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EXHIBIT 2.1
AGREEMENT AND PLAN OF REORGANIZATION AND MERGER
By and Among
FUTURELINK CORP.
FUTURELINK MARYLAND ACQUISITION CORP.
VERTICAL SOFTWARE, INC.
and
XXXXXX XXXXXXXX
XXXXX X. XXXXXX
Dated as of December 2, 1999
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TABLE OF CONTENTS
ARTICLE I THE MERGER........................................................................1
1.1 The Merger............................................................................1
1.2 Closing...............................................................................1
1.3 Effective Time........................................................................1
1.4 Effects of the Merger.................................................................2
1.5 Articles of Incorporation; Bylaws.....................................................2
1.6 Directors and Officers................................................................2
1.7 Tax Consequences......................................................................2
ARTICLE II MERGER CONSIDERATION; CONVERSION OF STOCK........................................2
2.1 Definitions...........................................................................2
2.2 Conversion of Stock...................................................................4
2.3 Employee Stock Bonuses................................................................4
2.4 Certain Adjustments to Number of Shares...............................................5
2.5 Deposit...............................................................................5
2.6 Payment of Merger Consideration.......................................................5
2.7 Transfer Restrictions; Legends........................................................5
2.8 Surrender of Certificates.............................................................6
2.9 Registration Rights...................................................................6
2.10 Estimated Shareholders Equity; Closing Date Balance
Sheet Adjustment..................................................................6
ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE
COMPANY AND THE COMPANY SHAREHOLDER............................................7
3.1 Corporate Organization................................................................7
3.2 Capitalization........................................................................8
3.3 Authority; No Violation...............................................................8
3.4 Consents and Approvals................................................................9
3.5 Financial Statements..................................................................9
3.6 Absence of Undisclosed Liabilities....................................................9
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3.7 Absence of Certain Changes............................................................9
3.8 Legal Proceedings....................................................................12
3.9 Governmental Authorization; Compliance with Laws.....................................12
3.10 Regulatory Compliance................................................................12
3.11 Title and Condition of Personal Property.............................................12
3.12 Real and Leased Property.............................................................13
3.13 Intellectual Property................................................................13
3.14 Environmental Matters................................................................15
3.15 Major Customers......................................................................15
3.16 Employment Agreements................................................................15
3.17 Employee Benefit Plans...............................................................16
3.18 Labor Matters........................................................................16
3.19 Contracts and Commitments............................................................16
3.20 Absence of Breaches or Defaults......................................................18
3.21 Insurance............................................................................18
3.22 Brokers..............................................................................18
3.23 Minute Books.........................................................................18
3.24 Representations Complete.............................................................19
3.25 Potential Conflicts of Interest......................................................19
3.26 Customs..............................................................................19
3.27 Insolvency...........................................................................20
3.28 Qualification........................................................................20
3.29 Investments..........................................................................20
3.30 Restrictions on Business Activities..................................................20
3.31 Transfer Restrictions................................................................20
3.32 Xxxx-Xxxxx-Xxxxxx Act................................................................20
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF
PARENT AND MERGER SUB...........................................................20
4.1 Corporate Organization...............................................................21
4.2 Authority; No Violation..............................................................21
4.3 Capitalization of Parent and Merger Sub..............................................22
4.4 Consents and Approvals...............................................................22
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4.5 Financial Statements and SEC Documents...............................................22
4.6 Legal Proceedings....................................................................23
4.7 Representations Complete.............................................................23
4.8 Xxxx-Xxxxx-Xxxxxx Act................................................................23
ARTICLE V COVENANTS RELATING TO CONDUCT OF BUSINESS.........................................23
5.1 Covenants of the Company.............................................................23
5.2 Filings..............................................................................25
ARTICLE VI ADDITIONAL AGREEMENTS............................................................26
6.1 Access to Information................................................................26
6.2 Public Disclosure....................................................................26
6.3 Compliance with Securities Laws......................................................26
6.4 Solicitation.........................................................................27
6.5 Best Efforts and Further Assurances..................................................27
6.6 Notification of Certain Matters......................................................27
6.7 Noncompetition; Confidential Information.............................................27
ARTICLE VII CONDITIONS PRECEDENT...........................................................29
7.1 Conditions to Obligations of Parent and Merger Sub...................................29
7.2 Conditions to the Obligations of Company and Company
Shareholder.....................................................................31
ARTICLE VIII TERMINATION AND AMENDMENT......................................................32
8.1 Termination..........................................................................32
8.2 Effect of Termination................................................................33
8.3 Escrow Agent.........................................................................33
ARTICLE IX INDEMNIFICATION..................................................................35
9.1 Indemnity............................................................................35
9.2 Indemnification Procedures...........................................................35
9.3 Tax Indemnification..................................................................36
9.4 Limitations and Payment of Claims....................................................37
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ARTICLE X TAX MATTERS.......................................................................37
10.1 Representations and Warranties.......................................................37
10.2 Filing of Tax Returns and Payment of the Tax.........................................39
10.3 Indemnification by the Selling Shareholders..........................................39
10.4 Tax Adjustments......................................................................40
10.5 Access to Information................................................................40
10.6 Books and Records....................................................................40
10.7 Notice of Audit......................................................................41
10.8 Transfer Taxes.......................................................................41
10.9 Miscellaneous........................................................................41
ARTICLE XI GENERAL PROVISIONS...............................................................41
11.1 Survival of Representations and Warranties...........................................41
11.2 Notices..............................................................................41
11.3 Governing Law........................................................................43
11.4 Severability.........................................................................43
11.5 Assignment; Binding Effect; Benefit..................................................43
11.6 Expenses.............................................................................44
11.7 Headings.............................................................................44
11.8 Entire Agreement.....................................................................44
11.9 Counterparts.........................................................................44
11.10 Reproduction of Documents............................................................44
11.11 Advice from Independent Counsel......................................................44
11.12 No Agency; No Joint Venture..........................................................44
11.13 Good Faith...........................................................................45
11.14 Amendment............................................................................45
11.15 Extension; Waiver....................................................................45
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AGREEMENT AND PLAN OF REORGANIZATION AND MERGER
THIS AGREEMENT AND PLAN OF REORGANIZATION AND MERGER (this "Agreement"), is
made and entered into as of December 2, 1999, by and among FUTURELINK CORP., a
Delaware corporation ("Parent"), FUTURELINK MARYLAND ACQUISITION CORP., a
Maryland corporation and wholly-owned subsidiary of Parent ("Merger Sub"),
VERTICAL SOFTWARE, INC., a Maryland corporation (the "Company") and XXXXXX
XXXXXXXX AND XXXXX X. XXXXXX (each, a "Company Shareholder," collectively, the
"Company Shareholders").
WHEREAS, the Boards of Directors of Parent, Merger Sub and the Company have
each determined that it is in the best interests of their respective companies
and in the best interests of their respective shareholders to consummate the
business combination transaction provided for herein in which the Company will,
subject to the terms and conditions set forth herein, merge with and into Merger
Sub; and
WHEREAS, for federal income tax purposes, it is intended that the merger
will qualify as a tax-free reorganization under the provisions of Section 368(a)
of the United States Internal Revenue Code of 1986, as amended (the "Code"); and
NOW, THEREFORE, in consideration of the mutual covenants, representations,
warranties and agreements contained herein, and for good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged, the
parties hereto, intending to be legally bound hereby, agree as follows:
ARTICLE I
THE MERGER
1.1 The Merger. Subject to the terms and conditions of this Agreement, in
accordance with the applicable provisions of the Maryland General Corporation
Law (the "MGCL"), at the Effective Time (as defined in Section 1.3 hereof), the
Company shall merge with and into Merger Sub (the "Merger"). Merger Sub shall be
the surviving company (hereinafter sometimes called the "Surviving Corporation")
in the Merger, and shall continue its corporate existence under the laws of the
State of Maryland. Upon consummation of the Merger, the separate corporate
existence of the Company shall terminate.
1.2 Closing. The closing of the transactions contemplated hereby (the
"Closing") shall take place on January 31, 2000 subject to the satisfaction or
waiver of each of the conditions set forth in Article VII hereof, or at such
other time as the parties hereto agree (the "Closing Date"). The Closing shall
take place at the offices of Paul, Hastings, Xxxxxxxx & Xxxxxx LLP, 1299
Pennsylvania Ave., N.W., Washington, D.C., or at such other location as the
parties hereto agree.
1.3 Effective Time. The Merger shall become effective upon the filing of an
Agreement of Merger with the Secretary of State of the State of Maryland in such
form as is required by, and executed in accordance with the relevant provisions
of, the MGCL on the Closing Date (the
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"Agreement of Merger"). The term "Effective Time" shall be the date and time of
the filing of the Agreement of Merger with the Secretary of State of the State
of Maryland or such later time as is specified in the Agreement of Merger.
1.4 Effects of the Merger. At and after the Effective Time, the Merger shall
have the effects set forth in this Agreement, the Agreement of Merger and the
applicable provisions of the MGCL. Without limiting the generality of the
foregoing, and subject thereto, at the Effective Time, all the property, rights,
privileges, powers and franchises of the Company and Merger Sub shall vest in
the Surviving Corporation, and all debts, liabilities and duties of the Company
and Merger Sub shall become the debts, liabilities and duties of the Surviving
Corporation.
1.5 Articles of Incorporation; Bylaws. 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 in accordance with applicable law. At the Effective Time, the
Bylaws of Merger Sub, as in effect immediately prior to the Effective Time,
shall be the Bylaws of the Surviving Corporation until thereafter amended in
accordance with applicable law.
1.6 Directors and Officers. The directors and officers of Merger Sub
immediately prior to the Effective Time shall be the directors and officers of
the Surviving Corporation, each to hold office in accordance with the Articles
of Incorporation and Bylaws of the Surviving Corporation until their respective
successors are duly elected or appointed and qualified.
1.7 Tax Consequences. It is intended by the parties hereto that the Merger
shall constitute a reorganization within the meaning of Section 368(a) of the
Code.
ARTICLE II
MERGER CONSIDERATION; CONVERSION OF STOCK
2.1 Definitions. For purposes of this Agreement the following definitions
shall apply:
(a) "Company Stock" means the common stock of the Company;
(b) "Deposit" shall have the meaning set forth in Section 2.5;
(c) "Employee Plan" means any employee benefit plan (as that term is defined
in section 3(3) of ERISA), as well as any other formal or informal plan,
arrangement or contract involving direct or indirect compensation, in which any
current or former officers, employees or independent contractors of the Company
has an interest, or to which the Company has any Liability or under which the
Company has any present or future obligations or Liability on behalf of its
current or former officers, employees or independent contractors or their
dependents or beneficiaries, including, but not limited to, each retirement,
pension, profit-sharing, thrift, savings, target benefit, employee stock
ownership, cash or deferred, multiple employer, multiemployer or other similar
plan or program, each other deferred or incentive compensation, bonus, stock
option, employee stock purchase, "phantom stock" or stock appreciation right
plan, each other program providing payment or reimbursement for or of medical,
dental or visual care,
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psychiatric counseling, or vacation, sick, disability or severance pay and each
other "fringe benefit" plan or arrangement.
(d) "Environmental and Safety Laws" shall mean any federal, state or local
laws, ordinances, codes, regulations, rules, policies and orders that are
intended to assure the protection of the environment, or that classify,
regulate, call for the remediation of, require reporting with respect to, or
list or define air, water, groundwater, solid waste, hazardous or toxic
substances, materials, wastes, pollutants or contaminants, or which are intended
to assure the safety of employees, workers or other persons, including the
public.
(e) "Estimated Shareholder's Equity" means the Company's good faith estimate
of Shareholder's Equity as of the Closing Date, which estimate shall be based on
an estimated balance sheet for the Company as of the Closing Date prepared by
the Company and delivered to Parent pursuant to Section 2.9(a), and shall be
agreed upon by Parent.
(f) "Knowledge" shall mean, as it relates to the Company, the knowledge of the
President, Chief Executive Officer, Chief Financial Officer, Treasurer,
Secretary or any director or shareholder of the Company after due inquiry. The
term "Knowledge" shall mean, as it relates to Parent and Merger Sub, the
knowledge of the President, Chief Executive Officer, Chief Financial Officer,
Treasurer, Secretary, Director of Mergers and Acquisitions, Director of Finance,
or any director of Parent and Merger Sub.
(g) "Lien" or "Encumbrance" (or "Liens or Encumbrances" as the context may
require): Any lien, pledge, mortgage, security interest, claim, lease, charge,
option, right, easement, servitude, transfer limit, restriction or other
encumbrance.
(h) "Material Adverse Effect" means an action, event or occurrence if it has,
or could reasonably be expected to have, a material adverse effect on the
assets, liabilities, business, financial condition or results of operations of
the Company or Parent (including their subsidiaries), as the case may be. Any
item susceptible of measurement in monetary terms which does not exceed the
amount of $50,000 shall not be considered a Material Adverse Effect;
(i) "Parent Stock" means the common stock of Parent;
(j) "Person" means any individual, corporation, partnership, limited liability
company, limited liability partnership, firm, joint venture, association, joint
stock company, trust, unincorporated organization, Governmental Entity or other
entity or organization.
(k) "Shareholder's Equity" means the Company's total assets minus its total
liabilities determined in accordance with the accounting principles and
practices used to prepare the Company's balance sheet as of September 30, 1999
previously delivered to Parent.
(l) "Tax" or "Taxes" shall mean all taxes, charges, fees, levies, penalties or
other assessments imposed by any United States federal, state, local or foreign
taxing authority, including, but not limited to income, excise, property, sales,
transfer, franchise, payroll, withholding, social security or other taxes,
including any interest, penalties or additions attributable thereto.
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(m) "Tax Return" shall mean any return, report, information return or other
document (including any related or supporting information) with respect to
Taxes.
2.2 Conversion of Stock. At the Effective Time, by virtue of the Merger and
without any action on the part of Parent, Merger Sub, the Company or any holder
of Company Stock:
(a) each share of Company Stock outstanding immediately prior to the Effective
Time, shall automatically be converted into and become a right to receive a pro
rata portion of:
(i) cash in the amount of $7,000,000, inclusive of the Deposit, plus cash
in the amount of the Estimated Shareholders Equity ("Cash Consideration"); and
(ii) 1,026,316 shares of Parent Stock ("Stock Consideration");
(the Cash Consideration and Stock Consideration are collectively referred to as
the "Merger Consideration");
(b) all shares of Company Stock held at the Effective Time as treasury shares
or by a subsidiary of the Company shall be canceled and no payment shall be made
with respect thereto; and
(c) each share of capital stock of Merger Sub issued and outstanding as of the
Effective Time shall be unaffected by the Merger and shall represent one share
of common stock of the Surviving Corporation after the Merger.
(d) all Parent Stock consideration granted hereunder shall require that the
recipients of such enter into a lock-up agreement agreeing (i) to not sell,
assign or transfer any shares of Parent Stock until after the first anniversary
of the Closing Date, and to not sell, assign or transfer more than one-third of
the total amount of Parent Stock received by such recipient on the Closing Date
during the period between the first and second anniversaries of the Closing
Date, and not to sell, assign or transfer more than an additional one-third of
the total amount of Parent Stock received by such recipient on the Closing Date
during the period between the second and third anniversaries of the Closing
Date, and (ii) to be bound by the same lock-up provisions as substantially all
executive officers and directors of Parent imposed in connection with financings
for Parent.
