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EXHIBIT 2.7
AGREEMENT AND PLAN OF REORGANIZATION
BY AND AMONG
CRITICAL PATH, INC.
WELLFLEET ACQUISITION CORP.
AND
FAXNET CORPORATION
DATED AS OF NOVEMBER 2, 1999
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EXECUTION VERSION
INDEX OF EXHIBITS
EXHIBIT DESCRIPTION
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Exhibit A Form of Voting Agreement
Exhibit B Certificate of Merger
Exhibit C Form of Investment Representation Statement
Exhibit D Form of Legal Opinion of Counsel to Parent
Exhibit E Form of Legal Opinion of Counsel to the Company
Exhibit F Form of Offer Letter
Exhibit G Form of Escrow Agreement
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TABLE OF CONTENTS
PAGE
ARTICLE I THE MERGER.............................................................................1
1.1 The Merger........................................................................1
1.2 Effective Time....................................................................2
1.3 Effect of the Merger..............................................................2
1.4 Certificate of Incorporation; Bylaws..............................................2
1.5 Directors and Officers............................................................2
1.6 Shares to Be Issued; Cash to Be Paid; Effect on Capital Stock.....................2
1.7 Dissenting Shares.................................................................5
1.8 Surrender of Certificates.........................................................5
1.9 No Further Ownership Rights in Company Capital Stock..............................7
1.10 Lost, Stolen or Destroyed Certificates............................................7
1.11 Taking of Necessary Action; Further Action........................................7
ARTICLE II REPRESENTATIONS AND WARRANTIES OF THE COMPANY.........................................8
2.1 Organization of the Company.......................................................8
2.2 Company Capital Structure.........................................................8
2.3 Subsidiaries......................................................................9
2.4 Authority.........................................................................9
2.5 Company Financial Statements.....................................................10
2.6 No Undisclosed Liabilities.......................................................10
2.7 No Changes.......................................................................10
2.8 Tax and Other Returns and Reports................................................12
2.9 Restrictions on Business Activities..............................................13
2.10 Title to Properties; Absence of Liens and Encumbrances...........................13
2.11 Intellectual Property............................................................14
2.12 Agreements, Contracts and Commitments............................................17
2.13 Interested Party Transactions....................................................18
2.14 Compliance with Laws.............................................................19
2.15 Litigation.......................................................................19
2.16 Insurance........................................................................19
2.17 Minute Books.....................................................................19
2.18 Environmental Matters............................................................19
2.19 Brokers' and Finders' Fees; Third Party Expenses.................................20
2.20 Employee Matters and Benefit Plans...............................................20
2.21 Change of Control and Non-Compete Payments.......................................23
2.22 Year 2000 Compliance.............................................................23
2.23 Transaction Bonus................................................................24
2.24 Representations Complete.........................................................24
ARTICLE III REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB.............................24
3.1 Organization, Standing and Power.................................................24
3.2 Authority........................................................................24
3.3 Capital Structure................................................................25
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TABLE OF CONTENTS
(continued)
PAGE
3.4 SEC Documents; Parent Financial Statements.......................................25
3.5 Representations Complete.........................................................25
3.6 Regulatory Approvals.............................................................26
3.7 Litigation.......................................................................26
ARTICLE IV CONDUCT PRIOR TO THE EFFECTIVE TIME..................................................26
4.1 Conduct of Business of the Company...............................................26
4.2 No Solicitation..................................................................28
4.3 Investment Representation Statements.............................................29
ARTICLE V ADDITIONAL AGREEMENTS.................................................................29
5.1 Information Statement; Stockholder Meeting.......................................29
5.2 Access to Information............................................................30
5.3 Confidentiality..................................................................31
5.4 Expenses.........................................................................31
5.5 Public Disclosure................................................................31
5.6 Consents.........................................................................31
5.7 Company Warrants.................................................................31
5.8 FIRPTA Compliance................................................................31
5.9 Reasonable Efforts...............................................................31
5.10 Notification of Certain Matters..................................................32
5.11 Additional Documents and Further Assurances......................................32
5.12 Form S-8.........................................................................32
5.13 NMS Listing......................................................................32
5.14 Cooperation With Financial Statements............................................32
5.15 Employee Benefits................................................................32
5.16 Registration Rights..............................................................33
5.17 401(k) Plan......................................................................38
5.18 Promissory Note..................................................................38
5.19 Company 1999 Bonus Plan..........................................................38
5.20 Satisfaction of Company Liabilities..............................................38
ARTICLE VI CONDITIONS TO THE MERGER.............................................................39
6.1 Conditions to Obligations of Each Party to Effect the Merger.....................39
6.2 Additional Conditions to Obligations of the Company..............................39
6.3 Additional Conditions to the Obligations of Parent and Merger Sub................40
ARTICLE VII SURVIVAL OF REPRESENTATIONS AND WARRANTIES; INDEMNIFICATION; ESCROW................41
7.1 Survival of Representations and Warranties.......................................41
7.2 Obligation of the Company to Indemnify, Reimburse, etc...........................41
7.3 Obligation of Parent to Indemnify, Reimburse, etc................................41
7.4 Claims for Indemnification.......................................................42
7.5 Defense by the Indemnifying Party................................................42
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TABLE OF CONTENTS
(continued)
PAGE
7.6 Limits on Indemnification, Reimbursement, etc....................................43
7.7 Escrow Arrangements..............................................................43
7.8 General Limitations..............................................................43
ARTICLE VIII TERMINATION, AMENDMENT AND WAIVER..................................................43
8.1 Termination......................................................................43
8.2 Effect of Termination............................................................44
8.3 Fees and Expenses................................................................45
8.4 Amendment........................................................................45
8.5 Extension; Waiver................................................................45
ARTICLE IX GENERAL PROVISIONS...................................................................45
9.1 Notices..........................................................................45
9.2 Interpretation...................................................................47
9.3 Counterparts.....................................................................47
9.4 Entire Agreement; Assignment.....................................................47
9.5 Severability.....................................................................47
9.6 Other Remedies...................................................................47
9.7 Governing Law....................................................................48
9.8 Rules of Construction............................................................48
9.9 Specific Performance.............................................................48
9.10 Share Legends....................................................................48
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EXECUTION VERSION
AGREEMENT AND PLAN OF REORGANIZATION
This AGREEMENT AND PLAN OF REORGANIZATION (this "Agreement") is made and
entered into as of November 2, 1999, among Critical Path, Inc., a California
corporation ("Parent"), Wellfleet Acquisition Corp., a Delaware corporation and
a wholly-owned subsidiary of Parent ("Merger Sub"), and FaxNet Corporation, a
Delaware corporation (the "Company").
RECITALS
A. The Boards of Directors of each of the Company, Parent and Merger Sub
believe it is in the best interests of each company and their respective
shareholders that Parent acquire the Company through the statutory merger of
Merger Sub with and into the Company (the "Merger") and, in furtherance thereof,
have approved the Merger.
B. Pursuant to the Merger, among other things, and subject to the terms
and conditions of this Agreement, all of the issued and outstanding shares of
capital stock of the Company ("Company Capital Stock") and all outstanding
options, warrants and other rights to acquire or receive shares of Company
Capital Stock shall be converted into the right to receive a combination of cash
and shares of Common Stock of Parent ("Parent Common Stock").
C. Concurrently with the execution of this Agreement, and as a condition
and inducement to Parent's willingness to enter into this Agreement, certain
affiliates of the Company are entering into Voting Agreements in substantially
the form attached hereto as Exhibit A (the "Voting Agreements").
D. A portion of the shares of Parent Common Stock otherwise issuable by
Parent in connection with the Merger shall be placed in escrow by Parent, the
release of which amount shall be contingent upon certain events and conditions.
E. The parties intend, by executing this Agreement, to adopt a plan of
reorganization within the meaning of Section 368 of the Internal Revenue Code of
1986, as amended (the "Code").
F. The parties intend for the Merger to be accounted for financial
accounting purposes as a purchase.
NOW, THEREFORE, in consideration of the covenants, promises and
representations set forth herein, and for other good and valuable consideration,
intending to be legally bound hereby the parties agree as follows:
ARTICLE I
THE MERGER
1.1 The Merger. At the Effective Time (as defined in Section 1.2) and
subject to and upon the terms and conditions of this Agreement and the
applicable provisions of the Delaware General Corporations Law ("Delaware Law"),
Merger Sub shall be merged with and into the Company, the separate corporate
existence of Merger Sub shall cease and the Company shall continue as the
surviving corporation and as a
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wholly-owned subsidiary of Parent. The Company as the surviving corporation
after the Merger is hereinafter sometimes referred to as the "Surviving
Corporation."
1.2 Effective Time. Unless this Agreement is earlier terminated pursuant
to Section 8.1, the closing of the Merger (the "Closing") will take place as
promptly as practicable, but no later than five (5) business days, following
satisfaction or waiver of the conditions set forth in Article VI, at the offices
of Xxxxxxx Xxxxxx & Green, P.C., 00 Xxxxx Xxxxxx, Xxxxxx, Xxxxxxxxxxxxx, unless
another place or time is agreed to by Parent and the Company. The date upon
which the Closing actually occurs is herein referred to as the "Closing Date."
On the Closing Date, the parties hereto shall cause the Merger to be consummated
by filing a Certificate of Merger in substantially the form attached hereto as
Exhibit B (the "Certificate of Merger") with the Secretary of State of the State
of Delaware, in accordance with the relevant provisions of applicable law. The
date and time the Merger becomes effective in accordance with the provisions of
Delaware Law is the "Effective Time". The parties currently intend that the
Closing Date will occur on or prior to December 31, 1999.
1.3 Effect of the Merger. At the Effective Time, the effect of the
Merger shall be as provided in the applicable provisions of Delaware Law.
Without limiting the generality of the foregoing, and subject thereto, at the
Effective Time, all the property, rights, privileges, powers and franchises of
the Company and Merger Sub shall vest in the Surviving Corporation, and all
debts, liabilities and duties of the Company and Merger Sub shall become the
debts, liabilities and duties of the Surviving Corporation.
1.4 Certificate of Incorporation; Bylaws.
(a) Unless otherwise determined by Parent prior to the Effective
Time, at the Effective Time, the Certificate of Incorporation of Merger Sub
shall be the Certificate of Incorporation of the Surviving Corporation until
thereafter amended as provided by law and such Certificate of Incorporation;
provided, however, that the name of the Surviving Corporation shall be FaxNet
Corporation.
(b) The Bylaws of Merger Sub, as in effect immediately prior to the
Effective Time, shall be the Bylaws of the Surviving Corporation until
thereafter amended.
1.5 Directors and Officers. The director(s) of Merger Sub immediately
prior to the Effective Time shall be the initial director(s) of the Surviving
Corporation, each to hold office in accordance with the Certificate of
Incorporation and Bylaws of the Surviving Corporation. The officers of Merger
Sub immediately prior to the Effective Time shall be the initial officers of the
Surviving Corporation, each to hold office in accordance with the Bylaws of the
Surviving Corporation.
1.6 Shares to Be Issued; Cash to Be Paid; Effect on Capital Stock. The
number of shares of Parent Common Stock to be issued in exchange for the
acquisition by Parent of all outstanding Company Capital Stock, all unexpired
and unexercised options and warrants to acquire Company Capital Stock (other
than unvested Company Options (as defined below)) shall be 2,845,282 shares (the
"Aggregate Share Number"). No adjustment (i.e., credit) shall be made in the
exchange ratio as a result of any cash proceeds received by the Company from the
date hereof to the Closing Date pursuant to the exercise of options or warrants
to acquire Company Capital Stock as such adjustment has been taken into account
in calculating the Aggregate Share Number. The amount of cash that shall be paid
by Merger Sub in the Merger pursuant to this Agreement shall be $20,000,000 (the
"Aggregate Cash Consideration"). Notwithstanding anything herein to the
contrary, in the event that the Aggregate Cash Consideration would otherwise
equal 20% or more of the aggregate consideration to be received by the Company
stockholders as a result of the Merger
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(excluding the portion of the Aggregate Share Number equal to the Escrow Amount
and the Special Escrow Amount, and assuming the Parent Common Stock constituting
the Aggregate Share Number has a value equal to 90% of the closing price for a
share of Parent Common Stock on the Nasdaq National Market on the trading day
immediately preceding the Closing Date), then, in such event, (x) the Aggregate
Cash Consideration shall be reduced to an amount equal to 19.99 % of the
aggregate consideration (determined as set forth above) and (y) the Aggregate
Share Number shall be increased by an amount equal to the amount by which the
Aggregate Cash Consideration is reduced, divided by the 15-day trailing average
closing price per share for a share of Parent Common Stock as reported on the
Nasdaq National Market for the fifteen trading days immediately preceding the
date of this Agreement.
(i) Conversion of Company Common Stock. Subject to the terms and
conditions of this Agreement, as of the Effective Time, by virtue of the Merger
and without any action on the part of Merger Sub, the Company or the holder of
any shares of the Company Capital Stock, each share of Common Stock of the
Company ("Company Common Stock") issued and outstanding immediately prior to the
Effective Time (other than any shares of Company Common Stock to be canceled
pursuant to Section 1.6(b) and any Dissenting Shares (as defined and to the
extent provided in Section 1.7(a)) will be canceled and extinguished and be
converted automatically into the right to receive Parent Common Stock and cash
in the amount identified on Schedule 1.6(a) hereto upon surrender of the
certificate representing such share of Company Common Stock in the manner
provided in Section 1.8.
(b) Cancellation of Parent-Owned and Company-Owned Stock. Each share
of Company Capital Stock owned by Merger Sub, Parent, the Company or any direct
or indirect wholly-owned subsidiary of Parent or of the Company immediately
prior to the Effective Time shall be canceled and extinguished without any
conversion thereof.
(c) Stock Options and Warrants to Purchase Company Capital Stock.
(i) At the Effective Time, all options to purchase Company
Common Stock then outstanding under the Company's 1996 Employee and Consultant
Stock Option Plan (the "Option Plan") shall be assumed by Parent in accordance
with provisions described below.
(1) At the Effective Time, each outstanding option to
purchase shares of Company Common Stock (each a "Company Option") under the
Option Plan or otherwise, whether vested or unvested, shall be, in connection
with the Merger, assumed by Parent. Each Company Option so assumed by Parent
under this Agreement shall continue to have, and be subject to, the same terms
and conditions set forth in the Option Plan and/or as provided in the respective
option agreements governing such Company Option immediately prior to the
Effective Time, except that (A) such Company Option shall be exercisable for
that number of whole shares of Parent Common Stock equal to the product of the
number of shares of Company Common Stock that were issuable upon exercise of
such Company Option immediately prior to the Effective Time multiplied by the
Option Exchange Ratio (as identified on Schedule 1.6(c) hereto) rounded down to
the nearest whole share and (B) the per share exercise price for the shares of
Parent Common Stock issuable upon exercise of such assumed Company Option shall
be equal to the quotient determined by dividing the exercise price per share of
Company Common Stock at which such Company Option was exercisable immediately
prior to the Effective Time by the Option Exchange Ratio, rounded up to the
nearest whole cent.
(2) It is the intention of the parties that the Company
Options assumed by Parent qualify following the Effective Time as incentive
stock options as defined in Section 422 of the
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Code to the extent the Company Options qualified as incentive stock options
immediately prior to the Effective Time.
(3) Promptly following the Effective Time, Parent will issue
to each holder of an outstanding Company Option a document evidencing the
foregoing assumption of such Company Option by Parent.
(ii) At the Effective Time, each outstanding warrant to purchase
Company Capital Stock (a "Company Warrant") that has not been fully exercised
shall be assumed by Parent. Each Warrant so assumed by Parent under this
Agreement shall continue to have, and be subject to, the same terms and
conditions set forth in the applicable warrant agreement immediately prior to
the Effective Time (including, without limitation, any repurchase rights or
vesting provisions), except that (i) each Company Warrant shall be exercisable
(or shall become exercisable in accordance with its terms) for that number of
whole shares of Parent Common Stock equal to the product of the number of shares
of Company Capital Stock that were issuable upon exercise of such Company
Warrant immediately prior to the Effective Time multiplied by the Warrant
Exchange Ratio (as identified on Schedule 1.6(c)), rounded to the nearest whole
number of shares of Parent Common Stock and (ii) the per share exercise price
for the Parent Common Stock issuable upon exercise of such assumed Company
Warrant shall be equal to the quotient determined by dividing the exercise price
per share of Company Capital Stock at which such Company Warrant was exercisable
immediately prior to the Effective Time by the Warrant Exchange Ratio, rounded
to the nearest whole cent.
(d) Capital Stock of Merger Sub. Each share of Common Stock of
Merger Sub issued and outstanding immediately prior to the Effective Time shall
be converted into and exchanged for one validly issued, fully paid and
nonassessable share of Common Stock of the Surviving Corporation. Each stock
certificate of Merger Sub evidencing ownership of any such shares shall continue
to evidence ownership of such shares of capital stock of the Surviving
Corporation.
(e) Adjustments to Exchange Ratio. The number of shares issuable
pursuant to this Section 1.6 shall be adjusted to reflect fully the effect of
any stock split, reverse split, stock dividend (including any dividend or
distribution of securities convertible into Parent Common Stock or Company
Capital Stock), reorganization, recapitalization or other like change with
respect to Parent Common Stock or Company Capital Stock occurring after the date
hereof and prior to the Effective Time.
(f) Fractional Shares. No fraction of a share of Parent Common Stock
will be issued, but in lieu thereof, each holder of shares of Company Capital
Stock who would otherwise be entitled to a fraction of a share of Parent Common
Stock (after aggregating all fractional shares of Parent Common Stock to be
received by such holder) shall be entitled to receive from Parent an amount of
cash (rounded to the nearest whole cent) equal to the product of (i) such
fraction, multiplied by (ii) $45.096.
(g) Xxxxx Xxxxxxxxxx-Haelbig Warrant. For purposes of this Section
1.6, Parent and the Company agree that the Warrant dated March 31, 1999 issued
by the Company to Xxxxx Xxxxxxxxxx-Haelbig shall be deemed to be null and void
as of the Effective Time. In the event that such Warrant is not terminated prior
to the six-month anniversary of the Closing Date, Parent shall be deemed to have
asserted a claim with respect to such warrant against that portion of the Escrow
Fund which would otherwise be released to the Company stockholders pursuant to
the Escrow Agreement on such six-month anniversary. Thereafter the shares of
Parent Common Stock representing such portion of the Escrow Fund shall continue
to be held in escrow pursuant to the Escrow Agreement.
