for
benefits payable in the normal operations of the Foreign Plans), suits or
proceedings against any Foreign Plan or asserting any rights or claims to
benefits under any Foreign Plan; and
(e) The consummation of the transactions contemplated by this
Agreement will not by itself create or otherwise result in any material
liability with respect to any Foreign Plan other than the triggering of payment
to participants.
Section 3.14. Labor and Employment Matters. Except as set forth
on Section 3.14 of the Company Disclosure Schedule:
(a) No collective bargaining agreement exists that is binding
on the Company or any subsidiary, and no organizing activity has been undertaken
with respect to any employees, and no petition has been filed or proceeding
instituted by an employee or group of employees of the Company or any subsidiary
with any labor relations board seeking recognition of a bargaining
representative. To the Knowledge of the Company, no organizational effort is
currently being made or threatened on behalf of any labor union to organize any
of their respective employees of the Company or any subsidiary.
(b) There is no labor strike, dispute, slow down or stoppage
pending or, to the Company's Knowledge, threatened against the Company or any
subsidiary, and neither the Company nor any subsidiary has received any notice
or has any Knowledge of any pending or threatened labor, wage and hour, workers'
compensation, wrongful termination, discrimination, breach of contract or other
employment-related claim, dispute, controversy, grievance or proceeding with
respect to claims of, or obligations to, any current or former employee or group
of employees of the Company or any subsidiary.
(c) All individuals who are performing or have performed
consulting or other services for the Company, any subsidiary or any Affiliate
thereof, whether as consultants, independent contractors, agents or otherwise,
are or were correctly classified by the Company as either "INDEPENDENT
CONTRACTORS" or "EMPLOYEES" as the case may be, and, at the Closing Date, will
qualify for such classification under all applicable laws. There are no
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pending or, to the Knowledge of the Company, threatened claims against the
Company or any subsidiary by or on behalf of any such individual, or
investigation, audit or other proceeding relating to such an individual or
individuals, by any Governmental Entity. There is no labor union representing
any such individuals or, to the Knowledge of the Company, any organizational
effort currently being made by or on behalf of any labor organization to
organize any such individuals.
(d) The Company has supplied to Parent a complete and accurate
list of the name of each officer, employee and consultant of the Company and its
subsidiaries, together with such person's position or function, annual base
salary or wages and any incentives or bonus arrangement with respect to such
person. Except as set forth on Section 3.14 of the Company Disclosure Schedule,
neither the Company nor any subsidiary has received notice that any such person
will or may cease to be engaged by the Company for any reason, including because
of the consummation of the transactions contemplated by this Agreement.
(e) The Company and its subsidiaries are in compliance in all
material respects with all Applicable Laws respecting employment, employment
practices, and terms and conditions of employment.
(f) The Company and its subsidiaries have withheld and
reported all amounts required by law or by agreement to be withheld and reported
with respect to wages, salaries and other payments to employees.
Section 3.15. Environmental Laws and Regulations.
(a) During the period of ownership or operation by the Company
and its subsidiaries of any current or previously owned or leased properties,
there have been no Releases of Hazardous Material by the Company or its
subsidiaries in, on, under or affecting such properties or any surrounding site,
and neither the Company nor any subsidiary has disposed of any Hazardous
Material in a manner that has, to the Knowledge of the Company, led, or could
reasonably be anticipated to lead, to a Release, except in each case for those
which, individually or in the aggregate, would not have a Material Adverse
Effect on the Company. There have been no Releases of Hazardous Material by the
Company or any subsidiary in, on, under or affecting their current or previously
owned or leased properties or any surrounding site at times outside of such
periods of ownership, operation or lease, except in each case for those which,
individually or in the aggregate, would not have a Material Adverse Effect on
the Company. Neither the Company nor any subsidiary has received any written
notice of, or entered into any order, settlement or decree relating to: (i) any
violation of any Environmental Laws or the institution or pendency of any suit,
action, claim, proceeding or investigation by any Governmental Entity or any
third party in connection with any alleged violation of Environmental Laws; or
(ii) the response to or remediation of Hazardous Material at or arising from any
of the Company's or its subsidiaries properties. There have been no violations
of any Environmental Laws by the Company or its subsidiaries which, individually
or in the aggregate, could reasonably be expected to have a Material Adverse
Effect on the Company.
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(b) There are no past or present events, conditions,
circumstances, activities, practices, incidents, actions, omissions or plans
that constitute a violation by the Company or its subsidiaries of, or are
reasonably likely to prevent or interfere with the Company's and its
subsidiaries' future compliance with, any Environmental Laws, other than any of
the foregoing that, individually or in the aggregate, could not reasonably be
expected to have a Material Adverse Effect on the Company.
(c) Set forth in Section 3.15 of the Company Disclosure
Schedule is a list of all environmental reports, investigations and audits, of
which the Company or a subsidiary has possession or to which it has access,
relating to premises currently or previously owned or operated by the Company or
any subsidiary (whether conducted by or on behalf of the Company or a third
party, and whether done at the initiative of the Company or a subsidiary or
directed by a Governmental Entity or other third party). Complete and accurate
copies of such written environmental reports, investigations and audits have
been delivered by the Company to Parent.
Section 3.16. Taxes.
(a) Except as set forth in Section 3.16 of the Company
Disclosure Schedule, the Company and each of its subsidiaries have duly and
timely filed all Tax Returns required to be filed; and such Tax Returns are
complete and accurate and correctly reflect the Tax liability required to be
reported thereon. Such Tax Returns do not contain a disclosure statement under
Section 6662 of the Code (or any predecessor provision or comparable provision
of state, local or foreign law).
(b) Except as set forth in Section 3.16 of the Company
Disclosure Schedule, the Company and each of its subsidiaries have paid or
adequately provided in the Financial Statements for all Taxes (whether or not
shown on any Tax Return) accrued through the date of such Financial Statements.
All Taxes the Company and its subsidiaries accrued following the end of the most
recent period covered by the Financial Statements have been accrued in the
ordinary course of business of the Company and any such Taxes due on or before
the Closing Date have been, or will be, paid on or before such date. No material
election has been made with respect to Taxes of the Company or any of its
subsidiaries in any Tax Returns that have not been provided to Parent.
(c) Except as set forth in Section 3.16 of the Company
Disclosure Schedule, no material claim for assessment or collection of Taxes is
being asserted against the Company and its subsidiaries, and neither the Company
nor any of its subsidiaries is a party to any pending action, proceeding or
investigation by any governmental taxing authority. The Company does not have
Knowledge of any such threatened action, proceeding or investigation.
(d) Except as set forth in Section 3.16 of the Company
Disclosure Schedule, neither the Company nor any of its subsidiaries is a party
to any agreement, contract, arrangement or plan that, individually or in the
aggregate, has resulted or would result in connection with this Agreement or any
change of control of the Company, in the payment of any "excess parachute
payments" within the meaning of Section 280G of the Code.
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(e) Except as set forth in Section 3.16 of the Company
Disclosure Schedule, there is no limitation on the utilization of net operating
losses, built-in losses, tax credits or other similar items of the Company under
Section 382, 383, 384 or 1502 of the Code or the Treasury Regulations thereunder
other than the limitation arising as a result of the Merger.
(f) Except as set forth in Section 3.16 of the Company
Disclosure Schedule, the Company has not agreed to, and is not required to, make
any adjustment under Section 481 of the Code by reason of a change in accounting
method.
(g) The Company is not a "consenting corporation" within the
meaning of Section 341(f)(1) of the Code.
(h) Except as provided in Section 3.16 of the Company
Disclosure Schedule, neither the Company nor any of its subsidiaries (i) has
been a member of any affiliated group filing a consolidated federal income Tax
Return or any combined, unitary or similar Tax Return (other than the group of
which the Company is the common parent) or (ii) has any liability for the Taxes
of any other person as defined in Section 7701(a)(1) of the Code under Treas.
Reg. Section 1.1502-6 (or any similar provision of state, local, or foreign
law), as a transferee or successor, by contract, or otherwise.
(i) To the Company's Knowledge, no claim has ever been made by
a taxing authority in a jurisdiction where the Company or any of its
subsidiaries does not file Tax Returns that the Company or such subsidiary is or
may be subject to taxation by that jurisdiction.
(j) There is no taxable income of the Company and its
subsidiaries that will be reportable in a taxable period beginning after the
Closing Date that is attributable to a transaction (such as an installment sale)
that occurred prior to the Closing Date other than items incurred in the normal
course of business that will not be recognized on or prior to the Closing Date
under the accrual method.
(k) The Company and its subsidiaries have obtained all
exemption certificates for sales and use tax purposes or other appropriate
documentation that meets the requirements of the relevant taxing authorities for
establishing exemption from sale and use tax, except to the extent the failure
to obtain such certificates or other documentation would not have a Material
Adverse Effect on the Company.
(l) Neither the Company nor any of its subsidiaries is a party
to or bound by any tax indemnity, tax sharing or tax allocation agreement.
Section 3.17. Intellectual Property.
(a) Identification Of Certain Company Intellectual Property
Rights.
(i) Marks. Section 3.17(a)(i) of the Company Disclosure
Schedule sets forth an accurate and complete list of all Marks in which
the Company or any subsidiary has an ownership interest or which the
Company or any
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subsidiary uses in its business other than those licensed from another
person on a non-exclusive basis (collectively "COMPANY MARKS"),
including all registrations and applications for registration with all
Governmental Entities that have been made by or for the Company and its
subsidiaries with regard to such Marks, identifying for each (A) its
registration (as applicable) and application numbers, (B) whether it is
owned by or exclusively licensed to the Company or a subsidiary, (C) its
current status and (D) the class(es) of goods or services to which it
relates.
(ii) Patents. Section 3.17(a)(ii) of the Company
Disclosure Schedule sets forth an accurate and complete list of all
Patents in which the Company or any subsidiary has an ownership interest
or which have been exclusively licensed to the Company or any subsidiary
(collectively the "COMPANY PATENTS"), and specifically lists each of the
Patents, identifying for each (A) the patent number and issue date (if
issued) or application number and filing date (if not issued), (B) its
title, (C) the named inventors and (D) whether it is owned by or
exclusively licensed to the Company or a subsidiary.
(iii) Copyrights. Section 3.17(a)(iii) of the Company
Disclosure Schedule sets forth an accurate and complete list of all
registered Copyrights (whether registered with the United States
Copyright Office or in or with the appropriate office or Governmental
Entity in any other jurisdiction) in which the Company or any subsidiary
has an ownership interest or which have been exclusively licensed to the
Company or a subsidiary, and all pending applications for registration
of Copyrights filed anywhere in the world by or for the Company or any
subsidiary, or which has been exclusively licensed to the Company or a
subsidiary (collectively the "COMPANY REGISTERED COPYRIGHTS").
(iv) Trade Secrets. Section 3.17(a)(iv) of the Company
Disclosure Schedule sets forth an accurate and complete list of all
memoranda of invention and invention disclosures whose subject matter is
not covered by any of the Company Patents, and in which the Company or
any subsidiary has an ownership interest or which have been assigned to
the Company or a subsidiary and which is material to the Company and
which can reasonably be identified (collectively the "COMPANY INVENTION
DISCLOSURES"). The Company or its subsidiaries have documentation
relating to each of the Company Invention Disclosures and all other
Trade Secrets used or exercised by the Company and its subsidiaries
(collectively the "COMPANY TRADE SECRETS") which is sufficient in detail
and content to identify, explain and enable the Company and its
subsidiaries to use such Trade Secrets without reliance on the special
knowledge or memory of others, and has provided or made available true
and complete copies of such documentation to Parent, excluding any Trade
Secrets that are not material to the Company's business.
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(v) Mask Works. Neither the Company nor any of its
subsidiaries has any mask work or similar rights, and does not use or
need to use the same in conjunction with the businesses of the Company
and its subsidiaries.
