Exhibit 2.1
AGREEMENT AND PLAN OF REORGANIZATION
BY AND AMONG
XXXXXXXX.XXX, INC.
XXXXXXXX.XXX ACQUISITION, INC.
TELARC, INC.
AND
XXXXXX XXXXXXX
Dated as of October 20, 1999
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 Effect on Capital Stock......................................................... 3
1.7 Additional Merger Cash.......................................................... 3
1.8 Surrender of Certificates....................................................... 4
1.9 No Further Ownership Rights in Company Common Stock............................. 4
1.10 Tax Treatment................................................................... 4
1.11 Taking of Necessary Action; Further Action...................................... 5
ARTICLE II REPRESENTATIONS AND WARRANTIES OF THE COMPANY................................... 5
2.1 Organization.................................................................... 5
2.2 Company Capital Structure....................................................... 5
2.3 Subsidiaries.................................................................... 6
2.4 Authority....................................................................... 6
2.5 No Conflict..................................................................... 6
2.6 Consents........................................................................ 6
2.7 Company Financial Statements.................................................... 7
2.8 No Undisclosed Liabilities...................................................... 7
2.9 No Changes...................................................................... 7
2.10 Tax Matters..................................................................... 9
2.11 Restrictions on Business Activities............................................. 11
2.12 Title of Properties; Absence of Liens and Encumbrances; Condition of Equipment.. 11
2.13 Intellectual Property........................................................... 11
2.14 Agreements, Contracts and Commitments........................................... 15
2.15 Interested Party Transactions................................................... 16
2.16 Governmental Authorization...................................................... 17
2.17 Litigation...................................................................... 17
2.18 Accounts Receivable; Inventory.................................................. 17
2.19 Minute Books.................................................................... 17
2.20 Brokers' and Finders' Fees...................................................... 17
2.21 Employees; Employee Benefit Plans and Compensation.............................. 18
2.22 Insurance....................................................................... 18
2.23 Environmental and Safety Laws................................................... 19
2.24 Compliance with Laws............................................................ 19
TABLE OF CONTENTS
(continued)
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2.25 Complete Copies of Materials.................................................... 19
2.26 Sole Shareholder................................................................ 19
2.27 Securities Exemption Representations............................................ 20
2.28 Representations Complete........................................................ 21
ARTICLE III REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB........................ 21
3.1 Organization, Standing and Power................................................ 21
3.2 Authority....................................................................... 21
3.3 Capital Structure............................................................... 21
3.4 SEC Documents; Parent Financial Statements...................................... 22
3.5 No Material Adverse Change...................................................... 22
3.6 No Conflict..................................................................... 22
3.7 Consents........................................................................ 23
3.8 Litigation...................................................................... 23
ARTICLE IV CONDUCT PRIOR TO THE EFFECTIVE TIME............................................. 23
4.1 Conduct of Business of the Company.............................................. 23
4.2 S Status........................................................................ 25
4.3 No Solicitation................................................................. 25
ARTICLE V ADDITIONAL AGREEMENTS............................................................ 26
5.1 Sale of Shares; Shareholder Matters............................................. 26
5.2 Access to Information........................................................... 26
5.3 Confidentiality................................................................. 27
5.4 Expenses........................................................................ 27
5.5 Public Disclosure............................................................... 27
5.6 Consents........................................................................ 27
5.7 FIRPTA Compliance............................................................... 27
5.8 Reasonable Efforts.............................................................. 27
5.9 Notification of Certain Matters................................................. 28
5.10 Additional Documents and Further Assurances..................................... 28
5.11 Company's Accountants........................................................... 28
5.12 Tax Matters..................................................................... 28
5.13 Lock-Up Restriction............................................................. 29
5.14 Rule 144; Form S-3 Registration Statement....................................... 29
ARTICLE VI CONDITIONS TO THE MERGER........................................................ 29
6.1 Conditions to Obligations of Each Party to Effect the Merger.................... 29
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TABLE OF CONTENTS
(continued)
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6.2 Additional Conditions to Obligations of the Company and the Sole Shareholder.... 30
6.3 Additional Conditions to the Obligations of Parent and Merger Sub............... 30
ARTICLE VII SURVIVAL OF REPRESENTATIONS AND WARRANTIES; ESCROW; INDEMNITY.................. 31
7.1 Survival of Representations and Warranties...................................... 31
7.2 Obligation of the Company and the Sole Shareholder to Indemnify,
Reimburse, etc.................................................................. 31
7.3 Escrow Arrangements............................................................. 31
ARTICLE VIII TERMINATION, AMENDMENT AND WAIVER............................................. 32
8.1 Termination..................................................................... 32
8.2 Effect of Termination........................................................... 33
8.3 Amendment....................................................................... 33
8.4 Extension; Waiver............................................................... 33
ARTICLE IX GENERAL PROVISIONS.............................................................. 34
9.1 Notices......................................................................... 34
9.2 Interpretation.................................................................. 35
9.3 Counterparts.................................................................... 35
9.4 Entire Agreement; Assignment.................................................... 35
9.5 Severability.................................................................... 35
9.6 Other Remedies.................................................................. 35
9.7 Governing Law................................................................... 35
9.8 Rules of Construction........................................................... 36
9.9 Specific Performance............................................................ 36
9.10 Share Legends................................................................... 36
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AGREEMENT AND PLAN OF REORGANIZATION
This AGREEMENT AND PLAN OF REORGANIZATION (this "Agreement") is made and
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entered into as of October 20, 1999 among Xxxxxxxx.xxx, Inc., a Delaware
corporation ("Parent"), Xxxxxxxx.xxx Acquisition, Inc., a Delaware corporation
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and a wholly-owned subsidiary of Parent ("Merger Sub"), Telarc, Inc., a New York
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corporation (the "Company") and Xxxxxx Xxxxxxx (the "Sole Shareholder").
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RECITALS
A. The Board of Directors of each of the Company, Parent and Merger Sub
believes it is in the best interests of each company and their respective
stockholders that Parent acquire the Company through the statutory merger of the
Company with and into Merger Sub (the "Merger") and, in furtherance thereof,
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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 Common Stock") shall be converted into
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the right to receive shares of the common stock of Parent ("Parent Common
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Stock") and cash.
C. A portion of the shares of Parent Common Stock otherwise issuable by
Parent in the Merger shall be placed in escrow by Parent, the release of which
amount shall be contingent upon certain events and conditions.
D. The Company, the Sole Shareholder, Parent and Merger Sub desire to
make certain representations and warranties and other agreements in connection
with the Merger.
E. The Company, the Sole Shareholder, Parent and Merger Sub understand
and acknowledge that the Sole Shareholder, as an employee of the Company, is an
essential element of the Company's business, and intend that Parent shall hire
the Sole Shareholder in connection with the Merger.
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
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subject to and upon the terms and conditions of this Agreement and the
applicable provisions of the Delaware
General Corporation Law (the "DGCL") and the Business Corporation Law of New
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York (the "NYBCL"), the Company shall be merged with and into Merger Sub, the
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separate corporate existence of the Company shall cease and Merger Sub shall
continue as the surviving corporation and as a wholly-owned subsidiary of
Parent. Merger Sub as the surviving corporation after the Merger is hereinafter
sometimes referred to as the "Surviving Corporation".
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1.2 Effective Time. Unless this Agreement is earlier terminated pursuant
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to Section 8.1, the closing of the Merger (the "Closing") will take place as
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promptly as practicable, but no later than two (2) business days following
satisfaction or waiver of the conditions set forth in Article VI, at the offices
of Parent, 00 Xxxxxxx Xxxx, Xxxxxxxxx, Xxxxxxxxxxxxx 00000, unless another place
or time is agreed to by Parent and the Company. The date upon which the Closing
actually occurs is referred to herein as the "Closing Date." On the Closing
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Date, the parties hereto shall cause the Merger to be consummated by filing a
Certificate of Merger (or like instrument) with the Secretaries of State of the
States of Delaware and New York (the "Certificate of Merger"), in accordance
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with the relevant provisions of applicable law. The date and time the Merger
becomes effective in accordance with the provisions of the DGCL and the NYBCL is
referred to herein as the "Effective Time."
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1.3 Effect of the Merger. At the Effective Time, the effect of the Merger
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shall be as provided in the applicable provisions of the DGCL and the NYBCL.
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.
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(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 Article I of the Certificate of Incorporation of the
Surviving Corporation shall be amended to read as follows: "The name of the
corporation is Xxxxxxxx.xxx Telarc, Inc."
(b) The Bylaws of Merger Sub, as in effect immediately prior to the
Effective Time, shall be the Bylaws of the Surviving Corporation until
thereafter amended.
1.5 Directors and Officers. The director(s) of Merger Sub immediately
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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.
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1.6 Effect on Capital Stock. At the Effective Time, by virtue of the
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Merger and without any action on the part of Merger Sub, the Company or the Sole
Shareholder, all shares of Company Common Stock issued and outstanding
immediately prior to the Effective Time will be canceled and extinguished and be
converted automatically into the right to receive (a) upon surrender of the
certificate representing such shares of Company Common Stock in the manner
provided in Section 1.8, an aggregate of 211,918 shares of Parent Common Stock
(the "Merger Shares") and an aggregate of $1,500,000 in cash (the "Merger
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Cash"), and (b) at the times specified in Section 1.7, the Additional Merger
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Cash (as such term is defined in Section 1.7), each upon the terms and subject
to the conditions set forth in this Section 1.6 and throughout this Agreement,
and the Escrow Agreement (as defined in Section 7.3). 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 Parent, Merger Sub, the Company or the
Sole Shareholder, the following shall occur:
(a) Cancellation of Parent-Owned and Company-Owned Stock. Each share
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of Company Common 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.