2.3 Employee Stock Bonuses. After the Closing Date, Parent will adopt an
employee stock plan which will provide for the issuance to each of the employees
of the Company listed on Schedule 2.3 hereto that number of shares of Parent
Stock set forth alongside such employee's name, provided that such employee
remains employed by the Surviving Corporation or by Parent or another subsidiary
of Parent continuously for one year after the Closing Date; provided that an
employee shall still receive such shares if that employee's termination was due
to a unilateral severance, lay-off, or reduction in force pursuant to a plan
adopted by the Surviving Corporation, Parent or another subsidiary of Parent
providing for a change in the manner or method of its business operations that
results in a surplus of personnel. In the event that an employee listed on
Schedule 2.3 does not remain so employed by the Surviving Corporation, Parent or
a subsidiary of Parent for such one-year period the shares of Parent Stock which
would otherwise have been issued to such employee shall be distributed pro rata
among the other employees who do remain
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so employed, provided that no employee shall receive a greater than 10% increase
in the number of shares otherwise to be issued to that employee. Shares issued
pursuant to this Section 2.3 shall be registered with the Securities and
Exchange Commission under the Securities Act on Form S-8 or on such other Form
as Parent may deem appropriate.
2.4 Certain Adjustments to Number of Shares. With respect to this Article II,
the number of Parent Stock issued shall be adjusted to reflect fully the effect
of any stock split, reverse split, stock dividend (including any dividend or
distribution of securities convertible into Parent Stock), reorganization,
recapitalization or other like change with respect to Parent Stock, occurring
after the date hereof but prior to the Effective Time.
2.5 Deposit. The Company Shareholders acknowledge receipt, as of the date
hereof, of a deposit in the amount of $500,000 which shall be held in trust,
pursuant to Section 8.3, by XxXxxxx, Xxxxx, Xxxxxxxx & Xxx, P.A., counsel to the
Company and the Company Shareholders, in an interest bearing account pending the
Closing or termination of the transaction contemplated hereunder by either party
for any reason. The amount paid by Parent and any interest earned thereon
pursuant to this Section 2.5 are referred to herein as the "Deposit". The
Deposit shall be applied to the Cash Consideration as set out in Section 2.2
upon Closing. Upon termination of this Agreement pursuant to Section 8.1 or
notice from the Company or the Company Shareholders to XxXxxxx, Xxxxx, Xxxxxxxx
& Xxx, P.A. that the Closing will not take place for any reason, the Deposit,
subject to the last sentence of Section 8.2, promptly shall be returned to
Parent without deduction.
2.6 Payment of Merger Consideration. The Merger Consideration shall be
payable as follows:
(a) the Cash Consideration shall be paid at the Closing by wire transfer to
accounts specified by the Company Shareholders; and
(b) Parent shall deliver to the Company Shareholders at the Closing stock
certificates representing the Stock Consideration in accordance with Section
2.8.
2.7 Transfer Restrictions; Legends. The shares of Parent Stock issued in the
Merger shall not be transferable in the absence of an effective registration
statement under the Securities Act of 1933, as amended (the "Securities Act"),
or an exemption therefrom. In the absence of an effective registration statement
under the Securities Act, neither such shares of Parent Stock nor any interest
therein shall be sold, transferred, assigned or otherwise disposed of, unless
Parent shall have previously received an opinion of counsel knowledgeable in
Federal securities law, in form and substance reasonably satisfactory to Parent,
to the effect that registration under the Securities Act is not required in
connection with such disposition.
The certificate or certificates representing the shares of Parent Stock
issued in the Merger shall bear the following legend restricting the transfer
thereof, in addition to any other legend required by applicable law:
THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF
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1933, AS AMENDED (THE "SECURITIES ACT"). THESE SECURITIES MAY NOT
BE SOLD, TRANSFERRED, ASSIGNED OR HYPOTHECATED UNLESS THERE IS AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT COVERING SUCH
SECURITIES OR THE COMPANY RECEIVES AN OPINION OF COUNSEL FOR THE
HOLDER OF THESE SECURITIES REASONABLY SATISFACTORY TO THE
COMPANY, STATING THAT SUCH SALE, TRANSFER, ASSIGNMENT OR
HYPOTHECATION IS EXEMPT FROM THE REGISTRATION AND PROSPECTUS
DELIVERY REQUIREMENTS OF THE SECURITIES ACT.
SALE, TRANSFER, ASSIGNMENT AND/OR OTHER HYPOTHECATION OF THE
SECURITIES IS FURTHER RESTRICTED PURSUANT TO A LOCK-UP AGREEMENT
EXECUTED BY THE SECURITY HOLDER AND AVAILABLE AT THE COMPANY FOR
INSPECTION.
2.8 Surrender of Certificates. At the Closing, the Company Shareholders shall
deliver the certificate(s) representing all issued and outstanding shares of
Company Stock ("Certificates") for cancellation and conversion in accordance
with the terms of this Agreement. Upon surrender of the Certificates for
cancellation to Parent, at the Effective Time, Parent shall instruct its
transfer agent to issue the shares of Parent Stock as provided in this Article
II and the Certificates so surrendered shall be canceled.
2.9 Registration Rights. At the Closing, Parent and the Company Shareholders
shall enter into a Registration Rights Agreement, in form and substance
reasonably satisfactory to Parent and the Company Shareholders pursuant to which
Parent will grant so-called "piggyback" registration rights to the Company
Shareholders with respect to the Parent Stock acquired pursuant to this
Agreement commencing immediately following the Closing Date, and will grant
so-called "demand" registration rights to the Company Shareholders with respect
to the Parent Stock acquired pursuant to this Agreement commencing eighteen
months after the Closing Date, provided, however, that if the Company
Shareholders have had an opportunity to register shares of their Parent Stock
pursuant to the piggyback rights and have not taken advantage of such
opportunity, the demand rights shall not apply to that number of shares which
could have been registered pursuant to the piggyback rights. The Registration
Rights Agreement shall contain provisions customary in such agreements including
restrictions imposed by underwriters with respect to participation in
underwritten public offerings and on the sale of securities during certain
periods. The Registration Rights Agreement shall terminate on the second
anniversary of the Closing Date.
2.10 Estimated Shareholders Equity; Closing Date Balance Sheet Adjustment.
(a) No less than five business days before the Closing Date, the Company shall
deliver to Parent an estimated balance sheet for the Company as of the Closing
Date, prepared in accordance with the accounting principles and practices used
to prepare the Company's balance sheet as of September 30, 1999 previously
delivered to Parent, and the Company's good faith
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calculation of Estimated Shareholder's Equity based thereon. Parent and the
Company will negotiate in good faith to resolve any disagreements regarding the
calculation of Estimated Shareholder's Equity.
(b) As promptly as practicable after the Closing Date, Parent will cause to be
prepared a balance sheet of the Company as of the Closing Date (the "Closing
Date Balance Sheet") prepared in accordance with the accounting principles and
practices used to prepare the Company's balance sheet as of September 30, 1999
previously delivered to Parent, and shall supply the Company Shareholders with a
copy of the Closing Date Balance Sheet and with Parent's calculation of
Shareholders' Equity as of the Closing Date based thereon. The Company
Shareholders shall have 15 days after delivery of such notice to object in
writing to the Parent's calculation of the Company's Shareholder's Equity as of
the Closing Date as based on the Closing Date Balance Sheet. If no such
objection is made within that period, Parent's calculation will become final and
binding on the parties. If such objection is timely made, the Company
Shareholders and Parent will negotiate in good faith to reach agreement as to
the amount of the Company's Shareholder's Equity as of the Closing Date,
provided, however, that if no agreement is reached within 30 days, either Parent
or the Company Shareholders may submit the dispute to Ernst & Young for
resolution. The determination of Ernst & Young as to the amount of the Company's
Shareholder's Equity as of the Closing Date shall be final and binding on the
parties.
(c) Within 10 days after a final determination of the amount of the
Shareholder's Equity as of the Closing Date, (i) if Estimated Shareholder's
Equity was less than the final determination of Shareholders' Equity, the Parent
shall pay each of the Company Shareholders his pro rata share of cash equal to
the amount of such deficit as additional Cash Consideration, and (ii) if
Estimated Shareholders' Equity was greater than the final determination of
Shareholders' Equity, each of the Company Shareholders shall pay the Parent his
pro rata share of cash equal to the amount of such excess as a partial refund of
the Cash Consideration.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
AND THE COMPANY SHAREHOLDER
Each of the Company Shareholders hereby jointly and severally make the following
representations and warranties to Parent and Merger Sub.
3.1 Corporate Organization. The Company is a corporation duly organized,
validly existing and in good standing under the laws of the State of Maryland.
The Company has the corporate power and authority to own or lease its properties
and assets and to carry on its business as it is now being conducted, and is
qualified to do business in each jurisdiction listed on Schedule 3.1 hereto,
which jurisdictions are the only jurisdictions in which the nature of the
business conducted by it or the character or location of the properties and
assets owned or leased by it makes such qualification necessary, except where
the failure to be so qualified would not individually or in the aggregate have a
Material Adverse Effect.
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3.2 Capitalization.
(a) The Company Stock listed on the Schedule 3.2 constitutes all of the
authorized, issued and outstanding capital stock of the Company. All of the
shares of Company Stock have been duly authorized and validly issued, are fully
paid and non-assessable, and are owned beneficially and of record by the Company
Shareholders free and clear of any Lien, Encumbrance, preemptive right or right
of first of any kind or character or claims thereto. None of the outstanding
shares of Company Stock were issued in violation of any applicable federal or
state securities laws. No subscriptions, options or other rights to purchase or
otherwise receive any shares of Company Stock or other equity security are
outstanding. Upon delivery of shares of the Company Stock against full payment
of the Merger Consideration as herein provided, Parent will acquire good and
marketable title to such shares of the Company Stock, free and clear of any
Liens or Encumbrances other than (a) those created by Parent and (b) the
requirements of federal and state securities laws respecting restrictions on the
subsequent transfer thereof.
(b) The Company does not presently own or control, directly or indirectly, and
has no stock or other interest as owner or principal in, any other Person.
3.3 Authority; No Violation.
(a) The Company has the requisite corporate power and authority to execute and
deliver this Agreement, to perform its obligations thereunder and to consummate
the transactions contemplated thereby. The Board of Directors of the Company has
unanimously approved this Agreement and the Merger and all transactions
contemplated thereby. Each of the Company Shareholders collectively, being the
holders of all of the outstanding Company Stock, has approved this Agreement,
the Merger and the transactions contemplated hereby and thereby. No other
corporate proceedings on the part of the Company are necessary to approve this
Agreement and to consummate the transactions contemplated thereby. This
Agreement and all other agreements and documents to be entered into in
connection herewith have been duly and validly executed and delivered by the
Company and (assuming due authorization, execution and delivery by Parent and
Merger Sub) constitute valid and binding obligations of the Company, enforceable
against the Company, except as enforcement may be limited by general principles
of equity whether applied in a court of law or a court of equity and by
bankruptcy, insolvency and similar laws affecting creditors' rights and remedies
generally. This Agreement and all other agreements and documents to be entered
into in connection herewith have been duly and validly executed and delivered by
each of the Company Shareholders and (assuming due authorization, execution and
delivery by Parent and Merger Sub) constitutes valid and binding obligations of
each Company Shareholder, enforceable against each Company Shareholder, except
as enforcement may be limited by general principles of equity whether applied in
a court of law or a court of equity and by bankruptcy, insolvency and similar
laws affecting creditors' rights and remedies generally.
(b) The execution and delivery of this Agreement by each of the Company and
the Company Shareholders, the consummation of the transactions contemplated
hereby, and compliance with the terms and provisions hereof, will not, assuming
the consents and approvals referred to in Section 3.4 are obtained, (i) violate
any provision of the Articles of Incorporation
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or Bylaws of the Company, (ii) violate any statute, code, ordinance, rule or
regulation applicable to the Company or the Company Shareholders or any of their
assets or properties, where such violation would reasonably be expected to have
a Material Adverse Effect, (iii) violate any judgment, order, writ, decree or
injunction applicable to the Company or any of the Company Shareholders or any
of their properties or assets or (iv) violate, conflict with, result in a breach
of any provision of or the loss of any benefit under, constitute a default (or
an event which, with notice or lapse of time, or both, would constitute a
default) under, result in the termination of or a right of termination or
cancellation under, accelerate the performance required by, or result in the
creation of any Lien or Encumbrance upon any of the properties or assets of the
Company or any of the Company Shareholders under, any of the terms, conditions
or provisions of any note, bond, mortgage, indenture, deed of trust, license,
lease, agreement or other instrument or obligation to which the Company or any
of the Company Shareholders is a party, or by which the Company or any of the
Company Shareholders or any of their properties or assets may be bound or
affected.
3.4 Consents and Approvals. Except for the filing of Agreement of Merger with
the Secretary of State of the State of Maryland, no consents, approvals, orders
or authorizations of or filings or registrations with any court, administrative
agency or commission or other governmental authority or instrumentality (each a
"Governmental Entity") or with any third party are necessary with respect to the
Company or any of the Company Shareholders in connection with (i) the execution
and delivery of this Agreement and (ii) the consummation of the Merger and the
other transactions contemplated hereby.
3.5 Financial Statements. As of the Closing Date, the financial statements
referenced in Section 7.1(i) shall have been prepared in accordance with
generally accepted accounting principles ("GAAP") applied on a basis consistent
throughout the periods indicated and with each other and shall fairly present
the financial condition and operating results of the Company as of the dates,
and for the periods indicated therein. The financial statements dated September
30, 1999 that have been provided to Parent are accurate, complete and truthful
and in accordance with the Internal Revenue Service's reporting standards.
3.6 Absence of Undisclosed Liabilities. Except as set forth on Schedule 3.6,
the Company has no direct or indirect debt, obligation, loss, damages,
deficiency, claims, fines, penalty or other liability of any nature, whether
absolute, accrued, contingent or otherwise ("Liability"), other than Liabilities
that will be fully and adequately reflected (as to nature and amount) and
reserved against in the applicable financial statements referenced in Section
7.1(i), except for Liabilities otherwise disclosed in this Agreement and
Liabilities that would not reasonably be expected to have a Material Adverse
Effect. Except as shall be set forth in such financial statements, the Company
is not a guarantor or indemnitor of any indebtedness of any other person, firm
or corporation.
