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AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
BY AND AMONG
REALNETWORKS, INC.,
VARSITY ACQUISITION CORP.,
NETZIP, INC.,
CERTAIN SHAREHOLDERS OF NETZIP, INC.
AND WITH RESPECT TO ARTICLES VII AND IX ONLY
CHASEMELLON SHAREHOLDER SERVICES, L.L.C., AS ESCROW AGENT
AND
XXXXX XXXXXXXXX, AS
SHAREHOLDER REPRESENTATIVE
Dated as of January 25, 2000
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TABLE OF CONTENTS
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ARTICLE I THE MERGER..................................................................................................1
1.1 The Merger..........................................................................................1
1.2 Effective Time; Closing.............................................................................2
1.3 Effect of the Merger................................................................................2
1.4 Articles of Incorporation; Bylaws...................................................................2
1.5 Directors and Officers..............................................................................2
1.6 Effect on Capital Stock.............................................................................2
1.7 Dissenting Shares...................................................................................5
1.8 Surrender of Certificates...........................................................................6
1.9 No Further Ownership Rights in Company Common Stock.................................................7
1.10 Lost, Stolen or Destroyed Certificates..............................................................7
1.11 Tax and Accounting Consequences.....................................................................8
1.12 Taking of Necessary Action; Further Action..........................................................8
1.13 Securities Act Compliance; Registration.............................................................8
ARTICLE II REPRESENTATIONS AND WARRANTIES OF COMPANY AND PRINCIPAL SHAREHOLDERS......................................9
2.1 Organization and Qualification; Subsidiaries........................................................9
2.2 Articles of Incorporation and Bylaws...............................................................10
2.3 Capitalization.....................................................................................10
2.4 Authority Relative to this Agreement...............................................................12
2.5 No Conflict; Required Filings and Consents.........................................................12
2.6 Compliance; Permits................................................................................13
2.7 Financial Statements...............................................................................13
2.8 No Undisclosed Liabilities.........................................................................14
2.9 Absence of Certain Changes or Events...............................................................14
2.10 Absence of Litigation..............................................................................17
2.11 Employee Benefit Plans.............................................................................17
2.12 Labor Matters......................................................................................20
2.13 Restrictions on Business Activities................................................................20
2.14 Title to Property..................................................................................21
2.15 Taxes..............................................................................................21
2.16 Environmental Matters..............................................................................23
2.17 Brokers............................................................................................24
2.18 Intellectual Property..............................................................................24
2.19 Agreements, Contracts and Commitments..............................................................29
2.20 Insurance..........................................................................................31
2.21 Certain Business Relationships with the Company....................................................31
2.22 Employees..........................................................................................31
2.23 Notes and Accounts Receivable......................................................................32
2.24 Product Warranty...................................................................................32
2.25 Board Approval.....................................................................................32
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TABLE OF CONTENTS
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2.26 Vote Required......................................................................................32
2.27 State Takeover Statutes............................................................................32
2.28 Complete Copies of Materials.......................................................................32
2.29 Xxxx-Xxxxx-Xxxxxx Representations..................................................................32
2.30 Termination of Certain Agreements..................................................................33
2.31 Representations Complete...........................................................................33
ARTICLE III REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB..................................................34
3.1 Organization and Qualification; Subsidiaries.......................................................34
3.2 Certificate of Incorporation and Bylaws............................................................34
3.3 Capitalization.....................................................................................34
3.4 Authority Relative to this Agreement...............................................................35
3.5 No Conflict; Required Filings and Consents.........................................................35
3.6 SEC Filings; Financial Statements..................................................................36
3.7 Brokers............................................................................................36
3.8 Board Approval.....................................................................................36
3.9 No Plan or Intention to Take Certain Actions.......................................................36
ARTICLE IV [RESERVED]................................................................................................37
ARTICLE V ADDITIONAL AGREEMENTS......................................................................................37
5.1 Public Disclosure..................................................................................37
5.2 Stock Options and Employee Benefits................................................................37
5.3 Registration Statement on Form S-3.................................................................38
5.4 Post Closing Covenants.............................................................................38
ARTICLE VI CLOSING DELIVERABLES......................................................................................38
6.1 Items to Be Delivered to the Company and the Shareholders' Representative..........................38
6.2 Items to Be Delivered to Parent and Merger Sub.....................................................39
ARTICLE VII SURVIVAL OF REPRESENTATIONS AND WARRANTIES; ESCROW.......................................................42
7.1 Survival of Representations, Warranties and Covenants..............................................42
7.2 Indemnification....................................................................................42
7.3 Escrow Arrangements................................................................................47
7.4 Shareholder Representative.........................................................................53
ARTICLE VIII AMENDMENT AND WAIVER....................................................................................54
8.1 Amendment..........................................................................................54
8.2 Extension; Waiver..................................................................................54
ARTICLE IX GENERAL PROVISIONS........................................................................................54
9.1 Notices............................................................................................54
9.2 Interpretation; Definitions........................................................................56
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9.3 Counterparts.......................................................................................57
9.4 Entire Agreement; Third Party Beneficiaries........................................................57
9.5 Severability.......................................................................................57
9.6 Other Remedies; Specific Performance...............................................................57
9.7 Governing Law......................................................................................57
9.8 Rules of Construction..............................................................................58
9.9 Assignment.........................................................................................58
INDEX OF EXHIBITS
EXHIBIT A Special Escrow Claims
Schedule A-1 Committed Employees
EXHIBIT B Escrow Contributors
EXHIBIT C Form of Designation of Registration Rights
EXHIBIT D Form of Legal Opinion of Xxxxxx, Xxxxxxx & Xxxxxx, LLP
EXHIBIT E-1 Form of Offer Letter
EXHIBIT E-2 Form of Non-Competition Agreement
EXHIBIT E-3 Form of Employee Development and Confidentiality Agreement
EXHIBIT F Form of Release
EXHIBIT G Form of Stock Restriction Agreement
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AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
This AGREEMENT AND PLAN OF MERGER AND REORGANIZATION is made and
entered into as of January 25, 2000, among RealNetworks, Inc., a Washington
corporation ("PARENT"), Varsity Acquisition Corp., a Georgia corporation and a
wholly-owned subsidiary of Parent ("MERGER SUB"), NetZip, Inc., a Georgia
corporation ("COMPANY"), Xxxx Xxxxx, Xxxxx Xxxxxxxxx, Xxxx Xxxx, Xxxxx Xxxxxx,
Xxxxxx Xxxx and Xxxxxxx Xxxxxxx (each of Messrs. Dancu, Jerkunica, Hill, Knaack,
Xxxx and Xxxxxxx are referred to separately herein as a "PRINCIPAL SHAREHOLDER"
and collectively as the "PRINCIPAL SHAREHOLDERS") and, with respect to Articles
VII and IX only, ChaseMellon Shareholder Services, L.L.C., as Escrow Agent (the
"ESCROW AGENT"), and Xxxxx Xxxxxxxxx, as Shareholder Representative (the
"SHAREHOLDER REPRESENTATIVE".). Parent, Company, Merger Sub and each Principal
Shareholder are sometimes referred to herein individually as a "PARTY" and
collectively as the "PARTIES".
RECITALS
A. Upon the terms and subject to the conditions of this Agreement (as
defined in Section 1.2 below) and in accordance with the Georgia Business
Corporation Code ("GEORGIA LAW"), Parent and Company intend to enter into a
business combination transaction.
B. The Board of Directors of Company (i) has determined that the Merger
(as defined in Section 1.1) is consistent with and in furtherance of the
long-term business strategy of Company and fair to, and in the best interests
of, Company and its shareholders, (ii) has approved and declared advisable this
Agreement, and has approved the Merger (as defined in Section 1.1) and the other
transactions contemplated by this Agreement and (iii) has determined to
recommend that the shareholders of Company adopt and approve this Agreement and
approve the Merger.
C. The Board of Directors of Parent (i) has determined that the Merger
is consistent with and in furtherance of the long-term business strategy of
Parent and is fair to, and in the best interests of, Parent and its
stockholders, and (ii) has approved this Agreement, the Merger and the other
transactions contemplated by this Agreement
D. 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").
NOW, THEREFORE, in consideration of the covenants, promises and
representations set forth herein, and for other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, the parties agree
as follows:
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 Georgia Law, Merger Sub shall be merged with and into
Company (the "MERGER"), the separate corporate existence of Merger
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Sub shall cease and Company shall continue as the surviving corporation. Company
as the surviving corporation after the Merger is hereinafter sometimes referred
to as the "SURVIVING CORPORATION."
1.2 Effective Time; Closing. Subject to the provisions of this
Agreement, the parties hereto shall cause the Merger to be consummated by filing
a Certificate of Merger with the Secretary of State of the State of Georgia in
accordance with the relevant provisions of Georgia Law (the "CERTIFICATE OF
MERGER") (the time of such filing (or such later time as may be agreed in
writing by Company and Parent and specified in the Certificate of Merger) being
the "EFFECTIVE TIME") as soon as practicable on or after the Closing Date (as
herein defined). Unless the context otherwise requires, the term "AGREEMENT" as
used herein refers collectively to this Agreement and Plan of Merger and
Reorganization and the Certificate of Merger. The closing of the Merger (the
"CLOSING") shall take place at the offices of Xxxxxx Xxxxxxx Xxxxxxxx & Xxxxxx,
Professional Corporation, 0000 Xxxxxxxx Xxxxx, Xxxxxxxx, Xxxxxxxxxx on the date
hereof, or at such other time, date and location as the parties hereto agree in
writing (the "CLOSING DATE").
1.3 Effect of the Merger. At the Effective Time, the effect of the
Merger shall be as provided in this Agreement and the applicable provisions of
Georgia Law. Without limiting the generality of the foregoing, and subject
thereto, at the Effective Time all the property, rights, privileges, powers and
franchises of Company and Merger Sub shall vest in the Surviving Corporation,
and all debts, liabilities and duties of Company and Merger Sub shall become the
debts, liabilities and duties of the Surviving Corporation.
1.4 Articles of Incorporation; Bylaws.
(a) At the Effective Time, the Articles of Incorporation of Merger
Sub, as in effect immediately prior to the Effective Time, shall be the Articles
of Incorporation of the Surviving Corporation until thereafter amended as
provided by law and such Articles of Incorporation of the Surviving Corporation;
provided, however, that at the Effective Time the Articles of Incorporation of
the Surviving Corporation shall be amended so that the name of the Surviving
Corporation shall be "NETZIP, INC."
(b) The Bylaws of Merger Sub, as in effect immediately prior to the
Effective Time, shall be, at the Effective Time, the Bylaws of the Surviving
Corporation until thereafter amended.
1.5 Directors and Officers. The initial directors of the Surviving
Corporation shall be the directors of Merger Sub immediately prior to the
Effective Time, until their respective successors are duly elected or appointed
and qualified. The initial officers of the Surviving Corporation shall be the
officers of Merger Sub immediately prior to the Effective Time, until their
respective successors are duly appointed.
1.6 Effect on Capital Stock. Subject to the terms and conditions of
this Agreement, at the Effective Time, by virtue of the Merger and without any
action on the part of Merger Sub, Company or the holders of any of the following
securities, the following shall occur:
(a) Conversion of Company Common Stock. Each share of Common Stock,
no par value per share, of Company (the "COMPANY COMMON STOCK") issued and
outstanding immediately
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prior to the Effective Time, other than any Dissenting Shares (as defined in
Section 1.7(a)) and any shares of Company Common Stock to be canceled pursuant
to Section 1.6(c), will be canceled and extinguished and automatically converted
(subject to Sections 1.6(e) and (f)) into the right to receive that number of
shares of Common Stock, $0.001 par value per share, of Parent (the "PARENT
COMMON STOCK") equal to the Exchange Ratio upon surrender of the certificate
representing such share of Company Common Stock in the manner provided in
Section 1.7 (or in the case of a lost, stolen or destroyed certificate, upon
delivery of an affidavit (and bond, if required) in the manner provided in
Section 1.9). If any shares of Company Common Stock outstanding immediately
prior to the Effective Time are unvested or are subject to a repurchase option,
risk of forfeiture or other condition under any applicable restricted stock
purchase agreement or other agreement with the Company, then the shares of
Parent Common Stock issued in exchange for such shares of Company Common Stock
will also be unvested and subject to the same repurchase option, risk of
forfeiture or other condition, and the certificates representing such shares of
Parent Common Stock may accordingly be marked with appropriate legends. The
Company shall take all action that may be necessary to ensure that, from and
after the Effective Time, Parent is entitled to exercise any such repurchase
option or other right set forth in any such restricted stock purchase agreement
or other agreement. The "EXCHANGE RATIO" shall equal the quotient of (i)
1,708,843 shares of Parent Common Stock divided by (ii) the Fully Diluted Number
of Shares of Company Common Stock. The "FULLY DILUTED NUMBER OF SHARES OF
COMPANY COMMON STOCK" means the number of shares of Company Common Stock issued
and outstanding immediately before the Effective Time, assuming each Company
stock option and warrant outstanding immediately before the Effective Time is
deemed exercised and converted into the number of shares of Company Common Stock
subject to such stock option or warrant. "RN STOCK PRICE" means $131.668.
(b) Escrow. There shall be held in escrow (the "ESCROW AMOUNT")
pursuant to Article VII of this Agreement a number of shares of Parent Common
Stock and shares of Parent Common Stock reserved for issuance upon exercise of
Replacement Options (as defined in Section 5.2) which have an aggregate value of
$22,500,000 (the "INITIAL ESCROW VALUE") (with the shares of Parent Common Stock
being valued at the RN Stock Price and the shares of Common Stock issuable upon
exercise of Replacement Options ("RESERVED OPTION SHARES") being valued at the
RN Stock Price less the exercise price applicable to each such share). The
shares of Parent Common Stock and Reserved Option Shares that are included
within the Escrow Amount (the "ESCROW SHARES") shall be contributed by the
holders of Company Common Stock and holders of Company Stock Options listed on
Exhibit B (the "ESCROW CONTRIBUTORS"). Each Escrow Contributor shall contribute
to the Escrow Amount a number of shares of Parent Common Stock equal to his or
her respective Allocable Share of the Initial Escrow Value (as defined below)
divided by the RN Stock Price; provided, however, that to the extent that the
product of the number of shares of Parent Common Stock issuable to an Escrow
Contributor at the Effective Time pursuant to Section 1.6(a) times the RN Stock
Price is less than such Escrow Contributor's Allocable Share of the Initial
Escrow Amount (such difference, the "ESCROW VALUE DIFFERENCE"), such Escrow
Contributor shall contribute to the Escrow Amount a number of Reserved Option
Shares such that the aggregate Option Value (as defined below) of such Reserved
Option Shares equals the Escrow Value Difference. The Escrow Amount shall be
held in escrow to compensate Parent and its affiliates (including the Surviving
Corporation) for any "Losses" (as defined in Section 7.2 hereof) which are
determined to be incurred by Parent in connection with this Agreement and the
transactions
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contemplated hereby and to secure claims made by Parent and Merger Sub pursuant
to the Special Escrow Claims provisions of Exhibit A attached hereto. Exhibit B
attached hereto shall set forth, for reference purposes only, with respect to
each Escrow Contributor: (i) their respective Allocable Shares, (ii) their
respective Allocable Shares of the Initial Escrow Value and (iii) the Escrow
Shares to be contributed to the Escrow Amount by each Escrow Contributor, as
determined pursuant to the terms of this Section 1.6(b); provided that, in the
event of any discrepancy between the provisions of this Section 1.6(b) and the
numbers set forth on Exhibit B, this Section 1.6(b) shall control. With respect
to each Escrow Contributor who executes a Stock Restriction Agreement in the
form attached hereto as Exhibit G pursuant to Section 6.2(k) (the "STOCK
RESTRICTION AGREEMENTS"), (X) the Escrow Shares which such Escrow Contributor
contributes to the Escrow Amount shall be deemed to be composed of shares which
are subject to divestment or repurchase under the Stock Restriction Agreement
("RESTRICTED SHARES") and those which are not so subject to divestment or
repurchase ("UNRESTRICTED SHARES") in the same proportions as all of the shares
to be issued to such Escrow Contributor upon Closing pursuant to Section 1.6(a)
of this Agreement are composed of Restricted Shares and Unrestricted Shares, and
(Y) the application of the release of the restrictions provided for in the Stock
Restriction Agreement shall be allocated between such shareholder's shares of
Parent Common Stock which are Restricted Shares included in the Escrow Amount
and Restricted Shares that are not included in the Escrow Amount in the same
proportions as the total number of shares of Parent Common Stock issued to such
shareholder pursuant to this Agreement were at the Closing allocated between
those that are included in the Escrow Amount and those that are not, all as
reflected on Exhibit B (for example, if an Escrow Contributor contributed to the
Escrow Amount 10% of the total number of shares of Parent Common Stock which
were issued to such Escrow Contributor on the Closing Date pursuant to Section
1.6(a) of this Agreement, and a number of such Escrow Contributor's Restricted
Shares were to become Unrestricted Shares on a particular date, 10% of such
shares to become Unrestricted Shares would be deemed to be Restricted Shares
included in the Escrow Amount and 90% shall be deemed to be Restricted Shares
not included in the Escrow Amount).
"ALLOCABLE SHARE" shall mean, with respect to an Escrow Contributor,
the ratio of (A) the number of shares of Parent Common Stock to be issued to
such Escrow Contributor plus, with respect to Xxxxxxx Xxxxxxx the number of
shares of Reserve Option Shares issuable upon exercise of the Replacement
Options to be issued to Xx. Xxxxxxx at the Effective Time, divided by (B) the
aggregate number of shares of Parent Common Stock to be issued to all Escrow
Contributors, plus, with respect to Xxxxxxx Xxxxxxx the number of shares of
Reserve Option Shares issuable upon exercise of the Replacement Options to be
issued to Xx. Xxxxxxx at the Effective Time. "ALLOCABLE SHARE OF INITIAL ESCROW
VALUE" shall mean, with respect to an Escrow Contributor, the product of their
respective Allocable Share times the Initial Escrow Value. The "OPTION VALUE" of
a Reserved Option Share is equal to the RN Stock Price less the exercise price
payable with respect to such Reserved Option Share.
(c) Cancellation of Parent-Owned Stock. Each share of Company
Common Stock held by Company or owned by Merger Sub, Parent or any direct or
indirect wholly-owned subsidiary of Company or of Parent immediately prior to
the Effective Time shall be canceled and extinguished without any conversion
thereof.
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(d) Stock Options. At the Effective Time, all options to purchase
Company Common Stock outstanding under Company's Stock Incentive Plan, as
amended (the "COMPANY OPTION PLAN" and each such outstanding option granted
thereunder, a "COMPANY STOCK OPTION"), shall be replaced by Parent in accordance
with Section 5.2 hereof; provided, however, that all other equity-based awards
("COMPANY AWARDS"), whether or not granted under the Company Option Plan, that
are not Company Stock Options and have not been exercised prior to the Effective
Time, and the Company Option Plan and all other plans providing for the grant of
Company Awards will be cancelled and terminated at the Effective Time.
(e) Capital Stock of Merger Sub. Each share of Common Stock, $0.001
par value per share, of Merger Sub (the "MERGER SUB COMMON STOCK") issued and
outstanding immediately prior to the Effective Time shall be converted into one
validly issued, fully paid and nonassessable share of Common Stock, $0.001 par
value per share, of the Surviving Corporation. Each certificate evidencing
ownership of shares of Merger Sub Common Stock shall evidence ownership of such
shares of capital stock of the Surviving Corporation.
(f) Adjustments to Exchange Ratio. The Exchange Ratio shall be
adjusted to reflect appropriately the effect of any stock split, reverse stock
split, stock dividend (including any dividend or distribution of securities
convertible into Parent Common Stock or Company Common Stock), reorganization,
recapitalization, reclassification or other like change with respect to Parent
Common Stock or Company Common Stock occurring on or 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 by virtue of the Merger, but in lieu thereof each holder of
shares of Company Common 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 that otherwise would be received by such holder) shall, upon
surrender of such holder's Certificates(s) (as defined in Section 1.7(c))
receive from Parent an amount of cash (rounded to the nearest whole cent),
without interest, equal to the product of (i) such fraction, multiplied by (ii)
the RN Stock Price.