(b) Common Stock of Merger Sub. Each share of common stock of Merger
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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 the common stock of the Surviving Corporation. Each
stock certificate of Merger Sub evidencing ownership of any such shares shall
from and after the Effective Time evidence ownership of shares of capital stock
of the Surviving Corporation.
(c) Adjustments to Parent Common Stock. The number of shares of
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Parent Common Stock to be issued hereunder 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),
reorganization, recapitalization or other like change with respect to Parent
Common Stock occurring after the date hereof and prior to the Effective Time.
1.7 Additional Merger Cash. After the Closing, the Sole Shareholder shall
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be entitled to receive from Parent, as additional consideration for the shares
of Company Common Stock, additional cash payments (the "Additional Merger Cash")
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as follows: On the last business day (each a "Payment Date") of each of the ten
consecutive fiscal quarters beginning with the quarter ending March 30, 2000,
provided that the Sole Shareholder shall have been continuously employed by
Parent from the Closing Date through such Payment Date, the Sole Shareholder
shall be entitled to receive a payment of $350,000 in cash. Notwithstanding the
foregoing, if Parent shall at any time terminate the employment of the Sole
Shareholder without Cause (as defined below), or if the Sole Shareholder dies or
becomes permanently disabled, Parent shall on the date of such termination,
death or disability pay to the Sole Shareholder (or his heirs) an amount of cash
equal to the difference between $3,500,000 and the sum of all payments of
Additional Merger Cash made to the Sole Shareholder prior to the date of such
termination. Each payment made pursuant to this
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Section 1.7 shall be made by check or wire transfer of immediately available
funds. For purposes of this Section 1.7, "Cause" shall mean (a) the Sole
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Shareholder's failure to devote substantially all of his time and attention to
the transaction of Parent's business or to perform his duties and
responsibilities in any material respect, (b) an act of embezzlement by the Sole
Shareholder in connection with his employment, (c) a deliberate and willful
material violation of a federal or state law or regulation applicable to the
business of Parent or (d) the Sole Shareholder's conviction (including any plea
of guilty or nolo contendere) of a felony involving fraud under the laws of the
United States or any State, or his deliberate misappropriation of material
property belonging to Parent.
1.8 Surrender of Certificates.
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(a) Exchange Procedures. At the Closing, (i) the Sole Shareholder
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shall surrender the certificate (the "Certificate") which immediately prior to
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the Effective Time represented all outstanding shares of Company Common Stock,
(ii) upon such surrender of such Certificate the Sole Shareholder shall be
entitled to receive in exchange therefor a certificate representing the Merger
Shares (less the Escrow Amount, which shall be deposited by Parent in an escrow
account pursuant to Section 7.3) and the Merger Cash, and (iii) the Certificate
so surrendered shall forthwith be canceled. The "Escrow Amount" shall be a
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number of shares of Parent Common Stock obtained by multiplying (x) the number
of Merger Shares by (y) 0.35.
(b) Transfers of Ownership. If any certificate for shares of Parent
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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 have been 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.
1.9 No Further Ownership Rights in Company Common Stock. All shares of
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Parent Common Stock issued upon the surrender for exchange of shares of Company
Common 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 Common Stock, and there shall be no
further registration on the records of the Surviving Corporation of transfers of
shares of Company Common Stock which were outstanding immediately prior to the
Effective Time.
1.10 Tax Treatment. It is intended by the parties hereto that the Merger
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shall constitute a reorganization within the meaning of Section 368 of the
Internal Revenue Code of 1986, as amended (the "Code"). The Sole Shareholder
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acknowledges that he has consulted with its own tax advisors with regard to the
tax consequences of the Merger.
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1.11 Taking of Necessary Action; Further Action. If, at any time after the
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Effective Time, any such further action is necessary or desirable to carry out
the purposes of this Agreement and to vest the Surviving Corporation with full
right, title and possession to all assets, property, rights, privileges, powers
and franchises of the Company and Merger Sub, the officers and directors of the
Company, Parent and Merger Sub are fully authorized in the name of their
respective corporations or otherwise to take, and the Company and Merger Sub
shall cause them to take, all such lawful and necessary action.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company and the Sole Shareholder, jointly and severally, hereby
represent and warrant to Parent and Merger Sub, subject to such exceptions as
are specifically disclosed in the disclosure schedules (referencing the
appropriate section numbers) supplied by the Company and the Sole Shareholder to
Parent and attached hereto as Schedule 1 (the "Disclosure Schedules"), as
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follows:
2.1 Organization. The Company is a corporation duly incorporated and
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organized, and is validly existing and in good standing under the laws of the
state of New York. The Company has the corporate power to own its properties and
to carry on its business as now being conducted. The Company is duly registered,
licensed or qualified as a foreign corporation and is in good standing under the
laws of each jurisdiction in which the failure to be so qualified could have a
material adverse effect on the business, assets, financial condition, results of
operations or prospects of the Company (with reference to the Company or Parent,
as applicable, hereinafter referred to as a "Material Adverse Effect." The
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Company has delivered a true and correct officially certified copy of its
Articles of Incorporation and Bylaws (together, the "Charter") to Parent.
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2.2 Company Capital Structure. The authorized capital stock of the
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Company consists of two hundred (200) shares of Company Common Stock, no par
value, of which ten (10) shares are issued and outstanding. All issued and
outstanding shares of Company Common Stock have been duly authorized and validly
issued and are fully paid and nonassessable, and were not issued in violation of
or subject to any preemptive right, or other rights to subscribe for or purchase
shares, and are owned by the Sole Shareholder free and clear of any pledge,
lien, security interest, encumbrance, claim or other equitable or third-party
interest. Other than the shares of Company Common Stock owned by the Sole
Shareholder, there are no other outstanding interests, existing or contingent or
direct or indirect, in Company Common Stock. There are no rights ("Company
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Rights") of any character, written or oral, to which the Company or the Sole
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Shareholder of the Company is a party or by which any of them is bound,
obligating the Company or the Sole Shareholder to issue, deliver, sell,
repurchase or redeem, or cause to be issued, delivered, sold, repurchased or
redeemed, any shares of Company Common Stock or obligating the Company or any of
the Sole Shareholder to grant, extend, accelerate the vesting of, change the
price of, otherwise
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amend or enter into any such rights, including without limitation in favor of
employees of the Company.
2.3 Subsidiaries. The Company does not have and has never had any
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subsidiaries or affiliated companies and does not otherwise own and has never
otherwise owned any shares in the capital of or any interest in, or control,
directly or indirectly, any other corporation, partnership, association, joint
venture or other business entity.
2.4 Authority. The Company has all requisite corporate power and
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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 the Company, and no further
action is required on the part of the Company to authorize the Merger, the
Agreement, and the transactions contemplated hereby. This Agreement has been
duly executed and delivered by the Company and, assuming the due authorization,
execution and delivery by the other parties hereto, constitute the valid and
binding obligation of the Company, enforceable in accordance with their
respective terms, subject to the laws of general application relating to
bankruptcy, insolvency and the relief of debtors and to rules of law governing
specific performance, injunctive relief or other equitable remedies.
2.5 No Conflict. The execution and delivery of this Agreement and any
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Related Agreements to which the Company is a party by the Company do not, and,
the consummation of the transactions contemplated hereby and thereby 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, modification or acceleration of any obligation or loss of any
benefit (any such event, a "Conflict") under (i) any provision of the Charter,
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(ii) any mortgage, indenture, lease, contract or other agreement or instrument,
permit, concession, franchise or license to which the Company is subject, or
(iii) any judgment, order, decree, statute, law, ordinance, rule or regulation
applicable to the Company or its properties or assets, other than any such
conflicts, violations, defaults, terminations, cancellations or accelerations
which would not impair the ability of the Company to consummate the transactions
contemplated hereby and thereby.
2.6 Consents. No consent, waiver, approval, order or authorization of, or
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registration, declaration or filing with, any court, administrative agency or
commission or other U.S. federal, state, province, county, local or other
foreign governmental authority, instrumentality, agency or commission
("Governmental Entity") or any third party, including a party to any agreement
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with the Company (so as not to trigger any Conflict), is required by the Company
in connection with the execution and delivery of this Agreement and any Related
Agreements to which the Company is a party or the consummation of the
transactions contemplated hereby and thereby, except for such consents, waivers,
approvals, orders, authorizations, registrations, declarations and filings (i)
as may be required under applicable securities laws, (ii) as are set forth in
Schedule 2.6, and (iii) such other consents, authorizations, filings, approvals
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and registrations which if not obtained or made would not have a Material
Adverse Effect on the Company or impair its ability to consummate the
transactions contemplated hereby and thereby.
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2.7 Company Financial Statements.
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(a) Schedule 2.7(a) includes the Company's unaudited financial
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statements (balance sheets and income statements) as of and for the year ended
September 30, 1999 and its unaudited financial statements as of and for the
calendar years ended December 31, 1997 and 1998 and the six months ended June
30, 1999. Such financial statements are referred to collectively as the
"Financial Statements." The Financial Statements are complete and have been
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prepared on the accrual basis accounting method (exclusive of analysis of
detailed software revenue recognition principles), applied on a basis consistent
throughout the periods indicated. The Financial Statements present fairly the
financial condition and operating results of the Company as of the dates and for
the periods indicated therein. The balance sheet of the Company as of September
30, 1999 is hereinafter referred to as the "September Balance Sheet." September
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30, 1999 is hereinafter referred to as the "Balance Sheet Date." The balance
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sheet of the Company as of two days prior to the Closing Date is hereinafter
referred to as the "Closing Balance Sheet." There shall be no capitalized
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software development costs recorded in the Financial Statements or the Closing
Balance Sheet. The September Balance Sheet does not, and the Closing Balance
Sheet will not, include any reserves, write-offs or non-recurring charges in an
amount that is not consistent with the Company's past practices. The Company
will deliver, or cause to be delivered, the Closing Balance Sheet to Parent on
or prior to the Closing Date.