3.7 Absence of Certain Changes. Since December 31, 1998, the Company has
conducted its business in the ordinary course consistent with past practice, has
used its best efforts to ensure that the Company continues to achieve a run rate
of revenues consistent with the previous six (6) months of operation, and except
for transactions contemplated or authorized hereby, and except for events that
would not, in the aggregate, reasonably be expected to have a Material Adverse
Effect, there has not occurred:
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(a) any purchase or other acquisition of, sale, lease, disposition, or other
transfer of, or Lien or Encumbrance on, any material asset, tangible or
intangible, of the Company, other than in the ordinary course of business;
(b) any declaration, setting aside, or payment of a dividend or other
distribution with respect to the shares of Company Stock, or any split-up or
other recapitalization in respect of Company Stock, or any direct or indirect
redemption, retirement, purchase or other acquisition by the Company of any
shares of Company Stock or other equity interest or any bonds, debentures,
notes, debt instruments, evidences of indebtedness or other securities of any
kind of the Company;
(c) any material contract entered into by the Company, other than in the
ordinary course of business and as provided to Parent, or any termination of, or
default under, any material contract to which the Company is a party or by which
it is bound;
(d) any amendment to its Articles of Incorporation, Bylaws or other
organizational documents or changed the nature of the Company's business, or
merged with or into or consolidated with any other Person, subdivided or in any
way reclassified any capital stock or changed or agreed to change in any manner
the rights of its capital stock or the character of its business, other than as
indicated on Schedule 3.7(d);
(e) any change in any business policies or management practices relating to
the Company, including, without limitation, commission or fee structures; or
made any change in its billing or investment policies and practices or any
change in any other activity which (i) has had the effect of accelerating the
recording and billing of fees or accounts receivable or delaying the payment of
expenses or the establishment of reserves in connection with the business or any
accounts of the Company or (ii) has had the effect of altering, modifying or
changing in any manner the historical financial or accounting practices or
policies of the Company, including accruals of and reserves for tax liabilities;
(f) any change or modification of the compensation or benefits payable or to
become payable by the Company to any of its directors or employees, except
ordinary increases or bonuses payable in the ordinary course consistent with
past practices;
(g) any issuance, transfer, sale or pledge by the Company of any shares of
Company Stock or other securities or of any commitment, option, right or
privilege under which the Company is or may become obligated to issue any shares
of Company Stock or other securities;
(h) any indebtedness for borrowed money incurred by the Company, except (i)
such as may have been incurred or entered into in the ordinary course of
business not exceeding $15,000, or (ii) as indicated on Schedule 3.7(h);
(i) any loan made or agreed to be made by the Company, nor has the Company
become liable or agreed to become liable as a guarantor with respect to any
loan;
(j) any loans to employees, shareholders, directors or officers,
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(k) any waiver or compromise by the Company of any right or rights or any
payment, direct or indirect, of any material debt, liability or other
obligation, other than in the ordinary course of business;
(l) any sale, assignment, or transfer of any patents, trademarks, copyrights,
trade secrets or other intangible assets, other than in the ordinary course of
business;
(m) any actual or, to the Knowledge of the Company, threatened termination or
loss of (i) any contract, lease, license or other agreement to which the Company
was or is a party, (ii) any certificate, license or other authorization required
for the continued operation by the Company of any portion of any of its
business, or (iii) termination or loss of any customer or other revenue source,
which termination or loss could reasonably be expected to result in loss of
revenues to the Company in excess of $15,000 per year;
(n) any resignation of employment of any key officer or employee of the
Company;
(o) acceleration of the collection, or sale to any other Person, of any of its
receivables, or delayed the payment of any of its payables, other than
accelerations or delays in the ordinary course of business consistent with past
practice involving amounts below $10,000;
(p) any revaluation of any assets or properties, or write-down or write-off of
the value of any assets or properties (including, without limitation, any
receivables), in an amount in excess of $10,000;
(q) any loan or advance to any Person which has not been fully reflected in
the Financial Statements;
(r) any acquisition of all or any part of the assets, properties, securities
or business of any other Person;
(s) except in the ordinary course of business consistent with past practice,
hiring of any new employees, consultants, agents or other representatives or
entering into any employment or consulting agreements (other than those
terminable without severance, without penalty and without cause on not more than
thirty (30) days notice), or termination, or making any change in the employment
terms or conditions of, any officers, directors, employees, consultants, agents
or other representatives;
(t) entering into any collective bargaining agreement or any other contract
with any labor union or association representing any employee, or been subjected
to any strike, picket, work stoppage, work slowdown, labor dispute or other
labor trouble;
(u) adopting a plan of complete or partial liquidation, dissolution,
rehabilitation, restructuring, recapitalization, redomestication or other
reorganization;
(v) any material alteration to the level of working capital in the business as
compared to that stated in the management accounts for the period ending June
30, 1999 except for those adjustments referred to in Section 5.1(a);
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(w) any negotiation or agreement by the Company to do any of the things
described in the preceding clauses (a) through (v) (other than negotiations with
Parent and its representatives regarding the transactions contemplated by this
Agreement); or
(x) to the Company's Knowledge, any other event or circumstance that will have
or could reasonably be expected to have a Material Adverse Effect on the
Company.
3.8 Legal Proceedings. There are no legal actions, suits, arbitrations or
other legal, administrative or governmental proceedings or investigations
pending or, to the Knowledge of the Company, threatened against the Company or
its properties, assets or business, and neither the Company nor any of the
Company Shareholders is aware of any facts which might result in or form the
basis for any such action, suit or other proceeding or which would challenge the
validity or propriety of the transactions contemplated by this Agreement. The
Company is not in default with respect to any judgment, order or decree of any
court or any governmental agency or instrumentality.
3.9 Governmental Authorization; Compliance with Laws. The Company has
obtained each federal, state, county, local or foreign governmental consent,
license, permit, grant, or other authorization of a Governmental Entity that is
required for the operation of the Company's business (the "Company
Authorizations"), and all of such Company Authorizations are in full force and
effect. The Company is in compliance with (i) the terms of its Articles of
Incorporation and Bylaws or other organizational documents, (ii) all laws,
statutes, ordinances, rules, regulations or other legal requirements, whether
federal, state, local or foreign, except where the failure to so comply would
not reasonably be expected to have a Material Adverse Effect, and (iii) all
orders, writs, judgments, injunctions, awards and decrees of any court, other
Governmental Entity or arbitrator. Neither the Company Shareholders nor the
Company have received notice of any violation by the Company of, or default by
the Company under, its Articles of Incorporation, Bylaws or other organizational
documents, any law, statute, ordinance, rule, regulation or other legal
requirement, any order, writ, injunction, award or decree of any court, other
Governmental Entity or arbitrator.
3.10 Regulatory Compliance. The Company has filed all reports, statements,
registrations, applications, filings or other documents and submissions required
to be filed with, or provided to, any Governmental Entity, except where the
failure to make such filings, would not reasonably be expected to have a
Material Adverse Effect. All such reports, statements, registrations,
applications, filings, documents and submissions were in compliance with all
applicable laws, statutes, ordinances, rules or regulations and were complete
and correct in all respects when filed, and no deficiencies have been asserted
by any Governmental Entity with respect thereto, except where any non-compliance
or deficiencies would not reasonably be expected to have a Material Adverse
Effect . There is no action, proceeding, dispute, controversy, inquiry or
investigation pending or, to the Company's Knowledge, threatened by any such
Governmental Entity relating to the Company.
3.11 Title and Condition of Personal Property. The Company has marketable
title to all of its personal property owned by it, free and clear of all Liens
or Encumbrances of any kind or character or claims thereto. The property and
equipment of the Company that are used in the
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operations of its business are in all material respects in good operating
condition and repair, ordinary wear and use excepted.
3.12 Real and Leased Property. Schedule 3.12 hereto contains a true and
complete list of all real property leased or subleased by the Company (the
"Leased Property"). The Company has previously delivered to Parent a true and
complete copy of all of the lease and sublease agreements, as amended to date
(the "Leases") relating to the Leased Property. Except as set forth on Schedule
3.12, the Leases are valid, binding and in full force and effect, all rent and
other sums and charges payable thereunder are current, no notice of default or
termination under any of the Leases is outstanding, no termination event or
condition or uncured default on the part of the Company exists under the Leases,
and no event has occurred and no condition exists which, with the giving of
notice or the lapse of time or both, would constitute such a default or
termination event or condition. The Company owns no real property in fee simple.
3.13 Intellectual Property.
(a) The Company owns or licenses from another person all inventions, patents,
patent rights, computer software, trademarks, trademark rights, service marks,
service xxxx rights, trade names, trade name rights and copyrights necessary for
its business as presently conducted (collectively, the "Intellectual Property")
without, to the Company's Knowledge with respect to Intellectual Property
licensed by the Company, any conflict with or infringement of the valid rights
of others and the lack of which could materially and adversely affect the
operations or condition, financial or otherwise, of the Company. The Company has
not received any notice of infringement upon or conflict with the asserted
rights of others. Schedule 3.13(a) hereto contains a true and complete list of
all such patents, patent rights, registered trademarks, registered service
marks, registered copyrights, all agreements related to the foregoing, and all
agreements pursuant to which the Company licenses Intellectual Property from or
to a third party (excluding "shrink wrap" license agreements relating solely to
off the shelf software which is not material to the Company's business). All
Intellectual Property owned by the Company is owned free and clear of all liens,
adverse claims, encumbrances, or restrictions. All Intellectual Property
licensed by the Company is the subject of a license agreement which is legal,
valid, binding and enforceable and in full force and effect. The consummation of
the transactions contemplated hereby will not result in the termination or
impairment of the Company's ownership of, or right to use, any Intellectual
Property. The Company has a valuable body of trade secrets, including know-how,
concepts, business plans, and other technical data (the "Proprietary
Information") relating to its business. The Company has the right to use the
Proprietary Information free and clear of any rights, liens, encumbrances or
claims of others. The Company is not aware, after reasonable investigation, that
any of its employees is obligated under any contract (including licenses,
covenants or commitments of any nature) or other agreement, or subject to any
judgment, decree or order of any court or administrative agency, that would
interfere with the use of his or her best efforts to promote the interests of
the Company or that would conflict with the Company's business.
(b) Schedule 3.13(b) lists all material licenses, sublicenses and other
agreements as to which the Company is a party and pursuant to which the Company
or any other person owns or is licensed or otherwise authorized or obligated
with respect to any Intellectual Property and includes the identity of all
parties thereto. The Company has not and is not, nor as a result of the
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execution and delivery of this Agreement or the performance of the Company's
obligations hereunder will be, in violation of any license, sublicense or other
agreement applicable to it.
(c) Except for the licenses and agreements set forth in Schedule 3.13(b), the
Company (i) has not disclosed any of its Proprietary Information which the
Company uses or proposes to use to make or sell its products, other than to
customers to the extent necessary to service those customers, and to employees,
consultants or distributors of the Company who have entered written agreements
not to disclose such rights of the Company and (ii) is not contractually
obligated to pay any compensation to any third party with respect to any
Intellectual Property, whether for the use, license, conveyance thereof, for any
service which resulted in the creation thereof, or otherwise.
(d) No claims with respect to the Intellectual Property have been asserted
against the Company, or to the Company's Knowledge against any other party, or,
to the Knowledge of the Company, are or are likely to be threatened by any
person, nor does the Company know of any grounds for any claims now or in the
future (i) to the effect that any product or service of the Company or any
business of the Company as previously or currently conducted infringes on or
misappropriates any intellectual property rights in which a third party has any
rights, or (ii) challenging the ownership, validity or effectiveness of any of
the Intellectual Property. No Intellectual Property owned or licensed by the
Company is, to the Company's Knowledge with respect to Intellectual Property
licensed by the Company, subject to any Lien or Encumbrance. All Intellectual
Property owned or licensed by the Company is, to the Company's Knowledge with
respect to Intellectual Property licensed by the Company, valid and subsisting
and there is no material unauthorized use, infringement or misappropriation of
any of the Intellectual Property by any third party, including any employee. No
Intellectual Property owned or licensed by the Company is, to the Company's
Knowledge with respect to Intellectual Property licensed by the Company, subject
to any outstanding order, judgment, decree, stipulation or agreement restricting
in any manner the licensing or exploitation thereof by the Company.
(e) The Company has not entered into any agreement to indemnify any other
person against any charge of infringement relating to any Intellectual Property.
No employee of the Company is in violation of any term of any employment
contract (whether written or verbal), nondisclosure agreement or any other
contract or agreement relating to the relationship of any such employee with the
Company or any other party (including prior employers) because of the nature of
the business conducted by the Company.
(f) All of the Intellectual Property owned by the Company immediately prior to
the Closing will be owned by the Surviving Corporation immediately subsequent to
the Closing hereunder, and all of the Intellectual Property used by the Company
immediately prior to the Closing hereunder will be available for use by the
Surviving Corporation on identical terms and conditions immediately subsequent
to the Closing hereunder.
(g) To the Company's Knowledge and based upon the representation of the
vendors of such Intellectual Property, the Intellectual Property including,
without limitations, the systems, software and hardware owned, used or
interfaced by or with the Company are "Year 2000 compliant," and will
accurately process, calculate, compare, sequence, transmit and receive date/time
data from, into, and between the 20th and 21st centuries and the years 1999 and
2000
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and leap year calculations and will not create any logical or mathematical
inconsistency or malfunction or cease to function when processing date/time
data.
3.14 Environmental Matters.
(a) There has not been any release, spill, emission, leaking, deposit,
disposal, discharge, dispersal or leaching into the environment of any hazardous
material at, in, on, under or from any real property leased, used or managed by
the Company (a "Facility") or in connection with its business, that could, to
the knowledge of each Company Shareholder and the Company's Knowledge,
individually or in the aggregate, have an adverse effect. To the Company's
Knowledge, no hazardous materials are being stored or otherwise are present at,
in, on or under any real property leased, used or managed by the Company or in
connection with its business where such activity is not in compliance with any
environmental law, and the Company is in compliance, in all respects, with all
environmental laws applicable to it.
(b) The Company has not (i) received a notice (oral or written) of any
noncompliance of a Facility or its past or present operations with Environmental
and Safety Laws, (ii) received notices, administrative actions or suits are
pending or, to the Company's Knowledge, threatened relating to a violation of
any Environmental and Safety Laws or (iii) been notified that the Company is a
potentially responsible party under the federal Comprehensive Environmental
Response, Compensation and Liability Act, or state analog statute, arising out
of events occurring prior to the Closing Date. To the Company's Knowledge, the
Company's uses of and activities within the Facilities have at all times
complied with all Environmental and Safety Laws. The Company has all the permits
and licenses required by Environmental and Safety Laws to be issued and are in
full compliance with the terms and conditions of those permits.
3.15 Major Customers. Schedule 3.15 hereto sets forth a list of the top twenty
(20) customers of the Company by revenue generated in the fiscal year ended
December 31, 1998 and for the 9-month period ended September 30, 1999. There has
been no termination or cancellation of any relationship between the Company and
such customers.
3.16 Employment Agreements. Schedule 3.16 hereto contains the names, job
descriptions and annual salary rates and other compensation of all officers,
directors, employees and consultants of the Company whose annual compensation by
the Company exceeds $50,000. A list of all employee policies, employee manuals
or other written statements of rules or policies as to working conditions,
vacation and sick leave, and a complete copy of each has been made available to
Parent. Except as set forth on Schedule 3.16, there are no employment,
consulting, severance or indemnification arrangements, agreements or
understandings between the Company and any officer, director, consultant or
employee including, without limitation, any contracts to employ executive
officers, any severance, change in control or similar arrangements with any
officers, employees or agents of the Company that will result in any obligation
(absolute or contingent) of the Company to make any payment to any officer,
employee or agent of the Company following either the consummation of the
transactions contemplated hereby, termination of employment, or both.
