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EXHIBIT 2.8
AGREEMENT AND PLAN OF REORGANIZATION
BY AND AMONG
CRITICAL PATH, INC.
XETI ACQUISITION CORP.
AND
XETI, INC.
DATED AS OF OCTOBER 8, 1999
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INDEX OF EXHIBITS
EXHIBIT DESCRIPTION
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Exhibit A Form of Voting Agreement
Exhibit B Form of Legal Opinion of Counsel to the Company
Exhibit C Form of Noncompetition Agreement
Exhibit D Form of Escrow Agreement
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INDEX OF SCHEDULES
SCHEDULE DESCRIPTION
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1.6 Calculation of Exchange Ratio, Option Exchange Ratio and Cash Rate
2.2(a) Shareholder List
2.2(b) Option List
2.4 Governmental and Third Party Consents
2.5 Company Financials
2.6 Undisclosed Liabilities
2.7 No Changes
2.8 Tax Returns and Audits
2.10(a) Leased Real Property
2.10(b) Liens on Property
2.11(a) Intellectual Property
2.11(b) Intellectual Property Licenses
2.12(a) Agreements, Contracts and Commitments
2.12(b) Breaches
2.12(c) Required Consents
2.13 Interested Party Transactions
2.15 Litigation
2.19 Brokers/Finders Fees; Third-Party Expenses
2.20(b) Employee Benefit Plans and Employees
2.20(d) Employee Plan Compliance
2.20(g) Post Employment Obligations
2.20(h)(i) Effect of Transaction
2.20(h)(ii) Excess Parachute Payments
2.20(j) Labor
4.1 Conduct of the Business
5.15 Employee Bonus
6.3(c) Third Party Consents Required of Parent
6.3(f) Persons Signing Non-Compete Agreements
6.3(g) Key Employees
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AGREEMENT AND PLAN OF REORGANIZATION
This AGREEMENT AND PLAN OF REORGANIZATION (this "Agreement") is made and
entered into as of October 8, 1999, among Critical Path, Inc., a California
corporation ("Parent"), Xeti Acquisition Corp., a California corporation
("Merger Sub"), and Xeti, Inc., a California corporation (the "Company").
RECITALS
A. The Boards of Directors of each of the Company, Parent and Merger Sub
believe it is in the best interests of each company and their respective
shareholders that Parent acquire the Company through the statutory merger of
Merger Sub with and into the Company (the "Merger") and, in furtherance thereof,
have approved the Merger.
B. Pursuant to the Merger, among other things, and subject to the terms
and conditions of this Agreement, all of the issued and outstanding shares of
capital stock of the Company ("Company Capital Stock") shall be converted into
the right to receive shares of Common Stock of Parent ("Parent Common Stock")
and cash, and all outstanding options and other rights to acquire or receive
shares of Company Capital Stock shall be assumed by the Parent.
C. Concurrently with the execution of this Agreement, and as a condition
and inducement to Parent's willingness to enter into this Agreement, certain
affiliates of the Company are entering into Voting Agreements in substantially
the form attached hereto as Exhibit A (the "Voting Agreement").
D. A portion of the shares of Exchangeable Stock 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.
E. The parties intend, by executing this Agreement, to adopt a plan of
reorganization within the meaning of Section 368 of the Internal Revenue Code of
1986, as amended (the "Code").
F. The parties intend for the Merger to be accounted for financial
accounting purposes as a purchase.
NOW, THEREFORE, in consideration of the covenants, promises and
representations set forth herein, and for other good and valuable consideration,
intending to be legally bound hereby the parties agree as follows:
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ARTICLE I
THE MERGER
1.1 The Merger. At the Effective Time (as defined in Section 1.2) and
subject to and upon the terms and conditions of this Agreement and the
applicable provisions of the California General Corporations Law ("CGCL"),
Merger Sub shall be merged with and into the Company, the separate corporate
existence of Merger Sub shall cease and the Company shall continue as the
surviving corporation and as a wholly-owned subsidiary of Parent. The Company as
the surviving corporation after the Merger is hereinafter sometimes referred to
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 as
promptly as practicable, but no later than five (5) business days, following
satisfaction or waiver of the conditions set forth in Article VI, at the offices
of Xxxxxx Xxxxxxx Xxxxxxxx & Xxxxxx, 000 Xxxx Xxxx Xxxx, Xxxx Xxxx, Xxxxxxxxxx,
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 a Agreement of Merger with the California Secretary of
State (the "Agreement of Merger"), in accordance with the relevant provisions of
applicable law. The date and time the Merger becomes effective in accordance
with the provisions of the CGCL is the "Effective Time". The parties currently
intend that the Closing Date will occur on or prior to November 15, 1999.
1.3 Effect of the Merger. At the Effective Time, the effect of the
Merger shall be as provided in the applicable provisions of the CGCL. Without
limiting the generality of the foregoing, and subject thereto, at the Effective
Time, all the property, rights, privileges, powers and franchises of the Company
and Merger Sub shall vest in the Surviving Corporation, and all debts,
liabilities and duties of the Company and Merger Sub shall become the debts,
liabilities and duties of the Surviving Corporation.
1.4 Articles of Incorporation; Bylaws.
(a) Unless otherwise determined by Parent prior to the Effective
Time, at the Effective Time, the Articles of Incorporation of Merger Sub shall
be the Articles of Incorporation of the Surviving Corporation until thereafter
amended as provided by law and such Articles of Incorporation; provided that
Section 1 of the Articles of Incorporation of the Surviving Corporation shall be
amended to read "The name of the Corporation is XETI, Inc."
(b) The Bylaws of Merger Sub, as in effect immediately prior to the
Effective Time, shall be the Bylaws of the Surviving Corporation until
thereafter amended.
1.5 Directors and Officers. The director(s) of Merger Sub immediately
prior to the Effective Time shall be the initial director(s) of the Surviving
Corporation, each to hold office in accordance with the Articles of
Incorporation and Bylaws of the Surviving Corporation. The officers of Merger
Sub immediately prior to the Effective Time shall be the initial officers of the
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Surviving Corporation, each to hold office in accordance with the Bylaws of the
Surviving Corporation.
1.6 Maximum Shares to Be Issued; Effect on Capital Stock. No adjustment
shall be made in the number of shares of Parent Common Stock issued in the
Merger as a result of any cash proceeds received by the Company from the date
hereof to the Closing Date pursuant to the exercise of options to acquire
Company Capital Stock. Subject to the terms and conditions of this Agreement, as
of the Effective Time, by virtue of the Merger and without any action on the
part of Merger Sub, the Company or the holder of any shares of the Company
Capital Stock, the following shall occur:
(a) Conversion of Company Common Stock. Each share of Common Stock
of the Company ("Company Common Stock") issued and outstanding immediately prior
to the Effective Time (other than any shares of Company Common Stock to be
canceled pursuant to Section 1.6(d) and any Dissenting Shares (as defined and to
the extent provided in Section 1.7(a)) will be canceled and extinguished and be
converted automatically into the right to receive upon surrender of the
certificate representing such share of Company Common Stock in the manner
provided in Section 1.8:
(i) that number of shares of Parent Common Stock as is equal to
the Exchange Ratio (as defined in Schedule 1.6 attached hereto) plus the Common
Liquidation Exchange Ratio (as defined in Schedule 1.6 attached hereto) (subject
to readjustment in the event that a tax opinion is unavailable pursuant to
Section 6.1(c)); and
(ii) cash in the amount of the Cash Rate (as defined in Schedule
1.6 attached hereto) plus the Common Liquidation Cash Amount (subject to
reduction for interim financing as set forth in Section 5.16) (subject to
readjustment in the event that a tax opinion is unavailable pursuant to Section
6.1(c)).
(b) Conversion of Company Preferred Stock. Each share of Preferred
Stock of the Company ("Company Preferred Stock") issued and outstanding
immediately prior to the Effective Time (other than any shares of Company
Preferred Stock to be canceled pursuant to Section 1.6(d) and any Dissenting
Shares (as defined and to the extent provided in Section 1.7(a)) will be
canceled and extinguished and be converted automatically into the right to
receive upon surrender of the certificate representing such share of Company
Preferred Stock in the manner provided in Section 1.8:
(i) that number of shares of Parent Common Stock as is equal to
the Exchange Ratio (as defined in Schedule 1.6 attached hereto) plus the Series
A Liquidation Exchange Ratio, Series B Liquidation Exchange Ratio, or Series C
Liquidation Exchange Ratio (as defined in Schedule 1.6 attached hereto) as
appropriate for the share so surrendered (subject to readjustment in the event
that a tax opinion is unavailable pursuant to Section 6.1(c)); and
(ii) cash in the amount of the Cash Rate (as defined in Schedule
1.6 attached hereto) plus the Series A Liquidation Cash Amount, Series B
Liquidation Cash Amount, or
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Series C Liquidation Cash Amount (as defined in Schedule 1.6 attached hereto) as
appropriate for the share so surrendered (subject to reduction for interim
financing as set forth in Section 5.16) (subject to readjustment in the event
that a tax opinion is unavailable pursuant to Section 6.1(c)).
(c) Cancellation of Parent-Owned and Company-Owned Stock. Each share
of Company Capital Stock owned by Merger Sub, Parent, the Company or any direct
or indirect wholly owned subsidiary of Parent or of the Company immediately
prior to the Effective Time shall be canceled and extinguished without any
conversion thereof.
(d) Stock Options. At the Effective Time, all options to purchase
Company Common Stock then outstanding under the Company's 1997 Stock Plan (the
"Option Plan"), or otherwise, shall be assumed by Parent in accordance with
provisions described below.
(i) At the Effective Time, each outstanding option to purchase
shares of Company Common Stock (each a "Company Option") under the Option Plan
or otherwise, whether vested or unvested, shall be, in connection with the
Merger, assumed by Parent. Each Company Option so assumed by Parent under this
Agreement shall continue to have, and be subject to, the same terms and
conditions set forth in the Option Plan and/or as provided in the respective
option agreements governing such Company Option immediately prior to the
Effective Time, except that (A) such Company Option shall be exercisable for
that number of whole shares of Parent Common Stock equal to the product of the
number of shares of Company Common Stock that were issuable upon exercise of
such Company Option immediately prior to the Effective Time multiplied by the
Option Exchange Ratio (as defined in Schedule 1.6 attached hereto), rounded down
to the nearest whole number of shares of Parent Common Stock and (B) the per
share exercise price for the shares of Parent Common Stock issuable upon
exercise of such assumed Company Option shall be equal to the quotient
determined 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 Option Exchange Ratio, rounded up to the nearest whole cent (subject
to readjustment in the event that a tax opinion is unavailable pursuant to
Section 6.1(c)).
(ii) It is the intention of the parties that the Company Options
assumed by Parent qualify following the Effective Time as incentive stock
options as defined in Section 422 of the Code to the extent the Company Options
qualified as incentive stock options immediately prior to the Effective Time.
(iii) Promptly following the Effective Time, Parent will issue
to each holder of an outstanding Company Option a document evidencing the
foregoing assumption of such Company Option by Parent.
(e) Capital Stock of Merger Sub. Each share of Common Stock of
Merger 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 Merger Sub evidencing ownership of any such shares shall continue
to evidence ownership of such shares of capital stock of the Surviving
Corporation.
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(f) Adjustments to Exchange Ratio. The Exchange Ratio shall be
adjusted to reflect fully the effect of any stock split, reverse split, stock
dividend (including any dividend or distribution of securities convertible into
Parent Common Stock or Company Capital Stock), reorganization, recapitalization
or other like change with respect to Parent Common Stock or Company Capital
Stock occurring after the date hereof and prior to the Effective Time.
(g) Fractional Shares. No fraction of a share of Parent Common Stock
will be issued, but in lieu thereof, each holder of shares of Company Capital
Stock who would otherwise be entitled to a fraction of a share of Parent Common
Stock (after aggregating all fractional shares of Parent Common Stock to be
received by such holder) shall be entitled to receive from Parent an amount of
cash (rounded to the nearest whole cent) equal to the product of (i) such
fraction, multiplied by (ii) the Signing Date Price.
(h) Definitions.
(i) Escrow Amount. The "Escrow Amount" shall be the number of
shares of Parent Common Stock obtained by dividing (a) the product of (x) the
Total Purchase Price (as defined in Schedule 1.6 attached hereto) multiplied by
(y) 0.10, by (b) the Closing Share Price.
(ii) Outstanding Common Amount. The "Outstanding Common Amount"
shall mean the aggregate number of shares of Company Common Stock outstanding
immediately prior to the Effective Time.
(iii) Outstanding Series A Amount. The "Outstanding Series A
Amount" shall mean the aggregate number of shares of Company Series A Preferred
Stock outstanding immediately prior to the Effective Time.
(iv) Outstanding Series B Amount. The "Outstanding Series B
Amount" shall mean the aggregate number of shares of Company Series B Preferred
Stock outstanding immediately prior to the Effective Time.
(v) Outstanding Series C Amount. The "Outstanding Series C
Amount" shall mean the aggregate number of shares of Company Series C Preferred
Stock outstanding immediately prior to the Effective Time.
(vi) Outstanding Option Amount. The "Outstanding Option Amount"
shall mean the aggregate number of shares of Company Common Stock issuable upon
the exercise of all outstanding Vested Options (as defined below) immediately
prior to the Effective Time. For the purposes of this subsection, a "Vested
Option" is an option to acquire shares of Company Common Stock that is
exerciseable (a) at or before the Effective Time, or (b) under the terms of the
option agreement governing such option, becomes exercisable as a result of the
Merger.
(vii) Common Liquidation Amount. The "Common Liquidation Amount"
shall mean the per share amount that is due to the holders of the Company Common
Stock, in
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preference to the distribution of the residual assets of the Company in the
event of a merger under the Company's Articles of Incorporation as they exist
immediately prior to the Effective Time.
(viii) Series A Liquidation Amount. The "Series A Liquidation
Amount" shall mean the per share amount that is due to the holders of the Series
A Preferred Stock, in preference to the distribution of the residual assets of
the Company in the event of a merger under the Company's Articles of
Incorporation as they exist immediately prior to the Effective Time.
(ix) Series B Liquidation Amount. The "Series B Liquidation
Amount" shall mean the per share amount that is due to the holders of the Series
B Preferred Stock, in preference to the distribution of the residual assets of
the Company in the event of a merger under the Company's Articles of
Incorporation as they exist immediately prior to the Effective Time.
(x) Series C Liquidation Amount. The "Series C Liquidation
Amount" shall mean the per share amount that is due to the holders of the Series
C Preferred Stock, in preference to the distribution of the residual assets of
the Company in the event of a merger under the Company's Articles of
Incorporation as they exist immediately prior to the Effective Time.