2.8 No Undisclosed Liabilities. Except as reflected or reserved against
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in the September Balance Sheet, as of the Balance Sheet Date, the Company did
not have any liability, indebtedness, obligation, expense, claim, deficiency,
guaranty or endorsement of any type, whether accrued, absolute, contingent,
matured, unmatured or otherwise (whether or not required to be reflected in
financial statements in accordance with GAAP), which in the aggregate exceeded
$2,500, nor has the Company incurred any such liability, indebtedness,
obligation, expense, claim, deficiency, guaranty or endorsement since the
Balance Sheet Date, except for liabilities incurred in the ordinary course of
business that, in the aggregate, do not exceed $2,500.
2.9 No Changes. Since the Balance Sheet Date, except as set forth on
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Schedule 2.9, there has not been, occurred or arisen any:
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(a) transaction by the Company except in the ordinary course of
business as conducted on that date and consistent with past practice;
(b) capital expenditure or commitment for capital expenditure by the
Company, either individually or in the aggregate, exceeding $3,500;
(c) destruction of, damage to or loss of any material assets of the
Company (whether or not covered by insurance) or loss of any business or
customers of the Company that (i) accounted for $25,000 or more of the Company's
revenues for fiscal year 1999 or (ii) is projected to account for $50,000 or
more of the Company's projected revenue for fiscal year 2000;
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(d) except as specifically requested by Parent, change in accounting
methods or practices (including any change in depreciation or amortization
policies or rates) by the Company;
(e) except as specifically requested by Parent, revaluation by the
Company of any of its assets, other than depreciation as required by GAAP and
reflected on the Closing Balance Sheet;
(f) declaration, setting aside or payment of any dividends on or any
other distribution (whether in cash, stock or property) in respect of any
Company Common Stock or profits, or any split, combination or reclassification
of Company Common Stock or the issuance or authorization of the issuance of any
securities in respect of, in lieu of or in substitution for any share in the
stated capital of the Company, or the repurchase, redemption or other
acquisition, directly or indirectly, of any Company Common Stock or any Company
Rights;
(g) 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 or 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 made in the ordinary course of business consistent
with past practice;
(h) sale, lease, license or other disposition of any of the assets or
properties of the Company, except sales of inventory and licenses of software
pursuant to the Company's standard license agreement, each in the ordinary
course of business consistent with past practice;
(i) amendment, termination or violation of any distribution agreement
or any material contract, agreement or license to which the Company is a party
or by which it is bound, other than termination by the Company pursuant to the
terms thereof in the ordinary course of business;
(j) loan by the Company to any person or entity, other than advances
to its employees for travel and business expenses in the ordinary course of
business and consistent with past practices, or incurrence by the Company of any
indebtedness other than trade debt in the ordinary course of business consistent
with past practice, guaranty by the Company of any indebtedness or debt
securities of others, or issuance or sale of any debt securities of the Company;
(k) 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, exceeding $2,500 in the aggregate;
(l) commencement or notice, or to the knowledge of the Company or the
Sole Shareholder, threat of commencement, of any lawsuit or proceeding by or
against the Company, or of any investigation of the Company or its affairs;
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(m) claim of ownership by a third party of any Intellectual Property
Asset (as defined in Section 2.13(a) below) or, to the knowledge of the Company
or the Sole Shareholder, infringement by the Company of any third party's
intellectual property rights;
(n) issuance or sale by the Company of any Company Common Stock,
Company Rights or any other securities of the Company;
(o) change in pricing or royalties set or charged by the Company
other than in the ordinary course of business; or
(p) any event or condition of any character, that has had or that
the Sole Shareholders believes could be reasonably expected to have a Material
Adverse Effect on the Company.
2.10 Tax Matters.
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(a) Definition of Taxes. For the purposes of this Agreement, "Tax"
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or, collectively, "Taxes," means (i) any and all federal, state, province, local
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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, goods and services, transfer, franchise, withholding, payroll,
recapture, employment, excise and property taxes, together with all interest,
penalties and additions imposed with respect to such amounts; and (ii) any
liability for the payment of any amounts of the type described in clause (i) as
a result of any express or implied obligation to indemnify any other person or
as a result of any obligation under any agreement or arrangement with any other
person with respect to such amounts, including any liability for taxes of a
predecessor entity.
(b) Tax Returns and Audits. Except as set forth on Schedule 2.10:
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(i) The Company as of the Effective Time will have prepared
and timely filed all required federal, state, local and foreign returns,
estimates, information statements and reports ("Returns") relating to any and
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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 has been an S Corporation within the meaning
of Section 1361 of the Code, and under all applicable state Tax laws and
regulations, since its formation.
(iii) The Sole Shareholder as of the Effective Time will have
prepared and timely filed all required Returns relating to any and all Taxes
concerning or attributable to the Sole Shareholder and such Returns are true and
correct and have been completed in accordance with applicable law.
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(iv) The Company and the Sole Shareholder as of the Effective
Time: (A) will have paid or accrued all Taxes it is required to pay or accrue
and (B) will have withheld and timely remitted all income taxes and other Taxes
required to be withheld and remitted.
(v) Neither the Company nor the Sole Shareholder has not been
delinquent in the payment of any Tax nor is there any Tax deficiency or
reassessment outstanding, assessed, notified or proposed against the Company or
the Sole Shareholder, nor has the Company or the Sole Shareholder executed any
waiver of any statute of limitations on or extending the period for the
assessment or collection of any Tax.
(vi) No audit or other examination of any Return of the Company
or the Sole Shareholder is currently in progress, nor has the Company or the
Sole Shareholder been notified of any request for such an audit or other
examination.
(vii) The Company does not have any liabilities for unpaid
federal, state, local and foreign Taxes which have not been accrued or reserved
against in accordance with GAAP on the September Balance Sheet, whether asserted
or unasserted, contingent or otherwise, and neither the Company nor the Sole
Shareholder has any knowledge of any basis for the assertion of any such
liability attributable to the Company, its assets or operations.
(viii) The Company has provided to Parent copies of all federal
and state income and all state sales and use Tax Returns (for both the Company
and the Sole Shareholder) for all periods since the date of the Company's
incorporation.
(ix) There are no liens, pledges, charges, adverse claims,
security interests or other encumbrances of any sort ("Liens") on the assets of
-----
the Company or the Sole Shareholder relating to or attributable to Taxes.
(x) Neither the Company nor the Sole Shareholder has 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 or the Sole Shareholder.
(xi) 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.
(xii) 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.
(xiii) The Company is not a party to a tax sharing or allocation
agreement nor does the Company owe any amount under any such agreement.
-10-
(xiv) 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.
(xv) The Company's tax basis in its assets for purposes of
determining its future amortization, depreciation and other federal income tax
deductions is accurately reflected on the Company's tax books and records.
2.11 Restrictions on Business Activities. There is no agreement
-----------------------------------
(noncompetition or otherwise), commitment, judgment, injunction, order or decree
to which the Sole Shareholder or the Company is a party or which is otherwise
binding upon the Sole Shareholder or the Company that has or reasonably could be
expected to have the effect of prohibiting or impairing any business practice of
the Company or the Sole Shareholder, any acquisition of property (tangible or
intangible) by the Company, the conduct of business by the Company or the
conduct of any business activities by the Sole Shareholder.
2.12 Title of Properties; Absence of Liens and Encumbrances; Condition of
--------------------------------------------------------------------
Equipment.
---------
(a) The Company does not own or lease any real property.
(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, free and clear of any Liens except as reflected in the
Financial Statements and except for liens for taxes not yet due and payable and
such imperfections of title and encumbrances, if any, which are not material in
character, amount or extent, and which do not materially detract from the value,
or materially interfere with the present use, of the property subject thereto or
affected thereby.
(c) The equipment and other tangible personal property owned or
leased by the Company (i) is adequate for the conduct of its business as
currently conducted, (ii) is in good operating condition, subject to normal wear
and tear, and (iii) has been reasonably maintained.
(d) Except as set forth in Section 2.12(d) the Company owns or has
valid and continuing rights to use all of the properties and assets (including
without limitation all Intellectual Property Assets) necessary to conduct its
business as currently conducted.
2.13 Intellectual Property.
---------------------
(a) Intellectual Property Assets. As used herein, the term
----------------------------
"Intellectual Property Assets" includes any rights, licenses, liens, security
----------------------------
interests, charges, encumbrances, equities, and other claims that the Company
may have to claim ownership, authorship or invention, to use, to object to or
prevent the modification of, to withdraw from circulation or control the
publication or distribution of any of the following worldwide:
-11-
(i) the name "Telarc, Inc.", the domain name "xxxxxxxxx.xxx",
all fictitious business names, trading names, corporate names, registered and
unregistered trademarks, service marks, and applications (collectively,
"Marks");
-----
(ii) all patents, patent applications and business methods,
inventions and discoveries that may be patentable (collectively, "Patents");
-------
(iii) all copyrights in both published works and unpublished
works (collectively, "Copyrights"); and
----------
(iv) all know-how, trade secrets, confidential information,
customer lists, software (source code and object code), technical information,
data, process technology, plans, drawings, and blue prints (collectively, "Trade
-----
Secrets").
-------
(b) Agreements. Schedule 2.13(b) contains a complete and accurate
---------- ----------------
list of all material contracts relating to the Intellectual Property Assets to
which the Company is a party or by which the Company is bound, except for any
license for commonly available software programs with a value of less than
$10,000 under which the Company is the licensee. There is no existing dispute or
disagreement with respect to any such agreement nor, to the knowledge of the
Company or the Sole Shareholder, has any such dispute or disagreement been
threatened.