1.7 Dissenting Shares.
(a) Notwithstanding any other provisions of this Agreement to the
contrary, any shares of Company Capital Stock held by a holder who has exercised
dissenters' rights for such shares in accordance with Georgia Law and who, as of
the Effective Time, has not effectively withdrawn or lost such dissenters'
rights ("DISSENTING Shares"), shall not be converted into or represent a right
to receive Merger Consideration, but the holder thereof shall only be entitled
to such rights as are provided by Georgia Law.
(b) Notwithstanding the provisions of Section 1.7(a) hereof, if any
holder of Dissenting Shares shall effectively withdraw or lose (through failure
to perfect or otherwise) such holder's dissenters' rights under Georgia Law,
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 the consideration for Company Capital Stock set forth in
Section 1.6 hereof, without interest thereon, upon surrender of the certificate
representing such shares.
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(c) Company shall give Parent (i) prompt notice of any written
demand for appraisal received by the Company pursuant to the applicable
provisions of Georgia Law; and (ii) the opportunity to participate in all
negotiations and proceedings with respect to such demands. The Company shall
not, except with the prior written consent of Parent, make any payment with
respect to any such demands or offer to settle or settle any such demands.
1.8 Surrender of Certificates.
(a) Exchange Agent. Parent shall select a bank or trust company
reasonably acceptable to Company to act as the exchange agent (the "EXCHANGE
AGENT") in the Merger.
(b) Parent to Provide Common Stock. At Closing, Parent shall make
available to the Exchange Agent for exchange in accordance with this Article I,
the shares of Parent Common Stock issuable pursuant to Section 1.6 in exchange
for outstanding shares of Company Common Stock and cash in an amount sufficient
for payment in lieu of fractional shares pursuant to Section 1.6(f) and any
dividends or distributions to which holders of shares of Company Common Stock
may be entitled pursuant to Section 1.8(d).
(c) Exchange Procedures. At Closing, Parent shall cause the
Exchange Agent to deliver to each holder of record (as of the Effective Time) of
a certificate or certificates (the "CERTIFICATES"), which immediately prior to
the Effective Time represented outstanding shares of Company Common Stock whose
shares were converted into the right to receive shares of Parent Common Stock
pursuant to Section 1.6, cash in lieu of any fractional shares pursuant to
Section 1.6(f) and any dividends or other distributions pursuant to Section
1.8(d), (i) a letter of transmittal in customary form (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
contain 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, cash in lieu of any
fractional shares pursuant to Section 1.6(f) and any dividends or other
distributions pursuant to Section 1.8(d). Upon surrender of Certificates 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 holders of
such Certificates shall be entitled to receive in exchange therefor certificates
representing the number of whole shares of Parent Common Stock into which their
shares of Company Common Stock were converted at the Effective Time, payment in
lieu of fractional shares which such holders have the right to receive pursuant
to Section 1.6(f) and any dividends or distributions payable pursuant to Section
1.8(d), and the Certificates so surrendered shall forthwith be canceled. Until
so surrendered, outstanding Certificates will be deemed from and after the
Effective Time, for all corporate purposes, subject to Section 1.8(d) as to the
payment of dividends, to evidence only the ownership of the number of full
shares of Parent Common Stock into which such shares of Company Common Stock
shall have been so converted and the right to receive an amount in cash in lieu
of the issuance of any fractional shares in accordance with Section 1.6(f) and
any dividends or distributions payable pursuant to Section 1.8(d).
(d) Distributions With Respect to Unexchanged Shares. No dividends
or other distributions declared or made after the date of this Agreement with
respect to Parent Common Stock with a record date after the Effective Time will
be paid to the holders of any unsurrendered Certificates with respect to the
shares of Parent Common Stock
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represented thereby until the holders of record of such Certificates shall
surrender such Certificates. Subject to applicable law, following surrender of
any such Certificates, the Exchange Agent shall deliver to the record holders
thereof, without interest, certificates representing whole shares of Parent
Common Stock issued in exchange therefor along with payment in lieu of
fractional shares pursuant to Section 1.6(g) hereof and the amount of any such
dividends or other distributions with a record date after the Effective Time
payable with respect to such whole shares of Parent Common Stock.
(e) Transfers of Ownership. If certificates representing shares of
Parent Common Stock are to be issued in a name other than that in which the
Certificates surrendered in exchange therefor are registered, it will be a
condition of the issuance thereof that the Certificates so surrendered will be
properly endorsed and otherwise in proper form for transfer and that the persons
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 certificates
representing shares of Parent Common Stock in any name other than that of the
registered holder of the Certificates 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) Required Withholding. Each of the Exchange Agent, Parent and
the Surviving Corporation shall be entitled to deduct and withhold from any
consideration payable or otherwise deliverable pursuant to this Agreement to any
holder or former holder of Company Common Stock such amounts as may be required
to be deducted or withheld therefrom under the Code or under any provision of
state, local or foreign tax law or under any other applicable legal requirement.
To the extent such amounts are so deducted or withheld, such amounts shall be
treated for all purposes under this Agreement as having been paid to the person
to whom such amounts would otherwise have been paid.
(g) No Liability. Notwithstanding anything to the contrary in this
Section 1.7, neither the Exchange Agent, Parent, the Surviving Corporation nor
any party hereto shall be liable to a holder of shares of Parent Common Stock or
Company Common 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 Common Stock. All shares of
Parent Common Stock issued in accordance with the terms hereof (together with
any cash paid in respect thereof pursuant to Section 1.6(g) and 1.8(d)) shall be
deemed to have been issued in full satisfaction of all rights pertaining to such
shares of Company Common Stock, and there shall be no further registration of
transfers on the records of the Surviving Corporation of shares of Company
Common Stock which were outstanding immediately prior to the Effective Time. If,
after the Effective Time, Certificates are presented to the Surviving
Corporation for any reason, they shall be canceled and exchanged as provided in
this Article I.
1.10 Lost, Stolen or Destroyed Certificates. In the event that any
Certificates shall have been lost, stolen or destroyed, the Exchange Agent shall
issue in exchange for such lost, stolen or destroyed Certificates, upon the
making of an affidavit of that fact by the holder thereof, certificates
representing the shares of Parent Common Stock into which the shares of Company
Common Stock represented by such Certificates were converted pursuant to Section
1.6, cash for fractional shares, if
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any, as may be required pursuant to Section 1.6(g) and any dividends or
distributions payable pursuant to Section 1.8(d); provided, however, that Parent
may, in its discretion and as a condition precedent to the issuance of such
certificates representing shares of Parent Common Stock, cash and other
distributions, 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, the Surviving Corporation or the
Exchange Agent with respect to the Certificates alleged to have been lost,
stolen or destroyed.
1.11 Tax and Accounting Consequences.
(a) It is intended by the parties hereto that the Merger shall
constitute a reorganization within the meaning of Section 368 of the Code. The
parties hereto 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 Income Tax
Regulations.
(b) It is intended by the parties hereto that the Merger shall be
treated as a purchase for accounting purposes.
1.12 Taking of Necessary Action; Further Action. If, at any time after
the Effective Time, any further action is necessary or desirable to carry out
the purposes of this Agreement and to vest the Surviving Corporation with full
right, title and possession to all assets, property, rights, privileges, powers
and franchises of Company and Merger Sub, the current officers and directors of
Company and Merger Sub will take all such lawful and necessary action.
1.13 Securities Act Compliance; Registration. Securities Act
Exemption. The Parent Common Stock to be issued pursuant to this Agreement
initially will not be registered under the Securities Act in reliance on the
exemptions from the registration requirements of Section 5 of the Securities Act
set forth in Section 4(2) thereof. Prior to the Closing Date, each of the
Company's shareholders shall have provided Parent such representations,
warranties, certifications and additional information as Parent may reasonably
request to ensure the availability of such exemptions from the registration
requirements of the Securities Act.
(a) Stock Restrictions. In addition to any legend imposed by
applicable state securities laws or by any contract which continues in effect
after the Effective Time, the certificates representing the shares of Parent
Common Stock issued pursuant to this Agreement shall bear a restrictive legend
(and stop transfer orders shall be placed against the transfer thereof with
Parent's transfer agent), stating substantially as follows:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS
AMENDED (THE "ACT"). THEY MAY NOT BE SOLD, TRANSFERRED, ASSIGNED,
OR HYPOTHECATED EXCEPT IN COMPLIANCE WITH RULE 144 IN THE ABSENCE
OF AN EFFECTIVE REGISTRATION STATEMENT RELATED THERETO, OR AN
OPINION OF COUNSEL, SATISFACTORY TO THE COMPANY, THAT SUCH
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REGISTRATION IS NOT REQUIRED UNDER THE ACT, OR A NO-ACTION LETTER
FROM THE SECURITIES AND EXCHANGE COMMISSION.
(b) The Company Shareholders' Restrictions Regarding Securities
Law Matters
Each shareholder of the Company, by virtue of the Merger and the
conversion into Parent Common Stock of the Company Common Stock held by such
shareholder, shall be bound by the following provisions:
(i) Such shareholder will not offer, sell, or otherwise
dispose of any shares of Parent Common Stock except in compliance with the
Securities Act and the rules and regulations thereunder.
(ii) Such shareholder will not sell, transfer or otherwise
dispose of any shares of Parent Common Stock unless (i) such sale, transfer or
other disposition is within the limitations of and in compliance with Rule 144
promulgated by the SEC under the Securities Act and the shareholder furnishes
Parent with reasonable proof of compliance with such Rule, (ii) in the opinion
of counsel, reasonably satisfactory to Parent and its counsel, some other
exemption from registration under the Securities Act is available with respect
to any such proposed sale, transfer, or other disposition of Parent Common Stock
or (iii) the offer and sale of Parent Common Stock is registered under the
Securities Act.
(c) Registration Rights. Parent agrees that the shareholders of
the Company receiving Parent Common Stock in the Merger shall be entitled to the
registration rights set forth in the Declaration of Registration Rights to be
delivered by Parent at Closing in substantially the form attached hereto as
Exhibit C (the "Declaration of Registration Rights").
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF COMPANY AND
PRINCIPAL SHAREHOLDERS
As of the date hereof and as of the Closing Date, each of Company and
each Principal Shareholder, severally and not jointly, hereby represents and
warrants to Parent and Merger Sub, subject to such exceptions as are
specifically disclosed in writing in the disclosure letter and referencing a
specific representation including by cross reference supplied by Company and the
Principal Shareholders to Parent dated as of the date hereof and certified by a
duly authorized officer of Company (the "COMPANY SCHEDULE"), as follows:
2.1 Organization and Qualification; Subsidiaries.
(a) Each of Company and its subsidiaries is a corporation duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation and has the requisite corporate power and
authority to own, lease and operate its assets and properties and to carry on
its business as it is now being conducted. Each of Company and its subsidiaries
is in possession of all franchises, grants, authorizations, licenses, permits,
easements, consents, certificates,
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approvals and orders ("APPROVALS") necessary to own, lease and operate the
properties it purports to own, operate or lease and to carry on its business as
it is now being conducted, except where the failure to have such Approvals would
not, individually or in the aggregate, be material to the Company. Each of
Company and its subsidiaries is duly qualified or licensed as a foreign
corporation to do business, and is in good standing, in each jurisdiction where
the character of the properties owned, leased or operated by it or the nature of
its activities makes such qualification or licensing necessary, except for such
failures to be so duly qualified or licensed and in good standing that would
not, either individually or in the aggregate, be material to the Company.
(b) Company has no subsidiaries except for the corporations
identified in Section 2.1(b) of the Company Schedule. Neither Company nor any of
its subsidiaries has agreed nor is obligated to make nor be bound by any
written, oral or other agreement, contract, subcontract, lease, binding
understanding, instrument, note, option, warranty, purchase order, license,
sublicense, insurance policy, benefit plan, commitment or undertaking of any
nature, as of the date hereof or as may hereafter be in effect (a "CONTRACT")
under which it may become obligated to make, any future investment in or capital
contribution to any other entity. Neither Company nor any of its subsidiaries
directly or indirectly owns any equity or similar interest in or any interest
convertible, exchangeable or exercisable for, any equity or similar interest in,
any corporation, partnership, joint venture or other business, association or
entity.
2.2 Articles of Incorporation and Bylaws. Company has previously
furnished to Parent a complete and correct copy of its Articles of Incorporation
and Bylaws as amended to date (together, the "COMPANY CHARTER DOCUMENTS"). Such
Company Charter Documents and equivalent organizational documents of each of its
subsidiaries are in full force and effect. Company is not in violation of any of
the provisions of the Company Charter Documents, and no subsidiary of Company is
in violation of its equivalent organizational documents.
2.3 Capitalization.
(a) The authorized capital stock of Company consists of 10,000,000
shares of Company Common Stock, $0.01 par value per share. Immediately prior to
the Closing, (i) 4,535,681 shares of Company Common Stock were issued and
outstanding, all of which are validly issued, fully paid and nonassessable; (ii)
no shares of Company Common Stock were held in treasury by Company or by
subsidiaries of Company; (iii) 630,000 shares of Company Common Stock were
reserved for issuance upon the exercise of outstanding options to purchase
Company Common Stock under the Company Option Plan; (iv) 374,159 shares of
Company Common Stock were available for future grant under the Company Option
Plan; and (v) no shares of Company Common Stock were reserved for future
issuance upon conversion of warrants of the Company. As of the date hereof, no
shares of Company Preferred Stock were issued or outstanding. Section 2.3(a) of
the Company Schedule sets forth the following information with respect to each
Company Stock Option (as defined in Section 1.6(d)) and Company Award (including
without limitation options under the Director Option Plan) outstanding as of the
date of this Agreement: (i) the name and address of the optionee or Company
Award grantee; (ii) the particular plan pursuant to which such Company Stock
Option or Company Award was granted; (iii) the number of shares of Company
Common Stock subject to such Company Stock Option or Company Award; (iv) the
exercise price of such Company Stock Option or Company Award; (v) the date on
which such Company Stock Option or Company Award was
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granted; (vi) the applicable vesting schedule; and (vii) the date on which such
Company Stock Option or Company Award expires. Company has made available to
Parent accurate and complete copies of all stock option plans pursuant to which
the Company has granted such Company Stock Options or Company Award that are
currently outstanding and the form of all stock option agreements evidencing
such Company Stock Options or other agreements evidencing such Company Awards.
All shares of Company Common Stock subject to issuance as aforesaid, upon
issuance on the terms and conditions specified in the instrument pursuant to
which they are issuable, would be duly authorized, validly issued, fully paid
and nonassessable. Except as disclosed on Section 2.3(a) of the Company
Schedule, there are no commitments or agreements of any character to which the
Company is bound obligating the Company to accelerate the vesting of any Company
Stock Option or Company Award as a result of the Merger. All outstanding shares
of Company Common Stock, all outstanding Company Stock Options and Company
Award, and all outstanding shares of capital stock of each subsidiary of the
Company have been issued and granted in compliance with (i) all applicable
securities laws and other applicable Legal Requirements (as defined below) and
(ii) all requirements set forth in applicable Contracts. For the purposes of
this Agreement, "Legal Requirements" means any federal, state, local, municipal,
foreign or other law, statute, constitution, principle of common law,
resolution, ordinance, code, edict, decree, rule, regulation, ruling or
requirement issues, enacted, adopted, promulgated, implemented or otherwise put
into effect by or under the authority of any Governmental Entity (as defined
below) and (ii) all requirements set forth in applicable contracts, agreements,
and instruments. Section 1.6 (a) of the Company Schedule sets forth the
following information with respect to each holder (immediately prior to the
Effective Time) of Company Common Stock: (i) the name and address of the holder;
(ii) the number of shares of Company Common Stock held and (iii) the product of
the number of shares of Company Common Stock held and the Exchange Ratio.
(b) Except for securities Company owns free and clear of all liens,
pledges, hypothecations, charges, mortgages, security interests, encumbrances,
claims, infringements or interferences (collectively, "LIENS") and all options,
right of first refusals, preemptive rights, community property interests or
restriction of any nature (including any restriction on the voting of any
security, any restriction on the transfer of any security or other asset, any
restriction on the possession, exercise or transfer of any other attribute of
ownership of any asset) directly or indirectly through one or more subsidiaries,
and except for shares of capital stock or other similar ownership interests of
subsidiaries of the Company that are owned by certain nominee equity holders as
required by the applicable law of the jurisdiction of organization of such
subsidiaries (which shares or other interests do not materially affect the
Company's control of such subsidiaries), as of the date of this Agreement, there
are no equity securities, partnership interests or similar ownership interests
of any class of equity security of any subsidiary of the Company, or any
security exchangeable or convertible into or exercisable for such equity
securities, partnership interests or similar ownership interests, issued,
reserved for issuance or outstanding. Except as set forth in Section 2.3(a)
there are no subscriptions, options, warrants, equity securities, partnership
interests or similar ownership interests, calls, rights (including preemptive
rights), commitments or agreements of any character to which Company or any of
its subsidiaries is a party or by which it is bound obligating Company or any of
its subsidiaries to issue, deliver or sell, or cause to be issued, delivered or
sold, or repurchase, redeem or otherwise acquire, or cause the repurchase,
redemption or acquisition of, any shares of capital stock, partnership interests
or similar ownership interests of the Company or any of its subsidiaries or
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obligating the Company or any of its subsidiaries to grant, extend, accelerate
the vesting of or enter into any such subscription, option, warrant, equity
security, call, right, commitment or agreement. As of the date of this
Agreement, except as contemplated by this Agreement, there are no registration
rights and there is, except for the Shareholder Agreements and except as
specified on Section 2.3(b) of the Company Schedule, no voting trust, proxy,
rights plan, anti-takeover plan or other agreement or understanding to which the
Company or any of its subsidiaries is a party or by which they are bound with
respect to any equity security of any class of the Company or with respect to
any equity security, partnership interest or similar ownership interest of any
class of any of its subsidiaries. Stockholders of the Company will not be
entitled to dissenters' rights under applicable state law in connection with the
Merger.
2.4 Authority Relative to this Agreement. Company has all necessary
corporate power and authority to execute and deliver this Agreement and to
perform its obligations hereunder and, subject to obtaining the approval of the
shareholders of Company of the Merger, to consummate the transactions
contemplated hereby. The execution and delivery of this Agreement by Company and
the consummation by Company of the transactions contemplated hereby have been
duly and validly authorized by all necessary corporate action on the part of
Company and no other corporate proceedings on the part of Company are necessary
to authorize this Agreement or to consummate the transactions so contemplated.
This Agreement has been duly and validly executed and delivered by Company and,
assuming the due authorization, execution and delivery by Parent and Merger Sub,
constitute legal and binding obligations of Company, enforceable against Company
in accordance with its terms.
2.5 No Conflict; Required Filings and Consents.
(a) Except as specified on Section 2.5(a) of the Company Schedule,
the execution and delivery of this Agreement by Company does not, and the
performance of this Agreement by Company shall not, (i) conflict with or violate
the Company Charter Documents or the equivalent organizational documents of any
of Company's subsidiaries, (ii) subject to obtaining the approval of Company's
shareholders of the Merger and compliance with the requirements set forth in
Section 2.5(b) below, conflict with or violate any law, rule, regulation, order,
judgment or decree applicable to Company or any of its subsidiaries or by which
its or any of their respective properties is bound or affected, or (iii) result
in any breach of or constitute a default (or an event that with notice or lapse
of time or both would become a default) under, or impair Company's or any of its
subsidiaries' rights or alter the rights or obligations of any third party
under, or give to others any rights of termination, amendment, acceleration or
cancellation of, or result in the creation of a lien or encumbrance on any of
the properties or assets of Company or any of its subsidiaries pursuant to, any
material note, bond, mortgage, indenture, contract, agreement, lease, license,
permit, franchise or other instrument or obligation to which Company or any of
its subsidiaries is a party or by which Company or any of its subsidiaries or
its or any of their respective properties are bound or affected; provided that
if any consents, waivers or approvals are required to avoid the consequences
noted in (iii), such consents, waivers and approvals are listed on Section
2.5(a) of the Company Schedule along with an indication of whether such
consents, waivers or approvals have been obtained..