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(h) Definitions.
(i) Escrow Amount. The "Escrow Amount" shall be 266,099 shares
of Parent Common Stock.
(ii) Special Escrow Amount. The "Special Escrow Amount" shall be
776,122 shares of Parent Common Stock.
1.7 Dissenting Shares.
(a) Notwithstanding any provision of this Agreement to the contrary,
any shares of Company Capital Stock held by a holder who has demanded and
perfected dissenters' rights for such shares in accordance with Delaware Law and
who, as of the Effective Time, has not effectively withdrawn or lost such
dissenters' rights ("Dissenting Shares"), shall not be converted into or
represent a right to receive Parent Common Stock pursuant to Section 1.6, but
the holder thereof shall only be entitled to such rights as are granted by
Delaware Law.
(b) Notwithstanding the provisions of subsection (a), if any holder
of shares of Company Capital Stock who demands appraisal of such shares under
Delaware Law shall effectively withdraw or lose (through failure to perfect or
otherwise) the right to appraisal, then, as of the later of the Effective Time
and the occurrence of such event, such holder's shares shall automatically be
converted into and represent only the right to receive Parent Common Stock and
cash in lieu of fractional shares as provided in Section 1.6, without interest
thereon, upon surrender of the certificate representing such shares.
(c) The Company shall give Parent (i) prompt notice of any written
demands for appraisal of any shares of Company Capital Stock, withdrawals of
such demands, and any other instruments served pursuant to Delaware Law and
received by the Company and (ii) the opportunity to participate in all
negotiations and proceedings with respect to demands for appraisal under
Delaware Law. The Company shall not, except with the prior written consent of
Parent, voluntarily make any payment with respect to any demands for appraisal
of capital stock of the Company or offer to settle or settle any such demands.
1.8 Surrender of Certificates.
(a) Exchange Agent. American Stock Transfer & Trust Company shall
serve as the exchange agent (the "Exchange Agent") in the Merger.
(b) Parent and Merger Sub to Provide Cash and Common Stock. On or
prior to the Effective Time, Parent shall deliver to the Exchange Agent for
exchange in accordance with this Article I, the aggregate number of shares of
Parent Common Stock issuable pursuant to Section 1.6 in exchange for outstanding
shares of Company Capital Stock and shall cause Merger Sub to deliver to the
Exchange Agent an amount in cash equal to the Aggregate Cash Consideration;
provided that, on behalf of the holders of Company Capital Stock, Parent shall
deposit into an escrow account a number of shares of Parent Common Stock equal
to the Escrow Amount out of the aggregate number of shares of Parent Common
Stock otherwise issuable pursuant to Section 1.6 and this Section 1.8(b);
provided further, that, in the event that the Company shall have failed to
extend the term of the Amended and Restated Services Agreement dated March 12,
1997, as further amended to date, between the Company and U.S. West
Communications (the "U.S. West Agreement") to a period ending not earlier than
March 12, 2001, on substantially those terms set forth on Schedule 1.8(b), then,
on behalf of the holders of Company Capital Stock, Parent shall deposit into
such
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escrow account an additional number of shares of Parent Common Stock equal to
the Special Escrow Amount out of the aggregate number of shares of Parent Common
Stock otherwise issuable pursuant to Section 1.6 and this Section 1.8(b). The
portion of the Escrow Amount and Special Escrow Amount, respectively,
contributed on behalf of each holder of Company Capital Stock shall be in
proportion to the aggregate number of shares of Parent Common Stock which such
holder would otherwise be entitled to receive under Section 1.6 by virtue of
ownership of outstanding shares of Company Capital Stock.
(c) Exchange Procedures. Promptly after the execution of this
Agreement, the Company shall cause to be mailed to each holder of record of a
certificate or certificates (the "Certificates") which represent outstanding
shares of Company Capital Stock, (i) the Information Statement contemplated by
Section 5.1, which shall include an allocation of the cash and Parent Common
Stock consideration to be paid in exchange for the shares of Company Capital
Stock, together with a Stockholders' Letter Agreement appointing Xxxxx Xxxxxx
and Xxxxxx X. Xxxxxx as "Stockholders' Representatives", (ii) a letter of
transmittal (which shall specify that delivery shall be effected, and risk of
loss and title to the Certificates shall pass, only upon delivery of the
Certificates to the Exchange Agent and shall be in such form and have such other
provisions as Parent may reasonably specify) and (iii) instructions for
delivering the Certificates to Xxxxxxx Xxxxxx & Green, P.C. ("EBG") to be held
until the Effective Time and, at the Effective Time, surrendered in exchange for
cash and/or certificates representing shares of Parent Common Stock. Upon
surrender, by EBG pursuant to the letter of transmittal at the Effective Time or
by EBG or directly by the holder of such Certificate if after the Effective
Time, of a Certificate for cancellation to the Exchange Agent or to such other
agent or agents as may be appointed by Parent, together with such letter of
transmittal, duly completed and validly executed in accordance with the
instructions thereto, the holder of such Certificate shall be entitled to
receive in exchange therefor a certificate representing the number of whole
shares of Parent Common Stock (less the number of shares of Parent Common Stock,
if any, to be deposited in the Escrow Fund (as defined in Section 7.7 below) on
such holder's behalf pursuant to Section 7.7 hereof), and any cash consideration
to be received plus cash in lieu of fractional shares in accordance with Section
1.6, to which such holder is entitled pursuant to Section 1.6, and the
Certificate so surrendered shall forthwith be canceled. As soon as practicable
after the Effective Time, and subject to and in accordance with the provisions
of Article VII hereof, Parent shall cause to be distributed to the Escrow Agent
a certificate or certificates representing that number of shares of Parent
Common Stock equal to the Escrow Amount and Special Escrow Amount, if
appropriate, which shall be registered in the name of the Escrow Agent. Such
shares shall be beneficially owned by the holders on whose behalf such shares
were deposited in the Escrow Fund and shall be available to compensate Parent as
provided in Article VII. Until so surrendered, each outstanding Certificate
that, prior to the Effective Time, represented shares of Company Capital Stock
will be deemed from and after the Effective Time, for all corporate purposes,
other than the payment of dividends, to evidence the ownership of the number of
full shares of Parent Common Stock into which such shares of Company Capital
Stock shall have been so converted and the right to receive the applicable
amount of cash consideration for such shares of Company Capital Stock and cash
in lieu of the issuance of any fractional shares in accordance with Section 1.6.
(d) Distributions With Respect to Unexchanged Shares. No dividends
or other distributions declared or made after the Effective Time with respect to
Parent Common Stock with a record date after the Effective Time will be paid to
the holder of any unsurrendered Certificate with respect to the shares of Parent
Common Stock represented thereby until the holder of record of such Certificate
shall surrender such Certificate. Subject to applicable law, following surrender
of any such Certificate, there shall be paid to the record holder of the
certificates representing whole shares of Parent Common Stock issued in exchange
therefor, without interest, at the time of such surrender, the amount of
dividends or other distributions with a
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record date after the Effective Time theretofore paid with respect to such whole
shares of Parent Common Stock.
(e) Transfers of Ownership. If any certificate for shares of Parent
Common Stock is to be issued in a name other than that in which the Certificate
surrendered in exchange therefor is registered, it will be a condition of the
issuance thereof that the Certificate so surrendered will be properly endorsed
and otherwise in proper form for transfer and that the person requesting such
exchange will have paid to Parent or any agent designated by it any transfer or
other taxes required by reason of the issuance of a certificate for shares of
Parent Common Stock in any name other than that of the registered holder of the
Certificate surrendered, or established to the satisfaction of Parent or any
agent designated by it that such tax has been paid or is not payable.
(f) No Liability. Notwithstanding anything to the contrary in this
Section 1.8, none of the Exchange Agent, the Surviving Corporation (or any
officer or director thereof) or any party hereto shall be liable to a holder of
shares of Parent Common Stock or Company Capital Stock for any amount properly
paid to a public official pursuant to any applicable abandoned property, escheat
or similar law.
1.9 No Further Ownership Rights in Company Capital Stock. All shares of
Parent Common Stock issued upon the surrender for exchange of shares of Company
Capital Stock in accordance with the terms hereof (including any cash paid in
respect thereof) shall be deemed to have been issued in full satisfaction of all
rights pertaining to such shares of Company Capital Stock, and there shall be no
further registration of transfers on the records of the Surviving Corporation of
shares of Company Capital Stock which were outstanding immediately prior to the
Effective Time. If, after the Effective Time, Certificates are presented to the
Surviving Corporation for any reason, they shall be canceled and exchanged as
provided in this Article I.
1.10 Lost, Stolen or Destroyed Certificates. In the event any
certificates evidencing shares of Company Capital Stock shall have been lost,
stolen or destroyed, the Exchange Agent shall issue in exchange for such lost,
stolen or destroyed certificates, upon the making of an affidavit of that fact
by the holder thereof, such shares of Parent Common Stock, cash and cash for
fractional shares, if any, as may be required pursuant to Section 1.6; provided,
however, that Parent may, in its discretion and as a condition precedent to the
issuance thereof, require the owner of such lost, stolen or destroyed
certificates to deliver a bond in such sum as it may reasonably direct as
indemnity against any claim that may be made against Parent or the Exchange
Agent with respect to the certificates alleged to have been lost, stolen or
destroyed.
1.11 Taking of Necessary Action; Further Action. If, at any time after
the Effective Time, any further action is necessary or desirable to carry out
the purposes of this Agreement and to vest the Surviving Corporation with full
right, title and possession to all assets, property, rights, privileges, powers
and franchises of the Company and Merger Sub, the officers and directors of the
Company and Merger Sub are fully authorized in the name of their respective
corporations or otherwise to take, and will take, all such lawful and necessary
action.
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ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to Parent and Merger Sub,
subject to such exceptions as are specifically disclosed in the disclosure
letter (referencing the appropriate section number) supplied by the Company to
Parent (the "Company Schedules") and dated as of the date hereof, as follows:
2.1 Organization of the Company. The Company is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware. The Company has the corporate power to own its properties and to carry
on its business as now being conducted. The Company is duly qualified to do
business and in good standing as a foreign corporation in each jurisdiction in
which the failure to be so qualified would have a material adverse effect on the
business, assets (including intangible assets), financial condition or results
of operations of the Company; provided that in evaluating whether such an event
would constitute a material adverse effect, the effect shall be measured against
the business, assets (including intangible assets), financial condition and
results of operations of the Company on a normalized basis taking into account
the state of such matters over the twelve month period preceding the date of
this Agreement (hereinafter referred to as a "Material Adverse Effect"). The
Company has delivered a true, correct and complete copy of its Certificate of
Incorporation and Bylaws, each as amended to date, to Parent.
2.2 Company Capital Structure.
(a) The authorized capital stock of the Company consists of (i)
19,226,125 shares of Common Stock, of which 2,787,637 shares are issued and
outstanding, and (ii) 23,875 shares of Preferred Stock, of which 2,500 are
designated Series A Preferred, all of which are issued and outstanding, 3,125
shares are designated Series B Preferred, all of which are issued and
outstanding, 1,000 shares are designated Series C Preferred, all of which are
issued and outstanding, 5,250 shares are designated Series D Preferred Stock,
all of which are issued and outstanding, and 12,000 shares are designated Series
E Preferred, all of which are issued and outstanding. The Company Capital Stock
is held by the persons and in the amounts set forth on Schedule 2.2(a). All
outstanding shares of Company Capital Stock are duly authorized, validly issued,
fully paid and non-assessable and not subject to preemptive rights created by
statute, the Certificate of Incorporation or Bylaws of the Company or any
agreement to which the Company is a party or by which it is bound. On or at the
Effective Time, each outstanding share of Preferred Stock of the Company, other
than shares for which dissenter's rights have been exercised, shall be converted
into Common Stock of the Company in such number of shares of Common Stock of the
Company as is set forth on Schedule 2.2(a).
(b) The Company has reserved 2,150,000 shares of Common Stock for
issuance to directors, employees and consultants pursuant to the Option Plan, of
which 1,512,598 shares are subject to outstanding, unexercised options and
433,065 shares remain available for future grant. The Company has reserved no
shares of Common Stock for issuance upon exercise of outstanding Company Options
granted outside the Option Plan. Schedule 2.2(b) sets forth for each outstanding
Company Option the name of the holder of such option, the number of shares of
Common Stock subject to such option, the exercise price of such option and the
vesting schedule for such option, including the extent vested to date and
whether the exercisability of such option will be accelerated and become
exercisable by the transactions contemplated by
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this Agreement. Schedule 2.2(b) also sets forth for each outstanding Company
Warrant the name of the holder of such warrant, the number of shares of Company
Capital Stock subject to such warrant, the exercise price of such warrant and
the vesting schedule for such warrant, including the extent vested to date and
whether the exercisability of such warrant will be accelerated and become
exercisable by the transactions contemplated by this Agreement. Except as
described in Schedule 2.2(b), there are no options, warrants, calls, rights,
commitments or agreements of any character, written or oral, to which the
Company is a party or by which it is bound obligating the Company to issue,
deliver, sell, repurchase or redeem, or cause to be issued, delivered, sold,
repurchased or redeemed, any shares of the capital stock of the Company. Except
for the Company Options and Company Warrants described in Schedule 2.2(b), there
are no options, warrants, calls, rights, commitments or agreements of any
character, written or oral, to which the Company is a party or by which it is
bound obligating the Company to grant, extend, accelerate the vesting of, change
the price of, otherwise amend or enter into any such option, warrant, call,
right, commitment or agreement. Except as disclosed on Schedule 2.2(b), the
holders of Company Options and Company Warrants have been or will be given, or
shall have properly waived, any required notice prior to the Merger. Solely as a
result of the Merger, no person will have rights to acquire or receive Company
Capital Stock, other than as held by Parent or as set forth on Schedule 2.2(b).
2.3 Subsidiaries. Except as set forth on Schedule 2.3, the Company does
not have and has never had any subsidiaries or affiliated companies and does not
otherwise own and has never otherwise owned any shares of capital stock or any
interest in, or control, directly or indirectly, any other corporation,
partnership, association, joint venture or other business entity.
2.4 Authority. Subject only to the approval of the Merger and this
Agreement by the Company's stockholders, the Company has all requisite corporate
power and authority to enter into this Agreement and to consummate the
transactions contemplated hereby. The vote required of the Company's
stockholders to duly approve the Merger and this Agreement is the affirmative
vote of the holders of a majority of the issued and outstanding shares of
Company Common Stock of the Company voting as one group and the holders of a
majority of the issued and outstanding shares of the Company Preferred Stock,
each such series voting as a separate group, except that the separate
affirmative vote of the holders of 55% of the issued and outstanding shares of
Series D Preferred voting as a separate group is required. The execution and
delivery of this Agreement and the consummation of the transactions contemplated
hereby have been duly authorized by all necessary corporate action on the part
of the Company, subject only to the approval of the Merger by the Company's
stockholders. The members of the Company's Board of Directors present at a
meeting held October 27, 1999, have unanimously approved the Merger and this
Agreement, such that the Merger and this Agreement have been approved by the
required number of directors of the Company's Board of Directors. This Agreement
has been duly executed and delivered by the Company and constitutes the valid
and binding obligation of the Company, enforceable in accordance with its terms,
subject to applicable bankruptcy, insolvency, fraudulent conveyance or other
laws affecting the rights of creditors generally. Except as set forth on
Schedule 2.4, subject only to the approval of the Merger and this Agreement by
the Company's stockholders, the execution and delivery of this Agreement by the
Company does not, and, as of the Effective Time, the consummation of the
transactions contemplated hereby will not, conflict with, or result in any
violation of, or default under (with or without notice or lapse of time, or
both), or give rise to a right of termination, cancellation or acceleration of
any obligation or loss of any benefit under (any such event, a "Conflict") (i)
any provision of the Certificate of Incorporation or Bylaws of the Company or
(ii) any mortgage, indenture, lease, contract or other agreement or, to the
knowledge of the Company, instrument, permit, concession, franchise, license,
judgment, order, decree, statute, law, ordinance, rule or regulation applicable
to the Company or its properties or assets, except in those instances where such
Conflict would have no Material Adverse Effect. No consent, waiver, approval,
order or authorization of, or registration, declaration or filing with, any
court, administrative agency or commission or other federal, state, county,
local or foreign governmental authority, instrumentality, agency or commission
("Governmental Entity") or any third party (so as not to trigger any Conflict),
is required by or with respect to the Company in connection with the execution
and delivery of this Agreement or the consummation of the transactions
contemplated
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hereby, except for (i) the filing of the Certificate of Merger with the
Secretary of State of the State of Delaware, (ii) such consents, waivers,
approvals, orders, authorizations, registrations, declarations and filings as
may be required under applicable federal and state securities laws, (iii)
expiration or early termination of the applicable waiting period under the
Xxxx-Xxxxx-Xxxxxx Antitrust Improvements Act of 1976, as amended (the "HSR
Act"), and (iv) such other consents, waivers, authorizations, filings, approvals
and registrations which are set forth on Schedule 2.4.
2.5 Company Financial Statements. Schedule 2.5(a) sets forth (i) the
Company's audited consolidated balance sheet as of December 31,1998, and the
related consolidated statements of operations, of changes in redeemable
preferred stock and stockholders' equity and of cash flows for the twelve-month
period then ended (collectively, the "Year-End Financials") and (ii) the
Company's unaudited balance sheet dated as of September 30, 1999 (the "Balance
Sheet") and the unaudited statements of operations and cash flows for the
nine-month period ended September 30, 1999 (collectively, the "Interim
Financials"). Except as set forth on Schedule 2.5(b), the Year-End Financials
and Interim Financials have been prepared in accordance with generally accepted
accounting principles ("GAAP") applied on a basis consistent throughout the
periods indicated and consistent with each other. Except as set forth on
Schedule 2.5(c), the Year-End Financials and Interim Financials present fairly
the financial condition and operating results of the Company as of the dates and
during the periods indicated therein, subject, in the case of the unaudited
financial statements, to normal year-end adjustments and footnotes, which will
not be material in amount or significance.
2.6 No Undisclosed Liabilities. Except as set forth in Schedule 2.6, the
Company does not have any liability, indebtedness, obligation, expense, claim,
deficiency, guaranty or endorsement of any type, whether accrued, absolute,
contingent, matured, unmatured or other (whether or not required to be reflected
in financial statements in accordance with generally accepted accounting
principles), which individually or in the aggregate, (i) has not been reflected
in the Balance Sheet, or (ii) has not arisen in the ordinary course of the
Company's business since September 30, 1999, consistent with past practices and
in the aggregate do not exceed $150,000.