(c) Software. Schedule 2.13(c) contains a complete and accurate
-------- ----------------
list of all computer software and/or middleware developed by or for the Company
(collectively referred to as the "Software"). Except as set forth on Schedule
--------
2.13(c), all Software is owned by the Company free and clear of any Liens and no
contractor, consultant or other third party has any claim of ownership in or to
the Software. The Company and the Sole Shareholder represent that any and all
rights to the Software shall be acquired by Parent at the Effective Time.
(d) Marks, Patents and Copyrights. The Company has not registered
-----------------------------
any Marks, Patents or Copyrights with the U.S. Patent and Trademark Office.
(e) Originators, Programmers and Developers. Schedule 2.13(e)
--------------------------------------- ----------------
contains a complete and accurate list of all originators, developers or
programmers, whether employees, contractors or agents, who have written any
portion of or contributed to any development of the Software (collectively
referred to as the "Developers").
----------
(f) Toolkits, Reused Code and Third-Party Software. Schedule 2.13(f)
---------------------------------------------- ----------------
of the Company Disclosure Schedule contains a complete and accurate list of all
code incorporated into the Software that was not specifically written or
developed for use in the Software (the "Preexisting Code"). This list includes
----------------
code from toolkits, from preexisting code written by the Developers and/or from
third-party software utilized to write or otherwise contribute to the
development of any of the Software. Upon consummation of the Merger, Parent
shall have at least a non-exclusive right
-12-
to use any such Preexisting Code and there are no third-party rights to such
Preexisting Code that will materially interfere with Parent's ownership and use
of the Software.
(g) Know-How Necessary for the Business
-----------------------------------
(i) The Intellectual Property Assets are all those necessary
for the operation of the Company's businesses as currently conducted. The
Company is the owner of all right, title, and interest in and to each of the
Intellectual Property Assets, free and clear of all Liens, and has the right to
use without payment to a third party all of the Intellectual Property Assets.
The Sole Shareholder has no right, title or interest in or to any of the
Intellectual Property Assets.
(ii) Except as set forth on Schedule 2.13(g), all former and
----------------
current employees of the Company, including the Sole Shareholder, have executed
written agreements with the Company that assign to the Company all rights to any
inventions, improvements, discoveries or information relating to the business of
the Company. No employee of the Company has entered into any agreement that
restricts or limits in any way the scope or type of work in which the employee
may be engaged or requires the employee to transfer, assign, or disclose
information concerning his work or her to anyone other than the Company.
(h) Patents
-------
(i) Schedule 2.13(h) contains a complete and accurate list and
----------------
summary description of all Patents. The Company is the owner of all right,
title, and interest in and to each of the Patents, free and clear of all Liens.
(ii) None of the products manufactured and sold, nor any process
or know-how used, by the Company infringes or is alleged to infringe any patent
or other proprietary right of any third party. There is no patent or patent
application of any third party that interferes or would be likely to interfere
with the Company's use of any Intellectual Property Asset.
(i) Trademarks
----------
(i) Schedule 2.13(i) contains a complete and accurate list and
----------------
summary description of all Marks. The Company is the owner of all right, title,
and interest in and to each of the Marks, free and clear of all Liens.
(ii) All Marks that have been registered with the United States
Patent and Trademark Office or with a corresponding state office are currently
in compliance with all formal legal requirements (including the timely post-
registration filing of affidavits of use and incontestability and renewal
applications), are valid and enforceable, and are not subject to any maintenance
fees or taxes or actions falling due within ninety days after the Closing Date.
-13-
(iii) No Xxxx has been or is now involved in any opposition,
invalidation, or cancellation and, to the knowledge of the Company and the Sole
Shareholder, no such action is threatened with the respect to any of the Marks.
(iv) To the knowledge of the Company and the Sole Shareholder,
there is no potentially interfering trademark or trademark application of any
third party.
(v) No Xxxx is infringed or, to knowledge of the Company and
the Sole Shareholder, has been challenged or threatened in any way. None of the
Marks used by the Company infringes or is alleged to infringe any trade name,
trademark, or service xxxx of any third party.
(vi) All products and materials containing a Xxxx xxxx the
proper legal notice where permitted by law .
(j) Copyrights
----------
(i) Schedule 2.13(j) contains a complete and accurate list and
----------------
summary description of all Copyrights. The Company is the owner of all right,
title, and interest in and to each of the Copyrights, free and clear of all
Liens.
(ii) All the Copyrights that have been registered are currently
in compliance with formal legal requirements, are valid and enforceable, and are
not subject to any maintenance fees or taxes or actions falling due within
ninety days after the Closing Date.
(iii) No Copyright is infringed or, to knowledge of the Company
and the Sole Shareholder, has been challenged or threatened in any way. None of
the subject matter of any of the Copyrights infringes or is alleged to infringe
any copyright of any third party or is a derivative work based on the work of a
third party.
(iv) All works encompassed by the Copyrights have been marked
with the proper copyright notice.
(k) Trade Secrets
-------------
(i) With respect to each Trade Secret, the documentation
relating to such Trade Secret is current, accurate, and sufficient in detail and
content to identify and explain it and to allow its full and proper use without
reliance on the knowledge or memory of any individual.
(ii) The Company and the Sole Shareholder have taken all
reasonable precautions to protect the secrecy, confidentiality and value of the
Trade Secrets.
(iii) The Company has good title and an absolute exclusive right
to use the Trade Secrets. The Trade Secrets are not part of the public knowledge
or literature, and, to
-14-
knowledge of the Company and the Sole Shareholder, have not been used, divulged,
or appropriated either for the benefit of any third party or to the detriment of
the Company. No Trade Secret is subject to any adverse claim or has been
challenged or threatened in any way.
2.14 Agreements, Contracts and Commitments.
-------------------------------------
(a) Except as set forth on Schedule 2.14(a), the Company does not
----------------
have any continuing obligations under, nor is it a party to or bound by:
(i) any collective bargaining agreement, or any contract with
or commitment to any trade union, employee bargaining agent or affiliated
bargaining agent (collectively, "labor representatives"), and the Company has
---------------------
not conducted any negotiations with respect to enter into any such contracts or
commitments,
(ii) any agreement or arrangement that contains any severance
pay or post-employment liability or obligation or is otherwise required by
statute or case law to provide any of the foregoing,
(iii) any bonus, deferred compensation, pension, profit sharing
or retirement plans, or any other employee benefit plan or arrangement,
(iv) any employment or consulting agreement, contract or
commitment with an employee or individual consultant or salesperson, or any
consulting or sales agreement, contract or commitment with a firm or other
organization,
(v) any agreement or plan, including, without limitation, any
stock option plan, share appreciation rights plan or share 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, except as provided in Section 1.6,
(vi) any fidelity or surety bond or completion bond,
(vii) any lease of personal property,
(viii) any agreement of indemnification or guaranty, other than
intellectual property indemnification to customers in the ordinary course of
business,
(ix) any agreement, contract or commitment containing any
covenant limiting the freedom of the Company to engage in any line of business
or to compete with any person,
-15-
(x) any agreement, contract or commitment relating to capital
expenditures and involving future payments in excess of $5,000,
(xi) any agreement, contract or commitment relating to the
disposition or acquisition of material assets or any interest in any business
enterprise outside the ordinary course of the Company's business,
(xii) any mortgage, indenture, loan or credit agreement,
security agreement or other agreement or instrument relating to the borrowing of
money or extension of credit, including guaranties referred to in clause (viii)
hereof,
(xiii) any purchase order or contract for the purchase of raw
materials, other than purchase orders made in the ordinary course of business
and involving not more than $5,000
(xiv) any construction contract,
(xv) any distribution, joint marketing or development
agreement, or
(xvi) any other agreement, contract or commitment that involves
$10,000 or more or is not cancelable without penalty within thirty (30) days.
(b) Except as noted in Schedule 2.14(b), the Company has not
----------------
breached, violated or defaulted under, or received notice that it has breached,
violated or defaulted under, any of the material terms or conditions of any
agreement, contract or commitment required to be set forth in Schedule 2.14(a),
----------------
(any such agreement, contract or commitment referenced in the preceding clause,
a "Contract"), nor is the Company or the Sole Shareholder aware of any event
--------
that would constitute such a breach, violation or default with the lapse of
time, the giving of notice or both. Each Contract is in full force and effect
and, except as otherwise disclosed in Schedule 2.14(b), is not subject to any
----------------
default, of which the Company or Sole Shareholder is aware, by any party
obligated to the Company pursuant thereto. The Company has obtained, or will
obtain prior to the Closing Date, all necessary consents, waivers and approvals
of parties to any Contract as are required thereunder in connection with the
Merger, or that are required to be obtained in order for such Contract to remain
in effect without modification after the Merger.
2.15 Interested Party Transactions. No officer, director, employee or
-----------------------------
holder of Company Common Stock (or any spouse or member of the immediate family
of any of such persons, or any trust, partnership or corporation in which any of
such persons has or has had a material interest), has directly or indirectly,
(i) an interest in any entity which furnished or sold, or furnishes or sells,
services or products that the Company furnishes or sells, or proposes to furnish
or sell, or (ii) any 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 on Schedule 2.14; provided, that passive
-------------
ownership of no more than five percent (5%) of the outstanding stock of a
corporation shall not be deemed an "interest in any entity" for purposes of this
Section 2.15.
-16-
2.16 Governmental Authorization. Schedule 2.16 accurately lists each
-------------------------- -------------
material consent, license, permit, grant or other authorization issued to the
Company by a Governmental Entity (a) pursuant to which the Company currently
operates or holds any interest in any of its properties or (b) which is required
for the operation of its business or the holding of any such interest (herein
collectively called "Authorizations"). All Authorizations are in full force and
--------------
effect and constitute all Authorizations required to permit the Company to
operate or conduct its business or hold any interest in its properties or
assets.