(b) The execution and delivery of this Agreement by Company does
not, and the performance of this Agreement by Company shall not, require any
consent, approval, authorization or
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permit of, or filing with or notification to, any court, administrative agency,
commission, governmental or regulatory authority, domestic or foreign (a
"GOVERNMENTAL ENTITY"), except (A) for applicable requirements, if any, of the
Securities Act of 1933, as amended (the "SECURITIES ACT"), the Securities
Exchange Act of 1934, as amended (the "EXCHANGE ACT"), state securities laws
("BLUE SKY LAWS"), and the filing and recordation of the Certificate of Merger
as required by Georgia Law and (B) where the failure to obtain such consents,
approvals, authorizations or permits, or to make such filings or notifications,
would not be material to the Company or Parent or have a Material Adverse Effect
on the parties hereto, prevent consummation of the Merger or otherwise prevent
the parties hereto from performing their obligations under this Agreement.
2.6 Compliance; Permits.
(a) Neither Company nor any of its subsidiaries is in conflict
with, or in default or violation of, (i) any law, rule, regulation, order,
judgment or decree applicable to Company or any of its subsidiaries or by which
its or any of their respective properties is bound or affected, or (ii) any
material note, bond, mortgage, indenture, contract, agreement, lease, license,
permit, franchise or other instrument or obligation to which Company or any of
its subsidiaries is a party or by which Company or any of its subsidiaries or
its or any of their respective properties is bound or affected, except for any
conflicts, defaults or violations that (individually or in the aggregate) would
not cause the Company to lose any material benefit or incur any material
liability. No investigation or review by any governmental or regulatory body or
authority is pending or, to the knowledge of Company, threatened against Company
or its subsidiaries, nor has any governmental or regulatory body or authority
indicated an intention to conduct the same, other than, in each such case, those
the outcome of which could not, individually or in the aggregate, reasonably be
expected to have the effect of prohibiting or materially impairing any business
practice of the Company or any of its subsidiaries, any acquisition of material
property by the Company or any of its subsidiaries or the conduct of business by
the Company or any of its subsidiaries.
(b) Company and its subsidiaries hold all permits, licenses,
variances, exemptions, orders and approvals from governmental authorities which
are material to operation of the business of Company and its subsidiaries taken
as a whole (collectively, the "COMPANY PERMITS"). Company and its subsidiaries
are in compliance in all material respects with the terms of the Company
Permits.
2.7 Financial Statements.
The Company has provided to Parent its audited balance sheets as of
December 31, 1996, 1997 and 1998 and its audited statements of operations,
statements of shareholders' equity and statements of cash flows for the period
from October 22, 1996 to December 31, 1996 and the twelve (12) month periods
ended December 31, 1997 and 1998 (collectively, the "AUDITED FINANCIAL
STATEMENTS"). The Company has provided to Parent its unaudited balance sheets as
of the end of each month during the year ended December 31, 1999 and its
unaudited statements of operations for each of the one month periods in the year
ended December 31, 1999 (the "MONTHLY FINANCIAL STATEMENTS"). The Company has
also provided to Parent its unaudited balance sheets as of December 31, 1999
(the "MOST RECENT BALANCE SHEET") and its unaudited statement of operations for
the twelve month period ended December 31, 1999 (the "MOST RECENT INCOME
STATEMENT", together with the Most Recent Balance Sheet and the Audited
Financial Statements, collectively, the
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"FINANCIAL STATEMENTS"). Each of the Financial Statements other than the Monthly
Financial Statements was prepared in accordance with generally accepted
accounting principles ("GAAP") applied on a consistent basis throughout the
periods involved (except as may be indicated in the notes thereto or, in the
case of unaudited statements, do not contain footnotes and other presentation
items that may be required by GAAP). Each of the Financial Statements fairly
presents the consolidated financial position of Company and its subsidiaries at
the respective dates thereof and the consolidated results of its operations and
cash flows for the periods indicated, except that the Monthly Financial
Statements do not include statements of cash flows and were or are subject to
normal adjustments which were not or are not expected to be, individually or in
the aggregate, material in amount, and except that they contain no provision for
income taxes and except for adjustments relating to the merger of Netzip, LLC
with and into the Company.
2.8 No Undisclosed Liabilities. Neither Company nor any of its
subsidiaries has any liabilities (absolute, accrued, contingent or otherwise)
which are, individually or in the aggregate, material to the business, results
of operations or financial condition of Company and its subsidiaries taken as a
whole, except (i) liabilities provided for in Company's unaudited balance sheet
as of December 31, 1999 or (ii) liabilities incurred since December 31, 1999 in
the Ordinary Course of Business, none of which is individually or in the
aggregate are material to the business, results of operations, financial
condition or prospects of Company and its subsidiaries, taken as a whole.
2.9 Absence of Certain Changes or Events. Since December 31, 1999,
except as disclosed on Section 2.4 of the Company Schedule:
(a) there has not been any Material Adverse Effect on Company,
(b) there has not been any declaration, setting aside or payment of
any dividend on, or other distribution (whether in cash, stock or property) in
respect of, any of Company's or any of its subsidiaries' capital stock, or any
purchase, redemption or other acquisition by Company of any of Company's capital
stock or any other securities of Company or its subsidiaries or any options,
warrants, calls or rights to acquire any such shares or other securities except
for repurchases from employees following their termination pursuant to the terms
of their pre-existing stock option or purchase agreements,
(c) there has not been any split, combination or reclassification
of any of Company's or any of its subsidiaries' capital stock,
(d) there has not been any granting by Company or any of its
subsidiaries of any increase in compensation or fringe benefits, except for
normal increases of cash compensation to non-officer employees in the Ordinary
Course of Business consistent with past practice, or any payment by Company or
any of its subsidiaries of any bonus, except for bonuses made to non-officer
employees in the Ordinary Course of Business consistent with past practice, or
any granting by Company or any of its subsidiaries of any increase in severance
or termination pay or any entry by Company or any of its subsidiaries into any
currently effective employment, severance, termination or indemnification
agreement or any agreement the benefits of which are contingent or the terms of
which are materially altered upon the occurrence of a transaction involving
Company of the nature contemplated hereby,
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(e) neither the Company or any of its subsidiaries has entered into
any licensing or other agreement with regard to the acquisition or disposition
of any Intellectual Property (as defined in Section 2.19)
(f) there has not been any material change by Company in its
accounting methods, principles or practices, except as required by concurrent
changes in GAAP, or
(g) there has not been any revaluation by Company of any of its
assets, including, without limitation, writing down the value of capitalized
inventory or writing off notes or accounts receivable or any sale of assets of
the Company other than in the Ordinary Course of Business
(h) neither the Company nor any subsidiary has sold, leased,
transferred, or assigned any assets or properties, tangible or intangible,
outside the Ordinary Course of Business (as defined below);
(i) neither the Company nor any subsidiary has entered into,
assumed or become bound under or obligated by any agreement, contract, lease or
commitment (collectively a "Company Agreement") or extended or modified the
terms of any Company Agreement which (i) involves the payment of greater than
$25,000 per annum or which extends for more than one (1) year, (ii) involves any
payment or obligation to any Affiliate of the Company other than in the Ordinary
Course of Business, (iii) involves the sale of any material assets, or (iv)
involves any license of any Company Intellectual Property;
(j) no party (including the Company) has accelerated, terminated,
made modifications to, or canceled any agreement, contract, lease, or license to
which the Company is a party or by which it is bound and the Company has not
modified, canceled or waived or settled any debts or claims held by it, outside
the Ordinary Course of Business, or waived or settled any rights or claims of a
substantial value, whether or not in the Ordinary Course of Business;
(k) none of the assets of the Company, tangible or intangible, has
become subject to any Lien;
(l) the Company has not made any capital expenditures except in the
Ordinary Course of Business and not exceeding $25,000 in the aggregate of all
such capital expenditures;
(m) the Company has not made any capital investment in, or any loan
to, any other person;
(n) the Company has not created, incurred, assumed, prepaid or
guaranteed any indebtedness for borrowed money and capitalized lease
obligations, or extended or modified any existing indebtedness;
(o) neither the Company nor any subsidiary has granted any license
or sublicense of any rights under or with respect to any Company Intellectual
Property (as defined below);
(p) there has been no change made or authorized in the Certificate
of Incorporation or bylaws of the Company;
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(q) there has not been (i) any change in the Company's authorized
or issued capital stock, (ii) any grant of any stock option or right to purchase
shares of capital stock of the Company, (iii) the issuance of any security
convertible into such capital stock, (iv) the grant of any registration rights,
(v) any purchase, redemption, retirement, or other acquisition by the Company of
any shares of any such capital stock or (vi) any declaration or payment of any
dividend or other distribution or payment in respect of shares of capital stock;
(r) neither the Company nor any subsidiary has experienced any
damage, destruction, or loss (whether or not covered by insurance) to its
property in excess of $25,000 in the aggregate of all such damage, destruction
and losses;
(s) the Company has not suffered any repeated, recurring or
prolonged shortage, cessation or interruption of communications, customer
access, supplies or utility services;
(t) neither the Company nor any subsidiary has made any loan to, or
entered into any other transaction with, or paid any bonuses in excess of an
aggregate of $25,000 to, any of its Affiliates, directors, officers, or
employees or their Affiliates, and, in any event, any such transaction was on
fair and reasonable terms no less favorable to the Company than would be
obtained in a comparable arm's length transaction with a Person which is not
such a director, officer or employee or Affiliate thereof;
(u) neither the Company nor any subsidiary has entered into any
employment contract or collective bargaining agreement, written or oral, or
modified the terms of any existing such contract or agreement;
(v) the Company has not granted any increase in the compensation or
fringe benefits of any of its directors or officers, or, except in the Ordinary
Course of Business, any of its employees;
(w) the Company has not adopted, amended, modified, or terminated
any bonus, profit-sharing, incentive, severance, or other plan, contract, or
commitment for the benefit of any of its directors, officers, or employees (or
taken any such action with respect to any other Plan (as defined below));
(x) the Company has not made any other change in employment terms
for any of its directors or officers, and the Company has not made any other
change in employment terms for any other employees outside the Ordinary Course
of Business;
(y) the Company has not suffered any adverse change or any threat
of any adverse change in its relations with, or any loss or threat of loss of,
any of its major customers, distributors or partners;
(z) the Company has not suffered any adverse change or any threat
of any adverse change in its relations with, or any loss or threat of loss of,
any of it major suppliers;
(aa) the Company has not received notice and does not have
knowledge of any actual or threatened labor trouble or strike, or any other
occurrence, event or condition of a similar character;
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(bb) the Company has not changed any of the accounting principles
followed by it or the method of applying such principles;
(cc) the Company has not made a change in any of its banking or
safe deposit arrangements;
(dd) neither the Company nor any subsidiary has entered into any
transaction other than in the Ordinary Course of Business; and.
(ee) neither the Company nor any subsidiary has become obligated
to do any of the foregoing.
2.10 Absence of Litigation. Except as disclosed in Section 2.10 of the
Company Schedule, there are (and since the Company's inception there have been)
no claims, actions, suits or proceedings pending or, to the knowledge of
Company, threatened (or, to the knowledge of Company, any governmental or
regulatory investigation pending or threatened) against Company or any of its
subsidiaries or any properties or rights of Company or any of its subsidiaries,
before any court, arbitrator or administrative, governmental or regulatory
authority or body, domestic or foreign. None of the Company, any of its
subsidiaries or any of their properties or rights is subject to any outstanding
injunction, order, decree, ruling or charge.
2.11 Employee Benefit Plans.
(a) All employee compensation, incentive, fringe or benefit plans,
programs, policies, commitments or other arrangements (whether or not set forth
in a written document and including, without limitation, all "employee benefit
plans" within the meaning of Section 3(3) of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA")) covering any active, former
employee, director or consultant of Company (an "EMPLOYEE" which for this
purpose means an Employee of the Company or any Affiliate (as defined below)),
any subsidiary of Company or any trade or business (whether or not incorporated)
which is a member of a controlled group or which is under common control with
Company within the meaning of Section 414 of the Code (for purposes of this
Section 2.11, an "AFFILIATE"), or with respect to which Company has or may in
the future have liability, are listed in Section 2.11(a) of the Company Schedule
(the "PLANS"). Company has provided to Parent: (i) correct and complete copies
of all documents embodying each Plan including (without limitation) all
amendments thereto, all related trust documents, and all material written
agreements and contracts relating to each such Plan; (ii) the three (3) most
recent annual reports (Form Series 5500 and all schedules and financial
statements attached thereto), if any, required under ERISA or the Code in
connection with each Plan; (iii) the most recent summary plan description
together with the summary(ies) of material modifications thereto, if any,
required under ERISA with respect to each Plan; (iv) all Internal Revenue
Service ("IRS") or Department of Labor ("DOL")determination, opinion,
notification and advisory letters; (v) all material correspondence to or from
any governmental agency relating to any Plan; (vi) all Consolidated Omnibus
Budget Reconciliation Act of 1985, as amended ("COBRA") forms and related
notices; (vii) all discrimination tests for each Plan for the most recent three
(3) plan years; (viii) the most recent annual actuarial valuations, if any,
prepared for each Plan; (ix) if the Plan is funded, the most recent annual and
periodic accounting of Plan assets; (x) all material written agreements and
contracts relating to each Plan, including, but not limited to,
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administrative service agreements, group annuity contracts and group insurance
contracts; (xi) all material communications to Employees, 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 under any Plan or proposed Plan; (xii) all policies
pertaining to fiduciary liability insurance covering the fiduciaries for each
Plan; and (xiii) all registration statements, annual reports (Form 11-K and all
attachments thereto) and prospectuses prepared in connection with any Plan.
(b) Except as disclosed on Section 2.11(b) of the Company
Schedule, the Company has performed in all material respects all obligations
required to be performed by it under, is not in default or violation of, and has
no knowledge of any default or violation by any other party to each Plan, and
each Plan has been maintained and administered in all material respects in
compliance with its terms and with the requirements prescribed by any and all
statutes, orders, rules and regulations (foreign or domestic), including but not
limited to ERISA and the Code, which are applicable to such Plans. No suit,
action or other litigation (excluding claims for benefits incurred in the
ordinary course of Plan activities) has been brought, or to the knowledge of
Company is threatened, against or with respect to any such Plan. There are no
audits, inquiries or proceedings pending or, to the knowledge of Company,
threatened by the IRS or DOL with respect to any Plans. All contributions,
reserves or premium payments required to be made or accrued as of the date
hereof to the Plans have been timely made or accrued. Any Plan intended to be
qualified under Section 401(a) of the Code and each trust intended to qualify
under Section 501(a) of the Code (i) has either obtained a favorable
determination, notification, advisory and/or opinion letter, as applicable, as
to its qualified status from the IRS or still has a remaining period of time
under applicable Treasury Regulations or IRS pronouncements in which to apply
for such letter and to make any amendments necessary to obtain a favorable
determination, and (ii) incorporates or has been amended to incorporate all
provisions required to comply with the Tax Reform Act of 1986 and subsequent
legislation. Company does not have any plan or commitment to establish any new
Plan, to modify any Plan (except to the extent required by law or to conform any
such Plan 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 new Plan. Each Plan can be amended, terminated or otherwise
discontinued after the Effective Time in accordance with its terms, without
liability to Parent, Company or any of its Affiliates (other than ordinary
administration expenses).
(c) Neither Company, any of its subsidiaries, nor any of their
Affiliates has at any time ever maintained, established, sponsored, participated
in, or contributed to any plan subject to Title IV of ERISA or Section 412 of
the Code and at no time has Company or any of its subsidiaries contributed to or
been requested to contribute to any "multiemployer plan," as such term is
defined in ERISA or to any plan described in Section 413(c) of the Code. Neither
Company, any of its subsidiaries nor any of their Affiliates, nor any officer or
director of Company or any of its subsidiaries is subject to any liability or
penalty under Section 4975 through 4980B of the Code or Title I of ERISA. There
are no audits, inquiries or proceedings pending or, to the knowledge of Company,
threatened by the IRS or DOL with respect to any Plan. No "prohibited
transaction," within the meaning of Section 4975 of the Code or Sections 406 and
407 of ERISA, and not otherwise exempt under Section 408 of ERISA, has occurred
with respect to any Plan.
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(d) Neither Company, any of its subsidiaries, nor any of their
Affiliates has, prior to the Effective Time and in any material respect,
violated any of the health continuation requirements of the COBRA, the
requirements of the Family Medical Leave Act of 1993, as amended, the
requirements of the Women's Health and Cancer Rights Act, as amended, the
requirements of the Newborns' and Mothers' Health Protection Act of 1996, as
amended, the requirements of the Health Insurance Portability and Accountability
Act of 1996, as amended, or any similar provisions of state law applicable to
Employees of the Company or any of its subsidiaries. None of the Plans promises
or provides retiree medical or other retiree welfare benefits to any person
except as required by applicable law, and neither Company nor any of its
subsidiaries nor any of their Affiliates has represented, promised or contracted
(whether in oral or written form) to provide such retiree benefits to any
Employee or other person, except to the extent required by statute.
(e) Neither Company nor any of its subsidiaries is bound by or
subject to (and none of its respective assets or properties is bound by or
subject to) any arrangement with any labor union. No employee of Company or any
of its subsidiaries is represented by any labor union or covered by any
collective bargaining agreement and, to the knowledge of Company, no campaign to
establish such representation is in progress. There is no pending or, to the
knowledge of Company, threatened labor dispute involving Company or any of its
subsidiaries and any group of its employees nor has Company or any of its
subsidiaries experienced any labor interruptions over the past three (3) years,
and Company and its subsidiaries consider their relationships with their
employees to be commercially satisfactory. The Company and its subsidiaries are
in compliance in all material respects with all applicable material foreign,
federal, state and local laws, rules and regulations respecting employment,
employment practices, terms and conditions of employment and wages and hours.
(f) Except as described in Section 2.11(f) of the Company
Schedule, neither the execution and delivery of this Agreement nor the
consummation of the transactions contemplated hereby will (either alone, or upon
the occurrence of any additional or subsequent events) (i) result in any payment
(including severance, unemployment compensation, golden parachute, bonus or
otherwise) becoming due to any shareholder, director or employee of Company or
any of its subsidiaries or their Affiliates under any Plan or otherwise, (ii)
materially increase any benefits otherwise payable under any Plan, or (iii)
result in the acceleration of the time of payment or vesting of any such
benefits. No payment or benefit which will or may be made by the Company or its
Affiliates with respect to any Employee will be characterized as a "parachute
payment," within the meaning of Section 280G(b)(2) of the Code.
(g) The Company: (i) is in compliance in all 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 its Employees; (ii) has
withheld and reported all amounts required by law or by agreement to be withheld
and reported with respect to wages, salaries and other payments to Employees;
(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 governed by or maintained by or on behalf of
any governmental authority, with respect to unemployment compensation benefits,
social security or other benefits or obligations for Employees (other than
routine payments to be made in the normal course of business and consistent with
past practice). There are no pending, threatened or reasonably
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anticipated claims or actions against the Company under any worker's
compensation policy or long-term disability policy.
(h) The Company does not now, nor has it ever had the obligation
to, maintain, establish, sponsor, participate in, or contribute to any Plan that
has been adopted or maintained by the Company or any Affiliate whether
informally or formally, or with respect to which the Company or any Affiliate
will or may have any liability, for the benefit of Employees who perform
services outside the United States.