(vi) Other IP. Section 3.17(a)(vi) of the Company
Disclosure Schedule sets forth all Other IP in which the Company or any
subsidiary has an ownership interest or which have been exclusively
licensed to the Company or a subsidiary that are material to the
Company, and that can be clearly identified (collectively the "COMPANY
IDENTIFIED OTHER IP").
(b) Company IP And Owned IP.
(i) Title And Ownership. Except as may be set forth in
Section 3.17(b)(i) of the Company Disclosure Schedule, the Company and
its subsidiaries own all right, title and interest in and to all of the
Owned IP free and clear of any and all liens, encumbrances, covenants,
conditions and restrictions or other adverse claims or interests of any
kind or nature. Neither the Company nor any subsidiary has received any
notice or claim (whether written, oral or otherwise) challenging the
Company's or any subsidiary's ownership of any of the Owned IP or
suggesting that any other person has any claim of legal or beneficial
ownership or other claim or interest with respect thereto. As used
herein, "OWNED IP" means all Company IP other than that which has been
licensed to it by another person; and "COMPANY IP" collectively means
the Company Marks, the Company Patents, the Company Registered
Copyrights and all other Copyrights in which the Company or any
subsidiary has an ownership interest or which have been exclusively
licensed to the Company or a subsidiary, the Company Trade Secrets, and
the Company Identified Other IP and all Other IP in which the Company or
any subsidiary has an ownership interest or which has been exclusively
licensed to the Company or a subsidiary.
(ii) Validity And Enforceability. Except as may be set
forth in Section 3.17(b)(ii) of the Company Disclosure Schedule, all of
the Company IP is valid and enforceable, without any qualification,
limitation or restriction thereon or on the use thereof (except that
with respect to the Company Patents, enforceability is limited to within
the United States, and with respect to the Company Marks, enforceability
is limited to the country or countries in which they are registered or
in which common law trademarks arise) and neither the Company nor any
subsidiary has received any notice or claim (whether written, oral or
otherwise) challenging or questioning the validity or enforceability of
any of the Company IP or indicating an intention on the part of any
person to bring a claim that any of the Company IP is invalid or
unenforceable or has been misused, nor to the Knowledge of the Company
is there a reasonable basis for a claim that the Company Marks, Company
Patents and Company Registered Copyrights and all other Copyrights in
which the Company has an ownership interest or which have been
exclusively licensed to the Company or a subsidiary is invalid or
unenforceable or has been misused, and, with respect to the Company
Patents, to the knowledge of the Company, there is no relevant prior art
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pertaining to any issued patents thereof that was not disclosed during
the prosecution of the patent application(s) therefor and which if such
prior art had been disclosed may have affected the prosecution thereof
or the scope of the patent claims ultimately granted in respect thereof.
(iii) Protection And Maintenance. Except as may be set
forth in Section 3.17(b)(iii) of the Company Disclosure Schedule, (A)
neither the Company nor any subsidiary has taken any action or failed to
take any action (including the manner in which it has conducted its
business, or used or enforced, or failed to use or enforce, any of the
Company IP) that would reasonably be expected to result in the
abandonment, cancellation, forfeiture, relinquishment, invalidation or
unenforceability of any of the Company Patents, Company Registered
Copyrights, Company Marks or Company Trade Secrets (including, with
respect to the Company Patents, failing to disclose any known material
prior art in connection with the prosecution of patent applications, and
with respect to the Company Registered Copyrights, failing to disclose
required information to the United States Copyright Office), (B) the
Company and its subsidiaries have taken reasonable steps (based on
standard industry practices) to protect and maintain their rights in and
to the Company IP, (C) all registered Company Marks and all Company
Registered Copyrights have been registered, and all Company Patents have
been filed and obtained, in accordance with all applicable legal
requirements and are currently in effect and in compliance with all
applicable legal requirements (including, in the case of registered
Company Marks, the timely post-registration filing of affidavits of use
and incontestability and renewal applications), and without limiting the
generality of any of the foregoing, the Company or a subsidiary has
timely paid all filing, examination, issuance, post registration and
maintenance fees, annuities and the like associated with or required
with respect to any of the Owned IP.
(iv) Interference, Oppositions, Etc. Except as may be set
forth in Section 3.17(b)(iv) of the Company Disclosure Schedule, no
Company ▇▇▇▇ nor Company Patent has been or is now involved in any
interference, reissue, reexamination, opposition or cancellation
proceeding and, to the Knowledge of the Company, (A) no such action is
or has been threatened with respect to any of the Company Marks or
Company Patents, and (B) there is no patent or patent application of
another person potentially interfering with any Company Patent.
(v) Use Of Marks. Except as may be set forth in Section
3.17(b)(v) of the Company Disclosure Schedule, (A) to the knowledge of
the Company, there has been no prior use of any of the Company Marks by
any other person which would confer upon such person superior rights in
such Marks, and (B) except where any of the following would not have a
Material Adverse Effect on the Company, all Company Marks registered in
the United States, and for which applications to register have been
filed in the United States which are being used, have been continuously
used in the form appearing in, and in connection with, the goods and
services listed in their respective registration certificates and
applications therefor, respectively.
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(vi) Disclosure Of Trade Secrets. Except as may be set
forth in Section 3.17(b)(vi) of the Company Disclosure Schedule, neither
the Company nor any subsidiary has disclosed, nor is it under any
contractual or other obligation to disclose, to another person any
Company Trade Secrets, except pursuant to a confidentiality and
non-disclosure agreement, and, to the Knowledge of the Company, no
person has materially breached any such agreement.
(c) Software. Section 3.17(c) of the Company Disclosure Schedule
sets forth a complete and accurate list of all of the Software (other than
"off-the-shelf" desktop applications available through commercial distributors
or in consumer retail stores or from the Internet pursuant to third person
"shrink wrap" or "click through" licenses), ("COTS SOFTWARE"), and specifically
identifies all such Software in which the Company has an ownership interest (the
"OWNED SOFTWARE") and all such Software in which neither the Company nor any
subsidiary has an ownership interest (the "LICENSED SOFTWARE"). (Owned Software
and Software which has been exclusively licensed to the Company or its
subsidiaries shall collectively be referred to herein as the "COMPANY
SOFTWARE"). Except as may be set forth in Section 3.17(c) of the Company
Disclosure Schedule:
(i) the Company and its subsidiaries own all Intellectual
Property Rights in, covering, applicable to the use of, or embodied in
or by the Owned Software, which Intellectual Property Rights, for
purposes of this Agreement, shall be considered to be Owned IP and
Company IP (such that the representations and warranties contained in
Section 3.17(b) apply thereto);
(ii) the source code of any Company Software and the data
associated therewith have not been licensed or otherwise provided to
another person, have been treated as confidential (except to the extent
contained in any issued patents or published patent applications that
are listed in Section 3.17(a)(ii) of the Company Disclosure Schedule)
and proprietary business information as to which the Company and its
subsidiaries have taken all reasonable and customary steps to protect
the same as Trade Secrets of the Company and its subsidiaries (and as
such, the representations and warranties contained in Section 3.17(b)
apply thereto);
(iii) none of the Software developed by or for the Company
and its subsidiaries contains any Software that embodies, uses or is
covered by Intellectual Property Rights of another person, except for
Software that is not material and was obtained by the Company or a
subsidiary from another person (A) who makes such Software generally
available to all interested purchasers and end-users on standard
commercial terms, and (B) that has licensed the Company or its
subsidiaries to utilize such Software in the manner it has been and is
being utilized; and
(iv) the Company or a subsidiary has appropriate licenses
to use the Licensed Software in the manner in which it has been used and
is currently being used by the Company and its subsidiaries.
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(d) Performance of Existing Software. Except as may be set forth
in Section 3.17(d) of the Company Disclosure Schedule, all Software and products
incorporating such Software that the Company has distributed to another person
(including any alpha or beta versions that are currently being used by a third
party for evaluation or testing purposes), that have been designed by the
Company for commercial distribution, or that have been used by the Company in
connection with the performance of data processing or other services, perform in
all material respects, free of significant bugs or programming errors, each of
the functions described in any published specifications, end-user documentation
or other information provided to distributors or customers of the Company on
which such distributors or customers relied when using, licensing or otherwise
acquiring, distributing or reselling such Software or products.
(e) Software Documentation. The Company and its subsidiaries have
taken reasonable actions to document the Software and its operation, such that
the Software, including the source code and documentation, have been written in
a clear and professional manner so that they may be understood, modified and
maintained in an efficient manner by reasonably competent programmers.
(f) Licensed In Technology And Intellectual Property Rights And
Agreements. Section 3.17(f) of the Company Disclosure Schedule contains a
complete and accurate list of all agreements and arrangements directed to the
license or use of the Licensed Software (except COTS Software) by the Company
and its subsidiaries which are material to the Company (collectively, "LICENSED
SOFTWARE AGREEMENTS"), and a complete and accurate list of all agreements and
arrangements pertaining to any other technology, products, processes or services
used, exercised, practiced or otherwise exploited by the Company and its
subsidiaries with respect to which a person other than the Company owns the
associated Intellectual Property Rights which are material to the Company
(collectively, "OTHER LICENSED TECHNOLOGY") or any other Intellectual Property
Rights owned by another person (collectively, together with Licensed Software
Agreements, the "LICENSED TECHNOLOGY AGREEMENTS"). The Company has provided to
Parent an executed copy of each Licensed Technology Agreement. Except as may be
set forth in Section 3.17(f) of the Company Disclosure Schedule:
(i) to the Knowledge of the Company, the Licensed
Technology Agreements together expressly confer on the Company and its
subsidiaries valid and enforceable rights under or in respect of all of
the Intellectual Property Rights that are not owned exclusively by the
Company or a subsidiary, and have been or are used, exercised, practiced
or otherwise exploited in or by the Company and its subsidiaries
(including the development, copying, modification, manufacture, use,
practice, sale, offer for sale, marketing, licensing or sublicensing,
importing, distribution or any other exploitation of any Software or
other products, processes, services or technology), or cover, or are
used or embodied in, any Other Licensed Technology (collectively, the
"LICENSED INTELLECTUAL PROPERTY RIGHTS"), and neither the Company nor
any subsidiary has received any notice or claim (whether written, oral
or otherwise) challenging the Company's or any subsidiary's right to
use, exercise, practice or otherwise exploit such
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Licensed Intellectual Property Rights or Other Licensed Technology, nor
to the Knowledge of the Company is there a reasonable basis for any such
claim;
(ii) (A) there are no outstanding claims or, to the
Knowledge of the Company, any threatened disputes or disagreements with
respect to any of the Licensed Technology Agreements, and (B) neither
the Company nor any subsidiary has taken any action (including
exercising any rights in the Licensed Software, Other Licensed
Technology or any other Licensed Intellectual Property Rights outside
the scope of any license or rights granted to the Company and its
subsidiaries) nor failed to take any action which could reasonably be
expected to lead to a claim or charge of infringement or
misappropriation, impair or cause the Company to lose its rights
therein, or constitute a material breach of or result in termination of
any of the Licensed Technology Agreements or any of the Licensed
Intellectual Property Rights granted therein;
(iii) the expiration dates of all Licensed Technology
Agreements and the ability of another person to terminate the same, if
at all, unilaterally, without cause, are set forth in Schedule 3.17(f);
(iv) the rights licensed under each Licensed Technology
Agreement shall be exercisable by the Surviving Corporation on and after
the Closing to the same extent as by the Company and its subsidiaries
prior to the Closing; and
(v) Section 3.17(f) of the Company Disclosure Schedule
sets forth a complete and accurate list of any and all royalties, fees,
honoraria or other payments that are currently payable or that in future
may be payable by the Company and its subsidiaries to any person by
reason of the ownership or the development, copying, modification,
manufacture, use, practice, sale, offer for sale, marketing, licensing
or sublicensing, distribution or other exploitation of the Software, the
Other Licensed Technology or the Licensed Intellectual Property Rights.