2.17 Litigation. There is no action, suit, claim, proceeding or
----------
arbitration of any nature pending or threatened against the Company or any of
its properties or any of its officers, directors or shareholders in respect of
the Company, including without limitation any action, suit, claim, proceeding or
arbitration relating to the Intellectual Property Assets. There is no
investigation pending or threatened against the Company, its properties or any
of its officers, directors or shareholders in respect of the Company by or
before any Governmental Entity. 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.
2.18 Accounts Receivable; Inventory.
------------------------------
(a) Set forth in Schedule 2.18(a) is a list of all accounts
----------------
receivable of the Company reflected on the September Balance Sheet ("Accounts
--------
Receivable") of the along with a range of days elapsed since invoice as of the
----------
date of the September Balance Sheet. All Accounts Receivable of the Company (i)
arose in the ordinary course of business, (ii) represent bona fide indebtedness
incurred by the applicable account debtors in the amounts invoiced by the
Company and stated on its books and records, subject to collection and (iii) are
not subject to any defenses, counterclaims or claims for set off. The reserves
against the Accounts Receivable have been established in accordance with GAAP,
and based upon a review of such Accounts Receivable, the Company and the Sole
Shareholder reasonably believe such reserves to be adequate. No person has any
Lien on any of such Accounts Receivable and no request or agreement for
deduction or discount has been made with respect to any of such Accounts
Receivable. No such Accounts Receivable is owed by a person or entity that has
sought the protection of any bankruptcy or insolvency law or is the subject of
any dispute as to payment.
(b) The Company does not maintain any inventory.
2.19 Minute Books. The minute books of the Company made available to
------------
Parent or counsel for Parent are the only minute books of the Company and
contain an accurate summary of all meetings of directors (and committees
thereof) and shareholders or actions by written consent since the formation of
the Company.
2.20 Brokers' and Finders' Fees. 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.
-17-
2.21 Employees; Employee Benefit Plans and Compensation.
--------------------------------------------------
(a) For purposes of this Section 2.21, the following terms shall
have the meanings set forth below:
(i) "Employee Plan" shall refer to any plan, program, policy,
-------------
practice, contract, agreement or other arrangement providing for bonuses,
severance, termination pay, performance awards, stock or stock-related awards,
fringe benefits or other employee benefits of any kind, whether formal or
informal, funded or unfunded and whether or not legally binding, including
without limitation, any plan which is or has been maintained, contributed to, or
required to be contributed to, by the Company for the benefit of any "Employee"
(as defined below), and pursuant to which the Company has or may have any
material liability, contingent or otherwise;
(ii) "Employee" shall mean any current, former, or retired
--------
employee, consultant, independent contractor, sales representative, officer, or
director of the Company;
(iii) "Employee Agreement" shall refer to each employment,
------------------
severance, consulting or similar agreement or contract, whether written or oral,
between the Company and any Employee;
(b) The Company currently has no Employees other than the Sole
Shareholder, and, except as set forth on Schedule 2.21(b), the Company is not a
party to or bound by any Employee Plan or Employee Agreement.
(c) The execution of this Agreement and the consummation of the
transactions contemplated hereby will not (either alone or upon the occurrence
of any additional or subsequent events) constitute an event under any Employee
Plan, Employee Agreement, trust or loan that will or may result in any payment
(whether of severance pay or otherwise), acceleration, forgiveness of
indebtedness, vesting, distribution, increase in benefits or obligation to fund
benefits with respect to any Employee.
(d) The Company (i) has withheld all amounts required by law or by
agreement to is not liable for any arrears of wages or any taxes or any penalty
for failure to comply with any of the foregoing; and (iii) 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 for Employees (other than routine payments to be made in the
normal course of business and consistent with past practice).
2.22 Insurance. Schedule 2.22 lists all insurance policies and fidelity
--------- -------------
bonds covering the assets, business, equipment, properties, operations,
employees, officers and directors of the Company. Such insurance policies are
customary for similarly situated companies and reasonably satisfactory to ensure
the Company against the risks associated with its business. There is no claim
-18-
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). There has been no threatened termination of, or material
premium increase with respect to, any of such policies.
2.23 Environmental and Safety Laws. The Company is not in violation of any
-----------------------------
applicable statute, law or regulation relating to the environment or
occupational health and safety, and the Company is not or will not be required
to make any material expenditure in order to comply with any such existing
statute, law or regulation.
2.24 Compliance with Laws. The Company has complied in all material
--------------------
respects with, is not in violation in any material respect of, and has not
received any notices of violation with respect to, any foreign, federal, state,
province or local statute, law or regulation with respect to the conduct of its
business, or the ownership or operation of its business, assets or properties.
2.25 Complete Copies of Materials. The Company has delivered to Parent true
----------------------------
and complete copies of each agreement, contract, commitment or other document
(or summaries of same) that is referred to in the Disclosure Schedules or that
has been requested by Parent or its counsel.
2.26 Sole Shareholder.
----------------
(a) Each of this Agreement and the Related Agreements has been duly
and validly executed and delivered by the Sole Shareholder and, assuming due
authorization, execution and delivery by the other parties hereto and thereto,
constitute valid and binding obligations of the Sole Shareholder, enforceable
against the Sole Shareholder in accordance with their terms.
(b) Neither the execution and delivery of each of this Agreement and
the Related Agreements nor the performance by the Sole Shareholder of his
obligations hereunder and thereunder, violate, conflict with, or constitute a
default under any agreement or commitment to which the Company or the Sole
Shareholder is a party, or violate any statute or law or any judgment, decree,
order, regulation or rule of any court or other Governmental Entity applicable
to the Company or the Sole Shareholder that would preclude the Company and the
Sole Shareholder from entering into this Agreement and any Related Agreement, or
consummating the transactions contemplated hereby and thereby.
(c) No consent, waiver, approval, order or authorization of, or
declaration, filing or registration with, any Governmental Entity or any third
party is required to be made or obtained by the Sole Shareholder in connection
with the execution and delivery by the Company and the Sole Shareholder of each
of this Agreement and the Related Agreements or the performance by the Company
or the Sole Shareholder of any of their respective obligations hereunder and
thereunder or
-19-
the consummation by the Company or the Sole Shareholder of the transactions
contemplated herein or therein.
(d) The Sole Shareholder has had an opportunity to review with his
tax advisors the tax consequences to the Sole Shareholder of the Merger and the
transactions contemplated by this Agreement or the Related Agreements. The Sole
Shareholder understands that he must rely solely on his advisors and not on any
statements or representations by Parent, the Company or any of their agents.
2.27 Securities Exemption Representations.
------------------------------------
(a) The Sole Shareholder has substantial knowledge and experience in
financial and business matters so that he is capable of evaluating the merits
and risks of his investment in Parent, has the capacity to protect his own
interests, and either is an accredited investor within the meaning of Rule 501
of Regulation D under the Securities Act of 1933, as amended (the "Securities
----------
Act") or has a pre-existing business or close personal relationship with Parent
---
or any of its officers, directors or controlling persons. The Sole Shareholder
has had an opportunity to discuss Parent's management, business and financial
condition with Parent's management.
(b) The Sole Shareholder is acquiring the Merger Shares for
investment for his own account, and not as a nominee or agent, and not with the
view to, or for resale in connection with, any distribution thereof. The Sole
Shareholder understands that the Merger Shares have not been, and will not be,
registered under the Securities Act by reason of a specific exemption from the
registration provisions of the Securities Act, the availability of which depends
upon, among other things, the bona fide nature of the investment intent and the
accuracy of the Sole Shareholder's representations as expressed herein.
(c) The Sole Shareholder acknowledges that the Merger Shares must be
held indefinitely unless subsequently registered under the Securities Act or
unless an exemption from such registration is available. Shareholder is aware of
the provisions of Rule 144 promulgated under the Securities Act which permit
limited resale of securities purchased in a private placement subject to the
satisfaction of certain conditions, including, among other things, the existence
of a public market for the securities, the availability of certain current
public information about the issuer, the resale occurring not less than one year
after a party has acquired and given full consideration for the security to be
acquired, the sale being effected through a "broker's transaction" or in
transactions directly with a "market maker" and the number of securities being
sold during any three-month period not exceeding specified limitations.
(d) The Sole Shareholder acknowledges that the Merger Shares have not
been registered under the Securities Act and may only be offered, sold, pledged
or otherwise transferred pursuant to an effective registration statement as to
the Merger Shares under the Securities Act or an opinion of counsel satisfactory
to Parent that registration under the Securities Act is not required.
-20-
2.28 Representations Complete. None of the representations or warranties
------------------------
made in this Article II (as modified by the Disclosure Schedules), nor any
statement made in any schedule or certificate furnished by the Company or the
Sole Shareholder pursuant to this Agreement contains, as of the date hereof, any
untrue statement of a material fact, or omits, as of the date hereof, to state
any material fact necessary in order to make the statements contained herein or
therein, in the light of the circumstances under which made, not misleading.
There is no event, fact or condition that materially and adversely affects the
business, assets, financial condition or results of operations of the Company,
or that reasonably could be expected to do so, that has not been set forth in
this Agreement or in the Disclosure Schedules.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB
Parent and Merger Sub, jointly and severally, represent and warrant to the
Company and the Sole Shareholder as follows:
3.1 Organization, Standing and Power. Parent and Merger Sub are
--------------------------------
corporations 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 the Related Agreements and to
consummate the transactions contemplated hereby and thereby. The execution and
delivery of this Agreement and the Related Agreements and the consummation of
the transactions contemplated hereby and thereby have been duly authorized by
all necessary corporate action on the part of Parent and Merger Sub. This
Agreement and the Related Agreements have been duly executed and delivered by
Parent and Merger Sub and, assuming the due authorization, execution and
delivery by the other parties hereto and thereto, constitute the valid and
binding obligation of Parent and Merger Sub, enforceable in accordance with
their respective terms, subject to the laws of general application relating to
bankruptcy, insolvency and the relief of debtors and to rules of law governing
specific performance, injunctive relief or other equitable remedies.