(i) The Company and its Affiliates, as applicable, each has,
effective the day prior to the Closing, terminated its 401(k) plan, unless
Parent, in its sole and absolute discretion, has agreed to sponsor and maintain
such plans by providing the Company with written notice or such election at
least three (3) days before the Effective Time.(j) The Company and its
Affiliates, as applicable, each has terminated immediately prior to Closing any
and all group severance, separation or salary continuation plans, programs or
arrangements that are covered under ERISA.
2.12 Labor Matters. (i) There are no controversies pending or, to the
knowledge of each of Company and its respective subsidiaries, threatened,
between Company or any of its subsidiaries and any of their respective
employees; (ii) neither Company nor any of its subsidiaries is (or has ever
been) a party to any collective bargaining agreement or other labor union
contract applicable to persons employed by Company or its subsidiaries nor does
Company or its subsidiaries know of any activities or proceedings of any labor
union to organize any such employees; and (iii) neither Company nor any of its
subsidiaries has any knowledge of any strikes, slowdowns, work stoppages or
lockouts, or threats thereof, by or with respect to any employees of Company or
any of its subsidiaries.
2.13 Restrictions on Business Activities. There is no agreement,
commitment, judgment, injunction, order or decree binding upon Company or its
subsidiaries or to which the Company or any of its subsidiaries is a party which
has or could reasonably be expected to have the effect of prohibiting or
materially impairing any business practice of Company or any of its
subsidiaries, any acquisition of property by Company or any of its subsidiaries
or the conduct of business by Company or any of its subsidiaries as currently
conducted.
2.14 Title to Property. Neither Company nor any of its subsidiaries
owns (or has ever owned) any real property. Company and each of its subsidiaries
have good and defensible title to all of their material properties and assets,
free and clear of all liens, charges and encumbrances except liens for taxes not
yet due and payable and such liens or other imperfections of title, if any, as
do not materially detract from the value of or interfere with the present use of
the property affected thereby; and all leases pursuant to which Company or any
of its subsidiaries lease from others material real or personal property are in
good standing, valid and effective in accordance with their respective terms,
and there is not, under any of such leases, any existing material default or
event of default (or any event which with notice or lapse of time, or both,
would constitute a material default and in respect of which Company or
subsidiary has not taken adequate steps to prevent such default from occurring).
All the plants, structures and equipment of Company and its subsidiaries, except
such as may be under construction, are in good operating condition and repair,
in all material respects.
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2.15 Taxes.
(a) For the purposes of this Agreement, "TAX" or "TAXES" refers to
(i) any and all federal, state, local and foreign taxes, assessments and other
governmental charges, duties, impositions and liabilities relating to taxes,
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; (ii) any liability for the payment of any amounts of the
type described in clause (i) as a result of being or ceasing to be a member of
an affiliated, consolidated, combined or unitary group for any period
(including, without limitation, any liability under Treas. Reg. Section 1.1502-6
or any comparable provision of foreign, state or local law); and (iii) any
liability for the payment of any amounts of the type described in clause (i) or
(ii) as a result of any express or implied obligation to indemnify any other
person or as a result of 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) (i) The Company and each of its subsidiaries have timely filed
all federal, state, local and foreign returns, estimates, information statements
and reports ("RETURNS") relating to Taxes required to be filed by the Company
and each of its subsidiaries with any Tax authority, except such Returns which
are not material to the Company. The Company and each of its subsidiaries have
paid all Taxes shown to be due on such Returns.
(ii) The Company and each of its subsidiaries as of the
Effective Time will have withheld with respect to its employees all federal and
state income taxes, Taxes pursuant to the Federal Insurance Contribution Act,
Taxes pursuant to the Federal Unemployment Tax Act and other Taxes required to
be withheld, except such Taxes which are not material to the Company.
(iii) Neither the Company nor any of its subsidiaries has been
delinquent in the payment of any material Tax nor is there any material Tax
deficiency outstanding, proposed or assessed against the Company or any of its
subsidiaries, nor has the Company or any of its subsidiaries executed any
unexpired waiver of any statute of limitations on or extending the period for
the assessment or collection of any Tax.
(iv) There is no dispute, claim or proposed adjustment
concerning any Tax liability of the Company or any of its subsidiaries either
(A) claimed or raised by any authority in writing or (B) based upon personal
contact with any agent of such authority. Neither the Company nor any of its
subsidiaries is a party to nor has it been notified that it is the subject of
any pending, proposed or threatened action, investigation, proceeding, audit,
claim or assessment by or before the Internal Revenue Service or any other
governmental authority and no claim for assessment, deficiency or collection of
Taxes, or proposed assessment, deficiency or collection from the Internal
Revenue Service or any other governmental authority which has not been
satisfied, nor does the Company nor any subsidiary have any reason to believe
that any such notice will be received in the future. The Internal Revenue
Service has never audited any federal income tax return of the Company or any of
its subsidiaries. Neither the Company nor any of its subsidiaries have filed any
requests for rulings
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with the Internal Revenue Service. No power of attorney has been granted by the
Company or any of its subsidiaries or Affiliates with respect to any matter
relating to Taxes of the Company. There are no tax liens of any kind upon any
property or assets of the Company or any of its subsidiaries, except for
inchoate liens for taxes not yet due and payable.
(v) No adjustment relating to any Returns filed by the Company
or any of its subsidiaries has been proposed in writing formally or informally
by any Tax authority to the Company or any of its subsidiaries or any
representative thereof.
(vi) Neither the Company nor any of its subsidiaries has any
liability for any material unpaid Taxes which has not been accrued for or
reserved on the Company's unaudited balance sheet dated December 31, 1999 in
accordance with GAAP, whether asserted or unasserted, contingent or otherwise,
which is material to the Company, other than any liability for unpaid Taxes that
may have accrued since December 31, 1999 in connection with the operation of the
business of the Company and its subsidiaries in the ordinary course.
(vii) There is no contract, agreement, plan or arrangement to
which the Company or any of its subsidiaries is a party as of the date of this
Agreement, including but not limited to the provisions of this Agreement,
covering any employee or former employee of the Company or any of its
subsidiaries that, individually or collectively, would reasonably be expected to
give rise to the payment of any amount that would not be deductible pursuant to
Sections 280G, 404 or 162(m) of the Code. There is no contract, agreement, plan
or arrangement to which the Company or any of its subsidiaries is a party or by
which it is bound to compensate any individual for excise taxes paid pursuant to
Section 4999 of the Code.
(viii) Neither the Company nor any of its subsidiaries has
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 or any of its
subsidiaries.
(ix) Neither the Company nor any of its subsidiaries is party
to or has any obligation under any tax-sharing, tax indemnity or tax allocation
agreement or arrangement.
(x) None of the Company's or its subsidiaries' assets are tax
exempt use property within the meaning of Section 168(h) of the Code.
(xi) The Company has not been a United States real property
holding corporation within the meaning of Code Sec. 897(c)(2) during the
applicable period specified in Code Sec. 897(c)(1)(A)(ii). The Company is not a
Party to any tax allocation or sharing agreement. The Company (A) has not been a
member of any affiliated group within the meaning of Code Sec. 1504 or any
similar group defined under a similar provision of state, local, or foreign law
(an "AFFILIATED GROUP") filing a consolidated federal Income Tax Return (other
than a group the common parent of which was the Company) and (B) has no
liability for the taxes of any Person (other than any of the Company) under
Treas. Reg. Section 1.1502-6 (or any similar provision of state, local, or
foreign law), as a transferee or successor, by contract, or otherwise. The
Company has not requested or received a ruling from any taxing authority or
signed a closing agreement with any taxing authority.
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No claim has ever been made by a taxing authority in a jurisdiction where the
Company does not file Tax returns that the Company is or may be subject to
taxation by such jurisdiction.
2.16 Environmental Matters. Company (i) has obtained all applicable
permits, licenses and other authorizations that are required under Environmental
Laws the absence of which would have a Material Adverse Effect on Company; (ii)
is in compliance (and has complied) in all material respects with all material
terms and conditions of such required permits, licenses and authorizations, and
also is in compliance in all material respects with all other material
limitations, restrictions, conditions, standards, prohibitions, requirements,
obligations, schedules and timetables contained in such laws or contained in any
regulation, code, plan, order, decree, judgment, notice or demand letter issued,
entered, promulgated or approved thereunder; (iii) has no knowledge of and has
not received notice of any event, condition, circumstance, activity, practice,
incident, action or plan that is reasonably likely to interfere with or prevent
continued compliance or that would give rise to any common law or statutory
liability, or otherwise form the basis of any Environmental Claim with respect
to Company or any person or entity whose liability for any Environmental Claim
Company has retained or assumed either contractually or by operation of law;
(iv) has not disposed of, released, discharged or emitted any Hazardous
Materials into the soil or groundwater at any properties owned or leased at any
time by Company, or at any other property, or exposed any employee or other
individual to any Hazardous Materials or condition in such a manner as would
result in any liability or result in any corrective or remedial action
obligation; and (v) has taken all actions necessary under Environmental Laws to
register any products or materials required to be registered by Company (or any
of its agents) thereunder. No Hazardous Materials are present in, on or under
any properties owned, leased or used at any time (including both land and
improvements thereon) by Company, and no reasonable likelihood exists that any
Hazardous Materials will come to be present in, in or under any properties
owned, leased or used at any time (including both land and improvements thereon)
by Company, so as to give rise to any liability or corrective or remedial
obligation under any Environmental Laws. For the purposes of this Section 2.17,
"ENVIRONMENTAL CLAIM" means any notice, claim, act, cause of action or
investigation by any person alleging potential liability (including potential
liability for investigatory costs, cleanup costs, governmental response costs,
natural resources damages, property damages, personal injuries or penalties)
arising out of, based on or resulting from (i) the presence, or release into the
environment, of any Hazardous Materials or (ii) any violation, or alleged
violation, of any Environmental Laws. "ENVIRONMENTAL LAWS" means all Federal,
state, local and foreign laws and regulations relating to pollution of the
environment (including ambient air, surface water, ground water, land surface or
subsurface strata) or the protection of human health and worker safety,
including, without limitation, laws and regulations relating to emissions,
discharges, releases or threatened releases of Hazardous Materials, or otherwise
relating to the manufacture, processing, distribution, use, treatment, storage,
disposal, transport or handling of Hazardous Materials. "HAZARDOUS MATERIALS"
means chemicals, pollutants, contaminants, wastes, toxic substances, radioactive
and biological materials, asbestos-containing materials, hazardous substances,
petroleum and petroleum products or any fraction thereof, excluding, however,
Hazardous Materials contained in products typically used for office and
janitorial purposes properly and safely maintained in accordance with
Environmental Laws.
2.17 Brokers. 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
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2.18 Intellectual Property. For the purposes of this Agreement, 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 applications therefor and all reissues,
divisions, renewals, extensions, provisionals, continuations and
continuations-in-part thereof ("PATENTS"); (ii) all inventions (whether
patentable or not), invention disclosures, improvements, trade secrets,
proprietary information, proprietary processes or formulae, franchises,
licenses, know how, technology, technical data and customer lists, and
all documentation relating to any of the foregoing; (iii) all
copyrights, copyright registrations and applications therefor and all
other rights corresponding thereto throughout the world; (iv) all
rights to all mask works and reticules, mask work registrations and
applications therefor; (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; (vii) all databases and data
collections and all rights therein throughout the world; (viii) all
computer software including all source code, object code, algorithms,
display screens, layouts, firmware, development tools, files, records
and data, all media on which any of the foregoing is recorded, all Web
addresses, sites and domain names; (ix) any similar, corresponding or
equivalent rights to any of the foregoing; and (x) all documentation
related to any of the foregoing
"COMPANY INTELLECTUAL PROPERTY" shall mean any Intellectual Property
that is owned by or exclusively licensed to the Company or any of its
subsidiaries. Without in any way limiting the generality of the
foregoing, Company Intellectual Property includes all Intellectual
Property owned or licensed by the Company related to the Company's
products, including without limitation all rights in any design code,
documentation, and tooling for packaging of semiconductors in
connection with all current products and products in design and
development.
"REGISTERED INTELLECTUAL PROPERTY" shall mean all United States,
international and foreign: (i) patents, patent applications (including
provisional applications); (ii) registered trademarks, applications to
register trademarks, intent-to-use applications, or other registrations
or applications related to trademarks; (iii) registered copyrights and
applications for copyright registration; (iv) any 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
"COMPANY REGISTERED INTELLECTUAL PROPERTY" means all of the Registered
Intellectual Property owned by, or filed in the name of, the Company or
any of its subsidiaries.
(a) Section 2.18(a) of the Company Schedule is a complete and
accurate list of all Company Registered Intellectual Property and specifies,
where applicable, the jurisdictions in which each such item of Company
Registered Intellectual Property has been issued or registered and lists
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any proceedings or actions before any court, tribunal (including the United
States Patent and Trademark Office (the "PTO") or equivalent authority anywhere
in the world) related to any of the Company Registered Intellectual Property.
(b) Section 2.18(b) of the Company Schedule is a complete and
accurate list (by name and version number) of all software products or service
offerings of the Company or any of it subsidiaries ("COMPANY PRODUCTS") that
have been distributed or provided in the ten (10)-year period preceding the date
hereof or which the Company or any of its subsidiaries intends to distribute or
provide in the future, including any products or service offerings under
development.
(c) Except as disclosed on Section 2.18(c) of the Company
Schedule, no Company Intellectual Property or Company Product is subject to any
proceeding or outstanding decree, order, judgment, contract, license, agreement,
or stipulation restricting in any manner the use, transfer, or licensing thereof
by Company or any of its subsidiaries, or which may affect the validity, use or
enforceability of such Company Intellectual Property or Company Product.
(d) Except as disclosed on Section 2.18(d) of the Company
Schedule, each material item of Company Registered Intellectual Property is
valid and subsisting, all necessary registration, maintenance and renewal fees
currently due in connection with such Company Registered Intellectual Property
have been made and all necessary documents, recordations and certificates in
connection with such Company Registered Intellectual Property have been filed
with the relevant patent, copyright, trademark or other authorities in the
United States or foreign jurisdictions, as the case may be, for the purposes of
maintaining such Company Registered Intellectual Property. There are no actions
that must be taken by the Company within sixty (60) days of the Closing Date,
including the payment of any registration, maintenance or renewal fees or the
filing of any documents, applications or certificates for the purposes of
maintaining, perfecting or preserving or renewing any Company Registered
Intellectual Property. For each product, technology or service of the Company
that constitutes or includes a copyrightable work, the Company has registered
the copyright in the latest version of such work with the U.S. Copyright Office.
In each case in which the Company has acquired any Intellectual Property rights
from any person, the Company has obtained a valid and enforceable assignment
sufficient to irrevocably transfer all rights in such Intellectual Property
(including the right to seek past and future damages with respect to such
Intellectual Property) to the Company and, to the maximum extent provided for
by, and in accordance with, applicable laws and regulations, the Company has,
with respect to assignments of Registered Intellectual Property, recorded each
such assignment with the relevant governmental authorities, including the PTO,
the U.S. Copyright Office, or their respective equivalents in any relevant
foreign jurisdiction, as the case may be.
(e) The Company Intellectual Property constitutes all the
Intellectual Property used in and/or necessary to the conduct of the business of
the Company and its subsidiaries as it currently is conducted or is reasonably
contemplated to be conducted, including, without limitation, the design,
development, manufacture, use, import and sale of Company Products. Company owns
and has good and exclusive title to, each material item of Company Intellectual
Property free and clear of any lien or encumbrance (excluding non-exclusive
licenses and related restrictions granted in the ordinary course). Without
limiting the foregoing: (i) Company is the exclusive owner of all trademarks and
trade names used in connection with the operation or conduct of the business of
Company and its
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subsidiaries, including the sale, distribution or provision of any Company
Products by Company or its subsidiaries; (ii) Company owns exclusively, and has
good title to, all copyrighted works that are Company Products or which Company
or any of its subsidiaries otherwise purports to own; and (iii) to the extent
that any Patents would be infringed by any Company Products, Company is the
exclusive owner of such Patents.
(f) To the extent that any technology, software or material
Intellectual Property has been developed or created independently or jointly by
a third party for Company or any of its subsidiaries or is incorporated into any
of the Company Products, Company has a written agreement with such third party
with respect thereto and Company thereby either (i) has obtained ownership of,
and is the exclusive owner of, or (ii) has obtained a perpetual, non-terminable
license (sufficient for the conduct of its business as currently conducted and
as proposed to be conducted) to all such third party's Intellectual Property in
such work, material or invention by operation of law or by valid assignment, to
the fullest extent it is legally possible to do so.
(g) Neither Company nor any of its subsidiaries has transferred
ownership of, or granted any exclusive license with respect to, any Intellectual
Property that is or was material Company Intellectual Property, to any third
party, or permitted Company's rights in such material Company Intellectual
Property to lapse or enter the public domain.
(h) Section 2.18(h) of the Company Schedule lists all material
contracts, licenses and agreements to which Company or any of its subsidiaries
is a party: (i) with respect to Company Intellectual Property licensed or
transferred to any third party (other than end-user licenses in the ordinary
course); or (ii) pursuant to which a third party has licensed or transferred any
material Intellectual Property to Company (other than shrink-wrap licenses
available off the shelf).
(i) All contracts, licenses and agreements relating to either (i)
Company Intellectual Property or (ii) Intellectual Property of a third party
licensed to Company or any of its subsidiaries, are in full force and effect.
The consummation of the transactions contemplated by this Agreement will neither
violate nor result in the breach, modification, cancellation, termination or
suspension of such contracts, licenses and agreements or cause the forfeiture,
modification or termination or give right of forfeiture, modification or
termination of any Company Intellectual Property or in any way impair the right
of the Company to use, sell, license or dispose of or to bring any action for
the infringement of any Company Intellectual Property or portion thereof. Each
of Company and its subsidiaries is in material compliance with, and has not
materially breached any term of any such contracts, licenses and agreements and,
to the knowledge of Company, all other parties to such contracts, licenses and
agreements are in compliance with, and have not materially breached any term of,
such contracts, licenses and agreements. Following the Closing Date, the
Surviving Corporation will be permitted to exercise all of Company's rights
under such contracts, licenses and agreements to the same extent Company and its
subsidiaries would have been able to had the transactions contemplated by this
Agreement not occurred and without the payment of any additional amounts or
consideration other than ongoing fees, royalties or payments which Company would
otherwise be required to pay. Neither this Agreement nor the transactions
contemplated by this Agreement, including the assignment to Parent or Merger Sub
by operation of law or otherwise of any contracts or agreements to which the
Company is a party, will result in (i) either Parent's or the Merger Sub's
granting to any third party any right to or with respect to any material
Intellectual Property right
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owned by, or licensed to, either of them, (ii) either the Parent's or the Merger
Sub's being bound by, or subject to, any non-compete or other material
restriction on the operation or scope of their respective businesses, or (iii)
either the Parent's or the Merger Sub's being obligated to pay any royalties or
other material amounts to any third party in excess of those payable by Parent
or Merger Sub, respectively, prior to the Closing.
(j) The operation of the business of the Company and its
subsidiaries as such business currently is conducted or is reasonably
contemplated to be conducted, including (i) Company's and its subsidiaries'
design, development, manufacture, distribution, reproduction, marketing or sale
of the products or services of Company and its subsidiaries (including Company
Products) and (ii) the Company's use of any product, device or process, has not,
does not and will not infringe or misappropriate the Intellectual Property of
any third party, constitute unfair competition or trade practices under the laws
of any jurisdiction or violate any license or agreement between the Company or
any of its subsidiaries and any person.
(k) Neither Company nor any of its subsidiaries has received
notice from any third party that the operation of the business of Company or any
of its subsidiaries or any act, product or service of Company or any of its
subsidiaries, infringes or misappropriates the Intellectual Property of any
third party or constitutes unfair competition or trade practices under the laws
of any jurisdiction.