(g) Agreements Involving Distribution Or Other Rights Granted to
Others in Respect of Software, Other Company Technology or Company IP. Section
3.17(g) of the Company Disclosure Schedule contains a complete and accurate list
of all agreements and arrangements providing for the grant by the Company or any
subsidiary to any person of (A) any right to use, prepare derivative works based
on, support or maintain, distribute or otherwise commercially exploit any
Software or to develop, manufacture, sell, offer to sell, market, use, practice,
license or sublicense, import, export, distribute or otherwise exploit any other
products, processes, services or technology of the Company and its subsidiaries
(collectively, "OTHER COMPANY TECHNOLOGY") or (B) any other rights under the
Company IP (in each case excluding any agreement or arrangements that relate
solely to internal use licenses granted to end-users or the right of end-users
to use products, other than Software, as sold), including any value-added
reseller agreements, joint development or marketing agreements or strategic
alliance agreements involving any Software, Other Company Technology or Company
IP which is material to the Company (collectively, "EXPLOITATION
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AGREEMENTS"). Except as may be set forth in Section 3.17(g) of the
Company Disclosure Schedule:
(i) there are no outstanding claims or, to the Knowledge
of the Company, any threatened dispute or disagreement with respect to
any of the Exploitation Agreements; and
(ii) Section 3.17(g) of the Company Disclosure Schedule
sets forth a complete and accurate list of any and all royalties, fees,
or other payments that are payable to the Company and its subsidiaries
pursuant to each of the Exploitation Agreements.
(h) Sufficiency of Owned and Licensed Intellectual Property.
Except as set forth in Section 3.17(h) of the Company Disclosure Schedule, the
Company IP and the Licensed Intellectual Property Rights: (A) constitute all of
the Intellectual Property Rights necessary for the conduct of the businesses of
the Company and its subsidiaries as presently conducted or, to the Knowledge of
the Company, contemplated to be conducted; and (B) constitute all of the
Intellectual Property Rights necessary to operate such businesses after the
Closing in substantially the same manner as such businesses heretofore have been
operated by the Company and its subsidiaries.
(i) Infringement, Misappropriation And Rights of Other Parties.
The Company and its subsidiaries are not, nor have they ever been, a party to
any action or proceeding, nor, to the Knowledge of the Company, is or has any
action or proceeding been threatened, that involves or involved a claim of
infringement, misappropriation or other wrongful use or exploitation, either (i)
by the Company or any subsidiary against any person or (ii) by any person
against the Company or any subsidiary, pertaining to any Intellectual Property
Rights of the Company and its subsidiaries or any other person (including any
Company IP or any other Intellectual Property Rights used, exercised, practiced
or exploited by the Company and its subsidiaries), nor, has any such claim been
made (whether written oral or otherwise) or threatened or, to the Knowledge of
the Company, is there any reasonable basis therefor. No Company IP or, to the
Knowledge of the Company, other Licensed Intellectual Property Right (except
pursuant to the terms of the Licensed Technology Agreement granting such right
to Company and its subsidiaries), is subject to any outstanding order, judgment,
decree, stipulation or agreement restricting the use, exercise, practice or
other exploitation thereof by the Company and its subsidiaries, and, in the case
of any Company IP licensed to any person, restricting the sale, transfer,
assignment or licensing thereof by the Company or any subsidiary to any person.
Except as may be set forth in Section 3.17(i) of the Company Disclosure
Schedule, (A) to the Knowledge of the Company no person has infringed or
misappropriated, or is infringing or misappropriating any Company IP; nor (B)
does any of the Company IP or any of the products (including any Software),
processes, services, technology or other materials (collectively "COMPANY
PRODUCTS"), or, to the Knowledge of the Company, the Licensed Intellectual
Property Rights or the subject matter thereof, developed, practiced, copied,
modified (including the creation of derivatives), displayed, made, sold, offered
for sale, marketed, used, leased, licensed or sublicensed,
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imported, exported or otherwise distributed or disposed of, or otherwise
exercised or exploited by or for the Company and its subsidiaries, nor use of
the Company Products by customers or distributors, nor the activities or
operations of the Company and its subsidiaries infringe, misappropriate or
otherwise conflict with or violate, or has any of them infringed,
misappropriated, or otherwise conflicted with or violated, any Intellectual
Property Right or other right of any person. The Company or a subsidiary has the
exclusive right to bring actions against any person infringing or
misappropriating any of the Company IP.
(j) Confidentiality Agreements. Except as set forth in Section
3.17(j) of the Company Disclosure Schedule, all current and former employees,
independent contractors and consultants of the Company and its subsidiaries have
entered into confidentiality, invention assignment and proprietary information
agreements with the Company or its subsidiaries in substantially the form
provided to Parent. To the Knowledge of the Company, no employee, independent
contractor or consultant of the Company and its subsidiaries is obligated under
any agreement (including licenses, covenants or commitments of any nature) or
subject to any judgment, decree or order of any court or administrative agency,
or is subject to any other restriction that would interfere with the use of his
or her best efforts to carry out his or her duties for the Company and its
subsidiaries or to promote the interests of the Company and its subsidiaries or
that would conflict with the businesses of the Company and its subsidiaries as
presently conducted and proposed to be conducted. The carrying on of the
businesses of the Company and its subsidiaries by the employees, independent
contractors and consultants of the Company and its subsidiaries and the conduct
of the businesses of the Company and its subsidiaries as presently conducted and
proposed to be conducted, will not, 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, covenant or instrument under which any
of such employees, independent contractors or consultants of the Company and its
subsidiaries is now obligated. Except as set forth in Section 3.17(j) of the
Company Disclosure Schedule, to the Knowledge of the Company, it is not
utilizing nor will it be necessary to utilize (A) any inventions of any
independent contractors or consultants, or confidential information (including
Trade Secrets) of another person to which any independent contractors or
consultants have been exposed, and (B) any inventions of any employees of the
Company and its subsidiaries made, or any confidential information (including
Trade Secrets) of another person to which such employees were exposed, prior to
their employment by the Company and its subsidiaries, in each case excluding any
of the foregoing inventions or confidential information that have been duly
assigned in writing to the Company or its subsidiaries or that are being
utilized by the Company and its subsidiaries in accordance with the terms of a
license granted to the Company or its subsidiaries in a written agreement. To
the Knowledge of the Company, at no time during the conception of or reduction
to practice of any of the Company IP was any developer, inventor or other
contributor to such Intellectual Property Right operating under any grants from
any Governmental Entity or private source, performing research sponsored by any
Governmental Entity or private source or subject to any employment agreement or
invention assignment or nondisclosure agreement or other obligation with any
other person that could adversely affect the rights of the Company and its
subsidiaries in such Intellectual Property Right. Section 3.17(j) of the Company
Disclosure Schedule lists each independent contractor, consultant, past employee
or other person who participated in a material way in the creation or
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development of any material Company Software or any material Company IP,
indicating that person's relationship with the Company and its subsidiaries at
that time, and in the case of any past employee, the name of the current
employer of such past employee, if Known. Without limiting the generality of the
foregoing, Section 3.17(j) of the Company Disclosure Schedule specifically
identifies each inventor named in any patent application filed by the Company
(either individually or jointly with others) or assigned or exclusively licensed
to the Company and its subsidiaries in whole or in part, and indicates whether
such inventor is a current employee of the Company or a subsidiary and, if not a
current employee of the Company or a subsidiary, (i) the relationship of such
inventor to the Company or a subsidiary at the time the respective invention was
made and the present relationship, if any, of such inventor with the Company and
(ii) if known, the employer and current position of such inventor with such
employer.
(k) Export Restrictions. Neither the Company nor any subsidiary
has exported or transmitted Software, Company Trade Secrets or any other
technical information, including any technical data, or the direct product of
such data, to any country to which such export or transmission is restricted by
any applicable U.S. regulation or statute, without first having obtained all
necessary and appropriate United States or other Government Entity license(s) or
permit(s).
(l) Year 2000 Compliance. Except as set forth in Section 3.17(l)
of the Company Disclosure Schedule:
(i) all Material Systems of the Company and its
subsidiaries are, or have been remediated through modification, upgrade
or replacement so that they are (A) able to receive, record, store,
process, calculate, manipulate and output dates from and after January
1, 2000, time periods that include January 1, 2000 and information that
is dependent on or relates to such dates or time periods, in the same
manner and with the same accuracy, functionality, data integrity and
performance as when dates or time periods prior to January 1, 2000 are
involved, and (B) able to store and output date information in a manner
that is unambiguous as to century ("YEAR 2000 COMPLIANT"). "MATERIAL
SYSTEMS" means all internal computer systems, communications systems,
embedded control or manufacturing systems and facilities infrastructure
systems that are material to the business, financial and accounting
controls and operations; and
(ii) to the Knowledge of the Company, the material
suppliers and vendors of goods and services to the Company and its
subsidiaries, to the extent supplied to the Company and its
subsidiaries, have or are taking appropriate and timely steps to make
their respective goods and services, including products (including
software) Year 2000 Compliant.
(m) Disabling Codes And Contaminants. The Company Products
(including Software and components manufactured by the Company and incorporated
therein) are free of any disabling codes or instructions (a "DISABLING CODE"),
and any virus or other intentionally
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created, undocumented contaminant (a "CONTAMINANT"), that may, or may be used
to, access, modify, delete, damage or disable Material Systems or that may
result in damage thereto. To the Company's Knowledge, the components obtained
from third person suppliers are, to the Knowledge of the Company, free of any
Disabling Codes or Contaminants that may, or may be used to, access, modify,
delete, damage or disable any of the Material Systems or that might result in
damage thereto. The Company and its subsidiaries have taken reasonable steps and
implemented reasonable procedures (based on standard industry practices) to
ensure that its Material Systems are free from Disabling Codes and Contaminants.
Except as may be set forth in Section 3.17(m) of the Company Disclosure
Schedule, the Company and its subsidiaries have in place appropriate disaster
recovery plans, procedures and facilities and has taken all reasonable steps to
safeguard its Material Systems and restrict unauthorized access thereto.
Section 3.18. Insurance. The Company maintains insurance policies
(the "INSURANCE POLICIES") against all risks of a character and in such amounts
as are customarily insured against by similarly situated companies in the same
or similar businesses. Each material Insurance Policy is in full force and
effect and is valid, outstanding and enforceable, and all premiums due thereon
have been paid in full. Complete and accurate copies of all such material
Insurance Policies have been delivered by the Company to Parent. None of the
material Insurance Policies will terminate or lapse (or be affected in any other
materially adverse manner) by reason of the transactions contemplated by this
Agreement. The Company has complied in all material respects with the provisions
of each Insurance Policy under which it is the insured party. No insurer under
any Insurance Policy has canceled or generally disclaimed liability under any
such policy or, to the Company's Knowledge, indicated any intent to do so or not
to renew any such policy. All material claims of which the Company has knowledge
under the Insurance Policies have been filed in a timely fashion.
Section 3.19. Certain Business Practices. None of the Company and
its subsidiaries or, to the Knowledge of the Company, any directors, officers,
agents or employees of the Company and its subsidiaries has used any funds of
the Company or a subsidiary (i) for unlawful contributions, gifts, entertainment
or other unlawful expenses related to political activity, (ii) to make any
unlawful payment to foreign or domestic government officials or employees or to
foreign or domestic political parties or campaigns or violated any provision of
the Foreign Corrupt Practices Act of 1977, as amended or (iii) to make any other
unlawful payment.
Section 3.20. Books and Records. The minute books and other
similar records of the Company and its subsidiaries contain true and complete
records of all actions taken at any meetings of Stockholders, the boards of
directors or any committees thereof and all written consents executed in lieu of
the holding of any such meetings. A complete copy of such minute books and other
similar records has been provided to Parent. Except as set forth in Section 3.20
of the Company Disclosure Schedule, the Company's share register and share
transfer records are true, accurate and complete, and complete and accurate
copies thereof have been delivered by the Company to Parent.