(xi) Signing Date Price. The "Signing Date Price" shall mean the
average closing price of a share of common stock of the Parent, as reported on
the Nasdaq National Market, for the 10 consecutive trading days ending on the
second trading day immediately prior to September 21, 1999.
(xii) Closing Date Price. The "Closing Date Price" shall mean
the market low price of a share of common stock of the Parent, as reported on
the Nasdaq National Market, for the Closing Date.
(xiii) Total Consideration. The "Total Consideration" shall mean
$12,500,000.
1.7 Dissenting Shares.
(a) Notwithstanding any provision of this Agreement to the contrary,
any shares of Company Capital Stock held by a holder who has demanded and
perfected appraisal or dissenters' rights for such shares in accordance with the
CGCL and who, as of the Effective Time, has not effectively withdrawn or lost
such appraisal or dissenters' rights ("Dissenting Shares"), shall not be
converted into or represent a right to receive Parent Common Stock pursuant to
Section 1.6, but the holder thereof shall only be entitled to such rights as are
granted by the CGCL.
(b) Notwithstanding the provisions of subsection (a), if any holder
of shares of Company Capital Stock who demands appraisal of such shares under
the CGCL shall effectively withdraw or lose (through failure to perfect or
otherwise) the right to appraisal, then, as of the later of the Effective Time
and the occurrence of such event, such holder's shares shall automatically be
converted into and represent only the right to receive Parent Common Stock and
the Cash Rate (and
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cash in lieu of fractional shares) as provided in Section 1.6, without interest
thereon, upon surrender of the certificate representing such shares.
(c) The Company shall give Parent (i) prompt notice of any written
demands for appraisal of any shares of Company Capital Stock, withdrawals of
such demands, and any other instruments served pursuant to the CGCL and received
by the Company and (ii) the opportunity to participate in all negotiations and
proceedings with respect to demands for appraisal under the CGCL. The Company
shall not, except with the prior written consent of Parent, voluntarily make any
payment with respect to any demands for appraisal of capital stock of the
Company or offer to settle or settle any such demands.
1.8 Surrender of Certificates.
(a) Exchange Agent. U. S. Bank Trust shall act as exchange agent
(the "Exchange Agent") in the Merger.
(b) Parent to Provide Common Stock and Cash. Promptly after the
Effective Time, Parent shall make available to the Exchange Agent for exchange
in accordance with this Article I, the aggregate number of shares of Parent
Common Stock issuable and the Cash Rate payable pursuant to Section 1.6 in
exchange for outstanding shares of Company Capital Stock; provided that, on
behalf of the holders of Company Capital Stock, Parent shall deposit into an
escrow account a number of shares of Parent Common Stock equal to the Escrow
Amount out of the aggregate number of shares of Parent Common Stock otherwise
issuable pursuant to Section 1.6. The portion of the Escrow Amount contributed
on behalf of each holder of Company Capital Stock shall be in proportion to the
aggregate number of shares of Parent Common Stock which such holder would
otherwise be entitled to receive under Section 1.6 by virtue of ownership of
outstanding shares of Company Capital Stock.
(c) Exchange Procedures. Promptly after the Effective Time, the
Surviving Corporation shall cause to be mailed to each holder of record of a
certificate or certificates (the "Certificates") which immediately prior to the
Effective Time represented outstanding shares of Company Capital Stock whose
shares were converted into the right to receive shares of Parent Common Stock
and the Cash Rate pursuant to Section 1.6, (i) a letter of transmittal (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 and shall be in such form and have such other provisions as Parent may
reasonably specify) and (ii) instructions for use in effecting the surrender of
the Certificates in exchange for certificates representing shares of Parent
Common Stock. Upon surrender of a Certificate for cancellation to the Exchange
Agent or to such other agent or agents as may be appointed by Parent, together
with such letter of transmittal, duly completed and validly executed in
accordance with the instructions thereto, the holder of such Certificate shall
be entitled to receive in exchange therefor a certificate representing the
number of whole shares of Parent Common Stock (less the number of shares of
Parent Common Stock, if any, to be deposited in the Escrow Fund (as defined in
Section 7.5 below) on such holder's behalf pursuant to Section 7.5 hereof), and
the Cash Rate (plus cash in lieu of fractional shares) in accordance with
Section 1.6, to which such holder is entitled pursuant to Section 1.6, and the
Certificate so surrendered shall
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forthwith be canceled. As soon as practicable after the Effective Time, and
subject to and in accordance with the provisions of Article VII hereof, Parent
shall cause to be distributed to the Escrow Agent a certificate or certificates
representing that number of shares of Parent Common Stock equal to the Escrow
Amount which shall be registered in the name of the Escrow Agent. Such shares
shall be beneficially owned by the holders on whose behalf such shares were
deposited in the Escrow Fund and shall be available to compensate Parent as
provided in Article VII. Until so 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 the ownership of the number of
full shares of Parent Common Stock into which such shares of Company Capital
Stock shall have been so converted and the right to receive an amount in cash
calculated at the Cash Rate (plus cash in lieu of the issuance of any fractional
shares) in accordance with Section 1.6.
(d) Distributions With Respect to Unexchanged Shares. No dividends
or other distributions declared or made after the Effective Time with respect to
Parent Common Stock with a record date after the Effective Time will 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. 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 after the Effective Time
theretofore paid with respect to such whole shares of Parent Common Stock.
(e) Transfers of Ownership. If any certificate for shares of Parent
Common Stock is to be issued 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 will 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 established to the satisfaction of Parent or any
agent designated by it that such tax has been paid or is not payable.
(f) No Liability. Notwithstanding anything to the contrary in this
Section 1.8, none of the Exchange Agent, the Surviving Corporation or 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.
1.9 No Further Ownership Rights in Company Capital Stock. All shares of
Parent Common Stock issued upon the surrender for exchange of shares of Company
Capital Stock in accordance with the terms hereof (including any cash paid in
respect thereof) 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 Surviving Corporation of
shares of Company Capital Stock which were outstanding immediately prior to the
Effective Time.
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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 I.
1.10 Lost, Stolen or Destroyed Certificates. In the event any
certificates evidencing shares of Company Capital Stock 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, such shares of Parent Common Stock, the Cash Rate and
cash for fractional shares, if any, as may be required pursuant to Section 1.6;
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 deliver a bond in such sum as it may reasonably direct
as indemnity against any claim that may be made against Parent or the Exchange
Agent with respect to the certificates alleged to have been lost, stolen or
destroyed.
1.11 Tax and Accounting Consequences. It is intended by the parties
hereto that the Merger shall (i) constitute a reorganization within the meaning
of Section 368 of the Internal Revenue Code of 1986, as amended (the "Code") and
(ii) be accounted for financial reporting purposes as a purchase. The parties
hereby adopt this Agreement as a "plan of reorganization" within the meaning of
sections 1.368-2(g) and 1.368-3(a) of the United States Treasury Regulations. No
party to this Agreement shall take any action inconsistent with such treatment.
1.12 Taking of Necessary Action; Further Action. If, at any time after
the Effective Time, any such further action is necessary or desirable to carry
out the purposes of this Agreement and to vest the Surviving Corporation with
full right, title and possession to all assets, property, rights, privileges,
powers and franchises of the Company and Merger Sub, the officers and directors
of the Company and Merger Sub are fully authorized in the name of their
respective corporations or otherwise to take, and will take, all such lawful and
necessary action.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to Parent and Merger Sub,
subject to such exceptions as are specifically disclosed in the disclosure
letter (referencing the appropriate section number) supplied by the Company to
Parent (the "Company Schedules") and dated as of the date hereof, as follows:
2.1 Organization of the Company. The Company is a corporation duly
organized, validly existing and in good standing under the laws of the state of
California. The Company has the corporate power to own its properties and to
carry on its business as now being conducted. The Company is duly qualified to
do business and in good standing as a foreign corporation each jurisdiction in
which the failure to be so qualified would have a material adverse effect on the
business, prospects, assets (including intangible assets), financial condition
or results of operations of the Company (hereinafter referred to as a "Material
Adverse Effect"). The Company has delivered a true, correct and complete copy of
its Articles of Incorporation and Bylaws, each as amended to date, to Parent.
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2.2 Company Capital Structure.
(a) The authorized capital stock of the Company consists of
10,700,000 common shares, of which 1,130,524 shares are issued and outstanding
and 2,300,000 preferred shares, of which 296,365 Series A, 1,080,000 Series B
and 250,000 Series C preferred shares are issued and outstanding. The Company
has issued warrants to purchase up to 116,000 Series B preferred shares and
50,000 Series C preferred shares; assuming a fair market value of $4.49 for the
Series B preferred shares and a price of $5.24 for the Series C preferred
shares, and the application of the net exercise provisions of the warrants an
additional 83,739.17 Series B preferred shares and 30,932.82 Series C preferred
shares will be issued thereunder. The Company Capital Stock is held by the
persons, with the domicile addresses and in the amounts set forth on Schedule
2.2(a). All outstanding shares of Company Capital Stock are duly authorized,
validly issued, fully paid and non-assessable and not subject to preemptive
rights created by statute, the Articles of Incorporation or Bylaws of the
Company or any agreement to which the Company is a party or by which it is
bound.
(b) The Company has reserved 729,000 common shares for issuance to
employees and consultants pursuant to the Option Plan, of which 469,500 shares
are subject to outstanding, unexercised options and 259,500 shares remain
available for future grant. The Company has not granted any options other than
pursuant to the Option Plan. Schedule 2.2(b) sets forth for each outstanding
Company Option the name of the holder of such option, the domicile address of
such holder, the number of shares of Common Stock subject to such option, the
exercise price of such option and the vesting schedule for such option,
including the extent vested to date and whether the exercisability of such
option will be accelerated and become exercisable by the transactions
contemplated by this Agreement. Except for the Company Options described in
Schedule 2.2(b), there are no options, warrants, calls, rights, commitments or
agreements of any character, written or oral, to which the Company is a party or
by which it is bound obligating the Company to issue, deliver, sell, repurchase
or redeem, or cause to be issued, delivered, sold, repurchased or redeemed, any
shares of the capital stock of the Company. Except for the Company Options
described in Schedule 2.2(b), there are no options, warrants, calls, rights,
commitments or agreements of any character, written or oral, to which the
Company is a party or by which it is bound obligating the Company to grant,
extend, accelerate the vesting of, change the price of, otherwise amend or enter
into any such option, warrant, call, right, commitment or agreement. The holders
of Company Options have been or will be given, or shall have properly waived,
any required notice prior to the Merger and all such rights will be terminated
at or prior to the Effective Time. As a result of the Merger, Parent will be the
record and sole beneficial owner of all Company Capital Stock and rights to
acquire or receive Company Capital Stock.
2.3 Subsidiaries. The Company does not have and has never had any
subsidiaries or affiliated companies and does not otherwise own and has never
otherwise owned any shares of capital stock or any interest in, or control,
directly or indirectly, any other corporation, partnership, association, joint
venture or other business entity.
2.4 Authority. Subject only to the approval of the Merger and this
Agreement by the Company's shareholders, the Company has all requisite corporate
power and authority to enter into
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this Agreement and to consummate the transactions contemplated hereby. The vote
required of the Company's shareholders to duly approve the Merger and this
Agreement is a majority of the outstanding shares of the Company Common Stock
and a majority of the outstanding shares of the Company Preferred Stock. The
execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly authorized by all necessary
corporate action on the part of the Company, subject only to the approval of the
Merger by the Company's shareholders. The Company's Board of Directors has
unanimously approved the Merger and this Agreement. This Agreement has been duly
executed and delivered by the Company and assuming the due authorization,
execution and delivery by the other parties hereto, constitutes the valid and
binding obligation of the Company, enforceable in accordance with its terms,
subject to the laws of general application relating to bankruptcy, insolvency
and the relief of debtors and to rules of law governing specific performance,
injunctive relief or other equitable remedies. Except as set forth on Schedule
2.4, subject only to the approval of the Merger and this Agreement by the
Company's shareholders, the execution and delivery of this Agreement by the
Company does not, and, as of the Effective Time, the consummation of the
transactions contemplated hereby will not, conflict with, or result in any
violation of, or default under (with or without notice or lapse of time, or
both), or give rise to a right of termination, cancellation or acceleration of
any obligation or loss of any benefit under (any such event, a "Conflict") (i)
any provision of the Articles of Incorporation or Bylaws of the Company or (ii)
any mortgage, indenture, lease, contract or other agreement or instrument,
permit, concession, franchise, license, judgment, order, decree, statute, law,
ordinance, rule or regulation applicable to the Company or its properties or
assets. No consent, waiver, approval, order or authorization of, or
registration, declaration or filing with, any court, administrative agency or
commission or other federal, state, county, local or foreign governmental
authority, instrumentality, agency or commission ("Governmental Entity") or any
third party (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
or the consummation of the transactions contemplated hereby, except for (i) the
filing of the Agreement of Merger with the California Secretary of State, (ii)
such consents, waivers, approvals, orders, authorizations, registrations,
declarations and filings as may be required under applicable federal and state
securities laws, (iii) expiration or early termination of the applicable waiting
periods under the Xxxx-Xxxxx-Xxxxxx Antitrust Improvements Act of 1976, as
amended (the "HSR Act"), and (iv) such other consents, waivers, authorizations,
filings, approvals and registrations which are set forth on Schedule 2.4.
2.5 Company Financial Statements. Schedule 2.5 sets forth the Company's
balance sheet as of December 31, 1998, and the related on statements of
operations and cash flows for the twelve-month period then ended and the
Company's unaudited balance sheet dated as of June 30, 1999, (the "Balance
Sheet") and the unaudited statements of operations and cash flows for the
three-month period ended June 30, 1999 (collectively, the "Company Financials").
The Company Financials have been prepared in accordance with generally accepted
accounting principles ("GAAP") applied on a basis consistent throughout the
periods indicated and consistent with each other. The Company Financials present
fairly the financial condition and operating results of the Company as of the
dates and during the periods indicated therein, subject, to normal year-end
adjustments, which will not be material in amount or significance.
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2.6 No Undisclosed Liabilities. Except as set forth in Schedule 2.6, the
Company does not have any liability, indebtedness, obligation, expense, claim,
deficiency, guaranty or endorsement of any type, whether accrued, absolute,
contingent, matured, unmatured or other (whether or not required to be reflected
in financial statements in accordance with generally accepted accounting
principles), which individually or in the aggregate, (i) has not been reflected
in the Balance Sheet, or (ii) has not arisen in the ordinary course of the
Company's business since June 30, 1999, consistent with past practices and in
the aggregate do not exceed $10,000.