(l) Neither the development, manufacture, marketing, license, sale
nor use of any product, technology or service currently licensed or sold by the
Company or currently under development violates or will violate any license or
agreement with any third party or infringes or will infringe any Intellectual
Property of any other person which would have a Material Adverse Effect; there
is no pending or, to the Company's knowledge, threatened claim or litigation
contesting the validity, ownership or right to use, sell, license or dispose of
any Company Intellectual Property nor, to the Company's knowledge, is there any
basis for any such claim, nor has the Company received any notice asserting that
any Company Intellectual Property or the proposed use, sale, license or
disposition thereof conflicts or will conflict with the rights of any other
person, nor is there any basis for any such assertion.
(m) Except as disclosed on Section 2.18(m) of the Company
Schedule, to the knowledge of Company, no person has or is infringing or
misappropriating any Company Intellectual Property.
(n) Company and each of its subsidiaries has taken reasonable
steps to protect Company's and its subsidiaries' rights in Company's
confidential information and trade secrets that it wishes to protect or any
trade secrets or confidential information of third parties provided to Company
or any of its subsidiaries, and, without limiting the foregoing, each of Company
and its subsidiaries has and enforces a policy requiring each employee and
contractor to execute a proprietary information/confidentiality agreement
substantially in the form provided to Parent and all current and former
employees and contractors of Company and any of its subsidiaries have executed
such an agreement, except where the failure to do so is not reasonably expected
to be material to Company.
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(o) All of the Company Products (i) will record, store, process,
calculate and present calendar dates falling on and after (and if applicable,
spans of time including) January 1, 2000, and will calculate any information
dependent on or relating to such dates in the same manner, and with the same
functionality, data integrity and performance, as the products record, store,
process, calculate and present calendar dates on or before December 31, 1999, or
calculate any information dependent on or relating to such dates (collectively,
"YEAR 2000 COMPLIANT"), (ii) will lose no functionality with respect to the
introduction of records containing dates falling on or after January 1, 2000,
and (iii) will be interoperable with other products used and distributed by
Parent that may reasonably deliver records to the Company's or any of its
subsidiaries' products or receive records from the Company's or any of its
subsidiaries' products, or interact with the Company's or any of its
subsidiaries' products. All of the Company's or its subsidiaries' Information
Technology (as defined below) is Year 2000 Compliant, and will not cause an
interruption in the ongoing operations of the Company's or any of its
subsidiaries' business on or after January 1, 2000. For purposes of the
foregoing, the term "INFORMATION TECHNOLOGY" shall mean and include all
software, hardware, firmware, telecommunications systems, network systems,
embedded systems and other systems, components and/or services (other than
general utility services including gas, electric, telephone and postal) that are
owned or used by the Company or any of its subsidiaries in the conduct of their
business, or purchased by the Company or any of its subsidiaries from
third-party suppliers. The Company has made no representation or warranty to any
third party with respect to Company Products being Year 2000 Compliant.
2.19 Agreements, Contracts and Commitments. Except as disclosed in
Section 2.19 of the Company Schedule, neither Company nor any of its
subsidiaries is a party to or is bound by:
(a) any employment or consulting agreement, contract or commitment
with any officer or director or higher level employee or member of Company's
Board of Directors, other than those that are terminable by Company or any of
its subsidiaries on no more than thirty (30) days' notice without liability or
financial obligation to the Company;
(b) any agreement or plan, including, without limitation, any
stock option plan, stock appreciation right 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;
(c) any agreement of indemnification or any guaranty other than
any agreement of indemnification entered into in connection with the sale,
license, distribution and development of software products and advertising in
the Ordinary Course of Business;
(d) any agreement, contract or commitment containing any covenant
limiting in any respect the right of Company or any of its subsidiaries to
engage in any line of business or to compete with any person or granting any
exclusive distribution rights;
(e) any agreement, contract or commitment currently in force
relating to the disposition or acquisition by Company or any of its subsidiaries
after the date of this Agreement of a material amount of assets not in the
Ordinary Course of Business or pursuant to which Company or
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any of its subsidiaries has any material ownership interest in any corporation,
partnership, joint venture or other business enterprise other than Company's
subsidiaries;
(f) any dealer, distributor, joint marketing or development
agreement currently in force under which Company or any of its subsidiaries have
continuing material obligations to jointly market any product, technology or
service and which may not be canceled without penalty upon notice of ninety (90)
days or less, or any material agreement pursuant to which Company or any of its
subsidiaries have continuing material obligations to jointly develop any
intellectual property that will not be owned, in whole or in part, by Company or
any of its subsidiaries and which may not be canceled without penalty upon
notice of ninety (90) days or less;
(g) any agreement, contract or commitment currently in force to
provide source code to any third party for any product or technology that is
material to Company and its subsidiaries taken as a whole;
(h) any agreement, contract or commitment currently in force to
license any third party to manufacture or reproduce any Company product, service
or technology or any agreement, contract or commitment currently in force to
sell or distribute any Company products, service or technology except agreements
with distributors or sales representative in the normal course of business
cancelable without penalty upon notice of ninety (90) days or less and
substantially in the form previously provided to Parent;
(i) any mortgages, indentures, guarantees, loans or credit
agreements, security agreements or other agreements or instruments relating to
the borrowing of money or extension of credit or granting any Lien on any assets
or properties of the Company or any of its subsidiaries;
(j) any settlement agreement entered into within five (5) years
prior to the date of this Agreement;
(k) any other agreement, contract or commitment that has a value
of $25,000 or more individually;
(l) any agreement (or group of related agreements) for the lease
of personal property to or from any person that involves aggregate annual
payments of more than $25,000;
(m) any agreement under which the consequences of a default or
termination could reasonably be anticipated to have a Material Adverse Effect on
the Company;
(n) any agreement (or group of related agreements) for the
purchase or sale of commodities, supplies, products, or other personal property,
or for the furnishing or receipt of services, the performance of which will
extend over a period of more than one year or involve consideration in excess of
$25,000;
(o) any agreement for the purchase of supplies, components,
products or services from single source suppliers, custom manufacturers or
subcontractors that involves aggregate annual payments of more than $25,000;
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(p) any agreement concerning a partnership or joint venture;
(q) any agreement with any Company stockholder or any of such
Company stockholder's Affiliates (other than the Company) or with any Affiliate
of the Company;
(r) any profit sharing, stock option, stock purchase, stock
appreciation, deferred compensation, severance, or other plan or arrangement for
the benefit of its current or former directors, officers or employees;
(s) any collective bargaining agreement;
(t) any executory agreement under which the Company has advanced
or loaned any amount to any of its directors, officers, and employees;
(u) any advertising services, e-commerce or other agreement
involving the promotion of products and services of third parties by the
Company;
(v) any executory agreement pursuant to which the Company is
obligated to provide maintenance, support or training for its services or
products;
(w) any revenue or profit participation agreement which involves
aggregate annual payments of more than $25,000; and
(x) any license, agreement or other permission which the Company
or any Affiliate of the Company has granted to any third party with respect to
any of the Intellectual Property used in the Company's business.
Neither Company nor any of its subsidiaries, nor to Company's knowledge
any other party to a Company Contract (as defined below), is in breach,
violation or default under, and neither Company nor any of its subsidiaries has
received written notice that it has breached, violated or defaulted under, any
of the material terms or conditions of any of the agreements, contracts or
commitments to which Company or any of its subsidiaries is a party or by which
it is bound that are required to be disclosed in the Company Schedule (any such
agreement, contract or commitment, a "COMPANY CONTRACT") in such a manner as
would permit any other party to cancel or terminate any such Company Contract,
or would permit any other party to seek material damages or other remedies (for
any or all of such breaches, violations or defaults, in the aggregate).
2.20 Insurance. Company maintains insurance policies and fidelity bonds
covering the assets, business, equipment, properties, operations, employees,
officers and directors of Company and its subsidiaries (collectively, the
"INSURANCE POLICIES") which are of the type and in amounts listed on Section
2.20 of the Company Schedule. With respect to each such insurance policy: (A)
the policy is legal, valid, binding, enforceable, and in full force and effect
(and there has been no notice of cancellation or nonrenewal of the policy
received); (B) neither the Company nor any other party to the policy is in
breach or default (including with respect to the payment of premiums or the
giving of notices), and no event has occurred which, with notice or the lapse of
time, would constitute such a breach or default, or permit termination,
modification, or acceleration, under the policy; (C) no party to the policy has
repudiated any provision thereof; and (D) there has been no failure to give any
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notice or present any claim under the policy in due and timely fashion. There is
no material claim by Company or any of its subsidiaries pending under any of the
material Insurance Policies as to which coverage has been questioned, denied or
disputed by the underwriters of such policies or bonds.
2.21 Certain Business Relationships with the Company. To the Company's
knowledge, neither the Company's stockholders nor any director or officer of the
Company, nor any member of their immediate families, nor any Affiliate of any of
the foregoing, owns, directly or indirectly, or has an ownership interest in (a)
any business (corporate or otherwise) which is a party to, or in any property
which is the subject of, any business arrangement or relationship of any kind
with the Company, or (b) any business (corporate or otherwise) which conducts
the same business as, or a business similar to, that conducted by the Company.
2.22 Employees. No executive, key employee, or significant group of
employees has advised any executive officer of the Company that he, she or they
plan to terminate employment with the Company or any of its subsidiaries during
the next 12 months.
2.23 Notes and Accounts Receivable. All notes and accounts receivable
of the Company, all of which are reflected properly on the books and records of
the Company, are valid receivables subject to no setoffs, defenses or
counterclaims, are current and, to the Company's knowledge, collectible subject
in each case only to the reserve for bad debts set forth on the face of the Most
Recent Balance Sheet as adjusted for operations and transactions through the
Closing Date in accordance with the past custom and practice of the Company.
2.24 Product Warranty. The technologies or products licensed, sold,
leased, and delivered and all services provided by the Company have conformed in
all material respects with all applicable contractual commitments and all
express and implied warranties, and the Company has no liability (whether known
or unknown, whether asserted or unasserted, whether absolute or contingent,
whether accrued or unaccrued, whether liquidated or unliquidated, and whether
due or to become due) for replacement or modification thereof or other damages
in connection therewith, other than in the Ordinary Course of Business in an
aggregate amount not exceeding $20,000 and any applicable reserve on the
Financial Statements with respect thereto.
2.25 Board Approval. The Board of Directors of Company has, as of the
date of this Agreement, unanimously (i) approved this Agreement, the Merger and
the other transactions contemplated hereby, (ii) determined that the Merger is
consistent with and in furtherance of the long-term business strategy of Company
and fair to, and in the best interests of, Company and its shareholders and
(iii) determined to recommended that the shareholders of Company adopt and
approve this Agreement and approve the Merger.
2.26 Vote Required. The affirmative vote of a majority of the votes
that holders of the outstanding shares of Company Common Stock are entitled to
vote with respect to the Merger is the only vote of the holders of any class or
series of Company's capital stock necessary to approve this Agreement and the
transactions contemplated hereby.
2.27 State Takeover Statutes. The Board of Directors of the Company has
approved the Merger, the Merger Agreement, the Shareholder Agreement and the
transactions contemplated
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hereby and thereby, and such approval is sufficient to render inapplicable to
the Merger, the Merger Agreement, the Shareholder Agreement and the transactions
contemplated hereby and thereby the provisions of Code Section 14-2-1110 et seq.
and 14-2-1131 et seq. of the Georgia Law to the extent, if any, such section is
applicable to the Merger, the Merger Agreement, the Shareholder Agreement and
the transactions contemplated hereby and thereby. No other state takeover
statute or similar statute or regulation applies to or purports to apply to the
Merger, the Merger Agreement, the Shareholder Agreement or the transactions
contemplated hereby and thereby.
2.28 Complete Copies of Materials. Company has delivered or made
available true and complete copies of each document (or summaries of same) that
has been requested by Parent or its counsel.
2.29 Xxxx-Xxxxx-Xxxxxx Representations.
(a) Xxxxx Xxxxxxxxx, defined for purposes of this section to
include his wife and any minor children, is the only Ultimate Parent Entity of
the Company as defined under the Xxxx-Xxxxx-Xxxxxx Antitrust Improvements Act of
1976, as amended (the "HSR Act"). Xxxxx Xxxxxxxxx is not a $10 million person as
defined under the HSR Act: Xxxxx Xxxxxxxxx does not have investment assets,
voting securities and/or income-producing property, including all of the total
assets of the Company and any other entity he controls, that total $10 million
or more in value; nor does Xxxxx Xxxxxxxxx control entities, including but not
limited to the Company, that generated total revenue of $10 million or more in
the last year.
No other shareholder of the Company is required to file a Notification
and Report Form under Section 801.2(e) of the HSR Act concerning its acquisition
of Parent voting securities as consideration to be received in the Merger.
2.30 Termination of Certain Agreements. The following events occurred
prior to the execution of the Agreement and the consummation of the Merger:
(a) the Shareholder Agreement among certain shareholders of the
Company was terminated effective prior to the Closing and the Effective Time and
no provision of such agreement shall in any way apply to (and no rights
thereunder of any party thereto shall in any way be affected by) either the
execution of this Agreement or the consummation of the Merger;
(b) CYROB (as defined in Section 6.2(n)) merged with and into the
Company;
(c) each employment agreement between the Company and employees of
the Company was terminated effective prior to the Closing and the Effective Time
and no provision of any such agreement shall in any way apply to (and no rights
thereunder of any party thereto shall in any way be affected by) either the
execution of this Agreement or the consummation of the Merger;
(d) the Co-Sale Agreement (as defined in Section 6.2(o)) was
terminated effective prior to the Closing and the Effective Time and no
provision of such agreement shall in any way apply to (and no rights thereunder
of any party thereto shall in any way be affected by) either the execution of
this Agreement or the consummation of the Merger; and
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(e) the Jerkunica Obligations (as defined in Section 6.2(p)) were
fully converted into Company Common Stock without any other payment thereunder.
2.31 Representations Complete. Neither any of the representations or
warranties made by Company in this Agreement, nor any statements made in any
exhibit, schedule or certificate furnished by Company pursuant to this Agreement
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 made, not misleading. Except for
information supplied by Parent in writing specifically for such purpose, the
information furnished on or in any documents mailed, delivered or otherwise
furnished to Shareholders in connection with the solicitation of their consent
to this Agreement and the Merger, will not contain, at or prior to the Effective
Time, any untrue statement of a material fact and will not omit to state any
material fact necessary in order to make the statements made therein, in light
of the circumstances under which made, not misleading.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB
Parent and Merger Sub jointly and severally represent and warrant to
Company, subject to such exceptions as are specifically disclosed in writing in
the disclosure letter and referencing a specific representation supplied by
Parent to Company dated as of the date hereof and certified by a duly authorized
officer of Parent (the "PARENT SCHEDULE"), as follows:
3.1 Organization and Qualification; Subsidiaries. Each of Parent and
its subsidiaries is a corporation duly organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation and has the
requisite corporate power and authority to own, lease and operate its assets and
properties and to carry on its business as it is now being conducted, except
where the failure to do so would not, individually or in the aggregate, have a
Material Adverse Effect on Parent. Each of Parent and its subsidiaries is in
possession of all Approvals necessary to own, lease and operate the properties
it purports to own, operate or lease and to carry on its business as it is now
being conducted, except where the failure to have such Approvals would not,
individually or in the aggregate, have a Material Adverse Effect on Parent. Each
of Parent and its subsidiaries is duly qualified or licensed as a foreign
corporation to do business, and is in good standing, in each jurisdiction where
the character of the properties owned, leased or operated by it or the nature of
its activities makes such qualification or licensing necessary, except for such
failures to be so duly qualified or licensed and in good standing that would
not, either individually or in the aggregate, have a Material Adverse Effect on
Parent.
3.2 Certificate of Incorporation and Bylaws. Parent has previously
furnished to Company complete and correct copies of its Certificate of
Incorporation and Bylaws as amended to date (together, the "PARENT CHARTER
DOCUMENTS"). Such Parent Charter Documents and equivalent organizational
documents of each of its subsidiaries are in full force and effect. Parent is
not in violation of any of the provisions of the Parent Charter Documents, and
no subsidiary of Parent is in violation of any of its equivalent organizational
documents.
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3.3 Capitalization. The authorized capital stock of Parent consists of
(i) 300,000,000 shares of Parent Common Stock, and (ii) 60,000,000 shares of
Preferred Stock, $0.001 par value per share ("PARENT PREFERRED STOCK"). At the
close of business on December 31, 1999, (i) 74,823,678 shares of Parent Common
Stock were issued and outstanding, (ii) no shares of Parent Common Stock were
held in treasury by Parent or by subsidiaries of Parent, (iii) 1,849,384 shares
of Parent Common Stock were reserved for future issuance pursuant to Parent's
employee stock purchase plan, (iv) 19,078,380 shares of Parent Common Stock were
reserved for issuance upon the exercise of outstanding options ("PARENT
OPTIONS") to purchase Parent Common Stock and (v) 1,750 shares of Parent Common
Stock were reserved for future issue upon the exercise of outstanding warrants
to purchase Parent Common Stock. As of the date hereof, no shares of Parent
Preferred Stock were issued or outstanding. The authorized capital stock of
Merger Sub consists of 1,000 shares of common stock, par value $0.001 per share,
all of which, as of the date hereof, are issued and outstanding. All of the
outstanding shares of Parent's and Merger Sub's respective capital stock have
been duly authorized and validly issued and are fully paid and nonassessable.
All shares of Parent Common Stock subject to issuance as aforesaid, upon
issuance on the terms and conditions specified in the instruments pursuant to
which they are issuable, shall, and the shares of Parent Common Stock to be
issued pursuant to the Merger will be, duly authorized, validly issued, fully
paid and nonassessable. All of the outstanding shares of capital stock (other
than directors' qualifying shares) of each of Parent's subsidiaries is duly
authorized, validly issued, fully paid and nonassessable and all such shares
(other than directors' qualifying shares) are owned by Parent or another
subsidiary free and clear of all security interests, liens, claims, pledges,
agreements, limitations in Parent's voting rights, charges or other encumbrances
of any nature whatsoever.
3.4 Authority Relative to this Agreement. Each of Parent and Merger Sub
has all necessary corporate power and authority to execute and deliver this
Agreement, and to perform its obligations hereunder and to consummate the
transactions contemplated hereby. The execution and delivery of this Agreement
by Parent and Merger Sub and the consummation by Parent and Merger Sub of the
transactions contemplated hereby have been duly and validly authorized by all
necessary corporate action on the part of Parent and Merger Sub, and no other
corporate proceedings on the part of Parent or Merger Sub are necessary to
authorize this Agreement, or to consummate the transactions so contemplated,
subject only to the filing of the Certificate of Merger pursuant to Georgia Law.
This Agreement has been duly and validly executed and delivered by Parent and
Merger Sub and, assuming the due authorization, execution and delivery by
Company, constitute legal and binding obligations of Parent and Merger Sub,
enforceable against Parent and Merger Sub in accordance with their respective
terms.
3.5 No Conflict; Required Filings and Consents.
(a) The execution and delivery of this Agreement by Parent and
Merger Sub do not, and the performance of this Agreement by Parent and Merger
Sub shall not, (i) conflict with or violate the Certificate of Incorporation,
Bylaws or equivalent organizational documents of Parent or any of its
subsidiaries, (ii) subject to compliance with the requirements set forth in
Section 3.5(b) below, conflict with or violate any law, rule, regulation, order,
judgment or decree applicable to Parent or any of its subsidiaries or by which
it or their respective properties are bound or affected, or (iii) result in any
breach of or constitute a default (or an event that with notice or lapse of time
or both would become a default) under, or impair Parent's or any such
subsidiary's rights or alter the rights or
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obligations of any third party under, or give to others any rights of
termination, amendment, acceleration or cancellation of, or result in the
creation of a lien or encumbrance on any of the properties or assets of Parent
or any of its subsidiaries pursuant to, any material note, bond, mortgage,
indenture, contract, agreement, lease, license, permit, franchise or other
instrument or obligation to which Parent or any of its subsidiaries is a party
or by which Parent or any of its subsidiaries or its or any of their respective
properties are bound or affected, except to the extent such conflict, violation,
breach, default, impairment or other effect could not in the case of clauses
(ii) or (iii) individually or in the aggregate, reasonably be expected to have a
Material Adverse Effect on Parent.