2.7 No Changes. Except as set forth in Schedule 2.7, since September 30,
1999, there has not been, occurred or arisen any:
(a) transaction by the Company except in the ordinary course of
business as conducted on that date and consistent with past practices;
(b) amendments or changes to the Certificate of Incorporation or
Bylaws of the Company;
(c) capital expenditure or commitment by the Company of $25,000 in
any individual case or $50,000 in the aggregate;
(d) destruction of, damage to or loss of any material assets,
business or customer of the Company (whether or not covered by insurance);
(e) notice of a claim of wrongful discharge or, to the Company's
knowledge, labor trouble or unlawful labor practice or action;
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(f) change in accounting methods or practices (including any change
in depreciation or amortization policies or rates) by the Company;
(g) revaluation by the Company of any of its assets;
(h) declaration, setting aside or payment of a dividend or other
distribution with respect to the capital stock of the Company, or any direct or
indirect redemption, purchase or other acquisition by the Company of any of its
capital stock;
(i) increase in the salary or other compensation payable or to
become payable by the Company to any of its officers, directors, employees or
advisors, or the declaration, payment or commitment or obligation of any kind
for the payment, by the Company, of a bonus or other additional salary or
compensation to any such person except as otherwise contemplated by this
Agreement or in the ordinary course of business;
(j) sale, lease, license or other disposition of any of the assets
or properties of the Company, except in the ordinary course of business as
conducted on that date and consistent with past practices;
(k) amendment or termination or notice of non-renewal of any
material contract, agreement or license to which the Company is a party or by
which it is bound, except for an amendment to the U.S. West Agreement or in the
ordinary course of business;
(l) loan by the Company to any person or entity, incurring by the
Company of any indebtedness, guaranteeing by the Company of any indebtedness,
issuance or sale of any debt securities of the Company or guaranteeing of any
debt securities of others except for advances to employees for travel and
business expenses or use of the Company's existing lines of credit in the
ordinary course of business, consistent with past practices;
(m) waiver or release of any material right or claim of the Company,
including any write-off or other compromise of any account receivable of the
Company;
(n) commencement or notice or, to the Company's knowledge, threat of
commencement of any lawsuit or proceeding against or investigation of the
Company or its affairs;
(o) notice of any claim of ownership by a third party of the
Company's Intellectual Property (as defined in Section 2.11 below) or of
infringement by the Company of any third party's Intellectual Property rights;
(p) issuance or sale by the Company of any of its shares of capital
stock, or securities exchangeable, convertible or exercisable therefor, or of
any other of its securities, other than those options to purchase a total of
166,000 shares of Company Common Stock granted at a meeting of the Company's
Board of Directors held October 27, 1999;
(q) change in pricing or royalties set or charged by the Company to
its customers or licensees or in pricing or royalties set or charged by persons
who have licensed Intellectual Property to the Company; or
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(r) negotiation or agreement by the Company or any officer or
employees thereof to do any of the things described in the preceding clauses (a)
through (r) (other than negotiations with Parent and its representatives
regarding the transactions contemplated by this Agreement).
2.8 Tax and Other Returns and Reports.
(a) Definition of Taxes. For the purposes of this Agreement, "Tax"
or, collectively, "Taxes", means any and all federal, state, local and foreign
taxes, assessments and other governmental charges, duties, impositions and
liabilities, including taxes based upon or measured by gross receipts, income,
profits, sales, use and occupation, and value added, ad valorem, transfer,
franchise, withholding, payroll, recapture, employment, excise and property
taxes, together with all interest, penalties and additions imposed with respect
to such amounts and any obligations under any agreements or arrangements with
any other person with respect to such amounts and including any liability for
taxes of a predecessor entity.
(b) Tax Returns and Audits. Except as set forth in Schedule 2.8:
(i) The Company as of the Effective Time will have prepared and
filed all required federal, state, local and foreign returns, estimates,
information statements and reports ("Returns") relating to any and all Taxes
concerning or attributable to the Company or its operations and such Returns are
true and correct and have been completed in accordance with applicable law.
(ii) The Company as of the Effective Time: (A) will have paid
all Taxes shown as due on the Company's Returns and will have accrued all Taxes
it is required to accrue and (B) will have withheld with respect to its
employees all federal and state income taxes, FICA, FUTA and other Taxes
required to be withheld.
(iii) The Company has not been delinquent in the payment of any
material Tax nor is there any Tax deficiency outstanding, proposed or assessed
against the Company, nor has the Company executed any waiver of any statute of
limitations on or extending the period for the assessment or collection of any
Tax.
(iv) No audit or other examination of any Return of the Company
is presently in progress, nor has the Company been notified of any request for
such an audit or other examination.
(v)The Company does not have any liabilities for unpaid federal,
state, local or foreign Taxes which have not been accrued or reserved against on
the Balance Sheet, whether asserted or unasserted, contingent or otherwise, and
the Company has no knowledge of any basis for the assertion of any such
liability attributable to the Company, its assets or operations.
(vi) The Company has provided to Parent copies of all federal
and state income and all state sales and use Tax Returns for all periods since
the date of Company's incorporation.
(vii) There are (and as of immediately following the Closing
there will be) no liens, pledges, charges, claims, security interests or other
encumbrances of any sort ("Liens") on the assets of the Company relating to or
attributable to Taxes.
(viii) The Company has no knowledge of any basis for the
assertion of any claim relating or attributable to Taxes which, if adversely
determined, would result in any Lien on the assets of the Company.
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(ix) None of the Company's assets are treated as "tax-exempt use
property" within the meaning of Section 168(h) of the Code.
(x)As of the Effective Time, there will not be any contract,
agreement, plan or arrangement, including but not limited to the provisions of
this Agreement, covering any employee or former employee of the Company that,
individually or collectively, could give rise to the payment of any amount that
would not be deductible pursuant to Section 280G or 162 of the Code.
(xi) The Company has not filed any consent agreement under
Section 341(f) of the Code or agreed to have Section 341(f)(2) of the Code apply
to any disposition of a subsection (f) asset (as defined in Section 341(f)(4) of
the Code) owned by the Company.
(xii) The Company is not a party to a tax sharing or allocation
agreement nor does the Company owe any amount under any such agreement.
(xiii) The Company is not, and has not been at any time, a
"United States real property holding corporation" within the meaning of Section
897(c)(2) of the Code.
(xiv) Neither Company nor any of its subsidiaries (a) has been a
member of an affiliated group (within the meaning of Section 1504(a) of the
Code) filing a consolidated federal income Tax Return (other than a group the
common parent of which was Company) or (b) has any liability for the Taxes of
any person (other than Company or any of its Subsidiaries) under Treas. Reg. ss.
1.1502-6 (or any similar provision of state, local or foreign law), as a
transferee or successor, by contract, or otherwise.
(xv) Neither the Company nor any of its subsidiaries has
constituted either a "distributing corporation" or a "controlled corporation" in
a distribution of stock qualifying for tax-free treatment under Section 355 of
the Code (x) in the two years prior to the date of this Agreement or (y) in a
distribution which could otherwise constitute part of a "plan" or "series of
related transactions" (within the meaning of Section 355(e) of the Code) in
conjunction with the Merger.
2.9 Restrictions on Business Activities. There is no agreement
(noncompete or otherwise), commitment, judgment, injunction, order or decree to
which the Company is a party or, to the Company's knowledge, otherwise binding
upon the Company, which has or reasonably could be expected to have the effect
of prohibiting or impairing any business practice of the Company, any
acquisition of property (tangible or intangible) by the Company or the conduct
of business by the Company as presently conducted by the Company, or, to the
knowledge of the Company, as proposed to be conducted after the Merger. Without
limiting the foregoing, except as disclosed on Schedule 2.9, the Company has not
entered into any agreement under which the Company is restricted from selling,
licensing or otherwise distributing any of its products to any class of
customers, in any geographic area, during any period of time or in any segment
of the market.
2.10 Title to Properties; Absence of Liens and Encumbrances.
(a) The Company owns no real property, nor has it ever owned any
real property. Schedule 2.10(a) sets forth a list of all real property currently
leased by the Company, the name of the lessor and the expiration date of the
lease and the aggregate annual rental fees payable under any such lease. All
such current leases are in full force and effect, are valid and effective in
accordance with their respective terms, and there is not, under any of such
leases, to the Company's knowledge, any existing default or event of default (or
event which with notice or lapse of time, or both, would constitute a default).
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(b) The Company has good and valid title to, or, in the case of
leased properties and assets, valid leasehold interests in, all of its tangible
properties and assets, real, personal and mixed, used or held for use in its
business, free and clear of any Liens (as defined in Section 2.8(b)(vii)),
except as reflected in the Year-End Financials or Interim Financials or in
Schedule 2.10(b) and except for liens for taxes not yet due and payable, liens
in favor of equipment lessors secured by personal equipment, and such
imperfections of title and encumbrances, if any, which are not material in
character, amount or extent, and which do not materially detract from the value,
or materially interfere with the present use, of the property subject thereto or
affected thereby.
2.11 Intellectual Property.
(a) For the purposes of this Section 2.11, the following terms have
the following definitions:
"Intellectual Property" shall mean any or all of the following and all
rights in, arising out of, or associated therewith: (i) all United
States and foreign patents and applications therefor and all reissues,
divisions, renewals, extensions, provisionals, continuations and
continuations-in-part thereof, and equivalent or similar rights anywhere
in the world in inventions and discoveries ("Patents); (ii) all
inventions (whether patentable or not), invention disclosures,
improvements, trade secrets, proprietary information, know how,
technology, technical data and customer lists, and all documentation
embodying or evidencing any of the foregoing; (iii) all copyrights,
copyrights registrations and applications therefor and all other rights
corresponding thereto throughout the world ("Copyrights"); (iv) all
industrial designs and any registrations and applications therefor
throughout the world; (v) all trade names, logos, common law trademarks
and service marks, trademark and service xxxx registrations and
applications therefor and all goodwill associated therewith throughout
the world ("Trademarks"); (vi) all databases and data collections and
all rights therein throughout the world; and (vii) all computer software
including all source code, object code, firmware, development tools,
files, records and data, all media on which any of the foregoing is
recorded; (viii) all World Wide Web addresses, sites and domain names;
and (ix) any similar, corresponding or equivalent rights to any of the
foregoing anywhere in the world.
"Business" means the business of the Company, including the manufacture,
use, licensing, distribution and sale of any products or technology or
the provision of any services by the Company, as currently conducted.
"Company Intellectual Property" shall mean any Intellectual Property
that is owned by or licensed to the Company.
"Registered Intellectual Property" shall mean all United States and
foreign: (i) Patents, including applications therefor; (ii) registered
Trademarks, applications to register Trademarks, including intent-to-use
applications, or other registrations or applications related to
Trademarks; (iii) Copyrights registrations and applications to register
Copyrights; and (iv) any other Company Intellectual Property that is the
subject of an application, certificate, filing, registration or other
document issued by, filed with, or recorded by, any state, government or
other public legal authority at any time.
(b) Schedule 2.11(b) lists all Registered Intellectual Property in
whole or in part owned by, assigned to, or filed in the name of, the Company
(the "Company Registered Intellectual Property").
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(c) Except as set forth on Schedule 2.11(c), each item of Company
Intellectual Property, including all Company Registered Intellectual Property
listed on Schedule 2.11(b) , that is owned by the Company is free and clear of
any encumbrance, including any lien or security interest.
(d) The Company: (i) has the right to use, either by ownership or
license all Trademarks, including trade names, trade dress and similar
designations of origin used in connection with the operation or conduct of the
Business and (ii) owns exclusively, and has good title to, all copyrighted works
that are software products created by the Company or other works of authorship
that the Company otherwise purports to own except as would not constitute a
Material Adverse Effect.
(e) Except as set forth on Schedule 2.11(e), the Company has not
transferred ownership of, or granted any license of or right to use or
authorized the retention of any rights to use, any Intellectual Property that
is, or was, Company Intellectual Property, to any other person, other than
nonexclusive licenses .
(f) The Company Intellectual Property constitutes all the
Intellectual Property used in and/or necessary to the conduct of the Business
including (i) the making, using, selling, marketing, or importing of any product
or device, (ii) the practice of any process, (iii) the offering or performance
of any service, or (iv) the copying, display, performance, distribution,
creation of derivative works of, or the exploitation of any device or work,
including any of the foregoing with respect to products, technology or services
currently under development by Company.
(g) The contracts, licenses and agreements listed on Schedule
2.12(a) include all material contracts, licenses and agreements pursuant to
which any third party has licensed any Intellectual Property to the Company.
(h) The contracts, licenses and agreements listed on Schedule
2.12(a) include all contracts and agreements pursuant to which any Person,
including any third party developer or consultant, has developed any device or
technology, authored any work, or otherwise created any thing in which any
Intellectual Property rights might arise, either separately or jointly with the
Company, which the Company uses or possesses or which the Company believes it
owns and the failure of the Company to use, possess or own such Intellectual
Property right would have a Material Adverse Effect.
(i) The contracts, licenses and agreements listed on Schedule
2.12(a) include all material contracts, licenses and agreements pursuant to
which the Company has licensed or transferred to any third person any material
Company Intellectual Property other than licenses to third party end-users
entered into in the ordinary course of business. The Company is neither in
breach of, nor has it failed to perform under any of the foregoing contracts,
licenses and agreements and, to the knowledge of the Company, no other party to
such contracts, licenses and agreements is in breach of or has failed to perform
thereunder where such breach or failure to perform would result in a Material
Adverse Effect.
(j) The consummation of the transactions contemplated by this
Agreement will not cause or obligate the Surviving Corporation (i) to grant to
any third party any rights or licenses with respect to any Intellectual Property
of the Surviving Corporation or, to the knowledge of the Company, the Parent; or
(ii) pay any royalties or other amounts in excess of those being paid by Company
prior to the Closing.
(k) Except as set forth on Schedule 2.12(a), the consummation of the
transactions contemplated by this Agreement will not result in the loss of, or
otherwise Materially Adversely Effect, any
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ownership rights of Company in any Company Intellectual Property or result in
the breach or termination of any license, contract or agreement to which Company
is a party respecting any material Company Intellectual Property.
(l) The operation of the Business, including (i) the making, using,
selling, marketing, or importing of any product or device, (ii) the practice of
any process, (iii) the offering or performance of any service, or (iv) the
copying, distribution, performance, display, creation of derivative works of, or
the exploitation of any device or work, including any of the foregoing with
respect to products, technology or services currently under development by
Company, does not, and will not when conducted in substantially the same manner
following the Closing by the Surviving Corporation, infringe or misappropriate
the Intellectual Property of any person, violate the rights of any person, or
constitute unfair competition or trade practices under the laws of any
jurisdiction, and the Company has not received written notice from any person
claiming that such operation or any act, product, technology or service of the
Business infringes or misappropriates the Intellectual Property of any person or
constitutes unfair competition or trade practices under the laws of any
jurisdiction (nor is the Company aware of any basis therefor). Without limiting
the foregoing, to the knowledge of the Company, it has not misappropriated the
trade secrets of, or infringed the Copyright of any third party.
(m) Except as disclosed on Schedule 2.15, there are no contracts,
licenses or agreements between the Company and any other person with respect to
Company Intellectual Property under which there is any dispute known to the
Company regarding the scope of such agreement, or performance under such
contract, license or agreement including with respect to any payments to be made
or received by the Company thereunder.
(n) To the knowledge of the Company, no person is infringing or
misappropriating any Company Intellectual Property.
(o) Except as disclosed on Schedule 2.11, no Company Intellectual
Property is subject to any proceeding or outstanding decree, order, judgment,
agreement or stipulation that restricts in any manner the use, transfer or
licensing thereof by the Company or may affect the validity, use or
enforceability of such Company Intellectual Property.
(p) Schedule 2.11 lists all action, including the payment of any
fees, that must, or should be performed by, or on behalf of, the Company in the
ninety-day period following the Closing Date, with respect to any application
for, perfection of, preservation of, or continuation of any rights of Company
with respect to any Company Intellectual Property, including the filing of any
patent applications, response to Patent Office actions or payment of fees,
including renewal fees.
(q) The Company has not claimed small business status, or other
particular status in the application for any Registered Company Intellectual
Property which claim of status was not at the time made, or which has since
become inaccurate or false or that will no longer be true and accurate as a
result of the Closing.
(r) All software products of the Company were written and created
solely by either (i) employees of the Company acting within the scope of their
employment, (ii) by third parties who have validly licensed the Intellectual
Property rights in such products to the Company, or (iii) by third parties who
have validly assigned their Intellectually Property rights in such products to
the Company.
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(s) To Company's Knowledge, the Company has no information,
materials, facts, or circumstances, including any information or fact that would
constitute prior art, that would render any of the Company Registered
Intellectual Property invalid or unenforceable, or would adversely effect any
pending application for any Company Registered Intellectual Property and the
Company has not misrepresented, or failed to disclose, and has no knowledge of
any misrepresentation or failure to disclose, any fact or circumstances in any
application for any Company Registered Intellectual Property that would
constitute fraud or a material misrepresentation with respect to such
application or that would otherwise effect the validity or enforceability of any
Company Registered Intellectual Property.
(t) The Company has taken all steps reasonable under the
circumstances to protect the confidentiality and trade secret status of any
material confidential information of the Company and knows of no basis on which
it could be claimed that the Company has failed to protect the confidentiality
of any material Confidential Information of the Company.
(u) Except as set forth on Schedule 2.11(u), all employees of the
Company have entered into a valid and binding agreement with the company
sufficient to vest title in the Company of all Intellectual Property created by
such employee in the scope of his or her employment with the Company, except
where the failure of an employee to have entered into such an agreement is not
reasonably expected to be material to the Company.
