EXECUTION COPY
MERGER AGREEMENT AND PLAN OF REORGANIZATION
This MERGER AGREEMENT AND PLAN OF REORGANIZATION is made and entered into as of April 18, 2003, by and among Google Technology Inc., a California corporation (“Parent”), Bermuda Acquisition Inc., a California corporation and wholly-owned subsidiary of Parent (“Sub”), Applied Semantics, Inc., a California corporation (the “Company”), Jordan Libit, Jason Liebman, Eytan Elbaz, Brad Stein, Gil Elbaz and Adam Weissman (together, the “Indemnifying Officers”) and, with respect to Article 7 and Article 9 only, Jordan Libit as Securityholder Agent, and U.S. Bank, National Association., as Escrow Agent. Capitalized terms used and not otherwise defined herein have the meanings given to them in Article 10.
RECITALS
A. The Boards of Directors of each of the Company, Parent and Sub believe it is in the best interests of each company and its respective shareholders that Parent acquire the Company through the statutory merger of Sub with and into the Company (the “Merger”) and, in furtherance thereof, have approved the Merger.
B. Pursuant to the Merger, among other things, all of the issued and outstanding capital stock of the Company and all of the issued and outstanding options and warrants to purchase shares of capital stock of the Company shall be converted into the right to receive the consideration set forth herein (the “Merger Consideration”).
C. A portion of the Merger Consideration otherwise issuable by Parent in connection with the Merger shall be placed in escrow by Parent, the release of which amount shall be contingent upon certain events and conditions, all as set forth in Article 7 hereof.
D. As a material inducement to Parent to enter into this Agreement, certain employees of the Company are entering into Non-Competition Agreements substantially in the form attached hereto as Exhibit A (the “Non-Competition Agreements”), each of which shall become effective at the Effective Time.
E. As a further material inducement to Parent to enter into this Agreement, certain shareholders of the Company are entering into Voting Agreements with Parent in substantially the form attached hereto as Exhibit B (“Voting Agreements”) pursuant to which, among other things, such shareholders will agree to vote the shares of Company Capital Stock owned by them in favor of the Merger.
F. The Company, the Indemnifying Officers, Parent and Sub desire to make certain representations, warranties, covenants and other agreements in connection with the Merger.
NOW, THEREFORE, in consideration of the covenants, promises, representations and warranties set forth herein, and for other good and valuable consideration (the receipt and sufficiency of which are hereby acknowledged by the parties), intending to be legally bound hereby, the parties agree as follows:
ARTICLE 1
THE MERGER
1.1 The Merger. At the Effective Time, and upon the terms and subject to the conditions of this Agreement and the applicable provisions of California Law, Sub shall be merged with and into Company, the separate corporate existence of Sub shall cease, and the Company shall continue as the surviving corporation and as a wholly-owned subsidiary of Parent. The surviving corporation in the Merger is sometimes referred to herein as the “Surviving Corporation.”
1.2 Effective Time. Unless this Agreement is earlier terminated pursuant to Section 8.1, the closing of the Merger (the “Closing”) will take place within two (2) days following satisfaction or waiver of the conditions set forth in Article 6 (excluding those conditions intended to be satisfied at the Closing), or such later time following satisfaction or waiver of such conditions as Parent determines in Parent’s discretion, provided that such later time shall occur no later than April 23, 2003, at the offices of Wilson Sonsini Goodrich & Rosati, Professional Corporation, 650 Page Mill Road, Palo Alto, California, unless another place or time is agreed to by Parent and the Company. The date upon which the Closing actually occurs is herein referred to as the “Closing Date.” On the Closing Date, the parties hereto shall cause the Merger to be consummated by filing an Agreement of Merger (or like instrument), in substantially the form attached hereto as Exhibit C (the “California Agreement of Merger”), with the Secretary of State of the State of California in accordance with the relevant provisions of California Law (the time of acceptance by the Secretary of State of the State of California of such filing, or such later time as may be agreed to by the parties and set forth in the California Agreement of Merger, being referred to herein as the “Effective Time”).
1.3 Effect of the Merger on Constituent Corporations. At the Effective Time, the effect of the Merger shall be as provided in this Agreement and the applicable provisions of California Law. Without limiting the generality of the foregoing, and subject thereto, at the Effective Time, the Surviving Corporation shall succeed to all rights, privileges, powers, franchises and property of Company and Sub, and shall be subject to all debts, duties and Liabilities of Company and Sub in the same manner as if the Surviving Corporation had itself incurred them.
1.4 Articles of Incorporation and Bylaws of Surviving Corporation.
(a) At the Effective Time, the Articles of Incorporation of the Company shall be amended and restated in their entirety so as to be identical to the Articles of Incorporation of Sub as in effect immediately prior to the Effective Time until thereafter amended in accordance with California Law and as provided in such Articles of Incorporation; provided, however, that at the Effective Time, Article I of the Articles of Incorporation of the Surviving Corporation shall be
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amended and restated in its entirety to read as follows: “The name of the corporation is “Applied Semantics, Inc.”
(b) The Bylaws of Sub as in effect immediately prior to the Effective Time shall be the Bylaws of the Surviving Corporation at the Effective Time, until thereafter amended in accordance with California Law and as provided in the Articles of Incorporation of the Surviving Corporation and such Bylaws.
1.5 Directors and Officers of Surviving Corporation. The directors of Sub immediately prior to the Effective Time shall be the directors of the Surviving Corporation, each to hold office in accordance with the Articles of Incorporation and Bylaws of the Surviving Corporation. The officers of Sub immediately prior to the Effective Time shall be the officers of the Surviving Corporation, each to hold office in accordance with the Bylaws of the Surviving Corporation.
1.6 Effect on Capital Stock. Upon the terms and subject to the conditions set forth in this Agreement, at the Effective Time, by virtue of the Merger and without any action on the part of Parent, Sub, the Company or any holder of Company Capital Stock, Company Options or Company Warrants, the following shall occur:
(a) Company Common Stock. Each share of Company Common Stock issued and outstanding immediately prior to the Effective Time and after giving effect to the assumed conversion described in Section 1.6(b)(i) (other than any Dissenting Shares (as defined in Section 1.9 and any shares canceled pursuant to Section 1.6(c)) shall be canceled and extinguished and automatically converted into the right to receive, upon the terms and subject to the conditions set forth below and throughout this Agreement (including Section 1.10), including, without limitation, the escrow provisions set forth in Article 7: (A) an amount of cash equal to the Cash Exchange Ratio, without any interest thereon, and (B) a fraction of a share of Parent Common Stock equal to the Stock Exchange Ratio.
(b) Preferred Stock.
(i) Company Series A Preferred Stock. Each share of Company Series A Preferred Stock outstanding immediately prior to the Effective Time will receive the consideration that the Company Common Stock issuable upon conversion thereof would receive under Section 1.6(a) as if such share of Company Series A Preferred Stock converted into Company Common Stock immediately prior to the Effective Time.
(ii) Company Series B Preferred Stock. Each share of Company Series B Preferred Stock issued outstanding immediately prior to the Effective Time will be converted automatically into the right to receive an amount of cash (without interest) equal to $8.28.
(c) Cancellation of Parent-Owned and Company-Owned Stock. Each share of Company Capital Stock owned by Parent, the Company or any direct or indirect wholly-owned subsidiary of Parent or the Company immediately prior to the Effective Time shall be automatically
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canceled and extinguished without any conversion thereof and without any further action on the part of Parent or the Company.
(d) Capital Stock of Sub. At the Effective Time, by virtue of the Merger and without any action on the part of any of the parties hereto, each share of capital stock of Sub issued and outstanding immediately prior to the Effective Time shall be converted into and exchanged for one validly issued, fully paid and nonassessable share of common stock of the Surviving Corporation. Each stock certificate of Sub evidencing ownership of any such shares shall continue to evidence ownership of shares of capital stock of the Surviving Corporation.
(e) Company Options and Company Stock Plan; Treatment of Company Warrants. All Company Options outstanding immediately prior to the Effective Time, whether vested or unvested, together with the Company’s 1999 Stock Option/Stock Issuance Plan (the “Company Stock Plan”), shall be assumed by Parent in accordance with the provisions set forth below. Issuances of Parent Common Stock and payments of cash upon exercise of Assumed Company Options shall be subject to applicable withholding.