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Section 3.21. Suppliers and Customers. The documents and
information supplied by the Company and its subsidiaries to Parent with respect
to relationships and volumes of business done with significant suppliers and
customers are accurate in all material respects. To the Company's Knowledge,
there is no proposed or threatened termination of its business relationship with
any significant supplier or customer.
Section 3.22. [Reserved.]
Section 3.23. Tax Treatment. Neither the Company nor any of its
Affiliates has taken or agreed to take action that would prevent the Merger from
constituting a reorganization qualifying under the provisions of Section 368(a)
of the Code.
Section 3.24. Representations and Disclosure Complete. All
documents and papers delivered to Parent, Acquisition and their representatives
by the Company or its representatives in connection with this Agreement and the
transactions contemplated hereby are true, complete, accurate and authentic in
all material respects, and when taken together with the representations and
warranties made by the Company in this Agreement, or any statement made in any
Schedule or certificate furnished by the Company pursuant to this Agreement, do
not contain or will not contain at the Closing any untrue statement of a
material fact, nor omit nor will omit at the Closing to state any material fact
necessary in order to make the statements contained herein or therein, in the
light of the circumstances under which made, not misleading.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF PARENT
Parent and Acquisition hereby jointly and severally represent and
warrant to the Company as follows:
Section 4.1. Organization.
(a) Each of Parent and Acquisition is duly organized, validly
existing and in good standing under the laws of its respective jurisdiction of
incorporation (to the extent such concept is recognized in such jurisdiction),
and has all requisite corporate power and authority to own, lease and operate
its properties and to carry on its business as now being conducted. Parent has
heretofore made available to the Company accurate and complete copies of its
organizational documents and By-laws and the Articles of Incorporation and
By-laws of Acquisition, as currently in full force and effect.
(b) Each of Parent and Acquisition is duly qualified or licensed
to do business in each jurisdiction in which the property owned, leased or
operated by it or the nature of the business conducted by it makes such
qualification or licensing necessary, except in such jurisdictions where the
failure to be so duly qualified or licensed would not have a Material Adverse
Effect on Parent.
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Section 4.2. Capitalization of Parent and its Subsidiaries.
(a) As of the date hereof, the authorized capital stock of Parent
consists of (i) an unlimited number of shares of Parent Common Stock, of which,
as of June 30, 2000, 2.920 billion shares were issued and outstanding, (ii) an
unlimited number of Class A Preferred Shares issuable in series, without nominal
or par value, of which, as of June 30, 2000, no shares were issued and
outstanding, and (iii) an unlimited number of Class B Preferred Shares,
issuable, in series, without nominal or par value, of which no shares were
outstanding as of June 30, 2000. All of the outstanding shares of Parent Common
Stock have been validly issued and are fully paid, nonassessable and free of
preemptive rights (other than rights under Parent's shareholders rights plan).
(b) The Parent Common Stock constitutes the only class of equity
securities of Parent or any of its subsidiaries registered or required to be
registered under the Exchange Act. All of the shares of Parent Common Stock
issuable in exchange for the Preferred Shares and Common Shares in accordance
with Article 2 will be, when issued in accordance with this Agreement, duly
authorized, validly issued, fully paid, nonassessable and free of preemptive
rights (other than rights under Parent's shareholders rights plan).
Section 4.3. Authority Relative to this Agreement. Each of Parent
and Acquisition has all necessary corporate power and authority to execute and
deliver this Agreement, to perform its obligations under this Agreement and to
consummate the transactions contemplated hereby. The execution and delivery of
this Agreement have been duly and validly authorized, and the consummation of
the transactions contemplated hereby have been duly and validly authorized
(subject to approval by the board of directors of Parent of the filing of the
Registration Statement pursuant to Section 5.7, if required) by the boards of
directors of Parent and Acquisition and by Parent as the sole stockholder of
Acquisition, and no other corporate proceedings on the part of Parent or
Acquisition are necessary to authorize this Agreement or to consummate the
transactions contemplated hereby. This Agreement has been duly and validly
executed and delivered by each of Parent and Acquisition, and constitutes,
assuming the due authorization, execution and delivery hereof by the Company, a
valid, legal and binding agreement of each of Parent and Acquisition,
enforceable against each of Parent and Acquisition in accordance with its terms,
subject to any applicable bankruptcy, insolvency, reorganization, moratorium or
similar laws now or hereafter in effect relating to creditors' rights generally
or to general principles of equity.
Section 4.4. SEC Reports; Financial Statements. Parent or Nortel
Networks Limited has filed all required forms, reports and documents ("PARENT
SEC REPORTS") with the SEC since January 1, 2000. The Parent SEC Reports
complied at the time of filing in all material respects with all applicable
requirements of the Securities Act and the Exchange Act. None of such Parent SEC
Reports, including any financial statements or schedules included or
incorporated by reference therein, contained when filed any untrue statement of
a material fact or omitted to state a material fact required to be stated or
incorporated by reference therein or necessary in order to make the statements
therein in light of the circumstances under which they were made not misleading,
except to the extent superseded by a Parent SEC Report filed
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subsequently and prior to the date hereof. The audited consolidated financial
statements of Parent included in the Parent SEC Reports fairly present in
conformity in all material respects with Canadian generally accepted accounting
principles applied on a consistent basis (except as may be indicated in the
notes thereto) and Regulation S-X of the SEC the consolidated financial position
of Parent and its consolidated subsidiaries as of the dates thereof and their
consolidated results of operations and changes in financial position for the
periods then ended. Parent has delivered to the Company accurate and complete
copies of the Parent SEC Reports and exhibits thereto that have been
specifically requested by the Company. Notwithstanding the foregoing, Parent
shall not be deemed to be in breach of any of the representations or warranties
in this Section 4.4 solely as a result of any changes to the Parent SEC Reports
that Parent may make in response to comments received from the SEC on the
Registration Statement.
Section 4.5. Information Supplied. None of the information
supplied or to be supplied by Parent for inclusion or incorporation by reference
in any disclosure document to be delivered to the Stockholders at the time of
the meeting of Stockholders to be held in connection with the Merger, or action
by written consent in lieu of such meeting, will contain any untrue statement of
a material fact or omit to state any material fact necessary in order to make
the statements therein, in light of the circumstances under which they are made,
not misleading. Parent makes no representation, warranty or covenant with
respect to any information supplied or required to be supplied by the Company or
the Stockholders that is contained in or omitted from any of the foregoing
documents.
Section 4.6. Consents and Approvals; No Violations. Except for
filings, notices, permits, authorizations, consents and approvals as may be
required under, and other applicable requirements of, the Securities Act, the
Exchange Act, state securities or blue sky laws (including the Fairness
Hearing), Canadian provincial securities laws, the HSR Act and the Canada
Business Corporations Act and any filings under similar merger notification laws
or regulations of other foreign Governmental Entities or by the stock exchanges
upon which any of Parent's securities are listed for trading and the filing of
the Certificate of Merger as required by the DGCL and the Agreement of Merger as
required by the CCC, no filing with or notice to, and no permit, authorization,
consent or approval of any Governmental Entity is necessary for the execution
and delivery by Parent or Acquisition of this Agreement or the consummation by
Parent or Acquisition of the transactions contemplated hereby. Neither the
execution, delivery and performance of this Agreement by Parent nor the
consummation by Parent or Acquisition of the transactions contemplated hereby
will (i) conflict with or result in any breach of any provision of the
respective organizational documents or By-laws of Parent or Certificate of
Incorporation or By-laws (or similar governing documents) of Acquisition, (ii)
result in a violation or breach of or constitute (with or without due notice or
lapse of time or both) a default (or give rise to any right of termination,
amendment, cancellation or acceleration or Lien) under any of the terms,
conditions or provisions of any material note, bond, mortgage, indenture, lease,
license, contract, agreement or other instrument or obligation to which Parent
or Acquisition is a party or by which any of them or any of their respective
properties or assets are bound or (iii) violate any material order, writ,
injunction,
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decree, law, statute, rule or regulation applicable to Parent or Acquisition or
any of Parent's other subsidiaries or any of their respective properties or
assets.
Section 4.7. Tax Treatment. None of Parent, Acquisition or any
Affiliate of Parent or Acquisition has taken or agreed to take action that would
prevent the Merger from constituting a reorganization qualifying under the
provisions of Section 368(a) of the Code. Each of the requirements contained in
Treasury Regulations Sections 1.367(a)-3(c) will be met in order that each
Stockholder's (other than a Stockholder that is a five-percent transferee
shareholder within the meaning of Treasury Regulations Section
1.367(a)(3)(c)(5)(ii)) transfer of shares of Company Capital Stock pursuant to
the Merger will not be subject to Section 367 of the Code.
Section 4.8. No Prior Activities. Except for obligations incurred
in connection with its incorporation or organization or the negotiation and
consummation of this Agreement and the transactions contemplated hereby,
Acquisition has neither incurred any obligation or liability nor engaged in any
business or activity of any type or kind or entered into any agreement or
arrangement with any person.
Section 4.9. Absence of Changes or Events. Except as set forth in
the Parent SEC Reports, since January 1, 2000 through the date of this
Agreement, Parent and its subsidiaries have not incurred any liability or
obligation that has resulted or would reasonably likely be expected to result in
a Material Adverse Effect on Parent, and there has not been any change in the
business, financial condition or results of operations of Parent or any of its
subsidiaries which has had, or is reasonably expected to have, individually or
in the aggregate, a Material Adverse Effect on Parent.