2.7 No Changes. Except as set forth in Schedule 2.7, since June 30,
1999, there has not been, occurred or arisen any:
(a) transaction by the Company except in the ordinary course of
business as conducted on that date and consistent with past practices;
(b) amendments or changes to the Articles of Incorporation or Bylaws
of the Company;
(c) capital expenditure or commitment by the Company of $25,000 in
any individual case or $25,000 in the aggregate;
(d) destruction of, damage to or loss of any material assets,
business or customer of the Company (whether or not covered by insurance);
(e) labor trouble or claim of wrongful discharge or other unlawful
labor practice or action;
(f) change in accounting methods or practices (including any change
in depreciation or amortization policies or rates) by the Company;
(g) revaluation by the Company of any of its assets;
(h) declaration, setting aside or payment of a dividend or other
distribution with respect to the capital stock of the Company, or any direct or
indirect redemption, purchase or other acquisition by the Company of any of its
capital stock;
(i) increase in the salary or other compensation payable or to
become payable by the Company to any of its officers, directors, employees or
advisors, or the declaration, payment or commitment or obligation of any kind
for the payment, by the Company, of a bonus or other additional salary or
compensation to any such person except as otherwise contemplated by this
Agreement;
(j) sale, lease, license or other disposition of any of the assets
or properties of the Company, except in the ordinary course of business as
conducted on that date and consistent with past practices;
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(k) amendment or termination of any material contract, agreement or
license to which the Company is a party or by which it is bound;
(l) loan by the Company to any person or entity, incurring by the
Company of any indebtedness, guaranteeing by the Company of any indebtedness,
issuance or sale of any debt securities of the Company or guaranteeing of any
debt securities of others except for advances to employees for travel and
business expenses in the ordinary course of business, consistent with past
practices;
(m) waiver or release of any right or claim of the Company,
including any write-off or other compromise of any account receivable of the
Company;
(n) commencement or notice or, to the Company's knowledge, threat of
commencement of any lawsuit or proceeding against or investigation of the
Company or its affairs;
(o) notice of any claim of ownership by a third party of the
Company's Intellectual Property (as defined in Section 2.11 below) or of
infringement by the Company of any third party's Intellectual Property rights;
(p) issuance or sale by the Company of any of its shares of capital
stock, or securities exchangeable, convertible or exercisable therefor, or of
any other of its securities;
(q) change in pricing or royalties set or charged by the Company to
its customers or licensees or in pricing or royalties set or charged by persons
who have licensed Intellectual Property to the Company; or
(r) event or condition of any character that has or could be
reasonably expected to have a Material Adverse Effect on the Company.
2.8 Tax and Other Returns and Reports.
(a) Definition of Taxes. For the purposes of this Agreement, "Tax"
or, collectively, "Taxes", means 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, together with all interest, penalties and additions imposed with respect
to such amounts and any obligations under any agreements or arrangements with
any other person with respect to such amounts and including any liability for
taxes of a predecessor entity.
(b) Tax Returns and Audits. Except as set forth in Schedule 2.8:
(i) The Company as of the Effective Time will have prepared and
filed all material 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
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operations and such Returns are true and correct and have been completed in
accordance with applicable law.
(ii) The Company as of the Effective Time: (A) will have paid or
accrued all material Taxes it is required to pay or accrue and (B) will have
withheld with respect to its employees all material federal and state income
taxes, FICA, FUTA and other Taxes required to be withheld.
(iii) The Company has not been delinquent in the payment of any
material Tax nor is there any Tax deficiency outstanding, proposed or assessed
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) The Company does not have any material liabilities for
unpaid federal, state, local or foreign Taxes which have not been accrued or
reserved against on the Balance Sheet, whether asserted or unasserted,
contingent or otherwise, and the Company has no knowledge of any basis for the
assertion of any such liability attributable to the Company, its assets or
operations.
(vi) The Company has provided to Parent copies of all material
Returns for all periods since the date of Company's incorporation.
(vii) There are (and as of immediately following the Closing
there will be) no liens, pledges, charges, claims, security interests or other
encumbrances of any sort ("Liens") on the assets of the Company relating to or
attributable to Taxes that would have a Material Adverse Effect.
(viii) The Company has no 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 that would
have a Material Adverse Effect.
(ix) None of the Company's assets are treated as "tax-exempt use
property" within the meaning of Section 168(h) of the Code.
(x) As of the Effective Time, there will not be any contract,
agreement, plan or arrangement, including but not limited to the provisions of
this Agreement, covering any employee or former employee of the Company that,
individually or collectively, could give rise to the payment of any amount that
would not be deductible pursuant to Section 280G or 162 of the Code.
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(xi) 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.
(xii) The Company is not a party to a tax sharing or allocation
agreement nor does the Company owe any amount under any such agreement.
(xiii) 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.
2.9 Restrictions on Business Activities. There is no agreement
(noncompete or otherwise), commitment, judgment, injunction, order or decree to
which the Company is a party or otherwise binding upon the Company which has or
reasonably could 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 or the conduct of business by the Company. Without
limiting 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 products to any class of customers, in any geographic
area, during any period of time or in any segment of the market.
2.10 Title to Properties; Absence of Liens and Encumbrances.
(a) The Company owns no real property, nor has it ever owned any
real property. Schedule 2.10(a) sets forth a list of all real property
currently, or at any time in the past, leased by the Company, the name of the
lessor and the date of the lease and each amendment thereto and, with respect to
any current lease, the aggregate annual rental and/or other fees payable under
any such lease. All such current leases are in full force and effect, are valid
and effective in accordance with their respective terms, and there is not, under
any of such leases, any existing default or event of default (or event which
with notice or lapse of time, or both, would constitute a default).
(b) The Company has good and valid title to, or, in the case of
leased properties and assets, valid leasehold interests in, all of its tangible
properties and assets, real, personal and mixed, used or held for use in its
business, free and clear of any Liens (as defined in Section 2.8(b)(vii)),
except as reflected in the Company Financials or in Schedule 2.10(b) and except
for liens for taxes not yet due and payable and such imperfections of title and
encumbrances, if any, which are not material in character, amount or extent, and
which do not materially detract from the value, or materially interfere with the
present use, of the property subject thereto or affected thereby.
2.11 Intellectual Property.
(a) For the purposes of this Section 2.11, the following terms have
the following definitions:
"Intellectual Property" shall mean any or all of the following and all
rights in, arising out of, or associated therewith: (i) all United
States and foreign patents and utility models and applications therefor
and all reissues, divisions, renewals, extensions, provisionals,
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continuations and continuations-in-part thereof, and equivalent or
similar rights anywhere in the world in inventions and discoveries
("Patents); (ii) all inventions (whether patentable or not), invention
disclosures, improvements, trade secrets, proprietary information, know
how, technology, technical data and customer lists, and all
documentation embodying or evidencing any of the foregoing; (iii) all
copyrights, copyrights registrations and applications therefor and all
other rights corresponding thereto throughout the world ("Copyrights");
(iv) all mask works, mask work registrations and applications therefor,
and any equivalent or similar rights in semiconductor masks, layouts,
architectures or topology ("Maskworks"); (v) all industrial designs and
any registrations and applications therefor throughout the world; (vi)
all trade names, logos, common law trademarks and service marks,
trademark and service xxxx registrations and applications therefor and
all goodwill associated therewith throughout the world ("Trademarks");
(vii) all databases and data collections and all rights therein
throughout the world; and (viii) all computer software including all
source code, object code, firmware, development tools, files, records
and data, all media on which any of the foregoing is recorded; (ix) all
World Wide Web addresses, sites and domain names; and (x) any similar,
corresponding or equivalent rights to any of the foregoing anywhere in
the world.
"Business" means the business of the Company, including the manufacture,
use, licensing, distribution and sale of any products or technology or
the provision of any services by the Company, as currently conducted, as
conducted since the inception of the Company, or as reasonably is
contemplated to be conducted by the Company in the future.
"Company Intellectual Property" shall mean any Intellectual Property
that is owned by or licensed to the Company.
"Registered Intellectual Property" shall mean all United States,
international and foreign: (i) Patents, including applications therefor;
(ii) registered Trademarks, applications to register Trademarks,
including intent-to-use applications, or other registrations or
applications related to Trademarks; (iii) Copyrights registrations and
applications to register Copyrights; (iv) Mask Work registrations and
applications to register Mask Works; and (v) any other Company
Intellectual Property that is the subject of an application,
certificate, filing, registration or other document issued by, filed
with, or recorded by, any state, government or other public legal
authority at any time.
(b) Schedule 2.11(b) lists all Registered Intellectual Property in
whole or in part owned by, assigned to, or filed in the name of, the Company,
including all Registered Intellectual Property that will be transferred by
Company to Parent, on or prior to the Closing Date (the "Company Registered
Intellectual Property").
(c) Except as set forth on Schedule 2.11(c), each item of Company
Intellectual Property, including all Company Registered Intellectual Property
listed on Schedule 2.11(b), is free and clear of any encumbrance, including any
lien or security interest, other than an encumbrance arising from the licensing
of the Company's software in the ordinary course of business.
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(d) The Company: (i) is the exclusive owner of all Trademarks,
including trade names, trade dress and similar designations of origin used in
connection with the operation or conduct of the Business and (ii) owns
exclusively, and has good title to, all copyrighted works that are software
products of the Company or other works of authorship that the Company otherwise
purports to own.
(e) Except as set forth on Schedule 2.11(e), the Company has not
transferred ownership of, or granted any license of or right to use or
authorized the retention of any rights to use, any Intellectual Property that
is, or was, Company Intellectual Property, to any other person.
(f) The Company Intellectual Property constitutes all the
Intellectual Property used in and/or necessary to the conduct of the Business
including (i) the making, using, selling, marketing, or importing of any product
or device, (ii) the practice of any process, (iii) the offering or performance
of any service, or (iv) the copying, display, performance, distribution,
creation of derivative works of, or the exploitation of any device or work,
including any of the foregoing with respect to products, technology or services
currently under development by Company.
(g) The contracts, licenses and agreements listed on Schedule
2.11(g) include all material contracts, licenses and agreements pursuant to
which any Person, including any Affiliate of Company, has licensed any
Intellectual Property to the Company. The Company is neither in breach of, nor
has it failed to perform under any of the foregoing contracts, licenses and
agreements and, to the knowledge of the Company, no other party to such
contracts, licenses and agreements is in breach of or has failed to perform
thereunder.
(h) The contracts, licenses and agreements listed on Schedule
2.11(h) include all contracts and agreements pursuant to which any Person,
including any third party developer or consultant, has developed any device or
technology, authored any work, or otherwise created any thing in which any
Intellectual Property rights might arise, either separately or jointly with the
Company or any other Person, which the Company uses or possess or which the
Company believes it owns.
(i) The contracts, licenses and agreements listed on Schedule
2.11(i) include all material contracts, licenses and agreements pursuant to
which the Company has licensed or transferred to any third person or any
Affiliate of the Company any material Company Intellectual Property. The Company
is neither in breach of, nor has it failed to perform under any of the foregoing
contracts, licenses and agreements and, to the knowledge of the Company, no
other party to such contracts, licenses and agreements is in breach of or has
failed to perform thereunder.
(j) Neither the consummation of the transaction contemplated by this
Agreement nor the transfer to the Parent of any contracts, licenses, agreements
or Company Intellectual Property will cause or obligate Parent (i) to grant to
any third party any rights or licenses with respect to any Intellectual Property
of Parent; or (ii) pay any royalties or other amounts in excess of those being
paid by Company prior to the Closing.
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(k) Schedule 2.11(k) lists all agreements, licenses and contracts
pursuant to which Company has agreed to indemnify, hold harmless, or otherwise
agree to be liable for any losses cost or damages of, a third party with respect
to any Intellectual Property or product or service of Company.
(l) Except as set forth on Schedule 2.11(l), all material Company
Intellectual Property, including any item thereof, will be fully transferable,
alienable or licensable by, or between, Company or Parent without restriction
and without payment of any kind to any third party.
(m) Except as set forth on Schedule 2.11(m), the consummation of the
transactions contemplated by this Agreement will not result in the loss of, or
otherwise adversely affect, any ownership rights of Company in any Company
Intellectual Property or result in the breach or termination of any license,
contract or agreement to which Company is a party respecting any material
Company Intellectual Property.
(n) The operation of the Business, including (i) the making, using,
selling, marketing, or importing of any product or device, (ii) the practice of
any process, (iii) the offering or performance of any service, or (iv) the
copying, distribution, performance, display, creation of derivative works of, or
the exploitation of any device or work, including any of the foregoing with
respect to products, technology or services currently under development by
Company, does not, and will not when conducted in the same manner following the
Closing by Parent, infringe or misappropriate the Intellectual Property of any
person, violate the rights of any person, or constitute unfair competition or
trade practices under the laws of any jurisdiction, and the Company has not
received notice from any person claiming that such operation or any act,
product, technology or service of the Business infringes or misappropriates the
Intellectual Property of any person or to the Company's knowledge constitutes
unfair competition or trade practices under the laws of any jurisdiction (nor is
the Company aware of any basis therefor). Without limiting the foregoing, the
Company has not misappropriated the trade secrets of, or infringed the Copyright
or Mask work of any third party.
(o) There are no contracts, licenses or agreements between the
Company and any other person with respect to Company Intellectual Property under
which there is any dispute known to the Company regarding the scope of such
agreement, or performance under such contract, license or agreement including
with respect to any payments to be made or received by the Company thereunder.
(p) To the knowledge of the Company, no person is infringing or
misappropriating any Company Intellectual Property.
(q) No Company Intellectual Property or product, technology or
service of the Business is subject to any proceeding or outstanding decree,
order, judgment, agreement or stipulation that restricts in any manner the use,
transfer or licensing thereof by the Company or may affect the validity, use or
enforceability of such Company Intellectual Property.
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(r) Schedule 2.11(r) lists all action, including the payment of any
fees, that must, or should be performed by, or on behalf of, the Company in the
ninety-day period following the Closing Date, with respect to any application
for, perfection of, preservation of, or continuation of any rights of Company
with respect to any Company Intellectual Property, including the filing of any
patent applications, response to Patent Office actions or payment of fees,
including renewal fees.
(s) The Company has not claimed small business status, or other
particular status in the application for any Registered Company Intellectual
Property which claim of status was not at the time made, or which has since
become inaccurate or false or that will no longer be true and accurate as a
result of the Closing.