(i) Company Options. Each Company Option outstanding immediately prior to the Effective Time, whether vested or unvested, shall, in connection with the Merger be converted into an option (the “Assumed Company Option”) to acquire Parent Common Stock (the “Share Option Portion”) and cash (the “Cash Option Portion”), in accordance with the provisions set forth below. Each Assumed Company Option shall continue to have, and be subject to, the same terms and conditions as were applicable to the Company Option immediately prior to the Effective Time (including any repurchase rights or Vesting provisions), subject to the provisions set forth below. It is the intention of the parties that the Share Option Portion of the Assumed Company Options shall qualify following the Effective Time as incentive stock options as defined in Section 422 of the Code to the same extent that such Company Options qualified as incentive stock options immediately prior to the Effective Time, and the provisions of this Section 1.6(e) shall be applied in a manner consistent with this intent.
(1) Share Option Portion. The Share Option Portion of each Assumed Company Option shall (subject to the Vesting provisions thereof) be exercisable for that number of whole shares of Parent Common Stock equal to the product obtained by multiplying the number of shares of Company Common Stock that were issuable upon exercise of such Company Option immediately prior to the Effective Time by the Stock Exchange Ratio (rounded down to the nearest whole number of shares of Parent Common Stock) (the “Assumed Option Share Number”). The per share exercise price for each share of Parent Common Stock issuable upon exercise of such Assumed Company Option shall be equal to the product (rounded up to the nearest whole cent) of (1) the quotient obtained by dividing the exercise price per share of Company Common Stock at which such Company Option was exercisable immediately prior to the Effective Time by the Stock Exchange Ratio, multiplied by (2) the quotient obtained by dividing (a) the product of the Reference Value times the Aggregate Stock Consideration (such product, the “Aggregate Reference Value”), by (b) the sum of the Aggregate Remaining Cash Consideration and the Aggregate Reference Value (such sum, the “Aggregate Consideration”).
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(2) Cash Option Portion. The Cash Option Portion of each Assumed Company Option shall (subject to the Vesting provisions of the Assumed Company Option) be exercisable for that amount of cash equal to the product obtained by multiplying the number of shares of Company Common Stock that were issuable upon exercise of such Company Option immediately prior to the Effective Time by the Cash Exchange Ratio (rounded down to the nearest whole cent) (the “Assumed Option Cash Amount” of such Assumed Company Option). The exercise price per dollar of the Cash Option Portion of each Assumed Company Option shall be the quotient (rounded up to the nearest whole cent) obtained by dividing (1) the product of (a) the quotient obtained by dividing the exercise price per share of Company Common Stock at which such Company Option was exercisable immediately prior to the Effective Time by the Stock Exchange Ratio, multiplied by (b) the Assumed Option Share Number, multiplied by (c) the quotient obtained by dividing the Aggregate Remaining Cash Consideration by the Aggregate Consideration, by (2) the Assumed Option Cash Amount of such Assumed Company Option.
(3) Neither the Cash Option Portion nor the Share Option Portion of each unexpired and unexercised Assumed Company Option shall be exercisable independent of the other. The purchase of each share of Parent Common Stock upon exercise of the Share Option Portion of an Assumed Company Option shall be conditioned upon the holder thereof simultaneously exercising (and, accordingly, paying the applicable exercise price) a portion of the Cash Option Portion of the Assumed Company Option that is equal to the quotient obtained by dividing the Cash Exchange Ratio by the Stock Exchange Ratio (rounded up to the nearest whole cent). Similarly, the exercise of an Assumed Company Option for each dollar of the Cash Option Portion shall be conditioned upon the holder thereof simultaneously exercising the Assumed Company Option for an amount of shares of the Share Option Portion equal to the quotient obtained by dividing the Stock Exchange Ratio by the Cash Exchange Ratio (rounded down to the nearest whole share); provided that Assumed Company Options may not be exercised for partial shares of Parent Common Stock.
(4) Unless Parent shall otherwise consent in writing prior to the Effective Time, the Company shall take all actions necessary or advisable to cause all Company Options to remain unchanged except (A) for the conversion into options to purchase shares of Parent Common Stock and rights to receive cash, as provided in this Section 1.6(e), (B) for the effect of the escrow provisions of Section 7.3(c), and (C) that any acceleration of vesting, continuation of vesting after termination of employment or other special vesting (whether with the passage of time, upon the occurrence of certain events or otherwise) that might occur, result from or be related to the transactions contemplated by this Agreement and the Ancillary Agreements, except for the acceleration of vesting, continuation of vesting or other special vesting in effect as of the date hereof and which is set forth on Schedule 1.6(e)(i)(4), shall be prevented from occurring through the modification, in a manner acceptable to Parent, of the applicable Company Option (and any employment or other agreement providing for such acceleration) prior to the date of this Agreement. Prior to the Effective Time, Company shall take all action necessary to effect the transactions contemplated by this Section 1.6(e)(i) under the terms of the Company Stock Plan, all Company option agreements, and any other plan, agreement or arrangement of Company, including, the giving of any notice required by this Section 1.6(e)(i).
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(ii) Treatment of Company Warrants. The Company agrees to use commercially reasonable efforts to enter into agreements with the holders of Company Warrants providing for the exercise or cancellation of such Company Warrant, prior to, or contingent upon, the Closing. At the Effective Time, each Company Warrant, whether or not Vested, shall by virtue of the Merger be assumed by Parent. Each Company Warrant so assumed by Parent under this Agreement (an “Assumed Warrant”) will continue to have, and be subject to, the same terms and conditions as provided in the respective warrant agreement governing such Company Warrant immediately prior to the Effective Time of the Merger (including without limitation Vesting schedules and Vesting commencement dates), including that the number of shares of Parent Common Stock and Merger Cash purchasable upon exercise of each such Assumed Warrant, and exercise price per share of Parent Common Stock shall be as determined pursuant to the terms of such Company Warrant and as the shares underlying the warrant are treated under this Section 1.6.
(f) Maximum Amount of Merger Consideration. Notwithstanding any provision contained herein to the contrary, the maximum amount of cash and Parent Common Stock to be paid and issued (or payable or issuable upon exercise or conversion of Equity Equivalents) in exchange for the acquisition by Parent of all outstanding Company Capital Stock and Equity Equivalents of the Company shall be (i) a cash amount equal to the Aggregate Cash Consideration, and (ii) an amount of Parent Common Stock equal to the Aggregate Stock Consideration.
1.7 Fractional Shares. No fractional share of Parent Common Stock shall be issued or paid by virtue of the Merger. In lieu thereof, each holder of shares of Company Capital Stock that would otherwise be entitled to receive a fraction of a share of Parent Common Stock (after aggregating all fractional shares of Parent Common Stock to be received by such holder at such time) shall be entitled to receive the nearest whole number of shares of Parent Common Stock (with .5 being rounded up). In addition, no fraction of a cent of cash shall be paid by virtue of the Merger. The aggregate cash to be paid to each holder of shares of Company Capital Stock shall be rounded to the nearest whole cent (with .5 being rounded up).
1.8 Escrow.
(a) A portion of the Merger Consideration issuable pursuant to Section 1.6 hereof in respect of shares of Company Capital Stock issued and outstanding immediately prior to the Effective Time of the Merger (excluding Dissenting Shares) equal to the Escrow Stock Percentage in the case of Merger Stock and the Escrow Cash Percentage in the case of Merger Cash, will, without any act of any Company Shareholder, be deposited with the Escrow Agent (such deposited amount, the “Escrow Amount”), such deposit to constitute the Escrow Fund to be governed by the terms of Article 7 (such shares of Parent Common Stock and cash deposited in the Escrow Fund, the “Escrow Shares” and the “Escrow Cash,” respectively). The portion of the Escrow Shares and Escrow Cash, respectively, contributed by each Company Shareholder shall be based on the proportion that the Merger Cash and the Merger Stock to be issued to such Company Shareholder in respect of shares of Company Capital Stock held by such Company Shareholder immediately prior to the Effective Time of the Merger bears to the aggregate Merger Cash and Merger Stock to be issued in respect of all shares of Company Capital Stock issued and outstanding immediately prior to the Effective Time of
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the Merger (excluding Dissenting Shares). Set forth opposite each Company Shareholder’s name in Schedule 1.8 delivered prior to the Closing is a preliminary schedule showing the Escrow Shares and Escrow Cash to be contributed by each such Company Shareholder, subject to adjustment for Vesting of Company Options and other occurrences between the date of this Agreement and the Closing Date that affect allocation of Merger Consideration, and adjustment as a result of Dissenting Shares.