ARTICLE 5
COVENANTS
Section 5.1. Conduct of Business of the Company. Except as
contemplated by this Agreement or as described in Section 5.1 of the Company
Disclosure Schedule, during the period from the date hereof to the Effective
Time, the Company will and will cause its subsidiaries to conduct their
respective operations in the ordinary course of business consistent with past
practice and, to the extent consistent therewith, with no less diligence and
effort than would be applied in the absence of this Agreement, use commercially
reasonable efforts to preserve intact its current business organization, keep
available the service of their current officers and employees and preserve its
relationships with customers, suppliers, distributors, lessors, creditors,
employees, contractors and others having business dealings with them with the
intention that its goodwill and ongoing businesses shall be unimpaired at the
Effective Time. Except as otherwise expressly provided in this Agreement and
except as described in Section 5.1 of the Company Disclosure Schedule, prior to
the Effective Time, neither the Company nor its subsidiaries will, without the
prior written consent of Parent:
(a) amend its Articles of Incorporation or bylaws (or other
similar governing instrument);
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(b) authorize for issuance, issue, sell, deliver or agree or
commit to issue, sell or deliver (whether through the issuance or granting of
options, warrants, commitments, subscriptions, rights to purchase or otherwise)
any stock of any class or any other debt or equity securities or equity
equivalents (including any stock options or stock appreciation rights) except
for the issuance and sale of Common Shares pursuant to the exercise of Warrants
and Options granted under the Company Plans prior to the date hereof; provided
that the Company may continue to grant Reserved Options and New Options, from
the date hereof through the second business day prior to the Closing Date at
option exercise prices equal to the fair market value of the Common Shares on
the date of grant, so long as the Company (i) notifies Parent prior to granting
any New Options and obtains independent confirmation of such fair market value,
and (ii) obtains Parent's consent prior to granting Reserved Options and
independent confirmation of their fair market value;
(c) split, combine or reclassify any shares of its Capital Stock,
declare, set aside or pay any dividend or other distribution (whether in cash,
stock or property or any combination thereof) in respect of its Capital Stock,
make any other actual, constructive or deemed distribution in respect of its
Capital Stock or otherwise make any payments to stockholders in their capacity
as such, or redeem or otherwise acquire any of its securities, any Option or any
other agreement, except as set forth in Section 5.1(c) of the Company Disclosure
Schedule;
(d) adopt a plan of complete or partial liquidation, dissolution,
merger, consolidation, restructuring, recapitalization or other reorganization
of the Company (other than the Merger);
(e) (i) incur or assume any long-term or short-term debt
(including obligations under capital leases) or issue any debt securities,
except for borrowings under existing lines of credit in the ordinary course of
business, or modify or agree to any amendment of the terms of any of the
foregoing, (ii) assume, guarantee, endorse or otherwise become liable or
responsible (whether directly, contingently or otherwise) for the obligations of
any other person; (iii) make any loans, advances or capital contributions to or
investments in any other person (other than customary loans or advances to
employees in each case in the ordinary course of business consistent with past
practice); (iv) pledge or otherwise encumber shares of Capital Stock of the
Company or its subsidiaries or (v) mortgage or pledge any of its material
assets, tangible or intangible, or create or suffer to exist any material Lien
(other than any existing Lien) thereupon;
(f) except as may be required by Applicable Law, enter into,
adopt or amend or terminate any Benefit Plan or increase in any manner the
compensation of any director, officer or employee or pay any benefit (other than
New Options and Reserved Options in accordance with the terms of this Agreement)
not required by a Benefit Plan or Employee Agreement as in effect as of the date
hereof (including the granting of stock appreciation rights or performance
units);
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(g) grant any severance or termination pay to any director,
officer, employee or consultant, except payments made pursuant to Employee
Agreements or Benefit Plans outstanding on the date hereof, the material terms
of which are completely and correctly disclosed on Schedule 5.1(g) or as
required by applicable federal, state or local law or regulations;
(h) exercise its discretion or otherwise voluntarily accelerate
the vesting of, or waive any condition of exercise of, any Option as a result of
the Merger, any other change of control of the Company or otherwise;
(i) (A) acquire, sell, lease, license, transfer or otherwise
dispose of any material assets in any single transaction or series of related
transactions that have a fair market value of more than $50,000 in the
aggregate, (B) grant or enter into any exclusive license, distribution,
marketing, sales or other agreement, (C) enter into a "development services" or
other similar agreement or (D) sell, transfer or otherwise dispose of any
Intellectual Property Assets;
(j) except as may be required as a result of a change in law or
in generally accepted accounting principles, materially change any of the
accounting principles, practices or methods used by it;
(k) revalue in any material respect any of its assets, including
writing down the value of inventory or writing-off notes or accounts receivable,
other than in the ordinary course of business;
(l) (i) acquire (by merger, consolidation or acquisition of stock
or assets) any corporation, partnership or other entity or division thereof or
any equity interest therein; (ii) enter into any contract or agreement that is
not consistent with the ordinary course of business and involves in excess of
$50,000 individually or $200,000 in the aggregate; (iii) amend, modify or waive
any right under any Contract of the Company or its subsidiaries in any material
manner that is adverse to the Company and its subsidiaries; (iv) modify its
standard warranty terms for its products or amend or modify any product
warranties in effect as of the date hereof in any material manner that is
adverse to the Company and its subsidiaries; (v) authorize any additional or new
capital expenditure or expenditures in excess of $50,000 in the aggregate in any
calendar quarter; or (vi) except in the ordinary course of business, authorize
any new or additional manufacturing capacity expenditure or expenditures for any
manufacturing capacity contracts or arrangements;
(m) make any material Tax election or settle or compromise any
Tax liability or permit any material insurance policy naming it as a beneficiary
or loss-payable to expire or to be canceled or terminated, unless a comparable
insurance policy reasonably acceptable to Parent is obtained and in effect;
(n) fail to file any Tax Returns when due (or, alternatively,
fail to file for available extensions) or fail to cause such Tax Returns when
filed to be complete and accurate in all respects;
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(o) fail to pay any Taxes or other material debts when due;
(p) settle or compromise any pending or threatened suit, action
or claim that (i) relates to the transactions contemplated hereby or (ii) the
settlement or compromise of which would involve more than $50,000 or that would
otherwise be material to the Company and its subsidiaries or that relates to any
Intellectual Property Right;
(q) take any action or fail to take any action that could
reasonably be expected to (i) limit the utilization of any of the net operating
losses, built-in losses, tax credits or other similar items of the Company under
Section 382, 383, 384 or 1502 of the Code or the Treasury Regulations
thereunder, or (ii) cause any transaction in which the Company was a party that
was intended to be treated as a reorganization under Section 368(a) of the Code
to fail to qualify as a reorganization under Section 368(a) of the Code; or
(r) take or agree in writing or otherwise to take any of the
actions described in Sections 5.1(a) through 5.1(q) or take any action that
would make any of the representations or warranties of the Company contained in
this Agreement (including the exhibits hereto) untrue or incorrect.
Section 5.2. Qualification of Shares Issuable in the Merger.
(a) Promptly after the execution of this Agreement, Parent shall
prepare and cause to be filed with the California Commissioner of Corporations
(the "CALIFORNIA COMMISSIONER") a permit application under Section 25121 of the
California Corporations Code, and a related information statement or other
disclosure document (the "INFORMATION STATEMENT"), and shall request a hearing
on the fairness of the terms and conditions of the Merger pursuant to Section
25142 of the CCC (the "FAIRNESS HEARING"). The parties to this Agreement shall
use all commercially reasonable efforts to cause the California Commissioner to
approve the fairness of the terms and conditions of the Merger at such a
hearing; provided, however, that neither party shall be required to modify in
any material way any of the terms and conditions in this Agreement. The Company
shall provide and include in the Information Statement such information relating
to the Company as may be required pursuant to the rules of the California
Commissioner. The Information Statement shall include the unanimous
recommendation of the board of directors of the Company in favor of the Merger.
Parent shall pay all filing fees in connection with the Fairness Hearing.
(b) In the event the Company and Parent are unable to obtain a
permit following a Fairness Hearing without undue effort or expense, or the
agreement to materially burdensome conditions, the Company and Parent agree to
cooperate in the preparation and filing with the SEC of a registration statement
on Form S-4 (including the proxy or information statement and other stockholder
solicitation materials constituting a part thereof, (the "REGISTRATION
STATEMENT"). The Company and Parent shall, as promptly as practicable after
receipt thereof, provide copies of any written comments received from the SEC
with respect to the Registration Statement to the other party and advise the
other party of any oral comments with respect to the Registration Statement
received from the SEC. The Company and Parent agree to use all commercially
reasonable efforts to cause the Registration Statement to be
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declared effective under the Securities Act as promptly as possible, and the
Company agrees to mail the prospectus/proxy statement included in the
Registration Statement to Stockholders as promptly as practicable after the
Registration Statement is declared effective. Parent also agrees to use all
commercially reasonable efforts to obtain all necessary, state or "blue sky"
permits and approvals required to carry out the transactions contemplated by the
Agreement. The Company agrees to furnish to Parent all information concerning
the Company, its officers, directors and Stockholders as reasonably may be
requested in connection with the foregoing. Parent agrees to advise the Company
promptly after Parent receives notice of the time when the Registration
Statement has become effective or any supplement or amendment has been filed, of
the issuance of any stop order or the suspension of the qualification of the
Parent Common Stock for offering or sale in any jurisdiction, of the initiation
or threat of any proceeding for such purpose, or of any request by the SEC for
the amendment or supplement of the Registration Statement or for additional
information.
(c) Parent will use commercially reasonable efforts to obtain,
and will provide evidence reasonably satisfactory to the Company of, all
necessary rulings or orders of Canadian securities or regulatory authorities
exempting the distribution by Parent of Parent Common Stock and the resale of
Parent Common Stock issued in connection with the Merger in Canada as
contemplated by this Agreement from the registration and prospectus delivery
requirements under applicable Canadian securities laws on terms reasonably
satisfactory to Parent and the Company.
(d) Within 30 days after the Closing Date, Parent will file a
registration statement on Form S-8, or an amendment to an existing registration
statement on Form S-8, that will include Options assumed by Parent and shares of
Parent Common Stock issuable upon exercise thereof.
Section 5.3. No Solicitation or Negotiation. The Company, its
Affiliates and their respective officers and other employees with managerial
responsibilities, directors, representatives (including any financial advisor or
any other investment banker and any attorneys and accountants) and agents shall
immediately cease any discussions or negotiations with any parties with respect
to any Third Party Acquisition. The Company promptly shall request each person
that has heretofore executed a confidentiality agreement in connection with its
consideration of acquiring the Company (whether by merger, acquisition of stock
or assets or otherwise), to return all confidential information heretofore
furnished to such person by or on behalf of the Company. Neither the Company nor
any of its Affiliates shall, nor shall the Company authorize or permit any of
its or their respective officers, directors, employees, representatives or
agents to, directly or indirectly, encourage, solicit, participate in or
initiate discussions or negotiations with or provide any non-public information
to any person or group (other than Parent and Acquisition or any designees of
Parent and Acquisition) concerning any Third Party Acquisition. The Company
shall promptly (and in any event within one business day after becoming aware
thereof) (i) notify Parent in the event it receives any proposal or inquiry
concerning a Third Party Acquisition, including the terms and conditions thereof
and the identity of the party submitting such proposal, and any request for
confidential information that is requested in connection with a potential Third
Party Acquisition, (ii) provide a copy of
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any written agreements, proposals or other materials the Company receives from
any such person or group (or its representatives) and (iii) advise Parent from
time to time of the status thereof and promptly following any material
developments of which the Company has knowledge. The Board of Directors of the
Company shall not withdraw or modify its recommendation of the transactions
contemplated hereby or approve or recommend, or cause or permit the Company to
enter into any agreement or obligation with respect to, any Third Party
Acquisition. The Company shall not request acceleration of its currently pending
registration statement on Form S-1, circulate preliminary prospectuses contained
in such registration statement, nor permit such registration statement to be
declared effective. On the Closing Date, the Company shall withdraw its
currently pending registration statement.
Section 5.4. Meeting of Stockholders.
(a) Meeting of Stockholders. The Company shall take all actions
necessary in accordance with the CCC and its Articles of Incorporation and
bylaws to duly call, give notice of, convene and hold a meeting of its
Stockholders as promptly as practicable following the receipt of a permit under
Section 25121 of the CCC from the California Commissioner or the effectiveness
of the Registration Statement to consider and vote upon the adoption and
approval of this Agreement and the transactions contemplated hereby (the
"MEETING") or solicit its Stockholders' written consent as promptly as
practicable to consider and vote upon or consent to the adoption and approval of
this Agreement and the transactions contemplated hereby. The Stockholder vote
required for the adoption and approval of the transactions contemplated by this
Agreement shall be the vote required by the CCC and the Company's Articles of
Incorporation and bylaws. The Information Statement shall include the unanimous
recommendation of the Company Board in favor of the Merger and this Agreement.
Section 5.5. Stock Exchange Listings. Parent shall use all
reasonable commercial efforts to cause the shares of Parent Common Stock to be
issued in the Merger to be conditionally approved for listing on the New York
Stock Exchange and the Toronto Stock Exchange, subject to official notice of
issuance, prior to the Effective Time.
Section 5.6. Access to Information.
(a) Between the date hereof and the Effective Time, the Company
will give Parent and its authorized representatives reasonable access during
normal business hours to all employees, plants, offices, warehouses and other
facilities, to all books and records and all personnel files of current or
former employees of the Company and its subsidiaries as Parent may reasonably
require, and will cause its officers to furnish Parent with such financial and
operating data and other information with respect to the business and properties
of the Company and its subsidiaries as Parent may from time to time reasonably
request. All such information shall be subject to the terms and provisions of
the Non-Disclosure Agreement. Without limiting any of Parent's other
confidentiality obligations, Parent shall maintain all information contained in
the personnel files of the Company and its subsidiaries in strictest confidence,
will not use such information in violation of any Applicable Laws, and except as
required by Applicable Laws, shall not, without the prior written consent of the
Company,
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disclose such information to any third party other than Parent's attorneys,
advisors and consultants engaged in connection with the transactions
contemplated by this Agreement.