(b) The execution and delivery of this Agreement by Parent and
Merger Sub and the Stock Option Agreement by Parent do not, and the performance
of this Agreement by Parent and Merger Sub shall not, require any consent,
approval, authorization or permit of, or filing with or notification to, any
Governmental Entity except (i) for applicable requirements, if any, of the
Securities Act, the Exchange Act, Blue Sky Laws, the rules and regulations of
Nasdaq, and the filing and recordation of the Certificate of Merger as required
by Georgia Law and (ii) where the failure to obtain such consents, approvals,
authorizations or permits, or to make such filings or notifications, (x) would
not prevent consummation of the Merger or otherwise prevent Parent or Merger Sub
from performing their respective obligations under this Agreement or (y) could
not, individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect on Parent.
3.6 SEC Filings; Financial Statements.
(a) Parent has made available to Company a correct and complete
copy of each report, schedule, registration statement and definitive proxy
statement filed by Parent with the Securities and Exchange Commission (the
"SEC") on or after November 21, 1997 (the "PARENT SEC REPORTS"), which are all
the forms, reports and documents required to be filed by Parent with the SEC
since November 21, 1997. The Parent SEC Reports (A) were prepared in accordance
with the requirements of the Securities Act or the Exchange Act, as the case may
be, and (B) did not at the time they were filed (or if amended or superseded by
a filing prior to the date of this Agreement, then on the date of such filing)
contain any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading. None of Parent's subsidiaries is required to file any reports or
other documents with the SEC.
(b) Each set of consolidated financial statements (including, in
each case, any related notes thereto) contained in the Parent SEC Reports was
prepared in accordance with GAAP applied on a consistent basis throughout the
periods involved (except as may be indicated in the notes thereto or, in the
case of unaudited statements, do not contain footnotes as permitted by Form 10-Q
of the Exchange Act) and each fairly presents the consolidated financial
position of Parent and its subsidiaries at the respective dates thereof and the
consolidated results of its operations and cash flows for the periods indicated,
except that the unaudited interim financial statements were or are subject to
normal adjustments which were not or are not expected to be material in amount.
(c) Parent has previously furnished to Company a complete and
correct copy of any amendments or modifications, which have not yet been filed
with the SEC but which are required to
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be filed, to agreements, documents or other instruments which previously had
been filed by Parent with the SEC pursuant to the Securities Act or the Exchange
Act.
3.7 Brokers. Parent 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.
3.8 Board Approval. The Board of Directors of Parent, as of the date of
this Agreement (i) has determined that the Merger is consistent with and in
furtherance of the long-term business strategy of Parent and is fair to, and in
the best interests of, Parent and its stockholders, and (ii) has approved this
Agreement, the Merger and the other transactions contemplated by this Agreement.
3.9 No Plan or Intention to Take Certain Actions. Parent has no plan or
intention to:
(a) redeem more than 50 percent of the Parent stock issued in the
Merger, other than pursuant to the exercise of the repurchase rights granted to
Parent under the Stock Restriction Agreements, in the form attached hereto as
Exhibit G, between the Company and the Principal Shareholders;
(b) dispose of Company stock, other than as part of a transfer
described in section 368(a)(2)(C) of the Code, or cause the Company to issue
additional stock, so that Parent no longer has "control" of the Company, within
the meaning of section 368(c) of the Code;
(c) cause the Company to transfer to an unrelated party a
substantial portion of its assets, or otherwise fail to use in a business,
either directly or through other members of its "qualified group," within the
meaning of section 1.368-1(d)(4)(ii) of the Treasury regulations, a substantial
portion of the Company's assets.
ARTICLE IV
[RESERVED]
ARTICLE V
ADDITIONAL AGREEMENTS
5.1 Public Disclosure. The Shareholders agree that they will not issue
any press release or otherwise make any public statement with respect to the
Merger or this Agreement without the prior written consent of Parent. The
parties have agreed to the text of the joint press release announcing the
signing of this Agreement.
5.2 Stock Options and Employee Benefits.
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At the Effective Time, each Company Stock Option under the Company
Option Plan, whether or not vested, shall by virtue of the Merger be replaced by
Parent. Each Company Stock Option so replaced by Parent under this Agreement
will be substituted with an option granted under the Parent Amended and Restated
1996 Stock Option Plan (each, a "REPLACEMENT OPTION"). Each Replacement Option
issued in substitution for a Company Stock Option (i) will 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 Stock Option immediately prior to the Effective Time multiplied by
the Exchange Ratio, rounded down to the nearest whole number of shares of Parent
Common Stock, (ii) will provide for vesting schedules and vesting commencement
dates equal to the vesting schedules and vesting commencement dates as set forth
in each Company Option so replaced (except that provisions in Company Options
regarding acceleration of vesting shall not be included in the Replacement
Options issued in substitution for such Company Options) and (iii) the per share
exercise price for the shares of Parent Common Stock issuable upon exercise of
such Replacement Option will be equal to the quotient determined by dividing the
exercise price per share of Company Common Stock at which such Company Stock
Option was exercisable immediately prior to the Effective Time by the Exchange
Ratio, rounded up to the nearest whole cent.
5.3 Registration Statement on Form S-3. Parent shall use its best
efforts to file as soon as practicable but no later than 30 days following the
Closing, and to be declared effective as soon as practicable following such
filing, a Registration Statement on Form S-3 with the SEC covering the resale of
the Parent Common Stock issued to the holders of Company Common Stock pursuant
to the Merger. Any such registration shall be subject to the terms on conditions
set forth in the Declaration of Registration Rights attached hereto as Exhibit
C, which is hereby incorporated by this reference.
5.4 Post Closing Covenants. General.
(a) In case at any time after the Effective Time any further action
is necessary to carry out the purposes of this Agreement, each of the Parties
will take such further action (including the execution and delivery of such
further instruments and documents) as any other Party reasonably may request,
all at the sole cost and expense of the requesting Party (unless the requesting
Party is entitled to indemnification therefor under ARTICLE VII below).
(b) Litigation Support. In the event and for so long as any Party
actively is contesting or defending against any action, suit, proceeding,
hearing, investigation, charge, complaint, claim, or demand in connection with
(i) any transaction contemplated under this Agreement or (ii) any fact,
situation, circumstance, status, condition, activity, practice, plan,
occurrence, event, incident, action, failure to act, or transaction (A) on or
prior to the Effective Time involving the Company or (B) arising out of Parent's
operation of the business of the Surviving Corporation following the Effective
Time in the manner in which it is presently conducted and planned to be
conducted, each of the other Parties will cooperate with the Party and its
counsel in the contest or defense, make available their personnel, and provide
such testimony and access to their books and records as shall be reasonably
necessary in connection with the contest or defense, all at the sole cost and
expense of the contesting or defending Party (unless the contesting or defending
Party is entitled to indemnification therefor under ARTICLE VII below).
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ARTICLE VI
CLOSING DELIVERABLES
6.1 Items to Be Delivered to the Company and the Shareholders'
Representative. At the Closing, the following shall be delivered to the Company
and the Shareholders unless waived, in writing, exclusively by the Company:
(a) Officer's Certificate. The Company shall have received a
certificate signed on behalf of Parent by an authorized officer of Parent, to
the effect that (i) the representations and warranties of Parent and Merger Sub
set forth in this Agreement are accurate at and as of the Closing Date, (ii)
Parent has performed and complied with all of its covenants and obligations
contained in this Agreement, and (iii) no action, suit, or proceeding is pending
before any court or quasi-judicial or administrative agency of any federal,
state, local, or foreign jurisdiction or before any arbitrator wherein an
unfavorable injunction, judgment, order, decree, ruling, or charge would (A)
prevent consummation of any of the transactions contemplated by this Agreement
or (B) cause any of the transactions contemplated by this Agreement to be
rescinded following consummation (and no such injunction, judgment, order,
decree, ruling, or charge is in effect) as of the Closing Date.
(b) Declaration of Registration Rights. Parent shall have executed
and delivered the Declaration of Registration Rights.
(c) Payment for Bridge Notes. Messrs. Jerkunica and Dancu and Xxxx
Xxxxxxxxxxxx, Xxxxx Xxxxx and Said Mohammadioun shall receive payment in full
(principal and interest) under the terms of the Promissory Notes issued by the
Company, dated as of January 14, 2000 (the "BRIDGE NOTES").
6.2 Items to Be Delivered to Parent and Merger Sub. At the Closing, the
following shall be delivered to Parent and Merger Sub unless waived, in writing,
exclusively by Parent:
(a) Company Officer's Certificate. Parent shall have received a
certificate signed on behalf of the Company by an authorized officer of Parent,
to the effect that (i) the representations and warranties of Company set forth
in this Agreement are accurate at and as of the Closing Date, (ii) the Company
has performed and complied with all of its covenants and obligations contained
in this Agreement, and (iii) no action, suit, or proceeding is pending before
any court or quasi-judicial or administrative agency of any federal, state,
local, or foreign jurisdiction or before any arbitrator wherein an unfavorable
injunction, judgment, order, decree, ruling, or charge would (A) prevent
consummation of any of the transactions contemplated by this Agreement or (B)
cause any of the transactions contemplated by this Agreement to be rescinded
following consummation (and no such injunction, judgment, order, decree, ruling,
or charge is in effect) as of the Closing Date.
(b) Principal Shareholders' Certificate. Parent shall have received
a certificate signed by each Principal Shareholder, to the effect that (i) the
representations and warranties of the Principal Shareholders set forth in this
Agreement are accurate at and as of the Closing Date, (ii) the Principal
Shareholders have performed and complied with all of their covenants and
obligations contained in this Agreement, and (iii) no action, suit, or
proceeding is pending before any court or quasi-judicial or administrative
agency of any federal, state, local, or foreign jurisdiction or before any
arbitrator
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wherein an unfavorable injunction, judgment, order, decree, ruling, or charge
would (A) prevent consummation of any of the transactions contemplated by this
Agreement or (B) cause any of the transactions contemplated by this Agreement to
be rescinded following consummation (and no such injunction, judgment, order,
decree, ruling, or charge is in effect) as of the Closing Date.
(c) Affidavit of Delivery. The Company shall deliver at Closing an
affidavit of the secretary of the Company that the disclosure document which has
previously been approved by Parent, which discloses the terms of the Merger and
such information concerning the businesses of the Company and Parent as Parent
shall have reasonably approved, has been delivered to each shareholder of the
Company.
(d) Board of Directors Approval. The Company shall deliver to
Parent evidence reasonably satisfactory to Parent that this Agreement shall have
been approved and adopted, and the Merger shall have been duly approved, by the
requisite approval under applicable law, by the Board of Directors of Company.
(e) Consents. Company shall have obtained all consents, waivers and
approvals required in connection with the consummation of the transactions
contemplated hereby in connection with the agreements, contracts, licenses or
leases set forth on Section 2.5(a) of the Company Schedule, except as noted on
Section 2.5(a) of the Company Schedule.
(f) Resignation of Directors. Parent shall have received a written
resignation from each of the directors of Company, effective as of the Effective
Time.
(g) Legal Opinion. Parent shall have received a legal opinion from
Xxxxxx, Xxxxxxx & Xxxxxx, LLP, legal counsel to Company, substantially in the
form attached hereto as Exhibit D.
(h) [RESERVED]
(i) New Employment Arrangements. Each of the employees listed in
Schedule A-1 attached to Exhibit A hereto (the "COMMITTED EMPLOYEES"), (i) shall
have entered into "at-will" employment arrangements with Parent and/or the
Surviving Corporation pursuant to their execution of Parent's standard form of
Offer Letter in substantially the form attached hereto as Exhibit E-1, shall
have agreed to be employees of Parent or the Surviving Corporation after the
Closing and shall be employees of Company immediately prior to the Effective
Time, (ii) shall have executed Parent's standard form of Non-Competition
Agreement in substantially the form attached hereto as Exhibit E-2 and (iii)
shall have executed Parent's standard form of Employee Development and
Confidentiality Agreement in substantially the form attached hereto as Exhibit
E-3.
(j) Shareholder Approval. The Company shall deliver to Parent
evidence reasonably satisfactory to Parent that Company's shareholders have
approved by the requisite vote any payments of cash or stock contemplated by
this Agreement that may be deemed to constitute "parachute payments" pursuant to
Section 280G of the Code, such that all such payments, sales and purchases
resulting from the transactions contemplated hereby shall not be deemed to be
"parachute payments" pursuant to Section 280G of the Code or shall be exempt
from such treatment under such Section 280G.
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(k) Shareholder's Release. Each of the holders of Company Common
Stock immediately prior to the Effective Time shall have executed and delivered
to Parent a Shareholder's Release in substantially the form attached hereto as
Exhibit F, and such Releases shall be in full force and effect.
(l) Stock Restriction Agreements. Each of the Principal
Shareholders other than Xxxxxxx Xxxxxxx and Xxxx Xxxxx shall have executed and
delivered to Parent a Stock Restriction Agreement in substantially the form
attached hereto as Exhibit G, and such Stock Restriction Agreements shall be in
full force and effect.
(m) Termination of Employment Agreements. Each agreement between
the Company and its employees shall have been terminated pursuant to a written
agreement of termination reasonably satisfactory to Parent, which agreement of
termination shall provide that the transactions contemplated by this Agreement
shall not trigger any rights or benefits or the acceleration of any rights or
benefits under the terminated agreement.
(n) Merger of CYROB, Inc. CYROB, Inc., a Georgia corporation
("CYROB"), shall have been merged with and into the Company, resulting in every
share of Company capital stock held by CYROB being cancelled upon such merger.
(o) Termination of Co-Sale Agreement. The parties to the Co-Sale
Agreement among Software Builders International, LLC (predecessor of the
Company), Cyrob, Inc. and Xxxx X. Xxxxx, dated June 30, 1999 (the "CO-SALE
AGREEMENT"), shall have executed a written agreement terminating the Co-Sale
Agreement and agreeing that the provisions of the Co-Sale Agreement do not apply
to the transactions contemplated by this Agreement.
(p) Jerkunica Note. The Company shall deliver to Parent evidence
reasonably satisfactory to Parent that all monetary obligations owed by the
Company to Xx. Xxxxxxxxx (the "JERKUNICA OBLIGATIONS") have, without payment
thereof, been fully converted into Company Common Stock.
(q) Unanimous Approval. Every share of Company capital stock
entitled to vote upon the Merger shall have been voted in favor of the Merger.
(r) Termination of 401(k) Plan and Severance Type Plans. Parent
shall receive from the Company evidence that the Company's and each Affiliate's
(as applicable) 401(k) plan has been terminated pursuant to resolutions of each
such entity's Board of Directors (the form and substance of which resolutions
shall be subject to review and approval of Parent), effective as of the day
immediately preceding the Closing Date. Parent shall receive from the Company
evidence that the Company's and each Affiliate's (as applicable) group
severance, separation or salary continuation plans, programs or arrangements
that are covered under ERISA has been terminated pursuant to resolution of each
such entity's Board of Directors (the form and substance of which resolutions
shall be subject to review and approval of Parent), effective as of the day
immediately preceding the Closing Date.
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(s) Shareholder Agreement. The Company shall deliver to Parent
evidence reasonably satisfactory to Parent that the Shareholder Agreement among
certain shareholders of the Company has been terminated prior to the Closing.
(t) Payment for Bridge Notes. Messrs. Jerkunica and Dancu and Xxxx
Xxxxxxxxxxxx, Xxxxx Xxxxx and Said Mohammadioun shall deliver the original
Bridge Notes, stamped "Paid In Full" and "Cancelled".
(u) Transition Employment Agreements. Messrs. Dancu and Xxxxxxx
shall have each executed and delivered to the Company a Transition Employment
Agreement in form and substance acceptable to Parent and its counsel.
ARTICLE VII
SURVIVAL OF REPRESENTATIONS AND WARRANTIES; ESCROW
7.1 Survival of Representations, Warranties and Covenants.
(a) The representations and warranties of Company and the Principal
Shareholders contained in this Agreement, or in any certificate, schedule or
other instrument delivered pursuant to this Agreement, shall terminate on July
25, 2001 (the "ESCROW TERMINATION DATE"); provided, however, that the
representations and warranties shall not terminate with respect to any claims
specified in any Officer's Certificate (as defined in Section 7.2(d)) delivered
to the Shareholder Representative prior to the Escrow Termination Date until
such claims are finally resolved pursuant to the terms of this Article VII.
(b) The representations and warranties of Parent and Merger Sub
contained in this Agreement, or in any certificate, schedule or other instrument
delivered pursuant to this Agreement, shall terminate on the Escrow Termination
Date; provided, however, that the representations and warranties shall not
terminate with respect to any claims specified in any Officer's Certificate
delivered to Parent prior to the Escrow Termination Date until such claims are
finally resolved pursuant to the terms of this Article VII.
7.2 Indemnification.
(a) Indemnification by the Escrow Contributors. The Escrow
Contributors severally and not jointly (and in the proportions set forth in
Schedule 7.2(a) hereto) agree to indemnify and hold Parent and its officers,
directors and affiliates, including Company after the Closing (the "PARENT
INDEMNIFIED PARTIES"), harmless against all claims, losses, liabilities,
damages, deficiencies, costs and expenses, including reasonable attorneys' fees
and expenses of investigation and defense relating to such claim, loss,
liability, damage, deficiency, cost or expense (hereinafter individually a
"LOSS" and collectively "LOSSES") incurred or suffered by the Parent Indemnified
Parties, or any of them (including Company after the Closing), directly or
indirectly, as a result of (i) any breach or inaccuracy of a representation or
warranty of Company or the Principal Shareholders contained in this Agreement
(or in any certificate, schedule or other instrument delivered pursuant to this
Agreement), (ii) any failure by Company or any Principal Shareholder to perform
or comply with any covenant applicable to them contained in this Agreement, or
(iii) the incurrence by Company of third party
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expenses, including without limitation legal and accounting fees incurred by
Company in connection with this Agreement and the Merger, in excess of $200,000
(excluding fees of Xxxxxx Xxxxxxxx LLP for the conduct of the Company's December
31, 1999 year-end audit). Parent Indemnified Parties shall, until no assets
remain in the Escrow Fund, seek recovery of Losses under this Section 7.2(a)
first from the Escrow Fund. All claims for recovery of Losses by Parent
Indemnified Parties pursuant to this Section 7.2(a), shall, to the extent they
are not satisfied from the Escrow Fund pursuant to the terms of this Agreement,
be satisfied by the Escrow Contributors' transferring to Parent shares of Parent
Common Stock with an aggregate value equal to the amount of such Losses;
provided that shares of Parent Common Stock transferred in satisfaction of such
claims must be free and clear of all Liens and must not be subject to divestment
or repurchase; provided further that such shares of Parent Common Stock shall be
valued at the RN Stock Price (as adjusted for any stock splits, stock
combinations, recapitalizations and the like). Except for claims for equitable
relief, indemnification pursuant to this Section 7.2(a) (together with the
escrow provisions of Section 7.4) shall be the sole and exclusive remedy for
Parent Indemnified Parties for (i) any breach or inaccuracy of a representation
or warranty of Company or the Principal Shareholders contained in this Agreement
(including any schedule or certificate delivered to Parent by the Company and/or
the Principal Shareholders pursuant to this Agreement), (ii) any failure by
Company to perform or comply with any covenant applicable to them contained in
this Agreement, or (iii) the incurrence by Company of third party expenses,
including without limitation legal and accounting fees incurred by Company in
connection with this Agreement and the Merger, in excess of $200,000, excluding
fees of Xxxxxx Xxxxxxxx LLP for the conduct of the Company's December 31, 1999
year-end audit.