(b) With respect to Dissenting Shares, a portion of any amount deemed payable to such dissenting Company Shareholders pursuant to Chapter 13 of California Law equal to the Escrow Percentage shall, upon the conclusion of such process and to the extent consistent with California Law, be withheld by Parent and deposited with the Escrow Agent pursuant to the terms of this Section 1.8(c) (provided, however, that such amount be decreased proportionately if Escrow Shares and Escrow Cash have previously been released from the Escrow Fund to Company Shareholders pursuant to the terms hereof).
(c) As soon as practicable after the Effective Time of the Merger, and subject to and in accordance with the provisions of Article 7 hereof, Parent shall cause to be distributed to the Escrow Agent (i) a certificate or certificates representing the aggregate number of shares of Parent Common Stock included in the Escrow Shares, which shall be registered in the name of the Escrow Agent and (Y) a wire transfer in the amount of the aggregate amount of Escrow Cash. Such shares and cash deposited in the Escrow Fund shall be beneficially owned by the holders on whose behalf such shares and cash were deposited in the Escrow Fund. The Merger Consideration deposited in the Escrow Fund shall be available to compensate Parent as provided in Article 7.
1.9 Dissenting Shares.
(a) Notwithstanding any provision of this Agreement to the contrary, any shares of Company Capital Stock held by a holder that has demanded and perfected dissenters’ rights for such shares in accordance with California Law and who, as of the Effective Time, has not effectively withdrawn or lost such dissenters’ rights (“Dissenting Shares”) shall not be converted into or represent the right to receive the consideration set forth in Section 1.6, but the holder thereof shall only be entitled to such rights as are granted by California Law.
(b) Notwithstanding the provisions of Section 1.9(a), if any holder of shares of Company Capital Stock that demands, in accordance with Section 1301 of California Law, that the Company purchase such shares under California Law, shall effectively withdraw or lose (through failure to perfect or otherwise) such holder’s dissenters’ rights, then, as of the later of (i) the Effective Time or (ii) the occurrence of such event, such holder’s shares shall automatically be converted into and represent only the right to receive the consideration set forth in Section 1.6, (without interest) upon surrender to the Company of the certificate representing such shares in accordance with Section 1.10.
(c) The Company shall give Parent (i) prompt notice of its receipt of any written demands for purchase of any shares of Company Capital Stock, withdrawals of such demands, and any other instruments relating to the Merger served pursuant to California Law and (ii) the
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opportunity to participate in all negotiations and proceedings with respect to demands for purchase under California Law. The Company shall not, except with the prior written consent of Parent or as may be required under applicable law, voluntarily make any payment with respect to any demands for purchase of Company Capital Stock, or offer to settle or settle any such demands.
1.10 Exchange Procedures.
(a) Exchange Agent. The Transfer Agent of Parent shall serve as the exchange agent (the “Exchange Agent”) in the Merger.
(b) Parent Common Stock and Cash. As promptly as practicable after the Closing Date, Parent shall make available for exchange in accordance with this Article 1 the Merger Shares and Merger Cash issuable pursuant to Section 1.6 in exchange for outstanding shares of Company Capital Stock (less the Escrow Shares and Escrow Cash to be contributed to the Escrow Fund pursuant to Article 7).
(c) Exchange Procedures. As soon as reasonably practicable after the Effective Time, the Surviving Corporation shall cause to be mailed to each holder of record of a certificate or certificates which immediately prior to the Effective Time represented outstanding shares of Company Capital Stock (the “Certificates”), (i) a letter of transmittal in customary form, reasonably acceptable to Parent and Company (which shall specify that delivery shall be effected, and risk of loss and title to the Certificates shall pass, only upon delivery of the Certificates to the Exchange Agent), (ii) instructions for use in effecting the surrender of the Certificates in exchange for Merger Consideration, and (iii) unless earlier delivered to Parent, a certificate to be signed and delivered by each holder of Company Capital Stock in substantially the form attached hereto as Exhibit D (the “Shareholder Certificate”). Upon surrender of a Certificate for cancellation to Exchange Agent or to such other agent or agents as may be appointed by Parent together with such letter of transmittal and Shareholder Certificate (unless, in the case of the Shareholder Certificate, such Shareholder Certificate has previously been executed and delivered by the holder), duly completed and validly executed in accordance with the instructions thereto, the holder of such Certificate shall be entitled to receive in exchange therefore the Merger Consideration to which such holder is entitled pursuant to Section 1.6 (less the Escrow Shares and the Escrow Cash to be deposited in the Escrow Fund on such holder’s behalf pursuant to Article 7). Until surrendered, each outstanding Certificate that, prior to the Effective Time, represented shares of Company Capital Stock will be deemed from and after the Effective Time, for all corporate purposes other than the payment of dividends, to evidence only the right to receive the Merger Consideration pursuant to this Article 1.
(d) Distributions With Respect to Unexchanged Shares of Company Capital Stock. No dividends or other distributions with respect to Parent Common Stock that have a record date and distribution date after the Effective Time shall be paid to the holder of any unsurrendered Certificate with respect to the shares of Parent Common Stock represented thereby until the holder of record of such Certificate shall surrender such Certificate pursuant to the terms of this Section 1.10. Subject to applicable law, following surrender of any such Certificate, there shall be paid to the record holder of the certificates representing whole shares of Parent Common Stock issued in exchange therefor, without interest, at the time of such surrender, the amount of dividends or other distributions with a record date and distribution date after the Effective Time theretofore payable (but for the provisions of this Section 1.10(d)) with respect to such whole shares of Parent Common Stock.
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(e) Transfers of Ownership. If any certificate for shares of Parent Common Stock is to be issued pursuant to the Merger in a name other than that in which the Certificate surrendered in exchange therefor is registered, it will be a condition of the issuance thereof that the Certificate so surrendered be properly endorsed and otherwise in proper form for transfer and that the person requesting such exchange will have paid to Parent or any agent designated by it any transfer or other taxes required by reason of the issuance of a certificate for shares of Parent Common Stock in any name other than that of the registered holder of the Certificate surrendered, or that it be established to the satisfaction of Parent or any such agent that such tax has been paid or is not payable.
1.11 Adjustments to Exchange Ratios. The exchange ratios referred to in Section 1.6 shall be adjusted to reflect appropriately the effect of any stock split, reverse stock split, stock dividend (including any dividend or distribution of securities convertible into Parent Common Stock), reorganization, recapitalization, reclassification or other like change with respect to Parent Common Stock occurring on or after the date hereof and prior to the Effective Time of the Merger.
1.12 No Further Ownership Rights in Company Capital Stock. Any and all Merger Consideration issued or paid in exchange of shares of Company Capital Stock in accordance with the terms hereof shall be deemed to have been issued in full satisfaction of all rights pertaining to such shares of Company Capital Stock, and there shall be no further registration of transfers on the records of the Company of shares of Company Capital Stock that were outstanding immediately prior to the Effective Time. If, after the Effective Time, Certificates are presented to the Surviving Corporation for any reason, they shall be canceled and exchanged as provided in this Article 1.
1.13 Lost, Stolen or Destroyed Certificates. In the event any Certificates shall have been lost, stolen or destroyed, the Exchange Agent shall issue in exchange for such lost, stolen or destroyed Certificates, upon the making of an affidavit of that fact by the holder thereof, the Merger Consideration and, if applicable, the dividends or distributions payable pursuant to Section 1.10(d) to which the holder of such shares of Company Capital Stock would be entitled under this Article 1; provided, however, that Parent may, in its discretion and as a condition precedent to the issuance thereof, require the owner of such lost, stolen or destroyed Certificates to provide an indemnity or deliver a bond in such sum as it may reasonably direct as indemnity against any claim that may be made against Parent with respect to the Certificates alleged to have been lost, stolen or destroyed.