(b) Between the date hereof and the Effective Time, the Company
shall furnish to Parent (i) within two business days following preparation
thereof (and in any event within 20 business days after the end of each month)
an unaudited balance sheet as of the end of such month and the related
statements of earnings, stockholders' equity (deficit) and cash flows for the
month then ended, and (ii) within two business days following preparation
thereof (and in any event within 90 calendar days after the end of each fiscal
year) an audited balance sheet as of the end of such year and the related
statements of earnings, stockholders' equity (deficit) and cash flows, all of
such financial statements referred to in clauses (i) and (ii) prepared in
accordance with generally accepted accounting principles in conformity with the
practices consistently applied by the Company with respect to such financial
statements. All of the foregoing shall be in accordance with the books and
records of the Company and shall fairly present its financial position (taking
into account the differences between the monthly, quarterly and annual financial
statements prepared by the Company in conformity with its past practices) as of
the last day of the period then ended.
(c) Parent shall, within 10 business days following the date of
the filing with the SEC, furnish to the Company a complete and correct copy of
any Parent SEC Report filed with the SEC after the date hereof.
(d) Each of the parties hereto will hold, and will cause its
consultants and advisers to hold, in confidence all documents and information
furnished to it by or on behalf of another party to this Agreement in connection
with the transactions contemplated by this Agreement pursuant to the terms of
the Non-Disclosure Agreement.
Section 5.7. Certain Filings; Reasonable Efforts.
(a) Subject to the terms and conditions herein provided, each of
the parties hereto will use all reasonable efforts and due diligence to take or
cause to be taken all action and to do or cause to be done all things reasonably
necessary, proper or advisable under Applicable Law to consummate and make
effective the transactions contemplated by this Agreement, including using all
reasonable efforts and due diligence to do the following: (i) cooperate in the
preparation and filing of an application for qualification by permit from the
California Commissioner or the Registration Statement and any amendments
thereto, any filings that may be required under the HSR Act, the Competition Act
(Canada) and any filings under similar merger notification laws or regulations
of foreign Governmental Entities; (ii) obtain consents of all third parties and
Governmental Entities necessary, proper, advisable or reasonably requested by
Parent or the Company, for the consummation of the transactions contemplated by
this Agreement; (iii) contest any legal proceeding relating to the Merger; and
(iv) execute any additional instruments necessary to consummate the transactions
contemplated hereby. Subject to the terms and conditions of this Agreement,
Parent and Acquisition agree to use all reasonable efforts to cause the
Effective Time to occur as soon as reasonably practicable after the conditions
set forth in Article 6 have been satisfied or waived. The
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Company agrees to use all reasonable efforts to encourage employees of the
Company and its subsidiaries to continue their employment with the Surviving
Corporation. If at any time after the Effective Time any further action is
necessary to carry out the purposes of this Agreement the proper officers and
directors of each party hereto shall take all such necessary action.
(b) Parent and the Company will consult and cooperate with one
another, and consider in good faith the views of one another, in connection with
any analyses, appearances, presentations, letters, white papers, memoranda,
briefs, arguments, opinions or proposals made or submitted by or on behalf of
any party hereto in connection with proceedings under or relating to the HSR
Act, the Competition Act (Canada) or any other foreign, federal or state
antitrust, competition or fair trade law. In this regard, each party hereto
shall promptly inform the other of any material communication between such party
and the Federal Trade Commission, the Antitrust Division of the United States
Department of Justice, the SEC or any other federal, foreign or state antitrust
or competition Governmental Entity regarding the transactions contemplated
hereby. Nothing in this Agreement, however, shall require or be construed to
require any party hereto to sell or divest any assets or business or to restrict
any business operations in order to obtain the consent or successful termination
of any review of any such Governmental Entity regarding the transactions
contemplated hereby.
Section 5.8. Public Announcements. The Company shall not issue
any press release or otherwise make any public statements (including any written
statement circulated to employees, customers or other third parties) with
respect to the transactions contemplated by this Agreement, including the
Merger, without the prior written consent of Parent, which consent will not be
unreasonably withheld. Parent will provide a copy of any press release proposed
to be issued within a reasonable time prior to such issuance and consult with
the Company prior to issuing any press release with respect to the transactions
contemplated by this Agreement.
Section 5.9. Notification of Certain Matters. The Company shall
give prompt notice to Parent, and Parent shall give prompt notice to the
Company, of (i) the occurrence or nonoccurrence of any event the occurrence or
nonoccurrence of which has caused or would be likely to cause any representation
or warranty contained in this Agreement by such first party to be untrue or
inaccurate such that the conditions in Section 6.2 or 6.3 would not be satisfied
at or prior to the Effective Time and (ii) any material failure by such first
party to comply with or satisfy in any material respect 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 5.9 shall not
cure such breach or non-compliance or limit or otherwise affect the remedies
available hereunder to the party receiving such notice.
Section 5.10. Affiliates; Tax-Free Reorganization; Restructuring.
(a) The Company shall obtain from all Company Affiliates listed
in Section 5.10 of the Company Disclosure Schedule and from any person who may
be deemed to have become a Company Affiliate, after the date of this Agreement
and on or prior to the
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Effective Time, an executed letter agreement substantially in the form of
Exhibit D as soon as practicable.
(b) The Company, on the one hand, and Parent and Acquisition, on
the other hand, shall execute and deliver to legal counsel to Parent and the
Company certificates, with a copy to the other party hereto, at such time or
times as reasonably requested by such legal counsel in connection with its
delivery of legal opinions with respect to the transactions contemplated hereby.
Prior to the Effective Time, none of the Company, Parent or Acquisition shall
take or cause to be taken any action that would cause to be untrue (or fail to
take or cause not to be taken any action that would cause to be untrue) any of
the representations in such certificates.
(c) Parent, Acquisition and the Company shall each use its best
efforts to cause the Merger to qualify, and shall not take any actions prior to
the Closing Date that could prevent the Merger from qualifying, as a tax-free
reorganization under Section 368(a) of the Code. Parent and Acquisition covenant
and agree not to (i) take any action (or to cause the Surviving Corporation or
any Affiliate of Parent or Acquisition to take any action), and (ii) fail to
take any action (or to cause the Surviving Corporation or any Affiliates of
Parent or Acquisition not to fail to take any action), which if taken or not
taken after the Closing Date, as the case may be (excluding in each case any
action or failure to take any action that is contemplated by this Agreement),
reasonably could be anticipated to cause the transactions contemplated by this
Agreement to fail to qualify as a tax-free reorganization under the provisions
of Section 368(a) of the Code. In the event that the parties mutually agree that
the reverse subsidiary merger structure poses tax risks, the parties will use
their best efforts to restructure the Merger as a forward subsidiary merger as
described in Section 368 (a) of the Code.
(d) In the event that the parties mutually agree that
reincorporating the Company in Delaware prior to the Effective Date would be
beneficial, the parties will use their best efforts to effect such
reincorporation.
Section 5.11. Additions to and Modification of Company Disclosure
Schedule. Concurrently with the execution and delivery of this Agreement, the
Company has delivered a Company Disclosure Schedule that includes all of the
information required by the relevant provisions of this Agreement. In addition,
the Company shall deliver to Parent and Acquisition such additions to or
modifications of any Sections of the Company Disclosure Schedule necessary to
make the information set forth therein true, accurate and complete in all
material respects as soon as practicable after such information is available to
the Company after the date of execution and delivery of this Agreement;
provided, however, that (i) such disclosure shall not be deemed to constitute an
exception to its representations and warranties under Article 3, unless Parent
so consents in writing, nor limit the rights and remedies of Parent under this
Agreement for any breach by the Company of such representation and warranties
and (ii) failure to comply with the disclosure obligations required hereunder
shall not be deemed to constitute a failure of the conditions set forth in
Section 6.2(b) or 6.3(b) unless the information to be disclosed would constitute
a breach of representations or
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warranties that would cause a failure of the conditions set forth in Section
6.2(a) or 6.3(a) as the case may be.
Section 5.12. Access to Company Employees. The Company will
provide Parent with reasonable access to employees of the Company and its
subsidiaries during normal working hours following the date of this Agreement to
provide information to such employees about Parent and their continued
employment. All communications by Parent with employees of the Company and its
subsidiaries shall be conducted in a manner that does not disrupt or interfere
with the Company's efficient and orderly operation of its business.
Section 5.13. Company Compensation and Benefit Plans. The Company
will take all actions necessary to amend, merge, freeze or terminate any and /or
all Benefit Plans, effective at or immediately prior to the Closing Date, as
requested in writing by Parent.
Section 5.14. Non-Competition and Non-Solicitation Agreements.
The Company shall use commercially reasonable efforts (which shall not be deemed
to require the payment of any additional consideration) to (i) cause each of the
employees listed on Section 5.14 of the Company Disclosure Schedule (each, a
"KEY EMPLOYEE") to remain as an employee of the Company or a subsidiary until
the Effective Time and to execute and deliver to the Company and Parent at or
prior to the Closing a Non-Competition Agreement in the form attached hereto as
Exhibit E (each, a "KEY EMPLOYEE AGREEMENT"), (ii) cause all other employees of
the Company and its subsidiaries to execute and deliver to the Company and
Parent at or prior to the Closing an Employee Stockholder Agreement in the form
attached hereto as Exhibit F (each, an "EMPLOYEE STOCKHOLDER AGREEMENT") and
(iii) cause such employees of the Company and its subsidiaries as Parent and
Company mutually agree to execute and deliver to the Company and Parent at or
prior to the Closing either a Supplemental Employee Agreement in the form
attached hereto as Exhibit J (a "SUPPLEMENTAL EMPLOYEE AGREEMENT") or a
Supplemental Employee Non-Solicitation Agreement in the form attached hereto as
Exhibit K (a "SUPPLEMENTAL EMPLOYEE NON-SOLICITATION AGREEMENT"). The Key
Employee Agreements shall provide, among other things, for an amendment to
existing agreements to the effect that at least two years of vesting will remain
for each Key Employee after the Effective Time.
Section 5.15. Voting Agreement. The Company shall deliver,
concurrent with the execution of this Agreement, the Irrevocable Proxy, Waiver
and Voting Agreement in the form attached hereto as Exhibit A, which shall have
been executed by each Affiliate of the Company (which for this purpose shall
include each officer, director and holder of more than 10% of the Preferred
Shares or Common Shares, excluding Alcatel Alsthorn S.A.).
Section 5.16. Recomputation. The Company acknowledges that the
computation of the Closing Dollar Amount depends upon the accuracy of the
representations and warranties set forth in Section 3.2. In the event that any
of the information set forth in Section 3.2 proves to be inaccurate, the Company
and Parent will consider re-computing the Closing Dollar Amount to reflect the
corrected information. The provisions of this Section 5.16 shall not limit or
impair Parent's rights under Section 6.3(b).
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Section 5.17. Termination of Certain Agreements. On or prior to
the Effective Time, the Company shall terminate the agreements set forth in
Section 5.17 of Company Disclosure Schedules.
Section 5.18. Exercise of Warrants. The Company shall use
commercially reasonable efforts to ensure that each of the Warrants have been
exercised prior to the Closing. The Company acknowledges that Parent shall have
no obligation to register shares of Parent Common Stock issuable upon exercise
of any Warrants that are not exercised prior to the Effective Time. On or prior
to the Effective Date, the Company shall enter into an agreement (in a form
reasonably satisfactory to the Parent) with any Warrantholder pursuant to which
such Warrantholder waives any registration rights contained in such Warrant or
in any related agreement.
Section 5.19. Indemnification Agreements. After the Effective
Time, Parent and Surviving Corporation will, to the extent permitted by law,
fulfill and honor in all material respects the obligations of the Company
pursuant to indemnification agreements with the Company's officers, directors
and key employees in existence at the Effective Time. Such indemnification
agreements have been made available to Parent.
Section 5.20. Employee Benefit Plans and Benefit Arrangements. It
is the intention of the parties that employees of the Company or its
subsidiaries shall receive credit for past service with the Company or any of
its subsidiaries for eligibility and vesting purposes with respect to any
employee benefit plans, programs or practices of Parent in which such employees
are eligible to participate after the Closing Date; provided that such credit
shall be provided only to the extent that such past service was recognized under
the Benefit Plans of the Company in effect immediately prior to the Closing
Date. Notwithstanding the foregoing, prior service credit will not be provided
under any employee benefit plans and programs or practices of the Parent which
are equity-based plans and programs, including the Company Plans; provided that
the parties acknowledge that the terms of any Options assumed by Parent shall be
treated as provided in Section 2.6 hereof.
Section 5.21. Amendment of Terms of Series A Preferred Shares.
The Company shall use commercially reasonable efforts to seek requisite
stockholder approval for the amendment of the terms of the Series A Preferred
Shares to provide that the holders of the Series A Preferred Shares will receive
Parent Common Stock in the Merger in a manner reasonably acceptable to Parent
and shall make such filings with the Secretary of State of the State of
California as are necessary to effect such amendment by such time as Parent may
reasonably request (the "SERIES A AMENDMENT").
ARTICLE 6
CONDITIONS TO CONSUMMATION OF THE MERGER
Section 6.1. Conditions to Each Party's Obligations to Effect the
Merger. The respective obligations of each party hereto to effect the Merger are
subject to the satisfaction at or prior to the Effective Time of the following
conditions:
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(a) any waiting period applicable to the Merger under the HSR Act
shall have terminated or expired;
(b) any governmental or regulatory notices, approvals or other
requirements necessary to consummate the transactions contemplated hereby and to
conduct the business after the Effective Time in all material respects as it was
conducted prior thereto (other than under the HSR Act) shall have been given,
obtained or complied with, as applicable;
(c) there shall be no action, suit, proceeding, claim,
arbitration or investigation pending before any agency, court or tribunal,
foreign or domestic, against either party or any of their respective properties
that questions the validity of this Agreement or the transactions contemplated
hereby; and
(d) either (x) the California Commissioner shall have issued a
permit under Section 25121 of the California Corporations Code (following a
hearing upon the fairness of the terms and conditions of the Merger, conducted
pursuant to Section 25142 of the California Corporations Code) for the issuance
of the Parent Common Stock to be issued in the Merger, and all applicable
requirements of Section 3(a)(10) of the Securities Act shall have been satisfied
or (y) the Registration Statement shall have become effective under the
Securities Act and no stop order suspending the effectiveness of the
Registration Statement shall have been issued and be in effect, and no
proceedings for that purpose shall have been initiated or threatened by the SEC
and not concluded or withdrawn.
Section 6.2. Conditions to the Obligations of the Company. The
obligation of the Company to effect the Merger is subject to the satisfaction at
or prior to the Effective Time of the following conditions:
(a) The representations and warranties of Parent and Acquisition
contained in this Agreement shall be true and correct at and as of the Effective
Time with the same effect as if made at and as of the Effective Time (except to
the extent such representations specifically relate to an earlier date, in which
case such representations shall be true and correct as of such earlier date)
and, at the Closing, Parent and Acquisition shall have delivered to the Company
a certificate to that effect, executed by an executive officer of Parent and
Acquisition.
(b) Each of the covenants and obligations of Parent and
Acquisition to be performed at or before the Effective Time pursuant to the
terms of this Agreement shall have been duly performed at or before the
Effective Time and, at the Closing, Parent and Acquisition shall have delivered
to the Company a certificate to that effect, executed by an executive officer of
Parent and Acquisition.
(c) Parent and Acquisition shall have received in writing and in
form and substance reasonably acceptable to the Company all material consents,
approvals and waivers with respect to the consummation of the transactions
contemplated by this Agreement as required by any other third party or
governmental agency (including all Canadian securities or regulatory exemptions
which shall have been received in writing, if available, or shall have
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been verified by means customary to Parent) with respect to the consummation of
the transactions contemplated by this Agreement.
(d) The shares of Parent Common Stock issuable to the
Stockholders pursuant to this Agreement and such other shares required to be
reserved for issuance in connection with the Merger shall have been approved for
listing on the New York Stock Exchange, upon official notice of issuance.
(e) The Company shall have received the opinion of ▇▇▇▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇▇▇▇ & ▇▇▇▇▇, P.C. to the effect that (i) the Merger will be treated
for Federal income tax purposes as a reorganization within the meaning of
Section 368(a) of the Code, and (ii) each of Parent, Acquisition and the Company
will be treated as a corporation that is a party to the reorganization within
the meaning of Section 368(b) of the Code, and such opinion shall not have been
withdrawn or modified in any material respect. In rendering such opinion, tax
counsel may rely on the representations set forth in the certificates provided
pursuant to Section 5.10 and such other representations as such tax counsel
reasonably deems appropriate.
(f) The Company shall have received the opinion of legal counsel
to Parent as to the matters set forth in Exhibit G.
Section 6.3. Conditions to the Obligations of Parent and
Acquisition. The respective obligations of Parent and Acquisition to effect the
Merger are subject to the satisfaction at or prior to the Effective Time of the
following conditions:
(a) This Agreement shall have been approved and adopted by the
requisite vote of the stockholders of the Company.
(b) The representations and warranties of the Company contained
in this Agreement shall be true and correct at and as of the Effective Time with
the same effect as if made at and as of the Effective Time (except to the extent
such representations specifically relate to an earlier date, in which case such
representations shall be true and correct as of such earlier date) and, at the
Closing, the Company shall have delivered to Parent and Acquisition a
certificate to that effect, executed by the President and Chief Executive
Officer of the Company.
(c) Each of the covenants and obligations of the Company to be
performed at or before the Effective Time pursuant to the terms of this
Agreement shall have been duly performed at or before the Effective Time and, at
the Closing, the Company shall have delivered to Parent and Acquisition a
certificate to that effect, executed by an executive officer of the Company.
(d) Parent shall have received from each Affiliate of the Company
an executed copy of the letter attached hereto as Exhibit D.
(e) The Company shall have received, in writing and in form and
substance reasonably acceptable to Parent and Acquisition (i) the consents,
approvals and waivers with
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respect to the consummation of the transactions contemplated by this Agreement
indicated or required to be indicated on the Company Disclosure Schedules and
(ii) all necessary consents, approvals and waivers as required by any other
third party or governmental agency with respect to the consummation of the
transactions contemplated by this Agreement.
(f) The Company shall have effected the Series A Amendment on
terms reasonably acceptable to Parent.
(g) Parent shall have received the opinion of ▇▇▇▇▇▇, ▇▇▇▇ &
▇▇▇▇▇▇▇▇ LLP to the effect that (i) the Merger will be treated for Federal
income tax purposes as a reorganization within the meaning of Section 368(a) of
the Code and (ii) each of Parent, Acquisition and the Company will be treated as
a corporation that is a party to the reorganization within the meaning of
Section 368(b) of the Code, and such opinion shall not have been withdrawn or
modified in any material respect. In rendering such opinion, such tax counsel
may rely on the representations set forth in the certificates provided pursuant
to Section 5.10 and such other representations as such counsel reasonably deems
appropriate.
(h) Parent shall have received the opinion of ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇ & ▇▇▇▇▇, P.C., legal counsel to the Company, as to the matters set forth
in Exhibit H.
(i) The Company, each of the Stockholders and Optionholders, the
Representative, Parent, Acquisition and the Escrow Agent shall have executed and
delivered the Escrow Agreement or otherwise become bound by its terms to
Parent's reasonable satisfaction.
(j) No Stockholders of the Company representing, in the
aggregate, more than 17% of the aggregate voting power of the capital stock of
the Company (whether in Preferred Shares or Common Shares or any combination
thereof) shall have exercised or be eligible to exercise appraisal rights in
connection with the Merger, provided, however, that Parent may waive this
condition if it receives the opinion of tax counsel referred to in Section
6.3(g).
(k) Each Key Employee shall have entered into the Key Employee
Agreement substantially in the form attached as Exhibit E. At least 90% of all
employees, other than the Key Employees, will have entered into the Employee
Stockholder Agreement substantially in the form attached as Exhibit F.
(l) Between the date hereof and the Closing, there shall have
occurred no event or circumstance having a Material Adverse Effect on the
Company.
(m) The Company shall have provided evidence reasonably
satisfactory to Parent of the termination of the agreements set forth in Section
5.17 of the Company Disclosure Schedule.
Section 6.4. Proceedings and Documents. All corporate and other
proceedings in connection with the transactions contemplated at the Closing and
all documents incident
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thereto will be reasonably satisfactory in form and substance to Parent and
Parent's legal counsel on the one hand and the Company and Company's legal
counsel on the other hand, and Parent and the Company will have received all
such counterpart originals and certified or other copies of such documents as
they may reasonably request, including certified copies of charter documents,
corporate resolutions, and good standing advice.
ARTICLE 7
TERMINATION; AMENDMENT; WAIVER
Section 7.1. Termination. This Agreement may be terminated and
the Merger may be abandoned at any time prior to the Effective Time whether
before or after approval and adoption of this Agreement by the Stockholders:
(a) by mutual written consent of Parent and the Company;
(b) by Parent or the Company if:
(i) any court of competent jurisdiction in the United
States or Canada or other United States federal or state or Canadian
federal or provincial Governmental Entity shall have issued a final
order, decree or ruling, or taken any other final action, restraining,
enjoining or otherwise prohibiting the Merger and such order, decree,
ruling or other action is or shall have become nonappealable;
(ii) the Merger has not been consummated by December 31,
2000 other than on account of a delay relating to any regulatory
approvals specifically related to the Merger, including the approvals
contemplated by Section 6.1, which the parties reasonably believe will
be obtained within a reasonable period of time but in any event no later
than March 31, 2001; provided that neither party may terminate this
Agreement pursuant to this clause (ii) if such party's failure to
fulfill any of its obligations under this Agreement shall have been a
principal reason that the Effective Time shall not have occurred on or
before said date.
(c) by the Company if:
(i) there shall have been a breach of any representations
or warranties set forth in this Agreement on the part of Parent or if
any representations or warranties of Parent shall have become untrue,
such that the conditions set forth in Section 6.2(a) would be incapable
of being satisfied by December 31, 2000, provided that the Company has
not breached any of its obligations hereunder; or
(ii) there shall have been a breach by Parent of any of
its covenants or agreements hereunder having a Material Adverse Effect
on Parent or materially adversely affecting (or materially delaying) the
ability of Parent, Acquisition or the Company to consummate the Merger,
and Parent has not cured such breach within ten
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business days after notice by the Company thereof, provided that the
Company has not breached any of its obligations hereunder in any
material respect; or
(d) by Parent if:
(i) there shall have been a breach of any representations
or warranties set forth in this Agreement on the part of the Company or
if any representations or warranties of the Company shall have become
untrue, such that the conditions set forth in Section 6.3(a) and 6.3(b)
would be incapable of being satisfied by December 31, 2000, provided
that Parent has not breached any of its obligations hereunder; or
(ii) there shall have been a breach by the Company of one
or more of its covenants or agreements hereunder having a Material
Adverse Effect on the Company (or, in the case of Section 6.3, any
material breach thereof) or materially adversely affecting (or
materially delaying) the ability of Parent, Acquisition or the Company
to consummate the Merger, and the Company has not cured such breach
within ten business days after notice by Parent thereof.
Section 7.2. Effect of Termination. Subject to the immediately
succeeding sentence, in the event of the termination and abandonment of this
Agreement pursuant to Section 7.1, this Agreement shall forthwith become void
and have no effect without any liability on the part of any party hereto or its
Affiliates, directors, officers or stockholders other than liability arising for
a breach of this Agreement. Nothing contained in this Section 7.2 shall relieve
any party from liability for any breach of this Agreement prior to such
termination.