(b) Indemnification by Parent and Surviving Corporation. Parent and
the Surviving Corporation severally and not jointly agree to indemnify and hold
the Shareholders harmless against all Losses incurred or suffered by the
Shareholders, or any of them, directly or indirectly, as a result of (i) any
breach or inaccuracy of a representation or warranty of Parent and Merger Sub
contained in this Agreement (or in any certificate, schedule or other instrument
delivered pursuant to this Agreement) or (ii) any failure by Parent and Merger
Sub to perform or comply with any covenant applicable to them contained in this
Agreement. Except for claims for equitable relief, indemnification pursuant to
this Section 7.2(b) shall be the sole and exclusive remedy for the Shareholders
for (i) any breach or inaccuracy of a representation or warranty of Parent and
Merger Sub contained in this Agreement (including any schedule or certificate
delivered to the Company and the Principal Shareholders by Parent pursuant to
this Agreement) or (ii) any failure by Parent and Merger Sub to perform or
comply with any covenant applicable to them contained in this Agreement.
(c) Limitations on Indemnification. Parties entitled to
indemnification under Section 7.2(a) or 7.2(b) are referred to herein as
"INDEMNIFIED PARTIES," and the parties from whom they are entitled to
indemnification are referred to as their "INDEMNIFYING PARTIES."
(i) Parent Indemnified Parties shall not be entitled to
indemnification under this Section 7.2 unless and until one or more claims for
indemnification from the Escrow Contributors identifying Losses in excess of
$100,000 in the aggregate (the "BASKET AMOUNT") has or have been delivered to
the Shareholder Representative, in which case the Parent Indemnified Parties
shall be entitled to recover all Losses so identified including, without
limitation, the Basket Amount. The Shareholders shall not be entitled to
indemnification under this Section 7.2 unless and until one or more claims for
indemnification from Parent identifying Losses in excess of the Basket Amount
has or
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have been delivered to Parent, in which case the Shareholders shall be entitled
to recover all Losses so identified including, without limitation, the Basket
Amount.
(ii) The Parent Indemnified Parties on the one hand and the
Shareholders on the other hand shall not be entitled to indemnification under
this Section 7.2 with respect to their respective first four (4) individual
claims for Losses of less than $25,000 that are reflected in one or more claims
for indemnification delivered to one or more of their respective Indemnifying
Parties (such limitation, the "SMALL CLAIM BAR", and any such claim for which
recovery from the escrow is so barred, a "BARRED CLAIM") and such Barred Claims
shall not be counted in determining whether the Basket Amount has been reached;
provided, however, that the Small Claim Bar shall apply to no more than four (4)
claims for Losses made by the Parent Indemnified Parties on the one hand and the
Shareholders on the other hand. The liability of Indemnifying Parties with
respect to any Losses shall be reduced by any insurance proceeds received by the
Indemnified Parties as a result of such Losses.
(iii) The Escrow Contributors' aggregate liability for
indemnifying the Parent Indemnified Parties pursuant to this Section 7.2
(exclusive of any liability for indemnification for willful or fraudulent breach
or inaccuracy of a representation, warranty or covenant of Company or a
Shareholder contained in this Agreement) and for claims made by Parent and
Merger Sub pursuant to the Special Escrow Claims provisions of Exhibit A
attached hereto shall not exceed, in the aggregate: (a) $45,000,000 for First
Year Claims (as defined below) and (b) $33,750,000 less amounts received by
Parent Indemnified Parties with respect to First Year Claims, for Second Year
Claims (as defined below); provided, however, that to the extent a Second Year
Claim made by a Parent Indemnified Party would have been reduced by an
Adjustment Amount (as defined below), the later resolved First Year Claim giving
rise to such Adjustment Amount shall be reduced by the Adjustment Amount.
(iv) Parent's and Surviving Corporation's aggregate liability
for indemnifying the Shareholders pursuant to this Section 7.2 shall not
(exclusive of any liability for indemnification for willful or fraudulent breach
or inaccuracy of a representation, warranty or covenant of Parent or Merger Sub
contained in this Agreement) exceed, in the aggregate: (a) $45,000,000 for First
Year Claims made by any Shareholders and (b) $33,750,000 less amounts received
by the Shareholders for First Year Claims, for Second Year Claims; provided,
however, that to the extent a Second Year Claim made by a Shareholder would have
been reduced by an Adjustment Amount, the later resolved First Year Claim giving
rise to such Adjustment Amount shall be reduced by the Adjustment Amount. The
Shareholders shall not have any right of contribution from Company with respect
to any Loss claimed by a Parent Indemnified Party after the Effective Time.
(v) Each Escrow Contributor's several liability with respect to
a claim for indemnification pursuant to Section 7.2(a) and with respect to any
Special Escrow Claim which is payable under this Article VII (after application
of the applicable limits on liability set forth in Section 7.2(c)) shall equal
the total amount of such payable liability times such Escrow Contributor's
Allocable Share.
(d) Claims for Indemnification. Parent and Surviving Corporation
shall make any claims for indemnification pursuant to Section 7.2 hereof by
delivering an Officer's Certificate (as
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defined below) to the Shareholder Representative and, if such claim is for
recovery from the Escrow Fund, a copy of such Officer's Certificate shall be
delivered to the Escrow Agent. The Shareholders shall make any claims for
indemnification pursuant to Section 7.2 hereof by delivering an Officer's
Certificate to Parent. For purposes hereof, "OFFICER'S CERTIFICATE" shall mean:
(i) in the case of a claim for indemnification made by Parent, a certificate
signed by any officer of Parent and (ii) in the case of a claim for
indemnification made by a Shareholder, signed by the Shareholder Representative;
and such certificate shall (A) state that the party claiming indemnification has
paid, incurred or properly accrued or reasonably anticipates that it will have
to pay, incur or accrue Losses; (B) specifying in reasonable detail the
individual items of Losses included in the amount so stated, the date each such
item was paid, incurred or properly accrued, or the basis for such anticipated
liability, and the nature of the misrepresentation, breach of warranty or
covenant to which such item is related; and (C) to the extent relevant, specify
the number of Escrow Shares to be released from the Escrow Fund in connection
with such Losses.
(e) Resolution of Conflicts; Arbitration.
(i) In case the party from whom indemnification under Section
7.2 is sought shall object in writing to any claim or claims made in any
Officer's Certificate to recover Losses (provided that, with respect to claims
by Parent for recovery from the Escrow Fund, such objection in writing must,
pursuant to the terms of Section 7.3(e), be received by the Escrow Agent within
30 days after delivery of the Officer's Certificate to the Shareholder
Representative), the Indemnifying Parties and the Indemnified Parties shall
attempt in good faith to agree upon the rights of the respective parties with
respect to each of such claims. If the Indemnifying Parties and the Indemnified
Parties should so agree, a memorandum setting forth such agreement shall be
prepared and signed by the Indemnifying Parties and the Indemnified Parties and,
in the case of claims by Parent to recover Losses from the Escrow Fund,
furnished to the Escrow Agent. In the case of claims by Parent to recover Losses
from the Escrow Fund, such memorandum shall state the number of Escrow Shares to
be released from the Escrow Fund in connection with such Losses. The Escrow
Agent shall be entitled to rely on any such memorandum and distribute the Escrow
Shares from the Escrow Fund in accordance with the terms thereof.
(ii) If no such agreement can be reached after good faith
negotiation, either the Indemnifying Parties and the Indemnified Parties may
demand arbitration of the matter unless the amount of the Loss is at issue in
pending litigation with a third party, in which event arbitration shall not be
commenced until such amount is ascertained or both parties agree to arbitration,
and in either such event the matter shall be settled by arbitration conducted by
one arbitrator mutually agreeable to the Indemnifying Parties and the
Indemnified Parties. In the event that within forty-five (45) days after
submission of any dispute to arbitration, the Indemnifying Parties and the
Indemnified Parties cannot mutually agree on one arbitrator, the arbitration
shall be conducted by a panel of three (3) arbitrators selected by or in
accordance with the procedures of the American Arbitration Association. The
arbitrator or arbitrators, as the case may be, shall set a limited time period
and establish procedures designed to reduce the cost and time for discovery
while allowing the parties an opportunity, adequate in the sole judgment of the
arbitrator or majority of the three arbitrators, as the case may be, to discover
relevant information from the opposing parties about the subject matter of the
dispute. The arbitrator or a majority of the three arbitrators, as the case may
be, shall rule upon motions to compel or limit discovery and shall have the
authority to impose sanctions, including
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attorneys' fees and costs, to the extent as a competent court of law or equity,
should the arbitrators or a majority of the three arbitrators, as the case may
be, determine that discovery was sought without substantial justification or
that discovery was refused or objected to without substantial justification. The
decision of the arbitrator or a majority of the three arbitrators, as the case
may be, as to the validity and amount of any claim in such Officer's Certificate
shall be binding and conclusive upon the parties to this Agreement. Such
decision shall be written and shall be supported by written findings of fact and
conclusions which shall set forth the award, judgment, decree or order awarded
by the arbitrator(s) (including the number of Escrow Shares to be distributed
pursuant thereto).
(iii) Judgment upon any award rendered by the arbitrator(s) may
be entered in any court having jurisdiction. Any such arbitration shall be held
in King County, Washington, under the rules then in effect of the American
Arbitration Association. The arbitrator(s) shall determine how all expenses
relating to the arbitration shall be paid, including without limitation, the
respective expenses of each party, the fees of each arbitrator and the
administrative fee of the American Arbitration Association.
(f) Third-Party Claims.
(i) In the event Parent becomes aware of a third-party claim
which Parent reasonably believes may result in a demand for indemnification,
Parent shall notify the Shareholder Representative of such claim, and the
Shareholder Representative shall be entitled on behalf of the Shareholders, at
its expense, to participate in, but not to determine or conduct, the defense of
such claim. Parent shall have the right in its sole discretion to conduct the
defense of and settle any such claim; provided, however, that except with the
consent of the Shareholder Representative, no settlement of any such claim with
third-party claimants shall be determinative of the amount of Losses relating to
such matter. In the event that the Shareholder Representative has consented to
any such settlement, the Shareholders shall have no power or authority to object
under any provision of this Article VII to the amount of any claim by Parent
with respect to such settlement.
(ii) In the event a Shareholder becomes aware of a third-party
claim which such Shareholder reasonably believes may result in a demand for
indemnification, such Shareholder shall notify Parent of such claim, and the
Parent shall be entitled, at its expense, to participate in, but not to
determine or conduct, the defense of such claim. The Shareholder Representative
shall have the right in its sole discretion to conduct the defense of and settle
any such claim; provided, however, that except with the consent of Parent, no
settlement of any such claim with third-party claimants shall be determinative
of the amount of Losses relating to such matter. In the event that Parent has
consented to any such settlement, Parent shall have no power or authority to
object under any provision of this Article VII to the amount of any claim by the
Shareholder with respect to such settlement.
(g) Defined Terms.
(i) "FIRST YEAR CLAIMS" shall mean claims for indemnification
pursuant to Section 7.2 made within twelve (12) months of the Closing Date and
Special Escrow Claims pursuant to the provisions of Exhibit A.
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(ii) "SECOND YEAR CLAIMS" shall mean claims for indemnification
pursuant to Section 7.2 made after twelve (12) months following the Closing
Date.
(iii) The "ADJUSTMENT AMOUNT" with respect to a Second Year
Claim made by either a Parent Indemnified Party on the one hand or a Shareholder
on the other hand, shall mean the extent that such Second Year Claim would have
been reduced (by operation of Section 7.2(c)(iii)(b) or Section 7.2(c)(iv)(b),
as applicable) if any First Year Claims (of the Parent Indemnified Parties or
Shareholders, as applicable) that are not resolved until after resolution of
such Second Year Claim had been resolved prior to resolution of such First Year
Claim.
7.3 Escrow Arrangements.
(a) Escrow Fund. The Escrow Fund shall be available to compensate
the Parent Indemnified Parties, or any of them, for any claims by such Parent
Indemnified Parties for any Losses suffered or incurred by them and to secure
claims made by Parent and the Surviving Corporation pursuant to the Special
Escrow Claims provisions of Exhibit A attached hereto which is incorporated
herein by reference. Within three days after the Closing, the Escrow Amount,
without any act of the Shareholders, will be deposited with ChaseMellon
Shareholder Services, L.L.C., as Escrow Agent hereunder, or another institution
acceptable to Parent and the Shareholder Representative (as defined in Section
7.4 hereof), such deposit of the Escrow Amount to constitute an escrow fund (the
"ESCROW FUND") to be governed by the terms set forth herein. The Escrow Agent
shall have no duty to confirm or verify the accuracy or correctness of the
amount of any Escrow Shares deposited with it hereunder. The Escrow Agent may
execute this Agreement following the date hereof and prior to the Closing, and
such later execution, if so executed after the date hereof, shall not affect the
binding nature of this Agreement as of the date hereof between the other
signatories hereto. Nothing herein shall limit the liability of Company or the
Principal Shareholders for any breach or inaccuracy of any representation,
warranty or covenant contained in this Agreement if the Merger does not close.
(b) Escrow Period; Distribution upon Termination of Escrow Periods.
Subject to the following requirements, the Escrow Fund shall be in existence
immediately following the Effective Time and shall terminate at 5:00 p.m.,
P.S.T., on the date which is the Escrow Termination Date (the "ESCROW PERIOD");
provided, however, that the Escrow Period shall not terminate with respect to
any amount which, in the reasonable judgment of Parent, subject to the objection
of the Shareholder Representative and the subsequent arbitration of the matter
in the manner provided in Section 7.2(e) hereof, is necessary to satisfy any
then pending and unsatisfied claims specified in any Officer's Certificate
delivered to the Escrow Agent prior to the seventh (7th) calendar day following
the termination of the Escrow Period with respect to facts and circumstances
existing prior to the termination of such Escrow Period. As soon as all such
claims have been resolved, the Escrow Agent shall deliver to the Escrow
Contributors the remaining portion of the Escrow Fund, if any, not required to
satisfy such claims (the "REMAINING PORTION"); provided, however, that to the
extent that the Remaining Portion includes Reserve Option Shares, such shares
shall not be delivered to the optionee, but rather shall be held in reserve by
Parent and shall no longer be held as part of the Escrow Fund. Deliveries of the
Escrow Amount out of the Escrow Fund to the Escrow Contributors pursuant to this
Section 7.3(b) shall be made according to the Parent Common Stock and Reserved
Option Shares included in the Escrow Amount which each Escrow Contributor is
deemed to hold of record as provided in Section 7.3(c). Upon termination of the
Escrow Period, Parent and the
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Shareholders' Agent will jointly notify the Escrow Agent in writing that the
Escrow Fund may be distributed and the allocation of such distribution. The
Escrow Agent will incur no liability, and shall be fully protected, in relying
on such joint notice and shall have no obligation to take any action until it
has received such notice.
(c) Protection of Escrow Fund; Distribution of Interest from Escrow
Fund.
(i) The Escrow Agent shall hold and safeguard the Escrow Fund
during the Escrow Period, shall not treat the Escrow Fund as the property of
Parent and shall hold and dispose of the Escrow Fund only in accordance with the
terms hereof.
(ii) Any shares of Parent Common Stock or other equity
securities issued or distributed by Parent (including shares issued upon a stock
split or stock dividend) ("NEW SHARES") in respect of Parent Common Stock in the
Escrow Fund which have not been released from the Escrow Fund shall be added to
the Escrow Fund and become a part thereof. New Shares issued in respect of
shares of Parent Common Stock which have not been deposited with or released
from the Escrow Fund shall not be added to the Escrow Fund but shall be
distributed to the recordholders thereof.
(iii) Subject to Section 7.3(c)(ii), each Escrow Contributor
shall be deemed the record holder of, and shall have voting, dividend,
distribution and all other rights with respect to the shares of Parent Common
Stock contributed to the Escrow Fund by such Escrow Contributor (and on any
voting securities and other equity securities added to the Escrow Fund in
respect of such shares of Parent Common Stock); provided, however, that with
respect to Escrow Shares (as defined in (d)(ii) below) which are Reserved Option
Shares, the Escrow Contributor who contributed such Reserved Option Shares to
the Escrow Amount shall be deemed the the record holder of such shares only for
purposes of the calculations under this Section 7.3 and shall not have voting,
dividend, distribution and all other rights with respect to such shares unless
and until (an then, to the extent that) such Escrow Contributor exercises the
option with respect to which such shares are reserved. Notwithstanding the
foregoing, the Escrow Agent shall have no duty or obligation to monitor or take
any action with respect to the foregoing paragraph.
(iv) With respect to any Escrow Contributor who has contributed
Reserved Option Shares to the Escrow Amount, if such Escrow Contributor seeks to
exercise the option(s) in respect to which such Reserved Option Shares are
reserved and if, after such exercise(s), the number of shares of Parent Common
Stock purchasable under such option(s) would be less than the number of Reserved
Option Shares which such Escrow Contributor should then have included in the
Escrow Amount (after deliveries out of the Escrow Fund pursuant to Section
7.3(d)) (such difference, the "OPTION SHARE DEFICIENCY"), then Parent shall
retain in the Escrow Fund a number of the shares of Parent Common Stock
otherwise to be issued to the Escrow Contributor upon such exercise(s) (the "NEW
ESCROW SHARES") such that the number of New Escrow Shares times the RN Stock
Price is equal to the Option Value of the Reserved Option Shares that constitute
the Option Share Deficiency. Notwithstanding the foregoing, the Escrow Agent
shall have no duty or obligation to monitor or take any action with respect to
the foregoing paragraph.
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(v) Pursuant to Section 1.6(b), a portion of the Escrow Shares
contributed to the Escrow Amount by certain of the Escrow Contributors are
Restricted Shares pursuant to the terms of a Stock Restriction Agreement between
each of such Escrow Contributors and the Parent. Restricted Shares may be
released to Parent by the Escrow Agent pursuant to the terms of the Stock
Restriction Agreement (and the Joint Escrow Instructions executed pursuant
thereto). Thus, Restricted Shares which are Escrow Shares may be released to
Parent by the Escrow Agent either (A) pursuant to the Stock Restriction
Agreement or (B) pursuant to the terms of Article VII of this Agreement.
Additionally, Restricted Shares which are Escrow shares may not be released to
the Escrow Contributor until such shares are entitled to be released from the
Escrow Agent's custody pursuant to both (X) release of such shares from the
restrictions of the Stock Restriction Agreement and (Y) the provisions of
Section 7.3(b) of this Agreement.
(d) Claims for Indemnification Against the Escrow Fund.
(i) Upon receipt by the Escrow Agent at any time on or before
the seventh (7th) day following the last day of the Escrow Period of an
Officer's Certificate and, subject to the provisions of Section 7.3(e) and
Section 7.5 hereof, the Escrow Agent shall deliver to Parent out of the Escrow
Fund, as promptly as practicable, such amount of Escrow Shares as are set forth
in the Officer's Certificate.
(ii) For the purposes of determining the number of Escrow
Shares (as defined below) to be delivered to Parent out of the Escrow Fund
pursuant to Section 7.3(d)(i) hereof, the shares of Parent Common Stock shall be
valued at the RN Stock Price (as adjusted for any stock splits, stock
combinations, recapitalizations and the like); provided, however, that Reserved
Option Shares shall be valued at the RN Stock Price (as adjusted for any stock
splits, stock combinations, recapitalizations and the like) less the exercise
price of such shares (as adjusted for any stock splits, stock combinations,
recapitalizations and the like). Parent and the Shareholder Representative shall
certify such determined value in an Officer's Certificate signed by both Parent
and the Shareholder Representative, and shall deliver such certificate to the
Escrow Agent.