(t) All software products of the Company were written and created
solely by either (i) employees of the Company acting within the scope of their
employment or (ii) by third parties who have validly assigned all of their
rights, including Intellectual Property rights in such products to the Company,
and no third party owns or has any license or other rights to such software
products or any Intellectual Property rights therein.
(u) The Company has no knowledge of any facts or circumstances that
would render any Company Intellectual Property invalid or unenforceable. Without
limiting the foregoing, Company knows of no information, materials, facts, or
circumstances, including any information or fact that would constitute prior
art, that would render any of the Company Registered Intellectual Property
invalid or unenforceable, or would adversely effect any pending application for
any Company Registered Intellectual Property and the Company has not
misrepresented, or failed to disclose, and is not aware of any misrepresentation
or failure to disclose, any fact or circumstances in any application for any
Company Register Intellectual Property that would constitute fraud or a material
misrepresentation with respect to such application or that would otherwise
effect the validity or enforceability of any Company Registered Intellectual
Property.
(v) The Company has taken all steps reasonable under the
circumstances to protect the confidentiality and trade secret status of any
material confidential information of the Company and knows of no basis on which
it could be claimed that the Company has failed to protect the confidentiality
of any material Confidential Information of the Company.
(w) All employees of the Company have entered into a valid and
binding agreement with the company sufficient to vest title in the Company of
all Intellectual Property created by such employee in the scope of his or her
employment with the Company.
2.12 Agreements, Contracts and Commitments. Except as set forth on
Schedule 2.12(a), the Company does not have, is not a party to nor is it bound
by:
(a) any collective bargaining agreements,
(b) any agreements or arrangements that contain any severance pay or
post-employment liabilities or obligations,
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(c) any bonus, deferred compensation, pension, profit sharing or
retirement plans, or any other employee benefit plans or arrangements,
(d) any employment or consulting agreement with an employee or
individual consultant or salesperson or consulting or sales agreement with a
firm or other organization,
(e) any agreement or plan, including, without limitation, any stock
option plan, stock appreciation rights plan or stock purchase plan, any of the
benefits of which will be increased, or the vesting of benefits of which will be
accelerated, by the occurrence of any of the transactions contemplated by this
Agreement or the value of any of the benefits of which will be calculated on the
basis of any of the transactions contemplated by this Agreement,
(f) any fidelity or surety bond or completion bond,
(g) any lease of personal property having a value individually in
excess of $25,000,
(h) any agreement of indemnification or guaranty,
(i) any agreement containing any covenant limiting the freedom of
the Company to engage in any line of business or to compete with any person,
(j) any agreement relating to capital expenditures and involving
future payments in excess of $25,000,
(k) any agreement relating to the disposition or acquisition of
assets or any interest in any business enterprise outside the ordinary course of
the Company's business,
(l) any mortgages, indentures, loans or credit agreements, security
agreements or other agreements or instruments relating to the borrowing of money
or extension of credit, including guaranties referred to in clause (viii)
hereof,
(m) any purchase order or contract for the purchase of raw materials
involving $10,000 or more,
(n) any construction contracts,
(o) any distribution, joint marketing or development agreement,
(p) any other agreement that involves $25,000 or more or is not
cancelable without penalty within thirty (30) days.
Except for such alleged breaches, violations and defaults, and events
that would constitute a breach, violation or default with the lapse of time,
giving of notice, or both, as are all noted in Schedule 2.12(b), the Company 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
agreement,
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contract or commitment required to be set forth on Schedule 2.12(a) or Schedule
2.11 (any such agreement, contract or commitment, a "Contract"). Assuming due
execution by the other parties thereto, each Contract is in full force and
effect and, except as otherwise disclosed in Schedule 2.12(b), is not subject to
any default thereunder of which the Company has knowledge by any party obligated
to the Company pursuant thereto. Schedule 2.12(c) identifies each Contract that
requires a consent, waiver or approval to preserve all rights of, and benefits
to, the Surviving Corporation under such Contract as a result of entering into
this Agreement or effecting the Merger or the other transactions contemplated by
this Agreement (each a "Required Consent").
2.13 Interested Party Transactions. Except as set forth on Schedule
2.13, to the Company's knowledge, no officer, director or shareholder of the
Company (nor any ancestor, sibling, descendant or spouse of any of such persons,
or any trust, partnership or corporation in which any of such persons has or has
had an economic interest), has or has had, directly or indirectly, (i) an
economic interest in any entity which furnished or sold, or furnishes or sells,
services or products that the Company furnishes or sells, or proposes to furnish
or sell, (ii) an economic interest in any entity that purchases from, or sells
or furnishes to, the Company, any goods or services or (iii) a beneficial
interest in any contract or agreement set forth in Schedule 2.12(a) or Schedule
2.11; provided, that (x) ownership of no more than one percent (1%) of the
outstanding voting stock of a publicly traded corporation shall not be deemed an
"economic interest in any entity" for purposes of this Section 2.13.
2.14 Compliance with Laws. Except as set forth on Schedule 2.14, the
Company 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 material,
foreign, federal, provincial, state or local statute, law or regulation.
2.15 Litigation. Except as set forth in Schedule 2.15, there is no
action, suit or proceeding of any nature pending or to the Company's knowledge
threatened against the Company, its properties or any of its officers or
directors, in their respective capacities as such. Except as set forth in
Schedule 2.15, to the Company's knowledge, there is no investigation pending or
threatened against the Company, its properties or any of its officers or
directors by or before any governmental entity. Schedule 2.15 sets forth, with
respect to any pending or threatened action, suit, proceeding or investigation,
the forum, the parties thereto, the subject matter thereof and the amount of
damages claimed or other remedy requested. No governmental entity has at any
time challenged or questioned the legal right of the Company to manufacture,
offer or sell any of its products in the present manner or style thereof.
2.16 Insurance. With respect to the insurance policies and fidelity
bonds covering the assets, business, equipment, properties, operations,
employees, officers and directors of the Company, there is no claim by the
Company pending under any of such policies or bonds as to which coverage has
been questioned, denied or disputed by the underwriters of such policies or
bonds. All premiums due and payable under all such policies and bonds have been
paid and the Company is otherwise in material compliance with the terms of such
policies and bonds (or other policies and bonds providing substantially similar
insurance coverage). The Company has no
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knowledge of any threatened termination of, or material premium increase with
respect to, any of such policies.
2.17 Minute Books. The minute books of the Company provided to counsel
for Parent are the only minute books of the Company and contain a reasonably
accurate summary of all meetings of directors (or committees thereof) and
shareholders or actions by written consent since the time of incorporation of
the Company.
2.18 Environmental Matters.
(a) Definitions. "Environmental Laws" means any and all laws,
ordinances, rules, codes, orders, decrees and regulations relating in any way to
pollution, the environment or the protection of human health and worker safety.
"Hazardous Materials" means any chemical, pollutant, contaminant, waste, or
toxic substance regulated under any Environmental Law.
(b) Compliance With Laws. The Company has obtained, and is and has
been in compliance in all material respects with all applicable permits,
licenses, registrations, approvals and other authorizations that are required
for the operation of the business under all Environmental Laws.
(c) Hazardous Materials. The Company has not disposed of, released,
discharged or emitted any Hazardous Materials into the soil or groundwater at
any properties owned, leased or occupied at any time by the Company, or at any
other property, or exposed any employee or other individual to any Hazardous
Materials or any workplace or environmental condition in such a manner as would
result in any liability or clean-up obligation of any kind or nature to the
Company. No Hazardous Materials are present in, on, or under any properties
owned, leased or used at any time by the Company, and no reasonable likelihood
exists that any Hazardous Materials will come to be present in, on, or under any
properties owned, leased or used at any time by the Company, so as to give rise
to any liability or clean-up obligation under any Environmental Laws.
2.19 Brokers' and Finders' Fees; Third Party Expenses. Except as set
forth on Schedule 2.19, the Company has not incurred, nor will it incur,
directly or indirectly, any liability for brokerage or finders' fees or agents'
commissions or any similar charges in connection with this Agreement or any
transaction contemplated hereby. Schedule 2.19 sets forth the principal terms
and conditions of any agreement, written or oral, with respect to such fees.
Schedule 2.19 sets forth the Company's current reasonable estimate of all Third
Party Expenses (as defined in Section 5.4) expected to be incurred by the
Company in connection with the negotiation and effectuation of the terms and
conditions of this Agreement and the transactions contemplated hereby.
2.20 Employee Matters and Benefit Plans.
(a) Definitions. With the exception of the definition of "Affiliate"
set forth in Section 2.20(a)(i) below (such definition shall only apply to this
Section 2.20), for purposes of this Agreement, the following terms shall have
the meanings set forth below:
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(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 thereunder;
(ii) "ERISA" shall mean the Employee Retirement Income Security
Act of 1974, as amended;
(iii) "Company Employee Plan" shall refer to any plan, program,
policy, practice, contract, agreement or other arrangement providing for
compensation, severance, termination pay, performance awards, stock or
stock-related awards, fringe benefits or other employee benefits or remuneration
of any kind, whether formal or informal, funded or unfunded and whether or not
legally binding, including without limitation, each "employee benefit plan",
within the meaning of Section 3(3) of ERISA which is or has been maintained,
contributed to, or required to be contributed to, by the Company or any
Affiliate for the benefit of any "Employee" (as defined below), and pursuant to
which the Company or any Affiliate has or may have any material liability
contingent or otherwise;
(iv) "Employee" shall mean any current, former, or retired
employee, officer, or director of the Company or any Affiliate;
(v)"Employee Agreement" shall refer to each management,
employment, severance, consulting, relocation, repatriation, expatriation, visa,
work permit or similar agreement or contract between the Company or any
Affiliate and any Employee or consultant;
(vi) "IRS" shall mean the Internal Revenue Service;
(vii) "Multiemployer Plan" shall mean any "Pension Plan" (as
defined below) which is a "multiemployer plan", as defined in Section 3(37) of
ERISA; and
(viii) "Pension Plan" shall refer to each Company Employee Plan
which is an "employee pension benefit plan", within the meaning of Section 3(2)
of ERISA.
(b) Schedule. Schedule 2.20(b) contains an accurate and complete
list of each Company Employee Plan and each Employee Agreement, together with a
schedule of all liabilities, whether or not accrued, under each such Company
Employee Plan or Employee Agreement. The Company does not have any plan or
commitment, whether legally binding or not, to establish any new Company
Employee Plan or Employee Agreement, to modify any Company Employee Plan or
Employee Agreement (except to the extent required by law or to conform any such
Company Employee Plan or Employee Agreement to the requirements of any
applicable law, in each case as previously disclosed to Parent in writing, or as
required by this Agreement), or to enter into any Company Employee Plan or
Employee Agreement, nor does it have any intention or commitment to do any of
the foregoing.
(c) Documents. The Company has provided to Parent (i) correct and
complete copies of all documents embodying or relating to each Company Employee
Plan and each Employee
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Agreement including all amendments thereto and written interpretations thereof;
(ii) the most recent annual actuarial valuations, if any, prepared for each
Company Employee Plan; (iii) the three most recent annual reports (Series 5500
and all schedules thereto), if any, required under ERISA or the Code in
connection with each Company Employee Plan or related trust; (iv) if the Company
Employee Plan is funded, the most recent annual and periodic accounting of
Company Employee Plan assets; (v) the most recent summary plan description
together with the most recent summary of material modifications, if any,
required under ERISA with respect to each Company Employee Plan; (vi) all IRS
determination letters and rulings relating to Company Employee Plans and copies
of all applications and correspondence to or from the IRS or the Department of
Labor ("DOL") with respect to any Company Employee Plan; (vii) all
communications material to any Employee or Employees relating to any Company
Employee Plan and any proposed Company Employee Plans, in each case, relating to
any amendments, terminations, establishments, increases or decreases in
benefits, acceleration of payments or vesting schedules or other events which
would result in any material liability to the Company; and (viii) all
registration statements and prospectuses prepared in connection with each
Company Employee Plan.
(d) Employee Plan Compliance. Except as set forth on Schedule
2.20(d), (i) the Company, to the best of its knowledge, has performed in all
material respects all obligations required to be performed by it under each
Company Employee Plan and each Company Employee Plan has been established and
maintained in all material respects in accordance with its terms and in
compliance with all applicable laws, statutes, orders, rules and regulations,
including but not limited to ERISA or the Code; (ii) no "prohibited
transaction", within the meaning of Section 4975 of the Code or Section 406 of
ERISA, has occurred with respect to any Company Employee Plan; (iii) there are
no actions, suits or claims pending, or, to the knowledge of the Company,
threatened or anticipated (other than routine claims for benefits) against any
Company Employee Plan or against the assets of any Company Employee Plan; and
(iv) each Company Employee Plan can be amended, terminated or otherwise
discontinued after the Effective Time in accordance with its terms, without
liability to the Company, Parent or any of its Affiliates (other than ordinary
administration expenses typically incurred in a termination event); (v) there
are no inquiries or proceedings pending or, to the knowledge of the Company or
any affiliates, threatened by the IRS or DOL with respect to any Company
Employee Plan; and (vi) neither the Company nor any Affiliate is subject to any
penalty or tax with respect to any Company Employee Plan, other than the Xeti,
Inc. 401(k) Plan under Section 402(i) of ERISA or Section 4975 through 4980 of
the Code.
(e) Pension Plans. The Company does not now, nor has it ever,
maintained, established, sponsored, participated in, or contributed to, any
Pension Plan which is subject to Part 3 of Subtitle B of Title I of ERISA, Title
IV of ERISA or Section 412 of the Code.
(f) Multiemployer Plans. At no time has the Company contributed to
or been requested to contribute to any Multiemployer Plan.
(g) No Post-Employment Obligations. Except as set forth in Schedule
2.20(g), no Company Employee Plan provides, or has any liability to provide,
life insurance, medical or other employee benefits to any Employee upon his or
her retirement or termination of employment for any
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reason, except as may be required by statute, and the Company has never
represented, promised or contracted (whether in oral or written form) to any
Employee (either individually or to Employees as a group) that such Employee(s)
would be provided with life insurance, medical or other employee welfare
benefits upon their retirement or termination of employment, except to the
extent required by statute.
(h) Effect of Transaction.
(i) Except as set forth on Schedule 2.20(h)(i), the execution of
this Agreement and the consummation of the transactions contemplated hereby will
not (either alone or upon the occurrence of any additional or subsequent events)
constitute an event under any Company Employee Plan, Employee Agreement, trust
or loan that will or may result in any payment (whether of severance pay or
otherwise), acceleration, forgiveness of indebtedness, vesting, distribution,
increase in benefits or obligation to fund benefits with respect to any
Employee.