1.14 Taking of Necessary Action; Further Action. If, at any time after the Effective Time, any further action is necessary or desirable to carry out the purposes of this Agreement or to vest the Surviving Corporation with full right and title to and possession of all assets, property, rights, privileges, powers and franchises of the Company, or to effect the assignment to the Surviving Corporation of any and all Company Intellectual Property created by a founder, employee or consultant of the Company, or to complete and prosecute all domestic and foreign patent filings related to such Company Intellectual Property, the officers and directors of the Surviving Corporation are fully authorized to take, and shall take, all such lawful and necessary or desirable action.
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1.15 Required Withholding. The Company, and on its behalf Parent and the Surviving Corporation, shall be entitled to deduct and withhold from any consideration payable or otherwise deliverable pursuant to this Agreement to any holder or former holder of Company Capital Stock such amounts as may be required to be deducted or withheld therefrom under the Code or under any provision of state, local or foreign tax law or under any other applicable legal requirement. To the extent such amounts are so deducted or withheld, such amounts shall be treated for all purposes under this Agreement as having been paid to the person to whom such amounts would otherwise have been paid.
1.16 No Liability. Notwithstanding anything to the contrary in this Article 1, neither the Parent, the Surviving Corporation, nor any party hereto shall be liable to a holder of shares of Parent Common Stock or Company Capital Stock for any amount properly paid to a public official pursuant to any applicable abandoned property, escheat or similar law.
ARTICLE 2
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
AND THE INDEMNIFYING OFFICERS
Subject to such exceptions as are disclosed in the disclosure schedule (which is arranged in sections corresponding to the numbered sections contained in this Article 2 and is dated the date hereof) supplied by the Company to Parent (the “Company Disclosure Schedule”), the Company represents and warrants to Parent and Sub, and each Indemnifying Officer represents and warrants to their knowledge to Parent and Sub, as of the date hereof and as of the Closing Date (except where the representation and warranty is expressly made as of another date, in which case such representation or warranty is made only as of such other date), as follows:
2.1 Organization and Qualification.
(a) The Company is a corporation duly organized, validly existing and in good standing under the laws of the state of California, and has full corporate power and authority to conduct its business as now conducted and as currently proposed to be conducted and to own, use, license and lease its Assets and Properties. The Company is duly qualified, licensed or admitted to do business and is in good standing as a foreign corporation in each jurisdiction in which the ownership, use, licensing or leasing of its Assets and Properties, or the conduct or nature of its business, makes such qualification, licensing or admission necessary, except for such failures to be so duly qualified, licensed or admitted and in good standing as would not, individually or in the aggregate, have a Material Adverse Effect on the Company. Section 2.1(a) of the Company Disclosure Schedule sets forth each jurisdiction where the Company is so qualified, licensed or admitted to do business and separately lists each other jurisdiction in which the Company owns, uses, licenses or leases its Assets and Properties, conducts business or has employees or engages independent contractors. The Company is not in violation of any of the provisions of its articles of
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incorporation and bylaws. Section 2.1(a) of the Company Disclosure Schedule lists all of the directors and officers of the Company.
(b) Except as indicated in Section 2.1(b) of the Company Disclosure Schedule, the operations now being conducted by the Company are not now and have never been conducted by the Company under any other name.
2.2 Authority Relative to this Agreement.
(a) Subject only to the requisite approval and adoption of this Agreement and approval of the principal terms of the Merger by the shareholders of the Company as described in Section 2.2(b) below, the Company has full corporate power and authority to execute and deliver this Agreement and the other agreements of which forms are attached as exhibits hereto (the “Ancillary Agreements”) to which the Company is a party, to perform its obligations hereunder and thereunder and to consummate the transactions contemplated hereby and thereby. The Company’s board of directors has unanimously approved this Agreement and the Ancillary Agreements to which the Company is a party. Subject only to the requisite approval and adoption of this Agreement and approval of the principal terms of the Merger by the shareholders of the Company as described in Section 2.2(b) below, the execution and delivery by the Company of this Agreement and the Ancillary Agreements to which the Company is a party, the consummation by the Company of the transactions contemplated hereby and thereby, and the performance by the Company of its obligations hereunder and thereunder have been duly and validly authorized by all necessary action of the Company and no further action is required on the part of the Company to authorize this Agreement or the Ancillary Agreements to which the Company is a party or the consummation of the transactions contemplated hereby or thereby. This Agreement and the Ancillary Agreements to which the Company is a party have been or will be, as applicable, duly and validly executed and delivered by the Company and, assuming the due authorization, execution and delivery by the other parties hereto and thereto, each constitutes or will upon such due execution and delivery constitute, as applicable, a legal, valid and binding obligation of the Company enforceable against the Company in accordance with its respective terms, except as the enforceability thereof may be limited by bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium or other similar Laws relating to the enforcement of creditors’ rights generally and by general principles of equity.
(b) The vote required of the holders of Company Capital Stock (the “Company Shareholders”) to duly approve the principal terms of this Agreement and the Merger and to satisfy all shareholder approval requirements under California Law and the Company’s articles of incorporation and bylaws with respect to this Agreement and the transactions contemplated hereby (or otherwise required to effect the transactions contemplated hereby) is (i) approval of holders of a majority of Company Common Stock, voting together as a single class, (ii) approval of holders of a majority of Company Preferred Stock, voting together as a single class, and (iii) approval of holders of a majority of the Series B Preferred Stock, voting together as a single class.
2.3 Capital Stock.
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(a) The authorized capital stock of the Company consists only of 40,000,000 shares of Common Stock, $0.001 par value per share (the “Company Common Stock”), of which 10,204,160 shares of Common Stock are issued and outstanding as of the date hereof, and 10,000,000 shares of Preferred Stock, $0.001 par value per share (the “Company Preferred Stock”). The designation and status of the Company Preferred Stock is as follows: (i) 500,000 shares are designated as Series A-1 Preferred Stock (the “Series A-1 Preferred Stock”), all of which are issued and outstanding as of the date hereof, (ii) 100,000 shares are designated as Series A-2 Preferred Stock (the “Series A-2 Preferred Stock”), all of which are issued and outstanding as of the date hereof, (iii) 360,000 shares are designated as Series A-3 Preferred Stock (the “Series A-3 Preferred Stock”), 205,000 of which are issued and outstanding as of the date hereof, and (iv) 2,536,232 shares are designated as Series B Preferred Stock (the “Series B Preferred Stock”), 1,975,756 shares of which are issued and outstanding as of the date hereof. All of the issued and outstanding shares of Company Common Stock and Company Preferred Stock are duly authorized and validly issued, fully paid and nonassessable, and have been issued in compliance with all applicable federal, state and foreign securities Laws. Each share of Company Preferred Stock is convertible into two shares of Company Common Stock. There are no declared or accrued but unpaid dividends with respect to any shares of Company Capital Stock. None of the outstanding shares of Company Capital Stock were issued in violation of any preemptive rights, right of first refusal or similar rights, the articles of incorporation or bylaws of the Company or any agreement to which the Company is a party or by which it is bound. Except as set forth in Section 2.3(a) of the Company Disclosure Schedule, no shares of Company Common Stock or Company Preferred Stock are held in treasury or are authorized or reserved for issuance.
(b) The Company Capital Stock is held of record, as of the date of this Agreement, by those persons with the addresses of record (as provided by such holder to the Company) and in the amounts set forth on Section 2.3(b) of the Company Disclosure Schedule, which schedule also sets forth (i) the share certificate numbers held by each holder and (ii) whether any shares of Company Capital Stock held by such shareholder are Restricted, the Vesting schedule for any such Restricted shares, including the extent to which any such Vesting has occurred as of the date of this Agreement and whether (and to what extent) the Vesting will be accelerated by the transactions contemplated by this Agreement.