3.3 Capital Structure.
-----------------
(a) The authorized stock of Parent consists of 150,000,000 shares of
Parent Common Stock, of which 40,924,643 shares were issued and outstanding as
of September 30, 1999, and 5,000,000 shares of Preferred Stock, none of which is
issued or outstanding. The authorized capital stock of Merger Sub consists of
1,000 shares of Common Stock, 1,000 shares of which, as of
-21-
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 other than any liens created by or imposed upon the holders thereof.
(b) The shares of Parent Common Stock to be issued pursuant to the
Merger will be duly authorized, validly issued, fully paid, 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 Securities and Exchange Commission
(the "SEC") under the Securities Act of 1933, as amended (the "Securities Act")
---
and the Securities Exchange Act of 1934, as amended (the "Exchange Act"), for
------------
all periods subsequent to June 24, 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 Securities Act or the Exchange Act, as applicable,
and none of the SEC Documents filed under the Exchange Act contained any untrue
statement of a material fact or omitted to state a material fact required to be
stated therein or necessary to make the statements made therein, in light of the
circumstances in which they were made, not misleading, except to the extent
corrected by a subsequently filed document with the SEC. None of the SEC
Documents filed under the Securities Act contained an untrue statement of
material fact or omitted to state a material fact required to be stated therein
or necessary to make the statements therein not misleading at the time such SEC
documents became effective under the Securities Act. The financial statements of
Parent, including the notes thereto, included in the SEC Documents (the "Parent
------
Financial Statements") comply as to form in all material respects with
--------------------
applicable accounting requirements and with the published rules and regulations
of the SEC with respect thereto, have been prepared in accordance with 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 No Material Adverse Change. Since June 30, 1999, Parent has conducted
--------------------------
its business in the ordinary course and there has not occurred (a) any material
adverse change in the financial condition, liabilities, assets or business of
Parent, or (b) any damage to, destruction or loss of any assets of the Parent
(whether or not covered by insurance) that materially and adversely affects the
financial condition or business of Parent.
3.6 No Conflict. The execution and delivery of this Agreement does not,
-----------
and, the consummation of the transactions contemplated hereby will not Conflict
with (i) any provision of the Charter, (ii) any mortgage, indenture, lease,
contract or other agreement or instrument, permit, concession, franchise or
license to which Parent is subject, or (iii) any judgment, order, decree,
statute, law, ordinance, rule or regulation applicable to Parent or its
properties or assets, other than
-22-
any such conflicts, violations, defaults, terminations, cancellations or
accelerations which would not impair the ability of Parent to consummate the
transactions contemplated hereby.
3.7 Consents. No consent, waiver, approval, order or authorization of, or
--------
registration, declaration or filing with, any Governmental Entity or any third
party, including a party to any agreement with Parent (so as not to trigger any
Conflict), is required by or with respect to Parent in connection with the
execution and delivery of this Agreement or the consummation of the transactions
contemplated hereby, except for such consents, waivers, approvals, orders,
authorizations, registrations, declarations and filings (i) as may be required
under applicable securities laws, (ii) as are set forth in Schedule 3.7, and
------------
(iii) such other consents, authorizations, filings, approvals and registrations
which if not obtained or made would not have a Material Adverse Effect on Parent
or impair its ability to consummate the transactions contemplated hereby.
3.8 Litigation. There is no action, suit, claim, proceeding or arbitration
----------
of any nature pending or threatened against Parent or any of its properties or
any of its officers, directors or stockholders in respect of Parent, including
without limitation any action, suit, claim, proceeding or arbitration relating
to Parent's material intellectual property assets. There is no investigation
pending or threatened against Parent, its properties or any of its officers,
directors or shareholders in respect of Parent by or before any Governmental
Entity. No Governmental Entity has at any time challenged or questioned the
legal right of the Parent to manufacture, offer or sell any of its products in
the present manner or style thereof.
ARTICLE IV
CONDUCT PRIOR TO THE EFFECTIVE TIME
4.1 Conduct of Business of the Company. During the period from the date of
----------------------------------
this Agreement and continuing until the earlier of (i) the termination of this
Agreement and (ii) the Effective Time, each of the Company and the Sole
Shareholder agree (except to the extent that Parent shall otherwise consent in
writing or to the extent Parent has expressly prohibited the Company or the Sole
Shareholder from taking any action) to carry on the business of the Company 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 the Company's 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 and the Sole Shareholder shall promptly notify Parent of any event or
occurrence or emergency not in the ordinary course of its business, and any
material event involving the Company or its business. Without limiting the
generality of the foregoing and except as expressly contemplated by this
-23-
Agreement, the Company and the Sole Shareholder 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 Intellectual
Property Assets (other than pursuant to end-user licenses, in the Company's
standard form entered into in the ordinary course of business consistent with
past practice);
(c) Enter into or amend any agreements pursuant to which any other
party is granted marketing, distribution or similar rights of any type or scope
with respect to any products of the Company;
(d) Amend or otherwise modify (or agree to do so), except in the
ordinary course of business, or violate the terms of, any of the agreements set
forth or described in the Disclosure Schedules;
(e) Commence or settle any litigation;
(f) Declare, set aside or pay any dividends on or make any other
distributions (whether in cash, stock or property) in respect of any of its
capital stock, or split, combine or reclassify any of its capital stock or issue
or authorize the issuance of any other securities in respect of, in lieu of or
in substitution for shares of capital stock of the Company, or repurchase,
redeem or otherwise acquire, directly or indirectly, any shares of its capital
stock (or Company Rights);
(g) 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 Company Rights;
(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) Sell, lease, license or otherwise dispose of any of its
properties or assets, except in the ordinary course of business and consistent
with past practice;
(k) Incur any indebtedness for borrowed money or guarantee any such
indebtedness or issue or sell any debt securities of the Company or guarantee
any debt securities of others;
-24-
(l) 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;
(m) Adopt or amend any Employee Plan, or enter into any Employee
Agreement, extend employment offers, pay or agree to pay any special bonus or
special remuneration to any director or employee, or increase the salaries or
wage rates of its employees;
(n) Revalue any of its assets, including without limitation writing
down the value of accounts receivable other than in the ordinary course of
business;
(o) Pay, discharge or satisfy, in an amount in excess of $2,500 (in
any one case) or $10,000 (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 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;
(p) 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;
(q) Enter into any strategic alliance, development or joint marketing
agreement; or
(r) 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 or the Sole Shareholder from performing or cause the
Company or the Sole Shareholder not to perform its or his covenants hereunder.
4.2 S Status. The Company shall maintain its tax status as an S
--------
Corporation up to the Effective Time and the Sole Shareholder shall not revoke
or otherwise terminate the election of the Company to be treated as an S
Corporation.
4.3 No Solicitation. Until the earlier of (i) the Effective Time and (ii)
---------------
the date of termination of this Agreement pursuant to the provisions of Section
8.1 hereof, neither the Company nor the Sole Shareholder will (nor will the
Company or the Sole Shareholder permit any of the Company's officers, directors,
agents, representatives or affiliates to) directly or indirectly, take any of
the following actions with any party other than Parent and its designees:
(a) Solicit, conduct discussions with or engage in negotiations with
any corporation, partnership, limited liability company, individual or other
third party business entity (any such entity referred to as a "Person"),
------
relating to the possible acquisition of the Company
-25-
(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 the Company 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 or the Sole Shareholder
receives prior to the Effective Time or the termination of this Agreement any
offer or proposal relating to any of the above, the Company or the Sole
Shareholder, as the case may be, shall immediately notify Parent thereof,
including information as to the identity of the offeror or the party making any
such offer or proposal and the specific terms of such offer or proposal, as the
case may be, and such other information related thereto as Parent may reasonably
request.
ARTICLE V
ADDITIONAL AGREEMENTS
5.1 Sale of Shares; Shareholder Matters.
-----------------------------------
(a) Sale of Shares. The parties hereto acknowledge and agree that the
--------------
shares of Parent Common Stock issuable to the Sole Shareholder of the Company
pursuant to Section 1.6 hereof shall constitute "restricted securities" within
the meaning of the Securities Act. The certificates for the Merger Shares shall
bear appropriate legends to identify such privately placed shares as being
restricted under the Securities Act, to comply with applicable state securities
laws. It is acknowledged and understood that Parent is relying upon the
representations made by the Sole Shareholder in Section 2.27.
5.2 Access to Information. The Company shall afford Parent and its
---------------------
accountants, counsel and other representatives (collectively, the
"Representatives") , reasonable access during normal business hours during the
period prior to the Effective Time to (a) all of its properties, books,
contracts, commitments and records, and (b) all other information concerning its
business, properties and personnel (subject to restrictions imposed by
applicable law) as Parent may reasonably request, including without limitation
access upon reasonable request to employees, customers and vendors of
-26-
the Company for due diligence inquiry. The Company shall provide to Parent and
its Representatives copies of internal financial statements and other documents
promptly upon 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 of the parties to
consummate the Merger.
5.3 Confidentiality. Each of the parties hereto hereby agrees that the
---------------
information obtained in any investigation pursuant to Section 5.2, or pursuant
to the negotiation and execution of this Agreement or the effectuation of the
transaction contemplated hereby shall be governed by the terms of the
Nondisclosure Agreement dated February 9, 1999 between the Company and Parent.