(ii) Except as set forth on Schedule 2.20(h)(ii), no payment or
benefit which will or may be made by the Company or Parent or any of their
respective affiliates with respect to any Employee will be characterized as an
"excess parachute payment", within the meaning of Section 280G(b)(1) of the
Code.
(i) Employment Matters. The Company (i) is in compliance in all
material respects with all applicable foreign, federal, state and local laws,
rules and regulations respecting employment, employment practices, terms and
conditions of employment and wages and hours, in each case, with respect to
Employees; (ii) has withheld all amounts required by law or by agreement to be
withheld from the wages, salaries and other payments to Employees; (iii) is not
liable for any arrears of wages or any taxes or any penalty for failure to
comply with any of the foregoing; and (iv) is not liable for any payment to any
trust or other fund or to any governmental or administrative authority, with
respect to unemployment compensation benefits, social security or other benefits
or obligations for Employees (other than routine payments to be made in the
normal course of business and consistent with past practice).
(j) Labor. No work stoppage or labor strike against the Company is
pending or, to the knowledge of the Company, threatened. Except as set forth in
Schedule 2.20(j), the Company is not involved in or, to the knowledge of the
Company, threatened with, any labor dispute, grievance, or litigation relating
to labor, safety or discrimination matters involving any Employee, including,
without limitation, charges of unfair labor practices or discrimination
complaints, which, if adversely determined, would, individually or in the
aggregate, result in liability to the Company. Neither the Company nor any of
its subsidiaries has engaged in any unfair labor practices within the meaning of
the National Labor Relations Act which would, individually or in the aggregate,
directly or indirectly result in a liability to the Company. Except as set forth
in Schedule 2.20(j), the Company is not presently, nor has it been in the past,
a party to, or bound by, any collective bargaining agreement or union contract
with respect to Employees and no collective bargaining agreement is being
negotiated by the Company.
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2.21 Change of Control and Non-Compete Payments. Schedule 2.21 sets
forth each plan or agreement pursuant to which any amounts may become payable
(whether currently or in the future) to current or former employees, officers
and directors of the Company as a result of or in connection with the Merger.
2.22 Year 2000 Compliance. Assuming that the Company's software products
do not receive inaccurate, incompatible or incorrect time and date data from
other software products, the underlying operating systems, firmware or hardware,
all of the Company's software products fully comply with the Year 2000
Qualification Requirements. "Year 2000 Qualification Requirements" means that
the software products (i) have been designed to ensure date and time entry
recognition, calculations that accommodate same century and multi-century
formulas and date values, leap year recognition and calculations, and date data
interface values that reflect the century, (ii) accurately manage and manipulate
single century formulas and multi-century formulas, and will not cause an
abnormal ending scenario within the application or generate incorrect values or
invalid results involving such dates, (iii) accurately process any date
rollover, and (iv) accurately accept and respond to two-digit year date input.
2.23 Representations Complete. None of the representations or warranties
made by the Company (as modified by the Company Schedules), nor any statement
made in any Schedule or certificate furnished by the Company pursuant to this
Agreement, or furnished in or in connection with documents mailed or delivered
to the shareholders of the Company in connection with soliciting their consent
to this Agreement and the Merger, contains or will contain at the Effective
Time, any untrue statement of a material fact, or omits or will omit at the
Effective Time to state any material fact necessary in order to make the
statements contained herein or therein, in the light of the circumstances under
which they were made, not misleading.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB
Parent and Merger Sub represent and warrant to the Company as follows:
3.1 Organization, Standing and Power. Parent is a corporation duly
organized, validly existing and in good standing under the laws of the State of
California. Merger Sub is a corporation duly organized, validly existing and in
good standing under the laws of the State of California. Each of Parent and
Merger Sub has the corporate power to own its properties and to carry on its
business as now being conducted and is duly qualified to do business and is in
good standing in each jurisdiction in which the failure to be so qualified would
have a material adverse effect on the ability of Parent and Merger Sub to
consummate the transactions contemplated hereby.
3.2 Authority. Parent and Merger Sub have all requisite corporate power
and authority to enter into this Agreement and to consummate the transactions
contemplated hereby. The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby have been duly authorized
by all necessary corporate action on the part of Parent and Merger Sub. This
Agreement has been duly executed and delivered by Parent and Merger Sub and
assuming the due
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execution and delivery by the other parties hereto constitutes the valid and
binding obligations of Parent and Merger Sub, enforceable in accordance with its
terms; subject to the laws of general application relating to bankruptcy,
insolvency, and the relief of debtors and to rules of law governing specific
performance, injunctive relief or other equitable remedies.
3.3 Capital Structure.
(a) The authorized stock of Parent consists of 150,000,000 shares of
Common Stock, of which 38,124,532 shares were issued and outstanding as of
September 1, 1999, and 5,000,000 shares of Preferred Stock, none of which is
issued or outstanding as of September 1, 1999. The authorized capital stock of
Merger Sub consists of 1,000 shares of Common Stock, 1,000 shares of which, as
of the date hereof, are issued and outstanding and are held by Parent. All such
shares have been duly authorized, and all such issued and outstanding shares
have been validly issued, are fully paid and nonassessable and are free of any
liens or encumbrances other than any liens or encumbrances created by or imposed
upon the holders thereof.
(b) The shares of Parent Common Stock to be issued pursuant to the
Merger will, when issued in accordance with the terms of this Agreement, be duly
authorized, validly issued, fully paid and nonassessable.
3.4 SEC Documents; Parent Financial Statements. Parent has furnished or
made available to the Company true and complete copies of all reports or
registration statements filed by it with the U.S. Securities and Exchange
Commission (the "SEC") for all periods subsequent to March 31, 1999, all in the
form so filed (all of the foregoing being collectively referred to as the "SEC
Documents"). As of their respective filing dates, the SEC Documents complied in
all material respects with the requirements of the Exchange Act, and none of the
SEC Documents contained any untrue statement of a material fact or omitted to
state a material fact required to be stated therein or necessary to make the
statements made therein, in light of the circumstances under which they were
made, not misleading, except to the extent corrected by a subsequently filed
document with the SEC. The financial statements of Parent, including the notes
thereto, included in the SEC Documents (the "Parent Financial Statements")
comply as to form in all material respects with applicable accounting
requirements and with the published rules and regulations of the SEC with
respect thereto, have been prepared in accordance with U.S. generally accepted
accounting principles consistently applied (except as may be indicated in the
notes thereto) and present fairly the consolidated financial position of Parent
at the dates thereof and of its operations and cash flows for the periods then
ended (subject, in the case of unaudited statements, to normal audit
adjustments).
ARTICLE IV
CONDUCT PRIOR TO THE EFFECTIVE TIME
4.1 Conduct of Business of the Company. During the period from the date
of this Agreement and continuing until the earlier of (i) the termination of
this Agreement and (ii) the Effective Time, the Company agrees (except to the
extent that Parent shall otherwise consent in writing) to carry on its business
in the usual, regular and ordinary course in substantially the same
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manner as heretofore conducted, to pay its debts and Taxes when due, to pay or
perform other obligations when due, and, to the extent consistent with such
business, to use all reasonable efforts consistent with past practice and
policies to preserve intact its present business organization, keep available
the services of its present officers and key employees and preserve their
relationships with customers, suppliers, distributors, licensors, licensees, and
others having business dealings with it, all with the goal of preserving
unimpaired its goodwill and ongoing businesses at the Effective Time. The
Company shall promptly notify Parent of any event or occurrence or emergency not
in the ordinary course of its business, and any material event involving the
Company or its business. Except as expressly contemplated by this Agreement or
disclosed in Schedule 4.1, the Company shall not, without the prior written
consent of Parent:
(a) Enter into any commitment or transaction not in the ordinary
course of business.
(b) Transfer to any person or entity any rights to the Company
Intellectual Property Rights (other than pursuant to End-User Licenses in the
ordinary course of business);
(c) Enter into or amend any agreements pursuant to which any other
party is granted marketing, distribution or similar rights of any type or scope
with respect to any products of the Company;
(d) Amend or otherwise modify (or agree to do so), except in the
ordinary course of business, or violate the terms of, any of the agreements set
forth or described in the Company Schedules;
(e) Commence any litigation;
(f) Declare, set aside or pay any dividends on or make any other
distributions (whether in cash, stock or property) in respect of any of its
capital stock, or split, combine or reclassify any of its capital stock or issue
or authorize the issuance of any other securities in respect of, in lieu of or
in substitution for shares of capital stock of the Company, or repurchase,
redeem or otherwise acquire, directly or indirectly, any shares of its capital
stock (or options, warrants or other rights exercisable therefor);
(g) Except for the issuance of shares of Company Capital Stock upon
exercise or conversion of presently outstanding Company Options or Company
Preferred Stock, or presently outstanding warrants, issue, grant, deliver or
sell or authorize or propose the issuance, grant, delivery or sale of, or
purchase or propose the purchase of, any shares of its capital stock or
securities convertible into, or subscriptions, rights, warrants or options to
acquire, or other agreements or commitments of any character obligating it to
issue any such shares or other convertible securities;
(h) Cause or permit any amendments to its Articles of Incorporation
or Bylaws;
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(i) Acquire or agree to acquire by merging or consolidating with, or
by purchasing any assets or equity securities of, or by any other manner, any
business or any corporation, partnership, association or other business
organization or division thereof;
(j) Acquire or agree to acquire any assets in an amount in excess of
$10,000 in the case of a single transaction or in excess of $25,000 in the
aggregate in any 30-day period;
(k) Sell, lease, license or otherwise dispose of any of its
properties or assets, except in the ordinary course of business;
(l) Incur any indebtedness for borrowed money or guarantee any such
indebtedness or issue or sell any debt securities of the Company or guarantee
any debt securities of others;
(m) Grant any severance or termination pay (i) to any director or
officer or (ii) to any other employee, except payments made pursuant to standard
written agreements outstanding on the date hereof;
(n) Adopt or amend any employee benefit plan, or enter into any
employment contract, extend employment offers, pay or agree to pay any special
bonus or special remuneration to any director or employee, or increase the
salaries or wage rates of its employees; provided that the Company may cause the
vesting period of stock options granted to employees to be reduced from four to
two years;
(o) Revalue any of its assets, including without limitation writing
down the value of inventory or writing off notes or accounts receivable other
than in the ordinary course of business;
(p) Pay, discharge or satisfy, in an amount in excess of $10,000 (in
any one case) or $25,000 (in the aggregate), any claim, liability or obligation
(absolute, accrued, asserted or unasserted, contingent or otherwise), other than
the payment, discharge or satisfaction in the ordinary course of business of
liabilities reflected or reserved against in the Balance Sheet or expenses
consistent with the provisions of this Agreement incurred in connection with any
transaction contemplated and permitted hereby;
(q) Make or change any material election in respect of Taxes, adopt
or change any accounting method in respect of Taxes, enter into any closing
agreement, settle any claim or assessment in respect of Taxes, or consent to any
extension or waiver of the limitation period applicable to any claim or
assessment in respect of Taxes;
(r) Enter into any strategic alliance, development or joint
marketing agreement; or
(s) Take, or agree in writing or otherwise to take, any of the
actions described in Sections 4.1(a) through (r) above, or any other action that
would prevent the Company from performing or cause the Company not to perform
its covenants hereunder.
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4.2 No Solicitation. Until the earlier of (i) the Effective Time and
(ii) the date of termination of this Agreement pursuant to the provisions of
Section 8.1 hereof, the Company will not (nor will the Company permit any of the
Company's officers, directors, agents, representatives or affiliates to)
directly or indirectly, take any of the following actions with any party other
than Parent and its designees: (a) solicit, conduct discussions with or engage
in negotiations with any person, relating to the possible acquisition of the
Company (whether by way of merger, purchase of capital stock, purchase of assets
or otherwise) or any material portion of its or their capital stock or assets,
(b) provide information with respect to it, to any person, other than Parent,
relating to the possible acquisition of the Company (whether by way of merger,
purchase of capital stock, purchase of assets or otherwise) or any material
portion of its or their capital stock or assets, (c) enter into an agreement
with any person, other than Parent, providing for the acquisition of the Company
(whether by way of merger, purchase of capital stock, purchase of assets or
otherwise) or any material portion of its or their capital stock or assets or
(d) make or authorize any statement, recommendation or solicitation in support
of any possible acquisition of the Company (whether by way of merger, purchase
of capital stock, purchase of assets or otherwise) or any material portion of
its or their capital stock or assets by any person, other than by Parent. In
addition to the foregoing, if the Company receives prior to the Effective Time
or the termination of this Agreement any offer or proposal relating to any of
the above, the Company shall immediately notify Parent thereof, including
information as to the identity of the offeror or the party making any such offer
or proposal and the specific terms of such offer or proposal, as the case may
be, and such other information related thereto as Parent may reasonably request.
ARTICLE V
ADDITIONAL AGREEMENTS
5.1 Registration Rights.
In the event that the Parent Common Stock is issued to Company
shareholders (the "Holders") pursuant to a transaction which relies on the
registration exemption provided by Section 4(2) of the Securities Act (a "4(2)
Transaction"), the Holders shall have registration rights with respect to such
shares of Parent Common Stock (the "Registrable Securities") subject to the
following terms and conditions:
(a) Registration on Form S-3. Parent shall use reasonable best
efforts to cause the Registrable Securities to be registered so as to permit the
resale thereof, and in connection therewith shall, within five (5) business days
after Parent becomes a registrant entitled to use a Form S-3 registration
statement or any successor form thereto to register the resale (which shall not
be through an underwritten public offering) of the Registrable Securities,
prepare and file a Form S-3 registration statement or any successor form thereto
providing for an offering to be made on a continuous basis under the Securities
Act (the "Registration Statement") with the SEC under the Securities Act of
1933, as amended (the "Securities Act") to effect such registration and
thereafter Parent shall use its reasonable best efforts to cause the
Registration Statement to be declared effective under the Securities Act as soon
as practicable after the filing thereof; provided, however,
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that if Parent shall furnish to the Shareholders' Representative (as defined in
the Escrow Agreement) a certificate signed by the Chief Executive Officer of
Parent stating that, in the good faith judgment of the Board of Directors or
Chief Executive Officer of Parent, it would be seriously detrimental to Parent
and its shareholders for the Registration Statement to be filed on or before the
date filing would otherwise be required, and it is therefore in the best
interests of Parent to defer the filing of the Registration Statement, then
Parent may delay the filing of the Registration Statement, once but not more
than once, for a period not in excess of forty-five (45) days.
(b) Piggy-Back Registration on Form S-1. If at any time prior to the
filing of the Registration Statement on Form S-3 described in Section 5.1(a) the
Parent shall determine to register any of its securities other than (a) a
registration relating solely to employee benefit plans, (b) a registration
relating solely to a SEC Rule 145 transaction or (c) a registration in which the
only Common Stock registered is Common Stock issuable upon conversion of
convertible debt securities that are also being registered, then the Parent will
comply with the provisions of this Section 5.1(b):
(i) Notice of Registration. The Parent will promptly give to
each Holder a written notice thereof;
(ii) Inclusion of Holder Shares. Include in such registration
(and any related qualification under state securities laws) and in any
underwriting involved therein all Registerable Securities specified in a written
request or requests made within 15 days after receipt of such written notice
from the Parent by any Holder; provided however, that if the managing
underwriter of the offering in connection with the registration advises the
Parent and/or the Holders that marketing factors require a limitation of the
number of shares to be underwritten, then the underwriter may exclude some or
all of the Registrable Securities proposed to be registered, but only so long as
the Registrable Securities, together with the securities that all other holders
of registration rights have elected to include in such registration, comprise at
least 15% of the offering.
(c) Expenses of Registration. Parent shall pay all Registration
Expenses (as hereafter defined) in connection with any registration,
qualification or compliance pursuant to this Section 5.1, and each Holder shall
pay all Selling Expenses (as hereafter defined) and other expenses that are not
Registration Expenses relating to the Registrable Securities resold by him or
her. For purposes of this Section 5.1(c), "Registration Expenses" shall mean all
expenses, except as otherwise stated below, incurred by Parent in complying with
Sections 5.1(a), 5.1(b) and 5.1(d), including, without limitation, all
registration, qualification and filing fees, printing expenses, escrow fees,
fees and disbursements of counsel for Parent, blue sky fees and expenses, and
the expense of any special audits incident to or required by any such
registration. For purposes of this Section 5.1(c), "Selling Expenses" shall mean
all selling discounts commissions and stock transfer or other Taxes applicable
to the Registrable Securities and all fees and disbursements of one counsel for
all Holders.
(d) Registration Procedures. In the case of any registration
effected by Parent pursuant to this Section 5.1, Parent will keep each Holder
advised in writing as to the initiation of each registration and as to the
completion thereof. Parent will:
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(i) Use reasonable best efforts to keep such registration
effective until the earlier of (A) all Holders having completed the distribution
described in the registration statement relating thereto or (B) two years from
the Closing Date;
(ii) Promptly prepare and file with the SEC such amendments and
supplements to the Registration Statement and the prospectus used in connection
with the Registration Statement as may be necessary to comply with the
provisions of the Securities Act with respect to the disposition of all
securities covered by the Registration Statement;
(iii) Furnish such number of prospectuses and other documents
incident thereto, including any amendment of or supplement to the prospectus, as
a Holder from time to time may reasonably request;
(iv) Subject to Section 5.1(i)(ii) hereof, notify each Holder of
Registrable Securities covered by the Registration Statement at any time when a
prospectus relating thereto is required to be delivered under the Securities Act
of the happening of any event as a result of which the prospectus included in
the Registration Statement, as then in effect, includes an untrue statement of a
material fact or omits to state a material fact required to be stated therein or
necessary to make the statements therein not misleading in the light of the
circumstances then existing, and at the request of any such Holder, prepare and
furnish to such Holder a reasonable number of copies of a supplement to or an
amendment of such prospectus as may be necessary so that, as thereafter
delivered to the purchasers of such shares, such prospectus shall not include an
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein not misleading in
the light of the circumstances then existing;
(v) Cause all such Registrable Securities registered pursuant to
the Registration Statement to be listed on each securities exchange or quotation
system on which similar securities issued by Parent are then listed or quoted,
and in connection therewith, file with the Nasdaq National Market an application
for listing of additional shares with respect to the Registrable Securities;
(vi) Provide a transfer agent and registrar for all Registrable
Securities registered pursuant to the Registration Statement and a CUSIP number
for all such Registrable Securities, in each case not later than the effective
date of the Registration Statement;
(vii) Use its reasonable best efforts to register or qualify the
Registerable Securities covered by the Registration Statement under such other
securities or blue sky laws of such jurisdiction within the United States and
Puerto Rico as shall be reasonably appropriate for the distribution of the
Registrable Securities covered by the Registration Statement; provided, however,
that Parent shall not be required in connection therewith or as a condition
thereto to qualify to do business in or file a general consent to service of
process in any jurisdiction wherein it would not but for the requirements of
this paragraph be obligated to do so; and
(viii) Otherwise use its reasonable best efforts to comply with
all applicable rules and regulations of the SEC, and make available to its
security holders, as soon as reasonably
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practicable, an earnings statement covering a period of at least twelve months,
but not more than eighteen months, beginning with the first month after the
effective date of the Registration Statement, which earnings statement shall
satisfy the provisions of Section 11(a) of the Securities Act.
(e) Information by Holder. Each Holder of Registrable Securities
shall furnish to Parent such information regarding such Holder and the
distribution proposed by such Holder as Parent may reasonably request in
connection with any registration, qualification or compliance referred to in
this Section 5.1, but only to the extent that such information is required in
order for Parent to comply with its obligations under all applicable securities
and other laws and to ensure that the Registration Statement relating to such
Registrable Securities conforms to the applicable requirements of the Securities
Act and the rules and regulations thereunder. Each Holder covenants that it will
promptly notify Parent of any changes in the information set forth in the
Registration Statement or otherwise provided by such Holder to Parent regarding
such Holder or such Holder's plan of distribution as a result of which the
Registration Statement or any prospectus relating to the Registrable Securities
contains or would contain an untrue statement of a material fact regarding such
Holder or its intended method of distribution of such Registrable Securities or
omits to state any material fact regarding such Holder or its intended method of
distribution of such Registrable Securities required to be stated therein or
necessary to make the statements therein, not misleading.
(f) Indemnification and Contribution.
(i) Parent agrees to indemnify and hold harmless each Holder
from and against any losses, claims, damages or liabilities (or actions or
proceedings in respect thereof) to which such Holder may become subject (under
the Securities Act or otherwise) insofar as such losses, claims, damages or
liabilities (or actions or proceedings in respect thereof) arise out of, or are
based upon, any untrue statement, alleged untrue statement, omission or alleged
omission of a material fact in the Registration Statement, any prospectus
included in the Registration Statement, or any amendment or supplement to the
Registration Statement or any such prospectus, and Parent will, as incurred,
reimburse such Holder for any legal or other expenses reasonably incurred in
investigating, defending or preparing to defend any such action, proceeding or
claim; provided, however, that Parent shall not be liable in any such case to
the extent that such loss, claim, damage or liability arises out of, or is based
upon (A) an untrue statement or alleged untrue statement made in such
Registration Statement in reliance upon and in conformity with written
information furnished to Parent by such Holder in an instrument executed by such
Holder and specifically stated to be for use in the preparation of the
Registration Statement, (B) the failure of such Holder to comply with any of the
covenants and agreements contained in Sections 5.1(g) or 5.1(i) hereof, or (C)
any untrue statement in any prospectus that is corrected in any subsequent
prospectus that was delivered to the Holder prior to the pertinent sale or sales
by the Holder.
(ii) Each Holder, severally and not jointly, agrees to indemnify
and hold harmless Parent from and against any losses, claims, damages or
liabilities (or actions or proceedings in respect thereof) to which Parent may
become subject (under the Securities Act or otherwise) insofar as such losses,
claims, damages or liabilities (or actions or proceedings in respect thereof)
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arise out of, or are based upon (A) an untrue statement, alleged untrue
statement, omission or alleged omission of a material fact in the Registration
Statement, any prospectus included in the Registration Statement, or any
amendment or supplement to the Registration Statement or any such prospectus in
reliance upon and in conformity with written information furnished to Parent by
such Holder in an instrument executed by such Holder and specifically stated to
be for use in preparation of the Registration Statement, provided, however, that
no Holder shall be liable in any such case for any untrue statement included in
any Prospectus which statement has been corrected in a writing delivered to
Parent at least two business days before the sale from which such loss arose,
(B) the failure of such Holder to comply with any of the covenants and
agreements contained in Sections 5.1(g) or 5.1(i) hereof, or (C) any untrue
statement in any Prospectus that is corrected in any subsequent Prospectus that
was delivered to the Holder prior to the pertinent sale or sales by the Holder;
and each Holder, severally and not jointly, will, as incurred, reimburse Parent
for any legal or other expenses reasonably incurred in investigating, defending
or preparing to defend any such action, proceeding or claim. In no event shall
the amount payable by any Holder to Parent pursuant to this Section 5.1(f)(ii)
by reason of a sale of Parent Common Stock by such Holder exceed the amount of
the gross proceeds to such Holder from the sale of Parent Common Stock from
which such liability arose.
(iii) Promptly after receipt by any indemnified person under
subsections (i) or (ii) above of a notice of a claim or the beginning of any
action in respect of which indemnity is to be sought against an indemnifying
person pursuant to this Section 5.1(f), such indemnified person shall notify the
indemnifying person in writing of such claim or of the commencement of such
action (provided, however, that no failure to provide such notice shall relieve
any indemnifying person of any liability hereunder except to the extent that
such indemnifying person is prejudiced thereby), and, subject to the provisions
hereinafter stated, in case any such action shall be brought against an
indemnified person and the indemnifying person shall have been notified thereof,
the indemnifying person shall be entitled to participate therein, and, to the
extent that it shall wish, to assume the defense thereof, with counsel
reasonably satisfactory to the indemnified person. After notice from the
indemnifying person to such indemnified person of the indemnifying person's
election to assume the defense thereof, the indemnifying person shall not be
liable to such indemnified person for any legal expenses subsequently incurred
by such indemnified person in connection with the defense thereof; provided,
however, that, if the indemnifying person shall propose that the same counsel
represent it and the indemnified person, and if counsel for the indemnified
person shall reasonably have concluded that there is an actual conflict of
interest posed by the representation proposed by the indemnifying person, the
indemnified person shall be entitled to retain its own counsel reasonably
satisfactory to the indemnifying person at the expense of such indemnifying
person; provided, however that if more than one indemnified person makes a claim
against an indemnifying person based on substantially similar facts, the
indemnifying person shall not be responsible for the fees of more than one
counsel for all indemnified persons whose claims are based on substantially
similar facts.
(iv) If the indemnification provided for in this Section 5.1(f)
is unavailable to or insufficient to hold harmless an indemnified party under
subsection (i) or (ii) above in respect of any losses, claims, damages or
liabilities (or actions or proceedings in respect thereof) referred to
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therein, then each indemnifying party shall contribute to the amount paid or
payable by such indemnified party as a result of such losses, claims, damages or
liabilities (or actions in respect thereof), in such proportion as is
appropriate to reflect the relative fault of each such party, as well as any
other relevant equitable considerations. The relative fault shall be determined
by reference to, among other things, whether the untrue or alleged untrue
statement of a material fact or the omission or alleged omission to state a
material fact relates to information supplied by Parent on the one hand or a
Holder on the other and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or omission.
Parent and the Holders agree that it would not be just and equitable if
contribution pursuant to this Section 5.1(f)(iv) were determined by any method
of allocation which does not take account of the equitable considerations
referred to above in this Section 5.1(f)(iv). The amount paid or payable by an
indemnified party as a result of the losses, claims, damages, or liabilities (or
actions in respect thereof) referred to above in this Section 5.1(f)(iv) shall
be deemed to include any legal or other expenses reasonably incurred by such
indemnified party in connection with investigating or defending any such action,
proceeding or claim. No person guilty of fraudulent misrepresentation (within
the meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation.
(v) The obligations of the Parent and the Holders under this
Section 5.1(f) shall be in addition to any liability which Parent and the
respective Holders may otherwise have and shall extend, upon the same terms and
conditions, to each director and officer of Parent or any Holder, and to each
person, if any, who controls Parent or any Holder within the meaning of the
Securities Act or the Exchange Act.
(g) Restrictions on Transferability. The shares of Parent Common
Stock issued or issuable pursuant to this Agreement in a 4(2) Transaction (the
"Restricted Shares") shall not be transferable in the absence of (i)
registration under the Securities Act or an exemption therefrom, (ii)
registration or qualification under the provisions of any applicable blue sky
laws or an exemption therefrom, or (iii) compliance with any term of this
Agreement. Parent shall be entitled to give stop transfer instructions to its
transfer agent with respect to the Restricted Shares in order to enforce the
foregoing restrictions.
(h) Restrictive Legend. Each certificate representing Restricted
Shares shall bear substantially the following legends (in addition to any
legends required under applicable securities laws):
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR
INVESTMENT PURPOSES ONLY AND HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933. THE SHARES MAY NOT BE SOLD OR TRANSFERRED IN THE
ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM.
ADDITIONALLY, THE TRANSFER OF THE SHARES REPRESENTED BY THIS
CERTIFICATE IS SUBJECT TO CERTAIN RESTRICTIONS SPECIFIED IN THE
AGREEMENT AND PLAN OF REORGANIZATION AMONG THE ISSUER,
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XETI ACQUISITION CORPORATION AND XETI , INC. DATED OCTOBER 8, 1999 (THE
"AGREEMENT"), AND NO TRANSFER OF SHARES SHALL BE VALID OR EFFECTIVE
ABSENT COMPLIANCE WITH SUCH RESTRICTIONS. ALL SUBSEQUENT HOLDERS OF THIS
CERTIFICATE WILL HAVE AGREED TO BE BOUND BY CERTAIN OF THE TERMS OF THE
AGREEMENT, INCLUDING SECTION 5.1 OF THE AGREEMENT. COPIES OF THE
AGREEMENT MAY BE OBTAINED AT NO COST BY WRITTEN REQUEST MADE BY THE
REGISTERED HOLDER OF THIS CERTIFICATE TO THE SECRETARY OF THE COMPANY.
The legend contained in this Section 5.1(h) shall be removed from a
certificate in connection with any sale in compliance with the terms of this
Agreement and pursuant to the Registration Statement, but shall not be removed
in any other circumstance without Parent's prior written consent (which consent
shall not be unreasonably withheld or delayed and shall be granted if such
legend is no longer appropriate).
(i) Transfer of Shares After Registration.