(c) Except as set forth in Section 2.3(c) of the Company Disclosure Schedule, there are no outstanding Company Options, Company Warrants or other Equity Equivalents of the Company, or shares of Company Restricted Stock or Contracts, including Restricted Stock Purchase Agreements, to which the Company is a party (written or oral) to issue any shares of capital stock, Equity Equivalents or any other security with respect to the Company. With respect to each Company Option, Company Warrant, Restricted Stock Purchase Agreement or share of Company Restricted Stock or any other Contract or arrangement (written or oral) pursuant to which the Company is obligated to issue capital stock, Equity Equivalents or any other security, Section 2.3(c) of the Company Disclosure Schedule sets forth the holder or counter party thereof, the number and type of securities issuable thereunder, and, if applicable, the exercise price therefor, the exercise period and Vesting schedule thereof (including a description of the circumstances under which such Vesting schedule can or will be accelerated). Except for the Company Stock Plan, the Company has
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never adopted or maintained any stock option plan or other plan providing for equity compensation of any person. The Company has reserved 6,001,662 shares of Company Common Stock for issuance to employees and directors of, and consultants to, the Company upon the exercise of Options granted under the Company Stock Plan, of which (i) 4,229,726 shares are issuable, as of the date hereof, upon the exercise of outstanding, unexercised options granted under the Company Stock Plan, (ii) 4,160 shares have been issued, as of the date hereof, upon the exercise of options granted under the Company Stock Plan, and (iii) 1,767,776 shares remain available, as of the date hereof, for issuance of additional options under the Company Stock Plan. All of the Company Options and Company Warrants were issued in compliance with all applicable federal, state and foreign securities Laws.
(d) There are no Contracts of any character, written or oral, to which the Company is a party or by which it is bound obligating the Company to repurchase or redeem, or cause to be repurchased or redeemed, any shares of Company Capital Stock, or obligating the Company to grant, extend, accelerate the Vesting of, change the price of, otherwise amend or enter into any such option, warrant, call, right, commitment or agreement. There are no outstanding or authorized stock appreciation, phantom stock, profit participation, or other similar rights with respect to the Company.
(e) Except as set forth in Section 2.3(e) of the Company Disclosure Schedule, there are no preemptive rights or agreements, arrangements or understandings to issue preemptive rights with respect to the issuance or sale of Company Capital Stock created by statute, the articles of incorporation or bylaws of the Company, or any agreement or other arrangement to which the Company is a party (written or oral) or by which it is bound and there are no agreements, arrangements or understandings to which the Company is a party (written or oral) pursuant to which the Company has the right to elect to satisfy any Liabilities by issuing Company Capital Stock or Equity Equivalents.
(f) The terms of the Company Stock Plan and the applicable stock option agreements related to the outstanding Company Options permit the assumption or substitution of options to purchase Parent Common Stock as provided in this Agreement, without the consent or approval of the holders of such securities, action by the shareholders of the Company or otherwise and, except as set forth in Section 2.3(b) of the Company Disclosure Schedule, without any acceleration of the exercise schedules or Vesting provisions in effect for such Company Options. True and complete copies of all agreements and instruments relating to or issued under the Company Stock Plan, and any other security, Contract or instrument required to be disclosed in Section 2.3(c) of the Company Disclosure Schedule, have been provided to Parent and such agreements and instruments have not been amended, modified or supplemented, and there are no agreements to amend, modify or supplement such agreements or instruments from the forms thereof provided to Parent.
(g) Except for the Voting Agreements and as set forth in Section 2.3(g) of the Company Disclosure Schedule, the Company is not a party or subject to any agreement or understanding, and, to the Company’s knowledge, there is no agreement, arrangement or
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understanding between or among any Persons which affects, restricts or relates to voting or giving of written consents with respect to the Company Capital Stock, including any voting trust agreement or proxy. Except as set forth in Section 2.3(g) of the Company Disclosure Schedule, no debt securities of the Company are issued and outstanding.
(h) Except as set forth in Section 2.3(h) of the Company Disclosure Schedule, there are no registration rights or other Contracts to which the Company is a party or by which the Company is bound with respect to the registration under federal or state securities laws of any issuance or transfer of any equity security of any class of the Company.
2.4 Subsidiaries. The Company does not have any Subsidiaries and does not otherwise own any shares of capital stock or any interest in (or any interest convertible, exchangeable or exercisable for any such interest), or control, directly or indirectly, any other corporation, partnership, association, joint venture or other business entity. The Company has not agreed and is not obligated to make any future investment in or capital contribution to any Person.
2.5 No Conflicts. The execution and delivery by the Company of this Agreement and the Ancillary Agreements to which the Company is a party, and the consummation of the transactions contemplated hereby and thereby, will not (with or without notice or lapse of time, or both) conflict with or result in any violation of or default under or give rise to a right of termination, cancellation, modification or acceleration of any obligation or loss of any benefit (any such event, a “Conflict”) under (i) any provision of the articles of incorporation or bylaws of the Company, (ii) any Contract to which the Company or any of its properties or assets (including intangible assets), is subject (each, a “Company Contract,” and collectively, the “Company Contracts”), or (iii) any Legal Requirement applicable to the Company or any of its properties (tangible and intangible) or assets except, in the case of (ii) above, for such Conflicts as are not individually or in the aggregate material. Section 2.5 of the Company Disclosure Schedule lists all necessary consents, waivers and Approvals of parties to any Company Contract as are required thereunder in connection with the Merger, or for any such Company Contract to remain in full force and effect without limitation, modification or alteration after the Effective Time (“Third-Party Consents”). The Company has obtained, or will obtain prior to the Effective Time, all Third-Party Consents. Following the Effective Time, the Surviving Corporation will be permitted to exercise all of its rights under the Company Contracts without the payment of any additional amounts or consideration other than ongoing fees, royalties or payments which the Company would otherwise be required to pay pursuant to the terms of such Company Contracts had the transactions contemplated by this Agreement not occurred.
2.6 Books and Records; Organizational Documents.
(a) The books, records and accounts of the Company delivered to Parent for inspection are true, complete and correct in all material respects.
(b) The Company has devised and maintains a system of internal accounting controls sufficient to provide reasonable assurances that: (i) transactions are executed in accordance with management’s general or specific authorization; (ii) transactions are recorded as necessary (A) to permit preparation of financial statements in conformity with GAAP or any other criteria
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applicable to such statements, and (B) to maintain accountability for assets; and (iii) the amounts recorded for assets and liabilities on the books and records of the Company are in accordance with GAAP.
(c) The Company has delivered to Parent or its counsel for examination the following: (a) copies of the articles of incorporation and bylaws of the Company as currently in effect; (b) all written records of all proceedings, consents, actions, and meetings of the shareholders, board of directors and any committees thereof of the Company; (c) stock ledger and journal reflecting all stock issuances and transfers of the Company; and (d) all Permits from Governmental Authorities issued to the Company by, and filings by the Company with, any regulatory agency, and all applications for such permits, orders, and consents. The written records of all proceedings, consents, actions, and meetings of the shareholders, board of directors and any committees thereof of the Company made available to counsel for Parent are the only minutes of the Company and contain accurate summaries of all meetings or actions by written consent of the Board of Directors (or committees thereof) of the Company and its shareholders since the time of incorporation of the Company.
2.7 Consents. No consent, waiver, Approval, order or authorization of, or registration, declaration or filing with any Governmental Authority or any third party, including a party to any agreement with the Company (so as not to trigger any Conflict), is required by or with respect to the Company in connection with the execution and delivery of this Agreement and any Ancillary Agreement to which the Company is a party or the consummation of the transactions contemplated hereby and thereby, except for (i) such consents, waivers, Approvals, orders authorizations registrations, declarations and filings the lack of which, individually or in the aggregate, would not constitute a Material Adverse Effect and (ii) the filing of the California Agreement of Merger with the Secretary of State of the State of California.
