EXHIBIT 2
STOCK ACQUISITION AGREEMENT
between
ASCEND COMMUNICATIONS, INC.,
a Delaware corporation,
and
PSINET INC.,
a New York corporation,
with respect to all outstanding capital stock of
InterCon SYSTEMS CORPORATION,
a Delaware corporation and a wholly-owned
subsidiary of PsiNet Inc.
Dated as of February 1, 1997
TABLE OF CONTENTS
PAGE
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ARTICLE I PURCHASE AND SALE OF SECURITIES...................................................................... 1
1.1 Acquisition of Stock................................................................................ 1
1.2 Consideration....................................................................................... 1
1.3 Closing............................................................................................. 1
ARTICLE II REPRESENTATIONS AND WARRANTIES OF PSI............................................................... 2
2.1 Organization, Standing and Power; Qualification; Subsidiaries....................................... 2
2.2 InterCon Capital Structure.......................................................................... 2
2.3 Authority........................................................................................... 3
2.4 Financial Statements................................................................................ 4
2.5 Absence of Undisclosed Liabilities.................................................................. 4
2.6 Accounts Receivable................................................................................. 4
2.7 Inventory........................................................................................... 5
2.8 Absence of Certain Changes or Events................................................................ 5
2.9 Taxes............................................................................................... 6
2.10 Tangible Assets and Real Property................................................................... 8
2.11 Intellectual Property............................................................................... 9
2.12 Bank Accounts....................................................................................... 10
2.13 Contracts........................................................................................... 10
2.14 Labor Difficulties.................................................................................. 11
2.15 Trade Regulation.................................................................................... 12
2.16 Environmental Matters............................................................................... 12
2.17 Employee Benefit Plans.............................................................................. 12
2.18 Compliance with Laws................................................................................ 13
2.19 Employees and Consultants........................................................................... 13
2.20 Litigation.......................................................................................... 13
2.21 Restrictions on Business Activities................................................................. 13
2.22 Governmental Authorization.......................................................................... 13
2.23 Insurance........................................................................................... 13
2.24 No Brokers.......................................................................................... 14
2.25 No Misrepresentation................................................................................ 14
ARTICLE III REPRESENTATIONS AND WARRANTIES OF ASCEND........................................................... 14
3.1 Organization........................................................................................ 14
3.2 Authority........................................................................................... 14
3.3 Investment Representations.......................................................................... 15
ARTICLE IV ADDITIONAL AGREEMENTS............................................................................... 15
4.1 Public Disclosure................................................................................... 15
4.2 Confidentiality..................................................................................... 15
4.3 Section 338 Elections............................................................................... 16
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4.4 Tax Matters and Post-Closing Cooperation............................................................ 16
4.5 Additional Agreements; Reasonable Efforts........................................................... 17
4.6 Transition Services................................................................................. 18
4.7 Expenses............................................................................................ 18
ARTICLE V CONDITIONS TO ACQUISITION............................................................................ 18
5.1 Conditions to Each Party's Obligation to Effect the Acquisition..................................... 18
5.2 Additional Conditions to Obligations of Ascend...................................................... 19
5.3 Additional Conditions to Obligations of PSI......................................................... 19
ARTICLE VI AMENDMENT........................................................................................... 20
6.1 Amendment........................................................................................... 20
ARTICLE VII INDEMNIFICATION.................................................................................... 20
7.1 Survival of Representations and Warranties.......................................................... 20
7.2 Indemnification..................................................................................... 21
7.3 Procedures for Indemnification...................................................................... 22
7.4 Defense of Third Party Claims....................................................................... 23
7.5 Settlement of Third Party Claims.................................................................... 23
ARTICLE VIII GENERAL PROVISIONS................................................................................ 24
8.1 Notices............................................................................................. 24
8.2 Interpretation...................................................................................... 25
8.3 Counterparts........................................................................................ 25
8.4 Severability........................................................................................ 25
8.5 Nonsurvival of Representations, Warranties and Agreements........................................... 25
8.6 Entire Agreement.................................................................................... 26
8.7 Governing Law....................................................................................... 26
8.8 Assignment.......................................................................................... 26
8.9 Third Party Beneficiary............................................................................. 26
8.10 Arbitration......................................................................................... 26
EXHIBIT A--OPINION OF PSI COUNSEL
EXHIBIT B--DISTRIBUTION AGREEMENT BETWEEN PSI AND INTERCON
EXHIBIT C--OPINION OF ASCEND COUNSEL
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STOCK ACQUISITION AGREEMENT
This STOCK ACQUISITION AGREEMENT (the "Agreement") is made and entered into
as of February 1, 1997 by and among Ascend Communications, Inc., a Delaware
corporation ("Ascend") and PsiNet Inc., a New York corporation ("PSI").
RECITALS
A. PSI owns 200 shares of common stock of InterCon Systems Corporation, a
Delaware corporation ("InterCon"), which constitutes all issued and outstanding
shares of capital stock of InterCon (such shares hereinafter referred to as the
"InterCon Stock"); and
B. PSI desires to sell, and Ascend desires to purchase, the InterCon Stock,
on the terms and subject to the conditions set forth in this Agreement (the
"Acquisition").
NOW, THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants and agreements set forth below, the
parties agrees as follows:
ARTICLE I
PURCHASE AND SALE OF SECURITIES
1.1 Acquisition of Stock. Subject to the terms and conditions hereof, at
the Closing (as hereinafter defined), PSI will sell to Ascend, and Ascend
will purchase from PSI, all right, title and interest of PSI in the InterCon
Stock.
1.2 Consideration. The aggregate acquisition consideration (the
"Acquisition Consideration") for the InterCon Stock shall be $12,000,000,
payable by Ascend in immediately available United States funds via wire
transfer at the Closing.
1.3 Closing. The closing of the Acquisition (the "Closing") will take
place at 8:00 a.m., California time, on the date of this Agreement (the
"Closing Date"), at the offices of Xxxx Xxxx Xxxx & Freidenrich, A
Professional Corporation, 000 Xxxxxxxx Xxxxxx, Xxxx Xxxx, XX 00000, or at
such other time and place as PSI and Ascend mutually agree. At the Closing
or, if acceptable to PSI, within thirteen (13) days thereafter, Ascend will
pay the Acquisition Consideration by wire transfer of immediately available
funds to such account as PSI may reasonably direct by written notice
delivered to Ascend by PSI at least one (1) business day before the Closing
Date (payment after the Closing will be deemed to have been made as of the
Closing Date). At the Closing, PSI will assign and transfer to Purchaser all
of PSI's right, title
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and interest in and to the InterCon Stock by delivering to Ascend a
certificate or certificates representing the InterCon Stock, in genuine and
unaltered form, duly endorsed in blank or accompanied by duly executed stock
powers endorsed in blank, with requisite stock transfer tax stamps, if any,
attached. At the Closing, there shall also be delivered to Ascend and PSI the
opinions, certificates and other contracts, documents and instruments to be
delivered in connection with the Agreement.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF PSI
Except as set forth in the disclosure schedule delivered by PSI to Ascend on
or before the date of this Agreement and attached hereto (the "InterCon
Disclosure Schedule"), PSI represents and warrants to Ascend as follows:
2.1 Organization, Standing and Power; Qualification; Subsidiaries.
(a) PSI is a corporation duly organized, validly existing and in good
standing under the laws of the State of New York.
(b) InterCon is a corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware; has all requisite corporate
power to own, lease and operate its properties and to carry on its business as
currently being conducted; is duly qualified to do business and is in good
standing in each jurisdiction in which the failure to be so qualified and in
good standing would have a material adverse effect on the business, assets
(including intangible assets), properties, liabilities (contingent or
otherwise), financial condition, operations, or results of operation (a
"Material Adverse Effect") of InterCon; and InterCon does not directly or
indirectly own any equity or similar interest in, or any interest convertible or
exchangeable or exercisable for any equity or similar interest in, any
corporation, partnership, joint venture or other business association or entity.
InterCon is not in violation of any of the provisions of its Certificate of
Incorporation or Bylaws.