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, consulting and all other fees and
expenses of third parties ("Third Party Expenses") incurred by a party in
connection with the negotiation and effectuation of the terms and conditions of
this Agreement and the transactions contemplated hereby shall be the obligation
of the respective party incurring such fees and expenses. Notwithstanding the
foregoing, Parent agrees that after the Merger it will pay legal and accounting
Third Party Expenses of the Company and/or the Sole Shareholder up to an
aggregate amount of $20,000; provided, however, that if such expenses exceed
$20,000, the excess will be borne by the Sole Shareholder.
5.5 Public Disclosure. Unless otherwise required by law (including,
-----------------
without limitation, federal and state securities laws) or, as to Parent, by the
rules and regulations of The Nasdaq Stock Market, 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 prior to release, provided that such approval shall not be unreasonably
withheld.
5.6 Consents. The Company shall use its best efforts to obtain the
--------
consents, waivers, assignments and approvals under any of the Contracts as may
be required in connection with the Merger (all of such consents, waivers and
approvals having been set forth on Schedule 2.6) so as to preserve all rights of
and benefits to the Company thereunder.
5.7 FIRPTA Compliance. On or prior to 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).
5.8 Reasonable Efforts. Subject to the terms and conditions provided in
------------------
this Agreement, each of the parties hereto shall use its reasonable best 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
-27-
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 of the Company, 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 stock.
5.9 Notification of Certain Matters. The Company and the Sole Shareholder
-------------------------------
shall give prompt notice to Parent 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 Sole Shareholder or the Company, respectively,
contained in this Agreement, to be untrue or inaccurate at or prior to the
Effective Time and (ii) any failure of the Sole Shareholder or the Company, as
the case may be, to comply with or satisfy any covenant, condition or agreement
to be complied with or satisfied by it hereunder; provided, however, that the
delivery of any notice pursuant to this Section 5.8 shall not limit or otherwise
affect any remedies available to the party receiving such notice.
5.10 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 necessary or
desirable for effecting completely the consummation of this Agreement and the
transactions contemplated hereby.
5.11 Company's Accountants. The Company and the Sole Shareholder will use
---------------------
their commercially reasonable efforts to cause the Company's management and its
independent accountants to facilitate on a timely basis the preparation of
unaudited financial statements as required by Parent to comply with applicable
SEC regulations and filings.
5.12 Tax Matters.
-----------
(a) Tax Returns. The Sole Shareholder shall be responsible for timely
-----------
filing all federal and state income tax returns of the Company for taxable
periods ending on or prior to the Effective Time and have paid or will pay all
income taxes attributable to the income of the Company for such periods. Such
returns will be prepared and filed in accordance with applicable law and in a
manner consistent with past practices and shall be subject to review and
approval by Parent. After the Effective Time, the Company, on the one hand, and
the Sole Shareholder, on the other hand, will make available to the other, as
reasonably requested, all information, records or documents relating to the
liability for Taxes of the Company for all periods ending on or prior to the
Effective Time and will preserve such information, records or documents until
the expiration of any applicable statute of limitations or extensions thereof.
(b) Indemnification Regarding S Status. Except with respect to any
----------------------------------
tax jurisdiction that does not recognize S corporations as pass-through entities
and to the extent any tax jurisdiction does not accord S corporation tax
treatment to nonresident shareholders, the Sole Shareholder hereby indemnifies
and agrees to hold the Company harmless from, against and in
-28-
respect of any U.S. federal or state income Tax liability (including interest
and penalties), if any, resulting from the Company failing to qualify as an S
corporation under Section 1361(a)(1) of the Code (or state counterpart) for
every taxable year on or before the Effective Time as to which the Company filed
or files Tax Returns claiming status as an S corporation.
5.13 Lock-Up Restriction. The Sole Shareholder agrees that until the date
-------------------
that is one year after the Closing Date (the "One Year Date"), he will not,
-------------
directly or indirectly sell, offer to sell, contract to sell (including, without
limitation, any short sale) grant any option to purchase, pledge or otherwise
transfer or dispose of any of the Merger Shares (the "Lock-Up Restriction").
-------------------
5.14 Rule 144; Form S-3 Registration Statement. Parent will keep available
-----------------------------------------
current public information regarding Parent (as those terms are defined in Rule
144 under the Securities Act of 1933, as amended ("Rule 144")), so that
--------
beginning on the One Year Date, the Sole Shareholder can utilize Rule 144 to
resell the Merger Shares received pursuant to the Merger. Parent further agrees
that if Parent files a Registration Statement on Form S-3 prior to the One Year
Date for any purpose other than an underwritten public offering, Parent will
include the Merger Shares in such Registration Statement; provided, however,
that the Merger Shares will remain subject to the Lock-Up Restriction.
Additionally, Parent agrees that if on or after the One Year Date Parent files a
Registration Statement on Form X-0, X-0 or S-3 and at such time the Sole
Shareholder is unable to resell the Merger Shares using Rule 144, Parent will
include the Merger Shares in such Registration Statement; provided, however,
that in the case of an underwritten public offering, if the underwriter
determines that marketing factors require a limitation of the number of shares
to be underwritten, the number of Merger Shares owned by the Sole Shareholder
included in the Registration Statement may be reduced by the underwriter pro
rata with shares requested to be included in the Registration Statement by the
other selling stockholders based on the number of shares of Parent's Common
Stock owned by each such stockholder.
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) Government Approvals. All approvals of governments and
--------------------
governmental agencies necessary to consummate the transactions hereunder shall
have been received.
(b) No Injunctions or Restraints; Illegality. 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.
-29-
6.2 Additional Conditions to Obligations of the Company and the Sole
----------------------------------------------------------------
Shareholder. The obligations of the Company and the Sole Shareholder 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 be true
and correct in all material respects (except for those representations and
warranties which are by their terms qualified by a standard of materiality,
which representations and warranties shall be true and correct in all respects)
on and as of the Effective Time with the same force and effect as if made on and
as of the Effective Time, and the Company shall have received a certificate to
such effect 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 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) Employment Agreement. Parent shall have executed and delivered to
--------------------
the Sole Shareholder an Employment Agreement in the form attached as Exhibit
6.2(c) hereto (the "Employment Agreement"), and the Employment Agreement shall
--------------------
be in full force and effect.
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 and the Sole Shareholder contained in this Agreement
shall be true and correct in all material respects (except for those
representations and warranties which are by their terms qualified by a standard
of materiality, which representations and warranties shall be true and correct
in all respects) on and as of the Effective Time (without regard to any updates
to the Disclosure Schedule, unless otherwise agreed by Parent) with the same
force and effect as if made on and as of the Effective Time, and Parent and
Merger Sub shall have received a certificate to such effect signed (i) on behalf
of the Company by a duly authorized officer of the Company and (ii) by the Sole
Shareholder on his own behalf.
(b) Agreements and Covenants. The Company shall have performed or
------------------------
complied 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.
-30-
(c) Third Party Consents. Any and all consents, assignments,
--------------------
approvals and waivers listed on Schedule 2.6 shall have been obtained.
(d) Employment Agreement. The Sole Shareholder shall have executed
--------------------
and delivered to Parent the Employment Agreement, and the Employment Agreement
shall be in full force and effect.
(e) Material Adverse Change. There shall not have occurred any
-----------------------
material adverse change in the business, assets, financial condition, results of
operations or prospects of the Company since the date of the September Balance
Sheet.
(f) Escrow Agreement. The Escrow Agreement shall have been duly
----------------
executed and delivered by parties thereto and shall be in full force and effect.
(g) Due Diligence. Parent shall be satisfied in the course of its due
-------------
diligence investigation that the business and financial condition (including
without limitation ownership and sufficiency of Intellectual Property Assets) of
the Company are acceptable and satisfactory to Parent.
ARTICLE VII
SURVIVAL OF REPRESENTATIONS AND WARRANTIES; ESCROW; INDEMNITY
7.1 Survival of Representations and Warranties. All of the representations
------------------------------------------
and warranties made by the Company and the Sole Shareholder in this Agreement or
in any instrument delivered pursuant to this Agreement (each as modified by the
Disclosure Schedules) shall survive the Closing and any investigation made by or
on behalf of the Company or the Sole Shareholder for a period of one (1) year
after the Closing Date; provided; however, that the representations and
warranties made in Section 2.13 shall survive for a period of two (2) years.
7.2 Obligation of the Company and the Sole Shareholder to Indemnify,
----------------------------------------------------------------
Reimburse, etc. The Company, the Sole Shareholder and their respective
--------------
successors and assigns, jointly and severally, shall indemnify, reimburse,
defend and hold harmless Parent and Merger Sub and each of their respective
successors and assigns and each of their respective directors, officers,
employees, affiliates, and their respective successors and assigns (each a
"Parent Indemnitee"), from and against all Losses resulting from, imposed upon,
-----------------
incurred or suffered by any of them, directly or indirectly, based upon, arising
out of or otherwise in respect of any inaccuracy in or any breach of any
representation, warranty, covenant or agreement of the Company or the Sole
Shareholder. For purposes of this Agreement, "Losses" shall mean 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).