2.8 Company Financials. Section 2.8(a) of the Company Disclosure Schedule sets forth the Company Financials. The Company Financials (including the notes thereto) have been prepared in accordance with GAAP applied on a consistent basis throughout the periods indicated therein and present fairly in all material respects the financial position and operating results of the Company as of the dates and during the periods indicated therein, subject, in the case of the Company Interim Financial Statements, to normal year-end adjustments, which adjustments will not be material in amount or significance and except that the Company Interim Financial Statements and the unaudited December 31, 2002 financial statements may not contain footnotes. The Company Financials are correct and complete in all material respects and except as set forth in Section 2.8 of the Company Disclosure Schedule, there has been no material change in any accounting policies, principles, methods or practices of the Company, including any change with respect to reserves (whether for bad debts, contingent liabilities or otherwise), since its inception. The Company’s unaudited consolidated balance sheet as of February 28, 2003 is referred to herein as the “Current Balance Sheet.”
2.9 No Undisclosed Liabilities. Except as reflected or reserved against in the Company Financials (including the notes thereto) or as disclosed in Section 2.9 of the Company Disclosure
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Schedule, there are no Liabilities of, relating to or affecting the Company or any of its Assets and Properties, other than Liabilities incurred (a) in the ordinary course of business consistent with past practice since the date of the Current Balance Sheet which, individually and in the aggregate, are not material to the business or condition of the Company or (b) in connection with and in accordance with the provisions of this Agreement.
2.10 Absence of Changes. Since December 31, 2002, except as set forth in Section 2.10 of the Company Disclosure Schedule:
(a) the Company has not entered into any Contract, commitment or transaction or incurred any Liabilities other than in the ordinary course of business consistent with past practice;
(b) the Company has not acquired an interest in or made any capital investment in, altered or entered into any Contract or other commitment to alter its interest in, any corporation, association, joint venture, partnership or business entity in which the Company directly or indirectly holds any interest;
(c) the Company has not entered into any strategic alliance, joint development or joint marketing Contract;
(d) there has not been any material amendment or other material modification (or agreement to do so) or violation of the terms of, any of the Contracts set forth or described in the Company Disclosure Schedule, except as described therein;
(e) the Company has not entered into any transaction with any officer, director, shareholder, Affiliate or Associate of the Company, other than pursuant to any Contract in effect as of the date of the Current Balance Sheet and disclosed to Parent and identified on the Company Disclosure Schedule.
(f) the Company has not entered into or amended any Contract pursuant to which any other Person is granted manufacturing, marketing, distribution, licensing or similar rights of any type or scope with respect to any products of the Company or Company Intellectual Property, other than any such Contracts and licenses (or amendments thereto) disclosed in the Company Disclosure Schedule;
(g) no Action or Proceeding has been commenced or, to the knowledge of the Company, threatened by or against the Company and no Action or Proceeding has been settled or compromised by the Company;
(h) the Company has not declared, set aside or paid any dividends on or made any other distributions (whether in cash, stock or property) in respect of any Company Capital Stock or Equity Equivalents, or effected or approved any split, combination or reclassification of any Company Capital Stock or Equity Equivalents, or issued or authorized the issuance of any other securities in respect of, in lieu of or in substitution for shares of Company Capital Stock or Equity Equivalents, or repurchased, redeemed or otherwise acquired, directly or indirectly, any shares of
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Company Capital Stock or Equity Equivalents, except for repurchases of Company Capital Stock pursuant to agreements with Company employees, officers, directors and consultants relating to repurchases at cost upon termination of service with the Company;
(i) except for the issuance of shares of Company Capital Stock upon exercise or conversion of options, warrants, or preferred stock listed in Section 2.3(c) of the Company Disclosure Schedule, (A) the Company has not issued, granted, delivered, sold or authorized or proposed to issue, grant, deliver or sell, or purchased or proposed to purchase, any shares of Company Capital Stock or Equity Equivalents, (B) the Company has not modified or amended the rights of any holder of any outstanding shares of Company Capital Stock or Equity Equivalents (including to reduce or alter the consideration to be paid to the Company upon the exercise of any outstanding options, warrants, stock purchase rights or other Equity Equivalents); and (C) the Company has not granted any options with an exercise price of less than the fair market value of the Company’s Common Stock on the date the option was granted.
(j) there has not been any amendment to the articles of incorporation or bylaws of the Company;
(k) there has not been any transfer (by way of a license or otherwise) to any Person of rights to any Intellectual Property other than non-exclusive licenses (to object code only) with the Company’s customers in the ordinary course of business consistent with past practice;
(l) the Company has not made or agreed to make any disposition or sale, license or lease of, or incurrence of any Lien in an amount exceeding $50,000 individually or $100,000 in the aggregate, on, any Assets and Properties, other than sales of products or services, or grants of nonexclusive licenses (to object code only) of products, to customers in the ordinary course of business consistent with past practice;
(m) the Company has not made or agreed to make any purchase of any Assets and Properties of any Person other than (i) acquisitions of inventory, or licenses of products, in the ordinary course of business consistent with past practice and (ii) other acquisitions in an amount not exceeding $50,000 in the case of any individual item or $100,000 in the aggregate;
(n) the Company has not made or agreed to make any capital expenditures or commitments for additions to property, plant or equipment constituting capital assets individually or in the aggregate in an amount exceeding $50,000;
(o) the Company has not made or agreed to make any write-off or write-down, or any determination to write off or write-down, or revalue, any of its Assets and Properties, or change any reserves or liabilities associated therewith in an amount exceeding $50,000;
(p) the Company has not made or agreed to make payment, discharge or satisfaction, in an amount in excess of $50,000 in any one case, or $100,000 in the aggregate, of any claim, Liability or obligation (whether absolute, accrued, asserted or unasserted, contingent or
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otherwise), other than the payment, discharge or satisfaction in the ordinary course of business of Liabilities reflected or reserved against in the Company Financials;
(q) the Company has not failed to pay or otherwise satisfy any Liabilities when due and payable, except such Liabilities which are being contested in good faith by appropriate means or procedures and which, individually and in the aggregate, are immaterial in amount;
(r) the Company has not created, incurred, assumed or guaranteed any Indebtedness in an aggregate amount exceeding $50,000, or issued or sold any debt securities, or extended or otherwise modified the terms of any Indebtedness;
(s) the Company has not granted or approved (i) any severance or termination pay to, (ii) any increase of greater than five percent (5%) in salary, rate of commissions, rate of consulting fees or any other compensation of, (iii) the payment of any consideration of any nature whatsoever (other than salary, commissions or consulting fees and customary benefits paid to any current or former officer, director, shareholder, employee or consultant) to, (iv) any loan or extension of credit to, or (v) any discretionary or stay bonus to, any director, current or former officer, employee, shareholder or consultant, except payments made pursuant to written Contracts outstanding on the date hereof, copies of which have been delivered to Parent and which are disclosed in Section 2.10(s) of the Company Disclosure Schedule;
(t) the Company has not adopted, entered into, amended, modified or terminated (partially or completely) any Employee Plan;
(u) there has been no filed claim or written notice to the Company of wrongful discharge or other unlawful labor practice or action with respect to the Company;
(v) the Company has not made or changed any material election in respect of Taxes, adopted or changed any accounting method in respect of Taxes, entered into any tax allocation agreement, Tax sharing agreement, Tax indemnity agreement or closing agreement, settlement or compromise of any claim or assessment in respect of Taxes, nor has it consented to any extension or waiver of the statute of limitations period applicable to any claim or assessment in respect of Taxes;
(w) the Company has not made any change in accounting policies, principles, methods, practices or procedures;
(x) the Company has not failed to renew any insurance policy; no insurance policy of the Company has been cancelled or materially amended; and the Company has given all notices and presented all claims (if any) under all such policies in a timely fashion;
(y) there has been no material amendment or non-renewal of any Approvals, and the Company has used commercially reasonable efforts to maintain such Approvals and has observed in all material respects all Laws and Orders applicable to the business or Assets and Properties of the Company;
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(z) the Company has used commercially reasonable efforts to prosecute applications for its Registered Intellectual Property Rights, and has submitted all required documents and fees during the prosecution thereof;
(aa) there has been no physical damage, destruction or other casualty loss (whether or not covered by insurance) affecting any of the real or personal property or equipment of the Company individually or in the aggregate in an amount exceeding $50,000, other than ordinary wear and tear;
(bb) no event or condition of any character has occurred that has had or is reasonably likely to have a Material Adverse Effect on the Company;
(cc) the Company has not waived or released any material right or claim of the Company, including any write-off or other compromise of any material account receivable of the Company;
(dd) the Company has not entered into any employment Contract, or modified the terms of any existing such Contract;
(ee) the Company has not suffered any adverse change or any threat of any adverse change in its relations with, or any loss or threat of loss of, any of its licensors, distributors, suppliers or other business partners except for such changes or losses and threatened changes or losses (assuming for this purpose that such threats are realized) as would not individually or in the aggregate have or be reasonably expected to have a Material Adverse Effect; and
(ff) the Company has not entered into or approved any contract, arrangement or understanding or acquiesced in respect of any arrangement or understanding, to do, engage in or cause or having the effect of any of the foregoing items described in the preceding clauses (a) through (ee) of this Section 2.10.