2.2 InterCon Capital Structure.
(a) The authorized capital stock of InterCon consists of one thousand five
hundred (1,500) shares of InterCon Stock of which two hundred (200) shares of
InterCon Stock are issued and outstanding and are held of record by PSI. All
outstanding shares of InterCon Stock have been duly authorized and validly
issued, are fully paid and nonassessable, and are subject to no preemptive
rights or rights of first refusal created by statute, the Certificate of
Incorporation or Bylaws of InterCon or any agreement to which InterCon is a
party or by which it is bound. PSI owns all of the issued and outstanding
capital stock of InterCon free and clear of any mortgage, pledge, assessment,
security interest, lease, lien, adverse claim, levy, charge, or other
encumbrance of any kind, or any contract or agreement to grant any
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of the foregoing ("Liens"). The delivery of a certificate or certificates at
the Closing representing the InterCon Stock will transfer to Ascend good and
valid title to the InterCon Stock, free and clear of all Liens.
(b) There are (i) no equity securities of any class of InterCon or any
securities exchangeable into or exercisable for such equity securities issued,
reserved for issuance, or outstanding and (ii) no outstanding subscriptions,
options, warrants, puts, calls, rights, or other commitments or agreements of
any character to which InterCon is a party or by which it is bound obligating
InterCon to issue, deliver, sell, repurchase or redeem, or cause to be issued,
delivered, sold, repurchased or redeemed, any equity securities of InterCon or
obligating InterCon to grant, extend, accelerate the vesting of, change the
price of, or otherwise amend or enter into any such option, warrant, call,
right, commitment or agreement.
2.3 Authority.
(a) PSI has all requisite corporate power and authority to enter into this
Agreement and the other documents required to be executed and delivered by PSI
hereunder (collectively, the "PSI Transaction Documents") and to consummate the
transactions contemplated hereby and thereby. The execution and delivery of this
Agreement and the other PSI Transaction Documents and the consummation of the
transactions contemplated hereby and thereby have been duly authorized by all
necessary corporate action on the part of PSI. This Agreement and the other PSI
Transaction Documents have been duly executed and delivered by PSI and
constitute the valid and binding obligations of PSI, enforceable against PSI in
accordance with their terms, except as such enforceability may be limited by
bankruptcy, insolvency, moratorium or other similar laws affecting or relating
to creditors' rights generally, and general principles of equity.
(b) The execution and delivery by PSI of this Agreement and the other PSI
Transaction Documents do not, and the consummation of the transactions
contemplated hereby and thereby will not, (i) conflict with, or result in any
violation or breach of any provision of the Certificate or Articles of
Incorporation or Bylaws of PSI or InterCon, (ii) result in any violation or
breach of, or constitute (with or without notice or lapse of time, or both) a
default under, or give rise to a right of termination, cancellation or
acceleration of any material obligation or loss of any benefit under any
note, mortgage, indenture, lease, contract or other agreement or obligation
to which PSI or InterCon is a party or by which PSI or InterCon or any of
their properties or assets may be bound, (iii) conflict with or violate any
permit, concession, franchise, license, judgment, order, decree, statute,
law, ordinance, rule or regulation applicable to PSI or InterCon or any of
their properties or assets, or (iv) require PSI or InterCon to obtain any
consent, approval or action of, make any filing with or give any notice to
any entity or person as a result or under the terms of any contract or
agreement to which PSI or InterCon is a party or by which their properties or
assets are bound, except in the case of (ii) and (iii) for such violations,
breaches, defaults, rights or conflicts which would not be reasonably likely
to have a Material Adverse Effect on InterCon or materially adversely affect
the ability of PSI to consummate the transactions contemplated by this
Agreement in accordance with its terms, and, except in the case of (iv) for
such consents, approvals or actions which, if not obtained or made, would not
be reasonably likely to have a
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Material Adverse Effect on InterCon or materially adversely affect the
ability of PSI to consummate the transactions contemplated by this Agreement
in accordance with its terms.
(c) No consent, approval, order or authorization of, or registration,
declaration or filing with, any Governmental Entity (as defined in Section
8.2) is required by PSI or InterCon in connection with the execution and
delivery of this Agreement or the other PSI Transaction Documents or the
consummation of the transactions contemplated hereby or thereby except for
such consents, authorizations, filings, approvals and registrations which, if
not obtained or made, would not be reasonably likely to have a Material
Adverse Effect on InterCon or materially adversely affect the ability of PSI
to consummate the transactions contemplated by this Agreement in accordance
with its terms.
2.4 Financial Statements. PSI has delivered to Ascend copies of
InterCon's unaudited financial statements (balance sheet and statement of
operations) for the year ended December 31, 1996 (collectively, the "InterCon
Financial Statements"). The InterCon Financial Statements were prepared in
accordance with generally accepted accounting principles ("GAAP") applied on
a consistent basis throughout the periods involved, except, for the absence
of required footnotes. The InterCon Financial Statements present fairly in
all material respects the financial position of InterCon as of December 31,
1996 and the results of InterCon's operations for the period ended December
31, 1996. InterCon maintains and will continue to maintain a standard system
of accounting established and administered in accordance with GAAP.
2.5 Absence of Undisclosed Liabilities. InterCon does not have any
liabilities, either accrued or contingent (whether or not required to be
reflected in financial statements in accordance with GAAP), and whether due
or to become due, other than (i) liabilities reflected or provided for on the
balance sheet as of December 31, 1996 (the "InterCon Balance Sheet")
contained in the InterCon Financial Statements, (ii) liabilities specifically
described in this Agreement or the InterCon Disclosure Schedule, and (iii)
normal or recurring liabilities incurred since December 31, 1996 in the
ordinary course of business consistent with past practices.
2.6 Accounts Receivable. The accounts receivable shown on the InterCon
Balance Sheet arose in the ordinary course of business and have been
collected or are reasonably expected to be collectible in the book amounts
thereof, less an amount not in excess of the allowance for doubtful accounts
and returns provided for in the InterCon Balance Sheet. The accounts
receivable of InterCon arising after the date of the InterCon Balance Sheet
and prior to the Closing Date arose, or will arise, in the ordinary course of
business and have been collected or will be collectible in the book amounts
thereof, less allowances for doubtful accounts and returns determined in
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accordance with the past practices of InterCon. Except to the extent
reflected in the allowance for doubtful accounts and returns provided for in
the InterCon Balance Sheet, none of such accounts receivables is subject to
any valid and material claim of offset or recoupment or counterclaim, and PSI
and InterCon have no knowledge of any specific facts that would be likely to
give rise to any such claim; no material amount of such accounts receivable
are contingent upon the performance by InterCon of any obligation; and no
agreement for deduction or discount has been made with respect to any such
accounts receivable.
2.7 Inventory. The inventories shown on the InterCon Balance Sheet, or
thereafter acquired by InterCon consist of items of a quantity and quality
usable or salable in the ordinary course of InterCon's business. InterCon has
not received notice that it will experience in the foreseeable future any
difficulty in obtaining, in the desired quantity and quality and at a
reasonable price and upon reasonable terms and conditions, the supplies or
component products required for the manufacture, assembly or production of
its products. The value at which inventories are carried reflect the
inventory valuation policy of InterCon, which is consistent with its past
practice and in accordance with GAAP. Due provision has been made on the
books of InterCon, consistent with past practices, to provide for all
slow-moving, obsolete, or unusable inventories at their estimated useful or
scrap values, and such inventory reserves are adequate to provide for such
slow-moving, obsolete or unusable inventory and inventory shrinkage.
2.8 Absence of Certain Changes or Events. Except as reflected in the InterCon
Financial Statements, since December 31, 1996, InterCon has conducted its
business in the ordinary course and in a manner consistent with past
practices, and has not:
(a) suffered any event or occurrence that has had or could reasonably be
expected to have a Material Adverse Effect on InterCon;
(b) suffered any damage, destruction or loss, whether covered by insurance
or not, adversely affecting its properties or business;
(c) declared, set aside or paid any dividend or made any other distribution
on or in respect of the shares of its capital stock or declared any direct or
indirect redemption, retirement, purchase or other acquisition of such shares;
(d) issued any shares of its capital stock or any warrants, rights, or
options for, or entered into any commitment relating to such capital stock
except for exercises and conversions of employee stock options.