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3.17 Employee Benefit Plans. Schedule 3.17 sets forth a complete list of each
"employee benefit plan," as such term is defined in Section 3(3) of ERISA
(hereinafter, the "Plans"), that is maintained or contributed to (or was
maintained or contributed to during the five calendar years preceding the
Closing Date) by the Company or any trade or business that, together with the
Company, would be deemed a "single employer" within the meaning of Section 4001
of ERISA. Each of the Plans has been operated in compliance with ERISA and the
Code, except where any non-compliance would not reasonably be expected to have a
Material Adverse Effect, and each of the Plans that is intended to be qualified
under Section 401(a) of the Code is so qualified. None of the Plans is subject
to Title IV or Section 302 of ERISA or Section 412 of the Code nor is any Plan a
"multiemployer plan" as such term is defined in Section 3(37) of ERISA. There
are no pending, or to the Company's Knowledge, threatened or anticipated, claims
(other than routine claims for benefits) by, on behalf of, or against any of the
Plans or any trusts related thereto.
3.18 Labor Matters.
(a) The Company is not a party to or otherwise bound by any collective
bargaining agreement or other labor union contract and currently there are no
organizational campaigns, petitions or other unionization activities seeking
recognition of a collective bargaining unit which could affect the Company;
(b) To the Company's Knowledge, there are no controversies, strikes,
slowdowns, work stoppages or labor disturbances pending or threatened between
the Company and any of its employees;
(c) There are no unfair labor practice complaints pending against the Company
before the National Labor Relations Board or any other Governmental Entity or
any current union representation questions involving employees of the Company;
(d) The Company is currently in material compliance with all applicable laws
relating to the employment of labor,
(e) To the Company's Knowledge, there is no charge or proceeding with respect
to a violation of any occupational safety or health standards that has been
asserted or is now pending or threatened with respect to the Company; and
(f) There is no charge of discrimination in employment or employment
practices, for any reason, including, without limitation, age, gender, race,
religion or other legally protected category, which has been asserted or is now
pending or threatened before the United States Equal Employment Opportunity
Commission, or any other Governmental Entity in any jurisdiction in which the
Company has employed or currently employs any person.
3.19 Contracts and Commitments. Schedule 3.19 hereto contains a complete and
accurate list of all contracts and agreements (including, without limitation,
oral and informal arrangements) of the following categories to which the Company
is a party or by which it is bound as of the date of this Agreement
(collectively, the "Material Contracts"):
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(a) material manufacturing, distribution, franchise, license, sales, agency or
advertising contracts;
(b) contracts involving payments to or by the Company in excess of $25,000 per
year which are not cancelable (without material penalty, cost or other
liability) within ninety (90) days, other than purchase orders made in the
ordinary course of business consistent with past practice;
(c) promissory notes, loans, agreements, indentures, evidences of indebtedness
or other instruments proving for the lending of money, whether as borrower,
lender or guarantor;
(d) contracts (other than Leases) containing covenants limiting the freedom of
the Company or Company Shareholder to engage in any line of business or compete
with any person or operate at any location;
(e) joint venture or partnership agreements or joint development or similar
agreements;
(f) agreements, contracts or other arrangements with any current or former
officer, director or employee of the Company or any affiliate of the Company;
(g) leases or similar agreements with any person under which (i) the Company
is lessee of, or holds or uses, any machinery, equipment, vehicle or other
tangible personal property owned by any person or (ii) the Company is a lessor
or sublessor of, or makes available for use by any person, any tangible personal
property owned or leased by the Company, in any such case which has an aggregate
future liability or receivable, as the case may be, in excess of $25,000 and is
not terminable by the Company by notice of not more than sixty (60) days for a
cost of less than $10,000;
(h) license, option or other agreements relating in whole or in part to the
Intellectual Property other than as set forth in Schedule 3.13(b) hereto;
(i) contracts or other instruments under which (i) any person has directly or
indirectly guaranteed indebtedness, liabilities or obligations of the Company or
(ii) the Company has directly or indirectly guaranteed indebtedness, liabilities
or obligations of any person (in each case other than endorsements for the
purpose of collection in the ordinary course of business);
(j) contracts or other instruments under which the Company has, directly or
indirectly, made any advance, loan, extension of credit or capital contribution
to, or other investment in, any person;
(k) mortgages, pledges, security agreements, deeds of trust or other
instruments granting a Lien or Encumbrance upon any property of the Company;
(l) agreements or instruments providing for indemnification of any person with
respect to liabilities relating to any current or former business of the
Company, or any predecessor entity;
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(m) contracts for the acquisition, sale or lease of any assets or capital
stock or other ownership interests outside the ordinary course of business or to
effect any merger of the Company; and
(n) any exclusive retainer agreement or arrangement with attorneys,
accountants, actuaries, appraisers, investment bankers or other professional
advisors.
The Company has provided Parent with complete copies of all written Material
Contracts and details of all oral Material Contracts.
3.20 Absence of Breaches or Defaults. The Company is not and, to the Knowledge
of the Company, no other party is, in default under, or in breach or violation
of, any Material Contract and, to the Knowledge of the Company, no event has
occurred which, with the giving of notice or passage of time or both would
constitute a default under any Material Contact, except where such breaches,
violations or defaults would not reasonably be expected to have a Material
Adverse Effect. Each Material Contract is valid, binding and enforceable
(subject to the effects of bankruptcy, insolvency, fraudulent conveyance,
reorganization, moratorium and other similar laws relating to or affecting
creditors' rights generally, general equitable principles (whether considered in
a proceeding in equity or at law)) and is in full force and effect, and assuming
all consents required by the terms thereof or applicable law have been obtained,
such Material Contracts will continue to be valid, binding and enforceable and
in full force and effect immediately following the consummation of the
transactions contemplated hereby, in each case. No event has occurred which
either entitles, or would, on notice or lapse of time or both, entitle the
holder of any indebtedness for borrowed money affecting the Company (except for
the execution or consummation of this Agreement) to accelerate, or which does
accelerate, the maturity of any indebtedness affecting the Company.
3.21 Insurance. Schedule 3.21 hereto sets forth a true and complete list of
all insurance policies providing insurance coverage of any nature to the
Company. Such policies are sufficient for compliance by the Company with all
requirements of law and all material agreements to which the Company is a party
or by which any of its assets are bound. All of such policies are in full force
and effect and are valid and enforceable in accordance with their terms, and the
Company has complied with all material terms and conditions of such policies,
including premium payments. None of the insurance carriers has indicated to the
Company an intention to cancel any such policy. Except as set forth in Schedule
3.21, the Company does not have any claim pending against any of the insurance
carriers under any of such policies.
3.22 Brokers. No broker, finder or investment banker has been retained or
engaged on behalf of the Company Shareholders or the Company, or is entitled to
any brokerage, finder's or other fee, compensation or commission from any such
Person in connection with the transactions contemplated by this Agreement.
3.23 Minute Books. The minute books of the Company made available to Parent
contain a complete and accurate summary of all meetings of Board of Directors,
all committees of the Board of Directors and shareholders or actions by written
consent since the time of incorporation of the Company through the date of this
Agreement, and reflect all transactions referred to in such minutes accurately.
All actions taken by the Company have been duly authorized, and no
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such actions have been taken in breach or violation of the Articles of
Incorporation, the by-laws or other organizational documents of the Company.
3.24 Representations Complete. All documents and papers delivered by or on
behalf of the Company Shareholders or the Company in connection with this
Agreement and the transactions contemplated hereby were prepared and delivered
in good faith by such Person and are complete and authentic in all respects.
Each Company Shareholder and the Company have complied in good faith with all
requests of Parent and its representatives for documents, papers and information
relating to the Company in connection with the transactions contemplated hereby,
and have not knowingly withheld any document, paper or other information
requested by the Parent or any of its representatives in connection herewith. No
representation or warranty by any Company Shareholder or the Company contained
in this Agreement (including the exhibits and schedules hereto and thereto)
contains any untrue statement of a fact or omits to state a fact required to be
stated therein or necessary to make the statements contained therein, in light
of the circumstances under which it was made, not false or misleading.
3.25 Potential Conflicts of Interest. Except as set forth on Schedule 3.25,
and except for the ownership of less than 1% of the outstanding stock of any
publicly-traded company, no officer, director or shareholder of the Company, and
no person directly or indirectly controlling or controlled by, or under the
direct or indirect control of, any of the foregoing persons:
(a) owns, directly or indirectly, any interest in, or is an officer, director,
employee or consultant of, any person which is a competitor, lessor, lessee,
customer or supplier of the Company;
(b) holds a beneficial interest in any contract or other agreement to which
the Company is a party or by which it is obligated or bound or to which any of
the Assets may be subject;
(c) owns, directly or indirectly, in whole or in part, any tangible or
intangible property (including, without limitation, any Intellectual Property)
which the Company is using or the use of which is necessary for the business of
the Company; or
(d) has any cause of action or other claim whatsoever against the Company.
All purchases and sales or other transactions, if any, between Company and any
such persons have been made on the basis of prevailing market rates and all such
transactions have been made on terms no less favorable to Company than those
which would have been available from unrelated third parties.
3.26 Customs. Company has acted with reasonable care to properly value and
classify, in accordance with applicable tariff laws, rules and regulations, all
goods that Company imports into the United States or exports out of the United
States into any other country (the "Goods"). To the Company's Knowledge, there
are currently no material claims pending against Company by the U.S. Customs
Service (or other foreign customs authorities) relating to the valuation,
classification or marketing of the Goods.
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3.27 Insolvency. Neither the Company nor any of the Company Shareholders are
insolvent, have committed an act of bankruptcy, proposed a compromise or
arrangement of their creditors generally, had any petition or receiving order in
bankruptcy filed against them, taken any proceedings with respect to a
compromise or arrangement or to have a receiver appointed over any part of their
assets, had an encumbrancer take possession of any property, nor had an
execution or distress become enforceable or levied upon any of their property.
3.28 Qualification. No officer or director of Company is subject to any of the
disqualification provisions of Rule 505(b)(iii) of the rules and regulations of
the Securities and Exchange Commission under the Securities Act.
3.29 Investments. Schedule 3.29 hereto contains a true and complete list of
all securities and other investments (including, without limitation, short-term
investments) owned by the Company as of the end of the most recent calendar
month, including the date of purchase, book value, market value and carrying
value thereof on the books and records of account of the Company as of such
date. None of the securities and other investments owned by the Company is in
default in the payment of principal or interest or dividends.
3.30 Restrictions on Business Activities. Except as set forth in Schedule
3.30, or as otherwise set forth in this Agreement, there is no agreement
(noncompete or otherwise), commitment, judgment, injunction, order or decree to
which either the Company, or any Company Shareholder is a party or otherwise
binding upon the Company, or any Company Shareholder which has or reasonably
could be expected to have the effect of prohibiting or impairing any business
practice of the Company, the Surviving Corporation, or Parent, any acquisition
of property (tangible or intangible) by the Company, the Surviving Corporation,
or Parent or the conduct of business by the Company, the Surviving Corporation,
or Parent.
3.31 Transfer Restrictions. The Company Shareholders are acquiring Parent
Stock for their own account and not with a view to the distribution or resale
thereof in any transaction not exempt from the registration requirements of the
Securities Act and applicable state securities laws. The Company Shareholders
acknowledge that Parent Stock is subject to transfer restrictions imposed by the
Securities Act and state securities law. The Company Shareholders recognize that
they will not be able to transfer Parent Stock unless any such security is
registered under the Securities Act or resold pursuant to an exemption under
applicable securities laws.
3.32 Xxxx-Xxxxx-Xxxxxx Act. Xxxxxx Xxxxxxxx and Xxxxx X. Xxxxxx are each the
"ultimate parent entities" of the Company for purposes of the Xxxx-Xxxxx-Xxxxxx
Antitrust Improvements Act of 1976, as amended (the "HSR Act"). Neither Xxxxxx
Xxxxxxxx nor Xxxxx X. Xxxxxx has total assets or net sales of $100,000,000 or
more for purposes of the HSR Act.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
OF PARENT AND MERGER SUB
Parent and Merger Sub hereby jointly and severally make the following
representations and warranties to the Company and the Company Shareholders.
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4.1 Corporate Organization. Parent is a corporation duly organized, validly
existing and in good standing under the laws the State of Delaware and Merger
Sub is a corporation duly organized, validly existing and in good standing under
the laws of the State of Maryland. Parent and Merger Sub have the corporate
power and authority to own or lease their respective properties and assets and
to carry on their respective businesses as they are now being conducted, and are
duly qualified to do business in each jurisdiction in which the nature of the
business conducted by them or the character or location of the properties and
assets owned or leased by them makes such qualification necessary, except where
the failure to be so qualified would not individually or in the aggregate have a
Material Adverse Effect.
4.2 Authority; No Violation.
(a) Each of Parent and Merger Sub has the requisite corporate power and
authority to execute and deliver this Agreement, to perform its obligations
hereunder and to consummate the transactions contemplated hereby. The Board of
Directors of Parent has, or no later than December 17, 1999 will have, (i)
approved this Agreement and the Merger and all transactions contemplated hereby,
(ii) determined that the Merger is in the best interests of the shareholders of
Parent and is on terms that are fair to such shareholders and (iii) determined
that this Agreement is advisable and recommended that the shareholders of
Parent, if required by law, approve this Agreement and consummation of the
Merger. The Board of Directors and the shareholder of Merger Sub have approved
this Agreement and the Merger and all transactions contemplated hereby. No other
corporate proceedings on the part of Parent or Merger Sub is necessary to
approve this Agreement and to consummate the transactions contemplated hereby.
This Agreement and all other agreements and documents to be entered into in
connection herewith have been duly and validly executed and delivered by Parent
and Merger Sub and (assuming due authorization, execution and delivery by the
Company and the Company Shareholders) constitute valid and binding obligations
of Parent and Merger Sub, enforceable against each of them, except as
enforcement may be limited by general principles of equity whether applied in a
court of law or a court of equity and by bankruptcy, insolvency and similar laws
affecting creditors' rights and remedies generally.
(b) Neither the execution and delivery of this Agreement by Parent and Merger
Sub, nor the consummation by Parent and Merger Sub of the transactions
contemplated hereby, nor compliance by Parent and Merger Sub with any of the
terms or provisions hereof, will (i) violate any provision of the Articles of
Incorporation or Bylaws of Parent or Merger Sub, (ii) violate any material
statute, code, ordinance, rule, regulation, judgment, order, writ, decree or
injunction applicable to Parent or Merger Sub or any of their respective
properties or assets, or (iii) violate, conflict with, result in a breach of any
provision of or the loss of any benefit under, constitute a default (or an event
which, with notice or lapse of time, or both, would constitute a default) under,
result in the termination of or a right of termination or cancellation under,
accelerate the performance required by, or result in any Lien or Encumbrance
upon any of the properties or assets of Parent or Merger Sub under, any of the
terms, conditions or provisions of any material note, bond, mortgage, indenture,
deed of trust, license, lease, agreement or other instrument or obligation to
which Parent or Merger Sub is a party, or by which either of them or any of
their respective properties or assets may be bound or affected.
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4.3 Capitalization of Parent and Merger Sub
(a) As of the date of this Agreement, the authorized capital stock of Parent
consists solely of 300,000,000 shares of Parent Stock and 20,000,000 shares of
preferred stock. The number of shares of Parent Stock issued and outstanding as
of November 26, 1999 was 45,623,078 (unaudited). The number of shares of Parent
Stock on a "fully-diluted" basis, giving effect to shares issuable pursuant to
convertible debt, warrants, options, and convertible equity, was 63,704,105
(unaudited) as of November 26, 1999. Certain shares of Parent Stock have been
issued but not paid for, underlying certain convertible debt financing, which
Parent does not consider to be fully paid and non-assessable until conversion or
exercise of the outstanding security. Each outstanding share of Parent Stock is,
and all shares of Parent Stock to be issued in connection with the Merger will
be, duly authorized and validly issued, fully paid and nonassessable, and each
outstanding share of Parent Stock has not been, and all shares of Parent Stock
to be issued in connection with the Merger will not be, issued in violation of
any preemptive or similar rights or any applicable securities laws.