(i) Restriction. No Holder may make any sale of any Restricted
Shares except (A) in accordance with the Registration Statement, in which case
Holder must comply with the requirement of delivering a current prospectus, (B)
in accordance with Rule 144, or (C) pursuant to an exemption from the
registration requirements of the Securities Act, if accompanied by an opinion of
counsel that registration is not necessary, which opinion and counsel shall be
reasonably satisfactory to Parent. Such Restricted Shares are not transferable
on the books of Parent unless the certificate submitted to Parent's transfer
agent evidencing such Restricted Shares is accompanied by a separate
certificate, in form and substance reasonably satisfactory to Parent, executed
by an officer of, or other person duly authorized by, the Holder for purposes of
establishing compliance with this Agreement.
(ii) Notice to Parent of Proposed Sale and Right of Parent to
Suspend Use of Registration Statement. If any Holder shall propose to sell any
Registrable Securities pursuant to the Registration Statement, it shall notify
Parent of its intent to do so at least three (3) full business days prior to
such sale. Such notice shall be deemed to constitute a representation that any
information previously supplied by such Holder (including without limitation the
information referred to in Section 5.1(e) hereof) is accurate as of the date of
such notice. At any time within such three (3) business-day period, Parent may
refuse to permit the Holder to resell any Registrable Securities pursuant to the
Registration Statement; provided, however, that in order to exercise this right,
Parent must deliver a certificate in writing to the Holder to the effect that a
delay in such sale is necessary because a sale pursuant to such Registration
Statement in its then-current form would not be in the best interests of Parent
and its shareholders. In no event shall such delay exceed forty-five (45)
calendar days, and provided further, however, that in no event shall Parent be
permitted to exercise this right more than three times in any single calendar
year.
(j) Rule 144 Reporting. With a view to making available the benefits
of certain rules and regulations of the SEC which may at any time permit the
sale of the Registrable Securities to the
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public without registration, or pursuant to a registration on Form S-3, the
Company agrees to use its reasonable best efforts to:
(i)Make and keep public information available, as those terms
are understood and defined in Rule 144 under the Securities Act, at all times
after the Effective Time;
(ii) File with the SEC in a timely manner all reports and other
documents required of the Company under the Securities Act and the Exchange Act;
and
(iii) So long as a Holder owns any Registrable Securities, to
furnish to that Holder forthwith upon request a written statement by the Company
as to its compliance with the reporting requirements of said Rule 144, and of
the Securities Act and the Exchange Act, a copy of the most recent annual or
quarterly report of the Company, and such other reports and documents of the
Company as such Holder may reasonably request in availing itself of any rule or
regulation of the SEC allowing such Holder to sell any such Registrable
Securities without registration.
(k) Transfer of Registration Rights. The rights and obligations of
any Holder under this Section 5.1 may be assigned to a transferee or assignee in
connection with any transfer or assignment of Registrable Securities by a
Holder; provided that: (i) such transfer may otherwise be effected in accordance
with applicable securities laws, (ii) the Company is, within a reasonable time
after such transfer, furnished with written notice of the name and address of
such transferee or assignee and the securities with respect to which such
registration rights are being assigned under, (iii) each transferee shall agree
to be bound by all of the provisions of this Section 5.1; and (iv) such
assignment shall be effective only if immediately following such transfer the
further disposition of such Registrable Securities by the transferee or assignee
is restricted under the Securities Act.
5.2 Purchaser Representative. The Company shall retain a "purchaser
representative," as such term is defined in Rule 501(h) under the Securities
Act, to represent each Company shareholder who is not an "accredited investor"
as defined in Rule 501(a) under the Securities Act. The Company shall use its
best efforts to solicit and obtain the consent of its shareholders sufficient to
approve the Merger and this Agreement and to enable the Closing to occur as
promptly as practicable. The Company shall further use its best efforts to have
each investor who is not an accredited investor sign an acknowledgement that the
purchaser representative is such investor's purchaser representative in the
transactions contemplated hereby. The materials submitted to the Company's
shareholders, including the Information Statement, shall be subject to prior
review and approval by Parent and shall include the unanimous recommendation of
the Board of Directors of the Company in favor of the Merger and this Agreement.
5.3 Access to Information. Subject to any applicable contractual
confidentiality obligations (which the Company shall use its best efforts to
cause to be waived) each party shall afford the others and its accountants,
counsel and other representatives, reasonable access during normal business
hours during the period prior to the Effective Time to (a) all of its
properties, books, contracts, agreements and records, and (b) all other
information concerning the business, properties and personnel (subject to
restrictions imposed by applicable law) of it as the others may reasonably
request. No information or knowledge obtained in any investigation pursuant to
this Section 5.2
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shall affect or be deemed to modify any representation or warranty contained
herein or the conditions to the obligations of the parties to consummate the
Merger.
5.4 Confidentiality. Each of the parties hereto hereby agrees to and
reaffirms the terms and provisions of the Confidentiality Agreement between
Parent and the Company dated as of August 23, 1999.
5.5 Expenses. Whether or not the Merger is consummated, all fees and
expenses incurred in connection with the Merger including, without limitation,
all legal, accounting, financial advisory, consulting and all other fees and
expenses of third parties ("Third Party Expenses") incurred by a party in
connection with the negotiation and effectuation of the terms and conditions of
this Agreement and the transactions contemplated hereby, shall be the obligation
of the respective party incurring such fees and expenses.
5.6 Public Disclosure. Upon execution and delivery of this Agreement by
the parties hereto, Parent and the Company shall release a jointly prepared
announcement describing the Merger. Except as aforesaid, unless otherwise
required by law (including, without limitation, securities laws) or, as to
Parent, by the rules and regulations of the National Association of Securities
Dealers, Inc., prior to the Effective Time, no disclosure (whether or not in
response to an inquiry) of the subject matter of this Agreement shall be made by
any party hereto unless approved by Parent and the Company prior to release,
provided that such approval shall not be unreasonably withheld.
5.7 Consents. The Company shall use its best efforts to obtain the
consents, waivers and approvals under any of the Contracts identified on
Schedule 2.12(c) as may be required in connection with the Merger.
5.8 FIRPTA Compliance. On the Closing Date, the Company shall deliver to
Parent a properly executed statement in a form reasonably acceptable to Parent
for purposes of satisfying Parent's obligations under Treasury Regulation
Section 1.1445-2(c)(3).
5.9 Reasonable Efforts. Subject to the terms and conditions provided in
this Agreement, each of the parties hereto shall use its reasonable efforts to
take promptly, or cause to be taken, all actions, and to do promptly, or cause
to be done, all things necessary, proper or advisable under applicable laws and
regulations to consummate and make effective the transactions contemplated
hereby, to obtain all necessary waivers, consents and approvals and to effect
all necessary registrations and filings and to remove any injunctions or other
impediments or delays, legal or otherwise, in order to consummate and make
effective the transactions contemplated by this Agreement for the purpose of
securing to the parties hereto the benefits contemplated by this Agreement;
provided that Parent shall not be required to agree to any divestiture by Parent
or the Company or any of Parent's subsidiaries or affiliates of shares of
capital stock or of any business, assets or property of Parent or its
subsidiaries or affiliates or the Company or its affiliates, or the imposition
of any material limitation on the ability of any of them to conduct their
businesses or to own or exercise control of such assets, properties and capital
stock.
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5.10 Notification of Certain Matters. The Company shall give prompt
notice to Parent, and Parent shall give prompt notice to the Company, of (i) the
occurrence or non-occurrence of any event, the occurrence or non-occurrence of
which is likely to cause any representation or warranty of the Company and
Parent or Merger Sub, respectively, contained in this Agreement to be untrue or
inaccurate in any material respect at or prior to the Effective Time except as
contemplated by this Agreement (including the Company Schedules) and (ii) any
failure of the Company or Parent, as the case may be, to comply with or satisfy
in any material respect any covenant, condition or agreement to be complied with
or satisfied by it hereunder; provided, however, that the delivery of any notice
pursuant to this Section 5.9 (including any description of any breaches of the
representation or warranties in this Agreement contained in an officer
certificate delivered pursuant to Section 6.2(a) or 6.3(a) shall not limit or
otherwise affect any remedies available to the party receiving such notice.
5.11 Additional Documents and Further Assurances. Each party hereto, at
the request of the other party hereto, shall execute and deliver such other
instruments and do and perform such other acts and things as may be reasonably
necessary or desirable for effecting completely the consummation of this
Agreement and the transactions contemplated hereby.
5.12 Form S-8. Parent shall promptly file a registration statement on
Form S-8 for the shares of Parent Common Stock issuable with respect to assumed
Company Options after the Closing Date.
5.13 NMS Listing. Parent shall authorize for listing on the Nasdaq
National Market the shares of Parent Common Stock issuable, and those required
to be reserved for issuance, in connection with the Merger, upon official notice
of issuance.
5.14 Cooperation With Financial Statements. The Company will use its
best efforts to cause the Company's management and its independent auditors to
facilitate on a timely basis (i) the preparation of historical and pro forma
financial statements as required by Parent to comply with applicable SEC
regulations, and (ii) the review of the Company's 1997 and 1998 audit work
papers, including the examination of selected interim financial statements and
data.
5.15 Employee Benefits.
(a)Parent shall take such reasonable actions as are necessary to
allow eligible employees of the Company to participate in the benefit programs
of Parent, or alternative benefits programs substantially comparable to those
applicable to employees of Parent on similar terms, as soon as practicable after
the Effective Time. Parent shall have made offers of employment to the Company's
current employees prior to the Closing Date on an at-will basis with at least
the same rate of pay and equivalent benefits.
(b) Parent shall reserve an aggregate of $1,000,000 in cash, which
shall be distributed one year after the Closing to those persons identified on
Schedule 5.15 in the amounts mutually agreed upon by Parent and the Company
prior to Closing and distributed in accordance with the terms of such Schedule.
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5.16 Interim Financing. In the event that the Closing shall not have
occurred by November 30, 1999 and upon a reasonable demonstration of need for
interim financing, Parent, in its sole discretion, may provide a loan of up to
$500,000 on commercially reasonable terms. Any such loan shall be considered an
advance against the purchase price and deducted from the consideration payable
to Company Shareholders.
5.17 Indemnification of Directors and Officers. For a period of six
years from the Closing Date, Parent shall, and shall cause the Company to,
fulfill and honor in all respects all rights to indemnification existing in
favor of the directors and officers of the Company, as provided in and subject
to the terms of the Company's Articles of Incorporation and Bylaws (as in effect
as of the date of this Agreement) provided that (a) the indemnified party has
met any applicable standard of conduct to qualify for such indemnification and
(b) the basis of the claim against such indemnified party does not otherwise
constitute a breach of any of the representations or warranties made by, or
covenants to performed by, the Company under this Agreement. Section 5.17 shall
survive the consummation of the transactions contemplated hereby, is intended to
benefit and may be enforced by the directors and officers of the Company, and
shall be binding on all successors and assigns of Parent and the Company.
ARTICLE VI
CONDITIONS TO THE MERGER
6.1 Conditions to Obligations of Each Party to Effect the Merger. The
respective obligations of each party to this Agreement to effect the Merger
shall be subject to the satisfaction at or prior to the Closing of the following
conditions:
(a) Shareholder Approval. This Agreement and the Merger shall have
been approved and adopted by the shareholders of the Company by the requisite
vote under applicable law and the Company's Articles of Incorporation.
(b) No Injunctions or Restraints; Illegality; Competition Act,
Investment Act. 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
Merger shall be in effect. All waiting periods under the HSR Act shall have
expired or been terminated early.
(c) Tax Opinions. Parent and the Company shall each have received
written opinions from their respective tax counsel to the effect that the Merger
will constitute a reorganization within the meaning of Section 368(a) of the
Code; provided, however, that if the counsel to either Parent or the Company
does not render such opinion, this condition shall nonetheless be deemed to be
satisfied with respect to such party if counsel to the other party renders such
opinion to such party. The parties to this Agreement agree to make reasonable
representations as requested by such counsel for the purpose of rendering such
opinions. In the event that a tax opinion is unavailable because the aggregate
consideration consists of more than 20% cash (valuing the Parent Common Stock at
the Closing Date Price), the
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parties agree to renegotiate in good faith the various exchange ratios and cash
payments referred to in Section 1.6 based upon the following criteria: the
aggregate consideration paid for all shares of Company capital stock, vested
options to acquire Company capital stock, and warrants to acquire Company
capital stock should be $12,500,000 (valuing any Parent Common Stock paid at the
Signing Date Price); the aggregate consideration paid for all shares of Company
capital stock, but excluding payments made to options to acquire Company capital
stock or warrants to acquire Company capital stock should consist of no more
than 20% cash (valuing any Parent Common Stock paid at the Closing Date Price).
(d) Nasdaq Listing. The shares of Parent Common Stock issuable to
shareholders of the Company pursuant to this Agreement and such other shares
required to be reserved for issuance in connection with the Merger shall have
been authorized for listing on the Nasdaq Stock Market upon official notice of
issuance.
(e) Registration Exemption Available. The registration exemption
provided by Section 4(2) of the Securities Act shall be available and valid to
exempt the issuance of the Parent Common Stock to shareholders of the Company
pursuant to this Agreement.
6.2 Additional Conditions to Obligations of the Company. The obligations
of the Company to consummate the Merger and the transactions contemplated by
this Agreement shall be subject to the satisfaction at or prior to the Closing
of each of the following conditions, any of which may be waived, in writing,
exclusively by the Company:
(a) Representations and Warranties. The representations and
warranties of Parent and Merger Sub contained in this Agreement shall have been
true and correct as of the date of this Agreement. In addition, the
representations and warranties of Parent and Merger Sub contained in this
Agreement shall be true and correct in all material respects on and as of the
Effective Time except for (i) changes contemplated by this Agreement, and (ii)
except for those representations and warranties which address matters only as of
a particular date (which shall remain true and correct as of such particular
date). The Company shall have received a certificate with respect to the
foregoing signed on behalf of Parent by a duly authorized officer of Parent.
(b) Agreements and Covenants. Parent and Merger Sub shall have
performed or complied (which performance or compliance shall be subject to
Parent's or Merger Sub's ability to cure as provided in Section 8.1(e) below) in
all material respects with all agreements and covenants required by this
Agreement to be performed or complied with by them on or prior to the Effective
Time, and the Company shall have received a certificate to such effect signed by
a duly authorized officer of Parent.
6.3 Additional Conditions to the Obligations of Parent and Merger Sub.
The obligations of Parent and Merger Sub to consummate the Merger and the
transactions contemplated by this Agreement shall be subject to the satisfaction
at or prior to the Closing of each of the following conditions, any of which may
be waived, in writing, exclusively by Parent:
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(a) Representations and Warranties. The representations and
warranties of the Company contained in this Agreement shall have been true and
correct as of the date of this Agreement. In addition, the representations and
warranties of the Company contained in this Agreement shall be true and correct
in all material respects on and as of the Effective Time except for (i) changes
contemplated by this Agreement, and (ii) except for those representations and
warranties which address matters only as of a particular date (which shall
remain true and correct as of such particular date). Parent shall have received
a certificate with respect to the foregoing signed on behalf of the Company by a
duly authorized officer of the Company.