(e) made any change in the accounting methods or practices it follows,
whether for general financial or tax purposes, or any change in depreciation or
amortization policies or rates;
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(f) sold, leased, abandoned or otherwise disposed of any real property or
machinery, equipment or other operating property;
(g) sold, assigned, transferred, licensed or otherwise disposed of any
patent, trademark, trade name, brand name, copyright (or pending application for
any patent, trademark or copyright), invention, work of authorship, process,
know-how, formula or trade secret or interest thereunder or other material
intangible asset;
(h) entered into any material commitment or transaction (including without
limitation any borrowing or capital expenditure);
(i) incurred any liability, except in the ordinary course of business and
consistent with past practice and except liabilities contemplated by clauses (i)
through (iii) of Section 2.5 of this Agreement;
(j) permitted or allowed any of its property or assets to be subjected to
any mortgage, deed of trust, pledge, lien, security interest or other
encumbrance of any kind, except for liens for current taxes not yet due and
purchase money security interests incurred in the ordinary course of business;
(k) made any capital expenditure or commitment for additions to property,
plant or equipment individually in excess of ten thousand dollars ($10,000) or
in the aggregate in excess of forty thousand dollars ($40,000);
(l) paid, loaned or advanced any amount to, or sold, transferred or leased
any properties or assets to, or entered into any agreement or arrangement with
any of its officers, directors or shareholders or any affiliate of any of the
foregoing, other than employee compensation and benefits and reimbursement of
employment related business expenses incurred in the ordinary course of
business; or
(m) agreed to take any action described in this Section 2.8 or which would
constitute a breach of any of the representations or warranties of InterCon
contained in this Agreement.
2.9 Taxes. As used in this Agreement, the terms (i) "Taxes" shall mean all
taxes, however denominated, including any interest, penalties or other
additions to tax that may become payable in respect thereof, imposed by any
federal, territorial, state, local or foreign government or any agency or
political subdivision of any such government, which taxes shall include,
without limiting the generality of the foregoing, all income or profits taxes
(including, but not limited to, federal income taxes and state income taxes),
real property gains taxes, payroll and employee withholding taxes,
unemployment insurance taxes, social security taxes, sales and use taxes, ad
valorem taxes, excise taxes, franchise taxes, gross receipts taxes, business
license taxes, occupation taxes, real and personal property taxes, stamp
taxes, environmental taxes, transfer taxes, workers' compensation, Pension
Benefit Guaranty
6
Corporation premiums and other governmental charges, and other obligations of
the same or of a similar nature to any of the foregoing, which the Group is
required to pay, withhold or collect and for which InterCon is or may be
liable; and (ii) the term "Group" shall mean, individually and collectively,
(A) InterCon, (B) PSI, and (C) any individual, trust, corporation,
partnership or any other entity as to which InterCon is liable for Taxes
incurred by such individual or entity either as a transferee, or pursuant to
Treasury Regulations Section 1.1502-6, or pursuant to any other provision of
federal, territorial, state, local or foreign law or regulations.
(a) All returns required to be filed by or on behalf of members of the Group
("Returns") have been duly filed on a timely basis and such Returns are true,
complete and correct. All Taxes shown to be payable on the Returns or on
subsequent assessments with respect thereto have been paid in full on a timely
basis, and no other Taxes are due and payable by the Group with respect to items
or periods covered by such Returns (whether or not shown on or reportable on
such Returns) or with respect to any period prior to the date of this Agreement.
Each member of the Group has withheld and paid over all Taxes required to have
been withheld and paid over, and complied with all information reporting and
backup withholding requirements, including maintenance of required records with
respect thereto, in connection with amounts paid or owing to any employee,
creditor, independent contractor, or other third party. There are no liens on
any of the assets of InterCon with respect to Taxes, other than liens for Taxes
not yet due and payable or for Taxes that a member of the Group is contesting in
good faith through appropriate proceedings and for which appropriate reserves
have been established.
(b) The amount of InterCon's liability for Taxes due but not yet paid for
all periods ending on or before the date of this Agreement does not, in the
aggregate, exceed the amount of the current liability accruals for Taxes
(excluding reserves for deferred Taxes) solely with respect to InterCon as of
the date of this Agreement.
(c) The Returns of the Group are not currently being audited by the Internal
Revenue Service. No deficiencies exist or have been asserted (either in writing
or verbally, formally or informally) or are expected to be asserted with respect
to Taxes of the Group, and no member of has received notice (either in writing
or verbally, formally or informally) or expects to receive notice that it has
not filed a Return or paid Taxes required to be filed or paid by it. The Group
is neither a party to any action or proceeding for assessment or collection of
Taxes, nor has such event been asserted or threatened (either in writing or
verbally, formally or informally) against the Group or any of its assets. No
waiver or extension of any statute of limitations is in effect with respect to
Taxes or Returns of the Group. InterCon and each member of the Group have
disclosed on its federal income tax returns all positions taken therein that
could give rise to a substantial understatement penalty within the meaning of
Internal Revenue Code of 1968 (the "Code") Section 6662.
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(d) InterCon is not (nor has it ever been) a party to any tax sharing
agreement.
(e) InterCon is not a party to any safe harbor lease within the meaning
of Section 168(f)(8) of the Code, as in effect prior to amendment by the Tax
Equity and Fiscal Responsibility Act of 1982. No member of the Group is or
has been a United States real property holding corporation within the meaning
of Section 897(c)(2) of the Code during the applicable period specified in
Section 897(c)(1)(A)(ii) of the Code and Ascend is not required to withhold
tax on the purchase of the stock of InterCon by reason of Section 1445 of the
Code. PSI is not a "foreign person" (as that term is defined in Section 1445
of the Code). No member of the Group is a "consenting corporation" under
Section 341(f) of the Code. InterCon has not entered into any compensatory
agreements with respect to the performance of services which payment
thereunder would result in a nondeductible expense to InterCon pursuant to
Section 280G of the Code or an excise tax to the recipient of such payment
pursuant to Section 4999 of the Code. No member of the Group has participated
in an international boycott as defined in Code Section 999. InterCon has not
agreed, nor is it required to make, any adjustment under Code Section 481(a)
by reason of a change in accounting method or otherwise.
(f) PSI has the authority to consent to the Code Section 338(h)(10) election
and similar state elections with respect to this transaction.
2.10 Tangible Assets and Real Property.
(a) InterCon owns or leases all tangible assets and properties which are
necessary for the conduct of its business as currently conducted or which are
reflected on the InterCon Balance Sheet or acquired since the date of the
InterCon Balance Sheet ("Material Tangible Assets"). The Material Tangible
Assets are in good operating condition and repair.
(b) InterCon has good and marketable title to all Material Tangible Assets
that it owns, free and clear of all mortgages, liens, pledges, charges or
encumbrances of any kind or character, except for liens for current taxes not
yet due and payable and purchase money security interests.
(c) Assuming the due execution and delivery thereof by the other parties
thereto, all leases of Material Tangible Assets to which InterCon is a party are
in full force and effect and are valid, binding and enforceable in accordance
with their respective terms, except as such enforceability may be limited by (i)
bankruptcy laws and other similar laws affecting creditors' rights generally and
(ii) general principles of equity, regardless of whether asserted in a
proceeding in equity or at law. True and correct copies of all such leases have
been provided to Ascend.
(d) InterCon owns no real property. The InterCon Disclosure Schedule sets
forth a true and complete list of all real property leased by InterCon.
8
Assuming the due execution and delivery thereof by the other parties thereto,
all such real property leases are in full force and effect and are valid,
binding and enforceable in accordance with their respective terms, except as
such enforceability may be limited by (i) bankruptcy laws and other similar
laws affecting creditors' rights generally and (ii) general principles of
equity, regardless of whether asserted in a proceeding in equity or at law.
True and correct copies all such of real property leases have been provided
to Ascend.
2.11 Intellectual Property.
(a) InterCon owns, or is licensed or otherwise possesses legally enforceable
rights to use, all patents, trademarks, trade names, service marks and
copyrights, and any applications for and registrations of such patents,
trademarks, trade names, service marks and copyrights and all processes,
formulae, methods, schematics, technology, know-how, computer software programs
or applications and tangible or intangible proprietary information or material
that are necessary to conduct the business of InterCon as currently conducted
(all of which are referred to as the "InterCon Intellectual Property Rights").
(b) Section 2.11 of the InterCon Disclosure Schedule contains an accurate
and complete description of (i) all patents and patent applications and all
trademarks, trade names, service marks and registered copyrights, included in
the InterCon Intellectual Property Rights, including the jurisdictions in
which each such InterCon Intellectual Property Right has been issued or
registered or in which any such application for such issuance and
registration has been filed, (ii) all licenses, sublicenses, distribution
agreements and other agreements to which InterCon is a party and pursuant to
which any person is authorized to use any InterCon Intellectual Property
Rights or has the right to manufacture, reproduce, market or exploit any
product of InterCon (a "InterCon Product") or any adaptation, translation or
derivative work based on any InterCon Product or any portion thereof, (iii)
all licenses, sublicenses and other agreements to which InterCon is a party
and pursuant to which InterCon is authorized to use any third party
technology, trade secret, know-how, process, patent, trademark or copyright,
including software ("Licensed Intellectual Property"), which is incorporated
in or forms a part of any InterCon Product, (iv) all joint development
agreements to which InterCon is a party, and (v) all agreements with
Governmental Entities or other third parties pursuant to which InterCon has
obtained funding for research and development activities.
(c) InterCon is not, nor will it be as a result of the transactions
contemplated by this Agreement, in breach of any license, sublicense or other
agreement relating to the InterCon Intellectual Property Rights or Licensed
Intellectual Property, except for such breaches which would not be reasonably
likely to have a Material Adverse Effect on InterCon.
(d) Each of PSI and InterCon (i) has not received notice that InterCon has
been sued in any suit, action or proceeding which involves a claim of
9
infringement by InterCon of any patent, trademark, service xxxx, copyright,
trade secret or other proprietary right of any third party; (ii) has no
knowledge that the manufacturing, marketing, licensing or sale of any
InterCon Product infringes any patent, trademark, service xxxx, copyright,
trade secret or other proprietary right of any third party; and (iii) has no
knowledge of any claim challenging or questioning the validity or
effectiveness of any license or agreement relating to any InterCon
Intellectual Property Rights or Licensed Intellectual Property.
(e) All designs, drawings, specifications, source code, object code,
documentation, flow charts and diagrams incorporating, embodying or reflecting
any InterCon Product at any stage of its development (the "InterCon Components")
were written, developed and created solely and exclusively by employees of
InterCon without the assistance of any third party or were created by third
parties who assigned ownership of their rights with respect thereto to InterCon
by means of valid and enforceable agreements, copies of which have been provided
to Ascend. InterCon has at all times used commercially reasonable efforts to
treat the InterCon Products and InterCon Components as containing trade secrets
and has not disclosed or otherwise dealt with such items in such a manner as to
cause the loss of such trade secrets by their release into the public domain.
(f) Each person currently or formerly employed by InterCon or PSI (including
independent contractors, if any) that has or had access to confidential
information of InterCon has executed and delivered to InterCon or PSI a
confidentiality and non-disclosure agreement in the forms previously provided to
Ascend. To PSI's and InterCon's knowledge, neither the execution or delivery of
any such agreement, nor the carrying on of InterCon's business as currently
conducted by any such person, as an employee or independent contractor of
InterCon or PSI, has or will 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 persons is obligated.
2.12 Bank Accounts. The InterCon Disclosure Schedule sets forth the
names and locations of all banks and other financial institutions at which
InterCon maintains accounts of any nature, the type of accounts maintained at
each such institution and the names of all persons authorized to draw thereon
or make withdrawals therefrom.
2.13 Contracts.
(a) InterCon is not a party or subject to any binding agreement, obligation
or commitment, written or oral:
(i) that calls for any fixed and/or contingent payment or expenditure or any
related series of fixed and/ or contingent payments or expenditures by or to
InterCon totaling more than $25,000 in any calendar year;
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(ii) with agents, advisors, salesmen, sales representatives, independent
contractors or consultants that are not cancelable by it on no more than thirty
(30) days' notice and without liability, penalty or premium;
(iii) that restricts InterCon from carrying on anywhere in the world its
business or any portion thereof as currently conducted;
(iv) to provide funds to or to make any investment in any other person or
entity (in the form of a loan, capital contribution or otherwise);
(v) with respect to obligations as guarantor, surety, co-signer, endorser,
co-maker, indemnitor or otherwise in respect of the obligation of any other
person or entity;
(vi) for any line of credit, standby financing, revolving credit or other
similar financing arrangement;
(vii) with any distributor, original equipment manufacturer, value added
remarketer or other person for the distribution of any of the InterCon Products.
(b) To InterCon's and PSI's knowledge, no party to any such contract,
agreement or instrument has expressed its intention to cancel, withdraw, modify
or amend such contract, agreement or instrument.
(c) InterCon is not in material default under or in material breach or
violation of, nor is there any valid basis for any claim of material default by
InterCon under, or material breach or violation by InterCon of, any contract,
commitment or restriction to which InterCon is a party or by which InterCon or
any of its properties or assets is bound. To InterCon's or PSI's knowledge, no
other party is in material default under or in material breach or violation of,
nor, to InterCon's or PSI's knowledge, is there any valid basis for any claim of
material default by any other party under, or any material breach or violation
by any other party of, any contract, commitment, or restriction to which
InterCon is a party or by which InterCon or any of its properties or assets is
bound.
2.14 Labor Difficulties. To PSI's or InterCon's knowledge, InterCon is
not engaged in any unfair labor practice or in violation of any applicable
laws respecting employment, employment practices or terms and conditions of
employment. There is no unfair labor practice complaint against InterCon
pending, or to PSI's orInterCon's knowledge threatened, before any
Governmental Entity. There is no strike, labor dispute, slowdown, or stoppage
pending, or to PSI's or InterCon's knowledge threatened, against InterCon.
InterCon is not now and has never been subject to any union organizing
activities. InterCon has never experienced any work stoppage or other labor
difficulty.
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2.15 Trade Regulation. InterCon has not terminated its relationship with
or refused to ship InterCon Products to any dealer, distributor, third party
marketing entity or customer which had theretofore paid or been obligated to
pay InterCon in excess of ten thousand dollars ($10,000) over any consecutive
twelve (12) month period. To PSI's or InterCon's knowledge, all of the prices
charged by InterCon in connection with the marketing or sale of any InterCon
products or services have been in compliance with all applicable laws and
regulations. No claims have been asserted or, to InterCon's or PSI's
knowledge, threatened against InterCon with respect to the wrongful
termination of any dealer, distributor or any other marketing entity,
discriminatory pricing, price fixing, unfair competition, false advertising,
or any other material violation of any laws or regulations relating to
anti-competitive practices or unfair trade practices of any kind, and, to
InterCon's or PSI's knowledge, no specific situation, set of facts, or
occurrence provides any basis for any such claim.
2.16 Environmental Matters.
(a) Except as set forth in the InterCon Disclosure Schedule, no material
amount of any substance that has been designated by applicable law or regulation
to be radioactive, toxic, hazardous or otherwise a danger to health or the
environment, excluding office, janitorial and other immaterial supplies (a
"Hazardous Material") is present, as a result of the actions of InterCon or, to
InterCon's or PSI's knowledge, as a result of any actions of any third party or
otherwise, in, on or under any property, including the land and the
improvements, ground water and surface water, that InterCon has at any time
owned, operated, occupied or leased. To InterCon's or PSI's knowledge, no
underground storage tanks are present under any property that InterCon has at
any time owned, operated, occupied or leased.
(b) At no time has InterCon transported, stored, used, manufactured,
disposed of, released or exposed its employees or others to Hazardous Materials
in violation of any law, rule, regulation or treaty promulgated by any
Governmental Entity (collectively, "Hazardous Materials Activities").
(c) To PSI's or InterCon's knowledge, InterCon currently holds all
environmental approvals, permits, licenses, clearances and consents (the
"Environmental Permits") necessary for the conduct of its business as such
business is currently being conducted.
(d) No action, proceeding, writ, injunction or claim is pending or, to the
InterCon's or PSI's knowledge, threatened concerning any Environmental Permit or
any Hazardous Materials Activity of InterCon. InterCon is not aware of any fact
or circumstance which could involve InterCon in any material environmental
litigation or impose upon InterCon any material liability concerning Hazardous
Materials Activities.
2.17 Employee Benefit Plans. InterCon neither maintains or has any
liability or obligation associated with any (i) employee benefit plan (as
defined in Section 3(3)
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of the Employee Retirement Income Security Act of 1974, as amended), (ii)
bonus, stock option, stock purchase, incentive, deferred compensation,
supplemental retirement, severance and other similar employee benefit plan,
or (iii) unexpired severance agreements, written or otherwise, for the
benefit of, or relating to, any current or former employee of InterCon.
2.18 Compliance with Laws. InterCon has complied in all material respects
with, is not in material violation of, and has not received any notices of
violation with respect to, any statute, law or regulation applicable to the
ownership or operation of its business.
2.19 Employees and Consultants. The InterCon Disclosure Schedule or a
letter delivered to Ascend by InterCon contains a list of the names of all
employees and consultants of InterCon, their salaries or wages, other
compensation and dates of employment and positions.
2.20 Litigation. Except as set forth in Section 2.20 of the InterCon
Disclosure Schedule, there is no action, suit, proceeding, claim, arbitration
or investigation pending before any agency, court or tribunal, or to
InterCon's or PSI's knowledge, threatened, against InterCon or any of its
properties or officers or directors (in their capacities as such). There is
no judgment, decree or order against InterCon or, to InterCon's or PSI's
knowledge, any of its directors or officers (in their capacities as such)
that could prevent, enjoin or materially alter or delay any of the
transactions contemplated by this Agreement, or that could reasonably be
expected to have a Material Adverse Effect on InterCon.
2.21 Restrictions on Business Activities. There is no
agreement, judgment, injunction, order or decree binding upon InterCon which has
or could reasonably be expected to have the effect of prohibiting or materially
impairing any current business practice of InterCon or the conduct of business
by InterCon as currently conducted.
2.22 Governmental Authorization. InterCon
has obtained each governmental consent, license, permit, grant or other
authorization of a Governmental Entity that is required for the operation of the
business of InterCon as currently conducted except for those which, if not
obtained, would not be reasonably likely to have a Material Adverse Effect on
InterCon.
2.23 Insurance. The InterCon Disclosure Schedule contains a list and
description of all insurance policies maintained by it. There is no material
claim relating to InterCon pending under any of such policies or policies held
by PSI as to which coverage has been questioned, denied or disputed by the
underwriters of such policies. All premiums due and payable under all such
policies have been paid, and InterCon is otherwise in compliance with the terms
of such policies. InterCon has no knowledge of any threatened termination of, or
material premium increase with respect to, any of such policies.
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2.24 No Brokers. Each of PSI and InterCon is not obligated for the
payment of fees or expenses of any broker, finder or other person in
connection with the origination, negotiation or execution of this Agreement
or the other PSI Transaction Documents or any transaction contemplated hereby
or thereby.
2.25 No Misrepresentation. No representation or warranty by PSI in this
Agreement, and no written statement, certificate or schedule furnished or to
be furnished by or on behalf of PSI pursuant to this Agreement, when taken
together, contains any untrue statement of a material fact or omits to state
a material fact required to be stated therein or necessary in order to make
such statements, in light of the circumstances under which they were made,
not misleading.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF ASCEND
Except as set forth in the disclosure schedule delivered by Ascend to
InterCon on or before the date of this Agreement and attached hereto (the
"Ascend Disclosure Schedule"), Ascend represents and warrants to PSI follows:
3.1 Organization. Ascend is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware.
3.2 Authority.
(a) Ascend has all requisite corporate power and authority to enter into
this Agreement and the other documents required to be executed and delivered
by Ascend hereunder (collectively, the "Ascend Transaction Documents") and to
consummate the transactions contemplated hereby and thereby. The execution
and delivery of this Agreement and the other Ascend Transaction Documents and
the consummation of the transactions contemplated hereby and thereby have
been duly authorized by all necessary corporate action on the part of Ascend.
This Agreement and the Ascend Transaction Documents to which they are parties
have been duly executed and delivered by Ascend and constitute the valid and
binding obligations of Ascend, enforceable in accordance with their terms,
except as such enforceability may be limited by (i) bankruptcy laws and other
similar laws affecting creditors' rights generally and (ii) general
principles of equity, regardless of whether asserted in a proceeding in
equity or at law.
(b) The execution and delivery of this Agreement by Ascend and the other
Ascend Transaction Documents do not, and the consummation of the transactions
contemplated hereby or thereby will not, (i) conflict with, or result in any
violation or breach of any provision of the Certificate of Incorporation or
Bylaws of Ascend, (ii) result in any violation or breach of, or constitute
(with or without notice or lapse of time, or both) a default (or give rise to
a right of termination, cancellation or acceleration of any obligation or
loss of any material benefit) under
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any of the terms, conditions or provisions of any note, bond, mortgage,
indenture, lease, contract or other agreement, instrument or obligation to
which Ascend is a party or by which it or any of its properties or assets may
be bound, or (iii) conflict with or violate any permit, concession,
franchise, license, judgment, order, decree, statute, law, ordinance, rule or
regulation applicable to Ascend or any of its properties or assets, except in
the case of (ii) and (iii) for any such conflicts, violations, defaults,
terminations, cancellations or accelerations which would not be reasonably
likely to have a Material Adverse Effect on Ascend and its subsidiaries,
taken as a whole.
(c) No consent, approval, order or authorization of, or registration,
declaration or filing with, any Governmental Entity (as defined in Section 8.2)
is required by or with respect to Ascend in connection with the execution and
delivery of this Agreement or the other Ascend Transaction Documents or the
consummation of the transactions contemplated hereby or thereby except for such
consents, authorizations, filings, approvals and registrations which, if not
obtained or made, would not be reasonably likely to have a Material Adverse
Effect on Ascend or materially and adversely affect the ability of Ascend to
consummate the transactions contemplated by this Agreement in accordance with
its terms.
3.3 Investment Representations.
(a) The InterCon Stock is being acquired for Ascend's own account, for
investment and not with a view to, or for resale in connection with, any
distribution or public offering thereof within the meaning of the Securities Act
of 1933 or other applicable securities laws.
(b) Ascend is an "Accredited Investor" as that term is defined in Rule 501
of Regulation D promulgated under the Securities Act of 1933.
ARTICLE IV
ADDITIONAL AGREEMENTS
4.1 Public Disclosure. Except with the prior written consent of the other
party, neither party to this Agreement shall issue any press release or other
public statement with respect to this Agreement or the transactions contemplated
hereby, subject to that party's obligations to comply with applicable securities
laws and NASD listing requirements.
4.2 Confidentiality. "Confidential Information" as used in this
Agreement shall mean any and all technical and non-technical information
including patent, copyright, trade secret, and proprietary information,
techniques, sketches, drawings, models, inventions, know-how, processes,
apparatus, equipment, algorithms, software
15
programs, software source documents, and formulae owned or licensed by
InterCon. PSI's obligations under this section with respect to any portion of
Confidential Information shall terminate when PSI can document that: (a) it
enters the public domain subsequent to the date of this Agreement through no
fault of PSI; (b) it was developed after the date of this Agreement by
employees or agents of PSI independently of and without reference to the
Confidential Information; or (c) the communication of the Confidential
Information in violation of this section was in response to a valid order by
a court or other governmental body, was otherwise required by law, or was
necessary to establish the rights of either party under this Agreement. PSI
agrees that it will not make use of, disseminate, or in any way disclose
Confidential Information to any person, firm or business and will use
reasonable efforts to ensure that its employees and consultants do not make
use of, disseminate, or in any way disclose Confidential Information to any
person, firm or business. PSI will immediately give notice to Ascend of any
unauthorized use or disclosure of the Confidential Information that it
becomes aware of.
4.3 Section 338 Elections. Ascend and PSI shall join in an election to have
the provisions of Section 338(h)(10) of the Code and similar provisions of
state law ("Section 338(h)(10) Elections") apply to the acquisition of
InterCon. Ascend shall be responsible for, and control, the preparation and
filing of such election. The allocation of purchase price among the assets of
InterCon shall be made in accordance with Code Sections 338 and 1060 and any
comparable provisions of state, local or foreign law, as appropriate. PSI
shall, unless it would be unreasonable to do so, accept Ascend's
determination of such purchase price allocations and shall report, act, and
file in all respects and for all purposes consistent with such determination
of Ascend. PSI shall execute and deliver to Ascend such documents or forms
(including Section 338 Forms, as defined below) as Ascend shall request for
an effective Section 338(h)(10) Election. "Section 338 Forms" shall mean all
returns, documents, statements, and other forms that are required to be
submitted to any federal, state, county or other local taxing authority in
connection with a Section 338(h)(10 Election, including, without limitation,
any "statement of Section 338 election" and IRS Form 8023 (together with any
schedules or attachments thereto) that are required pursuant to Treasury
Regulations.
4.4 Tax Matters and Post-Closing Cooperation.
(a) Except as provided in Section 4.4(b), PSI shall pay all Taxes arising
from or relating to the transactions contemplated by this Agreement.
(b) PSI shall be responsible for and shall pay any income, franchise or
similar Taxes arising as a result of any Section 338(h)(10) Election or any
comparable or resulting election under state law filed by Ascend or PSI.
Notwithstanding the preceding sentence, (i) Ascend shall pay any state or local
transfer, sales or use, notarial or similar fees or Taxes arising as a result of
the sale of the shares and the transactions contemplated hereby including as a
result of any Section 338(h)(10) Election, and (ii) Ascend shall be responsible
for and shall pay any
16
income, franchise or similar taxes imposed by any state or local taxing
authority as a result of any Section 338(g) election (or any comparable
election under state law) if such state or local taxing authority does not
allow or respect a Section 338(h)(10) Election (or any comparable or
resulting election under state law) with respect to the purchase and sale of
the shares of InterCon contemplated hereby.
(c) Except as provided in Section 4.4(b), PSI shall pay all Taxes that may
be due after the Closing Date that are allocable to the period prior to and
including the Closing Date. In order appropriately to apportion any of these
Taxes relating to a period that includes (but that would not, but for this
Section (c) close on) the Closing Date, the parties hereto will, to the extent
permitted by applicable law, elect with the relevant taxing authorities to treat
for all purposes the Closing Date as the last day of a taxable period of
InterCon, and such period shall be treated as a "Short Period" and a
"Pre-Closing Period" for purposes of this Agreement.
In any case where applicable law does not permit InterCon to treat the
Closing Date as the last day of a Short Period, then for purposes of this
Agreement, the portion of such Taxes that is attributable to the operations
of InterCon for such Interim Period (as defined below) shall be (i) in the
case of Taxes that are not based on income or gross receipts, the total
amount of such Taxes for the period in question multiplied by a fraction, the
numerator of which is the number of days in the Interim Period, and the
denominator of which is the total number of days in the entire period in
question, and (ii) in the case of Taxes that are based on income or gross
receipts, the Taxes that would be due with respect to the Interim Period, if
such Interim Period were a Short Period. "Interim Period" means with respect
to any Taxes imposed on InterCon on a periodic basis for which the Closing
Date is not the last day of a Short Period, the period of time beginning on
the first day of the actual taxable period that includes (but does not end
on) the Closing Date and ending on and including the Closing Date.
(d) The parties acknowledge that the 1994 Federal tax returns for Intercon
Systems Corporation, a Virginia corporation, are currently being audited by the
Internal Revenue Service, and agree that any liability associated with these
returns is a liability of PSI and not InterCon and any refunds associated with
these returns are assets of PSI and not assets of InterCon.
4.5 Additional Agreements; Reasonable Efforts. Subject to the terms and
conditions of this Agreement, each of the parties agrees to use all
reasonable efforts to take, or cause to be taken, all action and to do, or
cause to be done, all things necessary, proper or advisable under applicable
laws and regulations to consummate and make effective the transactions
contemplated by this Agreement, including cooperating fully with the other
party, including by provision of information. In case at any time after the
Closing any further action is necessary or desirable to carry out the
purposes of this Agreement or to vest Ascend with full title to all
properties, assets, rights, approvals, immunities and franchises of InterCon,
the proper officers and directors of each party to this Agreement shall take
all such necessary action.
17
4.6 Transition Services. Following the Closing and until March 31, 1997,
PSI will provide to Ascend and/or InterCon services to assist Ascend to
integrate InterCon into Ascend's consolidated operations, as reasonably
requested by Ascend or InterCon.
4.7 Expenses. The parties shall each pay their own legal, accounting and
financial advisory fees and other out-of-pocket expenses related to the
negotiation, preparation and carrying out of this Agreement and the
transactions herein contemplated.
4.8 Post-Closing Expense Adjustment. It is anticipated that PSI may pay
certain operating expenses of InterCon incurred by InterCon after the Closing
and before February 28, 1997. To the extent such payments are made, Ascend
will promptly reimburse PSI for such payments upon receipt of reasonable
evidence documenting such payments.
4.9 Leased Equipment. Following the Closing, PSI will ensure that InterCon
has quiet enjoyment and use of the equipment listed in the InterCon
Disclosure Schedule (pursuant to the disclosure regarding Section 2.10(a) of
this Agreement). PSI will acquire the equipment within 60 days following the
Closing Date and will assign this equipment to Intercon upon acquiring the
equipment.
ARTICLE V
CONDITIONS TO ACQUISITION
5.1 Conditions to Each Party's Obligation to Effect the Acquisition. The
respective obligations of each party to this Agreement to effect the Acquisition
shall be subject to the satisfaction prior to the Closing Date of the following
conditions:
(a) All authorizations, consents, orders or approvals of, or declarations or
filings with, or expirations of waiting periods imposed by, any Governmental
Entity shall have been obtained or filed, or shall have occurred as the case may
be.
(b) No temporary restraining order, preliminary or permanent injunction or
other order issued by any court of competent jurisdiction or other legal or
regulatory restraint or prohibition preventing the consummation of the
Acquisition or limiting or restricting Ascend's conduct or operation of the
business of Ascend or InterCon after the Acquisition shall have been issued, nor
shall any proceeding brought by a domestic administrative agency or commission
or other domestic Governmental Entity, seeking any of the foregoing be pending.
18
5.2 Additional Conditions to Obligations of Ascend. The obligations of Ascend
to effect the Acquisition are subject to the satisfaction of each of the
following additional conditions, any of which may be waived in writing
exclusively by Ascend:
(a) The representations and warranties of PSI set forth in this
Agreement shall be true and correct in all material respects as of the date
of this Agreement and (except to the extent such representations and
warranties speak as of an earlier date) as of the Closing Date as though made
on and as of the Closing Date, except for changes contemplated by this
Agreement and except in all cases for such breaches of, inaccuracies in or
omissions from such representations and warranties as do not have a Material
Adverse Effect.
(b) PSI shall have performed in all material respects all obligations
required to be performed by it under this Agreement at or prior to the Closing
Date.
(c) Ascend shall have received from PSI written evidence that the execution,
delivery and performance of PSI's obligations under this Agreement have been
duly and validly approved and authorized by the Board of Directors of PSI.
(d) PSI and InterCon shall have received a release of the security interest
in the assets and InterCon Stock currently held by Fleet National Bank and the
consents listed on Schedule 5.2(d).
(e) Ascend shall have received from Nixon, Hargrave, Devans & Xxxxx LLP,
counsel to PSI, an opinion of counsel in the form attached hereto as Exhibit A.
(f) PSI and/or InterCon will terminate any employment contracts that exist
between InterCon and any InterCon employee or consultant, and any obligation PSI
has to issue options, stock or warrants to any InterCon employee or consultant
to whom such options, warrants or stock have been offered or promised will have
been fulfilled to the satisfaction of Ascend.
(g) On or before the Closing, PSI will have assigned to Intercon (i) its
intent to use trademark application for the xxxx "Fluid Licensing," and (ii) all
inventions and confidentiality agreements between PSI and those individuals who
will be accepting employment with Ascend as of the Closing.
(h) On or before the Closing, Intercon will deliver the necessary documents
to the financial institutions at which Intercon maintains bank accounts removing
Xxxxx Xxxxxx and Xxx Xxxx as authorized signatories for those accounts.
5.3 Additional Conditions to Obligations of PSI. The obligation of PSI to
effect the Acquisition is subject to the satisfaction of each of the
following additional conditions, any of which may be waived, in writing,
exclusively by PSI:
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(a) The representations and warranties of Ascend set forth in this Agreement
shall be true and correct in all material respects as of the date of this
Agreement and (except to the extent such representations speak as of an earlier
date) as of the Closing Date as though made on and as of the Closing Date,
except for changes contemplated by this Agreement.
(b) Ascend shall have performed in all material respects all obligations
required to be performed by them under this Agreement at or prior to the Closing
Date.
(c) InterCon will have executed a distribution agreement in the form
attached hereto as Exhibit B granting PSI distribution rights for InterCon's
Internet Valet product.
(d) At the Closing, Ascend will pay to PSI any debts owed to PSI by
InterCon, offset by any amounts owed by PSI to InterCon, as of the Closing,
which amount the parties agree is $8,500,000; provided, however, that, if
acceptable to PSI, Ascend may pay such debts within thirteen (13) days after the
Closing and such payments will be deemed to have been made as of the Closing.
(e) On or before the Closing, Intercon will have terminated that certain
trademark license agreement dated October 1, 1995 between PSI and InterCon.
(f) PSI shall have received from Xxxx Xxxx Xxxx & Freidenrich, counsel to
Ascend, an opinion of counsel in the form attached hereto as Exhibit C.
ARTICLE VI
AMENDMENT
6.1 Amendment. This Agreement may be amended by the parties hereto, by
action taken or authorized by their respective Boards of Directors. This
Agreement may not be amended except by an instrument in writing signed on behalf
of each of the parties hereto.
ARTICLE VII
INDEMNIFICATION
7.1 Survival of Representations and Warranties. All of the representations
and warranties of PSI contained in this Agreement shall survive the Closing Date
for a period of twelve (12) months. After the expiration of such twelve-month
period, such representations and warranties shall expire and be of no further
force and effect
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unless a claim or claims with respect thereto shall have been
asserted under this Article VII.
7.2 Indemnification.
(a) Subject to the terms and conditions of this Article VII, PSI agrees to
indemnify, defend and hold harmless Ascend, its shareholders, officers,
directors, employees and consultants, all subsidiaries and affiliates of Ascend,
and the respective officers and directors of such entities (all such persons and
entities being collectively referred to as the "Ascend Group") from, against,
for and in respect of any and all loss, demand, action, cause of action,
assessment, damage, liability, cost or expense, including without limitation,
interest, penalties and reasonable attorneys' and other professional fees and
expenses incurred in the investigation, prosecution, defense or settlement
thereof ("Losses") asserted against, relating to, imposed upon or incurred by
Ascend and/or any other member of the Ascend Group by reason of, resulting from,
based upon or arising out of any of the following (collectively, "Indemnifiable
Losses"):
(i) the breach in any material respect of any representation or warranty of
PSI contained in or made pursuant to this Agreement or any certificate or
schedule delivered by PSI in connection herewith;
(ii) a material breach of any covenant or agreement of PSI contained in this
Agreement;
(iii) any breach by PSI of this Article VII.
(b) The obligation of PSI to indemnify members of the Ascend Group for any
Indemnifiable Losses is subject to the condition that PSI shall have received an
Indemnification Claim for all Indemnifiable Losses for which indemnity is sought
on or before the first anniversary of the Closing Date.
(c) The provisions of Section 7.2(b) above shall not limit, in any manner,
PSI's obligation to indemnify members of the Ascend Group for any breach of any
covenant or agreement of PSI to be performed by PSI following the Closing,
including, without limitation, PSI's obligations of confidentiality pursuant to
Section 4.6 of this Agreement.
(d) PSI shall not be liable for damages in excess of the actual damages
suffered by a member of the Ascend Group as a result of the act, circumstance or
condition for which indemnification is sought net of (i) any insurance proceeds
received by Ascend or a member of the Ascend Group and (ii) any tax benefits
realized by Ascend or a member of the Ascend Group as a result of the
Indemnifiable Losses for which indemnification is claimed.
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(e) Ascend's exclusive remedy against PSI for any Indemnifiable Losses shall
be indemnification under this Article VII; provided, however, that: nothing
contained in this Article VII shall limit in any manner, any remedy at law or in
equity to which Ascend or any other member of the Ascend Group shall be entitled
against PSI as a result of willful fraud or intentional misrepresentation by
PSI.
7.3 Procedures for Indemnification.
(a) As used in this Section 7.3, the term "Indemnitor" means the party
against whom indemnification hereunder is sought, and the term "Indemnitee"
means the party seeking indemnification hereunder.
(b) A claim for indemnification hereunder (an "Indemnification Claim") shall
be made by Indemnitee promptly upon the occurrence of an Indemnifiable Loss by
delivery of a written notice to Indemnitor requesting indemnification and
specifying the basis on which indemnification is sought in reasonable detail
(and shall attach relevant documentation related to the Indemnification Claim),
the amount of the asserted Indemnifiable Losses and, in the case of a Third
Party Claim (as defined below), containing (by attachment or otherwise) such
other information as Indemnitee shall have concerning such Third Party Claim.
(c) If the Indemnification Claim involves a Third Party Claim, the
procedures set forth in Section 7.4 hereof shall be observed by Indemnitee and
Indemnitor.
(d) If the Indemnification Claim involves a matter other than a Third Party
Claim, Indemnitor shall have thirty (30) days to object to such Indemnification
Claim by delivery of a written notice of such objection to Indemnitee specifying
in reasonable detail the basis for such objection. Failure to timely so object
shall constitute a final and binding acceptance of the Indemnification Claim by
Indemnitor, and the Indemnification Claim shall thereafter be paid by Indemnitor
in accordance with Section 7.3(e) hereof. If an objection is timely delivered by
Indemnitor and the dispute is not resolved within twenty (20) business days from
the delivery of such objection (the "Negotiation Period"), such dispute shall be
resolved by arbitration in accordance with the provisions of Section 8.10
hereof.
(e) Upon determination of the amount of an Indemnification Claim, whether by
(i) an agreement between Indemnitor and Indemnitee, (ii) an arbitration award,
or (iii) a final judgment (after expiration of all periods for appeal of such
judgment) or other final nonappealable order, Indemnitor shall pay the amount of
such Indemnification Claim by check within ten (10) days of the date such amount
is determined.
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7.4 Defense of Third Party Claims. Should any claim be made, or suit or
proceeding (including, without limitation, a binding arbitration or an audit
by any taxing authority) be instituted against Indemnitee which, if
prosecuted successfully, would be a matter for which Indemnitee is entitled
to indemnification under this Agreement (a "Third Party Claim"), the
obligations and liabilities of the parties hereunder with respect to such
Third Party Claim shall be subject to the following terms and conditions:
(a) Indemnitee shall give Indemnitor written notice of any such claim
promptly after receipt by Indemnitee of notice thereof, and Indemnitor will
undertake control of the defense thereof by counsel of its own choosing.
Indemnitee may participate in the defense through its own counsel at its own
expense. If Indemnitor fails or refuses to undertake the defense of such Third
Party Claim within ten (10) days after written notice of such claim has been
delivered to Indemnitor by Indemnitee, Indemnitee shall have the right to
undertake the defense, compromise and, subject to Section 7.5, settle such Third
Party Claim with counsel of its own choosing. In the circumstances described in
the preceding sentence, Indemnitee shall, promptly upon its assumption of the
defense of such Third Party Claim, make an Indemnification Claim as specified in
Section 7.3(a) which shall be deemed an Indemnification Claim that is not a
Third Party Claim for the purposes of the procedures set forth herein. Failure
of Indemnitee to furnish written notice to Indemnitor of a Third Party Claim
shall not release Indemnitor from Indemnitor's obligations hereunder, except to
the extent Indemnitor is prejudiced by such failure.
(b) Indemnitee and Indemnitor shall cooperate with each other in all
reasonable respects in connection with the defense of any Third Party Claim,
including making available records relating to such claim and furnishing
employees of Indemnitee as may be reasonably necessary for the preparation of
the defense of any such Third Party Claim or for testimony as witness in any
proceeding relating to such claim.
7.5 Settlement of Third Party Claims. Unless Indemnitor has failed to fulfill
its obligations under this Article VII, no settlement by Indemnitee of a
Third Party Claim shall be made without the prior written consent by or on
behalf of Indemnitor. If Indemnitor has assumed the defense of a Third Party
Claim as contemplated by Section 7.4(a), no settlement of such Third Party
Claim may be made by Indemnitor without the prior written consent by or on
behalf of Indemnitee, which consent shall not be unreasonably withheld or
delayed. In the event of any dispute regarding the reasonableness of a
proposed settlement, the party that will bear the larger financial loss
resulting from such settlement shall make the final determination in respect
thereto, which determination shall be final and binding on all involved
parties.
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ARTICLE VIII
GENERAL PROVISIONS
8.1 Notices. All notices and other communications hereunder shall be in
writing and shall be deemed given if delivered personally or by commercial
delivery service, or mailed by registered or certified mail (return receipt
requested) or sent via facsimile (with confirmation of receipt) to the parties
at the following addresses (or at such other address for a party as shall be
specified by like notice):
(a) if to Ascend, to:
Ascend Communications, Inc.
