AGREEMENT AND PLAN OF MERGER
BY AND AMONG
VISUAL NETWORKS, INC.,
VISUAL ACQUISITIONS, INC.
AND
NET2NET CORPORATION
April 15, 1998
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TABLE OF CONTENTS
ARTICLE I: THE MERGER............................................1
1.1 The Merger................... .......................1
1.2 The Closing..........................................1
1.3 Actions at the Closing...............................2
1.4 Additional Action....................................2
1.5 Effect on Capital Stock..............................2
1.6 Dissenting Shares....................................4
1.7 Exchange of Shares...................................5
1.8 Dividends............................................6
1.9 Fractional Shares....................................6
1.10 Options and Warrants.................................6
1.11 Certificate Legends..................................8
1.12 Certificate of Incorporation.........................8
1.13 By-laws..............................................8
1.14 Directors and Officers...............................8
1.15 No Further Rights....................................8
1.16 Closing of Transfer Books............................9
1.17 Tax and Accounting Consequences......................9
1.18 Taking of Necessary Action; Further Action...........9
ARTICLE II: REPRESENTATIONS AND WARRANTIES OF THE COMPANY.... ...9
2.1 Organization, Qualification and Corporate Power......9
2.2 Capitalization.................................... .10
2.3 Authorization of Transaction........................10
2.4 Noncontravention....................................11
2.5 Subsidiaries........................................12
2.6 Financial Statements................................12
2.7 Absence of Certain Changes..........................12
2.8 Undisclosed Liabilities............................ 12
2.9 Tax Matters.........................................13
2.10 Assets..............................................14
2.11 Owned Real Property.................................14
2.12 Intellectual Property...............................15
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2.13 Real Property Leases................................17
2.14 Contracts...........................................18
2.15 Powers of Attorney..................................20
2.16 Insurance...........................................20
2.17 Litigation..........................................20
2.18 Employees...........................................21
2.19 Employee Benefits...................................21
2.20 Environmental Matters...............................23
2.21 Legal Compliance; Restrictions on
Business Activities.................................24
2.22 Permits.............................................24
2.23 Certain Business Relationships With Affiliates......25
2.24 Fees................................................25
2.25 Books and Records...................................25
2.26 Company Action......................................25
2.27 Customers and Suppliers.............................25
2.28 Pooling of Interests................................26
2.29 Restrictions on Business Activities.................26
2.30 Certain Payments....................................26
2.31 Disclosure..........................................26
ARTICLE III: REPRESENTATIONS AND WARRANTIES OF THE BUYER
AND THE MERGER SUB.................................27
3.1 Organization........................................27
3.2 Capitalization......................................27
3.3 Authorization of Transaction........................27
3.4 Noncontravention....................................28
3.5 Reports and Financial Statements....................28
3.6 Absence of Material Adverse Changs..................29
3.7 Litigation..........................................29
3.8 Company Action......................................29
3.9 Pooling of Interests................................29
3.10 Brokers' Fees.......................................29
3.11 Disclosure..........................................29
ARTICLE IV: COVENANTS...........................................30
4.1 Best Efforts........................................30
4.2 Notices and Consents................................30
4.3 Special Meeting.....................................30
4.4 Securities Laws.....................................31
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4.5 Operation of Business...............................31
4.6 Full Access.........................................34
4.7 Notice of Breaches..................................34
4.8 Exclusivity.........................................34
4.9 Non-Disclosure and Developments Agreements and
Non-Competition Agreements..........................35
4.10 Employee Matters....................................35
4.11 Agreements From Certain Affiliates of the Company...35
4.12 Registration Rights.................................35
4.13 Pooling Accounting..................................35
4.14 Escrow Agreement....................................36
4.15 Form S-8............................................36
4.16 Reorganization......................................36
4.17 Reasonable Commercial Efforts and Further
Assurances..........................................36
ARTICLE V: CONDITIONS TO CONSUMMATION OF MERGER.................36
5.1 Conditions to Each Party's Obligations..............36
5.2 Conditions to Obligations of the Buyer and
the Merger Sub......................................37
5.3 Conditions to Obligations of the Company............38
ARTICLE VI: TERMINATION.........................................38
6.1 Termination of Agreement............................38
6.2 Effect of Termination...............................39
6.3 Amendment...........................................39
6.4 Extension; Waiver...................................39
ARTICLE VII: ESCROW AND INDEMNIFICATION.........................40
7.1 Indemnification.....................................40
7.2 Escrow Fund.........................................40
7.3 Damage Threshold....................................41
7.4 Escrow Period.......................................41
7.5 Claims Upon Escrow Fund.............................41
7.6 Objections to Claims................................42
7.7 Resolution of Conflicts and Arbitration.............42
7.8 Stockholders' Agent.................................43
7.9 Actions of the Stockholders' Agent..................44
7.10 Third-Party Claims..................................44
ARTICLE VIII: DEFINITIONS.......................................45
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ARTICLE IX: MISCELLANEOUS.......................................47
9.1 Press Releases and Announcements....................47
9.2 No Third Party Beneficiaries........................47
9.3 Entire Agreement....................................47
9.4 Succession and Assignment...........................47
9.5 Counterparts........................................48
9.6 Headings............................................48
9.7 Notices.............................................48
9.8 Governing Law.......................................50
9.9 Amendments and Waivers..............................50
9.10 Severability........................................50
9.11 Expenses............................................50
9.12 Other Remedies......................................51
9.13 Specific Performance................................51
9.14 Construction........................................51
9.15 Incorporation of Exhibits and Schedules.............51
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EXHIBITS
Exhibit A Stock Option Assumption Agreement
Exhibit B Affiliate Agreement
Exhibit C Stockholder Agreement
Exhibit D Escrow Agreement
Exhibit E Opinion of Counsel to the Company
Exhibit F Non-Disclosure and Developments Agreement
Exhibit G Non-Competition Agreement
Exhibit H Opinion of Counsel to the Buyer
Exhibit I Employment Agreement
Exhibit J Amended and Restated Registration Rights Agreement
Exhibit K Exchange Ratio Calculation
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AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (this "Agreement") entered into as of
April 15, 1998 by and among VISUAL NETWORKS, INC., a Delaware corporation (the
"Buyer"), VISUAL ACQUISITIONS, INC., a Delaware corporation and a wholly-owned
subsidiary of the Buyer (the "Merger Sub"), and NET2NET CORPORATION, a Delaware
corporation (the "Company"). The Buyer, the Merger Sub and the Company are
referred to collectively herein as the "Parties."
This Agreement contemplates a merger of the Merger Sub into the Company
in a transaction that will qualify, for federal income tax purposes, as a
reorganization under Section 368(a) of the Code. In such merger, the
stockholders of the Company will receive capital stock of the Buyer in exchange
for their capital stock of the Company.
NOW, THEREFORE, in consideration of the representations, warranties,
agreements and covenants herein contained, the Parties agree as follows.
ARTICLE I
THE MERGER
1.1 The Merger.
Upon and subject to the terms and conditions of this Agreement, the
Merger Sub shall merge with and into the Company (with such merger referred to
herein as the "Merger") at the Effective Time. From and after the Effective
Time, the separate corporate existence of the Merger Sub shall cease and the
Company shall continue as the surviving corporation in the Merger (the
"Surviving Corporation"). The "Effective Time" shall be the time at which the
Company and the Merger Sub file a certificate of merger prepared and executed in
accordance with the relevant provisions of the Delaware General Corporation Law
("DGCL") with the Secretary of State of the State of Delaware (the "Certificate
of Merger"). The Merger shall have the effects specified in this Agreement, the
Certificate of Merger and the applicable provisions of the DGCL. 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.
1.2 The Closing.
The closing of the transactions contemplated by this Agreement (the
"Closing") shall take place at the offices of Piper & Marbury L.L.P., 0000
Xxxxxxxxxx Xxxxxx, X.X., Xxxxxxxxxx, X.X., commencing at 10:00 a.m. local time
on May 15, 1998, or, if all of the conditions to the obligations of the Parties
to consummate the transactions contemplated hereby have not been satisfied or
waived by such date, on such mutually agreed upon later date as soon as
practicable after the satisfaction or waiver of all conditions to the
obligations of the Parties to consummate the transactions contemplated hereby
(the "Closing Date"). If the Closing is consummated, Buyer and Merger Sub will
be deemed to have waived any of the conditions set forth in Article V to the
extent not satisfied at or prior to the Closing.
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1.3 Actions at the Closing.
At the Closing, (a) the Company shall deliver to the Buyer and the
Merger Sub the various certificates, instruments and documents referred to in
Section 5.2, (b) the Buyer and the Merger Sub shall deliver to the Company the
various certificates, instruments and documents referred to in Section 5.3, (c)
the Company and the Merger Sub shall file with the Secretary of State of the
State of Delaware the Certificate of Merger and (d) the Buyer shall deliver
certificates for the Merger Shares to Boston EquiServ LP as exchange agent (the
"Exchange Agent") in accordance with Section 1.7.
1.4 Additional Action.
The Surviving Corporation may, at any time after the Effective Time,
take any action, including executing and delivering any document, in the name
and on behalf of either the Company or the Merger Sub, necessary to consummate
the transactions contemplated by this Agreement.
1.5 Effect on Capital Stock.
(a) Definitions.
"Buyer Common Stock" shall mean the common stock, par
value $0.01 per share, of Visual Networks, Inc.
"Company Common Stock" shall mean the common stock, par value
$0.01 per share, of Net2Net Corporation, a Delaware corporation.
"Company Shares" shall mean shares of the Company's equity
securities including Company Common Stock, Series A Convertible Preferred Stock,
Series B Convertible Preferred Stock and Series C Convertible Preferred Stock
actually held by each Company Stockholder.
"Company Stockholder" shall mean the holders of the Company's
Series A Convertible Preferred Stock, Series B Convertible Preferred Stock,
Series C Convertible Preferred Stock and Company Common Stock.
"Counted Assumed Option Shares" shall mean the shares of
Company Common Stock issuable upon exercise of options outstanding at the
Closing (regardless of whether vested) and any Warrant. In addition, any option
granted by the Company prior to the Closing shall only be exercisable for shares
of Company Common Stock that are Counted Assumed Option Shares.
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"Escrow Share Market Value" shall mean the average closing
sale price on the Nasdaq National Market System for shares of Buyer Common Stock
for the five (5) trading days ending immediately prior to the Closing.
"Merger Shares" shall mean two million, two hundred and fifty
thousand (2,250,000) shares of Buyer Common Stock (as such number may be
appropriately adjusted for stock splits, stock dividends and other subdivisions
and combinations of Buyer Common Stock).
"Merger Sub Common Stock" shall mean the common stock, par
value $0.01 per share, of the Merger Sub.
"Series A Convertible Preferred Stock" shall mean the
Company's Series A Convertible Preferred Stock, par value $0.01 per share, on an
as converted to Common Stock basis.
"Series B Convertible Preferred Stock" shall mean the
Company's Series B Convertible Preferred Stock, par value $0.01 per share, on an
as converted to Common Stock basis.
"Series C Convertible Preferred Stock" shall mean the
Company's Series C Convertible Preferred Stock, par value $0.01 per share.
(b) At the Effective Time each share of the Company's capital
stock shall, by virtue of the Merger and without any action on the part of any
Party or the holder of any of the Company's capital stock, automatically be
canceled and extinguished and converted into the right to receive the following:
(i)......with respect to each share of the Company's Common Stock, Series A
Convertible Preferred Stock (with each such share being treated as having
converted immediately prior to the Effective Time into one thousand shares of
Company Common Stock) and Series B Convertible Preferred Stock (with each such
share being treated as having converted immediately prior to the Effective Time
into one thousand shares of Company Common Stock), a fraction of Buyer Common
Stock (the "Standard Exchange Ratio"), as determined in accordance with Exhibit
K; and
(ii).....with respect to each share of Series C Convertible Preferred Stock
a fraction of Buyer Common Stock (the "Series C Exchange Ratio"), as determined
in accordance with Exhibit K.
(c) At the Effective Time, each share of Merger Sub Common
Stock issued and outstanding immediately prior to the Effective Time shall be
converted into and exchanged for one validly issued, fully paid and
nonassessable share of Common Stock of the Surviving Corporation.
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(d) Notwithstanding the foregoing, no fractional shares of
Buyer Common Stock shall be issued. Such fractional shares shall be converted
into cash as provided in Section 1.9.
(e) Notwithstanding the foregoing, as soon as practicable
after the Effective Time, and subject to and in accordance with the provisions
of Article VII hereof, the Buyer shall cause to be distributed to the Escrow
Agent (as defined in Article VII) a certificate or certificates representing
168,750 shares of the Merger Shares which shall be registered in the name of the
Escrow Agent as nominees for the holder of Certificates pursuant to Section 1.7
(the "Escrow Shares"). Such shares shall be beneficially owned by such holders
and shall be held in escrow and shall be available to compensate the Buyer for
certain damages as provided in Article VII. To the extent not used for such
purposes, such shares shall be released, all as provided in Article VII.
1.6 Dissenting Shares.
(a) For purposes of this Agreement, "Dissenting Shares" means
Company Shares held as of the Effective Time by a Company Stockholder who has
not voted such Company Shares in favor of the adoption of this Agreement and the
Merger and with respect to which appraisal shall have been duly demanded and
perfected in accordance with Section 262 of the DGCL and not effectively
withdrawn or forfeited prior to the Effective Time. Notwithstanding anything to
the contrary contained in Section 1.5 above, Dissenting Shares shall not be
converted into or represent the right to receive Merger Shares, unless such
Company Stockholder shall have forfeited his right to appraisal under the DGCL
or withdrawn, with the consent of the Company, his demand for appraisal. If such
Company Stockholder has so forfeited or withdrawn his right to appraisal of
Dissenting Shares, then as of the occurrence of such event, such holder's
Dissenting Shares shall cease to be Dissenting Shares and shall be converted
into and represent the right to receive the Merger Shares issuable in respect of
such Company Shares pursuant to Section 1.5.
(b) The Company shall give the Buyer and the Stockholders'
Agent (i) prompt notice of any written demands for appraisal of any Company
Shares, withdrawals of such demands, and any other instruments that relate to
such demands received by the Company and (ii) the opportunity to direct all
negotiations and proceedings with respect to demands for appraisal under the
DGCL. The Company shall not, except with the prior written consent of the Buyer,
which consent shall not be unreasonably withheld, make any payment with respect
to any demands for appraisal of Company Shares or offer to settle or settle any
such demands.
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1.7 Exchange of Shares.
(a) Prior to the Effective Time, the Buyer shall appoint the
Exchange Agent to effect the exchange for the Merger Shares of certificates
that, immediately prior to the Effective Time, represented Company Shares
converted into Merger Shares pursuant to Section 1.5 ("Certificates"). On the
Closing Date, the Buyer shall deliver to the Exchange Agent, in trust for the
benefit of holders of Certificates, a stock certificate (issued in the name of
the Exchange Agent or its nominee) representing the Merger Shares, as described
in Section 1.5. No later than 10 days following the Effective Time, the Buyer
shall cause the Exchange Agent to send a notice and a transmittal form to each
holder of a Certificate advising such holder of the effectiveness of the Merger
and the procedure for surrendering to the Exchange Agent such Certificate in
exchange for the Merger Shares issuable pursuant to Section 1.5. Each holder of
a Certificate, upon proper surrender thereof to the Exchange Agent in accordance
with the instructions in such notice, shall be entitled to receive in exchange
therefor (subject to any taxes required to be withheld) the Merger Shares
issuable pursuant to Section 1.5 (other than the Escrow Shares). Until properly
surrendered, each such Certificate shall be deemed for all purposes to evidence
only the right to receive the Merger Shares issuable pursuant to Section 1.5.
Holders of Certificates shall not be entitled to receive certificates for the
Merger Shares to which they would otherwise be entitled until such Certificates
are properly surrendered.
(b) If any Merger Shares are to be issued in the name of a
person other than the person in whose name the Certificate surrendered in
exchange therefor is registered, it shall be a condition to the issuance of such
Merger Shares that (i) the Certificate so surrendered shall be properly
assigned, endorsed or accompanied by appropriate stock powers, (ii) such
transfer shall otherwise be proper and (iii) the person requesting such transfer
shall pay to the Exchange Agent any transfer or other taxes payable by reason of
the foregoing or establish to the satisfaction of the Exchange Agent that such
taxes have been paid or are not required to be paid. Notwithstanding the
foregoing, neither the Exchange Agent nor any Party shall be liable to a holder
of Company Shares for any Merger Shares issuable to such holder pursuant to
Section 1.5 that are delivered to a public official pursuant to applicable
abandoned property, escheat or similar laws.
(c) In the event any Certificate shall have been lost, stolen
or destroyed, only upon the making of an affidavit of that fact by the person
claiming such Certificate to be lost, stolen or destroyed, shall the Buyer issue
in exchange for such lost, stolen or destroyed Certificate the Merger Shares
issuable in exchange therefor pursuant to Section 1.5. The Board of Directors of
the Buyer may, in its discretion and as a condition precedent to the issuance
thereof, require the owner of such lost, stolen or destroyed Certificate to
submit to the Buyer an affidavit and to give to the Buyer an indemnity against
any claim that may be made against the Buyer with respect to the Certificate
alleged to have been lost, stolen or destroyed. In addition, a holder of such
lost, stolen or destroyed Certificate may be required by the Exchange Agent to
post a bond in connection therewith.
(d) Promptly following the date that is one year from the
Closing Date, the Exchange Agent shall return to the Buyer all Merger Shares in
its possession, and the Exchange Agent's duties shall terminate. Thereafter,
each holder of a Certificate may surrender such Certificate to the Buyer and,
subject to applicable abandoned property, escheat and similar laws, receive in
exchange therefor the Merger Shares issuable with respect thereto pursuant to
Section 1.5.
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1.8 Dividends.
No dividends or other distributions that are payable to the holders of
record of Buyer Common Stock as of a date on or after the Closing Date shall be
paid to former Company Stockholders entitled by reason of the Merger to receive
Merger Shares until such holders surrender their Certificates in accordance with
Section 1.7. Upon such surrender, the Buyer shall pay or deliver to the persons
in whose name the certificates representing such Merger Shares are issued any
dividends or other distributions that are payable to the holders of record of
Buyer Common Stock as of a date on or after the Closing Date and that were paid
or delivered between the Effective Time and the time of such surrender;
provided, however, that no such person shall be entitled to receive any interest
on such dividends or other distributions.
1.9 Fractional Shares.
No certificates or scrip representing fractional Merger Shares shall be
issued to former Company Stockholders upon the surrender for exchange of
Certificates, and such former Company Stockholders shall not be entitled to any
voting rights, rights to receive any dividends or distributions or other rights
as a stockholder of the Buyer with respect to any fractional Merger Shares that
would otherwise be issued to such former Company Stockholders. In lieu of any
fractional Merger Shares that would otherwise be issued, each former Company
Stockholder that would have been entitled to receive a fractional Merger Share
shall, upon proper surrender of such person's Certificates, receive a cash
payment equal to the Escrow Share Market Value, multiplied by the fraction of a
share that such Company Stockholder would otherwise be entitled to receive.
1.10 Options and Warrants.
(a) As of the Effective Time, all options to purchase Company
Shares issued by the Company pursuant to its 1994 Stock Option Plan (the
"Company Stock Option Plan") or pursuant to the resolution of Company's Board of
Directors or the Compensation Committee thereof ("Options"), whether vested,
unvested or subject to repurchase by Company following such exercise, which are
outstanding and not exercised immediately prior to the Effective Time shall
become and represent an option to acquire, on the same terms and conditions as
were applicable under such Option immediately prior to the Effective Time, such
number of shares of Buyer Common Stock as is equal to the number of Company
Shares subject to the unexercised portion of such Option multiplied by the
Standard Exchange Ratio (with any fraction resulting from such multiplication to
be rounded down to the next lower whole number). The exercise price per share of
each such assumed Option shall be equal to the exercise price of such Option
immediately prior to the Effective Time, divided by the Standard Exchange Ratio
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(with any fraction of a cent resulting from such division to be rounded up to
the next higher whole cent), but shall not be less than $.001. The term,
exercisability (including any acceleration of exercisability as a result of this
transaction), vesting schedule, repurchase provisions, status as an "incentive
stock option" under Section 422 of the Internal Revenue Code of 1986 (as
amended, the "Code"), if applicable, and all of the other terms of the Options
in effect immediately prior to the Effective Time and after giving effect to any
acceleration of vesting for such Options as a result of this transaction shall
otherwise remain unchanged. As of the Effective Time, the warrant to purchase
Series C Convertible Preferred Stock issued by the Company ("the Warrant"), to
the extent outstanding and not exercised immediately prior to the Effective
Time, shall become and represent a Warrant to acquire, on the same terms and
conditions as were applicable under such Warrant immediately prior to the
Effective Time, such number of shares of Buyer Common Stock as is equal to the
number of Company Shares subject to the unexercised portion of such Warrant
immediately prior to the Effective Time multiplied by the Series C Exchange
Ratio (with any fraction resulting from such multiplication to be rounded down
to the next lower whole number). The exercise price per share of each such
assumed Warrant shall be equal to the exercise price of such Warrant immediately
prior to the Effective Time, divided by the Series C Exchange Ratio (with any
fraction of a cent resulting from such division to be rounded up to the next
higher whole cent). The term and all of the other provisions of the Warrant in
effect immediately prior to the Effective Time shall otherwise remain unchanged.
(b) As soon as practicable after the Effective Time, Buyer or
the Surviving Corporation shall deliver to the holders of Options and Warrant
appropriate notices setting forth such holders' rights pursuant to such Options
and Warrant, as amended by this Section 1.10, and the agreements evidencing such
Options and Warrant shall continue in effect on the same terms and conditions
(subject to the amendments provided for in this Section 1.10 and such notice).
(c) Buyer shall take all corporate action necessary to reserve
for issuance a sufficient number of shares of Buyer Common Stock for delivery
upon exercise of the Options exchanged in accordance with this Section 1.10. Not
later than May 20, 1998, Buyer shall file a Registration Statement on Form S-8
(or any successor form) under the Securities Act of 1933 (as amended, the
"Securities Act") with respect to all shares of Buyer Common Stock subject to
such Options, and shall use its best efforts to maintain the effectiveness of
such Registration Statement for so long as such Options remain outstanding.
(d) The Company shall use commercially reasonable efforts to
obtain, prior to the Closing, the consent from each holder of an Option to the
assumption of such Option pursuant to this Section 1.10, including an agreement
not to sell under the Registration Statement on Form S-8 until August 5, 1998,
unless such holder's employment is terminated by the Company on or after the
Effective Time.
1.11 Certificate Legends.
The shares of Buyer Common Stock to be issued pursuant to this Article
I shall not have been registered and shall be characterized as "restricted
securities" under the federal securities laws, and under such laws such shares
may be resold without registration under the Securities Act, only in certain
limited circumstances. Each certificate evidencing shares of Buyer Common Stock
to be issued pursuant to this Article I shall bear the following legend:
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THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR
INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933. SUCH SHARES MAY NOT BE SOLD OR OTHERWISE TRANSFERRED IN THE
ABSENCE OF SUCH REGISTRATION WITHOUT AN EXEMPTION UNDER THE SECURITIES
ACT OR AN OPINION OF LEGAL COUNSEL REASONABLY ACCEPTABLE TO VISUAL
NETWORKS, INC. THAT SUCH REGISTRATION IS NOT REQUIRED.
1.12 Certificate of Incorporation.
At the Effective Time, the Certificate of Incorporation of Merger Sub,
as in effect immediately prior the Effective Time, shall be the Certificate of
Incorporation of the Surviving Corporation until thereafter amended as provided
by DGCL.
1.13 By-laws.
The By-laws of the Surviving Corporation shall be the same as the
By-laws of the Merger Sub immediately prior to the Effective Time.
1.14 Directors and Officers.
The directors of the Merger Sub shall become the directors of the
Surviving Corporation after the Effective Time. The officers of the Merger Sub
shall become the officers of the Surviving Corporation after the Effective Time,
retaining their respective positions.
1.15 No Further Rights.
All shares of Buyer Common Stock issued upon the surrender for exchange
of shares of Company Shares in accordance with the terms hereof (including any
cash paid in lieu of fractional shares) shall be deemed to have been issued in
full satisfaction of all rights pertaining to such Company Shares.
1.16 Closing of Transfer Books.
At the Effective Time, the stock transfer books of the Company shall be
closed and no transfer of Company Shares shall thereafter be made. If, after the
Effective Time, Certificates are presented to the Surviving Corporation or the
Exchange Agent, they shall be canceled and exchanged for Merger Shares in
accordance with Section 1.5, subject to applicable law in the case of Dissenting
Shares.
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1.17 Tax and Accounting Consequences.
It is intended by the parties hereto that the Merger shall (i)
constitute a reorganization within the meaning of Section 368 of the Code and
(ii) qualify for accounting treatment as a pooling of interests.
1.18 Taking of Necessary Action; Further Action.
If, at any time after the Effective Time, any further action is
necessary or desirable to carry out the purposes of this Agreement and to vest
the Surviving Corporation with full right, title and possession to all assets,
property, rights, privileges, powers and franchises of the Buyer and Merger Sub,
the officers and directors of the Company and Merger Sub are fully authorized in
the name of their respective corporations or otherwise to take, and will take,
all such lawful and necessary action, so long as such action is not inconsistent
with this Agreement.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to the Buyer and the Merger Sub
that, as of the date hereof, the statements contained in this Article II are
true and correct, except as set forth in the letter provided by the Company to
the Buyer and the Merger Sub (the "Disclosure Letter").
2.1 Organization, Qualification and Corporate Power.
The Company is a corporation duly organized, validly existing and in
corporate good standing under the laws of the State of Delaware. The Company is
duly qualified to conduct business and is in corporate good standing under the
laws of each jurisdiction in which the nature of its businesses or the ownership
or leasing of its properties requires such qualification, except where the
failure to be so qualified or in good standing would not have a Material Adverse
Effect on the Company. The Company has the corporate power and authority to
carry on the businesses in which it is engaged and to own and use the properties
owned and used by it. The Company has furnished to the Buyer true and complete
copies of its Certificate of Incorporation and By-laws, each as amended and as
in effect on the date hereof (hereinafter "Charter" and "By-laws,"
respectively). The Company is not in default under or in violation of any
provision of its Charter or By-laws, each as amended to date.
2.2 Capitalization.
The authorized capital stock of the Company consists of (i) 14,000,000
shares of Company Common Stock, of which 3,834,700 shares are issued and
outstanding and no shares are held in the treasury of the Company, (ii)
1,606,568 shares of preferred stock, of which (A) 500 shares have been
designated as Series A Convertible Preferred Stock, of which 500 shares are
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issued and outstanding, (B) 6,068 have been designated as Series B Convertible
Preferred Stock, of which 6,068 shares are issued and outstanding and (C)
1,600,000 have been designated as Series C Convertible Preferred Stock, of which
1,533,361 shares are issued and outstanding. Section 2.2 of the Disclosure
Letter sets forth a complete and accurate list of (i) all stockholders of the
Company, indicating the type and number of Company Shares held by each
stockholder, and (ii) all holders of Options and Warrants, indicating the type
and number of Company Shares subject to each Option and Warrant and the exercise
price thereof. All of the Options and Warrants have been granted pursuant to a
form of agreement or other instrument previously provided to the Buyer. All of
the issued and outstanding Company Shares are, and all Company Shares that may
be issued upon exercise of Options and Warrants will be, duly authorized,
validly issued, fully paid, nonassessable and free of all preemptive rights.
There are no declared or accrued but unpaid dividends with regard to any issued
and outstanding Company Shares. Holders of issued and outstanding Company Shares
have no basis for asserting rights to rescind the purchase of any such Company
Shares. Other than the Options and Warrants, there are no outstanding or
authorized options, warrants, rights, calls, convertible instruments, agreements
or commitments to which the Company is a party or which are binding upon the
Company providing for the issuance, disposition or acquisition of any of its
capital stock. There are no outstanding or authorized stock appreciation,
phantom stock or similar rights with respect to the Company. Except for the
Stockholder Agreements, there are no agreements, voting trusts, proxies, or
understandings with respect to the voting, or registration under the Securities
Act, of any Company Shares (i) between or among the Company and any of its
stockholders and (ii) to the Company's knowledge, between or among any of the
Company's stockholders. All of the issued and outstanding Company Shares were
issued in compliance with applicable federal and state securities laws.
2.3 Authorization of Transaction.
Subject to the Requisite Stockholder Approval of the Merger and this
Agreement, the Company has the corporate power and authority to execute and
deliver this Agreement and to perform its obligations hereunder. The execution
and delivery of this Agreement and, subject to the adoption of this Agreement
and the approval of the Merger by a majority of the votes represented by the
outstanding Company Shares entitled to vote on this Agreement and the Merger,
including the approval of the holders of a majority of the shares of the Series
B Convertible Preferred Stock and the Series C Convertible Preferred Stock,
voting in accordance with the DGCL and the Charter of the Company (the
"Requisite Stockholder Approval"), the performance by the Company of this
Agreement and the consummation by the Company of the transactions contemplated
hereby have been duly and validly authorized by all necessary corporate action
on the part of the Company. This Agreement has been duly and validly executed
and delivered by the Company and, assuming the due authorization, execution and
delivery by the Buyer and the Merger Sub, constitutes a valid and binding
obligation of the Company, enforceable against the Company in accordance with
its terms, except as enforcement may be limited by bankruptcy, insolvency,
fraudulent conveyance, reorganization, moratorium and other similar laws
affecting the enforcement of creditors' rights generally, and except that the
availability of equitable remedies, including specific performance, is subject
to the discretion of the court before which any proceeding therefor may be
brought.
16
2.4 Noncontravention.
Subject to receipt of the Requisite Stockholder Approval, compliance
with the applicable requirements of the Securities Act and any applicable state
securities laws and the filing of the Certificate of Merger as required by the
DGCL, neither the execution and delivery of this Agreement by the Company, nor
the consummation by the Company of the transactions contemplated hereby, will
(a) conflict with or violate any provision of the Charter or By-laws of the
Company, (b) require on the part of the Company any filing with, or any permit,
authorization, consent or approval of, any court, arbitrational tribunal,
administrative agency or commission or other governmental or regulatory
authority or agency (a "Governmental Entity"), (c) conflict with, result in a
breach of, constitute (with or without due notice or lapse of time or both) a
default under, result in the acceleration of, create in any party the right to
accelerate, terminate, modify or cancel, or require any notice, consent or
waiver under, any material contract, lease, sublease, license, sublicense,
franchise, permit, indenture, agreement or mortgage for borrowed money,
instrument of indebtedness, Security Interest or other arrangement to which the
Company is a party or by which the Company is bound or to which any of their
material assets is subject, (d) result in the imposition of any Security
Interest upon any assets of the Company, except as contemplated by the Loan
Documents, or (e) violate any order, writ, injunction, decree, statute, rule or
regulation applicable to the Company, any of its properties or assets, other
than such conflicts, violations, defaults, cancellations or accelerations
referred to in clauses (a) through (d) hereof which would not have a Material
Adverse Effect on the Company. For purposes of this Agreement, "Security
Interest" means any mortgage, pledge, security interest, encumbrance, charge, or
other lien (whether arising by contract or by operation of law), other than (i)
mechanic's, materialmen's, and similar liens, (ii) liens arising under worker's
compensation, unemployment insurance, social security, retirement, and similar
legislation, and (iii) liens on goods in transit incurred pursuant to
documentary letters of credit, in each case arising in the ordinary course of
business consistent with past custom and practice ("Ordinary Course of
Business") of the Company and not material to the Company. "Loan Documents"
shall mean the Credit Agreement by and between the Buyer and the Company, as
well as all additional instruments and documents executed and delivered
therewith.
2.5 Subsidiaries.
The Company does not have any direct or indirect subsidiaries or any
other equity interest in any other firm, corporation, partnership, joint
venture, association or other business organization.
2.6 Financial Statements
The Company has provided to the Buyer (i) the audited balance sheets
and statements of operations, changes in stockholders' equity and cash flows for
the fiscal years ended December 31, 1995 and December 31, 1996; and (ii) the
unaudited balance sheet, statement of operations and statement of cash flows as
17
of and for the fiscal year ended December 31, 1997 (the "Most Recent Fiscal Year
End"). Such financial statements (collectively, the "Financial Statements") have
been prepared in accordance with United States generally accepted accounting
principles ("GAAP") applied on a consistent basis throughout the periods covered
thereby, fairly present the financial condition, results of operations and cash
flows of the Company as of the respective dates thereof and for the periods
referred to therein and are consistent with the books and records of the
Company, provided, however, that the Financial Statements referred to in clause
(ii) above are subject to normal recurring year-end adjustments (which, to the
Company's knowledge, will not in the aggregate be material) and do not include
footnotes.
2.7 Absence of Certain Changes.
Since December 31, 1997, the Company has conducted its business in the
ordinary course consistent with past practice and there has not occurred: (i)
any change, event or condition (whether or not covered by insurance) that has
resulted in, or might reasonably be expected to result in any material adverse
change in the assets, business, financial condition or results of operations of
the Company and (b) the Company has not taken any of the actions set forth in
Section 4.5.
2.8 Undisclosed Liabilities.
The Company has no liability (whether known or unknown, whether
absolute or contingent, whether liquidated or unliquidated and whether due or to
become due), except for (a) liabilities accrued or reserved against on the
December 31, 1997, unaudited consolidated balance sheet of the Company ("Most
Recent Balance Sheet"), (b) liabilities which have arisen since December 31,
1997, in the Ordinary Course of Business and which are similar in nature and
amount to the liabilities which arose during the comparable period of time in
the immediately preceding fiscal period, (c) contractual or statutory
liabilities incurred in the Ordinary Course of Business, (d) up to an aggregate
of $2,000,000 incurred in connection with the preparation and execution of the
Agreement and in anticipation of the Merger for legal, accounting, investment
banking fees and expenses and transition costs (collectively, the "Transaction
Costs"), (e) liabilities which are not material and (f) liabilities set forth on
Section 2.8 of the Disclosure Letter.
2.9 Tax Matters.
(a) The Company has filed all Tax Returns that it was required
to file and all such Tax Returns were correct and complete in all material
respects. The Company has paid or will pay all Taxes due on or before the
Closing Date, regardless of whether shown on any such Tax Returns, except such
as are being contested in good faith by appropriate proceedings (to the extent
any such proceedings are required) and with respect to which the Company is
maintaining reserves adequate for their payment. The accrued but unpaid Taxes of
the Company for tax periods through the date of the Most Recent Balance Sheet do
not exceed the accruals and reserves for Taxes (other than deferred Taxes) set
forth on the Most Recent Balance Sheet. All Taxes attributable to the period
18
January 1, 1998 through the Closing Date are attributable to the conduct by the
Company of its operations in the Ordinary Course of Business. The Company has no
actual or, to its knowledge, potential liability for any Tax obligation of any
taxpayer (including without limitation any affiliated group of corporations or
other entities that included the Company during a prior period) other than the
Company. All Taxes that the Company is or was required by law to withhold or
collect have been duly withheld or collected and, to the extent required, have
been paid to the proper Governmental Entity, except such as are being contested
in good faith by appropriate proceedings (to the extent any such proceedings are
required) and with respect to which the Company is maintaining reserves adequate
for their payment.
(i)......For purposes of this Agreement, "Taxes" means all taxes, charges,
fees, levies or other similar assessments or liabilities, including without
limitation income, gross receipts, ad valorem, premium, value-added, excise,
real property, personal property, sales, use, transfer, withholding, employment,
payroll and franchise taxes imposed by the United States of America or any
state, local or foreign government, or any agency thereof, or other political
subdivision of the United States or any such government, and any interest,
fines, penalties, assessments or additions to tax resulting from, attributable
to or incurred in connection with any tax or any contest or dispute thereof and
any amounts of Taxes of another person that the Company or any Subsidiary is
liable to pay by law or otherwise.
(ii).....For purposes of this Agreement, "Tax Returns" means all reports,
returns, declarations, statements or other information required to be supplied
to a taxing authority in connection with Taxes.
(iii)....For purposes of determining the amount of Taxes attributable to a
specified period (e.g., the period from the date of the Most Recent Balance
Sheet through the Closing Date) other than a Tax Period, each Tax shall be
computed as if the specified period were a Tax Period. For purposes of this
sub-paragraph (iii), a Tax Period means a period for which a Tax is required to
be computed under applicable statutes and regulations.
(b) The Company has delivered to the Buyer correct and
complete copies of all federal income Tax Returns, examination reports and
statements of deficiencies assessed against or agreed to by any of the Company
since June 13, 1994. The federal income Tax Returns of the Company have not been
audited by the Internal Revenue Service. No examination or audit of any Tax
Returns of the Company by any Governmental Entity is currently in progress or,
to the knowledge of the Company, threatened or contemplated. The Company has not
waived any statute of limitations with respect to Taxes or agreed to an
extension of time with respect to a tax assessment or deficiency.
(c) The Company is not a "consenting corporation" within the
meaning of Section 341(f) of the Code and none of the assets of the Company are
subject to an election under Section 341(f) of the Code. The Company has not
been a United States real property holding corporation within the meaning of
Section 897(c)(2) of the Code during the applicable period specified in Section
897(c)(l)(A)(ii) of the Code. The Company is not a party to any Tax allocation
or sharing agreements.
19
(d) The Company is not and has never been a member of an
"affiliated group" of corporations (within the meaning of Section 1504 of the
Code).
2.10 Assets.
(a) The Company has good and valid title to all tangible
assets necessary for the conduct of its businesses as presently conducted and as
presently proposed to be conducted. Each such tangible asset is suitable for the
purposes for which it presently is used. No asset of the Company (tangible or
intangible) is subject to any Security Interest.
(b) The inventories (net of any reserves) shown on the
Financial Statements or thereafter acquired by the Company, consisted of items
of a quantity and quality usable or salable in the Ordinary Course of Business.
Since December 31, 1997, the Company has continued to replenish inventories in a
normal and customary manner consistent with past practices. The Company has not
received notice that it will experience in the foreseeable future any difficulty
in obtaining, in the desired quantity and quality and at a reasonable price and
upon reasonable terms and conditions, the supplies or component products
required for the manufacture, assembly or production of its products. The value
at which inventories are carried reflect the inventory valuation policy of the
Company, which is consistent with its past practice and in accordance with GAAP
applied on a consistent basis.
(c) Subject to any reserves set forth in the Financial
Statements, the accounts receivable shown on the Financial Statements represent
and will represent bona fide claims against debtors for sales and other charges,
and are not subject to discount except for normal cash and immaterial trade
discounts. The value at which reserves are carried reflect the reserve valuation
policy of the Company, which is consistent with its past practice and in
accordance with GAAP applied on a consistent basis.
2.11 Owned Real Property.
The Company does not own any real property.
20
2.12 Intellectual Property.
(a) The Company owns, or is licensed or otherwise possesses
legally enforceable rights to use (free and clear of any liens or encumbrances,
other than as set forth in the Loan Documents), all issued United States patents
listed on the Disclosure Letter, trademarks, trade names, service marks,
copyrights, and any applications for such trademarks, trade names, service marks
and copyrights, and all patent rights listed on the Disclosure Letter, trade
secrets, schematics, technology, know-how, computer software programs or
applications and tangible or intangible proprietary information or material and,
to the Company's knowledge, all third-party issued United States patents, patent
rights and patent applications (excluding packaged commercially available
licensed software programs sold to the public) (collectively, "Intellectual
Property") that are used to conduct its business as currently conducted.
(i) ....Section 2.12(a)(i) of the Disclosure Letter lists all patents and
patent applications and all trademarks, copyrights, trade names and service
marks owned by the Company and/or which are used in the business of the Company,
including the jurisdictions in which each such Intellectual Property right has
been issued or registered or in which any such application for such issuance or
registration has been filed.
(ii) ...Section 2.12(a)(ii) of the Disclosure Letter lists all material
written licenses, sublicenses and other agreements to which the Company is a
party and pursuant to which any person is authorized to use any Intellectual
Property rights of the Company, except such licenses, sublicenses or other
agreements with end-users that grant non-exclusive rights to use a Company
product in accordance with the Company's standard form of end-user license
agreement.
(iii)....Section 2.12(a)(iii) of the Disclosure Letter lists all material
written licenses, sublicenses and other agreements as to which the Company is a
party and pursuant to which the Company is authorized to use any third party
patents, patent rights, trademarks, service marks, trade secrets or copyrights,
including software ("Third Party Intellectual Property Rights") which are used
in the business of the Company or which form a part of any existing product or
service of the Company, excluding packaged commercially available licensed
software programs sold to the public.
(iv).....Section 2.12(a)(iv) of the Disclosure Letter lists all material
written agreements or other arrangements under which the Company has provided or
agreed to provide source code of any Company product to any third party, except
for software development kits provided to agent integration providers.
The Company has made available to the Buyer correct and complete copies
of all such patents, registrations, applications, licenses, sublicenses and
agreements as amended to date. The Company is not a party to any material oral
license, sublicense or agreement which, if reduced to written form, would be
required to be listed in Section 2.12 of the Disclosure Letter under the terms
of this Section 2.12(a).
21
(b) With respect to each item of Intellectual Property that
the Company owns: (i) subject to such rights as have been granted by the Company
under license agreements entered into by the Company (copies of which previously
have been delivered to the Buyer), the Company possesses all right, title and
interest in and to such item; and (ii) such item is not subject to any
outstanding judgment, order, decree, stipulation or injunction. With respect to
each item of Third Party Intellectual Property Rights: (i) the license,
sublicense or other agreement covering such item is legal, valid, binding,
enforceable and in full force and effect with respect to the Company party
thereto, and to the Company's knowledge is legal, valid, binding, enforceable
and in full force and effect with respect to each other party thereto; (ii) the
Company is not in material breach or default under, and to the Company's
knowledge, no other party is in material breach or default under, any such
license or other agreement and no event has occurred which with notice or lapse
of time would constitute a material breach or default or permit termination,
modification or acceleration thereunder; (iii) the underlying item of Third
Party Intellectual Property is not subject to any outstanding judgment, order,
decree, stipulation or injunction to which the Company is a party or has been
served, nor to the Company's knowledge subject to any other outstanding
judgment, order, decree, stipulation, or injunction; and (iv) no license or
other fee is payable upon any transfer or assignment of such license, sublicense
or other agreement.
(c) The Company (i) has not been served in any suit, action or
proceeding which involves a claim of infringement or misappropriation of any
Intellectual Property right of any third party and (ii) has not received any
written notice alleging any such claim of infringement or misappropriation. The
Company has previously delivered to the Buyer correct and complete copies of all
such suits, actions or proceedings or written notices to the extent the Company
is not prohibited from disclosing the same under applicable court orders. The
manufacturing, marketing, licensing or sale of the Company's commercially
available products does not infringe any Intellectual Property right of any
third party or, to the Company's knowledge, any valid U.S. patent; and to the
knowledge of the Company, the Intellectual Property rights of the Company are
not being infringed by activities, products or services of any third party.
(d) The execution and delivery of this Agreement by the
Company, and the consummation of the transactions contemplated hereby, will
neither cause the Company to be in violation or default under any material
license, sublicense or agreement, nor terminate nor modify nor entitle any other
party to any such license, sublicense or agreement to terminate or modify such
license, sublicense or agreement, nor limit in any way the Company's ability to
conduct its business or use or provide the use of the Intellectual Property or
Third Party Intellectual Property Rights.
(e) The Company has taken reasonable security measures, which
the Company believes are consistent with measures taken by companies that are
within the Company's industry and that are similarly situated as the Company, to
safeguard and maintain the secrecy, confidentiality and value of, and its
property rights in, all Intellectual Property. All officers, employees and
consultants of the Company who have access to proprietary information or
Intellectual Property have executed and delivered to the Company an agreement
22
regarding the protection of proprietary information and the assignment to the
Company of all Intellectual Property arising from the services performed for the
Company by such persons. No current or prior officers, employees or consultants
of the Company have made any written claim to any ownership interest in any
material Intellectual Property as a result of having been involved in the
development of such property while employed by or consulting to the Company or
otherwise. Any items of Intellectual Property developed by employees of the
Company have been developed by employees of the Company within the scope of
their employment.
(f) The Company has the right, title and interest in and to
all material software development tools, not entirely developed internally, used
by the Company in the development of any of the computer software included in
the Intellectual Property, excluding packaged commercially available licensed
software programs, operating systems and development tools sold or made
available to the public.
(g) As of the date hereof and to the Company's knowledge,
there are no defects in the Company's commercially available products, and there
are no errors in any documentation, specifications, manuals, user guides,
promotional material, technical documentation, drawings, flow charts, diagrams,
source language statements and demo disks related to, associated with or used or
produced in the development of the Company's commercially available products,
which defects or errors would reasonably be expected to have, individually or in
the aggregate, a Material Adverse Effect on the Company. The Company's
commercially available products operate as represented in the specifications,
manuals, user guides, promotional materials and demo disks, except where the
failure to so operate would not have a Material Adverse Effect on the Company.
The occurrence in or use by the commercially available products currently sold
by the Company of dates on or after January 1, 2000 (the "Millennial Dates")
will not adversely affect the performance of the software with respect to date
dependent data, computations, output or other functions (including without
limitation, calculating, computing and sequencing) and the software will create,
sort and generate output data related to or including Millennial Dates without
errors or omissions, provided, however, in each case, each software or hardware
product used in conjunction with the computer software products are also able to
create, generate, sort, output and otherwise process Millennial Dates.
(h) No government funding or university or college facilities
were used in the development of the Company's commercially available products
and the software was not developed pursuant to any contract or other agreement
with any person or entity.
2.13 Real Property Leases.
Section 2.13 of the Disclosure Letter lists all real property leased or
subleased to the Company. The Company has delivered to the Buyer correct and
complete copies of the leases and subleases (as amended to date) listed in
Section 2.13 of the Disclosure Letter. With respect to each lease and sublease
listed in Section 2.13 of the Disclosure Letter:
23
(a) the lease or sublease is legal, valid, binding,
enforceable and in full force and effect with respect to the Company, to the
Company's knowledge is legal, valid, binding, enforceable and in full force and
effect with respect to each other party thereto, and will continue to be so
following the Closing in accordance with the terms thereof as in effect prior to
the Closing;
(b) the Company is not in breach or default under any such
lease or sublease, to the Company's knowledge no other party to the lease or
sublease is in breach or default, and, to the Company's knowledge, no event has
occurred which, with notice or lapse of time, would constitute a breach or
default or permit termination, modification, or acceleration thereunder;
(c) there are no disputes, oral agreements or forbearance
programs in effect as to the lease or sublease; and
(d) the Company has not assigned, transferred, conveyed,
mortgaged, deeded in trust or encumbered any interest in the leasehold or
subleasehold except as contemplated by the Loan Documents.
2.14 Contracts.
Section 2.14 of the Disclosure Letter lists the following written
arrangements (including without limitation written agreements) to which the
Company is a party:
(a) any written arrangement (or group of related written
arrangements) for the lease of personal property from or to third parties
providing for lease payments in excess of $50,000 per annum;
(b) any written arrangement (or group of related written
arrangements) for the licensing or distribution of software, products or other
personal property or for the furnishing or receipt of services (i) which calls
for performance over a period of more than one year, (ii) which involves more
than the sum of $50,000, or (iii) in which the Company has granted rights to
license, sublicense or copy, "most favored nation" pricing provisions or
exclusive marketing or distribution rights relating to any products or territory
or has agreed to purchase a minimum quantity of goods or services or has agreed
to purchase goods or services exclusively from a certain party;
(c) any written arrangement establishing a partnership or
joint venture;
(d) any written arrangement (or group of related written
arrangements) under which it has created, incurred, assumed, or guaranteed (or
may create, incur, assume, or guarantee) indebtedness (including capitalized
lease obligations) involving more than $50,000 or under which it has imposed (or
may impose) a Security Interest on any of its assets, tangible or intangible;
24
(e) the form of any written arrangement concerning
confidentiality or noncompetition, including a list of all parties to such
agreements;
(f) any written arrangement involving any of the Company
Stockholders or their affiliates, as defined in Rule 12b-2 under the Securities
Exchange Act of 1934, as amended (the "Exchange Act") ("Affiliates");
(g) any written arrangement under which the consequences of
a default or termination could have a Material Adverse Effect on the Company;
(h) any other written arrangement (or group of related written
arrangements) either involving more than $50,000 or not entered into in the
Ordinary Course of Business;
(i) any written arrangement under which the Company provides
maintenance or support services to any third party with regard to the Company's
products and any written arrangement containing a commitment by the Company to
provide support for any such products for more than one year from the date of
this Agreement (other than arrangements which by their terms permit the customer
to extend such services after the expiration of the initial one year term);
(j) any written arrangement by which the Company agrees to
make available any product; and
(k) any other material contract or agreement, as such terms
are defined in Regulation S-K promulgated under the Securities Act to which the
Company is a party.
The Company has delivered to the Buyer a correct and complete copy of
each written arrangement (or, in the case of confidentiality and/or
noncompetition arrangements, the forms of such agreement(s)) (as amended to
date) listed in Section 2.14 of the Disclosure Letter. With respect to each
written arrangement so listed: (i) the written arrangement is legal, valid,
binding and enforceable and in full force and effect with respect to the Company
and, to the Company's knowledge the written arrangement is legal, valid, binding
and is enforceable and in full force and effect with respect to each other party
thereto; (ii) the written arrangement will continue to be legal, valid, binding
and enforceable and in full force and effect immediately following the Closing
in accordance with the terms thereof as in effect prior to the Closing and does
not require the consent of any party to the transactions contemplated hereby;
and (iii) the Company is not in breach or default, to the Company's knowledge,
no other party thereto is in breach or default, and no event has occurred which
with notice or lapse of time would constitute a breach or default or permit
termination, modification, or acceleration, under the written arrangement. The
Company is not a party to any oral contract, agreement or other arrangement
which, if reduced to written form, would be required to be listed in Section
2.14 of the Disclosure Letter under the terms of this Section 2.14.
25
2.15 Powers of Attorney.
There are no outstanding powers of attorney executed on behalf of the
Company.
2.16 Insurance.
Section 2.16 of the Disclosure Letter lists each insurance policy
(including fire, theft, casualty, general liability, workers compensation,
business interruption, environmental, product liability and automobile insurance
policies and bond and surety arrangements) to which the Company is a party, a
named insured, or otherwise the beneficiary of coverage at any time within the
past year. Section 2.16 of the Disclosure Letter lists each person or entity
required to be listed as an additional insured under each such policy. Each such
policy is in full force and effect and by its terms and with the payment of the
requisite premiums thereon will continue to be in full force and effect
following the Closing.
The Company is not in breach or default (including with respect to the
payment of premiums or the giving of notices) under such policy, and no event
has occurred which, with notice or the lapse of time, would constitute such a
breach or default or permit termination, modification or acceleration, under
such policy; and the Company has not received any notice from the insurer
disclaiming coverage or reserving rights with respect to a particular claim or
such policy in general. The Company has not incurred any material loss, damage,
expense or liability covered by any such insurance policy for which it has not
properly asserted a claim under such policy. The Company is covered by insurance
in scope and amount customary and reasonable for the businesses in which it is
engaged.
2.17 Litigation.
(a) Section 2.17(a) of the Disclosure Letter identifies, and
contains a description of, (i) any unsatisfied judgment, order, decree,
stipulation or injunction and (ii) any claim, complaint, action, suit,
proceeding, hearing or investigation of or in any Governmental Entity or before
any arbitrator to which the Company, any officer, director, employee or agent of
the Company (in such person's capacity as an officer, director, employee or
agent of the Company and not personally) is or was (for the two years prior to
and including the date hereof) a party or, to the knowledge of the Company, is
threatened to be made a party. None of the complaints, actions, suits,
proceedings, hearings, and investigations set forth in the Disclosure Letter, if
determined adversely to the Company, would reasonably be expected to have a
Material Adverse Effect on the Company.
(b) Section 2.17(b) of the Disclosure Letter identifies any
material agreement or other document or instrument settling any claim,
complaint, action, suit or other proceeding against the Company.
26
2.18 Employees.
The Company has provided to the Buyer a written list of all employees
of the Company, along with the position and the current annual rate of
compensation of each such person. Each such employee has entered into a
confidentiality/assignment of inventions agreement with the Company, a form of
which has previously been delivered (with copies thereof having been made
available) to the Buyer. To the Company's knowledge, no Key Employee or group of
employees has any plans to terminate employment with the Company within six
months of the date hereof. "Key Employee" shall mean Xxxx Xxx, Xxxxx Xxxx,
Xxxxxxx Xxxxxxxxxxxx, Xxxxxx Xxxxxx, Xxxx Xxxxxx, Xxxxx Xxxxxx, Xxxxxx
XxxXxxxxxx, Xxxxxxx XxXxxxxxx or Xxx Xxxxxx. The Company is not a party to or
bound by any collective bargaining agreement, nor has it experienced any
material strikes, grievances, claims of unfair labor practices or other
collective bargaining disputes. The Company has no knowledge of any
organizational effort made or threatened, either currently or within the past
two years, by or on behalf of any labor union with respect to employees of the
Company. The Company is in compliance in all material respects with all
currently applicable laws and regulations respecting wages, hours, occupational
safety, health and employment practices, and discrimination in employment terms
and conditions, and is not engaged in any unfair labor practice except, in each
case, where such practice or failure to comply would not reasonably be expected
to have a Material Adverse Effect. There are no pending claims against the
Company under any workers compensation plan or policy or for long term
disability. Premiums for COBRA coverage with respect to any former employees or
beneficiaries are paid by the former employees or beneficiaries. There are no
proceedings pending or, to the knowledge of the Company, threatened, between the
Company and its employees, which proceedings have or would reasonably be
expected to have a Material Adverse Effect on the Company. The Company has
provided all employees, with all relocation benefits, stock options, bonuses and
incentives, and all other compensation that such employee has earned up through
the date of this Agreement or that such employee was otherwise promised in their
employment agreements with the Company.
2.19 Employee Benefits.
(a) Section 2.19(a) of the Disclosure Letter contains a
complete and accurate list of all material Employee Benefit Plans maintained, or
contributed to, by the Company, or any ERISA Affiliate. For purposes of this
Agreement, "Employee Benefit Plan" means any "employee pension benefit plan" (as
defined in Section 3(2) of the Employee Retirement Income Security Act of 1974,
as amended ("ERISA")), any "employee welfare benefit plan" (as defined in
Section 3(1) of ERISA), and any other written or oral plan, agreement or
arrangement involving direct or indirect compensation, including without
limitation insurance coverage, severance benefits, disability benefits, deferred
compensation, bonuses, stock options, stock purchase, phantom stock, stock
appreciation or other forms of incentive compensation or post-retirement
compensation. For purposes of this Agreement, "ERISA Affiliate" means any entity
which is a member of (i) a controlled group of corporations (as defined in
Section 414(b) of the Code), (ii) a group of trades or businesses under common
control (as defined in Section 414(c) of the Code), or (iii) an affiliated
service group (as defined under Section 414(m) of the Code or the regulations
27
under Section 414(o) of the Code), any of which includes the Company. Complete
and accurate copies of (i) all Employee Benefit Plans which have been reduced to
writing, (ii) written summaries of all unwritten Employee Benefit Plans, (iii)
all related trust agreements, insurance contracts and summary plan descriptions,
and (iv) all annual reports filed on IRS Form 5500, 5500C or 5500R for the last
three plan years for each Employee Benefit Plan, have been delivered to the
Buyer. Each Employee Benefit Plan has been administered in accordance with its
terms and each of the Company, and the ERISA Affiliates has met its obligations
with respect to such Employee Benefit Plan and has made all required
contributions thereto. The Company and all Employee Benefit Plans are in
material compliance with the currently applicable provisions of ERISA and the
Code and the regulations thereunder.
(b) There are no investigations by any Governmental Entity,
termination proceedings or other claims (except claims for benefits payable in
the normal operation of the Employee Benefit Plans and proceedings with respect
to qualified domestic relations orders), suits or proceedings against or
involving any Employee Benefit Plan or asserting any rights or claims to
benefits under any Employee Benefit Plan that could give rise to any material
liability.
(c) All the Employee Benefit Plans that are intended to be
qualified under Section 401(a) of the Code have received determination letters
from the Internal Revenue Service to the effect that such Employee Benefit Plans
are qualified and the plans and the trusts related thereto are exempt from
federal income taxes under Sections 401(a) and 501(a), respectively, of the
Code, no such determination letter has been revoked and revocation has not been
threatened, and no such Employee Benefit Plan has been amended since the date of
its most recent determination letter or application therefor in any respect, and
no act or omission has occurred, that would adversely affect its qualification
or increase its cost.
(d) Neither the Company nor any ERISA Affiliate has ever
maintained an Employee Benefit Plan subject to Section 412 of the Code or Title
IV of ERISA.
(e) At no time has the Company or any ERISA Affiliate been
obligated to contribute to any "multi-employer plan" (as defined in Section
4001(a)(3) of ERISA).
(f) There are no unfunded obligations under any Employee
Benefit Plan providing benefits after termination of employment to any employee
of the Company (or to any beneficiary of any such employee), including but not
limited to retiree health coverage and deferred compensation, but excluding
continuation of health coverage required to be continued under Section 4980B of
the Code and insurance conversion privileges under federal or state law.
(g) No act or omission has occurred and no condition exists
with respect to any Employee Benefit Plan maintained by the Company or any ERISA
Affiliate that would subject the Company or any ERISA Affiliate to any material
fine, penalty, tax or liability of any kind imposed under ERISA or the Code.
28
(h) No Employee Benefit Plan is funded by, associated with, or
related to a "voluntary employee's beneficiary association" within the meaning
of Section 501(c)(9) of the Code.
(i) No Employee Benefit Plan, plan documentation or agreement,
summary plan description or other written communication distributed generally to
employees by its terms prohibits the Company from amending or terminating any
such Employee Benefit Plan.
(j) Section 2.19(j) of the Disclosure Letter discloses each:
(i) agreement with any director, executive officer or other key employee of the
Company (A) the benefits of which are contingent, or the terms of which are
altered, upon the occurrence of a transaction involving the Company of the
nature of any of the transactions contemplated by this Agreement, (B) providing
any term of employment or compensation guarantee or (C) providing severance
benefits or other benefits after the termination of employment of such director,
executive officer or key employee; (ii) agreement, plan or arrangement under
which any person may receive payments from the Company that may be subject to
the tax imposed by Section 4999 of the Code or included in the determination of
such person's "parachute payment" under Section 280G of the Code; and (iii)
agreement or plan binding the Company, including without limitation any stock
option plan, stock appreciation right plan, restricted stock plan, stock
purchase plan, severance benefit plan, or any Employee Benefit Plan, any of the
benefits of which will be increased, or the vesting of the 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.
2.20 Environmental Matters.
(a) The Company has complied with all applicable Environmental
Laws. There is no pending or threatened civil or criminal litigation, written
notice of violation, formal administrative proceeding, or, to the knowledge of
the Company, any investigation, inquiry or information request by any
Governmental Entity, relating to any Environmental Law involving the Company.
For purposes of this Agreement, "Environmental Law" means any federal, state or
local law, statute, rule or regulation relating to the environment or
occupational health and safety, including without limitation any statute,
regulation or order pertaining to (i) treatment, storage, disposal, generation
and transportation of toxic or hazardous substances or toxic or hazardous waste;
(ii) air, water and noise pollution; (iii) groundwater and soil contamination;
(iv) the release or threatened release into the environment of industrial, toxic
or hazardous substances, or solid or hazardous waste, including without
limitation emissions, discharges, injections, spills, escapes or dumping of
pollutants or contaminants; (v) the protection of wild life, marine sanctuaries
and wetlands, including without limitation all endangered and threatened
species; (vi) storage tanks, vessels and containers; (vii) underground and other
storage tanks or vessels, abandoned, disposed or discarded barrels, containers
and other closed receptacles; (viii) health and safety of employees and other
persons; and (ix) manufacture, processing, use, distribution, treatment,
storage, disposal, transportation or handling of pollutants, contaminants, toxic
or hazardous substances or oil or petroleum products or toxic or hazardous
waste. As used above, the terms "release" and "environment" shall have the
meaning set forth in the federal Comprehensive Environmental Compensation,
Liability and Response Act of 1980 ("CERCLA").
29
(b) The Company has not released any Materials of
Environmental Concern into the environment at any parcel of real property or any
facility during the time when such real property or facility was leased,
operated or controlled by the Company or a Subsidiary. The Company is not aware
of any other releases of Materials of Environmental Concern that could
reasonably be expected to have an impact on the real property or facilities
leased, operated or controlled by the Company or a Subsidiary. For purposes of
this Agreement, "Materials of Environmental Concern" means any chemicals,
pollutants or contaminants, hazardous substances (as such term is defined under
CERCLA), hazardous wastes (as such terms are defined under the federal Resources
Conservation and Recovery Act), toxic materials, oil or petroleum and petroleum
products, or any other material subject to regulation under any Environmental
Law.
(c) The Company is not aware of any environmental reports,
investigations and audits relating to premises currently or previously leased or
operated by the Company (whether conducted by or on behalf of the Company or a
third party, and whether done at the initiative of the Company or directed by a
Governmental Entity or other third party) being issued or conducted during the
past five years . Complete and accurate copies of each such report, or the
results of each such investigation or audit, have been provided to the Buyer.
2.21 Legal Compliance; Restrictions on Business Activities.
The Company and the conduct and operations of its business are in
material compliance with each law (including rules and regulations thereunder)
of any federal, state, local or foreign government, or any Governmental Entity,
which (a) affects or relates to this Agreement or the transactions contemplated
hereby or (b) is applicable to the Company or business, except for any violation
of or default which would not reasonably be expected to have a Material Adverse
Effect on the Company. There is no agreement, judgment, injunction, order or
decree binding upon the Company which has or would reasonably be expected to
have the effect of prohibiting or materially impairing any current or future
business practice of the Company as currently contemplated by the Company, any
acquisition of property of the Company or the conduct of business by the Company
as currently conducted.
2.22 Permits.
Section 2.22 of the Disclosure Letter sets forth a list of all permits,
licenses, registrations, certificates, orders or approvals from any Governmental
Entity (including without limitation those issued or required under applicable
export laws or regulations) ("Permits") issued to or held by the Company. Such
listed Permits are the only Permits that are required for the Company to conduct
its business as presently conducted, except for those the absence of which would
not have a Material Adverse Effect on the Company. Each such Permit is in full
force and effect and, to the knowledge of the Company, no suspension or
cancellation of such Permit is threatened and there is no basis for believing
that such Permit will not be renewable upon expiration. Each such Permit will
continue in full force and effect following the Closing.
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2.23 Certain Business Relationships With Affiliates.
No Affiliate of the Company (a) owns any property or right, tangible or
intangible, which is used in the business of the Company, (b) has any claim or
cause of action against the Company, or (c) owes any money to the Company.
Section 2.23 of the Disclosure Letter describes any transactions or
relationships between the Company and any Affiliate thereof which are reflected
in the statements of operations of the Company included in the Financial
Statements.
2.24 Fees.
The Company has no liability or obligation to pay any fees or
commissions to any broker, investment banking firm, finder or agent with respect
to the transactions contemplated by this Agreement.
2.25 Books and Records.
The minute books and other similar records of the Company contain true
and complete records of all material actions taken at any meetings of the
Company's stockholders, Board of Directors or any committee thereof and of all
written consents executed in lieu of the holding of any such meeting.
2.26 Company Action.
The Board of Directors of the Company, at a meeting duly called and
held, has by the unanimous vote of all directors (i) determined that the Merger
is fair and in the best interests of the Company and its stockholders, (ii)
adopted this Agreement in accordance with the provisions of the DGCL, and (iii)
directed that this Agreement and the Merger be submitted to the Company
Stockholders for their adoption and approval and resolved to recommend that
Company Stockholders vote in favor of the adoption of this Agreement and the
approval of the Merger.
2.27 Customers and Suppliers.
As of the date hereof, no customer which individually accounted for
more than 5% of the Company's gross revenues during the 12 month period
preceding the date hereof and no supplier of the Company has canceled or
otherwise terminated, or made any written threat to the Company to cancel or
otherwise terminate its relationship with the Company or has at any time on or
after December 31, 1997, decreased materially its services or supplies to the
Company in the case of any such supplier, or its usage of these services or
products of the Company in the case of such customer, and to the Company's
knowledge, no supplier or customer has indicated either orally or in writing
that it will cancel or otherwise terminate its relationship with the Company or
decrease materially its services or supplies to the Company or its usage of the
services or products of the Company, as the case may be. The Company has not
engaged in any fraudulent conduct with respect to any customer or supplier of
the Company.
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2.28 Pooling of Interests.
To the Company's knowledge, neither the Company nor any of its
Affiliates has taken or agreed to take any action that could prevent Buyer from
accounting for the business combination to be effected by the Merger as a
"pooling of interests" in accordance with GAAP.
2.29 Restrictions on Business Activities
There is no agreement, judgment, injunction, order or decree binding
upon the Company or its properties (including, without limitation, their
intellectual properties) which has or would reasonably be expected to have the
effect of prohibiting or materially impairing any acquisition of property by the
Company or the conduct of any business by the Company, including any exclusive
distribution or licensing agreements, other than as contemplated by the Loan
Documents.
2.30 Certain Payments
To the Company's knowledge, neither the Company nor any director,
officer, agent, or employee of the Company or any other person or entity
associated with or acting for or on behalf of the Company, has directly or
indirectly (a) made any contribution, gift, bribe, rebate, payoff, influence
payment, kickback, or other payment to any person or entity, private or public,
regardless of form, whether in money, property, or services (i) to obtain
favorable treatment in securing business, (ii) to pay for favorable treatment
for business secured, (iii) to obtain special concessions or for special
concessions already obtained, for or in respect of the Company or any affiliate
of the Company, or (iv) in violation of any federal, state, local, municipal,
foreign or other constitution, ordinance, regulation, statute, treaty, or other
law, or (b) established or maintained any fund or asset that has not been
recorded in the books and records of the Company.
2.31 Disclosure.
No representation or warranty by the Company contained in this
Agreement, and no statement contained in the Disclosure Letter or any other
document, certificate or other instrument delivered to or to be delivered by or
on behalf of the Company pursuant to this Agreement, contains any untrue
statement of a material fact or omits to state any material fact necessary, in
light of the circumstances under which it was made, in order to make the
statements herein not misleading. Except for the representations and warranties
contained in this Article II, the Company makes no representation or warranty to
Buyer or Merger Sub, either express or implied, at law or in equity, and the
Company disclaims any such other representation or warranty, whether by the
Company or any of its agents or representatives or any other person,
notwithstanding the delivery or disclosure to Buyer or Merger Sub or any of
their officers, directors, employees, agents or representatives or any other
person of any document or other information by the Company or any of its agents
or representatives or any other person.
32
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE BUYER
AND THE MERGER SUB
Each of the Buyer and the Merger Sub represents and warrants to the
Company as follows:
3.1 Organization.
Each of the Buyer and the Merger Sub is a corporation duly organized,
validly existing and in good standing under the laws of the state of its
incorporation. Each of the Buyer and Merger Sub is duly qualified to conduct
business and is in corporate good standing under the laws of each jurisdiction
in which the nature of its businesses or the ownership or leasing of its
properties requires such qualification, except where the failure to be so
qualified or in good standing would not have a Material Adverse Effect on the
Buyer or the Merger Sub.
3.2 Capitalization.
The authorized capital stock of the Buyer consists of Five Million
(5,000,000) shares of undesignated preferred stock, of which no shares were
issued and outstanding as of the date hereof, and Fifty Million (50,000,000)
shares of Buyer Common Stock, of which 17,759,016 shares were issued and
outstanding and no shares were held in the treasury of the Buyer as of March 5,
1998. All of the issued and outstanding shares of Buyer Common Stock are duly
authorized, validly issued, fully paid, nonassessable and free of all preemptive
rights. All of the Merger Shares will be, when issued in accordance with this
Agreement, duly authorized, validly issued, fully paid, nonassessable and free
of all preemptive rights. As of March 31, 1998, there were 3,275,000 shares
reserved for issuance under the Buyer's 1994 Stock Option Plan, 1997 Omnibus
Stock Plan and 1997 Directors' Stock Option Plan (the "Buyer Option Plans"), of
which options to purchase 1,830,313 shares of Buyer Common Stock are
outstanding. Other than shares reserved for issuance under the Buyer Option
Plans, there are no outstanding or authorized options, warrants, rights, calls,
convertible instruments, agreements or commitments to which the Buyer is a party
or which are binding upon the Buyer providing for the issuance, disposition or
acquisition of any of its capital stock. There are no outstanding or authorized
stock appreciation, phantom stock or similar rights with respect to the Buyer.
3.3 Authorization of Transaction.
Each of the Buyer and the Merger Sub has all corporate requisite power
and authority to execute and deliver this Agreement and to perform its
obligations hereunder and thereunder. The execution and delivery of this
Agreement and the performance of this Agreement and the consummation of the
transactions contemplated hereby and thereby by the Buyer and the Merger Sub
have been duly and validly authorized by all necessary corporate action on the
part of the Buyer and Merger Sub. This Agreement has been duly and validly
executed and delivered by the Buyer and the Merger Sub and, assuming the due
33
authorization, execution and delivery by the Company, constitutes a valid and
binding obligation of the Buyer and the Merger Sub, enforceable against them in
accordance with its terms, except as enforcement may be limited by bankruptcy,
insolvency or other similar laws affecting the enforcement of creditors' rights
generally, and except that the availability of equitable remedies, including
specific performance, is subject to the discretion of the court before which any
proceeding therefor may be brought.
3.4 Noncontravention.
Subject to compliance with the applicable requirements of the
Securities Act and any applicable state securities laws, the Exchange Act and
the filing of the Certificate of Merger as required by the DGCL, neither the
execution and delivery of this Agreement, nor the consummation by the Buyer or
the Merger Sub of the transactions contemplated hereby or thereby, will (a)
conflict or violate any provision of the charter or By-laws of the Buyer or the
Merger Sub, (b) require on the part of the Buyer or the Merger Sub any filing
with, or permit, authorization, consent or approval of, any Governmental Entity,
(c) conflict with, result in breach of, constitute (with or without due notice
or lapse of time or both) a default under, result in the acceleration of, create
in any party any right to accelerate, terminate, modify or cancel, or require
any notice, consent or waiver under, any contract, lease, sublease, license,
sublicense, franchise, permit, indenture, agreement or mortgage for borrowed
money, instrument of indebtedness, Security Interest or other arrangement to
which the Buyer or Merger Sub is a party or by which either is bound or to which
any of their assets are subject, or (d) violate any order, writ, injunction,
decree, statute, rule or regulation applicable to the Buyer or the Merger Sub or
any of their properties or assets.
3.5 Reports and Financial Statements.
The Buyer has previously furnished or made available to the Company
complete and accurate copies, as amended or supplemented, all reports filed by
the Buyer under Section 13 of the Exchange Act with the SEC since the Buyer's
initial public offering on February 6, 1998 (such reports are collectively
referred to herein as the "Buyer Reports"). The Buyer Reports constitute all of
the documents required to be filed by the Buyer under Section 13 of the Exchange
Act with the SEC since such date. As of their respective dates, the Buyer
Reports did not contain any untrue statement of a material fact or omit to state
a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading. The audited financial statements and unaudited interim financial
statements of the Buyer included in the Buyer Reports (i) comply as to form in
all material respects with applicable accounting requirements and the published
rules and regulations of the SEC with respect thereto, (ii) have been prepared
in accordance with GAAP applied on a consistent basis throughout the periods
covered thereby (except as may be indicated therein or in the notes thereto, and
in the case of quarterly financial statements, as permitted by Form 10-Q under
the Exchange Act), (iii) fairly present the consolidated financial condition,
results of operations and cash flows of the Buyer as of the respective dates
thereof and for the periods referred to therein, and (iv) are consistent with
the books and records of the Buyer.
34
3.6 Absence of Material Adverse Changes.
Since December 31, 1997, there has not been any material adverse change
in the assets, business, financial condition or results of operations of the
Buyer, nor has there occurred any event or development that could reasonably be
foreseen to result in such a material adverse change in the future.
3.7 Litigation.
Neither Buyer nor Merger Sub is a party to, nor are its assets or
properties subject to (i) any unsatisfied judgment, order, decree, stipulation
or injunction and (ii) any claim, complaint, action, suit, proceeding, hearing
or, to the Buyer's knowledge, investigation of or in any Governmental Entity,
other than judgments, orders, decrees, stipulations, injunctions, claims,
complaints, actions, suits, proceedings, hearings or, to the Buyer's knowledge,
investigations that would not have a Material Adverse Effect on the Buyer.
3.8 Company Action.
The Board of Directors of the Buyer and Merger Sub, at meetings duly
called and held, have by the unanimous vote of all directors (i) determined that
the Merger is fair and in the best interests of the Buyer and Merger Sub, and
each of its stockholders, and (ii) adopted this Agreement in accordance with the
provisions of the DGCL.
3.9 Pooling of Interests.
To the Buyer's knowledge, neither the Buyer nor Merger Sub, nor any of
their respective Affiliates have taken or agreed to take any action that could
prevent Buyer from accounting for the business combination to be effected by the
Merger as a "pooling of interests" in accordance with GAAP.
3.10 Brokers' Fees.
Neither the Buyer nor the Merger Sub has any liability or obligation to
pay any fees or commissions to any broker, finder or agent with respect to the
transactions contemplated by this Agreement except to Xxxxxxx, Xxxxx & Co.
3.11 Disclosure.
No representation or warranty by the Buyer contained in this Agreement,
and no statement contained in any document, certificate or other instrument
delivered to or to be delivered by or on behalf of the Buyer pursuant to this
Agreement, contains or will contain any untrue statement of a material fact or
omits or will omit to state any material fact necessary, in light of the
circumstances under which it was or will be made, in order to make the
statements herein or therein not misleading.
35
ARTICLE IV
COVENANTS
4.1 Best Efforts.
Each of the Parties shall use its best efforts, to the extent
commercially reasonable, to take all actions and to do all things necessary,
proper or advisable to consummate the transactions contemplated by this
Agreement.
4.2 Notices and Consents.
Each of the Buyer, the Merger Sub and the Company shall use its
respective best efforts to obtain, at its expense, all such waivers, permits,
consents, approvals or other authorizations from third parties and Governmental
Entities, and to effect all such registrations, filings and notices with or to
third parties and Governmental Entities, as may be required by or with respect
to the Buyer, the Merger Sub or the Company, respectively, in connection with
the transactions contemplated by this Agreement (including without limitation,
with respect to the Company, those listed in Section 2.4 or Section 2.22 of the
Disclosure Letter).
4.3 Special Meeting.
(a) Within 25 days of the date hereof, the Company shall hold
a special meeting of Company Stockholders to be held to vote in favor of the
adoption of this Agreement and the approval of the Merger ("the Company Special
Meeting") in accordance with the DGCL and shall solicit proxies from its
stockholders to vote in favor of the adoption of this Agreement and the approval
of the Merger at the Company Special Meeting. The Company shall include within
the private placement memorandum/information statement that will be sent to the
Company Stockholders a request for the Company Stockholders to execute a written
consent of stockholders in lieu of special meeting.
(b) As soon as practical after the date hereof, the Company
shall use commercially reasonable efforts on behalf of the Buyer and pursuant to
the request of the Buyer, to mail to the Company Stockholders the materials set
forth in Section 4.3(a) hereof, to cause each Company Stockholder who has not
executed a Stockholder Consent or a Stockholder Agreement prior to the date
hereof to execute the Stockholder Consent or the Stockholder Agreement.
"Stockholder Agreement" shall mean an agreement executed by a Company
Stockholder in favor of and on behalf of the Buyer substantially in the form of
Exhibit C hereto or in such other form reasonably acceptable to the Buyer.
(c) The Company shall comply with all applicable provisions of
the DGCL in the preparation, filing and distribution of any such materials, the
solicitation of proxies thereunder, and the calling and holding of the Company
Special Meeting. Without limiting the foregoing, the Company shall ensure that
such materials do not, as of the date on which they are distributed to Company
Stockholders, and as of the date of the Company Special Meeting, contain any
36
untrue statement of a material fact or omit to state a material fact necessary
in order to make the statements made, in light of the circumstances under which
they were made, not misleading (provided that the Company shall only be
responsible for the accuracy and completeness of information relating to the
Company or furnished by the Company in writing for inclusion in any such proxy
materials). The Buyer and the Merger Sub shall ensure that such materials do
not, as of the date on which they are distributed to Company Stockholders, and
as of the date of the Company Special Meeting, contain any untrue statement of a
material fact or omit to state a material fact necessary in order to make the
statements made, in light of the circumstances under which they were made, not
misleading (provided that the Buyer and the Merger Sub shall only be responsible
for the accuracy and completeness of information relating to the Buyer and
Merger Sub and furnished by the Buyer and the Merger Sub in writing for
inclusion in any such proxy materials).
(d) The Company, acting through its Board of Directors, shall
include in any private placement memorandum/information statement the
recommendation of its Board of Directors that the Company Stockholders vote in
favor of the adoption of this Agreement and the approval of the Merger, and
shall otherwise use its best efforts, to the extent commercially reasonable, to
obtain the Requisite Stockholder Approval.
4.4 Securities Laws.
(a) Prior to the Closing, the Company shall not take any
action that would cause the number of Company Stockholders who are not
"accredited investors" pursuant to Regulation D promulgated under the Securities
Act to increase to more than 35 during the term of this Agreement or that would
cause any person who does not meet the standards of Regulation D required for
"purchasers" under Regulation D to become a stockholder, provided, however, the
Company will not be precluded from issuing Company Shares upon the exercise of
Options or Warrants.
(b) The Buyer shall take such steps as may be necessary to
comply with the securities and blue sky laws of all jurisdictions which are
applicable to the issuance of the Buyer Common Stock in connection with the
Merger. The Company shall use its best efforts, to the extent commercially
reasonable, to assist the Buyer as may be necessary to comply with such
securities and blue sky laws.
4.5 Operation of Business.
Except as contemplated by this Agreement, during the period
from the date of this Agreement to the Effective Time, the Company shall conduct
its operations in the Ordinary Course of Business and in compliance with all
applicable laws and regulations and, to the extent consistent therewith, use all
reasonable efforts to preserve intact its current business organization, keep
its physical assets in good working condition, keep available the services of
its current officers and employees and preserve its relationships with
customers, suppliers and others having business dealings with it to the end that
its goodwill and ongoing business shall not be impaired in any material respect.
Without limiting the generality of the foregoing, prior to the Effective Time,
the Company shall not, without the written consent of the Buyer:
37
(i)......issue, sell, deliver or agree or commit to issue, sell or deliver
(whether through the issuance or granting of options, warrants, commitments,
subscriptions, rights to purchase or otherwise other than issuance of Options to
persons set forth on Section 4.5 of the Disclosure Letter) or authorize the
issuance, sale or delivery of, or redeem or repurchase, any stock of any class
or any other securities or any rights, warrants or options to acquire any such
stock or other securities (except pursuant to the conversion or exercise of
convertible securities, Options or Warrants outstanding on the date hereof), or
amend any of the terms of any such convertible securities, Options or Warrants;
(ii).....split, combine or reclassify any shares of its capital stock;
declare, set aside or pay any dividend or other distribution (whether in cash,
stock or property or any combination thereof) in respect of its capital stock;
(iii)....create, incur or assume any debt not currently outstanding
(including obligations in respect of capital leases); assume, guarantee, endorse
or otherwise become liable or responsible (whether directly, contingently or
otherwise) for the obligations of any other person or entity; or make any loans,
advances or capital contributions to, or investments in, any other person or
entity, except in the Ordinary Course of Business or as contemplated by the Loan
Documents;
(iv).....enter into, adopt or amend any Employee Benefit Plan or any
employment or severance agreement or arrangement of the type described in
Section 2.19(j) or increase in any manner the compensation or fringe benefits
of, or modify the employment terms of, its directors, officers or employees,
generally or individually, or pay any benefit not required by the terms in
effect on the date hereof of any existing Employee Benefit Plan;
(v)......acquire, sell, lease, encumber or dispose of any material assets
or property, other than purchases and sales of assets in the Ordinary Course of
Business;
(vi).....amend its Charter or By-laws;
(vii)....change in any material respect its accounting methods, principles
or practices, except insofar as may be required by a generally applicable change
in GAAP or as required by Buyer;
(viii)...discharge or satisfy any Security Interest or pay any obligation
or liability other than in the Ordinary Course of Business or as contemplated by
the Loan Documents;
(ix).....mortgage or pledge any of its property or assets or subject any
such assets to any Security Interest other than as contemplated by the Loan
Documents;
38
(x)......sell, assign, transfer or license any Intellectual Property, other
than in the Ordinary Course of Business;
(xi).....enter into, amend, terminate, take or omit to take any action that
would constitute a violation of or default under, or waive, release or assign
any rights under, any material contract or agreement;
(xii)....make or commit to make any capital expenditure in excess of
$25,000 per item;
(xiii)...take any action or fail to take any action permitted by this
Agreement with the knowledge that such action or failure to take action would
result in (i) any of the representations and warranties of the Company set forth
in this Agreement becoming untrue or (ii) any of the conditions to the Merger
set forth in Article V not being satisfied;
(xiv)....hire, terminate or discharge any employee or engage or terminate
any consultant, except for the hiring of persons for whom offers of employment
are outstanding on the date hereof as set forth on Section 4.5 of the Disclosure
Letter;
(xv).....enter into any material contract, other than in the Ordinary
Course of Business and as provided to the Buyer, or any material amendment or
termination of, or default under, any material contract to which the Company is
a party or by which it is bound;
(xvi)....take any action, which would interfere with the Buyer's ability to
account for the Merger as a pooling of interests;
(xvii)...commence any litigation other than (i) for the routine collection
of bills, (ii) for software piracy, or (iii) in such cases where the Company in
good faith determines that failure to commence suit would result in the material
impairment of a valuable aspect of the Company's business, provided that Company
consults with the Buyer prior to the filing of such a suit;
(xviii)..make or change any material election in respect of Taxes, adopt or
change any accounting method in respect of Taxes, file any material Return or
any amendment to a material Return, enter into any closing agreement, settle any
claim or assessment in respect of Taxes (except settlements effected solely
through payment of immaterial sums of money), or consent to any extension or
waiver of the limitation period applicable to any claim or assessment in respect
of Taxes;
(xix)....incur costs and expenses in excess of $2,000,000, in the
aggregate, in connection with the preparation, negotiation and execution of this
Agreement and the completion of the transactions contemplated hereby, including
without limitation, costs and expenses of lawyers, accountants, investment
bankers and other consultants or representatives, but excluding the fees and
expenses of Company's investment bankers pursuant to engagement letters that
have been delivered to Buyer prior to the date hereof; or
39
(xx).....agree in writing or otherwise to take any of the foregoing
actions.
4.6 Full Access.
The Company shall permit representatives of the Buyer to have full
access (upon reasonable notice and at all reasonable times, and in a manner so
as not to interfere with the normal business operations of the Company) to all
premises, properties, financial and accounting records, contracts, other records
and documents, and personnel, of or pertaining to the Company, subject to
compliance with applicable confidentiality obligations of the Company.
4.7 Notice of Breaches.
The Company shall promptly deliver to the Buyer written notice of any
event or development of which the Company is aware and that would (a) render any
statement, representation or warranty of the Company in this Agreement
(including the Disclosure Letter) inaccurate or incomplete in any material
respect, or (b) constitute or result in a breach by the Company or any of its
Affiliates of, or a failure by the Company or any of its Affiliates to comply
with, any agreement or covenant in this Agreement applicable to such party. The
Buyer or the Merger Sub shall promptly deliver to the Company written notice of
any event or development of which either the Buyer or Merger Sub is aware and
that would (i) render any statement, representation or warranty of the Buyer or
the Merger Sub in this Agreement inaccurate or incomplete in any material
respect, or (ii) constitute or result in a breach by the Buyer or the Merger Sub
of, or a failure by the Buyer or the Merger Sub to comply with, any agreement or
covenant in this Agreement applicable to such party. No such disclosure shall be
deemed to avoid or cure any such misrepresentation or breach.
4.8 Exclusivity.
The Company shall not, and the Company shall use its best efforts to
cause its Affiliates and each of its officers, directors, employees,
representatives and agents not to, directly or indirectly, (a) solicit,
initiate, engage or participate in or knowingly encourage discussions or
negotiations with any person or entity (other than the Buyer) concerning any
merger, consolidation, sale of material assets, tender offer, recapitalization,
accumulation of Company Shares, proxy solicitation or other business combination
involving the Company or any division of the Company or (b) provide any
non-public information concerning the business, properties or assets of the
Company to any person or entity (other than the Buyer). Notwithstanding the
foregoing, if the Company receives an unsolicited bona fide offer or proposal
the Board of Directors may withdraw its recommendation to its stockholders
regarding the Merger; provided however, that the Company shall not have a right
to terminate this Agreement. The Company shall immediately notify the Buyer of,
and shall disclose to the Buyer all details of, any inquiries, discussions or
negotiations of the nature described in the first sentence of this Section 4.8.
40
4.9 Non-Disclosure and Developments Agreements
and Non-Competition Agreements.
Prior to Closing, the Company shall use its commercially reasonable
best efforts to cause all of the employees identified on Schedule 4.9 hereof to
execute non-disclosure and developments agreements and non-competition
agreements in substantially the forms attached hereto as Exhibits F and G,
respectively.
4.10 Employee Matters.
The Buyer shall use commercially reasonable efforts to make available
to the employees of the Surviving Corporation all employee benefits then offered
to employees of the Buyer of similar positions and responsibilities.
4.11 Agreements From Certain Affiliates of the Company.
Schedule 4.11 of the Disclosure Letter sets forth a list of all persons
or entities who are Affiliates of the Company (the "Company Affiliates") as of
the date hereof. The Company shall provide the Buyer such information and
documents as the Buyer shall reasonably request for purposes of reviewing such
list. The Company shall use its best efforts or cause to be delivered to the
Buyer, concurrently with the execution of this Agreement (and in each case prior
to the Effective Time), from each of the Company Affiliates an executed
Affiliate Agreement in the form attached hereto as Exhibit B (the "Affiliate
Agreements"). The Buyer and Merger Sub shall be entitled to place appropriate
legends on the certificates evidencing any Buyer Common Stock to be received by
the Company Affiliates pursuant to the terms of this Agreement and to issue
appropriate stock transfer instructions to the transfer agent for Buyer Common
Stock, consistent with the terms of such Affiliate Agreement.
4.12 Registration Rights.
The Company Stockholders shall have the right to become a party to the
Amended and Restated Registration Rights Agreement attached hereto as Exhibit J.
4.13 Pooling Accounting.
The Buyer, Merger Sub and the Company shall each use reasonable
commercial efforts to cause the business combination to be effected by the
Merger to be accounted for as a pooling of interests. Each of the Company,
Merger Sub and the Buyer shall use its best efforts to cause its Affiliates not
to take any action that would adversely affect the ability of the Buyer to
account of the business combination to be effected by the Merger as a pooling of
interests.
41
4.14 Escrow Agreement.
On or before the Effective Time, the Escrow Agent and the Stockholders'
Agent will execute the Escrow Agreement contemplated by Article VII in the form
attached hereto as Exhibit D (the "Escrow Agreement").
4.15 Form S-8.
The Buyer agrees to file, not later than May 20, 1998, a registration
statement on Form S-8 covering the shares of Buyer Common Stock issuable
pursuant to the Options assumed by the Buyer. The Company shall cooperate with
and assist the Buyer in the preparation of such registration statement.
4.16 Reorganization.
The Buyer and the Company shall each use its best efforts to cause the
business combination to be effected by the Merger to be qualified as a
"reorganization" described in Section 368(a) of the Code.
4.17 Reasonable Commercial Efforts and Further Assurances.
Each of the Parties shall use reasonable commercial efforts to
effectuate the transactions contemplated hereby and to fill and cause to be
fulfilled the conditions to Closing under this Agreement. Each Party, at the
reasonable request of another Party, 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.
ARTICLE V
CONDITIONS TO CONSUMMATION OF MERGER
5.1 Conditions to Each Party's Obligations.
The respective obligations of each Party to consummate the Merger are
subject to the satisfaction of the following conditions:
(a) this Agreement and the Merger shall have received
the Requisite Stockholder Approval by the Company Stockholders;
(b) the Buyer and the Company shall be satisfied that the
issuances of Buyer Common Stock in the transaction shall be exempt under Section
4(2) of the Securities Act; and
42
(c) 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 have been issued, nor shall any proceeding brought by any
Governmental Entity, seeking any of the foregoing be pending; nor shall there be
any action taken, or any statute, rule, regulation or order enacted, entered,
enforced or deemed applicable to the Merger which makes the consummation of the
Merger illegal.
5.2 Conditions to Obligations of the Buyer and the Merger Sub.
The obligation of each of the Buyer and the Merger Sub to
consummate the Merger is subject to the satisfaction of the following additional
conditions:
(a) the Agreement and the Merger shall have been approved and
adopted with the Requisite Stockholder Approval and the number of Dissenting
Shares shall not exceed 10% of the number of outstanding Company Shares as of
the Effective Time;
(b) prior to the time at which the Company has delivered to
the Buyer written evidence of a receipt of consent to the Merger from the
holders of no less than 90% of the Company Shares, the representations and
warranties of the Company set forth in Section 2.12 shall be true and correct
when made on the date hereof, except where the failure to be true and correct on
the date hereof would not have a Material Adverse Effect on the Company;
(c) the Company shall have performed or complied with in all
material respects its agreements and covenants required to be performed or
complied with under this Agreement as of or prior to the Effective Time;
(d) the Company shall have delivered to the Buyer and the
Merger Sub a certificate (without qualification as to knowledge or materiality
or otherwise) to the effect that each of the conditions specified in clauses
(a), (b) and (c) (to the extent the Company is a party or is named therein) of
Section 5.1 and clauses (a) through (c) of this Section 5.2 is satisfied in all
respects;
(e) the Buyer and the Merger Sub shall have received from
Xxxxx, Xxxxxxx & Xxxxxxxxx, LLP, counsel to the Company, an opinion
substantially in the form set forth as Exhibit E attached hereto, addressed to
the Buyer and the Merger Sub and dated as of the Closing Date;
(f) all of the employees identified on Section 5.2(f) of the
Disclosure Letter shall have executed employment agreements substantially in the
form attached hereto as Exhibit I;
(g) the Company Affiliates shall have executed and delivered
the Affiliate Agreements;
(h) the Buyer shall have received a written opinion from
Xxxxxx Xxxxxxxx LLP, dated as of the Closing Date, stating that the Merger will
qualify as a "pooling of interests" transaction under Accounting Principles
Board Opinion No. 16 and applicable SEC regulations, if the Merger is
consummated in accordance with this Agreement; and
43
(i) the Buyer shall have received the report of Xxxxxx
Xxxxxxxx LLP on the Company's audited financial statements for fiscal year ended
December 31, 1997.
5.3 Conditions to Obligations of the Company.
The obligation of the Company to consummate the Merger is subject to
the satisfaction of the following additional conditions:
(a) each of the Buyer and the Merger Sub shall have performed
or complied with in all material respects its agreements and covenants required
to be performed or complied with under this Agreement as of or prior to the
Effective Time;
(b) each of the Buyer and the Merger Sub shall have delivered
to the Company a certificate (without qualification as to knowledge or
materiality or otherwise) to the effect that each of the conditions specified in
clauses (b) and (c) (to the extent the Buyer or Merger Sub is a party or is
named therein) of Section 5.1 and clause (a) of this Section 5.3 is satisfied in
all respects; and
(c) the Company Stockholders shall have received from Piper &
Marbury L.L.P., counsel to the Buyer and the Merger Sub, an opinion
substantially in the form set forth as Exhibit H attached hereto, addressed to
the Company and dated as of the Closing Date.
ARTICLE VI
TERMINATION
6.1 Termination of Agreement.
The Parties may terminate this Agreement prior to the Effective Time
(whether before or after Requisite Stockholder Approval) as provided below:
(a) the Parties may terminate this Agreement by mutual written
consent;
(b) any Party may terminate this Agreement by giving written
notice to the other Parties at any time after the Company Stockholders have
voted on whether to approve this Agreement and the Merger in the event this
Agreement and the Merger failed to receive the Requisite Stockholder Approval;
(c) any Party may terminate this Agreement by giving written
notice to the other Parties upon the entry of any permanent injunction or other
order of a court or other competent authority preventing the consummation of the
Merger that has become final and nonappealable;
44
(d) the Buyer may terminate this Agreement by giving written
notice to the Company if the Closing shall not have occurred on or before July
15, 1998, by reason of the failure of any condition precedent under Section 5.1
or 5.2 hereof (unless the failure results primarily from a breach by the Buyer
or the Merger Sub of any representation, warranty or covenant contained in this
Agreement); and
(e) the Company may terminate this Agreement by giving written
notice to the Buyer and the Merger Sub if the Closing shall not have occurred on
or before July 15, 1998, by reason of the failure of any condition precedent
under Section 5.1 or 5.3 hereof (unless the failure results primarily from a
breach by the Company of any representation, warranty or covenant contained in
this Agreement).
6.2 Effect of Termination.
If any party terminates this Agreement pursuant to Section 6.1, all
obligations of the Parties hereunder shall terminate without any liability of
any Party to any other Party (except for any liability of any Party for breaches
of this Agreement).
6.3 Amendment.
The board of directors of the Parties may cause this Agreement to be
amended at any time by execution of an instrument in writing signed on behalf of
each of the Parties; provided that an amendment made subsequent to the adoption
of the Agreement by Company Stockholders shall not (i) alter or change the
amount or kind of consideration to be received on conversion of the Company
Shares; (ii) alter or change any term of the Charter or By-laws of the Surviving
Corporation to be effected by the merger; or (iii) alter or change any of the
terms and conditions of the Agreement if such alteration or change would
adversely affect the holders of Company Shares.
6.4 Extension; Waiver.
At any time prior the Effective Time, any Party may, to the extent
legally allowed (i) extend the time for the performance of any of the
obligations or other acts of the other Parties; (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 to any such extension or waiver shall be valid
only if set forth in an instrument in writing signed on behalf of such Party.
45
ARTICLE VII
ESCROW AND INDEMNIFICATION
7.1 Indemnification.
(a) The Company Stockholders will indemnify and hold harmless
the Buyer and the Surviving Corporation and its respective officers, directors,
agents and employees, and each person, if any, who controls or may control the
Buyer or the Surviving Corporation within the meaning of the Securities Act
(hereinafter referred individually as an "Indemnified Person" and collectively
as "Indemnified Person") from and against any and all losses, costs, damages,
liabilities and expenses arising from claims, demands, actions, causes of
action, including, without limitation reasonable legal fees, net of any
recoveries under existing insurance policies, tax benefit received by the Buyer
or its Affiliates as a result of such damages, indemnities from third parties or
in the case of third party claims, by any amount actually recovered by the Buyer
or its affiliates pursuant to counterclaims made by any of them directly
relating to the facts giving rise to such third party claims (collectively,
"Damages") arising out of any misrepresentation or breach of or default in
connection with any of the representations, warranties, covenants and agreements
given or made by the Company in this Agreement, the Disclosure Letter or any
Exhibit to this Agreement. The Buyer and its Affiliates shall act in good faith
and in a commercially reasonable manner to mitigate any Damages they may suffer.
(b) Nothing in this Agreement shall limit the liability of the
Company for any breach of any representation, warranty or covenant if the Merger
does not close.
7.2 Escrow Fund.
Notwithstanding the provisions of Article I, upon the Closing of the
Merger, the Buyer shall issue to each Company Stockholder 92.5% of the Buyer
Common Stock otherwise issuable to such stockholder pursuant to Article I
(rounded upward to the nearest whole share). The remaining 7.5% of the Buyer
Common Stock issuable to a Company Stockholder in connection with the Merger
shall be referred to as "Escrow Shares," collectively, the Escrow Shares shall
be referred to as the "Escrow Fund." The obligation of the Buyer to issue the
Escrow Shares otherwise issuable upon the Merger or any such exercise shall be
subject to reduction to satisfy the Company's obligations under this Article
VII. Damages that: (i) are accepted as valid by the Stockholders' Agents; or
(ii) are determined to be valid by arbitration as described in this Article VII,
shall reduce the number of Escrow Shares issuable to the Company Stockholders by
the number of Escrow Shares (rounded to the closest whole number) equal to such
Damages divided by the Escrow Share Market Value. As soon as practicable after
the Effective Date, the Escrow Shares shall be registered in the name of, and be
deposited with, State Street Bank (or other institution selected by the Buyer
with the reasonable consent of the Company) as escrow agent (the "Escrow
Agent"), such deposit to constitute the Escrow Fund and to be governed by the
terms set forth herein and in the Escrow Agreement attached hereto as Exhibit D.
The Escrow Shares shall be beneficially owned by the Company Stockholders and
the Escrow Fund shall be the sole and exclusive remedy to compensate the Buyer
pursuant to the indemnification obligations of the Company Stockholders set
forth in Section 7.1(a).
46
7.3 Damage Threshold.
Notwithstanding Section 7.1, the Buyer may not receive any
shares from the Escrow Fund unless and until an Officer's Certificate or
Certificates (as defined in Section 7.5 below) and identifying the requirements
of Section 7.5(a)(ii) and identifying Damages has been delivered to the Escrow
Agent as provided in Section 7.5 below and such amount is determined pursuant to
this Article VII to be payable, in which case the Buyer shall receive shares
equal in value to the full amount of Damages.
7.4 Escrow Period.
The "Escrow Period" shall terminate upon the earlier of (i) three (3)
business days after the delivery of the Buyer's independent certified public
accountants of its reports for the fiscal year ending on December 31, 1998 and
(ii) the close of business on March 31, 1999; provided, however, that a portion
of the Escrow Shares, which, in the reasonable judgment of the Buyer, subject to
the objection of the Stockholders' Agent and the subsequent arbitration of the
matter in the manner provided in Section 7.7 hereof are necessary to satisfy any
unsatisfied claims specified in any Officer's Certificate theretofore delivered
to the Escrow Agent prior to termination of the Escrow Period with respect to
facts and circumstances existing prior to expiration of the Escrow Period, shall
remain in the Escrow Fund until such claims have been resolved. Such retained
portion of the Escrow Fund shall be retained only until the claim for
indemnification pursuant to which such portion is being retained is settled or
finally determined between Buyer and the Stockholders' Agent in accordance with
Section 7.7 below.
7.5 Claims Upon Escrow Fund.
(a) Upon receipt by the Escrow Agent on or before the last day
of the Escrow Period of a certificate signed by any officer of the Buyer (an
"Officer's Certificate"):
(i) stating that with respect to the indemnification obligations of Company
Stockholders, Damages exist in an aggregate amount greater than $250,000, (which
aggregate amount cannot include any individual Damage items of $10,000 or less),
and
(ii) specifying in reasonable detail the individual items of such Damages
included in the amount so stated, the date each such item was paid, or properly
accrued or arose, the nature of the misrepresentation, breach of warranty or
claim to which such item is related, the Escrow Agent shall, subject to the
provisions of this Article VII, deliver to the Buyer out of the Escrow Fund, as
promptly as practicable, Buyer Common Stock or other assets held in the Escrow
Fund having a value determined in accordance with Section 7.5(b) of this
Agreement equal to such Damages with respect to the indemnification obligations
of Company Stockholders set forth in Section 7.1. The Escrow Agent will not
release any portion of the Escrow Fund to Buyer pursuant to an Officer's
Certificate until such claim has been resolved or is uncontested in accordance
with Section 7.6 below.
47
(b) For the purpose of compensating the Buyer for its Damages
pursuant to this Agreement, Buyer Common Stock in the Escrow Fund shall be
valued at the Escrow Share Market Value.
7.6 Objections to Claims.
At the time of delivery of any Officer's Certificate to the Escrow
Agent, a duplicate copy of such Officer's Certificate shall be delivered to the
Stockholders' Agent (defined in Section 7.8 below) and for a period of
forty-five (45) days after such delivery, the Escrow Agent shall make no
delivery of Buyer Common Stock or other property pursuant to Section 7.5 hereof
unless the Escrow Agent shall have received written authorization from the
Stockholders' Agent to make such delivery. After the expiration of such
forty-five (45) days period, the Escrow Agent shall make delivery of Buyer
Common Stock or other property in the Escrow Fund in accordance with Section 7.5
hereof, provided that no such payment or delivery may be made if the
Stockholders' Agent shall object in a written statement to the claim made in the
Officer's Certificate, and such statement shall have been delivered to the
Escrow Agent and to the Buyer prior to the expiration of such forty-five (45)
day period.
7.7 Resolution of Conflicts and Arbitration.
(a) In case the Stockholders' Agent shall so object in writing
to any claim or claims by the Buyer made in any Officer's Certificate, the Buyer
shall have fifteen (15) days from receipt of a Stockholders' Agent's objections
under Section 7.6 to respond in a written statement to the objection of the
Stockholders' Agent. If after such fifteen (15) day period there remains a
dispute as to any claims, the Stockholders' Agent and the Buyer shall attempt in
good faith for thirty (30) days thereafter to agree upon the rights of the
respective parties with respect to each of such claims. If the Stockholders'
Agent and the Buyer should so agree, a memorandum setting forth such agreement
shall be prepared and signed by both parties and shall be furnished to the
Escrow Agent. The Escrow Agent shall be entitled to rely on any such memorandum
and shall distribute Buyer Common Stock or other property from the Escrow Fund
in accordance with the terms thereof.
(b) If no such agreement can be reached after good faith
negotiation, either the Buyer or the Stockholders' Agent may, by written notice
to the other, demand arbitration of the matter unless the amount of the damage
or loss is at issue in pending litigation with a third party, in which event
arbitration shall not be commenced until such amount is ascertained or both
parties agree to arbitration; and in either such event the matter shall be
settled by arbitration conducted by three arbitrators. Within fifteen (15) days
after such written notice is sent, the Buyer and the Stockholders' Agent shall
each select one arbitrator, and the two arbitrators so selected shall select a
third arbitrator. The decision of the arbitrators as to the validity and amount
of any claim in such Officer's Certificate shall be binding and conclusive upon
the parties to this Agreement, and notwithstanding anything in Section 7.6
hereof, the Escrow Agent shall be entitled to act in accordance with such
decision and make or withhold payments out of the Escrow Fund in accordance
therewith.
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(c) Judgment upon any award rendered by the arbitrators may be
entered in any court having jurisdiction. Any such arbitration shall be held in
Xxxxxxxxxx County, Maryland under the commercial rules then in effect of the
American Arbitration Association. For purposes of this Section 7.7(c), in any
arbitration hereunder in which any claim or the amount thereof stated in the
Officer's Certificate is at issue, the Buyer shall be deemed to be the
Non-Prevailing Party unless the arbitrators award the Buyer more than one-half
(1/2) of the amount in dispute, plus any amounts not in dispute; otherwise, the
Company Stockholders for whom shares of Buyer Common Stock otherwise issuable to
them have been deposited in the Escrow Fund shall be deemed to be the
Non-Prevailing Party. The Non-Prevailing Party to an arbitration shall pay its
own expenses, the fees of each arbitrator, the administrative fee of the
American Arbitration Association, and the expenses, including without limitation
attorneys' fees and costs, reasonably incurred by the other party to the
arbitration.
7.8 Stockholders' Agent.
(a) R. Xxxxxxx XxXxxxxxx shall be constituted and appointed as
agents ("Stockholders' Agents") for and on behalf of Company Stockholders to
give and receive notices and communications, to authorize delivery to the Buyer
of Buyer Common Stock or other property from the Escrow Fund in satisfaction of
claims by the Buyer, to object to such deliveries, to agree to, negotiate, enter
into settlements and compromises of, and demand arbitration and comply with
orders of courts and awards of arbitrators with respect to such claims, and to
take all actions necessary or appropriate in the judgment of the Stockholders'
Agent for the accomplishment of the foregoing. Such agency may be changed by the
holders of a majority in interest of the Escrow Fund from time to time upon not
less than 10 days' prior written notice to the Buyer, Stockholders' Agent and
the Escrow Agent. No bond shall be required of the Stockholders' Agent, and the
Stockholders' Agent shall receive no compensation for their services. Notices or
communications to or from the Stockholders' Agent shall constitute notice to or
from each Company Stockholder.
(b) The Stockholders' Agent shall not be liable for any act
done or omitted hereunder as Stockholders' Agent while acting in good faith and
in the exercise of reasonable judgment and any act done or omitted pursuant to
the advice of counsel shall be conclusive evidence of such good faith. The
Company Stockholders shall severally indemnify the Stockholders' Agent and hold
him harmless against any loss, liability or expense incurred without gross
negligence or bad faith on the part of the Stockholders' Agent and arising out
of or in connection with the acceptance or administration of his duties
hereunder.
(c) The Stockholders' Agent shall have reasonable access to
information about the Company and the reasonable assistance of the Company's
officers and employees for purposes of performing his duties and exercising his
rights hereunder, provided that the Stockholders' Agent shall treat
49
confidentially and not disclose any nonpublic information from or about the
Company to anyone (except on a need to know basis to individuals who agree to
treat such information confidentially). The Stockholders' Agent will not be
entitled to receive any compensation from Buyer or the Company Stockholders in
connection with this Agreement. Any fees and expenses incurred by Stockholders'
Agent in connection with actions taken pursuant to the terms of the Escrow
Agreement will be paid by the Company Stockholders to the Stockholders' Agent,
provided, however, that the Stockholders' Agent shall be entitled to submit a
claim for reimbursement of actual reasonable expenses incurred or paid to
counsel or other third parties in investigating, negotiating, arbitrating or
settling any claim hereunder in an amount not to exceed $50,000, and Escrow
Shares in such amount shall be paid by the Escrow Agent within 45 days of
receipt, and provided, further, to the extent any Escrow Shares remain available
for distribution on the final release date, such fees and expenses shall be paid
out from such Escrow Fund prior to the distribution to the Company Stockholders,
but only upon the written direction of Buyer and the Stockholders' Agent to be
given to the Escrow Agent at least three (3) business days prior to the final
release date.
(d) The Buyer acknowledges that Xxxxxxx XxXxxxxxx and may have
a conflict of interest with respect to his duties as Stockholders' Agent, and in
such regard will act in the best interests of the Company Stockholders.
7.9 Actions of the Stockholders' Agent.
A decision, act, consent, consent or instruction of the Stockholders'
Agent shall constitute a decision of all Company Stockholders for whom shares of
Buyer Common Stock otherwise issuable to them are deposited in the Escrow Fund
and shall be final, binding and conclusive upon each such Company Stockholder,
and the Escrow Agent and the Buyer may rely upon any decision, act, consent or
instruction of the Stockholders' Agent as being the decision, act, consent or
instruction of each and every such Company Stockholder. The Escrow Agent and the
Buyer are hereby relived from any liability to any person for any acts done by
them in accordance with such decision, act, consent or instruction of the
Stockholders' Agent.
7.10 Third-Party Claims.
In the event the Buyer becomes aware of a third-party claim which the
Buyer believes may result in a demand against the Escrow Fund, the Buyer shall
promptly notify the Stockholders' Agent of such claim, and the Stockholders'
Agent and the Company Stockholders for whom shares of Buyer Common Stock
otherwise issuable to them are deposited in the Escrow Fund shall be entitled,
at their expense, to participate in any defense of such claim. The Buyer shall
have the right to settle any such claim; provided, however, that the Buyer may
not effect the settlement of any such claim without the prior written consent of
the Stockholders' Agent, which consent shall not be unreasonably withheld.
Following notice of any claim, the Buyer shall notify the Stockholders' Agent of
any discussions, negotiations or other material developments affecting such
claim and, to the extent commercially reasonable, permit the Stockholders'
Agents to participate in any such discussions or negotiations.
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ARTICLE VIII
DEFINITIONS
(a) In this Agreement, any reference to any event, change, condition or
effect being "material" with respect to any entity or group of entities means
any material event, change, condition or effect related to the financial
condition, properties, assets (including intangible assets), liabilities,
business, operations or results of operations of such entity or group of
entities. In this Agreement, any reference to a "Material Adverse Effect" with
respect to any entity or group of entities means any event, change or effect
that is materially adverse to the financial condition, properties, assets,
liabilities, business, operations or results of operations of such entity;
provided, however, that the following will not be considered a Material Adverse
Effect: any adverse effect that primarily results from the execution and
delivery of this Agreement or from changes in the financial markets in general.
In this Agreement, any reference to a Party's knowledge means such Party's
actual knowledge after reasonable inquiry of officers, directors and other
employees of such Party reasonably believed to have knowledge of such matters.
(b) For purposes of this Agreement, each of the following defined terms
is defined in the Section of this Agreement indicated below:
Defined Term Section
Affiliate...................................................2.14
Affiliate Agreements........................................4.11
Agreement...............................................Preamble
Buyer ..................................................Preamble
Buyer Common Stock...........................................1.5
Buyer Option Plans...........................................3.2
Buyer Reports................................................3.5
By-Laws......................................................2.1
CERCLA......................................................2.20
Certificate of Merger........................................1.1
Certificates.................................................1.7
Charter......................................................2.1
Closing......................................................1.2
Closing Date.................................................1.2
Code........................................................1.10
Company.................................................Preamble
Company Affiliate...........................................4.11
Company Common Stock.........................................1.5
Company Shares...............................................1.5
Company Special Meeting......................................4.3
Company Stockholder..........................................1.5
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Common Stock Equivalents.....................................1.5
Company Stock Option Plan....................................1.5
Counted Assumed Option Shares................................1.5
DGCL.........................................................1.1
Damages......................................................7.1
Disclosure Letter.....................................Article II
Dissenting Shares............................................1.6
Effective Time...............................................1.1
Employee Benefit Plan.......................................2.19
Environmental Law...........................................2.20
ERISA.......................................................2.19
ERISA Affiliate.............................................2.19
Escrow Agent.................................................7.2
Escrow Agreement............................................4.16
Escrow Fund..................................................7.2
Escrow Period................................................7.4
Escrow Share Market Value....................................1.5
Escrow Shares................................................1.5
Exchange Act................................................2.14
Exchange Agent...............................................1.3
Financial Statements.........................................2.6
GAAP.........................................................2.6
Governmental Entity..........................................2.4
Indemnified Person...........................................7.1
Intellectual Property.......................................2.12
Loan Documents...............................................2.4
Material Adverse Effect..............................Article VII
Materials of Environmental Concern..........................2.20
Merger.......................................................1.1
Merger Shares................................................1.5
Merger Sub..............................................Preamble
Merger Sub Common Stock......................................1.5
Millennial Dates............................................2.12
Most Recent Balance Sheet....................................2.8
Most Recent Fiscal Year End..................................2.6
Officer's Certificate........................................7.5
Options.....................................................1.10
Ordinary Course of Business..................................2.4
Party...................................................Preamble
Permit......................................................2.22
Requisite Stockholder Approval...............................2.3
Securities Act..............................................1.10
Security Interest............................................2.4
Series A Convertible Preferred Stock.........................1.5
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Series B Convertible Preferred Stock.........................1.5
Series C Convertible Preferred Stock.........................1.5
Series C Exchange Ratio......................................1.5
Standard Exchange Ratio......................................1.5
Stockholder Agreement.......................................4.12
Stockholder Consent..........................................4.3
Stockholder's Agent..........................................7.8
Surviving Corporation........................................1.1
Taxes........................................................2.9
Tax Returns..................................................2.9
Third Party Intellectual Property Rights....................2.12
Transaction Costs............................................2.8
Warrant.....................................................1.10
ARTICLE IX
MISCELLANEOUS
9.1 Press Releases and Announcements.
No Party shall issue any press release or make any public disclosure
relating to the subject matter of this Agreement without the prior written
approval of the other Parties; provided, however, that any Party may make any
public disclosure it believes in good faith is required by law or regulation (in
which case the disclosing Party shall advise the other Parties and provide them
with a copy of the proposed disclosure prior to making the disclosure).
9.2 No Third Party Beneficiaries.
This Agreement shall not confer any rights or remedies upon any person
other than the Parties and their respective successors and permitted assigns;
provided, however, that the provisions in Article I concerning issuance of the
Merger Shares are intended for the benefit of the Company Stockholders.
9.3 Entire Agreement.
This Agreement, the Disclosure Letter, Exhibits, the documents and
instruments and other agreements among the parties referred to herein and the
nondisclosure agreements signed by each of the Parties prior to the date hereof
constitute the entire agreement among the Parties and supersedes any prior
understandings, agreements or representations by or among the Parties, written
or oral, with respect to the subject matter hereof.
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9.4 Succession and Assignment.
This Agreement shall be binding upon and inure to the benefit of the
Parties named herein and their respective successors and permitted assigns. No
Party may assign either this Agreement or any of its rights, interests, or
obligations hereunder without the prior written approval of the other Parties.
9.5 Counterparts.
This Agreement may be executed in two or more counterparts, each of
which shall be deemed an original but all of which together shall constitute one
and the same instrument.
9.6 Headings.
The section headings contained in this Agreement are inserted for
convenience only and shall not affect in any way the meaning or interpretation
of this Agreement.
9.7 Notices.
All notices, requests, demands, claims, and other communications
hereunder shall be in writing. Any notice, request, demand, claim, or other
communication hereunder shall be deemed duly delivered two business days after
it is sent by registered or certified mail, return receipt requested, postage
prepaid, or one business day after it is sent via a reputable nationwide
overnight courier service or sent via facsimile (with acknowledgment of complete
transmission) with a confirmation copy by registered or certified mail, in each
case to the intended recipient as set forth below:
If to the Company:
Net2Net Corporation
000 Xxxxxxxx Xxxxxx
Xxxxxx, XX 00000
Attn: Its President
Copies to:
Xxxxx, Xxxxxxx & Xxxxxxxxx, LLP
High Street Tower, 000 Xxxx Xxxxxx
Xxxxxx, XX 00000
Attn: Xxxxxxxx X. Xxxxxxx, Esq.
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If to the Buyer:
Visual Networks, Inc.
0000 Xxxxxxx Xxxx
Xxxxxxxxx, XX 00000
Attn: Its President
Copy to:
Piper & Marbury L.L.P.
0000 Xxxxxxxxxx Xxxxxx, X.X.
Xxxxxxxxxx, XX 00000
Attn: Xxxxx X. Xxxxxxxx, Esq.
If to the Merger Sub:
Visual Acquisitions, Inc.
0000 Xxxxxxx Xxxx
Xxxxxxxxx, XX 00000
Attn: Its President
Copy to:
Piper & Marbury L.L.P.
0000 Xxxxxxxxxx Xxxxxx, X.X.
Xxxxxxxxxx, XX 00000
Attn: Xxxxx X. Xxxxxxxx, Esq.
If to the Stockholders' Agent:
R. Xxxxxxx XxXxxxxxx
c/o Commonwealth Capital Ventures L.P.
00 Xxxxxxx Xxxxxx
Xxxxxxxxx, XX 00000
Copies to:
Xxxxx, Xxxxxxx & Xxxxxxxxx, LLP
High Street Tower, 000 Xxxx Xxxxxx
Xxxxxx, XX 00000
Attn: Xxxxxxxx X. Xxxxxxx, Esq.
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Any Party may give any notice, request, demand, claim, or other communication
hereunder using any other means (including personal delivery, expedited courier,
messenger service, telecopy, telex, ordinary mail, or electronic mail), but no
such notice, request, demand, claim, or other communication shall be deemed to
have been duly given unless and until it actually is received by the party for
whom it is intended. Any Party may change the address to which notices,
requests, demands, claims, and other communications hereunder are to be
delivered by giving the other Parties notice in the manner herein set forth.
9.8 Governing Law.
This Agreement shall be governed by and construed in accordance with
the internal laws (and not the law of conflicts) of the State of Delaware.
9.9 Amendments and Waivers.
The Parties may mutually amend any provision of this Agreement at any
time prior to the Effective Time; provided, however, that any amendment effected
subsequent to the Requisite Stockholder Approval shall be subject to the
restrictions contained in the DGCL. No amendment of any provision of this
Agreement shall be valid unless the same shall be in writing and signed by all
of the Parties. No waiver by any Party of any default, misrepresentation or
breach of warranty or covenant hereunder, whether intentional or not, shall be
deemed to extend to any prior or subsequent default, misrepresentation or breach
of warranty or covenant hereunder or affect in any way any rights arising by
virtue of any prior or subsequent default, misrepresentation, breach of such
warranty or covenant.
9.10 Severability.
Any term or provision of this Agreement that is invalid or
unenforceable in any situation in any jurisdiction shall not affect the validity
or enforceability of the remaining terms and provisions hereof or the validity
or enforceability of the offending term or provision in any other situation or
in any other jurisdiction. If the final judgment of a court of competent
jurisdiction declares that any term or provision hereof is invalid or
unenforceable, the Parties agree that the court making the determination of
invalidity or unenforceability shall have the power to reduce the scope,
duration, or area of the term or provision, to delete specific words or phrases,
or to replace any invalid or unenforceable term or provision with a term or
provision that is valid and enforceable and that comes closest to expressing the
intention of the invalid or unenforceable term or provision, and this Agreement
shall be enforceable as so modified after the expiration of the time within
which the judgment may be appealed, provided that this Agreement shall not then
substantially deprive either Party of the bargained-for performance of the other
Party.
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9.11 Expenses.
All fees and expenses (including all accounting, legal and investment
banking fees and expenses and all other expenses) incurred by Buyer and Merger
Sub in connection with this Agreement and the transactions contemplated hereby
shall be paid by the Buyer and Merger Sub, as the case may be, whether or not
the Merger is consummated. All fees and expenses (including all accounting,
legal and investment banking fees and expenses and all other expenses) incurred
by the Company in connection with this Agreement and the transactions
contemplated hereby shall be paid by the Surviving Corporation or, if the Merger
does not occur, by the Company.
9.12 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. Notwithstanding the provisions of this Agreement,
the parties expressly agree that reasonable attorneys' fees and expenses may be
recoverable in connection with any action to enforce contractual rights under
the Amended and Restated Registration Rights Agreement attached hereto as
Exhibit J.
9.13 Specific Performance.
The Parties acknowledge and agree that damages would be an inadequate
remedy for any breach of the provisions of this Agreement and agree that the
obligations of the Parties hereunder shall be specifically enforced in
accordance with the terms of this Agreement. The prevailing party in any such
action shall be entitled to recover from the other party its attorneys' fees,
costs and expenses incurred in connection with regard to such action.
9.14 Construction.
The Parties agree that they have been represented by counsel during the
negotiation, preparation 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. Any reference to any
federal, state, local, or foreign statute or law shall be deemed also to refer
to all rules and regulations promulgated thereunder, unless the context requires
otherwise.
9.15 Incorporation of Exhibits and Schedules.
The Exhibits and Disclosure Letter identified in this Agreement are
incorporated herein by reference and made a part hereof.
[Signatures begin on following page]
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IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as
of the date first above written.
VISUAL NETWORKS, INC.
Attest:
By: /s/ Xxxxx X. Xxxxxxxx
By: /s/ Xxxxx X. Xxxxxxxx Name: Xxxxx X. Xxxxxxxx
Name: Xxxxx X. Xxxxxxxx Title: President
Title: Secretary
VISUAL ACQUISITIONS, INC.
Attest:
By: /s/ Xxxxx X. Xxxxxxxx
By: /s/ Xxxxx X. Xxxxxxxx Name: Xxxxx X. Xxxxxxxx
Name: Xxxxx X. Xxxxxxxx Title: President
Title: Secretary
NET2NET CORPORATION
Attest:
By: /s/ Xxxxxxx X. XxXxxxxxx
By: /s/ Xxxx Xxxxxx Name: Xxxxxxx X. XxXxxxxxx
Name: Xxxx Xxxxxx Title: President and CEO
Title: Secretary
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