2.12 Agreements, Contracts and Commitments.
(a) Except as set forth on Schedule 2.12(a), the Company does not
have, is not a party to nor is it bound by:
(i)any collective bargaining agreements,
(ii) any agreements or arrangements that contain any severance
pay or post-employment liabilities or obligations other than as required by
statute, which are described on Schedule 2.12(a)
(iii) any bonus, deferred compensation, pension, profit sharing
or retirement plans, or any other employee benefit plans or arrangements,
(iv) any employment or consulting agreement with an employee or
individual consultant or salesperson or consulting or sales agreement with a
firm or other organization,
(v)any agreement or plan, including, without limitation, any
stock option plan, stock appreciation rights plan or stock purchase plan, any of
the benefits of which will be increased, or the vesting of benefits of which
will be accelerated, by the occurrence of any of the transactions contemplated
by this Agreement or the value of any of the benefits of which will be
calculated on the basis of any of the transactions contemplated by this
Agreement,
(vi) any fidelity or surety bond or completion bond,
(vii) any lease of personal property having a value individually
in excess of $150,000,
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(viii) any agreement of indemnification or guaranty, other than
indemnification granted to third party licensees of the Company in the ordinary
course of business except with respect to consequential damages,
(ix) any agreement containing any covenant limiting the freedom
of the Company to engage in any line of business or to compete with any person,
(x)any agreement relating to capital expenditures and involving
future payments in excess of $150,000,
(xi) any agreement relating to the disposition or acquisition of
assets or any interest in any business enterprise outside the ordinary course of
the Company's business,
(xii) any mortgages, indentures, loans or credit agreements,
security agreements or other agreements or instruments relating to the borrowing
of money or extension of credit, including guaranties referred to in clause
(viii) hereof,
(xiii) any purchase order for raw materials or contract for the
purchase of raw materials involving $50,000 or more,
(xiv) any construction contracts,
(xv) any distribution, joint marketing or development agreement,
(xvi) any agreement pursuant to which the Company has granted or
may grant in the future, to any party a source-code license or option or other
right to use or acquire source-code, or
(xvii) any other agreement that involves $250,000 or more or is
not cancelable without penalty within thirty (30) days.
(b) Except for such alleged material breaches, violations and
defaults and events that would constitute a material breach, violation or
default with the lapse of time, giving of notice, or both, as are all noted in
Schedule 2.12(b), the Company has not breached, violated or defaulted under, or
received notice that it has breached, violated or defaulted under, any of the
terms or conditions of any agreement, contract or commitment required to be set
forth on Schedule 2.12(a) or Schedule 2.11 (any such agreement, contract or
commitment, a "Contract"). Each Contract is in full force and effect and, except
as otherwise disclosed in Schedule 2.12(b), is not subject to any default
thereunder of which the Company has knowledge by any party obligated to the
Company pursuant thereto.
(c) Schedule 2.12(c) identifies each Contract that requires a
consent, waiver or approval to preserve all rights of, and benefits to, the
Surviving Corporation under such Contract as a result of entering into this
Agreement or effecting the Merger or the other transactions contemplated by this
Agreement (each a "Required Consent").
2.13 Interested Party Transactions. Except as set forth on Schedule
2.13, to the Company's knowledge, no officer, director or shareholder of the
Company (nor any ancestor, sibling, descendant or spouse of any of such persons,
or any trust, partnership or corporation in which any of such persons has or has
had an economic interest), has or has had, directly or indirectly, (i) an
economic interest in any entity which furnished or sold, or furnishes or sells,
services or products that the Company furnishes or sells, or proposes
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to furnish or sell, (ii) an economic interest in any entity that purchases from,
or sells or furnishes to, the Company, any goods or services or (iii) a
beneficial interest in any contract or agreement set forth in Schedule 2.12(a);
provided, that (x) ownership of no more than one percent (1%) of the outstanding
voting stock of a publicly traded corporation shall not be deemed an "economic
interest in any entity" for purposes of this Section 2.13.
2.14 Compliance with Laws. The Company has complied in all material
respects with, is not in material violation of, and has not received any notices
of violation with respect to, any foreign, federal, state or local statute, law
or regulation.
2.15 Litigation. Except as set forth in Schedule 2.15, there is no
action, suit or proceeding of any nature pending or to the Company's knowledge
threatened against the Company, its properties or any of its officers or
directors, in their respective capacities as such. Except as set forth in
Schedule 2.15, to the Company's knowledge, there is no investigation pending or
threatened against the Company, its properties or any of its officers or
directors by or before any governmental entity. Schedule 2.15 sets forth, with
respect to any pending or threatened action, suit, proceeding or investigation,
the parties thereto, the subject matter thereof and the remedy requested. No
governmental entity has at any time challenged or questioned the legal right of
the Company to manufacture, offer or sell any of its products in the present
manner or style thereof.
2.16 Insurance. With respect to the insurance policies and fidelity
bonds covering the assets, business, equipment, properties, operations,
employees, officers and directors of the Company, there is no claim by the
Company pending under any of such policies or bonds as to which coverage has
been questioned, denied or disputed by the underwriters of such policies or
bonds. All premiums due and payable under all such policies and bonds have been
paid and the Company is otherwise in material compliance with the terms of such
policies and bonds (or other policies and bonds providing substantially similar
insurance coverage). The Company has no knowledge of any threatened termination
of, or material premium increase with respect to, any of such policies.
2.17 Minute Books. The minute books of the Company provided to counsel
for Parent are the only minute books of the Company and contain a reasonably
accurate summary of all meetings of directors and shareholders or actions by
written consent since the time of incorporation of the Company.
2.18 Environmental Matters.
(a) Hazardous Material. The Company has not: (i) operated any
underground storage tanks, and has no knowledge of the existence, at any time,
of any underground storage tank (or related piping or pumps), at any property
that the Company has at any time owned, operated, occupied or leased; or (ii)
released any amount of any substance that has been designated by any
Governmental Entity or by applicable federal, state or local law to be
radioactive, toxic, hazardous or otherwise a danger to health or the
environment, including, without limitation, PCBs, asbestos, petroleum,
urea-formaldehyde and all substances listed as hazardous substances pursuant to
the Comprehensive Environmental Response, Compensation, and Liability Act of
1980, as amended, or defined as a hazardous waste pursuant to the United States
Resource Conservation and Recovery Act of 1976, as amended, the Federal Water
Pollution Control Act, as amended, the Clean Air Act, as amended, and the
regulations promulgated pursuant to said laws, (a "Hazardous Material") in a
manner prohibited by law. No Hazardous Materials are present, as a result of the
deliberate actions or omissions of the Company, in, on or under any property,
including the land and the improvements, ground water and surface water thereof,
that the Company has at any time owned, operated, occupied or leased.
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(b) Hazardous Materials Activities. The Company has not transported,
stored, used, manufactured, disposed of, released or , to its knowledge, exposed
its employees or others to Hazardous Materials in violation of any law in effect
on or before the Closing Date, nor has the Company disposed of, transported,
sold, or manufactured any product containing a Hazardous Material (any or all of
the foregoing being collectively referred to as "Hazardous Materials
Activities") in violation of any rule, regulation, treaty or statute promulgated
by any Governmental Entity in effect prior to or as of the date hereof to
prohibit, regulate or control Hazardous Materials or any Hazardous Material
Activity.
(c) Permits. There are no environmental approvals, permits,
licenses, clearances or consents (the "Environmental Permits") necessary for the
conduct of the Company's Hazardous Material Activities and other businesses of
the Company as such activities and businesses are currently being conducted.
(d) Environmental Liabilities. To the Company's knowledge, there is
no fact or circumstance which would involve the Company in any action,
proceeding, revocation proceeding, amendment procedure, writ, injunction or
claim concerning any Environmental Permit, Hazardous Material or any Hazardous
Materials Activities of the Company. To the Company's knowledge, there is no
fact or circumstance which could involve the Company in any environmental
litigation or impose upon the Company any environmental liability.
2.19 Brokers' and Finders' Fees; Third Party Expenses. Except for
payments to The Beacon Group for services rendered in connection with the
transactions contemplated by this Agreement, the Company has not incurred, nor
will it incur, directly or indirectly, any liability for brokerage or finders'
fees or agents' commissions or any similar charges in connection with this
Agreement or any transaction contemplated hereby.
2.20 Employee Matters and Benefit Plans.
(a) Definitions. With the exception of the definition of "Affiliate"
set forth in Section 2.20(a)(i) below (such definition shall only apply to this
Section 2.20), for purposes of this Agreement, the following terms shall have
the meanings set forth below:
(i) "Affiliate" shall mean any other person or entity under
common control with the Company within the meaning of Section 414(b), (c), (m)
or (o) of the Code and the regulations thereunder;
(ii) "COBRA" shall mean the Consolidated Omnibus Budget
Reconciliation Act of 1985, as amended;
(iii) "DOL" shall mean the Department of Labor;
(iv) "Company Employee Plan" shall refer to any plan, program,
policy, practice, contract, agreement or other arrangement providing for
severance, deferred compensation, performance awards, stock or stock-related
awards, fringe benefits or other employee benefits, whether formal or informal,
funded or unfunded and whether or not legally binding, including without
limitation, each "employee benefit plan", within the meaning of Section 3(3) of
ERISA which is or has been maintained, contributed to, or required to be
contributed to, by the Company or any Affiliate for the benefit of any
"Employee" (as defined
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below), and pursuant to which the Company or any Affiliate has or may have any
material liability or obligation;
(v)"Employee" shall mean any current, former, or retired
employee or officer of the Company or any Affiliate;
(vi) "ERISA" shall mean the Employee Retirement Income Security
Act of 1974, as amended;
(vii) "FMLA" shall mean the Family Medical Leave Act of 1993, as
amended;
(viii) "International Employee Plan" shall mean each Company
Employee Plan that has been adopted or maintained by the Company or any
Affiliate, whether informally or formally, with respect to which the Company or
any Affiliate will or may have any liability, for the benefit of Employees who
perform services outside the United States;
(ix) "IRS" shall mean the Internal Revenue Service;
(x)"Multiemployer Plan" shall mean any "Pension Plan" (as
defined below) which is a "multiemployer plan", as defined in Section 3(37) of
ERISA;
(xi) "PBGC" shall mean the Pension Benefit Guaranty Corporation;
and
(xii) "Pension Plan" shall refer to each Company Employee Plan
which is an "employee pension benefit plan", within the meaning of Section 3(2)
of ERISA.
(b) Schedule. Schedule 2.20(b) contains an accurate and complete
list of each Company Employee Plan. The Company does not have any plan or
commitment, whether legally binding or not, to establish any new Company
Employee Plan, to modify any Company Employee Plan (except to the extent
required by law consistent with an understanding to be reduced to writing or to
conform any such Company Employee Plan to the requirements of any applicable
law, in each case as previously disclosed to Parent in writing, or as required
by this Agreement), nor does it have any intention or commitment to do any of
the foregoing, unless so disclosed to Parent.
(c) Documents. The Company has provided to Parent (i) correct and
complete copies of all documents embodying or relating to each Company Employee
Plan including any and all amendments thereto and all related trust documents;
(ii) the most recent annual actuarial valuations, if any, prepared for each
Company Employee Plan; (iii) the three most recent annual reports and financial
statements (Series 5500 and all schedules thereto), if any, required under ERISA
or the Code in connection with each Company Employee Plan or related trust; (iv)
if the Company Employee Plan is funded, the most recent annual and periodic
accounting of the Company Employee Plan's assets, if required by law; (v) the
most recent summary plan description together with the most recent summary of
material modifications, if any, required under ERISA with respect to each
Company Employee Plan; (vi) all IRS determination letters, and all applications
and correspondence to or from the IRS or the DOL with respect to any pending
application or advisory or opinion letter; (viii) all material written
agreements and contracts relating to each Company Employee Plan, including, but
not limited to, administrative service agreements, group annuity contracts and
group insurance contracts; (vii) all communications material to any Employee or
Employees relating to any Company Employee Plan and any proposed Company
Employee Plans, in each case, relating to any amendments, terminations,
establishments, increases or decreases in benefits, acceleration of payments or
vesting schedules
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or other events which would result in any material liability to the Company;
(viii) all COBRA forms and related notices (or such forms and notices as
required under comparable law) for the past 12 months; (ix) all policies
pertaining to fiduciary liability insurance covering the fiduciaries for each
Company Employee Plan; (x) the two (2) most recent complete plan years
discrimination tests for the Company's 401(k) Plan; and (xi) any and all
registration statements, annual reports (Form 11-K and all attachments thereto)
and prospectuses prepared in connection with a Company Employee Plan.
(d) Employee Plan Compliance. Except as set forth on Schedule
2.20(d), (i) each Company Employee Plan has been established and maintained in
all material respects in accordance with its terms and in compliance with all
applicable laws, statutes, orders, rules and regulations, including but not
limited to ERISA or the Code; (ii) no "prohibited transaction", within the
meaning of Section 4975 of the Code or Section 406 of ERISA, has occurred with
respect to any Company Employee Plan; (iii) there are no actions, suits or
claims pending, or, to the knowledge of the Company, threatened or anticipated
(other than routine claims for benefits) against any Company Employee Plan or
against the assets of any Company Employee Plan; and (iv) each Company Employee
Plan under its applicable terms can be amended, terminated or otherwise
discontinued after the Effective Time in accordance with its terms, without
liability to the Company, Parent or any of its Affiliates (other than ordinary
administration expenses typically incurred in a termination event); (v) there
are no inquiries or proceedings pending or, to the knowledge of the Company or
any Affiliates, threatened by the IRS or DOL with respect to any Company
Employee Plan; and (vi) neither the Company nor any Affiliate is subject to any
penalty or tax with respect to any Company Employee Plan under Section 402(i) of
ERISA or Section 4975 through 4980 of the Code.
(e) Pension Plans. The Company does not now, nor has it ever,
maintained, established, sponsored, participated in, or contributed to, any
Pension Plan which is subject to Part 3 of Subtitle B of Title I of ERISA, Title
IV of ERISA or Section 412 of the Code.
(f) Multiemployer Plans. At no time has the Company contributed to
or been obligated to contribute to any Multiemployer Plan.
(g) No Post-Employment Obligations. Except as set forth in Schedule
2.20(g), no Company Employee Plan provides, or has any liability to provide,
life insurance, medical or other employee benefits to any Employee upon his or
her retirement or termination of employment for any reason, except as may be
required by COBRA or other applicable statute, and the Company has never
represented, promised or contracted (whether in oral or written form) to any
Employee (either individually or to Employees as a group) that such Employee(s)
would be provided with life insurance, medical or other employee welfare
benefits upon their retirement or termination of employment, except to the
extent required by statute.
(h) Health Care Compliance. Neither the Company nor any Affiliate
has, prior to the Effective Time, in any material respect violated any of the
health care continuation requirements of COBRA, the requirements of FMLA, the
requirements of the Health Insurance Portability and Accountability Act of 1996,
the requirements of the Women's Health and Cancer Rights Act, the requirements
of the Newborns' and Mothers' Health Protection Act of 1996, or any amendment to
each such Act, or any similar provisions of state law applicable to its
Employees.
(i) Effect of Transaction.
(i) Except as set forth on Schedule 2.20(h)(i), the execution of
this Agreement and the consummation of the transactions contemplated hereby will
not (either alone or upon the occurrence
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of any additional or subsequent events) constitute an event under the terms of
any Company Employee Plan that will or may result in any payment (whether of
severance pay or otherwise), acceleration, forgiveness of indebtedness, vesting,
distribution, increase in benefits or obligation to fund benefits with respect
to any Employee.
(ii) Except as set forth on Schedule 2.20(h)(ii), no payment or
benefit which will or may be made by the Company or Parent or any Affiliates
with respect to any Employee will be characterized as an "excess parachute
payment", within the meaning of Section 280G(b)(2) of the Code.
(j) Employment Matters. The Company (i) is in compliance in all
material respects with all applicable foreign, federal, state and local laws,
rules and regulations respecting employment, employment practices, terms and
conditions of employment and wages and hours, in each case, with respect to
Employees; (ii) has withheld all amounts required by law or by agreement to be
withheld from the wages, salaries and other payments to Employees; (iii) is not
liable for any arrears of wages or any taxes or any penalty for failure to
comply with any of the foregoing; and (iv) is not liable for any payment to any
trust or other fund or to any governmental or administrative authority, with
respect to unemployment compensation benefits, social security or other benefits
or obligations for Employees (other than routine payments to be made in the
normal course of business and consistent with past practice).
(k) Labor. No work stoppage or labor strike against the Company is
pending or, to the knowledge of the Company, threatened. Except as set forth in
Schedule 2.20(j), the Company is not involved in or, to the knowledge of the
Company, threatened with, any labor dispute, grievance, or litigation relating
to labor, safety or discrimination matters involving any Employee, including,
without limitation, charges of unfair labor practices or discrimination
complaints, which, if adversely determined, would, individually or in the
aggregate, result in liability to the Company. To its knowledge, the Company has
not engaged in any unfair labor practices within the meaning of the National
Labor Relations Act which would, individually or in the aggregate, directly or
indirectly result in a liability to the Company. Except as set forth in Schedule
2.20(j), the Company is not presently, nor has it been in the past, a party to,
or bound by, any collective bargaining agreement or union contract with respect
to Employees and no collective bargaining agreement is being negotiated by the
Company.
(l) International Employee Plan. The Company does not now, nor has
it ever had the obligation to, maintain, establish, sponsor, participate in, or
contribute to any International Employee Plan.
2.21 Change of Control and Non-Compete Payments. Schedule 2.21 sets
forth each plan or agreement pursuant to which any amounts may become payable
(whether currently or in the future) to current or former employees, officers
and directors of the Company as a result of or in connection with the Merger.
2.22 Year 2000 Compliance. All of the Company's internal computer
systems and each Constituent Component (as defined below) of those systems and
all computer-related products and services and each Constituent Component of
those products and services of the Company and each of its subsidiaries (i) that
fully comply with the Year 2000 Qualification Requirements are set forth on
Schedule 2.22(a); (ii) that do not fully comply with the Year 2000 Qualification
Requirements are set forth on Schedule 2.22(b); and (iii) as to which the
Company is uncertain as to whether they fully comply with the Year 2000
Qualification Requirements are set forth on Schedule 2.22(c). "Year 2000
Qualification Requirements" means that the internal computer systems and each
Constituent Component (as defined below) of those systems and all
computer-related products of each Constituent Component (as defined below) of
those products of the Company (i) have been reviewed to confirm that they store,
process (including sorting and performing
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mathematical operations, calculations and computations), input and output data
containing date and information correctly regardless of whether the date
contains dates and times before, on or after January 1, 2000, (ii) have been
designed to ensure date and time entry recognition, calculations that
accommodate same century and multi-century formulas and date values, leap year
recognition and calculations, and date data interface values that reflect the
century, (iii) accurately manage and manipulate data involving dates and times,
including single century formulas and multi-century formulas, and will not cause
an abnormal ending scenario within the application or generate incorrect values
or invalid results involving such dates, (iv) accurately process any date
rollover, and (v) accept and respond to two-digit year date input in a manner
that resolves any ambiguities as to the century. "Constituent Component" means
all software (including operating systems, programs, packages and utilities),
firmware, hardware, networking components, and peripherals provided as part of
the configuration.
2.23 Transaction Bonus. The Company has no liability under the 1999
Bonus Plan of the Company other than as set forth on Section 5.19 hereto. In
addition, the Company has adopted no other bonus plan or arrangement that
provides for the payment of remuneration that is contingent upon, or based upon,
the closing of the transactions contemplated hereby.
2.24 Representations Complete. None of the representations or warranties
made by the Company (as modified by the Company Schedules), nor any statement
made in any Schedule or certificate furnished by the Company pursuant to this
Agreement, or furnished in or in connection with documents mailed or delivered
to the shareholders of the Company in connection with soliciting their consent
to this Agreement and the Merger (including the Information Statement required
under Section 5.1), contains or will contain at the Effective Time, any untrue
statement of a material fact, or omits or will omit at the Effective Time to
state any material fact necessary in order to make the statements contained
herein or therein, in the light of the circumstances under which they were made,
not misleading.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB
Parent and Merger Sub represent and warrant to the Company as follows:
3.1 Organization, Standing and Power. Parent is a corporation duly
organized, validly existing and in good standing under the laws of the State of
California. Merger Sub is a corporation duly organized, validly existing and in
good standing under the laws of the State of Delaware. Each of Parent and Merger
Sub has the corporate power to own its properties and to carry on its business
as now being conducted and is duly qualified to do business and is in good
standing in each jurisdiction in which the failure to be so qualified would have
a material adverse effect on the ability of Parent and Merger Sub to consummate
the transactions contemplated hereby.
3.2 Authority. Parent and Merger Sub have all requisite corporate power
and authority to enter into this Agreement and to consummate the transactions
contemplated hereby. The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby have been duly authorized
by all necessary corporate action on the part of Parent and Merger Sub. This
Agreement has been duly executed and delivered by Parent and Merger Sub and
constitutes the valid and binding obligations of Parent and Merger Sub,
enforceable in accordance with its terms. The execution and delivery of this
Agreement by the Parent and the Merger Sub does not, and, as of the Effective
Time, the consummation of the transactions contemplated hereby will not,
conflict with, or result in an Conflict under (i) any provision of the Articles
of
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Incorporation or Bylaws of the Parent or Merger Sub or (ii) any mortgage,
indenture, lease, contract or other agreement filed by Parent with the
Securities and Exchange Commission or, to the knowledge of the Parent,
instrument, permit, concession, franchise, license, judgment, order, decree,
statute, law, ordinance, rule or regulation applicable to the Parent or Merger
Sub or its properties or assets, except in those instances where such Conflict
would have no Material Adverse Effect on the Parent and its subsidiaries taken
as a whole or have a Material Adverse Effect on Parent's or Merger Sub's ability
to consummate the transactions contemplated herein. No consent, waiver,
approval, order or authorization of, or registration, declaration or filing
with, any Governmental Entity or any third party (so as not to trigger any
Conflict), is required by or with respect to the Parent or Merger Sub in
connection with the execution and delivery of this Agreement or the consummation
of the transactions contemplated hereby, except for (i) the filing of the
Certification of Merger with the Secretary of State of the State of Delaware,
(ii) such consents, waivers, approvals, orders, authorizations, registrations,
declarations and filings as may be required under applicable federal and state
securities laws, and (iii) such other consents, waivers, authorizations,
filings, approvals and registrations which are set forth on Schedule 3.2.
3.3 Capital Structure.
(a) The authorized stock of Parent consists of 150,000,000 shares of
Common Stock, of which 43,429,673 shares were issued and outstanding as of
October 29, 1999, and 5,000,000 shares of Preferred Stock, none of which is
issued or outstanding as of October 29, 1999. The authorized capital stock of
Merger Sub consists of 1,000 shares of Common Stock, 1,000 shares of which, as
of the date hereof, are issued and outstanding and are held by Parent. All such
shares have been duly authorized, and all such issued and outstanding shares
have been validly issued, are fully paid and nonassessable and are free of any
liens or encumbrances other than any liens or encumbrances created by or imposed
upon the holders thereof.
(b) The shares of Parent Common Stock to be issued pursuant to the
Merger will, when issued in accordance with the terms of this Agreement, be duly
authorized, validly issued, fully paid and nonassessable.
3.4 SEC Documents; Parent Financial Statements. Parent has furnished or
made available to the Company true and complete copies of all reports or
registration statements filed by it with the U.S. Securities and Exchange
Commission (the "SEC")for all periods subsequent to January 1, 1999, all in the
form so filed (all of the foregoing being collectively referred to as the "SEC
Documents"). As of their respective filing dates, the SEC Documents complied in
all material respects with the requirements of the Exchange Act, and none of the
SEC Documents contained any untrue statement of a material fact or omitted to
state a material fact required to be stated therein or necessary to make the
statements made therein not misleading, except to the extent corrected by a
subsequently filed document with the SEC. The financial statements of Parent,
including the notes thereto, included in the SEC Documents comply as to form in
all material respects with applicable accounting requirements and with the
published rules and regulations of the SEC with respect thereto, have been
prepared in accordance with generally accepted accounting principles
consistently applied (except as may be indicated in the notes thereto) and
present fairly the consolidated financial position of Parent at the dates
thereof and of its operations and cash flows for the periods then ended
(subject, in the case of unaudited statements, to normal audit adjustments).
3.5 Representations Complete. None of the representations or warranties
made by Parent or Merger Sub (as modified by the Schedule 3.2), nor any
statement made in any certificate furnished by Parent pursuant to this
Agreement, or furnished by Parent specifically for inclusion in the Information
Statement prepared pursuant to Section 5.1, contains or will contain at the
Effective Time, any untrue statement of a
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material fact, or omits or will omit at the Effective Time to state any material
fact necessary in order to make the statements contained herein or therein, in
the light of the circumstances under which they were made, not misleading.
3.6 Regulatory Approvals. All consents, approvals, authorizations and
other requirements prescribed by any law, rule or regulation which must be
obtained or satisfied by the Parent or Merger Sub and which are necessary for
the consummation of the transactions contemplated by this Agreement have been,
or will be prior to the Closing, obtained and satisfied.
3.7 Litigation. There are no legal actions, suits, arbitration or other
legal or administrative proceedings or governmental investigations pending or,
to Parent's knowledge, threatened, against the Parent or Merger Sub which would
impair the ability of the Parent or Merger Sub to consummate the transactions
contemplated herein.
ARTICLE IV
CONDUCT PRIOR TO THE EFFECTIVE TIME
4.1 Conduct of Business of the Company. During the period from the date
of this Agreement and continuing until the earlier of (i) the termination of
this Agreement pursuant to the provisions of Section 8.1 hereof, and (ii) the
Effective Time, the Company agrees (except to the extent that Parent shall
otherwise consent in writing) to carry on its business in the usual, regular and
ordinary course in substantially the same manner as heretofore conducted, to pay
its debts and Taxes when due, to pay or perform other obligations when due, and,
to the extent consistent with such business, to use all reasonable efforts
consistent with past practice and policies to preserve intact its present
business organization, keep available the services of its present officers and
key employees and preserve their relationships with customers, suppliers,
distributors, licensors, licensees, and others having business dealings with it,
all with the goal of preserving unimpaired its goodwill and ongoing businesses
at the Effective Time. The Company shall promptly notify Parent of any event or
occurrence or emergency not in the ordinary course of its business, and any
material adverse event involving the Company or its business. Except as
expressly contemplated by this Agreement or disclosed in Schedule 4.1, the
Company shall not, without the prior written consent of Parent:
(a) Enter into any commitment or transaction not in the ordinary
course of business.
(b) Transfer to any person or entity any rights to the Company
Intellectual Property Rights (other than pursuant to licenses in the ordinary
course of business);
(c) Enter into or amend any agreements pursuant to which any other
party is granted marketing, distribution or similar rights of any type or scope
with respect to any products of the Company, except in the ordinary course of
business;
(d) Amend or otherwise modify (or agree to do so), except in the
ordinary course of business, or violate the terms of, any of the agreements set
forth or described in the Company Schedules;
(e) Commence any litigation;
(f) Declare, set aside or pay any dividends on or make any other
distributions (whether in cash, stock or property) in respect of any of its
capital stock, or split, combine or reclassify any of its
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capital stock or issue or authorize the issuance of any other securities in
respect of, in lieu of or in substitution for shares of capital stock of the
Company, or , except as contemplated by Section 5.15, repurchase, redeem or
otherwise acquire, directly or indirectly, any shares of its capital stock (or
options, warrants or other rights exercisable therefor);
(g) Except for the issuance of shares of Company Capital Stock upon
exercise or conversion of presently outstanding Company Options, Company
Warrants or Company Preferred Stock, issue, grant, deliver or sell or authorize
or propose the issuance, grant, delivery or sale of, or purchase or propose the
purchase of, any shares of its capital stock or securities convertible into, or
subscriptions, rights, warrants or options to acquire, or other agreements or
commitments of any character obligating it to issue any such shares or other
convertible securities, except for no more than an aggregate of 166,000 options
granted to new and/or current employees of the Company in the ordinary course of
business; provided, that under no circumstances shall the Company grant any
options to officers or directors of the Company, except for 20,000 options
granted to Xxxxx Xxxxxxxx; and, provided, further that under no circumstances
shall such options contain provisions that provide for the acceleration of
vesting upon the Closing or upon such employees' termination after the Closing;
(h) Cause or permit any amendments to its Certificate of
Incorporation or Bylaws;
(i) Acquire or agree to acquire by merging or consolidating with, or
by purchasing any assets or equity securities of, or by any other manner, any
business or any corporation, partnership, association or other business
organization or division thereof;
(j) Acquire or agree to acquire any assets in an amount in excess of
$75,000 in the case of a single transaction or in excess of $150,000 in the
aggregate in any 30-day period;
(k) Sell, lease, license or otherwise dispose of any of its
properties or assets, except in the ordinary course of business;
(l) Incur any indebtedness for borrowed money (other than under the
Company's existing lines of credit or equipment lease lines in an amount not to
exceed $180,000) or guarantee any such indebtedness or issue or sell any debt
securities of the Company or guarantee any debt securities of others;
(m) Grant any severance or termination pay (i) to any director or
officer or (ii) to any other employee, except payments made pursuant to standard
written agreements outstanding on the date hereof;
(n) Adopt or amend any employee benefit plan, or enter into any
employment contract, extend employment offers (except to the extent required in
the ordinary course of business and consistent with past practice), pay or agree
to pay any special bonus or special remuneration to any director or employee, or
increase the salaries or wage rates of its employees;
(o) Modify or agree to modify the terms of vesting of any
outstanding Company Options or restricted Company Capital Stock;
(p) Revalue any of its assets, including without limitation writing
down the value of inventory or writing off notes or accounts receivable other
than in the ordinary course of business or consistent with past practice;
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(q) Pay, discharge or satisfy, in an amount in excess of $25,000 (in
any one case) or $50,000 (in the aggregate), any claim, liability or obligation
(absolute, accrued, asserted or unasserted, contingent or otherwise), other than
the payment, discharge or satisfaction in the ordinary course of business of
liabilities reflected or reserved against in the Company Financial Statements
(or the notes thereto) or expenses consistent with the provisions of this
Agreement incurred in connection with any transaction contemplated and permitted
hereby;
(r) Make or change any material election in respect of Taxes, adopt
or change any accounting method in respect of Taxes, enter into any closing
agreement, settle any claim or assessment in respect of Taxes, or consent to any
extension or waiver of the limitation period applicable to any claim or
assessment in respect of Taxes;
(s) Enter into any strategic alliance, development or joint
marketing agreement; or
(t) Take, or agree in writing or otherwise to take, any of the
actions described in Sections 4.1(a) through (q) above, or any other action that
would prevent the Company from performing or cause the Company not to perform
its covenants hereunder.
For the purposes of this Section 4.1, Xxxxx Xxxxxxxx, or his designee,
shall have authority to provide written consent to any such action on behalf of
the Parent
4.2 No Solicitation.
(a) Subject to Section 4.2(b) below, until the earlier of (i) the
Effective Time and (ii) the date of termination of this Agreement pursuant to
the provisions of Section 8.1 hereof, the Company will not (nor will the Company
permit any of the Company's officers, directors, agents, representatives or
affiliates to) directly or indirectly, take any of the following actions with
any party other than Parent, Merger Sub, agents or representatives of the
Company and any of their designees: (a) solicit, conduct discussions with or
engage in negotiations with any person, relating to the possible acquisition of
the Company (whether by way of merger, purchase of capital stock, purchase of
assets or otherwise) or any material portion of its capital stock or assets, (b)
provide information with respect to it to any person, other than Parent,
relating to the possible acquisition of the Company (whether by way of merger,
purchase of capital stock, purchase of assets or otherwise) or any material
portion of its capital stock or assets, (c) enter into an agreement with any
person, other than Parent, providing for the acquisition of the Company (whether
by way of merger, purchase of capital stock, purchase of assets or otherwise) or
any material portion of its capital stock or assets or (d) make or authorize any
statement, recommendation or solicitation in support of any possible acquisition
of the Company (whether by way of merger, purchase of capital stock, purchase of
assets or otherwise) or any material portion of its capital stock or assets by
any person, other than by Parent. In addition to the foregoing, if the Company
receives prior to the Effective Time or the termination of this Agreement any
offer or proposal relating to any of the above, the Company shall immediately
notify Parent thereof, including information as to the identity of the offeror
or the party making any such offer or proposal and the specific terms of such
offer or proposal, as the case may be, and such other information related
thereto as Parent may reasonably request.
(b) Nothing in this Agreement shall prevent the Board of Directors
of the Company from withholding, withdrawing, amending or modifying its
recommendation in favor of the Merger or taking any other action which is
prohibited by Section 4.2(a) if (i) a Superior Offer (as defined below) is made
to the Company and is not withdrawn, (ii) neither the Company nor any of its
representatives shall have violated any
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of the restrictions set forth in Section 5.3, and (iii) the Board of Directors
of the Company concludes in good faith, after consultation with its outside
counsel, that, in light of such Superior Offer, the withholding, withdrawal,
amendment or modification of such recommendation is required in order for the
Board of Directors of the Company to comply with its fiduciary obligations to
the Company and the Company's stockholders under applicable law. Nothing
contained in this Section 4.2 shall limit the Company's obligation to hold and
convene a meeting of the Company's stockholders (regardless of whether the
recommendation of the Board of Directors of the Company shall have been
withdrawn, amended or modified). For purposes of this Agreement, "Superior
Offer" shall mean an unsolicited, bona fide written offer made by a third party
to consummate any of the following transactions: (i) a merger, consolidation,
business combination, recapitalization, liquidation, dissolution or similar
transaction involving the Company pursuant to which the stockholders of the
Company immediately preceding such transaction hold less than 51% of the equity
interest in the surviving or resulting entity of such transaction; (ii) a sale
or other disposition by the Company of assets (excluding inventory and used
equipment sold in the ordinary course of business) representing in excess of 50%
of the fair market value of the Company's business immediately prior to such
sale, or (iii) the acquisition by any person or group (including by way of a
tender offer or an exchange offer or issuance by the Company), directly or
indirectly, of beneficial ownership or a right to acquire beneficial ownership
of shares representing in excess of 50% of the voting power of the then
outstanding shares of capital stock of the Company, in each case on terms that
the Board of Directors of the Company determines, in its reasonable judgment
(based on a written opinion of an investment bank of nationally recognized
reputation) to be more favorable to Company stockholders from a financial point
of view than the terms of the Merger and the consideration of which reasonably
likely exceeds the value of the consideration in the Merger (after taking into
account all relevant factors, including any conditions to the Superior Offer,
the timing of the consummation of the transaction pursuant to the Superior
Offer, the risk of nonconsummation thereof and the need for any required
governmental or other consents, filings and approvals); provided, however, that
any such offer shall not be deemed to be a "Superior Offer" if any financing
required to consummate the transaction contemplated by such offer is not
committed and is not likely in the judgment of Company's Board of Directors to
be obtained by such third party on a timely basis.
4.3 Investment Representation Statements. The Company will use its best
efforts to have all stockholders of the Company who are to receive any shares of
Parent Common Stock in connection with the Merger execute and deliver to Parent
a Parent Investment Representation Statement in substantially the form attached
hereto as Exhibit C.
ARTICLE V
ADDITIONAL AGREEMENTS
5.1 Information Statement; Stockholder Meeting.
(a) As promptly as practicable after the execution of this
Agreement, the Company shall prepare, and Parent shall assist in preparing, an
information statement (the "Information Statement") relating to the solicitation
of the consent of the stockholders of the Company to the Merger. The Information
Statement shall substantially comply with the information requirements under to
Rule 502 promulgated under the Securities Act (except for 502(b)(3)) and an
investor suitability questionnaire. Parent shall provide to the Company and its
counsel for inclusion in the Information Statement such publicly available
information concerning Parent, its operations, capitalization, technology, share
ownership and other material as the Company or its counsel may reasonably
request. Each of Parent and the Company shall use its reasonable
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best efforts to cause the Information Statement to be mailed to the Company's
stockholders at the earliest practicable time. Whenever any event occurs which
should be set forth in a supplement to the Information Statement, Parent or the
Company, as the case may be, shall promptly inform the other company of such
occurrence and cooperate in preparing such supplement.
(b) The Company shall retain a "purchaser representative," as such
term is defined in Rule 501(h) under the Securities Act, to represent each
Company stockholder who is not an "accredited investor" as defined in Rule
501(a) under the Securities Act. The Company shall use its best efforts to
solicit and obtain the consent of its stockholders sufficient to approve the
Merger and this Agreement and to enable the Closing to occur as promptly as
practicable. The Company shall further use its best efforts to have each
investor who is not an accredited investor sign an acknowledgement that the
purchaser representative is such investor's purchaser representative in the
transactions contemplated hereby. The materials submitted to the Company's
stockholders, including the Information Statement, shall be subject to prior
review and approval by Parent and shall include the unanimous recommendation of
the Board of Directors of the Company in favor of the Merger and this Agreement.