One Ascend Plaza
0000 Xxxxxx Xxx Xxxxxxx
Xxxxxxx, XX 00000
Attention: Vice President--Finance
Fax: (000) 000-0000
with a copy to:
Xxxx Xxxx Xxxx & Freidenrich, A Professional Corporation
000 Xxxxxxxx Xxxxxx
Xxxx Xxxx, XX 00000
Attention: Xxxxxx X. Xxxxxxx, Esq.
Fax: (000) 000-0000
(b) if to PSI, to
PSINet Inc.
000 Xxxxxxx Xxxx Xxxxx
Xxxxxxx, XX 00000
Attention: Xxxxxxx X. Xxxxxxxx
Fax: (000) 000-0000
with a copy to:
Nixon, Hargrave, Devans & Xxxxx LLP
Xxxxxxx Xxxxxx
X.X. Xxx 0000
Xxxxxxxxx, XX 00000
Attention: Xxxx X. Xxxxx, Esq.
Fax: (000) 000-0000
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8.2 Interpretation. When a reference is made in this Agreement to a section,
such reference shall be to a Section of this Agreement unless otherwise
indicated. The words "include," "includes" and "including" when used herein
shall be deemed in each case to be followed by the words "without
limitation." The phrase "made available" in this Agreement shall mean that
the information referred to has been made available if requested by the party
to whom such information is to be made available. The phrases "the date of
this Agreement," "the date hereof," and terms of similar import, unless the
context otherwise requires, shall be deemed to refer to February 1, 1997. The
table of contents and headings contained in this Agreement are for reference
purposes only and shall not affect in any way the meaning or interpretation
of this Agreement. In determining whether a Material Adverse Effect exists
with respect to a party, materiality shall be determined on the basis of the
applicable party and all of its subsidiaries, taken together as a whole, and
not on the basis of the party or any single subsidiary alone. Reference to a
party's "knowledge" mean actual knowledge after reasonable inquiry of such
party's directors, officers, and other management-level employees who could
reasonably be expected to have knowledge of such matters. As used in this
Agreement, the term "Governmental Entity" means any (i) nation, state,
commonwealth, province, territory, county, municipality, district or other
jurisdiction of any nature; (ii) federal, state, local, municipal, foreign or
other government; or (iii) governmental or quasi-governmental authority of
any nature (including any governmental division, department, agency,
commission, official, organization, and any court or other tribunal).
8.3 Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each
of the parties and delivered to the other parties, it being understood that
all parties need not sign the same counterpart.
8.4 Severability. In the event that any provision of this Agreement, or
the application thereof, becomes or is declared by a court of competent
jurisdiction to be illegal, void or unenforceable, the remainder of this
Agreement will continue in full force and effect and the application of such
provision to other persons or circumstances will be interpreted so as
reasonably to effect the intent of the parties hereto. The parties further
agree to replace such void or unenforceable provision of this Agreement with
a valid and enforceable provision that will achieve, to the extent possible,
the economic, business and other purposes of such void or unenforceable
provision.
8.5 Nonsurvival of Representations, Warranties and
Agreements. Except as explicitly set forth in this Agreement, none of the
representations, warranties and agreements in this Agreement or in any closing
certificate delivered pursuant to this Agreement shall survive the Closing.
25
8.6 Entire Agreement. This Agreement (including the documents and the
instruments referred to herein) constitutes the entire agreement and
supersedes all prior agreements and understandings, both written and oral,
among the parties with respect to the subject matter hereof.
8.7 Governing Law. This Agreement shall be
governed and construed in accordance with the laws of the State of Delaware
without regard to any applicable conflicts of law.
8.8 Assignment. Neither this
Agreement nor any of the rights, interests or obligations hereunder shall be
assigned by any of the parties hereto (whether by operation of law or otherwise)
without the prior written consent of the other parties. Subject to the preceding
sentence, this Agreement will be binding upon, inure to the benefit of and be
enforceable by the parties and their respective successors and assigns.
8.9
Third Party Beneficiary. Nothing contained in this Agreement is intended to
confer upon any person other than the parties hereto and their respective
successors and permitted assigns, any rights, remedies or obligations under, or
by reason of this Agreement.
8.10 Arbitration. Any disputes between Ascend and
PSI with respect to this Agreement shall be settled by binding, final
arbitration in accordance with the commercial arbitration rules of the American
Arbitration Association then in effect (the "AAA Rules"). Any arbitration
proceeding shall be conducted in Chicago, Illinois. The following arbitration
provisions shall govern over any conflicting rules which may now or hereafter be
contained in the AAA Rules. Any judgment upon the award rendered by the
arbitrator may be entered in any court having jurisdiction over the subject
matter thereof. The arbitrator shall have the authority to grant any equitable
and legal remedies that would be available.
(a) Any such arbitration shall be conducted before a single arbitrator who
shall be compensated for his or her services at a rate to be determined by the
parties or by the American Arbitration Association, but based upon reasonable
hourly or daily consulting rates for the arbitrator in the event the parties are
not able to agree upon his or her rate of compensation.
(b) The AAA Rules for the selection of the arbitrator shall be followed.
(c) Ascend and PSI shall each advance fifty percent (50%) of the initial
compensation to be paid to the arbitrator in any such arbitration and fifty
percent (50%) of the costs of transcripts and other normal and regular expenses
of the arbitration proceedings; provided, however, that the arbitrator shall
have the discretion to grant to the prevailing party in any arbitration an award
of attorneys' fees and costs, and all costs of arbitration.
26
(d) The parties shall be entitled to conduct discovery proceedings in
accordance with the provisions of the Federal Rules of Civil Procedure, subject
to any limitation imposed by the arbitrator.
(e) For any claim submitted to arbitration, the burden of proof shall be as
it would be if the claim were litigated in a judicial proceedings.
(f) Upon the conclusion of any arbitration proceeding hereunder, the
arbitrator shall render findings of fact and conclusions of law and a written
opinion setting forth the basis and reasons for any decision reached by him or
her and shall deliver such documents to each party to this Agreement along with
a signed copy of the award.
(g) The arbitrator chosen in accordance with these provisions shall not have
the power to alter, amend or otherwise affect the terms of these arbitration
provisions or the provisions of this Agreement.
(h) The parties acknowledge that, except as specifically provided in this
Agreement, no other action need be taken by either party before proceeding
directly in accordance with the provisions of this Section.
(i) The arbitration provisions set forth in this Section 8.10 are intended
by the parties to be exclusive for all purposes and applicable to each and every
controversy, dispute and/or claim in any manner arising out of or relating to
this Agreement, the meaning, application and/or interpretation of this
Agreement, any breach hereof and/or any voluntary or involuntary termination of
this Agreement with or without cause, including, without limitation, any such
controversy, dispute and/or claim which, if pursued through any state or federal
court or administrative agency, would arise at law, in equity and/or pursuant to
statutory, regulatory and/or common law rules, regardless of whether any such
dispute, controversy and/or claim would arise in and/or from contract, tort or
any other legal and/or equitable theory or basis. Notwithstanding the foregoing,
the parties shall at all times have and retain the full, complete and
unrestricted right to seek injunctive relief for any breach or threatened breach
of any term, provision or covenant of Section 4.6 of this Agreement. The
prevailing party in any action instituted pursuant to this Section 8.10(i), or
in any appeal from any arbitration conducted pursuant to this Section 8.10,
shall be entitled to recover from the other party its reasonable attorneys' fees
and other expenses incurred in such litigation.
27
IN WITNESS WHEREOF, each of Ascend and PSI has caused this Agreement to be
signed by its respective officer thereunto duly authorized, and the Stockholder
has signed this Agreement, as of the date first written above.
ASCEND COMMUNICATIONS, INC. PSINET INC.
By: /s/ Xxxxxxx Xxxxxxx By: /s/Xxxxxxx X. Xxxxxxxx
----------------------- -----------------------------
Title: Controller & CAO Title: Chairman, President & CEO
---------------- -------------------------
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Exhibits to the Stock Acquisition Agreement, dated as of
February 1, 1997 have been omitted pursuant to
Item 601(b)(2) of Securities and Exchange Commission
(the "Commission") Regulation S-K. The following is a
list of omitted Exhibits which the Registrant agrees to
furnish supplementally to the Commission upon request:
EXHIBITS
A Opinion of PSI Counsel
B Distribution Agreement between PSI and InterCon
C Opinion of Ascend Counsel
InterCon Disclosure Schedule to Stock Acquisition Agreement