(b) Agreements and Covenants. The Company shall have performed or
complied (which performance or compliance shall be subject to the Company's
ability to cure as provided in Section 8.1(d) below) in all material respects
with all agreements and covenants required by this Agreement to be performed or
complied with by it on or prior to the Effective Time, and Parent and Merger Sub
shall have received a certificate to such effect signed by a duly authorized
officer of the Company.
(c) Third Party Consents. Parent shall have been furnished with
evidence satisfactory to it that the Company has obtained the consents,
approvals and waivers set forth in Schedule 2.12(c).
(d) Legal Opinion. Parent shall have received a legal opinion from
General Counsel Associates LLP, legal counsel to the Company, in substantially
the form attached hereto as Exhibit B.
(e) Material Adverse Change. There shall not have occurred any
material adverse change in the business, assets (including intangible assets)
financial condition or results of operations of the Company since June 30, 1999.
(f) Noncompetition Agreements. Each person listed on Schedule 6.3(f)
shall have executed and delivered to Parent a Noncompetition and Nonsolicitation
Agreement in substantially the form of Exhibit C and all of such agreements
shall be in full force and effect.
(g) Key Employees. Each person listed on Schedule 6.3(g) shall have
accepted an offer of employment with Parent.
(h) Escrow Agreement. Parent, the Company, Escrow Agent and the
Shareholders' Representative (as defined in the Escrow Agreement) shall have
entered into an Escrow Agreement substantially in the form attached hereto as
Exhibit D (the "Escrow Agreement").
(i) Dissenters' Rights. Holders of more than 10% of the outstanding
shares of Company Capital Stock shall not have exercised, nor shall they have
any continued right to exercise, appraisal, dissenters' or similar rights under
applicable law with respect to their shares by virtue of the Merger.
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(j) Resignation of Directors and Officers. All directors and
officers of the Company shall have resigned their respective offices as
directors and officers of the Company effective as of the Effective Time.
ARTICLE VII
SURVIVAL OF REPRESENTATIONS AND WARRANTIES;
INDEMNIFICATION; ESCROW
7.1 Survival of Representations and Warranties. All of the Company's
representations and warranties in this Agreement or in any instrument delivered
pursuant to this Agreement (each as modified by the Company Schedules) shall
survive the Merger and continue until 5:00 p.m., California time, on the first
anniversary of the Closing Date.
7.2 Obligation of the Company to Indemnify, Reimburse, etc. Subject to
the provisions of Section 7.4 hereof, the Company, its successors and assigns,
jointly and severally, shall indemnify, reimburse, defend, protect and hold
harmless Parent and Merger Sub and each of their successors and assigns and each
of their respective directors, officers, employees, affiliates, agents, and
their respective successors and assigns (each a "Parent Indemnitee") from and
against any claims, losses, liabilities, damages, causes of action, costs and
expenses (including reasonable attorney's, accountant's, consultant's and
expert's fees and expenses) (collectively "Losses") resulting from, imposed
upon, incurred or suffered by any of them, directly or indirectly, based upon,
arising out of or otherwise in respect of any inaccuracy in or any breach of any
representation, warranty, covenant or agreement of the Company.
7.3 Obligation of Parent to Indemnify, Reimburse, etc. Subject to the
provisions of Section 7.4 hereof, Parent and Merger Sub and their respective
successors and assigns, jointly and severally, shall indemnify, reimbursement,
defend, protect and hold harmless the Company and its successors and assigns and
each of its directors, officers, employees, affiliates, agents, and their
respective successors and assigns (each a "Company Indemnitee") from and against
any Losses resulting from, imposed upon, incurred or suffered by any of them,
directly or indirectly, based upon, arising out of or otherwise in respect of
any inaccuracy in or breach of any representation, warranty, covenant or
agreement of Parent.
7.4 Limits on Indemnification, Reimbursement, etc.. Absent fraud or
willful misconduct of any party (for which there shall be no limitation of
liability of any party), no Parent Indemnitee and no Company Indemnitee shall
have any right to seek indemnification, reimbursement or defense under this
Agreement or the Escrow Agreement until Losses which would otherwise be
indemnifiable hereunder, and have been incurred by such party and other
indemnitees associated with or related to such party exceed $100,000, after
which such party or parties to be indemnified hereunder shall be entitled to
receive indemnification for all losses in excess of $100,000. Furthermore, in
the event that the Closing occurs pursuant to Section 1.2 and absent fraud or
willful misconduct of a Company Indemnitee, the Parent's recourse against Losses
will be limited to the Escrow Fund.
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7.5 Escrow Arrangements. Concurrent with the Effective Time, the Escrow
Amount shall be placed in an escrow fund (the "Escrow Fund"), to be governed by
the terms of the Escrow Agreement. The Escrow Fund shall be available to
compensate Parent and its affiliates for Losses for which Parent or its
affiliates are entitled to indemnification under Article VII. The terms and
conditions of the Escrow Fund shall be set forth more fully in the Escrow
Agreement.
ARTICLE VIII
TERMINATION, AMENDMENT AND WAIVER
8.1 Termination. Except as provided in Section 8.2 below, this Agreement
may be terminated and the Merger abandoned at any time prior to the Effective
Time:
(a) by mutual consent of the Company and Parent;
(b) by Parent or the Company if: (i) the Effective Time has not
occurred by December 31, 1999 (provided that the right to terminate this
Agreement under this clause 8.1(b)(i) shall not be available to any party whose
willful failure to fulfill any obligation hereunder has been the cause of, or
resulted in, the failure of the Effective Time to occur on or before such date);
(ii) there shall be a final nonappealable order of a federal or state court in
effect preventing consummation of the Merger; or (iii) there shall be any
statute, rule, regulation or order enacted, promulgated or issued or deemed
applicable to the Merger by any governmental entity that would make consummation
of the Merger illegal;
(c) by Parent if there shall be any action taken, or any statute,
rule, regulation or order enacted, promulgated or issued or deemed applicable to
the Merger, by any Governmental Entity, which would: (i) prohibit Parent's or
the Company's ownership or operation of any portion of the business of the
Company or (ii) compel Parent or the Company to dispose of or hold separate, as
a result of the Merger, any portion of the business or assets of the Company or
Parent.
(d) by Parent if it is not in material breach of its obligations
under this Agreement and there has been a breach of any representation,
warranty, covenant or agreement contained in this Agreement on the part of the
Company and as a result of such breach the conditions set forth in Section
6.3(a) or 6.3(b), as the case may be, would not then be satisfied; provided,
however, that if such breach is curable by the Company within thirty (30) days
through the exercise of its reasonable best efforts, then for so long as the
Company continues to exercise such reasonable best efforts Parent may not
terminate this Agreement under this Section 8.1(d) unless such breach is not
cured within thirty (30) days (but no cure period shall be required for a breach
which by its nature cannot be cured);
(e) by the Company if it is not in material breach of its
obligations under this Agreement and there has been a breach of any
representation, warranty, covenant or agreement contained in this Agreement on
the part of Parent or Merger Sub and as a result of such breach the conditions
set forth in Section 6.2(a) or 6.2(b), as the case may be, would not then be
satisfied; provided, however, that if such breach is curable by Parent or Merger
Sub within thirty (30) days
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through the exercise of its reasonable best efforts, then for so long as Parent
or Merger Sub continues to exercise such reasonable best efforts the Company may
not terminate this Agreement under this Section 8.1(e) unless such breach is not
cured within thirty (30) days (but no cure period shall be required for a breach
which by its nature cannot be cured).
Where action is taken to terminate this Agreement pursuant to this
Section 8.1, it shall be sufficient for such action to be authorized by the
Board of Directors (as applicable) of the party taking such action.
8.2 Effect of Termination. In the event of termination of this Agreement
as provided in Section 8.1, this Agreement shall forthwith become void and,
except as set forth in Section 8.3, there shall be no liability or obligation on
the part of Parent, Merger Sub or the Company, or their respective officers,
directors or shareholders, provided that each party shall remain liable for any
breaches of this Agreement prior to its termination; and provided further that,
the provisions of Sections 5.3 and 5.4 and Article IX of this Agreement shall
remain in full force and effect and survive any termination of this Agreement.
8.3 Amendment. Except as is otherwise required by applicable law after
the shareholders of the Company approve this Agreement, this Agreement may be
amended by the parties hereto at any time by execution of an instrument in
writing signed on behalf of each of the parties hereto.
8.4 Extension; Waiver. At any time prior to the Effective Time, Parent
and Merger Sub, on the one hand, and the Company, on the other, may, to the
extent legally allowed, (i) extend the time for the performance of any of the
obligations of the other party hereto, (ii) waive any inaccuracies in the
representations and warranties made to such party contained herein or in any
document delivered pursuant hereto, and (iii) waive compliance with any of the
agreements or conditions for the benefit of such party contained herein. Any
agreement on the part of a party hereto to any such extension or waiver shall be
valid only if set forth in an instrument in writing signed on behalf of such
party.
ARTICLE IX
GENERAL PROVISIONS
9.1 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 acknowledgment of complete transmission)
to the parties at the following addresses (or at such other address for a party
as shall be specified by like notice):
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(a) if to Parent or Merger Sub, to:
Critical Path
000 0xx Xxxxxx
Xxx Xxxxxxxxx, Xxxxxxxxxx 00000
Attention: Xxxxx Xxxxxxxxx
Telephone No.: (000) 000-0000
Facsimile No.: (000) 000-0000
with a copy to:
Xxxxxx Xxxxxxx Xxxxxxxx & Xxxxxx, P.C.
000 Xxxx Xxxx Xxxx
Xxxx Xxxx, Xxxxxxxxxx 00000
Attention: Xxxx X. Xxxxxxxx
Telephone No.: (000) 000-0000
Facsimile No.: (000) 000-0000
(b) if to the Company, to:
Xeti, Inc.
0000 Xx Xxxxxx
Xxx Xxxxx, Xxxxxxxxxx 00000
Telephone No.: (000) 000-0000
Facsimile No.: (000) 000-0000
with a copy to:
General Counsel Associates LLP
0000 Xxxxxxxx Xxxxx
Xxxxxxxx Xxxx, Xxxxxxxxxx 00000
Attention: Xxxxx Xxxxxxxx
Telephone No.: (000) 000-0000
Facsimile No.: (000) 000-0000
9.2 Interpretation. The words "include," "includes" and "including" when
used herein shall be deemed in each case to be followed by the words "without
limitation." The word "agreement" when used herein shall be deemed in each case
to mean any contract, commitment or other agreement, whether oral or written,
that is legally binding. As used in this Agreement, the phrase "to the best of
[a party's] knowledge," "to [a party's] knowledge," "[a party] is not aware,"
and similar phrases shall mean the knowledge of such party, or of the officers
and directors of such party, after careful consideration of the matters set
forth in the representation that is so qualified and a reasonably diligent
review of all files, documents, agreements and other materials in such person's
possession or subject to his or her control. The table of contents and headings
contained in this
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Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement.
9.3 Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each of
the parties and delivered to the other party, it being understood that all
parties need not sign the same counterpart.
9.4 Entire Agreement; Assignment. This Agreement, the schedules and
Exhibits hereto, and the documents and instruments and other agreements among
the parties hereto referenced herein: (a) constitute the entire agreement among
the parties with respect to the subject matter hereof and supersede all prior
agreements and understandings, both written and oral, among the parties with
respect to the subject matter hereof; (b) are not intended to confer upon any
other person any rights or remedies hereunder; and (c) shall not be assigned by
operation of law or otherwise except as otherwise specifically provided, except
that Parent and Merger Sub may assign their respective rights and delegate their
respective obligations hereunder to their respective affiliates.
9.5 Severability. In the event that any provision of this Agreement or
the application thereof, becomes or is declared by a court of competent
jurisdiction to be illegal, void or unenforceable, the remainder of this
Agreement will continue in full force and effect and the application of such
provision to other persons or circumstances will be interpreted so as reasonably
to effect the intent of the parties hereto. The parties further agree to replace
such void or unenforceable provision of this Agreement with a valid and
enforceable provision that will achieve, to the extent possible, the economic,
business and other purposes of such void or unenforceable provision.
9.6 Other Remedies. Except as otherwise provided herein, any and all
remedies herein expressly conferred upon a party will be deemed cumulative with
and not exclusive of any other remedy conferred hereby, or by law or equity upon
such party, and the exercise by a party of any one remedy will not preclude the
exercise of any other remedy.
9.7 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of California, regardless of the laws that
might otherwise govern under applicable principles of conflicts of laws thereof.
Each of the parties hereto agrees that process may be served upon them in any
manner authorized by the laws of the State of California for such persons and
waives and covenants not to assert or plead any objection which they might
otherwise have to such jurisdiction and such process.
9.8 Rules of Construction. The parties hereto agree that they have been
represented by counsel during the negotiation and execution of this Agreement
and, therefore, waive the application of any law, regulation, holding or rule of
construction providing that ambiguities in an agreement or other document will
be construed against the party drafting such agreement or document.
9.9 Specific Performance. The parties hereto agree that irreparable
damage would occur in the event that any of the provisions of this Agreement
were not performed in accordance with
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their specific terms or were otherwise breached. It is accordingly agreed that
the parties shall be entitled to an injunction or injunctions to prevent
breaches of this Agreement and to enforce specifically the terms and provisions
hereof in any court of the United States or any state having jurisdiction, this
being in addition to any other remedy to which they are entitled at law or in
equity.
9.10 Share Legends. All certificates representing any of the shares of
Parent Common Stock to be issued pursuant to this Agreement shall have endorsed
thereon any legend required by Federal or state securities laws.
(Remainder of page intentionally left blank)
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IN WITNESS WHEREOF, Parent, Merger Sub and the Company have caused this
Agreement to be signed by their duly authorized respective officers, all as of
the date first written above.
XETI, INC. CRITICAL PATH, INC.
/s/ Xxxx Y. C. Pan /s/ Xxxxx Xxxxxxxxx
-------------------------------- --------------------------------
By: Xxxx Y. C. Pan By: Xxxxx Xxxxxxxxx
Chief Executive Officer General Counsel
XETI ACQUISITION CORP.
/s/ Xxxxx Xxxxxxxxx
--------------------------------
By: Xxxxx Xxxxxxxxx
President
***REORGANIZATION AGREEMENT***