(c) The Information Statement submitted to the Company's
stockholders in connection with the Stockholders' Meeting shall include a
proposal to constitute and appoint Xxxxx Xxxxxx and Xxxxxx X. Xxxxxx to act as
the agents, representatives and attorneys-in-fact for each stockholder (other
than holders of Dissenting Shares) for all purposes and with respect to all
matters arising under this Agreement. The powers and authority of the
Stockholders' Representatives shall include, but not be limited to, the power
and authority to give and accept notices as provided hereunder and carry out the
purposes and intent of this Agreement.
(d) The Stockholders' Representatives shall each be entitled to rely
on any communication or document that they believe to be genuine. The
Stockholders' Representatives shall not be liable to any stockholder of the
Company for any action or omission on their respective parts except for fraud or
willful misconduct. In their capacity as a Stockholders' Representative, Xxxxx
Xxxxxx and Xxxxxx X. Xxxxxx will be acting for the convenience of the
non-dissenting stockholders, without compensation, and, in such capacity, they
shall have no duties or liabilities beyond those expressly assumed by them in
this Agreement or as agreed with the Company stockholders. As the Stockholders'
Representatives, Xxxxx Xxxxxx and Xxxxxx X. Xxxxxx shall not be required to make
any inquiry or investigation concerning any matter other than those expressly
contemplated hereunder, nor shall they, in such capacity, be deemed to have made
any representation or warranty of any kind to any person. The materials
submitted to the Company stockholders shall include proposed resolutions to be
adopted by the stockholders which shall include the approval of the Merger and
the transactions contemplated herein, the appointment of Xxxxx Xxxxxx and Xxxxxx
X. Xxxxxx as Stockholders' Representatives, the establishment and approval of a
Contribution Amount to be utilized by the Stockholders' Representatives in their
capacity as such and in the defense of any claims for indemnification pursuant
to this Agreement, the approval of any payments to employees of the Company
pursuant to Section 280G of the Code and such other matters as the Company may
deem necessary or advisable to submit to the stockholders for approval. In the
event of the death, resignation or incapacity of either Xxxxx Xxxxxx or Xxxxxx
X. Xxxxxx, a majority of the Company's stockholders shall elect a successor
stockholders' representative, who shall have all of the rights, powers and
duties of the Stockholders' Representatives set out herein.
5.2 Access to Information. Subject to any applicable contractual
confidentiality obligations (which the Company shall use its best efforts to
cause to be waived) each party shall afford the others and its accountants,
counsel and other representatives, reasonable access during normal business
hours during the
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period prior to the Effective Time to (a) all of its properties, books,
contracts, agreements and records, and (b) all other information concerning the
business, properties and personnel (subject to restrictions imposed by
applicable law) of it as the others may reasonably request. No information or
knowledge obtained in any investigation pursuant to this Section 5.2 shall
affect or be deemed to modify any representation or warranty contained herein or
the conditions to the obligations of the parties to consummate the Merger.
5.3 Confidentiality. Each of the parties hereto hereby agrees to and
reaffirms the terms and provisions of that certain Confidentiality Agreement by
and between Parent and the Company dated as of August 13, 1999.
5.4 Expenses. Whether or not the Merger is consummated, all fees and
expenses incurred in connection with the Merger including, without limitation,
all legal, accounting, financial advisory, investment banking, consulting and
all other fees and expenses of third parties ("Third Party Expenses") incurred
by Parent or the Company in connection with the negotiation and effectuation of
the terms and conditions of this Agreement and the transactions contemplated
hereby, shall be the obligation of Parent or the Company, as the case may be;
provided, however, that if the Merger is consummated, Parent shall pay at
closing an aggregate of $5,250,000 of the financial advisory fees plus up to and
not more than $50,000 of the out-of-pocket expenses of The Beacon Group incurred
by the Company.
5.5 Public Disclosure. Upon execution and delivery of this Agreement by
the parties hereto, Parent and the Company shall release a jointly prepared
announcement describing the Merger. Except as aforesaid, unless otherwise
required by law (including, without limitation, securities laws) or, as to
Parent, by the rules and regulations of the National Association of Securities
Dealers, Inc., prior to the Effective Time, no disclosure (whether or not in
response to an inquiry) of the subject matter of this Agreement shall be made by
any party hereto unless approved by Parent and the Company prior to release,
which approval shall not be unreasonably withheld.
5.6 Consents. The Company shall use its best efforts to obtain the
Required Consents.
5.7 Company Warrants. The Company shall use its reasonable efforts to
cause the holders of the Company Warrants to exercise such Company Warrants
prior to the Effective Time.
5.8 FIRPTA Compliance. On the Closing Date, the Company shall deliver to
Parent a properly executed statement in a form reasonably acceptable to Parent
for purposes of satisfying Parent's obligations under Treasury Regulation
Section 1.1445-2(c)(3).
5.9 Reasonable Efforts. Subject to the terms and conditions provided in
this Agreement, each of the parties hereto shall use its reasonable efforts to
take promptly, or cause to be taken, all actions, and to do promptly, or cause
to be done, all things necessary, proper or advisable under applicable laws and
regulations to consummate and make effective the transactions contemplated
hereby, to obtain all necessary waivers, consents and approvals and to effect
all necessary registrations and filings and to remove any injunctions or other
impediments or delays, legal or otherwise, in order to consummate and make
effective the transactions contemplated by this Agreement for the purpose of
securing to the parties hereto the benefits contemplated by this Agreement;
provided that Parent shall not be required to agree to any divestiture by Parent
or the Company or any of Parent's subsidiaries or affiliates of shares of
capital stock or of any business, assets or property of Parent or its
subsidiaries or affiliates or the Company or its affiliates, or the imposition
of any material limitation on the ability of any of them to conduct their
businesses or to own or exercise control of such assets, properties and capital
stock.
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5.10 Notification of Certain Matters. The Company shall give prompt
notice to Parent, and Parent shall give prompt notice to the Company, of (i) the
occurrence or non-occurrence of any event, the occurrence or non-occurrence of
which is likely to cause any representation or warranty of the Company and
Parent or Merger Sub, respectively, contained in this Agreement to be untrue or
inaccurate in any material respect at or prior to the Effective Time except as
contemplated by this Agreement (including the Company Schedules) and (ii) any
failure of the Company or Parent, as the case may be, to comply with or satisfy
in any material respect any covenant, condition or agreement to be complied with
or satisfied by it hereunder; provided, however, that the delivery of any notice
pursuant to this Section 5.9 (including any description of any breaches of the
representation or warranties in this Agreement contained in an officer
certificate delivered pursuant to Section 6.2(a) or 6.3(a)) shall not limit or
otherwise affect any remedies available to the party receiving such notice.
5.11 Additional Documents and Further Assurances. Each party hereto, at
the request of the other party hereto, shall execute and deliver such other
instruments and do and perform such other acts and things as may be reasonably
necessary or desirable for effecting completely the consummation of this
Agreement and the transactions contemplated hereby.
5.12 Form S-8. Parent shall file a registration statement on Form S-8
under the Securities Act of 1933, as amended, for the shares of Parent Common
Stock issuable with respect to assumed Company Options within 60 days after the
Closing Date (the "S-8 Registration Statement"). Parent shall use its reasonable
best efforts to maintain the effectiveness of the S-8 Registration Statement
(and maintain the current status of the prospectus or prospectuses contained
therein) for so long as such options remain outstanding. The S-8 Registration
Statement and all amendments and supplements thereto will conform in all
respects with the requirements of the Securities Act of 1933, as amended, and
all rules and regulations promulgated thereunder.
5.13 NMS Listing. On or prior to the Effective Time, Parent shall
authorize for listing on the Nasdaq National Market the shares of Parent Common
Stock issuable, and those required to be reserved for issuance, in connection
with the Merger, upon official notice of issuance.
5.14 Cooperation With Financial Statements. The Company will use its
best efforts to cause the Company's management and its independent auditors to
facilitate on a timely basis (i) the preparation of historical and pro forma
financial statements as required by Parent to comply with applicable SEC
regulations, and (ii) the review of the Company's 1997 and 1998 audit work
papers, including the examination of selected interim financial statements and
data.
5.15 Employee Benefits.
(a) Parent shall take such reasonable actions as are necessary to
allow eligible employees of the Company to participate in the benefit programs
of Parent, or alternative benefits programs substantially comparable to those
applicable to employees of Parent on similar terms, as soon as practicable after
the Effective Time. Parent shall (i) on the Closing Date assume the Employment
Contracts listed on Schedule 2.12 and (ii) prior to the Closing Date have made
offers of employment to the Company's current employees on an at-will basis with
at least the same rate of pay and with the same benefits as similarly situated
employees of Parent are entitled.
(b) Parent shall reserve an aggregate of $1,500,000 in cash (the
"Management Incentive Bonus"), which shall be distributed to those persons
identified and in such amounts as are set forth on
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Schedule 5.15; provided that (i) such persons remain employed by the Company or
Parent for a period of not less than one year following the Closing, or have
been terminated by the Company or Parent without cause during such one year
period, and (ii) the Company's net revenues for the fiscal year ending December
31, 2000 are not less than 75% of projected net revenues as represented in the
Company's Descriptive Memorandum dated August 1999 ("Projected Revenues"). In
the event that the Company's net revenues for the fiscal year ending December
31, 2000 are less than 75% of Projected Revenues but not less than 60% of
Projected Revenues, the Management Incentive Bonus shall equal only $750,000. In
the event that any person on such Schedule 5.15 is not employed by the Company
or Parent on the 90-day anniversary of the Closing and not otherwise entitled to
receive any payment hereunder, Xxxxx Xxxxxx shall, in his sole discretion,
during such 90-day period, reallocate any amounts that would have been payable
pursuant to this Section 5.15 to such individuals among some or all of the
persons set forth on Schedule 5.15 provided that such individuals are otherwise
entitled to receive payment hereunder.
5.16 Registration Rights. The holders of Company Capital Stock as of the
Effective Time (the "Holders") shall have registration rights with respect to
Parent Common Stock received in exchange therefor (the "Registrable Securities")
subject to the following terms and conditions:
(a) Registration on Form S-3. Within five (5) business days after
Parent becomes a registrant entitled to use a Form S-3 registration statement or
any successor form thereto to register the resale (which shall not be through an
underwritten public offering) of the Registrable Securities, Parent shall use
reasonable best efforts to cause the Registrable Securities to be registered so
as to permit the resale thereof, and in connection therewith shall prepare and
file a Form S-3 registration statement or any successor form thereto providing
for an offering to be made on a continuous basis pursuant to Rule 415 under the
Securities Act (the "Registration Statement") with the SEC under the Securities
Act of 1933, as amended (the "Securities Act") to effect such registration
within ten (10) business days after the S-3 Date, and thereafter Parent shall
use its reasonable best efforts to cause the Registration Statement to be
declared effective under the Securities Act as soon as practicable after the
filing thereof; provided, however, that if Parent shall furnish to a
Stockholders' Representative a certificate signed by the Chief Executive Officer
of Parent stating that, in the good faith judgment of the Board of Directors or
Chief Executive Officer of Parent, it would be seriously detrimental to Parent
and its stockholders for the Registration Statement to be filed on or before the
date filing would otherwise be required, and it is therefore in the best
interests of Parent to defer the filing of the Registration Statement, then
Parent may delay the filing of the Registration Statement, once but not more
than once, for a period not in excess of thirty (30) days.
(b) Expenses of Registration. Parent shall pay all Registration
Expenses (as hereafter defined) in connection with any registration,
qualification or compliance pursuant to this Section 5.15, and each Holder shall
pay all Selling Expenses (as hereafter defined) and other expenses that are not
Registration Expenses relating to the Registrable Securities resold by him or
her. For purposes of this Section 5.15(b), "Registration Expenses" shall mean
all expenses, except as otherwise stated below, incurred by Parent in complying
with Sections 5.15(a) and 5.15(c), including, without limitation, all
registration, qualification and filing fees, printing expenses, escrow fees,
fees and disbursements of counsel for Parent, blue sky fees and expenses and the
expense of any special audits incident to or required by any such registration.
For purposes of this Section 5.15(b), "Selling Expenses" shall mean all selling
discounts commissions and stock transfer or other Taxes applicable to the
Registrable Securities and all fees and disbursements of counsel for any Holder.
(c) Registration Procedures. In the case of any registration
effected by Parent pursuant to this Section 5.15, Parent will keep each Holder
advised in writing as to the initiation of each registration and as to the
completion thereof. Parent will:
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(i) Use reasonable best efforts to keep such registration
effective until the earlier of (A) all Holders having completed the distribution
described in the registration statement relating thereto or (B) two years from
the Closing Date;
(ii) Promptly prepare and file with the SEC such amendments and
supplements to the Registration Statement and the prospectus used in connection
with the Registration Statement as may be necessary to comply with the
provisions of the Securities Act with respect to the disposition of all
securities covered by the Registration Statement;
(iii) Furnish such number of prospectuses and other documents
incident thereto, including any amendment of or supplement to the prospectus, as
a Holder from time to time may reasonably request;
(iv) Notify each Holder of Registrable Securities covered by the
Registration Statement at any time when a prospectus relating thereto is
required to be delivered under the Securities Act of the happening of any event
as a result of which the prospectus included in the Registration Statement, as
then in effect, includes an untrue statement of a material fact or omits to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading in the light of the circumstances then
existing, and at the request of any such Holder, prepare and furnish to such
Holder a reasonable number of copies of a supplement to or an amendment of such
prospectus as may be necessary so that, as thereafter delivered to the
purchasers of such shares, such prospectus shall not include an untrue statement
of a material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein not misleading in the light
of the circumstances then existing;
(v) Cause all such Registrable Securities registered pursuant to
the Registration Statement to be listed on each securities exchange or quotation
system on which similar securities issued by Parent are then listed or quoted,
and in connection therewith, file with the Nasdaq National Market an application
for listing of additional shares with respect to the Registrable Securities;
(vi) Provide a transfer agent and registrar for all Registrable
Securities registered pursuant to the Registration Statement and a CUSIP number
for all such Registrable Securities, in each case not later than the effective
date of the Registration Statement;
(vii) Use its reasonable best efforts to register or qualify the
Registrable Securities covered by the Registration Statement under such other
securities or blue sky laws of such jurisdiction within the United States and
Puerto Rico as shall be reasonably appropriate for the distribution of the
Registrable Securities covered by the Registration Statement; provided, however,
that Parent shall not be required in connection therewith or as a condition
thereto to qualify to do business in or file a general consent to service of
process in any jurisdiction wherein it would not but for the requirements of
this paragraph be obligated to do so; and
Otherwise use its reasonable best efforts to comply with all applicable rules
and regulations of the SEC, and make available to its security holders, as soon
as reasonably practicable, an earnings statement covering a period of at least
twelve months, but not more than eighteen months, beginning with the first month
after the effective date of the Registration Statement, which earnings statement
shall satisfy the provisions of Section 11(a) of the Securities Act.
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(d) Information by Holder. Each Holder of Registrable Securities
shall furnish to Parent such information regarding such Holder and the
distribution proposed by such Holder as Parent may reasonably request in
connection with any registration, qualification or compliance referred to in
this Section 5.15, but only to the extent that such information is required in
order for Parent to comply with its obligations under all applicable securities
and other laws and to ensure that the Registration Statement relating to such
Registrable Securities conforms to the applicable requirements of the Securities
Act and the rules and regulations thereunder. Each Holder covenants that it will
promptly notify Parent of any changes in the information set forth in the
Registration Statement or otherwise provided by such Holder to Parent regarding
such Holder or such Holder's plan of distribution as a result of which the
Registration Statement or any prospectus relating to the Registrable Securities
contains or would contain an untrue statement of a material fact regarding such
Holder or its intended method of distribution of such Registrable Securities or
omits to state any material fact regarding such Holder or its intended method of
distribution of such Registrable Securities required to be stated therein or
necessary to make the statements therein, not misleading.
(e) Indemnification and Contribution.
(i)Parent agrees to indemnify and hold harmless each Holder from
and against any losses, claims, damages or liabilities (or actions or
proceedings in respect thereof) to which such Holder may become subject (under
the Securities Act or otherwise) insofar as such losses, claims, damages or
liabilities (or actions or proceedings in respect thereof) arise out of, or are
based upon, any untrue statement, alleged untrue statement, omission or alleged
omission of a material fact in the Registration Statement, any prospectus
included in the Registration Statement, or any amendment or supplement to the
Registration Statement or any such prospectus, and Parent will, as incurred,
reimburse such Holder for any legal or other expenses reasonably incurred in
investigating, defending or preparing to defend any such action, proceeding or
claim; provided, however, that Parent shall not be liable in any such case to
the extent that such loss, claim, damage or liability arises out of, or is based
upon (A) an untrue statement or alleged untrue statement made in such
Registration Statement in reliance upon and in conformity with written
information furnished to Parent by such Holder in an instrument executed by such
Holder and specifically stated to be for use in the preparation of the
Registration Statement, (B) the failure of such Holder to comply with any of the
covenants and agreements contained in Sections 5.15(f) or 5.15(h) hereof, or (C)
any untrue statement in any prospectus that is corrected in any subsequent
prospectus that was delivered to the Holder prior to the pertinent sale or sales
by the Holder.
(ii) Each Holder, severally and not jointly, agrees to indemnify
and hold harmless Parent from and against any losses, claims, damages or
liabilities (or actions or proceedings in respect thereof) to which Parent may
become subject (under the Securities Act or otherwise) insofar as such losses,
claims, damages or liabilities (or actions or proceedings in respect thereof)
arise out of, or are based upon (A) an untrue statement, alleged untrue
statement, omission or alleged omission of a material fact in the Registration
Statement, any prospectus included in the Registration Statement, or any
amendment or supplement to the Registration Statement or any such prospectus in
reliance upon and in conformity with written information furnished to Parent by
such Holder in an instrument executed by such Holder and specifically stated to
be for use in preparation of the Registration Statement, provided, however, that
no Holder shall be liable in any such case for any untrue statement included in
any Prospectus which statement has been corrected in a writing delivered to
Parent at least two business days before the sale from which such loss arose,
(B) the failure of such Holder to comply with any of the covenants and
agreements contained in Sections 5.15(f) or 5.15(h) hereof, or (C) any untrue
statement in any Prospectus that is corrected in any subsequent Prospectus that
was delivered to the Holder prior to the pertinent sale or sales by the Holder;
and each Holder, severally and not jointly, will, as incurred, reimburse Parent
for any legal or other expenses
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reasonably incurred in investigating, defending or preparing to defend any such
action, proceeding or claim. In no event shall the amount payable by any Holder
to Parent pursuant to this Section 5.15(e)(ii) by reason of a sale of Parent
Common Stock by such Holder exceed the amount of the gross proceeds to such
Holder from the sale of Parent Common Stock from which such liability arose.