2.11 Taxes.
(a) Definition of Taxes. For the purposes of this Agreement, the term “Tax” or, collectively, “Taxes” shall mean (i) any and all federal, state, local and foreign taxes, assessments and other governmental charges, duties, impositions and Liabilities, including taxes based upon or measured by gross receipts, income, profits, sales, use and occupation, and value added, ad valorem, transfer, franchise, withholding, payroll, recapture, employment, excise and property taxes as well as public imposts, fees and social security charges (including but not limited to health, unemployment, workers’ compensation and pension insurance), together with all interest, penalties and additions imposed with respect to such amounts, (ii) any liability for the payment of any amounts of the type described in clause (i) of this Section 2.11(a) as a result of being a member of an affiliated, consolidated, combined or unitary group for any period, and (iii) any liability for the payment of any amounts of the type described in clauses (i) or (ii) of this Section 2.11(a) as a result of any express or implied obligation to indemnify any other person or as a result of any obligation under any
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agreement or arrangement with any other person with respect to such amounts and including any liability for taxes of a predecessor entity.
(b) Tax Returns and Audits.
(i) The Company has prepared and timely filed all required federal, state, local and foreign returns, estimates, information statements and reports (“Returns”) relating to any and all material Taxes concerning or attributable to the Company or its operations and such Returns are true and correct in all material respects and have been completed in accordance with applicable law.
(ii) The Company has timely paid all material Taxes it is required to pay and has timely paid or withheld with respect to its Employees all federal, state and foreign income taxes and social security charges and similar fees, Federal Insurance Contribution Act, Federal Unemployment Tax Act and other Taxes required to be paid or withheld.
(iii) The Company has not been delinquent in the payment of any Tax, nor is there any Tax deficiency outstanding, assessed or proposed against the Company, nor has the Company executed any waiver of any statute of limitations on or extending the period for the assessment or collection of any Tax.
(iv) No audit or other examination of any Return of the Company is presently in progress, nor has the Company been notified of any request for such an audit or other examination.
(v) As of the date of the Current Balance Sheet, the Company did not have any Liabilities for unpaid Taxes which have not been accrued or reserved on the Current Balance Sheet, whether asserted or unasserted, contingent or otherwise, and the Company has not incurred any liability for Taxes since the date of the Current Balance Sheet other than in the ordinary course of business.
(vi) The Company has made available to Parent or its legal counsel, copies of all foreign, federal, state and local income and all state and local sales and use Returns for the Company filed for all periods since its inception.
(vii) There are (and immediately following the Effective Time there will be) no liens, pledges, charges, claims, restrictions on transfer, mortgages, security interests or other encumbrances of any sort (collectively, “Liens”) on the assets of the Company relating to or attributable to Taxes, other than Liens for Taxes not yet due and payable. The Company does not have knowledge of any basis for the assertion of any claim relating or attributable to Taxes, which, if adversely determined, would result in any Lien on the assets of the Company.
(viii) The Company does not treat any of its assets as “tax-exempt use property,” within the meaning of Section 168(h) of the Code.
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(ix) The Company has not filed any consent agreement under Section 341(f) of the Code or agreed to have Section 341(f)(2) of the Code apply to any disposition of a subsection (f) asset (as defined in Section 341(f)(4) of the Code) owned by the Company.
(x) The Company has (a) never been a member of an affiliated group (within the meaning of Code §1504(a)) filing a consolidated federal income Tax Return (other than a group the common parent of which was Company), (b) never been a party to any Tax sharing, indemnification or allocation agreement, nor does the Company owe any amount under any such agreement (c) no liability for the Taxes of any person under Treas. Reg. § 1.1502-6 (or any similar provision of state, local or foreign law), as a transferee or successor, by contract, or otherwise and (d) never been a party to any joint venture, partnership or other agreement that could be treated as a partnership for Tax purposes.
(xi) The Company is not and has not been at any time, a “United States Real Property Holding Corporation” within the meaning of Section 897(c)(2) of the Code.
(xii) No adjustment relating to any Return filed by the Company has been proposed formally or, to the Knowledge of the Company, informally by any tax authority to the Company or any representative thereof.
(xiii) The Company has not constituted either a “distributing corporation” or a “controlled corporation” in a distribution of stock intended to qualify for tax-free treatment under Section 355 of the Code (x) in the two years prior to the date of this Agreement or (y) in a distribution which could otherwise constitute part of a “plan” or “series of related transactions” (within the meaning of Section 355(e) of the Code) in conjunction with the Merger.
(c) Executive Compensation Tax. There is no contract, agreement, plan or arrangement to which the Company is a party, including, without limitation, the provisions of this Agreement, covering any employee or former employee of the Company, which, individually or collectively, could give rise to the payment of any amount that would not be deductible pursuant to Sections 280G, 404 or 162(m) of the Code.
2.12 Restrictions on Business Activities. Except as set forth on Section 2.12 of the Company Disclosure Schedule, there is no Contract or Legal Requirement to which the Company is a party or otherwise binding upon the Company which has or may reasonably be expected to have the effect of prohibiting or impairing any business practice of the Company, any acquisition of property (tangible or intangible) by the Company, the conduct of business by the Company as currently conducted or proposed to be conducted or otherwise limiting the freedom of the Company to engage in any line of business or to compete with any person. Except as set forth on Section 2.12 of the Company Disclosure Schedule, without limiting the generality of the foregoing, the Company has not entered into any agreement under which the Company is restricted from selling, licensing or otherwise distributing any of its technology or products or from providing services to customers or potential customers or any class of customers, in any geographic area, during any period of time, or in any segment of the market, and the Company has not granted any “most favored party” terms in any Contract.
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2.13 Legal Proceedings.
(a) Except as set forth in Section 2.13 of the Company Disclosure Schedule:
(i) there are, and since the inception of the Company have been, no pending Actions or Proceedings against or relating to the Company, any of its Assets and Properties or any of the Company’s officers or directors in such capacities;
(ii) to the knowledge of the Company, there are, and since December 31, 2001 there have been, no Actions or Proceedings overtly threatened against or relating to the Company, any of its Assets and Properties or any of the Company’s officers or directors in such capacities;
(iii) there are no facts or circumstances known to the Company that would reasonably be expected to give rise to any Action or Proceeding against or relating to the Company, any of its Assets and Properties or any of the Company’s officers or directors in such capacities which Action or Proceeding would, if determined against the Company, result in material damages, costs or expenses;
(iv) the Company has no knowledge of facts or circumstances that constitute reasonable grounds to believe that any Governmental Authority intends to conduct an Action or Proceeding; and
(v) the Company has not received notice or otherwise has knowledge of any Orders outstanding or threatened against the Company.
(b) Prior to the execution of this Agreement, the Company has delivered to Parent all responses of counsel for the Company to auditors’ requests for information (together with any updates provided by such counsel) regarding Actions or Proceedings pending or threatened against, relating to or affecting the Company.
2.14 Compliance with Laws, Orders, Approvals and Contracts.
(a) The Company has not violated, and is not currently in default or violation under, any Legal Requirement or Approval applicable to the Company or any of its Assets and Properties, except for such defaults or violations which are not, individually or in the aggregate, material and the Company has no knowledge of any claim of violation, or of any actual violation, of any such Legal Requirement or Approval by the Company.
(b) The Company is in compliance with and has not breached, violated or defaulted under, or received notice that it has breached, violated or defaulted under, any of the terms or conditions of any Company Contract, nor is the Company aware of any event that would constitute such a breach, violation or default with the lapse of time, giving of notice or both, except for such breaches, violations and defaults (including breaches, violations and defaults that would arise upon lapse of time following, and/or notice of, such events) which are not, individually or in
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the aggregate, material. Each Company Contract is in full force and effect and the Company is not subject to any default thereunder. To the knowledge of the Company, no party obligated to the Company pursuant to any such Company Contract is subject to any default thereunder.
2.15 Employee Matters and Benefit Plans.
(a) Definitions. With the exception of the definition of “Affiliate” set forth in Section 2.15(a)(i) below (which definition shall apply only to this Section 2.15), for purposes of this Agreement, the following terms shall have the meanings set forth below:
(i) “Affiliate” shall mean any other person or entity under common control with the Company within the meaning of Section 414(b), (c), (m) or (o) of the Code and the regulations issued thereunder;
(ii) COBRA” shall mean the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended;
(iii) “DOL” shall mean the United States Department of Labor;
(iv) “Employee” shall mean any current or former or retired employee, consultant or director of the Company or any Affiliate;
(v) “Employment Agreement” shall mean each management, employment, severance, consulting, relocation, repatriation, expatriation, visa, work permit or other agreement, contract or understanding between the Company or any Affiliate and any Employee;
(vi) “Employee Plan” shall mean any plan, program, policy, practice, contract, agreement or other arrangement providing for compensation, severance, termination pay, deferred compensation, performance awards, stock or stock-related awards, fringe benefits or other employee benefits or remuneration of any kind, whether written or unwritten or otherwise, funded or unfunded, including without limitation, each “employee benefit plan,” within the meaning of Section 3(3) of ERISA which is or has been maintained, contributed to, or required to be contributed to, by a company or any Affiliate of such company for the benefit of any Employee, or with respect to which the company or any Affiliate of the company has or may have any liability or obligation;
(vii) “ERISA” shall mean the Employee Retirement Income Security Act of 1974, as amended;
(viii) “FMLA” shall mean the Family Medical Leave Act of 1993, as amended;
(ix) “HIPAA” shall mean the Health Insurance Portability and Accountability Act of 1996, as amended;
(x) “IRS” shall mean the Internal Revenue Service;
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(xi) “Multiemployer Plan” shall mean any “Pension Plan” (as defined below) which is a “multiemployer plan,” as defined in Section 3(37) of ERISA;
(xii) “PBGC” shall mean the United States Pension Benefit Guaranty Corporation;
(xiii) “Pension Plan” shall mean each Employee Plan of the Company that is an “employee pension benefit plan,” within the meaning of Section 3(2) of ERISA.
(b) Schedule. Section 2.15(b) of the Company Disclosure Schedule contains an accurate and complete list of each Employee Plan and each Employment Agreement. Neither the Company, nor any Affiliate has, any plan or commitment to establish any new Employee Plan or Employment Agreement, to modify any Employee Plan or Employment Agreement (except to the extent required by law or to conform any such Employee Plan or Employment Agreement to the requirements of any applicable law, or as required by this Agreement), or to adopt or enter into any Employee Plan or Employment Agreement. Section 2.15(b) of the Company Disclosure Schedule also sets forth a table setting forth the name and salary of each employee of the Company.
(c) Documents. The Company has provided to Parent correct and complete copies of: (i) all documents embodying each Employee Plan and each Employment Agreement including (without limitation) all amendments thereto and all related trust documents, administrative service agreements, group annuity contracts, group insurance contracts, and policies pertaining to fiduciary liability insurance covering the fiduciaries for each Plan; (ii) the most recent annual actuarial valuations, if any, prepared for each Employee Plan; (iii) the three (3) most recent annual reports (Form Series 5500 and all schedules and financial statements attached thereto), if any, required under ERISA or the Code in connection with each Employee Plan; (iv) if the Employee Plan is funded, the most recent annual and periodic accounting of Employee Plan assets; (v) the most recent summary plan description together with the summary(ies) of material modifications thereto, if any, required under ERISA with respect to each Employee Plan; (vi) all IRS determination, opinion, notification and advisory letters, and all applications and correspondence to or from the IRS or the DOL with respect to any such application or letter; (vii) all communications material to any Employee or Employees relating to any Employee Plan and any proposed Employee Plans, in each case, relating to any amendments, terminations, establishments, increases or decreases in benefits, acceleration of payments or vesting schedules or other events which would result in any material liability to the Company; (viii) all correspondence to or from any governmental agency relating to any Employee Plan; (ix) all COBRA forms and related notices (or such forms and notices as required under comparable law); (x) the three (3) most recent plan years discrimination tests for each Employee Plan; and (xi) all registration statements, annual reports (Form 11-K and all attachments thereto) and prospectuses prepared in connection with each Employee Plan.
(d) Employee Plan Compliance. Except as set forth on Section 2.15(d) of the Company Disclosure Schedule, the Company and its Affiliates have performed in all material respects all obligations required to be performed by it under, is not in default or violation of, and have no knowledge of any default or violation by any other party to each Employee Plan, and each Employee Plan has been established and maintained in all material respects in accordance with its
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| terms and in compliance with all applicable laws, statutes, orders, rules and regulations, including but not limited to ERISA or the Code. Any Employee Plan intended to qualify under Section 401(a) of the Code and each trust intended to qualify under Section 501(a) of the Code has (i) either applied for, prior to the expiration of the requisite period under applicable Treasury Regulations or IRS pronouncements, or obtained a favorable determination, notification, advisory and/or opinion letter, as applicable, as to its qualified status from the IRS or still has a remaining period of time under applicable Treasury Regulations or IRS pronouncements in which to apply for such letter and to make any amendments necessary to obtain a favorable determination, and (ii) incorporates or has been amended to incorporate all provisions required to have been adopted to comply with the Tax Reform Act of 1986 and subsequent legislation. For each Company Employee Plan that is intended to be qualified under Section 401(a) of the Code there has been no event, condition or circumstance that has adversely affected or is likely to adversely affect such qualified status. To the knowledge of the Company, no “prohibited transaction,” within the meaning of Section 4975 of the Code or Sections 406 and 407 of ERISA, and not otherwise exempt under Section 408 of ERISA (or any administrative class exemption issued thereunder), has occurred with respect to any Employee Plan. There are no actions, suits or claims pending, or, to the knowledge of the Company, threatened or reasonably anticipated (other than routine claims for benefits) against any Employee Plan or against the assets of any Employee Plan. Each Employee Plan can be amended, terminated or otherwise discontinued after the Effective Time, without liability to Parent, the Company or any of its Affiliates. There are no audits, inquiries or proceedings pending or, to the knowledge of the Company or any Affiliates, threatened by the IRS, the DOL or any other Governmental Authority with respect to any Employee Plan. Neither the Company nor any Affiliate is subject to any penalty or tax with respect to any Employee Plan under Section 502(i) of ERISA or Sections 4975 through 4980 of the Code. The Company and each Affiliate have timely made all contributions and other payments required by and due under the terms of each Employee Plan. |
(e) Pension Plan. Neither the Company nor any Affiliate has ever maintained, established, sponsored, participated in, or contributed to, any Pension Plan which is subject to Title IV of ERISA or Section 412 of the Code.
(f) Collectively Bargained, Multiemployer and Multiple Employer Plans. At no time has the Company or any Affiliate contributed to or been obligated to contribute to any Multiemployer Plan. Neither the Company nor any Affiliate has at any time ever maintained, established, sponsored, participated in, or contributed to any multiple employer plan, or to any plan described in Section 413 or 419 of the Code.
(g) No Post-Employment Obligations. Except as set forth in Section 2.15(g) of the Company Disclosure Schedule, no Employee Plan provides, or reflects or represents any liability to provide post-termination or retiree welfare benefits to any person for any reason, except as may be required by COBRA or other applicable statute, and neither the Company nor any Affiliate has ever represented, promised or contracted (whether in oral or written form) to any Employee (either individually or to Employees as a group) or any other person that such Employee(s) or other person would be provided with post-termination or retiree welfare benefits, except to the extent required by statute.
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