(b) Merger Sub's authorized capital stock consists solely of 1,500 shares of
common stock, par value $.01 per share ("Merger Sub Common Stock"), of which, as
of the date hereof, 100 shares are issued and outstanding and none are reserved
for issuance. As of the date hereof, all of the outstanding shares of Merger Sub
Common Stock are owned free and clear of any Claims, Liens, or Encumbrances by
Parent.
(c) Parent is the sole record and beneficial owner of all the outstanding
securities of each of its subsidiaries. There are no outstanding subscriptions,
options, warrants, calls, commitments, agreements, or obligations of any
character calling for the purchase, redemption or issuance of any equity
securities of any subsidiary, nor are there outstanding any securities which are
convertible into or exchangeable for any equity securities of any subsidiary,
and neither Parent nor any subsidiary has any obligation of any kind to issue
any additional securities or to pay for or repurchase any securities of any
subsidiaries or their predecessors.
4.4 Consents and Approvals. Neither the execution and delivery of this
Agreement by Parent or Merger Sub nor the consummation of the transactions
contemplated hereby will require any action or consent or approval of, or review
by, or registration or filing by Parent or any of its affiliates with, any third
party or any Governmental Entity, other than (i) registrations or other actions
required under federal and state securities laws, (ii) filing of the Agreement
of Merger with the Secretary of State for the State of Maryland, and (iii) those
which would not, individually or in the aggregate, reasonably be expected to
have a Material Adverse Effect on Parent and its subsidiaries taken as a whole
or a Material Adverse Effect on the ability of the parties to consummate the
transactions contemplated hereby.
4.5 Financial Statements and SEC Documents. Since January 6, 1999, Parent has
filed all reports, schedules, forms, statements and other documents required to
be filed by it with the SEC pursuant to the reporting requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act") (all of the
foregoing and all exhibits included therein and financial statements and
schedules thereto and documents incorporated by reference therein, with
amendments read together with underlying documents, are referred to herein as
the "SEC Documents"). As of their respective dates, the SEC Documents complied
in all material respects with the
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requirements of the Exchange Act and the rules and regulations of the SEC
promulgated thereunder applicable to the SEC Documents, and none of the SEC
Documents, at the time they were filed with the SEC, contained any untrue
statement of a material fact or omitted 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. As of their
respective dates, the financial statements of Parent included in the SEC
Documents complied as to form in all material respects with applicable
accounting requirements and the published rules and regulations of the SEC with
respect thereto. Such financial statements have been prepared in accordance with
GAAP, consistently applied, during the periods involved and fairly and
accurately present in all material respects the consolidated financial position
of Parent and its consolidated subsidiaries as of the dates thereof and the
consolidated results of their operations and cash flows for the periods then
ended (subject, in the case of unaudited statements, to normal year-end audit
adjustments). Except as disclosed in such financial statements, Parent is not a
guarantor or indemnitor of any indebtedness of any other person, firm or
corporation.
4.6 Legal Proceedings. Except as disclosed in the Form 10-Q filed on November
19, 1999, and a general letter to the Application Service Provider ("ASP")
industry as a whole dated July 13, 1999, claiming that the business of the ASP
consortium may conflict with United States Patent #5,775,995 issued July 7,
1998, a copy of which has been delivered to the Company, there are no legal
actions, suits, arbitrations or other legal, administrative or governmental
proceedings or investigations pending or, to the knowledge of Parent, threatened
against Parent or any subsidiary or their properties, assets or business in
which an unfavorable outcome, ruling or finding would have a Material Adverse
Effect, and Parent is not aware of any facts which might result in or form the
basis for any such action, suit or other proceeding or which would challenge the
validity or propriety of the transactions contemplated by this Agreement.
Neither Parent nor any subsidiary is in default with respect to any judgment,
order or decree of any court or any governmental agency or instrumentality which
would have a Material Adverse Effect.
4.7 Representations Complete. None of the representations or warranties made
by Parent or Merger Sub herein or in any Schedule hereto, or certificate
furnished by the Parent pursuant to this Agreement, when all such documents are
read together in their entirety, 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.
4.8 Xxxx-Xxxxx-Xxxxxx Act. The Parent is its own "ultimate parent entity" for
purposes of the HSR Act. The Parent does not have total assets or net sales of
$100,000,000 or more for purposes of the HSR Act.
ARTICLE V
COVENANTS RELATING TO CONDUCT OF BUSINESS
5.1 Covenants of the Company. During the period from the date of this
Agreement and continuing until the Effective Time, except as expressly
contemplated or permitted by this Agreement or with the written consent of
Parent, the Company shall carry on its business in the
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ordinary course consistent with past practice. Without limiting the generality
of the foregoing, and except as previously disclosed by the Company to Parent in
writing or as otherwise contemplated by this Agreement or consented to in
writing by Parent, the Company shall not, and the Company Shareholders shall not
permit the Company to:
(a) declare or pay any dividends on, or make other distributions in respect
of, any shares of Company Stock; provided, however, that on the day immediately
prior to the Closing Date, the Company may distribute cash to the Company
Shareholders to the extent such distribution does not cause Shareholders Equity
as of the Closing Date to be less than $0, and provided that the Company gives
notice to the Parent on the day such distribution is made of the amount of such
distribution, and provided, further, that the Company may make distributions of
cash to the Company Shareholders to enable the Company Shareholders to make
federal income tax payments, to the extent any such distributions are permitted
by law.
(b) (i) repurchase, redeem or otherwise acquire any shares of Company Stock,
or any securities convertible into or exercisable for any shares of Company
Stock, (ii) split, combine or reclassify any shares of Company Stock or issue or
authorize or propose the issuance of any other securities in respect of, in lieu
of or in substitution for shares of Company Stock, or (iii) issue, deliver or
sell, or authorize or propose the issuance, delivery or sale of, any shares of
its capital stock or any securities convertible into or exercisable for, or any
rights, warrants or options to acquire, any such shares;
(c) amend its Articles of Incorporation or Bylaws;
(d) make any capital expenditures in excess of $15,000 other than those which
are made in the ordinary course of business or are necessary to maintain
existing assets in good repair, and except for capital expenditures to build out
space at 00000 Xxxxxxxxx Xxxxxx, Xxxxxxxxxx, Xxxxxxxx, which expenditures shall
be pursuant to a budget previously supplied to Parent and shall not exceed, in
the aggregate, $250,000.
(e) enter into any new line of business, except as contemplated hereby;
(f) acquire or agree to acquire, by merging or consolidating with, or by
purchasing a substantial equity interest in or a substantial portion of the
assets of, or by any other manner, any business or any corporation, partnership,
association or other business organization or division thereof or otherwise
acquire any assets, which would be material, individually or in the aggregate,
to the Company;
(g) adopt a plan of complete or partial liquidation, dissolution,
rehabilitation, restructuring, recapitalization, redomestication or other
reorganization, sell, transfer, lease, assign or otherwise dispose of any asset
or properties of the Company, except in the ordinary course of business;
(h) make any tax election or settle or compromise any federal, state, local or
foreign income Tax Liability either not in accordance with past practice, or
which could have a material
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adverse effect on the business, operations, condition (financial or otherwise),
prospects, assets or properties of the Company;
(i) purchase or sell securities or other investments, or invest or reinvest
income and proceeds in respect thereof, other than in the ordinary course of
business consistent with past practice;
(j) take any action that is intended or may reasonably be expected to result
in any of its representations and warranties set forth in this Agreement being
or becoming untrue, or in any of the conditions to the Merger not being
satisfied;
(k) make a material change in its methods of accounting in effect at December
31,1998, except as required by GAAP or as concurred with by the Company's
independent auditors;
(l) (i) except as required by applicable law or as required to maintain
qualification pursuant to the Code, adopt, amend, or terminate any employee
benefit plan or any agreement, arrangement, plan or policy between the Company
and one or more of its current or former directors, officers or employees, or
(ii) except for normal increases in the ordinary course of business consistent
with past practice or except as required by applicable law, increase in any
manner the compensation or fringe benefits of any director, officer or employee;
(m) other than activities in the ordinary course of business consistent with
past practice, sell, lease, encumber, assign or otherwise dispose of, or agree
to sell, lease, encumber, assign or otherwise dispose of, any of its material
assets, properties or other rights or agreements;
(n) other than in the ordinary course of business consistent with past
practice, incur any indebtedness for borrowed money or assume, guarantee,
endorse or otherwise as an accommodation become responsible for the obligations
of any other individual, corporation or other entity;
(o) other than agreements in the ordinary course of business that do not
require payments by the Company in excess of $50,000 per year per individual
agreement or an aggregate of $150,000 per year for all such agreements, create,
renew, amend or terminate or give notice of a proposed renewal, amendment or
termination of, any material contract, agreement or lease for goods, services or
office space to which the Company is a party or by which the Company or its
properties are bound; or
(p) agree to do any of the foregoing.
5.2 Filings. The Company Shareholders agree to make all filings necessary
under Section 13(d) of the Exchange Act in a timely manner as required by law,
and will, prior to closing, cause the Company to deliver, at the Company
Shareholder's expense, audit working papers to allow preparation of audited
financial statements for the periods ended December 31, 1996, 1997 and 1998,
accompanied by the report of Ernst & Young.
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ARTICLE VI
ADDITIONAL AGREEMENTS
6.1 Access to Information.
(a) The Company shall provide Parent and their respective officers, employees,
accountants, counsel and other representatives, access, during normal business
hours during the period prior to the Effective Time, to all its properties,
books, contracts, commitments, records, customers, suppliers, officers,
employees, accountants, counsel and other representatives and, during such
period.
(b) Each party hereto agrees to, and shall cause its employees, agents,
directors, advisors and representatives to, (i) treat and hold as confidential
and not disclose to any Person for any purpose or reason whatsoever information
relating to trade secrets, processes, know-how, patent or trademark
applications, product development, price, customer and supplier lists, pricing
and marketing plans, policies and strategies, operations, methods, business
development techniques, business acquisition plans, new personnel acquisition
plans and other confidential information with respect to the business of the
Company on the one hand, and Parent on the other hand, (ii) in the event that
any party or any of such party's employees, agents, advisors, directors or
representatives becomes legally compelled to disclose any such information,
provide the other parties with prompt written notice of such requirement so that
such parties may seek a protective order or other remedy or waive compliance
with this Section 6.1(b), and (iii) in the event that such protective order or
other remedy is not obtained, or the party in question waives compliance with
this Section 6.1(b), furnish only that portion of such confidential information
which is legally required to be provided and exercise its best efforts to obtain
assurances that confidential treatment will be accorded such information;
provided, however, that this Section 6.1 shall not apply to any information
that, at the time of disclosure, is available publicly and was not disclosed in
breach of this Agreement. The parties agree and acknowledge that remedies at law
for any breach of their obligations under this Section 6.1 would be inadequate
and that in addition thereto the non-breaching parties shall be entitled to seek
equitable relief, including injunction and specific performance, in the event of
any such breach, without the necessity of demonstrating the inadequacy of money
damages.
6.2 Public Disclosure. Unless otherwise permitted by this Agreement, Parent
and the Company shall consult with each other before issuing any press release
or otherwise making any public statement or making any other non-confidential
disclosure (whether or not in response to an inquiry) regarding the existence or
terms of this Agreement or the transactions contemplated hereby, and neither
shall issue any such press release or make any such statement or disclosure
without the prior approval of the other (which approval shall not be
unreasonably withheld), except as may be required by law. In addition, without
the written approval of the Company and the Parent, no Company Shareholder shall
issue any public statement or make any other non-confidential disclosure
regarding the existence or terms of this Agreement or transactions contemplated
hereby.
6.3 Compliance with Securities Laws. Parent shall take such steps as may be
necessary to comply with the securities and blue sky laws of all jurisdictions
which are applicable to the issuance of Parent Stock in connection with the
Merger.
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6.4 Solicitation. Prior to the Closing Date, the Company and each Company
Shareholder shall not, directly or indirectly, in any way solicit, initiate
contact with, or enter into or conduct any discussions or negotiations, or enter
into any agreements, whether written or oral, with any other Person, with
respect to the sale of the stock or assets or the merger or other business
combination of the Company with any other Person. The Company and each Company
Shareholder shall, if it is the recipient of such an offer, immediately notify
Parent of such event and the details of such offer.
6.5 Best Efforts and Further Assurances. Each of the parties to this
Agreement shall use its best efforts to effectuate the transactions contemplated
hereby and to fulfill and cause to be fulfilled the conditions to Closing under
this Agreement. Each party hereto, at the reasonable request of another party
hereto, shall execute and deliver such other instruments and do and perform such
other acts and things as may be necessary or desirable for effecting completely
the consummation of this Agreement and the transactions contemplated hereby. The
parties hereto agree that, subsequent to the Effective Time, they will at the
request of the other party, execute and deliver such additional conveyances,
transfers and other assurances as, in the opinion of such party's counsel, are
reasonably required to carry out the intent of this Agreement. Each Company
Shareholder agrees to take all steps reasonably required by Parent to assist
Parent in retaining the goodwill of the Company and in particular to retain all
Company employees with Parent.
6.6 Notification of Certain Matters. Each Company Shareholder and Parent
shall give prompt notice to the other of (a) the occurrence or nonoccurrence of
any event which would be reasonably likely to cause any representation or
warranty of any Company Shareholder or the Company, on the one hand, or Parent
or Merger Sub, on the other hand, contained in this Agreement to be untrue or
inaccurate in any material respect (or, in the case of any representation or
warranty which is qualified as to materiality, untrue or inaccurate in any
respect) at or prior to the Effective Time or (b) any material failure of any
Company Shareholder or the Company on the one hand, or Parent or Merger Sub, on
the other hand, to comply with or satisfy any covenant, condition or agreement
to be complied with or satisfied by it hereunder; provided, however, that the
delivery of any notice pursuant to this Section 6.6 shall not cure such failure
or limit or otherwise affect the remedies available hereunder to the parties
receiving such notice. Any notice given pursuant to this Section 6.6 shall be
written notice with sufficient specificity to allow for identification of the
issue on the part of the Company Shareholders or the Parent, as applicable, and
shall be sent by facsimile or by overnight delivery. Without limiting the
generality of the foregoing, from the date hereof through the Closing Date, each
Company Shareholder and Parent shall promptly notify the other parties of any
action, suit, claim, arbitration, or other legal, administrative or governmental
proceeding or investigation that is commenced or, to his or its or their
knowledge, threatened, and of any request for additional information or
documentary materials by any Governmental Entity in connection with the
transactions contemplated hereby.