Section 7.3. Fees and Expenses. If the Merger is consummated,
Parent shall pay (or cause to be paid) or Company may pay out of cash on hand,
legal, accounting and investment banking fees and expenses incurred by the
Company in connection with the transactions contemplated hereby (whether before
or after the date hereof or the Effective Time) up to $250,000 in the aggregate.
Subject to Section 4.2 of the Escrow Agreement, any expenses in excess of
$250,000 will be reimbursed through the claim procedure under the Escrow
Agreement (without application of any deductible). Except as specifically
provided in this Section 7.3, each party shall bear its own expenses in
connection with this Agreement and the transactions contemplated hereby.
Section 7.4. Amendment. This Agreement may be amended by action
taken by the Company and Parent at any time before or after approval of the
Merger by the Stockholders of the Company, but after any such approval no
amendment shall be made that requires the approval of such Stockholders under
Applicable Law without such approval. This Agreement may be amended only by an
instrument in writing signed on behalf of the parties hereto.
Section 7.5. Extension; Waiver. At any time prior to the
Effective Time, each party hereto may (i) extend the time for the performance of
any of the obligations or other acts
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of the other party, (ii) waive any inaccuracies in the representations and
warranties of the other party contained herein or in any document, certificate
or writing delivered pursuant hereto or (iii) waive compliance by the other
party with any of the agreements or conditions contained herein. Any agreement
on the part of any party hereto to any such extension or waiver shall be valid
only if set forth in an instrument, in writing, signed on behalf of such party.
The failure of any party hereto to assert any of its rights hereunder shall not
constitute a waiver of such rights. Waiver of any term or condition of this
Agreement by any party shall not be construed as a waiver of any subsequent
breach or failure of the same term or condition, or a waiver of any other term
or condition of this Agreement.
ARTICLE 8
INDEMNIFICATION
Section 8.1. Indemnification by the Stockholders. The terms and
conditions pursuant to which the Stockholders, Optionholders and Warrantholder
shall be obligated to indemnify Parent, Acquisition or their respective
Affiliates are as set forth in the Escrow Agreement. After the Closing, the sole
and exclusive remedy of Parent and Acquisition with respect to any matter
arising out of, under or relating to this Agreement shall be to make an
Indemnity Claim as defined in and as set forth in the Escrow Agreement.
ARTICLE 9
MISCELLANEOUS
Section 9.1. Survival of Representations and Warranties. The
representations and warranties made herein shall survive beyond the Effective
Time for a period of 12 months, except that the representations and warranties
set forth in Section 3.16 shall survive until the expiration of the applicable
statute of limitations (including any extensions thereof). The covenants
contained herein shall survive for the applicable period of the statute of
limitations with respect thereto.
Section 9.2. Entire Agreement; Assignment. This Agreement
(including the Company Disclosure Schedule), the Non-Disclosure Agreement and
the Escrow Agreement (i) constitute the entire agreement between the parties
hereto with respect to the subject matter hereof and supersede all other prior
and contemporaneous agreements and understandings both written and oral between
the parties with respect to the subject matter hereof and (ii) shall not be
assigned by operation of law or otherwise; provided, however, that Acquisition
may assign any or all of its rights and obligations under this Agreement to any
wholly-owned subsidiary of Parent, but no such assignment shall relieve
Acquisition of its obligations hereunder if such assignee does not perform such
obligations.
Section 9.3. Validity. Any term or provision of this Agreement
that is invalid or unenforceable in any situation in any jurisdiction shall not
affect the validity or enforceability of the remaining terms and provisions
hereof or the validity or enforceability of the offending term or provision in
any other situation or in any other jurisdiction. If the final
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judgment of a court of competent jurisdiction declares that any term or
provision hereof is invalid or unenforceable, the parties agree that the court
making the determination of invalidity or unenforceability shall have the power
to reduce the scope, duration or area of the term or provision, to delete
specific words or phrases, or to replace any invalid or unenforceable term or
provision with a term or provision that is valid and enforceable and that comes
closest to expressing the intention of the invalid or unenforceable term or
provision, and this Agreement shall be enforceable as so modified after the
expiration of the time within which the judgment may be appealed.
Section 9.4. Notices. All notices and other communications
pursuant to this Agreement shall be in writing and shall be deemed given if
delivered personally, telecopied, sent by nationally-recognized overnight
courier or mailed by registered or certified mail (return receipt requested),
postage prepaid, to the parties at the addresses set forth below or to such
other address as the party to whom notice is to be given may have furnished to
the other parties hereto in writing in accordance herewith. Any such notice or
communication shall be deemed to have been delivered and received (i) in the
case of personal delivery, on the date of such delivery, (ii) in the case of
telecopier, on the date sent if confirmation of receipt is received and such
notice is also promptly mailed by registered or certified mail (return receipt
requested), (iii) in the case of a nationally-recognized overnight courier in
circumstances under which such courier guarantees next business day delivery, on
the next business day after the date when sent and (iv) in the case of mailing,
on the third business day following that on which the piece of mail containing
such communication is posted:
if to Parent or Acquisition: Nortel Networks Inc.
▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇.
▇▇: 991-16-B40
▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Telecopier: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇ ▇▇▇▇▇▇▇
and
Nortel Networks Corporation
▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇▇, ▇▇, ▇▇▇▇▇▇ ▇▇▇ ▇▇▇
Telecopier: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: Corporate Secretary
with a copy to: ▇▇▇▇▇▇, ▇▇▇▇ & ▇▇▇▇▇▇▇▇ LLP
▇▇▇▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇
▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Telecopier: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
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if to the Company to: Sonoma Systems
▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇ ▇▇▇ ▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Telecopier: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇ and ▇▇▇▇▇▇ ▇▇▇▇▇▇
Chief Executive Officer and
Chief Financial Officer
with a copy to: ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇ & ▇▇▇▇▇, P.C.
▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Telecopier: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: ▇.▇. ▇▇▇▇▇▇ and ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇
or to such other address as the person to whom notice is given may have
previously furnished to the others in writing in the manner set forth above.
Section 9.5. Governing Law and Venue; Waiver of Jury Trial. This
Agreement shall be deemed to be made in and in all respects shall be
interpreted, construed and governed by and in accordance with the laws of the
State of Delaware without regard to the conflict of law principles thereof.
Except as specifically set forth in Exhibit I hereto, the parties hereby
irrevocably submit to the jurisdiction of the courts of the State of Delaware
and the Federal courts of the United States of America located in the State of
Delaware solely in respect of the interpretation and enforcement of the
provisions of this Agreement and of the documents referred to in this Agreement,
and in respect of the transactions contemplated hereby, and hereby waive, and
agree not to assert, as a defense in any action, suit or proceeding for the
interpretation or enforcement hereof or of any such document, that it is not
subject thereto or that such action, suit or proceeding may not be brought or is
not maintainable in said courts or that the venue thereof may not be appropriate
or that this Agreement or any such document may not be enforced in or by such
courts, and the parties hereto irrevocably agree that all claims with respect to
such action or proceeding shall be heard and determined in such a Delaware State
or Federal court. The parties hereby consent to and grant any such court
jurisdiction over the person of such parties and over the subject matter of such
dispute and agree that mailing of process or other papers in connection with any
such action or proceeding in the manner provided in Section 9.4 or in such other
manner as may be permitted by Applicable Law, shall be valid and sufficient
service thereof.
(b) EACH PARTY ACKNOWLEDGES AND AGREES THAT ANY CONTROVERSY WHICH
MAY ARISE UNDER THIS AGREEMENT IS LIKELY TO INVOLVE COMPLICATED AND DIFFICULT
ISSUES, AND THEREFORE EACH SUCH PARTY HEREBY IRREVOCABLY AND UNCONDITIONALLY
WAIVES ANY RIGHT SUCH PARTY MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY
LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT
OR THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT. EACH PARTY CERTIFIES AND
ACKNOWLEDGES THAT (i) NO REPRESENTATIVE,
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AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE,
THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE
FOREGOING WAIVER, (ii) EACH SUCH PARTY UNDERSTANDS AND HAS CONSIDERED THE
IMPLICATIONS OF THIS WAIVER, (iii) EACH SUCH PARTY MAKES THIS WAIVER
VOLUNTARILY, AND (iv) EACH SUCH PARTY HAS BEEN INDUCED TO ENTER INTO THIS
AGREEMENT BY, AMONG OTHER THINGS, THE WAIVERS AND CERTIFICATIONS IN THIS SECTION
9.5.
Section 9.6. Descriptive Headings. The descriptive headings
herein are inserted for convenience of reference only and are not intended to be
part of or to affect the meaning or interpretation of this Agreement.
Section 9.7. Parties in Interest. This Agreement and the Escrow
Agreement shall be binding upon and inure solely to the benefit of each party
hereto and its successors and permitted assigns and, except as expressly
provided herein, nothing in this Agreement or the Escrow Agreement is intended
to or shall confer upon any other person any rights, benefits or remedies of any
nature whatsoever under or by reason of this Agreement or the Escrow Agreement
nor shall any such person be entitled to assert any claim hereunder. In no event
shall this Agreement or the Escrow Agreement constitute a third party
beneficiary contract.
Section 9.8. Participation in Drafting. The parties to this
Agreement and their counsel have mutually contributed to its drafting.
Consequently, no provision of this Agreement shall be construed against any
party on the ground that that party drafted the provision or caused it to be
drafted.
Section 9.9. Specific Performance. The parties hereby acknowledge
and agree that the failure of any party to perform its agreements and covenants
hereunder, including its failure to take all actions as are necessary on its
part to the consummation of the Merger, will cause irreparable injury to the
other parties, for which damages, even if available, will not be an adequate
remedy. Accordingly, each party shall be entitled to an injunction or
injunctions to prevent breaches of this Agreement and to enforce specifically
the terms and provisions of this Agreement in any Federal court located in the
State of Delaware or in Delaware state court, this being in addition to any
other remedy to which they are entitled at law or in equity; provided, however,
that if a party hereto is entitled to receive any payment or reimbursement of
expenses pursuant to Section 7.3 it shall not be entitled to specific
performance to compel the consummation of the Merger.
Section 9.10. Incorporation of Exhibits and Schedules. The
Exhibits and Schedules identified in this Agreement are incorporated herein by
reference and made a part hereof.
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Section 9.11. Counterparts. This Agreement may be executed in one
or more counterparts, each of which shall be deemed to be an original but all of
which shall constitute one and the same agreement.
Section 9.12. Exception with Respect to Certain Knowledge and
Materiality Qualifiers. Notwithstanding anything to the contrary contained in
this Agreement, all qualifications to the Company's representations and
warranties "to the Company's Knowledge" in Sections 3.2, 3.16 and 3.17, and to
"materiality" or "Material Adverse Effect" in Sections 3.13(d), 3.13(e) and
3.16, and any correlatives thereof, and any exceptions to the representations
and warranties contained in Sections 3.2, 3.13(d), 3.13(e), 3.16 and 3.17 of the
Company Disclosure Schedule shall be disregarded solely for the purposes set
forth in Sections 4.1 and 4.2 of the Escrow Agreement. References in this
paragraph to Section 3.17 shall mean those portions of Section 3.17 that relate
to ownership, title and enforceability of the Company IP or infringement or
misappropriation of a third party's intellectual property rights by the Company
or any of its subsidiaries.
Section 9.13. Dollar Amounts. All references in this Agreement to
dollars or $ shall mean U.S. dollars.
[the remainder of this page is intentionally left blank]
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IN WITNESS WHEREOF, each of the parties has caused this Agreement
to be duly executed on its behalf as of the day and year first above written.
NORTEL NETWORKS CORPORATION
By:
---------------------------------
Name:
Title:
By:
---------------------------------
Name:
Title:
NNC RUSSIAN ACQUISITION CORPORATION
By:
---------------------------------
Name:
Title: President
SONOMA SYSTEMS
By:
---------------------------------
Name: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇,
Title: Chief Executive Officer
[SIGNATURE PAGE TO AGREEMENT AND PLAN OF MERGER]
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