7.3 Escrow Arrangements. At the Effective Time, the Escrow Amount shall be
-------------------
placed in an escrow fund (the "Escrow Fund"), to be governed by the terms of the
-----------
Escrow Agreement. The
-31-
Escrow Fund shall be available to compensate Parent Indemnitees for Losses
resulting from, imposed upon, incurred or suffered by any of them, directly or
indirectly, based upon, arising out of or otherwise in respect of any inaccuracy
in or any breach of any representation, warranty, covenant or agreement of the
Company or the Sole Shareholder. Parent may not receive any shares from the
Escrow Fund unless and until Officer's Certificates (as defined in Section 5 of
the Escrow Agreement) identifying Losses, which in the aggregate exceed $50,000,
have been delivered to the Escrow Agent as provided in Section 5 of the Escrow
Agreement. The terms and conditions of the Escrow Fund shall be set forth more
fully in an Escrow Agreement in the form attached hereto as Exhibit 7.3 (the
-----------
"Escrow Agreement"). The Escrow Fund shall terminate on the date one year
-----------------
following the Closing Date (the "Expiration Date").
---------------
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 November 10, 1999 (provided that the right to terminate this
Agreement under this clause 8.1(b)(i) shall not be available to any party whose
willful failure to fulfill any obligation hereunder has been the cause of, or
resulted in, the failure of the Effective Time to occur on or before such date);
(ii) there shall be a final nonappealable order of a federal or state court in
effect preventing consummation of the Merger; or (iii) there shall be any
statute, rule, regulation or order enacted, promulgated or issued or deemed
applicable to the Merger by any governmental entity that would make consummation
of the Merger illegal;
(c) by Parent if there shall be any action taken, or any statute,
rule, regulation or order enacted, promulgated or issued or deemed applicable to
the Merger, by any Governmental Entity, which would: (i) prohibit Parent's or
the Company's ownership or operation of any portion of the business of the
Company or (ii) compel Parent or the Company to dispose of or hold separate, as
a result of the Merger, any portion of the business or assets of the Company or
Parent;
(d) by Parent if it is not in material breach of its obligations
under this Agreement and there has been a breach of any representation,
warranty, covenant or agreement contained in this Agreement on the part of the
Company or the Sole Shareholder 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 or
-------- -------
the Sole Shareholder within thirty (30) days through the exercise of its or his
reasonable best efforts, then for so long as the Company or the Sole Shareholder
continues to exercise such reasonable best efforts Parent may not
-32-
terminate this Agreement under this Section 8.1(d) unless such breach is not
cured within thirty (30) days (but no cure period shall be required for a breach
which by its nature cannot be cured);
(e) by the Company if it is not in material breach of its obligations
under this Agreement and there has been a breach of any representation,
warranty, covenant or agreement contained in this Agreement on the part of
Parent or Merger Sub and as a result of such breach the conditions set forth in
Section 6.2(a) or 6.2(b), as the case may be, would not then be satisfied;
provided, however, that if such breach is curable by Parent or Merger Sub within
-------- -------
thirty (30) days through the exercise of its reasonable best efforts, then for
so long as Parent or Merger Sub continues to exercise such reasonable best
efforts the Company may not terminate this Agreement under this Section 8.1(e)
unless such breach is not cured within thirty (30) days (but no cure period
shall be required for a breach which by its nature cannot be cured).
Where action is taken to terminate this Agreement pursuant to this Section
8.1, it shall be sufficient for such action to be authorized by the Board of
Directors (as applicable) of the party taking such action.
8.2 Effect of Termination. In the event of termination of this Agreement
---------------------
as provided in Section 8.1, this Agreement shall forthwith become void, and
there shall be no liability or obligation on the part of Parent, Merger Sub, the
Company or the Sole Shareholder, or their respective officers, directors or
stockholders; provided, that each party shall remain liable for any breaches of
--------
this Agreement prior to its termination; and provided further, that, the
----------------
provisions of Sections 5.3 and 5.4 and Articles VII and IX of this Agreement
shall remain in full force and effect and survive any termination of this
Agreement.
8.3 Amendment. This Agreement may be amended by the parties hereto at any
---------
time by execution of an instrument in writing signed on behalf of each of the
parties hereto.
8.4 Extension; Waiver. At any time prior to the Effective Time, Parent and
-----------------
Merger Sub, on the one hand, and the Company and the Sole Shareholder, 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.
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ARTICLE IX
GENERAL PROVISIONS
9.1 Notices. All notices and other communications hereunder shall be in
-------
writing and shall be mailed by certified mail (return receipt requested) to the
parties at the following addresses (or at such other address for a party as
shall be specified by like notice):
(a) if to Parent or Merger Sub, to:
Xxxxxxxx.xxx, Inc.
000 Xxxxxxx Xxxxxx
Xxxxx Xxxxxxx, Xxxxxxxxxx 00000
Attention: General Counsel
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: Xxxxxxxxx X. Xxxxx, Esq.
Telephone No.: (000) 000-0000
Facsimile No.: (000) 000-0000
(b) if to the Company or the Sole Shareholder, to:
Telarc, Inc.
0 Xxxxxxxx Xxxxx
Xxxxxxxxxx, Xxx Xxxx 00000
Attention: Xxxxxx Xxxxxxx
Telephone No.: (000) 000-0000
Facsimile No.: (000) 000-0000
with a copy to:
Xxxx Xxxxx, Esq.
0000 Xxxxxxxx Xxxxxx, Xxxxx 000
Xxxxxx Xxxx, Xxx Xxxx 00000
Telephone No.: (000) 000-0000
Facsimile No.: (000) 000-0000
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9.2 Interpretation. The words "include," "includes" and "including" when
--------------
used herein shall be deemed in each case to be followed by the words "without
limitation." The word "agreement" when used herein shall be deemed in each case
to mean any contract, commitment or other agreement, whether oral or written,
that is legally binding. As used in this Agreement, the phrase "to the best of
[a party's] knowledge," "to [a party's] knowledge," "[a party] is not aware,"
and similar phrases shall mean the knowledge of such party, or of the officers
and directors of such party, after careful consideration of the matters set
forth in the representation that is so qualified and a reasonably diligent
review of all files, documents, agreements and other materials in such person's
possession or subject to his or her control. The table of contents and headings
contained in this 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 Related Agreements and the documents and instruments and
other agreements among the parties hereto referenced herein and therein: (a)
constitute the entire agreement among the parties with respect to the subject
matter hereof and supersede all prior agreements and understandings, both
written and oral, among the parties with respect to the subject matter hereof;
(b) are not intended to confer upon any other person any rights or remedies
hereunder; and (c) shall not be assigned by operation of law or otherwise except
as otherwise specifically provided, except that Parent and Merger Sub may assign
their respective rights and delegate their respective obligations hereunder to
their respective affiliates.
9.5 Severability. In the event that any provision of this Agreement or the
------------
application thereof, becomes or is declared by a court of competent jurisdiction
to be illegal, void or unenforceable, the remainder of this Agreement will
continue in full force and effect and the application of such provision to other
persons or circumstances will be interpreted so as reasonably to effect the
intent of the parties hereto. The parties further agree to replace such void or
unenforceable provision of this Agreement with a valid and enforceable provision
that will achieve, to the extent possible, the economic, business and other
purposes of such void or unenforceable provision.
9.6 Other Remedies. Except as otherwise provided herein, any and all
--------------
remedies herein expressly conferred upon a party will be deemed cumulative with
and not exclusive of any other remedy conferred hereby, or by law or equity upon
such party, and the exercise by a party of any one remedy will not preclude the
exercise of any other remedy.
9.7 Governing Law. This Agreement shall be governed by and construed in
-------------
accordance with the laws of the State of California, regardless of the laws that
might otherwise govern under
-35-
applicable principles of conflicts of laws thereof. Each of the parties hereto
agrees that process may be served upon them in any manner authorized by the laws
of the State of California for such persons and waives and covenants not to
assert or plead any objection which they might otherwise have to such
jurisdiction and such process. Notwithstanding the foregoing, Parent agrees that
in the event that the Sole Shareholder commences in good faith an action solely
for the collection of Additional Merger Cash as a result of Parent's failure to
pay Additional Merger Cash which the Sole Shareholder was entitled to receive
pursuant to this Agreement, such action may be brought in the State of New York
and such action shall be governed by the laws of the State of New York.
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 a restrictive legend substantially as follows:
(a) "THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED, OR UNDER ANY STATE SECURITIES LAWS. THEY MAY NOT BE
SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT AS TO THE SECURITIES UNDER SAID ACT OR AN OPINION OF
COUNSEL REASONABLY SATISFACTORY TO THE CORPORATION THAT SUCH REGISTRATION IS NOT
REQUIRED."
(b) Any legend required to be placed thereon by applicable blue sky
laws of any state.
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IN WITNESS WHEREOF, Parent, Merger Sub, the Sole Shareholder and the
Company have caused this Agreement to be signed by their duly authorized
respective officers, all as of the date first written above.
TELARC, INC. XXXXXXXX.XXX, INC.
By /s/ Xxxxxx Xxxxxxx By /s/ Valdur Koha
------------------------------------- --------------------------------
President and Chief Executive Officer President
XXXXXX XXXXXXX XXXXXXXX.XXX ACQUISITION, INC.
/s/ Xxxxxx Xxxxxxx By /s/ Valdur Koha
--------------------------------------- --------------------------------
President
***REORGANIZATION AGREEMENT***
-37-
INDEX OF EXHIBITS
Exhibit Description
------- -----------
Exhibit 6.3(e) Form of Employment Agreement
Exhibit 7.3 Form of Escrow Agreement
-38-
INDEX OF SCHEDULES
Schedule Description
-------- -----------
2 Disclosure Schedules
2.6 Governmental and Third Party Consents
2.7(a) Company Financials
2.9 Changes
2.10 Tax Returns and Audits
2.13(b) Intellectual Property Licenses
2.13(c) Software
2.13(e) Pre-existing Code
2.13(f) Proprietary Information Agreements
2.13(g) Patents
2.13(h) Trademarks
2.13(i) Copyrights
2.14(a) Agreements, Contracts and Commitments
2.14(b) Breaches
2.16 Permits
2.18 Accounts Receivable
2.22 Insurance