(iii) Promptly after receipt by any indemnified person under
subsections (i) or (ii) above of a notice of a claim or the beginning of any
action in respect of which indemnity is to be sought against an indemnifying
person pursuant to this Section 5.15(e), such indemnified person shall notify
the indemnifying person in writing of such claim or of the commencement of such
action (provided, however, that no failure to provide such notice shall relieve
any indemnifying person of any liability hereunder except to the extent that
such indemnifying person is prejudiced thereby), and, subject to the provisions
hereinafter stated, in case any such action shall be brought against an
indemnified person and the indemnifying person shall have been notified thereof,
the indemnifying person shall be entitled to participate therein, and, to the
extent that it shall wish, to assume the defense thereof, with counsel
reasonably satisfactory to the indemnified person. After notice from the
indemnifying person to such indemnified person of the indemnifying person's
election to assume the defense thereof, the indemnifying person shall not be
liable to such indemnified person for any legal expenses subsequently incurred
by such indemnified person in connection with the defense thereof; provided,
however, that, if the indemnifying person shall propose that the same counsel
represent it and the indemnified person, and if counsel for the indemnified
person shall reasonably have concluded that there is an actual conflict of
interest posed by the representation proposed by the indemnifying person, the
indemnified person shall be entitled to retain its own counsel reasonably
satisfactory to the indemnifying person at the expense of such indemnifying
person; provided, however that if more than one indemnified person makes a claim
against an indemnifying person based on substantially similar facts, the
indemnifying person shall not be responsible for the fees of more than one
counsel for all indemnified persons whose claims are based on substantially
similar facts.
(iv) If the indemnification provided for in this Section 5.15(e)
is unavailable to or insufficient to hold harmless an indemnified party under
subsection (i) or (ii) above in respect of any losses, claims, damages or
liabilities (or actions or proceedings in respect thereof) referred to therein,
then each indemnifying party shall contribute to the amount paid or payable by
such indemnified party as a result of such losses, claims, damages or
liabilities (or actions in respect thereof), in such proportion as is
appropriate to reflect the relative fault of each such party, as well as any
other relevant equitable considerations. The relative fault shall be determined
by reference to, among other things, whether the untrue or alleged untrue
statement of a material fact or the omission or alleged omission to state a
material fact relates to information supplied by Parent on the one hand or a
Holder on the other and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or omission.
Parent and the Holders agree that it would not be just and equitable if
contribution pursuant to this Section 5.15(e)(iv) were determined by any method
of allocation which does not take account of the equitable considerations
referred to above in this Section 5.15(e)(iv). The amount paid or payable by an
indemnified party as a result of the losses, claims, damages, or liabilities (or
actions in respect thereof) referred to above in this Section 5.15(e)(iv) shall
be deemed to include any legal or other expenses reasonably incurred by such
indemnified party in connection with investigating or defending any such action,
proceeding or claim. No person guilty of fraudulent misrepresentation (within
the meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation.
(v) The obligations of the Parent and the Holders under this
Section 5.15(e) shall be in addition to any liability which Parent and the
respective Holders may otherwise have and shall extend,
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upon the same terms and conditions, to each director and officer of Parent or
any Holder, and to each person, if any, who controls Parent or any Holder within
the meaning of the Securities Act or the Exchange Act.
(f) Restrictions on Transferability. The shares of Parent Common
Stock issued pursuant to the Merger (the "Restricted Shares") shall not be
transferable in the absence of (i) registration under the Securities Act or an
exemption therefrom, or (ii) registration or qualification under the provisions
of any applicable blue sky laws or an exemption therefrom.
(g) Restrictive Legend. Each certificate representing Restricted
Shares shall bear substantially the following legends (in addition to any
legends required under applicable securities laws):
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED
FOR INVESTMENT PURPOSES ONLY AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933. THE SHARES MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF SUCH
REGISTRATION OR AN EXEMPTION THEREFROM.
The legend contained in this Section 5.15(g) shall be removed
from a certificate in connection with any sale in compliance with and pursuant
to the Registration Statement, but shall not be removed in any other
circumstance without Parent's prior written consent (which consent shall not be
unreasonably withheld or delayed and shall be granted if such legend is no
longer appropriate).
(h) Transfer of Shares After Registration.
(i) Restriction. No Holder may make any sale of any Restricted
Shares except (A) in accordance with the Registration Statement, in which case
Holder must comply with the requirement of delivering a current prospectus, (B)
in accordance with Rule 144, or (C) pursuant to an exemption from the
registration requirements of the Securities Act, if accompanied by an opinion of
counsel that registration is not necessary, which opinion of counsel shall be
reasonably satisfactory to Parent.
(ii) Right of Parent to Suspend Use of Registration Statement.
At any time Parent may refuse to permit any Holder to resell any Registrable
Securities pursuant to the Registration Statement; provided, however, that in
order to exercise this right, Parent must deliver a certificate in writing to
the Stockholders' Representative to the effect that, in the good faith judgement
of the Board of Directors or Chief Executive Officer of Parent, that a sale
pursuant to the Registration Statement in its then-current form would be
seriously detrimental to Parent and its stockholders and therefore it is in the
best interests of Parent to prohibit any sale under the Registration Statement
at that time. The Stockholders' Representative shall immediately notify the
holders of Registrable Securities of the receipt and contents of such
certificate. In no event shall such prohibition period exceed thirty (30)
calendar days, and provided further, however, that in no event shall Parent be
permitted to exercise this right (i) more than two times in any single calendar
year, or (ii) within thirty (30) calendar days of the expiration of such a
prohibition period or the expiration of the period during which Parent has
delayed the filing of a Registration Statement under Section 5.15(a).
(i) Rule 144 Reporting. With a view to making available the benefits
of certain rules and regulations of the SEC which may at any time permit the
sale of the Registrable Securities to the public without registration, or
pursuant to a registration on Form S-3, Parent agrees to use its reasonable best
efforts to:
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(i)Make and keep public information available, as those terms
are understood and defined in Rule 144 under the Securities Act, at all times
after the Merger;
(ii) File with the SEC in a timely manner all reports and other
documents required of Parent under the Securities Act and the Exchange Act; and
(iii) So long as a Holder owns any Registrable Securities, to
furnish to that Holder forthwith upon request a written statement by Parent as
to its compliance with the reporting requirements of said Rule 144, and of the
Securities Act and the Exchange Act, a copy of the most recent annual or
quarterly report of Parent, and such other reports and documents of Parent as
such Holder may reasonably request in availing itself of any rule or regulation
of the SEC allowing such Holder to sell any such Registrable Securities without
registration.
(j) Transfer of Registration Rights. The rights and obligations of
any Holder under this Section 5.15 may be assigned to a transferee or assignee
in connection with any transfer or assignment of Registrable Securities by a
Holder; provided that: (i) such transfer may otherwise be effected in accordance
with applicable securities laws, (ii) Parent is, within a reasonable time after
such transfer, furnished with written notice of the name and address of such
transferee or assignee and the securities with respect to which such
registration rights are being assigned under, (iii) each transferee shall agree
to be bound by all of the provisions of this Section 5.15; and (iv) such
assignment shall be effective only if immediately following such transfer the
further disposition of such Registrable Securities by the transferee or assignee
is restricted under the Securities Act.
5.17 401(k) Plan. Parent and the Company acknowledge that they will work
together with respect to the transition of Company employees from the Company
401(k) plan. If Parent requests in writing at least fifteen (15) days prior to
Closing, Company shall cause its 401(k) plan to terminate effective as of the
day immediately preceding the Closing Date. From and after the Closing Date,
Parent shall provide for the participation by employees of the Surviving
Corporation in a 401(k) plan that is substantially similar to the 401(k) plan in
which employees of Parent participate. Parent shall recognize service with
Company for the purpose of eligibility to participate and vesting under such
401(k) plan.
5.18 Promissory Note. In the event that all the conditions to closing
set forth in Sections 6.1, 6.2(a), (b) and (c), and 6.3 that are required to be
satisfied or waived have been satisfied or waived and Parent refuses to
consummate the Merger, the entire principal amount and interest owing under that
Promissory Note dated October 28, 1999 issued by the Company in favor of Parent
in the principal amount of $10,000,000 (the "Promissory Note") shall be forgiven
by Parent and the Company shall have no further obligation to repay the
principal or interest thereon.
5.19 Company 1999 Bonus Plan. Simultaneous with the Closing of the
Merger, Parent shall pay to Xxxxxxx Xxxxxx & Green, P.C. ("EBG"), on behalf of
the Company, the amount of $7,500,000, representing payment in full of the
Company's obligations under its 1999 Bonus Plan. Prior to the Effective Time,
the Company shall provide to EBG irrevocable instructions pursuant to which EBG
shall thereafter promptly distribute such funds in accordance with such written
instructions, as contemplated by the terms of such 1999 Bonus Plan.
5.20 Satisfaction of Company Liabilities. At Closing, Parent shall
satisfy the liabilities of the Company set forth on Schedule 5.20, together with
any other liabilities assumed by Parent in accordance with the Merger.
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ARTICLE VI
CONDITIONS TO THE MERGER
6.1 Conditions to Obligations of Each Party to Effect the Merger. The
respective obligations of each party to this Agreement to effect the Merger
shall be subject to the satisfaction at or prior to the Closing of the following
conditions:
(a) Stockholder Approval. This Agreement and the Merger shall have
been approved and adopted by the stockholders of the Company by the requisite
vote under applicable law and the Company's Certificate of Incorporation and .
(b) No Injunctions or Restraints; Illegality; HSR Act. No temporary
restraining order, preliminary or permanent injunction or other order issued by
any court of competent jurisdiction or other legal or regulatory restraint or
prohibition preventing the consummation of the Merger shall be in effect. All
waiting periods under the HSR Act shall have expired or been terminated early.
(c) Nasdaq Listing. The shares of Parent Common Stock issuable to
shareholders of the Company pursuant to this Agreement and such other shares
required to be reserved for issuance in connection with the Merger shall have
been authorized for listing on the Nasdaq Stock Market upon official notice of
issuance; provided, however, that the failure of Parent to file all forms
necessary to obtain such listing approval from the Nasdaq National Market shall
be a material breach of this Agreement by Parent and shall permit the Company to
seek enforcement by specific performance of this Section 6.1(c).
6.2 Additional Conditions to Obligations of the Company. The obligations
of the Company to consummate the Merger and the transactions contemplated by
this Agreement shall be subject to the satisfaction at or prior to the Closing
of each of the following conditions, any of which may be waived, in writing,
exclusively by the Company:
(a) Representations and Warranties. The representations and
warranties of Parent and Merger Sub contained in this Agreement shall have been
true and correct in all material respects as of the date of this Agreement. In
addition, the representations and warranties of Parent and Merger Sub contained
in this Agreement shall be true and correct in all material respects on and as
of the Effective Time except for (i) changes contemplated by this Agreement, and
(ii) except for those representations and warranties which address matters only
as of a particular date (which shall remain true and correct as of such
particular date). The Company shall have received a certificate with respect to
the foregoing signed on behalf of Parent by a duly authorized officer of Parent.
(b) Agreements and Covenants. Parent and Merger Sub shall have
performed or complied (which performance or compliance shall be subject to
Parent's or Merger Sub's ability to cure as provided in Section 8.1(e) below) in
all material respects with all agreements and covenants required by this
Agreement to be performed or complied with by them on or prior to the Effective
Time, and the Company shall have received a certificate to such effect signed by
a duly authorized officer of Parent.
(c) Material Adverse Change. There shall not have occurred any
Material Adverse Effect on Parent since September 30, 1999. For purposes of this
condition, neither a reduction in the trading price of Parent's Common Stock,
whether occurring at any time or from time to time, as reported by Nasdaq
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or any other automated quotation system or exchange, nor changes in general
economic conditions or changes affecting the industry generally in which Parent
operates shall, in and of itself, constitute a Material Adverse Effect.
(d) Payment of Cash and Parent Common Stock. Parent and Merger Sub
shall have delivered the Aggregate Cash Consideration and the Parent Common
Stock to the Exchange Agent and Escrow Agent, as appropriate, pursuant to
Section 1.8 of this Agreement.
(e) Legal Opinion. The Company shall have received a legal opinion
from Xxxxxx Xxxxxxx Xxxxxxxx & Xxxxxx, legal counsel to Parent and Merger Sub,
in substantially the form attached hereto as Exhibit D.
(f) Third Party Consents. The Company shall have been furnished with
evidence satisfactory to it that Parent has obtained those consents required in
connection with the Merger except as would not have a Material Adverse Effect on
Parent.
6.3 Additional Conditions to the Obligations of Parent and Merger Sub.
The obligations of Parent and Merger Sub to consummate the Merger and the
transactions contemplated by this Agreement shall be subject to the satisfaction
at or prior to the Closing of each of the following conditions, any of which may
be waived, in writing, exclusively by Parent:
(a) Representations and Warranties. The representations and
warranties of the Company contained in this Agreement shall have been true and
correct in all material respects as of the date of this Agreement. In addition,
the representations and warranties of the Company contained in this Agreement
shall be true and correct in all material respects on and as of the Effective
Time except for (i) changes contemplated by this Agreement, and (ii) except for
those representations and warranties which address matters only as of a
particular date (which shall remain true and correct as of such particular
date). Parent shall have received a certificate with respect to the foregoing
signed on behalf of the Company by a duly authorized officer of the Company.
(b) Agreements and Covenants. The Company shall have performed or
complied (which performance or compliance shall be subject to the Company's
ability to cure as provided in Section 8.1(d) below) in all material respects
with all agreements and covenants required by this Agreement to be performed or
complied with by it on or prior to the Effective Time, and Parent and Merger Sub
shall have received a certificate to such effect signed by a duly authorized
officer of the Company.
(c) Third Party Consents. Parent shall have been furnished with
evidence satisfactory to it that the Company has obtained those Required
Consents set forth in Schedule 6.3(c).
(d) Legal Opinion. Parent shall have received a legal opinion from
EBG, legal counsel to the Company, in substantially the form attached hereto as
Exhibit E.
(e) Material Adverse Change. There shall not have occurred any
Material Adverse Effect on the Company since September 30, 1999. For purposes of
this condition, changes in general economic conditions or changes affecting the
industry generally in which the Company operates shall not, in and of itself,
constitute a Material Adverse Effect. Further, for purposes of this condition, a
failure by the Company to extend the U.S. West Agreement shall not be deemed a
Material Adverse Effect for purposes of this closing condition.
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(f) Offer Letter. Each person listed on Schedule 6.3(f) shall have
executed and delivered to Parent an acceptance of an Offer Letter substantially
in the form attached hereto as Exhibit F, which shall contain a prohibition
against (i) competition against Parent and the Surviving Corporation and (ii)
solicitation of employees of Parent and Surviving Corporation and all of such
agreements shall be in full force and effect.
(g) Escrow Agreement. Parent, the Company, Escrow Agent and the
Stockholders' Representative (as defined in the Escrow Agreement) shall have
entered into an Escrow Agreement substantially in the form attached hereto as
Exhibit G (the "Escrow Agreement").
(h) Dissenters' Rights. Holders of more than 5% of the outstanding
shares of Company Capital Stock shall not have exercised, nor shall they have
any continued right to exercise, appraisal, dissenters' or similar rights under
applicable law with respect to their shares by virtue of the Merger.
(i) Termination of Agreement. If requested in writing by Parent at
least five business days prior to Closing, the Sales Agency Agreement dated July
14, 1998 between GN Comtext Limited, a company incorporated under the laws of
England, and the Company, pursuant to which GN Comtext Limited appointed the
Company to act as its sales representative for certain services within the
United States of America and Canada shall have terminated.
(j) Repayment of Parent Loan. The Company shall repay in full
simultaneous with the Closing the outstanding principal and any interest thereon
under the Promissory Note; provided that in no event shall the Closing be deemed
to have occurred unless and until the outstanding principal and interest under
the Promissory Note shall have been repaid in full.
ARTICLE VII
SURVIVAL OF REPRESENTATIONS AND WARRANTIES;
INDEMNIFICATION; ESCROW
7.1 Survival of Representations and Warranties. All of the Company's
representations and warranties in this Agreement or in any instrument delivered
pursuant to this Agreement (each as modified by the Company Schedules) shall
survive the Merger and continue until 5:00 p.m., California time, on the six
month anniversary of the Closing Date, except that the representations and
warranties set forth in sections 2.8, 2.11 and 2.18 shall survive the Merger and
continue until 5:00 p.m., California time, on the twelve month anniversary of
the Closing Date.
7.2 Obligation of the Company to Indemnify, Reimburse, etc. Subject to
the provisions of Section 7.4 hereof, the Company, its successors and assigns,
jointly and severally, shall indemnify, reimburse, defend, protect and hold
harmless Parent and Merger Sub and each of their successors and assigns and each
of their respective directors, officers, employees, affiliates, agents, and
their respective successors and assigns (each a "Parent Indemnitee") from and
against any claims, losses, liabilities, damages, causes of action, costs and
expenses (including reasonable attorney's, accountant's, consultant's and
expert's fees and expenses) (collectively "Losses") resulting from, directly or
indirectly, or based upon, any inaccuracy in or any breach of any
representation, warranty, covenant or agreement of the Company.
7.3 Obligation of Parent to Indemnify, Reimburse, etc. Subject to the
provisions of Section 7.4 hereof, Parent and Merger Sub and their respective
successors and assigns, jointly and severally, shall indemnify, defend, protect
and hold harmless the Company and its successors and assigns and each of its
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directors, officers, employees, affiliates, agents, and their respective
successors and assigns (each a "Company Indemnitee") from and against any Losses
resulting from, directly or indirectly, or based upon, any inaccuracy in or
breach of any representation, warranty, covenant or agreement of Parent or
Merger Sub.
7.4 Claims for Indemnification. Whenever any claim shall arise for
indemnification under this Section 7, Parent or the Company, as the case may be,
seeking indemnification (the "Indemnified Party"), shall promptly notify (the
"Claim Notice") the party for whom indemnification is sought hereunder (the
"Indemnifying Party") of the claim and, when known, the facts constituting the
basis for such claim. In the event such Claim Notice is sent by Parent, Parent
shall deliver a copy of such Claim Notice to the Escrow Agent and the
Stockholders' Representatives. In the event of any such claim for
indemnification hereunder resulting from or in connection with any claim or
legal proceedings by a third party, the notice shall specify, if known, the
amount or an estimate of the amount of the liability arising therefrom. The
Indemnified Party shall not settle or compromise any claim by a third party for
which it is entitled to indemnification hereunder without the prior written
consent, which shall not be unreasonably withheld or delayed, of the
Indemnifying Party; provided, however, that if suit shall have been instituted
against the Indemnified Party and the Indemnifying Party shall not have taken
control of such suit after notification thereof as provided herein, the
Indemnified Party shall have the right to settle or compromise such claim upon
giving notice to the Indemnifying Party as provided in Section 7.5. In the event
that the Company constitutes the Indemnifying Party, all notices and consents
shall be given to, or by, the Stockholders' Representatives, who shall have the
power and authority to bind the Company and all of the Company's stockholders.
7.5 Defense by the Indemnifying Party. In connection with any claim
which may give rise to indemnity hereunder resulting from or arising out of any
claim or legal proceeding by a person other than the Indemnified Party, the
Indemnifying Party, at its sole cost and expense, may, upon written notice to
the Indemnified Party, assume the defense of any such claim or legal proceeding
if the Indemnifying Party acknowledges to the Indemnified Party in writing the
obligation of the Indemnifying Party to indemnify the Indemnified Party with
respect to all elements of such claim. If the Indemnifying Party assumes the
defense of any such claim or legal proceeding, the Indemnifying Party shall, at
its sole cost and expense, take all steps necessary in the defense or settlement
thereof. The Indemnifying Party shall not consent to a settlement of, or the
entry of any judgment arising from, any such claim or legal proceeding, other
than the payment of money, unless such settlement includes a release of the
Indemnified Party from any and all claims arising from or related to such claim
or legal proceeding. The Indemnified Party shall be entitled to participate in
(but not control) the defense of any such action, with its own counsel and at
its own expense. If the Indemnifying Party does not assume the defense of any
such claim or litigation resulting therefrom within thirty (30) days after the
date such claim is made: (a) the Indemnified Party may defend against such claim
or litigation in such manner as it may deem appropriate, including, but not
limited to, settling such claim or litigation, after giving notice of the same
to the Indemnifying Party on such terms as the Indemnified Party may deem
appropriate, and (b) the Indemnifying Party shall be entitled to participate in
(but not control) the defense of such action, with its counsel and at its own
expense. If the Indemnifying Party thereafter seeks to question the manner in
which the Indemnified Party defended such third party claim or the amount or
nature of any such settlement, the Indemnifying Party shall have the burden to
prove by a preponderance of the evidence that the Indemnified Party did not
defend or settle such third party claim in a reasonably prudent manner. In the
event that the Company's stockholders constitute the Indemnifying Party, all
references herein to the Indemnifying Party shall be deemed to mean the
Stockholders' Representatives, who shall have the power and authority to bind
the Company and all of the Company's stockholders. All costs and expenses to be
borne by the Indemnifying Party, if the Indemnifying Party is the Company, shall
be borne severally by each of the Company's stockholders.
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7.6 Limits on Indemnification, Reimbursement, etc. Absent fraud or
willful misconduct of any party (for which there shall be no limitation of
liability of any party), no Parent Indemnitee and no Company Indemnitee shall
have any right to seek indemnification, reimbursement or defense under this
Agreement or the Escrow Agreement until Losses which would otherwise be
indemnifiable hereunder, and have been incurred by such party and other
indemnitees associated with or related to such party, exceed $1,000,000, and
then such indemnification or reimbursement shall only be to the extent that such
Losses are in excess of $500,000. For the purposes of the foregoing, only such
Losses that individually exceed $25,000 shall be counted towards the $1,000,000
threshold.
7.7 Escrow Arrangements. Concurrent with the Effective Time, the Escrow
Amount and Special Escrow Amount, if appropriate, shall be placed in an escrow
fund (the "Escrow Fund"), to be governed by the terms of the Escrow Agreement.
That amount of shares of Parent Common Stock equal to the Escrow Amount placed
in the Escrow Fund shall be available to compensate Parent and its affiliates
for losses incurred by Parent and its affiliates in connection with breaches of
representations, warranties, or covenants contained herein or delivered pursuant
hereto. That amount of shares of Parent Common Stock equal to the Special Escrow
Amount placed in the Escrow Fund shall be paid to Parent in the event that,
prior to March 31, 2000, the Company shall fail to extend the term of the U.S.
West Agreement to a period ending not earlier than March 31, 2001, on
substantially the terms set forth on Schedule 1.8(b). The parties acknowledge
that after the Closing Date and absent fraud or willful misconduct, the maximum
amount that is payable under the indemnification obligation of the Company under
Section 7.2 is the Escrow Amount. The terms and conditions of the Escrow Fund
shall be set forth more fully in the Escrow Agreement.
7.8 General Limitations. Unless this Agreement is terminated prior to
Closing, and except for any knowing and intentional, willful or fraudulent
breach of the representations and warranties or covenants contained in this
Agreement, no party hereto shall make any claim against another party other than
as set forth in this Article VII.
ARTICLE VIII
TERMINATION, AMENDMENT AND WAIVER
8.1 Termination. Except as provided in Section 8.2 below, this Agreement
may be terminated and the Merger abandoned at any time prior to the Effective
Time:
(a) by mutual consent of the Company and Parent;
(b) by Parent or the Company if: (i) the Effective Time has not
occurred by January 31, 2000 (provided that the right to terminate this
Agreement under this clause 8.1(b)(i) shall not be available to any party whose
willful failure to fulfill any obligation hereunder has been the cause of, or
resulted in, the failure of the Effective Time to occur on or before such date);
(ii) there shall be a final nonappealable order of a federal or state court in
effect preventing consummation of the Merger; or (iii) there shall be any
statute, rule, regulation or order enacted, promulgated or issued or deemed
applicable to the Merger by any governmental entity that would make consummation
of the Merger illegal;
(c) by Parent if there shall be any action taken, or any statute,
rule, regulation or order enacted, promulgated or issued or deemed applicable to
the Merger, by any Governmental Entity, which would: (i) prohibit Parent's or
the Company's ownership or operation of any portion of the business of the
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Company or (ii) compel Parent or the Company to dispose of or hold separate, as
a result of the Merger, any portion of the business or assets of the Company or
Parent;
(d) by Parent if it is not in material breach of its obligations
under this Agreement and there has been a breach of any representation,
warranty, covenant or agreement contained in this Agreement on the part of the
Company and as a result of such breach the conditions set forth in Section
6.3(a) or 6.3(b), as the case may be, would not then be satisfied; provided,
however, that if such breach is curable by the Company within thirty (30) days
through the exercise of its reasonable best efforts, then for so long as the
Company continues to exercise such reasonable best efforts Parent may not
terminate this Agreement under this Section 8.1(d) unless such breach is not
cured within thirty (30) days of written notice of such breach (but no cure
period shall be required for a breach which by its nature cannot be cured);
(e) by the Company if it is not in material breach of its
obligations under this Agreement and there has been a breach of any
representation, warranty, covenant or agreement contained in this Agreement on
the part of Parent or Merger Sub and as a result of such breach the conditions
set forth in Section 6.2(a) or 6.2(b), as the case may be, would not then be
satisfied; provided, however, that if such breach is curable by Parent or Merger
Sub within thirty (30) days through the exercise of its reasonable best efforts,
then for so long as Parent or Merger Sub continues to exercise such reasonable
best efforts the Company may not terminate this Agreement under this Section
8.1(e) unless such breach is not cured within thirty (30) days of written notice
of such breach (but no cure period shall be required for a breach which by its
nature cannot be cured);
(f) by Parent upon a breach of Section 4.2 or the Company shall fail
to submit to its stockholders an Information Statement that includes the
unanimous recommendation of the Board of Directors of the Company in favor of
the Merger and this Agreement; and
(g) by the Company or the Parent if the required approval of the
stockholders of the Company contemplated by this Agreement shall not have been
obtained by reason of the failure to obtain the required vote at a meeting of
the Company stockholders duly convened therefore or at any adjournment thereof;
provided, however, that the right to terminate this Agreement under this Section
8.1(g) shall not be available to the Company where the failure to obtain the
Company's stockholder approval shall have been caused by the action or failure
to act of the Company and such action or failure to act constitutes a material
breach by the Company of this Agreement.
Where action is taken to terminate this Agreement pursuant to this
Section 8.1, it shall be sufficient for such action to be authorized by the
Board of Directors (as applicable) of the party taking such action.
In the event that (i) this Agreement is terminated pursuant to Section
8.1 (other than Section 8.1(e)) of this Agreement, or (ii) the Company enters
into an agreement with any person, other than Parent, providing for the
acquisition of the Company (whether by way of merger, purchase of capital stock,
purchase of assets or otherwise) or any material portion of its capital stock or
assets, the Company shall pay on demand the principal and any interest thereon
due under the Promissory Note.
8.2 Effect of Termination. In the event of termination of this Agreement
as provided in Section 8.1, this Agreement shall forthwith become void and,
except as set forth in Section 8.3, there shall be no liability or obligation on
the part of Parent, Merger Sub or the Company, or their respective officers,
directors or shareholders, provided that each party shall remain liable for any
breaches of this Agreement prior to its termination to the extent provided in
Section 8.3; and provided further that, the provisions of
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Sections 5.3, this Section 8.2, Section 8.3 and Article IX of this Agreement
shall remain in full force and effect and survive any termination of this
Agreement.
8.3 Fees and Expenses.
(a) General. Except as set forth in this Section 8.3, all fees and
expenses incurred in connection with this Agreement and the transactions
contemplated hereby shall be paid by the party incurring such expenses whether
or not the Merger is consummated.
(b) Break-up Fees Payments. In the event that this Agreement is
terminated by Parent or the Company, as applicable, pursuant to Sections 8.1(f)
or (g) or the Company fails to consummate the Merger and the transactions
contemplated by this Agreement after all of the conditions to Closing described
in Section 6.1 and 6.2 have been duly satisfied or waived, the Company shall
promptly, but in no event later than two days after the date of such
termination, pay Parent a fee equal to $5,000,000 in immediately available funds
(the "Termination Fee"). The parties hereto acknowledge that the agreements
contained in this Section 8.3(b) are an integral part of the transactions
contemplated by this Agreement and that, without these agreements, neither
Parent nor the Company would enter into this Agreement; accordingly, if the
Company fails to pay in a timely manner the amounts due pursuant to this Section
8.3(b), and, in order to obtain such payment, Parent makes a claim that results
in a judgment against the Company for the amount set forth in this Section
8.3(b), the Company shall pay to Parent its reasonable costs and expenses
(including attorneys' fees and expenses) in connection with such suit, together
with interest on the amount set forth in this Section 8.3(b) at the prime rate
of The Chase Manhattan Bank in effect on the date such payment was required to
be made. Payment of the fees described in this Section 8.3(b) shall not be in
lieu of damages incurred in the event of breach of this Agreement.
8.4 Amendment. Except as is otherwise required by applicable law after
the shareholders of the Company approve this Agreement, this Agreement may be
amended by the parties hereto at any time by execution of an instrument in
writing signed on behalf of each of the parties hereto.
8.5 Extension; Waiver. At any time prior to the Effective Time, Parent
and Merger Sub, on the one hand, and the Company, on the other, may, to the
extent legally allowed, (i) extend the time for the performance of any of the
obligations of the other party hereto, (ii) waive any inaccuracies in the
representations and warranties made to such party contained herein or in any
document delivered pursuant hereto, and (iii) waive compliance with any of the
agreements or conditions for the benefit of such party contained herein. Any
agreement on the part of a party hereto to any such extension or waiver shall be
valid only if set forth in an instrument in writing signed on behalf of such
party.
ARTICLE IX
GENERAL PROVISIONS
9.1 Notices. All notices and other communications hereunder shall be in
writing and shall be deemed given if delivered personally or by commercial
delivery service, or mailed by registered or certified mail (return receipt
requested) or sent via facsimile (with acknowledgment of complete transmission)
to the parties at the following addresses (or at such other address for a party
as shall be specified by like notice):
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(a) if to Parent or Merger Sub, to:
Critical Path, Inc.
000 0xx Xxxxxx
Xxx Xxxxxxxxx, XX 00000
Attention: Xxxxx Xxxxxxxx
Telephone No.: (000) 000-0000
Facsimile No.: (000) 000-0000
with a copy to:
Xxxxxx Xxxxxxx Xxxxxxxx & Xxxxxx, P.C.
000 Xxxx Xxxx Xxxx
Xxxx Xxxx, Xxxxxxxxxx 00000
Attention: Xxxx X. Xxxxxx
Xxxx X. Xxxxxxxx
Telephone No.: (000) 000-0000
Facsimile No.: (000) 000-0000
(b) if to the Company, to:
FaxNet Corporation
00 X. Xxxxxxxxxx Xxxxxx
Xxxxxx, XX 00000
Attention: Xxxxx Xxxxxx
Telephone No.: (000) 000-0000
Facsimile No.: (000) 000-0000
with a copy to:
Xxxxxxx Xxxxxx & Green
00 Xxxxx Xxxxxx
Xxxxxx, XX 00000
Attention: Xxxxx Xxxxxx
Xxxx Xxxxxx
Telephone No.: (000) 000-0000
Facsimile No.: (000) 000-0000
(c) if to the Stockholders' Representative, to:
Xxxxx Xxxxxx
00 Xxxxxxxx Xxxx
Xxxxxxxxxx, XX 00000
Telephone No.: (000) 000-0000
Facsimile No.: (000) 000-0000
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with a copy to:
Xxxxxxx Xxxxxx & Green
00 Xxxxx Xxxxxx
Xxxxxx, XX 00000
Attention: Xxxxx Xxxxxx
Xxxx Xxxxxx
Telephone No.: (000) 000-0000
Facsimile No.: (000) 000-0000
9.2 Interpretation. The words "include," "includes" and "including" when
used herein shall be deemed in each case to be followed by the words "without
limitation." The word "agreement" when used herein (except with respect to this
Agreement) shall be deemed in each case to mean any contract, commitment or
other agreement, whether oral or written, that is legally binding. As used in
this Agreement, the phrase "to [a party's] knowledge," and similar phrases shall
mean the knowledge of such party, or of the President, Chief Executive Officer,
Chief Financial Officer, Controller or any Vice President of such party after
careful consideration of the matters set forth in the representation that is so
qualified and a reasonably diligent review of all files, documents, agreements
and other materials in such person's possession or subject to his or her
control. The table of contents and headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
9.3 Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each of
the parties and delivered to the other party, it being understood that all
parties need not sign the same counterpart.
9.4 Entire Agreement; Assignment. This Agreement, the schedules and
Exhibits hereto, the documents and instruments and other agreements among the
parties hereto referenced herein, and the Confidentiality Agreement by and
between Parent and the Company dated August 13, 1999, (a) constitute the entire
agreement among the parties with respect to the subject matter hereof and
supersede all prior agreements and understandings, both written and oral, among
the parties with respect to the subject matter hereof; (b) are not intended to
confer upon any other person any rights or remedies hereunder; and (c) shall not
be assigned by operation of law or otherwise except as otherwise specifically
provided, except that Parent and Merger Sub may assign their respective rights
and delegate their respective obligations hereunder to their respective
affiliates.
9.5 Severability. In the event that any provision of this Agreement or
the application thereof, becomes or is declared by a court of competent
jurisdiction to be illegal, void or unenforceable, the remainder of this
Agreement will continue in full force and effect and the application of such
provision to other persons or circumstances will be interpreted so as reasonably
to effect the intent of the parties hereto. The parties further agree to replace
such void or unenforceable provision of this Agreement with a valid and
enforceable provision that will achieve, to the extent possible, the economic,
business and other purposes of such void or unenforceable provision.
9.6 Other Remedies. Except as otherwise provided herein, any and all
remedies herein expressly conferred upon a party will be deemed cumulative with
and not exclusive of any other remedy conferred hereby, or by law or equity upon
such party, and the exercise by a party of any one remedy will not preclude the
exercise of any other remedy.
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9.7 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware, regardless of the laws that
might otherwise govern under applicable principles of conflicts of laws thereof.
Each of the parties hereto hereby consent and submit themselves to the
jurisdiction and venue of the State of Delaware for the purposes of any suit,
action or proceeding relating to this Agreement or the transactions contemplated
herein. Each of the parties hereto agrees that process may be served upon them
in any manner authorized by the laws of the State of Delaware for such persons
and waives and covenants not to assert or plead any objection which they might
otherwise have to such process. Each of the parties hereto also agrees not to
bring any action or proceeding arising out of or relating to this Agreement in
any court not located in the State of Delaware and hereby waives any defense of
inconvenient forum to the maintenance of any action or proceeding brought
therein in connection with this Agreement and waives any bond, surety or other
security that might be required of any other party with respect thereto.
9.8 Rules of Construction. The parties hereto agree that they have been
represented by counsel during the negotiation and execution of this Agreement
and, therefore, waive the application of any law, regulation, holding or rule of
construction providing that ambiguities in an agreement or other document will
be construed against the party drafting such agreement or document.
9.9 Specific Performance. The parties hereto agree that irreparable
damage would occur in the event that any of the provisions of this Agreement
were not performed in accordance with their specific terms or were otherwise
breached. It is accordingly agreed that the parties shall be entitled to an
injunction or injunctions to prevent breaches of this Agreement and to enforce
specifically the terms and provisions hereof in any court of the United States
or any state having jurisdiction, this being in addition to any other remedy to
which they are entitled at law or in equity.
9.10 Share Legends. All certificates representing any of the shares of
Parent Common Stock to be issued pursuant to this Agreement shall have endorsed
thereon any legend required by Federal or state securities laws.
(Remainder of page intentionally left blank)
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EXECUTION VERSION
IN WITNESS WHEREOF, Parent, Merger Sub and the Company have caused this
Agreement to be signed by their duly authorized respective officers, all as of
the date first written above.
FAXNET CORPORATION CRITICAL PATH, INC.
By /s/ Xxxxx Xxxxxxxx By /s/ Xxxxx Xxxxxxxxx
---------------------------------- ---------------------------------
Xxxxx Xxxxxxxx Xxxxx Xxxxxxxxx
Vice President Finance and Vice President Strategic
Chief Financial Officer Development and General Counsel
WELLFLEET ACQUISITION CORP.
By /s/ Xxxxx Xxxxxxxxx
----------------------------------
Xxxxx Xxxxxxxxx
President and Secretary