6.7 Noncompetition; Confidential Information.
(a) To protect the trade secrets, confidential information and good will of
the Company, and as a specific material inducement to Parent to enter into this
Agreement and purchase the Company Stock contemplated hereby (which the Company
Shareholders
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acknowledge is conditioned on the noncompete contained herein), at all times
during the period from the date hereof until two (2) years after the termination
or expiration of the employment agreement between such Company Shareholder and
the Parent (the "Restricted Period") and within each county in the State of
Maryland and each other state in which the Company is doing business on the date
hereof and on the date such Company Shareholder's employment with the Company
terminates, such Company Shareholder shall not:
(i) directly or indirectly, in any capacity, solicit for employment,
identify to third parties, or negotiate for the services of, any persons
receiving wage compensation of any type (whether as an employee, consultant, or
independent contractor), whether currently or at any time within the past
eighteen months from the date of the relevant action, from the Company or
Parent;
(ii) directly or indirectly, in any capacity accept for employment or
contract for the services of, any persons receiving compensation of any type,
whether currently or at any time within the past eighteen months from the date
of the relevant action, from the Company or Parent;
(iii) directly or indirectly, in any capacity assist, whether for pay or
otherwise, any Person to do that which such Person could not do directly under
subparagraphs (i) and/or (ii) above;
(iv) directly or indirectly, in any capacity engage, whether for pay or
otherwise, in the same business, or any business similar to, or competitive
with, the business conducted or intended to be conducted by the Company or
Parent; and
(v) directly or indirectly, in any capacity assist, whether for pay or
otherwise, other than the Parent, or any of their affiliates, any Person to
engage in the same business, or any business similar to or competitive with, the
business conducted or intended to be conducted by the Company or Parent;
(vi) directly, or indirectly, call upon, solicit or attempt to solicit, or
be interested in or connected, either directly or indirectly, with any business
operation that calls upon, solicits or attempts to solicit any customer or
prospective customer of the Parent, or any of their affiliates, anywhere in
Maryland or anywhere within a fifty (50) mile radius of any city or municipality
in any other state where the Parent actively provides work or services for
customers at the time that the Company Shareholder's employment terminates; and
(vii) directly or indirectly, contact any of the Parent's clients or
suppliers anywhere in Maryland and anywhere within a fifty (50) mile radius of
any city or municipality in another state where the Parent actively provides
work or services for customers at the time of the said termination of the
Company Shareholder's employment which Company Shareholder contacted, served or
developed on behalf of the Company or Parent or their affiliated companies
during the Company Shareholder's employment with the purpose or intent of
competing with the Parent or its affiliates.
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The parties acknowledge that the continued involvement by the Company
Shareholders as officers, directors, and shareholders of Tricerat, Inc. shall
not be deemed a breach of this Section 6.7(a) so long as Tricerat, Inc.
continues to engage in substantially the same operations as it is currently
engaged in.
(b) At all times during the Restricted Period, each Company Shareholder shall
not disclose or reveal to any Person (other than directors, officers and
authorized employees and representatives of Parent and its subsidiaries) or use
for any purpose not contemplated by this Agreement any Intellectual Property,
including without limitation, computer software, technology, data, customer
lists, know-how, documents, processes, pricing and marketing plans, policies and
strategies, operations, methods, business development techniques, business and
personnel acquisition plans or other confidential or trade secret information
relating to the business, operations or activities of Parent, including the
Company (except and only to the extent that such information is readily
ascertainable from public or published information or trade sources, or upon
advice of counsel, is required to be disclosed in order to comply with
applicable law or regulatory authority, or an order of a court of competent
jurisdiction, and such employee notifies Parent prior to making such
disclosure).
ARTICLE VII
CONDITIONS PRECEDENT
The obligations of the Company Shareholders to surrender the Company Stock
to Parent and of the Company to close the Merger shall be subject to the
satisfaction or waiver of the following conditions at or prior to Closing.
7.1 Conditions to Obligations of Parent and Merger Sub. The obligation of
Parent and Merger Sub to effect the Merger is subject to the satisfaction or
waiver by Parent and Merger Sub at or prior to the Effective Time of the
following conditions:
(a) REPRESENTATIONS AND WARRANTIES. The representations and warranties of the
Company and the Company Shareholders set forth in this Agreement shall be true
and correct (without regard to any materiality qualification or limitation
contained therein) as of the date of this Agreement and as of the Closing Date
as though made on and as of the Closing Date, except for any inaccuracies which,
taken in the aggregate, would not reasonably be expected to have a Material
Adverse Effect. Parent shall have received a certificate to that effect signed
by the Company by its Chief Executive Officer and Chief Financial Officer and by
each of the Company Shareholders.
(b) PERFORMANCE OF OBLIGATIONS OF THE COMPANY. The Company and the Company
Shareholders shall have performed, in all material respects, all obligations
required to be performed by them under this Agreement at or prior to the Closing
Date, and Parent shall have received a certificate signed on behalf of the
Company by its Chief Executive Officer and Chief Financial Officer to that
effect.
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(c) THIRD PARTY CONSENTS. Parent shall have been furnished with evidence
satisfactory to it of the consent or approval of those persons whose consent or
approval shall be required in connection with the Merger.
(d) EMPLOYMENT AGREEMENTS AND RETENTION. XXXXXX XXXXXXXX, and XXXXX X. XXXXXX
("Key Employees") shall have entered into employment agreements with the
Surviving Corporation in form and substance mutually satisfactory to the Company
Shareholders and the Surviving Corporation, and lock-up agreements with the
Parent substantially in the form of Exhibit A . Eighty percent (80%) of the
Company's employees and regularly retained consultants have entered into
employment agreements with the Company substantially in the form of Exhibit B.
Each of the Key Employees shall receive a minimum salary of $140,000
per annum and bonus potentials of a minimum of $25,000.00 per quarter through a
bonus plan that with reasonable effort and goals will allow them to reach and
obtain those bonuses. One of the Key Employees will be appointed to the position
of Regional Director and the other will be appointed to the position of Area
Director.
The Key Employees' compensation packages, at a minimum, will also
contain stock options and the ordinary and customary benefits and perquisites
for Parent`s Regional Directors.
The employment agreements with the Parent or Acquisition Sub shall
provide base compensation, benefits and perquisites substantially equivalent to
those currently in place for the other employees of the Company.
(e) LEGAL OPINION. The Company shall have caused a legal opinion from XxXxxxx,
Xxxxx, Xxxxxxxx & Xxx, P.A., counsel to the Company and the Company
Shareholders, in a form satisfactory to Parent, in its sole discretion, to be
delivered to Parent. Such opinion will include an opinion to the effect that
upon consummation of the Merger as contemplated hereby Parent will acquire good
and valid title in and to Company Stock.
(f) FINANCING. Parent shall have obtained financing for the transactions
contemplated hereby on terms satisfactory to Parent.
(g) CERTIFICATES. The Company Shareholders and the Company shall have executed
and delivered to the Parent (or shall have caused to be executed and delivered
to the Parent by the appropriate persons) the following:
(i) A certified copy of the resolutions adopted by the Board of Directors
of the Company authorizing and approving this Agreement and each of the
transactions contemplated hereby;
(ii) A copy of the Company's current corporate charter certified as of a
recent date by the appropriate Secretary of State;
(iii) A copy of the current Bylaws of the Company certified, by the
secretary of the Company;
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(iv) A certificate issued as of a recent date by the Secretary of State of
the State of Maryland certifying that the Company is in good standing;
(h) CLOSING DELIVERIES. In addition to any other instruments and documents
required to be delivered by the Company and the Company Shareholders pursuant to
this Agreement, the Company and the Company Shareholders shall have delivered to
Parent on or before the Closing Date such certificates, instruments and
documentation as are reasonably required in the opinion of Parent's counsel to
complete the transactions contemplated herein.
(i) FINANCIAL STATEMENTS. Ernst & Young shall have delivered to Parent, with
the co-operation of Sturn, Wagner, Sacclaris, & Xxxxxxxx in preparing audit
working papers, audited balance sheets as of December 31, 1996, 1997 and 1998
and the related statements of income, cash flows and retained earnings as of and
for the 12-month periods ended December 31, 1996, 1997 and 1998, and an
unaudited balance sheet as of September 30, 1999 and the related unaudited
statements of income, cash flows, and retained earnings as of and for the
9-month period ended September 30, 1999, the results of all of which financial
statements shall be satisfactory to the Parent in its sole discretion.
(j) DUE DILIGENCE. The Company shall have allowed Parent and its
representatives access to all internal documents including (a) financial
statements for the preceding five years, (b) back-up current and historical
financial records (c) material contracts (d) employee agreements (e) customer
lists and any other information requested by Parent or its representatives in
order to assist it in its due diligence. Parent shall have been satisfied in its
sole discretion with its review of due diligence materials supplied, either
prior to or subsequent to the date hereof, to Parent by Company and the Company
Shareholders. Without limiting the foregoing, Parent shall be satisfied that the
systems, software and hardware used or interfaced by or with the Company are
"Year 2000 compliant."
(k) SHARE CERTIFICATES. The Company Shareholders shall have delivered to the
Parent certificates representing the outstanding shares of Company Stock being
purchased on such Closing Date duly endorsed by the Company Shareholders
transferring title to Company Stock to Parent or accompanied by appropriate
stock powers duly executed in blank necessary to transfer title to such shares
to Parent.
(l) GOVERNMENTAL APPROVAL. All approvals, waivers and consents from each
Governmental Entity necessary for consummation of or in connection with the
Merger and the several transactions contemplated hereby shall have been
obtained.
7.2 Conditions to the Obligations of Company and Company Shareholder. The
obligation of the Company to effect the Merger is also subject to the
satisfaction or waiver by the Company at or prior to the Effective Time of the
following conditions:
(a) REPRESENTATIONS AND WARRANTIES. The representations and warranties of
Parent and Merger Sub set forth in this Agreement shall be true and correct
(without regard to any materiality qualification or limitation contained
therein) as of the date of this Agreement and as of the Closing Date as though
made on and as of the Closing Date, except for any inaccuracies which, taken in
the aggregate, would not reasonably be expected to have a Material Adverse
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Effect. The Company shall have received a certificate signed (i) on behalf of
Parent by its Chief Executive Officer and Chief Financial Officer and (ii) on
behalf of Merger Sub by its President , in each case to the foregoing effect.
(b) PERFORMANCE OF OBLIGATIONS OF PARENT AND MERGER SUB. Parent and Merger Sub
shall have performed, in all material respects, all obligations required to be
performed by them under this Agreement at or prior to the Closing Date, and the
Company shall have received a certificate signed (i) on behalf of Parent by its
Chief Executive Officer and Chief Financial Officer and (ii) on behalf of Merger
Sub by its President, in each case to such effect.
(c) MINIMUM PARENT STOCK SHARE PRICE. Parent Stock price on the date of
closing shall not have fallen to such a level so as to cause the Stock
Consideration to not qualify for the tax treatment contemplated by Section
368(a)(2)(D) of the Code.
(d) GOVERNMENTAL APPROVAL. All approvals, waivers and consents from each
Governmental Entity necessary for consummation of or in connection with the
Merger and the several transactions contemplated hereby shall have been
obtained.
(e) CLOSING DELIVERIES. In addition to any other instruments and documents
required to be delivered by the Parent and Merger Sub pursuant to this
Agreement, the Parent and Merger Sub shall have delivered to the Company on or
before the Closing Date such certificates, instruments and documentation as are
reasonably required in the opinion of the Company's counsel to complete the
transactions contemplated herein.
ARTICLE VIII
TERMINATION AND AMENDMENT
8.1 Termination. This Agreement may be terminated at any time prior to the
Effective Time, whether before or after approval by the shareholders of the
Company of the matters presented in connection with the Merger:
(a) by mutual consent of the Company, Parent and Merger Sub in a written
instrument, if the Board of Directors of each so determines by a vote of a
majority of the members of its entire Board;
(b) by either Parent on the one hand or the Company and the Company
Shareholders on the other hand if there shall have been a material breach of any
of the representations, warranties or covenants set forth in this Agreement on
the part of the other party, which breach is not cured within thirty (30) days
following written notice to the party committing such breach, or which breach,
by its nature, cannot be cured prior to the Closing; or
(c) by either Parent on the one hand or the Company or the Company
Shareholders on the other hand if the Effective Time has not occurred by June
30, 2000, provided that a party then in material breach of its representations,
warranties, or covenants in this Agreement may not terminate this Agreement
pursuant to this Section 8.1(c).
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8.2 Effect of Termination. In the event of termination of this Agreement by
either Parent on the one hand or the Company and the Company Shareholders on the
other hand as provided in Section 8.1, this Agreement shall forthwith become
void and have no effect except that Sections 2.5, 6.3(b), 6.4 and 11.3 shall
survive any termination of this Agreement and notwithstanding anything to the
contrary contained in this Agreement, no party shall be relieved or released
from any liabilities or damages arising out of its willful breach of any
provision of this Agreement. Except as provided in the last sentence of this
Section 8.2, the Company Shareholders shall promptly cause XxXxxxx, Xxxxx,
Xxxxxxxx & Xxx, P.A. (the "Escrow Agent") to return the Deposit to Parent. Each
of the parties acknowledges that the other parties to this Agreement will be
expending resources and time and as a result will be foregoing other potential
transactions during the period from the date hereof until the Closing Date. The
parties hereto have therefore agreed a fee of Two Hundred and Fifty Thousand
Dollars ($250,000) (the "Break-up Fee") will be payable:
(a) jointly and severally by the Company and the Company Shareholders to the
Parent within 48 hours of (i) an event in which the Company or any of the
Company Shareholders directly or indirectly accepts any offer or enters into any
agreement with any other party with respect to any merger, sale or other
disposition of all or any part of the Company Stock or the business or assets of
the Company prior to the Closing, or solicits, initiates, entertains or
encourages inquiries, submissions, discussions, proposals or offers from any
other person for the merger, sale or other disposition of all or any part of the
Company Stock or the business or assets of the Company prior to the Closing; or
(ii) the termination of this Agreement pursuant to Section 8.1(b) as a result of
a breach by the Company or the Company Shareholders; or
(b) jointly and severally by Merger Sub and Parent to the Company within 48
hours of the termination of this Agreement pursuant to Section 8.1(b) as a
result of a breach by Merger Sub or Parent.
In the event the Break-up Fee is payable to the Company, the parties
shall direct the Escrow Agent to pay the Break-up Fee to the Company from the
Deposit and release the remainder of the Deposit to Parent pursuant to Section
2.5.
8.3 Escrow Agent.
(a) It is agreed that the Escrow Agent is not a party and shall not be bound
by the agreements herein contained between the Parties hereto, and that the
Escrow Agent shall act as a depository only, and shall not be required to take
notice of any default or breach of warranty or covenant in this Agreement, or
under any contract between the parties, unless notified in writing pursuant to
the notice requirements of this Agreement. Escrow Agent shall only be liable for
its own willful and gross negligence or misconduct. The Parties agree to hold
the Escrow Agent harmless and indemnify it from all loss, damage or liability
arising out of its service as escrow agent. Should any party institute legal
action against the Escrow Agent where such action is determined, by the court
wherein such action is filed (or any other court of competent jurisdiction), in
favor of the Escrow Agent, then and in that event, the Escrow Agent shall be
entitled to compensation at its or their normal hourly rates and recovery of its
reasonable attorneys' fees and other costs of defending such action, including,
but not limited to, its compensation and costs of reviewing, investigating and
responding to any written or verbal threats of such action as well as all other
compensation and reasonable attorneys' fees incurred at
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the preliminary stages leading up to the filing of such action, and any
successful appeals of any adverse rulings or decisions.
(b) In the event of any disagreement between the parties resulting in adverse
demands being made in connection with the deposits in escrow, the Escrow Agent
shall be entitled, at its option, to refuse to comply with any such claim or
demand so long as the disagreement shall continue, and in so doing, the Escrow
Agent shall not be liable in any way to any person for its failure or refusal to
comply with conflicting or adverse claims until the rights of the claimants have
been fully adjudicated or the differences adjusted between the parties, and the
Escrow Agent shall have been notified thereof, in writing, signed by all parties
interested.
(c) In the event differences between the parties have not been adjusted and
the Escrow Agent so notified within a period of ninety (90) days following
receipt of notice by the Escrow Agent, the Escrow Agent may at any time
thereafter (even after a party has filed a legal claim against another party
hereunder) interplead the funds on deposit in escrow into a court of proper
jurisdiction in Maryland and deposit same into that court's registry, and
thereupon, the Escrow Agent shall be fully and completely discharged of its duty
as Escrow Agent, and thereupon, no party shall file any direct, third party or
other action naming the Escrow Agent as a party (not even a nominal party) to
such action, and if previously named as a party to any pre-existing (already
filed) action, the Escrow Agent shall thereupon immediately and without delay be
dismissed with prejudice as a party thereto. Any party objecting to such
dismissal of the Escrow Agent in accordance with the terms of this paragraph
shall be liable to the Escrow Agent for reimbursement of the reasonable
attorneys' fees and related costs of the Escrow Agent and compensation of the
Escrow Agent at its or their normal hourly rates (including, but not limited to,
any successful appeals of any adverse rulings or decisions) in obtaining such
dismissal (even where such party later withdraws its objection).
(d) The Escrow Agent may consult legal counsel in the event of a dispute or as
to its duties hereunder, and shall incur no liability and shall be fully
protected in acting in accordance with the opinion of counsel. Except as
otherwise provided above in this Section 8.3, the respective parties shall be
jointly and severally liable for such attorney's fees and all costs and
expenses, including the compensation of the Escrow Agent at its or their normal
hourly rates. Upon notice to the Escrow Agent of any claims pursuant to the
agreement between the parties, the Agent shall pay within ten (10) business days
by way of certified funds, a check to the party claiming pursuant to the
agreement herein their right to disbursement from the account. Upon such demand
for payment, the Escrow Agent shall provide the other parties to this agreement
with five (5) business days written notice of its intention to make a
disbursement and the date on which the disbursement is intended to be made.
(e) Except as otherwise provided in this Section 8.3 above, the ordinary,
customary and necessary expenses of the Escrow Agent shall be paid by the
Company.
(f) The parties hereto agree and irrevocably consent to the continued
representation by the law firm of XxXxxxx, Xxxxx, Xxxxxxxx & Xxx, P.A. and its
attorneys of the Company and Company Shareholders, provided that Escrow Agent
has complied with this paragraph 8.3, it shall not be disqualified from
representing the Company or any of the
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Company Shareholders as a result of any alleged conflict of interest related to
its role as Escrow Agent hereunder.
ARTICLE IX
INDEMNIFICATION
9.1 Indemnity.
(a) The Company Shareholders and, until such time as the Parent owns all of
the capital stock of the Company, the Company, shall unconditionally and jointly
and severally indemnify, defend and hold harmless the Parent and the Merger Sub
(and the directors, officers, employees, representatives, agents, affiliates,
successors and assigns of each) (the "Parent Indemnified Person") from and
against any Liabilities, interest, costs of investigation, assessments,
judgments, actions, proceedings and suits of whatever kind and nature and all
costs and expenses relating thereto (including, without limitation, reasonable
attorneys' fees and expenses of investigation ("Legal Expenses") and
accountants' fees and expenses) incurred in connection with the investigation or
defense thereof or in asserting rights hereunder (collectively, "Losses"), based
upon, arising out of or otherwise resulting from (i) any inaccuracy or breach of
any representation or warranty of any Company Shareholder or the Company
contained in this Agreement, or in any Exhibit, Schedule or certificate
delivered pursuant hereto or thereto and, (ii) the breach or nonfulfillment of
any covenant, agreement or other obligation of the Company Shareholders or the
Company contained in this Agreement which breach or nonfulfillment remains
uncured for thirty (30) days after the date of written notice of the breach or
nonfulfillment.
(b) Parent shall indemnify, defend and hold harmless the Company Shareholders
and its trustees, agents, successors and assigns (the "Shareholder Indemnified
Person") from and against all Losses (including specifically, but without
limitation, Legal Expenses) based upon, resulting from or arising out of (a) any
inaccuracy or breach of any representation or warranty of Parent contained in
this Agreement, or (b) the breach by Parent of, or the failure by Parent to
observe, any of its covenants or other agreements contained in or made pursuant
to this Agreement.
9.2 Indemnification Procedures.
(a) Promptly after receipt by any person entitled to indemnification under
Section 9.1 (an "indemnified party") of notice of any claim or of commencement
of any action, suit or proceeding by a person not a party to this Agreement in
respect of which the indemnified party will seek indemnification hereunder (any
such claim, suit or proceeding, "Third Party Action"), the indemnified party
shall notify the person that is obligated to provide such indemnification (the
"indemnifying party") thereof in writing, but any failure to so notify the
indemnifying party shall not relieve it from any liability that it may have to
the indemnified party under Section 9.1, except to the extent that the
indemnifying party is prejudiced by the failure to give such notice. The
indemnifying party shall be entitled to participate in the defense of such Third
Party Action and to assume control of such defense (including settlement of such
Third Party Action) with counsel reasonably satisfactory to such indemnified
party; provided, however, that:
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(i) the indemnified party shall be entitled to participate in the defense
of such Third Party Action and to employ counsel at its own expense (which shall
not constitute Legal Expenses for purposes of this Agreement) to assist in the
handling of such Third Party Action;
(ii) the indemnifying party shall obtain the prior written approval of the
indemnified party before entering into any settlement of such Third Party Action
or ceasing to defend against such Third Party Action, if pursuant to or as a
result of such settlement or cessation, injunctive or other equitable relief
would be imposed against the indemnified party or the indemnified party would be
adversely affected thereby;
(iii) no indemnifying party shall consent to the entry of any judgment or
enter into any settlement that does not include as an unconditional term thereof
the giving by each claimant or plaintiff to each indemnified party of a release
from all liability in respect of such Third Party Action; and
(iv) the indemnifying party shall not be entitled to control the defense
of any Third Party Action unless the indemnifying party confirms in writing its
assumption of such defense and continues to pursue the defense reasonably and in
good faith. After written notice by the indemnifying party to the indemnified
party of its election to assume control of the defense of any such Third Party
Action in accordance with the foregoing, (i) the indemnifying party shall not be
liable to such indemnified party hereunder for any Legal Expenses subsequently
incurred by such indemnified party attributable to defending against such Third
Party Action, and (ii) as long as the indemnifying party is reasonably
contesting such Third Party Action in good faith, the indemnified party shall
not admit any liability with respect to, or settle, compromise or discharge the
claim underlying, such Third Party Action without the indemnifying party's prior
written consent, which consent shall not be unreasonably withheld. If the
indemnifying party does not assume control of the defense of such Third Party
Action in accordance with this Section 9.2, the indemnified party shall have the
right to defend and/or settle such Third Party Action in such manner as it may
deem appropriate at the cost and expense of the indemnifying party, and the
indemnifying party will promptly reimburse the indemnified party therefor in
accordance with this Section 9.2. The reimbursement of fees, costs and expenses
required by this Section 9.2 shall be made by periodic payments during the
course of the investigation or defense, as and when bills are received or
expenses incurred.
(b) If an indemnified party has actual knowledge of any facts or circumstances
other than the commencement of a Third Party Action which cause in good faith it
to believe that it is entitled to indemnification under this Article IX then
such indemnified party shall promptly give the indemnifying party notice thereof
in writing, but any failure to so notify the indemnifying party shall not
relieve it from any liability that it may have to the indemnified party under
Section 9.1, as the case may be, except to the extent that the indemnifying
party is prejudiced by the failure to give such notice.
9.3 Tax Indemnification. Notwithstanding anything in this Article IX to the
contrary, the rights and obligations of the parties with respect to the breach
of representations, warranties, covenants, and agreements set forth in Article X
(concerning Tax Matters) and the indemnification for Taxes shall be governed by
the provisions of Article X and not by this Article IX unless otherwise stated
in a specific section of this Agreement.
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9.4 Limitations and Payment of Claims.
(a) The right of indemnification or other claim against Parent or the Company
Shareholders with respect to each representation, warranty, covenant and
agreement contained in this Agreement shall, except with respect to
representations, warranties, covenants and agreements set forth in Sections 3.2,
3.11, 3.13 and 3.14 which shall survive forever, terminate on the date occurring
on (i) the thirtieth (30) day after the expiration of the applicable statute of
limitations (or extensions or waivers thereof) relating to the representations,
warranties, covenants and agreements set forth in Sections 3.8, 3.9, 4.6 and
Article X, and (ii) the eighteen month anniversary of the Closing Date with
respect to all other representations, warranties, covenants and agreements
contained in this Agreement, except in so far as a claim has been asserted by
either party and not been resolved prior to expiration of the applicable periods
set forth in item (i) or (ii) above.
(b) No parties shall be liable to another party for any claim under this
Agreement unless the aggregate of Losses suffered exceeds $50,000.
(c) Notwithstanding that any representation or warranty contained in this
Agreement may contain materiality qualifications, for purposes of this Article
IX only, an indemnifying party shall be liable for all Losses resulting from any
inaccuracy of a representation or warranty without regard to any such
qualifications, but subject, however, to the limitations set forth in Section
9.4(b) above.
ARTICLE X
TAX MATTERS
10.1 Representations and Warranties. The Company and each of the Company
Shareholders hereby, jointly and severally, represent and warrant to Parent on
the date of this Agreement and on the Closing Date as follows:
(a) All Tax Returns in respect of Taxes required to be filed by the Company on
or before the Closing Date have been or will be timely filed with the
appropriate governmental taxing authority. All such Tax Returns (i) were or will
be prepared in the manner required by applicable law, (ii) are or will be true,
correct and complete and (iii) accurately reflect or will so reflect the
Liability for applicable taxes. No adjustment relating to such Tax Returns has
been proposed formally or informally by any taxing authority and, to the
knowledge of the Company, no basis exists for any such adjustment. The Company
has not requested any extension of time within which to file Tax Returns in
respect of any Taxes, which Tax Returns have not been filed.
(b) All Taxes of the Company due to be paid on or prior to the Closing Date
(taking into account extensions) have been paid or will be paid prior to the
Closing Date or an adequate reserve has been, or by Closing will be, established
therefor in accordance with GAAP. The Company does not have any liability for
Taxes in excess of such amounts so paid or reserves so established.
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(c) The Company has withheld and paid over to the appropriate taxing authority
or will withhold and pay over to the appropriate taxing authority from its
employees, independent contractors, customers, and other payees all amounts
required by the tax withholding provisions of applicable federal, state, local,
and foreign laws (including, without limitation, income, social security, and
employment tax withholding for all types of compensation, and withholding on
payments to non-United States persons) through the Closing Date.
(d) No material deficiencies for Taxes have been claimed, proposed or assessed
by any governmental taxing authorities against the Company for any taxable year.
There are no pending or, to the Company's knowledge, threatened audits,
investigations or claims for or relating to any material additional liability in
respect of Taxes against the Company, and there are no matters under discussion
with any governmental taxing authority with respect to Taxes that is likely to
result in a material additional liability for Taxes for the Company. No waivers
or extensions of a statute of limitations relating to Taxes is in effect with
respect to the Company.
(e) There are no claims or investigations by the IRS or any other taxing
authority pending or threatened against the Company or the Company Shareholders
for any past due Taxes of the Company; there has been no waiver granted or
requested of any applicable statute of limitations or extension of the time for
the assessment of any Tax of the Company for which the Company or the Company
Shareholders could be liable under any provision of federal, state, local, or
foreign law; there are no outstanding requests for information made by a taxing
authority to the Company or the Company Shareholders in respect of Taxes of the
Company; and there are no outstanding requests by the Company or the Company
Shareholders to a taxing authority for a ruling, determination, permission,
consent, or similar item in respect of the Company. No closing agreement (as
defined in section 7121 of the Code) or any similar provision of any state,
local, or foreign law has been entered into by or with respect to the Company.
(f) There are no Liens or Encumbrances for or arising from any Tax upon the
Company Stock or upon any asset of the Company (except for statutory Liens for
Taxes not yet due and payable).
(g) No power of attorney that is currently in force has been granted to any
Person with respect to any matter relating to Taxes that could affect the
Company.
(h) The Company Shareholders are not foreign persons within the meaning of
Section 1.1445-2(b) of the Treasury Regulations, and, to the knowledge of the
Company Shareholders, no amount of Tax is otherwise required to be withheld
pursuant to any provision of law as a result of any of the transactions
contemplated by this Agreement.
(i) The Company does not have any item of income, gain, loss, or deduction
reportable in a taxable period ending after the date hereof but attributable to
a transaction (e.g., an installment sale, a deferred intercompany transaction,
or an adjustment pursuant to Section 481 of the Code that occurred in a taxable
period or portion thereof ending on or before the date hereof.
(j) The Company has not, with regard to any property held by it, agreed to
have Section 341(f)(2) of the Code apply to any disposition of a "subsection (f)
asset" (as such term is defined in Section 341(f)(4) of the Code) owned by the
Company.
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(k) No property of the Company is "tax-exempt use property" within the meaning
of Section 168(h) of the Code; nor is the Company a party to any lease made
pursuant to Section 168(f) of the Code.
(l) The Company is not a party to any Tax allocation or sharing agreement.
(m) Except as set forth on Schedule 10(m), the Company (i) has not been a
member of an affiliated group filing a consolidated federal income Tax Return
nor (ii) has any liability for the Taxes of any Person (other than any of the
Company and its subsidiaries) under Treasury Regulation Section 1.1502-6 (or any
similar provision of state, local, or foreign law), as a transferee or
successor, by contract, or otherwise.
(n) The Company is not a party to any agreement, contract or arrangement, nor
maintains or sponsors any Employee Plans, that will result, separately or in the
aggregate, in the payment of (A) any "excess parachute payment" within the
meaning of Section 280G(b)(1) of the Code, determined without regard to Section
280G(b)(4) of the Code, and no Employee Plan provides for the reimbursement of
excise taxes under Section 4999 of the Code or any income taxes under the Code
or (B) amounts that will be disallowed as a deduction under Section 162(m) of
the Code.
10.2 Filing of Tax Returns and Payment of the Tax.
(a) The Company Shareholders shall cause the Company to timely file or cause
to be timely filed all Tax Returns that are required to be filed (with
extensions) on or before the Closing Date. All such Tax Returns shall be
prepared in a manner consistent with past practice, except as required by
applicable law. The Company shall timely pay or cause to be timely paid all
Taxes that are due and payable on or prior to the Closing Date.
(b) Parent shall prepare or cause to be prepared and file or cause to be filed
all Tax Returns for the Company for all periods ending on or prior to the
Closing Date which are filed after the Closing Date.
(c) The Company Shareholders shall cooperate fully with the Parent and the
Company, as and to the extent reasonably requested by Parent or the Company, in
connection with the filing of Tax Returns that they are required to file
pursuant to Section 10.2(b) hereof and any audit, litigation or other proceeding
with respect to Taxes. Such cooperation shall include the retention and (upon
the other party's request) the provision of records and information which are
reasonably relevant to any such tax return, audit, litigation or other
proceeding.
10.3 Indemnification by the Selling Shareholders. (a) Each of the Company
Shareholders hereby, jointly and severally, agrees to indemnify, defend, and
hold Parent and the Company (and their respective officers, directors,
employees, affiliates, successors and assigns) harmless from and against:
(a) any and all Taxes incurred by Parent or the Company in connection with or
arising from any inaccuracy, breach, or nonfulfillment of any representation,
warranty, covenant, or agreement of the Company Shareholder or the Company
pursuant to this Agreement;
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(b) any and all Taxes imposed on the Company or Parent, directly or
indirectly, (i) for any taxable period ending prior to or on the Closing Date,
(ii) any taxable period beginning before and ending after the Closing Date to
the extent such Taxes are apportioned to the portion of the taxable period prior
to Closing Date or (iii) for any taxable period if such Taxes were incurred as a
result of actions, omissions by the Company or the Company Shareholders other
than in the ordinary course of business, except with respect to either clause
(i),(ii), or (iii) to the extent that such Taxes are set forth in the tax
reserve on the Financial Statements;
(c) any and all unpaid federal, state, local, or foreign Taxes imposed on the
Company, directly or indirectly, including any penalties and interest in respect
thereof, pursuant to any guaranty, indemnification, Tax sharing or similar
arrangement made on or before the Closing Date relating to the sharing of
Liability for, or payment of, Taxes;
(d) any and all Taxes imposed pursuant to Section 1441 of the Code (concerning
withholding of Tax on nonresident aliens) or Subchapter A, Chapter 24, of the
Code (concerning withholding from wages) with respect to any payment made by the
Parent or the Company to such Company Shareholders pursuant to this Agreement;
and
(e) any cost or expense (including, without limitation, reasonable attorneys'
and accountants' fees) incurred by the Parent, the Company, or any of their
successors or assigns in connection with any Tax described in this Section 10.3.
10.4 Tax Adjustments. The amount of any Tax or other amount for which
indemnification is provided under Sections 9.1, 10.3 or 10.6 hereof shall be (i)
increased to take account of any Tax incurred by the indemnified party arising
from the receipt or right to receive the indemnity payments hereunder (increased
by any Tax incurred with respect to such increased amount) and (ii) reduced to
take into account (A) any reduction of Tax realized by the indemnified party
arising from the incurrence or payment of the amount for which indemnification
is provided and (B) insurance proceeds received, if any, by the indemnified
party in connection with such Tax.
10.5 Access to Information. From the date hereof, the Company Shareholders
shall, and shall cause the Company to, make available to Parent and Parent's
representatives, and Parent shall cause to be made available to the Company and
its representatives: (a) all Tax Returns and all documents and records in
connection with the preparation thereof for any taxable period or portion
thereof ending on or before the Closing Date and any examination reports and
statements of deficiencies assessed against, proposed to be assessed against, or
agreed to by the Company for such taxable periods; and (b) any Tax sharing or
allocation agreement or arrangement involving the Company at any time during the
seven-year period ending on the Closing Date and a true and complete description
of any such unwritten or informal agreement or arrangement.
10.6 Books and Records. Parent shall retain or cause the Company to retain all
books and records pertinent to the Company for each taxable period or portion
thereof ending on or prior to the Closing Date until the expiration of the
applicable statute of limitations (giving effect to any and all extensions and
waivers) and to abide by or cause compliance with all record retention
agreements entered into by or on behalf of the Company with any taxing
authority.
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10.7 Notice of Audit. If any party to this Agreement receives any written
notice from any taxing authority proposing an adjustment to any Tax for which
any other party hereto may be obligated to indemnify under this Agreement, such
party shall give prompt written notice thereof to the other that describes such
proposed adjustment in reasonable detail ("Notice of Audit"), and shall indicate
the amount (estimated, if necessary) of the Tax and other items that may be
suffered by Parent, the Company, or the Company Shareholders, as the case may
be. The failure to give a Notice of Audit pursuant to this Section 10.7,
however, shall not reduce the obligations of a party hereunder unless, and to
the extent that, such failure prejudices the rights of the other party to
contest such tax.
10.8 Transfer Taxes. All transfer, documentary, sales, use, stamp,
registration and other such Taxes and fees (including any penalties and
interest) incurred in connection with this Agreement (including any
corporate-level gains tax triggered by the sale of the Company Stock), shall be
paid by the Company Shareholders when due, and the party required by applicable
law will file all documentary, sales, use, stamp, registration and other Taxes
and fees, and if required by applicable law, the other parties will, and will
cause their affiliates to, join in the execution of any such Tax Returns or
other documentation. The Company Shareholders, at their own expense, will pay
for all such filings.
10.9 Miscellaneous. All representations and warranties contained in this
Article X with respect to any tax shall survive until the thirty-first day after
the expiration of the applicable statute of limitations.
ARTICLE XI
GENERAL PROVISIONS
11.1 Survival of Representations and Warranties. The representations,
warranties, covenants and agreements of the parties made in this Agreement shall
survive the Closing and shall terminate on the dates that the right to
indemnification under such representations, warranties, covenants or agreements
terminates as provided in Section 9.4, and they shall not be affected in any
respect by any examination or investigation conducted by or on behalf of the
parties hereto and any information which any party may receive pursuant to the
schedules hereto or otherwise.
11.2 Notices. All notices and other communications hereunder shall be in
writing and shall be deemed given when delivered personally, 24 hours after sent
by facsimile (with confirmation), 3 days after mailed by registered or certified
mail (return receipt requested) or 1 day after sent by a nationally recognized
overnight courier (next day delivery) (with confirmation) to the parties at the
following addresses (or at such other address for a party as shall be specified
by like notice):
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(a) if to Company, to:
VERTICAL SOFTWARE, INC.
0000 Xxxxxxxx Xxxxx, Xxxxx X
Xxxxxxxxxx, XX 00000
Fax:
Attention: Xxxxxx Xxxxxxxx
with a copy to:
XxXXXXX, XXXXX, XXXXXXXX & XXX, P.A.
Capital Office Park
0000 Xxx Xxxx, Xxxxx 000
Xxxxxxxxx, XX 00000
Fax: (000) 000-0000
Attention: Xxxxx X. Xxxx, Esq.
(b) if to Parent, to:
FutureLink Corp.
0 Xxxxxx
Xxxxx 000
Xxxxxx, XX 00000
Fax: (000) 000-0000
Attention: Xxxxx X. Xxxxxx
with copies to:
Paul, Hastings, Xxxxxxxx & Xxxxxx, LLP
000 Xxxxxxxxxx Xxxxxx, 00xx Xxxxx
Xxx Xxxxxxxxx, Xxxxxxxxxx 00000
Fax: (000) 000-0000
Attention: Xxxxxx X. Xxxxxxx, Esq.
(c) if to the Company Shareholders, to:
XXXXXX XXXXXXXX
000 Xxxxxxxxxx Xxxx
Xxxx Xxxxx, XX 00000
Fax: (000) 000-0000
XXXXX X. XXXXXX
0000 Xxxxx Xxxxxx Xxxxx
Xxxxxxxxxx, XX 00000
Fax: (000) 000-0000
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(d) if to the Escrow Agent, to:
XxXXXXX, XXXXX, XXXXXXXX & XXX, P.A.
Capital Office Park
0000 Xxx Xxxx, Xxxxx 000
Xxxxxxxxx, XX 00000
Fax: (000) 000-0000
Attention: Xxxxx X. Xxxx, Esq.
11.3 Governing Law. This Agreement has been executed and delivered at and
shall be deemed to have been made in Maryland. This Agreement shall be governed
by and construed in accordance with the internal laws of the State of Maryland
without giving effect to the conflict of laws rules therein. The parties hereto
hereby consent and agree that the Maryland State Court or, at any party's
option, the United States District Court for the Southern District of Maryland,
shall have exclusive jurisdiction to hear and determine any claims or disputes
among the parties hereto pertaining to this Agreement or to any matter arising
out of or related to this Agreement. The parties hereto expressly submit and
consent in advance to such jurisdiction in any action or suit commenced in any
such court, and hereby waive any objection which it may have based upon lack of
personal jurisdiction, improper venue or forum non conveniens and hereby consent
to the granting for such legal or equitable relief as is deemed appropriate by
such court. Nothing in this Agreement shall be deemed or operate to affect the
right of any party to serve legal process in any other manner permitted by law,
or to preclude the enforcement by any party of any judgment or order obtained in
such forum or the taking of any action under this Agreement to enforce same in
any other appropriate forum or jurisdiction.
11.4 Severability. Any part, provision, representation or warranty of this
Agreement that is prohibited or that is held to be void or unenforceable shall
be ineffective solely to the extent of such prohibition or unenforceability
without invalidating the remaining provisions hereof. Any part, provision,
representation or warranty of this Agreement that is prohibited or unenforceable
or is held to be void or unenforceable in any jurisdiction shall be ineffective,
as to such jurisdiction, to the extent of such prohibition or unenforceability
without invalidating the remaining provisions hereof, and any such prohibition
or unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction. To the extent permitted
by applicable law, the parties hereto waive any provision of law that prohibits
or renders void or unenforceable any provision hereof. If the invalidity of any
part, provision, representation or warranty of this Agreement shall deprive any
Person of the economic benefit intended to be conferred by this Agreement, the
parties shall negotiate, in good-faith, to develop a structure, the economic
effect of which is as close as possible to the economic effect of this
Agreement, without regard to such invalidity.
11.5 Assignment; Binding Effect; Benefit. Neither this Agreement nor any of
the rights, interests or obligations hereunder shall be assigned by any of the
parties hereto (whether by operation of law or otherwise) without the prior
written consent of the other parties hereto. 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.
Notwithstanding anything contained in this Agreement to the contrary, nothing in
this Agreement, expressed or implied, is intended to confer on any person other
than the parties
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hereto or their respective successors and permitted assigns any rights or
remedies under or by reason of this Agreement.
11.6 Expenses. All costs and expenses incurred by Parent in connection with
this Agreement and the transactions contemplated hereby shall be paid by Parent,
except that the Company Shareholders shall pay for any costs of Parent with
respect to reviewing and implementing Company's and the Company Shareholders'
tax planning, including legal and accounting fees. All costs and expenses
incurred by the Company or the Company Shareholders in connection with this
Agreement and the transactions contemplated hereby through the date hereof may
be paid by the Company, and thereafter shall be paid by the Company
Shareholders, except that the costs of Ernst & Young in connection with the
preparation of the financial statements referred to Section 7.1(i) shall be paid
by the Parent.
11.7 Headings. The descriptive headings contained in this Agreement are
included for convenience of reference only and shall not affect in any way the
meaning or interpretation of this Agreement.
11.8 Entire Agreement. This Agreement (including the Exhibits and Schedules)
constitutes the entire agreement among the parties with respect to the subject
matter hereof and supersedes all prior agreements and understandings among the
parties with respect thereto. No addition to or modification of any provision of
this Agreement shall be binding upon any party hereto unless made in writing and
signed by all parties hereto.
11.9 Counterparts. This Agreement may be executed in one or more counterparts,
each of which shall be deemed to be an original but all of which taken together
shall constitute one and the same agreement.
11.10 Reproduction of Documents. This Agreement and all documents relating
thereto, including, without limitation, (i) consents, waivers and modifications
which may hereafter be executed, (ii) documents received by any party at the
Closing, and (iii) financial statements, certificates and other information
previously or hereafter furnished, may be reproduced by any photographic,
photostatic, microfilm, micro-card, miniature photographic or other similar
process. The parties agree that any such reproduction shall be admissible in
evidence as the original itself in any judicial or administrative proceeding,
whether or not the original is in existence and whether or not such reproduction
was made by a party in the regular course of business, and that any enlargement,
facsimile or further reproduction of such reproduction shall likewise be
admissible in evidence.
11.11 Advice from Independent Counsel. The parties hereto understand that this
Agreement is a legally binding agreement that affects such party's rights. Each
party represents to the other parties that it has received legal advice from
counsel of its choice regarding the meaning and legal significance of this
Agreement and that it is satisfied with its legal counsel and the advice
received from it.
11.12 No Agency; No Joint Venture. Neither Parent nor the Company Shareholders
is the agent or representative of the other, and nothing in this Agreement shall
be construed to make any of Parent nor the Company Shareholders liable to any
third party for services performed by
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such third party or for debts or claims accruing to such third party against any
of Parent or the Company Shareholders. Nothing contained herein nor the acts of
the parties hereto shall be construed to create a partnership, agency or joint
venture between (i) Parent and (ii) the Company Shareholders.
11.13 Good Faith. The parties hereto shall implement the terms and provisions
of this Agreement in good faith in accordance with applicable law.
11.14 Amendment. Subject to compliance with applicable law, this Agreement may
be amended by the parties hereto, by action taken or authorized by their
respective Boards of Directors, at any time before or after any required
approval of the matters presented in connection with the Merger by the
shareholders of Parent. This Agreement may not be amended except by an
instrument in writing signed on behalf of each of the parties hereto.
11.15 Extension; Waiver. At any time prior to the Effective Time, the Company
and Parent and Merger Sub, by action taken or authorized by its respective Board
of Directors, may, to the extent legally allowed, on behalf of itself only, (a)
extend the time for the performance of any of the obligations or other acts of
the other parties hereto, (b) waive any inaccuracies in the representations and
warranties of the other parties contained herein or in any document delivered
pursuant hereto and (c) waive compliance with any of the agreements or
conditions of the other parties 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
a written instrument signed on behalf of such parties, but such extension or
waiver or failure to insist on strict compliance with an obligation, covenant,
agreement or condition shall not operate as a waiver of, or estoppel with
respect to, any subsequent or other failure.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement and
Plan of Reorganization and Merger as of the date first written above.
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PARENT
FUTURELINK CORP.
By: /s/ Xxxxx Xxxxxxx
-----------------------------------
Name: Xxxxx Xxxxxxx
Title: Executive VP & CFO.
MERGER SUB
FUTURELINK MARYLAND ACQUISITION CORP.
By: /s/ Xxxxx Xxxxxxx
-----------------------------------
Name: Xxxxx Xxxxxxx
Title: Executive VP & CFO.
COMPANY
VERTICAL SOFTWARE, INC.
By: /s/ Xxxxxx Xxxxxxxx
-----------------------------------
Name: Xxxxxx Xxxxxxxx
Title: President
COMPANY SHAREHOLDERS
/s/ Malik Xxxxx Xxxx /s/ Xxxxxx Xxxxxxxx
------------------------------- ---------------------------------------
WITNESS XXXXXX XXXXXXXX
/s/ Malik Xxxxx Xxxx /s/ Xxxxx X. Xxxxxx
------------------------------- ---------------------------------------
WITNESS XXXXX X. XXXXXX
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THE ESCROW AGENT
(For purposes of Section 8.3 only)
XxXXXXX, XXXXX, XXXXXXXX & XXX, P.A.
By: /s/ Malik Xxxxx Xxxx
--------------------------------
Name: Malik Xxxxx Xxxx
Title: Principal
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