(iii) All deliveries of Escrow Shares pursuant to this
subsection (d) shall be taken from the Escrow Shares deemed to be held of record
(pursuant to Section 7.3(c)(iii)) by each Escrow Contributor on a pro rata basis
according to the total value of Escrow Shares deemed to be held of record by
each Escrow Contributor, with Escrow Shares being valued as provided in Section
7.3(d)(ii). With respect to each Escrow Contributor, Escrow Shares delivered
pursuant to this subsection (d) shall include Escrow Shares which, at the time
of such delivery, are Restricted Shares and those that are Unrestricted Shares
in the same proportions as the Escrow Contributor's original contribution of
Escrow Shares to the Escrow Amount (pursuant to Section 1.6(b)) was divided
between Restricted Shares and Unrestricted Shares. Restricted Shares are,
pursuant to the terms of the Stock Restriction Agreements, released from such
possibility of divestment or repurchase over time, with a portion of such shares
being released on each of several dates in the furture (the "VESTING
MILESTONES"). With respect to Escrow Shares delivered pursuant to subsection
7.3(d) which are Restricted Shares, such shares shall be deemed to be allocated
among shares which would have been released from the possibility of divestment
or repurchase on the Vesting Milestones remaining after the date of delivery
under subsection 7.3(d) pro rata based on the number of remaining Vesting
Milestones (for example, if there are two remaining Vesting Milestones following
a
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delivery under subsection 7.3(d), half of the delivered shares which are
Restricted Shares shall be deemed to be shares which would become Unrestricted
Shares on the earlier of the two remaining Vesting Milestones, and half would be
deemed to be shares which would have become Unrestricted Shares on the later of
the two remaining Vesting Milestones). Notwithstanding the foregoing, the Escrow
Agent's sole duty with respect to the delivery of the Escrow Shares either
hereunder or under a Stock Restriction Agreement is to deliver the Escrow Shares
to the Parent or the Shareholder Representative, as the case may be, in
accordance with the written instructions provided for herein or pursuant to a
Stock Restriction Agreement, and the Escrow Agent has no duty to monitor or
enforce compliance with this section, including, but not limited to, determining
whether or not the Escrow Shares to be released are still subject to divestment
or repurchase.
(e) Objections to Claims. At the time of delivery of any Officer's
Certificate to the Escrow Agent, a duplicate copy of such certificate shall be
delivered to the Shareholder Representative, and for a period of thirty (30)
days after such delivery, the Escrow Agent shall make no delivery to Parent of
any Escrow Amounts pursuant to Section 7.3(d) hereof unless and until the Escrow
Agent shall have received written authorization from the Shareholder
Representative to make such delivery. After the expiration of such thirty (30)
day period, the Escrow Agent shall make delivery of the Parent Common Stock from
the Escrow Fund in accordance with Section 7.3(d) hereof; provided, however,
that no such payment or delivery may be made if the Shareholder Representative
shall object in a written statement to the claim made in the Officer's
Certificate, and such statement shall have been delivered to the Escrow Agent
prior to the expiration of such thirty (30) day period.
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(f) Escrow Agent's Duties
(i) The Escrow Agent shall be obligated only for the
performance of such duties as are specifically set forth herein, and as set
forth in any additional written escrow instructions which the Escrow Agent may
receive after the date of this Agreement which are signed by an officer of
Parent and the Shareholder Representative (and which are acceptable to the
Escrow Agent), and may rely and shall be protected in relying or refraining from
acting on any instrument reasonably believed to be genuine and to have been
signed or presented by the proper party or parties.
(ii) The Escrow Agent is hereby expressly authorized to
disregard any and all warnings given by any of the parties hereto or by any
other person, excepting only orders or process of courts of law, and is hereby
expressly authorized to comply with and obey orders, judgments or decrees of any
court. In case the Escrow Agent obeys or complies with any such order, judgment
or decree of any court, the Escrow Agent shall be fully protected and shall not
be liable to any of the parties hereto or to any other person by reason of such
compliance, notwithstanding any such order, judgment or decree being
subsequently reversed, modified, annulled, set aside, vacated or found to have
been entered without jurisdiction.
(iii) The Escrow Agent shall not be liable in any respect on
account of the identity, authority or rights of the parties executing or
delivering or purporting to execute or deliver this Agreement or any documents
or papers deposited or called for hereunder.
(iv) The Escrow Agent shall not be liable for the expiration of
any rights under any statute of limitations with respect to this Agreement or
any documents deposited with the Escrow Agent.
(v) In performing any duties under this Agreement, the Escrow
Agent shall not be liable to any person or entity for damages, losses,
liabilities, penalties, claims, settlements, judgments, costs or expenses,
except for gross negligence or willful misconduct on the part of the Escrow
Agent (each as may be finally determined by a court of competent jurisdiction).
Any liability of the Escrow Agent under this Agreement will be limited to the
amount of fees paid to the Escrow Agent hereunder. The Escrow Agent shall not
incur any liability for any action taken, suffered or omitted in reliance upon
any instrument, including any written statement of affidavit provided for in
this Agreement that the Escrow Agent shall in good faith believe to be genuine,
nor will the Escrow Agent be liable or responsible for forgeries, fraud,
impersonations, or determining the scope of any representative authority. In
addition, the Escrow Agent may consult with legal counsel in connection with
performing the Escrow Agent's duties under this Agreement and shall be fully
protected and shall incur no liability with respect to any action taken,
suffered, or omitted by it in good faith in accordance with the advice of
counsel. The Escrow Agent is not responsible for determining and verifying the
authority of any person acting or purporting to act on behalf of any party to
this Agreement.
(vi) If any controversy arises between the parties to this
Agreement, or with any other party, concerning the subject matter of this
Agreement, its terms or conditions, the Escrow Agent will not be required to
determine the controversy or to take any action regarding it. The Escrow Agent
may hold all documents and the Escrow Amount and may wait for settlement of any
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such controversy by final appropriate legal proceedings or other means as, in
the Escrow Agent's discretion, may be required, despite what may be set forth
elsewhere in this Agreement. In such event, the Escrow Agent will not be liable
for damages. Furthermore, the Escrow Agent may at its option, file an action of
interpleader requiring the parties to answer and litigate any claims and rights
among themselves. The Escrow Agent is authorized to deposit with the clerk of
the court all documents and the Escrow Amounts held in escrow, except all costs,
expenses, charges and reasonable attorney fees incurred by the Escrow Agent due
to the interpleader action and which the parties jointly and severally agree to
pay. Upon initiating such action, the Escrow Agent shall be fully released and
discharged of and from all obligations and liability imposed by the terms of
this Agreement.
(vii) The parties (other than the Escrow Agent) and their
respective successors and assigns agree jointly and severally to indemnify and
hold Escrow Agent harmless against any and all losses, claims, damages,
liabilities, penalties, claims, settlements, judgments, costs or expenses,
including reasonable costs of investigation, counsel fees, including allocated
costs of in-house counsel and disbursements that may be imposed on Escrow Agent
or incurred by Escrow Agent in connection with the performance of its duties
under this Agreement, including but not limited to any litigation arising from
this Agreement or involving its subject matter, other than those arising out of
the gross negligence or willful misconduct of the Escrow Agent. The indemnity
provided herein shall survive the termination of this Agreement and the
termination and expiration of the Escrow Fund. The costs and expenses of
enforcing this right of indemnification shall be paid by the Parent.
(viii) The Escrow Agent may resign at any time upon giving at
least thirty (30) days written notice to the Parent and the Shareholder
Representative; provided, however, that no such resignation shall become
effective until the appointment of a successor escrow agent which shall be
accomplished as follows: Parent and the Shareholder Representative shall use
their best efforts to mutually agree on a successor escrow agent within thirty
(30) days after receiving such notice. If the parties fail to agree upon a
successor escrow agent within such time, the Escrow Agent shall have the right
to appoint a successor escrow agent authorized to do business in the State of
Washington or to petition a court of competent jurisdiction to appoint a
successor escrow agent. The successor escrow agent shall execute and deliver an
instrument accepting such appointment and it shall, without further acts, be
vested with all the estates, properties, rights, powers, and duties of the
predecessor escrow agent as if originally named as escrow agent. Upon
appointment of a successor escrow agent, the Escrow Agent shall be discharged
from any further duties and liability under this Agreement.
(g) Fees. All fees of the Escrow Agent for performance of its
duties hereunder shall be paid by Parent in accordance with the standard fee
schedule of the Escrow Agent. It is understood that the fees and usual charges
agreed upon for services of the Escrow Agent shall be considered compensation
for ordinary services as contemplated by this Agreement. In the event that the
conditions of this Agreement are not promptly fulfilled, or if the Escrow Agent
renders any service not provided for in this Agreement, or if the parties
request a substantial modification of its terms (which modification is consented
to by the Escrow Agent), or if any controversy arises, or if the Escrow Agent is
made a party to, or intervenes in, any litigation pertaining to the Escrow Fund
or its subject matter, the Escrow Agent shall be reasonably compensated for such
extraordinary services
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and reimbursed for all costs, attorney's fees, including allocated costs of
in-house counsel, and expenses occasioned by such default, delay, controversy or
litigation.
(h) Consequential Damages. Anything to the contrary
notwithstanding, in no event shall the Escrow Agent be liable for special,
punitive, indirect, consequential or incidental loss or damage of any kind
whatsoever (including but not limited to lost profits), even if the Escrow Agent
has been advised of the likelihood of such loss or damage and regardless of the
form of action.
(i) Successor Escrow Agents. Any person into which the Escrow Agent
in its individual capacity may be merged or converted or with which it may be
consolidated, or any person resulting from any merger, conversion or
consolidation to which the Escrow Agent in its individual capacity shall be a
party, or any person to which substantially all the corporate trust business of
the Escrow Agent in its individual capacity may be transferred, shall be the
Escrow Agent under this Escrow Agreement without further act.
7.4 Shareholder Representative.
(a) Each of the Shareholders hereby appoints Xxxxx Xxxxxxxxx, his
agent and attorney-in-fact, as the Shareholder Representative for and on behalf
of the Shareholders, to give and receive notices and communications, to
authorize payment to Parent of shares of Parent Common Stock and/or cash from
the Escrow Fund in satisfaction of claims by Parent, to object to such payments,
to agree to, negotiate, enter into settlements and compromises of, and demand
arbitration and comply with orders of courts and awards of arbitrators with
respect to such claims, and to take all other actions that are either (i)
necessary or appropriate in the judgment of the Shareholder Representative for
the accomplishment of the foregoing or (ii) specifically mandated by the terms
of this Agreement. Such agency may be changed by the Shareholders from time to
time upon not less than thirty (30) days prior written notice to Parent and the
Escrow Agent; provided, however, that the Shareholder Representative may not be
removed unless holders of a two-thirds interest of the Escrow Fund agree to such
removal and to the identity of the substituted agent. Any vacancy in the
position of Shareholder Representative may be filled by the holders of a
majority in interest of the Escrow Fund. No bond shall be required of the
Shareholder Representative, and the Shareholder Representative shall not receive
compensation for its services. Notices or communications to or from the
Shareholder Representative shall constitute notice to or from the Shareholders.
(b) The Shareholder Representative shall not be liable for any act
done or omitted hereunder as the Shareholder Representative while acting in good
faith and in the exercise of reasonable judgment. The Shareholders on whose
behalf the Escrow Amount was contributed to the Escrow Fund shall indemnify the
Shareholder Representative and hold the Shareholder Representative harmless
against any loss, liability or expense incurred without negligence or bad faith
on the part of the Shareholder Representative and arising out of or in
connection with the acceptance or administration of the Shareholder
Representative's duties hereunder, including the reasonable fees and expenses of
any legal counsel retained by the Shareholder Representative. After all claims
for Losses by Parent set forth in Officer's Certificates delivered to the Escrow
Agent and the Shareholder Representative has been satisfied, or reserved
against, the Shareholder Representative, with the consent of the majority in
interest in the Escrow Fund, may recover from the Escrow Fund at the end
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of the Escrow Period payments not yet paid for any expenses incurred in
connection with the Shareholder Representative's representation hereby.
(c) A decision, act, consent or instruction of the Shareholder
Representative pursuant to this Agreement shall constitute a decision of the
Shareholders and shall be final, binding and conclusive upon the Shareholders;
and the Escrow Agent and Parent may rely upon any such decision, act, consent or
instruction of the Shareholder Representative as being the decision, act,
consent or instruction of the Shareholders. In addition, the Shareholder
Representative, with the written concurrence of Messrs. Hill and Dancu, may
agree to the amendment, extension or waiver of this Agreement pursuant to
Sections 8.1 and 8.2 hereof. The Escrow Agent and Parent are hereby relieved
from any liability to any person for any acts done by them in accordance with
such decision, act, consent or instruction of the Shareholder Representative.
(d) Subject to Parent's prior claims for indemnification against
the Escrow Fund, the Shareholder Representative shall be entitled to receive
payment for its reasonable and documented expenses therefrom, prior to any
payments to the Shareholders.
ARTICLE VIII
AMENDMENT AND WAIVER
8.1 Amendment. Subject to applicable law, 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 Parent, Merger Sub, Company, Shareholder
Representative and Messrs. Hill, Dancu, and to the extent the rights, duties,
indemnities or obligations of the Escrow Agent are affected thereby, the Escrow
Agent.
8.2 Extension; Waiver. At any time prior to the Effective Time, any
party hereto may, to the extent legally allowed, (i) extend the time for the
performance of any of the obligations or other acts of the other parties 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. Delay in exercising any right under this
Agreement shall not constitute a waiver of such right.
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, next day delivery, or sent via telecopy (receipt confirmed)
(provided a confirmation copy is also delivered by U.S. mail, postage prepaid)
to the parties at the following addresses or telecopy numbers (or at such other
address or telecopy numbers for a party as shall be specified by like notice):
(a) if to Parent or Merger Sub, to:
RealNetworks, Inc.
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0000 Xxxxxxx Xxxxxx, Xxxxx 0000
Xxxxxxx, Xxxxxxxxxx 00000
Attention: General Counsel
Telecopy No.: (000) 000-0000
with a copy to:
Xxxxxx Xxxxxxx Xxxxxxxx & Xxxxxx
Professional Corporation
0000 Xxxxxxxx Xxxxx
Xxxxxxxx, Xxxxxxxxxx 00000
Attention: Xxxxxxx Xxxxxxxxxx
and to
Xxxxxx Xxxxxxx Xxxxxxxx & Xxxxxx
Professional Corporation
Spear Street Tower
Xxx Xxxxxx Xxxxxx
Xxx Xxxxxxxxx, Xxxxxxxxxx 00000
Attention: Xxxxx Xxxxxxxx
Telecopy No.:(000) 000-0000
(b) if to Company or the Shareholder Representative to:
Xxxxx Xxxxxxxxx
NetZip, Inc.
000 Xxxxxxxx Xxxxxxx
Xxxxxxx, Xxxxxxx 00000
Attention: Xxxxx Xxxxxxxxx
Telecopy No.: (000) 000-0000
with a copy to:
Xxxxxx, Xxxxxxx & Xxxxxx, LLP
1600 Atlanta Financial Center
0000 Xxxxxxxxx Xxxx XX
Xxxxxxx, Xxxxxxx 00000
Attention: Xxxxxxx X. Xxxxxxxx, Esq.
Telecopy No. (000) 000-0000
(c) if to the Escrow Agent, to:
ChaseMellon Shareholder Services, L.L.C.
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000 Xxxx Xxxxxx
Xxxxx 0000
Xxxxxxx, Xxxxxxxxxx 00000
Attention: Relationship Manager
Telecopy No.: (000) 000-0000
9.2 Interpretation; Definitions.
(a) When a reference is made in this Agreement to Exhibits, such
reference shall be to an Exhibit to this Agreement unless otherwise indicated.
When a reference is made in this Agreement to Sections, such reference shall be
to a Section of this Agreement. Unless otherwise indicated the words "include,"
"includes" and "including" when used herein shall be deemed in each case to be
followed by the words "without limitation." The table of contents and headings
contained in this Agreement are for reference purposes only and shall not affect
in any way the meaning or interpretation of this Agreement. When reference is
made herein to "the business of" an entity, such reference shall be deemed to
include the business of all direct and indirect subsidiaries of such entity.
Reference to the subsidiaries of an entity shall be deemed to include all direct
and indirect subsidiaries of such entity.
(b) For purposes of this Agreement:
(i) the term "KNOWLEDGE" means (A) with respect to the Company
or the Principal Shareholders means the knowledge of Messrs. Dancu, Jerkunica,
Hill, Knaack, Xxxxxxx and Xxxxx after reasonable inquiry; and (B) with respect
to any other party hereto, with respect to any matter in question, knowledge of
the executive officers of such party after reasonable inquiry;
(ii) the term "MATERIAL ADVERSE EFFECT" when used in connection
with an entity means any change, event, violation, inaccuracy, circumstance or
effect that is materially adverse to the business, assets, liabilities,
financial condition, results of operations or prospects of such entity and its
subsidiaries taken as a whole; provided, however, that in no event shall a
decrease in such entity's stock price or the failure to meet or exceed Wall
Street research analysts' in and of itself constitute a Material Adverse Effect;
(iii) the term "PERSON" shall mean any individual, corporation
(including any non-profit corporation), general partnership, limited
partnership, limited liability partnership, joint venture, estate, trust,
company (including any limited liability company or joint stock company), firm
or other enterprise, association, organization, entity or Governmental Entity;
(iv) the term "ORDINARY COURSE OF BUSINESS" shall mean an
action taken by a person only if: (A) such action is consistent with the past
practices of such person and is taken in the ordinary course of the normal
day-to-day operations of such person; (B) such action is not required to be
authorized by the board of directors of such person (or by any Person or group
of
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persons exercising similar authority) and is not required to be specifically
authorized by the parent company (if any) of such person; and (C) such action is
similar in nature and magnitude to actions customarily taken, without any
authorization by the board of directors (or by any person or group of persons
exercising similar authority), in the ordinary course of the normal day-to-day
operations of other persons that are in the same line of business as such
person;
(v) the term "AFFILIATE" of a person means any other person
that directly or indirectly, through one or more intermediaries, controls, is
controlled by, or is under common control with such person.
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; Third Party Beneficiaries. This Agreement and the
documents and instruments and other agreements among the parties hereto as
contemplated by or referred to herein, including the Company Disclosure Schedule
and the Parent Disclosure Schedule (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, it being understood that the
Confidentiality Agreement shall continue in full force and effect until the
Closing and shall survive any termination of this Agreement; and (b) are not
intended to confer upon any other person any rights or remedies hereunder.
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; Specific Performance. 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. 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 their
specific terms or were otherwise breached. It is accordingly agreed that the
parties shall be entitled to seek 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.
9.7 Governing Law. Except to the extent mandatorily governed by Georgia
Law, this Agreement shall be governed by and construed in accordance with the
laws of the State of Washington, regardless of the laws that might otherwise
govern under applicable principles of conflicts of law thereof; provided,
however, that all provisions regarding the rights, duties and obligations of the
Escrow Agent shall be governed by and construed in accordance with the laws of
the State of New York applicable to contracts made and to be performed entirely
within such state.
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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 Assignment. No party may assign either this Agreement or any of its
rights, interests, or obligations hereunder without the prior written approval
of the other parties. Subject to the preceding sentence, this Agreement shall be
binding upon and shall inure to the benefit of the parties hereto and their
respective successors and permitted assigns.
*****
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their duly authorized respective officers as of the date first
written above.
REALNETWORKS, INC. PRINCIPAL SHAREHOLDERS:
By:_____________________________________ __________________________________
Name:___________________________________ __________________________________
Title:__________________________________ __________________________________
VARSITY ACQUISITION CORP.
By:_____________________________________
Name:___________________________________
Title:__________________________________
NETZIP, INC.
By:_____________________________________
Name:___________________________________
Title:__________________________________
SHAREHOLDER REPRESENTATIVE:
________________________________________
Xxxxx Xxxxxxxxx
ESCROW AGENT:
CHASEMELLON SHAREHOLDER SERVICES, L.L.C.
By: ____________________________________
Name:
Title:
