EXHIBIT 2.1
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
EXECUTIVE TELECARD, LTD.,
EXTEL MERGER SUB NO. 1, INC.,
IDX INTERNATIONAL, INC.
AND
STOCKHOLDERS OF IDX INTERNATIONAL, INC.
DATED AS OF JUNE ____, 1998
TABLE OF CONTENTS
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AGREEMENT AND PLAN OF MERGER..............................................1
ARTICLE I. THE MERGER ...................................................1
SECTION 1.1. The Merger...................................................1
SECTION 1.2. Effective Time...............................................1
SECTION 1.3. Effect of the Merger.........................................2
SECTION 1.4. Articles of Incorporation; Bylaws............................2
SECTION 1.5. Directors and Officers.......................................2
SECTION 1.6. Closing .....................................................2
SECTION 1.7. Subsequent Actions...........................................3
SECTION 1.8. Tax Treatment of the Merger..................................3
ARTICLE II CONVERSION OF SECURITIES; EXCHANGE OF
CERTIFICATES..............................................3
SECTION 2.1. Conversion of Securities.....................................3
SECTION 2.2. Exchange of Certificates.....................................5
SECTION 2.3. Stock Transfer Books.........................................5
SECTION 2.4. Satisfaction of Indebtedness.................................5
ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE
COMPANY AND THE STOCKHOLDERS..............................6
SECTION 3.1. Organization and Qualification; Subsidiaries.................6
SECTION 3.2. Articles of Incorporation and Bylaws.........................6
SECTION 3.3. Capitalization...............................................7
SECTION 3.4. Authority ...................................................7
SECTION 3.5. No Conflict; Required Filings and Consents...................8
SECTION 3.6. Financial Statements.........................................8
SECTION 3.7. Accounts Receivable..........................................9
SECTION 3.8. Absence of Certain Changes or Events.........................9
SECTION 3.9. Ownership and Condition of the Assets........................9
SECTION 3.10. Leases ....................................................10
SECTION 3.11. Other Agreements...........................................11
SECTION 3.12. Real Property..............................................11
SECTION 3.13. Environmental Matters......................................12
SECTION 3.14. Litigation ................................................13
SECTION 3.15. Compliance with Laws; Licenses and Permits.................13
SECTION 3.16. Intellectual Property......................................13
SECTION 3.17 Taxes .....................................................15
SECTION 3.18. Employment Matters.........................................17
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SECTION 3.19. Transactions with Related Parties.........................18
SECTION 3.20. Insurance ................................................19
SECTION 3.21. Net Working Capital.......................................19
SECTION 3.22. Brokers ..................................................19
SECTION 3.23. Disclosure ...............................................19
SECTION 3.24. Additional Representations................................19
ARTICLE IV ADDITIONAL REPRESENTATIONS AND
WARRANTIES OF THE STOCKHOLDERS..........................19
SECTION 4.1. Title to Company Stock.....................................20
SECTION 4.2. Authority and Capacity.....................................20
SECTION 4.3. Absence of Violation.......................................20
SECTION 4.4. Restrictions and Consents..................................21
SECTION 4.5. Binding Obligation.........................................21
SECTION 4.6. No Registration Under the Securities Act...................21
SECTION 4.7. Acquisition for Investment.................................21
SECTION 4.8. Evaluation of Merits and Risks of Investment...............22
ARTICLE V REPRESENTATIONS AND WARRANTIES OF
ACQUIROR................................................22
SECTION 5.1. Organization and Qualification.............................22
SECTION 5.2. Certificate of Incorporation and Bylaws....................22
SECTION 5.3. Capitalization.............................................23
SECTION 5.4. Authority .................................................23
SECTION 5.5. No Conflict; Required Filings and Consents.................23
SECTION 5.6. Financial Statements.......................................24
SECTION 5.7. Absence of Certain Changes or Events.......................24
SECTION 5.8. Agreements ................................................24
SECTION 5.9. Litigation ................................................25
SECTION 5.10. Taxes and Assessments.....................................25
SECTION 5.11. Brokers ..................................................25
SECTION 5.12. Disclosure ...............................................25
ARTICLE VI. REPRESENTATIONS AND WARRANTIES OF
MERGER SUB......................................... ....26
SECTION 6.1. Organization and Qualification.............................26
SECTION 6.2. Certificate of Incorporation and Bylaws....................26
SECTION 6.3. Authority..................................................26
SECTION 6.4. No Conflict; Required Filings and Consents.................27
SECTION 6.5. Disclosure.................................................27
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ARTICLE VII COVENANTS...................................................27
SECTION 7.1. Affirmative Covenants of the Company........................27
SECTION 7.2. Negative Covenants of the Company...........................28
ARTICLE VIII. ADDITIONAL AGREEMENTS.....................................30
SECTION 8.1. Consents and Approvals; Filings and Notices.................30
SECTION 8.2. Access and Information......................................31
SECTION 8.3. Confidentiality.............................................31
SECTION 8.4. Further Action; Reasonable Best Efforts.....................32
SECTION 8.5. Public Announcements........................................32
SECTION 8.6. No Solicitation.............................................32
SECTION 8.7. Stock Merger Listing........................................32
SECTION 8.8. Blue Sky ...................................................33
SECTION 8.9. Preparation of any Required Proxy Statement;
Stockholder Meeting.......................................33
SECTION 8.10. Registration of Stock......................................33
SECTION 8.11. Directors of Acquiror and the Surviving Corporation.......34
SECTION 8.12. Cancellation of Options; Acquiror Options.................34
SECTION 8.13. Appointment of Representative; Authority..................35
SECTION 8.14. Employee Matters..........................................36
SECTION 8.15. Second Bridge Loan........................................36
SECTION 8.16. Share Transfer............................................36
ARTICLE IX. CLOSING CONDITIONS..........................................37
SECTION 9.1. Additional Conditions to Obligations of Acquiror
and Merger Sub...........................................37
SECTION 9.2. Additional Conditions to Obligations of the
Company and the Stockholders............................39
ARTICLE X TERMINATION, AMENDMENT AND WAIVER.............................41
SECTION 10.1. Termination ...............................................41
SECTION 10.2. Effect of Termination......................................42
SECTION 10.3. Amendment .................................................42
SECTION 10.4. Waiver ....................................................42
ARTICLE XI SURVIVAL OF REPRESENTATIONS; INDEMNIFICATION; REMEDIES.......43
SECTION 11.1. Survival of Representations................................43
SECTION 11.2. Agreement of Stockholders to Indemnify.....................43
SECTION 11.3. Agreement of Acquiror to Indemnify.........................44
SECTION 11.4. Conditions of Indemnification..............................44
SECTION 11.5. No Recourse Against the Company............................46
SECTION 11.6. Remedies Cumulative........................................46
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ARTICLE XII GENERAL PROVISIONS..........................................47
SECTION 12.1. Notices ...................................................47
SECTION 12.2. Certain Definitions........................................47
SECTION 12.3. Headings ..................................................49
SECTION 12.4. Severability...............................................49
SECTION 12.5. Entire Agreement...........................................49
SECTION 12.6. Specific Performance.......................................49
SECTION 12.7. Assignment ................................................50
SECTION 12.8. Third Party Beneficiaries..................................50
SECTION 12.9. Governing Law..............................................50
SECTION 12.10. Counterparts..............................................50
SECTION 12.11. Fees and Expenses.........................................50
Exhibit A Form of Certificate of Designations for the Acquiror Convertible
Preferred Stock
Exhibit B Form of Warrant
Exhibit C Employment Agreement
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SCHEDULES
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The following is a list of schedules that have been omitted, the Company
undertakes to furnish supplementally a copy of any omitted schedule to the
Commission upon request.
Schedule 2.1 Conversion of Securities
Schedule 3.1 Subsidiaries.
Schedule 3.3(a). Capitalization.
Schedule 3.3(b) Indebtedness
Schedule 3.3(c) Outstanding Shares
Schedule 3.5. No Conflict; Required Filings and Consents.
Schedule 3.9(a) Ownership and Condition of the Assets.
Schedule 3.9(b) Company Technology
Schedule 3.10. Leases.
Schedule 3.11. Other Agreements.
Schedule 3.12. Real Property.
Schedule 3.13. Environmental Matters.
Schedule 3.16. Intellectual Property.
Schedule 3.17(a) Company Taxes
Schedule 3.17(b) Company Liability
Schedule 3.17(c) Company Tax Litigation
Schedule 3.17(e) Company Federal Tax
Schedule 3.18 Company Employment Matters.
Schedule 3.19. Transactions with Related Parties.
Schedule 3.21 Net Working Capital
Schedule 3.22. Brokers.
Schedule 3.24. Additional Representations.
Schedule 5.3. Capitalization.
Schedule 5.5. No Conflict; Required Filings and Consents.
Schedule 5.7. Absence of Certain Changes or Events.
Schedule 5.8. Agreements.
Schedule 5.9. Litigation.
Schedule 5.10. Acquiror Taxes and Assessments.
Schedule 5.12. Brokers.
Schedule 6.4. No Conflict; Required Filings and Consents.
Schedule 7.2 Negative Covenants of the Company
Schedule 8.12(b) Cancellation of Options; Acquiror Options.
Schedule 11.2 Certain Individuals
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Index of Defined Terms
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Section
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Acquiror.......................................................... PREAMBLE
Acquiror Balance Sheet Date....................................... 5.6
Acquiror Common Stock............................................. 2.1(a)
Acquiror Convertible Preferred Stock.............................. 2.1(a)
Acquiror Indemnified Persons...................................... 11.2
Acquiror Material Adverse Effect.................................. 12.2(c)
Acquiror Material Contracts....................................... 5.8
Acquiror Rights Plan.............................................. 2.1(f)
Acquiror Warrants................................................. 2.1(a)
affiliate......................................................... 12.2(a)
Agreement......................................................... PREAMBLE
Articles of Merger................................................ 1.2
Assets............................................................ 12.2(b)
Balance Sheet Date................................................ 3.6
Business Plan..................................................... 3.9(b)
Closing........................................................... 1.6
Closing Date...................................................... 1.6
Closing Indebtedness.............................................. 2.4
Code.............................................................. 1.8
Company........................................................... PREAMBLE
Company Common Stock.............................................. 2.1(a)
Company Confidential Information.................................. 3.16(g)
Company Material Adverse Effect................................... 12.2(d)
Company Preferred Stock........................................... 2.1(a)
Company Stock..................................................... 2.1(a)
Company Technology................................................ 3.9(b)
control, controlled by, under common control with................. 12.2(e)
Effective Time.................................................... 1.2
Encumbrances...................................................... 12.2(f)
Environmental Laws................................................ 3.13(d)(i)
FCC Application................................................... 8.1(b)
Government Entity................................................. 12.2(g)
Hazardous Materials............................................... 3.13(d)(ii)
Indemnified Party................................................. 11.4(a)
Indemnifying Party................................................ 11.4(a)
Intellectual Property............................................. 3.16(a)
Laws.............................................................. 12.2(h)
Losses............................................................ 12.2(i)
Merger............................................................ 1.1
Merger Sub........................................................ PREAMBLE
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person............................................................. 12.2(j)
Proxy Statement.................................................... 8.1
Purchase Price..................................................... 2.1(a)
Real Property...................................................... 3.12
Resale Registration Statement...................................... 8.10
Securities Act ................................................. 8.1
Stockholders....................................................... PREAMBLE
subsidiary......................................................... 12.2(k)
Surviving Corporation.............................................. 1.1
Taxes.............................................................. 3.17
Third Party Claim.................................................. 12.2(l)
Third Party Intellectual Property Rights........................... 3.16(b)
Virginia Law....................................................... PREAMBLE
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AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (this "Agreement") is
entered into this ___ day of June, 1998, by and among EXECUTIVE TELECARD, LTD.,
a Delaware corporation ("Acquiror"), EXTEL MERGER SUB NO. 1, INC., a Virginia
corporation and a wholly-owned subsidiary of Acquiror ("Merger Sub"), IDX
INTERNATIONAL, INC., a Virginia corporation (the "Company"), and the
stockholders of the Company executing this Agreement on the signature pages
below (the "Stockholders").
WHEREAS, the parties hereto wish to provide that, upon the
terms and subject to the conditions of this Agreement and in accordance with the
Virginia Stock Corporation Act ("Virginia Law"), the Company will merge with and
into Merger Sub.
NOW, THEREFORE, in consideration of the foregoing and the
respective representations, warranties, covenants and agreements set forth in
this Agreement, the parties hereto agree as follows:
ARTICLE I.
THE MERGER
SECTION 1.1. THE MERGER.
Upon the terms and subject to the conditions set forth in this
Agreement, and in accordance with Virginia Law, at the Effective Time (as
defined in Section 1.2) the Company shall be merged with and into Merger Sub
(the "Merger"). As a result of the Merger, the separate corporate existence of
the Company shall cease and Merger Sub shall continue as the surviving
corporation of the Merger (sometimes referred to herein as the "Surviving
Corporation") and a wholly-owned subsidiary of Acquiror. The name of the
Surviving Corporation shall be IDX International, Inc.
SECTION 1.2. EFFECTIVE TIME.
At the Closing (as defined in Section 1.6), the parties hereto
shall cause the Merger to be consummated by filing articles of merger (the
"Articles of Merger"), with the Virginia State Corporation Commission in such
form as required by, and executed in accordance with the relevant provisions of,
Virginia Law, and in such form as approved by the Company and Acquiror prior to
such filing (the date and time of the filing of the Articles of Merger or such
subsequent date or time specified therein being the "Effective Time").
SECTION 1.3. EFFECT OF THE MERGER.
At the Effective Time, the effect of the Merger shall be as
provided in the applicable provisions of Virginia Law. Without limiting the
generality of the foregoing, and subject thereto, at the Effective Time, except
as otherwise provided herein, all the property, rights, privileges, powers and
franchises of Merger Sub and the Company shall vest in the Surviving
Corporation, and all debts, liabilities and duties of Merger Sub and the Company
shall become the debts, liabilities and duties of the Surviving Corporation.
SECTION 1.4. ARTICLES OF INCORPORATION; BYLAWS.
At the Effective Time, (a) the articles of incorporation of
Merger Sub, as in effect immediately prior to the Effective Time and as amended
by the Articles of Merger, shall be the articles of incorporation of the
Surviving Corporation, and (b) the bylaws of Merger Sub, as in effect
immediately prior to the Effective Time, shall be the bylaws of the Surviving
Corporation.
SECTION 1.5. DIRECTORS AND OFFICERS.
The directors of Merger Sub (or such other or additional
individuals as Acquiror may designate prior to Closing), including as one of the
directors ▇▇. ▇▇▇▇ ▇▇▇ or ▇▇. ▇▇▇▇▇▇▇ ▇▇▇▇▇▇, shall be the initial directors of
the Surviving Corporation, each to hold office in accordance with the articles
of incorporation and bylaws of the Surviving Corporation; and the officers of
Merger Sub (or such other or additional individuals as Acquiror may designate
prior to Closing) shall be the initial officers of the Surviving Corporation, in
each case until their respective successors are duly elected or appointed and
qualified.
SECTION 1.6. CLOSING.
Subject to the terms and conditions of this Agreement, the
closing of the Merger (the "Closing") will take place as promptly as practicable
after satisfaction of the latest to occur or, if permissible, waiver of the
conditions set forth in Article IX hereof (the "Closing Date"), at the offices
of ▇▇▇▇▇ & ▇▇▇▇▇▇▇ L.L.P., ▇▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇.▇., ▇▇▇▇▇▇▇▇▇▇, ▇.▇. ▇▇▇▇▇,
unless another date or place is agreed to in writing by the parties hereto.
SECTION 1.7. SUBSEQUENT ACTIONS.
If, at any time after the Effective Time, the Surviving
Corporation shall consider or be advised that any deeds, bills of sale,
assignments, assurances or any other actions or things are necessary or
desirable to continue in, vest, perfect or
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confirm of record or otherwise in the Surviving Corporation its right, title or
interest in, to or under any of the rights, properties, privileges, franchises
or assets of either of its constituent corporations acquired or to be acquired
by the Surviving Corporation as a result of, or in connection with, the Merger
or otherwise to carry out this Agreement, the officers and directors of the
Surviving Corporation shall be directed and authorized to execute and deliver,
in the name and on behalf of either of such constituent corporations, all such
deeds, bills of sale, assignments and assurances and to take and do, in the name
and on behalf of each of such corporations or otherwise, all such other actions
and things as may be necessary or desirable to vest, perfect or confirm any and
all right, title and interest in, to and under such rights, properties,
privileges, franchises or assets in the Surviving Corporation or otherwise to
carry out this Agreement.
SECTION 1.8. TAX TREATMENT OF THE MERGER.
For federal income tax purposes, the parties shall use
reasonable efforts to qualify the Merger as a tax-free reorganization under the
provisions of Section 368(a) of the Internal Revenue Code of 1986, as amended
(the "Code").
ARTICLE II
CONVERSION OF SECURITIES; EXCHANGE OF CERTIFICATES
SECTION 2.1. CONVERSION OF SECURITIES.
At the Effective Time, by virtue of the Merger and without any
action on the part of the parties hereto or the holders of the following
securities:
(a) Company Stock. All of the shares of common stock, no par
value ("Company Common Stock"), and all of the shares of preferred stock, no par
value, of the Company ("Company Preferred Stock", and together with Company
Common Stock, "Company Stock"), issued and outstanding immediately prior to the
Effective Time (excluding any shares described in Section 2.1(c)), shall be
converted into and exchanged for, in the aggregate, the right to receive (i)
500,000 shares of Series B Convertible Preferred Stock, par value $.0001 per
share, of Acquiror ("Acquiror Convertible Preferred Stock"), and Warrants
("Acquiror Warrants") to purchase 2,500,000 shares of Common Stock, par value
$.001 per share, of Acquiror ("Acquiror Common Stock"), with the terms and
conditions referred to in Section 2.1(b), plus (ii) the amount of FIVE MILLION
DOLLARS ($5,000,000) in cash, decreased by the amount of the Closing
Indebtedness (as defined in Section 2.4) and any other amounts to be deducted
from the cash portion of the Purchase Price as provided herein, including
Section 12.11 hereof (the net amount determined pursuant to this clause,
including both stock and cash portions, being referred to as the ("Purchase
Price")). The Purchase Price shall be allocated among the
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Stockholders in the proportions set forth opposite the names of such
Stockholders in the column on Schedule 2.1 entitled "Purchase Price Payable at
Closing" (the "Stockholder Percentages"), with the cash portion being paid by
check or wire transfer of immediately available funds to an account specified by
the Representative (as defined below) in written instructions to Acquiror at
least three (3) business days prior to the Closing Date. All such shares of
Company Stock shall cease to be outstanding and shall automatically be canceled
and retired and shall cease to exist, and each certificate previously evidencing
any such shares shall thereafter represent only the right to receive the shares
of Acquiror Convertible Preferred Stock, Acquiror Warrants and cash pursuant to
this Section 2.1(a) and the cash payable in lieu of fractional shares pursuant
to Section 2.1(e). The holders of certificates previously evidencing such shares
of Company Stock outstanding immediately prior to the Effective Time shall cease
to have any rights with respect to such shares of Company Stock, except as
otherwise provided herein or by law. Each such certificate shall be exchanged
for certificates evidencing the appropriate number of shares of Acquiror
Convertible Preferred Stock, Acquiror Warrants to purchase the appropriate
number of shares of Acquiror Common Stock and the appropriate cash amount as set
forth on Schedule 2.1 upon the surrender of such certificate as provided in
Section 2.2.
(b) Terms of Acquiror Convertible Preferred Stock and Acquiror
Warrants. The terms of the Acquiror Convertible Preferred Stock shall be as set
forth in the proposed Certificates of Designations for the Acquiror Convertible
Preferred Stock, a copy of which is attached as Exhibit A hereto, which terms
include various adjustments through adjustments to the conversion price of the
Acquiror Convertible Preferred Stock. The Acquiror Warrants shall be as set
forth in Exhibit B hereto, which terms include various adjustments through
adjustments to the exercise price of the Acquiror Warrants.
(c) Treasury Stock. All shares of capital stock of the Company
held in the treasury of the Company immediately prior to the Effective Time
shall be canceled and extinguished without any conversion thereof and no
Acquiror Convertible Preferred Stock, Acquiror Warrants, cash or other
consideration shall be delivered or deliverable in exchange therefor.
(d) Merger Sub Stock. Each share of common stock, par value
$.01 per share, of Merger Sub issued and outstanding immediately prior to the
Effective Time shall be converted into and exchanged for one (1) duly and
validly issued, fully paid and nonassessable share of common stock of the
Surviving Corporation.
(e) Rights. Pursuant to the Acquiror's Rights Agreement dated
as of February 18, 1997, and amended as of October 1, 1997, between Acquiror and
American Stock Transfer & Trust Company, as Rights Agent (the "Acquiror Rights
Plan"), the issuance of each share of Acquiror Common Stock upon conversion of
one
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or more shares of Acquiror Convertible Preferred Stock or upon exercise of
Acquiror Warrants shall be accompanied by the associated right under the
Acquiror Rights Plan.
SECTION 2.2. EXCHANGE OF CERTIFICATES.
At the Closing, the Stockholders shall deliver to Acquiror
certificates evidencing all of the outstanding shares of Company Stock as of the
Effective Time duly endorsed in blank or with duly executed stock powers
attached. In exchange therefor, Acquiror shall deliver to the Stockholders (by
delivery to the Representative) at Closing certificates evidencing the shares of
Acquiror Convertible Preferred Stock issuable pursuant to Section 2.1(a), the
Acquiror Warrants evidencing the right to purchase shares of Acquiror Common
Stock and cash in the amounts payable pursuant to Section 2.1(a) and payable in
lieu of fractional shares pursuant to Section 2.1(e).
SECTION 2.3. STOCK TRANSFER BOOKS.
At the Effective Time, the stock transfer books of the Company
with respect to all shares of capital stock of the Company shall be closed and
no further registration of transfers of such shares of capital stock shall
thereafter be made on the records of the Company.
SECTION 2.4. SATISFACTION OF INDEBTEDNESS.
Immediately prior to the Effective Time, Acquiror shall cause
to be paid (i) all principal and accrued interest outstanding under any debt to
stockholders ("Stockholder Debt") and (ii) all principal and accrued interest
outstanding under the Loan Agreement dated as of May ___,1998 between Acquiror
and the Company and the Promissory Note of the Company in favor of Acquiror of
the same date ("Bridge Loan Debt"). The sum of (x) the Stockholder Debt and (y)
the difference (but not less than zero) between (A) the Bridge Loan Debt and (B)
(I) the net proceeds of the sale of 2,800 shares of IDX Belgium, N.V. common
capital stock to parties unaffiliated with the Company (which proceeds shall
include cash proceeds received and accounts or notes receivable generated from
such sale(s) of all or any portion of such shares), plus (II) the net
collectible accounts receivable of the Company (on a consolidated basis) as of
the Closing Date, net of accounts payable of the Company (on a consolidated
basis) as of the Closing Date (all as determined in accordance with generally
accepted accounting principles consistenly applied), less (III) all accrued but
unpaid dividends as of the Closing Date, is referred to herein collectively as
the "Closing Indebtedness". Any principal and interest outstanding under the
Second Bridge Loan (as defined in Section 8.15) shall not constitute Closing
Indebtedness for purposes of this Agreement. Payment of Closing
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Indebtedness owed to any creditor other than Acquiror shall be made in
accordance with a written payoff letter from the holder of the Closing
Indebtedness in a form reasonably acceptable to Acquiror.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE
STOCKHOLDERS
The Company and the Stockholders hereby jointly and severally
represent and warrant to Acquiror and Merger Sub as follows:
SECTION 3.1. ORGANIZATION AND QUALIFICATION; SUBSIDIARIES.
The Company is a corporation duly organized, validly existing
and in good standing under the laws of the Commonwealth of Virginia. The Company
has the requisite power and authority to own, operate, lease and otherwise to
hold and operate its assets and properties and to carry on its business as now
being conducted and as proposed to be conducted and to perform the terms of this
Agreement and the transactions contemplated hereby. The Company is duly
qualified to conduct its business, and is in good standing, in each jurisdiction
in which the character of its properties owned, operated or leased or the nature
of its activities makes such qualification necessary.
The Company has no subsidiaries or any equity or similar
interest in any entity other than those listed in Schedule 3.1 ("Subsidiaries"),
which schedule also lists the direct and indirect equity interests of the
Company in such Subsidiaries and how each such interest is held. Each Subsidiary
is a corporation duly organized, validly existing and in good standing under the
laws of the jurisdiction of its organization. Each Subsidiary has the requisite
power and authority to own, operate, lease and otherwise to hold and operate its
assets and properties and to carry on its business as now being conducted and as
proposed to be conducted. Each Subsidiary is duly qualified to conduct its
business, and is in good standing, in each jurisdiction in which the character
of its properties owned, operated or leased or the nature of its activities
makes such qualification necessary.
SECTION 3.2. ARTICLES OF INCORPORATION AND BYLAWS.
The Company has heretofore delivered to Acquiror a complete
and correct copy of the articles of incorporation and the bylaws of the Company
and each Subsidiary, each as amended to date. Such articles of incorporation and
bylaws are in full force and effect. Neither the Company nor any Subsidiary is
in violation of any of the provisions of its articles of incorporation or bylaws
or other organizational or governing document.
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SECTION 3.3. CAPITALIZATION.
(a) The authorized capital stock of the Company consists of
43,423 shares of Company Common Stock, of which 21,750 shares are issued and
outstanding (and of which 12,912 shares are reserved for issuance upon
conversion of Company Preferred Stock), and 12,912 shares of Company Preferred
Stock, of which 9,091 shares of Series A Preferred Stock and 3,821 shares of
Series B Preferred Stock are issued and outstanding. All of the issued and
outstanding shares of Company Stock are owned beneficially and of record by the
Stockholders, free and clear of all Encumbrances. There are no options, warrants
or other rights, agreements, arrangements or commitments of any character
relating to the issued or unissued capital stock of the Company or obligating
the Company to issue or sell any shares of capital stock of, or other equity
interests in the Company, including any securities directly or indirectly
convertible into or exercisable or exchangeable for any capital stock or other
equity securities of the Company, other than the Company Stock Options referred
to in Section 8.12, a full and complete list of which is attached as Schedule
3.3(a), all of which will be fully released prior to the Effective Time in the
manner set forth in Section 8.12. There are no outstanding obligations of the
Company to repurchase, redeem or otherwise acquire any shares of its capital
stock or make any investment (in the form of a loan, capital contribution or
otherwise) in any other person. All of the issued and outstanding shares of
Company Stock have been duly authorized and validly issued in accordance with
applicable laws and are fully paid and nonassessable and not subject to
preemptive rights. No shares of capital stock of the Company have been reserved
for any purpose.
(b) Except as set forth in Schedule 3.3(b), the Company has no
outstanding indebtedness for borrowed money and all such indebtedness is
prepayable in full, without premium or penalty, in accordance with its terms.
(c) Except as set forth in Schedule 3.3(c), with respect to
each Subsidiary, all of the outstanding shares of capital stock or other equity
of such Subsidiary have been duly authorized and validly issued and are fully
paid and nonassessable and not subject to preemptive rights. With respect to
each Subsidiary that is a partnership, all of the partnership interests owned by
the Company, and with respect to each Subsidiary that is a corporation, all of
the outstanding shares of capital stock owned by the Company, are owned by the
Company free and clear of all Encumbrances.
SECTION 3.4. AUTHORITY.
The execution and delivery of this Agreement by the Company
and the consummation by the Company of the transactions contemplated hereby have
been duly and validly authorized by all necessary corporate action and no other
corporate
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proceedings on the part of the Company are necessary to authorize this Agreement
or to consummate the transactions contemplated hereby. This Agreement has been
duly executed and delivered by the Company and, assuming the due authorization,
execution and delivery by Acquiror and Merger Sub, constitutes a legal, valid
and binding obligation of the Company, enforceable in accordance with its terms,
except as such enforceability may be limited by bankruptcy, insolvency,
reorganization, moratorium and other similar laws of general applicability
relating to or affecting creditors' rights generally and by the application of
general principles of equity.
SECTION 3.5. NO CONFLICT; REQUIRED FILINGS AND CONSENTS.
(a) Except as set forth in Schedule 3.5, the execution and
delivery of this Agreement by the Company do not, and the performance by the
Company of its obligations under this Agreement will not, (i) conflict with or
violate the articles of incorporation or bylaws of the Company or any
Subsidiary, (ii) conflict with or violate any Law applicable to the Company or
the Assets or any Subsidiary, or (iii) result in any breach of or constitute a
default (or an event which with notice or lapse of time or both would become a
default) under any note, bond, mortgage, indenture, contract, agreement, lease,
license, permit, franchise or other instrument or obligation to which the
Company or any Subsidiary is a party or by which the Company or any Subsidiary
is bound or by which any of the Assets is subject.
(b) Except as set forth in Schedule 3.5, the execution and
delivery of this Agreement by the Company does not, and the performance of this
Agreement by the Company will not, require any consent, approval, authorization
or permit of, or filing with or notification to, any Government Entity, except
for the filing and recordation of appropriate merger documents as required by
Virginia Law.
SECTION 3.6. FINANCIAL STATEMENTS.
The Company has prepared and furnished to Acquiror (a) the
audited consolidated balance sheet of the Company and the Subsidiaries as of the
end of the fiscal year ending December 31, 1997, and the audited consolidated
statement of income and cash flows for such fiscal year and (b) the unaudited
consolidated balance sheet of the Company and the Subsidiaries as of April 30,
1998, and the unaudited consolidated statement of income and cash flows for the
three months then ended. The financial statements referred to in this Section
3.6 and the financial statements of the Company and the Subsidiaries provided to
Acquiror pursuant to this Agreement (the "Financial Statements") present fairly,
in all material respects, the financial condition of the Company and the
Subsidiaries as of the respective dates and the results of operations and cash
flows for the respective periods indicated and have been prepared in accordance
with generally accepted accounting principles applied on a consistent basis
throughout the periods involved (except that such unaudited statements do not
contain all required footnotes and
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are subject to normal recurring year-end adjustments). Except as reflected in
the unaudited consolidated balance sheet of the Company and the Subsidiaries as
of April 30, 1998 (the "Balance Sheet Date"), the Company and the Subsidiaries
have no liabilities, contingent or absolute, matured or unmatured, known or
unknown, except for liabilities incurred in the ordinary course of business
since the Balance Sheet Date that would not have a Company Material Adverse
Effect.
SECTION 3.7. ACCOUNTS RECEIVABLE.
The accounts receivable of the Company and the Subsidiaries
shown on the balance sheets described in Section 3.6 and the consolidated
balance sheets of the Company provided to Acquiror pursuant to this Agreement,
or thereafter acquired by the Company and the Subsidiaries, including those used
for purposes of the calculation in Section 2.4 have been collected or are
collectible in amounts not less than the amounts thereof carried on the books of
the Company, except to the extent of the allowance for doubtful accounts shown
on such balance sheets.
SECTION 3.8. ABSENCE OF CERTAIN CHANGES OR EVENTS.
Since the Balance Sheet Date, there has been no Company
Material Adverse Effect. Since the Balance Sheet Date, both the Company and the
Subsidiaries have conducted its business in the ordinary course, and the Company
and the Subsidiaries have not (a) paid any dividend or distribution in respect
of, or redeemed or repurchased any of, its capital stock; (b) incurred loss of,
or significant injury to, any of the Assets, whether as the result of any
natural disaster, labor trouble, accident, other casualty, or otherwise; (c)
incurred, or become subject to, any obligation or liability (absolute or
contingent, matured or unmatured, known or unknown), except current liabilities
incurred in the ordinary course of business; (d) mortgaged, pledged or subjected
to any Encumbrance any of the Assets; (e) sold, exchanged, transferred or
otherwise disposed of any of the Assets except in the ordinary course of
business, or canceled any debts or claims; (f) written down the value of any
Assets or written off as uncollectible any Accounts Receivable, except write
downs and write offs in the ordinary course of business, none of which,
individually or in the aggregate, are material; (g) entered into any
transactions other than in the ordinary course of business; (h) made any change
in any method of accounting or accounting practice; or (i) made any agreement to
do any of the foregoing.
SECTION 3.9. OWNERSHIP AND CONDITION OF THE ASSETS.
(a) The Company (together with the Subsidiaries) is the sole
and exclusive legal and equitable owner of and has good and marketable title to
the Assets and, except as set forth in Schedule 3.9(a), such Assets are free and
clear of
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all Encumbrances. No person or Government Entity has an option to purchase,
right of first refusal or other similar right with respect to all or any part of
the Assets. All of the personal property of the Company and the Subsidiaries is
in good working order and repair, ordinary wear and tear excepted, and is
suitable and adequate for the uses for which it is intended or is being used.
All inventory of the Company and the Subsidiaries consists of items which are
good and merchantable and of a quality and quantity presently usable and salable
in the ordinary course of business.
(b) Schedule 3.9(b) lists all hardware, computer software,
know-how (and the manner in which such know-how is memorialized) and other
technology (collectively, the "Company Technology") which the Company or a
Subsidiary owns or licenses and the nature of the Company's or the Subsidiary's
rights in each item of Company Technology. Except as expressly described on
Schedule 3.9(b), the Company Technology is presently capable of enabling the
Company and the Subsidiaries to conduct the business operations reflected in the
Company's revenue and EBITDA projections dated April 16, 1998, a copy of which
has been provided to Acquiror (the "Business Plan"), without modification or
further design or development of the Company Technology or acquisition of any
additional products, services or technology. Schedule 3.9(b) also describes the
technology design and development that is currently ongoing or planned for 1998.
Except as described on such schedule, the Company Technology operates in
accordance with the product literature and Business Plan provided to Acquiror,
and the Company is not aware of any significant limitations or operational
deficiencies to which the Company Technology is subject.
SECTION 3.10. LEASES.
Schedule 3.10 lists and briefly describes all leases and other
agreements under which the Company or any Subsidiary is lessee or lessor of any
Asset, or holds, manages or operates any Asset owned by any third party, or
under which any Asset owned by the Company or any Subsidiary is held, operated
or managed by a third party. The Company or a Subsidiary is the owner and holder
of all leasehold estates purported to be granted to the Company or such
Subsidiary by the leases described in Schedule 3.10 and the Company or a
Subsidiary is the owner of all equipment, machinery and other Assets thereon or
in buildings and structures thereon, in each case free and clear of all
Encumbrances. Each such lease and other agreement is in full force and effect
and constitutes a legal, valid and binding obligation of, and is legally
enforceable against, the respective parties thereto and grants the leasehold
estate it purports to grant free and clear of all Encumbrances. All necessary
governmental approvals with respect thereto have been obtained, all necessary
filings or registrations therefor have been made, and there have been no
threatened cancellations thereof and are no outstanding disputes thereunder. The
Company and the Subsidiaries have performed in all material respects all
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obligations thereunder required to be performed by the Company or any Subsidiary
to date. No party is in default in any material respect under any of the
foregoing, and there has not occurred any event which (whether with or without
notice, lapse of time or the happening or occurrence of any other event) would
constitute such a default.
SECTION 3.11. OTHER AGREEMENTS.
Schedule 3.11 lists all agreements to which the Company or any
Subsidiary is a party or by which the Company or any Subsidiary is bound, and
the Company has delivered to Acquiror true and correct copies of all such
agreements. Each such agreement is in full force and effect and constitutes a
legal, valid and binding obligation of, and is legally enforceable against, the
respective parties thereto. All necessary governmental approvals with respect
thereto have been obtained, all necessary filings or registrations therefor have
been made, and there have been no threatened cancellations thereof and are no
outstanding disputes thereunder. The Company and the Subsidiaries have in all
material respects performed all the obligations thereunder required to be
performed by the Company or such Subsidiaries to date. No party is in default in
any material respect under any of the agreements described in Schedule 3.11, and
there has not occurred any event which (whether with or without notice, lapse of
time or the happening or occurrence of any other event) would constitute such a
default.
SECTION 3.12. REAL PROPERTY.
Schedule 3.12 contains a list and brief description of all
leasehold interests in real estate, easements, rights to access, rights-of-way
and other real property interests which are owned, leased, used or held for use
by the Company or any Subsidiary (collectively, the "Real Property"). The Real
Property described in Schedule 3.12 constitutes all real property interests
necessary to conduct the business and operations of the Company and the
Subsidiaries as now conducted. The Company is not aware of any easement or other
real property interest, other than those described in Schedule 3.12, that is
required, or that has been asserted by a Government Entity or other person to be
required, to conduct the business and operations of the Company. The Company has
delivered to Acquiror true and complete copies of all deeds, leases, easements,
rights-of-way and other instruments pertaining to the Real Property (including
any and all amendments and other modifications of such instruments). All Real
Property (including the improvements thereon) (i) is in good condition and
repair consistent with its present use, (ii) is available to the Company and the
Subsidiaries for immediate use in the conduct of the Company's and the
Subsidiaries' business and operations, and (iii) complies in all material
respects with all applicable building or zoning codes and the regulations of any
Government Entity having jurisdiction.
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SECTION 3.13. ENVIRONMENTAL MATTERS.
(a) The Company and the Subsidiaries have complied in all
material respects and is in material compliance with all Environmental Laws (as
defined below). There are no pending or, to the knowledge of the Company or the
Stockholders, threatened actions, suits, claims, legal proceedings or other
proceedings based on, and neither the Company nor any Subsidiary has directly or
indirectly received any notice of any complaint, order, directive, citation,
notice of responsibility, notice of potential responsibility, or information
request from any Government Entity or any other person arising out of or
attributable to: (i) the current or past presence at any part of the Real
Property of Hazardous Materials (as defined below) or any substances that pose a
hazard to human health or an impediment to working conditions; (ii) the current
or past release or threatened release into the environment from the Real
Property (including, without limitation, into any storm drain, sewer, septic
system or publicly owned treatment works) of any Hazardous Materials or any
substances that pose a hazard to human health or an impediment to working
conditions; (iii) the off-site disposal of Hazardous Materials originating on or
from the Real Property; (iv) any facility operations or procedures of the
Company or any Subsidiary which do not conform to requirements of the
Environmental Laws; or (v) any violation of Environmental Laws at any part of
the Real Property or otherwise arising from the Company's or any Subsidiary's
activities involving Hazardous Materials.
(b) The Company and the Subsidiaries have been duly issued,
and currently has and will maintain through the Effective Time, all permits,
licenses, certificates and approvals required to be maintained by the Company or
any Subsidiary under any Environmental Law with respect to the use or ownership
of the Real Property by the Company or such Subsidiaries. A true and complete
list of such permits, licenses, certificates and approvals, all of which are
valid and in full force and effect, is set out in Schedule 3.13. Except in
accordance with such permits, licenses, certificates and approvals, there has
been no discharge of any Hazardous Materials or any other material regulated by
such permits, licenses, certificates or approvals.
(c) To the knowledge of the Company and the Stockholders, none
of the Real Property contains any underground storage tanks, or underground
piping associated with such tanks, used currently or in the past for Hazardous
Materials.
(d) As used herein, these terms shall have the following
meanings:
(i) "Environmental Laws" means all applicable foreign,
federal, state and local laws (including the common law), rules, requirements
and regulations relating to pollution, the environment (including, without
limitation, ambient air, surface water, groundwater, land surface or subsurface
strata) or
-12-
protection of human health as it relates to the environment including, without
limitation, laws and regulations relating to releases of Hazardous Materials, or
otherwise relating to the manufacture, processing, distribution, use, treatment,
storage, disposal, transport or handling of Hazardous Materials or relating to
management of asbestos in buildings.
(ii) "Hazardous Materials" means wastes, substances, or
materials (whether solids, liquids or gases) that are deemed hazardous, toxic,
pollutants, or contaminants, including without limitation, substances defined as
"hazardous substances", "toxic substances", "radioactive materials", or other
similar designations in, or otherwise subject to regulation under, any
Environmental Laws.
SECTION 3.14. LITIGATION.
There is no action, suit, investigation, claim, arbitration or
litigation pending or, to the knowledge of the Company and the Stockholders,
threatened against or involving the Company, the Assets or any Subsidiary or the
business and operations of the Company or any Subsidiary, at law or in equity,
or before or by any court, arbitrator or Government Entity. Neither the Company
nor any Subsidiary is operating under or subject to any judgment, writ, order,
injunction, award or decree of any court, judge, justice or magistrate,
including any bankruptcy court or judge, or any order of or by any Government
Entity.
SECTION 3.15. COMPLIANCE WITH LAWS; LICENSES AND PERMITS.
The Company and the Subsidiaries have complied and are in
compliance with all laws, ordinances, regulations, awards, orders, judgments,
decrees and injunctions applicable to the Company, the Assets and the
Subsidiaries and the Company's and the Subsidiaries' business and operations,
including all federal, state and local laws, ordinances, regulations and orders
pertaining to employment or labor, safety, health, environmental protection,
zoning and other matters. The Company and the Subsidiaries have obtained and
hold all permits, licenses and approvals (none of which has been modified or
rescinded and all of which are in full force and effect) from all governmental
authorities necessary to conduct the business and operations of the Company and
the Subsidiaries as now conducted and as proposed to be conducted and to own,
use and maintain the Assets.
SECTION 3.16. INTELLECTUAL PROPERTY.
(a) The Company and each Subsidiary owns, or is licensed or
otherwise possesses all necessary rights to use all patents, trademarks, trade
names, service marks, copyrights and any applications therefor, maskworks, net
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lists, schematics, technology, know-how, trade secrets, inventory, ideas,
algorithms, processes, computer software programs and applications (in both
source code and object code form), and tangible or intangible proprietary
information or material ("Intellectual Property") that are used or marketed in
its business as presently conducted and as proposed to be conducted or included
or proposed to be included in its products or proposed products.
(b) Schedule 3.16 lists all (i) patents, registered and
unregistered trademarks, trade names and service marks, registered and
unregistered copyrights, and maskworks, included in the Intellectual Property,
including the jurisdictions in which each such Intellectual Property right has
been issued or registered or in which any application for such issuance and
registration has been filed, (ii) licenses, sublicenses and other agreements as
to which the Company or any Subsidiary is a party and pursuant to which any
person is authorized to use any Intellectual Property, and (iii) licenses,
sublicenses and other agreements as to which the Company or any Subsidiary is a
party and pursuant to which the Company or any Subsidiary is authorized to use
any third party patents, trademarks or copyrights, including software ("Third
Party Intellectual Property Rights") which are incorporated in, are or form a
part of any product of the Company or any Subsidiary.
(c) To the knowledge of the Company, there is no unauthorized
use, disclosure, infringement or misappropriation of any Intellectual Property
rights of the Company or any Subsidiary, any trade secret material to the
Company or any Subsidiary, or any Intellectual Property right of any third party
to the extent licensed by or through the Company or any Subsidiary, by any third
party, including any employee or former employee of the Company or any
Subsidiary. Except as set forth in Schedule 3.16, neither the Company nor any
Subsidiary has entered into any agreement to indemnify any other person against
any charge of infringement of any Intellectual Property. Except as set forth in
Schedule 3.16, there are no royalties, fees or other payments payable by the
Company or any Subsidiary to any person by reason of the ownership, use, sale or
disposition of Intellectual Property.
(d) Neither the Company nor any Subsidiary is, nor will it be
as a result of the execution and delivery of this Agreement or the performance
of it obligations under this Agreement, in breach of any license, sublicense or
other agreement relating to the Intellectual Property or Third Party
Intellectual Property Rights.
(e) Neither the Company nor any Subsidiary (i) has been served
with process, or is aware that any person is intending to serve process on the
Company or any Subsidiary, in any suit, action or proceeding which involves a
claim of infringement of any patents, trademarks, service marks, copyrights or
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violation of any trade secret or other proprietary right of any third party and
(ii) has not brought any action, suit or proceeding for infringement of
Intellectual Property or breach of any license or agreement involving
Intellectual Property against any third party. The business of the Company and
the Subsidiaries as presently conducted and as proposed to be conducted, and the
Company's and the Subsidiaries' products or proposed products do not infringe
any patent, trademark, service ▇▇▇▇, copyright, trade secret or other propriety
right of any third party.
(f) All officers, employees and consultants of the Company and
the Subsidiaries have executed and delivered to the Company an agreement
regarding the protection of proprietary information and the assignment to the
Company of any Intellectual Property arising from services performed for the
Company or any Subsidiary by such persons, copies of which have been provided to
Acquiror.
(g) The Company and each Subsidiary has, to the extent it
deemed necessary and appropriate, obtained or entered into written agreements
with third parties in connection with the disclosure to, or use or appropriation
by, third parties, of trade secret or proprietary Intellectual Property owned by
the Company or any Subsidiary and not otherwise protected by a patent, a patent
application, copyright, trademark, or other registration or legal scheme
("Company Confidential Information"), and does not know of any situation
involving such third party use, disclosure or appropriation of Company
Confidential Information where the lack of such a written agreement is likely to
result in any Company Material Adverse Effect.
SECTION 3.17 TAXES.
(a) Except as set forth in Schedule 3.17(a), the Company has
(or, in the case of returns becoming due after the date hereof and on or before
the Closing Date, will have prior to the Closing Date) duly filed all the
Company Tax Returns required to be filed by the Company on or before the Closing
Date with respect to all applicable Taxes, and no penalties or other charges are
or will become due with respect to any of the Company Tax Returns as the result
of the late filing thereof. All of the Company Tax Returns are (or, in the case
of returns becoming due after the date hereof and on or before the Closing Date,
will be) true and complete in all material respects. Except as set forth in
Schedule 3.17(a), the Company: (i) has paid all Taxes due or claimed to be due
by any Taxing authority in connection with any of the Company Tax Returns; or
(ii) has established (or, in the case of amounts becoming due after the date
hereof, prior to the Closing Date will have paid or established) in the
Financial Statements adequate reserves (in conformity with generally accepted
accounting principles consistently applied) for the payment of such Taxes. The
amounts set up as reserves for Taxes on the Financial Statements are sufficient
for the payment of all unpaid Taxes, whether or not such Taxes are disputed or
are yet due and payable, for or with respect to the period, and for which
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the Company may be liable in its own right or as a transferee of the Assets of,
or successor to, any corporation, person, association, partnership, joint
venture or other entity.
(b) Except as set forth in Schedule 3.17(b), the Company does
not have, nor will the Company have on the Closing Date, either in its own right
(including Taxes resulting from the Company having been (or ceasing to be)
included in any affiliated, consolidated, combined or unitary Tax Return) or as
a transferee, any liability for Taxes payable for or with respect to any periods
prior to and including the Closing Date in excess of the amounts actually paid
prior to the Closing Date or reserved for in the Financial Statements.
(c) There is no action, suit, proceeding, audit, investigation
or claim pending or, to the knowledge of the Company or any Stockholder,
threatened in respect of any Taxes for which the Company is or may become
liable, nor has any deficiency or claim for any such Taxes been proposed,
asserted or, to the knowledge of the Company or any Stockholder, threatened.
Except as set forth in Schedule 3.17(c), the Company has not consented to any
waivers or extensions of any statute of limitations with respect to any taxable
year of the Company. Except as set forth in Schedule 3.17(c), there is no
Agreement, waiver or consent providing for an extension of time with respect to
the assessment or collection of any Taxes against the Company, and no power of
attorney granted by the Company with respect to any tax matters is currently in
force.
(d) The Company has furnished to Buyer true and complete
copies of all the Company Tax Returns for the past five (5) years and all
written communications relating to any such Company Tax Returns or to any
deficiency or claim proposed and/or asserted, irrespective of the outcome of
such matter, but only to the extent such items relate to tax years (i) which are
subject to an audit, investigation, examination or other proceeding, or (ii)
with respect to which the statute of limitations has not expired.
(e) Schedule 3.17(e) sets forth (i) all federal tax elections
that currently are in effect with respect to the Company and (ii) all elections
for purposes of foreign, state or local Taxes and all consents or Agreements for
purposes of federal, foreign, state or local Taxes in each case that reasonably
could be expected to have a material effect on the Company or any of its Assets
or operations after the Closing. Schedule 3.17(e) sets forth all changes in
accounting methods for Tax purposes at any time made, agreed to, requested or
required with respect to the Company within the past five (5) years.
(f) The Company (i) is not and within the past five (5) years
has not been a partner in a partnership or an owner of an interest in an entity
treated as a partnership for federal income tax purposes; (ii) has not executed
or filed with the
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Internal Revenue Service any consent to have the provisions of Section 341(f) of
the Code apply to it; (iii) is not subject to Section 999 of the Code; (iv) is
not a passive foreign investment company as defined in Section 1296(a) of the
Code; (v) is not and has not been a United States Real Property Holding
Corporation within the meaning of Section 897(c)(2) of the Code; and (vi) is not
a party to an Agreement relating to the sharing, allocation or payment of, or
indemnity for, Taxes.
(g) The Company has withheld and paid all Taxes required to
have been withheld and paid in connection with amounts paid to any employee,
independent contractor, creditor, stockholder or other third party.
(h) As used herein, the term "Taxes" shall mean all federal,
state, local and foreign taxes (including, without limitation, income, profit,
franchise, sales, use, VAT, real property, personal property, ad valorem,
excise, employment, social security and wage withholding taxes) and installments
of estimated taxes, assessments, deficiencies, levies, imports, duties, license
fees, registration, fees, withholdings or other similar charges of every kind,
character or description imposed by any governmental authorities, and any
interest, penalties or additions to tax imposed thereon or in connection
therewith.
(i) As used herein, the term "Company Tax Returns" means all
federal, state, local, foreign and other applicable tax returns, declarations of
estimated tax reports required to be filed by Company or any of the Subsidiaries
(without regard to extensions of time permitted by law or otherwise).
SECTION 3.18. EMPLOYMENT MATTERS.
(a) Neither the Company nor any Employee Benefit Plan (as such
term is defined in ERISA) maintained by the Company or any Subsidiary or to
which the Company or any Subsidiary has or has had the obligation to contribute
in respect of any employees if the Company or any Subsidiary is in violation of
any provisions of Law; no reportable event, within the meaning of ERISA, ss.
4043(c)(1), (2), (3), (5), (6), (7) or (10), has occurred and is continuing with
respect to any such Employee Benefit Plan and no prohibited transaction, within
the meaning of Title I of ERISA, has occurred with respect to any such Employee
Benefit Plan. No Employee Benefit Plan maintained by the Company or any
Subsidiary is a Multiemployer Plan (as such term is defined in ERISA), is
subject to Title IV of ERISA or provides post-retirement medical, life insurance
or other benefits except to the extent required to comply with the health care
continuation coverage requirements of ERISA and the Code.
(b) There are no collective bargaining agreements applicable
to any employees of the Company or any Subsidiary and neither the Company nor
any Subsidiary has any duty to bargain with any labor organization with respect
to any
-17-
such persons. There is not pending any demand for recognition or any other
request or demand from a labor organization for representative status with
respect to any persons employed by the Company. There are no strikes, work
stoppages, grievance proceedings, union organization efforts or other material
controversies pending, or, to the Company's and the Stockholder's knowledge,
threatened between the Company or any Subsidiary and (i) any current or former
employees of the Company or any Subsidiary or (ii) any union or other collective
bargaining unit representing such employees.
(c) Schedule 3.18 contains a true and complete list of names,
positions and rates of compensation of all directors, officers and employees of
the Company and each Subsidiary, showing each such person's name, position, and
annual remuneration, bonuses (except bonuses which have not been determined for
the current fiscal year) and fringe benefits for the current fiscal year and the
most recently completed fiscal year. With respect to any persons employed by the
Company or any Subsidiary, the Company and each Subsidiary is in compliance with
all Laws respecting employment conditions and practices, has withheld all
amounts required by any applicable Laws to be withheld from wages or any Taxes
or penalties for failure to comply with any of the foregoing.
(d) With respect to any persons employed by the Company or any
Subsidiary, (i) neither the Company or any Subsidiary has engaged in any unfair
labor practice within the meaning of the National Labor Relations Act or has
violated any legal requirement prohibiting discrimination on the basis of race,
color, national origin, sex, religion, age, marital status, or handicap in its
employment conditions or practices; and (ii) there are no pending or, to the
knowledge of the Company and the Stockholders, threatened unfair labor practice
charges or discrimination complaints relating to race, color, national origin,
sex, religion, age, marital status, or handicap against the Company or any
Subsidiary before any Government Entity nor, to the knowledge of the Company and
the Stockholders, does any basis therefor exist.
SECTION 3.19. TRANSACTIONS WITH RELATED PARTIES.
Except as set forth in Schedule 3.19, neither any present or
former officer, director, stockholder or person known by the Company or the
Stockholders to be an affiliate of the Company, nor any person known by the
Company or the Stockholders to be an affiliate of any such person, is currently
a party to any transaction or agreement with the Company, including, without
limitation, any agreement providing for the employment of, furnishing of
services by, rental of Assets from or to, or otherwise requiring payments to,
any such officer, director, stockholder or affiliate.
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SECTION 3.20. INSURANCE.
The Company has made available to Acquiror copies of all
policies of title, property, fire, casualty, liability, life, workmen's
compensation, libel and slander, and other forms of insurance of any kind
relating to the Assets or the business and operations of the Company or any
Subsidiary. All such policies: (a) are in full force and effect; (b) are
sufficient for compliance by the Company and each Subsidiary with all
requirements of applicable Law and of all licenses, franchises and other
agreements to which the Company or any Subsidiary is a party; (c) are valid,
outstanding, and enforceable policies; and (d) insure against risks of the kind
customarily insured against and in amounts customarily carried by corporations
similarly situated and provide adequate insurance coverage for the Assets and
the business and operations of the Company and the Subsidiaries.
SECTION 3.21. NET WORKING CAPITAL.
The net working capital of the Company as of the Closing Date
shall not be less than the amount set forth on Schedule 3.21.
SECTION 3.22. BROKERS.
Except as set forth on Schedule 3.23, no broker, finder or
investment banker is entitled to any brokerage, finder's or other fee or
commission in connection with the transactions contemplated by this Agreement
based upon arrangements made by or on behalf of the Company or any Subsidiary or
the Stockholders.
SECTION 3.23. DISCLOSURE.
No representations or warranties by the Company or the
Stockholders in this Agreement and no statement or information contained in the
Schedules hereto or any certificate furnished or to be furnished by the Company
or the Stockholders to Acquiror pursuant to the provisions of this Agreement
(taken collectively), 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 made, in order to make the
statements herein or therein not misleading.
SECTION 3.24. ADDITIONAL REPRESENTATIONS.
The representations and warranties set forth on Schedule 3.24
are true, complete and correct.
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ARTICLE IV
ADDITIONAL REPRESENTATIONS AND WARRANTIES OF THE
STOCKHOLDERS
In addition to the representations and warranties made by the
Stockholders in Article III hereof, each of the Stockholders hereby represents
and warrants to Acquiror and Merger Sub as follows:
SECTION 4.1. TITLE TO COMPANY STOCK.
Such Stockholder is and as of the Effective Time will be the
sole legal, beneficial and record owner of the number of shares of Company Stock
set forth opposite the name of such Stockholder in Schedule I. Since the date of
issuance or sale of such shares of Company Stock to such Stockholder, there has
been no event, or action taken (or failure to take action) by or against such
Stockholder, which has resulted or might result in the creation of any
Encumbrance on such shares. Such Stockholder has and as of the Effective Time
such Stockholder will have good, valid and marketable title to the number of
shares of Company Stock so set forth in Schedule I, free and clear of all
Encumbrances, except such restrictions on the transfer of such shares as may be
applicable under federal and state securities laws, with full right and lawful
authority to sell and transfer the shares to Acquiror pursuant to this
Agreement. Immediately following the Effective Time Acquiror will acquire good,
valid and marketable title thereto, free and clear of all Encumbrances, except
such restrictions on the transfer of such shares as may be applicable under
federal and state securities laws.
SECTION 4.2. AUTHORITY AND CAPACITY.
Such Stockholder has full legal right, capacity, power and
authority to execute and deliver this Agreement and all other documents,
instruments, certificates and agreements executed or to be executed by such
Stockholder pursuant hereto, and to consummate the transactions contemplated
hereby and thereby.
SECTION 4.3. ABSENCE OF VIOLATION.
The execution, delivery and performance by such Stockholder of
this Agreement and all other documents, instruments, certificates and agreements
contemplated hereby to which such Stockholder is a party, the fulfillment of and
the compliance with the respective terms and provisions hereof and thereof, and
the consummation of the transactions contemplated hereby and thereby, do not and
will not (a) conflict with, or violate any provision of, any Laws having
applicability to
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such Stockholder; or (b) conflict with, or result in any breach of, or
constitute a default under, any agreement to which such Stockholder is a party.
SECTION 4.4. RESTRICTIONS AND CONSENTS.
There are no agreements, Laws or other restrictions of any
kind to which such Stockholder is party or subject that would prevent or
restrict the execution, delivery or performance of this Agreement by such
Stockholder.
SECTION 4.5. BINDING OBLIGATION.
This Agreement constitutes, and each document, instrument,
certificate and agreement to be executed by such Stockholder pursuant hereto,
when executed and delivered in accordance with the provisions hereof, shall
constitute, a valid and binding obligation of such Stockholder, enforceable in
accordance with its terms, except as such enforceability may be limited by
bankruptcy, insolvency, reorganization, moratorium and other similar laws of
general applicability relating to or affecting creditors' rights generally and
by the application of general principles of equity.
SECTION 4.6. NO REGISTRATION UNDER THE SECURITIES ACT.
Such Stockholder understands that the shares of Acquiror
Convertible Preferred Stock and Acquiror Warrants to be issued to such
Stockholder under this Agreement have not been and will not be registered under
the Securities Act of 1933, as amended (the "Securities Act"), in reliance upon
exemptions contained in the Securities Act or interpretations thereof, and
neither such shares of Acquiror Convertible Preferred Stock or Acquiror
Warrants, nor the Acquiror Common Stock issuable upon conversion or exercise
thereof, can be offered for sale, sold or otherwise transferred unless such
shares (the Warrants by their terms are not transferable) are so registered or
qualify for exemption from registration under the Securities Act.
SECTION 4.7. ACQUISITION FOR INVESTMENT.
The shares of Acquiror Convertible Preferred Stock and
Acquiror Warrants to be issued to such Stockholder under this Agreement, and the
Acquiror Common Stock issuable upon conversion or exercise thereof, are being
(or will be) acquired by such Stockholder in good faith solely for its own
account, for investment and not with a view toward resale or other distribution
within the meaning of the Securities Act. Such shares will not be offered for
sale, sold or otherwise transferred by such Stockholder without either
registration or exemption from
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registration under the Securities Act (the Warrants by their terms are not
transferable).
SECTION 4.8. EVALUATION OF MERITS AND RISKS OF INVESTMENT.
Such Stockholder has such knowledge and experience in
financial and business matters that such Stockholder is capable of evaluating
the merits and risks of the Stockholder's investment in the shares of Acquiror
Convertible Preferred Stock and Acquiror Warrants to be acquired hereunder and
the Acquiror Common Stock issuable upon conversion or exercise thereof. Such
Stockholder understands and is able to bear any economic risks associated with
such investment (including, without limitation, the necessity of holding such
shares for an indefinite period of time, inasmuch as the shares have not been
registered under the Securities Act). Each of the Stockholders is an "accredited
investor", as that term is defined in Regulation D promulgated under the
Securities Act. Such Stockholder confirms that Acquiror has made available to
such Stockholder and its representatives and agents the opportunity to ask
questions of the officers and management employees of Acquiror about the
business and financial condition of Acquiror as such Stockholder or its
representatives have requested.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF ACQUIROR
Acquiror represents and warrants to the Company and the
Stockholders as follows:
SECTION 5.1. ORGANIZATION AND QUALIFICATION.
Acquiror is a corporation duly organized, validly existing and
in good standing under the laws of the State of Delaware. Acquiror has the
requisite power and authority to own, lease and operate its assets and
properties, to carry on its business as now being conducted and to perform the
terms of this Agreement and the transactions contemplated hereby. Acquiror is
duly qualified to conduct its business, and is in good standing, in each
jurisdiction where the ownership or leasing of its properties or the nature of
its activities in connection with the conduct of its business makes such
qualification necessary.
SECTION 5.2. CERTIFICATE OF INCORPORATION AND BYLAWS.
Acquiror has heretofore delivered to the Company a complete
and correct copy of the certificate of incorporation and the bylaws of Acquiror,
each as amended to date. Such certificate of incorporation and bylaws are in
full force and
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effect. Acquiror is not in violation of any of the provisions of its certificate
of incorporation or bylaws or other organizational or governing document.
SECTION 5.3. CAPITALIZATION.
The authorized capital stock of Acquiror consists of: (i) one
hundred million (100,000,000) shares of Acquiror Common Stock of which seventeen
million three hundred forty-six thousand seven hundred sixty-six (17,346,766)
shares are issued and outstanding; and (ii) five million (5,000,000) shares of
preferred stock, par value $.01 per share, of which no shares are issued and
outstanding. Except as set forth in Schedule 5.3, there are no options, warrants
or other rights, agreements, arrangements or commitments of any character
relating to the issued or unissued capital stock of Acquiror or obligating
Acquiror to issue or sell any shares of capital stock of, or other equity
interests in Acquiror, including any securities directly or indirectly
convertible into or exercisable or exchangeable for any capital stock or other
equity securities of Acquiror. Except as set forth in Schedule 5.3, there are no
outstanding obligations of Acquiror to repurchase, redeem or otherwise acquire
any shares of its capital stock or make any investment (in the form of a loan,
capital contribution or otherwise) in any other person.
SECTION 5.4. AUTHORITY.
Except for the Acquiror Stockholder Approval (as defined
below), the execution and delivery of this Agreement by Acquiror and the
consummation by Acquiror of the transactions contemplated hereby have been duly
and validly authorized by all necessary corporate action and no other corporate
proceedings on the part of Acquiror are necessary to authorize this Agreement or
to consummate the transactions contemplated hereby. This Agreement has been duly
executed and delivered by Acquiror and, assuming the due authorization,
execution and delivery by the Company and the Stockholders, constitutes a legal,
valid and binding obligation of Acquiror, enforceable in accordance with its
terms, except as such enforceability may be limited by bankruptcy, insolvency,
reorganization, moratorium and other similar laws of general applicability
relating to or affecting creditors' rights generally and by the application of
general principles of equity.
SECTION 5.5. NO CONFLICT; REQUIRED FILINGS AND CONSENTS.
(a) Except as set forth in Schedule 5.5, the execution and
delivery of this Agreement by Acquiror do not, and the performance by Acquiror
of its obligations under this Agreement will not, (i) conflict with or violate
the certificate of incorporation or bylaws of Acquiror, (ii) conflict with or
violate any Law applicable to Acquiror or its assets and properties, or (iii)
result in any breach of or constitute a default under any Acquiror Material
Contracts (as defined below).
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(b) Except as set forth in Schedule 5.5, the execution and
delivery of this Agreement by Acquiror do not, and the performance of this
Agreement by Acquiror will not, require any consent, approval, authorization or
permit of, or filing with or notification to, any Government Entity, except for
the filing and recordation of appropriate merger documents as required by
Virginia Law.
SECTION 5.6. FINANCIAL STATEMENTS.
The audited balance sheet of Acquiror as of the end of the
fiscal year ending March 31, 1998, and the audited statement of income and cash
flows for such fiscal year, when prepared and promptly delivered to the Company
and the Stockholders, will present fairly, in all material respects, the
financial condition of Acquiror as of the respective dates and the results of
operations and cash flows for the respective periods indicated and will have
been prepared in accordance with generally accepted accounting principles
applied on a consistent basis. Except as will be reflected in the audited
balance sheet of Acquiror as of March 31, 1998 (the "Acquiror Balance Sheet
Date"), Acquiror has no liabilities, contingent or absolute, matured or
unmatured, known or unknown, except for liabilities incurred in the ordinary
course of business since the Acquiror Balance Sheet Date that would not have an
Acquiror Material Adverse Effect.
SECTION 5.7. ABSENCE OF CERTAIN CHANGES OR EVENTS.
Except as set forth in Schedule 5.7, since March 31, 1998,
Acquiror has not incurred any material liability, except in the ordinary course
of its business consistent with its past practices, and Acquiror has conducted
its business in the ordinary course consistent with its past practices. Except
as set forth in Schedule 5.7, since March 31, 1998, there has not been any
change in the business, condition (financial or otherwise) or results of
operations of Acquiror, including any transaction, commitment, dispute, damage,
destruction or loss, whether or not covered by insurance, or other event of any
character (whether or not in the ordinary course of business) individually or in
the aggregate which has had, or is reasonably likely to have, an Acquiror
Material Adverse Effect.
SECTION 5.8. AGREEMENTS.
Except as set forth in Schedule 5.8, all existing agreements
that are or will be required to be filed as an exhibit to reports filed by
Acquiror with the Securities and Exchange Commission (the "SEC") (collectively,
the "Acquiror Material Contracts") are valid and in full force and effect on the
date hereof, and Acquiror has not (and has no knowledge that any party thereto
has) violated any provision of, or committed or failed to perform any act which
with or without notice, lapse of time or both would constitute a default under
the provisions of, any
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Acquiror Material Contract, except for defaults which would not reasonably be
expected to have an Acquiror Material Adverse Effect.
SECTION 5.9. LITIGATION.
Except as set forth in Schedule 5.9, there is no action, suit,
investigation, claim, arbitration or litigation pending or, to the knowledge of
Acquiror, threatened against or involving Acquiror or the business and
operations of Acquiror, at law or in equity, or before or by any court,
arbitrator or Government Entity. Acquiror is not operating under or subject to
any judgment, writ, order, injunction, award or decree of any court, judge,
justice or magistrate, including any bankruptcy court or judge, or any order of
or by any Government Entity.
SECTION 5.10. TAXES AND ASSESSMENTS.
Except as set forth in Schedule 5.10, Acquiror has (i) duly
and timely paid all Taxes which have become due and payable by it; (ii) Acquiror
has received no notice of, nor does Acquiror have any knowledge of, any notice
of deficiency or assessment or proposed deficiency or assessment from any taxing
Government Entity; and (iii) to Acquiror's knowledge, there are no audits
pending and there are no outstanding agreements or waivers by Acquiror that
extend the statutory period of limitations applicable to any federal, state,
local, or foreign tax returns or Taxes.
SECTION 5.11. BROKERS.
Except as set forth on Schedule 5.12, no broker, finder or
investment banker is entitled to any brokerage, finder's or other fee or
commission in connection with the transactions contemplated by this Agreement
based upon arrangements made by or on behalf of Acquiror.
SECTION 5.12. DISCLOSURE.
No representations or warranties by Acquiror in this Agreement
and no statement or information contained in the Schedules hereto or any
certificate furnished or to be furnished by Acquiror to the Company pursuant to
the provisions of this Agreement (taken collectively), 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 made,
in order to make the statements herein or therein not misleading.
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ARTICLE VI.
REPRESENTATIONS AND WARRANTIES OF MERGER SUB
Acquiror and Merger Sub jointly and severally represent and
warrant to the Company as follows:
SECTION 6.1. ORGANIZATION AND QUALIFICATION.
Merger Sub is a corporation duly organized, validly existing
and in good standing under the laws of the State of Virginia. Merger Sub was
formed solely for the purpose of engaging in the transactions contemplated by
this Agreement. As of the date of this Agreement, except for obligations or
liabilities incurred in connection with its incorporation or organization and
the transactions contemplated by this Agreement, Merger Sub has not incurred,
directly or indirectly, any obligations or liabilities or engaged in any
business activities of any type or kind whatsoever or entered into any
agreements or arrangements with any person.
SECTION 6.2. CERTIFICATE OF INCORPORATION AND BYLAWS.
Merger Sub has heretofore made available to the Company a
complete and correct copy of the certificate of incorporation and the bylaws of
Merger Sub, each as amended to date. Such certificate of incorporation and
bylaws are in full force and effect. Merger Sub is not in violation of any of
the provisions of its certificate of incorporation or bylaws or other
organizational or governing document.
SECTION 6.3. AUTHORITY.
Merger Sub has the necessary corporate power and authority to
enter into this Agreement, to perform its obligations hereunder and to
consummate the transactions contemplated hereby. The execution and delivery of
this Agreement by Merger Sub and the consummation by Merger Sub of the
transactions contemplated hereby have been duly and validly authorized by all
necessary corporate action and no other corporate proceedings on the part of
Merger Sub are necessary to authorize this Agreement or to consummate the
transactions contemplated hereby. This Agreement has been duly executed and
delivered by Merger Sub and, assuming the due authorization, execution and
delivery by the Company, the Stockholders and Acquiror, constitutes a legal,
valid and binding obligation of Merger Sub, enforceable in accordance with its
terms, except as such enforceability may be limited by bankruptcy, insolvency,
reorganization, moratorium and other similar
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laws of general applicability relating to or affecting creditors' rights
generally and by the application of general principles of equity.
SECTION 6.4. NO CONFLICT; REQUIRED FILINGS AND CONSENTS.
(a) Except as set forth in Schedule 6.4, the execution and
delivery of this Agreement by Merger Sub do not, and the performance by Merger
Sub of its obligations under this Agreement will not, (i) conflict with or
violate the certificate of incorporation or bylaws of Merger Sub, (ii) conflict
with or violate any Law applicable to Merger Sub or its assets and properties,
or (iii) result in any breach of or constitute a default under any note, bond,
mortgage, indenture, contract, agreement, lease, license, permit, franchise or
other instrument or obligation to which Merger Sub is a party or by which Merger
Sub is bound, or by which any of its properties or assets is subject.
(b) Except as set forth in Schedule 6.4, the execution and
delivery of this Agreement by Merger Sub do not, and the performance of this
Agreement by Merger Sub will not, require any consent, approval, authorization
or permit of, or filing with or notification to, any Government Entity, except
for the filing and recordation of appropriate merger documents as required by
Virginia Law.
SECTION 6.5. DISCLOSURE.
No representations or warranties by Merger Sub in this
Agreement and no statement or information contained in the Schedules hereto or
any certificate furnished or to be furnished by Merger Sub to the Company
pursuant to the provisions of 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 made, in order
to make the statements herein or therein not misleading.
ARTICLE VII
COVENANTS
SECTION 7.1. AFFIRMATIVE COVENANTS OF THE COMPANY.
The Company and the Stockholders hereby covenant and agree
that, prior to the Effective Time, unless otherwise expressly contemplated by
this Agreement or consented to in writing by Acquiror, the Company shall (and
shall cause its subsidiaries to) (a) operate its business in the usual and
ordinary course consistent with past practices and in accordance with applicable
Laws; (b) preserve substantially intact its business organization, maintain its
rights and franchises,
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use its best efforts to retain the services of its respective principal officers
and key employees and maintain its relationship with its respective suppliers,
contractors, distributors, customers and others having business relationships
with it; (c) maintain and keep its properties and assets in as good repair and
condition as at present, ordinary wear and tear excepted; and (d) keep in full
force and effect insurance comparable in amount and scope of coverage to that
currently maintained.
The Company shall notify Acquiror promptly of any material
adverse change in the business, operations, prospects, condition (financial or
otherwise), Assets or liabilities of the Company or any Subsidiary, including,
without limitation, information (including, without limitation, copies of all
documents relating thereto) concerning all claims instituted, threatened or
asserted against or affecting the Company or any Subsidiary or its business or
Assets at law or in equity, before or by any court or governmental authority.
The Company also shall notify Acquiror promptly in writing of the occurrence of
any event, or the failure of any event to occur, prior to the Closing that
results in a material omission from, or material breach of, any of the
covenants, representations or warranties made by or on behalf of the Company or
the Stockholders in this Agreement or the Disclosure Schedule. The Company and
its Subsidiaries shall keep proper books of record and account in which true and
complete entries will be made of all transactions in accordance with generally
accepted accounting principles applied on a basis consistent with prior periods,
and shall supply to Acquiror such documents (financial or otherwise) with
respect thereto as Acquiror shall reasonably request. The Company shall inform
and discuss with Acquiror on a regular and ongoing basis the management of the
business and Assets of the Company and its Subsidiaries, including, without
limitation, (i) any significant new agreements or transactions proposed to be
entered into, (ii) persons proposed to be employed or terminated by the Company
or any Subsidiary outside of the ordinary course of business, and (iii) any
other significant developments relating to the business or Assets of the Company
or any Subsidiary.
SECTION 7.2. NEGATIVE COVENANTS OF THE COMPANY.
Except as expressly contemplated by this Agreement or
otherwise consented to in writing by Acquiror, from the date hereof until the
Effective Time, the Company shall not (and shall cause its Subsidiaries not to),
and the Stockholders shall cause the Company not to, do any of the following:
(a) (i) increase the compensation payable to or to become
payable to any of its directors, officers or employees, except for increases in
salary, wages or bonuses payable or to become payable in the ordinary course of
business and consistent with past practice; (ii) grant any severance or
termination pay to, or enter into or modify any employment or severance
agreement with, any of its
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directors, officers or employees; or (iii) adopt or amend any employee benefit
plan or arrangement, except as may be required by applicable Law;
(b) declare, set aside or pay any dividend on, or make any
other distribution in respect of, any of its capital stock;
(c) (i) redeem, repurchase or otherwise reacquire any share of
its capital stock or any securities or obligations convertible into or
exchangeable for any share of its capital stock, or any options, warrants or
conversion or other rights to acquire any shares of its capital stock or any
such securities or obligations; (ii) effect any reorganization or
recapitalization; or (iii) split, combine or reclassify any of its capital stock
or issue or authorize or propose the issuance of any other securities in respect
of, in lieu of, or in substitution for, shares of its capital stock;
(d) (i) issue, deliver, award, grant or sell, or authorize or
propose the issuance, delivery, award, grant or sale (including the grant of any
Encumbrances) of, any shares of any class of its capital stock (including shares
held in treasury) or other equity securities, any securities or obligations
directly or indirectly convertible into or exercisable or exchangeable for any
such shares or securities, or any rights, warrants or options directly or
indirectly to acquire any such shares or securities; or (ii) amend or otherwise
modify the terms of any such securities, obligations, rights, warrants or
options in a manner inconsistent with the provisions of this Agreement or the
effect of which shall be to make such terms more favorable to the holders
thereof;
(e) acquire or agree to acquire, by merging or consolidating
with, by purchasing an equity interest in or a portion of the assets of, or by
any other manner, any business or any corporation, partnership, association or
other business organization or division thereof, or otherwise acquire or agree
to acquire any assets of any other person (other than the purchase of inventory
in the ordinary course of business and consistent with past practice), or make
or commit to make any capital expenditures other than (i) capital expenditures
in the ordinary course of business consistent with past practice and in amounts
which are set forth and described in the Business Plan, a true and complete copy
of which has been provided to Acquiror and (ii) capital costs described in
Schedule 7.2;
(f) sell, lease, exchange, mortgage, pledge, transfer or
otherwise dispose of, or agree to sell, lease, exchange, mortgage, pledge,
transfer or otherwise dispose of, any of its assets except for dispositions of
inventory in the ordinary course of business and consistent with past practice;
(g) propose or adopt any amendments to its certificate of
incorporation or bylaws;
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(h) (i) change any of its methods of accounting in effect at
January 1, 1998, or (ii) make or rescind any express or deemed election relating
to taxes, settle or compromise any claim, action, suit, litigation, proceeding,
arbitration, investigation, audit or controversy relating to taxes, or change
any of its methods of reporting income or deductions for federal income tax
purposes from those employed in the preparation of the federal income tax
returns for the taxable year ending December 31, 1997, except, in the case of
clause (i) or clause (ii), as may be required by law or generally accepted
accounting principles, consistently applied;
(i) prepay, before the scheduled maturity thereof, any of its
long-term debt, or incur any obligation for borrowed money, whether or not
evidenced by a note, bond, debenture or similar instrument, other than trade
payables incurred in the ordinary course of business consistent with past
practices;
(j) enter into or modify in any material respect any agreement
which, if in effect as of the date hereof, would have been required to be
disclosed on Schedule 3.11, or enter into any agreement, understanding,
commitment or other arrangement (whether written or oral) with any affiliate or
any officer, director, employee or agent thereof;
(k) take any action that would or could reasonably be expected
to result in any of its representations and warranties set forth in this
Agreement being untrue or in any of the conditions to the Merger set forth in
Article IX not being satisfied; or
(l) agree in writing or otherwise to do any of the foregoing.
ARTICLE VIII.
ADDITIONAL AGREEMENTS
SECTION 8.1. CONSENTS AND APPROVALS; FILINGS AND NOTICES.
(a) The Company and the Stockholders shall use reasonable
efforts to as promptly as possible make all filings with, provide all notices to
and obtain all consents and approvals from third parties required to be obtained
by the Company or any Subsidiary in connection with the transactions
contemplated hereunder, including, without limitation, all filings with, notices
to and consents and approvals from Government Entities and other persons.
(b) As promptly as practicable after the execution and
delivery of this Agreement, the Company and Acquiror shall prepare all
appropriate applications for FCC consent, and such other documents as may be
required, with respect to the transfer of control of the Company to Acquiror
(collectively, the "FCC
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Application"). As promptly as practicable thereafter, Acquiror shall deliver to
the Company its completed portions of the FCC Application. As promptly as
practicable, but not later than fifteen (15) calendar days after the date
hereof, the Company and Acquiror shall jointly file, or cause to be filed, the
FCC Application. Acquiror and the Company shall use their reasonable best
efforts to prosecute the FCC Application in good faith and with due diligence in
order to obtain such FCC consent as expeditiously as practicable. If the Closing
shall not have occurred for any reason within the initial effective period of
the granting of approval by the FCC of the FCC Application, and neither Acquiror
nor the Company shall have terminated this Agreement, Acquiror and the Company
shall jointly request one or more extensions of the effective period of such
grant. No party hereto shall knowingly take, or fail to take, any action the
intent or reasonably anticipated consequence of which action or failure to act
would be to cause the FCC not to grant approval of the FCC Application. Acquiror
and the Company shall each pay one-half (1/2) of any FCC fees that may be
payable in connection with the filing or granting of approval of the FCC
Application. The Company shall pay any cost incurred in connection with
complying with the FCC notice and advertisement requirements in connection with
the transfer of control of the Company.
SECTION 8.2. ACCESS AND INFORMATION.
From the date hereof to the Effective Time, the Company shall
afford to Acquiror and its officers, employees, accountants, consultants, legal
counsel, representatives of current and prospective sources of financing for the
Merger and other representatives of Acquiror full and complete access during
normal business hours to the properties, books, records, contracts, facilities,
premises, and equipment relating to the Assets and the Company and its
Subsidiaries (including without limitation, operating and financial information
with respect to the Company and its Subsidiaries) as Acquiror may reasonably
request. From the date hereof to the Effective Time, Acquiror's chief executive
officer shall provide to the Company's chief executive officer on a regular
basis up to date information on the status of Acquiror's financing for the
Merger.
SECTION 8.3. CONFIDENTIALITY.
All proprietary or confidential documents and information
received by Acquiror and the Company in connection with the transactions
contemplated by this Agreement shall be subject to the existing non-disclosure
agreement between Acquiror and the Company.
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SECTION 8.4. FURTHER ACTION; REASONABLE BEST EFFORTS.
Each of the parties shall use reasonable best efforts to take,
or cause to be taken, all appropriate action, and do, or cause to be done, all
things necessary, proper or advisable under applicable Laws or otherwise to
consummate and make effective the transactions contemplated by this Agreement as
promptly as practicable, including, without limitation, using its reasonable
best efforts to obtain all licenses, permits, consents, approvals,
authorizations, qualifications and orders of Government Entities and parties to
contracts with the Company and Acquiror as are necessary for the transactions
contemplated herein.
SECTION 8.5. PUBLIC ANNOUNCEMENTS.
Each of the Stockholders, Acquiror and the Company shall
consult with each other before issuing any press release or otherwise making any
public statements with respect to the Merger and shall not issue any such press
release or make any such public statement prior to such consultation, except as
may be required by Law.
SECTION 8.6. NO SOLICITATION.
During the term of this Agreement, neither the Company, the
Stockholders nor any of their affiliates or any person acting on behalf of such
party shall (a) solicit or favorably respond to indications of interest from, or
enter into negotiations with, any third party for any proposed merger,
consolidation, sale or acquisition of the Company, the Assets or any capital
stock of the Company or (b) furnish or cause to be furnished any nonpublic
information concerning the Company to any person other than in the ordinary
course of business or pursuant to applicable Law and after prior written notice
to Acquiror.
SECTION 8.7. STOCK MERGER LISTING.
Acquiror shall use all reasonable efforts, at Acquiror's
expense, to cause the shares of Acquiror Common Stock to be issued upon
conversion of the Acquiror Convertible Preferred Stock or upon exercise of the
Acquiror Warrants, respectively, to be approved for listing on the Nasdaq
National Market, subject to official notice of issuance, prior to the first date
on which such shares of Acquiror Common Stock are issuable upon conversion of
the Acquiror Convertible Preferred Stock or upon exercise of the Acquiror
Warrants, respectively.
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SECTION 8.8. BLUE SKY.
Acquiror shall use reasonable efforts, at Acquiror's expense,
to obtain any necessary blue sky permits and approvals required to permit the
distribution of the shares of the Acquiror Common Stock to be issued upon
conversion of the Acquiror Convertible Preferred Stock or upon exercise of the
Acquiror Warrants, respectively, to be issued in accordance with the provisions
of this Agreement.
SECTION 8.9. PREPARATION OF ANY REQUIRED PROXY STATEMENT;
STOCKHOLDER MEETING.
(a) As soon as practicable following the Adjustment Date (as
defined in the Certificate of Designations for the Acquiror Convertible
Preferred Stock and in the form of Acquiror Warrant), the Acquiror shall, at
Acquiror's expense, prepare and file with the SEC a proxy statement (as amended
or supplemented from time to time, the "Proxy Statement") relating to an
Acquiror stockholder meeting to obtain any required stockholder approval that
may be necessary in connection with the potential issuance of Acquiror Common
Stock upon the conversion of Acquiror Convertible Preferred Stock and exercise
of the Acquiror Warrants (the "Acquiror Stockholder Approval"). Acquiror shall
use all reasonable efforts to have the Proxy Statement declared effective under
the Securities Act of 1933, as amended (the "Securities Act") as promptly as
practicable after such filing. Acquiror will use all reasonable efforts to cause
the Proxy Statement to be mailed to Acquiror's stockholders, as promptly as
practicable after the Proxy Statement is declared effective under the Securities
Act. Acquiror shall also take any action (other than qualifying to do business
in any jurisdiction in which it is not now so qualified or to file a general
consent to service of process) required to be taken under any applicable state
securities laws in connection with the issuance of Acquiror Common Stock upon
the conversion of Acquiror Convertible Preferred Stock and exercise of the
Acquiror Warrants, and the Stockholders shall furnish all information concerning
the Stockholders as may be reasonably requested in connection with any such
action.
(b) Acquiror shall, as promptly as practicable after the Proxy
Statement is declared effective under the Securities Act, duly call, give notice
of, convene and hold a meeting of its stockholders in accordance with the DGCL
for the purpose of obtaining the Acquiror Stockholder Approval.
SECTION 8.10. REGISTRATION OF STOCK.
(a) Acquiror shall, following the Closing, take such action as
is reasonably necessary to register the Acquiror Common Stock held by such
Stockholders for public resale, including filing a registration statement with
the SEC with respect to such Acquiror Common Stock within 60 days after the
Closing
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(a "Resale Registration Statement"), provided that Acquiror shall not be
required to disclose in such Resale Registration Statement any material
non-public information regarding Acquiror. Acquiror shall use its best efforts
to have the Resale Registration Statement declared effective under the
Securities Act as promptly as practicable after such filing. Acquiror shall
maintain the effectiveness of the Resale Registration Statement until all
Acquiror Common Stock registered pursuant to the Resale Registration Statement
has been disposed of by the Stockholders or such Acquiror Common Stock is
otherwise eligible for public resale under applicable securities laws.
(b) In the event that after one year from the Effective Time
any portion of the Acquiror Common Stock issuable upon the conversion of
Acquiror Convertible Preferred Stock or upon exercise of the Acquiror Warrants,
respectively, is not eligible for public resale under applicable securities
laws, Acquiror shall take such action necessary to register the Acquiror Common
Stock held by such Stockholders for public resale, including filing a Resale
Registration Statement with the SEC with respect to such Acquiror Common Stock
within 60 days after the Closing, provided that Acquiror shall not be required
to disclose in such Resale Registration Statement any material non-public
information regarding Acquiror. Acquiror shall use its best efforts to have the
Resale Registration Statement declared effective under the Securities Act as
promptly as practicable after such filing. Acquiror shall maintain the
effectiveness of the Resale Registration Statement until all Acquiror Common
Stock registered pursuant to the Resale Registration Statement has been disposed
of by the Stockholders or such Acquiror Common Stock is otherwise eligible for
public resale under applicable securities laws.
SECTION 8.11. DIRECTORS OF ACQUIROR AND THE SURVIVING CORPORATION.
As soon as practicable following the Effective Time, the Board
of Directors of Acquiror shall be expanded to include two additional directors,
and ▇▇. ▇▇▇▇ ▇▇▇ and ▇▇. ▇▇▇▇▇▇▇ ▇▇▇▇▇▇ shall be appointed as directors of
Acquiror. In addition, the directors of the Surviving Corporation shall include
as one of the directors ▇▇. ▇▇▇▇ ▇▇▇ or ▇▇. ▇▇▇▇▇▇▇ ▇▇▇▇▇▇ for the period
specified in Section 11.1(a).
SECTION 8.12. CANCELLATION OF OPTIONS; ACQUIROR OPTIONS.
(a) Effective as of the Closing Date, no stock options of the
Company shall be outstanding ("Company Stock Options"). The Company shall not
pay any cash or other property to holders of Company Stock Options without the
approval of Acquiror, and to the extent any such amounts are paid an equal
amount (or, in the case of consideration other than cash, the fair value
thereof) shall be deducted from the cash portion of the Purchase Price.
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(b) Various persons designated on Schedule 8.12(b) who are
employed by or are consultants to the Company immediately prior to the Effective
Time and who will be employed by or be consultants to the Company or Acquiror
immediately following the Effective Time will receive grants of employee stock
options by Acquiror in a manner generally consistent with each such employee's
seniority, tenure, level of pay and expertise ("Acquiror Employee Stock
Options") following the Effective Time, upon the grant thereof by the Board of
Directors of Acquiror or the applicable committee thereof, in the amounts set
forth on Schedule 8.12(b). The Acquiror Employee Stock Options shall be granted
under Acquiror's employee stock option plan as then in effect pursuant to stock
option agreements which have been adopted for the grants of options to
Acquiror's employees generally. Schedule 8.12(b) will be agreed to by the
parties and attached to this Agreement at the Closing.
SECTION 8.13. APPOINTMENT OF REPRESENTATIVE; AUTHORITY.
The Stockholders and each of them hereby appoint ▇▇▇▇▇▇ ▇▇▇ as
the Representative and agree that the Representative shall have the authority,
on behalf of each of the Stockholders, to:
(a) Enter into amendments designed to clarify the terms of
this Agreement;
(b) Extend or otherwise reschedule the Closing Date;
(c) Undertake such other actions on behalf of the Stockholders
as specifically require action of the Stockholders under the provisions of this
Agreement;
(d) Receive amounts payable to any of the Stockholders, and
give discharge and provide receipts with respect thereto;
(e) Execute and deliver any documents or agreements
contemplated by this Agreement or necessary or desirable in connection with the
transactions contemplated by this Agreement, and enter into amendments to
clarify the terms of said documents and agreements;
(f) Give and receive notices, instructions and other
communications under this Agreement and under any other documents contemplated
hereunder; and
(g) Take such other action with respect to this Agreement and
other Documents contemplated by this Agreement as the Representative may deem
necessary or appropriate.
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Each Stockholder shall immediately deliver to the
Representative the stock certificates evidencing all shares of Company Stock to
be sold by such Stockholder pursuant to this Agreement, together with duly
executed blank stock powers, and hereby authorizes the Representative to deliver
such certificates and stock powers in connection with the Closing under this
Agreement. To further effect the foregoing, each Stockholder upon request of the
Representative shall execute a power of attorney designating the Representative
his attorney-in-fact for the purposes set forth in this Section. The
Representative may resign by written notice to the Stockholders and, in such
event, or upon the death or incapacity of the Representative, ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇
shall become successor Representative.
SECTION 8.14. EMPLOYEE MATTERS.
Acquiror shall cause the Surviving Corporation to offer
at-will employment following the Effective Time to each of the employees of the
Company on substantially the same terms and conditions (including, without
limitation, substantially the same title, duties, locations, salary compensation
and benefits) as those enjoyed by such employees immediately prior to the
Effective Time; provided, however, that nothing in this Section 8.14 shall limit
or otherwise restrict the ability of Acquiror or the Surviving Corporation to
terminate, lay off or reduce the work hours with respect to the employment of
any such employees following their initial at-will employment following the
Effective Time. To the extent permitted by applicable law, rule and regulation,
and the terms of the applicable employee benefit plans, such employees shall
become eligible in the ordinary course for inclusion in the employee benefit
plans of Acquiror.
SECTION 8.15. SECOND BRIDGE LOAN.
If the Closing Date has not occurred on or prior to June 29,
1998 because the condition in Section 9.1(l) has not been satisfied, Acquiror
shall extend to the Company a bridge loan in the amount of $500,000 (Second
Bridge Loan) on the same terms and conditions as the Bridge Loan Debt (as
defined in Section 2.4).
SECTION 8.16. SHARE TRANSFER.
The Stockholders acknowledge and agree that prior to entry
into this Agreement, the Company had approved a plan for incentive compensation
to various existing and former employees, consultants, and business partners of
the Company. In fulfillment of commitments made under such plan, after Acquiror
Common Stock is registered for public resale under Section 8.10(a) and 8.10(b),
respectively ("Registration"), and the Acquiror Convertible Preferred Stock and
the Acquiror Warrants have been converted into Acquiror Common Stock,
respectively, the Representative shall transfer to certain existing and former
employees,
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consultants and business partners of the Company (the "Bonus Recipients")
the shares of Acquiror Common Stock received upon conversion of certain shares
of Acquiror Preferred Stock and upon the exercise of Acquiror Warrants. The
Stockholders agree that this transfer is an arrangement only among the
Stockholders and that Acquiror shall not be obligated in any way to approve or
enforce such arrangement. In any event, no Acquiror Preferred Stock or Acquiror
Warrants shall be transferred to the Bonus Recipients, and no Acquiror Common
Stock shall be transferred to the Bonus Recipients prior to Registration.
ARTICLE IX.
CLOSING CONDITIONS
SECTION 9.1. ADDITIONAL CONDITIONS TO OBLIGATIONS OF ACQUIROR
AND MERGER SUB.
The obligations of Acquiror and Merger Sub to effect the
Merger and the other transactions contemplated in this Agreement are also
subject to the following conditions, any or all of which may be waived, in whole
or in part, to the extent permitted by applicable law, in writing by Acquiror
and Merger Sub:
(a) Representations and Warranties. The representations and
warranties of the Company and the Stockholders made in this Agreement shall be
true and correct in all material respects, on and as of the Effective Time with
the same effect as though such representations and warranties had been made on
and as of the Effective Time (provided that any representation or warranty
contained herein that is qualified by a materiality standard shall not be
further qualified hereby), except for representations and warranties that speak
as of a specific date or time other than the Effective Time (which need only be
true and correct in all material respects as of such date or time). Acquiror
shall have received a certificate of the Chief Executive Officer or Chief
Financial Officer of the Company and a certificate of the Stockholders to that
effect.
(b) Agreements and Covenants. The agreements and covenants of
the Company and the Stockholders required to be performed on or before the
Effective Time shall have been performed in all material respects. Acquiror
shall have received a certificate of the Chief Executive Officer or Chief
Financial Officer of the Company and a certificate of the Stockholders or the
Representative on behalf of the Stockholders to that effect.
(c) No Order. No Government Entity or federal or state court
of competent jurisdiction shall have enacted, issued, promulgated, enforced or
entered any statute, rule, regulation, executive order, decree, judgment,
injunction or other
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order (whether temporary, preliminary or permanent), in any case which is in
effect and which prevents or prohibits consummation of the Merger or any other
transactions contemplated in this Agreement; provided, however, that the parties
shall use their reasonable efforts to cause any such decree, judgment,
injunction or other order to be vacated or lifted, and any such action or
proceeding to be dismissed.
(d) Legal Proceedings. No action or proceeding before any
Government Entity shall have been instituted or threatened (and not subsequently
settled, dismissed, or otherwise terminated) which is reasonably expected to
restrain, prohibit or invalidate the Merger or other transactions contemplated
by this Agreement other than an action or proceeding instituted or threatened by
Acquiror or Merger Sub.
(e) No Company Material Adverse Effect. Since the date of this
Agreement, no Company Material Adverse Effect shall have occurred and be
continuing.
(f) Required Consents. The Company shall have delivered to
Acquiror at or before Closing all consents or notices necessary to be obtained
or made by the Company in connection with the transactions contemplated by this
Agreement.
(g) Noncompetition Agreement. The Stockholders shall have
executed and delivered to Acquiror at or before Closing a noncompetition
agreement in form and substance reasonably satisfactory to Acquiror providing,
among other things, that the Stockholders shall not compete with the business of
Acquiror or the Company for a period of three (3) years after the Effective
Time.
(h) Employment Agreements. Messrs. ▇▇▇▇ ▇▇▇, ▇▇▇▇▇▇ ▇▇▇ and
▇▇▇▇ ▇▇▇▇▇▇▇▇ shall each have executed and delivered to Acquiror at orbefore
Closing an employment agreement in the form attached hereto as Exhibit C.
(i) Legal Opinions. Acquiror shall have received an opinion
from ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, corporate counsel to the Company and the Stockholders,
in form and substance reasonably satisfactory to Acquiror.
(j) Release of Company Stock Options. All of the Company Stock
Options shall have been released in the manner referred to in Section 8.12(a).
(k) Other Closing Documents. The Stockholders and the Company
shall have executed and/or delivered to Acquiror such additional documents,
certificates, opinions and agreements as Acquiror may reasonably request.
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(l) Financing. Acquiror shall have raised at least $5,000,000
in financing on such terms as are reasonably satisfactory to Acquiror.
(m) Fairness Opinion. Acquiror shall have received a fairness
opinion from an investment banker retained by the Board of Directors of Acquiror
indicating that the terms of the Merger are fair to Acquiror and its
stockholders from a financial point of view.
(n) FCC Approval. The FCC shall have granted by Final Order
the FCC Application, without conditions, qualifications or other restrictions
that are likely to have a Material Adverse Effect immediately after the Closing
Date. As used in this Agreement, the term "Final Order" means an order, action
or decision of a governmental entity that has not been reversed, stayed or
enjoined and as to which the time to appeal, petition for certiorari or seek
reargument or rehearing or administrative reconsideration or review has expired
and as to which no appeal, reargument, petition for certiorari or rehearing or
petition for reconsideration or application for review is pending or as to which
any right to appeal, reargue, petition for certiorari or rehearing or
reconsideration or review has been waived in writing by each party having such a
right or, if any appeal, reargument, petition for certiorari or rehearing or
reconsideration or review thereof has been sought, the order or judgment of the
court or agency has been affirmed by the highest court (or the administrative
entity or body) to which the order was appealed or from which the argument or
rehearing or reconsideration or review was sought, or certiorari has been
denied, and the time to take any further appeal or to seek certiorari or further
reargument or rehearing, or reconsideration or review, has expired.
(o) Intelisys. Intelisys, Inc. shall have executed and
delivered to Acquiror at or before Closing an assignment agreement relating to
assets held by Intelisys in form and substance reasonably satisfactory to
Acquiror.
(p) Work Product Agreements. All employees of the Company and
its subsidiaries shall have executed and delivered to the Company (and Acquiror
shall have received copies thereof) Employer's Right in Work Product Agreements
in form and substance reasonably satisfactory to Acquiror.
(q) IDX Singapore. Acquiror shall have received documents and
information reasonably satisfactory to it that 100% of the stock of IDX
Singapore PTE, Ltd. is being held in trust for and is beneficially the property
of the Company.
SECTION 9.2. ADDITIONAL CONDITIONS TO OBLIGATIONS OF THE COMPANY AND
THE STOCKHOLDERS.
The obligations of the Company and the Stockholders to effect
the Merger and the other transactions contemplated in this Agreement are also
subject
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to the following onditions any or all of which may be waived, in whole or in
part, to the extent permitted by applicable law, in writing by the Company
and the Representative:
(a) Representations and Warranties. The representations and
warranties of Acquiror and Merger Sub made in this Agreement shall be true and
correct in all material respects, on and as of the Effective Time with the same
effect as though such representations and warranties had been made on and as of
the Effective Time (provided that any representation or warranty contained
herein that is qualified by a materiality standard shall not be further
qualified hereby), except for representations and warranties that speak as of a
specific date or time other than the Effective Time (which need only be true and
correct in all material respects as of such date or time). The Company shall
have received a certificate of the Chief Executive Officer or Chief Financial
Officer of Acquiror to that effect.
(b) Agreements and Covenants. The agreements and covenants of
Acquiror and Merger Sub required to be performed on or before the Effective Time
shall have been performed in all material respects. The Company shall have
received a certificate of the Chief Executive Officer or Chief Financial Officer
of Acquiror to that effect.
(c) No Order. No Government Entity or federal or state court
of competent jurisdiction shall have enacted, issued, promulgated, enforced or
entered any statute, rule, regulation, executive order, decree, judgment,
injunction or other order (whether temporary, preliminary or permanent), in any
case which is in effect and which prevents or prohibits consummation of the
Merger or any other transactions contemplated in this Agreement; provided,
however, that the parties shall use their reasonable efforts to cause any such
decree, judgment, injunction or other order to be vacated or lifted, and any
such action or proceeding to be dismissed.
(d) Legal Proceedings. No action or proceeding before any
Government Entity shall have been instituted or threatened (and not subsequently
settled, dismissed, or otherwise terminated) which is reasonably expected to
restrain, prohibit or invalidate the Merger or other transactions contemplated
by this Agreement other than an action or proceeding instituted or threatened by
the Company or the Stockholders.
(e) Legal Opinions. The Company and the Stockholders shall
have received an opinion from ▇▇▇▇▇ & ▇▇▇▇▇▇▇ L.L.P., corporate counsel to
Acquiror, in form and substance reasonably satisfactory to the Company and the
Stockholders.
(f) Other Closing Documents. Acquiror shall have executed
and/or delivered to the Stockholders and the Company such additional documents,
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certificates, opinions and agreements as the Stockholders (or the Representative
on behalf of the Stockholders) and the Company may reasonably request.
ARTICLE X
TERMINATION, AMENDMENT AND WAIVER
SECTION 10.1. TERMINATION.
This Agreement may be terminated at any time prior to the
Effective Time:
(a) by mutual written consent of Acquiror and the Company and
the Representative;
(b) by Acquiror if the Company or the Stockholders shall have
breached any of its or their representations, warranties, covenants or
agreements contained in this Agreement, or any such representation or warranty
shall have become untrue, in any such case such that the conditions precedent to
the obligations of Acquiror to close specified in Section 9.2 will not be
satisfied;
(c) by the Company and the Representative if Acquiror or
Merger Sub shall have breached any of its representations, warranties, covenants
or agreements contained in this Agreement, or any such representation or
warranty shall have become untrue, in any such case such that the conditions
precedent to the obligation of the Company to close specified in Section 9.3,
will not be satisfied;
(d) by either Acquiror or the Company and the Representative
if any decree, permanent injunction, judgment, order or other action by any
court of competent jurisdiction or any Government Entity preventing or
prohibiting consummation of the Merger shall have become final and
nonappealable;
(e) by either Acquiror or the Company and the Representative
if the Effective Time has not occurred on or prior to December 31, 1998 (unless
such date shall be extended by the mutual written consent of the parties);
provided, that the right to terminate this Agreement under this Section 10.1(e)
shall not be available to any party whose breach of representations, warranties,
covenants or agreements contained in this Agreement has been the cause of, or
resulted in, the failure of the Effective Time to occur by such date or the
inability of such condition to be satisfied;
(f) by Acquiror upon written notice to the Company and the
Representative at any time (i) within thirty (30) days after the date of this
Agreement if Acquiror in its sole and absolute discretion is not satisfied with
the results of its due diligence investigation of the Company or the Assets, or
(ii) within
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ninety (90) days after the date of this Agreement if Acquiror in its sole and
absolute discretion is not satisfied with the results of its review of the
Company's intellectual property rights in the Assets or the outcome of various
telecommunications contingencies set forth in the Financial Statements; or
(g) by the Company and the Representative if Acquiror has not
raised the $5,000,000 in financing necessary to pay the cash portion of the
Purchase Price on or prior to August 31, 1998 (unless such date shall be
extended by the mutual written consent of the parties).
SECTION 10.2. EFFECT OF TERMINATION.
If this Agreement is terminated pursuant to Section 10.1, this
Agreement shall forthwith become void and there shall be no liability or
obligation on the part of any party hereto, except that the provisions of
Sections 8.3 and 12.11 shall not be extinguished but shall survive such
termination, and nothing herein shall relieve any party from liability for any
breach hereof and each party shall be entitled to any remedies at law or in
equity for such breach.
SECTION 10.3. AMENDMENT.
This Agreement may not be amended except by an instrument in
writing signed by the parties hereto.
SECTION 10.4. WAIVER.
At any time prior to the Effective Time, the parties may (a)
extend the time for the performance of any of the obligations or other acts of
the other party, (b) waive any inaccuracies in the representations and
warranties contained in this Agreement or in any document delivered pursuant to
this Agreement and (c) waive compliance by the other party with any of the
agreements or conditions contained in this Agreement. Any such extension or
waiver shall be valid only if set forth in an instrument in writing signed on
behalf of such party. No delay or failure on the part of any party hereto in
exercising any right, power or privilege under this Agreement or under any other
instrument or document given in connection with or pursuant to this Agreement
shall impair any such right, power or privilege or be construed as a waiver of
any default or any acquiescence therein. No single or partial exercise of any
such right, power or privilege shall preclude the further exercise of such
right, power or privilege, or the exercise of any other right, power or
privilege.
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ARTICLE XI
SURVIVAL OF REPRESENTATIONS; INDEMNIFICATION; REMEDIES
SECTION 11.1. SURVIVAL OF REPRESENTATIONS.
All representations, warranties, covenants, indemnities and
other agreements made by any party to this Agreement herein or pursuant hereto,
shall be deemed made on and as of the Effective Time as though such
representations, warranties, covenants, indemnities and other agreements were
made on and as of such date, and all such representations, warranties,
covenants, indemnities and other agreements shall survive the Effective Time and
any investigation, audit or inspection at any time made by or on behalf of any
party hereto, as follows: (a) unless otherwise specified below, representations
and warranties shall survive for a period of two (2) years after the Effective
Time; (b) representations and warranties with respect to Taxes shall survive
until the expiration of the applicable statute of limitations; (c)
representations, warranties and covenants for matters relating to title to the
capital stock of the Company and the Assets shall continue in full force and
effect in perpetuity; and (d) the covenants and agreements in this Article XI
and the covenants and agreements which by their terms survive the Effective Time
shall continue in full force and effect until fully discharged. Notwithstanding
anything herein to the contrary, any representation, warranty, covenant or
agreement which is the subject of a claim which is asserted in writing prior to
the expiration of the applicable period set forth above shall survive with
respect to such claim or dispute until the final resolution thereof.
SECTION 11.2. AGREEMENT OF STOCKHOLDERS TO INDEMNIFY.
Subject to the conditions and provisions of this Article XI,
each Stockholder hereby agrees to indemnify, defend and hold harmless Acquiror
and its officers, directors, employees, agents and representatives
(collectively, the "Acquiror Indemnified Persons") from and against and in
respect of all Losses resulting from, imposed upon or incurred by the Acquiror
Indemnified Persons, directly or indirectly, by reason of or resulting from any
misrepresentation or breach of any representation or warranty, or noncompliance
with any conditions or other agreements, given or made by such Stockholder or
the Company in this Agreement or in any document, certificate or agreement
furnished by or on behalf of any such party pursuant to this Agreement, or any
claims that any individual or entity, other than those individuals and entities
named in Schedule 2.1 and Schedule 3.3 hereto, are, or have the right to be,
shareholders of the Company, including, but not limited to, those individuals
listed on Schedule 11.2 hereto. It shall be a condition to the right of any
Acquiror Indemnified Person to indemnification pursuant to this Section that
such Acquiror Indemnified Person shall assert a claim for such
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indemnification within the applicable survival periods set forth in Section 11.1
hereof.
SECTION 11.3. AGREEMENT OF ACQUIROR TO INDEMNIFY.
Subject to the conditions and provisions of this Article XI,
Acquiror hereby agrees to indemnify, defend and hold harmless the Stockholders
from and against and in respect of all Losses resulting from, imposed upon or
incurred by the Stockholders, directly or indirectly, by reason of or resulting
from any misrepresentation or breach of any representation or warranty, or
noncompliance with any conditions or other agreements, given or made by Acquiror
or Merger Sub in this Agreement or in any document, certificate or agreement
furnished by or on behalf of Acquiror or Merger Sub pursuant to this Agreement.
It shall be a condition to the rights of the Stockholders to indemnification
pursuant to this Section that such party shall assert a claim for such
indemnification within the applicable survival periods set forth in Section 11.1
hereof.
SECTION 11.4. CONDITIONS OF INDEMNIFICATION.
The obligations and liabilities of the Stockholders and
Acquiror hereunder with respect to their respective indemnities pursuant to this
Article XI, resulting from any Third Party Claim shall be subject to the
following terms and conditions:
(a) The party seeking indemnification (the "Indemnified
Party") must give the other party (the "Indemnifying Party"), notice of any
Third Party Claim which is asserted against, imposed upon or incurred by the
Indemnified Party and which may give rise to liability of the Indemnifying Party
pursuant to this Article XI, stating (to the extent known or reasonably
anticipated) the nature and basis of such Third Party Claim and the amount
thereof; provided that the failure to give such notice shall not affect the
rights of the Indemnified Party hereunder except to the extent that the
Indemnifying Party shall have suffered actual material damage by reason of such
failure.
(b) Subject to Section 11.4(c) below, the Indemnifying Party
shall have the right to undertake, by counsel or other representatives of its
own choosing, the defense of such Third Party Claim at the Indemnifying Party's
risk and expense.
(c) In the event that (i) the Indemnifying Party shall elect
not to undertake such defense, (ii) within a reasonable time after notice from
the Indemnified Party of any such Third Party Claim, the Indemnifying Party
shall fail to undertake to defend such Third Party Claim, or (iii) there is a
reasonable probability that such Third Party Claim may materially and adversely
affect the
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Indemnified Party other than as a result of money damages or other money
payments, then the Indemnified Party (upon further written notice to the
Indemnifying Party) shall have the right to undertake the defense, compromise or
settlement of such Third Party Claim, by counsel or other representatives of its
own choosing, on behalf of and for the account and risk of the Indemnifying
Party. In the event that the Indemnified Party undertakes the defense of a Third
Party Claim under this Section 11.4(c), the Indemnifying Party shall pay to the
Indemnified Party, in addition to the other sums required to be paid hereunder,
the reasonable costs and expenses incurred by the Indemnified Party in
connection with such defense, compromise or settlement as and when such costs
and expenses are so incurred.
(d) Anything in this Section 11.4 to the contrary
notwithstanding, (i) the Indemnifying Party shall not, without the Indemnified
Party's written consent, settle or compromise such Third Party Claim or consent
to entry of any judgment which does not include as an unconditional term thereof
the giving by the claimant or the plaintiff to the Indemnified Party of a
release from all liability in respect of such Third Party Claim in form and
substance satisfactory to the Indemnified Party; (ii) in the event that the
Indemnifying Party undertakes the defense of such Third Party Claim, the
Indemnified Party, by counsel or other representative of its own choosing and at
its sole cost and expense, shall have the right to participate in the defense,
compromise or settlement thereof and each party and its counsel and other
representatives shall cooperate with the other party and its counsel and
representatives in connection therewith; and (iii) in the event that the
Indemnifying Party undertakes the defense of such Third Party Claim, the
Indemnifying Party shall have an obligation to keep the Indemnified Party
informed of the status of the defense of such Third Party Claim and furnish the
Indemnified Party with all documents, instruments and information that the
Indemnified party shall reasonably request in connection therewith.
(e) The indemnification of the Acquiror Indemnified Persons by
the Stockholders for any misrepresentation or breach of any representation or
warranty, or noncompliance with any conditions or other agreements, given or
made by the Company shall be joint and several; provided, however, that no
Stockholder shall be liable for such indemnification in an amount in excess of
the aggregate portion of the Purchase Price received by such Stockholder.
(f) In order to assure that the Stockholders retain assets
sufficient to satisfy any claims for indemnification made by Acquiror
Indemnified Persons, each Stockholder hereby agrees that, without the prior
written consent of Acquiror, such Stockholder will not, during the period
commencing as of the Effective Time and ending eighteen (18) months after the
Effective Time, (i) offer, pledge, sell, contract to sell, sell any option or
contract to purchase, purchase any option or contract to sell, grant any option,
right or warrant to purchase, lend, or otherwise
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transfer or dispose of, directly or indirectly, 20% of the shares of the
Acquiror Convertible Preferred Stock (or any Acquiror Common Stock issuable upon
the conversion of such Acquiror Convertible Preferred Stock) received by the
Stockholder in connection with the Merger, (ii) enter into any swap or other
arrangement that transfers to another, in whole or in part, any of the economic
consequences of ownership of 20% of the shares of Acquiror Convertible Preferred
Stock (or any Acquiror Common Stock issuable upon the conversion of such
Acquiror Convertible Preferred Stock) received by the Stockholder in connection
with the Merger, whether any such transaction described in clause (i) or (ii)
above is to be settled by delivery of Acquiror Convertible Preferred Stock (or
Acquiror Common Stock issuable upon the conversion of Acquiror Convertible
Preferred Stock) or other securities, in cash or otherwise.
(g) Each claim for indemnification by Acquiror Indemnified
Persons shall be satisfied (i) first, in shares of Acquiror Common Stock
(assuming for this purpose the conversion to the extent necessary of Acquiror
Convertible Preferred Stock into Acquiror Common Stock, whether or not then
convertible, and the exercise of the Acquiror Warrants, whether or not then
exercisable) received in connection with the Merger, where such shares are
valued, for purposes of such indemnification, at the closing price of the
Acquiror Common Stock on the day immediately preceding the date of such claim
for indemnification, and (ii) second, if such shares then held by the
Indemnifying Party or Parties responsible for such claim are not sufficient to
satisfy a claim in full, in cash.
SECTION 11.5. NO RECOURSE AGAINST THE COMPANY.
The Stockholders hereby irrevocably waive any and all right to
recourse against the Company with respect to any misrepresentation or breach of
any representation, warranty or indemnity, or noncompliance with any conditions
or covenants, given or made by the Stockholders or the Company in this Agreement
or any document, certificate or agreement entered into or delivered pursuant
hereto. The Stockholders shall not be entitled to contribution from, subrogation
to or recovery against the Company with respect to any liability of the
Stockholders or the Company that may arise under or pursuant to this Agreement
or the transactions contemplated hereby.
SECTION 11.6. REMEDIES CUMULATIVE.
The remedies provided herein shall be cumulative and shall not
preclude the assertion by the parties hereto of any other rights or the seeking
of any other remedies against the other, or their respective successors or
assigns.
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ARTICLE XII
GENERAL PROVISIONS
SECTION 12.1. NOTICES.
All notices and other communications given or made pursuant
hereto shall be in writing and shall be deemed to have been duly given or made
as of the date delivered, mailed or transmitted, and shall be effective upon
receipt, if delivered personally, mailed by registered or certified mail
(postage prepaid, return receipt requested) to the parties at the following
addresses (or at such other address for a party as shall be specified by like
changes of address) or sent by electronic transmission to the telecopier number
specified below:
(a) If to Acquiror and Merger Sub:
Executive TeleCard, Ltd.
▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇
▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Telecopier No.: ▇▇▇-▇▇▇-▇▇▇▇
Attention: Chairman
(b) If to the Company and the Stockholders:
IDX International, Inc.
▇▇▇▇▇ ▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Telecopier No.: ▇▇▇-▇▇▇-▇▇▇▇
Attention: ▇▇▇▇ ▇▇▇
SECTION 12.2. CERTAIN DEFINITIONS.
For purposes of this Agreement, the term:
(a) "affiliate" means a person that directly or indirectly,
through one or more intermediaries, controls, is controlled by, or is under
common control with, the first mentioned person.
(b) "Assets" shall mean the assets, rights and properties,
whether owned, leased or licensed, real, personal or mixed, tangible or
intangible, that are used, useful or held for use in connection with the
business of the Company and the Subsidiaries.
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(c) "Acquiror Material Adverse Effect" means any material
adverse effect on the assets, business, financial condition or results of
operations of Acquiror and its subsidiaries, taken as a whole.
(d) "Company Material Adverse Effect" means any material
adverse effect on the Assets or on the business, financial condition or results
of operations of the Company and the Subsidiaries, taken as a whole. In
particular, any condition or event affecting or any effect on (in each case
actual or reasonably anticipated) the Company Intellectual Property or Company
Technology which could reasonably be expected to have a material adverse effect
on the anticipated revenues from sale of the Company's and the Subsidiaries'
present or proposed products or the timing thereof shall be deemed to be a
Company Material Adverse Effect.
(e) "control" (including the terms "controlled by" and "under
common control with") means the possession, directly or indirectly or as trustee
or executor, of the power to direct or cause the direction of the management or
policies of a person, whether through the ownership of stock or as trustee or
executor, by contract or credit arrangement or otherwise.
(f) "Encumbrances" means mortgages, liens, pledges,
encumbrances, security interests, deeds of trust, options, encroachments,
reservations, orders, decrees, judgments, restrictions, charges, contract
rights, claims or equity of any kind.
(g) "Government Entity" means any United States or other
national, state, municipal or local government, domestic or foreign, any
subdivision, agency, entity, commission or authority thereof, or any
quasi-governmental or private body exercising any regulatory, taxing, importing
or other governmental or quasi-governmental authority.
(h) "Laws" means all foreign, federal, state and local
statues, laws, ordinances, regulations, rules, resolutions, orders,
determinations, writes, injunctions, awards (including, without limitation,
awards of any arbitrator), judgments and decrees applicable to the specified
persons or entities.
(i) "Losses" means all demands, losses, claims, actions or
causes of action, assessments, damages, liabilities, costs and expenses,
including, without limitation, interest, penalties and reasonable attorneys'
fees and disbursements.
(j) "person" means an individual, corporation, partnership,
association, trust, unincorporated organization, other entity or group.
(k) "subsidiary" means a corporation, partnership, joint
venture or other entity of which the Company owns, directly or indirectly, at
least 50% of the outstanding securities or other interests the holders of which
are generally entitled
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to vote for the election of the board of directors or other governing body or
otherwise exercise control of such entity.
(l) "Third Party Claim" means any claim or other assertion of
liability by a third party.
SECTION 12.3. HEADINGS.
The headings contained in this Agreement are for reference
purposes only and shall not affect in any way the meaning or interpretation of
this Agreement.
SECTION 12.4. SEVERABILITY.
If any term or other provision of this Agreement is invalid,
illegal or incapable of being enforced by any rule of law or public policy, all
other conditions and provisions of this Agreement shall nevertheless remain in
full force and effect so long as the economic or legal substance of the
transactions contemplated hereby is not affected in any manner materially
adverse to any party. Upon such determination that any term or other provision
is invalid, illegal or incapable of being enforced, the parties hereto shall
negotiate in good faith to modify this Agreement so as to effect the original
intent of the parties as closely as possible in an acceptable manner to the end
that transactions contemplated hereby are fulfilled to the extent possible.
SECTION 12.5. ENTIRE AGREEMENT.
This Agreement (together with the Exhibits, the Schedules and
the other documents delivered pursuant hereto) constitutes the entire agreement
of the parties and supersede all prior agreements and undertakings, both written
and oral, between the parties, or any of them, with respect to the subject
matter hereof, including, without limitation, the Letter of Intent entered into
as of March 20, 1998 by the parties hereto and, except as otherwise expressly
provided herein, are not intended to confer upon any other person any rights or
remedies hereunder.
SECTION 12.6. SPECIFIC PERFORMANCE.
The transactions contemplated by this Agreement are unique.
Accordingly, each of the parties acknowledges and agrees that, in addition to
all other remedies to which it may be entitled, each of the parties hereto is
entitled to a decree of specific performance, provided such party is not in
material default hereunder.
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SECTION 12.7. ASSIGNMENT.
Neither this Agreement nor any of the rights, interests or
obligations hereunder shall be assigned by any of the parties hereto (whether by
operation of law or otherwise) without the prior written consent of the other
party; provided, however, that Acquiror and Merger Sub shall have the right to
assign this Agreement for collateral purposes without the prior written consent
of the Company or the Stockholders. Subject to the preceding sentence, this
Agreement shall be binding upon, inure to the benefit of and be enforceable by
the parties and their respective successors and assigns.
SECTION 12.8. THIRD PARTY BENEFICIARIES.
This Agreement shall be binding upon and inure solely to the
benefit of each party hereto, and nothing in this Agreement, express or implied,
is intended to or shall confer upon any other person any right, benefit or
remedy of any nature whatsoever under or by reason of this Agreement, except for
the Acquiror Indemnified Persons under Article XI hereof.
SECTION 12.9. GOVERNING LAW.
This Agreement shall be governed by, and construed in
accordance with, the laws of the State of Delaware, regardless of the laws that
might otherwise govern under applicable principles of conflicts of law.
SECTION 12.10. COUNTERPARTS.
This Agreement may be executed and delivered in one or more
counterparts, and by the different parties hereto in separate counterparts, each
of which when executed and delivered shall be deemed to be an original but all
of which taken together shall constitute one and the same agreement.
SECTION 12.11. FEES AND EXPENSES.
Except as otherwise provided for in this Agreement, each party
hereto shall pay its own fees, costs and expenses incurred in connection with
this Agreement and in the preparation for and consummation of the transactions
provided for herein. The expenses incurred in connection with the audit of the
Company's financial statements as of December 31, 1997, which are estimated at
$50,000, shall be borne as follows: the lesser of $20,000 or 40% of the amount
shall be borne by Acquiror and the remainder shall be paid by the Company, in
each case without any deduction from the cash portion of the Purchase Price. The
expenses incurred in connection with the Resale Registration Statement referred
to in
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Section 8.10(a), which are estimated at $30,000, shall be paid by Acquiror, but
$15,000 shall be deducted from the cash portion of the Purchase Price as the
Stockholders' share of such cost. The expenses incurred in connection with the
Resale Registration Statement referred to in Section 8.10(b) shall be paid by
Acquiror without any deduction from the cash portion of the Purchase Price.
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IN WITNESS WHEREOF, the parties hereto have caused this
AGREEMENT AND PLAN OF MERGER to be executed and delivered as of the date first
written above.
EXECUTIVE TELECARD, LTD.
By:_____________________________
Name:___________________________
Title:__________________________
EXTEL MERGER SUB NO. 1, INC.
By:_____________________________
Name:___________________________
Title:__________________________
IDX INTERNATIONAL, INC.
By:_____________________________
Name:___________________________
Title:__________________________
STOCKHOLDERS
________________________________
▇▇▇▇ International, Inc.
________________________________
Chatwick Investments, Ltd.
________________________________
▇▇▇▇▇▇ ▇. ▇▇▇
________________________________
Yi-▇▇▇▇▇ ▇▇▇▇
________________________________
▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇
________________________________
Trylon Partners, Inc.
_______________________________
▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
________________________________
Teknos Communications, S.A.
________________________________
Tenrich Holdings, Ltd.
________________________________
Telecommunications Development
Corporation.
________________________________
▇▇▇▇▇ ▇▇-▇▇▇ ▇▇▇▇▇
________________________________
Silicon Applications Corporation
________________________________
▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇
________________________________
▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇
________________________________
Kou ▇▇▇▇ ▇▇▇▇
________________________________
▇▇▇ ▇▇ ▇▇▇
________________________________
▇▇▇▇ ▇▇ ▇▇▇▇
________________________________
Chuang ▇▇ ▇▇▇▇
________________________________
Flextech Holdings Ltd.
EXHIBIT A
CERTIFICATE OF DESIGNATIONS,
RIGHTS AND PREFERENCES
OF
SERIES B CONVERTIBLE PREFERRED STOCK
OF
EXECUTIVE TELECARD, LTD.
_________________________________________
Pursuant to Section 151
of the General Corporation Law
of the State of Delaware
__________________________________________
The undersigned DOES HEREBY CERTIFY that, pursuant to the
authority contained in Article IV of the Restated Certificate of Incorporation
of Executive TeleCard, Ltd., a Delaware corporation (the "Corporation"), and in
accordance with Section 151 of the General Corporation Law of the State of
Delaware, the Board of Directors of the Corporation has authorized the creation
of Series B Convertible Preferred Stock having the designations, rights and
preferences as are set forth in Exhibit A hereto and made a part hereof and that
the following resolution was duly adopted by the Board of Directors of the
Corporation:
RESOLVED, that a series of authorized Preferred Stock, par value $.001
per share, of the Corporation be, and it hereby is, created; that the shares of
such series shall be, and they hereby are, designated as "Series B Convertible
Preferred Stock;" that the number of shares constituting such series shall be,
and it hereby is, 500,000; and that the designations, rights and preferences of
the shares of such series are as set forth in Exhibit A attached hereto and made
a part hereof.
IN WITNESS WHEREOF, the Corporation has caused its corporate seal to
be hereunto affixed and this Certificate to be signed by its President and
attested to by its Secretary this ____ day of __________, 1998.
[SEAL] EXECUTIVE TELECARD, LTD.
ATTEST:
___________________________________ By______________________
Its_____________________
EXHIBIT A
SERIES B CONVERTIBLE PREFERRED STOCK
The following sections set forth the powers, rights and
preferences, and the qualifications, limitations and restrictions thereof, of
the Corporation's Series B Convertible Preferred Stock, par value $.001 per
share ("Series B Preferred"). Capitalized terms used herein are defined in
Section 6 below.
Section 1. Voting Rights.
Except as otherwise provided herein or as required by law, the
Series B Preferred shall vote with the shares of the Common Stock of the
Corporation (and each other class of stock so voting), and not as a separate
class, at any annual or special meeting of stockholders of the Corporation, and
may act by written consent in the same manner as the Common Stock, in either
case upon the following basis: each holder of shares of Series B Preferred shall
be entitled to such number of votes as shall be equal to 25% of the number of
shares of Common Stock into which such holder's aggregate number of shares of
Series B Preferred are convertible pursuant to Section 5 below immediately after
the close of business on the record date fixed for such meeting or the effective
date of such written consent, rounded up to the nearest whole number; provided,
however, that the Series B Preferred shall not have any voting rights in
connection with a Shareholder Approval (as defined below).
Section 2. No Redemption.
Series B Preferred shall not be redeemable.
Section 3. Dividend Rights.
Except as otherwise provided herein or as required by law,
holders of Series B Preferred shall be entitled to receive dividends only when
and as declared by the Corporation's Board of Directors with respect to Series B
Preferred, only out of funds that are legally available therefor and only in the
event that the Corporation at the same time declares or pays any dividends upon
the Common Stock (whether payable in cash, securities or other property). In the
event that the Corporation declares or pays any dividends upon the Common Stock
(whether payable in cash, securities or other property) on or prior to the
Adjustment Date, other than dividends payable solely in shares of Common Stock,
the Corporation shall also declare and pay to the holders of the Series B
Preferred, at the same time that it declares and pays such dividends to the
holders of the Common Stock, the
dividends which would have been declared and paid with respect to the Common
Stock issuable upon conversion of the Series B Preferred had all of the
outstanding Series B Preferred been converted immediately prior to the record
date for such dividend, or if no record date is fixed, the date as of which the
record holders of Common Stock entitled to such dividends are to be determined.
Section 4. Liquidation Rights.
Upon any Liquidation, after the payment of the full
liquidation preference of any series of preferred stock senior to the Series B
Preferred, the holders of Series B Preferred shall be entitled to participate in
distributions to holders of the Common Stock (along with each other class of
stock with similar rights) such that the holders of Series B Preferred receive
aggregate distributions equal to the amounts that such holders would have
received if the Series B Preferred Stock had been converted into Common Stock
immediately prior to such Liquidation.
Section 5. Conversion.
The holders of the Series B Preferred shall have the following
rights with respect to the conversion of the Series B Preferred into shares of
Common Stock:
5A. Optional Conversion. At any time and from time to time
after the issuance thereof, subject to and in compliance with the provisions of
this Section 5, any shares of Series B Preferred may, at the option of the
holder, be converted at any time into fully-paid and nonassessable shares of
Common Stock (provided, that if the Adjustment Date has occurred but the
Determination Date has not occurred, the Corporation may postpone any conversion
of Series B Preferred until the Determination Date, but then shall take
appropriate steps to put each holder of Series B Preferred who exercised such
holder's right to convert Series B Preferred shares prior to the Determination
Date in the same economic position as if such conversion had occurred on the
date of exercise and the Common Stock received upon such conversion held until
the Determination Date). The number of shares of Common Stock to which a holder
of Series B Preferred shall be entitled upon conversion shall be the product
obtained by multiplying the "Series B Conversion Rate" then in effect
(determined as provided in Section 5B) by the number of shares of Series B
Preferred being converted.
5B. Series B Conversion Rate.
(i) Conversion Rate Formula. The conversion rate in effect at
any time for conversion of the Series B Preferred (the "Series B Conversion
Rate") shall be the product of (i) five (5), multiplied by (ii) the quotient
obtained by dividing $8.00 by the applicable "Series B Market Factor"
(determined as provided in Section 5B(ii)); provided, however, that the
Conversion Rate shall not exceed
______ unless and until the Shareholder Approval (as defined below) has been
obtained.
(ii) Series B Market Factor. The Series B Market Factor shall
mean the following: (A) if the Market Price is less than or equal to $3.33-1/3
as of the Adjustment Date, the Series B Market Factor shall equal $3.33-1/3; (B)
if the Market Price is greater than $3.33-1/3 but less than $8.00 as of the
Adjustment Date, the Series B Market Factor shall equal the Market Price; and
(C) if the Market Price is greater than or equal to $8.00 as of the Adjustment
Date, the Series B Market Factor shall equal $8.00; provided, however, that
notwithstanding clauses (A), (B) and (C) of this Section 5B(ii), if Series B
Preferred is converted prior to the Adjustment Date (whether by the holder or
automatically pursuant to Section 5F(i)), or if the Target Achievement
Percentage (as defined in the Side Letter) equals zero (0), the Series B Market
Factor shall equal $8.00.
(iii) Adjustment. The Series B Conversion Rate shall be
subject to adjustment pursuant to Section 5C.
5C. Adjustment for Stock Splits and Combinations, Common Stock
Dividends and Distributions. If the Corporation shall at any time or from time
to time after the date of the initial issuance of Series B Preferred (the
"Original Series B Issue Date") effect a subdivision of the outstanding Common
Stock, the Series B Conversion Rate in effect immediately before that
subdivision shall be proportionately increased. Conversely, if the Corporation
shall at any time or from time to time after the Original Series B Issue Date
combine the outstanding shares of Common Stock into a smaller number of shares,
the Series B Conversion Rate in effect immediately before the combination shall
be proportionately decreased. Any adjustment under this Section 5(d) shall
become effective at the close of business on the date the subdivision or
combination becomes effective.
If the Corporation at any time or from time to time after the
Original Series B Issue Date makes, or fixes a record date for the determination
of holders of Common Stock entitled to receive, a divided or other distribution
payable in additional shares of Common Stock, in each such event the Series B
Conversion Rate that is then in effect shall be increased as of the time of such
issuance or, in the event such record date is fixed, as of the close of business
on such record date, by multiplying the Series B Conversion Rate then in effect
by a fraction (1) the numerator of which is the total number of shares of Common
Stock issued and outstanding immediately prior to the time of such issuance or
the close of business on such record date plus the number of shares of Common
Stock issuable in payment of such dividend or distribution, and (2) the
denominator of which is the total number of shares of Common Stock issued and
outstanding immediately prior to the time of such issuance or the close of
business on such record date; provided, however, that if such record date is
fixed and such dividend is not fully paid or if such distribution is not fully
made on the date fixed therefor, the Series B Conversion Rate shall be
recomputed accordingly as of the close of business on such record date and
thereafter the Series B
Conversion Rate shall be adjusted pursuant to this Section 5C to reflect the
actual payment of such dividend or distribution.
5D. Reorganizations, Mergers or Consolidations. If at any time
or from time to time after the Original Series B Issue Date, the Common Stock is
converted into other securities or property, whether pursuant to a
reorganization, merger, consolidation or otherwise (other than a
recapitalization, subdivision, combination, reclassification, exchange or
substitution of shares provided for elsewhere in this Section 5), as a part of
such transaction, provision shall be made so that the holders of the Series B
Preferred shall thereafter be entitled to receive upon conversion of the Series
B Preferred the number of shares of stock or other securities or property of the
Corporation to which a holder of the number of shares of Common Stock
deliverable upon conversion would have been entitled in connection with such
transaction, subject to adjustment in respect of such stock or securities by the
terms thereof. In any such case, appropriate adjustment shall be made in the
application of the provisions of this Section 5 with respect to the rights of
the holders of Series B Preferred after such transaction to the end that the
provisions of this Section 5 (including adjustment of the Series B Conversion
Rate then in effect and the number of shares issuable upon conversion of the
Series B Preferred) shall be applicable after that event and be as nearly
equivalent as practicable. In the case of any reorganization, merger or
consolidation in which the Corporation is not the surviving entity, the
Corporation shall not consummate the transaction unless the entity surviving
such transaction assumes all of the Corporation's obligations hereunder.
If at any time or from time to time after the Original Series
B Issue Date, the Common Stock issuable upon the conversion of the Series B
Preferred is changed into the same or a different number of shares of any class
or classes of stock, whether by recapitalization, reclassification or otherwise
(other than a subdivision or combination of shares or stock dividend or a
reorganization, merger or consolidation provided for elsewhere in this Section
5), in any such event each holder of Series B Preferred shall have the right
thereafter to convert such stock into the kind and amount of stock and other
securities and property receivable in connection with such recapitalization,
reclassification or other change with respect to the maximum number of shares of
Common Stock into which such shares of Series B Preferred could have been
converted immediately prior to such recapitalization, reclassification or
change, all subject to further adjustments as provided herein or with respect to
such other securities or property by the terms thereof.
5E. Notices.
(i) Immediately upon any adjustment of the Series B Conversion
Rate other than as contemplated in Section 5B, the Corporation shall
give written notice thereof to all holders of Series B Preferred, setting forth
in reasonable detail and certifying the calculation of such adjustment.
(ii) Upon (A) any taking by the Corporation of a record of
the holders of any class of securities for the purpose of determining the
holders thereof who are entitled to receive any dividend or other distribution,
or (B) any reorganization, any reclassification or recapitalization of the
capital stock of the Corporation, any merger or consolidation of the Corporation
with or into any other corporation, or any Liquidation, the Corporation shall
mail to each holder of Series B Preferred at least twenty (20) days prior to the
record date specified therein a notice specifying (1) the date on which any such
record is to be taken for the purpose of such dividend or distribution and a
description of such dividend or distribution, (2) the date on which any such
reorganization, reclassification, transfer, consolidation, merger or Liquidation
is expected to become effective, and (3) the date, if any, that is to be fixed
for determining the holders of record of Common Stock (or other securities) that
shall be entitled to exchange their shares of Common Stock (or other securities)
for securities or other property deliverable upon such reorganization,
reclassification, transfer, consolidation, merger or Liquidation.
5F. Automatic Conversion. Each share of Series B Preferred
shall automatically be converted into shares of Common Stock, based on the
then-effective Series B Conversion Rate, on the earliest to occur of (i) the
first date as of which the Market Price is $8.00 or more for any 15 consecutive
trading days during any period in which Series B Preferred is outstanding and
(ii) the date that is 30 days after the later of the Determination Date and the
date any required Shareholder Approval is received.
5G. Mechanics of Conversion.
(i) Optional Conversion. Each holder of Series B Preferred who
desires to convert the same into shares of Common Stock pursuant to this Section
5 shall surrender the certificate or certificates therefor, duly endorsed, at
the office of the Corporation or any transfer agent for the Series B Preferred,
and shall give written notice to the Corporation at such office that such holder
elects to convert the same. Such notice shall state the number of shares of
Series B Preferred being converted. Thereupon, the Corporation shall promptly
issue and deliver at such office to such holder a certificate or certificates
for the number of shares of Common Stock to which such holder is entitled and a
certificate representing any Series B Preferred shares which were represented by
the certificate or certificates delivered to the Corporation in connection with
such conversion but which were not converted. Such conversion shall be deemed to
have been made at the close of business on the date of such surrender of the
certificate representing the shares of Series B Preferred to be converted, and
the person entitled to receive the shares of Common Stock issuable upon such
conversion shall
be treated for all purposes as the record holder of such shares of Common Stock
on such date.
(ii) Automatic Conversion. Upon the occurrence of the event
specified in Section 5F, the outstanding shares of Series B Preferred shall be
converted into Common Stock automatically without any further action by the
holders of such shares and whether or not the certificates representing such
shares are surrendered to the Corporation or its transfer agent; provided,
however, that the Corporation shall not be obligated to issue certificates
evidencing the shares of Common Stock issuable upon such conversion unless the
certificates evidencing such shares of Series B Preferred are either delivered
to the Corporation or its transfer agent as provided below, or the holder
notifies the Corporation or its transfer agent that such certificates have been
lost, stolen or destroyed and executes an agreement satisfactory to the
Corporation to indemnify the Corporation from any loss incurred by it in
connection with such certificates. Upon surrender by any holder of the
certificates formerly representing shares of Series B Preferred at the office of
the Corporation or any transfer agent for the Series B Preferred, there shall be
issued and delivered to such holder promptly at such office and in its name as
shown on such surrendered certificate or certificates, a certificate or
certificates for the number of shares of Common Stock into which the shares of
Series B Preferred surrendered were convertible on the date on which such
automatic conversion occurred. Until surrendered as provided above, each
certificate formerly representing shares of Series B Preferred shall be deemed
for all corporate purposes to represent the number of shares of Common Stock
resulting from such automatic conversion.
5H. Fractional Shares. No fractional shares of Common Stock
shall be issued upon conversion of Series B Preferred. All shares of Common
Stock (including fractions thereof) issuable upon conversion of more than one
share of Series B Preferred by a holder thereof shall be aggregated for purposes
of determination whether the conversion would result in the issuance of any
fractional share. If, after the aforementioned aggregation, the conversion would
result in the issuance of any fractional share, the Corporation shall, in lieu
of issuing any fractional share, pay cash equal to the product of such fraction
multiplied by the Common Stock's fair market value (as determined by the Board)
on the date of conversion. Notwithstanding the foregoing, in the event that any
holder converts shares of Series B Preferred ten times within any one year
period, the Corporation shall not be obligated to pay any cash amount for
fractional shares upon any subsequent conversion(s) by such holder during such
year, but may withhold the fractional share(s) and aggregate such fractional
share(s) with any additional fractional share(s) issuable to such holder during
such year, and pay the cash (if any) required by this section for any fractional
shares remaining after such aggregation at the end of such year.
5I. Reservation of Shares. The Corporation shall at all times
reserve and keep available out of its authorized but unissued shares of Common
Stock, solely for the purpose of issuance upon the conversion of the shares of
Series B Preferred, such number of shares of Common Stock as shall from time to
time be sufficient to effect the conversion of all outstanding shares of the
Series B Preferred. All shares of Common Stock which are so issuable shall, when
issued, be duly and validly issued, fully paid and nonassessable and free from
all taxes, liens and charges. If at any time the number of authorized but
unissued shares of Common Stock shall not be sufficient to effect the conversion
of all then-outstanding shares of the Series B Preferred, the Corporation will
take such corporate action as may, in the opinion of its counsel, be necessary
to increase its authorized but unissued shares of Common Stock to such number of
shares as shall be sufficient for such purpose.
5J. Payment of Taxes. The issuance of certificates for shares
of Common Stock upon conversion of Series B Preferred shall be made without
charge to the holders of such Series B Preferred for any issuance tax in respect
thereof or other cost incurred by the Corporation in connection with such
conversion and the related issuance of shares of Common Stock, excluding any tax
or other charge imposed in connection with any transfer involved in the issue
and delivery of shares of Common Stock in a name other than that in which the
shares of Series B Preferred so converted were registered.
Section 6. Definitions.
"Adjustment Date" means the date that is 12 months after the
date of the closing of the merger of a wholly-owned subsidiary of the
Corporation into IDX pursuant to the Merger Agreement.
"Closing Price" of each share of Common Stock or other
security means the composite closing price of the sales of the Common Stock or
such other security on all securities exchanges on which such security may at
the time be listed (as reported in The Wall Street Journal), or, if there has
been no sale on any such exchange on any day, the average of the highest bid and
lowest asked prices of the Common Stock or such other security on all such
exchanges at the end of such day, or, if such security is not so listed, the
closing price (or last price, if applicable) of sales of the Common Stock or
such other security in the Nasdaq National Market (as reported in The Wall
Street Journal) on such day, or if such security is not quoted in the Nasdaq
National Market but is traded over-the-counter, the average of the highest bid
and lowest asked prices on such day in the over-the-counter market as reported
by the National Quotation Bureau Incorporated, or any similar successor
organization.
"Common Stock" means, collectively, the Corporation's common
stock, par value $.001 per share; and if there is a change such that the
securities issuable
upon conversion of Series B Preferred are issued by an entity other than the
Corporation or there is a change in the class of securities so issuable, then
the term "Common Stock" shall mean the shares of the security issuable upon
conversion of Series B Preferred if such security is issuable in shares, or
shall mean the smallest unit in which such security is issuable if such security
is not issuable in shares.
"Corporation" means Executive TeleCard, Ltd. a Delaware
corporation.
"Determination Date" means the date (following the Adjustment
Date) on which the Corporation has determined the Series B Conversion Rate as of
the Adjustment Date and mailed written notice thereof to each holder of record
of Series B Preferred.
"IDX" means IDX International, Inc., a Virginia corporation.
"Liquidation" means the liquidation, dissolution or winding up
of the Corporation, whether voluntary or involuntary; provided, however, that
neither the consolidation or merger of the Corporation into or with any other
entity or entities, nor the sale or transfer by the Corporation of all or any
part of its assets, nor the reduction of the capital stock of the Corporation,
shall be deemed to be a Liquidation.
"Market Price" means (i) if the Common Stock is listed on any
securities exchange, quoted in the Nasdaq National Market, or quoted in the
over-the-counter market throughout the period of 15 consecutive trading days
consisting of the day as of which the Market Price is being determined and the
14 consecutive trading days prior to such day (the "Pricing Period"), the
Closing Price of the Common Stock averaged over the 15 consecutive trading
constituting the Pricing Period, or (ii) if the Common Stock is not listed on
any securities exchange, quoted in the Nasdaq National Market, or quoted in the
over-the-counter market throughout the Pricing Period, the fair value of the
Common Stock determined by agreement between the Corporation and the holders of
a majority of the outstanding Series B Preferred or, if they are unable to reach
agreement within a reasonable period of time, the fair value of the Common Stock
as determined by an independent appraiser selected by the Corporation (which
appraiser may be the Corporation's investment banker, and the fees and expenses
of such appraiser shall be borne by the Corporation), which determination shall
be final and binding upon the Corporation and the holders of the outstanding
Series B Preferred.
"Merger Agreement" means the Agreement and Plan of Merger
dated as of ___________, 1998 by and among the Corporation, IDX and the
stockholders of IDX.
"Series B Preferred" means the Corporation's Series B
Convertible Preferred Stock, par value $.001 per share.
"Shareholder Approval" means any approval of stockholders of
the Corporation which may be required, in the reasonable determination of the
Corporation upon advice of its counsel, under the rules or regulations of the
Nasdaq Stock Market, as in effect at the applicable time, with respect to the
issuance of 20% or more of the Common Stock in connection with the acquisition
of IDX.
"Side Letter" means the side letter, dated as of ___________,
1998 by and among the Corporation, IDX and stockholders of IDX, which sets forth
the procedure for calculating the Target Achievement Percentage.
Section 7. Amendment and Waiver.
No amendment, modification or waiver of any of the terms or
provisions of the Series B Preferred shall be binding or effective without the
prior approval (by vote or written consent) of the holders of a majority of the
Series B Preferred then outstanding. Any amendment, modification or waiver of
any of the terms or provisions of the Series B Preferred with such approval,
whether prospective or retroactively effective, shall be binding upon all
holders of Series B Preferred.
Section 8. Registration of Transfer.
The Corporation shall keep at its principal office a register
for the registration of Series B Preferred. Upon the surrender of any
certificate representing Series B Preferred at such place, the Corporation
shall, at the request of the record holder of such certificate, execute and
deliver (at the Corporation's expense) a new certificate or certificates in
exchange therefor representing in the aggregate the number of Series B Preferred
shares represented by the surrendered certificate. Each such new certificate
shall be registered in such name and shall represent such number of Series B
Preferred shares as is requested by the holder of the surrendered certificate
and shall be substantially identical in form to the surrendered certificate.
Section 9. Replacement.
Upon receipt of evidence reasonably satisfactory to the
Corporation (an affidavit of the registered holder shall be satisfactory) of the
ownership and the loss, theft, destruction or mutilation of any certificate
evidencing shares of Series B Preferred, and in the case of any such loss, theft
or destruction, upon receipt of indemnity reasonably satisfactory to the
Corporation (provided that if the holder is a financial institution or other
institutional investor, its own agreement shall be satisfactory), or, in the
case of any such mutilation upon surrender of such certificate, the Corporation
shall (at its expense) execute and deliver in lieu of such certificate a new
certificate of like kind representing the number of Series B Preferred shares
represented by such lost, stolen, destroyed or mutilated certificate and dated
the date of such lost, stolen, destroyed or mutilated certificate.
Section 10. Notices.
Except as otherwise expressly provided hereunder, all notices
referred to herein shall be in writing and shall be deemed effectively given:
(i) upon personal delivery to the party to be notified, (ii) when sent by
confirmed telex or facsimile if sent during normal business hours of the
recipient; if not, then on the next business day, (iii) five (5) days after
having been sent by registered or certified mail, return receipt requested,
postage prepaid, or (iv) one (1) day after deposit with a nationally recognized
overnight courier, specifying next day delivery, with written verification of
receipt. All notices shall be addressed (i) if to the Corporation, to its
principal executive offices, and (ii) if to stockholders, to each holder of
record at the address of such holder appearing on the books of the Corporation.
EXHIBIT B
RESTRICTION ON TRANSFER
THE SECURITIES REPRESENTED BY THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 (THE "ACT") OR APPLICABLE STATE SECURITIES LAWS, AND
CANNOT BE RESOLD UNLESS SUBSEQUENTLY REGISTERED UNDER THE ACT AND SUCH LAWS OR
UNLESS AN EXEMPTION FROM SUCH REGISTRATION IS AVAILABLE.
WARRANT
To purchase shares of Common Stock of
Executive TeleCard, Ltd.
1. Grant of Warrant. This is to certify that, for value
received, ____________________________ (the "Holder") is entitled to purchase,
subject to and in compliance with the provisions of this Warrant, from Executive
TeleCard, Ltd., a Delaware corporation ("EXTEL"), an aggregate of ___________
shares (the "Initial Number") [THE INITIAL NUMBERS WILL ADD UP TO 2,500,000
SHARES] of Common Stock (as defined below) of EXTEL, as the Initial Number will
be adjusted following the Adjustment Date (as defined below), at a purchase
price per share equal to $.001 (the "Exercise Price"). The Initial Number, as
adjusted, and the Exercise Price are subject to further adjustment as provided
below.
2. Term. This Warrant may be exercised, subject to and in
compliance with the provisions of this Warrant, in whole or in part at any time
or from time to time during the period commencing on the later of the Adjustment
Date (provided, that if the Determination Date (as defined below) has not
occurred by the time the Holder seeks to exercise this Warrant, EXTEL may
postpone any exercise until the Determination Date, but then shall take
appropriate steps to put the Holder in the same economic position as if the
Common Stock issuable upon exercise of this Warrant had been issued on the date
of attempted exercise and such Common Stock held until the Determination Date)
and the date Shareholder Approval is received, and ending on the date that is 30
days after the later of the Determination Date and the date Shareholder Approval
is received.
3. Adjustments.
(i) Determination Date Adjustment Formula. On the
Determination Date, the Initial Number shall be multiplied by (i) the quotient
obtained by dividing $8.00 by the applicable "Market Factor" (determined as
provided below), multiplied by (ii) the applicable "Target Achievement
Percentage"
(as defined in the Side Letter). The Initial Number, as so adjusted, is referred
to herein as the "Adjusted Number."
(ii) Market Factor. The Market Factor shall mean the
following: (A) if the Market Price is less than or equal to $3.33-1/3 as of the
Adjustment Date, the Market Factor shall equal $3.33-1/3; (B) if the Market
Price is greater than $3.33-1/3 but less than $8.00 as of the Adjustment Date,
the Market Factor shall equal the Market Price; and (C) if the Market Price is
greater than or equal to $8.00 as of the Adjustment Date, the Market Factor
shall equal $8.00; provided, however, that notwithstanding clauses (A), (B) and
(C) of this Section 3(ii), if the Market Price (which, as defined below, is an
average of the Closing Prices over a period of 15 consecutive trading days)
equals $8.00 or more at any time prior to the Adjustment Date, the Market Factor
shall equal $8.00.
(iii) Adjustment for Stock Splits and Combinations, Common
Stock Dividends and Distributions. If EXTEL shall at any time or from time to
time after the date of the initial issuance of this Warrant (the "Original Issue
Date") effect a subdivision of the outstanding Common Stock, the Adjusted Number
in effect immediately before that subdivision shall be proportionately increased
and the Exercise Price shall be proportionately decreased. Conversely, if EXTEL
shall at any time or from time to time after the Original Issue Date combine the
outstanding shares of Common Stock into a smaller number of shares, the Adjusted
Number in effect immediately before the combination shall be proportionately
decreased and the Exercise Price shall be proportionately increased. Any
adjustment under this Section 3(iii) shall become effective at the close of
business on the date the subdivision or combination becomes effective.
If EXTEL at any time or from time to time after the Original
Issue Date makes, or fixes a record date for the determination of holders of
Common Stock entitled to receive, a divided or other distribution payable in
additional shares of Common Stock, in each such event the Adjusted Number in
effect immediately before that issuance shall be proportionately increased and
the Exercise Price shall be proportionately decreased as of the time of such
issuance or, in the event such record date is fixed, as of the close of business
on such record date, by multiplying the Adjusted Number then in effect by a
fraction (1) the numerator of which is the total number of shares of Common
Stock issued and outstanding immediately prior to the time of such issuance or
the close of business on such record date plus the number of shares of Common
Stock issuable in payment of such dividend or distribution, and (2) the
denominator of which is the total number of shares of Common Stock issued and
outstanding immediately prior to the time of such issuance or the close of
business on such record date, and by multiplying the Exercise Price then in
effect by the inverse of such fraction; provided, however, that if such record
date is fixed and such dividend is not fully paid or if such distribution is not
fully made on the date fixed therefor, the Adjusted Number and the Exercise
Price shall be recomputed accordingly as of the close of business on such record
date
and thereafter the Adjusted Number and the Exercise Price shall be adjusted
pursuant to this Section 3(iii) to reflect the actual payment of such dividend
or distribution.
(iv) Reorganizations, Mergers or Consolidations. If at any
time or from time to time after the Original Issue Date, the Common Stock is
converted into other securities or property, whether pursuant to a
reorganization, merger, consolidation or otherwise (other than a
recapitalization, subdivision, combination, reclassification, exchange or
substitution of shares provided for elsewhere in this Section 3), as a part of
such transaction, provision shall be made so that the Holder shall thereafter be
entitled to receive upon exercise of this Warrant the number of shares of stock
or other securities or property of EXTEL to which a holder of the number of
shares of Common Stock deliverable upon exercise would have been entitled in
connection with such transaction, subject to adjustment in respect of such stock
or securities by the terms thereof. In any such case, appropriate adjustment
shall be made in the application of the provisions of this Section 3 with
respect to the rights of the Holder after such transaction to the end that the
provisions of this Section 3 (including adjustment of the Adjusted Number and
the Exercise Price then in effect) shall be applicable after that event and be
as nearly equivalent as practicable. In the case of any reorganization, merger
or consolidation in which EXTEL is not the surviving entity, EXTEL shall shall
not consummate the transaction unless the entity surviving such transaction
assumes all of EXTEL's obligations hereunder.
If at any time or from time to time after the Original Issue
Date, the Common Stock issuable upon the exercise of this Warrant is changed
into the same or a different number of shares of any class or classes of stock,
whether by recapitalization, reclassification or otherwise (other than a
subdivision or combination of shares or stock dividend or a reorganization,
merger or consolidation provided for elsewhere in this Section 3), in any such
event the Holder shall have the right thereafter to exercise this Warrant for
the kind and amount of stock and other securities and property receivable in
connection with such recapitalization, reclassification or other change with
respect to the maximum number of shares of Common Stock for this Warrant could
have been exercised immediately prior to such recapitalization, reclassification
or change, all subject to further adjustments as provided herein or with respect
to such other securities or property by the terms thereof.
(v) Notices.
(I) Immediately upon determination of the Adjusted
Number, and any further adjustment of the Adjusted Number and the Exercise
Price, EXTEL shall give written notice thereof to the Holder, setting forth in
reasonable detail and certifying the calculation of such adjustment.
(II) Upon (A) any taking by EXTEL of a record of the
holders of any class of securities for the purpose of determining the holders
thereof who are entitled to receive any dividend or other distribution, or (B)
any reorganization, any reclassification or recapitalization of the capital
stock of EXTEL, any merger or consolidation of EXTEL with or into any other
corporation, or any Liquidation, EXTEL shall mail to the Holder at least twenty
(20) days prior to the record date specified therein a notice specifying (1) the
date on which any such record is to be taken for the purpose of such dividend or
distribution and a description of such dividend or distribution, (2) the date on
which any such reorganization, reclassification, transfer, consolidation, merger
or Liquidation is expected to become effective, and (3) the date, if any, that
is to be fixed for determining the holders of record of Common Stock (or other
securities) that shall be entitled to exchange their shares of Common Stock (or
other securities) for securities or other property deliverable upon such
reorganization, reclassification, transfer, consolidation, merger or
Liquidation.
4. Definitions.
"Adjustment Date" means the date that is 12 months after the
date of the closing of the merger of a wholly-owned subsidiary of EXTEL into IDX
pursuant to the Merger Agreement.
"Closing Price" of each share of Common Stock or other
security means the composite closing price of the sales of the Common Stock or
such other security on all securities exchanges on which such security may at
the time be listed (as reported in The Wall Street Journal), or, if there has
been no sale on any such exchange on any day, the average of the highest bid and
lowest asked prices of the Common Stock or such other security on all such
exchanges at the end of such day, or, if such security is not so listed, the
closing price (or last price, if applicable) of sales of the Common Stock or
such other security in the Nasdaq National Market (as reported in The Wall
Street Journal) on such day, or if such security is not quoted in the Nasdaq
National Market but is traded over-the-counter, the average of the highest bid
and lowest asked prices on such day in the over-the-counter market as reported
by the National Quotation Bureau Incorporated, or any similar successor
organization.
"Common Stock" means, collectively, EXTEL's common stock, par
value $.001 per share; and if there is a change such that the securities
issuable upon exercise of this Warrant are issued by an entity other than EXTEL
or there is a change in the class of securities so issuable, then the term
"Common Stock" shall mean the shares of the security issuable upon exercise of
this Warrant if such security is issuable in shares, or shall mean the smallest
unit in which such security is issuable if such security is not issuable in
shares.
"Determination Date" means the date (following the Adjustment
Date) on which EXTEL has determined the Adjusted Number as of the Adjustment
Date and mailed written notice thereof to the Holder.
"IDX" means IDX International, Inc., a Virginia corporation.
"Liquidation" means the liquidation, dissolution or winding up
of EXTEL, whether voluntary or involuntary; provided, however, that neither the
consolidation or merger of EXTEL into or with any other entity or entities, nor
the sale or transfer by EXTEL of all or any part of its assets, nor the
reduction of the capital stock of EXTEL, shall be deemed to be a Liquidation.
"Market Price" means (i) if the Common Stock is listed on any
securities exchange, quoted in the Nasdaq National Market, or quoted in the
over-the-counter market throughout the period of 15 consecutive trading days
consisting of the day as of which the Market Price is being determined and the
14 consecutive trading days prior to such day (the "Pricing Period"), the
Closing Price of the Common Stock averaged over the 15 consecutive trading
constituting the Pricing Period, or (ii) if the Common Stock is not listed on
any securities exchange, quoted in the Nasdaq National Market, or quoted in the
over-the-counter market throughout the Pricing Period, the fair value of the
Common Stock determined by agreement between EXTEL and the Holder or, if they
are unable to reach agreement within a reasonable period of time, the fair value
of the Common Stock as determined by an independent appraiser selected by EXTEL
(which appraiser may be EXTEL's investment banker, and the fees and expenses of
such appraiser shall be borne by EXTEL), which determination shall be final and
binding upon EXTEL and the Holder.
"Merger Agreement" means the Agreement and Plan of Merger
dated as of ___________, 1998 by and among EXTEL, IDX and the stockholders of
IDX.
"Shareholder Approval" means each approval of stockholders of
EXTEL which may be required, in the reasonable determination of EXTEL upon
advice of its counsel, under the rules or regulations of the Nasdaq Stock
Market, as in effect at the applicable time, with respect to the issuance of 20%
or more of the Common Stock in connection with the acquisition of IDX.
"Side Letter" means the side letter, dated as of ___________,
1998 by and among EXTEL, IDX and stockholders of IDX, which sets forth the
Target Achievement Percentage.
5. Exercise Procedures. In order to exercise this Warrant, the
Holder shall send a written notice of exercise to EXTEL on any business day at
EXTEL's principal office, addressed to the attention of the Secretary of EXTEL,
which notice shall specify the number of shares for which this Warrant is being
exercised, and shall be accompanied by payment in full of the Exercise Price of
the
shares for which this Warrant is being exercised. Payment of the Exercise Price
for the shares of EXTEL Common Stock purchased pursuant to the exercise of this
Warrant shall be made either in cash, by certified check or by wire transfer. If
the person or entity exercising this Warrant is not the Holder, such person or
entity shall also deliver, with the notice of exercise, appropriate proof of the
right of such person or entity to exercise this Warrant. An attempt to exercise
this Warrant granted hereunder other than as set forth above shall be invalid
and of no force and effect. Promptly after exercise of this Warrant as provided
for above, EXTEL shall deliver to the person exercising this Warrant a
certificate or certificates for the shares of EXTEL Common Stock being
purchased. In the event this Warrant is exercised in part only, EXTEL shall,
upon surrender of this Warrant for cancellation, execute and deliver to the
Holder a new Warrant of like tenor evidencing the right of the Holder to
purchase the balance of the shares of EXTEL Common Stock subject to purchase
hereunder. Such stock certificate or certificates shall be appropriately
legended to the extent required by federal or state securities laws. All shares
of EXTEL Common Stock issued upon exercise of this Warrant shall be duly
authorized and validly issued, fully paid and nonassessable.
6. Transferability. This Warrant may not be transferred by the
Holder in whole or in part without the prior written consent of EXTEL.
7. Reservation of Shares. EXTEL shall at all times reserve and
keep available out of its authorized but unissued shares of Common Stock, solely
for the purpose of issuance upon the exercise of this Warrant, such number of
shares of Common Stock as shall from time to time be sufficient to effect the
full exercise of this Warrant. All shares of Common Stock which are so issuable
shall, when issued, be duly and validly issued, fully paid and nonassessable and
free from all taxes, liens and charges. If at any time the number of authorized
but unissued shares of Common Stock shall not be sufficient to effect the
exercise of all then-outstanding shares of this Warrant, EXTEL will take such
corporate action as may, in the opinion of its counsel, be necessary to increase
its authorized but unissued shares of Common Stock to such number of shares as
shall be sufficient for such purpose.
8. Fractional Shares. No fractional shares of Common Stock
shall be issued upon exercise of this Warrant. All shares of Common Stock
(including fractions thereof) issuable upon more than one exercise of this
Warrant by the Holder thereof shall be aggregated for purposes of determination
whether the exercise would result in the issuance of any fractional share. If,
after the aforementioned aggregation, the exercise would result in the issuance
of any fractional share, EXTEL shall, in lieu of issuing any fractional share,
pay cash equal to the product of such fraction multiplied by the Common Stock's
fair market value (as determined by the Board) on the date of exercise.
Notwithstanding the foregoing, in the event that the Holder seeks to make ten
separate exercises of this Warrant ten times within any one year period, EXTEL
shall not be obligated to pay
any cash amount for fractional shares upon any subsequent exercise(s) by such
holder during such year, but may withhold the fractional share(s) and aggregate
such fractional share(s) with any additional fractional share(s) issuable to
such holder during such year, and pay the cash (if any) required by this section
for any fractional shares remaining after such aggregation at the end of such
year.
9. General Restrictions. EXTEL shall not be required to issue
any shares of EXTEL Common Stock under this Warrant prior to the obtaining of
the Shareholder Approval or if the issuance of such shares would constitute a
violation by EXTEL of any provision of any law or regulation of any governmental
authority, including without limitation, compliance with the registration or
qualification requirement of applicable federal and state securities laws or
regulations. If at any time EXTEL shall determine, based upon a written opinion
of securities counsel, that the registration or qualification of any shares
subject to this Warrant under any applicable state or federal law is necessary
as a condition of, or in connection with, the issuance of shares, this Warrant
may not be exercised in whole or in part unless such registration or
qualification shall have been effected or obtained free of any conditions not
reasonably acceptable to EXTEL, and any delay caused thereby shall in no way
affect the date of termination of this Warrant. Specifically in connection with
the Securities Act of 1933 (as now in effect or as hereafter amended) (the
"Securities Act"), unless a registration statement under the Securities Act is
in effect with respect to the shares of EXTEL Common Stock covered by this
Warrant, EXTEL shall not be required to issue such shares unless the Board of
Directors of EXTEL has received evidence reasonably satisfactory to it that the
holder of this Warrant may acquire such shares pursuant to an exemption from
registration under the Securities Act. EXTEL's only obligation to register any
securities covered hereby pursuant to the Securities Act is set forth in the
Merger Agreement. As to any jurisdiction that expressly imposes the requirement
that this Warrant shall not be exercisable unless and until the shares of EXTEL
Common Stock covered by this Warrant are registered or are subject to an
available exemption from registration, the exercise of this Warrant (under
circumstances in which the laws of such jurisdiction apply) shall be deemed
conditioned upon the effectiveness of such registration or the availability of
such an exemption.
10. Divisibility; Combination. This Warrant may, at the option
of the Holder, without expense, be divided into or combined with other Warrants
for EXTEL Common Stock which carry the same rights. Upon surrender of this
Warrant and any such other Warrant to EXTEL together with a written notice
signed by the Holder and specifying the denominations for not less than 1,000
shares of EXTEL Common Stock in which new Warrants are to be issued, EXTEL shall
execute and deliver new Warrants, as requested entitling the Holder to purchase
in the aggregate the same number of shares of EXTEL Common Stock purchasable
hereunder and under any such other Warrants. The term "Warrant" as used herein
includes any Warrant into which this Warrant may be divided or combined.
11. Applicable Law. This Warrant shall be governed by and
construed in accordance with the laws of the State of Delaware except to the
extent federal law may be applicable.
12. Payment of Taxes. The issuance of certificates for shares
of Common Stock upon exercise of this Warrant shall be made without charge to
the Holder for any issuance tax in respect thereof or other cost incurred by
EXTEL in connection with such exercise and the related issuance of shares of
Common Stock.
IN WITNESS WHEREOF, EXTEL has caused this Warrant to be duly
executed on the day and year set forth below.
DATED: -------------,1998
[SEAL] EXECUTIVE TELECARD, LTD.
ATTEST:
By
-----------------------------
Its
-----------------------------
EXHIBIT C
[OMITTED]
